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Business Combinations
 6 Months Ended
Sep. 24, 2016
Business Combinations  
Business Combinations

3.  Business Combinations

 

On June 29, 2015, the Company completed the acquisition of Sheplers, a western lifestyle company with 25 retail locations across the United States and an e-commerce business, for a purchase price of $147.0 million (which included assumption of certain indebtedness), subject to customary adjustments (the “Sheplers Acquisition”). The primary reason for the Sheplers Acquisition was to expand the Company’s retail operations into new and existing markets and grow the Company’s e-commerce business. 

 

The Company funded the Sheplers Acquisition by refinancing approximately $172.0 million of its and Sheplers’ existing indebtedness in part with an initial borrowing of $57.0 million under a $125.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and a $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. Borrowings under the credit agreements were initially used to pay costs and expenses related to the Sheplers Acquisition and the closing of the credit agreements, and may be used for working capital and other general corporate purposes.

 

The acquisition-date fair value of the consideration transferred totaled $149.3 million, which consisted of $147.0 million in cash and $2.3 million of a working capital adjustment, cash acquired and other adjustments. The total fair value of consideration transferred for the acquisition was allocated to the net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. The goodwill and intangible assets are not deductible for income tax purposes. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets.

 

The fair value of each intangible and fixed asset acquired through the Sheplers Acquisition was measured in accordance with ASC 820. Customer lists, furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued using the cost approach. The trade name was valued under the royalty savings income approach method and inventory was valued under the comparative sales method. All operating leases, below-market leases, capital leases and financing obligations were valued under either the cost or income approach. Such fair values were determined using Level 3 inputs.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price allocation:

 

 

 

 

 

 

    

 

At June 29, 2015

 

 

    

(in thousands)

 

Assets acquired:

 

 

 

 

Cash

 

$
2,762

 

Accounts receivable

 

 
1,792

 

Inventory

 

 
30,436

 

Prepaid expenses and other current assets

 

 
17,711

 

Property and equipment

 

 
10,744

 

Properties under capital lease and financing transactions

 

 
10,528

 

Intangible - below-market leases

 

 
500

 

Intangible - trade name

 

 
9,200

 

Intangible - customer lists

 

 
488

 

Goodwill

 

 
99,998

 

Other assets

 

 
128

 

Total assets acquired

 

$
184,287

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

$
14,554

 

Accrued liabilities and other payables

 

 
5,065

 

Accrued customer liabilities

 

 
1,318

 

Deferred tax liability

 

 
1,226

 

Capital lease and financing transactions

 

 
8,853

 

Other liabilities

 

 
3,968

 

Total liabilities assumed

 

 
34,984

 

Net Assets acquired

 

$
149,303

 

 

 Definite-lived intangible assets are recorded at their fair value as of the acquisition date with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The period of amortization for these below-market leases is 8 to 12 years and for customer lists is three years. The trade name is an indefinite-lived intangible asset and is not amortized but instead is measured for impairment at least annually, or when events indicate that impairment may exist.

 

The Company incurred $0.9 million of acquisition-related costs in fiscal 2016 related to the acquisition of Sheplers, which are recorded in “Acquisition-related expenses” in the condensed consolidated statements of operations for the twenty-six weeks ended September 26, 2015.

 

Supplemental Pro Forma Data 

 

 The as adjusted net sales and net loss below give effect to the Sheplers Acquisition as if it had been consummated on March 30, 2014, the first day of the Company’s 2015 fiscal year. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Sheplers to reflect the effects of amortization of purchased intangible assets and acquired inventory valuation step-down, refinanced debt and capital lease and financing transactions as of March 30, 2014 in order to complete the acquisition, and income tax expense. The adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Pre-acquisition net sales and net loss numbers for Sheplers are derived from their books and records prepared prior to the acquisition and are not verified by the Company. This as adjusted data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the date noted above.

 

 

 

 

 

 

 

 

 

 

 

 

 

Twenty-Six Weeks Ended

 

 

 

 

 

September 26,

 

 

    

 

    

2015

    

(in thousands)

    

 

 

    

 

    

    

As adjusted net sales

 

 

 

 

$
258,644

 

As adjusted net loss

 

 

 

 

$
(4,680)