Some Additional Financial Information on Mervin

For some reason, following the November 7th sale of Mervin, Quiksilver had to file an 8K that showed Quik’s proforma financial statements as if the sale of Mervin had already occurred. To do that, Quik shows us the adjustments they have to make to represent their balance sheet as if Mervin had been sold at the beginning of the 9 months ended July 31, 2013 and to the income statement to show what the Quik income statement would have looked like for the year ended October 31, 2012 if Mervin had been sold at the beginning of that year. 

They do that by inserting a column between Quik’s historical and proforma financial statements that shows the Mervin numbers that have to be subtracted to get to how Quik would have looked without Mervin. Below is the part of the income statement that shows Mervin’s numbers (center column).
Quik points out in the 8K that this is subject to certain assumptions and doesn’t necessarily reflect what the results would have been if the split had actually happened October 31, 2011. Don’t be confused by the brackets around the Mervin numbers in the middle column. That just shows they are being subtracted to get to Quik’s proforma numbers without Mervin, as shown in the third column.
You can see, then, that Mervin’s revenue for that full year was $33.5 million, and they had a gross margin of 52.7%. Seems impressive to me given they make lots of hard goods and much of it, as far as I know, is made in the U.S. Down at the bottom, you can see Mervin had net income of $6.79 million while Quik, including Mervin, lost $10.76 million. Mervin, then, made a big contribution to Quik’s bottom line in that year.
I want to emphasize again that these Mervin numbers aren’t necessarily what Mervin would look like on a stand-alone basis. I’d think the revenue would be the same, but issues of taxes, interest expense, allocation of corporate expenses, etc. would probably mean a different result. Still, you can see why Altamont was prepared to pay $51.5 million for Mervin. Actually, if they could rely on Mervin, as a stand-alone company, to earn $6.8 million after taxes on revenue of $33.5 million (20.3%!), they would probably have been prepared to pay more.
I had been prepared to see the Mervin revenue number be higher on the assumption that Quik had really pushed them for sales while they were working through their issues. As regular readers know, my point of view is that the bottom line looks so good, and the gross margin is so high, exactly because they didn’t push revenues too hard.
The July 31, 2013 balance sheet shows Mervin with accounts receivable of $7.2 million. That’s higher than you’d want to see a snowboard company of this size have at July 31 of any year. I suppose that’s just a reflection of snow conditions the prior season. Mervin inventory was $13.8 million, which doesn’t seem out of line going into the shipping season.
Anyway, that’s all there is. Just thought you might be curious.