UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On August 12, 2022, GulfMark Asset Holdings, LLC (“GulfMark Holdings”), a Texas limited liability company and subsidiary of Xxxxx Resources & Energy, Inc., a Delaware corporation (the “Company” or “Xxxxx”), as buyer and each of Xxxxx Xxxxxx, Xxxx Xxxxxx and Xxxxx Xxxxxx as sellers (collectively, the “Sellers”), entered into a purchase agreement (the “Purchase Agreement”) to acquire all of the equity of Firebird Bulk Carriers, Inc., a Texas corporation (“Firebird”), and Phoenix Oil, Inc., a Texas corporation (“Phoenix”), for a purchase price of approximately $35.8 million in cash, $1.5 million in shares of common stock of the Company and an earn-out provision.
The unaudited pro forma condensed combined financial information herein presents the combined historical consolidated financial position and results of operations of the Company, Firebird and Phoenix after giving effect to the transaction based on assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information. The unaudited pro forma condensed combined balance sheet as of June 30, 2022 gives effect to the acquisition as if it had been consummated on June 30, 2022. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 give effect to the acquisition as if it had been consummated on January 1, 2021. The unaudited pro forma condensed combined financial information has been derived from:
•audited consolidated financial statements and related notes of Xxxxx as of and for the year ended December 31, 2021, as included in Xxxxx’x Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2022;
•interim unaudited condensed consolidated financial statements and related notes of Xxxxx as of and for the six months ended June 30, 2022, as included in Xxxxx’ Quarterly Report on Form 10-Q filed with the SEC on August 11, 2022;
•audited combined financial statements and related notes of Firebird Bulk Carriers, Inc. and Phoenix Oil, Inc. for the year ended December 31, 2021, included as Exhibit 99.1 in Xxxxx’ Current Report on Form 8-K/A to which this Exhibit 99.3 is attached; and
•interim unaudited condensed combined financial statements and related notes of Firebird Bulk Carriers, Inc. and Phoenix Oil, Inc. as of and for the six months ended June 30, 2022, included as Exhibit 99.2 in Xxxxx’ Current Report on Form 8-K/A to which this Exhibit 99.3 is attached.
The unaudited pro forma condensed combined financial information should be read in conjunction with the historical financial statements of Xxxxx and Firebird and Phoenix as well as the accompanying notes to the unaudited pro forma condensed combined financial information.
The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent Xxxxx’ actual consolidated financial position or results of operations had the acquisition been completed as of the dates presented, nor should it be considered indicative of Xxxxx’ future consolidated financial position or results of operations.
The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined entity may achieve as a result of the acquisition or the costs necessary to achieve any such cost savings, operating synergies or revenue enhancements.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2022
(In thousands)
Historical | Pro Forma | |||||||||||||||||||||||||||||||
Transaction | ||||||||||||||||||||||||||||||||
Firebird & | Accounting | Pro Forma | ||||||||||||||||||||||||||||||
Xxxxx | Phoenix | Adjustments | Notes | Combined | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 67,728 | $ | 7,619 | $ | (35,793) | A | $ | 39,554 | |||||||||||||||||||||||
Restricted cash | 7,853 | 7,853 | ||||||||||||||||||||||||||||||
Accounts receivable, net | 267,634 | 5,399 | 273,033 | |||||||||||||||||||||||||||||
Accounts receivable – related party | 2 | 2 | ||||||||||||||||||||||||||||||
Inventory | 61,281 | 1,145 | 62,426 | |||||||||||||||||||||||||||||
Derivative assets | 1,501 | 1,501 | ||||||||||||||||||||||||||||||
Income tax receivable | — | — | ||||||||||||||||||||||||||||||
Advances to stockholders and related parties | 7,800 | (7,800) | B | — | ||||||||||||||||||||||||||||
Prepayments and other current assets | 2,007 | 236 | 2,243 | |||||||||||||||||||||||||||||
Total current assets | 408,006 | 22,199 | (43,593) | 386,612 | ||||||||||||||||||||||||||||
Property and equipment, net | 84,528 | 10,014 | 14,695 | C | 109,237 | |||||||||||||||||||||||||||
Operating lease right-of-use assets, net | 6,437 | 139 | 6,576 | |||||||||||||||||||||||||||||
Intangible assets and goodwill, net | 2,938 | 15,380 | D | 18,318 | ||||||||||||||||||||||||||||
Other assets | 2,714 | 2,714 | ||||||||||||||||||||||||||||||
Total assets | $ | 504,623 | $ | 32,352 | $ | (13,518) | $ | 523,457 | ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||
Accounts payable | $ | 289,381 | $ | 3,527 | $ | 292,908 | ||||||||||||||||||||||||||
Derivative liabilities | 848 | 848 | ||||||||||||||||||||||||||||||
Advances from stockholders and related parties | 2,198 | (2,198) | B | — | ||||||||||||||||||||||||||||
Notes payable | 3,417 | (3,417) | F | — | ||||||||||||||||||||||||||||
Current portion of finance lease obligations | 4,308 | 4,308 | ||||||||||||||||||||||||||||||
Current portion of operating lease liabilities | 2,228 | 99 | 2,327 | |||||||||||||||||||||||||||||
Other current liabilities | 14,207 | 309 | 3,189 | A,E,G,H | 17,705 | |||||||||||||||||||||||||||
Total current liabilities | 310,972 | 9,550 | (2,426) | 318,096 | ||||||||||||||||||||||||||||
Other long-term liabilities: | ||||||||||||||||||||||||||||||||
Asset retirement obligations | 2,406 | 2,406 | ||||||||||||||||||||||||||||||
Finance lease obligations | 8,609 | 8,609 | ||||||||||||||||||||||||||||||
Operating lease liabilities | 4,205 | 40 | 4,245 | |||||||||||||||||||||||||||||
Deferred taxes and other liabilities | 10,979 | 5,915 | A | 16,894 | ||||||||||||||||||||||||||||
Total liabilities | 337,171 | 9,590 | 3,489 | 350,250 | ||||||||||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||||||||||
Preferred stock | — | — | ||||||||||||||||||||||||||||||
Common stock | 436 | 2 | (2) | B | 436 | |||||||||||||||||||||||||||
Contributed capital | 17,541 | 50 | 375 | A,B | 17,966 | |||||||||||||||||||||||||||
Retained earnings | 149,475 | 22,710 | (17,380) | B | 154,805 | |||||||||||||||||||||||||||
Total shareholders’ equity | 167,452 | 22,762 | (17,007) | 173,207 | ||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 504,623 | $ | 32,352 | $ | (13,518) | $ | 523,457 |
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(In thousands, except per share amounts)
Historical | Pro Forma | ||||||||||||||||||||||||||||
Transaction | |||||||||||||||||||||||||||||
Firebird & | Accounting | Pro Forma | |||||||||||||||||||||||||||
Xxxxx | Phoenix | Adjustments | Notes | Combined | |||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||
Marketing | $ | 1,710,071 | $ | 1,710,071 | |||||||||||||||||||||||||
Transportation | 56,224 | 56,224 | |||||||||||||||||||||||||||
Pipeline and storage | — | — | |||||||||||||||||||||||||||
Transportation and recycling | — | 35,076 | 35,076 | ||||||||||||||||||||||||||
Total revenues | 1,766,295 | 35,076 | — | 1,801,371 | |||||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||
Marketing | 1,691,158 | 1,691,158 | |||||||||||||||||||||||||||
Transportation | 44,539 | 44,539 | |||||||||||||||||||||||||||
Pipeline and storage | 1,159 | 1,159 | |||||||||||||||||||||||||||
Transportation and recycling | 24,304 | (1,575) | A | 22,729 | |||||||||||||||||||||||||
General and administrative | 8,230 | 3,833 | (69) | A | 11,994 | ||||||||||||||||||||||||
Depreciation and amortization | 10,101 | — | 3,430 | A | 13,531 | ||||||||||||||||||||||||
Total costs and expenses | 1,755,187 | 28,137 | 1,786 | 1,785,110 | |||||||||||||||||||||||||
Operating earnings | 11,108 | 6,939 | (1,786) | 16,261 | |||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||
Interest and other income | 327 | 93 | 420 | ||||||||||||||||||||||||||
Interest expense | (250) | (158) | 158 | B | (250) | ||||||||||||||||||||||||
Total other income (expense), net | 77 | (65) | 158 | 170 | |||||||||||||||||||||||||
Earnings before income taxes | 11,185 | 6,874 | (1,628) | 16,431 | |||||||||||||||||||||||||
Income tax provision | (2,619) | — | 1,102 | D | (1,517) | ||||||||||||||||||||||||
Net earnings | $ | 8,566 | $ | 6,874 | $ | (526) | $ | 14,914 | |||||||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||
Basic net earnings per common share | $ | 1.96 | $ | 3.40 | |||||||||||||||||||||||||
Diluted net earnings per common share | $ | 1.95 | $ | 3.37 | |||||||||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
Basic | 4,365 | 25 | E | 4,390 | |||||||||||||||||||||||||
Diluted | 4,399 | 25 | E | 4,424 |
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousands, except per share amounts)
Historical | Pro Forma | ||||||||||||||||||||||||||||
Transaction | |||||||||||||||||||||||||||||
Firebird & | Accounting | Pro Forma | |||||||||||||||||||||||||||
Xxxxx | Phoenix | Adjustments | Notes | Combined | |||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||
Marketing | $ | 1,930,042 | $ | 1,930,042 | |||||||||||||||||||||||||
Transportation | 94,498 | 94,498 | |||||||||||||||||||||||||||
Pipeline and storage | 664 | 664 | |||||||||||||||||||||||||||
Transportation and recycling | — | 49,599 | 49,599 | ||||||||||||||||||||||||||
Total revenues | 2,025,204 | 49,599 | — | 2,074,803 | |||||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||
Marketing | 1,898,126 | 1,898,126 | |||||||||||||||||||||||||||
Transportation | 75,295 | 75,295 | |||||||||||||||||||||||||||
Pipeline and storage | 2,126 | 2,126 | |||||||||||||||||||||||||||
Transportation and recycling | — | 37,408 | (3,411) | A | 33,997 | ||||||||||||||||||||||||
General and administrative | 13,701 | 7,327 | 101 | A,C | 21,129 | ||||||||||||||||||||||||
Depreciation and amortization | 19,797 | — | 6,860 | A | 26,657 | ||||||||||||||||||||||||
Total costs and expenses | 2,009,045 | 44,735 | 3,550 | 2,057,330 | |||||||||||||||||||||||||
Operating earnings | 16,159 | 4,864 | (3,550) | 17,473 | |||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||
Interest and other income | 243 | 284 | 527 | ||||||||||||||||||||||||||
Interest expense | (746) | (316) | 316 | B | (746) | ||||||||||||||||||||||||
Total other income (expense), net | (503) | (32) | 316 | (219) | |||||||||||||||||||||||||
Earnings before income taxes | 15,656 | 4,832 | (3,234) | 17,254 | |||||||||||||||||||||||||
Income tax provision | (3,768) | — | 336 | D | (3,432) | ||||||||||||||||||||||||
Net earnings | $ | 11,888 | $ | 4,832 | $ | (2,898) | $ | 13,822 | |||||||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||
Basic net earnings per common share | $ | 2.78 | $ | 3.22 | |||||||||||||||||||||||||
Diluted net earnings per common share | $ | 2.75 | $ | 3.19 | |||||||||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
Basic | 4,283 | 15 | E | 4,298 | |||||||||||||||||||||||||
Diluted | 4,323 | 15 | E | 4,338 |
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NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial information and related notes have been prepared in accordance with Article 11 of Regulation S-X as amended and are based on the historical consolidated financial statements of Xxxxx and the historical combined financial statements of Firebird and Phoenix as adjusted to give effect to the acquisition. The unaudited pro forma condensed combined balance sheet as of June 30, 2022 gives effect to the acquisition as if it had been consummated on June 30, 2022. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 give effect to the acquisition as if it had been consummated on January 1, 2021.
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations, (“ASC 805”). For purposes of the unaudited pro forma condensed combined balance sheet, the purchase price consideration has been allocated to the assets acquired and liabilities assumed of Firebird and Phoenix based upon preliminary estimate of their fair values as of the acquisition date. Accordingly, the purchase price allocation and related adjustments reflected in the unaudited pro forma condensed combined financial information are preliminary and subject to revision as further analyses are completed and additional information becomes available. The purchase price consideration as well as the estimated fair values of the assets acquired and liabilities assumed will be finalized as soon as practicable, but no later than one year from the closing of the acquisition.
Management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the acquisition, and that the pro forma adjustments in the unaudited pro forma condensed combined financial information give appropriate effect to those assumptions.
Note 2. Preliminary Purchase Price Allocation
The following table summarizes the components of the preliminary estimated purchase price (in thousands):
Cash | $ | 35,793 | ||||||
Value of AE common shares issued | 1,364 | |||||||
Contingent consideration arrangement | 2,566 | |||||||
Fair value of total consideration transferred | $ | 39,723 |
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NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following table summarizes the components of the preliminary purchase price allocation (in thousands):
Assets acquired: | ||||||||
Cash and cash equivalents | $ | 2,203 | ||||||
Accounts receivable | 4,921 | |||||||
Inventory | 643 | |||||||
Other current assets | 137 | |||||||
Property and equipment | 24,709 | |||||||
Other assets | 457 | |||||||
Intangible assets | 7,734 | |||||||
Goodwill | 2,347 | |||||||
Total assets acquired | 43,151 | |||||||
Liabilities assumed: | ||||||||
Accounts payable and other accrued liabilities | (3,428) | |||||||
Deferred tax liabilities | — | |||||||
Total liabilities assumed | (3,428) | |||||||
Net assets acquired | $ | 39,723 |
Note 3. Transaction Accounting Adjustments
The following describes the transaction accounting adjustments related to the acquisition that are necessary to account for the adjustment and have been included in the unaudited pro forma condensed combined financial information. The pro forma adjustments are based on preliminary estimates and valuations that could change significantly as additional information is obtained.
Balance Sheet Adjustments
A.Represents the cash consideration of $35.8 million transferred at the closing of the acquisition and the value of the shares issued to the Sellers as consideration, of which approximately $0.5 million was transferred at closing and approximately $1.0 million will be paid equally over a period of three years.
B. Represents the elimination of historical advances to stockholders and related parties and stockholders’ equity balances of Firebird and Phoenix that were settled as part of the acquisition.
C. Represents the adjustments to reflect the preliminary fair value of property and equipment acquired, consisting of the following (in thousands):
Preliminary | ||||||||||||||
Estimated | ||||||||||||||
Weighted Average | ||||||||||||||
Preliminary | Useful Life | |||||||||||||
Fair Value | (in years) | |||||||||||||
Total preliminary fair value of acquired property and equipment | $ | 24,709 | 5 | |||||||||||
Less: Historical property and equipment of Firebird and Phoenix | (10,014) | |||||||||||||
Transaction accounting adjustment | $ | 14,695 |
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NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
D. Represents the preliminary fair value of intangible assets acquired, consisting of the following (in thousands):
Preliminary | ||||||||||||||
Estimated | ||||||||||||||
Preliminary | Useful Life | |||||||||||||
Fair Value | (in years) | |||||||||||||
Customer relationships | $ | 6,103 | 10 | |||||||||||
Trade names | 2,300 | 15 | ||||||||||||
Noncompete agreements | 350 | 5 | ||||||||||||
Transaction accounting adjustment | $ | 8,753 |
E. Represents the accrual of transaction costs incurred after June 30, 2022.
F. Represents the elimination of notes payable that was paid off as part of the acquisition.
G. Represents the adjustment to deferred income taxes at a statutory rate of 21%, consisting of the following (in thousands):
Preliminary | ||||||||
Estimated | ||||||||
Amount | ||||||||
Deferred taxes from book tax difference of acquired assets and liabilities | $ | 5,299 | ||||||
Deferred taxes related to transaction cost accrual | — | |||||||
Transaction accounting adjustment | $ | 5,299 |
H. Represents the preliminary fair value of the contingent consideration included in consideration transferred. The acquisition requires an earn-out payment to be made in 2024 based on the Earnings Before Interest, Taxes and Depreciation (EBITDA) for a period of one year after the acquisition relative to certain amounts as defined and established in the Purchase Agreement. The earn-out is not capped, and is a minimum of $1.5 million.
Statements of Operations Adjustments
A.Represents adjustments to increase depreciation and amortization expense related to the preliminary fair value estimates of acquired property and equipment and intangible assets, consisting of the following (in thousands):
Six Months Ended | Year Ended | |||||||||||||
June 30, 2022 | December 31, 2021 | |||||||||||||
Depreciation expense based on preliminary fair value of acquired property and equipment | $ | 3,013 | $ | 6,026 | ||||||||||
Amortization expense based on preliminary fair value of acquired intangible assets | 417 | 834 | ||||||||||||
Less: historical depreciation expense of property and equipment of Firebird and Phoenix included in cost of goods sold | (1,575) | (3,411) | ||||||||||||
Less: historical depreciation expense of property and equipment of Firebird and Phoenix included in selling, general and administrative | (69) | (199) | ||||||||||||
Transaction accounting adjustment | $ | 1,786 | $ | 3,250 |
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NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
B.Represents the elimination of historical interest expense on long-term debt of Firebird and Phoenix that was paid off as part of the acquisition.
C.Represents the adjustment related to Xxxxx’ transaction costs incurred after June 30, 2022. These costs will not affect the statement of operations beyond 12 months from the acquisition date.
D.Represents the income tax impact of (i) Firebird’s and Xxxxxxx’s combined net income as both were S Corporations prior to the acquisition and (ii) the transaction accounting adjustments, both at a statutory rate of 21%.
E.Represents the additional shares included in the consideration transferred at the time of closing.
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