Quarterly report pursuant to Section 13 or 15(d)

Business Combination

 v2.3.0.11
Business Combination
 6 Months Ended
Jul. 02, 2011
Business Combination  
Business Combination

Note 5—Business Combination

On August 12, 2010, the Company completed the purchase (the "Acquisition") of all of the issued and outstanding shares of Automotive Specialty Accessories and Parts ("WAG"), a leader in the automobile aftermarket performance parts and accessories market. Assets acquired include intangible assets consisting of customer relationships, technology, and trade names, tangible assets such as furniture and fixtures, machinery and equipment, and a 350,000 square foot distribution center in LaSalle, Illinois with a headquarter office located in Chicago, Illinois. The final purchase price of WAG was $26.7 million in cash, including certain adjustments as set forth in that certain Stock Purchase Agreement executed August 2, 2010 (the "Purchase Agreement") among Go Fido, Inc., WAG, 2000 Riverside Capital Appreciation Fund, L.P. and the other stockholders of WAG. The Acquisition provided the Company with product line expansion into all terrain vehicles, recreational vehicles and motorcycles, as well as deep product knowledge into niche segments like Jeep, Volkswagen and truck enthusiasts. This expansion in its product line has increased its customer reach in the do-it-yourself automobile and off-road accessories market. In addition, WAG's state-of-the-art facility located in Illinois, which was custom built for business-to-consumer distribution of auto parts, allowed the Company to complete a three-distribution center network. The Company believes that the combination of WAG's established brands and focus on the customer experience, coupled with the Company's capacity to compete online, creates opportunity for growth. These expected synergies from the Acquisition contributed to the goodwill associated with the Acquisition of $7.6 million. See the purchase price allocation table below for further details.

The Acquisition has been accounted for under the purchase method of accounting in accordance with ASC 805. Accordingly, the assets and liabilities of WAG have been recorded as of the acquisition date at their respective fair values, and combined with the Company's assets and liabilities. The determination of estimated fair value requires management to make significant estimates and assumptions. The results of operations of WAG and the estimated fair market values of the acquired assets and liabilities have been included in the consolidated financial statements from the date of the Acquisition.

 

The following table summarizes our allocation of the purchase price for the Acquisition to the estimated fair values of the assets acquired and liabilities assumed at the date of the Acquisition (in thousands):

 

Purchase price paid in cash (1)

    $ 27,500   

Purchase price adjustment (2)

      (787 ) 
  

 

 

  

Final purchase price

    $ 26,713   
  

 

 

  

Purchase price allocation is presented below:

   

Assets:

   

Accounts receivable

      2,642   

Inventory

      12,366   

Deferred income taxes

      120   

Property and equipment

      16,430   

Intangible assets

      17,378   

Other assets

      2,287   
  

 

 

  

Total assets

    $ 51,223   
  

 

 

  

Liabilities:

   

Accounts payable

    $ (23,542 ) 

Accrued expenses

      (4,534 ) 

Deferred income taxes

      (2,734 ) 

Other liabilities

      (1,272 ) 
  

 

 

  

Total liabilities

    $ (32,082 ) 
  

 

 

  

Goodwill (3)

    $ 7,572   
  

 

 

  

Final purchase price

    $ 26,713   
  

 

 

  

(1) Represents the purchase price paid in cash at the closing of the Acquisition of $27.5 million.
(2) The purchase price adjustment of $787 (in thousands) represents the settlement amount that shareholders of WAG paid to USAP for the negative working capital amount of WAG on the date of the Acquisition. The net working capital of WAG on the date of the Acquisition was determined in accordance with the definitions and procedures set forth in the Purchase Agreement.
(3) The goodwill resulting from the Acquisition is non-deductible for tax purposes.

Of the total purchase price, approximately $8.2 million has been allocated to trade name assets with an indefinite life and $9.2 million has been allocated to amortizable intangible assets acquired. The amortizable intangible assets are being amortized on a straight line basis over their respective useful lives except for internet platform intellectual property which is being amortized on an accelerated basis over 10 months based on the Company's estimated usage of the asset as follows:

 

     Weighted-Average
Useful Life 		     Gross
Carrying
Amount 		 
            (in thousands)  

Intangible assets subject to amortization:

      

Internet platform intellectual property

      10 months       $ 4,300   

Product design intellectual property

      9 years         2,750   

Customer relationships

      4 years         2,050   

Favorable leases

      2.5 years         78   
     

 

 

  
        9,178   

Intangible assets not subject to amortization:

      

Trade names

      indefinite life         8,200   
     

 

 

  

Total

       $ 17,378   
     

 

 

  

 

WAG's financial results have been included in our consolidated statement of operations since the acquisition date of August 12, 2010. Therefore, pro forma information for the thirteen and twenty-six weeks ended July 2, 2011 has not been presented since the results of operations of WAG have been included in our actual consolidated results of operations for the entire period. The following pro forma financial information presents the results as if the Acquisition had occurred on January 3, 2010 (in thousands, except share and per share amounts):

 

     Thirteen  Weeks
Ended
July 3, 2010 		    Twenty-six  Weeks
Ended
July 3, 2010 		 

Net sales

    $ 89,524      $ 174,641   

Net loss

      (8,142 )      (20,912 ) 

Basic net loss per share

      (0.27 )      (0.69 ) 

Diluted net loss per share

      (0.27 )      (0.69 ) 

Weighted average shares used in computing basic net loss per common share

      30,314,478        30,158,797   

Weighted average shares used in computing diluted net loss per common share

      30,314,478        30,158,797   

Related to the Acquisition, the Company has incurred acquisition and integration related costs of $5.9 million, which have been recorded in general and administrative expenses.