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EX-99.3 - EX-99.3 - GENERAL MILLS INCd641404dex993.htm
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8-K/A - FORM 8-K/A - GENERAL MILLS INCd641404d8ka.htm

Exhibit 99.2

Blue Buffalo Pet Products, Inc.

Unaudited Condensed Consolidated Balance Sheets

(Dollars In Thousands, Except For Share Data)

 

     March 31,
2018
    December 31,
2017
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 288,701     $ 282,223  

Receivables, net

     154,997       150,260  

Inventories

     103,740       79,945  

Prepaid expenses and other current assets

     6,160       7,893  
  

 

 

   

 

 

 

Total current assets

     553,598       520,321  

Restricted cash

     781       781  

Property, plant and equipment, net

     349,963       326,404  

Deferred income taxes

     98       52  

Other assets

     1,138       1,028  
  

 

 

   

 

 

 

Total assets

   $ 905,578     $ 848,586  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 4,000     $ 4,000  

Accounts payable

     58,012       63,979  

Other current liabilities

     79,612       70,994  
  

 

 

   

 

 

 

Total current liabilities

     141,624       138,973  

Long-term debt

     389,066       389,914  

Deferred income taxes

     14,831       7,095  

Other long-term liabilities

     13,778       13,468  
  

 

 

   

 

 

 

Total liabilities

     559,299       549,450  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock; $0.01 par value; 150,000,000 shares authorized; none issued or outstanding at March 31, 2018 and December 31, 2017

     —         —    

Common stock, voting; $0.01 par value; 1,500,000,000 shares authorized; 197,736,083 and 197,615,064 shares issued at March 31, 2018 and December 31, 2017, respectively

     1,977       1,976  

Additional paid-in capital

     82,322       81,113  

Retained earnings

     311,944       266,221  

Accumulated other comprehensive income (loss)

     36       (174

Treasury stock, at cost; 2,092,744 at March 31, 2018 and December 31, 2017, respectively

     (50,000     (50,000
  

 

 

   

 

 

 

Total stockholders’ equity

     346,279       299,136  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 905,578     $ 848,586  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Blue Buffalo Pet Products, Inc.

Unaudited Condensed Consolidated Statements of Income

(Dollars In Thousands, Except For Share Data)

 

     Three Months Ended March 31,  
     2018     2017  

Net sales

   $ 324,001     $ 301,951  

Cost of sales

     184,735       163,276  
  

 

 

   

 

 

 

Gross profit

     139,266       138,675  

Selling, general and administrative expenses

     77,623       66,188  
  

 

 

   

 

 

 

Operating income

     61,643       72,487  

Interest expense

     1,925       3,206  

Interest income

     (584     (140

Other non-operating expense, net

     21       123  
  

 

 

   

 

 

 

Income before income taxes

     60,281       69,298  

Provision for income taxes

     14,558       25,208  
  

 

 

   

 

 

 

Net income

   $ 45,723     $ 44,090  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Blue Buffalo Pet Products, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(Dollars In Thousands)

 

     Three Months Ended March 31,  
     2018      2017  

Net income

   $ 45,723      $ 44,090  

Other comprehensive income (loss):

     

Foreign currency translation adjustment

     210        (570
  

 

 

    

 

 

 

Other comprehensive income (loss) / no tax

     210        (570
  

 

 

    

 

 

 

Comprehensive income

   $ 45,933      $ 43,520  
  

 

 

    

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Blue Buffalo Pet Products, Inc.

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

(dollars in thousands, except for share amounts)

 

     Common Stock      Additional
paid-in
     Retained      Accumulated
other
comprehensive
    Treasury Stock        
     Shares      Amount      capital      earnings      (loss) income     Shares      Amount     Total  

Balance at December 31, 2017

     197,615,064      $ 1,976      $ 81,113      $ 266,221      $ (174     2,092,774      $ (50,000   $ 299,136  

Other comprehensive income

     —          —          —          —          210       —          —         210  

Exercise of stock options

     121,019        1        695        —          —         —          —         696  

Stock-based compensation expense

     —          —          514        —          —         —          —         514  

Net income

     —          —          —          45,723        —         —          —         45,723  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance at March 31, 2018

     197,736,083      $ 1,977      $ 82,322      $ 311,944      $ 36       2,092,774      $ (50,000   $ 346,279  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Blue Buffalo Pet Products, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollars In Thousands)

 

     Three Months Ended March 31,  
     2018     2017  

Cash flows from operating activities:

    

Net income

   $ 45,723     $ 44,090  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     2,697       2,407  

Amortization of debt issuance costs

     168       30  

Stock-based compensation

     514       1,290  

Loss on disposal of fixed assets

     —         384  

Deferred income taxes

     7,691       2,484  

Effect of changes in operating assets and liabilities:

    

Receivables

     (4,617     5,461  

Inventories

     (23,761     (9,545

Prepaid expenses and other assets

     1,729       1,112  

Accounts payable

     (5,988     4,272  

Other liabilities

     3,530       1,383  
  

 

 

   

 

 

 

Net cash provided by operating activities

     27,686       53,368  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (21,067     (8,362
  

 

 

   

 

 

 

Net cash used in investing activities

     (21,067     (8,362
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Principal payments on long-term debt

     (1,000     (990

Proceeds from exercise of stock options

     695       1,426  
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (305     436  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     164       134  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     6,478       45,576  

Cash and cash equivalents at beginning of period

     282,223       292,656  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 288,701     $ 338,232  
  

 

 

   

 

 

 

Supplemental schedule of non-cash investing activities:

    

Accruals related to property, plant and equipment

     10,600       —    

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Blue Buffalo Pet Products, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

NOTE 1. THE COMPANY

Blue Buffalo Pet Products, Inc. (“BBPP”, and together with its subsidiaries, the “Company,” “we,” “us,” “its,” and “our”) was incorporated in the state of Delaware in July 2012 and conducts its business exclusively through its wholly-owned operating subsidiary, Blue Buffalo Company, Ltd. (“Blue”) (formerly The Blue Buffalo Company, LLC) and its subsidiaries. Blue was formed in August 2002, and is the parent company of six wholly-owned subsidiaries: Great Plains Leasing, LLC, Heartland Pet Food Manufacturing Holding, LLC, Sierra Pet Products, LLC, Blue Buffalo Pet Products Canada, Ltd., Blue Buffalo Japan Kabushiki Kaisha, and Blue Buffalo Pet Food Co., Ltd. Additionally, Blue Buffalo Import Mexico, S. de R.L. de C.V., Blue Buffalo Mexico, S. de R.L. de C.V., Heartland Pet Food Manufacturing, Inc. and Heartland Pet Food Manufacturing Indiana, LLC are indirect wholly-owned subsidiaries of BBPP. BBPP and its subsidiaries develop, produce, market, and sell pet food under the BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom, and BLUE Natural Veterinary Diet lines. Our products are produced domestically at our dry food and treats facilities in Joplin, Missouri and our dry food facility in Richmond, Indiana. Our products are also produced through contract manufacturers for distribution to retailers throughout the United States of America, Canada, Japan, and Mexico.

In July 2012, Blue formed Heartland Pet Food Manufacturing, Inc. (“Heartland”) for the purpose of commencing internal manufacturing operations to eventually supplement its contract manufacturers. Manufacturing operations commenced at our Joplin dry food facility in September 2014. In April 2016, Blue formed Heartland Pet Food Manufacturing Holding, LLC for the purpose of consolidating all manufacturing entities under one holding company. In April 2016, Heartland Pet Food Manufacturing Indiana, LLC was formed for our planned internal manufacturing operations in Richmond, Indiana.

Merger Agreement

Pursuant to an Agreement and Plan of Merger dated February 22, 2018 (the “Merger Agreement”) among the Company, General Mills Inc., a Delaware corporation (“General Mills”), and Bravo Merger Corp., a Delaware corporation and a wholly-owned subsidiary of General Mills (“Merger Sub”), Merger Sub merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of General Mills. The Merger became effective on April 24, 2018 (the “Effective Time”).

At the Effective Time, in accordance with the Merger Agreement, among other things, (i) each issued and outstanding share of common stock of the Company, par value $0.01 per share (the “Common Stock”), was converted into the right to receive $40.00 in cash, without interest (the “Merger Consideration”), other than shares of Common Stock held by General Mills, Merger Sub or any other wholly-owned subsidiary of General Mills, shares of Common Stock owned by the Company (including shares held in treasury) or any of its wholly-owned subsidiaries, and shares of Common Stock owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law, (ii) each option to acquire shares of Common Stock (“Stock Option”), whether vested or unvested, that was outstanding immediately prior to the Effective Time was cancelled automatically and only entitles the holder of such Stock Option to receive, without interest, an amount in cash equal to the product of (x) the total number of shares of Common Stock subject to such Stock Option multiplied by (y) the excess, if any, of the Merger Consideration over the exercise price of such Stock Option, less applicable tax withholding and (iii) each restricted stock unit of the Company outstanding immediately prior to the Effective Time, whether vested or unvested, was automatically cancelled and only entitles the holder thereof to receive, without interest, an amount in cash equal to the product of (x) the total number of shares of Common Stock subject to the restricted stock unit multiplied by (y) the Merger Consideration, less applicable tax withholding. Immediately prior to the Effective Time, the holding restrictions applicable to each share of restricted stock of the Company outstanding immediately prior to the Effective Time automatically expired and each such share of restricted stock was converted into the right to receive the Merger Consideration.


Blue Buffalo Pet Products, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

On April 24, 2018, in connection with the consummation of the Merger, the Company (i) notified the NASDAQ Global Select Market (“NASDAQ”) of the consummation of the Merger and (ii) requested that NASDAQ (x) suspend trading of the shares of Common Stock effective on April 24, 2018, and (y) file with the SEC a Form 25 Notification of Removal from Listing and/or Registration (“Form 25”) to delist and deregister the shares of Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In accordance with the Company’s request, NASDAQ filed a Form 25 on April 24, 2018 to provide notification of such delisting and to effect the deregistration of the shares of Common Stock under Section 12(b) of the Exchange Act. On May 4, 2018, the Company filed with the SEC a Form 15 requesting that the shares of Common Stock be deregistered and that the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act be terminated.

The Company has evaluated subsequent events through June 12, 2018, the date on which the condensed consolidated financial statements were available to be issued, with no such events being identified, with the exception of those events related to the Merger Agreement as discussed above.

NOTE 2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of BBPP and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Certain prior period amounts have been reclassified to conform to the current period presentation.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and related notes for the year ended December 31, 2017, included in BBPP’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2018 and amended on April 23, 2018.

Net sales for all periods in the unaudited condensed consolidated statements of income are presented in accordance with Accounting Standards Codification 605, Revenue Recognition.

NOTE 3. INVENTORIES

Inventories consisted of the following:

 

In Thousands

   March 31,
2018
     December 31,
2017
 

Finished goods

   $ 98,992      $ 76,606  

Work in process

     156        213  

Raw materials

     2,938        2,104  

Packaging and supplies

     1,654        1,022  
  

 

 

    

 

 

 

Total

   $ 103,740      $ 79,945  
  

 

 

    

 

 

 

As of March 31, 2018 and December 31, 2017, our inventory reserves were primarily for excess finished goods and packaging which totaled $5.2 million and $5.1 million, respectively.


Blue Buffalo Pet Products, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

 

In Thousands

   March 31,
2018
     December 31,
2017
 

Buildings

   $ 74,563      $ 59,314  

Machinery and equipment

     65,254        52,383  

Computer software

     18,302        17,635  

Computer equipment

     4,899        4,855  

Furniture and fixtures

     1,916        1,876  

Leasehold improvements

     1,603        1,590  

Land improvements

     493        493  

Land

     430        395  

Buildings improvements

     870        613  

Construction in progress

     216,315        219,234  
  

 

 

    

 

 

 
     384,645      358,388  

Accumulated depreciation and amortization

     (34,682      (31,984
  

 

 

    

 

 

 

Total

   $ 349,963      $ 326,404  
  

 

 

    

 

 

 

Depreciation and amortization expense was approximately $2.7 million and $2.4 million for the three months ended March 31, 2018 and 2017, respectively.

In August 2016, Heartland and the City of Joplin, Missouri (“Joplin”), entered into agreements by which Joplin agreed to issue up to an aggregate principal amount of approximately $83.3 million of industrial revenue bonds to purchase from Heartland the land in Joplin on which our dry food facility resides and on which our treats facility has since been built, and the associated buildings, structures, and fixtures, including the additional manufacturing equipment included in the treats facility (collectively, the “Property”), which will then be leased back to Heartland. As Heartland will become the owner of the Property at the end of the lease term, the lease meets the requirements of a capital lease and the equipment and land are recorded as property, plant and equipment on our balance sheets. The Company has the right and intends to set-off any obligation to make payments under the lease agreement with the amounts due under the industrial revenue bonds. As of March 31, 2018, Joplin had issued and Heartland had purchased approximately $31.9 million of industrial revenue bonds and Joplin had purchased from, and leased back to, Heartland the Property for a corresponding amount.


Blue Buffalo Pet Products, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

NOTE 5. LONG-TERM DEBT

Long-term debt consisted of the following:

 

In Thousands

   March 31, 2018      December 31, 2017  

Term loan

   $ 393,066      $ 393,914  

Less current maturities

     (4,000      (4,000
  

 

 

    

 

 

 

Total long-term debt

   $ 389,066      $ 389,914  
  

 

 

    

 

 

 

At March 31, 2018, the Company had $393.1 million of term loan borrowings (fair value of $393.3 million) at an effective interest rate of 3.89% and no outstanding borrowings under the revolving credit facility. At December 31, 2017, the Company had $393.9 million of term loan borrowings (fair value of $395.4 million) at an effective interest rate of 3.72% and no outstanding borrowings under the revolving credit facility. As of March 31, 2018, the Company was in compliance with its financial debt covenants.

Termination of the Credit Agreement

In connection with the consummation of the Merger, on April 24, 2018, the Company terminated the Credit Agreement, dated as of May 25, 2017 (the “Credit Agreement”), by and among the Company, Citibank, N.A., as the administrative agent, and the lenders and other parties thereto. The Company paid an aggregate amount of approximately $398 million in satisfaction of all of its outstanding obligations under the Credit Agreement.

NOTE 6. STOCK-BASED COMPENSATION

Stock Options

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. Stock options granted under the 2012 plan are subject to pro-rata vesting and grants under the 2015 Plan are subject to cliff vesting. The fair value of stock options is expensed on a straight-line basis over the vesting period.

There were no grants issued during the three months ended March 31, 2018.

The following table summarizes stock option activity during the three months ended March 31, 2018 and also presents stock options outstanding and exercisable as of March 31, 2018:

 

     Number of
Shares
     Weighted Average
Exercise Price Per
Share
 

Options outstanding at December 31, 2017

     3,416,533      $ 9.09  

Granted

     —          —    

Exercised

     (121,019      5.70  

Forfeited

     (28,033      24.01  

Expired

     —          —    
  

 

 

    

 

 

 

Options outstanding at March 31, 2018

     3,267,481      $ 9.09  
  

 

 

    

 

 

 


Blue Buffalo Pet Products, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Restricted Stock Units

No restricted stock units (RSUs) were granted during the three months ended March 31, 2018.

The following table summarizes RSU activity for the three months ended March 31, 2018:

 

     RSUs  
     Number of
Shares
     Weighted
Average Grant
Date Fair
Value
 

Outstanding at December 31, 2017

     157,792      $ 23.86  

Granted

     —          —    

Vested

     —          —    

Forfeited

     (9,532      24.02  
  

 

 

    

 

 

 

Outstanding at March 31, 2018

     148,260      $ 23.83  
  

 

 

    

 

 

 

Stock-based Compensation Expense

Stock-based compensation costs charged to operations (as a component of selling, general, and administrative expenses) during the three months ended March 31, 2018 and 2017 was approximately $0.5 million and $1.3 million, respectively.

Settlement of Stock Options and RSUs in the Merger

At the Effective Time of the Merger, each outstanding Stock Option and RSU was cancelled and settled as described in Note 1. The total value of all Stock Options and RSUs cancelled and settled in cash was approximately $105.8 million.