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2. Acquisition | 9 Months Ended
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Oct. 29, 2017
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] |
2. | Acquisition
On September 29, 2017, we completed the previously announced acquisition (the “Acquisition”) of substantially all of the assets of SFI pursuant to the Asset Purchase Agreement the Company and SFI entered into on September 6, 2017 (the “Asset Purchase Agreement”). Upon completion and subject to post-closing working capital adjustments, the Company paid $32.7 million in cash (the “Cash Consideration”) and issued 176,018 shares of the Company’s common stock (the “Stock Consideration”) to the shareholders of SFI as consideration for the Acquisition. The Cash Consideration included an additional payment of approximately $650,000 pursuant to working capital adjustments provided for in the Asset Purchase Agreement. The number of shares of common stock issued at closing for the Stock Consideration was determined by reference to the mean closing price of the Company’s common stock for the ten trading days immediately preceding the business day preceding the closing date ($45.45). Under the Asset Purchase Agreement, we also assumed certain liabilities of SFI. The assumed liabilities did not include the indebtedness (as defined in the Asset Purchase Agreement) of SFI. Also on September 29, 2017, we entered into a second amended and restated loan agreement (the “Loan Agreement”) with Bank of America, N.A. (“BofA”) in connection with the completion of the Acquisition. The Loan Agreement amends and restates the amended and restated loan agreement the Company entered into with BofA on February 1, 2016, in connection with its acquisition of the substantially all of the assets of Home Meridian International, Inc. The Amended and Restated Loan Agreement provides us with a new $12 million unsecured term loan (the “New Unsecured Term Loan”). On September 29, 2017, we borrowed the full $12 million available under the New Unsecured Term Loan in connection with the completion of the Acquisition. For additional details regarding the Loan Agreement, see Note 9. “Debt,” below. In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Acquisition has been accounted for using the acquisition method of accounting. We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from SFI at their respective fair values at the date of completion of the Acquisition. The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill. The following table summarizes the estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Acquisition as of September 29, 2017. Inventory, prepaids and accounts payable values have been finalized. We are currently reviewing the net working capital adjustment as specified in the Asset Purchase Agreement, consequently, the accounts receivable, and accrued expenses values are subject to change. The preliminary estimates of fair value of property and equipment, intangible assets and goodwill are preliminary values, and subject to change as our appraisals and estimates are finalized during the fiscal 2018 fourth quarter.
Fair value estimates of assets acquired and liabilities assumed |  |  |
Purchase price consideration |  |  |
Cash paid for assets acquired, including working capital adjustment |  | $ | 32,650 |
Value of shares issued for assets acquired |  |  | 8,000 |
Fair value adjustment to shares issued for assets acquired* |  |  | 396 |
Total purchase price |  | $ | 41,046 |
Accounts receivable |  | $ | 3,576 |
Inventory |  |  | 2,380 |
Prepaid expenses and other current assets |  |  | 52 |
Property and equipment |  |  | 5,418 |
Intangible assets |  |  | 13,193 |
Goodwill |  |  | 17,645 |
Accounts payable |  |  | (699 | )
Accrued expenses |  |  | (519 | )
Total purchase price |  | $ | 41,046 |
*As provided by the Asset Purchase Agreement, we calculated the number of common shares issued to SFI by dividing $8 million by the mean closing price of our common stock for the ten trading days immediately preceding the business day immediately preceding the closing date ($45.45). However, U.S. Generally Accepted Accounting Standards provide that we value stock consideration exchanged in the Acquisition at fair value. Consequently, we adjusted the purchase price by $396,000, which represents the difference in the mean closing price of our common shares described in this paragraph and the price on September 29, 2017, multiplied by the number of common shares issued (176,018.) No additional consideration was transferred to SFI as a result of this adjustment. Property and equipment were recorded at fair value and primarily consist of machinery and equipment and leasehold improvements. Property and equipment will be amortized over their estimated useful lives and leasehold improvements will be amortized over the lesser of their useful lives or the remaining lease period. Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All goodwill in expected to be deductible for income tax purposes. Intangible assets, consist of three separately identified assets:
§ | Shenandoah customer relationships, which are definite-lived intangible assets with an aggregate fair value of $12.1 million. The customer relationships are amortizable and will be amortized over a period of thirteen years;
§ | The Shenandoah tradename, an indefinite lived intangible asset with a fair value of $645,000. The tradename is not subject to amortization, but will be evaluated annually, and as circumstances dictate, for impairment; and
§ | Shenandoah’s order backlog which is a definite-lived intangible asset with an aggregate fair value of $479,000 that we will amortize over four months, with most of the expense recognized in the fiscal 2018 fourth quarter.
The total weighted average amortization period for these assets is 12.5 years. The following unaudited consolidated pro forma summary has been prepared by adjusting our historical data to give effect to the Acquisition as if it had occurred on February 1, 2016:
|  | 13 Weeks Ended |  |  | 39 Weeks Ended |
|  | October 30, 2016 |  |  | October 30, 2016 |
|  | (Pro forma) |  |  | (Pro forma) |
Net Sales |  | $ | 156,570 |  |  | $ | 434,921 |
Net Income |  | $ | 7,268 |  |  | $ | 16,257 |
Basic EPS |  | $ | 0.63 |  |  | $ | 1.41 |
Diluted EPS |  | $ | 0.62 |  |  | $ | 1.39 |
|  | Pro Forma - Unaudited |
|  | 13 Weeks Ended |  |  | 39 Weeks Ended |
|  | October 29, 2017 |  |  | October 29, 2017 |
|  | (Pro forma) |  |  | (Pro forma) |
Net Sales |  | $ | 165,777 |  |  | $ | 474,610 |
Net Income |  | $ | 9,218 |  |  | $ | 24,223 |
Basic EPS |  | $ | 0.79 |  |  | $ | 2.09 |
Diluted EPS |  | $ | 0.78 |  |  | $ | 2.06 |
The unaudited consolidated pro forma financial information was prepared in accordance with existing standards and is not necessarily indicative of the results of operations that would have occurred if the Acquisition had been completed on the date indicated, nor is it indicative of our future operating results. Material adjustments included in the pro forma financial information in the table above consist of amortization of intangible assets, elimination of transaction related costs in fiscal 2018 proforma results and recording of interest on short and long-term debt incurred to facilitate this transaction. The unaudited pro forma results do not reflect events that either have occurred or may occur after the Acquisition, including, but not limited to, the anticipated realization of savings from operating synergies in subsequent periods. They also do not give effect to certain charges that we expect to incur in connection with the Acquisition, including, but not limited to, additional professional fees, employee integration, retention, potential asset impairments and accelerated depreciation and amortization. We have incurred approximately $700,000 in Acquisition-related costs so far in fiscal 2018. These expenses are included in the “Selling and administrative expenses” line of our condensed consolidated statements of income. Included in our fiscal 2018 third quarter and year-to-date results are Shenandoah’s October results, which include $3.1 million in net sales and $197,000 of operating income, including $290,000 in intangible amortization expense.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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