Attached files
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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 TreeHouses 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 TreeHouses 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 | ||||||||||||||
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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 | |||||||||||||
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Total assets |
2,676,422 | 402,130 | 637,974 | 3,716,526 | ||||||||||||||
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Liabilities and Stockholders Equity |
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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 | ||||||||||||
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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 | ||||||||||||
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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 | ) | ||||||||||||
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Total stockholders equity |
1,291,977 | (114,064 | ) | 414,464 | 1,592,377 | |||||||||||||
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Total liabilities and stockholders equity |
2,676,422 | 402,130 | 637,974 | 3,716,526 | ||||||||||||||
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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 |
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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 | |||||||||||||
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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 | ||||||||||||||
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Total operating expenses |
297,385 | 47,949 | 9,240 | 354,574 | ||||||||||||||
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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 | ||||||||||||
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Total other expense (income) |
53,254 | 48,057 | (35,722 | ) | 65,589 | |||||||||||||
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Income (loss) before taxes |
124,910 | (12,808 | ) | 25,712 | 137,814 | |||||||||||||
Income taxes |
37,922 | 6,914 | 9,899 | 9 | 54,735 | |||||||||||||
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Net income (loss) |
$ | 86,988 | $ | (19,722 | ) | $ | 15,813 | $ | 83,079 | |||||||||
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Weighted average common shares: |
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Weighted average sharesbasic |
$ | 2.39 | $ | 2.05 | ||||||||||||||
Weighted average sharesdiluted |
$ | 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 |
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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 | |||||||||||||
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Gross Profit (loss) |
132,991 | 20,707 | (191 | ) | 153,507 | |||||||||||||
Operating Expenses: |
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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 | ||||||||||||||
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Total operating expenses |
82,692 | 11,257 | 2,718 | 96,667 | ||||||||||||||
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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 | ||||||||||||
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Total other expense (income) |
30,256 | 6,501 | (3,325 | ) | 33,432 | |||||||||||||
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Income before income taxes |
20,043 | 2,949 | 416 | 23,408 | ||||||||||||||
Income taxes |
5,721 | 987 | 160 | 9 | 6,868 | |||||||||||||
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Net income (loss) |
14,322 | 1,962 | 256 | 16,540 | ||||||||||||||
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Net earnings per common share: |
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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 managements 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 | |||
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Total assets acquired |
1,039,704 | |||
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Accounts payable |
(52,542 | ) | ||
Other current liabilities |
(2,428 | ) | ||
Other long-term liabilities |
(2,234 | ) | ||
Deferred income taxes |
(122,500 | ) | ||
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Total liabilities assumed |
(179,704 | ) | ||
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Total purchase price |
$ | 860,000 | ||
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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 Flagstones 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 |
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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 | |||||||
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Subtotal |
256,814 | |||||||||
Other assets, net |
Debt financing costs |
400 | 5 | |||||||
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Total assets |
637,974 | |||||||||
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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 | |||||||
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Subtotal |
305,164 | |||||||||
Deferred income taxes |
Asset revaluation |
105,822 | 2 | |||||||
Other long-term liabilities |
Remove historical balances |
(4,368 | ) | 4 | ||||||
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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 | |||||||
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Subtotal |
40 | |||||||||
Additional paid in capital |
Issuance of stock |
324,959 | 6 | |||||||
Underwriting discount |
(13,000 | ) | 6 | |||||||
Equity issuance costs | (1,000 | ) | 6 | |||||||
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Subtotal |
310,959 | |||||||||
Retained earnings (deficit) |
Transaction costs |
(10,600 | ) | 8 | ||||||
Remove historical balances |
114,065 | 4 | ||||||||
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Subtotal |
103,465 | |||||||||
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Total stockholders equity |
414,464 | |||||||||
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Total liabilities and stockholders equity |
$ | 637,974 | ||||||||
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Income statement line item | Reason for pro forma adjustment | March 31, 2014 | December 31, 2013 | |||||||||||||||
Cost of sales |
Fixed asset revaluationdepreciation | $ | 191 | 2 | $ | 770 | 2 | |||||||||||
Selling and distribution |
Remove historical balancesamortization expense | (1,717 | ) | 4 | (7,958 | ) | 4 | |||||||||||
Remove historical balancesfinancing fees |
| (3,738 | ) | 4 | ||||||||||||||
Remove historical balancestransaction costs |
(1,012 | ) | 4 | (851 | ) | 4 | ||||||||||||
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Subtotal |
(2,729 | ) | (12,547 | ) | ||||||||||||||
Amortization expense |
Intangible revaluationamortization | 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 balancesinterest | (5,026 | ) | 4 | (31,350 | ) | 4 | ||||||||||||
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Subtotal |
(1,856 | ) | (18,670 | ) | ||||||||||||||
Loss on extinguishment of redeemable preferred stock |
Remove historical balancesloss on extinguishment |
| (15,171 | ) | 4 | |||||||||||||
Other (income) expense, net |
Remove historical balanceschange in fair value |
(1,469 | ) | 4 | (1,881 | ) | 4 | |||||||||||
Income taxes |
Additional tax on adjustments |
160 | 9 | 9,899 | 9 | |||||||||||||
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Net income |
$ | 256 | $ | 15,813 | ||||||||||||||
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Note 4 Elimination of historical balances
These adjustments reflect the elimination of the Flagstones 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 Flagstones 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 TreeHouses 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.