Exhibit 99.1

Chiller Holdco, LLC and

Subsidiaries

Consolidated Financial Statements as of

December 31, 2018 (Successor) and 2017

(Predecessor) and for the Periods from January 17,

2018 through December 31, 2018 (Successor) and

January 1, 2018 through January 16, 2018

(Predecessor) and the Year Ended December 31,

2017 (Predecessor) and Independent Auditors’

Report

CHILLER HOLDCO, LLC AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

		Page
INDEPENDENT AUDITORS’ REPORT			1–2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 2018 (Successor) and 2017 (Predecessor)			3
Statements of Operations for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor)			4
Statements of Equity for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor)			5
Statements of Cash Flows for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor)			6
Notes to Consolidated Financial Statements			7-33

INDEPENDENT AUDITORS’ REPORT

Chiller Holdco, LLC and Subsidiaries

Sioux City, Iowa

We have audited the accompanying consolidated financial statements of Chiller Holdco, LLC and subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2018 (Successor) and 2017 (Predecessor), and the related consolidated statements of operations, equity, and cash flows for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chiller Holdco, LLC and its subsidiaries as of December 31, 2018 (Successor) and 2017 (Predecessor), and the results of their operations and their cash flows for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor) in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Notes 1 and 3 to the consolidated financial statements, on January 16, 2018, funds managed by The Blackstone Group L.P., through their wholly owned subsidiary BCP Chiller Aggregator L.L.C., acquired 80% of the outstanding membership units of the Company in a transaction (the “Transaction”). The Transaction is accounted for under the acquisition method of accounting for business combinations. Our opinion is not modified with respect to this matter.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

July 16, 2019

 

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CHILLER HOLDCO, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 (SUCCESSOR) and 2017 (PREDECESSOR)

 

 

		Successor									Predecessor
		2018									2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	15,220,052								$	4,664,022
Accounts receivable—net				14,138,786									14,939,993
Prepaid expenses				1,104,089									1,271,841
Income taxes receivable				108,602									83,341
Total current assets				30,571,529									20,959,197
PROPERTY AND EQUIPMENT—Net				282,856,044									206,508,142
OTHER ASSETS:
Notes receivable				11,000,000									14,972,751
Intangible assets—net				89,170,000
Goodwill				174,800,733									1,000,000
Other assets				2,920,213									2,352,573
Total other assets				277,890,946									18,325,324
TOTAL ASSETS			$	591,318,519								$	245,792,663
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable			$	7,817,533								$	6,172,851
Accounts payable—stockholders													1,343,986
Accrued expenses				9,253,511									6,492,819
Unearned revenue				1,617,569									896,454
Income taxes payable													115,109
Current portion of long-term debt													37,754,900
Total current liabilities				18,688,613									52,776,119
LONG-TERM DEBT—Net				371,451,922									82,748,943
DEFERRED INCOME TAXES—Net				2,963,453									2,432,759
OTHER LIABILITIES				300,944
TOTAL LIABILITIES				393,404,932									137,957,821
EQUITY:
Partners’ equity													6,711,825
Common stock													6,692,318
Additional paid-in-capital													1,600,973
Retained earnings													92,829,726
Members’ equity				197,913,587
Total equity				197,913,587									107,834,842
TOTAL LIABILITIES AND EQUITY			$	591,318,519								$	245,792,663

See notes to consolidated financial statements.

 

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CHILLER HOLDCO, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS FROM JANUARY 17, 2018 THROUGH DECEMBER 31, 2018 (SUCCESSOR) AND

JANUARY 1, 2018 THROUGH JANUARY 16, 2018 (PREDECESSOR) AND

THE YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

 

 

		Successor									Predecessor
		January 17, 2018 – December 31, 2018									January 1, 2018 – January 16, 2018					January 1, 2017 – December 31, 2017
REVENUE			$	159,330,818								$	6,464,880				$	162,589,753
OPERATING EXPENSES:
Operating costs (exclusive of depreciation and amortization)				105,502,096									4,425,614					111,168,662
Selling, general and administrative				16,507,257									1,424,755					19,419,411
Depreciation and amortization				27,136,777									595,933					13,770,745
Loss on disposition of property and equipment				91,646									257,561					521,778
Total operating expenses				149,237,776									6,703,863					144,880,596
INCOME (LOSS) FROM OPERATIONS				10,093,042									(238,983	)				17,709,157
OTHER INCOME (EXPENSE):
Interest income				511,372									1,232					325,011
Interest expense				(22,421,489	)								(241,438	)				(5,735,808	)
Other expense—net				(21,910,117	)								(240,206	)				(5,410,797	)
INCOME (LOSS) BEFORE INCOME TAXES				(11,817,075	)								(479,189	)				12,298,360
INCOME TAX BENEFIT (EXPENSE)				(342,930	)								62,794					839,410
NET INCOME (LOSS)			$	(12,160,005	)							$	(416,395	)			$	13,137,770

See notes to consolidated financial statements.

 

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CHILLER HOLDCO, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE PERIODS FROM JANUARY 17, 2018 THROUGH DECEMBER 31, 2018 (SUCCESS0R) AND JANUARY 1, 2018

THROUGH JANUARY 16, 2018 (PREDECESSOR) AND THE YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

 

 

										Stockholders’ Equity
		Members’ Equity				Partners’ Equity				Common Stock				Additional Paid-In Capital				Retained Earnings				Total Stockholders’ Equity				Total Equity
PREDECESSOR
Balance at January 1, 2017		$	—			$	6,986,612			$	6,692,318			$	1,600,973			$	88,568,661			$	96,861,952			$	103,848,564
Net income							1,525,213												11,612,557				11,612,557				13,137,770
Partner distributions							(1,800,000	)																			(1,800,000	)
Dividends paid																			(7,351,492	)			(7,351,492	)			(7,351,492	)
Balance at December 31, 2017		$	—			$	6,711,825			$	6,692,318			$	1,600,973			$	92,829,726			$	101,123,017			$	107,834,842
Net income (loss)							32,505												(448,900	)			(448,900	)			(416,395	)
Merger of Mighty Cold Properties LLC with CCS, LLC			6,744,330				(6,744,330	)																			—
Dividends paid																			(6,954	)			(6,954	)			(6,954	)
Balance at January 16, 2018		$	6,744,330			$	—			$	6,692,318			$	1,600,973			$	92,373,872			$	100,667,163			$	107,411,493
SUCCESSOR
Balance at January 17, 2018		$	216,042,407			$	—			$	—			$	—			$	—			$	—			$	216,042,407
Net loss			(12,160,005	)																							(12,160,005	)
Member distributions			(6,231,172	)																							(6,231,172	)
Incentive unit compensation			262,357																								262,357
Balance at December 31, 2018		$	197,913,587			$	—			$	—			$	—			$	—			$	—			$	197,913,587

See notes to consolidated financial statements.

 

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CHILLER HOLDCO, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS FROM JANUARY 17, 2018 THROUGH DECEMBER 31, 2018 (SUCCESSOR)

AND JANUARY 1, 2018 THROUGH JANUARY 16, 2018 (PREDECESSOR) AND THE YEAR

ENDED DECEMBER 31, 2017 (PREDECESSOR)

 

 

		Successor									Predecessor
		January 17, 2018 –									January 1, 2018 –					January 1, 2017 –
		December 31, 2018									January 16, 2018					December 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	(12,160,005	)							$	(416,395	)			$	13,137,770
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation				19,806,777									595,933					13,770,745
Amortization of intangible assets				7,330,000
Amortization of debt issuance costs				5,919,494									2,993					65,077
Deferred income taxes				(497,130	)								(81,058	)				(1,071,069	)
Incentive unit compensation				262,357
Loss on disposition of property and equipment				91,646									257,561					521,778
Changes in assets and liabilities:
Accounts receivable				(26,967	)								828,174					703,097
Prepaid expenses				87,062									164,031					(41,823	)
Income taxes receivable / payable				(82,048	)								(46,017	)				(413,680	)
Other assets				(184,274	)								(31	)				(156,207	)
Accounts payable				1,085,749									(178,936	)				900,799
Accrued expenses and other				2,632,572									683,088					904,188
Unearned revenue				685,584									35,531					29,588
Net cash provided by operating activities				24,950,817									1,844,874					28,350,263
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment				(5,480,526	)								(200,437	)				(31,385,926	)
Purchase of short-term investments																		(4,458,814	)
Maturities of short-term investments																		6,551,993
Proceeds from sale of equipment				69,890									1,333,476					22,802
Consideration paid to Prior Owners				(429,445	)
Net cash provided by (used in) investing activities				(5,840,081	)								1,133,039					(29,269,945	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in stockholder draw accounts																		(848,658	)
Proceeds from long-term line of credit																		5,000,000
Proceeds from long-term financing																		2,022,819
Payments on long-term debt													(5,294,493	)				(6,974,458	)
Dividends paid													(6,954	)				(7,351,492	)
Member / Partner distributions				(6,231,172	)													(1,800,000	)
Net cash used in financing activities				(6,231,172	)								(5,301,447	)				(9,951,789	)
NET CHANGE IN CASH AND CASH EQUIVALENTS				12,879,564									(2,323,534	)				(10,871,471	)
CASH AND CASH EQUIVALENTS:
Beginning of period				2,340,488									4,664,022					15,535,493
End of period			$	15,220,052								$	2,340,488				$	4,664,022
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Purchases of property and equipment in accounts payable			$	1,254,003								$	916,395				$	916,395
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest			$	15,454,854								$	74,186				$	5,703,817
Cash paid for taxes			$	845,046								$	—				$	658,869
See notes to consolidated financial statements.

 

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CHILLER HOLDCO, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2018 (SUCCESSOR) AND 2017 (PREDECESSOR) AND FOR THE PERIODS FROM JANUARY 17, 2018 THROUGH DECEMBER 31, 2018 (SUCCESSOR) AND JANUARY 1, 2018 THROUGH JANUARY 16, 2018 (PREDECESSOR) AND

THE YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

 

 

1.	ORGANIZATION

Nature of Business — Chiller Holdco, LLC and subsidiaries (the “Company”) operates 19 temperature-controlled warehouse facilities across the Upper Midwest, Midwest and Mid-Atlantic states. The Company is headquartered in Sioux City, Iowa.

Business Organization — On January 16, 2018, funds managed by The Blackstone Group L.P., through their wholly owned subsidiary BCP Chiller Aggregator L.L.C. (“BCP”), acquired 80% of the outstanding membership units of the Company in a transaction (the “Transaction”). The Transaction, which closed at the end of the day on January 16, 2018, is discussed further in Note 3. The Company is referred to as the “Predecessor” for the period prior to the Transaction. The Company is referred to as the “Successor” for the period subsequent to the Transaction.

Prior to the Transaction, Chiller Holdco, LLC and Cloverleaf Cold Storage Co. and affiliated companies (“Cloverleaf”), were owned and managed by a common group of individuals (the “Prior Owners”). To facilitate the Transaction, the following key restructuring events occurred:

 

-

October 24, 2017 – Prior Owners formed Cloverleaf Cold Storage, LLC (“CCS LLC”)

 

-

November 21, 2017 – Prior Owners formed Chiller Holdco, LLC and contributed the member interests of CCS LLC to Chiller Holdco, LLC

 

-

December 11, 2017 – Prior Owners formed Chiller Midco, LLC as a subsidiary of Chiller Holdco, LLC and contributed the member interest of CCS LLC to Chiller Midco, LLC

 

-

January 11, 2018 – Through a sequence of contributions the Prior Owners contributed 100% of their ownership of Cloverleaf to CCS LLC.

Prior to January 11, 2018, Cloverleaf financial statements are combined under common ownership and management. Prior to January 11, 2018, Cloverleaf consisted of the following companies:

C Corporations

Cloverleaf Cold Storage Co. (Iowa)

Keycity Leasing Company

 

- 7 -

S Corporations

Fairmont Refrigerated Service Co.

CCS Realty Co.

Monmouth Property Development, LLC

Cloverleaf Cold Storage Co. (Minnesota)

Cloverleaf Cold Storage Co. (Ohio)

K-F Real Estate Co.

Second Street Corporation

Partnership

Mighty Cold Properties (merged into CCS LLC on January 5, 2018)

From January 11, 2018 through January 16, 2018, this group of affiliated companies, restructured through various events leading up to the Transaction, were consolidated under the Chiller Holdco, LLC, a holding company. The Successor consists of Chiller Holdco, LLC and its subsidiaries. The subsidiaries of Chiller Holdco, LLC include the following:

C Corporations

Cloverleaf Cold Storage (Iowa) Co.

Keycity Leasing Company

Limited Liability Companies

Chiller Midco, LLC¹

Cloverleaf Cold Storage LLC¹

Cloverleaf Cold Storage (Minnesota) LLC

Cloverleaf Cold Storage Co. LLC

Second Street LLC

K-F Real Estate LLC

Fairmont Refrigerated Service LLC

KCL Equipment LLC

KCL Mezz B LLC¹

KCL Mezz A LLC¹

KCL Other Equipment Owner LLC

CCS Realty LLC

Monmouth Property Development, LLC

CCS Realty Holdco LLC¹

CCS Realty Mezz B LLC¹

CCS Realty Mezz A LLC¹

CCS Realty Property Owner LLC

 

1

Entities do not have operations.

The year ended December 31, 2017 consists of combined financial statements. The period from January 1, 2018 through January 16, 2018 includes both combined and consolidated financial statements of Cloverleaf and Chiller Holdco, LLC and its subsidiaries. Hereafter, this Predecessor and Successor periods will be defined as “consolidated financial statements”.

The term the “Company” is used as a universal name for the group of companies included within the Predecessor and Successor.

 

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The consolidated financial statements as of December 31, 2018 and for the period from January 17, 2018 through December 31, 2018 represent the financial information of the Successor subsequent to the Transaction. The consolidated financial statements for the period from January 1, 2018 through January 16, 2018 represent the financial information of Predecessor prior to the Transaction. The consolidated financial statements as of and for the year ended December 31, 2017 represent the financial information of Predecessor.

The information presented for the Successor may not be directly comparable to the information provided related to the Predecessor as a result of the revaluation of assets and liabilities from the application and push down of purchase accounting; accordingly, a black line is shown in the Balance Sheet, Statements of Operations, Equity and Cash Flows between those periods prior to and post the Transaction since they have not been prepared on a comparable basis.

All intercompany transactions have been eliminated.

Cash and Cash Equivalents—The Company considers all highly liquid debt-instruments, with original maturities of three months or less, to be cash and cash equivalents.

Accounts Receivable—The Company estimates an allowance for doubtful accounts based on specific knowledge of doubtful accounts and an aging analysis of accounts receivable. Actual bad debts are written off when determined to be uncollectible. As of December 31, 2018 (Successor) and 2017 (Predecessor), the allowance for doubtful accounts was $106,000.

Property and Equipment—Property and equipment is recorded at cost, less an allowance for depreciation or amortization. Depreciation is determined using the straight-line method over the estimated useful lives of property and equipment. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement. Estimated useful lives for newly acquired property and equipment are below.

 

Description		Estimated Life
Land improvements			15-40 years
Buildings			10-40 years
Leasehold improvements			16 years
Machinery and equipment			5-25 years
Furniture and fixtures			5-15 years

Intangible Assets—Intangible assets consist primarily of customer relationships, trade names and non-compete agreements and are amortized over the estimated useful life of the respective asset.

Long-lived Asset Impairment—The Company evaluates the impairment of long-lived assets if circumstances indicate that the carrying value of those assets may not be recoverable. Recoverability of the assets to be held and used is measured by comparing the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. Any indicated impairment would be measured based on fair value of the asset.

 

- 9 -

Goodwill—Goodwill represents the excess of purchase price over the fair value of identifiable assets acquired and liabilities assumed in a business combination. The Company tests goodwill for impairment annually on September 30, or more frequently if events or changes in circumstances indicate that impairment may have occurred. Impairment testing is performed at the reporting unit level. The Company determined that there is one reporting unit. An impairment charge is recognized if the carrying amount of a reporting unit exceeds its fair value.

Debt Issuance Costs—Debt issuance costs are deferred and amortized over the term of the related debt using the straight-line method, which approximates the effective interest method, with amortization included in interest expense. Debt issuance costs related to the line of credit are reported as other assets. Debt issuance costs related to long-term debt are reflected as a direct deduction from the carrying amount of the long-term debt.

Revenue Recognition—Revenues for the Company include storage and warehouse services (“Operating Revenue”), third-party managed services for locations or logistics services managed on behalf of customers (“Third-Party Managed Revenue”), and revenue from the sale of pallets and other items and rental revenue (“Other Revenue”).

Operating Revenue

The Company’s customer arrangements generally include rent, storage and service elements, such as handling or tempering, that are priced separately. Revenues from storage and handling are recognized over the period consistent with the transfer of the service to the customer.

Third-Party Managed Revenue

The Company provides management services for which the contract compensation arrangement includes reimbursement of operating costs and a fixed management fee. Cost reimbursements are recognized as revenue as the services are performed and costs are incurred. These amounts are presented on a gross basis as the Company is the principal in the arrangement. The fixed management fee is recognized ratably over the service period.

Other Revenue

Other Revenue primarily includes the sale of pallets to customers and rental revenue. Revenues from the sale of pallets is recognized upon delivery to customers. Rental revenue consists of rent received on warehouse space leased out to third parties. Rental revenue is recognized on a straight-line basis over the life of the lease agreements.

Unearned Revenue—Unearned revenue consists of handling revenue billed in advance. The Predecessor recognized 70% of the initial handling revenue as product was received and deferred the remaining 30% until the specific product was removed from the warehouse. The Successor recognizes 50% of the initial handling revenue as product is received and defers the remaining 50% until the specific product is removed from the warehouse. The change in deferral policy did not have a material impact on the consolidated financial statements.

Sales Taxes—The Company collects sales tax on leases and remits these amounts to applicable taxing authorities. The tax collected and remitted is excluded from revenue and expense.

 

- 10 -

Income Taxes—Chiller Holdco, LLC is organized as a limited liability company (LLC) which is treated as a partnership for United States (“U.S.”) federal income tax purposes and is not subject to U.S. corporate income taxes. The members are liable for the income taxes on their proportionate share of the Company’s income, except for the C corporation subsidiaries. Many of the subsidiaries of Chiller Holdco, LLC are organized as LLCs and are wholly-owned subsidiaries. These LLCs are treated as disregarded entities for income tax purposes.

With reference to the C corporations, income taxes are provided for the tax effects of transactions reported in the consolidated financial statements. The provision for income taxes includes income taxes currently due and deferred income taxes on temporary differences between financial and income tax bases and assets and liabilities. Temporary differences primarily relate to differences in property and equipment depreciation.

The LLCs that are subsidiaries of Keycity Leasing Company are disregarded entities and have their income taxed as part of the C corporation’s income.

Cloverleaf companies elected under Subchapter S of the Internal Revenue Code to be treated as S Corporations for income tax purposes. Therefore, the stockholders were liable for income taxes on their proportionate share of the companies’ income.

With reference to Mighty Cold Properties, no provision or liability for income taxes is included in the consolidated financial statements. The partners are liable for income taxes on their proportionate share of the partnership’s income.

Share-Based Compensation—Subsequent to the Transaction, the Company grants incentive stock units to executives. These equity-based awards are subject to service and performance-based vesting requirements. Compensation cost for time-based awards is recognized ratably over the applicable vesting period. Compensation cost for performance-based awards is recognized based upon the probability that the performance targets will be achieved. The performance-based awards are expensed when the achievement of performance metrics is probable. The total expense recognized over the vesting period will only be for those awards that ultimately vest and are credited to equity.

There was no incentive stock unit plan prior to the Transaction.

Fair Value of Financial Instruments—The carrying value of the Company’s financial instruments such as cash and cash equivalents, accounts receivable, restricted cash, and accounts payable approximate fair value because of their short-term maturities. The carrying value of the note receivables and note payables approximate fair value due to such being issued or revalued in connection with the Transaction. The fair value of the installment notes receivable and notes payable on the date of the Transaction were determined using the estimated future cash flows of the various instruments based on interest rates commensurate with the underlying terms and risk involved.

Business Combinations—The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses, including an estimate of the fair value of any contingent consideration, is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of operations.

 

- 11 -

Accounting for business combinations requires the Company’s management to make significant estimates and assumptions at the acquisition date, including the estimated fair value of acquired intangible assets and the determination of the fair value of contractual obligations, where applicable.

Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Recent Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. Along with subsequent amendments, the new standard outlines the principles an entity must apply to measure and recognize revenue and the related cash flows it expects to be entitled for the transfer of promised goods or services to customers. The updated standard becomes effective for annual reporting periods beginning after December 15, 2018. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application. The Company is currently evaluating the impact on its consolidated financial statements and has not yet selected a transition method.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard has requirements on how to account for leases by both the lessee and the lessor and adds clarification for what constitutes a lease, among other items. The standard becomes effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted. The new standard must be applied using the modified retrospective approach. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. The amendments in this new guidance require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2018 and is required to be adopted retrospectively. The Company is still evaluating the impact of adopting this guidance on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The amendment in this update eliminates the requirement to calculate the implied fair value of goodwill under the two-step impairment test to measure a goodwill impairment charge. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The standard is to be applied using a prospective approach. The Company elected to early adopt ASU 2017-04 in 2018. The adoption did not have an impact on the Company’s consolidated financial statements.

 

- 12 -

3.	THE TRANSACTION

On January 16, 2018, BCP acquired 80% of the outstanding membership units of the Company. With the acquisition, BCP obtained control of the Company. In accordance with FASB Accounting Standards Codification (ASC) 805, Business Combinations, when there is a partial acquisition in which control is obtained and it is considered a business combination, the acquirer recognizes the following: (1) 100% of the identifiable net assets at fair value or in accordance with other applicable GAAP, (2) noncontrolling membership interests at fair value, which represent the carryover membership interests from the Prior Owners, and (3) goodwill, measured as the excess of the consideration transferred, plus the fair value of noncontrolling membership interests, over the net of the fair value amounts of the identifiable assets acquired and liabilities assumed on the acquisition date.

The Company elected to apply push down accounting in these financial statements as it has undergone a change in control. As such, the total purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on January 16, 2018, with the excess recorded as goodwill, which is not deductible for tax purposes. The purchase price of the business combination has been allocated to assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, using management’s best estimates of the fair values using the data available on January 16, 2018. The purchase price allocation was determined by management with assistance of outside valuation experts.

The Transaction was financed with equity and debt of $527,943,492. The series of transactions which occurred in conjunction with the Transaction were as follows:

 

•

BCP made a controlling cash equity investment of $172,833,926.

 

•

BCP facilitated new debt origination, with subsidiaries of Chiller Holdco, LLC as named borrowers. The new debt consisted of a $30,000,000 revolving credit agreement and $365,000,000 term note payable. There were no amounts borrowed on the revolving credit agreement on the acquisition date. The term note was funded net of lender fees of $9,290,434. In addition, $600,000 was withheld by the lender as costs to originate the revolving credit agreement.

 

•

Predecessor debt of $96,946,476, inclusive of prepayment penalties of $1,172,327, was paid. The prepayment penalties resulted from the payoff of the Predecessor debt, and therefore are not recognized as an expense in the Predecessor or Successor periods.

 

•

The purchase price for the membership units included the following consideration:

 

○

The sellers were paid $428,122,016 for 80% of their membership units.

 

○

Cash of $2,875,000 was placed into escrow to be paid to the sellers 18 months from the acquisition date, adjusted for any indemnification claims.

 

- 13 -

The cash inflows and outflows from the series of transactions described above are non-cash transactions for the Company as the transactions were facilitated directly between BCP, the sellers and other parties to the Transaction.

The Prior Owners maintained 20% interest in the Company post the Transaction. The fair value of their interest was determined to be $43,208,481.

BCP incurred costs to secure the new debt, including costs withheld by the lender and third-party costs. The costs withheld by the lender of $9,290,434 and third-party debt issuance costs of $2,467,001 are presented as a reduction of the carrying amount of the long-term debt. The costs withheld by the lender for the origination of the revolving credit facility of $600,000 are presented as other assets.

The Predecessor incurred transaction costs related to the acquisition of $10,654,945, including $9,711,218 of costs that were contingent upon the closing of the Transaction, and therefore are not recognized as an expense in the Predecessor or Successor periods. The remaining $943,727 of transaction costs incurred by the Predecessor, primarily related to accounting and legal fees, were recognized in selling, general and administrative expenses in the period from January 1, 2018 to January 16, 2018 (Predecessor). The consideration transferred by BCP included $8,523,956 of cash to reimburse the sellers for the acquisition-related costs incurred by the Predecessor.

The following table summarizes the Successor opening balance sheet, after the effects of purchase accounting, as of January 17, 2018:

 

Cash		$	2,340,488
Accounts receivable			14,111,819
Prepaid expenses			1,191,151
Property and equipment			297,006,224
Notes receivable			11,000,000
Intangible assets:
Customer relationships			72,000,000
Trade names			23,700,000
Noncompete agreements			800,000
Goodwill			174,800,733
Other assets			2,952,605
Total assets			599,903,020
Accounts payable			6,823,621
Accrued expenses and other			6,928,379
Unearned revenue			931,985
Long-term debt			365,749,095
Deferred income taxes			3,427,533
Total liabilities			383,860,613
Members’ equity			216,042,407
Total liabilities and members’ equity		$	599,903,020

 

- 14 -

The customer relationships, trade names and noncompete agreements have estimated useful lives of 15, 10 and 5 years, respectively.

 

4.	CONCENTRATION OF CREDIT RISK

At various times, bank balances are in excess of the amounts covered by federal deposits insurance.

The Company extends credit to its customers, which consist of food processors and commodity trading companies located in the Upper Midwest, Midwest and Mid-Atlantic states. Credit is secured by a general warehouse lien in goods stored.

During the periods from January 17, 2018 to December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), the Company had ten major customers that accounted for 59.3%, 59.1% and 61.5% of revenue, respectively. The Company had one customer that individually accounted for more than 10% of revenue during those same periods.

 

5.	PROPERTY AND EQUIPMENT—NET

Property and equipment—net consists of the following at December 31:

 

		Successor									Predecessor
		2018									2017
Land			$	16,199,994								$	5,294,297
Land improvements				22,183,836									12,049,012
Buildings				175,766,904									169,618,224
Leasehold improvements				302,350									478,779
Machinery and equipment				83,079,260									155,044,053
Vehicles				4,194,527									2,976,535
Furniture and fixtures				478,170									1,478,604
Construction in progress				399,870									224,630
				302,604,911									347,164,134
Less: accumulated depreciation				19,748,867									140,655,992
Property and equipment—net			$	282,856,044								$	206,508,142

 

- 15 -

6.	NOTES RECEIVABLE

Notes receivable consists of the following at December 31:

 

		Successor									Predecessor
		2018									2017
Note receivable from Enterprise IL NMTC Fund I, LLC (“Enterprise NMTC”)			$	6,100,000								$	8,656,251
Note receivable from Chase NMTC Cloverleaf ASP Investment Fund, LLC (“Chase NMTC”)				4,900,000									6,316,500
			$	11,000,000								$	14,972,751

The notes receivable were recorded at fair value in connection with the Transaction, which resulted in the write-down of the carrying value due to the below market interest rates on the notes. The implied fixed interest rates on the Enterprise NMTC and Chase NMTC notes, subsequent to the Transaction, are 3.7% and 3.4%, respectively. If the notes were settled on December 31, 2018 (Successor), the Company would receive the contractual principal outstanding of $14,972,751, plus any accrued interest.

The fixed interest rates on the Enterprise NMTC and Chase NMTC notes, prior to the Transaction, were 1.08% and 1.50%, respectively.

Enterprise NMTC and Chase NMTC are required to make quarterly payments until maturity in April 2045. Quarterly payments of $23,372 and $23,687, respectively, are required through March 2022. Beginning April 2022, the notes require quarterly payments of $106,386 and $81,308, respectively, and may require additional variable payments each December 25 based on net cash flows of the borrower.

The notes are secured by membership interests in entities that hold a mortgage on a Monmouth, Illinois cold storage facility owned by Monmouth Property Development, LLC.

 

7.	INTANGIBLE ASSETS—NET

Intangible assets—net consist of the following at December 31, 2018 (Successor):

 

		Estimated Useful Life (in Years)				Gross Amount				Accumulated Amortization				Carrying Value
Customer relationships			15			$	72,000,000			$	(4,800,000	)		$	67,200,000
Trade names			10				23,700,000				(2,370,000	)			21,330,000
Non-compete agreements			5				800,000				(160,000	)			640,000
Total						$	96,500,000			$	(7,330,000	)		$	89,170,000

 

- 16 -

As of December 31, 2018 (Successor), estimated amortization expense for the next five years for the intangible assets is as follows:

 

Year ending December 31,
2019		$	7,330,000
2020			7,330,000
2021			7,330,000
2022			7,330,000
2023			7,170,000
Thereafter			52,680,000
		$	89,170,000

There were no intangible assets as at December 31, 2017 (Predecessor).

 

8.

GOODWILL

Goodwill represents the excess purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. There were no impairments to goodwill during the year ended December 31, 2017 (Predecessor) and the periods from January 1, 2018 through January 16, 2018 (Predecessor) and January 17, 2018 to December 31, 2018 (Successor).

The following table presents the activity in goodwill for the year ended December 31, 2017 (Predecessor) and the periods from January 1, 2018 through January 16, 2018 (Predecessor) and January 17, 2018 through December 31, 2018 (Successor).

 

Predecessor
Balance at January 1, 2017		$	1,000,000
Balance at December 31, 2017		$	1,000,000
Balance at January 16, 2018		$	1,000,000
Successor
Balance at January 17, 2018		$	174,800,733
Balance at December 31, 2018		$	174,800,733

 

- 17 -

9.	ACCRUED EXPENSES

Accrued expenses consist of the following at December 31:

 

		Successor									Predecessor
Description		2018									2017
Compensation and benefits			$	4,934,017								$	4,090,959
Professional fees				1,318,000
Real estate taxes				1,314,079									1,335,373
Other				1,687,415									1,066,487
Total			$	9,253,511								$	6,492,819

 

10.	LESSOR OPERATING LEASES

The Company leases warehouse facilities to unrelated third parties on operating leases including month-to-month operating leases and other leases that expire from between 2020 and 2024. Rental income was $2,012,444, $91,493 and $1,879,173 for the periods from January 17, 2018 through December 31, 2018 (Successor) and January 1, 2018 through January 16, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), respectively.

Future minimum rentals to be received under noncancelable leases with original terms in excess of one year as at December 31, 2018 are as follows:

 

Year Ending December 31,
2019		$	1,539,960
2020			657,172
2021			309,204
2022			247,560
2023			247,560
Thereafter			185,670
Total		$	3,187,126

 

- 18 -

11.	ACCOUNTS PAYABLE – STOCKHOLDERS

As of December 31, 2017 (Predecessor), amounts due to stockholders are as follows:

 

STOCKHOLDERS		AMOUNT
William R Feiges Revocable Trust		$	334,000
David N. Kaplan Revocable Trust			327,000
Daniel F. Kaplan Revocable Trust			324,986
Adam J. Feiges Revocable Trust			316,000
David N. Kaplan GST Discretionary Trust			21,000
Daniel F. Kaplan GST Discretionary Trust			21,000
Total		$	1,343,986

The amounts due represent the net position of cash funding from and payments to the stockholders to cover obligations of the Company or stockholders (i.e. income taxes) from transactions in the ordinary course of business. These amounts are reflected as accounts payable – stockholders in the consolidated balance sheets and the gross fundings from and payments to stockholders have been reflected as financing activities in the consolidated statements of cash flows.

 

- 19 -

12.	LONG-TERM DEBT-NET

Long-term debt-net consists of the following at December 31, 2018 (Successor):

 

				Interest Rate					Amount
Notes Payable—Banks
Revolving Credit Agreement—Goldman Sachs Bank USA		(a)								$	—
Credit Agreement—Goldman Sachs:
Mortgage Company		(b)				LIBOR plus:
Note Component A		(b)				2.08%					136,200,000
Note Component B		(b)				2.38%					35,900,000
Note Component C		(b)				2.58%					32,600,000
Note Component D		(b)				2.98%					37,600,000
Note Component E		(b)				2.36%					61,800,000
Note Component F		(b)				3.31%					60,900,000
Total obligation											365,000,000
Less: unamortized debt issuance costs											(6,110,767	)
Notes payable—banks										$	358,889,233
Installment Notes Payable
New Market Tax Credit (NMTC)
Installment Notes:
Enterprise SUB-CDE XII, LLC (Enterprise)		(c)				4.65%				$	4,100,000
Enterprise SUB-CDE XIX, LLC (Enterprise)		(c)				4.63%					3,400,000
CIF III, LLC (Chase)		(c)				4.66%					4,000,000
CNMC SUB-CDE 61, LLC (Chase)		(c)				4.88%					1,800,000
Total obligation											13,300,000
Less: unamortized debt issuance costs											(737,311	)
Installment notes payable										$	12,562,689
Total long-term debt										$	371,451,922

 

(a)

Revolving Credit Agreement—Goldman Sachs Bank USA

Cloverleaf Cold Storage, LLC, as borrower, has a $30,000,000 revolving credit agreement, including a $5,000,000 swingline, with Goldman Sachs Bank USA which expires on January 15, 2021. The interest rate floats at the Adjusted London Inter-Bank Offered Rate (LIBOR) for a one-month interest period plus 4% or the alternate base rate which is defined as the highest of: (a) Federal Funds Effective rate in effect on such day plus 0.50%, (b) Prime Rate in effect on such day, and (c) Adjusted LIBOR for an interest period of one month for such day, plus 1%. There is also a daily commitment fee of 0.25% per annum of the unused portion of the revolving credit agreement. There were no amounts borrowed on the revolver or swingline as of December 31, 2018 (Successor).

 

- 20 -

Collateral for the revolver consists of a security interest in balance sheet accounts, general intangibles, instruments and investment property of Chiller Midco, LLC, Cloverleaf Cold Storage, LLC, CCS Realty, LLC, Cloverleaf Cold Storage Ohio, LLC and Second Street, LLC, as borrowers or guarantors on the revolving credit agreement.

The revolver has financial and non-financial covenants. The financial covenants are applicable at the end of each quarter if the amount borrowed on the revolver and swingline exceed 35% of the available amount, as defined in the revolving credit agreement. The financial covenants include a minimum borrowing base coverage ratio, minimum borrowing base debt service coverage ratio and maximum leverage ratio. As of December 31, 2018 (Successor), the Company believes it was in compliance with all covenants.

 

(b)

Note Payable—Goldman Sachs Mortgage Company

The Company entered into a credit agreement (“Credit Agreement”) with Goldman Sachs Mortgage Company (“Goldman”). The original Credit Agreement was for a loan totaling $365,000,000. The Credit Agreement consists of six note components (“Note Component”) which each have a variable interest rate equal to the LIBOR plus the applicable spread for each such Note Component. The interest rate for each Note Component ranged from 4.54% to 5.77% as of December 31, 2018 (Successor).

Commencing on February 9, 2018, the Credit Agreement requires monthly interest payments, with the principal balance payable on the initial maturity date of February 9, 2020. The Company has five successive options to extend the initial maturity date for a period of one year each. Blackstone Capital Partners VII NQ L.P. and Blackstone Capital Partners VII.2 NQ L.P. are the guarantors for the Credit Agreement. The Credit Agreement is secured by all real and personal property of CCS Realty Property Owner LLC and KCL Equipment Owner LLC.

The Credit Agreement contains affirmative and negative covenants that govern business practices of the Company including, but not limited to, continuation of insurance, limitation on the Company’s ability to incur additional indebtedness, maintenance of collateral, interim and financial reporting requirements, and annual budgets. As of December 31, 2018 (Successor), the Company believes it was in compliance with all covenants.

 

(c)

New Market Tax Credit Installment Notes

The installment notes payable were recorded at fair value in connection with the Transaction, which resulted in the write-down of the carrying value due to the below market interest rates on the notes. The implied fixed interest rates on the notes payable, subsequent to the Transaction, range between 4.6% and 4.9%. If the notes were called on December 31, 2018 (Successor), the Company would owe contractual principal outstanding of $20,607,334, plus accrued interest.

The Company is required to make quarterly payments until maturity in March or April 2045. The lenders have the option to accelerate the maturity date in April 2022. Quarterly payments ranging from $7,521 to $22,918 are required through March 2022. Beginning March 2022, the notes require quarterly payments ranging from $36,553 to $81,093.

 

- 21 -

The notes are secured by a mortgage on the real property located in Monmouth, Illinois, assignment of leases and rents, security interest in all personal property and a fixture financing statement. The notes are subject to the terms of an inter-creditor loan agreement. The Enterprise notes are guaranteed by Cloverleaf Cold Storage Co., LLC and the Chase notes are guaranteed by CCS Realty LLC.

Annual maturities of long-term debt at December 31, 2018 (Successor) are as follows:

 

2019		$	—
2020			358,889,233
2021
2022
2023
Thereafter			12,562,689
		$	371,451,922

 

- 22 -

Long-term debt-net consists of the following at December 31, 2017 (Predecessor):

 

							Interest Rate					Amount
Installment Notes Payable
Installment Notes Payable NMTC
Enterprise SUB-CDE XIX, LLC (Enterprise)		(a)							1.73%				$	4,950,000
CIF III, LLC (Chase)		(a)							1.53%					6,000,000
CNMC SUB-CDE 61, LLC (Chase)		(a)							1.00%					3,000,000
Enterprise SUB-CDE XII, LLC (Enterprise)		(a)							1.00%					6,657,334
Other Installment Notes Payable
AXA Equitable Life Insurance Company		(b)							4.75%					11,192,482
Metropolitan Life Insurance Company		(c)							6.52%					5,076,238
EquiTrust Life Insurance Company		(d)							5.50%					2,705,809
U.S. Bank National Association		(e)							3.76%					10,282,730
Farmers Electric Cooperative									0.00%					228,139
Note Payable - Bank
Long-term line of credit		(f)							3.11%					5,000,000
Notes Payable - Related Parties - K-F Real Estate Co.
David M Feiges Revocable Trust									6.00%-9.00%					1,380,031
Daniel F Kapaln GST Discretionary Trust									6.00%-9.00%					8,199,071
David N Kaplan GST Discretionary Trust									6.00%-9.00%					8,199,071
Feiges Descendants Trust									6.00%					2,381,855
Feiges Family Trust									6.00%					3,397,188
Feiges Gift Trust									6.00%					2,843,724
Feiges K-F Trust									6.00%					5,548,469
Notes Payable - Related Parties - Cloverleaf Cold Storage Co. (Minnesota)
David N. Kaplan Revocable Trust		(g)							4.00%					2,650,000
Daniel F. Kaplan Revocable Trust		(g)							4.00%					2,650,000
Adam J. Feiges Revocable Trust		(g)							4.00%					3,175,000
William R. Feiges Revocable Trust		(g)							4.00%					3,175,000
Daniel F. Kaplan GST Discretionary Trust									4.00%					525,000
David N. Kaplan GST Discretionary Trust									4.00%					525,000
Notes Payable - Related Parties - CCS Realty Co.
David N. Kaplan Revocable Trust									6.00%					8,746,163
William R. Feiges Revocable Trust									6.00%					6,643,507
Daniel F. Kaplan Revocable Trust									6.00%					4,192,126
Adam J. Feiges Revocable Trust									6.00%					2,036,142
Less: unamortized debt issuance costs														(856,236	)
Less: current portion of long-term debt														(37,754,900	)
Long-term debt net of current maturities													$	82,748,943

 

- 23 -