Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 CCI AUDITED FINANCIALS - Thermon Group Holdings, Inc. | fsccithermaltechnologies.htm |
| EX-23.1 - EXHIBIT 23.1 DELOITTE CONSENT - Thermon Group Holdings, Inc. | consentofindependentaudi.htm |
| 8-K/A - 8-K/A CCI CLOSE - Thermon Group Holdings, Inc. | a8-kacciclose.htm |
Exhibit 99.3
Thermon Group Holdings, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
Introduction
Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as “we,” “our,” “Thermon,” or the “Company” herein.
On October 30, 2017, Thermon consummated the acquisition of 100% of the equity interests of CCI Thermal Technologies Inc. ("CCI") and certain real estate assets for $258.0 million CAD (the "CCI Acquisition") (approximately $206.4 million USD at the exchange rate as of October 4, 2017) as described in the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission ("SEC") on November 3, 2017. CCI is engaged in industrial process heating, focused on the development and production of advanced heating and filtration solutions for industrial and hazardous area applications and is headquartered in Edmonton, Alberta, Canada. The purchase was financed with a combination of cash on hand and a new senior secured debt facility consisting of a $250 million USD senior secured term loan B facility and a senior secured revolving credit facility of $60 million USD. The term loan B and revolving credit facility will mature on October 30, 2024 and October 25, 2022, respectively. The term loan B replaces and extinguishes the existing term loan A. Commencing April 1, 2018, the term loan B will amortize in equal quarterly installments of .25% of the $250 million term loan, with the balance due at maturity. The Company will have the option to pay interest on the term loan B at a base rate, plus an applicable margin, or at a rate based on LIBOR, (subject to a floor of 1.00%), plus an applicable margin. The applicable margin for base rate loans is 275 basis points and the applicable margin for LIBOR loans is 375 basis points.
The following unaudited pro forma condensed combined financial statements are based on the separate historical financial statements of Thermon and CCI to illustrate the effect of the CCI Acquisition and gives effect to the assumptions and pro forma adjustments described below and in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma financial statements have been prepared in accordance with regulation S-X Article 11. The unaudited pro forma condensed combined balance sheet as of September 30, 2017 is presented as if the CCI Acquisition occurred on September 30, 2017 and reflects the combination of Thermon’s unaudited balance sheet as of September 30, 2017, which was derived from Thermon’s unaudited balance sheet as of September 30, 2017 included within the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 23, 2017, with the audited July 31, 2017 balance sheet of CCI, included within this Current Report Form 8-K/A. The unaudited pro forma condensed combined statements of income for the twelve months ended March 31, 2017 and the six months ended September 30, 2017 assume the acquisition occurred on April 1, 2016. The Thermon twelve and six month statements of income were derived from our audited financial statements for the year ended March 31, 2017 included within our Annual Report on Form 10-K filed with the SEC on May 30, 2017, and the unaudited financial statements for the six months ended September 30, 2017 included in our Quarterly Report on Form 10-Q filed with the SEC on October 23, 2017, respectively. These statements of income have been combined with CCI statements of income as of the twelve months ended January 31, 2017 and the six months ended July 31, 2017, respectively, which have been derived from the CCI historical results included within this Current Report on Form 8-K/A.
The historical CCI financial statement have been prepared in Canadian dollars, and have been converted to US dollars for the applicable periods presented herein using exchange rates as of September 30, 2017 for pro forma balance sheet purposes, and average exchange rates during the period for the twelve and six month statements of income. In addition, the CCI historical financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Management has evaluated the accounting principles used by CCI and concluded that there are certain differences between those presented under IFRS and US GAAP, and accordingly, pro forma adjustments have been included for any such differences, as described in the notes herein.
The pro forma adjustments, as described in the notes to the unaudited pro forma condensed combined financial statements, are based upon available information and certain assumptions that our management believes are reasonable. The unaudited pro forma condensed combined financial statements are presented for informational and illustrative purposes in accordance with the rules and regulations of the SEC, and are not necessarily indicative of the financial position that would have occurred or the financial results that would have occurred if the CCI Acquisition had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations of the combined companies in the future. The unaudited pro forma condensed combined financial statements do not give effect to any anticipated cost savings or other financial benefits expected to result from the CCI acquisition.
Exhibit 99.3
The unaudited pro forma condensed combined consolidated balance sheet and statements of operations and the accompanying notes should be read in conjunction with the historical:
•audited consolidated financial statements of the Company and the related notes for the year ended March 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on May 30, 2017;
•unaudited consolidated financial statements of the Company and the related notes for the quarterly and six month periods ended September 30, 2017 included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 23, 2017; and
•historical audited financial statements of CCI and the related notes as of July 30, 2017 and 2016 and for the years ended July 31, 2017, 2016 and 2015, which are included as Exhibit 99.2 to this Current Report on Form 8-K/A.
Exhibit 99.3
Thermon Group Holdings, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
(Dollars in Thousands, except share and per share data)
Thermon Group Holdings, Inc. Historical | CCI Thermal Technologies Inc. Historical (i) | US GAAP Adjustments | Pro Forma Adjustments | Notes | Thermon Group Holdings, Inc. Condensed Combined Pro Forma Balance Sheet | ||||||||||||||||
September 30, 2017 | July 31, 2017 | September 30, 2017 | |||||||||||||||||||
Assets | |||||||||||||||||||||
Current assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 83,378 | $ | 5,073 | $ | — | $ | 241,775 | (a) | $ | 43,786 | ||||||||||
(76,875 | ) | (a) | |||||||||||||||||||
(206,400 | ) | (a) | |||||||||||||||||||
(3,165 | ) | (b) | |||||||||||||||||||
Investments | 5,066 | — | — | — | 5,066 | ||||||||||||||||
Accounts receivable | 55,923 | 10,866 | — | — | 66,789 | ||||||||||||||||
Inventories | 43,490 | 19,406 | — | 1,072 | (b) | 63,968 | |||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 10,322 | — | — | — | 10,322 | ||||||||||||||||
Prepaid expenses and other current assets | 7,845 | 915 | — | — | 8,760 | ||||||||||||||||
Income tax receivable | 3,001 | — | — | — | 3,001 | ||||||||||||||||
Due from shareholders | — | 8,985 | (8,985 | ) | — | (c) | — | ||||||||||||||
Total current assets | 209,025 | 45,245 | (8,985 | ) | (43,593 | ) | 201,692 | ||||||||||||||
Property, plant and equipment, net | 44,806 | 6,921 | — | 24,223 | (b) | 75,950 | |||||||||||||||
Goodwill | 127,205 | 3,839 | — | 81,815 | (b) | 212,859 | |||||||||||||||
Intangible assets, net | 82,946 | 4,542 | — | 81,619 | (b) | 169,107 | |||||||||||||||
Deferred income taxes | 2,766 | — | — | — | 2,766 | ||||||||||||||||
Other long term assets | 991 | — | — | — | 991 | ||||||||||||||||
Total assets | $ | 467,739 | $ | 60,547 | $ | (8,985 | ) | $ | 144,064 | $ | 663,365 | ||||||||||
Liabilities | |||||||||||||||||||||
Current liabilities | |||||||||||||||||||||
Accounts payable | $ | 18,337 | $ | 4,771 | $ | — | $ | — | $ | 23,108 | |||||||||||
Accrued liabilities | 12,438 | — | — | — | 12,438 | ||||||||||||||||
Current portion of long term debt | 20,250 | — | — | (20,250 | ) | (a) | 1,875 | ||||||||||||||
1,875 | (a) | ||||||||||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 4,174 | 657 | — | — | 4,831 | ||||||||||||||||
Income taxes payable | 892 | 717 | — | — | 1,609 | ||||||||||||||||
Total current liabilities | 56,091 | 6,145 | — | (18,375 | ) | 43,861 | |||||||||||||||
Long-term debt | 50,262 | — | — | (56,625 | ) | (a) | 233,537 | ||||||||||||||
239,900 | (a) | ||||||||||||||||||||
Deferred income taxes | 24,863 | 457 | — | 24,124 | (b) | 49,444 | |||||||||||||||
Other non-current liabilities | 3,653 | — | — | — | 3,653 | ||||||||||||||||
Exhibit 99.3
Total liabilities | 134,869 | 6,602 | — | 189,024 | 330,495 | ||||||||||||||||
Equity | |||||||||||||||||||||
Common stock | 32 | — | — | — | 32 | ||||||||||||||||
Preferred stock | — | — | — | — | — | ||||||||||||||||
Additional paid in capital | 220,578 | 41,091 | (8,985 | ) | (32,106 | ) | (c) | 220,578 | |||||||||||||
Accumulated other comprehensive loss | (35,053 | ) | — | — | — | (35,053 | ) | ||||||||||||||
Retained earnings | 142,156 | 12,854 | — | (12,854 | ) | (c) | 142,156 | ||||||||||||||
Total Thermon Group Holdings, Inc. shareholders' equity | 327,713 | 53,945 | (8,985 | ) | (44,960 | ) | 327,713 | ||||||||||||||
Non-controlling interests | 5,157 | — | — | — | 5,157 | ||||||||||||||||
Total equity | 332,870 | 53,945 | (8,985 | ) | (44,960 | ) | 332,870 | ||||||||||||||
Total liabilities and equity | $ | 467,739 | $ | 60,547 | $ | (8,985 | ) | $ | 144,064 | $ | 663,365 | ||||||||||
Exhibit 99.3
Thermon Group Holdings, Inc.
For the twelve months ended March 31, 2017
Unaudited Pro Forma Condensed Combined Statement of Income
(Dollars in Thousands, except share and per share data)
Thermon Group Holdings, Inc. Historical | CCI Thermal Technologies Inc. Historical (i) | US GAAP Adjustments | Pro Forma Adjustments | Notes | Thermon Group Holdings, Inc. Condensed Combined Pro Forma Statement of Income | ||||||||||||||||
Twelve Months Ended March 31, 2017 | Twelve Months Ended January 31, 2017 | Twelve Months Ended March 31, 2017 | |||||||||||||||||||
Sales | $ | 264,130 | $ | 63,743 | $ | — | $ | — | $ | 327,873 | |||||||||||
Cost of sales | 152,199 | 36,724 | — | 1,072 | (d) | 189,995 | |||||||||||||||
Gross profit | 111,931 | 27,019 | — | (1,072 | ) | 137,878 | |||||||||||||||
Operating expenses: | |||||||||||||||||||||
Marketing, general and administrative and engineering | 77,715 | 19,502 | — | (2,469 | ) | (g)(h) | 94,748 | ||||||||||||||
Amortization of intangible assets | 11,772 | 887 | — | 9,804 | (f) | 22,463 | |||||||||||||||
Income from operations | 22,444 | 6,630 | — | (8,407 | ) | 20,667 | |||||||||||||||
Other income/(expenses): | |||||||||||||||||||||
Interest income | 566 | — | — | — | 566 | ||||||||||||||||
Interest expense | (3,518 | ) | (6 | ) | — | (10,892 | ) | (e) | (14,416 | ) | |||||||||||
Gain on disposition of investment | — | 3,998 | (3,998 | ) | — | (j) | — | ||||||||||||||
Other expense | (410 | ) | (294 | ) | — | — | (704 | ) | |||||||||||||
Income before provision for income taxes | 19,082 | 10,328 | (3,998 | ) | (19,299 | ) | 6,113 | ||||||||||||||
Income tax expense (benefit) | 4,098 | 2,685 | — | (5,255 | ) | (k) | 1,528 | ||||||||||||||
Net income | $ | 14,984 | $ | 7,643 | $ | (3,998 | ) | $ | (14,044 | ) | $ | 4,585 | |||||||||
Income attributable to non-controlling interests | 343 | — | — | — | 343 | ||||||||||||||||
Net income available to Thermon Group Holdings, Inc. | $ | 14,641 | $ | 7,643 | $ | (3,998 | ) | $ | (14,044 | ) | $ | 4,242 | |||||||||
Net Income per common share: | |||||||||||||||||||||
Basic | $ | 0.45 | $ | 0.13 | |||||||||||||||||
Diluted | 0.45 | 0.13 | |||||||||||||||||||
Weighted-average shares used in computing net income per common share: | |||||||||||||||||||||
Basic | 32,301,661 | 32,301,661 | |||||||||||||||||||
Diluted | 32,633,281 | 32,633,281 | |||||||||||||||||||
Exhibit 99.3
Thermon Group Holdings, Inc.
For the six months ended September 30, 2017
Unaudited Pro Forma Condensed Combined Statement of Income
(Dollars in Thousands, except share and per share data)
Thermon Group Holdings, Inc. Historical | CCI Thermal Technologies Inc. Historical (i) | US GAAP Adjustments | Pro Forma Adjustments | Notes | Thermon Group Holdings, Inc. Condensed Combined Pro Forma Statement of Income | ||||||||||||||||
Six Months Ended September 30, 2017 | Six Months Ended July 31, 2017 | Six Months Ended September 30, 2017 | |||||||||||||||||||
Sales | $ | 113,367 | $ | 34,637 | $ | — | $ | — | $ | 148,004 | |||||||||||
Cost of sales | 58,593 | 19,742 | — | — | 78,335 | ||||||||||||||||
Gross profit | 54,774 | 14,895 | — | — | 69,669 | ||||||||||||||||
Operating expenses: | |||||||||||||||||||||
Marketing, general and administrative and engineering | 39,838 | 10,165 | — | (1,359 | ) | (g)(h) | 48,644 | ||||||||||||||
Amortization of intangible assets | 5,961 | 285 | — | 5,060 | (f) | 11,306 | |||||||||||||||
Income from operations | 8,975 | 4,445 | — | (3,701 | ) | 9,719 | |||||||||||||||
Other income/(expenses): | |||||||||||||||||||||
Interest income | 392 | — | — | — | 392 | ||||||||||||||||
Interest expense | (1,589 | ) | (4 | ) | — | (5,529 | ) | (e) | (7,122 | ) | |||||||||||
Other expense | (71 | ) | (104 | ) | — | — | (175 | ) | |||||||||||||
Income before provision for income taxes | 7,707 | 4,337 | — | (9,230 | ) | 2,814 | |||||||||||||||
Income tax expense (benefit) | 1,915 | 1,127 | — | (2,338 | ) | (k) | 704 | ||||||||||||||
Net income | $ | 5,792 | $ | 3,210 | $ | — | $ | (6,892 | ) | $ | 2,110 | ||||||||||
Income attributable to non-controlling interests | 535 | — | — | — | 535 | ||||||||||||||||
Net income available to Thermon Group Holdings, Inc. | $ | 5,257 | $ | 3,210 | $ | — | $ | (6,892 | ) | $ | 1,575 | ||||||||||
Net Income per common share: | |||||||||||||||||||||
Basic | $ | 0.16 | $ | 0.05 | |||||||||||||||||
Diluted | 0.16 | 0.05 | |||||||||||||||||||
Weighted-average shares used in computing net income per common share: | |||||||||||||||||||||
Basic | 32,412,819 | 32,412,819 | |||||||||||||||||||
Diluted | 32,717,375 | 32,717,375 | |||||||||||||||||||
Exhibit 99.3
Thermon Group Holdings, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(Dollars in Thousands)
Pro Forma Adjustments:
(a) Pro forma adjustment (a) reflects the sources and uses of cash associated with the CCI Acquisition and the related debt issuance. The preliminary CCI purchase price of $206,400 was funded with approximately $41,500 of cash that was on hand, plus approximately $164,900 of net borrowings (proceeds from term loan B, less repayment of existing debt).
The following table details the sources of cash to fund the CCI Acquisition:
(Dollars in Thousands)
Proceeds from the term loan B, net of issuance costs | $ | 241,775 | |
Repayment of debt, extinguishment of term loan A | (56,625 | ) | |
Repayment of debt, extinguishment of term loan A (current portion) | (20,250 | ) | |
Cash on hand | 41,500 | ||
Preliminary purchase price | $ | 206,400 | |
Based upon the contractual payment terms, $1,875 of the term loan B has been presented as a current obligation with the remainder ($239,900) presented as non-current within the pro forma condensed balance sheet.
(b) The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed from CCI based on our best estimates of fair value of those assets and liabilities. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes. The following table shows the preliminary allocation of the purchase price for the CCI Acquisition:
(Dollars in Thousands)
Preliminary Purchase Price Allocation | CCI Historical* | Pro Forma Adjustment | ||||||||||
Cash and cash equivalents | $ | 1,908 | $ | 5,073 | $ | (3,165 | ) | |||||
Accounts receivable | 10,866 | 10,866 | — | |||||||||
Inventory | 20,478 | 19,406 | 1,072 | |||||||||
Prepaid expenses and other current assets | 915 | 915 | — | |||||||||
Property, plant and equipment, net | 31,144 | 6,921 | 24,223 | |||||||||
Intangible assets, net | 86,161 | 4,542 | 81,619 | |||||||||
Goodwill | 85,654 | 3,839 | 81,815 | |||||||||
Accounts payable | (4,771 | ) | (4,771 | ) | — | |||||||
Billings in excess of cost and estimated on uncompleted contracts | (657 | ) | (657 | ) | — | |||||||
Income taxes payable | (717 | ) | (717 | ) | — | |||||||
Deferred income taxes | (24,581 | ) | (457 | ) | (24,124 | ) | ||||||
Preliminary purchase price allocation | $ | 206,400 | ||||||||||
*CCI historical as of July 31, 2017 and presented in U.S. Dollars.
The acquired property, plant and equipment mainly consists of buildings, land and machinery. As such, management performed a preliminary fair value analysis on the property, plant and equipment as of the closing date of October 30, 2017 for
Exhibit 99.3
the preliminary purchase price allocation and in the pro forma financial information. The preliminary assessment of intangibles consists of products, customer relationships, and backlog. The values used in the purchase price allocation above and useful life calculations are preliminary and subject to change, and that change may be significant, after we finalize our review of the specific types, nature and condition of CCI's property, plant and equipment and intangible assets. A change in the value used for property, plant and equipment or intangible assets would cause a corresponding increase or decrease in goodwill.
(c) To reflect the CCI Due From Shareholders as contra equity pursuant to US GAAP, and then its elimination along with the CCI additional paid in capital and retained earnings.
(d) To reflect the amortization of the inventory fair value step-up adjustment of $1,072. We estimated that the step-up inventory adjustment will be amortized over a six month period based on the CCI historical inventory turns.
(e) To reflect interest expense attributable to (i) the issuance of the $250,000 term loan B, (ii) the amortization of debt issuance costs of term loan B and (iii) less interest and debt issuance amortization of term loan A repaid in full at the transaction date. The current interest rate of approximately 5% for the term loan B was used in the calculation of historical interest expense and is deemed reasonable by management as we do not anticipate any significant increases or decreases in the rate. A hypothetical increase in the borrowing rate of 1/8% would increase total interest expense by $306 and $152 during the twelve and six month periods, respectively.
(f) To adjust historical amortization expense for the preliminary purchase price allocation to intangible assets, which consists of products, customer relationships and backlog. The weighted average useful life for all intangibles is 10.6 years. The details of the preliminary intangible asset valuation are as follows:
(Dollars in Thousands)
Preliminary CCI Intangibles | Estimated useful life in years | Six months amortization expense | Twelve months amortization expense | |||||||||||
Products | $ | 66,755 | 10 | $ | 3,338 | $ | 6,675 | |||||||
Customer relationships | 11,525 | 17 | 339 | 678 | ||||||||||
Backlog | 3,339 | 1 | 1,669 | 3,339 | ||||||||||
Less: historical CCI amortization | (286 | ) | (888 | ) | ||||||||||
$ | 81,619 | $ | 5,060 | $ | 9,804 | |||||||||
(g) To reflect the removal of all aircraft and rent expense for assets not assumed in the CCI Acquisition for the twelve and six months periods. Additionally, $300 of CCI related transaction costs were removed for the six months ended September 30, 2017.
(h) To adjust historical depreciation expense for the preliminary purchase price allocation to property, plant and equipment based on no salvage value and nondepreciable land of $7,745.
(i) The CCI historical financial statements have been translated from Canadian Dollars to U.S. Dollars. The following table details the applicable rate and methodology:
CAD/USD | ||||
CCI balance sheet as at July 31, 2017 | Period End Spot Rate | $ | 0.8010 | |
CCI statement of income for twelve months ended January 31, 2017 | Average Spot Rate | $ | 0.7591 | |
CCI statement of income for six months ended September 30, 2017 | Average Spot Rate | $ | 0.7544 | |
(j) To reflect the elimination of the Gain on disposition of investment from the historical CCI twelve months ending January 31, 2017 statement of income for US GAAP presentation as the transaction occurred between entities under common control.
(k) Prior to August 1, 2016, CCI was a nontaxable flow through entity, and accordingly, did not record significant income tax expense prior to that date. Subsequently, CCI was a taxable Canadian corporation. The historical effective tax rate of CCI has
Exhibit 99.3
been adjusted on a pro forma basis to reflect the combined Canadian and U.S. operations. Additionally, for pro forma purposes, we have assumed an estimated 25% effective tax rate for all periods for the combined Thermon and CCI operations.