Exhibit 99.1
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AND OTHER DATA
The following summary unaudited pro forma condensed combined financial information and other data of the Company are presented to illustrate the pro forma effects of the Transactions as described in more detail under “Unaudited Pro Forma Combined Financial Information.”
The unaudited pro forma condensed combined balance sheet as of August 31, 2019 combines the historical consolidated balance sheet of Winnebago and Newmar as of August 31, 2019, giving effect to the Transactions as if they had occurred on August 31, 2019. The unaudited pro forma combined statement of income for Fiscal 2019, combines the historical statement of income of Winnebago Fiscal 2019 and the historical statement of income of Newmar for the twelve months ended June 30, 2019 giving effect to the Transactions as if they had occurred on August 26, 2018, the first day of fiscal 2018.
The summary unaudited pro forma condensed combined financial information and other data set forth below give effect to the Newmar Acquisition and the other transactions described in “Unaudited Pro Forma Condensed Combined Financial Information,” as well as, in the case of Pro Forma Adjusted EBITDA, certain other adjustments. The Newmar Acquisition will be treated as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification 805, “Business Combinations” (“ASC 805”).
The summary unaudited pro forma condensed combined financial information and other data should be read in conjunction with the information included under the headings “— Summary Historical Consolidated Financial Data of Winnebago,” “— Summary Historical Consolidated Financial Data of Newmar,” “The Transactions,” “Unaudited Pro Forma Condensed Combined Financial Information,” and the historical consolidated financial statements of Winnebago and related notes and the historical consolidated financial statements of Newmar and related notes, each of which is included elsewhere in this offering memorandum or incorporated by reference herein.
The following summary unaudited pro forma condensed combined financial information and other data are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor are they indicative of future operating results. To the extent the Newmar Acquisition is not consummated, the benefits of such acquisition will not be achieved.
|
($ in thousands) |
|
Pro Forma
Fiscal
2019 (unaudited) |
|
|
Statement of Income Data: |
|
|
|
|
Net revenues |
|
$ |
2,646,784 |
|
|
Cost of goods sold |
|
2,258,634 |
|
|
Gross profit |
|
388,150 |
|
|
Selling, general and administrative expenses |
|
174,517 |
|
|
Amortization of intangible assets |
|
15,168 |
|
|
Total operating expenses |
|
189,685 |
|
|
Operating income |
|
198,465 |
|
|
Interest expense |
|
38,921 |
|
|
Non-operating income |
|
(1,581 |
) |
|
Income before income taxes |
|
161,125 |
|
|
Provision for income taxes |
|
32,553 |
|
|
Net income |
|
$ |
128,572 |
|
|
Balance Sheet Data: |
|
|
|
|
Cash and cash equivalents |
|
$ |
10,562 |
|
|
Total assets |
|
$ |
1,493,036 |
|
|
Long-term debt, less current maturities |
|
$ |
442,650 |
|
|
Total stockholders’ equity |
|
$ |
766,611 |
|
|
Other Financial Data: |
|
|
|
|
Pro Forma EBITDA(1) |
|
$ |
231,147 |
|
|
Pro Forma Adjusted EBITDA(1) |
|
$ |
233,618 |
|
|
Pro Forma Capital Expenditures |
|
$ |
44,246 |
|
|
Pro Forma Free Cash Flow(1) |
|
$ |
189,372 |
|
|
Pro Forma Total Net Leverage Ratio(2) |
|
2.2 |
|
(1) Pro Forma EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow are non-GAAP financial measures. Pro Forma EBITDA is derived from the unaudited pro forma financial information contained elsewhere in this offering memorandum or incorporated by reference herein. See “— Summary Historical Consolidated Financial Data of Winnebago,” “— Summary Historical Consolidated Financial Data of Newmar,” and “Unaudited Pro Forma Condensed Combined Financial Information.” Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow are also derived from the unaudited pro forma financial information contained elsewhere in this offering memorandum or incorporated by reference herein. We have included these non-GAAP performance measures as comparable measures to illustrate the effect of non-recurring transactions occurring during the year and improve comparability of our results from period to period. Pro Forma EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow are calculated by giving pro forma effect to the Transactions as if they had occurred at the beginning of the fiscal year. Pro Forma EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow are not the mathematical addition of Winnebago’s and Newmar’s EBITDA, Adjusted EBITDA and Free Cash Flow, respectively. See “Non-GAAP Financial Measures” for a discussion of the reasons why management believes Pro Forma EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow are useful in evaluating our business and also for a discussion of the analytical limitations of these measures.
The following table reconciles pro forma net income to Pro Forma Adjusted EBITDA and Pro Forma Free Cash Flow for the period presented.
|
($ in thousands) |
|
Fiscal
2019 |
|
|
Pro forma net income |
|
$ |
128,572 |
|
|
Depreciation and amortization |
|
31,101 |
|
|
Income taxes |
|
32,553 |
|
|
Interest expense |
|
38,921 |
|
|
Pro Forma EBITDA |
|
$ |
231,147 |
|
|
Certain non-recurring expenses |
|
2,984 |
|
|
Restructuring expense |
|
1,068 |
|
|
Non-operating income |
|
(1,581 |
) |
|
Pro Forma Adjusted EBITDA |
|
$ |
233,618 |
|
|
Pro Forma Capital Expenditures |
|
44,246 |
|
|
Pro Forma Free Cash Flow |
|
$ |
189,372 |
|
(2) Pro Forma Total Net Leverage Ratio means pro forma total net debt divided by Pro Forma Adjusted EBITDA.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF NEWMAR
The following table sets forth summary historical consolidated financial data for Newmar as of and for each of the periods indicated. The summary historical consolidated statement of income and cash flow data for the year ended December 31, 2018 and the summary historical consolidated balance sheet data as of December 31, 2018 presented below have been derived from Newmar’s audited consolidated financial statements included elsewhere in this offering memorandum.
The summary historical consolidated statement of income data for the six months ended June 30, 2018 and 2019, and the summary historical consolidated balance sheet data as of June 30, 2018 and 2019 also presented below has been derived from Newmar’s unaudited consolidated financial statements included elsewhere in this offering memorandum. Newmar has prepared its unaudited consolidated financial statements on the same basis as its audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in its opinion, are necessary to fairly state the financial information set forth in those statements.
In addition, the summary unaudited historical consolidated financial data for the twelve months ended June 30, 2019 were calculated by subtracting the summary unaudited consolidated historical financial information for the six months ended June 30, 2018 from the summary audited consolidated historical financial information for the year ended December 31, 2018, and then adding the summary unaudited consolidated historical financial information for the six months ended June 30, 2019. Results for the twelve-month period ended June 30, 2019 are not necessarily indicative of the results that may be expected for any period.
This information is only a summary. The historical results presented below are not necessarily indicative of the results to be expected for any future period. You should read the following summary information in conjunction with Newmar’s audited consolidated financial statements and the related notes included elsewhere in this offering memorandum.
|
|
|
Year Ended
December 31, |
|
Six Months Ended June 30, |
|
Twelve
Months
Ended
June 30, |
|
|
($ in thousands) |
|
2018 |
|
2018 |
|
2019 |
|
2019 |
|
|
|
|
(audited) |
|
(unaudited) |
|
(unaudited) |
|
|
Consolidated Statements of Income Data: |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
618,913 |
|
$ |
287,825 |
|
$ |
330,022 |
|
$ |
661,110 |
|
|
Cost of goods sold |
|
541,325 |
|
251,508 |
|
289,957 |
|
579,774 |
|
|
Gross margin |
|
77,588 |
|
36,317 |
|
40,065 |
|
81,336 |
|
|
Selling, general and administrative expenses |
|
35,929 |
|
18,975 |
|
20,754 |
|
37,708 |
|
|
Operating income |
|
41,659 |
|
17,341 |
|
19,311 |
|
43,628 |
|
|
Interest expense, net |
|
467 |
|
144 |
|
525 |
|
848 |
|
|
Net income |
|
$ |
41,192 |
|
$ |
17,197 |
|
$ |
18,786 |
|
$ |
42,780 |
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,682 |
|
$ |
4,328 |
|
$ |
5,753 |
|
|
|
|
Total current assets |
|
109,997 |
|
102,642 |
|
125,599 |
|
|
|
|
Line of credit |
|
11,000 |
|
5,000 |
|
8,000 |
|
|
|
|
Total shareholders’ equity and redeemable common stock |
|
70,994 |
|
59,375 |
|
76,756 |
|
|
|
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
26,338 |
|
$ |
19,260 |
|
$ |
20,642 |
|
$ |
27,720 |
|
|
Net cash used in investing activities |
|
(3,532 |
) |
(2,368 |
) |
(2,300 |
) |
(3,464 |
) |
|
Net cash used in financing activities |
|
(21,361 |
) |
(14,802 |
) |
(16,271 |
) |
(22,830 |
) |
|
Non-GAAP Financial Data: |
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
43,803 |
|
$ |
18,281 |
|
$ |
21,110 |
|
$ |
46,632 |
|
|
Adjusted EBITDA(1) |
|
46,771 |
|
18,537 |
|
21,382 |
|
49,616 |
|
|
Capital Expenditures |
|
(3,680 |
) |
(1,568 |
) |
(1,276 |
) |
(3,388 |
) |
(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures. These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as supplemental information and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies. See “Non-GAAP Financial Measures” for a discussion of the reasons why management believes EBITDA and Adjusted EBITDA are useful in evaluating our business and also for a discussion of the analytical limitations of these measures.
The following table reconciles net income to consolidated Adjusted EBITDA for the periods presented.
|
|
|
Year Ended
December 31, |
|
Six Months Ended
June 30, |
|
Twelve
Months
Ended
June 30, |
|
|
($ in thousands) |
|
2018 |
|
2018 |
|
2019 |
|
2019 |
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Net income |
|
$ |
41,192 |
|
$ |
17,197 |
|
$ |
18,786 |
|
$ |
42,781 |
|
|
Depreciation and amortization |
|
1,656 |
|
845 |
|
1,453 |
|
2,264 |
|
|
Income taxes |
|
488 |
|
95 |
|
346 |
|
739 |
|
|
Interest expense |
|
467 |
|
144 |
|
525 |
|
848 |
|
|
EBITDA |
|
$ |
43,803 |
|
$ |
18,281 |
|
$ |
21,110 |
|
$ |
46,632 |
|
|
Certain non-recurring expenses |
|
2,968 |
|
256 |
|
272 |
|
2,984 |
|
|
Adjusted EBITDA |
|
$ |
46,771 |
|
$ |
18,537 |
|
$ |
21,382 |
|
$ |
49,616 |
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On September 15, 2019, Winnebago Industries, Inc. (the “Company” or “Winnebago”), through its wholly owned subsidiary Octavius Corporation, entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among the Company, Newmar Corporation (“Newmar Corporation”), Dutch Real Estate Corp. (“Dutch”), New-Way Transport Corp. (“New-Way Transport”), and New-Serv, Inc. (“New-Serv”) (Newmar Corporation, Dutch, New-Way Transport, New-Serv, and Newmar Risk Management, as defined below, collectively “Newmar Acquired Companies”), the shareholders of Newmar Corporation, Dutch, New-Way Transport and New-Serv (the “Sellers”), and the sellers agent, regarding the proposed acquisition of the Newmar Acquired Companies by Winnebago (the “Transaction”).
Newmar Corporation owns all of the issued and outstanding Capital Stock of Newmar Risk Management, Inc. (“Newmar Risk Management”) and Newmar Corporation International (“Newmar International”) (together, “Newmar Corporation and Subsidiaries”). Dutch, New-Way Transport, and New-Serv are related entities of Newmar Corporation (“Newmar Related Entities”).
The Purchase Agreement provides that Winnebago will acquire all of the equity interests of the Newmar Acquired Companies. Following the Transaction, each of the Newmar Acquired Companies will be an indirect wholly-owned subsidiary of Winnebago.
Subject to the terms and conditions of the Purchase Agreement, as consideration for the acquisition of the Newmar Acquired Companies, Winnebago will, at the close of the Transaction, (i) pay in cash to the Sellers $270.0 million, subject to an upward adjustment (the “Base Cash Amount”) and (ii) transfer to the Sellers an aggregate of 2,000,000 shares of common stock of Winnebago, par value $0.50 per share, valued at a price per share based on the volume weighted average share price of Winnebago of the 5 trailing business days prior to the closing date of the Transaction (the “Closing Stock Consideration”). If the aggregate value of the Closing Stock Consideration is not sufficient for the sum of the Base Cash Amount and the aggregate value of the Closing Stock Consideration to equal at least $330.0 million at the closing, then the amount of cash included in the Base Cash Amount shall be increased so that the sum of the Base Cash Amount and the Closing Stock Consideration is equal to $330.0 million. The Purchase Agreement also calls for a floor to Winnebago stock price of $20 per share, at which point Winnebago has a right to terminate the Transaction.
The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the Transaction and the other activities contemplated by the Purchase Agreement based on the historical financial position and results of operations of Winnebago and Newmar Corporation and Subsidiaries. In addition, the unaudited pro forma condensed combined financial information gives pro forma effect to the issuance of $300.0 million in aggregate principal amount of convertible notes in a private placement (the “Offering”), including the issuance of up to $30.0 million of additional convertible notes pursuant to the initial purchaser’s option to purchase additional convertible notes, and the use of the net proceeds from the Offering to fund the cost of entering into the convertible note hedge transactions (after such cost is partially offset by the proceeds that Winnebago receives from entering into certain warrant transactions), to fund the aggregate cash consideration paid in the Transaction, and to pay related fees and expenses. The unaudited pro forma condensed combined financial information gives effect to the Transaction and the Offering as if they had been completed on August 31, 2019, for balance sheet purposes and August 26, 2018, for statement of income purposes.
The closing of the Offering and issuance of the convertible notes is not conditioned on consummation of the Transaction. While the Company intends to use a substantial majority of the net proceeds from the issuance of the convertible notes to fund the Transaction, to pay fees and expenses related thereto and for general corporate purposes, once issued the convertible notes will remain outstanding whether or not the Transaction is consummated. In addition, the Company may issue less than $300.0 million aggregate principal amount of convertible notes in the Offering, as the Company has no control over the initial purchasers’ exercise of their option to purchase additional convertible notes. See “Use of Proceeds”, “Capitalization” and “Risk Factors — Our management may spend the proceeds of this offering in ways with which you may disagree or that may not be profitable.” The fiscal year end of Newmar Acquired Companies, which is December 31, has been conformed to the fiscal year end of Winnebago, which is the last Saturday in August, for the purpose of presenting the unaudited pro forma condensed combined financial statements, pursuant to Rule 11-02(c) (3) of Regulation S-X, because the fiscal year ends differed by more than 93 days.
The unaudited pro forma condensed combined financial information is presented as follows:
· the unaudited pro forma condensed combined balance sheet as of August 31, 2019, prepared based on (i) the historical audited consolidated balance sheet of Winnebago as of August 31, 2019 and (ii) the historical unaudited consolidated balance sheet of Newmar Corporation and Subsidiaries as of June 30, 2019; and
· the unaudited pro forma condensed combined statement of income for the year ended August 31, 2019 prepared based on (i) the historical audited consolidated statement of income of Winnebago for the year ended August 31, 2019 and (ii) the historical unaudited consolidated statement of income of Newmar Corporation and Subsidiaries for the trailing twelve months ended June 30, 2019 (see Note 2).
This unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the separate (i) audited consolidated financial statements and accompanying notes of Winnebago as of and for the year ended August 31, 2019 included in Winnebago’s Annual Report on Form 10-K that Winnebago filed with the SEC on October 23, 2019, (ii) Newmar Corporation and Subsidiaries’ unaudited consolidated financial statements as of and for the six months ended June 30, 2019 and 2018, and (iii) Newmar Corporation and Subsidiaries’ audited consolidated financial statements as of and for the year ended December 31, 2018.
The pro forma adjustments presented in the unaudited pro forma condensed combined financial statements also include adjustments for the pro forma impact of the Newmar Related Entities, which are not included in the historical Newmar Corporation and Subsidiaries’ financial statements (see Notes 6A and 7A). As part of the Transaction, the Company acquired three related entities (Newmar Related Entities) that are not included in the audited financial statements of Newmar Corporation and Subsidiaries, but which provided services to the entities reflected in the consolidated financial statements. The assets and operations of Newmar Related Entities were not material to the Company or the overall acquisition. The assets of these entities are primarily related to real estate associated with Newmar Corporation’s manufacturing facilities. The majority of the activities of these entities would have been eliminated in consolidation had these entities been included in financial statements of Newmar Corporation on a combined basis. These entities are reflected in the pro forma financial statements and the assets have been fair valued in arriving at the pro forma balance sheet and income statements. Newmar Related Entities account for less than two percent of the assets and operations of the combined total Company post-acquisition and are not material to the pro forma information or the ongoing financial position or operations of the Company.
The Transaction will be accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations,” (“ASC 805”) with Winnebago being designated as the accounting acquirer of Newmar Acquired Companies. The unaudited pro forma condensed combined financial information set forth below primarily gives effect to the following:
· the alignment of accounting policies and financial statement classifications of Newmar Acquired Companies to those of Winnebago;
· application of the acquisition method of accounting in connection with the Transaction; and
· new debt financing in an aggregate principal amount of $300 million (including additional convertible notes issued pursuant to the initial purchasers’ option) in connection with the Transaction.
The unaudited pro forma condensed combined financial information has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the Transaction and the Offering been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. The accompanying unaudited pro forma condensed combined statement of income does not include any pro forma adjustments to reflect certain expected financial benefits of the Transaction, such as tax savings, cost synergies, revenue synergies or restructuring actions which may be achievable, the anticipated costs to achieve these benefits, including the cost of integration activities, or the impact of any non-recurring activity and one-time transaction related costs.
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under existing United States generally accepted accounting principles (“U.S. GAAP”), which are subject to change. Winnebago will be deemed the acquirer for accounting purposes and Newmar Acquired Companies will be treated as the acquiree, based on a number of factors considered at the time of preparation, such as the legal form of the Transaction, relative size (assets, revenues, or earnings), terms of the exchange, relative voting rights in the combined company after the business combination, etc. The acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. Winnebago intends to complete the valuations and other studies upon completion of the Transaction and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the Transaction. The assets and liabilities of Newmar Acquired Companies have been measured based on various preliminary estimates using
assumptions that Winnebago believes are reasonable, based on information that is currently available. Accordingly, the valuations are preliminary and have been made solely for the purpose of providing pro forma condensed combined financial information prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Differences between these preliminary estimates and the final acquisition accounting will occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company’s future results of operations and financial position.
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Winnebago in all material aspects. Upon completion of the Transaction, Winnebago will perform a detailed review of Newmar Acquired Companies’ accounting policies. As a result of that review, Winnebago may identify additional differences between the accounting policies of the two companies that, when conformed, could have an impact on the financial statements of the combined company.
Additionally, certain financial information of Newmar Corporation and Subsidiaries as presented in its historical financial statements has been reclassified to conform to the historical presentation in Winnebago’s financial statements for purposes of preparation of the unaudited pro forma condensed combined financial information (see Note 8). There were no transactions between Winnebago and the Newmar Acquired Companies during the period presented in the unaudited pro forma condensed combined financial information.
Winnebago Industries, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
August 31, 2019
|
(In thousands, except per share data) |
|
Winnebago
Industries, Inc. |
|
(Note 8)
Newmar
Corporation
and
Subsidiaries |
|
Pro Forma
Adjustments |
|
Note |
|
Pro Forma
Combined |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,431 |
|
$ |
9,963 |
|
$ |
(9,963 |
) |
6A,6B |
|
$ |
|
|
|
|
|
|
|
|
|
254,000 |
|
6B |
|
|
|
|
|
|
|
|
|
|
(280,869 |
) |
6B |
|
10,562 |
|
|
Receivables, less allowance for doubtful accounts |
|
158,049 |
|
42,166 |
|
(51 |
) |
6A |
|
200,164 |
|
|
Inventories |
|
201,126 |
|
70,477 |
|
3,854 |
|
6C |
|
275,457 |
|
|
Prepaid expenses and other assets |
|
14,051 |
|
2,993 |
|
— |
|
|
|
17,044 |
|
|
Total current assets |
|
410,657 |
|
125,599 |
|
(33,029 |
) |
|
|
503,227 |
|
|
Property, plant, and equipment, net |
|
127,572 |
|
14,996 |
|
15,155 |
|
6A |
|
|
|
|
|
|
|
|
|
|
7,197 |
|
6D |
|
164,920 |
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
274,931 |
|
— |
|
83,387 |
|
6E |
|
358,318 |
|
|
Other intangible assets, net |
|
256,082 |
|
— |
|
175,500 |
|
6F |
|
431,582 |
|
|
Investment in life insurance |
|
26,846 |
|
— |
|
— |
|
|
|
26,846 |
|
|
Other assets |
|
8,143 |
|
— |
|
— |
|
|
|
8,143 |
|
|
Total assets |
|
$ |
1,104,231 |
|
$ |
140,595 |
|
$ |
248,210 |
|
|
|
$ |
1,493,036 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
81,635 |
|
$ |
17,424 |
|
$ |
(82 |
) |
6A |
|
$ |
98,977 |
|
|
Income taxes payable |
|
— |
|
1,061 |
|
7 |
|
6A |
|
1,068 |
|
|
Accrued expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation |
|
20,328 |
|
7,709 |
|
— |
|
|
|
28,037 |
|
|
Product warranties |
|
44,436 |
|
15,860 |
|
— |
|
|
|
60,296 |
|
|
Self-insurance |
|
13,820 |
|
570 |
|
— |
|
|
|
14,390 |
|
|
Promotional |
|
10,896 |
|
2,709 |
|
— |
|
|
|
13,605 |
|
|
Accrued interest |
|
4,059 |
|
— |
|
— |
|
|
|
4,059 |
|
|
Other |
|
13,678 |
|
1,232 |
|
— |
|
|
|
14,910 |
|
|
Current maturities of long-term debt |
|
8,892 |
|
— |
|
— |
|
|
|
8,892 |
|
|
Total current liabilities |
|
197,744 |
|
46,565 |
|
(75 |
) |
|
|
244,234 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
245,402 |
|
11,690 |
|
(11,690 |
) |
6G |
|
|
|
|
|
|
|
|
|
|
197,248 |
|
6G |
|
442,650 |
|
|
Deferred income taxes |
|
12,032 |
|
— |
|
5,084 |
|
6H |
|
17,116 |
|
|
Unrecognized tax benefits |
|
3,591 |
|
— |
|
— |
|
|
|
3,591 |
|
|
Deferred compensation benefits, net of current portion |
|
12,878 |
|
— |
|
— |
|
|
|
12,878 |
|
|
Other |
|
372 |
|
5,584 |
|
— |
|
|
|
5,956 |
|
|
Total non-current liabilities |
|
274,275 |
|
17,274 |
|
190,642 |
|
|
|
482,191 |
|
|
Contingent liabilities and commitments |
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock |
|
— |
|
123,740 |
|
(123,740 |
) |
6I |
|
— |
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized-10,000 shares; Issued-none |
|
— |
|
— |
|
— |
|
|
|
— |
|
|
Common stock, par value $0.50: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized-60,000 shares; Issued-51,776 shares |
|
25,888 |
|
— |
|
1,000 |
|
6J |
|
26,888 |
|
|
Additional paid-in capital |
|
91,185 |
|
8 |
|
144,260 |
|
6J |
|
235,453 |
|
|
Retained earnings |
|
866,886 |
|
(46,992 |
) |
36,123 |
|
6J |
|
856,017 |
|
|
Accumulated other comprehensive loss |
|
(491 |
) |
— |
|
— |
|
|
|
(491 |
) |
|
Treasury stock, at cost: 20,262 shares |
|
(351,256 |
) |
— |
|
— |
|
|
|
(351,256 |
) |
|
Total stockholders’ equity |
|
632,212 |
|
(46,984 |
) |
181,383 |
|
|
|
766,611 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
1,104,231 |
|
$ |
140,595 |
|
$ |
248,210 |
|
|
|
$ |
1,493,036 |
|
Winnebago Industries, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
Year Ended August 31, 2019
|
(in thousands, except per share data) |
|
Winnebago
Industries, Inc. |
|
(Note 8) Newmar
Corporation and
Subsidiaries |
|
Pro Forma
Adjustments |
|
Note |
|
Pro Forma
Combined |
|
|
Net revenues |
|
$ |
1,985,674 |
|
$ |
661,110 |
|
$ |
— |
|
|
|
$ |
2,646,784 |
|
|
Cost of goods sold |
|
1,678,477 |
|
579,774 |
|
131 |
|
7A |
|
|
|
|
|
|
|
|
|
|
252 |
|
7B |
|
2,258,634 |
|
|
Gross profit |
|
307,197 |
|
81,336 |
|
(383 |
) |
|
|
388,150 |
|
|
Selling, general, and administrative expenses |
|
142,295 |
|
36,968 |
|
(3,829 |
) |
7A |
|
|
|
|
|
|
|
|
|
|
(265 |
) |
7B |
|
|
|
|
|
|
|
|
|
|
(652 |
) |
7C |
|
174,517 |
|
|
Amortization of intangible assets |
|
9,635 |
|
— |
|
5,533 |
|
7D |
|
15,168 |
|
|
Total operating expenses |
|
151,930 |
|
36,968 |
|
787 |
|
|
|
189,685 |
|
|
Operating income |
|
155,267 |
|
44,368 |
|
(1,170 |
) |
|
|
198,465 |
|
|
Interest expense |
|
17,939 |
|
848 |
|
20,134 |
|
7E |
|
38,921 |
|
|
Non-operating income |
|
(1,581 |
) |
— |
|
— |
|
|
|
(1,581 |
) |
|
Income before income taxes |
|
138,909 |
|
43,520 |
|
(21,304 |
) |
|
|
161,125 |
|
|
Provision for income taxes |
|
27,111 |
|
740 |
|
4,702 |
|
7F |
|
32,553 |
|
|
Net income |
|
$ |
111,798 |
|
$ |
42,780 |
|
$ |
(26,006 |
) |
|
|
$ |
128,572 |
|
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.55 |
|
— |
|
— |
|
|
|
$ |
3.83 |
|
|
Diluted |
|
$ |
3.52 |
|
— |
|
— |
|
|
|
$ |
3.81 |
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
31,536 |
|
— |
|
2,000 |
|
7G |
|
33,536 |
|
|
Diluted |
|
31,721 |
|
— |
|
2,000 |
|
7G |
|
33,721 |
|
Note 1. Description of the Transaction and the Offering
Purchase Agreement
On September 15, 2019, Winnebago entered into the Purchase Agreement by and among Winnebago, Newmar Acquired Companies and the Sellers, pursuant to which Winnebago will acquire Newmar Acquired Companies.
Subject to the terms and conditions of the Purchase Agreement, as consideration for the acquisition of Newmar Acquired Companies, Winnebago will, at the close of the Transaction, (i) pay in cash to the Sellers $270 million, subject to an upward adjustment, referred to as the Base Cash Amount and (ii) transfer to the Sellers an aggregate of 2,000,000 shares of common stock of Winnebago, par value $0.50 per share, valued at a price per share based on the volume weighted average share price of Winnebago of the 5 trailing business days prior to the closing date of the Transaction, which is referred to as the Closing Stock Consideration.
If the aggregate value of the Closing Stock Consideration is not sufficient for the sum of the Base Cash Amount and the aggregate value of the Closing Stock Consideration to equal at least $330 million at the closing, then the amount of cash included in the Base Cash Amount shall be increased so that the sum of the Base Cash Amount and the Closing Stock Consideration is equal to $330 million.
Each of the Sellers have also agreed to a lock-up letter agreement that, subject to certain limited exceptions, restricts such Sellers from transferring their shares of Winnebago common stock for one year from closing.
The Purchase Agreement contains certain termination rights, including that either Winnebago or the Sellers may terminate the Purchase Agreement if the Transaction is not completed by January 31, 2020. The Purchase Agreement also provides that Winnebago may terminate the Purchase Agreement if the Company’s stock price falls below $20.00 per share, in which case Winnebago will pay the Sellers a termination fee of $5.0 million. The acquisition is not subject to approval by Winnebago’s shareholders.
Convertible Notes
To finance the acquisition consideration, Winnebago expects to sell and issue in a private placement an assumed $300.0 million aggregate principal amount of convertible notes, including the issuance of up to $30.0 million of additional convertible notes pursuant to the initial purchaser’s option to purchase additional convertible notes. The convertible notes will accrue interest at a fixed rate, payable semi-annually, and mature on April 1, 2025, the maturity date. The convertible notes will be convertible, at the holders’ option, in certain circumstances and during specified periods. Conversions of the notes will be settled in cash, shares of Winnebago common stock or a combination of cash and shares of Winnebago common stock (together with cash in lieu of any fractional share, if applicable), at Winnebago’s election. The conversion rate will be subject to adjustment upon the occurrence of certain events. Winnebago cannot redeem the convertible notes at its option prior to the maturity date.
Note 2. Basis of Pro Forma Presentation
The accompanying unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and has been derived from the audited and unaudited financial statements of Winnebago and Newmar Corporation and Subsidiaries. The financial information has been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the Transaction or the Offering, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing impact on the combined results of operations of Winnebago.
The fiscal year end of Newmar Acquired Companies, which is December 31, has been conformed to the fiscal year end of Winnebago, which is the last Saturday in August, for the purpose of presenting pro forma condensed combined financial statements, pursuant to Rule 11-02(c)(3) of Regulation S-X, as the fiscal years differed by more than 93 days. The historical statement of income of Newmar Corporation and Subsidiaries used in the unaudited pro forma condensed combined statement of income for the year ended August 31, 2019 was derived by adding the results from the unaudited consolidated statement of income for the six months ended June 30, 2019 to the results from the audited consolidated statement of income for the year ended December 31, 2018 and removing the results from the unaudited consolidated statement of income for the six months ended June 30, 2018.
The historical balance sheet of Newmar Corporation and Subsidiaries used in the unaudited pro forma condensed combined balance sheet as of August 31, 2019 was the unaudited consolidated balance sheet as of June 30, 2019.
In addition, certain amounts from the historical financial statements of Newmar Corporation and Subsidiaries were reclassified to conform their presentation to that of Winnebago (see Note 8).
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The acquisition method of accounting, in accordance with ASC 805, uses the fair value concepts defined in ASC 820, “Fair Value Measurement” (“ASC 820”).
ASC 820 defines fair value, establishes the framework for measuring fair value for any asset acquired or liability assumed under GAAP, expands disclosures about fair value measurements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of an asset or liability. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants, and as a result, assets may be required to be recorded which are not intended to be used or sold. Additionally, the fair value may not reflect management’s intended use for those assets.
Fair value measurements can be highly subjective and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.
The allocation of the aggregate transaction consideration, as well as certain amounts relating to the issuance of the convertible notes and the use of proceeds therefrom, used in the unaudited pro forma condensed combined financial information is based on preliminary estimates. The estimates and assumptions are subject to change as of the effective time of the closing of the Transaction and the Offering. The final determination of the allocation of the aggregate transaction consideration will be based on the actual tangible and intangible assets and the liabilities of Newmar Acquired Companies at the effective time of the Transaction (see Note 5).
Newmar Acquired Companies’ assets acquired and liabilities assumed will be recorded at their fair value at the transaction date. ASC 805 establishes that the consideration transferred shall be measured at the closing date of the Transaction at the then-current market price. This particular requirement will likely result in a per share equity component that is different from the amount assumed in this unaudited pro forma condensed combined financial information. The preliminary purchase price allocation assumes a common stock price of $49.24, the price at market close on October 23, 2019. The fair value of the Closing Stock Consideration also includes an approximate 5% discount for lack of marketability to reflect the one-year lock-up period on the Closing Stock Consideration. If the price of the Company’s common stock increases or decreases by 10%, the purchase price would increase or decrease by $9.3 million and could impact the purchase price allocation.
The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information has not been adjusted to give effect to certain expected financial benefits of the Transaction, such as tax savings, cost synergies or revenue synergies, or the anticipated costs to achieve these benefits, including the cost of integration activities. Also, the unaudited pro forma condensed combined financial information does not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the combination that are not expected to have a continuing impact on the business of the combined company. Further, one-time Transaction-related expenses anticipated to be incurred prior to, or concurrent with, the closing of the Transaction are not included in the unaudited pro forma condensed combined statement of income. For the year ended August 31, 2019, such acquisition-related expenses were $0.7 million. Management has identified an additional $10.9 million of acquisition-related expenses, not yet incurred.
Note 3: Accounting Policies
Winnebago has completed a preliminary review of significant accounting policies for purposes of the unaudited pro forma condensed combined financial information. None of the accounting policy differences that have been identified and quantified to date are material.
Winnebago adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) on August 26, 2018, utilizing the modified retrospective transition method, whereas Newmar Acquired Companies, as a private company, had not adopted Topic 606 prior to the closing of the Transaction. For the purposes of the unaudited condensed combined pro forma financial statements, the Company did an assessment of Topic 606 and determined that no material adjustments were necessary.
Winnebago will adopt ASU 2016-02, Leases (Topic 842) in the first quarter of Fiscal 2020 using the modified retrospective basis. Newmar Acquired Companies, as a private company, has not adopted Topic 842. As neither Winnebago nor Newmar Acquired Companies have adopted Topic 842, it has not been reflected in the unaudited pro forma condensed combined financial statements.
Upon completion of the Transaction, Winnebago will perform a detailed review of Newmar Acquired Companies’ accounting policies. As a result of that review, Winnebago may identify differences between the accounting policies of the two companies that, when conformed, could have an impact on the consolidated financial statements of the combined company.
Note 4: Estimated Transaction Consideration
The estimated consideration is calculated as follows (in thousands):
|
Fair value of Closing Stock Consideration |
|
$ |
93,600 |
|
|
Cash consideration |
|
270,000 |
|
|
Total consideration |
|
$ |
363,600 |
|
The estimate of consideration expected to be transferred and reflected in this unaudited pro forma condensed combined financial information does not purport to represent what the actual consideration transferred will be when the Transaction is completed. For purposes of these unaudited pro forma condensed combined financial statements, the market price of Winnebago common stock based on the October 23, 2019 market close of $49.24 was used to calculate the estimate of consideration expected to be transferred. The fair value of the Closing Stock Consideration also includes an approximate 5% discount for lack of marketability to reflect the one-year lock-up period on the Closing Stock Consideration.
Note 5: Purchase Accounting Adjustments
The following is a preliminary estimate of the assets to be acquired and the liabilities to be assumed by Winnebago in the Transaction, reconciled to estimated Transaction consideration (in thousands):
|
|
|
Amounts as of Acquisition Date |
|
|
Book value of net assets acquired at August 31, 2019: |
|
|
|
|
Newmar Corporation and Subsidiaries |
|
$ |
76,756 |
|
|
Newmar Related Entities |
|
19,629 |
|
|
Total book value of net assets acquired |
|
96,385 |
|
|
Adjusted for: |
|
|
|
|
Elimination of cash not acquired(1) |
|
(14,413 |
) |
|
Elimination of debt not assumed(1) |
|
11,690 |
|
|
Adjusted book value of net assets acquired |
|
93,662 |
|
|
Adjustments to: |
|
|
|
|
Inventories |
|
3,854 |
|
|
Property, plant, and equipment, net |
|
7,197 |
|
|
Other intangible assets, net |
|
175,500 |
|
|
Goodwill |
|
83,387 |
|
|
Estimate of consideration expected to be transferred |
|
$ |
363,600 |
|
(1) In accordance with the provisions of the Purchase Agreement, Winnebago will not acquire the historical cash or assume the historical debt of Newmar Acquired Companies. As such, cash and debt were removed from the adjusted book value of net assets acquired.
Note 6: Balance Sheet Adjustments
The following represents an explanation of the various adjustments to the unaudited pro forma condensed combined balance sheet.
A — Newmar Related Entities
Represents the adjustment to include the assets and liabilities of Newmar Related Entities, net of related entity eliminations, in the unaudited pro forma condensed combined balance sheet.
B — Cash and cash equivalents (in thousands):
|
Proceeds from new Winnebago debt issuance(1) |
|
$ |
300,000 |
|
|
Net cash paid for the convertible notes call spread overlay(1) |
|
(36,000 |
) |
|
Cash paid for debt issuance costs(1) |
|
(10,000 |
) |
|
Net cash impact of the Offering |
|
254,000 |
|
|
Cash paid by Winnebago to Sellers |
|
(270,000 |
) |
|
Cash paid for acquisition expenses(2) |
|
(10,869 |
) |
|
Net cash impact of the Transaction |
|
(280,869 |
) |
|
Cash from Newmar Related Entities |
|
4,450 |
|
|
Elimination of Newmar Acquired Companies cash not acquired |
|
(14,413 |
) |
|
Net elimination of Newmar Acquired Companies cash |
|
(9,963 |
) |
|
Total pro forma adjustment to cash and cash equivalents |
|
$ |
(36,832 |
) |
(1) Refer to Note 6G.
(2) Refer to Note 2.
C — Inventories
Represents an adjustment of $3.9 million to increase the carrying value of Newmar Acquired Companies’ inventories, for the preliminary estimated fair value, which is based on the expected selling price of inventory to customers and adjusted for related costs of disposal and a reasonable profit allowance for the post-acquisition selling effort. The fair value adjustment to inventories is expected to be recognized in the combined company’s statement of income within 90 days following the consummation of the Transaction.
D — Property, plant, and equipment, net
Represents the adjustment in carrying value of Newmar Acquired Companies’ property, plant, and equipment, net from its recorded net book value to its preliminary estimated fair value. The estimated fair value is expected to be depreciated over the estimated useful lives, generally on a straight-line basis. The preliminary amounts assigned to property, plant, and equipment, net are as follows (in thousands):
|
|
|
Estimated
Life in
Years(1) |
|
Historical
Carrying
Amount |
|
Newmar
Related
Entities(2) |
|
Fair Value
Adjustment |
|
Estimated
Fair Value |
|
|
Land |
|
N/A |
|
$ |
— |
|
$ |
3,091 |
|
$ |
859 |
|
$ |
3,950 |
|
|
Buildings and leasehold improvements |
|
15 - 19 |
|
8,444 |
|
9,846 |
|
4,520 |
|
22,810 |
|
|
Machinery and equipment |
|
6 |
|
3,806 |
|
— |
|
1,606 |
|
5,412 |
|
|
Transportation equipment |
|
5 |
|
150 |
|
42 |
|
83 |
|
275 |
|
|
Office furniture and equipment |
|
3 - 9 |
|
1,120 |
|
420 |
|
129 |
|
1,669 |
|
|
Construction-in-process |
|
N/A |
|
1,476 |
|
1,756 |
|
— |
|
3,232 |
|
|
Total property, plant, and equipment, net |
|
|
|
$ |
14,996 |
|
$ |
15,155 |
|
$ |
7,197 |
|
$ |
37,348 |
|
(1) Represents preliminary estimated life of assets to be acquired.
(2) Certain assets acquired in the Transaction are owned by Newmar Related Entities and are included in the preliminary estimated fair value.
The final determination of fair value of property, plant, and equipment, as well as estimated useful lives, remains subject to change. The finalization may have a material impact on the valuation of property, plant, and equipment and the purchase price allocation, which is expected to be finalized subsequent to the closing of the Transaction.
The preliminary estimate of fair value of Newmar Acquired Companies’ property, plant, and equipment was determined using either a direct cost approach analysis for the real property, or an indirect depreciated replacement cost method for the personal property, which is also a form of the “cost approach,” using currently available information, such as Newmar Acquired Companies’ balance sheet, fixed asset registers, or other physical characteristics information of the assets. This method applies asset class specific inflationary / deflationary factors to the original capitalized cost of the personal property assets or construction cost data for the real property assets being valued. The inflationary / deflationary factors and construction cost data used were derived from published sources. The estimated cost was then adjusted for physical depreciation calculated on a straight-line basis, considering the economic useful life and physical age of the assets being valued, for all asset classes.
The estimated useful lives used to calculate the physical depreciation reflect the weighted average remaining utility of each asset group based upon the relationship of preliminary value to replacement cost while considering each asset group’s estimated total economic life. The estimate of fair value and estimated useful lives is preliminary and subject to change once Winnebago has sufficient information as to the specific types, nature, age, condition, and location of Newmar Acquired Companies’ property, plant, and equipment.
E — Goodwill
Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying net tangible and identifiable intangible assets net of liabilities. Goodwill acquired in the Transaction is estimated to be $83.4 million. The estimated goodwill to be recognized is attributable primarily to expected synergies, expanded market opportunities, and other benefits that Winnebago believes will result from combining its operations with the operations of Newmar Acquired Companies.
F — Other intangible assets, net
Represents adjustments to record the preliminary estimated fair value of intangibles of approximately $175.5 million.
Identified intangible assets expected to be acquired consist of the following (in thousands):
|
|
|
Estimated Useful
Life in Years(1) |
|
Estimated
Fair Value |
|
|
Trade name |
|
Indefinite |
|
$ |
98,000 |
|
|
Dealer network |
|
12.0 |
|
64,000 |
|
|
Backlog |
|
0.7 |
|
12,500 |
|
|
Non-compete agreements |
|
5.0 |
|
1,000 |
|
|
Estimated fair value of identified other intangible assets, net |
|
|
|
$ |
175,500 |
|
The fair value estimate for all identifiable intangible assets is preliminary and is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold, or are intended to be used in a manner other than their best use. The final determination of fair value of intangible assets, as well as estimated useful lives, remains subject to change. The finalization may have a material impact on the valuation of intangible assets and the purchase price allocation, which is expected to be finalized subsequent to the Transaction.
Management relied on methods under the income approach — specifically the relief-from-royalty method for trade names and multi-period excess earnings method for backlog. For the dealer network, management utilized a cost to recreate method.
The preliminary estimated fair value allocated to indefinite-lived intangible assets consists primarily of trademarks. The assumption that these intangibles will not be amortized and will have indefinite remaining useful lives is based on many factors and considerations, including brand awareness and the assumption of the continued use of the Newmar brand as part of the marketing strategy of the combined company. These assumptions and adjustments are preliminary. The actual adjustment may differ materially based on the final determination of fair value and is subject to change.
G — Long-term debt, less current maturities (in thousands):
|
|
|
Estimated Amounts as
of Acquisition Date |
|
|
New Winnebago debt |
|
|
|
|
Principal amount of convertible notes |
|
$ |
300,000 |
|
|
Estimated debt discount on convertible notes(1) |
|
(92,752 |
) |
|
Estimated debt issuance costs on convertible notes |
|
(10,000 |
) |
|
Net new Winnebago debt |
|
197,248 |
|
|
Elimination of existing Newmar Acquired Companies debt |
|
(11,690 |
) |
|
Total pro forma adjustments to long-term debt, less current maturities |
|
$ |
185,558 |
|
(1) In accordance with the applicable accounting guidance, the convertible offering notes are expected to be subject to separate accounting for their liability and equity components, with the initial liability component determined by estimating the fair value of a similar liability instrument that does not have an associated equity component conversion feature, with the difference recognized as the equity component (see Note 6J). The equity component and the initial value of the debt discount have been approximated based on estimates, including the expected terms of the convertible notes, conversion premium of 30%, comparable non-convertible interest of 9% and market and other factors. Accordingly, the actual financial statement presentation of the convertible notes, if they are issued, may differ from that presented above.
H — Deferred income taxes
Represents an estimate of net deferred income tax liabilities of $5.1 million related to the issuance of the convertible notes and the call spread overlay.
I — Redeemable common stock
Represents the elimination of $123.7 million of Newmar Acquired Companies redeemable common stock.
J — Stockholders’ equity
Represents the elimination of Newmar Acquired Companies capital and retained earnings, as well as adjustments to reflect the capital structure of the combined company (in thousands):
|
|
|
Estimated Amounts as
of Acquisition Date |
|
|
Issuance of Winnebago common stock at par value as Closing Stock Consideration(1) |
|
$ |
1,000 |
|
|
Common stock |
|
1,000 |
|
|
Issuance of Winnebago common stock in excess of par value as Closing Stock Consideration(2) |
|
92,600 |
|
|
Elimination of historical Newmar Acquired Companies additional paid-in capital |
|
(8 |
) |
|
Estimated equity component of convertible notes, net of deferred tax liabilities of $22,724(3) |
|
70,028 |
|
|
Estimated net cost of convertible notes call spread overlay, net of deferred tax assets of $17,640 |
|
(18,360 |
) |
|
Additional paid-in capital |
|
144,260 |
|
|
Elimination of historical Newmar Acquired Companies retained earnings |
|
46,992 |
|
|
Estimate of transaction expenses(4) |
|
(10,869 |
) |
|
Retained earnings |
|
36,123 |
|
|
Total adjustments to stockholders’ equity |
|
$ |
181,383 |
|
(1) Represents the issuance of 2,000,000 shares $0.50 par value per share, of common stock. (See Note 4.)
(2) Represents the fair value of Closing Stock Consideration in excess of par value. (See Note 4.)
(3) See Note 6G.
(4) Represents Transactions-related expenses, not yet incurred as of the pro forma balance sheet dated August 31, 2019. Refer to Note 2.
Note 7: Statement of Income Adjustments
The following represents an explanation of the various adjustments to the unaudited pro forma condensed combined statement of income.
A — Newmar Related Entities
Represents the adjustment to include the income and expenses of Newmar Related Entities, net of related entity eliminations, in the unaudited pro forma condensed combined statement of income.
B — Depreciation of property, plant, and equipment
Represents estimated depreciation expense related to the pro forma adjustment to property, plant, and equipment (see Note 6D). Pro forma depreciation has been estimated on a preliminary basis as follows (in thousands):
|
|
|
Year Ended
August 31, 2019 |
|
|
Estimated depreciation for acquired property, plant, and equipment |
|
$ |
2,710 |
|
|
Historical Newmar Acquired Companies depreciation expense |
|
(2,723 |
) |
|
Total pro forma adjustment related to depreciation |
|
$ |
(13 |
) |
|
Pro forma depreciation adjustment to cost of goods sold |
|
$ |
252 |
|
|
Pro forma depreciation adjustment to selling, general, and administrative expenses |
|
(265 |
) |
|
Total pro forma adjustment related to depreciation |
|
$ |
(13 |
) |
For each 10% increase or decrease in the fair value of buildings and leasehold improvements, the annual depreciation expense would increase or decrease by $0.1 million. If the useful life for buildings and leasehold improvements were to increase or decrease by 1 year, the annual depreciation expense will decrease or increase by $0.1 million.
For 10% increase or decrease in the fair value of machinery and equipment, the annual depreciation expense would increase or decrease by $0.1 million. If the useful life for machinery and equipment increases or decreases by 1 year, the annual depreciation expense will decrease or increase by $0.2 million.
If the fair value of all other assets combined increases or decreases by 10% in value, the annual depreciation expense would increase or decrease by $0.1 million. If the useful life for all other assets combined increases or decreases by 1 year, the annual depreciation expense will decrease or increase by $0.1 million.
C — Transaction costs
Represents the elimination of $0.7 million of non-recurring transaction-related costs directly attributable to the Transaction recorded within selling, general, and administrative expenses.
D — Amortization of intangible assets
Represents estimated amortization expense related to the pro forma adjustment to other intangible assets, net (see Note 6F). Pro forma amortization has been estimated on a preliminary basis as follows (in thousands):
|
|
|
Estimated Fair
Value |
|
Estimated Useful
Life in Years |
|
Amortization
Expense
Year Ended
August 31, 2019 |
|
|
Trade name |
|
$ |
98,000 |
|
Indefinite |
|
$ |
— |
|
|
Dealer network |
|
64,000 |
|
12.0 |
|
5,333 |
|
|
Backlog |
|
12,500 |
|
0.7 |
|
12,500 |
|
|
Non-compete agreements |
|
1,000 |
|
5.0 |
|
200 |
|
|
Total |
|
$ |
175,500 |
|
|
|
18,033 |
|
|
Less: Backlog which does not have a continuing impact |
|
|
|
|
|
12,500 |
|
|
Pro forma adjustment to amortization of intangible assets |
|
|
|
|
|
$ |
5,533 |
|
For each $1 million increase or decrease in the fair value of dealer network, the amortization expense would increase or decrease by $0.1 million. If the useful life for dealer network increases or decreases by 1 year, the annual amortization expense will decrease or increase by $0.4 million.
E — Interest expense
The increase in interest expense is comprised of the following (in thousands):
|
|
|
Year Ended
August 31, 2019 |
|
|
Cash interest on convertible notes(1) |
|
$ |
5,250 |
|
|
Non-cash interest: |
|
|
|
|
Amortization of debt discount of convertible notes |
|
13,704 |
|
|
Amortization of debt issuance costs |
|
1,818 |
|
|
Removal of interest expense related to Newmar Acquired Companies debt not acquired |
|
(638 |
) |
|
Total interest expense adjustment |
|
$ |
20,134 |
|
(1) The interest rate for the convertible notes is assumed to be 1.75% per annum for the year ended August 31, 2019. An increase or decrease in the interest rate assumed above of 0.125% would result in an aggregate increase or decrease to cash interest expense of approximately $0.4 million for the year ended August 31, 2019.
The convertible notes will recognize non-cash interest expense, through accretion of the debt discount and issuance costs over the life of the convertible notes.
F — Income taxes
Reflects the income tax effect on pro forma adjustments and on Newmar Acquired Companies’ historical income of $4.7 million based on the estimated blended federal and state statutory rate of 24.5%. Newmar Acquired Companies, as an S-Corporation, was an entity that passed-through its taxable income to its owners and accordingly, recorded no tax expense on its statements of income. Therefore, this adjustment included the estimated tax that Newmar Acquired Companies would have incurred had it not been a pass-through entity. The tax rate does not reflect the expected effective tax rate, which will include other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact the combined entity.
G — Earnings per Share
The Pro Forma statements reflect the increase in the weighted average shares in connection with the issuance of 2,000,000 common shares to the Sellers.
The convertible notes proposed to be issued in the Offering are convertible to cash, shares of our common stock or a combination of cash and shares, at our election.
It is management’s intent, upon conversion of the notes, to settle the conversion value in cash up to their principal amount and in shares for any excess over their principal amount. The Company utilizes the treasury stock method to calculate the effects of the notes on diluted earnings per share. However, as the common stock of the Company has not traded above the conversion price of the notes, the application of the treasury stock method for the notes would prove anti-dilutive in calculating diluted earnings per share and should therefore be excluded from its calculation.
Note 8: Reclassifications
Winnebago has completed a preliminary review of the financial statement presentation of Newmar Corporation and Subsidiaries for purposes of the unaudited pro forma condensed combined financial information. During this review, the following financial statement reclassifications were performed in order to align the presentation of Newmar Corporation and Subsidiaries’ financial information with that of Winnebago (in thousands):
|
Newmar Corporation and Subsidiaries
Presentation |
|
Presentation
Reclassification |
|
Winnebago Presentation
August 31, 2019 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
Assets |
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
|
$ |
5,753 |
|
$ |
4,210 |
|
a |
|
$ |
9,963 |
|
Cash and cash equivalents |
|
|
Certificates of deposit |
|
4,210 |
|
(4,210 |
) |
a |
|
— |
|
|
|
|
Accounts receivable (after allowance for doubtful accounts) |
|
42,166 |
|
— |
|
|
|
42,166 |
|
Receivables, less allowance for doubtful accounts |
|
|
Inventories, net |
|
70,477 |
|
— |
|
|
|
70,477 |
|
Inventories |
|
|
Prepaid show fees |
|
661 |
|
(661 |
) |
b |
|
— |
|
|
|
|
Prepaid insurance and other current assets |
|
2,332 |
|
661 |
|
b |
|
2,993 |
|
Prepaid expenses and other assets |
|
|
Total current assets |
|
125,599 |
|
— |
|
|
|
125,599 |
|
Total current assets |
|
|
Property, plant and equipment, net |
|
14,996 |
|
— |
|
|
|
14,996 |
|
Property, plant, and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
— |
|
|
|
— |
|
Goodwill |
|
|
|
|
|
|
— |
|
|
|
— |
|
Other intangible assets, net |
|
|
|
|
|
|
— |
|
|
|
— |
|
Investment in life insurance |
|
|
|
|
|
|
— |
|
|
|
— |
|
Other assets |
|
|
|
|
$ |
140,595 |
|
$ |
— |
|
|
|
$ |
140,595 |
|
Total assets |
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
Accounts payable |
|
$ |
17,424 |
|
$ |
— |
|
|
|
$ |
17,424 |
|
Accounts payable |
|
|
Other taxes payable |
|
1,061 |
|
— |
|
|
|
1,061 |
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses: |
|
|
Salaries and wages payable |
|
7,148 |
|
561 |
|
c |
|
7,709 |
|
Accrued compensation |
|
|
Accrued profit sharing |
|
561 |
|
(561 |
) |
c |
|
— |
|
|
|
|
Accrued warranty claims |
|
15,860 |
|
— |
|
|
|
15,860 |
|
Product warranties |
|
|
Accrued group insurance |
|
570 |
|
— |
|
|
|
570 |
|
Self-insurance |
|
|
Accrued dealer incentive bonuses |
|
1,583 |
|
(1,583 |
) |
d |
|
— |
|
|
|
|
Accrued dealer promotions |
|
1,126 |
|
1,583 |
|
d |
|
2,709 |
|
Promotional |
|
|
|
|
|
|
— |
|
|
|
— |
|
Accrued interest |
|
|
Accrued repurchase obligation |
|
305 |
|
(305 |
) |
e |
|
— |
|
|
|
|
Lease payable — short term |
|
511 |
|
(511 |
) |
f |
|
— |
|
|
|
|
Other current liabilities |
|
416 |
|
816 |
|
e, f |
|
1,232 |
|
Other |
|
|
|
|
|
|
— |
|
|
|
— |
|
Current maturities of long-term debt |
|
|
Total current liabilities |
|
46,565 |
|
— |
|
|
|
46,565 |
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
Line of credit |
|
8,000 |
|
3,690 |
|
g |
|
11,690 |
|
Long-term debt, less current maturities |
|
|
Shareholder notes payable |
|
3,690 |
|
(3,690 |
) |
g |
|
— |
|
|
|
|
Lease payable — long term |
|
5,584 |
|
(5,584 |
) |
h |
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Deferred income taxes |
|
|
|
|
|
|
— |
|
|
|
— |
|
Unrecognized tax benefits |
|
|
|
|
|
|
— |
|
|
|
— |
|
Deferred compensation benefits, net of current portion |
|
|
|
|
|
|
5,584 |
|
h |
|
5,584 |
|
Other |
|
|
Total long-term liabilities |
|
17,274 |
|
— |
|
|
|
17,274 |
|
Total non-current liabilities |
|
|
Redeemable common stock |
|
123,740 |
|
— |
|
|
|
123,740 |
|
Redeemable common stock |
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
Common stock, no par value; voting |
|
— |
|
— |
|
|
|
— |
|
Preferred stock, par value $0.01: Authorized-10,000 shares; Issued-none |
|
|
Common stock, no par value; nonvoting |
|
— |
|
— |
|
|
|
— |
|
Common stock, par value $0.50: Authorized-60,000 shares; Issued-51,776 shares |
|
|
Paid-in capital |
|
8 |
|
— |
|
|
|
8 |
|
Additional paid-in capital |
|
|
Retained earnings |
|
(46,992 |
) |
— |
|
|
|
(46,992 |
) |
Retained earnings |
|
|
|
|
|
|
— |
|
|
|
— |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
— |
|
|
|
— |
|
Treasury stock, at cost: 20,262 shares |
|
|
Total shareholders’ equity |
|
(46,984 |
) |
— |
|
|
|
(46,984 |
) |
Total stockholders’ equity |
|
|
Total liabilities and shareholders’ equity |
|
$ |
140,595 |
|
$ |
— |
|
|
|
$ |
140,595 |
|
Total liabilities and stockholders’ equity |
|
Presentation reclassification notes:
(a) Reclassification of $4.2 million of “Certificates of deposit” to “Cash and cash equivalents”
(b) Reclassification of $0.7 million of “Prepaid show fees” to “Prepaid expenses and other assets”
(c) Reclassification of $0.6 million of “Accrued profit sharing” to “Accrued compensation”
(d) Reclassification of $1.6 million of “Accrued dealer incentive bonuses” to “Promotional”
(e) Reclassification of $0.3 million of “Accrued repurchase obligation” to “Other” (current liabilities)
(f) Reclassification of $0.5 million of “Lease payable — short term” to “Other” (current liabilities)
(g) Reclassification of $3.7 million of “Shareholder notes payable” to “Long-term debt, less current maturities”
(h) Reclassification of $5.6 million of “Lease payable — long term” to “Other” (non-current liabilities)
|
Newmar Corporation and Subsidiaries
Presentation |
|
Presentation
Reclassification |
|
Winnebago Presentation
Year ended August 31, 2019 |
|
|
Sales |
|
$ |
661,110 |
|
$ |
— |
|
|
|
$ |
661,110 |
|
Net revenues |
|
|
Cost of goods sold |
|
579,774 |
|
— |
|
|
|
579,774 |
|
Cost of goods sold |
|
|
Gross margin |
|
81,336 |
|
— |
|
|
|
81,336 |
|
Gross profit |
|
|
Selling, general and administrative expenses |
|
37,708 |
|
(740 |
) |
a |
|
36,968 |
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
— |
|
|
|
— |
|
Amortization of intangible assets |
|
|
|
|
37,708 |
|
(740 |
) |
|
|
36,968 |
|
Total operating expenses |
|
|
Operating income |
|
43,628 |
|
740 |
|
|
|
44,368 |
|
Operating income |
|
|
Interest expense, net |
|
848 |
|
— |
|
|
|
848 |
|
Interest expense |
|
|
|
|
|
|
— |
|
|
|
— |
|
Non-operating income |
|
|
|
|
|
|
740 |
|
|
|
43,520 |
|
Income before income taxes |
|
|
|
|
|
|
740 |
|
a |
|
740 |
|
Provision for income taxes |
|
|
Net income |
|
$ |
42,780 |
|
$ |
— |
|
|
|
$ |
42,780 |
|
Net income |
|
Presentation reclassification notes:
(a) Reclassification of income tax expense from “Selling, general and administrative expenses” to “Provision for income taxes”
