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(Mark One) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
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OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
For the transition period from to
001‑37540
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Delaware (State or
| 47‑4168492 (I.R.S. Employer
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1 East Armour Boulevard Kansas City, MO (Address of | 64111 (Zip Code) |
(310) 209-3010
(
telephone number, including area code
Large accelerated filero |
Accelerated filer x |
Non‑accelerated filero (Do not check if a smaller reporting company) |
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| Smaller reporting companyo |
Emerging growth company x |
As
outstanding -
30,398,777 shares at November 3, 2017
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Item 1. |
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Consolidated Statements of Cash Flows (Unaudited) |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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GORES HOLDINGS, INC.
| September 30, 2016 |
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| December 31, 2015 |
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| (unaudited) |
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| (audited) |
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CURRENT ASSETS: |
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Cash and cash equivalents | $ | 6,090 |
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| $ | 790,635 |
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Prepaid expenses |
| 155,239 |
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| 259,149 |
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Total current assets |
| 161,329 |
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| 1,049,785 |
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Investments and cash held in Trust Account |
| 375,395,331 |
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| 375,010,481 |
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Total assets | $ | 375,556,660 |
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| $ | 376,060,265 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accrued expenses, formation and offering costs | $ | 3,847,603 |
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| $ | 217,384 |
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Promissory Note |
| 175,000 |
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| — |
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State franchise tax accrual |
| 93,093 |
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| 69,917 |
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Total current liabilities |
| 4,115,696 |
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| 287,301 |
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Deferred underwriting compensation |
| 13,125,000 |
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| 13,125,000 |
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Total liabilities |
| 17,240,696 |
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| 13,412,301 |
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Commitments and Contingencies |
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Shares of Class A common stock subject to possible redemption; 35,331,596 and 35,764,796 shares at September 30, 2016 and December 31, 2015, respectively, at a redemption value of $10.00 per share |
| 353,315,960 |
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| 357,647,960 |
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Stockholders’ equity: |
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Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued or outstanding |
| — |
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| — |
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Common stock |
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Class A common stock, $0.0001 par value; 200,000,000 shares authorized, 2,168,404 and 1,735,204 shares issued and outstanding (excluding 35,331,596 and 35,764,796 shares subject to possible redemption) at September 30, 2016 and December 31, 2015, respectively |
| 217 |
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| 174 |
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Class F common stock, $0.0001 par value; 20,000,000 shares authorized, 9,375,000 shares issued and outstanding |
| 938 |
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| 938 |
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Additional paid-in-capital |
| 9,800,768 |
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| 5,468,811 |
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Deficit accumulated |
| (4,801,919 | ) |
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| (469,919 | ) |
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Total stockholders’ equity |
| 5,000,004 |
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| 5,000,004 |
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Total liabilities and stockholders’ equity | $ | 375,556,660 |
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| $ | 376,060,265 |
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See accompanying notes to condensed financial statements (unaudited).
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
| For the Three months ended September 30, 2016 |
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| For the Three months ended September 30, 2015 |
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| For the Nine months ended September 30, 2016 |
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| For the period from June 1, 2015 (inception) to September 30, 2015 |
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Revenues | $ | — |
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| $ | — |
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| $ | — |
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| $ | — |
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Professional fees and other expenses |
| (2,257,304 | ) |
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| (73,223 | ) |
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| (4,583,139 | ) |
|
| (85,223 | ) |
State franchise taxes, other than income tax |
| (45,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
|
| (135,000 | ) |
Loss from operations |
| (2,302,304 | ) |
|
| (208,223 | ) |
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| (4,718,139 | ) |
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| (220,223 | ) |
Other income - Interest and dividend income |
| 161,070 |
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| 1,416 |
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| 386,139 |
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| 1,416 |
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Net loss | $ | (2,141,234 | ) |
| $ | (206,807 | ) |
| $ | (4,332,000 | ) |
| $ | (218,807 | ) |
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Weighted average common shares outstanding |
| 11,124,933 |
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| 9,375,000 |
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| 11,124,933 |
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| 9,375,000 |
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Basic and diluted |
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Net loss per common share: | $ | (0.19 | ) |
| $ | (0.02 | ) |
| $ | (0.39 | ) |
| $ | (0.02 | ) |
Basic and diluted |
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See accompanying notes to condensed financial statements (unaudited).
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2016 and the Period from June 1, 2015 (inception) to September 30, 2015
(Unaudited)
| Common Stock |
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| Additional |
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| Deficit Accumulated During the Development |
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| Retained |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Paid-in Capital |
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| Stage |
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| Earnings |
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| Equity |
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Balance at January 1, 2016 |
| 11,110,204 |
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| 1,112 |
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| 5,468,811 |
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| — |
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| (469,919 | ) |
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| 5,000,004 |
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Change in proceeds subject to possible redemption; 35,331,596 shares at redemption value |
| 433,200 |
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| 43 |
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| 4,331,957 |
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| — |
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| — |
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| 4,332,000 |
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Net loss |
| — |
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| — |
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| — |
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| (4,332,000 | ) |
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| — |
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| (4,332,000 | ) |
Balance at September 30, 2016 |
| 11,543,404 |
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| 1,155 |
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| 9,800,768 |
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| (4,332,000 | ) |
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| (469,919 | ) |
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| 5,000,004 |
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| Common Stock |
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| Additional |
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| Deficit Accumulated During the Development |
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| Retained |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Paid-in Capital |
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| Stage |
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| Earnings |
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| Equity |
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Balance at June 1, 2015 (inception) |
| — |
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| $ | — |
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| $ | — |
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| $ | — |
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| $ | — |
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| $ | — |
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Sale of Class F common stock to Sponsor in June 2015(1) |
| 9,375,000 |
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| 938 |
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| 24,062 |
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| — |
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| — |
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| 25,000 |
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Sale of 37,500,000 units at $10.00 per unit on August 19, 2015 |
| 37,500,000 |
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| 3,750 |
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| 374,996,250 |
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| — |
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| — |
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| 375,000,000 |
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Sale of 19,000,000 Private Placement Warrants to Sponsor on August 19, 2015 at $0.50 per Private Placement Warrant |
| — |
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| — |
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| 9,500,000 |
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| — |
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| — |
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| 9,500,000 |
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Underwriters' discounts and commissions and offering expenses |
| — |
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| — |
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| (8,282,116 | ) |
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| — |
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| — |
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| (8,282,116 | ) |
Deferred underwriting compensation |
| — |
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| — |
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| (13,125,000 | ) |
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| — |
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| — |
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| (13,125,000 | ) |
Class A common stock subject to possible redemption; 35,789,907 shares at a redemption value of $10.00 per share |
| (35,789,907 | ) |
|
| (3,579 | ) |
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| (357,895,491 | ) |
|
| — |
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| — |
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| (357,899,070 | ) |
Net loss |
| — |
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| — |
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| — |
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| (218,807 | ) |
|
| — |
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|
| (218,807 | ) |
Balance at September 30, 2015 |
| 11,085,093 |
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| 1,109 |
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| 5,217,705 |
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| (218,807 | ) |
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| — |
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| 5,000,007 |
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(1) Reflects the forfeiture of 2,125,000 shares of Class F common stock. See Note 4.
See accompanying notes to condensed financial statements (unaudited).
| For the Nine |
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| For the period from June |
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| months ended |
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| 1, 2015 (inception) to |
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Cash flows from operating activities: | September 30, 2016 |
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| September 30, 2015 |
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Net loss | $ | (4,332,000 | ) |
| $ | (218,807 | ) |
Changes in prepaid expenses |
| 103,911 |
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| (292,921 | ) |
Changes in state franchise tax accrual |
| 23,175 |
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| 135,000 |
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Changes in accounts payable and accrued expenses |
| 3,630,219 |
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| — |
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Changes in deferred offering costs associated with proposed public offering |
| — |
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| — |
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Changes in accrued expenses, formation and offering costs |
| — |
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| 15,000 |
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Net cash used by operating activities |
| (574,695 | ) |
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| (361,728 | ) |
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Cash flows from investing activities: |
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Cash deposited in Trust Account |
| — |
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| (375,000,000 | ) |
Interest reinvested in Trust Account |
| (384,850 | ) |
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| (1,130 | ) |
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Net cash used in investing activities |
| (384,850 | ) |
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| (375,001,130 | ) |
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Cash flows from financing activities: |
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Proceeds from notes and advances payable – related party |
| 175,000 |
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| 300,000 |
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Proceeds from sale of Class F common stock to Sponsor |
| — |
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| 25,000 |
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Proceeds from sale of units in initial public offering |
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| 375,000,000 |
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Proceeds from sale of Private Placement Warrants to Sponsor |
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| 9,500,000 |
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Repayment of notes and advances payable – related party |
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| (300,000 | ) |
Payment of underwriters’ discounts and commissions |
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| (7,500,000 | ) |
Payment of accrued offering costs |
| — |
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| (357,116 | ) |
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Net cash provided by financing activities |
| 175,000 |
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| 376,667,884 |
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Increase in cash |
| (784,545 | ) |
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| 1,305,026 |
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Cash at beginning of period |
| 790,635 |
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| — |
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Cash at end of period | $ | 6,090 |
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| $ | 1,305,026 |
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Supplemental disclosure of non-cash financing activities: |
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Deferred underwriting compensation | $ | 13,125,000 |
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| $ | 13,125,000 |
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Offering costs included in accrued expenses | $ | — |
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| $ | 425,000 |
|
See accompanying notes to condensed financial
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Organization and Business Operations
Organization and General
Gores Holdings, Inc. (the “Company”) was incorporated in Delaware on June 1, 2015. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company has neither engaged in any significant operations nor generated any revenue to date. The Company’s management has broad discretion with respect to the Business Combination. The Company’s sponsor is Gores Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The Company has selected December 31 as its fiscal year-end.
At September 30, 2016, the Company had not commenced any significant operations. All activity for the period from June 1, 2015 (inception) through September 30, 2016 relates to the Company’s formation, initial public offering (“Public Offering”) described below and efforts directed toward locating and pursuing a Business Combination. The Company will not generate any operating revenues until after the completion of its Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Public Offering and the sale of the Private Placement Warrants (as defined below) held in the Trust Account (as defined below).
Financing
The Company intends to finance the cash portion of the Transaction consideration with the net proceeds from its $375,000,000 Public Offering held in the Trust Account and the proceeds from its sale of $9,500,000 of Private Placement Warrants.
Upon the closing of the Public Offering on August 19, 2015 (the “Public Offering Closing Date”) and the sale of the Private Placement Warrants, an aggregate of $375,000,000 was placed in a trust account with Continental Stock Transfer & Trust Company (the “Trust Account”) acting as Trustee. The remaining proceeds held outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
Trust Account
Funds held in the Trust Account can be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended,reflecting our views about our future performance that invest only in direct U.S. government obligations. As of September 30, 2016 and December 31, 2015, the Trust Account consisted solely of money market funds.
The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay income taxes, if any, none of the funds held in trust will be released until the earliest of: (i) the completion of the Business Combination; or (ii) the redemption of any public shares of common stock properly tendered in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of such public shares of common stock if the Company does not complete the Business Combination within 24 months from the closing of the Public Offering; or (iii) the redemption of 100% of the public shares of common stock if the Company is unable to complete a Business Combination within 24 months from the closing of the Public Offering, subject to the requirements of law and stock exchange rules.
Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating a Business Combination. The Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissions and taxes payable on interest income earned) at the time of the Company signing a definitive agreement in connection with the Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination.
The Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Business Combination, including interest income but less taxes payable, or (ii) provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Business Combination, including interest income but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval, unless a vote is required by law or under the rules of the National Association of Securities Dealers Automated Quotations Capital Market (“NASDAQ”). If the Company seeks stockholder approval, it will complete its Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its public shares of common stock in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its public shares of common stock and the related Business Combination, and instead may search for an alternate Business Combination.
As a result of the foregoing redemption provisions, the public shares of common stock have been recorded at redemption amount and classified as temporary equity, in accordance with ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”).
The Company only has 24 months from the closing date of the Public Offering to complete its Business Combination. If the Company does not complete a Business Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares for a per share pro rata portion of the Trust Account, including interest income, but less taxes payable (less up to $50,000 of such net interest income to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its remaining stockholders, as part of its plan of dissolution and liquidation. The Sponsor and the Company’s officers and directors have entered into a letter agreement with the Company, pursuant to which they waived their rights to participate in any redemption with respect to their Founder Shares (as defined below); however, if the Sponsor or any of the Company’s officers, directors or affiliates acquire public shares, they will be entitled to a pro rata share of the Trust Account in the event the Company does not complete a Business Combinationconstitute “forward-looking statements” within the required time period.
In the eventmeaning of such distribution, it is possible that the per share valueSection 27A of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit (as defined below) in the Public Offering.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”) declared effective or do not have a classand Section 21E of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides, that a company can elect to opt out of the extended transition periodinvolve substantial risks and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying financialuncertainties. All statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”), and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2016 and the results of operations and cash flows for the periods presented. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of results that may be expected for the full year in any other period.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 17, 2016.
Net Loss Per Common Share
Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus to the extent dilutive the incremental number of shares of common stock to be issued in connection with the conversion of Class F common stock or to settle warrants, as calculated using the treasury stock method. At September 30, 2016, the Company did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company under the treasury stock method. As a result, diluted net loss per common share is the same as basic net loss per common share for the period.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution as well as the Trust Account, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.
Offering Costs
The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering.” Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Public Offering and were charged to stockholders’ equity upon the completion of the Public Offering. Accordingly, at September 30, 2016 and December 31, 2015, offering costs totaling approximately $21,407,116 and $21,407,116 respectively (including $20,625,000 in underwriters’ fees), have been charged to stockholders’ equity.
Redeemable Common Stock
As discussed in Note 3, all of the 37,500,000 common shares sold as part of the Units in the Public Offering contain a redemption feature which allows for the redemption of such public shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s charter. In accordance with ASC 480, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its public shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital.
Accordingly, at September 30, 2016 and December 31, 2015, 35,331,596 and 35,764,796, respectively, of the 37,500,000 public shares are classified outside of permanent equity at its redemption value.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
For those liabilities or benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax liabilities as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2016.
The Company may be subject to potential examination by U.S. federal, states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income amounts various tax jurisdictions and compliance with U.S. federal, states or foreign tax laws.
The Company is incorporated in the State of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with and the credit quality of the financial institutions with which it invests. As of the balance sheet date, and periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits.
Trust Account
At September 30, 2016 and December 31, 2015, the Company had $375,395,331 and $375,010,481, respectively, in the Trust Account which may be utilized for Business Combinations. At September 30, 2016 and December 31, 2015, the Trust Account consisted of solely money market funds.
Recently Adopted Accounting Pronouncements
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-10 to Topic 915, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in ASU No. 2014-10 simplify the accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs, by eliminating the requirement for development stage entities to present inception-to-date information in the statements of operations, cash flows and stockholders’ equity. The adoption of ASU No. 2014-10 did not have a significant impact on the financial statements.
The Company adopted FASB ASU No. 2014-15, which provided guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures. The adoption of this guidance did not have a significant impact on the financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). The amendments under the new guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for consolidated financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendmentscontained in this ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company has early adopted this guidance effective December 31, 2015 on a retrospective basis, the impact of which was not significant to the financial statements.
The Company adopted FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance simplifies several aspects of accounting for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The Company adopted this standard during the three months ended September 30, 2016 on a prospective basis and its adoption did not have a material impact on the Company’s financial statements.
Going Concern Consideration
If the Company does not complete its Business Combination by August 19, 2017, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the common stock sold as part of the units in the Public Offering, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of franchise and income taxes payable and less up to $50,000 of such net interest which may be distributed to the Company to pay dissolution expenses), divided by the number of then
outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s Board of Directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per unit in the Public Offering. In addition if the Company fails to complete its Business Combination by August 19, 2017, there will be no redemption rights or liquidating distributions with respect to the warrants, which will expire worthless.
In addition, at September 30, 2016, the Company had current liabilities of $4,115,696 and working capital of ($3,954,367), largely due to amounts owed to professionals, consultants, advisors and others who are working on seeking a Business Combination as described in Note 1. Such work is continuing after September 30, 2016 and amounts are continuing to accrue. This working capital deficit will be funded at the time of closing of the transaction discussed in Note 10.
Note 3 — Public Offering
Public Units
On August 19, 2015, the Company sold 37,500,000 units at a price of $10.00 per unit (the “Units”), including 2,500,000 Units as a result of the underwriters’ partial exercise of their over-allotment option, generating gross proceeds of $375,000,000. Each Unit consists of one share of the Company’s Class A common stock, $0.0001 par value, and one redeemable Class A common stock purchase warrant (the “Warrants”). Each Warrant entitles the holder to purchase one-half of one share of Class A common stock for $5.75 per half share. Each Warrant will become exercisable on the later of 30 days after the completion of the Business Combination or 12 months from the closing of the Public Offering and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. However, if the Company does not complete the Business Combination on or prior to the 24-month period allotted to complete the Business Combination, the Warrants will expire at the end of such period. The Warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and the Company. The Company did not register the shares of common stock issuable upon exercise of the Warrants under the Securities Act or any state securities law. Under the terms of the warrant agreement, the Company has agreed to use its best efforts to file a registration statement under the Securities Act following the completion of the Business Combination covering the shares of common stock issuable upon exercise of the Warrants.
The Company paid an upfront underwriting discount of 2.00% ($7,500,000) of the per Unit offering price to the underwriters at the closing of the Public Offering, with an additional fee (the “Deferred Discount”) of 3.50% of the per Unit offering price payable upon the Company’s completion of a Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its Business Combination.
Note 4 — Related Party Transactions
Founder Shares
On June 12, 2015, the Sponsor purchased 11,500,000 shares of Class F common stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.002 per share. Subsequently, the Sponsor transferred an aggregate of 75,000 Founder Shares to the Company’s independent directors (together with the Sponsor, the “Initial Stockholders”). On August 13, 2015, the Sponsor forfeited 1,437,500 Founder Shares, and following the expiration of the unexercised portion of underwriters’ over-allotment option, the Sponsor forfeited an additional 687,500 Founder Shares, so that the Founder Shares held by the Initial Stockholders would represent 20.0% of the outstanding shares of common stock following completion of the Public Offering. Such forfeitures were retroactively applied as indicated in the condensed statement of changes in stockholders’ equity to reflect an initial sale of 9,375,000 Founder Shares to the Sponsor in June 2015. The Founder Shares are identical to the common stock included in the Units sold in the Public Offering except that the Founder Shares will automatically convert into shares of Class A common stock at the time of the Business Combination on a one-for-one basis, subject to adjustment as described in the Company’s amended and restated certificate of incorporation.
Private Placement Warrants
The Sponsor purchased from the Company an aggregate of 19,000,000 warrants at a price of $0.50 per warrant (a purchase price of $9,500,000) in a private placement that occurred prior to the Public Offering (the “Private Placement Warrants”). Each Private Placement Warrant entitles the holder to purchase one-half of one share of Class A common stock at $5.75 per half share. A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering to be held in the Trust
Account pending completion of the Business Combination. The Private Placement Warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Public Offering, except that the Private Placement Warrants may be net cash settled and are not redeemable so long as they are held by the Sponsor or its permitted transferees
If the Company does not complete a Business Combination, then the Private Placement Warrants proceeds will be part of the liquidation distribution to the public stockholders and the Private Placement Warrants will expire worthless.
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants issued upon conversion of working capital loans, if any, have registration rights (in the case of the Founder Shares, only after conversion of such shares to common shares) pursuant to a registration rights agreement entered into by the Company, the Sponsor and the other security holders named therein on August 13, 2015. These holders will also have certain demand and “piggy back” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Promissory NoteOn July 27, 2016, the Sponsor made available to the Company a loan of up to $500,000 pursuant to a promissory note issued by the Company to the Sponsor. The proceeds from the note will be used for on-going operational expenses and certain other expenses in connection with the Acquisition. The note is unsecured, non-interest bearing and matures on the earlier of: (i) December 31, 2016 or (ii) the date on which the Company consummates the proposed Acquisition. As of September 30, 2016, the amount advanced by Sponsor to the Company was $175,000.
Administrative Services Agreement
The Company entered into an administrative services agreement on August 13, 2015, pursuant to which it agreed to pay to an affiliate of the Sponsor $10,000 a month for office space, utilities and secretarial support. Services commenced on the date the securities were first listed on the NASDAQ Capital Market and will terminate upon the earlier of the consummation by the Company of a Business Combination or the liquidation of the Company. For the three and nine months ended September 30, 2016, the Company paid an affiliate of the Sponsor $30,000 and $90,000, respectively, for such services.
Note 5 — Deferred Underwriting Compensation
The Company is committed to pay the Deferred Discount totaling $13,125,000, or 3.50% of the gross offering proceeds of the Public Offering, to the underwriters upon the Company’s consummation of a Business Combination. The underwriters are not entitled to any interest accrued on the Deferred Discount, and no Deferred Discount is payable to the underwriters if there is no Business Combination.
Note 6 — Income Taxes
Components of the Company’s deferred tax asset at September 30, 2016 are as follows:
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Components of the Company’s deferred tax asset at December 31, 2015 are as follows:
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The Company established a valuation allowance of approximately $1,824,729 as of September 30, 2016 and $178,569 as of December 31, 2015, which fully offsets the deferred tax asset as of September 30, 2016 and December 31, 2015 of approximately $1,824,729 and $178,569, respectively. The deferred tax asset results from applying an effective combined federal and state tax rate of 38% to net operating carryforwards of approximately $4,801,919 as of September 30, 2016 and $469,919 as of December 31, 2015, respectively. The Company’s net operating losses will expire beginning 2035.
The Company has evaluated tax positions taken or expected to be taken in the course of preparing the financial statements to determine if the tax positions are “more likely than not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more likely than not” threshold would be recorded as a tax benefit or expense in the current year. The Company has concluded that there was no impact related to uncertain tax positions on the results of its operations for the three months ended
September 30, 2016. As of September 30, 2016, the Company has no accrued interest or penalties related to uncertain tax positions. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company’s conclusions regarding tax positions will be subject to review and may be adjusted at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations, and interpretations thereof.
Note 7 — Investments and Cash Held in Trust
At September 30, 2016 and December 31, 2015, funds in the Trust Account totaled $375,395,331 and $375,010,481, respectively, and were held in a money market fund.
Note 8 — Fair Value Measurement
The Company complies with FASB ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. ASC 820 determines fair value to be the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:
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| Significant |
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| Significant |
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| Other |
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| Other |
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| Quoted Prices in |
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| Observable |
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| Unobservable |
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| September 30, |
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| Active Markets |
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| Inputs |
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Description |
| 2016 |
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| (Level 1) |
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| (Level 2) |
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| (Level 3) |
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Investments in money market funds held in Trust Account |
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| 375,395,331 |
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| 375,395,331 |
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| — |
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| — |
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Total |
| $ | 375,395,331 |
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| $ | 375,395,331 |
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| $ | — |
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| $ | — |
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| Other |
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| Unobservable |
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| December 31, |
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Description |
| 2015 |
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| (Level 1) |
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| (Level 2) |
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| (Level 3) |
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Investments in money market funds held in Trust Account |
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| 375,010,481 |
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| 375,010,481 |
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| — |
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| — |
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Total |
| $ | 375,010,481 |
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| $ | 375,010,481 |
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| $ | — |
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| $ | — |
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Note 9 — Stockholders’ Equity
Common Stock
The Company is authorized to issue 220,000,000 shares of common stock, consisting of 200,000,000 shares of Class A common stock, par value $0.0001 per share and 20,000,000 shares of Class F common stock, par value $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share of common stock and vote together as a single class. At September 30, 2016, there were 37,500,000 shares of Class A common stock and 9,375,000 shares of Class F common stock issued and outstanding.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. At September 30, 2016, there were no shares of preferred stock issued and outstanding.
Proposed Business Combination
On July 5, 2016, Gores Holdings, Inc. (the “Company”) entered into a Master Transaction Agreement (the “Master Transaction Agreement”), by and among the Company, Merger Sub, the Sellers and the Sellers’ Representative (each as defined in the Master Transaction Agreement), pursuant to which the Company intends to acquire Hostess Brands, LLC and related entities (the “Acquisition”). The transactions set forth in the Master Transaction Agreement (the “Transactions”) will result in a “Business Combination” involving the Company, as defined in the Company’s charter. A meeting of the Company’s stockholders was held on November 3, 2016 for purposes of approving the Transactions. At the meeting, the requisite number of the Company’s shareholders approved the Acquisition and the other Transactions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the notes related thereto which are included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.
Cautionary note regarding forward-looking statements
All statements other than statements of historical fact, included in this Quarterly Report on Form 10-Q including without limitation, statements under this “Management’s Discussionregarding our future results of operations and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, our business strategy and the plans, and our objectives of management for future operations, are forward-looking statements. When used inStatements that constitute forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. All forward‑looking statements included herein are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on Form 10-Q, wordsany such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements asAs a result of certain factors detaileda number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified and under “Risk Factors” in our filings withAnnual Report on Form 10-K for the Securities and Exchange Commission (the “SEC”).year ended December 31, 2016, as updated by subsequent filings. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’sour behalf are expressly qualified in their entirety by these risk factors. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. The discussion and analysis of our financial condition and results of operations included in Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related notes included in Item 1 of this paragraph.
Overview
We are a blank check company incorporatedQuarterly Report on June 1, 2015 asForm 10-Q.
September 30, | December 31, | |||||||
ASSETS | 2017 | 2016 | ||||||
(Successor) | (Successor) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 101,171 | $ | 26,855 | ||||
Accounts receivable, net | 100,733 | 89,237 | ||||||
Inventories | 33,812 | 30,444 | ||||||
Prepaids and other current assets | 6,791 | 4,827 | ||||||
Total current assets | 242,507 | 151,363 | ||||||
Property and equipment, net | 166,931 | 153,224 | ||||||
Intangible assets, net | 1,929,082 | 1,946,943 | ||||||
Goodwill | 580,349 | 588,460 | ||||||
Other assets, net | 7,804 | 7,902 | ||||||
Total assets | $ | 2,926,673 | $ | 2,847,892 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Long-term debt and capital lease obligation payable within one year | $ | 11,357 | $ | 11,496 | ||||
Accounts payable | 53,451 | 34,083 | ||||||
Customer trade allowances | 35,150 | 36,691 | ||||||
Accrued expenses and other current liabilities | 11,051 | 21,656 | ||||||
Total current liabilities | 111,009 | 103,926 | ||||||
Long-term debt and capital lease obligation | 988,476 | 993,374 | ||||||
Tax receivable agreement | 175,487 | 165,384 | ||||||
Deferred tax liability | 366,457 | 353,797 | ||||||
Total liabilities | 1,641,429 | 1,616,481 | ||||||
Commitments and Contingencies (Note 14) | ||||||||
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 99,992,183 and 98,250,917 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 10 | 10 | ||||||
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 30,398,777 and 31,704,988 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 3 | 3 | ||||||
Additional paid in capital | 923,739 | 912,824 | ||||||
Accumulated other comprehensive loss | (43 | ) | — | |||||
Retained earnings (accumulated deficit) | 28,593 | (15,618 | ) | |||||
Stockholders’ equity | 952,302 | 897,219 | ||||||
Non-controlling interest | 332,942 | 334,192 | ||||||
Total liabilities and stockholders’ equity | $ | 2,926,673 | $ | 2,847,892 |
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||
(Successor) | (Predecessor) | (Successor) | (Predecessor) | ||||||||||||||
Net revenue | $ | 192,250 | $ | 196,197 | $ | 579,967 | $ | 548,757 | |||||||||
Cost of goods sold | 113,885 | 113,618 | 333,861 | 309,427 | |||||||||||||
Gross profit | 78,365 | 82,579 | 246,106 | 239,330 | |||||||||||||
Operating costs and expenses: | |||||||||||||||||
Advertising and marketing | 8,871 | 10,381 | 24,304 | 27,529 | |||||||||||||
Selling expense | 7,606 | 8,271 | 24,418 | 23,175 | |||||||||||||
General and administrative | 14,494 | 10,784 | 43,416 | 32,015 | |||||||||||||
Amortization of customer relationships | 5,994 | 156 | 17,860 | 468 | |||||||||||||
Business combination transaction costs | — | 4,049 | — | 7,065 | |||||||||||||
Impairment of property and equipment | 1,003 | — | 1,003 | 7,267 | |||||||||||||
Related party expenses | 92 | 1,058 | 284 | 3,431 | |||||||||||||
Tax receivable agreement liability remeasurement | 1,589 | — | 1,589 | — | |||||||||||||
Recall and other costs (recoveries) | — | (3,787 | ) | — | 473 | ||||||||||||
Total operating costs and expenses | 39,649 | 30,912 | 112,874 | 101,423 | |||||||||||||
Operating income | 38,716 | 51,667 | 133,232 | 137,907 | |||||||||||||
Other expense: | |||||||||||||||||
Interest expense, net | 9,966 | 18,004 | 29,831 | 53,746 | |||||||||||||
Loss on modification of debt | 2,122 | — | 1,948 | — | |||||||||||||
Other expense | 182 | 173 | 1,309 | 2,344 | |||||||||||||
Total other expense | 12,270 | 18,177 | 33,088 | 56,090 | |||||||||||||
Income before income taxes | 26,446 | 33,490 | 100,144 | 81,817 | |||||||||||||
Income tax expense (benefit) | 10,316 | (23 | ) | 31,608 | 294 | ||||||||||||
Net income | 16,130 | 33,513 | 68,536 | 81,523 | |||||||||||||
Less: Net income attributable to the non-controlling interest | 6,581 | 2,329 | 24,325 | 4,110 | |||||||||||||
Net income attributable to Class A shareholders/partners | $ | 9,549 | $ | 31,184 | $ | 44,211 | $ | 77,413 | |||||||||
Earnings per Class A share: | |||||||||||||||||
Basic | $ | 0.10 | $ | 0.45 | |||||||||||||
Diluted | $ | 0.09 | $ | 0.42 | |||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||
Basic | 99,557,183 | 98,920,808 | |||||||||||||||
Diluted | 105,418,566 | 105,840,673 |
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||||
(Successor) | (Predecessor) | (Successor) | (Predecessor) | |||||||||||||||
Net income | $ | 16,130 | $ | 33,513 | $ | 68,536 | $ | 81,523 | ||||||||||
Other comprehensive loss: | ||||||||||||||||||
Unrealized income (loss) on interest rate swap contract designated as a cash flow hedge | 565 | — | (100 | ) | — | |||||||||||||
Income tax (expense) benefit | (172 | ) | — | 31 | — | |||||||||||||
Comprehensive income | 16,523 | 33,513 | 68,467 | 81,523 | ||||||||||||||
Less: Comprehensive income attributed to non-controlling interest | 6,712 | 2,329 | 24,299 | 4,110 | ||||||||||||||
Comprehensive income attributed to class A shareholders/partners | $ | 9,811 | $ | 31,184 | $ | 44,168 | $ | 77,413 |
Partners’ Equity (Deficit) Hostess Holdings, LP (Predecessor) | ||||||||||||||||||||
Class A | Class C | Total Partners’ Equity (Deficit) | Non-controlling Interest | |||||||||||||||||
Balance – December 31, 2015 | $ | (276,084 | ) | $ | (346,046 | ) | $ | (622,130 | ) | $ | (37,991 | ) | ||||||||
Distributions to partners | (2,439 | ) | (8,134 | ) | (10,573 | ) | (555 | ) | ||||||||||||
Unit based compensation | 345 | 344 | 689 | — | ||||||||||||||||
Net income | 38,707 | 38,706 | 77,413 | 4,110 | ||||||||||||||||
Balance – September 30, 2016 | $ | (239,471 | ) | $ | (315,130 | ) | $ | (554,601 | ) | $ | (34,436 | ) |
Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Hostess Brands, Inc. (Successor) | |||||||||||||||||||||||||||||||||
Class A Voting Common Stock | Class B Voting Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Losses / Retained Earnings | Total Stockholders’ Equity | Non-controlling Interest | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
Balance–December 31, 2016 | 98,250,917 | $ | 10 | 31,704,988 | $ | 3 | $ | 912,824 | $ | — | $ | (15,618 | ) | $ | 897,219 | $ | 334,192 | ||||||||||||||||
Comprehensive income | — | — | — | — | — | (43 | ) | 44,211 | 44,168 | 24,299 | |||||||||||||||||||||||
Share-based compensation | 435,000 | — | — | — | 7,990 | — | — | 7,990 | — | ||||||||||||||||||||||||
Exchanges | 1,306,211 | — | (1,306,211 | ) | — | 12,609 | — | — | 12,609 | (12,609 | ) | ||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | — | (12,940 | ) | |||||||||||||||||||||||
Exercise of public warrants | 55 | — | — | — | 1 | — | — | 1 | — | ||||||||||||||||||||||||
Tax receivable agreement arising from exchanges, net of income taxes of $1,845 | — | — | — | — | (9,685 | ) | — | — | (9,685 | ) | — | ||||||||||||||||||||||
Balance–September 30, 2017 | 99,992,183 | $ | 10 | 30,398,777 | $ | 3 | $ | 923,739 | $ | (43 | ) | $ | 28,593 | $ | 952,302 | $ | 332,942 |
Nine Months Ended | ||||||||||
September 30, 2017 | September 30, 2016 | |||||||||
(Successor) | (Predecessor) | |||||||||
Operating activities | ||||||||||
Net income | $ | 68,536 | $ | 81,523 | ||||||
Depreciation and amortization | 28,576 | 9,054 | ||||||||
Impairment of property and equipment | 1,003 | 7,267 | ||||||||
Debt discount (premium) amortization | (647 | ) | 2,486 | |||||||
Non-cash loss on debt modification | 1,729 | — | ||||||||
Non-cash change in tax receivable agreement liability | 1,589 | — | ||||||||
Gain on sale of property and equipment | (10 | ) | (153 | ) | ||||||
Share-based compensation | 7,990 | 689 | ||||||||
Deferred taxes | 19,993 | 237 | ||||||||
Change in operating assets and liabilities | ||||||||||
Accounts receivable | (11,496 | ) | (13,555 | ) | ||||||
Inventories | (3,368 | ) | (1,850 | ) | ||||||
Prepaids and other current assets | (1,950 | ) | (9,397 | ) | ||||||
Accounts payable and accrued expenses | 7,369 | 17,098 | ||||||||
Customer trade allowances | (1,541 | ) | (4,316 | ) | ||||||
Other | — | 430 | ||||||||
Net cash provided by operating activities | 117,773 | 89,513 | ||||||||
Investing activities | ||||||||||
Purchases of property and equipment | (22,755 | ) | (23,995 | ) | ||||||
Acquisition of Superior | — | (50,091 | ) | |||||||
Proceeds from sale of assets | 85 | 4,350 | ||||||||
Acquisition of software assets | (1,728 | ) | (1,917 | ) | ||||||
Net cash used in investing activities | (24,398 | ) | (71,653 | ) | ||||||
Financing activities | ||||||||||
Repayments of long-term debt and capital lease obligation | (5,103 | ) | (6,985 | ) | ||||||
Debt fees | (1,017 | ) | — | |||||||
Distributions to partners | — | (10,573 | ) | |||||||
Distributions to non-controlling interest | (12,940 | ) | (555 | ) | ||||||
Proceeds from the exercise of warrants | 1 | — | ||||||||
Net cash used in financing activities | (19,059 | ) | (18,113 | ) | ||||||
Net increase in cash and cash equivalents | 74,316 | (253 | ) | |||||||
Cash and cash equivalents at beginning of period | 26,855 | 64,473 | ||||||||
Cash and cash equivalents at end of period | $ | 101,171 | $ | 64,220 |
Supplemental Disclosures of Cash Flow Information: | |||||||||||
Cash paid during the period for: | |||||||||||
Interest | $ | 35,085 | $ | 50,799 | |||||||
Taxes paid | $ | 12,902 | $ | — | |||||||
Supplemental disclosure of non-cash investing: | |||||||||||
Purchases of property and equipment funded by accounts payable | $ | 932 | $ | 2,072 |
As indicated in theConsolidation
(In thousands) | September 30, 2017 | December 31, 2016 | |||||
(Successor) | (Successor) | ||||||
Ingredients and packaging | $ | 14,474 | $ | 12,712 | |||
Finished goods | 16,441 | 14,229 | |||||
Inventory in transit to customers | 2,897 | 3,503 | |||||
$ | 33,812 | $ | 30,444 |
Three Months Ended | Nine Months Ended | |||||||||||||
(% of Consolidated Net Revenues) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||
(Successor) | (Predecessor) | (Successor) | (Predecessor) | |||||||||||
Sweet Baked Goods | 18.8 | % | 18.1 | % | 18.9 | % | 20.3 | % | ||||||
Other | 0.9 | % | 3.1 | % | 0.8 | % | 1.5 | % | ||||||
Total | 19.7 | % | 21.2 | % | 19.7 | % | 21.8 | % |
Recent Developments
Proposed Hostess Business Combination
On July 5, 2016, Gores Holdings, Inc. (the “Company”) entered into a Master Transaction Agreement (the “Master Transaction Agreement”), by and amongadopt the Company, Merger Sub, the Sellers and the Sellers’ Representative (each as definedstandard in the Master Transaction Agreement), pursuant to whichfirst quarter of 2018 retrospectively with the Company intends to acquire Hostess Brands, LLC and related entities (the “Acquisition”). cumulative effect of initially applying the standard as of January 1, 2018.
Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||
Unvested units as of December 31, 2016 (Successor) | — | $ | — | |||
Total Granted | 1,425,790 | 15.77 | ||||
Forfeited | (79,543 | ) | 15.78 | |||
Vested | — | — | ||||
Unvested as of September 30, 2017 (Successor) | 1,346,247 | $ | 15.77 |
Shares of Restricted Stock | Weighted Average Grant Date Fair Value | ||||||
Unvested units as of December 31, 2016 (Successor) | — | $ | — | ||||
Granted | 435,000 | 15.78 | |||||
Forfeited | — | — | |||||
Vested | — | — | |||||
Unvested as of September 30, 2017 (Successor) | 435,000 | $ | 15.78 |
Nine Months Ended September 30, 2017 | |
Expected volatility (1) | 27.53% |
Expected dividend yield (2) | —% |
Expected option term (3) | 6.25 years |
Risk-free rate (4) | 2.1% |
(1) | The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period based on the expected term and ending on the grant date. |
(2) | As of September 30, 2017, we have not paid any dividends on our common stock. As of the stock option grant date, we did not anticipate paying any dividends on our common stock over the term of the stock options. Option holders have no right to dividends prior to the exercise of the options. |
(3) | We utilized the simplified method to determine the expected term of the stock options since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
(4) | The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant which corresponds to the expected term of the stock options. |
Number of Options | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding as of December 31, 2016 (Successor) | — | — | $ | — | $ | — | |||||||
Granted | 1,155,788 | 5.77 | 15.85 | 5.03 | |||||||||
Exercised | — | — | — | — | |||||||||
Forfeited | (44,371 | ) | 5.75 | 15.78 | 5.03 | ||||||||
Outstanding as of September 30, 2017 (Successor) | 1,111,417 | 5.77 | $ | 15.85 | $ | 5.03 | |||||||
Exercisable as of September 30, 2017 (Successor) | — | — | — | — |
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
(Successor) | (Successor) | |||||||
Land and buildings | $ | 31,296 | $ | 30,275 | ||||
Machinery and equipment | 130,778 | 112,221 | ||||||
Construction in progress | 15,363 | 12,334 | ||||||
177,437 | 154,830 | |||||||
Less accumulated depreciation | (10,506 | ) | (1,606 | ) | ||||
$ | 166,931 | $ | 153,224 |
(In thousands) | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||
(Successor) | (Predecessor) | (Successor) | (Predecessor) | ||||||||||||||
Net revenue: | |||||||||||||||||
Sweet Baked Goods | $ | 173,552 | $ | 174,473 | $ | 524,731 | $ | 508,288 | |||||||||
Other | 18,698 | 21,724 | 55,236 | 40,469 | |||||||||||||
Net revenue | $ | 192,250 | $ | 196,197 | $ | 579,967 | $ | 548,757 | |||||||||
Depreciation and amortization: | |||||||||||||||||
Sweet Baked Goods | $ | 8,703 | $ | 2,585 | $ | 25,587 | $ | 8,119 | |||||||||
Other | 1,019 | 583 | 2,989 | 935 | |||||||||||||
Depreciation and amortization | $ | 9,722 | $ | 3,168 | $ | 28,576 | $ | 9,054 | |||||||||
Gross profit: | |||||||||||||||||
Sweet Baked Goods | $ | 72,965 | $ | 76,777 | $ | 230,217 | $ | 227,322 | |||||||||
Other | 5,400 | 5,802 | 15,889 | 12,008 | |||||||||||||
Gross profit | $ | 78,365 | $ | 82,579 | $ | 246,106 | $ | 239,330 | |||||||||
Capital expenditures (1): | |||||||||||||||||
Sweet Baked Goods | $ | 9,109 | $ | 9,312 | $ | 24,772 | $ | 25,701 | |||||||||
Other | 205 | 161 | 643 | 211 | |||||||||||||
Capital expenditures | $ | 9,314 | $ | 9,473 | $ | 25,415 | $ | 25,912 |
(1) | Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable during the three and nine months ended September 30, 2017 (Successor) and 2016 (Predecessor). |
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
(Successor) | (Successor) | |||||||
Total segment assets: | ||||||||
Sweet Baked Goods | $ | 2,719,743 | $ | 2,633,758 | ||||
Other | 206,930 | 214,134 | ||||||
Total segment assets | $ | 2,926,673 | $ | 2,847,892 |
(In thousands) | Sweet Baked Goods | Other | Total | ||||||||
Balance as of December 31, 2016 (Successor) | $ | 518,759 | $ | 69,701 | $ | 588,460 | |||||
Measurement period adjustment of the Business Combination | (8,111 | ) | — | (8,111 | ) | ||||||
Balance as of September 30, 2017 (Successor) | $ | 510,648 | $ | 69,701 | $ | 580,349 |
(In thousands) | September 30, 2017 | December 31, 2016 | |||||
(Successor) | (Successor) | ||||||
Intangible assets with indefinite lives (Trademarks and Trade Names) | $ | 1,408,848 | $ | 1,408,848 | |||
Intangible assets with definite lives (Customer Relationships) | 542,011 | 542,011 | |||||
Less accumulated amortization (Customer Relationships) | (21,777 | ) | (3,916 | ) | |||
Intangible assets, net | $ | 1,929,082 | $ | 1,946,943 |
(In thousands) | |||
Remainder of 2017 | $ | 5,994 | |
2018 | 23,977 | ||
2019 | 23,977 | ||
2020 | 23,977 | ||
2021 | 23,977 | ||
2022 and thereafter | 418,332 |
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
(Successor) | (Successor) | |||||||
Annual incentive bonuses | $ | 4,141 | $ | 5,997 | ||||
Payroll, vacation and other compensation | 3,496 | 5,121 | ||||||
Self-insurance reserves | 1,310 | 2,091 | ||||||
Accrued interest | 224 | 4,885 | ||||||
Current income taxes payable | 113 | 2 | ||||||
Workers compensation reserve | 1,650 | 1,321 | ||||||
Interest rate swap contract | 99 | — | ||||||
Litigation (Note 14) | — | 1,100 | ||||||
Other | 18 | 1,139 | ||||||
$ | 11,051 | $ | 21,656 |
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
(Successor) | (Successor) | |||||||
Second Amended First Lien Term Loan (3.7% as of September 30, 2017) | ||||||||
Principal | $ | 993,763 | $ | — | ||||
Unamortized debt premium and issuance costs | 5,462 | — | ||||||
999,225 | — | |||||||
New First Lien Term Loan (4.0%) | ||||||||
Principal | — | 998,750 | ||||||
Unamortized debt premium and issuance costs | — | 5,396 | ||||||
— | 1,004,146 | |||||||
Capital lease obligation (6.8%) | 608 | 724 | ||||||
Total debt and capital lease obligation | 999,833 | 1,004,870 | ||||||
Less: Amounts due within one year | (11,357 | ) | (11,496 | ) | ||||
Long-term portion | $ | 988,476 | $ | 993,374 |
(In thousands) | |||
Remainder of 2017 | $ | 2,491 | |
2018 | 9,963 | ||
2019 | 9,963 | ||
2020 | 9,963 | ||
2021 | 9,963 | ||
2022 and thereafter | 951,420 |
A meeting of the Company’s stockholders was held on November 3, 2016 for purposes of approving the Transactions. At the meeting, the requisite number of the Company’s shareholders approved the Acquisitionissued and the other Transactions. The Transactions
are expected to close on November 4, 2016, subject to customary closing conditions. No stockholders elected to have their public shares redeemed in connection with the Acquisition.
The Master Transaction Agreement
As a result of the Acquisition, the Sellers and the Executive Chairman of the Board (the “Chairman”) will receive cash and/or shares of common stock of the Company, as calculated pursuant to the terms of the Master Transaction Agreement and certain other transaction documents contemplated thereby. In order to facilitate the Acquisition, the Sponsor has agreed to the cancellation of a portion of its Founder
Pursuant to the Master Transaction Agreement, the aggregate considerationan exercise price of $5.75 per half share, to be paid to the Sellers will consist of (i) an amount in cash equal to the Closing Cash Payment Amount (as defined in the Master Transaction Agreement), (ii)exercised only for a whole number of shares of our Class A common stockstock. The warrants became exercisable on December 4, 2016 (30 days after the completion of the Business Combination on November 4, 2016) and Class Bexpire on December 4, 2021, or earlier upon redemption or liquidation. The Company may call the outstanding warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equalequals or exceeds $24.00 per share for any 20 trading days within a 30 trading day period ending on the third business day before the Company sends the notice of redemption to the Closing Number of Securities (as defined inwarrant holders. The private placement warrants, however, are nonredeemable so long as they are held by the Master Transaction Agreement) and (iii) approximately 5.4 million shares of Class B common stock issued as part of a partial rollover of one Seller’s existing equity investment. Based upon assumed net indebtedness of approximately $992 million (after giving effectCompany’s Sponsor or its permitted transferees. During the three months ended September 30, 2017, the private placement warrants were registered with the SEC for future potential sales to the partial repayment of existing indebtedness),public. When sold to the purchase pricepublic, the private placement warrants will become public warrants.
In addition to the consideration to be paid at the Closing of the transactions contemplated by the Master Transaction Agreement, the Sellers will be entitled to receive an additional earn-out payment from the Company of up to 5.5 million sharesweighted average number of Class A common shares outstanding for the period excluding non-vested restricted stock awards. In computing dilutive earnings per share, basic earnings per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including: public and Class B commonprivate placement warrants, RSUs, restricted stock subject toawards, and stock options.
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | |||||||
(Successor) | (Successor) | |||||||
Numerator: | ||||||||
Net income attributable to Class A shareholders (in thousands) | $ | 9,549 | $ | 44,211 | ||||
Denominator: | ||||||||
Weighted-average Class A shares outstanding - basic (excluding non-vested restricted stock awards) | 99,557,183 | 98,920,808 | ||||||
Dilutive effect of warrants | 5,717,416 | 6,844,613 | ||||||
Dilutive effect of restricted stock awards and RSUs | 143,967 | 75,252 | ||||||
Weighted-average shares outstanding - diluted | 105,418,566 | 105,840,673 | ||||||
Net income per Class A share - basic | $ | 0.10 | $ | 0.45 | ||||
Net income per Class A share - dilutive | $ | 0.09 | $ | 0.42 |
The Company and C. Dean Metropoulos will be parties to certain employment arrangements, pursuant to which Mr. Metropoulos will serve as Executive Chairmandiluted net income per share because the assumed proceeds from the awards’ exercise was greater than the average market price of the Board of Directors. Mr. Metropoulos will receive approximately 2.5 million shares of Class B common stock under the employment arrangements at the closing of the Transactions. In addition, Mr. Metropoulos will be entitled to receive an additional earn-out payment from theshares.
Consummation of the transactions contemplated by the Master Transaction Agreement is subject to customary closing conditionsU.S. federal, state and local taxes on its allocable portion of the income of Hostess Holdings, a partnership for U.S. federal and most applicable state and local taxes. As a partnership, Hostess Holdings is itself not subject to U.S. federal and certain state and local income taxes. The operations of Hostess Holdings include those of its C Corporation subsidiaries.
Private Placement Subscription Agreements
On July 5, 2016, the Company entered into subscription agreements with certain investors, including the Sponsor, pursuant to which the investors have agreed to purchase in the aggregate approximately 32.7 million shares of Class A common stock on a private placement basis for approximately $9.18 per share (the “Private Placement”). The proceeds from the Private Placement will be used to partially fund the cash consideration to be paid to the Sellers at the Closing of the transactions contemplated by the Master Transaction Agreement. The Private Placement is conditioned on, among other things, the closing of the Transactions. The subscription agreements also contain customary representations and warranties and may be terminated by the parties thereto as specified therein.
Tax Receivable Agreement
At the closing of the transactions contemplated by the Master Transaction Agreement, the Company will enter into a Tax Receivable Agreementconnection with the SellersBusiness Combination (the “Tax Receivable Agreement”) and C. Dean Metropoulos. The Tax Receivable Agreement will generally provideprovides for the payment by the Company to the SellersLegacy Hostess Equityholders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Transactions,Business Combination (which periods may extend, unless the Tax Receivable Agreement is terminated early in accordance with its terms, for more than 15 years following any exchange of Class B Units of Hostess Holdings for shares of the Company’s Class A common stock or the cash equivalent thereof) as a result of (i) certain increases in tax basis resulting from the Business Combination; (ii) certain tax attributes of Hostess Holdings and its subsidiaries existing prior to the Business Combination and prior to subsequent exchanges of Class B Units; (iii) certain increases in tax basis resulting from exchanges of Class B Units; (iv) imputed interest deemed to be paid by the Company as specified therein.a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments the Company makes under the Tax Receivable Agreement. The Company will retain the benefit of the remaining 15% of these cash savings. Certain payments under the Tax Receivable Agreement will be made to the SellersLegacy Hostess Equityholders in accordance with specified percentages, regardless of the source of the applicable tax attribute. AlthoughSignificant inputs used to preliminarily estimate the amount and timingfuture expected payments include a tax savings rate of anyapproximately 37%.
(In thousands) | ||||
Balance December 31, 2016 (Successor) | $ | 165,384 | ||
Measurement period adjustment of the Business Combination | (3,016 | ) | ||
Balance arising from exchanges of Class B units for Class A shares | 11,530 | |||
Remeasurement due to change in state tax rate | 1,589 | |||
Balance September 30, 2017 (Successor) | $ | 175,487 |
(In thousands) | |||
Remainder of 2017 | $ | — | |
2018 | 14,165 | ||
2019 | 10,375 | ||
2020 | 10,097 | ||
2021 | 9,845 | ||
Thereafter | 131,005 |
(In millions) | Total Committed | Commitments within 1 year | Commitments beyond 1 year | ||||||
Ingredients | $ | 82.4 | $ | 69.2 | $ | 13.2 | |||
Packaging | $ | 44.3 | $ | 39.1 | $ | 5.2 |
an annual salary, a performance bonus at the discretion of the board of directors, and expenses related to the use of his personal aircraft. For the three and nine months ended September 30, 2016 we had a net loss of $2,141,234(Predecessor), $1.1 million and $4,332,000, respectively. Our business activities during$3.4 million was expensed by the three and nine month periods mainly consisted of identifying and evaluating prospective acquisition candidatesCompany for a Business Combination and pursuingthis compensation agreement. The agreement with Mr. Metropoulos was terminated in connection with the Transactions. We believe that we have sufficient funds available to complete our efforts to effect a Business Combination with an operating business by August 19, 2017. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination.
As indicated in the accompanying unaudited consolidated financial statements, at September 30, 2016, we had approximately $6,000 in cash and deferred offering costs of $13,125,000. We cannot assure you that our plans to complete our Business Combination will be successful.
Liquidity and Capital Resources
In June 2015, the Company’s sponsor, Gores Sponsor LLC, (the “Sponsor”) purchased an aggregate of 11,500,000 shares of Class F common stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.002 per share. Subsequently, our Sponsor transferred an aggregate of 75,000 Founder Shares to each of our independent directors. Immediately
On July 27, 2016, the Sponsor made available to the Company a loan of up to $500,000 pursuant to a promissory note issued by the Company to the Sponsor. The proceeds from the note will be used for on-going operational expenses and certain other expenses in connection with the Acquisition. The note is unsecured, non-interest bearing and matures on the earlier of: (i) December 31, 2016 or (ii) the date on which the Company consummates the proposed Acquisition. As of September 30, 2016, the amount advanced by Sponsor to the Company was $175,000.
As of September 30, 2016 and December 31, 2015, we had cash held outside of the Trust Account of approximately $6,000 and $790,000, respectively, which is available to fund our working capital requirements.
At September 30, 2016 and December 31, 2015, the Company had current liabilities of $4,115,696 and $287,301, respectively, and working capital of ($3,954,367) and $762,484, respectively, largely due to amounts owed to professionals, consultants, advisors and others who are working on seeking a Business Combination. Such work is continuing after September 30, 2016 and amounts are continuing to accrue. This working capital deficit will be funded at the time of closing of the transaction discussed in Note 10.
We intend to use substantially all of the funds held in our Trust Account, including interest (which interest shall be net of taxes payable) to consummate our Business Combination. Moreover, we may need to obtain additional financing either to complete a Business Combination or because we become obligated to redeem a significant number of shares of our Class A common stock upon completion of a Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate our Business Combination, the remaining proceeds held in our Trust Account, if any, will be used as working capitalCompany agreed to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategy. We intend to use the funds held in the Trust Account, after payment of the Deferred Discount, and the proceeds from the Private Placement to fund the Transactions.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial agreements involving assets.
Contractual obligations
As of September 30, 2016 and December 31, 2015, we did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities other than an administrative services agreement to pay monthly recurring expenses of $10,000 to The Gores Group LLC, an affiliate of our Sponsor, for office space, utilities and secretarial support. The administrative services agreement terminates upon the earlier of the completion of a Business Combination or the liquidation of the Company.
The underwriters are entitled to underwriting discounts and commissions of 5.5%, of which 2.0% ($7,500,000) was paid at the closing of the Public Offering, and 3.5% ($13,125,000) was deferred. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. The underwriters are not entitled to any interest accrued on the Deferred Discount.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Offering Costs
We comply with the requirements of the Accounting Standards Codification (the “ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A — “Expenses of Offering.” Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to our Public Offering and were charged to stockholders’ equity upon the completion of our Public Offering. Accordingly, at September 30, 2016 and December 31, 2015, offering costs totaling approximately $21,407,116 and $21,407,116, respectively, (including $20,625,000 in underwriters’ fees), have been charged to stockholders’ equity.
Redeemable Common Stock
All of the 37,500,000grant shares of Class A common stock sold as partor Class B units of Hostess Holdings and equivalent shares of Class B common stock of the Units in our Public Offering contain a redemption feature which allowsCompany to an entity owned by Mr. Metropoulos if certain EBITDA thresholds are met for the redemptionyear ended December 31, 2017. The potential grants under this arrangement are between zero and 5.5 million shares. Based on the nature of suchthe arrangement, for U.S. GAAP purposes the potential grants are considered to be compensation for future services to be provided by Mr. Metropoulos. In order to receive 2.75 million shares under this agreement, adjusted EBITDA, as calculated pursuant to the terms of the Master Transaction Agreement entered into in connection with our liquidation, if there is a stockholder vote or tender offer in connection with ourthe Business Combination, and in connection with certain amendments to our charter. In accordance with ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”MTA EBITDA”), redemption provisionsfor the year ended December 31, 2017 must be greater than $240.5 million. If MTA EBITDA is greater than $245.5 million, an additional 2.75 million shares will be awarded. As of September 30, 2017, management determined it
We recognize changes in redemption value immediately as they occur and adjustgrant additional equity (in the carrying valueform of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against accumulated deficit.
Accordingly, at September 30, 2016 and December 31, 2015, 35,331,596 and 35,764,796, respectively, of the 37,500,000 public shares are classified outside of permanent equity at their redemption value.
Net loss per common share
Net loss per common share is computed by dividing net loss applicable to stockholders by the weighted average number of common shares outstanding during the period, plus to the extent dilutive the incremental number ofeither shares of Class A common stock to be issued in connection with the conversion of the Company, or Class FB units of Hostess Holdings and equivalent shares of Class B common stock orof the Company) to settle Warrants (as defined below), as calculated using the treasury stock method. At September 30, 2016, we did not have any dilutive securities or other contracts that could, potentially, be
exercised or converted into common stock and then share in our earnings under the treasury stock method. As a result, diluted net loss per common share is the same as basic net loss per common shareMr. Metropoulos if MTA EBITDA thresholds are met for the period.
Income taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Recent accounting pronouncements
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-10 to Topic 915, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in ASU No. 2014-10 simplify the accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs, by eliminating the requirement for development stage entities to present inception-to-date information in the statements of operations, cash flows and stockholders’ equity. The adoption of ASU No. 2014-10 did not have a significant impact on the financial statements.
The Company adopted FASB ASU No. 2014-15, which provided guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures. The adoption of this guidance did not have a significant impact on the financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). The amendments under the new guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for consolidated financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments in this ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted this guidance effectiveended December 31, 2015 on a retrospective basis,2018. The potential grants range from zero to 2.75 million shares. In order to receive 1.375 million shares under this agreement, MTA EBITDA for the impact of which was not significant to the financial statements.
The Company adopted FASB ASU No. 2014-15, which provided guidance on management’s responsibility in evaluating whether thereyear ended December 31, 2018 must be greater than $257.8 million. If MTA EBITDA is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures.
The Company adopted FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance simplifies several aspects of accounting for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The Company adopted this standard during the three months ended September 30, 2016 on a prospective basis and its adoption did not have a material impact on the Company’s financial statements.
greater than $262.8 million, an additional 1.375 million shares will be awarded. As of September 30, 2017, management determined it w
as not probable that the Company would meet the 2018 MTA EBITDA thresholds.Item 3. QuantitativeBusiness Combination and Qualitative Disclosures About Market Risk
Market risk is a broad termof Hostess Brands, Inc., including the consolidation of Hostess Holdings and its subsidiaries, for periods from and after the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Our business activitiesClosing Date. For convenience, we have also included supplemental pro forma information for the three and nine months ended September 30, 2016 consisted solelythat gives effect to the Business Combination as if such transaction had been consummated on January 1, 2016. References in this Quarterly Report to information provided for 2016 on a pro forma basis refer to such supplemental pro forma financial information.
(Successor) | Historical i (Predecessor) | Pro Forma | |||||||||||||||||||||||
(In thousands, except per share data) | Three Months Ended September 30, 2017 | % of Net Revenues | Three Months Ended September 30, 2016 | Pro Forma Adjustments | Three Months Ended September 30, 2016 | % of Net Revenues | |||||||||||||||||||
Net revenue | $ | 192,250 | 100.0 | % | $ | 196,197 | $ | — | $ | 196,197 | 100.0 | % | |||||||||||||
Cost of goods sold | 113,885 | 59.2 | 113,618 | (185 | ) | ii | 113,433 | 57.8 | |||||||||||||||||
Gross profit | 78,365 | 40.8 | 82,579 | 185 | 82,764 | 42.2 | |||||||||||||||||||
Operating costs and expenses: | |||||||||||||||||||||||||
Advertising and marketing | 8,871 | 4.6 | 10,381 | — | 10,381 | 5.3 | |||||||||||||||||||
Selling expense | 7,606 | 4.0 | 8,271 | — | 8,271 | 4.2 | |||||||||||||||||||
General and administrative | 14,494 | 7.5 | 10,784 | (346 | ) | ii | 10,438 | 5.3 | |||||||||||||||||
Amortization of customer relationships | 5,994 | 3.1 | 156 | 5,938 | iii | 6,094 | 3.1 | ||||||||||||||||||
Impairment of property and equipment | 1,003 | 0.5 | — | — | — | — | |||||||||||||||||||
Business combination transaction costs | — | — | 4,049 | (4,049 | ) | iv | — | — | |||||||||||||||||
Related party expenses | 92 | — | 1,058 | — | 1,058 | 0.5 | |||||||||||||||||||
Tax receivable agreement liability remeasurement | 1,589 | 0.8 | — | — | — | — | |||||||||||||||||||
Recall and other costs (recoveries) | — | — | (3,787 | ) | — | (3,787 | ) | (1.9 | ) | ||||||||||||||||
Total operating costs and expenses | 39,649 | 20.5 | 30,912 | 1,543 | 32,455 | 16.5 | |||||||||||||||||||
Operating income | 38,716 | 20.1 | 51,667 | (1,358 | ) | 50,309 | 25.7 | ||||||||||||||||||
Other expense: | |||||||||||||||||||||||||
Interest expense, net | 9,966 | 5.2 | 18,004 | (4,623 | ) | v | 13,381 | 6.8 | |||||||||||||||||
Loss on modification of debt | 2,122 | 1.1 | — | — | — | — | — | — | |||||||||||||||||
Other expense | 182 | 0.1 | 173 | — | 173 | 0.1 | |||||||||||||||||||
Total other expense | 12,270 | 6.4 | 18,177 | (4,623 | ) | 13,554 | 6.9 | ||||||||||||||||||
Income before income taxes | 26,446 | 13.7 | 33,490 | 3,265 | 36,755 | 18.7 | |||||||||||||||||||
Income tax expense (benefit) | 10,316 | 5.4 | (23 | ) | 10,496 | vi | 10,473 | 5.3 | |||||||||||||||||
Net income | 16,130 | 8.3 | 33,513 | (7,231 | ) | 26,282 | 13.4 | ||||||||||||||||||
Less: Net income attributable to the non-controlling interest | 6,581 | 3.4 | 2,329 | 6,852 | vii | 9,181 | 4.7 | ||||||||||||||||||
Net income attributable to Class A shareholders | $ | 9,549 | 4.9 | % | $ | 31,184 | $ | (14,083 | ) | $ | 17,101 | 8.7 | % | ||||||||||||
Earnings per Class A share: | |||||||||||||||||||||||||
Basic | $ | 0.10 | $ | 0.18 | |||||||||||||||||||||
Diluted | $ | 0.09 | $ | 0.18 | |||||||||||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||||||||||
Basic | 99,557,183 | 97,589,217 | viii | 97,589,217 | |||||||||||||||||||||
Diluted | 105,418,566 | 97,589,217 | viii | 97,589,217 |
i. | The amounts in these columns represent our Hostess Holdings historical results of operations for the period reflected. Certain amounts previously reported within the 2016 Hostess Holdings quarterly financial statements have been reclassified to conform with the current financial statement presentation. |
ii. | Represents the adjustment to depreciation expense associated with the allocation of purchase price to property and equipment. |
iii. | Represents additional amortization expense associated with the fair value recognized for customer relationships in connection with the Business Combination. |
iv. | This adjustment consists primarily of legal and professional fees and other costs associated with the Business Combination. |
v. | Represents the reduction in interest expense due to the repayment of Hostess Holdings debt pursuant to the terms of the Business Combination. |
vi. | Represents the effective income tax rate of 28.5%, giving effect to the non-controlling interest, a partnership for income tax purposes. |
vii. | Represents the elimination of historical income attributable to the non-controlling interest and attributes a portion of the pro forma income to the non-controlling interest created in the Business Combination. Income is allocated to the non-controlling interest based on its pro rata share of the total equity of Hostess Holdings. |
viii. | Represents the basic and diluted weighted average number of Class A shares that would have been outstanding had the Business Combination occurred on January 1, 2016. The outstanding warrants were determined not to be dilutive. |
Reconciliation of Adjusted EBITDA (Unaudited) | |||||||||
(In thousands) | Three Months Ended September 30, 2017 | Pro Forma Three Months Ended September 30, 2016 | |||||||
Net income | $ | 16,130 | $ | 26,282 | |||||
Plus non-GAAP adjustments: | |||||||||
Income tax provision | 10,316 | 10,473 | |||||||
Interest expense, net | 9,966 | 13,381 | |||||||
Depreciation and amortization | 9,722 | 9,103 | |||||||
Share-based compensation | i. | 3,630 | — | ||||||
Tax receivable agreement liability remeasurement | ii. | 1,589 | — | ||||||
Recall and other | iii. | — | (3,787 | ) | |||||
Other expense | iv. | 182 | 173 | ||||||
Loss on debt modification | v. | 2,122 | — | ||||||
Impairment of property and equipment | vi. | 1,003 | — | ||||||
Adjusted EBITDA | $ | 54,660 | $ | 55,625 |
i. | For the three months ended September 30, 2017, the Company recognized expense related to stock compensation awarded under the Hostess Brands, Inc. 2016 Equity Incentive Plan. |
ii. | For the three months ended September 30, 2017, the Company incurred a loss on the remeasurement of the tax receivable agreement due to a change in a state tax law. |
iii. | For the pro forma three months ended September 30, 2016, the Company recovered costs previously incurred in the second quarter of 2016 related to the voluntary recall of product containing undeclared peanut residue attributed to one of the Company’s suppliers. |
iv. | During the three months ended September 30, 2017, the Company incurred professional fees related to the registration of certain privately held securities. During the pro forma three months ended September 30, 2016, the Company incurred professional fees attributable to the pursuit of a potential acquisition that has since been abandoned, and other special projects. |
v. | During the three months ended September 30, 2017, previously capitalized debt issuance costs were expensed. |
vi. | During the three months ended September 30, 2017, the Company transitioned the production of one of its products to a third party and recognized an impairment loss resulting from the idling of the related production equipment. |
on our outstanding debt was decreased. Additionally, $217 million of principal was repaid as part of the Business Combination. This was offset by the additional interest expense related to our interest rate swap contract, which was effective in May 2017. Excluding expense associated with the principal repayment, interest expense for the three months ended September 30, 2017 decreased 25.5% from pro forma interest expense of $13.4 million for the three months ended September 30, 2016, as a result of the lower effective interest rate offset by the interest rate swap settlement.
Unaudited Segment Financial Data | |||||||||
(In thousands) | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||
(Successor) | (Predecessor) | ||||||||
Net revenue: | |||||||||
Sweet Baked Goods | $ | 173,552 | $ | 174,473 | |||||
Other | 18,698 | 21,724 | |||||||
Net revenue | $ | 192,250 | $ | 196,197 | |||||
Gross profit: | |||||||||
Sweet Baked Goods | $ | 72,965 | $ | 76,777 | |||||
Other | 5,400 | 5,802 | |||||||
Gross profit | $ | 78,365 | $ | 82,579 | |||||
Capital expenditures (1): | |||||||||
Sweet Baked Goods | $ | 9,109 | $ | 9,312 | |||||
Other | 205 | 161 | |||||||
Capital expenditures | $ | 9,314 | $ | 9,473 |
(1) | Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable during the three months ended September 30, 2017 (Successor) and 2016 (Predecessor). |
Unaudited Segment Data | |||||||
Three Months Ended | |||||||
(% of Consolidated Net Revenues) | September 30, 2017 | September 30, 2016 | |||||
Sweet Baked Goods | 18.8 | % | 18.1 | % | |||
Other | 0.9 | % | 3.1 | % | |||
Total | 19.7 | % | 21.2 | % |
(Successor) | Historical i (Predecessor) | Pro forma | ||||||||||||||||||||
(In thousands, except per share data) | Nine Months Ended September 30, 2017 | % of Net Revenues | Nine Months Ended September 30, 2016 | Pro Forma Adjustments | Nine Months Ended September 30, 2016 | % of Net Revenues | ||||||||||||||||
Net revenue | $ | 579,967 | 100.0 | % | $ | 548,757 | — | $ | 548,757 | 100.0 | % | |||||||||||
Cost of goods sold | 333,861 | 57.6 | 309,427 | 315 | ii | 309,742 | 56.4 | |||||||||||||||
Gross profit | 246,106 | 42.4 | 239,330 | (315 | ) | 239,015 | 43.6 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||
Advertising and marketing | 24,304 | 4.2 | 27,529 | — | 27,529 | 5.0 | ||||||||||||||||
Selling expense | 24,418 | 4.2 | 23,175 | — | 23,175 | 4.2 | ||||||||||||||||
General and administrative | 43,416 | 7.5 | 32,015 | (653 | ) | ii | 31,362 | 5.7 | ||||||||||||||
Amortization of customer relationships | 17,860 | 3.1 | 468 | 17,950 | iii | 18,418 | 3.4 | |||||||||||||||
Impairment of property and equipment | 1,003 | 0.2 | 7,267 | — | 7,267 | 1.3 | ||||||||||||||||
Business combination transaction costs | — | — | 7,065 | (6,490 | ) | iv | 575 | 0.1 | ||||||||||||||
Related party expenses | 284 | — | 3,431 | — | 3,431 | 0.6 | ||||||||||||||||
Tax receivable agreement liability remeasurement | 1,589 | 0.3 | — | — | — | — | ||||||||||||||||
Recall and other costs (recoveries) | — | — | 473 | — | 473 | 0.1 | ||||||||||||||||
Total operating costs and expenses | 112,874 | 19.5 | 101,423 | 10,807 | 112,230 | 20.4 | ||||||||||||||||
Operating income | 133,232 | 22.9 | 137,907 | (11,122 | ) | 126,785 | 23.1 | |||||||||||||||
Other expense: | ||||||||||||||||||||||
Interest expense, net | 29,831 | 5.1 | 53,746 | (13,871 | ) | v | 39,875 | 7.3 | ||||||||||||||
Loss on debt modification | 1,948 | 0.3 | — | — | — | — | ||||||||||||||||
Other expense | 1,309 | 0.2 | 2,344 | — | 2,344 | 0.4 | ||||||||||||||||
Total other expense | 33,088 | 5.6 | 56,090 | (13,871 | ) | 42,219 | 7.7 | |||||||||||||||
Income before income taxes | 100,144 | 17.3 | 81,817 | 2,749 | 84,566 | 15.4 | ||||||||||||||||
Income tax expense | 31,608 | 5.4 | 294 | 23,804 | vi | 24,098 | 4.4 | |||||||||||||||
Net income | 68,536 | 11.8 | 81,523 | (21,055 | ) | 60,468 | 11.0 | |||||||||||||||
Less: Net income attributable to the non-controlling interest | 24,325 | 4.2 | 4,110 | 16,954 | vii | 21,064 | 3.8 | |||||||||||||||
Net income attributable to Class A shareholders | $ | 44,211 | 7.6 | % | $ | 77,413 | (38,009 | ) | $ | 39,404 | 7.2 | % | ||||||||||
Earnings per Class A share: | ||||||||||||||||||||||
Basic | $ | 0.45 | $ | 0.40 | ||||||||||||||||||
Diluted | $ | 0.42 | $ | 0.40 | ||||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||||
Basic | 98,920,808 | 97,589,217 | viii | 97,589,217 | ||||||||||||||||||
Diluted | 105,840,673 | 97,589,217 | viii | 97,589,217 |
i. | The amounts in these columns represent our Hostess Holdings historical results of operations for the period reflected. Certain amounts previously reported within the 2016 Hostess Holdings quarterly financial statements have been reclassified to conform with the current financial statement presentation. |
ii. | Represents the adjustment to depreciation expense associated with the allocation of purchase price to property and equipment. |
iii. | Represents additional amortization expense associated with the fair value recognized for customer relationships in connection with the Business Combination. |
iv. | This adjustment consists primarily of legal and professional fees and other costs associated with the Business Combination. |
v. | Represents the reduction in interest expense due to the repayment of Hostess Holdings debt pursuant to the terms of the Business Combination. |
vi. | Represents the effective income tax rate of 28.5%, giving effect to the non-controlling interest, a partnership for income tax purposes. |
vii. | Represents the elimination of historical income attributable to the non-controlling interest and attributes a portion of the pro forma income to the non-controlling interest created in the Business Combination. Income is allocated to the non-controlling interest based on its pro rata share of the total equity of Hostess Holdings. |
viii. | Represents the basic and diluted weighted average number of Class A shares that would have been outstanding had the Business Combination occurred on January 1, 2016. The outstanding warrants were determined not to be dilutive. |
Reconciliation of Adjusted EBITDA (Unaudited) | |||||||||
(In thousands) | Nine Months Ended September 30, 2017 | Pro Forma Nine Months Ended September 30, 2016 | |||||||
Net income | $ | 68,536 | $ | 60,468 | |||||
Plus non-GAAP adjustments: | |||||||||
Income tax provision | 31,608 | 24,098 | |||||||
Interest expense, net | 29,831 | 39,875 | |||||||
Depreciation and amortization | 28,576 | 27,352 | |||||||
Share-based compensation | i. | 7,990 | — | ||||||
Tax receivable agreement liability remeasurement | ii. | 1,589 | — | ||||||
Recall and other | iii. | — | 473 | ||||||
Other expense | iv. | 1,309 | 2,342 | ||||||
Loss on debt modification | v. | 1,948 | — | ||||||
Impairment of property and equipment | vi. | 1,003 | 7,267 | ||||||
Business combination transaction costs | vii. | — | 575 | ||||||
Adjusted EBITDA | $ | 172,390 | $ | 162,450 |
i. | For the nine months ended September 30, 2017, the Company recognized expense related to stock compensation awarded under the Hostess Brands, Inc. 2016 Equity Incentive Plan. |
ii. | For the nine months ended September 30, 2017, the Company incurred a loss on the remeasurement of the tax receivable agreement due to a change in state tax law. |
iii. | For the nine months ended September 30, 2016, we incurred a loss on a sale/abandonment of property and bakery shutdown costs, primarily due to utilities, insurance, taxes and maintenance expenses related to the Schiller Park, Illinois bakery. |
iv. | For the nine months ended September 30, 2017, other expense primarily included professional fees incurred related to the secondary public offering of common stock and the registration of certain privately held warrants. For the pro forma nine months ended September 30, 2016, other expense primarily consisted of professional fees attributed to the pursuit of a potential acquisition that has since been abandoned, and other special projects. |
v. | During the nine months ended September 30, 2017, previously capitalized debt issuance costs were expensed. |
vi. | During the nine months ended September 30, 2017, the Company transitioned the production of one of its products to a third party and recognized an impairment loss resulting from the idling of the related production equipment. During the pro forma nine months ended September 30, 2016, the Company closed multiple production lines in Indianapolis, Indiana bakery and transitioned production to other facilities resulting in an impairment loss. |
vii. | For the pro forma nine months ended September 30, 2016, business combination transaction costs consisted of professional and legal costs for the acquisition of Superior. |
Unaudited Segment Financial Data | |||||||||
(In thousands) | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||
(Successor) | (Predecessor) | ||||||||
Net revenue: | |||||||||
Sweet Baked Goods | $ | 524,731 | $ | 508,288 | |||||
Other | 55,236 | 40,469 | |||||||
Net revenue | $ | 579,967 | $ | 548,757 | |||||
Gross profit: | |||||||||
Sweet Baked Goods | $ | 230,217 | $ | 227,322 | |||||
Other | 15,889 | 12,008 | |||||||
Gross profit | $ | 246,106 | $ | 239,330 | |||||
Capital expenditures (1): | |||||||||
Sweet Baked Goods | $ | 24,772 | $ | 25,701 | |||||
Other | 643 | 211 | |||||||
Capital expenditures | $ | 25,415 | $ | 25,912 |
(1) | Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable during the nine months ended September 30, 2017 (Successor) and 2016 (Predecessor). |
Unaudited Segment Data | |||||||
Nine Months Ended | |||||||
(% of Consolidated Net Revenues) | September 30, 2017 | September 30, 2016 | |||||
(Successor) | (Predecessor) | ||||||
Sweet Baked Goods | 18.9 | % | 20.3 | % | |||
Other | 0.8 | % | 1.5 | % | |||
Total | 19.7 | % | 21.8 | % |
Contractual Commitments as of September 30, 2017 | Total Committed | Commitments within 1 year | Commitments beyond 1 year | ||||||||
(In thousands) | |||||||||||
Tax receivable agreement | $ | 175,487 | $ | — | $ | 175,487 | |||||
Second Amended First Term Loan | 993,763 | 9,963 | 983,800 | ||||||||
Interest payments on Term Loan | 180,924 | 36,928 | 143,996 | ||||||||
Distribution Center (Shorewood, IL) | 2,656 | 1,763 | 893 | ||||||||
Corporate office lease (Kansas City, MO) | 426 | 243 | 183 | ||||||||
Corporate office lease (Dallas, TX) | 6 | 6 | — | ||||||||
Superior capital lease | 683 | 200 | 483 | ||||||||
Ingredient procurement | 82,400 | 69,200 | 13,200 | ||||||||
Packaging procurement | 44,300 | 39,100 | 5,200 | ||||||||
$ | 1,480,645 | $ | 157,403 | $ | 1,323,242 |
Item 4. | Controls and Procedures |
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluationforms of the effectivenessSEC.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting in a manner commensurate with the scale of our operations subsequent to the November 4, 2016 Business Combination. We have hired a third-party consultant to assist us with this effort.
As of the datestatements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to the10-Q.
filing of the Form 10-K.
Unregistered Sales
On June 12, 2015, our Sponsor purchased 11,500,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.002 per share. Subsequently, our Sponsor transferred an aggregate of 75,000 Founder Shares to our independent directors. On August 13, 2015, our Sponsor forfeited 1,437,500 Founder Shares, and following the expiration of the underwriters’ remaining over-allotment option, our Sponsor forfeited an additional 687,500 Founder Shares, so that the remaining Founder Shares held by the Initial Stockholders would represent 20.0% of the outstanding shares of Class A common stock and Class F common stock following the completion of our Public Offering. Our Public Offering was consummated on August 19, 2015.
Prior to the Public Offering Closing Date, we completed the private sale of an aggregate of 19,000,000 Private Placement Warrants to our Sponsor at a price of $0.50 per Private Placement Warrant, generating total proceeds, before expenses, of $9,500,000. The Private Placement Warrants are substantially similar to the Warrants underlying the Units issued in our Public Offering, except that the Private Placement Warrants may be net cash settled and are not redeemable so long as they are held by our Sponsor or its permitted transferees. If the Private Placement Warrants are held by holders other than our Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the Warrants.
The sales of the above securities by the Company were exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.
Use of Proceeds
On August 13, 2015, our registration statement on Form S-1 (File No. 333-205734) was declared effective by the SEC for the Public Offering pursuant to which we sold an aggregate of 37,500,000 Units at an offering price to the public of $10.00 per Unit, including 2,500,000 Units as a result of the underwriters’ partial exercise of their over-allotment option, generating gross proceeds of $375,000,000.
After deducting the underwriting discounts and commissions (excluding the Deferred Discount, which amount will be payable upon the consummation of our Business Combination, if consummated) and the estimated offering expenses, the total net proceeds from our Public Offering and the sale of the Private Placement Warrants were $376,100,000, of which $375,000,000 (or $10.00 per share sold in the Public Offering) was placed in the Trust Account in the United States maintained by the Trustee.
Through September 30, 2016, we incurred approximately $8,282,117 for costs and expenses related to the Public Offering. At the closing of the Public Offering, we paid a total of $7,500,000 in underwriting discounts and commissions. In addition, the underwriters agreed to defer $13,125,000 in underwriting commissions, which amount will be payable upon consummation of our Business Combination, if consummated. There has been no material change in the planned use of proceeds from our Public Offering as described in our final prospectus which was filed with the SEC on August 13, 2015.
Our Sponsor, executive officers and directors have agreed, and our amended and restated certificate of incorporation provides, that we will have only 24 months from the Public Offering Closing Date to complete our Business Combination. If we are unable to complete our Business Combination within such 24-month period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in our Trust Account, including interest (which interest shall be net of taxes payable, and less up to $50,000 of interest to pay dissolution expenses) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board of Directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
As of September 30, 2016, after giving effect to our Public Offering and our operations subsequent thereto, approximately $375,395,331 was held in the Trust Account, and we had approximately $6,000 of unrestricted cash available to us for our activities in connection with identifying and conducting due diligence of a suitable Business Combination, and for general corporate matters.
None
applicable.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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| XBRL Taxonomy Extension Label Linkbase Document | |||
| XBRL Taxonomy Extension Presentation Linkbase Document | |||
_____________________
* Filed herewith
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| HOSTESS BRANDS, INC. | ||
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By | /s/ Thomas Peterson | ||
Thomas Peterson Executive Vice President, Chief
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