Exhibit 99.2
TTT Holdings, Inc.
and Subsidiaries
Financial Statements
December 31, 2012 and 2011
TTT Holdings, Inc. and Subsidiaries
Index
December 31, 2012 and 2011
Page(s) | ||||
1–2 | ||||
Consolidated Financial Statements | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7–23 |
To the Board of Directors of
TTT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of TTT Holdings, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations, of stockholders’ equity, and of cash flows for the years then ended.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
PricewaterhouseCoopers, LLP, 41 South High Street, Suite 2500 Columbus, OH 43215
T: (614) 225-8700, F: (614) 224-1044, www.pwc.com/us
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TTT Holdings, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers, LLP
April 30, 2013
TTT Holdings, Inc. and Subsidiaries
December 31, 2012 and 2011
2012 | 2011 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 2,704,505 | $ | 7,535,815 | ||||
Accounts receivable | 65,949,428 | 67,580,592 | ||||||
Other receivables | 19,021,928 | 18,752,064 | ||||||
Inventories | 105,494,221 | 97,122,446 | ||||||
Prepaid expenses and other | 2,355,902 | 5,360,165 | ||||||
|
|
|
| |||||
Total current assets | 195,525,984 | 196,351,082 | ||||||
Notes receivable, net of allowance for doubtful accounts of $269,420 and $273,750, respectively | 130,795 | 224,490 | ||||||
Property and equipment, net | 7,074,576 | 5,209,083 | ||||||
Intangible assets, net | 97,087,731 | 106,564,611 | ||||||
Goodwill | 44,395,930 | 44,140,645 | ||||||
Other noncurrent assets | 1,291,987 | 1,341,741 | ||||||
|
|
|
| |||||
Total assets | $ | 345,507,003 | $ | 353,831,652 | ||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Account payable | $ | 159,766,404 | $ | 152,797,085 | ||||
Accrued liabilities | 5,827,556 | 5,201,654 | ||||||
Fair value of interest rate swap | 1,341,780 | 1,566,305 | ||||||
Current maturities of long-term debt | 7,676,809 | 6,765,533 | ||||||
|
|
|
| |||||
Total current liabilities | 174,612,549 | 166,330,577 | ||||||
Long-term debt | 83,192,672 | 96,868,863 | ||||||
|
|
|
| |||||
Total liabilities | 257,805,221 | 263,199,440 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
Common stock, $.001 par value per share; 150,000 voting and 15,000 nonvoting shares authorized, 79,895 voting shares issued and outstanding | 80 | 80 | ||||||
Additional paid-in capital | 88,476,868 | 89,383,797 | ||||||
Note receivable from stockholder | (775,166 | ) | (763,199 | ) | ||||
Accumulated earnings | — | 1,614,125 | ||||||
Noncontrolling interest | — | 397,409 | ||||||
|
|
|
| |||||
Total stockholders’ equity | 87,701,782 | 90,632,212 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 345,507,003 | $ | 353,831,652 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
3
TTT Holdings, Inc. and Subsidiaries
Years Ended December 31, 2012 and 2011
2012 | 2011 | |||||||
Net sales | $ | 570,042,650 | $ | 356,292,982 | ||||
Cost of goods sold | 481,747,063 | 301,404,493 | ||||||
|
|
|
| |||||
Gross profit | 88,295,587 | 54,888,489 | ||||||
Operating expenses | 79,195,149 | 46,868,511 | ||||||
|
|
|
| |||||
Operating income | 9,100,438 | 8,019,978 | ||||||
Interest expense, net | 9,202,654 | 4,882,576 | ||||||
|
|
|
| |||||
Income (loss) before income taxes | (102,216 | ) | 3,137,402 | |||||
Income tax expense | 182,357 | 141,469 | ||||||
|
|
|
| |||||
Net income (loss) from continuing operations | (284,573 | ) | 2,995,933 | |||||
Income from discontinued operations | — | 1,899,118 | ||||||
|
|
|
| |||||
Net income (loss) | (284,573 | ) | 4,895,051 | |||||
Net income attributable to the noncontrolling interest | 102,822 | 294,925 | ||||||
|
|
|
| |||||
Net income (loss) attributable to TTT Holdings, Inc. stockholders | $ | (387,395 | ) | $ | 4,600,126 | |||
|
|
|
| |||||
Amounts attributable to TTT Holdings, Inc. stockholders | ||||||||
Income (loss) from continuing operations | $ | (387,395 | ) | $ | 2,701,008 | |||
Income from discontinued operations | — | 1,899,118 | ||||||
|
|
|
| |||||
Net income (loss) | $ | (387,395 | ) | $ | 4,600,126 | |||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
4
TTT Holdings, Inc. and Subsidiaries
Statement of Stockholders’ Equity
Years Ended December 31, 2012 and 2011
TTT Holdings, Inc. Stockholders | ||||||||||||||||||||||||||||
Note | ||||||||||||||||||||||||||||
Additional | Receivable | Accumulated | ||||||||||||||||||||||||||
Common Stock | Paid-In | from | (Deficit) | Noncontrolling | ||||||||||||||||||||||||
Shares | Amount | Capital | Stockholder | Earnings | Interest | Total | ||||||||||||||||||||||
Balances at December 31, 2010 | 56,179 | $ | 56 | $ | 56,179,719 | $ | (750,000 | ) | $ | (1,686,092 | ) | $ | 102,484 | $ | 53,846,167 | |||||||||||||
Net income | — | — | — | — | 4,600,126 | 294,925 | 4,895,051 | |||||||||||||||||||||
Interest earned on note receivable from stockholder | — | — | — | (13,199 | ) | — | — | (13,199 | ) | |||||||||||||||||||
Stock based compensation | — | — | 703,712 | — | — | — | 703,712 | |||||||||||||||||||||
Dividends | — | — | — | — | (1,299,909 | ) | — | (1,299,909 | ) | |||||||||||||||||||
Issuance of common stock | 23,716 | 24 | 32,500,366 | — | — | — | 32,500,390 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances at December 31, 2011 | 79,895 | 80 | 89,383,797 | (763,199 | ) | 1,614,125 | 397,409 | 90,632,212 | ||||||||||||||||||||
Net income (loss) | — | — | — | — | (387,395 | ) | 102,822 | (284,573 | ) | |||||||||||||||||||
Interest earned on note receivable from stockholder | — | — | — | (11,967 | ) | — | — | (11,967 | ) | |||||||||||||||||||
Stock based compensation | — | — | 418,006 | — | — | — | 418,006 | |||||||||||||||||||||
Dividends | — | — | (1,324,935 | ) | — | (1,226,730 | ) | (500,231 | ) | (3,051,896 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances at December 31, 2012 | 79,895 | $ | 80 | $ | 88,476,868 | $ | (775,166 | ) | $ | — | $ | — | $ | 87,701,782 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
5
TTT Holdings, Inc. and Subsidiaries
Years Ended December 31, 2012 and 2011
2012 | 2011 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (284,573 | ) | $ | 4,895,051 | |||
Adjustments to reconcile net income to net cash used in operating activities | ||||||||
Depreciation and amortization | 11,510,415 | 6,698,251 | ||||||
Noncash stock compensation | 418,006 | 703,712 | ||||||
Amortization of deferred financing costs | 238,710 | 117,451 | ||||||
Amortization of discount on subordinated loan | 165,816 | — | ||||||
Amortization of deferred rent expense | 611,078 | — | ||||||
Unrealized (gain) loss on interest rate swap | (224,525 | ) | 825,076 | |||||
Interest paid-in-kind | 739,349 | 332,055 | ||||||
Interest earned on note receivable from stockholder | (11,967 | ) | (13,199 | ) | ||||
Gain on sale of business | — | (1,827,692 | ) | |||||
Changes in assets and liabilities, net of acquisitions | ||||||||
Accounts receivable | 1,631,166 | (7,928,310 | ) | |||||
Inventories | (6,938,498 | ) | (33,658,656 | ) | ||||
Other receivables | (269,864 | ) | (6,784,516 | ) | ||||
Notes receivable | 93,695 | 97,664 | ||||||
Prepaid expenses and other assets | (1,247,222 | ) | (663,376 | ) | ||||
Accounts payable | 6,937,441 | 30,903,075 | ||||||
Accrued liabilities | (81,165 | ) | 1,515,317 | |||||
|
|
|
| |||||
Net cash provided by (used in) operating activities | 13,287,862 | (4,788,097 | ) | |||||
|
|
|
| |||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (3,204,868 | ) | (2,414,669 | ) | ||||
Proceeds from sale of business | — | 4,840,861 | ||||||
Proceeds from (payment of) settlement from prior acquisition | 4,075,010 | (2,304,181 | ) | |||||
Acquisition of business, net of cash acquired | (2,267,338 | ) | (91,872,539 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (1,397,196 | ) | (91,750,528 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of common stock | — | 25,000,390 | ||||||
Payment of financing costs | — | (771,261 | ) | |||||
Distributions to stockholders | (3,051,896 | ) | (1,299,909 | ) | ||||
Borrowings from line of credit | 234,276,642 | 140,328,380 | ||||||
Repayments on line of credit | (241,497,733 | ) | (129,327,287 | ) | ||||
Proceeds from long-term debt | — | 61,369,868 | ||||||
Payments on long-term debt | (6,448,989 | ) | (4,299,375 | ) | ||||
|
|
|
| |||||
Net cash (used in) provided by financing activities | (16,721,976 | ) | 91,000,806 | |||||
|
|
|
| |||||
Net decrease in cash and cash equivalents | (4,831,310 | ) | (5,537,819 | ) | ||||
Cash and cash equivalents at beginning of year | 7,535,815 | 13,073,634 | ||||||
|
|
|
| |||||
Cash and cash equivalents at end of year | $ | 2,704,505 | $ | 7,535,815 | ||||
|
|
|
| |||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 8,316,273 | $ | 3,761,923 | ||||
Noncash investing and financing activities | ||||||||
Issuance of common shares in conjunction with business acquisition | $ | — | $ | 7,500,000 | ||||
Adjustment to purchase price for business acquisition | $ | — | $ | 4,075,010 |
The accompanying notes are an integral part of these consolidated financial statements
6
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
1. | Description of Business |
TTT Holdings, Inc. (“Holdings”) is incorporated in Delaware as an S-Corporation. Terry’s Tire Town Holdings, Inc. (“TTT”), its wholly owned subsidiary, is incorporated in Ohio as an S-corporation. Through its operating subsidiaries, TTT’s primary operations are as a wholesale distributor of tires and accessories throughout the eastern half of the United States. During 2011, TTT formed Summit Tire Northeast, LLC (“Summit”) to acquire the assets of Summit Tire of Massachusetts, Inc., a wholesale tire distributor with operations focused in the New England area and TTT directly acquired the stock of Englewood Tire Wholesale, Inc. (“Englewood”), a wholesale tire distributor with operations focused primarily in the Greater New York, New Jersey and Connecticut area (See Note 3). TTT sold its retail division during 2011 to another automotive retail company (See Note 16).
2. | Summary of Significant Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings, TTT and each of TTT’s wholly owned subsidiaries and entities controlled by TTT but not wholly-owned (collectively the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling interests represent the portion of equity the Company does not own in the controlled entities included in the financial statements. The Company identifies its noncontrolling interests separately within the equity section on the consolidated balance sheet. The amounts of consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Company’s consolidated statement of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates include the Company’s valuation of doubtful accounts receivable, valuation of inventory reserves, valuation of goodwill, share-based compensation, the fair value of derivative instruments, the fair value of purchased assets and liabilities, including intangible assets and related useful lives assigned to such assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less which are not subject to withdrawal restrictions or penalties to be cash and cash equivalents. Such investments are carried at their cost, which approximates their estimated fair market value.
7
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents. The majority of cash and cash equivalents at December 31, 2012 and 2011 were deposited with large banking institutions. The Company maintains cash deposits in banks which, from time to time, exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal.
Accounts Receivable
Trade receivables represent amounts due from product sales in the ordinary course of business. Accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of customers’ financial condition, and trade receivables are generally not collateralized.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses for uncollected receivables. The Company determines the allowance based on customer risk, the length of time accounts are past due, and historical write-off experience. Account balances are charged to the allowance when it is probable the receivable will not be recovered. The total adjustment to reduce accounts receivable to the recoverable amount was $2,885,703 and $3,496,273 at December 31, 2012 and 2011, respectively.
Inventories
Inventories consist of products held for resale and are valued at the lower of cost or market, with cost determined by the last-in, first-out method (“LIFO”) for tire inventory and at moving average cost for non-tire inventory. The LIFO reserve was $4,576,974 and $3,315,201 at December 31, 2012 and 2011, respectively. The composition of inventory valued at LIFO and FIFO is as follows:
2012 | 2011 | |||||||
Inventory at LIFO (primarily tire inventory) | $ | 101,192,482 | $ | 93,413,218 | ||||
Inventory at FIFO (primarily non-tire inventory) | 4,301,739 | 3,709,228 | ||||||
|
|
|
| |||||
$ | 105,494,221 | $ | 97,122,446 | |||||
|
|
|
|
The above balances are presented net for slow-moving and obsolete inventory of $1,101,894 and $887,022 at December 31, 2012 and 2011, respectively.
Derivative Instruments
The Company’s interest rate risk management strategy uses derivative instruments to minimize cash flow risks caused by interest rate volatility associated with the Company’s variable rate debt. At December 31, 2012 and 2011, the derivative instruments used to meet the Company’s risk management objectives were interest rate swaps. The Company chose not to apply hedge accounting for its interest rate swap agreements. Accordingly, the interest rate swaps are carried at their fair value on the consolidated balance sheet, with changes in their fair value recognized in current earnings (See Note 11).
8
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Deferred Financing Costs
Deferred financing costs are included in other noncurrent assets and represent the direct costs of establishing the Company’s term and revolving debt. Deferred financing costs are amortized to interest expense over the term of the related debt using the effective interest method for term commitments and the straight-line method for revolving commitments.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major renewals and improvements are capitalized. The cost and accumulated depreciation of disposed assets are eliminated from the accounts and resulting gain or loss is reflected in earnings. Leasehold improvements are amortized over the shorter of the lease term or useful life of the asset. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives:
Leasehold improvements | 5 -25 years | |
Machinery and equipment | 7 years | |
Furniture and fixtures | 5 years | |
Vehicles | 5 years | |
Computer software and equipment | 3 years |
Intangible Assets
Intangible assets consist of customer relationships and trade names. The intangible assets were determined to have finite lives. Amortization of finite-lived intangible assets is recorded to reflect the pattern of economic benefits based on projected revenues over their respective estimated useful lives. Intangible assets are amortized by the straight-line method over the estimated useful lives (customer relationships - 11 to 13 years and trade names - 3 to 18 years).
Impairment of Long-Lived Assets
The Company assesses the recoverability of property and equipment and amortizable intangible assets whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from its future undiscounted cash flows. If it is determined an impairment has occurred, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value. No impairments were recorded for the year ended December 31, 2012 and 2011.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is assessed at least annually for impairment and between annual tests, if events or changes in circumstances indicate potential impairment exists, using a fair value-based approach. Any such impairment is recognized in the period identified. In evaluating goodwill for impairment, the Company identifies goodwill related to each of its reporting units. The Company has determined it operates in two reporting units: wholesale and commercial. For purposes of evaluating goodwill for impairment, assets and liabilities, including goodwill, were allocated to each reporting unit on the basis of relative fair value of each unit. No impairment of goodwill was recorded in the years ended December 31, 2012 and 2011.
Revenue Recognition
Sales are recognized when products are shipped or when title transfers to customers, if later, net of estimated returns and customer discounts.
9
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Supplier Incentives
The Company receives monthly, quarterly and annual performance rebates from suppliers based on attaining certain purchase and/or sales goals. The Company receives other rebates from suppliers which are negotiated with suppliers and are not dependent on the Company meeting minimum purchase and/or sales goals. Suppliers’ rebates are recognized ratably based on the terms of the contracts or programs with each supplier and are recorded as a reduction of cost of goods sold. Supplier rebates are classified as a reduction of inventory when the incentive is part of buying arrangement. Receivables from suppliers for rebates and incentives are included in other receivables in the consolidated balance sheet.
Shipping and Handling Costs
The Company includes in cost of goods sold the cost of tire and non-tire inventory sold. Warehousing and distribution costs, including costs associated with delivering product to customers are included in operating expenses. Total warehousing and distribution costs for the years ended December 31, 2012 and 2011 were approximately $37,992,000 and $18,170,000, respectively including approximately $14,842,000 and $8,298,000, respectively, related to shipping and handling.
Advertising Costs
Advertising costs are expensed when incurred as part of operating expenses. The Company receives reimbursements from vendors for advertising costs. Reimbursements for advertising expenditures are reported on a net basis within operating expenses. Reimbursements received in excess of the cost of advertising are reported within cost of goods sold. Net advertising costs were $180,924 and $243,436 for the years ended December 31, 2012 and 2011, respectively.
Stock-Based Compensation
The Company recognizes compensation expense for equity awards provided to employees in return for employee service. The Company issued both time vesting and performance-based stock options to certain employees. Time vesting options are measured at the fair value of the award at the grant date and are expensed on a straight-line basis over the service period. The performance-based options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement. Compensation expense for performance-based options is recorded over the relevant service period when it becomes probable that the contingent performance measures are expected to be met. Fair value is measured at the grant date and amortized on a graded vesting basis over the requisite service periods of the awards, which is generally the vesting period.
Income Taxes
There is no provision for federal and certain state income taxes in the consolidated financial statements of the Company, as an S-corporation is generally not subject to these taxes. Stockholders are individually subject to the income taxes on the Company’s results of operations and, accordingly, the Company pays distributions to the members to the extent needed to fund the stockholders’ tax obligations. Certain state and local jurisdictions do not recognize the flow-through status of an S-corporation and require minimum income tax expense. Accordingly, the Company has recognized a state and local income tax in the accompanying statement of operations for these jurisdictions.
10
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
3. | Business Acquisitions |
Summit Tire Northeast, LLC
On February 28, 2011, the Company, through its newly formed subsidiary Summit Tire Northeast, LLC, acquired substantially all of the assets of Summit Tire of Massachusetts, Inc. Summit is in the business of wholesale distribution of tires and tire accessories throughout the New England area. The intent of the acquisition was to expand into a new geographic market consistent with the Company’s long-term growth strategy.
The purchase price was $16,202,421 paid in cash. The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $2,984,208 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $279,317 were expensed in the consolidated statement of operations for the year ended December 31, 2011.
The purchase price was allocated as follows:
Assets |
| |||
Accounts receivable | $ | 5,071,731 | ||
Other receivables | 361,722 | |||
Inventories | 7,895,119 | |||
Property and equipment | 613,997 | |||
Intangible assets | 9,350,000 | |||
Goodwill | 2,984,208 | |||
Other assets | 198,176 | |||
|
| |||
Total assets acquired | 26,474,953 | |||
Total liabilities assumed | (10,272,532 | ) | ||
|
| |||
Fair value of net assets acquired | $ | 16,202,421 | ||
|
|
Englewood Tire Wholesale, Inc.
On November 30, 2011, the Company acquired 100% of the stock of Englewood Tire Wholesale, Inc. Englewood was in the business of wholesale distribution of tires and tire accessories throughout the Greater New York, New Jersey and Connecticut areas. The intent of the acquisition was to expand into a new geographic market consistent with the Company’s long-term growth strategy.
The purchase price was $80,045,976, comprised of $7,500,000 in common shares of TTT Holdings, Inc. and $72,545,976 in cash. The Company paid $76,620,986 in 2011 but then received $4,075,010 from the seller in March 2012 as a final purchase price adjustment.
The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $25,695,425 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $923,355 were expensed in the consolidated statement of operations for the year ended December 31, 2011.
11
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The purchase price was allocated as follows:
Assets | ||||
Cash | $ | 950,868 | ||
Accounts receivable | 28,235,551 | |||
Other receivables | 5,443,752 | |||
Inventories | 26,321,184 | |||
Property and equipment | 844,652 | |||
Intangible assets | 48,900,000 | |||
Goodwill | 25,695,425 | |||
Other assets | 294,529 | |||
|
| |||
Total assets acquired | 136,685,961 | |||
Total liabilities assumed | (56,639,985 | ) | ||
|
| |||
Fair value of net assets acquired | $ | 80,045,976 | ||
|
|
The purchase price allocation has been retrospectively adjusted to reflect information identified during the measurement period relating to facts and circumstances present at the acquisition date. Accounts receivable was decreased by $1,422,307 to reflect additional uncollectible accounts, inventory was decreased by $262,218 to reflect additional slow-moving items and liabilities were increased $113,411 to reflect cash discounts against payables previously estimated. These adjustments resulted in additional goodwill of $1,797,936.
Kramer Tire
On May 13, 2012, the Company acquired substantially all of the assets associated with the wholesale distribution operations of two facilities located in Norfolk and Richmond, Virginia, from Monro Muffler Brake, Inc. The intent of the acquisition was to increase operations in the Mid-Atlantic market and reinforce relationships with Monro Muffler Brake, Inc.
The purchase price was $2,267,338 paid in cash. The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $255,285 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $114,000 were expensed in the consolidated statement of operations for the year ended December 31, 2012.
The purchase price was allocated as follows:
Assets |
| |||
Inventories | $ | 1,433,277 | ||
Intangible assets | 656,088 | |||
Goodwill | 255,285 | |||
Other assets | 12,480 | |||
|
| |||
Total assets acquired | 2,357,130 | |||
Total liabilities assumed | (89,792 | ) | ||
|
| |||
Fair value of net assets acquired | $ | 2,267,338 | ||
|
|
12
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using Level 3 inputs in the fair value hierarchy (See Fair Value Measurements in Note 12). The estimated fair value of identifiable intangible assets, consisting of customer relationships for Summit, Englewood and Kramer, and the Summit and Englewood trade names were determined using an income approach based on excess cash flow, relief of royalty and discounted cash flow methods. The discounted cash flow valuation method requires the use of assumptions, the most significant of which include: future revenue growth, future earnings before interest, taxes, depreciation and amortization, estimated synergies to be achieved by a market participant as a result of the business combination, marginal tax rate, terminal value growth rate, weighted average cost of capital and discount rate.
The excess earnings method used to value customer relationships requires the use of assumptions the most significant of which include: the remaining useful life, expected revenue, survivor curve, earnings before interest and tax margins, marginal tax rate, contributory asset charges, discount rate and tax amortization benefit. The most significant assumptions under the relief of royalty method include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. Management, with the assistance of a third party valuation specialist, has developed these assumptions on the basis of knowledge of the business and projected financial information of Summit, Englewood and Kramer. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.
4. | Property and Equipment |
The components of property and equipment at December 31, 2012 and 2011 are as follows:
2012 | 2011 | |||||||
Leasehold improvements | $ | 1,692,834 | $ | 1,469,162 | ||||
Machinery and equipment | 4,003,548 | 2,424,632 | ||||||
Furniture and fixtures | 927,334 | 354,462 | ||||||
Vehicles | 776,635 | 549,274 | ||||||
Computer software and equipment | 1,845,803 | 719,817 | ||||||
Construction in progress | 638,321 | 1,130,959 | ||||||
|
|
|
| |||||
9,884,475 | 6,648,306 | |||||||
Less: Accumulated depreciation and amortization | (2,809,899 | ) | (1,439,223 | ) | ||||
|
|
|
| |||||
Property and equipment, net | $ | 7,074,576 | $ | 5,209,083 | ||||
|
|
|
|
Depreciation and amortization expense was $1,377,447 and $1,500,862 for the years ended December 31, 2012 and 2011.
13
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
5. | Intangible Assets |
Intangible assets consisted of the following as of December 31, 2012:
Cost | Accumulated Amortization | Net | ||||||||||
Customer relationships | $ | 79,319,088 | $ | (10,059,300 | ) | $ | 69,259,788 | |||||
Trade names | 33,426,000 | (5,598,057 | ) | 27,827,943 | ||||||||
|
|
|
|
|
| |||||||
$ | 112,745,088 | $ | (15,657,357 | ) | $ | 97,087,731 | ||||||
|
|
|
|
|
|
Intangible assets consisted of the following as of December 31, 2011:
Cost | Accumulated Amortization | Net | ||||||||||
Customer relationships | $ | 78,663,000 | $ | (3,447,000 | ) | $ | 75,216,000 | |||||
Trade names | 33,426,000 | (2,077,389 | ) | 31,348,611 | ||||||||
|
|
|
|
|
| |||||||
$ | 112,089,000 | $ | (5,524,389 | ) | $ | 106,564,611 | ||||||
|
|
|
|
|
|
Amortization expense was $10,132,968 and $5,197,389 for the years ended December 31, 2012 and 2011, respectively.
The estimated future amortization of intangible assets is as follows:
2013 | $ | 10,152,430 | ||
2014 | 9,726,041 | |||
2015 | 8,155,763 | |||
2016 | 8,155,763 | |||
2017 | 8,155,763 | |||
Thereafter | 52,741,971 | |||
|
| |||
$ | 97,087,731 | |||
|
|
6. | Goodwill |
Activity related to goodwill for the years ended December 31, 2012 and 2011 was as follows:
Balance at December 31, 2010 | $ | 16,732,183 | ||
Additions to goodwill from acquisitions during the period | 26,881,697 | |||
Measurement period adjustments | 1,797,936 | |||
Reductions to goodwill from the disposition of a reporting unit during the period | (1,271,171 | ) | ||
|
| |||
Balance at December 31, 2011 | 44,140,645 | |||
Additions to goodwill from acquisitions during the period | 255,285 | |||
|
| |||
Balance at December 31, 2012 | $ | 44,395,930 | ||
|
|
14
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
There is no cumulative impairment to goodwill.
7. | Other Noncurrent Assets |
Other noncurrent assets consisted of the following at December 31, 2012 and 2011:
2012 | 2011 | |||||||
Deferred financing costs | $ | 1,043,137 | $ | 1,043,137 | ||||
Investment in American Car Care Centers | 285,316 | 245,875 | ||||||
Deposits | 319,695 | 170,180 | ||||||
|
|
|
| |||||
1,648,148 | 1,459,192 | |||||||
Less: Accumulated amortization of deferred financing costs | (356,161 | ) | (117,451 | ) | ||||
|
|
|
| |||||
Total other noncurrent assets | $ | 1,291,987 | $ | 1,341,741 | ||||
|
|
|
|
Amortization of deferred financing costs was $238,710 and $117,451 for the years ended December 31, 2012 and 2011.
The estimated future amortization of deferred financing costs is as follows:
2013 | $ | 209,421 | ||
2014 | 180,223 | |||
2015 | 151,024 | |||
2016 | 110,937 | |||
2017 | 35,371 | |||
|
| |||
$ | 686,976 | |||
|
|
8. | Accrued Liabilities |
Accrued liabilities consisted of the following at December 31:
2012 | 2011 | |||||||
Salaries, wages, commissions, bonuses and related payroll taxes | $ | 4,176,527 | $ | 3,184,742 | ||||
Other accrued liabilities | 1,651,029 | 2,016,912 | ||||||
|
|
|
| |||||
$ | 5,827,556 | $ | 5,201,654 | |||||
|
|
|
|
15
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
9. | Debt |
Debt consisted of the following at December 31:
2012 | 2011 | |||||||
Term loan | $ | 38,035,718 | $ | 44,464,286 | ||||
Revolving loan | 3,780,002 | 11,001,093 | ||||||
Subordinated loan | 38,703,833 | 38,265,306 | ||||||
Seller note | 10,632,877 | 10,332,055 | ||||||
Other debt | 316,541 | 336,962 | ||||||
|
|
|
| |||||
Total | 91,468,971 | 104,399,702 | ||||||
Less: Original issue discount on the subordinated loan | (599,490 | ) | (765,306 | ) | ||||
|
|
|
| |||||
Total | 90,869,481 | 103,634,396 | ||||||
Less: Current maturities | (7,676,809 | ) | (6,765,533 | ) | ||||
|
|
|
| |||||
Total long-term debt | $ | 83,192,672 | $ | 96,868,863 | ||||
|
|
|
|
Term and Revolving Debt
On November 30, 2011, the Company entered into a credit agreement (the “Agreement”) consisting of revolving and term debt with a lender group. The Agreement is collateralized by substantially all of the Company’s assets.
The revolving commitment including outstanding letters of credit is available up to the lesser of $45,000,000 or an agreed-upon percentage of the Company’s accounts receivable and inventory and has a maturity date of November 30, 2016. The Company is required to pay commitment fees up to 0.375% per annum on the unused portion of the revolving commitment.
The total term loan commitment is $45,000,000 and requires monthly principal payments of $535,714 through November 30, 2016. The remaining outstanding principal is due on November 30, 2016. The Agreement also contains provisions which, under certain circumstances, require the Company to make prepayments of the term loan commitment beginning in 2012, based on excess cash flows as defined in the Agreement.
Interest on the revolving loan and term loan is payable monthly based on 30 day LIBOR plus a margin that fluctuates between 2.25% and 3.50% based on the Company’s leverage ratio, as defined in the Agreement. At December 31, 2012, the margin was 2.75% with a total rate of 2.96%. At December 31, 2011, the margin was 2.75% with a total rate of 3.05%.
16
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Subordinated Loan
On November 30, 2011, the Company entered into a subordinated credit agreement (the “Subordinated Loan”) with a lender. The Subordinated Loan consists of term debt which is due in full on November 30, 2017. This term debt was issued at an original issue discount of $765,306. The Company amortizes the original issue discount over the life of the loan commitment using the effective interest method. The Subordinated Loan also contains provisions which, under certain circumstances, require the Company to make prepayments of the loan commitment beginning in 2013, based on excess cash flows as defined in the Subordinated Loan. The Subordinated Loan is unsecured and bears interest at 13.5%, of which at least 12% shall be payable in cash quarterly, through maturity. The remaining 1.5% may be paid in kind and added to the principal balance, at the Company’s option. The Subordinated Loan allows for optional prepayments at redemption prices ranging from 100% to 103%, based on the date of the redemption.
The Subordinated Loan also allowed for a delayed draw term commitment of up to $28,061,224. The Company did not make any borrowings under the delayed draw term commitment which expired on November 30, 2012.
The Agreement and the Subordinated Loan contain certain restrictive financial covenants, which specify minimum net worth requirements, maximum liabilities to earnings before income taxes, interest, depreciation and amortization (“EBITDA”) ratio and a minimum ratio of EBITDA to debt service cost, among others. The Company is also required to meet certain non-financial covenants, which include restrictions on indebtedness, liens and dividends.
Seller Note
The Company has a credit agreement with a former shareholder of the predecessor Company (the “Seller Note”) that matures on May 31, 2018. No principal payments are required to be made until the maturity date. The Seller Note bears interest at an annual rate of 13%, of which at least 10% is payable in cash on a quarterly basis, through maturity. The remaining 3% is considered paid-in-kind interest and is added to the principal balance. The seller note is subordinate to the Company’s other financing arrangements.
Aggregate annual maturities of long-term debt are as follows:
2013 | $ | 7,676,809 | ||
2014 | 6,428,568 | |||
2015 | 6,428,568 | |||
2016 | 21,598,316 | |||
2017 | 38,703,833 | |||
Thereafter | 10,632,877 | |||
|
| |||
$ | 91,468,971 | |||
|
|
17
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
10. | Commitments and Contingencies |
Leases
The Company leases certain warehouse facilities, office facilities and vehicles under operating leases expiring at various dates through November 2020. The leases require the Company to pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased facilities. The terms of certain warehouse and office facility leases call for minimum rents to increase each year. Accordingly, the Company has accounted for the rent expense under the straight-line method.
At December 31, 2012, future minimum lease payments under operating leases are as follows:
Related Parties | Third Parties | Total | ||||||||||
2013 | $ | 2,234,788 | $ | 7,907,068 | $ | 10,141,856 | ||||||
2014 | 2,113,788 | 6,624,546 | 8,738,334 | |||||||||
2015 | 2,002,124 | 5,540,082 | 7,542,206 | |||||||||
2016 | 773,820 | 3,699,037 | 4,472,857 | |||||||||
2017 | 773,820 | 5,260,608 | 6,034,428 | |||||||||
Thereafter | 2,256,975 | 12,761,306 | 15,018,281 | |||||||||
|
|
|
|
|
| |||||||
$ | 10,155,315 | $ | 41,792,647 | $ | 51,947,962 | |||||||
|
|
|
|
|
|
Total rent expense charged to operations, including $2,245,788 and $1,416,984 to related parties, was $9,857,191 and $5,389,072 for the years ended December 31, 2012 and 2011, respectively.
Legal
Contingent liabilities arise in the ordinary course of the Company’s activities. Various legal actions, proceedings and claims may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties and it is possible that some of the legal proceedings and claims could be decided unfavorably to the Company. Based on information presently known, management does not believe any claims will have a material impact on the Company’s financial position or results of operation.
11. | Derivative Instruments |
The Company has two separate interest rate swap agreements with a lender for the purpose of reducing certain exposures to interest rate fluctuations on the variable rate term debt. The notional amount of each of the swaps is $25,000,000. In accordance with the swap agreements, the Company pays a fixed rate of interest of 2.10% and 2.12% plus the applicable spread, and receives a floating rate of the lenders’ LIBOR rate plus the applicable spread. One of the swap agreements expires in November 2015 and the other swap agreement expires in January 2016.
At December 31, 2012 and 2011, the fair value of the interest rate swaps was ($1,341,780) and ($1,566,305). The resulting loss in their fair value from December 31, 2010 was included as an increase in interest expense, net and was $(224,525) and $825,076 for the years ended December 31, 2012 and 2011, respectively.
18
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
12. | Fair Value Measurements |
The Company measures or monitors certain assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities in which fair value is the primary basis of accounting, mainly derivative instruments. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principle or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the fair value hierarchy, and when possible looks to active and observable markets to price identical assets and liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 | Quoted prices in active markets for identical assets or liabilities. |
Level 2 | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. |
Level 3 | Unobservable inputs based on the Company’s own assumptions. |
The following table summarizes the estimated fair value of the Company’s financial instruments as of December 31, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Derivative instruments | $ | — | $ | 1,341,780 | $ | — | $ | 1,341,780 | ||||||||
Long-term debt | — | — | 90,869,481 | 90,869,481 |
The following table summarizes the estimated fair value of the Company’s financial instruments as of December 31, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Derivative instruments | $ | — | $ | 1,566,305 | $ | — | $ | 1,566,305 | ||||||||
Long-term debt | — | — | 103,634,396 | 103,634,396 |
The fair value of the Company’s interest rate swaps are estimated using discounted cash flows that use market observable inputs of forward interest rate yield curves and a Company-specific risk adjusted discount rate. The fair value of long-term debt reflects the present value of future cash outflows relating to the obligation based on estimated credit market interest premiums and expected future interest rates.
The carrying amounts reported on the consolidated balance sheet for cash, accounts receivable, other receivables, accounts payable and other current liabilities approximate their fair value due to the short maturity of those instruments.
19
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
13. | Stockholders’ Equity |
On November 23, 2010, the Company issued 56,179 shares of common stock under the terms of the Stockholders Agreement. A total of 85,000 shares were originally authorized at November 23, 2010. On November 30, 2011, an additional 23,716 shares were issued in conjunction with the stock acquisition of Englewood. The total number of authorized shares was increased to 150,000 shares. Common shares are entitled to one vote per share and are entitled to vote on all matters upon which stockholders have the right to vote under law or the Company’s Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) which was amended on November 30, 2011.
Three stockholders have the right to require the Company to purchase up to half of their respective common shares at a future date (the “Put Options”). The Put Options are exercisable for a 90 day window beginning on November 23, 2015 and November 23, 2018 for one of the stockholders, November 30, 2016 and November 30, 2019 for the second stockholder, and March 5, 2017 and March 5, 2020 for the third stockholder. If the Put Options are exercised, the Company would purchase the put common shares at a price equal to the fair market value of the shares at the put option exercise date. The Company has elected to treat the underlying common shares subject to the Put Options as part of stockholders’ equity on the consolidated balance sheet.
The Stockholders Agreement also provides for annual tax distributions on the taxable income allocated to each stockholder.
The Company is authorized to issue 15,000 non-voting shares, none of which are outstanding at December 31, 2012 or 2011.
14. | Stock Based Compensation |
In November 2010, the Board of Directors approved the TTT Holdings Equity Incentive Plan (“Equity Incentive Plan”). In November 2011, the Board of Directors increased the number of nonvoting common shares authorized for issuance under the Equity Incentive Plan to 8,000. As of December 31, 2012, the Equity Incentive Plan had 1,647 nonvoting common shares available for granting in the form of stock options. The Equity Incentive Plan permits the grant of a variety of stock and stock-based awards, including restricted stock or stock options, as determined by the Company’s Board of Directors. To date, the Company has stock options which expire no later than ten years from the date of grant and will become exercisable as directed by the Board of Directors. The time vesting stock options generally vest in equal annual installments over a three-year period, while the performance based stock options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement.
Stock-based compensation expense was $418,006 and $703,712 during the years ended December 31, 2012 and 2011, respectively, which was recorded in operating expenses in the statement of operations. Of the total stock-based compensation expense recognized, $0 and $327,950 related to performance-based options during the years ending December 31, 2012 and 2011, respectively. Stock-based compensation expense is based on the grant-date fair value. The fair value of stock option grants is estimated using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of comparable public companies for a period equal to the expected term. The risk-free interest rate is based on U.S. Treasury interest rates with a remaining term which approximates the expected life of the options assumed at the date of grant.
20
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The weighted average assumptions used in the Black-Scholes option pricing model for options granted during 2012 are as follows:
Expected volatility | 46.22 | % | ||
Expected term (years) | 6.36 | |||
Risk free interest rate | 1.80 | % | ||
Expected dividend yield | 0.00 | % |
The weighted average grant date fair value of options is as follows:
Shares | Weighted Average Grant Date Fair Value | |||||||
Nonvested at December 31, 2010 | 4,352 | $ | 452 | |||||
Granted | 401 | 652 | ||||||
Vested | 1,451 | 452 | ||||||
Forfeited | — | — | ||||||
|
| |||||||
Nonvested at December 31, 2011 | 3,302 | 473 | ||||||
Granted | 1,600 | 486 | ||||||
Vested | 792 | 457 | ||||||
Forfeited | 792 | 467 | ||||||
|
| |||||||
Nonvested at December 31, 2012 | 3,318 | $ | 482 | |||||
|
|
A summary of option activity as of December 31, 2012 and changes during the period is presented below:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | ||||||||||
Outstanding at December 31, 2010 | 4,352 | $ | 1,000 | |||||||||
Granted | 401 | $ | 1,370 | |||||||||
Exercised | — | |||||||||||
Cancelled/Expired | — | |||||||||||
|
| |||||||||||
Outstanding at December 31, 2011 | 4,753 | $ | 1,031 | 9.00 | ||||||||
Granted | 1,600 | $ | 2,000 | |||||||||
Exercised | — | |||||||||||
Cancelled/Expired | — | |||||||||||
|
| |||||||||||
Outstanding at December 31, 2012 | 6,353 | $ | 1,275 | 8.31 | ||||||||
|
| |||||||||||
Vested and unvested expected to vest at December 31, 2012 | 5,561 | $ | 1,310 | 8.36 | ||||||||
Exercisable at December 31, 2012 | 2,243 | $ | 1,011 | 7.94 |
21
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
There was $1,599,276 and $1,515,325 of total unrecognized compensation cost related to unvested stock options granted at December 31, 2012 and 2011, respectively. The cost is expected to be recognized through 2016.
15. | Employee Benefit Plan |
The Company maintains a 401(k) savings plan covering substantially all full-time employees. The Company matches 25% of each participating employee’s elective deferral amount. The Company’s expense related to this matching contribution totaled approximately $247,229 and $140,873 for the years ended December 31, 2012 and 2011, respectively. In addition, the Company has the option of making an annual discretionary profit-sharing contribution. No profit-sharing contribution was declared for the year ended December 31, 2012.
16. | Discontinued Operations |
On October 9, 2011, the Company sold the retail division to a strategic buyer for approximately $4,900,000, less certain selling costs, in an asset acquisition agreement. The results of operations of the retail division have been presented as discontinued operations.
The major classes of assets and liabilities disposed of are as follows:
Inventories | $ | 785,066 | ||
Property and equipment, net | 894,780 | |||
Goodwill | 1,271,171 | |||
Accrued liabilities | 62,152 | |||
|
| |||
$ | 3,013,169 | |||
|
|
The following is a summary of the operating results for the retail reporting unit for the year ended December 31, 2011:
Net sales | $ | 6,537,359 | ||
Cost of good sold | (3,594,830 | ) | ||
Operating expenses | (2,871,103 | ) | ||
Gain on sale of division | 1,827,692 | |||
|
| |||
Income from discontinued operations | $ | 1,899,118 | ||
|
|
22
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
17. | Related Party Transactions |
In accordance with a management services agreement dated November 23, 2010, the Company pays $600,000 annually to Robert D. Walter Company, an affiliate of the Company, for corporate support functions. Management fee expense totaled $600,000 for the years ended December 31, 2012 and 2011, and is included in operating expenses in the consolidated statement of operations. There were no outstanding accounts payable at December 31, 2012 and 2011.
The Company has various building leases with two separate related parties. The terms of these lease agreement range from four to ten years from the rent commencement dates with varying renewal options.
Prior to their respective acquisitions, TTT, Englewood and Summit periodically made sales to one another. Total pre-acquisition sales between these companies totaled $972,268 for the year ended December 31, 2011.
18. | Subsequent Events |
In March 2013, the Company amended the term and revolving debt credit agreement and the subordinated loan credit agreement. These amendments modify the minimum net worth requirements, maximum liabilities to EBITDA ratio and the minimum ratio of EBITDA to debt service cost covenants and are now less restrictive.
The Company has considered subsequent events through April 30, 2013, the date on which the consolidated financial statements were available to be issued.
23