EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(In thousands, except per share data)
On October 2, 2017, Griffon Corporation (“Griffon”) completed the acquisition of ClosetMaid, a market leader of home storage and organization products, for approximately $200,000, or $175,000 inclusive of the net present value of tax benefits under the current tax law. ClosetMaid adds to Griffon’s Home and Building Products segment, complementing and diversifying Griffon’s portfolio of leading consumer brands and products.
The following unaudited pro forma condensed combined financial information is based on Griffon’s and Closetmaid’s historical consolidated financial statements and has been prepared and adjusted to give effect to the ClosetMaid acquisition and related financing transactions.
The unaudited pro forma condensed combined statements of operations for the year ended September 30, 2017 give effect to the ClosetMaid acquisition as if it had occurred on October 1, 2016. The unaudited pro forma condensed combined balance sheet as of September 30, 2017 gives effect to the ClosetMaid acquisition as if it had occurred on September 30, 2017.
The pro forma condensed combined financial information contained herein is provided for information purposes only and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the ClosetMaid acquisition occurred on the dates indicated. They also may not be useful in predicting, and are not intended to project, 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, and do not reflect all of the costs, benefits and synergies, or any anticipated tax benefits, that may be incurred or realized as a result of the ClosetMaid acquisition.
The unaudited pro forma financial statements reflect adjustments to give effect to pro forma events that are directly attributable to the ClosetMaid acquisition, factually supportable and, with respect to the pro forma statement of operations, expected to have a continuing impact on the operating results of the combined company. The pro forma adjustments included herein are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances and which are set forth and fully described in the notes below. In addition, the unaudited pro forma condensed combined balance sheet includes pro forma purchase price allocations based upon preliminary estimates of the fair value of the assets acquired and liabilities assumed in connection with the ClosetMaid acquisition. These allocations are preliminary and may be adjusted in the future upon finalization of these preliminary estimates.
The pro forma condensed combined financial statements should be read in conjunction with, and are qualified in their entirety by reference to, the following information: (i) the notes to the unaudited pro forma condensed combined financial information below; (ii) Griffon’s audited financial statements as of and for the year ended September 30, 2017, which are included in our Annual Report on Form 10-K for the year then ended filed on November 20, 2017 and incorporated by reference into this filing; and, (iii) ClosetMaid’s audited financial statements as of September 30, 2016 and 2017 and for each of the years in the three-year period ended September 30, 2017, which are included in this filing.
GRIFFON CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2017
(in thousands, except per share data)
| | | Historical | | | | | | | |
| ($ in thousands) | | Griffon | | | ClosetMaid | | | Adjustments | | | Pro Forma
Combined | |
| Revenue | | $ | 1,524,997 | | | $ | 298,500 | | | $ | — | | | $ | 1,823,497 | |
| Cost of goods and services | | | 1,116,881 | | | | 215,000 | | | | — | | | | 1,331,881 | |
| Gross profit | | | 408,116 | | | | 83,500 | | | | — | | | | 491,616 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 339,089 | | | | 68,600 | | | | 1,663 | | a | | 409,352 | |
| Restructuring and other related charges | | | — | | | | 900 | | | | — | | | | 900 | |
| Total operating expenses | | | 339,089 | | | | 69,500 | | | | 1,663 | | | | 410,252 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 69,027 | | | | 14,000 | | | | (1,663 | ) | | | 81,364 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Interest (expense) income, net | | | (51,449 | ) | | | 3,800 | | | | (18,996 | ) | b | | (66,645 | ) |
| Other, net | | | (880 | ) | | | — | | | | — | | | | (880 | ) |
| Total other income (expense) | | | (52,329 | ) | | | 3,800 | | | | (18,996 | ) | | | (67,525 | ) |
| | | | | | | | | | | | | | | | | |
| Income before taxes from continuing operations | | | 16,698 | | | | 17,800 | | | | (20,659 | ) | | | 13,839 | |
| Provision (benefit) for income taxes | | | (1,085 | ) | | | 6,600 | | | | (7,658 | ) | c | | (2,143 | ) |
| Income from continuing operations | | $ | 17,783 | | | $ | 11,200 | | | $ | (13,001 | ) | | $ | 15,982 | |
| Discontinued operations: | | | | | | | | | | | | | | | | |
| Income from operations of discontinued businesses | | | 22,276 | | | | — | | | | — | | | | 22,276 | |
| Provision from income taxes | | | 25,147 | | | | — | | | | — | | | | 25,147 | |
| Loss from discontinued operations | | $ | (2,871 | ) | | $ | — | | | $ | — | | | $ | (2,871 | ) |
| Net Income | | $ | 14,912 | | | $ | 11,200 | | | $ | (13,001 | ) | | $ | 13,111 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.43 | | | | | | | | | | | $ | 0.39 | |
| Income from discontinued operations | | | (0.07 | ) | | | | | | | | | | | (0.07 | ) |
| Basic earnings per common share | | $ | 0.36 | | | | | | | | | | | $ | 0.32 | |
| Weighted average shares outstanding | | | 41,005 | | | | | | | | | | | | 41,005 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.41 | | | | | | | | | | | $ | 0.37 | |
| Income from discontinued operations | | | (0.07 | ) | | | | | | | | | | | (0.07 | ) |
| Diluted earnings per common share | | $ | 0.35 | | | | | | | | | | | $ | 0.30 | |
| Weighted average shares outstanding | | | 43,011 | | | | | | | | | | | | 43,011 | |
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
GRIFFON CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2017
| | | Historical | | | | | | Pro Forma | |
| ($ in thousands) | | Griffon | | | ClosetMaid | | | Adjustments | | | Combined | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | |
| Cash and equivalents | | $ | 47,681 | | | $ | 8,800 | | | $ | 63,650 | | d | $ | 120,131 | |
| Accounts receivable, net of allowances | | | 208,229 | | | | 31,500 | | | | — | | | | 239,729 | |
| Contract costs and recognized income not yet billed, net of progress payments | | | 131,662 | | | | — | | | | — | | | | 131,662 | |
| Inventories, net | | | 299,437 | | | | 34,900 | | | | — | | | | 334,337 | |
| Prepaid and other current assets | | | 40,067 | | | | 12,700 | | | | (3,200 | ) | e | | 49,567 | |
| Assets of discontinued operations held for sale | | | 370,724 | | | | — | | | | — | | | | 370,724 | |
| Assets of discontinued operations not held for sale | | | 329 | | | | — | | | | — | | | | 329 | |
| Total Current Assets | | | 1,098,129 | | | | 87,900 | | | | 60,450 | | | | 1,246,479 | |
| | | | | | | | | | | | | | | | | |
| PROPERTY, PLANT AND EQUIPMENT, net | | | 232,135 | | | | 32,700 | | | | 11,434 | | e | | 276,269 | |
| GOODWILL | | | 319,139 | | | | 141,900 | | | | (63,399 | ) | f | | 397,640 | |
| INTANGIBLE ASSETS, net | | | 205,127 | | | | 1,300 | | | | 71,165 | | e,f | | 277,592 | |
| OTHER ASSETS | | | 16,051 | | | | 400 | | | | 3,200 | | e | | 19,651 | |
| ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE | | | 2,960 | | | | — | | | | — | | | | 2,960 | |
| Total Assets | | $ | 1,873,541 | | | $ | 264,200 | | | $ | 82,850 | | | $ | 2,220,591 | |
| | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Notes payable and current portion of long-term debt | | $ | 11,078 | | | $ | 1,700 | | | $ | — | | | $ | 12,778 | |
| Accounts payable | | | 183,951 | | | | 44,700 | | | | — | | | | 228,651 | |
| Accrued liabilities | | | 83,258 | | | | 13,800 | | | | 1,243 | | g | | 98,301 | |
| Liabilities of discontinued operations held for sale | | | 84,450 | | | | — | | | | — | | | | 84,450 | |
| Liabilities of discontinued operations not held for sale | | | 8,342 | | | | — | | | | — | | | | 8,342 | |
| Total Current Liabilities | | | 371,079 | | | | 60,200 | | | | 1,243 | | | | 432,522 | |
| | | | | | | | | | | | | | | | | |
| LONG-TERM DEBT, net of issuance costs | | | 968,080 | | | | 3,400 | | | | 271,207 | | h | | 1,242,687 | |
| OTHER LIABILITIES | | | 132,537 | | | | 11,000 | | | | — | | | | 143,537 | |
| LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE | | | 3,037 | | | | — | | | | — | | | | 3,037 | |
| Total Liabilities | | | 1,474,733 | | | | 74,600 | | | | 272,450 | | | | 1,821,783 | |
| | | | | | | | | | | | | | | | | |
| SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | |
| Total Shareholders’ Equity | | | 398,808 | | | | 189,600 | | | | (189,600 | ) | i | | 398,808 | |
| Total Liabilities and Shareholders’ Equity | | $ | 1,873,541 | | | $ | 264,200 | | | $ | 82,850 | | | $ | 2,220,591 | |
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITEDPROFORMACONDENSEDCOMBINEDFINANCIALSTATEMENTS
| 1. | Description of ClosetMaid Acquisition |
On October 2, 2017, Griffon completed the acquisition of ClosetMaid, a market leader of home storage and organization products, for approximately $200,000, or $175,000 inclusive of the net present value of tax benefits. ClosetMaid adds to Griffon’s Home and Building Products segment, complementing and diversifying Griffon’s portfolio of leading consumer brands and products.
Griffon financed the acquisition of ClosetMaid, and payment of related fees and expenses, with an add-on offering of $275,000 aggregate principal amount of 5.25% Senior Notes due 2022 (the “New Notes”). The bonds were issued at a 1% premium. Griffon will use the remaining proceeds for general corporate purposes (including, without limitation, to temporarily repay borrowings under its revolving credit facility).
Griffon’s SG&A expenses included $8,055 of acquisition costs in 2017 related to the ClosetMaid acquisition.
The unaudited pro forma condensed combined financial information was prepared to give effect to the completed ClosetMaid acquisition, which will be accounted for using the acquisition method of accounting. The unaudited pro forma condensed combined financial information was based on the historical financial statements of Griffon and ClosetMaid. All pro forma financial statements use Griffon’s period-end date.
The acquisition method of accounting under U.S. GAAP requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values at the acquisition date. Fair value is defined under U.S. GAAP as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Market participants are assumed to be buyers and sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Fair value measurements can be highly subjective and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
We have made initial, preliminary fair value estimates of the assets to be acquired and liabilities to be assumed from ClosetMaid for the purposes of presenting these unaudited pro forma condensed combined financial statements. Consequently, the recorded assets and liabilities on ClosetMaid’s financial statements, along with our initial fair value estimates, were added to those of Griffon. Financial statements and reported results of operations of Griffon for periods following completion of the acquisition may reflect different values, and the related depreciation and amortization thereof, after Griffon completes the process of valuing the assets acquired and liabilities assumed. However, any adjustments will not be retroactively restated to reflect the historical financial position or results of operations of ClosetMaid for periods prior to the acquisition.
Acquisition-related transaction costs (e.g., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges impacting the acquired company are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred. The unaudited pro forma condensed combined financial statements reflect acquisition-related transaction costs incurred by Griffon, as noted above. The unaudited pro forma condensed combined financial statements reflect no restructuring and integration charges that may be incurred in connection with the acquisition.
Certainimmaterialreclassificationswere madetotheoverallpresentationofClosetMaid’sfinancialstatements toconformtoGriffon’spresentation.
Griffon has not identified any differences in accounting policies that would have a material impact on the condensed combined financial statements except as detailed below.
| 4. | Assets Acquired and Liabilities Assumed |
The estimated assets acquired and the liabilities assumed by Griffon in the acquisition of ClosetMaid, reconciled to the consideration transferred, are provided below:
| | | As of
September 30, 2017 | |
| | | | |
| Allocation of purchase price to the fair value of net assets acquired: | | | | |
| Accounts receivable, net | | $ | 31,500 | |
| Inventories, net | | | 34,900 | |
| Other current assets | | | 9,500 | |
| Property, plant and equipment, net | | | 44,134 | |
| Intangible assets, net | | | 72,465 | |
| Goodwill | | | 78,501 | |
| Other assets | | | 3,600 | |
| Total assets acquired | | | 274,600 | |
| | | | | |
| Notes payable and current portion of long-term debt | | | 1,700 | |
| Accounts payable and accrued liabilities | | | 58,500 | |
| Long-term debt | | | 3,400 | |
| Other liabilities | | | 11,000 | |
| Total liabilities assumed | | | 74,600 | |
| | | | | |
| Total | | $ | 200,000 | |
The above table reflects a preliminary fair value allocation of the assets acquired and liabilities assumed and the $200,000 consideration does not consider cash acquired and working capital adjustments that the company believes will net to an immaterial amount.
Notes payable and current portion of long-term debt and Long-term debt reflect the assumption of capital leases. The above allocation is preliminary with the final allocation to be based upon the balance sheet as of the closing date of theClosetMaid acquisition.
This note should be read in conjunction withNote 1. Description of ClosetMaid acquisition; Note 2. Basis of Presentation.
| a. | Toadjust fortheamortizationattributabletotheestimatedfairvalueofidentified definite-lived intangible assets as follows: |
| Definite-lived Intangibles | | Balance | | | Identified Life | | Annual
Amortization | |
| Technology | | $ | 8,500 | | | | 10 | | | $ | 850 | |
| Patents | | | 2,410 | | | | 9 | | | | 268 | |
| Non-compete agreement | | | 658 | | | | 10 | | | | 66 | |
| Customer relationships | | | 11,977 | | | | 25 | | | | 479 | |
| Totals | | $ | 23,545 | | | | | | | $ | 1,663 | |
| b. | Toeliminate interest income recordedby ClosetMaid, consistingofinterestincomeon intercompany receivablefrom Emerson,andtorecognizethe netcost ofdebtincurred by Griffon inconnectionwiththeacquisitionofClosetMaidasfollowsatan assumedrateofinterestwhichwouldbehigherifwearerequiredtodrawdownonthe BridgeFacilitytopayforalloranyportionoftheClosetMaidacquisition: |
| | | Fiscal Year 2017 | |
| Interest expense on New Notes | | $ | 14,438 | |
| Amortization of debt issuance costs | | | 1,308 | |
| Elimination of ClosetMaid interest income | | | 3,800 | |
| Amortization of bond premium | | | (550 | ) |
| Totals | | $ | 18,996 | |
| c. | Griffonhas estimatedanincremental37%taxrateinassessingthetaximpactofClosetMaid’s results of operationsand the related effect of the pro forma adjustments.Theeffectivetaxrateandtaxaccountsin the balancesheetofthecombinedcompanycouldbesignificantlydifferent(either higheror lower)dependingonpost-acquisitionactivities, including taxplanning opportunities,cash repatriation decisionsand geographic mixof income. |
| d. | Adjustment to cash consists of the following: |
| | | September 30, 2017 | |
| Total change in debt, Note (h) | | $ | 271,207 | |
| Purchase of ClosetMaid | | | (200,000 | ) |
| Removal of ClosetMaid cash | | | (8,800 | ) |
| Accrued interest received at closing, Note (g) | | | 1,243 | |
| Total change in cash | | $ | 63,650 | |
| e. | The pro forma balance sheet adjustments included reclassifications of certain balances to conform to Griffon’s balance sheet presentation. ClosetMaid’s current deferred taxes of $3,200 were reclassified from prepaid and other current assets to other assets as Griffon has already adopted Financial Accounting Standard Board ASU 2015-17 “Balance Sheet Classification of Deferred Taxes”. ClosetMaid’s capitalized software of $700 was reclassified from intangible assets, net, to property, plant and equipment, net, to be consistent with Griffon’s balance sheet presentation. A summary of the adjustment to property, plant and equipment, net, which also includes a preliminary fair value adjustment of $10,734, follows: |
| | | Fixed Assets | |
| Preliminary fair value adjustment | | $ | 10,734 | |
| Reclassification of capitalized software | | | 700 | |
| Totals | | $ | 11,434 | |
| f. | Goodwill and intangible assets, net includes amounts to reflect the ClosetMaid acquisition as well as the reclassification of capitalized software discussed in note (e) above as follows: |
| | | | | Acquired Intangible | |
| | | Goodwill | | | Assets, Net | |
| Remove ClosetMaid goodwill | | $ | (141,900 | ) | | $ | — | |
| Goodwill from ClosetMaid acquisition | | | 78,501 | | | | — | |
| Indefinite-lived Intangibles from ClosetMaid acquisition | | | — | | | | 48,920 | |
| Definite-lived Intangibles from ClosetMaid acquisition | | | — | | | | 23,545 | |
| Reclassification of capitalized software | | | — | | | | (700 | ) |
| Remove ClosetMaid intellectual property | | | | | | | (600 | ) |
| Totals | | $ | (63,399 | ) | | $ | 71,165 | |
| g. | Bondholders of the New Notes paid Griffon interest expense upon closing. This amount reflects accrued interest from what would have been the previous semi-annual interest payment through the date of closing of the New Notes. Griffon will return this balance to the bondholders on the next scheduled semi-annual interest payment date. |
| h. | To record the principal and premium received related to the issuance of the New Notes less estimated financing costs as follows: |
| | | September 30, 2017 | |
| Proceeds from New Notes | | $ | 275,000 | |
| Premium received on issuance of New Notes | | | 2,750 | |
| Debt issuance costs | | | (6,543 | ) |
| Total change in debt | | $ | 271,207 | |
| i. | To eliminate ClosetMaid’s historical equity. |
