EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unless the context otherwise requires, "WE," "US," "OUR" and "ROCK-TENN" refer
to the business of Rock-Tenn Company and its consolidated subsidiaries. These
terms do not include Seven Hills Paperboard, LLC, a manufacturer of gypsum
paperboard liner, which we refer to as "SEVEN HILLS." We own 49% of Seven Hills,
which we do not consolidate for purposes of our financial statements. Unless the
context otherwise requires, "GSPP" refers to the Pulp and Paperboard and
Paperboard Packaging business of Gulf States Paper Corporation and certain of
its related entities (which we refer to collectively as "GULF STATES") that we
acquired on June 6, 2005, including GSD Packaging, LLC , which we refer to as
"GSD." We acquired 60% of GSD, which conducts folding carton operations, as part
of the GSPP acquisition (which we refer to collectively as the "GSPP
ACQUISITION").
In the GSPP Acquisition we acquired substantially all of the GSPP operations and
assumed certain of Gulf States' related liabilities for an aggregate purchase
price of $553.9 million, net of cash received of $0.7 million, including various
fees and expenses. The purchase price for the GSPP Acquisition is subject to
post-closing adjustments to reflect, among other things, changes in Gulf States'
working capital related to GSPP and certain pre-closing capital expenditures. On
June 6, 2005, we entered into a Credit Agreement (which we refer to as the
"SENIOR CREDIT FACILITY"). The Senior Credit Facility includes revolving credit
and term loan facilities in the aggregate principal amount of $700 million. We
financed the GSPP Acquisition, including related costs, with $420.0 million in
financing from the Senior Credit Facility into which we entered
contemporaneously with the closing of the GSPP Acquisition, $70.1 million in
financing from our existing Asset Securitization Facility and cash on hand. The
Senior Credit Facility is pre-payable at any time and is scheduled to expire on
June 6, 2010. The Senior Credit Facility is secured by the real and personal
property of the GSPP business that we acquired in the GSPP Acquisition and the
following property of the Company, as specified in the Senior Credit Facility:
inventory and general intangibles, including, without limitation, specified
patents, patent licenses, trademarks, trademark licenses, copyrights and
copyright licenses. Borrowings in the United States under the Senior Credit
Facility bear interest based upon either (1) LIBOR plus an applicable margin
(which we refer to as "LIBOR LOANS") or (2) the alternative base rate plus an
applicable margin (which we refer to as "BASE RATE LOANS"). At June 30, 2005,
the applicable margin for determining the interest rate applicable to LIBOR
Loans and the applicable margin for determining the interest rate applicable to
Base Rate Loans were 1.750% and 0.750%, respectively. For additional information
regarding our outstanding debt and credit facilities, see "NOTE 11. DEBT" of the
Notes to Condensed Consolidated Financial Statements section of the Financial
Statements included in our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005 (which we refer to as the "JUNE FISCAL 2005 FORM 10-Q") and "NOTE
11. DEBT" of the Notes to Condensed Consolidated Financial Statements section of
the Financial Statements included in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2004 (which we refer to as the "FISCAL 2004 FORM
10-K").
We are exposed to changes in interest rates as a result of our debt related to
the GSPP Acquisition. We use swap agreements to manage the interest rate
characteristics of a portion of this debt. During the third quarter of fiscal
2005, we executed new swaps on our debt related to the GSPP Acquisition. The new
swaps that we entered into during the quarter have a July 1, 2005 effective
date. As of July 1, 2005, our fixed to floating rate debt ratio was
approximately 75%:25%. Taking into account the swaps described above, if market
interest rates increased an average of 12.5 basis points, our annual interest
expense on our debt related to the GSPP Acquisition would increase by $0.2
million.
We prepared the pro forma financial information using the purchase method of
accounting. Under purchase accounting, the total cost of the GSPP Acquisition is
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective fair values at the effective date of the GSPP
Acquisition. We have made a preliminary allocation of the purchase price to
major categories of assets and liabilities based on estimates. The purchase
price allocation is preliminary because we have not yet completed an independent
appraisal of the property, plant and equipment and intangible assets we
acquired. In addition, the purchase price is subject to a final adjustment based
on the working capital we acquired. The purchase agreement provides for a 120
day period during which Rock-Tenn and Gulf States must finalize the working
capital adjustment. The final allocation of the purchase price and the effect of
the final allocation on results of operations may differ significantly from the
pro forma amounts included herein. We have allocated to goodwill the excess of
the purchase price over the net tangible and identifiable intangible assets we
acquired and liabilities we assumed.
1
Our preliminary allocation of the purchase price, which is subject to change
based on the final valuation of the assets acquired and liabilities assumed as
of the closing date, is as follows (in thousands):
Property, plant and equipment $ 359,945
Net working capital acquired 103,238
Customer contracts and relationships 44,467
Other long term assets (156)
Minority interest (10,743)
Goodwill 57,142
-------------
Estimated total purchase price $ 553,893
=============
The following unaudited condensed pro forma combined statements of operations
for the nine months ended June 30, 2005 and for the year ended September 30,
2004 give effect to the GSPP Acquisition and the related financing transactions
as if they occurred on October 1, 2003. The pro forma combined financial
statements include adjustments directly attributable to the GSPP Acquisition and
related financing transactions that have a continuing impact on the combined
businesses. The pro forma adjustments are described in the accompanying notes.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable.
The pro forma information is based on historical financial statements. We
prepared the pro forma information in accordance with the rules and regulations
of the Securities and Exchange Commission (which we refer to as the "SEC") and
provided the information for comparison and analysis purposes only. The
unaudited pro forma combined financial statements do not purport to represent
the results of operations of the combined operations of Rock-Tenn and GSPP as if
the GSPP Acquisition and related financing transactions actually occurred as of
such dates or of the results that the combined operations would have achieved
after the GSPP Acquisition. The unaudited pro forma combined statements of
income also do not reflect significant operational cost savings that management
of Rock-Tenn estimates may be achieved as a result of the GSPP Acquisition. The
unaudited pro forma combined statements of operations do not include any
material non-recurring charges that will arise as a result of the GSPP
Acquisition and related transactions.
2
Rock-Tenn files its financial results based on a 52 week fiscal year ending
September 30. Prior to the GSPP Acquisition, Gulf States reported GSPP's
financial information on a 52 - 53 week year ending on the Sunday nearest the
end of December. In order to produce a GSPP income statement for the year ended
September 30, 2004, we started with GSPP's income statement for the year ended
January 2, 2005, subtracted the income statement for the quarter ended January
2, 2005 and added the income statement for the quarter ended December 28, 2003,
as reflected below:
GULF STATES PAPER CORPORATION
PAPERBOARD AND PACKAGING DIVISIONS
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Adjustments
-----------------------------------
Add Subtract
----------------- ---------------
(In Thousands) 53 Weeks Thirteen Weeks 14 Weeks 52 Weeks
Ended Ended Ended Ended
January 2, 2005 December 28, 2003 January 2, 2005 September 26, 2004
--------------- ----------------- --------------- ------------------
Net sales $ 474,771 $ 108,209 $ 122,322 $ 460,658
Other income 981 725 204 1,502
--------------- ----------------- --------------- ------------------
475,752 108,934 122,526 462,160
Cost of products sold 356,856 87,850 96,370 348,336
Selling and administrative
expenses 45,121 11,817 11,783 45,155
Depreciation and
amortization 39,335 10,303 10,265 39,373
Interest expense 7 3 1 9
Impairment charge 1,825 1,310 25 3,110
--------------- ----------------- --------------- ------------------
443,144 111,283 118,444 435,983
Income before income tax
provision and minority
interest 32,608 (2,349) 4,082 26,177
Income tax provision 10,135 (1,315) 1,161 7,659
--------------- ----------------- --------------- ------------------
Income before minority
interest 22,473 (1,034) 2,921 18,518
Minority interest 1,796 284 358 1,722
--------------- ----------------- --------------- ------------------
Net income $ 20,677 $ (1,318) $ 2,563 $ 16,796
=============== ================= =============== ==================
3
The quarter ended January 2, 2005 was a 14-week quarter. For the 36 weeks ended
June 5, 2005, we combined GSPP's fourth fiscal quarter ended January 2, 2005
with its first fiscal quarter ended April 3, 2005 and nine weeks ended June 5,
2005, as reflected below:
GULF STATES PAPER CORPORATION
PAPERBOARD AND PACKAGING DIVISIONS
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
14 Weeks Thirteen Weeks Nine Weeks 36 Weeks
Ended Ended Ended Ended
(In Thousands) January 2, 2005 April 3, 2005 June 5, 2005 June 5, 2005
--------------- -------------- ------------ ------------
Net sales $ 122,322 $ 128,802 $ 92,320 $ 343,444
Other income 204 228 89 521
--------------- -------------- ------------ ------------
122,526 129,030 92,409 343,965
Cost of products sold 96,370 94,451 66,660 257,481
Selling and administrative
expenses 11,783 13,870 7,587 33,240
Depreciation and amortization 10,265 9,621 6,640 26,526
Interest expense 1 2 0 3
Impairment charge 25 25 0 50
--------------- -------------- ------------ ------------
118,444 117,969 80,887 317,300
Income before income tax
provision and minority
interest 4,082 11,061 11,522 26,665
Income tax provision 1,161 3,426 3,836 8,423
--------------- -------------- ------------ ------------
Income before minority
interest 2,921 7,635 7,686 18,242
Minority interest 358 720 459 1,537
--------------- -------------- ------------ ------------
Net income $ 2,563 $ 6,915 $ 7,227 $ 16,705
=============== ============== ============ ============
We did not prepare a pro forma balance sheet because we included a consolidated
balance sheet that includes GSPP in our June Fiscal 2005 Form 10-Q.
The unaudited pro forma combined financial statements should be read in
conjunction with our historical financial statements and notes thereto included
in our Fiscal 2004 Form 10-K and our Current Reports on Form 10-Q for the
subsequent fiscal quarters ended December 31, 2004, March 31, 2005 and June 30,
2005, and GSPP's historical financial statements and notes thereto included as
Exhibit 99.1 to this Form 8-K/A.
4
ROCK-TENN COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma
-------------------------------
Historical Acquisition Condensed
-----------------------------
Rock-Tenn GSPP Adjustments Combined
------------- ------------ ------------- ------------
Net sales $ 1,581,261 $ 460,658 $ (553) 1 $ 2,041,366
Cost of goods sold 1,310,924 387,709 (553) 1 1,685,584
(12,051) 2
(445) 3
------------- ------------ ------------- ------------
Gross profit 270,337 72,949 12,496 355,782
Selling, general and administrative
expenses 199,355 45,155 2,458 4 234,214
(12,754) 5
Restructuring and other costs 32,738 3,110 445 3 34,493
(1,800) 6
------------- ------------ ------------- ------------
Operating profit (loss) 38,244 24,684 24,147 87,075
Interest and other income (expense) (143) 1,502 (991) 7 368
Interest expense (23,566) (9) (27,828) 8 (51,403)
Income (loss) unconsolidated from
joint venture 119 119
Minority interest in income of
consolidated subsidiaries (3,419) (1,722) (5,141)
------------- ------------ ------------- ------------
Income (loss) from continuing
operations before income taxes 11,235 24,455 (4,672) 31,018
Provision for income taxes 1,584 7,659 (142) 9 9,101
------------- ------------ ------------- ------------
Income (loss) from continuing
operations $ 9,651 $ 16,796 $ (4,530) $ 21,917
============= ============ ============= ============
Weighted average common shares
outstanding - diluted 35,478 35,478
Diluted earnings (loss) per share:
Income (loss) from continuing
operations $ 0.27 $ 0.61
============= ============
See accompanying explanation of pro forma adjustments.
5
ROCK-TENN COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 2005
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma
---------------------------------
Historical Acquisition Condensed
-------------------------------
Rock-Tenn GSPP Adjustments Combined
--------------- ------------- -------------- -------------
Net sales $ 1,204,834 $ 343,444 $ (1,737) 1 $ 1,546,541
Cost of goods sold 1,017,079 284,007 (1,737) 1 1,291,739
(7,610) 2
--------------- ------------- -------------- -------------
Gross profit 187,755 59,437 7,610 254,802
Selling, general and administrative
expenses 145,572 33,240 1,702 4 171,499
(9,015) 5
Restructuring and other costs 3,977 50 0 4,027
--------------- ------------- -------------- -------------
Operating profit 38,206 26,147 14,923 79,276
Interest and other income (expense) 399 521 (686) 7 234
Interest expense (22,264) (3) (19,269) 8 (41,536)
0
Income (loss) unconsolidated from
joint venture (1,048) (1,048)
Minority interest in income of
consolidated subsidiary (3,043) (1,537) 0 (4,580)
--------------- ------------- -------------- -------------
Income from continuing operations
before income taxes 12,250 25,128 (5,032) 32,346
Provision for income taxes (454) 8,423 (786) 9 7,183
--------------- ------------- -------------- -------------
Income from continuing operations $ 12,704 $ 16,705 $ (4,245) $ 25,164
=============== ============= ============== =============
Weighted average number of common
and common equivalent shares
outstanding 35,911 35,911
Diluted earnings per share:
Income from continuing
operations $ 0.35 $ 0.70
=============== =============
See accompanying explanation of pro forma adjustments.
6
COMBINED COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
Pro Forma Adjustments
The adjustments in the unaudited pro forma combined statements of income are as
follows:
1 Eliminates intercompany sales.
2 Adjusts depreciation expense for fair market value adjustments to assets
acquired. We expect to depreciate the fair value of property, plant and
equipment of approximately $359.9 million on a straight-line basis over
estimated useful lives that range from 7 to 20 years.
3 Reclassifies plant closing expense to restructuring and other costs.
4 Amortizes the identifiable intangible assets (customer contracts). We
expect to amortize the estimated fair value of the identifiable
intangibles of approximately $44.5 million on a straight-line basis over
estimated useful lives that range from 9 to 35 years.
5 Eliminates corporate overhead charges by Gulf States net of expenses that
Rock-Tenn expects to incur to provide comparable functions.
6 Eliminates impairment charge on recovery boiler asset not acquired.
7 Eliminates interest income on cash and marketable securities used to
finance the acquisition.
8 Records interest expense on debt incurred to finance the acquisition.
9 Adjusts tax expense to reflect Rock-Tenn's filing status.
7