Note I—Acquisition

Effective January 1, 2012, the Company acquired a 30% investment in GPC Asia Pacific, formerly known as the Exego Group, for approximately $166 million. On April 1, 2013, the Company acquired the remaining 70% interest in GPC Asia Pacific for approximately $590 million, net of cash acquired of $70 million, and the assumption of approximately $230 million in debt. The acquisition was financed using a combination of cash on hand and borrowings under existing credit facilities. GPC Asia Pacific, which is headquartered in Melbourne, Australia, is a leading aftermarket distributor of automotive replacement parts and accessories in Australasia, with annual revenues of approximately $1 billion and a company-owned store footprint of more than 430 locations across Australia and New Zealand. This acquisition will allow the Company to participate in the ongoing and significant growth opportunities in the Australasian aftermarket.

The Company recognized certain one-time positive purchase accounting pre-tax adjustments of approximately $33 million, or $0.21 net of taxes on a per share diluted basis, as a result of the acquisition. The net one-time purchase accounting adjustments consisted of a gain of $59 million related to remeasuring the 30% investment in GPC Asia Pacific held before the business combination to fair value, the post-closing sale of acquired inventory written up to fair value of $21 million as part of the purchase price allocation, and certain negative adjustments of approximately $5 million.

Prior to the 70% acquisition, the Company accounted for the 30% investment under the equity method of accounting. The acquisition-date fair value of the 30% investment was approximately $234 million and is included in the measurement of the consideration transferred. The difference between the acquisition-date fair value and the carrying amount of the equity method investment resulted in the recognition of a gain of approximately $59 million on the acquisition date. The acquisition-date fair value was determined using a market and income approach with the assistance of a third party valuation firm.

As part of the allocation of purchase price described below, acquired inventory was written up to fair value, which was approximately $21 million above the cost of the acquired inventory. Based on the inventory turn of the acquired inventories, approximately $18 million and $3 million of the write-up was recognized in cost of goods sold during the three months ended June 30, 2013 and the three months ended September 30, 2013, respectively.

The net $54 million of one-time gain and other adjustments are included in the line item “Selling, administrative & other expenses” and the acquired inventory adjustment of $21 million is included in “Cost of goods sold” in the condensed consolidated statements of income and comprehensive income.

The acquisition date fair value of the consideration transferred totaled approximately $824 million, net of cash acquired of $70 million, which consisted of the following:


	April 1, 2013
	(in thousands)
Cash	$	590,000
Fair value of 30% investment held prior to business combination		234,000

Total	$	824,000

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company is in the process of analyzing the estimated values of assets and liabilities acquired as of the acquisition date and is obtaining third-party valuations of certain intangible assets. The allocation of the purchase price is therefore preliminary and subject to revision.


	April 1, 2013
	(in thousands)
Trade accounts receivable	$	94,000
Merchandise inventory		306,000
Prepaid expenses and other current assets		40,000
Property and equipment		59,000
Intangible assets		347,000
Other assets		25,000

Total identifiable assets acquired		871,000
Current liabilities		(244,000	)
Long-term debt		(230,000	)
Deferred tax liabilities and other		(109,000	)

Total liabilities assumed		(583,000	)

Net identifiable assets acquired		288,000
Goodwill		536,000

Net assets acquired	$	824,000

The acquired intangible assets of approximately $347 million were provisionally assigned to customer relationships of $202 million, trademarks of $141 million, and non-compete agreements of $4 million, with weighted average amortization lives of 16, 40, and 1 year, respectively, for a total weighted average amortization life of 26 years. As noted earlier, the fair value of the acquired identifiable intangible assets is provisional pending completion of the final valuations for these assets.

The preliminary estimated goodwill recognized as part of the acquisition is not tax deductible and has been assigned to the automotive segment. The goodwill is attributable primarily to expected synergies and the assembled workforce of GPC Asia Pacific.

The amounts of net sales and earnings of GPC Asia Pacific included in the Company’s condensed consolidated statements of income and comprehensive income from April 1, 2013 to September 30, 2013 were approximately $551 million in net sales and net income of $0.37 on a per share diluted basis, respectively.

The unaudited pro forma condensed consolidated statements of income and comprehensive income of the Company as if GPC Asia Pacific had been included in the consolidated results of the Company for the nine months ended September 30, 2013 and 2012 would be estimated at $10.8 and $10.7 billion in net sales, respectively, and net income of $3.45 and $3.44 on a per share diluted basis, respectively. The pro forma information is not necessarily indicative of the results of operations that we would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.

The adjustments to the pro forma amounts include, but are not limited to, applying the Company’s accounting policies, amortization related to fair value adjustments to intangible assets, one-time purchase accounting adjustments, interest expense on acquisition related debt, and any associated tax effects.