American Tire Distributors Holdings, Inc. Announces First Quarter 2005 Results
Record First Quarter Sales
First Quarter 2005 Sales Increased 17.6%
CHARLOTTE, N.C., May 16 -- American Tire Distributors Holdings, Inc., a nationwide distributor of tires, wheels and automotive service equipment, today announced its operating results for the fiscal first quarter ended April 2, 2005. Consolidated net sales for the first quarter of fiscal 2005 increased 17.6% or $53.0 million to $354.3 million versus $301.4 million in the first quarter of fiscal 2004. Gross profit increased $6.3 million or 10.9% as a result of increased sales. The Company reported a first quarter 2005 pre-tax loss of $20.9 million compared to pre-tax income of $9.4 million for first quarter 2004. The Company's first quarter 2005 pre-tax loss includes the impact of $28.2 million of transaction expenses relating to the recent purchase of the Company by Investcorp. In addition, the first quarter of 2004 included an additional week of operating activity that contributed approximately $19.0 million of sales and an estimated $1.6 million of pre-tax income compared to the first quarter of 2005.
The increase in consolidated net sales is due primarily to the acquisition of Target Tire and Big State in the third quarter of 2004 offset by the additional week of revenues included in the first quarter of 2004. Also contributing to the increase in consolidated net sales was an increase in sales of certain lower-margin private label brands due to better supply and new markets.
Selling, general and administrative expenses increased by $8.3 million to $52.7 million in the 2005 first quarter. The increase was primarily due to the acquisition of Big State and, to a lesser extent, the acquisition of Target Tire whose operations have been absorbed into the Company's existing distribution centers. As a percentage of sales, selling, general and administrative expenses were 14.9% in the 2005 first quarter compared to 14.7% in the 2004 first quarter.
"Our first quarter 2005 results reflect the integration of the Big State and Target Tire acquisitions and our continuing strategic focus on being the nation's leading tire distributor. Our goal is to have the right tire, at the right price, at the right time for our customers," said Richard P. "Dick" Johnson, Chairman and Chief Executive Officer of American Tire Distributors Holdings, Inc. "We recognize that our customers' sales growth drives our sales growth and that, as a result, we must provide unsurpassed service and value to earn our dealers' business every day. We are pleased with the first quarter results and, although the books are not closed and the full impact cannot be determined, revenue continues to be strong through April and into May. In addition, the wheel business has begun to show signs of increased activity."
The Company evaluates liquidity based on several factors, of which the primary financial measure is Indenture EBITDA. The presentation of Indenture EBITDA, a non-GAAP financial measure, and ratios based thereon do not comply with accounting principles generally accepted in the United States because they are adjusted to exclude certain cash expenses, including recurring expenses. Indenture EBITDA is provided as it is used to determine the Company's compliance with covenants contained in the related indentures governing the Company's notes. The covenants are tied to ratios based on Indenture EBITDA, referred to as Consolidated Cash Flows in the indenture, and restrict the Company's ability to incur additional indebtedness and to issue preferred stock. Indenture EBITDA as used herein represents earnings before interest, taxes, depreciation and amortization and further adjusted to exclude certain non-recurring and other adjustments permitted in calculating covenant compliance under the indentures. The Company's believe that the inclusion of this supplementary information is necessary for investors to understand the Company's ability to comply with the financial covenants and debt service of the notes. Indenture EBITDA should not be considered an alternative to, or more meaningful than, cash flow as determined in accordance with accounting principles generally accepted in the United States. The following table is a reconciliation of net cash provided by operating activities to Indenture EBITDA:
For the Quarter Ended
April 2, April 3,
2005 2004
(in thousands)
Net cash provided by operating activities $10,356 $10,034
Changes in assets and liabilities (13,518) (2,051)
Provision for deferred income taxes -- (889)
Interest expense 3,682 3,494
Provision for (benefit of) income taxes (6,620) 3,759
Provision for doubtful accounts (279) (237)
(Provision for) benefit of obsolete inventory (332) 200
Amortization of other assets (232) (266)
Stock-based compensation expense (8,584) --
Transaction expenses 28,211 --
Other 1,181 1,570
Indenture EBITDA $13,865 $15,614
Indenture EBITDA decreased $1.7 million to $13.9 million in first quarter 2005 compared to $15.6 million in first quarter 2004. We estimate the additional week in 2004 accounted for approximately $1.6 million of the Indenture EBITDA decline. Also, the first quarter of 2004 benefited from a reduction of our health insurance reserve of $0.9 million. The first quarter 2005 results have been negatively impacted by approximately $0.6 million due to the timing of certain payroll related expenses that are typically incurred throughout the year.
About American Tire Distributors Holdings, Inc.
American Tire Distributors Holdings ("Holdings") is a Delaware corporation that owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. ("ATD"). Holdings has no significant assets or operations other than its ownership of ATD. The operations of ATD and its subsidiaries constitute the operations of Holdings presented under accounting principles generally accepted in the United States. ATD is one of the nation's largest independent suppliers of tires to the replacement tire market. It operates 71 distribution centers servicing 36 states. ATD supports the tire and wheel retail dealer by offering an unsurpassed breadth and depth of tire and wheel inventory, rapid product delivery, and a broad array of sales and marketing programs. ATD employs over 2,000 employees across its nationwide network, including over 200 people in its Charlotte-area distribution centers and field support center.