EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
On July 23, 1999, the Company completed the acquisition of all the
outstanding capital stock of Retail Data Services, Inc. and RDS, Inc.
(collectively, "RDS"). The total acquisition cost was $21,183,820;
comprised of $15,000,000 paid in cash; $3,000,000 in deferred
compensation to the seller; 53,250 shares of common stock valued at
$2,762,610 of which 11,000 shares of common stock were issued from the
Company's treasury account; liabilities assumed of $171,210 and
$250,000 in transaction costs related to the acquisition. Under the
terms of the Agreement, the Company is required to pay $2,000,000 and
$1,000,000 in March 2000 and 2001, respectively to the seller if
revenue from the acquired business meets or exceeds certain levels in
1999 and 2000. Management has determined, based on the results of its
analysis that it is highly probable that revenue from the acquired
business will exceed the established levels, and accordingly, the
deferred payments to the seller have been included in the acquisition
cost. The total acquisition cost was allocated to the estimated fair
value of assets acquired based on an independent appraisal.
The following unaudited pro forma condensed consolidated financial
statements of QRS Corporation and subsidiaries (the "Company") give
effect to the acquisition of all of the outstanding common stock of RDS
on July 23, 1999. The acquisition was accounted for under the purchase
method of accounting, which requires the purchase price to be allocated
to the acquired assets and liabilities assumed of RDS on the basis of
their estimated fair values as of the date of acquisition. The
following unaudited pro forma condensed consolidated balance sheet
gives effect to the acquisition of RDS as if it had occurred on June
30, 1999, and the unaudited pro forma condensed consolidated statements
of earnings and comprehensive earnings (collectively, the "Unaudited
Pro Forma Financial Information") reflects the results of operations of
the Company for the six month period ended June 30, 1999 and the fiscal
year ended December 31, 1998 as if the acquisition of RDS had occurred
on January 1, 1999 (the first day of fiscal 1999) and January 1, 1998,
(the first day of fiscal 1998) and includes adjustments directly
attributable to the acquisition and expected to have a continuing
impact on the combined company. The Unaudited Pro Forma Financial
Information has been prepared based on preliminary estimates of certain
direct costs and liabilities associated with the transaction, and
amounts actually recorded may change upon final determination of such
amounts. Specifically, additional information is expected to be
obtained for accrued expenses related to the acquisition.
The Unaudited Pro Forma Financial Information and related notes are
provided for informational purposes only and are not necessarily
indicative of what the Company's actual financial position or results
of operations would have been had the forgoing transaction been
consummated on such dates, nor does it give effect to the synergies,
cost savings and other charges expected to result from the acquisition.
Accordingly, the pro forma financial information does not purport to be
indicative of the Company's financial position or results of operations
as of the date hereof or for any period ended on the date hereof or as
of or for any other future date or period.
The following unaudited pro forma financial information is based in
part on the historical consolidated financial statements of the
Company, and the related notes thereto, which are included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1998 and the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1999; and the combined financial statements of RDS, and
the related notes thereto, for the year ended December 31, 1998, and
the unaudited combined financial statements of RDS, and the related
notes thereto, for the six months ended June 30, 1999, included
elsewhere in this Current Report on Form 8-K/A.
17
This Current Report on Form 8-K/A contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and other risks
detailed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and other reports filed with the
Securities and Exchange Commission from time to time. Actual results
could differ materially from those projected in these forward-looking
statements as a result of the risks described above as well as other
risk factors set forth in the Company's periodic reports both
previously and hereafter filed with the Securities and Exchange
Commission.
18
PRO FORMA FINANCIAL INFORMATION
- -------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999................................ 20
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Six
Months Ended June 30, 1999.............................................................................. 21
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended
December 31, 1998....................................................................................... 22
Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements.................................... 23
19
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999
(Dollars in thousands)
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 47,062 $ 194 $ (15,000)[A] $ 32,256
Marketable securities available for sale............. 4,334 4,334
Accounts receivable-net.............................. 18,967 1,394 20,361
Deferred income tax assets........................... 816 816
Prepaid expenses and other........................... 1,216 89 1,305
------------ ------------ ------------ ------------
Total current assets............................ 72,395 1,677 (15,000) 59,072
Property and equipment, net.......................... 8,996 219 9,215
Marketable securities available for sale............. 7,399 7,399
Deferred income tax assets........................... 5,941 5,941
Capitalized product development costs - net.......... 4,152 75 (75)[B] 4,152
Intangible assets - net.............................. 2,829 18,757 [C][D] 21,586
Other assets......................................... 314 314
------------ ------------ ------------ ------------
Total assets.................................... $ 102,026 $ 1,971 $ 3,682 $107,679
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................ $ 8,574 $ 62 $ $ 8,636
Accrued and other liabilities................... 4,522 538 2,250 [E] 7,310
------------ ------------ ------------- ------------
Total current liabilities................... 13,096 600 2,250 15,946
Deferred rent and other.............................. 1,259 1,000 [F] 2,259
------------ ------------ ------------- ------------
Total liabilities............................... 14,355 600 3,250 18,205
------------- ------------ ------------ ------------
Stockholders' equity:
Preferred stock................................. -- --
Common stock ................................... 78,291 2,192 [G] 80,483
Additional Paid-in Capital...................... -- 33 (33)[H] --
Treasury stock.................................. (740) 214 [G] (526)
Accumulated other comprehensive earnings........ (51) (51)
Retained earnings .............................. 10,171 1,338 (1,941)[G][H] 9,568
------------- ------------ ------------- ------------
Total stockholders' equity ................. 87,671 1,371 432 89,474
------------- ------------ ------------ ------------
Total liabilities and stockholder's equity...... $ 102,026 $ 1,971 $ 3,682 $107,679
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
See notes to unaudited pro forma condensed consolidated financial statements.
20
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Six Months Ended June 30, 1999
(In thousands, except per share amounts)
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------- ------------ ------------- -----------
Revenues ............................................ $ 58,884 $ 4,938 $ 63,822
Cost of revenue...................................... 30,174 3,233 $ 1,629 [I] 35,036
------------- ------------ ------------- -----------
Gross profit......................................... 28,710 1,705 (1,629) 28,786
------------- ------------ ------------ -----------
Operating expenses:
Sales and marketing............................. 8,253 139 8,392
Product development............................. 4,084 4,084
General and administrative...................... 5,267 467 5,734
In-process technology expense related to acquisitions 963 [J] 963
------------- ------------ ------------- -----------
Total operating expenses.................... 17,604 606 963 19,173
------------- ------------ ------------ -----------
Operating earnings................................... 11,106 1,099 (2,592) 9,613
Interest income(expense)............................. 1,057 (7) (336) [K] 714
------------- ------------ ------------- -----------
Earnings from continuing operations before
income taxes....................................... 12,163 1,092 (2,928) 10,327
Income taxes......................................... 4,621 (698) [L] 3,923
------------- ------------ ------------ -----------
Net earnings......................................... $ 7,542 $ 1,092 $ (2,230) $ 6,404
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
Basic earnings per share (Note 2) ................... $ 0.57 $ 0.49
------------- -----------
------------- -----------
Shares used to compute basic earnings per share...... 13,128 53 [G] 13,181
------------- ------------ -----------
------------- ------------ -----------
Diluted earnings per share ( Note 2) ................ $ 0.54 $ 0.46
------------- -----------
------------- -----------
Shares used to compute diluted earnings per share.... 13,903 53 [G] 13,956
------------- ------------ -----------
------------- ------------ -----------
See notes to unaudited pro forma condensed consolidated financial statements.
21
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
(In thousands, except per share amounts)
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------- ------------ ------------ -----------
Revenues ............................................ $ 91,926 $ 8,175 $ 100,101
Cost of revenue...................................... 51,140 5,728 $ 3,258[I] 60,126
------------- ------------ ------------ ------------
Gross profit......................................... 40,786 2,447 (3,258) 39,975
------------- ------------ ------------ -----------
Operating expenses:
Sales and marketing............................. 12,080 247 12,327
Product development............................. 4,309 4,309
General and administrative...................... 7,314 1,031 8,345
In-process technology expense related to
acquisitions.................................. 967 963 [J] 1,930
------------- ------------ ------------ -----------
Total operating expenses.................... 24,670 1,278 963 26,911
------------- ------------ ------------ -----------
Operating earnings................................... 16,116 1,169 (4,221) 13,064
Interest income(expense)............................. 2,151 (46) (672) [K] 1,433
------------- ------------ ------------ -----------
Earnings from continuing operations before income
taxes......................................... 18,267 1,123 (4,893) 14,497
Income taxes......................................... 7,113 (1,470) [L] 5,643
------------- ------------ ------------ -----------
Earnings from continuing operations after
income taxes.................................. 11,154 1,123 (3,423) 8,854
Discontinued operations:
Gain from sale of software and services business 896 896
------------- ------------ ------------ -----------
Net earnings......................................... $ 12,050 $ 1,123 $ (3,423) $ 9,750
------------- ------------ ------------ ----------
------------- ------------ ------------ ----------
Basic earnings per share (Note 2):
Continuing operations........................... $ 0.87 $ 0.69
Discontinued operations......................... 0.07 0.07
------------- ----------
Net earnings per share.......................... $ 0.94 $ 0.76
------------- ----------
------------- ----------
Shares used to compute basic earnings per share...... 12,812 53 [G] 12,865
------------- ------------ ----------
------------- ------------ ----------
Diluted earnings per share (Note 2):
Continuing operations........................... $ 0.84 $ 0.66
Discontinued operations......................... 0.07 $ 0.07
------------- -----------
Net earnings per share.......................... $ 0.91 $ 0.73
------------- -----------
------------- -----------
Shares used to compute diluted earnings per share... 13,287 53 [G] 13,340
------------- ------------ ------------
------------- ------------ ------------
See notes to unaudited pro forma condensed consolidated financial statements.
22
QRS CORPORATION and RDS
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
[A] Adjustment to record the payment of the $15,000,000 cash
purchase price.
[B] Adjustment to record acquired capitalized product development
costs at estimated fair value.
[C] Adjustment to record the allocation of the acquisition cost to
the estimated fair value of assets acquired based on an
independent appraisal and to reflect the write-off of $963,000
of in-process research and development as no alternative
future uses existed for these research projects at the
acquisition date as follows (in thousands):
Current technology $ 4,190
Customer list and trademark 3,757
In-process research and development 1,865
Fair value of other intangible assets 1,687
Assembled workforce 1,535
--------
Subtotal 13,034
Write-off in-process research and development (963)
--------
Total $ 12,071
--------
-------
[D] Represents the adjustment to record the excess of purchase
price over the estimated fair value of the identifiable net
assets acquired (Goodwill) as computed below (in thousands):
Cash $ 15,000
Estimated fair value of common stock issued 2,763
Accrued transaction costs 250
Deferred compensation to seller 3,000
--------
Total purchase price 21,013
Preliminary allocation of purchase price:
Cash 160
Accounts receivable 1,092
Property and equipment 212
Intangible assets 13,034
Liabilities assumed (171)
--------
Sub-total preliminary allocation of purchase price 14,327
--------
Goodwill $ 6,686
--------
--------
[E] Represents adjustment to reflect the following (in thousands):
To accrue for the additional payment due in March 2000 under the
terms of the Agreement $ 2,000
To accrue for estimated direct fees and expenses in connection with the
acquisition of RDS 250
--------
Total $ 2,250
--------
--------
23
[F] Represents adjustment to accrue for the additional $1,000,000
payment due in March 2001 under the terms of the Agreement
[G] To reflect the issuance of 53,250 shares of common stock
valued at $2,762,610 of which 11,000 shares of common stock
(with an original cost of $214,000) were issued from the
Company's treasury account as follows (in thousands):
Common stock $ 2,192
Treasury stock 214
Retained earnings 357
--------
Total $ 2,763
--------
--------
[H] To reflect the write-off of the historical equity of RDS
and the effect of the write-off of in-process research and
development discussed in note [C] above as follows (in
thousands):
Historical additional paid-in-capital of RDS $ (33)
--------
--------
Historical retained earnings of RDS $(1,335)
Write-off in-process research and development ( 963)
--------
Total $(2,298)
--------
--------
[I] To reflect the amortization of intangible assets.
[J] To reflect the write-off of in-process research and
development as discussed in note [C] above.
[K] To reflect decrease in interest income due to the use of
$15.0 million of cash equivalents for the purchase of RDS.
Interest income was calculated at the Company's average rate
of 4.48% for the six months ended June 30, 1999 and for
the year ended December 31, 1998.
[L] To reflect the income tax effect of the net income of RDS and
the pro forma adjustments at the Company's effective income
tax rate of 38% for the six months ended June 30, 1999 and 39%
for the year ended December 31, 1998.
24
2. PRO FORMA EARNINGS PER SHARE
Basic and diluted pro forma earnings per share was calculated based on
the Company's outstanding common stock at June 30, 1999 and December
31, 1998, which reflects a 3 for 2 stock split and 53,250 shares of the
Company's common stock issued in connection with the acquisition.
25