EX-99.6 6 a08-16666_1ex99d6.htm EX-99.6

EXHIBIT 99.6

 

PRO FORMA FINANCIAL STATEMENTS

 

The following Unaudited Pro Forma Combined Balance Sheet and the Unaudited Pro Forma Combined Income Statement give effect to the acquisition by the Company of Automatic Laundry Company Ltd. (“ALC”).  This pro forma presentation has been prepared utilizing historical financial statements and notes thereto, certain of which are included herein as well as pro forma adjustments as described in the Notes to Unaudited Combined Pro Forma Financial Statements.

 

The Unaudited Pro Forma Combined Balance Sheet has been prepared assuming the acquisition occurred on March 31, 2008. The Unaudited Pro Forma Combined Income Statement for the three months ended March 31, 2008 includes the operating results of the Company and ALC assuming the acquisition occurred on January 1, 2008.

 

The Unaudited Pro Forma Combined Balance Sheet and the Unaudited Pro Forma Combined Income Statement are presented for illustrative purposes only and do not purport to represent what the Company’s results of operations or financial position would have been had the acquisition of ALC occurred on the dates indicated or the results of operations or financial position which may be obtained in the future. Such pro forma financial statements are qualified in their entirety by reference to, and they should be read in conjunction with, the historical audited consolidated financial statements of the Company and the historical audited financial statements of ALC. The pro forma financial statements should also be read in conjunction with the accompanying notes thereto.  ALC’s audited financial statements are attached herewith as part of this report and are incorporated herein by reference.

 

Although the Company believes it can achieve cost savings by combining certain operational, administrative, sales and marketing functions of ALC with those of the Company, none of these potential benefits which may be derived from the combination with the acquired ALC business have been included in the Unaudited Pro Forma Combined Income Statement.

 

The acquisition has been accounted for using the purchase method of accounting. The pro forma financial statements include the preliminary allocation of the purchase price of approximately $12 million of goodwill, approximately $22.4 million of equipment and approximately $82 million of intangibles assets representing contract rights related to laundry facilities management contracts. The Company expects that the tangible assets will be depreciated over an average of five years and the contract rights will be amortized over twenty years on the straight-line basis. The Company will determine the final purchase price allocation following completion of final appraisals on ALC’s assets.

 



 

MAC-GRAY CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

Pro forma

 

 

 

 

 

Automatic Laundry

 

 

 

Combined

 

 

 

Mac-Gray Corp.

 

Company, Ltd

 

 

 

Balance Sheet

 

 

 

At March 31,

 

At March 31,

 

Pro forma

 

At March 31,

 

 

 

2008

 

2008

 

Adjustment

 

2008

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,036

 

$

3,332

 

$

(3,332

)(2)

$

16,036

 

Trade receivables, net of allowance for doubtful accounts

 

9,124

 

 

 

 

9,124

 

Inventory of finished goods, net

 

8,925

 

 

1,500

(1)

10,425

 

Deferred income taxes

 

943

 

 

 

 

943

 

Prepaid facilities management rent and other current assets

 

14,494

 

4,333

 

(4,333

)(2)

14,494

 

Total current assets

 

49,522

 

7,665

 

(6,165

)

51,022

 

 

 

 

 

 

 

(9,550

)(2)

 

 

Property, plant and equipment, net

 

127,225

 

9,550

 

22,382

(1) 

149,607

 

 

 

 

 

 

 

(8,371

)(2)

 

 

Goodwill

 

42,229

 

8,371

 

12,000

(1) 

54,229

 

 

 

2

 

 

 

(165

)(2)

 

 

Intangible assets, net

 

150,999

 

165

 

82,130

(1) 

233,129

 

 

 

 

 

 

 

 

 

 

 

Prepaid facilities management rent and other assets

 

14,988

 

2,530

 

(2,357

)(2)

15,161

 

Total assets

 

$

384,963

 

$

28,282

 

$

89,904

 

$

503,148

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of notes payable and capital leases

 

$

1,285

 

$

 

$

4,000

(1) 

$

5,285

 

Trade accounts payable and accrued expenses

 

18,480

 

891

 

(848

)(2)

18,523

 

Accrued facilities management rent

 

18,133

 

3,927

 

(3,927

)(2)

18,133

 

Due to affiliated entity

 

 

110

 

(110

)(2)

0

 

Deferred revenues and deposits

 

430

 

 

 

430

 

Total current liabilities

 

38,328

 

4,929

 

(885

)

42,371

 

Long-term debt

 

210,000

 

 

113,100

(1) 

323,100

 

Long-term capital lease obligations

 

1,890

 

 

1,042

(1) 

2,932

 

Deferred income taxes

 

31,173

 

 

 

31,173

 

Other liabilities

 

4,384

 

 

 

(2) 

4,384

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

General partner capital

 

 

 

394

 

(394

)(2)

0

 

Limited partner capital

 

 

 

22,959

 

(22,959

)(2)

(0

)

Preferred stock of Mac-Gray Corporation ($.01 par value, 5 million shares authorized, no shares outstanding)

 

 

 

 

 

 

0

 

Common stock of Mac-Gray Corporation ($.01 par value, 30 million shares authorized, 13,443,754 issued and 13,329,306outstanding at March 31, 2008

 

134

 

 

 

 

134

 

Additional paid in capital

 

73,030

 

 

 

 

73,030

 

Accumulated other comprehensive income

 

 

 

 

 

0

 

Retained earnings

 

27,212

 

 

 

 

27,212

 

 

 

100,376

 

23,353

 

(23,353

)

100,376

 

Less common stock in treasury, at cost (114,448 shares at March 31, 2008)

 

(1,188

)

(1,188

)

 

 

 

 

Total stockholders’ equity

 

99,188

 

23,353

 

(23,353

)

99,188

 

Total liabilities and stockholders’ equity

 

$

384,963

 

$

28,282

 

$

89,904

 

$

503,148

 

 



 

MAC-GRAY CORPORATION UNAUDITED PRO FORMA COMBINED INCOME STATEMENT

FOR THE THREE MONTHS ENDED MARCH 31, 2008

(In thousands, except share data)

 

 

 

 

 

Automatic Laundry

 

 

 

Pro Forma Combined

 

 

 

Mac-Gray Corp.

 

Company, Ltd

 

 

 

Income Statement

 

 

 

Three Months Ended

 

Three Months Ended

 

Pro Forma

 

Three Months Ended

 

 

 

March 31, 2008

 

March 31, 2008

 

Adjustments

 

March 31, 2008

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Facilities management revenue

 

$

67,053

 

$

16,855

 

 

 

$

83,908

 

Product sales

 

10,589

 

 

 

 

10,589

 

Total revenue

 

77,642

 

16,855

 

 

94,497

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

Cost of facilities management revenue

 

44,226

 

11,986

 

 

 

56,212

 

Depreciation and amortization

 

9,791

 

2,213

 

38

(3) 

12,042

 

Cost of product sales

 

8,114

 

 

 

 

8,114

 

Total cost of revenue

 

62,131

 

14,199

 

38

 

76,368

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

15,511

 

2,656

 

(38

18,129

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

General, administration, sales and marketing

 

9,203

 

1,278

 

 

 

10,481

 

Depreciation and amortization

 

401

 

 

 

 

401

 

(Gain) loss on sale of assets, net

 

(56

278

 

 

 

222

 

Total operating expenses

 

9,548

 

1,556

 

 

11,104

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

5,963

 

1,100

 

(38

)

7,025

 

Interest expense, net

 

3,798

 

60

 

2,237

(4) 

6,095

 

Loss related to derivative instruments

 

1,202

 

 

 

 

1,202

 

Loss on early extinguishment of debt

 

 

 

 

 

200

(4) 

200

 

Other (income)

 

 

(211

 

 

(211

Income before provision for income taxes

 

963

 

1,251

 

(2,475

)

(261)

 

 

 

 

 

 

 

483

(5)

 

 

Provision for (benefit from) income taxes

 

201

 

 

(956

)(5)

(272

 

 

 

 

 

 

 

 

 

 

Net income

 

$

762

 

$

1,251

 

$

(1,519

)

$

11

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.06

 

 

 

 

 

 

$

0.00

 

Net income per common share - diluted

 

$

0.06

 

 

 

 

 

 

$

0.00

 

Weighted average common shares outstanding - basic

 

13,300

 

 

 

 

 

13,300

 

Weighted average common shares outstanding - diluted

 

13,670

 

 

 

 

 

13,670

 

 



 


FOOTNOTES TO PRO FORMA FINANCIAL STATEMENTS

(in thousands)

 

(1)   Reflects the incremental debt of approximately $117,100 incurred to fund the acquisition and approximately $2,000 of related expenses.  Also included is the estimated fair market value, including related lease obligations, of the inventory and equipment acquired and intangible assets of approximately $94,000 consisting of $82,000 of contract rights and $12,000 of goodwill representing the excess of the purchase price over the fair value of the net tangible assets acquired. The values assigned to the tangible and intangible assets are preliminary estimates pending finalization of valuations by an independent third party appraisal firm. The Company anticipates that the tangible assets will be depreciated over 5 years and the contract rights will be amortized over 20 years using the straight line method.

 

(2)   Reflects the elimination of cash ($3,332), miscellaneous other assets ($6,690), net book value of property and equipment ($9,550) and goodwill and intangible assets ($8,536) on the books of the ALC at March 31,2008, which totaled approximately $28,100 and the elimination of accounts payable and other liabilities on the books of ALC that totaled approximately $4,883. Also eliminates the partners’ capital of $23,400 related to ALC.

 

(3)   Represents the net of the elimination of ALC’s depreciation and amortization expense of $2,213 and three months of straight-line depreciation and amortization expense of $2,251 associated with the estimated fair market value of approximately $22,400 assigned to the acquired equipment and $82,000 of contract rights. The assigned values are pending finalization of the business appraisal process.

 

(4)   The acquisition was financed with approximately $107,100 of variable rate debt provided by the Company’s bank group on April 1, 2008 and a $10,000 note bearing an annual interest rate of 9% issued to the seller. The pro forma interest expense on the incremental debt of $117,100 would have been $2,297, using an interest rate of 7.74% on the bank debt, which is the interest rate on the variable rate debt at April 1, 2008 and 9% on the seller note. If variable interest rates fluctuate by 1/8 of 1%, the impact would be to increase or decrease interest expense on the variable rate debt by $33. The adjustment also eliminated interest expense of $60 recorded by ALC and recorded a $200 expense for the early extinguishment of debt related to the Company renegotiating its bank debt.

 

(5)   The net impact of the above adjustments is to decrease pro forma taxable income by $2,475. The tax benefit of $956 resulting from this loss has been calculated using a tax rate of 38.6%, the statutory rate for the Company for the year ended December 31, 2007. The tax benefit is offset by $483 resulting from applying the Company’s statutory tax rate to ALC’s income before taxes.