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Business Combination | 6 Months Ended
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Sep. 29, 2018
Business Combinations [Abstract] |
Business Combination |
2. | Business Combination
On January 5, 2018, Champion Holdings and the Company entered into the Exchange Agreement pursuant to which the two companies agreed to combine their operations. The Exchange was completed on June 1, 2018 and was accounted for as a reverse acquisition under the acquisition method of accounting as provided by the FASB Accounting Standards Codification 805, Business Combinations (“ASC 805”). Champion Holdings was determined to be the acquirer for accounting and financial reporting purposes. The assets acquired and liabilities assumed by Champion Holdings as a result of the Exchange were recorded at their respective fair values and added to the carrying value of Champion Holdings’ existing assets and liabilities. As Champion Holdings is the accounting acquirer, reported financial results for Skyline Champion Corporation for the six months ended September 29, 2018 comprise the results of only Champion Holdings through June 1, 2018 and the Company, after giving effect to the Exchange, from June 1, 2018 through September 29, 2018. All fiscal periods prior to June 1, 2018 are comprised solely of the results of Champion Holdings. The purchase price of the acquisition was determined with reference to the value of equity (common stock) of the Company based on the closing price on June 1, 2018 of $33.39 per share. The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at June 1, 2018, the closing of the Exchange. The purchase price and its allocation are preliminary and have been used to prepare the accompanying condensed consolidated financial statements. The final purchase price and its allocation will be determined when the Company has completed the necessary valuations and calculations. The final allocation could differ materially from the preliminary allocation used in the accompanying condensed consolidated financial statements. The final allocation may include changes in allocations to intangible assets and other changes to the fair value assigned to the assets acquired and liabilities assumed. The preliminary estimated purchase price was allocated as follows:
(Dollars in thousands) |  |  | Allocation |
Cash |  |  | $ | 9,722 |
Trade accounts receivable |  |  |  | 13,876 |
Inventory |  |  |  | 19,028 |
Property, plant and equipment |  |  |  | 44,642 |
Deferred tax assets, net |  |  |  | 9,733 |
Other assets |  |  |  | 6,349 |
Accounts payable and accrued liabilities |  |  |  | (35,763 | )
Intangibles |  |  |  | 43,300 |
Goodwill |  |  |  | 174,278 |
Total preliminary estimated purchase price allocation |  |  | $ | 285,165 |
The preliminary estimated goodwill is primarily attributable to expected synergies from the combination of the companies, including, but not limited to, expected cost synergies through procurement activities and operational improvements through sharing of best practices. Goodwill, which is not deductible for income tax purposes, was allocated to the U.S. Factory-built Housing segment. Cash, trade receivables, other assets, accounts payable, accrued and other liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Intangible assets consist primarily of provisional amounts recognized for the fair value of customer relationships and trade names and were based on an independent appraisal. Customer-based assets include the Company’s established relationships with its customers and the ability of those customers to generate future economic profits for the Company. The Company estimates that these intangible assets have a weighted average useful life of ten years. Fair value estimates of property, plant and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate. As a result of the June 2018 acquisition of Skyline Corporation, level 3 fair value estimates of $44.6 million related to property, plant and equipment and $43.3 million related to intangible assets were recorded in the accompanying condensed consolidated balance sheets as of September 29, 2018. For further information on acquired assets measured at fair value, see Note 6, Goodwill and Intangible Assets. The Company allocated a portion of the preliminary estimated purchase price to certain realizable deferred tax assets totaling $28.4 million. Deferred tax assets are primarily federal and state net operating loss carryforwards and credits offset by a valuation allowance for certain state net operating loss carryforwards that are not expected to be realized. The deferred tax assets are offset by deferred tax liabilities of $18.7 million resulting from the purchase price allocation step-up in fair value that exceed the historical tax basis. Included in the Company’s results of operations for the three and six months ended September 29, 2018, are results from the business acquired as follows:
(Dollars in thousands) |  | Three Months Ended September 29, 2018 |  |  | Six Months Ended September 29, 2018 |
Net sales |  | $ | 68,083 |  |  | $ | 90,144 |
A summary of the results of operations for the Company, on an as reported and on a pro forma basis, are as follows:
|  | Three Months Ended September 30, 2017 |  |  | Six Months Ended September 29, 2018 |  |  | Six Months Ended September 30, 2017 |
(Dollars in thousands) |  | Reported |  |  | Pro forma |  |  | Reported |  |  | Pro forma |  |  | Reported |  |  | Pro forma |
Net sales |  | $ | 259,963 |  |  | $ | 318,425 |  |  | $ | 677,697 |  |  | $ | 723,501 |  |  | $ | 504,065 |  |  | $ | 621,990 |
Net income (loss) |  |  | 7,408 |  |  |  | 8,058 |  |  |  | (77,878 | ) |  |  | (62,769 | ) |  |  | 12,671 |  |  |  | 14,247 |
The pro forma results are based on adding the historical results of operations of Champion Holdings and the Company and adjusting primarily for the amortization of intangibles created in the Exchange; the increase in depreciation as a result of the step-up in fair value of property, plant and equipment; removing transaction costs directly associated with the Exchange; removing one-time equity-based compensation expense directly resulting from the Exchange; reflecting the financing arrangements entered into in connection with the Exchange, and adjusting those items for income taxes. The pro forma disclosures do not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the Exchange or any integration costs. The pro forma data is intended for informational purposes and is not indicative of the future results of operations. The Exchange was completed during the first quarter of fiscal 2019, and therefore, there was no difference between the results of operations on an as reported and pro forma basis for the three months ended September 29, 2018. The Exchange Agreement provided that Champion Holdings was permitted to pay a capital distribution prior to completion of the Exchange to the extent it had cash in excess of debt and other debt-like items and unpaid Exchange fees and expenses. Prior to the completion of the Exchange, Champion Holdings made a capital distribution to its members equal to an aggregate of $65.3 million (of which $22.5 million was reflected as a reduction to retained earnings (accumulated deficit) and $42.8 million was reflected as a reduction to members’ contributed capital).

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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