Advance Auto Parts 2005 Annual Report Download - page 47

Financial Assets,” which provides such beneficial
interests are not subject to SFAS No. 133. This state-
ment amends SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities—a Replacement of
FASB Statement No. 125,” by eliminating the restric-
tion on passive derivative instruments that a qualifying
special-purpose entity may hold. This statement is
effective for financial instruments acquired or issued
after the beginning of the Company’s fiscal year 2007.
The Company does not expect the adoption of this
statement to have a material impact on its financial
condition, results of operations or cash flows.
3. ACQUISITIONS:
On September 14, 2005, the Company completed
its acquisition of Autopart International, Inc. The
acquisition, which included 61 stores throughout
New England and New York, a distribution center and
AI’s wholesale distribution business, will complement
the Company’s growing presence in the Northeast.
AI’s business serves the growing commercial market
in addition to warehouse distributors and jobbers.
The acquisition has been accounted for under the
provisions of SFAS No. 141, “Business Combina-
tions,” or SFAS No. 141, and, accordingly, AI’s
results of operations have been included in the
Company’s consolidated statement of operations
from the acquisition date to December 31, 2005. The
total purchase price of AI consists of $87,440, of
which $74,940 was paid upon closing with an addi-
tional $12,500 of contingent consideration payable
no later than April 1, 2006 based upon AI satisfying
certain earnings before interest, taxes, depreciation
and amortization targets through December 31, 2005.
Furthermore, an additional $12,500 is payable upon
the achievement of certain synergies, as defined in
the Purchase Agreement, through fiscal 2008. In
accordance with SFAS No. 141, this additional pay-
ment does not represent contingent consideration and
will be reflected in the statement of operations when
earned. Due to the timing of this acquisition, the pur-
chase price has preliminarily been allocated to the
assets acquired and the liabilities assumed based
upon estimates of fair values at the date of acquisi-
tion. This preliminary allocation resulted in the
recognition of $50,439 in goodwill, all of which is
deductible for tax purposes, and is subject to the
finalization of the valuation of certain identifiable
intangibles. The following table summarizes the
amounts assigned to assets acquired and liabilities
assumed at the date of acquisition:
September 14, 2005
Cash .............................................................. $ 223
Receivables................................................... 10,224
Inventories .................................................... 28,913
Other current assets ...................................... 812
Property and equipment ............................... 5,332
Goodwill....................................................... 50,439
Other assets .................................................. 447
Total assets acquired ................................ $96,390
Accounts payable.......................................... (5,690)
Current liabilities.......................................... (3,054)
Other long-term liabilities ............................ (206)
Total liabilities assumed........................... (8,950)
Net assets acquired .................................. $87,440
The following unaudited pro forma information
presents the results of operations of the Company as
if the acquisition had taken place at the beginning of
the applicable periods:
December 31, January 1, January 3,
2005 2005 2004
Net sales............................ $4,337,461 $3,857,646 $3,577,239
Net income ....................... 238,290 189,138 126,207
Earnings per diluted share .. $ 2.17 $ 1.67 $ 1.13
In addition to the AI acquisition, the Company also
completed the acquisition of substantially all the
assets of Lappen Auto Supply during the third quarter,
including 19 stores in the greater Boston area.
4. CATASTROPHIC LOSSES
AND INSURANCE RECOVERIES:
During the second half of fiscal 2005, the
Company suffered losses resulting from Hurricanes
Katrina, Rita and Wilma as well as two stores dam-
aged by fire. The Company has estimated and recog-
nized the fixed costs of these events including the
write-off of damaged merchandise at cost, damaged
capital assets at net book value and required repair
costs. Moreover, these hurricanes caused significant
sales disruptions primarily from store closures, stores
operating on limited hours and lower sales trends due
to evacuations. The Company also incurred and rec-
ognized incremental expenses associated with com-
pensating Team Members for scheduled work hours
for which stores were closed and food and supplies
provided to Team Members and their families. While
these costs and sales disruptions are not recoverable
from the Company’s insurance carrier, the Company
does maintain property insurance against the fixed
Advance Auto Parts I Annual Report 2005 I 45