Attached files
file | filename |
---|---|
8-K - 8-K - Builders FirstSource, Inc. | d195475d8k.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the related notes thereto have been derived by the application of pro forma adjustments based upon the historical financial statements of Builders FirstSource, Inc. (Builders) and ProBuild Holdings, Inc. (the ProBuild Parent), of which ProBuild Holdings LLC (ProBuild) is a wholly-owned subsidiary, after giving effect to the transactions contemplated by the Securities Purchase Agreement dated as of April 13, 2015, by and between Builders, ProBuild and the holders of ProBuilds securities named as parties thereto (the ProBuild Acquisition Transactions), in connection with the acquisition by Builders of all of the operating affiliates of ProBuild through the purchase of all of the issued and outstanding equity interests of ProBuild for approximately $1.63 billion, subject to certain adjustments (the ProBuild Acquisition) and related adjustments described in the following notes, and are intended to reflect the impact of the ProBuild Acquisition Transactions on Builders on a pro forma basis. On July 31, 2015 (the Closing Date), Builders completed the ProBuild Acquisition and the ProBuild Acquisition Transactions. For more information, see Item 2.02 of Builders current report on Form 8-K dated July 31, 2015.
The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to Builders historical consolidated financial information that are (i) directly attributable to the ProBuild Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma combined statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the consolidated results of operations or financial position of Builders that would have been reported had the ProBuild Acquisition Transactions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Builders. The unaudited pro forma condensed combined financial information does not reflect any operating efficiencies and cost savings that Builders may achieve with respect to combining the companies or costs to integrate the business. Synergies and integration costs have been excluded from consideration because they do not meet the criteria for unaudited pro forma adjustments.
The unaudited pro forma condensed combined financial information is provided for informational and illustrative purposes only and should be read in conjunction with the audited consolidated financial statements and the notes related thereto for Builders for the years ended December 31, 2013, 2014 and 2015, which is included in Builders annual report filed on Form 10-K.
The following unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 combines Builders historical results for the year ended December 31, 2015 with the ProBuild Parents historical results for the seven months ended July 31, 2015, prior to the date of acquisition of ProBuild by Builders. The unaudited pro forma condensed combined statement of operations gives effect to the ProBuild Acquisition Transactions as if they had been consummated on January 1, 2015.
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Builders. These accounting policies are similar in most material respects to those of ProBuild, unless otherwise disclosed in the accompanying unaudited pro forma combined financial information.
1
Unaudited Pro Forma Condensed Combined Statement of Operations
Historical | ||||||||||||||||||||||
Builders FirstSource Year Ended December 31 31, 2015 |
ProBuild Holdings Seven Months Ended July 31, 2015 |
Presentation Reclassification |
Pro Forma Adjustments |
Note Ref |
Pro Forma Combined Company |
|||||||||||||||||
(in thousands, other than per share amounts) | ||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||
Net sales |
$ | 3,564,425 | $ | 2,502,367 | $ | | $ | | $ | 6,066,792 | ||||||||||||
Cost of sales |
2,662,967 | 1,823,371 | 24,331 | 7,419 | 4(a), 5(a) | 4,518,088 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross margin |
901,458 | 678,996 | (24,331 | ) | (7,419 | ) | 1,548,704 | |||||||||||||||
Selling, general and administrative expenses |
810,841 | 623,599 | (24,331 | ) | (8,768 | ) | 4(a), 5(b), 5(c) | 1,401,341 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from operations |
90,617 | 55,397 | | 1,349 | 147,363 | |||||||||||||||||
Interest expense |
(109,199 | ) | (29,982 | ) | | (41,748 | ) | 5(d) | (180,929 | ) | ||||||||||||
Interest income |
| | | | | |||||||||||||||||
Other income |
| 8,097 | | | 8,097 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from continuing operations before income tax |
(18,582 | ) | 33,512 | | (40,399 | ) | (25,469 | ) | ||||||||||||||
Income tax expense |
(4,387 | ) | (1,523 | ) | | | 5(e) | (5,910 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from continuing operations |
(22,969 | ) | 31,989 | | (40,399 | ) | (31,379 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from discontinued operations |
138 | | | | 138 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (22,831 | ) | $ | 31,989 | $ | | $ | (40,399 | ) | $ | (31,241 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Basic net loss per share: |
||||||||||||||||||||||
Loss from continuing operations |
$ | (0.22 | ) | $ | (0.29 | ) | ||||||||||||||||
Income from discontinued operations |
| | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||
Net loss |
$ | (0.22 | ) | $ | (0.29 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||||
Diluted net loss per share: |
||||||||||||||||||||||
Loss from continuing operations |
$ | (0.22 | ) | $ | (0.29 | ) | ||||||||||||||||
Income from discontinued operations |
| | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||
Net loss |
$ | (0.22 | ) | $ | (0.29 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Basic |
103,190 | 5,318 | 5(f) | 108,508 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Diluted |
103,190 | 5,318 | 5(f) | 108,508 | ||||||||||||||||||
|
|
|
|
|
|
2
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. | Description of Transaction |
On July 31, 2015, Builders acquired all of the operating affiliates of ProBuild through the purchase of all issued and outstanding equity interests of ProBuild for $1.63 billion in cash, subject to certain adjustments. The purchase price was funded with the net cash proceeds from (i) the sale of $700.0 million in aggregate principal amount of 10.75% senior unsecured notes due 2023 (the 2023 notes), (ii) entry into a $600.0 million term loan credit agreement (the 2015 term loan) provided by a syndicate of financial institutions led by Deutsche Bank AG, New York Branch, as administrative and collateral agent, (iii) a $295.0 million draw on an amended and restated $800.0 million senior secured revolving credit facility (the 2015 facility) provided by a syndicate of financial institutions led by SunTrust Bank as administrative and collateral agent, and (iv) a public offering of 9.2 million new shares of our common stock at an offering price of $12.80 per share (the equity offering). In connection with these financing transactions, Builders incurred approximately $65.0 million of various third-party fees and expenses.
2. | Basis of Presentation |
The unaudited pro forma condensed combined financial information included herein has been prepared pursuant to the rules and regulations of the SEC. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
3. | Accounting Policies |
Following the ProBuild Acquisition, Builders conducted a review of accounting policies of ProBuild in an effort to determine if differences in accounting policies require reclassification of results of operations or reclassification of assets or liabilities to conform to the Builders accounting policies and classifications. As a result of that review, Builders identified a significant difference in accounting policy in regards to accounting for inventory. Builders accounts for the cost of inventory using the weighted average method, the use of which approximates the first-in, first-out method. Historically, ProBuild accounted for the cost of inventory using last-in, first-out method. An adjustment has been made in the unaudited pro forma condensed combined financial information to conform the historical ProBuild inventory cost policy to Builders.
4. | Reclassifications of Historical ProBuild |
The audited combined financial statements of ProBuild reflect all of the operations of the business acquired by Builders. Financial information presented in the Historical ProBuild column in the unaudited pro forma condensed combined statement of operations represents the historical combined statement of operations of ProBuild for the seven months ended July 31, 2015 prior to the date of acquisition of ProBuild by Builders. Such financial information has been reclassified or classified to conform to the historical presentation in the Builders consolidated financial statements as set forth below. Unless otherwise indicated, defined line items included in the footnotes have the meanings given to them in the historical financial statements of ProBuild.
Reclassifications incorporated in the Pro Build unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015:
Before Reclassification |
Reclassification Amount |
Ref | After Reclassification |
|||||||||||
Cost of sales |
$ | 1,823,371 | $ | 24,331 | (a) | $ | 1,847,702 | |||||||
Selling, general and administrative |
623,599 | (24,331 | ) | (a) | 599,268 |
Reference:
(a) | Represents reclassification of $24.3 million from Selling, general and administrative expenses to Costs of sales primarily related to manufacturing overhead, including indirect labor and benefits, rent and facility costs. |
3
5. | Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments |
(a) | Historically, ProBuild reported inventory cost on a last-in, first-out basis. This adjustment conforms the inventory cost basis to first-in, first- out as an increase to cost of sales of $5.9 million for the year ended December 31, 2015. |
Adjustment also represents incremental depreciation of production-related assets of $1.5 million, based on the fair value of property, plant and equipment, for the year ended December 31, 2015.
(b) | In accordance with ASC 805, the purchase price of ProBuild was allocated to the fair value of its assets and liabilities. The fair value of property, plant and equipment was approximately $658.5 million and the fair value of intangible assets, net was approximately $165.0 million. This adjustment increases selling, general and administrative expenses for incremental depreciation and amortization expense based on the fair value of property, plant and equipment and definite-lived intangible assets acquired as follows: |
Year Ended December 31, 2015 |
||||||||
Net Property and Equipment |
Intangible Assets, Net |
|||||||
ProBuild fair value |
$ | 658,541 | $ | 165,000 | ||||
Pro forma depreciation and amortization |
46,285 | $ | 12,711 | |||||
Portion attributable to cost of sales |
(4,629 | ) | | |||||
|
|
|
|
|||||
Pro forma attributable to selling, general and administrative expense |
41,656 | 12,711 | ||||||
Historical depreciation and amortization |
(28,147 | ) | (2,184 | ) | ||||
|
|
|
|
|||||
Incremental depreciation and amortization attributable to selling, general and administrative expenses |
$ | 13,509 | $ | 10,527 |
Depreciable property and equipment will be amortized on a straight-line basis over a useful life of 1-15 years, except building assets which have an average useful life of 39 years. Intangible assets will be amortized on an accelerated basis approximating the underlying cash flow assumptions over estimated useful lives of 5-18 years. ProBuild historical depreciation and amortization expense for the twelve months ended December 31, 2015 was comprised of $24.3 million and $3.8 million of depreciation expense for the six month period ended June 30, 2015 and the one month period ended July 31, 2015, respectively, and $1.9 million and $0.3 million of amortization expense for the six month period ended June 30, 2015 and the one month period ended July 31, 2015, respectively.
(c) | Selling, general and administrative expense has been adjusted to exclude non-recurring transaction-related expenses of $32.8 million ($20.5 million incurred by Builders and $12.3 million incurred by ProBuild) during the year ended December 31, 2015. |
(d) | To consummate the ProBuild Acquisition, Builders entered into a $600.0 million 2015 term loan and the $800.0 million 2015 facility, of which, $295.0 million was drawn on the date of the ProBuild Acquisition and issued $700.0 million of 2023 notes. Interest on the 2015 term loan and 2015 facility is variable, while interest on the 2023 notes is fixed. Borrowings made in connection with the ProBuild Acquisition Transactions reflect an assumed weighted average interest rate of approximately 7.3%. The following pro forma adjustment to the unaudited pro forma condensed combined statement of operations is shown below. |
Year Ended December 31, 2015 |
||||
Interest expense on financing incurred in connection with the ProBuild Acquisition Transactions at 7.3% |
$ | 69,712 | ||
Interest expense on ProBuild lease finance obligations |
12,240 | |||
Reverse interest expense recorded in ProBuilds historical results |
(29,982 | ) | ||
Reverse interest expense recorded in Builders historical results related to the existing revolver |
(1,028 | ) | ||
Amortization of deferred financing costs and original issue discount recorded in connection with the ProBuild Acquisition Transactions |
4,906 | |||
Reverse interest expense recorded in Builders and ProBuilds historical results related to non-recurring transaction-related expenses |
(14,100 | ) | ||
|
|
|||
Total pro forma adjustment to interest expense |
$ | 41,748 | ||
|
|
4
Builders estimates the weighted average interest rate on the new debt incurrence to be approximately 7.3%. A hypothetical 1/8% increase or decrease in the expected weighted average interest rate on financing incurred in connection with the Transactions, including from an increase in LIBOR (excluding the impact of the LIBOR floor), would increase or decrease interest expense on Builders financing by approximately $2.5 million annually.
Interest expense recorded in ProBuilds historical results for the year ended December 31, 2015 was comprised of $25.7 million and $4.3 million for the six month period ended June 30, 2015 and the one month period ended July 31, 2015, respectively. Further, interest expense on ProBuild lease finance obligations for the year ended December 31, 2015 was comprised of $10.8 million and $1.4 million for the six month period ended June 30, 2015 and the one month period ended July 31, 2015, respectively.
Of the $14.1 million in non-recurring transaction-related expenses recorded in historical interest expense, $13.2 million is related to commitment fees paid for bridge and backstop financing facilities entered into in connection with the ProBuild acquisition financing transactions, neither of which was utilized. The remaining $0.9 million in expense was related to the write-off of unamortized debt issuance costs related to our previous revolving credit facility.
(e) | For purposes of this unaudited pro forma combined financial data, the United States federal statutory tax rate of 35% has been used for all periods presented and then the income tax benefit has been fully reserved given the historical operating losses of Builders. This rule does not reflect Builders effective tax rate, which includes other tax items, such as state taxes, as well as other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact Builders. |
(f) | Basic and diluted earnings per share calculations are computed using the two-class method and are based on Builders historical basic and diluted weighted-average shares plus the new shares issued as part of the ProBuild Acquisition. The ProBuild Acquisition includes the issuance of approximately $111.3 million of new equity, net of issuance costs, at a price of $12.80 per share, or 9.2 million shares. The incremental common shares used in the pro forma earnings per share calculations differ from the 9.2 million shares issued for the ProBuild Acquisition. The difference reflects the change in pro forma weighted average shares outstanding after giving effect to the pro forma net loss and the pro forma share issuance. |
5