Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On February 9, 2018, EnviroStar, Inc., a Delaware Corporation (the "Company" or "EVI"), through its wholly-owned subsidiary AAdvantage Laundry Systems, Inc., a Delaware Corporation("AAdvantage"), acquired substantially all of the assets and assumed certain liabilities of Zuf Acquisitions I LLC, a Texas limited liability company ("Zuf"), and Sky-Rent, LP, a Texas limited partnership ("Sky-Rent"), for consideration consisting of (i) $8.5 million in cash (the "Cash Amount"), subject to working capital and other adjustments, and (ii) 348,360 shares of the Company's common stock, (the "AAdvantage Transaction"). The Company funded the Cash Amount through borrowings on its Line of Credit, as defined below.

On October 31, 2017, the Company, through its wholly-owned subsidiary, Tri-State Technical Services, Inc., a Delaware corporation, acquired substantially all the assets and assumed certain liabilities of Tri-State Technical Services, Inc., a Georgia corporation ("Tri-State"), for consideration consisting of (i) $8.25 million in cash and (ii) 338,115 shares of the Company's common stock, (the "Tri-State Transaction"). The Company funded the cash portion of the Tri-State Transaction through borrowings on the Term Loan and Line of Credit, as defined below.

On October 7, 2016, the Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Bank”). The Credit Agreement provides for a total aggregate commitment of the Bank of $20.0 million, consisting of a maximum $15 million revolving line of credit (the “Line of Credit”), and a $5.0 million term loan facility (the “Term Loan”). On June 23, 2017, the Company and its consolidated subsidiaries entered into a First Amendment and Ratification of Credit Agreement and Other Loan Documents (the “First Amendment”), which, among other things, added Martin-Ray Laundry Systems, Inc., a Delaware corporation (“MRLS”), as a co-guarantor under the Credit Agreement. On October 30, 2017, the Company and its consolidated subsidiaries entered into a Second Amendment and Ratification of Credit Agreement and Other Loan Documents (the “Second Amendment”), which, among other things, (i) added Tri-State Technical Services, Inc., as a co-guarantor under the Credit Agreement and (ii) increased the total aggregate commitment of the Bank under the Credit Agreement from $20.0 million to $22.2 million by increasing the maximum amount under the Term Loan from $5.0 million to $7.2 million. Interest accrues on the outstanding principal amount of the Line of Credit at an annual rate equal to Daily One Month LIBOR (as defined in the Credit Agreement) plus 2.25% and on the outstanding principal amount of the Term Loan at an annual rate equal to Daily One Month LIBOR plus 2.85%. The Credit Agreement has a term of five years and matures on October 10, 2021.

On October 10, 2016, the Company, through its wholly-owned subsidiary, Western State Design, Inc., a Delaware corporation, acquired substantially all the assets and assumed certain liabilities of Western State Design, LLC (formerly known as Western State Design, Inc.), a California limited liability company ("WSD") (the "WSD Transaction" and together with the Tri-State Transaction and the AAdvantage Transaction, collectively the "Transactions") for consideration consisting of (i) $18.0 million in cash and (ii) the issuance of 2,044,990 shares of the Company's common stock. The Company funded the cash portion of the WSD Transaction by (i) the sale of 1,290,323 shares of the Company's common stock to a company controlled by the Company's Chairman and Chief Executive Officer and (ii) through borrowings under the Credit Agreement.

The following unaudited pro forma condensed combined financial statements were derived by adjusting the historical financial statements of the Company to give effect to the Transactions and the related financing transactions. The unaudited pro forma condensed combined balance sheet presents the historical balance sheet of the Company as of September 30, 2017, which reflects the acquisition of WSD, adjusted for the Tri-State Transaction and the AAdvantage Transaction as if they occurred on September 30, 2017. The unaudited proforma condensed combined statement of operations for the quarter ended September 30, 2017 presents the historical statement of operations of the Company for the quarter ended September 30, 2017, which reflect the results of operations for WSD, adjusted for the Tri-State Transaction and the AAdvantage Transaction. The unaudited proforma condensed combined statement of operations for the fiscal year ended June 30, 2017 presents the historical statement of operations of the Company for the fiscal year ended June 30, 2017, which reflect the results of operations for WSD from October 10, 2016 through June 30, 2017 adjusted for the Transactions and related financings as if they had occurred on July 1, 2016.

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 financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of the Company, which are included in the Annual Report on Form 10-K for the year ended June 30, 2017 filed with the Securities and Exchange Commission (the "SEC") on September 28, 2017, and the historical financial statements and accompanying notes of Tri-State which are included in Exhibit 99.2 to the Company's current report on Form 8-K/A filed with the SEC on November 8, 2017 and the historical financial statements and accompanying notes of AAdvantage which are included in Exhibit 99.2 to the Company's current report on Form 8-K filed with the SEC on February 12, 2018.

The unaudited pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable under the circumstances. The pro forma combined financial statements do not purport to represent what the combined company's financial condition or results of operations would have been had the acquisition occurred on the dates indicated, nor do they purport to project the Company's future consolidated results of operations or consolidated financial position for any future period or as of any future date. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein.

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

as of September 30, 2017

(in thousands)

 

		EVI Historical				Tri-State Historical				AAdvantage Historical				Pro Forma Adjustments Tri-State				Pro Forma Adjustments AAdvantage				Notes for Tri-State		Notes for AAdvantage		Pro Forma Combined
Cash and cash equivalents		$	414			$	1,593			$	1,629			$	—			$	—							$	3,636
Accounts receivable, net			10,844				2,860				3,356				—				—								17,060
Inventories, net			9,231				2,471				2,917				—				—								14,619
Vendor deposits			874				—				—				—				—								874
Net investment in sales type leases, current portion			—				—				435				—				—								435
Other current assets			1,037				406				45				—				(5	)				(aa)			1,483
Total current assets			22,400				7,330				8,382				—				(5	)							38,107
Equipment and improvements, net			1,180				3,774				935				(3,012	)			(339	)		(a)		(aa)			2,538
Net investment in sales type leases, net			—				—				2,346				—				—								2,346
Intangible assets, net			7,036				—				—				5,100				6,508			(c)		(cc)			18,644
Goodwill			24,660				—				—				5,563				4,667			(d)		(dd)			34,890
Deferred income taxes, net			—				—				—				36				40			(f)		(ff)			76
Other assets			319				1,066				109				—				—								1,494
Total assets		$	55,595			$	12,170			$	11,772			$	7,687			$	10,871							$	98,095
Accounts payable and accrued expenses		$	10,249			$	1,876			$	1,419			$	90			$	100			(f)		(ff)		$	13,734
Accrued employee expenses			1,452				92				—				—				—								1,544
Customer deposits			4,989				847				335				—				—								6,171
Billings in excess of costs on uncompleted contracts			886				—				—				—				—								886
Line of credit			—				—				3,111				—				5,389					(bb) (aa)			8,500
															(1,049	)						(a)
Current portion of long-term debt			714				1,049				49				486				(49	)		(b)		(aa)			1,200
Total current liabilities			18,290				3,864				4,914				(473	)			5,440								32,035
Related party note payable			—				—				150				—				(150	)				(aa)			—
Long-term debt, net			4,161				—				132				7,492				(132	)		(b)		(aa)			11,653
Total liabilities			22,451				3,864				5,196				7,019				5,158								43,688
															(8,306	)			(6,576	)		(a)		(aa)
															9,028				12,349			(e)		(ee)
Total shareholders' equity			33,144				8,306				6,576				(54	)			(60	)		(f)		(ff)			54,407
Total liabilities and shareholders' equity		$	55,595			$	12,170			$	11,772			$	7,687			$	10,871							$	98,095

  

See Accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Twelve months ended June 30, 2017

(in thousands, except per share data)

 

		EVI Historical				WSD Historical(1)				Tri-State Historical(2)				AAdvantage Historical				Pro Forma Adjustments TriState/WSD				Pro Forma Adjustments AAdvantage				Notes for Tri- State/WSD		Notes for AAdvantage		Pro Forma Combined
Revenues		$	93,978			$	16,637			$	27,416			$	27,440			$	—			$	—							$	165,471
Cost of sales			73,639				12,991				18,366				18,509				—				—								123,505
Gross profit			20,339				3,646				9,050				8,931				—				—								41,966
																			482				459			(g)		(g)
Selling, general and administrative expenses			14,989				2,698				6,398				7,365				(868	)			(1,057	)		(h)		(mm)			30,466
Operating income			5,350				948				2,652				1,566				386				598								11,500
Other income/expense			—				—				—				(34	)			—				—								(34	)
																			370							(j)
																			6				(143	)		(i)		(ii)
Interest expense (income), net			160				2				(8	)			129				4				263			(j)		(jj)			783
Income before provision for income taxes			5,190				946				2,660				1,471				6				478								10,751
Provision for income taxes			2,023				12				—				(944	)			1,442				1,714			(k)		(kk)			4,247
Net income		$	3,167			$	934			$	2,660			$	2,415			$	(1,436	)		$	(1,236	)						$	6,504
Earnings per share - basic		$	0.31																							(l)				$	0.54
Earnings per share - diluted		$	0.31																							(l)				$	0.54

 

See Accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

 

⁽¹⁾Derived from unaudited internal records; represents the period from July 1, 2016 through October 9, 2016.

⁽²⁾Derived by taking the financial statements for the year ended December 31, 2016, subtracting the amounts for the six-months ended June 30, 2016 and adding the amounts for the six months ended June 30, 2017.

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Three months ended September 30, 2017

(in thousands, except per share data)

 

		EVI Historical				Tri-State Historical				AAdvantage Historical				Pro Forma Adjustments Tri-State				Pro Forma Adjustments AAdvantage				Notes for Tri-State		Notes for AAdvantage		Pro Forma Combined
Revenues		$	26,273			$	6,798			$	7,997			$	—											$	41,068
Cost of sales			20,124				4,475				5,824				—												30,423
Gross profit			6,149				2,323				2,173				—				—								10,645
Selling, general and administrative expenses			5,166				1,621				1,705				90				115			(gg)		(gg)			8,697
Operating income			983				702				468				(90	)			(115	)							1,948
															—
															(8	)			(36	)		(i)		(ii)
Interest expense (income), net			66				—				29				76				74			(j)		(jj)			201
Income before provision for income taxes			917				702				439				(158	)			(153	)							1,747
Provision for income taxes			354				—				21				223				92			(k)		(kk)			690
Net income		$	563			$	702			$	418			$	(381	)		$	(245	)						$	1,057
Earnings per share - basic		$	0.05																			(l)				$	0.09
Earnings per share - diluted		$	0.05																			(l)				$	0.08

 

See Accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

 

Note 1 – Basis of Presentation

 

The historical consolidated financial statements of EnviroStar, Inc. 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 Transactions and related financings, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on the combined results following the Transactions and related financings.

 

The Tri-State and AAdvantage transactions will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations ("ASC 805"). As the acquirer for accounting purposes, the Company will recognize the assets acquired and liabilities assumed at fair value. However, as of February 12, 2018, the Company has not completed the valuation studies necessary to estimate the fair values of the assets acquired or the liabilities assumed by the Company to reflect the allocation of purchase price to the fair value of such amounts. The excess of consideration transferred over the net assets acquired has been allocated on a preliminary basis to intangible assets (trade names, customer relationships and non-compete agreements) and goodwill. A final determination of these fair values will be based on actual tangible and intangible assets and liabilities that existed as of the acquisition date once the valuation studies have been completed.

 

The WSD Transaction was accounted for under the acquisition method of accounting in accordance with ASC 805 as of the acquisition date of October 10, 2016.

 

The actual allocation of consideration transferred in the Tri-State Transaction and AAdvantage Transaction may differ from the allocation assumed in these unaudited pro forma condensed combined financial statements. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

 

Note 2 – Acquisition and preliminary purchase price allocation

 

On October 31, 2017, the Company completed the Tri-State Transaction. The purchase price for the acquisition is $17.3 million consisting of (i) $8.25 million in cash, including $2.1 million deposited in an escrow account for no less than 24 months after the date of the closing of the Tri-State Transaction subject to working capital and other adjustments, and (ii) $9.0 million consisting of 338,115 shares of the Company's common stock, valued at $26.70 per share, which was the closing price of the stock on October 31, 2017.

 

On February 9, 2018, the Company completed the AAdvantage Transaction. The purchase price for the acquisition is $20.8 million consisting of (i) $8.5 million in cash, including $1.5 million deposited in an escrow account for no less than 18 months after the date of the closing of the AAdvantage Transaction subject to working capital and other adjustments, and (ii) 348,360 shares of the Company's common stock, valued at $35.45 per share, which was the closing price of the stock on February 9, 2018.

In October 2016, the Company entered into the Credit Agreement, which was amended by the First Amendment in June 2017 and the Second Amendment in October 2017. The cash portion of the purchase price in the Tri-State Transaction was funded through proceeds from borrowings under the Credit Agreement, consisting of $2.8 million of Term Loan borrowings and $5.4 million of borrowings under the Line of Credit. The cash portion of the purchase price in the AAdvantage Transaction was funded through borrowings under the Credit Agreement consisting of $8.5 million of borrowings under the Line of Credit. Interest accrues on the outstanding principal amount of the Line of Credit at an annual rate equal to Daily One Month LIBOR (as defined in the Credit Agreement) plus 2.25% and on outstanding principal amounts of the Term Loan at an annual rate equal to Daily One Month LIBOR plus 2.85%. Principal repayments for the Term Loan will be $100,000 per month, with the balance due at maturity. The Credit Agreement matures on October 10, 2021.

 

The following table summarizes the preliminary purchase price and allocation of the purchase price to assets acquired and liabilities assumed in the Tri-State Transaction and AAdvantage Transaction as of September 30, 2017 (in thousands, except share data):

 

		Tri-State Transaction				AAdvantage Transaction
Cash consideration		$	8,250			$	8,500
Shares consideration:
Number of shares			338,115				348,360
Price per share		$	26.70			$	35.45
Total share consideration			9,028				12,349
Total purchase price		$	17,278			$	20,849
Cash			2,215				1,629
Accounts Receivable			3,071				3,356
Inventory			2,924				2,917
Other current assets			426				475
Equipment and improvements			762				596
Intangible assets			5,100				6,508
Net investment in sales type leases, noncurrent			—				2,346
Other assets			1,170				109
Total identifiable assets			15,668				17,936
Accounts payable and accrued expenses			2,263				1,419
Accrued employee expenses			310				—
Customer deposits			1,380				335
Total liabilities assumed			3,953				1,754
Goodwill		$	5,563			$	4,667

 

 

Note 3 – Pro Forma Adjustments – Unaudited Pro Forma Condensed Combined Balance Sheet

 

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 balance sheet and unaudited pro forma condensed combined statements of operations:

 

(a)

Reflects adjustments to the balance sheet to eliminate Tri-State assets and liabilities excluded from the purchase.

(aa)

Reflects adjustments to the balance sheet to eliminate AAdvantage assets and liabilities excluded from the purchase.

(b)

Reflects proceeds from Term Loan and Line of Credit borrowings of $8.25 million to finance the Tri-State Transaction, as described in Note 2.

(bb)

Reflects Line of Credit borrowings of $8.5 million to finance the AAdvantage Transaction, as described in Note 2.

(c)

Reflects the recognition of intangible assets acquired by the Company at their estimated fair values for the Tri-State Transaction. As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, customer relationships and non-compete agreements. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. The finalization of the valuation of the intangibles is in the process of being finalized and the allocation below reflects available information as of February 12, 2018.

(cc)

Reflects the recognition of intangible assets acquired by the Company at their estimated fair values for the AAdvantage Transaction. As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, customer relationships and non-compete agreements. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Since all information required to perform a detailed valuation analysis of AAdvantage's intangible assets could not be obtained as of February 12, 2018, for purposes of these unaudited pro forma condensed combined financial statements, the Company allocated a portion of the AAdvantage purchase price to the AAdvantage identifiable intangible assets in ratios equal to the portion of the Tri-State purchase price allocated to identifiable intangible assets in the application of the acquisition method of accounting to the Tri-State Transaction.

 

The following table summarizes the estimated fair values of Tri-State’s and AAdvantage’s identifiable intangible assets (dollars in thousands):

		Estimated Fair Value Tri-State				Estimated  Fair Value AAdvantage
Trade Name		$	1,500			$	1,914
Customer Relationships		$	3,600			$	4,594
Covenant not to Compete		$	—			$	—
Pro forma adjustment to intangible assets		$	5,100			$	6,508

 

(d)

Reflects preliminary estimate of goodwill arising from the Tri-State Transaction, which represents the excess of the purchase price over the fair value of Tri-State's identifiable assets acquired and liabilities assumed as shown in Note 2.

 

(dd)

Reflects preliminary estimate of goodwill arising from the AAdvantage Transaction, which represents the excess of the purchase price over the fair value of AAdvantage's identifiable assets acquired and liabilities assumed as shown in Note 2.

 

(e)

Reflects share consideration of 338,115 shares of the Company's common stock valued at $9.0 million to partially finance the Tri-State Transaction as described in Note 2.

 

(ee)

Reflects share consideration of 348,360 shares of the Company's common stock valued at $12.3 million to partially finance the AAdvantage Transaction as described in Note 2.

 

(f)

Reflects accruals for transaction costs of approximately $90,000, and a related deferred tax asset of $36,000 for the Tri-State Transaction.

 

(ff)

Reflects accruals for transaction costs of approximately $100,000, and a related deferred tax asset of $40,000 for the AAdvantage Transaction.

 

(g)

Represents intangible asset amortization on (i) the estimated fair values of Tri-State's and AAdvantage's identifiable intangible assets as described in (c) above for the year ended June 30, 2017 and (ii) the identifiable intangible assets recorded in the WSD Transaction for the period of July 1, 2016 to October 9, 2016 as reflected in the unaudited pro forma statement of operations for the fiscal year ended June 30, 2017, as summarized in the following table (dollars in thousands):

 

						AAdvantage Acquisition								Tri-State Acquisition								WSD Acquisition
		Estimated								Year Ended								Year Ended								July 1, 2016 to
		Useful				Estimated				June 30, 2017				Estimated				June 30, 2017				Estimated				October 9, 2016
		Life in Years				Fair Value				Amortization				Fair Value				Amortization				Fair Value				Amortization
Trade Name			Indefinite				1,914				—				1,500				—				2,400				—
Customer Relationships			10				4,594				459				3,600				360				3,600				100
Convenant not to Compete			5				—				—				—				—				400				22

 

(gg)

Represents intangible asset amortization on (i) the estimated fair values of Tri-State's and AAdvantage's identifiable intangible assets as described in (c) above as reflected in the unaudited pro forma statement of operations for the quarter ended September 30, 2017, as summarized in the following table (dollars in thousands):

 

						AAdvantage Acquisition								Tri-State Acquisition
		Estimated								Quarter Ended								Quarter Ended
		Useful				Estimated				September 30, 2017				Estimated				September 30, 2017
		Life in Years				Fair Value				Amortization				Fair Value				Amortization
Trade Name			Indefinite				1,914				—				1,500				—
Customer Relationships			10				4,594				115				3,600				90
Convenant not to Compete			0				—				—				—				—

 

 

(h)

Reflects elimination of historical transaction costs for the Company and Tri-State for the 12 months ended June 30, 2017 and for WSD for the period of July 1, 2016 to October 9, 2016.

 

(i)

Reflects elimination of historical interest expense, net, for Tri-State for the 12 months ended June 30, 2017 and for WSD for the period of July 1, 2016 to October 9, 2016 in the statement of operations for the fiscal year ended June 30, 2017. Reflects elimination of historical interest expense, net, for Tri-State for the 3 months ended September 30, 2017 in the statement of operations for the quarter ended September 30, 2017.

 

(ii)

Reflects elimination of historical interest expense, net, for AAdvantage for the 12 months ended June 30, 2017 in the statement of operations for the fiscal year ended June 30, 2017. Reflects elimination of historical interest for AAdvantage for the 3 months ended September 30, 2017 in the statement of operations for the quarter ended September 30, 2017.

 

(j)

Represents the increase to interest expense resulting from interest on the Term Loan and Line of Credit to finance the WSD Transaction and the Tri-State Transaction for the year ended June 30, 2017 and quarter ended September 30, 2017, as follows (dollars in thousands):

 

		Loan Balance				Avg. Interest Rate(1)				Interest Expense Adjustment for the year ended June 30, 2017				Avg. Interest Rate(2)				Interest Expense Adjustment for the quarter ended September 30, 2017
Term Loan - WSD Transaction (101 days)		$	5,000				3.35%			$	46							$	—
Line of Credit - WSD Transaction (101 days)		$	7,583				2.75%			$	58							$	—
Term Loan - Tri-State Transaction		$	2,827				3.62%			$	102				4.08%			$	29
Line of Credit - Tri-State Transaction		$	5,423				3.02%			$	164				3.48%			$	47
Pro forma adjustment to interest expense										$	370							$	76

 

(1)

Avg. interest rate for the WSD Transaction was determined by adding LIBOR as of July 1, 2016 (0.46755%) and September 30, 2016 (0.5311%) to the margins on Term Loan and Line of Credit described in Note 2 and taking an average of the rate applicable to the Term Loan and Line of Credit borrowings used to finance a portion of the WSD Transaction. Average interest rate for the Tri-State Transaction was determined by adding LIBOR as of July 1, 2016 (0.46755%) and June 1, 2017 (1.07589%) to the margins on the Term Loan and Line of Credit described in Note 2 and taking an average of the rate applicable to the Term Loan and Line of Credit borrowings used to finance a portion of the Tri-State Transaction. The pro forma adjustment for amortization of deferred financing costs for the year ended June 30, 2017 was $4,000.

(2)

Avg. interest rate for the Tri-State Transaction for the quarter ended September 30, 2017 was determined by adding LIBOR as of July 1, 2017 (1.228%) and October 1, 2017 (1.2385%) to the margins on the Term Loan and Line of Credit described in Note 2 and taking an average of the rate applicable to the Term Loan and Line of Credit borrowings used to finance a portion of the Tri-State Transaction.

 

(jj)

Represents the increase to interest expense resulting from interest on the Line of Credit to finance the AAdvantage Transaction for the year ended June 30, 2017 and quarter ended September 30, 2017, as follows (dollars in thousands):

 

		Loan Balance				Avg. Interest Rate(1)				Interest Expense Adjustment for the year ended June 30, 2017				Avg. Interest Rate(2)				Interest Expense Adjustment for the quarter ended September 30, 2017
Line of Credit - AAdvantage Transaction		$	8,500				3.10%			$	263				3.48%			$	74

 

(1)

Avg. interest rate for the AAdvantage Transaction was determined by adding LIBOR as of July 1, 2016 (0.46755%) and July 1, 2017 (1.228%) to the margins on the Line of Credit described in Note 2 and taking an average of the rate.

(2)

Avg. interest rate for the AAdvantage Transaction for the quarter ended September 30, 2017 was determined by adding LIBOR as of July 1, 2017 (1.228%) and October 1, 2017 (1.2385%) to the margins on the Line of Credit described in Note 2 and taking an average of the rate.

 

(k)

Reflects the income tax effect of treating WSD and Tri-State as taxable entities and the related tax effect of the pro forma adjustments based on an estimated combined blended statutory rate of 39.5%, for federal and state income taxes as follows (in thousands):

 

		Year ended				Quarter ended
		June 30, 2017				September 30, 2017
Pro forma income before income tax provision			8,802				1,461
Estimated effective tax rate			39.5%				39.5%
Pro form income tax provision			3,477				577
Combined income tax provision			2,035				354
Pro forma adjustment to income tax provision			1,442				223

 

(kk)

Reflects the income tax effect of treating AAdvantage as a taxable entity and the related tax effect of the pro forma adjustments based on an estimated combined blended statutory rate of 39.5%, for federal and state income taxes as follows (in thousands):

 

		Year ended				Quarter ended
		June 30, 2017				September 30, 2017
Pro forma income before income tax provision			1,949				286
Estimated effective tax rate			39.5%				39.5%
Pro form income tax provision			770				113
Combined income tax provision			(944	)			21
Pro forma adjustment to income tax provision			1,714				92

 

(l)

Reflects pro forma earnings per share, calculated using the two-class method, giving effect to pro forma adjustments for the WSD Transaction, the Tri-State Transaction and the AAdvantage Transaction for the year ended June 30, 2017 and the quarter ended September 30, 2017. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Pro forma basic and diluted earnings per share is calculated as follows (in thousands except per share amounts):

 

		Year Ended				Quarter Ended
		June 30, 2017				September 30, 2017
Pro forma net income		$	6,504			$	1,057
Less: undistributed income allocated to non-vested restricted common stock			480				78
Pro forma net income allocated to EnviroStar, Inc. shareholders		$	6,024			$	979
Weighted average shares outstanding - basic			9,449				10,468
Adjustment for common shares issue in connection with WSD Transaction (a)			923
Adjustment for common shares issued in Tri-State Transaction			338				338
Adjustment for common shares issued in AAdvantage Transaction			348				348
Pro form weighted average shares outstanding - basic			11,058				11,154
Pro forma weighted average shares outstanding - basic			11,058				11,154
Dilutive common share equivalents			88				381
Pro forma weighted average shares outstanding - diluted			11,146				11,535
Pro forma earnings per share - basic		$	0.54			$	0.09
Pro forma earnings per share - diluted		$	0.54			$	0.08
(a) Shares issued in WSD Transactions			2,045
Shares issued in private placement transaction to partially fund WSD Transaction			1,290
Total shares issued in connection with WSD Transaction			3,335
Pro forma period before WSD Transaction (101 days)			0.277
Adjustment for common shares issued in WSD Transaction			923

 

(mm)

Reflects the elimination of the captive insurance premiums recorded for AAdvantage for the year ended June 30, 2017 as described in the audited financial statements attached to this Form 8-K/A as Exhibit 99.2.