ACQUISITIONS

12 Months Ended

Jul. 31, 2019

2. ACQUISITIONS

Erwin Hymer Group

On February

2019

, the Company and the shareholders of Erwin Hymer Group SE (“EHG”) closed on a transaction via which the Company acquired EHG. EHG is headquartered in Bad Waldsee, Germany, and is one of the largest RV manufacturers in Europe. The Company acquired EHG in order to expand its operations into the growing European market with a long-standing European industry leader. EHG will be managed as a stand-alone operating entity that will be included in the European recreational vehicle operating segment.

At the closing, the Company paid cash consideration of approximately 1.53

billion Euro (approximately $1.76 billion at the exchange rate as of February

2019)

and issued 2,256,492

shares of the Company’s common stock to the sellers valued at $144.2

million. The cash consideration was funded through a combination of available cash on hand of approximately $95

million and debt financing consisting of two credit facility agreements, a 7

year, $2.1

billion term loan, consisting of an approximate $1.4

billion U.S. dollar-denominated tranche and an approximate 0.6

billion Euro tranche (approximately $0.7 billion at the exchange rate at February

2019)

, and $100

million utilized at closing from a 5

year, $750.0 million asset-based credit facility

(“ABL”)

as more fully described in Note

to the Consolidated Financial Statements. The obligations of the Company under each facility are secured by liens on substantially all the assets of the Company, and both agreements contain certain customary representations, warranties and covenants of the Company.

The table below summarizes the estimated fair values of the EHG assets acquired and liabilities assumed at the acquisition date. The provisional estimates of intangible assets, property, plant and equipment, goodwill, deferred income tax liabilities and other current liabilities could potentially change, as the Company has not yet finalized the valuation of certain assets and liabilities. The Company expects to finalize these values as soon as practical and no later than one year from the acquisition date.

In the fourth quarter of fiscal 2019, the Company made measurement period adjustments to the estimated fair value of certain assets acquired and liabilities assumed to better reflect facts and circumstances that existed at the acquisition date, which resulted in a net increase in Goodwill of $14,045. Measurement period adjustments were a result of refinements in assumptions used at the date of acquisition for 1) valuation of property, plant and equipment, 2) deferred tax assets and liabilities for jurisdictional allocations and 3) increased valuation allowance against certain acquired tax net operating loss carryforwards.


Cash	$	97,887
Inventory		593,053
Other assets		429,150
Property, plant and equipment, rental vehicles		80,132
Property, plant and equipment		447,621
Amortizable intangible assets:
Dealer network		355,601
Trademarks		126,181
Technology assets		183,536
Backlog		11,471
Goodwill		1,008,472
Guarantee liabilities related to former EHG North American subsidiaries		(115,668	)
Other current liabilities		(850,623	)
Debt—Unsecured notes		(114,710	)
Debt—Other		(166,196	)
Deferred income tax liabilities		(155,863	)
Other long-term liabilities		(17,205	)
Non-controlling interests		(12,207	)
Total fair value of net assets acquired		1,900,632
Less: cash acquired		(97,887	)
Total fair value of net assets acquired, less cash acquired	$	1,802,745

On the acquisition date, amortizable intangible assets had a weighted-average useful life of 17 years. The dealer network was valued based on the Discounted Cash Flow method and is amortized on an accelerated basis over 20 years. The trademarks and technology assets were valued on the Relief of Royalty method and are amortized on a straight-line basis over 20 years and 10 years, respectively. The backlog was valued based on the Discounted Cash Flow method and was amortized on a straight-line basis over a five-month period. We have recognized $1,008,472 of goodwill as a result of this transaction, of which approximately $242,000 will be deductible for tax purposes.

In connection with the closing of the acquisition, Thor and EHG entered into an amendment to the original September

18, 2018 purchase agreement to reflect the exclusion of EHG’s North American subsidiaries from the business operations acquired by Thor. The acquisition date balance sheet includes guarantee liabilities related to the former EHG North American subsidiaries totaling $115,668. Historically, EHG had provided guarantees for certain of its former North American subsidiaries that were assumed by Thor in the acquisition and which related to bank loans, foreign currency derivatives, certain specified supplier contracts and dealer financing arrangements, as well as a specific lease agreement. While the original term of these guarantees were generally long term in nature, the Company sought to settle these guarantees as soon as practical after the closing of the acquisition. The Company has an accrued liability of approximately $5,576

outstanding at July 31, 2019 related to the remaining dealer financing guarantees and other related contingent liabilities, which is included in Other current liabilities on the Consolidated Balance Sheets.

The results of EHG are included in the Company’s Consolidated Statements of Income and Comprehensive Income since the February

2019 acquisition date. During this period, EHG recorded net sales of $1,486,978, gross profit of $150,039 and a loss before income taxes of $5,946. Gross profit and loss before income taxes includes the impact of $61,418 related to the fair value

step-up

in purchase accounting of acquired inventory that was subsequently sold during the period, and the

loss before income taxes also includes

$11,239 for the amortization expense of the acquired backlog and the amortization expense of the other acquired amortizable intangibles of $14,355.

The following unaudited pro forma information represents the Company’s results of operations as if the fiscal

2019 acquisition of EHG had occurred at the beginning of fiscal 2018. The disclosure of pro forma net sales and earnings does not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date for the periods presented, or which may be realized in the future. The unaudited pro forma information does not reflect any operating efficiencies or cost savings that may be realized from the integration of the acquisition.


	Fiscal 2019		Fiscal 2018
Net sales	$	9,067,750	$	11,175,302
Net income	$	143,517	$	305,101
Basic earnings per common share	$	2.66	$	5.55
Diluted earnings per common share	$	2.66	$	5.54

The pro forma earnings for the fiscal year ended July

31,

2019

were adjusted to exclude $114,866 of acquisition-related costs. Nonrecurring expenses related to management fees of $1,677 and $19,376 were excluded from pro forma earnings for the fiscal years ended July 31, 2019 and July 31, 2018, respectively. The periods presented exclude $61,418 of nonrecurring expense related to the fair value adjustment to acquisition-date inventory. EHG’s historical net income included in the totals above include nonrecurring charges related to its former North American operations in the amounts of $52,501 and $106,561 during the fiscal years ended July 31, 2019 and July 31, 2018, respectively. These charges primarily consist of EHG’s guarantees to third parties for certain North American subsidiary obligations and the impairment of loan receivables due to EHG from their former North American subsidiaries.

Net costs incurred during fiscal

2019 related specifically to this acquisition totaled $114,866 and are included in Acquisition-related costs in the Consolidated Statements of Income and Comprehensive Income. These costs include the losses on the foreign currency forward contract of $70,777 discussed in Note 4 to the Consolidated Financial Statements below, and $44,089

of other expenses, consisting primarily of bank fees, ticking fees, legal, professional and advisory fees related to financial due diligence and implementation costs, regulatory review costs and the

write-off

of the remaining unamortized debt fees related to the Company’s previous asset-based facility. There were no material EHG acquisition-related costs incurred in periods prior to fiscal

2019.