Form 8-K/A

0001193125-14-325441.txt : 20140828 0001193125-14-325441.hdr.sgml : 20140828 20140828164911 ACCESSION NUMBER: 0001193125-14-325441 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20140627 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140828 DATE AS OF CHANGE: 20140828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: American Tire Distributors Holdings, Inc. CENTRAL INDEX KEY: 0001323891 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLE SUPPLIES & NEW PARTS [5013] IRS NUMBER: 593796143 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-124878 FILM NUMBER: 141072370 BUSINESS ADDRESS: STREET 1: 1220 HERBERT WAYNE COURT STREET 2: SUITE 150 CITY: HUNTERSVILLE STATE: NC ZIP: 28078 BUSINESS PHONE: 704-632-7110 MAIL ADDRESS: STREET 1: 1220 HERBERT WAYNE COURT STREET 2: SUITE 150 CITY: HUNTERSVILLE STATE: NC ZIP: 28078 8-K/A 1 d779206d8ka.htm FORM 8-K/A Form 8-K/A

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: June 27, 2014

(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

Registrant’s 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 July 2, 2014, American Tire Distributors Holdings, Inc. (“Holdings”) filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K (the “July 2^nd 8-K”) to report the acquisitions of the wholesale distribution businesses of Trail Tire Distributors Ltd. (“Trail Tire”) and Extreme Wheel Distributors Ltd. (“Extreme Wheel”) on June 27, 2014. The Trail Tire acquisition was completed pursuant to an Asset Purchase Agreement dated as of June 27, 2014, by and among TriCan Tire Distributors (“TriCan”), an indirect 100% owned subsidiary of Holdings, and the shareholders and principals of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The Extreme Wheel acquisition was completed pursuant to an Asset Purchase Agreement date as of June 27, 2014, by and among TriCan and the shareholder and principal of Extreme Wheel. Extreme Wheel is a wholesale distributor of wheels and related accessories in Canada.

On July 3, 2014, Holdings filed with the SEC a Current Report on Form 8-K (the “July 3^rd 8-K” and collectively with the July 2^nd 8-K, the “Initial 8-K’s”) to report the acquisitions of the wholesale distribution businesses of Kirks Tire Ltd. (“Kirks Tire”), Regional Tire Distributors (Edmonton) Inc. (“RTD Edmonton”) and Regional Tire Distributors (Calgary) Inc. (“RTD Calgary”) each on June 27, 2014. The Kirks Tire acquisition was completed pursuant to an Asset Purchase Agreement dated June 27, 2014, by and among TriCan and the shareholders and principals of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tires, tire parts, and tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. TriCan did not acquire Kirks Tire’s retail operations. The RTD Edmonton acquisition was completed pursuant to an Asset Purchase Agreement dated June 27, 2014, by and among TriCan and the shareholders and principals of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The RTD Calgary acquisition was completed pursuant to an Asset Purchase Agreement dated June 27, 2014, by and among TriCan and the shareholders and principals of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada.

This Form 8-K/A amends the Initial 8-K’s to include the financial information required by Item 9.01 of Form 8-K. The information previously reported in the Initial 8-K’s is hereby incorporated by reference into this Form 8-K/A.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The audited balance sheets of Trail Tire as of February 28, 2014 and 2013, the related statements of operations, of retained earnings, and of cash flows for the years ended February 28, 2014 and 2013, the related notes to the financial statements and the related auditors’ report of Collins Barrow Edmonton LLP, are attached hereto as Exhibit 99.1 and are incorporated herein by reference.

ii.

The audited balance sheets of Extreme Wheel as of February 28, 2014 and 2013, the related statements of operations, of retained earnings, and of cash flows for the years ended February 28, 2014 and 2013, the related notes to the financial statements and the related auditors’ report of Collins Barrow Edmonton LLP, are attached hereto as Exhibit 99.2 and are incorporated herein by reference.

iii.

The audited balance sheets of Kirks Tire as of January 31, 2014, 2013 and 2012, the related statements of operations, of retained earnings, and of cash flows for the years ended January 31, 2014, 2013 and 2012, the related notes to the financial statements and the related auditors’ report of Collins Barrow Edmonton LLP, are attached hereto as Exhibit 99.3 and are incorporated herein by reference.

iv.

The audited balance sheets of RTD Edmonton as of February 28, 2014 and 2013 and February 29, 2012, the related statements of operations, of retained earnings, and of cash flows for the years ended February 28, 2014 and 2013 and February 29, 2012, the related notes to the financial statements and the related auditors’ report of Collins Barrow Edmonton LLP, are attached hereto as Exhibit 99.4 and are incorporated herein by reference.

The audited balance sheets of RTD Calgary as of February 28, 2014 and 2013 and February 29, 2012, the related statements of operations, of retained earnings, and of cash flows for the years ended February 28, 2014 and 2013 and February 29, 2012, the related notes to the financial statements and the related auditors’ report of Collins Barrow Edmonton LLP, are attached hereto as Exhibit 99.5 and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The following information is attached hereto as Exhibit 99.6 and incorporated herein by reference:

(i)

Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended July 5, 2014.

(ii)

Unaudited Pro Forma Condensed Combined Statement of Operations for the Fiscal Year Ended December 28, 2013.

(iii)

Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

(d)

Exhibits


Exhibit No.		Description

99.1		Audited Financial Statements of Trail Tire as of and for the years ended February 28, 2014 and 2013.

99.2		Audited Financial Statements of Extreme Wheel as of and for the years ended February 28, 2014 and 2013.



99.3		Audited Financial Statements of Kirks Tire as of and for the years ended January 31, 2014, 2013 and 2012.

99.4		Audited Financial Statements of RTD Edmonton as of and for the years ended February 28, 2014 and 2013 and February 29, 2012.

99.5		Audited Financial Statements of RTD Calgary as of and for the years ended February 28, 2014 and 2013 and February 29, 2012.

99.6		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)

August 28, 2014	By:	/s/ JASON T. YAUDES
		Name:	Jason T. Yaudes
		Title:	Executive Vice President and
			Chief Financial Officer

EX-99.1 2 d779206dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Trail Tire Distributors LTD.

Index

February 28, 2014 and 2013


	Page
Independent Auditors’ Report		2

Financial Statements

Balance Sheets		3

Statements of Operations		4

Statements of Retained Earnings		5

Statements of Cash Flows		6

Notes to Financial Statements		7

LOGO


		Collins Barrow Edmonton LLP
	INDEPENDENT AUDITORS’ REPORT	2380 Commerce Place
		10155—102 Street N.W.
		Edmonton, Alberta
		T5J 4G8 Canada
		T. 780.428.1522
To the Shareholders of Trail Tire Distributors Ltd.		F. 780.425.8189
To the Shareholders of Trail Tire Distributors Ltd.		www.collinsbarrow.com

We have audited the accompanying financial statements of Trail Tire Distributors Ltd., which comprise the balance sheets as of February 28, 2014 and February 28, 2013, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of 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 financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the 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 entity’s 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 financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trail Tire Distributors Ltd. as of February 28, 2014 and February 28, 2013, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting

As more fully described in Note 2 to the financial statements, the Company’s policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 14 to the financial statements.


Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 20, 2014 except for Note 14 (footnotes (a), (c) and (d)) which are as of August 18, 2014		Chartered Accountants


This office is independently owned and operated by Collins Barrow Edmonton LLP
The Collins Barrow trademarks are used under License.

TRAIL TIRE DISTRIBUTORS LTD.

Balance Sheets

As at February 28, 2014 and February 28, 2013


	February 28, 2014		February 28, 2013
ASSETS
Current Assets
Cash	$	1,876,070	$	2,928,693
Accounts receivable (Note 4)		3,716,217		4,340,454
Goods and Services Tax recoverable		88,812		40,340
Inventories (Note 5)		4,748,358		6,217,267
Prepaid expenses and deposits		46,418		42,013
Income taxes receivable		310,383		—

		10,786,258		13,568,767

Loans receivable from related parties (Note 6)		5,962,211		3,600,739
Property and equipment (Note 7)		413,431		362,557

	$	17,161,900	$	17,532,063

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 6)	$	5,132,908	$	5,881,151
Income taxes payable		—		904,005
Management remuneration payable		93,500		694,000

		5,226,408		7,479,156

Shareholders’ loans (Note 9)		5,122,943		5,122,943

		10,349,351		12,602,099

SHAREHOLDERS’ EQUITY
Share capital (Note 10)		100		100
Retained earnings		6,812,449		4,929,864

		6,812,549		4,929,964

	$	17,161,900	$	17,532,063

Commitments and Contingency (Note 12)

See accompanying notes

TRAIL TIRE DISTRIBUTORS LTD.

Statements of Operations

For the Years Ended February 28, 2014 and February 28, 2013


	2014		2013
Sales (Note 6)	$	45,087,534	$	43,754,191
Cost of sales (Note 6)		37,654,546		34,686,365

Gross profit		7,432,988		9,067,826

Expenses
Wages and benefits		2,986,639		2,871,471
Rent (Note 6)		729,138		606,123
Interest and bank charges		219,525		205,414
Telephone and utilities		191,718		139,875
Automotive		179,943		236,845
Office		158,723		131,597
Amortization		119,040		146,385
Repairs and maintenance		115,737		98,408
Insurance		69,880		79,578
Management salaries		50,750		694,000
Travel		47,171		46,793
Professional fees		43,350		25,266
Property taxes		39,812		21,413
Shop supplies		26,407		53,186
Advertising and promotion (Note 6)		13,711		77,477
Dues and memberships		7,369		6,281
Bad debt expense		2,125		13,318

		5,001,038		5,453,430

Income before other revenue (expenses) and income taxes		2,431,950		3,614,396

Other revenue (expenses)
Foreign exchange gain		19		2,143
Interest income		33,043		78,465
Gain (loss) on sale of equipment		938		(15,427	)
Rental income		42,288		85,180

		76,288		150,361

Income before income taxes		2,508,238		3,764,757
Income taxes expense		625,653		932,369

Net income	$	1,882,585	$	2,832,388

See accompanying notes

TRAIL TIRE DISTRIBUTORS LTD.

Statements of Retained Earnings

For the Years Ended February 28, 2014 and February 28, 2013


	2014		2013
Balance, beginning of year	$	4,929,864	$	2,097,476
Net income		1,882,585		2,832,388

Balance, end of year	$	6,812,449	$	4,929,864

See accompanying notes

TRAIL TIRE DISTRIBUTORS LTD.

Statements of Cash Flows

For the Years Ended February 28, 2014 and February 28, 2013


	2014			2013
Cash provided by (used in):
Operating Activities
Net income	$	1,882,585		$	2,832,388
Items not affecting cash
Amortization		119,040			146,385
(Gain) loss on sale of equipment		(938	)		15,427
Change in non-cash working capital items (Note 11)		(522,862	)		745,287

		1,477,825			3,739,487

Investing Activities
Advances to related parties		(2,387,027	)		(1,895,580	)
Repayments from related parties		25,555			—
Advances to shareholders		—			(13,640	)
Purchase of equipment		(179,676	)		(202,544	)
Proceeds on disposal of equipment		10,700			22,360

		(2,530,448	)		(2,089,404	)

(Decrease) increase in cash		(1,052,623	)		1,650,083
Cash, beginning of year		2,928,693			1,278,610

Cash, end of year	$	1,876,070		$	2,928,693

See accompanying notes

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

1. Nature of operations

The Company was incorporated under the Alberta Business Corporations Act on November 24, 2003 and operates a wholesale tire distribution business.

2. Change in accounting policy

Effective March 1, 2012 the company changed its accounting policy for income taxes from the taxes payable method to the future income taxes method. The change in accounting policy was applied retrospectively. The impact of the change in accounting policy did not result in any changes to the opening retained earnings of 2013 nor did it result in the recognition of a future tax asset or future tax liability as at February 29, 2012.

3. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance with accounting standards for private enterprises, which is a basis of accounting generally accepted in Canada for entities that are privately held.

Revenue recognition

Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and volume rebates to customers.

Interest revenue is recognized on an annual basis as it is earned.

Rental revenue earned under a lease agreement is recognized as revenue over the term of the underlying lease. All rent increases based on escalation clauses in lease agreements are accounted for on a straight-line basis over the term of the respective leases. Property taxes, other operating cost recoveries, and other incidental income are recognized on an accrual basis.

Vendor Rebates and Allowances

The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold.

Allowance for doubtful accounts

The allowance for doubtful accounts reflects management’s best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Inventories

Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.

Property and equipment

Property and equipment are recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:


Automotive	-	30% declining balance basis
Office equipment	-	20% declining balance basis
Leasehold improvements	-	5 year straight-line basis
Computer equipment	-	30% declining balance basis
Computer software	-	100% declining balance basis
Manufacturing equipment	-	50% straight-line basis
Shop equipment	-	20% declining balance basis

Property and equipment are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.

Income taxes

The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Translation of Foreign Currency

Monetary assets and liabilities of the Company are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at rates of exchange in effect at the respective transaction months. The resulting exchange gains or losses are included in net earnings. Non-monetary assets and liabilities, arising from transactions denominated in foreign currencies, are translated at rates of exchange in effect at the date of the transaction.

Use of estimates

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory and estimated useful lives of property and equipment for purposes of calculating amortization. Actual results could differ from those estimates.

Financial Instruments

Measurement of financial instruments

The company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.

Financial assets measured at amortized cost include cash, accounts receivable and loans receivable from related parties.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable and shareholders’ loans.

Impairment

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.

Transaction costs

Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.

4. Accounts Receivable

Accounts receivable consists of the following:


	2014			2013
Accounts receivable—Trade	$	3,752,062		$	4,401,224
Warranty receivable		56,430			31,126
Allowance for doubtful accounts		(92,275	)		(91,896	)

	$	3,716,217		$	4,340,454

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

5. Inventories

Inventories consist of the following:


	2014		2013
Tires	$	4,736,085	$	6,198,642
Parts		8,010		8,764
Other		4,263		9,861

	$	4,748,358	$	6,217,267

At the fiscal year end, inventory included volume rebates and allowances of $nil (February 28, 2013—$nil).

Cost of sales reported on the statement of operations include $37,674,546 (February 28, 2013—$34,686,365) of inventories recognized as an expense during the year.

6. Loans Receivable from Related Parties and Related Party Transactions

Loans Receivable from Related Parties

Loans receivable from related parties are as follows:


	2014		2013
Trail Tire Services Ltd.	$	32,051	$	31,457
Extreme Wheel Distributors Ltd.		234,994		77,450
Regional Tire Distributors (Edmonton) Inc.		3,584,288		1,475,597
Tirecraft Western Canada Ltd.		472,548		497,102
1470242 Alberta Ltd.		755,791		755,791
1694352 Alberta Ltd.		213,743		213,743
Trail Tire (Kingsway) Ltd.		548,598		549,599
Tire Storage Direct (Edmonton) Ltd.		26,355		—
Integra Tire Canada Ltd.		93,843		—

	$	5,962,211	$	3,600,739

Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Trail Tire Distributors Ltd. and each of these companies is as follows:

Tirecraft Western Canada Ltd., Integra Tire Canada Ltd. and Tire Storage Direct (Edmonton) Ltd. are indirectly owned by a director of Trail Tire Distributors Ltd.

Extreme Wheel Distributors Ltd. is controlled by an immediate family member of a director of Trail Tire Distributors Ltd.

Regional Tire Distributors (Edmonton) Inc. (formerly known as North Alta Tire Distributors Ltd.) is partially owned by a director of Trail Tire Distributors Ltd.

1470242 Alberta Ltd., 1694352 Alberta Ltd. and Trail Tire (Kingsway) Ltd. are companies controlled by a director of Trail Tire Distributors Ltd.

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Trail Tire Services Ltd. is controlled by a close family member of the directors of Trail Tire Distributors Ltd.

As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next fiscal year, they have been classified as long term assets.

Related Party Transactions

Sales to related parties are as follows:


	2014		2013
Extreme Wheels Distributors Ltd.	$	102,844	$	142,206
Regional Tire Distributors (Edmonton) Inc.		88,701		265,241
Trail Tire (Kingsway) Ltd.		353,551		277,777
Trail Tire Services Ltd.		911,000		1,065,402

	$	1,456,096	$	1,750,626

Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:


	2014		2013
Extreme Wheels Distributors Ltd.	$	6,255	$	3,614
Tirecraft (Fort Road) Centre		43,534		10,927
Regional Tire Distributors (Edmonton) Inc.		242,157		381,745
Trail Tire (Kingsway) Ltd.		59,035		40,722

	$	350,981	$	437,008

Purchases from related parties are as follows:


	2014		2013
Extreme Wheels Distributors Ltd.	$	—	$	15,998
Regional Tire Distributors (Edmonton) Inc.		223,912		2,585,228
Trail Tire (Kingsway) Ltd.		555,351		230,415

	$	779,263	$	2,831,641

Included in the rent expense are lease payments to 1470242 Alberta Ltd., a company that is controlled by a director of the Company, which amounted to $420,000 for the 2014 fiscal year (February 28, 2013—$420,000).

Payments made for marketing services to Tirecraft Western Canada Ltd, a company in which a director of the Company has indirect ownership, was $nil for the 2014 fiscal year (February 28, 2013—$266,832).

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:


	2014		2013
Extreme Wheels Distributors Ltd.	$	1,626	$	549
Tirecraft Western Canada		80,306		7,870
Regional Tire Distributors (Edmonton) Inc.		294,547		256,070
Trail Tire Services Ltd.		373		2,589
Trail Tire (Kingsway) Ltd.		1,362		2,264

	$	378,214	$	269,342

The related party transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

7. Property and Equipment

2014

Cost

Accumulated

Amortization

Net

Automotive

435,058

273,119

161,939

Office equipment

77,132

36,438

40,694

Leasehold improvements

46,856

42,170

4,686

Computer equipment

92,729

57,483

35,246

Computer software

72,923

—

Manufacturing equipment

69,303

—

Shop equipment

368,654

197,788

170,866

1,162,655

749,224

413,431


	2013
	Cost		Accumulated Amortization		Net
Automotive	$	444,809	$	272,422	$	172,387
Office equipment		61,928		28,166		33,762
Leasehold improvements		46,856		32,799		14,057
Computer equipment		78,572		45,412		33,160
Computer software		72,923		72,923		—
Manufacturing equipment		69,303		69,303		—
Shop equipment		280,816		171,625		109,191

	$	1,055,207	$	692,650	$	362,557

8. Operating Line of Credit

The Company has an operating line of credit bearing interest at prime plus 1.40%, limited to the lesser of $250,000 (increased to $750,000 for the period March 1 to September 30 each year) and 75% of accounts receivable, and is secured by a general security agreement covering a first ranking security interest in all assets of the Company. As at February 28, 2014 and 2013 no amounts were outstanding on the operating line of credit.

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

9. Shareholders’ Loans

Shareholders’ loans at February 28, 2014 which includes amounts outstanding at February 28, 2013 are unsecured, non-interest bearing, and are due March 1, 2015.

10. Share Capital

Authorized:

Unlimited number of Class A, B and C common voting shares


	2014		2013
Issued:
100 Class A common shares	$	100	$	100

11. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:


	2014			2013
Accounts receivable	$	624,237		$	(322,039	)
Inventories		1,468,909			(629,693	)
Prepaid expenses and deposits		(4,405	)		2,653
Goods and Services Tax receivable		(48,472	)		62,628
Income taxes receivable		(310,383	)		4,422
Accounts payable and accrued liabilities		(748,243	)		1,122,081
Income taxes payable		(904,005	)		(398,770	)
Management remuneration payable		(600,500	)		904,005

	$	(522,862	)	$	745,287

12. Commitments and Contingency

The Company has entered into various operating leases for its office and warehouse premises as follows:


Location		Expiration date
Main office/Warehouse—11771 167 Street		September 30, 2014
Warehouse—16305 117 Avenue		October 31, 2014
Warehouse—11612 163 Street		December 31, 2014

The required lease payments under the various leases are due as follows:


2015	$	521,756

The Company has provided a corporate guarantee related to term loan financing obtained by 1470242 Alberta Ltd., a company that is controlled by a director of the Company. The Company has guaranteed the full amount of the loan maturing June 15, 2014 with an outstanding balance of $3,228,752 as at February 28, 2014 (February 28, 2013—$3,490,352). The guarantee is supported by a general security agreement secured by a floating charge on all of the Company’s fixed assets.

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Under the current credit facility the Company is required to maintain minimum working capital and debt service coverage ratios. As at February 28, 2014 and 2013 the Company was in compliance with these covenants.

The Company has provided a corporate guarantee related to term loan financing obtained by 1694352 Alberta Ltd., a company that is controlled by a director of the Company. The Company has guaranteed the full amount of the loan maturing September 15, 2017 with an outstanding balance of $972,194 as at February 28, 2014 (February 28, 2013—$1,019,750). The guarantee is supported by a general security agreement secured by a floating charge on all of the Company’s fixed assets.

13. Financial Instruments

Credit Risk

The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

Interest Rate Risk

The Company’s operating line of credit bears interest based at prime and, accordingly, exposes the Company to interest rate risk through fluctuation in the prime rate. As at February 28, 2014 and 2013 there was no amount due on the operating line of credit.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At February 28, 2014 the company had a working capital balance of $5,559,850 (February 28, 2013—$6,089,611)

Foreign Currency Risk

Currency risk is the risk to the Company’s earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $5,829 as at February 28, 2014 (February 28, 2013—$64,018).

14. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises. The material differences between the accounting policies used by the Company under Canadian Accounting Standards for Private Enterprises and US GAAP are disclosed below.

a) Income Taxes

TRAIL TIRE DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Company’s financial statements.

Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Company’s statutory income tax rate and the effective tax rate.

b) Variable interest entities

The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interests that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.

c) Comprehensive Income

US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financials statements.

d) Cash Flows From Financing Activities

The Company did not have any cash flows from financing activities and therefore this caption does not appear on the Statements of Cash Flows.

EX-99.2 3 d779206dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Extreme Wheel Distributors LTD.

Index

February 28, 2014 and 2013


	Page
Independent Auditors’ Report		2

Financial Statements

Balance Sheets		3

Statements of Operations		4

Statements of Retained Earnings		5

Statements of Cash Flows		6

Notes to Financial Statements		7

LOGO


	INDEPENDENT AUDITORS’ REPORT	Collins Barrow Edmonton LLP 2380 Commerce Place 10155—102 Street N.W. Edmonton, Alberta T5J 4G8 Canada T. 780.428.1522
To the Shareholder of Extreme Wheel Distributors Ltd.		F. 780.425.8189
To the Shareholder of Extreme Wheel Distributors Ltd.		www.collinsbarrow.com

We have audited the accompanying financial statements of Extreme Wheel Distributors Ltd., which comprise the balance sheets as of February 28, 2014 and February 28, 2013, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Auditors’ Responsibility

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Extreme Wheel Distributors Ltd. as of February 28, 2014 and February 28, 2013, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting


Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 20, 2014 except for Note 12 (footnotes (a) and (c)) which are as of August 18, 2014		Chartered Accountants

This office is independently owned and operated by Collins Barrow Edmonton LLP

The Collins Barrow trademarks are used under License.

EXTREME WHEEL DISTRIBUTORS LTD.

Balance Sheets

As at February 28, 2014 and February 28, 2013


	February 28, 2014		February 28, 2013
ASSETS
Current Assets
Cash	$	1,264,965	$	931,656
Accounts receivable (Note 3)		487,572		376,209
Shareholder’s advance (Note 7)		125,000		—
Inventories (Note 4)		1,308,687		1,000,224
Goods and Services Tax recoverable		9,249		1,517
Prepaid expenses		5,431		4,705

		3,200,904		2,314,311

Loan receivable from related party (Note 5)		130,000		130,000
Property and equipment (Note 6)		34,343		45,158
Investment (Note 8)		50,858		50,858

	$	3,416,105	$	2,540,327

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	406,083	$	252,738
Management remuneration payable		188,307		314,276
Income taxes payable		111,636		14,300

		706,026		581,314

Loans payable to related parties (Note 5)		567,689		525,526

		1,273,715		1,106,840

SHAREHOLDER’S EQUITY
Share capital (Note 9)		100		100
Retained earnings		2,142,290		1,433,387

		2,142,390		1,433,487

	$	3,416,105	$	2,540,327

See accompanying notes

EXTREME WHEEL DISTRIBUTORS LTD.

Statements of Operations

For the Years Ended February 28, 2014 and February 28, 2013


	2014		2013
Sales (Note 5)	$	7,678,243	$	6,168,369
Cost of sales (Note 5)		5,978,940		4,580,901

Gross profit		1,699,303		1,587,468

Expenses
Wages and benefits		513,475		465,680
Rent (Note 5)		110,400		110,400
Bank charges and processing fees		38,371		33,850
Professional fees		35,816		34,308
Advertising and promotion		31,237		18,132
Automotive and travel		31,069		29,019
Repairs and maintenance		18,794		20,113
Office and shop supplies		14,727		21,342
Insurance and licenses		11,396		9,420
Amortization		10,815		13,122
Management salaries		7,000		324,000
Bad debt expense		6,956		17,413
Utilities		5,005		5,149

		835,061		1,101,948

Income before other revenue (expenses) and income taxes		864,242		485,520

Other revenue (expenses)
Foreign exchange gain		—		(118	)
Interest income		10,302		5,084

		10,302		4,966

Income before income taxes		874,544		490,486
Income taxes expense		165,641		68,728

Net income	$	708,903	$	421,758

See accompanying notes

EXTREME WHEEL DISTRIBUTORS LTD.

Statements of Retained Earnings

For the Years Ended February 28, 2014 and February 28, 2013


	2014		2013
Balance, beginning of year	$	1,433,387	$	1,011,629
Net income		708,903		421,758

Balance, end of year	$	2,142,290	$	1,433,387

See accompanying notes

EXTREME WHEEL DISTRIBUTORS LTD.

Statements of Cash Flows

For the Years Ended February 28, 2014 and February 28, 2013


	2014			2013
Cash provided by (used in):
Operating Activities
Net income	$	708,903		$	421,758
Item not affecting cash
Amortization		10,815			13,122
Change in non-cash working capital items (Note 10)		(303,572	)		(121,860	)

		416,146			313,020

Investing Activities
Purchase of equipment		—			(3,597	)
Advance to shareholder		(125,000	)		—
Repayment from shareholder		—			12,600
Advance to related party		—			(130,000	)

		(125,000	)		(120,997	)

Financing Activities
Advances from related parties		162,163			86,483
Repayment to related party		(120,000	)		(120,000	)

		42,163			(33,517	)

Increase in cash		333,309			158,506
Cash, beginning of year		931,656			773,150

Cash, end of year	$	1,264,965		$	931,656

See accompanying notes

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

1. Nature of Activities

The Company was incorporated under the Alberta Business Corporations Act on June 27, 2007 and commenced operations as a wholesale wheel business.

2. Summary of Significant Accounting Policies

Basis of Accounting

Revenue Recognition

Interest revenue is recognized on an annual basis as it is earned.

Vendor Rebates and Allowances

Vendor rebates and allowances earned are initially recorded as a reduction in the cost of inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold.

Allowance for doubtful accounts

The allowance for doubtful accounts reflects management’s best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue accounts receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.

Inventories

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Property and equipment

Property and equipment are recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:


Automotive	-	30% declining balance basis
Office equipment	-	20% declining balance basis
Leasehold improvements	-	5 year straight-line basis
Computer equipment	-	30% declining balance basis
Shop equipment	-	20% declining balance basis

Investments

The company accounts for its investment using the cost method. The carrying value of the investment is reviewed annually and written down below cost if there is a loss of value.

Income taxes

Translation of Foreign Currency Transactions

Use of estimates

The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable and valuation of inventory. Actual results could differ from those estimates.

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Financial Instruments

Measurement of financial instruments

Financial assets measured at amortized cost include cash, accounts receivable, shareholder’s advance and loan receivable from related party.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable and loans payable to related parties.

Impairment

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. A previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.

Transaction costs

3. Accounts Receivable

Accounts receivable consist of the following:


	2014		2013
Accounts receivable—trade	$	487,572	$	384,768
Allowance for doubtful accounts		—		(8,559	)

	$	487,572	$	376,209

4. Inventories

Inventories consist of the following:


	2014		2013
Tires	$	34,781	$	25,338
Parts and accessories		160,761		137,304
Custom wheels		1,113,145		837,582

	$	1,308,687	$	1,000,224

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Cost of sales reported on the statement of operations include $5,978,940 (February 28, 2013—$4,580,901) of inventories recognized as an expense during the year.

5. Loans Receivable from/Payable to Related Parties and Related Party Transactions

Loans Receivable from/Payable to Related Parties

a) Loan receivable from related party is as follows:


	2014		2013
1694352 Alberta Ltd.	$	130,000	$	130,000

Loan receivable from 1694352 Alberta Ltd. is due from a company controlled by an immediate family member of the director of Extreme Wheel Ltd., is unsecured, non-interest bearing and has no stated terms of repayment.

As the loan receivable has no set repayment terms and the balance is not expected to be repaid within the year, it has been classified as a long term asset.

b) Loans payable to related parties are as follows:


	2014		2013
Trail Tire Services Ltd.	$	314,037	$	434,037
Regional Tire Distributors (Edmonton) Inc.		17,367		12,924
Tirecraft Western Canada Ltd.		1,291		1,115
Trail Tire Distributors Ltd.		234,994		77,450

	$	567,689	$	525,526

Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Extreme Wheel Distributors Ltd. and each of these companies is as follows:

Tirecraft Western Canada Ltd. is indirectly jointly controlled by an immediate family member of the director of Extreme Wheel Distributors Ltd.

Trail Tire Distributors Ltd. is owned by close family members of the sole shareholder of Extreme Wheel Distributors Ltd.

Trail Tire Services Ltd. is controlled by a close family member of the spouse of the sole shareholder of Extreme Wheel Distributors Ltd.

Regional Tire Distributors (Edmonton) Inc. (formerly known as North Alta Tire Distributors Ltd.) is partially owned by a close family member of the director of the Company.

As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

Related Party Transactions

Sales to related parties are as follows:


	2014		2013
Trail Tire Distributors Ltd.	$	—	$	15,998
Regional Tire Distributors (Edmonton) Inc.		1,973		3,812
Trail Tire (Kingsway) Ltd.		54,808		30,695
Tirecraft (Fort Road) Centre		91,408		54,246

	$	148,189	$	104,751

Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:


	2014		2013
Trail Tire Distributors Ltd.	$	1,626	$	549
Regional Tire Distributors (Edmonton) Inc.		—		855
Trail Tire (Kingsway) Ltd.		927		412

	$	2,553	$	1,816

Purchases from related parties are as follows:


	2014		2013
Trail Tire Distributors Ltd.	$	102,844	$	142,206
Regional Tire Distributors (Edmonton) Inc.		9,164		329

	$	112,008	$	142,535

Included in rent expense are lease payments paid to 1470242 Alberta Ltd., a company controlled by an immediate family member of the sole shareholder of the company, which amounted to $110,400 for the 2014 fiscal year (February 28, 2013—$110,400).

Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:


	2014		2013
Tirecraft Western Canada Ltd.	$	1,551	$	390
Regional Tire Distributors (Edmonton) Inc.		2,731		72
Trail Tire Distributors Ltd.		6,255		3,614

	$	10,537	$	4,076

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

6. Property and equipment


			2014
	Cost		Accumulated Amortization		Net
Automotive	$	10,620	$	9,103	$	1,517
Office equipment		10,250		6,924		3,326
Leasehold improvements		11,190		10,285		905
Computer equipment		15,608		14,965		643
Shop equipment		71,373		43,421		27,952

	$	119,041	$	84,698	$	34,343


			2013
	Cost		Accumulated Amortization		Net
Automotive	$	10,620	$	8,453	$	2,167
Office equipment		10,250		6,093		4,157
Leasehold improvements		11,190		8,260		2,930
Computer equipment		15,608		14,688		920
Shop equipment		71,373		36,389		34,984

	$	119,041	$	73,883	$	45,158

7. Shareholder’s advance

Shareholder’s advance at February 28, 2014 is unsecured, non-interest bearing, and will be repaid within the 2015 fiscal year. As such, the advance has been classified as a current asset.

8. Investment

The Company accounts for its portfolio investment in TireWare Inc. at cost. TireWare Inc. is a non-public company based in the United States of America.

9. Share Capital


Authorized:
Unlimited number of Class A common shares
Unlimited number of Class B common shares
Unlimited number of Class C common shares
1,000,000 Class D preferred shares without nominal or par value

	2014		2013
Issued:
100 Class A common shares	$	100	$	100

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

10. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:


	2014			2013
Accounts receivable	$	(111,363	)	$	79,751
Goods and Services Tax recoverable		(7,732	)		(1,517	)
Inventories		(308,463	)		(102,325	)
Prepaid expenses		(726	)		(288	)
Accounts payable and accrued liabilities		153,345			39,264
Income taxes payable		97,336			3,979
Management remuneration payable		(125,969	)		(140,724	)

	$	(303,572	)	$	(121,860	)

11. Financial Instruments

Credit Risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is susceptible to concentration of credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remuneration payable. At February 28, 2014 the company had working capital of $2,494,878 (February 28, 2013—$1,732,997)

Foreign Currency Risk

Currency risk is the risk to the Company’s earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $5,812 as at February 28, 2014 (February 28, 2013—$102,054).

12. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

a) Income Taxes

EXTREME WHEEL DISTRIBUTORS LTD.

Notes to the Financial Statements

February 28, 2014 and February 28, 2013

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Company’s financial statements.

b) Variable interest entities

The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interest that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.

c) Comprehensive Income

EX-99.3 4 d779206dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Kirks Tire LTD.

Index

January 31, 2014, 2013 and 2012


	Page
Independent Auditors’ Report		2

Financial Statements

Balance Sheets		3

Statements of Operations		4

Statements of Retained Earnings		5

Statements of Cash Flows		6

Notes to Financial Statements		7

LOGO


		Collins Barrow Edmonton LLP
	INDEPENDENT AUDITORS’ REPORT	2380 Commerce Place
		10155—102 Street N.W.
		Edmonton, Alberta
		T5J 4G8 Canada
		T. 780.428.1522
To the Shareholders of Kirks Tire Ltd.		F. 780.425.8189
To the Shareholders of Kirks Tire Ltd.		www.collinsbarrow.com

Report on the Financial Statements

We have audited the accompanying financial statements of Kirks Tire Ltd., which comprise the balance sheets as of January 31, 2014, January 31, 2013 and January 31, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Auditors’ Responsibility

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kirk’s Tire Ltd. as of January 31, 2014, January 31, 2013 and January 31, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting


Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 25, 2014 except for Note 12 (footnotes (a) and (d)) which are as of August 18, 2014		Chartered Accountants

This office is independently owned and operated by Collins Barrow Edmonton LLP

The Collins Barrow trademarks are used under License.

KIRKS TIRE LTD.

Balance Sheets

As at January 31, 2014, January 31, 2013 and January 31, 2012


	January 31, 2014		January 31, 2013		January 31, 2012
ASSETS
Current Assets
Cash	$	3,335,664	$	3,003,972	$	3,057,437
Accounts receivable (Note 3 and Note 5)		8,454,030		5,657,716		6,093,789
Goods and Services Tax receivable		30,156		192,088		185,262
Inventories (Note 4)		5,756,489		8,980,481		7,860,693
Prepaid expenses		50,967		58,841		60,793
Income taxes receivable		—		—		248,218

		17,627,306		17,893,098		17,506,192

Loans receivable from related parties (Note 5)		3,811,861		12,509,058		10,778,106
Equipment (Note 7)		336,379		323,768		312,941
Investment		100		100		100

	$	21,775,646	$	30,726,024	$	28,597,339

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 5)	$	2,629,854	$	7,202,232	$	5,960,249
Income taxes payable		953,942		1,286,971		—
Management remuneration payable		—		1,735,000		5,299,650

		3,583,796		10,224,203		11,259,899

Loans payable to related parties (Note 5)		3,877,762		1,881,243		3,681,345
Shareholders’ loans (Note 6)		2,614,082		3,660,734		4,903,868

		10,075,640		15,766,180		19,845,112

SHAREHOLDERS’ EQUITY
Commons shares (Note 8)		150		150		150
Preferred shares (Note 8)		588,608		588,608		588,608
Contributed surplus		1,894,789		1,894,789		1,894,789
Retained earnings		9,216,459		12,476,297		6,268,680

		11,700,006		14,959,844		8,752,227

	$	21,775,646	$	30,726,024	$	28,597,339

Commitments and Contingency (Note 10)

See accompanying notes

KIRKS TIRE LTD.

Statements of Operations

For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012


	January 31, 2014			January 31, 2013		January 31, 2012
Sales (Note 5)	$	65,868,923		$	61,086,565	$	52,603,139
Cost of sales (Note 5)		50,720,892			48,665,083		43,159,770

Gross profit		15,148,031			12,421,482		9,443,369

Expenses
Wages and benefits		1,497,033			1,278,658		1,142,440
Automotive		222,339			164,902		165,594
Administrative		178,056			50,011		825
Repairs and maintenance		142,723			68,195		61,987
Utilities		119,314			112,658		112,914
Rent (Note 5)		115,800			115,800		115,800
Interest and bank charges		105,882			68,494		65,399
Office		105,271			86,787		69,148
Amortization		100,476			95,861		117,442
Advertising and promotion		82,966			71,317		60,625
Property taxes		67,098			63,554		60,376
Shop supplies		62,537			25,629		20,660
Travel		54,695			38,004		39,015
Insurance		50,876			52,697		41,941
Telephone		39,274			52,130		40,565
Dues and memberships		12,394			8,871		8,059
Professional fees		1,548			15,071		5,588
Bad debt expense (recovery)		(35,881	)		104,573		771,702
Management salaries		—			1,735,000		5,299,650

		2,922,401			4,208,212		8,199,730

Income before other revenue and income taxes		12,225,630			8,213,270		1,243,639

Other revenue
Interest income		55,229			54,562		45,019
Gain on sale of equipment		36,327			6,542		6,399

Income before income taxes		12,317,186			8,274,374		1,295,057
Income taxes expense		3,077,024			2,066,757		343,804

Net income	$	9,240,162		$	6,207,617	$	951,253

See accompanying notes

KIRKS TIRE LTD.

Statements of Retained Earnings

For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012


	January 31, 2014			January 31, 2013		January 31, 2012
Balance, beginning of year	$	12,476,297		$	6,268,680	$	5,317,427
Net income		9,240,162			6,207,617		951,253
Dividends paid		(12,500,000	)		—		—

Balance, end of year	$	9,216,459		$	12,476,297	$	6,268,680

See accompanying notes

KIRKS TIRE LTD.

Statements of Cash Flows

For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012


	January 31, 2014			January 31, 2013			January 31, 2012
Cash provided by (used in):
Operating Activities
Net income	$	9,240,162		$	6,207,617		$	951,253
Items not affecting cash
Amortization		100,476			95,861			117,442
Gain on sale of equipment		(36,327	)		(6,542	)		(6,399	)

		9,304,311			6,296,936			1,062,296

Change in non-cash working capital items (Note 9)		(6,042,923	)		(1,476,067	)		143,010

		3,261,388			4,820,869			1,205,306

Investing Activities
Purchase of equipment		(154,534	)		(193,798	)		(157,166	)
Proceeds on disposal of equipment		77,774			93,652			27,416
Advances to related parties		(3,807,320	)		(8,705,534	)		(5,087,723	)
Repayments from related parties		12,504,518			6,974,582			5,567,412

		8,620,438			(1,831,098	)		349,939

Financing Activities
Repayments to shareholders		(15,580,910	)		(1,269,568	)		—
Advances from shareholders		2,034,258			26,433			790,967
Advances from related parties		3,866,554			1,324,990			3,114,163
Repayments to related parties		(1,870,036	)		(3,125,091	)		(3,454,708	)

		(11,550,134	)		(3,043,236	)		450,422

Increase (decrease) in cash		331,692			(53,465	)		2,005,667
Cash, beginning of year		3,003,972			3,057,437			1,051,770

Cash, end of year	$	3,335,664		$	3,003,972		$	3,057,437

See accompanying notes

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

1. Nature of operations

The Company was incorporated under the Alberta Business Corporations Act on January 30, 1990 and operates a tire distribution sales and service business.

2. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance and in compliance with Canadian accounting standards for private enterprises (“ASPE”), as issued by the Canadian Institute of Chartered Accountants (“CICA”).

Revenue recognition

Interest revenue is recognized on an annual basis as it is earned.

Translation of Foreign Currency

Foreign Currency Contracts

The Company may enter into foreign currency forward contracts to reduce exposure to foreign currency fluctuations. The contracts are measured at fair value and the resulting gains or losses, that would be realized if the position was sold before the valuation dates, are recorded as unrealized gains or losses.

Vendor Rebates and Allowances

Allowance for doubtful accounts

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.

Inventories

Equipment

Property and equipment are recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:


Automotive	-	30% declining balance basis
Computer equipment	-	55% declining balance basis
Manufacturing equipment	-	30% straight-line basis
Shop equipment	-	20% declining balance basis

Investments

The company accounts for its investments using the cost method. The carrying value of each investment is reviewed annually and written down below cost if there is a loss of value.

Income taxes

Use of estimates

The preparation of these financial statements in conformity with Canadian Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

the reported amounts of revenues and expenses during the reporting period. Significant estimates included in the financial statements are the valuation of accounts receivable, valuation of inventory, and the estimated useful life of long-lived assets for purposes of calculating amortization. Actual results could differ from those estimates.

Financial Instruments

Measurement of financial instruments

Financial assets measured at amortized cost include cash, accounts receivable and loans receivable from related parties.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, loans payable to related parties and shareholders’ loans.

Impairment

Transaction costs

The Company recognizes its transaction costs in net income in the period incurred. However, the carrying amount of the financial instruments that will not be subsequently measured at fair value is reflected in the transaction costs that are directly attributable to their origination, issuance or assumptions.

3. Accounts Receivable

Accounts Receivable consists of the following:


	January 31, 2014			January 31, 2013			January 31, 2012
Accounts Receivable—Trade	$	9,979,368		$	7,328,758			7,660,258
Allowance for Doubtful Accounts		(1,525,338	)		(1,671,042	)		(1,566,469	)

	$	8,454,030		$	5,657,716		$	6,093,789

4. Inventories

Inventory consists of the following:


	January 31, 2014		January 31, 2013		January 31, 2012
Tires	$	5,736,837	$	8,970,484	$	7,856,484
Parts		19,652		9,997		4,209

	$	5,756,489	$	8,980,481	$	7,860,693

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

At the fiscal year end, inventory included volume rebates and allowances of $ 595,000 (January 31, 2013—$1,093,336, January 31, 2012—$898,381).

Cost of sales reported on the statement of operations include $50,720,892 (January 31, 2013—$48,665,083, January 31, 2012—$43,159,770) of inventories recognized as an expense during the year.

5. Loans Receivable from/Payable to Related Parties and Related Party Transactions

Loans receivable from related parties are as follows:


	January 31, 2014		January 31, 2013		January 31, 2012
Integra Tire & Auto Centres Canada Ltd.	$	48,503	$	—	$	—
Kirk Tire Distributors Ltd.		22,843		—		1,008
Pask Technology Group Inc.		93,878		4,541		—
Regional Tire Distributors (Manitoba) Inc.		3,646,637		—		—
Tirecraft Edmonton Truck Centre Ltd.		—		4,037,756		858,110
Regional Tire Distributors (Vernon) Inc.		—		1,029,582		795,422
Ranger Tire Inc.		—		752,997		752,998
Regional Tire Distributors (Saskatchewan) Inc.		—		3,467,827		326,019
Regional Tire Distributors (Victoria) Inc.		—		554,592		277,842
TCBC Holdings Inc.		—		235,357		—
Regional Tire Distributors (Edmonton) Inc.		—		711,308		2,365,960
Ward Tires, Inc.		—		1,565,774		40,965
KDW Enterprises Ltd.		—		149,324		40,860
Kirk’s Tire (Edmonton) Ltd.		—		—		50,000
Treads West Retreading Inc.		—		—		1,340,501
Tirecraft Canada Ltd.		—		—		21,000
Elrich Calgary Corp.		—		—		314,671
L&K Tire Inc.		—		—		1,530,169
Regional Tire Distributors (Calgary) Inc.		—		—		1,848,046
1494974 Alberta Ltd.		—		—		180,000
VLK Properties Ltd.		—		—		34,535

	$	3,811,861	$	12,509,058	$	10,778,106

Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, they have been classified as long term assets.

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

Loans payable to related parties are as follows:


	January 31, 2014		January 31, 2013		January 31, 2012
Regional Tire Distributors (Saskatchewan) Inc.	$	107,560	$	—	$	—
Regional Tire Distributors (Edmonton) Inc.		3,750,000		—		400,000
Regional Tire Distributors (Calgary) Inc.		4,593		286,353		—
Kirk’s Tire (Red Deer) Ltd.		5,080		17,840		7,233
Kirk’s Mid-Way Tire Ltd.		9,347		20,151		125,236
Kirk’s Tire (Cardston) Ltd.		1,066		2,160		—
Kirk’s Taber Ltd.		116		39		800,015
Elrich Calgary Corp.		—		927,007		—
Son Tirecraft Burnaby Inc.		—		91,237		—
Ward Tires, Inc.		—		34,304		34,304
Kirk’s Tire (Edmonton) Ltd.		—		309		—
590545 Alberta Ltd.		—		500,000		500,000
Kirk’s Tire (Brooks) Ltd.		—		1,843		4,277
TCBC Holdings Inc.		—		—		31,736
Regional Tire Distributors (Langley) Inc.		—		—		478,544
767021 Alberta Ltd.		—		—		1,300,000

	$	3,877,762	$	1,881,243	$	3,681,345

Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to February 1, 2015, the loans have been classified as long term liabilities.

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

Included in accounts receivable are the following balances payable to the related parties as at the fiscal year-end:


	January 31, 2014		January 31, 2013		January 31, 2012
Ward Tires, Inc.	$	262,051	$	84,157	$	1,663
Ranger Tire Inc.		8,393		183,089		2,152,394
Trail Tire Distributors Ltd.		860,172		—		449,910
Elrich Calgary Corp.		69,403		273		—
Integra Tire & Auto Centres Canada Ltd.		209,159		—		—
Pask Technology Group Inc.		41		—		—
Pasta Fresco		1,170		—		—
TCBC Holdings Inc.		474,032		—		—
B&K Vehicles Inc.		296		—		—
Commercial Tire Inc.		2,240		11,988		356
Oasis Sales & Service Ltd.		1,105		—		—
1299068 Alberta Ltd.		28,828		—		232,481
KDW Enterprises Ltd.		173,560		118,928		53,280
CAJM Holdings Ltd.		10,659		4,224		655
Treads West Retreading Inc.		3,224		462		—
Tirecraft Lloydminster Truck Centre Inc.		3,032		1,425		754
Kirk’s AdminCo Ltd.		960		6,000		—
Kirk’s Tire (Cardston) Ltd.		139,428		98,452		116,950
Kirk’s Tire (Red Deer) Ltd.		33,035		117,219		87,394
Kirk’s Tire (Brooks) Ltd.		58,017		191,556		96,868
Kirk’s Taber Ltd.		247,468		204,682		200,671
Kirk’s Tire (Edmonton) Ltd.		35,981		64,383		9,325
Kirk’s Mid-Way Tire Ltd.		520,009		432,240		643,536
Regional Tire Distributors (Edmonton) Inc.		48,891		—		169,817
Regional Tire Distributors (Vernon) Inc.		532,480		121,723		38,956
Regional Tire Distributors (Calgary) Inc.		97,974		95,353		238,722
Regional Tire Distributors (Langley) Inc.		47,608		88,169		90,654
Regional Tire Distributors (Victoria) Inc.		451,817		—		59,317
L&K Tire Inc.		—		64,765		—
Kirk Tire Distributors Ltd.		—		7,234		—
Regional Tire Distributors (Saskatchewan) Inc.		—		63,898		195,227
Kirk’s Tire (Calgary) Ltd.		—		—		174
Tirecraft Aldergrove		—		—		1,394
Extreme Wheel Distributors Ltd.		—		—		5
590545 Alberta Ltd.		—		—		311

	$	4,321,033	$	1,960,220	$	4,840,814

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:


	January 31, 2014		January 31, 2013		January 31, 2012
Ward Tires, Inc.	$	1,475	$	41,715	$	340,350
Ranger Tire Inc.		111,959		37,698		81,876
Extreme Wheel Distributors Ltd.		5,737		495		4,860
Trail Tire Distributors Ltd.		16,996		16,914		18,998
Elrich Calgary Corp.		9,743		410,635		410,710
Pask Technology Group Inc.		474		386		224
590545 Alberta Ltd.		7,875		56,868		—
L&K Tire Inc.		73,368		3,482		—
B&K Vehicles Inc.		9,560		—		—
KDW Enterprises Ltd.		26,904		46,768		182,576
Son Tirecraft Burnaby Inc.		4,779		—		—
Tirecraft Edmonton Truck Centre Ltd.		403,536		9,794		39,581
Kirk Tire Distributors Ltd.		269		—		—
Kirk’s AdminCo Ltd.		138		223		351
Kirk’s Tire (Cardston) Ltd.		34		1,497		76
Kirk’s Tire (Red Deer) Ltd.		68,651		60,165		43,812
Kirk’s Tire (Brooks) Ltd.		24,044		11,826		93,838
Kirk’s Taber Ltd.		22,236		39,395		58,539
Kirk’s Tire (Edmonton) Ltd.		11,167		4,453		8,801
Tirecraft of Calgary		11,624		54,453		38,238
TCBC Holdings Inc.		17,893		—		7,179
Tirecraft Western Canada Ltd.		14,678		10,584		85,516
Kirk’s Mid-Way Tire Ltd.		49,516		24,738		140,064
BJK Holdings Ltd.		570,900		268,138		795,601
Regional Tire Distributors (Edmonton) Inc.		8,462		840,739		24,588
Regional Tire Distributors (Vernon) Inc.		25,756		—		—
Regional Tire Distributors (Saskatchewan) Inc.		72,196		—		—
Regional Tire Distributors (Calgary) Inc.		110,146		476,564		39,371
Regional Tire Distributors (Langley) Inc.		35,780		888,248		3,592
Treads West Retreading Inc.		—		921		4,125
Commercial Tire Inc.		—		—		53,090
Kirk’s Tire (Calgary) Ltd.		—		320		9,159
Regional Tire Distributors (Victoria) Inc.		—		16,171		—
Tirecraft Canada Ltd.		—		—		29,536

	$	1,715,896	$	3,323,190	$	2,514,651

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

The following summarizes the Company’s related party transactions included in sales:


	January 31, 2014		January 31, 2013		January 31, 2012
1299068 Alberta Ltd	$	6,324,015	$	8,815,582	$	8,118,225
Commercial Tire Inc.		157,087		145,642		195,884
Integra Tire & Auto Centres Canada Ltd.		144,679		—		—
KDW Enterprises Ltd.		1,200,006		684,485		328,218
Kirk’s Tire (Brooks) Ltd.		2,377,544		2,126,831		1,910,220
Kirk’s Tire (Cardston) Ltd.		1,298,124		1,215,298		1,172,879
Kirk’s Tire (Edmonton) Ltd.		1,049,189		637,086		776,834
Kirk’s Mid-Way Tire Ltd.		5,607,725		5,730,464		5,471,719
Kirk’s Tire (Red Deer) Ltd.		1,750,172		1,906,419		1,896,594
Kirk’s Taber Ltd.		2,713,119		2,914,555		2,261,559
L&K Tire Inc.		500		—		—
Oasis Sales & Service Ltd.		785		—		—
Regional Tire Distributors (Calgary) Inc.		4,104,982		2,642,510		2,259,935
Regional Tire Distributors (Edmonton) Inc.		648,512		770,468		1,195,376
Regional Tire Distributors (Langley) Inc.		1,374,047		834,921		999,544
Regional Tire Distributors (Manitoba) Inc.		263,195		—		—
Regional Tire Distributors (Saskatchewan) Inc.		770,928		937,043		322,559
Regional Tire Distributors (Vernon) Inc.		1,799,215		1,763,106		1,790,672
Regional Tire Distributors (Victoria) Inc.		328,150		279,913		90,879
TCBC Holdings Inc.		1,645,316		—		1,632,830
Tirecraft Lloydminster Truck Centre Inc.		575,076		465,064		346,711
Tirecraft Nisku Inc.		26,972		6,546		7,387
Trail Tire Distributors Ltd.		8,193,227		7,023,218		5,452,383
Tirecraft Aldergrove		—		1,838,785		1,244
590545 Alberta Ltd.		—		1,088		—
Tirecraft Richmond		—		2,584		—

	$	42,352,565	$	40,741,608	$	36,231,652

The following summarizes the Company’s related party transactions included in cost of sales and expenses:


	January 31, 2014		January 31, 2013		January 31, 2012
Pask Technology Group Inc.	$	5,483	$	5,391	$	5,705
Kirk’s Adminco Ltd.		3,057		3,212		7,262
BJK Holdings Ltd.		880,585		—		—
W.R. Kirk Holdings Ltd.		115,800		115,800		115,800
590545 Alberta Ltd.		94,500		306,256		398,921
Commercial Tire Inc.		—		142,328		—

	$	1,099,425	$	572,987	$	527,688

Related party expenses to Pask Technology Inc. and Kirk’s Adminco Ltd. have been included in office expense. Related party expenses to 590545 Alberta Ltd., Commercial Tire Inc. and BJK Holdings Ltd. have been included in cost of sales. Related party expenses to W.R. Kirk Holdings Ltd. have been included in rent expense.

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

The following summarizes all the Company’s volume bonuses received and rebilled to related and unrelated parties:


	January 31, 2014		January 31, 2013			January 31, 2012
Volume bonuses received	$	9,737,286	$	7,776,280		$	6,492,767

Volume bonuses rebilled:
Integra Tire & Auto Centres Canada Ltd.		285,339		—			—
KDW Enterprises Ltd.		152,840		—			151,800
Kirk’s Tire (Edmonton) Ltd.		3,561		—			—
Regional Tire Distributors (Calgary) Inc.		1,119,087		828,223			187,075
Regional Tire Distributors (Edmonton) Inc.		2,308,423		1,403,495			698,113
Regional Tire Distributors (Langley) Inc.		905,479		594,365			918,436
Regional Tire Distributors (Manitoba) Inc.		399,332		—			—
Regional Tire Distributors (Saskatchewan) Inc.		387,357		578,995			—
Regional Tire Distributors (Vernon) Inc.		348,608		265,248			123,304
Regional Tire Distributors (Victoria) Inc.		206,559		146,091			330
TCBC Holdings Inc.		4,835		—			—
Tirecraft Edmonton Truck Centre Ltd.		101,363		277,568			98,347
Tirecraft of Calgary		1,350		342,950			—
Ranger Tire Inc.		16,646		—			—
Kamloops Tire Ltd.		885		—			—
Tiresmith Inc.		55,254		60,622			64,589
Ward Tires, Inc.		5,370		127,334			318,447
BJK Holdings Ltd.		—		3,708,798			1,318,201
Commercial Tire Inc.		—		51,342			100,785
Elrich Calgary Corp.		—		—			182,645
L&K Tire Inc.		—		—			1,731,416
Trail Tire Distributors Ltd.		—		—			6,467
OK Tire 99 Street		—		—			136,000
Tirecraft Canada Ltd.		—		(145,976	)		83,396
Tirecraft Western Canada Ltd.		—		(110,517	)		254,976

		6,302,288		8,128,538			6,374,327

Volume bonuses recognized as income (expense)	$	3,434,998	$	(352,258	)	$	118,440

Companies not directly related to Kirk’s Tire Ltd. that received volume bonuses are Ranger Tire Inc., Kamloops Tire Ltd., Tiresmith Inc., Ward Tires, Inc., Trail Tire Distributors Ltd. and OK Tire 99 Street.

The relationship between Kirk’s Tire Ltd. and each of the companies above is as follows:

The following companies are jointly controlled by a director of Kirk’s Tire Ltd.: KDW Enterprises Ltd., Kirk’s Tire (Edmonton) Ltd., L&K Tire Inc., Kirk’s Tire (Brooks) Ltd., Regional Tire Distributors (Langley) Inc., Commercial Tire Inc., Kirk’s AdminCo Ltd., Tirecraft Western Canada Ltd., Tirecraft Nisku Inc., BJK Holdings Ltd., W.R. Kirk Holdings Ltd., Tirecraft Edmonton Truck Centre Ltd., TCBC Holdings Inc., Regional Tire Distributors (Edmonton) Inc., Elrich Calgary Corp., Regional Tire Distributors (Calgary) Inc., 1494974 Alberta Ltd., VLK Properties Ltd., Kirk’s Tire (Red Deer) Ltd., 590545 Alberta Ltd., 767021 Alberta Ltd., B&K Vehicles Inc., 1299068 Alberta Ltd., Tirecraft Lloydminster Truck Centre Inc., Tirecraft Aldergrove, and Tirecraft Richmond.

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

The following companies are significantly influenced by a director of Kirk’s Tire Ltd.: Integra Tire & Auto Centres Canada Ltd., Regional Tire Distributors (Manitoba) Inc., Regional Tire Distributors (Saskatchewan) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Vernon) Inc., Tirecraft Canada Ltd., Kirk’s Mid-Way Tire Ltd., Kirk’s Tire (Cardston) Ltd., Kirk’s Taber Ltd., and Son Tirecraft Burnaby Inc.

The following companies are indirectly owned by a director of Kirk’s Tire Ltd.: Pask Technology Group Inc., Pasta Fresco, Oasis Sales & Service Ltd., CAJM Holdings Ltd., and BJK Holdings Ltd.

Kirk Tire Distributors Ltd. is owned by a close family member of a director of Kirk’s Tire Ltd.

The following companies are related to Kirk’s Tire Ltd. as the directors of the companies share joint ownership with Kirk’s Tire Ltd. companies listed above: Ranger Tire Inc., Ward Tires, Inc., Treads West Retreading Inc., Trail Tire Distributors Ltd., Extreme Wheel Distributors Ltd., OK Tire 99^th Street, Kirk’s Tire (Calgary) Ltd., Tirecraft of Calgary, Kamloops Tire Ltd. and Tiresmith Inc.

These transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

6. Shareholders’ Loans

Shareholders’ loans at January 31, 2014 which includes amounts outstanding at January 31, 2013 and January 31, 2012 are unsecured, non-interest bearing, and are due February 1, 2015.

7. Equipment

January 31, 2014

Cost

Accumulated

Amortization

Net

Automotive

484,048

258,778

225,270

Computer equipment

60,170

51,929

8,241

Manufacturing equipment

435,923

431,628

4,295

Shop equipment

394,031

295,458

98,573

1,374,172

1,037,793

336,379


	January 31, 2013
	Cost		Accumulated Amortization		Net
Automotive	$	474,436	$	292,152	$	182,284
Computer equipment		60,170		41,857		18,313
Manufacturing equipment		435,923		429,787		6,136
Shop equipment		388,536		271,501		117,035

	$	1,359,065	$	1,035,297	$	323,768

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012


	January 31, 2012
	Cost		Accumulated Amortization		Net
Automotive	$	488,610	$	314,904	$	173,706
Computer equipment		66,600		19,474		47,126
Manufacturing equipment		435,923		427,158		8,765
Shop equipment		332,581		249,237		83,344

	$	1,323,714	$	1,010,773	$	312,941

8. Share Capital

Authorized:

Unlimited number of Class “A”, “B”, “C” and “D” common voting shares

Unlimited number of Class “E”, “F”, “G” and “H” common non-voting shares

Unlimited number of Class “I” Preferred voting shares redeemable or retractable at $6,534.47 per share, entitled to non-cumulative annual dividends in an amount not to exceed 15% of redemption amount of the shares

Unlimited number of Class “J” Preferred non-voting shares redeemable or retractable at $1,000.00 per share, entitled to non-cumulative annual dividends in an amount not to exceed 15% of redemption amount of the shares


	January 31, 2014		January 31, 2013		January 31, 2012
Issued:
1,500 Class A common shares	$	150	$	150	$	150

380 Class I preferred shares		588,308		588,308		588,308
5,900 Class J preferred shares		300		300		300

		588,608		588,608		588,608

	$	588,758	$	588,758	$	588,758

9. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:


	January 31, 2014			January 31, 2013			January 31, 2012
Accounts receivable	$	(2,796,314	)	$	436,073		$	(3,958,562	)
Goods and Services Tax receivable		161,932			(6,826	)		3,296
Inventories		3,223,992			(1,119,788	)		(730,348	)
Prepaid expenses		7,874			1,952			(22,958	)
Accounts payable and accrued liabilities		(4,572,378	)		1,241,983			4,275,113
Income taxes payable/receivable		(333,029	)		1,535,189			(223,181	)
Management remuneration payable		(1,735,000	)		(3,564,650	)		799,650

	$	(6,042,923	)	$	(1,476,067	)	$	143,010

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

10. Commitments and Contingency

The Company has provided a continuing guarantee limited to $600,000 to 1707588 Alberta Ltd., a company indirectly owned by a director of Kirk’s Tire Ltd., along with two other companies to assist in the purchase of 134 acres of residential development land.

The Company provides continuing guarantees without limit for the purchase of inventory from Michelin and Cooper Tire made by its related parties.

11. Financial Instruments

Credit Risk

The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

The Company is susceptible to concentration of credit risk as its accounts receivable consists of 51% from related parties (January 31, 2013—35%, January 31, 2012—79%) and revenue consists of 64% from related parties (January 31, 2013—66%, January 31, 2012—69%).

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At January 31, 2014 the company had a working capital balance of $14,043,510 (January 31, 2013—$7,668,895, January 31, 2012—$6,246,293).

Foreign Currency Risk

Currency risk is the risk to the Company’s earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $418,984 as at January 31, 2014 (January 31, 2013—$405,552, January 31, 2012—$618,371). The Company mitigates this risk through the use of foreign currency futures contracts.

12. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

a) Income Taxes

Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position.

KIRKS TIRE LTD.

Notes to the Financial Statements

January 31, 2014, January 31, 2013 and January 31, 2012

Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the Company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Company’s statutory income tax rate and the effective tax rate.

b) Variable interest entities

c) Preferred shares

Under US GAAP, the Company recognizes preferred shares at stated capital value as part of equity if there is not an unconditional obligation for the Company to redeem the shares by transferring an asset on a specified or determinable date or upon an event that is certain to occur. For the Company, there is no unconditional obligation for the preferred shares to be redeemed at the option of the holder at January 31, 2012, January 31, 2013 and January 31, 2014, therefore the stated value of the preferred shares has been reported as an equity component.

d) Comprehensive Income

EX-99.4 5 d779206dex994.htm EX-99.4 EX-99.4

Exhibit 99.4

Regional Tire Distributors (Edmonton) Inc.

Index

February 28, 2014 and 2013 and February 29, 2012


	Page
Independent Auditors’ Report		2

Financial Statements

Balance Sheets		3

Statements of Operations		4

Statements of Retained Earnings		5

Statements of Cash Flows		6

Notes to Financial Statements		7

LOGO


		Collins Barrow Edmonton LLP
	INDEPENDENT AUDITORS’ REPORT	2380 Commerce Place
		10155—102 Street N.W.
		Edmonton, Alberta
		T5J 4G8 Canada
		T. 780.428.1522
To the Shareholders of Regional Tire Distributors (Edmonton) Inc.		F. 780.425.8189
		www.collinsbarrow.com

We have audited the accompanying financial statements of Regional Tire Distributors (Edmonton) Inc., which comprise the balance sheets as of February 28, 2014, February 28, 2013 and February 29, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Auditors’ Responsibility

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors (Edmonton) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting


Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 25, 2014 except for Note 11 (footnotes (b)		/s/ Collins Barrow Edmonton LLP
and (c)) which are as of July 25, 2014 and Notes 11 (footnotes (a) and (d)) and 12 which are as of August 18, 2014		Chartered Accountants


This office is independently owned and operated by Collins Barrow Edmonton LLP
The Collins Barrow trademarks are used under License.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Balance Sheets

As at February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014		February 28, 2013		February 29, 2012
	February 28, 2014		February 28, 2013		February 29, 2012
ASSETS
Current Assets
Cash	$	616,007	$	190,917	$	769,834
Accounts receivable (Note 3)		1,156,243		907,255		1,559,453
Goods and Services Tax receivable		—		149,806		190
Income taxes receivable		40,047		—		—
Dividend receivable		109,081		—		—
Inventories (Note 4)		2,178,797		3,448,221		2,227,471
Prepaid expenses		5,513		6,403		5,260

		4,105,688		4,702,602		4,562,208
Loans receivable from related parties (Note 5)		11,728,951		3,012,874		1,099,391
Equipment (Note 6)		5,953		7,463		9,359
Investments		625		175		175

	$	15,841,217	$	7,723,114	$	5,671,133

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	1,108,673	$	843,924	$	1,623,197
Income taxes payable		—		380,473		5,955
Goods and Services Tax payable		46,289		—		—
Management remuneration payable		—		30,000		600,000

		1,154,962		1,254,397		2,229,152
Loans payable to related parties (Note 5)		3,584,288		2,633,845		922,428
Shareholders’ loan (Note 7)		6,232,700		500,000		600,000

		10,971,950		4,388,242		3,751,580

SHAREHOLDERS’ EQUITY
Share capital (Note 8)		100		100		100
Retained earnings		4,869,167		3,334,772		1,919,453

		4,869,267		3,334,872		1,919,553

	$	15,841,217	$	7,723,114	$	5,671,133

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Operations

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014			February 28, 2013		February 29, 2012
	February 28, 2014			February 28, 2013		February 29, 2012
Sales (Note 5)	$	19,504,654		$	18,455,516	$	18,315,246
Cost of sales (Note 5)		14,371,030			15,547,112		15,991,709

Gross profit		5,133,624			2,908,404		2,323,537

Expenses
Wages and benefits		532,308			498,127		347,259
Office		389,063			145,229		282,178
Rent (Note 5)		228,401			219,750		159,500
Professional fees		137,722			954		2,740
Management salaries		55,250			10,000		610,000
Automotive		43,138			38,460		24,275
Interest and bank charges		41,303			45,540		33,607
Advertising and promotion		38,458			44,003		66,261
Insurance		18,054			15,969		12,473
Travel		15,303			18,022		2,829
Bad debt expense		11,504			33,342		697
Property taxes		7,625			208		441
Telephone and utilities		2,791			2,738		2,540
Repairs and maintenance		2,204			1,320		2,776
Amortization		1,510			1,896		3,274
Shop supplies		1,458			609		85
Dues and memberships		—			100		100

		1,526,092			1,076,267		1,551,035

Income before other revenue (expenses) and income taxes		3,607,532			1,832,137		772,502

Other revenue (expenses)
Dividend income		109,081			—		—
Interest income		22,735			27,700		18,118
Impairment of advances to related party		(1,800,000	)		—		—

Income before income taxes		1,939,348			1,859,837		790,620
Income taxes expense		404,953			444,518		69,387

Net income	$	1,534,395		$	1,415,319	$	721,233

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Retained Earnings

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014		February 28, 2013		February 29, 2012
	February 28, 2014		February 28, 2013		February 29, 2012
Balance, beginning of year	$	3,334,772	$	1,919,453	$	1,198,220
Net income		1,534,395		1,415,319		721,233

Balance, end of year	$	4,869,167	$	3,334,772	$	1,919,453

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Cash Flows

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014			February 28, 2013			February 29, 2012
	February 28, 2014			February 28, 2013			February 29, 2012
Cash provided by (used in):

Operating Activities
Net income	$	1,534,395		$	1,415,319		$	721,233
Items not affecting cash
Amortization		1,510			1,896			3,274
Impairment of advances to related party		1,800,000			—			—
Change in non-cash working capital items (Note 9)		922,569			(1,694,065	)		(478,452	)

		4,258,474			(276,850	)		246,055

Investing Activities
Investment in other companies		(450	)		—			(75	)
Purchase of equipment		—			—			(633	)
Advances to related parties		(10,516,178	)		(2,085,895	)		(1,000,392	)
Repayments from related parties		100			1,099,000			311,659

		(10,516,528	)		(986,895	)		(689,441	)

Financing Activities
Advances from related parties		2,108,692			784,828			690,769
Repayments to related parties		(1,158,248	)		—			(72,100	)
Advances from shareholder		5,732,700			—			500,000
Repayment to shareholder		—			(100,000	)		—

		6,683,144			684,828			1,118,669

Increase (decrease) in cash		425,090			(578,917	)		675,283
Cash, beginning of year		190,917			769,834			94,551

Cash, end of year	$	616,007		$	190,917		$	769,834

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

1. Nature of operations

The Company was incorporated under the Alberta Business Corporations Act on December 3, 2004 and operates a wholesale tire distribution business, which fully commenced operations in the fiscal year ended February 28, 2009 as North Alta Tire Limited and subsequently changed its name to Regional Tire Distributors (Edmonton) Inc.

2. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance with Canadian accounting standards for private enterprises.

Revenue recognition

Interest revenue is recognized on an annual basis as it is earned.

Vendor rebates and allowances

Allowance for doubtful accounts

Inventories

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Equipment

Equipment is recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:


Office equipment		- 20% declining balance basis
Computer equipment		- 30% declining balance basis
Shop equipment		- 20% declining balance basis

Equipment is tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.

Investments

The company accounts for its investments using the cost method. The carrying value of each investment is reviewed annually and written down below cost if there is a loss of value.

Income taxes

Use of estimates

The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory and the recognition of vendor rebates and allowance. Actual results could differ from those estimates.

Financial Instruments

Measurement of financial instruments

The company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.

The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Financial assets measured at amortized cost include cash, accounts receivable, dividend receivable and loans receivable from related parties.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, loans payable to related parties and shareholders’ loan.

Impairment

Transaction costs

3. Accounts Receivable

Accounts Receivable consists of the following:


	February 28, 2014			February 28, 2013			February 29, 2012
Accounts receivable—Trade	$	1,221,786		$	964,752		$	1,319,446
Warranty receivable		49,739			47,385			314,820
Allowance for Doubtful Accounts		(115,282	)		(104,882	)		(74,813	)

	$	1,156,243		$	907,255		$	1,559,453

4. Inventories

Inventories consist of the following:


	February 28, 2014		February 28, 2013		February 29, 2012
Tires	$	2,177,365	$	3,447,166	$	2,227,471
Parts		1,432		1,055		—

	$	2,178,797	$	3,448,221	$	2,227,471

Cost of sales reported on the statement of operations include $14,371,030 (February 28, 2013—$15,547,112; February 29, 2012—$15,991,709) of inventories recognized as an expense during the year.

Inventories are net of volume rebates in the amount of $56,179 (February 28, 2013—$197,268; February 29, 2012—$29,087)

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

5. Loans Receivable from/Payable to Related Parties and Related Party Transactions

Loans receivable from related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Kirks Tire Ltd.	$	3,750,000	$	—	$	—
Tirecraft Western Canada Ltd.		139,949		—		—
Extreme Wheel Distributors Ltd.		17,367		12,924		441
1773503 Alberta Ltd.		2,499,900		—		—
Tirecraft Canada Ltd.		—		—		99,000
Regional Tire Distributors (Saskatchewan) Inc.		4,676,167		2,499,950		999,950
Regional Tire Distributors (Manitoba) Inc.		499,900		500,000		—
Tire Storage Direct (Edmonton) Ltd.		30,818		—		—
Integra Tire & Auto Centres Canada Ltd.		114,850		—		—

	$	11,728,951	$	3,012,874	$	1,099,391

Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:

Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Tirecraft Western Canada Ltd., Tire Storage Direct (Edmonton) Ltd. and 1773503 Alberta Ltd. are wholly owned by Regional Tire Distributors (Edmonton) Inc.

Extreme Wheel Distributors Ltd. is controlled by a close family member of a director of Regional Tire Distributors (Edmonton) Inc.

Regional Tire Distributors (Manitoba) Inc. and Integra Tire & Auto Centres Canada Ltd. are companies in which Regional Tire Distributors (Edmonton) Inc. has significant influence.

Tirecraft Canada Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Regional Tire Distributors (Saskatchewan) Inc. is owned by the directors of Regional Tire Distributors (Edmonton) Inc.

As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, and accordingly have been classified as long term assets.

Loans payable to related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Tirecraft Western Canada Ltd.	$	—	$	158,248	$	231,659
Kirks Tire Ltd.		—		1,000,000		—
Trail Tire Distributors Ltd.		3,584,288		1,475,597		690,769

	$	3,584,288	$	2,633,845	$	922,428

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:

Tirecraft Western Canada Ltd. is wholly owned by Regional Tire Distributors (Edmonton) Inc.

Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Trail Tire Distributors Ltd. is jointly controlled by a director of Regional Tire Distributors (Edmonton) Inc.

As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.

Sales to related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Regional Tire Distributors (Calgary) Inc.	$	743,230	$	123,978	$	142,204
Kirks Tire (Lethbridge) Ltd.		11,741		3,771		—
Kirks Tire (Edmonton) Ltd.		59,442		62,786		88,523
Kirks Tire (Red Deer) Ltd.		86,029		61,090		79,087
Regional Tire Distributors (Langley) Inc.		38,021		4,571		2,596
Regional Tire Distributors (Vernon) Inc.		59,804		16,666		1,352
Regional Tire Distributors (Victoria) Inc.		6,724		23,592		—
Regional Tire Distributors (Winnipeg) Inc.		112,164		1,803		—
Tirecraft Edmonton Truck Centre Inc.		336,054		285,546		519,443
Tirecraft Lloydminster Truck Centre Inc.		429,157		416,794		370,678
Trail Tire Distributors Ltd.		223,912		2,585,228		72,677
Extreme Wheel Distributors Ltd.		9,164		329		—
Trail Tire (Kingsway) Ltd.		64,690		23,205		—

	$	2,180,132	$	3,609,359	$	1,276,560

Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:


	February 28, 2014		February 28, 2013		February 29, 2012
Regional Tire Distributors (Calgary) Inc.	$	6,990	$	5,907	$	3,205
Kirks Tire (Lethbridge) Ltd.		4,135		10,558		7,093
Kirks Tire (Edmonton) Ltd.		2,321		1,976		2,523
Kirks Tire (Red Deer) Ltd.		2,321		1,160		6,714
Regional Tire Distributors (Vernon) Inc.		5,911		2,856		—
Regional Tire Distributors (Victoria) Inc.		2,635		1,562		—
Regional Tire Distributors (Winnipeg) Inc.		11,686		1,893		—
Tirecraft Edmonton Truck Centre Inc.		20,877		14,315		51,881
Tirecraft Lloydminster Truck Centre Inc.		11,224		38,867		43,133
Trail Tire Distributors Ltd.		294,547		256,070		28,102
Extreme Wheel Distributors Ltd.		2,731		72		—
Trail Tire (Kingsway) Ltd.		2,497		1,386		—

	$	367,875	$	336,622	$	142,651

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Regional Tire Distributors (Calgary) Inc. is a company in which Regional Tire Distributors (Edmonton) Inc. has significant, non-controlling interests.

A director of Regional Tire Distributors (Edmonton) Inc. has indirect interests in KDW Enterprises Ltd., Kirks Tire (Lethbridge) Ltd., Kirks Tire (Edmonton) Ltd., Kirks Tire (Red Deer) Ltd., Regional Tire Distributors (Vernon) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Langley) Inc., Regional Tire Distributors (Winnipeg) Inc., Tirecraft Lloydminster Truck Centre Inc. and Tirecraft Edmonton Truck Centre Inc.

Trail Tire (Kingsway) Ltd. is controlled by a director of Regional Tire Distributors (Edmonton) Inc.

Purchases from related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Kirks Tire Ltd.	$	1,103,450	$	1,040,771	$	1,778,657
KDW Enterprises Ltd.		534,721		994,156		1,099,098
Regional Tire Distributors (Calgary) Inc.		75,372		181,406		151,258
Trail Tire Distributors Ltd.		88,701		265,241		252,697
Extreme Wheel Distributors Ltd.		1,973		3,812		4,190

	$	1,804,217	$	2,485,386	$	3,285,900

Included in the rent expense are lease payments to 1470242 Alberta Ltd., a company controlled by a director of the Company, which amounted to $174,000 for the 2014 fiscal year (February 28, 2013—$219,750; February 29, 2012—$159,500).

Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:


	February 28, 2014		February 28, 2013		February 29, 2012
Trail Tire Distributors Ltd.	$	242,157	$	381,745	$	1,130,048
Kirks Tire Ltd.		209,092		188,472		8,158
KDW Enterprises Ltd.		534,465		598,227		729,999
Regional Tire Distributors (Calgary) Inc.		13,135		7,537		11,371
Extreme Wheel Distributors Ltd.		—		855		151

	$	998,849	$	1,176,836	$	1,879,727

6. Equipment

February 28, 2014

Cost

Accumulated

Amortization

Net

Office equipment

5,947

3,872

2,075

Computer equipment

789

670

119

Shop equipment

11,985

8,226

3,759

18,721

12,768

5,953

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2013
	Cost		Accumulated Amortization		Net
Office equipment	$	5,947	$	3,353	$	2,594
Computer equipment		789		618		171
Shop equipment		11,985		7,287		4,698

	$	18,721	$	11,258	$	7,463


	February 29, 2012
	Cost		Accumulated Amortization		Net
Office equipment	$	5,947	$	2,704	$	3,243
Computer equipment		789		546		243
Shop equipment		11,985		6,112		5,873

	$	18,721	$	9,362	$	9,359

7. Shareholders’ Loan

Shareholders’ loan at February 28, 2014 includes amounts outstanding at February 28, 2013 and February 29, 2012 are unsecured, non-interest bearing, and are due March 1, 2015.

8. Share Capital

Authorized:

Unlimited number of Class “A” common voting shares

Unlimited number of Class “B” and “C” common non-voting shares

1,000,000 Class “D” Preferred redeemable voting shares


	February 28, 2014		February 28, 2013		February 29, 2012
Issued:
100 Class A common shares	$	100	$	100	$	100

9. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:


	February 28, 2014			February 28, 2013			February 29, 2012
Accounts receivable	$	(248,988	)	$	652,198		$	(734,470	)
Goods and Services Tax receivable		149,806			(149,616	)		(190	)
Income taxes receivable		(40,047	)		—			—
Dividend receivable		(109,081	)		—			—
Inventories		1,269,424			(1,220,750	)		(673,551	)
Prepaid expenses and deposits		890			(1,143	)		(2,322	)
Accounts payable and accrued liabilities		264,749			(779,272	)		344,490
Income taxes payable		(380,473	)		374,518			4,521
Goods and Services Tax payable		46,289			—			(16,930	)
Management remuneration payable		(30,000	)		(570,000	)		600,000

	$	922,569		$	(1,694,065	)	$	(478,452	)

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

10. Financial Instruments

Credit Risk

The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

Liquidity Risk

Interest Rate Risk

Interest rate risk refers to adverse consequences of interest rate changes on the Company’s cash flows and financial position. Management does not believe the Company is exposed to significant interest rate risk.

11. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises (“ASPE”). The material differences between the accounting policies used by the Company under ASPE and US GAAP are disclosed below.

a) Income Taxes

b) Variable interest entities

The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interest that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.

c) Wholly owned subsidiaries and investments subject to significant influence

US GAAP requires the consolidation of subsidiaries, whereas under ASPE the Company elected to record the investment in subsidiaries on the cost method. The Company’s wholly owned subsidiaries include Tirecraft Western Canada Ltd., 1773503 Alberta Ltd., and Tire Storage Direct (Edmonton) Ltd.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

The Company also has significantly influence investments in Regional Tire Distributors (Calgary) Inc., Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.), Integra Tire and Auto Centres Canada, and Regional Tire Distributors (Saskatchewan) Inc. Under US GAAP, significantly influenced investments are required to be accounted for using the equity method, whereby the investment is initially recorded at cost, and adjusted to recognize the Company’s share of after tax earnings or losses, and reduced by dividends received, however under ASPE the Company elected to record the significantly influenced investments on the cost method. The accompanying financial information includes consolidated financial statements which reflect the equity method of accounting for these investments and condensed financial statements for each investee company.

The following financial information presents the financial statement as at February 28, 2014, February 28, 2013 and February 29, 2012 on a consolidated basis.

d) Comprehensive Income

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2014 Consolidated Balance Sheet


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.		1773503 Alberta Ltd.		Tire Storage Direct (Edmonton) Ltd.		Adjustments and Eliminations			Consolidated
	(i)
ASSETS
Current Assets
Cash	$	616,007	$	464,293	$	—	$	88,845	$	—		$	1,169,145
Accounts receivable		1,156,243		600,238		196,875		8,624		—			1,961,980
Goods and Services Tax receivable		—		—		—		46		—			46
Income taxes receivable		40,047		—		—		—		—			40,047
Dividend receivable		109,081		—		—		—		—			109,081
Inventories		2,178,797		34,757		—		—		—			2,213,554
Prepaid expenses		5,513				—		—		—			5,513

		4,105,688		1,099,288		196,875		97,515		—			5,499,366
Loans receivable from related parties		11,090,841		3,581		—		—		(2,670,667	)		8,423,755
Equipment		5,953		3,985		2,403,425		7,051		—			2,420,414
Investments		1,157,017		—				—		(300	)		1,156,717

	$	16,359,499	$	1,106,854	$	2,600,300	$	104,566	$	(2,670,967	)	$	17,500,252

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	1,108,673	$	40,784	$	—	$	2,099	$	—		$	1,151,556
Income taxes payable		—		95,924		22,731		11,299		—			129,954
Goods and Services Tax payable		46,289		18		9,375		—		—			55,682

		1,154,962		136,726		32,106		13,398					1,337,192
Loans payable to related parties		3,584,288		568,306		—		26,355		—			4,178,949
Shareholder loan		6,232,700		139,949		2,499,900		30,818		(2,670,667	)		6,232,700

		10,971,950		844,981		2,532,006		70,571		(2,670,667	)		11,748,841

SHAREHOLDERS’ EQUITY
Share capital		100		100		100		100		(300	)		100
Retained earnings		5,387,449		261,773		68,194		33,895		—			5,751,311

		5,387,549		261,873		68,294		33,995		(300	)		5,751,411

	$	16,359,499	$	1,106,854	$	2,600,300	$	104,566	$	(2,670,967	)	$	17,500,252

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $518,282 as required by the equity method of accounting for investments.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2014 Consolidated Statement of Operations


	Regional Tire Distributors (Edmonton) Inc.			Tirecraft Western Canada Ltd.		1773503 Alberta Ltd.		Tire Storage Direct (Edmonton) Ltd.		Adjustments and Eliminations			Consolidated
	(i)
Sales	$	19,504,654		$	1,917,645	$	187,500	$	87,820	$	(72,989	)	$	21,624,630
Cost of sales		14,371,030			761,025		—		3,900		(72,989	)		15,062,966

Gross profit		5,133,624			1,156,620		187,500		83,920		—			6,561,664

Expenses
Wages and benefits		532,308			292,634		—		—		—			824,942
Management salaries		55,250			27,500		—		—		—			82,750
Rent		228,401			—		—		20,717		—			249,118
Automotive		43,138			49,191		—		—		—			92,329
Interest and bank charges		41,303			—		—		74		—			41,377
Amortization		1,510			443		96,575		1,244		—			99,772
Telephone and utilities		2,791			2,564		—		—		—			5,355
Office		389,063			120,828		—		7,925		—			517,816
Repairs and maintenance		2,204			—		—		—		—			2,204
Insurance		18,054			1,966		—		1,219		—			21,239
Advertising and promotion		38,458			98,411		—		2,274		—			139,143
Shop supplies		1,458			—		—		1,050		—			2,508
Travel		15,303			39,076		—		10		—			54,389
Professional fees		137,722			81,016		—		761		—			219,499
Property taxes		7,625			214		—		3,497		—			11,336
Bad debt expense		11,504			46,352		—		—		—			57,856
Dues and memberships		—			7,499		—		—		—			7,499

		1,526,092			767,694		96,575		38,771		—			2,429,132

Income before other revenue (expenses) and income taxes		3,607,532			388,926		90,925		45,149		—			4,132,532
Other revenue
Dividend income		109,081			—		—		—		—			109,081
Interest income		22,735			1,727		—		45		—			24,507
Share of investee income		159,164			—		—		—		—			159,164
Impairment of advances to related party		(1,800,000	)		—		—		—		—			(1,800,000	)

Income before income taxes		2,098,512			390,653		90,925		45,194		—			2,625,284
Income taxes expense		404,953			95,924		22,731		11,299		—			534,907

Net income	$	1,693,559		$	294,729	$	68,194	$	33,895	$	—		$	2,090,377

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of the earnings and losses in significantly influenced investments of $159,164.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2014 Consolidated Statement of Retained Earnings


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			1773503 Alberta Ltd.		Tire Storage Direct (Edmonton) Ltd.		Adjustments and Eliminations		Consolidated
Balance, beginning of year	$	3,693,890	$	(32,956	)	$	—	$	—	$	—	$	3,660,934
Net income		1,693,559		294,729			68,194		33,895		—		2,090,377

Balance, end of year	$	5,387,449	$	261,773		$	68,194	$	33,895	$	—	$	5,751,311

2014 Consolidated Statement of Cash Flows


	Regional Tire Distributors (Edmonton) Inc.			Tirecraft Western Canada Ltd.			1773503 Alberta Ltd.			Tire Storage Direct (Edmonton) Ltd.			Adjustments and Eliminations			Consolidated
Cash provided by (used in):
Operating Activities
Net income	$	1,693,559		$	294,729		$	68,194		$	33,895		$	—		$	2,090,377
Items not affecting cash Amortization		1,510			443			96,575			1,244			—			99,772
Share of investee income		(159,164	)		—			—			—			—			(159,164	)
Impairment of advances to related party		1,800,000			—			—			—			—			1,800,000
Change in non-cash working capital items		922,569			(100,220	)		(164,769	)		4,728			—			662,308

		4,258,474			194,952			—			39,867			—			4,493,293

Investing Activities
Investment in other companies		(450	)		—			—			—			200			(250	)
Purchase of equipment		—			(4,428	)		(2,500,000	)		(8,295	)		—			(2,512,723	)
Advances to related parties		(10,516,178	)		(1,352	)		—			—			2,670,667			(7,846,863	)
Repayments from related parties		100			—			—			—			—			100
Repayments from Shareholder		—			158,248			—			—			—			158,248

		(10,516,528	)		152,468			(2,500,000	)		(8,295	)		2,670,867			(10,201,488	)

Financing Activities
Advances from related parties		2,108,692			22,000			—			26,355			—			2,157,047
Repayments to related parties		(1,158,248	)		(95,796	)		—			—			—			(1,254,044	)
Advances from shareholder		5,732,700			139,949			2,500,000			30,918			(2,670,867	)		5,732,700
Repayment to shareholder		—			—			—			—			—			—

		6,683,144			66,153			2,500,000			57,273			(2,670,867	)		6,635,703

Increase (decrease) in cash		425,090			413,573			—			88,845			—			927,508
Cash, beginning of year		190,917			50,720			—			—			—			241,637

Cash, end of year	$	616,007		$	464,293		$	—		$	88,845		$	—		$	1,169,145

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2013 Consolidated Balance Sheet


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
	(i)
ASSETS
Current Assets
Cash	$	190,917	$	50,720		$	—		$	241,637
Accounts receivable		907,255		478,639			—			1,385,894
Goods and Services Tax receivable		149,806		2,948			—			152,754
Inventories		3,448,221		20,826			—			3,469,047
Prepaid expenses		6,403		—			—			6,403

		4,702,602		553,133			—			5,255,735
Loans receivable from related parties		2,824,549		2,229			—			2,826,778
Equipment		7,463		—			—			7,463
Shareholder advance		—		158,248			(158,248	)		—
Investments		547,618		—			(100	)		547,518

	$	8,082,232	$	713,610		$	(158,348	)	$	8,637,494

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	843,924	$	94,364		$	—		$	938,288
Income taxes payable		380,473		—			—			380,473
Goods and Services Tax payable		—		—			—			—
Management remuneration payable		30,000		10,000			—			40,000

		1,254,397		104,364			—			1,358,761
Loans payable to related parties		2,633,845		642,102			(158,248	)		3,117,699
Shareholder loan		500,000		—			—			500,000

		4,388,242		746,466			(158,248	)		4,976,460

SHAREHOLDERS’ EQUITY
Share capital		100		100			(100	)		100
Retained earnings		3,693,890		(32,956	)		—			3,660,934

		3,693,990		(32,856	)		(100	)		3,661,034

	$	8,082,232	$	713,610		$	(158,348	)	$	8,637,494

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $359,118 as required by the equity method of accounting for investments.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2013 Consolidated Statement of Operations


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
	(i)
Sales	$	18,455,516	$	793,126		$	(74,124	)	$	19,174,518
Cost of sales		15,547,112		261,427			(74,124	)		15,734,415

Gross profit		2,908,404		531,699			—			3,440,103

Expenses
Wages and benefits		498,127		165,243			—			663,370
Management salaries		10,000		20,000			—			30,000
Rent		219,750		—			—			219,750
Automotive		38,460		33,504			—			71,964
Interest and bank charges		45,540		—			—			45,540
Amortization		1,896		—			—			1,896
Telephone and utilities		2,738		1,392			—			4,130
Office		145,229		297,283			(70,000	)		372,512
Repairs and maintenance		1,320		—			—			1,320

Insurance		15,969		1,928			—			17,897
Advertising and promotion		44,003		21,280			—			65,283
Shop supplies		609		109			—			718
Travel		18,022		39,213			—			57,235
Professional fees		954		24,843			—			25,797
Property taxes		208		208			—			416

Bad debt expense		33,342		—			—			33,342
Dues and memberships		100		7,399			—			7,499

		1,076,267		612,402			(70,000	)		1,618,669

Income (loss) before other revenue and income taxes		1,832,137		(80,703	)		70,000			1,821,434
Other revenue
Interest income		27,700		695			—			28,395
Share of investee income		174,036		—			—			174,036
Administrative service revenue		—		70,000			(70,000	)		—

Income before income taxes		2,033,873		(10,008	)		—			2,023,865
Income taxes expense		444,518		—			—			444,518

Net income	$	1,589,355	$	(10,008	)	$	—		$	1,579,347

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of earnings and losses in significantly influenced investments of $174,036.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2013 Consolidated Statement of Retained Earnings


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			Adjustments and Eliminations		Consolidated
Balance, beginning of year	$	2,104,535	$	(22,948	)	$	—	$	2,081,587
Net income		1,589,355		(10,008	)		—		1,579,347

Balance, end of year	$	3,693,890	$	(32,956	)	$	—	$	3,660,934

2013 Consolidated Statement of Cash Flows


	Regional Tire Distributors (Edmonton) Inc.			Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
Cash provided by (used in):

Operating Activities
Net income	$	1,589,355		$	(10,008	)	$	—		$	1,579,347
Items not affecting cash
Amortization		1,896			—			—			1,896
Share of Investee income		(174,036	)		—			—			(174,036	)
Change in non-cash working capital items		(1,694,065	)		(270,841	)		—			(1,964,906	)

		(276,850	)		(280,849	)		—			(557,699	)

Investing Activities
Investment in other companies		—			—			—			—
Purchase of equipment		—			—			—			—
Advances to related parties		(2,085,895	)		(1,144	)		73,411			(2,013,628	)
Repayments from related parties		1,099,000			—			—			1,099,000
Repayment from Shareholder		—			—			—			—

		(986,895	)		(1,144	)		73,411			(914,628	)

Financing Activities
Advances from related parties		784,828			242,991			—			1,027,819
Repayment to related parties		—			(5,000	)		—			(5,000	)
Advances from shareholder		—			73,411			(73,411	)		—
Repayment to shareholder		(100,000	)		—			—			(100,000	)

		684,828			311,402			(73,411	)		922,819

Increase (decrease) in cash		(578,917	)		29,409			—			(549,508	)
Cash, beginning of year		769,834			21,311			—			791,145

Cash, end of year	$	190,917		$	50,720		$	—		$	241,637

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2012 Consolidated Balance Sheet


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
	(i)
ASSETS
Current Assets
Cash	$	769,834	$	21,311		$	—		$	791,145
Accounts receivable		1,559,453		134,423			—			1,693,876
Goods and Services Tax receivable		190		4,348			—			4,538
Inventories		2,227,471		3,676			—			2,231,147
Prepaid expenses		5,260		176			—			5,436

		4,562,208		163,934			—			4,726,142

Loans receivable from related parties		1,099,391		1,085			—			1,100,476
Equipment		9,359		—			—			9,359
Shareholder advance		—		231,659			(231,659	)		—
Investments		185,257		—			(100	)		185,157

	$	5,856,215	$	396,678		$	(231,759	)	$	6,021,134

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	1,623,197	$	15,415		$	—		$	1,638,612
Income taxes payable		5,955		—			—			5,955
Goods and Services Tax payable		—		—			—			—
Management remuneration payable		600,000		—			—			600,000

		2,229,152		15,415			—			2,244,567

Loans payable to related parties		922,428		404,111			(231,659	)		1,094,880
Shareholder loan		600,000		—			—			600,000

		3,751,580		419,526			(231,659	)		3,939,447

SHAREHOLDERS’ EQUITY
Share capital		100		100			(100	)		100
Retained earnings (losses)		2,104,535		(22,948	)		—			2,081,587

		2,104,635		(22,848	)		(100	)		2,081,687

	$	5,856,215	$	396,678		$	(231,759	)	$	6,021,134

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $185,082 required by the equity method of accounting for investments.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2012 Consolidated Statement of Operations


	Regional Tire Distributors (Edmonton) Inc.		Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
	(i)
Sales	$	18,315,246	$	399,118		$	(55,948	)	$	18,658,416
Cost of sales		15,991,709		16,026			(55,948	)		15,951,787

Gross profit		2,323,537		383,092			—			2,706,629


Expenses
Wages and benefits		347,259		351,038			—			698,297
Management salaries		610,000		—			—			610,000
Rent		159,500		—			—			159,500
Automotive		24,275		36,443			—			60,718
Interest and bank charges		33,607		99			—			33,706
Amortization		3,274		—			—			3,274
Telephone and utilities		2,540		1,834			—			4,374
Office		282,178		13,975			(240,000	)		56,153
Repairs and maintenance		2,776		—			—			2,776
Insurance		12,473		1,267			—			13,740
Advertising and promotion		66,261		170,072			—			236,333
Shop supplies		85		358			—			443
Travel		2,829		27,031			—			29,860
Professional fees		2,740		26,824			—			29,564
Property taxes		441		441			—			882
Bad debt expense		697		3,617			—			4,314
Dues and memberships		100		6,208			—			6,308

		1,551,035		639,207			(240,000	)		1,950,242

Income (loss) before other revenue and income taxes		772,502		(256,115	)		240,000			756,387

Other revenue
Interest income		18,118		1,076			—			19,194
Share of investee income		185,082		—			—			185,082
Administrative service revenue		—		240,000			(240,000	)		—

Income (loss) before income taxes		975,702		(15,039	)		—			960,663
Income taxes expense		69,387		—			—			69,387

Net income	$	906,315	$	(15,039	)	$	—		$	891,276

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of the earnings in significantly influenced investments of $185,082.

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

2012 Consolidated Statement of Retained Earnings

Regional Tire
Distributors
(Edmonton)
Inc.

Tirecraft
Western
Canada
Ltd.

Adjustments
and
Eliminations

Consolidated

Balance, beginning of year

1,198,220

(7,909

)

—

1,190,311

Net income

906,315

(15,039

)

—

891,276

Balance, end of year

2,104,535

(22,948

)

—

2,081,587

2012 Consolidated Statement of Cash Flows


	Regional Tire Distributors (Edmonton) Inc.			Tirecraft Western Canada Ltd.			Adjustments and Eliminations			Consolidated
Cash provided by (used in):

Operating Activities
Net income	$	906,315		$	(15,039	)	$	—		$	891,276
Items not affecting cash
Amortization		3,274			—			—			3,274
Share of Investee income		(185,082	)		—			—			(185,082	)
Change in non-cash working capital items		(478,452	)		105,269			—			(373,183	)

		246,055			90,230			—			336,285

Investing Activities
Investment in other companies		(75	)		—			—			(75	)
Purchase of equipment		(633	)		—			—			(633	)
Advances to related parties		(1,000,392	)		(499	)		—			(1,000,891	)
Repayments from related parties		311,659			—			—			311,659
Advances to shareholder		—			(231,659	)		231,659			—

		(689,441	)		(232,158	)		231,659			(689,940	)

Financing Activities
Advances from related parties		690,769			157,912			(231,659	)		617,022
Repayment to related parties		(72,100	)		(10,000	)		—			(82,100	)
Advances from shareholder		500,000			—			—			500,000
Repayment to shareholder		—			(8,000	)		—			(8,000	)

		1,118,669			139,912			(231,659	)		1,026,922

Increase (decrease) in cash		675,283			(2,016	)		—			673,267
Cash, beginning of year		94,551			23,327			—			117,878

Cash, end of year	$	769,834		$	21,311		$	—		$	791,145

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

The Company holds a 25% interest in Regional Tire Distributors (Calgary) Inc. The Condensed Financial Statements of Regional Tire Distributors (Calgary) Inc. is as follows:


Balance Sheets	February 28, 2014		February 28, 2013		February 29, 2012
Current Assets	$	8,986,008	$	7,307,723	$	7,327,776
Long Term Assets		2,320,654		686,852		697,596

		11,306,662		7,994,575		8,025,372

Current Liabilities		1,646,195		1,046,550		1,338,278
Long Term Liabilities		3,671,703		2,182,086		3,370,599
Shareholders’ Equity		5,988,764		4,765,939		3,316,495

	$	11,306,662	$	7,994,575	$	8,025,372


Statements of Operations	February 28, 2014		February 28, 2013		February 29, 2012
Sales	$	25,592,573	$	19,961,625	$	16,589,405
Cost of sales		20,463,834		15,726,623		12,987,392

Gross profit		5,128,739		4,235,002		3,602,013
Operating expenses		3,558,310		2,435,191		3,149,754

Income before other revenue and income taxes		1,570,429		1,799,811		452,259
Other revenue		183,674		174,550		144,079

Income before income taxes		1,754,103		1,974,361		596,338
Income taxes		462,218		524,917		69,931

Net income	$	1,291,885	$	1,449,444	$	526,407

The Company holds a 50% interest in Regional Tire Distributors (Saskatchewan) Inc. The Condensed Financial Statements of Regional Tire Distributors (Saskatchewan) Inc. is as follows:


Balance Sheets	February 28, 2014			February 28, 2013			February 29, 2012
Balance Sheets	February 28, 2014			February 28, 2013			February 29, 2012
Current Assets	$	5,226,861		$	6,047,177		$	3,871,475
Long Term Assets		229,942			272,472			331,016

		5,456,803			6,319,649			4,202,491

Current Liabilities		3,626,064			3,589,339			2,595,531
Long Term Liabilities		2,999,900			2,999,900			1,499,900
Shareholders’ Equity		(1,169,161	)		(269,590	)		107,060

	$	5,456,803		$	6,319,649		$	4,202,491

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012


Statements of Operations	February 28, 2014			February 28, 2013			February 29, 2012
Statements of Operations	February 28, 2014			February 28, 2013			February 29, 2012
Sales	$	12,854,683		$	11,999,083		$	4,571,939
Cost of sales		11,144,551			9,310,716			3,381,476

Gross profit		1,710,132			2,688,367			1,190,463
Operating expenses		2,609,703			3,065,017			1,083,503

(Loss) income before income taxes		(899,571	)		(376,650	)		106,960
Income taxes		—			—			—

Net (loss) income	$	(899,571	)	$	(376,650	)	$	106,960

The Company holds a 50% interest in Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.). The Condensed Financial Statements of Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.) is as follows:


Balance Sheet	February 28, 2014
Current Assets	$	5,962,347
Long Term Assets		290,041

		6,252,388

Current Liabilities		597,291
Long Term Liabilities		5,517,124
Shareholders’ Equity		137,973

		$6,252,388


Statement of Operations	February 28, 2014
Sales	$	15,171,112
Cost of sales		12,079,184

Gross profit		3,091,928
Operating expenses		2,613,663

Income before other revenue and income taxes		478,265
Other revenue		3,306

Income before income taxes		481,571
Income taxes		45,246

Net income	$	436,325

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

The Company holds a 50% interest in Integra Tire and Auto Centres Canada Ltd. The Condensed Financial Integra Tire and Auto Centres Canada Ltd. is as follows:


Balance Sheet	February 28, 2014
Current Assets	$	1,141,492
Long Term Assets		—

		1,141,492

Current Liabilities		674,453
Long Term Liabilities		331,208
Shareholders’ Equity		135,831

		$1,141,492


Statement of Operations	February 28, 2014
Sales	$	3,382,315
Cost of sales		2,895,607

Gross profit		486,708
Operating expenses		312,260

Income before other revenue and income taxes		174,448
Other revenue		6,393

Income before income taxes		180,841
Income taxes		45,210

Net income	$	135,631

d) Reconciliation of net income per ASPE and US GAAP


	February 28, 2014		February 28, 2013			February 29, 2012
Net income, as reported in statement of operations under ASPE	$	1,534,395	$	1,415,319		$	721,233
Adjustments
Income from entities consolidated under
US GAAP:
Tirecraft Western Canada Ltd.		294,729		(10,008	)		(15,039	)
1773503 Alberta Ltd.		68,194		—			—
Tire Storage Direct (Edmonton) Ltd.		33,895		—			—
Share of income from significantly influenced investees		159,164		174,036			185,082

Net income per US GAAP	$	2,090,377	$	1,579,347		$	891,276

REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

12. Correction of an Error

Subsequent to the release of the financial statements on June 25, 2014 management changed its assessment of the probability of realizing the future tax asset resulting from the impairment of the loan receivable and has determined that it does not meet the requirements for recognition of the deferred income tax asset and has made some adjustments to the tax provision. As a result of the change in the assessment by management the following changes have been made to the financial statements for the fiscal year ended February 28, 2014.


	Previously Reported		Adjustment Increase (Decrease)			Restated Balance
Income taxes receivable	$	—	$	40,047		$	40,047
Future income tax asset		807,660		(807,660	)		—
Income taxes payable		409,953		(409,953	)		—
Current income tax expense		854,953		(450,000	)		404,953
Future income tax recovery		327,600		(327,600	)		—
Net income		1,411,995		122,400			1,534,395
Retained earnings		5,226,827		(357,660	)		4,869,167

EX-99.5 6 d779206dex995.htm EX-99.5 EX-99.5

Exhibit 99.5

Regional Tire Distributors (Calgary) Inc.

Index

February 28, 2014 and 2013 and February 29, 2012


	Page
Independent Auditors’ Report		2
Financial Statements
Balance Sheets		3
Statements of Operations		4
Statements of Retained Earnings		5
Statements of Cash Flows		6
Notes to Financial Statements		7

LOGO



		Collins Barrow Edmonton LLP
	INDEPENDENT AUDITORS’ REPORT	2380 Commerce Place
		10155—102 Street N.W.
		Edmonton, Alberta
		T5J 4G8 Canada
		T. 780.428.1522
		F. 780.425.8189
To the Shareholders of Regional Tire Distributors (Calgary) Inc.		www.collinsbarrow.com
		www.collinsbarrow.com

Report on the Financial Statements

We have audited the accompanying financial statements of Regional Tire Distributors (Calgary) Inc., which comprise the balance sheets as of February 28, 2014, February 28, 2013 and February 29, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors (Calgary) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting


Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 25, 2014 except for Note 14 (footnotes (a) and (d)) which are as of August 18, 2014		Chartered Accountants


This office is independently owned and operated by Collins Barrow Edmonton LLP
The Collins Barrow trademarks are used under License.

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Balance Sheets

As at February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014		February 28, 2013		February 29, 2012
ASSETS
Current Assets
Cash	$	521,350	$	162,529	$	374,494
Accounts receivable (Note 3)		2,003,962		1,838,295		2,044,799
Goods and Services Tax receivable		115,753		44,931		116,969
Inventories (Note 4)		6,223,543		5,250,280		4,776,357
Prepaid expenses		57,618		11,688		15,157
Income taxes receivable		63,782		—		—

		8,986,008		7,307,723		7,327,776

Due from corporate shareholder (Note 5)		13,135		7,537		11,371
Loans receivable from related parties (Note 6)		107,236		62,034		39,557
Property and equipment (Note 7)		627,322		617,281		646,668
Goodwill (Note 13)		1,572,961		—		—

	$	11,306,662	$	7,994,575	$	8,025,372

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	555,251	$	522,633	$	349,163
Income taxes payable		—		469,917		14,115
Management remuneration payable		770,000		54,000		975,000
Current portion of contingent liabilities (Note 13)		320,944		—		—

		1,646,195		1,046,550		1,338,278

Due to corporate shareholders (Note 5)		76,050		113,181		73,205
Shareholder’s loan (Note 8)		1,152,568		1,075,000		—
Loans payable to related parties (Note 6)		1,691,068		993,905		3,297,394
Contingent liabilities (Note 13)		752,017		—		—

		5,317,898		3,228,636		4,708,877

SHAREHOLDERS’ EQUITY
Common shares (Note 9)		100		100		100
Preferred shares (Note 9)		197		200		200
Retained earnings		5,988,467		4,765,639		3,316,195

		5,988,764		4,765,939		3,316,495

	$	11,306,662	$	7,994,575	$	8,025,372

Commitment and Contingency (Note 11)

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Statements of Operations

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014		February 28, 2013		February 29, 2012
Sales (Note 6)	$	25,592,573	$	19,961,625	$	16,589,405
Cost of sales (Note 6)		20,463,834		15,726,623		12,987,392

Gross profit		5,128,739		4,235,002		3,602,013

Expenses
Wages and benefits		1,157,144		924,909		768,228
Management bonus		700,000		—		975,000
Rent (Note 6)		558,657		526,980		457,250
Amortization		203,659		162,146		91,897
Automotive		185,929		152,488		125,964
Management fees (Note 6)		180,000		180,000		180,000
Interest and bank charges		113,893		72,078		63,703
Property taxes		101,761		106,471		112,937
Professional fees (Note 6)		67,835		7,681		12,608
Utilities		66,868		41,618		63,411
Computer expenses (Note 6)		56,107		37,571		26,912
Repairs and maintenance		39,579		34,082		28,847
Bad debt expense		32,260		77,546		160,772
Telephone		25,235		18,299		14,867
Insurance		23,767		23,189		26,681
Office		20,008		16,642		22,438
Advertising and promotion		17,186		44,185		15,007
Meals and entertainment		8,254		9,181		2,834
Dues and memberships		168		125		398

		3,558,310		2,435,191		3,149,754

Income before other revenue and income taxes		1,570,429		1,799,811		452,259

Other revenue
Rental income		152,340		152,340		126,950
Interest income		31,334		22,210		17,129

Income before income taxes		1,754,103		1,974,361		596,338
Income taxes expense		462,218		524,917		69,931

Net income	$	1,291,885	$	1,449,444	$	526,407

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Statements of Retained Earnings

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014			February 28, 2013		February 29, 2012
Balance, beginning of year	$	4,765,639		$	3,316,195	$	3,036,598
Net income		1,291,885			1,449,444		526,407
Redemption of preferred shares (Note 9)		(69,057	)		—		(246,810	)

Balance, end of year	$	5,988,467		$	4,765,639	$	3,316,195

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Statements of Cash Flows

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014			February 28, 2013			February 29, 2012
Cash provided by (used in):
Operating Activities
Net income	$	1,291,885		$	1,449,444		$	526,407
Items not affecting cash
Amortization		203,659			162,146			91,897

		1,495,544			1,611,590			618,304
Change in non-cash working capital items (Note 10)		(280,072	)		437,360			(5,417,523	)

		1,215,472			2,048,950			(4,799,219	)

Investing Activities
Purchase of equipment		(138,700	)		(132,759	)		(493,938	)
Advances to corporate shareholder		(5,598	)		—			(11,371	)
Repayments from corporate shareholder		—			3,834			—
Advances to related parties		(64,965	)		(27,656	)		(39,557	)
Repayments from related parties		19,763			5,179			—
Assets purchased (Note 13)		(1,335,691	)		—			—

		(1,525,191	)		(151,402	)		(544,866	)

Financing Activities
Advances from corporate shareholders		70,143			109,976			3,205
Repayments to corporate shareholders		(107,274	)		(70,000	)		—
Advances from shareholder		77,568			1,075,000			—
Advances from related parties		1,305,003			605,888			2,518,813
Repayments to related parties		(607,840	)		(3,830,377	)		—
Redemption of preferred shares		(69,060	)		—			(246,870	)
Issuance of shares		—			—			100

		668,540			(2,109,513	)		2,275,248

(Decrease) increase in cash		358,821			(211,965	)		(3,068,837	)
Cash, beginning of year		162,529			374,494			3,443,331

Cash, end of year	$	521,350		$	162,529		$	374,494

See accompanying notes

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

1. Nature of operations

The Company was incorporated under the Alberta Business Corporations Act on October 26, 1987 and operated a wholesale tire distribution business under its original name as South Alta Tire Distributors Ltd. The company changed its name to Regional Tire Distributors (Calgary) Inc. on October 5, 2010.

2. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance with Canadian accounting standards for private enterprises.

Revenue recognition

Interest revenue is recognized on an annual basis as it is earned.

Vendor Rebates and Allowances

Allowance for doubtful accounts

Inventories

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.

Property and equipment

Property and equipment are recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:


Office equipment		- 20% declining balance basis
Computer equipment		- 30%-100% declining balance basis
Shop equipment		- 20% declining balance basis
Automotive equipment		- 30% declining balance basis
Leasehold improvement		- 5 year straight line basis
Fencing		- 10% declining balance basis

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is allocated as of the date of the business combination to the Company’s reporting units that are expected to benefit from the synergies of the business combination.

Goodwill is tested for impairment whenever events or changes in circumstances indicate that it might be impaired. The impairment test consists of a comparison of the fair value of the reporting unit to which goodwill is assigned with its carrying amount. Any impairment loss in the carrying amount compared with the fair value is charged to income in the year in which the loss is recognized.

Income taxes

Contingent liabilities

A contingent liability is recognized when the Company has a present obligation as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

obligation, and when a reliable estimate can be made of the amount of the obligation. A contingent liability is discounted using a current pre-tax rate that reflects the risks specific to the liability and is re-measured at fair value at each reporting date.

Use of estimates

The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory, estimated useful lives of property and equipment for purposes of calculating amortization and valuation of contingent liabilities. Actual results could differ from those estimates.

Financial Instruments

Measurement of financial instruments

The company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost. Changes in fair value are recognized in net income.

Financial assets measured at amortized cost include cash, accounts receivable, due from corporate shareholder and loans receivable from related parties.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, due to corporate shareholders, shareholder’s loan and loans payable to related parties.

Impairment

Transaction costs

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

3. Accounts Receivable

Accounts receivable consists of the following:


	February 28, 2014			February 28, 2013			February 29, 2012
Trade receivable	$	2,325,091		$	2,138,210		$	2,289,971
Allowance for doubtful accounts		(321,129	)		(299,915	)		(245,172	)

	$	2,003,962		$	1,838,295		$	2,044,799

4. Inventories

Inventories consist of the following:


	February 28, 2014		February 28, 2013		February 29, 2012
Tires	$	6,149,119	$	5,183,560	$	4,719,657
Wheel		74,424		66,720		56,700

	$	6,223,543	$	5,250,280	$	4,776,357

As at February 28, 2014 year end, inventory included volume rebates and allowances in the amount of $168,422 (February 28, 2013—$352,660; February 29, 2012—$390,461).

Cost of sales reported on the statement of operations include $20,463,834 (February 28, 2013—$15,726,623 February 29, 2012—$12,987,392) of inventories recognized as an expense during the year.

5. Due from/Due to Corporate Shareholders

Due from corporate shareholder are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Regional Tire Distributors (Edmonton) Inc. (ownership 25%)	$	13,135		7,537		11,371

	$	13,135	$	7,537	$	11,371

Due from corporate shareholder is unsecured, non-interest bearing and has no stated terms of repayment.

As the loan to corporate shareholder has no stated terms of repayment and is not expected to be repaid within the next year, it has been classified as a long term asset.

Due to corporate shareholders are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
673889 Alberta Ltd. (ownership 25%)	$	69,060	$	—	$	70,000
Regional Tire Distributors (Edmonton) Inc. (ownership 25%)		6,990		5,907		3,205
L & K Tire Inc. (ownership 25%)		—		107,274		—

	$	76,050	$	113,181	$	73,205

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Due to corporate shareholders are unsecured, non-interest bearing and have no stated terms of repayment.

As the corporate shareholders have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.

6. Loans Receivable from/Payable to Related Parties and Related Party Transactions

Loans receivable from related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Kirk’s Tire (Brooks) Ltd.	$	26,229	$	17,552	$	9,389
Kirk’s Tire (Calgary) Ltd.		—		—		5,179
Kirk’s Tire (Red Deer) Ltd.		3,798		9,513		6,136
Kirk’s Tire Ltd.		18,185		21,517		17,163
Regional Tire Distributors (Langley) Inc.		265		10,981		1,690
Regional Tire Distributors (Victoria) Inc.		2,958		2,286		—
Regional Tire Distributors (Vernon) Inc.		3,073		185		—
Regional Tire Distributors (Manitoba) Inc.		9,912		—		—
Tirecraft Lloydminster Truck Centre Inc.		2,816		—		—
Darren Vasseur		40,000		—		—

	$	107,236	$	62,034	$	39,557

Loans receivable from the parties noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Calgary) Inc. and each of these parties is as follows:

Kirk’s Tire (Brooks) Ltd., Kirk’s Tire (Red Deer) Ltd., Regional Tire Distributors (Langley) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Vernon) Inc., Regional Tire Distributors (Manitoba) Inc. and Tirecraft Lloydminster Truck Centre Inc. are significantly influenced by a director of Regional Tire Distributors (Calgary) Inc.

Kirk’s Tire Ltd. is a company controlled by a director of Regional Tire Distributors (Calgary) Inc.

Kirk’s Tire (Calgary) Ltd. is controlled by an immediate family member of a director of Regional Tire Distributors (Calgary) Inc.

Darren Vasseur is a director of Regional Tire Distributors (Calgary) Inc.

As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, they have been classified as long term assets.

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Loans payable to related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
VLK Properties Inc.	$	48,616	$	51,871	$	175,818
KDW Enterprises Ltd.		128,288		24,863		69,061
Kirk’s Adminco Ltd.		16,275		18,803		18,165
Kirk’s Tire (Calgary) Ltd.		—		—		55
Kirk’s Tire Ltd.		1,328,429		895,457		1,696,738
Pask Technology Group Inc.		1,037		781		684
Regional Tire Distributors (Langley) Inc.		5,984		1,247		—
Regional Tire Distributors (Vernon) Inc.		5,606		883		—
Tirecraft Western Canada Ltd.		156,833		—		—
Ward Tire		—		—		300,000
Doug Vasseur		—		—		410,936
Karen Vasseur		—		—		436,684
Darren Vasseur		—		—		189,253

	$	1,691,068	$	993,905	$	3,297,394

Loans payable to the parties noted above are unsecured, non-interest bearing and have no stated terms of repayment, except Kirk’s Tire Ltd. which is secured by inventory. The relationship between Regional Tire Distributors (Calgary) Inc. and each of these parties is as follows:

KDW Enterprise Ltd., Kirk’s Adminco Ltd., Pask Technology Group Inc., Regional Tire Distributors (Langley) Ltd. and Regional Tire Distributors (Vernon) Ltd. are significantly influenced by a director of Regional Tire Distributors (Calgary) Inc.

Kirk’s Tire Ltd. is a company controlled by a director of Regional Tire Distributors (Calgary) Inc.

VLK Properties Inc. is under common control.

Tirecraft Western Canada Ltd. is a company wholly owned by one of the shareholders of Regional Tire Distributors (Calgary) Inc.

Kirk’s Tire (Calgary) Ltd. is indirectly controlled by an immediate family member of a director of Regional Tire Distributors (Calgary) Inc.

Ward Tire is under common ownership of Regional Tire Distributors (Calgary).

Darren Vasseur is a director of Regional Tire Distributors (Calgary) Inc. Doug Vasseur and Karen Vasseur are immediate family members of the director.

As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

Sales to related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Kirk’s Tire (Brooks) Ltd.	$	287,835	$	261,323	$	195,857
Kirk’s Tire (Calgary) Ltd.		—		—		139,154
Kirk’s Tire (Red Deer) Ltd.		166,990		132,304		171,813
KDW Enterprises Ltd.		793		335		—
Regional Tire Distributors (Edmonton) Inc.		75,372		181,406		151,258
Regional Tire Distributors (Langley) Inc.		32,717		10,056		—
Regional Tire Distributors (Victoria) Inc.		41,933		17,830		—
Regional Tire Distributors (Vernon) Inc.		34,240		24,688		1,543
Regional Tire Distributors (Manitoba) Inc.		193,240		—		—
Tirecraft Lloydminster Truck Centre Inc.		22,070		1,678		1,364

	$	855,190	$	629,620	$	660,989

Inventory purchases from related parties are as follows:


	February 28, 2014		February 28, 2013		February 29, 2012
Kirk’s Tire (Brooks) Ltd.	$	—	$	—	$	551
Kirk’s Tire (Red Deer) Ltd.		604		—		380
Kirk’s Tire Ltd.		3,516,716		2,727,411		2,837,377
KDW Enterprises Ltd.		707,495		842,185		861,060
L&K Tire Inc.		101		126,999		24,881
Regional Tire Distributors (Edmonton) Inc.		743,230		123,978		142,204
Regional Tire Distributors (Langley) Inc.		201,431		24,207		1,968
Regional Tire Distributors (Vernon) Inc.		85,109		5,131		487
Regional Tire Distributors (Manitoba) Inc.		5,769		—		—

	$	5,260,455	$	3,849,911	$	3,868,908

Included in the rent expense are lease payments to VLK Properties Inc., a company under common control, which amounted to $526,980 for the 2014 fiscal year (February 28, 2013—$526,980; February 29, 2012—$457,250)

Included in the management fees expense are administrative services fee paid to Kirk’s Adminco Ltd., a company under common control, which amounted to $180,000 for the 2014 fiscal year (February 28, 2013—$180,000; February 29, 2012—$180,000).

Included in computer expenses are information technology services payments to Pask Technology Group Inc., a company related through a common director of Regional Tire Distributors (Calgary) Inc., which amounted to $15,300 for the 2014 fiscal year (February 28, 2013—$9,944; February 29, 2012—$5,922)

Included in cost of sales are advertising expense payments to Tirecraft Western Canada Ltd., a company related through a common director of Regional Tire Distributors (Calgary) Inc., which amounted to $156,833 for the 2014 fiscal year (February 28, 2013—$nil; February 29, 2012—$nil).

Included in the professional fees expense is an amount of $30,000 paid to BJK Holdings Ltd., a 25% shareholder of Regional Tire Distributors (Calgary) Inc., related to negotiation services provided to the Company regarding the purchase of assets from Harper’s Tire (1931) Ltd.

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

7. Property and Equipment

February 28, 2014

Cost

Accumulated
Amortization

Net

Office equipment

18,171

11,662

6,509

Computer equipment

36,057

17,646

18,411

Shop equipment

140,375

49,745

90,630

Automotive equipment

524,771

323,056

201,715

Leasehold improvements

598,367

293,753

304,614

Fencing

7,859

2,416

5,443

1,325,600

698,278

627,322


	February 28, 2013
	Cost		Accumulated Amortization		Net
Office equipment	$	13,071	$	10,672	$	2,399
Computer equipment		10,662		10,662		—
Shop equipment		78,125		34,869		43,256
Automotive equipment		403,816		262,525		141,291
Leasehold improvements		598,367		174,080		424,287
Fencing		7,859		1,811		6,048

	$	1,111,900	$	494,619	$	617,281


	February 29, 2012
	Cost		Accumulated Amortization		Net
Office equipment	$	13,071	$	10,072	$	2,999
Computer equipment		10,662		10,407		255
Shop equipment		74,175		24,549		49,626
Automotive equipment		302,157		229,184		72,973
Leasehold improvements		571,217		57,121		514,096
Fencing		7,859		1,140		6,719

	$	979,141	$	332,473	$	646,668

8. Shareholder’s loan

Shareholder’s loan at February 28, 2014 which includes amounts outstanding at February 28, 2013 are unsecured, non-interest bearing, and are due March 1, 2015.

9. Share Capital


Authorized:
Unlimited number of Class “A” through “D” common voting shares
Unlimited number of Class “E” through “H” common non-voting shares
Unlimited number of Class “I” through “L” preferred redeemable non-voting shares
Unlimited number of Class “M” through “P” preferred redeemable voting shares

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012


	February 28, 2014		February 28, 2013		February 29, 2012
Issued:
25 Class A common shares	$	25	$	25	$	25
25 Class B common shares		25		25		25
25 Class C common shares		25		25		25
25 Class D common shares		25		25		25

		100		100		100

2,000 Class I preferred shares		—		200		200
1,973 Class I preferred shares		197		—		—

		197		200		200

	$	297	$	300	$	300

Class I preferred shares issued have redemption value of $2,557.76 per share.

On December 31, 2013, the Company redeemed 27 Class I preferred shares with a paid up capital of $0.10 and a redemption amount of $69,060. The excess of the redemption value over the paid up capital amount of $69,057 is recorded as a reduction of retained earnings.

On November 29, 2011, the Company redeemed 60 Class E preferred shares with a paid up capital of $1.00 and a redemption amount of $246,870. The excess of the redemption value over the paid up capital amount of $246,810 was recorded as a reduction of retained earnings. The existing share certificate was cancelled.

10. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:


	February 28, 2014			February 28, 2013			February 29, 2012
Accounts receivable	$	(165,667	)	$	206,504		$	(1,351,839	)
Goods and Services Tax receivable		(70,822	)		72,038			(117,099	)
Inventories		(240,572	)		(473,923	)		(3,721,491	)
Prepaid expenses		(17,930	)		3,469			(7,014	)
Income taxes receivable		(63,782	)		—			—
Accounts payable and accrued liabilities		32,618			173,470			(220,027	)
Income taxes payable		(469,917	)		455,802			(53	)
Management remuneration payable		716,000			—			—

	$	(280,072	)	$	437,360		$	(5,417,523	)

11. Commitment and Contingency

Commitment

The Company has entered into an operating lease for its premises expiring March 30, 2016.

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

The required payments in future fiscal periods are as follows:


2015	$	113,944
2016		113,944
2017		9,495

	$	237,383

Contingency

On January 1, 2014, the Company entered into a consultation agreement with the former owners of Harper’s Tire (1931) Ltd. (Harper) (Note 13). Pursuant to the agreement, Harper has agreed to provide certain consulting and marketing services in favour of the Company for a period of five years in exchange for fees equal to 50% of the Company’s pre-tax profits generated from products sold by the Company to Harper’s previous customers. The amount of the fee is to be determined by the end of each calendar year.

12. Financial Instruments

Credit Risk

The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. As at February 28, 2014, the Company has a working capital balance of $7,339,813 (February 28, 2013—$6,261,173; February 29, 2012—$5,989,498)

Interest Rate Risk

13. Asset Purchase

On January 1, 2014, the Company acquired assets from Harper’s Tire (1931) Ltd. The aggregate adjusted purchase price was $2,408,652 and was allocated to the assets acquired based on their fair market value as follows:


Inventories	$	732,691
Lease deposits		28,000
Property and equipment		75,000
Goodwill		1,572,961

Total assets acquired	$	2,408,652

Total consideration for the acquisition consists of the following:
Cash payment	$	1,335,691
Contingent consideration		1,072,961

	$	2,408,652

REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

14. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

a) Income Taxes

Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Company anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Company’s financial statements.

Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under ASPE, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the Company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Company’s statutory income tax rate and the effective tax rate.

b) Variable Interest Entities

c) Preferred shares

d) Comprehensive Income

EX-99.6 7 d779206dex996.htm EX-99.6 EX-99.6

Exhibit 99.6

AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On June 27, 2014, American Tire Distributors Holdings, Inc. (“Holdings” or the “Company”) completed the acquisition of the wholesale distribution business of Trail Tire Distributors Ltd. (“Trail Tire”) pursuant to an Asset Purchase Agreement by and among TriCan Tire Distributors (“TriCan”), an indirect 100% owned subsidiary of Holdings, and the shareholders and principals of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The Trail Tire acquisition was completed for aggregate cash consideration of approximately $20.8 million. The aggregate cash consideration was funded through borrowings under the Company’s ABL Facility. The Trail Tire purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On June 27, 2014, Holdings completed the acquisition of the wholesale distribution business of Extreme Wheel Distributors Ltd. (“Extreme Wheel”) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholder and principal of Extreme Wheel. Extreme Wheel is a wholesale distributor of wheels and related accessories in Canada. The Extreme Wheel acquisition was completed for aggregate cash consideration of approximately $6.5 million. The aggregate cash consideration was funded through borrowings under the Company’s ABL Facility. The Extreme Wheel purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On June 27, 2014, Holdings completed the acquisition of the wholesale distribution business of Kirks Tire Ltd. (“Kirks Tire”) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tires, tire parts, tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. Kirks Tire’s retail operations were not acquired by TriCan. The Kirks Tire acquisition was completed for aggregate cash consideration of approximately $73.0 million. The aggregate cash consideration was funded through borrowings under the Company’s ABL Facility. The Kirks Tire purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On June 27, 2014, Holdings completed the acquisition of the wholesale distribution business of Regional Tire Distributors (Edmonton) (“RTD Edmonton”) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The RTD Edmonton acquisition was completed for aggregate cash consideration of approximately $31.9 million. The aggregate cash consideration was funded through borrowings under the Company’s ABL Facility. The RTD Edmonton purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On June 27, 2014, Holdings completed the acquisition of the wholesale distribution business of Regional Tire Distributors (Calgary) (“RTD Calgary”) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The RTD Calgary acquisition was completed for aggregate cash consideration of approximately $20.7 million. The aggregate cash consideration was funded through borrowings under the Company’s ABL Facility. The RTD Calgary purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On March 28, 2014, Holdings completed the acquisition of Terry’s Tire Town Holdings, Inc. (“Terry’s Tire”). The Terry’s Tire acquisition was completed pursuant to a Stock Purchase Agreement between the Company and TTT Holdings, Inc. (“TTT Holdings”). TTT Holdings owned all of the capital stock of Terry’s Tire. TTT Holdings had no significant assets or operations other than its ownership of Terry’s Tire. The operations of Terry’s Tire and its subsidiaries constituted the operations of TTT Holdings. Terry’s Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the Internet. The Terry’s Tire acquisition was completed for an aggregate purchase price of approximately $372.7 million, consisting of cash

consideration of approximately $358.0 million, contingent consideration of $12.5 million and non-cash consideration for debt assumed of $2.2 million. The cash consideration paid for the Terry’s Tire acquisition included estimated working capital adjustments and a portion of consideration contingent on certain events which were achieved prior to closing. The closing purchase price is subject to certain post-closing adjustments, including but not limited to, working capital adjustments.

On January 31, 2014, Holdings completed the acquisition of Hercules Tire Holdings LLC (“Hercules Holdings”), the parent company of The Hercules Tire & Rubber Company (“Hercules”). Hercules is engaged in the business of purchasing, marketing, distributing and selling replacement tires for passenger cars, trucks and certain off-road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. The acquisition was completed for an aggregate purchase price of approximately $318.9 million, consisting of net cash consideration of $310.0 million, contingent consideration of $3.5 million and non-cash consideration for debt assumed of $5.4 million. The merger agreement provides for the payment of up to $6.5 million in additional consideration contingent upon the occurrence of certain post-closing events. The closing purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.

On April 30, 2013, Holdings completed the acquisition of Regional Tire Holdings Inc. (“RTD Holdco”), the parent company of Regional Tire Distributors Inc. (“RTD”). RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and the Atlantic provinces of Canada. The acquisition was completed for an aggregate cash consideration of $65.9 million which includes post-closing working capital adjustments. The operations of RTD constitute the operations of RTD Holdco. RTD Holdco has no significant assets or operations other than its ownership of RTD.

The following presents unaudited pro forma condensed combined financial information for the six months ended July 5, 2014 and the year ended December 28, 2013. Since the most recent balance sheet presented in Holdings Quarterly Report on Form 10-Q for the quarter ended July 5, 2014 includes the impact of all completed acquisitions, a pro forma balance sheet as of July 5, 2014 has not been presented. The Company’s fiscal year is based on either a 52- or 53 week period ending on the Saturday closest to each December 31 while prior to the respective acquisition dates, Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had fiscal years that ended on February 28, Kirks Tire and RTD each had fiscal years that ended on January 31, Terry’s Tire’s fiscal year ended on December 31 and Hercules’ fiscal year ended on October 31. Accordingly, the unaudited pro forma condensed combined statements of operations for the six months ended July 5, 2014 and the year ended December 28, 2013 give effect to the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terry’s Tire, Hercules and RTD as if these transactions had occurred on December 30, 2012 (the first day of the Company’s 2013 fiscal year), and includes only factually supportable adjustments that are directly attributable to the acquisitions and expected to have a continuing effect.

The Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, RTD, Terry’s Tire and Hercules acquisitions have been accounted for using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interests. As a result, the total purchase price for each acquisition has been preliminarily allocated to the net tangible and intangible assets acquired and liabilities assumed 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 management’s best estimates of fair value, which are based on key assumptions of the acquisitions, 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 detail valuation studies and the final determination of fair value, we 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. The final allocation of the purchase price will be completed within the required measurement period in accordance with the accounting guidance for business combinations, but in no event later than one year following the completion of the acquisitions.

The unaudited pro forma condensed combined statements of operations are 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 acquisitions are derived from the estimated fair value of the assets acquired and liabilities assumed. The unaudited pro forma condensed combined statements 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 acquisitions and debt repaid as part of the acquisitions as well as the tax impacts related to these adjustments. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.

The unaudited condensed consolidated pro forma financial information is not a projection of our results of operations or financial position for any future period or date. The preparation of the unaudited pro forma condensed consolidated financial information requires the use of certain estimates and assumptions, which may be materially different from our actual experience.

These unaudited pro forma condensed combined financial statements should be read in conjunction with the:

•

The Current Reports on Form 8-K filed with the SEC on July 2, 2014 and July 3, 2014, as amended by Current Report on Form 8-K/A Amendment No. 1 (the “Form 8-K/A”) of which these unaudited pro forma condensed combined financial statements are included as Exhibit 99.6;

•

Accompanying notes to these unaudited pro forma condensed combined financial statements;

•

Holdings’ unaudited consolidated financial statements, including the related notes thereto contained in Holdings’ Quarterly Report on Form 10-Q for the quarter ended July 5, 2014;

•

Holdings’ audited consolidated financial statements, including the related notes thereto contained in Holdings’ Annual Report on Form 10-K for the fiscal year ended December 28, 2013;

•

Separate audited financial statements of Trail Tire as of and for the years ended February 28, 2014 and 2013, included in Exhibit 99.1 of this report;

•

Separate audited financial statements of Extreme Wheel as of and for the years ended February 28, 2014 and 2013, included in Exhibit 99.2 of this report;

•

Separate audited financial statements of Kirks Tire as of and for the years ended January 31, 2014, 2013 and 2012, included in Exhibit 99.3 of this report;

•

Separate audited financial statements of RTD Edmonton as of and for the years ended February 28, 2014 and 2013 and February 29, 2012, included in Exhibit 99.4 of this report;

•

Separate audited financial statements of RTD Calgary as of and for the years ended February 28, 2014 and 2013 and February 29, 2012, included in Exhibit 99.5 of this report;

•

Separate audited consolidated financial statements of TTT Holdings for the years ended December 31, 2013 and 2012, included as Exhibit 99.1 in the Company’s Form 8-K/A Amendment No. 1 filed with the SEC on June 3, 2014;

•

Separate audited consolidated financial statements of TTT Holdings for the years ended December 31, 2012 and 2011, included as Exhibit 99.2 in the Company’s Form 8-K/A Amendment No. 1 filed with the SEC on June 3, 2014;

•

Separate audited consolidated financial statements of Hercules for the years ended October 31, 2013 and 2012, included as Exhibit 99.1 in the Company’s Form 8-K/A Amendment No. 1 filed with the SEC on April 11, 2014; and

•

Separate audited consolidated financial statements of RTD as of January 31, 2013 and January 31, 2012, included as Exhibit 99.1 in the Company’s Form 8-K/A Amendment No. 1 filed with the SEC on June 21, 2013.

American Tire Distributors Holdings, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended July 5, 2014

(In Thousands)


	Historical																				Pro Forma Adjustments
	Holdings			Hercules (Jan- uary 1- Acqui- sition Date, January 31, 2014)			Terry’s Tire (Jan- uary 1 - Acqui- sition Date, March 28, 2014)			Trail Tire (Jan- uary 1 - Acqui- sition Date, June 27, 2014)		Extreme Wheel (Jan- uary 1 - Acqui- sition Date, June 27, 2014)		Kirks Tire (Jan- uary 1 - Acqui- sition Date, June 27, 2014)		RTD Edmonton (Jan- uary 1- on Date, June 27, 2014)		RTD Calgary (Jan- uary 1 - Acqui- sition Date, June 27, 2014)			Hercules					Terry’s Tire					Trail Tire					Extreme Wheel					Kirks Tire					RTD Edmonton					RTD Calgary					Pro Forma Combined
Net sales	$	2,343,051		$	42,136		$	106,372		$	16,578	$	3,622	$	26,616	$	6,153	$	10,766		$	—				$	(4,038	)	(I	)	$	—				$	—				$	—				$	—				$	—				$	2,551,256
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below		1,980,690			33,719			91,021			13,470		2,778		21,904		5,010		8,468			(19,016	)	(A	)		(12,457	)	(J	)		—					—					—					—					—
																											(3,138	)	(I	)		—					—					—					—					—					2,122,449
Selling, general and administrative expenses		381,313			6,796			18,317			2,286		370		400		560		1,305			1,815		(B	)		4,065		(L	)		972		(S	)		287		(W	)		3,514		(AA	)		1,531		(AF	)		884		(AJ	)
																						58		(C	)		(1,089	)	(I	)		—					—					—					—					—
																											—					—					—					—					—					—					423,384
Management fees		15,575			—			247			—		—		—		—		—			—					—					—					—					—					—					—					15,822
Transaction expenses		20,176			29,182			60			—		—		—		—		—			(37,498	)	(D	)		(5,390	)	(M	)		—					—					—					—					—					6,530

Operating income (loss)		(54,703	)		(27,561	)		(3,273	)		822		474		4,312		583		993			54,641					13,971					(972	)				(287	)				(3,514	)				(1,531	)				(884	)				(16,929	)
Other income (expense):
Interest expense, net		(56,622	)		(430	)		(3,374	)		—		—		—		—		(52	)		361		(E	)		3,207		(N	)		(357	)	(T	)		(112	)	(X	)		(1,255	)	(AB	)		(549	)	(AG	)		(355	)	(AK	)
																						(2,346	)	(F	)		(5,531	)	(O	)		—					—					—					—					—					(67,415	)
Loss on extinguishment of debt		(17,113	)		—			—			—		—		—		—		—			—					—					—					—					—					—					—					(17,113	)
Other, net		1,950			177			—			94		15		—		23		(33	)		—					—					—					—					—					—					—					2,226

Income (loss) from continuing operations before income taxes		(126,488	)		(27,814	)		(6,647	)		916		489		4,312		606		908			52,656					11,647					(1,329	)				(399	)				(4,769	)				(2,080	)				(1,239	)				(99,231	)
Income tax provision (benefit)		(42,976	)		(402	)		1			235		123		1,079		173		238			20,536		(G	)		4,542		(P	)		(355	)	(U	)		(106	)	(Y	)		(1,273	)	(AC	)		(555	)	(AH	)		(331	)	(AL	)
																											(2,593	)	(Q	)		—					—					—					—					—					(21,664	)

Net income (loss) from continuing operations	$	(83,512	)	$	(27,412	)	$	(6,648	)	$	681	$	366	$	3,233	$	433	$	670		$	32,120				$	9,698				$	(974	)			$	(293	)			$	(3,496	)			$	(1,525	)			$	(908	)			$	(77,567	)

See accompanying notes to unaudited pro forma condensed combined financial information.

American Tire Distributors Holdings, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Fiscal Year Ended December 28, 2013

(In Thousands)


	Historical																							Pro Forma Adjustments
	Holdings			RTD (Jan- uary 1 - Acquis- ition Date, April 30, 2013)			Hercules (Nov- ember 1, 2012- Oct- ober 31, 2013)			Terry’s Tire (Jan- uary 1 - Dec- ember 31, 2013)			Trail Tire (March 1, 2013 - Feb- ruary 28, 2014)		Extreme Wheel (March 1, 2013 - Feb- ruary 28, 2014)		Kirks Tire (Feb ruary 1, 2013 - Jan- urary 31, 2014)		RTD Edmo- nton (March 1, 2013 - Feb- ruary 28, 2014)			RTD Calgary (March 1, 2013 - Feb- ruary 28, 2014)		RTD				Hercules				Terry’s Tire				Trail Tire				Extreme Wheel				Kirks Tire				RTD Edmonton				RTD Calgary				Pro Forma Combined
Net sales	$	3,839,269		$	34,200		$	602,921		$	502,194		$	43,800	$	7,459	$	63,988	$	18,948		$	24,862	$	—			$	—			$	(23,645	)(I)		$	—			$	—			$	(6,666	)	(AE)	$	—			$	—			$	5,107,330
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below		3,188,409			27,684			496,068			420,952			36,579		5,808		49,272		13,961			19,879		(3,031	)	(AS)		—				(18,641	)	(I)		—				—				(2,348	)	(AE)		—				—
																																	4,374		(K)		—				—				—				—				—				4,238,966
Selling, general and administrative expenses		569,234			6,785			89,711			83,233			4,858		811		2,839		1,483			3,282		2,569		(AN)		14,906		(B)		11,063		(L)		(213	)	(V)		(37	)	(Z)		(103	)	(AD)		(40	)	(AI)		(111	)	(AM)
																									—				(833	)	(H)		(4,513	)	(I)		1,637		(S)		492		(W)		5,364		(AA)		2,643		(AF)		1,490		(AJ)
																													697		(C)		(465	)	(R)		—				—				(2,330	)	(AE)		—				—				794,452
Management fees		5,753			—			—			—			—		—		—		—			175		—				—				—				—				—				—				—				—				5,928
Transaction expenses		6,719			580			—			—			—		—		—		—			—		(2,500	)	(AR)		—				465		(R)		—				—				—				—				—
																																	(465	)	(M)		—				—				—				—				—				4,799

Operating income (loss)		69,154			(849	)		17,142			(1,991	)		2,363		840		11,877		3,504			1,526		2,962				(14,770	)			(15,463	)			(1,424	)			(455	)			(7,249	)			(2,603	)			(1,379	)			63,185
Other income (expense):
Interest expense, net		(74,284	)		(82	)		(6,396	)		(9,853	)		—		—		—		—			—		82		(AO)		5,269		(E)		9,719		(N)		(723	)	(T)		(226	)	(X)		(2,542	)	(AB)		(1,111	)	(AG)		(720	)	(AK)
																									(955	)	(AP)		(833	)	(H)		(22,455	)	(O)		—				—				—				—				—
																									—				(28,298	)	(F)		—				—				—				—				—				—				(133,408	)
Other, net		(5,172	)		(632	)		(1,952	)		—			74		10		89		(1,621	)		178		—				—				—				(213	)	(V)		(37	)	(Z)		(103	)	(AD)		(40	)	(AI)		(111	)	(AM)		(9,530	)

Income (loss) from continuing operations before income taxes		(10,302	)		(1,563	)		8,794			(11,844	)		2,437		850		11,966		1,883			1,704		2,089				(38,632	)			(28,199	)			(2,360	)			(718	)			(9,894	)			(3,754	)			(2,210	)			(79,753	)
Income tax provision (benefit)		(3,945	)		(853	)		3,209			(15	)		608		161		2,989		512			449		558		(AQ)		(15,066	)	(G)		(1	)	(I)		(630	)	(U)		(192	)	(Y)		(2,111	)	(AC)		(1,002	)	(AH)		(590	)	(AL)
																																	(10,998	)	(P)		—				—				(497	)	(AE)		—				—
																																	(4,604	)	(Q)		—				—				—				—				—				(32,018	)

Net income (loss) from continuing operations	$	(6,357	)	$	(710	)	$	5,585		$	(11,829	)	$	1,829	$	689	$	8,977	$	1,371		$	1,255	$	1,531			$	(23,566	)		$	(12,596	)		$	(1,730	)		$	(526	)		$	(7,286	)		$	(2,752	)		$	(1,620	)		$	(47,735	)

See accompanying notes to unaudited pro forma condensed combined financial information.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

1. Basis of Presentation

These unaudited pro forma condensed combined statements of operations were prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC Regulation S-X, and present the pro forma results of operations of the combined companies based upon the historical information after giving effect to the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terry’s Tire, Hercules and RTD and adjustments described in these footnotes. The unaudited pro forma condensed combined statements of operations for the six months ended July 5, 2014 and the year ended December 28, 2013 are presented as if the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terry’s Tire, Hercules and RTD had occurred on December 30, 2012 (the first day of the Company’s 2013 fiscal year). Prior to their respective acquisitions, Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had fiscal years that ended on February 28, Kirks Tire and RTD each had fiscal years that ended on January 31, Hercules had an October 31 fiscal year end and Terry’s Tire had a December 31 fiscal year end. In addition, certain amounts in the Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terry’s Tire and Hercules historical consolidated financial statements have been reclassified to conform to the Company’s basis of presentation. See also footnote 2(AE).

2. Pro Forma Adjustments

Hercules Pro Forma Adjustments

Adjustments included in the “Hercules” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows:

(A)

Represents the reversal of amortization of inventory step-up included in the historical results for Holdings that is directly related to the Hercules acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the 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. The step-up in inventory value was amortized into cost of goods sold over the period of the Company’s normal inventory turns, which approximated two months.

(B)

Represents estimated amortization of the finite-lived intangible assets acquired of $1.8 million and $15.4 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The acquired intangible assets consisted of a customer list with a valuation of $147.2 million that is being amortized on an accelerated basis over an estimated useful life of eighteen years and a tradename with a valuation of $8.5 million that is being amortized on a straight-line basis over an estimated useful life of fifteen years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The $15.4 million for the year ended December 28, 2013 is composed of $14.8 million of customer list amortization and $0.6 million of tradename amortization. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 10% of the value of the customer list and the annual amortization for the second year represents approximately 15% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for one month and twelve months, respectively. The tradename amortization was based on the tradename value of $8.5 million divided by 15 years for the applicable number of months in the period. In addition, the pro forma adjustment for the year ended December 28, 2013 is net of $0.5 million for the reversal of the amortization of identifiable assets as previously recorded by Hercules that has been eliminated.

(C)

Represents estimated incremental depreciation expense related to the step-up in fair market value of Hercules’ property and equipment, net of $0.1 million and $0.7 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The pro forma adjustment for the six months ended July 5, 2014 and the year ended December 28, 2013 included depreciation expense on a straight-line basis for one month and twelve months, respectively. The step-up in fair market value and useful life by asset category is as follows:


	FMV Step-up		Useful Life (yrs)
Land	$	999	N/A
Building		1,346	25
Tire Molds		3,215	5

Total	$	5,560

(D)

Represents the reversal of transaction expenses included in the historical results for Holdings and Hercules that are directly related to the acquisition and non-recurring.

(E)

Represents the reversal of the interest expense recognized by Hercules, including amortization of deferred financing costs related to Hercules’ debt that was not assumed by Holdings and paid-off in conjunction with the acquisition.

(F)

Represents the estimated increase in interest expense associated with the issuance of $225.0 million in aggregate principal amount of the Company’s 11.50% Senior Subordinated Notes due 2018 (the “Additional Senior Subordinated Notes”) and the incremental borrowings incurred on the Company’s U.S. ABL Facility of $43.3 million, both of which were used to finance the Hercules acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense.

The estimated increase in interest expense is calculated as follows:


In thousands	Six Months Ended July 5, 2014			Fiscal Year Ended December 28, 2013
Interest expense on Additional Senior Subordinated Notes (1)	$	2,156		$	25,875
Increase in interest expense on U.S. ABL Facility (2)		124			1,510
Amortization of the original issue discount related to the Additional Senior Subordinated Notes (3)		65			737
Change in amortization of deferred financing costs related to the ABL facility (4)		(12	)		24
Incremental amortization of deferred financing costs related to the Additional Senior Subordinated Notes (5)		13			152

Net adjustment	$	2,346		$	28,298

(1)	Represents additional interest expense related to the $225.0 million of Additional Senior Subordinated Notes used to finance a portion of the Hercules acquisition, based on a fixed interest rate of 11.5%.

(2)

Represents additional interest expense related to the incremental borrowings incurred on the Company’s of $43.3 million U.S. ABL Facility used to finance a portion of the Hercules acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the fiscal year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the U.S. ABL Facility.

(3)	Represents additional interest expense related to the Additional Senior Subordinated Notes original issue discount of $3.9 million which is being amortized over the life of the Additional Senior Subordinated Notes, or 52 months.

(4)

Represents additional interest expense for the amortization of deferred financing costs related to the Company’s ABL Facility of $35,000 and $424,000 for the six months ended July 5, 2014 and year ended December 28, 2013 net of historical amortization expense of $47,000 and $400,000 for the six months ended July 5, 2014 and December 28, 2013. Deferred financing costs related to the U.S. and Canadian FILO Facilities totaled $577,000 and are being amortized over the life of the facilities, or 36 months. Deferred financing costs related to the Canadian ABL Facility totaled $871,000 and are being amortized over the life of the Canadian ABL Facility, or 45 months.

(5)	Represents additional interest expense for the amortization of deferred financing costs related to the Additional Senior Subordinated Notes of $661,000 amortized over the life of the Additional Senior Subordinated Notes, or 52 months.

A 0.125% change to interest rates on the Company’s incremental U.S. ABL Facility borrowings would result in a change in pro forma interest expense of approximately $0.1 million for the year ended December 28, 2013.

(G)

Represents the income tax effect of the pro forma adjustments using a combined federal and state statutory income tax rate of 39.0%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company.

(H)

Reflects the reclassification of amortization of deferred financing costs in Hercules’ historical statement of operations to conform to the Company’s basis of presentation.

Terry’s Tire Pro Forma Adjustments

Adjustments included in the “Terry’s Tire” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(I)

Reflects the reclassification of the operating results for Terry’s Tire commercial and retread businesses from continuing operations, as historically presented, to discontinued operations. As part of the acquisition of Terry’s Tire, the Company acquired Terry’s Tire’s commercial and retread businesses. As the Company’s core business does not include commercial and retread operations, the Company decided that it would divest of these businesses. Accordingly, pro forma adjustments have been made to reclassify the historical operating results of both the commercial and retread businesses from continuing operations, as historically presented, to discontinued operations in the accompanying unaudited pro forma condensed combined statement of operations.

(J)

Represents the reversal of amortization of inventory step-up included in the historical results for Holdings that is directly related to the Terry’s Tire acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the 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. The step-up in inventory value was amortized into cost of goods sold over the period of the Company’s normal inventory turns, which approximated two months.

(K)

Represents an adjustment to Terry’s Tire’s historical consolidated financial statements to reverse their last-in, first-out (“LIFO”) reserve impact on cost of goods sold recorded during the year ended December 31, 2013 to conform to the Company’s accounting policy for inventory valuation using the first-in, first-out (“FIFO”) method. No similar adjustment is required for the six months ended July 5, 2014 as Terry’s Tire’s historical interim statement of operations for the six months did not include a LIFO reserve impact to cost of goods sold.

(L)

Represents estimated amortization of finite-lived intangible assets acquired of $6.3 million and $21.3 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The acquired intangible assets were a customer list with a preliminary valuation of $185.8 million that is being amortized on an accelerated basis over an estimated useful life of 18 years and a favorable leases intangible asset with a preliminary valuation of $0.4 million that is being amortized on a straight-line basis over an estimated useful life of 5 years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The $21.3 million amortization for the year ended December 28, 2013 consists of $21.1 million of customer list amortization and $0.2 million of favorable lease amortization. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for three months and twelve months, respectively. In addition, the pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 are net of $2.2 million and $10.2 million, respectively, for the reversal of the amortization of identifiable assets as previously recorded by Terry’s Tire that has been eliminated.

(M)

Represents the reversal of transaction expenses included in the historical results for Holdings and Terry’s Tire that are directly related to the acquisition and non-recurring.

(N)

Represents the reversal of the interest expense recognized by Terry’s Tire, including amortization of deferred financing costs related to Terry’s Tire debt that was not assumed by Holdings and paid-off in conjunction with the acquisition.

(O)

Represents the estimated increase in interest expense associated with the issuance of the Additional Senior Subordinated Notes and the incremental borrowings incurred on the Company’s U.S. ABL Facility, both of which were used to finance the Terry’s Tire acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense.

The estimated increase in interest expense is calculated as follows:


In thousands	Six Months Ended July 5, 2014		Fiscal Year Ended December 28, 2013
Interest expense on Term Loan (1)	$	4,269	$	17,377
Increase in interest expense on U.S. ABL Facility (2)		652		2,641
Amortization of the original issue discount related to the Term Loan (3)		43		168
Amortization of deferred financing costs related to the Term Loan (4)		567		2,269

Net adjustment	$	5,531	$	22,455

(1)	Represents additional interest expense related to the $300.0 million Term Loan used to finance a portion of the Terry’s Tire acquisition, based on the current variable interest rate of 5.8%.

(2)

Represents additional interest expense related to incremental borrowings of $75.8 million incurred on the Company’s U.S. ABL Facility used to finance a portion of the Terry’s Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the fiscal

year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the U.S. ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for three months and twelve months, respectively.

(3)	Represents additional interest expense for the amortization of the Term Loan original issue discount of $750,000 using the effective interest method over the life of the Term Loan, or 50 months.

(4)	Represents additional interest expense for the amortization of deferred financing costs related to the Term Loan of $9.5 million amortized over the life of the Term Loan, or 50 months.

A 0.125% change to interest rates on the Company’s incremental U.S. ABL Facility borrowings would result in a change in pro forma interest expense of approximately $0.5 million for the year ended December 28, 2013.

(P)

Represents the income tax effect of the pro forma adjustments, other than adjustment (Q), using a combined federal and state statutory income tax rate of 39.0%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company.

(Q)

Represents an adjustment to record an income tax benefit on Terry’s Tire historical loss from continuing operations before income taxes using a combined federal and state statutory income tax rate of 39.0% to conform to the Company’s accounting policy for income taxes. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. Prior to the acquisition, Terry’s Tire was formed and taxed as an S-Corporation for income tax purposes. Accordingly, Terry’s Tire did not record any historical income tax expense (benefit).

(R)

Reflects the reclassification of transaction expenses related to the acquisition in Terry’s Tire’s historical statement of operations to conform to the Company’s basis of presentation.

Trail Tire Pro Forma Adjustments

Adjustments included in the “Trail Tire” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(S)

Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $14.7 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively.

(T)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $20.8 million which was used to finance the Trail Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months

ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Company’s incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013.

(U)

Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company.

(V)

Reflects the reclassification of Trail Tire’s historical bank charges to conform to the Company’s basis of presentation.

Extreme Wheel Pro Forma Adjustments

Adjustments included in the “Extreme Wheel” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(W)

Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $4.4 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively.

(X)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $6.5 million which was used to finance the Extreme Wheel acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Company’s incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013.

(Y)

(Z)

Reflects the reclassification of Extreme Wheel’s historical bank charges to conform to the Company’s basis of presentation.

Kirks Tire Pro Forma Adjustments

Adjustments included in the “Kirks Tire” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(AA)

Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $52.8 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 10% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively.

(AB)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $73.0 million which was used to finance the Kirks Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Company’s incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013.

(AC)

(AD)

Reflects the reclassification of Kirks Tire’s historical bank charges to conform to the Company’s basis of presentation.

(AE)

Represents an adjustment to eliminate the operating results of Kirks Tire’s retail business from its historical statement of operations for the year ended December 28, 2013 as the Company did not acquire the Kirks Tire retail business. The historical interim statement of operations for the six months ended July 5, 2014 did not include Kirks Tire’s retail business so no adjustment is needed.

RTD Edmonton Pro Forma Adjustments

Adjustments included in the “RTD Edmonton” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(AF)

Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $23.3 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated

useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively.

(AG)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $31.9 million which was used to finance the RTD Edmonton acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Company’s incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013.

(AH)

(AI)

Reflects the reclassification of RTD Edmonton’s historical bank charges to conform to the Company’s basis of presentation.

RTD Calgary Pro Forma Adjustments

Adjustments included in the “RTD Calgary” columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:

(AJ)

Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $13.6 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively.

(AK)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $20.7 million which was used to finance the RTD Calgary acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Company’s incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013.

(AL)

(AM)

Reflects the reclassification of RTD Calgary’s historical bank charges to conform to the Company’s basis of presentation.

RTD Pro Forma Adjustments

Adjustments included in the “RTD” column in the accompanying unaudited pro forma condensed combined statement of operations for the year ended December 28, 2013 are as follows:

(AN)

Represents estimated amortization of the finite-lived intangible assets acquired. The acquired intangible assets consisted of a customer list with a valuation of $41.2 million that is being amortized on an accelerated basis over an estimated useful life of 16 years, a tradename with a valuation of $1.9 million that is being amortized on a straight-line basis over an estimated useful life of five years and a favorable leases intangible asset with a valuation of $0.4 million that is being amortized on a straight-line basis over an estimated useful life of four years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The pro forma adjustment for the year ended December 28, 2013 included amortization for four months consisting of $2.4 million of customer list amortization and $0.2 million of amortization related to the tradename and favorable leases. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 17% of the value of the customer list asset.

(AO)

Represents the reversal of the interest expense recognized by RTD related to debt that was not assumed by Holdings and paid off in conjunction with the acquisition.

(AP)

Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Company’s ABL Facility of $67.0 million which was used to finance the RTD acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense.

The estimated increase in interest expense is calculated as follows:


In thousands	Fiscal Year Ended December 28, 2013
Increase in interest expense on ABL Facility (1)		778
Incremental amortization of deferred financing costs related to the ABL Facility (2)		177

Net adjustment	$	955

(1)

Represents additional interest expense related to the incremental borrowings incurred on the Company’s ABL Facility of $67.0 million used to finance the RTD acquisition. The Company used the weighted-average interest rate of 3.5% for the fiscal year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility for the period from January 1, 2013 to April 30, 2013, the acquisition date.

(2)

Represents additional interest expense for the period from January 1, 2013 to April 30, 2013 for the amortization of deferred financing costs related to the Canadian FILO Facility of $592,000 amortized over 17 months and amortization of deferred financing costs related to the Canadian ABL Facility of $469,000 amortized over 53 months.

(AQ)

(AR)

Represents the reversal of transaction expenses included in the historical results for Holdings and RTD that are directly related to the acquisition and non-recurring.

(AS)

Represents the reversal of amortization of inventory step-up included in the historical results for Holdings that is directly related to the RTD acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the 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. The step-up in inventory value was amortized into cost of goods sold over the period of the Company’s normal inventory turns, which approximated two months.

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