As filed with the Securities and Exchange Commission on February 5, 2010

 

Registration No. 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

12200 Herbert Wayne Court

Suite 150

Huntersville, North Carolina 28078

(704) 992-2000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

J. Michael Gaither

Corporate Secretary

American Tire Distributors Holdings, Inc.

12200 Herbert Wayne Court

Suite 150

Huntersville, NC 28078

(704) 632-7110

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o           

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o           

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o           

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

 

 

 

Subject to Completion
Preliminary Prospectus dated          , 2010

 

P R O S P E C T U S

 

          Shares

 

 

Common Stock

 

 

 

This is American Tire Distributors Holdings, Inc.’s initial public offering. We are selling           shares of our common stock. We expect the public offering price to be between $      and $      per share. Currently, no public market exists for the shares. After the pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol “ATD”.

 

Investing in the common stock involves risks that are described in the “Risk Factors” section beginning on page 10 of this prospectus.

 

 

 

 

The underwriters may also purchase up to an additional           shares from the selling stockholders, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any. We will not receive any proceeds from the sale of shares to be offered by the selling stockholders.

 

Neither the Securities and Exchange Commission, or SEC, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The shares will be ready for delivery on or about          , 2010.

 

 

 

 

 

 

 

 

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

 

 

You should rely only on the information contained in this document and any free writing prospectus prepared by or on behalf of us that we have referred to you. We have not, the selling stockholders have not and the underwriters have not authorized anyone to provide you with additional or different information from that contained in this prospectus. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this document may only be accurate on the date of this document, regardless of its time of delivery or of any sales of shares of our common stock. Our business, financial condition, results of operations or cash flows may have changed since such date.

 

 

This prospectus contains trademarks and registered marks. Unless otherwise indicated, American Tire Distributors Holdings, Inc. or a subsidiary thereof owns such registered marks, including: AMERICAN TIRE DISTRIBUTORS^®, ATDONLINE^®, ATDSERVICEBAY^®, AUTOEDGE^®, CRUISER ALLOY^®, CRUISERWIRE^®, DRIFZ^®, DYNATRAC^®, ENVIZIO^®, FUSION^®, ICW^®, MAGNUM^®, O.E. PERFORMANCE^®, PACER^®, TIRE PROS^®, TIREBUYER.COM^®, WHEEL WIZARD^®, WHEEL WIZARD ENVIZIO^®, WHEELENVIZIO.COM^® and XPRESSPERFORMANCE^®.

 

PROSPECTUS SUMMARY

	•	increases in the number and average age of passenger cars and light trucks;
	•	increases in the number of miles driven;
	•	increases in the number of licensed drivers as the U.S. population continues to grow;
	•	increases in the number of replacement tire SKUs;
	•	growth of the high performance tire segment; and
	•	shortening tire replacement cycles due to changes in product mix that increasingly favor high performance tires, which have shorter average lives.

	•	Demand for tire products is lower when general economic conditions are weak. Decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows;
	•	Our high level of indebtedness may adversely affect our financial condition, restrict our growth or place us at a competitive disadvantage;
	•	Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations;
	•	The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows;
	•	We depend on manufacturers to provide us with the products we sell, and disruptions in these relationships or manufacturers’ operations could adversely affect our results of operations, financial condition and cash flows;
	•	We are reliant upon information technology in the operation of our business;
	•	Pricing volatility for raw materials could result in increased costs and may affect our profitability;
	•	Our results could be impacted by the tariffs recently imposed by the U.S. government on tires imported from China;
	•	Future acquisitions may not be successful;
	•	Future acquisitions could require us to issue additional debt or equity;
	•	Attempts to expand our distribution services into new domestic geographic markets may adversely affect our business, results of operations, financial condition or cash flows;
	•	Our business strategy relies increasingly upon online commerce. If our customers were unable to access any of our websites, such as ATDOnline®, our business and operations could be disrupted and our operating results would be adversely affected;
	•	We may not successfully execute our plan to grow our TireBuyer.com® service or we may not attain the growth we expect from our TireBuyer.com® service; and
	•	Because the majority of our inventory is stored in our warehouse distribution centers, a disruption in our warehouse distribution centers could adversely affect our results of operations by increasing our cost and distribution lead times.

Shares of common stock offered by us		shares
Shares of common stock to be outstanding after the offering		shares
Overallotment option(1)		Selling stockholders have granted the underwriters a 30-day overallotment option to purchase up to     additional shares of our common stock at the initial public offering price. We will not receive any proceeds from the sale of shares by the selling stockholders.
Use of proceeds		We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be $      million, assuming the shares are offered at $      per share (the midpoint of the price range set forth on the cover of this prospectus). We intend to use the net proceeds to us from this offering for the repayment of debt and the redemption of our outstanding redeemable preferred stock. See “Use of Proceeds.”
Dividends		We do not anticipate paying any dividends to our stockholders for the foreseeable future. See “Dividend Policy.”
NYSE symbol		“ATD”.
Risk factors		See “Risk Factors” beginning on page 10 for a discussion of material risks that prospective purchasers of our common stock should consider.

(1)		See “Principal and Selling Stockholders” for information on the selling stockholders.

	•	exclude 144,719 shares reserved for future issuance in connection with the exercise of stock options; and
	•	include 6,852 shares of restricted stock held by our directors, officers and other employees.

														Nine Months Ended
		Fiscal												October 4,				October 3,
		2006				2007				2008				2008				2009
														(Unaudited)				(Unaudited)
		(Dollars in thousands, except per share data)
Statements of Operations Data:
Net sales		$	1,577,973			$	1,877,480			$	1,960,844			$	1,517,300			$	1,645,046
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below			1,293,594				1,552,975				1,605,064				1,249,110				1,364,554
Gross profit			284,379				324,505				355,780				268,190				280,492
Selling, general and administrative expense			227,399				258,347				274,412				204,084				233,602
Impairment of intangible asset			2,640				—				—				—				—
Operating income			54,340				66,158				81,368				64,106				46,890
Other expense
Interest expense			(60,065	)			(61,633	)			(59,169	)			(44,402	)			(41,345	)
Other, net			(364	)			(285	)			(1,155	)			(953	)			(845	)
Income (loss) before income taxes			(6,089	)			4,240				21,044				18,751				4,700
Income tax provision (benefit)			(1,482	)			2,867				11,373				8,200				2,356
Net income (loss)		$	(4,607	)		$	1,373			$	9,671			$	10,551			$	2,344
Net income (loss) per common share		$	(4.61	)		$	1.37			$	9.68			$	10.56			$	2.35
Weighted average common shares issued and outstanding			999,527				999,527				999,527				999,527				999,527
Unaudited pro forma basic net income (loss) per common share(1)										$								$
Unaudited pro forma weighted average common shares issued and outstanding(1)

														Nine Months Ended
		Fiscal												October 4,				October 3,
		2006				2007				2008				2008				2009
														(Unaudited)				(Unaudited)
		(Dollars in thousands)
Other Financial Data:
Cash flows provided by (used in):
Operating activities		$	66,586			$	18,827			$	(54,086	)		$	(77,148	)		$	100,007
Investing activities			(28,527	)			(29,860	)			(81,671	)			(11,113	)			2,052
Financing activities			(40,004	)			12,182				139,503				92,593				(104,108	)
Depreciation and amortization			25,071				28,096				25,530				18,717				23,573
Capital expenditures			9,845				8,648				13,424				10,011				5,565
EBITDA(2)			79,047				93,969				105,743				81,870				69,618

		January 3,				October 3,
		2009				2009
						(Unaudited)
		(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents		$	8,495			$	6,446
Working capital			288,313				243,067
Total assets			1,390,860				1,296,567
Long-term debt, including capital leases			639,384				581,304
Total redeemable preferred stock			23,941				25,918
Total stockholders’ equity			224,486				228,045

(1)		Unaudited pro forma basic net income (loss) per common share has been calculated assuming conversion of all outstanding shares of our Series A, Series B and Series D common stock into shares of our common stock on a one-to-one basis as well as to reflect the assumed use of proceeds to redeem debt and preferred stock.
(2)		The presentation of EBITDA, which is not a financial measure calculated under accounting principles generally accepted in the United States, or GAAP, does not comply with accounting principles generally accepted in the United States because it is adjusted to exclude certain cash and non-cash expenses. EBITDA represents earnings before interest, taxes, depreciation and amortization. We present EBITDA because we believe it provides a more complete understanding of the factors and trends affecting our business than GAAP measures alone. Our board of directors, management and investors use EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and items outside the control of our management team (such as income taxes). EBITDA should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP. The following table shows the calculation of EBITDA from the most directly comparable GAAP measure, net (loss) income:

														Nine Months Ended
		Fiscal												October 4,				October 3,
		2006				2007				2008				2008				2009
		(Dollars in thousands)
Net (loss) income		$	(4,607	)		$	1,373			$	9,671			$	10,551			$	2,344
Depreciation and amortization			25,071				28,096				25,530				18,717				23,573
Interest expense			60,065				61,633				59,169				44,402				41,345
Income tax (benefit) provision			(1,482	)			2,867				11,373				8,200				2,356
EBITDA		$	79,047			$	93,969			$	105,743			$	81,870			$	69,618

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below before making a decision to buy our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, results of operations, financial condition or cash flows could be adversely affected. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment in our common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business, results of operations, financial condition or cash flows. In deciding whether to invest in our common stock, you should also refer to the other information set forth in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes.

 

Risks Relating to Our Business

 

Demand for tire products is lower when general economic conditions are weak. Decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows.

 

The popularity, supply and demand for tire products changes from year to year based on consumer confidence, the volume of tires reaching the replacement tire market and the level of personal discretionary income, among other factors. Decreases in the availability of consumer credit or decreases in consumer spending as a result of recent economic conditions, including increased unemployment and rising fuel prices, may cause consumers to delay tire purchases, reduce spending on tires or purchase less expensive tires. These changes in consumer behavior could reduce the number of tires we sell, reduce our net sales or cause a change in our product mix toward products with lower per-tire margins, any of which could adversely affect our business, results of operations or cash flows.

 

Local economic, employment, weather, transportation and other conditions also affect tire sales, on both a wholesale and retail basis. Such fluctuations have been exacerbated by the current economic downturn. We cannot, as a result of these factors and others, assure you that our business will continue to generate sufficient cash flows to finance or grow our business or that our cash needs will not increase. For instance, in 2008, rising fuel costs, increased unemployment and tightening credit caused a decrease in miles driven and consumer spending, both of which we believe caused a decrease in unit sales in the U.S. tire replacement industry. Similarly, industry-wide unit sales decreased in 2006 primarily due to increases in, and consumer expectations about future increases in, interest rates, minimum credit card payments and fuel costs. Our business was adversely affected as a result of these industry-wide events and we may be adversely affected by similar events in the future.

 

Our high level of indebtedness may adversely affect our financial condition, restrict our growth or place us at a competitive disadvantage.

 

We are currently highly leveraged. As of October 3, 2009, our debt (including capital leases) was $589.4 million. In addition, as of October 3, 2009, we were able to borrow up to an additional $123.8 million under our amended credit facility, subject to customary borrowing conditions. We anticipate that any future acquisitions we may pursue as part of our growth strategy may be financed through cash on hand, operating cash flow or borrowings under our existing credit facility.

 

Our high debt levels, or increases in our debt levels, could have important consequences, including:

 

 

 

Although the indentures governing our three series of outstanding notes do not require us to meet any financial performance metric or maintain any ratio to avoid a default, we are required to satisfy a 2.0 to 1.0 Adjusted EBITDA to consolidated interest expense ratio to, among other things, incur additional debt (other than debt under our revolving credit facility), issue preferred stock (subject to certain exceptions), make certain restricted payments or investments and make certain purchases of our stock. For the four fiscal quarters ended October 3, 2009, our ratio of Adjusted EBITDA to consolidated interest expense was 1.6 to 1.0. As a result of not meeting the 2.0 to 1.0 ratio, our ability to, among other things, incur additional debt (subject to certain exceptions including debt under our revolving credit facility), issue preferred stock (subject to certain exceptions), make certain restricted payments or investments and make certain purchases of our stock will be limited.

 

Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations.

 

Our ability to fund working capital needs and planned capital expenditures and acquisitions and our ability to satisfy our debt obligations depend on our ability to generate cash flows. If we are unable to generate sufficient cash flows from operations to meet these needs, we may need to refinance all or a portion of our existing debt, obtain additional financing or reduce expenditures that we deem necessary to our business. Further, our ability to grow our business and market share through acquisitions may be impaired. We cannot assure you that we would be able to obtain refinancing of this kind on favorable terms or at all or that any additional financing could be obtained. The inability to obtain additional financing could materially and adversely affect our business, financial condition and cash flows.

 

The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows.

 

The industry in which we operate is highly competitive. In the United States, replacement tires are sold to consumers through several different outlets, including local independent tire retailers and mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships, service stations and web-based marketers. A number of independent wholesale tire distributors compete with us in the regions in which we do business. Most of our tire retailer customers buy products from both us and our competitors. We cannot assure you that we will be able to compete successfully in our markets in the future. Furthermore, some of our competitors, including mass merchandisers, warehouse clubs and tire manufacturers, are significantly better financed than us and have greater resources. See “Business — Competition.”

 

We would also be adversely affected if certain channels in the replacement tire market, including mass merchandisers and warehouse clubs, gain market share at the expense of the local independent tire retailers, as our market share in those channels is lower.

 

We depend on manufacturers to provide us with the products we sell, and disruptions in these relationships or manufacturers’ operations could adversely affect our results of operations, financial condition or cash flows.

 

There are a limited number of tire manufacturers worldwide. Accordingly, we rely on a limited number of tire manufacturers to supply us with the products we sell, including flag and associate brands and our proprietary brands. Our business depends on developing and maintaining productive relationships with these manufacturers. Outside of our proprietary brands, we do not have long-term contracts with these manufacturers, and we cannot assure you that these manufacturers will continue to supply products to us on

favorable terms or at all. Many of our supplier manufacturers are free to terminate their business relationship with us with little or no notice and may elect to do so for any reason or no reason. Further, certain of our key suppliers also compete with us as they distribute and sell tires to certain of our tire retailer customers. A move towards this business model among our supplier manufacturers could adversely affect our results of operations, financial condition or cash flows.

 

In addition, our growth strategy depends in part on our ability to make selective acquisitions, but manufacturers may not be willing to supply the companies we acquire, which could adversely affect our business and results of operations. Furthermore, we could be adversely affected if any significant manufacturer experiences financial, operational, production, supply, labor or quality assurance difficulties that result in a reduction or interruption in our supply, or if they otherwise fail to meet our needs. These risks have been more pronounced recently in light of the economic downturn, commodity price volatility and governmental actions. In addition, our failure to order or promptly pay for sufficient quantities of our products may result in an increase in the unit cost of the products we purchase, a reduction in cooperative advertising and marketing funds, or a manufacturer’s unwillingness or refusal to sell products to us. If we are required to replace our manufacturers, we could experience cost increases, time delays in deliveries and a loss of customers, any of which would adversely affect us. Finally, although most newly manufactured tires are sold in the replacement tire market, manufacturers pay disproportionate attention to automobile manufacturers that purchase tires for new cars. Increased demand from automobile manufacturers could result in cost increases and time delays in deliveries to us, any of which could adversely affect us.

 

We are reliant upon information technology in the operation of our business.

 

We rely on electronic information and telephony systems to support all aspects of our geographically diverse business operations, including our inventory control, distribution network and order placement and fulfillment. A prolonged interruption or failure of any of these systems or their connective networks could have a material adverse effect on our business, results of operations, financial condition or cash flows.

 

Pricing volatility for raw materials could result in increased costs and may affect our profitability.

 

Costs for certain raw materials used in manufacturing the products we sell, including natural rubber, chemicals, steel reinforcements, carbon black, synthetic rubber and other petroleum-based products are volatile. Increasing costs for raw materials supplies would result in increased production costs for tire manufacturers. Tire manufacturers typically pass along a portion of their increased costs to us through price increases. While we typically try to pass increased prices and fuel costs through to tire retailers or to modify our activities to mitigate the impact of higher prices, we may not be successful. Failure to fully pass these increased prices and costs through to tire retailers or to modify our activities to mitigate the impact would adversely affect our operating margins and results of operations. Further, even if we do successfully pass along these costs, demand for tires may decline as a result of the increased costs, which would adversely affect us.

 

Our results could be impacted by the tariffs recently imposed by the U.S. government on tires imported from China.

 

Recently a tariff was imposed on light vehicle tires imported into the United States from China. This tariff was imposed effective September 26, 2009 at a level of 35 percent for the first 12 months, 30 percent for the second 12 months, and 25 percent for the third 12 months. Our ability to competitively source tires from Asia could be significantly adversely affected. In addition, the increases in tariffs may increase prices to consumers and negatively affect demand, which would adversely affect our results of operations. Other effects, ranging from increased tire prices to retaliatory actions from other governments, could also adversely affect our operating margins and results of operations.

 

Future acquisitions may not be successful.

 

We plan to investigate and acquire strategic businesses or product lines with the potential to strengthen our market position or enhance our existing product offering. We cannot assure you, however, that

we will identify or successfully complete transactions with suitable acquisition candidates in the future. We also cannot assure you that completed acquisitions will be successful. If an acquired business fails to operate as anticipated or cannot be successfully integrated with our existing business, our financial condition, results of operations or cash flows could be adversely affected.

 

Future acquisitions could require us to issue additional debt or equity.

 

If we were to undertake a substantial acquisition, the acquisition would likely need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities or other arrangements. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required, particularly because we are currently highly leveraged, which may make it difficult or impossible for us to secure financing for acquisitions. If we were to undertake an acquisition by issuing equity securities or equity-linked securities, the acquisition may have a dilutive effect on the interests of the holders of our common shares.

 

Attempts to expand our distribution services into new domestic geographic markets may adversely affect our business, results of operations, financial condition or cash flows.

 

We plan to expand our distribution services into new domestic geographic markets, which will require us to make capital investments to extend and develop our distribution infrastructure. We may not achieve profitability in new regions for a period of time. If we do not successfully add new distribution centers and routes, we experience unanticipated costs or delays or we experience competition in such markets that is greater than we expect, our business, results of operations, financial condition or cash flows may be adversely affected.

 

Our business strategy relies increasingly upon online commerce. If our customers were unable to access any of our websites, such as ATDOnline^®, our business and operations could be disrupted and our operating results would be adversely affected.

 

Customers’ access to our websites directly affects the volume of orders we fulfill and our revenues. Approximately 64% of our total order volume in fiscal 2009 was placed online using ATDOnline^®, up from approximately 56% in fiscal 2007. We expect our Internet-generated business to continue to grow as a percentage of overall sales. To be successful, we must ensure that ATDOnline^® is well supported and functional on a 24/7 basis. If we are not able to continuously make these ordering tools available to our customers, there could be a decline in online orders and a decrease in our net sales.

 

We may not successfully execute our plan to grow our TireBuyer.com^® service or we may not attain the growth we expect from our TireBuyer.com^® service.

 

In late 2009, we launched TireBuyer.com^®, an Internet site which enables our local independent tire retailer customers to access the online tire consumer market and sell tires to consumers over the Internet. We expect that by growing and developing our TireBuyer.com^® service, we can leverage our tire retailer customer footprint to capture a greater share of the Internet tire market. For TireBuyer.com^® to be successful, however, we must ensure that it is well supported and functional on a 24/7 basis. In addition, TireBuyer.com^® faces significant competition from other online participants, some of which have significantly larger Internet market share, longer Internet market presence, greater Internet marketing experience and better name recognition than we enjoy. We may fail to successfully grow, develop or support the TireBuyer.com^® service or we may not attain the growth or benefits we expect TireBuyer.com^® to provide us due to strong competition or other factors, which may adversely affect our business, financial condition or results of operations.

 

Because the majority of our inventory is stored in our warehouse distribution centers, a disruption in our warehouse distribution centers could adversely affect our results of operations by increasing our cost and distribution lead times.

 

We maintain the majority of our inventory in 83 distribution centers. Serious disruptions affecting these distribution centers or the flow of products in or out of these centers, including disruptions from inclement weather, fire, earthquakes or other causes, could damage a significant portion of our inventory and could adversely affect our ability to distribute our products to tire retailers in a timely manner or at a reasonable cost. During the time that it may take us to reopen or replace a distribution center, we could incur significantly higher costs and longer lead times associated with distributing our products to tire retailers, which could adversely affect our reputation, as well as our results of operations and our customer relationships.

 

If we experience problems with our fleet of trucks or are otherwise unable to make timely deliveries of our products to our customers, our business and reputation could be adversely affected.

 

We use a fleet of trucks to deliver our products to our customers, most of which are leased from third parties. We are subject to the risks associated with product delivery, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements, availability and price of fuel, and liabilities arising from accidents to the extent we are not covered by insurance. Our failure to deliver tires and other products in a timely and accurate manner could harm our reputation and brand, which could adversely affect our business and reputation.

 

Participants in our Tire Pros^® franchise program are independent operators, and we have limited influence over their operations. Our Tire Pros^® franchisees could take actions that could harm the value of the Tire Pros^® franchise, or could be unwilling or unable to continue to participate in the program, which could materially and adversely affect our business, results of operations, financial condition and cash flows.

 

Participants in our Tire Pros^® franchise program are independent operators and have significant discretion in running their operations. Their employees are not our employees. Franchisees could take actions that subject them to legal and financial liabilities, and we may, regardless of the actual validity of such a claim, be named as a party in an action relating to, or be held liable for, the conduct of our franchisees if it is shown that we exercise a sufficient level of control over a particular franchisee’s operation. In addition, the quality of franchise operations may be diminished by any number of factors beyond our control. We do not offer financial or management services to our franchisees, which may not have sufficient resources or expertise to operate their businesses at the level we would expect. While we ultimately can take action to terminate franchisees that do not comply with the standards contained in our franchise agreements, we may not be able to identify problems and take action quickly enough and, as a result, the image and reputation of Tire Pros^® may suffer, fewer tire retailers may become Tire Pros^® franchisees and existing participants may leave the Tire Pros^® program.

 

In addition, our franchise agreements have limited durations and our franchisees may not be willing or able to renew their franchise agreements with us. For example, a franchisee may decide not to renew due to a lawsuit or disagreement with us, dissatisfaction with the Tire Pros^® program or a perception that the Tire Pros^® program conflicts with other business interests. Similarly, a franchisee may be unable to renew its franchise agreement with us due to a bankruptcy or restructuring event or the failure to secure a real estate lease renewal, among other factors.

 

Our business, business prospects, results of operations, financial condition and cash flows could be adversely affected if we are forced to defend claims made against our franchisees, if others seek to hold us accountable for our franchisees’ actions, if the Tire Pros^® program does not grow as we expect or if the Tire Pros^® franchise program is not otherwise successful.

 

We could become subject to additional government regulation which could cause us to incur significant liabilities.

 

We are currently subject to federal and state laws and other regulations that apply to our business, including laws and regulations that affect tire distribution and sale, safety matters and tire specifications. Our costs of complying with these laws and regulations, including our operating expenses and liabilities arising under governmental regulations, may be increased in the future and additional fees and taxes may be imposed by governmental authorities. Future regulatory requirements, such as required disclosure of made-on dates for tires or an expansion of the Transportation Recall Enhancement Accountability and Documentation (TREAD) Act to cover tire distributors, could cause a material increase in our liabilities or operating expenses, which would materially and adversely affect our business, results of operations, financial condition and cash flows.

 

Loss of key personnel or failure to attract and retain highly qualified personnel could adversely affect our results of operations, financial condition and cash flows.

 

We are dependent on the continued services of our senior management team. We may not be able to retain our existing senior management, fill new positions or vacancies created by expansion or turnover, or attract additional senior management personnel. We believe the loss of such key personnel could adversely affect our financial performance. In addition, our ability to manage our anticipated growth will depend on our ability to identify, hire and retain qualified management personnel. We cannot assure you that we will attract and retain sufficient qualified personnel to meet our business needs.

 

Our variable rate debt subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

 

Certain of our borrowings, primarily borrowings under our revolving credit facility and our Senior Floating Rate Notes due April 1, 2012, which we refer to as our Floating Rate Notes, are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same. This would require us to use more of our available cash to service our indebtedness. We cannot assure you that we will be able to enter into interest rate swap agreements or other hedging arrangements in the future, that existing or future hedging arrangements will be sufficient to offset any future increases in interest rates or that our hedging arrangements will have their intended effect on our business. At October 3, 2009, we had $365.2 million outstanding under our revolving credit facility and our Floating Rate Notes, of which $180.2 million was not hedged by an interest rate swap agreement and was thus subject to interest rate changes.

 

Consolidation among customers may reduce our importance as a holder of sizable inventory, which could adversely affect our business and results of operations.

 

Our success has been dependent, in part, on the fragmented customer base in our industry. Due to the small size of most tire retailers, they cannot support substantial inventory positions and thus, as our size permits us to maintain a sizable inventory, we fill an important role. We do not generally have long-term arrangements with our tire retailer customers and they can cease doing business with us at any time. If a trend towards consolidation among tire retailers develops in the future, it could reduce our importance and reduce our revenues, margins and earnings. While the local independent tire retailer share of the replacement tire market has been relatively stable in the recent past, the share of larger tire retailers has grown at the expense of smaller tire retailers. If that trend continues, the number of tire retailers able to handle sizable inventory could increase, reducing the importance of distributors to the local independent tire retailer market.

 

We could be subject to product liability, personal injury or other litigation claims that could adversely affect our business, results of operations and financial condition.

 

Purchasers of our products, or their employees or customers, could be injured or suffer property damage from exposure to, or defects in, products we sell or distribute, or have sold or distributed in the past.

We could be subject to claims, including personal injury claims. These claims may not be covered by insurance or tire manufacturers may be unwilling or unable to assume the defense of these claims, as they have in the past. In addition, if any tire manufacturer encounters financial difficulty or ceases to operate, it may not be able to assume the defense of such claims. We also may be subject to claims due to injuries caused by our truck drivers which may not be covered by insurance. As a result, the defense, settlement or successful assertion of any future product liability, personal injury or other litigation claims could cause us to incur significant costs and could have an adverse effect on our business, financial condition, results of operations or cash flows.

 

We could be adversely affected by compliance with environmental regulations and could incur costs relating to environmental matters, particularly those relating to our distribution centers.

 

We are subject to various federal, state, local and foreign environmental laws and regulations, as well as health and safety laws and regulations. Environmental laws are complex, change frequently and have tended to become more stringent over time. Compliance costs associated with current and future environmental and health and safety laws, particularly as they relate to our distribution centers, as well as liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, financial condition or cash flows.

 

Failure to maintain effective internal control over financial reporting could materially adversely affect our business, results of operations and financial condition.

 

Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls, including any required new or improved controls, we may be unable to provide financial information in a timely and reliable manner and might be subject to sanctions or investigation by regulatory authorities such as the SEC or the Public Company Accounting Oversight Board. Moreover, if we are not able to report our financial information on a timely basis, we may suffer adverse regulatory consequences or violate NYSE listing rules. Consequently, we could face sanctions, delisting or investigations, or other adverse effects on our business, reputation, results of operations, financial condition or cash flows. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Any such action could adversely affect our financial results or investors’ confidence in us and could cause the price of our securities to fall.

 

If we determine that our goodwill has become impaired, we may record significant impairment charges, which would adversely affect our results of operations.

 

Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. We review our goodwill and intangible assets at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, adverse market conditions and adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations. As of October 3, 2009, our total goodwill was approximately $375.7 million.

 

Risks Relating to the Offering and Ownership of Our Common Stock

 

Public investors will experience immediate and substantial dilution as a result of this offering.

 

If you purchase shares of our common stock in this offering, you will immediately experience substantial dilution in net tangible book value. The initial public offering price will be substantially higher than the net tangible book value per share of our common stock immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of your investment. Based upon the issuance and sale of           shares of common stock by us at an assumed initial public offering price of $      per share (the midpoint of the price range set forth on the cover page of this prospectus), you will incur immediate dilution of approximately $      in the net tangible book value per share if you purchase shares of our common stock in this offering. In addition, we may raise additional capital through public or private equity or debt offerings, subject to market conditions. To the extent that additional capital is raised through the sale of equity or convertible debt securities, you will experience further dilution.

 

In addition, following the offering, approximately 89,240 shares of our common stock will be issuable upon the exercise of outstanding stock options and warrants with exercise prices that are below the assumed initial public offering price of our common stock. To the extent that these options and warrants are exercised, you will experience further dilution. For further information, see the “Dilution” section of this prospectus.

 

After the expiration of certain resale restrictions, a significant portion of our outstanding shares of common stock may be sold into the market, which could adversely affect our stock price.

 

Sales of a substantial number of shares of our common stock in the public market could occur at any time following this offering, subject to certain securities law restrictions and the terms of contractual lock-up agreements. Sales of shares of our common stock, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce our stock price. Upon consummation of this offering, we will have outstanding           shares of common stock. Of these shares, the shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates. Upon completion of this offering, our existing stockholders will beneficially own           shares of our common stock (           shares if the underwriters exercise in full their option to purchase additional shares from the selling stockholders), which will represent approximately     % of our outstanding common stock (     % if the underwriters exercise in full their option to purchase additional shares from the selling stockholders). Immediately following the closing of this offering, the holders of approximately          shares of common stock (           shares if the underwriters exercise in full their option to purchase additional shares from the selling stockholders) will be entitled to dispose of their shares pursuant to the holding period, volume and other restrictions of Rule 144 under the Securities Act of 1933, or Securities Act, and the expiration of an initial 180-day underwriter “lock-up” period. The underwriters are entitled to waive the underwriter lock-up provisions at their discretion prior to the expiration dates of such lock-up agreements. If certain of our existing stockholders were to sell a substantial portion of the shares they hold, our stock price could decline. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sale upon completion of this offering.

 

Our stock price may be volatile, and you may be unable to resell your shares at or above the offering price or at all.

 

The initial public offering price for our shares was determined through negotiations between us and the underwriters and may not be indicative of the market prices that will prevail in the trading market. Our stock price may decline below the initial offering price and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. Our stock price could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

 

 

Furthermore, the capital markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact our stock price. These trading price fluctuations may also make it more difficult for us to use our common stock as a means to make acquisitions or to use options to purchase our common stock to attract and retain employees. If our stock price after this offering does not exceed the initial public offering price, you may not realize any return on your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could adversely affect our business, results of operations and financial position.

 

No public market currently exists for our common stock, and an active trading market may not develop or be sustained following this offering.

 

Prior to this offering, there has been no public market for our common stock. Although we intend to apply to have our common stock listed on the NYSE, an active public trading market for our common stock may not develop or be sustained after this offering. The lack of an active market may impede your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market also may reduce our stock price and impede our ability to acquire other companies using our shares as consideration.

 

Our stock price and trading volume could decline if securities or industry analysts do not publish research or reports about our business or if they publish misleading or unfavorable research or reports about our business.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts commence coverage of our common stock, the trading price and liquidity for our shares could be adversely

impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes misleading or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases to cover us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

 

Because we do not intend to pay dividends on our common stock, you will benefit from an investment in our common stock only if it appreciates in value.

 

We do not anticipate paying any dividends to our stockholders for the foreseeable future. The agreements governing our indebtedness also restrict our ability to pay dividends. Accordingly, you may need to sell your common stock in order to generate cash flow from your investment. If our stock price after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations and financial condition, restrictions imposed by applicable law and contracts to which we are a party and other factors our board of directors deems relevant. Investors seeking cash dividends should not invest in our common stock.

 

We will incur increased costs and our management will face increased demands as a result of operating as a company with public equity.

 

As a company with public equity, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as related rules implemented by the SEC and NYSE, impose various requirements on companies with public equity. Our management and other personnel will need to devote a substantial amount of time to these compliance matters. Also, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly than would be the case for a private company. For example, we expect these rules and regulations to make it more expensive for us to maintain director and officer liability insurance. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

 

Delaware law, our charter documents and our debt documents may impede or discourage a takeover, which could adversely affect our stock price.

 

Our certificate of incorporation and bylaws have provisions that could discourage potential takeover attempts and make attempts by stockholders to change management more difficult, including the following:

 

 

As a Delaware corporation, we are currently subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or DGCL. These provisions may prohibit or restrict large stockholders, and in particular, those owning 15% or more of our outstanding voting stock, from merging or combining with us. However, we expect to revise our certificate of incorporation in connection with this offering to opt out of Section 203 of the DGCL. Therefore, after the lock-up period expires, the Control Group (consisting of the Investcorp Group, by which we mean Investcorp and its affiliates, certain international investors, which we refer to as the International Investors, Berkshire and Greenbriar), will be able to transfer control of us to a third party by transferring their common stock, which would not require the approval of our board of directors or our other stockholders.

 

In addition, our revolving credit facility and senior notes contain covenants that may impede, discourage or prevent a takeover of us. For instance, upon a change of control of us, we may be required to repurchase all of our outstanding senior notes and we would default on our revolving credit facility. As a result, a potential takeover may not occur unless sufficient funds are available to repay our outstanding debt.

 

These provisions of our charter documents, the DGCL and our debt documents, alone or together, could delay or deter hostile takeovers and changes of control or changes in our management. Any provision of our amended and restated certificate of incorporation, bylaws or the DGCL or our debt documents that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect our stock price if they are viewed as discouraging takeover attempts in the future.

 

We are a “controlled company,” controlled by a control group, whose interests in our business may be different from yours.

 

Prior to the completion of this offering, our common stock will be owned principally by the Control Group, consisting of the Investcorp Group, Berkshire, Greenbriar and the International Investors.

 

Upon completion of this offering, the Control Group will own approximately     % of our outstanding common stock (     % if the underwriters exercise in full their option to purchase additional shares). As a result, the Control Group will, for the foreseeable future, have significant influence over our management and affairs, and will be able to control virtually all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of us or our assets. The directors so elected will have the authority, subject to the terms of our indebtedness and the rules and regulations of the NYSE, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. This concentration of ownership will limit your ability to influence corporate matters and could discourage or delay a change of control of us, which could deprive our stockholders of an opportunity to receive a premium for their shares of our common stock and might reduce our stock price. For information regarding the ownership of our outstanding stock, please see the section titled “Principal and Selling Stockholders.”

 

Because the Control Group will own common stock representing more than 50% of our voting power after giving effect to this offering, we are considered a “controlled company” for the purposes of the NYSE listing requirements. As such, we are permitted to, and have, opted out of the corporate governance requirements that our board of directors and our compensation committee meet the standard of independence established by those corporate governance requirements. As a result, our board of directors and those committees may have more directors who do not meet the NYSE independence standards than they would if those standards were to apply. We also have opted out of the NYSE’s requirement that we establish a nominating and corporate governance committee and that such committee contain independent directors. The NYSE independence standards are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors. You will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE, and circumstances may occur in which the interests of the Control Group could be in conflict with the interests of our other stockholders.

 

This prospectus, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements relating to our business and financial outlook, that are based on our current expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or other comparable terminology. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates and assumptions. Actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any such statement to reflect new information, or the occurrence of future events or changes in circumstances.

 

Many factors could cause actual results to differ materially from those indicated by the forward-looking statements or could contribute to such differences including:

 

 

You should review this prospectus carefully, including the section captioned “Risk Factors,” for a more complete discussion of the risks of an investment in our common stock.

 

We estimate that the net proceeds to us of this offering will be approximately $      million, based upon an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus) and after paying the underwriting discount and commissions and other estimated expenses of the offering.

 

We intend to use the net proceeds of this offering:

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, respectively, the proceeds to us from this offering by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us.

 

We will not receive any of the proceeds from the sale of shares by the selling stockholders if the underwriters exercise their option to purchase shares to cover overallotments. The selling stockholders include certain entities affiliated with members of our board of directors.

 

We have not declared or paid dividends on our common stock since our incorporation in 2005, and we have no intention to declare or pay dividends in the foreseeable future. In addition, our ability to pay dividends is restricted by certain covenants contained in our revolving credit facility and in the indentures that govern our Floating Rate Notes, 2013 Notes and Discount Notes and may be further restricted by any future indebtedness that we incur.

 

Our business is conducted through our subsidiaries. Dividends from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries.

 

If you invest in our common stock, you will be diluted to the extent the initial public offering price per share of our common stock exceeds the net tangible book value per share of our common stock immediately after this offering. Our net tangible book value as of October 3, 2009 was approximately ($391.7) million, or ($391.84) per share of common stock. The net tangible book value per share represents the amount of our tangible net worth, or total tangible assets less total liabilities, divided by 999,527 shares of our common stock outstanding as of that date.

 

After giving effect to the issuance and sale of           shares of our common stock sold by us in this offering and our receipt of the net proceeds from such sale, based on an assumed public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the underwriting discount and commissions and the estimated expenses of the offering, our as-adjusted net tangible book value per share as of October 3, 2009 would have been approximately $      per share. This amount represents an immediate increase in net tangible book value of $      per share to existing stockholders and an immediate dilution in net tangible book value of $      per share to new investors purchasing shares of our common stock in this offering. Dilution per share is determined by subtracting the net tangible book value per share as adjusted for this offering from the amount of cash paid by a new investor for a share of our common stock. Net tangible book value is not affected by the sale of shares of our common stock offered by the selling stockholders. The following table illustrates the per share dilution:

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, respectively, our net tangible book value by $     , the net tangible book value per share after this offering by $      and the dilution per share to new investors by $     , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The following table summarizes as of October 3, 2009, after giving effect to the offering:

 

 

 

The foregoing table does not reflect proceeds to be realized by existing stockholders in connection with the sales by them in this offering, options outstanding under our stock option plans or stock options to be granted after the offering. Following the offering, there will be 144,719 options outstanding with a weighted average exercise price of $169.16.

 

The following table sets forth our capitalization at October 3, 2009, on an actual basis and as adjusted to give effect to (1) the sale of shares of our common stock in this offering at an assumed initial offering price of $           per share (the midpoint of the range set forth on the cover page of this prospectus), (2) the application of the net proceeds from this offering, including the redemption of all of our outstanding Discount Notes, the redemption of all of our outstanding Redeemable Preferred Stock and the repayment of $          of our 2013 Notes, (3) the automatic conversion of all of our outstanding Series A, Series B and Series D Common Stock on a one-to-one basis into our common stock and (4) the repayment of $6.3 million aggregate principal amount of our Discount Notes on April 1, 2010, as required by the terms of the Discount Notes.

 

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes to the consolidated financial statements included elsewhere in this prospectus.

 

 

We expect that a $1.00 increase or decrease in the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus) would increase or decrease, respectively, the amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us.

 

Investcorp and the other members of the Control Group, acting through American Tire Distributors Holdings, Inc., which we refer to as ATDH, acquired American Tire Distributors, Inc., which we refer to as ATDI, in an acquisition completed on March 31, 2005. As used in this prospectus, unless the context indicates otherwise, the term “Successor” refers to ATDH and its subsidiaries and the term “Predecessor” refers to ATDI and its subsidiaries.

 

The following table sets forth selected historical consolidated financial data of both the Predecessor and the Successor for the periods indicated. Both the Predecessor’s and the Successor’s fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to those of the prior or subsequent fiscal years. Fiscal 2004 (ended January 1, 2005) contains operating results for 53 weeks. Selected historical financial data as of the end of and for fiscal 2004 is derived from the Predecessor’s consolidated financial statements as of and for that year. Selected historical financial data for the fiscal quarter ended April 2, 2005 is derived from the Predecessor’s consolidated financial statements as of and for that period. Selected historical financial data for the period of April 2, 2005 through December 31, 2005 and for fiscal 2006, 2007 and 2008 are derived from the Successor’s consolidated financial statements as of and for such periods and reflect ATDH’s acquisition of ATDI and related transactions. The fiscal quarter ended April 2, 2005 contains operating results for 13 weeks and the period of April 2, 2005 through December 31, 2005 contains operating results for 39 weeks. Fiscal 2006 (ended December 30, 2006) and fiscal 2007 (ended December 29, 2007) contain operating results for 52 weeks. Fiscal 2008 (ended January 3, 2009) contains operating results for 53 weeks.

 

The selected consolidated statements of operations data presented below for fiscal 2004, 2005, 2006, 2007 and 2008 and the balance sheet data at January 1, 2005, December 31, 2005, December 30, 2006, December 29, 2007 and January 3, 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the nine months ended October 4, 2008 and October 3, 2009 and the balance sheet data at October 4, 2008 and October 3, 2009 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus, which have been prepared on the same basis as our audited consolidated financial statements. The selected consolidated statement of operations data presented below for fiscal years 2004 and 2005 and the balance sheet data at January 1, 2005 and December 31, 2005 were derived from our audited annual consolidated financial statements which are not included in this prospectus. Our historical operating results are not necessarily indicative of future operating results. See “Risk Factors” and the notes to our financial statements. You should read the selected financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes.

 

 

 

 

 

The following discussion and analysis of our consolidated results of operations, financial condition and liquidity should be read in conjunction with our consolidated financial statements and the related notes included in this prospectus. The following discussion contains forward-looking statements that reflect our current expectations, estimates, forecast and projections. These forward-looking statements are not guarantees of future performance, and actual outcomes and results may differ materially from those expressed in these forward-looking statements. See “Risk Factors” and “Special Note About Forward-Looking Statements.”

 

Our fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to the prior or subsequent fiscal years. Fiscal 2008, which ended January 3, 2009, contained operating results for 53 weeks while fiscal 2007, which ended December 29, 2007, and fiscal 2006, which ended December 30, 2006, contained operating results for 52 weeks.

 

Company Overview

 

We are the leading replacement tire distributor in the United States, providing a critical range of services to enable tire retailers to effectively service and grow sales to consumers. Through our network of 83 distribution centers, we offer access to industry-leading breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs), to approximately 60,000 customers. The critical range of services we provide includes frequent and timely delivery of inventory, business support services, such as credit, training and access to consumer market data, administration of tire manufacturer affiliate programs, a leading online ordering and reporting system and a website that enables our tire retailer customers to participate in Internet marketing of tires to consumers. We estimate that our share of the replacement passenger and light truck tire market in the United States has increased from approximately 1.2% in 1996 to approximately 9.2% in 2008, which we believe is approximately twice the market share of our closest competitor.

 

We serve a highly diversified customer base comprised of local, regional and national independent tire retailers, automotive dealerships, tire manufacturer-owned stores, mass merchandisers and service stations. In fiscal 2008, our largest customer and our top ten customers accounted for less than 1.7% and 6.7%, respectively, of our net sales. We are a top supplier to many of our customers and maintain customer relationships that exceed a decade on average for our top 20 customers.

 

We believe we distribute the broadest product offering in our industry, supplying our customers with nine of the top ten leading passenger and light truck tire brands. We carry the flag brands of all four of the largest tire manufacturers — Bridgestone, Continental, Goodyear, and Michelin — as well as Hankook, Kumho, Nexen, Nitto and Pirelli brands. In addition to flag brands, we also sell lower price point associate brands of many of these and other manufacturers, as well as proprietary brand tires, custom wheels and accessories and related tire service equipment. Tire sales accounted for approximately 91.4% of our net sales in fiscal 2008. We believe our large, diverse product offering allows us to better penetrate the replacement tire market across a broad range of price points.

 

Key Business Metrics

 

Key business factors that have influenced our results of operations are:

 

 

 

Our unit sales decreased 2.5% during fiscal 2008, primarily due to weak economic conditions that began in fiscal 2007. During the first nine months of 2009, our unit sales increased 11.7% over the comparable sales in the prior year, primarily due to our acquisition of Am-Pac, which alone represented a 19.9% increase in our unit sales. Other factors that affected our performance during the first nine months of 2009 relative to the comparable period in the prior year were decreased demand in fiscal 2009, as compared to fiscal 2008, due to the weakened economy and the inclusion of three additional business days in the fiscal 2008 period, which caused a 1.7% decrease in unit sales between the periods.

 

Our History

 

On March 31, 2005, the Investcorp Group, Berkshire, Greenbriar and the International Investors, through ATDH, acquired our operations by purchasing all of the outstanding stock of ATDI. The acquisition did not trigger a change of control for accounting purposes.

 

2006 and 2007 Acquisitions

 

On January 27, 2006, we completed the purchase of Silver State Tire Company, Inc. and Golden State Tire Distributors, which collectively we refer to as Silver State. This acquisition established a distribution footprint for us in Nevada. On July 28, 2006, we completed the purchase of Samaritan Wholesale Tire Company, which we refer to as Samaritan Tire. This acquisition expanded our service in Minnesota and into Western Wisconsin.

 

On May 31, 2007, we completed the purchase of Jim Paris Tire City of Montebello, Inc., which we refer to as Paris Tire. This acquisition expanded our service in Colorado and the Midwest. On July 2, 2007, we completed the purchase of certain assets and the assumption of certain liabilities of Martino Tire Company, which we refer to as Martino Tire. This acquisition expanded our service in Florida and complemented our existing distribution centers located in Florida. On December 7, 2007, we completed the purchase of 6H-Homann, LLC and Homann Tire, LTD, which we refer to collectively as Homann Tire, which expanded our service in Texas (further complementing our existing distribution centers) and allowed us to expand into Louisiana.

 

The Homann Tire, Martino Tire, Paris Tire, Samaritan Tire and Silver State acquisitions were financed through borrowings under our revolving credit facility. The aggregate purchase price of these acquisitions was $42.7 million, consisting of $41.7 million in cash and $1.0 million in direct acquisition costs.

 

2008 Acquisitions

 

On October 8, 2008, we completed the purchase of certain assets and the assumption of certain liabilities of Remington Tire Distributors, Inc., which does business under the name Gray’s Wholesale Tire Distributors and which we refer to as Gray’s Tire. This acquisition expanded our presence in Texas and Oklahoma and complemented our existing distribution centers located within the states of Texas and Oklahoma.

 

On December 18, 2008, we completed the purchase of all of the issued and outstanding capital stock of Am-Pac. This acquisition significantly strengthened our presence in markets we served and allowed us to expand our operations into St. Louis, Missouri and western Texas. We financed the Am-Pac and Gray’s Tire acquisitions through borrowings under our revolving credit facility. We accounted for each of these acquisitions under the purchase method of accounting and, accordingly, the results of operations for the acquired businesses have been included in our consolidated statements of operations from the date of such acquisition. The aggregate purchase price of the Am-Pac acquisition was approximately $74.7 million, consisting of $71.1 million in cash and $3.6 million in direct acquisition costs. Of the $71.1 million in cash, $9.8 million was placed in escrow and $59.1 million was used to pay off Am-Pac’s outstanding debt. The amount held in escrow was excluded in the preliminary allocation of the cost of the assets acquired and liabilities assumed because it represented contingent consideration for which the contingency had not been resolved. We recorded the preliminary purchase price allocation in our consolidated financial statements based on estimated fair values for the assets acquired and liabilities assumed, which resulted in a customer relationship intangible asset of $9.6 million, an intangible trade name asset of $4.5 million and goodwill of $5.8 million. Effective July 31, 2009, pursuant to the acquisition agreement, we received $0.9 million in connection with closing date balance sheet and purchase price adjustments.

 

Results of Operations

 

Nine Months Ended October 3, 2009 Compared to Nine Months Ended October 4, 2008

 

The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales (dollars in thousands):

 

Net Sales

 

Sales increased $127.7 million in the nine months ending October 3, 2009, primarily driven by our acquisition of Am-Pac in late 2008, which contributed $215.6 million to the year-over-year increase. Additionally, we generally passed through the tire manufacturers’ multiple 2008 price increases, which contributed an additional $41.0 million to the year-over-year increase. Excluding Am-Pac and the three additional business days in the nine-month period of 2008, while our sales of passenger and light truck tire units continued to outperform the overall passenger and light truck tire market (down 7.4% as measured by the Rubber Manufacturer’s Association, or RMA), sales still declined 6.5% during the nine-month period of 2009 as compared to the nine-month period of fiscal 2008. As such, softer tire unit sales of $87.3 million (approximately $20.9 million of which resulted from an additional three business days in the nine-month period of fiscal 2008 compared to the same period in fiscal 2009), combined with a decline in wheel and equipment and supply sales of $42.2 million, partially offset the increases noted above.

 

Gross Profit

 

Gross profit in the nine months ending October 3, 2009 increased $12.3 million, primarily due to the contribution from the Am-Pac acquisition and, to a lesser extent, higher net tire pricing resulting from the pass through of manufacturer price increases that occurred throughout fiscal 2008. Partially offsetting these increases was the benefit of favorable inventory cost layers generated during the first nine months of fiscal 2008, which resulted from passing through tire manufacturers’ multiple price increases, that did not repeat in fiscal 2009, as well as lower tire, wheel and equipment and supply sales volumes, due, in part, to the three fewer business days in the nine-month period of 2009.

 

Selling, General and Administrative Expense

 

The increase in selling, general and administrative expenses of $29.5 million is due predominantly to our acquisition of Am-Pac in fiscal 2008, which accounted for an increase of approximately $36.7 million. Other increases included higher restructuring expense related to lease tails for facilities that were relocated ($1.0 million), higher rents for larger facilities occupied during fiscal 2008 or early 2009 ($3.6 million) and higher amortization expense related to the change in accounting estimate for certain customer list intangible assets. Lower employee-related expenses of $9.4 million, including lower incentive-based compensation, lower overall employee headcount and three fewer business days in fiscal 2009 as compared to fiscal 2008, as well as lower fuel cost partially offset the increases noted above.

 

Interest Expense

 

The $3.1 million decrease in interest expense for the nine-month period of 2009 was due to lower interest rates on our variable rate debt, partially offset by higher average borrowings from our revolving credit facility during the nine-month period of 2009 as well as a $0.9 million increase in interest expense related to the change in fair value of the interest rate swap agreement entered into in the second quarter of 2009.

 

Income Tax Provision

 

We recognized an income tax provision of $2.4 million in the nine-month period of 2009 based on a pre-tax income of $4.7 million, compared to an income tax provision of $8.2 million in the nine-month period of fiscal 2008 based on a pre-tax income of $18.8 million. The effective tax rate for the first nine months of 2009 was 50.1%, compared with 43.7% for the corresponding period in fiscal 2008. The increase in the effective tax rate is due primarily to a lower projected pre-tax income level for 2009 as compared to fiscal 2008 with a consistent anticipated amount from permanent differences (primarily the impact of preferred stock dividends that are not deductible for income tax purposes). The income tax provision recorded for the first nine months of 2009 has been computed based on year-to-date income and projected results for the full year. The final effective tax rate to be applied to fiscal 2009 will depend on the actual amount of pre-tax income (loss) generated by us for the full year.

 

Net Income

 

Net income for the nine-month period of 2009 decreased $8.2 million due, in part, to higher selling, general and administrative expenses, as discussed above, partially offset by improvement in contributed gross profit dollars, lower interest expense and the fluctuation in the income tax provision between periods.

 

Fiscal 2008 Compared to Fiscal 2007

 

The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales (dollars in thousands):

 

 

Net Sales

 

Net sales for fiscal 2008 increased $83.3 million, or 4.4%, to $1,960.8 million from $1,877.5 million in fiscal 2007. The increase in sales in fiscal 2008 was primarily driven by an increase in tire pricing, net of selective promotional activities, which contributed $115.9 million to the year-over-year increase as we passed through tire manufacturers’ multiple price increases. Additionally, our acquisitions of Paris Tire, Martino Tire and Homann Tire in fiscal 2007 combined with the acquisition of Gray’s Tire and Am-Pac in fiscal 2008 contributed an additional $73.2 million to the year-over-year increase. Excluding acquisitions, our sales of passenger and light truck tire units outperformed the overall passenger and light truck tire market (as measured by the RMA), but still declined during fiscal 2008 as compared to fiscal 2007. As such, softer tire unit sales of $98.8 million (including a benefit of approximately $27.5 million from an additional week in our fiscal 2008), combined with a decline in equipment and supply sales of $6.6 million to partially offset the increases noted above.

 

Gross Profit

 

Gross profit increased $31.3 million to $355.8 million in fiscal 2008 from $324.5 million in fiscal 2007. This increase is primarily due to contributions from our fiscal 2007 and 2008 acquisitions and passing through tire manufacturers’ multiple price increases which provided for a favorable inventory cost layer (i.e.,

the benefit from the sale of inventory in fiscal 2008 that was purchased prior to tire manufacturers’ multiple price increases). Lower tire unit, equipment and supply sales volumes, despite an additional week in fiscal 2008, partially offset these increases.

 

Gross profit as a percentage of sales increased from 17.3% in fiscal 2007 to 18.1% in fiscal 2008 primarily due to the favorable inventory cost layer.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for fiscal 2008 increased $16.1 million to $274.4 million from $258.3 million in fiscal 2007. The acquisitions of Paris Tire, Martino Tire and Homann Tire in fiscal 2007, combined with the acquisition of Gray’s Tire and Am-Pac in fiscal 2008, accounted for approximately $7.9 million of the increase, $4.4 million of which was due to employee-related expenses. Additionally, facility lease and utilities expense increased $2.8 million primarily due to infrastructure investments, including relocation to larger facilities and upgrades to existing facilities. Fuel cost increased $3.7 million year-over-year due primarily to higher fuel cost per gallon throughout most of fiscal 2008. Other increases included higher vehicle leasing, higher travel costs and higher equipment and computer maintenance expense. These increases were partially offset by lower employee- related expenses of $0.6 million (primarily due to lower incentive compensation expense partially offset by higher salaries and wages due to the additional week in fiscal 2008).

 

Interest Expense

 

Interest expense, net of capitalized interest, decreased $2.4 million to $59.2 million in fiscal 2008 from $61.6 million in fiscal 2007. The decrease in interest expense is due to lower interest rates on our variable rate debt, partially offset by higher overall debt levels.

 

Interest expense, net of capitalized interest, for fiscal 2008 of $59.2 million exceeds cash payments for interest during the same period of $57.7 million principally due to non-cash amortization of debt issuance costs and accretion of interest on our Redeemable Preferred Stock, as well as interest accrued but not yet paid.

 

Income Tax Provision

 

We recognized an income tax provision of $11.4 million in fiscal 2008 based on a pre-tax income of $21.0 million. We recognized an income tax provision of $2.9 million in fiscal 2007 based on a pre-tax income of $4.2 million. The effective tax rate for fiscal 2008 was approximately 54% compared to 68% in fiscal 2007. The decrease in the effective tax rate is due primarily to the increase in pre-tax income and the impact of certain permanent timing differences, primarily related to our redeemable preferred stock, on our pre-tax income of $21.0 million in fiscal 2008 as opposed to the same permanent timing differences on our pre-tax income of $4.2 million in fiscal 2007.

 

Net Income

 

Net income for fiscal 2008 increased $8.3 million to $9.7 million from $1.4 million in fiscal 2007. The increase in net income is due to improvement in contributed gross profit dollars, contributions from acquisitions and lower interest expense, partially offset by an increase in selling, general and administrative expenses, as discussed above, and the fluctuation in the income tax provision between periods.

 

Fiscal 2007 Compared to Fiscal 2006

 

The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales (dollars in thousands):