Exhibit 99.3
INTRODUCTION TO
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On July 1, 2013, the Superior Uniform Group, Inc. (“the Company”) acquired substantially all of the assets of HPI Direct, Inc. (“HPI”). The purchase price for the asset acquisition consists of approximately $32.5 million in cash, subject to adjustment and inclusive of the real estate purchase described below, the issuance of approximately 209,000 restricted shares of the Company’s common stock, the potential future payment of up to $7.2 million in additional contingent consideration through 2017, and the assumption of certain liabilities of HPI. The transaction also includes the acquisition of the corporate offices and warehouse distribution facility from TAA Investments LLC. (“TAA”), an entity related to HPI. Concurrent with the closing of the acquisition, Superior renewed its $15 million revolver agreement and entered into a new term loan for $30 million. Both credit facilities carry five year terms and variable interest rate of LIBOR plus 0.95%.
The following unaudited pro forma combined balance sheet as of June 30, 2013 combines the historical balance sheet of the Company as of June 30, 2013, as filed with the Securities and Exchange Commission (“SEC”) in its report on Form 10-Q, with the historical consolidated balance sheet of HPI and TAA as of June 30, 2013, giving effect to the acquisition as if it had occurred on June 30, 2013. The unaudited pro forma condensed combined statements of comprehensive income for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 combine the historical consolidated statements of comprehensive income of the Company for the six-month period ended June 30, 2013 and for the year ended December 31, 2012, as filed with the SEC in its quarterly report on Form 10-Q and annual report on Form 10-K, with the historical consolidated statements of comprehensive income of HPI and TAA for the six-month period ended June 30, 2013 and for the year ended December 31, 2012, giving effect to the acquisition as though it had occurred at the beginning of the period presented, using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements.
The acquisition has been accounted for under the purchase method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets of HPI and TAA acquired in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on various preliminary estimates. The allocation of the purchase price is preliminary pending finalization of various estimates and valuation analyses.
The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had the Company and HPI and TAA been a consolidated company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements of the Company included in its Annual Report on Form 10- K for the year ended December 31, 2012. In addition, the unaudited pro forma combined financial statements, including the notes thereto, are based on the historical consolidated financial statements of HPI and TAA for the six-month period ended June 30, 2013 and year ended December 31, 2012, which are included in Exhibit 99.1 to this Form 8-K/A.
Pro forma adjustments are necessary to reflect the purchase price and purchase accounting adjustments based on preliminary estimates of the fair values of the HPI and TAA net assets acquired. The unaudited pro forma combined financial statements do not reflect any operating efficiencies and cost savings that may be realized with respect to the consolidated companies.
Item 8. Financial Statements and Supplementary Data
Superior Uniform Group, Inc. and Subsidiaries
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Six months ended June 30, 2013
Superior Uniform Group, Inc. | HPI Direct & TAA Investments | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||||
Net sales | $ | 61,839,000 | $ | 17,342,000 | $ | 79,181,000 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of goods sold | 39,348,000 | 11,759,000 | 51,107,000 | |||||||||||||||||
Selling and administrative expenses | 18,659,000 | 4,349,000 | (74,000 | ) | I | 23,639,000 | ||||||||||||||
| 935,000 | J | |||||||||||||||||||
| (230,000 | ) | K | ||||||||||||||||||
Interest expense | 15,000 | 257,000 | (257,000 | ) | L | 195,000 | ||||||||||||||
| 180,000 | M | |||||||||||||||||||
| 58,022,000 | 16,365,000 | 554,000 | 74,941,000 | |||||||||||||||||
Income before taxes on income | 3,817,000 | 977,000 | (554,000 | ) | 4,240,000 | |||||||||||||||
Income tax expense | 1,150,000 | - | 150,000 | N | 1,300,000 | |||||||||||||||
Net income | $ | 2,667,000 | $ | 977,000 | $ | (704,000 | ) | $ | 2,940,000 | |||||||||||
Weighted average number of shares outstandingduring the period | ||||||||||||||||||||
(Basic) | 6,123,752 | 208,617 | O | 6,332,369 | ||||||||||||||||
(Diluted) | 6,169,798 | 208,617 | O | 6,378,415 | ||||||||||||||||
Per Share Data: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Net income | $ | 0.44 | $ | - | $ | 0.46 | ||||||||||||||
Diluted | ||||||||||||||||||||
Net income | $ | 0.43 | $ | - | $ | 0.46 | ||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||
Amortization of prior service costs includedin net periodic pension costs | 4,000 | - | 4,000 | |||||||||||||||||
Recognition of net losses included innet periodic pension costs | 379,000 | - | 379,000 | |||||||||||||||||
Recognition of settlement loss inlcudedin net periodic pension costs | 161,000 | - | 161,000 | |||||||||||||||||
Current period gains | 1,991,000 | - | 1,991,000 | |||||||||||||||||
Other comprehensive income | $ | 2,535,000 | $ | - | $ | - | $ | 2,535,000 | ||||||||||||
Comprehensive income | $ | 5,202,000 | $ | 977,000 | $ | (704,000 | ) | $ | 5,475,000 | |||||||||||
Cash dividends per common share | $ | - | $ | - | $ | - | $ | - | ||||||||||||
See accompanying notes to Unaudited Proforma Condensed Combined Interim Financial Statements.
Superior Uniform Group, Inc. and Subsidiaries
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31, 2012
Superior Uniform Group, Inc. | HPI Direct & TAA Investments | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||||
Net sales | $ | 119,486,000 | $ | 29,961,000 | $ | 149,447,000 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of goods sold | 79,723,000 | 20,846,000 | 100,569,000 | |||||||||||||||||
Selling and administrative expenses | 33,886,000 | 7,076,000 | (148,000 | ) | I | 42,684,000 | ||||||||||||||
| 1,870,000 | J | |||||||||||||||||||
Intangible asset impairment | 1,226,000 | - | 1,226,000 | |||||||||||||||||
Interest expense | 30,000 | 441,000 | (441,000 | ) | L | 390,000 | ||||||||||||||
| 360,000 | M | |||||||||||||||||||
| 114,865,000 | 28,363,000 | 1,641,000 | 144,869,000 | |||||||||||||||||
Income before taxes on income | 4,621,000 | 1,598,000 | (1,641,000 | ) | 4,578,000 | |||||||||||||||
Taxes on income | 1,590,000 | - | (10,000 | ) | N | 1,580,000 | ||||||||||||||
Net income | $ | 3,031,000 | $ | 1,598,000 | $ | (1,631,000 | ) | $ | 2,998,000 | |||||||||||
Weighted average number of shares outstandingduring the period | ||||||||||||||||||||
(Basic) | 6,061,691 | 208,617 | O | 6,270,308 | ||||||||||||||||
(Diluted) | 6,142,997 | 208,617 | O | 6,351,614 | ||||||||||||||||
Per Share Data: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Net earnings | $ | 0.50 | $ | - | $ | 0.48 | ||||||||||||||
Diluted | ||||||||||||||||||||
Net earnings | $ | 0.49 | $ | - | $ | 0.47 | ||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||
Amortization of prior service costs includedin net periodic pension costs | 12,000 | - | 12,000 | |||||||||||||||||
Recognition of net losses included innet periodic pension costs | (1,072,000 | ) | - | (1,072,000 | ) | |||||||||||||||
Other comprehensive loss | (1,060,000 | ) | - | (1,060,000 | ) | |||||||||||||||
Comprehensive income | $ | 1,971,000 | $ | 1,598,000 | $ | (1,631,000 | ) | $ | 1,938,000 | |||||||||||
Dividends per common share | $ | 1.08 | $ | - | $ | - | $ | 1.08 | ||||||||||||
See accompanying notes to Unaudited Proforma Condensed Combined Interim Financial Statements.
Superior Uniform Group, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
Six months ended June 30, 2013
Superior Uniform Group, Inc. | HPI Direct & TAA Investments | Pro Forma Adjustments | Note 3 | Pro Forma Combined | |||||||||||||
ASSETS | |||||||||||||||||
CURRENT ASSETS: | |||||||||||||||||
Cash and cash equivalents | $ | 10,953,000 | $ | 290,000 | $ | (290,000 | ) | A | $ | 8,455,000 | |||||||
| (2,498,000 | ) | B | |||||||||||||||
Accounts receivable - trade, net | 17,210,000 | 4,612,000 | 21,822,000 | ||||||||||||||
Accounts receivable - other | 3,170,000 | - | 3,170,000 | ||||||||||||||
Prepaid expenses and other current assets | 3,186,000 | 1,075,000 | 4,261,000 | ||||||||||||||
Inventories, net | 39,499,000 | 10,313,000 | 49,812,000 | ||||||||||||||
TOTAL CURRENT ASSETS | 74,018,000 | 16,290,000 | (2,788,000 | ) | 87,520,000 | ||||||||||||
PROPERTY, PLANT AND EQUIPMENT, NET | 9,050,000 | 3,928,000 | 455,000 | C | 13,433,000 | ||||||||||||
INTANGIBLE ASSETS, NET | 486,000 | 853,000 | 20,422,000 | D | 21,761,000 | ||||||||||||
GOODWILL | - | 1,258,000 | 979,000 | E | 2,237,000 | ||||||||||||
DEFERRED INCOME TAXES | 3,505,000 | - | 3,505,000 | ||||||||||||||
OTHER ASSETS | 167,000 | 27,000 | 194,000 | ||||||||||||||
| $ | 87,226,000 | $ | 22,356,000 | $ | 19,068,000 | $ | 128,650,000 | ||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||
CURRENT LIABILITIES: | |||||||||||||||||
Revolving credit agreement | $ | - | $ | 9,758,000 | $ | (9,758,000 | ) | A | $ | - | |||||||
Accounts payable | 6,936,000 | 1,050,000 | (1,050,000 | ) | A | 6,936,000 | |||||||||||
Customer deposits | - | 2,004,000 | 2,004,000 | ||||||||||||||
Other current liabilities | 3,708,000 | 1,862,000 | (1,197,000 | ) | A | 4,373,000 | |||||||||||
Current portion of long-term debt | - | 345,000 | (345,000 | ) | A | 1,500,000 | |||||||||||
| - | 1,500,000 | F | |||||||||||||||
TOTAL CURRENT LIABILITIES | 10,644,000 | 15,019,000 | (10,850,000 | ) | 14,813,000 | ||||||||||||
LONG-TERM DEBT | 5,000,000 | 2,164,000 | (2,164,000 | ) | 33,500,000 | ||||||||||||
| 28,500,000 | F | ||||||||||||||||
LONG-TERM PENSION LIABILITY | 7,034,000 | - | 7,034,000 | ||||||||||||||
OTHER LONG-TERM LIABILITIES | 700,000 | - | 7,200,000 | G | 7,900,000 | ||||||||||||
DEFERRED INCOME TAXES | 100,000 | - | 100,000 | ||||||||||||||
COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
SHAREHOLDERS' EQUITY: | |||||||||||||||||
Preferred stock, $1 par value - authorized300,000 shares (none issued) | - | - | |||||||||||||||
Common stock, $.001 par value - authorized50,000,000 shares, issued andoutstanding - 6,131,600 and6,115,907 shares, respectively. | 6,000 | - | 6,000 | ||||||||||||||
Additional paid-in capital | 22,046,000 | - | 1,555,000 | H | 23,601,000 | ||||||||||||
Retained earnings | 47,118,000 | 5,173,000 | (5,173,000 | ) | A | 47,118,000 | |||||||||||
Accumulated other comprehensive loss,net of tax: | |||||||||||||||||
Pensions | (5,422,000 | ) | - | (5,422,000 | ) | ||||||||||||
TOTAL SHAREHOLDERS' EQUITY | 63,748,000 | 5,173,000 | (3,618,000 | ) | 65,303,000 | ||||||||||||
| $ | 87,226,000 | $ | 22,356,000 | $ | 19,068,000 | $ | 128,650,000 | ||||||||||
See accompanying notes to Unaudited Proforma Condensed Combined Interim Financial Statements.
SUPERIOR UNIFORM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 – Basis of Presentation:
The unaudited pro forma condensed combined balance sheet gives effect to the acquisition, which was accounted for under the purchase method of accounting, as if it had been consummated on June 30, 2013.
The unaudited pro forma condensed combined statement of comprehensive income for the six-month period ended June 30, 2013 has been prepared to reflect the acquisition as if it occurred on January 1, 2013.
The unaudited pro forma condensed combined statement of comprehensive income for the year ended December 31, 2012 has been prepared to reflect the acquisition as if it occurred on January 1, 2012
NOTE 2 –Acquisition and Purchase Price Allocation:
On July 1, 2013, the Company acquired substantially all of the assets of HPI Direct, Inc. (“HPI”). The purchase price for the asset acquisition consists of approximately $32.5 million in cash, subject to adjustment and inclusive of the real estate purchase described below, the issuance of approximately 209,000 restricted shares of the Company’s common stock, the potential future payment of up to $7.2 million in additional contingent consideration through 2017, and the assumption of certain liabilities of HPI. The transaction also includes the acquisition of the corporate offices and warehouse distribution facility from TAA Investments LLC (“TAA), an entity related to HPI. The following table reconciles the estimated fair value of the acquired assets and assumed liabilities to the total purchase price.
Accounts Receivable | $ | 4,612,000 | ||
Inventories | 10,313,000 | |||
Prepaid expenses and other current assets | 1,075,000 | |||
Property, plant and equipment | 4,383,000 | |||
Other assets | 27,000 | |||
Identifiable intangible assets | 21,275,000 | |||
Goodwill | 2,237,000 | |||
Total assets | $ | 43,922,000 | ||
Other current liabilities | $ | 2,668,000 | ||
Total liabilities | $ | 2,668,000 |
The excess of the purchase price over the net assets has been preliminarily allocated to goodwill and intangible assets pending final valuation by an independent appraisal.
The asset purchase agreement provides HPI with the opportunity to receive additional contingent consideration through December of 2017 of up to $7,200,000. The Company estimates that the full amount of this contingent consideration will be earned by HPI.
A final determination of fair values may differ materially from the preliminary estimates and will include management’s final valuation of the fair values of assets acquired and liabilities assumed. This final valuation will be based on the actual acquired net tangible assets of HPI and TAA that existed as of the completion date of the acquisition. The final valuation may change the allocation of purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma condensed combined financial statements.
NOTE 3 –Pro Forma Adjustments:
The following is a summary of pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements based on preliminary estimates, which may change as additional information is obtained.
Pro Forma Condensed Combined Balance Sheet Adjustments
A. | To remove non retained assets, liabilities and equity of HPI and TAA. |
B. | To record cash payment at closing to HPI and TAA. |
C. | To adjust property, plant and equipment to fair value at date of acquisition. |
D. | To eliminate historical value of intangible assets and to record the estimated fair value of acquired identifiable intangible assets. |
E. | To eliminate historical value of goodwill and to record the estimated fair value of acquired goodwill. |
F. | To record term loan from Fifth Third Bank to the Company to fund the acquisition. |
G. | To record estimated liability for contingent consideration. |
H. | To record fair value of restricted stock issued as part of consideration for acquisition. |
Pro Forma Statement of Comprehensive Income Adjustments
I. | To eliminate historical amortization expense of intangible assets. |
J. | To record amortization expense on intangible assets acquired. |
K. | To remove transaction fees recognized in 2013 prior to closing. |
L. | To eliminate interest on outstanding debt of HPI and TAA that was paid off at closing. |
M. | To record interest on Company debt used to finance the transaction. This amount is calculated utilizing the interest rate on the full principal balance of the term loan that was in effect on the date of closing of 1.20%. |
N. | To record tax effect of the pro forma income and adjustments to the statement of comprehensive income. |
O. | To reflect increase in outstanding shares for restricted stock grant. |