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EX-23.1 - EX-23.1 - American Tire Distributors Holdings, Inc.y02972a1exv23w1.htm
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As filed with the Securities and Exchange Commission on March 17, 2010
 
Registration No. 333-164745
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
AMENDMENT NO. 1
TO
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)
 
 
         
Delaware
  5013   59-3796143
(State or other jurisdiction
of incorporation or organization)
  (Primary Standard Industrial Classification
Code Number)
  (I.R.S. Employer
Identification No.)
 
 
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:
 
     
E. Michael Greaney
  Valerie Ford Jacob
Sean P. Griffiths
  Paul D. Tropp
Andrew L. Fabens
  Fried, Frank, Harris, Shriver & Jacobson LLP
Gibson, Dunn & Crutcher LLP
  One New York Plaza
200 Park Avenue
  New York, NY 10004
New York, NY 10166
  Tel: (212) 859-8000
Tel: (212) 351-4000
  Fax: (212) 859-4000
Fax: (212) 351-4035
   
 
 
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):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
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.
 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 
Subject to Completion
Preliminary Prospectus dated March 17, 2010
 
P R O S P E C T U S
 
          Shares
 
(AMERICAN TIRE DISTRIBUTOTS LOGO)
 
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.
 
 
 
                 
    Per Share   Total
 
Public offering price
  $       $    
Underwriting discount
  $       $    
Proceeds, before expenses, to us
  $       $  
 
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.
 
 
 
 
BofA Merrill Lynch Deutsche Bank Securities
 
 
 
 
 
The date of this prospectus is          , 2010


 

 
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 EX-23.1
 
 
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®, ICW®, MAGNUM®, O.E. PERFORMANCE®, PACER®, TIRE PROS®, TIREBUYER.COM®, WHEEL WIZARD®, WHEEL WIZARD ENVIZIO®, WHEELENVIZIO.COM® and XPRESSPERFORMANCE®.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in shares of our common stock. You should read the following summary together with the more detailed information appearing in this prospectus, including “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Business” and our consolidated financial statements and related notes before deciding whether to invest in shares of our common stock. Unless the context otherwise requires, the terms “American Tire Distributors,” “ATD,” “the Company,” “we,” “us” and “our” in this prospectus refer to American Tire Distributors Holdings, Inc. and its subsidiaries. We conduct our operations through American Tire Distributors, Inc., a Delaware corporation and a wholly-owned subsidiary of American Tire Distributors Holdings, Inc.
 
Our Company
 
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 an extensive 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 9.4% in 2009, 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 2009, our largest customer and our top ten customers accounted for less than 1.6% and 5.5%, respectively, of our net sales. We believe 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 93.1% of our net sales in fiscal 2009. We believe our large, diverse product offering allows us to better penetrate the replacement tire market across a broad range of price points.
 
Our net sales and light vehicle unit sales fluctuated from $1,877.5 million and 17.4 million units, respectively, in fiscal 2007 to $1,960.8 million and 17.1 million units, respectively, in fiscal 2008 and $2,171.8 million and 19.6 million units, respectively, in fiscal 2009. Our net income and EBITDA fluctuated from $1.4 million and $94.0 million, respectively, in fiscal 2007 to $9.7 million and $105.7 million, respectively, in fiscal 2008 and $4.9 million and $98.8 million, respectively in fiscal 2009. From fiscal 2003 to fiscal 2009, we grew our net sales, light vehicle unit sales and EBITDA at a compound annual rate of 11.8%, 7.1% and 12.7%, respectively. This growth in sales and net income has increased both because of our acquisitions and organic growth. For a reconciliation from net income to EBITDA, see “— Summary Consolidated Financial Data.”


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Our Industry
 
The U.S. replacement tire market generated annual retail sales of approximately $26.6 billion in 2009, according to Modern Tire Dealer. In 2009, according to Tire Review, tire retailers obtained 69% of their tire volume from wholesale tire distributors, like us, and 17% of their tire volume from tire manufacturers.
 
In the United States, replacement tires are sold to consumers through several different channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships, service stations and web-based marketers. Between 1990 and 2009, independent tire retailers and automotive dealerships have enjoyed the largest increase in market share according to Modern Tire Dealer.
 
The U.S. replacement tire market has historically experienced stable growth and favorable pricing dynamics. From 1955 through 2009, U.S. replacement tire unit shipments increased by an average of approximately 2.6% per year. In addition, the industry has seen stronger growth in the high and ultra-high performance tire segments, which have experienced a compound annual growth rate of approximately 9% over the period from 2000 to 2009. High and ultra-high performance tire unit shipments increased from 47.6 million units in 2008 to 52.2 million units in 2009, despite a decrease in total replacement passenger and light truck tire unit shipments from 225 million units in 2008 to 208 million units in 2009 according to Modern Tire Dealer.
 
We believe growth in the U.S. replacement tire market will continue to be driven by favorable underlying dynamics, including:
 
  •      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.
 
Our Competitive Strengths
 
We believe the following key strengths position us well to maintain our ability to achieve revenue growth that exceeds that of the U.S. replacement tire industry:
 
Leading Position in a Highly-Fragmented Marketplace.  We are the leading replacement tire distributor in the United States with an estimated market share of approximately 9.4%. We believe our scale provides us key competitive advantages relative to our smaller, and generally regionally-focused, competitors that include the ability to: efficiently stock and deliver a wide variety of tires, custom wheels, tire service equipment and accessories; invest in services, including sales tools and technologies, to support our customers; and realize operating efficiencies from our scalable infrastructure.
 
Extensive and Efficient Distribution Network.  We believe we have the largest independent replacement tire distribution network in the United States with 83 distribution centers and approximately 800 delivery vehicles serving 37 states. Our extensive distribution footprint, combined with our sophisticated inventory management and logistics technologies, enables us to deliver the vast majority of orders on a same or next day basis. Our delivery technologies allow us to more effectively and efficiently organize and optimize our route systems to provide timely product delivery.
 
Broad Product Offering from Diverse Supplier Base.  We believe we offer the most comprehensive selection of tires in the industry. We supply nine of the top ten leading passenger tire


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brands, and we carry the flag brands of all four of the largest tire manufacturers — Bridgestone, Continental, Goodyear and Michelin. Our tire product line includes a full suite of flag, associate and proprietary brand tires. We believe that our broad product offering drives penetration among existing customers, attracts new customers and maximizes customer retention.
 
Broad Range of Critical Services.  We provide a critical range of services which enables our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest product offerings available in the industry, as well as fundamental business support services, such as credit, training and access to consumer market data, that enable our tire retailer customers to better service their individual markets, and administration of tire manufacturer affiliate programs. We provide our customers with convenient 24/7 access to our extensive product offerings through our innovative and proprietary business-to-business web portal, ATDOnline®. We also provide select, qualified independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity.
 
Diversified Customer Base and Longstanding Customer Relationships.  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. We believe 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 the diversity of our customer base and the strength of our customer relationships present an opportunity to grow market share regardless of macroeconomic and replacement tire market conditions.
 
Strong Cash Flow Generation Capability.  Our inventory management systems and vendor relationships enable us to generate strong cash flow from operations through efficient management of our working capital. We have designed our warehouse, delivery, information technology and other infrastructure capabilities to be scalable, creating incremental distribution capacity to support further penetration within current markets and expansion into new domestic geographic markets. We believe the low capital intensity of our business should allow us to continue producing favorable cash flow in the future.
 
Strong Management Team with Track Record of Driving Growth and Improving Efficiency.  Our senior management team has a proven track record of implementing successful initiatives, including the execution of a disciplined acquisition strategy, that have contributed to our gross profit expansion and above-market net sales growth. In addition, we have reduced costs through the integration of operating systems and introduction of standard operating practices across all locations. We believe our cost discipline and acquisition integration experience will continue to be competitive advantages as we grow both organically and through selective acquisitions.
 
Our Business Strategy
 
Our objective is to be the largest distributor of replacement tires to local, regional and national independent U.S. tire retailers, as well as automotive dealerships, service stations and mass merchandisers, to drive above-market growth and further enhance profitability and cash flow. We intend to accomplish this objective by executing the following key operating strategies:
 
Leverage Our Infrastructure in Existing Markets.  Through infrastructure expansions over the past several years, we have developed a scalable platform with available incremental distribution capacity. Our distribution infrastructure enables us to efficiently add new customers and service growing channels, such as automotive dealerships, thereby increasing profitability by leveraging the utilization of our existing assets. We believe our relative penetration in existing markets is largely a function of the services we offer and the length of time we have operated locally. Specifically, in new markets, we have experienced growth in market share over time, and in states we have served the longest, we generally have market share well in excess of our national average.


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Continue to Expand into New Geographic Markets.  Our existing organizational and technological platforms are scalable and designed to accommodate additional distribution capacity and increased sales as we expand our network throughout the United States. For example, we entered the Texas market in late 2004 and Minnesota in 2007, and we were able to leverage our platforms to more than double our sales in both states since our entry. While we have the largest distribution footprint in the U.S. replacement tire market, we have limited or no market presence in 18 of the contiguous United States that represent approximately 35% of the replacement tire market, including New York, Ohio, Michigan, Illinois and New Jersey. As part of our business, we regularly contemplate expansion strategies, including acquisitions, to drive future growth.
 
Grow Participation in Tire Pros® Franchise Program.  Through our fiscal 2008 acquisition of Am-Pac Tire Dist., Inc., which we refer to as Am-Pac, we acquired the Tire Pros® franchise program, which enables us to deliver advertising and marketing support to tire retailer customers operating as Tire Pros® franchisees. Since the acquisition, we have focused on modifying and improving the Tire Pros® franchise program. The Tire Pros® franchise program allows participating local tire retailers to enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identity. In return, we benefit from increasing volume penetration among, and further aligning ourselves with, our franchisees.
 
Continue to Offer a Comprehensive Tire Portfolio to Meet Our Customers’ Needs.  We service a broad range of price points from entry-level to faster growing high and ultra-high performance tires, providing a full suite of flag, associate and proprietary brand tires. We intend to continue to focus on high and ultra-high performance tires, given the growth in demand for such tires, while maintaining our emphasis on providing broad market and entry level tire offerings. Our entry level offerings were recently expanded by the addition of our exclusive Capitol® and Negotiator® brands upon the acquisition of Am-Pac. Our comprehensive tire portfolio is designed to satisfy all of our customers’ needs and allow us to become the supplier of choice, thereby increasing customer penetration and retention.
 
Grow TireBuyer.com® into a Premier Internet Tire Provider.  In late 2009, we launched TireBuyer.com®, an Internet site that enables our local independent tire retailer customers to connect with consumers and sell to them over the Internet. TireBuyer.com® allows our broad base of independent tire retailer customers to participate in a greater share of the growing Internet tire market. We believe that TireBuyer.com® complements and services our participating local independent tire retailers by providing them access to a sales and marketing channel previously unavailable to them.
 
Utilize Technology Platform to Continue to Increase Distribution Efficiency.  We intend to continue to invest in our inventory and warehouse management systems and logistics technology to further increase our efficiency and profit margins and improve customer service. We continue to evaluate and incorporate technical solutions such as handheld scanning for receiving, picking and delivery of products to our customers. We believe these increased efficiencies will continue to enhance our reputation with our customers for providing a high level of prompt customer service, while also reducing costs.
 
Selectively Pursue Acquisitions.  We expect to continue to employ an acquisition strategy to increase our share in existing markets, add distribution in new markets and utilize our scale to realize cost savings. In addition, we believe acquisitions in our existing geographic markets, such as Am-Pac, provide an opportunity to grow market share while improving profitability through significant cost savings. Over the past five years, we have successfully acquired and integrated ten businesses representing in excess of $700 million in annual net sales. We believe our position as the leading replacement tire distributor in the United States, combined with our access to capital and our scalable platform, allows us to make acquisitions at attractive post-synergy valuations.


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Risk Factors
 
We face risks in connection with the general conditions and trends of our industry and the end markets we serve. Some of the more significant risks we face include the following:
 
  •      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;
 
  •      We may be unable to identify desirable acquisition targets or 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;
 
  •      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; and
 
  •      We are a “controlled company,” controlled by a control group, whose interest in our business may be different from yours.
 
These and other risks are discussed in the section entitled “Risk Factors” in this prospectus.


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The Equity Sponsors
 
Investcorp S.A., which we refer to as Investcorp, is a global investment group with approximately 320 employees and offices in New York, London and Bahrain. Investcorp is principally engaged in private equity, real estate investment and asset management. Investcorp has grown to become a large and diverse alternative investment manager in terms of both product offerings and geography, and currently has approximately $12.4 billion in assets under management. Since its formation in 1982, the firm has arranged more than 88 private equity investments with total transaction value of approximately $29 billion in a broad range of industries and markets in North America and Western Europe.
 
Berkshire Partners LLC and its affiliates, which we refer to as Berkshire, is a Boston-based investment firm that is principally engaged in investments in mid-sized private companies through seven investment funds with aggregate capital commitments of $6.5 billion. Berkshire has developed specific industry experience in several areas including industrial manufacturing, consumer products, transportation, communications, business services, energy and retailing and related services. Over the last twenty years, Berkshire has been an investor in over 90 operating companies with more than $20 billion of acquisition value and combined revenues in excess of $22 billion.
 
Greenbriar Equity Group LLC and its affiliates, which we refer to as Greenbriar, is a private equity firm focused exclusively on the global transportation industry, including companies in the freight and passenger transport, aerospace & defense, automotive, logistics, shipping, and related sectors. Greenbriar manages $1.5 billion of limited partner capital commitments.
 
Additional Information
 
American Tire Distributors Holdings, Inc. was incorporated in Delaware in 2005. Our principal executive offices are located at 12200 Herbert Wayne Court, Suite 150, Huntersville, North Carolina 28078, and our telephone number at that address is (704) 992-2000. Our website address is http://www.atd-us.com. The information on our website is not part of this prospectus and you should not rely on any such information in deciding to invest in shares of our common stock.


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The Offering
 
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.
 
Unless otherwise indicated, references in this prospectus to the number of shares outstanding are calculated as of March 17, 2010 and:
 
  •      exclude 144,719 shares reserved for future issuance in connection with the exercise of outstanding stock options (82,674 of which will be issuable upon the exercise of outstanding vested stock options with exercise prices that are below the assumed initial public offering price of our common stock);
 
  •      exclude 21,895 shares reserved for future issuance in connection with the exercise of outstanding warrants (all of which will be issuable upon the exercise of outstanding warrants with exercise prices that are below the assumed initial public offering price of our common stock); and
 
  •      include 6,852 shares of restricted stock held by our directors, officers and other employees.


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Summary Consolidated Financial Data
 
The following table sets forth summary historical consolidated financial data for the periods indicated. 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 2007 (ended December 29, 2007) and fiscal 2009 (ended January 2, 2010) contain operating results for 52 weeks. Fiscal 2008 (ended January 3, 2009) contains operating results for 53 weeks.
 
The summary consolidated statements of operations data presented below for fiscal 2007, 2008 and 2009 and the balance sheet data at January 3, 2009 and January 2, 2010 have been derived from our audited consolidated financial statements included elsewhere 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 summary 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.
 
                         
    Fiscal  
    2007     2008     2009  
    (Dollars in thousands, except per share data)  
 
Statements of Operations Data:
                       
Net sales
  $ 1,877,480     $ 1,960,844     $ 2,171,787  
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below
    1,552,975       1,605,064       1,797,905  
Selling, general and administrative expense
    258,347       274,412       306,189  
                         
Operating income
    66,158       81,368       67,693  
Other expense
                       
Interest expense
    (61,633 )     (59,169 )     (54,415 )
Other, net
    (285 )     (1,155 )     (1,020 )
                         
Income before income taxes
    4,240       21,044       12,258  
Income tax provision
    2,867       11,373       7,326  
                         
Net income
  $ 1,373     $ 9,671     $ 4,932  
                         
Net income per common share
  $ 1.37     $ 9.68     $ 4.93  
Weighted average common shares issued and outstanding
    999,528       999,528       999,528  
Unaudited pro forma basic net income per common share(1)
                  $    
Unaudited pro forma weighted average common shares issued and outstanding(1)
                       
 
                         
    Fiscal  
    2007     2008     2009  
    (Dollars in thousands)  
 
Other Financial Data:
                       
Cash flows provided by (used in):
                       
Operating activities
  $ 19,119     $ (54,086 )   $ 131,105  
Investing activities
    (29,860 )     (81,671 )     (4,620 )
Financing activities
    11,890       139,503       (127,690 )
Depreciation and amortization
    28,096       25,530       32,078  
Capital expenditures
    8,648       13,424       12,757  
EBITDA(2)
    93,969       105,743       98,751  
 


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    January 3,
    January 2,
 
    2009     2010  
    (Dollars in thousands)  
 
Balance Sheet Data:
               
Cash and cash equivalents
  $ 8,495     $ 7,290  
Working capital
    288,313       197,317  
Total assets
    1,390,860       1,300,624  
Long-term debt, including capital leases
    639,384       549,576  
Total redeemable preferred stock
    23,941       26,600  
Total stockholders’ equity
    224,486       230,647  
 
 
(1) Unaudited pro forma basic net income 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 income:
 
                         
    Fiscal
    2007   2008   2009
    (Dollars in thousands)
 
Net income
  $ 1,373     $ 9,671     $ 4,932  
Depreciation and amortization
    28,096       25,530       32,078  
Interest expense
    61,633       59,169       54,415  
Income tax provision
    2,867       11,373       7,326  
                         
EBITDA
  $ 93,969     $ 105,743     $ 98,751  
                         

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RISK FACTORS
 
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. 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. The 7.5% decrease in annual unit volume for the U.S. replacement tire market in 2009 and our 0.8% decrease in annual light vehicle unit volume (excluding Am-Pac) for 2009 are reflective of these trends.
 
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. replacement tire 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 January 2, 2010, our debt (including capital leases) was $549.6 million. In addition, as of January 2, 2010, we were able to borrow up to an additional $182.5 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:
 
  •      making it more difficult to satisfy our obligations;
 
  •      impairing our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements;


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  •      increasing our vulnerability to general adverse economic and industry conditions by limiting our ability to plan for or react quickly to changing conditions;
 
  •      requiring a substantial portion of our cash flow from operations for the payment of interest on our debt and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements; 
 
  •      preventing a change of control; and
 
  •      placing us at a competitive disadvantage compared to our competitors that have less debt.
 
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 January 2, 2010, 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


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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.
 
We may be unable to identify desirable acquisition targets or future acquisitions may not be successful.
 
We plan to investigate and acquire strategic businesses or product lines with the potential to be accretive to earnings, increase our market penetration, 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. Our recent growth in net sales, net income and EBITDA has been driven primarily by acquisitions. A failure to identify and acquire desirable acquisition targets may slow growth in our annual unit volume, which could adversely affect our existing business, financial condition, results of operations or cash flows.
 
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.


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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


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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.


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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 January 2, 2010, we had $325.4 million outstanding under our revolving credit facility and our Floating Rate Notes, of which $140.4 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.


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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. 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 and other intangible assets have 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 January 2, 2010, our total goodwill was approximately $375.7 million and our total intangible assets, net of amortization, were $226.7 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 104,569 shares of our common stock will be issuable upon the exercise of outstanding vested stock options and warrants with exercise prices that are below


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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:
 
  •      actual or anticipated variations in our operating results from quarter to quarter;
 
  •      actual or anticipated variations in our operating results from the expectations of securities analysts and investors;
 
  •      actual or anticipated variations in our operating results from our competitors;
 
  •      fluctuations in the valuation of companies perceived by investors to be comparable to us;
 
  •      sales of common stock or other securities by us or our stockholders in the future;
 
  •      changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
 
  •      departures of key executives or directors;
 
  •      announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, financing efforts or capital commitments;
 
  •      delays or other changes in our expansion plans;


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  •      involvement in litigation;
 
  •      stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
 
  •      general market conditions in our industry and the industries of our customers;
 
  •      general economic and stock market conditions; and
 
  •      terrorist attacks or natural disasters.
 
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


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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:
 
  •      our certificate of incorporation authorize our board of directors to determine the rights, preferences, privileges and restrictions of unissued preferred stock, without any vote or action by our stockholders;
 
  •      stockholders are denied the right to cumulate votes in the election of directors because our certificate of incorporation does not expressly address cumulative voting; and
 
  •      our stockholders do not have the right to fill vacancies on the board caused by expansion, resignation, death disqualification or removal.
 
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.


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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. In addition, one or more members of the Control Group could use their influence over us to approve or enter into transactions for their benefit or contrary to your interests as a public shareholder. 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.


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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
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,” “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 after we distribute this prospectus, except as required by the federal securities laws.
 
Many factors could cause actual results to differ materially from those indicated by the forward-looking statements or could contribute to such differences including:
 
  •      general business and economic conditions in the United States and other countries, including uncertainty as to changes and trends;
 
  •      our ability to develop and implement the operational and financial systems needed to manage our operations;
 
  •      our ability to execute key strategies, including pursuing acquisitions and successfully integrating and operating acquired companies;
 
  •      the ability of our customers and suppliers to obtain financing related to funding their operations in the current economic market;
 
  •      the financial condition of our customers, many of which are small businesses with limited financial resources;
 
  •      changing relationships with customers, suppliers and strategic partners;
 
  •      changes in state or federal laws or regulations affecting the tire industry;
 
  •      impacts of competitive products and changes to the competitive environment;
 
  •      acceptance of new products in the market; and
 
  •      unanticipated expenditures.
 
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.


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USE OF PROCEEDS
 
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:
 
  •      first, to redeem the $45.2 million aggregate principal amount of our Discount Notes due October 1, 2013, which we refer to as our Discount Notes and which carry an interest rate of 13%, for an aggregate redemption price of approximately $      million (including a redemption premium of 1.0%, or $0.5 million, and accrued interest of approximately $      million);
 
  •      second, to redeem all of the outstanding shares of our 8% cumulative redeemable preferred stock, which we refer to as the Redeemable Preferred Stock, at a redemption price equal to $20.0 million, plus accumulated and unpaid dividends, which we estimate will be approximately $      million through the anticipated redemption date for the Redeemable Preferred Stock; and
 
  •      to the extent of any remainder, to redeem a portion or all of the $150.0 million aggregate principal amount of our Senior Notes due April 1, 2013, which we refer to as our 2013 Notes, and which carry an interest rate of 10.75% (including a redemption premium of 2.688% and any accrued and unpaid interest).
 
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.


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DIVIDEND POLICY
 
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.


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DILUTION
 
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 January 2, 2010 was approximately ($384.3) million, or ($384.47) 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 999,528 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 January 2, 2010 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:
 
         
Expenses
  Amount  
 
Assumed initial public offering price per share
  $    
Net tangible book value per share as of January 2, 2010
    (384.47 )
Increase in net tangible book value per share attributable to new investors
       
         
Adjusted net tangible book value per share after this offering
       
         
Dilution per share to new investors
  $  
         
 
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 January 2, 2010, after giving effect to the offering:
 
  •      the total number of shares of common stock purchased from us;
 
  •      the total consideration paid to us before deducting underwriting discounts and commissions of $      and estimated offering expenses of approximately $     ; and
 
  •      the weighted average price per share paid by existing stockholders and by new investors who purchase shares of common stock in this offering at the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus).
 


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                            Weighted
 
                            Average
 
    Shares Purchased     Total Consideration     Price Per
 
    Number     Percent     Amount     Percent     Share  
 
Assuming no exercise of the overallotment option:
                                       
Existing stockholders
            %   $             %   $        
New investors
                                       
Total
            100.0 %             100.0 %        
Assuming full exercise of the overallotment option:
                                       
Existing stockholders
            %   $         %   $    
New investors
                                       
Total
            100.0 %             100.0 %        
 
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           options outstanding with a weighted average exercise price of $          .

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CAPITALIZATION
 
The following table sets forth our capitalization at January 2, 2010, 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.
 
                 
    As of January 2, 2010  
    Actual     As Adjusted  
    (Unaudited)  
    (Dollars in thousands)  
 
Cash and cash equivalents
  $ 7,290     $            
                 
Current maturities of long-term debt
    13,979          
                 
Long-term debt
               
Floating Rate Notes
    140,000          
2013 Notes
    150,000          
Discount Notes
    45,217          
Revolving credit facility
    185,367          
Capital lease obligations
    14,114          
Other
    899          
                 
Total long-term debt, including capital lease obligations
    535,597          
                 
Total debt
    549,576          
                 
Redeemable Preferred Stock
    26,600          
Stockholders’ equity
               
Series A Common Stock, par value $0.01 per share; 1,500,000 shares authorized, 690,700 shares outstanding actual, no shares outstanding as adjusted
    7        
Series B Common Stock, par value $0.01 per share; 315,000 shares authorized, 307,328 shares outstanding actual, no shares outstanding as adjusted
    3        
Series D Common Stock, par value $0.01 per share; 1,500 shares authorized, 1,500 shares outstanding actual, no shares outstanding as adjusted
           
Common Stock, par value $0.01 per share; 1,816,500 shares authorized, no shares outstanding actual,          shares outstanding as adjusted
             
Additional paid-in capital
    218,348          
Warrants
    4,631          
Retained earnings
    9,922          
Accumulated other comprehensive loss
    (2,164 )        
Treasury stock, at cost, 472 shares of Series A Common Stock outstanding,          actual shares outstanding as adjusted
    (100 )        
                 
Total stockholders’ equity
    230,647          
                 
Total capitalization
  $ 806,823     $  
                 
 
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 and decrease or increase the aggregate principal amount of the 2013 Notes we repurchase 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.


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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
 
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. 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, 2008 and 2009 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), fiscal 2007 (ended December 29, 2007) and fiscal 2009 (ended January 2, 2010) 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 2007, 2008 and 2009 and the balance sheet data at January 3, 2009 and January 2, 2010 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data presented below for fiscal 2005 and 2006 and the balance sheet data at December 31, 2005, December 30, 2006 and December 29, 2007 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.
 


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    Predecessor       Successor  
            Period
                         
            from
                         
            April 2,
                         
    Quarter
      2005
                         
    Ended
      through
                         
    April 2,
      December 31,
    Fiscal  
    2005       2005     2006     2007     2008     2009  
            (Unaudited)                          
    (Dollars
            (Dollars in thousands)  
    in thousands)                
Statement of Operations Data:
                                                 
Net sales
  $ 354,339       $ 1,150,944     $ 1,577,973     $ 1,877,480     $ 1,960,844     $ 2,171,787  
Cost of goods sold, excluding depreciation included in selling, general and administrative expense below
    290,488         939,325       1,293,594       1,552,975       1,605,064       1,797,905  
Selling, general and administrative expense
    52,653         172,605       227,399       258,347       274,412       306,189  
Impairment of intangible asset
                  2,640                      
Transaction expenses
    28,211         95                          
                                                   
Operating income (loss)
    (17,013 )       38,919       54,340       66,158       81,368       67,693  
Other (expense) income
                                                 
Interest expense
    (3,682 )       (41,359 )     (60,065 )     (61,633 )     (59,169 )     (54,415 )
Other, net
    (252 )       111       (364 )     (285 )     (1,155 )     (1,020 )
                                                   
Income (loss) from operations before income taxes
    (20,947 )       (2,329 )     (6,089 )     4,240       21,044       12,258  
Income tax provision (benefit)
    (6,620 )       (728 )     (1,482 )     2,867       11,373       7,326  
                                                   
Net income (loss)
  $ (14,327 )     $ (1,601 )   $ (4,607 )   $ 1,373     $ 9,671     $ 4,932  
                                                   
Net income (loss) per common share
  $ (14.33 )     $ (1.60 )   $ (4.61 )   $ 1.37     $ 9.68     $ 4.93  
Weighted average common shares issued and outstanding
    1,000,000         999,528       999,528       999,528       999,528       999,528  
Unaudited pro forma basic net income per common share(1)
                                            $    
Unaudited pro forma weighted average common shares issued and outstanding(1)
                                            $    
                                                   
 
                                                   
    Predecessor       Successor  
            Period
                         
            from
                         
            April 2,
                         
    Quarter
      2005
                         
    Ended
      through
                         
    April 2,
      December 31,
    Fiscal  
    2005       2005     2006     2007     2008     2009  
            (Unaudited)                          
    (Dollars
            (Dollars in thousands)  
    in thousands)                
Balance Sheet Data:
                                                 
Cash and cash equivalents
            $ 5,545     $ 3,600     $ 4,749     $ 8,495     $ 7,290  
Working capital
              201,820       172,627       186,556       288,313       197,317  
Total assets
              1,120,118       1,123,506       1,210,696       1,390,860       1,300,624  
Long-term debt, including capital leases
              540,549       517,154       536,871       639,384       549,576  
Total redeemable preferred stock
              18,559       19,822       21,450       23,941       26,600  
Total stockholders’ equity
              220,806       216,758       216,395       224,486       230,647  
Other Financial Data:
                                                 
Cash flows provided by (used in):
                                                 
Operating activities
  $ 9,871       $ (34,654 )   $ 66,586     $ 19,119     $ (54,086 )   $ 131,105  
Investing activities
    (1,438 )       (468,815 )     (28,527 )     (29,860 )     (81,671 )     (4,620 )
Financing activities
    (8,264 )       505,511       (40,004 )     11,890       139,503       (127,690 )
Depreciation and amortization
    1,738         16,409       25,071       28,096       25,530       32,078  
Capital expenditures
    1,574         6,086       9,845       8,648       13,424       12,757  
                                                   
 
 
(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 on a one-to-one basis into shares of our common stock as well as to reflect the assumed use of proceeds to redeem debt and preferred stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
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 2009, which ended January 2, 2010, and fiscal 2007, which ended December 29, 2007, contained operating results for 52 weeks. Fiscal 2008, which ended January 3, 2009, contained operating results for 53 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 an extensive 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 9.4% in 2009, which we believe is approximately twice the market share of our closest competitor.
 
We conduct our operations through American Tire Distributors, Inc., a Delaware corporation and a wholly-owned subsidiary of American Tire Distributors Holdings, Inc. We have no significant assets or operations other than our ownership of ATDI. The operations of ATDI and its consolidated subsidiaries constitute our operations presented under accounting principles accepted in the United States.
 
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 2009, our largest customer and our top ten customers accounted for less than 1.6% and 5.5%, respectively, of our net sales. We believe 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 93.1% of our net sales in fiscal 2009. 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:
 
  •      Availability of consumer credit and changes in disposable income.  Recent economic conditions, including increased unemployment and rising fuel prices, have caused consumers to delay tire purchases, reduce spending on tires or purchase less costly brand tires. For instance, in fiscal 2008, increased fuel costs, increased unemployment and tightening credit caused a decrease in miles driven and consumer spending, both of which caused a decrease in our unit sales and unit sales in the entire U.S. replacement tire industry. We believe that during fiscal


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  2008 and fiscal 2009, weak economic conditions have caused some consumers to delay the replacement of their tires.
 
  •      Acquisitions.  Over the past five years, we have successfully acquired and integrated ten businesses representing in excess of $700 million in annual net sales. Our acquisition strategy has allowed us to increase our share in existing markets, add distribution in new and complementary regions and utilize increasing scale to realize cost savings.
 
  •      Number of vehicles in the U.S. market.  While the number of automobiles registered in the United States has generally increased steadily over time the growth rate in the number of automobiles slowed during fiscal 2008 and fiscal 2009, primarily due to weakening economic conditions, the reduced availability of consumer credit and decreasing consumer confidence.
 
  •      Average age of vehicles.  As the average age of vehicles has increased, the number of vehicles requiring replacement tires has increased. As consumers have chosen to drive existing vehicles longer, leading to increasing average age, these consumers may spend more on vehicle maintenance.
 
  •      Miles driven.  An increase in the number of miles driven generally increases the rate at which tires are replaced, thereby increasing the number of tires we sell. We believe that during fiscal 2008 and 2009, weak economic conditions and economic uncertainty caused a decrease in the number of miles driven, impacting demand. During fiscal 2009, however, miles driven had increased slightly on a year-over-year basis while maintaining a consistent month-to-month increase during the last half of 2009.
 
The U.S. replacement tire market has historically experienced stable growth primarily driven by several positive industry trends such as increases in the number of vehicles on the road, the number of licensed drivers, the number of miles driven and the average age of vehicles. However, unit replacement tire demand softened year-over-year between 2008 and 2009, with calendar 2009 unit replacement tire demand down 7.5% as compared to calendar 2008, as reported by Modern Tire Dealer. During this same period, we have achieved a year-over-year increase in unit sales of 15.2%, or 16.4% adjusting for the three fewer days in fiscal 2009 as compared to fiscal 2008. Our above-market results are due primarily to the inclusion of Am-Pac, which accounted for 17.2% of the growth in unit sales, partially offset by softer unit demand this year as compared to last year due to the weakened economy. We believe the weakened industry demand has been due, in part, to continued economic uncertainty, which has contributed to the deferral of tire purchases. We expect these conditions to continue to impact us into fiscal 2010. Despite these economic uncertainties, we will continue to implement business strategies that are focused on achieving above market results in both contracting and expanding market demand cycles.
 
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.
 
2007 and 2008 Acquisitions
 
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. 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.


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The Homann Tire, Martino Tire, and Paris Tire acquisitions were financed through borrowings under our revolving credit facility. The aggregate purchase price of these acquisitions was $21.7 million, consisting of $20.9 million in cash and $0.8 million in direct acquisition costs.
 
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 is held in escrow and $59.1 million was used to pay off Am-Pac’s outstanding debt. The amount held in escrow has been excluded from the allocation of the cost of the assets acquired and liabilities assumed as it represents contingent consideration for which the contingency has not been resolved or for which the contingency period has not lapsed. We recorded the 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
 
Fiscal 2008 Compared to Fiscal 2009
 
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):
 
                                                 
                      Period Over
             
                Period Over
    Period
             
                Period
    Percentage
    Results as a Percentage of Net
 
                Change
    Change
    Sales for Each Period Ended  
    Fiscal
    Fiscal
    Favorable
    Favorable
    January 3,
    January 2,
 
    2008     2009     (Unfavorable)     (Unfavorable)     2009     2010  
 
Net sales
  $ 1,960,844     $ 2,171,787     $ 210,943       10.8 %     100.0 %     100.0 %
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below
    1,605,064       1,797,905       (192,841 )     (12.0 )     81.9       82.8  
Selling, general and administrative expenses
    274,412       306,189       (31,777 )     (11.6 )     14.0       14.1  
                                                 
Operating income
    81,368       67,693       (13,675 )     (16.8 )     4.1       3.1  
Other expense:
                                               
Interest expense
    (59,169 )     (54,415 )     4,754       8.0       (3.0 )     (2.5 )
Other, net
    (1,155 )     (1,020 )     135       11.7       (0.1 )     0.0  
                                                 
Income from operations before income taxes
    21,044       12,258       (8,786 )     (41.8 )     1.1       0.6  
Income tax provision
    11,373       7,326       4,047       35.6       0.6       0.3  
                                                 
Net income
  $ 9,671     $ 4,932     $ (4,739 )     (49.0 )%     0.5 %     0.2 %
                                                 


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Net Sales
 
Net sales increased $210.9 million, or 10.8%, from $1,960.8 million in fiscal 2008 to $2,171.8 million in fiscal 2009. The increase in sales was primarily driven by our acquisition of Am-Pac in late 2008, which contributed $258.4 million to the increase. Additionally, net pricing contributed an additional $39.5 million to the increase and resulted primarily from our passing through the tire manufacturers’ multiple price increases in 2008. Excluding the Am-Pac acquisition and the three additional business days in fiscal 2008, our sales of passenger and light truck tire units continued to outperform the overall passenger and light truck tire market (down 7.5% as measured by Modern Tire Dealer), but still declined 0.8% during fiscal 2009 as compared to fiscal 2008. Softer tire unit sales of $43.4 million (approximately $20.9 million of which resulted from the additional three business days in fiscal 2008 compared to fiscal 2009), combined with a decline in wheel, equipment and supply sales, collectively $43.5 million, partially offset the increases noted above.
 
Cost of Goods Sold
 
Cost of goods sold increased $192.8 million, or 12.0%, from $1,605.1 million in fiscal 2008 to $1,797.9 million in fiscal 2009. This increase is primarily due to our acquisition of Am-Pac in late 2008, which contributed increases of $194.6 million and $14.7 million of cost of goods sold from its wholesale and retail operations, respectively, combined with higher net tire pricing, which resulted from the multiple manufacturer price increases that occurred throughout fiscal 2008. Partially offsetting these increases was the decline in tire, wheel, equipment and supply unit sales (excluding Am-Pac) year-over-year and the effect of three fewer business days in fiscal 2009.
 
Selling, General and Administrative Expenses
 
In fiscal 2009, selling, general and administrative expenses increased $31.8 million, or 11.6%, from $274.4 million in fiscal 2008 to $306.2 million, primarily because of our acquisition of Am-Pac in late 2008, which accounted for approximately $41.3 million of the increase. The majority of the increase related to Am-Pac occurred in the first half of 2009 as our integration strategy was substantially completed by July 2009. Other increases included higher rents for larger facilities occupied during late fiscal 2008 and early fiscal 2009 ($4.8 million) and higher amortization expense related to the change in accounting estimate for certain customer list intangible assets ($3.6 million). Lower employee-related expenses of $8.1 million, including lower overall employee headcount, three fewer business days in fiscal 2009 and lower 401(k) expense as compared to fiscal 2008, as well as lower fuel cost of $5.3 million and travel and meeting expenses of $1.5 million partially offset the increases noted above.
 
Interest Expense
 
In fiscal 2009, interest expense, net of capitalized interest, decreased $4.8 million, or 8.0%, from $59.2 million in fiscal 2008 to $54.4 million, primarily due to lower interest rates on our variable rate debt, partially offset by higher average borrowings from our revolving credit facility during fiscal 2009 and 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.
 
Interest expense, net of capitalized interest, for fiscal 2009 of $54.4 million exceeds cash payments for interest during the same period in fiscal 2008 of $43.0 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
 
Our income tax provision decreased from $11.4 million in fiscal 2008, based on a pre-tax income of $21.0 million, to $7.3 million in fiscal 2009, based on a pre-tax income of $12.3 million. Our effective tax rates for fiscal 2008 and fiscal 2009 were 54.0% and 59.8%, respectively. The increase in the effective tax rate is due primarily to lower pre-tax income for fiscal 2009, the effects of certain permanent timing differences (primarily the effect of preferred stock dividends that are not deductible for income tax purposes) on our pre-tax income of $12.3 million in fiscal 2009 as opposed to the same permanent timing differences on our pre-


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tax income of $21.0 million in fiscal 2008, and a higher state effective tax rate as we do not anticipate to be able to benefit from losses generated in certain states.
 
Net income
 
Net income for fiscal 2009 decreased $4.7 million, or 49.0%, from $9.7 million in fiscal 2008 to $4.9 million. The decrease in net income is due, in part, to higher selling, general and administrative expenses, as discussed above, partially offset by contributions from the Am-Pac acquisition, lower interest expense and the fluctuation in the income tax provision between fiscal years.
 
Fiscal 2007 Compared to Fiscal 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):
 
                                                 
                      Period-Over-
             
                Period-Over-
    Period
             
                Period
    Percentage
    Results as a Percentage of
 
                Change
    Change
    Net Sales for Each Period Ended  
                Favorable
    Favorable
    Fiscal
    Fiscal
 
    Fiscal 2007     Fiscal 2008     (Unfavorable)     (Unfavorable)     2007     2008  
 
Net sales
  $ 1,877,480     $ 1,960,844     $ 83,364       4.4 %     100.0 %     100.0 %
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below
    1,552,975       1,605,064       (52,089 )     (3.4 )     82.7       81.9  
Selling, general and administrative expenses
    258,347       274,412       (16,065 )     (6.2 )     13.8       14.0  
                                                 
Operating income
    66,158       81,368       15,210       23.0       3.5       4.1  
Other expense:
                                               
Interest expense
    (61,633 )     (59,169 )     2,464       4.0       (3.3 )     (3.0 )
Other, net
    (285 )     (1,155 )     (870 )     (305.3 )     0.0       (0.1 )
                                                 
Income from operations before income taxes
    4,240       21,044       16,804       396.3       0.2       1.1  
Income tax provision
    2,867       11,373       (8,506 )     (296.7 )     0.2       0.6  
                                                 
Net income
  $ 1,373     $ 9,671     $ 8,298       604.4 %     0.1 %     0.5 %
                                                 
 
Net Sales
 
In fiscal 2008, net sales increased $83.3 million, or 4.4%, from $1,877.5 million in fiscal 2007 to $1,960.8 million. 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 increase as we passed through the 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 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 Rubber Manufacturer’s Association, or RMA), but still declined between fiscal 2007 and fiscal 2008. As such, softer tire unit sales of $98.8 million (including a benefit of approximately $27.5 million from four additional sales days in our fiscal 2008), combined with a decline in wheel, equipment and supply sales to partially offset the increases noted above.
 
Cost of Goods Sold
 
In fiscal 2008, cost of goods sold increased $52.1 million, or 3.4%, from $1,553.0 million in fiscal 2007 to $1,605.1 million. This increase is primarily due to the acquisitions of Paris Tire, Martino Tire and Homann Tire in fiscal 2007, combined with the acquisitions of Gray’s Tire and Am-Pac in fiscal 2008, which


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in aggregate contributed approximately $60.0 million of the increase. All other items netted to reduce cost of goods sold by $8.0 million and included the impact of four additional sales days in fiscal 2008 as compared to fiscal 2007, larger manufacturer price increases in fiscal 2008 as compared to fiscal 2007, which were more than offset by softer tire unit sales, excluding the impact of acquisitions and the additional sales days year-over-year, and lower wheel, equipment and supply sales.
 
Selling, General and Administrative Expenses
 
In fiscal 2008, selling, general and administrative expenses increased $16.1 million, or 6.2%, from $258.3 million in fiscal 2007 to $274.4 million. 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 in fiscal 2008 due primarily to higher fuel cost per gallon. 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.
 
Interest Expense
 
In fiscal 2008, interest expense, net of capitalized interest, decreased $2.5 million, or 4.0%, from $61.6 million in fiscal 2007 to $59.2 million in fiscal 2008. 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
 
Our income tax provision increased from $2.9 million in fiscal 2007, based on a pre-tax income of $4.2 million, to $11.4 million in fiscal 2008, based on a pre-tax income of $21.0 million. Our effective tax rates for fiscal 2007 and fiscal 2008 were 68.0% and 54.0%, respectively. The decrease in the effective tax rate is due primarily to an increase in pre-tax income for fiscal 2008 and the impact of certain permanent timing differences (primarily the effect of preferred stock dividends that are not deductible for income tax purposes).
 
Net Income
 
Net income for fiscal 2008 increased $8.3 million from $1.4 million in fiscal 2007 to $9.7 million. The increase in net income is due to increases in net sales from acquisitions and lower interest expense, partially offset by an increase in selling, general and administrative expenses, partially offset by the increase in income tax provision between periods.
 
Liquidity and Capital Resources
 
During fiscal 2009, our total debt, including capital leases, decreased $92.8 million from $642.4 million at January 3, 2009 to $549.6 million at January 2, 2010, primarily because of voluntary repayments of our revolving credit facility. Total commitments by the lenders under our revolving credit facility were $400.0 million at January 2, 2010, of which $182.5 million was available for additional borrowings. The amount available to borrow under the revolving credit facility is limited by the borrowing base computation as described more fully under “Description of Indebtedness — Revolving Credit Facility.”


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The following table summarizes our cash flows for fiscal years 2007, 2008 and 2009:
 
                         
    Fiscal  
    2007     2008     2009  
    (dollars in thousands)  
 
Cash provided by (used in) operating activities
  $ 19,119     $ (54,086 )   $ 131,105  
Cash used in investing activities
    (29,860 )     (81,671 )     (4,620 )
Cash provided by (used in) financing activities
    11,890       139,503       (127,690 )
                         
Net increase (decrease) in cash and cash equivalents
    1,149       3,746       (1,205 )
Cash and cash equivalents, beginning of year
    3,600       4,749       8,495  
                         
Cash and cash equivalents, end of year
  $ 4,749     $ 8,495     $ 7,290  
                         
Cash payments for interest
  $ 51,629     $ 57,711     $ 42,953  
Cash payments for taxes, net
  $ 2,242     $ 11,634     $ 6,457  
Capital expenditures financed by debt
  $ 2,822     $ 3,295     $ 2,307  
Noncash capital expenditures
  $     $     $ 2,876  
 
Operating Activities
 
Total net cash provided by operating activities for fiscal 2009 increased $185.2 million, from $54.1 million used in operating activities in fiscal 2008 to $131.1 million provided by operating activities in fiscal 2009. The increase in net cash provided by operating activities was primarily due to a decrease in our net working capital requirements. For fiscal 2009, our change in operating assets and liabilities generated a cash inflow of approximately $78.3 million, primarily driven by a decrease in inventories and, to a lesser extent, an increase in accounts payable, partially offset by a decrease in accrued expenses. The decrease in inventories resulted from the consolidation of the acquired Am-Pac distribution centers (finalized in early July 2009) and rationalization of their inventories, as well as a reduction in elevated 2008 year-end inventory levels. The decrease in accrued expenses resulted from income tax payments and incentive compensation payments made during fiscal 2009, both of which related to 2008 fiscal performance, versus income tax and incentive compensation accrual levels for fiscal 2009 that will be paid during fiscal 2010. The increase in accounts payable relates to the timing of vendor payments, particularly for inventory purchases.
 
Total net cash used in operating activities for fiscal 2008 increased $73.2 million to $54.1 million compared to net cash provided by operating activities of $19.1 million in fiscal 2007. The increase in net cash used in operating activities was primarily due to an increase in our net working capital requirements driven by an increase in inventories combined with a decrease in accrued expenses and decreases in accounts payable. The increase in inventories was primarily driven by increased purchases for the purpose of achieving certain manufacturer volume related incentives, coupled with a softer tire unit sell-out, particularly during the fourth quarter of 2008. The decrease in accrued expenses is primarily due to interest payments on our senior notes, income tax payments and incentive compensation payments that were made during fiscal 2008. The decrease in accounts payable primarily resulted from the timing of vendor payments, particularly for inventory purchases.
 
Investing Activities
 
Net cash used in investing activities decreased $77.1 million to $4.6 million in fiscal 2009 compared to net cash used in investing activities of $81.7 million in fiscal 2008. The decrease in net cash used in investing activities was due primarily to a decrease in our acquisition activity as the Am-Pac acquisition took place in fiscal 2008, as well as an increase in the proceeds from the sale of assets held for sale, including $8.1 million for the sale of certain retail operations acquired in the Am-Pac acquisition, and a lower level of purchases of property and equipment between fiscal 2008 and fiscal 2009, primarily resulting from the expansion of one of our distribution centers in fiscal 2008. Capital expenditures for fiscal 2009 included information technology upgrades, warehouse racking and the assumption and subsequent payment of certain mortgage liabilities for real estate obtained for security in certain notes receivable. During fiscal 2009, we also had capital expenditures financed by debt of $2.3 million relating to information technology, which amount is not reflected as capital expenditures in our consolidated statements of cash flows in accordance with GAAP.


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Total net cash used in investing activities increased $51.8 million to $81.7 million in fiscal 2008 compared to $29.9 million in fiscal 2007. The increase in net cash used in investing activities was due primarily to an increase in our acquisition activity of $47.6 million primarily from Am-Pac and an increase in purchase levels of property and equipment of $4.8 million. The increase in purchase levels of property and equipment was due, in part, to the expansion of one of our distribution centers. Capital expenditures for fiscal 2008 also included information technology upgrades and warehouse racking. During fiscal 2008, we also had capital expenditures financed by debt of $3.3 million relating to information technology, which amount is not reflected as capital expenditures in our consolidated statements of cash flows in accordance with GAAP.
 
Financing Activities
 
Total net cash used in financing activities increased $267.2 million to $127.7 million in fiscal 2009 compared to net cash provided by financing activities of $139.5 million in fiscal 2008. The increase in net cash used in financing activities was primarily due to lower net borrowings under our revolving credit facility, primarily due to the reduction in working capital requirements discussed above, as well as the timing of outstanding checks from year-end 2008 that cleared in the first quarter 2009.
 
Total net cash provided by financing activities increased $127.6 million to $139.5 million in fiscal 2008 compared to $11.9 million in fiscal 2007. The increase in net cash provided by financing activities in fiscal 2008 was primarily due to increased borrowings from our revolving credit facility due, in part, to cash paid for our acquisitions completed during fiscal 2008 (primarily Am-Pac) and higher cash payments for interest and taxes, as well as the increase in working capital requirements discussed above.
 
Supplemental Disclosures of Cash Flow Information
 
Cash payments for interest in fiscal 2009 decreased $14.8 million, or 25.6%, from $57.7 million in fiscal 2008 to $43.0 million in fiscal 2009, primarily due to the timing of our 2008 calendar period, which included five interest payments on our Floating Rate Notes totaling $17.8 million compared to only three interest payments in fiscal 2009 totaling $7.7 million. In addition, lower interest rates during fiscal 2009 compared to fiscal 2008 also contributed to the year-over-year decline in cash payments for interest.
 
Cash payments for taxes in fiscal 2009 decreased $5.2 million, or 44.5%, from $11.6 million in fiscal 2008 to $6.5 million in fiscal 2009, primarily due to the differences between the amount of income tax extension payments for fiscal 2007 made in the first part of 2008 and the amount of such payments for fiscal 2008 made in the first part of 2009.
 
Indebtedness
 
The following table summarizes our outstanding debt at January 2, 2010 (dollars in thousands):
 
                         
    Outstanding
    Interest
       
    Balance     Rate(1)     Matures  
 
Revolving credit facility
  $ 185,367       1.7 %     2011  
2013 Notes
    150,000       10.75       2013  
Floating Rate Notes
    140,000       6.5       2012  
Discount Notes
    51,480       13.0       2013  
Capital lease obligations
    14,183       7.1 — 13.7       2010 - 2022  
Supplier Loan
    6,000       9.0       2010  
Other
    2,546       6.6 — 10.6       2010 - 2020  
                         
      549,576                  
Less — Current maturities
    (13,979 )                
                         
    $ 535,597                  
 
 
(1) Interest rates for variable rate debt are based on current interest rates. Interest rate for the revolving credit facility is the weighted average interest rate at January 2, 2010.
 
For more information, see “Description of Indebtedness.”


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Adjusted EBITDA
 
We evaluate liquidity based on several factors, including a measure we refer to in this prospectus as Adjusted EBITDA and which we refer to as Indenture EBITDA in our past filings under the Securities Exchange Act of 1934, or Exchange Act. Neither Adjusted EBITDA nor the ratios based on Adjusted EBITDA presented herein comply with U.S. GAAP because Adjusted EBITDA is adjusted to exclude certain cash and non-cash items. The ratio of Adjusted EBITDA to consolidated interest expense is also used in certain of the covenants in the indentures governing our three series of senior notes. Adjusted EBITDA, which is referred to as consolidated cash flow in the indentures, represents earnings before interest, taxes, depreciation and amortization and the other adjustments set forth below permitted in calculating covenant compliance under the indentures governing our senior notes. We believe that the inclusion of this supplementary information is necessary for investors to understand our ability to engage in certain corporate transactions in the future under the indentures. The indentures governing our three series of outstanding notes limit, among other things, our ability to incur additional debt (subject to certain exceptions including debt under our revolving credit facility), issue preferred stock (subject to certain specified exceptions), make certain restricted payments or investments or make certain purchases of our stock, unless the ratio of our Adjusted EBITDA to consolidated interest expense (as defined in the indentures), each calculated on a pro forma basis for the proposed transaction, would have been at least 2.0 to 1.0 for the four fiscal quarters prior to the proposed transaction.
 
Adjusted EBITDA should not be considered an alternative to, or more meaningful than, cash flow provided by (used in) operating activities as determined in accordance with GAAP. Adjusted EBITDA as presented by us may not be comparable to similarly titled measures reported by other companies. For the four fiscal quarters ended January 2, 2010, our ratio of Adjusted EBITDA to consolidated interest expense, each as calculated under the indentures governing our three series of outstanding notes, was 1.6 to 1.0. Because we currently do not satisfy the 2.0 to 1.0 Adjusted EBITDA to consolidated interest expense ratio contained in our three series of outstanding notes, we are currently limited in 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 specified exceptions), make certain restricted payments or investments or make certain purchases of our stock. See “Risk Factors — Risks Relating to Our Business — Our high level of indebtedness may adversely affect our financial condition, restrict our growth or place us at a competitive disadvantage.” These restrictions do not interfere with the day-to-day-conduct of our business. Moreover, the indentures do not require us to maintain any financial performance metric or ratio in order to avoid a default.
 
The following table is a reconciliation of the most directly comparable GAAP measure, net cash provided by (used in) operating activities, to Adjusted EBITDA (in thousands):
 
                         
    Fiscal  
    2007     2008     2009  
 
Net cash provided by (used in) operating activities
  $ 19,119     $ (54,086 )   $ 131,105  
Changes in assets and liabilities
    12,411       103,000       (78,284 )
Benefit (provision) for deferred income taxes
    6,916       (3,432 )     (5,030 )
Interest expense
    61,633       59,169       54,415  
Income tax provision
    2,867       11,373       7,326  
Provision for doubtful accounts
    (854 )     (2,514 )     (1,381 )
Amortization of other assets
    (5,056 )     (4,834 )     (4,834 )
Accretion of 8% cumulative preferred stock
    (441 )     (441 )     (441 )
Accretion of Discount Notes
    (1,571 )            
Accrued dividends on 8% cumulative preferred stock
    (1,893 )     (2,051 )     (2,219 )
Other
    2,266       810       378  
                         
Adjusted EBITDA
  $ 95,397     $ 106,994     $ 101,035  
                         
 
Adjusted EBITDA for fiscal 2009 decreased $6.0 million, or 5.6%, from $107.0 million in fiscal 2008 to $101.0 million. The decrease in Adjusted EBITDA is due primarily to a reduction, excluding the contributions from Am-Pac, in passenger and light truck tire sales units and, to a lesser extent, lower sales


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contributions from wheels, equipment and supplies during fiscal 2009. Additionally, higher selling, general and administrative expenses, particularly during the first half of 2009, as our Am-Pac acquisition was substantially rationalized into our existing distribution centers, unfavorably impacted Adjusted EBITDA. Also, higher cost of goods sold resulting from our Am-Pac acquisition and the multiple manufacturer price increases of 2008 resulted in decreases to Adjusted EBITDA. Partially offsetting these factors were contributions from increased net sales resulting from our acquisition of Am-Pac and lower selling, general and administrative expenses resulting from three fewer business days in fiscal 2009 versus fiscal 2008.
 
Adjusted EBITDA for fiscal 2008 increased $11.6 million, or 12.2%, from $95.4 million in fiscal 2007 to $107.0 million. The increase in Adjusted EBITDA is due primarily to favorable tire pricing, stemming from the multiple 2008 manufacturer price increases, and the contributions of acquisitions.
 
We expect that over the next 12 months we will use cash principally to meet working capital needs and debt service requirements, make debt principal repayments, including required payments on our supplier loan and our Discount Notes, and capital expenditures and possibly fund acquisitions. Based upon current and anticipated levels of operations, we believe that our cash flow from operations, together with amounts available under our revolving credit facility, will be adequate to meet our anticipated requirements for at least the next 12 months. In addition, we have total lender commitments under our revolving credit facility of $400.0 million, of which $182.5 million was available at January 2, 2010. We currently expect our lenders will be able to meet their commitments under the revolving credit facility.
 
Contractual Commitments
 
The following chart reflects certain cash obligations associated with our contractual commitments as of January 2, 2010 (dollars in millions). This chart does not give effect to assumed use of proceeds from this offering.
 
                                         
          Less than
    1-3
    4-5
    After 5
 
    Total     1 Year     Years     Years     Years  
 
Long-term debt (variable rate)
  $ 325.4     $     $ 325.4     $     $  
Long-term debt (fixed rate)
    209.9       13.9       0.6       195.2       0.2  
Estimated interest payments(1)
    133.9       36.9       64.9       17.9       14.2  
Operating leases, net of sublease income
    267.6       46.7       79.9       64.8       76.2  
8% cumulative mandatorily redeemable preferred stock(2)
    45.9                         45.9  
Capital leases(3)
    0.1       0.1                    
Uncertain tax positions
    0.9       0.3       (0.5 )     0.9       0.2  
Interest rate swaps
    4.5       3.6       0.9              
Deferred compensation obligation
    2.4                         2.4  
                                         
Total contractual cash obligations
  $ 990.6     $ 101.5     $ 471.2     $ 278.8     $ 139.1  
                                         
 
 
(1) Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense on variable rate debt are based on current interest rates.
 
(2) Represents the redemption amount plus cumulative dividends.
 
(3) Excludes capital lease obligations relating to the sale and leaseback of three owned facilities. All cash paid to the lessor is recorded as interest expense and is included in the estimated interest payments amount in the above table.
 
Off-Balance Sheet Arrangements
 
We have no significant off balance sheet arrangements, other than liabilities related to leases of Winston Tire Company that we guaranteed when we sold Winston Tire in 2001. As of January 2, 2010, our total obligations as guarantor on these leases are approximately $5.7 million extending over nine years. However, we have secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rentals of approximately $5.3 million as of January 2, 2010. A


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provision has been made for the net present value of the estimated shortfall. The accrual for lease liabilities could be materially affected by factors such as the credit worthiness of lessors, assignees and sublessees and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions. While we believe that our current estimates of these liabilities are adequate, it is possible that future events could require significant adjustments to those estimates.
 
Critical Accounting Policies and Estimates
 
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported. We consider the accounting policies described below to be critical policies.
 
Revenue Recognition and Accounts Receivable — Allowance for Doubtful Accounts
 
We recognize revenue when title and risk of loss pass to the customer, which is upon delivery under free-on-board destination terms. We also permit customers from time to time to return certain products, but there is no contractual right of return. We continuously monitor and track such returns and record an estimate of such future returns, based on historical experience and recent trends. While such returns have historically been within management’s expectations and the provisions established have been adequate, we cannot guarantee that we will continue to experience the same return rates that we have in the past. If future returns increase significantly, operating results would be adversely affected.
 
The allowance for doubtful accounts provides for estimated losses inherent within our accounts receivable balance. Management evaluates both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables, past collection trends and general economic conditions. Management believes, based on our review, that the allowance for doubtful accounts is adequate to cover potential losses. Actual results may vary as a result of unforeseen economic events and the impact those events could have on our customers.
 
Inventories
 
We value inventories at the lower of cost, determined using the first-in, first-out method, or fair market value. We perform periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and record necessary provisions to reduce such inventories to net realizable value. If actual market conditions are less favorable than those projected by management, additional inventory provisions may be required.
 
Self-Insured Reserves
 
We are self-insured for automobile liability, workers’ compensation and the health care claims of our team members, although we maintain stop-loss coverage with third-party insurers to limit our total liability exposure. We establish reserves for losses associated with claims filed, as well as claims incurred but not yet reported, using actuarial methods followed in the insurance industry and our historical claims experience. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our results of operations and financial condition could be materially affected if losses from these claims differ significantly from our estimates.
 
Acquisition Exit Cost Reserves
 
In connection with certain acquisitions, we have acquired certain facilities that we have closed or intend to close. We record reserves for certain exit costs associated with closing these facilities. These exit cost reserves are recorded in an amount equal to future minimum lease payments and related ancillary costs from the date of closure to the end of the lease term, net of estimated sublease rentals we reasonably expect to obtain for the property. We estimate future cash flows based on contractual lease terms, the geographic market in which the facility is located, inflation, ability to sublease the property and other economic conditions. We estimate sublease rentals based on the geographic market in which the property is located, our experience subleasing similar properties and other economic conditions.


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Valuation of Goodwill and Indefinite-Lived Intangible Assets
 
Financial Accounting Standards Board, or FASB, authoritative guidance requires that goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually and more frequently in the event of an impairment indicator. This guidance requires that management compare the reporting unit’s carrying value to its fair value as of an annual assessment date. Management has computed fair value by utilizing a variety of methods including discounted cash flow and market multiple models. In accordance with this guidance, we have elected November 30 as our annual impairment assessment date. We completed annual impairment assessments as of each of November 30, 2007, November 30, 2008 and November 30, 2009 and concluded that no impairment charges were required to be reflected in our 2008 and 2009 financial statements. We intend to perform goodwill and intangible asset impairment reviews annually or more frequently if facts or circumstances warrant a review. Future adverse developments in market conditions or our current or projected operating results could cause the fair value of our goodwill to fall below carrying value, which would result in an impairment charge that would adversely affect our results of operations.
 
Long-Lived Assets
 
Management reviews long-lived assets, which consist of property, leasehold improvements, equipment and definite-lived intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recovered. For long-lived assets to be held and used, management evaluates recoverability by comparing the carrying value of the asset to future net undiscounted cash flows expected to be generated by the asset group. We recognize an impairment charge to the extent the carrying value exceeds the fair value of the asset. For long-lived assets for which we have committed to a disposal plan, we report such assets at the lower of the carrying value or fair value less the cost to sell.
 
Income Taxes and Valuation Allowances
 
Pursuant to FASB authoritative guidance for accounting for income taxes and uncertain tax positions, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities, in each case using the enacted marginal tax rate we expect will apply when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability from period to period. We record a valuation allowance, which reduces deferred tax assets, if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes in the valuation allowance are recognized in our provision for deferred income taxes in the period of change.
 
We account for uncertain tax positions in accordance with FASB authoritative guidance. However, the application of income tax law is inherently complex. We are required to make certain assumptions and judgments regarding our income tax positions and the likelihood that such tax positions will be sustained if challenged. Interest and penalties related to uncertain tax provisions are recorded as a component of the provision for income taxes. Interpretations and guidance surrounding income tax laws and regulations change over time. Changes in our assumptions and judgments can materially affect the amounts we recognize in our consolidated balance sheets and statements of operations.
 
Tire Manufacturer Rebates
 
We receive rebates from tire manufacturers pursuant to a variety of rebate programs. These rebates are recorded in accordance with accounting standards applicable to cash consideration received from vendors. Many of the tire manufacturer programs provide that we receive rebates when certain measures are achieved, generally related to the volume of our purchases. We account for these rebates as a reduction to the price of the product, which reduces the carrying value of our inventory and our cost of goods sold when product is sold. During the year, we record amounts earned for annual rebates based on purchases management considers probable for the full year. These estimates are periodically revised to reflect rebates actually earned based on actual purchase levels.
 
Tire manufacturers may change the terms of some or all of these programs, which could increase our cost of goods sold and decrease our net income, particularly if these changes are not passed along to the customer.


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Customer Rebates
 
We offer rebates to our customers under a number of different programs. These rebates are recorded in accordance with authoritative guidance related to accounting for consideration given by a vendor to a customer. These programs typically provide customers with rebates, generally in the form of a reduction to the amount they owe us, when certain measures are achieved, generally related to the volume of product purchased from us. We record these rebates through a reduction in the related price of the product, which decreases our net sales. During the year, we estimate rebate amounts based on the rebate rates we expect customers will achieve for the full year. These estimates are periodically revised to reflect rebates actually earned by customers.
 
Cooperative Advertising and Marketing Programs
 
We participate in cooperative advertising and marketing programs, or co-op advertising, with our vendors. Co-op advertising funds are provided to us generally based on the volume of purchases made with vendors that offer such programs. A portion of the funds received must be used for specific advertising and marketing expenditures incurred by us or our customers. The co-op advertising funds received by us from our vendors are accounted for in accordance with authoritative guidance related to accounting for cash consideration received from a vendor, which requires that we record the funds received as a reduction of cost of sales or as an offset to specific costs incurred in selling the vendor’s products. The co-op advertising funds that are provided to our customers are accounted for in accordance with authoritative guidance related to accounting for cash consideration given by a vendor to a customer, which requires that we record the funds paid as a reduction of revenue since no separate identifiable benefit is received by us.
 
Recently Issued Accounting Pronouncements
 
In June 2009, the FASB issued the FASB Accounting Standards Codification, or the Codification. The Codification will become the source of authoritative GAAP recognized by the FASB to be applied by non governmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification is not intended to change or alter existing GAAP. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification did not have a material impact on our consolidated financial statements.
 
In September 2006, the FASB issued new accounting rules for fair value measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. In February 2008, the FASB approved a one-year deferral of the adoption of rules relating to certain non-financial assets and liabilities. We adopted the provisions for our financial assets and liabilities effective December 29, 2007 and adopted the provisions for our non-financial assets and liabilities effective January 3, 2009. Neither the adoption in the first quarter ended April 5, 2008 for financial assets and liabilities nor the adoption in the first quarter ended April 4, 2009 for non-financial assets and liabilities had a material impact on our financial condition, results of operations or cash flows, but both adoptions resulted in certain additional disclosures in the notes to our consolidated financial statements.
 
In March 2008, the FASB issued new accounting guidance which expands the disclosure requirements about an entity’s derivative instruments and hedging activities. We adopted the new accounting rules in the first quarter ended April 4, 2009. The adoption did not have a material impact on our financial condition, results of operations or cash flows but resulted in certain additional disclosures in the notes to our consolidated financial statements.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Our results of operations are exposed to changes in interest rates primarily with respect to our revolving credit facility and our Floating Rate Notes. Interest on the revolving credit facility is tied to the Base Rate, as defined in the agreement, or LIBOR. Interest on the Floating Rate Notes is tied to the three-month LIBOR. At January 2, 2010, we had $325.4 million outstanding under our revolving credit facility and our Floating Rate Notes, of which $140.4 million was not hedged by an interest rate swap agreement and was thus subject to interest rate changes. An increase of 1% in such interest rate percentages would increase our


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annual interest expense by $1.4 million, based on the outstanding balance of the revolving credit facility and Floating Rate Notes that have not been hedged at January 2, 2010.
 
On June 4, 2009, we entered into an interest rate swap agreement, effective as of June 8, 2009, which we refer to as the 2009 Swap, to manage exposure to fluctuations in interest rates. The 2009 Swap represents a contract to exchange floating rate for fixed interest payments periodically over the life of the agreement without exchange of the underlying notional amount. The notional amount of the 2009 Swap is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. At January 2, 2010, the 2009 Swap in place covers a notional amount of $100.0 million of variable rate indebtedness at a fixed interest rate of 1.45% and expires on June 8, 2011. The 2009 Swap has not been designated for hedge accounting treatment. Accordingly, we recognize the fair value of the 2009 Swap in the accompanying consolidated balance sheets and any changes in the fair value are recorded as adjustments to interest expense in the accompanying consolidated statements of operations. The fair value of the 2009 Swap is the estimated amount that we would pay or receive to terminate the agreement at the reporting date. The fair value of the 2009 Swap was a liability of $0.9 million at January 2, 2010 and is included in other liabilities in the accompanying consolidated statement of operations.
 
On October 11, 2005, we entered into an interest rate swap agreement, which we refer to as the 2005 Swap, to manage exposure to fluctuations in interest rates. The 2005 Swap represents a contract to exchange floating rate for fixed interest payments periodically over the life of the agreement without exchange of the underlying notional amount. The notional amount of the 2005 Swap is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. At January 2, 2010, the 2005 Swap in place covered a notional amount of $85.0 million of our outstanding $140.0 million Floating Rate Notes at a fixed interest rate of 4.79% and expires on September 30, 2010. The 2005 Swap has been designated for hedge accounting treatment. Accordingly, we recognize the fair value of the 2005 Swap in the accompanying consolidated balance sheets and any changes in the fair value are recorded as adjustments to other comprehensive income (loss). The fair value of the 2005 Swap is the estimated amount that we would pay or receive to terminate the agreement at the reporting date. The fair value of the 2005 Swap was a liability of $3.6 million at January 2, 2010 and is included in accrued expenses in the accompanying consolidated balance sheets with the offset included in other comprehensive income (loss), net of tax. At January 3, 2009, the fair value of the 2005 Swap was $4.3 million and is included in other liabilities in the accompanying consolidated balance sheets with the offset included in other comprehensive income (loss), net of tax.


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BUSINESS
 
Our Company
 
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 an extensive 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 9.4% in 2009, which we believe is approximately twice the market share of our closest competitor.
 
We conduct our operations through American Tire Distributors, Inc., a Delaware corporation and a wholly-owned subsidiary of American Tire Distributors Holdings, Inc. We have no significant assets or operations other than our ownership of ATDI. The operations of ATDI and its consolidated subsidiaries constitute our operations presented under accounting principles generally accepted in the United States.
 
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 2009, our largest customer and our top ten customers accounted for less than 1.6% and 5.5%, respectively, of our net sales. We believe 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 93.1% of our net sales in fiscal 2009. We believe our large, diverse product offering allows us to better penetrate the replacement tire market across a broad range of price points.
 
Our net sales and light vehicle unit sales fluctuated from $1,877.5 million and 17.4 million units, respectively, in fiscal 2007 to $1,960.8 million and 17.1 million units, respectively, in fiscal 2008 and $2,171.8 million and 19.6 million units, respectively, in fiscal 2009. Our net income and EBITDA fluctuated from $1.4 million and $94.0 million, respectively, in fiscal 2007 to $9.7 million and $105.7 million, respectively, in fiscal 2008 and $4.9 million and $98.8 million, respectively in fiscal 2009. From fiscal 2003 to fiscal 2009, we grew our net sales, light vehicle unit sales and EBITDA at a compound annual rate of 11.8%, 7.1% and 12.7%, respectively. This growth in sales and net income has increased both because of our acquisitions and organic growth. For a reconciliation from net income to EBITDA, see “Prospectus Summary — Summary Consolidated Financial Data.”
 
Our Industry
 
The U.S. replacement tire market generated annual retail sales of approximately $26.6 billion in 2009, according to Modern Tire Dealer. In 2009, passenger tires, medium truck tires and light truck tires accounted for 67.7%, 15.8% and 13.5%, respectively, of the U.S. replacement tire market. Farm, specialty and other types of tires accounted for the remaining 3.0%. In 2009, according to Tire Review, tire retailers obtained 69% of their tire volume from wholesale tire distributors, like us, and 17% of their tire volume from tire manufacturers.
 
In the United States, replacement tires are sold to consumers through several different channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships, service stations and web-based marketers. Between 1990 and 2009, independent tire retailers and automotive dealerships have enjoyed the largest increase in market


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share, moving from 54.0% to 60.0% and 1.0% to 5.5% of the market, respectively, according to Modern Tire Dealer.
 
The U.S. replacement tire market has historically experienced stable growth and favorable pricing dynamics. From 1955 through 2009, U.S. replacement tire unit shipments increased by an average of approximately 2.6% per year. In addition, the industry has seen stronger growth in the high and ultra-high performance tire segments, which have experienced a compound annual growth rate in units of approximately 9% over the period from 2000 to 2009. High and ultra-high performance tire unit shipments increased from 47.6 million units in 2008 to 52.2 million units in 2009, despite a decrease in total replacement passenger and light truck tire unit shipments from 225 million units in 2008 to 208 million units in 2009 according to Modern Tire Dealer.
 
We believe growth in the U.S. replacement tire market will continue to be driven by favorable underlying dynamics, including:
 
  •      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.
 
Our Competitive Strengths
 
We believe the following key strengths position us well to maintain our ability to achieve revenue growth that exceeds that of the U.S. replacement tire industry:
 
Leading Position in a Highly-Fragmented Marketplace.  We are the leading replacement tire distributor in the United States with an estimated market share of approximately 9.4%. We believe our scale provides us key competitive advantages relative to our smaller, and generally regionally-focused, competitors that include the ability to: efficiently stock and deliver a wide variety of tires, custom wheels, tire service equipment and accessories; invest in services, including sales tools and technologies, to support our customers; and realize operating efficiencies from our scalable infrastructure. We believe our leading market position, combined with our commitment to distribution, as opposed to the retail operations engaged in by our customers, enhances our ability to expand our sales footprint cost effectively both in our existing markets and in new domestic geographic markets.
 
Extensive and Efficient Distribution Network.  We believe we have the largest independent replacement tire distribution network in the United States with 83 distribution centers and approximately 800 delivery vehicles serving 37 states. Our extensive distribution footprint, combined with our sophisticated inventory management and logistics technologies, enables us to deliver the vast majority of orders on a same or next day basis, which is critical for tire retailers who are typically limited by physical inventory capacity and working capital constraints. Our delivery technologies, including dynamic routing and Roadnet 5000, a routing tool, allow us to more effectively and efficiently organize and optimize our route systems to provide timely product delivery. Our Oracle ERP system provides a scalable platform that can support future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit.
 
Broad Product Offering from Diverse Supplier Base.  We believe we offer the most comprehensive selection of tires in the industry. We supply nine of the top ten leading passenger tire brands, and 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. Our tire product line includes a full suite of flag, associate and proprietary brand tires, allowing us to


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service a broad range of price points from entry level to the faster growing ultra-high performance category. In addition to tires, we also offer custom wheels and accessories and related service equipment. We believe that our broad product offering drives penetration among existing customers, attracts new customers and maximizes customer retention.
 
Broad Range of Critical Services.  We provide a critical range of services which enables our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest product offerings available in the industry, as well as fundamental business support services, such as credit, training and access to consumer market data, that enable our tire retailer customers to better service their individual markets, and administration of tire manufacturer affiliate programs. We provide our customers with convenient 24/7 access to our extensive product offerings through our innovative and proprietary business-to-business web portal, ATDOnline®. In fiscal 2009, approximately 64% of our total order volume was placed through ATDOnline®, up from 56% in fiscal 2007. Our online services also include TireBuyer.com®, which was launched in late 2009 to allow our local independent tire retailer customers to participate in the Internet marketing of tires to consumers. We also provide select, qualified independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity.
 
Diversified Customer Base and Longstanding Customer Relationships.  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 2009, our largest customer and our top ten customers accounted for less than 1.6% and 5.5%, respectively, of our net sales. We believe 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 the diversity of our customer base and the strength of our customer relationships present an opportunity to grow market share regardless of macroeconomic and replacement tire market conditions.
 
Strong Cash Flow Generation Capability.  Our inventory management systems and vendor relationships enable us to generate strong cash flow from operations through efficient management of our working capital. We have designed our warehouse, delivery, information technology and other infrastructure capabilities to be scalable, creating incremental distribution capacity to support further penetration within current markets and expansion into new domestic geographic markets. In addition, our bad debt expense has been below 0.15% of net sales for fiscal 2006 through fiscal 2009 due to our credit and collection procedures. We have also effectively leveraged our fixed assets with average annual maintenance capital expenditures of less than $2.0 million during the period from fiscal 2006 to fiscal 2009. We believe the low capital intensity of our business should allow us to continue producing favorable cash flow in the future.
 
Strong Management Team with Track Record of Driving Growth and Improving Efficiency.  Our senior management team has a proven track record of implementing successful initiatives, including the execution of a disciplined acquisition strategy, that have contributed to our gross profit expansion and above-market net sales growth. In addition, we have reduced costs through the integration of operating systems and introduction of standard operating practices across all locations, resulting in improved operating efficiencies, reduced headcount and improved operating profit at existing and acquired locations. We believe our cost discipline and acquisition integration experience will continue to be competitive advantages as we grow both organically and through selective acquisitions. Our senior management team has an average of 25 years of distribution experience and over 19 years working with us or our predecessors.
 
Our Business Strategy
 
Our objective is to be the largest distributor of replacement tires to local, regional and national independent U.S. tire retailers, as well as automotive dealerships, service stations and mass merchandisers, to


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drive above-market growth and further enhance profitability and cash flow. We intend to accomplish this objective by executing the following key operating strategies:
 
Leverage Our Infrastructure in Existing Markets.  Through infrastructure expansions over the past several years, we have developed a scalable platform with available incremental distribution capacity. Our distribution infrastructure enables us to efficiently add new customers and service growing channels, such as automotive dealerships, thereby increasing profitability by leveraging the utilization of our existing assets. We believe our relative penetration in existing markets is largely a function of the services we offer and the length of time we have operated locally. Specifically, in new markets, we have experienced growth in market share over time, and in states we have served the longest, we generally have market share well in excess of our national average.
 
Continue to Expand into New Geographic Markets.  Our existing organizational and technological platforms are scalable and designed to accommodate additional distribution capacity and increased sales as we expand our network throughout the United States. For example, we entered the Texas market in late 2004 and Minnesota in 2007 and we were able to leverage our platforms to more than double our sales in both states since our entry. While we have the largest distribution footprint in the U.S. replacement tire market, we have limited or no market presence in 18 of the contiguous United States that represent approximately 35% of the replacement tire market, including New York, Ohio, Michigan, Illinois and New Jersey. As part of our business, we regularly contemplate expansion strategies, including acquisitions, to drive future growth.
 
Grow Participation in Tire Pros® Franchise Program.  Through our fiscal 2008 acquisition of Am-Pac Tire Dist., Inc., which we refer to as Am-Pac, we acquired the Tire Pros® franchise program, which enables us to deliver advertising and marketing support to tire retailer customers operating as Tire Pros® franchisees. Since the acquisition, we have focused on modifying and improving the Tire Pros® franchise program. The Tire Pros® franchise program allows participating local tire retailers to enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identity. In return, we benefit from increasing volume penetration among, and further aligning ourselves with, our franchisees.
 
Continue to Offer a Comprehensive Tire Portfolio to Meet Our Customers’ Needs.  We service a broad range of price points from entry-level to faster growing high and ultra-high performance tires, providing a full suite of flag, associate and proprietary brand tires. We intend to continue to focus on high and ultra-high performance tires, given the growth in demand for such tires, while maintaining our emphasis on providing broad market and entry level tire offerings. Our entry level offerings were recently expanded by the addition of our exclusive Capitol® and Negotiator® brands upon the acquisition of Am-Pac. Our comprehensive tire portfolio is designed to satisfy all of our customers’ needs and allow us to become the supplier of choice, thereby increasing customer penetration and retention.
 
Grow TireBuyer.com® into a Premier Internet Tire Provider.  In late 2009, we launched TireBuyer.com®, an Internet site that enables our local independent tire retailer customers to connect with consumers and sell to them over the Internet. TireBuyer.com® allows our broad base of independent tire retailer customers to participate in a greater share of the growing Internet tire market. We believe that TireBuyer.com® complements and services our participating local independent tire retailers by providing them access to a sales and marketing channel previously unavailable to them.
 
Utilize Technology Platform to Continue to Increase Distribution Efficiency.  We intend to continue to invest in our inventory and warehouse management systems and logistics technology to further increase our efficiency and profit margins and improve customer service. We continue to evaluate and incorporate technical solutions such as handheld scanning for receiving, picking and delivery of products to our customers. We believe these increased efficiencies will continue to enhance our reputation with our customers for providing a high level of prompt customer service, while also reducing costs.


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Selectively Pursue Acquisitions.  We expect to continue to employ an acquisition strategy to increase our share in existing markets, add distribution in new markets and utilize our scale to realize cost savings. In addition, we believe acquisitions in our existing geographic markets, such as Am-Pac, provide an opportunity to grow market share while improving profitability through significant cost savings. Over the past five years, we have successfully acquired and integrated ten businesses representing in excess of $700 million in annual net sales. We believe our position as the leading replacement tire distributor in the United States, combined with our access to capital and our scalable platform, allows us to make acquisitions at attractive post-synergy valuations.
 
Products
 
We sell a broad selection of well-known flag, lower price point associate and proprietary brand tires, custom wheels and accessories and related service equipment. Tire sales accounted for approximately 93.1%, 91.4% and 89.0% of our net sales in fiscal 2009, 2008 and 2007, respectively. We believe our large, diverse product offering allows us to service the broad range of price points in the replacement tire market.
 
Tires
 
Sales of passenger and light truck tires accounted for approximately 82.7% of our net sales in fiscal 2009. The remainder of our tire sales were for medium trucks, farm vehicles and other specialty tires.
 
Flag brands.  Flag brands, which have the greatest brand recognition as a result of both strong sales and strong marketing support from tire manufacturers, are generally premium-quality and premium-priced offerings. The flag brands that we sell have high consumer recognition and generate higher per-tire profit than associate or proprietary brands. We distribute the flag brands of the four largest tire manufacturers — Bridgestone, Continental, Goodyear and Michelin — as well as Hankook, Kumho, Nexen, Nitto and Pirelli brands. Within our flag brand product portfolio, we also carry high and ultra-high performance tires.
 
We believe that our ability to effectively distribute a wide variety of products is key to our success. The overall U.S. replacement tire market is highly fragmented and, according to Modern Tire Dealer, the top ten passenger car tire brands account for approximately 61.0% of total U.S. replacement tire units in 2009. We believe this is the result of two factors. First, automobile manufacturers utilize a wide variety of tire brands and sizes for original equipment. Second, owner loyalty to original equipment is relatively high, as approximately one-half of all new passenger car and light truck owners replace their tires with the same equipment at the time of the first tire replacement. As a result, in order to be competitive, tire retailers, particularly local independent tire retailers, must be able to access a broad range of inventory quickly. Our customers can use our broad product offering and timely order fulfillment to sell a comprehensive product lineup that they would otherwise be unable to provide on a stand-alone basis due to working capital constraints and limited warehouse capacity.
 
Our high and ultra-high performance tires are our highest per-tire profit products and also have relatively shorter replacement cycles. For the same reasons as other flag brands, but to an even greater degree, we believe working capital and inventory constraints make these tires difficult for tire retailers to efficiently stock. High and ultra-high performance tires experienced a compound annual growth rate in units of approximately 9% over the period from 2000 to 2009, significantly in excess of the overall market growth. According to Modern Tire Dealer and RMA, the high performance tire markets were up 9.7% in 2009 while the overall replacement tire market was down 7.5%.
 
Associate brands.  Associate brands are primarily lower-priced tires manufactured by well-known manufacturers. Our associate brands, such as Fusion® and Riken®, allow us to offer tires in a wider price range. In addition, associate brands are attractive to our tire retailer customers because they may count towards various incentive programs offered by manufacturers.
 
Proprietary and exclusive brands.  Our proprietary brands are lower-priced tires made by tire manufacturers exclusively for, and marketed by, us for which we hold or control the trademark.


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The Am-Pac acquisition provided us with the exclusive rights to distribute both the Capitol® and Negotiator® brands in North America. The addition of these two brands significantly strengthened our entry-level priced product offering. Our proprietary and exclusive brands allow us to sell value-oriented tires to tire retailers, increasing our overall market penetration.
 
Custom Wheels and Accessories
 
We offer over 30 different wheel brands, along with installation and service accessories. Of these brands, five are proprietary: ICW® Racing, Pacer®, Drifz®, Cruiser Alloy® and O.E. Performance®. An additional four brands are exclusive to us: CX, Maas, Zora and Gear. Nationally available flag brands complement our offering with such brands as Asanti, Advanti Racing, Cragar, Ultra, Lexani, Mickey Thompson, Konig, HRE, Lowenhart and Racinghart. Collectively, these brands represent one of the most comprehensive wheel offerings in the industry. Custom wheels directly complement our tire products as many custom wheel consumers purchase tires when purchasing wheels. Customers can order custom wheels from us along with their regular tire shipments without the added complexity of being serviced by an additional vendor. Sourcing of product is worldwide through a number of manufacturers. Our net sales of custom wheels in fiscal 2009 were $55.9 million or approximately 2.6% of net sales.
 
Equipment, Tools and Supplies
 
We supply our customers with tire service equipment, tools and supplies from leading manufacturers. Equipment, tools and supplies include wheel alignment products, tire changers, automotive lift equipment, air tools and a wide array of tire supplies. These products broaden our portfolio and leverage our customer relationships. The manufacturers we represent are the leaders in the industry, and include Hunter Engineering, Challenger, Champion, Shure, Chicago Pneumatic, Ingersoll Rand, REMA Tip Top and Group 31 Inc. Our net sales of equipment, tools, supplies and other items in fiscal 2009 was $66.0 million, or approximately 3.1% of net sales.
 
Distribution System
 
We have designed our distribution system to deliver products from a wide variety of tire manufacturers to our tire retailer customers. In recent years, tire manufacturers have reduced the number of tire retailers they service directly and tire retailers have reduced the inventory they hold. At the same time, the depth and breadth of replacement SKUs has continued to expand. According to the Tire and Rim Association, the number of specific tire sizes and dimensions (that each brand covers either entirely or selectively) has increased from 213 in 2000 to 324 in 2009. As a result of these changes, tire retailers have increasingly relied on us and we have become a more critical link in enabling tire retailers to more efficiently manage their business.
 
We utilize a sophisticated inventory and delivery system to distribute our products to most customers on a same or next day basis. In our distribution centers, we use sophisticated bin locator systems, material handling equipment and routing software that link customer orders to our inventory and delivery routes. We believe this distribution system, which is integrated with our innovative and proprietary business-to-business ATDOnline® ordering and reporting system, provides us a competitive advantage by allowing us to ship customer orders quickly and efficiently while also reducing labor costs. Our logistics and routing technology uses third-party software packages and GPS systems, including dynamic routing and Roadnet 5000, to optimize route design and delivery capacity. Coupled with our fleet of approximately 800 delivery vehicles, this technology enables us to cost effectively make multiple daily or weekly shipments to customers as necessary. With this distribution infrastructure, we were able to deliver the vast majority of our customers’ orders on a same or next day basis during fiscal 2009.
 
Approximately 80% of our tire purchases are shipped directly by tire manufacturers to our distribution centers. The remainder of our purchases are shipped by manufacturers to our redistribution centers located in Maiden, North Carolina and Bakersfield, California. These redistribution centers warehouse slower-moving and foreign-manufactured products, which are forwarded to our distribution centers as needed.


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Marketing and Customer Service
 
Our marketing efforts are focused on driving growth through customer service, additional product placement and market expansion. We provide a critical range of services which enables our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest inventory available in the industry, as well as fundamental business support services, such as credit, training and access to consumer market data, that enable our tire retailer customers to better service their individual markets, and administration of tire manufacturer affiliate programs. We provide our customers with convenient 24/7 access to our extensive inventories through our ATDOnline® web portal. In fiscal 2009, approximately 64% of our total order volume was ordered through ATDOnline®, up from 56% in fiscal 2007. Our online services also include our latest initiative, TireBuyer.com®, which was launched in late 2009 to allow our local independent tire retailer customers to participate in the Internet marketing of tires to consumers. We also provide select, qualified independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity.
 
Sales Force
 
We have structured our sales organization to best service our existing customers and develop new prospective customers. As the manufacturers have reduced their own sales staffs, our sales force has assumed the consultative role manufacturers previously provided to tire retailers.
 
Our tire sales force consists of sales personnel at each distribution center plus a sales administrative team located at our field support center in Huntersville, North Carolina. Sales teams consisting of salespeople and customer service representatives, focus on tire retailers located within the service area of the distribution center and include a combination of tire-, wheel- and equipment-focused sales personnel. Some sales personnel visit targeted customers to advance our business opportunities and those of our customers, while other sales personnel remain at our facility, making client contact by telephone to advance specific products or programs. Customer service representatives manage incoming calls from customers and provide assistance with order placement, inventory inquiries and general customer support. The Huntersville-based sales administrative team directs sales personnel at the distribution centers and manages our corporate account customers, including large national and regional retail tire and service companies. This sales administrative team also manages our Huntersville-based call center, which provides call management assistance to the distribution centers during peak times of the day, thereby minimizing customer wait time, and also provides support upon any disruption in a distribution center’s local telephone service. This team also serves as the primary point of contact for product and technical inquiries from TireBuyer.com® shoppers.
 
Our aftermarket wheel sales group employs sales and technical support personnel in the field and performance specialists in each region. This sales group’s responsibilities include cultivating new prospective wheel customers and coordinating with tire sales professionals to cover existing accounts. The technical support professionals provide answers to customer questions regarding wheel style and fitment. We also have established a dedicated equipment, tool and supply sales force that works with the wheel sales group to sell related service equipment, tools and supplies.
 
ATDOnline® and TireBuyer.com®
 
ATDOnline® provides our customers with web-based online ordering and 24/7 access to our inventory availability and pricing. Orders are processed automatically and printed in the appropriate distribution center within minutes of entry through ATDOnline®. Our customers are able to track expected deliveries and retrieve copies of their signed delivery receipts. ATDOnline® also allows customers to track account balances and participation in tire manufacturer incentive programs. We have encouraged our customers to use this system because it represents a more efficient method of order entry and information access than traditional order systems. In fiscal 2009, approximately 64% of our total order volume was placed through ATDOnline®, up from 56% in fiscal 2007.
 
In late 2009, we launched TireBuyer.com®, an Internet site which enables our local independent tire retailer customers to access consumers and sell to them over the Internet. Consumers using TireBuyer.com®


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choose to buy from a select, qualified independent tire retailer participating in our TireBuyer.com® program. We then distribute the purchased products to the selected tire retailer for local installation. The tire retailer receives the full revenue of the transaction, less any applicable processing fees, upon product installation. We employ a third-party provider to handle the online billing and payment process. We do not handle customers’ credit card or other sensitive information. We account for revenues from TireBuyer.com® in the same manner as other orders received from tire retailer customers. The TireBuyer.com® transaction structure allows us to retain our distribution focus, while strengthening our relationship with our tire retailer customers.
 
Tire Retailer Programs
 
Through our fiscal 2008 acquisition of Am-Pac, we acquired the Tire Pros® franchise program through which we deliver advertising and marketing support to tire retailer customers operating as Tire Pros® franchisees. Since the acquisition, we have focused on modifying and improving the Tire Pros® franchise program. Local independent tire retailers participating in this franchise program enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identity. We anticipate increasing volume penetration among, and further aligning ourselves with, franchisees.
 
Individual manufacturers offer a variety of programs for tire retailers that sell their products, such as Bridgestone’s TireStarz, Continental’s Gold, Goodyear’s G3X, Kumho’s Fuel and Michelin’s Alliance. These programs, which are relatively complex, provide cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we assist in the administration of managing these programs for the manufacturers and enhance these programs through dedicated staff to assist tire retailers in managing their participation. We believe these enhancements, combined with other aspects of our customer service, provide significant value to our customers.
 
We also offer our tire retailer customers ATDServiceBAY®, which makes available a comprehensive suite of benefits including nationwide tire and service warranties (through third-party warranty providers), a nationally accepted, private-label credit card (through GE Capital), access to consumer market data and training and marketing programs to provide our tire retailer customers with the support and service that are critical to succeed in today’s increasingly competitive marketplace.
 
Customers
 
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. During fiscal 2009, we sold to approximately 60,000 customers in 37 states, principally located in the Southeastern and Mid-Atlantic regions, as well as portions of the Northeast, Midwest, Southwest and the West Coast of the United States. In fiscal 2009, our largest customer and our top ten customers accounted for less than 1.6% and 5.5%, respectively, of our net sales. We believe 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.
 
Automotive dealerships are focused on growing their service business in an effort to expand profitability, and we believe they view having replacement tire capabilities as an important service element. Between 1990 and 2009, automotive dealerships have enjoyed a large increase in market share, moving from 1.0% of the U.S. replacement tire market to 5.5% of the market according to Modern Tire Dealer.
 
Suppliers
 
We purchase our tires from several sources, including the four largest tire manufacturers, Bridgestone, Continental, Goodyear and Michelin, from whom we bought 56.4% of our tire products in fiscal 2009. In general, we do not have long-term supply agreements with tire manufacturers, instead relying on oral arrangements or written agreements that are renegotiated annually and can be terminated on short notice. However, we have conducted business with many of our major tire suppliers for over 20 years, and we believe that we have good relationships with all of our major suppliers. In recent years, tire manufacturers have reduced the number of tire retailers they service directly. As a result of this change, tire retailers have increasingly relied on us, and we have become a more critical link between manufacturers and tire retailers.


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There are a number of worldwide manufacturers of wheels and other automotive products and equipment. Most of the wheels we purchase are proprietary brands, namely, Pacer®, Cruiser Alloy®, Drifz®, O.E. Performance® and ICW® Racing, and are produced by a variety of manufacturers. We purchase equipment and other products from multiple sources, including industry leaders such as Hunter Engineering, Challenger, Champion, Shure, Chicago Pneumatic, Ingersoll Rand, REMA Tip Top and Group 31 Inc.
 
Competition
 
The U.S. tire distribution industry is highly competitive and fragmented. In the United States, replacement tires are sold to consumers through several different outlets, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships, service stations and web-based marketers. We compete with a number of tire distributors on a regional basis. Our main competitors include TBC/Treadways Wholesale (owned by Sumitomo), which has retail operations that compete with its distribution customers, and TCI Tire Centers. In the dealership channel, our principal competitor is Dealer Tire, which is focused principally on administering replacement tire programs for selected automobile manufacturers’ dealerships. In the online channel, our principal competitor is Tire Rack, which is principally focused on high and ultra-high performance offerings, acting as both a retailer and a wholesaler. We face competition from smaller regional companies and would be adversely affected if mass merchandisers and warehouse clubs gained market share from local independent tire retailers, as our market share in those channels is lower.
 
We believe that the principal competitive factors in our business are found in the critical range of services that we provide to tire retailers including 24/7 access to the broadest inventory in the industry. We believe that we compete effectively in all aspects of our business due to our ability to offer a broad selection of flag, associate and proprietary brand products, our competitive prices and our ability to provide quality services in a frequent and timely manner.
 
Information Systems
 
Through infrastructure expansions over the past several years, we have developed a scalable platform with incremental capacity available. We are currently finishing the rollout of an Oracle ERP system that supports future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit. The ERP implementation, which is nearing completion, has basically replaced our legacy computer system. We continue to evaluate and incorporate technical solutions such as handheld scanning for receiving, picking and delivery of product to our customers.
 
Trademarks
 
The proprietary brand names under which we market our products are trademarks of our company. These proprietary brand names are important to our business because they develop brand identification and foster customer loyalty. All of our trademarks are of perpetual duration as long as they are periodically renewed. We currently intend to maintain all of them in force. The principal proprietary brand names under which we market our products are: DYNATRAC® tires, CRUISERWIRE® custom wheels, DRIFZ® custom wheels, ICW® custom wheels, PACER® custom wheels, O.E. PERFORMANCE® custom wheels and MAGNUM® automotive lifts. Our other trademarks include: AMERICAN TIRE DISTRIBUTORS®, ATDONLINE®, ATDSERVICEBAY®, AUTOEDGE®, WHEEL WIZARD®, ENVIZIO®, WHEEL WIZARD ENVIZIO®, WHEELENVIZIO.COM®, XPRESSPERFORMANCE®, TIREBUYER.COM® and TIRE PROS®.
 
Seasonality
 
Although the effects of seasonality are not significant to our business, we have historically experienced an increase in net sales in the second and third fiscal quarters and an increase in working capital in the first fiscal quarter.


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Environmental Matters
 
Our operations and properties are subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and waste and relating to the investigation and clean-up of contaminated properties, including off-site disposal locations. We do not incur significant costs complying with environmental laws and regulations. However, we could be subject to material environmental costs, liabilities or claims in the future, especially in the event of the adoption of new environmental laws or changes in existing laws and regulations or in their interpretation.
 
Employees
 
As of January 2, 2010, our operations employed approximately 2,300 people. None of our employees are represented by a union. We believe our employee relations are satisfactory.
 
Inventory Control
 
We believe that we maintain levels of inventory that are adequate to meet our customers’ needs on a same or next day basis. Since customers look to us to fulfill their needs on short notice, backlog of orders is not a meaningful statistic for us. Our inventory stocking levels are determined using our computer systems, our sales personnel at the distribution center and region levels, and our product managers. The data used for this determination is derived from sales activity from all of our distribution centers, from individual distribution centers, and in each geographic area. It is also derived from vendor information and from customer information. The computer system monitors the inventory level for all stock items. All distribution centers stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by their general managers. Inventories in our distribution centers are established from data from our retail customers’ stores served by the respective distribution centers. Inventory quantities are periodically re-balanced from center-to-center.
 
Properties
 
Our principal properties are geographically situated to meet sales and operating requirements. All of our properties are considered to be adequate to meet current operating requirements. As of January 2, 2010, we operate a total of 83 distribution centers located in 29 states, aggregating approximately 7.1 million square feet. Of these centers, two were owned and the remainder were leased. In addition, we have a number of non-essential properties, principally acquired in the Am-Pac acquisition, that we are attempting to sell or sublease.
 
We also lease our principal executive office, located in Huntersville, North Carolina. This lease is scheduled to expire in 2021.
 
Several of our property leases contain provisions prohibiting a change of control of the lessee or permitting the landlord to terminate the lease or increase rent upon a change of control of the lessee. Based primarily upon our belief that (i) we maintain good relations with the substantial majority of our landlords, (ii) most of our leases are at market rates and (iii) we have historically been able to secure suitable leased property at market rates when needed, we believe that these provisions will not have a material adverse effect on our business or financial position.
 
Legal Proceedings
 
We are involved from time to time in various lawsuits, including class action lawsuits arising out of the ordinary conduct of our business. Although no assurances can be given, we do not expect that any of these matters will have a material adverse effect on our business or financial condition. We are also involved in various litigation proceedings incidental to the ordinary course of our business. We believe, based on consultation with legal counsel, that none of these will have a material adverse effect on our financial condition or results of operations.


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MANAGEMENT
 
Board of Directors and Executive Officers
 
The following table contains information regarding our current directors and executive officers. Directors hold their positions until the annual meeting of the stockholders at which their term expires or until their respective successors are elected and qualified. Executive officers hold their positions until the annual meeting of the board of directors or until their respective successors are elected and qualified.
 
             
Name
 
Age
 
Position
 
William E. Berry
    55     President, Chief Executive Officer and Director
J. Michael Gaither
    57     Executive Vice President, General Counsel and Secretary
David L. Dyckman
    45     Executive Vice President and Chief Financial Officer
Daniel K. Brown
    56     Executive Vice President — Sales
Phillip E. Marrett
    59     Executive Vice President — Procurement
Richard P. Johnson
    62     Chairman and Director
James O. Egan
    61     Director Nominee
Joseph P. Donlan
    63     Director
Donald Hardie
    42     Director
James Hardymon
    75     Director
Christopher Laws
    35     Director
James M. Micali
    62     Director
D. Randolph Peeler
    45     Director
David Tayeh
    43     Director
 
Director and Nominee Experience and Qualifications
 
The board of directors believes that it, as a whole, should possess a combination of skills, professional experience, and diversity of viewpoints necessary to oversee our business. In addition, the board of directors believes that there are certain attributes that every director should possess, as reflected in its membership criteria. Accordingly, the board of directors considers the qualifications of directors and director candidates individually and in the broader context of its overall composition and our current and future needs.
 
Among other things, the board of directors has determined that it is important to have individuals with the following skills and experiences:
 
  •  Leadership experience, as directors with experience in significant leadership positions possess strong abilities to motivate and manage others and to identify and develop leadership qualities in others.
 
  •  Knowledge of our industry, particularly distribution strategy and vendor and customer relations, which is relevant to understanding our business and strategy.
 
  •  Operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan.
 
  •  Risk management experience, which is relevant to oversight of the risks facing our business.
 
  •  Financial/accounting experience, particularly knowledge of finance and financial reporting processes, which is relevant to understanding and evaluating our capital structure, financial statements and reporting requirements.
 
  •  Strategic planning experience, which is relevant to the board of directors’ review of our strategies and monitoring their implementation and results.


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  •  Board service, because directors who have experience serving on other company boards generally are well prepared to fulfill the board of directors’ responsibilities of overseeing and providing insight and guidance to management.
 
William E. Berry — President, Chief Executive Officer and Director.  Mr. Berry has served on our board of directors and as our Chief Executive Officer since April 2009 and has been our President since May 2003. He was our Chief Operating Officer from May 2003 to April 2009, Executive Vice President and Chief Financial Officer from January 2002 to May 2003, and Senior Vice President of Finance for the Southeast Division from May 1998 to January 2002. Mr. Berry joined us in May 1998 as a result of our merger with Itco, where he served as Controller from 1984 to 1998, Executive Vice President in charge of business development and sales and marketing from 1996 to 1998 and prior to that was Senior Vice President of Finance. Prior to that, Mr. Berry held a variety of financial management positions for a subsidiary of the Dr Pepper Company and also spent three years in a public accounting firm. He holds a bachelor’s degree in business administration from Virginia Tech. As our President and Chief Executive Officer, Mr. Berry brings to the board of directors leadership, industry, operations, risk management, financial and accounting and strategic planning experience, as well as in-depth knowledge of our business.
 
J. Michael Gaither — Executive Vice President, General Counsel and Secretary.  Mr. Gaither has been our General Counsel and Secretary since 1991 and has been an Executive Vice President since May 1999. He was our Treasurer from February 2001 to June 2003, and Senior Vice President from 1991 to May 1999. Prior to joining us, he was a lawyer in private practice. He holds a bachelor’s degree from Duke University and a JD from the University of North Carolina-Chapel Hill.
 
David L. Dyckman — Executive Vice President and Chief Financial Officer.  Mr. Dyckman has been our Executive Vice President and Chief Financial Officer since January 2006. Prior to joining American Tire, Mr. Dyckman was Executive Vice President and Chief Financial Officer of Thermadyne Holdings Corporation from January 2005 to December 2005, and Chief Financial Officer and Vice President of Corporate Development for NN, Inc. from April 1998 to December 2004. Mr. Dyckman holds a bachelor’s degree and an MBA from Cornell University.
 
Daniel K. Brown — Executive Vice President — Sales.  Mr. Brown has been our Executive Vice President of Sales since March 2008. He was our Senior Vice President of Procurement from March 2001 until March 2008. He was our Senior Vice President of Sales and Marketing from 1997 to March 2001. Prior to that time, he held a variety of positions with us, including Vice President of Marketing, Director of Marketing and Marketing Manager. Mr. Brown holds a bachelor’s degree from Western Carolina University.
 
Phillip E. Marrett — Executive Vice President — Procurement.  Mr. Marrett has been our Executive Vice President of Procurement since March 2008. He was our Regional Vice President in the Southeast Division from 1998 to March 2008. Prior to joining American Tire, he was employed by Itco from 1997 to 1998 and Dunlop Tire from 1976 to 1996.
 
Richard P Johnson — Chairman and Director.  Mr. Johnson has served on our board of directors since February 2001 and has been Chairman of our board of directors since May 2003. He was our Chief Executive Officer from January 2001 until he retired in April 2009, President from January 2001 to May 2003 and President of our Southeast Division from May 1998 to January 2001. Prior to joining us, he was President and Chief Operating Officer of Itco Tire Co., which we refer to as Itco, from February 1997 to May 1998, President and Chief Operating Officer of Albert Fisher Distribution from 1994 to 1996, and Senior Vice President of Albert Fisher Distribution from 1991 to 1994. Prior to that time, Mr. Johnson held a variety of management positions with Leprino Foods, Sargento Cheese and Kraft Foods. He holds an associate’s degree from Palm Beach College. As the chairman of our board of directors and our former Chief Executive Officer, Mr. Johnson brings to the board of directors leadership, industry, operations and strategic planning experience, as well as in-depth knowledge of our business.
 
James O. Egan — Director Nominee.  Mr. Egan will become a director upon the closing of the offering. Mr. Egan has served as the non-executive chairman of PHH Corporation since 2009. Prior to that time, he was employed as a managing director of Investcorp International, Inc. from 1998 through 2008.


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Mr. Egan was the partner-in-charge, M&A Practice, U.S. Northeast Region for KPMG LLP from 1997 to 1998 and served as the Senior Vice President and Chief Financial Officer of Riverwood International, Inc. from 1996 to 1997. Mr. Egan began his career with PricewaterhouseCoopers LLP (formerly Coopers & Lybrand LLP) in 1971 and served as partner from 1982 to 1996 and a member of the Board of Partners from 1995 to 1996. Through Mr. Egan’s previous positions, he brings to the board of directors leadership, financial, accounting and strategic planning experience.
 
Joseph P. Donlan — Director.  Mr. Donlan has served on our board of directors since May 1997. He is a Managing Director of Brown Brothers Harriman & Co., which he joined in 1970, and Co-Manager of its 1818 Mezzanine Fund, L.P., its 1818 Mezzanine Fund II, L.P., which we refer to as The 1818 Fund, and BBH Capital Partners III, L.P. Prior to organizing the 1818 Mezzanine Fund, L.P., Mr. Donlan managed Brown Brothers’ New York commercial banking activities. He served as Brown Brothers’ Senior Credit Officer and became a member of the firm’s Credit Committee on which he continues as an advisor. Mr. Donlan holds a bachelor’s degree from Georgetown University and an MBA from Rutgers University. Through Mr. Donlan’s prior service on the board of directors and his various banking and finance positions, he brings to the board of directors leadership, risk management, financial and accounting and strategic planning experience, as well as an in-depth knowledge of our business. We have been advised that The 1818 Fund has an agreement with the holders of our Series D common stock pursuant to which such holders have agreed, for so long as our Redeemable Preferred Stock is outstanding, to vote for one director selected by The 1818 Fund. We also have been advised that The 1818 Fund has designated Mr. Donlan as such director.
 
Donald Hardie — Director.  Mr. Hardie has served on our board of directors since March 2005. He was employed as an investment professional by Investcorp or one or more of its wholly owned subsidiaries from September 2002 until December 2008. Prior to joining Investcorp, Mr. Hardie was an investment banker and a lawyer. He received his bachelor’s degree from the University of Virginia and a JD from New York University School of Law. Through his positions at Investcorp and his positions as an investment banker and lawyer, Mr. Hardie brings to the board of directors leadership, legal, financial and accounting and strategic planning experience.
 
James Hardymon — Director.  Mr. Hardymon has served on our board of directors since March 2008. He was Chief Executive Officer and Chairman of Textron, Inc. from 1992 until his retirement in 1999. Mr. Hardymon is a director of Lexmark International, Inc. and director of WABCO Holdings, Inc. Mr. Hardymon holds a bachelor’s degree and a masters degree in civil engineering from the University of Kentucky. Through Mr. Hardymon’s experience as a Chief Executive Officer and his public company board experience, he brings to the board of directors leadership, risk management, operations and strategic planning experience.
 
Christopher Laws — Director.  Mr. Laws has served on our board of directors since May 2009. He is a Director of Greenbriar Equity Group LLC, which he joined in June 2006. Prior to joining Greenbriar, he was employed at Blue Point Capital Partners, where he focused on investments in industrial manufacturing and service companies. Prior to joining Blue Point, he was employed by Morgan Stanley’s Real Estate Private Equity group in Tokyo and its Real Estate Private Equity and Investment Banking Group in New York. Mr. Laws holds a bachelor’s degree from Dartmouth College and an MBA from Harvard Business School. Mr. Laws brings to the board of directors leadership, strategic planning and risk management experience through his work at Greenbriar Equity Group LLC and Blue Point Capital Partners.
 
James M. Micali — Director.  Mr. Micali has served on our board of directors since February 2009. Mr. Micali is Of Counsel with the law firm Ogletree Deakins LLC and Senior Advisor to Azalea Fund III of the private equity firm Azalea Capital LLC. He was Chairman and President of Michelin North America, Inc. from 1996 until his retirement in August 2008 and was a member of Michelin Group’s Executive Council from 2001 to 2008. Prior to that time, he was Executive Vice President, Legal and Finance, of Michelin North America from 1990 to 1996 and General Counsel and Secretary from 1985 to 1990. Mr. Micali is a director of SCANA Corporation, Ritchie Bros. Auctioneers, Inc. and Sonoco Products Company. Mr. Micali holds a bachelor’s degree from Lake Forest College and a JD from Boston College Law School. Through his executive positions, including as Chairman and President of Michelin North America and his work as a lawyer,


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Mr. Micali brings to the board of directors leadership, industry, legal, risk management, financial and strategic planning experience. Mr. Micali also possesses public company board experience.
 
D. Randolph Peeler — Director.  Mr. Peeler has served on our board of directors since March 2005. He is a Managing Director of Berkshire, which he joined in 1996. Prior to joining Berkshire, Mr. Peeler was responsible for new business ventures at Health Advances from 1994 to 1996, and served as Chief of Staff to the Assistant Secretary for Economic Policy at the U.S. Department of the Treasury. Prior to joining the U.S. Treasury, he was a consultant with Cannon Associates. He received his bachelor’s degree in Public Policy Studies & Economics from Duke University in 1987 and his MBA from Harvard Business School in 1992. Through his prior private sector and government positions, Mr. Peeler brings to the board of directors leadership, risk management, government and regulatory and strategic planning experience.
 
David Tayeh — Director.  Mr. Tayeh has served on our board of directors since November 2005. He has been a Managing Director of Investcorp or one or more of its wholly owned subsidiaries since 2005. He was Chief Financial Officer of Jostens, Inc. from 2004 to 2005, Managing Director of Investcorp or one or more of its wholly owned subsidiaries from 1999 to 2004, and Vice President of DLJ Investment Banking from 1994 to 1998. Mr. Tayeh holds a bachelor’s degree from The University of Chicago and an MBA from The Wharton School of the University of Pennsylvania. Through his positions at Investcorp and his experience as Chief Financial Officer at Jostens, Inc., Mr. Tayeh brings to the board of directors leadership, risk management, strategic planning and financial and accounting experience.
 
Controlled Company Exception
 
After the completion of this offering, the Control Group will own a majority of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain New York Stock Exchange corporate governance standards, including:
 
  •      the requirement that a majority of the Board of Directors consist of independent directors;
 
  •      the requirement that we establish a nominating and corporate governance committee with a written charter addressing the committee’s purpose and responsibilities and that such committee be composed entirely of independent directors; and
 
  •      the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
 
Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, we will not have a nominating and corporate governance committee and we will not have a compensation committee composed entirely of independent directors. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements.
 
Board Structure and Committee Composition
 
As of the date of this prospectus, our board of directors consists of nine directors, and we have an audit committee and a compensation committee. Upon the listing of our common stock on the NYSE, we will reorganize our board of directors so that it consists of           directors. The composition of our audit committee and compensation committee during the last fiscal year and the function of each of the committees are described below. During fiscal 2009, our board of directors held five meetings. Each director attended at least 75% of all board of directors meetings and applicable committee meetings, except that D. Randolph Peeler took a personal sabbatical for part of 2009 and attended two out of the five board meetings held during 2009.
 


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    Audit
  Compensation
Name
  Committee   Committee
 
William E. Berry
       
Joseph P. Donlan
       
James O. Egan
  X    
Donald Hardie
  X   X
James Hardymon
       
Richard P. Johnson
       
Christopher Laws
  X    
James M. Micali
       
D. Randolph Peeler
       
David Tayeh
  X   X
 
Upon the listing of our common stock on the NYSE, we will reorganize our board of directors so that it consists of           directors divided into three classes:
 
  •      Class I directors, whose terms will expire at the annual meeting of stockholders to be held in 2013;
 
  •      Class II directors, whose terms will expire at the annual meeting of stockholders to be held in 2012; and
 
  •      Class III directors, whose terms will expire at the annual meeting of stockholders to be held in 2011.
 
Our Class I directors will be          , our Class II directors will be          and our Class III directors will be          . At each annual meeting of stockholders, the successors to the directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following such election. Any vacancies in our classified Board of Directors will be filled by the remaining directors and the elected person will serve the remainder of the term of the class to which he or she is appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
 
Board Leadership Structure
 
The board of directors currently separates the positions of Chairman and Chief Executive Officer. Mr. Johnson, our former Chief Executive Officer, serves as non-executive chair of the board of directors, and Mr. Berry serves as Chief Executive Officer. The board of directors believes that having our former Chief Executive Officer serve as non-executive chair is appropriate because the former Chief Executive Officer’s in-depth knowledge of our business.
 
The specific role and responsibilities of the non-executive chair of the board of directors are as follows:
 
  •      preside over meetings of the board of directors and stockholders;
 
  •      provide input on the agenda and schedule for each meeting of the board of directors in accordance with our governance policies;
 
  •      meet regularly with the Chief Executive Officer to receive reports on our operations as compared to management’s business plan;
 
  •      approve/advise on information sent to the board of directors; and
 
  •      perform such other duties as the board of directors may request from time to time.

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Risk Oversight
 
The board of directors is responsible for assessing the major risks facing our business and reviewing options for mitigating those risks. In addition, the board of directors has delegated oversight of certain categories of risk to designated board committees. The Audit Committee reviews with management and the independent auditor compliance with laws and regulations, the design and operating effectiveness of our internal control structure and discusses policies with respect to risk assessment and risk management.
 
In performing their oversight responsibilities, the board of directors and relevant committees regularly discuss with management our policies with respect to risk assessment and risk management. Additionally, throughout the year, the board of directors and the relevant committees receive regular reports from management regarding major risks and exposures facing our business and the steps management has taken to monitor and control such risks and exposures. In addition, throughout the year, the board of directors and the relevant committees dedicate a portion of their meetings to reviewing and discussing specific risk topics in greater detail.
 
Independence of Our Directors and Director Nominee
 
Although we will be a controlled company after the closing of this offering, the rules of the NYSE require that all members of our audit committee be independent within one year after our common stock is listed on the NYSE, and Rule 10A-3 under the Exchange Act requires that all members of our audit committee be independent within one year after the effective date of this registration statement. Under the NYSE rules, a director or director nominee is independent only if our board of directors makes an affirmative determination that the director or director nominee has no material relationship with us. In order to be considered independent for purposes of Rule 10A-3, an audit committee member may not, other than in his capacity as a member of the audit committee, accept consulting, advisory or other fees from us or be an affiliated person of us.
 
In connection with the offering, our board of directors will undertake a review of the composition of our board of directors and its committees and the independence of each director and director nominee. The determination of our board of directors will be based in part on information that we have requested from each director and director nominee concerning his background, employment, affiliations and family relationships, as well as all other facts and circumstances that the board of directors deems relevant, including beneficial ownership of our common stock. We expect that our board of directors will determine that Mr. Hardie, Mr. Egan and Mr. Micali have no relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of directors and will determine that each of them is “independent” for purposes of the NYSE rules and Rule 10A-3.
 
Audit Committee
 
The audit committee of our board of directors consists of Mr. Hardie, Mr. Laws and Mr. Tayeh. We also expect to appoint Mr. Egan to our audit committee. Our board of directors has designated Mr. Hardie as an independent member and has determined that he qualifies as an “audit committee financial expert” as defined by the rules under the Exchange Act. Our audit committee held four meetings during fiscal 2009. The background and experience of each of our audit committee members is set forth above. The audit committee makes recommendations to our board of directors regarding the selection of independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors, and reviews and evaluates our audit and control functions. Mr. Tayeh is expected to resign from the Audit Committee upon the closing of this offering.
 
Prior to the listing of our common stock on the NYSE, our board of directors will adopt a written charter under which the audit committee will operate. A copy of the charter, which will satisfy the applicable standards of the SEC and the NYSE, will be available on our website at http://www.atd-us.com upon the closing of this offering.


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Under the rules of the NYSE, our audit committee must consist of at least one independent member upon the listing of our common stock on the NYSE, a majority of independent members within 90 days after the listing of our common stock on the NYSE and only independent members within one year of the listing of our common stock on the NYSE. Because our audit committee will consist of one or more non-independent directors upon the closing of this offering, we are relying on the exemption provided by Rule 10A-3(b)(1)(iv)(A) under the Exchange Act. Under that exemption, at least one member of our audit committee must be independent on the effective date of this registration statement, a majority of the members of our audit committee must be independent within 90 days after the effective date of this registration statement and all members of our audit committee must be independent within one year after the effective date of this registration statement. We expect to have at least one independent member upon the listing of our common stock on the NYSE and the effectiveness of the registration statement, and we intend to be in compliance with the other applicable independence rules when required.
 
Compensation Committee
 
The compensation committee of our board of directors consists of Mr. Tayeh and Mr. Hardie. Our board of directors has designated Mr. Hardie as an independent member. Our compensation committee held two meetings during fiscal 2009. The compensation committee oversees our compensation plans and organizational matters. Such oversight includes decisions regarding executive management salaries, incentive compensation, long-term compensation plans and equity plans for our employees and consultants.
 
Prior to the listing of our common stock on the NYSE, our board of directors will adopt a written charter under which the compensation committee will operate. A copy of the charter will be available on our website at http://www.atd-us.com upon the closing of this offering.
 
Compensation Committee Interlocks and Insider Participation
 
During fiscal 2009, David Tayeh and Donald Hardie served on the compensation committee of our board of directors, which reviewed and recommended executive compensation for the named executive officers and our other executives. All compensation recommendations of the compensation committee were reviewed by and subject to the approval of our full board of directors.
 
Code of Conduct
 
We have adopted a code of conduct that applies to all of our employees, including our principal executive officer and principal financial officer. A copy of our code of conduct is available, free of charge, upon written request sent to the legal department at our corporate offices located at 12200 Herbert Wayne Court, Suite 150, Huntersville, NC 28078. We also expect to make our code of conduct available free of charge on our website at http://www.atd-us.com upon the closing of this offering.


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EXECUTIVE AND DIRECTOR COMPENSATION
 
Compensation Discussion & Analysis
 
This section provides an overview and analysis of our compensation program and policies, the material compensation decisions made under those programs and policies, and the material factors considered in making those decisions. This section also includes a series of tables containing specific information about the compensation earned in fiscal 2009 by the following individuals, referred to as our named executive officers:
 
  •      William E. Berry, President and Chief Executive Officer;
 
  •      Richard P. Johnson, Former Chief Executive Officer and Chairman;
 
  •      J. Michael Gaither, Executive Vice President and General Counsel;
 
  •      David L. Dyckman, Executive Vice President and Chief Financial Officer;
 
  •      Daniel K. Brown, Executive Vice President of Sales; and
 
  •      Phillip E. Marrett, Executive Vice President of Procurement.
 
The discussion below is intended to help you understand the detailed information provided in those tables and put that information into context within our overall compensation program. On April 1, 2009, Mr. Berry, who was previously our President, was elevated to Chief Executive Officer. At that time, Mr. Johnson retired as Chief Executive Officer, remaining on our board of directors as non-executive chairman.
 
Compensation Philosophy and Objectives
 
Our compensation committee is charged by the board of directors with establishing and reviewing the compensation programs for the named executive officers. Our overall goal in compensating executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. We believe that both short-term and long-term incentive compensation paid to executive officers should be directly aligned with our performance, and that compensation should be structured to ensure that a significant portion of executives’ compensation opportunities is directly related to achievement of financial and operational goals and other factors that impact stockholder value.
 
Our compensation decisions with respect to executive officer salaries, annual incentives and long-term incentive compensation opportunities are influenced by: (i) our executive’s level of responsibility and function, (ii) our overall performance and profitability and (iii) our assessment of the competitive marketplace. Our philosophy is to focus on total direct compensation opportunities through a mix of base salary, annual cash bonus and long-term incentives, including stock-based awards.
 
We also believe that the best way to directly align the interests of our executives with the interests of our stockholders is to make sure that our executives retain an appropriate level of equity ownership throughout their tenure with us. Our compensation program pursues this objective through our equity-based long-term incentive awards.
 
These programs are continually evaluated for effectiveness in achieving our stated objectives as well as to reflect the economic environment within which we operate. In this vein, recent events roiling the world’s economies provide a backdrop for the continued review of our compensation strategies. Accordingly, we adjusted shorter term compensation and incentives to help manage through the difficult 2009 economic environment while at the same time addressing alternative long-term strategies to reward long-term success and execution. This included freezing all wages and compensation effective January 4, 2009, the first day of our 2009 fiscal year.


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Overview of Executive Compensation Components
 
Our executive compensation program consists of several compensation elements, as illustrated in the table below.
 
         
Pay Element
 
What the Pay Element Rewards
 
Purpose of the Pay Element
 
Base Salary
 
•     Core competence of the executive relative to skills, experience and contributions to us
 
•     Provides fixed compensation based on competitive market practice
Annual Cash Incentive
 
•     Contributions toward our achievement of specified Adjusted EBITDA (1) and other key performance criteria
 
•     Provides focus on meeting annual goals that lead to our long-term success
•     Provides annual performance-based cash incentive compensation
•     Motivates achievement of critical annual performance metrics
Long-Term Incentives
  Stock Option Program
•     Vesting program based primarily on achievement of specified Adjusted EBITDA targets, thereby aligning executive’s interests with those of stockholders
 
•     Executive focus on our performance
•     Executive ownership of our security
•     Retention of the executives
   
•     Continued employment with us during a 5-year vesting period
   
Retirement Benefits
 
•     Our executive officers are eligible to participate in employee benefit plans available to our eligible employees, including both tax qualified and nonqualified retirement plans
 
•     Provides a tax-deferred retirement savings alternative to certain eligible executives
   
•     The Deferred Compensation Plan is a nonqualified plan comprised of a voluntary deferral program that allows the named executive officers to defer a portion of their annual salary and bonus and a noncontributory program that provides for certain contributions to be made on behalf of certain executives by us according to a Board approved schedule. Effective January 4, 2009, we suspended contributions to this plan for fiscal 2009. While our funds are set aside to fund this plan, they remain available to our general creditors
   


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Pay Element
 
What the Pay Element Rewards
 
Purpose of the Pay Element
 
Welfare Benefits
 
•     Executives participate in employee benefit plans generally available to our employees, including medical, health, life insurance and disability plans
•     Continuation of welfare benefits may occur as part of severance upon certain terminations of employment
•     In addition, we sponsor an executive medical program for our executive officers, which provides for reimbursement for certain executive officers and eligible dependents for medical expenses not covered by the Group Medical Plan
 
•     These benefits are part of our broad-based total compensation program
•     We believe we benefit from these perquisites by encouraging our executive officers to protect their health
Additional Benefits and Perquisites
 
•     Certain executive officers: One club membership
•     Vehicle Allowance
  •     Consistent with offering our executives a competitive compensation program
Termination Benefits
 
•     Termination benefits are agreements with certain officers, including our named executive officers. The agreements provide severance benefits if an officer’s employment is terminated without cause or the officer leaves for good reason, each defined in the agreements
 
•     Termination benefits are designed to retain executives and provide continuity to management
 
 
(1) We evaluate liquidity based on several factors, including a measure we refer to as Adjusted EBITDA and which we referred to as Indenture EBITDA in our past filings under the Securities Exchange Act of 1934, or Exchange Act. Neither Adjusted EBITDA nor the ratios based on Adjusted EBITDA presented herein comply with U.S. GAAP because Adjusted EBITDA is adjusted to exclude certain cash and non-cash items. The ratio of Adjusted EBITDA to consolidated interest expense is also used in certain of the covenants in the indentures governing our three series of senior notes. Adjusted EBITDA, which is referred to as consolidated cash flow in the indentures, represents earnings before interest, taxes, depreciation and amortization and the other adjustments set forth below permitted in calculating covenant compliance under the indentures governing our senior notes. We believe that the inclusion of this supplementary information is necessary for investors to understand our ability to engage in certain corporate transactions in the future under the indentures. The indentures governing our three series of outstanding notes limit, among other things, our ability to incur additional debt (subject to certain exceptions including debt under our revolving credit facility), issue preferred stock (subject to certain specified exceptions), make certain restricted payments or investments or make certain purchases of our stock, unless the ratio of our Adjusted EBITDA to consolidated interest expense (as defined in the indentures), each calculated on a pro forma basis for the proposed transaction, would have been at least 2.0 to 1.0 for the four fiscal quarters prior to the proposed transaction. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, cash flow provided by (used in) operating activities as determined in accordance with GAAP. Adjusted EBITDA as presented by us may not be comparable to similarly titled

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measures reported by other companies. See “Management’s Discussion and Analysis — Indebtedness — Adjusted EBITDA” for a reconciliation of the most directly comparable GAAP measure, net cash provided by (used in) operating activities to Adjusted EBITDA.
 
The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operations performance with long-term stockholder value, and encourages executive recruitment and retention.
 
Determination of Appropriate Pay Levels
 
Pay Philosophy and Competitive Standing
 
In general, we seek to provide an overall compensation package that rewards for performance above our targets. Our executive compensation package consists of salary, target annual bonus and long-term incentives, as well as additional benefits and perquisites. To achieve competitive positioning for the annual cash compensation component, we set base salaries to be competitive but provide high target annual bonus opportunities. Thus, our compensation is focused less on fixed pay and more on performance-based opportunities, while still remaining competitive overall. Targeted annual cash bonus opportunities are based on, among other things, our budgeted annual Adjusted EBITDA goals and other factors, which may fluctuate from year to year.
 
The compensation committee focuses on the executive’s tenure, individual performance and changes in responsibility as well as our overall annual budget goals. Additionally, the compensation committee ensures that compensation paid is consistent with such factors as change in cost of living.
 
2009 Base Salary
 
Base salary levels reflect a combination of factors including the executive’s experience and tenure, our overall annual budget, the executive’s individual performance and changes in responsibility. The compensation committee reviews salary levels annually using these factors. We do not target base salary at any particular percent of total compensation.
 
The Chief Executive Officer participates with other senior management in preparing salary recommendations for the compensation committee, including that of the Chief Executive Officer. These recommendations are reviewed, modified and approved by the compensation committee and submitted to the board of directors for final ratification. In fiscal 2009, there were no base pay increases granted to Messrs. Gaither, Dyckman, Brown or Marrett. Mr. Berry’s salary was increased to $500,000 in connection with his appointment as Chief Executive Officer in April 2009 to reflect the increased responsibilities and duties commensurate with that position.
 
2009 Annual Incentive Plan
 
Our annual incentive plan, which we refer to as the annual incentive plan, provides our executive officers an opportunity to earn annual cash bonuses based on our achievement of certain pre-established performance goals. As in setting base salaries, we consider a combination of factors in establishing the annual target bonus opportunities for our named executive officers. Budgeted Adjusted EBITDA is a primary factor, as target bonus opportunities are adjusted annually when we set our budgeted Adjusted EBITDA goals for the year. We do not target annual bonus opportunities at any particular percentage of total compensation.
 
Payment under the annual incentive plan for fiscal 2009 was based on achievement of performance goals relating to Adjusted EBITDA, which we believe has a strong correlation with stockholder value, and other key performance criteria. We set the Adjusted EBITDA goals for fiscal 2009 bonus opportunities at levels that are intended to reflect improvement in performance over the prior fiscal year, specific market conditions and better-than-average growth within our competitive industry.
 
Once our performance goals have been set and approved, the compensation committee then sets a bonus pool for all executives covered by the annual incentive plan, whose size is equal to a designated


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percentage of Adjusted EBITDA actually achieved by us. No bonus pool is funded if actual performance falls below 95% of the Adjusted EBITDA goal. The pool grows pro-rata for actual performance between 95% and 100% of the Adjusted EBITDA goal. Above 100% of the Adjusted EBITDA goal, the pool grows by approximately 40% of each incremental Adjusted EBITDA dollar.
 
For fiscal 2009, the targeted bonus pool was $5.8 million, subject to adjustment, based upon an Adjusted EBITDA target of $102.3 million. In fiscal 2009, we achieved 98.7% of the Adjusted EBITDA goal, which resulted in a total bonus pool paid of $4.9 million.
 
The bonus pool is divided among participants in the annual incentive plan based on each participant’s designated percentage of the bonus pool, which percentages are established by the compensation committee. The percentage of the bonus pool designated for each named executive officer for fiscal 2009 was: Mr. Berry, 17.5%; Messrs. Johnson, Gaither, Dyckman, Brown and Marrett, 5.0% each. Actual bonuses paid to the named executive officers are included in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation”. The compensation committee reserves the right to modify or change the annual incentive plan at any time in its sole discretion.
 
Stock Option Plans
 
We have adopted one stock option plan, the 2005 Management Stock Incentive Plan, which we refer to as the 2005 Plan, which is designed to attract, retain and motivate our and our subsidiaries’ directors, officers, employees and consultants. Substantially all of the options authorized under the plan have been granted with vesting schedules subject to certain performance-based goals. No annual grants of options under this plan are included as a component of the named executives’ compensation plan.
 
In connection with the Investcorp Group’s acquisition of our operations on March 31, 2005, we acquired 372,888 outstanding options to purchase ATDI common stock in exchange for nonqualified options, which we refer to as the rollover options, to purchase 33,199 shares of our Series A Common Stock, $0.01 par value per share. All rollover options granted under the 2005 Plan are fully vested.
 
The following table summarizes compensation for our named executive officers for fiscal years 2009, 2008 and 2007:
 
Summary Compensation Table for Fiscal 2007, 2008 and 2009
 
                                         
                Non-Equity
             
                Incentive Plan
    All Other
       
    Fiscal
    Salary
    Compensation
    Compensation
    Total
 
Name and Principal Position
  Year     ($)     ($)     ($)     ($)  
 
William E. Berry(1)
    2009     $ 480,769     $ 875,200     $ 29,305     $ 1,385,274  
President and Chief Executive Officer
    2008       375,000       548,500       56,260       979,760  
      2007       350,000       806,929       55,762       1,212,691  
Richard P. Johnson(1)
    2009       315,385       250,100       37,332       602,817  
Former Chief Executive Officer and
    2008       550,000       916,100       68,500       1,534,600  
Chairman
    2007       550,000       1,344,882       66,328       1,961,210  
J. Michael Gaither
    2009       290,000       250,100       33,654       573,754  
Executive Vice President, General
    2008       290,000       250,300       57,497       597,797  
Counsel and Secretary
    2007       280,000       369,843       54,816       704,659  
David L. Dyckman
    2009       290,000       250,100       18,041       558,141  
Executive Vice President and Chief
    2008       290,000       250,300       23,313       563,613  
Financial Officer
    2007       260,000       369,843       21,130       650,973  
Daniel K. Brown
    2009       270,000       250,100       30,262       550,362  
Executive Vice President of Sales
    2008       270,000       250,300       50,787       571,087  
      2007       260,000       369,843       47,482       677,325  
Phillip E. Marrett(2)
    2009       270,000       250,100       21,828       541,928  
Executive Vice President of Procurement
                                       


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(1) Mr. Johnson retired as Chief Executive Officer and Mr. Berry was appointed Chief Executive Officer effective April 5, 2009.
 
(2) Mr. Marrett was not a “named executive officer” of the Company during fiscal years 2008 and 2007 and therefore his compensation is not required to be reported for those years.
 
The following table contains a breakdown of the compensation and benefits included under “All Other Compensation” in the Summary Compensation Table above:
 
All Other Compensation from Summary Compensation Table for Fiscal 2007, 2008 and 2009
 
                                                                         
          Registrant
                                           
          Contributions
                                           
          to Non-
                                           
          Qualified
                                           
          Deferred
          401K
                Executive
    Long-
       
    Fiscal
    Compensation
    Vehicle
    Company
    Club
    Life
    Medical
    term
       
Name
  Year     Plan     Allowance     Match     Dues     Insurance     Benefits     Disability     Total  
 
William E. Berry
    2009     $     $ 16,800     $ 2,191     $ 6,006     $ 2,034     $ 1,064     $ 1,210     $ 29,305  
      2008       20,000       16,800       10,250       5,544       1,319       1,522       825       56,260  
      2007       20,000       16,800       7,723       5,544       2,350       2,245       1,100       55,762  
Richard P. Johnson
    2009             19,200       1,971       6,396       5,990       2,565       1,210       37,332  
      2008       27,000       19,200       7,750       5,904       5,548       2,273       825       68,500  
      2007       27,000       15,954 (1)     6,923       5,904       7,370       2,077       1,100       66,328  
J. Michael Gaither
    2009             16,800       1,797       6,000       3,310       4,537       1,210       33,654  
      2008       17,000       16,800       10,250       6,000       1,622       5,000       825       57,497  
      2007       17,000       16,800       7,500       6,000       1,416       5,000       1,100       54,816  
David L. Dyckman
    2009             14,400       1,673             758             1,210       18,041  
      2008             14,400       7,750             338             825       23,313  
      2007             14,400       5,400             230             1,100       21,130  
Daniel K. Brown
    2009             14,400       1,558       6,006       3,136       3,952       1,210       30,262  
      2008       16,000       14,400       7,750       5,544       857       5,411       825       50,787  
      2007       16,000       14,400       5,400       5,544       1,311       3,727       1,100       47,482  
Phillip E. Marrett
    2009             14,400       1,558             3,151       1,509       1,210       21,828  
 
 
(1) Includes $1,554 included in taxable wages with respect to personal use of a Company vehicle.
 
The following table sets forth certain information regarding the grant of plan-based awards made during fiscal 2009 to the named executive officers:
 
Grants of Plan-Based Awards for Fiscal 2009
 
                         
    Estimated Future Payouts Under
 
    Non-Equity Incentive Plan Awards  
    Threshold
    Target
    Maximum
 
Name
  ($)(1)     ($)(2)     ($)(3)  
 
William E. Berry
  $ 406,000     $ 1,015,000        
Richard P. Johnson
    116,000       290,000        
J. Michael Gaither
    116,000       290,000        
David L. Dyckman
    116,000       290,000        
Daniel K. Brown
    116,000       290,000        
Phillip E. Marrett
    116,000       290,000        
 
 
(1) Represents the minimum payment under the annual incentive plan if we achieve the threshold level of 95% of the Adjusted EBITDA goal.


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(2) Represents payments under the annual incentive plan if we achieve 100% of plan performance. In fiscal 2009, we did not meet plan targets, which resulted in lower payments. These payments are included in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.”
 
(3) There is no limit to the maximum amount payable under the annual incentive plan.
 
The following table provides information concerning unexercised options for the named executive officers as of January 2, 2010.
 
Outstanding Equity Awards at Fiscal 2009 Year End
 
                                 
    Number of
    Number of
             
    Securities
    Securities
             
    Underlying
    Underlying
    Option
       
    Unexercised
    Unexercised
    Exercise
    Option
 
    Options (#)
    Options (#)
    Price
    Expiration
 
Name
  Exercisable     Unexercisable     ($)     Date  
 
William E. Berry
    10,215 (a)         $ 15.73       06/12/12  
      7,339 (b)     11,010 (b)     211.50       06/22/12  
            6,304 (c)     211.50       06/22/12  
Richard P. Johnson
    15,323 (a)           15.73       06/12/12  
      11,009 (b)     16,515 (b)     211.50       06/22/12  
            9,456 (c)     211.50       06/22/12  
J. Michael Gaither
    7,661 (a)           15.73       06/12/12  
      1,651 (b)     2,478 (b)     211.50       06/22/12  
            1,418 (c)     211.50       06/22/12  
David L. Dyckman
    1,468 (b)     2,202 (b)     211.50       01/03/13  
            1,261 (c)     211.50       01/03/13  
Daniel K. Brown
    1,468 (b)     2,202 (b)     211.50       06/22/12  
            1,261 (c)     211.50       06/22/12  
Phillip E. Marrett
    1,468 (b)     2,202 (b)     211.50       06/22/12  
            1,261 (c)     211.50       06/22/12  
 
 
(a) Represents rollover options that were granted to acquire outstanding options to purchase ATDI common stock. All rollover options granted under the 2005 Plan are fully vested.
 
(b) Represents options that were granted under the 2005 Plan that vest upon meeting our specified performance goals or the occurrence of certain events.
 
(c) Represents options that were granted under the 2005 Plan that vest in connection with any future sale of us upon the achievement of certain performance goals.
 
The following table sets forth information regarding the nonqualified deferred compensation plans, showing, with respect to each named executive officer, the aggregate contributions made by such executive officer during the fiscal year ended January 2, 2010, the aggregate value of withdrawals and distributions to the executive officer during the fiscal year ended January 2, 2010 and the balance of account as of January 2,


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2010. We did not make contributions on behalf of the named executive officers to the nonqualified deferred compensation plan during fiscal 2009.
 
Nonqualified Deferred Compensation for Fiscal 2009
 
                                 
                      Aggregate
 
    Executive
    Aggregate
    Aggregate
    Balance at
 
    Contributions
    Earnings
    Withdrawals/
    January 2,
 
    in 2009
    in 2009
    Distributions
    2010
 
Name
  ($)(1)     ($)(2)     ($)     ($)(3)  
 
William E. Berry
  $ 18,625     $ 87,237     $     $ 354,583  
Richard P. Johnson
    423       50,330             284,714  
J. Michael Gaither
    168       1,028             278,492  
David L. Dyckman
                       
Daniel K. Brown
          58,539             298,843  
Phillip E. Marrett
          12,387             150,559  
 
 
(1) Amounts in this column are included in the amounts reported as “Salary” or “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table for fiscal 2009 for each of the named executive officers.
 
(2) Earnings on balances in the nonqualified deferred compensation plan equal the rate of return on investments elected by each participant in plan. These amounts are not included in the Summary Compensation Table because the earnings are credited at a market rate of return.
 
(3) The amounts in the table below are also being reported as compensation in the Summary Compensation Table in the years indicated:
 
                 
        Reported
    Fiscal
  Amounts
Name
  Year   ($)
 
William E. Berry
    2009     $ 18,625  
      2008       75,269  
      2007       46,301  
Richard P. Johnson
    2009       423  
      2008       38,000  
      2007       37,981  
J. Michael Gaither
    2009       168  
      2008       17,000  
      2007       21,514  
David L. Dyckman
    2009        
      2008        
      2007        
Daniel K. Brown
    2009        
      2008       16,000  
      2007       16,000  
Phillip E. Marrett
    2009        
 
Potential Payments upon Termination
 
Employment Agreements
 
We have entered into employment agreements with each of Messrs. Berry, Johnson, Gaither, Dyckman Brown and Marrett providing for the payment of an annual base salary and bonus opportunities, as well as participation by each of them in the benefit plans and programs generally maintained by us for senior executives from time to time.


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We or the employee may terminate the applicable employment agreement at any time. Upon termination of employment for any reason other than for “cause,” the employee is entitled to receive (1) a basic termination payment equal to (i) his base salary earned through the date of termination and (ii) the previous year’s bonus if the termination is after December 31 and before bonus has been awarded; and (2) continuation of health benefits for a specified period of time after termination of employment at the same rate that was paid by the employee before termination of employment. In addition, if we terminate the employee without “cause” or if the employee resigns for “good reason” (each as defined in his employment agreement), then he is entitled to an additional severance payment based on a multiple of his base salary and plan bonus.
 
The specific severance payments and continuation periods for health benefits for the named executive officers are as follows:
 
  •      Mr. Berry is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $25,000 for a period of two years and (ii) continuation of health benefits for Mr. Berry and his family until he reaches the age of 65.
 
  •      Mr. Johnson is entitled to receive a monthly sum equal to his monthly base salary in effect at such time plus $41,667.67 for a period of three years. In addition, Mr. Johnson and his family are entitled to continued health benefits until he reaches the age of 65.
 
  •      Mr. Gaither is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $22,222.22 for a period of 18 months and (ii) continuation of health benefits at the same rate previously paid by Mr. Gaither for a period of 18 months.
 
  •      Mr. Dyckman is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $20,833.34 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
 
  •      Mr. Brown is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $20,833.33 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
 
  •      Mr. Marrett is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $19,583.33 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
 
The employment agreements each contain confidentiality and non-compete provisions.
 
Payment Summary
 
The tables below reflect the amount of compensation payable to each named executive officer in the event of termination of the executive’s employment for various reasons. The table does not include nonqualified deferred compensation for which the named executive officers are fully vested or payments that would be made to a named executive officer under benefit plans or employment terms generally available to other salaried employees similarly


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situated, such as group life or disability insurance. The amounts shown assume termination of employment or a change in control as of January 2, 2010, the last day of our 2009 fiscal year.
 
                                     
            Termination
       
        Termination
  for Cause or
       
        without Cause or
  Resignation
  Death or
  Change in
        Resignation for
  without Good
  Disability
  Control
Name
  Payments upon Termination   Good Reason   Reason   (1)   (2)
 
William E. Berry
  Severance and Noncompetition Agreement   $ 1,600,001     $     $     $   —  
    Bonus     875,200       875,200       875,200        
    Health Benefits     197,875                    
                                     
    Total   $ 2,673,076     $ 875,200     $ 875,200     $  
                                     
Richard P. Johnson
  Severance and Noncompetition Agreement   $ 2,100,037     $     $     $  
    Bonus     250,100       250,100       250,100        
    Health Benefits     59,363                    
                                     
    Total   $ 2,409,500     $ 250,100     $ 250,100     $  
                                     
J. Michael Gaither
  Severance and Noncompetition Agreement   $ 835,001     $     $     $  
    Bonus     250,100       250,100       250,100        
    Health Benefits     22,906                    
                                     
    Total   $ 1,108,007     $ 250,100     $ 250,100     $  
                                     
David L. Dyckman
  Severance and Noncompetition Agreement   $ 540,001     $     $     $  
    Bonus     250,100       250,100       250,100        
    Health Benefits     19,788                    
                                     
    Total   $ 809,889     $ 250,100     $ 250,100     $  
                                     
Daniel K. Brown
  Severance and Noncompetition Agreement   $ 520,000     $     $     $  
    Bonus     250,100       250,100       250,100        
    Health Benefits     19,788                    
                                     
    Total   $ 789,888     $ 250,100     $ 250,100     $  
                                     
Phillip E. Marrett
  Severance and Noncompetition Agreement   $ 505,000     $     $     $  
    Bonus     250,100       250,100       250,100        
    Health Benefits     15,271                    
                                     
    Total   $ 770,371     $ 250,100     $ 250,100     $  
                                     
 
 
(1) In the event of the death or disability of a named executive officer, the named executive officer will receive benefits under our disability plan or payments under our life insurance plan, as appropriate. These payments are generally available to all employees and are therefore not included in the above table.
 
(2) We do not provide our named executive officers with change in control benefits. If a named executive officer was terminated following a change in control, such officer would receive payments pursuant to the employment and severance agreements described above.
 
Compensation of Directors
 
During fiscal year 2009, the following compensation was paid to James Hardymon, Donald Hardie, and James Micali, the directors receiving a fee for service who are otherwise not employees of ours or representatives of our shareholders:
 
                         
    Fees Earned
    Option
       
    or Paid in Cash
    Awards
    Total
 
Name
  ($)     ($)     ($)  
 
James F. Hardymon(1)
  $ 50,000     $     $ 50,000  
Donald Hardie
    50,000             50,000  
James M. Micali(2)
    50,000       188,047       238,047  


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(1) During fiscal 2008, Mr. Hardymon was granted options to purchase 800 shares of Series A Common Stock and all of these options remained outstanding as of January 2, 2010. The option award had a grant date fair value of $128,902.
 
(2) During fiscal 2009, Mr. Micali was granted options to purchase 1,000 shares of Series A Common Stock and all of these options remained outstanding as of January 2, 2010. The option award had a grant date fair value of $188,047.
 
Compensation Committee Interlocks and Insider Participation
 
During fiscal year 2009, David Tayeh and Donald Hardie served on a compensation committee of our board of directors, which reviewed and recommended executive compensation for the named executive officers and our other executives. All compensation recommendations of the executive committee were reviewed by and subject to the approval of our full board of directors.
 
Indemnification of Officers and Directors
 
Our articles of incorporation provide for the release of any person serving as our director from liability to us or our stockholders for damages for breach of fiduciary duty and for the indemnification by us of any person serving as a director, officer, employee or agent or other authorized person to the fullest extent permissible under the Delaware General Corporation Law. We expect to enter into customary indemnification agreements with each of our directors and executive officers. In addition, we have purchased a directors’ and officers’ insurance policy covering our officers and directors for liabilities that they may incur as a result of any action, or failure to act, by such officers and directors in their capacity as officers and directors.


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CERTAIN RELATIONSHIPS AND TRANSACTIONS
 
Investcorp and the other members of the Control Group, acting through ATDH, acquired ATDI in an acquisition completed on March 31, 2005. Pursuant to a merger agreement dated as of February 4, 2005 and amended and restated on March 7, 2005, ATD MergerSub, Inc., a subsidiary of ATDH, merged with and into ATDI. ATDI continued as the surviving corporation with ATDH as its sole stockholder. Both immediately before and immediately after this merger, ATDH was controlled by the Control Group.
 
Stockholders Agreement
 
On March 31, 2005, ATDH and the members of the Control Group entered into a stockholders agreement that contains agreements with respect to the election of directors, restrictions on the sale, issuance or transfer of shares and special corporate governance provisions. The stockholders agreement will terminate automatically upon the closing of this offering and our listing on the NYSE.
 
Prior to the closing of this offering, ATDH and the members of the Control Group expect to enter into a new stockholders agreement that will be in effect after the closing of this offering. That stockholders agreement will contain agreements with respect to the election of directors, restrictions on the sale, issuance or transfer of shares and special corporate governance provisions, including:
 
  •  Board Designation Rights.  Investcorp, Berkshire and Greenbriar each will have the right to designate members to our board of directors, and the parties to the agreement will agree to vote to elect such director designees.
 
  •  Registration Rights.  The parties to the agreement will have the right under certain circumstances to require us to register shares of our common stock held by them.
 
  •  Transfer Restrictions.  The agreement will limit the extent to which the parties may sell or otherwise transfer their interests to anyone who is not already a party to the agreement or an affiliate of a party to the agreement.
 
  •  Informational Rights.  The agreement will require us to provide the parties with access to certain information about our business and certain of our corporate records.
 
Warrants
 
In March 2005, in connection with the acquisition of ATDI, ATDH issued warrants to The 1818 Mezzanine Fund II, L.P. in exchange for $4.6 million in cash less related transaction costs of $0.1 million. The warrants entitle the holders to acquire up to 21,895 shares of our Series A Common Stock (or a successor security) at $0.01 per share. The warrants expire on September 30, 2015. We have recorded these warrants at fair value and have presented them as a component of stockholders’ equity at January 3, 2009 and December 29, 2007.
 
Redeemable Preferred Stock
 
In connection with its acquisition of ATDI, we issued 20,000 shares of our Redeemable Preferred Stock to The 1818 Fund in exchange for $15.4 million in cash less related transaction costs of $0.5 million. The Redeemable Preferred Stock has a stated value of $1,000 per share and entitles holders to receive, when and if declared by the board of directors, cumulative dividends, payable in cash, at an annual rate of 8.0%. The dividends and accretion of the carrying amount to the redemption amount are recorded as interest expense in our consolidated statements of operations. Our board of directors is not obligated to declare dividends and the preferred stock provides no monetary penalties for a failure to declare dividends. The Redeemable Preferred Stock may be redeemed by us at any time, and we must redeem it upon the later of a change of control of us or at its maturity in 2015. Our Redeemable Preferred Stock is classified as a noncurrent liability in the accompanying consolidated balance sheets in accordance with FASB authoritative guidance related to accounting for certain financial instruments with characteristics of both liabilities and equity. We intend to redeem all of our redeemable preferred stock using the proceeds of this offering. See “Use of Proceeds”.


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Related Party Transactions
 
 
Related Party Transaction Policy
 
We do not currently have a formal, written policy or procedure for the review and approval of related party transactions. We expect that prior to the closing of this offering our board of directors will adopt a policy requiring our officers and directors to disclose to our board of directors any material interests they have in a transaction prior to such transaction being approved by our board of directors.
 
Redeemable Preferred Stock and Warrants
 
In connection with the acquisition of ATDI, ATDH issued 20,000 shares of our Redeemable Preferred Stock and warrants to acquire up to 21,895 shares of ATDH Series A Common Stock at $.01 per share to The 1818 Fund. Joseph P. Donlan, a member of the ATD’s board of directors, is a Managing Director of Brown Brothers Harriman & Co., The 1818 Fund’s general partner.
 
Deferred Financing Fees
 
Advisory fees of $13.9 million were paid to Investcorp and its affiliates, Berkshire Partners and Greenbriar Equity Group, in connection with our amended revolving credit facility and the issuance of the senior notes and Redeemable Preferred Stock at the time of ATDH’s acquisition of ATDI. These fees are recorded as debt issuance costs in the accompanying consolidated balance sheets and are being amortized over the life of the respective debt.
 
Management Advisory Fees
 
Management advisory fees of $8.0 million were paid to one or more of Investcorp and its co-sponsors (or their respective affiliates) at the closing of the acquisition of ATDI for services to be rendered over a period of five years following the date of the acquisition. This payment is being amortized pursuant to the terms of the agreement and on a basis consistent with the services provided. We recorded amortization expense of $0.5 million during fiscal years 2009, 2008 and 2007. Approximately $0.1 million remains unamortized as of January 2, 2010.


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PRINCIPAL AND SELLING STOCKHOLDERS
 
The following table sets forth information as to the beneficial ownership of our common stock as of March 17, 2010, and after giving effect to the sale of the common stock offered hereby, by (i) the selling stockholders assuming the underwriters exercise their option to purchase shares to cover overallotments in full, assuming the overallotment shares are offered at $      per share (the midpoint of the price range set forth on the cover of this prospectus), (ii) each person or group who is known to us to own beneficially more than 5% of the outstanding shares of our common stock, (iii) each director and named executive officer and (iv) all directors and executive officers as a group. Percentage of beneficial ownership prior to this offering is based on 999,528 shares of common stock outstanding as of March 17, 2010. Unless otherwise noted, these persons may be contacted at our executive offices and, to our knowledge, have sole voting and investment power over the shares listed. We expect that immediately following the initial public offering we will have          shares of common stock outstanding.
 
The selling stockholders that participate in the distribution of the securities may be deemed to be “underwriters” as defined by the Securities Act, and any discounts, concessions or commissions received by them from us, and any profit on the resale of the securities by them, may be deemed to be underwriting discounts and commissions under the Securities Act. Further, because the selling stockholders may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act, the selling stockholders may be subject to the prospectus delivery requirements of the Securities Act.
 
As indicated in the table below, certain of our stockholders have entered into a stockholders agreement with respect to the shares of our capital stock that they beneficially own. See “Certain Relationships and Transactions — Stockholders Agreement.” All such stockholders may be deemed to be a control group for such purposes, and all such shares may be deemed beneficially owned by such group. Because we believe that it more accurately reflects ownership of our capital stock, this table does not reflect shares which may be deemed to be beneficially owned by any entity solely by virtue of the stockholders agreement.
 
                                         
    Shares
    Shares Offered
             
    Beneficially
    Assuming
    Shares Beneficially Owned After this
 
    Owned
    Overallotment is
    Offering Assuming
 
    Prior to this
    Exercised
    the Overallotment Option is Exercised
 
    Offering(1)     in Full(2)     in Full  
Name
  Number     %     Number     Number     %  
 
1818 Mezzanine Fund(3)
    21,895.0000       2.1                          
Berkshire(4)
    224,586.0000       22.5                                        
Greenbriar(5)
    82,742.0000       8.3                          
Investcorp S.A.(6)
    227,082.8600       22.7                          
SIPCO Limited(7)
    227,082.8600       22.7                          
American Tire Holdings T3 Limited(8)
    27,656.5436       2.8                          
American Tire Holdings T3.5 Limited(8)
    13,032.6728       1.3                          
American Tire Holdings T5 Limited(8)
    18,912.5296       1.9                          
ATD Equity Limited(8)
    82,242.2260       8.2                          
ATD IIP Limited(8)
    36,370.2492       3.6                          
ATD International Limited(8)
    63,284.2336       6.3                          
ATD Investments Limited(8)
    63,284.2336       6.3                          
Archdale Limited(9)
    107.9614       *                          
Ballet Limited(10)
    138.0000       *                          
Carthage Limited(9)
    107.9614       *                          
Denary Limited(10)
    138.0000       *                          
Fuquay Limited(9)
    107.9614       *                          
Gleam Limited(10)
    138.0000       *                          
GPF American Tire Holdings Limited(8)
    63,041.7652       6.3                          


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Table of Contents

                                         
    Shares
    Shares Offered
             
    Beneficially
    Assuming
    Shares Beneficially Owned After this
<