As filed with the Securities and Exchange Commission on
February 5, 2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
AMERICAN TIRE DISTRIBUTORS
HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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5013
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59-3796143
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(State or other jurisdiction
of incorporation or organization)
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(Primary Standard Industrial
Classification
Code Number)
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(I.R.S. Employer
Identification No.)
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12200 Herbert Wayne
Court
Suite 150
Huntersville, North Carolina
28078
(704) 992-2000
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
J. Michael Gaither
Corporate Secretary
American Tire Distributors
Holdings, Inc.
12200 Herbert Wayne
Court
Suite 150
Huntersville, NC 28078
(704) 632-7110
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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E. Michael Greaney
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Valerie Ford Jacob
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Sean P. Griffiths
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Paul D. Tropp
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Andrew L. Fabens
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Fried, Frank, Harris, Shriver & Jacobson LLP
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Gibson, Dunn & Crutcher LLP
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One New York Plaza
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200 Park Avenue
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New York, NY 10004
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New York, NY 10166
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Tel: (212) 859-8000
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Tel:
(212) 351-4000
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Fax: (212) 859-4000
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Fax:
(212) 351-4035
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)(2)
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Fee
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Common Stock, $0.01 par value per share
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$230,000,000
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$16,399
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(1)
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Includes offering price of
additional shares of common stock as to which the underwriters
have been granted an option to purchase additional shares.
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(2)
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Calculated in accordance with
Rule 457(o).
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said section 8(a), may determine.
The information in
this prospectus is not complete and may be changed. We and the
selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Subject
to Completion
Preliminary Prospectus
dated ,
2010
P R O S P
E C T U S
Shares
Common Stock
This is American Tire Distributors Holdings, Inc.s initial
public offering. We are
selling shares
of our common stock. We expect the public offering price to be
between $ and
$ per share. Currently, no public
market exists for the shares. After the pricing of the offering,
we expect that the shares will trade on the New York Stock
Exchange under the symbol ATD.
Investing in the common stock involves risks that are
described in the Risk Factors section beginning on
page 10 of this prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to us
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$
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$
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The underwriters may also purchase up to an
additional shares
from the selling stockholders, at the public offering price,
less the underwriting discount, within 30 days from the
date of this prospectus to cover overallotments, if any. We will
not receive any proceeds from the sale of shares to be offered
by the selling stockholders.
Neither the Securities and Exchange Commission, or SEC, nor any
state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The shares will be ready for delivery on or
about ,
2010.
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BofA
Merrill Lynch |
Deutsche Bank Securities |
The date of this prospectus
is ,
2010
TABLE OF
CONTENTS
You should rely only on the information contained in this
document and any free writing prospectus prepared by or on
behalf of us that we have referred to you. We have not, the
selling stockholders have not and the underwriters have not
authorized anyone to provide you with additional or different
information from that contained in this prospectus. If anyone
provides you with additional, different or inconsistent
information, you should not rely on it. We and the selling
stockholders are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers
and sales are permitted. The information in this document may
only be accurate on the date of this document, regardless of its
time of delivery or of any sales of shares of our common stock.
Our business, financial condition, results of operations or cash
flows may have changed since such date.
This prospectus contains trademarks and registered marks.
Unless otherwise indicated, American Tire Distributors Holdings,
Inc. or a subsidiary thereof owns such registered marks,
including: AMERICAN TIRE
DISTRIBUTORS®,
ATDONLINE®,
ATDSERVICEBAY®,
AUTOEDGE®,
CRUISER
ALLOY®,
CRUISERWIRE®,
DRIFZ®,
DYNATRAC®,
ENVIZIO®,
FUSION®,
ICW®,
MAGNUM®,
O.E.
PERFORMANCE®,
PACER®,
TIRE
PROS®,
TIREBUYER.COM®,
WHEEL
WIZARD®,
WHEEL WIZARD
ENVIZIO®,
WHEELENVIZIO.COM®
and
XPRESSPERFORMANCE®.
i
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider before deciding to invest
in shares of our common stock. You should read the following
summary together with the more detailed information appearing in
this prospectus, including Selected Consolidated Financial
and Operating Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Risk Factors, Business and our
consolidated financial statements and related notes before
deciding whether to invest in shares of our common stock. Unless
the context otherwise requires, the terms American Tire
Distributors, ATD, the Company,
we, us and our in this
prospectus refer to American Tire Distributors Holdings, Inc.
and its subsidiaries.
Our
Company
We are the leading replacement tire distributor in the United
States, providing a critical range of services to enable tire
retailers to effectively service and grow sales to consumers.
Through our network of 83 distribution centers, we offer
access to industry-leading breadth and depth of inventory,
representing approximately 40,000 stock-keeping units (SKUs), to
approximately 60,000 customers. The critical range of services
we provide includes frequent and timely delivery of inventory,
business support services, such as credit, training and access
to consumer market data, administration of tire manufacturer
affiliate programs, a leading online ordering and reporting
system and a website that enables our tire retailer customers to
participate in Internet marketing of tires to consumers. We
estimate that our share of the replacement passenger and light
truck tire market in the United States has increased from
approximately 1.2% in 1996 to approximately 9.2% in 2008, which
we believe is approximately twice the market share of our
closest competitor.
We serve a highly diversified customer base comprised of local,
regional and national independent tire retailers, automotive
dealerships, tire manufacturer-owned stores, mass merchandisers
and service stations. In fiscal 2008, our largest customer and
our top ten customers accounted for less than 1.7% and 6.7%,
respectively, of our net sales. We are a top supplier to many of
our customers and maintain customer relationships that exceed a
decade on average for our top 20 customers.
We believe we distribute the broadest product offering in our
industry, supplying our customers with nine of the top ten
leading passenger and light truck tire brands. We carry the flag
brands of all four of the largest tire manufacturers
Bridgestone, Continental, Goodyear, and
Michelin as well as Hankook,
Kumho, Nexen, Nitto and Pirelli
brands. In addition to flag brands, we also sell lower price
point associate brands of many of these and other manufacturers,
as well as proprietary brand tires, custom wheels and
accessories and related tire service equipment. Tire sales
accounted for approximately 91.4% of our net sales in fiscal
2008. We believe our large, diverse product offering allows us
to better penetrate the replacement tire market across a broad
range of price points.
For the nine-month period ended October 3, 2009, our net
sales totaled $1,645.0 million, our net income was
$2.3 million and our EBITDA was $69.6 million. From
fiscal 2003 to fiscal 2008, we grew our net sales and EBITDA at
a compound annual rate of 12.0% and 17.0%, respectively,
outperforming the overall U.S. replacement tire market,
which experienced an average annual unit volume decrease of
0.7%. For a reconciliation from net income to EBITDA, see
Summary Consolidated Financial Data.
Our
Industry
The U.S. replacement tire market generated annual retail
sales of approximately $30.2 billion in 2008, according to
Modern Tire Dealer. In 2008, passenger tires, medium
truck tires and light truck tires accounted for 64.1%, 17.8% and
14.2%, respectively, of the U.S. replacement tire market.
Farm, specialty and other types of tires accounted for the
remaining 3.9%. In 2009, according to Tire Review, tire
retailers obtained 69% of their tire volume from wholesale tire
distributors, like us, and 17% of their tire volume from tire
manufacturers.
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In the United States, replacement tires are sold to consumers
through several different channels, including local, regional
and national independent tire retailers, mass merchandisers,
warehouse clubs, tire manufacturer-owned stores, automotive
dealerships, service stations and web-based marketers. Between
1990 and 2008, independent tire retailers and automotive
dealerships have enjoyed the largest increase in market share,
moving from 54.0% to 60.0% and 1.0% to 5.5% of the market,
respectively, according to Modern Tire Dealer.
The U.S. replacement tire market has historically
experienced stable growth and favorable pricing dynamics. From
1955 through 2009, U.S. replacement tire unit shipments
increased by an average of approximately 2.6% per year even
after factoring in the effects of the recent turbulent economic
period. In addition, the industry has seen stronger growth in
the high and ultra-high performance tire segments, which have
experienced a compound annual growth rate of approximately 9%
over the period from 2000 to 2008.
We believe growth in the U.S. replacement tire market will
continue to be driven by favorable underlying dynamics,
including:
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increases in the number and average age of passenger cars and
light trucks;
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increases in the number of miles driven;
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increases in the number of licensed drivers as the
U.S. population continues to grow;
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increases in the number of replacement tire SKUs;
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growth of the high performance tire segment; and
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shortening tire replacement cycles due to changes in product mix
that increasingly favor high performance tires, which have
shorter average lives.
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Our
Competitive Strengths
We believe the following key strengths position us well to
maintain our ability to achieve revenue growth that exceeds that
of the U.S. replacement tire industry:
Leading Position in a Highly-Fragmented
Marketplace. We are the leading replacement tire
distributor in the United States with an estimated market share
of approximately 9.2%. We believe our scale provides us key
competitive advantages relative to our smaller, and generally
regionally-focused, competitors that include the ability to:
efficiently stock and deliver a wide variety of tires, custom
wheels, tire service equipment and accessories; invest in
services, including sales tools and technologies, to support our
customers; and realize operating efficiencies from our scalable
infrastructure. We believe our leading market position, combined
with our commitment to distribution, as opposed to the retail
operations engaged in by our customers, enhances our ability to
expand our sales footprint cost-effectively both in our existing
markets and in new domestic geographic markets.
Extensive and Efficient Distribution
Network. We have the largest independent
replacement tire distribution network in the United States with
83 distribution centers and approximately 800 delivery vehicles
serving 37 states. Our extensive distribution footprint,
combined with our sophisticated inventory management and
logistics technologies, enables us to deliver the vast majority
of orders on a same or next day basis, which is critical for
tire retailers who are typically limited by physical inventory
capacity and working capital constraints. Our delivery
technologies, including dynamic routing and Roadnet 5000, a
routing tool, allow us to more effectively and efficiently
organize and optimize our route systems to provide timely
product delivery. Our Oracle ERP system provides a scalable
platform that can support future growth and ongoing cost
reduction initiatives, including warehouse and truck management
systems, which we believe will allow us to continue reducing
warehouse and delivery costs per unit.
Broad Product Offering from Diverse Supplier
Base. We believe we offer the most comprehensive
selection of tires in the industry. We supply nine of the top
ten leading passenger tire
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brands, and we carry the flag brands of all four of the largest
tire manufacturers Bridgestone,
Continental, Goodyear and
Michelin as well as Hankook,
Kumho, Nexen, Nitto and Pirelli
brands. Our tire product line includes a full suite of flag,
associate and proprietary brand tires, allowing us to service a
broad range of price points from entry-level to the faster
growing ultra-high performance category. In addition to tires,
we also offer custom wheels and accessories and related service
equipment. We believe that our broad product offering drives
penetration among existing customers, attracts new customers and
maximizes customer retention.
Broad Range of Critical Services. We provide a
critical range of services which enables our tire retailer
customers to operate their businesses more profitably. These
services include convenient access to and timely delivery of the
broadest product offerings available in the industry, as well as
fundamental business support services, such as credit, training
and access to consumer market data, that enable our tire
retailer customers to better service their individual markets,
and administration of tire manufacturer affiliate programs. We
provide our customers with convenient 24/7 access to our
extensive product offerings through our industry-leading and
proprietary
business-to-business
web portal,
ATDOnline®.
In fiscal 2009, approximately 64% of our total order volume was
placed through
ATDOnline®,
up from 56% in fiscal 2007. Our online services also include
TireBuyer.com®,
which was launched in late 2009 to allow our local independent
tire retailer customers to participate in the Internet marketing
of tires to consumers. We also provide select, qualified
independent tire retailers with the opportunity to participate
in our Tire
Pros®
franchise program through which they receive advertising and
marketing support and the benefits of a national brand identity.
Diversified Customer Base and Longstanding Customer
Relationships. We serve a highly diversified
customer base comprised of local, regional and national
independent tire retailers, automotive dealerships, tire
manufacturer-owned stores, mass merchandisers and service
stations. In fiscal 2008, our largest customer and our top ten
customers accounted for less than 1.7% and 6.7%, respectively,
of our net sales. We are a top supplier to many of our customers
and maintain customer relationships that exceed a decade on
average for our top 20 customers. We believe the diversity of
our customer base and the strength of our customer relationships
present an opportunity to grow market share regardless of
macroeconomic and replacement tire market conditions.
Strong Cash Flow Generation Capability. Our
inventory management systems and vendor relationships enable us
to generate strong cash flow from operations through efficient
management of our working capital. We have designed efficient
warehouse, delivery, information technology and other
infrastructure capabilities to be scalable, creating incremental
distribution capacity to support further penetration within
current markets and expansion into new domestic geographic
markets. In addition, our bad debt expense has been below 0.15%
of sales for fiscal 2006 through fiscal 2009 due to our credit
and collection procedures. We have also effectively leveraged
our fixed assets with average annual maintenance capital
expenditures of less than $3.0 million during the period
from fiscal 2006 to fiscal 2009. We believe the low capital
intensity of our business should allow us to continue producing
favorable cash flow in the future.
Strong Management Team with Track Record of Driving Growth
and Improving Efficiency. Our senior management
team has a proven track record of implementing successful
initiatives, including the execution of a disciplined
acquisition strategy, that have contributed to our gross profit
expansion and above-market net sales growth. In addition, we
have reduced costs through the integration of operating systems
and introduction of standard operating practices across all
locations, resulting in improved operating efficiencies, reduced
headcount and improved operating profit at existing and acquired
locations. We believe our cost discipline and acquisition
integration experience will continue to be competitive
advantages as we grow both organically and through selective
acquisitions. Our senior management team has an average of
25 years of distribution experience and over 19 years
working with us or our predecessors.
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Our
Business Strategy
Our objective is to be the largest distributor of replacement
tires to local, regional and national independent U.S. tire
retailers, as well as automotive dealerships, service stations
and mass merchandisers, to drive above-market growth and further
enhance profitability and cash flow. We intend to accomplish
this objective by executing the following key operating
strategies:
Leverage Our Infrastructure in Existing
Markets. Through infrastructure expansions over
the past several years, we have developed a scalable platform
with available incremental distribution capacity. Our
distribution infrastructure enables us to efficiently add new
customers and service growing channels, such as automotive
dealerships, thereby increasing profitability by leveraging the
utilization of our existing assets. We believe our relative
penetration in existing markets is largely a function of the
services we offer and the length of time we have operated
locally. Specifically, in new markets, we have experienced
growth in market share over time, and in states we have served
the longest, we generally have market share well in excess of
our national average.
Continue to Expand into New Geographic
Markets. Our existing organizational and
technological platforms are scalable and designed to accommodate
additional distribution capacity and increased sales as we
expand our network throughout the United States. For example, we
entered the Texas market in late 2004 and Minnesota in 2007, and
we were able to leverage our platforms to more than double our
sales in both states since our entry. While we have the largest
distribution footprint in the U.S. replacement tire market,
we have limited or no market presence in 18 of the contiguous
United States that represent approximately 35% of the tire
replacement market, including New York, Ohio, Michigan, Illinois
and New Jersey. We are currently contemplating expansion
strategies in several of these states to drive future growth.
Grow Participation in Tire
Pros®
Franchise Program. Through our fiscal 2008
acquisition of Am-Pac Tire Dist., Inc., which we refer to as
Am-Pac, we acquired the Tire
Pros®
franchise program, which enables us to deliver advertising and
marketing support to tire retailer customers operating as Tire
Pros®
franchisees. Since the acquisition, we have focused on modifying
and improving the Tire
Pros®
franchise program. The Tire
Pros®
franchise program allows participating local tire retailers to
enjoy the benefits of a national brand identity with minimal
investment, while still maintaining their local identity. In
return, we benefit from increasing volume penetration among, and
further aligning ourselves with, our franchisees.
Continue to Offer a Comprehensive Tire Portfolio to Meet Our
Customers Needs. We service a broad range
of price points from entry-level to faster growing high and
ultra-high performance tires, providing a full suite of flag,
associate and proprietary brand tires. We intend to continue to
focus on high and ultra-high performance tires, given the growth
in demand for such tires, while maintaining our emphasis on
providing broad market and entry level tire offerings. Our entry
level offerings were recently expanded by the addition of our
exclusive
Capitol®
and
Negotiator®
brands upon the acquisition of Am-Pac. Our comprehensive tire
portfolio is designed to satisfy all of our customers
needs and allow us to become the supplier of choice, thereby
increasing customer penetration and retention.
Grow
TireBuyer.com®
into a Premier Internet Tire Provider. In late
2009, we launched
TireBuyer.com®,
an Internet site that enables our local independent tire
retailer customers to connect with consumers and sell to them
over the Internet.
TireBuyer.com®
allows our broad base of independent tire retailer customers to
participate in a greater share of the growing Internet tire
market. We believe that
TireBuyer.com®
complements and services our participating local independent
tire retailers by providing them access to a sales and marketing
channel previously unavailable to them.
Utilize Technology Platform to Continue to Increase
Distribution Efficiency. We intend to continue to
invest in our inventory and warehouse management systems and
logistics technology to further increase our efficiency and
profit margins and improve customer service. We continue to
evaluate and incorporate technical solutions such as handheld
scanning for receiving, picking and
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delivery of products to our customers. We believe these
increased efficiencies will continue to enhance our reputation
with our customers for providing a high level of prompt customer
service, while also reducing costs.
Selectively Pursue Acquisitions. We expect to
continue to employ an acquisition strategy to increase our share
in existing markets, add distribution in new markets and utilize
our scale to realize cost savings. In addition, we believe
acquisitions in our existing geographic markets, such as Am-Pac,
provide an opportunity to grow market share while improving
profitability through significant cost savings. Over the past
five years, we have successfully acquired and integrated ten
businesses representing in excess of $700 million in annual
net sales. We believe our position as the leading replacement
tire distributor in the United States, combined with our access
to capital and our scalable platform, allows us to make
acquisitions at attractive post-synergy valuations.
Risk
Factors
We face risks in connection with the general conditions and
trends of our industry and the end markets we serve. Some of the
more significant risks we face include the following:
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Demand for tire products is lower when general economic
conditions are weak. Decreases in the availability of consumer
credit or consumer spending could adversely affect our business,
results of operations or cash flows;
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Our high level of indebtedness may adversely affect our
financial condition, restrict our growth or place us at a
competitive disadvantage;
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Our business requires a significant amount of cash, and
fluctuations in our cash flows may adversely affect our ability
to fund our business or acquisitions or satisfy our debt
obligations;
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The industry in which we operate is highly competitive and our
failure to effectively compete may adversely affect our results
of operations, financial condition and cash flows;
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We depend on manufacturers to provide us with the products we
sell, and disruptions in these relationships or
manufacturers operations could adversely affect our
results of operations, financial condition and cash flows;
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We are reliant upon information technology in the operation of
our business;
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Pricing volatility for raw materials could result in increased
costs and may affect our profitability;
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Our results could be impacted by the tariffs recently imposed by
the U.S. government on tires imported from China;
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Future acquisitions may not be successful;
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Future acquisitions could require us to issue additional debt or
equity;
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Attempts to expand our distribution services into new domestic
geographic markets may adversely affect our business, results of
operations, financial condition or cash flows;
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Our business strategy relies increasingly upon online commerce.
If our customers were unable to access any of our websites, such
as
ATDOnline®,
our business and operations could be disrupted and our operating
results would be adversely affected;
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We may not successfully execute our plan to grow our
TireBuyer.com®
service or we may not attain the growth we expect from our
TireBuyer.com®
service; and
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Because the majority of our inventory is stored in our warehouse
distribution centers, a disruption in our warehouse distribution
centers could adversely affect our results of operations by
increasing our cost and distribution lead times.
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These and other risks are discussed in the section entitled
Risk Factors in this prospectus.
5
The
Equity Sponsors
Investcorp S.A., which we refer to as Investcorp, is a global
investment group with approximately 320 employees and
offices in New York, London and Bahrain. Investcorp is
principally engaged in private equity, real estate investment
and asset management. Investcorp has grown to become one of the
largest and most diverse alternative investment managers in
terms of both product offerings and geography, and currently has
approximately $12.4 billion in assets under management.
Since its formation in 1982, the firm has arranged more than 88
private equity investments with total transaction value of
approximately $29 billion in a broad range of industries
and markets in North America and Western Europe.
Berkshire Partners LLC and its affiliates, which we refer to as
Berkshire, is a Boston-based investment firm that is principally
engaged in investments in mid-sized private companies through
seven investment funds with aggregate capital commitments of
$6.5 billion. Berkshire has developed specific industry
experience in several areas including industrial manufacturing,
consumer products, transportation, communications, business
services, energy and retailing and related services. Over the
last twenty years, Berkshire has been an investor in over 90
operating companies with more than $20 billion of
acquisition value and combined revenues in excess of
$22 billion.
Greenbriar Equity Group LLC and its affiliates, which we refer
to as Greenbriar, is a private equity firm focused exclusively
on the global transportation industry, including companies in
the freight and passenger transport, aerospace &
defense, automotive, logistics, shipping, and related sectors.
Greenbriar manages $1.5 billion of limited partner capital
commitments.
Additional
Information
American Tire Distributors Holdings, Inc. was incorporated in
Delaware in 2005. Our principal executive offices are located at
12200 Herbert Wayne Court, Suite 150, Huntersville, North
Carolina 28078, and our telephone number at that address is
(704) 992-2000.
Our website address is http://www.atd-us.com. The information on
our website is not part of this prospectus and you should not
rely on any such information in deciding to invest in shares of
our common stock.
6
The
Offering
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Shares of common stock offered
by us
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shares |
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Shares of common stock to be outstanding after the offering
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shares |
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Overallotment option(1) |
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Selling stockholders have granted the underwriters a
30-day
overallotment option to purchase up
to additional shares of our common
stock at the initial public offering price. We will not receive
any proceeds from the sale of shares by the selling stockholders. |
|
Use of proceeds |
|
We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and commissions and
estimated offering expenses, will be
$ million, assuming the
shares are offered at $ per share
(the midpoint of the price range set forth on the cover of this
prospectus). We intend to use the net proceeds to us from this
offering for the repayment of debt and the redemption of our
outstanding redeemable preferred stock. See Use of
Proceeds. |
|
Dividends |
|
We do not anticipate paying any dividends to our stockholders
for the foreseeable future. See Dividend Policy. |
|
NYSE symbol |
|
ATD. |
|
Risk factors |
|
See Risk Factors beginning on page 10 for a
discussion of material risks that prospective purchasers of our
common stock should consider. |
|
|
|
(1) |
|
See Principal and Selling Stockholders for
information on the selling stockholders. |
Unless otherwise indicated, references in this prospectus to the
number of shares outstanding are calculated as of
February 5, 2010 and:
|
|
|
|
|
exclude 144,719 shares reserved for future issuance in
connection with the exercise of stock options; and
|
|
|
|
include 6,852 shares of restricted stock held by our
directors, officers and other employees.
|
7
Summary
Consolidated Financial Data
The following table sets forth summary historical consolidated
financial data for the periods indicated. Our fiscal year is
based on either a 52- or 53-week period ending on the Saturday
closest to each December 31. Therefore, the financial
results of certain fiscal years will not be exactly comparable
to the prior or subsequent fiscal years. Fiscal 2006 (ended
December 30, 2006) and fiscal 2007 (ended
December 29, 2007) contain operating results for
52 weeks. Fiscal 2008 (ended January 3,
2009) contains operating results for 53 weeks.
The summary consolidated statements of operations data presented
below for fiscal 2006, 2007 and 2008 and the balance sheet data
at January 3, 2009 have been derived from our audited
consolidated financial statements included elsewhere in this
prospectus. The summary consolidated statements of operations
data for the nine months ended October 4, 2008 and
October 3, 2009 and the balance sheet data at
October 3, 2009 are derived from our unaudited condensed
consolidated financial statements included elsewhere in this
prospectus. Our historical operating results are not necessarily
indicative of future operating results. See Risk
Factors and the notes to our financial statements. You
should read the summary financial data presented below in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and the related notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Fiscal
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,577,973
|
|
|
$
|
1,877,480
|
|
|
$
|
1,960,844
|
|
|
$
|
1,517,300
|
|
|
$
|
1,645,046
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,293,594
|
|
|
|
1,552,975
|
|
|
|
1,605,064
|
|
|
|
1,249,110
|
|
|
|
1,364,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
284,379
|
|
|
|
324,505
|
|
|
|
355,780
|
|
|
|
268,190
|
|
|
|
280,492
|
|
Selling, general and administrative expense
|
|
|
227,399
|
|
|
|
258,347
|
|
|
|
274,412
|
|
|
|
204,084
|
|
|
|
233,602
|
|
Impairment of intangible asset
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,340
|
|
|
|
66,158
|
|
|
|
81,368
|
|
|
|
64,106
|
|
|
|
46,890
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(60,065
|
)
|
|
|
(61,633
|
)
|
|
|
(59,169
|
)
|
|
|
(44,402
|
)
|
|
|
(41,345
|
)
|
Other, net
|
|
|
(364
|
)
|
|
|
(285
|
)
|
|
|
(1,155
|
)
|
|
|
(953
|
)
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(6,089
|
)
|
|
|
4,240
|
|
|
|
21,044
|
|
|
|
18,751
|
|
|
|
4,700
|
|
Income tax provision (benefit)
|
|
|
(1,482
|
)
|
|
|
2,867
|
|
|
|
11,373
|
|
|
|
8,200
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,607
|
)
|
|
$
|
1,373
|
|
|
$
|
9,671
|
|
|
$
|
10,551
|
|
|
$
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
$
|
(4.61
|
)
|
|
$
|
1.37
|
|
|
$
|
9.68
|
|
|
$
|
10.56
|
|
|
$
|
2.35
|
|
Weighted average common shares issued and outstanding
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
Unaudited pro forma basic net income (loss) per common share(1)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Unaudited pro forma weighted average common shares issued and
outstanding(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Fiscal
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
66,586
|
|
|
$
|
18,827
|
|
|
$
|
(54,086
|
)
|
|
$
|
(77,148
|
)
|
|
$
|
100,007
|
|
Investing activities
|
|
|
(28,527
|
)
|
|
|
(29,860
|
)
|
|
|
(81,671
|
)
|
|
|
(11,113
|
)
|
|
|
2,052
|
|
Financing activities
|
|
|
(40,004
|
)
|
|
|
12,182
|
|
|
|
139,503
|
|
|
|
92,593
|
|
|
|
(104,108
|
)
|
Depreciation and amortization
|
|
|
25,071
|
|
|
|
28,096
|
|
|
|
25,530
|
|
|
|
18,717
|
|
|
|
23,573
|
|
Capital expenditures
|
|
|
9,845
|
|
|
|
8,648
|
|
|
|
13,424
|
|
|
|
10,011
|
|
|
|
5,565
|
|
EBITDA(2)
|
|
|
79,047
|
|
|
|
93,969
|
|
|
|
105,743
|
|
|
|
81,870
|
|
|
|
69,618
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
October 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,495
|
|
|
$
|
6,446
|
|
Working capital
|
|
|
288,313
|
|
|
|
243,067
|
|
Total assets
|
|
|
1,390,860
|
|
|
|
1,296,567
|
|
Long-term debt, including capital leases
|
|
|
639,384
|
|
|
|
581,304
|
|
Total redeemable preferred stock
|
|
|
23,941
|
|
|
|
25,918
|
|
Total stockholders equity
|
|
|
224,486
|
|
|
|
228,045
|
|
|
|
|
(1) |
|
Unaudited pro forma basic net income (loss) per common share has
been calculated assuming conversion of all outstanding shares of
our Series A, Series B and Series D common stock
into shares of our common stock on a one-to-one basis as well as
to reflect the assumed use of proceeds to redeem debt and
preferred stock. |
|
(2) |
|
The presentation of EBITDA, which is not a financial measure
calculated under accounting principles generally accepted in the
United States, or GAAP, does not comply with accounting
principles generally accepted in the United States because it is
adjusted to exclude certain cash and non-cash expenses. EBITDA
represents earnings before interest, taxes, depreciation and
amortization. We present EBITDA because we believe it provides a
more complete understanding of the factors and trends affecting
our business than GAAP measures alone. Our board of directors,
management and investors use EBITDA to assess our financial
performance because it allows them to compare our operating
performance on a consistent basis across periods by removing the
effects of our capital structure (such as varying levels of
interest expense), asset base (such as depreciation and
amortization) and items outside the control of our management
team (such as income taxes). EBITDA should not be considered an
alternative to, or more meaningful than, net income as
determined in accordance with GAAP. The following table shows
the calculation of EBITDA from the most directly comparable GAAP
measure, net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Fiscal
|
|
October 4,
|
|
October 3,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2008
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Net (loss) income
|
|
$
|
(4,607
|
)
|
|
$
|
1,373
|
|
|
$
|
9,671
|
|
|
$
|
10,551
|
|
|
$
|
2,344
|
|
Depreciation and amortization
|
|
|
25,071
|
|
|
|
28,096
|
|
|
|
25,530
|
|
|
|
18,717
|
|
|
|
23,573
|
|
Interest expense
|
|
|
60,065
|
|
|
|
61,633
|
|
|
|
59,169
|
|
|
|
44,402
|
|
|
|
41,345
|
|
Income tax (benefit) provision
|
|
|
(1,482
|
)
|
|
|
2,867
|
|
|
|
11,373
|
|
|
|
8,200
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
79,047
|
|
|
$
|
93,969
|
|
|
$
|
105,743
|
|
|
$
|
81,870
|
|
|
$
|
69,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks described below before
making a decision to buy our common stock. The risks and
uncertainties described below are not the only ones we face. If
any of the following risks actually occurs, our business,
results of operations, financial condition or cash flows could
be adversely affected. In that case, the trading price of our
common stock could decline, and you might lose all or part of
your investment in our common stock. Additional risks and
uncertainties not currently known to us or that we currently
deem immaterial may also impair our business, results of
operations, financial condition or cash flows. In deciding
whether to invest in our common stock, you should also refer to
the other information set forth in this prospectus, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes.
Risks
Relating to Our Business
Demand
for tire products is lower when general economic conditions are
weak. Decreases in the availability of consumer credit or
consumer spending could adversely affect our business, results
of operations or cash flows.
The popularity, supply and demand for tire products changes from
year to year based on consumer confidence, the volume of tires
reaching the replacement tire market and the level of personal
discretionary income, among other factors. Decreases in the
availability of consumer credit or decreases in consumer
spending as a result of recent economic conditions, including
increased unemployment and rising fuel prices, may cause
consumers to delay tire purchases, reduce spending on tires or
purchase less expensive tires. These changes in consumer
behavior could reduce the number of tires we sell, reduce our
net sales or cause a change in our product mix toward products
with lower per-tire margins, any of which could adversely affect
our business, results of operations or cash flows.
Local economic, employment, weather, transportation and other
conditions also affect tire sales, on both a wholesale and
retail basis. Such fluctuations have been exacerbated by the
current economic downturn. We cannot, as a result of these
factors and others, assure you that our business will continue
to generate sufficient cash flows to finance or grow our
business or that our cash needs will not increase. For instance,
in 2008, rising fuel costs, increased unemployment and
tightening credit caused a decrease in miles driven and consumer
spending, both of which we believe caused a decrease in unit
sales in the U.S. tire replacement industry. Similarly,
industry-wide unit sales decreased in 2006 primarily due to
increases in, and consumer expectations about future increases
in, interest rates, minimum credit card payments and fuel costs.
Our business was adversely affected as a result of these
industry-wide events and we may be adversely affected by similar
events in the future.
Our
high level of indebtedness may adversely affect our financial
condition, restrict our growth or place us at a competitive
disadvantage.
We are currently highly leveraged. As of October 3, 2009,
our debt (including capital leases) was $589.4 million. In
addition, as of October 3, 2009, we were able to borrow up
to an additional $123.8 million under our amended credit
facility, subject to customary borrowing conditions. We
anticipate that any future acquisitions we may pursue as part of
our growth strategy may be financed through cash on hand,
operating cash flow or borrowings under our existing credit
facility.
Our high debt levels, or increases in our debt levels, could
have important consequences, including:
|
|
|
|
|
making it more difficult to satisfy our obligations;
|
|
|
|
impairing our ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions and
other general corporate requirements;
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions by limiting our ability to plan for or react
quickly to changing conditions;
|
10
|
|
|
|
|
requiring a substantial portion of our cash flow from operations
for the payment of interest on our debt and reducing our ability
to use our cash flow to fund working capital, capital
expenditures, acquisitions and general corporate
requirements;
|
|
|
|
preventing a change of control; and
|
|
|
|
placing us at a competitive disadvantage compared to our
competitors that have less debt.
|
Although the indentures governing our three series of
outstanding notes do not require us to meet any financial
performance metric or maintain any ratio to avoid a default, we
are required to satisfy a 2.0 to 1.0 Adjusted EBITDA to
consolidated interest expense ratio to, among other things,
incur additional debt (other than debt under our revolving
credit facility), issue preferred stock (subject to certain
exceptions), make certain restricted payments or investments and
make certain purchases of our stock. For the four fiscal
quarters ended October 3, 2009, our ratio of Adjusted
EBITDA to consolidated interest expense was 1.6 to 1.0. As a
result of not meeting the 2.0 to 1.0 ratio, our ability to,
among other things, incur additional debt (subject to certain
exceptions including debt under our revolving credit facility),
issue preferred stock (subject to certain exceptions), make
certain restricted payments or investments and make certain
purchases of our stock will be limited.
Our
business requires a significant amount of cash, and fluctuations
in our cash flows may adversely affect our ability to fund our
business or acquisitions or satisfy our debt
obligations.
Our ability to fund working capital needs and planned capital
expenditures and acquisitions and our ability to satisfy our
debt obligations depend on our ability to generate cash flows.
If we are unable to generate sufficient cash flows from
operations to meet these needs, we may need to refinance all or
a portion of our existing debt, obtain additional financing or
reduce expenditures that we deem necessary to our business.
Further, our ability to grow our business and market share
through acquisitions may be impaired. We cannot assure you that
we would be able to obtain refinancing of this kind on favorable
terms or at all or that any additional financing could be
obtained. The inability to obtain additional financing could
materially and adversely affect our business, financial
condition and cash flows.
The
industry in which we operate is highly competitive and our
failure to effectively compete may adversely affect our results
of operations, financial condition and cash flows.
The industry in which we operate is highly competitive. In the
United States, replacement tires are sold to consumers through
several different outlets, including local independent tire
retailers and mass merchandisers, warehouse clubs, tire
manufacturer-owned stores, automotive dealerships, service
stations and web-based marketers. A number of independent
wholesale tire distributors compete with us in the regions in
which we do business. Most of our tire retailer customers buy
products from both us and our competitors. We cannot assure you
that we will be able to compete successfully in our markets in
the future. Furthermore, some of our competitors, including mass
merchandisers, warehouse clubs and tire manufacturers, are
significantly better financed than us and have greater
resources. See Business Competition.
We would also be adversely affected if certain channels in the
replacement tire market, including mass merchandisers and
warehouse clubs, gain market share at the expense of the local
independent tire retailers, as our market share in those
channels is lower.
We
depend on manufacturers to provide us with the products we sell,
and disruptions in these relationships or manufacturers
operations could adversely affect our results of operations,
financial condition or cash flows.
There are a limited number of tire manufacturers worldwide.
Accordingly, we rely on a limited number of tire manufacturers
to supply us with the products we sell, including flag and
associate brands and our proprietary brands. Our business
depends on developing and maintaining productive relationships
with these manufacturers. Outside of our proprietary brands, we
do not have long-term contracts with these manufacturers, and we
cannot assure you that these manufacturers will continue to
supply products to us on
11
favorable terms or at all. Many of our supplier manufacturers
are free to terminate their business relationship with us with
little or no notice and may elect to do so for any reason or no
reason. Further, certain of our key suppliers also compete with
us as they distribute and sell tires to certain of our tire
retailer customers. A move towards this business model among our
supplier manufacturers could adversely affect our results of
operations, financial condition or cash flows.
In addition, our growth strategy depends in part on our ability
to make selective acquisitions, but manufacturers may not be
willing to supply the companies we acquire, which could
adversely affect our business and results of operations.
Furthermore, we could be adversely affected if any significant
manufacturer experiences financial, operational, production,
supply, labor or quality assurance difficulties that result in a
reduction or interruption in our supply, or if they otherwise
fail to meet our needs. These risks have been more pronounced
recently in light of the economic downturn, commodity price
volatility and governmental actions. In addition, our failure to
order or promptly pay for sufficient quantities of our products
may result in an increase in the unit cost of the products we
purchase, a reduction in cooperative advertising and marketing
funds, or a manufacturers unwillingness or refusal to sell
products to us. If we are required to replace our manufacturers,
we could experience cost increases, time delays in deliveries
and a loss of customers, any of which would adversely affect us.
Finally, although most newly manufactured tires are sold in the
replacement tire market, manufacturers pay disproportionate
attention to automobile manufacturers that purchase tires for
new cars. Increased demand from automobile manufacturers could
result in cost increases and time delays in deliveries to us,
any of which could adversely affect us.
We are
reliant upon information technology in the operation of our
business.
We rely on electronic information and telephony systems to
support all aspects of our geographically diverse business
operations, including our inventory control, distribution
network and order placement and fulfillment. A prolonged
interruption or failure of any of these systems or their
connective networks could have a material adverse effect on our
business, results of operations, financial condition or cash
flows.
Pricing
volatility for raw materials could result in increased costs and
may affect our profitability.
Costs for certain raw materials used in manufacturing the
products we sell, including natural rubber, chemicals, steel
reinforcements, carbon black, synthetic rubber and other
petroleum-based products are volatile. Increasing costs for raw
materials supplies would result in increased production costs
for tire manufacturers. Tire manufacturers typically pass along
a portion of their increased costs to us through price
increases. While we typically try to pass increased prices and
fuel costs through to tire retailers or to modify our activities
to mitigate the impact of higher prices, we may not be
successful. Failure to fully pass these increased prices and
costs through to tire retailers or to modify our activities to
mitigate the impact would adversely affect our operating margins
and results of operations. Further, even if we do successfully
pass along these costs, demand for tires may decline as a result
of the increased costs, which would adversely affect us.
Our
results could be impacted by the tariffs recently imposed by the
U.S. government on tires imported from China.
Recently a tariff was imposed on light vehicle tires imported
into the United States from China. This tariff was imposed
effective September 26, 2009 at a level of 35 percent
for the first 12 months, 30 percent for the second
12 months, and 25 percent for the third
12 months. Our ability to competitively source tires from
Asia could be significantly adversely affected. In addition, the
increases in tariffs may increase prices to consumers and
negatively affect demand, which would adversely affect our
results of operations. Other effects, ranging from increased
tire prices to retaliatory actions from other governments, could
also adversely affect our operating margins and results of
operations.
Future
acquisitions may not be successful.
We plan to investigate and acquire strategic businesses or
product lines with the potential to strengthen our market
position or enhance our existing product offering. We cannot
assure you, however, that
12
we will identify or successfully complete transactions with
suitable acquisition candidates in the future. We also cannot
assure you that completed acquisitions will be successful. If an
acquired business fails to operate as anticipated or cannot be
successfully integrated with our existing business, our
financial condition, results of operations or cash flows could
be adversely affected.
Future
acquisitions could require us to issue additional debt or
equity.
If we were to undertake a substantial acquisition, the
acquisition would likely need to be financed in part through
additional financing from banks, through public offerings or
private placements of debt or equity securities or other
arrangements. We cannot assure you that the necessary
acquisition financing would be available to us on acceptable
terms if and when required, particularly because we are
currently highly leveraged, which may make it difficult or
impossible for us to secure financing for acquisitions. If we
were to undertake an acquisition by issuing equity securities or
equity-linked securities, the acquisition may have a dilutive
effect on the interests of the holders of our common shares.
Attempts
to expand our distribution services into new domestic geographic
markets may adversely affect our business, results of
operations, financial condition or cash flows.
We plan to expand our distribution services into new domestic
geographic markets, which will require us to make capital
investments to extend and develop our distribution
infrastructure. We may not achieve profitability in new regions
for a period of time. If we do not successfully add new
distribution centers and routes, we experience unanticipated
costs or delays or we experience competition in such markets
that is greater than we expect, our business, results of
operations, financial condition or cash flows may be adversely
affected.
Our
business strategy relies increasingly upon online commerce. If
our customers were unable to access any of our websites, such as
ATDOnline®,
our business and operations could be disrupted and our operating
results would be adversely affected.
Customers access to our websites directly affects the
volume of orders we fulfill and our revenues. Approximately 64%
of our total order volume in fiscal 2009 was placed online using
ATDOnline®,
up from approximately 56% in fiscal 2007. We expect our
Internet-generated business to continue to grow as a percentage
of overall sales. To be successful, we must ensure that
ATDOnline®
is well supported and functional on a 24/7 basis. If we are not
able to continuously make these ordering tools available to our
customers, there could be a decline in online orders and a
decrease in our net sales.
We may
not successfully execute our plan to grow our
TireBuyer.com®
service or we may not attain the growth we expect from our
TireBuyer.com®
service.
In late 2009, we launched
TireBuyer.com®,
an Internet site which enables our local independent tire
retailer customers to access the online tire consumer market and
sell tires to consumers over the Internet. We expect that by
growing and developing our
TireBuyer.com®
service, we can leverage our tire retailer customer footprint to
capture a greater share of the Internet tire market. For
TireBuyer.com®
to be successful, however, we must ensure that it is well
supported and functional on a 24/7 basis. In addition,
TireBuyer.com®
faces significant competition from other online participants,
some of which have significantly larger Internet market share,
longer Internet market presence, greater Internet marketing
experience and better name recognition than we enjoy. We may
fail to successfully grow, develop or support the
TireBuyer.com®
service or we may not attain the growth or benefits we expect
TireBuyer.com®
to provide us due to strong competition or other factors, which
may adversely affect our business, financial condition or
results of operations.
13
Because
the majority of our inventory is stored in our warehouse
distribution centers, a disruption in our warehouse distribution
centers could adversely affect our results of operations by
increasing our cost and distribution lead times.
We maintain the majority of our inventory in 83 distribution
centers. Serious disruptions affecting these distribution
centers or the flow of products in or out of these centers,
including disruptions from inclement weather, fire, earthquakes
or other causes, could damage a significant portion of our
inventory and could adversely affect our ability to distribute
our products to tire retailers in a timely manner or at a
reasonable cost. During the time that it may take us to reopen
or replace a distribution center, we could incur significantly
higher costs and longer lead times associated with distributing
our products to tire retailers, which could adversely affect our
reputation, as well as our results of operations and our
customer relationships.
If we
experience problems with our fleet of trucks or are otherwise
unable to make timely deliveries of our products to our
customers, our business and reputation could be adversely
affected.
We use a fleet of trucks to deliver our products to our
customers, most of which are leased from third parties. We are
subject to the risks associated with product delivery, including
inclement weather, disruptions in the transportation
infrastructure, disruptions in our lease arrangements,
availability and price of fuel, and liabilities arising from
accidents to the extent we are not covered by insurance. Our
failure to deliver tires and other products in a timely and
accurate manner could harm our reputation and brand, which could
adversely affect our business and reputation.
Participants
in our Tire
Pros®
franchise program are independent operators, and we have limited
influence over their operations. Our Tire
Pros®
franchisees could take actions that could harm the value of the
Tire
Pros®
franchise, or could be unwilling or unable to continue to
participate in the program, which could materially and adversely
affect our business, results of operations, financial condition
and cash flows.
Participants in our Tire
Pros®
franchise program are independent operators and have significant
discretion in running their operations. Their employees are not
our employees. Franchisees could take actions that subject them
to legal and financial liabilities, and we may, regardless of
the actual validity of such a claim, be named as a party in an
action relating to, or be held liable for, the conduct of our
franchisees if it is shown that we exercise a sufficient level
of control over a particular franchisees operation. In
addition, the quality of franchise operations may be diminished
by any number of factors beyond our control. We do not offer
financial or management services to our franchisees, which may
not have sufficient resources or expertise to operate their
businesses at the level we would expect. While we ultimately can
take action to terminate franchisees that do not comply with the
standards contained in our franchise agreements, we may not be
able to identify problems and take action quickly enough and, as
a result, the image and reputation of Tire
Pros®
may suffer, fewer tire retailers may become Tire
Pros®
franchisees and existing participants may leave the Tire
Pros®
program.
In addition, our franchise agreements have limited durations and
our franchisees may not be willing or able to renew their
franchise agreements with us. For example, a franchisee may
decide not to renew due to a lawsuit or disagreement with us,
dissatisfaction with the Tire
Pros®
program or a perception that the Tire
Pros®
program conflicts with other business interests. Similarly, a
franchisee may be unable to renew its franchise agreement with
us due to a bankruptcy or restructuring event or the failure to
secure a real estate lease renewal, among other factors.
Our business, business prospects, results of operations,
financial condition and cash flows could be adversely affected
if we are forced to defend claims made against our franchisees,
if others seek to hold us accountable for our franchisees
actions, if the Tire
Pros®
program does not grow as we expect or if the Tire
Pros®
franchise program is not otherwise successful.
14
We
could become subject to additional government regulation which
could cause us to incur significant liabilities.
We are currently subject to federal and state laws and other
regulations that apply to our business, including laws and
regulations that affect tire distribution and sale, safety
matters and tire specifications. Our costs of complying with
these laws and regulations, including our operating expenses and
liabilities arising under governmental regulations, may be
increased in the future and additional fees and taxes may be
imposed by governmental authorities. Future regulatory
requirements, such as required disclosure of made-on dates for
tires or an expansion of the Transportation Recall Enhancement
Accountability and Documentation (TREAD) Act to cover tire
distributors, could cause a material increase in our liabilities
or operating expenses, which would materially and adversely
affect our business, results of operations, financial condition
and cash flows.
Loss
of key personnel or failure to attract and retain highly
qualified personnel could adversely affect our results of
operations, financial condition and cash flows.
We are dependent on the continued services of our senior
management team. We may not be able to retain our existing
senior management, fill new positions or vacancies created by
expansion or turnover, or attract additional senior management
personnel. We believe the loss of such key personnel could
adversely affect our financial performance. In addition, our
ability to manage our anticipated growth will depend on our
ability to identify, hire and retain qualified management
personnel. We cannot assure you that we will attract and retain
sufficient qualified personnel to meet our business needs.
Our
variable rate debt subjects us to interest rate risk, which
could cause our debt service obligations to increase
significantly.
Certain of our borrowings, primarily borrowings under our
revolving credit facility and our Senior Floating Rate Notes due
April 1, 2012, which we refer to as our Floating Rate
Notes, are at variable rates of interest and expose us to
interest rate risk. If interest rates increase, our debt service
obligations on the variable rate indebtedness would increase
even though the amount borrowed remained the same. This would
require us to use more of our available cash to service our
indebtedness. We cannot assure you that we will be able to enter
into interest rate swap agreements or other hedging arrangements
in the future, that existing or future hedging arrangements will
be sufficient to offset any future increases in interest rates
or that our hedging arrangements will have their intended effect
on our business. At October 3, 2009, we had
$365.2 million outstanding under our revolving credit
facility and our Floating Rate Notes, of which
$180.2 million was not hedged by an interest rate swap
agreement and was thus subject to interest rate changes.
Consolidation
among customers may reduce our importance as a holder of sizable
inventory, which could adversely affect our business and results
of operations.
Our success has been dependent, in part, on the fragmented
customer base in our industry. Due to the small size of most
tire retailers, they cannot support substantial inventory
positions and thus, as our size permits us to maintain a sizable
inventory, we fill an important role. We do not generally have
long-term arrangements with our tire retailer customers and they
can cease doing business with us at any time. If a trend towards
consolidation among tire retailers develops in the future, it
could reduce our importance and reduce our revenues, margins and
earnings. While the local independent tire retailer share of the
replacement tire market has been relatively stable in the recent
past, the share of larger tire retailers has grown at the
expense of smaller tire retailers. If that trend continues, the
number of tire retailers able to handle sizable inventory could
increase, reducing the importance of distributors to the local
independent tire retailer market.
We
could be subject to product liability, personal injury or other
litigation claims that could adversely affect our business,
results of operations and financial condition.
Purchasers of our products, or their employees or customers,
could be injured or suffer property damage from exposure to, or
defects in, products we sell or distribute, or have sold or
distributed in the past.
15
We could be subject to claims, including personal injury claims.
These claims may not be covered by insurance or tire
manufacturers may be unwilling or unable to assume the defense
of these claims, as they have in the past. In addition, if any
tire manufacturer encounters financial difficulty or ceases to
operate, it may not be able to assume the defense of such
claims. We also may be subject to claims due to injuries caused
by our truck drivers which may not be covered by insurance. As a
result, the defense, settlement or successful assertion of any
future product liability, personal injury or other litigation
claims could cause us to incur significant costs and could have
an adverse effect on our business, financial condition, results
of operations or cash flows.
We
could be adversely affected by compliance with environmental
regulations and could incur costs relating to environmental
matters, particularly those relating to our distribution
centers.
We are subject to various federal, state, local and foreign
environmental laws and regulations, as well as health and safety
laws and regulations. Environmental laws are complex, change
frequently and have tended to become more stringent over time.
Compliance costs associated with current and future
environmental and health and safety laws, particularly as they
relate to our distribution centers, as well as liabilities
arising from past or future releases of, or exposure to,
hazardous substances, may adversely affect our business, results
of operations, financial condition or cash flows.
Failure
to maintain effective internal control over financial reporting
could materially adversely affect our business, results of
operations and financial condition.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to
provide a report by management on internal control over
financial reporting, including managements assessment of
the effectiveness of such control. Changes to our business will
necessitate ongoing changes to our internal control systems and
processes. Internal control over financial reporting may not
prevent or detect misstatements because of its inherent
limitations, including the possibility of human error, the
circumvention or overriding of controls or fraud. Therefore,
even effective internal controls can provide only reasonable
assurance with respect to the preparation and fair presentation
of financial statements. If we fail to maintain adequate
internal controls, including any required new or improved
controls, we may be unable to provide financial information in a
timely and reliable manner and might be subject to sanctions or
investigation by regulatory authorities such as the SEC or the
Public Company Accounting Oversight Board. Moreover, if we are
not able to report our financial information on a timely basis,
we may suffer adverse regulatory consequences or violate NYSE
listing rules. Consequently, we could face sanctions, delisting
or investigations, or other adverse effects on our business,
reputation, results of operations, financial condition or cash
flows. There could also be a negative reaction in the financial
markets due to a loss of investor confidence in us and the
reliability of our financial statements. Any such action could
adversely affect our financial results or investors
confidence in us and could cause the price of our securities to
fall.
If we
determine that our goodwill has become impaired, we may record
significant impairment charges, which would adversely affect our
results of operations.
Goodwill and other intangible assets represent a significant
portion of our assets. Goodwill is the excess of cost over the
fair market value of net assets acquired in business
combinations. In the future, goodwill and intangible assets may
increase as a result of future acquisitions. We review our
goodwill and intangible assets at least annually for impairment.
Impairment may result from, among other things, deterioration in
the performance of acquired businesses, adverse market
conditions and adverse changes in applicable laws or
regulations, including changes that restrict the activities of
an acquired business. Any impairment of goodwill or other
intangible assets would result in a non-cash charge against
earnings, which would adversely affect our results of
operations. As of October 3, 2009, our total goodwill was
approximately $375.7 million.
16
Risks
Relating to the Offering and Ownership of Our Common
Stock
Public
investors will experience immediate and substantial dilution as
a result of this offering.
If you purchase shares of our common stock in this offering, you
will immediately experience substantial dilution in net tangible
book value. The initial public offering price will be
substantially higher than the net tangible book value per share
of our common stock immediately following this offering.
Therefore, if you purchase common stock in this offering, you
will experience immediate and substantial dilution of your
investment. Based upon the issuance and sale
of shares
of common stock by us at an assumed initial public offering
price of $ per share (the midpoint
of the price range set forth on the cover page of this
prospectus), you will incur immediate dilution of approximately
$ in the net tangible book value
per share if you purchase shares of our common stock in this
offering. In addition, we may raise additional capital through
public or private equity or debt offerings, subject to market
conditions. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, you
will experience further dilution.
In addition, following the offering, approximately
89,240 shares of our common stock will be issuable upon the
exercise of outstanding stock options and warrants with exercise
prices that are below the assumed initial public offering price
of our common stock. To the extent that these options and
warrants are exercised, you will experience further dilution.
For further information, see the Dilution section of
this prospectus.
After
the expiration of certain resale restrictions, a significant
portion of our outstanding shares of common stock may be sold
into the market, which could adversely affect our stock
price.
Sales of a substantial number of shares of our common stock in
the public market could occur at any time following this
offering, subject to certain securities law restrictions and the
terms of contractual
lock-up
agreements. Sales of shares of our common stock, or the
perception in the market that the holders of a large number of
shares of common stock intend to sell shares, could reduce our
stock price. Upon consummation of this offering, we will have
outstanding shares
of common stock. Of these shares, the shares of common stock
offered hereby will be freely tradable without restriction in
the public market, unless purchased by our affiliates. Upon
completion of this offering, our existing stockholders will
beneficially
own shares
of our common stock
( shares
if the underwriters exercise in full their option to purchase
additional shares from the selling stockholders), which will
represent approximately % of our
outstanding common stock ( % if the
underwriters exercise in full their option to purchase
additional shares from the selling stockholders). Immediately
following the closing of this offering, the holders of
approximately shares
of common stock
( shares
if the underwriters exercise in full their option to purchase
additional shares from the selling stockholders) will be
entitled to dispose of their shares pursuant to the holding
period, volume and other restrictions of Rule 144 under the
Securities Act of 1933, or Securities Act, and the expiration of
an initial
180-day
underwriter
lock-up
period. The underwriters are entitled to waive the underwriter
lock-up
provisions at their discretion prior to the expiration dates of
such lock-up
agreements. If certain of our existing stockholders were to sell
a substantial portion of the shares they hold, our stock price
could decline. See the information under the heading
Shares Eligible for Future Sale for a more
detailed description of the shares that will be available for
future sale upon completion of this offering.
Our
stock price may be volatile, and you may be unable to resell
your shares at or above the offering price or at
all.
The initial public offering price for our shares was determined
through negotiations between us and the underwriters and may not
be indicative of the market prices that will prevail in the
trading market. Our stock price may decline below the initial
offering price and you may not be able to sell your shares of
our common stock at or above the price you paid in this
offering, or at all. Our stock price could be subject to wide
fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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actual or anticipated variations in our operating results from
quarter to quarter;
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actual or anticipated variations in our operating results from
the expectations of securities analysts and investors;
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actual or anticipated variations in our operating results from
our competitors;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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sales of common stock or other securities by us or our
stockholders in the future;
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changes in expectations as to our future financial performance,
including financial estimates by securities analysts and
investors;
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departures of key executives or directors;
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announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures, financing
efforts or capital commitments;
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delays or other changes in our expansion plans;
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involvement in litigation;
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stock price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
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general market conditions in our industry and the industries of
our customers;
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general economic and stock market conditions; and
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terrorist attacks or natural disasters.
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Furthermore, the capital markets have experienced extreme price
and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies.
These fluctuations often have been unrelated or disproportionate
to the operating performance of those companies. These broad
market and industry fluctuations, as well as general economic,
political and market conditions such as recessions, interest
rate changes or international currency fluctuations, may
negatively impact our stock price. These trading price
fluctuations may also make it more difficult for us to use our
common stock as a means to make acquisitions or to use options
to purchase our common stock to attract and retain employees. If
our stock price after this offering does not exceed the initial
public offering price, you may not realize any return on your
investment. In the past, companies that have experienced
volatility in the market price of their stock have been subject
to securities class action litigation. We may be the target of
this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our
managements attention from other business concerns, which
could adversely affect our business, results of operations and
financial position.
No
public market currently exists for our common stock, and an
active trading market may not develop or be sustained following
this offering.
Prior to this offering, there has been no public market for our
common stock. Although we intend to apply to have our common
stock listed on the NYSE, an active public trading market for
our common stock may not develop or be sustained after this
offering. The lack of an active market may impede your ability
to sell your shares at the time you wish to sell them or at a
price that you consider reasonable. The lack of an active market
also may reduce our stock price and impede our ability to
acquire other companies using our shares as consideration.
Our
stock price and trading volume could decline if securities or
industry analysts do not publish research or reports about our
business or if they publish misleading or unfavorable research
or reports about our business.
The trading market for our common stock will depend in part on
the research and reports that securities or industry analysts
publish about us or our business. If no or few securities or
industry analysts commence coverage of our common stock, the
trading price and liquidity for our shares could be adversely
18
impacted. In the event we obtain securities or industry analyst
coverage, if one or more of the analysts who covers us
downgrades our stock or publishes misleading or unfavorable
research about our business, our stock price could decline. If
one or more of these analysts ceases to cover us or fails to
publish reports on us regularly, demand for our stock could
decrease, which could cause our stock price or trading volume to
decline.
Because
we do not intend to pay dividends on our common stock, you will
benefit from an investment in our common stock only if it
appreciates in value.
We do not anticipate paying any dividends to our stockholders
for the foreseeable future. The agreements governing our
indebtedness also restrict our ability to pay dividends.
Accordingly, you may need to sell your common stock in order to
generate cash flow from your investment. If our stock price
after this offering does not exceed the initial public offering
price, you may not realize any return on your investment in us
and may lose some or all of your investment. Any determination
to pay dividends in the future will be made at the discretion of
our board of directors and will depend on our results of
operations and financial condition, restrictions imposed by
applicable law and contracts to which we are a party and other
factors our board of directors deems relevant. Investors seeking
cash dividends should not invest in our common stock.
We
will incur increased costs and our management will face
increased demands as a result of operating as a company with
public equity.
As a company with public equity, we will incur significant
legal, accounting and other expenses. In addition, the
Sarbanes-Oxley Act, as well as related rules implemented by the
SEC and NYSE, impose various requirements on companies with
public equity. Our management and other personnel will need to
devote a substantial amount of time to these compliance matters.
Also, these rules and regulations will increase our legal and
financial compliance costs and will make some activities more
time-consuming and costly than would be the case for a private
company. For example, we expect these rules and regulations to
make it more expensive for us to maintain director and officer
liability insurance. As a result, it may be more difficult for
us to attract and retain qualified individuals to serve on our
board of directors or as our executive officers.
Delaware
law, our charter documents and our debt documents may impede or
discourage a takeover, which could adversely affect our stock
price.
Our certificate of incorporation and bylaws have provisions that
could discourage potential takeover attempts and make attempts
by stockholders to change management more difficult, including
the following:
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our certificate of incorporation authorize our board of
directors to determine the rights, preferences, privileges and
restrictions of unissued preferred stock, without any vote or
action by our stockholders;
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stockholders are denied the right to cumulate votes in the
election of directors because our certificate of incorporation
does not expressly address cumulative voting; and
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our stockholders do not have the right to fill vacancies on the
board caused by expansion, resignation, death disqualification
or removal.
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As a Delaware corporation, we are currently subject to
provisions of Delaware law, including Section 203 of the
Delaware General Corporation Law, or DGCL. These provisions may
prohibit or restrict large stockholders, and in particular,
those owning 15% or more of our outstanding voting stock, from
merging or combining with us. However, we expect to revise our
certificate of incorporation in connection with this offering to
opt out of Section 203 of the DGCL. Therefore, after the
lock-up
period expires, the Control Group (consisting of the Investcorp
Group, by which we mean Investcorp and its affiliates, certain
international investors, which we refer to as the International
Investors, Berkshire and Greenbriar), will be able to transfer
control of us to a third party by transferring their common
stock, which would not require the approval of our board of
directors or our other stockholders.
19
In addition, our revolving credit facility and senior notes
contain covenants that may impede, discourage or prevent a
takeover of us. For instance, upon a change of control of us, we
may be required to repurchase all of our outstanding senior
notes and we would default on our revolving credit facility. As
a result, a potential takeover may not occur unless sufficient
funds are available to repay our outstanding debt.
These provisions of our charter documents, the DGCL and our debt
documents, alone or together, could delay or deter hostile
takeovers and changes of control or changes in our management.
Any provision of our amended and restated certificate of
incorporation, bylaws or the DGCL or our debt documents that has
the effect of delaying or deterring a change of control could
limit the opportunity for our stockholders to receive a premium
for their shares of our common stock. Even in the absence of a
takeover attempt, the existence of these provisions may
adversely affect our stock price if they are viewed as
discouraging takeover attempts in the future.
We are
a controlled company, controlled by a control group,
whose interests in our business may be different from
yours.
Prior to the completion of this offering, our common stock will
be owned principally by the Control Group, consisting of the
Investcorp Group, Berkshire, Greenbriar and the International
Investors.
Upon completion of this offering, the Control Group will own
approximately % of our outstanding
common stock ( % if the
underwriters exercise in full their option to purchase
additional shares). As a result, the Control Group will, for the
foreseeable future, have significant influence over our
management and affairs, and will be able to control virtually
all matters requiring stockholder approval, including the
election of directors and approval of corporate transactions,
such as a merger or other sale of us or our assets. The
directors so elected will have the authority, subject to the
terms of our indebtedness and the rules and regulations of the
NYSE, to issue additional stock, implement stock repurchase
programs, declare dividends and make other decisions. This
concentration of ownership will limit your ability to influence
corporate matters and could discourage or delay a change of
control of us, which could deprive our stockholders of an
opportunity to receive a premium for their shares of our common
stock and might reduce our stock price. For information
regarding the ownership of our outstanding stock, please see the
section titled Principal and Selling Stockholders.
Because the Control Group will own common stock representing
more than 50% of our voting power after giving effect to this
offering, we are considered a controlled company for
the purposes of the NYSE listing requirements. As such, we are
permitted to, and have, opted out of the corporate governance
requirements that our board of directors and our compensation
committee meet the standard of independence established by those
corporate governance requirements. As a result, our board of
directors and those committees may have more directors who do
not meet the NYSE independence standards than they would if
those standards were to apply. We also have opted out of the
NYSEs requirement that we establish a nominating and
corporate governance committee and that such committee contain
independent directors. The NYSE independence standards are
intended to ensure that directors who meet the independence
standard are free of any conflicting interest that could
influence their actions as directors. You will not have the same
protections afforded to stockholders of companies that are
subject to all of the corporate governance requirements of the
NYSE, and circumstances may occur in which the interests of the
Control Group could be in conflict with the interests of our
other stockholders.
20
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, including the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains
forward-looking statements relating to our business and
financial outlook, that are based on our current expectations,
estimates, forecasts and projections. In some cases, you can
identify forward-looking statements by terminology such as
may, will, should,
expects, plans, anticipates,
believes, estimates,
predicts, potential,
continue or other comparable terminology. These
forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, estimates and
assumptions. Actual outcomes and results may differ materially
from those expressed in these forward-looking statements. You
should not place undue reliance on any of these forward-looking
statements. Any forward-looking statement speaks only as of the
date on which it is made, and we undertake no obligation to
update any such statement to reflect new information, or the
occurrence of future events or changes in circumstances.
Many factors could cause actual results to differ materially
from those indicated by the forward-looking statements or could
contribute to such differences including:
|
|
|
|
|
general business and economic conditions in the United States
and other countries, including uncertainty as to changes and
trends;
|
|
|
|
our ability to develop and implement the operational and
financial systems needed to manage our operations;
|
|
|
|
our ability to execute key strategies, including pursuing
acquisitions and successfully integrating and operating acquired
companies;
|
|
|
|
the ability of our customers and suppliers to obtain financing
related to funding their operations in the current economic
market;
|
|
|
|
the financial condition of our customers, many of which are
small businesses with limited financial resources;
|
|
|
|
changing relationships with customers, suppliers and strategic
partners;
|
|
|
|
changes in state or federal laws or regulations affecting the
tire industry;
|
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|
|
impacts of competitive products and changes to the competitive
environment;
|
|
|
|
acceptance of new products in the market; and
|
|
|
|
unanticipated expenditures.
|
You should review this prospectus carefully, including the
section captioned Risk Factors, for a more complete
discussion of the risks of an investment in our common stock.
21
USE OF
PROCEEDS
We estimate that the net proceeds to us of this offering will be
approximately $ million,
based upon an assumed initial public offering price of
$ per share (the midpoint of the
range set forth on the cover page of this prospectus) and after
paying the underwriting discount and commissions and other
estimated expenses of the offering.
We intend to use the net proceeds of this offering:
|
|
|
|
|
first, to redeem the $45.2 million aggregate principal
amount of our Discount Notes due October 1, 2013, which we
refer to as our Discount Notes and which carry an interest rate
of 13%, for an aggregate redemption price of approximately
$ million (including a
redemption premium of 1.0%, or $0.5 million, and accrued
interest of approximately
$ million);
|
|
|
|
second, to redeem all of the outstanding shares of our 8%
cumulative redeemable preferred stock, which we refer to as the
Redeemable Preferred Stock, at a redemption price equal to
$20.0 million, plus accumulated and unpaid dividends, which
we estimate will be approximately
$ million through the
anticipated redemption date for the Redeemable Preferred Stock;
and
|
|
|
|
to the extent of any remainder, to redeem a portion or all of
the $150.0 million aggregate principal amount of our Senior
Notes due April 1, 2013, which we refer to as our 2013
Notes, and which carry an interest rate of 10.75% (including a
redemption premium of 2.688% and any accrued and unpaid
interest).
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease, respectively, the proceeds to us
from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting
underwriting discounts and commissions and estimated expenses
payable by us.
We will not receive any of the proceeds from the sale of shares
by the selling stockholders if the underwriters exercise their
option to purchase shares to cover overallotments. The selling
stockholders include certain entities affiliated with members of
our board of directors.
22
DIVIDEND
POLICY
We have not declared or paid dividends on our common stock since
our incorporation in 2005, and we have no intention to declare
or pay dividends in the foreseeable future. In addition, our
ability to pay dividends is restricted by certain covenants
contained in our revolving credit facility and in the indentures
that govern our Floating Rate Notes, 2013 Notes and Discount
Notes and may be further restricted by any future indebtedness
that we incur.
Our business is conducted through our subsidiaries. Dividends
from, and cash generated by, our subsidiaries will be our
principal sources of cash to repay indebtedness, fund operations
and pay dividends. Accordingly, our ability to pay dividends to
our stockholders is dependent on the earnings and distributions
of funds from our subsidiaries.
23
DILUTION
If you invest in our common stock, you will be diluted to the
extent the initial public offering price per share of our common
stock exceeds the net tangible book value per share of our
common stock immediately after this offering. Our net tangible
book value as of October 3, 2009 was approximately ($391.7)
million, or ($391.84) per share of common stock. The net
tangible book value per share represents the amount of our
tangible net worth, or total tangible assets less total
liabilities, divided by 999,527 shares of our common stock
outstanding as of that date.
After giving effect to the issuance and sale
of shares
of our common stock sold by us in this offering and our receipt
of the net proceeds from such sale, based on an assumed public
offering price of $ per share (the
midpoint of the range set forth on the cover page of this
prospectus), and after deducting the underwriting discount and
commissions and the estimated expenses of the offering, our
as-adjusted net tangible book value per share as of
October 3, 2009 would have been approximately
$ per share. This amount
represents an immediate increase in net tangible book value of
$ per share to existing
stockholders and an immediate dilution in net tangible book
value of $ per share to new
investors purchasing shares of our common stock in this
offering. Dilution per share is determined by subtracting the
net tangible book value per share as adjusted for this offering
from the amount of cash paid by a new investor for a share of
our common stock. Net tangible book value is not affected by the
sale of shares of our common stock offered by the selling
stockholders. The following table illustrates the per share
dilution:
|
|
|
|
|
Expenses
|
|
Amount
|
|
|
Assumed initial public offering price per share
|
|
$
|
|
|
Net tangible book value per share as of October 3, 2009
|
|
|
(391.84
|
)
|
Increase in net tangible book value per share attributable to
new investors
|
|
|
|
|
|
|
|
|
|
Adjusted net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
$
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease, respectively, our net tangible book
value by $ , the net tangible book
value per share after this offering by
$ and the dilution per share to
new investors by $ , assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The following table summarizes as of October 3, 2009, after
giving effect to the offering:
|
|
|
|
|
the total number of shares of common stock purchased from us;
|
|
|
|
the total consideration paid to us before deducting underwriting
discounts and commissions of $ and
estimated offering expenses of approximately
$ ; and
|
|
|
|
the weighted average price per share paid by existing
stockholders and by new investors who purchase shares of common
stock in this offering at the assumed initial public offering
price of $ per share (the midpoint
of the range set forth on the cover page of this prospectus).
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Price Per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Assuming no exercise of the overallotment option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
Assuming full exercise of the overallotment option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
The foregoing table does not reflect proceeds to be realized by
existing stockholders in connection with the sales by them in
this offering, options outstanding under our stock option plans
or stock options to be granted after the offering. Following the
offering, there will be 144,719 options outstanding with a
weighted average exercise price of $169.16.
25
CAPITALIZATION
The following table sets forth our capitalization at
October 3, 2009, on an actual basis and as adjusted to give
effect to (1) the sale of shares of our common stock in
this offering at an assumed initial offering price of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus), (2) the application of the net proceeds
from this offering, including the redemption of all of our
outstanding Discount Notes, the redemption of all of our
outstanding Redeemable Preferred Stock and the repayment of
$ of
our 2013 Notes, (3) the automatic conversion of all of our
outstanding Series A, Series B and Series D
Common Stock on a one-to-one basis into our common stock and
(4) the repayment of $6.3 million aggregate principal
amount of our Discount Notes on April 1, 2010, as required
by the terms of the Discount Notes.
You should read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and notes to the consolidated financial statements
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of October 3, 2009
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
6,446
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
8,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Floating Rate Notes
|
|
|
140,000
|
|
|
|
|
|
2013 Notes
|
|
|
150,000
|
|
|
|
|
|
Discount Notes
|
|
|
45,217
|
|
|
|
|
|
Revolving credit facility
|
|
|
225,222
|
|
|
|
|
|
Capital lease obligations
|
|
|
14,118
|
|
|
|
|
|
Other
|
|
|
6,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including capital lease obligations
|
|
|
581,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
589,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred Stock
|
|
|
25,918
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Series A Common Stock, par value $0.01 per share;
1,500,000 shares authorized, 690,700 shares
outstanding actual, no shares outstanding as adjusted
|
|
|
7
|
|
|
|
|
|
Series B Common Stock, par value $0.01 per share;
315,000 shares authorized, 307,327 shares outstanding
actual, no shares outstanding as adjusted
|
|
|
3
|
|
|
|
|
|
Series D Common Stock, par value $0.01 per share;
1,500 shares authorized, 1,500 shares outstanding
actual, no shares outstanding as adjusted
|
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share; 1,816,500 shares
authorized, no shares outstanding
actual, shares
outstanding as adjusted
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
218,321
|
|
|
|
|
|
Warrants
|
|
|
4,631
|
|
|
|
|
|
Accumulated earnings
|
|
|
7,334
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(2,151
|
)
|
|
|
|
|
Treasury stock, at cost, 473 shares of Series A Common
Stock
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
228,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
843,379
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
We expect that a $1.00 increase or decrease in the assumed
initial public offering price of $
per share (the midpoint of the range set forth on the cover page
of this prospectus) would increase or decrease, respectively,
the amount of cash and cash equivalents, additional paid-in
capital, total stockholders equity and total
capitalization by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting
underwriting discounts and commissions and estimated expenses
payable by us.
26
SELECTED
CONSOLIDATED FINANCIAL AND OPERATING DATA
Investcorp and the other members of the Control Group, acting
through American Tire Distributors Holdings, Inc., which we
refer to as ATDH, acquired American Tire Distributors, Inc.,
which we refer to as ATDI, in an acquisition completed on
March 31, 2005. As used in this prospectus, unless the
context indicates otherwise, the term Successor
refers to ATDH and its subsidiaries and the term
Predecessor refers to ATDI and its subsidiaries.
The following table sets forth selected historical consolidated
financial data of both the Predecessor and the Successor for the
periods indicated. Both the Predecessors and the
Successors fiscal year is based on either a 52- or 53-week
period ending on the Saturday closest to each December 31.
Therefore, the financial results of certain fiscal years will
not be exactly comparable to those of the prior or subsequent
fiscal years. Fiscal 2004 (ended January 1,
2005) contains operating results for 53 weeks.
Selected historical financial data as of the end of and for
fiscal 2004 is derived from the Predecessors consolidated
financial statements as of and for that year. Selected
historical financial data for the fiscal quarter ended
April 2, 2005 is derived from the Predecessors
consolidated financial statements as of and for that period.
Selected historical financial data for the period of
April 2, 2005 through December 31, 2005 and for fiscal
2006, 2007 and 2008 are derived from the Successors
consolidated financial statements as of and for such periods and
reflect ATDHs acquisition of ATDI and related
transactions. The fiscal quarter ended April 2, 2005
contains operating results for 13 weeks and the period of
April 2, 2005 through December 31, 2005 contains
operating results for 39 weeks. Fiscal 2006 (ended
December 30, 2006) and fiscal 2007 (ended
December 29, 2007) contain operating results for
52 weeks. Fiscal 2008 (ended January 3,
2009) contains operating results for 53 weeks.
The selected consolidated statements of operations data
presented below for fiscal 2004, 2005, 2006, 2007 and 2008 and
the balance sheet data at January 1, 2005,
December 31, 2005, December 30, 2006,
December 29, 2007 and January 3, 2009 have been
derived from our audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated
statements of operations data for the nine months ended
October 4, 2008 and October 3, 2009 and the balance
sheet data at October 4, 2008 and October 3, 2009 are
derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus, which have
been prepared on the same basis as our audited consolidated
financial statements. The selected consolidated statement of
operations data presented below for fiscal years 2004 and 2005
and the balance sheet data at January 1, 2005 and
December 31, 2005 were derived from our audited annual
consolidated financial statements which are not included in this
prospectus. Our historical operating results are not necessarily
indicative of future operating results. See Risk
Factors and the notes to our financial statements. You
should read the selected financial data presented below in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and the related notes.
27
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Fiscal
|
|
|
April 2,
|
|
|
|
December 31,
|
|
|
Fiscal
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
|
(Dollars in thousands)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,282,069
|
|
|
$
|
354,339
|
|
|
|
$
|
1,150,944
|
|
|
$
|
1,577,973
|
|
|
$
|
1,877,480
|
|
|
$
|
1,960,844
|
|
|
$
|
1,517,300
|
|
|
$
|
1,645,046
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expense below
|
|
|
1,043,793
|
|
|
|
290,488
|
|
|
|
|
939,325
|
|
|
|
1,293,594
|
|
|
|
1,552,975
|
|
|
|
1,605,064
|
|
|
|
1,249,110
|
|
|
|
1,364,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
238,276
|
|
|
|
63,851
|
|
|
|
|
211,619
|
|
|
|
284,379
|
|
|
|
324,505
|
|
|
|
355,780
|
|
|
|
268,190
|
|
|
|
280,492
|
|
Selling, general and administrative expense
|
|
|
183,235
|
|
|
|
52,653
|
|
|
|
|
172,605
|
|
|
|
227,399
|
|
|
|
258,347
|
|
|
|
274,412
|
|
|
|
204,084
|
|
|
|
233,602
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction expenses
|
|
|
|
|
|
|
28,211
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
55,041
|
|
|
|
(17,013
|
)
|
|
|
|
38,919
|
|
|
|
54,340
|
|
|
|
66,158
|
|
|
|
81,368
|
|
|
|
64,106
|
|
|
|
46,890
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(13,371
|
)
|
|
|
(3,682
|
)
|
|
|
|
(41,359
|
)
|
|
|
(60,065
|
)
|
|
|
(61,633
|
)
|
|
|
(59,169
|
)
|
|
|
(44,402
|
)
|
|
|
(41,345
|
)
|
Other, net
|
|
|
(393
|
)
|
|
|
(252
|
)
|
|
|
|
111
|
|
|
|
(364
|
)
|
|
|
(285
|
)
|
|
|
(1,155
|
)
|
|
|
(953
|
)
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
41,277
|
|
|
|
(20,947
|
)
|
|
|
|
(2,329
|
)
|
|
|
(6,089
|
)
|
|
|
4,240
|
|
|
|
21,044
|
|
|
|
18,751
|
|
|
|
4,700
|
|
Income tax provision (benefit)
|
|
|
16,236
|
|
|
|
(6,620
|
)
|
|
|
|
(728
|
)
|
|
|
(1,482
|
)
|
|
|
2,867
|
|
|
|
11,373
|
|
|
|
8,200
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25,041
|
|
|
$
|
(14,327
|
)
|
|
|
$
|
(1,601
|
)
|
|
$
|
(4,607
|
)
|
|
$
|
1,373
|
|
|
$
|
9,671
|
|
|
$
|
10,551
|
|
|
$
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
$
|
4.85
|
|
|
$
|
(14.33
|
)
|
|
|
$
|
(1.60
|
)
|
|
$
|
(4.61
|
)
|
|
$
|
1.37
|
|
|
$
|
9.68
|
|
|
$
|
10.56
|
|
|
$
|
2.35
|
|
Weighted average common shares issued and outstanding
|
|
|
5,161,917
|
|
|
|
1,000,000
|
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
Unaudited pro forma basic net income (loss) per common share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Unaudited pro forma weighted average common shares issued and
outstanding(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Fiscal
|
|
|
April 2,
|
|
|
|
December 31,
|
|
|
Fiscal
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2004
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
|
(Dollars in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,334
|
|
|
|
|
|
|
|
$
|
5,545
|
|
|
$
|
3,600
|
|
|
$
|
4,749
|
|
|
$
|
8,495
|
|
|
$
|
9,081
|
|
|
$
|
6,446
|
|
Working capital
|
|
|
133,720
|
|
|
|
|
|
|
|
|
201,820
|
|
|
|
172,627
|
|
|
|
186,556
|
|
|
|
288,313
|
|
|
|
287,219
|
|
|
|
243,067
|
|
Total assets
|
|
|
549,243
|
|
|
|
|
|
|
|
|
1,120,118
|
|
|
|
1,123,506
|
|
|
|
1,210,696
|
|
|
|
1,390,860
|
|
|
|
1,298,128
|
|
|
|
1,296,567
|
|
Long-term debt, including capital leases
|
|
|
231,480
|
|
|
|
|
|
|
|
|
540,549
|
|
|
|
517,154
|
|
|
|
536,871
|
|
|
|
639,384
|
|
|
|
622,337
|
|
|
|
581,304
|
|
Total redeemable preferred stock
|
|
|
9,535
|
|
|
|
|
|
|
|
|
18,559
|
|
|
|
19,822
|
|
|
|
21,450
|
|
|
|
23,941
|
|
|
|
23,302
|
|
|
|
25,918
|
|
Total stockholders equity
|
|
|
57,765
|
|
|
|
|
|
|
|
|
220,806
|
|
|
|
216,758
|
|
|
|
216,395
|
|
|
|
224,486
|
|
|
|
226,324
|
|
|
|
228,045
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
25,709
|
|
|
$
|
9,871
|
|
|
|
$
|
(34,654
|
)
|
|
$
|
66,586
|
|
|
$
|
18,827
|
|
|
$
|
(54,086
|
)
|
|
$
|
(77,148
|
)
|
|
$
|
100,007
|
|
Investing activities
|
|
|
(63,302
|
)
|
|
|
(1,438
|
)
|
|
|
|
(468,815
|
)
|
|
|
(28,527
|
)
|
|
|
(29,860
|
)
|
|
|
(81,671
|
)
|
|
|
(11,113
|
)
|
|
|
2,052
|
|
Financing activities
|
|
|
37,601
|
|
|
|
(8,264
|
)
|
|
|
|
505,511
|
|
|
|
(40,004
|
)
|
|
|
12,182
|
|
|
|
139,503
|
|
|
|
92,593
|
|
|
|
(104,108
|
)
|
Depreciation and amortization
|
|
|
6,781
|
|
|
|
1,738
|
|
|
|
|
16,409
|
|
|
|
25,071
|
|
|
|
28,096
|
|
|
|
25,530
|
|
|
|
18,717
|
|
|
|
23,573
|
|
Capital expenditures
|
|
|
4,379
|
|
|
|
1,574
|
|
|
|
|
6,086
|
|
|
|
9,845
|
|
|
|
8,648
|
|
|
|
13,424
|
|
|
|
10,011
|
|
|
|
5,565
|
|
|
|
|
(1) |
|
Unaudited pro forma basic net income (loss) per common share has
been calculated assuming conversion of all outstanding shares of
our Series A, Series B and Series D common stock on a
one-to-one basis into shares of our common stock as well as to
reflect the assumed use of proceeds to redeem debt and preferred
stock. |
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated
results of operations, financial condition and liquidity should
be read in conjunction with our consolidated financial
statements and the related notes included in this prospectus.
The following discussion contains forward-looking statements
that reflect our current expectations, estimates, forecast and
projections. These forward-looking statements are not guarantees
of future performance, and actual outcomes and results may
differ materially from those expressed in these forward-looking
statements. See Risk Factors and Special Note
About Forward-Looking Statements.
Our fiscal year is based on either a 52- or 53-week period
ending on the Saturday closest to each December 31.
Therefore, the financial results of certain fiscal years will
not be exactly comparable to the prior or subsequent fiscal
years. Fiscal 2008, which ended January 3, 2009, contained
operating results for 53 weeks while fiscal 2007, which
ended December 29, 2007, and fiscal 2006, which ended
December 30, 2006, contained operating results for
52 weeks.
Company
Overview
We are the leading replacement tire distributor in the United
States, providing a critical range of services to enable tire
retailers to effectively service and grow sales to consumers.
Through our network of 83 distribution centers, we offer access
to industry-leading breadth and depth of inventory, representing
approximately 40,000 stock-keeping units (SKUs), to
approximately 60,000 customers. The critical range of services
we provide includes frequent and timely delivery of inventory,
business support services, such as credit, training and access
to consumer market data, administration of tire manufacturer
affiliate programs, a leading online ordering and reporting
system and a website that enables our tire retailer customers to
participate in Internet marketing of tires to consumers. We
estimate that our share of the replacement passenger and light
truck tire market in the United States has increased from
approximately 1.2% in 1996 to approximately 9.2% in 2008, which
we believe is approximately twice the market share of our
closest competitor.
We serve a highly diversified customer base comprised of local,
regional and national independent tire retailers, automotive
dealerships, tire manufacturer-owned stores, mass merchandisers
and service stations. In fiscal 2008, our largest customer and
our top ten customers accounted for less than 1.7% and 6.7%,
respectively, of our net sales. We are a top supplier to many of
our customers and maintain customer relationships that exceed a
decade on average for our top 20 customers.
We believe we distribute the broadest product offering in our
industry, supplying our customers with nine of the top ten
leading passenger and light truck tire brands. We carry the flag
brands of all four of the largest tire manufacturers
Bridgestone, Continental, Goodyear, and
Michelin as well as Hankook,
Kumho, Nexen, Nitto and Pirelli
brands. In addition to flag brands, we also sell lower price
point associate brands of many of these and other manufacturers,
as well as proprietary brand tires, custom wheels and
accessories and related tire service equipment. Tire sales
accounted for approximately 91.4% of our net sales in fiscal
2008. We believe our large, diverse product offering allows us
to better penetrate the replacement tire market across a broad
range of price points.
Key
Business Metrics
Key business factors that have influenced our results of
operations are:
|
|
|
|
|
Availability of consumer credit and changes in disposable
income. Recent economic conditions, including
increased unemployment and rising fuel prices, have caused
consumers to delay tire purchases, reduce spending on tires or
purchase less costly brand tires. For instance, in fiscal 2008,
increased fuel costs, increased unemployment and tightening
credit caused a decrease in miles driven and consumer spending,
both of which caused a decrease in our unit sales and unit sales
in the entire U.S. tire replacement industry. We believe
that during fiscal 2008 and the first nine months of 2009, weak
economic conditions have caused some consumers to delay the
replacement of their tires.
|
29
|
|
|
|
|
Acquisitions. Over the past five years, we
have successfully acquired and integrated ten businesses
representing in excess of $700 million in annual net sales.
Our acquisition strategy has allowed us to increase our share in
existing markets, add distribution in new and complementary
regions and utilize increasing scale to realize cost savings.
|
|
|
|
Number of vehicles in the
U.S. market. While the number of automobiles
registered in the United States has generally increased steadily
over time, the growth rate in the number of automobiles slowed
during fiscal 2008 and the first nine months of 2009, primarily
due to weakening economic conditions, the reduced availability
of consumer credit and decreasing consumer confidence.
|
|
|
|
Average age of vehicles. As the average age of
vehicles has increased, the number of vehicles requiring
replacement tires has increased. As consumers have chosen to
drive existing vehicles longer, leading to increasing average
age, these consumers may spend more on vehicle maintenance.
|
|
|
|
Miles driven. An increase in the number of
miles driven generally increases the rate at which tires are
replaced, thereby increasing the number of tires we sell. We
believe that during fiscal 2008 and the first nine months of
2009, weak economic conditions and economic uncertainty caused a
decrease in the number of miles driven, impacting demand.
However, through November 2009, miles driven had increased on a
year-over-year
basis for six of the preceding eleven months.
|
Our unit sales decreased 2.5% during fiscal 2008, primarily due
to weak economic conditions that began in fiscal 2007. During
the first nine months of 2009, our unit sales increased 11.7%
over the comparable sales in the prior year, primarily due to
our acquisition of Am-Pac, which alone represented a 19.9%
increase in our unit sales. Other factors that affected our
performance during the first nine months of 2009 relative to the
comparable period in the prior year were decreased demand in
fiscal 2009, as compared to fiscal 2008, due to the weakened
economy and the inclusion of three additional business days in
the fiscal 2008 period, which caused a 1.7% decrease in unit
sales between the periods.
Our
History
On March 31, 2005, the Investcorp Group, Berkshire,
Greenbriar and the International Investors, through ATDH,
acquired our operations by purchasing all of the outstanding
stock of ATDI. The acquisition did not trigger a change of
control for accounting purposes.
2006
and 2007 Acquisitions
On January 27, 2006, we completed the purchase of Silver
State Tire Company, Inc. and Golden State Tire Distributors,
which collectively we refer to as Silver State. This acquisition
established a distribution footprint for us in Nevada. On
July 28, 2006, we completed the purchase of Samaritan
Wholesale Tire Company, which we refer to as Samaritan Tire.
This acquisition expanded our service in Minnesota and into
Western Wisconsin.
On May 31, 2007, we completed the purchase of Jim Paris
Tire City of Montebello, Inc., which we refer to as Paris Tire.
This acquisition expanded our service in Colorado and the
Midwest. On July 2, 2007, we completed the purchase of
certain assets and the assumption of certain liabilities of
Martino Tire Company, which we refer to as Martino Tire. This
acquisition expanded our service in Florida and complemented our
existing distribution centers located in Florida. On
December 7, 2007, we completed the purchase of 6H-Homann,
LLC and Homann Tire, LTD, which we refer to collectively as
Homann Tire, which expanded our service in Texas (further
complementing our existing distribution centers) and allowed us
to expand into Louisiana.
The Homann Tire, Martino Tire, Paris Tire, Samaritan Tire and
Silver State acquisitions were financed through borrowings under
our revolving credit facility. The aggregate purchase price of
these acquisitions was $42.7 million, consisting of
$41.7 million in cash and $1.0 million in direct
acquisition costs.
30
2008
Acquisitions
On October 8, 2008, we completed the purchase of certain
assets and the assumption of certain liabilities of Remington
Tire Distributors, Inc., which does business under the name
Grays Wholesale Tire Distributors and which we refer to as
Grays Tire. This acquisition expanded our presence in
Texas and Oklahoma and complemented our existing distribution
centers located within the states of Texas and Oklahoma.
On December 18, 2008, we completed the purchase of all of
the issued and outstanding capital stock of Am-Pac. This
acquisition significantly strengthened our presence in markets
we served and allowed us to expand our operations into
St. Louis, Missouri and western Texas. We financed the
Am-Pac and Grays Tire acquisitions through borrowings
under our revolving credit facility. We accounted for each of
these acquisitions under the purchase method of accounting and,
accordingly, the results of operations for the acquired
businesses have been included in our consolidated statements of
operations from the date of such acquisition. The aggregate
purchase price of the Am-Pac acquisition was approximately
$74.7 million, consisting of $71.1 million in cash and
$3.6 million in direct acquisition costs. Of the
$71.1 million in cash, $9.8 million was placed in
escrow and $59.1 million was used to pay off Am-Pacs
outstanding debt. The amount held in escrow was excluded in the
preliminary allocation of the cost of the assets acquired and
liabilities assumed because it represented contingent
consideration for which the contingency had not been resolved.
We recorded the preliminary purchase price allocation in our
consolidated financial statements based on estimated fair values
for the assets acquired and liabilities assumed, which resulted
in a customer relationship intangible asset of
$9.6 million, an intangible trade name asset of
$4.5 million and goodwill of $5.8 million. Effective
July 31, 2009, pursuant to the acquisition agreement, we
received $0.9 million in connection with closing date
balance sheet and purchase price adjustments.
Results
of Operations
Nine
Months Ended October 3, 2009 Compared to Nine Months Ended
October 4, 2008
The following table sets forth the period change for each
category of the statements of operations, as well as each
category as a percentage of net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-Over-
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Nine
|
|
|
Period-Over-
|
|
|
Period
|
|
|
Results as a Percentage of
|
|
|
|
Months
|
|
|
Months
|
|
|
Period
|
|
|
Percentage
|
|
|
Net Sales for Each Period
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Change
|
|
|
Change
|
|
|
Ended
|
|
|
|
October 4,
|
|
|
October 3,
|
|
|
Favorable
|
|
|
Favorable
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2008
|
|
|
2009
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,517,300
|
|
|
$
|
1,645,046
|
|
|
$
|
127,746
|
|
|
|
8.4
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expense below
|
|
|
1,249,110
|
|
|
|
1,364,554
|
|
|
|
(115,444
|
)
|
|
|
(9.2
|
)
|
|
|
82.3
|
|
|
|
82.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
268,190
|
|
|
|
280,492
|
|
|
|
12,302
|
|
|
|
4.6
|
|
|
|
17.7
|
|
|
|
17.1
|
|
Selling, general and administrative expense
|
|
|
204,084
|
|
|
|
233,602
|
|
|
|
(29,518
|
)
|
|
|
(14.5
|
)
|
|
|
13.5
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
64,106
|
|
|
|
46,980
|
|
|
|
(17,216
|
)
|
|
|
(26.9
|
)
|
|
|
4.2
|
|
|
|
2.9
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(44,402
|
)
|
|
|
(41,345
|
)
|
|
|
3,057
|
|
|
|
6.9
|
|
|
|
(2.9
|
)
|
|
|
(2.5
|
)
|
Other, net
|
|
|
(953
|
)
|
|
|
(845
|
)
|
|
|
108
|
|
|
|
11.3
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
18,751
|
|
|
|
4,700
|
|
|
|
(14,051
|
)
|
|
|
(74.9
|
)
|
|
|
1.2
|
|
|
|
0.3
|
|
Income tax provision
|
|
|
8,200
|
|
|
|
2,356
|
|
|
|
5,844
|
|
|
|
71.3
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,551
|
|
|
$
|
2,344
|
|
|
$
|
(8,207
|
)
|
|
|
(77.8
|
)%
|
|
|
0.7
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Net
Sales
Sales increased $127.7 million in the nine months ending
October 3, 2009, primarily driven by our acquisition of
Am-Pac in late 2008, which contributed $215.6 million to
the
year-over-year
increase. Additionally, we generally passed through the tire
manufacturers multiple 2008 price increases, which
contributed an additional $41.0 million to the
year-over-year
increase. Excluding Am-Pac and the three additional business
days in the nine-month period of 2008, while our sales of
passenger and light truck tire units continued to outperform the
overall passenger and light truck tire market (down 7.4% as
measured by the Rubber Manufacturers Association, or RMA),
sales still declined 6.5% during the nine-month period of 2009
as compared to the nine-month period of fiscal 2008. As such,
softer tire unit sales of $87.3 million (approximately
$20.9 million of which resulted from an additional three
business days in the nine-month period of fiscal 2008 compared
to the same period in fiscal 2009), combined with a decline in
wheel and equipment and supply sales of $42.2 million,
partially offset the increases noted above.
Gross
Profit
Gross profit in the nine months ending October 3, 2009
increased $12.3 million, primarily due to the contribution
from the Am-Pac acquisition and, to a lesser extent, higher net
tire pricing resulting from the pass through of manufacturer
price increases that occurred throughout fiscal 2008. Partially
offsetting these increases was the benefit of favorable
inventory cost layers generated during the first nine months of
fiscal 2008, which resulted from passing through tire
manufacturers multiple price increases, that did not
repeat in fiscal 2009, as well as lower tire, wheel and
equipment and supply sales volumes, due, in part, to the three
fewer business days in the nine-month period of 2009.
Selling,
General and Administrative Expense
The increase in selling, general and administrative expenses of
$29.5 million is due predominantly to our acquisition of
Am-Pac in fiscal 2008, which accounted for an increase of
approximately $36.7 million. Other increases included
higher restructuring expense related to lease tails for
facilities that were relocated ($1.0 million), higher rents
for larger facilities occupied during fiscal 2008 or early 2009
($3.6 million) and higher amortization expense related to
the change in accounting estimate for certain customer list
intangible assets. Lower employee-related expenses of
$9.4 million, including lower incentive-based compensation,
lower overall employee headcount and three fewer business days
in fiscal 2009 as compared to fiscal 2008, as well as lower fuel
cost partially offset the increases noted above.
Interest
Expense
The $3.1 million decrease in interest expense for the
nine-month period of 2009 was due to lower interest rates on our
variable rate debt, partially offset by higher average
borrowings from our revolving credit facility during the
nine-month period of 2009 as well as a $0.9 million
increase in interest expense related to the change in fair value
of the interest rate swap agreement entered into in the second
quarter of 2009.
Income
Tax Provision
We recognized an income tax provision of $2.4 million in
the nine-month period of 2009 based on a pre-tax income of
$4.7 million, compared to an income tax provision of
$8.2 million in the nine-month period of fiscal 2008 based
on a pre-tax income of $18.8 million. The effective tax
rate for the first nine months of 2009 was 50.1%, compared with
43.7% for the corresponding period in fiscal 2008. The increase
in the effective tax rate is due primarily to a lower projected
pre-tax income level for 2009 as compared to fiscal 2008 with a
consistent anticipated amount from permanent differences
(primarily the impact of preferred stock dividends that are not
deductible for income tax purposes). The income tax provision
recorded for the first nine months of 2009 has been computed
based on
year-to-date
income and projected results for the full year. The final
effective tax rate to be applied to fiscal 2009 will depend on
the actual amount of pre-tax income (loss) generated by us for
the full year.
32
Net
Income
Net income for the nine-month period of 2009 decreased
$8.2 million due, in part, to higher selling, general and
administrative expenses, as discussed above, partially offset by
improvement in contributed gross profit dollars, lower interest
expense and the fluctuation in the income tax provision between
periods.
Fiscal
2008 Compared to Fiscal 2007
The following table sets forth the period change for each
category of the statements of operations, as well as each
category as a percentage of net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-Over-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-Over-
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
Percentage
|
|
|
Results as a Percentage of
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
Net Sales for Each Period Ended
|
|
|
|
|
|
|
|
|
|
Favorable
|
|
|
Favorable
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2008
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
2007
|
|
|
2008
|
|
|
Net sales
|
|
$
|
1,877,480
|
|
|
$
|
1,960,844
|
|
|
$
|
83,364
|
|
|
|
4.4
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,552,975
|
|
|
|
1,605,064
|
|
|
|
(52,089
|
)
|
|
|
(3.4
|
)
|
|
|
82.7
|
|
|
|
81.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
324,505
|
|
|
|
355,780
|
|
|
|
31,275
|
|
|
|
9.6
|
|
|
|
17.3
|
|
|
|
18.1
|
|
Selling, general and administrative expenses
|
|
|
258,347
|
|
|
|
274,412
|
|
|
|
(16,065
|
)
|
|
|
(6.2
|
)
|
|
|
13.8
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
66,158
|
|
|
|
81,368
|
|
|
|
15,210
|
|
|
|
23.0
|
|
|
|
3.5
|
|
|
|
4.1
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(61,633
|
)
|
|
|
(59,169
|
)
|
|
|
2,464
|
|
|
|
4.0
|
|
|
|
(3.3
|
)
|
|
|
(3.0
|
)
|
Other, net
|
|
|
(285
|
)
|
|
|
(1,155
|
)
|
|
|
(870
|
)
|
|
|
(305.3
|
)
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
4,240
|
|
|
|
21,044
|
|
|
|
16,804
|
|
|
|
396.3
|
|
|
|
0.2
|
|
|
|
1.1
|
|
Income tax provision
|
|
|
2,867
|
|
|
|
11,373
|
|
|
|
(8,506
|
)
|
|
|
(296.7
|
)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,373
|
|
|
$
|
9,671
|
|
|
$
|
8,298
|
|
|
|
604.4
|
%
|
|
|
0.1
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales for fiscal 2008 increased $83.3 million, or 4.4%,
to $1,960.8 million from $1,877.5 million in fiscal
2007. The increase in sales in fiscal 2008 was primarily driven
by an increase in tire pricing, net of selective promotional
activities, which contributed $115.9 million to the
year-over-year
increase as we passed through tire manufacturers multiple
price increases. Additionally, our acquisitions of Paris Tire,
Martino Tire and Homann Tire in fiscal 2007 combined with the
acquisition of Grays Tire and Am-Pac in fiscal 2008
contributed an additional $73.2 million to the
year-over-year
increase. Excluding acquisitions, our sales of passenger and
light truck tire units outperformed the overall passenger and
light truck tire market (as measured by the RMA), but still
declined during fiscal 2008 as compared to fiscal 2007. As such,
softer tire unit sales of $98.8 million (including a
benefit of approximately $27.5 million from an additional
week in our fiscal 2008), combined with a decline in equipment
and supply sales of $6.6 million to partially offset the
increases noted above.
Gross
Profit
Gross profit increased $31.3 million to $355.8 million
in fiscal 2008 from $324.5 million in fiscal 2007. This
increase is primarily due to contributions from our fiscal 2007
and 2008 acquisitions and passing through tire
manufacturers multiple price increases which provided for
a favorable inventory cost layer (i.e.,
33
the benefit from the sale of inventory in fiscal 2008 that was
purchased prior to tire manufacturers multiple price
increases). Lower tire unit, equipment and supply sales volumes,
despite an additional week in fiscal 2008, partially offset
these increases.
Gross profit as a percentage of sales increased from 17.3% in
fiscal 2007 to 18.1% in fiscal 2008 primarily due to the
favorable inventory cost layer.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2008
increased $16.1 million to $274.4 million from
$258.3 million in fiscal 2007. The acquisitions of Paris
Tire, Martino Tire and Homann Tire in fiscal 2007, combined with
the acquisition of Grays Tire and Am-Pac in fiscal 2008,
accounted for approximately $7.9 million of the increase,
$4.4 million of which was due to employee-related expenses.
Additionally, facility lease and utilities expense increased
$2.8 million primarily due to infrastructure investments,
including relocation to larger facilities and upgrades to
existing facilities. Fuel cost increased $3.7 million
year-over-year
due primarily to higher fuel cost per gallon throughout most of
fiscal 2008. Other increases included higher vehicle leasing,
higher travel costs and higher equipment and computer
maintenance expense. These increases were partially offset by
lower employee- related expenses of $0.6 million (primarily
due to lower incentive compensation expense partially offset by
higher salaries and wages due to the additional week in fiscal
2008).
Interest
Expense
Interest expense, net of capitalized interest, decreased
$2.4 million to $59.2 million in fiscal 2008 from
$61.6 million in fiscal 2007. The decrease in interest
expense is due to lower interest rates on our variable rate
debt, partially offset by higher overall debt levels.
Interest expense, net of capitalized interest, for fiscal 2008
of $59.2 million exceeds cash payments for interest during
the same period of $57.7 million principally due to
non-cash amortization of debt issuance costs and accretion of
interest on our Redeemable Preferred Stock, as well as interest
accrued but not yet paid.
Income
Tax Provision
We recognized an income tax provision of $11.4 million in
fiscal 2008 based on a pre-tax income of $21.0 million. We
recognized an income tax provision of $2.9 million in
fiscal 2007 based on a pre-tax income of $4.2 million. The
effective tax rate for fiscal 2008 was approximately 54%
compared to 68% in fiscal 2007. The decrease in the effective
tax rate is due primarily to the increase in pre-tax income and
the impact of certain permanent timing differences, primarily
related to our redeemable preferred stock, on our pre-tax income
of $21.0 million in fiscal 2008 as opposed to the same
permanent timing differences on our pre-tax income of
$4.2 million in fiscal 2007.
Net
Income
Net income for fiscal 2008 increased $8.3 million to
$9.7 million from $1.4 million in fiscal 2007. The
increase in net income is due to improvement in contributed
gross profit dollars, contributions from acquisitions and lower
interest expense, partially offset by an increase in selling,
general and administrative expenses, as discussed above, and the
fluctuation in the income tax provision between periods.
34
Fiscal
2007 Compared to Fiscal 2006
The following table sets forth the period change for each
category of the statements of operations, as well as each
category as a percentage of net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-Over-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-Over-
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
Results as a Percentage of
|
|
|
|
|
|
|
|
|
|
Favorable
|
|
|
Favorable
|
|
|
Net Sales
|
|
|
|
Fiscal 2006
|
|
|
Fiscal 2007
|
|
|
(Unfavorable)
|
|
|
(Unfavorable)
|
|
|
Fiscal 2006
|
|
|
Fiscal 2007
|
|
|
Net sales
|
|
$
|
1,577,973
|
|
|
$
|
1,877,480
|
|
|
$
|
299,507
|
|
|
|
19.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,293,594
|
|
|
|
1,552,975
|
|
|
|
(259,381
|
)
|
|
|
(20.1
|
)
|
|
|
82.0
|
|
|
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
284,379
|
|
|
|
324,505
|
|
|
|
40,126
|
|
|
|
14.1
|
|
|
|
18.0
|
|
|
|
17.3
|
|
Selling, general and administrative expenses
|
|
|
227,399
|
|
|
|
258,347
|
|
|
|
(30,948
|
)
|
|
|
(13.6
|
)
|
|
|
14.4
|
|
|
|
13.8
|
|
Impairment of intangible asset
|
|
|
2,640
|
|
|
|
|
|
|
|
2,640
|
|
|
|
100.0
|
|
|
|
0.2
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,340
|
|
|
|
66,158
|
|
|
|
11,818
|
|
|
|
21.7
|
|
|
|
3.4
|
|
|
|
3.5
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(60,065
|
)
|
|
|
(61,633
|
)
|
|
|
(1,568
|
)
|
|
|
(2.6
|
)
|
|
|
(3.8
|
)
|
|
|
(3.3
|
)
|
Other, net
|
|
|
(364
|
)
|
|
|
(285
|
)
|
|
|
79
|
|
|
|
21.7
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes
|
|
|
(6,089
|
)
|
|
|
4,240
|
|
|
|
10,329
|
|
|
|
169.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
Income tax (benefit) provision
|
|
|
(1,482
|
)
|
|
|
2,867
|
|
|
|
(4,349
|
)
|
|
|
(293.5
|
)
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,607
|
)
|
|
$
|
1,373
|
|
|
$
|
5,980
|
|
|
|
129.8
|
%
|
|
|
(0.3
|
)%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales for fiscal 2007 increased $299.5 million, or
19.0%, to $1,877.5 million from $1,578.0 million in
fiscal 2006. The increase in sales in fiscal 2007 was primarily
a result of increased passenger and light truck tire unit sales
which accounted for $183.6 million of the increase and was
further benefited by increased tire unit sales of high and
ultra-high performance tires that provide an increased profit
per tire. Tire unit sales for farm, industrial and other
specialty products also increased (contributing
$14.5 million over fiscal 2006), but were partially offset
by a softening in commercial truck units (down $7.4 million
from fiscal 2006). Additionally, the acquisitions of Paris Tire,
Martino Tire and Homann Tire in fiscal 2007 and Samaritan Tire
in late 2006 contributed $59.4 million to the
year-over-year
increase. Also, favorable tire pricing, net of selective
promotional activities, benefited fiscal 2007 by approximately
$51.5 million as we passed through tire manufacturers
multiple price increases that resulted from rising raw material
costs. A decline in wheel sales of $5.4 million and a net
decline in equipment and supply sales of $1.9 million
partially offset the increases noted above.
Gross
Profit
Gross profit increased $40.1 million to $324.5 million
in fiscal 2007 from $284.4 million in fiscal 2006. This
increase is primarily the result of higher tire unit sales
volumes, including the increase in unit sales
35
of high and ultra-high performance tires that provide an
increased profit per tire, and contributions from our fiscal
2007 and late fiscal 2006 acquisitions. These increases were
partially offset by softer wheel sales.
Gross profit as a percentage of sales decreased
0.7 percentage points from 18.0% in fiscal 2006 to 17.3% in
fiscal 2007. The decrease is primarily due to mix of product
sales, including the sale of more high and ultra-high
performance tires, which are higher profit per tire contributors
but carry lower overall gross profit margins. Additionally, the
benefit from the sale of inventory in early 2006 that was
purchased prior to tire manufacturers multiple price
increases (i.e., a favorable inventory cost layer)
contributed to the decline in gross profit percentage
year-over-year.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2007
increased $30.9 million to $258.3 million from
$227.4 million in fiscal 2006. Acquisitions made during
late fiscal 2006 and throughout fiscal 2007 accounted for
approximately $9.6 million of the increase, half of which
was due to employee-related expenses. Excluding these
acquisitions, employee-related expenses accounted for
$15.5 million of the increase and included
$11.8 million of incentive-based compensation, overtime and
contract labor, to support increased sales volumes. Depreciation
expense increased $2.2 million as we continued to expand
warehousing infrastructure and invest in information technology.
Other increases included higher facility lease expense, higher
fuel costs, increased advertising and higher travel costs
(collectively $4.9 million). These increases were partially
offset by a reduction in amortization of prepaid management
advisory fees that were paid in connection with the acquisition
of ATDI by ATDH in March 2005 ($1.4 million).
Impairment
of Intangible Asset
In September 2006, we were informed by one of our suppliers that
it was going to cease the manufacturing of one of our tire
brands for which we maintained a trade name intangible asset. As
a result of this decision and due to our inability to place
other sourcing regarding this tire brand, in accordance with
accounting standards, we evaluated the fair value of the trade
name intangible asset, as computed utilizing a discounted cash
flow model, as compared to its carrying value. Based on this
evaluation, we recorded an impairment charge of
$2.6 million, for the full carrying amount of the trade
name intangible asset. No similar charges were recorded during
fiscal 2007.
Interest
Expense
Interest expense increased $1.5 million to
$61.6 million in fiscal 2007 from $60.1 million in
fiscal 2006. The increase in interest expense is primarily due
to higher debt levels
year-over-year,
which resulted from our acquisition of Paris Tire in May 2007,
Martino Tire in July 2007 and Homann Tire in December 2007.
Interest expense for fiscal 2007 of $61.6 million exceeds
cash payments for interest during the same period of
$51.6 million principally due to non-cash amortization of
debt issuance costs and accretion of interest on our Discount
Notes and the Redeemable Preferred Stock, as well as interest
accrued but not yet paid.
Income
Tax Provision (Benefit)
We recognized an income tax provision of $2.9 million in
fiscal 2007 based on a pre-tax income of $4.2 million. We
recognized an income tax benefit of $1.5 million in fiscal
2006 based on a pre-tax loss of $6.1 million. The effective
tax rate for fiscal 2007 was approximately 68%, compared to 24%
in fiscal 2006. The increase in the effective tax rate is due
primarily to the impact of certain permanent timing differences,
primarily related to our redeemable preferred stock, on our
pre-tax income of $4.2 million in fiscal 2007 as opposed to
the same permanent timing differences on our pre-tax loss of
$6.1 million in fiscal 2006.
36
Net
Income (Loss)
Net income for fiscal 2007 was $1.4 million, an increase of
$6.0 million from a net loss of $4.6 million in fiscal
2006. The increase in net income is due, in part, to higher tire
unit volumes and improvements in contributed gross profit
dollars, partially offset by an increase in selling, general and
administrative expenses, as discussed above, and the fluctuation
in the income tax provision (benefit) between periods. Net
income in fiscal 2007 also benefited from the non-recurrence of
an impairment of intangible asset charge recorded in fiscal 2006.
Liquidity
and Capital Resources
Nine
Months Ended October 3, 2009 Cash Flows
At October 3, 2009 our total debt, including capital
leases, was $589.4 million, compared to $642.4 million
at January 3, 2009, a decrease of $53.0 million.
Higher repayments of our amended revolving credit facility
accounted for the majority of the decrease in total debt. Total
commitments by the lenders under our revolving credit facility
were $400.0 million at October 3, 2009, of which
$225.2 million was outstanding and $123.8 million was
available for additional borrowings. The amount available to
borrow under our revolving credit facility is limited by the
borrowing base computation. For additional information on our
existing indebtedness and the borrowing base under our revolving
credit facility, see Description of Indebtedness.
The following table summarizes the cash flows for the nine
months ended October 3, 2009 and October 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash (used in) provided by operating activities
|
|
$
|
(77,148
|
)
|
|
$
|
100,007
|
|
Cash (used in) provided by investing activities
|
|
|
(11,113
|
)
|
|
|
2,052
|
|
Cash provided by (used in) financing activities
|
|
|
92,593
|
|
|
|
(104,108
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,332
|
|
|
|
(2,049
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
4,749
|
|
|
|
8,495
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,081
|
|
|
$
|
6,446
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
50,190
|
|
|
$
|
40,818
|
|
Cash payments for taxes, net
|
|
$
|
11,386
|
|
|
$
|
5,294
|
|
Capital expenditures financed by debt
|
|
$
|
2,258
|
|
|
$
|
1,369
|
|
Operating
Activities
Cash provided by operating activities increased
$177.1 million to $100.0 million in the nine months
ended October 3, 2009 compared to cash used in operating
activities of $77.1 million in the nine months ended
October 4, 2008. The increase in cash provided by operating
activities was primarily due to a decrease in our net working
capital requirements. For the nine months ended October 3,
2009, our change in operating assets and liabilities generated a
cash inflow of approximately $69.9 million, primarily
driven by a decrease in inventories and, to a lesser extent, an
increase in accounts payable, partially offset by an increase in
accounts receivable and a decrease in accrued expenses. The
decrease in inventories resulted from the combination of the
consolidations of the acquired Am-Pac distribution centers
(finalized in early July 2009) and rationalization of their
inventories, as well as reduction in elevated year-end inventory
levels. The increase in accounts receivable resulted from
seasonal volume increases during the third quarter of 2009 and
the decrease in accrued expenses resulted from income tax
payments and incentive compensation payments made during the
nine months ended October 3, 2009, both of which related to
fiscal 2008 performance. Comparatively, during the same period
of fiscal 2008, our change in operating assets and liabilities
generated a cash outflow of
37
approximately $109.6 million, primarily driven by increases
in accounts receivables and inventories combined with a decrease
in accrued expenses partially offset by an increase in accounts
payable. The decrease in accrued expenses is primarily due to
interest payments on our senior notes, income tax payments and
incentive compensation payments that were made during the nine
months ended October 4, 2008.
Investing
Activities
Net cash provided by investing activities increased
$13.2 million to $2.1 million in the nine months ended
October 3, 2009 compared to net cash used in investing
activities of $11.1 million in the nine months ended
October 4, 2008. The increase in net cash provided by
investing activities was due primarily to the proceeds from the
sale of assets held for sale, including $7.3 million for
the sale of certain retail operations acquired in the Am-Pac
acquisition, and a lower level of purchases of property and
equipment in the first nine months of 2009 as compared to the
first nine months of fiscal 2008 primarily resulting from the
expansion of one of our distribution centers in fiscal 2008,
which did not repeat. Capital expenditures during the nine
months ended October 3, 2009 included information
technology upgrades and warehouse racking. During the nine
months ended October 3, 2009, we also had capital
expenditures financed by debt of $1.4 million relating to
information technology.
Financing
Activities
Net cash used in financing activities increased
$196.7 million to $104.1 million in the nine months
ended October 3, 2009 compared to net cash provided by
financing activities of $92.6 million in the nine months
ended October 4, 2008. The increase in cash used in
financing activities was primarily due to lower net borrowings
under our revolving credit facility, primarily due to the
reduction in working capital requirements discussed above, as
well as the timing of outstanding checks from year-end that
cleared in first quarter 2009.
Supplemental
Disclosures of Cash Flow Information
Cash payments for interest decreased $9.4 million to
$40.8 million in the nine-month period ended
October 3, 2009 compared to $50.2 million in the
nine-month period ended October 4, 2008 primarily due to
the timing of our 2008 calendar period, which included four
quarterly interest payments on our Floating Rate Notes
($14.2 million) compared to only three quarterly interest
payments in the nine-month period ended October 3, 2009
($7.7 million). In addition, lower interest rates during
the nine-month period ended October 3, 2009 as compared to
the nine-month period ended October 4, 2008 also
contributed to the
year-over-year
decline in cash payments for interest.
Cash payments for taxes decreased $6.1 million to
$5.3 million in the nine-month period ended October 3,
2009 compared to $11.4 million in the nine-month period
ended October 4, 2008 primarily due to the balance and
timing of income tax extension payments for fiscal 2007 made in
fiscal 2008, as compared to payments for fiscal 2008 made in
fiscal 2009.
Fiscal
2008 Cash Flows
At January 3, 2009, our total debt, including capital
leases, was $642.4 million, compared to $539.9 million
at December 29, 2007, a
year-over-year
increase of $102.5 million. Increased borrowings under our
revolving credit facility of $103.7 million (primarily
driven by our acquisitions completed in fiscal 2008 as well as
timing of interest payments on our senior notes, income tax
payments and incentive compensation payments made during fiscal
2008) contributed to the
year-over-year
increase. Total commitments by the lenders under our revolving
credit facility were $400.0 million at January 3,
2009, of which $276.9 million was outstanding and
$104.6 million was available for additional borrowings. The
amount available to borrow under our revolving credit facility
is limited by the borrowing base computation. For additional
information on our existing indebtedness and the borrowing base
under our revolving credit facility, see Description of
Indebtedness.
38
The following table summarizes our cash flows for fiscal 2006,
2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$
|
66,586
|
|
|
$
|
18,827
|
|
|
$
|
(54,086
|
)
|
Cash used in investing activities
|
|
|
(28,527
|
)
|
|
|
(29,860
|
)
|
|
|
(81,671
|
)
|
Cash (used in) provided by financing activities
|
|
|
(40,004
|
)
|
|
|
12,182
|
|
|
|
139,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,945
|
)
|
|
|
1,149
|
|
|
|
3,746
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,545
|
|
|
|
3,600
|
|
|
|
4,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
3,600
|
|
|
$
|
4,749
|
|
|
$
|
8,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
46,263
|
|
|
$
|
51,629
|
|
|
$
|
57,711
|
|
Cash (receipts) payments for taxes, net
|
|
$
|
(13,163
|
)
|
|
$
|
2,242
|
|
|
$
|
11,634
|
|
Capital expenditures financed by debt
|
|
$
|
2,360
|
|
|
$
|
2,822
|
|
|
$
|
3,295
|
|
Supplier loan
|
|
$
|
6,000
|
|
|
$
|
|
|
|
$
|
|
|
Operating
Activities
Total net cash used in operating activities for fiscal 2008
increased $72.9 million to $54.1 million compared to
net cash provided by operating activities of $18.8 million
in fiscal 2007. The increase in net cash used in operating
activities was primarily due to an increase in our net working
capital requirements primarily driven by an increase in
inventories combined with a decrease in accrued expenses and
decreases in accounts payable. The increase in inventories was
primarily driven by increased purchases for the purpose of
achieving certain manufacturer volume-related incentives,
coupled with a softer tire unit sell-out, particularly during
the fourth quarter of fiscal 2008. The decrease in accrued
expenses is primarily due to interest payments on our senior
notes, income tax payments and incentive compensation payments
that were made during fiscal 2008. The decrease in accounts
payable partially resulted from the timing of payments to
several Am-Pac suppliers in connection with that acquisition.
Total net cash provided by operating activities for fiscal 2007
decreased $47.8 million to $18.8 million compared to
$66.6 million in fiscal 2006. The decrease in net cash
provided by operating activities was due in part to receipt of a
federal income tax refund ($13.6 million) in first quarter
2006 that did not repeat in fiscal 2007. In addition, a
reduction in our net working capital requirements in fiscal 2006
did not repeat during fiscal 2007 due primarily to our overall
growth during fiscal 2007. For fiscal 2007, our change in
operating assets and liabilities generated a cash outflow of
approximately $12.7 million, primarily driven by increases
in accounts receivable and inventories that were partially
offset by an increase in accounts payable. During fiscal 2006,
excluding the income tax refund discussed above, our change in
operating assets and liabilities generated a cash inflow of
$22.0 million, primarily driven by an increase in accounts
payable and a reduction in accounts receivable and other current
assets partially offset by an increase in inventories.
Investing
Activities
Total net cash used in investing activities increased
$51.8 million to $81.7 million in fiscal 2008 compared
to $29.9 million in fiscal 2007. The increase in net cash
used in investing activities was due primarily to an increase in
our acquisition activity, $47.6 million, and an increase in
purchase levels of property and equipment, $4.8 million.
The increase in purchase levels of property and equipment was
due, in part, to the expansion of one of our distribution
centers. Capital expenditures for fiscal 2008 also included
information technology upgrades and warehouse racking. During
fiscal 2008 we also had capital expenditures financed by debt of
$3.3 million relating to information technology.
39
Total net cash used in investing activities increased
$1.4 million to $29.9 million in fiscal 2007 compared
to $28.5 million in fiscal 2006. The increase in net cash
used in investing activities was due primarily to an increase in
our acquisition activity, $0.6 million, and an increase in
purchase levels of assets held for sale, $1.9 million.
These increases were partially offset by a $1.2 million
reduction in purchase levels of property and equipment. Capital
expenditures during fiscal 2007 were primarily for information
technology upgrades and warehouse racking. During fiscal 2007 we
also had capital expenditures financed by debt of
$2.8 million relating to information technology.
Financing
Activities
Total net cash provided by financing activities increased
$127.3 million to $139.5 million in fiscal 2008
compared to $12.2 million in fiscal 2007. The increase in
net cash provided by financing activities for fiscal 2008 was
primarily due to increased borrowings under our revolving credit
facility due, in part, to cash paid for our acquisitions
completed during fiscal 2008 and higher cash payments for
interest and taxes, as well as the increase in working capital
requirements discussed above.
Total net cash provided by financing activities increased
$52.2 million to $12.2 million in fiscal 2007 compared
to net cash used in financing activities of $40.0 million
in fiscal 2006. The increase in net cash provided by financing
activities for fiscal 2007 was primarily due to a reduction in
net payments on our revolving credit facility, including the
receipt of a federal income tax refund ($13.6 million) in
first quarter 2006 that was used to pay down our revolving
credit facility.
Supplemental
Disclosures of Cash Flow Information
Cash payments for interest increased $6.1 million to
$57.7 million in fiscal 2008 compared to $51.6 million
in fiscal 2007 primarily due to timing of our fiscal year-end on
January 3, 2009 and, as such, included $3.6 million
related to the January 1st interest payment on our
Floating Rate Notes. In addition, interest payments on our
Discount Notes began on October 1, 2007 and accordingly,
the cash payments for interest amount for fiscal 2008 includes
two interest payments relating to our Discount Notes compared to
only one interest payment in fiscal 2007.
Cash payments for taxes increased $9.4 million to
$11.6 million in fiscal 2008 compared to $2.2 million
in fiscal 2007 primarily due to payments of fiscal 2007 income
taxes during the extension period in fiscal 2008. The increase
in income tax payments was a result of higher pre-tax income
during fiscal 2007 compared to fiscal 2006 and related federal
extension income tax payments.
Adjusted
EBITDA
We evaluate liquidity based on several factors, including a
measure we refer to in this prospectus as Adjusted EBITDA and
which we refer to as Indenture EBITDA in our filings under the
Securities Exchange Act of 1934, or Exchange Act. Neither
Adjusted EBITDA nor the ratios based on Adjusted EBITDA
presented herein comply with U.S. GAAP because Adjusted
EBITDA is adjusted to exclude certain cash and non-cash items.
The ratio of Adjusted EBITDA to consolidated interest expense is
also used in certain of the covenants in the indentures
governing our three series of senior notes. Adjusted EBITDA,
which is referred to as consolidated cash flow in the
indentures, represents earnings before interest, taxes,
depreciation and amortization and the other adjustments set
forth below permitted in calculating covenant compliance under
the indentures governing our senior notes. We believe that the
inclusion of this supplementary information is necessary for
investors to understand our ability to engage in certain
corporate transactions in the future under the indentures. The
indentures governing our three series of outstanding notes
limit, among other things, our ability to incur additional debt
(subject to certain exceptions including debt under our
revolving credit facility), issue preferred stock (subject to
certain specified exceptions), make certain restricted payments
or investments or make certain purchases of our stock, unless
the ratio of our Adjusted EBITDA to consolidated interest
expense (as defined in the indentures), each calculated on a pro
forma basis for the proposed transaction, would have been at
least 2.0 to 1.0 for the four fiscal quarters prior to the
proposed transaction.
40
Adjusted EBITDA should not be considered an alternative to, or
more meaningful than, cash flow provided by (used in) operating
activities as determined in accordance with GAAP. Adjusted
EBITDA as presented by us may not be comparable to similarly
titled measures reported by other companies. For the four fiscal
quarters ended October 3, 2009, our ratio of Adjusted
EBITDA to consolidated interest expense, each as calculated
under the indentures governing our three series of outstanding
notes, was 1.6 to 1.0. Because we currently do not satisfy the
2.0 to 1.0 Adjusted EBITDA to consolidated interest expense
ratio contained in our three series of outstanding notes, we are
currently limited in our ability to, among other things, incur
additional debt (subject to certain exceptions including debt
under our revolving credit facility), issue preferred stock
(subject to certain specified exceptions), make certain
restricted payments or investments or make certain purchases of
our stock. See Risk Factors Risks Relating to
Our Business Our high level of indebtedness may
adversely affect our financial condition, restrict our growth or
place us at a competitive disadvantage. These restrictions
do not interfere with the day-to-day-conduct of our business.
Moreover, the indentures do not require us to maintain any
financial performance metric or ratio in order to avoid a
default.
The following table shows the calculation of Adjusted EBITDA
from the most directly comparable GAAP measure, net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
October 4,
|
|
|
October 3,
|
|
|
|
Fiscal 2006
|
|
|
Fiscal 2007
|
|
|
Fiscal 2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
66,586
|
|
|
$
|
18,827
|
|
|
$
|
(54,086
|
)
|
|
$
|
(77,148
|
)
|
|
$
|
100,007
|
|
Changes in assets and liabilities
|
|
|
(35,646
|
)
|
|
|
12,703
|
|
|
|
103,000
|
|
|
|
109,575
|
|
|
|
(69,915
|
)
|
(Provision) benefit for deferred income taxes
|
|
|
1,970
|
|
|
|
6,916
|
|
|
|
(3,432
|
)
|
|
|
3,417
|
|
|
|
4,721
|
|
Interest expense
|
|
|
60,065
|
|
|
|
61,633
|
|
|
|
59,169
|
|
|
|
44,402
|
|
|
|
41,345
|
|
Income tax provision (benefit)
|
|
|
(1,482
|
)
|
|
|
2,867
|
|
|
|
11,373
|
|
|
|
8,200
|
|
|
|
2,356
|
|
(Provision for) recovery of doubtful accounts
|
|
|
325
|
|
|
|
(854
|
)
|
|
|
(2,514
|
)
|
|
|
(1,113
|
)
|
|
|
(1,368
|
)
|
Amortization of other assets
|
|
|
(5,443
|
)
|
|
|
(5,056
|
)
|
|
|
(4,834
|
)
|
|
|
(3,626
|
)
|
|
|
(3,627
|
)
|
Accretion of Discount Notes
|
|
|
(5,906
|
)
|
|
|
(1,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Redeemable Preferred Stock
|
|
|
(441
|
)
|
|
|
(441
|
)
|
|
|
(441
|
)
|
|
|
(331
|
)
|
|
|
(331
|
)
|
Accrued dividends on Redeemable Preferred Stock
|
|
|
(1,750
|
)
|
|
|
(1,893
|
)
|
|
|
(2,051
|
)
|
|
|
(1,522
|
)
|
|
|
(1,648
|
)
|
Post-retirement benefit plan termination
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,447
|
|
|
|
2,266
|
|
|
|
810
|
|
|
|
841
|
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
83,658
|
|
|
$
|
95,397
|
|
|
$
|
106,994
|
|
|
$
|
82,695
|
|
|
$
|
71,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA for the nine months ended October 3, 2009
decreased $11.4 million to $71.3 million compared to
$82.7 million in the nine months ended October 4, 2008
due primarily to a reduction in passenger and light truck tire
sales units and, to a lesser extent, lower sales contributions
from wheels, equipment and supplies during the nine-month period
ended October 3, 2009, partially offset by the
contributions from our acquisition of Am-Pac, favorable net tire
pricing and related contributed gross profit dollars and lower
selling, general and administrative expenses, excluding Am-Pac,
resulting from three fewer business days in fiscal 2009 versus
fiscal 2008, as well as lower headcount and fuel costs.
Adjusted EBITDA for fiscal 2008 increased $11.6 million to
$107.0 million from $95.4 million in fiscal 2007. The
increase in Adjusted EBITDA was due primarily to favorable tire
pricing, including the
41
benefit from a favorable inventory cost layer in fiscal 2008,
and our acquisitions made during late fiscal 2008 and throughout
fiscal 2007.
Adjusted EBITDA for fiscal 2007 increased $11.7 million to
$95.4 million from $83.7 million in fiscal 2006. The
increase in Adjusted EBITDA was due primarily to higher sales
volumes and contributions from acquisitions, partially offset by
the benefit of sales associated with a favorable inventory cost
layer in first quarter 2006 that did not repeat during fiscal
2007.
We anticipate that our principal use of cash going forward will
be to meet working capital and debt service requirements, to
make capital expenditures and to fund acquisitions. Based upon
current and anticipated levels of operations, we believe that
our cash flow from operations, together with amounts available
under our revolving credit facility, will be adequate to meet
our anticipated requirements for at least the next
12 months. In addition, we have total commitments by our
lenders under our revolving credit facility of
$400.0 million with availability of $123.8 million as
of October 3, 2009. We currently expect our lenders will be
able to meet their commitments under that facility.
Contractual
Commitments
The following chart reflects certain cash obligations associated
with our contractual commitments as of January 3, 2009, and
does not give effect to this offering or the use of proceeds
from this offering (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt (variable rate)
|
|
$
|
416.9
|
|
|
$
|
|
|
|
$
|
276.9
|
|
|
$
|
140.0
|
|
|
$
|
|
|
Long-term debt (fixed rate)
|
|
|
211.1
|
|
|
|
2.9
|
|
|
|
12.8
|
|
|
|
195.2
|
|
|
|
0.2
|
|
Estimated interest payments(1)
|
|
|
209.6
|
|
|
|
49.3
|
|
|
|
97.1
|
|
|
|
47.0
|
|
|
|
16.2
|
|
Operating leases, net of sublease income
|
|
|
278.4
|
|
|
|
48.8
|
|
|
|
78.9
|
|
|
|
57.8
|
|
|
|
92.9
|
|
Redeemable Preferred Stock(2)
|
|
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.9
|
|
Capital leases(3)
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
0.8
|
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
Other long-term liabilities
|
|
|
7.2
|
|
|
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
1,171.3
|
|
|
$
|
102.7
|
|
|
$
|
470.9
|
|
|
$
|
439.5
|
|
|
$
|
158.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the annual interest expense on fixed and variable
rate debt. Projections of interest expense on variable rate debt
are based on current interest rates. |
|
(2) |
|
Represents the redemption amount plus cumulative dividends. |
|
(3) |
|
Excludes capital lease obligations relating to the sale and
leaseback of three owned facilities. All cash paid to the lessor
is recorded as interest expense and is included in the estimated
interest payments amount in the table. |
Off-Balance
Sheet Arrangements
We have no significant off balance sheet arrangements, other
than liabilities related to leases of Winston Tire Company that
we guaranteed when we sold Winston Tire in 2001. As of
October 3, 2009, our total obligations as guarantor on
these leases are approximately $6.0 million extending over
10 years. However, we have secured assignments or sublease
agreements for the vast majority of these commitments with
contractually assigned or subleased rentals of approximately
$5.5 million as of October 3, 2009. A provision has
been made for the net present value of the estimated shortfall.
The accrual for lease liabilities could be materially affected
by factors such as the credit worthiness of lessors, assignees
and sublessees and our success at negotiating early termination
agreements with lessors. These factors are significantly
dependent on general economic conditions. While we believe that
our current estimates of these liabilities are adequate, it is
possible that future events could require significant
adjustments to those estimates.
42
Critical
Accounting Policies and Estimates
The preparation of our financial statements and related
disclosures in conformity with accounting principles generally
accepted in the United States requires management to make
judgments, assumptions and estimates that affect the amounts
reported. We consider certain accounting policies, described
below, to be critical policies.
Revenue
Recognition and Accounts Receivable Allowance for
Doubtful Accounts
We recognize revenue when title and risk of loss pass to the
customer, which is upon delivery under
free-on-board
destination terms. We also permit customers from time to time to
return certain products, but there is no contractual right of
return. We continuously monitor and track such returns and
record an estimate of such future returns, based on historical
experience and recent trends. While such returns have
historically been within managements expectations and the
provisions established have been adequate, we cannot guarantee
that we will continue to experience the same return rates that
we have in the past. If future returns increase significantly,
operating results would be adversely affected.
The allowance for doubtful accounts provides for estimated
losses inherent within our accounts receivable balance.
Management evaluates both the creditworthiness of specific
customers and the overall probability of losses based upon an
analysis of the overall aging of receivables, past collection
trends and general economic conditions. Management believes,
based on our review, that the allowance for doubtful accounts is
adequate to cover potential losses. Actual results may vary as a
result of unforeseen economic events and the impact those events
could have on our customers.
Inventories
Inventories are valued at the lower of cost, determined on the
first-in,
first-out method, or fair market value. We perform periodic
assessments to determine the existence of obsolete, slow-moving
and non-saleable inventories and record necessary provisions to
reduce such inventories to net realizable value. If actual
market conditions are less favorable than those projected by
management, additional inventory provisions may be required.
Self-Insured
Reserves
We are self-insured for automobile liability, workers
compensation and the health care claims of our team members,
although we maintain stop-loss coverage with third-party
insurers to limit our total liability exposure. A reserve for
liabilities associated with these losses is established for
claims filed and claims incurred but not yet reported using
actuarial methods followed in the insurance industry and our
historical claims experience. While we do not expect the amounts
ultimately paid to differ significantly from our estimates, our
self-insurance reserves and corresponding selling, general and
administrative expenses could be affected if future claim
experience differs significantly from historical trends and
actuarial assumptions.
Acquisition
Exit Cost Reserves
In connection with certain acquisitions, we record exit cost
reserves for closed facilities that are subject to long-term
commitments based upon the future minimum lease payments and
related ancillary costs from the date of closure to the end of
the remaining lease term, net of estimated sublease rentals that
could be reasonably expected to be obtained for the property.
Future cash flows are based on contractual lease terms and
knowledge of the market in which the facility is located. These
estimates are subject to multiple factors, including inflation,
ability to sublease the property and other economic conditions.
Internally developed estimates of sublease rentals are based
upon the market in which the property is located, the results of
previous efforts to sublease similar property and the current
economic environment. Reserves may be adjusted in the future
based upon the actual resolution of each of these factors.
43
Valuation
of Goodwill and Other Intangible Assets
Financial Accounting Standards Board, or FASB, authoritative
guidance requires that goodwill and intangible assets with
indefinite useful lives are no longer amortized, but are tested
for impairment annually and more frequently in the event of an
impairment indicator. This guidance requires that management
compare the reporting units carrying value to its fair
value as of an annual assessment date. Management has computed
fair value by utilizing a variety of methods including
discounted cash flow and market multiple models. This
authoritative guidance also requires that intangible assets with
definite useful lives be amortized over their respective
estimated useful lives and reviewed whenever events or
circumstances indicate an impairment may exist. In accordance
with this guidance, we have elected November 30 as our annual
impairment assessment date. We completed our annual impairment
assessment as of November 30, 2008 and concluded that no
impairment charge was required to be reflected in our 2008
financial statements. We will continue to perform goodwill and
intangible asset impairment reviews annually or more frequently
if facts or circumstances warrant a review. Future adverse
developments in market conditions or our current or projected
operating results could cause the fair value of our goodwill to
fall below the carrying value, requiring an impairment charge.
Long-Lived
Assets
Management reviews long-lived assets, which consist of property,
leasehold improvements and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying
value of the asset may not be recovered. Recoverability of
long-lived assets to be held and used is evaluated by a
comparison of the carrying amount of the asset to future net
undiscounted cash flows expected to be generated by the asset
group. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for the
excess of the carrying amount over the fair value of the asset.
Assets to be disposed of are reported at the lower of the
carrying value or fair value less cost to sell when we have
committed to a disposal plan.
Income
Taxes and Valuation Allowances
Pursuant to FASB authoritative guidance for accounting for
income taxes and uncertain tax positions, deferred tax assets or
liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability from period to period. If
available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the
deferred tax assets to the amount that is more likely than not
to be realized. Future changes in such valuation allowance would
be included in the provision for deferred income taxes in the
period of change.
We account for uncertain tax positions in accordance with FASB
authoritative guidance. However, the application of income tax
law is inherently complex. As such, we are required to make
certain assumptions and judgments regarding our income tax
positions and the likelihood whether such tax positions would be
sustained if challenged. Interest and penalties related to
uncertain tax provisions are recorded as a component of the
provision for income taxes. Interpretations and guidance
surrounding income tax laws and regulations change over time. As
such, changes in our assumptions and judgments can materially
affect amounts recognized in our consolidated balance sheets and
statements of operations.
Vendor
Rebates
We receive rebates from our vendors under a number of different
programs. These rebates are recorded in accordance with
authoritative guidance related to accounting for cash
consideration received from vendors. Many of the vendor programs
provide for us to receive rebates when any of a number of
measures are achieved, generally related to the volume of
purchases. These rebates are accounted for as a reduction to the
price of the product, which reduces the carrying value of
inventory until the product is sold. Throughout the year, the
amount earned for annual rebates is based on purchases
management considers probable for the
44
full year. These estimates are continually revised to reflect
rebates earned based on actual purchase levels. Historically,
actual rebates have been within the expectations used in the
estimates.
If market conditions were to change, vendors may change the
terms of some or all of these programs. Although these changes
would not affect the amounts that have been recorded related to
product already purchased, it may impact gross margins on
products sold or revenues earned in future periods to the extent
that the changes are not passed along to the customer.
Customer
Rebates
We offer rebates to our customers under a number of different
programs. These rebates are recorded in accordance with
authoritative guidance related to accounting for consideration
given by a vendor to a customer. The majority of these programs
provide for the customer to receive rebates, generally in the
form of a reduction in the related accounts receivable balance,
when certain measures are achieved, generally related to the
volume of product purchased from us. These rebates are recorded
as a reduction of the related price of the product, which
reduces the amount of revenue recorded. Throughout the year, the
amount of rebates is estimated based on the expected level of
purchases to be made by customers that participate in the rebate
programs. These estimates are periodically revised to reflect
rebates earned by customers based on actual purchases made.
Historically, actual rebates paid have been within the
expectations used in managements estimates.
Cooperative
Advertising and Marketing Programs
We participate in cooperative advertising and marketing
programs, or co-op advertising, with our vendors. Co-op
advertising funds are provided to us generally based on the
volume of purchases made with vendors that offer such programs.
A portion of the funds received must be used for specific
advertising and marketing expenditures incurred by us or our
customers. The co-op advertising funds received by us from our
vendors are accounted for in accordance with authoritative
guidance related to accounting for cash consideration received
from a vendor, which requires that we record the funds received
as a reduction of cost of sales or as an offset to specific
costs incurred in selling the vendors products. The co-op
advertising funds that are provided to our customers are
accounted for in accordance with authoritative guidance related
to accounting for cash consideration given by a vendor to a
customer, which requires that we record the funds paid as a
reduction of revenue since no separate identifiable benefit is
received by us.
Recently
Issued Accounting Pronouncements
In June 2009, the FASB issued the FASB Accounting Standards
Codification, or the Codification. The Codification will become
the source of authoritative GAAP recognized by the FASB to be
applied by non-governmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. The
Codification is not intended to change or alter existing GAAP.
The Codification is effective for financial statements issued
for interim and annual periods ending after September 15,
2009. The adoption of the Codification did not have a material
impact on our consolidated financial statements.
In May 2009, the FASB issued authoritative guidance for events
that occur subsequent to the end of a reporting period. This
FASB authoritative guidance establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or are available to be issued. This FASB authoritative
guidance is effective for interim and annual reporting periods
ended after June 15, 2009. We adopted this guidance on
July 4, 2009 and have included the required disclosures in
the notes to our consolidated financial statements.
In April 2009, the FASB issued authoritative guidance for fair
value disclosures of financial instruments during interim
periods. This guidance extends the disclosure requirements for
fair value of financial instruments to interim period financial
statements, in addition to the existing requirements for annual
periods and reiterates the requirement to disclose the methods
and significant assumptions used to estimate fair value. This
guidance is effective for interim and annual periods ending
after June 15, 2009. We adopted
45
this guidance on July 4, 2009 and have included the
required disclosures in the notes to our consolidated financial
statements.
In April 2009, the FASB issued authoritative guidance for the
recognition and presentation of impairments that are
other-than-temporary.
This guidance amends the
other-than-temporary
impairment guidance for debt securities to make the guidance
more operational and to improve the presentation and disclosure
of
other-than-temporary
impairments on debt and equity securities. This accounting
standard is effective for interim and annual periods ending
after June 15, 2009. We adopted this accounting standard on
July 4, 2009 with no material impact on our consolidated
financial statements.
In April 2008, the FASB issued authoritative guidance for the
determination of useful lives of intangible assets. This
guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent of
this guidance is to improve the consistency between the useful
life of a recognized intangible asset under the FASB
authoritative guidance for goodwill and other intangible assets
and the period of expected cash flows used to measure the fair
value of the asset under the FASB authoritative guidance for
business combinations and other U.S. generally accepted
accounting principles. This guidance is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. We adopted this guidance on January 4, 2009 (the
first day of our 2009 fiscal year). The adoption of this
guidance did not have a material impact on our results of
operations or financial position.
In March 2008, the FASB issued authoritative guidance for
disclosures of derivative instruments and hedging activities.
This guidance is intended to improve financial reporting about
derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand
their effects on an entitys financial position, financial
performance, and cash flows. This guidance is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged. We adopted the provisions of this accounting
standard on January 4, 2009 (the first day of our 2009
fiscal year). As a result of this adoption, we expanded our
disclosures regarding derivative instruments and hedging
activities which are included in the notes to our consolidated
financial statements.
In December 2007, the FASB issued revisions to an accounting
standard for business combinations. The revised accounting
standard requires an acquiring entity to recognize, with limited
exceptions, all the assets acquired and liabilities assumed in a
transaction at the acquisition date fair value. In addition, the
revised accounting standard will require acquisition costs to be
expensed as incurred, acquired contingent liabilities to be
recorded at fair value at the acquisition date and subsequently
measured at either the higher of such amount or the amount
determined under existing guidance for non-acquired
contingencies, restructuring costs associated with a business
combination to be generally expensed subsequent to the
acquisition date and changes in deferred tax asset valuation
allowances and income tax uncertainties after the acquisition
date to generally affect income tax expense. This revised
accounting standard also includes a substantial number of new
disclosure requirements. The revised accounting standard is
effective for fiscal years beginning after December 15,
2008 and is to be applied prospectively. We adopted the revised
accounting standard on January 4, 2009 (the first day of
our 2009 fiscal year). The adoption of this revised accounting
standard did not have a material impact on our results of
operations or financial position; however, the impact in future
periods will depend on the nature and size of business
combinations completed in future periods.
Quantitative
and Qualitative Disclosures About Market Risk
Our results of operations are exposed to changes in interest
rates primarily with respect to our revolving credit facility
and our Floating Rate Notes. Interest on the revolving credit
facility is tied to the Base Rate, as defined in the agreement,
or LIBOR. Interest on the Floating Rate Notes is tied to the
three-month LIBOR. At October 3, 2009 and January 3,
2009, we had $365.2 million and $416.9 million,
respectively, outstanding under our revolving credit facility
and our Floating Rate Notes, of which $180.2 million and
$331.9 million, respectively, were not hedged by an
interest rate swap agreement and were thus subject to interest
rate changes. An increase or decrease of 1.0% in such interest
rate percentages would increase or decrease, respectively, our
annual interest expense by $1.8 million and
$3.3 million, based on the
46
outstanding balance of the revolving credit facility and
Floating Rate Notes that were not hedged at October 3, 2009
and January 3, 2009, respectively.
On June 4, 2009, we entered into an interest rate swap
agreement, effective as of June 8, 2009, which we refer to
as the 2009 Swap, to manage exposure to fluctuations in interest
rates. The 2009 Swap represents a contract to exchange floating
rate for fixed interest payments periodically over the life of
the agreement without exchange of the underlying notional
amount. The notional amount of the 2009 Swap is used to measure
interest to be paid or received and does not represent the
amount of exposure to credit loss. At October 3, 2009, the
2009 Swap in place covers a notional amount of
$100.0 million of variable rate indebtedness at a fixed
interest rate of 1.45% and expires on June 8, 2011. The
2009 Swap has not been designated for hedge accounting
treatment. Accordingly, we recognize the fair value of the 2009
Swap in the accompanying condensed consolidated balance sheets
and any changes in the fair value are recorded as adjustments to
interest expense in the accompanying condensed consolidated
statements of operations. The fair value of the 2009 Swap is the
estimated amount that we would pay or receive to terminate the
agreement at the reporting date. The fair value of the 2009 Swap
was a liability of $0.9 million at October 3, 2009 and
is included in other liabilities in the accompanying condensed
consolidated balance sheet with the offset included in interest
expense in the accompanying condensed consolidated statement of
operations.
On October 11, 2005, we entered into an interest rate swap
agreement, which we refer to as the 2005 Swap, to manage
exposure to fluctuations in interest rates. The Swap represents
a contract to exchange floating rate for fixed interest payments
periodically over the life of the agreement without exchange of
the underlying notional amount. The notional amount of the Swap
is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. At
October 3, 2009 and January 3, 2009, the Swap in place
covered a notional amount of $85.0 million of our
outstanding $140.0 million Floating Rate Notes at a fixed
interest rate of 4.79% and expires on September 30, 2010.
The Swap has been designated for hedge accounting treatment.
Accordingly, we recognize the fair value of the Swap in the
accompanying consolidated balance sheets and any changes in the
fair value are recorded as adjustments to other comprehensive
income (loss). The fair value of the Swap is the estimated
amount that we would pay or receive to terminate the agreement
at the reporting date. The fair value of the Swap was a
liability of $3.5 million at October 3, 2009 and
$4.3 million at January 3, 2009 and is included in
other liabilities in the accompanying consolidated balance
sheets with the offset included in other comprehensive income
(loss), net of tax.
47
BUSINESS
Our
Company
We are the leading replacement tire distributor in the United
States, providing a critical range of services to enable tire
retailers to effectively service and grow sales to consumers.
Through our network of 83 distribution centers, we offer
access to industry-leading breadth and depth of inventory,
representing approximately 40,000 stock-keeping units (SKUs), to
approximately 60,000 customers. The critical range of services
we provide includes frequent and timely delivery of inventory,
business support services, such as credit, training and access
to consumer market data, administration of tire manufacturer
affiliate programs, a leading online ordering and reporting
system and a website that enables our tire retailer customers to
participate in Internet marketing of tires to consumers. We
estimate that our share of the replacement passenger and light
truck tire market in the United States has increased from
approximately 1.2% in 1996 to approximately 9.2% in 2008, which
we believe is approximately twice the market share of our
closest competitor.
We serve a highly diversified customer base comprised of local,
regional and national independent tire retailers, automotive
dealerships, tire manufacturer-owned stores, mass merchandisers
and service stations. In fiscal 2008, our largest customer and
our top ten customers accounted for less than 1.7% and 6.7%,
respectively, of our net sales. We are a top supplier to many of
our customers and maintain customer relationships that exceed a
decade on average for our top 20 customers.
We believe we distribute the broadest product offering in our
industry, supplying our customers with nine of the top ten
leading passenger and light truck tire brands. We carry the flag
brands of all four of the largest tire manufacturers
Bridgestone, Continental, Goodyear, and
Michelin as well as Hankook,
Kumho, Nexen, Nitto and Pirelli
brands. In addition to flag brands, we also sell lower price
point associate brands of many of these and other manufacturers,
as well as proprietary brand tires, custom wheels and
accessories and related tire service equipment. Tire sales
accounted for approximately 91.4% of our net sales in fiscal
2008. We believe our large, diverse product offering allows us
to better penetrate the replacement tire market across a broad
range of price points.
For the nine-month period ended October 3, 2009, our net
sales totaled $1,645.0 million, our net income was
$2.3 million and our EBITDA was $69.6 million. From
fiscal 2003 to fiscal 2008, we grew our net sales and EBITDA at
a compound annual rate of 12.0% and 17.0%, respectively,
outperforming the overall U.S. replacement tire market,
which experienced an average annual unit volume decrease of
0.7%. For a reconciliation from net income to EBITDA, see
Prospectus Summary Summary Consolidated
Financial Data.
Our
Industry
The U.S. replacement tire market generated annual retail
sales of approximately $30.2 billion in 2008, according to
Modern Tire Dealer. In 2008, passenger tires, medium
truck tires and light truck tires accounted for 64.1%, 17.8% and
14.2%, respectively, of the U.S. replacement tire market.
Farm, specialty and other types of tires accounted for the
remaining 3.9%. In 2009, according to Tire Review, tire
retailers obtained 69% of their tire volume from wholesale tire
distributors, like us, and 17% of their tire volume from tire
manufacturers.
In the United States, replacement tires are sold to consumers
through several different channels, including local, regional
and national independent tire retailers, mass merchandisers,
warehouse clubs, tire manufacturer-owned stores, automotive
dealerships, service stations and web-based marketers. Between
1990 and 2008, independent tire retailers and automotive
dealerships have enjoyed the largest increase in market share,
moving from 54.0% to 60.0% and 1.0% to 5.5% of the market,
respectively, according to Modern Tire Dealer.
The U.S. replacement tire market has historically
experienced stable growth and favorable pricing dynamics. From
1955 through 2009, U.S. replacement tire unit shipments
increased by an average of approximately 2.6% per year even
after factoring in the effects of the recent turbulent economic
period. In
48
addition, the industry has seen stronger growth in the high and
ultra-high performance tire segments, which have experienced a
compound annual growth rate of approximately 9% over the period
from 2000 to 2008.
We believe growth in the U.S. replacement tire market will
continue to be driven by favorable underlying dynamics,
including:
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increases in the number and average age of passenger cars and
light trucks;
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increases in the number of miles driven;
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increases in the number of licensed drivers as the
U.S. population continues to grow;
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increases in the number of replacement tire SKUs;
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growth of the high performance tire segment; and
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shortening tire replacement cycles due to changes in product mix
that increasingly favor high performance tires, which have
shorter average lives.
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Our
Competitive Strengths
We believe the following key strengths position us well to
maintain our ability to achieve revenue growth that exceeds that
of the U.S. replacement tire industry:
Leading Position in a Highly-Fragmented
Marketplace. We are the leading replacement tire
distributor in the United States with an estimated market share
of approximately 9.2%. We believe our scale provides us key
competitive advantages relative to our smaller, and generally
regionally-focused, competitors that include the ability to:
efficiently stock and deliver a wide variety of tires, custom
wheels, tire service equipment and accessories; invest in
services, including sales tools and technologies, to support our
customers; and realize operating efficiencies from our scalable
infrastructure. We believe our leading market position, combined
with our commitment to distribution, as opposed to the retail
operations engaged in by our customers, enhances our ability to
expand our sales footprint cost effectively both in our existing
markets and in new domestic geographic markets.
Extensive and Efficient Distribution
Network. We have the largest independent
replacement tire distribution network in the United States with
83 distribution centers and approximately 800 delivery vehicles
serving 37 states. Our extensive distribution footprint,
combined with our sophisticated inventory management and
logistics technologies, enables us to deliver the vast majority
of orders on a same or next day basis, which is critical for
tire retailers who are typically limited by physical inventory
capacity and working capital constraints. Our delivery
technologies, including dynamic routing and Roadnet 5000, a
routing tool, allow us to more effectively and efficiently
organize and optimize our route systems to provide timely
product delivery. Our Oracle ERP system provides a scalable
platform that can support future growth and ongoing cost
reduction initiatives, including warehouse and truck management
systems, which we believe will allow us to continue reducing
warehouse and delivery costs per unit.
Broad Product Offering from Diverse Supplier
Base. We believe we offer the most comprehensive
selection of tires in the industry. We supply nine of the top
ten leading passenger tire brands, and we carry the flag brands
of all four of the largest tire manufacturers
Bridgestone, Continental, Goodyear and
Michelin as well as Hankook,
Kumho, Nexen, Nitto and Pirelli
brands. Our tire product line includes a full suite of flag,
associate and proprietary brand tires, allowing us to service a
broad range of price points from entry level to the faster
growing ultra-high performance category. In addition to tires,
we also offer custom wheels and accessories and related service
equipment. We believe that our broad product offering drives
penetration among existing customers, attracts new customers and
maximizes customer retention.
Broad Range of Critical Services. We provide a
critical range of services which enables our tire retailer
customers to operate their businesses more profitably. These
services include convenient access to and timely delivery of the
broadest product offerings available in the industry, as well as
49
fundamental business support services, such as credit, training
and access to consumer market data, that enable our tire
retailer customers to better service their individual markets,
and administration of tire manufacturer affiliate programs. We
provide our customers with convenient 24/7 access to our
extensive product offerings through our industry-leading and
proprietary
business-to-business
web portal,
ATDOnline®.
In fiscal 2009, approximately 64% of our total order volume was
placed through
ATDOnline®,
up from 56% in fiscal 2007. Our online services also include
TireBuyer.com®,
which was launched in late 2009 to allow our local independent
tire retailer customers to participate in the Internet marketing
of tires to consumers. We also provide select, qualified
independent tire retailers with the opportunity to participate
in our Tire
Pros®
franchise program through which they receive advertising and
marketing support and the benefits of a national brand identity.
Diversified Customer Base and Longstanding Customer
Relationships. We serve a highly diversified
customer base comprised of local, regional and national
independent tire retailers, automotive dealerships, tire
manufacturer-owned stores, mass merchandisers and service
stations. In fiscal 2008, our largest customer and our top ten
customers accounted for less than 1.7% and 6.7%, respectively,
of our net sales. We are a top supplier to many of our customers
and maintain customer relationships that exceed a decade on
average for our top 20 customers. We believe the diversity of
our customer base and the strength of our customer relationships
present an opportunity to grow market share regardless of
macroeconomic and replacement tire market conditions.
Strong Cash Flow Generation Capability. Our
inventory management systems and vendor relationships enable us
to generate strong cash flow from operations through efficient
management of our working capital. We have designed efficient
warehouse, delivery, information technology and other
infrastructure capabilities to be scalable, creating incremental
distribution capacity to support further penetration within
current markets and expansion into new domestic geographic
markets. In addition, our bad debt expense has been below 0.15%
of sales for fiscal 2006 through fiscal 2009 due to our credit
and collection procedures. We have also effectively leveraged
our fixed assets with average annual maintenance capital
expenditures of less than $3.0 million during the period
from fiscal 2006 to fiscal 2009. We believe the low capital
intensity of our business should allow us to continue producing
favorable cash flow in the future.
Strong Management Team with Track Record of Driving Growth
and Improving Efficiency. Our senior management
team has a proven track record of implementing successful
initiatives, including the execution of a disciplined
acquisition strategy, that have contributed to our gross profit
expansion and above-market net sales growth. In addition, we
have reduced costs through the integration of operating systems
and introduction of standard operating practices across all
locations, resulting in improved operating efficiencies, reduced
headcount and improved operating profit at existing and acquired
locations. We believe our cost discipline and acquisition
integration experience will continue to be competitive
advantages as we grow both organically and through selective
acquisitions. Our senior management team has an average of
25 years of distribution experience and over 19 years
working with us or our predecessors.
Our
Business Strategy
Our objective is to be the largest distributor of replacement
tires to local, regional and national independent U.S. tire
retailers, as well as automotive dealerships, service stations
and mass merchandisers, to drive above-market growth and further
enhance profitability and cash flow. We intend to accomplish
this objective by executing the following key operating
strategies:
Leverage Our Infrastructure in Existing
Markets. Through infrastructure expansions over
the past several years, we have developed a scalable platform
with available incremental distribution capacity. Our
distribution infrastructure enables us to efficiently add new
customers and service growing channels, such as automotive
dealerships, thereby increasing profitability by leveraging the
utilization of our existing assets. We believe our relative
penetration in existing markets is largely a function of the
services we offer and the length of time we have operated
locally. Specifically, in new
50
markets, we have experienced growth in market share over time,
and in states we have served the longest, we generally have
market share well in excess of our national average.
Continue to Expand into New Geographic
Markets. Our existing organizational and
technological platforms are scalable and designed to accommodate
additional distribution capacity and increased sales as we
expand our network throughout the United States. For example, we
entered the Texas market in late 2004 and Minnesota in 2007 and
we were able to leverage our platforms to more than double our
sales in both states since our entry. While we have the largest
distribution footprint in the U.S. replacement tire market,
we have limited or no market presence in 18 of the contiguous
United States that represent approximately 35% of the tire
replacement market, including New York, Ohio, Michigan, Illinois
and New Jersey. We are currently contemplating expansion
strategies in several of these states to drive future growth.
Grow Participation in Tire
Pros®
Franchise Program. Through our fiscal 2008
acquisition of Am-Pac Tire Dist., Inc., which we refer to as
Am-Pac, we acquired the Tire
Pros®
franchise program, which enables us to deliver advertising and
marketing support to tire retailer customers operating as Tire
Pros®
franchisees. Since the acquisition, we have focused on modifying
and improving the Tire
Pros®
franchise program. The Tire
Pros®
franchise program allows participating local tire retailers to
enjoy the benefits of a national brand identity with minimal
investment, while still maintaining their local identity. In
return, we benefit from increasing volume penetration among, and
further aligning ourselves with, our franchisees.
Continue to Offer a Comprehensive Tire Portfolio to Meet Our
Customers Needs. We service a broad range
of price points from entry-level to faster growing high and
ultra-high performance tires, providing a full suite of flag,
associate and proprietary brand tires. We intend to continue to
focus on high and ultra-high performance tires, given the growth
in demand for such tires, while maintaining our emphasis on
providing broad market and entry level tire offerings. Our entry
level offerings were recently expanded by the addition of our
exclusive
Capitol®
and
Negotiator®
brands upon the acquisition of Am-Pac. Our comprehensive tire
portfolio is designed to satisfy all of our customers
needs and allow us to become the supplier of choice, thereby
increasing customer penetration and retention.
Grow
TireBuyer.com®
into a Premier Internet Tire Provider. In late
2009, we launched
TireBuyer.com®,
an Internet site that enables our local independent tire
retailer customers to connect with consumers and sell to them
over the Internet.
TireBuyer.com®
allows our broad base of independent tire retailer customers to
participate in a greater share of the growing Internet tire
market. We believe that
TireBuyer.com®
complements and services our participating local independent
tire retailers by providing them access to a sales and marketing
channel previously unavailable to them.
Utilize Technology Platform to Continue to Increase
Distribution Efficiency. We intend to continue to
invest in our inventory and warehouse management systems and
logistics technology to further increase our efficiency and
profit margins and improve customer service. We continue to
evaluate and incorporate technical solutions such as handheld
scanning for receiving, picking and delivery of products to our
customers. We believe these increased efficiencies will continue
to enhance our reputation with our customers for providing a
high level of prompt customer service, while also reducing costs.
Selectively Pursue Acquisitions. We expect to
continue to employ an acquisition strategy to increase our share
in existing markets, add distribution in new markets and utilize
our scale to realize cost savings. In addition, we believe
acquisitions in our existing geographic markets, such as Am-Pac,
provide an opportunity to grow market share while improving
profitability through significant cost savings. Over the past
five years, we have successfully acquired and integrated ten
businesses representing in excess of $700 million in annual
net sales. We believe our position as the leading replacement
tire distributor in the United States, combined with our access
to capital and our scalable platform, allows us to make
acquisitions at attractive post-synergy valuations.
51
Products
We sell a broad selection of well-known flag, lower price point
associate and proprietary brand tires, custom wheels and
accessories and related service equipment. Tire sales accounted
for approximately 91.4%, 89.0% and 87.2% of our net sales in
fiscal 2008, 2007 and 2006, respectively. We believe our large,
diverse product offering allows us to service the broad range of
price points in the replacement tire market.
Tires
Sales of passenger and light truck tires accounted for
approximately 79.8% of our net sales in fiscal 2008. The
remainder of our tire sales were for medium trucks, farm
vehicles and other specialty tires.
Flag brands. Flag brands, which have the
greatest brand recognition as a result of both strong sales and
strong marketing support from tire manufacturers, are generally
premium-quality and premium-priced offerings. The flag brands
that we sell have high consumer recognition and generate higher
per-tire profit than associate or proprietary brands. We
distribute the flag brands of the four largest tire
manufacturers Bridgestone,
Continental, Goodyear and Michelin
as well as Hankook, Kumho, Nexen,
Nitto and Pirelli brands. Within our flag brand
product portfolio, we also carry high and ultra-high performance
tires.
We believe that our ability to effectively distribute a wide
variety of products is key to our success. The overall
U.S. replacement tire market is highly fragmented and,
according to Modern Tire Dealer, the top ten passenger
car tire brands account for approximately 61.0% of total
U.S. replacement tire units. We believe this is the result
of two factors. First, automobile manufacturers utilize a wide
variety of tire brands and sizes for original equipment. Second,
owner loyalty to original equipment is relatively high, as
approximately one-half of all new passenger car and light truck
owners replace their tires with the same equipment at the time
of the first tire replacement. As a result, in order to be
competitive, tire retailers, particularly local independent tire
retailers, must be able to access a broad range of inventory
quickly. Our customers can use our broad product offering and
timely order fulfillment to sell a comprehensive product lineup
that they would otherwise be unable to provide on a stand-alone
basis due to working capital constraints and limited warehouse
capacity.
Our high and ultra-high performance tires are our highest
per-tire profit products and also have relatively shorter
replacement cycles. For the same reasons as other flag brands,
but to an even greater degree, we believe working capital and
inventory constraints make these tires difficult for tire
retailers to efficiently stock. High and ultra-high performance
tires experienced a compound annual growth rate of approximately
9% over the period from 2000 to 2008, significantly in excess of
the overall market growth. According to Modern Tire Dealer
and RMA, the high performance tire markets were down 3.2% in
2008 while the overall replacement tire market was down 8.7%.
Associate brands. Associate brands are
primarily lower-priced tires manufactured by well-known
manufacturers. Our associate brands, such as
Fusion®
and
Riken®,
allow us to offer tires in a wider price range. In addition,
associate brands are attractive to our tire retailer customers
because they may count towards various incentive programs
offered by manufacturers.
Proprietary and exclusive brands. Our
proprietary brands are lower-priced tires made by tire
manufacturers exclusively for, and marketed by, us for which we
hold or control the trademark. The Am-Pac acquisition provided
us with the exclusive rights to distribute both the
Capitol®
and
Negotiator®
brands in North America. The addition of these two brands
significantly strengthened our entry-level priced product
offering. Our proprietary and exclusive brands allow us to sell
value-oriented tires to tire retailers, increasing our overall
market penetration.
Custom
Wheels and Accessories
We offer over 30 different wheel brands, along with installation
and service accessories. Of these brands, five are proprietary:
ICW®
Racing,
Pacer®,
Drifz®,
Cruiser
Alloy®
and O.E.
Performance®.
An
52
additional four brands are exclusive to us: CX,
Maas, Zora and Gear. Nationally available
flag brands complement our offering with such brands as
Asanti, Advanti Racing, Cragar,
Ultra, Lexani, Mickey Thompson,
Konig, HRE, Lowenhart and
Racinghart. Collectively, these brands represent one of
the most comprehensive wheel offerings in the industry. Custom
wheels directly complement our tire products as many custom
wheel consumers purchase tires when purchasing wheels. Customers
can order custom wheels from us along with their regular tire
shipments without the added complexity of being serviced by an
additional vendor. Sourcing of product is worldwide through a
number of manufacturers. Our net sales of custom wheels in
fiscal 2008 were $90.3 million or approximately 4.6% of net
sales.
Equipment,
Tools and Supplies
We supply our customers with tire service equipment, tools and
supplies from leading manufacturers. Equipment, tools and
supplies include wheel alignment products, tire changers,
automotive lift equipment, air tools and a wide array of tire
supplies. These products broaden our portfolio and leverage our
customer relationships. The manufacturers we represent are the
leaders in the industry, and include Hunter Engineering,
Challenger, Champion, Shure, Chicago Pneumatic, Ingersoll Rand,
REMA Tip Top and Group 31 Inc. Our net sales of equipment,
tools, supplies and other items in fiscal 2008 was
$78.8 million, or approximately 4.0% of net sales.
Distribution
System
We have designed our distribution system to deliver products
from a wide variety of tire manufacturers to our tire retailer
customers. In recent years, tire manufacturers have reduced the
number of tire retailers they service directly and tire
retailers have reduced the inventory they hold. At the same
time, the complexity of replacement SKUs has continued to
expand. As a result of these changes, tire retailers have
increasingly relied on us and we have become a more critical
link in enabling tire retailers to more efficiently manage their
business.
We utilize a sophisticated inventory and delivery system to
distribute our products to most customers on a same or next day
basis. In our distribution centers, we use sophisticated bin
locator systems, material handling equipment and routing
software that link customer orders to our inventory and delivery
routes. We believe this distribution system, which is integrated
with our industry-leading and proprietary
business-to-business
ATDOnline®
ordering and reporting system, provides us a competitive
advantage by allowing us to ship customer orders quickly and
efficiently while also reducing labor costs. Our logistics and
routing technology uses third-party software packages and GPS
systems, including dynamic routing and Roadnet 5000, to optimize
route design and delivery capacity. Coupled with our fleet of
approximately 800 delivery vehicles, this technology enables us
to cost effectively make multiple daily or weekly shipments to
customers as necessary. With this distribution infrastructure,
we were able to deliver the vast majority of our customers
orders on a same or next day basis during fiscal 2009.
Approximately 80% of our tire purchases are shipped directly by
tire manufacturers to our distribution centers. The remainder of
our purchases are shipped by manufacturers to our import
redistribution centers located in Maiden, North Carolina and
Bakersfield, California. These import redistribution centers
warehouse slower-moving and foreign-manufactured products, which
are forwarded to our distribution centers as needed.
Marketing
and Customer Service
Our marketing efforts are focused on driving growth through
customer service, additional product placement and market
expansion. We provide a critical range of services which enables
our tire retailer customers to operate their businesses more
profitably. These services include convenient access to and
timely delivery of the broadest inventory available in the
industry, as well as fundamental business support services, such
as credit, training and access to consumer market data, that
enable our tire retailer customers to better service their
individual markets, and administration of tire manufacturer
affiliate programs. We provide our customers with convenient
24/7 access to our extensive inventories through our
ATDOnline®
web portal. In fiscal 2009, approximately 64% of our total order
volume was ordered through
ATDOnline®,
up from 56% in
53
fiscal 2007. Our online services also include our latest
initiative,
TireBuyer.com®,
which was launched in late 2009 to allow our local independent
tire retailer customers to participate in the Internet marketing
of tires to consumers. We also provide select, qualified
independent tire retailers with the opportunity to participate
in our Tire
Pros®
franchise program through which they receive advertising and
marketing support and the benefits of a national brand identity.
Sales
Force
We have structured our sales organization to best service our
existing customers and develop new prospective customers. As the
manufacturers have reduced their own sales staffs, our sales
force has assumed the consultative role manufacturers previously
provided to tire retailers.
Our tire sales force consists of sales personnel at each
distribution center plus a sales administrative team located at
our field support center in Huntersville, North Carolina. Sales
teams consisting of salespeople and customer service
representatives, focus on tire retailers located within the
service area of the distribution center and include a
combination of tire-, wheel- and equipment-focused sales
personnel. Some sales personnel visit targeted customers to
advance our business opportunities and those of our customers,
while other sales personnel remain at our facility, making
client contact by telephone to advance specific products or
programs. Customer service representatives manage incoming calls
from customers and provide assistance with order placement,
inventory inquiries and general customer support. The
Huntersville-based sales administrative team directs sales
personnel at the distribution centers and manages our corporate
account customers, including large national and regional retail
tire and service companies. This sales administrative team also
manages our Huntersville-based call center, which provides call
management assistance to the distribution centers during peak
times of the day, thereby minimizing customer wait time, and
also provides support upon any disruption in a distribution
centers local telephone service. This team also serves as
the primary point of contact for product and technical inquiries
from
TireBuyer.com®
shoppers.
Our aftermarket wheel sales group employs sales and technical
support personnel in the field and performance specialists in
each region. This sales groups responsibilities include
cultivating new prospective wheel customers and coordinating
with tire sales professionals to cover existing accounts. The
technical support professionals provide answers to customer
questions regarding wheel style and fitment. We also have
established a dedicated equipment, tool and supply sales force
that works with the wheel sales group to sell related service
equipment, tools and supplies.
ATDOnline®
and
TireBuyer.com®
ATDOnline®
provides our customers with web-based online ordering and 24/7
access to our inventory availability and pricing. Orders are
processed automatically and printed in the appropriate
distribution center within minutes of entry through
ATDOnline®.
Our customers are able to track expected deliveries and retrieve
copies of their signed delivery receipts.
ATDOnline®
also allows customers to track account balances and
participation in tire manufacturer incentive programs. We have
encouraged our customers to use this system because it
represents a more efficient method of order entry and
information access than traditional order systems. In fiscal
2009, approximately 64% of our total order volume was placed
through
ATDOnline®,
up from 56% in fiscal 2007.
In late 2009, we launched
TireBuyer.com®,
an Internet site which enables our local independent tire
retailer customers to access consumers and sell to them over the
Internet. Consumers using
TireBuyer.com®
choose to buy from a select, qualified independent tire retailer
participating in our
TireBuyer.com®
program. We then distribute the purchased products to the
selected tire retailer for local installation. The tire retailer
receives the full revenue of the transaction, less any
applicable processing fees, upon product installation. We employ
a third-party provider to handle the online billing and payment
process. We do not handle customers credit card or other
sensitive information. We account for revenues from
TireBuyer.com®
in the same manner as other orders received from tire retailer
customers. The
TireBuyer.com®
transaction structure allows us to retain our distribution
focus, while strengthening our relationship with our tire
retailer customers.
54
Tire
Retailer Programs
Through our fiscal 2008 acquisition of Am-Pac, we acquired the
Tire
Pros®
franchise program through which we deliver advertising and
marketing support to tire retailer customers operating as Tire
Pros®
franchisees. Since the acquisition, we have focused on modifying
and improving the Tire
Pros®
franchise program. Local independent tire retailers
participating in this franchise program enjoy the benefits of a
national brand identity with minimal investment, while still
maintaining their local identity. We anticipate increasing
volume penetration among, and further aligning ourselves with,
franchisees.
Individual manufacturers offer a variety of programs for tire
retailers that sell their products, such as Bridgestones
TireStarz, Continentals Gold, Goodyears
G3X,
Kumhos Fuel and Michelins Alliance. These
programs, which are relatively complex, provide cooperative
advertising funds, volume discounts and other incentives. As
part of our service to our customers, we assist in the
administration of managing these programs for the manufacturers
and enhance these programs through dedicated staff to assist
tire retailers in managing their participation. We believe these
enhancements, combined with other aspects of our customer
service, provide significant value to our customers.
We also offer our tire retailer customers
ATDServiceBAY®,
which makes available a comprehensive suite of benefits
including nationwide tire and service warranties (through
third-party warranty providers), a nationally accepted,
private-label credit card (through GE Capital), access to
consumer market data and training and marketing programs to
provide our tire retailer customers with the support and service
that are critical to succeed in todays increasingly
competitive marketplace.
Customers
We serve a highly diversified customer base comprised of local,
regional and national independent tire retailers, automotive
dealerships, tire manufacturer-owned stores, mass merchandisers
and service stations. During fiscal 2009, we sold to
approximately 60,000 customers in 37 states, principally
located in the Southeastern and Mid-Atlantic regions, as well as
portions of the Northeast, Midwest, Southwest and the West Coast
of the United States. In fiscal 2008, our largest customer and
our top ten customers accounted for less than 1.7% and 6.7%,
respectively, of our net sales. We are a top supplier to many of
our customers and maintain customer relationships that exceed a
decade on average for our top 20 customers.
Automotive dealerships are focused on growing their service
business in an effort to expand profitability, and we believe
they view having replacement tire capabilities as an important
service element. Between 1990 and 2008, automotive dealerships
have enjoyed a large increase in market share, moving from 1.0%
of the U.S. tire replacement market to 5.5% of the market
according to Modern Tire Dealer.
Suppliers
We purchase our tires from several sources, including the four
largest tire manufacturers, Bridgestone, Continental, Goodyear
and Michelin, from whom we bought 58.0% of our tire products in
fiscal 2008. In general, we do not have long-term supply
agreements with tire manufacturers, instead relying on oral
arrangements or written agreements that are renegotiated
annually and can be terminated on short notice. However, we have
conducted business with many of our major tire suppliers for
over 20 years, and we believe that we have good
relationships with all of our major suppliers. In recent years,
tire manufacturers have reduced the number of tire retailers
they service directly. As a result of this change, tire
retailers have increasingly relied on us, and we have become a
more critical link between manufacturers and tire retailers.
There are a number of worldwide manufacturers of wheels and
other automotive products and equipment. Most of the wheels we
purchase are proprietary brands, namely,
Pacer®,
Cruiser
Alloy®,
Drifz®,
O.E.
Performance®
and
ICW®
Racing, and are produced by a variety of manufacturers.
We purchase equipment and other products from multiple sources,
including industry leaders such as Hunter Engineering,
Challenger, Champion, Shure, Chicago Pneumatic, Ingersoll Rand,
REMA Tip Top and Group 31 Inc.
55
Competition
The U.S. tire distribution industry is highly competitive
and fragmented. In the United States, replacement tires are sold
to consumers through several different outlets, including local,
regional and national independent tire retailers, mass
merchandisers, warehouse clubs, tire manufacturer-owned stores,
automotive dealerships, service stations and web-based
marketers. We compete with a number of tire distributors on a
regional basis. Our main competitors include TBC/Treadways
Wholesale (owned by Sumitomo), which has retail operations that
compete with its distribution customers, and TCI Tire Centers.
In the dealership channel, our principal competitor is Dealer
Tire, which is focused principally on administering replacement
tire programs for selected automobile manufacturers
dealerships. In the online channel, our principal competitor is
Tire Rack, which is principally focused on high and ultra-high
performance offerings, acting as both a retailer and a
wholesaler. We face competition from smaller regional companies
and would be adversely affected if mass merchandisers and
warehouse clubs gained market share from local independent tire
retailers, as our market share in those channels is lower.
We believe that the principal competitive factors in our
business are found in the critical range of services that we
provide to tire retailers including 24/7 access to the broadest
inventory in the industry. We believe that we compete
effectively in all aspects of our business due to our ability to
offer a broad selection of flag, associate and proprietary brand
products, our competitive prices and our ability to provide
quality services in a frequent and timely manner.
Information
Systems
Through infrastructure expansions over the past several years,
we have developed a scalable platform with incremental capacity
available. We are currently finishing the rollout of an Oracle
ERP system that supports future growth and ongoing cost
reduction initiatives, including warehouse and truck management
systems, which we believe will allow us to continue reducing
warehouse and delivery costs per unit. The ERP implementation,
which is nearing completion, has basically replaced our legacy
computer system. We continue to evaluate and incorporate
technical solutions such as handheld scanning for receiving,
picking and delivery of product to our customers.
Trademarks
The proprietary brand names under which we market our products
are trademarks of our company. These proprietary brand names are
important to our business because they develop brand
identification and foster customer loyalty. All of our
trademarks are of perpetual duration as long as they are
periodically renewed. We currently intend to maintain all of
them in force. The principal proprietary brand names under which
we market our products are:
DYNATRAC®
tires,
CRUISERWIRE®
custom wheels,
DRIFZ®
custom wheels,
ICW®
custom wheels,
PACER®
custom wheels, O.E.
PERFORMANCE®
custom wheels,
MAGNUM®
automotive lifts and
FUSION®
tires. Our other trademarks include: AMERICAN TIRE
DISTRIBUTORS®,
ATDONLINE®,
ATDSERVICEBAY®,
AUTOEDGE®,
WHEEL
WIZARD®,
ENVIZIO®,
WHEEL WIZARD
ENVIZIO®,
WHEELENVIZIO.COM®,
XPRESSPERFORMANCE®,
TIREBUYER.COM®
and TIRE
PROS®.
Seasonality
Although the effects of seasonality are not significant to our
business, we have historically experienced an increase in net
sales in the second and third fiscal quarters and an increase in
working capital in the first fiscal quarter.
Environmental
Matters
Our operations and properties are subject to federal, state and
local laws and regulations relating to the use, storage,
handling, generation, transportation, treatment, emission,
release, discharge and disposal of hazardous materials,
substances and waste and relating to the investigation and
clean-up of
contaminated properties, including off-site disposal locations.
We do not incur significant costs complying with environmental
laws and regulations. However, we could be subject to material
environmental costs, liabilities or claims in
56
the future, especially in the event of the adoption of new
environmental laws or changes in existing laws and regulations
or in their interpretation.
Employees
As of January 2, 2010, our operations employed
approximately 2,300 people. None of our employees are
represented by a union. We believe our employee relations are
satisfactory.
Inventory
Control
We believe that we maintain levels of inventory that are
adequate to meet our customers needs on a same or next day
basis. Since customers look to us to fulfill their needs on
short notice, backlog of orders is not a meaningful statistic
for us. Our inventory stocking levels are determined using our
computer systems, our sales personnel at the distribution center
and region levels, and our product managers. The data used for
this determination is derived from sales activity from all of
our distribution centers, from individual distribution centers,
and in each geographic area. It is also derived from vendor
information and from customer information. The computer system
monitors the inventory level for all stock items. All
distribution centers stock a base inventory and may expand
beyond preset inventory levels as deemed appropriate by their
general managers. Inventories in our distribution centers are
established from data from our retail customers stores
served by the respective distribution centers. Inventory
quantities are periodically re-balanced from
center-to-center.
Properties
Our principal properties are geographically situated to meet
sales and operating requirements. All of our properties are
considered to be adequate to meet current operating
requirements. As of January 2, 2010, we operate a total of
83 distribution centers located in 29 states, aggregating
approximately 7.1 million square feet. Of these centers,
two were owned and the remainder were leased. In addition, we
have a number of non-essential properties, principally acquired
in the
Am-Pac
acquisition, that we are attempting to sell or sublease.
We also lease our principal executive office, located in
Huntersville, North Carolina. This lease is scheduled to expire
in 2021.
Several of our property leases contain provisions prohibiting a
change of control of the lessee or permitting the landlord to
terminate the lease or increase rent upon a change of control of
the lessee. Based primarily upon our belief that (i) we
maintain good relations with the substantial majority of our
landlords, (ii) most of our leases are at market rates and
(iii) we have historically been able to secure suitable
leased property at market rates when needed, we believe that
these provisions will not have a material adverse effect on our
business or financial position.
Legal
Proceedings
We are involved from time to time in various lawsuits, including
class action lawsuits arising out of the ordinary conduct of our
business. Although no assurances can be given, we do not expect
that any of these matters will have a material adverse effect on
our business or financial condition. We are also involved in
various litigation proceedings incidental to the ordinary course
of our business. We believe, based on consultation with legal
counsel, that none of these will have a material adverse effect
on our financial condition or results of operations.
57
MANAGEMENT
Board of
Directors and Executive Officers
The following table contains information regarding our current
directors and executive officers. Directors hold their positions
until the annual meeting of the stockholders at which their term
expires or until their respective successors are elected and
qualified. Executive officers hold their positions until the
annual meeting of the board of directors or until their
respective successors are elected and qualified.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Richard P. Johnson
|
|
|
62
|
|
|
Chairman and Director
|
William E. Berry
|
|
|
55
|
|
|
President, Chief Executive Officer and Director
|
J. Michael Gaither
|
|
|
57
|
|
|
Executive Vice President, General Counsel and Secretary
|
David L. Dyckman
|
|
|
45
|
|
|
Executive Vice President and Chief Financial Officer
|
Daniel K. Brown
|
|
|
56
|
|
|
Executive Vice President Sales
|
Phillip E. Marrett
|
|
|
59
|
|
|
Executive Vice President Procurement
|
Joseph P. Donlan
|
|
|
63
|
|
|
Director
|
Donald Hardie
|
|
|
42
|
|
|
Director
|
James Hardymon
|
|
|
75
|
|
|
Director
|
Christopher Laws
|
|
|
35
|
|
|
Director
|
James M. Micali
|
|
|
62
|
|
|
Director
|
Randy Peeler
|
|
|
45
|
|
|
Director
|
David Tayeh
|
|
|
43
|
|
|
Director
|
Richard P. Johnson Chairman and
Director. Mr. Johnson has served on our
board of directors since February 2001 and has been Chairman of
our board of directors since May 2003. He was our Chief
Executive Officer from January 2001 until he retired in April
2009, President from January 2001 to May 2003 and President of
our Southeast Division from May 1998 to January 2001. Prior to
joining us, he was President and Chief Operating Officer of Itco
Tire Co., which we refer to as Itco, from February 1997 to May
1998, President and Chief Operating Officer of Albert Fisher
Distribution from 1994 to 1996, and Senior Vice President of
Albert Fisher Distribution from 1991 to 1994. Prior to that
time, Mr. Johnson held a variety of management positions
with Leprino Foods, Sargento Cheese and Kraft Foods. He holds an
associates degree from Palm Beach College.
William E. Berry President, Chief Executive
Officer and Director. Mr. Berry has served
on our board of directors and as our Chief Executive Officer
since April 2009 and has been our President since May 2003. He
was our Chief Operating Officer from May 2003 to April 2009,
Executive Vice President and Chief Financial Officer from
January 2002 to May 2003, and Senior Vice President of Finance
for the Southeast Division from May 1998 to January 2002.
Mr. Berry joined us in May 1998 as a result of our merger
with Itco, where he served as Controller from 1984 to 1998,
Executive Vice President in charge of business development and
sales and marketing from 1996 to 1998 and prior to that was
Senior Vice President of Finance. Prior to that, Mr. Berry
held a variety of financial management positions for a
subsidiary of the Dr Pepper Company and also spent three years
in a public accounting firm. He holds a bachelors degree
in business administration from Virginia Tech.
J. Michael Gaither Executive Vice President,
General Counsel and Secretary. Mr. Gaither
has been our General Counsel and Secretary since 1991 and has
been an Executive Vice President since May 1999. He was our
Treasurer from February 2001 to June 2003, and Senior Vice
President from 1991 to May 1999. Prior to joining us, he
was a lawyer in private practice. He holds a bachelors
degree from Duke University and a JD from the University of
North Carolina-Chapel Hill.
58
David L. Dyckman Executive Vice President and
Chief Financial Officer. Mr. Dyckman has
been our Executive Vice President and Chief Financial Officer
since January 2006. Prior to joining American Tire,
Mr. Dyckman was Executive Vice President and Chief
Financial Officer of Thermadyne Holdings Corporation from
January 2005 to December 2005, and Chief Financial Officer and
Vice President of Corporate Development for NN, Inc. from April
1998 to December 2004. Mr. Dyckman holds a bachelors
degree and an MBA from Cornell University.
Daniel K. Brown Executive Vice
President Sales. Mr. Brown has
been our Executive Vice President of Sales since March 2008. He
was our Senior Vice President of Procurement from March 2001
until March 2008. He was our Senior Vice President of Sales and
Marketing from 1997 to March 2001. Prior to that time, he held a
variety of positions with us, including Vice President of
Marketing, Director of Marketing and Marketing Manager.
Mr. Brown holds a bachelors degree from Western
Carolina University.
Phillip E. Marrett Executive Vice
President
Procurement. Mr. Marrett has been our
Executive Vice President of Procurement since March 2008. He was
our Regional Vice President in the Southeast Division from 1998
to March 2008. Prior to joining American Tire, he was employed
by Itco from 1997 to 1998 and Dunlop Tire from 1976 to 1996.
Joseph P. Donlan
Director. Mr. Donlan has served on our board
of directors since May 1997. He is a Managing Director of Brown
Brothers Harriman & Co., which he joined in 1970, and
Co-Manager of its 1818 Mezzanine Fund, L.P., its 1818 Mezzanine
Fund II, L.P. and BBH Capital Partners III, L.P. Prior to
organizing the 1818 Mezzanine Fund, L.P., Mr. Donlan
managed Brown Brothers New York commercial banking
activities. He served as Brown Brothers Senior Credit
Officer and became a member of the firms Credit Committee
on which he continues as an advisor. Mr. Donlan holds a
bachelors degree from Georgetown University and an MBA
from Rutgers University.
Donald Hardie
Director. Mr. Hardie has served on our board
of directors since March 2005. He was an executive officer of
Investcorp or one or more of its wholly owned subsidiaries from
September 2002 until December 2008. Prior to joining Investcorp,
Mr. Hardie was an investment banker and a lawyer. He
received his bachelors degree from the University of
Virginia and a JD from New York University School of Law.
James Hardymon
Director. Mr. Hardymon has served on our
board of directors since March 2008. He was Chief Executive
Officer and Chairman of Textron, Inc. from 1992 until his
retirement in 1999. Mr. Hardymon is a director of Lexmark
International, Inc. and director of WABCO Holdings, Inc. and
member of Advisory Boards of Investcorp International, Inc. Mr.
Hardymon holds a bachelors degree and a masters degree in
civil engineering from the University of Kentucky.
Christopher Laws
Director. Mr. Laws has served on our board
of directors since May 2009. He is a Director of Greenbriar
Equity Group LLC, which he joined in June 2006. Prior to joining
Greenbriar, he was employed at Blue Point Capital Partners,
where he focused on investments in industrial manufacturing and
service companies. Prior to joining Blue Point, he was employed
by Morgan Stanleys Real Estate Private Equity group in
Tokyo and its Real Estate Private Equity and Investment Banking
Group in New York. Mr. Laws holds a bachelors degree
from Dartmouth College and an MBA from Harvard Business School.
James M. Micali
Director. Mr. Micali has served on our board
of directors since February 2009. Mr. Micali is Of Counsel
with the law firm Ogletree Deakins LLC and Senior Advisor to
Azalea Fund III of the private equity firm Azalea Capital
LLC. He was Chairman and President of Michelin North America,
Inc. from 1996 until his retirement in August 2008 and was a
member of Michelin Groups Executive Council from 2001 to
2008. Prior to that time, he was Executive Vice President, Legal
and Finance, of Michelin North America from 1990 to 1996 and
General Counsel and Secretary from 1985 to 1990. Mr. Micali
is a director of SCANA Corporation, Ritchie Bros. Auctioneers,
Inc. and Sonoco Products Company. Mr. Micali holds a
bachelors degree from Lake Forest College and a JD from
Boston College Law School.
Randy Peeler
Director. Mr. Peeler has served on our board
of directors since March 2005. He is a Managing Director of
Berkshire, which he joined in 1996. Prior to joining Berkshire,
Mr. Peeler was responsible for new business ventures at
Health Advances from 1994 to 1996, and served as Chief of Staff
to
59
the Assistant Secretary for Economic Policy at the
U.S. Department of the Treasury. Prior to joining the
U.S. Treasury, he was a consultant with Cannon Associates.
He received his bachelors degree in Public Policy Studies
& Economics from Duke University in 1987 and his MBA from
Harvard Business School in 1992.
David Tayeh
Director. Mr. Tayeh has served on our board
of directors since November 2005. He has been a Managing
Director of Investcorp or one or more of its wholly owned
subsidiaries since 2005. He was Chief Financial Officer of
Jostens, Inc. from 2004 to 2005, Managing Director of Investcorp
or one or more of its wholly owned subsidiaries from 1999 to
2004, and Vice President of DLJ Investment Banking from 1994 to
1998. Mr. Tayeh holds a bachelors degree from The
University of Chicago and an MBA from The Wharton School of the
University of Pennsylvania.
Board
Structure and Committee Compensation
As of the date of this prospectus, our board of directors
consists of nine directors, and we have an audit committee and a
compensation committee. Upon the listing of our common stock on
the NYSE, we will reorganize our board of directors so that it
consists
of directors.
The composition of our audit committee and compensation
committee during the last fiscal year and the function of each
of the committees are described below. During fiscal 2009, our
board of directors held five meetings. Each director attended at
least 75% of all board of directors meetings and applicable
committee meetings, except that Randy Peeler took a personal
sabbatical for part of 2008 and attended one out of the five
board meetings held during 2009.
|
|
|
|
|
|
|
Audit
|
|
Compensation
|
Name
|
|
Committee
|
|
Committee
|
|
William E. Berry
|
|
|
|
|
Joseph P. Donlan
|
|
|
|
|
Donald Hardie
|
|
X
|
|
X
|
James Hardymon
|
|
|
|
|
Richard P. Johnson
|
|
|
|
|
Christopher Laws
|
|
X
|
|
|
James M. Micali
|
|
|
|
|
Randy Peeler
|
|
|
|
|
David Tayeh
|
|
X
|
|
X
|
Audit
Committee
The audit committee of our board of directors consists of
Mr. Hardie, Mr. Laws and Mr. Tayeh. Our board of
directors has designated Mr. Hardie as an independent
member and has determined that he qualifies as an audit
committee financial expert as defined by the rules under
the Exchange Act. Our audit committee held four meetings during
fiscal 2009. The background and experience of each of our audit
committee members is set forth above. The audit committee makes
recommendations to our board of directors regarding the
selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent
auditors, and reviews and evaluates our audit and control
functions. Mr. Tayeh is expected to resign from the Audit
Committee upon the closing of this offering.
Prior to the listing of our common stock on the NYSE, our board
of directors will adopt a written charter under which the audit
committee will operate. A copy of the charter, which will
satisfy the applicable standards of the SEC and the NYSE, will
be available on our Website.
Under SEC rules and the rules of the NYSE, our audit committee
must consist of at least one independent member upon the
effectiveness of the registration statement related to this
offering, a majority of independent members within 90 days
after the effectiveness of the registration statement and only
independent members within one year of the effectiveness of the
registration statement. We expect to have at least one
independent member upon the effectiveness of the registration
statement, and we intend to be in compliance with the other
applicable independence rules when required.
60
Compensation
Committee
The compensation committee of our board of directors consists of
Mr. Tayeh and Mr. Hardie. Our board of directors has
designated Mr. Hardie as an independent member. Our
compensation committee held two meetings during fiscal 2009. The
compensation committee oversees our compensation plans and
organizational matters. Such oversight includes decisions
regarding executive management salaries, incentive compensation,
long-term compensation plans and equity plans for our employees
and consultants.
Prior to the listing of our common stock on the NYSE, our board
of directors will adopt a written charter under which the
compensation committee will operate. A copy of the charter will
be available on our Web site.
Compensation
of Directors
During fiscal 2008, the following compensation was paid to James
Hardymon, the only director receiving a fee for service who was
otherwise not employed by us or a representative of our
stockholders:
|
|
|
|
|
|
|
Fees Earned or Paid
|
Name
|
|
in Cash ($)
|
|
James Hardymon
|
|
$
|
50,000
|
|
Compensation
Committee Interlocks and Insider Participation
During fiscal 2008, David Tayeh and Donald Hardie served on the
compensation committee of our board of directors, which reviewed
and recommended executive compensation for the named executive
officers and our other executives. All compensation
recommendations of the compensation committee were reviewed by
and subject to the approval of our full board of directors.
Code of
Conduct
We have adopted a code of conduct that applies to all of our
employees, including our principal executive officer and
principal financial officer. A copy of our code of conduct is
available, free of charge, upon written request sent to the
legal department at our corporate offices located at 12200
Herbert Wayne Court, Suite 150, Huntersville, NC 28078. We
also expect to make our code of conduct available free of charge
on our website at
http://www.atd-us.com
upon the closing of this offering.
61
EXECUTIVE
AND DIRECTOR COMPENSATION
This section provides an overview and analysis of our
compensation program and policies, the material compensation
decisions made under those programs and policies, and the
material factors considered in making those decisions. This
section also includes a series of tables containing specific
information about the compensation earned in fiscal 2008 by the
following individuals, referred to as our named executive
officers:
|
|
|
|
|
Richard P. Johnson, Chairman;
|
|
|
|
William E. Berry, President and Chief Executive Officer;
|
|
|
|
David L. Dyckman, Executive Vice President and Chief Financial
Officer;
|
|
|
|
J. Michael Gaither, Executive Vice President, General Counsel
and Secretary; and
|
|
|
|
Daniel K. Brown, Executive Vice President Sales.
|
The discussion below is intended to help you understand the
detailed information provided in those tables and put that
information into context within our overall compensation
program. On April 1, 2009, Mr. Berry, who was
previously our President, was elevated to Chief Executive
Officer. At that time, Mr. Johnson retired as Chief
Executive Officer, remaining on our board of directors as
non-executive chairman.
Compensation
Philosophy and Objectives
Our compensation committee is charged by the board of directors
with establishing and reviewing the compensation programs for
the named executive officers. Our overall goal in compensating
executive officers is to attract, retain and motivate key
executives of superior ability who are critical to our future
success. We believe that both short-term and long-term incentive
compensation paid to executive officers should be directly
aligned with our performance, and that compensation should be
structured to ensure that a significant portion of
executives compensation opportunities is directly related
to achievement of financial and operational goals and other
factors that impact stockholder value.
Our compensation decisions with respect to executive officer
salaries, annual incentives and long-term incentive compensation
opportunities are influenced by: (i) our executives
level of responsibility and function, (ii) our overall
performance and profitability and (iii) our assessment of
the competitive marketplace. Our philosophy is to focus on total
direct compensation opportunities through a mix of base salary,
annual cash bonus and long-term incentives, including
stock-based awards.
We also believe that the best way to directly align the
interests of our executives with the interests of our
stockholders is to make sure that our executives retain an
appropriate level of equity ownership throughout their tenure
with us. Our compensation program pursues this objective through
our equity-based long-term incentive awards.
These programs are continually evaluated for effectiveness in
achieving our stated objectives as well as to reflect the
economic environment within which we operate. In this vein,
recent events roiling the worlds economies provide a
backdrop for the continued review of our compensation
strategies. Accordingly, we adjusted shorter term compensation
and incentives to help manage through the difficult 2009
economic environment while at the same time addressing
alternative long-term strategies to reward long-term success and
execution. This included freezing all wages and compensation
effective January 4, 2009, the first day of our 2009 fiscal
year.
62
Overview
of Executive Compensation Components
Our executive compensation program consists of several
compensation elements, as illustrated in the table below.
|
|
|
|
|
Pay Element
|
|
What the Pay Element Rewards
|
|
Purpose of the Pay Element
|
|
Base Salary
|
|
Core competence of the
executive relative to skills, experience and contributions to us
|
|
Provides fixed compensation
based on competitive market practice
|
Annual Cash Incentive
|
|
Contributions toward our
achievement of specified Adjusted EBITDA
|
|
Provides focus on meeting
annual goals that lead to our long-term success
Provides annual
performance-based cash incentive compensation
Motivates achievement of
critical annual performance metrics
|
Long-Term Incentives
|
|
Stock Option Program
Vesting program based
primarily on achievement of specified Adjusted EBITDA targets,
thereby aligning executives interests with those of
stockholders
|
|
Executive focus on Company
performance
Executive ownership of
Company security
Retention of the executives
|
|
|
Continued employment with us
during a 5-year vesting period
|
|
|
Retirement Benefits
|
|
Our executive officers are
eligible to participate in employee benefit plans available to
our eligible employees, including both tax qualified and
nonqualified retirement plans
|
|
Provides a tax-deferred
retirement savings alternative to certain eligible executives
|
|
|
The Deferred Compensation
Plan is a nonqualified plan comprised of a voluntary deferral
program that allows the named executive officers to defer a
portion of their annual salary and bonus and a noncontributory
program that provides for certain contributions to be made on
behalf of certain executives by us according to a Board approved
schedule. Effective January 4, 2009, we suspended contributions
to this plan for fiscal 2009. While our funds are set aside to
fund this plan, they remain available to our general creditors
|
|
|
63
|
|
|
|
|
Pay Element
|
|
What the Pay Element Rewards
|
|
Purpose of the Pay Element
|
|
Welfare Benefits
|
|
Executives participate in employee benefit plans generally available to our employees, including medical, health, life insurance and disability plans
Continuation of welfare benefits may occur as part of severance upon certain terminations of employment
In addition, we sponsor an executive medical program for our executive officers, which provides for reimbursement for certain executive officers and eligible dependents for medical expenses not covered by the Group Medical Plan
|
|
These benefits are part of
our broad-based total compensation program
We believe we benefit from
these perquisites by encouraging our executive officers to
protect their health
|
Additional Benefits and Perquisites
|
|
Certain executive officers:
One club membership
Vehicle allowance
|
|
Consistent with offering our
executives a competitive compensation program
|
Termination Benefits
|
|
We have employment
agreements with certain officers, including our named executive
officers. The agreements provide severance benefits if an
officers employment is terminated without cause or the
officer leaves for good reason, each defined in the agreements
|
|
Termination benefits are
designed to retain executives and provide continuity to
management.
|
The use of these programs enables us to reinforce our pay for
performance philosophy, as well as strengthen our ability to
attract and retain highly qualified executives. We believe that
this combination of programs provides an appropriate mix of
fixed and variable pay, balances short-term operations
performance with long-term stockholder value, and encourages
executive recruitment and retention.
Determination
of Appropriate Pay Levels
Pay
Philosophy and Competitive Standing
In general, we seek to provide competitive pay relative to the
marketplace, for total direct compensation opportunities,
including salary, target annual bonus and long-term incentives,
as well as additional benefits and perquisites. To achieve
competitive positioning for the annual cash compensation
component, we take a somewhat conservative approach to base
salaries with higher than average target bonus opportunities
annually, focusing less on fixed pay and more on
performance-based opportunities. Targeted annual cash bonus
opportunities are based on, among other things, our budgeted
annual Adjusted EBITDA goals and other factors, which may
fluctuate from year to year.
64
The compensation committee focuses on the executives
tenure, individual performance and changes in responsibility as
well as our overall annual budget goals. Additionally, the
compensation committee ensures that compensation paid is
consistent with such factors as change in cost of living.
2008
Base Salary
Base salary levels reflect a combination of factors including
the executives experience and tenure, our overall annual
budget, the executives individual performance and changes
in responsibility. The compensation committee reviews salary
levels annually using these factors. We do not target base
salary at any particular percent of total compensation.
The base salaries of our named executive officers reflect our
philosophy of setting base salaries relative low in comparison
to competitor companies. The Chief Executive Officer
participates with other senior management in preparing salary
recommendations for the compensation committee, including that
of the Chief Executive Officer. These recommendations are
reviewed, modified and approved by the compensation committee
and submitted to the board of directors for final ratification.
In fiscal 2008, base pay increases granted to
Messrs. Dyckman, Berry, Gaither and Brown ranged from 3.6%
to 11.5% and were established after considering job performance,
internal pay alignment and equity and marketplace
competitiveness. Mr. Johnsons salary was not adjusted.
2008
Annual Incentive Plan
Our annual incentive plan, which we refer to as the annual
incentive plan, provides our executive officers an opportunity
to earn annual cash bonuses based on our achievement of certain
pre-established performance goals. As in setting base salaries,
we consider a combination of factors in establishing the annual
target bonus opportunities for our named executive officers. The
budgeted amount of Adjusted EBITDA is a primary factor, as
target bonus opportunities are adjusted annually when we set our
budget for Adjusted EBITDA goals for the year. We do not target
annual bonus opportunities at any particular percentage of total
compensation.
For the named executives, the compensation committee set annual
bonus opportunities for fiscal 2008 based on achievement of
performance goals relating to Adjusted EBITDA, which we believe
has a strong correlation with stockholder value. We set the
Adjusted EBITDA goals for fiscal 2008 bonus opportunities at
levels that are intended to reflect improvement in performance
over the prior fiscal year, specific market conditions and
better-than-average
growth within our competitive industry.
Once our performance goals have been set and approved, the
compensation committee then sets a bonus pool for all executives
covered by the annual incentive plan as a percentage of Adjusted
EBITDA. The targeted bonus pool for fiscal 2008 was
$5.8 million, subject to adjustment, based upon an Adjusted
EBITDA target of $107.9 million. In fiscal 2008, we
achieved 99.3% of the Adjusted EBITDA goal, which resulted in a
total bonus pool paid of $5.3 million. The compensation
committee then sets a range of bonus opportunities for each
named executive officer based on the achievement of such goals.
Target bonus opportunities for fiscal 2008 were set as a
percentage of the pool as follows: Mr. Johnson, 17.3%;
Mr. Berry, 10.3%; Messrs. Dyckman, Gaither and Brown,
4.7% each.
Actual bonus amounts for fiscal 2008 were determined based on
achievement of the performance goals. The named executives were
eligible to earn their percentage of the bonus pool if we
achieved at least 95% of our Adjusted EBITDA goal. No bonus is
earned if performance falls below 95% of the Adjusted EBITDA
goal. The pool grows pro rata for Adjusted EBITDA between 95%
and 100% achievement of our Adjusted EBITDA goal. Above 100% of
our Adjusted EBITDA goal, the pool grows by approximately 40% of
each incremental Adjusted EBITDA dollar. Actual bonuses to be
paid to the named executive officers are included in the Summary
Compensation Table. The compensation committee reserves the
right to modify or change the plan at any time in its sole
discretion.
65
Stock
Option Plan
We have adopted one stock option plan, the 2005 Management Stock
Incentive Plan, which we refer to as the 2005 Plan, which is
designed to attract, retain and motivate our and our
subsidiaries directors, officers, employees and
consultants. Substantially all of the options authorized under
the plan have been granted with vesting schedules subject to
certain performance-based goals. No annual grants of options
under this plan are included as a component of the named
executives compensation plan.
In connection with the Investcorp Groups acquisition of
our operations on March 31, 2005, we acquired 372,888
outstanding options to purchase ATDI common stock in exchange
for nonqualified options, which we refer to as the rollover
options, to purchase 33,199 shares of our Series A
Common Stock, $0.01 par value per share. All rollover
options granted under the 2005 Plan are fully vested.
The following table summarizes compensation for our named
executive officers for fiscal 2008, 2007 and 2006:
Summary
Compensation Table for Fiscal 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Fiscal
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Richard P. Johnson
|
|
|
2008
|
|
|
$
|
550,000
|
|
|
$
|
916,100
|
|
|
$
|
68,500
|
|
|
$
|
1,534,600
|
|
Chairman
|
|
|
2007
|
|
|
|
550,000
|
|
|
|
1,344,882
|
|
|
|
66,328
|
|
|
|
1,961,210
|
|
|
|
|
2006
|
|
|
|
525,000
|
|
|
|
115,000
|
|
|
|
46,792
|
|
|
|
686,792
|
|
William E. Berry
|
|
|
2008
|
|
|
|
373,077
|
|
|
|
548,500
|
|
|
|
56,260
|
|
|
|
977,837
|
|
President and Chief Executive Officer
|
|
|
2007
|
|
|
|
350,000
|
|
|
|
806,929
|
|
|
|
55,762
|
|
|
|
1,212,691
|
|
|
|
|
2006
|
|
|
|
325,000
|
|
|
|
100,000
|
|
|
|
45,815
|
|
|
|
470,815
|
|
J. Michael Gaither
|
|
|
2008
|
|
|
|
289,231
|
|
|
|
250,300
|
|
|
|
57,497
|
|
|
|
597,028
|
|
Executive Vice President, General
|
|
|
2007
|
|
|
|
280,000
|
|
|
|
369,843
|
|
|
|
54,816
|
|
|
|
704,659
|
|
Counsel and Secretary
|
|
|
2006
|
|
|
|
280,000
|
|
|
|
55,000
|
|
|
|
42,427
|
|
|
|
377,427
|
|
Daniel K. Brown
|
|
|
2008
|
|
|
|
269,231
|
|
|
|
250,300
|
|
|
|
50,787
|
|
|
|
570,318
|
|
Executive Vice President Sales
|
|
|
2007
|
|
|
|
260,000
|
|
|
|
369,843
|
|
|
|
47,482
|
|
|
|
677,325
|
|
|
|
|
2006
|
|
|
|
250,000
|
|
|
|
55,000
|
|
|
|
38,606
|
|
|
|
343,606
|
|
David L. Dyckman
|
|
|
2008
|
|
|
|
287,693
|
|
|
|
250,300
|
|
|
|
23,313
|
|
|
|
561,306
|
|
Executive Vice President and
|
|
|
2007
|
|
|
|
260,000
|
|
|
|
369,843
|
|
|
|
21,130
|
|
|
|
650,973
|
|
Chief Financial Officer
|
|
|
2006
|
|
|
|
250,000
|
|
|
|
55,000
|
|
|
|
14,400
|
|
|
|
319,400
|
|
66
The following table contains a breakdown of the compensation and
benefits included under All Other Compensation in
the Summary Compensation Table above:
All Other
Compensation from Summary Compensation Table for Fiscal 2008,
2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
401(k)
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
Vehicle
|
|
|
Company
|
|
|
Club
|
|
|
Life
|
|
|
Medical
|
|
|
Long-term
|
|
|
|
|
Name
|
|
Fiscal
|
|
|
Plan
|
|
|
Allowance
|
|
|
Match
|
|
|
Dues
|
|
|
Insurance
|
|
|
Benefits
|
|
|
Disability
|
|
|
Total
|
|
|
Richard P. Johnson
|
|
|
2008
|
|
|
$
|
27,000
|
|
|
$
|
19,200
|
|
|
$
|
7,750
|
|
|
$
|
5,904
|
|
|
$
|
5,548
|
|
|
$
|
2,273
|
|
|
$
|
825
|
|
|
$
|
68,500
|
|
|
|
|
2007
|
|
|
|
27,000
|
|
|
|
15,954
|
(1)
|
|
|
6,923
|
|
|
|
5,904
|
|
|
|
7,370
|
|
|
|
2,077
|
|
|
|
1,100
|
|
|
|
66,328
|
|
|
|
|
2006
|
|
|
|
27,000
|
|
|
|
8,053
|
(2)
|
|
|
6,600
|
|
|
|
|
|
|
|
4,222
|
|
|
|
|
|
|
|
917
|
|
|
|
46,792
|
|
William E. Berry
|
|
|
2008
|
|
|
|
20,000
|
|
|
|
16,800
|
|
|
|
10,250
|
|
|
|
5,544
|
|
|
|
1,319
|
|
|
|
1,522
|
|
|
|
825
|
|
|
|
56,260
|
|
|
|
|
2007
|
|
|
|
20,000
|
|
|
|
16,800
|
|
|
|
7,723
|
|
|
|
5,544
|
|
|
|
2,350
|
|
|
|
2,245
|
|
|
|
1,100
|
|
|
|
55,762
|
|
|
|
|
2006
|
|
|
|
20,000
|
|
|
|
16,800
|
|
|
|
6,600
|
|
|
|
|
|
|
|
1,498
|
|
|
|
|
|
|
|
917
|
|
|
|
45,815
|
|
J. Michael Gaither
|
|
|
2008
|
|
|
|
17,000
|
|
|
|
16,800
|
|
|
|
10,250
|
|
|
|
6,000
|
|
|
|
1,622
|
|
|
|
5,000
|
|
|
|
825
|
|
|
|
57,497
|
|
|
|
|
2007
|
|
|
|
17,000
|
|
|
|
16,800
|
|
|
|
7,500
|
|
|
|
6,000
|
|
|
|
1,416
|
|
|
|
5,000
|
|
|
|
1,100
|
|
|
|
54,816
|
|
|
|
|
2006
|
|
|
|
17,000
|
|
|
|
16,800
|
|
|
|
6,600
|
|
|
|
|
|
|
|
1,110
|
|
|
|
|
|
|
|
917
|
|
|
|
42,427
|
|
Daniel K. Brown
|
|
|
2008
|
|
|
|
16,000
|
|
|
|
14,400
|
|
|
|
7,750
|
|
|
|
5,544
|
|
|
|
857
|
|
|
|
5,411
|
|
|
|
825
|
|
|
|
50,787
|
|
|
|
|
2007
|
|
|
|
16,000
|
|
|
|
14,400
|
|
|
|
5,400
|
|
|
|
5,544
|
|
|
|
1,311
|
|
|
|
3,727
|
|
|
|
1,100
|
|
|
|
47,482
|
|
|
|
|
2006
|
|
|
|
16,000
|
|
|
|
14,400
|
|
|
|
6,240
|
|
|
|
|
|
|
|
1,049
|
|
|
|
|
|
|
|
917
|
|
|
|
38,606
|
|
David L. Dyckman
|
|
|
2008
|
|
|
|
|
|
|
|
14,400
|
|
|
|
7,750
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
825
|
|
|
|
23,313
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
14,400
|
|
|
|
5,400
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
1,100
|
|
|
|
21,130
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
14,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,400
|
|
|
|
|
(1) |
|
Includes $1,554 included in taxable wages with respect to
personal use of a Company vehicle. |
|
(2) |
|
Represents amounts included in taxable wages with respect to
personal use of a Company vehicle. |
The following table sets forth certain information regarding the
grant of plan-based awards made during fiscal 2008 to the named
executive officers:
Grants of
Plan-Based Awards for Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
|
Non-Equity Incentive Plan Awards
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
Richard P. Johnson
|
|
$
|
401,200
|
|
|
$
|
1,002,900
|
|
|
|
|
|
William E. Berry
|
|
|
240,200
|
|
|
|
600,500
|
|
|
|
|
|
J. Michael Gaither
|
|
|
109,600
|
|
|
|
274,000
|
|
|
|
|
|
Daniel K. Brown
|
|
|
109,600
|
|
|
|
274,000
|
|
|
|
|
|
David L. Dyckman
|
|
|
109,600
|
|
|
|
274,000
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the minimum payment under the annual incentive plan
if we achieve the threshold level of 95% of the Adjusted EBITDA
goal. |
|
(2) |
|
Represents payments under the annual incentive plan if we
achieve 100% of our Adjusted EBITDA goal. In Fiscal 2008, we did
not meet plan targets, which resulted in lower payments. These
payments are included in the Summary Compensation Table under
the heading Non-Equity Incentive Plan Compensation. |
|
(3) |
|
There is no limit to the maximum amount payable under the annual
incentive plan. |
67
The following table provides information concerning unexercised
options for the named executive officers as of January 3,
2009.
Outstanding
Equity Awards at Fiscal 2008 Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
Richard P. Johnson
|
|
|
15,323
|
(a)
|
|
|
|
|
|
$
|
15.73
|
|
|
|
06/12/12
|
|
|
|
|
11,010
|
(b)
|
|
|
16,514
|
(b)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
|
|
|
|
|
|
|
19,773
|
(c)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
William E. Berry
|
|
|
10,215
|
(a)
|
|
|
|
|
|
|
15.73
|
|
|
|
06/12/12
|
|
|
|
|
7,340
|
(b)
|
|
|
11,009
|
(b)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
|
|
|
|
|
|
|
13,182
|
(c)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
J. Michael Gaither
|
|
|
7,661
|
(a)
|
|
|
|
|
|
|
15.73
|
|
|
|
06/12/12
|
|
|
|
|
1,652
|
(b)
|
|
|
2,477
|
(b)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
|
|
|
|
|
|
|
2,966
|
(c)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
Daniel K. Brown
|
|
|
1,468
|
(b)
|
|
|
2,202
|
(b)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
|
|
|
|
|
|
|
2,636
|
(c)
|
|
|
211.50
|
|
|
|
06/22/12
|
|
David L. Dyckman
|
|
|
1,468
|
(b)
|
|
|
2,202
|
(b)
|
|
|
211.50
|
|
|
|
01/03/13
|
|
|
|
|
|
|
|
|
2,636
|
(c)
|
|
|
211.50
|
|
|
|
01/03/13
|
|
|
|
|
(a) |
|
Represents rollover options that were granted to acquire
outstanding options to purchase ATDI common stock. All Rollover
Options were granted under the 2005 Plan and are fully vested. |
|
(b) |
|
Represents options that were granted under the 2005 Plan that
vest upon meeting our specified performance goals, the passage
of time or the occurrence of certain events. |
|
(c) |
|
Represents options that were granted under the 2005 Plan that
vest in connection with any future sale of us upon the
achievement of certain performance goals. |
The following table sets forth information regarding
nonqualified deferred compensation plans, including, with
respect to each named executive officer, the aggregate
contributions made by such executive officer during fiscal 2008,
the aggregate contributions made by us during fiscal 2008, on
behalf of the executive officer, the aggregate losses accrued
during fiscal 2008, the aggregate value of withdrawals and
distributions to the executive officer during fiscal 2008 and
balance of account as of January 3, 2009:
Nonqualified
Deferred Compensation for Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Losses in
|
|
|
Withdrawals/
|
|
|
January 3,
|
|
|
|
in Fiscal 2008
|
|
|
in fiscal 2008
|
|
|
fiscal 2008
|
|
|
Distributions
|
|
|
2009
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
($)
|
|
|
($)(3)
|
|
|
Richard P. Johnson
|
|
$
|
11,000
|
|
|
$
|
27,000
|
|
|
$
|
(122,685
|
)
|
|
$
|
(33,059
|
)
|
|
$
|
233,961
|
|
William E. Berry
|
|
|
55,269
|
|
|
|
20,000
|
|
|
|
(164,380
|
)
|
|
|
|
|
|
|
248,721
|
|
J. Michael Gaither
|
|
|
|
|
|
|
17,000
|
|
|
|
(133,953
|
)
|
|
|
|
|
|
|
277,296
|
|
Daniel K. Brown
|
|
|
|
|
|
|
16,000
|
|
|
|
(158,264
|
)
|
|
|
|
|
|
|
240,304
|
|
David L. Dyckman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts in this column are included in the amounts reported as
salary or Non-Equity Incentive Plan Compensation in
the Summary Compensation Table for fiscal 2008 for each of the
named executive officers. |
footnotes continued on following page
68
|
|
|
(2) |
|
Amounts in this column reflect company contributions and are
included in the Summary Compensation Table under the heading
All Other Compensation. |
|
(3) |
|
The amounts in the table below are also being reported as
compensation in the Summary Compensation Table in the years
indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Fiscal
|
|
Amounts
|
Name
|
|
Year
|
|
($)
|
|
Richard P. Johnson
|
|
|
2008
|
|
|
$
|
38,000
|
|
|
|
|
2007
|
|
|
|
37,981
|
|
|
|
|
2006
|
|
|
|
37,500
|
|
William E. Berry
|
|
|
2008
|
|
|
|
75,269
|
|
|
|
|
2007
|
|
|
|
46,301
|
|
|
|
|
2006
|
|
|
|
99,100
|
|
J. Michael Gaither
|
|
|
2008
|
|
|
|
17,000
|
|
|
|
|
2007
|
|
|
|
21,514
|
|
|
|
|
2006
|
|
|
|
29,169
|
|
Daniel K. Brown
|
|
|
2008
|
|
|
|
16,000
|
|
|
|
|
2007
|
|
|
|
16,000
|
|
|
|
|
2006
|
|
|
|
16,000
|
|
David L. Dyckman
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
In 1999, we established a deferred compensation plan for our top
executives and regional employees covered by the executive bonus
plan to encourage each participant to promote our long-term
interests. Participants are allowed to defer portions of their
annual salary as well as bonuses received into the plan. In
addition to employee deferrals, we make contributions on behalf
of our top executives and certain regional employees in varying
amounts. The plan provides that an employee who became a
participant on or before November 23, 1998 shall be fully
vested in all amounts credited to his or her account. All named
executives participating in the plan have been participants
since before November 23, 1998. The plan provides that an
employee who became a participant after November 23, 1998
shall be at all times be fully vested in elective deferrals into
his or her account and that, as to contributions made by us,
such contributions vest ratably over five years as long as he or
she continues to be an employee. The deferred compensation plan
may be altered and amended by our board of directors. Upon the
acquisition of ATDI, all balances under the 1999 Company
Deferred Compensation Plan became vested and payable.
Potential
Payments upon Termination
Employment
Agreements
We have entered into employment agreements with each of
Messrs. Johnson, Berry, Gaither, Brown and Dyckman
providing for the payment of an annual base salary and bonus
opportunities, as well as participation by each of them in the
benefit plans and programs generally maintained by us for senior
executives from time to time.
We or the employee may terminate the applicable employment
agreement at any time. Upon termination of employment for any
reason, the employee is entitled to receive a basic termination
payment equal to: (i) his base salary earned through the
date of termination and (ii) the previous years bonus
if the termination is after December 31 and before a bonus has
been awarded. If we terminate the employee without cause or if
the employee leaves for good reason (each as defined in his
employment agreement), he is entitled to an additional severance
payment based on a multiple of his base salary and plan bonus.
The employment agreements each contain confidentiality and
non-compete provisions.
69
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
Investcorp and the other members of the Control Group, acting
through ATDH, acquired ATDI in an acquisition completed on
March 31, 2005. Pursuant to a merger agreement dated as of
February 4, 2005 and amended and restated on March 7,
2005, ATD MergerSub, Inc., a subsidiary of ATDH, merged with and
into ATDI. ATDI continued as the surviving corporation with ATDH
as its sole stockholder. Both immediately before and immediately
after this merger, ATDH was controlled by the Control Group.
Stockholders
Agreement
On March 31, 2005, ATDH and the members of the Control
Group entered into a stockholders agreement that contains
agreements with respect to the election of directors,
restrictions on the sale, issuance or transfer of shares and
special corporate governance provisions. The stockholders
agreement will terminate automatically upon the closing of this
offering and our listing on the NYSE.
Warrants
In March 2005, in connection with the acquisition of ATDI, ATDH
issued warrants to The 1818 Mezzanine Fund II, L.P., which
we refer to as The 1818 Fund, in exchange for $4.6 million
in cash less related transaction costs of $0.1 million. The
warrants entitle the holders to acquire up to 21,895 shares
of our Series A Common Stock (or a successor security) at
$0.01 per share. The warrants expire on September 30, 2015.
We have recorded these warrants at fair value and have presented
them as a component of stockholders equity at
January 3, 2009 and December 29, 2007.
Redeemable
Preferred Stock
In connection with its acquisition of ATDI, we issued
20,000 shares of our Redeemable Preferred Stock to The 1818
Fund in exchange for $15.4 million in cash less related
transaction costs of $0.5 million. The Redeemable Preferred
Stock has a stated value of $1,000 per share and entitles
holders to receive, when and if declared by the board of
directors, cumulative dividends, payable in cash, at an annual
rate of 8.0%. The dividends and accretion of the carrying amount
to the redemption amount are recorded as interest expense in our
consolidated statements of operations. Our board of directors is
not obligated to declare dividends and the preferred stock
provides no monetary penalties for a failure to declare
dividends. The Redeemable Preferred Stock may be redeemed by us
at any time, and we must redeem it upon the later of a change of
control of us or at its maturity in 2015. Our Redeemable
Preferred Stock is classified as a noncurrent liability in the
accompanying consolidated balance sheets in accordance with FASB
authoritative guidance related to accounting for certain
financial instruments with characteristics of both liabilities
and equity.
Related
Party Transactions
Redeemable
Preferred Stock and Warrants
In connection with the acquisition of ATDI, ATDH issued
20,000 shares of our Redeemable Preferred Stock and
warrants to acquire up to 21,895 shares of ATDH
Series A Common Stock at $.01 per share to The 1818 Fund.
Joseph P. Donlan, a member of the ATDs board of directors,
is a Managing Director of Brown Brothers Harriman &
Co., The 1818 Funds general partner.
Deferred
Financing Fees
Advisory fees of $13.9 million were paid to Investcorp and
its affiliates, Berkshire Partners and Greenbriar Equity Group,
in connection with our amended revolving credit facility and the
issuance of the senior notes and Redeemable Preferred Stock at
the time of ATDHs acquisition of ATDI. These fees are
recorded as debt issuance costs in the accompanying consolidated
balance sheets and are being amortized over the life of the
respective debt.
Management
Advisory Fees
Management advisory fees of $8.0 million were paid to one
or more of Investcorp and its co-sponsors (or their respective
affiliates) at the closing of the acquisition of ATDI for
services to be rendered over a period of five years following
the date of the acquisition. This payment is being amortized
pursuant to the terms of the agreement and on a basis consistent
with the services provided. We recorded amortization expense of
$0.5 million, $0.5 million and $1.9 million
during fiscal 2008, 2007 and 2006, respectively.
70
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth information as to the beneficial
ownership of our common stock as of February 5, 2010, and
after giving effect to the sale of the common stock offered
hereby, by (i) the selling stockholders assuming the
underwriters exercise their option to purchase shares to cover
overallotments in full, assuming the overallotment shares are
offered at $ per share (the
midpoint of the price range set forth on the cover of this
prospectus), (ii) each person or group who is known to us
to own beneficially more than 5% of the outstanding shares of
our common stock, (iii) each director and named executive
officer and (iv) all directors and executive officers as a
group. Percentage of beneficial ownership prior to this offering
is based on 999,527 shares of common stock outstanding as of
February 5, 2010. Unless otherwise noted, these persons may
be contacted at our executive offices and, to our knowledge,
have sole voting and investment power over the shares listed. We
expect that immediately following the initial public offering.
As indicated in the table below, certain of our stockholders
have entered into a stockholders agreement with respect to the
shares of our capital stock that they beneficially own. See
Certain Relationships and Transactions
Stockholders Agreement. All such stockholders may be
deemed to be a control group for such purposes, and all such
shares may be deemed beneficially owned by such group. Because
we believe that it more accurately reflects ownership of our
capital stock, this table does not reflect shares which may be
deemed to be beneficially owned by any entity solely by virtue
of the stockholders agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares Offered
|
|
|
|
|
|
|
|
|
|
Beneficially
|
|
|
Assuming
|
|
|
Shares Beneficially Owned After this
|
|
|
|
Owned
|
|
|
Overallotment is
|
|
|
Offering Assuming
|
|
|
|
Prior to this
|
|
|
Exercised
|
|
|
the Overallotment Option is Exercised
|
|
|
|
Offering(1)
|
|
|
in Full(2)
|
|
|
in Full
|
|
Name
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
Number
|
|
|
%
|
|
|
1818 Mezzanine Fund(3)
|
|
|
21,895.0000
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkshire(4)
|
|
|
224,586.0000
|
|
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenbriar(5)
|
|
|
82,742.0000
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investcorp S.A.(6)
|
|
|
227,082.8600
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIPCO Limited(7)
|
|
|
227,082.8600
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Tire Holdings T3 Limited(8)
|
|
|
27,656.5436
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Tire Holdings T3.5 Limited(8)
|
|
|
13,032.6728
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Tire Holdings T5 Limited(8)
|
|
|
18,912.5296
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATD Equity Limited(8)
|
|
|
82,242.2260
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATD IIP Limited(8)
|
|
|
36,370.2492
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATD International Limited(8)
|
|
|
63,284.2336
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATD Investments Limited(8)
|
|
|
63,284.2336
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Archdale Limited(9)
|
|
|
107.9614
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ballet Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carthage Limited(9)
|
|
|
107.9614
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denary Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuquay Limited(9)
|
|
|
107.9614
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gleam Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GPF American Tire Holdings Limited(8)
|
|
|
63,041.7652
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlands Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investcorp 2005 ATD Holdings Portfolio L.P.(8)
|
|
|
97,371.0000
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investcorp Coinvestment Partners II L.P.(11)
|
|
|
28,368.0000
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investcorp Investment Equity Limited(12)
|
|
|
120.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noble Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares Offered
|
|
|
|
|
|
|
|
|
|
Beneficially
|
|
|
Assuming
|
|
|
Shares Beneficially Owned After this
|
|
|
|
Owned
|
|
|
Overallotment is
|
|
|
Offering Assuming
|
|
|
|
Prior to this
|
|
|
Exercised
|
|
|
the Overallotment Option is Exercised
|
|
|
|
Offering(1)
|
|
|
in Full(2)
|
|
|
in Full
|
|
Name
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
Number
|
|
|
%
|
|
|
Outrigger Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkwood Limited(9)
|
|
|
107.9614
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quill Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radial Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shoreline Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tire Equity Limited(8)
|
|
|
63,284.2336
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tire Holdings Limited(8)
|
|
|
63,284.2336
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tire Investments Limited(8)
|
|
|
63,284.2336
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinnia Limited(10)
|
|
|
138.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Johnson(13)
|
|
|
26,333.0000
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Berry(13)
|
|
|
17,555.0000
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Gaither(13)
|
|
|
9,313.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel K. Brown(14)
|
|
|
3,832.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Dyckman(13)
|
|
|
1,468.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Donlan(3)
|
|
|
21,895.0000
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Hardie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Hardymon
|
|
|
533.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Laws(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Micali
|
|
|
333.0000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Randolph Peeler(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Tayeh(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our directors and executive officers as a group
(13 persons)(18)
|
|
|
85,093.0000
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents less than 1%. |
|
(1) |
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Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Shares of our common stock subject
to options that are currently exercisable or exercisable within
60 days of February 5, 2010 are deemed outstanding for
the purposes of computing the beneficial ownership of any
person. These shares, however, are not considered outstanding
when computing the percentage ownership of any other person. |
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(2) |
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These shares of common stock will be sold only if the
overallotment option is exercised in full. The shares to be sold
are only listed for the company that will actually receive the
proceeds of the sale of the shares and are not also listed with
respect to each company that is deemed to be the beneficial
owner of such shares. |
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(3) |
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Represents 21,895 shares of Series A common stock
issuable upon the exercise of warrants. These warrants will
become exercisable for 21,895 shares of our common stock
upon the closing of this offering. Mr. Donlan is the
co-manager of The 1818 Mezzanine Fund, L.P. and in that capacity
will have authority to exercise investment power over the shares. |
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(4) |
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Of these shares, 2,617 shares are owned directly by
Berkshire Investors LLC and 221,969 shares are owned
directly by Berkshire Fund VI Limited Partnership.
Immediately prior to the closing of this |
footnotes continued on following page
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offering, these shares will be held as Series B Common
Stock. These shares will convert to shares of our common stock
on a
one-to-one
basis upon the closing of this offering. Berkshire Fund VI,
Limited Partnership (Berkshire Fund VI) holds
221,969 shares of our Series B Common Stock, and
Berkshire Investors LLC (Investors) holds
2,617 shares of our Series B Common Stock. The
business address for these stockholders is
c/o Berkshire
Partners LLC, 200 Clarendon Street, Boston, MA 02116. Sixth
Berkshire Associates LLC, a Massachusetts limited liability
company (Sixth Berkshire), is the general partner of
Berkshire Fund VI. The managing members of Sixth Berkshire
are Michael C. Ascione, Bradley M. Bloom, Jane Brock-Wilson,
Kevin T. Callaghan, Carl Ferenbach, Christopher J. Hadley,
Lawrence S. Hamelsky, Ross M. Jones, Richard K. Lubin, D.
Randolph Peeler, and Robert J. Small (the Sixth Berkshire
Principals and together with Joshua A. Lutzker, the
Berkshire Principals). The Berkshire Principals are
the managing members of Investors and Berkshire Partners. This
beneficial owner is a party to the stockholders agreement. |
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(5) |
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Of these shares, 1,617 shares are owned directly by
Greenbriar Coinvestment Partners, L.P. and 81,125 shares
are owned directly by Greenbriar Equity Funds L.P. Immediately
prior to the closing of this offering, these shares will be held
as Series B Common Stock. These shares will convert to
shares of our common stock on a
one-to-one
basis upon the closing of this offering. The address for this
beneficial holder is
c/o Greenbriar
Equity Group LLC, 555 Theodore Fremd Avenue,
Suite A-201,
Rye, New York 10580. This beneficial owner is a party to the
stockholders agreement. |
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(6) |
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Investcorp S.A. does not directly own any of our stock but may
be deemed to share beneficial ownership as described below. The
number of shares of stock shown as owned by Investcorp S.A.
includes all of the shares owned by Investcorp Investment Equity
Limited. Investcorp S.A. owns no stock in Ballet Limited, Denary
Limited, Gleam Limited, Highlands Limited, Noble Limited,
Outrigger Limited, Quill Limited, Radial Limited, Shoreline
Limited, Zinnia Limited, Carthage Limited, Fuquay Limited, GPF
American Tire Holdings Limited, Parkwood Limited, Archdale
Limited or in the beneficial owners of these entities.
Investcorp may be deemed to share beneficial ownership of the
shares of stock held by these entities because the entities or
their beneficial owners have entered into revocable management
services or similar agreements with an affiliate of Investcorp,
pursuant to which each such entity has granted such affiliate
the authority to direct the voting and disposition of our voting
stock owned by such entity for as long as such agreement is in
effect. Investcorps address is 37 rue Notre-Dame,
Luxembourg. The shares shown as owned by Investcorp S.A. also
include all of the shares of Investcorp Coinvestment Partners
II, L.P. and Investcorp 2005 ATD Holdings Portfolio L.P. because
an affiliate of Investcorp acts as the general partner of each
such entity. |
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(7) |
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Represents shares that may be beneficially owned by Investcorp
and therefore may be beneficially owned by SIPCO Limited through
its ownership of a majority of a companys stock that
indirectly owns a majority of Investcorps shares. SIPCO
Limiteds address is Boundary Hall, Cricket Square,
P.O. Box 1111, Grand Cayman KY1-1102, Cayman Islands. |
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(8) |
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Immediately prior to the closing of this offering, these shares
will be held as Series A Common Stock. These shares will
convert to shares of our common stock on a
one-to-one
basis upon the closing of this offering. The address for this
beneficial owner is Boundary Hall, Cricket Square,
P.O. Box 1111, Grand Cayman KY1-1102, Cayman Islands.
This beneficial owner is a party to the stockholders agreement. |
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(9) |
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Immediately prior to the closing of this offering, these shares
will be held as Series A Common Stock. These shares will
convert to shares of our common stock on a
one-to-one
basis upon the closing of this offering. The address for this
beneficial owner is Boundary Hall, Cricket Square,
P.O. Box 2197, Grand Cayman KY1-1105, Cayman Islands.
This beneficial owner is a party to the stockholders agreement. |
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(10) |
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Immediately prior to the closing of this offering, these shares
will be held as Series D Common Stock. These shares will
convert to shares of our common stock on a
one-to-one
basis upon the closing of this offering. The address for this
beneficial owner is Boundary Hall, Cricket Square,
P.O. Box 1111, Grand Cayman KY1-1102, Cayman Islands.
This beneficial owner is a party to the stockholders agreement. |
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(11) |
|
Immediately prior to the closing of this offering, these shares
will be held as Series D Common Stock. These shares will
convert to shares of our common stock on a one-to-one basis upon
the closing of this |
footnotes continued on following page
73
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offering. The address for this beneficial owner is Boundary
Hall, Cricket Square, P.O. Box 1111, Grand Cayman KY1-1102,
Cayman Islands. |
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(12) |
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Immediately prior to our initial public offering, these shares
will be held as Series A Common Stock. These shares will
convert to shares of our common stock on a one-to-one basis upon
the closing of this offering. The address for this beneficial
owner is c/o Investcorp International, Inc, 280 Park Avenue,
36th Floor, New York, NY 10017. |
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(13) |
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Represents shares of Series A common stock issuable upon
the exercise of options. These options will become exercisable
for shares of our common stock on a
one-to-one
basis upon the closing of this offering. |
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(14) |
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Includes 2,364 shares of Series A Common Stock held
directly, which will convert to shares of our common stock on a
one-to-one
basis upon the closing of this offering, and 1,468 shares
of Series A Common Stock issuable upon the exercise of
options, which will become exercisable for shares of our common
stock on a
one-to-one
basis upon the closing of this offering. |
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(15) |
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Mr. Laws is a Director of Greenbriar. Mr. Laws disclaims
beneficial ownership over any shares beneficially owned by
Greenbriar. |
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(16) |
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Mr. Peeler is a Managing Director of Berkshire.
Mr. Peeler disclaims beneficial ownership over any shares
beneficially owned by Berkshire. |
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(17) |
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Mr. Tayeh is a Managing Director of Investcorp.
Mr. Tayeh disclaims beneficial ownership over any shares
beneficially owned by Investcorp or the International Investors. |
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(18) |
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Includes 58,470 shares of Series A Common Stock
issuable upon the exercise of options and 21,895 shares of
Series A Common Stock issuable upon the exercise of
warrants held by The 1818 Mezzanine Fund, L.P.
Mr. Donlan, a member of our board of directors, is the
co-manager of The 1818 Mezzanine Fund, L.P. and in that
capacity will have authority to exercise investment power over
the shares. The shares of Series A Common Stock and the
options will become exercisable for shares of our common stock
on a one-to-one basis upon the closing of this offering. |
74
DESCRIPTION
OF INDEBTEDNESS
Revolving
Credit Facility
In March 2005, we and our subsidiaries entered into an amended
and restated credit agreement which, as subsequently amended,
provides for a senior secured revolving credit facility of up to
$400.0 million (of which up to $25.0 million may be
utilized in the form of commercial and standby letters of
credit), subject to a borrowing base formula. As of
October 3, 2009, the outstanding balance on the revolving
credit facility was $225.2 million, the amount available
for additional borrowings was $123.8 million, and we had
$7.9 million of letters of credit outstanding. The
revolving credit facility matures on December 31, 2011.
The borrowing base under our revolving credit facility is equal
to the lesser of: (i) the aggregate lender commitments
($400.0 million) minus certain specified reserves and (ii)
(1) 85% of the lower of cost or market value of eligible
accounts receivable plus (2) the lower of (x) 65% of the lower
of cost or market value of eligible tire inventory or (y) 85%
multiplied by a fraction, the numerator of which is the
liquidation value of eligible tire inventory, and the
denominator of which is the lower of cost or market value of the
eligible tire inventory (subject to a floor of
$230.0 million), plus (3) (x) 50% of the lower of cost
or market value or (y) 85% multiplied by a fraction, the
numerator of which is the liquidation value of eligible non-tire
inventory, and the denominator of which is the lower of cost or
market value of the eligible non-tire inventory, whichever is
lower, of eligible non-tire inventory (subject to a floor of
$45.0 million) minus (4) certain specified reserves.
The borrowing base is capped at the greater of
(i) $325.0 million or (ii) 85% of the aggregate
book value of our accounts receivable plus 65% of the aggregate
book value of our inventory, whichever is greater.
Borrowings under the revolving credit facility bear interest, at
our option, at either a base rate, plus an applicable margin
(which was 0.0% as of October 3, 2009) or a Eurodollar
rate, plus an applicable margin (which was 1.50% as of
October 3, 2009). At October 3, 2009, borrowings under
the revolving credit facility were at a weighted average
interest rate of 1.9%. The applicable margin for the loans
varies pursuant to a performance-based grid, as set forth in the
revolving credit facility.
All obligations under the revolving credit facility are
guaranteed by ATDH and each of ATDIs existing and future
direct and indirect domestic subsidiaries that are not direct
obligors thereunder. Obligations under the revolving credit
facility are collateralized by a pledge of substantially all
assets of the obligors, including all shares of ATDIs
capital stock and that of ATDIs domestic subsidiaries,
subject to certain limitations.
The revolving credit facility contains customary covenants,
including covenants that restrict ATDI and its
subsidiaries ability to incur additional debt, grant
liens, enter into guarantees, enter into certain mergers, make
certain loans and investments, dispose of assets, prepay certain
debt, declare dividends, modify certain material agreements or
organizational documents relating to preferred stock or change
the business we conduct. In addition, ATDH guarantees the
obligations of its subsidiaries under the revolving credit
facility, has pledged the stock of ATDI as collateral, and is
subject to limitations under the guarantee on its ability to
engage in actions other than those of a holding company, to
incur indebtedness or liens, and to enter into guarantees. If
the amount available for additional borrowing under the
revolving credit facility falls below $35.0 million
(subject to adjustments based on the outstanding amount of the
loans), then ATDI and its subsidiaries would become subject to
an additional covenant requiring them to meet a fixed charge
coverage ratio of 1.0 to 1.0. As of January 3, 2009 and
October 3, 2009, we had more than $35.0 million
available to draw under the revolving credit facility and were
therefore not subject to the additional covenant.
Senior
Debt Obligations
Discount
Notes
On March 31, 2005, ATDH issued our Discount Notes, which
mature on October 1, 2013, at an aggregate principal amount
at maturity of $51.5 million, generating net proceeds of
approximately $40.0 million. The Discount Notes were issued
at a substantial discount from their principal amount at
maturity. Prior to April 1, 2007, no interest accrued on
the Discount Notes. Since April 1, 2007, interest on the
Discount Notes
75
has accrued at a rate of 13.0% per annum, payable semi-annually
in arrears on April 1 and October 1 of each year. The Discount
Notes contain covenants that may limit our ability to engage in
certain corporate transactions unless we meet a minimum Adjusted
EBITDA to consolidated interest expense ratio. For information
about the covenants applicable to the Discount Notes, see
Adjusted EBITDA.
We may redeem the Discount Notes at any time upon not less than
30 nor more than 60 days notice at a redemption price of
103.0% of the principal amount if the redemption date occurs
prior to April 1, 2010, and 101.0% of the principal amount
if the redemption date occurs between April 1, 2010 and
March 31, 2011 and 100.0% of the principal amount if the
redemption date occurs on or after April 1, 2011. On
April 1, 2010, if any Discount Notes are outstanding, we
will be required to redeem 12.165% of each of the then
outstanding Discount Notes principal amount at a
redemption price of 100% of the principal amount of the portion
of the Discount Notes so redeemed.
2013
Notes
On March 31, 2005, ATDI issued our 2013 Notes, which mature
April 1, 2013, in an aggregate principal amount of
$150.0 million, generating net proceeds of approximately
$144.2 million. The 2013 Notes bear interest at a fixed
rate of 10.75%. We may redeem the 2013 Notes at our option, at
any time, in whole or in part, upon not less than 30 nor more
than 60 days notice, at certain redemption prices plus
accrued and unpaid interest. Interest on the 2013 Notes is
payable semi-annually in arrears on April 1 and October 1 of
each year. The 2013 Notes contain covenants that may limit our
ability to engage in certain corporate transactions unless we
meet a minimum Adjusted EBITDA to consolidated interest expense
ratio. We may redeem the Notes at any time upon not less than 30
nor more than 60 days notice at a redemption price of 105.375%
of the principal amount if the redemption date occurs prior to
April 1, 2010, 102.688% of the principal amount if the
redemption date occurs between April 1, 2010 and
March 31, 2011 and 100.0% of the principal amount if the
redemption date occurs on or after April 1, 2011. For
information about the covenants applicable to the 2013 Notes,
see Adjusted EBITDA.
Floating
Rate Notes
On March 31, 2005, ATDI issued our Floating Rate Notes,
which mature April 1, 2012, in an aggregate principal
amount of $140.0 million, generating net proceeds of
approximately $134.5 million. The Floating Rate Notes bear
interest at a floating rate equal to three-month LIBOR plus
6.25%, reset on January 1, April 1, July 1 and October
1 of each year. The interest rate applicable to the Floating
Rate Notes ranged from 10.78% to 11.61% during fiscal 2006,
11.48% to 11.61% during fiscal 2007, 8.95% to 11.48% during
fiscal 2008 and 6.85% to 7.69% in the first nine months of
fiscal 2009. We may redeem the Floating Rate Notes at our
option, at any time, in whole or in part, upon not less than 30
nor more than 60 days notice, at a redemption price of
100.0% of the principal amount, plus accrued and unpaid
interest. The Floating Rate Notes contain covenants that may
limit our ability to engage in certain corporate transactions
unless we meet a minimum Adjusted EBITDA to consolidated
interest expense ratio. For information about the covenants
applicable to the Floating Rate Notes, see
Adjusted EBITDA.
Adjusted
EBITDA
The indentures governing our three series of outstanding notes
limit, among other things, our ability to incur additional debt
(subject to certain exceptions including debt under our
revolving credit facility), issue preferred stock (subject to
certain specified exceptions), make certain restricted payments
or investments or make certain purchases of our stock, unless
the ratio of our Adjusted EBITDA to consolidated interest
expense (as defined in the indentures), each calculated on a pro
forma basis for the proposed transaction, would have been at
least 2.0 to 1.0 for the four fiscal quarters prior to the
proposed transaction.
Adjusted EBITDA should not be considered an alternative to, or
more meaningful than, cash flow provided by (used in) operating
activities as determined in accordance with GAAP. Adjusted
EBITDA as presented by us may not be comparable to similarly
titled measures reported by other companies. For the four fiscal
quarters ended October 3, 2009, our ratio of Adjusted
EBITDA to consolidated interest expense, each as
76
calculated under the indentures governing our three series of
outstanding notes, was 1.6 to 1.0. Because we currently do not
satisfy the 2.0 to 1.0 Adjusted EBITDA to consolidated interest
expense ratio contained in our three series of outstanding
notes, we are currently limited in our ability to, among other
things, incur additional debt (subject to certain exceptions
including debt under our revolving credit facility), issue
preferred stock (subject to certain specified exceptions), make
certain restricted payments or investments and make certain
purchases of our stock. See Risk Factors Risks
Relating to Our Business Our high level of
indebtedness may adversely affect our financial condition,
restrict our growth or place us at a competitive
disadvantage. These restrictions do not interfere with the
day-to-day-conduct of our business. Moreover, the indentures do
not require us to maintain any financial performance metric or
ratio in order to avoid a default. For a discussion of our
historical Adjusted EBITDA and a reconciliation from net cash
provided by (used in) operating activities to Adjusted EBITDA,
see Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Adjusted EBITDA.
77
DESCRIPTION
OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND
BYLAWS
Our certificate of incorporation, as in effect immediately prior
to the closing of this offering, authorizes us to issue
1,500,000 shares of Series A Common Stock, par value
$0.01 per share, 315,000 shares of Series B Common
Stock, par value $0.01 per share, 1,500 shares of
Series D Common Stock, par value $0.01 per share,
1,816,500 shares of Common Stock, par value $0.01 per
share, and 500,000 shares of preferred stock, par value
$0.01 per share, or preferred stock. Our board of directors,
without further approval of the stockholders, may establish the
powers, preferences, rights, qualifications and limitations,
including the dividend rights, dividend rates, conversion
rights, conversion prices, voting rights and redemption rights,
of any series of preferred stock and may authorize the issuance
of any such series.
Common
Stock
In addition to the series of common stock offered by this
prospectus, we currently have three other series of common stock
outstanding. Upon the closing of this offering, all outstanding
shares of Series A, Series B and Series D Common
Stock described above will automatically convert into shares of
the same series as the common stock offered hereby. All
outstanding shares of our common stock are fully paid and
non-assessable, and the shares of common stock offered hereby,
upon payment and delivery in accordance with the underwriting
agreement, will be fully paid and non-assessable.
Holders of the common stock offered hereby are entitled to one
vote per share on all matters to be voted on by our stockholders.
Subject to the rights of any holders of preferred stock, in the
event of our liquidation, holders of our common stock are
entitled to share ratably in our assets legally available for
distribution after the payment of our debts. The shares of
common stock offered hereby have no preemptive, subscription,
conversion or redemption rights. Subject to the rights of any
holders of preferred stock, the holders of the common stock are
entitled to receive dividends and distributions of cash or other
rights or property as may be declared by our board of directors
from time to time out of assets or funds legally available for
such dividend payments.
Preferred
Stock
In connection with ATDHs acquisition of ATDI, ATDH issued
20,000 shares of our Redeemable Preferred Stock to The 1818
Fund. These are the only shares of our Redeemable Preferred
Stock that are outstanding. We may redeem the Redeemable
Preferred Stock at any time at a redemption price equal to
$20.0 million, plus accumulated and unpaid dividends. We
are required to redeem the Redeemable Preferred Stock upon a
change of control or at its maturity in 2015. The Redeemable
Preferred Stock entitles its holders to receive, when and if
declared by our board of directors, cumulative dividends,
payable in cash, at an annual rate of 8.0%. Our board of
directors is not obligated to declare dividends, and the
preferred stock provides no monetary penalties for a failure to
declare dividends. We intend to fully redeem the Redeemable
Preferred Stock after the closing of this offering.
Our board of directors, without any further vote or action by
our stockholders, has the authority to issue up to an additional
480,000 shares of preferred stock from time to time, in one
or more classes or series, on terms that it may determine,
including among other things:
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dividend rate;
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liquidation preference;
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whether or not the shares will be convertible into, or
exchangeable for, any other securities; and
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whether or not the shares will have voting rights, and, if so,
the extent of the voting powers and the conditions under which
the shares will vote as a separate class.
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We believe that our board of directors ability to issue
preferred stock on such a wide variety of terms will enable the
preferred stock to be used for important corporate purposes,
such as financing acquisitions or raising additional capital.
However, were it inclined to do so, our board of directors could
issue all or part of
78
the preferred stock with, among other things, substantial voting
power or advantageous conversion rights. This stock could be
issued to persons deemed by our board of directors likely to
support our current management in a contest for control of us,
either as a precautionary measure or in response to a specific
takeover threat. We have no current plans to issue preferred
stock for any purpose.
Warrants
In connection with ATDHs acquisition of ATDI, ATDH issued
21,895 warrants to The 1818 Fund for the purchase of an
equivalent number of shares of our Series A Common Stock
(or a successor security). The warrants may be exercised at any
time at an exercise price of at $0.01 per share. The warrants
expire on September 30, 2015.
Delaware
Law
We currently have not opted out of the provisions of
Section 203 of the DGCL, but we expect to revise our
certificate of incorporation in connection with this offering to
opt out of Section 203 of the DGCL. In general,
Section 203 prohibits a publicly held Delaware corporation
from engaging in a business combination with an
interested stockholder for a period of three years
after the date on which the person becomes an interested
stockholder, unless (i) prior to the time that the
stockholder becomes an interested stockholder, the board of
directors approves the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested
stockholder, the stockholder owns at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced (excluding shares held by directors who are also
officers, and excluding shares held in employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer), or (iii) at or
subsequent to the time the stockholder becomes an interested
stockholder, the business combination is approved by the board
of directors and by two-thirds of the outstanding voting stock
of the corporation, excluding shares held by the interested
stockholder, at a meeting of stockholders (and not by written
consent). For purposes of Section 203, business
combinations include mergers, asset sales and certain
other transactions resulting in a financial benefit to an
stockholder. An interested stockholder is a person
who, together with affiliates and associates, owns (or within
the past three years, has owned) 15% or more of the
corporations voting stock.
The Delaware General Corporation Law contains provisions
enabling a corporation to avoid Section 203s
restrictions if stockholders holding a majority of the
corporations voting stock approve an amendment to the
corporations certificate of incorporation or bylaws
electing not to be governed by Section 203.
Certificate
of Incorporation and Bylaws
Various provisions of our certificate of incorporation and
bylaws, as in effect immediately prior to the closing of this
offering, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider to be in its best interest,
including those attempts that might result in a premium over the
market price for the shares held by stockholders.
No Cumulative Voting. The Delaware General
Corporation Law provides that stockholders are denied the right
to cumulate votes in the election of directors unless our
certificate of incorporation provides otherwise. Our certificate
of incorporation does not expressly address cumulative voting.
Calling of Special Meetings of
Stockholders. Our bylaws provide that special
meetings of our stockholders, unless otherwise provided by
statute, may be called only by the Chairman of the board of
directors, the President or by resolution of the board of
directors and shall be called by the President or Secretary upon
the written request of holders of not less than 10% in voting
power of the outstanding stock entitled to vote at the meeting.
79
Amendment of the Bylaws. Our board of
directors has the power to adopt, amend or repeal our bylaws,
subject to the power of our stockholders to do the same. As a
result, the board of directors, acting alone, may amend any and
all provisions of our bylaws.
Limits on Ability of Stockholders to Elect
Directors. Our board of directors has the sole
right to elect a director to fill a vacancy created by the
expansion of our board of directors or the resignation, death,
disqualification or removal of a director, which prevents
stockholders from being able to fill vacancies on our board of
directors.
Limitations on Liability and Indemnification of Officers and
Directors. The Delaware General Corporation Law
authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders
for monetary damages for breaches of directors fiduciary
duties. Our certificate of incorporation includes a provision
that eliminates the personal liability of directors for monetary
damages for breaches of fiduciary duty as a director, except for
liability:
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for any breach of a directors duty of loyalty to us or our
stockholders;
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for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
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under Section 174 of the Delaware General Corporation Law
for unlawful dividends, stock purchases or stock
redemptions; or
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for any transaction from which a director derived an improper
personal benefit.
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Our certificate of incorporation provides for the
indemnification by us of any person serving as a director,
officer, employee or other agent to the fullest extent
permissible under the Delaware General Corporation Law. In
addition, we have purchased a directors and officers
insurance policy covering our officers and directors for
liabilities that they may incur as a result of any action, or
failure to act, in their capacity as officers and directors. We
believe that these indemnification provisions and insurance are
useful to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws may discourage a
stockholder from bringing a lawsuit against our directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might benefit us and our stockholders.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Authorized but Unissued Shares. Our authorized
but unissued shares of common stock and preferred stock will be
available for future issuance without the approval of holders of
common stock. We may use these additional shares for a variety
of corporate purposes, including future offerings to raise
additional capital, corporate acquisitions and employee benefit
plans.
Listing
We intend to list our shares on the NYSE under the symbol
ATD.
Transfer
Agent and Registrar
We expect American Stock Transfer & Trust Company
to be the transfer agent and registrar for our common stock.
80
SHARES ELIGIBLE
FOR FUTURE SALE
Before this offering, there has not been a public market for our
common stock. Nevertheless, future sales of substantial amounts
of our common stock, including shares issued upon exercise of
outstanding options, in the public market after the restrictions
lapse, or the possibility of such sales, could cause our stock
price to fall or impair our ability to raise equity capital in
the future.
Upon completion of this offering, we will have
outstanding shares
of our common stock, assuming that there are no exercises of
outstanding options
after ,
2010. All of the shares sold in this offering will be freely
tradable in the public market without restriction or further
registration under the Securities Act, unless these shares are
held by our affiliates, as that term is defined in Rule 144
under the Securities Act. Shares purchased by our affiliates may
not be resold except pursuant to an effective registration
statement or an exemption from registration, including the
exemption under Rule 144 of the Securities Act described
below.
After this offering and assuming no exercise of the
overallotment
option, shares
of our common stock held by existing stockholders will be
restricted securities, as that term is defined in Rule 144
under the Securities Act. These restricted securities may be
sold in the public market only if they are registered or if they
qualify for an exemption from registration under Rule 144
under the Securities Act, which exemption is summarized below.
These restricted securities are subject to the
lock-up
agreements described below until 180 days after the date of
this prospectus.
Lock-Up
Agreements
In connection with this offering, officers, directors, employees
and stockholders, who together held an aggregate of
approximately % of the outstanding
shares of our common stock as
of ,
2010 have agreed, subject to limited exceptions, not to directly
or indirectly sell or dispose of any shares of common stock or
any securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180 days after
the date of this prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. In
the event that either (x) during the last 17 days of
the lock-up
period referred to above, we issue an earnings release or
material news or a material event relating to us occurs or
(y) prior to the expiration of the
lock-up
period, we announce that we will release earnings results or
become aware that material news or a material event will occur
during the
16-day
period beginning on the last day of the
lock-up
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event. For
additional information, see Underwriting.
Rule 144
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person who is not our affiliate
and has not been our affiliate at any time during the preceding
three months will be entitled to sell any shares of our common
stock that such person has beneficially owned for at least six
months, including the holding period of any prior owner other
than one of our affiliates, without regard to volume
limitations, subject to the availability of current public
information about us.
The six month holding period increases to one year for sales
occurring prior to 90 days after the date of this
prospectus. However, a non-affiliate who has beneficially owned
shares for at least one year will not be subject to any
restrictions under Rule 144 if they have not been our
affiliate during the preceding three months.
Beginning 90 days after the date of this prospectus, our
affiliates who have beneficially owned shares of our common
stock for at least six months, including the holding period of
any prior owner other than one of our affiliates, would be
entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; and
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the average weekly trading volume in our common stock on the
NYSE during the four calendar weeks preceding the date of filing
of a Notice of Proposed Sale of Securities Pursuant to
Rule 144 with respect to the sale.
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The six month holding period increases to one year for sales
occurring prior to 90 days after the date of this
prospectus. Sales under Rule 144 by our affiliates are
always subject to manner of sale provisions and notice
requirements and to the availability of current public
information about us.
Stock
Plans
We plan on filing a registration statement on
Form S-8
under the Securities Act covering the offer and sale of the
shares of our common stock issuable upon exercise of outstanding
options under our compensation plans and shares of our common
stock reserved for future issuance under our compensation plans.
We expect to file this registration statement as soon as
practicable after this offering. However, we expect that no
resale of these shares shall occur until after the
180-day
lock-up
period.
Registration
Rights
In March 2005, we entered into a registration rights agreement
for the benefit of the Control Group. The registration rights
agreement provides the Investcorp Group,
Berkshire, Greenbriar and the International Investors with
certain registration rights relating to shares of our common
stock held by them. Commencing 90 days after this offering,
any member of the Investcorp Group may require us to register
shares of our common stock under the Securities Act for up to a
total of four effective registration statements. Beginning
March 31, 2012, a majority interest of shares collectively
held by Berkshire and Greenbriar have the right, for a period of
one year, to require us to register shares of our common stock.
In either case, if we receive a demand to register our common
stock, then every member of the Control Group will have the
opportunity to register shares of our common stock held by them.
Pursuant to the registration rights agreement, we will pay all
registration expenses reasonably incurred in connection with the
first four effective registration statements requested by
Investcorp, and the first effective registration statement
requested by a majority interest of shares held by Berkshire and
Greenbriar. The registration rights are subject to certain
limitations and conditions.
The registration rights agreement sets forth customary
registration procedures. Pursuant to the registration rights
agreement, we will indemnify the Control Group with respect to
liabilities resulting from untrue statements or omissions in any
registration statement used in any such registration, other than
untrue statements or omissions resulting from information
furnished to us in writing for use in the registration statement
by the Control Group.
82
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal
income and estate tax consequences of the acquisition, ownership
and disposition of our common stock by a
non-U.S. holder.
As used in this summary, the term
non-U.S. holder
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States
or a former citizen or resident of the United States subject to
taxation as an expatriate;
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a corporation (or other entity classified as a corporation for
these purposes) created or organized in or under the laws of the
United States or of any political subdivision of the United
States;
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a partnership (including any entity or arrangement classified as
a partnership for U.S. federal income tax purposes);
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an estate whose income is subject to U.S. federal income
tax, regardless of its source; or
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a trust, if (1) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (within the meaning of
the U.S. Internal Revenue Code) has the authority to
control all of the trusts substantial decisions, or
(2) the trust has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a
United States person.
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If a partnership or other pass-through entity (including an
entity or arrangement treated as a partnership or other type of
pass-through entity for U.S federal income tax purposes) owns
our common stock, the U.S. federal income tax treatment of
a partner or beneficial owner of the partnership or other
pass-through entity may depend upon the status of the partner or
beneficial owner, the activities of the partnership or entity
and certain determinations made at the partner or beneficial
owner level. Partners and beneficial owners in partnerships or
other pass-through entities or arrangements that own our common
stock should consult their own tax advisors as to the particular
U.S. federal income and estate tax consequences applicable
to them.
This summary does not discuss all of the aspects of
U.S. federal income and estate taxation that may be
relevant to a
non-U.S. holder
in light of the
non-U.S. holders
particular investment or other circumstances. In particular,
this summary only addresses a
non-U.S. holder
that holds our common stock as a capital asset (generally,
investment property) and does not address:
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special U.S. federal income tax rules that may apply to
particular
non-U.S. holders,
such as financial institutions, insurance companies, tax-exempt
organizations, and dealers and traders in stocks, securities or
currencies;
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non-U.S. holders
holding our common stock as part of a conversion, constructive
sale, wash sale or other integrated transaction or a hedge,
straddle or synthetic security;
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regulated investment companies, real estate investment trusts,
controlled foreign corporations, or passive foreign investment
companies;
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any U.S. state and local or
non-U.S. or
other tax consequences; or
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the U.S. federal income or estate tax consequences for the
beneficial owners of a
non-U.S. holder.
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This summary is based on provisions of the U.S. Internal
Revenue Code of 1986, as amended, applicable U.S. Treasury
regulations and administrative and judicial interpretations, all
as in effect or in existence on the date of this prospectus.
Subsequent developments in U.S. federal income or estate
tax law, including changes in law or differing interpretations,
which may be applied retroactively, could have a material effect
on the U.S. federal income and estate tax consequences of
purchasing, owning and disposing of our common stock as set
forth in this summary. Each
non-U.S. holder
should consult a tax advisor regarding the U.S. federal,
state, local and
non-U.S. income
and other tax consequences of acquiring, holding and disposing
of our common stock.
83
Dividends
In the event that we make distributions on our common stock that
are treated as dividends for U.S. federal income tax
purposes and are not effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States, a
U.S. federal withholding tax at a rate of 30%, or a lower
rate under an applicable income tax treaty, will be withheld
from the gross amount of the dividends paid to such
non-U.S. holder.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.
In order to claim the benefit of an applicable income tax
treaty, a
non-U.S. holder
will be required (a) to provide a properly executed
U.S. Internal Revenue Service
Form W-8BEN
(or other applicable form), in accordance with the applicable
certification and disclosure requirements, and certify under
penalties of perjury that such holder is not a U.S. person
as defined under the Code and is eligible to claim the benefits
under the applicable income tax treaty or (b) if our common
stock is held through certain foreign intermediaries, to satisfy
the relevant certification requirements of applicable
U.S. Treasury regulations. Special rules apply to
partnerships and other pass-through entities, and these
certification and disclosure requirements also may apply to
beneficial owners of partnerships and other pass-through
entities that hold our common stock. A
non-U.S. holder
that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by timely filing an
appropriate claim for a refund with the U.S. Internal
Revenue Service.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under a relevant income tax treaty and
the manner of claiming the benefits.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States and, if
required by an applicable income tax treaty, are attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States, will be taxed on a net income basis at the
regular graduated rates and in the manner applicable to United
States persons. In that case, the U.S. federal withholding
tax discussed above will not apply if the
non-U.S. holder
provides a properly executed U.S. Internal Revenue Service
Form W-8ECI
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. In addition, a
branch profits tax may be imposed at a 30% rate, or
a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected
with the conduct of a trade or business in the United States.
Gain on
Disposition of Our Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income or
withholding tax on any gain recognized on a disposition of our
common stock unless:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States and, if
required by an applicable income tax treaty, is attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States; in these cases, the gain will be taxed on
a net income basis at the regular graduated rates and in the
manner applicable to United States persons (unless an applicable
income tax treaty provides otherwise) and, if the
non-U.S. holder
is a foreign corporation, the branch profits tax
described above may also apply;
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the
non-U.S. holder
is an individual who holds our common stock as a capital asset,
is present in the United States for more than 182 days in
the taxable year of the disposition and meets other requirements
(in which case, except as otherwise provided by an applicable
income tax treaty, the gain, which may be offset by
U.S. source capital losses recognized in the same taxable
year, generally will be subject to a flat 30% U.S. federal
income tax, even though the
non-U.S. holder
is not considered a resident alien under the U.S. Internal
Revenue Code); or
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we are or have been a U.S. real property holding
corporation for U.S. federal income tax purposes at
any time during the shorter of the five-year period ending on
the date of disposition or the period that the
non-U.S. holder
held our common stock.
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Generally, a corporation is a U.S. real property
holding corporation if the fair market value of its
U.S. real property interests equals or exceeds
50% of the sum of the fair market value of its worldwide real
property interests plus its other assets used or held for use in
a trade or business. The tax relating to stock in a
U.S. real property holding corporation generally will not
apply to a
non-U.S. holder
whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock,
provided that our common stock was regularly traded on an
established securities market. We believe that we are not
currently, and we do not anticipate becoming in the future, a
U.S. real property holding corporation.
Federal
Estate Tax
Our common stock that is owned or treated as owned by an
individual who is not a U.S. citizen or resident of the
United States (as specially defined for U.S. federal estate
tax purposes) at the time of death will be included in the
individuals gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax or other treaty
provides otherwise and, therefore, may be subject to
U.S. federal estate tax.
Information
Reporting and Backup Withholding
Dividends paid to a
non-U.S. holder
may be subject to U.S. information reporting and backup
withholding. We must report annually to the Internal Revenue
Service and to each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be exempt from backup withholding if the
non-U.S. holder
provides a properly executed U.S. Internal Revenue Service
Form W-8BEN
or otherwise meets documentary evidence requirements for
establishing its status as a
non-U.S. holder,
or otherwise establishes an exemption.
The gross proceeds from the disposition of our common stock may
be subject to U.S. information reporting and backup
withholding. If a
non-U.S. holder
sells our common stock outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to the
non-U.S. holder
outside the United States, then the U.S. backup withholding
and information reporting requirements generally will not apply
to that payment. However, U.S. information reporting, but
not U.S. backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United
States, if a
non-U.S. holder
sells our common stock through a
non-U.S. office
of a broker that is a United States person or has certain
enumerated connections with the United States, unless the broker
has documentary evidence in its files that the
non-U.S. holder
is not a United States person and certain other conditions are
met or the
non-U.S. holder
otherwise establishes an exemption.
If a
non-U.S. holder
receives payments of the proceeds of a sale of our common stock
to or through a U.S. office of a broker, the payment is
subject to both U.S. backup withholding and information
reporting unless the
non-U.S. holder
provides a properly executed U.S. Internal Revenue Service
Form W-8BEN
certifying that the
non-U.S. Holder
is not a United States person or the
non-U.S. holder
otherwise establishes an exemption.
A non-U.S.
holder generally may obtain a refund (or credit against any U.S.
federal income tax liability) of any amounts withheld under the
backup withholding rules that exceed the
non-U.S.
holders U.S. federal income tax liability by timely filing
a refund claim with the U.S. Internal Revenue Service.
85
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Deutsche Bank Securities Inc. are acting as representatives of
each of the underwriters named below. Subject to the terms and
conditions set forth in a purchase agreement among us, the
selling stockholders and the underwriters, we have agreed to
sell to the underwriters, and each of the underwriters has
agreed, severally and not jointly, to purchase from us, the
number of shares of common stock set forth opposite its name
below. As set forth in Overallotment
Option below, the selling stockholders have granted an
option to the underwriters to purchase up
to shares
at the public offering price, less the underwriting discount.
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Underwriter
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Number of Shares
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Merrill Lynch, Pierce, Fenner & Smith
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Incorporated
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Deutsche Bank Securities Inc.
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Total
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Subject to the terms and conditions set forth in the purchase
agreement, the underwriters have agreed, severally and not
jointly, to purchase all of the shares sold under the purchase
agreement if any of these shares are purchased. If an
underwriter defaults, the purchase agreement provides that the
purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreement may be terminated.
We and, assuming the overallotment option is exercised, the
selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters
may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
purchase agreement, such as the receipt by the underwriters of
officers certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
Commissions
and Discounts
The representatives have advised us and the selling stockholders
that the underwriters propose initially to offer the shares to
the public at the public offering price set forth on the cover
page of this prospectus and to dealers at that price less a
concession not in excess of $ per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of $ per
share to other dealers. After the initial offering, the public
offering price, concession or any other term of the offering may
be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us and the
selling stockholders. The information assumes either no exercise
or full exercise by the underwriters of their overallotment
option.
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Per Share
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Without Option
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With Option
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Public offering price
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$
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$
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$
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Underwriting discount
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$
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$
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$
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Proceeds, before expenses, to us
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$
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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$
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The expenses of the offering, not including the underwriting
discount, are estimated at
$ and are payable by us.
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Overallotment
Option
The selling stockholders have granted an option to the
underwriters to purchase up
to shares
at the public offering price, less the underwriting discount.
The underwriters may exercise this option for 30 days from
the date of this prospectus solely to cover any overallotments.
If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase
agreement, to purchase a number of additional shares
proportionate to that underwriters initial amount
reflected in the above table.
No Sales
of Similar Securities
We and the selling stockholders, our executive officers and
directors and our other existing security holders have agreed
not to sell or transfer any common stock or securities
convertible into, exchangeable for, exercisable for, or
repayable with common stock, for 180 days after the date of
this prospectus without first obtaining the written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Specifically, we and these other persons have agreed, with
certain limited exceptions, not to directly or indirectly:
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offer, pledge, sell or contract to sell any common stock;
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sell any option or contract to purchase any common stock;
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purchase any option or contract to sell any common stock;
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grant any option, right or warrant for the sale of any common
stock;
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lend or otherwise dispose of or transfer any common stock;
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request or demand that we file a registration statement related
to the common stock; or
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enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any common
stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
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This lock-up
provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired
later by the person executing the agreement or for which the
person executing the agreement later acquires the power of
disposition. In the event that either (x) during the last
17 days of the
lock-up
period referred to above, we issue an earnings release or
material news or a material event relating to us occurs or
(y) prior to the expiration of the
lock-up
period, we announce that we will release earnings results or
become aware that material news or a material event will occur
during the
16-day
period beginning on the last day of the
lock-up
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
New York
Stock Exchange Listing
We expect the shares to be approved for listing on the New York
Stock Exchange under the symbol ATD. In order to
meet the requirements for listing on that exchange, the
underwriters have undertaken to sell a minimum number of shares
to a minimum number of beneficial owners as required by that
exchange.
Before this offering, there has been no public market for our
common stock. The initial public offering price will be
determined through negotiations among us, the selling
stockholders and the representatives. In addition to prevailing
market conditions, the factors to be considered in determining
the initial public offering price are:
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the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
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our financial information;
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the history of, and the prospects for, our company and the
industry in which we compete;
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an assessment of our management, its past and present
operations, and the prospects for, and timing of, our future
revenues;
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the present state of our development; and
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the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
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An active trading market for the shares may not develop. It is
also possible that after the offering the shares will not trade
in the public market at or above the initial public offering
price.
The underwriters do not expect to sell more than 5% of the
shares in the aggregate to accounts over which they exercise
discretionary authority.
Price
Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may
limit underwriters and selling group members from bidding for
and purchasing our common stock. However, the representatives
may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain
that price.
In connection with the offering, the underwriters may purchase
and sell our common stock in the open market. These transactions
may include short sales, purchases on the open market to cover
positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an
amount not greater than the underwriters overallotment
option described above. The underwriters may close out any
covered short position by either exercising their overallotment
option or purchasing shares in the open market. In determining
the source of shares to close out the covered short position,
the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
overallotment option. Naked short sales are sales in
excess of the overallotment option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of our common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of various
bids for or purchases of shares of common stock made by the
underwriters in the open market prior to the completion of the
offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales may have the effect
of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of our
common stock. As a result, the price of our common stock may be
higher than the price that might otherwise exist in the open
market. The underwriters may conduct these transactions on the
New York Stock Exchange, in the
over-the-counter
market or otherwise.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Electronic
Offer, Sale and Distribution of Shares
In connection with the offering, certain of the underwriters or
securities dealers may distribute prospectuses by electronic
means, such as
e-mail. In
addition, Merrill Lynch, Pierce, Fenner & Smith
Incorporated may facilitate Internet distribution for this
offering to certain of its Internet subscription customers.
Merrill Lynch, Pierce, Fenner & Smith Incorporated may
allocate a limited number of shares for
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sale to its online brokerage customers. An electronic prospectus
is available on the Internet web site maintained by Merrill
Lynch, Pierce, Fenner & Smith Incorporated. Other than
the prospectus in electronic format, the information on the
Merrill Lynch, Pierce, Fenner & Smith Incorporated web
site is not part of this prospectus.
Other
Relationships
Certain of the underwriters and their related entities have
engaged and may engage in commercial and investment banking
transactions with us, members of the Control Group or their
affiliates in the ordinary course of business. They have
received or may receive customary compensation and expenses for
these commercial and investment banking transactions. In
addition, affiliates of the underwriters act as lenders under
our revolving credit facility, for which they receive customary
fees.
Notice to
Prospective Investors in the EEA
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
shares which are the subject of the offering contemplated by
this prospectus may not be made in that Relevant Member State,
except that an offer to the public in that Relevant Member State
of any shares may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) by the underwriters to fewer than 100 natural or legal
persons (other than qualified investors as defined
in the Prospectus Directive) subject to obtaining the prior
consent of the representatives for any such offer; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive;
provided that no such offer of shares shall result in a
requirement for the publication by us or any representative of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
Any person making or intending to make any offer of shares
within the EEA should only do so in circumstances in which no
obligation arises for us or any of the underwriters to produce a
prospectus for such offer. Neither we nor the underwriters have
authorized, nor do they authorize, the making of any offer of
shares through any financial intermediary, other than offers
made by the underwriters which constitute the final offering of
shares contemplated in this prospectus.
For the purposes of this provision, and your representation
below, the expression an offer to the public in
relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares to be
offered so as to enable an investor to decide to purchase any
shares, as the same may be varied in that Relevant Member State
by any measure implementing the Prospectus Directive in that
Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any shares under,
the offer of shares contemplated by this prospectus will be
deemed to have represented, warranted and agreed to and with us
and each underwriter that:
(A) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive; and
89
(B) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the shares acquired by it in the
offering have not been acquired on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in any
Relevant Member State other than qualified investors
(as defined in the Prospectus Directive), or in circumstances in
which the prior consent of the representatives has been given to
the offer or resale; or (ii) where shares have been
acquired by it on behalf of persons in any Relevant Member State
other than qualified investors, the offer of those shares to it
is not treated under the Prospectus Directive as having been
made to such persons.
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19
(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the
Order)
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
shares which are the subject of the offering contemplated by
this prospectus, do not constitute an issue prospectus pursuant
to Article 652a
and/or 1156
of the Swiss Code of Obligations. The shares will not be listed
on the SIX Swiss Exchange and, therefore, the documents relating
to the shares, including, but not limited to, this document, do
not claim to comply with the disclosure standards of the listing
rules of SIX Swiss Exchange and corresponding prospectus schemes
annexed to the listing rules of the SIX Swiss Exchange. The
shares are being offered in Switzerland by way of a private
placement, i.e. to a small number of selected investors only,
without any public offer and only to investors who do not
purchase the shares with the intention to distribute them to the
public. The investors will be individually approached by the
issuer from time to time. This document, as well as any other
material relating to the shares, is personal and confidential
and do not constitute an offer to any other person. This
document may only be used by those investors to whom it has been
handed out in connection with the offering described herein and
may neither directly nor indirectly be distributed or made
available to other persons without the express consent of the
issuer. It may not be used in connection with any other offer
and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus may be
illiquid and/or subject to restrictions on their resale.
Prospective purchasers of the shares offered should conduct
their own due diligence on the shares. If you do not understand
the contents of this document you should consult an authorized
financial adviser.
90
VALIDITY
OF COMMON STOCK
The validity of the shares of our common stock offered in the
offering will be passed upon by Gibson, Dunn &
Crutcher LLP, New York, New York. Certain legal matters relating
to the offering will be passed upon for the underwriters by
Fried, Frank, Harris, Shriver & Jacobson LLP, New
York, New York.
EXPERTS
Our financial statements as of January 3, 2009 and
December 29, 2007 and for each of the three years in the
period ended January 3, 2009 included in this prospectus
have been so included in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The consolidated balance sheet of Am-Pac as of
September 30, 2008 and December 31, 2007 and the
consolidated statements of operations, consolidated statement of
stockholders equity and consolidated statements of cash
flows of Am-Pac for the nine-month period ended
September 30, 2008 and the years ended December 31,
2007 and December 31, 2006 included in this prospectus have
been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report thereon which is also
included herein (which report expresses an unqualified opinion
and includes an explanatory paragraph regarding the sale of all
of the issued and outstanding common stock of Am-Pac). Such
financial statements have been so included in reliance upon the
report of Deloitte & Touche LLP given upon their
authority as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1,
including exhibits and schedules, under the Securities Act with
respect to the common stock to be sold in the offering. This
prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules that
are part of the registration statement. Any statements made in
this prospectus as to the contents of any contract, agreement or
other document are not necessarily complete. With respect to
each such contract, agreement or other document filed as an
exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved,
and each statement in this prospectus shall be deemed qualified
in its entirety by this reference. In connection with certain
covenants under our debt agreements, we also file annual,
quarterly and special reports with the SEC, as well as
amendments and exhibits thereto.
You may read and copy all or any portion of the registration
statement or any reports, statements or other information that
we file with the SEC at the following public reference
facilities of the SEC:
Public Reference Room
100 F Street, NE
Washington, DC 20549
You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Rooms. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC at
http://www.sec.gov.
Our filings, including the registration statement, are available
to you on this website.
You may also request a copy of these filings at no cost, by
writing or telephoning us at the following address:
American Tire Distributors Holdings, Inc.
Attention: Corporate Secretary
12200 Herbert Wayne Court
Suite 150
Huntersville, NC 28078
(704) 992-2000
91
INDEX TO
FINANCIAL STATEMENTS
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
Unaudited Financial Statements for the Nine Months Ended
October 3, 2009 and October 4, 2008
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
|
|
Audited Financial Statements for the Three Years Ended
January 3, 2009
|
|
|
|
F-25
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
|
|
|
F-28
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-63
|
|
INDEX TO
FINANCIAL STATEMENTS
AM-PAC
TIRE DIST., INC.
|
|
|
|
|
Audited Financial Statements for Nine Months Ended
September 30, 2008 and the Year Ended December 31,
2007 and 2006
|
|
|
|
F-64
|
|
|
|
|
F-65
|
|
|
|
|
F-66
|
|
|
|
|
F-67
|
|
|
|
|
F-68
|
|
|
|
|
F-69
|
|
F-1
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,446
|
|
|
$
|
8,495
|
|
Restricted cash
|
|
|
10,250
|
|
|
|
10,250
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,712 and $2,314
|
|
|
202,524
|
|
|
|
178,895
|
|
Inventories
|
|
|
366,893
|
|
|
|
456,077
|
|
Assets held for sale
|
|
|
2,976
|
|
|
|
14,712
|
|
Deferred income taxes
|
|
|
15,207
|
|
|
|
14,198
|
|
Other current assets
|
|
|
10,629
|
|
|
|
13,431
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
614,925
|
|
|
|
696,058
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
55,185
|
|
|
|
57,616
|
|
Goodwill
|
|
|
375,737
|
|
|
|
369,961
|
|
Other intangible assets, net
|
|
|
230,237
|
|
|
|
243,033
|
|
Other assets
|
|
|
20,483
|
|
|
|
24,192
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,296,567
|
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
332,233
|
|
|
$
|
360,391
|
|
Accrued expenses
|
|
|
30,730
|
|
|
|
43,105
|
|
Liabilities held for sale
|
|
|
783
|
|
|
|
1,199
|
|
Current maturities of long-term debt
|
|
|
8,112
|
|
|
|
3,050
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
371,858
|
|
|
|
407,745
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
581,304
|
|
|
|
639,384
|
|
Deferred income taxes
|
|
|
70,724
|
|
|
|
74,818
|
|
Other liabilities
|
|
|
18,718
|
|
|
|
20,486
|
|
Redeemable preferred stock; 20,000 shares authorized,
issued and outstanding
|
|
|
25,918
|
|
|
|
23,941
|
|
Commitments and contingencies (see Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series A Common Stock, par value $.01 per share;
1,500,000 shares authorized; 691,173 shares issued and
690,700 shares outstanding
|
|
|
7
|
|
|
|
7
|
|
Series B Common Stock, par value $.01 per share;
315,000 shares authorized; 307,327 shares issued and
outstanding
|
|
|
3
|
|
|
|
3
|
|
Series D Common Stock, par value $.01 per share;
1,500 shares authorized, issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock, par value $.01 per share; 1,816,500 shares
authorized, no shares have been issued
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
218,321
|
|
|
|
218,022
|
|
Warrants
|
|
|
4,631
|
|
|
|
4,631
|
|
Accumulated earnings
|
|
|
7,334
|
|
|
|
4,990
|
|
Accumulated other comprehensive loss
|
|
|
(2,151
|
)
|
|
|
(3,067
|
)
|
Treasury stock, at cost, 473 shares of Series A Common
Stock
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
228,045
|
|
|
|
224,486
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,296,567
|
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-2
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 3,
|
|
|
October 4,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
1,645,046
|
|
|
$
|
1,517,300
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,364,554
|
|
|
|
1,249,110
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
280,492
|
|
|
|
268,190
|
|
Selling, general and administrative expenses
|
|
|
233,602
|
|
|
|
204,084
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
46,890
|
|
|
|
64,106
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(41,345
|
)
|
|
|
(44,402
|
)
|
Other, net
|
|
|
(845
|
)
|
|
|
(953
|
)
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
4,700
|
|
|
|
18,751
|
|
Income tax provision
|
|
|
2,356
|
|
|
|
8,200
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,344
|
|
|
$
|
10,551
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-3
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
STOCKHOLDERS
EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Treasury
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stock at
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Warrants
|
|
|
Earnings
|
|
|
Loss
|
|
|
Cost
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance, January 3, 2009
|
|
|
999,527
|
|
|
$
|
10
|
|
|
$
|
218,022
|
|
|
$
|
4,631
|
|
|
$
|
4,990
|
|
|
$
|
(3,067
|
)
|
|
$
|
(100
|
)
|
|
$
|
224,486
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
2,344
|
|
Change in value of derivative instrument, net of income taxes of
$0.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
534
|
|
Unrealized gain on rabbi trust assets, net of income taxes of
$0.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
|
|
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,260
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 3, 2009
|
|
|
999,527
|
|
|
$
|
10
|
|
|
$
|
218,321
|
|
|
$
|
4,631
|
|
|
$
|
7,334
|
|
|
$
|
(2,151
|
)
|
|
$
|
(100
|
)
|
|
$
|
228,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-4
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
October 3,
|
|
|
October 4,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,344
|
|
|
$
|
10,551
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
|
|
23,573
|
|
|
|
18,717
|
|
Amortization of other assets
|
|
|
3,627
|
|
|
|
3,626
|
|
Benefit for deferred income taxes
|
|
|
(4,721
|
)
|
|
|
(3,417
|
)
|
Accretion of 8% cumulative preferred stock
|
|
|
331
|
|
|
|
331
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
1,648
|
|
|
|
1,522
|
|
Provision for doubtful accounts
|
|
|
1,368
|
|
|
|
1,113
|
|
Other, net
|
|
|
1,922
|
|
|
|
(16
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,516
|
)
|
|
|
(25,960
|
)
|
Inventories
|
|
|
85,911
|
|
|
|
(66,060
|
)
|
Other current assets
|
|
|
1,002
|
|
|
|
(840
|
)
|
Accounts payable and accrued expenses
|
|
|
10,946
|
|
|
|
(15,053
|
)
|
Other, net
|
|
|
(2,428
|
)
|
|
|
(1,662
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
100,007
|
|
|
|
(77,148
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
134
|
|
|
|
(168
|
)
|
Purchase of property and equipment
|
|
|
(5,565
|
)
|
|
|
(10,011
|
)
|
Purchase of assets held for sale
|
|
|
(830
|
)
|
|
|
(3,020
|
)
|
Proceeds from sale of assets held for sale
|
|
|
8,146
|
|
|
|
1,977
|
|
Proceeds from sale of property and equipment
|
|
|
167
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
2,052
|
|
|
|
(11,113
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
1,624,378
|
|
|
|
1,466,910
|
|
Repayments of revolving credit facility
|
|
|
(1,676,094
|
)
|
|
|
(1,380,329
|
)
|
Outstanding checks
|
|
|
(49,719
|
)
|
|
|
9,397
|
|
Payments of other long-term debt
|
|
|
(2,673
|
)
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(104,108
|
)
|
|
|
92,593
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,049
|
)
|
|
|
4,332
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,495
|
|
|
|
4,749
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
6,446
|
|
|
$
|
9,081
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
40,818
|
|
|
$
|
50,190
|
|
|
|
|
|
|
|
|
|
|
Cash payments for taxes, net
|
|
$
|
5,294
|
|
|
$
|
11,386
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash activities
|
|
|
|
|
|
|
|
|
Capital expenditures financed by debt
|
|
$
|
1,369
|
|
|
$
|
2,258
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-5
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
American Tire Distributors Holdings, Inc. (also referred to
herein as Holdings, or the Company) is a
Delaware corporation that owns 100% of the issued and
outstanding capital stock of American Tire Distributors, Inc., a
Delaware corporation (ATD). Holdings has no
significant assets or operations other than its ownership of
ATD. ATD is primarily engaged in the wholesale distribution of
tires, custom wheels, and related automotive service equipment
and has one reportable segment.
|
|
2.
|
Basis of
Presentation:
|
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission
(SEC) for quarterly reporting and therefore do not
include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and
changes in financial position in conformity with accounting
principles generally accepted in the United States. 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. These financial
statements should be read in conjunction with the financial
statements and notes thereto included elsewhere in this
prospectus. The consolidated results of operations and cash
flows for the nine months ended October 3, 2009 are not
necessarily indicative of the operating results and cash flows
that will be reported for the full fiscal year. The year-end
condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all
disclosures required by accounting principles generally accepted
in the United States.
The Companys fiscal year is based on either a 52- or
53-week period ending on the Saturday closest to each
December 31. Therefore, the financial results of 53-week
fiscal years will not be comparable to the prior and subsequent
52-week fiscal years. The nine months ended October 3, 2009
and October 4, 2008 contain operating results for
39 weeks and 40 weeks, respectively.
The Company evaluated subsequent events through
November 17, 2009, the date the accompanying financial
statements were issued.
In March 2009, the Company granted options to James Micali, a
member of the Companys Board of Directors, to purchase
1,000 shares of Series A Common Stock. The options
expire no later than 7 years and 30 calendar days from the
date of grant and vest in equal installments over three years
commencing on December 31, 2009. In addition, the Company
authorized the grant of options to Alain Redheuil, who served as
a member of the Companys Board of Directors, to purchase
875 shares of Series A Common Stock. The options
authorized by the Board of Directors expire on the
30th calendar day after the seventh anniversary of
March 31, 2005, and vest upon the closing of an approved
sale of the Company. The options described above were granted
pursuant to the terms of the 2005 Management Stock Incentive
Plan.
In determining the fair value of stock options issued during
2009, the Company used the Black-Scholes option pricing model.
The fair value of the options granted to Mr. Micali and
Mr. Redheuil during 2009, estimated on the date of grant
using the Black-Scholes option pricing model, was $188.05 and
$262.73 per share, respectively. The fair value of options
granted was determined using the following assumptions: a
risk-free interest rate of 2.55%; no dividend yield; expected
lives of 7 years and 30 calendar days (for Mr. Micali)
and 3 years and 30 calendar days (for Mr. Redheuil);
and 35% volatility. As the Company does not have sufficient
historical volatility data for its own common stock, the stock
price volatility utilized in the calculation is based on the
Companys peer group in the industry in which it does
business. For the nine months ended October 3, 2009, the
Company recorded compensation expense related to stock option
grants of
F-6
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$0.3 million which is included in selling, general and
administrative expenses within the accompanying condensed
consolidated statements of operations.
Inventories consist primarily of automotive tires, custom
wheels, automotive service equipment and related products and
are valued at the lower of cost, determined on the
first-in,
first-out (FIFO) method, or net realizable value. The Company
performs periodic assessments to determine the existence of
obsolete, slow-moving and non-saleable inventories and records
necessary provisions to reduce such inventories to net
realizable value. A majority of the Companys tire vendors
allow for the return of tire products, subject to certain
limitations. All of the Companys inventories are held as
collateral under the Amended Revolver (as defined below).
As of October 3, 2009, the Company has a residential
property, with a carrying value of $0.3 million classified
as asset held for sale. The Company acquired this property as
part of an employee relocation package. The Company is actively
marketing this property and anticipates that it will be sold
within a twelve-month period.
As part of the acquisition of Am-Pac Tire Dist., Inc.
(Am-Pac Tire), the Company acquired certain retail
stores and operations. As it is managements intention to
divest of these stores during fiscal 2009 and therefore in
conjunction with the requirements of the accounting standards
for the disposal of long-lived assets, the related retail store
assets, including the allocation of purchase price, and the
related liabilities are classified as held for sale within the
accompanying condensed consolidated balance sheets. See
Note 6 for more information regarding the acquisition of
Am-Pac Tire and the subsequent sale, during the second quarter
of 2009, of a portion of these retail stores and operations.
Also, see Note 14 for information regarding the sale of
substantially all of the remaining retail stores of Am-Pac Tire
subsequent to October 3, 2009. Included within assets held
for sale as of October 3, 2009 and January 3, 2009 are
balances for inventory ($1.1 million and $3.4 million,
respectively), balances for accounts receivable
($0.2 million and $0.5 million, respectively) and
balances for fixed assets ($0.5 million and
$2.0 million, respectively).
On December 18, 2008, the Company completed the purchase of
all of the issued and outstanding capital stock of Am-Pac Tire
pursuant to the terms of a Stock Purchase Agreement dated
December 18, 2008. The aggregate purchase price of this
acquisition, subject to adjustment, was approximately
$74.7 million, consisting of $71.1 million in cash, of
which $9.8 million is held in escrow and $59.1 million
was used to pay off Am-Pac Tires outstanding debt, and
$3.6 million in direct acquisition costs. The amount held
in escrow has been excluded in the preliminary allocation of the
cost of the assets acquired and liabilities assumed as it
represents contingent consideration for which the contingency
has not been resolved. Unless the Company makes a proper claim
for indemnity, as described in the Stock Purchase Agreement,
prior to the eighteen (18) month anniversary of the
closing, any amounts remaining in escrow plus any of the
proceeds earned thereon will be released to the sellers. This
acquisition significantly strengthened the Companys
presence in markets it currently serves and allowed the Company
to expand its operations into St. Louis, Missouri and
western Texas.
The purchase price allocation, which is considered preliminary
as it relates to the fair value assessment of inventory items
acquired and the resolution regarding the amount held in escrow,
has been recorded in the accompanying condensed consolidated
financial statements based on estimated fair values for the
assets acquired and liabilities assumed and resulted in goodwill
of $5.8 million. Effective July 31, 2009, the Company
completed and settled, with the seller, the closing date balance
sheet and determination of
F-7
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchase price regarding the acquisition of Am-Pac Tire. In
conjunction with this settlement, the Company received
$0.9 million as a result of the closing date balance sheet
and purchase price adjustment procedures included within the
Stock Purchase Agreement. This amount has been reflected, during
the third quarter of 2009, as an adjustment to the cash
consideration paid in the acquisition of Am-Pac Tire.
As part of the acquisition of Am-Pac Tire, the Company acquired
certain retail stores and operations. As it is managements
intention to divest of these stores during fiscal 2009 and in
conjunction with accounting standards, the related assets,
including the allocation of purchase price, and the related
liabilities of the retail operations are classified as held for
sale within the accompanying condensed consolidated balance
sheets as of October 3, 2009 and January 3, 2009.
Also, during the second quarter of 2009, the Company sold 26 of
the acquired 37 retail stores with a carrying value of
$10 million for proceeds of $7.3 million. The
difference in proceeds and carrying value has been recorded as
an adjustment to goodwill in the second quarter of 2009. In
addition, subsequent to October 3, 2009, the Company sold
substantially all of the remaining retail stores of Am-Pac Tire
(see Note 14). Based upon the anticipated proceeds from the
sale of these remaining stores, the Company adjusted the
carrying value as of October 3, 2009. The difference in
proceeds and carrying value, of approximately $3.0 million,
has been recorded as an adjustment to goodwill in the third
quarter of 2009.
The preliminary purchase price allocation is as follows (in
thousands):
|
|
|
|
|
Total cash consideration
|
|
$
|
71,095
|
|
Less: Debt paid by seller
|
|
|
(59,055
|
)
|
|
|
|
|
|
Net cash consideration
|
|
|
12,040
|
|
Plus: Transaction fees
|
|
|
3,575
|
|
Less: Net book value of assets acquired
|
|
|
(9,281
|
)
|
Plus: Pre-acquisition intangibles that were written off in
purchase accounting
|
|
|
13,172
|
|
|
|
|
|
|
Excess of purchase price over net book value of assets acquired,
excluding pre-acquisition intangibles
|
|
|
19,506
|
|
Allocation of excess purchase price to assets acquired and
liabilities assumed:
|
|
|
|
|
Restricted cash
|
|
|
(9,750
|
)
|
Accounts receivable
|
|
|
1,076
|
|
Income tax receivable
|
|
|
8,419
|
|
Property and equipment
|
|
|
(4,073
|
)
|
Inventory
|
|
|
4,076
|
|
Assets held for sale
|
|
|
(980
|
)
|
Customer lists
|
|
|
(9,591
|
)
|
Trademarks and tradenames
|
|
|
(4,464
|
)
|
Exit costs and termination benefits
|
|
|
10,658
|
|
Favorable leases
|
|
|
(232
|
)
|
Net deferred taxes
|
|
|
(8,870
|
)
|
|
|
|
|
|
Total adjustments
|
|
|
(13,731
|
)
|
|
|
|
|
|
Goodwill
|
|
$
|
5,775
|
|
|
|
|
|
|
F-8
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following unaudited pro forma supplementary data for the
nine months ended October 4, 2008 gives effect to the
Am-Pac Tire acquisition as if it had occurred as of
December 30, 2007 (the first day of the Companys 2008
fiscal year). The pro forma supplementary data is provided for
informational purposes only and should not be construed to be
indicative of the Companys results of operations had the
acquisition been consummated on the date assumed and does not
project the Companys results of operations for any future
date.
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 4,
|
|
|
|
2008
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Sales
|
|
$
|
1,761,321
|
|
Net income
|
|
|
6,491
|
|
Net income per common share
|
|
|
6.49
|
|
On October 8, 2008, the Company completed the purchase of
certain assets and the assumption of certain liabilities of
Remington Tire Distributors, Inc., d/b/a Grays Wholesale
Tire Distributors (Grays Tire) pursuant to the
terms of an Asset Purchase Agreement dated as of October 8,
2008. This acquisition expanded the Companys service
across the state of Texas and Oklahoma and complemented its
existing distribution centers located within the states of Texas
and Oklahoma.
The purchase price allocation has been recorded in the
accompanying condensed consolidated financial statements based
on estimated fair values for the assets acquired and liabilities
assumed and has resulted in negative goodwill of
$3.9 million and a customer relationship intangible asset
of $5.5 million. In accordance with accounting standards
for business combinations, the negative goodwill was allocated
on a pro rata basis to the noncurrent nonfinancial assets, such
as property and equipment and other intangible assets, acquired
in the Grays Tire acquisition which reduced the customer
relationship intangible asset to $1.7 million. Amortization
for the customer relationship intangible asset is deductible for
income tax purposes. The Grays Tire acquisition does not
rise to the level of being a material business combination.
The Am-Pac Tire and Grays Tire acquisitions were financed
through borrowings under ATDs Amended Revolver (as defined
below). These acquisitions have been accounted for under the
purchase method of accounting and, accordingly, the results of
operations for the acquired businesses have been included in the
accompanying condensed consolidated statements of operations
from the date of acquisition.
|
|
7.
|
Goodwill
and Other Intangible Assets:
|
The Company has recorded, at October 3, 2009, goodwill of
$375.7 million, including $5.8 million in connection
with the purchase of Am-Pac Tire (see Note 6 for further
information). Approximately $27.2 million of net goodwill
is deductible for income tax purposes in future periods.
Other intangible assets represent customer lists, tradenames,
noncompete agreements and software. Intangible assets with
indefinite lives are not amortized and are tested for impairment
at least annually. All other intangible assets with finite lives
are being amortized on a straight-line or accelerated basis over
their
F-9
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimated useful lives as shown in the table below. The
following table sets forth the gross amount and accumulated
amortization of the intangible assets at October 3, 2009
and January 3, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 3, 2009
|
|
|
January 3, 2009
|
|
|
|
Estimated
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
Useful Life (Years)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Customer lists
|
|
17
|
|
$
|
244,896
|
|
|
$
|
62,019
|
|
|
$
|
244,397
|
|
|
$
|
48,590
|
|
Noncompete agreements
|
|
3-5
|
|
|
613
|
|
|
|
613
|
|
|
|
613
|
|
|
|
596
|
|
Tradenames
|
|
1
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
1
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
$
|
245,736
|
|
|
$
|
62,709
|
|
|
$
|
245,087
|
|
|
$
|
49,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, at October 3, 2009 and January 3, 2009,
the Company had $47.2 million of indefinite lived
intangible assets, consisting of tradenames.
In first quarter 2009, the Company implemented a change in
accounting estimate relating to certain of its customer list
intangible assets. The primary reason for this change relates to
an analysis of current customer attrition rates within some of
the Companys less significant acquisitions. During the
nine months ended October 3, 2009, the effect of this
change in estimate was to increase amortization expense by
$2.2 million.
Estimated intangible asset amortization expense for each of the
next five fiscal years is expected to be $4.5 million for
the remaining three months in 2009, $17.6 million in 2010,
$15.6 million in 2011, $15.2 million in 2012 and
$14.7 million in 2013.
|
|
8.
|
Long-term
Debt and Other Financing Arrangements:
|
Revolving
Credit Facility
On May 9, 2007, ATD entered into the Fifth Amendment to the
Fourth Amended and Restated Loan and Security Agreement (the
Amended Revolver). The Borrowers to the Amended
Revolver are ATD and its subsidiaries. The Amended Revolver
provides for a senior secured revolving credit facility of up to
$400.0 million (of which up to $25.0 million may be
utilized in the form of commercial and standby letters of
credit), subject to a borrowing base formula. The Amended
Revolver is collateralized by a pledge of substantially all
assets of ATD. As of October 3, 2009, the outstanding
Amended Revolver balance was $225.2 million. In addition,
ATD had certain letters of credit outstanding at October 3,
2009 in the aggregate amount of $7.9 million and
$123.8 million was available for additional borrowings.
Borrowings under the Amended Revolver bear interest, at
ATDs option, at either (i) the Base Rate, as defined,
plus the applicable margin (0.0% as of October 3,
2009) or (ii) the Eurodollar Rate, as defined, plus
the applicable margin (1.50% as of October 3, 2009). At
October 3, 2009 and January 3, 2009, borrowings under
the Amended Revolver were at a weighted average interest rate of
1.9% and 3.6%, respectively. The applicable margin for the loans
varies based upon a performance grid, as defined in the Amended
Revolver.
All obligations under the Amended Revolver are guaranteed by
Holdings and each of ATDs existing and future direct and
indirect domestic subsidiaries that are not direct obligors
thereunder. Obligations under the Amended Revolver are also
collateralized by a pledge of substantially all assets of the
obligors, including all shares of ATDs capital stock and
that of ATDs subsidiaries, subject to certain limitations.
In the event that ATD does not have at least $35.0 million
available to be drawn under the Amended Revolver (subject to a
cure) it would be required to meet a fixed charge coverage ratio
of 1.0:1.0. Additionally, the Amended Revolver restricts
ATDs ability to incur additional debt; enter into
guarantees; make loans and investments; declare dividends;
modify certain material agreements or organizational documents
relating to
F-10
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
preferred stock; and change the business it conducts, as well as
other customary covenants. As of October 3, 2009 and
January 3, 2009, ATD had more than $35.0 million
available to draw under the Amended Revolver and was therefore
not subject to the covenant. The Amended Revolver is set to
expire on December 31, 2011.
Discount
Notes
On March 31, 2005, Holdings issued Discount Notes with a
maturity date of October 1, 2013 at an aggregate principal
amount at maturity of $51.5 million. The Discount Notes
were issued at a substantial discount from their principal
amount at maturity and generated net proceeds of approximately
$40.0 million. Prior to April 1, 2007, no interest
accrued on the Discount Notes. Instead, the Discount Notes
accreted at a rate of 13% compounded semi-annually to an
aggregate accreted value of $51.5 million, the full
principal amount at maturity. Subsequent to April 1, 2007,
interest on the Discount Notes accrues at a rate of 13% per
annum and is payable, in cash, semi-annually in arrears on
April 1 and October 1 of each year, commencing on
October 1, 2007.
The Discount Notes are subject to redemption at any time at the
option of Holdings, in whole or in part, upon not less than 30
nor more than 60 days notice, at certain redemption
prices plus accrued and unpaid interest. On April 1, 2010,
if any Discount Notes are outstanding, Holdings will be required
to redeem 12.165% of each of the then outstanding Discount
Notes aggregate accreted value at a redemption price of
100% of the accreted value of the portion of the Discount Notes
so redeemed. Accordingly, for the period ended October 3,
2009, the Company has classified $6.3 million of the
outstanding Discount Notes as current maturities of long-term
debt within the accompanying condensed consolidated balance
sheet.
2013
Notes
On March 31, 2005, ATD issued 2013 Notes in the aggregate
principal amount of $150.0 million, resulting in net
proceeds of approximately $144.2 million after debt
issuance costs. The 2013 Notes have an annual coupon rate of
10.75% and will mature on April 1, 2013. The 2013 Notes
will be subject to redemption at any time at the option of ATD,
in whole or in part, upon not less than 30 nor more than
60 days notice, at certain redemption prices plus
accrued and unpaid interest. Interest on the 2013 Notes is
payable semi-annually in arrears on April 1 and October 1 of
each year, commencing on October 1, 2005.
Floating
Rate Notes
On March 31, 2005, ATD issued Floating Rate Notes in the
aggregate principal amount of $140.0 million, resulting in
net proceeds of approximately $134.5 million after debt
issuance costs. The Floating Rate Notes will mature on
April 1, 2012. Interest on the Floating Rate Notes is
payable quarterly in arrears at a rate equal to the three-month
LIBOR, reset quarterly, plus 6.25%, on January 1,
April 1, July 1 and October 1 of each year, beginning on
July 1, 2005. The interest rate on the Floating Rate Notes
ranged between 6.85% and 7.69% for the nine months ended
October 3, 2009 and ranged between 8.95% and 11.48% for the
nine months ended October 4, 2008. The Floating Rate Notes
are subject to redemption at any time at the option of ATD, in
whole or in part, upon not less than 30 nor more than
60 days notice, at certain redemption prices plus
accrued and unpaid interest.
The indentures governing the 2013 Notes, Floating Rate Notes,
and the Discount Notes contain specified restrictions with
respect to the conduct of the Companys business and
specified restrictive covenants limiting, among other things,
the Companys ability to pay dividends on or repurchase
capital stock, repurchase or make early payments on subordinated
debt, make investments, incur additional indebtedness, incur or
assume liens on the Companys assets to secure debt, merge
or consolidate with another company, transfer or sell assets,
and enter into transactions with affiliates. As of
October 3, 2009 and January 3, 2009, ATD was in
compliance with these covenants.
F-11
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Derivative
Instruments
In March 2008, the Financial Accounting Standards Board
(FASB) issued a new accounting standard for the
purpose of improving the financial reporting regarding
derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand
their effects on an entitys financial position, financial
performance, and cash flows. The Company adopted the provisions
of this standard effective January 4, 2009 (the first day
of its 2009 fiscal year). As a result of the adoption of this
standard, the Company expanded its disclosures regarding
derivative instruments and hedging activities which are
presented below.
The Company is exposed to interest rate risk associated with
fluctuations in the interest rates on its variable rate debt. In
order to manage a portion of this risk, the Company entered into
interest rate swap agreements on October 11, 2005 (the
2005 Swap) and June 4, 2009 (the 2009
Swap). These interest rate swap agreements represent
contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreement without exchange of
the underlying notional amount. The notional amounts of the
interest rate swap agreements are used to measure interest to be
paid or received and does not represent the amount of exposure
to credit loss. At October 3, 2009, the 2005 Swap in place
covers a notional amount of $85.0 million of the
$140.0 million of Floating Rate Notes at a fixed interest
rate of 4.79% and expires on September 30, 2010. In
accordance with accounting standards, the 2005 Swap has been
designated as a cash flow hedge and has met the requirements to
be accounted for under the short-cut method, resulting in no
ineffectiveness in the hedging relationship. Accordingly, the
Company recognizes the fair value of the 2005 Swap in the
accompanying condensed consolidated balance sheets and any
changes in the fair value are recorded as adjustments to other
comprehensive income (loss).
At October 3, 2009, the 2009 Swap in place covers a
notional amount of $100.0 million of variable rate
indebtedness at a fixed interest rate of 1.45% and expires on
June 8, 2011. The 2009 Swap has not been designated for
hedge accounting treatment. Accordingly, the Company recognizes
the fair value of the 2009 Swap in the accompanying condensed
consolidated balance sheets and any changes in the fair value
are recorded as adjustments to interest expense in the
accompanying condensed consolidated statements of operations.
For the nine month period ended October 3, 2009,
$0.9 million has been recorded as interest expense within
the accompanying condensed consolidated statements of operations
based upon the change in fair value for the 2009 Swap.
As of October 3, 2009, the Company holds no other
derivative instruments and has historically not entered into
derivatives for trading or speculative purposes. In addition,
during the next 12 months, management anticipates that a
loss of approximately $3.6 million will be reclassified
from accumulated other comprehensive loss into the consolidated
statement of operations.
The fair value of the interest rate swap agreements is the
estimated amount that the Company would pay or receive to
terminate the agreements at the reporting date. When the fair
value of the interest rate swap agreements is an asset, the
counterparty owes the Company, creating credit risk for the
Company. Credit risk is the failure of the counterparty to
perform under the terms of the interest rate swap agreements.
The Company has minimized this credit risk by entering into
interest rate swap agreements with a highly respectable and well
know counterparty.
F-12
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At October 3, 2009 and January 3, 2009, the fair
values of the Companys derivative instruments were
recorded as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
|
|
October 3, 2009
|
|
|
January 3, 2009
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Derivative designated as a hedging instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
|
Other liabilities
|
|
|
$
|
3,470
|
|
|
|
Other liabilities
|
|
|
$
|
4,350
|
|
Derivative not designated as a hedging instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
|
Other liabilities
|
|
|
|
871
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
4,341
|
|
|
|
|
|
|
$
|
4,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effect of the derivative instruments on the
condensed consolidated statement of operations for the nine
months ended October 3, 2009 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
|
|
Amount of Gain
|
|
|
Amount of Gain
|
|
(Loss) Reclassified
|
|
(Loss) Reclassified
|
|
|
(Loss) Recognized
|
|
from Accumulated
|
|
from Accumulated
|
Interest Rate Swap Designated as
|
|
in OCI (Effective
|
|
OCI into Income
|
|
OCI into Income
|
Cash Flow Hedge
|
|
Portion)
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
Nine Months ended October 3, 2009
|
|
|
(1,499
|
)
|
|
|
Interest expense
|
|
|
|
2,379
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
|
|
Amount of Gain
|
|
|
(Loss) Recognized
|
|
(Loss) Recognized
|
Interest Rate Swap Not Designated as
|
|
in Income
|
|
in Income
|
Hedging Instrument
|
|
on Derivative
|
|
on Derivative
|
|
Nine Months ended October 3, 2009
|
|
|
Interest expense
|
|
|
|
(871
|
)
|
|
|
9.
|
Fair
Value of Financial Instruments:
|
In September 2006, the FASB issued an accounting standard that
defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally
accepted in the United States, and expands disclosures about
fair value measurements. This standard does not require any new
fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value
measurements. The Company adopted this standard for nonfinancial
assets and nonfinancial liabilities on January 4, 2009 (the
first day of its 2009 fiscal year). The nonfinancial assets and
nonfinancial liabilities for which the Company will apply the
fair value provisions of this standard include goodwill,
intangible and other long-lived assets, liabilities for exit or
disposal activities and business combinations. The adoption of
this standard for nonfinancial assets and nonfinancial
liabilities did not have a material impact on the Companys
results of operations or financial position.
The valuation techniques under this accounting standard are
based on observable and unobservable inputs. Observable inputs
reflect readily obtainable data from independent sources, while
unobservable inputs reflect the Companys market
assumptions. This standard classifies these inputs into the
following hierarchy:
Level 1 Inputs Quoted prices for
identical instruments in active markets.
Level 2 Inputs Quoted prices for
similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3 Inputs Instruments with
primarily unobservable value drivers.
F-13
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the fair value and hierarchy levels
for the Companys financial assets and liabilities, which
are measured at fair value on a recurring basis as of
October 3, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at October 3, 2009
|
|
|
|
|
|
|
Using Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Using Significant Other
|
|
|
Using Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
October 3, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust(a)
|
|
$
|
3,059
|
|
|
$
|
3,059
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,059
|
|
|
$
|
3,059
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps(b)
|
|
$
|
4,341
|
|
|
$
|
|
|
|
$
|
4,341
|
|
|
$
|
|
|
Lease exit liability(c)
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
5,337
|
|
|
$
|
|
|
|
$
|
4,341
|
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on the fair value of investments corresponding to
employees investment elections. Amount is included within
other non-current assets in the accompanying condensed
consolidated balance sheet. |
|
(b) |
|
Based on quoted prices for similar instruments from a financial
institution that is a counterparty to the transactions. Amount
is included within other non-current liabilities in the
accompanying condensed consolidated balance sheet. |
|
(c) |
|
Based on the fair value of the discounted cash flows over the
remaining term of the leased property. Amount is included within
accrued expenses and other non-current liabilities in the
accompanying condensed consolidated balance sheet. |
The fair value of lease exit liabilities within the Level 3
classification is based on a discounted cash flow model. The
fair value of the lease exit liability is determined by summing
the present value of the future minimum lease payments
determined by the underlying property lease. As of
October 3, 2009, the Company assumed a weighted average
discount rate of 9.0%, an expected term of 2 years and no
anticipated sublease income. The following table provides a
reconciliation of liabilities measured at fair value on a
recurring basis using significant unobservable inputs
(Level 3):
|
|
|
|
|
|
|
October 3,
|
|
|
|
2009
|
|
|
Beginning Balance
|
|
$
|
1,102
|
|
Settlements
|
|
|
(106
|
)
|
|
|
|
|
|
Ending Balance
|
|
$
|
996
|
|
|
|
|
|
|
The following table presents the estimated fair value of the
Companys long-term, senior notes at October 3, 2009
and January 3, 2009 based upon quoted market prices (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Carrying Value at
|
|
|
Fair Value at
|
|
|
Carrying Value at
|
|
|
|
October 3,
|
|
|
October 3,
|
|
|
January 3,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2013 Notes
|
|
$
|
138,750
|
|
|
$
|
150,000
|
|
|
$
|
111,750
|
|
|
$
|
150,000
|
|
Floating Rate Notes
|
|
|
119,000
|
|
|
|
140,000
|
|
|
|
105,000
|
|
|
|
140,000
|
|
Discount Notes
|
|
|
46,332
|
|
|
|
51,480
|
|
|
|
37,066
|
|
|
|
51,480
|
|
In addition, effective December 30, 2007, the Company
adopted a new accounting standard that provides entities with
the option to measure many financial instruments and certain
other items at fair value.
F-14
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Entities that choose the fair value option will recognize
unrealized gains and losses on items for which the fair value
option was elected in earnings at each subsequent reporting
date. The Company has currently chosen not to elect the fair
value option for any items that are not already required to be
measured at fair value in accordance with accounting principles
generally accepted in the United States.
The income tax provision recorded for the nine months ended
October 3, 2009 of 50.1%, and the income tax provision
recorded for the nine months ended October 4, 2008 of
43.7%, are based on an annual estimated effective tax rate of
50.1% for 2009 and 43.7% for 2008, which takes into account
year-to-date
income and projected results for the full year. The increase in
the effective tax rate is due primarily to a lower projected
pre-tax income level for 2009 as compared to 2008 and, to a
lesser extent, a slightly higher state income tax effective
rate. The final effective tax rate for fiscal 2009 will depend
on the actual amount of pre-tax income (loss) generated by the
Company by tax jurisdiction for the full year.
At October 3, 2009, the Company had unrecognized tax
benefits of $2.2 million, of which $1.7 million is
included within accrued expenses, which includes
$0.2 million relating to accrued interest and penalties;
the other $0.5 million is included within other liabilities
within the accompanying condensed consolidated balance sheet. Of
the Companys $2.2 million unrecognized tax benefits
as of October 3, 2009, only $0.3 million is
anticipated to have an affect on the Companys effective
tax rate, if recognized. In addition, of the Companys
$2.2 million liability for uncertain tax positions,
approximately $1.9 million relates to temporary timing
differences. During the next 12 months, management believes
that it is reasonably possible that the amount of unrecognized
tax benefits may decrease by approximately $0.1 million due
to expiration of statutes of limitations, all of which would
reduce income tax expense.
While the Company believes that it has adequately provided for
all tax positions, amounts asserted by taxing authorities could
be greater than the Companys accrued position.
Accordingly, additional provisions of federal and state-related
matters could be recorded in the future as revised estimates are
made or the underlying matters are settled or otherwise resolved.
The Company files federal income tax returns, as well as
multiple state jurisdiction tax returns. The tax years
2005 2008 remain open to examination by the taxing
jurisdictions to which the Company is subject.
|
|
11.
|
Redeemable
Preferred Stock:
|
In connection with the acquisition of ATD, Holdings issued
20,000 shares of 8% cumulative mandatorily redeemable
preferred stock to The 1818 Mezzanine Fund II, L.P.
(The 1818 Fund) in exchange for $15.4 million
in cash less related transaction costs of $0.5 million. The
cumulative preferred stock has a stated value of $1,000 per
share and holders will be entitled to receive, when and if
declared by the Board of Directors, cumulative dividends,
payable in cash, at an annual rate of 8.0%. The dividends and
accretion of the carrying amount to the redemption amount is
recorded as interest expense in the accompanying condensed
consolidated statements of operations. Holdings Board of
Directors is not obligated to declare dividends and the
preferred stock provides no monetary penalties for a failure to
declare dividends. The cumulative preferred stock may be
redeemed by Holdings at any time beginning on the first
anniversary of the issuance of the stock and will be required to
be redeemed upon a change of control of Holdings and at its
maturity in 2015. The 8% cumulative mandatorily redeemable
preferred stock is classified as a noncurrent liability in the
accompanying condensed consolidated balance sheets.
F-15
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Commitments
and Contingencies:
|
Guaranteed
Lease Obligations
The Company remains liable as a guarantor on certain leases of
Winston Tire Company, its discontinued retail segment. As of
October 3, 2009, total obligations of the Company as
guarantor on these leases is approximately $6.0 million
extending over 10 years. However, the Company has secured
assignments or sublease agreements for the vast majority of
these commitments with contractual assigned or subleased rentals
of approximately $5.5 million. A provision has been made
for the net present value of the estimated shortfall.
Legal
and Tax Proceedings
The Company is involved from time to time in various lawsuits,
including class action lawsuits, as well as various audits and
reviews regarding its federal, state and local tax filings,
arising out of the ordinary conduct of its business. Management
does not expect that any of these matters will have a material
adverse effect on the Companys business or financial
condition. As to tax filings, the Company believes that the
various tax filings have been made in a timely fashion and in
accordance with applicable federal, state and local tax code
requirements. Additionally, the Company believes that it has
adequately provided for any reasonably foreseeable resolution of
any tax disputes, but will adjust its reserves if events so
dictate in accordance with accounting standards. To the extent
that the ultimate results differ from the original or adjusted
estimates of the Company, the effect will be recorded in
accordance with accounting standards.
|
|
13.
|
Shipping
and Handling Costs:
|
Certain Company shipping, handling and other distribution costs
are classified as selling, general and administrative expenses
in the accompanying condensed consolidated statements of
operations. Such expenses totaled $74.3 million and
$76.0 million for the nine months ended October 3,
2009 and October 4, 2008, respectively. Shipping revenue is
classified in net sales.
Subsequent to October 3, 2009, the Company sold 10 of the
remaining 11 retail stores that were acquired through the Am-Pac
Tire acquisition (see Note 6). In addition, on
October 30, 2009, the Company shutdown the remaining
acquired retail store. The 10 retail stores were sold for
proceeds of approximately $1.0 million. The difference in
proceeds and carrying value, which approximated
$3.0 million, has been recorded as an adjustment to
goodwill in the third quarter of 2009.
|
|
15.
|
Recently
Issued Accounting Pronouncements:
|
In June 2009, the FASB issued the FASB Accounting Standards
Codification (Codification). The Codification will
become the source of authoritative GAAP recognized by the FASB
to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants. The Codification is not intended to change or alter
existing GAAP. The Codification is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption of the Codification did
not have a material impact on the Companys consolidated
financial statements.
In May 2009, the FASB issued authoritative guidance for events
that occur subsequent to the end of a reporting period. This
authoritative guidance establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or are available to be issued. This authoritative
guidance is effective for interim and annual reporting periods
ended after June 15,
F-16
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2009. The Company adopted this guidance on July 4, 2009 and
has included the required disclosures in Note 2.
In April 2009, the FASB issued authoritative guidance for fair
value disclosures of financial instruments during interim
periods. This guidance extends the disclosure requirements for
fair value of financial instruments to interim period financial
statements, in addition to the existing requirements for annual
periods and reiterates the requirement to disclose the methods
and significant assumptions used to estimate fair value. This
guidance is effective for interim and annual periods ending
after June 15, 2009. The Company adopted this guidance on
July 4, 2009 and has included the required disclosures in
Note 9.
In April 2009, the FASB issued authoritative guidance for the
recognition and presentation of impairments that are
other-than-temporary.
This guidance amends the
other-than-temporary
impairment guidance for debt securities to make the guidance
more operational and to improve the presentation and disclosure
of
other-than-temporary
impairments on debt and equity securities. This accounting
standard is effective for interim and annual periods ending
after June 15, 2009. The Company adopted this accounting
standard on July 4, 2009 with no material impact on its
consolidated financial statements.
In April 2008, the FASB issued authoritative guidance for the
determination of useful lives of intangible assets. This
guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent of
this guidance is to improve the consistency between the useful
life of a recognized intangible asset under the authoritative
guidance for goodwill and other intangible assets and the period
of expected cash flows used to measure the fair value of the
asset under the authoritative guidance for business combinations
and other U.S. generally accepted accounting principles.
This guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years. The Company adopted this
guidance on January 4, 2009 (the first day of its 2009
fiscal year). The adoption of this guidance did not have a
material impact on the Companys results of operations and
financial position.
In March 2008, the FASB issued authoritative guidance for
disclosures of derivative instruments and hedging activities.
This guidance is intended to improve financial reporting about
derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand
their effects on an entitys financial position, financial
performance, and cash flows. This guidance is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged. The Company adopted the provisions of this
accounting standard on January 4, 2009 (the first day of
its 2009 fiscal year). As a result of the adoption, the Company
expanded its disclosures regarding derivative instruments and
hedging activities which are included in Note 8.
In December 2007, the FASB issued revisions to an accounting
standard for business combinations. The revised accounting
standard requires an acquiring entity to recognize, with limited
exceptions, all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value. In addition, the
revised accounting standard will require acquisition costs to be
expensed as incurred, acquired contingent liabilities to be
recorded at fair value at the acquisition date and subsequently
measured at either the higher of such amount or the amount
determined under existing guidance for non-acquired
contingencies, restructuring costs associated with a business
combination to be generally expensed subsequent to the
acquisition date and changes in deferred tax asset valuation
allowances and income tax uncertainties after the acquisition
date to generally affect income tax expense. This revised
accounting standard also includes a substantial number of new
disclosure requirements. The revised accounting standard is
effective for fiscal years beginning after December 15,
2008 and is to be applied prospectively. The Company adopted the
revised accounting standard on January 4, 2009 (the first
day of its 2009 fiscal year). The adoption of this revised
accounting standard did not have a material impact on the
Companys results of operations or financial position;
however, the impact in future periods will depend on the nature
and size of business combinations completed in future periods.
F-17
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Subsidiary
Guarantor Financial Information:
|
The following condensed consolidating financial statements are
presented pursuant to
Rule 3-10
of
Regulation S-X
and reflect the financial position, results of operations, and
cash flows of the Company. As allowed under our indenture
agreements, during fiscal 2009, the Company merged certain
subsidiary guarantors into the subsidiary issuer. As a result of
this merger, the condensed consolidating balance sheet as of
January 3, 2009, the condensed consolidating statements of
operations for the nine months ended October 4, 2008, and
the condensed consolidating statement of cash flows for the nine
months ended October 4, 2008 have been retroactively
adjusted to reflect the post-merger legal entity structure.
The financial information is presented under the following
column headings: Parent Company (Holdings), Subsidiary Issuer
(ATD), and Subsidiary Guarantors (ATDs subsidiaries). The
Subsidiary Issuer and all of the Subsidiary Guarantors are
wholly-owned subsidiaries of Holdings. The following describes
the guarantor relationships of the Companys senior notes:
|
|
|
|
|
Discount Notes in an aggregate principal amount of
$51.5 million at maturity were issued by Holdings. Such
notes are not guaranteed by the Subsidiary Issuer or the
Subsidiary Guarantors.
|
|
|
|
Floating Rate Notes and 2013 Notes in an aggregate principal
amount of $290.0 million were issued by ATD and are fully
and unconditionally guaranteed on a joint and several basis by
the Companys non-issuing, wholly-owned subsidiaries
(Subsidiary Guarantors) on a senior basis and
unconditionally guaranteed on a joint and several basis by
Holdings on a subordinated basis.
|
F-18
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The condensed consolidating financial information for the
Company is as follows (amounts in thousands):
Condensed consolidating balance sheets as of October 3,
2009 and January 3, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
6,208
|
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
6,446
|
|
Restricted cash
|
|
|
|
|
|
|
500
|
|
|
|
9,750
|
|
|
|
|
|
|
|
10,250
|
|
Accounts receivable, net
|
|
|
|
|
|
|
202,615
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
202,524
|
|
Inventories
|
|
|
|
|
|
|
367,060
|
|
|
|
(167
|
)
|
|
|
|
|
|
|
366,893
|
|
Assets held for sale
|
|
|
|
|
|
|
270
|
|
|
|
2,706
|
|
|
|
|
|
|
|
2,976
|
|
Intercompany receivables
|
|
|
|
|
|
|
|
|
|
|
23,401
|
|
|
|
(23,401
|
)
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
19,576
|
|
|
|
6,260
|
|
|
|
|
|
|
|
25,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
596,229
|
|
|
|
42,097
|
|
|
|
(23,401
|
)
|
|
|
614,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
46,079
|
|
|
|
9,106
|
|
|
|
|
|
|
|
55,185
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
586,567
|
|
|
|
19,407
|
|
|
|
|
|
|
|
605,974
|
|
Investment in subsidiaries
|
|
|
307,422
|
|
|
|
61,621
|
|
|
|
|
|
|
|
(369,043
|
)
|
|
|
|
|
Other assets
|
|
|
1,572
|
|
|
|
9,628
|
|
|
|
9,283
|
|
|
|
|
|
|
|
20,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
308,994
|
|
|
$
|
1,300,124
|
|
|
$
|
79,893
|
|
|
$
|
(392,444
|
)
|
|
$
|
1,296,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
327,487
|
|
|
$
|
4,746
|
|
|
$
|
|
|
|
$
|
332,233
|
|
Accrued expenses
|
|
|
3,406
|
|
|
|
22,740
|
|
|
|
4,584
|
|
|
|
|
|
|
|
30,730
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
783
|
|
|
|
|
|
|
|
783
|
|
Current maturities of long-term debt
|
|
|
6,263
|
|
|
|
1,833
|
|
|
|
16
|
|
|
|
|
|
|
|
8,112
|
|
Intercompany payables
|
|
|
145
|
|
|
|
23,256
|
|
|
|
|
|
|
|
(23,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,814
|
|
|
|
375,316
|
|
|
|
10,129
|
|
|
|
(23,401
|
)
|
|
|
371,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
45,217
|
|
|
|
536,060
|
|
|
|
27
|
|
|
|
|
|
|
|
581,304
|
|
Deferred income taxes
|
|
|
|
|
|
|
67,011
|
|
|
|
3,713
|
|
|
|
|
|
|
|
70,724
|
|
Other liabilities
|
|
|
|
|
|
|
14,315
|
|
|
|
4,403
|
|
|
|
|
|
|
|
18,718
|
|
Redeemable preferred stock
|
|
|
25,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,918
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany investment
|
|
|
|
|
|
|
280,622
|
|
|
|
64,810
|
|
|
|
(345,432
|
)
|
|
|
|
|
Common stock
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
218,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,321
|
|
Warrants
|
|
|
4,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,631
|
|
Accumulated earnings (deficit)
|
|
|
7,334
|
|
|
|
28,951
|
|
|
|
(3,189
|
)
|
|
|
(25,762
|
)
|
|
|
7,334
|
|
Accumulated other comprehensive loss
|
|
|
(2,151
|
)
|
|
|
(2,151
|
)
|
|
|
|
|
|
|
2,151
|
|
|
|
(2,151
|
)
|
Treasury stock, at cost
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
228,045
|
|
|
|
307,422
|
|
|
|
61,621
|
|
|
|
(369,043
|
)
|
|
|
228,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
308,994
|
|
|
$
|
1,300,124
|
|
|
$
|
79,893
|
|
|
$
|
(392,444
|
)
|
|
$
|
1,296,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
72
|
|
|
$
|
6,305
|
|
|
$
|
2,118
|
|
|
$
|
|
|
|
$
|
8,495
|
|
Restricted cash
|
|
|
|
|
|
|
500
|
|
|
|
9,750
|
|
|
|
|
|
|
|
10,250
|
|
Accounts receivable, net
|
|
|
|
|
|
|
153,949
|
|
|
|
24,946
|
|
|
|
|
|
|
|
178,895
|
|
Inventories
|
|
|
|
|
|
|
393,608
|
|
|
|
62,469
|
|
|
|
|
|
|
|
456,077
|
|
Assets held for sale
|
|
|
|
|
|
|
442
|
|
|
|
14,270
|
|
|
|
|
|
|
|
14,712
|
|
Intercompany receivable
|
|
|
|
|
|
|
17,714
|
|
|
|
|
|
|
|
(17,714
|
)
|
|
|
|
|
Other current assets
|
|
|
2
|
|
|
|
21,215
|
|
|
|
6,412
|
|
|
|
|
|
|
|
27,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
74
|
|
|
|
593,733
|
|
|
|
119,965
|
|
|
|
(17,714
|
)
|
|
|
696,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
47,618
|
|
|
|
9,998
|
|
|
|
|
|
|
|
57,616
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
598,939
|
|
|
|
14,055
|
|
|
|
|
|
|
|
612,994
|
|
Investment in subsidiaries
|
|
|
300,361
|
|
|
|
65,074
|
|
|
|
|
|
|
|
(365,435
|
)
|
|
|
|
|
Other assets
|
|
|
1,836
|
|
|
|
12,886
|
|
|
|
9,470
|
|
|
|
|
|
|
|
24,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
302,271
|
|
|
$
|
1,318,250
|
|
|
$
|
153,488
|
|
|
$
|
(383,149
|
)
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
311,141
|
|
|
$
|
49,250
|
|
|
$
|
|
|
|
$
|
360,391
|
|
Accrued expenses
|
|
|
1,723
|
|
|
|
30,306
|
|
|
|
11,076
|
|
|
|
|
|
|
|
43,105
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
1,199
|
|
|
|
|
|
|
|
1,199
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
3,034
|
|
|
|
16
|
|
|
|
|
|
|
|
3,050
|
|
Intercompany payables
|
|
|
641
|
|
|
|
|
|
|
|
17,073
|
|
|
|
(17,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,364
|
|
|
|
344,481
|
|
|
|
78,614
|
|
|
|
(17,714
|
)
|
|
|
407,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
51,480
|
|
|
|
587,868
|
|
|
|
36
|
|
|
|
|
|
|
|
639,384
|
|
Deferred income taxes
|
|
|
|
|
|
|
70,844
|
|
|
|
3,974
|
|
|
|
|
|
|
|
74,818
|
|
Other liabilities
|
|
|
|
|
|
|
14,696
|
|
|
|
5,790
|
|
|
|
|
|
|
|
20,486
|
|
Redeemable preferred stock
|
|
|
23,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,941
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany investment
|
|
|
|
|
|
|
280,624
|
|
|
|
65,198
|
|
|
|
(345,822
|
)
|
|
|
|
|
Common stock
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
218,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,022
|
|
Warrants
|
|
|
4,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,631
|
|
Accumulated earnings (deficit)
|
|
|
4,990
|
|
|
|
22,804
|
|
|
|
(124
|
)
|
|
|
(22,680
|
)
|
|
|
4,990
|
|
Accumulated other comprehensive loss
|
|
|
(3,067
|
)
|
|
|
(3,067
|
)
|
|
|
|
|
|
|
3,067
|
|
|
|
(3,067
|
)
|
Treasury stock, at cost
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,486
|
|
|
|
300,361
|
|
|
|
65,074
|
|
|
|
(365,435
|
)
|
|
|
224,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
302,271
|
|
|
$
|
1,318,250
|
|
|
$
|
153,488
|
|
|
$
|
(383,149
|
)
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed consolidating statements of operations for the nine
months ended October 3, 2009 and October 4, 2008 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,531,875
|
|
|
$
|
113,171
|
|
|
$
|
|
|
|
$
|
1,645,046
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
|
|
|
|
1,279,506
|
|
|
|
85,048
|
|
|
|
|
|
|
|
1,364,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
252,369
|
|
|
|
28,123
|
|
|
|
|
|
|
|
280,492
|
|
Selling, general and administrative expenses
|
|
|
318
|
|
|
|
199,477
|
|
|
|
33,807
|
|
|
|
|
|
|
|
233,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(318
|
)
|
|
|
52,892
|
|
|
|
(5,684
|
)
|
|
|
|
|
|
|
46,890
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,263
|
)
|
|
|
(34,080
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(41,345
|
)
|
Other, net
|
|
|
(2
|
)
|
|
|
(147
|
)
|
|
|
(696
|
)
|
|
|
|
|
|
|
(845
|
)
|
Equity earnings of subsidiaries
|
|
|
6,147
|
|
|
|
(3,190
|
)
|
|
|
|
|
|
|
(2,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes
|
|
|
(1,436
|
)
|
|
|
15,475
|
|
|
|
(6,382
|
)
|
|
|
(2,957
|
)
|
|
|
4,700
|
|
Income tax (benefit) provision
|
|
|
(3,780
|
)
|
|
|
9,328
|
|
|
|
(3,192
|
)
|
|
|
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,344
|
|
|
$
|
6,147
|
|
|
$
|
(3,190
|
)
|
|
$
|
(2,957
|
)
|
|
$
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 4, 2008
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,517,300
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,517,300
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
|
|
|
|
1,249,110
|
|
|
|
|
|
|
|
|
|
|
|
1,249,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
268,190
|
|
|
|
|
|
|
|
|
|
|
|
268,190
|
|
Selling, general and administrative expenses
|
|
|
26
|
|
|
|
204,058
|
|
|
|
|
|
|
|
|
|
|
|
204,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(26
|
)
|
|
|
64,132
|
|
|
|
|
|
|
|
|
|
|
|
64,106
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,138
|
)
|
|
|
(37,264
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,402
|
)
|
Other, net
|
|
|
(1
|
)
|
|
|
(952
|
)
|
|
|
|
|
|
|
|
|
|
|
(953
|
)
|
Equity earnings of subsidiaries
|
|
|
14,582
|
|
|
|
|
|
|
|
|
|
|
|
(14,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
7,417
|
|
|
|
25,916
|
|
|
|
|
|
|
|
(14,582
|
)
|
|
|
18,751
|
|
Income tax (benefit) provision
|
|
|
(3,134
|
)
|
|
|
11,334
|
|
|
|
|
|
|
|
|
|
|
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,551
|
|
|
$
|
14,582
|
|
|
$
|
|
|
|
$
|
(14,582
|
)
|
|
$
|
10,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed consolidating statements of cash flows for the nine
months ended October 3, 2009 and October 4, 2008 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,344
|
|
|
$
|
6,147
|
|
|
$
|
(3,190
|
)
|
|
$
|
(2,957
|
)
|
|
$
|
2,344
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles and other assets
|
|
|
266
|
|
|
|
24,705
|
|
|
|
2,229
|
|
|
|
|
|
|
|
27,200
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,357
|
|
|
|
11
|
|
|
|
|
|
|
|
1,368
|
|
Accretion of 8% cumulative preferred stock
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,648
|
|
(Benefit) provision for deferred income taxes
|
|
|
|
|
|
|
(4,723
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(4,721
|
)
|
Other, net
|
|
|
299
|
|
|
|
1,621
|
|
|
|
2
|
|
|
|
|
|
|
|
1,922
|
|
Equity earnings of subsidiaries
|
|
|
(6,147
|
)
|
|
|
3,190
|
|
|
|
|
|
|
|
2,957
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(50,048
|
)
|
|
|
24,532
|
|
|
|
|
|
|
|
(25,516
|
)
|
Inventories
|
|
|
|
|
|
|
26,467
|
|
|
|
59,444
|
|
|
|
|
|
|
|
85,911
|
|
Other current assets
|
|
|
2
|
|
|
|
1,957
|
|
|
|
(957
|
)
|
|
|
|
|
|
|
1,002
|
|
Accounts payable and accrued expenses
|
|
|
1,682
|
|
|
|
51,346
|
|
|
|
(42,082
|
)
|
|
|
|
|
|
|
10,946
|
|
Other, net
|
|
|
(1
|
)
|
|
|
(759
|
)
|
|
|
(1,668
|
)
|
|
|
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
424
|
|
|
|
61,260
|
|
|
|
38,323
|
|
|
|
|
|
|
|
100,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(128
|
)
|
|
|
262
|
|
|
|
|
|
|
|
134
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(5,384
|
)
|
|
|
(181
|
)
|
|
|
|
|
|
|
(5,565
|
)
|
Purchase of assets held for sale
|
|
|
|
|
|
|
(830
|
)
|
|
|
|
|
|
|
|
|
|
|
(830
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
129
|
|
|
|
38
|
|
|
|
|
|
|
|
167
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
|
|
|
846
|
|
|
|
7,300
|
|
|
|
|
|
|
|
8,146
|
|
Intercompany
|
|
|
(496
|
)
|
|
|
41,140
|
|
|
|
(40,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(496
|
)
|
|
|
35,773
|
|
|
|
(33,225
|
)
|
|
|
|
|
|
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
|
|
|
|
1,624,378
|
|
|
|
|
|
|
|
|
|
|
|
1,624,378
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
(1,676,094
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,676,094
|
)
|
Outstanding checks
|
|
|
|
|
|
|
(42,750
|
)
|
|
|
(6,969
|
)
|
|
|
|
|
|
|
(49,719
|
)
|
Payments of other long-term debt
|
|
|
|
|
|
|
(2,664
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(2,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(97,130
|
)
|
|
|
(6,978
|
)
|
|
|
|
|
|
|
(104,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(72
|
)
|
|
|
(97
|
)
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
(2,049
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
72
|
|
|
|
6,305
|
|
|
|
2,118
|
|
|
|
|
|
|
|
8,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
6,208
|
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
6,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 4, 2008
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,551
|
|
|
$
|
14,582
|
|
|
$
|
|
|
|
$
|
(14,582
|
)
|
|
$
|
10,551
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles and other assets
|
|
|
267
|
|
|
|
22,076
|
|
|
|
|
|
|
|
|
|
|
|
22,343
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
1,113
|
|
Accretion of 8% cumulative preferred stock
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522
|
|
Benefit for deferred income taxes
|
|
|
|
|
|
|
(3,417
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,417
|
)
|
Other, net
|
|
|
22
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Equity earnings of subsidiaries
|
|
|
(14,582
|
)
|
|
|
|
|
|
|
|
|
|
|
14,582
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(25,960
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,960
|
)
|
Inventories
|
|
|
|
|
|
|
(66,060
|
)
|
|
|
|
|
|
|
|
|
|
|
(66,060
|
)
|
Other current assets
|
|
|
(2
|
)
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
(840
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,673
|
)
|
|
|
(13,380
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,053
|
)
|
Other, net
|
|
|
(2
|
)
|
|
|
(1,660
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations
|
|
|
(3,566
|
)
|
|
|
(73,582
|
)
|
|
|
|
|
|
|
|
|
|
|
(77,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(10,011
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,011
|
)
|
Purchase of assets held for sale
|
|
|
|
|
|
|
(3,020
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,020
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
|
|
|
1,977
|
|
|
|
|
|
|
|
|
|
|
|
1,977
|
|
Intercompany
|
|
|
3,565
|
|
|
|
(3,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3,565
|
|
|
|
(14,678
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
|
|
|
|
1,466,910
|
|
|
|
|
|
|
|
|
|
|
|
1,466,910
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
(1,380,329
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,380,329
|
)
|
Outstanding checks
|
|
|
|
|
|
|
9,397
|
|
|
|
|
|
|
|
|
|
|
|
9,397
|
|
Payments of other long-term debt
|
|
|
|
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
92,593
|
|
|
|
|
|
|
|
|
|
|
|
92,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1
|
)
|
|
|
4,333
|
|
|
|
|
|
|
|
|
|
|
|
4,332
|
|
Cash and cash equivalents, beginning of period
|
|
|
73
|
|
|
|
4,676
|
|
|
|
|
|
|
|
|
|
|
|
4,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
72
|
|
|
$
|
9,009
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic earnings per share is calculated using our weighted
average outstanding common shares. Diluted earnings per share is
calculated using our weighted average outstanding common shares
including the dilutive effect of stock options and warrants as
determined under the treasury stock method.
The following table sets forth the computation of basic and
diluted earnings per share for the nine months ended
October 3, 2009 and October 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
October 3,
|
|
|
October 4,
|
|
|
|
2009
|
|
|
2008
|
|
|
Basic earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,344,000
|
|
|
$
|
10,551,000
|
|
Weighted average common shares outstanding
|
|
|
999,527
|
|
|
|
999,527
|
|
Net income per share basic
|
|
$
|
2.35
|
|
|
$
|
10.56
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,344,000
|
|
|
$
|
10,551,000
|
|
Weighted average common shares outstanding
|
|
|
999,527
|
|
|
|
999,527
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options(1)
|
|
|
95,462
|
|
|
|
95,305
|
|
Warrants
|
|
|
21,895
|
|
|
|
21,895
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
1,116,884
|
|
|
|
1,116,727
|
|
Net income per share diluted
|
|
$
|
2.10
|
|
|
$
|
9.45
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net income per share basic(2)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net income per share diluted(2)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Options to purchase 1,000 shares of common stock during the
nine months ended October 3, 2009 and 800 shares of
common stock during the nine months ended October 4, 2008
were outstanding but were not included in the computation of
diluted earnings per share because the effect would have been
anti-dilutive. |
|
(2) |
|
Unaudited pro forma net income per share has been calculated
assuming conversion of all outstanding shares of the
Series A, Series B and Series D common stock on a
one-to-one basis into shares of Holdings common stock as well as
to reflect the assumed use of proceeds to redeem debt and
preferred stock. |
F-24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of American Tire Distributors
Holdings, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders equity and comprehensive income (loss) and of
cash flows present fairly, in all material respects, the
financial position of American Tire Distributors Holdings, Inc.
and its subsidiaries (the Company) at
January 3, 2009 and December 29, 2007, and the results
of its operations and its cash flows for each of the three years
in the period ended January 3, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule on page F-63 presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As more fully described in Note 1 to the consolidated
financial statements, the Company changed the manner in which it
accounts for uncertain tax positions effective in 2007.
/s/ PricewaterhouseCoopers
LLP
Charlotte, North Carolina
April 3, 2009, except for note 16 for which the date
is February 5, 2010
F-25
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(Amounts in thousands, except
|
|
|
|
share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,495
|
|
|
$
|
4,749
|
|
Restricted cash
|
|
|
10,250
|
|
|
|
575
|
|
Accounts receivable, net of allowance for doubtful accounts of
$2,314 and $2,093 in fiscal 2008 and 2007, respectively
|
|
|
178,895
|
|
|
|
155,041
|
|
Inventories
|
|
|
456,077
|
|
|
|
343,538
|
|
Assets held for sale
|
|
|
14,712
|
|
|
|
1,548
|
|
Deferred income taxes
|
|
|
14,198
|
|
|
|
12,981
|
|
Other current assets
|
|
|
13,431
|
|
|
|
10,820
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
696,058
|
|
|
|
529,252
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
57,616
|
|
|
|
42,674
|
|
Goodwill
|
|
|
369,961
|
|
|
|
368,318
|
|
Other intangible assets, net
|
|
|
243,033
|
|
|
|
241,562
|
|
Other assets
|
|
|
24,192
|
|
|
|
28,890
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,390,860
|
|
|
$
|
1,210,696
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
360,391
|
|
|
$
|
286,708
|
|
Accrued expenses
|
|
|
43,105
|
|
|
|
53,006
|
|
Liabilities held for sale
|
|
|
1,199
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
3,050
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
407,745
|
|
|
|
342,696
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
639,384
|
|
|
|
536,871
|
|
Deferred income taxes
|
|
|
74,818
|
|
|
|
79,721
|
|
Other liabilities
|
|
|
20,486
|
|
|
|
13,563
|
|
Redeemable preferred stock; 20,000 shares authorized,
issued and outstanding
|
|
|
23,941
|
|
|
|
21,450
|
|
Commitments and contingencies (see Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series A Common Stock, par value $.01 per share;
1,500,000 shares authorized; 691,173 shares issued and
690,700 shares outstanding
|
|
|
7
|
|
|
|
7
|
|
Series B Common Stock, par value $.01 per share;
315,000 shares authorized; 307,327 shares issued and
outstanding
|
|
|
3
|
|
|
|
3
|
|
Series D Common Stock, par value $.01 per share;
1,500 shares authorized, issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock, par value $.01 per share; 1,816,500 shares
authorized, no shares have been issued
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
218,022
|
|
|
|
217,990
|
|
Warrants
|
|
|
4,631
|
|
|
|
4,631
|
|
Accumulated earnings (deficit)
|
|
|
4,990
|
|
|
|
(4,835
|
)
|
Accumulated other comprehensive loss
|
|
|
(3,067
|
)
|
|
|
(1,301
|
)
|
Treasury stock, at cost, 473 shares of Series A Common
Stock
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,486
|
|
|
|
216,395
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,390,860
|
|
|
$
|
1,210,696
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-26
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
1,960,844
|
|
|
$
|
1,877,480
|
|
|
$
|
1,577,973
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,605,064
|
|
|
|
1,552,975
|
|
|
|
1,293,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
355,780
|
|
|
|
324,505
|
|
|
|
284,379
|
|
Selling, general and administrative expenses
|
|
|
274,412
|
|
|
|
258,347
|
|
|
|
227,399
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
81,368
|
|
|
|
66,158
|
|
|
|
54,340
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(59,169
|
)
|
|
|
(61,633
|
)
|
|
|
(60,065
|
)
|
Other, net
|
|
|
(1,155
|
)
|
|
|
(285
|
)
|
|
|
(364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
21,044
|
|
|
|
4,240
|
|
|
|
(6,089
|
)
|
Income tax provision (benefit)
|
|
|
11,373
|
|
|
|
2,867
|
|
|
|
(1,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,671
|
|
|
$
|
1,373
|
|
|
$
|
(4,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-27
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
|
|
|
Earnings
|
|
|
Income
|
|
|
Stock at
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Warrants
|
|
|
(Deficit)
|
|
|
(Loss)
|
|
|
Cost
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance, December 31, 2005
|
|
|
999,527
|
|
|
$
|
10
|
|
|
$
|
217,990
|
|
|
$
|
4,631
|
|
|
$
|
(1,601
|
)
|
|
$
|
(124
|
)
|
|
$
|
(100
|
)
|
|
$
|
220,806
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,607
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,607
|
)
|
Change in value of derivative instrument, net of income taxes of
$0.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2006
|
|
|
999,527
|
|
|
|
10
|
|
|
|
217,990
|
|
|
|
4,631
|
|
|
|
(6,208
|
)
|
|
|
435
|
|
|
|
(100
|
)
|
|
|
216,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
1,373
|
|
Change in value of derivative instrument, net of income taxes of
$1.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,736
|
)
|
|
|
|
|
|
|
(1,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2007
|
|
|
999,527
|
|
|
|
10
|
|
|
|
217,990
|
|
|
|
4,631
|
|
|
|
(4,835
|
)
|
|
|
(1,301
|
)
|
|
|
(100
|
)
|
|
|
216,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS No. 157, net of
income taxes of $0.1 million (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,671
|
|
|
|
|
|
|
|
|
|
|
|
9,671
|
|
Change in value of derivative instrument, net of income taxes of
$1.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,496
|
)
|
|
|
|
|
|
|
(1,496
|
)
|
Unrealized loss on rabbi trust assets, net of income taxes of
$0.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,905
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 3, 2009
|
|
|
999,527
|
|
|
$
|
10
|
|
|
$
|
218,022
|
|
|
$
|
4,631
|
|
|
$
|
4,990
|
|
|
$
|
(3,067
|
)
|
|
$
|
(100
|
)
|
|
$
|
224,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-28
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,671
|
|
|
$
|
1,373
|
|
|
$
|
(4,607
|
)
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
|
|
25,530
|
|
|
|
28,096
|
|
|
|
25,071
|
|
Accretion of 8% cumulative preferred stock
|
|
|
441
|
|
|
|
441
|
|
|
|
441
|
|
Accretion of Discount Notes
|
|
|
|
|
|
|
1,571
|
|
|
|
5,906
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
2,051
|
|
|
|
1,893
|
|
|
|
1,750
|
|
Amortization of other assets
|
|
|
4,834
|
|
|
|
5,056
|
|
|
|
5,443
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
Provision (benefit) for deferred income taxes
|
|
|
3,432
|
|
|
|
(6,916
|
)
|
|
|
(1,970
|
)
|
Provision for (recovery of) doubtful accounts
|
|
|
2,514
|
|
|
|
854
|
|
|
|
(325
|
)
|
Post-retirement benefit plan termination
|
|
|
|
|
|
|
|
|
|
|
(1,933
|
)
|
Other, net
|
|
|
441
|
|
|
|
(838
|
)
|
|
|
(1,476
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
868
|
|
|
|
(14,435
|
)
|
|
|
2,193
|
|
Inventories
|
|
|
(43,067
|
)
|
|
|
(35,347
|
)
|
|
|
(7,895
|
)
|
Other current assets
|
|
|
110
|
|
|
|
(3,420
|
)
|
|
|
2,128
|
|
Income tax receivable
|
|
|
|
|
|
|
|
|
|
|
13,605
|
|
Accounts payable and accrued expenses
|
|
|
(59,614
|
)
|
|
|
39,850
|
|
|
|
25,715
|
|
Other
|
|
|
(1,297
|
)
|
|
|
649
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(54,086
|
)
|
|
|
18,827
|
|
|
|
66,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(68,584
|
)
|
|
|
(20,981
|
)
|
|
|
(20,357
|
)
|
Purchase of property and equipment
|
|
|
(13,424
|
)
|
|
|
(8,648
|
)
|
|
|
(9,845
|
)
|
Purchase of assets held for sale
|
|
|
(3,020
|
)
|
|
|
(2,388
|
)
|
|
|
(536
|
)
|
Proceeds from disposal of assets held for sale
|
|
|
3,187
|
|
|
|
1,852
|
|
|
|
1,790
|
|
Proceeds from sale of property and equipment
|
|
|
170
|
|
|
|
305
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(81,671
|
)
|
|
|
(29,860
|
)
|
|
|
(28,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
1,952,275
|
|
|
|
1,669,818
|
|
|
|
1,413,621
|
|
Repayments of revolving credit facility
|
|
|
(1,798,645
|
)
|
|
|
(1,651,574
|
)
|
|
|
(1,448,090
|
)
|
Payments of other long-term debt
|
|
|
(4,452
|
)
|
|
|
(4,402
|
)
|
|
|
(5,301
|
)
|
Payments of deferred financing costs
|
|
|
|
|
|
|
(1,085
|
)
|
|
|
(234
|
)
|
Change in restricted cash
|
|
|
(9,675
|
)
|
|
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
139,503
|
|
|
|
12,182
|
|
|
|
(40,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,746
|
|
|
|
1,149
|
|
|
|
(1,945
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
4,749
|
|
|
|
3,600
|
|
|
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
8,495
|
|
|
$
|
4,749
|
|
|
$
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
57,711
|
|
|
$
|
51,629
|
|
|
$
|
46,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments (receipts) for taxes, net
|
|
$
|
11,634
|
|
|
$
|
2,242
|
|
|
$
|
(13,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures financed by debt
|
|
$
|
3,295
|
|
|
$
|
2,822
|
|
|
$
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier loan (see Note 5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-29
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
|
|
1.
|
Nature of
Business and Summary of Significant Accounting
Policies:
|
Organization
American Tire Distributors Holdings, Inc. (also referred to
herein as Holdings or the Company) is a
Delaware corporation which owns 100% of the issued and
outstanding capital stock of American Tire Distributors, Inc. a
Delaware corporation (ATD). Holdings has no
significant assets or operations other than its ownership of
ATD. The operations of ATD and its subsidiaries constitute the
operations of Holdings presented under accounting principles
generally accepted in the United States.
Nature
of Business
ATD is primarily engaged in the wholesale distribution of tires,
custom wheels, and related automotive service equipment and
tools and supplies which represent approximately 91.4%, 4.6%,
2.4% and 1.6% of net sales, respectively, and has one reportable
segment consisting of 102 distribution centers, including four
mixing warehouses, across the United States. ATDs customer
base is comprised primarily of independent tire dealers with
other customers representing national retail chains, service
stations and other automotive dealer and repair facilities. ATD
serves all or parts of 37 states located in the
Southeastern and Mid-Atlantic regions, portions of the
Northeast, Midwest, Southwest and the West Coast of the United
States.
On December 18, 2008, the Company completed the purchase of
all the issued and outstanding capital stock of Am-Pac Tire
Dist., Inc. (Am-Pac Tire). See Note 2 for
further details of this acquisition. The acquisition of Am-Pac
Tire added 23 distribution centers that are being integrated,
and where appropriate consolidated, into the Companys
existing distribution centers. The acquisition of Am-Pac Tire
also added 37 retail stores, predominately in the
St. Louis, Missouri and Southern California areas. As these
stores are not core to the Companys business,
managements intention is to divest of these stores during
2009 and thus, has classified these stores as held for sale
within the accompanying consolidated balance sheet at
January 3, 2009. Finally, through the acquisition of Am-Pac
Tire, the Company has added approximately 215 franchisees
operating under the tradename of Tire
Pros®.
Tire Pros Francorp, the wholly-owned subsidiary of Am-Pac Tire,
is engaged in the business of selling and administering, under
franchise agreements, advertising synergies and support for
co-op advertising activities for retail centers operated under
the Tire
Pros®
name.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Holdings and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Fiscal
Year
The Companys fiscal year is based on either a 52- or
53-week period ending on the Saturday closest to each
December 31. Therefore, the financial results of 53-week
fiscal years will not be exactly comparable to the prior and
subsequent 52-week fiscal years. The fiscal years ended
January 3, 2009, December 29, 2007 and
December 30, 2006 contain operating results for
53 weeks, 52 weeks and 52 weeks, respectively.
F-30
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
The Company considers all deposits with an original maturity of
three months or less to be cash equivalents in its consolidated
financial statements.
Revenue
Recognition and Concentration of Credit Risk
The Company recognizes revenue when title and risk of loss pass
to the customer, which is upon delivery under free on board
(FOB) destination terms. In the normal course of
business, the Company extends credit, on open accounts, to its
customers after performing a credit analysis based on a number
of financial and other criteria. The Company performs ongoing
credit evaluations of its customers financial condition
and does not normally require collateral; however, letters of
credit and other security are occasionally required for certain
new and existing customers. Allowances for doubtful accounts are
maintained for estimated potential credit losses.
The Companys top ten customers accounted for approximately
6.7%, 6.4% and 6.4% of operating revenues, respectively, for the
fiscal years of 2008, 2007 and 2006.
The Company permits customers from time to time to return
certain products but there is no contractual right of return.
The Company continuously monitors and tracks such returns and
records an estimate of such future returns, which is based on
historical experience and recent trends.
Inventories
Inventories consist primarily of automotive tires, custom
wheels, automotive service equipment and related products and
are valued at the lower of cost, determined on the
first-in,
first-out (FIFO) method, or fair market value. The Company
performs periodic assessments to determine the existence of
obsolete, slow-moving and non-saleable inventories and records
necessary provisions to reduce such inventories to net
realizable value. A majority of the Companys tire vendors
allow for the return of tire products, subject to certain
limitations, specified in supply arrangements with the vendors.
All of the Companys inventory is collateral under the
amended revolving credit facility. See Note 5 for further
information.
Property
and Equipment
Property and equipment are stated at cost or fair value at date
of acquisition. For financial reporting purposes, the Company
provides for depreciation of fixed assets using the
straight-line method at annual rates sufficient to amortize the
cost of the assets less estimated salvage values over the
assets estimated useful lives. Maintenance and repair
expenditures are charged to expense as incurred, and
expenditures for improvements and major renewals are
capitalized. The carrying amounts of assets that are sold or
retired and the related accumulated depreciation are removed
from the accounts in the year of disposal, and any resulting
gain or loss is reflected in the statement of operations.
Depreciation, which includes the amortization of assets recorded
under capital lease obligations, is determined by using the
straight-line method based on the following estimated useful
lives:
|
|
|
|
|
Buildings
|
|
|
20-40 years
|
|
Machinery and equipment
|
|
|
3-12 years
|
|
Furniture and fixtures
|
|
|
3-10 years
|
|
Internal-use software
|
|
|
3 years
|
|
Vehicles and other
|
|
|
3-10 years
|
|
Leasehold improvements are amortized over the lesser of the
lease term or the estimated useful lives of the improvements.
F-31
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company capitalizes costs, including interest, incurred in
the development or acquisition of internal-use software. The
Company expenses costs incurred in the preliminary project
planning stage. Costs, such as maintenance and training, are
also expensed as incurred. Capitalized costs are amortized over
their estimated useful lives using the straight-line method.
Amortization expense, which is included in depreciation expense,
for internal-use software was $3.4 million for the year
ended January 3, 2009, $4.4 million for the year ended
December 29, 2007 and $3.4 million for the year ended
December 30, 2006. The Company capitalized interest costs
of $0.4 million for the year ended January 3, 2009.
Impairments of long-lived assets are recognized when events or
changes in circumstances indicate that the carrying amount of
the asset, or related groups of assets, may not be recoverable
and the Companys estimate of undiscounted cash flows over
the assets remaining estimated useful life are less than
the assets carrying value. Measurement of the amount of
impairment may be based upon appraisals, market values of
similar assets or estimated discounted future cash flows
resulting from the use and ultimate disposition of the asset.
Throughout fiscal years 2008, 2007, and 2006, the Company has
reviewed the carrying value of long-term fixed assets for
impairment when events or circumstances indicate possible
impairment, and has concluded that the estimated future cash
flows anticipated to be generated during the remaining life of
these assets support the current net carrying value of these
assets, thus, no impairment charges have been recorded for such
periods.
Assets
Held for Sale
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, assets held
for sale are reported at the lower of the carrying amount or
fair value less cost to sell and the recognition of depreciation
expense is discontinued. As of January 3, 2009, the Company
has a couple residential properties, with an aggregate carrying
value of $0.4 million classified as assets held for sale.
The Company acquired these properties as part of employee
relocation packages. The Company is actively marketing these
properties and anticipates that they will be sold within a
twelve-month period.
In addition, as part of the acquisition of Am-Pac Tire, the
Company acquired certain retail stores and operations. See
Note 2 for more information on this acquisition. As it is
managements intention to divest of these stores during
fiscal 2009 and in conjunction with the requirements of
SFAS No. 144, the related assets, including the
allocation of purchase price, and the related liabilities of the
retail reporting unit are classified as held for sale within the
accompanying consolidated balance sheet.
Deferred
Financing Costs
Costs associated with financing activities (see
Note 5) are included in the accompanying consolidated
balance sheets as deferred financing costs (included within
Other Assets) and are being amortized over the terms of the
loans to which such costs relate. Amortization of deferred
financing costs included in operating income for fiscal years
2008, 2007 and 2006 were $4.8 million, $5.0 million
and $5.4 million, respectively. These amounts are included
in interest expense in the accompanying consolidated statements
of operations. The unamortized balance of deferred financing
costs included in the accompanying consolidated balance sheets
was $17.4 million at January 3, 2009 and
$22.2 million at December 29, 2007.
Goodwill
and Other Intangible Assets
Under SFAS No. 142 Goodwill and Other Intangible
Assets, goodwill and intangible assets with indefinite
lives are no longer amortized, but are tested for impairment
annually and more frequently in the event of an impairment
indicator. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their
respective estimated useful lives, and reviewed whenever events
or circumstances indicate an impairment may exist.
F-32
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provisions of SFAS No. 142 require that a two-step
test be performed to assess goodwill for impairment. First, the
fair value of each reporting unit is compared to its carrying
value. Fair value is computed by the Company utilizing
discounted cash flow and market multiple models. If the fair
value exceeds the carrying value, goodwill is not impaired and
no further testing is performed. The second step is performed if
the carrying value exceeds the fair value. The implied fair
value of the reporting units goodwill must be determined
and compared to the carrying value of the goodwill. If the
carrying value of a reporting units goodwill exceeds its
implied fair value, an impairment loss equal to the difference
will be recorded.
As required by SFAS No. 142, the Company recorded no
goodwill amortization during fiscal years 2008, 2007 or 2006.
The Company has one reporting unit representing the enterprise
as a whole. At January 3, 2009 and December 29, 2007,
the Company had goodwill of $370.0 million and
$368.3 million, respectively, which is subject to the
impairment tests prescribed under the statement. In accordance
with SFAS No. 142, the Company has elected
November 30th as its annual impairment assessment
date. The Company completed its annual impairment assessments as
of November 30, 2008, 2007 and 2006, and concluded that no
goodwill or indefinite lived intangible asset impairment charge
was required. See Note 4 for the intangible asset
impairment charge recorded in September 2006 (outside of the
Companys annual assessment).
Equity
Method Investment
The Company has a 43% equity investment in American Car Care
Centers (ACCC), which is accounted for using the
equity method. ACCC engages in a program to assist its
stockholders and their customers in the promotion, marketing,
distribution, and sale of tires and tire supplies, accessories,
and equipment. The investment of $0.5 million is included
in other assets in the accompanying consolidated balance sheet
at January 3, 2009. Equity in income of $0.2 million
was recorded during the year ended January 3, 2009 and was
included in other expense in the accompanying consolidated
statement of operations.
Self
Insurance
The Company is self-insured with respect to employee health
liability claims and maintains a large deductible program on
workers compensation and auto. The Company has stop-loss
insurance coverage for individual claims in excess of
$0.2 million and up to a maximum benefit of
$1.8 million for employee health and deductibles of
$0.3 million on the workers compensation and auto on
a per claim basis. Aggregate stop-loss limits for workers
compensation and auto are $7.5 million. There is no
aggregate stop-loss limit on employee health insurance. A
reserve for liabilities associated with losses is established
for claims filed and claims incurred but not yet reported using
actuarial methods followed in the insurance industry and the
Companys historical claims experience.
Fair
Value of Financial Instruments
Carrying value approximates fair value as it relates to cash and
cash equivalents, accounts receivable and accounts payable due
to the short-term maturity of those instruments. Carrying value
approximates fair value as it relates to the investments held in
the Rabbi Trust, related to the Companys deferred
compensation plans, and the interest rate swap as they are
carried at fair value. The carrying value of ATDs amended
revolving credit facility approximates fair value due to the
variable rate of interest paid. The estimated fair value of the
Companys long-term, senior notes is based upon quoted
market prices. See Note 6 for further information.
Shipping
and Handling Costs
Certain Company shipping, handling and other distribution costs
are classified as selling, general and administrative expenses
in the accompanying consolidated statements of operations. Such
expenses totaled $99.5 million for the fiscal year ended
January 3, 2009, $90.0 million for the fiscal year
ended December 29,
F-33
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007 and $79.2 million for the fiscal year ended
December 30, 2006. Shipping revenue is classified within
net sales in accordance with Emerging Issues Task Force
(EITF) Issue
No. 00-10,
Accounting for Shipping and Handling Fees and Costs.
Vendor
Rebates
The Company receives rebates from its vendors under a number of
different programs. These rebates are recorded in accordance
with EITF Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor. Many of the vendor
programs provide for the Company to receive rebates when any of
a number of measures are achieved, generally related to the
volume of purchases. These rebates are accounted for as a
reduction to the price of the product, which reduces the
carrying value of inventory until the product is sold.
Throughout the year, the amount recognized for annual rebates is
based on purchases management considers probable for the full
year. These estimates are continually revised to reflect rebates
earned based on actual purchase levels.
Customer
Rebates
The Company offers rebates to its customers under a number of
different programs. These rebates are recorded in accordance
with EITF Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors
Products). The majority of these programs provide for the
customer to receive rebates, generally in the form of a
reduction in the related accounts receivable balance, when
certain measures are achieved, generally related to the volume
of product purchased from the Company. These rebates are
recorded as a reduction of the related price of the product,
which reduces the amount of revenue recorded. Throughout the
year, the amount of rebates is estimated based on the expected
level of purchases to be made by customers that participate in
the rebate programs. These estimates are periodically revised to
reflect rebates earned by customers based on actual purchases
made.
Cooperative
Advertising and Marketing Programs
The Company participates in cooperative advertising and
marketing programs (co-op) with its vendors. Co-op
funds are provided to the Company generally based on the volume
of purchases made with vendors that offer such programs. A
portion of the funds received must be used for specific
advertising and marketing expenditures incurred by the Company
or its customers. The co-op funds received by the Company from
its vendors are accounted for in accordance with EITF Issue
No. 02-16,
which requires that the Company record the funds received as a
reduction of cost of sales or as an offset to specific costs
incurred in selling the vendors products. The co-op funds
that are provided to the Companys customers are accounted
for in accordance with EITF Issue
No. 01-9,
which requires that the Company record the funds paid as a
reduction of revenue since no separate identifiable benefit is
received by the Company.
Income
Taxes
The Company accounts for its income taxes under the provisions
of SFAS No. 109 Accounting for Income
Taxes. This statement requires the use of the asset and
liability method of accounting for deferred income taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax reporting purposes, at the applicable
enacted tax rates. The Company provides a valuation allowance
against its deferred tax assets when the future realizability of
the assets is no longer considered to be more likely than not.
The Company accounts for uncertain tax positions in accordance
with Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109. The
application of income tax law is inherently complex. As such,
the Company is required to make certain assumptions and
judgments regarding its income tax positions and
F-34
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the likelihood whether such tax positions would be sustained if
challenged. Interest and penalties related to uncertain tax
provisions are recorded as a component of the provision for
income taxes. Interpretations and guidance surrounding income
tax laws and regulations change over time. As such, changes in
the Companys assumptions and judgments can materially
affect amounts recognized in the Companys consolidated
balance sheets and statement of operations.
Derivative
Instruments and Hedging Activities
For derivative instruments, the Company applies
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by
SFAS No. 137, SFAS No. 138 and
SFAS No. 149. This statement establishes accounting
and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. This statement
requires that changes in the derivatives fair value be
recognized currently in earnings unless specific hedge
accounting criteria are met and that a company must formally
document, designate and assess the effectiveness of transactions
that receive hedge accounting treatment.
Stock
Options
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123R,
Share-Based Payments,
(SFAS No. 123R) using the prospective
transition method as described in paragraph 83 of
SFAS No. 123R for nonpublic entities that used the
minimum value method for measuring stock-based compensation for
either recognition or pro forma disclosure purposes under
SFAS No. 123. Under this transition method, stock
options outstanding prior to the adoption of
SFAS No. 123R will continue to be accounted for under
the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB No. 25). Any new awards
and awards modified, repurchased, or cancelled after
January 1, 2006 will be accounted for in accordance with
the provisions of SFAS No. 123R.
In April 2008, the Company granted options to a member of the
Companys Board of Directors, to purchase 800 shares
of Series A Common Stock with an exercise price of $376.40.
During fiscal 2008, the Company has recognized an immaterial
amount of compensation expense related to this grant. See
Note 7 for further particulars of this grant. The Company
did not issue any new awards or modify, repurchase or cancel any
existing awards during the fiscal years ending December 29,
2007 and December 30, 2006 and therefore no stock-based
compensation expense was recorded as a result of adopting
SFAS No. 123R.
Recently
Issued Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162). SFAS No. 162
identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation
of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles (GAAP) in the United States.
SFAS No. 162 will become effective 60 days
following the Securities and Exchange Commissions approval
of the Public Company Accounting Oversight Board amendments to
AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
The Company does not expect the adoption of
SFAS No. 162 to have a material impact on its results
of operations and financial position.
In April 2008, the FASB issued FASB Staff Position
(FSP)
FAS 142-3,
Determination of the Useful Life of Intangible
Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142).
The intent of this FSP is to
F-35
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset
under SFAS No. 141(R), Business
Combinations and other U.S. generally accepted
accounting principles. This FSP is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. The Company is currently evaluating the impact that the
adoption of this FSP will have on its results of operations and
financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position,
financial performance, and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with
early application encouraged. The Company does not expect the
adoption of SFAS No. 161 to have a material impact on
its results of operations and financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations a replacement of FASB
Statement No. 141,
(SFAS No. 141(R)).
SFAS No. 141(R) requires an acquiring entity to
recognize, with limited exceptions, all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value. In addition, SFAS No. 141(R) will require
acquisition costs to be expensed as incurred, acquired
contingent liabilities will be recorded at fair value at the
acquisition date and subsequently measured at either the higher
of such amount or the amount determined under existing guidance
for non-acquired contingencies, restructuring costs associated
with a business combination will be generally expensed
subsequent to the acquisition date and changes in deferred tax
asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
SFAS No. 141(R) also includes a substantial number of
new disclosure requirements. SFAS No. 141(R) is
effective for fiscal years beginning after December 15,
2008 and is to be applied prospectively. The Company does not
expect the adoption of SFAS No. 141(R) to have a
material impact on its financial position or results of
operations; however, the prospective application of the
provisions of SFAS No. 141(R) could have a material
impact on the fair values assigned to assets and liabilities of
future acquisitions and could cause greater volatility in future
financial statements due to the requirement to adjust increases
in contingent liabilities, or decreases in contingent assets
through the statement of operations subsequent to the
acquisition date.
On December 18, 2008, the Company completed the purchase of
all the issued and outstanding capital stock of Am-Pac Tire
pursuant to the terms of a Stock Purchase Agreement dated
December 18, 2008. The aggregate purchase price of this
acquisition, subject to adjustment, was approximately
$74.9 million, consisting of $72.0 million in cash, of
which $9.8 million is held in escrow and $59.1 million
was used to pay off Am-Pac Tires outstanding debt, and
$2.9 million in direct acquisition costs. The amount held
in escrow has been excluded in the preliminary allocation of the
cost of the assets acquired and liabilities assumed as it
represents contingent consideration for which the contingency
has not been resolved. Unless the Company makes a proper claim
for indemnity, as described in the Stock Purchase Agreement,
prior to the eighteenth (18th) month anniversary of the closing,
any amounts remaining in escrow plus any of the proceeds earned
thereon will be released to the sellers. This acquisition
significantly strengthened the Companys presence in
markets it currently serves and allowed the Company to expand
its operations into St. Louis, Missouri and western Texas.
The preliminary purchase price allocation has been recorded in
the accompanying consolidated financial statements based on
estimated fair values for the assets acquired and liabilities
assumed and resulted in negative goodwill of $1.2 million.
In accordance with SFAS No. 141, Business
Combinations, a deferred
F-36
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
credit has been recorded to accrued expenses in the accompanying
consolidated balance sheet at January 3, 2009 for the
preliminary balance of negative goodwill.
As part of the acquisition of Am-Pac Tire, the Company acquired
certain retail stores and operations. As it is managements
intention to divest of these stores during fiscal 2009 and in
conjunction with the requirements of SFAS No. 144, the
related assets, including the allocation of purchase price, and
the related liabilities of the retail reporting unit are
classified as held for sale within the accompanying consolidated
balance sheet as of January 3, 2009.
The preliminary purchase price allocation is as follows (in
thousands):
|
|
|
|
|
Total cash consideration
|
|
$
|
71,995
|
|
Less: Debt paid to seller
|
|
|
(59,055
|
)
|
|
|
|
|
|
Net cash consideration
|
|
|
12,940
|
|
Plus: Transaction fees
|
|
|
2,953
|
|
Less: Net book value of assets acquired
|
|
|
(9,281
|
)
|
Plus: Pre-acquisition intangibles that were written off in
purchase accounting
|
|
|
13,172
|
|
|
|
|
|
|
Excess of purchase price over net book value of assets acquired,
excluding pre-acquisition intangibles
|
|
|
19,784
|
|
Allocation of excess purchase price to assets acquired and
liabilities assumed:
|
|
|
|
|
Restricted cash
|
|
|
(9,750
|
)
|
Accounts receivable
|
|
|
582
|
|
Income tax receivable
|
|
|
8,419
|
|
Property and equipment
|
|
|
(4,073
|
)
|
Inventory
|
|
|
883
|
|
Assets held for sale
|
|
|
(6,777
|
)
|
Customer lists
|
|
|
(9,591
|
)
|
Trademarks and tradenames
|
|
|
(4,464
|
)
|
Exit costs and termination benefits
|
|
|
11,873
|
|
Favorable leases
|
|
|
(232
|
)
|
Deferred credit(a)
|
|
|
1,246
|
|
Net deferred taxes
|
|
|
(7,900
|
)
|
|
|
|
|
|
Total adjustments
|
|
|
(19,784
|
)
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In accordance with SFAS No. 141, a deferred credit was
recorded to accrued expenses for the preliminary balance of
negative goodwill. |
F-37
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuation of the intangible assets acquired is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Valuation
|
|
|
Amortization Period
|
|
Customer relationship intangible asset Wholesale
|
|
$
|
6,174
|
|
|
17 years
|
Customer relationship intangible asset Francorp
|
|
|
3,417
|
|
|
17 years
|
Tradename Tire
Pros®
|
|
|
1,095
|
|
|
Indefinite
|
Tradename Tire Brand Names
|
|
|
3,369
|
|
|
Indefinite
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,055
|
|
|
|
|
|
|
|
|
|
|
The following unaudited pro forma supplementary data for the
fiscal years ended January 3, 2009 and December 29,
2007 give effect to the Am-Pac Tire acquisition as if it had
occurred at the beginning of the respective years. The pro forma
supplementary data is provided for informational purposes only
and should not be construed to be indicative of the
Companys results of operations had the acquisition been
consummated on the date assumed and does not project the
Companys results of operations for any future date.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Sales
|
|
$
|
2,272,186
|
|
|
$
|
2,201,191
|
|
Net income (loss)
|
|
|
3,270
|
|
|
|
(3,528
|
)
|
On October 8, 2008, the Company completed the purchase of
certain assets and the assumption of certain liabilities of
Remington Tire Distributors, Inc., d/b/a Grays Wholesale
Tire Distributors (Grays Tire) pursuant to the
terms of an Asset Purchase Agreement dated as of October 8,
2008. The aggregate purchase price of this acquisition, subject
to adjustment, was $6.6 million, consisting of
$6.3 million in cash, of which $0.5 million is held in
escrow, and $0.3 million in direct acquisition costs. The
amount held in escrow is not included in the allocation of the
cost of the assets acquired and liabilities assumed as it
represents contingent consideration, primarily related to
working capital adjustments, for which the contingency has not
been resolved. This acquisition expanded the Companys
service across the state of Texas and Oklahoma and complemented
its existing distribution centers located within the states of
Texas and Oklahoma.
The preliminary purchase price allocation has been recorded in
the accompanying consolidated financial statements based on
estimated fair values for the assets acquired and liabilities
assumed and resulted in negative goodwill of $4.4 million
and a customer relationship intangible asset of
$5.5 million. Subsequent to January 3, 2009, the
Company presented working capital adjustments to the seller that
are to be finalized during the first quarter of 2009. Based upon
the scope of these working capital adjustments the negative
goodwill, in accordance with SFAS No. 141, was
allocated on a pro rata basis to the noncurrent nonfinancial
assets, such as property and equipment and other intangible
assets, acquired in the Grays Tire acquisition which
reduced the customer relationship intangible asset to
$1.2 million. Amortization for the customer relationship
intangible asset is deductible for income tax purposes. The
Grays Tire acquisition does not rise to the level of being
a material business combination.
The Am-Pac Tire and Grays Tire acquisitions were financed
through borrowings under ATDs amended revolving credit
facility. These acquisitions have been accounted for under the
purchase method of accounting and, accordingly, the results of
operations for the acquired businesses have been included in the
accompanying consolidated statements of operations from the date
of acquisition.
On December 7, 2007, the Company completed the purchase of
all of the outstanding membership interests of 6H-Homann, LLC
and all of the sellers partnership interests of Homann
Tire, LTD (collectively Homann Tire) pursuant to the
terms of a Securities Purchase Agreement dated as of
November 16, 2007.
F-38
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
This acquisition expanded the Companys service across the
state of Texas (further complementing the Companys
existing distribution centers) and allowed the Company to expand
into Louisiana.
On July 2, 2007, the Company completed the purchase of
certain assets and the assumption of certain liabilities related
to Martino Tire Company (Martino Tire) pursuant to
the terms of an Asset Purchase Agreement dated as of
July 2, 2007. This acquisition expanded the Companys
service across the state of Florida and complemented its
existing distribution centers currently located within the state
of Florida.
On May 31, 2007, the Company completed the purchase of all
the outstanding stock of Jim Paris Tire City of Montbello, Inc.
(Paris Tire) pursuant to the terms of a Stock
Purchase Agreement dated May 31, 2007. This acquisition
expanded the Companys service across the state of Colorado
and the Mid-West.
On July 28, 2006, the Company completed the purchase of all
the outstanding stock of Samaritan Wholesale Tire Company
pursuant to the terms of a Stock Purchase Agreement dated as of
July 28, 2006. This acquisition expanded the Companys
service across the state of Minnesota and into Western Wisconsin.
On January 27, 2006, the Company completed the purchase of
all the outstanding stock of Silver State Tire Company and
Golden State Tire Distributors (collectively Silver
State) pursuant to the terms of a Stock Purchase Agreement
dated December 23, 2005. This acquisition established a
distribution footprint for the Company across the state of
Nevada.
The Homann Tire, Martino Tire, Paris Tire, Samaritan Tire and
Silver State acquisitions were financed through borrowings under
ATDs amended revolving credit facility. The results of
operations for the acquired businesses have been included in the
accompanying consolidated statements of operations from the date
of acquisition. The aggregate purchase price of these
acquisitions was $42.7 million, consisting of
$41.7 million in cash and $1.0 million in direct
acquisition costs. The purchase price allocations have been
recorded in the accompanying consolidated financial statements
based on estimated fair values for the assets acquired and
liabilities assumed and resulted in goodwill of
$4.9 million, a customer relationship intangible asset of
$3.9 million and a related deferred tax liability of
$1.6 million for Homann Tire, goodwill of $7.8 million
and a customer relationship intangible asset of
$8.4 million, both of which are deductible for income tax
purposes, for Martino Tire, goodwill of $2.0 million, a
customer relationship intangible asset of $3.9 million and
a related deferred tax liability for $1.5 million for Paris
Tire, goodwill of $3.3 million and a customer relationship
intangible asset of $5.9 million for Samaritan Tire, both
of which are deductible for income tax purposes, and goodwill of
$5.3 million, a customer relationship intangible asset of
$4.6 million and a related deferred tax liability of
$1.8 million for Silver State. In addition, based upon
managements facility consolidation strategy developed for
Martino Tire as of the acquisition date, lease reserves of
$5.2 million were established in accordance with
EITF 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. During the second quarter of 2008,
certain refinements were made to these lease reserves to reflect
the finalization of the exit cost estimates.
F-39
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Property
and Equipment:
|
The following table represents the property and equipment at
January 3, 2009 and December 29, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Land
|
|
$
|
5,202
|
|
|
$
|
2,747
|
|
Buildings and leasehold improvements
|
|
|
28,372
|
|
|
|
21,115
|
|
Machinery and equipment
|
|
|
13,316
|
|
|
|
9,841
|
|
Furniture and fixtures
|
|
|
20,552
|
|
|
|
15,683
|
|
Software
|
|
|
30,618
|
|
|
|
23,108
|
|
Vehicles and other
|
|
|
3,240
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
101,300
|
|
|
|
75,255
|
|
Less Accumulated depreciation
|
|
|
(43,684
|
)
|
|
|
(32,581
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
57,616
|
|
|
$
|
42,674
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $11.7 million for the fiscal year
ended January 3, 2009, $14.7 million for the fiscal
year ended December 29, 2007 and $12.2 million for the
fiscal year ended December 30, 2006. Depreciation expense
is classified in selling, general and administrative expense in
the accompanying consolidated statements of operations.
Included in the above table within Land and Buildings and
leasehold improvements are assets under capital leases related
to the sale and leaseback of three of the Companys owned
facilities (see Note 5). The net book value of these assets
at January 3, 2009 and December 29, 2007 was
$11.5 million and $12.2 million, respectively.
Accumulated depreciation was $2.7 million and
$1.9 million for the respective periods. Depreciation
expense for each of the fiscal years ended January 3, 2009,
December 29, 2007 and December 30, 2006 was
$0.7 million.
|
|
4.
|
Goodwill
and Other Intangible Assets:
|
Goodwill represents the excess of the purchase price over the
fair value of the net assets of the acquired entities. The
Company has recorded, at January 3, 2009, goodwill of
$370.0 million consisting of $346.4 million in
connection with the acquisition of ATD, $4.9 million in
connection with the purchase of Homann Tire, $7.8 million
in connection with the purchase of Martino Tire,
$2.0 million in connection with the purchase of Paris Tire,
$3.3 million in connection with the purchase of Samaritan
Tire, $5.3 million in connection with the purchase of
Silver State and $0.3 million in connection with the
purchase of Wholesale Tire Distributors, Inc., Wholesale Tire
Distributors of Wyoming, Inc. and Wholesale Tire Distributors of
Idaho, Inc. At January 3, 2009, approximately
$27.2 million of net goodwill is deductible for income tax
purposes in future periods.
Other intangible assets represent customer lists, tradenames,
noncompete agreements and software. Intangible assets with
indefinite lives are not amortized and are tested for impairment
at least annually. All other intangible assets with finite lives
are being amortized on a straight-line basis over periods
ranging from three to seventeen years. Amortization of other
intangibles was $13.8 million in fiscal 2008,
$13.4 million in fiscal 2007 and $12.9 million in
fiscal 2006. Accumulated amortization at January 3, 2009
and December 29, 2007 was $49.3 million and
$35.5 million, respectively.
F-40
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the gross amount and accumulated
amortization of the Companys intangible assets for the
fiscal years ended January 3, 2009 and December 29,
2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Customer lists
|
|
|
17
|
|
|
$
|
244,397
|
|
|
$
|
48,590
|
|
|
$
|
233,605
|
|
|
$
|
34,830
|
|
Noncompete agreements
|
|
|
3-5
|
|
|
|
613
|
|
|
|
596
|
|
|
|
613
|
|
|
|
571
|
|
Software
|
|
|
1
|
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
245,087
|
|
|
$
|
49,263
|
|
|
$
|
234,295
|
|
|
$
|
35,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Tradenames
|
|
$
|
47,209
|
|
|
$
|
|
|
|
$
|
42,745
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
47,209
|
|
|
$
|
|
|
|
$
|
42,745
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated intangible asset amortization expense for each of the
next five fiscal years is expected to be $17.9 million in
2009, $17.4 million in 2010, $15.5 million in 2011,
$15.2 million in 2012, and $14.7 million in 2013.
In September 2006, the Company was informed by one of its
suppliers that it was going to cease the manufacturing of one of
its tire brands for which the Company maintained a tradename
intangible asset. As a result of this decision and due to the
Companys inability to place other sourcing regarding this
tire brand, the Company, in accordance with
SFAS No. 142, evaluated the fair value of the
tradename intangible asset, as computed utilizing a discounted
cash flow model, as compared to its carrying value. Based on
this evaluation, the Company recorded an impairment charge of
$2.6 million, for the full carrying amount of the tradename
intangible asset. This charge is recorded within impairment of
intangible asset in the accompanying consolidated statements of
operations for the year ended December 30, 2006.
|
|
5.
|
Long-term
Debt and Other Financing Arrangements:
|
Long-term
Debt
The following table represents the Companys long-term debt
at January 3, 2009 and December 29, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Revolving credit facility
|
|
$
|
276,938
|
|
|
$
|
173,260
|
|
2013 Notes
|
|
|
150,000
|
|
|
|
150,000
|
|
Floating Rate Notes
|
|
|
140,000
|
|
|
|
140,000
|
|
Discount Notes
|
|
|
51,480
|
|
|
|
51,480
|
|
Capital lease obligations
|
|
|
14,361
|
|
|
|
14,481
|
|
Other
|
|
|
9,655
|
|
|
|
10,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642,434
|
|
|
|
539,853
|
|
Less Current maturities
|
|
|
(3,050
|
)
|
|
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
639,384
|
|
|
$
|
536,871
|
|
|
|
|
|
|
|
|
|
|
F-41
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revolving
Credit Facility
On May 9, 2007, ATD entered into the Fifth Amendment for
the Fourth Amended and Restated Loan and Security Agreement (the
Amended Revolver). The Borrowers to the Amended
Revolver are ATD and its subsidiaries. The Amended Revolver
provides for a senior secured revolving credit facility of up to
$400.0 million (of which up to $25.0 million may be
utilized in the form of commercial and standby letters of
credit), subject to a borrowing base formula. The Amended
Revolver is collateralized primarily by ATDs inventories
and accounts receivable. Fees incurred in connection with the
amendment of $1.1 million and the unamortized portion of
deferred financing fees under the previously existing revolver
are being deferred and amortized over the life of the new
agreement. As of January 3, 2009, the outstanding Amended
Revolver balance was $276.9 million. In addition, ATD has
certain letters of credit outstanding at January 3, 2009 in
the aggregate amount of $8.1 million and at that same date,
$104.6 million was available for additional borrowings.
Borrowings under the Amended Revolver bear interest, at
ATDs option, at either (i) the Base Rate, as defined,
plus the applicable margin (0.0% as of January 3,
2009) or (ii) the Eurodollar Rate, as defined, plus
the applicable margin (1.50% as of January 3, 2009). At
January 3, 2009 and December 29, 2007, borrowings
under the Amended Revolver were at a weighted average interest
rate of 3.6% and 6.7%, respectively. The applicable margin for
the loans vary based upon a performance grid, as defined in the
agreement.
All obligations under the Amended Revolver are guaranteed by
Holdings and each of ATDs existing and future direct and
indirect domestic subsidiaries that are not direct obligors
thereunder. Obligations under the Amended Revolver are also
collateralized by a pledge of substantially all assets of the
obligors, including all shares of ATDs capital stock and
that of ATDs subsidiaries, subject to certain limitations.
The Amended Revolver contains covenants that, among other
things, require ATD to meet a fixed charge coverage ratio of
1.0:1.0 if ATD does not have at least $35.0 million
available to be drawn under the Amended Revolver (subject to a
cure); restricts ATDs ability to incur additional debt;
enter into guarantees; make loans and investments; declare
dividends; modify certain material agreements or organizational
documents relating to preferred stock; and change the business
it conducts, as well as other customary covenants. As of
January 3, 2009 and December 29, 2007, ATD was in
compliance with these covenants. The Amended Revolver is set to
expire on December 31, 2011.
Discount
Notes
On March 31, 2005, Holdings issued Discount Notes with a
maturity date of October 1, 2013 at an aggregate principal
amount at maturity of $51.5 million. The Discount Notes
were issued at a substantial discount from their principal
amount at maturity and generated net proceeds of approximately
$40.0 million. Prior to April 1, 2007, no interest
accrued on the Discount Notes. Instead, the Discount Notes
accreted at a rate of 13% compounded semi-annually to an
aggregate accreted value of $51.5 million, the full
principal amount at maturity, on April 1, 2007. Subsequent
to April 1, 2007, interest on the Discount Notes accrues at
a rate of 13% per annum and is payable, in cash, semi-annually
in arrears on April 1 and October 1 of each year, commencing on
October 1, 2007.
The Discount Notes are subject to redemption at any time at the
option of Holdings, in whole or in part, upon not less than 30
nor more than 60 days notice, at certain redemption prices
plus accrued and unpaid interest. On April 1, 2010, if any
Discount Notes are outstanding, Holdings will be required to
redeem 12.165% of each of the then outstanding Discount
Notes aggregate accreted value at a redemption price of
100% of the accreted value of the portion of the Discount Notes
so redeemed.
F-42
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2013
Notes
On March 31, 2005, ATD issued the 2013 Notes in the
aggregate principal amount of $150.0 million, resulting in
net proceeds of approximately $144.2 million after debt
issuance costs. The 2013 Notes have an annual coupon rate of
10.75% and will mature on April 1, 2013. Except as
described below, the 2013 Notes are not redeemable at the option
of ATD prior to April 1, 2009. Thereafter, the 2013 Notes
will be subject to redemption at any time at the option of ATD,
in whole or in part, upon not less than 30 nor more than
60 days notice, at certain redemption prices plus accrued
and unpaid interest. Interest on the 2013 Notes is payable
semi-annually in arrears on April 1 and October 1 of each year,
commencing on October 1, 2005.
In addition, ATD may, at any time prior to April 1, 2009,
upon a change of control, redeem all of the 2013 Notes at a
price equal to 100% of the principal amount plus accrued and
unpaid interest plus a make-whole premium.
Floating
Rate Notes
On March 31, 2005, ATD issued Floating Rate Notes in the
aggregate principal amount of $140.0 million, resulting in
net proceeds of approximately $134.5 million after debt
issuance costs. The Floating Rate Notes will mature on
April 1, 2012. Interest on the Floating Rate Notes is
payable quarterly in arrears at a rate equal to the three-month
LIBOR, reset quarterly, plus 6.25%, on January 1,
April 1, July 1 and October 1 of each year, beginning on
July 1, 2005. The interest rate on the Floating Rate Notes
ranged between 10.78% to 11.61% for the fiscal year ended
December 30, 2006, between 11.48% to 11.61% for the fiscal
year ended December 29, 2007, and between 8.95% to 11.48%
for the fiscal year ended January 3, 2009. The Floating
Rate Notes are subject to redemption at any time at the option
of ATD, in whole or in part, upon not less than 30 nor more than
60 days notice, at certain redemption prices plus accrued
and unpaid interest.
The indentures governing the 2013 Notes, Floating Rate Notes,
and the Discount Notes contain specified restrictions with
respect to the conduct of the Companys business and
specified restrictive covenants limiting, among other things,
the Companys ability to pay dividends on or repurchase
capital stock, repurchase or make early payments on subordinated
debt, make investments, incur additional indebtedness, incur or
assume liens on the Companys assets to secure debt, merge
or consolidate with another company, transfer or sell assets and
enter into transactions with affiliates. As of January 3,
2009 and December 29, 2007 ATD was in compliance with these
covenants.
Capital
Lease Obligations
As of January 3, 2009, the Company has a capital lease
obligation of $14.1 million relating to a prior sale and
leaseback of three of its owned facilities. All cash paid to the
lessor is recorded as interest expense and the capital lease
obligation will be reduced when the lease has been terminated.
The initial term of the lease is for 20 years, followed by
two 10-year
renewal options. The annual rent paid under the terms of the
lease is $1.6 million (paid quarterly) and is adjusted for
Consumer Price Index changes every two years. The annual rent
expense increased to $1.7 million on April 25, 2004
and to $1.8 million on April 25, 2006. Beginning on
April 25, 2008, the annual rent expense increased to
$2.0 million. There was no gain or loss recognized as a
result of the initial sales transaction.
Other
In October 2006, the Company entered into a Loan and Purchase
Agreement (the Agreement) with one of the
Companys suppliers. Under the terms of the Agreement, the
supplier agreed to loan ATD the aggregate principal amount of
$6.0 million (the Supplier Loan). Proceeds from
the Supplier Loan were received in the form of a credit against
then current amounts due and payable to the supplier. Interest
under
F-43
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Supplier Loan is payable quarterly, in arrears, at a rate of
9% per year. The Agreement defines certain levels of annual
commitments that the Company must meet during each calendar year
of fiscal 2006 through 2010. If the Company purchases all the
required commitments, then the supplier will refund the interest
paid by the Company for that calendar year. If the Company does
not meet these purchase commitments, a calculated portion,
representing the percentage shortfall in the Companys
committed purchase requirements, of the principal on the
Supplier Loan shall be due and payable during the immediately
succeeding calendar year. All unpaid principal and interest
shall be paid in full on or before December 20, 2010. For
the fiscal years ended January 3, 2009, December 29,
2007 and December 30, 2006, the Company met the purchase
commitment requirements as specified in the Agreement.
Aggregate
Maturities
Aggregate maturities of long-term debt at January 3, 2009,
are as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
3,050
|
|
2010
|
|
|
12,837
|
|
2011
|
|
|
276,975
|
|
2012
|
|
|
140,027
|
|
2013
|
|
|
195,239
|
|
Thereafter
|
|
|
14,306
|
|
|
|
|
|
|
|
|
$
|
642,434
|
|
|
|
|
|
|
Derivative
Instruments
On October 11, 2005, the Company entered into an interest
rate swap agreement (Swap) to manage exposure to
fluctuations in interest rates. The Swap represents a contract
to exchange floating rate for fixed interest payments
periodically over the life of the agreement without exchange of
the underlying notional amount. The notional amount of the Swap
is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. At
January 3, 2009, the Swap in place covers a notional amount
of $85.0 million of the $140.0 million Floating Rate
Notes at a fixed interest rate of 4.79% and expires on
September 30, 2010. This Swap has been designated for hedge
accounting treatment. Accordingly, the Company recognizes the
fair value of the Swap in the accompanying consolidated balance
sheets and any changes in the fair value are recorded as
adjustments to other comprehensive income (loss). The fair value
of the Swap is the estimated amount that the Company would pay
or receive to terminate the agreement at the reporting date. The
fair value of the Swap was a liability of $4.3 million at
January 3, 2009 and $2.1 million at December 29,
2007 and is included in other liabilities in the accompanying
consolidated balance sheets with the offset included in other
comprehensive income (loss), net of tax.
|
|
6.
|
Fair
Value of Financial Instruments:
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally
accepted in the United States, and expands disclosures about
fair value measurements. This statement does not require any new
fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 is effective for financial
assets and financial liabilities in fiscal years beginning after
November 15, 2007, and for nonfinancial assets and
nonfinancial liabilities in fiscal years beginning after
November 15, 2008. The provisions of this statement are to
be applied prospectively as of the beginning of the fiscal year
in which this statement is initially applied, with any
transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. The
Company adopted SFAS No. 157 for financial assets and
financial liabilities on December 30, 2007 (the
F-44
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
first day of its 2008 fiscal year) which resulted in a
$0.2 million, net of taxes, decrease in the opening balance
of accumulated deficit. The Company is currently evaluating the
potential impact, if any, of the application of
SFAS No. 157 to its nonfinancial assets and
nonfinancial liabilities.
SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date.
SFAS No. 157s valuation techniques are based on
observable and unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, while
unobservable inputs reflect the Companys market
assumptions. SFAS No. 157 classifies these inputs into
the following hierarchy:
Level 1 Inputs Quoted prices for
identical instruments in active markets.
Level 2 Inputs Quoted prices for similar
instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs Instruments with
primarily unobservable value drivers.
The following table presents the fair value and hierarchy levels
for the Companys financial assets and liabilities, which
are measured at fair value on a recurring basis as of
January 3, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Rabbi trust(a)
|
|
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
2,905
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap(b)
|
|
$
|
|
|
|
$
|
4,350
|
|
|
$
|
|
|
|
|
|
(a) |
|
Based on the fair value of investments corresponding to
employees investment elections. Amount is included within
other non-current assets in the accompanying consolidated
balance sheet. |
|
(b) |
|
Based on quoted prices for similar instruments from a financial
institution that is a counterparty to the transaction. Amount is
included within other non-current liabilities in the
accompanying consolidated balance sheet. |
As of January 3, 2009, the Companys deferred
compensation plan assets, held in a rabbi trust, were invested
in approximately 10 diversified and long standing mutual fund
portfolios. As of January 3, 2009, these investments
included approximately $0.7 million of unrealized losses.
The Company reviews the fair value of its investment portfolio
on a periodic basis to identify declines in fair value below the
carrying value that are
other-than-temporary.
The Companys
other-than-temporary
assessment includes reviewing the extent and duration of
declines in fair values of investments, the nature of the
holdings, and the sectors in which the portfolios are invested.
Based on the Companys assessment of unrealized losses as
of January 3, 2009, the Company recorded an impairment
charge of $0.2 million during the year ended
January 3, 2009. This charge is recorded within selling,
general and administrative expenses in the accompanying
consolidated statements of operations. No impairment charge was
recorded during the years ended December 29, 2007 and
December 30, 2006. The Company believes that the remaining
unrealized losses as of January 3, 2009 are temporary and
bases this conclusion on managements current understanding
of the issuers of these investments, as described
F-45
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
above. It is possible that the Company could recognize
additional impairment losses in the future on some of the
securities owned at January 3, 2009 if future events, new
information and the passage of time cause the Company to
determine that a decline in value is
other-than-temporary.
The following table presents the estimated fair value of the
Companys long-term, senior notes at January 3, 2009
and December 29, 2007 based upon quoted market prices (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Carrying Value at
|
|
|
Fair Value at
|
|
|
Carrying Value at
|
|
|
|
January 3,
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2009
|
|
|
2007
|
|
|
2007
|
|
|
2013 Notes
|
|
$
|
111,750
|
|
|
$
|
150,000
|
|
|
$
|
145,500
|
|
|
$
|
150,000
|
|
Floating Rate Notes
|
|
|
105,000
|
|
|
|
140,000
|
|
|
|
135,100
|
|
|
|
140,000
|
|
Discount Notes
|
|
|
37,066
|
|
|
|
51,480
|
|
|
|
49,936
|
|
|
|
51,480
|
|
In addition, effective December 30, 2007, the Company
adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which provides
entities the option to measure many financial instruments and
certain other items at fair value. Entities that choose the fair
value option will recognize unrealized gains and losses on items
for which the fair value option was elected in earnings at each
subsequent reporting date. The Company has currently chosen not
to elect the fair value option for any items that are not
already required to be measured at fair value in accordance with
accounting principles generally accepted in the United States.
401(k)
Plans
The Company maintains a qualified profit sharing and 401(k) plan
for eligible employees. All accounts are funded based on
employee contributions to the plan, with the limits of such
contributions determined by the Board of Directors. Effective
January 1, 2002, the benefit formula for all participants
was determined to be a match of 50% of participant
contributions, up to 6% of their compensation. The plan also
provides for contributions in such amounts as the Board of
Directors may annually determine for the profit sharing portion
of the plan. Employees vest in the 401(k) match and profit
sharing contribution over a
5-year
period. The amount charged to selling, general and
administrative expense during the fiscal years ended
January 3, 2009, December 29, 2007 and
December 30, 2006 was $1.7 million, $1.4 million
and $1.5 million, respectively.
In conjunction with the acquisition of Am-Pac Tire, see
Note 2, the Company acquired and continues to maintain a
defined contribution 401(k) plan for substantially all employees
of Am-Pac Tire who qualify as to age and length of service.
Under this Am-Pac Tire 401(k) plan, each year participants of
the plan may elect to contribute up to 15% of pretax annual
compensation. During the period from December 18, 2008
through January 3, 2009, the Company provided matching
401(k) contributions that were insignificant.
Retiree
Health Plan
In May 2006, the Company communicated to employees that it was
eliminating eligibility for retiree medical coverage for all
current active employees. Additionally, in November 2006, the
Company communicated to retired employees that it was
terminating the medical coverage for retired employees effective
December 30, 2006. Both of these changes were accounted for
as negative plan amendments in accordance with
SFAS No. 106 Employers Accounting for
Postretirement Benefits Other Than Pensions. As a result,
during fiscal 2006, the Company recognized a benefit of
$2.6 million, which is included as an offset to selling,
general and administrative expenses within the accompanying
consolidated statement of operations for the fiscal year ended
December 30, 2006. Additionally, as of December 30,
2006 the Company has no residual post-retirement obligation and
no future benefits will be paid under this plan.
F-46
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic postretirement benefit costs were
as follows (in thousands):
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30, 2006
|
|
|
Components of expense:
|
|
|
|
|
Service cost
|
|
$
|
139
|
|
Interest cost
|
|
|
62
|
|
Effect of plan termination
|
|
|
(1,933
|
)
|
Amortization of prior service credit
|
|
|
(625
|
)
|
Net loss
|
|
|
53
|
|
|
|
|
|
|
Post retirement benefit
|
|
$
|
(2,304
|
)
|
|
|
|
|
|
Stock
Option Plans
In connection with the acquisition of ATD, the Company adopted
the 2005 Management Stock Incentive Plan (the 2005
Plan) in order to attract, retain and motivate directors,
officers, employees and consultants of the Company and its
subsidiaries. The 2005 Plan authorizes the issuance of up to
190,857 shares of voting common stock under terms and
conditions to be set by the Companys Board of Directors. A
committee appointed by the Companys Board of Directors
shall administer the plan. The committee has sole authority to
select those individuals to whom options may be granted and to
determine the number of shares of Series A Common Stock
that will be issuable upon exercise of the options granted. The
purchase price for shares of Series A Common Stock issuable
upon exercise of the options granted is fixed by the committee,
but cannot be less than the fair market value of the
Series A Common Stock, as determined in good faith by the
Companys Board of Directors, if the corresponding option
is intended to qualify as an incentive stock option under the
Internal Revenue Code.
All options granted under the 2005 Plan are subject to the terms
and conditions of a stock option agreement entered into by each
option recipient. The stock option agreement generally requires
each recipient to be bound by the terms of a stockholder
agreement with the Company in the event the recipient elects to
exercise options. Options granted under the 2005 Plan generally
vest based on performance or the occurrence of specified events,
such as an initial public offering or company sale.
Performance-based options vest at the end of each year based on
the achievement of annual or cumulative EBITDA targets for the
year. Options that vest on the basis of events such as an
initial public offering or company sale do so only to the extent
that the initial shareholders have earned a specified return on
its initial investment in the Companys shares. Options
granted under the 2005 Plan are generally not transferable by
the recipient other than by a will or by the laws of descent and
distribution and, during the recipients lifetime, may only
be exercised by the recipient. Under the terms of the 2005 Plan,
options expire no later than 30 days after the tenth
anniversary of the date of grant for non-qualified options and
no later than the tenth anniversary of the date of grant for
incentive stock options. Options are also subject to adjustment
to avoid dilution in the event of stock splits, stock dividends,
reclassifications or other similar changes in the Companys
capital structure.
In April 2008, the Company granted options to James Hardymon, a
member of the Companys Board of Directors, under the 2005
Plan to purchase 800 shares of Series A Common Stock
with an exercise price of $376.40. The options expire no later
than 7 years and 30 calendar days from the date of grant
and vest in equal installments over three years commencing on
December 31, 2008. During fiscal 2008, the Company has
recognized an immaterial amount of compensation expense related
to this grant. The Company did not issue any stock options
during the fiscal years ended December 29, 2007 and
December 30, 2006. As of January 3, 2009, 66,871
options are vested under the 2005 Plan.
F-47
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option activity under the 2005 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Outstanding at December 29, 2007 (66,604 exercisable)
|
|
|
176,704
|
|
|
$
|
174.72
|
|
Granted
|
|
|
800
|
|
|
|
376.40
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009 (66,871 exercisable)
|
|
|
177,504
|
|
|
$
|
175.63
|
|
|
|
|
|
|
|
|
|
|
In determining the fair value of stock options, the Company uses
the Black-Scholes option pricing model when applying the
provisions of SFAS No. 123R. The fair value of the
options granted during second quarter 2008, estimated on the
date of grant using the Black-Scholes option pricing model, was
$161.13. The fair value of options granted was determined using
the following assumptions: a risk-free interest rate of 3.04%;
no dividend yield; expected life of 7 years and 30 calendar
days, which equals the terms of the options; and 35% volatility.
As the Company does not have sufficient historical volatility
data for its own common stock, the stock price volatility
utilized in the calculation is based on the Companys peer
group in the industry in which it does business.
The following is summary information about stock options
outstanding at January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
Weighted Average
|
|
|
|
|
|
Exercisable at
|
|
|
|
|
January 3,
|
|
|
Remaining Term
|
|
|
Weighted Average
|
|
|
January 3,
|
|
|
Weighted Average
|
|
2009
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
2009
|
|
|
Exercise Price
|
|
|
|
33,199
|
|
|
|
3.44
|
|
|
$
|
15.73
|
|
|
|
33,199
|
|
|
$
|
15.73
|
|
|
143,505
|
|
|
|
3.49
|
|
|
|
211.50
|
|
|
|
33,405
|
|
|
|
211.50
|
|
|
800
|
|
|
|
3.51
|
|
|
|
376.40
|
|
|
|
267
|
|
|
|
376.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,504
|
|
|
|
3.48
|
|
|
$
|
175.63
|
|
|
|
66,871
|
|
|
$
|
114.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Compensation Plan
The Company has a deferred compensation plan for its top
executives and divisional employees covered by the executive
bonus plan to encourage each participant to promote the
long-term interests of the Company. Each participant is allowed
to defer portions of their annual salary as well as bonuses
received into the plan. In addition to employee deferrals, the
Company makes contributions on behalf of its top executives and
certain of the divisional employees in varying amounts. The plan
provides that an employee who becomes a participant on or before
November 23, 1998, shall be fully vested in all amounts
credited to such participants account. The plan provides
that an employee who becomes a participant after
November 23, 1998 shall be at all times fully vested in
elective deferrals into such participants account and, as
to contributions made by the Company, shall vest at a rate of
twenty percent (20%) per year as long as such participant is an
employee on January 1 of each year. The deferred compensation
plan may be altered and amended by the Companys Board of
Directors. The contributions made by the Company on behalf of
its employees were not material in fiscal 2008, 2007 and 2006.
At January 3, 2009 and December 29, 2007, the Company
has recorded an obligation in other non-current liabilities
related to the plan of $2.1 million and $3.2 million,
respectively. The Company has provided for funding of the
obligation through a Rabbi Trust, which holds various
investments, including mutual funds and money market funds. The
amount recorded in the consolidated balance sheets in other
non-current assets related to the Rabbi Trust is
$2.1 million at January 3, 2009 and $3.2 million
at December 29, 2007.
In conjunction with the acquisition of Am-Pac Tire, see
Note 2, the Company acquired and continues to maintain a
deferred compensation plan for certain employees of Am-Pac Tire.
The plan assets of this plan were invested in mutual funds
carried at fair value totaling $0.8 million at
January 3, 2009, and is included in
F-48
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
other non-current assets in the accompanying consolidated
balance sheet. Also, the Company has recorded an obligation in
other non-current liabilities related to this plan of
$0.8 million. While the Company continues to maintain this
deferred compensation plan, effective January 5, 2009 no
additional employee contributions can be made.
|
|
8.
|
Commitments
and Contingencies:
|
Leases
The Company leases land, buildings, equipment and vehicles under
various noncancellable operating leases, which expire between
2009 and 2022. Future minimum lease commitments, net of sublease
income, at January 3, 2009 are as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
48,835
|
|
2010
|
|
|
43,164
|
|
2011
|
|
|
35,686
|
|
2012
|
|
|
31,040
|
|
2013
|
|
|
26,850
|
|
Thereafter
|
|
|
92,887
|
|
|
|
|
|
|
|
|
$
|
278,462
|
|
|
|
|
|
|
Rent expense, net of sublease income, under these operating
leases was $37.7 million in fiscal year 2008,
$33.8 million in fiscal year 2007 and $30.1 million in
fiscal year 2006.
On March 27, 2002, the Company completed an agreement for
the sale and leaseback of three of its owned facilities
generating cash proceeds of $13.9 million. The Company
reports this transaction as a capital lease using direct
financing lease accounting. As such, the Company recorded a
$14.1 million capital lease obligation during fiscal 2002.
See Note 5 for more information on this capital lease.
Obligations under the Companys other capital leases are
not material.
The Company remains liable as a guarantor on certain leases
related to Winston Tire Company, its discontinued retail
segment. As of January 3, 2009, the Companys total
obligations, as guarantor on these leases, are approximately
$6.8 million extending over 11 years. However, the
Company has secured assignments or sublease agreements for the
vast majority of these commitments with contractually assigned
or subleased rentals of approximately $6.3 million. A
provision has been made for the net present value of the
estimated shortfall.
Legal
and Tax Proceedings
The Company is involved from time to time in various lawsuits,
including class action lawsuits as well as various audits and
reviews regarding its federal, state and local tax filings,
arising out of the ordinary conduct of its business. Management
does not expect that any of these matters will have a material
adverse effect on the Companys business or financial
condition. As to tax filings, the Company believes that the
various tax filings have been made in a timely fashion and in
accordance with applicable federal, state and local tax code
requirements. Additionally, the Company believes that it has
adequately provided for any reasonably foreseeable resolution of
any tax disputes, but will adjust its reserves if events so
dictate in accordance with FIN 48. To the extent that the
ultimate results differ from the original or adjusted estimates
of the Company, the effect will be recorded in accordance with
FIN 48. See Note 9 below for further description of
FIN 48 and the related impacts.
F-49
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes the components of the Companys
income tax provision (benefit) on income (loss) from operations
for fiscal years 2008, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
$
|
6,713
|
|
|
$
|
8,410
|
|
|
$
|
217
|
|
Deferred provision (benefit)
|
|
|
788
|
|
|
|
(6,556
|
)
|
|
|
(1,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,501
|
|
|
|
1,854
|
|
|
|
(1,278
|
)
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
|
1,228
|
|
|
|
411
|
|
|
|
271
|
|
Deferred provision (benefit)
|
|
|
2,644
|
|
|
|
602
|
|
|
|
(475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,872
|
|
|
|
1,013
|
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
11,373
|
|
|
$
|
2,867
|
|
|
$
|
(1,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax expense (benefit) differs from the amount
computed by applying the statutory federal income tax rate of
35% in fiscal years 2008, 2007 and 2006 as a result of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Income tax provision (benefit) computed at the federal statutory
rate
|
|
$
|
7,365
|
|
|
$
|
1,484
|
|
|
$
|
(2,131
|
)
|
Non-deductible preferred stock dividends
|
|
|
717
|
|
|
|
663
|
|
|
|
612
|
|
Permanent differences
|
|
|
229
|
|
|
|
178
|
|
|
|
170
|
|
State income taxes, net of federal income tax benefit
|
|
|
1,201
|
|
|
|
670
|
|
|
|
(133
|
)
|
Increase in state effective tax rate
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
Tax settlements and other adjustments to uncertain tax positions
|
|
|
153
|
|
|
|
(128
|
)
|
|
|
|
|
Increase in valuation allowance
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
11,373
|
|
|
$
|
2,867
|
|
|
$
|
(1,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of
(a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax reporting purposes and
(b) operating loss and tax credit carry-forwards. The tax
effects of the significant temporary differences that comprise
deferred tax assets and liabilities at January 3, 2009 and
December 29, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Accrued expenses and liabilities
|
|
$
|
11,478
|
|
|
$
|
6,067
|
|
Net operating loss carry-forwards
|
|
|
5,053
|
|
|
|
1,481
|
|
Employee benefits
|
|
|
3,827
|
|
|
|
5,276
|
|
Inventory cost capitalization
|
|
|
7,800
|
|
|
|
6,227
|
|
Other comprehensive income
|
|
|
1,870
|
|
|
|
810
|
|
Other
|
|
|
4,013
|
|
|
|
3,727
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
34,041
|
|
|
|
23,588
|
|
Valuation allowance
|
|
|
(651
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
33,390
|
|
|
|
23,419
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
|
|
(93,398
|
)
|
|
|
(89,457
|
)
|
Other
|
|
|
(612
|
)
|
|
|
(702
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(94,010
|
)
|
|
|
(90,159
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(60,620
|
)
|
|
$
|
(66,740
|
)
|
|
|
|
|
|
|
|
|
|
The above amounts have been classified in the accompanying
consolidated balance sheets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
14,198
|
|
|
$
|
12,981
|
|
Noncurrent
|
|
|
(74,818
|
)
|
|
|
(79,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(60,620
|
)
|
|
$
|
(66,740
|
)
|
|
|
|
|
|
|
|
|
|
As part of a merger transaction during 2005, the Company
generated substantial tax deductions relating to the exercise of
stock options and payments made for transaction bonuses. The
Companys consolidated balance sheet as of January 3,
2009 reflects a net non-current deferred tax liability of
$60.6 million. As part of the merger, the Company recorded
an income tax receivable of $12.7 million, which primarily
related to deductions that could be carried back two years for
federal income tax purposes. The Company received this federal
income tax refund during the first quarter of 2006. The
remaining net deferred tax liability primarily relates to the
temporary difference between book and tax basis of the
Companys intangible assets, which are amortized for book
purposes but are not deductible for tax purposes.
At January 3, 2009, the Company had $11.5 million net
operating losses (NOLs) available for federal tax
purposes and NOLs available for state tax purposes of
approximately $19.4 million. The NOLs for state tax
purposes will expire between 2011 and 2026. Except as discussed
below, the Company expects to utilize these NOLs prior to their
expiration date.
F-51
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management has evaluated the Companys deferred tax assets
and has concluded that certain deferred tax assets related to
some of its state NOLs do not meet the requirement of
being more likely than not that they will be realized. In
addition, management has concluded that deferred tax assets that
relate to certain capital losses do not meet the requirement of
being more likely than not that they will be realized. As a
result, the Company has established a valuation allowance
against these deferred tax assets. Except for these state
NOLs and capital losses, the Company has concluded that
the realizability of the remaining deferred tax assets is more
likely than not. Therefore, the Company has not established a
valuation allowance against any of its other deferred tax
assets. The Companys evaluation process considered the
historical and long-term expected profitability of the Company
as well as existence of deferred tax liabilities, which will
reverse in future periods. The Companys ability to
generate future taxable income is dependent on numerous factors
including general economic conditions, the state of the
replacement tire market and other factors beyond
managements control. Therefore, there can be no assurance
that the Company will meet its expectation of future taxable
income. Changes in expected future taxable income could lead to
the Company recording an additional valuation allowance against
the deferred tax assets.
The Company adopted the provisions of FIN 48 on
December 31, 2006 (the first day of its 2007 fiscal year).
FIN 48 specifies the way public companies are to account
for uncertainty in income tax reporting, and prescribes a
methodology for recognizing, reversing, and measuring the tax
benefits of a tax position taken, or expected to be taken, in a
tax return. The cumulative effect of applying this
interpretation did not result in any adjustment to retained
earnings as of December 31, 2006.
At January 3, 2009, the Company had unrecognized tax
benefits of $1.9 million, of which $1.5 million is
included within accrued liabilities and $0.4 million is
included within other liabilities within the accompanying
consolidated balance sheet. Of the Companys
$1.9 million unrecognized tax benefits as of
January 3, 2009, only $0.3 million is anticipated to
have an effect on the Companys effective tax rate, if
recognized. In addition, of the Companys $1.9 million
liability for uncertain tax positions, approximately
$1.7 million relates to temporary timing differences.
During the twelve month period ended January 3, 2009, the
Company accrued an additional $0.1 million of interest and
penalties related to its uncertain tax positions, all of which
is recorded as a component of the Companys income tax
provision in the accompanying consolidated statement of
operations. In addition, during the twelve month period ended
January 3, 2009, the Company settled a state assessment
that related to tax years 2002 2004. As a result of
this settlement, the Company has extinguished $1.8 million
related to this uncertain tax position.
While the Company believes that it has adequately provided for
all tax positions, amounts asserted by taxing authorities could
be greater than the Companys accrued position.
Accordingly, additional provisions of federal and state-related
matters could be recorded in the future as revised estimates are
made or the underlying matters are settled or otherwise resolved.
The Company files federal income tax returns, as well as
multiple state jurisdiction tax returns. The tax years
2005 2008 remain open to examination by the taxing
jurisdictions to which the Company is subject.
F-52
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
4,088
|
|
|
$
|
5,337
|
|
Additions based on tax positions related to the current year
|
|
|
59
|
|
|
|
599
|
|
Settlements
|
|
|
(1,800
|
)
|
|
|
(793
|
)
|
Reductions for lapse in statute of limitations
|
|
|
(398
|
)
|
|
|
(1,055
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,949
|
|
|
$
|
4,088
|
|
|
|
|
|
|
|
|
|
|
In March 2005, in connection with the acquisition of ATD,
Holdings issued warrants to The 1818 Mezzanine Fund II,
L.P. (The 1818 Fund) in exchange for
$4.6 million in cash less related transaction costs of
$0.1 million. The warrants permit the holders to acquire up
to 21,895 shares of Holdings Series A Common Stock at
$.01 per share. The warrants expire on September 30, 2015.
The Company has recorded these warrants at fair value and has
presented them as a component of stockholders equity at
January 3, 2009 and December 29, 2007.
|
|
11.
|
Redeemable
Preferred Stock:
|
In connection with the acquisition of ATD, Holdings issued
20,000 shares of 8% cumulative mandatorily redeemable
preferred stock to The 1818 Fund in exchange for
$15.4 million in cash less related transaction costs of
$0.5 million. The cumulative preferred stock has a stated
value of $1,000 per share and holders will be entitled to
receive, when and if declared by the Board of Directors,
cumulative dividends, payable in cash, at an annual rate of
8.0%. The dividends and accretion of the carrying amount to the
redemption amount is recorded as interest expense in the
accompanying consolidated statements of operations.
Holdings Board of Directors is not obligated to declare
dividends and the preferred stock provides no monetary penalties
for a failure to declare dividends. The cumulative preferred
stock may be redeemed by Holdings at any time beginning on the
first anniversary of the issuance of the stock and will be
required to be redeemed upon a change of control of Holdings and
at its maturity in 2015. The 8% cumulative mandatorily
redeemable preferred stock is classified as a noncurrent
liability in the accompanying consolidated balance sheets in
accordance with SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity.
Holdings is authorized to issue shares of four series of common
stock, each with a par value of $0.01 per share, including
Series A Common Stock, Series B Common Stock,
Series D Common Stock and Common Stock. Only holders of
Series B Common Stock, Series D Common Stock and
Common Stock have the right to vote. Holders of Series A
Common Stock do not have any voting rights, except that the
holders of such series of common stock will have the right to
vote as a series to the extent required under the laws of the
State of Delaware.
Holders of Series D Common Stock are entitled to 468 votes
per share on all matters submitted to the Companys
stockholders to be voted upon by the stockholders entitled to
vote. Holders of Series B Common Stock are entitled to one
vote per share on all matters submitted to the Companys
stockholders to be voted upon by the stockholders entitled to
vote. In the event of an initial public offering, each then
outstanding share of Series A Common Stock, Series B
Common Stock and Series D Common Stock will automatically
convert into one share of Common Stock effective on the initial
public offering date.
F-53
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Related
Party Transactions:
|
Redeemable
Preferred Stock and Warrants
In connection with the acquisition of ATD, Holdings issued
20,000 shares of 8% cumulative mandatorily redeemable
preferred stock and warrants to acquire up to 21,895 shares
of Holdings Series A Common Stock at $.01 per share to The
1818 Fund (see Note 10 and 11 for further information).
Joseph P. Donlan, a member of the Companys Board of
Directors, is a Managing Director of Brown Brothers
Harriman & Co., The 1818 Funds general partner.
Deferred
Financing Fees
Advisory fees of $13.9 million were paid to Investcorp S.A.
(Investcorp) and its co-sponsors, Berkshire Partners
and Greenbriar Equity Group, in connection with the amended
revolving credit facility and the issuance of the senior notes
and 8% cumulative mandatorily redeemable preferred stock. These
fees are recorded as debt issuance costs in the accompanying
consolidated balance sheets and are being amortized over the
life of the respective debt.
Management
Advisory Fees
Management advisory fees of $8.0 million were paid to one
or more of Investcorp and its co-sponsors (or their respective
affiliates) at the closing of the acquisition of ATD for
services to be rendered over a period of five years following
the date of the acquisition. This payment is being amortized
pursuant to the terms of the agreement and on a basis consistent
with the service provided. Accordingly, the Company recorded
amortization expense of $0.5 million during the fiscal
years ended January 3, 2009 and December 29, 2007 and
$1.9 million during the fiscal year ended December 30,
2006.
On February 6, 2009, the Company announced the planned
retirement of Richard P. Johnson as Chief Executive Officer and
the appointment of William E. Berry as President and Chief
Executive Officer effective April 5, 2009. Mr. Johnson
will remain as non-executive Chairman of the Board of Directors.
|
|
15.
|
Subsidiary
Guarantor Financial Information:
|
The following condensed consolidating financial statements are
presented pursuant to Rule 3 10 of
Regulation S-X
and reflect the financial position, results of operations and
cash flows of the Company.
The financial information is presented under the following
column headings: Parent Company (Holdings), Subsidiary Issuer
(ATD), and Subsidiary Guarantors (ATDs subsidiaries). The
Subsidiary Issuer and all of the Subsidiary Guarantors are
wholly-owned subsidiaries of Holdings. The following describes
the guarantor relationships of the Companys senior notes:
|
|
|
|
|
Discount Notes in an aggregate principal amount of
$51.5 million at maturity were issued by Holdings. Such
notes are not guaranteed by the Subsidiary Issuer or the
Subsidiary Guarantors.
|
|
|
|
Floating Rate Notes and 2013 Notes in an aggregate principal
amount of $290.0 million were issued by ATD and are
unconditionally guaranteed on a joint and several basis by the
Companys non-issuing, wholly-owned subsidiaries
(Subsidiary Guarantors) on a senior basis and
unconditionally guaranteed on a joint and several basis by
Holdings on a subordinated basis.
|
F-54
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The condensed consolidating financial information for the
Company is as follows (amounts in thousands):
Condensed
Consolidating Balance Sheets as of January 3, 2009 and
December 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
72
|
|
|
$
|
5,784
|
|
|
$
|
2,639
|
|
|
$
|
|
|
|
$
|
8,495
|
|
Restricted cash
|
|
|
|
|
|
|
500
|
|
|
|
9,750
|
|
|
|
|
|
|
|
10,250
|
|
Accounts receivable, net
|
|
|
|
|
|
|
89,121
|
|
|
|
89,774
|
|
|
|
|
|
|
|
178,895
|
|
Inventories
|
|
|
|
|
|
|
228,986
|
|
|
|
227,091
|
|
|
|
|
|
|
|
456,077
|
|
Assets held for sale
|
|
|
|
|
|
|
442
|
|
|
|
14,270
|
|
|
|
|
|
|
|
14,712
|
|
Other current assets
|
|
|
2
|
|
|
|
19,940
|
|
|
|
7,687
|
|
|
|
|
|
|
|
27,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
74
|
|
|
|
344,773
|
|
|
|
351,211
|
|
|
|
|
|
|
|
696,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
43,358
|
|
|
|
14,258
|
|
|
|
|
|
|
|
57,616
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
564,776
|
|
|
|
48,218
|
|
|
|
|
|
|
|
612,994
|
|
Investment in subsidiaries
|
|
|
300,361
|
|
|
|
273,848
|
|
|
|
|
|
|
|
(574,209
|
)
|
|
|
|
|
Other assets
|
|
|
1,836
|
|
|
|
11,801
|
|
|
|
10,555
|
|
|
|
|
|
|
|
24,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
302,271
|
|
|
$
|
1,238,556
|
|
|
$
|
424,242
|
|
|
$
|
(574,209
|
)
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
311,164
|
|
|
$
|
49,227
|
|
|
$
|
|
|
|
$
|
360,391
|
|
Accrued expenses
|
|
|
1,723
|
|
|
|
29,035
|
|
|
|
12,347
|
|
|
|
|
|
|
|
43,105
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
1,199
|
|
|
|
|
|
|
|
1,199
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
2,939
|
|
|
|
111
|
|
|
|
|
|
|
|
3,050
|
|
Intercompany payables (receivables)
|
|
|
641
|
|
|
|
(71,985
|
)
|
|
|
71,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,364
|
|
|
|
271,153
|
|
|
|
134,228
|
|
|
|
|
|
|
|
407,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
51,480
|
|
|
|
587,858
|
|
|
|
46
|
|
|
|
|
|
|
|
639,384
|
|
Deferred income taxes
|
|
|
|
|
|
|
67,765
|
|
|
|
7,053
|
|
|
|
|
|
|
|
74,818
|
|
Other liabilities
|
|
|
|
|
|
|
11,419
|
|
|
|
9,067
|
|
|
|
|
|
|
|
20,486
|
|
Redeemable preferred stock
|
|
|
23,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,941
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany investment
|
|
|
|
|
|
|
280,624
|
|
|
|
211,718
|
|
|
|
(492,342
|
)
|
|
|
|
|
Common stock
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
218,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,022
|
|
Warrants
|
|
|
4,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,631
|
|
Accumulated earnings
|
|
|
4,990
|
|
|
|
22,804
|
|
|
|
62,130
|
|
|
|
(84,934
|
)
|
|
|
4,990
|
|
Accumulated other comprehensive loss
|
|
|
(3,067
|
)
|
|
|
(3,067
|
)
|
|
|
|
|
|
|
3,067
|
|
|
|
(3,067
|
)
|
Treasury stock, at cost
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,486
|
|
|
|
300,361
|
|
|
|
273,848
|
|
|
|
(574,209
|
)
|
|
|
224,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
302,271
|
|
|
$
|
1,238,556
|
|
|
$
|
424,242
|
|
|
$
|
(574,209
|
)
|
|
$
|
1,390,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2007
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
73
|
|
|
$
|
4,279
|
|
|
$
|
397
|
|
|
$
|
|
|
|
$
|
4,749
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
575
|
|
|
|
|
|
|
|
575
|
|
Accounts receivable, net
|
|
|
|
|
|
|
90,570
|
|
|
|
64,471
|
|
|
|
|
|
|
|
155,041
|
|
Inventories
|
|
|
|
|
|
|
207,468
|
|
|
|
136,070
|
|
|
|
|
|
|
|
343,538
|
|
Other current assets
|
|
|
2
|
|
|
|
24,245
|
|
|
|
1,102
|
|
|
|
|
|
|
|
25,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
75
|
|
|
|
326,562
|
|
|
|
202,615
|
|
|
|
|
|
|
|
529,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
37,613
|
|
|
|
5,061
|
|
|
|
|
|
|
|
42,674
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
575,225
|
|
|
|
34,655
|
|
|
|
|
|
|
|
609,880
|
|
Investment in subsidiaries
|
|
|
287,900
|
|
|
|
182,278
|
|
|
|
|
|
|
|
(470,178
|
)
|
|
|
|
|
Other assets
|
|
|
2,190
|
|
|
|
25,667
|
|
|
|
1,033
|
|
|
|
|
|
|
|
28,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
290,165
|
|
|
$
|
1,147,345
|
|
|
$
|
243,364
|
|
|
$
|
(470,178
|
)
|
|
$
|
1,210,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
282,346
|
|
|
$
|
4,362
|
|
|
$
|
|
|
|
$
|
286,708
|
|
Accrued expenses
|
|
|
1,722
|
|
|
|
49,497
|
|
|
|
1,787
|
|
|
|
|
|
|
|
53,006
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
2,863
|
|
|
|
119
|
|
|
|
|
|
|
|
2,982
|
|
Intercompany payables (receivables)
|
|
|
(882
|
)
|
|
|
(47,141
|
)
|
|
|
48,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
840
|
|
|
|
287,565
|
|
|
|
54,291
|
|
|
|
|
|
|
|
342,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
51,480
|
|
|
|
485,273
|
|
|
|
118
|
|
|
|
|
|
|
|
536,871
|
|
Deferred income taxes
|
|
|
|
|
|
|
76,752
|
|
|
|
2,969
|
|
|
|
|
|
|
|
79,721
|
|
Other liabilities
|
|
|
|
|
|
|
9,855
|
|
|
|
3,708
|
|
|
|
|
|
|
|
13,563
|
|
Redeemable preferred stock
|
|
|
21,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,450
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany investment
|
|
|
|
|
|
|
280,623
|
|
|
|
146,302
|
|
|
|
(426,925
|
)
|
|
|
|
|
Common stock
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
217,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,990
|
|
Warrants
|
|
|
4,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,631
|
|
Accumulated (deficit) earnings
|
|
|
(4,835
|
)
|
|
|
8,578
|
|
|
|
35,976
|
|
|
|
(44,554
|
)
|
|
|
(4,835
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,301
|
)
|
|
|
(1,301
|
)
|
|
|
|
|
|
|
1,301
|
|
|
|
(1,301
|
)
|
Treasury stock, at cost
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
216,395
|
|
|
|
287,900
|
|
|
|
182,278
|
|
|
|
(470,178
|
)
|
|
|
216,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
290,165
|
|
|
$
|
1,147,345
|
|
|
$
|
243,364
|
|
|
$
|
(470,178
|
)
|
|
$
|
1,210,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations for fiscal years ended
January 3, 2009, December 29, 2007 and
December 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended January 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,133,116
|
|
|
$
|
827,728
|
|
|
$
|
|
|
|
$
|
1,960,844
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
|
|
|
|
924,242
|
|
|
|
680,822
|
|
|
|
|
|
|
|
1,605,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
208,874
|
|
|
|
146,906
|
|
|
|
|
|
|
|
355,780
|
|
Selling, general and administrative expenses
|
|
|
38
|
|
|
|
184,306
|
|
|
|
90,068
|
|
|
|
|
|
|
|
274,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(38
|
)
|
|
|
24,568
|
|
|
|
56,838
|
|
|
|
|
|
|
|
81,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
(9,537
|
)
|
|
|
(49,668
|
)
|
|
|
36
|
|
|
|
|
|
|
|
(59,169
|
)
|
Other, net
|
|
|
(1
|
)
|
|
|
(1,201
|
)
|
|
|
47
|
|
|
|
|
|
|
|
(1,155
|
)
|
Equity earnings of subsidiaries
|
|
|
14,072
|
|
|
|
26,154
|
|
|
|
|
|
|
|
(40,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
4,496
|
|
|
|
(147
|
)
|
|
|
56,921
|
|
|
|
(40,226
|
)
|
|
|
21,044
|
|
Income tax (benefit) provision
|
|
|
(5,175
|
)
|
|
|
(14,219
|
)
|
|
|
30,767
|
|
|
|
|
|
|
|
11,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,671
|
|
|
$
|
14,072
|
|
|
$
|
26,154
|
|
|
$
|
(40,226
|
)
|
|
$
|
9,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 29, 2007
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,133,933
|
|
|
$
|
743,547
|
|
|
$
|
|
|
|
$
|
1,877,480
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
|
|
|
|
931,695
|
|
|
|
621,280
|
|
|
|
|
|
|
|
1,552,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
202,238
|
|
|
|
122,267
|
|
|
|
|
|
|
|
324,505
|
|
Selling, general and administrative expenses
|
|
|
38
|
|
|
|
177,515
|
|
|
|
80,794
|
|
|
|
|
|
|
|
258,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(38
|
)
|
|
|
24,723
|
|
|
|
41,473
|
|
|
|
|
|
|
|
66,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
(9,277
|
)
|
|
|
(52,388
|
)
|
|
|
32
|
|
|
|
|
|
|
|
(61,633
|
)
|
Other, net
|
|
|
|
|
|
|
(322
|
)
|
|
|
37
|
|
|
|
|
|
|
|
(285
|
)
|
Equity earnings of subsidiaries
|
|
|
4,382
|
|
|
|
13,432
|
|
|
|
|
|
|
|
(17,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes
|
|
|
(4,933
|
)
|
|
|
(14,555
|
)
|
|
|
41,542
|
|
|
|
(17,814
|
)
|
|
|
4,240
|
|
Income tax (benefit) provision
|
|
|
(6,306
|
)
|
|
|
(18,937
|
)
|
|
|
28,110
|
|
|
|
|
|
|
|
2,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,373
|
|
|
$
|
4,382
|
|
|
$
|
13,432
|
|
|
$
|
(17,814
|
)
|
|
$
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 30, 2006
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
988,420
|
|
|
$
|
589,553
|
|
|
$
|
|
|
|
$
|
1,577,973
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
|
|
|
|
805,582
|
|
|
|
488,012
|
|
|
|
|
|
|
|
1,293,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
182,838
|
|
|
|
101,541
|
|
|
|
|
|
|
|
284,379
|
|
Selling, general and administrative expenses
|
|
|
36
|
|
|
|
137,897
|
|
|
|
89,466
|
|
|
|
|
|
|
|
227,399
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(36
|
)
|
|
|
42,301
|
|
|
|
12,075
|
|
|
|
|
|
|
|
54,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,446
|
)
|
|
|
(46,006
|
)
|
|
|
(5,613
|
)
|
|
|
|
|
|
|
(60,065
|
)
|
Other, net
|
|
|
|
|
|
|
(453
|
)
|
|
|
89
|
|
|
|
|
|
|
|
(364
|
)
|
Equity earnings of subsidiaries
|
|
|
1,811
|
|
|
|
4,956
|
|
|
|
|
|
|
|
(6,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes
|
|
|
(6,671
|
)
|
|
|
798
|
|
|
|
6,551
|
|
|
|
(6,767
|
)
|
|
|
(6,089
|
)
|
Income tax (benefit) provision
|
|
|
(2,064
|
)
|
|
|
(1,013
|
)
|
|
|
1,595
|
|
|
|
|
|
|
|
(1,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,607
|
)
|
|
$
|
1,811
|
|
|
$
|
4,956
|
|
|
$
|
(6,767
|
)
|
|
$
|
(4,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows for the fiscal years
ended January 3, 2009, December 29, 2007 and
December 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended January 3, 2009
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,671
|
|
|
$
|
14,072
|
|
|
$
|
26,154
|
|
|
$
|
(40,226
|
)
|
|
$
|
9,671
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles and other assets
|
|
|
354
|
|
|
|
26,757
|
|
|
|
3,253
|
|
|
|
|
|
|
|
30,364
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,376
|
|
|
|
1,138
|
|
|
|
|
|
|
|
2,514
|
|
Accretion of 8% cumulative preferred stock
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,051
|
|
Provision for deferred income taxes
|
|
|
|
|
|
|
3,342
|
|
|
|
90
|
|
|
|
|
|
|
|
3,432
|
|
Other, net
|
|
|
32
|
|
|
|
456
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
441
|
|
Equity earnings of subsidiaries
|
|
|
(14,072
|
)
|
|
|
(26,154
|
)
|
|
|
|
|
|
|
40,226
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2,535
|
|
|
|
(1,667
|
)
|
|
|
|
|
|
|
868
|
|
Inventories
|
|
|
|
|
|
|
(17,880
|
)
|
|
|
(25,187
|
)
|
|
|
|
|
|
|
(43,067
|
)
|
Other current assets
|
|
|
|
|
|
|
(44
|
)
|
|
|
154
|
|
|
|
|
|
|
|
110
|
|
Accounts payable and accrued expenses
|
|
|
1
|
|
|
|
(38,918
|
)
|
|
|
(20,697
|
)
|
|
|
|
|
|
|
(59,614
|
)
|
Other, net
|
|
|
(2
|
)
|
|
|
(804
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
(1,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,524
|
)
|
|
|
(35,262
|
)
|
|
|
(17,300
|
)
|
|
|
|
|
|
|
(54,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(71,450
|
)
|
|
|
2,866
|
|
|
|
|
|
|
|
(68,584
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(12,237
|
)
|
|
|
(1,187
|
)
|
|
|
|
|
|
|
(13,424
|
)
|
Purchase of assets held for sale
|
|
|
|
|
|
|
(3,020
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,020
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
54
|
|
|
|
116
|
|
|
|
|
|
|
|
170
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
3,187
|
|
Intercompany
|
|
|
1,523
|
|
|
|
(15,139
|
)
|
|
|
13,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,523
|
|
|
|
(98,605
|
)
|
|
|
15,411
|
|
|
|
|
|
|
|
(81,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
|
|
|
|
1,948,575
|
|
|
|
3,700
|
|
|
|
|
|
|
|
1,952,275
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
(1,798,645
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,798,645
|
)
|
Payments of other long-term debt
|
|
|
|
|
|
|
(4,308
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
(4,452
|
)
|
Change in restricted cash
|
|
|
|
|
|
|
(10,250
|
)
|
|
|
575
|
|
|
|
|
|
|
|
(9,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
135,372
|
|
|
|
4,131
|
|
|
|
|
|
|
|
139,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1
|
)
|
|
|
1,505
|
|
|
|
2,242
|
|
|
|
|
|
|
|
3,746
|
|
Cash and cash equivalents, beginning of year
|
|
|
73
|
|
|
|
4,279
|
|
|
|
397
|
|
|
|
|
|
|
|
4,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
72
|
|
|
$
|
5,784
|
|
|
$
|
2,639
|
|
|
$
|
|
|
|
$
|
8,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 29, 2007
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,373
|
|
|
$
|
4,382
|
|
|
$
|
13,432
|
|
|
$
|
(17,814
|
)
|
|
$
|
1,373
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles and other assets
|
|
|
353
|
|
|
|
28,657
|
|
|
|
4,142
|
|
|
|
|
|
|
|
33,152
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
564
|
|
|
|
290
|
|
|
|
|
|
|
|
854
|
|
Accretion of 8% cumulative preferred stock
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
Accretion of Discount Notes
|
|
|
1,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,571
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,893
|
|
Benefit for deferred income taxes
|
|
|
|
|
|
|
(6,916
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,916
|
)
|
Other, net
|
|
|
1
|
|
|
|
(871
|
)
|
|
|
32
|
|
|
|
|
|
|
|
(838
|
)
|
Equity earnings of subsidiaries
|
|
|
(4,382
|
)
|
|
|
(13,432
|
)
|
|
|
|
|
|
|
17,814
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
(5,772
|
)
|
|
|
(8,663
|
)
|
|
|
|
|
|
|
(14,435
|
)
|
Inventories
|
|
|
|
|
|
|
(23,270
|
)
|
|
|
(12,077
|
)
|
|
|
|
|
|
|
(35,347
|
)
|
Other current assets
|
|
|
|
|
|
|
(3,457
|
)
|
|
|
37
|
|
|
|
|
|
|
|
(3,420
|
)
|
Accounts payable and accrued expenses
|
|
|
1,695
|
|
|
|
45,409
|
|
|
|
(7,254
|
)
|
|
|
|
|
|
|
39,850
|
|
Other, net
|
|
|
1
|
|
|
|
1,439
|
|
|
|
(791
|
)
|
|
|
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,946
|
|
|
|
26,733
|
|
|
|
(10,852
|
)
|
|
|
|
|
|
|
18,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(21,459
|
)
|
|
|
478
|
|
|
|
|
|
|
|
(20,981
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(7,148
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
(8,648
|
)
|
Purchase of assets held for sale
|
|
|
|
|
|
|
(2,388
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,388
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
48
|
|
|
|
257
|
|
|
|
|
|
|
|
305
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
|
|
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
1,852
|
|
Intercompany
|
|
|
(2,946
|
)
|
|
|
(9,420
|
)
|
|
|
12,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,946
|
)
|
|
|
(38,515
|
)
|
|
|
11,601
|
|
|
|
|
|
|
|
(29,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
|
|
|
|
1,669,818
|
|
|
|
|
|
|
|
|
|
|
|
1,669,818
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
(1,651,574
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,651,574
|
)
|
Payments of other long-term debt
|
|
|
|
|
|
|
(4,402
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,402
|
)
|
Payments of deferred financing costs
|
|
|
|
|
|
|
(1,085
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,085
|
)
|
Change in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
12,757
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
12,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
975
|
|
|
|
174
|
|
|
|
|
|
|
|
1,149
|
|
Cash and cash equivalents, beginning of year
|
|
|
73
|
|
|
|
3,304
|
|
|
|
223
|
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
73
|
|
|
$
|
4,279
|
|
|
$
|
397
|
|
|
$
|
|
|
|
$
|
4,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 30, 2006
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,607
|
)
|
|
$
|
1,811
|
|
|
$
|
4,956
|
|
|
$
|
(6,767
|
)
|
|
$
|
(4,607
|
)
|
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles and other assets
|
|
|
351
|
|
|
|
26,547
|
|
|
|
3,616
|
|
|
|
|
|
|
|
30,514
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
Provision for (recovery of) doubtful accounts
|
|
|
|
|
|
|
3
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
(325
|
)
|
Accretion of 8% cumulative preferred stock
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
Accretion of Discount Notes
|
|
|
5,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,906
|
|
Accrued dividends on 8% cumulative preferred stock
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
Benefit for deferred income taxes
|
|
|
|
|
|
|
(1,970
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,970
|
)
|
Post-retirement benefit plan termination
|
|
|
|
|
|
|
(1,933
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,933
|
)
|
Other, net
|
|
|
(928
|
)
|
|
|
(89
|
)
|
|
|
(459
|
)
|
|
|
|
|
|
|
(1,476
|
)
|
Equity earnings of subsidiaries
|
|
|
(1,811
|
)
|
|
|
(4,956
|
)
|
|
|
|
|
|
|
6,767
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
6,447
|
|
|
|
(4,254
|
)
|
|
|
|
|
|
|
2,193
|
|
Inventories
|
|
|
|
|
|
|
(6,300
|
)
|
|
|
(1,595
|
)
|
|
|
|
|
|
|
(7,895
|
)
|
Other current assets
|
|
|
1
|
|
|
|
2,003
|
|
|
|
124
|
|
|
|
|
|
|
|
2,128
|
|
Income tax receivable
|
|
|
|
|
|
|
13,605
|
|
|
|
|
|
|
|
|
|
|
|
13,605
|
|
Accounts payable and accrued expenses
|
|
|
25
|
|
|
|
39,162
|
|
|
|
(13,472
|
)
|
|
|
|
|
|
|
25,715
|
|
Other, net
|
|
|
(25
|
)
|
|
|
(288
|
)
|
|
|
213
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,103
|
|
|
|
76,682
|
|
|
|
(11,199
|
)
|
|
|
|
|
|
|
66,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(20,989
|
)
|
|
|
632
|
|
|
|
|
|
|
|
(20,357
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(8,866
|
)
|
|
|
(979
|
)
|
|
|
|
|
|
|
(9,845
|
)
|
Purchase of assets held for sale
|
|
|
|
|
|
|
(536
|
)
|
|
|
|
|
|
|
|
|
|
|
(536
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
57
|
|
|
|
364
|
|
|
|
|
|
|
|
421
|
|
Proceeds from disposal of assets held for sale
|
|
|
|
|
|
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
1,790
|
|
Intercompany
|
|
|
(1,100
|
)
|
|
|
(9,023
|
)
|
|
|
10,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,100
|
)
|
|
|
(37,567
|
)
|
|
|
10,140
|
|
|
|
|
|
|
|
(28,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility
|
|
|
|
|
|
|
1,413,621
|
|
|
|
|
|
|
|
|
|
|
|
1,413,621
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
(1,448,090
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,448,090
|
)
|
Payments of other long-term debt
|
|
|
|
|
|
|
(4,837
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
(5,301
|
)
|
Payments of deferred financing costs
|
|
|
(3
|
)
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3
|
)
|
|
|
(39,537
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
(40,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(422
|
)
|
|
|
(1,523
|
)
|
|
|
|
|
|
|
(1,945
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
73
|
|
|
|
3,726
|
|
|
|
1,746
|
|
|
|
|
|
|
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
73
|
|
|
$
|
3,304
|
|
|
$
|
223
|
|
|
$
|
|
|
|
$
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
16. Earnings
per share:
Basic earnings per share is calculated using our weighted
average outstanding common shares. Diluted earnings per share is
calculated using our weighted average outstanding common shares
including the dilutive effect of stock options and warrants as
determined under the treasury stock method.
The following table sets forth the computation of basic and
diluted earnings per share for the fiscal years ended
January 3, 2009, December 29, 2007 and
December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Basic earnings per share circulation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,671,000
|
|
|
$
|
1,373,000
|
|
|
$
|
(4,607,000
|
)
|
Weighted average common shares outstanding
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
Net income (loss) per share-basic
|
|
$
|
9.68
|
|
|
$
|
1.37
|
|
|
$
|
(4.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,671,000
|
|
|
$
|
1,373,000
|
|
|
$
|
(4,607,000
|
)
|
Weighted average common shares outstanding
|
|
|
999,527
|
|
|
|
999,527
|
|
|
|
999,527
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (1)
|
|
|
95,322
|
|
|
|
95,482
|
|
|
|
|
|
Warrants (2)
|
|
|
21,895
|
|
|
|
21,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
1,116,744
|
|
|
|
1,116,904
|
|
|
|
999,527
|
|
Net income (loss) per share diluted
|
|
$
|
8.66
|
|
|
$
|
1.23
|
|
|
$
|
(4.61
|
)
|
Unaudited pro forma net income per share
basic (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net income per share diluted (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Options to purchase 800 and 176,704 shares of common stock
during the years ended January 3, 2009 and
December 30, 2006, respectively, were outstanding but were
not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive.
|
|
|
(2)
|
Warrants to purchase 21,895 shares of common stock during
the year ended December 30, 2006 were outstanding but were
not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive.
|
|
|
(3)
|
Unaudited pro forma net income per share has been calculated
assuming conversion of all outstanding shares of the
Series A, B and D common stock
to shares
of our common stock as well as to reflect the assumed use of
proceeds to redeem debt and preferred stock.
|
F-62
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For Fiscal Years Ended January 3, 2009, December 29,
2007 and December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Charged
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
to Costs
|
|
|
to Other
|
|
|
|
|
|
Balance
|
|
|
|
of Year
|
|
|
and Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
End of Year
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,093
|
|
|
$
|
2,515
|
|
|
$
|
|
|
|
$
|
(2,294
|
)(1)
|
|
$
|
2,314
|
|
Acquisition exit cost reserves(2)
|
|
|
5,749
|
|
|
|
(16
|
)
|
|
|
11,292
|
(3)
|
|
|
(1,752
|
)
|
|
|
15,273
|
|
Inventory reserves
|
|
|
231
|
|
|
|
988
|
|
|
|
|
|
|
|
(1,398
|
)
|
|
|
(179
|
)
|
Sales returns and allowances
|
|
|
1,731
|
|
|
|
3,108
|
|
|
|
|
|
|
|
(3,160
|
)
|
|
|
1,679
|
|
Valuation allowance on deferred tax assets
|
|
|
169
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
651
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,469
|
|
|
$
|
854
|
|
|
$
|
|
|
|
$
|
(230
|
)(1)
|
|
$
|
2,093
|
|
Acquisition exit cost reserves(2)
|
|
|
3,584
|
|
|
|
378
|
|
|
|
2,690
|
(3)
|
|
|
(903
|
)
|
|
|
5,749
|
|
Inventory reserves
|
|
|
1,671
|
|
|
|
4,410
|
|
|
|
|
|
|
|
(5,850
|
)
|
|
|
231
|
|
Sales returns and allowances
|
|
|
1,870
|
|
|
|
2,151
|
|
|
|
|
|
|
|
(2,290
|
)
|
|
|
1,731
|
|
Valuation allowance on deferred tax assets
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,560
|
|
|
$
|
(325
|
)
|
|
$
|
|
|
|
$
|
234
|
(1)
|
|
$
|
1,469
|
|
Acquisition exit cost reserves(2)
|
|
|
3,617
|
|
|
|
1,024
|
|
|
|
164
|
(3)
|
|
|
(1,221
|
)
|
|
|
3,584
|
|
Inventory reserves
|
|
|
720
|
|
|
|
2,832
|
|
|
|
|
|
|
|
(1,881
|
)
|
|
|
1,671
|
|
Sales returns and allowances
|
|
|
1,755
|
|
|
|
2,833
|
|
|
|
|
|
|
|
(2,718
|
)
|
|
|
1,870
|
|
|
|
|
(1) |
|
Accounts written off during the year, net of recoveries. |
|
(2) |
|
Amounts represent facilities closing cost of acquired
distribution centers due to existing distribution centers being
located in close proximity to the acquired distribution
facilities. |
|
(3) |
|
Represents facilities closing cost of acquired Am-Pac Tire,
Grays Tire, Martino Tire, Silver State, Wholesale Tire and
Target Tire distribution centers due to existing distribution
centers being located in close proximity to the acquired
distribution facilities. |
|
|
|
Schedules not included herein are omitted because they are not
applicable or the required information appears in the financial
statements or notes thereto. |
F-63
INDEPENDENT
AUDITORS REPORT
Board of Directors
Am-Pac Tire Dist., Inc.
Simi Valley, California
We have audited the accompanying consolidated balance sheets of
Am-Pac Tire Dist., Inc. and subsidiary (a majority
owned-subsidiary of Itochu Corporation, collectively, the
Company) as of September 30, 2008 and
December 31, 2007 and the related consolidated statements
of operations, stockholders equity, and cash flows for the
nine-month period ended September 30, 2008 and the years
ended December 31, 2007 and December 31, 2006. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of September 30, 2008 and December 31, 2007
and the results of their operations and their cash flows for the
nine-month period ended September 30, 2008 and the years
ended December 31, 2007 and December 31, 2006 in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 12 to the consolidated financial
statements, on December 18, 2008, American Tire
Distributors, Inc., a wholly owned subsidiary of American Tire
Distributors Holdings, Inc. acquired all of the issued and
outstanding common stock of the Company.
/s/ Deloitte &
Touche LLP
Los Angeles, CA
December 12, 2008, except for Note 12, as to which the
date is December 18, 2008
F-64
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS (Note 6)
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash (Note 2)
|
|
$
|
1,632,115
|
|
|
$
|
1,599,978
|
|
Trade accounts receivable Net (Note 2)
|
|
|
27,654,652
|
|
|
|
24,631,584
|
|
Other receivables (Note 8)
|
|
|
2,042,561
|
|
|
|
1,717,714
|
|
Inventories (Notes 2, 5, and 8)
|
|
|
74,693,871
|
|
|
|
70,009,312
|
|
Due from affiliate (Note 8)
|
|
|
505,637
|
|
|
|
732,964
|
|
Prepaid expenses and other current assets
|
|
|
2,010,389
|
|
|
|
1,776,273
|
|
Income taxes receivable (Notes 8 and 9)
|
|
|
7,388,891
|
|
|
|
7,770,623
|
|
Deferred tax assets (Note 9)
|
|
|
|
|
|
|
1,928,269
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
115,928,116
|
|
|
|
110,166,717
|
|
INVENTORIES (Notes 2 and 8)
|
|
|
2,240,851
|
|
|
|
3,029,910
|
|
PROPERTY AND EQUIPMENT Net (Notes 3, 5, and 7)
|
|
|
8,839,318
|
|
|
|
9,128,520
|
|
GOODWILL (Notes 4 and 5)
|
|
|
11,055,078
|
|
|
|
11,055,078
|
|
INTANGIBLE ASSETS Net (Note 4)
|
|
|
2,123,117
|
|
|
|
2,163,617
|
|
DEFERRED TAX ASSETS (Note 9)
|
|
|
|
|
|
|
2,705,327
|
|
OTHER ASSETS (Notes 2 and 11)
|
|
|
1,608,886
|
|
|
|
1,823,736
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
141,795,366
|
|
|
$
|
140,072,905
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Book overdraft
|
|
$
|
|
|
|
$
|
4,232,428
|
|
Borrowings under lines of credit (Note 6)
|
|
|
|
|
|
|
16,850,000
|
|
Accounts payable and line of credit due to affiliates
(Note 8)
|
|
|
66,611,170
|
|
|
|
26,678,130
|
|
Accounts payable and accrued expenses (Note 2)
|
|
|
59,018,639
|
|
|
|
64,209,188
|
|
Current portion of long-term debt (Note 7)
|
|
|
308,402
|
|
|
|
2,146,011
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
125,938,211
|
|
|
|
114,115,757
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT Net of current portion (Note 7)
|
|
|
826,737
|
|
|
|
1,001,448
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES (Note 11)
|
|
|
921,224
|
|
|
|
1,266,587
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, no par value authorized,
10,000 shares; issued and outstanding, 1,200 shares
|
|
|
29,925,000
|
|
|
|
29,925,000
|
|
Accumulated deficit
|
|
|
(15,815,806
|
)
|
|
|
(6,235,887
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,109,194
|
|
|
|
23,689,113
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
141,795,366
|
|
|
$
|
140,072,905
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
241,254,752
|
|
|
$
|
320,004,998
|
|
|
$
|
346,166,364
|
|
Commission income
|
|
|
2,766,222
|
|
|
|
3,706,322
|
|
|
|
2,782,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
244,020,974
|
|
|
|
323,711,320
|
|
|
|
348,948,507
|
|
COST OF SALES EXCLUDING DEPRECIATION (Note 2)
|
|
|
184,678,326
|
|
|
|
243,938,485
|
|
|
|
263,293,630
|
|
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Notes 2, 3,
4, 8, 10, and 11)
|
|
|
62,088,227
|
|
|
|
81,849,757
|
|
|
|
84,847,142
|
|
IMPAIRMENT LOSS (Note 4)
|
|
|
|
|
|
|
|
|
|
|
15,189,444
|
|
GAIN ON SALE OF RETAIL STORES
|
|
|
|
|
|
|
259,598
|
|
|
|
789,812
|
|
GAIN (LOSS) ON DISPOSAL OF PROPERTY AND EQUIPMENT
|
|
|
(16,297
|
)
|
|
|
13,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(2,761,876
|
)
|
|
|
(1,804,037
|
)
|
|
|
(13,591,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (Notes 6, 7, and 8)
|
|
|
(1,504,961
|
)
|
|
|
(2,454,005
|
)
|
|
|
(2,015,550
|
)
|
Interest income
|
|
|
129,086
|
|
|
|
337,681
|
|
|
|
351,934
|
|
Gain (loss) on interest swap contracts (Note 2)
|
|
|
(18,123
|
)
|
|
|
(82,731
|
)
|
|
|
85,982
|
|
Equity income from investment (Note 2)
|
|
|
15,000
|
|
|
|
79,331
|
|
|
|
15,440
|
|
Other (expense) income net (Note 11)
|
|
|
(72,258
|
)
|
|
|
420,475
|
|
|
|
402,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(1,451,256
|
)
|
|
|
(1,699,249
|
)
|
|
|
(1,159,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(4,213,132
|
)
|
|
|
(3,503,286
|
)
|
|
|
(14,751,762
|
)
|
INCOME TAX (EXPENSE) BENEFIT (Note 9)
|
|
|
(5,366,787
|
)
|
|
|
1,217,924
|
|
|
|
5,109,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(9,579,919
|
)
|
|
$
|
(2,285,362
|
)
|
|
$
|
(9,642,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Equity
|
|
|
BALANCE January 1, 2006
|
|
|
1,200
|
|
|
$
|
29,925,000
|
|
|
$
|
5,691,884
|
|
|
$
|
35,616,884
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(9,642,409
|
)
|
|
|
(9,642,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2006
|
|
|
1,200
|
|
|
|
29,925,000
|
|
|
|
(3,950,525
|
)
|
|
|
25,974,475
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(2,285,362
|
)
|
|
|
(2,285,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2007
|
|
|
1,200
|
|
|
|
29,925,000
|
|
|
|
(6,235,887
|
)
|
|
|
23,689,113
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(9,579,919
|
)
|
|
|
(9,579,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE September 30, 2008
|
|
|
1,200
|
|
|
$
|
29,925,000
|
|
|
$
|
(15,815,806
|
)
|
|
$
|
14,109,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,579,919
|
)
|
|
$
|
(2,285,362
|
)
|
|
$
|
(9,642,409
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,457,158
|
|
|
|
2,077,014
|
|
|
|
2,072,793
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
15,189,444
|
|
(Gain) loss on deferred compensation plan assets
|
|
|
213,775
|
|
|
|
(244,174
|
)
|
|
|
(105,407
|
)
|
(Gain) loss on disposal of property and equipment
|
|
|
22,154
|
|
|
|
(13,287
|
)
|
|
|
|
|
Gain on sale of retail stores
|
|
|
|
|
|
|
(259,598
|
)
|
|
|
(789,812
|
)
|
Unrealized loss (gain) on interest swap contracts
|
|
|
18,123
|
|
|
|
82,731
|
|
|
|
(85,982
|
)
|
Deferred income taxes
|
|
|
4,633,596
|
|
|
|
(194,651
|
)
|
|
|
(4,972,728
|
)
|
Equity in income from investment
|
|
|
(15,000
|
)
|
|
|
(79,331
|
)
|
|
|
(15,440
|
)
|
Changes in net operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(3,023,068
|
)
|
|
|
684,636
|
|
|
|
1,702,466
|
|
Other receivables
|
|
|
(422,762
|
)
|
|
|
(863,203
|
)
|
|
|
165,446
|
|
Inventories
|
|
|
(3,895,500
|
)
|
|
|
(14,271,590
|
)
|
|
|
9,352,230
|
|
Due from affiliate
|
|
|
227,327
|
|
|
|
(582,175
|
)
|
|
|
992,129
|
|
Prepaid expenses and other current assets
|
|
|
(234,116
|
)
|
|
|
(245,775
|
)
|
|
|
(317,289
|
)
|
Other assets
|
|
|
16,075
|
|
|
|
116,411
|
|
|
|
(67,054
|
)
|
Income taxes receivable
|
|
|
381,732
|
|
|
|
(805,333
|
)
|
|
|
(1,092,840
|
)
|
Book overdraft
|
|
|
(4,232,428
|
)
|
|
|
3,910,979
|
|
|
|
(5,193,500
|
)
|
Accounts payable and accrued expenses
|
|
|
(5,190,548
|
)
|
|
|
18,184,511
|
|
|
|
(14,221,416
|
)
|
Accounts payable due to affiliate
|
|
|
6,833,040
|
|
|
|
(6,540,588
|
)
|
|
|
2,453,987
|
|
Other liabilities
|
|
|
(363,486
|
)
|
|
|
87,238
|
|
|
|
172,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(13,153,847
|
)
|
|
|
(1,241,547
|
)
|
|
|
(4,402,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
|
(1,080,531
|
)
|
|
|
(3,406,368
|
)
|
|
|
(1,947,930
|
)
|
Proceeds from disposal of property and equipment
|
|
|
|
|
|
|
43,516
|
|
|
|
|
|
Proceeds from sale of retail stores
|
|
|
|
|
|
|
372,836
|
|
|
|
950,000
|
|
Acquisitions of intangible assets
|
|
|
|
|
|
|
(8,952
|
)
|
|
|
|
|
Acquisitions of retail stores
|
|
|
|
|
|
|
(244,966
|
)
|
|
|
(598,083
|
)
|
Decrease of short-term investment
|
|
|
|
|
|
|
690,900
|
|
|
|
|
|
Collections of notes receivable on sale of retail stores
|
|
|
97,915
|
|
|
|
|
|
|
|
53,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(982,616
|
)
|
|
|
(2,553,034
|
)
|
|
|
(1,542,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit from affiliate
|
|
|
53,710,464
|
|
|
|
3,500,000
|
|
|
|
21,000,000
|
|
Repayments under line of credit from affiliate
|
|
|
(20,610,464
|
)
|
|
|
(3,500,000
|
)
|
|
|
|
|
Borrowings on line of credit
|
|
|
55,050,000
|
|
|
|
111,600,000
|
|
|
|
85,195,985
|
|
Repayments on line of credit
|
|
|
(71,900,000
|
)
|
|
|
(105,200,000
|
)
|
|
|
(93,872,858
|
)
|
Repayments of capital leases
|
|
|
(14,001
|
)
|
|
|
(136,104
|
)
|
|
|
(279,707
|
)
|
Repayments of long-term debt
|
|
|
(2,067,399
|
)
|
|
|
(2,309,451
|
)
|
|
|
(6,312,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,168,600
|
|
|
|
3,954,445
|
|
|
|
5,730,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
32,137
|
|
|
|
159,864
|
|
|
|
(215,010
|
)
|
CASH AND CASH EQUIVALENTS Beginning of period/year
|
|
|
1,599,978
|
|
|
|
1,440,114
|
|
|
|
2,346,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of period/year
|
|
$
|
1,632,115
|
|
|
$
|
1,599,978
|
|
|
$
|
2,131,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,775,021
|
|
|
$
|
2,667,691
|
|
|
$
|
2,077,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes net of refunds received
|
|
$
|
351,459
|
|
|
$
|
(217,940
|
)
|
|
$
|
847,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory and supplies and property and equipment acquired from
franchisee in exchange for accounts receivable forgiveness upon
store purchase
|
|
$
|
|
|
|
$
|
120,177
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine-month period ended September 30, 2008, the
Company purchased property and equipment totaling $70,000 using
capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the Company sold six retail locations resulting in
a total gain of $789,812. The total combined sales price was
$1,175,000, of which $950,000 was paid in cash and the remaining
$225,000 was paid for using a note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-68
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
1.
|
THE
COMPANY AND DESCRIPTION OF BUSINESS
|
Am-Pac Tire Dist., Inc. and subsidiary (collectively, the
Company) is engaged in the wholesale and retail
distribution of tires and tire-related products and services in
the United States. The Companys retail stores operate
under the brand names Tire Pros and Autotire. The Company has
one wholly owned subsidiary, Tire Pros Francorp
(Francorp) which is engaged in the business of
selling and administering franchises for retail centers operated
under the trade name Tire Pros and principally provides
marketing and administrative services. As of September 30,
2008, the Company operated 26 distribution centers, 40 retail
stores, and 220 franchises.
The Companys shares are held 60% by Itochu Corporation
(Itochu) and 40% by Itochu International, Inc.
(III). III has committed to provide sufficient
funding, either through additional loans or through capital, to
enable the Company to meet its obligations.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation The consolidated
financial statements include the Company and its wholly owned
subsidiary, Francorp. All intercompany balances are eliminated
in consolidation.
Use of Estimates Management of the Company
has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual
results could differ from these estimates.
Presentation Certain captions included in the
consolidated balance sheets as of December 31, 2007 and
2006 and the consolidated statement of cash flows for the years
ended December 31, 2007 and 2006 have been condensed or
disaggregated to conform with the current-year presentation.
Fair Value of Financial Instruments In
September 2006, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 157, Fair
Value Measurements. FASB Statement No. 157 defines fair
value, establishes a framework for measuring fair value, and
requires enhanced disclosures about fair value measurements.
FASB Statement No. 157 requires companies to disclose the
fair value of financial instruments according to a fair value
hierarchy as defined in the standard. During the nine-month
period ended September 30, 2008, the Company adopted FASB
Statement No. 157 for financial assets and liabilities. The
adoption of this pronouncement did not have a material impact on
the Companys consolidated financial position, results of
operations, or cash flows.
Included in the table below are assets and liabilities recorded
at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Type
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Trading Securities
|
|
Level 1
|
|
$
|
921,224
|
|
|
$
|
1,187,710
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Liability
|
|
Level 2
|
|
|
|
|
|
|
78,877
|
|
Other financial instruments included in the consolidated balance
sheets are borrowings under line of credit and long-term debt.
The estimated fair value is approximately equal to the carrying
value as of September 30, 2008 and December 31, 2007
because borrowings under line of credit have variable interest
rates that are adjusted frequently and long-term debt has a
fixed interest rate that approximates the market
F-69
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
interest rates. It was not practical to estimate the fair value
of the related-party line of credit due to the related-party
nature of the balances.
During the nine-month period ended September 30, 2008, the
Company adopted FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including
an amendment to FASB Statement No. 115. The Company did
not elect to report any eligible financial assets or liabilities
at fair value. Accordingly, the adoption of this pronouncement
did not have a material impact on the Companys
consolidated financial position, results of operations, or cash
flows.
Cash The Company considers all highly liquid
instruments with a maturity of three months or less at the
purchase date to be cash equivalents. At September 30, 2008
and December 31, 2007, cash of approximately $1,040,000 and
$496,000, respectively, was in excess of cash in bank amounts
insured by the Federal Deposit Insurance Corporation.
Trade Accounts Receivable Trade accounts
receivable are recorded at the invoiced amount and do not bear
interest; however, the Company does assess finance charges on
past due accounts which are recorded in net sales in the
consolidated statements of operations. The allowance for
doubtful accounts is the Companys best estimate of the
amount of probable credit losses in the Companys existing
accounts receivable. A specific reserve is established for past
due accounts and a general reserve is also provided based on
historical write-offs. The allowance for doubtful accounts was
$842,000 and $424,000 at September 30, 2008 and
December 31, 2007, respectively. The Company does not have
any off-balance-sheet credit exposure related to its customers.
Inventories Inventories, principally
automobile tires, are stated at the lower of cost or market.
Cost is determined by the weighted-average method. A reserve for
excess and obsolete inventory is estimated based on historical
experience and forecasted sales. The Companys inventory
includes certain tire products, some of which are in excess of a
one-year operating cycle; such inventories are shown as
noncurrent inventories in the accompanying consolidated balance
sheets.
Property and Equipment Property and equipment
are stated at cost. Depreciation of property and equipment is
calculated on the straight-line method over the estimated useful
lives of the assets, as detailed in Note 3. Leasehold
improvements are amortized using the straight-line method over
the shorter of the minimum lease term or the estimated useful
life of the asset.
Property and equipment are reviewed for impairment whenever
events or circumstances indicate that the carrying value might
not be recoverable. If indicators of impairment exist, the
recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated fair
value, which is determined using valuation techniques, such as
appraisals or undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed
of are reported at the lower of the carrying amount or fair
value less costs to sell, and depreciation ceases.
Goodwill and Intangible Assets Goodwill and
intangible assets primarily consist of goodwill, trademark,
covenant not to compete, and others, which are mainly licensing
agreements. The covenant not to compete is amortized on a
straight-line basis over the three-year term of the covenant not
to compete. Licensing agreements are amortized on a
straight-line basis over a 10- to
15-year
period.
Goodwill and intangible assets with indefinite useful lives are
tested for impairment at September 30 annually and more
frequently if events or changes in circumstances indicate that
the asset might be impaired.
F-70
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
Equity Method Investment The Company has a
23.81% equity investment in American Car Care Centers (ACCC),
which is accounted for using the equity method. ACCC engages in
a program to assist its stockholders and their customers in the
promotion, marketing, distribution, and sale of tires and tire
supplies, accessories, and equipment. The investment of $295,666
and $280,666 was included in other assets in the consolidated
balance sheets at September 30, 2008 and December 31,
2007, respectively. Equity in income of $15,000, $79,331 and
$15,440 was recorded during the nine-month period ended
September 30, 2008 and during the years ended
December 31, 2007 and 2006, respectively, and was included
in other income (expense) in the consolidated statements of
operations.
Investments Mutual funds investments are
classified as trading securities and are included in other
assets in the consolidated balance sheets. The Company
recognizes valuation adjustments to its investment account in
other income (expense) along with a corresponding adjustment to
the deferred compensation liability and selling, general, and
administrative expenses.
Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in
accordance with FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended,
which requires that all derivative instruments be recorded in
the balance sheet at their respective fair values.
The Company had two interest rate swap transactions with Bank of
America for terms ending December 22, 2008 and
January 2, 2009, respectively, as economic hedges against
the interest rate risk associated with outstanding borrowings at
variable rates. The objective of the swap agreements was to
eliminate the variability of cash flows related to interest rate
payments on a note payable to Bank of America. The swap
agreements effectively locked in a total of $5,000,000 each of
the Companys variable rate revolving credit liability at a
fixed rate of 5.03% and 5.08%, respectively.
The Company believed it was not practical to designate the
pay-fixed interest rate swap agreements as a cash flow hedge, as
defined under FASB Statement No. 133. Therefore, in
accordance with FASB Statement No. 133, the Company
adjusted the pay-fixed interest swaps to the current market
value through operations. An interest rate swap liability of
$78,877 was recorded in other liabilities in the consolidated
balance sheet as of December 31, 2007 and the interest swap
liability was zero as of September 30, 2008 because both
the swaps were terminated on June 30, 2008. A loss on
interest swap contracts of $18,123 and $82,731 was recorded in
other income (expense) in the consolidated statements of
operations during the nine-month period ended September 30,
2008 and the year ended December 31, 2007, respectively. A
gain on interest swap contracts of $85,982 is recorded in other
income (expense) in the consolidated statement of operations for
the year ended December 31, 2006.
Concentration of Major Vendors At
September 30, 2008, Michelin, Bridgestone, and Continental
approximated 39%, 36%, and 17%, respectively, of total trade
accounts payable. At December 31, 2007, Michelin,
Bridgestone, and Continental approximated 37%, 38%, and 19%,
respectively, of total accounts payable.
Warranty The Company processes warranty
claims on behalf of wholesale customers to the extent that the
claims are covered under the original manufacturers
warranty. For such processing, receivables and payables to
customers are recorded.
F-71
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
The Company also provides a one-year warranty to retail tire
customers against road hazard damages. The Company accrues all
expected costs related to the warranty at the time of the
related retail tire sale. These costs are included in accrued
expenses in the consolidated balance sheets. The Companys
warranty accrual represents managements best estimate of
probable liability and bases the estimate on historical
experience and other currently available evidence. Changes in
the warranty accrual consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
150,000
|
|
|
$
|
|
|
Payments made during the reporting period
|
|
|
(313,037
|
)
|
|
|
(392,840
|
)
|
Accrual related to units sold during the current period
|
|
|
313,037
|
|
|
|
346,840
|
|
Changes for accrual related to preexisting units sold
|
|
|
|
|
|
|
196,000
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition Revenue is recognized
when risk of loss and title to the product transfers to the
customer, which is typically upon delivery to the customer;
collection of the relevant receivable is probable; persuasive
evidence of an arrangement exists; and the sales price is fixed
or determinable, and is recorded net of cash and volume
discounts. Commission income is recognized on a net basis for
tire brokerage services in accordance with Emerging Issues Task
Force (EITF) Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, when the Company completes services.
Shipping and Handling Costs The Company
records shipping and handling fees charged to customers in net
sales and shipping and handling costs incurred in selling,
general, and administrative expenses. The shipping and handling
costs included in selling, general, and administrative expenses
were approximately $3,805,000, $4,851,000 and $4,900,000 for the
nine-month period ended September 30, 2008 and for the
years ended December 31, 2007 and 2006, respectively.
Taxes Collected From Customers The Company
excludes taxes collected from customers from net sales and
records them on a net basis.
Advertising The Company charges advertising
production costs to operations the first time an advertisement
is run. Media (TV and print) placement costs are charged to
operations in the month the advertisement appears. Cooperative
advertising for the benefit of vendors is recorded and billed to
vendors concurrently (see below). Advertising expense, net of
earned vendor reimbursements, was $945,413, $3,618,982 and
$3,909,127 for the nine-month period ended September 30,
2008 and the years ended December 31, 2007 and 2006,
respectively, which is included in selling, general, and
administrative expenses in the consolidated statements of
operations.
Certain Consideration Received From a Vendor
The Company received various rebates and incentives from their
vendors and accounts for them according to the provisions in
EITF Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor. Only consideration
that represents a direct reimbursement of advertising expenses
incurred by the Company is recorded in selling, general, and
administrative expense; all other consideration is recorded as a
reduction of inventory cost, which decreases cost of sales when
the inventory is sold. Consideration earned and due from vendors
is recorded as an offset to amounts owed to the vendors in
accounts payable and accrued expenses in
F-72
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
the consolidated balance sheets. The table below lists the
vendor consideration included in the consolidated balance sheets
and statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or During
|
|
|
|
|
|
|
|
|
|
the Nine-Month
|
|
|
As of or During
|
|
|
As of or During
|
|
|
|
Period Ended
|
|
|
the Year Ended
|
|
|
the Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
Vendor Consideration
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consideration characterized as a reduction of inventory
|
|
$
|
1,143,124
|
|
|
$
|
1,317,021
|
|
|
$
|
1,444,724
|
|
Consideration characterized as a reduction of cost of sales
|
|
|
4,806,123
|
|
|
|
9,802,334
|
|
|
|
8,848,276
|
|
Consideration characterized as a reduction of selling, general,
and administrative expenses
|
|
|
2,241,408
|
|
|
|
1,914,710
|
|
|
|
3,505,698
|
|
Income Taxes Income taxes are accounted for
under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes
the enactment date. The realizability of deferred tax assets is
assessed throughout the year, and a valuation allowance is
established accordingly. Income tax expense or benefit is the
income tax payable or receivable for the period plus or minus
the change in deferred tax assets and liabilities during the
period.
The Company files a combined income tax return with III for
the State of California. The Company accounts for such income
tax based on a stand-alone method for financial statement
purposes. For federal and other state income tax returns, the
Company files individually.
On January 1, 2007, the Company adopted FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109. Adoption of FIN No. 48 did not have
an impact on the Companys consolidated financial
statements and unrecognized tax benefits as of
September 30, 2008 and December 31, 2007 and for the
nine-month period ended September 30, 2008 and the year
ended December 31, 2007. Interest expenses and penalties
were not recorded as of January 1, 2007, or during the
nine-month period ended September 30, 2008 and the year
ended December 31, 2007.
Prior to 2005, when the Company was owned 80% by III, the
Company was included in the consolidated federal tax return of
III.
Recent Accounting Pronouncements In February
2008, the FASB issued FASB Staff Position (FSP)
FAS No. 157-1
and FSP
FAS No. 157-2.
FSP
FAS No. 157-1
amends FASB Statement No. 157 to exclude FASB Statement
No. 13, Accounting for Leases, and other accounting
pronouncements that address fair value measurements for purposes
of lease classification or measurement under FASB Statement
No. 13. FSP
FAS No. 157-2
delays the effective date of FASB Statement No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
this FSP. The Company has not completed the process of
evaluating the impact that will result from adopting FSP
FAS No. 157-1
and FSP
FAS No. 157-2;
thus, such impact on the Companys consolidated financial
position, results of operations, or cash flows has not been
determined.
F-73
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
In December 2007, the FASB issued FASB Statement
No. 141(R), Business Combinations. FASB Statement
No. 141(R) was issued to improve the relevance,
representational faithfulness, and comparability of the
information that a reporting entity provides in its financial
reports about a business combination and its effects. The
standard requires the acquiring entity in a business combination
to recognize all the assets acquired and liabilities assumed in
the transaction, establishes the acquisition-date fair value as
the measurement objective for all assets acquired and
liabilities assumed, and requires the acquirer to disclose to
investors and other users all of the information they need to
evaluate and understand the nature and financial effect of the
business combination. FASB Statement No. 141(R) is
effective for business combinations occurring in fiscal years
beginning after December 15, 2008.
In December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51. FASB
Statement No. 160 was issued to improve the relevance,
comparability, and transparency of the financial information
that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards
that require all entities to report noncontrolling interests in
subsidiaries in the same way as equity in the
consolidated financial statements. Moreover, FASB Statement
No. 160 eliminates the diversity that currently exists in
accounting for transactions between an entity and noncontrolling
interests by requiring they be treated as equity transactions.
FASB Statement No. 160 is effective for fiscal years
beginning after December 15, 2008. The Company has not
completed the process of evaluating the impact that will result
from adopting FASB Statement No. 160, and thus, such impact
on the Companys consolidated financial position, results
of operations, or cash flows has not yet been determined.
In April 2008, the FASB issued FSP
FAS No. 142-3,
Determination of the Useful Lives of Intangible Assets,
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. The
intent of FSP
FAS No. 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under FASB Statement No. 142
and the period of expected cash flows used to measure the fair
value of the asset under FASB Statement No. 141(R) and
other accounting principles generally accepted in the United
States of America. FSP
FAS No. 142-3
is effective for fiscal years beginning after December 15,
2008. The Company does not expect the adoption of FSP
FAS No. 142-3
to have a material effect on its consolidated financial
position, results of operations, or cash flows.
In May 2008, the FASB issued FASB Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles. FASB
Statement No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be
used in the preparation of financial statements presented in
conformity with accounting principles generally accepted in the
United States of America. FASB Statement No. 162 will be
effective 60 days following the Securities and Exchange
Commissions approval of the Public Company Accounting
Oversight Boards amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not believe the
implementation of FASB Statement No. 162 will have a
material impact on its consolidated financial position, results
of operations, or cash flows.
F-74
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
|
|
3.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment as of September 30, 2008 and
December 31, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Type
|
|
Useful Lives
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
Indefinite
|
|
$
|
800,000
|
|
|
$
|
800,000
|
|
Buildings
|
|
39 years
|
|
|
2,800,000
|
|
|
|
2,800,000
|
|
Building improvements
|
|
Remaining useful
life of buildings
|
|
|
753,202
|
|
|
|
753,202
|
|
Machinery and equipment
|
|
315 years
|
|
|
6,328,487
|
|
|
|
6,878,265
|
|
Furniture and fixtures
|
|
35 years
|
|
|
1,900,565
|
|
|
|
3,014,132
|
|
Leasehold improvements
|
|
Shorter of lease
term or useful life
|
|
|
3,146,012
|
|
|
|
3,052,964
|
|
Vehicles
|
|
35 years
|
|
|
782,805
|
|
|
|
1,296,536
|
|
Computers and software
|
|
3 years
|
|
|
1,192,842
|
|
|
|
2,551,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,703,913
|
|
|
|
21,146,406
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(8,864,595
|
)
|
|
|
(12,017,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,839,318
|
|
|
$
|
9,128,520
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1,416,658, $2,021,069 and $1,900,442
for the period ended September 30, 2008 and the years ended
December 31, 2007 and 2006, respectively, which is included
in selling, general, and administrative expenses in the
consolidated statements of operations.
|
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
The Company has determined that it is one reporting unit for the
purposes of evaluating goodwill for impairment. During its
annual impairment test for 2008 and 2007, the Company estimated
the fair value of the reporting unit using a combination of
income (discounted cash flow model) and market approach
valuation techniques. The results of the test indicated that the
fair value of the Company exceeded its carrying value and
accordingly, no impairment was recorded. If future financial
results are less than the forecasted amounts included in the
discounted cash flow model, an impairment may be recorded in the
near future. During 2006, the Company recorded impairments of
$14,000,000, $970,000, and $219,444 to its recorded goodwill,
trademark, and covenant not to compete, respectively, due to a
decline in market conditions and lower forecasted results.
On May 23, 2007, the Company acquired $25,000 in goodwill
associated with the acquisition of a retail store in the
Illinois area. The full amount of goodwill acquired in 2007 is
expected to be deductible for tax purposes. There were no
transactions during the nine-month period ended
September 30, 2008 that affected goodwill. Changes in the
carrying amount of goodwill for the year ended December 31,
2007 are as follows:
|
|
|
|
|
Balance December 31, 2006
|
|
$
|
11,030,078
|
|
Goodwill (Alton, IL) in 2007
|
|
|
25,000
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
11,055,078
|
|
|
|
|
|
|
F-75
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
Intangible assets as of September 30, 2008 and
December 31, 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Life
|
|
2008
|
|
|
2007
|
|
|
Trademark
|
|
Indefinite
|
|
$
|
2,100,000
|
|
|
$
|
2,100,000
|
|
Covenant not to compete
|
|
3 years
|
|
|
100,000
|
|
|
|
100,000
|
|
Other
|
|
10 15 years
|
|
|
106,380
|
|
|
|
106,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,306,380
|
|
|
|
2,306,380
|
|
Less accumulated amortization
|
|
|
|
|
(183,263
|
)
|
|
|
(142,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,123,117
|
|
|
$
|
2,163,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of $40,500, $55,945 and $172,351 for the
nine-month period ended September 30, 2008 and the years
ended December 31, 2007 and 2006, respectively, was
included in selling, general, and administrative expenses in the
consolidated statements of operations. Estimated future
amortization expense is as follows:
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2008 (October December)
|
|
$
|
5,500
|
|
2009
|
|
|
5,999
|
|
2010
|
|
|
3,916
|
|
2011
|
|
|
2,392
|
|
2012
|
|
|
1,059
|
|
2013 and thereafter
|
|
|
4,251
|
|
On May 23, 2007, the Company acquired certain assets of a
retail store in Alton, Illinois for $244,966 in cash. The store
was acquired based on the location and historical business
performance. On November 1, 2007, the Company acquired
certain assets of a retail store in Ventura, California, in
exchange for accounts receivable forgiven, which amounted to
$120,177. The assets were acquired from a Tire Pros franchisee.
The results of operations of these stores are included in the
consolidated statements of operations since the respective
acquisition dates. The estimated fair value of assets acquired
at the date of acquisition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Alton
|
|
|
Ventura
|
|
|
Goodwill
|
|
$
|
25,000
|
|
|
$
|
|
|
Inventory and supplies
|
|
|
89,966
|
|
|
|
46,080
|
|
Property and equipment
|
|
|
130,000
|
|
|
|
74,097
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
244,966
|
|
|
$
|
120,177
|
|
|
|
|
|
|
|
|
|
|
Pro forma disclosures have been omitted as these acquisitions
are considered to be immaterial.
On August 31, 2006, the Company acquired all the assets of
three Greiner retail stores (2 in Missouri and 1 in Illinois),
for $598,083 in cash.
F-76
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
The results of operations of these stores are included in the
consolidated statement of operations since the respective
acquisition dates. The estimated fair value of the assets
acquired at the date of the acquisitions is summarized as
follows:
|
|
|
|
|
Goodwill
|
|
$
|
268,909
|
|
Inventory and supplies
|
|
|
155,517
|
|
Property and equipment
|
|
|
173,657
|
|
|
|
|
|
|
Purchase price
|
|
$
|
598,083
|
|
|
|
|
|
|
The full amount of goodwill is expected to be deductible for tax
purposes. Pro forma disclosures have been omitted as this
acquisition is considered to be immaterial.
|
|
6.
|
THIRD-PARTY
LINES OF CREDIT
|
The Company had a revolving line of credit with Bank of America
permitting borrowings totaling the lesser of $25,000,000 or 75%
of eligible accounts receivable, which was secured by equipment
and fixtures, inventory, receivables, and all other personal
property owned by the Company. The maturity dates for all
borrowing with Bank of America were extended through amendments
made to the original borrowing agreements and the amounts owed
were repaid in full in June 2008.
Outstanding borrowings under this line at December 31, 2007
were $16,850,000 and the available line under the agreement was
$798,603. The interest rate is equal to the banks prime
rate minus 0.75% or the London InterBank Offered Rate (LIBOR) or
InterBank Offered Rate (IBOR) plus 1.15%, payable on a monthly
basis. At December 31, 2007, the interest rate was 5.65%.
The Company was subject to various financial covenants,
including current ratio and debt to tangible net worth ratios,
and other nonfinancial covenants. The Company was not in
compliance with these covenants at December 31, 2007;
however, the Company obtained a forbearance letter on
December 20, 2007 and later amended the debt agreement to
waive the covenant requirements as of December 31, 2007.
Long-term debt at September 30, 2008 and December 31,
2007, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
5.67% note, payable in monthly installments of $22,500 plus
interest, with final payment due August 1, 2012, secured by
real property
|
|
$
|
1,057,500
|
|
|
$
|
1,260,000
|
|
Prime rate minus 0.75% or LIBOR or IBOR plus 1.25% term loan,
payable to Bank of America in monthly installments of $166,667
that was paid in full in May 2008
|
|
|
|
|
|
|
1,833,334
|
|
Other
|
|
|
77,639
|
|
|
|
54,125
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,135,139
|
|
|
|
3,147,459
|
|
Less current portion
|
|
|
308,402
|
|
|
|
2,146,011
|
|
|
|
|
|
|
|
|
|
|
Long-term debt excluding current portion
|
|
$
|
826,737
|
|
|
$
|
1,001,448
|
|
|
|
|
|
|
|
|
|
|
The Company is subject to a financial covenant to maintain a
certain
loan-to-value
ratio under the 5.67% note payable. The Company was in
compliance with this covenant as of September 30, 2008 and
F-77
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
December 31, 2007. The Company was also subject to various
covenants with which it was not in compliance at
December 31, 2007 related to the $1,833,334 term loan;
however, the violations were subsequently waived by the bank in
February 2008.
The aggregate maturities of long-term debt for the three months
ended December 31, 2008 and each of the four years
subsequent to December 31, 2008, are as follows:
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2008 (October December)
|
|
$
|
80,209
|
|
2009
|
|
|
298,847
|
|
2010
|
|
|
283,190
|
|
2011
|
|
|
284,159
|
|
2012
|
|
|
188,734
|
|
|
|
|
|
|
Total
|
|
$
|
1,135,139
|
|
|
|
|
|
|
|
|
8.
|
RELATED-PARTY
TRANSACTIONS
|
Due from affiliates includes $505,638 and $732,964 at
September 30, 2008 and December 31, 2007,
respectively, from ACCC representing primarily rebates earned
from various tire manufacturers.
The following amounts included in the captions below are due
from III:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Income tax receivable
|
|
$
|
6,099,074
|
|
|
$
|
5,775,000
|
|
Other receivables (interest from income tax receivable)
|
|
|
1,107,560
|
|
|
|
920,060
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,206,634
|
|
|
$
|
6,695,060
|
|
|
|
|
|
|
|
|
|
|
The Company purchases certain tire inventory from ITR USA, Inc.
(ITA), an affiliated company whose shares are held 60% by Itochu
and 40% by III. At September 30, 2008 and December 31,
2007, due to affiliates included payables to ITA of $12,511,170
and $5,678,130, respectively, on net
90-day terms
and do not bear interest. Purchases from ITA were $33,636,903
and $37,776,724 during the nine-month period ended
September 30, 2008 and the year ended December 31,
2007, respectively.
In 2006, the Company entered into a $26,000,000 credit agreement
with III. On January 10, 2008, the Company obtained an
increase in the line of credit with III from $26,000,000 to
$50,000,000 and extended the maturity date to July 31,
2008. On June 25, 2008, the Company increased the available
line of credit to $59,345,000 and extended the maturity date of
line of credit until June 30, 2009. The outstanding balance
on the line of credit was $54,100,000 and $21,000,000 at
September 30, 2008 and December 31, 2007, respectively.
The line of credit has a variable interest rate that resets on a
quarterly basis based on LIBOR plus 0.5%. The interest rate was
3.03% and 6.24% at September 30, 2008 and December 31,
2007, respectively. Interest expense to III amounted to
$1,151,199, $1,401,682 and $462,623 for the nine-month period
ended September 30, 2008 and the years ended
December 31, 2007 and 2006, respectively.
Certain management, relatives of management, and an employee
have ownership interests in properties that are leased by the
Company (see Note 10). Gross rent expense to related
parties was $1,050,190, $1,539,297 and $1,788,185 for the
nine-month period ended September 30, 2008 and the years
ended
F-78
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
December 31, 2007 and 2006, respectively, and is included
in selling, general, and administrative expenses in the
consolidated statements of operations.
The Company has extensive transactions and relationships with
its affiliated companies. Accordingly, the accompanying
consolidated financial statements may not be indicative of
conditions that would have existed or the results of operations
that would have occurred if the Company had operated without
such affiliation.
The components of income tax (expense) benefit for the
nine-month period ended September 30, 2008 and the years
ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax (expense) benefit
|
|
$
|
(1,030,397
|
)
|
|
$
|
1,007,820
|
|
|
$
|
103,110
|
|
Deferred tax (expense) benefit (exclusive of net operating loss
(NOL) carryforwards and valuation allowance)
|
|
|
(384,960
|
)
|
|
|
174,743
|
|
|
|
3,870,073
|
|
Net operating loss carryforwards
|
|
|
2,859,436
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(6,111,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total federal (expense) benefit
|
|
|
(4,667,608
|
)
|
|
|
1,182,563
|
|
|
|
3,973,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax benefit
|
|
|
297,206
|
|
|
|
15,453
|
|
|
|
33,515
|
|
Deferred tax expense (exclusive of NOL carryforwards and
valuation allowance)
|
|
|
(153,480
|
)
|
|
|
(182,932
|
)
|
|
|
1,102,655
|
|
Net operating loss carryforwards
|
|
|
14,945
|
|
|
|
202,840
|
|
|
|
|
|
Valuation allowance
|
|
|
(857,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total state (expense) benefit
|
|
|
(699,179
|
)
|
|
|
35,361
|
|
|
|
1,136,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (expense) benefit
|
|
$
|
(5,366,787
|
)
|
|
$
|
1,217,924
|
|
|
$
|
5,109,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
The principal differences between the actual effective income
tax rate and the statutory rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
Nine-Month
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
Period Ended
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
(Provision)
|
|
|
|
|
|
(Provision)
|
|
|
|
|
|
|
2008
|
|
|
Rate
|
|
|
Benefit
|
|
|
Rate
|
|
|
Benefit
|
|
|
Rate
|
|
|
Federal tax benefit at statutory rate
|
|
$
|
1,474,597
|
|
|
|
(35.00
|
)%
|
|
$
|
1,226,150
|
|
|
|
(35.00
|
)%
|
|
$
|
(5,163,117
|
)
|
|
|
(35.00
|
)%
|
State tax benefit exclusive of valuation allowance
|
|
|
158,672
|
|
|
|
(3.77
|
)
|
|
|
22,985
|
|
|
|
(0.7
|
)
|
|
|
(740,327
|
)
|
|
|
(5.0
|
)
|
Nondeductible goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591,500
|
|
|
|
4.0
|
|
Meals and entertainment
|
|
|
(26,689
|
)
|
|
|
0.73
|
|
|
|
(31,032
|
)
|
|
|
0.09
|
|
|
|
62,141
|
|
|
|
0.40
|
|
Change in valuation allowance
|
|
|
(6,969,537
|
)
|
|
|
165.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,830
|
)
|
|
|
0.00
|
|
|
|
(179
|
)
|
|
|
0.00
|
|
|
|
140,450
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,366,787
|
)
|
|
|
127.38
|
%
|
|
$
|
1,217,924
|
|
|
|
(28.90
|
)%
|
|
$
|
(5,109,353
|
)
|
|
|
(34.60
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred tax asset recognized at
September 30, 2008 and December 31, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,759,397
|
|
|
$
|
1,934,138
|
|
Noncurrent
|
|
|
5,332,347
|
|
|
|
2,775,038
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,091,744
|
|
|
|
4,709,176
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Current
|
|
|
(6,627
|
)
|
|
|
(5,869
|
)
|
Noncurrent
|
|
|
(115,580
|
)
|
|
|
(69,711
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(122,207
|
)
|
|
|
(75,580
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
6,969,537
|
|
|
|
4,633,596
|
|
Less tax valuation allowance
|
|
|
(6,969,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
4,633,596
|
|
|
|
|
|
|
|
|
|
|
F-80
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred taxes at September 30,
2008 and December 31, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for bad debt
|
|
$
|
329,408
|
|
|
$
|
223,946
|
|
Inventories
|
|
|
923,021
|
|
|
|
1,013,774
|
|
Accrued vacation
|
|
|
335,492
|
|
|
|
370,195
|
|
Deferred compensation
|
|
|
272,654
|
|
|
|
289,750
|
|
Deferred rent
|
|
|
109,611
|
|
|
|
109,114
|
|
Basis difference in property and equipment, goodwill, and
intangible assets
|
|
|
2,056,445
|
|
|
|
2,457,052
|
|
Other
|
|
|
64,117
|
|
|
|
113,499
|
|
Net operating loss carryforwards
|
|
|
3,000,996
|
|
|
|
131,846
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,091,744
|
|
|
|
4,709,176
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Cumulative equity in net income of ACCC
|
|
|
(115,580
|
)
|
|
|
(69,711
|
)
|
Other
|
|
|
(6,627
|
)
|
|
|
(5,869
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(122,207
|
)
|
|
|
(75,580
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
6,969,537
|
|
|
$
|
4,633,596
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, management of the Company
determined, based on prior and current operating results and
future projected taxable income, it is more likely than not that
the deferred tax assets will not be realized. The valuation
allowance for net deferred tax assets increased by $6,969,537
during the nine-month period ended September 30, 2008.
The Company filed a consolidated federal income tax return
with III and certain other subsidiaries of III for tax
years prior to 2005. The Company files a combined California
income tax return with III and certain other subsidiaries
of III. III and the Company filed amended tax returns for years
2002 through 2005.
F-81
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
Income tax receivable consisted of the following items:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Refunds for 2002 2004 amended federal income tax
returns
|
|
$
|
5,412,000
|
|
|
$
|
5,412,000
|
|
Refunds for California income tax returns
|
|
|
687,000
|
|
|
|
363,000
|
|
Refunds for 2002 2004 various other state amended
income tax returns
|
|
|
238,000
|
|
|
|
221,000
|
|
Payable for federal income tax for 2005 amended return
|
|
|
|
|
|
|
(354,000
|
)
|
Refunds from carryback of 2007 federal net operating loss to 2005
|
|
|
|
|
|
|
991,000
|
|
Overpayment carried over
|
|
|
1,051,891
|
|
|
|
1,137,623
|
|
|
|
|
|
|
|
|
|
|
Total income tax receivable
|
|
$
|
7,388,891
|
|
|
$
|
7,770,623
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$8,170,000, which will expire in years 2027 through 2028, and
for state income tax purposes of approximately $7,143,000, which
will expire in years 2012 through 2028.
The Internal Revenue Service (IRS) is currently examining the
Company for the tax years 2002 through 2005. The tax years 2006
and 2007 are open years for the IRS to examine. For state taxes,
open-year periods for tax examination by tax authorities are
between 2003 and 2007.
|
|
10.
|
COMMITMENTS
AND CONTINGENCIES
|
Leases The Company maintains noncancelable
operating leases, primarily for warehouse and retail locations,
that expire over the next nine years. These leases generally
contain renewal options for periods ranging up to five years or
more and frequently require the Company to pay executory costs,
such as property taxes, maintenance, and insurance. The Company
subleases certain retail locations to franchisees under
noncancelable operating leases. The Company records rent expense
and sublease income associated with these leases on a
straight-line basis over the terms of the leases. Future minimum
lease payments under noncancelable operating leases as of
September 30, 2008, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
Related
|
|
|
|
|
|
Sublease
|
|
|
|
Parties
|
|
|
Parties
|
|
|
Total
|
|
|
Income
|
|
|
2008 (October December)
|
|
$
|
1,488,957
|
|
|
$
|
340,351
|
|
|
$
|
1,829,308
|
|
|
$
|
(180,818
|
)
|
2009
|
|
|
5,416,432
|
|
|
|
1,338,746
|
|
|
|
6,755,178
|
|
|
|
(712,184
|
)
|
2010
|
|
|
4,620,163
|
|
|
|
807,035
|
|
|
|
5,427,198
|
|
|
|
(361,997
|
)
|
2011
|
|
|
3,319,908
|
|
|
|
811,309
|
|
|
|
4,131,217
|
|
|
|
(250,421
|
)
|
2012
|
|
|
2,533,200
|
|
|
|
815,754
|
|
|
|
3,348,954
|
|
|
|
(258,272
|
)
|
Thereafter
|
|
|
4,124,607
|
|
|
|
1,794,194
|
|
|
|
5,918,801
|
|
|
|
(359,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
21,503,267
|
|
|
$
|
5,907,389
|
|
|
$
|
27,410,656
|
|
|
$
|
(2,123,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense of $4,928,921, $4,983,468 and $6,089,746 during
the nine-month period ended September 30, 2008 and the
years ended December 31, 2007 and 2006, respectively, net
of sublease payments, was included in selling, general, and
administrative expenses in the consolidated statements of
operations.
F-82
AM-PAC
TIRE DIST., INC. AND SUBSIDIARY
(A Majority-Owned Subsidiary of Itochu Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007 AND
2006 (Continued)
Letters of Credit At September 30, 2008
and December 31, 2007, the Company has $60,000 and
$260,000, respectively, of reimbursement obligations to Bank of
America for a letter of credit in favor of Universal
Underwriters Insurance Company as beneficiary.
Additionally, as of September 30, 2008 the Company has a
reimbursement obligation to Mizuho Bank for a letter of credit
in favor of United States Fire Insurance Company for $655,000 to
guarantee self-insured workers compensation liabilities.
The $655,000 letter of credit reduced the availability under
the III line of credit, which was entered into
June 25, 2008.
Litigation Matters The Company is involved in
various claims and legal actions arising in the ordinary course
of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse
effect on the Companys consolidated financial position,
results of operations, or cash flows.
|
|
11.
|
EMPLOYEE
BENEFIT PLANS
|
The Company has a defined contribution 401(k) plan, which covers
substantially all employees who qualify as to age and length of
service. Each year, participants of the plan may elect to
contribute up to 15% of pretax annual compensation. The Company
may make matching 401(k) contributions for each plan year which
are determined annually by the Company. The Companys
contribution for the nine-month period ended September 30,
2008 and the years ended December 31, 2007 and 2006 was
$372,847, $477,044 and $396,954, respectively. These amounts
were included in selling, general, and administrative expenses
in the consolidated statements of operations.
The Company also has a deferred compensation plan, which is a
nonqualified benefit plan for highly compensated employees.
Included in other liabilities were $921,224 and $1,187,710 as of
September 30, 2008 and December 31, 2007,
respectively, of deferred compensation liability related to the
plan. The plan assets were invested in mutual funds carried at
fair value totaling $921,224 and $1,187,710 as of
September 30, 2008 and December 31, 2007,
respectively, which are recorded in other assets in the
consolidated balance sheets. Unrealized losses of $213,775 were
recorded during the nine-month period ended September 30,
2008. Unrealized gain on these investments of $244,174 and
$105,407 was recorded during the years ended December 31,
2007 and 2006. Both gains and losses were recorded in other
income net in the consolidated statement of
operations.
On December 18, 2008, American Tire Distributors, Inc., a
wholly-owned subsidiary of American Tire Distributors Holdings,
Inc. acquired all of the issued and outstanding capital stock of
the Company.
F-83
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
On December 18, 2008, American Tire Distributors, Inc.
(ATD), a wholly-owned subsidiary of American Tire
Distributors Holdings, Inc. (Holdings or the
Company), acquired all of the issued and outstanding
capital stock of Am-Pac Tire Dist. Inc. (Am-Pac)
pursuant to the terms of a Stock Purchase Agreement dated
December 18, 2008. The aggregate purchase price of this
acquisition, subject to adjustments, was approximately
$74.7 million, consisting of $71.1 million in cash, of
which $59.1 million was used to pay off Am-Pacs
outstanding debt, and $3.6 million in direct acquisition
costs.
The Unaudited Pro Forma Condensed Combined Statement of
Operations include certain purchase accounting adjustments,
including items expected to have a continuing impact on the
combined results, such as increased amortization expense on
acquired intangible assets and increased interest expense on
borrowings incurred to finance the acquisition. In addition, the
Unaudited Pro Forma Condensed Combined Statement of Operations
does not include the realization of any cost savings from
operating efficiencies, synergies or other restructurings of
Holdings resulting from the acquisition. No assurances can be
made as to the amount of net cost savings, if any, that may be
realized. Therefore, the actual amounts recorded as of the
completion of the transaction and thereafter may differ from the
information presented herein.
Holdings fiscal year is based on either a 52- or 53-week
period ending on the Saturday closest to each December 31.
Am-Pacs fiscal year ends on December 31. The
Unaudited Pro Forma Condensed Combined Statement of Operations
for the twelve months ended January 3, 2009 combines the
historical consolidated statements of operations of Holdings and
Am-Pac, giving effect to the acquisition as if it had occurred
on December 30, 2007 (the first day of Holdings 2008 fiscal
year).
The Unaudited Pro Forma Condensed Combined Statement of
Operations should be read in conjunction with the:
|
|
|
|
|
Accompanying notes;
|
|
|
|
Separate audited consolidated financial statements of Holdings
for the fiscal year ended January 3, 2009 and for the nine
months ended October 3, 2009 included elsewhere in this
prospectus; and
|
|
|
|
Separate audited consolidated financial statements of Am-Pac as
of and for the nine months ended September 30, 2008 and
years ended December 31, 2007 and 2006 included elsewhere
in this prospectus.
|
The Unaudited Pro Forma Condensed Combined Statement of
Operations is for informational purposes only and is not
intended to represent or be indicative of the consolidated
results of operations of the combined company that would have
been reported had the acquisition been completed as of the dates
specified and should not be taken as representative of the
future consolidated results of operations of the combined
company. In addition, the pro forma adjustments are based upon
information and certain assumptions that management of the
Company believes are reasonable.
P-2
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Am-Pac
|
|
|
Pro Forma Adjustments
|
|
Combined
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
1,952,928
|
|
|
$
|
319,258
|
|
|
$
|
|
|
|
|
|
$
|
2,272,186
|
|
Cost of goods sold, excluding depreciation included in selling,
general and administrative expenses below
|
|
|
1,599,581
|
|
|
|
241,301
|
|
|
|
|
|
|
|
|
|
1,840,882
|
|
Selling, general and administrative expenses
|
|
|
271,738
|
|
|
|
85,209
|
|
|
|
564
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301
|
)
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
(C)
|
|
|
357,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
81,609
|
|
|
|
(7,252
|
)
|
|
|
(208
|
)
|
|
|
|
|
74,149
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(59,169
|
)
|
|
|
(1,934
|
)
|
|
|
1,535
|
|
|
(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,354
|
)
|
|
(E)
|
|
|
(63,922
|
)
|
Other, net
|
|
|
(1,127
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
21,313
|
|
|
|
(9,232
|
)
|
|
|
(3,027
|
)
|
|
|
|
|
9,054
|
|
Income tax provision (benefit)
|
|
|
11,518
|
|
|
|
5,446
|
|
|
|
(8,132
|
)
|
|
(F)
|
|
|
8,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,795
|
|
|
$
|
(14,678
|
)
|
|
$
|
5,105
|
|
|
|
|
$
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
9.80
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Net income per common share diluted
|
|
$
|
8.77
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
Weighted average common shares issued and
outstanding basic
|
|
|
999,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999,527
|
|
Weighted average common shares issued and
outstanding diluted
|
|
|
1,116,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P-3
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
|
|
1.
|
Basis of
Pro Forma Presentation:
|
Holdings fiscal year is based on either a 52- or 53-week
period ending on the Saturday closest to each December 31.
Am-Pacs fiscal year ends on December 31. The
Unaudited Pro Forma Condensed Combined Statement of Operations
for the twelve months ended January 3, 2009 combines the
historical consolidated statements of operations of Holdings and
Am-Pac, giving effect to the acquisition as if it had occurred
on December 30, 2007 (the first day of Holdings 2008
fiscal year).
|
|
2.
|
Pro Forma
Adjustments:
|
Unaudited
Pro Forma Condensed Combined Statement of
Operations
(A) Represents the estimated amortization of the
identifiable intangible assets based upon the valuation and
estimated useful lives. The estimated useful lives are as
follows:
|
|
|
|
|
|
|
Useful Life
|
|
Customer lists
|
|
|
17 years
|
|
(B) Represents the estimated reduction in depreciation
expense as a result of a decrease in the depreciable value and
changes in useful lives of Am-Pacs property and equipment
to estimated fair market value.
(C) Represents the reversal of the amortization of
identifiable intangible assets as previously recorded by Am-Pac
that have been eliminated.
(D) Represents the reversal of interest expense recognized
by Am-Pac related to debt that was paid-off in conjunction with
the acquisition.
(E) Represents the estimate of interest expense associated
with incremental borrowings incurred on ATDs amended
revolving credit facility to finance the Am-Pac acquisition.
(F) Represents the income tax impact of the above pro forma
adjustments at the statutory tax rate for Holdings. Also
includes an income tax benefit in the twelve months ended
January 3, 2009 Unaudited Pro Forma Condensed Combined
Statement of Operations related to the elimination in
Am-Pacs previously established valuation allowance
recorded in 2008 against deferred tax assets based upon a
preliminary estimate by Holdings as to realizability of these
deferred tax assets subsequent to the completion of the
acquisition.
P-4
AMERICAN
TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT
OF OPERATIONS (Continued)
|
|
3.
|
Purchase
Price Allocation:
|
The purchase price allocation is as follows (in millions):
|
|
|
|
|
Total cash consideration
|
|
$
|
71.1
|
|
Less: Debt paid off to seller
|
|
|
(59.1
|
)
|
|
|
|
|
|
Net cash consideration
|
|
|
12.0
|
|
Plus: Transaction fees
|
|
|
3.6
|
|
Less: Net book value of assets acquired
|
|
|
(9.3
|
)
|
Plus: Pre-acquisition intangibles that were written off in
purchase accounting
|
|
|
13.2
|
|
|
|
|
|
|
Excess of purchase price over net book value of assets acquired,
excluding
pre-acquisition
intangibles
|
|
|
19.5
|
|
Adjustments to goodwill related to:
|
|
|
|
|
Accounts Receivable
|
|
|
1.1
|
|
Income tax receivable
|
|
|
8.4
|
|
Property and equipment
|
|
|
(4.1
|
)
|
Inventory
|
|
|
4.2
|
|
Assets held for sale
|
|
|
(1.0
|
)
|
Customer lists
|
|
|
(9.6
|
)
|
Trademarks and tradenames
|
|
|
(4.5
|
)
|
Exit costs and termination benefits
|
|
|
10.7
|
|
Favorable leases
|
|
|
(0.2
|
)
|
Net deferred taxes
|
|
|
(8.9
|
)
|
|
|
|
|
|
Total adjustments
|
|
|
(3.9
|
)
|
|
|
|
|
|
Goodwill
|
|
$
|
15.6
|
|
|
|
|
|
|
Subsequent to October 3, 2009, the Company has
substantially finalized all contingency matters and potential
claims for indemnification, as described in the Stock Purchase
Agreement. As such, the balance of funds, approximately
$9.8 million, previously presented as restricted cash have
been included within the allocation of costs of the assets
acquired and liabilities assumed. The final purchase price
allocation and adjustments to goodwill are presented within the
table above.
P-5
Through and
including ,
2010 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Shares
Common Stock
PRELIMINARY PROSPECTUS
BofA
Merrill Lynch
Deutsche Bank
Securities
,
2010
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth the costs and expenses to be paid
by the registrant in connection with the sale of the shares of
common stock being registered hereby. All amounts are estimates
except for the SEC registration fee, the Financial Industry
Regulatory Authority (FINRA) filing fee and the New
York Stock Exchange (NYSE) listing fee.
|
|
|
|
|
Expenses
|
|
Amount
|
|
|
Securities and Exchange Commission registration fee
|
|
$
|
16,399
|
|
FINRA filing fee
|
|
|
23,500
|
|
NYSE listing fee
|
|
|
250,000
|
|
Costs of printing
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Transfer agents fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
The registrants Certificate of Incorporation (the
Certificate) provides that, except to the extent
prohibited by the Delaware General Corporation Law (the
DGCL), the registrants directors shall not be
liable to the registrant or their respective stockholders for
monetary damages for any breach of fiduciary duty as directors
of the registrant. Under the DGCL, the directors have a
fiduciary duty to the registrant, which is not eliminated by
these provisions of the Certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other
forms of nonmonetary relief will remain available. In addition,
each director will continue to be subject to liability under the
DGCL (1) for any breach of the directors duty of
loyalty to the corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) arising under
Section 174 of the DGCL or (4) for any transaction
from which the director derived an improper personal benefit.
This provision does not affect the directors
responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws.
Section 145 of the DGCL empowers a corporation to indemnify
its directors and officers and to purchase insurance with
respect to liability arising out of their capacity or status as
directors and officers. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed
exclusive of any other rights to which the directors and
officers may be entitled under the corporations bylaws,
any agreement, a vote of stockholders or otherwise. The
registrants Bylaws provide that the registrant shall
indemnify and hold harmless, to the fullest extent permitted by
applicable law, as may be amended, any person who was or is made
or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a proceeding) by
reason of the fact that he, or a person for whom he is the legal
representative, is or was a director or officer of the
registrant or is or was serving at the request of the registrant
as a director, officer, employee or agent of another registrant
or of a partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and
expenses (including attorneys fees) incurred by such
person.
II-1
At present, there is no pending litigation or proceeding
involving any director, officer, employee or agent as to which
indemnification will be required or permitted under the Bylaws.
The registrant is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
None.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
(a) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.**
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of American
Tire Distributors Holdings, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
3
|
.2
|
|
Certificate of Designations, Preferences and Rights of
Series B Preferred Stock of American Tire Distributors
Holdings, Inc.*
|
|
3
|
.3
|
|
Certificate of Designation, Preferences and Rights of 8%
Cumulative Redeemable Preferred Stock of American Tire
Distributors Holdings, Inc.*
|
|
3
|
.4
|
|
Amended and Rested Bylaws of American Tire Distributors
Holdings, Inc. (incorporated herein by reference to
Exhibit 3.12 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.1
|
|
Indenture, dated as of March 31, 2005, among American Tire
Distributors Holdings, Inc. and Wachovia Bank, National
Association, as Trustee (the Holdings Indenture)
(incorporated herein by reference to Exhibit 4.1 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.2
|
|
Indenture, dated as of March 31, 2005, among ATD MergerSub,
Inc., American Tire Distributors Holdings, Inc. and Wachovia
Bank, National Association, as Trustee (the Floating Rate
Note Indenture) (incorporated herein by reference to
Exhibit 4.2 to the Registrants Registration Statement
on
Form S-4
filed May 13, 2005).
|
|
4
|
.3
|
|
Indenture, dated as of March 31, 2005, among ATD MergerSub,
Inc., American Tire Distributors Holdings, Inc. and Wachovia
Bank, National Association, as Trustee (the Fixed Rate
Note Indenture) (incorporated herein by reference to
Exhibit 4.3 to the Registrants Registration Statement
on
Form S-4
filed May 13, 2005).
|
|
4
|
.4
|
|
Supplemental Indenture, dated as of March 31, 2005, among
American Tire Distributors, Inc., American Tire Distributors
Holdings, Inc., The Speed Merchant, Inc., T.O. Haas Tire Co.,
Inc., T.O. Haas Holding Co., Inc., Texas Market Tire, Inc.,
Texas Market Tire Holdings I, Inc., Target Tire, Inc. and
Wachovia Bank, National Association, as Trustee (the
Floating Rate Supplemental Indenture) (incorporated
herein by reference to Exhibit 4.5 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.5
|
|
Supplemental Indenture, dated as of March 31, 2005, among
American Tire Distributors, Inc., American Tire Distributors
Holdings, Inc., The Speed Merchant, Inc., T.O. Haas Tire Co.,
Inc., T.O. Haas Holding Co., Inc., Texas Market Tire, Inc.,
Texas Market Tire Holdings I, Inc. and Wachovia Bank,
National Association, as Trustee (the Fixed Rate
Supplemental Indenture) (incorporated herein by reference
to Exhibit 4.4 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.6
|
|
Form of Holdings Senior Discount Note (incorporated herein by
reference to Exhibit 4.1, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.7
|
|
Form of the Company Floating Rate Note (incorporated herein by
reference to Exhibit 4.2, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.8
|
|
Form of the Company Fixed Rate Note (incorporated herein by
reference to Exhibit 4.3, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
II-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
4
|
.9
|
|
Warrant Agreement, dated as of March 31, 2005, between
American Tire Distributors Holdings, Inc. and The 1818 Mezzanine
Fund II, L.P. (incorporated herein by reference to
Exhibit 10.65 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.10
|
|
Form of Warrant Certificate (incorporated herein by reference to
Exhibit 10.65, Exhibit A, to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.11
|
|
Registration Rights Agreement.**
|
|
5
|
.1
|
|
Opinion of Gibson, Dunn & Crutcher LLP as to the
legality of the securities being registered.**
|
|
10
|
.1
|
|
Fourth Amended and Restated Loan and Security Agreement, dated
as of March 31, 2005, among the American Tire Distributors,
Inc., The Speed Merchant, Inc., T.O. Haas Tire Co., Inc., T.O.
Haas Holding Co., Inc., Texas Market Tire, Inc., Texas Market
Tire Holdings I, Inc., Target Tire, Inc., ATD MergerSub,
Inc., as Borrowers and Banc of America Securities LLC, as Book
Running Manager, Wachovia Capital Markets LLC, GECC Capital
Markets Group, Inc., and Banc of America Securities LLC, each as
Co-Lead Arranger, Wachovia Bank, National Association and
General Electric Capital Corporation as Co-Syndication Agents
and Bank of America, N.A. as administrative agent and collateral
agent for the Lenders (incorporated herein by reference to
Exhibit 10.16 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.2
|
|
First Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.5
to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.3
|
|
Second Amendment to Fourth Amended and Restated Loan and
Security Agreement (incorporated herein by reference to
Exhibit 10.6 to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.4
|
|
Third Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.1
to the Registrants Quarterly Report on
Form 10-Q
filed May 16, 2006).
|
|
10
|
.5
|
|
Fourth Amendment to Fourth Amended and Restated Loan and
Security Agreement.*
|
|
10
|
.6
|
|
Fifth Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.1
to the Registrants Current Report on
Form 8-K
filed May 14, 2007).
|
|
10
|
.7
|
|
Registration Rights Agreement, made as of March 31, 2005,
by American Tire Distributors, Inc for the benefit of the
Holders thereto with respect to Senior Floating Rate Notes due
2012 and 10.750% Senior Notes due 2013 (incorporated herein
by reference to Exhibit 10.17 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.8
|
|
Registration Rights Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Banc of
America Securities, LLC, Credit Suisse First Boston, LLC and
Wachovia Capital Markets, LLC, with respect to 13% Senior
Discount Notes due 2013 (incorporated herein by reference to
Exhibit 10.63 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.9
|
|
Stockholders Agreement, dated as of March 31, 2005, by and
among American Tire Distributors Holdings, Inc. and each person
listed on the signature pages hereto (incorporated herein by
reference to Exhibit 10.20 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.10
|
|
American Tire Distributors Holdings, Inc. 2005 Management Stock
Incentive Plan (incorporated herein by reference to
Exhibit 10.19 to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.11
|
|
American Tire Distributors, Inc. Stock Option Agreements, dated
as of June 12, 2002, between the American Tire
Distributors, Inc. and each of Richard P. Johnson, William E.
Berry, J. Michael Gaither, Daniel K. Brown and Phillip E.
Marrett (incorporated herein by reference to Exhibit 10.22
to the Registrants Annual Report on
Form 10-K
filed March 28, 2003).
|
|
10
|
.12
|
|
Form of Incentive Option Agreement under the 2005 Management
Stock Incentive Plan for certain executive officers
(incorporated herein by reference to Exhibit 10.21 to the
Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
II-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.13
|
|
Form of Base Option Agreement under the 2005 Management Stock
Incentive Plan for certain executive officers (incorporated
herein by reference to Exhibit 10.22 to the
Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.14
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Richard P. Johnson
(incorporated herein by reference to Exhibit 10.41 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.15
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and William Berry
(incorporated herein by reference to Exhibit 10.42 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.16
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and J. Michael Gaither
(incorporated herein by reference to Exhibit 10.43 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.17
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Phillip E. Marrett
(incorporated herein by reference to Exhibit 10.44 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.18
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Daniel K. Brown
(incorporated herein by reference to Exhibit 10.45 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.19
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Scott A. Deininger
(incorporated herein by reference to Exhibit 10.46 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.20
|
|
Executive Employment Agreement, dated as of December 6,
2005, between American Tire Distributors, Inc. and David L.
Dyckman (incorporated herein by reference to Exhibit 10.34
to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.21
|
|
First Amendment to Executive Employment Agreement, dated as of
March 3, 2008, between American Tire Distributors, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.37 to the Registrants Annual Report on
Form 10-K
filed March 26, 2008).
|
|
10
|
.22
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.47 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.23
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and
William E. Berry (incorporated herein by reference to
Exhibit 10.48 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.24
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and J.
Michael Gaither (incorporated herein by reference to
Exhibit 10.49 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.25
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Scott A.
Deininger (incorporated herein by reference to
Exhibit 10.50 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.26
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Keith
Calcagno (incorporated herein by reference to Exhibit 10.51
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.27
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Daniel K.
Brown (incorporated herein by reference to Exhibit 10.52 to
the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.28
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Phillip E.
Marrett (incorporated herein by reference to Exhibit 10.53
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.29
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Thomas D.
Gibson (incorporated herein by reference to Exhibit 10.54
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
II-4
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.30
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Thomas L.
Dawson (incorporated herein by reference to Exhibit 10.55
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.31
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Lawrence
B. Stoddard (incorporated herein by reference to
Exhibit 10.56 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.32
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Leon J.
Sawyer (incorporated herein by reference to Exhibit 10.58
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.33
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and George J.
Bender (incorporated herein by reference to Exhibit 10.59
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.34
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and James Gill
(incorporated herein by reference to Exhibit 10.60 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.35
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and James L.
Matthews (incorporated herein by reference to Exhibit 10.61
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.36
|
|
Stock Purchase Agreement, dated as of December 18, 2008, by
and among American Tire Distributors, Inc., ITOCHU International
Inc., ITOCHU Corporation and Am-Pac Tire Dist. Inc.
(incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on
Form 8-K
filed December 22, 2008).
|
|
10
|
.37
|
|
Second Amendment to Employment Agreement, dated as of
April 6, 2009, between American Tire Distributors, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.1 to the Registrants Registration
Statement on
Form 10-Q
filed May 18, 2009).
|
|
10
|
.38
|
|
Amended and Restated Employment Agreement, dated as of
April 6, 2009, between American Tire Distributors, Inc. and
William E. Berry (incorporated herein by reference to
Exhibit 10.1 to the Registrants Registration
Statement on
Form 8-K
filed June 3, 2009).
|
|
21
|
.1
|
|
Chart of Subsidiaries of the Company (incorporated herein by
reference to Exhibit 21.1 to the Registrants Annual
Report on
Form 10-K
filed April 3, 2009).
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, an independent registered
public accounting firm.*
|
|
23
|
.2
|
|
Consent of Deloitte & Touche LLP, an independent
registered public accounting firm.*
|
|
23
|
.3
|
|
Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.1).
|
|
24
|
.1
|
|
Power of Attorney.*
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
To be filed by amendment. |
(b) The information required by this item is contained
under the section Index to Financial Statements
beginning on
page F-1
of the prospectus. That section is incorporated herein by
reference.
(a) The undersigned registrant hereby undertakes to provide
to the underwriters, at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of
II-5
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Huntersville, State of North
Carolina, on February 3, 2010.
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
William E. Berry
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
E. Berry
William
E. Berry
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 3, 2010
|
|
|
|
|
|
/s/ David
L. Dyckman
David
L. Dyckman
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
February 3, 2010
|
|
|
|
|
|
/s/ Richard
P. Johnson
Richard
P. Johnson
|
|
Chairman and Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ Joseph
P. Donlan
Joseph
P. Donlan
|
|
Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ Donald
Hardie
Donald
Hardie
|
|
Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ James
Hardymon
James
Hardymon
|
|
Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ Christopher
Laws
Christopher
Laws
|
|
Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ James
M. Micali
James
M. Micali
|
|
Director
|
|
February 3, 2010
|
|
|
|
|
|
/s/ D.
Randolph Peeler
D.
Randolph Peeler
|
|
Director
|
|
February 4, 2010
|
|
|
|
|
|
/s/ David
Tayeh
David
Tayeh
|
|
Director
|
|
February 3, 2010
|
II-7
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.**
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of American
Tire Distributors Holdings, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
3
|
.2
|
|
Certificate of Designations, Preferences and Rights of
Series B Preferred Stock of American Tire Distributors
Holdings, Inc.*
|
|
3
|
.3
|
|
Certificate of Designation, Preferences and Rights of 8%
Cumulative Redeemable Preferred Stock of American Tire
Distributors Holdings, Inc.*
|
|
3
|
.4
|
|
Amended and Rested Bylaws of American Tire Distributors
Holdings, Inc. (incorporated herein by reference to
Exhibit 3.12 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.1
|
|
Indenture, dated as of March 31, 2005, among American Tire
Distributors Holdings, Inc. and Wachovia Bank, National
Association, as Trustee (the Holdings Indenture)
(incorporated herein by reference to Exhibit 4.1 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.2
|
|
Indenture, dated as of March 31, 2005, among ATD MergerSub,
Inc., American Tire Distributors Holdings, Inc. and Wachovia
Bank, National Association, as Trustee (the Floating Rate
Note Indenture) (incorporated herein by reference to
Exhibit 4.2 to the Registrants Registration Statement
on
Form S-4
filed May 13, 2005).
|
|
4
|
.3
|
|
Indenture, dated as of March 31, 2005, among ATD MergerSub,
Inc., American Tire Distributors Holdings, Inc. and Wachovia
Bank, National Association, as Trustee (the Fixed Rate
Note Indenture) (incorporated herein by reference to
Exhibit 4.3 to the Registrants Registration Statement
on
Form S-4
filed May 13, 2005).
|
|
4
|
.4
|
|
Supplemental Indenture, dated as of March 31, 2005, among
American Tire Distributors, Inc., American Tire Distributors
Holdings, Inc., The Speed Merchant, Inc., T.O. Haas Tire Co.,
Inc., T.O. Haas Holding Co., Inc., Texas Market Tire, Inc.,
Texas Market Tire Holdings I, Inc., Target Tire, Inc. and
Wachovia Bank, National Association, as Trustee (the
Floating Rate Supplemental Indenture) (incorporated
herein by reference to Exhibit 4.5 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.5
|
|
Supplemental Indenture, dated as of March 31, 2005, among
American Tire Distributors, Inc., American Tire Distributors
Holdings, Inc., The Speed Merchant, Inc., T.O. Haas Tire Co.,
Inc., T.O. Haas Holding Co., Inc., Texas Market Tire, Inc.,
Texas Market Tire Holdings I, Inc. and Wachovia Bank,
National Association, as Trustee (the Fixed Rate
Supplemental Indenture) (incorporated herein by reference
to Exhibit 4.4 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.6
|
|
Form of Holdings Senior Discount Note (incorporated herein by
reference to Exhibit 4.1, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.7
|
|
Form of the Company Floating Rate Note (incorporated herein by
reference to Exhibit 4.2, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.8
|
|
Form of the Company Fixed Rate Note (incorporated herein by
reference to Exhibit 4.3, Exhibit A, to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.9
|
|
Warrant Agreement, dated as of March 31, 2005, between
American Tire Distributors Holdings, Inc. and The 1818 Mezzanine
Fund II, L.P. (incorporated herein by reference to
Exhibit 10.65 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.10
|
|
Form of Warrant Certificate (incorporated herein by reference to
Exhibit 10.65, Exhibit A, to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
4
|
.11
|
|
Registration Rights Agreement.**
|
|
5
|
.1
|
|
Opinion of Gibson, Dunn & Crutcher LLP as to the
legality of the securities being registered.**
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.1
|
|
Fourth Amended and Restated Loan and Security Agreement, dated
as of March 31, 2005, among the American Tire Distributors,
Inc., The Speed Merchant, Inc., T.O. Haas Tire Co., Inc., T.O.
Haas Holding Co., Inc., Texas Market Tire, Inc., Texas Market
Tire Holdings I, Inc., Target Tire, Inc., ATD MergerSub,
Inc., as Borrowers and Banc of America Securities LLC, as Book
Running Manager, Wachovia Capital Markets LLC, GECC Capital
Markets Group, Inc., and Banc of America Securities LLC, each as
Co-Lead Arranger, Wachovia Bank, National Association and
General Electric Capital Corporation as Co-Syndication Agents
and Bank of America, N.A. as administrative agent and collateral
agent for the Lenders (incorporated herein by reference to
Exhibit 10.16 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.2
|
|
First Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.5
to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.3
|
|
Second Amendment to Fourth Amended and Restated Loan and
Security Agreement (incorporated herein by reference to
Exhibit 10.6 to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.4
|
|
Third Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.1
to the Registrants Quarterly Report on
Form 10-Q
filed May 16, 2006).
|
|
10
|
.5
|
|
Fourth Amendment to Fourth Amended and Restated Loan and
Security Agreement.*
|
|
10
|
.6
|
|
Fifth Amendment to Fourth Amended and Restated Loan and Security
Agreement (incorporated herein by reference to Exhibit 10.1
to the Registrants Current Report on
Form 8-K
filed May 14, 2007).
|
|
10
|
.7
|
|
Registration Rights Agreement, made as of March 31, 2005,
by American Tire Distributors, Inc for the benefit of the
Holders thereto with respect to Senior Floating Rate Notes due
2012 and 10.750% Senior Notes due 2013 (incorporated herein
by reference to Exhibit 10.17 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.8
|
|
Registration Rights Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Banc of
America Securities, LLC, Credit Suisse First Boston, LLC and
Wachovia Capital Markets, LLC, with respect to 13% Senior
Discount Notes due 2013 (incorporated herein by reference to
Exhibit 10.63 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.9
|
|
Stockholders Agreement, dated as of March 31, 2005, by and
among American Tire Distributors Holdings, Inc. and each person
listed on the signature pages hereto (incorporated herein by
reference to Exhibit 10.20 to the Registrants
Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.10
|
|
American Tire Distributors Holdings, Inc. 2005 Management Stock
Incentive Plan (incorporated herein by reference to
Exhibit 10.19 to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.11
|
|
American Tire Distributors, Inc. Stock Option Agreements, dated
as of June 12, 2002, between the American Tire
Distributors, Inc. and each of Richard P. Johnson, William E.
Berry, J. Michael Gaither, Daniel K. Brown and Phillip E.
Marrett (incorporated herein by reference to Exhibit 10.22
to the Registrants Annual Report on
Form 10-K
filed March 28, 2003).
|
|
10
|
.12
|
|
Form of Incentive Option Agreement under the 2005 Management
Stock Incentive Plan for certain executive officers
(incorporated herein by reference to Exhibit 10.21 to the
Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.13
|
|
Form of Base Option Agreement under the 2005 Management Stock
Incentive Plan for certain executive officers (incorporated
herein by reference to Exhibit 10.22 to the
Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.14
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Richard P. Johnson
(incorporated herein by reference to Exhibit 10.41 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.15
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and William Berry
(incorporated herein by reference to Exhibit 10.42 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.16
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and J. Michael Gaither
(incorporated herein by reference to Exhibit 10.43 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.17
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Phillip E. Marrett
(incorporated herein by reference to Exhibit 10.44 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.18
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Daniel K. Brown
(incorporated herein by reference to Exhibit 10.45 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.19
|
|
Executive Employment Agreement, dated as of March 31, 2005,
between American Tire Distributors, Inc. and Scott A. Deininger
(incorporated herein by reference to Exhibit 10.46 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.20
|
|
Executive Employment Agreement, dated as of December 6,
2005, between American Tire Distributors, Inc. and David L.
Dyckman (incorporated herein by reference to Exhibit 10.34
to the Registrants Annual Report on
Form 10-K
filed March 31, 2006).
|
|
10
|
.21
|
|
First Amendment to Executive Employment Agreement, dated as of
March 3, 2008, between American Tire Distributors, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.37 to the Registrants Annual Report on
Form 10-K
filed March 26, 2008).
|
|
10
|
.22
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.47 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.23
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and
William E. Berry (incorporated herein by reference to
Exhibit 10.48 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.24
|
|
Rollover Stock Option Agreement, dated as of March 31,
2005, between American Tire Distributors Holdings, Inc. and J.
Michael Gaither (incorporated herein by reference to
Exhibit 10.49 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.25
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Scott A.
Deininger (incorporated herein by reference to
Exhibit 10.50 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.26
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Keith
Calcagno (incorporated herein by reference to Exhibit 10.51
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.27
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Daniel K.
Brown (incorporated herein by reference to Exhibit 10.52 to
the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.28
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Phillip E.
Marrett (incorporated herein by reference to Exhibit 10.53
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.29
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Thomas D.
Gibson (incorporated herein by reference to Exhibit 10.54
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.30
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Thomas L.
Dawson (incorporated herein by reference to Exhibit 10.55
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.31
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Lawrence
B. Stoddard (incorporated herein by reference to
Exhibit 10.56 to the Registrants Registration
Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.32
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and Leon J.
Sawyer (incorporated herein by reference to Exhibit 10.58
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.33
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and George J.
Bender (incorporated herein by reference to Exhibit 10.59
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.34
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and James Gill
(incorporated herein by reference to Exhibit 10.60 to the
Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.35
|
|
Stock Purchase Agreement, dated as of March 31, 2005,
between American Tire Distributors Holdings, Inc. and James L.
Matthews (incorporated herein by reference to Exhibit 10.61
to the Registrants Registration Statement on
Form S-4
filed May 13, 2005).
|
|
10
|
.36
|
|
Stock Purchase Agreement, dated as of December 18, 2008, by
and among American Tire Distributors, Inc., ITOCHU International
Inc., ITOCHU Corporation and Am-Pac Tire Dist. Inc.
(incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on
Form 8-K
filed December 22, 2008).
|
|
10
|
.37
|
|
Second Amendment to Employment Agreement, dated as of
April 6, 2009, between American Tire Distributors, Inc. and
Richard P. Johnson (incorporated herein by reference to
Exhibit 10.1 to the Registrants Registration
Statement on
Form 10-Q
filed May 18, 2009).
|
|
10
|
.38
|
|
Amended and Restated Employment Agreement, dated as of
April 6, 2009, between American Tire Distributors, Inc. and
William E. Berry (incorporated herein by reference to
Exhibit 10.1 to the Registrants Registration
Statement on
Form 8-K
filed June 3, 2009).
|
|
21
|
.1
|
|
Chart of Subsidiaries of the Company (incorporated herein by
reference to Exhibit 21.1 to the Registrants Annual
Report on
Form 10-K
filed April 3, 2009).
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, an independent registered
public accounting firm.*
|
|
23
|
.2
|
|
Consent of Deloitte & Touche LLP, an independent
registered public accounting firm.*
|
|
23
|
.3
|
|
Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.1).
|
|
24
|
.1
|
|
Power of Attorney.*
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
To be filed by amendment. |