EX-99.3 5 a15-16266_2ex99d3.htm EX-99.3

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information is based on the historical consolidated financial information of KapStone Paper and Packaging Corporation (“KapStone”) and Victory Packaging, L.P. (“Victory”), as adjusted to illustrate the estimated pro forma effects of the events that are directly attributable to the acquisition of Victory (the “Transaction”). The unaudited pro forma condensed combined balance sheet gives effect to the Transaction as if it had been completed as of March 31, 2015. The unaudited pro forma condensed combined income statement information gives effect to the Transaction as if it had occurred on January 1, 2014.

 

The unaudited pro forma condensed combined financial statements of KapStone and Victory have been derived from:

 

·                  The audited consolidated financial statements of KapStone as of and for the year ended December 31, 2014 and the related notes included in KapStone’s annual report filed on Form 10-K and from Victory’s audited consolidated financial statements for the year ended December 31, 2014, attached as Exhibit 99.1;

 

·                  The unaudited condensed consolidated financial statements of KapStone  as of and for the period ended March 31, 2015 and the related notes included in KapStone’s quarterly report on Form 10-Q and from Victory’s unaudited condensed consolidated interim financial statements for the quarter ended March 31, 2015 attached as Exhibit 99.2;

 

The unaudited pro forma adjustments are based upon currently available preliminary information and assumptions that we believe to be reasonable. The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages.

 

The unaudited pro forma condensed combined financial information is for informational purposes only and is not intended to represent or to be indicative of the consolidated results of operations or financial position that KapStone and Victory would have reported had the Transaction been completed as of the dates set forth in this unaudited pro forma condensed combined financial information and should not be taken as indicative of KapStone’s future consolidated results of operations or financial position. The actual results may differ significantly from those reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial information and actual amounts.

 

The unaudited pro forma condensed combined financial information has been prepared using the purchase method of accounting as if the Transaction had been completed as of January 1, 2014 for the purposes of the unaudited pro forma condensed combined income statements, and as of March 31, 2015 for the purposes of the unaudited pro forma condensed combined balance sheet. Under the purchase method of accounting, the purchase price is required to be allocated to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair market values as of the date of the acquisition, with any excess purchase price allocated to goodwill. The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information is based upon management’s preliminary estimates of the values of assets acquired and liabilities assumed as if the Transaction had been completed as of the above dates. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and in some instances are incomplete and have been made solely for the purpose of developing the unaudited pro forma condensed combined financial information. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation, and those differences may be material.

 

The unaudited pro forma condensed combined statements of income do not include (i) any revenue or cost saving synergies that may be achievable subsequent to the completion of the Transaction or (ii) the impact of non-recurring items directly related to the Transaction.

 


 

KapStone Paper and Packaging Corporation

Unaudited Pro Forma Condensed Combined Balance Sheet

At March 31, 2015

(amounts in thousands except per share data)

 

 

 

Historical

 

Pro Forma

 

 

 

Pro Forma

 

 

 

KapStone

 

Victory

 

Adjustments

 

Notes

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,545

 

$

5,064

 

$

310

 

A

 

$

15,919

 

Trade accounts receivable

 

255,435

 

130,051

 

(272

)

B

 

385,214

 

Other receivables

 

13,779

 

8,070

 

—

 

 

 

21,849

 

Inventories

 

255,507

 

77,947

 

5,800

 

C

 

339,254

 

Prepaid expenses and other current assets

 

16,814

 

3,609

 

—

 

 

 

20,423

 

Total current assets

 

552,080

 

224,741

 

5,838

 

 

 

782,659

 

Plant, property and equipment, net

 

1,384,786

 

14,099

 

4,800

 

C

 

1,403,685

 

Other assets

 

10,296

 

2,850

 

(565

)

D

 

12,581

 

Intangible assets, net

 

106,662

 

9,767

 

247,933

 

C

 

364,362

 

Goodwill

 

533,851

 

14,001

 

167,047

 

E

 

714,899

 

Total assets

 

$

2,587,675

 

$

265,458

 

$

425,053

 

 

 

$

3,278,186

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

—

 

$

—

 

$

38,814

 

H

 

$

38,814

 

Short-term borrowings

 

10,000

 

—

 

113,175

 

F

 

123,175

 

Other current borrowings

 

6,615

 

—

 

—

 

 

 

6,615

 

Dividend payable

 

9,721

 

—

 

—

 

 

 

9,721

 

Accounts payable

 

150,788

 

42,644

 

(272

)

B

 

193,160

 

Accrued expenses

 

46,972

 

10,704

 

(25

)

G

 

57,651

 

Accrued compensation costs

 

46,012

 

6,246

 

—

 

 

 

52,258

 

Accrued income taxes

 

9,668

 

—

 

—

 

 

 

9,668

 

Deferred income taxes

 

1,804

 

—

 

—

 

 

 

1,804

 

Total current liabilities

 

281,580

 

59,594

 

151,692

 

 

 

492,866

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,055,014

 

115,150

 

355,189

 

H

 

1,525,353

 

Pension and post retirement benefits

 

29,582

 

—

 

—

 

 

 

29,582

 

Deferred income taxes

 

415,067

 

—

 

—

 

 

 

415,067

 

Contingent consideration liability

 

—

 

—

 

8,400

 

I

 

8,400

 

Other liabilities

 

7,895

 

486

 

—

 

 

 

8,381

 

Total other liabilities

 

1,507,558

 

115,636

 

363,589

 

 

 

1,986,783

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding

 

—

 

—

 

—

 

 

 

—

 

Common stock — $.0001 par value; 175,000,000 shares authorized; 96,257,183 shares issued and outstanding (excluding 40,000 treasury shares) at March 31, 2015

 

10

 

—

 

—

 

 

 

10

 

Additional paid-in-capital

 

259,260

 

—

 

—

 

 

 

259,260

 

Partners’ Capital

 

—

 

91,491

 

(91,491

)

J

 

—

 

Retained earnings

 

591,053

 

—

 

—

 

 

 

591,053

 

Accumulated other comprehensive loss

 

(51,786

)

(1,263

)

1,263

 

J

 

(51,786

)

Total stockholders’ equity

 

798,537

 

90,228

 

(90,228

)

 

 

798,537

 

Total liabilities and stockholders’ equity

 

$

2,587,675

 

$

265,458

 

$

425,053

 

 

 

$

3,278,186

 

 

NOTES:

 

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

 

 

Contractual purchase price

 

$

(615,000

)

 

 

 

 

 

 

 

 

 

Preliminary working capital adjustment

 

(1,954

)

 

 

 

 

 

 

 

 

 

Net acquisition consideration

 

$

(616,954

)

 

 

 

 

 

 

 

 

 

Financing fees paid at closing to banks and attorneys

 

(10,610

)

 

 

 

 

 

 

 

 

 

Proceeds from KapStone’s Amended Term Loans A-1 and A-2

 

519,763

 

 

 

 

 

 

 

 

 

 

Borrowing from Revolver ($500 million facility)

 

113,175

 

 

 

 

 

 

 

 

 

 

 

 

$

5,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Victory cash balance not assumed

 

$

(5,064

)

 

 

 

 

 

 

 

 

 

Net change to cash and cash equivalents

 

$

310

 

 

 

 

 

 

 

 

 

 

B - Elimination of Trade accounts receivables for KapStone from Victory ($272) and Accounts payable from Victory to KapStone ($272).

 

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

Inventories reflect $5,800 for step up of finished goods to fair value.  Plant and equipment ($4,800) and Intangible assets is the estimated fair value of customer relationships, contracts, etc. ($257,700). Elimination of Victory intangibles ($9,767).

 

D - Reflects elimination of Victory deferred financing fees ($565).

 

E - Represents preliminary estimated goodwill related to the acquisition of $167,047 calculated as follows:

 

 

Cash paid at closing

 

$

616,954

 

 

 

 

 

 

 

 

 

 

Estimated contingent consideration

 

8,400

 

 

 

 

 

 

 

 

 

 

Total acquisition consideration

 

625,354

 

 

 

 

 

 

 

 

 

 

Current assets acquired

 

225,477

 

 

 

 

 

 

 

 

 

 

Non current assets acquired

 

278,884

 

 

 

 

 

 

 

 

 

 

Current liabilities assumed

 

(59,569

)

 

 

 

 

 

 

 

 

 

Long-term liabilities assumed

 

(486

)

 

 

 

 

 

 

 

 

 

Purchase price allocated to goodwill

 

$

181,048

 

 

 

 

 

 

 

 

 

 

Elimination of Victory historical goodwill

 

(14,001

)

 

 

 

 

 

 

 

 

 

Net change to goodwill

 

$

167,047

 

 

 

 

 

 

 

 

 

 

F -  Reflects borrowings under Revolving credit agreement ($113,175).

 

G - Reflects elimination of Victory accrued interest ($25).

 

H - Reflects changes in current portion of long-term debt and long term debt as follows:

 

 

Proceeds from KapStone’s Additional Term Loans A-1 and A-2

 

$

519,763

 

 

 

 

 

 

 

 

 

 

Deferred financing fees on Add-On Term Loans

 

(10,610

)

 

 

 

 

 

 

 

 

 

 

 

$

509,153

 

 

 

 

 

 

 

 

 

 

Victory line of credit debt balance not assumed

 

(115,150

)

 

 

 

 

 

 

 

 

 

 

 

$

394,003

 

 

 

 

 

 

 

 

 

 

Less current portion of long-term debt

 

$

(38,814

)

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

$

355,189

 

 

 

 

 

 

 

 

 

 

I - Reflects fair value of contingent consideration ($8,400).

 

J - Reflects elimination of Victory Partner’s Capital accounts and Accumulated Other Comprehensive Loss.

 

2


 

KapStone Paper and Packaging Corporation

Unaudited Pro Forma Condensed Combined Statement of Income

For the Three Months Ended March 31, 2015

(amounts in thousands except per share data)

 

 

 

 

 

 

 

Preliminary

 

 

 

 

 

 

 

Historical

 

Pro Forma

 

 

 

Pro Forma

 

 

 

KapStone

 

Victory

 

Adjustments

 

Notes

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

546,289

 

$

215,926

 

$

(844

)

A

 

$

761,371

 

Cost of sales, excluding depreciation and amortization

 

382,198

 

158,697

 

(637

)

A

 

540,258

 

Depreciation and amortization

 

35,121

 

1,220

 

4,623

 

B

 

40,964

 

Freight and distribution expenses

 

43,427

 

24,063

 

(35

)

A

 

67,455

 

Selling, general, and administrative expenses

 

38,194

 

26,475

 

—

 

 

 

64,669

 

Operating income

 

47,349

 

5,471

 

(4,795

)

 

 

48,025

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

—

 

204

 

 

 

 

 

204

 

Foreign exchange gain/(loss)

 

(885

)

—

 

 

 

 

 

(885

)

Interest expense, net

 

6,413

 

756

 

3,180

 

C

 

10,349

 

Income before provision for income taxes

 

40,051

 

4,919

 

(7,975

)

 

 

36,995

 

Provision for income taxes

 

13,951

 

590

 

(1,752

)

D

 

12,790

 

Net income

 

$

26,100

 

$

4,329

 

$

(6,224

)

 

 

$

24,206

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

96,123,351

 

 

 

 

 

 

 

96,123,351

 

Diluted

 

97,662,252

 

 

 

 

 

 

 

97,662,252

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

 

 

 

 

 

$

0.25

 

Diluted

 

$

0.27

 

 

 

 

 

 

 

$

0.25

 

 

A - Reflects elimination of historical sales, costs of sales and freight expenses from KapStone to Victory.

 

B - Reflects additional amortization expense from fair market value adjustments for identified intangible assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of identified intangible assets is amortized over an estimated useful life of 13.2 years. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value estimate of amortizable intangible assets

 

$

257,700

 

 

 

 

 

 

 

 

 

 

Estimated useful life (years)

 

13.2

 

 

 

 

 

 

 

 

 

 

Annual amortization

 

$

19,528

 

 

 

 

 

 

 

 

 

 

Quarterly amortization

 

$

4,882

 

 

 

 

 

 

 

 

 

 

Less Victory historical amortization expense

 

$

(259

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pro forma amortization expense adjustment

 

$

4,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C - Reflects the adjustment to interest expense resulting from the additional credit facilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loan A-1 $940 million (1.934% interest rate)

 

$

18,180

 

 

 

 

 

 

 

 

 

 

Term Loan A-2 $475 million (2.184% interest rate)

 

10,374

 

 

 

 

 

 

 

 

 

 

Revolver non use fees $386.8 million (0.3% interest rate)

 

1,160

 

 

 

 

 

 

 

 

 

 

Revolver borrowing $113.2 million (1.935% interest rate)

 

2,190

 

 

 

 

 

 

 

 

 

 

Receivables securitization facility $175 million (0.92% interest rate)

 

1,610

 

 

 

 

 

 

 

 

 

 

Amortization of historical debt issuance costs

 

5,696

 

 

 

 

 

 

 

 

 

 

Amortization of debt issuance costs (Assumes $10.9 million)

 

2,184

 

 

 

 

 

 

 

 

 

 

 

 

41,394

 

 

 

 

 

 

 

 

 

 

Pro forma quarterly interest expense

 

10,349

 

 

 

 

 

 

 

 

 

 

Reversal of KapStone historical interest expense, net

 

(6,413

)

 

 

 

 

 

 

 

 

 

Reversal of Victory historical interest expense, net

 

(756

)

 

 

 

 

 

 

 

 

 

Total pro forma interest expense,net adjustment

 

$

3,180

 

 

 

 

 

 

 

 

 

 

D - Reflects the income tax effect on the pro forma adjustments using KapStone’s marginal income tax rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Victory pre-tax income

 

$

4,919

 

 

 

 

 

 

 

 

 

 

Victory pre-tax income taxed at KapStone marginal tax rate

 

38

%

 

 

 

 

 

 

 

 

 

Income tax

 

$

1,869

 

 

 

 

 

 

 

 

 

 

Elimination of Victory historical income taxes

 

(590

)

 

 

 

 

 

 

 

 

 

Income tax

 

$

1,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma pre-tax income / (loss)

 

$

(7,975

)

 

 

 

 

 

 

 

 

 

KapStone marginal tax rate

 

38

%

 

 

 

 

 

 

 

 

 

Income tax

 

$

(3,031

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pro forma income taxes adjustment

 

$

(1,752

)

 

 

 

 

 

 

 

 

 

3


 

KapStone Paper and Packaging Corporation

Unaudited Pro Forma Condensed Combined Statement of Income

For the Year Ended December 31, 2014

(amounts in thousands except per share data)

 

 

 

 

 

 

 

Preliminary

 

 

 

 

 

 

 

Historical

 

Pro Forma

 

 

 

Pro Forma

 

 

 

KapStone

 

Victory

 

Adjustments

 

Notes

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,300,920

 

$

952,934

 

$

(6,636

)

A

 

$

3,247,218

 

Cost of sales, excluding depreciation and amortization

 

1,551,531

 

688,667

 

(4,796

)

A

 

2,235,402

 

Depreciation and amortization

 

136,548

 

3,678

 

18,845

 

B

 

159,071

 

Freight and distribution expenses

 

175,901

 

100,443

 

(294

)

A

 

276,050

 

Selling, general, and administrative expenses

 

137,009

 

109,695

 

—

 

 

 

246,704

 

Incentive compensation agreement

 

—

 

17,754

 

—

 

 

 

17,754

 

Operating income

 

299,931

 

32,697

 

(20,391

)

 

 

312,237

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

—

 

782

 

—

 

 

 

782

 

Foreign exchange gain/(loss)

 

(1,222

)

—

 

—

 

 

 

(1,222

)

Loss on debt extinguishment

 

5,617

 

—

 

—

 

 

 

5,617

 

Interest expense, net

 

32,491

 

2,965

 

5,938

 

C

 

41,394

 

Income before provision for income taxes

 

260,601

 

30,514

 

(26,329

)

 

 

264,786

 

Provision for income taxes

 

88,686

 

1,283

 

307

 

D

 

90,276

 

Net income

 

$

171,915

 

$

29,231

 

$

(26,636

)

 

 

$

174,510

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

95,900,179

 

 

 

 

 

 

 

95,900,179

 

Diluted

 

97,459,184

 

 

 

 

 

 

 

97,459,184

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.79

 

 

 

 

 

 

 

$

1.82

 

Diluted

 

$

1.76

 

 

 

 

 

 

 

$

1.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A - Reflects elimination of historical sales, costs of sales and freight expenses from KapStone to Victory.

 

B - Reflects additional amortization expense from fair market value adjustments for identified intangible assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of identified intangible assets is amortized over an estimated useful life of 13.2 years. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value estimate of amortizable intangible assets

 

$

257,700

 

 

 

 

 

 

 

 

 

 

Estimated weighted average useful life (years)

 

13.2

 

 

 

 

 

 

 

 

 

 

Annual amortization

 

$

19,528

 

 

 

 

 

 

 

 

 

 

Less Victory historical amortization expense

 

$

(683

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pro forma amortization expense adjustment

 

$

18,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C - Reflects the adjustment to interest expense resulting from the amended and restated credit facilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan A-1 $940 million (1.934% interest rate)

 

$

18,180

 

 

 

 

 

 

 

 

 

 

Term Loan A-2 $475 million (2.184% interest rate)

 

10,374

 

 

 

 

 

 

 

 

 

 

Revolver non use fees $386.8 million (0.3% interest rate)

 

1,160

 

 

 

 

 

 

 

 

 

 

Revolver borrowing $113.2 million (1.935% interest rate)

 

2,190

 

 

 

 

 

 

 

 

 

 

Receivables securitization facility $175 million (0.92% interest rate)

 

1,610

 

 

 

 

 

 

 

 

 

 

Amortization of historical debt issuance costs

 

5,696

 

 

 

 

 

 

 

 

 

 

Amortization of new debt issuance costs (Assumes $10.9 million)

 

2,184

 

 

 

 

 

 

 

 

 

 

 

 

41,394

 

 

 

 

 

 

 

 

 

 

Reversal of KapStone historical interest expense, net

 

(32,491

)

 

 

 

 

 

 

 

 

 

Reversal of Victory historical interest expense, net

 

(2,965

)

 

 

 

 

 

 

 

 

 

Total pro forma interest expense,net adjustment

 

$

5,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D - Reflects the income tax effect on the pro forma adjustments using KapStone’s marginal income tax rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Victory pre-tax income / (loss)

 

$

30,514

 

 

 

 

 

 

 

 

 

 

Victory pre-tax income taxed at KapStone marginal tax rate

 

38

%

 

 

 

 

 

 

 

 

 

Income tax

 

$

11,595

 

 

 

 

 

 

 

 

 

 

Elimination of Victory historical income taxes

 

(1,283

)

 

 

 

 

 

 

 

 

 

Income tax

 

$

10,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma pre-tax income / (loss)

 

$

(26,329

)

 

 

 

 

 

 

 

 

 

Additional federal and state income taxes

 

38

%

 

 

 

 

 

 

 

 

 

Income tax

 

$

(10,005

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pro forma income taxes adjustment

 

$

307

 

 

 

 

 

 

 

 

 

 

4