Attached files
| file | filename |
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| EX-99.1 - EX-99.1 - APOGEE ENTERPRISES, INC. | d421569dex991.htm |
| EX-23.1 - EX-23.1 - APOGEE ENTERPRISES, INC. | d421569dex231.htm |
| 8-K/A - 8-K/A - APOGEE ENTERPRISES, INC. | d421569d8ka.htm |
Exhibit 99.2
Unaudited Pro Forma Condensed Combined Financial Information
Apogee Enterprises, Inc. (we, our or the Company) acquired all of the outstanding shares of capital stock of EFCO Corporation (EFCO) for approximately $192 million on June 12, 2017. EFCO manufactures architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, primarily in the U.S. The EFCO acquisition was funded by an expansion of the Company’s existing credit facility. On December 14, 2016, the Company, through a wholly-owned subsidiary, acquired substantially all the assets of Sotawall, Inc. (now operating under the name Sotawall Limited or Sotawall) for approximately $135 million, which was funded through a combination of available cash and borrowing under the Company’s existing credit facility. Sotawall designs and fabricates high-performance, unitized curtainwall systems for industrial, commercial and institutional buildings, primarily serving the Canadian and northeastern U.S. geographic regions.
The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and EFCO’s and Sotawall’s respective historical financial statements, adjusted to give effect to the Company’s acquisitions of EFCO and Sotawall, Inc. and the related financing of each acquisition. The unaudited pro forma condensed combined statements of operations for the three months ended June 3, 2017 and the 12 months ended March 4, 2017 give effect to both acquisitions as if they had both occurred on February 28, 2016, the beginning of Apogee’s fiscal year 2017. The unaudited pro forma condensed combined balance sheet as of June 3, 2017 gives effect to the EFCO transaction as if it had occurred on June 3, 2017.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, and the historical financial information of EFCO included herein and of Sotawall, Inc. included in the Company’s Current Report on Form 8-K filed on February 28, 2017.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 3, 2017
| In thousands |
Apogee Enterprises, Inc. Historical |
EFCO (Acquiree) Historical (1) |
Pro Forma Adjustments |
Notes | Pro Forma Combined | |||||||||||||||
| Assets |
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| Current assets |
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| Cash and cash equivalents |
$ | 22,972 | $ | - | $ | - | $ | 22,972 | ||||||||||||
| Short-term available for sale securities |
425 | - | - | 425 | ||||||||||||||||
| Restricted cash |
2,683 | - | - | 2,683 | ||||||||||||||||
| Receivables, net of allowance for doubtful accounts |
180,483 | 47,407 | - | 227,890 | ||||||||||||||||
| Inventories |
81,083 | 23,165 | - | 104,248 | ||||||||||||||||
| Other current assets |
9,626 | 2,673 | (108 | ) | b | 12,191 | ||||||||||||||
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| Total current assets |
297,272 | 73,245 | (108 | ) | 370,409 | |||||||||||||||
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| Property, plant and equipment, net |
250,979 | 41,204 | 2,757 | c | 294,940 | |||||||||||||||
| Available for sale securities |
7,551 | - | - | 7,551 | ||||||||||||||||
| Deferred tax assets |
1,099 | - | 3,110 | f | 4,209 | |||||||||||||||
| Goodwill |
95,211 | 24,722 | 29,707 | j | 149,640 | |||||||||||||||
| Intangible assets |
105,330 | 21,471 | 50,029 | d | 176,830 | |||||||||||||||
| Other non-current assets |
22,155 | 715 | (56 | ) | b | 22,814 | ||||||||||||||
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| Total assets |
$ | 779,597 | $ | 161,357 | $ | 85,439 | $ | 1,026,393 | ||||||||||||
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| Liabilities and Shareholders’ Equity |
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| Current liabilities |
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| Accounts payable |
$ | 63,666 | $ | 13,861 | $ | - | $ | 77,527 | ||||||||||||
| Accrued payroll and related benefits |
27,990 | 9,233 | - | 37,223 | ||||||||||||||||
| Accrued self-insurance reserves |
5,901 | 2,136 | 1,486 | e | 9,523 | |||||||||||||||
| Other current liabilities |
32,979 | 11,042 | (1,033 | ) | a, b | 42,988 | ||||||||||||||
| Billings in excess of costs and earnings on uncompleted contracts |
33,931 | 1,824 | - | 35,755 | ||||||||||||||||
| Accrued income taxes |
2,801 | - | - | 2,801 | ||||||||||||||||
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| Total current liabilities |
167,268 | 38,096 | 453 | 205,817 | ||||||||||||||||
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| Long-term debt |
71,400 | - | 184,826 | a | 256,226 | |||||||||||||||
| Unrecognized tax benefits |
4,309 | - | - | 4,309 | ||||||||||||||||
| Long-term self-insurance reserves |
8,254 | 2,696 | 2,677 | e | 13,627 | |||||||||||||||
| Deferred tax liabilities |
3,622 | - | 3,110 | f | 6,732 | |||||||||||||||
| Other non-current liabilities |
42,915 | 10,824 | 4,114 | a, b | 57,853 | |||||||||||||||
| Commitments and contingent liabilities |
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| Shareholders’ equity |
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| Common stock |
9,596 | 47 | (47 | ) | g | 9,596 | ||||||||||||||
| Additional paid-in capital |
152,107 | 197,899 | (197,899 | ) | g | 152,107 | ||||||||||||||
| Retained earnings |
351,872 | (88,205 | ) | 88,205 | g | 351,872 | ||||||||||||||
| Common stock held in trust |
(886 | ) | - | - | (886 | ) | ||||||||||||||
| Deferred compensation obligations |
886 | - | - | 886 | ||||||||||||||||
| Accumulated other comprehensive loss |
(31,746 | ) | - | - | (31,746 | ) | ||||||||||||||
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| Total shareholders’ equity |
481,829 | 109,741 | (109,741 | ) | 481,829 | |||||||||||||||
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| Total liabilities and shareholders’ equity |
$ | 779,597 | $ | 161,357 | $ | 85,439 | $ | 1,026,393 | ||||||||||||
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See accompanying notes to the unaudited pro forma condensed combined financial information.
(1) EFCO balance sheet as of May 27, 2017.
UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 3, 2017
| In thousands, except per share information |
Apogee Enterprises, Inc. Historical |
EFCO (Acquiree) Historical (1) |
Pro Forma Adjustments |
Notes | Pro Forma Combined | |||||||||||||||
| Net sales |
$ | 272,307 | $ | 71,744 | $ | - | $ | 344,051 | ||||||||||||
| Cost of sales |
202,013 | 55,144 | 88 | c | 257,245 | |||||||||||||||
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| Gross profit |
70,294 | 16,600 | (88 | ) | 86,806 | |||||||||||||||
| Selling, general and administrative expenses |
46,188 | 13,556 | (132 | ) | c, d, h | 59,612 | ||||||||||||||
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| Operating income |
24,106 | 3,044 | 44 | 27,194 | ||||||||||||||||
| Other income (expense), net |
(98 | ) | - | (1,155 | ) | a | (1,253 | ) | ||||||||||||
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| Earnings before income taxes |
24,008 | 3,044 | (1,111 | ) | 25,941 | |||||||||||||||
| Income tax expense |
7,904 | 100 | 596 | f | 8,600 | |||||||||||||||
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| Net earnings |
$ | 16,104 | $ | 2,944 | $ | (1,707 | ) | $ | 17,341 | |||||||||||
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| Earnings per share - basic |
$ | 0.56 | N/A | $ | 0.60 | |||||||||||||||
| Earnings per share - diluted |
$ | 0.56 | N/A | $ | 0.60 | |||||||||||||||
| Weighted-average basic shares outstaning |
28,851 | N/A | 28,851 | |||||||||||||||||
| Weighted-average diluted shares outstanding |
28,861 | N/A | 28,861 | |||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
(1) EFCO results of operations for the three months ended May 27, 2017.
UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS
YEAR ENDED MARCH 4, 2017
| In thousands, except per share information |
Apogee Enterprises, Inc. Historical |
Sotawall Historical (1) |
(Sotawall) Pro Forma Adjustments |
EFCO (Acquiree) Historical (2) |
(EFCO) Pro Forma Adjustments |
Notes | Pro Forma Combined | |||||||||||||||||||||
| Net sales |
$ | 1,114,533 | $ | 84,147 | $ | - | $ | 277,517 | $ | - | $ | 1,476,197 | ||||||||||||||||
| Cost of sales |
822,510 | 50,993 | 230 | 207,924 | 537 | c | 1,082,194 | |||||||||||||||||||||
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| Gross profit |
292,023 | 33,154 | (230 | ) | 69,593 | (537 | ) | 394,003 | ||||||||||||||||||||
| Selling, general and administrative expenses |
169,798 | 6,340 | 5,260 | 52,031 | 2,072 | c, d, h, i | 235,501 | |||||||||||||||||||||
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| Operating income |
122,225 | 26,814 | (5,490 | ) | 17,562 | (2,609 | ) | 158,502 | ||||||||||||||||||||
| Other income (expense), net |
580 | 37 | (1,350 | ) | - | (4,621 | ) | a | (5,354 | ) | ||||||||||||||||||
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| Earnings before income taxes |
122,805 | 26,851 | (6,840 | ) | 17,562 | (7,230 | ) | 153,148 | ||||||||||||||||||||
| Income tax expense |
37,015 | 6,713 | (1,710 | ) | 219 | 3,501 | f | 45,738 | ||||||||||||||||||||
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| Net earnings |
$ | 85,790 | $ | 20,138 | $ | (5,130 | ) | $ | 17,343 | $ | (10,730 | ) | $ | 107,410 | ||||||||||||||
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| Earnings per share - basic |
$ | 2.98 | N/A | N/A | $ | 3.73 | ||||||||||||||||||||||
| Earnings per share - diluted |
$ | 2.97 | N/A | N/A | $ | 3.72 | ||||||||||||||||||||||
| Weighted-average basic shares outstanding |
28,781 | N/A | N/A | 28,781 | ||||||||||||||||||||||||
| Weighted-average diluted shares outstanding |
28,893 | N/A | N/A | 28,893 | ||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
(1) Sotawall results of operations for the period March 1, 2016 through December 13, 2016. Apogee acquired Sotawall on December 14, 2016.
(2) EFCO results of operations for the twelve months ended February 25, 2017.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1: Basis of presentation
Our historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has allocated the total purchase price to EFCO’s tangible and intangible assets acquired and liabilities assumed, based on their fair values at the date of the acquisition, and conformed the accounting policies of EFCO to its own accounting policies.
The Company’s fiscal year ends on the Saturday closest to the last day of February, or as otherwise determined by the Board of Directors, and the Company’s first fiscal year 2018 quarter-end was June 3, 2017. EFCO’s historical year-end is the Saturday closest to the last day of November. The balance sheet for EFCO included in the pro forma condensed combined balance sheet is as of May 27, 2017 and the results of operations for EFCO included in the pro forma condensed combined results of operations are for the three months ended May 27, 2017 and the 12 months ended February 25, 2017. Sotawall’s results of operations from the date of acquisition are included within Apogee Enterprises, Inc. historical results for the year ended March 4, 2017. Sotawall’s results of operations for the period from March 1, 2016 through December 13, 2016 are separately presented in the pro forma condensed combined results of operations for the year ended March 4, 2017.
The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The Unaudited Pro Forma Condensed Combined Statements of Income do not reflect the costs of any integration activities or benefits that may result from realization of potential future synergies that may result from the acquisitions.
Note 2: Preliminary purchase price allocation
We have performed a preliminary allocation of the purchase price for EFCO to the acquired assets and assumed liabilities, as shown in the following table as of the acquisition date:
| In thousands |
June 12, 2017 | |||
| Net working capital |
$ | 33,682 | ||
| Property, plant and equipment, net |
43,961 | |||
| Goodwill |
62,788 | |||
| Other intangible assets |
71,500 | |||
| Less: Long-term liabilities, net |
19,605 | |||
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| Total purchase price |
$ | 192,326 | ||
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This preliminary purchase price allocation was used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial information. The preliminary purchase price may change based on the final working capital valuations and necessary calculations. Thus, the preliminary measures of fair value reflected are subject to changes and such changes could be significant to the unaudited pro forma condensed combined financial information. The final allocation may include (1) changes in allocations to intangible assets and (2) changes to income tax related accounts, as well as changes to other assets and liabilities, which may impact pro forma adjustments to the unaudited pro forma condensed combined financial information.
Note 3: Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
| (a) | Reflects the draw on the line of credit to fund the acquisition of EFCO, as well as the short-term and long-term liability for the $2.5 million to be paid to the seller annually in each of the next three years. Also reflects the interest expense at a rate of approximately 2.5 percent on the outstanding balance due to the acquisitions of EFCO in June 2017 and Sotawall in December 2016. A change in interest rate of 0.125 percent would impact interest by approximately $0.1 million for the three month period and approximately $0.3 million for the twelve month period. |
| (b) | Adjustments to exclude assets and liabilities not included as part of the EFCO acquisition. |
| (c) | Represents the estimated adjustment to increase the basis in the acquired EFCO property, plant and equipment to estimated fair value and adjust depreciation due to changes in estimated carrying value and remaining useful lives. The estimated useful lives of EFCO assets acquired range from three to 25 years. For the year ended March 4, 2017, adjustment also includes additional estimated depreciation due to the estimated carrying value and remaining useful lives of assets acquired in the Sotawall transaction. |
| (d) | As part of the preliminary valuation analysis of EFCO, intangible assets, including backlog, customer relationships and trademarks were identified. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The following table summarizes the preliminary estimated fair values of EFCO’s identifiable intangible assets and their estimated useful lives and estimated pro forma amortization expense using a straight-line method: |
| Amortization Expense | ||||||||||||||||
| In thousand | Estimated fair value | Estimated useful life In Years |
Three months ended June 3, 2017 |
Year ended March 4, 2017 | ||||||||||||
| Acquired backlog |
$ | 4,300 | 1.5 | $ | 717 | $ | 2,867 | |||||||||
| Customer relationships |
34,800 | 16.0 | 544 | 2,175 | ||||||||||||
| Trademarks |
32,400 | Indefinite | - | - | ||||||||||||
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| Total |
$ | 71,500 | 1,260 | 5,042 | ||||||||||||
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| Less: Backlog which does not have a continuing impact |
717 | 2,867 | ||||||||||||||
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| Pro forma adjustment to amortization expense |
$ | 544 | $ | 2,175 | ||||||||||||
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| These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a significant impact on the accompanying unaudited pro forma condensed combined financial statements. These amounts also may not be useful in predicting the future financial condition and results of operations of the combined company. |
| For the year ended March 4, 2017, adjustment also includes additional estimated amortization on intangible assets acquired in the Sotawall transaction. |
| (e) | Adjusts reserves for self-insurance to estimated fair value based on actuarial analysis of claims. |
| (f) | Adjusts the deferred tax assets and liabilities and taxes payable resulting from the EFCO acquisition and reflects the income tax effect of pro forma adjustments based on the estimated effective tax rate of EFCO of 36 percent. The twelve month period also includes the income tax effect of pro forma adjustments based on the effective tax rate of Sotawall of 25 percent. The tax rate does not take into account any historical or possible future tax events that may impact the combined company. |
| (g) | Eliminates the historical equity of EFCO. |
| (h) | Removes transaction costs related to the acquisitions of approximately $0.7 million for the three-months ended June 3, 2017 and $0.8 million for the twelve-months ended March 4, 2017, respectively, since they do not have a continuing impact. |
| (i) | Removes foreign currency exchange gain/loss on derivative contracts at Sotawall, as such contracts were cancelled prior to acquisition. |
| (j) | Reflects adjustment to record preliminary estimate of goodwill resulting from the EFCO acquisition. |
Note 4: Foreign currency and US GAAP conversion adjustments
The historical financial information of Sotawall was prepared in accordance with Canadian Accounting Standards for Private Enterprises (Canadian ASPE). The historical financial information of Sotawall for the period ended December 13, 2016 was translated from CAD to U.S. dollars (USD) using an historical average rate of $0.764 per Canadian dollar. Significant adjustments to convert the Sotawall historical financial information from Canadian ASPE to accounting principles generally accepted in the United States (U.S. GAAP) were not required.