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EX-99.3 - EX-99.3 - TreeHouse Foods, Inc.d758252dex993.htm
EX-23.1 - EX-23.1 - TreeHouse Foods, Inc.d758252dex231.htm
EX-99.2 - EX-99.2 - TreeHouse Foods, Inc.d758252dex992.htm
8-K - FORM 8-K - TreeHouse Foods, Inc.d758252d8k.htm
EX-99.1 - EX-99.1 - TreeHouse Foods, Inc.d758252dex991.htm

Exhibit 99.4

TreeHouse Foods, Inc.

Unaudited Pro Forma Condensed Combined Financial Information

On June 27, 2014, we entered into a definitive Merger Agreement with with Snack Parent Corporation (“Flagstone Foods” or “Flagsone”), pursuant to which a subsidiary of TreeHouse Foods, Inc. (“TreeHouse” or the “Company”) will merge with and into Flagstone and Flagstone will continue as the surviving corporation and as an indirect wholly-owned subsidiary of TreeHouse. The purchase price is $860 million in cash, payable at closing, and subject to adjustments for working capital (the “Flagstone Acquisition”). Consummation of the Flagstone Acquisition is subject to customary closing conditions.

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Flagstone Acquisition, including related financing. The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of TreeHouse and Flagstone, giving effect to the Flagstone Acquisition and related financing as if they had occurred on March 31, 2014. The unaudited pro forma condensed combined income statements combine the historical income statements of TreeHouse and Flagstone, giving effect to the Flagstone Acquisition and related financing as if they had occurred on January 1, 2013, with respect to the summary unaudited pro forma condensed combined income statement for the year ended December 31, 2013 and for the three months ended March 31, 2014. The historical financial information has been adjusted to give effect to matters that are (i) directly attributable to the Flagstone Acquisition and the related financing, including this offering, (ii) factually supportable, and (iii) with respect to the statements of income, expected to have a continuing impact on the operating results of the combined company. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes and:

 

    the audited historical financial statements of TreeHouse, for the year ended December 31, 2013, included in TreeHouse’s Annual Report on Form 10-K filed with the SEC on February 20, 2014;

 

    the audited historical financial statements of Flagstone, for the year ended December 28, 2013, included in this Current Report on Form 8-K;

 

    the unaudited historical financial statements of TreeHouse, as of and for the three months ended March 31, 2014, included in TreeHouse’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2014; and

 

    the unaudited historical financial statements of Flagstone, as of and for the thirteen weeks ended March 29, 2014, included in this Current Report on Form 8-K.

The unaudited pro forma condensed combined financial information has been prepared using the purchase method of accounting, with TreeHouse treated as the acquirer. The unaudited pro forma condensed combined financial information will differ from our final acquisition accounting for a number of reasons, including the fact that our estimates of fair value are preliminary and subject to change when our formal valuation and other studies are finalized. The differences that will occur between the preliminary estimates and the final acquisition accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial information.


The unaudited pro forma condensed combined financial information is presented for informational purposes only. It is not necessarily indicative of what our financial position or results of operations actually would have been had we completed the Flagstone Acquisition at the dates indicated, nor does it purport to project the future financial position or operating results of the combined company. The unaudited pro forma condensed combined income statement does not reflect any revenue or cost savings from synergies that may be achieved with respect to the combined companies, or the impact of unusual items and transaction expenses, directly related to the Flagstone Acquisition.


TreeHouse Foods, Inc.

Unaudited Pro Forma condensed combined balance sheet as of March 31, 2014

(in thousands)

 

                Acquisition and         Post Acquisition and
Equity Financing
 
    As Reported           Equity Financing         Pro Forma  
    TreeHouse Foods, Inc.     Flagstone     Pro Forma     Note   TreeHouse Foods, Inc.  
    March 31, 2014     March 29, 2014     Adjustments     Reference   March 31, 2014  

Assets

         

Current Assets:

         

Cash and cash equivalents

    15,786        —          —            15,786   

Investments

    8,615        —              8,615   

Receivables, net

    151,072        69,447        —            220,519   

Inventories, net

    413,296        131,445        11,830      2     556,571   

Deferred income taxes

    21,830        6,166        —            27,996   

Prepaid expenses and other current assets

    16,863        2,030        —            18,893   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    627,462        209,088        11,830          848,380   

Property, plant and equipment, net

    455,767        38,858        6,217      2     500,842   

Goodwill

    1,112,699        81,380        362,713      2     1,556,792   

Intangible assets, net

    464,334        69,986        256,814      2,4     791,134   

Other assets, net

    16,160        2,818        400      5     19,378   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

    2,676,422        402,130        637,974          3,716,526   
 

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities and Stockholders’ Equity

         

Current liabilities:

         

Accounts payable and accrued expenses

    217,028        54,970        —            271,998   

Current portion of long-term debt

    1,549        1,336        (1,336   4     1,549   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    218,577        56,306        (1,336       273,547   

Long-term debt

    900,463        254,836        305,164      4,5,6,8     1,460,463   

Deferred income taxes

    227,875        16,678        105,822      2     350,375   

Other long-term liabilities

    37,530        6,602        (4,368   4     39,764   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    1,384,445        334,422        405,282          2,124,149   

Commitments and contingencies

         

Redeemable preferred stock

    —          181,772        (181,772   4     —     

Stockholders’ equity:

         

Preferred stock

    —          —          —            —     

Common stock

    367        1        40      4,6     408   

Additional paid in capital

    764,917        —          310,959      6     1,075,876   

Retained earnings (deficit)

    570,260        (114,065     103,465      4,8     559,660   

Accumulated other comprehensive loss

    (43,567     —          —            (43,567
 

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    1,291,977        (114,064     414,464          1,592,377   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

    2,676,422        402,130        637,974          3,716,526   
 

 

 

   

 

 

   

 

 

     

 

 

 


TreeHouse Foods, Inc.

Unaudited Pro Forma condensed combined income statement for the year ended December 31, 2013

(in thousands, except per share data)

 

    As Reported           Acquisition and         Post Acquisition and
Equity Financing
 
    TreeHouse Foods, Inc.     Flagstone     Equity Financing         Pro Forma  
    Year Ended     Twelve Months Ended     Pro Forma     Note   TreeHouse Foods, Inc.  
    December 31, 2013     December 28, 2013     Adjustments     Reference   December 31, 2013  

Net Sales

  $ 2,293,927      $ 696,814          $ 2,990,741   

Cost of Sales

    1,818,378        613,616        770      2     2,432,764   
 

 

 

   

 

 

   

 

 

     

 

 

 

Gross Profit (loss)

    475,549        83,198        (770       557,977   

Operating Expenses:

         

Selling and distribution

    134,998        44,384        (12,547   4     166,835   

General and administrative

    121,065        —          —            121,065   

Amortization expense

    35,375        —          21,787      2     57,162   

Other operating (income) expense, net

    5,947        3,565        —            9,512   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

    297,385        47,949        9,240          354,574   
 

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    178,164        35,249        (10,010       203,403   

Other (income) expense:

         

Interest expense

    49,304        31,350        (18,670   4,7     61,984   

Interest income

    (2,185     —          —            (2,185

Loss (gain) on foreign exchange

    2,890        —          —            2,890   

Loss on extinguishment of redeemable preferred stock

    —          15,171        (15,171   4     —     

Other (income) expense, net

    3,245        1,536        (1,881   4     2,900   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total other expense (income)

    53,254        48,057        (35,722       65,589   
 

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before taxes

    124,910        (12,808     25,712          137,814   

Income taxes

    37,922        6,914        9,899      9     54,735   
 

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 86,988      $ (19,722   $ 15,813        $ 83,079   
 

 

 

   

 

 

   

 

 

     

 

 

 
        —            —     

Weighted average common shares:

         

Weighted average shares—basic

  $ 2.39            $ 2.05   

Weighted average shares—diluted

  $ 2.33            $ 2.00   

Net earnings per basic share

    36,418          4,063      6     40,481   

Net earnings per diluted share

    37,396          4,063      6     41,459   


TreeHouse Foods, Inc.

Unaudited Pro Forma condensed combined income statement for the three months ended March 31, 2014

(in thousands, except per share data)

 

    As Reported           Acquisition and         Post Acquisition and
Equity Financing
 
    TreeHouse Foods, Inc.     Flagstone     Equity Financing         Pro Forma  
    Three Months Ended     Thirteen Weeks Ended     Pro Forma    

Note

  TreeHouse Foods, Inc.  
    March 31, 2014     March 29, 2014     Adjustments     Reference   March 31, 2014  

Net Sales

  $ 618,903      $ 166,801        —          $ 785,704   

Cost of Sales

    485,912        146,094        191      2     632,197   
 

 

 

   

 

 

   

 

 

     

 

 

 

Gross Profit (loss)

    132,991        20,707        (191       153,507   

Operating Expenses:

         

Selling and distribution

    38,017        11,132        (2,729   4     46,420   

General and administrative

    33,768        —          —            33,768   

Amortization expense

    10,034        —          5,447      2     15,481   

Other operating (income) expense, net

    873        125        —            998   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

    82,692        11,257        2,718          96,667   
 

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    50,299        9,450        (2,909       56,840   

Other expense (income):

         

Interest expense

    10,873        5,026        (1,856   4,7     14,043   

Interest income

    (168     —          —            (168

Loss (gain) on foreign currency exchange

    2,951        —          —            2,951   

Other expense (income), net

    16,600        1,475        (1,469   4     16,606   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total other expense (income)

    30,256        6,501        (3,325       33,432   
 

 

 

   

 

 

   

 

 

     

 

 

 

Income before income taxes

    20,043        2,949        416          23,408   

Income taxes

    5,721        987        160      9     6,868   
 

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

    14,322        1,962        256          16,540   
 

 

 

   

 

 

   

 

 

     

 

 

 
        —            —     

Net earnings per common share:

         

Basic

  $ 0.39            $ 0.41   

Diluted

  $ 0.38            $ 0.40   

Weighted average common shares:

         

Basic

    36,682          4,063      6     40,745   

Diluted

    37,665          4,063      6     41,728   


TreeHouse Foods, Inc.

Notes to the unaudited pro forma condensed combined financial statements

(In thousands)

Note 1 Basis of presentation

The unaudited pro forma condensed combined balance sheet was prepared using the historical balance sheets of TreeHouse as of March 31, 2014, and of Flagstone as of March 29, 2014. The unaudited pro forma condensed combined statements of income was prepared using the historical statements of income of TreeHouse for the year ended December 31, 2013 and the three months ended March 31, 2014, and of Flagstone for the year ended December 28, 2013 and for the thirteen weeks ended March 29, 2014.

The unaudited pro forma combined financial information was prepared using the purchase method of accounting. Based on the terms of the Merger Agreement, TreeHouse is treated as the acquirer of Flagstone. Accordingly, we have adjusted the historical consolidated financial information to give effect to the impact of the consideration issued in connection with the Flagstone Acquisition. The purchase price has been allocated in the unaudited pro forma condensed combined balance sheet, based on management’s preliminary estimate of their respective values. Definitive allocations will be performed and finalized based upon certain valuation and other studies that will be performed by TreeHouse with the services of outside valuation specialists after the closing. Accordingly, the purchase price allocation adjustments and related amortization reflected in the following unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after the closing of the Flagstone Acquisition. For example, if the value of the finite-lived intangible assets increased by 10%, annual pro forma operating income would decrease by approximately $2,179.

Note 2 Preliminary purchase price allocation

The purchase price for the Flagstone Acquisition is approximately $860 million, payable at closing. The purchase price of $860 million has been allocated to the assets acquired and the liabilities assumed as follows:

 

(In thousands)        

Accounts receivable

   $ 69,447   

Inventory

     143,275   

Other current assets

     8,196   

Property, plant and equipment

     45,075   

Goodwill

     444,093   

Intangible assets

     326,800   

Other assets, net

     2,818   
  

 

 

 

Total assets acquired

     1,039,704   
  

 

 

 

Accounts payable

     (52,542

Other current liabilities

     (2,428

Other long-term liabilities

     (2,234

Deferred income taxes

     (122,500
  

 

 

 

Total liabilities assumed

     (179,704
  

 

 

 

Total purchase price

   $ 860,000   
  

 

 

 

 

 


For the purpose of preparing the unaudited pro forma condensed combined financial information, certain of the assets acquired and liabilities assumed have been measured at their estimated fair values as of March 31, 2014. A final determination of fair values will be based on the actual assets and liabilities that will exist on the date of the closing of the Flagstone Acquisition and on our formal valuation and other studies when they are finalized. Accordingly, the fair values of the assets and liabilities included in the table above are preliminary and subject to change pending additional information that may become known. An increase in the fair value of inventory, property, plant and equipment, or any identifiable intangible assets will reduce the amount of goodwill in the unaudited pro forma condensed combined financial information, and may result in increased depreciation, and or amortization expense.

We have allocated $326,800 to intangible assets, and assigned an estimated economic life of 15 years. The determination of the preliminary fair value was primarily based upon historical intangible asset valuations in comparison to the purchase price for prior acquisitions. This value will be adjusted upon completion of the valuation analysis. The determination of useful life was also based upon historical experience. The estimated annual amortization expense for these acquired intangible assets is approximately $21,787, using straight line amortization, and has been included in the unaudited pro forma condensed combined statements of income for the twelve months ended December 31, 2013 and the three months ended March 31, 2014.

Inventories reflect an adjustment of $11,830 to record the inventory at its estimated fair value. This amount is recorded in the March 31, 2014 unaudited pro forma condensed combined balance sheet. The increased inventory will temporarily increase our cost of sales after closing and therefore it is considered non-recurring and is not included in the unaudited pro forma condensed combined statements of income for the twelve months ended December 31, 2013 and the three months ended March 31, 2014.

Property, plant and equipment reflect an adjustment of $6,217 to record the property, plant and equipment at its estimated fair market value. Total additional depreciation expense on the revalued property, plant and equipment is estimated to be approximately $770 for the twelve months ended December 31, 2013 and $191 for the three months ended March 31, 2014.

A preliminary deferred tax adjustment of $105,822 has been recognized in accordance with accounting for income taxes. The amount primarily relates to the tax effect of the acquired intangible assets of $326,800 and the tax effect on the difference between values assigned and the estimated tax basis of assets and liabilities acquired.

Note 3 Pro forma adjustments

The pro forma adjustments give effect to the Flagstone Acquisition under the purchase method of accounting, borrowings under the TreeHouse Credit Agreement, the repayment of Flagstone’s existing indebtedness, the proposed offering of $325,000 (net of underwriting fee of approximately $13,000) in shares of TreeHouse common stock, and the payment of fees and expenses relating to these transactions. The table below summarizes the gross pro forma adjustments by line item and references the notes that provide further detail on each adjustment.


Balance sheet line item    Reason for pro forma adjustment    March 31, 2014         

Assets

       

Inventories, net

  

Inventory revaluation

   $ 11,830        2   

Property, plant and equipment, net

  

Fixed asset revaluation

     6,217        2   

Goodwill

  

Purchase price allocation

     362,713        2   

Identifiable intangible assets, net

  

Intangible asset revaluation

     326,800        2   
  

Remove historical balances

     (69,986     4   
     

 

 

   
  

Subtotal

     256,814     

Other assets, net

  

Debt financing costs

     400        5   
     

 

 

   

Total assets

     637,974     
     

 

 

   

Liabilities and Stockholders’ Equity

       

Current portion of long-term debt

  

Remove historical balances

     (1,336     4   

Long-term debt

  

Revolving credit facility borrowings

     348,000        5   
  

Term loan borrowings

     200,000        5   
  

Equity issuance costs

     1,000        5   
  

Transaction costs

     10,600        5   
  

Debt issuance costs

     400        5   
  

Remove historical balances

     (254,836     4   
     

 

 

   
  

Subtotal

     305,164     

Deferred income taxes

  

Asset revaluation

     105,822        2   

Other long-term liabilities

  

Remove historical balances

     (4,368     4   
     

 

 

   

Total liabilities

     405,282     

Redeemable preferred stock

  

Remove historical balances

     (181,772     4   

Common stock

  

Issuance of stock

     41        6   
  

Remove historical balances

     (1     4   
     

 

 

   
  

Subtotal

     40     

Additional paid in capital

  

Issuance of stock

     324,959        6   
  

Underwriting discount

     (13,000     6   
   Equity issuance costs      (1,000     6   
     

 

 

   
  

Subtotal

     310,959     

Retained earnings (deficit)

  

Transaction costs

     (10,600     8   
  

Remove historical balances

     114,065        4   
     

 

 

   
  

Subtotal

     103,465     
     

 

 

   

Total stockholders’ equity

     414,464     
     

 

 

   

Total liabilities and stockholders’ equity

   $ 637,974     

 

 


Income statement line item    Reason for pro forma adjustment    March 31, 2014             December 31, 2013         

Cost of sales

   Fixed asset revaluation—depreciation    $ 191        2       $ 770        2   

Selling and distribution

   Remove historical balances—amortization expense      (1,717     4         (7,958     4   
  

Remove historical balances—financing fees

               (3,738     4   
  

Remove historical balances—transaction costs

     (1,012     4         (851     4   
     

 

 

      

 

 

   
  

Subtotal

     (2,729        (12,547  

Amortization expense

   Intangible revaluation—amortization      5,447        2         21,787        2   

Interest expense

   Interest on revolving credit facility      2,025        7         8,100        7   
   Interest on term loan      1,125        7         4,500        7   
   Amortization of debt issuance costs      20        7         80        7   
   Remove historical balances—interest      (5,026     4         (31,350     4   
     

 

 

      

 

 

   
  

Subtotal

     (1,856        (18,670  

Loss on extinguishment of redeemable preferred stock

  

Remove historical balances—loss on extinguishment

               (15,171     4   

Other (income) expense, net

  

Remove historical balances—change in fair value

     (1,469     4         (1,881     4   

Income taxes

  

Additional tax on adjustments

     160        9         9,899        9   
     

 

 

      

 

 

   

Net income

   $ 256         $ 15,813     
     

 

 

      

 

 

   

 

 

Note 4 Elimination of historical balances

These adjustments reflect the elimination of the Flagstone’s identifiable intangible assets, debt and equity as of March 31, 2014, for the purpose of presenting a pro forma balance sheet assuming the Flagstone Acquisition had occurred on March 31, 2014. Also eliminated are Flagstone’s historical interest expense, amortization expense, loss on extinguishment of redeemable preferred stock, change in fair value of preferred and common stock warrants, transaction and loan related costs and non-capitalized financing fees for the year ended December 31, 2013 and the 13 weeks ended March 29, 2014, where applicable.

Note 5 Debt financing

These adjustments display the expected debt financing required to fund the Flagstone Acquisition and related transaction costs. These adjustments are contingent upon the closing of the Flagstone Acquisition and therefore may not occur in the event the Flagstone Acquisition is not consummated. For purposes of these unaudited pro forma condensed combined financial statements, we anticipate that we will complete a debt financing at the time the Flagstone Acquisition closes. Under the terms of our Credit Agreement, we expect to increase our credit facility by utilizing the accordion feature and structuring additional borrowings of $200,000 as a new term loan (“Term Loan A”). We also expect to undertake a borrowing under our credit facility to fund the remaining balance of the purchase price (taking into account the proposed equity offering), which is expected


to be approximately $348,000. We also expect to use our credit facility to fund our acquisition costs, which we expect to be approximately $12,000, of which includes $10,600 in other transaction fees that will be expensed, $1,000 of equity issuance costs and $400 in financing fees associated with the Term Loan A which will be deferred and amortized over five years. Total expected additional borrowings under our Credit Agreement related to the Flagstone Acquisition are expected to be $560,000 ($360,000 under the revolving credit facility and $200,000 as a Term Loan A). The interest rate on the term loan is expected to be the same as the existing credit facility. For pro forma purposes, we used an interest rate of 2.25% for both the Term Loan A and borrowings under the credit facility.

Note 6 Equity financing

We intend to issue approximately $325,000 in common stock in a public offering (net of underwriting fees of approximately $13,000) to fund a portion of the purchase price. Shares to be issued of 4,063 were calculated using an estimated price of $80 per share. If the price of TreeHouse’s common stock increases or decreases by $1 per share, the number of shares required to be issued would decrease by 51 shares or increase by 51 shares, respectively. We expect to incur additional costs in connection with the issuance of common stock of approximately $1,000. These costs have been recorded as additional borrowings under our credit facility and as a reduction to additional paid in capital on the unaudited pro forma condensed combined balance sheet.

Note 7 Statement of income adjustments to reflect financing

The adjustment reflects additional interest incurred in connection with the expected $200,000 Term Loan A and borrowings of $360,000 under our credit facility. The additional interest totals $12,600 for the twelve months ended December 31, 2013 and $3,150 for the three months ended March 31, 2014. Total expected interest for the twelve months ended December 31, 2013 is $61,984 and $14,043 for the three months ended March 31, 2014. The adjustment also includes the amortization of debt issuance costs of $400 being amortized over five years. Total expected amortization for the twelve months ended December 31, 2013 is $80 and $20 for the three months ended March 31, 2014.

The actual rates of interest can change from those that are assumed in Note 5. If our interest rate on our credit facility and Term Loan A were to increase by 1% from 2.25%, total pro forma interest could increase by approximately $5,600 per year (considering the equity offering).

Note 8 Non-recurring acquisition expenses

We expect to incur additional transaction costs, including financial and legal advisory fees of approximately $10,600 through the closing of the Flagstone Acquisition. The total of these costs has been recorded as additional borrowings under our credit facility and a reduction to retained earnings of $10,600 on the unaudited pro forma condensed combined balance sheet. These costs are excluded from the unaudited pro forma condensed combined statements of income for the twelve months ended December 31, 2013 and the three months ended March 31, 2014, as they are considered non-recurring.

Note 9 Taxes

For purposes of these unaudited pro forma condensed combined financial statements, we used a statutory rate of 38.5%. This rate is an estimate and does not take into account any possible future tax events that may occur for the combined company.