Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Statements
On September 1, 2015, Patrick Industries, Inc. (“Patrick” or the “Company”) acquired the business and certain assets of North American Forest Products, Inc. and its wholly owned subsidiary, North American Moulding, LLC (collectively, "North American"), a manufacturer and distributor, primarily for the recreational vehicle ("RV") industry, of profile wraps, custom mouldings, laminated panels and moulding products. North American is also a manufacturer and supplier of raw and processed softwood products, including lumber, panels, trusses, bow trusses, and industrial packaging materials, primarily used in the RV and manufactured housing industries.
The unaudited pro forma condensed combined balance sheet as of June 28, 2015 gives effect to the acquisition as if it had been completed on such date and combines the unaudited condensed consolidated balance sheet of Patrick and the unaudited condensed balance sheet of North American as of June 28, 2015 and July 4, 2015, respectively. All pro forma financial statements use Patrick’s period-end dates and no adjustments were made to North American’s information for its different period-end dates.
The unaudited pro forma condensed combined statement of income for the fiscal year ended December 31, 2014 gives effect to the acquisition as if it had been completed on January 1, 2014, the first day of Patrick’s 2014 fiscal year, and combines Patrick’s audited consolidated statement of income for the fiscal year ended December 31, 2014 and North American’s audited statement of income for the fiscal year then ended. The unaudited pro forma condensed combined statement of income for the six months ended June 28, 2015 gives effect to the acquisition as if it had been completed on January 1, 2015, and combines the unaudited condensed consolidated statement of income of Patrick for the six months ended June 28, 2015 and North American’s unaudited condensed statement of income for the six months ended July 4, 2015.
The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been completed at the dates indicated. The information does not necessarily indicate the future operating results or financial position of the Company.
In preparing the unaudited pro forma financial information, the historical consolidated financial statement information has been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the statements of income, expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information was prepared in accordance with the regulations of the U.S. Securities and Exchange Commission. The pro forma adjustments reflecting the completion of the transaction are based upon the acquisition method of accounting in accordance with FASB ASC 805 – Business Combinations and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the preliminary allocation of the estimated purchase price to identifiable net assets acquired, including an amount for goodwill representing the difference between the purchase price and the fair value of the identifiable net assets. Amounts preliminarily allocated to tangible and intangible assets with definite lives may change, which could result in a material change in amortization of such assets. The final allocation of the purchase price will be determined after completion of an analysis of the fair value of North American’s assets and liabilities. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments.
In conjunction with the North American acquisition, the Company entered into a first amendment, dated August 31, 2015, to its current credit agreement, dated April 28, 2015, that established its revolving secured senior credit facility (the “2015 Credit Facility”) with Wells Fargo Bank as Administrative Agent and a lender, and Fifth-Third Bank, Key Bank National Association, Bank of America, N.A., and Lake City Bank, as participants. The first amendment, among other things, expanded the aggregate size of the 2015 Credit Facility from $250.0 million to $300.0 million. The purchase price of the North American acquisition was funded through borrowings under the expanded 2015 Credit Facility, and these borrowings are reflected in the pro forma financial statements as indicated in the footnotes to these statements.
PATRICK INDUSTRIES, INC. |
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Unaudited Pro Forma Condensed Combined Balance Sheet |
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June 28, 2015 |
North |
|||||||||||||||||
(thousands) |
Patrick |
American |
Pro Forma |
Pro Forma |
|||||||||||||
Historical |
Historical |
Adjustments |
Combined |
||||||||||||||
ASSETS |
|||||||||||||||||
Current assets |
|||||||||||||||||
Cash and cash equivalents |
$ | 6,606 | $ | 819 | $ | (443 | ) |
A |
$ | - | |||||||
(376 | ) |
J |
|||||||||||||||
72,014 |
B |
||||||||||||||||
(78,620 | ) |
C |
|||||||||||||||
Trade receivables, net |
51,345 | 5,844 | (2 | ) |
J |
57,187 | |||||||||||
Inventories |
73,428 | 20,592 | 232 |
D |
94,252 | ||||||||||||
Deferred tax assets |
4,427 | - | - | 4,427 | |||||||||||||
Prepaid expenses and other |
3,097 | 265 | - | 3,362 | |||||||||||||
Total current assets |
138,903 | 27,520 | (7,195 | ) | 159,228 | ||||||||||||
Notes receivable and advances, affiliate |
- | - | 1,464 |
J |
- | ||||||||||||
(1,464 | ) |
K |
|||||||||||||||
Property, plant and equipment, net |
61,466 | 13,492 | (7,808 | ) |
J |
67,150 | |||||||||||
Goodwill and other intangible assets, net |
126,796 | - | 25,490 |
E |
184,324 | ||||||||||||
32,038 |
F |
||||||||||||||||
Deferred financing costs, net |
2,420 | - | - | 2,420 | |||||||||||||
Other non-current assets |
1,232 | - | - | 1,232 | |||||||||||||
TOTAL ASSETS |
$ | 330,817 | $ | 41,012 | $ | 42,525 | $ | 414,354 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities |
|||||||||||||||||
Current maturities of long-term debt |
$ | 10,714 | $ | 1,789 | $ | (1,357 | ) |
G |
$ | 10,714 | |||||||
(432 | ) |
J |
|||||||||||||||
Revolving bank lines of credit |
- | 2,786 | (2,786 | ) |
G |
- | |||||||||||
Accounts payable |
36,429 | 4,612 | (3 | ) |
J |
41,038 | |||||||||||
Accrued liabilities |
17,131 | 6,914 | - | 24,045 | |||||||||||||
Total current liabilities |
64,274 | 16,101 | (4,578 | ) | 75,797 | ||||||||||||
Long-term debt, less current maturities |
139,286 | 9,092 | (4,939 | ) |
G |
211,300 | |||||||||||
(4,153 | ) |
J |
|||||||||||||||
72,014 |
H |
||||||||||||||||
Deferred compensation and other |
2,177 | - | - | 2,177 | |||||||||||||
Deferred tax liabilities |
3,688 | - | - | 3,688 | |||||||||||||
TOTAL LIABILITIES |
209,425 | 25,193 | 58,344 | 292,962 | |||||||||||||
COMMITMENTS AND CONTINGENCIES |
|||||||||||||||||
SHAREHOLDERS’ EQUITY |
|||||||||||||||||
Preferred stock |
- | - | - | - | |||||||||||||
Common stock |
55,911 | 1,395 | (1,395 | ) |
I |
55,911 | |||||||||||
Additional paid-in-capital |
8,579 | - | - | 8,579 | |||||||||||||
Accumulated other comprehensive income |
31 | - | - | 31 | |||||||||||||
Noncontrolling interest |
- | 2,134 | (2,134 | ) |
J |
- | |||||||||||
Retained earnings |
56,871 | 16,652 | (16,652 | ) |
I |
56,871 | |||||||||||
Less treasury stock, at cost |
- | (4,362 | ) | 4,362 |
I |
- | |||||||||||
TOTAL SHAREHOLDERS’ EQUITY |
121,392 | 15,819 | (15,819 | ) | 121,392 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 330,817 | $ | 41,012 | $ | 42,525 | $ | 414,354 |
See accompanying notes to unaudited pro forma condensed combined financial statements. |
PATRICK INDUSTRIES, INC. |
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Unaudited Pro Forma Condensed Combined Statement of Income |
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For the Year Ended December 31, 2014 |
North |
|||||||||||||||||
(thousands except per share data) |
Patrick |
American |
Pro Forma |
Pro Forma |
|||||||||||||
Historical |
Historical |
Adjustments |
Combined |
||||||||||||||
NET SALES |
$ | 735,717 | $ | 156,644 | $ | (29 | ) |
E |
$ | 892,332 | |||||||
Cost of goods sold |
617,214 | 141,694 | 963 |
E |
759,871 | ||||||||||||
GROSS PROFIT |
118,503 | 14,950 | (992 | ) | 132,461 | ||||||||||||
Operating Expenses: |
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Warehouse and delivery |
26,163 | - | - | 26,163 | |||||||||||||
Selling, general and administrative |
36,362 | 7,467 | (262 | ) |
E |
43,567 | |||||||||||
Amortization of intangible assets |
4,477 | - | 2,460 |
A |
6,937 | ||||||||||||
Gain on sale of fixed assets |
30 | - | - | 30 | |||||||||||||
Total Operating Expenses |
67,032 | 7,467 | 2,198 | 76,697 | |||||||||||||
OPERATING INCOME |
51,471 | 7,483 | (3,190 | ) | 55,764 | ||||||||||||
Interest expense, net |
2,393 | 639 | (304 | ) |
B |
5,454 | |||||||||||
(335 | ) |
E |
|||||||||||||||
3,061 |
C |
||||||||||||||||
Income before income taxes |
49,078 | 6,844 | (5,612 | ) | 50,310 | ||||||||||||
Income taxes |
18,404 | - | 462 |
D |
18,866 | ||||||||||||
NET INCOME |
$ | 30,674 | $ | 6,844 | $ | (6,074 | ) | $ | 31,444 | ||||||||
Noncontrolling interest in the net income of consolidated variable interest entity |
(395 | ) | |||||||||||||||
Net Income to the Controlling Interest |
$ | 6,449 | |||||||||||||||
Basic net income per common share |
$ | 1.92 | $ | 1.97 | |||||||||||||
Diluted net income per common share |
$ | 1.91 | $ | 1.96 | |||||||||||||
Weighted average shares outstanding - Basic |
15,950 | 15,950 | |||||||||||||||
- Diluted |
16,039 | 16,039 |
See accompanying notes to unaudited pro forma condensed combined financial statements. |
PATRICK INDUSTRIES, INC. |
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Unaudited Pro Forma Condensed Combined Statement of Income |
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For the Six Months Ended June 28, 2015 |
North |
|||||||||||||||||
(thousands except per share data) |
Patrick |
American |
Pro Forma |
Pro Forma |
|||||||||||||
Historical |
Historical |
Adjustments |
Combined |
||||||||||||||
NET SALES |
$ | 456,869 | $ | 91,122 | $ | (6 | ) |
E |
$ | 547,985 | |||||||
Cost of goods sold |
381,082 | 81,249 | 505 |
E |
462,836 | ||||||||||||
GROSS PROFIT |
75,787 | 9,873 | (511 | ) | 85,149 | ||||||||||||
Operating Expenses: |
|||||||||||||||||
Warehouse and delivery |
13,485 | - | - | 13,485 | |||||||||||||
Selling, general and administrative |
22,738 | 4,549 | (148 | ) |
E |
27,139 | |||||||||||
Amortization of intangible assets |
3,641 | - | 1,230 |
A |
4,871 | ||||||||||||
Gain on sale of fixed assets |
(11 | ) | - | - | (11 | ) | |||||||||||
Total Operating Expenses |
39,853 | 4,549 | 1,082 | 45,484 | |||||||||||||
OPERATING INCOME |
35,934 | 5,324 | (1,593 | ) | 39,665 | ||||||||||||
Interest expense, net |
1,702 | 335 | (171 | ) |
B |
3,232 | |||||||||||
(164 | ) |
E |
|||||||||||||||
1,530 |
C |
||||||||||||||||
Income before income taxes |
34,232 | 4,989 | (2,788 | ) | 36,433 | ||||||||||||
Income taxes |
13,009 | - | 836 |
D |
13,845 | ||||||||||||
NET INCOME |
$ | 21,223 | $ | 4,989 | $ | (3,624 | ) | $ | 22,588 | ||||||||
Noncontrolling interest in the net income of consolidated variable interest entity |
(199 | ) | |||||||||||||||
Net Income to the Controlling Interest |
$ | 4,790 | |||||||||||||||
Basic net income per common share |
$ | 1.39 | $ | 1.47 | |||||||||||||
Diluted net income per common share |
$ | 1.37 | $ | 1.46 | |||||||||||||
Weighted average shares outstanding - Basic |
15,319 | 15,319 | |||||||||||||||
- Diluted |
15,498 | 15,498 |
See accompanying notes to unaudited pro forma condensed combined financial statements. |
PATRICK INDUSTRIES, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
as of June 28, 2015 and for the year ended December 31, 2014
and for the six months ended June 28, 2015
(thousands except per share information)
1. Estimated Purchase Price
On September 1, 2015, Patrick acquired the business and certain assets of North American Forest Products, Inc. and its wholly owned subsidiary, North American Moulding, LLC (collectively, "North American"), a manufacturer and distributor, primarily for the recreational vehicle ("RV") industry, of profile wraps, custom mouldings, laminated panels and moulding products. North American is also a manufacturer and supplier of raw and processed softwood products, including lumber, panels, trusses, bow trusses, and industrial packaging materials, primarily used in the RV and manufactured housing industries.
The net cash purchase price for North American was approximately $78.6 million at the acquisition date. The acquisition was funded through borrowings under the Company’s 2015 Credit Facility and included the acquisition of trade receivables, inventories, prepaid expenses, property, plant and equipment, and certain identifiable intangible assets.
The preliminary allocation of the estimated purchase price is based on the estimated fair values of North American’s assets acquired and liabilities assumed in the acquisition. In addition, the purchase price allocation is based on North American’s historical balance sheet as of July 4, 2015. Purchase price allocations to net tangible assets and goodwill and other identifiable intangible assets acquired are as follows:
(thousands) |
||||
Net tangible assets (1) |
$ | 21,092 | ||
Goodwill and other identifiable intangible assets (2) |
57,528 | |||
Total cash net purchase price |
$ | 78,620 |
(1) |
Purchase price allocations to net tangible assets are based on preliminary estimates of fair value calculations and should not be considered final. The final calculation of fair value for the net tangible assets will be based on North American’s balance sheet as of the September 1, 2015 acquisition date. |
|
(2) |
Purchase price allocations to goodwill and other identifiable intangible assets are based on preliminary estimates of fair value calculations and should not be considered final. All such long-lived assets have been assigned preliminary estimated useful lives used to compute pro forma amortization charges included in the accompanying unaudited pro forma condensed combined statements of income. The excess of the purchase price over the estimated fair value of identifiable net assets acquired has been classified as goodwill. |
2. Financing
The purchase price of the North American acquisition was funded through borrowings under the 2015 Credit Facility.
3. Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
A. |
Eliminate North American historical cash. |
B. |
Cash proceeds from borrowings under the 2015 Credit Facility to fund the North American acquisition, net of cash on hand. |
C. |
Cash paid for the acquisition of North American consisted of the following: |
(thousands) |
||||
Borrowings under 2015 Credit Facility |
$ | 72,014 | ||
Patrick cash on hand |
6,606 | |||
Total |
$ | 78,620 |
D. |
Record adjustment to step up North American’s inventories to fair value. |
E. |
Record the estimated fair value of the acquired identifiable intangible assets based on a preliminary appraisal. The amount of intangible assets, estimated useful lives and amortization methodologies are subject to the completion of the final appraisal. Preliminary classification of identifiable intangible assets is as follows: |
(thousands) |
Value |
Estimated Useful Life (in years) |
||||||
Trademarks |
$ | 5,423 | Indefinite | |||||
Customer relationships |
18,983 | 10 | ||||||
Non-compete agreements |
1,084 | 2 | ||||||
Net identifiable intangible assets included in pro forma adjustment |
$ | 25,490 |
F. |
Record the excess purchase price over the estimated fair value of identifiable net assets acquired that will be recorded as goodwill. The amount of goodwill is also subject to the completion of the final appraisal. |
G. |
Record elimination of North American debt upon closing of the transaction. |
H. |
Record net borrowings under the 2015 Credit Facility to fund the purchase price of the North American acquisition. |
I. |
Eliminate North American’s historical shareholders’ equity. |
J. |
Eliminate North American’s historical non-controlling interest related to its variable interest entity affiliate that was not part of the purchase transaction. |
K. |
Eliminate North American historical notes receivable and advances related to its affiliate that was not part of the purchase transaction. |
4. Unaudited Pro Forma Condensed Combined Statements of Income Adjustments
A. |
Record amortization expense related to the estimated fair value of acquired identifiable finite-lived intangible assets using average estimated lives ranging from 2 to 10 years. Upon completion of final intangible asset appraisals and classifications, actual amortization may differ from this calculation. |
B. |
Eliminate North American historical interest expense. |
C. |
Record interest expense on the net borrowings of $72.0 million (net of cash on hand) under the 2015 Credit Facility to fund the North American acquisition at the estimated prime base rate plus the applicable margin in effect on the assumed borrowing date. |
D. |
Record additional income taxes at the estimated tax rate in effect for the periods presented. The estimated effective tax rate was 37.5% for the year ended December 31, 2014 and 38.0% for the six months ended June 28, 2015. |
E. |
Eliminate North American’s historical non-controlling interest related to its variable interest entity affiliate that was not part of the purchase transaction. |
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