MATTHEWS INTERNATIONAL CORP - FORM 8-K - EX-99.4 - EXHIBIT 99.4 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 3-31-2014 - July 31, 2014

Attached files

file filename
8-K - FORM 8K-SCHAWK MERGER - MATTHEWS INTERNATIONAL CORPform8ksgkclosing.htm
EX-23.1 - EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP - MATTHEWS INTERNATIONAL CORPexhibit23-1consentey.htm
EX-99.1 - EXHIBIT 99.1 PRESS RELEASE DATED JULY 29, 2014 - MATTHEWS INTERNATIONAL CORPexhibit99-1pressrls.htm
EX-10.2 - EXHIBIT 10.2 SECOND AMENDMENT TO FIRST AMENDED AND RESTATED LOAN AGREEMENT - MATTHEWS INTERNATIONAL CORPexhibit10-2secamendloan.htm
EX-99.3 - EXHIBIT 99.3 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SGK 3-31-2014 - MATTHEWS INTERNATIONAL CORPexhibit99-3unauditedfs.htm
EX-99.2 - EXHIBT 99.2 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SGK 12-31-2014 - MATTHEWS INTERNATIONAL CORPexhibit99-2auditedfs.htm
EX-10.1 - EXHIBIT 10.1 FIRST AMENDMENT TO FIRST AMENDED AND RESTATED LOAN AGREEMENT - MATTHEWS INTERNATIONAL CORPexhibit10-1loanagree.htm
 
 

   EXHIBIT 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
The unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The pro forma information is not necessarily indicative of what Matthews’ financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of Matthews after the merger.
 
The unaudited pro forma condensed combined statements of income for Matthews’ fiscal year ended September 30, 2013 and for the six months ended March 31, 2014, have been prepared to give effect to the merger as if the merger had occurred on October 1, 2012. The pro forma condensed combined statement of income for the fiscal year ended September 30, 2013 combines Matthews’ audited consolidated statement of income for the fiscal year ended September 30, 2013 with the aggregated quarterly unaudited consolidated statements of comprehensive income (loss) of SGK for the four quarters ended September 30, 2013. The pro forma condensed consolidated statement of income for the six months ended March 31, 2014 combines Matthews’ unaudited consolidated statement of income for the six months ended March 31, 2014 with SGK’s aggregated unaudited consolidated statements of comprehensive income (loss) for the three-month periods ended December 31, 2013 and March 31, 2014. The unaudited pro forma condensed combined balance sheet has been prepared to give effect to the merger as if the merger had occurred on March 31, 2014, and combines Matthews’ March 31, 2014 unaudited condensed consolidated balance sheet with SGK’s March 31, 2014 unaudited consolidated balance sheet.
 
As described further in Note 2 to the unaudited pro forma condensed combined financial statements, the historical consolidated financial statements of SGK have been adjusted by reclassifying and/or condensing certain line items in order to conform with Matthews’ financial statement presentation. There were no material transactions between Matthews and SGK during the periods presented in the unaudited pro forma condensed combined financial statements that require elimination.
 
The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles, or GAAP, which are subject to change and interpretation. Matthews has been treated as the acquirer in the merger for accounting purposes. The acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and Matthews’ future results of operations and financial position. The unaudited pro forma condensed combined financial statements do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the merger or the costs to integrate the operations of Matthews and SGK, or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.
 
The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial statements were based on and should be read in conjunction with the:
 
 
•
  
separate historical financial statements of Matthews as of and for the fiscal year ended September 30, 2013 and the related notes included in Matthews’ Annual Report on Form 10-K for the fiscal year ended September 30, 2013, which is incorporated by reference into this Current Report on Form 8-K;
 
•
  
separate historical financial statements of SGK as of and for the year ended December 31, 2013 and the related notes included in SGK’s Annual Report on Form 10-K for the year ended December 31, 2013, which is incorporated by reference into this Current Report on Form 8-K;
 
 
•
  
separate historical financial statements of Matthews as of and for the six months ended March 31, 2014 and the related notes included in Matthews’ Quarterly Report on Form 10-Q for the six months ended March 31, 2014, which is incorporated by reference into this Current Report on Form 8-K;
 
 
•
  
separate historical financial statements of SGK as of and for the three months ended March 31, 2014 and the related notes included in SGK’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014, which is incorporated by reference into this Current Report on Form 8-K.


 
 
 


 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FISCAL YEAR ENDED SEPTEMBER 30, 2013
(Dollar amounts in thousands, except per share data)
 
                         
   
Matthews
    
SGK
    
Pro Forma
Adjustments
  
Pro Forma
 Combined
  
Sales   $ 985,357     $  445,486       —      $ 1,430,843  
Cost of sales
     (628,839 )      (287,358 )      (5,480 )  (a)     (921,677 ) 
                                 
Gross profit
     356,518       158,128       (5,480 )     509,166  
Selling & administrative expense
     (260,726 )      (171,315 )      (8,122 )  (b)     (440,163 ) 
                                 
Operating profit
     95,792       (13,187 )      (13,602 )     69,003  
Investment income
     2,284       202       —       2,486  
Interest expense
     (12,925 )      (4,279 )      (8,422 )  (c)     (25,626 ) 
Other income (deductions), net
     (3,715 )      —       (496 )  (d)     (4,211 ) 
                                 
Income before income taxes
     81,436       (17,264 )      (22,520 )     41,652  
Income taxes
     (26,664 )      6,613       7,951    (e)     (12,100 ) 
                                 
 
Net income/(loss) from continuing operations
     54,772       (10,651 )      (14,569 )     29,522  
 
Net loss from continuing operations — noncontrolling interests
     116       —       —       116  
                                 
 
Net income/(loss) from continuing operations — attributable to Matthews shareholders
   $ 54,888      $ (10,651 )     $ (14,569 )   $ 29,668  
                                 
Earnings from continuing operations per common share:
                                
Basic
     $1.99       —       —       $0.91  
Diluted
     $1.98       —       —       $0.90  
                           
 
Weighted average common shares outstanding:
                                
Basic
     27,255       —       5,399    (f)     32,654  
Diluted
     27,423       —       5,399    (f)     32,822  
 
The accompanying notes are an integral part of these pro forma condensed combined financial statements

 

 
 
 
 
 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED MARCH 31, 2014
(Dollar amounts in thousands, except per share data)
 
                                 
 
  
Matthews
    
SGK
    
Pro Forma
 Adjustments
    
Pro Forma
 Combined
  
Sales
  
$
476,782
  
  
$
216,166
  
    
—  
  
  
$
692,948
  
Cost of sales
  
  
(305,226
) 
    
(138,225
) 
    
(2,740
) (a) 
    
(446,191
) 
 
  
                              
Gross profit
  
  
171,556
  
    
77,941
  
    
(2,740
) 
    
246,757
  
Selling & administrative expense
  
  
(135,668
) 
    
(72,083
) 
    
(7,842
) (b) 
    
(199,909
) 
 
  
                              
Operating profit
  
  
35,888
  
    
5,858
  
    
5,102
  
    
46,848
  
Investment income
  
  
1,227
  
    
187
  
    
—  
  
    
1,414
  
Interest expense
  
  
(5,455
) 
    
(1,923
) 
    
(4,822
) (c) 
    
(12,200
) 
Other income (deductions), net
  
  
(1,772
) 
    
—  
  
    
(248
) (d) 
    
(2,020
) 
 
  
                              
Income before income taxes
  
  
29,888
  
    
4,122
  
    
31
      
34,031
  
Income taxes
  
  
(10,731
) 
    
(1,099
) 
    
329
  (e) 
    
(11,501
) 
 
  
                              
Net income/(loss) from continuing operations
  
  
19,157
  
    
3,023
  
    
360
  
    
22,540
  
Net loss from continuing operations — noncontrolling interests
  
  
90
  
    
—  
  
    
—  
  
    
90
  
 
  
                              
Net income/(loss) from continuing operations — attributable to Matthews shareholders
  
$
19,247
  
  
$
3,023
  
  
$
360
  
  
$
22,630
  
 
  
                              
Earnings from continuing operations per common share:
  
                              
Basic
  
 
$0.71
  
    
—  
  
    
—  
  
  
 
$0.69
  
Diluted
  
 
$0.70
  
    
—  
  
    
—  
  
  
 
$0.69
  
         
Weighted average common shares outstanding:
  
                              
Basic
  
  
27,193
  
    
—  
  
    
5,399
  (f) 
    
32,592
  
Diluted
  
  
27,424
  
    
—  
  
    
5,399
  (f) 
    
32,823
  
 
The accompanying notes are an integral part of these pro forma condensed combined financial statements

 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2014
(Dollar amounts in thousands)
                                 
 
  
Matthews
    
SGK
    
Pro Forma
 Adjustments
    
Pro Forma
 Combined
  
ASSETS
  
                              
Cash & cash equivalents
  
$
61,590
  
  
$
4,947
  
    
—  
  
  
$
66,537
  
Accounts receivable, net
  
  
185,274
  
    
94,128
  
    
—  
  
    
279,402
  
Inventories
  
  
143,005
  
    
18,322
  
    
5,000
  (g) 
    
166,327
  
Income tax receivable
  
  
—  
  
    
11,076
  
    
—  
  
    
11,076
  
Deferred income taxes
  
  
9,805
  
    
1,240
  
    
—  
  
    
11,045
  
Other current assets
  
  
21,780
  
    
13,403
  
    
—  
  
    
35,183
  
 
  
                              
Total current assets
  
  
421,454
  
    
143,116
  
    
5,000
  
    
569,570
  
 
  
                              
Investments
  
  
23,122
  
    
—  
  
            
23,122
  
Property, plant & equipment, net
  
  
176,406
  
    
57,098
  
    
20,000
  (h) 
    
253,504
  
Deferred income taxes
  
  
1,588
  
    
4,295
  
    
—  
  
    
5,883
  
Other assets
  
  
15,275
  
    
8,271
  
    
2,481
  (i) 
    
26,027
  
Goodwill, net
  
  
527,282
  
    
201,610
  
    
98,215
  (j) 
    
827,107
  
Other intangibles assets, net
  
  
62,934
  
    
23,502
  
    
301,498
  (k) 
    
387,934
  
 
  
                              
Total Non-Current Assets
  
  
806,607
  
    
294,776
  
    
422,194
  
    
1,523,577
  
 
  
                              
TOTAL ASSETS
  
$
1,228,061
  
  
$
437,892
  
  
$
427,194
  
  
$
2,093,147
  
 
  
                              
         
LIABILITIES & SHAREHOLDERS’ EQUITY
  
                              
Long term debt, current maturities
  
$
23,472
  
  
$
1,266
  
  
$
(1,266
) (l) 
  
$
23,472
  
Accounts payable
  
  
45,936
  
    
16,144
  
    
—  
  
    
62,080
  
Accrued compensation
  
  
34,496
  
    
41,451
  
    
—  
  
    
75,947
  
Accrued income taxes
  
  
4,010
  
    
256
  
    
(4,521
) (m) 
    
(255)
  
Customer prepayments
  
  
14,840
  
    
7,515
  
    
—  
  
    
22,355
  
Other current liabilities
  
  
46,754
  
    
19,654
  
    
2,704
   (n) 
    
69,112
  
Deferred income taxes
  
  
—  
  
    
217
  
    
—  
  
    
217
  
 
  
                              
Total current liabilities
  
  
169,508
  
    
86,503
  
    
(3,083)
  
    
252,928
  
 
Long-term debt
  
  
354,167
  
    
60,534
  
    
323,465
  (o) 
    
738,166
  
Accrued pension
  
  
63,959
  
    
29,984
  
    
—  
  
    
93,943
  
Postretirement benefits
  
  
18,270
  
    
—  
  
    
—  
  
    
18,270
  
Deferred income taxes
  
  
20,640
  
    
11,231
  
    
115,572
  (p) 
    
147,443
  
Other liabilities
  
  
30,296
  
    
8,342
  
            
38,638
  
 
  
                              
Total liabilities
  
  
656,840
  
    
196,594
  
    
435,954
  
    
1,289,388
  
 
  
                              
         
Common stock
  
  
36,334
  
    
229
  
    
(229
) (q) 
    
36,334
  
Additional paid-in capital
  
  
46,911
  
    
208,596
  
    
(143,308
) (r) 
    
112,199
  
Retained earnings
  
  
788,966
  
    
87,153
  
    
(89,194
) (s) 
    
786,925
  
Accumulated other comprehensive income/(loss)
  
  
(22,287
) 
    
10,541
  
    
(10,541
) (q) 
    
(22,287
) 
Treasury stock, at cost
  
  
(281,859
) 
    
(65,221
) 
    
234,512
   (r) 
    
(112,568
) 
 
  
                              
Total shareholders’ equity-Matthews
  
  
568,065
  
    
241,298
  
    
(8,760
)
    
800,603
  
 
Noncontrolling interests
  
  
3,156
  
    
—  
  
    
—  
  
    
3,156
  
 
  
                              
Total shareholders’ equity
  
  
571,221
  
    
241,298
  
    
(8,760
) 
    
803,759
  
 
  
                              
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
  
  
1,228,061
  
    
437,892
  
    
427,194
  
    
2,093,147
  
 
The accompanying notes are an integral part of these pro forma condensed combined financial statements
 
 
 
 


 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
Note 1: Description of the Transaction
 
On July 29, 2014, Matthews completed its previously-announced acquisition of SGK.
 
Pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 16, 2014, between Matthews, Moonlight Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Matthews ("Merger Sub"), Moonlight Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of Matthews ("Merger Sub 2") and SGK into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), Merger Sub merged with and into SGK (the "Merger"), with SGK continuing as the surviving corporation and a wholly-owned subsidiary of Matthews. Immediately after the completion of the Merger, SGK merged with and into Merger Sub 2 (the "Second Merger", and together with the Merger, the "Mergers"), with Merger Sub 2 continuing as the surviving entity and a wholly-owned subsidiary of Matthews. Merger Sub 2 has been renamed SGK LLC. The Mergers are intended to qualify as a "reorganization" within the meaning of Section 368(a) of the United States Internal Revenue Code of 1986, as amended.
 
Under the terms of the Merger Agreement, each outstanding share of SGK Class A common stock (other than those held by SGK as treasury stock) was cancelled and converted into the right to receive (i) 0.20582 of a share of Matthews Class A common stock, par value $1.00 per share (“Matthews common stock”) and (ii) $11.80 in cash. In connection with the Merger, Matthews will issue approximately 5.4 million shares of Matthews common stock and pay an aggregate of approximately $309.5 million in cash to former SGK stockholders in exchange for their shares of SGK Class A common stock.
 
Upon the closing of the Merger, the shares of SGK Class A common stock, which previously traded under the ticker symbol “SGK” on the New York Stock Exchange (the “NYSE”), ceased trading on and were delisted from the NYSE.
 
Note 2: Basis of Presentation
 
The unaudited pro forma condensed combined financial statements have been prepared in accordance with Article 11 of the SEC Regulation S-X and presented for informational purposes only. The pro forma information is not necessarily indicative of what Matthews’ financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of Matthews after the merger.
 
The unaudited pro forma condensed combined statements of income for Matthews’ fiscal year ended September 30, 2013 and for the six months ended March 31, 2014, have been prepared to give effect to the merger as if the merger had occurred on October 1, 2012. The pro forma condensed combined statement of income for the fiscal year ended September 30, 2013 combines Matthews’ audited consolidated statement of income for the fiscal year ended September 30, 2013 with the aggregated quarterly unaudited consolidated statements of comprehensive income (loss) of SGK for the four quarters ended September 30, 2013. The pro forma condensed consolidated statement of income for the six months ended March 31, 2014 combines Matthews’ unaudited consolidated statement of income for the six months ended March 31, 2014 with SGK’s aggregated unaudited consolidated statements of comprehensive income (loss) for the three-month periods ended December 31, 2013 and March 31, 2014. The unaudited pro forma condensed combined balance sheet has been prepared to give effect to the merger as if the merger had occurred on March 31, 2014, and combines Matthews’ March 31, 2014 unaudited condensed consolidated balance sheet with SGK’s March 31, 2014 unaudited consolidated balance sheet.

Certain line items in the historical consolidated statements of comprehensive income (loss) of SGK have been adjusted by reclassifying and/or condensing those items into categories that conform with Matthews’ financial statement presentation as follows (in thousands):
 

 
 
 


 

                                 
 
  
Fiscal year ended
 September 30, 2013
  
  
Six months ended
 March 31, 2014
  
SGK Classifications
  
Cost of
 Sales
  
  
Selling and
 Administrative
 Expense
  
  
Cost of
 Sales
  
  
Selling and
 Administrative
 Expense
  
Cost of services
  
$
276,792
  
  
  
—  
  
  
$
133,460
  
  
  
—  
  
Selling, general and administrative expenses
  
  
—  
  
  
$
120,046
  
  
  
—  
  
  
$
56,753
  
Depreciation and amortization
  
  
8,667
  
  
  
9,336
  
  
  
3,754
  
  
  
5,411
  
Business and systems integration expenses
  
  
—  
  
  
  
7,960
  
  
  
—  
  
  
  
2,763
  
Acquisition integration and restructuring expenses
  
  
—  
  
  
  
1,788
  
  
  
—  
  
  
  
891
  
Impairment of long-lived assets
  
  
—  
  
  
  
502
  
  
  
—  
  
  
  
—  
  
Foreign exchange loss
  
  
1,899
  
  
  
—  
  
  
  
1,011
  
  
  
—  
  
Merger related expenses
  
  
—  
  
  
  
—  
  
  
  
—  
  
  
  
8,135
  
Multiemployer pension withdrawal expense
  
  
—  
  
  
  
31,683
  
  
  
—  
  
  
  
(1,870
) 
 
  
      
  
      
  
      
  
      
Total
  
$
287,358
  
  
$
171,315
  
  
$
138,225
  
  
$
72,083
  
 
  
      
  
      
  
      
  
      
 
Certain line items in the historical consolidated balance sheet of SGK have been adjusted by reclassifying those items and/or components thereof into categories that conform with Matthews’ financial statement presentation as follows (in thousands):
 
                                                     
 
  
As of March 31, 2014
SGK Classifications
  
Inventories
  
  
Accrued
 Compensation
  
  
Customer
 Prepayments
  
  
Accrued
 Liabilities
  
  
Accrued
 Pension
  
  
Other
 Liabilities
  
Total
Unbilled client service
  
$
18,322
  
  
  
—  
  
  
  
—  
  
  
  
—  
  
  
  
—  
  
  
  
—  
  
$
18,322
Accrued Liabilities
  
  
—  
  
  
$
41,451
  
  
$
7,515
  
  
$
19,654
  
  
  
—  
  
  
  
—  
  
  
68,620
Other long-term liabilities
  
  
—  
  
  
  
—  
  
  
  
—  
  
  
  
—  
  
  
$
29,984
  
  
$
8,342
  
  
38,326
 
  
      
  
      
  
      
  
      
  
      
  
          
Total
  
$
18,322
  
  
$
41,451
  
  
$
7,515
  
  
$
19,654
  
  
$
29,984
  
  
$
8,342
  
    
 
  
      
  
      
  
      
  
      
  
      
  
          
 
The unaudited pro forma condensed combined statements of income exclude nonrecurring charges and related tax effects which would result directly from the transaction and would have been included in income within the first twelve months subsequent to the transaction. These items include pre-tax amounts of approximately $17.6 million of fees and other costs incurred to facilitate the transaction, $4.7 million of compensation charges triggered by the change in control of SGK, and approximately $5.0 million of charges to recognize step-up in the value of inventory. There were no material transactions between Matthews and SGK during the periods presented in the unaudited pro forma condensed combined financial statements that require elimination.
 
The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles, or GAAP, which are subject to change and interpretation. Matthews has been treated as the acquirer in the merger for accounting purposes. The acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and Matthews’ future results of operations and financial position. The unaudited pro forma condensed combined financial statements do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the merger or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

 
 
 


 
 
Note 3: Preliminary Purchase Price Allocation
 
Management’s estimate of the acquisition purchase price is calculated as follows (in thousands except per share amounts):
 
         
Cash price per share
  
$
11.80
  
Shares outstanding
  
  
26,231
  
 
  
      
Total cash value of equity
  
$
309,524
  
 
  
      
Share conversion
  
  
0.20582
  
Shares outstanding
  
  
26,231
  
 
  
      
Shares issued
  
  
5,399
  
Share price
  
$
43.45
  
 
  
      
Total value of equity transferred
  
$
234,579
  
 
  
      
Cash acquired
  
$
(4,947
) 
Debt assumed(i)
  
  
71,994
  
 
  
      
Net debt assumed
  
$
67,047
  
 
  
      
Total estimated purchase price
  
$
611,150
  
 
  
      
 
(i)
Debt assumed is based on March 31, 2014 balance sheet and includes certain obligations triggered by the change in control of SGK.
 
The table below represents the allocation of the total purchase price to SGK’s assets acquired and liabilities assumed based upon Matthews’ management’s preliminary estimates of their respective fair values as of March 31, 2014 (in thousands):
 
         
Working capital excluding cash & cash equivalents
  
$
60,922
  
Property, plant and equipment
  
  
77,098
  
Goodwill
  
  
299,825
  
Intangible assets
  
  
325,000
  
Other assets
  
  
12,566
  
Other liabilities
  
  
(164,261
) 
 
  
      
Total estimated purchase price
  
$
611,150
  
 
  
      
 

 
Note 4: Unaudited Pro Forma Adjustments
 
The following represents an explanation of the various pro forma adjustments to the unaudited condensed combined financial statements:
 
(a)
Represents management’s preliminary estimate of the incremental depreciation and amortization of tangible and intangible assets.
 
(b)
Represents the aggregate of the following: 1) management’s preliminary estimate of the incremental depreciation and amortization of tangible and intangible assets; and 2) for the six months ended March 31, 2014, an adjustment to remove the effect of transaction fees incurred by Matthews and SGK in connection with the proposed merger.
(c)
Represents management’s estimate of incremental interest expense resulting from the acquisition. This adjustment contemplates additional interest incurred on incremental debt generated to fund the following: purchase of SGK shares in connection with the acquisition, repayment of outstanding borrowings of SGK at close, and higher borrowing rates on pre-existing debt.  The weighted average interest rate incorporates estimates of debt bearing variable and fixed rates and anticipated interest rate spreads of the combined company in accordance with the provisions of Matthews’ amended senior credit facility.  A 1/8 th of 1% change in the assumed variable interest rate would change the annual unaudited pro forma interest expense by approximately $0.2 million.
  
 
(d)
Represents  the amortization of fees incurred to amend Matthews’ existing senior credit facility to increase the revolving credit facility availability thereunder by $400 million, which will be used in part to fund the cash merger consideration.
 
(e)
Represents the aggregate of the following: 1) management’s preliminary estimate of the impact of incremental depreciation, amortization, and interest expense on income tax expense; and 2) for the six months ended March 31, 2014, an adjustment to remove the income tax effects of transaction fees incurred by Matthews and SGK in connection with the proposed merger.
 
(f)
SGK stockholders received $11.80 cash and 0.20582 of a share of Matthews common stock for each SGK share held. This adjustment represents the number of aggregate shares of Matthews common stock that were issued to SGK shareholders in partial exchange for their holdings of SGK shares.
 
(g)
Represents management’s preliminary estimate of the step-up in basis of inventory acquired in the acquisition. Fair market value for raw materials is based on replacement cost and for finished goods and work-in-process is based on estimated selling price, less the sum of costs to complete, dispose of, and allow for a reasonable profit allowance for the selling effort.
 
(h)
Represents management’s preliminary estimate of the step-up in basis of property, plant and property acquired in the acquisition. Management anticipates depreciating the fair value of SGK’s property, plant and equipment on a straight-line basis over the estimated useful lives that will generally range from 3 to 30 years.
 
(i)
Represents fees incurred to amend Matthews’ existing senior credit facility to increase the revolving credit facility availability thereunder by $400 million, which will be used in part to fund the cash merger consideration.
 
(j)
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. This adjustment represents management’s preliminary estimate of the excess of the goodwill generated in connection with the SGK acquisition over the historical basis of goodwill recorded on SGK’s balance sheet.
 
(k)
Represents management’s preliminary estimate of the adjustments to record the fair value of intangible assets acquired in the acquisition, including customer relationships, trade names, developed technology, internally-generated software, and lease contracts. Management expects that acquired trade names will have indefinite lives.  All other acquired intangible assets are expected to be amortized on a straight-line basis over their estimated useful lives that will generally range from 2 to 20 years.
 
(l)
Represents the adjustment to eliminate SGK’s current maturities of long-term debt, which were refinanced using borrowings under the Matthews’ amended senior credit facility.
 
(m)
Represents the tax benefits generated from transaction fees incurred by Matthews and SGK in connection with the proposed merger and financing fees incurred to amend Matthews’ existing senior credit facility.
(n)
Represents transactions fees incurred by Matthews and SGK subsequent to March 31, 2014.
 
(o)
Represents incremental long-term debt generated to fund the purchase of SGK shares in connection with the acquisition, financing fees incurred to amend Matthews’ existing senior credit facility, transaction fees incurred in connection with the acquisition, and refinance SGK’s existing borrowings.
 
(p)
Represents management’s preliminary estimate of adjustments to long term deferred tax liabilities generated by the differences in the book and tax bases of intangible assets and deferred financing fees.
 
(q)
Represents the elimination of the historical basis of SGK’s common stock and accumulated other comprehensive income balances.
 
(r)
Represents the elimination of the historical basis of SGK’s additional paid-in capital and treasury stock balances and adjustments to Matthews’ corresponding accounts to reflect the issuance of treasury shares in exchange for SGK shares as partial purchase consideration.
 
(s)
Represents the elimination of the historical basis of SGK’s retained earnings balances and adjustments to Matthews’ corresponding accounts to reflect the impact of transaction fees, net of the effect of taxes.

 

 
 
 

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