Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 29, 2021, we completed the acquisition of the all of the outstanding equity interests of PMM Holding (Luxembourg) AG, the parent company of the Jacob Holm Group (the “Jacob Holm Group”) for an $304.0 million in cash, including the extinguishment of debt and subject to post-closing adjustments (the “Jacob Holm Acquisition”). In addition, on May 13, 2021, we completed our acquisition of the outstanding equity interests in Georgia-Pacific Mt. Holly LLC (“Mt. Holly”) for $170.7 million (the “Mount Holly Acquisition”).
In connection with the Jacob Holm Acquisition, on October 25, 2021, we completed an offering of $500 million aggregate principal amount of 4.750% senior notes due 2029 (the “Notes”).We used the net proceeds of the Notes offered, together with cash on hand, to pay the purchase price for the Jacob Holm Acquisition, to repay certain indebtedness of Jacob Holm, to repay outstanding amounts under our Credit Facility and for other fees and expenses related to the Jacob Holm Acquisition and the Notes offering.
The following unaudited pro forma condensed combined financial information is presented to illustrate the effects on Glatfelter’s historical financial statements after giving effect to the Jacob Holm Acquisition and the Mount Holly Acquisition and related Notes as discussed in the preceding paragraph and is derived from and should be read in conjunction with the historical financial statements and related notes of Glatfelter, Jacob Holm and Mount Holly. The audited combined financial statements of Mt. Holly as of and for the year ended December 31, 2020 and the unaudited interim combined financial statements of Mt. Holly as of and for the three months ended March 31, 2021 were filed by Glatfelter on a Current Report on Form 8-K/A on July 28, 2021. The audited consolidated financial statements of Jacob Holm as of and for the years ended December 31, 2020 and 2019 and the unaudited consolidated financial statements of Jacob Holm as of and for the six months ended June 30, 2021 are filed as Exhibit 99.1 and Exhibit 99.2, respectively, to the Current Report on Form 8-K/A to which this Exhibit 99.3 is also attached as an exhibit.
The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2021 and the year ended December 31, 2020, and the unaudited pro forma condensed combined balance sheet as of June 30, 2021, are presented herein.
The unaudited pro forma condensed combined statement of income for the six months ended June 30, 2021, gives effect to the Mount Holly Acquisition, the Jacob Holm Acquisition, and the Notes offering as if each had occurred on January 1, 2021, and combines (i) the historical condensed consolidated statements of income of Glatfelter (including the results of Mount Holly from May 13, 2021), (ii) Jacob Holm for the six months ended June 30, 2021 and (iii) the historical combined statement of income of Mount Holly for the three months ended March 31, 2021, plus the operating results of Mount Holly from April 1, 2021 through May 13, 2021.
The unaudited pro forma condensed combined statement of income for the year ended December 31, 2020, gives effect to the Jacob Holm Acquisition, the Mount Holly Acquisition and the Notes offering, as if each had occurred on January 1, 2020, and combines the historical consolidated statements of income of Glatfelter, Jacob Holm and Mount Holly for the year ended December 31, 2020.
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 gives effect to the Jacob Holm Acquisition and the Notes offering as if they had occurred on June 30, 2021 and combines the historical balance sheets of Glatfelter (which includes Mount Holly) and Jacob Holm as of June 30, 2021.
In addition, the unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that may be achieved as a result of the Mount Holly Acquisition or the Jacob Holm Acquisition, the costs necessary to achieve these cost savings, operating synergies and revenue enhancements or the costs to be incurred to integrate the operations of each acquisition.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of what the actual combined financial position or results of operations would have been had the Mount Holly Acquisition, the Jacob Holm Acquisition and the Notes offering been completed on the dates indicated or what such financial position or results would be for future periods.
The presentation of certain items in the historical financial statements of Mount Holly and Jacob Holm have been conformed to Glatfelter’s presentation for purposes of the unaudited pro forma condensed combined financial information.
The historical financial statements of Jacob Holm have been prepared in accordance with IFRS as issued by the IASB. We have assessed the differences between IFRS and GAAP and, where material, the financial information of Jacob Holm included in the unaudited pro forma condensed combined statements of income and balance sheet has been conformed to accounting principles under GAAP. In addition, certain amounts in the Jacob Holm historical audited and unaudited combined statements of income have been reclassified to conform to Glatfelter’s presentation in the pro forma combined consolidated financial statements.
Further, the historical consolidated financial statements of Jacob Holm were prepared in euros. Accordingly, the unaudited pro forma condensed combined financial information reflects a translation of such statements into U.S. dollars. See Note 3 to the accompanying notes to the unaudited pro forma condensed combined consolidated financial information for the translation methodology. Based on its review of Jacob Holm’s historical consolidated financial statements, prepared in accordance with IFRS as issued by the IASB, we are not aware of any further adjustment that would be required to Jacob Holm’s historical financial statements in connection with the preparation of the unaudited pro forma condensed combined consolidated financial information.
With respect to the Jacob Holm Acquisition, we are in the process of finalizing an analysis of the estimated fair value of the assets acquired and liabilities assumed necessary to complete the purchase price allocation. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the unaudited pro forma condensed combined financial information are preliminary and subject to change.
With respect to the Mount Holly Acquisition, the unaudited pro forma condensed combined financial information reflects the allocation of our cost to acquire Mount Holly to the assets acquired and the liabilities assumed based on management’s estimate of the fair value using valuation techniques such as discounted cash flow models, appraisals and similar methodologies. This purchase price allocation is reflected in Glatfelter’s historical unaudited condensed consolidated balance sheet.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the six months ended June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Historical (1) | | | | |
| In thousands, except per share | | Glatfelter | | Mount Holly - three months ended March 31, 2021 (2) | | Mount Holly - April 1, 2021 to May 13, 2021 (2) | | Jacob Holm U.S. GAAP (3) | | Transaction Adjustments (4) | | Glatfelter Pro Forma Combined |
| Net sales | | $ | 470,585 | | | $ | 20,957 | | | $ | 9,541 | | | $ | 189,365 | | | $ | — | | | $ | 690,448 | |
| Costs of products sold | | 395,735 | | | 17,215 | | | 10,609 | | | 160,295 | | | (384) | | (4a) | 583,470 | |
| Gross profit | | 74,850 | | | 3,742 | | | (1,068) | | | 29,070 | | | 384 | | | 106,978 | |
| Selling, general and administrative expenses | | 51,811 | | | 2,077 | | | 1,153 | | | 19,418 | | | (3,682) | | (4c) | 70,777 | |
| Gains on dispositions of plant, equipment and timberlands, net | | (2,403) | | | — | | | 133 | | | — | | | — | | | (2,270) | |
| Operating income | | 25,442 | | | 1,665 | | | (2,354) | | | 9,652 | | | 4,066 | | | 38,471 | |
| Non-operating income (expense) | | | | | | | | | | | | |
| Interest expense | | (3,303) | | | — | | | — | | | (3,366) | | | (9,292) | | (4e) | (15,961) | |
| Interest income | | 31 | | | — | | | — | | | 4 | | | — | | | 35 | |
| Other, net | | (1,073) | | | — | | | (123) | | | 2,467 | | | — | | | 1,271 | |
| Total non-operating expense | | (4,345) | | | — | | | (123) | | | (895) | | | (9,292) | | | (14,655) | |
| Income (loss) before income taxes | | 21,097 | | | 1,665 | | | (2,477) | | | 8,757 | | | (5,226) | | | 23,816 | |
| Income tax provision (benefit) | | 11,211 | | | 408 | | | (594) | | | 1,165 | | | (1,266) | | (4g) | 10,924 | |
| Income (loss) from continuing operations | | $ | 9,886 | | | $ | 1,257 | | | $ | (1,883) | | | $ | 7,592 | | | $ | (3,960) | | | $ | 12,892 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Earnings per share | | | | | | | | | | | | |
| Basic | | $ | 0.22 | | | | | | | | | | | 0.29 |
| Diluted | | 0.22 | | | | | | | | | | 0.29 |
| | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | |
| Basic | | 44,507 | | | | | | | | | | | 44,507 | |
| Diluted | | 44,865 | | | | | | | | | | | 44,865 | |
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements.
1.Refer to Note 3 for the description of the historical amounts.
2.Refer to Note 3b for the details of the Mount Holly historical amounts.
3.Refer to Note 3c for the details of the Jacob Holm historical amounts.
4.Refer to Note 4 for details of the Transaction accounting adjustments.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the year ended December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Historical (5) | | | | |
| In thousands, except per share | | Glatfelter | | Mount Holly (6) | | Jacob Holm U.S. GAAP (7) | | Transaction Adjustments (8) | | Glatfelter Pro Forma Combined |
| Net sales | | $ | 916,498 | | | $ | 101,169 | | | $ | 403,911 | | | $ | — | | | $ | 1,421,578 | |
| Costs of products sold | | 768,629 | | | 80,497 | | | 339,071 | | | (2,654) | | (4b) | 1,185,543 | |
| Gross profit | | 147,869 | | | 20,672 | | | 64,840 | | | 2,654 | | | 236,035 | |
| Selling, general and administrative expenses | | 100,045 | | | 9,879 | | | 32,177 | | | 18,613 | | (4d) | 160,714 | |
| Gains on dispositions of plant, equipment and timberlands, net | | (1,332) | | | 545 | | | — | | | — | | | (787) | |
| Operating income | | 49,156 | | | 10,248 | | | 32,663 | | | (15,959) | | | 76,108 | |
| Non-operating income (expense) | | | | | | | | | | |
| Interest expense | | (7,022) | | | — | | | (7,660) | | | (17,158) | | (4f) | (31,840) | |
| Interest income | | 399 | | | — | | | 250 | | | — | | | 649 | |
| Pension settlement | | (6,154) | | | — | | | — | | | — | | | (6,154) | |
| Other, net | | (4,020) | | | (123) | | | (7,939) | | | — | | | (12,082) | |
| Total non-operating expense | | (16,797) | | | (123) | | | (15,349) | | | (17,158) | | | (49,427) | |
| Income (loss) before income taxes | | 32,359 | | | 10,125 | | | 17,314 | | | (33,117) | | (4g) | 26,681 | |
| Income tax provision (benefit) | | 11,576 | | | 3,061 | | | 5,280 | | | (2,532) | | | 17,385 | |
| Income (loss) from continuing operations | | $ | 20,783 | | | $ | 7,064 | | | $ | 12,034 | | | $ | (30,585) | | | $ | 9,296 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Earnings per share | | | | | | | | | | |
| Basic | | $ | 0.47 | | | | | | | | | 0.21 |
| Diluted | | 0.47 | | | | | | | | 0.21 |
| | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic | | 44,339 | | | | | | | | | 44,339 | |
| Diluted | | 44,614 | | | | | | | | | 44,614 | |
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements.
5.Refer to Note 3 for the description of the historical amounts.
6.Refer to Note 3b for the details of the Mount Holly historical amounts.
7.Refer to Note 3c for the details of the Jacob Holm historical amounts.
8.Refer to Note 4 for details of the Transaction accounting adjustments.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | Glatfelter Historical (9) | | Jacob Holm Historical U.S. GAAP (10) | | Transaction Accounting Adjustments (11) | | Transaction Financing | | Pro Forma for the Transactions |
| Assets | | | | | | | | | | |
| Cash and cash equivalents | | $ | 84,164 | | | $ | 8,707 | | | $ | (43,740) | | (4h) | | | $ | 49,131 | |
| Accounts receivable, net | | 144,155 | | | 32,126 | | | — | | | | | 176,281 | |
| Inventories | | 220,206 | | | 41,990 | | | 5,539 | | (4i) | | | 267,735 | |
| Prepaid expenses and other current assets | | 43,578 | | | 5,569 | | | — | | | | | 49,147 | |
| Total current assets | | 492,103 | | | 88,392 | | | (38,201) | | | 0 | | 542,294 | |
| | | | | | | | | | | |
| Plant, equipment and timberlands, net | | 621,103 | | | 146,655 | | | 13,676 | | (4i) | | | 781,434 | |
| Goodwill | | 195,461 | | | — | | | 72,991 | | (4i) | | | 268,452 | |
| Intangible assets, net | | 95,022 | | | 2,531 | | | 68,729 | | (4i) | | | 166,282 | |
| Other assets | | 56,401 | | | 7,160 | | | 20,000 | | (4i) | | | 83,561 | |
| Total assets | | $ | 1,460,090 | | | $ | 244,738 | | | $ | 137,195 | | | 0 | | $ | 1,842,023 | |
| | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | |
| Current portion of long-term debt | | $ | 24,267 | | | $ | — | | | $ | — | | | | | $ | 24,267 | |
| Short-term debt | | 11,884 | | | 13,700 | | | — | | | | | 25,584 | |
| Accounts payable | | 122,834 | | | 24,897 | | | — | | | | | 147,731 | |
| Dividends payable | | 6,233 | | | — | | | — | | | | | 6,233 | |
| Environmental liabilities | | 3,206 | | | — | | | — | | | | | 3,206 | |
| Other current liabilities | | 73,930 | | | 17,844 | | | (2,168) | | | | | 89,606 | |
| Total current liabilities | | 242,354 | | | 56,441 | | | (2,168) | | | 0 | | 296,627 | |
| | | | | | | | | | | |
| Long-term debt | | 445,261 | | | 151,219 | | | 119,923 | | (4j) | | | 716,403 | |
| Deferred income taxes | | 77,123 | | | — | | | 13,070 | | (4i) | | | 90,193 | |
| Other long-term liabilities | | 124,107 | | | 8,408 | | | 41,543 | | (4i) | | | 174,058 | |
| Total liabilities | | 888,845 | | | 216,068 | | | 172,368 | | | 0 | | 1,277,281 | |
| | | | | | | | | | | |
| Commitments and contingencies | | — | | | — | | | — | | | 0 | | — | |
| | | | | | | | | | | |
| Shareholders’ equity | | | | | | | | | | |
| Common stock | | 544 | | | — | | | — | | | | | 544 | |
| Capital in excess of par value | | 62,796 | | | — | | | — | | | | | 62,796 | |
| Retained earnings | | 720,934 | | | 28,670 | | | (35,173) | | (4k) | | | 714,431 | |
| Accumulated other comprehensive loss | | (64,813) | | | — | | | — | | | | | (64,813) | |
| | | 719,461 | | | 28,670 | | | (35,173) | | | 0 | | 712,958 | |
| Less cost of common stock in treasury | | (148,216) | | | — | | | — | | | | | (148,216) | |
| Total shareholders’ equity | | 571,245 | | | 28,670 | | | (35,173) | | | 0 | | 564,742 | |
| Total liabilities and shareholders’ equity | | $ | 1,460,090 | | | $ | 244,738 | | | $ | 137,195 | | | 0 | | $ | 1,842,023 | |
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements.
9.Refer to Note 3 for the description of the historical amounts.
10.Refer to Note 3c for the details of the Jacob Holm amounts.
11.Refer to Note 4 for details of the Transaction accounting adjustments.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of the transactions
a. Mount Holly
On May 13, 2021, we completed the acquisition of all the outstanding equity interests in Mount Holly, for
$170.7 million, subject to customary post-closing purchase price adjustments.
b. Jacob Holm
On October 29, 2021, we completed the acquisition of Jacob Holm, a global leading manufacturer of premium quality spunlace nonwoven fabrics for critical cleaning, high-performance materials, personal care, hygiene and medical applications, for approximately $304.0 million including the extinguishment of debt and subject to post-closing adjustments. The transaction, purchase price and acquisition-date preliminary fair values assigned to the assets acquired and liabilities assumed are set out in Note 4 to the unaudited pro forma condensed combined consolidated financial information.
c. Notes financing
We used the net proceeds from the offering of $500 million of 4.750% Notes, together with cash on hand, to pay the purchase price for the Jacob Holm Acquisition, to repay certain indebtedness of Jacob Holm, to repay outstanding borrowings under our Credit Facility and to pay fees and expenses (collectively, the “Transactions”).
2. Basis of presentation
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting to account for the Mount Holly Acquisition and the Jacob Holm Acquisition. Accordingly, we have adjusted the historical consolidated financial information to give effect to the consideration issued in connection with the Mount Holly Acquisition and the Jacob Holm Acquisition. In addition, the unaudited pro forma condensed combined financial information was prepared giving effect to proceeds of, and interest expense associated with, the Notes offering.
Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair market value at the acquisition date. With respect to the Mount Holly Acquisition, fair value is based on management’s estimate of the fair value using valuation techniques such as discounted cash flow models, appraisals and similar methodologies. With respect to the Jacob Holm Acquisition we are in the process of finalizing an analysis of the estimated fair value of the assets acquired and liabilities assumed necessary to complete the purchase price allocation.
Definitive allocations will be finalized based on the completion of certain valuations and other studies. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the unaudited pro forma condensed combined financial information are preliminary, have been made solely for the purpose of preparing this unaudited pro forma condensed combined financial information and are subject to revision based on a final determination of fair value after closing of the Jacob Holm Acquisition, and such
revisions could have a material effect on the accompanying unaudited pro forma condensed combined financial information.
3. Historical Financial Information
The historical amounts set forth in the unaudited pro forma condensed combined statements of income for the year ended December 31, 2020 and for the six months ended June 30, 2021 where derived from:
a. Glatfelter—historical financial information derived from Glatfelter’s audited consolidated financial statements as of and for the year ended December 31, 2020 and unaudited condensed consolidated statements as of and for the three months and six months ended June 30, 2021.
b. Mount Holly—historical financial information derived from Mount Holly’s audited combined financial statements for the year ended December 31, 2020 and unaudited interim combined financial statements for the three months ended March 31, 2021, each previously filed by Glatfelter on a Current Report on Form 8-K/A filed on July 28, 2021, adjusted for certain reclassifications necessary to conform the presentation to that of Glatfelter. The historical financial information for the period April 1, 2021 through May 13, 2021 was derived from Mount Holly’s management’s internally produced financial information. Because such financial information did not include a provision for income taxes, management of Glatfelter estimated income taxes assuming an effective tax rate of 24%.
c. Jacob Holm—historical financial information derived from Jacob Holm’s audited consolidated financial statements for the year ended December 31, 2020 and unaudited interim consolidated financial statements for the six months ended June 30, 2021, filed as Exhibit 99.1 and Exhibit 99.2, respectively, to the Current Report on Form 8-K/A to which this Exhibit 99.3 is also filed as an exhibit. The historical consolidated financial statements of Jacob Holm are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”) and presented in euros, its reporting currency.
The following table summarizes currency exchange rates used to translate historical financial information from euro to U.S. dollar:
Average rate six months ended June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2057
Average rate six months ended June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1015
Average rate 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1413
Spot rate June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1884
The following tables summarize adjustments from IFRS to GAAP, certain reclassifications necessary to conform the presentation to that of Glatfelter and translation from euros to U.S. dollars.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2021 | | |
| In thousands | Jacob Holm Group IFRS (i) | | U.S. GAAP Adjustments | | Jacob Holm Group Adjusted for U.S. GAAP | | Reclass | | Translation to U.S. Dollars | | Jacob Holm Group U.S. GAAP |
| Net sales | € | 157,058 | | | € | — | | | € | 157,058 | | | € | — | | | $ | 32,307 | | | $ | 189,365 | |
| Costs of products sold | 132,815 | | | 133 | | (ii) | 132,948 | | | — | | | 27,347 | | | 160,295 | |
| Gross profit (loss) | 24,243 | | | (133) | | | 24,110 | | | — | | | 4,960 | | | 29,070 | |
| Selling and marketing expenses | 4,208 | | | — | | | 4,208 | | | 11,897 | | | 3,313 | | | 19,418 | |
| Administrative expenses | 10,292 | | | — | | | 10,292 | | | (10,292) | | | — | | | — | |
| Other operating income and expense | 373 | | | — | | | 373 | | | (373) | | | — | | | — | |
| Operating income (loss) | 9,370 | | | (133) | | | 9,237 | | | (1,232) | | | 1,647 | | | 9,652 | |
| Non-operating income (expense) | | | | | | | | | | | |
| Interest expense | (3,157) | | (i) | 133 | | (ii) | (3,024) | | | 232 | | (ii) | (574) | | | (3,366) | |
| Interest income | 2,281 | | (i) | — | | | 2,281 | | | (2,278) | | (ii) | 1 | | | 4 | |
| Other, net | (1,232) | | (i) | — | | | (1,232) | | | 3,278 | | | 421 | | | 2,467 | |
| Total non-operating expense | (2,108) | | | 133 | | | (1,975) | | | 1,232 | | | (152) | | | (895) | |
| Income before income taxes | 7,261 | | | — | | | 7,262 | | | — | | | 1,495 | | | 8,757 | |
| Income tax provision | 966 | | | — | | | 966 | | | — | | | 199 | | | 1,165 | |
| Income from continuing operations | € | 6,295 | | | € | — | | | € | 6,296 | | | € | — | | | $ | 1,296 | | | $ | 7,592 | |
i.The amounts presented are derived from comparable line items in Jacob Holm’s historical unaudited interim consolidated financial statements for the six months ended June 30, 2021 filed herewith as Exhibit 99.2. The sum of certain amounts does not agree to the total presented due to rounding. The amounts derived from Jacob Holm’s unaudited interim consolidated financial statements for the six months ended June 30, 2021 were adjusted to conform to the presentation to that of Glatfelter as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Euros, In thousands | | | | As reported in Jacob Holm Financial Statements | | | | |
| Financial Statement Line Item | | | | | Jacob Holm Group IFRS presented above |
| Jacob Holm | | Glatfelter | | | Reclassification | |
| Special items, net | | — | | (1,232) | | | 1,232 | | | — | |
| Financial income | | Interest income | | 2,281 | | | | | 2,281 | |
| Financial expense | | Interest expense | | (3,157) | | | | | (3,157) | |
| — | | Other, net | | — | | | (1,232) | | | (1,232) | |
| | | | 2,108 | | | — | | | (2,108) | |
ii.Represents a reclass of interest expense on financial leases to lease expense to conform to treatment as operating leases under GAAP.
iii.Represents reclass of foreign currency gains and losses to “Other, net.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2020 | | |
| In thousands | Jacob Holm Group IFRS | | U.S. GAAP Adjustments | | Jacob Holm Group Adjusted for U.S. GAAP | | Reclass | | Translation to U.S. Dollars | | Jacob Holm Group U.S. GAAP |
| Net sales | € | 353,904 | | | € | — | | | € | 353,904 | | | € | — | | | $ | 50,007 | | | $ | 403,911 | |
| Costs of products sold | 296,752 | | | 340 | | (iv) | 297,092 | | | — | | | 41,979 | | | 339,071 | |
| Gross profit (loss) | 57,152 | | | (340) | | | 56,812 | | | — | | | 8,028 | | | 64,840 | |
| Selling and marketing expenses | 7,540 | | | — | | | 7,540 | | | 20,653 | | | 3,984 | | | 32,177 | |
| Administrative expenses | 18,909 | | | — | | | 18,909 | | | (18,909) | | | — | | | — | |
| Other operating income and expense | 50 | | | — | | | 50 | | | (50) | | | — | | | — | |
| Operating income (loss) | 30,653 | | | (340) | | | 30,313 | | | (1,694) | | | 4,044 | | | 32,663 | |
| Non-operating income (expense) | | | | | | | | | | | |
| Interest expense | (14,008) | | (iv) | 340 | | (v) | (13,668) | | | 6,956 | | (vi) | (948) | | | (7,660) | |
| Interest income | 219 | | (iv) | — | | | 219 | | | — | | | 31 | | | 250 | |
| Other, net | (1,694) | | (iv) | — | | | (1,694) | | | (5,262) | | | (983) | | | (7,939) | |
| Total non-operating expense | (15,483) | | | 340 | | | (15,143) | | | 1,694 | | | (1,900) | | | (15,349) | |
| Income before income taxes | 15,170 | | | — | | | 15,170 | | | — | | | 2,144 | | | 17,314 | |
| Income tax provision (benefit) | 4,626 | | | — | | | 4,626 | | | — | | | 654 | | | 5,280 | |
| Income from continuing operations | € | 10,544 | | | € | — | | | € | 10,544 | | | € | — | | | $ | 1,490 | | | $ | 12,034 | |
iv.The amounts presented are derived from comparable line items in Jacob Holm’s historical unaudited interim consolidated financial statements for the year ended December 31, 2020 filed herewith as Exhibit 99.1, adjusted to conform to the presentation to that of Glatfelter as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Euros, In thousands | | | | As reported in Jacob Holm Financial Statements | | | | |
| Financial Statement Line Item | | | | | Jacob Holm Group IFRS presented above |
| Jacob Holm | | Glatfelter | | | Reclassification | |
| Special items, net | | — | | (1,694) | | | 1,694 | | | — | |
| Financial income | | Interest income | | 219 | | | — | | | 219 | |
| Financial expense | | Interest expense | | (14,008) | | | — | | | (14,008) | |
| — | | Other, net | | — | | | (1,694) | | | (1,694) | |
| | | | (15,483) | | | — | | | (15,483) | |
v.Represents a reclass of interest on financial leases to lease expense to conform to treatment as operating leases under GAAP.
vi.Represents the reclass of currency transaction losses from “Financial expenses” in Jacob Holm historical financial statements to “other, net” to conform to the presentation of Glatfelter, net of “Special items” reclassed from “Other, net’ to “Selling and marketing.”
vii.Represents reclass of foreign currency gains and losses to “Other, net.”
4. Transaction Accounting Adjustments
a) Adjustments to cost of goods sold for the six months ended June 30, 2021 consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| In thousands | | Depreciation & amortization | | Lease expense | | Total |
| Eliminate Mount Holly historical expenses | | $ | (1,792) | | | $ | — | | | $ | (1,792) | |
| Eliminate Jacob Holm historical expenses | | (5,277) | | | — | | | (5,277) | |
| Transaction-related depreciation - Mount Holly | | 3,109 | | | — | | | 3,109 | |
| Transaction-related depreciation & amortization - Jacob Holm | | 3,528 | | | — | | | 3,528 | |
| Record estimated lease expense related to Mount Holly | | — | | | 48 | | | 48 | |
| Total | | $ | (432) | | | $ | 48 | | | $ | (384) | |
i.A decrease of $432 thousand in depreciation expense due to the difference in the bases of depreciable assets together with changes in the estimated lives resulting from the application of the FASB ASC 805 to account for the Mount Holly Acquisition and the Jacob Holm Acquisition; and
ii.Lease expense of $48 thousand due to the application of FASB ASC No. 842, “Leases” (“FASB ASC 842”), to account for the lease of a building in connection with the Mount Holly Acquisition.
b) Adjustments to cost of goods sold for the year ended December 31, 2020 consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| In thousands | | Depreciation & amortization | | Lease expense | | Total |
| Eliminate Mount Holly historical expenses | | $ | (5,261) | | | $ | — | | | $ | (5,261) | |
| Eliminate Jacob Holm historical expenses | | (10,796) | | | — | | | (10,796) | |
| Transaction-related depreciation & amortization - Mount Holly | | 6,218 | | | — | | | 6,218 | |
| Transaction-related depreciation & amortization - Jacob Holm | | 7,055 | | | — | | | 7,055 | |
| Record estimated lease expense related to Mount Holly | | — | | | 130 | | | 130 | |
| Total | | $ | (2,784) | | | $ | 130 | | | $ | (2,654) | |
i.A $2.8 million decrease in depreciation expense due to the difference in the bases of depreciable assets together with changes in estimated lives resulting from the application of the FASB ASC 805 to account for the Mount Holly Acquisition and the Jacob Holm Acquisition; and
ii.Lease expense of $130 thousand due to the application of FASB ASC 842, to account for the lease of a building in connection the Mount Holly Acquisition.
c) Adjustments to selling, general and administrative expenses for the six months ended June 30, 2021 consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| In thousands | | Transaction costs | | Intangible asset amortization | | Total |
| Transaction-related amortization - Mount Holly | | $ | — | | | $ | 909 | | | $ | 909 | |
| Transaction-related amortization - Jacob Holm | | — | | | 1,537 | | | 1,537 | |
| Expenses directly related to the Transactions included in Glatfelter historical amounts and assumed to be recorded in 2020 for pro forma purposes | | (6,128) | | | — | | | (6,128) | |
| Total | | $ | (6,128) | | | $ | 2,446 | | | $ | (3,682) | |
i.A $2.4 million increase in amortization expense related to identifiable intangible assets from the application of the FASB ASC 805 to account for the Mount Holly Acquisition and the Jacob Holm Acquisition. The identifiable intangible assets consist of customer lists, technical know-how, tradenames and patents with estimated useful life of approximately 10 years; and
ii.$6.1 million of legal and professional fees directly related to the Mount Holly Acquisition included in Glatfelter’s historical amounts during the first six months of 2021 which, for pro forma purposes, are assumed to be incurred as of January 1, 2020.
d) Adjustments to selling, general and administrative expenses for the year ended December 31, 2020 consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| In thousands | | Transaction costs | | Intangible asset amortization | | Total |
| Transaction-related amortization - Mount Holly | | $ | — | | | $ | 1,818 | | | $ | 1,818 | |
| Transaction-related amortization - Jacob Holm | | — | | | 3,074 | | | 3,074 | |
| Expenses directly related to the Transactions recorded in 2021 and assumed to be recorded in 2020 for pro forma purposes | | 6,128 | | | — | | | 6,128 | |
| Expenses directly related to the Transactions | | 7,593 | | | — | | | 7,593 | |
| Total | | $ | 13,721 | | | $ | 4,892 | | | $ | 18,613 | |
i.A $6.1 million increase of legal and professional fees directly related to the Mount Holly Acquisition included in Glatfelter’s historical amounts during the first six months of 2021 which, for pro forma purposes, are assumed to be incurred as of January 1, 2020, and a $7.6 million adjustment for estimated expenses to be incurred that are directly related to the Jacob Holm Acquisition.
ii.A $4.9 million increase in amortization expense related to identifiable intangible assets from the application of the FASB ASC 805 to account for the Mount Holly Acquisition and the Jacob Holm Acquisition.
e) Adjustment to interest expense for the six months ended June 30, 2021 represents the following:
| | | | | | | | |
| In thousands | | |
| Eliminate Jacob Holm historical interest expense | | $ | (3,366) |
| Incremental expense associated with Bond offering | | 12,658 |
| Adjustment to interest expense | | $ | 9,292 |
f) Adjustment to interest expense for the year ended December 31, 2020 represents the following:
| | | | | | | | |
| In thousands | | |
| Eliminate Jacob Holm historical interest expense | | $ | (7,660) |
| Incremental expense associated with Bond offering | | 24,818 |
| Adjustment to interest expense | | $ | 17,158 |
g) The tax effect of the pro forma adjustments is based on the tax rates of the jurisdiction in which the transactions would have taken place. The tax rate reflects the impact on certain of the Transaction Accounting Adjustments giving effect to i) certain of the amounts included in the Transaction Accounting Adjustments are nondeductible for U.S. tax purposes; and ii) because Glatfelter is in a loss for U.S.-based taxable income and is unable to recognize deferred tax assets, management has determined it would be unable to recognize any tax benefit from the adjustments.
h) Reflects the amount of cash used, together with the Notes offering, to fund the Jacob Holm Acquisition, the repayment of revolving borrowings under the Credit Facility and for transaction expenses.
i) The pro forma adjustments reflect the preliminary allocation of the purchase price for the Jacob Holm
Acquisition as follows:
| | | | | | | | |
| In thousands | | |
| Total consideration | | $ | 303,951 |
| Less: Debt repaid | | (148,959) |
| | 154,992 |
| Less book value of net assets acquired | | (28,670) |
| Purchase price in excess of book value of net assets acquired | | $ | 126,322 |
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 reflects adjustments to allocate the purchase price in excess of the book values of net assets acquired to the fair value of the assets acquired and liabilities assumed based on management’s preliminary estimate of the respective fair values. We are in the process of finalizing an analysis of the estimated fair value of the assets acquired and liabilities assumed necessary to complete the purchase price allocation. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the unaudited pro forma condensed combined financial information are preliminary and subject to change and the change could be material.
The following sets forth the preliminary allocation of the purchase price in excess of the book value of net assets acquired assuming the Jacob Holm Acquisition occurred as of June 30, 2021:
| | | | | | | | |
| In thousands | | |
| Inventory | | $ | 5,539 | |
| Property, plant and equipment | | 13,676 | |
| Intangible assets - customer relationships, technical know-how, patents and trademarks | | 68,729 | |
| Goodwill | | 72,991 | |
| Indemnification asset | | 20,000 | |
| Total assets | | 180,935 | |
| | |
| Deferred income taxes | | 13,070 | |
| Other long-term liabilities | | 41,543 | |
| Total liabilities | | 54,613 | |
| Total preliminary purchase price allocation | | $ | 126,322 | |
j) Reflects the Notes offering, net of the repayment of revolving borrowings under the Credit Facility and the retirement of Jacob Holm’s long-term debt.
k) Reflects the elimination of the equity of Jacob Holm in accordance with FASB ASC 805.
5. Sensitivity Analysis
(a) With respect to the Jacob Holm Acquisition, we are in the process of finalizing analysis of the estimated fair value of the assets acquired and liabilities assumed necessary to complete the purchase price.allocation. Therefore, there are certain preliminary assumptions regarding the purchase price allocation used in the unaudited pro forma condensed combined financial information, for which actual amounts may differ from the amounts assumed and such differences could be material.
For purposes of the unaudited pro forma condensed combined financial information, the excess of the book value of net assets to be acquired has been allocated to the assets to be acquired and liabilities assumed based on management’s estimate of fair value, since the formal extensive fair valuation studies have not been completed. Although management considers its estimates to be reasonable, the actual fair values may differ from such preliminary estimates, the differences could be material and the amounts of depreciation or amortization expense would change accordingly.
