Annual report pursuant to Section 13 and 15(d)

Business Combination

v2.4.0.6
Business Combination
 12 Months Ended
Dec. 29, 2012
Business Combination [Abstract]  
Business Combination

Note 5 – Business Combination

In August 2010, the Company completed the purchase (the “Acquisition”) of all of the issued and outstanding shares of Automotive Specialty Accessories and Parts, Inc. and its wholly-owned subsidiary Whitney Automotive Group, Inc. (referred to herein as “WAG”), at the time, a leader in the automobile aftermarket performance parts and accessories market. Assets acquired include intangible assets consisting of customer relationships, technology, and trade names, property and equipment 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 office sublease related to WAG’s former headquarters was terminated in the fourth quarter of fiscal 2011) . 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 the Company’s product line has increased its customer reach in the do-it-yourself automobile and off-road accessories market. In addition, WAG’s facility located in Illinois, which was custom built for business-to-consumer distribution of auto parts, allowed the Company to complete its three-distribution center network. These expected synergies from the Acquisition contributed to the goodwill associated with the Acquisition of $9.1 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, Business Combinations. 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 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):

 

         

Assets:

        

Accounts receivable (1)

   $ 1,132  

Inventory

     12,366  

Deferred income taxes

     120  

Property and equipment (2)

     16,430  

Intangible assets

     17,378  

Other assets

     2,287  
   

 

 

  

Total assets

   $ 49,713  
   

 

 

  

 

         

Liabilities:

        

Accounts payable

   $ (23,542 ) 

Accrued expenses

     (4,534 ) 

Deferred income taxes

     (2,734 ) 

Other liabilities

     (1,272 ) 
   

 

 

  

Total liabilities

   $ (32,082 ) 
   

 

 

  

Goodwill (3 )

   $ 9,082  
   

 

 

  

Final purchase price

   $ 26,713  
   

 

 

  

 

(1)

Accounts receivable decreased by $1.5 million from $2.6 million in the third quarter of fiscal 2011 due to the Company’s correction of an immaterial balance sheet reclassification.

(2 ) 

During the fourth quarter of 2012, the Company recorded an impairment charge of $1.0 million on building. Refer to “Note 4 – Property and Equipment, Net” for additional details.

(3 )

The goodwill resulting from the Acquisition was non-deductible for tax purposes. Goodwill increased by $1.5 million from $7.6 million in the third quarter of fiscal 2011 due to the Company’s correction of an immaterial balance sheet reclassification. During the fourth quarter of 2012, the Company recorded an impairment loss on goodwill of $9.1 million related to WAG (total impairment charge of $18.9 million on a consolidated basis). Refer to “Note 6 – Goodwill and Intangible Assets” for additional details.

Of the total purchase price, approximately $8.2 million was allocated to trade name assets with an indefinite life and $9.2 million was 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 amortized on an accelerated basis over 10 months, based on the Company’s estimated usage of the asset as follows (in thousands):

 

                 
    Weighted-Average
Useful Life		     Gross
Carrying
Amount		  

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  
           

 

 

  

For fiscal year 2012 and 2011, the Company recorded an impairment loss of $2.8 million and $5.1 million related to certain trade name intangible assets associated with the WAG acquisition. In addition, the Company recorded an impairment loss of $0.9 million on customer relationships in fiscal year 2012. The impairment loss was primarily the result of the deterioration in the economic environment and lower sales and profitability which generated losses from WAG. Refer to “Note 6 – Goodwill and Intangible Assets” for additional details.

WAG’s financial results have been included in our consolidated statements of comprehensive operations since the acquisition date of August 12, 2010. The following pro forma financial information presents the results as if the WAG acquisition had occurred at the beginning of fiscal year 2010 (in thousands, except per share amounts):

 

         
    Fifty-Two
Weeks Ended
January 1, 2011 		 

Net sales

   $ 338,885  

Net loss

     (29,802 ) 

Basic net loss per share

     (0.98 ) 

Diluted net loss per share

     (0.98 ) 

 

         
     Fifty-Two
Weeks Ended
January 1, 2011		  

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

     30,269  

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

     30,269  

During fiscal 2010, the net sales of $39.1 million and the net loss of $6.0 million of WAG were included in our consolidated statement of operations since the acquisition date of August 12, 2010.

Related to the Acquisition, the Company incurred acquisition and integration related costs of $7.4 million and $3.1 million for the fiscal years ended December 31, 2011 and January 1, 2011, respectively, which have been recorded in general and administrative expenses. These costs included one-time contract cancellation costs of $1.5 million that the Company recorded in September 2011, pursuant to ASC 420 Exit or Disposal Cost Obligations (“ASC 420”), for terminating WAG’s sublease agreement related to its former corporate offices located in Chicago, Illinois. No acquisition and integration related costs were incurred subsequent to December 31, 2011.