Exhibit 99.4
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following pro forma consolidated financial data has been prepared by the
management of Advance Auto Parts, Inc. ("Advance Auto Parts") by applying pro
forma adjustments to the historical consolidated financial statements of Advance
Holding Corporation ("Advance Holding") and Discount Auto Parts, Inc.
("Discount") and the related notes thereto. The pro forma adjustments, which are
based upon available information and upon certain assumptions that Advance Auto
Parts' management believes are reasonable, are described in the accompanying
notes. The unaudited pro forma balance sheet as of October 6, 2001 was prepared
as if the merger with Discount and related financing had occurred on such date.
The unaudited pro forma consolidated statements of operations combine the
Advance Holding consolidated statements of operations for the fiscal year ended
December 30, 2000 (comprising fifty-two weeks), for the twelve months ended
October 6, 2001 (comprising fifty-two weeks) and for the nine month period ended
October 6, 2001 (comprising forty weeks) with the Discount unaudited
consolidated income statements for the twelve-month period ended November 28,
2000 (comprising fifty-two weeks), for the twelve-month period ended August 28,
2001 (comprising fifty-two weeks) and for the nine month period ended August 28,
2001 (comprising thirty-nine weeks), respectively, to reflect the merger and the
related financing as if such transactions had been consummated and were
effective as of January 2, 2000. Advance Auto Parts' fiscal year ends on the
Saturday closest to December 31 of each year, while Discount's fiscal year ends
on the Tuesday closest to May 31 of each year. Accordingly, for purposes of the
pro forma consolidated statements of operations, comparable annual and nine
month period results for the respective companies have been combined in order to
provide comparable results for the periods presented.
The merger has been accounted for under the purchase method of accounting. The
unaudited pro forma consolidated balance sheet as of October 6, 2001 reflects a
pro forma allocation of purchase price for the merger to the tangible and
intangible assets and liabilities acquired. The final allocation of such
purchase price, and the resulting depreciation and amortization expense, will
differ from the estimates contained herein due to the final allocation being
based on (a) the actual amounts of assets and liabilities on the closing
date,(b) final purchase price adjustments, including reserves that may be
recognized for possible exit costs, and (c) the final determination of values of
property and equipment and intangible and other assets. The actual allocation of
the purchase price, and the resulting effect on income from operations may
differ significantly from the pro forma amounts included herein.
The financial effects to Advance Auto Parts of the merger as presented in the
pro forma consolidated financial data are not necessarily indicative of Advance
Auto Parts' consolidated financial position or results of operations which would
have been obtained had the merger actually occurred on the dates described
above, nor are they necessarily indicative of the results of future operations.
The pro forma consolidated financial data should be read in conjunction with the
notes hereto, which are an integral part hereof, the consolidated historical
financial statements of Advance Holding and Discount and the notes thereto.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Twelve Months Ended October 6, 2001
---------------------------------------------------------------------
Advance Holding Discount Total
Historical Historical Adjustments Pro Forma
--------------- ----------- ----------- -----------
Net Sales $ 2,436,282 $ 668,024 $ 0 $ 3,104,306
Cost of Sales 1,455,455 405,238 0 1,860,693
----------- ----------- ----------- -----------
Gross Profit 980,827 262,786 0 1,243,613
Selling, general and
administrative expenses 864,078 220,276 (4,420)(2) 1,079,934
----------- ----------- ----------- -----------
Income from operations 116,749 42,510 4,420 163,679
Total interest expense (60,051) (19,369) (16,557)(1) (95,977)
Other expenses, net 832 6,972 0 7,804
----------- ----------- ----------- -----------
Income before provision for taxes 57,530 30,113 (12,137) 75,506
Provision for income taxes (22,927) (10,823) 4,855(3) (28,895)
----------- ----------- ----------- -----------
Net income from continuing
operations $ 34,603 $ 19,290 ($7,282) $ 46,611
=========== =========== =========== ===========
Earnings per share from
continuing operations
Basic $ 1.22 $ 1.15 $ 1.43
Diluted 1.20 1.15 1.41
=========== =========== ===========
Weighted average common
shares oustanding
Basic 28,294 16,704 32,594
Diluted 28,773 16,746 33,073
=========== =========== ===========
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Fiscal Year Ended December 30, 2000
---------------------------------------------------------
Advance
Holding Discount Total
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -----------
Net Sales $2,288,022 $ 640,014 $ 0 $2,928,036
Cost of Sales 1,392,127 388,225 0 1,780,352
---------- ---------- ----------- -----------
Gross Profit 895,895 251,789 0 1,147,684
Selling, general and
administrative expenses 803,106 202,401 (4,499) (2) 1,001,008
---------- ---------- ----------- -----------
Income from operations 92,789 49,388 4,499 146,676
Total interest expense (66,640) (21,812) (6,517) (1) (94,969)
Other expenses, net 1,012 2,079 0 3,091
---------- ---------- ----------- -----------
Income before provision for taxes 27,161 29,655 (2,018) 54,798
Provision for income taxes (10,535) (10,882) 808 (3) (20,609)
---------- ---------- ----------- -----------
Net income from continuing
operations $ 16,626 $ 18,773 ($1,210) $ 34,189
========== ========== =========== ===========
Earnings per share from
continuing operations
Basic $ 0.59 $ 1.12 $ 1.05
Diluted 0.58 1.12 1.04
========== ========== ===========
Weighted average common
shares outstanding
Basic 28,290 16,698 32,596
Diluted 28,611 16,698 32,911
========== ========== ===========
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Nine Months Ended October 6, 2001
---------------------------------------------------------
Advance
Holding Discount Total
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -----------
Net Sales $1,935,630 $507,074 $ 0 $2,442,704
Cost of Sales 1,151,287 307,652 0 1,458,939
---------- ---------- ----------- -----------
Gross Profit 784,343 199,422 0 983,765
Selling, general and
administrative expenses 678,839 166,399 (3,368)(2) 841,870
---------- ---------- ----------- -----------
Income from operations 105,504 33,023 3,368 141,895
Total interest expense (45,195) (13,411) (15,650)(1) (74,256)
Other expense, net 879 6,937 0 7,816
---------- ---------- ----------- -----------
Income before provision for taxes 61,188 26,549 (12,282) 75,455
Provision for income taxes (24,279) (9,540) 4,913 (3) (28,906)
---------- ---------- ----------- -----------
Net income from continuing
operations $ 36,909 $ 17,009 ($7,369) $ 46,549
========== ========== =========== ===========
Earnings per share from
continuing operations
Basic $ 1.30 $ 1.02 $ 1.43
Diluted 1.28 1.01 1.41
========== ========== ===========
Weighted average common
shares outstanding
Basic 28,295 16,705 32,595
Diluted 28,827 16,761 33,127
========== ========== ===========
See Notes to Unaudited Pro Forma Consolidated Statements Operations
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
Twelve Months Fiscal Year Nine Months
Ended Ended Ended
October 6, December 30, October 6,
2001 2000 2001
------------- ------------ -----------
(1) Reflects the following:
Reduction in depreciation as a result
of pro forma purchase price allocation
based on an average useful lives of
14 years (a)................................ $ (3,963) $ (3,963) $ (3,048)
Less: Amortization of debt issuance
costs and goodwill included in
selling, general and administrative
expenses in historical statement of
operations of Discount ..................... (618) (536) (481)
Elimination of amortization of deferred
gain on sale leaseback ..................... 161 -- 161
-------- -------- --------
Net decrease in selling, general and
administrative expenses .................... $ (4,420) $ (4,499) $ (3,368)
======== ======== ========
(2) Gives effect to the increase in
estimated interest expense from the use
of borrowings to finance the merger (b):
Commitment fees on unused borrowings
related to the revolving credit
facility .................................. $ (710) $ (710) $ (382)
Interest related to the tranche A term
loan facility ............................. (11,700) (11,700) (9,000)
Interest related to the tranche B term
loan facility ............................. (21,350) (21,350) (16,423)
Interest related to the new senior
subordinated notes ........................ (20,500) (20,500) (15,769)
Amortization of original issuance
discount related to the new senior
subordinated notes amortized over 6
years ..................................... (1,540) (1,540) (1,185)
Amortization of debt issuance costs
related to the new credit facility
and the new senior subordinated notes
amortized over 6 years .................... (3,725) (3,725) (2,865)
Less: Interest expense and
amortization of debt issuance
costs in historical statement of
operations related to debt
extinguished in connection with
the merger .................................. 42,968 53,008 29,974
-------- -------- --------
Net increase in interest expense ............ $(16,557) $ (6,517) $(15,650)
======== ======== ========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
- --------
(a) Advance Auto Parts has not yet completed valuations of the fair values of
Discount's tangible and intangible assets. Advance Auto Parts believes that
Discount has intangible assets related to trade names, trade dress,
customer contracts and related customer relationships that may ultimately
be assigned fair market value in the final purchase price allocation,
however, the amounts to be assigned to these intangible assets cannot be
estimated currently. Accordingly, the net decrease to book value of
property and equipment and intangible assets that results from the purchase
price allocation has been allocated in its entirety to property and
equipment for purposes of this pro forma presentation and depreciated based
on an assumed average useful life of 14 years. The allocation of the net
decrease to book value of property and equipment and intangible assets may
differ significantly from the pro forma allocation and, as a result, the
final related reduction in depreciation expense and increase to
amortization expense for intangible assets may differ significantly from
the pro forma presentation.
(b) Reflects pro forma interest expenses calculated assuming (i) a LIBOR rate
of 3.0% plus a spread of 3.5% and 4.0% for the Tranche A Term Loan and
Tranche B Term Loan portions of the new credit facility of Advance Stores
Company, Incorporated ("ASCI"), respectively, (ii) a yield to maturity of
11.875% on the senior subordinated notes, which includes a cash interest
component based on a coupon rate of 10 1/4%, and (iii) commitment fees on
unused borrowings on the new credit facility using a rate of 0.5% per
annum. The interest rates on the new credit facility are variable. A change
in the rates of 1/8 of 1% on these borrowings would change the pro forma
interest expense for the fiscal year ended December 30, 2000 and the Twelve
Months Ended October 6, 2001 by $606 and for the Nine Months Ended October
6, 2001 by $466.
(3) Estimated tax effects of the pro forma adjustments at a statutory rate of
approximately 40%.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousands)
Advance Holding Discount
Historical Historical
October 6, August 28, Total Total
2001 2001 Adjustments Pro Forma
-------------- -------------- -------------- --------------
Assets:
Current Assets:
Cash and cash equivalents $ 11,918 $ 6,372 $ (4,768) (1) $ 13,922
Receivables, net 89,632 - - 89,632
Inventories 805,392 243,053 (20,049) (2) 1,028,396
Other current assets 18,462 18,734 17,903 (10) 55,099
-------------- -------------- -------------- --------------
Total Current Assets 925,404 268,159 3,047 1,196,610
Property and equipment, net 406,531 384,463 (22,168) (3) 768,826
Assets held for sales 22,388 - - 22,388
Other assets, net 21,069 4,431 11,187 (4) 36,687
-------------- -------------- -------------- --------------
Total Assets $ 1,375,392 $ 657,053 $ (17,495) $ 2,014,950
============== ============== ============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Bank overdrafts $ 10,546 $ - $ - $ 10,546
Current portion of long- term debt - 1,200 (1,200) (5) -
Accounts payable 403,668 75,609 - 479,277
Accrued expenses 142,310 23,092 9,900 (6) 175,302
Other current liabilities 50,802 2,013 (1,342) (9) 51,473
-------------- -------------- -------------- --------------
Total Current Liabilities 607,326 101,914 7,358 716,598
Long term debt 532,382 209,608 200,693 (5) 942,683
Other long-term liabilities 39,311 19,207 6,937 (7) 65,455
Stockholders' equity 196,373 326,324 (232,483) (8) 290,214
-------------- -------------- -------------- --------------
Total Liabilities and Stockholders' Equity $ 1,375,392 $ 657,053 $ (17,495) $ 2,014,950
============== ============== ============== ==============
See Notes to the Unaudited Pro Forma Consolidated Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousand, except per share data)
The Unaudited Pro Forma Consolidated Balance Sheet reflects the merger as if it
occurred as of October 6, 2001 (actual amounts may differ significantly from the
pro forma amounts estimated below).
(1) Reflects increases and decreases in cash resulting from the pro forma
adjustments:
Cash increases:
Proceeds from the issuance of the following: (See note (5) below)
Revolving credit facility ......................................... $ -
Tranche A term loan facility ...................................... 180,000
Tranche B term loan facility ...................................... 305,000
New senior subordinated notes ..................................... 185,600
---------
Total cash inflows ........................................... 670,600
---------
Cash decreases:
Cash portion of purchase price for acquisition (a) ................ (128,479)
Repayment of Discount's existing long-term debt (b) ............... (217,108)
Repayment of ASCI senior debt under existing deferred term
loan, delayed draw, revolving credit and Tranche B facilities
(See note (5) below) ........................................... (260,299)
Purchase of Discount's Gallman distribution facility from the
lessor ......................................................... (34,082)
Estimated debt issuance costs (See note (4) below) ................ (22,350)
Estimated stock issuance costs (See note (8) below) ............... (6,325)
Estimated acquisition related costs (See note (2) below) .......... (6,325)
---------
Total cash outflows .......................................... (674,968)
---------
Net impact on cash ................................................ $ (4,368)
=========
- --------------
(a) Amount includes $125,436 to purchase approximately 16,724,756 shares of
Discount's common stock at $7.50 per share and $3,043 to purchase
outstanding in the money options to acquire Discount common stock.
(b) Amount includes $210,808 to retire long-term debt outstanding and $6,300 in
debt prepayment penalties.
(2) The merger will be accounted for as a purchase in accordance with Statement
of Financial Accounting Standards No. 141, Business Combinations. The purchase
price is being allocated first to the tangible assets and liabilities of
Discount based upon preliminary estimates of their fair market values, assuming
the merger had occurred on October 6, 2001, with the excess of the estimated
fair market value of the net assets acquired over the purchase price allocated
on a pro rata basis to reduce property and equipment and intangible assets for
pro forma purposes, as follows:
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousand, except per share data)
Components of purchase price:
Cash to Discount shareholders (see note (1) above) ............................ $128,479
Advance Auto Parts common stock to Discount shareholders (4,309,970 shares
valued at $24.60 per share)(a) ............................................. 106,025
Prepayment penalties associated with the extinguishment of
Discount's existing long-term debt (see note (1) above) .................... 6,300
Accrual for Advance Auto Parts' obligation to purchase continuing insurance
coverage for Discount's directors and officers for pre-merger time
periods as required by the merger agreement (see note (6) below) .......... 700
Fair value of outstanding options to purchase 1,115,182 shares of Discount
common stock that will be converted to options to purchase 574,765 shares of
Advance Auto Parts common stock, valued at $1.92
per option (b) ............................................................. 1,104
Estimated acquisition related costs ........................................... 6,325
--------
Total purchase price ..................................................... 248,933
- --------
(a) Assumes a $13.84 per share value for Discount common stock (inclusive of
$7.50 in cash) based on the historical trading value of Discount's common
stock on and around the announcement date of the merger.
(b) The fair value of the options to purchase shares of Advance Auto Parts
common stock was determined using the Black-Scholes option-pricing model
with the following assumptions: (i) risk-free interest rate of 3.92%; (ii)
an expected life of two years; (iii) a volatility factor of .40; (iv) a
fair value of Advance Auto Parts common stock of $24.60; and (v) expected
dividend yield of zero.
Derivation of book value:
Historical book value of Discount's net assets ................................. (326,324)
Adjustments to recognize (assets) liabilities in purchase
accounting:
Reserve for severance payments related to change in control
agreements .............................................................. 13,500
Purchase accounting adjustment to conform Discount's accrual
for self-insured liabilities, based on an estimated case-by-case
basis and amounts incurred but not reported to Advance Auto Parts'
policy of utilizing actuarially developed accruals for such
liabilities (See note (6) below) ........................................ 1,000
Purchase accounting adjustment to increase Discount's warranty accrual
on pre-acquisition sales of certain Discount merchandise to conform
with Advance Auto Parts' merchandise return policies
(See note (6) below) .................................................... 3,000
Purchase accounting adjustment to accrue for the settlement of
certain consulting agreements as required by the merger
agreement (See note (6) below) .......................................... 1,500
Deferred tax impact of pro forma adjustments (See note (9)
below) .................................................................. (16,608)
Adjustments to reflect fair market value of net assets acquired:
Elimination of net book value of goodwill and deferred
financing costs acquired (See note (4) below) ........................... 4,200
Elimination of deferred gain related to a sale-leaseback
transaction previously consummated by Discount (See note (7)
below) .................................................................. (5,900)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousand, except per share data)
Decrease in book value of receivables to the amount required
given Advance Auto Parts historical acquisition receivables
collection experience ($400) and inventory ($20,049)
arising primarily due to Advance Auto Parts management's
plans for disposal at sales prices less than book value....... 20,449
---------
Net decrease to book value of property and equipment and
intangible assets ....................................... $ (56,250)
=========
The foregoing pro forma purchase price allocation is based on available
information and certain assumptions that Advance Auto Parts believes are
reasonable. Advance Auto Parts is currently evaluating certain exit costs that
may be incurred in connection with the merger and may establish additional
reserves, not reflected in the accompanying pro forma consolidated financial
data, at the closing of the merger based on the results of its evaluation. Any
reserves established will result in a pro rata increase in property and
equipment, resulting in additional provisions for depreciation expense. The
final purchase price allocation will be based on the outcome of the matter
referred to above, final determination of the fair values of the tangible and
intangible assets acquired at the date of the merger as determined by appraisal
or other methods, and actual amounts of assets and liabilities on the closing
date. The final purchase price allocation may differ significantly from the pro
forma allocation.
(3) Reflects the following:
Purchase of Discount's Gallman distribution facility from the
lessor (See note (1) above) ................................. $ 34,082
Purchase accounting adjustment (See note (2) above) (a) ........ (56,250)
---------
$ (22,168)
=========
- ------------
(a) Advance Auto Parts has not yet completed valuations of the fair values of
Discount's tangible and intangible assets. Advance Auto Parts believes that
Discount has intangible assets related to trade names, trade dress,
customer contracts and related customer relationships that may ultimately
be assigned fair market values in the final purchase price allocation,
however, the amounts to be assigned to these intangible assets cannot be
estimated currently. Accordingly, the net decrease to book value of
property and equipment and intangible assets determined in (1) above has
been allocated in its entirety to property and equipment for purposes of
this pro forma presentation. The final allocation of the net decrease to
book value of property and equipment and intangible assets may differ
significantly from the pro forma allocation.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousand, except per share data)
(4) Reflects the following (a):
Purchase accounting adjustment (See note (2) above) ............ $ (4,200)
Estimated deferred debt issuance costs (See note (1) above) .... 22,350
Elimination of deferred debt issuance costs related to ASCI's
debt that was refinanced
(See note (8) below) ........................................ (6,963)
----------
$ 11,187
==========
- --------------
(a) See note (a) to note (3) above.
(5) Reflects the following:
Proceeds from the issuance of long-term debt under the New
Credit Facility and the New Senior Subordinated Notes
(See note (1) above) ...................................... $ 670,600
Repayment of Discount's existing debt:
Current portion of long-term debt ...................... (1,200)
Long-term debt ......................................... (209,608)
Repayment of ASCI's senior debt under existing deferred term
loan, delayed draw, revolving credit and Tranche B
facilities (See note (i) above) ........................... (260,299)
----------
Subtotal ............................................... $ 199,493
Current portion of Discount's long-term debt repaid ......... 1,200
----------
$ 200,693
==========
(6) Reflects the following:
Current portion of the purchase accounting adjustment to
accrue for severance payments related to change in
control agreements (See note (2) above) ................... $ 3,700
Purchase accounting adjustment to conform Discount's accrual
for self- insured liabilities, based on an estimated
case-by-case basis and amounts incurred but not reported
to Advance Auto Parts' policy of utilizing actuarially
developed accruals for such liabilities (See note (2)
above) .................................................... 1,000
Purchase accounting adjustment to increase Discount's
warranty accrual to reflect Advance Auto Parts' expanded
return policy on pre-acquisition sales of certain Discount
merchandise (See note (2) above) .......................... 3,000
Purchase accounting adjustment to accrue for the settlement
of certain consulting agreements as required by the merger
agreement (See note (2) above) ............................ 1,500
Accrual for Advance Auto Parts' obligation to purchase
continuing insurance coverage for Discount's directors and
officers (see note (2) above) ............................. 700
----------
$ 9,900
==========
(7) Reflects the following:
Long-term portion of the purchase accounting adjustment to
reserve for severance payments related to change in
control agreements (See note (2) above) ................... $ 9,800
Deferred tax impact of pro forma adjustments (See note (9)
below) .................................................... 3,037
Elimination of deferred gain related to a sale-leaseback
transaction previously consummated by Discount (See note
(2) above) ................................................ (5,900)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(amounts in thousand, except per share data)
----------
$ 6,937
==========
(8) Reflects the following:
Issuance of 4,309,970 shares of Advance Auto Parts common stock
valuedat $24.60 per share to Discount shareholders (See
note (2) above) ............................................. $ 106,025
Estimated stock issuance costs (See note (1) above) ........... (6,325)
Fair value of outstanding options to purchase 1,115,182
shares of Discount common stock that will be converted to
options to purchase 574,765 shares of Advance Auto Parts
common stock, valued at $1.92 per option (See note (2)
above) ...................................................... 1,104
Elimination of historical Discount stockholders' equity (See
note (2) above) ............................................. (326,324)
Elimination of deferred debt issuance costs related to ASCI's
debt that was refinanced (See note (4) above) ............... (6,963)
----------
$ (232,483)
==========
(9) Advance Auto Parts anticipates that the merger will be accounted for as a
tax-free transaction resulting in the tax bases of assets and liabilities being
carried over from Discount. Components of the net pro forma change in deferred
taxes related to changes in amounts allocated to assets and liabilities for
financial reporting purposes and other purchase accounting adjustments:
Current deferred tax asset .................................... $ 18,303
Reclassification of current deferred tax liability to
current deferred tax asset .................................. 1,342
Noncurrent deferred tax liability ............................. (3,037)
----------
$ 16,608
==========
(10) Reflects the following:
Current deferred tax impact of pro forma adjustments (See
note (9) above) ............................................. $ 18,303
Decrease in book value of receivables to the amount required
given Advance's historical acquisition receivables
collection experience (see note (2) above) .................. (400)
----------
$ 17,903
==========