KAPSTONE PAPER & PACKAGING CORP - FORM 8-K/A - EX-99.3

Attached files

file	filename
8-K/A - 8-K - KAPSTONE PAPER & PACKAGING CORP	a11-30308_18ka.htm
EX-23.1 - EX-23.1 - KAPSTONE PAPER & PACKAGING CORP	a11-30308_1ex23d1.htm
EX-99.1 - EX-99.1 - KAPSTONE PAPER & PACKAGING CORP	a11-30308_1ex99d1.htm
EX-99.2 - EX-99.2 - KAPSTONE PAPER & PACKAGING CORP	a11-30308_1ex99d2.htm

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined balance sheet as of September 30, 2011 and the unaudited pro forma combined statements of income for the year ended December 31, 2010, and the nine months ended September 30, 2011 and 2010, and the accompanying notes thereto, have been prepared to illustrate the effects of the acquisition by KapStone Paper and Packaging Corporation (“KapStone”) of 100 percent of the common stock of U.S. Corrugated Acquisition Inc. (“USC”), including the financing of the acquisition (collectively the “Acquisition”), on our historical balance sheet and results of operations. At the closing of the Acquisition, we used the proceeds from borrowings under a new senior secured $525.0 million credit facility (the “Senior Credit Facilities”) together with cash on hand, to finance the purchase price of $330.0 million, (net of, among other things, the repayment of $100.8 million of existing debt) and to pay $12.7 million of transaction costs.

We have made certain reclassifications to USC’s presentation to conform to KapStone’s presentation. The reclassifications consist of: $6.1 million of spare-parts and supplies from prepaid expenses and other current assets to inventories; and $8.3 million of accrued salary and benefits from accrued expenses to accrued compensation costs.

The unaudited pro forma combined balance sheet gives effect to the Acquisition as if it had occurred on September 30, 2011. The unaudited pro forma combined statement of income for the year ended December 31, 2010 and the nine months ended September 30, 2011 and 2010 give effect to the Acquisition as if it had occurred on January 1, 2010. The unaudited pro forma combined balance sheet is presented for informational purposes only and does not purport to represent our financial condition had the Acquisition occurred as of the date indicated above. In addition, the unaudited pro forma combined financial statements do not purport to project our future financial position or operating results as of any future date or for any future period. KapStone may have performed differently had they been combined during the periods presented.

The unaudited pro forma combined balance sheet information has been derived by the application of pro forma adjustments to our unaudited historical consolidated balance sheet as of September 30, 2011 combined with the USC unaudited historical balance sheet as of October 1, 2011. The pro forma adjustments and certain assumptions underlying these adjustments, using the purchase method of accounting, are described in the accompanying notes. The pro forma adjustments are based on the preliminary purchase price allocation and are subject to change as additional information becomes available. These pro forma adjustments do not include any cost savings resulting from elimination of redundant overhead costs, benefits from operating synergies, costs incurred for integration of the acquisition or other one-time adjustments.

This information should be read in conjunction with (i) the notes to the unaudited pro forma combined financial statements, (ii) KapStone’s historical audited financial statements as of and for the year ended December 31, 2010 included in its Annual Report on Form 10-K for the year ended December 31, 2010, (iii) KapStone’s historical unaudited financial statements as of September 30, 2011 and for the nine months ended September 30, 2011 included in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, and (iv) the audited and unaudited financial statements of USC included in this Current Report on Form 8-K/A attached as Exhibits 99.1 and 99.2.

Unaudited Pro Forma Combined Balance Sheets

At September 30, 2011

(amounts in thousands except share data)

					Reclassification of
					USC balances to
	Historical				conform to KapStone			Less Disposed			Adjusted			Pro Forma				Pro Forma
	KapStone		U.S. Corrugated, Inc.*		statement presentation			Subsidiaries and Assets (K)			U.S. Corrugated, Inc.			Adjustments			Notes	Combined
Assets
Current assets:
Cash	$	67,342	$	2,806	$	—		$	341		$	2,465		$	(58,753	)	A	$	11,054
Trade accounts receivable, net	78,676		62,565		—			13,708			48,857			(7,632		)	B	119,901
Other receivables	4,112		—		—			—			—			—				4,112
Inventories	77,824		39,986		6,100			7,570			38,516			6,430			B, C	122,770
Prepaid expenses and other current assets	3,391		15,706		(6,100		)	1,437			8,169			—				11,560
Deferred income taxes	2,377		5,325		—			401			4,924			—				7,301
Total current assets	233,722		126,388		—			23,457			102,931			(59,955		)		276,698

Plant, property and equipment, net	457,813		90,699		—			19,293			71,406			34,988			C	564,207
Restricted cash	15,000		—		—			—			—			(15,000		)	D	—
Other assets	2,142		6,860		—			3,606			3,254			(1,992		)	E	3,404
Intangible assets, net	19,970		15,589		—			2,880			12,709			32,691			C	65,370
Goodwill	54,511		33,611		—			1,859			31,752			142,795			F	229,058
Total assets	$	783,158	$	273,147	$	—		$	51,095		$	222,052		$	133,527			$	1,138,737

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	18,835	$	1,712	$	—		$	950		$	762		$	(762	)	G	$	18,835
Other current borrowings	623		—		—			—			—			—				623
Accounts payable	57,149		40,940		—			7,887			33,053			(4,356		)	B	85,846
Accrued expenses	21,610		18,287		(8,326		)	631			9,330			—				30,940
Accrued compensation costs	19,280		—		8,326			1,695			6,631			—				25,911
Accrued income taxes	1,525		—		—			—			—			—				1,525
Total current liabilities	119,022		60,939		—			11,163			49,776			(5,118		)		163,680

Long-term debt, net of current portion	78,924		157,889		—			6,231			151,658			110,849			H	341,431
Accrued pension and post retirement	6,415		—		—			—			—			—				6,415
Deferred income taxes	41,283		21,661		—			2,200			19,461			26,395			I	87,139
Other liabilities	64,125		1,998		—			(560		)	2,558			—				66,683

Stockholders’ equity:
Preferred stock — $.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding	—		—		—			—			—			—				—
Common stock — $.0001 par value,
175,000,000 shares authorized; 46,081,712 shares issued and outstanding (including 40,000 treasury shares)	5		—		—			—			—			—				5
Additional paid-in capital	229,508		—		—			—			—			—				229,508
Retained earnings	243,872		—		—			—			—			—				243,872
Accumulated other comp income	4		—		—			—			—			—				4
USC equity	—		30,660		—			32,061			(1,401		)	1,401			J	—
Total stockholders’ equity	473,389		30,660		—			32,061			(1,401		)	1,401				473,389
Total liabilities and stockholders’ equity	$	783,158	$	273,147	$	—		$	51,095		$	222,052		$	133,527			$	1,138,737

A) Pro forma adjustments for cash and cash equivalents reflects the following:

Contractual purchase price and estimated working capital adjustment (net of cash acquired)	$	(332,859	)
Less USC cash	(2,465		)
Financing and other fees	(12,661		)
Termination of KapStone’s Old Credit Agreement	(100,768		)
Restricted cash held as deposit	15,000
Proceeds from KapStone’s New Credit Agreement	375,000
	$	(58,753	)

B) Reflects reclassification of USC paper trading activity from trade accounts receviable, net and accounts payable to inventories to conform with KapStone’s accounting policy.

C) Reflects estimated fair market value adjustment. This estimate is preliminary pending completion of final analysis.

D) Reflects transfer of restricted cash held as a deposit for the USC acquisition.

E) Reflects elimination of USC deferred financing fees ($2,928) offset by KapStone financing fees of $936 associated with the New Credit Agreement which will be amortized over five years, the life of the new agreement.

F) Reflects estimated allocation of purchase price of $174,547 to goodwill offset by elimination of USC goodwill ($31,752). The estimate is pending completion of the final fair value assessment of USC assets and liabilities. The allocation of the purchase price for the acquisition will be based on the actual purchase price, USC tangible and identifiable intangible assets acquired and liabilities assumed.

Contractual purchase price and estimated working capital adjustment	$	332,859
Current assets acquired	(99,264		)
Noncurrent assets acquired	(152,120		)
Current liabilities assumed	44,658
Long-term liabilities assumed	48,414
Purchase price allocated to goodwill	$	174,547

Goodwill is not expected to be deductible for income tax purposes.

G) Reflects payoff of USC current portion of long term debt at closing.

H) Reflects changes in long term debt as follows:

Proceeds from KapStone’s New Credit Agreement	$	375,000
Financing fees for New Credit Agreement	(11,725		)
Termination of KapStone’s Old Credit Agreement, net of deferred financing fees	(100,768		)
Payoff of USC debt balances at closing	(151,658		)
	$	110,849

I) Reflects preliminary estimate of deferred tax liability as a result of estimated fair market value adjustments of intangible assets and fixed assets.

J) Reflects elimination of USC equity accounts.

K) Prior to the sale of USC to KapStone, six of USC’s converting facilities (and certain related assets) were disposed of and sold to certain former owners and officers of USC.

* As of October 1, 2011.

Unaudited Pro Forma Combined Statement of Income

For the Year Ended December 31, 2010

(amounts in thousands except share data and per share data)

							Reclassification of
							USC balances to
	Historical						conform to KapStone			Less Disposed			Adjusted			Pro Forma				Pro Forma
	KapStone			U.S. Corrugated, Inc.			statement presentation			Subsidiaries and Assets (E)			U.S. Corrugated, Inc.			Adjustments			Notes	Combined
Net Sales	$	782,676		$	548,453					$	116,634		$	431,819		$	(73,488	)	A	$	1,141,007
Cost and expenses:
Cost of sales (exclusive of depreciation and amortization)	565,185			454,339			(29,984		)	93,702			330,653			(72,813		)	A	823,025
Freight and distribution expenses	73,406			—			29,984			6,781			23,203			104			A	96,713
Depreciation and amortization	45,245			—			16,967			2,802			14,165			6,977			B	66,387
Selling, general, and administrative expenses	31,129			76,319			(16,967		)	13,231			46,121			—				77,250
Other operating income	992			—			—			—			—			—				992

Operating income (loss)	68,703			17,795			—			118			17,677			(7,756		)		78,624

Other income (expense):
Other income (expense)	(666		)	(144		)	(47		)	(10		)	(181		)	—				(847		)
Interest expense, net	(5,403		)	(16,731		)	47			(288		)	(16,396		)	8,546			C	(13,253		)
Total other income (expense)	(6,069		)	(16,875		)	—			(298		)	(16,577		)	8,546				(14,100		)

Income (loss) before provision for income taxes	62,634			920			—			(180		)	1,100			790				64,524
Provision (benefit) for income taxes	(2,407		)	563			—			233			330			308			D	(1,769		)
Net income (loss)	$	65,041		$	357		$	—		$	(413	)	$	770		$	482			$	66,293
Less: Net income attributable to the non-controlling interest	—			91			—			91			—			—				—
Net income (loss) to the Company	$	65,041		$	266		$	—		$	(504	)	$	770		$	482			$	66,293

Earnings per share:
Basic	$	1.42																		$	1.45
Diluted	$	1.38																		$	1.41

Weighted-average number of shares outstanding:
Basic	45,854,237																			45,854,237
Diluted	46,979,060																			46,979,060

A) Reflects elimination of intercompany sales transactions and reclassification of USC paper trading activity and by-product revenue to conform to KapStone financial statement presentation; and an increase to cost of sales for the estimated step up of finished goods inventory to fair value.

B) Reflects additional amortization and depreciation expense from fair market value adjustments for identified intangible assets and fixed assets. The fair value of identified intangible assets is amortized over an estimated useful life of ten years. The fair value of changes in property, plant and equipment is depreciated over an estimated useful life of two to twelve years.

C) Reflects the adjustment to interest expense resulting from the payoff of KapStone’s and USC’s prior credit facilities and the issuance of a $525 million New Credit Agreement.

D) Reflects the income tax effect on the pro forma adjustments using KapStone’s effective tax rate of 39%.

E) Prior to the sale of USC to KapStone, six of USC’s coverting facilities (and certain related assets) were disposed of and sold to certain former owners and officers of USC.

Unaudited Pro Forma Combined Statement of Income

For the Nine Months Ended September 30, 2011

(amounts in thousands except share data and per share data)

							Reclassification of
							USC balances to
	Historical						conform to KapStone			Less Disposed			Adjusted			Pro Forma				Pro Forma
	KapStone			U.S. Corrugated, Inc.*			statement presentation			Subsidiaries and Assets (E)			U.S. Corrugated, Inc.			Adjustments			Notes	Combined
Net Sales	$	637,366		$	433,282		$	—		$	89,689		$	343,593		$	(55,735	)	A	$	925,224
Cost and expenses:
Cost of sales (exclusive of depreciation and amortization)	431,832			359,989			(25,633		)	72,389			261,967			(55,706		)	A	638,093
Freight and distribution expenses	56,829			—			25,633			5,384			20,249			(69		)	A	77,009
Depreciation and amortization	36,529			—			12,563			2,263			10,300			5,233			B	52,062
Selling, general, and administrative expenses	26,892			58,171			(12,563		)	10,169			35,439			—				62,331
Other operating income	870			—			—			—			—			—				870

Operating income (loss)	86,154			15,122			—			(516		)	15,638			(5,193		)		96,599

Other income (expense):
Other income (expense)	(121		)	(9		)	4			43			(48		)	—				(169		)
Interest expense, net	(3,210		)	(12,811		)	(4		)	(255		)	(12,560		)	6,721			C	(9,049		)
Total other income (expense)	(3,331		)	(12,820		)	—			(212		)	(12,608		)	6,721				(9,218		)

Income (loss) before provision for income taxes	82,823			2,302			—			(728		)	3,030			1,528				87,381
Provision (benefit) for income taxes	33,038			685			—			(224		)	909			596			D	34,543
Net income (loss)	$	49,785		$	1,617		$	—		$	(504	)	$	2,121		$	932			$	52,838
Less: Net income attributable to the non-controlling interest	—			114			—			114			—			—				—
Net income (loss) to the Company	$	49,785		$	1,503		$	—		$	(618	)	$	2,121		$	932			$	52,838

Earnings per share:
Basic	$	1.08																		$	1.14
Diluted	$	1.05																		$	1.11

Weighted-average number of shares outstanding:
Basic	46,241,251																			46,241,251
Diluted	47,455,133																			47,455,133

A) Reflects elimination of intercompany sales transactions and reclassification of USC paper trading activity and by-product revenue from net sales to cost of sales to conform to KapStone financial statement presentation.

C) Reflects the adjustment to interest expense resulting from the payoff of KapStone’s and USC’s prior credit facilities and the issuance of a $525 million New Credit Agreement.

D) Reflects the income tax effect on the pro forma adjustments using KapStone’s effective tax rate of 39%.

E) Prior to the sale of USC to KapStone, six of USC’s converting facilities (and certain related assets) were disposed of and sold to certain former owners and officers of USC.

* Thirty-nine weeks ended October 1, 2011.

Unaudited Pro Forma Combined Statement of Income

For the Nine Months Ended September 30, 2010

(amounts in thousands except share data and per share data)

							Reclassification of
							USC balances to
	Historical						conform to KapStone			Less Disposed			Adjusted			Pro Forma				Pro Forma
	KapStone			U.S. Corrugated, Inc.*			statement presentation			Subsidiaries and Assets (E)			U.S. Corrugated, Inc.			Adjustments			Notes	Combined
Net Sales	$	583,111		$	407,216		$	—		$	87,084		$	320,132		$	(52,570	)	A	$	850,673
Cost and expenses:
Cost of sales (exclusive of depreciation and amortization)	419,197			336,397			(22,442		)	69,609			244,346			(52,008		)	A	611,535
Freight and distribution expenses	56,279			—			22,442			5,016			17,426			111			A	73,816
Depreciation and amortization	33,624			—			12,689			2,044			10,645			5,233			B	49,502
Selling, general, and administrative expenses	23,672			55,946			(12,689		)	10,123			33,134			—				56,806
Other operating income	760			—			—			—			—			—				760

Operating income (loss)	51,099			14,873			—			292			14,581			(5,906		)		59,774

Other income (expense):
Other income (expense)	(597		)	(29		)	(33		)	4			(66		)	—				(663		)
Interest expense, net	(4,230		)	(12,555		)	33			(202		)	(12,320		)	6,493			C	(10,057		)
Total other income (expense)	(4,827		)	(12,584		)	—			(198		)	(12,386		)	6,493				(10,720		)

Income (loss) before provision for income taxes	46,272			2,289			—			94			2,195			587				49,054
Provision (benefit) for income taxes	(5,578		)	687			—			28			659			229			D	(4,690		)
Net income (loss)	$	51,850		$	1,602		$	—		$	66		$	1,536		$	358			$	53,744
Less: Net income attributable to the non-controlling interest	—			49			—			49			—			—				—
Net income (loss) to the Company	$	51,850		$	1,553		$	—		$	17		$	1,536		$	358			$	53,744

Earnings per share:
Basic	$	1.13																		$	1.17
Diluted	$	1.11																		$	1.15

Weighted-average number of shares outstanding:
Basic	45,795,023																			45,795,023
Diluted	46,892,468																			46,892,468

A) Reflects elimination of intercompany sales transactions and ereclassification of USC paper trading activity and by-product revenue from net sales to cost of sales to conform to KapStone financial statement presentation; and an increase to cost of sales for the step up of inventory to fair value.

B) Reflects additional amortization and depreciation expense from fair market value adjustments for identified intangible assets and fixed assets. The fair value of identified intangible assets is amortized over an estimated useful life of 10 years. The fair value of changes in property, plant and equipment is depreciated over an estimated useful life of two to twelve years.

C) Reflects the adjustment to interest expense resulting from the payoff of KapStone’s and USC’s prior credit facilities and the issuance of a $525 million New Credit Agreement.

D) Reflects the income tax effect on the pro forma adjustments using KapStone’s effective tax rate of 39%.

E) Prior to the sale of USC to KapStone, six of USC’s converting facilities (and certain related assets) were disposed of and sold to certain former owners and officers of USC.

* Thirty-nine weeks ended October 1, 2011.

KAPSTONE PAPER & PACKAGING CORP - FORM 8-K/A - EX-99.3 - January 12, 2012

Attached files

KAPSTONE PAPER & PACKAGING CORP Reports