Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On December 31, 2019, Evoqua Water Technologies Corp. (the “Company”), through its wholly-owned subsidiaries, completed the previously-announced sale (the “Transaction”) of the Company’s Memcor® low pressure membrane product line (including the product line’s global workforce, its manufacturing site in Windsor, Australia, associated operations and intellectual property) to DuPont de Nemours, Inc. and its affiliates
(collectively, “DuPont”) pursuant to the Purchase and Sale Agreement dated October 1, 2019, by and among the Evoqua Sellers and DuPont, as amended (the “Agreement”). DuPont purchased 100% of the corporate capital of the Australian Subsidiaries and all of the other Evoqua Sellers’ assets related to the Memcor® low pressure membrane product line. The aggregate purchase price paid by DuPont in the Transaction was $110.0 million in cash, subject to certain adjustments. Following adjustments for cash and net working capital, gross proceeds paid by DuPont were $121.3 million, with an expected gain on the divestiture of $70.9 million. The
Company and DuPont have a history of collaboration, and following the closing of the Transaction, DuPont will continue to supply the Company with Memcor® products. The Transaction constituted a significant business divestiture in accordance with Rule 3-05 of Regulation S-X. As a result, we prepared the accompanying unaudited pro forma combined financial statements in accordance with Item 9.01(b) of Form 8-K and Article 11 of Regulation S-X.
The unaudited pro forma combined Balance Sheets and Statements of Operations were prepared as though the divestiture occurred on October 1, 2018. The historical financial statements have been recast for periods required under ASC 205-20, and have been adjusted in the unaudited pro forma combined financial
statements to give effect to pro forma events that are: (1) directly attributable to the divestiture, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results following the divestiture. In addition, these unaudited pro forma combined financial statements should not be considered to be indicative of our future consolidated financial performance and income statement results. The unaudited pro forma combined financial statements have been developed from, and should be read in conjunction with, our historical audited consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
Evoqua
Water Technologies Corp.
Proforma Combined Balance Sheet
(Unaudited)
|
| | | | | | | | | | | | | | | |
(In thousands) | Evoqua Water Technologies Corp. | | Memcor
(note 2) | | ProForma Adjustments | | Pro Forma Combined |
ASSETS | | | | | | | |
Current assets | $ | 637,293 |
| | $ | 84,093 |
|
| $ | — |
| | $ | 721,386 |
|
Cash
and cash equivalents | 109,881 |
| | 121,349 |
| | — |
| | 231,230 |
|
Receivables, net | 257,585 |
| | — |
| | — |
| | 257,585 |
|
Inventories,
net | 137,164 |
| | — |
| | — |
| | 137,164 |
|
| 73,467 |
| | — |
| | — |
| | 73,467 |
|
Prepaid
and other current assets | 21,940 |
| | — |
| | — |
| | 21,940 |
|
Assets held for sale | 37,256 |
| | (37,256 | ) | | — |
| | — |
|
Property,
plant, and equipment, net | 333,584 |
| | — |
| | — |
| | 333,584 |
|
Goodwill | 392,890 |
| | — |
| | — |
| | 392,890 |
|
Intangible
assets, net | 314,767 |
| | — |
| | — |
| | 314,767 |
|
Deferred income taxes | 2,790 |
| | 174 |
| | — |
| | 2,964 |
|
Other
non‑current assets | 25,715 |
| | — |
| | — |
| | 25,715 |
|
Non-current assets held for sale | 30,809 |
| | (30,809 | ) | | — |
| | — |
|
Total
assets | $ | 1,737,848 |
|
| $ | 53,458 |
| | $ | — |
| | $ | 1,791,306 |
|
LIABILITIES
AND EQUITY | | | | | | | — |
|
Current liabilities | 322,221 |
| | (14,085 | ) | | (2,601 | ) | | 305,535 |
|
Accounts
payable | 144,247 |
| | — |
| | — |
| | 144,247 |
|
Current portion of debt | 13,418 |
| | — |
| | — |
| | 13,418 |
|
| 39,051 |
| | — |
| | — |
| | 39,051 |
|
Product warranties | 4,922 |
| | — |
| | — |
| | 4,922 |
|
Accrued
expenses and other liabilities | 101,839 |
| | — |
| | (2,601 | ) | 4 | 99,238 |
|
Income tax payable | 4,536 |
| | 123 |
| |
|
| | 4,659 |
|
Liabilities
held for sale | 14,208 |
| | (14,208 | ) | | — |
| | — |
|
Non‑current liabilities | 1,049,805 |
| | (7,059 | ) | | — |
| | 1,042,746 |
|
Long‑term
debt | 951,599 |
| | — |
| | — |
| | 951,599 |
|
Product warranties | 2,332 |
| | — |
| | — |
| | 2,332 |
|
Other
non‑current liabilities | 78,661 |
| | — |
| | — |
| | 78,661 |
|
Deferred income taxes | 13,548 |
| | (3,394 | ) | | — |
| | 10,154 |
|
Non-current
liabilities held for sale | 3,665 |
| | (3,665 | ) | | — |
| | — |
|
Total liabilities | 1,372,026 |
| | (21,144 | ) | | (2,601 | ) | | 1,348,281 |
|
Commitments
and Contingent Liabilities | | | | | | | — |
|
Shareholders’ equity | | | | | | | — |
|
Common
stock, par value $0.01: authorized 1,000,000 shares; issued 116,008 shares, outstanding 114,344 at September 30, 2019; | 1,154 |
| | — |
| | — |
| | 1,154 |
|
| (2,837 | ) | | — |
| | — |
| | (2,837 | ) |
Additional paid‑in capital | 552,422 |
| | — |
| | — |
| | 552,422 |
|
Retained
deficit | (174,976 | ) | | 68,296 |
| | 2,601 |
| 5 | (104,079 | ) |
Accumulated other comprehensive loss, net of tax | (13,004 | ) | | 6,306 |
| | — |
| | (6,698 | ) |
Total
Evoqua Water Technologies Corp. equity | 362,759 |
| | 74,602 |
| | 2,601 |
| | 439,962 |
|
Non‑controlling interest | 3,063 |
| | — |
| | — |
| | 3,063 |
|
Total
shareholders’ equity | 365,822 |
| | 74,602 |
| | 2,601 |
| | 443,025 |
|
Total liabilities and shareholders’ equity | $ | 1,737,848 |
| | $ | 53,458 |
| | $ | — |
| | $ | 1,791,306 |
|
See
accompanying notes to the unaudited pro forma combined financial statements.
Evoqua Water Technologies Corp.
Pro Forma Combined Statements of Operations
(unaudited)
|
| | | | | | | | | | | | | | | |
(In
thousands, except per share data) | | | | | ProForma Adjustments | | Pro Forma Combined |
Revenue from product sales | $ | 851,161 |
| | $ | (58,774 | ) | | $ | — |
| | $ | 792,387 |
|
Revenue
from services | 593,280 |
| | (769 | ) | | — |
| | 592,511 |
|
Revenue | 1,444,441 |
| | (59,543 | ) |
| — |
|
| 1,384,898 |
|
Cost
of product sales | (615,171 | ) | | 43,496 |
| | 9 |
| 4 | (571,666 | ) |
Cost of services | (403,308 | ) | | 375 |
| | — |
| | (402,933 | ) |
Cost
of product sales and services | (1,018,479 | ) | | 43,871 |
|
| 9 |
|
| (974,599 | ) |
Gross Profit | 425,962 |
| | (15,672 | ) |
| 9 |
|
| 410,299 |
|
General
and administrative expense | (217,013 | ) | | 1,135 |
| | 4,233 |
| 4 | (211,641 | ) |
Sales and marketing expense | (138,936 | ) | | 6,634 |
| | — |
| | (132,302 | ) |
Research
and development expense | (15,300 | ) | | 2,294 |
| | — |
| | (13,006 | ) |
Total operating expenses | (371,249 | ) | | 10,063 |
|
| 4,233 |
| | (356,949 | ) |
Other
operating income | 5,613 |
| | (162 | ) | | 70,898 |
| | 76,349 |
|
Other operating expense | (654 | ) | | — |
| | — |
| | (654 | ) |
Income
before interest expense and income taxes | 59,672 |
| | (5,771 | ) |
| 75,140 |
|
| 129,045 |
|
Interest expense | (58,556 | ) | | — |
| | — |
| | (58,556 | ) |
Income
before income taxes | 1,116 |
| | (5,771 | ) |
| 75,140 |
|
| 70,489 |
|
Income tax expense | (9,587 | ) | | 4,611 |
| | — |
| 3 | (4,976 | ) |
Net
income | (8,471 | ) | | (1,160 | ) |
| 75,140 |
| | 65,509 |
|
Net income attributable to non-controlling interest | 1,052 |
| | — |
| | — |
| | 1,052 |
|
Net
income attributable to Evoqua Water Technologies Corp. | $ | (9,523 | ) | | $ | (1,160 | ) |
| $ | 75,140 |
| | $ | 64,457 |
|
Basic
earnings per common share | $ | (0.08 | ) | | | | | | $ | 0.56 |
|
Diluted earnings per common share | $ | (0.08 | ) | | | | | | $ | 0.56 |
|
Weighted-average
shares used in computation of earnings per share | | | | | | | |
Basic | 114,703 |
| | | | | | 114,703 |
|
Diluted | 114,703 |
| | | | | | 114,703 |
|
See
accompanying notes to the unaudited pro forma combined financial statements.
Evoqua Water Technologies Corp.
Notes to the Pro Forma Combined Financial Statements
(Unaudited, in thousands)
Note 1 - Basis of Presentation
The unaudited pro forma combined financial statements were derived from the historical audited consolidated financial statements of Evoqua Water Technologies Corp. (the “Company”) and the unaudited results and balances of the Memcor business. The unaudited
pro forma combined financial statements give effect to the pro forma adjustments necessary to reflect the Memcor disposition as if the transaction had occurred on October 1, 2018, in the unaudited pro forma combined balance sheets and statements of operations for the fiscal year ended September 30, 2019. The historical financial information has been adjusted in the unaudited pro forma combined financial statements to give effect to pro forma events that are (i) directly attributable to the divestiture, (ii) factually supportable and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results and have been prepared in accordance with Article 11 of Regulation S-X. Such unaudited pro forma condensed consolidated financial statements should be read
in conjunction with (i) the audited consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019 and (ii) the risk factors outlined in detail under the caption “Risk Factors” within the Reports described above. These reports may not be useful in predicting the future financial condition and results of operations of the Company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Note
2 - Memcor Balances
The information in the Memcor column of the unaudited pro forma consolidated balance sheet was derived from the Company’s audited financial statements as of September 30, 2019, adjusted to include certain assets and liabilities that are directly attributable to the Memcor business and have been adjusted in the unaudited pro forma combined financial statements to give effect to pro forma events that are: (1) directly attributable to the divestiture, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results following the divestiture. The Memcor column also reflects the $121.3 million cash proceeds received in conjunction
with the sale of the Memcor business. Note 3 - Taxes
Represents the tax impact of the divestiture of the Memcor business. Based on the structure of the sale, available net operating losses, and valuation allowances, the Company does not expect to incur net tax expense related to the gain on the sale of the Memcor business. Note 4 - Transaction expenses and income
These are one time transaction costs the Company incurred specific to the sale of the Memcor business. As of September 30, 2019, $2.8 million of these costs were incurred but $2.6 million had
not been paid and as such, was included in Accrued expenses and other liabilities. The Company expects to incur and pay approximately $1.4 million of additional one time transaction costs subsequent to September 30, 2019. Note 5 - Shareholder’s equity
Shareholders’ equity was adjusted for the pro forma adjustments specified in Notes (3) and (4), including the $121.3 million cash proceeds received in conjunction with the sale of Memcor. Note that the cash proceeds are subject to post closing net working capital adjustments, and as such, may be subject to change and impact the final gain on sale.
