Note 10 - Acquisitions

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 10. Acquisitions

In the first nine months of 2014, we completed the following acquisitions, which contributed revenues of $114.6 million for the nine months ended September 30, 2014:

● On January 31, 2014, we acquired Island Honda in Kahului, Hawaii.

● On February 3, 2014, we acquired Stockton Volkswagen in Stockton, California.

● On March 5, 2014, we acquired Honolulu Buick GMC Cadillac and Honolulu Volkswagen in Honolulu, Hawaii.

● On April 1, 2014, we acquired Corpus Christi Ford in Corpus Christi, Texas.

● On June 11, 2014, we acquired Beaverton GMC Buick and Portland Cadillac in Portland, Oregon.

● On July 28, 2014, we acquired Bellingham GMC Buick in Bellingham, Washington.

All acquisitions were accounted for as business combinations under the acquisition method of accounting. The results of operations of the acquired stores are included in our consolidated financial statements from the date of acquisition.

No portion of the purchase price was paid with our equity securities. The following table summarizes the consideration paid for the acquisitions and the amount of identified assets acquired and liabilities assumed as of the acquisition date (in thousands):

	Consideration
Cash paid, net of cash acquired	$	81,558
Debt issued		3,161
		84,719

	Assets Acquired and Liabilities Assumed
Inventories	$	44,026
Franchise value		6,823
Property and equipment		17,313
Other assets		430
Other liabilities		(107	)
		68,485
Goodwill		16,234
	$	84,719

For the three- and nine-month periods ended September 30, 2014, we recorded acquisition expense of $0.9 million and $1.1 million, respectively, primarily related to the DCH acquisition which was completed on October 1, 2014. See also Note 14. Additionally, in the first quarter of 2014, we assumed a contract associated with an acquisition and determined the remaining term would not provide economic benefit. As a result, we recorded costs of $1.4 million associated with the contract. These amounts are included as a component of selling, general and administrative expense in our Consolidated Statements of Operations. We did not have any material acquisition-related expenses in 2013.

We account for franchise value as an indefinite-lived intangible asset. We expect the full amount of the goodwill recognized to be deductible for tax purposes.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three- and nine-month periods ended September 30, 2013 and 2014 had occurred on January 1, 2013 (in thousands, except for per share amounts):

Three Months Ended September 30,	2014		2013
Revenue	$	1,297,479	$	1,162,850
Income from continuing operations, net of tax		34,542		31,959
Basic income per share from continuing operations, net of tax		1.32		1.24
Diluted income per share from continuing operations, net of tax		1.31		1.22

Nine Months Ended September 30,	2014		2013
Revenue	$	3,652,673	$	3,280,183
Income from continuing operations, net of tax		95,141		81,387
Basic income per share from continuing operations, net of tax		3.65		3.16
Diluted income per share from continuing operations, net of tax		3.61		3.11

These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property and equipment; accounting for inventory on a specific identification method; and recognition of interest expense for real estate financing related to stores where we purchased the facility. No nonrecurring pro forma adjustments directly attributable to the acquisitions are included in the reported pro forma revenues and earnings.