Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed financial information and explanatory notes of Quiksilver, Inc. (the “Company” or “Quiksilver”) set forth below give effect to the acquisition of Skis Rossignol S.A. (“Rossignol”) and related financings, including the Company’s $400 million senior notes due 2015 (“Senior Notes”) and it’s revolving credit facility (“Credit Facility”). This information is intended to give a better understanding of what the Company’s business combined with the business of Rossignol might have looked like if the acquisition and the financings had occurred on (1) November 1, 2003, the first day of the fiscal period for which unaudited pro forma condensed combined financial information is presented with respect to statement of operations data, and (2) April 30, 2005 with respect to balance sheet data.
The unaudited pro forma condensed combined statements of operations do not purport to represent what Quiksilver’s results of operations actually would have been if the events described above had occurred as of the dates indicated, or what such results would be for any future periods. The excess of the fair value of the consideration paid over the net tangible assets acquired has been allocated by Quiksilver management to trademarks, other identifiable intangible assets and goodwill. The values and allocations are preliminary and subject to change and may be adjusted upon completion of Quiksilver management’s final valuation analysis. The unaudited pro forma condensed combined financial information does not reflect potential cost savings opportunities, including the elimination of duplicative selling, general, and administrative expenses; and does not include all adjustments related to pending integration and reorganization decisions to be made. The unaudited pro forma condensed combined financial statements are based upon assumptions and adjustments that the Company believes are reasonable.
The operations of DC Shoes, Inc., a wholly-owned subsidiary of the Company, are only included since the date of its acquisition, May 1, 2004. The Company does not give pro forma effect for periods prior to its acquisition because it is not required to be reflected in these pro forma financial statements.
The Company reports its financial information on the basis of an October 31 fiscal year and Rossignol reports its financial information on the basis of a March 31 fiscal year. The unaudited pro forma condensed combined statement of operations for the twelve months ended October 31, 2004 includes Quiksilver’s audited historical results of operations for its fiscal year ended October 31, 2004 and Rossignol’s unaudited historical results of operations for the twelve months ended September 30, 2004. Rossignol’s unaudited historical results of operations for the twelve months ended September 30, 2004 are calculated by subtracting its unaudited data for the six months ended September 30, 2003 from its audited data for the year ended March 31, 2004 and then adding the appropriate unaudited data for the six months ended September 30, 2004. The unaudited pro forma condensed combined statements of operations for the six months ended April 30, 2005 include Quiksilver’s unaudited historical results of operations for the six months ended April 30, 2005 and Rossignol’s unaudited historical results of operations for the six months ended March 31, 2005. The unaudited pro forma condensed combined balance sheet as of April 30, 2005 includes Quiksilver’s unaudited historical balance sheet at April 30, 2005 and Rossignol’s audited historical balance sheet at March 31, 2005. The Company translated the statements of operations for Rossignol from euros to U.S. dollars at the average exchange rate during the periods presented, and translated the March 31, 2005 balance sheet for Rossignol at the spot rate at that time. Rossignol intends to change its fiscal year to end on October 31.
These unaudited pro forma condensed combined financial statements are presented based on the assumptions and adjustments described in the accompanying notes.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF APRIL 30, 2005
Quiksilver | Rossignol | Quiksilver | ||||||||||||||
April 30, | March 31, | Pro forma | Pro forma | |||||||||||||
(in thousands) | 2005 | 2005 | adjustments | combined | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 68,009 | $ | 67,574 | $ | — | $ | 135,583 | ||||||||
Trade accounts receivable, net | 342,035 | 140,075 | — | 482,110 | ||||||||||||
Other receivables | 22,869 | 13,163 | — | 36,032 | ||||||||||||
Inventories | 177,842 | 153,978 | 400 | (1) | 332,220 | |||||||||||
Deferred income taxes | 25,466 | 2,338 | — | 27,804 | ||||||||||||
Deposit on planned acquisition | 59,085 | — | (59,085 | )(2) | — | |||||||||||
Prepaid expenses and other current assets | 23,649 | 9,225 | 1,238 | (3) | 34,112 | |||||||||||
Total current assets | 718,955 | 386,353 | (57,447 | ) | 1,047,861 | |||||||||||
Fixed assets, net | 130,695 | 86,643 | 36,544 | (1) | 253,882 | |||||||||||
Intangible assets, net | 123,255 | 17,997 | (17,997 | )(4) | ||||||||||||
113,300 | (5) | 236,555 | ||||||||||||||
Goodwill | 172,738 | 2,615 | (2,615 | )(4) | ||||||||||||
153,375 | (5) | 326,113 | ||||||||||||||
Deferred income taxes | 2,279 | — | 2,832 | (8) | 5,111 | |||||||||||
Other assets | 17,994 | 3,077 | 11,137 | (3) | 32,208 | |||||||||||
Total assets | $ | 1,165,916 | $ | 496,685 | $ | 239,129 | $ | 1,901,730 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Lines of credit | $ | 24,025 | $ | 110,215 | $ | — | $ | 134,240 | ||||||||
Accounts payable | 110,492 | 87,060 | — | 197,552 | ||||||||||||
Accrued liabilities | 56,248 | 57,577 | 5,247 | (6) | ||||||||||||
1,980 | (7) | 121,052 | ||||||||||||||
Current portion of long-term debt. | 9,148 | 68,495 | — | 77,643 | ||||||||||||
Deferred income taxes | — | 170 | — | 170 | ||||||||||||
Income taxes payable | 20,977 | 4,119 | — | 25,096 | ||||||||||||
Total current liabilities | 220,890 | 327,636 | 7,227 | 555,753 | ||||||||||||
Long-term debt | 269,514 | 68,457 | 238,380 | (2) | 576,351 | |||||||||||
Deferred income taxes | 21,855 | 3,380 | 48,385 | (8) | 73,620 | |||||||||||
Total liabilities | 512,259 | 399,473 | 293,992 | 1,205,724 | ||||||||||||
Minority interest | — | 14,459 | (14,459 | )(4) | ||||||||||||
13,442 | (9) | 13,442 | ||||||||||||||
Common stock | 1,213 | 64,311 | (64,311 | )(4) | ||||||||||||
22 | (10) | 1,235 | ||||||||||||||
Additional paid-in capital | 206,925 | 2,982 | (2,982 | )(4) | ||||||||||||
28,885 | (10) | 235,810 | ||||||||||||||
Treasury stock | (6,778 | ) | (6,873 | ) | 6,873 | (4) | (6,778 | ) | ||||||||
Retained earnings | 407,804 | 30,970 | (30,970 | )(4) | 407,804 | |||||||||||
Accumulated other comprehensive income | 44,493 | (8,637 | ) | 8,637 | (4) | 44,493 | ||||||||||
Total stockholders’ equity | 653,657 | 82,753 | (53,846 | ) | 682,564 | |||||||||||
Total liabilities and stockholders’ equity | $ | 1,165,916 | $ | 496,685 | $ | 239,129 | $ | 1,901,730 | ||||||||
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2005
FOR THE SIX MONTHS ENDED APRIL 30, 2005
Quiksilver | Rossignol | Quiksilver | ||||||||||||||
Pro forma | ||||||||||||||||
Six months | Six months | combined | ||||||||||||||
ended | ended | six months | ||||||||||||||
April 30, | March 31, | Pro forma | ended | |||||||||||||
(in thousands, except per share data) | 2005 | 2005 | adjustments | April 30, 2005 | ||||||||||||
Revenues, net | $ | 769,713 | $ | 360,635 | $ | — | $ | 1,130,348 | ||||||||
Cost of goods sold | 423,442 | 215,604 | (261 | )(11) | ||||||||||||
557 | (11) | 639,342 | ||||||||||||||
Gross profit | 346,271 | 145,031 | (296 | ) | 491,006 | |||||||||||
Selling, general and administrative expense | 268,797 | 139,950 | (403 | )(11) | ||||||||||||
698 | (11) | 409,042 | ||||||||||||||
Operating income | 77,474 | 5,081 | (591 | ) | 81,964 | |||||||||||
Interest expense | 5,058 | 5,131 | 12,666 | (12) | 22,855 | |||||||||||
Foreign currency loss | 175 | 19,118 | — | 19,293 | ||||||||||||
Minority interest | — | 1,359 | — | 1,359 | ||||||||||||
Other expense | 145 | — | — | 145 | ||||||||||||
Income (loss) before provision for income taxes | 72,096 | (20,527 | ) | (13,257 | ) | 38,312 | ||||||||||
Provision (benefit) for income taxes | 23,215 | 10,338 | (5,303 | )(13) | 28,250 | |||||||||||
Net income (loss) | $ | 48,881 | $ | (30,865 | ) | $ | (7,954 | ) | $ | 10,062 | ||||||
Net income per share | $ | 0.41 | $ | 0.08 | ||||||||||||
Net income per share, assuming dilution | $ | 0.40 | $ | 0.08 | ||||||||||||
Weighted average common shares outstanding | 117,877 | 2,150 | (10) | 120,027 | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 123,448 | 2,150 | (10) | 125,598 | ||||||||||||
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2004
FOR THE YEAR ENDED OCTOBER 31, 2004
Quiksilver | Rossignol | Quiksilver | ||||||||||||||
Pro forma | ||||||||||||||||
Twelve months | combined twelve | |||||||||||||||
Year ended | ended | Pro | months ended | |||||||||||||
October 31, | September 30, | forma | October 31, | |||||||||||||
(in thousands, except per share data) | 2004 | 2004 | adjustments | 2004 | ||||||||||||
Revenues, net | $ | 1,266,939 | $ | 559,071 | $ | — | $ | 1,826,010 | ||||||||
Cost of goods sold | 688,780 | 313,243 | (665 | )(11) | ||||||||||||
1,114 | (11) | 1,002,472 | ||||||||||||||
Gross profit | 578,159 | 245,828 | (449 | ) | 823,538 | |||||||||||
Selling, general and administrative expense | 446,221 | 251,654 | (700 | )(11) | ||||||||||||
1,395 | (11) | 698,570 | ||||||||||||||
Operating income (loss) | 131,938 | (5,826 | ) | (1,144 | ) | 124,968 | ||||||||||
Interest expense | 6,390 | 9,289 | 25,935 | (12) | 41,614 | |||||||||||
Foreign currency loss (gain) | 2,861 | (7,110 | ) | — | (4,249 | ) | ||||||||||
Minority interest | — | 2,607 | — | 2,607 | ||||||||||||
Other expense | 695 | — | — | 695 | ||||||||||||
Income (loss) before provision for income taxes | 121,992 | (10,612 | ) | (27,079 | ) | 84,301 | ||||||||||
Provision (benefit) for income taxes | 40,623 | 1,874 | (10,832 | )(13) | 31,665 | |||||||||||
Net income (loss) | $ | 81,369 | $ | (12,486 | ) | $ | (16,247 | ) | $ | 52,636 | ||||||
Net income per share | $ | 0.71 | $ | 0.45 | ||||||||||||
Net income per share, assuming dilution | $ | 0.68 | $ | 0.43 | ||||||||||||
Weighted average common shares outstanding | 114,388 | 2,150 | (10) | 116,538 | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 119,288 | 2,150 | (10) | 121,438 | ||||||||||||
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NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (UNAUDITED)
Basis of presentation
The unaudited pro forma condensed combined financial statements included herein assume that Quiksilver will acquire 100% of Rossignol.
The preparation of unaudited pro forma condensed combined financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reported dates of the unaudited pro forma condensed combined financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
The following sets forth the adjustments contained in the unaudited pro forma condensed combined financial data:
(1) | Reflects fair value adjustments to certain tangible assets (refer to footnote 5). | ||
(2) | Assumes the acquisition of 100% of Rossignol and reflects the sources and uses of cash in connection with the Rossignol acquisition as if the acquisition occurred on April 30, 2005 along with the refinancing of existing indebtedness as follows: |
(in thousands) | Cash | Long-term debt | ||||||
Net proceeds of the Senior Notes | $ | 387,625 | $ | 400,000 | ||||
Release of deposit on Rossignol acquisition | 59,085 | |||||||
Deferred purchase price obligation | 34,087 | |||||||
Cash used for Rossignol acquisition | (237,223 | ) | ||||||
Cash paid for acquisition costs | (13,780 | ) | ||||||
Cash to repay existing indebtedness | (195,707 | ) | (195,707 | ) | ||||
$ | — | $ | 238,380 | |||||
(3) | Reflects estimated costs and fees capitalized in connection with the Senior Notes offering of approximately $12.4 million needed to finance this acquisition. | ||
(4) | Represents the elimination of Rossignol’s existing intangible assets, goodwill, minority interest, common stock, additional paid-in capital, treasury stock, retained earnings, and other comprehensive income related to foreign currency translation and derivative activities, as a result of the application of purchase accounting. | ||
(5) | Fair value adjustments made herein and the allocation of excess purchase price is preliminary. The final allocation will be based on estimates and appraisals that will be finalized within one year of the closing of the Rossignol acquisition and based on the Company’s final evaluation of Rossignol’s assets and liabilities, including both tangible and intangible assets. The final allocation of purchase price and the resulting effect on net income may differ significantly from the pro forma amounts included herein. If the Company’s final purchase price allocation |
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differs from the allocation used in preparing these pro forma financial statements, our pro forma tangible and intangible assets and pro forma net income could be significantly higher or lower. Pro forma adjustments include allocations to trademarks, patents, customer relationships and athlete contracts with lives ranging from 2 to 20 years. Goodwill represents the excess purchase price after all other intangible assets have been identified. Components of the estimated purchase price and the estimated allocations thereof are as follows: |
(in thousands) | ||||
Cash | $ | 237,223 | ||
Quiksilver, Inc. common stock | 28,907 | |||
Deferred purchase price | 34,087 | |||
Fair Value of Rossignol stock options assumed | 1,980 | |||
Acquisition costs | 13,780 | |||
Total purchase price | 315,977 | |||
(in thousands) | ||||
Cash acquired | $ | 67,574 | ||
Inventories | 154,378 | |||
Accounts receivable | 140,075 | |||
Other current assets | 22,388 | |||
Fixed assets | 123,187 | |||
Deferred income taxes | 5,170 | |||
Other assets | 3,077 | |||
Customer relationships (20 years) | 8,900 | |||
Patents (7 years) | 7,800 | |||
Athlete contracts (2 years) | 1,900 | |||
Trademarks | 94,700 | |||
Goodwill | 153,375 | |||
Total assets acquired | 782,524 | |||
Other liabilities | 154,003 | |||
Long term debt and lines of credit | 247,167 | |||
Deferred income taxes | 51,935 | |||
Minority interest | 13,442 | |||
Net assets acquired | $ | 315,977 | ||
(6) | Represents a liability of $5.2 million for certain obligations under the Company’s Rossignol Integration Plan (the “Plan”) including employee relocation and severance costs, moving costs, and other costs related primarily to the relocation of the Company’s wintersports equipment sales and distribution operations in the United States. The Plan covers the global operations of Rossignol but has not been finalized as it relates to facilities outside of the United States. The Company’s estimates of expected costs related to the U.S. aspects of the Plan also may change. Accordingly, as uncertainties related to the Plan are resolved, additional liabilities related to facility relocations, the elimination of nonstrategic business activities and duplicate functions, and other related costs could be recognized. These uncertainties are expected to be resolved within one year of |
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the consummation date of the acquisition, and when determined, additional liabilities could be significant and would be recorded as adjustments to goodwill. | |||
(7) | Represents a liability recorded for the estimated fair value of Quiksilver’s obligation to purchase 144,800 shares upon exercise of fully vested stock options in Rossignol. When exercised, these options will be purchased by the Company. | ||
(8) | Reflects adjustments to deferred tax assets and liabilities related primarily to identifiable intangibles that are estimated to arise as part of the Rossignol acquisition. | ||
(9) | Reflects the 36% minority interest in Roger Cleveland Golf Company, Inc. (“Roger Cleveland”), a subsidiary of Rossignol, of $13.4 million. The Company’s acquisition of a majority interest in Roger Cleveland will be accounted for as a step acquisition for financial accounting purposes. | ||
(10) | Represents 2,150,038 shares of Quiksilver common stock issued in connection with the Rossignol acquisition, the value of which is based on its quoted market price for five days before and after the announcement date, discounted to reflect the estimated effect of restrictions on resale. These shares are assumed outstanding since November 1, 2003, for purposes of calculating pro forma earnings per share. | ||
(11) | Represents the elimination of Rossignol’s historical amortization of intangible assets and the addition of estimated amortization of intangibles established based on our preliminary valuation estimates and appraisals. The intangibles, as described in note 5 above, have estimated useful lives ranging from 2 to 20 years. Estimated patent amortization expense is included in cost of goods sold and amortization of other intangible assets is included in selling, general and administrative expenses. | ||
(12) | Reflects the increase in interest expense for the periods presented resulting from the issuance of the notes at an interest rate of 6.875% and interest on the deferred purchase price obligation at Euribor plus a margin of 2.35%. These adjustments also reflect the borrowing costs of our Credit Facility and the amortization of debt issuance costs of the Senior Notes and the Credit Facility over ten and five years, respectively. The interest expense related to the amortization of debt issuance costs on our prior Credit Facility was reversed. Following is a summary of the pro forma interest rate adjustments: |
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Six months ended | Year ended | |||||||
(in thousands) | April 30, 2005 | October 31, 2004 | ||||||
Interest on the Senior Notes | $ | 13,750 | $ | 27,500 | ||||
Interest on the Credit Facility | 2,119 | 2,142 | ||||||
Interest on deferred purchase price obligation | 764 | 1,520 | ||||||
Interest adjustment for refinanced debt | (4,492 | ) | (7,044 | ) | ||||
Amortization of new deferred financing fees | 1,059 | 2,118 | ||||||
Reversal of previous deferred financing fee amortization | (534 | ) | (301 | ) | ||||
Total interest expense adjustment | $ | 12,666 | $ | 25,935 | ||||
(13) | Reflects the pro forma income tax effect for all other pro forma adjustments at 40%. |
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