EXHIBIT 99.3
Stuart Weitzman Holdings, LLC
and Subsidiaries
Condensed Consolidated Financial Statements as of
April 3, 2010, April 4, 2009 and January 2, 2009,
and for the fiscal quarters ended April 3, 2010, and
April 4, 2009
| STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES TABLE OF CONTENTS | ||
| Page | ||
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||
| Condensed Consolidated Balance Sheets as of April 3, 2010 (unaudited), April 4, 2009 (unaudited) and January 2, 2010 | 3 | |
| Condensed Consolidated Statements of Income for the fiscal quarters ended April 3, 2010 and April 4, 2009 (unaudited) | 4 | |
| Condensed Consolidated Statements of Members' Equity and Comprehensive Income for the fiscal quarters ended April 3, 2010 and April 4, 2009 (unaudited) | 5 | |
| Condensed Consolidated Statements of Cash Flows for the fiscal quarters ended April 3, 2010 and April 4, 2009 (unaudited) | 6 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 7 - 9 | |
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STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| April 3, 2010 (Unaudited) | April 4, 2009 (Unaudited) | January 2, 2010 | |||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 8,758 | $ | 18,295 | $ | 50,684 | |
| Trade accounts receivable - Net | 32,996 | 31,191 | 23,033 | ||||
| Inventories | 14,258 | 16,763 | 15,131 | ||||
| Inventories - consigned | 602 | 1,016 | 640 | ||||
| Accrued hedging contracts receivable | - | 1,348 | - | ||||
| Prepaid expenses and other current assets | 1,692 | 3,054 | 1,642 | ||||
| Total current assets | 58,306 | 71,667 | 91,130 | ||||
| PROPERTY AND EQUIPMENT - Net | 19,862 | 26,891 | 20,588 | ||||
| INTANGIBLE ASSETS - Net | 9,282 | 9,549 | 10,142 | ||||
| GOODWILL | 1,165 | - | 1,237 | ||||
| OTHER | 629 | 2,884 | 985 | ||||
| TOTALS | $ | 89,244 | $ | 110,991 | $ | 124,082 | |
| LIABILITIES AND MEMBERS' EQUITY | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable | $ | 3,979 | $ | 2,662 | $ | 4,153 | |
| Accrued liabilities | 4,933 | 5,226 | 3,614 | ||||
| Due to customers | 425 | 307 | 1,170 | ||||
| Current portion of notes payable | 235 | - | 100 | ||||
| Other current liabilities | 314 | 697 | 279 | ||||
| Total current liabilities | 9,886 | 8,892 | 9,316 | ||||
| DEFERRED RENT AND LEASE INCENTIVES | 5,930 | 5,896 | 6,106 | ||||
| NOTES PAYABLE, less current portion | 314 | - | 364 | ||||
| Total liabilities | 16,130 | 14,788 | 15,786 | ||||
| COMMITMENTS AND CONTINGENCIES | |||||||
| MEMBERS' EQUITY: | |||||||
| Contributed capital | 14,783 | 14,783 | 14,783 | ||||
| Retained earnings | 57,482 | 80,153 | 91,479 | ||||
| Accumulated other comprehensive income | 849 | 1,267 | 2,034 | ||||
| Total members' equity | 73,114 | 96,203 | 108,296 | ||||
| TOTALS | $ | 89,244 | $ | 110,991 | $ | 124,082 | |
See notes to consolidated financial statements.
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STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||
Fiscal Quarter Ended | ||||||
| April 3, 2010 | April 4, 2009 | |||||
| NET SALES | $ | 55,783 | $ | 50,688 | ||
| COST OF SALES | 29,271 | 30,276 | ||||
| GROSS PROFIT | 26,512 | 20,412 | ||||
| SELLING EXPENSES | 11,456 | 11,157 | ||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 4,944 | 4,140 | ||||
| DEPRECIATION AND AMORTIZATION EXPENSES | 1,618 | 1,531 | ||||
| OPERATING INCOME | 8,494 | 3,584 | ||||
| OTHER INCOME (EXPENSE): | ||||||
| Foreign exchange losses | (231 | ) | (1,208 | ) | ||
| Other expenses | (35 | ) | (147 | ) | ||
| Total other expense | (266 | ) | (1,355 | ) | ||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 8,228 | 2,229 | ||||
| PROVISION FOR INCOME TAXES | 181 | 569 | ||||
| NET INCOME | $ | 8,047 | $ | 1,660 | ||
See notes to consolidated financial statements.
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| STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY AND COMPREHENSIVE INCOME (UNAUDITED) | ||||||||||||||||
| Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Income | Comprehensive Income | Total | ||||||||||||
| BALANCES - January 3, 2009 | $ | 14,783 | $ | 78,527 | $ | 1,252 | $ | 94,562 | ||||||||
| Fiscal quarter ended April 4, 2009: |
| |||||||||||||||
| Distributions to members | (34 | ) | (34 | ) | ||||||||||||
| Comprehensive income: | ||||||||||||||||
| Net income | 1,660 | $ | 1,660 | 1,660 | ||||||||||||
| Foreign currency translation adjustment | 15 | 15 | 15 | |||||||||||||
| Total comprehensive income | $ | 1,675 | ||||||||||||||
| BALANCES - April 4, 2009 | $ | 14,783 | $ | 80,153 | $ | 1,267 | $ | 96,203 | ||||||||
| BALANCES - January 2, 2010 | $ | 14,783 | $ | 91,479 | $ | 2,034 | $ | 108,296 | ||||||||
| Fiscal quarter ended April 3, 2010: |
| |||||||||||||||
| Distributions to members | (42,044 | ) | (42,044 | ) | ||||||||||||
| Comprehensive income: | ||||||||||||||||
| Net income | 8,047 | $ | 8,047 | 8,047 | ||||||||||||
| Foreign currency translation adjustment | (1,185 | ) | (1,185 | ) | (1,185 | ) | ||||||||||
| Total comprehensive income | $ | 6,862 | ||||||||||||||
| BALANCES - April 3, 2010 | $ | 14,783 | $ | 57,482 | $ | 849 | $ | 73,114 | ||||||||
See notes to consolidated financial statements.
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STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) | |||||||
Fiscal Quarter Ended | |||||||
| April 3, 2010 | April 4, 2009 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
| Net income | $ | 8,047 | $ | 1,660 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and other amortization | 1,617 | 1,531 | |||||
| Provision for bad debts | 355 | 126 | |||||
| Amortization of deferred lease incentives | (152 | ) | (131 | ) | |||
| Changes in operating assets and liabilities: | |||||||
| Trade accounts receivable | (10,318 | ) | (5,458 | ) | |||
| Inventories | 873 | 4,667 | |||||
| Inventories - consigned | 38 | (31 | ) | ||||
| Accrued hedging contracts receivable | (3 | ) | - | ||||
| Prepaid expenses and other current assets | (47 | ) | 445 | ||||
| Other assets | 356 | 138 | |||||
| Accounts payable | (174 | ) | (581 | ) | |||
| Accrued liabilities | 1,319 | 2,355 | |||||
| Due to customers | (745 | ) | (520 | ) | |||
| Other current liabilities | 35 | 144 | |||||
| Deferred rent and lease incentives | (24 | ) | 1 | ||||
| Net cash provided by operating activities | 1,177 | 4,346 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
| Purchases of property and equipment | (763 | ) | (1,046 | ) | |||
| Net cash used in investing activities | (763 | ) | (1,046 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
| Cash distributions to members | (42,044 | ) | (34 | ) | |||
| Net proceeds from line of credit | 135 | - | |||||
| Payment of note payable | (23 | ) | - | ||||
| Net cash used in financing activities | (41,932 | ) | (34 | ) | |||
| EFFECT OF EXCHANGE RATES ON CASH | (408 | ) | 402 | ||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (41,296 | ) | 3,668 | ||||
| CASH AND CASH EQUIVALENTS - Beginning of year | 50,684 | 14,627 | |||||
| CASH AND CASH EQUIVALENTS - End of year | $ | 8,758 | $ | 18,295 | |||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
| Cash paid during the period for Income Taxes | $ | 147 | $ | 462 | |||
| Cash paid during the period for Interest | $ | 5 | $ | - | |||
See notes to consolidated financial statements.
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STUART WEITZMAN HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF APRIL 3, 2010, APRIL 4, 2009 AND JANUARY 2, 2010, AND FOR THE FISCAL QUARTERS
ENDED APRIL 3, 2010 AND APRIL 4, 2009
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Stuart Weitzman Holdings, LLC and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in accordance with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements of the Company for the year ended January 2, 2010 and the footnotes thereto included.
2. ACCOUNTS RECEIVABLE
The Company provides trade credit and financing to its customers in the normal course of business. Accounts receivable are carried at amounts management deems collectible and an allowance is provided in the event an account is considered uncollectible. As of April 4, 2010, April 3, 2009 and January 2, 2010, the Company maintained an allowance for doubtful accounts of approximately $725,000, $360,000 and $528,000, respectively.
3. FOREIGN CURRENCY CONTRACTS
The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As part of its risk management strategy, the Company uses derivative instruments to hedge certain foreign currency exposures. The Company's objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings.
Accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability and measured at fair value. It also requires that changes in the derivative's fair value be recognized currently in earnings, unless specific criteria are met and that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. As of April 4, 2010, April 3, 2009 and January 2, 2010, the Company does not meet the criteria to designate its transactions as hedges and as a result, all changes in the fair value of the Company's derivative financial instruments are reflected in the consolidated statements of income.
At April 4, 2010, April 3, 2009 and January 2, 2010, the Company had open forward hedge contracts for the purchase of approximately 0, 35.7 million and 7.0 million Euros , respectively. The Company estimates the fair value of its open derivatives using current market rates and records all open derivatives in the balance sheet at fair value. As of April 4, 2010, April 3, 2009 and January 2, 2010 the Company recorded approximately $0, $1.3 million and $(3,000), respectively, as accrued hedging contracts receivable (liability) for the fair market value of open derivatives. Unrealized gains or losses from the change in fair market value of open derivative contracts are reflected in other income (expense) in the accompanying consolidated statements of income. For the fiscal quarters ended April 4, 2010 and April 3, 2009 the Company recognized gain/(losses) of approximately $3,000 gain and a loss of $(1.0) million, respectively, for unrealized gains/losses related to changes in value of open derivative contracts.
The Company uses forward hedge contracts for the purchase of inventory. Gains and losses from the settlement of forward hedge contracts used for the purchase of inventory are included in cost of sales in the accompanying consolidated statements of income. For the fiscal quarters ended April 3, 2010 and April 4,
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2009, the Company recognized in cost of sales realized losses on forward contracts used for the purchase of inventory totaling approximately ($338,000) and ($1.4) million, respectively.
Realized gains and losses from the settlement of wholesale accounts receivable denominated in foreign currency are included in net sales in the accompanying consolidated statements of income. For the fiscal quarters ended April 4, 2010 and April 3, 2009, the Company recognized realized losses from the settlement of wholesale accounts receivable of approximately ($245,000) and ($416,000) in net sales, respectively.
4. NOTES PAYABLE/ BORROWING FACILITIES
Notes payable at April 3, 2010 and January 2, 2010 consist of (dollars in thousands):
| April 3, 2010 | January 2, 2010 | |||||
| 2.5% Note payable to a bank due 2014 | $ | 414 | $ | 464 | ||
| Less current portion | (100 | ) | (100 | ) | ||
| 2.5% Note payable to a bank | 314 | 364 | ||||
| Line of Credit to a bank | 135 | - | ||||
| Less current portion | (135 | ) | - |
| ||
| Line of Credit to a bank | - | - | ||||
| $ | 314 | $ | 364 |
The 2.5% Note payable to a bank was assumed as a part of the Monaco acquisition in October 2009 and the Company did not have a note payable at April 4, 2009. The note payable holder has a security interest in all assets of MIDA, SARL, the acquired Monaco subsidiary.
At April 3, 2010, the Company maintained a 300,000 Euro denominated unsecured borrowing facility with a bank. The unsecured borrowing facility is renewable on an annual basis and expires in March 2011 and outstanding borrowings under this facility accrue interest at 2.75%. As of April 3, 2010 100,000 Euros were outstanding under this facility. No cash borrowings were outstanding under this facility at April 4, 2009 or January 2, 2010.
Letters of Credit Facility - At April 3, 2010, the Company maintained a $3.5 million unsecured borrowing facility with a bank and as of April 3, 2010, April 4, 2009 and January 2, 2010 had $1.4 million, $1.8 million and $1.2 million, respectively in outstanding letters of credit against this facility as security for various operating leases. The unsecured borrowing facility is renewable on an annual basis and expires October 1, 2010. Any outstanding cash borrowings under this facility would accrue interest at either the prevailing prime lending rate or the prevailing LIBOR rate plus 300 basis points.
5. FAIR VALUE MEASUREMENTS
The Company adopted the methods of fair value to value its both financial and non-financial assets and liabilities. As defined in the accounting standards, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
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| Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
| Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data. |
| Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Financial assets and liabilities carried at fair value at April 3, 2010, April 4, 2009 and January 2, 2010 are classified in the table below in one of the three categories described above (dollars are in thousands):
April 4, 2009
Level 1 Level 2 Level 3 Total Accrued hedging contract liability $ - $ 1,348 $ - $ 1,348 Total assets at fair value $ - $ 1,348 $ - $ 1,348
January 2, 2010
Level 1 Level 2 Level 3 Total Accrued hedging contract liability $ - $ 3 $ - $ 3 Total liabilities at fair value $ - $ 3 $ - $ 3 There were no financial assets or liabilities carried at fair value at April 3, 2010. Hedging contract receivables are valued using observable inputs including foreign exchange forward and spot rates which fall under Level 2 of the fair value hierarchy.
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