Project Title - APA Northstar Chapter

Project Title - APA Northstar Chapter

Mergers and Acquisitions Advanced Confidential and Proprietary Speakers Matt Kaufer Vice President Employment Tax Services Equifax, Inc. Confidential and Proprietary Session Objectives Connect state unemployment claims and tax management practices Obtain an understanding of the pre-acquisition phases of the Employee Movement/M&A process Understand the impact of transaction structure and timing on financial outcomes Identify and quantify opportunities and compliance risk Provide tools to assist your organization during your next Employee Movement/ M&A event Confidential and Proprietary Employment Tax Types SOCIAL SECURITY INSURANCE (FICA)

FEDERAL UNEMPLOYMENT INSURANCE (FUTA) STATE UNEMPLOYMENT INSURANCE (SUI) Tax Rate: 2016/2017 - 6.2% Tax Rate: 2016/2017 - 0.6%(1) Tax Rate: 2016 2.51%(2) Wage Base: 2016 $118,500 2017 $127,200 Wage Base: 2016 $7,000 2017 $7,000 Wage Base: 2016 $17,800(3) 2017 $18,085(3) Max Tax Cost: 2016 $7,347 2017 $7,886

Max Tax Cost: 2016 $42 2017 $42 Est. Avg. Tax Cost: 2016 $447 1. Rate does not take into consideration the impact of FUTA credit reductions (CA and VI have a net FUTA tax rate of 2.4% for 2016). 2. Total SUI tax revenues for all taxing jurisdictions divided by total SUI taxable payroll, per the U.S. DOL. 3. Simple average of all taxing jurisdictions for 2016 and estimated simple average for 2017. Confidential and Proprietary Unemployment Tax Rates Are Impacted By Both Claims And Tax Management % CLAIM VOLUNTARY CONTRIBUTION APPEAL CLAIMS MANAGEMENT HEARING BENEFIT CHARGE TAX RATE ASSIGNMENT TAXES

TAX MANAGEMENT JOINT ACCOUNT MERGER, ACQUISITION, REORGANIZATION Confidential and Proprietary State Unemployment Tax Cost Comparison Domestic Employment Taxable Wages(1) Taxable Payroll Median Tax Rate(2) Estimated Tax Cost 50,000 $17,800 $890,000,000 2.51%

$22,339,000 10,000 $17,800 $178,000,000 2.51% $4,467,800 1,000 $17,800 $17,800,000 2.51% $446,780 500 $17,800 $8,900,000 2.51% $223,390

100 $17,800 $1,780,000 2.51% $44,678 1. Simple average of all taxing jurisdictions for 2016. 2. Total state unemployment tax revenues for all taxing jurisdictions divided by total state unemployment taxable payroll for 2017, per the U.S. DOL. Confidential and Proprietary State of Minnesota Reference Chart Rate Calculation Wage Base Rate Issue Date Joint Accounting Reserve State $32,000 12/13 No Maximum Tax Rate Penalty Tax Rate Average Weekly Benefit Amount x Average Duration

(weeks) Maximum Weekly Benefit Amount x Maximum Duration (weeks) 9.10% Not Applicable $446.18 x 16.3 = $7,273 $629 x 26 = $16,354 Voluntary Contributions Yes (1/3) Claim Response (Deadline) 10 Days New Business Rate 1.64% 1st Level Appeal (Deadline) 14 Days NBR (Duration) 2 Years

Worksite State Minimum Tax Rate 0.20% No Confidential and Proprietary State of MN M&A/Reorg Chart Total/Partial Common Ownership Reorg Commingled rate effective immediately. Total/Partial Non Common Ownership Reorg Optional but commingled immediately if the transfer is taken. Reorg into New Company Commingled rate of all of the predecessors immediately. Confidential and Proprietary

Phases Of The Strategic Plan for Employee Movement Work Plan Due Diligence Planning And Design Implementation & Compliance PostImplementation Confidential and Proprietary Hypothetical Case Study: Buyer And Seller Southern Foods, Inc. (Buyer) is a manufacturer: Operates 2 subsidiaries SF Manufacturing, Inc. SF Maintenance, Inc. Employs 20,000 in 10 states (incl. Florida) Sunshine Foods, Inc. (Seller or Target) is a competitor in the manufacturing market: No subsidiaries

Employs 425 in Florida Confidential and Proprietary Planning & Design: Current Structure In Florida Southern Foods, Inc. (Management and Shared Services) 0.10% SF Manufacturing, Inc. (Operations) SF Maintenance, Inc. (Maintenance) 1.34% 2.64% 5.40% Confidential and Proprietary 3,500,000 6.00% S U I T a x R a te (% ) T a x a b le P a y ro ll ($ ) Due Diligence: Sunshine Risk Assessment

5.40% 3,000,000 5.00% 2,500,000 4.00% 2,000,000 3.00% 1,500,000 2.50% 3,000,000 1.80% 2.00% 1,000,000 1.00% 500,000 200,000 - 250,000 Georgia South Carolina Florida

0.00% Confidential and Proprietary Planning & Design: Factors Impacting TOE* Type of transaction Common Ownership, Management, or Control (COMC) Partial vs. total transfers of workforce Mandatory vs. optional TOE Newly liable vs. currently liable employers Rating methodology (e.g., benefit ratio vs. reserve ratio) Specific employee identification method vs. percentage method Timing of transaction Timing of rate revision * TOE Transfer of Experience Confidential and Proprietary Unemployment Tax Reorg Due Diligence Checklist (External Acquisitions and Internal Reorganizations) Name and FEIN of successor legal entity(ies) Legal entity organizational chart Expected date of contemplated transaction Forms 940 and 941 for each legal entity for the current and prior two years Name of predecessor legal entity(ies)

Explanations of any significant reductions in workforce in any legal entities in the current and prior two years FEIN and SUI account numbers of predecessor(s) Employment tax transcripts for current and prior two years Number of employees, by state, by legal entity Employment tax notices/assessments for current and prior two years Taxable payroll by state, by legal entity for the current and prior two years Copy of significant payroll policies and procedures for high exposure issues State unemployment quarterly contribution and wage reports of predecessor for the current and prior two years Detail of acquisitions or transferred employees in the current and prior three years State unemployment tax rate notices of predecessor for current and prior two years Current state unemployment tax clearance letters from all state workforce agencies

Confidential and Proprietary Planning & Design: Stock Acquisition or Merger Into NewCo Southern Foods, Inc. (Management and Shared Services) 0.10% SF Manufacturing, Inc. (Operations) NewCo SF Maintenance, Inc. (Maintenance) Sunshine Assets 5.40% or 2.70% 2.64% 1.34% Legal Entity Old Rate New Rate

Wages Savings Sunshine 5.40% 2.70% $3,000,000 $81,000 Confidential and Proprietary Planning & Design: Asset Acquisition (Single Co) Southern Foods, Inc. Sunshine Assets 0.10% or 4.43% SF Manufacturing, Inc. (Operations) SF Maintenance, Inc. (Maintenance) 1.34% 2.64% Transaction

Type TOE? Successor / Surviving Entity Effective SUI Rate Before (%) Effective SUI Rate After (%) Annual Payroll ($) Variance ($) Asset Acquisition Yes Southern Foods, Inc. (parent) 2.186 2.275 16,000,000 (14,200)

Asset Acquisition No Southern Foods, Inc. (parent) 2.186 1.193 16,000,000 159,000 Confidential and Proprietary Wage Base Carryovers Taxable Wages Duplicated from 07/01 to 12/31 ($) Tax Rate (%) Potential Overpayment ($) Transaction Type

TOE? # of EEs Impacted FUTA 7,000 215 1,500,000 0.600 9,000 FICA 118,500 25 787,500 6.200 48,825 SUI 7,000

215 1,500,000 0.100 1,500 Overpayment 59,325 Typically, wages paid by a predecessor can be used by a successor for purposes of the annual wage limitation. Can your payroll/HR system handle? Confidential and Proprietary Implementation And Compliance What if Southern and Sunshine didnt properly file compliance documents to execute on the tax-efficient strategy? Forego $173,200 in rate reduction savings Forego $59,325 in wage base carryover savings What if Southern and Sunshine were related by COMC? If required compliance documents were not filed, and Southerns .10% rate was used to pay tax: $173,200 tax assessment Interest and penalties $210,000 potential SUTA dumping penalty

SUTA dumping is a 3rd degree felony in Florida. Southern Foods, Inc. Sunshine Assets 0.10% or 4.43% SF Manufacturing, Inc. (Operations) 1.34% 1 SF Maintenance, Inc. (Maintenance) 2.64% Common ownership, management, or control Confidential and Proprietary Audit AUDIT Claims, Tax Rate, Returns 50 Different Statutory Dates & Deadlines 19 Confidential and Proprietary Audit Analysis & Recovery A company was issued a penalty 2017 tax rate of 10.9010% in Pennsylvania. The penalty was issued due to a state miscalculation. Once all the necessary

documentation was presented to the state the protest was upheld and a revised rate was issued. Estimated Taxable Payroll Penalty Tax Rate Revised Tax Rate Estimated 2017 Savings $37,000,000 10.9010% 7.7270% $1,174,380 20 Confidential and Proprietary Voluntary Contributions 26 States/ Deadlines Size Matters (Variance) Negative to Positive

KY, MA, MO, NJ, NY Multiple Rate Groups/ Growth Benefit States May Save Multiple Years 21 Confidential and Proprietary Voluntary Contribution: Anticipated Growth A company with 30 employees is opening up a new plant in 2017 (increasing to 1,100 employees) 30 Employees VC 1 Rate Group 1,100 Employees VC 1 Rate Group 1,100 employees VC to MIN Rate $390,000 $14,300,000 $14,300,000 2017 Tax Rate

3.20% 3.20% 3.20% Voluntary Contribution $1,000 $1,000 $12,000 2017 Voluntary Tax Rate 3.07% 3.07% 0.00% 2017 Savings ($493) $18,590 $457,600 Taxable Payroll

22 Confidential and Proprietary Joint Accounting 12 STATES RULES VARY Ohio Transcripts BE POSITIVE Your FOOTPRINT Matters NJ- Must Project Rates Common Ownership?? Life Sentence 23 Confidential and Proprietary Joint Accounting Example NJ based Pharmaceutical Company: By sharing unemployment tax reserves between commonly owned subsidiaries the following actual savings was secured: Company Name Estimated Taxable Payroll Individual Tax Rate Joint Tax Rate

Reserve Balance Actual Savings Company A $62,764,560 6.10% 1.20% ($3,240,356) $3,075,463 Company B 49,023,381 2.60% 1.20% 3,563,365 686,327 Company C 27,465,313

2.30% 1.20% 2,164,587 302,118 Company D 52,806,850 1.60% 1.20% 6,858,509 211,227 Company E 12,357,890 1.60% 1.20% 1,295,358 49,4302

Company F 0 1.60% 1.20% 1,531,686 0 Company G 22,990,173 1.20% 1.20% 6,092,569 0 Company H 28,598,645 1.20% 1.20% 5,325,672

0 Company I 43,490,062 1.20% 1.20% 10,996,033 0 Company J 0 3.70% 1.20% 8,890 0 Joint Account Savings $299,496,87 4

1.20% $23,954,804 $4,324,568 Confidential and Proprietary Large Bread Company Case Study: Planning & Design: Current Structure in AZ Sample Bread Company (Buyer) is a national bakery-caf concept with Multiple FEINs Operates under Sample, LLC Employs over 55,000 in 45 states (incl. Arizona) Processes over 90,000 W2s Approx. 950 company-owned location AquireMe Bakery Caf (Seller) is a competitor fast-casual bakery-caf: Operates under AquireMe, Inc. Employs over 2,200 in 5 states (incl. Arizona) Processed over 4,000 W2s Approx. 45 locations Confidential and Proprietary Sample Bread: Learning from Experience Track your rates: ensure Rate Notices are Receive Example: GA state rate employer must track down online Put together a schedule: important Details of Each State Current Rate/New Rate/Date of Rate Change Compare rates /time received-determine payroll tax accruals Note voluntary contribution states to ensure timely payment Update payroll tax system or vendor timely Update payroll processing system timely

Ensure unemployment partner has received all details AUDIT your quarterly tax returns for the proper rates Educate your operations how the process works Confidential and Proprietary Sample Bread: Learning from Experience Provide your unemployment partner details frequently Weekly data feed Hires, rehires Terms, term reason Wages, final payment Hierarchy on going changes Upcoming events Location openings Location closures Location address changes Location divestures Confidential and Proprietary UC Team Members Confidential and Proprietary Sample Bread Case Study: Internal Reorganization in Arizona BEFORE AFTER Sample , LLC

2.84% Sample, LLC AquireMe, Inc. AquireMe, Inc. 1.04% .066% By securing $1,066,195 in positive UI tax reserves and a lower tax rate from AquireMe, Sample is expected to save $346,800 in taxes and another $88,100 by not restarting the wage bases. Confidential and Proprietary Sample Case Study: Unemployment Tax Rates Are Impacted By Both Claims And Tax Management Sample Bread Overall unemployment effective tax rate 1.625% Overall national SUTA tax cost $7,220,500 Annual savings from claim wins (1,880 claims) $2,169,684 Savings from tax planning (Arizona only)

$434,900 Confidential and Proprietary Summary: Pre-Acquisition Questions Who are the parties involved? What is the transaction type? When is the transaction taking place? Where is the transaction taking place? What is the most tax-efficient structure? How do I stay compliant? Confidential and Proprietary Questions? Thank you for your participation in todays presentation. Confidential and Proprietary

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