Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information
Winnebago Industries, Inc. (the Company or Winnebago) acquired Grand Design RV LLC (Grand Design) under a Securities Purchase Agreement for total consideration of approximately $520.6 million on November 8, 2016 (the closing date). For the consideration, the Company issued its shares valued at $124.0 million on the closing date and paid cash of $396.6 million. The cash portion of the acquisition was financed by cash and cash equivalents on hand and borrowings under new loan facilities.
The Unaudited Pro Forma Condensed Combined Statements of Income of the Company combine the historical Consolidated Statements of Income of Winnebago and Grand Design, giving effect to the Company’s acquisition of Grand Design and the related financing transaction (the Transactions) as if they had been consummated on August 30, 2015, the beginning of the earliest period presented. The pro forma financial statements and related notes have been prepared utilizing period ends that differ by fewer than 93 days, as permitted by Regulation S-X. The Company’s fiscal year follows a 52-/53-week fiscal year, ending the last Saturday in August and Grand Design’s fiscal year ends on December 31. The pro forma statement of income for the three months ended November 26, 2016 includes (i) Winnebago’s results of operations for the three months ended November 26, 2016 and (ii) Grand Design’s results of operations for the period from September 1, 2016 through the closing date. The pro forma statement of income for the fiscal year ended August 27, 2016 includes (i) Winnebago’s results of operations for the fiscal year ended August 27, 2016, and (ii) Grand Design’s results of operations for the 12 months ended September 30, 2016.
The Pro Forma Condensed Combined Statements of Income reflect assumptions and estimates deemed appropriate by Company management and are described in the accompanying notes, which should be read together with the Pro Forma Condensed Combined Statements of Income.
These Unaudited Pro Forma Condensed Combined Statements of Income have been developed from and should be read in conjunction with the Company’s historical financial statements which are included in the Company’s latest quarterly report on Form 10-Q and the Company’s latest annual report on Form 10-K; and Grand Design’s historical financial statements included herein. Grand Design’s historical financial statements for the period from September 1, 2016 through closing date are not included herein. The Unaudited Pro Forma Condensed Combined Statements of Income are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations of Winnebago would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations.
Unaudited Pro Forma Condensed Combined Statement of Income
Three Months Ended November 26, 2016
(For Grand Design Historical Column, Period September 1, 2016 Through November 8, 2016 Closing Date, Note 1)
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| | | | | | | | | | | | | | | | | | |
| | | Winnebago | | Grand Design | | Pro Forma | | | | Pro Forma |
| (In thousands, except per share data) | | Historical | | Historical | | Adjustments | | | | Combined |
| Net revenues | | $ | 245,308 |
| | $ | 95,667 |
| | $ | — |
| | | | $ | 340,975 |
|
| Cost of goods sold | | 216,433 |
| | 78,903 |
| | (273 | ) | | (a) | | 295,063 |
|
| | | | | | | 44 |
| | (b) | | 44 |
|
| | | | | | | 71 |
| | (c) | | 71 |
|
| Gross profit | | 28,875 |
| | 16,764 |
| | 158 |
| | | | 45,797 |
|
| Operating expenses: | | | | | | | | | | |
| Selling | | 5,870 |
| | 2,988 |
| | | | | | 8,858 |
|
| General and administrative | | 9,906 |
| | 2,472 |
| | (57 | ) | | (d) | | 12,321 |
|
| Postretirement health care benefit income | | (12,813 | ) | | | | | | | | (12,813 | ) |
| Transaction costs | | 5,462 |
| | | | (5,462 | ) | | (d) | | — |
|
| Amortization of intangible assets | | 2,051 |
| | | | (112 | ) | | (e) | | 1,939 |
|
| Total operating expenses | | 10,476 |
| | 5,460 |
| | (5,631 | ) | | | | 10,305 |
|
| Operating income | | 18,399 |
| | 11,304 |
| | 5,789 |
| | | | 35,492 |
|
| Interest expense | | 1,128 |
| | | | 3,672 |
| | (f) | | 4,800 |
|
| Non-operating income | | (87 | ) | | | | | | | | (87 | ) |
| Income before income taxes | | 17,358 |
| | 11,304 |
| | 2,117 |
| | | | 30,779 |
|
| Provision for taxes | | 5,620 |
| | | | 4,966 |
| | (g) | | 10,586 |
|
| Net income (loss) | | $ | 11,738 |
| | $ | 11,304 |
| | $ | (2,849 | ) | | | | $ | 20,193 |
|
| | | | | | | | | | | |
| Income per common share: | | | | | | | | | | |
| Basic | | $ | 0.42 |
| | | | | | | | $ | 0.64 |
|
| Diluted | | $ | 0.42 |
| | | | | | | | $ | 0.64 |
|
| | | | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 27,836 |
| | | | 3,679 |
| | (h) | | 31,515 |
|
| Diluted | | 27,969 |
| | | | 3,679 |
| | (h) | | 31,648 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information.
Unaudited Pro Forma Condensed Combined Statement of Income
Fiscal Year Ended August 27, 2016
(For Grand Design Historical Column, Year Ended September 30, 2016, Note 1)
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| | | | | | | | | | | | | | | | | | |
| | | Winnebago | | Grand Design | | Pro Forma | | | | Pro Forma |
| (In thousands, except per share data) | | Historical | | Historical | | Adjustments | | | | Combined |
| Net revenues | | $ | 975,226 |
| | $ | 449,227 |
| | $ | — |
| | | | $ | 1,424,453 |
|
| Cost of goods sold | | 862,577 |
| | 360,787 |
| | 178 |
| | (b) | | 1,223,542 |
|
| | | | | | | 284 |
| | (c) | | 284 |
|
| Gross profit | | 112,649 |
| | 88,440 |
| | (462 | ) | | | | 200,627 |
|
| Operating expenses: | | | | | | | | | | |
| Selling | | 19,823 |
| | 13,604 |
| | | | | | 33,427 |
|
| General and administrative | | 27,085 |
| | 14,206 |
| | (412 | ) | | (d) | | 40,879 |
|
| Amortization of intangible assets | | | | | | 7,755 |
| | (e) | | 7,755 |
|
| Total operating expenses | | 46,908 |
| | 27,810 |
| | 7,343 |
| | | | 82,061 |
|
| Operating income (loss) | | 65,741 |
| | 60,630 |
| | (7,805 | ) | | | | 118,566 |
|
| Interest expense | | | | | | 19,580 |
| | (f) | | 19,580 |
|
| Non-operating (income) loss | | (457 | ) | | 158 |
| | | | | | (299 | ) |
| Income (loss) before income taxes | | 66,198 |
| | 60,472 |
| | (27,385 | ) | | | | 99,285 |
|
| Provision for taxes | | 20,702 |
| | | | 12,242 |
| | (g) | | 32,944 |
|
| Net income (loss) | | $ | 45,496 |
| | $ | 60,472 |
| | $ | (39,627 | ) | | | | $ | 66,341 |
|
| | | | | | | | | | | |
| Income per common share: | | | | | | | | | | |
| Basic | | $ | 1.69 |
| | | | | | | | $ | 2.11 |
|
| Diluted | | $ | 1.68 |
| | | | | | | | $ | 2.10 |
|
| | | | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 26,925 |
| | | | 4,587 |
| | (h) | | 31,512 |
|
| Diluted | | 27,033 |
| | | | 4,587 |
| | (h) | | 31,620 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1: Basis of presentation
The historical consolidated financial statements have been adjusted in the Pro Forma Condensed Combined Financial Statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) expected to have a continuing impact on the combined results following the business combination. Nonrecurring charges or credits and related tax effects, which result directly from the Transactions and do not have a continuing impact as they will be included in the income of the Company within the 12 months following the Transactions, are not included in the pro forma statements of income.
A Pro Forma Condensed Combined Balance Sheet is not required as the acquisition has already been reflected in the historical balance sheet as of November 26, 2016, included in the Company’s Form 10-Q filed on December 29, 2016.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has allocated the total purchase price to Grand Design’s tangible and intangible assets acquired and liabilities assumed, based on their fair values at the date of the acquisition.
The Company’s fiscal year ends on the last Saturday of August and Grand Design’s historical fiscal year ends on December 31. To align the periods, the results of Grand Design for the month of September 2016 are included in Unaudited Pro Forma Condensed Combined Statements of Income for both the year ended August 27, 2016 and the three months ended November 26, 2016. The net revenues and net income for Grand Design for the month of September 2016 were $43.0 million and $5.6 million, respectively.
The Pro Forma Condensed Combined Statements of Income do not necessarily reflect what the combined company’s results of operations would have been had the acquisition occurred on the date indicated. They also may not be useful in predicting the future results of operations of the combined company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The Unaudited Pro Forma Condensed Combined Statements of Income do not reflect the costs of any integration activities or benefits that may result from realization of future synergies expected to result from the acquisition.
Note 2: Financing transactions
The Company acquired Grand Design for total consideration of approximately $520.6 million on November 8, 2016. For the consideration, the Company issued 4,586,555 of its shares valued at $124.0 million on the closing date and paid cash of $396.6 million. The cash portion of the acquisition was financed by cash and cash equivalents on hand, floating rate borrowings under a term loan of $300.0 million and an asset-based revolving credit agreement (ABL) of $125.0 million, of which $53.0 million was drawn for the acquisition (see note 4(f) below for impact of the financing transactions on pro forma interest expense).
Note 3: Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair market value of Grand Design’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
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| | | | |
| (In thousands) | | November 8,
2016 |
| Cash | | $ | 1,748 |
|
| Accounts receivable | | 32,834 |
|
| Inventories | | 15,300 |
|
| Prepaid expenses and other assets | | 2,161 |
|
| Property, plant and equipment | | 8,998 |
|
| Goodwill | | 249,981 |
|
| Other intangible assets | | 253,100 |
|
| Total assets acquired | | 564,122 |
|
| | | |
| Accounts payable | | 11,151 |
|
| Accrued compensation | | 3,615 |
|
| Product warranties | | 12,904 |
|
| Promotional | | 3,976 |
|
| Other | | 1,569 |
|
| Deferred tax liabilities | | 10,258 |
|
| Total liabilities assumed | | 43,473 |
|
| | | |
| Total purchase price | | $ | 520,649 |
|
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the Pro Forma Condensed Combined Statements of Income. The preliminary purchase price may change based on the final working capital adjustment under the Securities Purchase Agreement. The final purchase price allocation will be determined when the Company has completed all of the detailed valuations and necessary calculations. Thus, the preliminary measures of fair value reflected are subject to changes and such changes could be significant to the Pro Forma Condensed Combined Statements of Income. The final allocation may include (1) changes in allocations to intangible assets and (2) changes to income tax related accounts, as well as changes to other assets and liabilities, which may impact pro forma adjustments to the Pro Forma Condensed Combined Statements of Income.
Note 4: Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Unaudited Pro Forma Condensed Combined Statement of Income:
| |
| (a) | Inventory of finished goods and work in process was increased by $0.3 million for step-up to fair value. This step-up was amortized and increased cost of sales in the three-month period ended November 26, 2016. The $0.3 million of historical amortization from November 8, 2016 through November 26, 2016 has been removed from the Pro Forma Condensed Combined Statement of Income as amortization of the step-up does not have a continuing impact. |
| |
| (b) | Represents the increase in depreciation due to changes in estimated remaining useful lives of Grand Design’s property, plant and equipment due to evaluation in purchase accounting. There was no change in the carrying value of property, plant and equipment, as the Company determined that the historical net carrying value of Grand Design's property, plant and equipment approximated the fair value. |
| |
| (c) | Represents incremental rent expense for two new leases executed in connection with the acquisition of Grand Design. The new leases replaced leases previously in place for the two properties which hold Grand Design’s current principal facilities, and facilities under construction for expansion. The lessor under these leases is an Indiana limited liability company which is owned by three of Grand Design’s selling shareholders. |
| |
| (d) | Represents the removal of transaction costs related to the Grand Design acquisition of $5.5 million for the three-months ended November 26, 2016 and $0.4 million ($355,000 for Winnebago and $57,000 for Grand Design) for the year ended August 27, 2016 since they do not have a continuing impact. |
| |
| (e) | As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, dealer network, backlog, non-compete agreements and favorable leasehold interests. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The following table summarizes the preliminary estimated fair values of Grand Design’s identifiable intangible assets and their estimated useful lives and estimated pro forma amortization expense: |
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| | | | | | | | | | | | | |
| | | | | | Amortization Expense |
| (In thousands) | Estimated Fair Value | | Estimated Useful Life in Years | | Three Months Ended November 26, 2016 | | Year Ended August 27, 2016 |
| Trade name | $ | 148,000 |
| | Indefinite | | $ | — |
| | $ | — |
|
| Dealer network | 80,500 |
| | 12.0 | | 1,677 |
| | 6,708 |
|
Backlog (1) | 18,000 |
| | 0.5 | | — |
| | 18,000 |
|
| Non-compete agreements - long-term | 4,000 |
| | 5.0 | | 200 |
| | 800 |
|
| Leasehold interest-favorable | 2,000 |
| | 8.1 | | 62 |
| | 247 |
|
Non-compete agreements - short-term (1) | 600 |
| | 1.0 | | — |
| | 600 |
|
| Total | $ | 253,100 |
| | | | 1,939 |
| | 26,355 |
|
| Less: Backlog and non-compete agreements which do not have a continuing impact | | | | | — |
| | 18,600 |
|
| Pro forma amortization expense | | | | | 1,939 |
| | 7,755 |
|
| Less: Amortization expense recorded since closing date | | | | | 2,051 |
| | — |
|
| Pro forma adjustments to amortization expense | | | | | $ | (112 | ) | | $ | 7,755 |
|
(1)Pro forma amortization expense for the three months ended November 26, 2016 includes no amortization of the backlog and short-term non-compete agreements because the acquisition date assumed for the purposes of pro forma statements is August 30, 2015. Both of these intangible assets have useful lives of one year or less and amortization is complete prior to the three month period presented.
These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a significant impact on the accompanying Unaudited Pro Forma Condensed Combined Statements of Income.
| |
| (f) | Represents the net increase to interest expense resulting from interest on the new term loan and asset-based revolving credit agreement to finance the acquisition of Grand Design and the amortization of related debt issuance costs, as follows: |
|
| | | | | | | |
| (In thousands) | Three Months Ended November 26, 2016 | | Year Ended August 27, 2016 |
| Interest expense on new debt | $ | 4,406 |
| | $ | 18,003 |
|
| Amortization of debt issuance costs | 394 |
| | 1,577 |
|
| Total interest expense | 4,800 |
| | 19,580 |
|
| Less: Interest expense recorded since closing date | 1,128 |
| | — |
|
| Pro forma adjustments to interest expense | $ | 3,672 |
| | $ | 19,580 |
|
The debt under the term loan and ABL are at variable rates and the interest expense in the table assumes the variable rates of 5.5% and 2.4%, respectively, at November 26, 2016 were constant through the periods presented in the Unaudited Pro Forma Condensed Combined Financial Statements; the revolving credit balance remained constant at $53.0 million; and the principal payments on the term debt were made as scheduled. The variable rate is subject to change. For example, a 1/8% change in term loan and ABL interest rates, would change the interest expense for the three months ended November 26, 2016 and the year ended August 27, 2016 by $0.1 million and $0.5 million, respectively. Additionally, included in interest expense for the periods is a 0.4% commitment fee on the ABL for unused borrowings, which are assumed to be $72.0 million. In addition, non-cash amortization of debt issuance costs is included in interest expense. The expense of $0.1 million for the write-off of fees associated with the existing revolving credit facility being refinanced is not included in the Unaudited Pro Forma Condensed Combined Statements of Income as the write-off is a non-recurring expense.
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| (g) | Reflects the income tax effect on pro forma adjustments and on Grand Design’s historical income based on the estimated blended federal and state statutory tax rate of 37%. Grand Design, as a limited liability company, 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 includes the estimated tax that Grand Design 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 company. |
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| (h) | Represents the increase in the weighted average shares in connection with the issuance of 4,586,555 common shares to the former owners of Grand Design. |
Grand Design had an incentive compensation stock tracking unit (STU) plan whereby fully vested awards were issued to key executives which entitled the holders to receive payments from Grand Design upon the occurrence of an eligible distribution and upon the occurrence of a sale of the business, as defined in the plan. As a return on the STUs was contingent on the occurrence of a future performance condition, no compensation expense was recorded by Grand Design until that event occurred and the amounts were estimable. The acquisition of Grand Design resulted in payments on the closing date to holders of the STUs of $29.8 million. No expense related to this payment is reflected in the net income or the pro forma adjustments for the periods presented in the pro forma information since the payments were fully contingent on the business combination closing, are a non-recurring expense and the plan was terminated at the closing date with no replacement plan adopted. During the twelve months ended September 30, 2016, Grand Design made eligible distributions to STU participants of $1.5 million that were included in general and administrative expense in the year ended September 30, 2016 Grand Design statement of income. No pro forma adjustment has been made to remove this expense as it was not directly related to the Transactions.
