10-Q 1 revg-10q_20180430.htm 10-Q revg-10q_20180430.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37999

 

REV Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

26-3013415

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

111 East Kilbourn Avenue, Suite 2600

Milwaukee, WI

53202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (414) 290-0190

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a small reporting company)

Small reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period  for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of June 5, 2018, the registrant had 64,380,745 shares of common stock, $0.001 par value per share, outstanding.

 


 

Table of Contents

 

 

 

 

Page

Cautionary Statement About Forward-Looking Statements

 

3

Website and Social Media Disclosure

 

3

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

4

 

Condensed Unaudited Consolidated Balance Sheets

 

4

 

Condensed Unaudited Consolidated Statements of Operations

 

5

 

Condensed Unaudited Consolidated Statements of Comprehensive Income (Loss)

 

6

 

Condensed Unaudited Consolidated Statements of Cash Flows

 

7

 

Condensed Unaudited Consolidated Statement of Shareholders’ Equity

 

8

 

Notes to Condensed Unaudited Consolidated Financial Statements

 

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

46

Item 4.

Controls and Procedures

 

46

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

47

Item 1A.

Risk Factors

 

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

Item 6.

Exhibits

 

48

Signatures

 

49

 

 


2


 

Cautionary Statement About Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “aim” and other similar expressions, and include our segment net sales and other expectations described under “Overview” below, although not all forward-looking statements contain these identifying words. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements, including, but not limited to increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increases in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions and integration of operations relating to mergers and acquisitions activities. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission (“SEC”). We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this Form 10-Q or to reflect any changes in expectations after the date of this release or any change in events, conditions or circumstances on which any statement is based, except as required by law.

Website and Social Media Disclosure

We use our website (www.revgroup.com) and corporate Twitter account (@revgroupinc) as routine channels of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under SEC Regulation FD. Accordingly, investors should monitor our website and our corporate Twitter account in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.

 

None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated into, or deemed to be a part of, this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our website or our social media channels are intended to be inactive textual references only.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

 

 

 

April 30,

2018

 

 

October 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,152

 

 

$

17,838

 

Accounts receivables, net

 

 

251,725

 

 

 

243,242

 

Inventories, net

 

 

483,906

 

 

 

452,380

 

Other current assets

 

 

14,731

 

 

 

13,372

 

Total current assets

 

 

763,514

 

 

 

726,832

 

Property, plant and equipment, net

 

 

238,793

 

 

 

217,083

 

Goodwill

 

 

187,036

 

 

 

133,235

 

Intangibles assets, net

 

 

159,634

 

 

 

167,887

 

Other long-term assets

 

 

9,688

 

 

 

9,395

 

Total assets

 

$

1,358,665

 

 

$

1,254,432

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

750

 

 

$

750

 

Accounts payable

 

 

188,090

 

 

 

217,267

 

Customer advances

 

 

112,275

 

 

 

95,774

 

Accrued warranty

 

 

22,693

 

 

 

26,047

 

Other current liabilities

 

 

49,563

 

 

 

70,241

 

Total current liabilities

 

 

373,371

 

 

 

410,079

 

Long-term debt, less current maturities

 

 

368,944

 

 

 

229,105

 

Deferred income taxes

 

 

14,878

 

 

 

22,527

 

Other long-term liabilities

 

 

20,109

 

 

 

20,281

 

Total liabilities

 

 

777,302

 

 

 

681,992

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock ($.001 par value, 95,000,000 shares authorized, none issued or

   outstanding)

 

 

 

 

 

 

Common Stock ($.001 par value, 605,000,000 shares authorized; 64,338,745 and 64,145,945 shares issued and outstanding, respectively)

 

 

64

 

 

 

64

 

Additional paid-in capital

 

 

531,300

 

 

 

531,988

 

Retained earnings

 

 

50,727

 

 

 

40,353

 

Accumulated other comprehensive (loss) income

 

 

(728

)

 

 

35

 

Total shareholders' equity

 

 

581,363

 

 

 

572,440

 

Total liabilities and shareholders' equity

 

$

1,358,665

 

 

$

1,254,432

 

See Notes to Condensed Unaudited Consolidated Financial Statements.

4


 

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

April 30,

2018

 

 

April 29,

2017

 

 

April 30,

2018

 

 

April 29,

2017

 

Net sales

 

$

608,934

 

 

$

545,316

 

 

$

1,123,790

 

 

$

988,253

 

Cost of sales

 

 

536,068

 

 

 

472,471

 

 

 

998,370

 

 

 

867,888

 

Gross profit

 

 

72,866

 

 

 

72,845

 

 

 

125,420

 

 

 

120,365

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

48,704

 

 

 

42,604

 

 

 

89,737

 

 

 

99,102

 

Research and development costs

 

 

1,500

 

 

 

963

 

 

 

3,231

 

 

 

2,161

 

Restructuring

 

 

1,936

 

 

 

335

 

 

 

5,989

 

 

 

1,199

 

Amortization of intangible assets

 

 

4,331

 

 

 

2,695

 

 

 

9,070

 

 

 

5,309

 

Total operating expenses

 

 

56,471

 

 

 

46,597

 

 

 

108,027

 

 

 

107,771

 

Operating income

 

 

16,395

 

 

 

26,248

 

 

 

17,393

 

 

 

12,594

 

Interest expense, net

 

 

6,075

 

 

 

3,416

 

 

 

11,493

 

 

 

10,893

 

Loss on early extinguishment of debt

 

 

 

 

 

11,920

 

 

 

 

 

 

11,920

 

Income (loss) before provision (benefit) for income taxes

 

 

10,320

 

 

 

10,912

 

 

 

5,900

 

 

 

(10,219

)

Provision (benefit) for income taxes

 

 

2,879

 

 

 

4,099

 

 

 

(10,963

)

 

 

(3,730

)

Net income (loss)

 

$

7,441

 

 

$

6,813

 

 

$

16,863

 

 

$

(6,489

)

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.11

 

 

$

0.26

 

 

$

(0.11

)

Diluted

 

$

0.11

 

 

$

0.10

 

 

$

0.25

 

 

$

(0.11

)

Dividends declared per common share

 

$

0.05

 

 

$

0.05

 

 

$

0.10

 

 

$

0.10

 

 

See Notes to Condensed Unaudited Consolidated Financial Statements.

5


 

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Comprehensive Income (Loss)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

April 30,

2018

 

 

April 29,

2017

 

 

April 30,

2018

 

 

April 29,

2017

 

Net income (loss)

 

$

7,441

 

 

$

6,813

 

 

$

16,863

 

 

$

(6,489

)

Other comprehensive (loss) income, net of tax

 

 

(476

)

 

 

113

 

 

 

(763

)

 

 

132

 

Comprehensive income (loss)

 

$

6,965

 

 

$

6,926

 

 

$

16,100

 

 

$

(6,357

)

 

See Notes to Condensed Unaudited Consolidated Financial Statements.

6


 

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

April 30,

2018

 

 

April 29,

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

16,863

 

 

$

(6,489

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

22,118

 

 

 

15,274

 

Amortization of debt issuance costs

 

 

882

 

 

 

918

 

Amortization of Senior Note discount

 

 

 

 

 

50

 

Stock-based compensation expense

 

 

3,697

 

 

 

25,817

 

Deferred income taxes

 

 

(10,414

)

 

 

(8,563

)

Loss on early extinguishment of debt

 

 

 

 

 

11,920

 

Gain on disposal of property, plant and equipment

 

 

(2,045

)

 

 

(352

)

Changes in operating assets and liabilities net of effects of business acquisitions:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(4,813

)

 

 

(14,789

)

Inventories, net

 

 

(21,875

)

 

 

(31,973

)

Other current assets

 

 

(1,880

)

 

 

(4,888

)

Accounts payable

 

 

(29,070

)

 

 

(19,822

)

Accrued warranty

 

 

(5,349

)

 

 

(3,911

)

Customer advances

 

 

16,423

 

 

 

10,928

 

Other liabilities

 

 

(28,064

)

 

 

(33,159

)

Long-term assets

 

 

(418

)

 

 

148

 

Net cash used in operating activities

 

 

(43,945

)

 

 

(58,891

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(23,623

)

 

 

(37,165

)

Payments for rental fleet vehicles

 

 

(14,235

)

 

 

(7,799

)

Proceeds from sale of property, plant and equipment

 

 

5,833

 

 

 

1,821

 

Acquisition of businesses, net of cash acquired

 

 

(57,157

)

 

 

(153,534

)

Net cash used in investing activities

 

 

(89,182

)

 

 

(196,677

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from borrowings under revolving credit facility

 

 

139,625

 

 

 

127,749

 

Proceeds from Term Loan

 

 

 

 

 

75,000

 

Net proceeds from initial public offering

 

 

 

 

 

253,593

 

Payment of dividends

 

 

(6,436

)

 

 

 

Payment of debt issuance costs

 

 

(411

)

 

 

(6,744

)

Repayment of long-term debt

 

 

 

 

 

(180,000

)

Senior Note prepayment premium

 

 

 

 

 

(7,650

)

Redemption of common stock options including employer payroll taxes

 

 

(1,918

)

 

 

(3,251

)

Payments of withholding and employer payroll taxes for vesting of restricted stock

 

 

(149

)

 

 

 

Proceeds from exercise of common stock options, net of employer payroll taxes

 

 

2,564

 

 

 

 

Repurchase and retirement of common stock

 

 

(4,834

)

 

 

 

Net cash provided by financing activities

 

 

128,441

 

 

 

258,697

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,686

)

 

 

3,129

 

Cash and cash equivalents, beginning of period

 

 

17,838

 

 

 

10,821

 

Cash and cash equivalents, end of period

 

$

13,152

 

 

$

13,950

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

10,321

 

 

$

17,607

 

Income taxes, net of refunds

 

$

14,882

 

 

$

10,536

 

See Notes to Condensed Unaudited Consolidated Financial Statements.

 

 

7


 

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statement of Shareholders’ Equity

(Dollars in thousands)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Amount

 

 

# Shares

 

 

Paid-in Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (loss)

 

 

Shareholders'

Equity

 

Balance, October 31, 2017

 

$

64

 

 

 

64,145,945 Sh.

 

 

$

531,988

 

 

$

40,353

 

 

$

35

 

 

$

572,440

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,863

 

 

 

 

 

 

 

16,863

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(763

)

 

 

(763

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

1,496

 

 

 

 

 

 

 

 

 

 

 

1,496

 

Exercise of common stock options

 

 

 

 

 

418,116 Sh.

 

 

 

2,792

 

 

 

 

 

 

 

 

 

 

 

2,792

 

Vesting of restricted stock, net of employee tax withholding

 

 

 

 

 

13,231 Sh.

 

 

 

(142

)

 

 

 

 

 

 

 

 

 

 

(142

)

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,489

)

 

 

 

 

 

 

(6,489

)

Repurchase and retirement of common stock

 

 

 

 

 

(238,547 Sh.

)

 

 

(4,834

)

 

 

 

 

 

 

 

 

 

 

(4,834

)

Balance, April 30, 2018

 

$

64

 

 

 

64,338,745 Sh.

 

 

$

531,300

 

 

$

50,727

 

 

$

(728

)

 

$

581,363

 

See Notes to Condensed Unaudited Consolidated Financial Statements

 

8


 

REV Group, Inc. and Subsidiaries

Notes to the Condensed Unaudited Consolidated Financial Statements

 

Note 1. Basis of Presentation

The condensed unaudited consolidated financial statements include the accounts of REV Group, Inc. (“REV” or “the Company”) and all its subsidiaries and are prepared in conformity within generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly REV’s consolidated financial position as of April 30, 2018, and October 31, 2017, and the consolidated results of operations and comprehensive income (loss) for the three and six months ended April 30, 2018 and April 29, 2017 and the consolidated cash flows for the six months then ended. The condensed unaudited consolidated statements of operations and comprehensive income (loss) for the three and six months ended April 30, 2018, and April 29, 2017 are not necessarily indicative of the results to be expected for the full year. The condensed unaudited consolidated balance sheet data as of October 31, 2017, was derived from audited financial statements, but does not include all of information and footnotes required by U.S. GAAP for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the quarter ended April 30, 2018, the Company made its initial investment in its China joint venture, Anhui Chery REV Specialty Vehicle Technology Co., Ltd (“China JV”). The amount of the investment was $0.9 million and is included in other long-term assets in the Company’s consolidated balance sheet as of April 30, 2018.

Initial Public Offering: On January 26, 2017, the Company announced the pricing of an initial public offering (“IPO”) of shares of its common stock, which began trading on the New York Stock Exchange on January 27, 2017. On February 1, 2017, the Company completed the IPO of 12,500,000 shares of common stock at a price of $22.00 per share. The Company received $275.0 million in gross proceeds from the IPO, or $253.6 million in net proceeds after deducting the underwriting discount and expenses related to the IPO. The net proceeds of the IPO were used to pay down the Company’s existing debt. Immediately prior to closing of the IPO, the Company completed an 80-for-one stock split of its Class A common stock and Class B common stock and reclassified the Class A common stock and Class B common stock into a single class of common stock, which was the same class as the shares sold in the IPO.

9


 

Note 2. Acquisitions

The Company has completed numerous acquisitions over the past several years as a component of its growth strategy. The Company has acquired industry leading brands and technologies to position itself as a leader in the industries served.

The Company has accounted for all business combinations using the acquisition method of accounting to record a new cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements. The results of operations are reflected in the consolidated financial statements of the Company from the dates of acquisition.

Lance Camper Manufacturing Acquisition

On January 12, 2018, the Company acquired 100% of the common shares of Lance Camper Mfg. Corp. and its sister company Avery Transport, Inc. (collectively, “Lance” and the “Lance Acquisition”). Lance designs, engineers and manufactures truck campers, towable campers and toy haulers. This acquisition gives the Company a meaningful entrance into the high volume and rapidly growing towables segment of the recreational vehicle market. The purchase price for Lance was $65.4 million ($59.4 million net of $6.0 million cash acquired), subject to an adjustment based on the level of net working capital at closing, as defined in the purchase agreement. The net cash consideration paid at closing was funded through the Company’s revolving credit facility. Lance is reported as part of the Recreation segment. The preliminary purchase price allocation resulted in goodwill of $51.4 million, which is deductible for income tax purposes.

As of April 30, 2018, the Company had not completed its assessment of the fair value of all acquired assets and liabilities assumed, or of the determination of the final purchase price calculation, as defined in the purchase agreement. The estimated fair values are preliminary and based on the information that was available as of the date of the acquisition.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed for Lance (in thousands):

Assets:

 

 

 

 

Cash

 

$

6,018

 

Accounts receivable, net

 

 

3,835

 

Inventories, net

 

 

9,797

 

Other current assets

 

 

340

 

Property, plant and equipment

 

 

3,443

 

Other long-term assets

 

 

137

 

Total assets acquired

 

 

23,570

 

Liabilities:

 

 

 

 

Accounts payable

 

 

2,718

 

Accrued warranty

 

 

1,362

 

Other current liabilities

 

 

5,522

 

Other long-term liabilities

 

 

3

 

Total liabilities assumed

 

 

9,605

 

Net Assets Acquired

 

 

13,965

 

Consideration Paid

 

 

65,390

 

Goodwill

 

$

51,425

 

Net sales and operating income were $32.6 million and $4.1 million for the three months ended April 30, 2018, respectively, and $39.4 million and $4.8 million for the six months ended April 30, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the operating results from Lance were not considered material to the Company’s operating results as a whole.

10


 

The Company will also pay up to an additional $10.0 million to the selling shareholders subsequent to the acquisition date in the form of deferred purchase price payable of $5.0 million on each of the 12- and 24-month anniversary dates of the acquisition date as per the agreement terms. This deferred payment will be recognized as an expense in the Company’s consolidated statement of operations over the period of the agreement.

Van-Mor Enterprises Inc. Acquisition

On May 15, 2017, the Company acquired certain real estate assets and operating assets and liabilities of Van-Mor Enterprises, Inc. (“Van-Mor” and the “Van-Mor Acquisition”). Van-Mor is a supplier of certain materials and components for the Company’s fire apparatus divisions. The final purchase price for Van-Mor was $1.6 million. The net cash consideration paid at closing was funded through the Company’s cash from operations. Van-Mor is reported as part of the Fire & Emergency segment.

Ferrara Fire Apparatus Acquisition

On April 25, 2017, the Company acquired 100% of the common shares of Ferrara Fire Apparatus, Inc. (“Ferrara” and the “Ferrara Acquisition”). Ferrara is a leading custom fire apparatus and rescue vehicle manufacturer that engineers and manufactures vehicles for municipal and industrial customers. This acquisition enhances the Company’s emergency vehicle product offering, particularly with custom fire apparatus including pumpers, aerials, and industrial vehicles. The final purchase price for Ferrara was $97.8 million ($94.8 million net of $3.0 million cash acquired) which includes a subsequent adjustment of $2.3 million received from the seller based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility and Term Loan. Ferrara is reported as part of the Fire & Emergency segment. The final purchase price allocation resulted in goodwill of $31.7 million, which is not deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Ferrara (in thousands):

 

Assets:

 

 

 

 

Cash

 

$

3,013

 

Accounts receivable, net

 

 

15,838

 

Inventories, net

 

 

40,098

 

Other current assets

 

 

360

 

Property, plant and equipment

 

 

12,489

 

Other long-term assets

 

 

76

 

Intangible assets, net

 

 

32,770

 

Total assets acquired

 

 

104,644

 

Liabilities:

 

 

 

 

Accounts payable

 

 

17,043

 

Accrued warranty

 

 

3,449

 

Customer advances

 

 

7,740

 

Deferred income taxes

 

 

3,639

 

Other current liabilities

 

 

2,816

 

Other long-term liabilities

 

 

3,851

 

Total liabilities assumed

 

 

38,538

 

Net Assets Acquired

 

 

66,106

 

Consideration Paid

 

 

97,775

 

Goodwill

 

$

31,669

 

Intangible assets acquired as a result of the Ferrara Acquisition are as follows (in thousands):

Customer relationships (12 year life)

 

$

14,440

 

Order backlog (1 year life)

 

 

3,190

 

Non-compete agreements (4 year life)

 

 

1,530

 

Trade names (indefinite life)

 

 

13,610

 

Total intangible assets, net

 

$

32,770

 

 

11


 

Net sales and operating income attributable to Ferrara were $33.1 million and $1.2 million for the three months ended April 30, 2018, respectively, and $60.2 million and $1.3 million for the six months ended April 30, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Ferrara Acquisition did not meet the materiality requirement for such disclosure.

Midwest Automotive Designs Acquisition

On April 13, 2017, the Company acquired certain assets and liabilities of Midwest Automotive Designs (“Midwest” and the “Midwest Acquisition”). Midwest manufactures Class B recreational vehicles (“RVs”) and luxury vans. This acquisition enhances the Company’s product offerings in both its Recreation and Commercial segments, by adding a selection of Class B recreational vehicles and multiple products for the luxury limousine, charter and tour bus markets. The final purchase price for Midwest was $34.9 million ($34.9 million net of cash acquired), which includes a subsequent adjustment of $0.5 million received from the seller based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility. Midwest is reported as part of the Recreation segment. The final purchase price allocation resulted in goodwill of $12.9 million, which is deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Midwest (in thousands):

 

Assets:

 

 

 

 

Cash

 

$

1

 

Accounts receivable, net

 

 

4,255

 

Inventories, net

 

 

8,960

 

Other current assets

 

 

65

 

Property, plant and equipment

 

 

179

 

Intangible assets, net

 

 

16,548

 

Total assets acquired

 

 

30,008

 

Liabilities:

 

 

 

 

Accounts payable

 

 

6,601

 

Accrued warranty

 

 

312

 

Customer advances

 

 

898

 

Other current liabilities

 

 

181

 

Total liabilities assumed

 

 

7,992

 

Net Assets Acquired

 

 

22,016

 

Consideration Paid

 

 

34,896

 

Goodwill

 

$

12,880

 

 

Intangible assets acquired as a result of the Midwest Acquisition are as follows (in thousands):

 

Customer relationships (6 year life)

 

$

12,900

 

Order backlog (1 year life)

 

 

548

 

Trade names (indefinite life)

 

 

3,100

 

Total intangible assets, net

 

$

16,548

 

Net sales and operating income attributable to Midwest were $17.7 million and $1.4 million for the three months ended April 30, 2018, respectively, and $31.8 million and $2.4 million for the six months ended April 30, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Midwest Acquisition did not meet the materiality requirement for such disclosure.

Renegade RV Acquisition

On December 30, 2016, the Company acquired 100% of the common shares of Kibbi, LLC, which operated as Renegade RV (“Renegade” and the “Renegade Acquisition”). Renegade is a leading manufacturer of Class C and “Super C” RVs and heavy-duty special application trailers. The final purchase price for Renegade was $22.5 million ($20.9 million net of $1.6 million cash acquired), which included a $0.3 million payment to Renegade’s sellers based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility. Renegade is reported as part of the

12


 

Recreation segment. The final purchase price allocation resulted in goodwill of $4.2 million, which is not deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Renegade (in thousands):

 

Assets:

 

 

 

 

Cash

 

$

1,597

 

Accounts receivable, net

 

 

2,334

 

Inventories, net

 

 

14,322

 

Other current assets

 

 

131

 

Property, plant and equipment

 

 

892

 

Intangible assets, net

 

 

7,700

 

Total assets acquired

 

 

26,976

 

Liabilities:

 

 

 

 

Accounts payable

 

 

4,231

 

Accrued warranty

 

 

390

 

Customer advances

 

 

272

 

Other current liabilities

 

 

1,035

 

Deferred income taxes

 

 

2,654

 

Other long-term liabilities

 

 

65

 

Total liabilities assumed

 

 

8,647

 

Net Assets Acquired

 

 

18,329

 

Consideration Paid

 

 

22,549

 

Goodwill

 

$

4,220

 

Intangible assets acquired as a result of the Renegade Acquisition are as follows (in thousands):

 

Customer relationships (6 year life)

 

$

5,200

 

Order backlog (1 year life)

 

 

900

 

Trade names (indefinite life)

 

 

1,600

 

Total intangible assets, net

 

$

7,700

 

 

Net sales and operating income attributable to Renegade were $31.9 million and $4.7 million for the three months ended April 30, 2018, respectively, and $60.2 million and $8.0 million for the six months ended April 30, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Renegade Acquisition did not meet the materiality requirement for such disclosure.

Note 3. Inventories

Inventories, net of reserves, consisted of the following (in thousands):

 

 

April 30,

2018

 

 

October 31,

2017

 

Chassis

 

$

45,561

 

 

$

54,668

 

Raw materials

 

 

185,330

 

 

 

162,448

 

Work in process

 

 

180,341

 

 

 

180,148

 

Finished products

 

 

86,517

 

 

 

68,424

 

 

 

 

497,749

 

 

 

465,688

 

Less: reserves

 

 

(13,843

)

 

 

(13,308

)

Total inventories, net

 

$

483,906

 

 

$

452,380

 

13


 

 

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

 

 

 

April 30, 2018

 

 

October 31, 2017

 

Land & land improvements

 

$

24,955

 

 

$

25,493

 

Buildings & improvements

 

 

110,245

 

 

 

104,160

 

Machinery & equipment

 

 

79,160

 

 

 

70,333

 

Rental fleet

 

 

30,575

 

 

 

17,743

 

Computer hardware & software

 

 

51,500

 

 

 

39,703

 

Office furniture & fixtures

 

 

5,611

 

 

 

4,961

 

Construction in process

 

 

31,704

 

 

 

34,784

 

 

 

 

333,750

 

 

 

297,177

 

Less: accumulated depreciation

 

 

(94,957

)

 

 

(80,094

)

Total property, plant and equipment, net

 

$

238,793

 

 

$

217,083

 

 

Depreciation expense was $6.8 million and $5.2 million for the three months ended April 30, 2018, and April 29, 2017, respectively, and $13.0 million and $10.0 million for the six months ended April 30, 2018, and April 29, 2017, respectively.

Note 5. Goodwill and Intangible Assets

The table below represents goodwill by segment (in thousands):

 

 

 

April 30,

2018

 

 

October 31,

2017

 

Fire & Emergency

 

$

88,608

 

 

$

88,355

 

Commercial

 

 

29,902

 

 

 

28,650

 

Recreation

 

 

68,526

 

 

 

16,230

 

Total goodwill

 

$

187,036

 

 

$

133,235

 

 

The change in the net carrying value amount of goodwill consisted of the following (in thousands):

 

 

 

Six Months Ended

 

 

 

April 30,

2018

 

 

April 29,

2017

 

Balance at beginning of period

 

$

133,235

 

 

$

84,507

 

Activity during the quarter:

 

 

 

 

 

 

 

 

Activity from prior year acquisitions

 

 

2,376

 

 

 

 

Activity from current year acquisitions

 

 

51,425

 

 

 

85,879

 

Balance at end of period

 

$

187,036

 

 

$

170,386

 

 

14


 

Intangible assets (excluding goodwill) consisted of the following (in thousands):

 

 

 

Weighted-

Average Life

 

 

April 30,

2018

 

 

October 31, 2017

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Technology-related

 

 

7.0

 

 

$

1,723

 

 

$

1,718

 

Customer relationships

 

 

8.0

 

 

 

112,021

 

 

 

111,957

 

Order backlog

 

 

1.0

 

 

 

4,858

 

 

 

4,658

 

Non-compete agreements

 

 

5.0

 

 

 

2,060

 

 

 

2,060

 

Trade names

 

 

7.0

 

 

 

3,477

 

 

 

3,477

 

 

 

 

 

 

 

 

124,139

 

 

 

123,870

 

Less: accumulated amortization

 

 

 

 

 

 

(70,578

)

 

 

(62,056

)

 

 

 

 

 

 

 

53,561

 

 

 

61,814

 

Indefinite-lived trade names

 

 

 

 

 

 

106,073

 

 

 

106,073

 

Total intangible assets, net

 

 

 

 

 

$

159,634

 

 

$

167,887

 

Amortization expense was $4.3 million and $2.7 million for the three months ended April 30, 2018, and April 29, 2017, respectively, and $9.1 million and $5.3 million for the six months ended April 30, 2018, and April 29, 2017, respectively.

Note 6. Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

 

 

April 30,

2018

 

 

October 31,

2017

 

Payroll and related benefits and taxes

 

$

24,054

 

 

$

21,617

 

Incentive compensation

 

 

37

 

 

 

11,740

 

Customer sales programs

 

 

4,542

 

 

 

6,097

 

Restructuring costs

 

 

2,209

 

 

 

638

 

Interest payable

 

 

1,588

 

 

 

1,537

 

Income taxes payable

 

 

(4,461

)

 

 

11,168

 

Dividends payable

 

 

3,257

 

 

 

3,210

 

Deferred purchase price payment

 

 

1,500

 

 

 

 

Other

 

 

16,837

 

 

 

14,234

 

Total other current liabilities

 

$

49,563

 

 

$

70,241

 

 

Note 7. Long-Term Debt

The Company was obligated under the following debt instruments (in thousands):

 

 

 

April 30,

2018

 

 

October 31,

2017

 

Senior secured facility:

 

 

 

 

 

 

 

 

Revolving credit ABL facility

 

$

297,000

 

 

$

157,000

 

Term Loan, net of debt issuance costs ($1,556 and $1,770)

 

 

72,694

 

 

 

72,855

 

 

 

 

369,694

 

 

 

229,855

 

Less: current maturities

 

 

(750

)

 

 

(750

)

Long-term debt, less current maturities

 

$

368,944