Exhibit 99.2
Infiltrator Water Technologies Ultimate Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of July 5, 2019 and December 28, 2018, and Condensed Consolidated Statements of Operations and Comprehensive Income, Stockholders’ Equity, and Cash Flows for the six-months ended July 5, 2019 and June 29, 2018
INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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| Page(s) |
CONSOLIDATED FINANCIAL STATEMENTS: | |
Balance Sheets | 2 |
Statements of Operations and Comprehensive Income | 3 |
Statements of Stockholders’ Equity | 4 |
Statements of Cash Flows | 5 |
Notes to Consolidated Financial Statements | 6-10 |
INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JULY 5, 2019 AND DECEMBER 28, 2018
| | |
ASSETS | 2019 | 2018 |
CURRENT ASSETS: | | |
Cash and cash equivalents Accounts receivable—net of allowance for doubtful accounts | $ 48,489,491 | $ 101,345,595 |
of $355,000 in 2019 and $576,000 in 2018, respectively | 28,279,965 | 16,343,716 |
Income tax receivable | 534,721 | 225,959 |
Inventories | 37,618,851 | 35,017,942 |
Other current assets | 2,240,768 | 1,579,529 |
Total current assets | 117,163,796 | 154,512,741 |
PROPERTY, PLANT, AND EQUIPMENT—Net | 82,423,765 | 67,887,564 |
GOODWILL | 205,858,706 | 172,912,114 |
OTHER INTANGIBLE ASSETS—Net | 248,310,619 | 247,370,351 |
OTHER ASSETS | 9,532,966 | 8,368,594 |
TOTAL ASSETS | $ 663,289,852 | $ 651,051,364 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
CURRENT LIABILITIES: | | |
Current portion of long-term debt | $2,450,000 | $2,450,000 |
Accounts payable | 12,555,770 | 11,318,861 |
Payable to David Presby Trust | 2,712,702 | — |
Income tax payable | 2,749,841 | 4,255,373 |
Accrued expenses | 6,710,864 | 12,091,154 |
Total current liabilities | 27,179,177 | 30,115,388 |
LONG-TERM DEBT—Less current portion | 326,390,277 | 326,667,913 |
OTHER LIABILITIES | 182,330 | 182,330 |
DEFERRED INCOME TAXES | 65,207,357 | 66,914,154 |
Total liabilities | 418,959,141 | 423,879,785 |
STOCKHOLDERS’ EQUITY:
Common stock, $.01 per share par value, 30,000,101 shares authorized;
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18,612,563 shares issued and outstanding at July 5, 2019 | |
and 18,612,563 at December 28, 2018, | 186,126 | 186,126 |
Additional paid-in capital | 189,289,180 | 188,842,375 |
Accumulated earnings | 54,855,405 | 38,143,078 |
Total stockholders’ equity | 244,330,711 | 227,171,579 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 663,289,852 | $ 651,051,364 |
See accompanying notes to consolidated financial statements. | | |
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INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR SIX MONTHS ENDED JULY 5, 2019 AND JUNE 29, 2018
| | |
| June 2019 | June 2018 |
NET SALES | $160,913,413 | $135,902,729 |
COST OF GOODS SOLD | 95,354,603 | 86,475,105 |
GROSS PROFIT | 65,558,810 | 49,427,624 |
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES | 15,735,814 | 13,196,487 |
TRANSACTION RELATED EXPENSES | 1,165,298 | 252,153 |
AMORTIZATION EXPENSE RELATED TO INTANGIBLE | | |
ASSETS | 15,559,731 | 15,589,992 |
RESEARCH AND DEVELOPMENT | 1,094,736 | 968,173 |
LOSS ON SALE OF PROPERTY, PLANT AND EQUIPMENT | — | 22,505 |
OPERATING INCOME | 32,003,231 | 19,398,314 |
OTHER INCOME (EXPENSE): | | |
Interest expense—net | (11,073,547) | (9,647,971) |
Other expense—net | (199,819) | (159,800) |
INCOME FROM OPERATIONS | | |
BEFORE INCOME TAXES | 20,729,865 | 9,590,543 |
INCOME TAX EXPENSE | 4,017,538 | 2,670,142 |
NET INCOME / COMPREHENSIVE INCOME | $16,712,327 | $6,920,401 |
See accompanying notes to consolidated financial statements.
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INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 29, 2018 AND JULY 5, 2019
| | | | |
| Common Stock | Additional Paid-In Capital | Accumulated Earnings | Total Stockholders’ Equity |
BALANCE—December 29, 2017 | $186,036 | $ 187,656,442 | $28,333,020 | $ 216,175,498 |
Stock issuance | 90 | 249,910 | - | 250,000 |
Stock option compensation expense | - | 349,998 | - | 349,998 |
Net income | | | 6,920,401 | 6,920,401 |
BALANCE—June 29, 2018 | $186,126 | $ 188,256,350 | $35,253,421 | $ 223,695,897 |
BALANCE—December 28, 2018 | $186,126 | $ 188,842,375 | $38,143,078 | $ 227,171,579 |
Stock option compensation expense | - | 446,805 | - | 446,805 |
Net income | | | 16,712,327 | 16,712,327 |
BALANCE—July 5, 2019 | $186,126 | $ 189,289,180 | $54,855,405 | $ 244,330,711 |
See accompanying notes to consolidated financial statements.
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INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR SIX MONTHS ENDED JULY 5, 2019 AND JUNE 29, 2018
June 2019June 2018
| | | |
| June 2019 | June 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
Net income from continuing operations | $16,712,327 | $6,920,401 |
Adjustments to reconcile net loss to net cash provided by | | |
operating activities: | | |
Depreciation and amortization | 21,946,816 | 23,361,027 |
Stock option compensation expense | 446,805 | 349,998 |
Contingent consideration | — | 38,556 |
Deferred income taxes | (1,706,797) | (2,479,194) |
Loss on sale of property and equipment | — | 22,505 |
Amortization/write-off of financing costs | 947,363 | 947,363 |
Change in operating assets—(increase) decrease: | | |
Accounts receivable | (10,657,104) | (12,075,565) |
Income tax receivable | (308,762) | 83,675 |
Inventories | (1,360,782) | 1,115,293 |
Other current assets | (626,862) | (1,067,203) |
Other assets | (1,164,373) | (301,545) |
Change in operating liabilities—increase (decrease): | | |
Accounts payable | 1,236,909 | 1,721,304 |
Income tax payable | (1,505,532) | 1,303,551 |
Accrued expenses | (9,479,619) | 592,130 |
Net cash provided by operating activities | 14,480,389 | 20,532,296 |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Purchase of property and equipment | (11,963,285) | (5,947,629) |
Acquisition of Presby Environmental, net of cash acquired | (54,148,208) | — |
Acquisition of Delta Treatment Systems | — | (1,000,000) |
Proceeds from the sale of property and equipment | — | 60,300 |
Net cash used for investing activities | (66,111,493) | (6,887,329) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Net borrowing on revolving line of credit | — | — |
Payment of contingent consideration for acquisition | — | (550,000) |
Proceeds from stock issuance | — | 250,000 |
Repayments of long-term debt | (1,225,000) | (2,534,032) |
Net cash used for financing activities | (1,225,000) | (2,834,032) |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (52,856,104) | 10,810,935 |
CASH AND CASH EQUIVALENTS—Beginning of period | 101,345,595 | 57,826,527 |
CASH AND CASH EQUIVALENTS—End of period | $48,489,491 | $68,637,462 |
CASH PAID DURING THE PERIOD FOR: | | |
Interest | $10,126,184 | $8,700,608 |
Income tax payment—net | $3,283,255 | $3,825,830 |
See accompanying notes to consolidated financial statements.
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INFILTRATOR WATER TECHNOLOGIES ULTIMATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF JULY 5, 2019 AND DECEMBER 28, 2018 AND FOR THE SIX MONTHS ENDED JULY 5, 2019 AND JUNE 29, 2018
| 1. | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
(a)Lines of Business and Principles of Consolidation—Infiltrator Water Technologies Ultimate Holdings, Inc. and Subsidiaries including Infiltrator Water Technologies, LLC (the Company) designs, manufactures and sells engineered plastic chambers, synthetic assemblies, tanks, and accessories for the onsite wastewater and storm water industries. The Company is a pioneer in plastic technologies for underground wastewater management having invented the first plastic leach field chamber. The Company maintains a corporate office in Connecticut and operates manufacturing facilities in Kentucky, North Carolina, Texas, Illinois, Alabama, New Hampshire, Louisiana and Oregon. Sales are primarily through distributors throughout North America, and to a lesser extent Latin America, Europe, and South Africa.
(b)Basis of Presentation—The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include the financial statements of the Company and its wholly owned subsidiaries for the respective periods. All intercompany balances and transactions have been eliminated in consolidation.
The interim consolidated financial statements should be read in conjunction with the annual audited financial statements and notes for December 28, 2018.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, adjustments, all of which are of a normal recurring nature, considered necessary for a fair presentation have been included.
(c)New Accounting Standards—In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price(s); (4) allocate the transaction price(s) to the performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires advanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The ASU is effective for nonpublic entities for annual periods beginning after December 15, 2018. The amendments may be applied retrospectively to each period presented or with the
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cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
In February of 2016, the FASB issued ASU 2016-02, Leases, which changes a lessee’s accounting for operating leases. The ASU requires companies to recognize in their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, companies would include payments to be made in optional periods only if they are reasonably certain to exercise an option to extend the lease (or not to exercise an option to terminate a lease). For leases with a term of twelve months or less, companies are permitted to make an accounting policy election not to recognize lease assets and liabilities. If this election is made, a company would recognize lease expense on a straight-line basis over the lease term. The ASU is effective for annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
On March 7, 2018, the Company expanded into the advanced wastewater treatment segment of the industry with the acquisition of Delta Environmental assets from Pentair Flow Technologies for $1,000,000. The Company has reestablished the Delta brand under a new wholly owned subsidiary of Infiltrator, Delta Treatment Systems, LLC. Delta Treatment Systems manufactures and sells products for residential and commercial advanced wastewater treatment including custom package treatment plants and ECOPOD and Whitewater models.
On April 11, 2019, the Company acquired Presby Environmental, Inc. for $57,011,150 in order to expand its product line offering. The Presby Environmental products compliment the Company’s core business and helps strengthen its industry leadership position. The acquisition was structured as part purchase of individual assets and part purchase of stock. The purchase allocation to the identifiable assets acquired and liabilities assumed is preliminary and has not yet been completed as the Company is waiting on additional information to finalize the valuation of identifiable intangible assets, property and equipment, and related deferred taxes. The following table summarizes the in-process estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
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Purchase price | $ 57,011,150 |
Current assets | 5,416,590 |
Property and equipment | 8,960,000 |
Other assets | - |
Identifiable intangible assets | 16,500,000 |
Current liabilities | (6,712,032) |
Deferred taxes and other liabilities | (100,000) |
Net identifiable assets | |
acquired | 24,064,558 |
Goodwill | $ 32,946,592 |
The identifiable intangible assets to date represent a tradename valued at $10,500,000 and intellectual property valued at $6,000,000. The Company anticipates that additional identifiable intangible assets will be recognized once valuation work is completed.
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In connection with the acquisition, the Company incurred certain transaction related costs in the amount of $1,165,298 for the period ended July 5, 2019 that have been recorded in the condensed consolidated statements of operations and comprehensive income.
Subsequent to the acquisition date, there is $3,689,357 of revenue and $1,641,937 of net income related to the acquisition recorded in the condensed consolidated statement of income and comprehensive income for the six-month period ended July 5, 2019.
The following table contains unaudited pro forma information assuming the acquisition occurred on December 30, 2017 and includes adjustments for amortization of intangibles and depreciation of fixed assets. This unaudited pro forma information is presented for illustrative purposes only and is not indicative of what actual results would have been if the acquisition had taken place on the date shown. In addition, the unaudited pro forma consolidated results are not projections of future results of operations of the combined company nor do they reflect the expected realization of any cost savings or synergies associated with the acquisition
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| ----- Proforma ----- |
| June 2019 | June 2018 |
Net Sales | 162,908,413 | 140,843,729 |
Net Income | 17,984,624 | 8,615,401 |
The Company’s inventories at July 5, 2019 and December 28, 2018 consist of the following:
| | |
| 2019 | 2018 |
Raw materials and supplies | $ 10,769,128 | $ 14,029,833 |
Finished goods | 26,849,722 | 20,988,109 |
Total inventory | $ 37,618,851 | $ 35,017,942 |
| 4. | GOODWILL AND INTANGIBLE ASSETS |
Changes in the carrying amount of goodwill are as follows:
| | | |
December 29, 2017 | $ 172,115,558 | December 28, 2018 | $ 172,912,114 |
Delta Treatment Acquisition | 796,556 | Presby Environmental Acquisition | 32,946,592 |
June 29, 2018 | $ 172,912,114 | July 5, 2019 | $ 205,858,706 |
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Other intangible assets consist of the following:
| | | | | |
| | July 5, 2019 | |
Amount | Accumulated Amortization | Net Book Value | Average Useful Life |
Patents and developed technology | 101,600,000 | 48,051,877 | 53,548,123 | 9 years |
Customer relationships Trade name and | 215,450,000 | 73,689,593 | 141,760,407 | 14 years |
trademarks | 53,070,000 | 67,911 | 53,002,089 | 5 yrs/Indefinite |
$ 370,120,000 | $ 121,809,381 | $ 248,310,619 | |
| | | | | |
| | December 28, 2018 | |
Amount | Accumulated Amortization | Net Book Value | Average Useful Life |
Patents and developed technology | $ 95,600,000 | $ 43,026,595 | $52,573,405 | 9 years |
Customer relationships Trade name and | 215,450,000 | 63,157,233 | 152,292,767 | 14 years |
trademarks | 42,570,000 | 65,821 | 42,504,179 | 5 yrs/Indefinite |
$ 353,620,000 | $ 106,249,649 | $ 247,370,351 | |
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The Company’s effective income tax rate for the six-months ended July 5, 2019 was approximately 19% as compared to approximately 28% for the six-months ended June 29, 2018. The 2019 rate includes the benefit of a reduction in the statutory state income tax rate in one of the Company’s significant states.
For the periods ended July 5, 2019 and June 29, 2018, $446,805 and $349,998 respectively, of compensation expense was recorded related to stock options.
Stock options outstanding as of each balance sheet date are as follows:
| | | | |
| | Weighted average | Range of | Weighted average |
Options | grant date fair value | exercise price | exercise price |
Outstanding at December 28, 2018 | 1,634,640 | $5.02 | $10.00 - $27.91 | $10.95 |
Outstanding at July 5, 2019 | 1,634,640 | $5.02 | $10.00 - $27.91 | $10.95 |
There were 1,634,640 outstanding stock options as of July 5, 2019, which have a weighted average remaining contractual life of 6.0 years. There were no forfeitures, grants, or options exercised during the period ended July 5, 2019.
The Company has evaluated subsequent events through July 24, 2019, which represents the date the condensed consolidated financial statements were available to be issued.
There were no subsequent events that would have impacted the Company’s condensed consolidated financial statements.
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