Exhibit 99.3
ENOVIS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
SEPTEMBER 30, 2023
1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2023
($ in thousands)
Enovis Historical As of September 30, 2023 | Lima Historical As of September 30, 2023 (Note 2) | Transaction Accounting Adjustments | Note 4 | Financing Adjustments | Note 4 | Pro Forma Combined | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 32,129 | $ | 28,653 | $ | (777,790 | ) | (a) | $ | 781,315 | (a) | $ | 64,307 | |||||||||||
Trade receivables, less allowance for credit losses | 277,029 | 76,925 | — | — | 353,954 | |||||||||||||||||||
Inventories, net | 470,913 | 96,153 | 38,459 | (b) | — | 605,525 | ||||||||||||||||||
Prepaid expenses | 28,974 | 3,121 | — | — | 32,095 | |||||||||||||||||||
Other current assets | 45,142 | 13,055 | — | — | 58,197 | |||||||||||||||||||
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Total current assets | 854,187 | 217,907 | (739,331 | ) | $ | 781,315 | 1,114,078 | |||||||||||||||||
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Property, plant and equipment, net | 260,190 | 73,868 | 102,025 | (m) | — | 436,083 | ||||||||||||||||||
Goodwill | 2,027,154 | 405,881 | (145,426 | ) | (c) | — | 2,287,609 | |||||||||||||||||
Intangible assets, net | 1,100,959 | 21,785 | 319,215 | (d) | — | 1,441,959 | ||||||||||||||||||
Lease asset - right of use | 63,487 | 7,646 | — | — | 71,133 | |||||||||||||||||||
Other assets | 94,940 | 37,203 | 7,957 | (o) | (8,000 | ) | (n) | 132,100 | ||||||||||||||||
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Total assets | $ | 4,400,917 | $ | 764,290 | $ | (455,560 | ) | $ | 773,315 | $ | 5,482,962 | |||||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 19,205 | $ | (19,205 | ) | (e) | $ | 20,000 | (j) | $ | 20,000 | |||||||||||
Accounts payable | 125,060 | 35,284 | — | — | 160,344 | |||||||||||||||||||
Accrued liabilities | 230,224 | 31,170 | 80,000 | (f) | — | 341,394 | ||||||||||||||||||
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Total current liabilities | 355,284 | 85,659 | 60,795 | 20,000 | 521,738 | |||||||||||||||||||
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Long-term debt, less current portion | 395,000 | 296,903 | (296,903 | ) | (e) | 823,277 | (j) | 1,218,277 | ||||||||||||||||
Non-current lease liability | 49,176 | 4,757 | — | — | 53,933 | |||||||||||||||||||
Other liabilities | 159,725 | 42,117 | 126,443 | (k) | — | 328,285 | ||||||||||||||||||
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Total liabilities | 959,185 | 429,436 | (109,665 | ) | 843,277 | 2,122,233 | ||||||||||||||||||
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Equity: | ||||||||||||||||||||||||
Common stock | 55 | 10,423 | (10,423 | ) | (g) | — | 55 | |||||||||||||||||
Additional paid-in capital | 2,952,975 | 417,403 | (417,403 | ) | (h) | (61,962 | ) | (l) | 2,891,013 | |||||||||||||||
Retained earnings | 539,507 | (92,972 | ) | 81,931 | (i) | (8,000 | ) | (n) | 520,466 | |||||||||||||||
Accumulated other comprehensive loss | (52,915 | ) | — | — | — | (52,915 | ) | |||||||||||||||||
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Total shareholders’ equity | 3,439,622 | 334,854 | (345,895 | ) | (69,962 | ) | 3,358,619 | |||||||||||||||||
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Noncontrolling interest | 2,110 | — | — | — | 2,110 | |||||||||||||||||||
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Total equity | 3,441,732 | 334,854 | (345,895 | ) | (69,962 | ) | 3,360,729 | |||||||||||||||||
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Total liabilities and equity | $ | 4,400,917 | $ | 764,290 | $ | (455,560 | ) | $ | 773,315 | $ | 5,482,962 | |||||||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For The Nine Months Ended September 30, 2023
($ in thousands)
Enovis Historical Nine Months Ended September 30, 2023 | Lima Historical Nine Months Ended September 30, 2023 (Note 2) | Transaction Accounting Adjustments | Note 5 | Financing Adjustments | Note 5 | Pro Forma Combined | ||||||||||||||||||||||
Net sales | $ | 1,252,177 | $ | 220,370 | $ | — | $ | — | $ | 1,472,547 | ||||||||||||||||||
Cost of sales | 525,787 | 70,284 | 12,003 | (a), (f) | — | 608,074 | ||||||||||||||||||||||
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Gross profit (loss) | 726,390 | 150,086 | (12,003 | ) | — | 864,473 | ||||||||||||||||||||||
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Selling, general and administrative expense | 619,294 | 136,575 | 5,597 | (f) | — | 761,466 | ||||||||||||||||||||||
Research and development expense | 57,012 | 13,315 | — | — | 70,327 | |||||||||||||||||||||||
Amortization of acquired intangibles | 98,256 | 3,590 | 12,910 | (c) | — | 114,756 | ||||||||||||||||||||||
Insurance settlement loss (gain) | — | — | — | — | — | |||||||||||||||||||||||
Restructuring and other charges | 11,782 | 41,259 | — | — | 53,041 | |||||||||||||||||||||||
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Total operating expenses | 786,344 | 194,739 | 18,507 | — | 999,590 | |||||||||||||||||||||||
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Operating income (loss) | (59,954 | ) | (44,653 | ) | (30,510 | ) | — | (135,117 | ) | |||||||||||||||||||
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Interest expense, net | 15,496 | 27,626 | (27,886 | ) | (d) | 42,408 | (d) | 57,644 | ||||||||||||||||||||
Debt extinguishment charges | — | — | — | — | — | |||||||||||||||||||||||
Unrealized (gain) loss on investment in ESAB Corporation | — | — | — | — | — | |||||||||||||||||||||||
Other (income) expense, net | (665 | ) | (6,707 | ) | — | — | (7,372 | ) | ||||||||||||||||||||
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Income (loss) from continuing operations before taxes | (74,785 | ) | (65,572 | ) | (2,624 | ) | (42,408 | ) | (185,389 | ) | ||||||||||||||||||
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Income tax benefit | (17,878 | ) | (9,929 | ) | (717 | ) | (e) | (11,591 | ) | (40,115 | ) | |||||||||||||||||
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Net income (loss) from continuing operations | (56,907 | ) | (55,643 | ) | (1,907 | ) | (30,817 | ) | (145,274 | ) | ||||||||||||||||||
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Income (loss) from discontinued operations, net of taxes | 21,096 | — | — | — | 21,096 | |||||||||||||||||||||||
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Net income (loss) | (35,811 | ) | (55,643 | ) | (1,907 | ) | (30,817 | ) | (124,178 | ) | ||||||||||||||||||
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Less: Net income attributable to noncontrolling interest from continued operations – net of taxes | 414 | — | — | — | 414 | |||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest from discontinued operations – net of taxes | — | — | — | — | — | |||||||||||||||||||||||
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Net income (loss) attributable to Enovis Corporation | $ | (36,225 | ) | $ | (55,643 | ) | $ | (1,907 | ) | $ | (30,817 | ) | $ | (124,592 | ) | |||||||||||||
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Net income (loss) per share - basic | ||||||||||||||||||||||||||||
Continuing operations | (1.05 | ) | (2.66 | ) | ||||||||||||||||||||||||
Discontinued operations | 0.39 | 0.39 | ||||||||||||||||||||||||||
Consolidated operations | (0.67 | ) | (2.27 | ) | ||||||||||||||||||||||||
Net income (loss) per share - diluted | ||||||||||||||||||||||||||||
Continuing operations | (1.05 | ) | (2.66 | ) | ||||||||||||||||||||||||
Discontinued operations | 0.39 | 0.39 | ||||||||||||||||||||||||||
Consolidated operations | (0.67 | ) | (2.27 | ) |
See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2022
($ in thousands)
Envois Historical Year Ended December 31, 2022 | Lima Historical Year Ended December 31, 2022 (Note 2) | Transaction Accounting Adjustments | Note 5 | Financing Adjustments | Note 5 | Pro Forma Combined | ||||||||||||||||||||||
Net sales | $ | 1,563,101 | $ | 261,255 | $ | — | $ | — | $ | 1,824,356 | ||||||||||||||||||
Cost of sales | 693,718 | 84,559 | 30,995 | (a) (f) | — | 809,272 | ||||||||||||||||||||||
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Gross profit | 869,383 | 176,696 | (30,995 | ) | — | 1,015,084 | ||||||||||||||||||||||
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Selling, general and administrative expense | 772,913 | 147,325 | 18,405 | (b) (f) | — | 938,643 | ||||||||||||||||||||||
Research and development expense | 60,827 | 17,988 | — | — | 78,815 | |||||||||||||||||||||||
Amortization of acquired intangibles | 126,301 | 9,101 | 12,899 | (c) | — | 148,301 | ||||||||||||||||||||||
Insurance settlement gain | (36,705 | ) | — | — | — | (36,705 | ) | |||||||||||||||||||||
Restructuring and other charges | 17,225 | 16,981 | — | — | 34,206 | |||||||||||||||||||||||
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Total operating expenses | 940,561 | 191,395 | 31,304 | — | 1,163,260 | |||||||||||||||||||||||
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Operating income (loss) | (71,178 | ) | (14,699 | ) | (62,299 | ) | — | (148,176 | ) | |||||||||||||||||||
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Interest expense, net | 24,052 | 15,795 | (15,927 | ) | (d) | 58,052 | (d) | 81,972 | ||||||||||||||||||||
Debt extinguishment charges | 20,396 | — | — | 8,000 | (g) | 28,396 | ||||||||||||||||||||||
Unrealized (gain) loss on investment in ESAB Corporation | (102,669 | ) | — | — | — | (102,669 | ) | |||||||||||||||||||||
Gain on cost basis investment | (8,800 | ) | — | — | — | (8,800 | ) | |||||||||||||||||||||
Other (income) expense, net | (2,088 | ) | (10,678 | ) | — | — | (12,766 | ) | ||||||||||||||||||||
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Income (loss) from continuing operations before taxes | (2,069 | ) | (19,816 | ) | (46,372 | ) | (66,052 | ) | (134,309 | ) | ||||||||||||||||||
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Income tax benefit | 36,120 | 6,861 | (12,674 | ) | (e) | (15,867 | ) | 14,440 | ||||||||||||||||||||
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Net income (loss) from continuing operations | (38,189 | ) | (26,677 | ) | (33,698 | ) | (50,185 | ) | (148,749 | ) | ||||||||||||||||||
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Income (loss) from discontinued operations, net of taxes | 26,430 | — | — | — | 26,430 | |||||||||||||||||||||||
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Net income (loss) | (11,759 | ) | (26,677 | ) | (33,698 | ) | (50,185 | ) | (122,319 | ) | ||||||||||||||||||
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Less: Net income attributable to noncontrolling interest from continued operations – net of taxes | 567 | — | — | — | 567 | |||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest from discontinued operations – net of taxes | 966 | — | — | — | 966 | |||||||||||||||||||||||
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Net income (loss) attributable to Enovis Corporation | $ | (13,292 | ) | $ | (26,677 | ) | $ | (33,698 | ) | $ | (50,185 | ) | $ | (123,852 | ) | |||||||||||||
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Net income (loss) per share - basic | ||||||||||||||||||||||||||||
Continuing operations | (0.72 | ) | (2.75 | ) | ||||||||||||||||||||||||
Discontinued operations | 0.47 | 0.47 | ||||||||||||||||||||||||||
Consolidated operations | (0.25 | ) | (2.28 | ) | ||||||||||||||||||||||||
Net income (loss) per share - diluted | ||||||||||||||||||||||||||||
Continuing operations | (0.72 | ) | (2.75 | ) | ||||||||||||||||||||||||
Discontinued operations | 0.47 | 0.47 | ||||||||||||||||||||||||||
Consolidated operations | (0.25 | ) | (2.28 | ) |
See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
4
Note 1 – Basis of Presentation
The Acquisition is preliminarily being accounted for as a business combination using the acquisition method with Enovis as the accounting acquirer in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under this method of accounting, the aggregate transaction consideration will be allocated to Lima’s assets acquired and liabilities assumed based upon their estimated fair values at the date of completion of the Acquisition. The process of valuing the net assets of Lima immediately prior to the Acquisition is preliminary. Any differences between the estimated fair value of the consideration transferred and the estimated fair value of the assets acquired and liabilities assumed will be recorded as goodwill. Accordingly, the aggregate transaction consideration allocation and related adjustments reflected in this unaudited pro forma condensed combined financial information are preliminary and subject to revision based on a final determination of fair value.
The Company and certain of its subsidiaries entered into an Amendment of its Existing Credit Agreement to provide for the Term Loan Facility. The Company has additionally authorized the issuance of its $460,000,000 of 3.875% Convertible Senior Notes due 2028 as part of the offering, and will use a portion of the proceeds from this offering of Convertible Notes, together with approximately $400 million of borrowings from the Term Loan Facility and cash on hand, to fund the cash purchase price for the Lima Acquisition.
The unaudited pro forma condensed combined financial information presented is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Acquisition and Debt Financing had been completed on the dates set forth above, nor is it indicative of the future results or financial position of the Business. In addition, the unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dissynergies, operating efficiencies or cost savings that may result from the Acquisition.
All amounts presented within the notes to the unaudited pro forma condensed combined financial statements are presented in thousands of U.S. Dollars and have been prepared by applying Envois’ historical accounting policies. The unaudited pro forma condensed combined balance sheet as of September 30, 2023 gives effect to the Acquisition and the Debt Financing as if those transactions had been completed on September 30, 2023, and are applied to the unaudited condensed combined balance sheet of Enovis as of September 30, 2023.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 and the nine months ended September 30, 2023 give effect to the Acquisition and the Debt Financing as if those transactions had occurred on January 1, 2022, the first day of fiscal year 2022 and are applied to the historical results of Enovis.
The assumptions and estimates underlying the adjustments to the pro forma financial statements are described in the accompanying notes.
The pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed. The pro forma adjustments have been made solely for the purpose of providing unaudited pro forma combined financial information and actual adjustments, when recorded, may differ materially.
The pro forma financial statements have been prepared for illustrative purposes only and may not be indicative of the operating results or financial condition that would have been achieved if the Transactions had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position for any future period or as of any future date. In addition to the pro forma adjustments, various other factors will have an effect on the financial condition and results of operations after the completion of the Transactions. The actual balance sheet and statements of operations may differ materially from the pro forma amounts reflected herein due to a variety of factors.
The historical financial statements of Enovis were prepared in accordance with U.S. GAAP and have been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma adjustments which are necessary to account for the Acquisition and the Debt Financing. The unaudited pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable.
5
Note 2 – Adjustments to the Historical Financial Information of Lima
The historical financial information of Lima was prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and presented in EUR.
Reclassification adjustments have been made to Lima’s historical financial information to comply with Enovis’ presentation.
The historical financial information was translated from EUR to USD using the following historical exchange rates:
EUR to USD | ||||
Period end exchange rate as at September 30, 2023 | $ | 1.06 | ||
Average exchange rate for the 9 months ended September 30, 2023 | 1.08 | |||
Average exchange rate for the year ended December 31, 2022 | 1.05 |
6
UNAUDITED SCHEDULE OF ADJUSTED CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION OF LIMA
As of September 30, 2023
(in thousands)
IFRS | U.S. GAAP | |||||||||||||||||||||||||||
Lima historical September 30, 2023 EUR | IFRS to U.S. GAAP differences - EUR | Note | Presentation Reclassification EUR | Note | Lima adjusted historical September 30, 2023 EUR | Lima adjusted historical September 30, 2023 USD | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | € | 27,127 | € | — | € | — | € | 27,127 | $ | 28,653 | ||||||||||||||||||
Trade receivables | 72,829 | — | — | 72,829 | 76,925 | |||||||||||||||||||||||
Inventories | 91,033 | — | — | 91,033 | 96,153 | |||||||||||||||||||||||
Prepaid expenses | — | — | 2,955 | (aa | ) | 2,955 | 3,121 | |||||||||||||||||||||
Other current assets | 13,929 | — | (1,569 | ) | (aa | ) | 12,360 | 13,055 | ||||||||||||||||||||
Current tax assets | 1,386 | — | (1,386 | ) | (aa | ) | — | — | ||||||||||||||||||||
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Total current assets | 206,304 | — | — | 206,304 | 217,907 | |||||||||||||||||||||||
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Property, plant and equipment | 77,173 | (7,239 | ) | (b | ) | — | 69,934 | 73,868 | ||||||||||||||||||||
Goodwill | 384,268 | — | — | 384,268 | 405,881 | |||||||||||||||||||||||
Intangible assets, net | — | — | 20,625 | (bb | ) | 20,625 | 21,785 | |||||||||||||||||||||
Other intangible assets | 20,625 | — | (a | ) | (20,625 | ) | (bb | ) | 0 | — | ||||||||||||||||||
Lease asset - right of use | — | 7,239 | (b | ) | — | 7,239 | 7,646 | |||||||||||||||||||||
Other assets | — | — | 35,222 | (cc | ) | 35,222 | 37,203 | |||||||||||||||||||||
Equity investments | 2 | — | (2 | ) | (cc | ) | — | — | ||||||||||||||||||||
Deferred tax assets | 33,322 | — | (33,322 | ) | (cc | ) | — | — | ||||||||||||||||||||
Other non-current financial assets | 940 | — | (940 | ) | (cc | ) | — | — | ||||||||||||||||||||
Other non-current assets | 958 | — | (958 | ) | (cc | ) | — | — | ||||||||||||||||||||
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Total assets | € | 723,592 | € | — | € | — | € | 723,592 | $ | 764,290 | ||||||||||||||||||
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7
UNAUDITED SCHEDULE OF ADJUSTED CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION OF LIMA
(continued)
As of September 30, 2023
(in thousands)
IFRS | U.S. GAAP | |||||||||||||||||||||||||||
Lima historical September 30, 2023 EUR | IFRS to U.S. GAAP differences - EUR | Note | Presentation Reclassification EUR | Note | Lima adjusted historical September 30, 2023 EUR | Lima adjusted historical September 30, 2023 USD | ||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | € | — | € | — | € | 18,182 | (dd) | € | 18,182 | $ | 19,205 | |||||||||||||||||
Trade payables | 33,405 | — | — | 33,405 | 35,284 | |||||||||||||||||||||||
Accrued liabilities | — | 1,920 | (b) | 27,590 | (ee) | 29,510 | 31,170 | |||||||||||||||||||||
Current financial liabilities | 20,102 | (1,920 | ) | (b) | (18,182 | ) | (dd) | — | — | |||||||||||||||||||
Current tax liabilities | 1,917 | — | (1,917 | ) | (ee) | — | — | |||||||||||||||||||||
Other current liabilities | 25,673 | — | (25,673 | ) | (ee) | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total current liabilities | 81,098 | — | — | 81,098 | 85,659 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Long-term debt, less current portion | — | — | 281,093 | (ff) | 281,093 | 296,903 | ||||||||||||||||||||||
Non-current lease liability | — | 4,504 | (b) | — | 4,504 | 4,757 | ||||||||||||||||||||||
Other liabilities | — | — | 39,874 | (gg) | 39,874 | 42,117 | ||||||||||||||||||||||
Non current financial liabilities | 285,597 | (4,504 | ) | (b) | (281,093 | ) | (ff) | — | — | |||||||||||||||||||
Employee benefits | 1,258 | — | (1,258 | ) | (gg) | ��� | — | |||||||||||||||||||||
Deferred tax liabilities | 9,273 | — | (9,273 | ) | (gg) | — | — | |||||||||||||||||||||
Provisions for risks and charges | 29,473 | (1,000 | ) | (c) | (28,473 | ) | (gg) | — | — | |||||||||||||||||||
Other non-current liabilities | 870 | — | (870 | ) | (gg) | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total liabilities | € | 407,568 | € | (1,000 | ) | € | — | € | 406,568 | $ | 429,436 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Equity | ||||||||||||||||||||||||||||
Common stock | — | — | 9,868 | (hh) | 9,868 | 10,423 | ||||||||||||||||||||||
Share capital | 9,868 | — | (9,868 | ) | (hh) | — | — | |||||||||||||||||||||
Additional paid-in capital | — | — | 395,176 | (ii) | 395,176 | 417,403 | ||||||||||||||||||||||
Share premium reserve | 14,425 | — | (14,425 | ) | (ii) | — | — | |||||||||||||||||||||
Other reserves | 380,751 | — | (380,751 | ) | (ii) | — | — | |||||||||||||||||||||
Retained earnings | — | — | (a) | (88,020 | ) | (jj) | (88,020 | ) | (92,972 | ) | ||||||||||||||||||
Retained earnings (accumulated deficit) | (41,236 | ) | — | 41,236 | (jj) | — | — | |||||||||||||||||||||
Profit (loss) for the year | (47,784 | ) | 1,000 | (c) | 46,784 | (jj) | — | — | ||||||||||||||||||||
Accumulated other comprehensive loss | — | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total shareholders’ equity | 316,024 | 1,000 | — | 317,024 | 334,854 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Noncontrolling interest | — | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total equity | 316,024 | 1,000 | — | 317,024 | 334,854 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total liabilities and equity | € | 723,592 | € | — | € | — | € | 723,592 | $ | 764,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
8
UNAUDITED SCHEDULE OF ADJUSTED CONDENSED COMBINED STATEMENT OF OPERATIONS OF LIMA
For The Nine Months Ended September 30, 2023
(in thousands)
IFRS | U.S. GAAP | |||||||||||||||||||||||
Lima nine months ended September 30, 2023 | IFRS to U.S. GAAP differences - EUR | Note | Presentation Reclassification EUR | Note | Lima adjusted nine months ended September 30, 2023 EUR | Lima adjusted nine months ended September 30, 2023 USD | ||||||||||||||||||
Revenue | € | 200,736 | € | — | € | (200,736 | ) | (aa) | € | — | $ | — | ||||||||||||
Other revenues and income | 4,214 | — | (4,214 | ) | (aa, kk) | — | — | |||||||||||||||||
Raw materials, consumables, supplies and goods | 50,902 | — | (50,902 | ) | (bb, dd) | — | — | |||||||||||||||||
Services | 63,036 | 8,283 | (a,b) | (71,319 | ) | (bb, cc, dd) | — | — | ||||||||||||||||
Change in W.I.P., semi-finished products and finished | (3,890 | ) | — | 3,890 | (bb) | — | — | |||||||||||||||||
Personnel expenses | 67,412 | — | (67,412 | ) | (bb, cc) | — | — | |||||||||||||||||
Amortisation and depreciation | 22,972 | (3,883 | ) | (b) | (19,089 | ) | (ee) | — | — | |||||||||||||||
Impairment losses on trade receivables | 944 | — | (944 | ) | (ff) | — | — | |||||||||||||||||
Impairment losses on fixed assets | 38,082 | — | (38,082 | ) | (gg) | — | — | |||||||||||||||||
Other operating costs | 10,565 | (1,000 | ) | (c) | (9,565 | ) | (cc) | — | — | |||||||||||||||
Internal work capitalised | (9,156 | ) | — | 9,156 | (bb, cc) | — | — | |||||||||||||||||
Financial income | (11,574 | ) | — | 11,574 | (hh, ii) | — | — | |||||||||||||||||
Financial expense | 32,605 | 175 | (b) | (32,780 | ) | (hh, ii) | — | — | ||||||||||||||||
Income taxes | (9,164 | ) | — | 9,164 | (jj) | — | — | |||||||||||||||||
Net sales | — | — | 203,401 | (aa) | 203,401 | 220,370 | ||||||||||||||||||
Cost of sales | — | — | 64,872 | (bb, ee) | 64,872 | 70,284 | ||||||||||||||||||
Selling, general and administrative expense | — | — | 126,059 | (cc, ee, ff) | 126,059 | 136,575 | ||||||||||||||||||
Research and development expense | — | — | 12,290 | (dd) | 12,290 | 13,315 | ||||||||||||||||||
Amortization of acquired intangibles | — | — | 3,314 | (ee) | 3,314 | 3,590 | ||||||||||||||||||
Restructuring and other charges | — | — | 38,082 | (gg) | 38,082 | 41,259 | ||||||||||||||||||
Interest expense, net | — | — | 25,499 | (hh) | 25,499 | 27,626 | ||||||||||||||||||
Other (income) expense, net | — | — | (6,191 | ) | (ii, kk) | (6,191 | ) | (6,707 | ) | |||||||||||||||
Income tax benefit | € | — | € | — | € | (9,164 | ) | (jj) | € | (9,164 | ) | $ | (9,929 | ) |
9
UNAUDITED SCHEDULE OF ADJUSTED CONDENSED COMBINED STATEMENT OF OPERATIONS OF LIMA
For The Year Ended December 31, 2022
(in thousands)
IFRS | U.S. GAAP | |||||||||||||||||||||||
Lima Year Ended December 31, 2022 EUR | IFRS to U.S. GAAP differences - EUR | Note | Presentation Reclassification EUR | Note | Lima adjusted Year Ended December 31, 2022 EUR | Lima adjusted Year Ended December 31, 2022 USD | ||||||||||||||||||
Revenue | € | 245,669 | € | — | € | (245,669 | ) | (aa) | € | — | $ | — | ||||||||||||
Other revenues and income | 5,798 | — | (5,798 | ) | (aa, kk) | — | — | |||||||||||||||||
Raw materials, consumables, supplies and goods | 56,391 | — | (56,391 | ) | (bb, dd) | — | — | |||||||||||||||||
Services | 81,645 | 11,655 | (a,b) | (93,300 | ) | (bb, cc, dd) | — | — | ||||||||||||||||
Change in W.I.P., semi-finished products and finished | 887 | — | (887 | ) | (bb) | — | — | |||||||||||||||||
Personnel expenses | 76,858 | — | (76,858 | ) | (bb, cc) | — | — | |||||||||||||||||
Amortisation and depreciation | 35,408 | (5,335 | ) | (b) | (30,073 | ) | (ee) | — | — | |||||||||||||||
Impairment losses on trade receivables | 502 | — | (502 | ) | (ff) | — | — | |||||||||||||||||
Impairment losses on fixed assets | 16,152 | — | (16,152 | ) | (gg) | — | — | |||||||||||||||||
Other operating costs | 1,857 | — | (1,857 | ) | (cc) | — | — | |||||||||||||||||
Internal work capitalised | (13,532 | ) | — | 13,532 | (bb, cc) | — | — | |||||||||||||||||
Financial income | (14,561 | ) | — | 14,561 | (hh, ii) | — | — | |||||||||||||||||
Financial expense | 22,609 | (220 | ) | (b) | (22,389 | ) | (hh, ii) | — | — | |||||||||||||||
Income taxes expense (benefit) | 6,526 | — | (6,526 | ) | (jj) | — | — | |||||||||||||||||
Net sales | — | — | 248,506 | (aa) | 248,506 | 261,255 | ||||||||||||||||||
Cost of sales | — | — | 80,433 | (bb, ee) | 80,433 | 84,559 | ||||||||||||||||||
Selling, general and administrative expense | — | — | 140,136 | (cc, ee, ff) | 140,136 | 147,325 | ||||||||||||||||||
Research and development expense | — | — | 17,110 | (dd) | 17,110 | 17,988 | ||||||||||||||||||
Amortization of acquired intangibles | — | — | 8,657 | (ee) | 8,657 | 9,101 | ||||||||||||||||||
Restructuring and other charges | — | — | 16,152 | (gg) | 16,152 | 16,981 | ||||||||||||||||||
Interest expense, net | — | — | 15,024 | (hh) | 15,024 | 15,795 | ||||||||||||||||||
Other (income) expense, net | — | — | (10,157 | ) | (ii, kk) | (10,157 | ) | (10,678 | ) | |||||||||||||||
Income tax benefit | € | — | € | — | € | 6,526 | (jj) | € | 6,526 | $ | 6,861 |
10
Statement of financial position IFRS to U.S. GAAP and Reclassification Adjustments
a - Under U.S. GAAP, only certain development costs that are proven to have alternative future use can be capitalized. As some of the costs incurred by Lima do not have alternative future use, such capitalized costs would be adjusted under U.S. GAAP, however, the balance will be valued in connection with purchase accounting and no adjustment is reflected herein for the IFRS to U.S. GAAP conversion.
b - As of January 1, 2019, Enovis and Lima adopted ASC 842, Leases and IFRS 16, Leases, respectively. U.S. GAAP follows finance lease and operating lease models for lessees, which impacts the pattern of expense recognition associated with the lease. Under IFRS, lessees account for all their leases under one accounting model, which is effectively equivalent to that of a finance lease under U.S. GAAP. To comply with U.S. GAAP, the unaudited Schedule of Adjusted Condensed Combined Statement of Financial Position as of September 30, 2023 includes a reclassification to Lease asset – right-of-use of €7.2 million, Accrued liabilities of €1.9 million, and Non-current lease liability of €4.5 million. The company is continuing to evaluate the classification of potential finance leases under US GAAP.
c - As of September 30, 2023, Lima’s Provisions for risks and charges includes an accrued liability for legal defense costs. As Enovis does not include such costs in estimates of loss accruals under ASC 450, an adjustment to reverse the effect of such legal defense costs is recorded on the unaudited Schedule of Adjusted Condensed Combined Statement of Financial Position as of September 30, 2023.
aa – Adjustment to reclassify a portion of Lima’s Other current assets to Prepaid expenses and Lima’s Current tax assets to Other current assets
bb – Adjustment to reclassify Lima’s Other intangible assets to Intangible assets, net
cc – Adjustment to reclassify Lima’s Equity investments, Deferred tax assets, Other non-current financial assets, and Other non-current assets to Other assets
dd – Adjustment to reclassify Lima’s Current financial liabilities to Current portion of long-term debt
ee – Adjustment to reclassify Lima’s Current tax liabilities, and Other liabilities to Accrued liabilities
ff – Adjustment to reclassify Lima’s Non-current financial liabilities to Long-term debt
gg – Adjustment to reclassify Lima’s Other non-current liabilities, Employee benefits, Deferred tax liabilities, and Provision for risks and charges to Other liabilities
hh – Adjustment to reclassify Lima’s Share capital to Common stock
ii – Adjustment to reclassify Lima’s Share premium reserve, and Other reserves to Additional paid-in capital
jj – Adjustment to reclassify Lima’s Retained earnings (accumulated deficit), and Profit (loss) for the year to Retained earnings
11
Statement of operations IFRS to U.S. GAAP and Reclassification Adjustments
a - To adjust for certain development costs capitalized by Lima into intangible assets, net. Lima capitalizes certain costs such as software licenses and research and development to intangible assets in accordance with IFRS. Under U.S. GAAP, only research and development costs that are proven to have alternative future use can be capitalized. As some of the costs incurred by Lima do not have alternative future use, such capitalized costs are adjusted. The impact of the adjustment on the unaudited Schedule of Adjusted Condensed Combined Statement of Operations for the nine months ended September 30, 2023 and year ended December 31, 2022 is calculated as the incremental expense that would have been recorded in accordance with U.S. GAAP during the respective periods. The adjustments result in an increase to Services for the nine months ended September 30, 2023 and year ended December 31, 2022 totaling €4.6 million and €6.1 million, respectively.
b - As of January 1, 2019, Enovis and Lima adopted ASC 842, Leases and IFRS 16, Leases, respectively. U.S. GAAP follows finance lease and operating lease models for lessees, which impacts the pattern of expense recognition associated with the lease. Under IFRS, lessees account for all their leases under one accounting model, which is effectively equivalent to that of a finance lease under U.S. GAAP. To comply with U.S. GAAP, the unaudited Schedule of Adjusted Condensed Combined Statement of Operations for the nine months ended September 30, 2023 and year ended December 31, 2022 includes a reclassification from Depreciation and Amortisation and Financial Expense to Services of €3.7 million and €5.6 million, respectively. The company is continuing to evaluate the classification of potential finance leases under US GAAP.
c - For the nine months ended September 30, 2023, Lima’s Other operating costs includes certain activity for legal defense costs. As Enovis does not include such costs in estimates of loss accruals under ASC 450, an adjustment to reverse the effect of such legal defense costs is recorded on the unaudited Schedule of Adjusted Condensed Combined Statement of Operations for the nine months ended September 30, 2023.
aa – Adjustment to reclassify Lima’s Revenue and a portion of Other revenues and income to Net sales. Reclassification to Net sales consists of revenue related to sales activities
bb – Adjustment to reclassify Lima’s Raw materials, Change in W.I.P., semi-finished products and finished, Services, Personnel, and Internal work capitalised to Cost of sales. Reclassification to Cost of sales consists of raw material costs, changes in W.I.P., semi-finished products and finished, personnel costs and services costs related to production
cc – Adjustment to reclassify Lima’s Services, Personnel, Internal work capitalised, and Other operating costs to Selling, general and administrative expense. Reclassification to Selling, general and administrative expense consist of service costs, salary and wages expense of employees
dd – Adjustment to reclassify Lima’s Raw materials and Services to Research and development expense. Reclassification to Research and development expense consist of raw material and services costs related to research and development activities
ee – Adjustment to reclassify Lima’s Amortisation and depreciation to Cost of Sales, Selling, general and administrative expense and Amortization of acquired intangibles
ff – Adjustment to reclassify Lima’s Impairment losses on trade receivables to Selling, general and administrative expense
gg – Adjustment to reclassify Lima’s Impairment losses on fixed assets to Restructuring and other charges
hh – Adjustment to reclassify a portion of Lima’s Financial income and Financial expense to Interest expense, net. Reclassification of Interest expenses consists of interest income and financial charges related to bonds and loans
ii – Adjustment to reclassify a portion of Lima’s Financial income and Financial expense to Other expense, net
jj – Adjustment to reclassify Lima’s Income tax expense (benefit) to Income tax expense (benefit)
kk – Adjustment to reclassify a portion of Lima’s Other revenues and income to Other expense, net
12
Note 3 – Preliminary Aggregate Transaction Consideration and Allocation
Estimated Aggregate Transaction Consideration
The following table summarizes the preliminary estimated aggregate transaction consideration for the Lima Business:
(in thousands) | Amount | |||
Closing cash consideration | $ | 415,740 | ||
Cash paid to settle Lima historical long-term debt | 351,009 | |||
Estimated fair value of shares to be issued as contingent consideration (i) | 80,000 | |||
|
| |||
Preliminary aggregate transaction consideration | $ | 846,749 | ||
|
|
(i) | Reflects the preliminary fair value of the contingent consideration payable to Lima based on the historical share price of Enovis and will change through the closing date of the acquisition. As part of the purchase consideration, Enovis may issue up to 1,942,686 shares of Enovis common stock as a result of the arrangement within approximately 18 months after closing. The market price of the Enovis common stock may fluctuate between the timing of issuance, a 5% fluctuation in the market price of the common stock would have approximately a $3.5 million impact on the aggregate transaction consideration. |
13
Preliminary Aggregate Transaction Consideration Allocation
The assumed accounting for the Acquisition, including the preliminary aggregate transaction consideration, is based on provisional amounts, and the associated purchase accounting is not final. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities was based upon the preliminary estimate of fair values. For the preliminary estimate of fair value of assets acquired and liabilities assumed of Lima, management used publicly available benchmarking information, as well as a variety of other assumptions, including market participant assumptions. Management is expected to use widely accepted income-based, market-based, and cost-based valuation approaches in connection with the finalization of purchase accounting for the Acquisition. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. The unaudited pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable under the circumstances. The purchase price adjustments applied to the historical financial information of Lima are preliminary and subject to change as additional information becomes available and as additional analyses are performed.
The following table summarizes the preliminary aggregate transaction consideration allocation, as if the Acquisition had been completed on September 30, 2023, with excess recorded to Goodwill:
(in thousands) | Amount | |||
Preliminary aggregate transaction consideration | $ | 846,749 | ||
|
| |||
Assets | ||||
Cash and cash equivalents | 28,653 | |||
Trade receivables | 76,925 | |||
Inventories | 134,612 | |||
Prepaid expenses | 3,121 | |||
Other current assets | 13,055 | |||
Property, plant and equipment | 175,893 | |||
Intangible assets | 341,000 | |||
Lease asset - right of use | 7,646 | |||
Other assets | 45,160 | |||
|
| |||
Total assets | 826,065 | |||
Liabilities | ||||
Accounts payable | 35,284 | |||
Accrued liabilities | 31,170 | |||
Non-current lease liability | 4,757 | |||
Other liabilities | 168,560 | |||
|
| |||
Total liabilities | 239,771 | |||
|
| |||
Less: Estimated preliminary net assets acquired | 586,294 | |||
|
| |||
Goodwill (see Footnote 4(c)) | $ | 260,455 | ||
|
|
14
Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
Adjustments included in the Transaction Accounting Adjustments column and Financing Adjustments column in the accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2023 are as follows:
(a) Reflects adjustment to Cash and cash equivalents:
(in thousands) | Amount | |||
Pro forma transaction accounting adjustments: | ||||
Estimated transaction costs (i) | $ | (11,041 | ) | |
Cash paid to settle Lima historical long-term debt | (351,009 | ) | ||
Cash paid for acquisition of Lima | (415,740 | ) | ||
|
| |||
Net pro forma transaction accounting adjustments to Cash and cash equivalents | $ | (777,790 | ) | |
|
| |||
Pro forma financing adjustments: | ||||
Cash from new Debt Financing, net of debt issuance costs and capped call fees (ii) | $ | 781,315 | ||
|
| |||
Net pro forma adjustments to Cash and cash equivalents | $ | 3,525 | ||
|
|
(i) | These costs consist of legal advisory, financial advisory, accounting and consulting costs expected to be incurred by Enovis. This is a preliminary estimate of costs and is subject to change upon close of the Transactions. |
(ii) | New Debt Financing is reduced for debt issuance costs and original issue discount of $16.7 million as referenced in Footnote 4(j) and adjustments for capped call transaction of $56.0 million as referenced in Footnote 4(l). |
(b) Represents a $38.5 million adjustment to the inventory balance to account for the preliminary adjustment to fair value of the inventory acquired as of the Acquisition Date. The estimated range of calculated value for inventory is based on preliminary estimates and assumptions. The final value determination of the acquired inventory may differ from this preliminary determination. The related assumptions and inputs will be refined as more data becomes available to determine the fair value indication.
(c) Preliminary adjustment to Goodwill, which represents the excess of the estimated aggregate transaction consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed and the elimination of Lima’s historical Goodwill.
(in thousands) | Amount | |||
Pro forma transaction accounting adjustments: | ||||
Goodwill resulting from the Acquisition (Note 3) | $ | 260,455 | ||
Elimination of the Lima historical Goodwill | (405,881 | ) | ||
|
| |||
Net pro forma adjustments to Goodwill | $ | (145,426 | ) | |
|
|
15
(d) Reflects the preliminary purchase accounting adjustment for estimated intangibles based on the acquisition method of accounting. Adjustments to preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information consists of the following:
(in thousands) | Preliminary Fair Value | Estimated Useful Life (Years) | ||||||
Pro forma transaction accounting adjustments: | ||||||||
Estimated fair value – Technology | $ | 182,000 | 15 | |||||
Estimated fair value – Customer Relationships | 115,000 | 15 | ||||||
Estimated fair value – Trade Name | 44,000 | 20 | ||||||
Less: Historical Lima Intangible assets, net of amortization | (21,785 | ) | ||||||
|
| |||||||
Net pro forma adjustments to Intangible assets, net | $ | 319,215 | ||||||
|
|
(e) Reflects the settlement of historical Lima existing debt.
(f) Record estimated fair value of shares to be issued as contingent consideration.
(g) Reflects the elimination of Lima’s historical Common stock.
(h) Reflects the elimination of Lima’s historical Additional paid-in capital.
(i) Reflects the preliminary adjustment to Retained earnings, which includes the elimination of Lima’s historical Retained earnings.
(in thousands) | Amount | |||
Pro forma transaction accounting adjustments: | ||||
Estimated transaction costs (i) | $ | (11,041 | ) | |
Less: Historical Lima Retained earnings elimination | 92,972 | |||
|
| |||
Net pro forma adjustments to Retained earnings | $ | 81,931 | ||
|
|
(i) | These costs consist of legal advisory, financial advisory, accounting and consulting costs expected to be incurred by Enovis. This is a preliminary estimate of costs and is subject to change upon close of the Transactions. |
(j) Reflects the Debt Financing obtained from the Lenders, net of unamortized debt issuance costs. The adjustment to current and long-term debt is comprised of the following items:
(in thousands) | Current portion of long-term debt | Long-term debt | Total | |||||||||
Pro forma financing adjustments: | ||||||||||||
Convertible Notes | $ | — | $ | 460,000 | $ | 460,000 | ||||||
Term Loan | 20,000 | 380,000 | 400,000 | |||||||||
Less: Debt issuance costs and original issue discount | — | (16,723 | ) | (16,723 | ) | |||||||
|
|
|
|
|
| |||||||
Net pro forma financing adjustments | $ | 20,000 | $ | 823,277 | $ | 843,277 | ||||||
|
|
|
|
|
|
16
(k) Reflects the adjustments to record a deferred tax liability of $126.4 million resulting from pro forma fair value adjustments for the assets acquired and liabilities assumed. The estimate of the deferred tax was determined based on the estimated book basis of the net assets acquired after the application of acquisition accounting as compared to the tax basis of the net assets acquired using an estimated blended statutory tax rate of 27.3% for Intangible assets, net and estimated statutory tax rate of 27.9% for Property, plant and equipment, net and Inventories, net. Adjustments to established deferred tax assets and liabilities due to refined determination of statutory rates, changes in tax elections, as well as the changes in the estimates of the fair value of assets acquired and liabilities assumed may occur in conjunction with the finalization of the acquisition accounting and these changes in estimates could be material.
(l) Reflects a $61.9 million adjustment to record the capped call transactions entered into in connection with the issuance of the Convertible Notes. As these transactions meet certain accounting criteria, the capped call transactions are recorded in Shareholders’ equity and are not accounted for as derivatives.
(m) Reflects the preliminary purchase accounting adjustment of $102.0 million for Property, plant and equipment based on the acquisition method of accounting.
(n) Reflects the extinguishment of deferred financing fees associated with the bridge financing.
(o) Reflects a $7.9 million indemnification asset related to the settlement of certain litigation matters as agreed to in the purchase agreement. The estimated indemnification asset approximates the value of the related liability at September 30, 2023 and is recorded as an adjustment to Other current assets in the pro forma condensed combined balance sheet.
17
Note 5 – Pro Forma Adjustments to the Unaudited Condensed Combined Statement of Operations
Adjustments included in the Transaction Accounting Adjustments column and Financing Adjustments in the accompanying unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 and the fiscal year ended December 31, 2022 are as follows:
(a) Reflects $10.1 million for nine months ended September 30, 2023 and a $28.3 million for the year ended December 31, 2022 adjustments associated with the step-up in estimated fair value of Inventories, net recognized through Cost of sales during the 18 months after the acquisition.
A 10% change in the estimated fair value of Inventories, net would cause a corresponding increase or decrease in Cost of sales of approximately $1.0 million and $2.8 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively. Pro forma Cost of sales is preliminary and based on assumption that the inventory will be sold within 18 months of the closing date after the Transaction. The amount of Cost of sales following the Transaction may differ significantly between periods based upon the final value assigned and actual inventory turnover for each period.
(b) Reflects a $11.0 million adjustments to Selling, general and administrative expense (“SG&A”) related to expected transaction expenses.
(c) The following table reflects adjustments to Amortization of acquired intangibles related to amortization expense for the newly identified intangible assets, less the amortization expense on Lima’s historical intangible assets. Management is still in the process of evaluating the fair value of the intangible assets. Any resulting change in the fair value would have a direct impact to amortization expense, which could be material.
(in thousands) | For the Nine Months Ended September 30, 2023 | For the Year Ended December 31, 2022 | ||||||
Pro forma transaction accounting adjustments: | ||||||||
Amortization expense of Technology | $ | 9,100 | $ | 12,133 | ||||
Amortization expense of Customer Relationships | 5,750 | 7,667 | ||||||
Amortization expense of Trade Name | 1,650 | 2,200 | ||||||
Less: Historical amortization | (3,590 | ) | (9,101 | ) | ||||
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Net pro forma adjustments to Amortization of acquired intangibles | $ | 12,910 | $ | 12,899 | ||||
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A 10% change in the valuation of technology intangible assets, customer relationship intangible assets, and trade name intangible assets would cause a corresponding increase or decrease in the amortization expense of approximately $1.7 million and $2.2 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively. Pro forma amortization is preliminary and based on the use of straight-line amortization. The amount of amortization following the Acquisition may differ significantly between periods based upon the final value assigned and amortization methodology used for each identifiable intangible asset.
(d) Reflects the expense related to the financing and amortization of issuance costs related to the Transactions:
(in thousands) | For the Nine Months Ended September 30, 2023 | For the Year Ended December 31, 2022 | ||||||
Pro forma transaction adjustments: | ||||||||
Remove historical Lima Interest expense | $ | (27,886 | ) | $ | (15,927 | ) | ||
Pro forma financing adjustments: | ||||||||
Interest expense from the financing transactions | $ | 42,408 | $ | 58,052 |
The interest expense included in the unaudited pro forma condensed combined financial information was calculated using an effective interest rate, which considers transaction costs and issuance discounts, and reflects an approximate weighted-average interest rate of 6.9%. Actual interest rates may vary from those depicted in the pro forma amounts.
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A sensitivity analysis on interest expense for the nine months ended September 30, 2023 and the year ended December 31, 2022 has been performed to assess the effect of a 12.5 basis point change of the hypothetical interest on the Debt Financing. The following table shows the change in the Interest expense for the Debt Financing described above:
(in thousands) | For the Nine Months ended September 30, 2023 | For the Year Ended December 31, 2022 | ||||||
Interest expense assuming: | ||||||||
Increase of 0.125% | $ | 402 | $ | 569 | ||||
Decrease of 0.125% | $ | (402 | ) | $ | (569 | ) |
(e) Adjustment to reflect the income tax impact of the pro forma adjustments related to the Transactions using the estimated blended statutory tax rate of 27.3%. Income tax rates do not take into account any possible future tax events or changes in planned structure for the combined company. The effective tax rate of the combined company could be significantly different than what is presented in the pro forma financial information.
(f) Adjustment to reflect the incremental depreciation expense associated with the fair value step up of Property, plant and equipment. The following table reflects adjustments to Cost of sales and Selling, general and administrative expense related to depreciation expense for the increase in fair value of Property, plant and equipment. Management is still in the process of evaluating the fair value of the Property, plant and equipment assets. Any resulting change in the fair value would have a direct impact to depreciation expense, which could be material.
(in thousands) | For the Nine Months ended September 30, 2023 | For the Year Ended December 31, 2022 | ||||||
Pro forma transaction adjustments – Cost of Sales: | ||||||||
Incremental depreciation expense associated with Property, plant and equipment | $ | 1,903 | $ | 2,636 | ||||
Net pro forma adjustments to Cost of sales | $ | 1,903 | $ | 2,636 | ||||
Pro forma transaction adjustments – Selling, general and administrative expense: | ||||||||
Incremental depreciation expense associated with Property, plant and equipment | $ | 5,597 | $ | 7,364 | ||||
Net pro forma adjustments to Selling, general and administrative expense | $ | 5,597 | $ | 7,364 |
(g) Reflects an $8.0-million adjustment to Debt extinguishment charges related to bridge financing fees.
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Note 6 – Pro Forma Earnings Per Share
The unaudited pro forma condensed combined basic and diluted earnings per share calculations are based on the condensed combined basic and diluted average shares of Enovis and Lima.
(in thousands, except per share data) | For the Nine Months ended September 30, 2023 | For the Year Ended December 31, 2022 | ||||||
Pro Forma Weighted Average Shares | ||||||||
Basic weighted average number of common shares outstanding – historical | 54,549,369 | 54,065,420 | ||||||
Pro Forma Earnings per Share | ||||||||
Pro forma Net income (loss) from continuing operations | (145,274 | ) | (148,749 | ) | ||||
Basic – Pro Forma | $ | (2.66 | ) | (2.75 | ) | |||
Diluted – Pro Forma | $ | (2.66 | ) | (2.75 | ) |
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