Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 2, 2007, SGS International, Inc. (the “Registrant”) and SGS Packaging Europe Holdings Limited (“Holdings”), a wholly owned subsidiary of the Registrant, entered into Share Sale and Purchase Agreements (the “Agreements”) under which Holdings acquired the outstanding shares of McGurk Studios Limited (“Studios”) and Thames McGurk Limited (“Thames” and, together with Studios, “McGurks”) from Mr. P. E. McGurk, Mr. L. McGurk, Ms. A. L. Austin and Mr. J. R. McCarthy, in the case of Studios, and Mr. P. J. Fraine, Ms. J. K. Martindale, McGurk Group Limited and Ms. A. J. Crisp, in the case of Thames, for an aggregate consideration (the “Consideration”) of 9.2 million pounds sterling (approximately $18,193,920 based on the U.S. dollar/pound sterling exchange rate on April 2, 2007), subject to adjustment as described in the Agreements. The Consideration consists of a cash payment in the amount of 8,543,446 pounds sterling (approximately $16,895,519 based on the April 2, 2007 U.S. dollar/pound sterling exchange rate) and assumption of McGurks’ short-term and long-term indebtedness in the amount of 656,554 pounds sterling (approximately $1,298,401 based on the April 2, 2007 U.S. dollar/pound sterling exchange rate). McGurks is a UK-based provider of end-to-end digital design, artwork and reprographics for packaging solutions with locations in Hull and London, England, and Hong Kong.
On March 30, 2007, in connection with the financing of the acquisition described above, the Registrant borrowed the sum of $15.0 million (the “McGurk Borrowing”) under the acquisition facility of the December 30, 2005 senior secured credit facility provided to the Registrant by a syndicate of banks, financial institutions and other entities led by UBS Securities LLC and Lehman Brothers Inc.
The unaudited pro forma condensed combined financial statements are based on the historical financial statements of the Registrant, the Registrant’s subsidiaries and McGurks after giving effect to (1) the acquisition of McGurks (the “McGurk Acquisition”) under SFAS No. 141, (2) the McGurk Borrowing, and (3) the adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet as of March 31, 2007 is presented as if the transactions occurred on March 31, 2007, and includes adjustments that are (1) directly attributable to the McGurk Acquisition and (2) factually supportable. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 is presented as if the McGurk Acquisition occurred on January 1, 2006, and includes adjustments that are (1) directly attributable to the McGurk Acquisition, (2) factually supportable, and (3) expected to have a continuing impact.
In conjunction with the McGurk Acquisition, the total estimated purchase price is allocated to reflect the fair value of the assets acquired and liabilities assumed as of the date of the McGurk Acquisition in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations.” The purchase price allocation for the McGurk Acquisition is listed below. The purchase price allocation is subject to completion of final fair value allocations. The actual amounts that will be recorded based upon final assessment of fair values may differ substantially from the information presented in these unaudited pro forma condensed combined financial statements.
Purchase price | 16,896 | (1) | |
Transaction costs | 310 | ||
Total acquisition price | 17,206 | ||
Preliminary allocation of acquisition price | |||
Current assets | 6,748 | ||
Properties, plant and equipment | 2,978 | ||
Goodwill | 5,862 | ||
Customer relationships | 5,699 | ||
Other intangible assets | 980 | ||
Liabililties assumed | (5,061 | ) | |
Total acquisition price | 17,206 | ||
(1) | The acquisition price in the table above consists of the aggregate consideration of $18,194 (9,200 pound sterling) less debt assumed of $1,298 (657 pound sterling). |
The unaudited pro forma condensed combined financial statements do not give consideration to expense savings and are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.
The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of the Registrant that would have been reported had the McGurk Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of the Registrant. The unaudited pro forma condensed combined financial statements should be read in conjunction with (1) the accompanying notes to the unaudited pro forma condensed combined financial statements (2) the Registrant’s historical consolidated financial statements as of and for the year ended December 31, 2006 as reported in the Registrant’s Annual Report on Form 10-K, and (3) the Registrant’s historical consolidated condensed financial statements as of and for the quarter ended March 31, 2007 as reported in the Registrant’s Quarterly Report on Form 10-Q.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2006
(in thousands of dollars)
Historical | |||||||||||||
SGS International, Inc. and Subsidiaries | McGurk Studios Limited | Thames McGurk Limited | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Sales | 290,074 | 11,038 | 6,814 | — | 307,926 | ||||||||
Costs and expenses: | |||||||||||||
Cost of goods sold (exclusive of depreciation) | 192,095 | 6,858 | 3,273 | — | 202,226 | ||||||||
Selling, general and administrative expenses | 40,196 | 2,752 | 1,565 | — | 44,513 | ||||||||
Depreciation and amortization | 20,507 | 247 | 115 | 334 | (a) | 21,203 | |||||||
Interest expense | 35,178 | 225 | 40 | 1,092 | (b) | 36,535 | |||||||
Other expenses, net | 457 | (38 | ) | (2 | ) | — | 417 | ||||||
Total costs and expenses | 288,433 | 10,044 | 4,991 | 1,426 | 304,894 | ||||||||
Income before taxes on income | 1,641 | 994 | 1,823 | (1,426 | ) | 3,032 | |||||||
Provision for taxes on income | 1,019 | 315 | 574 | (759 | ) (c) | 1,149 | |||||||
Net Income | 622 | 679 | 1,249 | (667 | ) | 1,883 | |||||||
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2007
(in thousands of dollars)
Historical | |||||||||||
SGS International, Inc. and Subsidiaries | McGurk Studios Limited | Thames McGurk Limited | Pro Forma Adjustments | Pro Forma Combined | |||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | 33,804 | 295 | 623 | (16,896 | ) (d) | 17,826 | |||||
Receivables from customers, less allowances | 58,662 | 3,431 | 1,941 | — | 64,034 | ||||||
Inventories | 6,082 | 458 | — | — | 6,540 | ||||||
Deferred income taxes | 818 | — | — | — | 818 | ||||||
Prepaid expenses and other current assets | 8,773 | — | — | — | 8,773 | ||||||
Total current assets | 108,139 | 4,184 | 2,564 | (16,896 | ) | 97,991 | |||||
Properties, plants and equipment, net | 51,745 | 2,516 | 462 | — | 54,723 | ||||||
Goodwill | 163,212 | — | — | 5,862 | (e) | 169,074 | |||||
Other intangible assets, net | 167,160 | — | — | 6,679 | (f) | 173,839 | |||||
Deferred financing costs, net | 9,819 | — | — | — | 9,819 | ||||||
Other assets | 447 | — | — | (310 | ) (d) | 137 | |||||
Total assets | 500,522 | 6,700 | 3,026 | (4,665 | ) | 505,583 | |||||
Liabilities | |||||||||||
Current liabilities | 41,942 | 3,780 | 793 | — | 46,515 | ||||||
Long-term obligations | 340,486 | 20 | — | — | 340,506 | ||||||
Non-current liabilities | 517 | — | — | — | 517 | ||||||
Deferred income taxes | 5,472 | 447 | 21 | — | 5,940 | ||||||
Total liabilities | 388,417 | 4,247 | 814 | — | 393,478 | ||||||
Shareholders’ Equity | |||||||||||
Common stock | — | 196 | — | (196 | ) (g) | — | |||||
Additional capital | 107,000 | — | — | — | 107,000 | ||||||
Accumulated other comprehensive income - unrealized translation adjustments, net of tax | 2,559 | — | — | — | 2,559 | ||||||
Retained Earnings | 2,546 | 2,257 | 2,212 | (4,469 | ) (g) | 2,546 | |||||
Total liabilities and shareholder’s equity | 500,522 | 6,700 | 3,026 | (4,665 | ) | 505,583 | |||||
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.
1. | Basis of Pro Forma Presentation |
The unaudited pro forma condensed combined financial statements are based on the historical financial statements of the Registrant, the Registrant’s subsidiaries and McGurks after giving effect to (1) the McGurk Acquisition under SFAS No. 141, (2) the McGurk Borrowing, and (3) the adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet as of March 31, 2007 is presented as if the transactions occurred on March 31, 2007, and includes adjustments that are (1) directly attributable to the acquisition and (2) factually supportable. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 is presented as if the McGurk Acquisition occurred on January 1, 2006, and includes adjustments that are (1) directly attributable to the McGurk Acquisition, (2) factually supportable, and (3) expected to have a continuing impact.
2. | Pro Forma Adjustments |
(a) | Adjustment to record amortization expense associated with the customer relationships and other intangible assets recorded in connection with the preliminary purchase price allocation. The amortization expense is calculated using a useful life of 20 years. |
(b) | Adjustment to record interest expense associated with the McGurk Borrowing of $15,000 at a variable rate of LIBOR plus 2.5%. The average interest rate during the year ended December 31, 2006 was 7.28% for the Registrant’s borrowings on the senior secured credit facility denominated in pound sterling calculated using LIBOR plus 2.5%. |
(c) | Adjustment to record the provision for income taxes at a blended effective rate of 37.9% based on the Registrant’s effective tax rate for the year ended December 31, 2006. |
(d) | Adjustment to record the cash acquisition price, debt assumed, and transaction costs for the McGurk Acquisition. |
(e) | Adjustment to record the goodwill resulting from the McGurk Acquisition based on the preliminary purchase price allocation. |
(f) | Adjustment to record the customer relationships and other intangible assets of McGurks based on the preliminary purchase price allocation. |
(g) | Adjustment to eliminate the historical stockholders’ equity balances of McGurks. |