Exhibit 99.4
Pro Forma Consolidated Balance Sheet
As of October 31, 2007
(UNAUDITED)
(In thousands)
| | Historical | | Pro Forma | |
| | October 31, 2007 | | December 31, 2007 | | | | | |
| | KMG Chemicals | | HPPC Business of Air Products | | Adjustments | | Consolidated | |
ASSETS | | | | | | | | | |
| | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | |
Cash and cash equivalents | | $ | 21,488 | | $ | — | | $ | (13,527 | ) A | $ | 7,961 | |
Accounts receivable: | | | | | | | | | |
Trade, net | | 8,497 | | 11,832 | | — | | 20,329 | |
Other | | 695 | | — | | — | | 695 | |
Inventories | | 14,929 | | 11,578 | | — | | 26,507 | |
Current deferred tax asset | | 159 | | — | | — | | 159 | |
Prepaid expenses and other current assets | | 524 | | — | | — | | 524 | |
Total current assets | | 46,292 | | 23,410 | | (13,527 | ) | 56,175 | |
| | | | | | | | | |
PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | |
Property, plant and equipment | | 13,933 | | 74,711 | | (26,329 | ) B | 62,315 | |
Accumulated depreciation and amortization | | (5,699 | ) | (27,583 | ) | 27,583 | | (5,699 | ) |
Net property, plant and equipment | | 8,234 | | 47,128 | | 1,254 | | 56,616 | |
| | | | | | | | | |
DEFERRED TAX ASSET | | 1,049 | | — | | — | | 1,049 | |
GOODWILL | | 3,778 | | — | | — | | 3,778 | |
INTANGIBLE ASSETS, net of accumulated amortization | | 22,990 | | 793 | | 364 | C | 24,147 | |
OTHER ASSETS | | 1,882 | | — | | — | | 1,882 | |
TOTAL ASSETS | | $ | 84,225 | | $ | 71,331 | | $ | (11,908 | ) | $ | 143,647 | |
| | | | | | | | | |
LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | |
Accounts payable | | $ | 9,307 | | $ | — | | $ | — | | $ | 9,307 | |
Accrued liabilities | | 2,212 | | 2,118 | | — | | 4,330 | |
Deferred tax liability | | 43 | | — | | — | | 43 | |
Current portion of long-term debt | | 3,656 | | — | | 3,844 | D | 7,500 | |
Current portion of deferred rent | | 86 | | — | | — | | 86 | |
Total current liabilities | | 15,304 | | 2,118 | | 3,844 | | 21,266 | |
| | | | | | | | | |
LONG-TERM DEBT, net of current portion | | 10,054 | | — | | 52,446 | E | 62,500 | |
DEFERRED RENT, net of current portion | | 27 | | — | | — | | 27 | |
OTHER LONG-TERM LIABILITIES | | 386 | | — | | 1,014 | F | 1,400 | |
Total liabilities | | 25,771 | | 2,118 | | 57,304 | | 85,193 | |
| | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | — | | — | | — | | — | |
| | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | | — | | — | | — | | — | |
Common stock, $.01 par value, 40,000,000 shares authorized, 10,933,599 shares issued and outstanding at October 31, 2007 | | 109 | | — | | — | | 109 | |
| | | | | | | | | |
Additional paid-in capital | | 21,590 | | — | | — | | 21,590 | |
Retained earnings | | 36,755 | | — | | — | | 36,755 | |
Total stockholders’ equity | | 58,454 | | — | | — | | 58,454 | |
Net assets acquired | | — | | 69,213 | | (69,213 | ) | — | |
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | | $ | 84,225 | | $ | 71,331 | | $ | (11,909 | ) | $ | 143,647 | |
The accompanying notes are an integral part of this financial statement
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Basis of Pro Forma Presentation
KMG Chemicals, Inc. (“we”, “our” and “us”) manufactures, formulates and globally distributes specialty chemicals. The accompanying unaudited pro forma consolidated balance sheet reflects the effect of our December 31, 2007 acquisition of certain assets and the assumption of certain liabilities of the high purity processed chemicals business (the “HPPC Business”) of Air Products and Chemicals, Inc.
The unaudited pro forma consolidated balance sheet included herein has been prepared, without audit, under the rules and regulations of the Securities and Exchange Commission. Some information and disclosures, normally included in a consolidated balance sheet prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted under these rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading.
The preparation of an unaudited pro forma consolidated balance sheet in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited pro forma consolidated balance sheet. Actual results could differ from those estimates. We have not included a pro forma statement of operations, as we believe that it would not meaningfully present the effects of the acquisition, and believe it would not be indicative of our operations going forward due principally to differences in direct and indirect operating expenses.
The unaudited pro forma consolidated balance sheet and related notes should be read in conjunction with our Annual Report on Form 10-K for the year ended July 31, 2007, our Quarterly Report on Form 10-Q for the quarter ended October 31, 2007 and the HPPC Business’s audited statement of assets acquired and liabilities assumed as of December 31, 2007 and the audited statements of revenues and direct expenses for the three years ended September 30, 2007, 2006 and 2005.
(2) Pro Forma Adjustments
The acquisition will be accounted for as a purchase in accordance with Statement of Financial Accounting Standards No. 141 “Business Combinations” (“FAS 141”). The purchase price is being allocated to the tangible and identifiable intangable assets and liabilities of the HPPC Business based upon the relative fair value of those assets. Following is the purchase price allocation (in thousands).
Receivables | | $ | 11,832 | |
Inventory | | 11,578 | |
Net property, plant & equipment | | 48,382 | |
Intangible assets | | 1,157 | |
Assumed liabilities | | (2,118 | ) |
Total purchase price | | $ | 70,831 | |
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The following sets forth the adjustments contained in the unaudited pro forma consolidated balance sheet.
A. The pro forma adjustment gives effect to adjustments in cash in connection with the acquisition of the HPPC Business and acquisition financing. The total purchase price of $70.8 million included $1.0 million of accrued retention bonus liability payable to HPPC employees that joined the Company. The Company financed the transaction with cash on hand, and borrowings totaling $64.0 million on an amended and restated credit facility and on a note purchase agreement. Of that amount, $7.7 million was used to repay existing indebtedness.
Cash (in thousands) | | | |
Total consideration | | $ | 70,831 | |
Financing | | (64,000 | ) |
Accrued retention bonus | | (1,014 | ) |
Repayment of previous bank facility | | 7,710 | |
Pro forma adjustment to cash as of October 31, 2007 | | $ | 13,527 | |
B. The pro forma adjustment gives effect to the reduction in purchase price allocated to property, plant and equipment as compared with the original cost of those assets on the books of Air Products. Since this pro forma adjustment assumes the acquisition occurred on October 31, 2007, there would be no additional accumulated depreciation associated with these assets as of that date.
Property, plant and equipment (in thousands) | | | |
Allocation of purchase price to property, plant and equipment | | $ | 48,382 | |
Book value of property, plant and equipment (Air Products) | | 74,711 | |
Pro forma adjustment to property, plant and equipment as of October 31, 2007 | | $ | (26,329 | ) |
C. The following intangible assets were included in the allocation of the acquisition purchase price:
Purchase price allocation of intangible assets (in thousands) | | | |
Non-compete agreement | | $ | 94 | |
Patent | | 73 | |
Trademarks | | 47 | |
Toll manufacturing agreement | | 943 | |
Total intangible assets | | $ | 1,157 | |
The pro forma adjustment gives effect to the additional intangible assets acquired as part of the HPPC Business, and the allocation of the purchase price to those assets as compared with the intangible assets on the books of Air Products.
Intangible Assets (in thousands) | | | |
Allocation of purchase price to intangible assets | | $ | 1,157 | |
Book value of net intangible assets (Air Products) | | 793 | |
Pro forma adjustment to net intangible assets as of October 31, 2007 | | $ | 364 | |
D. The pro forma adjustment gives effect to the change in the current portion of the Company’s long-term debt associated with the financing of the acquisition.
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Current portion of long-term debt (in thousands) | | | |
Current portion of Basic Chemicals term loan | | $ | 2,000 | |
Current portion of credit facility term loan | | 5,500 | |
| | 7,500 | |
Book value of current portion of long-term debt (KMG) | | (3,656 | ) |
Pro forma adjustment to current portion of long-term debt as of October 31, 2007 | | $ | 3,844 | |
E. The pro forma adjustment gives effect to the change in the non-current portion of the Company’s long-term debt associated with the financing of the acquisition.
Long term debt (in thousands) | | | |
Non-current portion of Basic Chemicals term loan | | $ | 4,000 | |
Funding from note purchase | | 20,000 | |
Funding from credit facility revolving loan | | 9,000 | |
Non-current portion of funding from credit facility term loan | | 29,500 | |
| | 62,500 | |
Book value of non-current portion of long-term debt (KMG) | | (10,054 | ) |
Pro forma adjustment to non-current portion of long-term debt as of October 31, 2007 | | $ | 52,446 | |
F. The pro forma adjustment gives effect to the additional liability associated with the accrued retention bonus payable to HPPC employees that accepted employment with the Company.
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