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EX-99.1 - EX-99.1 - HD Supply Holdings, Inc.a17-14755_2ex99d1.htm
8-K - 8-K - HD Supply Holdings, Inc.a17-14755_28k.htm

Exhibit 99.2

 

HD Supply Holdings, Inc.

Unaudited Pro Forma Financial Statements

 

Overview

 

On June 4, 2017, HD Supply, Inc. (“HDS”) entered into a Purchase Agreement (the “Purchase Agreement”) with HD Supply Holdings, LLC, a Florida limited liability company (“Holdings”), HD Supply GP & Management, Inc., a Delaware corporation (“HDS GP”, and together with Holdings, the “Sellers”), and CD&R Plumb Buyer, LLC (the “Buyer”).

 

Pursuant to the Purchase Agreement, the Sellers and certain affiliates of the Sellers will sell to the Buyer, and Buyer will purchase from the Sellers, (a) all of the issued and outstanding equity interests of: (i) HD Supply Waterworks, Ltd., a Florida limited partnership (“HDS WW”) and (ii) HD Supply Waterworks Group. Inc., a Delaware corporation (“HDS WW Group”) (collectively with HDS WW, the “Purchased Companies” or “Waterworks segment”), and (b) certain specified assets of the Sellers and certain affiliates of the Sellers (the “Transactions”).

 

The purchase price for the Transactions will be $2.5 billion in cash, which may be adjusted for certain working capital calculations.

 

The Transactions are currently expected to close during the third quarter of HDS’s fiscal 2017, subject to the satisfaction of customary closing conditions, including among others, regulatory approvals in the United States and the continuing accuracy of representations and warranties.

 

Basis of Presentation

 

The unaudited pro forma consolidated statements of operations for the fiscal years ended January 29, 2017, January 31, 2016, and February 1, 2015 give effect to the Transactions and have been derived from the audited consolidated financial statements and notes thereto included in Holdings’ Form 10-K for the fiscal year ended January 29, 2017 that has been filed with the Securities and Exchange Commission (“SEC”).  The unaudited pro forma consolidated statement of operations for the three months ended April 30, 2017 and the unaudited pro forma consolidated statement of financial position as of April 30, 2017 give effect to the Transactions and have been derived from the unaudited consolidated financial statements and notes thereto included in Holdings’ Form 10-Q for the three months ended April 30, 2017 that has been filed with the SEC. The unaudited pro forma consolidated financial statements are based upon available information and assumptions that Holdings believes are reasonable.

 

The unaudited pro forma consolidated financial statements are provided for informational purposes only and do not purport to project the future financial position or operating results of Holdings, together with its direct and indirect subsidiaries, including HDS. In accordance with pro forma rules, the pro forma unaudited consolidated statements of operations have been prepared as if the Transactions occurred on the first day of the most recent fiscal year, or February 1, 2016, except the pro forma unaudited consolidated statement of financial position has been prepared as if the Transactions occurred on April 30, 2017. The unaudited pro forma consolidated financial statements, including the notes thereto, should be read in conjunction with Holdings’ audited consolidated financial statements and notes thereto included in its Form 10-K for the fiscal year ended January 29, 2017 and Holdings’ unaudited consolidated financial statements and notes thereto included in its Form 10-Q for the three months ended April 30, 2017 that have been filed with the SEC.

 

The unaudited pro forma consolidated statement of operations for the three months ended April 30, 2017 give effect to the following:

 

·the elimination of the Waterworks segment;

 

·elimination of $23 million in interest expense due to the unwinding of the refinancing transactions that occurred within the year ended January 29, 2017:

 

HDS has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate additional debt repayment options in regards to the use of the net proceeds therefrom.

 

The unaudited pro forma consolidated statement of operations for the year ended January 29, 2017 give effect to the following:

 

·the elimination of the Waterworks segment;

 



 

·the $156 million interest expense reduction as a result of the use of net proceeds from the Transactions and cash on hand as of  February 1, 2016 to redeem senior notes and the unwinding of the April 2016 and October 2016 debt transactions;

 

·the $85 million increase to loss on extinguishment of debt as a result of the February 1, 2016 debt repayments with proceeds from the Transactions and the unwinding of the April 2016 and October 2016 debt transactions.

 

HDS has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate additional debt repayment options in regards to the use of the net proceeds therefrom.

 

The unaudited pro forma consolidated statements of operations for the years ended January 31, 2016 and February 1, 2015 give effect to the elimination of the Waterworks segment.

 

The unaudited pro forma consolidated statement of position as of April 30, 2017 gives effect to the following:

 

·the elimination of the Waterworks segment;

 

·the use of $2.5 billion proceeds from the Transactions to

 

(i)                                     pay an estimated $40 million of transaction costs,

 

(ii)                                  pay an estimated $18 million of taxes,

 

(iii)                               pay $1,250 million principal and related $77 million make-whole premium and $25 million accrued, but unpaid, interest on HDS’s 5.25% Senior Secured Notes due 2021,

 

(iv)                              pay $537 million outstanding aggregate principal and $2 million accrued, but unpaid, interest of HDS’s Term Loan B-1 due 2021, and

 

(v)                                 pay $547 million outstanding aggregate principal and $2 million accrued, but unpaid, interest of HDS’s Term Loan B-2 due 2023.

 

HDS has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate additional debt repayment options in regards to the use of the net proceeds therefrom.

 



 

HD SUPPLY HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATION

Amounts in millions, except share and per share data

 

 

 

Three Months Ended April 30, 2017

 

 

 

As Reported

 

Adjustments*

 

Pro forma

 

 

 

 

 

 

 

 

 

Net Sales

 

$

1,873

 

$

(657

)

$

1,216

 

Cost of sales

 

1,242

 

(510

)

732

 

Gross Profit

 

631

 

(147

)

484

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

431

 

(97

)

334

 

Depreciation and amortization

 

24

 

(3

)

21

 

Restructuring

 

 

 

 

Total operating expenses

 

455

 

(100

)

355

 

Operating Income

 

176

 

(47

)

129

 

Interest expense (2)

 

49

 

(23

)

26

 

Loss on extinguishment of debt

 

3

 

 

3

 

Other (income) expense, net

 

2

 

(2

)

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

122

 

(22

)

100

 

Provision (benefit) for income taxes

 

37

 

(9

)

28

 

Income (Loss) from Continuing Operations

 

85

 

(13

)

72

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands):

 

 

 

 

 

 

 

Basic

 

200,708

 

 

 

200,708

 

Diluted

 

203,017

 

 

 

203,017

 

Income (loss) from continuing operations per share:

 

 

 

 

 

 

 

Basic

 

$

0.42

 

 

 

$

0.36

 

Diluted

 

$

0.42

 

 

 

$

0.35

 

 


*Adjustments reflect:

 

(1) Elimination of the historical revenue and expenses of Waterworks, as if the sale had occurred at the beginning of the prior fiscal year.

 

(2) Reduction in interest expense to reflect the unwinding of financing transactions that occurred within the year ended January 29, 2017. Interest expense reduction includes cash interest and reduction in amortization of related debt discount and deferred financing costs.  The Company has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate additional debt repayment options in regards to the use thereof.

 



 

HD SUPPLY HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATION

Amounts in millions, except share and per share data

 

 

 

Year ended January 29, 2017

 

 

 

As Reported

 

Adjustments*

 

Pro forma

 

 

 

 

 

 

 

 

 

Net Sales

 

$

7,439

 

$

(2,620

)

$

4,819

 

Cost of sales

 

4,907

 

(2,014

)

2,893

 

Gross Profit

 

2,532

 

(606

)

1,926

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

1,637

 

(367

)

1,270

 

Depreciation and amortization

 

95

 

(11

)

84

 

Restructuring

 

9

 

(2

)

7

 

Total operating expenses

 

1,741

 

(380

)

1,361

 

Operating Income

 

791

 

(226

)

565

 

Interest expense (2)

 

269

 

(156

)

113

 

Loss on extinguishment of debt (3)

 

179

 

85

 

264

 

Other (income) expense, net

 

 

 

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

343

 

(155

)

188

 

Provision (benefit) for income taxes

 

139

 

(60

)

79

 

Income (Loss) from Continuing Operations

 

204

 

(95

)

109

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands):

 

 

 

 

 

 

 

Basic

 

199,385

 

 

 

199,385

 

Diluted

 

202,000

 

 

 

202,000

 

Income (loss) from continuing operations per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.02

 

 

 

$

0.55

 

Diluted

 

$

1.01

 

 

 

$

0.54

 

 


*Adjustments reflect:

(1) Elimination of the historical revenue and expenses of Waterworks, as if the sale had occurred at the beginning of the period presented.

 

(2) Reduction in interest expense to reflect

 

(i)             the use of approximately $2.4 billion ($2.5 billion sale proceeds, net of estimated $40 million of transaction costs and estimated $18 million of taxes) together with cash on hand, as of February 1, 2016 to

 

a.              pay $1 billion principal and related $131 million make-whole premium and $34 million accrued, but unpaid, interest on HDS’s 11.5% Senior Unsecured Notes due 2020, and

 

b.              pay $1,275 million principal and related $106 million make-whole premium and $28 million accrued, but unpaid interest on HDS’s 7.5% Senior Unsecured Notes due 2020 at the beginning of each of the periods presented.

 

(ii)          the unwinding of financing transactions that occurred within the year ended January 29, 2017:

 

a.              the 11.5% Senior Unsecured Notes due 2020 were redeemed by HDS in April 2016, using proceeds from the issuance of $1,000 million of 5.75% Senior Unsecured Notes due 2024, and

 

b.              the 7.5% Senior Unsecured Notes due 2020 were redeemed by HDS in October 2016, using proceeds from the issuance of Term B-2 Loans due 2023, together with available cash and available borrowings under HDS’s Senior ABL Facility.

 

Interest expense reduction includes cash interest and reduction in amortization of related debt discount and deferred financing costs.

 

(3) Increase in loss on extinguishment of debt to reflect the premium increase to paydown the senior notes as of February 1, 2016 and unwind the 2016 financing transactions. The Company has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate additional debt repayment options in regards to the use thereof.

 



 

HD SUPPLY HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATION

Amounts in millions, except share and per share data

 

 

 

Year ended January 31, 2016

 

 

 

As Reported

 

Adjustments*

 

Pro forma

 

 

 

 

 

 

 

 

 

Net Sales

 

$

7,123

 

$

(2,508

)

$

4,615

 

Cost of sales

 

4,734

 

(1,933

)

2,801

 

Gross Profit

 

2,389

 

(575

)

1,814

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

1,535

 

(351

)

1,184

 

Depreciation and amortization

 

108

 

(11

)

97

 

Restructuring

 

9

 

(1

)

8

 

Total operating expenses

 

1,652

 

(363

)

1,289

 

Operating Income

 

737

 

(212

)

525

 

Interest expense

 

394

 

 

394

 

Loss on extinguishment of debt

 

100

 

 

100

 

Other (income) expense, net

 

1

 

 

1

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

242

 

(212

)

30

 

Provision (benefit) for income taxes

 

(1,084

)

(86

)

(1,170

)

Income (Loss) from Continuing Operations

 

1,326

 

(126

)

1,200

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands):

 

 

 

 

 

 

 

Basic

 

197,011

 

 

 

197,011

 

Diluted

 

201,308

 

 

 

201,308

 

Income (loss) from continuing operations per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

6.73

 

 

 

$

6.09

 

Diluted

 

$

6.59

 

 

 

$

5.96

 

 


*Adjustments reflect:

(1) Elimination of the historical revenue and expenses of Waterworks, as if the sale had occurred at the beginning of the period presented.

 



 

HD SUPPLY HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATION

Amounts in millions, except share and per share data

 

 

 

Year ended February 1, 2015

 

 

 

As Reported

 

Adjustments*

 

Pro forma

 

 

 

 

 

 

 

 

 

Net Sales

 

$

6,682

 

$

(2,426

)

$

4,256

 

Cost of sales

 

4,487

 

(1,897

)

2,590

 

Gross Profit

 

2,195

 

(529

)

1,666

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

1,446

 

(330

)

1,116

 

Depreciation and amortization

 

178

 

(12

)

166

 

Restructuring

 

6

 

(1

)

5

 

Total operating expenses

 

1,630

 

(343

)

1,287

 

Operating Income

 

565

 

(186

)

379

 

Interest expense

 

462

 

 

462

 

Loss on extinguishment of debt

 

108

 

 

108

 

Other (income) expense, net

 

(3

)

 

(3

)

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

(2

)

(186

)

(188

)

Provision (benefit) for income taxes

 

36

 

(14

)

22

 

Income (Loss) from Continuing Operations

 

(38

)

(172

)

(210

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands):

 

 

 

 

 

 

 

Basic

 

193,962

 

 

 

193,962

 

Diluted

 

193,962

 

 

 

193,962

 

Income (loss) from continuing operations per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.20

)

 

 

$

(1.08

)

Diluted

 

$

(0.20

)

 

 

$

(1.08

)

 


*Adjustments reflect:

(1) Elimination of the historical revenue and expenses of Waterworks, as if the sale had occurred at the beginning of the period presented.

 



 

HD SUPPLY HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS

Amounts in millions

 

 

 

As of April 30, 2017

 

 

 

As Reported

 

Adjustments*

 

Pro forma

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

70

 

$

2

 

$

72

 

Receivables

 

1,015

 

(404

)

611

 

Inventories

 

913

 

(274

)

639

 

Other current assets

 

40

 

(3

)

37

 

Total current assets

 

2,038

 

(679

)

1,359

 

Property and equipment, net

 

309

 

(49

)

260

 

Goodwill

 

2,869

 

(1,061

)

1,808

 

Intangible assets, net

 

109

 

(9

)

100

 

Deferred Tax asset

 

579

 

(214

)

365

 

Other assets

 

22

 

 

22

 

Total assets

 

$

5,926

 

$

(2,012

)

$

3,914

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

721

 

$

(319

)

$

402

 

Accrued compensation and benefits

 

84

 

(18

)

66

 

Current installments of long—term debt

 

14

 

(14

)

 

Other current liabilities

 

156

 

(33

)

123

 

Total current liabilities

 

975

 

(384

)

591

 

 

 

 

 

 

 

 

 

Long term debt, excluding current installments

 

3,716

 

(2,290

)

1,426

 

Other liabilities

 

112

 

 

112

 

Total liabilities

 

$

4,803

 

$

(2,674

)

$

2,129

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

Common stock

 

2

 

 

2

 

Paid—in capital

 

3,994

 

 

3,994

 

Accumulated deficit

 

(2,850

)

662

 

(2,188

)

Accumulated other comprehensive loss

 

(14

)

 

(14

)

Treasury stock

 

(9

)

 

(9

)

Total stockholders’ equity (deficit)

 

1,123

 

662

 

1,785

 

Total liabilities and stockholders’ equity (deficit)

 

$

5,926

 

$

(2,012

)

$

3,914

 

 


*Adjustments reflect:

(1) Elimination of the assets & liabilities of Waterworks and record the gain on sale, as if the sale occurred on April 30, 2017.

(2) Reduction of senior notes with the net proceeds of the sale and unwinding of financing transactions that occurred in fiscal 2016.  The Company has not yet definitively determined how it will use the net proceeds from the Transactions and continues to evaluate its options in regards to the use thereof, including, without limitation, repayment of indebtedness other than the term loan facility.