Attached files
file | filename |
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8-K/A - 8-K/A - ADVANCE AUTO PARTS INC | d626291d8ka.htm |
EX-99.4 - EX-99.4 - ADVANCE AUTO PARTS INC | d626291dex994.htm |
EX-23.1 - EX-23.1 - ADVANCE AUTO PARTS INC | d626291dex231.htm |
EX-99.2 - EX-99.2 - ADVANCE AUTO PARTS INC | d626291dex992.htm |
Exhibit 99.3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
General Parts International, Inc.:
We have audited the accompanying consolidated balance sheets of General Parts International, Inc. and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits 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. An audit also includes 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of General Parts International, Inc. and its subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP |
Raleigh, North Carolina |
March 15, 2013, except for note 15, as to which the date is November 25, 2013 |
GENERAL PARTS INTERNATIONAL, INC.
Consolidated Balance Sheets
December 31, 2012 and 2011
(Dollars in thousands)
2012 | 2011 | |||||||
Assets |
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Current assets: |
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Cash |
$ | 16,775 | 14,348 | |||||
Receivables, less allowance for doubtful accounts ($5,246 in 2012 and $4,918 in 2011) |
235,303 | 240,992 | ||||||
Merchandise inventories, less LIFO reserves of ($22,201 in 2012 and $21,359 in 2011) |
1,266,235 | 1,308,596 | ||||||
Prepaid expenses and other current assets |
20,515 | 17,378 | ||||||
Income taxes receivable |
| 7,571 | ||||||
Deferred income taxes |
3,840 | 10,012 | ||||||
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Total current assets |
1,542,668 | 1,598,897 | ||||||
Property, plant and equipment, less accumulated depreciation |
230,543 | 432,853 | ||||||
Goodwill |
149,308 | 148,119 | ||||||
Intangible assets, net |
73,519 | 74,062 | ||||||
Other assets, net |
13,835 | 19,285 | ||||||
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Total assets |
$ | 2,009,873 | 2,273,216 | |||||
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Current maturities of long-term debt |
$ | 90,181 | 74,222 | |||||
Current maturities of financing and capital leases |
| 3,856 | ||||||
Trade accounts payable |
546,534 | 534,863 | ||||||
Accrued expenses and payables |
112,094 | 109,108 | ||||||
Income taxes payable |
11,277 | | ||||||
Accrued self-insurance liabilities |
17,447 | 18,482 | ||||||
Deferred gain on sale of assets |
6,353 | | ||||||
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Total current liabilities |
783,886 | 740,531 | ||||||
Long-term debt, less current maturities |
690,232 | 820,434 | ||||||
Financing and capital leases, less current maturities |
| 277,924 | ||||||
Accrued self-insurance liabilities |
18,793 | 17,616 | ||||||
Other long-term liabilities |
15,911 | 18,314 | ||||||
Deferred income taxes |
58,049 | 65,370 | ||||||
Deferred gain on sale of assets |
104,293 | | ||||||
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Total liabilities |
1,671,164 | 1,940,189 | ||||||
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Preferred stock |
15,589 | 27,479 | ||||||
Stockholders equity: |
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Common stock |
43,944 | 46,523 | ||||||
Additional paid-in capital |
213,162 | 227,488 | ||||||
Noncontrolling interest |
50 | 134 | ||||||
Accumulated other comprehensive loss |
(10,972 | ) | (10,398 | ) | ||||
Retained earnings |
76,936 | 41,801 | ||||||
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Total stockholders equity |
323,120 | 305,548 | ||||||
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Total liabilities and stockholders equity |
$ | 2,009,873 | 2,273,216 | |||||
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See accompanying notes to consolidated financial statements.
GENERAL PARTS INTERNATIONAL, INC.
Consolidated Statements of Comprehensive Income
Years ended December 31, 2012 and 2011
(Dollars in thousands)
2012 | 2011 | |||||||
Net sales |
$ | 2,891,867 | 2,982,666 | |||||
Cost of goods sold (excluding Depreciation and amortization) |
1,815,550 | 1,884,976 | ||||||
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Gross profit |
1,076,317 | 1,097,690 | ||||||
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Operating expenses: |
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Selling and administrative |
831,911 | 869,917 | ||||||
Depreciation and amortization |
59,517 | 60,157 | ||||||
Termination and impairment expense |
20,610 | 11,466 | ||||||
Retirement plan contribution |
2,865 | 2,998 | ||||||
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Total operating expenses |
914,903 | 944,538 | ||||||
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Income from operations |
161,414 | 153,152 | ||||||
Interest expense |
95,983 | 75,909 | ||||||
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Income before income taxes |
65,431 | 77,243 | ||||||
Provision for income taxes |
25,793 | 30,026 | ||||||
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Net income |
39,638 | 47,217 | ||||||
Foreign currency translation |
(44 | ) | (1,388 | ) | ||||
Derivative fair value adjustment |
(383 | ) | (9,015 | ) | ||||
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Comprehensive income |
$ | 39,211 | 36,814 | |||||
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See accompanying notes to consolidated financial statements.
GENERAL PARTS INTERNATIONAL, INC.
Consolidated Statements of Stockholders Equity
Years ended December 31, 2012 and 2011
(Dollars in thousands)
Common stock |
Additional paid-in capital |
Noncontrolling interest |
Accumulated other comprehensive loss |
Retained earnings |
Total equity |
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Balance-December 31, 2010 |
$ | 40,877 | 231,754 | 2,217 | (103 | ) | 4,631 | 279,376 | ||||||||||||||||
Reclassification of Class W |
9,200 | 15,263 | | | | 24,463 | ||||||||||||||||||
Sale of common stock |
474 | 4,128 | | | | 4,602 | ||||||||||||||||||
Restricted common stock |
25 | (3,780 | ) | | | | (3,755 | ) | ||||||||||||||||
Stock issued in reorganizations |
(281 | ) | 281 | | | | | |||||||||||||||||
Shareholders notes receivable, net |
| 9,130 | | | | 9,130 | ||||||||||||||||||
Redemption of common stock |
(3,724 | ) | (37,873 | ) | | | | (41,597 | ) | |||||||||||||||
Change in noncontrolling interest |
| | (2,083 | ) | | 438 | (1,645 | ) | ||||||||||||||||
Dividends paid |
| | | | (1,840 | ) | (1,840 | ) | ||||||||||||||||
Comprehensive income |
(48 | ) | 8,585 | | (10,295 | ) | 38,572 | 36,814 | ||||||||||||||||
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Balance-December 31, 2011 |
46,523 | 227,488 | 134 | (10,398 | ) | 41,801 | 305,548 | |||||||||||||||||
Sale of common stock |
560 | 8,501 | | | | 9,061 | ||||||||||||||||||
Restricted common stock |
(92 | ) | (2,320 | ) | | | | (2,412 | ) | |||||||||||||||
Stock issued in reorganizations |
(215 | ) | 215 | | | | | |||||||||||||||||
Shareholder notes receivable, net |
| 15,675 | | | | 15,675 | ||||||||||||||||||
Redemption of common stock |
(2,884 | ) | (34,023 | ) | | | | (36,907 | ) | |||||||||||||||
Change in noncontrolling interest |
| | (84 | ) | | | (84 | ) | ||||||||||||||||
Dividends paid |
| | | | (6,972 | ) | (6,972 | ) | ||||||||||||||||
Comprehensive income |
52 | (2,374 | ) | | (574 | ) | 42,107 | 39,211 | ||||||||||||||||
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Balance-December 31, 2012 |
$ | 43,944 | 213,162 | 50 | (10,972 | ) | 76,936 | 323,120 | ||||||||||||||||
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See accompanying notes to consolidated financial statements.
GENERAL PARTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2012 and 2011
(Dollars in thousands)
2012 | 2011 | |||||||
Cash flows from operating activities: |
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Net income |
$ | 39,638 | 47,217 | |||||
Adjustments to reconcile net income to operating activities: |
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Depreciation and amortization |
59,517 | 60,157 | ||||||
Asset impairment |
3,272 | 4,095 | ||||||
Allowance for doubtful accounts |
4,180 | 3,092 | ||||||
Changes in LIFO |
842 | 21,252 | ||||||
Deferred income tax |
(1,149 | ) | 11,995 | |||||
Stock compensation |
2,463 | 2,352 | ||||||
Changes in operating assets and liabilities: |
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Receivables |
3,519 | (3,612 | ) | |||||
Merchandise inventories |
51,462 | 9,709 | ||||||
Prepaid expenses and other current assets |
(5,908 | ) | 2,602 | |||||
Trade accounts payable |
10,668 | (64,583 | ) | |||||
Other |
22,557 | (31,954 | ) | |||||
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Cash flows provided by operating activities |
191,061 | 62,322 | ||||||
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
(18,257 | ) | (26,173 | ) | ||||
Business acquisitions |
(13,150 | ) | (8,273 | ) | ||||
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Cash flows used in investing activities |
(31,407 | ) | (34,446 | ) | ||||
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Cash flows from financing activities: |
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Sale of common stock |
9,061 | 4,602 | ||||||
Redemption of common stock |
(39,319 | ) | (45,352 | ) | ||||
Redemption of preferred stock |
(13,041 | ) | (5,832 | ) | ||||
Payment of shareholder notes receivable |
15,674 | 9,583 | ||||||
Proceeds from real estate financing |
| 7,093 | ||||||
Dividends paid |
(6,972 | ) | (1,840 | ) | ||||
Payment of debt issuance costs |
| (1,635 | ) | |||||
Proceeds from long-term debt |
24,014 | 85,111 | ||||||
Payments on long-term debt |
(144,694 | ) | (80,256 | ) | ||||
Other |
1,066 | 647 | ||||||
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Cash flows used in financing activities |
(154,211 | ) | (27,879 | ) | ||||
Effect of exchange rate changes on cash |
(3,016 | ) | (1,529 | ) | ||||
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Increase (decrease) in cash |
2,427 | (1,532 | ) | |||||
Balance of cash beginning of year |
14,348 | 15,880 | ||||||
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Balance of cash end of year |
$ | 16,775 | 14,348 | |||||
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Supplemental information: (see noncash item at note 9) |
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Cash paid during the year for: |
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Income taxes |
$ | 8,986 | 26,368 | |||||
Interest |
90,422 | 75,211 |
See accompanying notes to consolidated financial statements.
GENERAL PARTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
(1) | Summary of Significant Accounting Policies |
General Parts International, Inc., (the Company) operates as a holding company for General Parts, Inc., WORLDPAC, Inc., and London Leasing, LLC. The Companys subsidiaries distribute auto parts, paint and body supplies, cleaning supplies, and equipment through CARQUEST Distribution Centers and CARQUEST Auto Parts stores and import auto parts through WORLDPAC branch locations.
The significant accounting policies of the Company are summarized below.
(a) | Consolidation |
The consolidated financial statements include the accounts of the Company, its subsidiaries, and other controlled entities. All significant intercompany accounts and transactions are eliminated in consolidation.
(b) | Cash |
Cash includes cash on hand at December 31, 2012 and 2011, respectively.
(c) | Revenue Recognition |
The Company recognizes revenue when products are sold or shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Sales are recorded net of discounts and estimated allowances. The Company estimates returns based on current sales levels and the Companys historical returns experience. The sales returns reserve was not material at December 31, 2012 and 2011.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of income.
(d) | Use of Estimates |
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and sales returns, valuation of deferred tax assets, valuation of inventory, valuation of goodwill and intangibles, and accrual for self insurance liabilities.
(e) | Trade Accounts Receivable and the Allowance for Doubtful Accounts |
Trade accounts receivable are recorded at the invoice amount and do not bear interest. The Company evaluates the collectibility of trade accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of aging categories. This estimate is adjusted as the Company becomes aware of various factors that impact individual customers ability to pay.
The allowance for doubtful accounts changed during 2012 and 2011 as follows:
2012 | 2011 | |||||||
Beginning balance |
$ | 4,918 | 7,983 | |||||
Additions charged to expense |
4,180 | 3,092 | ||||||
Write-offs |
(3,852 | ) | (6,157 | ) | ||||
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Balance as of December 31 |
$ | 5,246 | 4,918 | |||||
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(f) | Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Companys customer base.
(g) | Inventories |
Inventories are stated at the lower of cost or market using various cost flow assumption methods. Inventories at all U.S. CARQUEST Distribution Centers, stores, and WORLDPAC U.S. locations are valued using the last-in, first-out (LIFO) method. All CARQUEST CANADA LTD locations are valued using the first-in, first-out (FIFO) method, and all WORLDPAC Canada locations are valued using the weighted average method.
The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Additionally, the Company has been able to negotiate contracts with various vendors to return certain obsolete or damaged inventory, partially mitigating the risk of loss on these items.
(h) | Vendor Allowances |
The Company receives various payments and allowances from its vendors based on the volume of purchases or for services that the Company provides to the vendors. Amounts received from vendors include rebates, allowances and promotional funds. The Company recognizes vendor funds received based on purchasing volume as a reduction of merchandise inventories. As the inventories are sold, the vendor funds are recognized as a reduction to cost of sales.
(i) | Property, Plant and Equipment |
Property, plant and equipment are stated at cost and depreciated on a straightline basis over their estimated useful lives, which range from three to 40 years.
(j) | Long-Lived Assets |
Long-lived assets including property, plant and equipment and intangible assets are periodically reviewed for impairment based on an assessment of future operations. The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value.
(k) | Goodwill and Intangible Assets |
Goodwill and acquisition-related intangible assets primarily represent the excess of the purchase price over the fair value of the net tangible assets acquired in connection with the 2004 acquisition of WORLDPAC as well as other smaller acquisitions. Identifiable intangible assets primarily include customer lists, supplier relationships, electronic cataloging, and distribution networks. The Companys intangible assets and accumulated amortization at December 31 consist of the following:
Estimated useful life |
2012 | 2011 | ||||||||||
Customer relationships |
25 years | $ | 104,646 | 101,917 | ||||||||
Noncompete agreements |
5 years | 2,032 | 856 | |||||||||
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106,678 | 102,773 | |||||||||||
Accumulated amortization |
(33,159 | ) | (28,711 | ) | ||||||||
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$ | 73,519 | 74,062 | ||||||||||
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In 2011, the Company sold certain assets of a subsidiary, including intangible assets of approximately $1.0 million.
Amortization of identifiable intangible assets is provided on a straight-line basis with a weighted average remaining life of 16.0 years. The Company recorded amortization expense of $5.7 million and $5.9 million, during the years 2012 and 2011, respectively. The estimated amortization expense for the years ended December 31, 2013 to 2017 and thereafter is $5.4 million, $5.1 million, $4.9 million, $4.8 million, $4.7 million, and $48.6 million thereafter, respectively.
If the fair value of goodwill is less than the related carrying value, the Company records an impairment in the amount of goodwill through a charge to earnings. The Company performs its goodwill impairment test on December 31 each year, or more often if circumstances indicate the carrying value may exceed the fair value. No goodwill impairment has been recorded for the years ended December 31, 2012 or 2011.
(l) | Derivative Instruments and Hedging Activities |
The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive loss, to the extent the derivative is effective at offsetting the changes in cash flows being hedged until the hedged item affects earnings. Borrowings under the Companys line of credit facilities bear interest at variable rates. The Companys interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to manage its overall borrowing costs. To achieve these objectives, from time to time the Company enters into interest rate hedge contracts, such as interest rate swap agreements, in order to mitigate its interest rate risk with respect to various debt instruments. The Company does not hold or issue these derivative contracts for trading or speculative purposes. The counterparties to these contracts are high credit quality commercial banks.
A portion of the Companys U.S. bank facility is available in Canadian dollars. The Company has CAD $40 million of borrowings outstanding at December 31, 2012 that creates a natural hedge to help mitigate its foreign currency exposure. The Company also enters into net investment hedge arrangements from time to time to further mitigate the foreign currency risk of its Canadian operations.
(m) | Accrued Expenses and Payables |
The Companys accrued expenses and payables at December 31 consist of the following:
(Dollars in thousands) | 2012 | 2011 | ||||||
Operating expenses |
$ | 62,411 | 53,923 | |||||
Payroll and related benefits |
26,420 | 33,716 | ||||||
Interest |
13,370 | 11,825 | ||||||
Property taxes |
7,147 | 6,870 | ||||||
Sales taxes |
2,746 | 2,774 | ||||||
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$ | 112,094 | 109,108 | ||||||
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(n) | SelfInsurance |
The Company has large deductibles for certain insurable risks, primarily workers compensation, general liability, automobile liability, and property losses, as well as employee medical benefits. Insurance coverage is obtained for catastrophic property and casualty exposures, as well as risks that require insurance by law or contract. Liabilities are determined by management using information such as independent actuarial estimates, and include both a liability for claims incurred and an estimate of incurred but not reported claims. When applicable, anticipated recoveries are recorded in the consolidated statements of comprehensive income in the same lines in which the losses are recorded, and are based on managements best estimate of amounts due from insurance providers.
The Companys accruals for self-insurance liabilities reflect certain actuarial assumptions and management judgments regarding claim reporting and settlement patterns, judicial decisions, legislation, and economic conditions. Unanticipated changes in these factors may materially affect the consolidated financial statements.
(o) | Income Taxes |
Income taxes are accounted for using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.
(p) | Shipping and Handling Costs |
The Company does not generally charge customers separately for shipping and handling. Substantially all the cost the Company incurs to ship products to its stores is included in the cost of sales.
(q) | Advertising Costs |
Advertising costs are expensed as incurred and totaled $14.7 million and $19.7 million for the years ended December 31, 2012 and 2011, respectively.
(r) | Stock Compensation Plans |
The Companys share-based awards consist of restricted stock that vests over a five-year period. The Company recognizes compensation cost based on the grant date fair value of the awards and records this cost on a straight-line basis over the vesting period.
(s) | Foreign Currency Translation |
The assets and liabilities of the Companys Canadian operations are translated into U.S. dollars at current exchange rates, and revenues and expenses are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a separate component of the consolidated statements of comprehensive income.
(t) | Foreign Operations |
The Company operates four subsidiaries, CARQUEST Canada, WORLDPAC Canada, WORLDPAC Puerto Rico LLC, and London Leasing Canada, outside of the U.S. The carrying values of the net assets of these subsidiaries as of December 31, 2012 and 2011 were $131.3 million and $124.7 million, respectively.
(u) | Fair Value |
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
| Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is Merchandise Inventories |
(2) | Merchandise Inventories |
Inventories consist of merchandise held for resale as of December 31, 2012 and 2011. The following table reflects the results of operations assuming the Company had used the first-in, first-out (FIFO) method and weighted average method of valuation for inventories currently accounted for using LIFO, adjusted for income taxes at statutory rates.
(Dollars in thousands) | 2012 | 2011 | ||||||
As reported: |
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Operating income |
$ | 161,414 | 153,152 | |||||
Net income |
39,638 | 47,217 | ||||||
FIFO: |
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Operating income |
$ | 162,255 | 174,404 | |||||
Net income |
40,143 | 59,968 |
At December 31, 2012 and 2011, LIFO inventories have a tax basis that is approximately $15.9 million and $9.7 million, respectively, less than that for financial reporting purposes resulting from the valuation of acquired inventories in accordance with purchase accounting provisions, the different accounting for the trade discounts, and application of the uniform capitalization rules to all LIFO inventories.
(3) | Property, Plant and Equipment |
Property, plant and equipment at December 31 consist of the following:
(Dollars in thousands) | 2012 | 2011 | ||||||
Land and buildings |
$ | 21,074 | 245,101 | |||||
Warehouse fixtures and equipment |
146,895 | 140,921 | ||||||
Store fixtures and equipment |
58,790 | 70,532 | ||||||
Vehicles |
34,501 | 37,223 | ||||||
Machine shop equipment |
19,441 | 21,854 | ||||||
Data processing equipment and software |
193,878 | 183,267 | ||||||
Other furniture and equipment |
103,239 | 112,553 | ||||||
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577,818 | 811,451 | |||||||
Less accumulated depreciation |
(347,275 | ) | (378,598 | ) | ||||
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Total property, plant and equipment, net |
$ | 230,543 | 432,853 | |||||
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Depreciation expense was $53.8 million and $54.3 million for the years ended 2012 and 2011, respectively. In 2012, and 2011, the Company had impairment losses of $3.3 million and $4.1 million, respectively, included in termination and impairment expense on the consolidated statements of comprehensive income. The impaired assets had no value at December 31, 2012 and 2011.
(4) | Bank Facility |
On March 15, 2012, the Company completed the first amendment to its credit agreement and also completed an omnibus amendment agreement for its senior notes. The maturity dates and amounts financed were not affected by these amendments. The amendments modified the financial covenants, placed restrictions on future payments of dividends and limits the funds available for capital acquisitions.
The Company has a bank line of credit in the amount of $365 million that expires in December 2015 and is included in long-term debt in the accompanying consolidated balance sheets. The associated interest rates range from LIBOR plus 200 basis points to LIBOR plus 325 basis points or the lending banks base rate (as defined in the agreement) at the option of the Company. As of December 31, 2012, $185.1 million was outstanding on the line, $23.5 million was outstanding on letters of credit, and $156.4 million was available for borrowing.
Also included in the bank facility is an unsecured term loan payable to bank facility lenders. Original balance $150.0 million; interest payable quarterly, principal payments totaling $1.9 million began March 31, 2011 and are due quarterly thereafter. The final payment of $114.4 million is due December 16, 2015.
The bank facility contains certain restrictive covenants including asset coverage, fixed charge coverage and limitation on leverage. The Company was in compliance with its covenants at December 31, 2012 and December 31, 2011.
(5) | Long-Term Debt, Financing, and Capital Leases |
The components of long-term debt at December 31 are as follows:
(Dollars in thousands) | 2012 | 2011 | ||||||
LIBOR (0.21% at December 31, 2012) based bank line-of-credit borrowings maturing December 16, 2015 (see note 4). |
$ | 185,136 | 246,731 | |||||
LIBOR (0.21% at December 31, 2012) based term loan payable to bank facility lenders. Original balance $150,000; interest payable quarterly, principal payments of $1,875 began March 31, 2011 and are due quarterly thereafter. The final payment of $114,375 is due December 16, 2015 (note 4). |
135,000 | 142,500 | ||||||
8.48% unsecured notes payable to institutional investors. Original balance $200,000; interest payable semi-annually, principal payments totaling $20,000 began May 1, 2012 and are due semi-annually thereafter. The final payment is due November 1, 2016. The agreement contains certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt and payments of dividends. |
160,000 | 200,000 | ||||||
9.09% unsecured notes payable to institutional investors. Original balance $150,000; interest payable semiannually; principal payments totaling $22,500 are due July 31, 2013 and principal payments of $37,500 are due annually July 31, 2014 to 2016, inclusive, with a final payment of $15,000 on July 31, 2017. The agreement contains certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt, and payments of dividends. |
150,000 | 150,000 | ||||||
9.57% unsecured notes payable to institutional investors. Original balance $100,000; interest payable semi-annually; principal payments totaling $2,500 are due annually on July 1, 2008 through 2016 and principal payments of $19,375 are due annually July, 2017 through 2020. The agreement contains certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt and payments of dividends. |
87,500 | 90,000 |
(Dollars in thousands) | 2012 | 2011 | ||||||
9.70% unsecured notes payable to institutional investors. Original balance $100,000; interest payable semi-annually; principal payments totaling $9,090 began in September of 2000 and continued annually through 2012. The agreement contained certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt and payments of dividends. |
| 9,090 | ||||||
8.77% unsecured note payable to institutional investors. Original balance $25,000; interest payable semi-annually; annual principal payments of $3,571 began in July, 2007 and continue through July, 2013. The agreement contains certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt and payments of dividends. |
3,571 | 7,143 | ||||||
8.08% unsecured note payable to institutional investors. Original balance $25,000; interest payable semi-annually; annual principal payments of $3,571 began in July, 2007 and continue through July, 2013. The agreement contains certain restrictive covenants with respect to working capital, annual rent payments on long-term leases, additional debt and payments of dividends. |
3,571 | 7,143 | ||||||
7.50% 8.50% notes payable, due in monthly installments through July, 2012. |
| 179 | ||||||
6.00% 9.00% unsecured notes payable to former shareholders for redemption of stock, payable at various dates through October, 2020. |
55,635 | 41,870 | ||||||
|
|
|
|
|||||
Total long-term debt |
780,413 | 894,656 | ||||||
Less current maturities |
(90,181 | ) | (74,222 | ) | ||||
|
|
|
|
|||||
Long-term debt, less current maturities |
$ | 690,232 | 820,434 | |||||
|
|
|
|
The components of financing and capital leases at December 31 are as follows (See note 9):
(Dollars in thousands) | 2012 | 2011 | ||||||
6.81% financing lease secured by certain real estate. Payments are due in monthly installments over the various lease terms ranging from 5 to 20 years with payments commencing in 2011. |
$ | | 270,052 | |||||
6.80% financing lease secured by deed of trust of certain real estate, due in monthly installments through December, 2030. |
| 11,334 | ||||||
8.26% capital lease secured by deed of trust of certain real estate, due in monthly installments through May, 2013. |
| 394 | ||||||
|
|
|
|
|||||
Total financing and capital leases |
| 281,780 | ||||||
Less current maturities |
| (3,856 | ) | |||||
|
|
|
|
|||||
Financing and capital leases, less current maturities |
$ | | 277,924 | |||||
|
|
|
|
Future maturities of long-term debt at December 31, 2012 are presented below:
(Dollars in thousands) | Bank | Other | Total | |||||||||
2013 |
$ | 7,500 | 82,681 | 90,181 | ||||||||
2014 |
7,500 | 89,905 | 97,405 | |||||||||
2015 |
305,136 | 89,352 | 394,488 | |||||||||
2016 |
| 88,968 | 88,968 | |||||||||
2017 |
| 42,363 | 42,363 | |||||||||
Thereafter |
| 67,008 | 67,008 | |||||||||
|
|
|
|
|
|
|||||||
$ | 320,136 | 460,277 | 780,413 | |||||||||
|
|
|
|
|
|
The fair value of the Companys long-term debt is estimated using a discounted cash flow analysis, based on the Companys estimated current incremental borrowing rate for similar types of borrowing arrangements. The total fair value at December 31, 2012 was $796.0 million, as compared to the Companys carrying value of $780.4 million.
(6) | Preferred Stock and Stockholders Equity |
The classes of stock and their attributes are as follows:
Authorized | Shares issued and outstanding at December 31 |
|||||||||||
shares | 2012 | 2011 | ||||||||||
Preferred stock: |
||||||||||||
Class B |
600,000 | 17,715 | 33,717 | |||||||||
Common stock: |
||||||||||||
Class A |
40,000,000 | 9,284,298 | 10,254,859 | |||||||||
Class B |
5,000,000 | 1,306,509 | 1,590,390 | |||||||||
Class C |
35,000,000 | 10,492,808 | 10,503,307 | |||||||||
Class D |
4,500,000 | 1,382,624 | 1,467,133 | |||||||||
Class E |
2,000,000 | 1,186,536 | 1,296,871 | |||||||||
Class F |
2,000,000 | 883,099 | 963,040 | |||||||||
Class G |
1,000,000 | 509,364 | 491,536 | |||||||||
Class H |
1,000,000 | 535,062 | 626,313 | |||||||||
Class I |
1,000,000 | 411,745 | 422,116 | |||||||||
Class J |
1,000,000 | 373,390 | 412,628 | |||||||||
Class T |
5,600,000 | 719,655 | 712,139 | |||||||||
Class W |
1,000,000 | 920,000 | 920,000 | |||||||||
Class T CARQUEST CANADA LTD |
Unlimited | 151,894 | 167,377 | |||||||||
Class X CARQUEST CANADA LTD |
Unlimited | 63,077 | 59,525 |
Preferred Stock Class B is a 2% annual dividend, cumulative, convertible preferred stock with a $85 par value. These shares are convertible to Class C common shares on a fifty for one basis and are callable by the Company at any time. Redemptions of Class B preferred stock totaled $13.0 million in 2012, and $5.8 million in 2011.
Common Stock Class A has two votes per share and a par value of $1 per share.
Common Stock Class B has one vote per share and a par value of $1 per share.
Common Stock Class C has thirty votes per share and a par value of $1 per share.
Common Stock Class D is a nonvoting stock with a par value of $1 per share.
Common Stock Class E has one vote per share and a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class F has two votes per share and a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class G is a nonvoting stock with a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class H has 1.1 votes per share and a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class I has 1.2 votes per share and a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class J has 1.3 votes per share and a par value of $1 per share and is restricted as to who may own it and the terms of redemption.
Common Stock Class T is a tracking stock with no par value. The various series track the performance of individual store locations as well as General Parts International, Inc.
Common Stock Class W is a tracking stock with a $10 par value. The stock tracks the performance of the Companys subsidiary, WORLDPAC, Inc. The Company may call these shares if holders are no longer CARQUEST Corporation members.
Common Stock CARQUEST CANADA LTD Class T is a tracking stock with no par value. The various series track the performance of individual Canada store locations.
Common Stock CARQUEST CANADA LTD Class X is a tracking stock with no par value that tracks the performance of General Parts International, Inc.
Total cash flows and net profits of the consolidated companies are available to help fund future growth and to service debt. All equity holders are active in one of the consolidated companies and their stock is subject to a shareholders agreement. Stock redemptions are funded through notes, which are paid on a 32 quarterly payment schedule. Outstanding notes for stock redemptions totaled $55.6 million and $41.9 million at December 31, 2012 and 2011, respectively and are reflected as a component of long-term debt in the accompanying consolidated financial statements (see note 5).
Subsequent to December 31, 2012, but prior to the date of issuance of the consolidated financial statements, there were 300,000 stock options with a strike price of $17.60 granted. Stock options carry a stipulated vesting period. The fair value of each option award is estimated at the date of the grant using the Black-Scholes-Merton option pricing model. Since the Companys shares are not publicly traded, expected volatility is computed based on the historical volatility of the Companys share price over a period commensurate with the vesting period. The risk-free rate of return for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
During 2000, the Company implemented the 1999 Restricted Stock Plan (the Plan) whereby up to 4,000,000 shares of any class of common stock, except Class C, can be issued to its directors, officers and employees. The restrictions on these shares lapse over a period of up to five years from the date of grant. The restricted shares are granted each year at the then current value of the Companys common stock. For the years ended December 31, 2012 and 2011, the Company awarded 215,889 shares and 312,849 shares, respectively, of restricted common stock. The fair value per share of restricted stock issued was $17.60 and $16.30, for the years ended December 31, 2012 and 2011, respectively. Compensation expense under the Plan is charged to earnings over the restriction period and amounted to approximately $2.5 million and $2.4 million for the years ended December 31, 2012 and 2011, respectively.
The following table summarizes restricted stock outstanding at December 31, 2012 and 2011, and changes during the years then ended:
Shares reserved for future issuance |
Number of shares outstanding |
Weighted average share price |
||||||||||
Balance at December 31, 2010 |
3,055,206 | 944,794 | $ | 12.75 | ||||||||
Granted |
(312,849 | ) | 312,849 | 14.68 | ||||||||
Vested |
241,519 | (241,519 | ) | 10.53 | ||||||||
Canceled |
46,787 | (46,787 | ) | 13.50 | ||||||||
|
|
|
|
|||||||||
Balance at December 31, 2011 |
3,030,663 | 969,337 | 13.86 | |||||||||
Granted |
(215,889 | ) | 215,889 | 16.30 | ||||||||
Vested |
178,545 | (178,545 | ) | 11.51 | ||||||||
Canceled |
128,916 | (128,916 | ) | 14.83 | ||||||||
|
|
|
|
|||||||||
Balance at December 31, 2012 |
3,122,235 | 877,765 | 14.90 | |||||||||
|
|
|
|
As of December 31, 2012, the total amount of unrecognized compensation cost related to nonvested restricted stock awards, to be recognized as expense subsequent to December 31, 2012, was approximately $5.5 million, and the related weighted average period over which it is expected to be recognized is approximately 2.2 years. The intrinsic value of the unvested restricted stock awards at December 31, 2012 totaled $15.4 million. The intrinsic value of the restricted stock awards vested during the years ended December 31, 2012 and 2011 totaled $2.9 million and $3.5 million, respectively.
(7) | Insurance |
The Companys primary commercial general liability, workers compensation, property and auto liability insurance coverages are issued under arrangements with insurance carriers pursuant to which the Company effectively self-insures a large portion of the primary coverages. Above the self-insured levels, the Company maintains commercial property and liability umbrella and excess workers compensation liability stop-loss coverage. Excess insurance applies above retentions of $0.5 million per occurrence for general liability and workers compensation, $0.5 million per occurrence with a $0.8 million corridor for automobile liability and $0.3 million for property losses. The reserve for self-insurance related to workers compensation, general liability, and auto liability was $32.2 million and $31.2 million as of December 31, 2012 and 2011, respectively, and is included in accrued self-insurance liabilities of the accompanying consolidated balance sheets.
The Company also self-insures its employee medical benefits program. A liability for health care claims, including claims incurred but not recorded, is developed by analyzing historical claims data provided by the Companys claims administrators. The Companys liability is limited by commercial stop-loss coverage. While the Company believes that the assumptions used to calculate these liabilities are appropriate, significant differences from historical trends may materially impact financial results. The reserve for self-insurance related to the Companys medical benefits program was $4.0 million and $4.9 million as of December 31, 2012 and 2011, respectively, and is included in accrued self-insurance liabilities in the current liabilities section of the accompanying consolidated balance sheets.
(8) | Income Taxes |
Income tax expense for the years ended December 31 is comprised of the following:
(Dollars in thousands) | 2012 | 2011 | ||||||
Current: |
||||||||
Federal |
$ | 21,716 | 13,153 | |||||
Foreign |
917 | 2,905 | ||||||
State |
4,309 | 1,973 | ||||||
|
|
|
|
|||||
Total current |
26,942 | 18,031 | ||||||
|
|
|
|
|||||
Deferred: |
||||||||
Federal |
(2,812 | ) | 10,366 | |||||
Foreign |
2,626 | 1,253 | ||||||
State |
(963 | ) | 376 | |||||
|
|
|
|
|||||
Total deferred |
(1,149 | ) | 11,995 | |||||
|
|
|
|
|||||
Total |
$ | 25,793 | 30,026 | |||||
|
|
|
|
Differences between reported tax expense and tax expense computed by applying the statutory federal income tax rate to income before income taxes at December 31 are as follows:
2012 | 2011 | |||||||||||||||
(Dollars in thousands) | Dollar | Percentage | Dollar | Percentage | ||||||||||||
Computed tax expense |
$ | 22,901 | 35.0 | % | $ | 27,035 | 35.0 | % | ||||||||
State taxes, net of federal benefit |
2,176 | 3.3 | 1,527 | 2.0 | ||||||||||||
Other |
716 | 1.1 | 1,464 | 1.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Reported tax expense |
$ | 25,793 | 39.4 | % | $ | 30,026 | 38.9 | % | ||||||||
|
|
|
|
|
|
|
|
The significant components of the Companys deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:
(Dollars in thousands) | 2012 | 2011 | ||||||
Differences in costs capitalized and cost recovery methods for property, plant and equipment |
$ | 49,215 | 62,701 | |||||
Costing methods for inventories |
23,175 | 20,581 | ||||||
Intangible assets |
26,354 | 26,146 | ||||||
|
|
|
|
|||||
Total deferred income tax liabilities |
98,744 | 109,428 | ||||||
|
|
|
|
|||||
Deferred compensation |
(6,424 | ) | (8,993 | ) | ||||
Allowance for doubtful accounts |
(3,071 | ) | (3,189 | ) | ||||
General insurance |
(12,510 | ) | (6,947 | ) | ||||
Capital lease deferred gain / facilitator fee |
(13,895 | ) | (17,442 | ) | ||||
State tax NOL |
(3,026 | ) | (3,026 | ) | ||||
Other |
(5,609 | ) | (14,473 | ) | ||||
|
|
|
|
|||||
Total deferred income tax assets |
(44,535 | ) | (54,070 | ) | ||||
|
|
|
|
|||||
Total net deferred tax liability |
$ | 54,209 | 55,358 | |||||
|
|
|
|
In the calculation of the deferred tax assets for prior years, the Company established a valuation allowance due to uncertainties relating to the future realization of state Net Operating Losses generated on tax filings for certain separate legal entities of approximately $1.0 million. During 2011, it was determined that it is more likely than not that there will be sufficient income of the appropriate character to utilize these assets within the carryforward period under the tax law. The valuation allowance was removed from the calculation of the deferred tax assets for 2011.
The Company accrued tax and interest of $0.8 million and $0.8 million related to uncertain tax benefits as of December 31, 2012 and 2011, respectively. The Company does not expect its uncertain tax benefits to change significantly over the next twelve months.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations and varying consolidated, unitary, combined and separate company filing method requirements. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.
Foreign subsidiaries are taxed according to regulations existing in the countries in which they do business. Income before taxes from foreign operations for the year ended December 31, 2012 and 2011 were $12.0 million and $15.6 million, respectively. Provisions have not been made for United States income taxes on undistributed earnings from foreign subsidiaries that are considered to be permanently invested outside the United States.
The 2008 through 2012 tax years remain open for examination by the federal taxing authorities. The 2008 through 2012 tax years generally remain subject to examination by most state tax authorities. In Canada, the 2008 through 2012 tax years generally remain subject to examination by federal and provincial tax authorities.
(9) | Leases |
The Company amended its financing leases as of December 31, 2012. The amended leases met the criteria of a sale-leaseback and are classified as operating leases. The Company applied the amendment of the leases to the 2012 consolidated financial statements prospectively. As a result, the Company removed the financing lease assets, accumulated depreciation and related debt components from the consolidated balance sheet as of December 31, 2012. The net impact of the transaction was $110.6 million, which the Company classified as a deferred gain on sale of assets in the accompanying consolidated balance sheets. The Company will recognize the deferred gain over the term of the amended leases.
Each property leased by the Company is evaluated to determine whether the lease will be accounted for as an operating, financing or capital lease. The term of the lease used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in a significant economic penalty. Typical lease terms are five years in length with two five year renewal options. Option period rentals are fixed at lease inception. The average remaining life of the lease commitments is 52 months. Total rental expense for these facilities was $79.7 million and $79.2 million for the years 2012 and 2011, respectively.
The Company also leases distribution center delivery trucks, store delivery vehicles, automobiles, and computer equipment. Distribution center delivery truck leases are full service leases and require additional rentals based on mileage. Total rental expense for these trucks, automobiles, and equipment was $27.2 million and $27.1 million in 2012 and 2011, respectively.
The Company generally pays all property taxes, maintenance and insurance under these leases. Future minimum noncancelable lease payments to unrelated parties are as follows at December 31, 2012 (dollars in thousands):
2013 |
$ | 124,236 | ||
2014 |
108,463 | |||
2015 |
89,487 | |||
2016 |
69,766 | |||
2017 |
49,763 | |||
Thereafter |
408,886 | |||
|
|
|||
$ | 850,601 | |||
|
|
(10) | Retirement Plans |
Eligible U.S. employees of the Company are covered by the General Parts International, Inc. Employee Stock Ownership Plan and Trust (ESOP). The ESOP provides for annual discretionary contributions by the Company. General Parts International, Inc. contributes an amount as determined by the Companys Board of Directors each year. In some years, there may not be a contribution. The ESOP is designed to invest primarily in qualifying employer securities. Employer contributions for a given year are recognized by the ESOP in the year in which related employee services are performed, and are allocated based on the employees allocable share of total compensation, subject to various limitations imposed by the Internal Revenue Code.
In the event of disability or death, a participants account is paid through a lump-sum distribution or installment payments based on the provisions of the ESOP. Upon termination for any other reason, participants may file a request for payment of their vested amount, and a participants vested account is paid through a lump-sum distribution or installment payments based on the provisions of the ESOP. Participants may also elect to have the vested amount held in trust and paid to them at their normal retirement age, but in such a case the participants account balance will be moved to the General Parts International, Inc. 401(k) Plan (the GPI 401(k) Plan), in a lump sum or in installments based on the provisions of the ESOP, and will be thereafter held in the participants account under the GPI 401(k) plan.
Participants receive dividends declared on Company stock. Dividends on ESOP shares are recorded in the retained earnings balance included in the consolidated statements of stockholders equity.
Substantially all U.S. employees of the Company are covered by the GPI 401(k) Plan. The GPI 401(k) Plan provides a way for eligible employees to save for retirement by electing to have a portion of their compensation contributed to their account on a pre-tax basis and a way that permits the Company to make a discretionary fixed matching contribution and a discretionary profit sharing matching contribution for eligible employees. The Companys Canadian employees are eligible to participate in the General Parts International, Inc. Registered Retirement Savings Plan.
Participants are always fully vested in their elective contributions to the GPI 401(k) Plan. Participants become fully vested in their share of the Company discretionary fixed matching contribution and the Company discretionary profit sharing matching contribution to the GPI 401(k) Plan after three years of service. In the event of normal retirement (age 65), disability or death, participants become fully vested.
For the years ended December 31, 2012 and 2011, the Company matched $2.6 million and $2.8 million, respectively, in contributions to the GPI 401(k) Plan and matched $0.3 million and $0.2 million, respectively, in contributions to the Registered Retirement Savings Plan for the Employees of General Parts International, Inc.
(11) | Contingent Liabilities and Commitments |
The Company is a guarantor of loans made by banks to various independent store customers of the Company totaling $37.1 million as of December 31, 2012. Upon entering into a relationship with certain stores, the Company takes steps to guarantee the debt of that store to aid in the procurement of loans. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the assets collateralized in these agreements is $78.7 million as of December 31, 2012.
The Company had outstanding letters of credit of $44.9 million as of December 31, 2012 relating to amounts pledged to various insurance companies for the Companys insurance policies.
Various claims and lawsuits arising from the normal course of business are being pursued by and are pending against the Company. In the opinion of management, the ultimate resolution of these items will not have a material adverse effect on the operations and financial position of the Company.
(12) | Derivative Instruments |
In 2011, the Company entered into three interest rate swap agreements with a $336.9 million notional amount with a high credit quality commercial bank. Agreements have termination dates of September 15, 2013, September 15, 2015, and September 30, 2015, respectively. The interest rate swaps are considered highly effective and limit the Companys interest rate exposure related to its variable rate line of credit.
In 2011, the Company entered into a net investment hedge agreement with a CAD $50.0 million notional amount with a high credit quality commercial bank. The agreement is effective for one fiscal quarter and the Company has the ability to continuously renew the agreement. The net investment hedge limits the Companys foreign currency exchange rate exposure to its Canadian operations.
The fair values of derivative instruments held as of December 31, 2012 and 2011, are as follows (dollars in thousands):
Liabilitiy derivatives fair value | ||||||||||
B/S location |
2012 | 2011 | ||||||||
Derivatives designated as hedging instruments: |
||||||||||
Interest rate swap contracts |
Accrued expenses | $ | 331 | | ||||||
Interest rate swap contracts long-term |
Other L.T. liabilities | 9,067 | 9,015 | |||||||
|
|
|
|
|||||||
Total derivatives designated as hedging instruments |
$ | 9,398 | 9,015 | |||||||
|
|
|
|
The effect of derivative instruments on the consolidated statements of comprehensive income for the years ended December 31, 2012 and 2011 were as follows (dollars in thousands):
Derivatives in cash flow hedging relationships |
Amount of gain (loss) recognized in OCI on derivative (effective portion) |
Location of gain (loss) reclassified from AOCI into income (effective portion) |
Amount of gain (loss) reclassified from AOCI into income (effective portion) |
|||||||
December 31, 2012: |
||||||||||
Interest rate contracts |
$ | (383 | ) | Interest expense | | |||||
December 31, 2011: |
||||||||||
Interest rate contracts |
(9,015 | ) | Interest expense | |
(13) | Acquisitions |
The Company acquired an additional 24 auto parts stores from various owners in 2012. The total purchase price of $13.2 million for all 2012 acquisitions was funded with cash.
The Company acquired an additional 10 auto parts stores from various owners in 2011. The total purchase price of $8.3 million for all 2011 acquisitions was funded with cash.
The purchase price for these acquisitions has been allocated based on estimated fair values of assets acquired and liabilities assumed.
The Companys purchase price allocation is as follows:
(Dollars in thousands) | 2012 | 2011 | ||||||
Accounts receivable |
$ | 1,352 | 2,211 | |||||
Inventories |
6,846 | 5,023 | ||||||
Property and equipment |
519 | 657 | ||||||
Goodwill |
1,051 | 301 | ||||||
Customer relationships and other intangible assets |
3,382 | 81 | ||||||
|
|
|
|
|||||
Total purchase price |
$ | 13,150 | 8,273 | |||||
|
|
|
|
(14) | Segments |
We operate in two business segments: CARQUEST and WORLDPAC. We define business segments as components of an organization for which discrete financial information is available and operating results are evaluated on a regular basis by the chief operating decision maker in order to assess performance and allocate resources.
CARQUEST operates 32 distribution centers supplying both company-owned and independently owned stores. CARQUEST distribution centers and retail stores are located throughout the United States and Canada.
WORLDPAC is a leading importer and distributor or original equipment quality automotive products. WORLDPAC imports products from the original equipment manufacturers located in countries throughout the world.
The following tables summarize information about the Companys reportable business segments as of and for the years ended December 31, 2012 and 2011:
(Dollars in thousands) | CARQUEST | WORLDPAC | ||||||
2012: |
||||||||
Revenue |
$ | 1,954,321 | 937,546 | |||||
Income from operations |
90,071 | 71,343 | ||||||
Depreciation |
48,977 | 10,540 | ||||||
Purchases of property, plant and equipment |
9,418 | 8,839 | ||||||
Total assets |
1,373,868 | 636,005 | ||||||
2011: |
||||||||
Revenue |
$ | 2,136,380 | 846,286 | |||||
Income from operations |
89,674 | 63,478 | ||||||
Depreciation |
50,264 | 9,893 | ||||||
Purchases of property, plant and equipment |
15,731 | 10,442 | ||||||
Total assets |
1,644,464 | 628,752 |
25 | (Continued) |
(15) | Subsequent Events |
The Company has evaluated subsequent events from the balance sheet date through November 25, 2013, the date of issuance of the Companys consolidated financial statements as of and for the years ended December 31, 2012 and 2011. No events or transactions have occurred or are pending that would have a material effect on the consolidated financial statements at that date or for the periods then ended, or that are of such significance in relation to the Companys affairs to require mention in a note to the consolidated financial statements in order to make them not misleading regarding the consolidated statements of financial position, results of operations or cash flows of the Company except for, on October 15, 2013, the Company entered into a definitive agreement with Advance Auto Parts, Inc. (AAP) whereby the Company agreed to be acquired by AAP in an all cash transaction with an enterprise value of $2.04 billion. The transaction is expected to close by late 2013 or early 2014.
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