EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
QUIKSILVER, INC.
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma unaudited consolidated condensed balance sheet has been prepared by taking the October 31, 2002 balance sheet of Quiksilver, Inc. (the “Company”) and the October 31, 2002 combined balance sheet of Quiksilver Asia/Pacific (incorporating UG Manufacturing Co Pty Limited and subsidiaries and Quiksilver Japan K.K. and subsidiaries) and giving effect to the acquisition of Quiksilver Asia/Pacific by the Company as if it had occurred on October 31, 2002. The pro forma consolidated condensed balance sheet has been prepared for informational purposes only and does not purport to be indicative of the financial condition that necessarily would have resulted if this transaction had, in fact, taken place on October 31, 2002.
The following pro forma unaudited consolidated condensed statement of income for the year ended October 31, 2002 gives effect to the Company’s acquisition of Quiksilver Asia/Pacific as if it had occurred at the beginning of the year. The revenues and results of operations included in the following pro forma unaudited consolidated condensed statement of income are not considered necessarily indicative of the results of operations for the year had the transaction actually been completed at the beginning of the period.
These financial statements should be read in conjunction with the following notes to the pro forma unaudited consolidated condensed financial statements, the consolidated financial statements of the Company and related notes thereto (as previously filed), and the combined financial statements of Quiksilver Asia/Pacific and related notes thereto, included herewith.
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QUIKSILVER, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
October 31, 2002
Quiksilver, | Quiksilver | Pro Forma | ||||||||||||||||
Inc. | Asia/Pacific | Adjust- | Pro | |||||||||||||||
In thousands, except share amounts | Historical | Historical | ments | Forma | ||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 2,597 | $ | 20,901 | $ | (19,142 | )(a) | $ | 4,356 | |||||||||
Trade accounts receivable, net | 168,237 | 20,473 | — | 188,710 | ||||||||||||||
Other receivables | 7,415 | 502 | — | 7,917 | ||||||||||||||
Inventories | 95,872 | 11,157 | — | 107,029 | ||||||||||||||
Deferred income taxes | 14,070 | 1,154 | — | 15,224 | ||||||||||||||
Prepaid expenses and other current assets | 6,638 | 2,800 | — | 9,438 | ||||||||||||||
Total current assets | 294,829 | 56,987 | (19,142 | ) | 332,674 | |||||||||||||
Fixed assets, net | 73,182 | 4,910 | — | 78,092 | ||||||||||||||
Intangible assets, net | 51,134 | — | 12,500 | (b) | 63,634 | |||||||||||||
Goodwill | 26,978 | 1,377 | 63,451 | (b)(c) | 91,806 | |||||||||||||
Deferred income taxes | 1,411 | 91 | (1,502 | )(b) | — | |||||||||||||
Other assets | 3,055 | 1,311 | 500 | (b) | 4,866 | |||||||||||||
Total assets | $ | 450,589 | $ | 64,676 | $ | 55,807 | $ | 571,072 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Lines of credit | $ | 32,498 | $ | 3,184 | $ | 24,900 | (b) | $ | 60,582 | |||||||||
Accounts payable | 47,279 | 9,047 | — | 56,326 | ||||||||||||||
Accrued liabilities | 40,137 | 21,096 | (19,142 | )(a) | 42,091 | |||||||||||||
Current portion of long-term debt | 10,680 | 312 | — | 10,992 | ||||||||||||||
Purchase price obligation | — | — | 6,300 | (b) | 6,300 | |||||||||||||
Income taxes payable | 3,717 | 1,051 | — | 4,768 | ||||||||||||||
Total current liabilities | 134,311 | 34,690 | 12,058 | 181,059 | ||||||||||||||
Long-term debt | 43,405 | 520 | — | 43,925 | ||||||||||||||
Deferred income taxes | — | — | 2,623 | (b) | 2,623 | |||||||||||||
Total liabilities | 177,716 | 35,210 | 14,681 | 227,607 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||
Common stock | 247 | — | 28 | (b) | 275 | |||||||||||||
Additional paid-in capital | 66,769 | 57 | 71,167 | (b)(d) | 137,993 | |||||||||||||
Treasury stock, 721,300 shares | (6,778 | ) | — | — | (6,778 | ) | ||||||||||||
Retained earnings | 219,038 | 30,069 | (30,069 | )(d) | 219,038 | |||||||||||||
Accumulated other comprehensive loss | (6,403 | ) | (660 | ) | — | (7,063 | ) | |||||||||||
Total stockholders’ equity | 272,873 | 29,466 | 41,126 | 343,465 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 450,589 | $ | 64,676 | $ | 55,807 | $ | 571,072 | ||||||||||
See notes to unaudited consolidated condensed financial statements.
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QUIKSILVER, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF INCOME
Year Ended October 31, 2002
Quiksilver, | Quiksilver | Pro Forma | ||||||||||||||||
Inc. | Asia/Pacific | Adjust- | Pro | |||||||||||||||
In thousands, except per share amounts | Historical | Historical | ments | Forma | ||||||||||||||
Revenues | $ | 705,484 | $ | 83,218 | $ | (6,665 | )(a) | $ | 782,037 | |||||||||
Cost of goods sold | 419,155 | 47,937 | (3,910 | )(a) | 463,182 | |||||||||||||
Gross profit | 286,329 | 35,281 | (2,755 | ) | 318,855 | |||||||||||||
Selling general and administrative expenses: | ||||||||||||||||||
Selling, general and administrative expense | 216,625 | 27,078 | (3,917 | )(b)(c) | 239,786 | |||||||||||||
Royalty expense | — | 2,755 | (2,755 | )(a) | — | |||||||||||||
Operating income | 69,704 | 5,448 | 3,917 | 79,069 | ||||||||||||||
Interest expense (income) | 8,640 | (294 | ) | 1,034 | (d)(e) | 9,380 | ||||||||||||
Foreign currency loss (gain) | 729 | (569 | ) | 161 | (f) | 321 | ||||||||||||
Other expense (income) | 349 | (135 | ) | — | 214 | |||||||||||||
Income before provision for income taxes | 59,986 | 6,446 | 2,722 | 69,154 | ||||||||||||||
Provision for income taxes | 22,395 | 1,741 | 885 | (g) | 25,021 | |||||||||||||
Net income | $ | 37,591 | $ | 4,705 | $ | 1,837 | $ | 44,133 | ||||||||||
Net income per share | $ | 1.60 | $ | 1.68 | ||||||||||||||
Net income per share, assuming dilution | $ | 1.54 | $ | 1.62 | ||||||||||||||
Weighted average common shares outstanding | 23,459 | 2,813 | (h) | 26,272 | ||||||||||||||
Weighted average common shares outstanding assuming dilution | 24,472 | 2,813 | (h) | 27,285 | ||||||||||||||
See notes to unaudited consolidated condensed financial statements.
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QUIKSILVER, INC.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Year Ended October 31, 2002
Note 1 — Basis of Presentation
Effective December 1, 2002, Quiksilver, Inc. (the “Company”) acquired its licensees in Australia and Japan to unify its global operating platform. This group of companies is referred to herein as “Quiksilver Asia/Pacific” and comprises two Australian companies, Ug Manufacturing Co Pty Limited and QSJ Holdings Pty Limited, one Japanese company, Quiksilver Japan K.K., and their subsidiaries. Ug Manufacturing Co Pty Limited was owned by the founders of the Quiksilver brand and was the original Quiksilver operating company that has been producing Quiksilver products in Australia and surrounding countries and territories for over 30 years. Along with a Japanese partner, the founders also started Quiksilver Japan K.K., which has been the Quiksilver licensee in Japan for approximately 20 years. In conjunction with its acquisition of Quiksilver Asia/Pacific, the company also acquired a 25% interest in its Turkish licensee (“Palimar”). The operations of Quiksilver Asia/Pacific will be included in the Company’s results beginning with the effective date of the acquisition in the first quarter of the fiscal year ending October 31, 2003. The accompanying pro forma unaudited consolidated condensed balance sheet and statement of income present the financial position and results of operations of the Company giving effect to the acquisition of Quiksilver Asia/Pacific.
The initial purchase price includes cash of $24.9 million and 2.8 million shares of the Company’s common stock valued at $71.3 million. The valuation of the common stock issued in connection with the acquisition was based on the quoted market price for five days before and after the announcement date. A portion of the initial purchase price was held back, and is subject to adjustment for working capital, funded debt and excess cash as defined in the merger agreement. The source of cash consideration was the Company’s short-term domestic line of credit and general corporate funds available at the time of closing.
The sellers are entitled to future payments ranging from zero to $18.6 million if certain sales and earnings targets are achieved during the three years ending October 31, 2005. These contingent purchase price payments have not been given effect in the pro forma unaudited consolidated condensed financial statements, but will be recorded when the contingencies are resolved. The amount of goodwill initially recorded for the transaction would increase if such contingent payments are made.
The transaction is denominated in Australian dollars, and accordingly, was recorded based on exchange rates in effect at closing. The contingent purchase price and other adjustments will be recorded at exchange rates in effect when such amounts are determined and such contingencies are resolved.
Quiksilver Asia/Pacific is in the process of finalizing its closing balance sheet, and third-party valuations of goodwill and certain intangible assets are being completed; accordingly, the allocation of the purchase price is preliminary and subject to refinement. The adjustments below were prepared based on estimates or approximations. It is possible that the actual amounts recorded may have a different impact on the financial condition and results of operations from what has been reflected in the accompanying pro forma unaudited consolidated condensed financial statements.
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QUIKSILVER, INC.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Year Ended October 31, 2002
Note 2 — Balance Sheet Pro Forma Adjustments
(a) | To eliminate assets and liabilities not included in the acquisition: | |||||||||||||||
Cash | $ | 19,142 | ||||||||||||||
Predecessor dividend obligations of Quiksilver Asia/Pacific | 19,142 | |||||||||||||||
(b) | To record the acquisition of Quiksilver Asia/Pacific: | |||||||||||||||
Net assets acquired of Quiksilver Asia/Pacific | $ | 28,749 | ||||||||||||||
License agreement | 12,500 | |||||||||||||||
Deferred income taxes | (4,125 | ) | ||||||||||||||
Palimar interest | 500 | |||||||||||||||
Goodwill | 64,828 | |||||||||||||||
Total investment, including acquired cash | $ | 102,452 | ||||||||||||||
Financed by: | ||||||||||||||||
Company stock | 71,252 | |||||||||||||||
Line of credit borrowings | 24,900 | |||||||||||||||
Holdback and estimated adjustments | 6,300 | |||||||||||||||
Total investment, including acquired cash | $ | 102,452 | ||||||||||||||
(c) | To eliminate Quiksilver Asia/Pacific goodwill | $ | 1,377 | |||||||||||||
(d) | To eliminate Quiksilver Asia/Pacific equity: | |||||||||||||||
Common stock | $ | 57 | ||||||||||||||
Retained earnings | 30,069 |
Note 3 — Statement of Income Pro Forma Adjustments
(a) | To eliminate intercompany revenues: | |||||||||||||||
Royalty payments from Quiksilver Asia/Pacific to the Company | $ | 2,755 | ||||||||||||||
Product purchases by the Company from Quiksilver Asia/Pacific | 3,910 | |||||||||||||||
Total revenues elimination | $ | 6,665 | ||||||||||||||
(b) | To eliminate nonrecurring expenses of Quiksilver Asia/Pacific: | |||||||||||||||
Retirement payment to former officers of Quiksilver Japan K.K | $ | 5,129 | ||||||||||||||
Transaction costs incurred by Quiksilver Asia/Pacific | 38 | |||||||||||||||
Total nonrecurring expenses | $ | 5,167 | ||||||||||||||
(c) | To record amortization of license agreement | $ | 1,250 | |||||||||||||
(d) | To record interest expense on $24.9 million of short term borrowings at 3.5% | $ | 872 |
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QUIKSILVER, INC.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Year Ended October 31, 2002
Note 3 — Statement of Income Pro Forma Adjustments (continued)
(e) | To eliminate interest income earned on Quiksilver Japan K.K. investments | $ | 162 | |||||||||||
(f) | To eliminate foreign exchange gain on Quiksilver Japan K.K. investments | $ | 161 | |||||||||||
(g) | To record tax effect of pro forma adjustments | $ | 1,298 | |||||||||||
(h) | To reflect the shares of common stock issued as consideration |
* * * * *
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