UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 30, 2013
(Date of earliest event reported)
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 333-124878 | 59-3796143 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
12200 Herbert Wayne Court, Suite 150
Huntersville, North Carolina
(Address of principal executive offices)
28078
(Zip Code)
(704) 992-2000
Registrants telephone number, including area code:
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01. Completion of Acquisition or Disposition of Assets.
On May 6, 2013, American Tire Distributors Holdings, Inc. (Holdings) filed with the Securities and Exchange Commission a Current Report on Form 8-K (May 8-K) to report the acquisition on April 30, 2013 of Regional Tire Holdings Inc. (Holdco) by TriCan Tire Distributors Inc. (TriCan), an indirect wholly-owned subsidiary of Holdings. The acquisition was completed pursuant to a Share Purchase Agreement entered into on March 22, 2013 between TriCan, American Tire Distributors, Inc., a direct wholly-owned subsidiary of Holdings, Regional Tire Distributors Inc., a wholly-owned subsidiary of Holdco (RTD), and the shareholders of Holdco. Holdco has no significant assets or operations other than its ownership of RTD. The operations of RTD constitute the operations of Holdco. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada. This Form 8-K/A amends the May 8-K to include the financial information required by Item 9.01 of Form 8-K. The information previously reported in the May 8-K is hereby incorporated by reference into this Form 8-K/A.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
(i) | The audited consolidated balance sheets of RTD as of January 31, 2013 and January 31, 2012, the related consolidated statements of income and comprehensive income, stockholders equity, and cash flows for each of the years in the three year period ending January 31, 2013, the notes thereto and the related auditors report of Deloitte LLP, Independent Registered Chartered Accountants, are attached hereto as Exhibit 99.1 and are incorporated herein by reference. |
(b) Pro Forma Financial Information.
The following information is attached hereto as Exhibit 99.2 and incorporated herein by reference:
(i) | Unaudited Pro Forma Condensed Combined Balance Sheet as of December 29, 2012. |
(ii) | Unaudited Pro Forma Condensed Combined Statement of Operations for the Fiscal Year Ended December 29, 2012. |
(iii) | Notes to the Unaudited Pro Forma Condensed Combined Financial Information. |
(d) Exhibits
Exhibit No. |
Description | |
99.1 | Audited Consolidated Financial Statements of RTD. | |
99.2 | Unaudited Pro Forma Condensed Combined Financial Information. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC. (Registrant) | ||||||||
June 21, 2013 | By: | /s/ JASON T. YAUDES | ||||||
Name: | Jason T. Yaudes | |||||||
Title: | Executive Vice President and | |||||||
Chief Financial Officer |
Exhibit 99.1
Consolidated financial statements of
Regional Tire Distributors Inc.
January 31, 2013, 2012 and 2011
Regional Tire Distributors Inc.
January 31, 2013, 2012 and 2011
Table of contents
Report of Independent Registered Chartered Accountants |
1-2 | |||
Consolidated statements of income and comprehensive income |
3 | |||
Consolidated balance sheets |
4 | |||
Consolidated statements of cash flows |
5 | |||
Consolidated statements of stockholders equity |
6 | |||
Notes to the consolidated financial statements |
7-19 |
Deloitte LLP 1005 Skyview Drive Suite 200 Burlington ON L7P 5B1 Canada
Tel: 905-315-6770 Fax: 905-315-6700 www.deloitte.ca |
Report of Independent Registered Chartered Accountants
To the shareholders of
Regional Tire Distributors Inc.
We have audited the accompanying consolidated financial statements of Regional Tire Distributors Inc. (the Company), which comprise the consolidated balance sheets as of January 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, stockholders equity, and cash flows for each of the years in the three year period ending January 31, 2013, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors as of January 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three year period ending January 31, 2013 in accordance with accounting principles generally accepted in the United States of America.
/s/ Deloitte LLP
Independent Registered Chartered Accountants
Licensed Public Accountants
April 25, 2013
Page 2
Regional Tire Distributors Inc.
Consolidated statements of income and comprehensive income
years ended January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2013 | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Revenue |
113,573,723 | 77,049,240 | 60,663,637 | |||||||||
Cost of sales |
89,280,458 | 60,739,542 | 47,533,892 | |||||||||
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Gross margin |
24,293,265 | 16,309,698 | 13,129,745 | |||||||||
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Selling, general and administrative expenses |
17,126,775 | 11,836,524 | 8,643,226 | |||||||||
Depreciation and amortization |
520,913 | 119,849 | 69,213 | |||||||||
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17,647,688 | 11,956,373 | 8,712,439 | ||||||||||
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Operating income |
6,645,577 | 4,353,325 | 4,417,306 | |||||||||
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|
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Other income (expense) |
||||||||||||
Gain on acquisition (Note 16) |
2,033,068 | | | |||||||||
Interest expense |
(290,276 | ) | (37,559 | ) | (8,256 | ) | ||||||
Equity accounted income (Note 7) |
106,621 | 429,439 | 542,571 | |||||||||
Management fee income |
115,201 | 82,866 | 83,518 | |||||||||
Other income |
151,723 | 28,116 | 554 | |||||||||
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2,116,337 | 502,862 | 618,387 | ||||||||||
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Income before income taxes |
8,761,914 | 4,856,187 | 5,035,693 | |||||||||
Income tax expense (recovery) (Note 15) |
||||||||||||
Deferred |
(52,410 | ) | | | ||||||||
Current |
1,855,519 | 1,187,407 | 1,376,388 | |||||||||
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Net income |
6,958,805 | 3,668,780 | 3,659,305 | |||||||||
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Net income attributable to non-controlling interest |
94,442 | | | |||||||||
Net income attributable to stockholders |
6,864,363 | 3,668,780 | 3,659,305 | |||||||||
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Net income |
6,958,805 | 3,668,780 | 3,659,305 | |||||||||
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Other comprehensive (loss) income |
||||||||||||
Foreign currency translation adjustment |
(17,867 | ) | (38,938 | ) | 418,097 | |||||||
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Comprehensive income |
6,940,938 | 3,629,842 | 4,077,402 | |||||||||
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Comprehensive income attributable to non-controlling interest |
93,191 | | | |||||||||
Comprehensive income attributable to stockholders |
6,847,747 | 3,629,842 | 4,077,402 | |||||||||
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Comprehensive income |
6,940,938 | 3,629,842 | 4,077,402 | |||||||||
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The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 3
Regional Tire Distributors Inc.
Consolidated balance sheets
as at January 31, 2013 and 2012
(Presented in United States Dollars)
2013 | 2012 | |||||||
$ | $ | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
759,898 | 3,863,970 | ||||||
Accounts receivable (Note 3) |
7,369,355 | 4,870,362 | ||||||
Income taxes receivable |
| 238,534 | ||||||
Inventories (Note 4) |
20,257,556 | 10,343,466 | ||||||
Current portion of note receivable (Note 5) |
109,757 | 219,107 | ||||||
Due from related companies (Note 6) |
172,244 | 1,040,042 | ||||||
Prepaid expenses and deposits |
502,791 | 106,547 | ||||||
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29,171,601 | 20,682,028 | |||||||
Note receivable (Note 5) |
| 109,553 | ||||||
Investments in affiliates (Note 7) |
60,361 | 1,030,436 | ||||||
Property, plant and equipment (Note 8) |
993,416 | 548,035 | ||||||
Intangible assets (Note 9) |
7,253,577 | | ||||||
Goodwill (Note 16) |
2,728,656 | | ||||||
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40,207,611 | 22,370,052 | |||||||
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Liabilities |
||||||||
Current liabilities |
||||||||
Bank indebtedness (Note 10) |
2,461,136 | | ||||||
Accounts payable and accrued liabilities |
14,458,562 | 11,750,038 | ||||||
Income taxes payable |
490,597 | | ||||||
Deferred revenue |
89,063 | 177,796 | ||||||
Due to related companies (Note 6) |
138,631 | 120,154 | ||||||
Current portion of long-term debt (Note 11) |
1,839,259 | | ||||||
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19,477,248 | 12,047,988 | |||||||
Deferred income taxes (Note 15) |
1,931,374 | | ||||||
Long-term debt (Note 11) |
2,048,796 | | ||||||
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23,457,418 | 12,047,988 | |||||||
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Stockholders equity |
||||||||
Share capital (Note 12) |
1,490,610 | 1,490,610 | ||||||
Accumulated other comprehensive income |
397,779 | 414,395 | ||||||
Retained earnings |
14,279,222 | 8,417,059 | ||||||
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Total equity attributable to stockholders |
16,167,611 | 10,322,064 | ||||||
Non-controlling interest |
582,582 | | ||||||
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Total equity |
16,750,193 | 10,322,064 | ||||||
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40,207,611 | 22,370,052 | |||||||
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Approved by the Board | ||
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Director | |
|
Director |
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 4
Regional Tire Distributors Inc.
Consolidated statements of cash flows
years ended January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2013 | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Operating activities |
||||||||||||
Net income |
6,958,805 | 3,668,780 | 3,659,305 | |||||||||
Items not affecting cash |
||||||||||||
Depreciation and amortization |
520,913 | 119,849 | 69,213 | |||||||||
Equity accounted income (Note 7) |
(106,621 | ) | (429,439 | ) | (542,571 | ) | ||||||
Gain on acquisition (Note 16) |
(2,033,068 | ) | | | ||||||||
Deferred income taxes |
(52,410 | ) | | | ||||||||
Changes in non-cash operating working capital items |
||||||||||||
Accounts receivable |
(175,742 | ) | 87,161 | (2,866,773 | ) | |||||||
Inventory |
(360,603 | ) | (3,105,133 | ) | (1,756,041 | ) | ||||||
Prepaid expenses and deposits |
(289,830 | ) | 81,313 | (110,373 | ) | |||||||
Accounts payable and accrued liabilities |
(3,848,121 | ) | 1,903,589 | 3,888,716 | ||||||||
Deferred revenue |
(89,456 | ) | | | ||||||||
Income taxes |
646,650 | (214,297 | ) | (469,078 | ) | |||||||
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1,170,517 | 2,111,823 | 1,872,398 | ||||||||||
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Investing activities |
||||||||||||
Acquisition of equity investments |
| | (51,210 | ) | ||||||||
Acquisition of property, plant and equipment |
(323,960 | ) | (458,541 | ) | (244,148 | ) | ||||||
Advances to related parties |
(1,028,324 | ) | (564,049 | ) | (214,055 | ) | ||||||
Proceeds received from related parties |
| 121,813 | | |||||||||
Proceeds received from note receivable |
220,484 | | | |||||||||
Acquisition of intangible assets |
(100,220 | ) | | | ||||||||
Acquisition of subsidiary (Note 16) |
(4,993,000 | ) | | | ||||||||
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(6,225,020 | ) | (900,777 | ) | (509,413 | ) | |||||||
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Financing activities |
||||||||||||
Dividends paid |
(1,021,209 | ) | (1,514,550 | ) | (974,500 | ) | ||||||
Proceeds from bank indebtedness |
(57,559 | ) | | | ||||||||
Proceeds from long-term debt |
3,507,700 | | | |||||||||
Repayment of long-term debt |
(471,034 | ) | | | ||||||||
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1,957,898 | (1,514,550 | ) | (974,500 | ) | ||||||||
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Effect of foreign exchange rate changes on cash |
(7,467 | ) | 4,198 | 252,728 | ||||||||
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Change in cash during the year |
(3,104,072 | ) | (299,306 | ) | 641,213 | |||||||
Cash, beginning of the year |
3,863,970 | 4,163,276 | 3,522,063 | |||||||||
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Cash, end of the year |
759,898 | 3,863,970 | 4,163,276 | |||||||||
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Supplemental cash flow information |
||||||||||||
Income taxes paid |
1,440,690 | 1,426,096 | 425,430 | |||||||||
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Interest paid |
132,110 | 26,170 | 6,785 | |||||||||
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The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 5
Regional Tire Distributors Inc.
Consolidated statements of stockholders equity
years ended January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
Common shares | Accumulated other comprehensive income |
Retained earnings |
Total equity attributable to stockholders |
Non- controlling interest |
Total equity |
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# | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Balance, February 1, 2010 |
1,500,000 | 1,490,610 | 35,236 | 3,578,024 | 5,103,870 | | 5,103,870 | |||||||||||||||||||||
Net income |
| | | 3,659,305 | 3,659,305 | | 3,659,305 | |||||||||||||||||||||
Other comprehensive income |
| | 418,097 | | 418,097 | | 418,097 | |||||||||||||||||||||
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Comprehensive income |
| | 418,097 | 3,659,305 | 4,077,402 | | 4,077,402 | |||||||||||||||||||||
Dividends |
| | | (974,500 | ) | (974,500 | ) | | (974,500 | ) | ||||||||||||||||||
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Balance, January 31, 2011 |
1,500,000 | 1,490,610 | 453,333 | 6,262,829 | 8,206,772 | | 8,206,772 | |||||||||||||||||||||
Net income |
| | | 3,668,780 | 3,668,780 | | 3,668,780 | |||||||||||||||||||||
Other comprehensive loss |
| | (38,938 | ) | | (38,938 | ) | | (38,938 | ) | ||||||||||||||||||
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Comprehensive income |
| | (38,938 | ) | 3,668,780 | 3,629,842 | | 3,629,842 | ||||||||||||||||||||
Dividends |
| | | (1,514,550 | ) | (1,514,550 | ) | | (1,514,550 | ) | ||||||||||||||||||
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Balance, January 31, 2012 |
1,500,000 | 1,490,610 | 414,395 | 8,417,059 | 10,322,064 | | 10,322,064 | |||||||||||||||||||||
Non-controlling interest acquired (Note 16) |
| | | | | 508,400 | 508,400 | |||||||||||||||||||||
Net income |
| | | 6,864,363 | 6,864,363 | 94,442 | 6,958,805 | |||||||||||||||||||||
Other comprehensive loss |
| | (16,616 | ) | | (16,616 | ) | (1,251 | ) | (17,867 | ) | |||||||||||||||||
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Comprehensive income |
| | 397,779 | 6,864,363 | 6,847,747 | 93,191 | 6,940,938 | |||||||||||||||||||||
Dividends |
| | | (1,002,200 | ) | (1,002,200 | ) | (19,009 | ) | (1,021,209 | ) | |||||||||||||||||
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Balance, January 31, 2013 |
1,500,000 | 1,490,610 | 397,779 | 14,279,222 | 16,167,611 | 582,582 | 16,750,193 | |||||||||||||||||||||
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The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
Page 6
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
1. | Nature of business |
Regional Tire Distributors Inc. (Company) was incorporated on July 21, 2008 under the laws of the Province of Ontario, Canada and commenced active operations in September of 2008. The Company, based in Burlington, Ontario, Canada, is a wholesale distributor of tires and services to retail tire locations across Canada including independent service garages, automotive car dealers and large national customers.
2. | Significant accounting policies |
Basis of preparation
These consolidated financial statements are prepared in United States (US) dollars and in accordance with accounting principles generally accepted in the United States of America (GAAP). A summary of significant accounting policies consistently applied in the preparation of the consolidated financial statements are outlined below.
Basis of consolidation
These consolidated financial statements include the financial statements of Regional Tire Distributors Inc., its wholly-owned subsidiary JAB Holdings Ltd. and its majority owned subsidiary Regional Tire Distributors (Atlantic) Inc. The Company does not have any variable interests in variable interest entities. All intercompany accounts and transactions have been eliminated during consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP 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 as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are based on several factors including the facts and circumstances available at the time of the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probably future outcome. Significant estimates include inventory obsolescence reserves, allowance for doubtful accounts, returns and rebates, valuation of long lived assets, purchase price allocations in business combinations and deferred taxes. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of comprehensive income in the period that they are determined.
Allowance for doubtful accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within the Companys accounts receivable balance. Estimates are based upon the creditworthiness of specific customers and past experience of write offs.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or net realizable value and consist primarily of automotive tires, wheels, tubes and wheel accessories. 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.
Page 7
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2. | Significant accounting policies (continued) |
Investments in affiliates
The Company holds equity investments in affiliates for which it does not have a controlling financial interest, but has the ability to exercise significant influence over the operating and financial policies of the investee. These investments are accounted for under the equity method of accounting wherein the Company records its proportionate share of the investees income or loss in its consolidated financial statements.
Investments are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (1) nature of the investment; (2) cause and duration of the impairment; (3) extent to which fair value is less than cost; (4) financial conditions and near term prospects of the issuers; and (5) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value. The Corporation measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The Company has measured the non-controlling interest at its fair value on the acquisition date.
Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Income taxes
The Company accounts for income taxes in accordance with FASB Accounting Standard Codification (ASC) Topic 740, Income Taxes (ASC Topic 740). ASC Topic 740 requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, the Company considers factors by taxing jurisdiction, including estimated taxable income, history of losses for tax purposes, tax planning strategies and the likelihood of success of tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense.
The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. The tax impacts recognized in the financial statements from such positions are then measured based on the largest impact that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions as a component of the provision for income taxes.
Page 8
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2. | Significant accounting policies (continued) |
Foreign currency
The Canadian dollar is the currency in which a substantial amount of the Companys transactions are denominated and is the functional currency of the Company. Monetary assets and liabilities denominated in currencies other than the Canadian dollar are translated into Canadian dollars at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the Canadian dollar during the year are converted into Canadian dollar at the applicable rates of exchange prevailing on the transaction date. Transaction gains and losses are recognized in the consolidated statements of comprehensive income.
The Company has chosen to present its financial statements in United States Dollars. The financial statements are translated to the United States dollar presentation currency at the end of the reporting period. Assets and liabilities are translated at the January 31 rates of exchange. Income and expenses are translated at rates prevailing at the date of the transaction. The Company has used average exchange rates to approximate the rates prevailing at the date of the transactions. All exchange gains and losses are recognized as a separate component of stockholders equity.
Financial instruments
Financial instruments are comprised of cash, accounts receivable, due to/from related parties, note receivable, bank indebtedness, accounts payable and accrued liabilities and long-term debt. The estimated fair values of cash, accounts receivable, due to/from related parties, note receivable, bank indebtedness, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. The long-term debt approximates carrying value as it bears interests at variable rates. All financial instruments are measured at amortized cost.
Interest rate risk
The Company is subject to interest rate risk due to changes to the prime rate since the majority of its borrowings bear variable interest rates. A change in the interest rate of plus or minus one percent as at January 31, 2013 would result in a $54,844 decrease or increase in net income before income taxes. The Company does not use derivative instruments to manage this risk.
Liquidity risk
The Companys objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. As at January 31, 2013 and January 31, 2012, the most significant financial liabilities relate to bank indebtedness, accounts payable and accrued liabilities, due to related parties, and long-term debt.
Credit risk
The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. The Companys maximum exposure to credit risk is represented by the carrying value of financial assets on the consolidated balance sheets.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, assets placed in service are recorded at cost and depreciated using the declining-balance method at annual rates sufficient to amortize the cost of the assets less estimated salvage values over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of their economic useful life or the related lease term. The depreciation rates used to depreciate property, plant and equipment is as follows:
Vehicles | 30% declining-balance | |
Computer equipment | 30% declining-balance | |
Office equipment | 20% declining-balance |
Page 9
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2. | Significant accounting policies (continued) |
Property, plant and equipment (continued)
Warehouse equipment | 20% declining-balance | |
Leasehold improvements | Over the term of the lease |
Impairment of long-lived assets
The Company evaluates the carrying value of definite life long-lived assets such as property, plant and equipment and intangible assets, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying value. Measurement of the impairment loss is based on the present value of the expected future cash flows.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired businesses and is tested for impairment annually and whenever an event or circumstance occurs that indicates that goodwill might be impaired. When the carrying amount of a reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in net earnings in an amount equal to the excess.
Intangible assets
Intangible assets are comprised of customer relationships and a tradename acquired through the business acquisition of Regional Tire Distributors (Atlantic) Inc.
Amortization is provided using the following methods and annual rates:
Customer relationships | 12 years straight line | |
Tradename | 7 years straight line |
Revenue recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. The Company recognizes revenue when the title and the risks and rewards of ownership have substantially transferred to the customer, which is upon delivery under free on board (FOB) destination terms. 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.
Customer rebates
The Company offers rebates to its customers under a number of different programs. These rebates are recorded in accordance with the accounting standards 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 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.
Page 10
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
2. | Significant accounting policies (continued) |
Manufacturer rebates
The Company receives rebates from its vendors under a number of different programs. These rebates are recorded in accordance with the accounting standards 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 our inventory, and our cost of goods sold when product is sold.
3. | Accounts receivable |
2013 | 2012 | |||||||
$ | $ | |||||||
Accounts receivable |
7,684,285 | 5,160,144 | ||||||
Less: allowance for doubtful accounts |
(314,930 | ) | (289,782 | ) | ||||
|
|
|
|
|||||
7,369,355 | 4,870,362 | |||||||
|
|
|
|
Bad debt expense was $13,129 for the year ended January 31, 2013 (2012$142,364; 2011$77,723).
4. | Inventories |
2013 | 2012 | |||||||
$ | $ | |||||||
Tire inventories |
19,932,030 | 9,713,102 | ||||||
Wheel inventories |
247,503 | 578,992 | ||||||
Parts |
78,023 | 51,372 | ||||||
|
|
|
|
|||||
20,257,556 | 10,343,466 | |||||||
|
|
|
|
5. | Note receivable |
2013 | 2012 | |||||||
$ | $ | |||||||
Note receivable |
109,757 | 328,660 | ||||||
Less: current portion |
109,757 | 219,107 | ||||||
|
|
|
|
|||||
Long term portion |
| 109,553 | ||||||
|
|
|
|
The amount is due from one of the Companys landlords and relates to reimbursable costs for tenant improvements. As set out in the premise rental agreement, the Company is entitled to a total allowance of $329,271 ($330,000 Canadian dollars) for partial reimbursement of actual costs incurred relating to tenant improvements upon completion of a statutory declaration. The amount is payable in three installments of $109,757 ($110,000 Canadian dollars) with the final installment due on June 1, 2013.
Page 11
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
6. | Related party transactions |
The following balances are due from related parties:
2013 | 2012 | |||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc., demand promissory note, secured by a general pledge of all assets, non-interest bearing, payable on demand |
| 782,636 | ||||||
Tirecraft Eastern Canada Limited, demand promissory note, secured by a general pledge of all assets, non-interest bearing payable on demand |
| 49,747 | ||||||
Tire Hotel Inc., promissory note, unsecured, non-interest bearing, repayable on demand |
| 109,363 | ||||||
Trade receivable balances due from related parties |
172,244 | 98,296 | ||||||
|
|
|
|
|||||
172,244 | 1,040,042 | |||||||
|
|
|
|
The following balances are due to related parties:
2013 | 2012 | |||||||
$ | $ | |||||||
Non-controlling interest, demand promissory note, secured by a general pledge of all assets, non-interest bearing, payable on demand |
48,886 | | ||||||
Trade payable and accrual balances due to related parties |
89,745 | 120,154 | ||||||
|
|
|
|
|||||
138,631 | 120,154 | |||||||
|
|
|
|
During the year, the Company entered into the following transactions with related parties:
2013 | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Management fees paid |
271,003 | 275,006 | 194,900 | |||||||||
Management fees paid (Atlantic) |
56,987 | 129,155 | 68,283 | |||||||||
Revenue from related parties |
4,632,486 | 4,838,502 | 3,634,171 | |||||||||
Revenue from related parties (Atlantic) |
1,486,565 | 3,989,355 | 4,245,015 | |||||||||
Purchases from related parties (Atlantic) |
8,045 | 6,057 | 1,137,130 | |||||||||
Rebate commissions paid |
843,029 | 693,334 | 456,732 | |||||||||
Rebate commissions paid (Atlantic) |
124,083 | 193,175 | 165,522 |
The transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The companies above are owned and controlled by a shareholder of the Company or Atlantic or are related due to common control and ownership.
Page 12
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
7. | Investments |
Investment in Regional Tire Distributors (Atlantic) Inc.
On December 2, 2009 the Company acquired 38% of Regional Tire Distributors (Atlantic) Inc. (Atlantic) for $4. On August 3, 2012, the Company acquired an additional 55% of Atlantic. See note 16 for details of the acquisition. The following table shows the change in the investment.
2013 | 2012 | |||||||
$ | $ | |||||||
Beginning balance |
989,119 | 591,359 | ||||||
Share of comprehensive income |
87,619 | 404,685 | ||||||
Acquisition of control |
(1,071,632 | ) | | |||||
Foreign exchange adjustment |
(5,106 | ) | (6,925 | ) | ||||
|
|
|
|
|||||
Ending balance |
| 989,119 | ||||||
|
|
|
|
Summarized balance sheet information of Atlantic is as follows:
2013 | 2012 | |||||||
$ | $ | |||||||
Current assets |
| 6,947,488 | ||||||
|
|
|
|
|||||
Non-current assets |
| 441,219 | ||||||
|
|
|
|
|||||
Current liabilities |
| 4,957,817 | ||||||
|
|
|
|
|||||
Non-current liabilities |
| | ||||||
|
|
|
|
Summarized statement of operation information of Atlantic is as follows:
2013* | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Revenue |
13,789,205 | 26,155,597 | 16,841,688 | |||||||||
Expenses |
13,726,820 | 25,439,225 | 15,836,676 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
62,385 | 716,372 | 1,005,012 | |||||||||
|
|
|
|
|
|
* | -period ending August 2, 2012 |
Investment in Tire Hotel Inc.
The Company holds a 50% equity interest in Tire Hotel Inc. The following is a summary of the changes in the investment. The following table shows the change in the investment.
2013 | 2012 | |||||||
$ | $ | |||||||
Beginning balance |
41,317 | 16,891 | ||||||
Share of comprehensive income |
19,052 | 24,804 | ||||||
Foreign exchange adjustment |
(8 | ) | (378 | ) | ||||
|
|
|
|
|||||
Ending balance |
60,361 | 41,317 | ||||||
|
|
|
|
Page 13
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
7. | Investments (continued) |
Total investment balance
2013 | 2012 | |||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc. |
| 989,119 | ||||||
Tire Hotel Inc. |
60,361 | 41,317 | ||||||
|
|
|
|
|||||
Total investment |
60,361 | 1,030,436 | ||||||
|
|
|
|
Equity accounted income
2013 | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Regional Tire Distributors (Atlantic) Inc. |
87,619 | 404,685 | 577,245 | |||||||||
Tire Hotel Inc. |
19,052 | 24,804 | (34,674 | ) | ||||||||
Tirecraft Eastern Canada Ltd. |
(50 | ) | (50 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total investment |
106,621 | 429,439 | 542,571 | |||||||||
|
|
|
|
|
|
8. | Property, plant and equipment |
2013 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
$ | $ | $ | ||||||||||
Vehicles |
14,462 | 8,402 | 6,060 | |||||||||
Computer equipment |
134,426 | 70,044 | 64,382 | |||||||||
Office equipment |
70,270 | 34,225 | 36,045 | |||||||||
Warehouse equipment |
864,144 | 246,035 | 618,109 | |||||||||
Leasehold improvements |
404,545 | 135,725 | 268,820 | |||||||||
|
|
|
|
|
|
|||||||
1,487,847 | 494,431 | 993,416 | ||||||||||
|
|
|
|
|
|
2012 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
$ | $ | $ | ||||||||||
Vehicles |
13,190 | 5,356 | 7,834 | |||||||||
Computer equipment |
66,637 | 34,568 | 32,069 | |||||||||
Office equipment |
64,053 | 23,215 | 40,838 | |||||||||
Warehouse equipment |
413,147 | 102,947 | 310,200 | |||||||||
Leasehold improvements |
213,917 | 56,823 | 157,094 | |||||||||
|
|
|
|
|
|
|||||||
770,944 | 222,909 | 548,035 | ||||||||||
|
|
|
|
|
|
Depreciation expense for the year ended January 31, 2013 was $189,829 (2012$119,849; 2011$69,213).
Page 14
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
9. | Intangible assets |
2013 | ||||||||||||
Cost | Accumulated amortization |
Net book value |
||||||||||
$ | $ | $ | ||||||||||
Customer relationships |
6,984,530 | 286,865 | 6,697,665 | |||||||||
Tradename |
598,674 | 42,762 | 555,912 | |||||||||
|
|
|
|
|
|
|||||||
7,583,204 | 329,627 | 7,253,577 | ||||||||||
|
|
|
|
|
|
The weighted average life of intangible assets is 11.6 years.
Amortization expense for the year ended January 31, 2013 was $331,084 (2012 and 2011$nil).The estimated aggregate amortization expense of intangible assets, as of January 31, 2013, in each of the next five years is expected to be as follows:
$ | ||||
2014 |
667,569 | |||
2015 |
667,569 | |||
2016 |
667,569 | |||
2017 |
667,569 | |||
2018 |
667,569 |
10. | Bank indebtedness |
2013 | 2012 | |||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc.: |
||||||||
Royal Bank of Canada, variable rate loan bearing interest at prime plus 1.0%. Balance is payable on demand. |
2,461,136 | | ||||||
|
|
|
|
|||||
2,461,136 | | |||||||
|
|
|
|
Regional Tire Distributors Inc.
The Company has a revolving demand facility of $4,589,834 ($4,600,000 Canadian dollars) of which $nil was drawn upon at January 31, 2013 (2012$nil). The revolving facility bears interest at prime plus 0.95%. Borrowings under the facility cannot exceed 75% of accounts receivable less potential prior ranking claims. This facility is secured by a first ranking security interest in all personal property of the Company and a $3,492,265 ($3,500,000 Canadian dollars) guarantee and postponement of claim by Regional Tire Distributors (Atlantic) Inc.
Regional Tire Distributors (Atlantic) Inc.
Regional Tire Distributors (Atlantic) Inc. has a revolving demand facility of $2,993,370 ($3,000,000 Canadian dollars) of which $2,461,136 was drawn upon at January 31, 2013 and another revolving demand facility of $1,746,133 ($1,750,000 Canadian dollars) of which $nil was drawn upon at January 31, 2013. The latter facility is available June 30 to December 20 of each year. The revolving facilities bear interest at prime plus 1.0%. Borrowings under the facility cannot exceed the aggregate of 75% of accounts receivable less potential prior ranking claims and 50% of the lesser of cost or net realizable value of unencumbered inventory to a maximum of $1,995,580 ($2,000, 000 Canadian dollars) increasing to $2,993,370 ($3,000,000 Canadian dollars) for the period of June 30th to December 20th inclusive in each year. These facilities are secured by a first ranking security interest in all personal property of the Regional Tire Distributors (Atlantic) Inc.
Page 15
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
11. | Long-term debt |
2013 | 2012 | |||||||
$ | $ | |||||||
Regional Tire Distributors Inc.: |
||||||||
Royal Bank of Canada, variable rate loan bearing interest at prime plus 1.0%. Balance is repayable in monthly installments of $234,481 ($235,000 Canadian dollars) in December through May of each year. |
3,023,304 | | ||||||
Regional Tire Distributors (Atlantic) Inc.: |
||||||||
Promissory note bearing no interest. Repayable in annual installments of $432,375 ($433,333 Canadian dollars). Balance matures on April 30, 2013. |
864,751 | | ||||||
|
|
|
|
|||||
3,888,055 | | |||||||
Current portion |
1,839,259 | | ||||||
|
|
|
|
|||||
2,048,796 | | |||||||
|
|
|
|
Regional Tire Distributors Inc.
The Company has a non-revolving term facility of $3,492,265 ($3,500,000 Canadian dollars), at a rate of prime plus 1%, of which $3,023,304 ($3,030,000 Canadian dollars) has been drawn upon at January 31, 2013 (2012$nil). The Company is required to make monthly payments on this facility of $234,481 ($235,000 Canadian dollars) in December through May of each year.
The term facility is repayable in full within 30 months of the original drawdown of the facility in August, 2012.
This facility is secured by a first ranking security interest in all personal property of the Company and a $3,492,265 ($3,500,000 Canadian dollars) guarantee and postponement of claim by Regional Tire Distributors (Atlantic) Inc.
Principal payments of long-term debt are as follows:
$ | ||||
2014 |
1,839,259 | |||
2015 |
2,048,796 | |||
|
|
|||
3,888,055 | ||||
|
|
Page 16
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
12. | Share capital |
Authorized , unlimited number
Common shares
Class A common shares
Class B common shares
Class A special shares
Class B special shares
Class C special shares
Issued
2013 | 2012 | |||||||
$ | $ | |||||||
1,500,000 common shares |
1,490,610 | 1,490,610 |
13. | Financial instruments |
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
| Level 1Inputs based on quoted prices in active markets for identical assets or liabilities. |
| Level 2Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| Level 3Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company has no assets measured at fair value.
14. | Commitments |
The Company is committed to the leases of vehicles, equipment and building premises in Ontario, Nova Scotia and Newfoundland. Future lease payments aggregate $5,446,908 and include the following amounts payable over the next five years:
$ | ||||
2014 |
1,566,178 | |||
2015 |
1,437,047 | |||
2016 |
1,168,871 | |||
2017 |
1,015,607 | |||
2018 |
259,205 | |||
|
|
|||
5,446,908 | ||||
|
|
Rental expense was $1,745,021 for the year ended January 31, 2013 (2012 1,408,845, 2011$551,801).
Page 17
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
15. | Income taxes |
A reconciliation comparing income taxes calculated at the Canadian statutory rate to the amount provided in the consolidated financial statements is as follows:
2013 | 2012 | 2011 | ||||||||||
$ | $ | $ | ||||||||||
Combined federal and provincial statutory income tax rate |
26.7 | % | 26.7 | % | 30.0 | % | ||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
8,761,914 | 4,856,187 | 5,035,693 | |||||||||
|
|
|
|
|
|
|||||||
Expected income tax provision |
2,339,431 | 1,296,602 | 1,510,708 | |||||||||
Increase (decrease) resulting from: |
||||||||||||
Effect of items that are not taxable |
31,745 | 5,987 | 29,716 | |||||||||
Excess of capital cost allowance for income tax purposes over capital asset amortization for accounting purposes |
63,695 | 6,159 | (2,640 | ) | ||||||||
Non-taxable gain on acquisition |
(520,885 | ) | | | ||||||||
Non-taxable investment equity pickup |
(27,317 | ) | (114,457 | ) | (162,590 | ) | ||||||
Other |
(83,560 | ) | (6,884 | ) | 1,194 | |||||||
|
|
|
|
|
|
|||||||
1,803,109 | 1,187,407 | 1,376,388 | ||||||||||
|
|
|
|
|
|
|||||||
Deferred income tax recovery |
(52,410 | ) | | | ||||||||
Current income tax expense |
1,855,519 | 1,187,407 | 1,376,388 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,803,109 | 1,187,407 | 1,376,388 | |||||||||
|
|
|
|
|
|
An analysis of the deferred income tax liability is as follows:
2013 | 2012 | |||||||
$ | $ | |||||||
Deferred tax liabilities: |
||||||||
Intangible assets |
1,924,253 | | ||||||
Property, plant and equipment |
7,121 | | ||||||
|
|
|
|
|||||
1,931,374 | | |||||||
|
|
|
|
16. | Acquisition of Regional Tire Distributors (Atlantic) Inc. |
On August 3, 2012, the Company acquired an additional 55% share ownership in Atlantic bringing the total share ownership to 93%. Atlantic is a wholesale tire distributor in Eastern Canada. The total purchase price was $4,993,000 ($5,000,000 Canadian dollars). There were also acquisition-related costs incurred of $92,211 ($92,340 Canadian dollars). This acquisition was completed in order to increase the Companys presence in eastern Canada.
As discussed in Note 7, the Company held a 38% interest in Atlantic prior to the acquisition. This share investment was accounted for under the equity method. The Company recognized a gain before income taxes of $2,033,068 as a result of measuring at fair value its equity investment in Atlantic before the business combination. The fair value of the equity investment was determined by the implied purchase price of Atlantic based on the $5,000,000 Canadian dollar purchase price for 55% of Atlantic less a 10% minority discount resulting in a fair value of $3,104,700 ($3,109,100 Canadian dollars).
Page 18
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013, 2012 and 2011
(Presented in United States Dollars)
16. | Acquisition of Regional Tire Distributors (Atlantic) Inc. (continued) |
The allocation of the purchase price for accounting purposes was as follows:
$ | ||||
Accounts receivable (net of allowance for doubtful accounts of $80,449) |
2,316,856 | |||
Inventories |
9,543,602 | |||
Prepaid expenses |
107,578 | |||
Property, plant and equipment |
310,769 | |||
Customer relationships |
6,890,300 | |||
Tradename |
599,200 | |||
Bank indebtedness |
(2,520,486 | ) | ||
Accounts payable and accrued liabilities |
(6,523,176 | ) | ||
Note payable |
(1,913,337 | ) | ||
Long-term debt (including current portion) |
(865,453 | ) | ||
Income taxes payable |
(85,839 | ) | ||
Deferred tax liabilities |
(1,984,718 | ) | ||
|
|
|||
Total identifiable net assets |
5,875,296 | |||
Goodwill |
2,730,804 | |||
|
|
|||
Total |
8,606,100 | |||
|
|
|||
Total cash consideration paid to vendor |
4,993,000 | |||
Fair value of previously held equity interest |
3,104,700 | |||
Fair value of non-controlling interest |
508,400 | |||
|
|
|||
Total |
8,606,100 | |||
|
|
The goodwill on the acquisition arose as a result of the value of the assembled workforce and the combined strategic value to our growth plan. The goodwill arising from the acquisition is not deductible for tax purposes.
The revenue and net earnings of the acquiree since the acquisition date included in the consolidated statement of income and comprehensive income for the period ending January 31, 2013 was $22,839,194 and $1,349,166 respectively.
The revenue and net earnings for the Company and Atlantic combined for the year ending January 31, 2013 as though the acquisition date for the business combination was February 1, 2012, would have been $127,298,611 and $6,768,349 respectively. The net earnings have been adjusted for the pro forma amortization of intangible assets of $331,084.
The purchase agreement contains a clause that if within five years of the closing date, the Company enters into an agreement to sell the shares of Atlantic, directly or indirectly, and if the transaction is successfully completed, the Company is required to pay additional consideration to the seller. The payment is determined based on a predetermined formula mainly driven by the increase in value of Atlantic in the subsequent purchase. The Company has determined the fair value of this subsequent payment clause on August 3, 2012 to be nominal.
17. | Subsequent events |
On March 22, 2013, the Company entered into a purchase and sale agreement with TriCan Tire Distributors Inc. to sell 100% of the common shares of the Company. The transaction is expected to close April 30, 2013. Events have been evaluated to April 25, 2013, which is the date the financial statements are issued.
Page 19
Exhibit 99.2
American Tire Distributors Holdings, Inc.
Unaudited Pro Forma Condensed Combined Financial Information
On March 22, 2013, TriCan Tire Distributors Inc. (TriCan), an indirect wholly-owned subsidiary of American Tire Distributors Holdings, Inc. (Holdings or the Company), and American Tire Distributors, Inc. (ATDI), a direct wholly-owned subsidiary of Holdings, entered into a Share Purchase Agreement (the Purchase Agreement) with Regional Tire Holdings Inc., a corporation formed under the laws of the Province of Ontario (Holdco), Regional Tire Distributors Inc., a corporation formed under the laws of the Province of Ontario and a wholly-owned subsidiary of Holdco (RTD), and the shareholders of Holdco (Sellers), pursuant to which TriCan agreed to acquire from Sellers all of the issued and outstanding shares of Holdco for a purchase price of $62.5 million (the Acquisition). RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada.
The Acquisition was completed on April 30, 2013 for aggregate cash consideration of approximately $64.9 million (the Adjusted Purchase Price) which includes initial working capital adjustments. The Acquisition was funded by borrowings under the Companys Sixth Amended and Restated Credit Agreement (the ABL Facility), as amended as more fully described below. The Adjusted Purchase Price is subject to certain post-closing adjustments, including, but not limited to, the finalization of working capital adjustments.
In connection with the Acquisition, on March 22, 2013, Holdings entered into the First Amendment to the Sixth Amended and Restated Credit Agreement (the First Amendment). The First Amendment (1) provides the U.S. Borrowers under the agreement with a new first-in last-out facility (the FILO Facility) in an aggregate principal amount of up to $60.0 million, subject to a borrowing base specific thereto, and (2) increases the aggregate principal amount available under the Canadian ABL Facility from $60.0 million to $100.0 million, subject to the Canadian borrowing base. The additional borrowings provided for under the First Amendment were contingent upon, among other things, the closing of the Acquisition on or before May 31, 2013. The closing of the Acquisition occurred, and the borrowings under the FILO Facility became available, on April 30, 2013. The First Amendment also made certain other changes to the Sixth Amended and Restated Credit Agreement and added RTD as a party upon the closing of the Acquisition. The maturity date for the FILO Facility is 18 months from April 30, 2013. The First Amendment did not change the maturity dates of the U.S. ABL Facility or the Canadian ABL Facility or the material terms under which either facility may be accelerated or the U.S. ABL Facility may be increased. Immediately following the closing of the Acquisition, $50.1 million was drawn on the FILO Facility.
The unaudited pro forma condensed combined financial information herein is based upon the historical consolidated financial statements of the Company and RTD and has been prepared to illustrate the effects of the Acquisition. The Company and RTD have different fiscal year ends. The Companys fiscal year is based on either a 52- or 53 week period ending on the Saturday closest to each December 31 while RTDs fiscal year ends on January 31. Accordingly, the unaudited pro forma condensed combined balance sheet as of December 29, 2012 combines the Companys historical audited consolidated balance sheet as of December 29, 2012 with RTDs historical audited consolidated balance sheet as of January 31, 2013. The unaudited pro forma condensed combined balance sheet as of December 29, 2012 gives effect to the Acquisition as if it had occurred on December 29, 2012, and includes only factually supportable adjustments that are directly attributable to the Acquisition regardless of whether they have a continuing impact or are nonrecurring. The unaudited pro forma condensed combined statement of operations for the year ended December 29, 2012 combines the Companys historical audited consolidated statement of operations for the year ended December 29, 2012 with RTDs historical audited consolidated statement of operations for the year ended January 31, 2013. The unaudited pro forma condensed combined statement of operations for the year ended December 29, 2012 gives effect to the Acquisition as if it had occurred on January 1, 2012 (the first day of the Companys 2012 fiscal year), and includes only factually supportable adjustments that are directly attributable to the Acquisition and expected to have a continuing effect.
The Acquisition has been accounted for using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the total purchase price has been preliminarily allocated to the net tangible and intangible assets acquired and liabilities assumed of RTD based on their estimated fair values. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill. The preliminary allocation reflects managements best estimates of fair value, which are based on key assumptions of the Acquisition, including prior acquisition experience, benchmarking of similar acquisitions and historical data. In addition, portions of the preliminary allocation are dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Upon completion of detailed valuation studies and the final determination of fair value, the Company may make additional adjustments to the fair value allocation, which may differ significantly from the valuations set forth in the unaudited pro forma condensed combined financial information.
1
The unaudited pro forma condensed combined statement of operations is based on estimates and assumptions, which have been made solely for the purposes of developing such pro forma information. Pro forma adjustments arising from the Acquisition are derived from the estimated fair value of the assets acquired and liabilities assumed included in the preliminary purchase price allocation. The unaudited pro forma condensed combined statement of operations also includes certain purchase accounting adjustments such as increased amortization expense on acquired intangible assets, changes in interest expense on the debt incurred to complete the Acquisition and debt repaid as part of the Acquisition as well as the tax impacts related to these adjustments. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable.
These unaudited pro forma condensed combined financial statements should be read in conjunction with the:
| Accompanying notes |
| Separate audited consolidated financial statements of Holdings included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2012 |
| Separate audited consolidated financial statements of RTD for the years ended January 31, 2013, 2012 and 2011, included in Exhibit 99.1 of this report |
The unaudited pro forma condensed combined financial information has been presented for information purposes only and is not necessarily indicative of what the combined companys financial position or results of operations actually would have been had the business combination been completed as of the dates indicated, nor is it necessarily indicative of the future operating results or financial position of the combined company. As a result, they do not reflect future events that may occur after the Acquisition, including the potential realization of any cost savings from operating efficiencies, synergies, restructuring or any other costs relating to the integration of the two companies. Therefore, the actual amounts recorded as of the date of acquisition and thereafter may differ from the information presented herein.
2
American Tire Distributors Holdings, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 29, 2012
(In Thousands of US Dollars)
Holdings | RTD | Pro Forma Adjustments |
Pro Forma Combined |
|||||||||||||||
ASSETS |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and cash equivalents |
$ | 25,951 | $ | 760 | $ | | $ | 26,711 | ||||||||||
Accounts receivable, net |
301,303 | 7,479 | | 308,782 | ||||||||||||||
Inventories |
721,672 | 20,258 | 2,900 | (A) | 744,830 | |||||||||||||
Income tax receivable |
369 | | | 369 | ||||||||||||||
Deferred income taxes |
16,458 | | (774 | ) | (B) | 15,684 | ||||||||||||
Assets held for sale |
7,151 | | | 7,151 | ||||||||||||||
Other current assets |
20,695 | 675 | | 21,370 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1,093,599 | 29,172 | 2,126 | 1,124,897 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
129,882 | 993 | | 130,875 | ||||||||||||||
Goodwill |
483,143 | 2,729 | (2,729 | ) | (C) | |||||||||||||
15,545 | (D) | 498,688 | ||||||||||||||||
Other intangible assets, net |
738,698 | 7,254 | (7,254 | ) | (C) | |||||||||||||
43,923 | (E) | 782,621 | ||||||||||||||||
Other assets |
58,680 | 60 | 801 | (F) | 59,541 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,504,002 | $ | 40,208 | $ | 52,412 | $ | 2,596,622 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||
Current liabilities: |
||||||||||||||||||
Accounts payable |
$ | 502,221 | $ | 12,105 | $ | | $ | 514,326 | ||||||||||
Accrued expenses |
44,916 | 3,072 | | 47,988 | ||||||||||||||
Bank indebtedness |
| 2,461 | (2,461 | ) | (G) | | ||||||||||||
Current maturities of long-term debt |
493 | 1,839 | (1,839 | ) | (G) | 493 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
547,630 | 19,477 | (4,300 | ) | 562,807 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Long-term debt |
950,711 | 2,049 | (2,049 | ) | (G) | |||||||||||||
67,031 | (H) | 1,017,742 | ||||||||||||||||
Deferred income taxes |
285,345 | 1,931 | 9,804 | (B) | 297,080 | |||||||||||||
Other liabilities |
14,662 | | | 14,662 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||
Stockholders equity: |
||||||||||||||||||
Common stock |
| 1,491 | (1,491 | ) | (I) | | ||||||||||||
Additional paid-in capital |
756,338 | | | 756,338 | ||||||||||||||
Accumulated (deficit) earnings |
(50,541 | ) | 14,279 | (14,279 | ) | (I) | ||||||||||||
(1,323 | ) | (J) | (51,864 | ) | ||||||||||||||
Accumulated other comprehensive income (loss) |
(143 | ) | 398 | (398 | ) | (I) | (143 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity attributable to stockholders |
705,654 | 16,168 | (17,491 | ) | 704,331 | |||||||||||||
Non-controlling interest |
| 583 | (583 | ) | (I) | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 2,504,002 | $ | 40,208 | $ | 52,412 | $ | 2,596,622 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial information.
3
American Tire Distributors Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Fiscal Year Ended December 29, 2012
(In Thousands of US Dollars)
In thousands |
Holdings | RTD | Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||
Net sales |
$ | 3,455,864 | $ | 113,574 | $ | | $ | 3,569,438 | ||||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
2,887,421 | 89,280 | | 2,976,701 | ||||||||||||||
Selling, general and administrative expenses |
506,408 | 17,648 | 7,033 | (K) | 531,089 | |||||||||||||
Transaction expenses |
5,246 | | | 5,246 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
56,789 | 6,646 | (7,033 | ) | 56,402 | |||||||||||||
Other income (expense): |
||||||||||||||||||
Interest expense, net |
(72,918 | ) | (76 | ) | 133 | (L) | ||||||||||||
(2,554 | ) | (M) | (75,415 | ) | ||||||||||||||
Gain on acquisition |
| 2,033 | (2,033 | ) | (N) | | ||||||||||||
Equity accounted income |
| 107 | | 107 | ||||||||||||||
Other, net |
(3,895 | ) | 52 | | (3,843 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations before income taxes |
(20,024 | ) | 8,762 | (11,487 | ) | (22,749 | ) | |||||||||||
Income tax provision (benefit) |
(5,678 | ) | 1,803 | (3,067 | ) | (O) | (6,942 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (14,346 | ) | $ | 6,959 | $ | (8,420 | ) | $ | (15,807 | ) | |||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial information.
4
American Tire Distributors Holdings, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Description of Transaction
On March 22, 2013, TriCan Tire Distributors Inc. (TriCan), an indirect wholly-owned subsidiary of American Tire Distributors Holdings, Inc. (Holdings or the Company), and American Tire Distributors, Inc. (ATDI), a direct wholly-owned subsidiary of Holdings, entered into a Share Purchase Agreement (the Purchase Agreement) with Regional Tire Holdings Inc., a corporation formed under the laws of the Province of Ontario (Holdco), Regional Tire Distributors Inc., a corporation formed under the laws of the Province of Ontario and a wholly-owned subsidiary of Holdco (RTD), and the shareholders of Holdco (Sellers), pursuant to which TriCan agreed to acquire from Sellers all of the issued and outstanding shares of Holdco for a purchase price of $62.5 million (the Acquisition). Holdco has no significant assets or operations other than its ownership of RTD. The operations of RTD constitute the operations of Holdco. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada.
The Acquisition was completed on April 30, 2013 for aggregate cash consideration of approximately $64.9 million (the Adjusted Purchase Price) which includes initial working capital adjustments. The Acquisition was funded by borrowings under the Companys Sixth Amended and Restated Credit Agreement (the ABL Facility), as amended as more fully described below. The Adjusted Purchase Price is subject to certain post-closing adjustments, including, but not limited to, the finalization of working capital adjustments.
In connection with the Acquisition, on March 22, 2013, Holdings entered into the First Amendment to the Sixth Amended and Restated Credit Agreement (the First Amendment). The First Amendment (1) provides the U.S. Borrowers under the agreement with a new first-in last-out facility (the FILO Facility) in an aggregate principal amount of up to $60.0 million, subject to a borrowing base specific thereto, and (2) increases the aggregate principal amount available under the Canadian ABL Facility from $60.0 million to $100.0 million, subject to the Canadian borrowing base. The additional borrowings provided for under the First Amendment were contingent upon, among other things, the closing of the Acquisition on or before May 31, 2013. The closing of the Acquisition occurred, and the borrowings under the FILO Facility became available, on April 30, 2013. The First Amendment also made certain other changes to the Sixth Amended and Restated Credit Agreement and added RTD as a party upon the closing of the Acquisition. The maturity date for the FILO Facility is 18 months from April 30, 2013. The First Amendment did not change the maturity dates of the U.S. ABL Facility or the Canadian ABL Facility or the material terms under which either facility may be accelerated or the U.S. ABL Facility may be increased. Immediately following the closing of the Acquisition, $50.1 million was drawn on the FILO Facility.
2. Basis of Presentation
The unaudited pro forma condensed combined financial information herein is based upon the historical consolidated financial statements of the Company and RTD and has been prepared to illustrate the effects of the Acquisition. The Company and RTD have different fiscal year ends. The Companys fiscal year is based on either a 52- or 53 week period ending on the Saturday closest to each December 31 while RTDs fiscal year ends on January 31. Accordingly, the unaudited pro forma condensed combined balance sheet as of December 29, 2012 combines the Companys historical audited consolidated balance sheet as of December 29, 2012 with RTDs historical audited consolidated balance sheet as of January 31, 2013 and gives effect to the Acquisition as if it had occurred on December 29, 2012. The unaudited pro forma condensed combined statement of operations for the year ended December 29, 2012 combines the Companys historical audited consolidated statement of operations for the year ended December 29, 2012 with RTDs historical audited consolidated statement of operations for the year ended January 31, 2013 and gives effect to the Acquisition as if it had occurred on January 1, 2012 (the first day of the Companys 2012 fiscal year). The difference in fiscal periods for the Company and RTD is considered to be insignificant and no related adjustments have been made in the preparation of these unaudited pro forma condensed combined financial statements. In addition, certain amounts in the RTD consolidated financial statements have been reclassified to conform to the Companys basis of presentation.
5
3. Preliminary Estimated Purchase Price Allocation
The Acquisition has been accounted for using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the total purchase price has been preliminarily allocated to the net tangible and intangible assets acquired and liabilities assumed of RTD based on their estimated fair values. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill. The preliminary allocation of the purchase price, as if the Acquisition occurred on December 29, 2012, is as follows:
In thousands |
||||
Cash |
$ | 760 | ||
Accounts receivable |
7,479 | |||
Inventory |
23,158 | |||
Other current assets |
675 | |||
Property and equipment |
993 | |||
Intangible assets |
43,923 | |||
Other assets |
60 | |||
|
|
|||
Total assets acquired |
77,048 | |||
Accounts payable |
12,105 | |||
Accrued and other liabilities |
3,072 | |||
Deferred income taxes |
12,509 | |||
Debt |
| |||
|
|
|||
Total liabilities assumed |
27,686 | |||
Net assets acquired |
49,362 | |||
Goodwill |
15,545 | |||
|
|
|||
Purchase price allocation |
$ | 64,907 | ||
|
|
4. Pro Forma Adjustments
Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
The following is a summary of pro forma adjustments reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(A) | Reflects an adjustment to RTDs inventory to its estimated fair market value, which is the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit margin for completing the selling effort. |
(B) | Reflects a decrease in deferred tax assets related to the increase in the value of RTDs inventory, an increase in deferred tax liabilities related to the preliminary estimated fair market value of RTDs customer list, trade name and favorable leases intangible assets assuming an effective tax rate of 26.7% and a decrease in deferred tax liabilities for the reversal of deferred taxes previously recorded by RTD on intangibles assets that were eliminated. |
(C) | Represents the elimination of RTDs pre-acquisition goodwill of $2.7 million and $7.3 million of other identifiable intangible assets, net. |
(D) | Reflects the excess of the purchase price over the fair value of identified assets acquired and liabilities assumed (See Note 3). |
(E) | Reflects the estimated fair value of identifiable intangible assets based upon a preliminary valuation analysis for the purpose of these pro forma condensed combined financial statements. The preliminary allocation of identifiable intangible assets and their useful lives are as follows: |
6
Dollars In thousands |
Estimated Useful Life |
Estimated Fair Value |
||||||
Customer list |
16 years | $ | 41,632 | |||||
Tradename |
5 years | 1,921 | ||||||
Favorable leases |
4 years | 370 | ||||||
|
|
|||||||
Total |
$ | 43,923 | ||||||
|
|
(F) | Reflects the capitalization of deferred financing costs incurred in connection with the First Amendment to the Sixth Amended and Restated Credit Agreement. These costs are deferred and recognized over the term of the respective facility. |
(G) | Reflects the elimination of RTDs debt. These amounts were paid off in connection with the Acquisition. |
(H) | As of the Acquisition date, the Company increased its outstanding balance under its ABL Facility by $67.0 million. A reconciliation of the components is as follows: |
In thousands |
Inc (Dec) | |||
First Amendment to ABL Facility closing fees |
$ | 801 | ||
Purchase of RTD |
64,907 | |||
Transaction costs |
1,323 | |||
|
|
|||
Net adjustment |
$ | 67,031 | ||
|
|
(I) | Represents the elimination of the separate components of RTDs historical stockholders equity. |
(J) | Reflects the payment of transaction costs related to the Acquisition, which were funded by the Companys ABL Facility. The impact of the transaction costs have not been reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations since these costs are expected to be nonrecurring in nature. |
Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments
The following is a summary of pro forma adjustments reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(K) | Represents $7.3 million for the estimated amortization of the finite-lived intangible assets, discussed in (E) above, based upon the preliminary valuation and estimated useful lives. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. This balance is also net of $0.3 million for the reversal of the amortization of identifiable intangible assets as previously recorded by RTD that has been eliminated. |
(L) | Represents the reversal of interest expense recognized by RTD related to debt that was paid-off in conjunction with the Acquisition. |
(M) | Represents the estimated increase in interest expense associated with incremental borrowings incurred on the Companys ABL Facility to finance the Acquisition. The Company used the weighted-average interest rate for the fiscal year ended December 29, 2012 to calculate the estimated increase in interest expense. In addition, the amortization of deferred financing costs was included to determine the total increase in interest expense. |
(N) | Reflects the elimination of RTDs nonrecurring gain on acquisition. |
(O) | For purposes of the pro forma financial statements, the Canadian statutory rate of 26.7% has been used to calculate the tax effect associated with the pro forma adjustments. This rate is an estimate and does not take into account future tax strategies that may apply to the entire Company. |
7