Exhibit B
Pro Forma Financial Statements
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined balance sheet as of October 31,
2000 gives effect to the Arden acquisition, the completion of the issuance of
long-term debt and warrants and the completion of a new credit facility and the
application of those proceeds as if these transactions had occurred on October
31, 2000. The unaudited pro forma condensed combined statements of operations
for the year ended January 31, 2000, for the nine months ended October 31, 2000,
and for the twelve months ended October 31, 2000 give effect to the acquisition,
the issuance of the long-term debt and completion of the new credit facility and
the application of those proceeds as if these transactions occurred at the
beginning of the period presented. Pro forma information for the twelve month
period ended October 31, 2000 is presented due to the seasonality of the
Company's business. Note that the fiscal year of the Arden business ends on
December 31 as compared with our January 31 year-end.
The pro forma adjustments related to the purchase price allocation and
financing of the Arden business are preliminary and based on information
obtained to date that is subject to revision as additional information becomes
available. Subsequent revisions to the preliminary purchase price allocation and
financing may have a significant impact on total assets, total liabilities and
shareholders' equity, cost of revenues, selling, general and administrative
expenses, depreciation and amortization and interest expense.
Footnote (h) to the unaudited pro forma statement of operations, includes a
supplemental adjustment to selling, general and administrative expense to
reflect management's estimates of the incremental overhead necessary for us to
operate the Arden business. Although we believe that this supplemental
adjustment is appropriate to reflect the ongoing operations after the Arden
acquisition, the supplemental adjustment represents "forward looking"
information and is subject to uncertainties. Our actual results may differ
materially from these projections.
The Company does not as a matter of course make public projections as to
future sales, earnings, or other results. However, the management of the Company
has prepared the prospective financial information described above to more
appropriately reflect operating expenses of the Arden business. This prospective
financial information was not prepared with a view toward public disclosure or
with a view toward complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to prospective financial
information but, in the view of the Company's management, was prepared on a
reasonable basis, reflects the best currently available estimates and judgments,
and present, to the best of management's knowledge and belief, the expected
expenses of operating the Arden business. However, this information is not fact
and should not be relied upon as being necessarily indicative of future results,
and readers of this proxy statement are cautioned not to place undue reliance on
the prospective financial information.
Neither the Company's independent auditors, nor any other independent
accountants, have compiled, examined, or performed any procedures with respect
to the prospective financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such information or its
B-1
<PAGE>
achievability, and assume no responsibility for, and disclaim any association
with, the prospective financial information.
The assumptions and estimates underlying the prospective financial
information are inherently uncertain and, though considered reasonable by the
management of the Company as of the date of its preparation, are subject to a
wide variety of significant business, economic, and competitive risks and
uncertainties that could cause actual results to differ materially from those
contained in the prospective financial information. Accordingly, there can be no
assurance that the prospective results are indicative of the future performance
of the Company or that actual results will not differ materially from those
presented in the prospective financial information. Inclusion of the prospective
financial information in this proxy should not be regarded as a representation
by any person that the results contained in the prospective financial
information will be achieved.
The Company does not generally publish its business plans and strategies or
make external disclosures of its anticipated financial position or results of
operations. Accordingly, the Company does not intend to update or otherwise
revise the prospective financial information to reflect circumstances existing
since its preparation or to reflect the occurrence of unanticipated events, even
in the event that any or all of the underlying assumptions are shown to be in
error. Furthermore, the Company does not intend to update or revise the
prospective financial information to reflect changes in general economic or
industry conditions.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the notes thereto, the historical consolidated
financial statements of French Fragrances and related notes thereto included in
this proxy statement, and the historical financial statements of the Arden
business and related notes thereto included in this proxy statement.
B-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY ARDEN ACQUISITION OFFERING ADJUSTED
------- ----- ----------- -------- --------
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS(1) ADJUSTMENTS(2) PRO FORMA
---------- ---------- -------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents....... $ 2,109 -- $ 2,109 -- $ 8,831 (a) $10,940
Accounts Receivable, net........ 149,592 -- 149,592 -- -- 149,592
Inventories..................... 125,986 $90,900 216,886 -- -- 216,886
Advances on inventory
purchases.................... 1,892 -- 1,892 -- -- 1,892
Prepaid expense and other
assets....................... 9,058 600 9,658 -- -- 9,658
-------- -------- -------- ---------- --------- --------
Total current assets.... 288,637 91,500 380,137 -- 8,831 388,968
Property and equipment, net..... 22,105 21,500 43,605 -- -- 43,605
Other assets:
Exclusive brand licenses and
trademarks................... 44,174 -- 44,174 -- -- 44,174
Senior debt offering costs,
net . 3,543 -- 3,543 -- 9,300 (b) 12,843
Deferred income taxes, net...... 3,337 -- 3,337 -- -- 3,337
Other intangibles and other
assets....................... 6,240 -- 6,240 $ 145,400 (a) -- 151,640
-------- -------- -------- ---------- --------- --------
Total other assets...... 57,294 -- 57,294 145,400 9,300 211,994
-------- -------- -------- ---------- --------- --------
TOTAL ASSETS............ $368,036 $113,000 $481,036 $ 145,400 $ 18,131 $644,567
========= ======== ========= ========== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current Liabilities:
Short-term debt................. $30,995 -- $30,995 -- $ 38,600 (c) $ 69,595
Accounts Payable-trade.......... 49,878 -- 49,878 -- -- 49,878
Other payables and accrued
expenses..................... 20,009 $19,100 39,109 $ 15,000 (b) -- 54,109
Current portion of long-term
debt . 1,145 -- 1,145 -- -- 1,145
-------- -------- -------- ---------- --------- --------
Total current liabilities 102,027 19,100 121,127 15,000 38,600 174,727
-------- -------- -------- ---------- --------- --------
Long-term debt, net............. 171,427 -- 171,427 -- 160,000 (d) 331,427
-------- -------- -------- ---------- --------- --------
Total liabilities............... 273,454 $19,100 292,554 15,000 198,600 506,154
=======
Mandatory Redeemable Convertible
Preferred Stock, net............ 35,000 (c) 35,000
Shareholders' equity:
Convertible Preferred Stock..... 8 -- 8 -- (8)(a) --
Common stock.................... 142 -- 142 -- 24 (a) 166
Additional paid-in capital...... 33,179 93,900 127,079 (93,900)(a) 8,815 (a) 41,994
Treasury stock.................. (6,613) -- (6,613) -- -- (6,613)
Retained earnings............... 67,866 -- 67,866 -- -- 67,866
-------- -------- -------- ---------- --------- --------
Total shareholders' equity...... 94,582 93,900 188,482 (93,900) 8,831 103,413
-------- -------- -------- ---------- --------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY......... $368,036 $113,000 $481,036 $ (43,900) $ 207,431 $644,567
========= ======== ======== ========== ========= ========
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 31, 2000
(DOLLARS IN THOUSANDS)
(1) ADJUSTMENTS TO REFLECT THE ARDEN ACQUISITION:
(a) To record intangible assets:
Purchase Price:
Cash $182,600
Preferred stock 35,000
Acquisition costs 6,700
--------
Total 224,300
Net assets acquired (93,900)
Reserve for expected returns 15,000
--------
Intangible Assets $145,400
========
(b) To record a reserve for expected returns for sales made by Arden prior
to the acquisition.
(c) To record the issuance of Series D convertible preferred stock at
estimated fair value:
Face Value $50,000
Discount (15,000)
Net $35,000
(2) ADJUSTMENTS TO REFLECT THE OFFERING:
(a) To record the conversion of the Series B convertible preferred stock
and Series C convertible preferred stock pursuant to the notice of redemption
issued on October 30, 2000. Includes conversion of 264,168 shares of Series B
convertible preferred stock outstanding on October 31, 2000 at 1.0 shares of
Series B convertible preferred stock into 7.12 shares of common stock for an
aggregate of 1,880,876 shares of our common stock at a conversion price of $3.30
per share. Also includes the conversion of 499,870 shares of Series C
convertible preferred stock outstanding on October 31, 2000 at 1.0 shares of
Series C convertible preferred stock into 1.0 shares of common stock for an
aggregate 499,870 shares of common stock at a conversion price of $5.25.
(b) To record the deferred offering cost of the long-term debt and the new
credit facility totaling $9,300.
(c) To record the borrowing under the new credit facility of $69,595 and
repayment of $30,995 under the Company's existing credit facility.
(d) To record the issuance of long-term debt.
B-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
1/31/00 12/31/99
------- --------
COMPANY ARDEN ACQUISITION
------- ----- -----------
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................. $361,243 $551,500 $912,743 $ (55,875)(b) $856,868
Cost of sales............. 236,129 174,600 410,729 (55,875)(b) 354,854
-------- ------- -------- ---------- --------
Gross profit.......... 125,114 376,900 502,014 -- 502,014
-------- ------- -------- ---------- --------
Gross profit %........ 34.6% 68.3% 55.0% 58.6%
Selling, general &
administrative.......... 80,167 294,510(a) 374,677 7,270(c) 381,947
-------- ------- -------- ---------- --------
Income from operations.... 44,947 82,390(a) 127,337 (7,270) 120,067
Other income (expense):
Interest expense, net... (19,412) -- (19,412) (28,221)(d) (47,663)
Other expense........... (204) -- (204) -- (204)
-------- ------- -------- ---------- --------
Other income
(expense)........... (19,616) -- (19,616) (28,221) (47,837)
-------- ------- -------- ---------- --------
Income before provision for
income taxes............ 25,331 -- 107,721 (35,491) 72,230
Provision for income taxes 10,001 -- 10,001 6,401(e) 16,402
-------- ------- -------- ---------- --------
Net income................ $ 15,330 $ -- $ 97,720 $ (41,892) $55,828
======== ======= ======== ========== =======
Accretion of
Preferred Stock......... -- -- -- $ (1,250)(f) $(1,250)(f)
Net Income Attributable to
Common Stockholders.... $ 15,330 $ -- $ 97,720 $ (43,142) $54,578
======== ======= ======== ========== =======
Earnings per common share:
Basic................... $1.11 $ 3.37(g)
-------- -------
Diluted................. $0.99 $ 2.57(g)
-------- -------
Weighted average common
shares outstanding:
Basic.................. 13,801,196 16,196,225(g)
---------- ----------
Diluted................ 15,577,422 21,287,220(g)
---------- ----------
Other data:
EBITDA.................... $ 56,113 $93,090 $149,203 $149,203
EBITDA margin............. 15.5% 16.9% 16.3% 17.4%
Depreciation &
amortization............ $ 11,166 $10,700 $ 21,866 $ 7,270 $29,136
</TABLE>
B-5
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-------------------
10/31/00 9/30/00
-------- -------
COMPANY ARDEN ACQUISITION
------- ----- -----------
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales...................... $ 386,326 $ 576,500 $962,826 $ (74,096)(b) $ 888,730
Cost of Sales.................. 254,137 183,900 438,037 (74,096)(b) 363,941
--------- --------- -------- ---------- ---------
Gross profit................. 132,189 392,600 524,789 -- 524,789
Gross profit %............. 34.2% 68.1% 54.5% 59.0%
Selling, general & administrative 85,267 278,400(a) 363,667 7,270 (c) 370,937
--------- --------- -------- ---------- ---------
Income from operations......... 46,922 114,200(a) 161,122 (7,270) 153,852
Other income (expense):
Interest expense, net........ (19,661) (19,661) (28,221)(d) (47,882)
Other income................. 886 886 -- 886
--------- -------- ---------- ---------
Other income (expense)..... (18,775) -- (18,775) (28,221) (46,996)
--------- -------- ---------- ---------
Income before provision for
income taxes................... 28,147 -- 142,347 (35,491) 106,856
Provision for income taxes..... 11,274 11,274 14,354 (e) 25,628
--------- -------- ---------- ---------
Net income..................... $ 16,873 $ -- $131,073 $ (49,845) $ 81,228
========= ========= ======== =========== =========
Accretion of Preferred
Stock........................ $ (1,250)(f) $ (1,250)(f)
Net Income Attributable to
Common Shareholders....... $ 16,873 $ -- $131,073 $ (51,095) $ (79,978)
========= ========= ======== =========== =========
Earnings per common share:
Basic........................ 1.26 5.08 (g)
--------- ---------
Diluted...................... 1.12 $ 3.89(g)
--------- ---------
Weighted average common
shares outstanding:
Basic........................ 13,366,796 15,747,547(g)
---------- ----------
Diluted...................... 15,110,643 20,549,392(g)
---------- ----------
Other data:
EBITDA......................... $ 58,655 $ 125,900 $184,555 $ 184,555
EBITDA Margin.................. 15.2% 21.8% 19.2% 20.8%
Depreciation & amortization.... $ 11,733 $ 11,700 $ 23,433 $ 7,270 $ 30,703
</TABLE>
B-6
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
10/31/00 9/30/00
-------- -------
COMPANY ARDEN ACQUISITION
------- ----- -----------
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales...................... $ 296,046 $ 402,000 $698,046 $(54,251)(b)$ 643,795
Cost of Sales.................. 193,337 129,700 323,037 (54,251)(b) 268,786
--------- --------- -------- -------- ---------
Gross profit................. 102,709 272,300 375,009 -- 375,009
Gross profit %.............. 34.7% 67.7% 53.7% 58.2%
Selling, general & administrative 67,807 201,200 (a) 269,007 5,453 (c) 274,460
--------- --------- -------- -------- ---------
Income from operations......... 34,902 71,100 (a) 106,002 (5,453) 100,549
Other income (expense):
Interest expense, net........ (14,718) -- (14,718) (21,162)(d) (35,880)
Other income................. 875 875 -- 875
--------- -------- -------- ---------
Other income (expense)..... (13,843) (13,843) (21,162) (35,005)
--------- --------- -------- -------- ---------
Income before provision for
income taxes................... 21,059 -- 92,159 (26,615) 65,544
Provision for income taxes..... 8,223 8,223 7,129 (e) 15,352
--------- -------- -------- ---------
Net income..................... $ 12,836 $ -- $ 83,936 $(33,744) $ 50,192
========= ========= ======== ======== =========
Accretion of Preferred
Stock........................ $ (938)(f)$ (938)(f)
Net Income Attributable to
Common Shareholders...... $ 12,836 $ -- $ 83,936 $(34,682) $ 49,254
========= ========= ======== ======== =========
Earnings per common share:
Basic........................ $ 0.97 $ 3.16(g)
--------- ----------
Diluted...................... $ 0.85 $ 2.40(g)
--------- ----------
Weighted average common shares
outstanding:
Basic........................ 13,244,233 15,604,984(g)
---------- ----------
Diluted...................... 15,133,473 20,572,222(g)
---------- ----------
Other data:
EBITDA......................... $ 43,760 $ 79,800 $123,560 $ 123,560
EBITDA Margin.................. 14.8% 19.9% 17.7% 19.2%
Depreciation & amortization.... $ 8,858 $ 8,700 $ 17,558 $ 5,453 $ 23,011
</TABLE>
B-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS)
(a) The Arden business historical selling, general & administrative
corresponds to total direct operating expenses reflected in the historical Arden
business financial statements. The Arden business historical income from
operations corresponds to the excess of net sales over cost of sales and direct
operating expenses reflected in the historical Arden business financial
statements. See the historical financial statements of the Arden business and
related notes thereto included in this proxy statement.
(b) To eliminate historical intercompany sales of fragrance products
from the Arden business to the Company:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTH ENDED
---------- ----------------- ------------------
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Intercompany sales...................................... $ 55,875 $ 54,251 $ 74,096
(c) To record additional amortization of the intangible assets of
$145,400 (over an estimated useful life of 20 years) related to the Arden
acquisition. The 20 year amortization period may change after the final purchase
price allocations are made:
YEAR ENDED NINE MONTHS ENDED TWELVE MONTH ENDED
---------- ----------------- ------------------
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Amortization ........................................... $ 7,270 $ 5,453 $ 7,270
(d) To record interest expense on the financing, the amortization of
deferred offering costs including the discount allocated to the financing as a
result of the issuance of warrants:
YEAR ENDED NINE MONTHS ENDED TWELVE MONTH ENDED
---------- ----------------- ------------------
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest expense on financing $ 26,791 $ 20,090 $ 26,791
Deferred offering costs 1,430 1,072 1,430
---------------- ---------------- ----------------
Total...................................... $ 28,221 $ 21,162 $ 28,221
================ ================ ================
</TABLE>
A 0.125% increase or decrease in the assumed average interest rate
would change pro forma interest expense on the financing approximately $248,
$186, and $248 for the year ended January 31, 2000, the nine months ended
October 31, 2000 and the twelve months ended October 31, 2000, respectively.
B-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS)
(e) To record the estimated tax effect on the Arden business income
from operations and certain other pro forma adjustments:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTH ENDED
---------- ----------------- ------------------
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Arden business (blended worldwide income tax rate of 25%) $ 20,597 $ 17,775 $ 28,550
Pro Forma adjustments (effective income tax rate of 40%) (14,196) (10,646) (14,196)
---------------- ---------------- ----------------
Total........................................... $ 6,401 $ 7,129 $ 14,354
================ ================ ================
</TABLE>
(f) To record accretion of Series D convertible preferred stock from
$35 million estimated fair value to $50 million liquidation preference. No
dividends are recorded in the first year.
(g) Basic and fully diluted shares include the conversion of Series B
and Series C convertible preferred stock. Fully diluted shares also includes the
dilutive effect of the Series D Convertible Preferred Stock. The Series D
Convertible Preferred Stock is convertible into 4,166,667 shares of Common Stock
subject to certain terms and conditions.
(h) The following supplemental adjustment is presented to reflect
management's estimates of the incremental overhead necessary to operate the
business after the acquisition. This supplemental adjustment represents
"forward-looking information."
The historical financial statements of the Arden business include only
direct operating expenses such as sales, marketing, advertising, promotion,
other development costs, rent, and certain allocations related to these items.
Allocations of general and administrative expenses, Unilever group corporate
overhead, interest, amortization of intangibles and income taxes have been
excluded from the Arden business financial statements. See the Arden business
financial statements and related notes thereto contained herein.
B-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS)
Management developed its estimates of the total overhead required in
the Arden business, "Estimated Overhead" in the chart below, by reviewing
headcount and general and administrative expenses on a "department by
department" basis. Certain overhead was included in the financial statements of
the Arden business ("Direct Expenses Included in the Arden Financial Statements"
below). The Supplemental Adjustment is calculated as the total estimated
overhead minus the overhead included in the Arden financial statements.
<TABLE>
<CAPTION>
Estimated Overhead YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
North America......................................... $ 32,186 $ 24,140 $ 32,186
Europe................................................ 28,821 21,616 28,821
Asia Pacific.......................................... 7,331 5,498 7,331
Transition & Other.................................... 20,567 15,425 20,567
---------------- ---------------- ----------------
Total Overhead........................................ $ 88,905 $ 66,679 $ 88,905
Less: Direct Expenses Included in Arden Financial
Statements............................................ (55,800) (38,400) (53,400)
---------------- ---------------- ----------------
Supplemental Adjustment............................... $ 33,105 $ 28,279 $ 35,505
================ ================ ================
The following table calculates the effect of the Supplemental
Adjustment on Pro Forma Net Income:
Estimated Overhead YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
JANUARY 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Pro forma Net Income.................................. $ 55,828 $ 50,192 $ 81,228
Supplemental Adjustment (net of income tax benefit of
$8,276; $7,070; $8,877, respectively)................. (24,829) (21,209) (26,628)
---------------- ---------------- ----------------
Adjusted Net Income................................... $ 30,999 $ 28,983 $54,600
================ ================ ================
Accretion of Preferred Stock.......................... (1,250) (938) (1,250)
---------------- ---------------- ----------------
Adjusted Net Income Attributable to Common
Shareholders.......................................... $ 29,749 $ 28,045 $ 53,350
================ ================ ================
Adjusted Earnings per Common Share
Basic................................................. $ 1.84 $ 1.80 $ 3.39
Diluted............................................... $ 1.40 $ 1.36 $ 2.60
</TABLE>
B-10
