Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information and explanatory notes of Deckers Outdoor Corporation (the Company or Deckers) set forth below give effect to the acquisition of certain net assets of C&C Partners, Ltd. (C&C) and Sanuk U.S.A., LLC (Sanuk USA). This information is intended to give a better understanding of the effect of the acquisition as if it had occurred on (1) January 1, 2010, the first day of the fiscal period for which unaudited pro forma condensed consolidated financial information is presented with respect to the statement of income data, and (2) June 30, 2011 with respect to balance sheet data.
The unaudited pro forma condensed consolidated statements of income do not purport to represent what Deckers’ 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 fair value of the net tangible assets and the fair value of identifiable intangible assets acquired has been recorded as goodwill. The values and allocations are preliminary and subject to change and may be adjusted upon completion of Deckers management’s final valuation analysis. The unaudited pro forma condensed consolidated financial information does not reflect potential cost savings opportunities, including the elimination of duplicative selling, general, and administrative expenses; and, it does not include all adjustments related to pending integration and reorganization decisions to be made. The unaudited pro forma condensed consolidated financial statements are based upon assumptions and adjustments that the Company believes are reasonable.
These unaudited pro forma condensed consolidated financial statements are presented based on the assumptions and adjustments described in the accompanying notes.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2011
(unaudited)
(amounts in thousands)
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| Deckers |
| C&C |
| Sanuk USA |
| Pro forma |
| Deckers pro |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 325,170 |
| $ | 2,076 |
| $ | 1,356 |
| $ | (126,118 | )(1)(2) | $ | 202,484 |
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Trade accounts receivable, net of allowances |
| 106,952 |
| 11,452 |
| 2,161 |
| (804 | )(1) | 119,761 |
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Inventories |
| 210,044 |
| 7,121 |
| 424 |
| — |
| 217,589 |
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Prepaid expenses and other current assets |
| 21,284 |
| 332 |
| — |
| (194 | )(1) | 21,422 |
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Income tax receivable |
| 16,285 |
| — |
| — |
| — |
| 16,285 |
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Deferred tax assets |
| 12,002 |
| — |
| — |
| — |
| 12,002 |
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Total current assets |
| 691,737 |
| 20,981 |
| 3,941 |
| (127,116 | ) | 589,543 |
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Property and equipment, at cost, net |
| 54,541 |
| 300 |
| — |
| (71 | )(1) | 54,770 |
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Other intangible assets, net |
| 17,754 |
| — |
| — |
| 82,330 | (3) | 100,084 |
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Goodwill |
| 6,101 |
| — |
| — |
| 96,824 | (3) | 102,925 |
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Deferred tax assets |
| 16,695 |
| — |
| — |
| — |
| 16,695 |
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Other assets |
| 8,299 |
| 102 |
| 1 |
| (103 | )(1) | 8,299 |
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Total assets |
| $ | 795,127 |
| $ | 21,383 |
| $ | 3,942 |
| $ | 51,864 |
| $ | 872,316 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable |
| $ | 107,375 |
| $ | 5,937 |
| $ | 2,665 |
| (2,803 | )(1) | $ | 113,174 |
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Accrued payroll |
| 12,780 |
| 1,295 |
| — |
| (1,273 | )(1) | 12,802 |
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Other accrued expenses |
| 12,345 |
| 267 |
| — |
| 29,801 | (1)(2) | 42,413 |
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Accounts receivable financing obligation |
| — |
| 2,327 |
| — |
| (2,327 | )(1) | — |
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Income taxes payable |
| 553 |
| — |
| — |
| — |
| 553 |
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Payable to members |
| — |
| — |
| 108 |
| (108 | )(1) | — |
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Due to affiliated company |
| — |
| 1,090 |
| — |
| (1,090 | )(1) | — |
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Other current liabilites |
| — |
| — |
| 213 |
| (213 | )(1) | — |
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Total current liabilities |
| 133,053 |
| 10,916 |
| 2,986 |
| 21,987 |
| 168,942 |
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Long-term liabilities |
| 9,973 |
| 3,059 |
| — |
| 38,241 | (1)(2) | 51,273 |
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Stockholders’ equity: |
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Deckers Outdoor Corporation stockholders’ equity: |
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Common stock |
| 385 |
| 1,806 |
| — |
| (1,806 | )(4) | 385 |
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Members’ equity |
| — |
| — |
| 956 |
| (956 | )(4) | — |
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Additional paid-in capital |
| 144,148 |
| — |
| — |
| — |
| 144,148 |
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Retained earnings |
| 505,382 |
| 5,602 |
| — |
| (5,602 | )(4) | 505,382 |
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Accumulated other comprehensive loss |
| (968 | ) | — |
| — |
| — |
| (968 | ) | |||||
Total Deckers Outdoor Corporation stockholders’ equity |
| 648,947 |
| 7,408 |
| 956 |
| (8,364 | ) | 648,947 |
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Noncontrolling interest |
| 3,154 |
| — |
| — |
| — |
| 3,154 |
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Total equity |
| 652,101 |
| 7,408 |
| 956 |
| (8,364 | ) | 652,101 |
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Total liabilities and equity |
| $ | 795,127 |
| $ | 21,383 |
| $ | 3,942 |
| $ | 51,864 |
| $ | 872,316 |
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See accompanying notes to the pro forma condensed consolidated financial information.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(unaudited)
(amounts in thousands, except per share data)
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| Deckers |
| C&C |
| Sanuk USA |
| Pro forma |
| Deckers pro |
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Net sales |
| $ | 359,073 |
| $ | 38,399 |
| $ | 4,035 |
| $ | (159 | )(5) | $ | 401,348 |
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Cost of sales |
| 190,683 |
| 15,419 |
| 2,551 |
| (159 | )(5) | 208,494 |
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Gross profit |
| 168,390 |
| 22,980 |
| 1,484 |
| — |
| 192,854 |
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Royalty revenue, net |
| — |
| — |
| 1,630 |
| (1,630 | )(6) | — |
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Selling, general and administrative expenses |
| 150,993 |
| 12,533 |
| 1,319 |
| 2,086 | (6)(7) | 166,931 |
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Income from operations |
| 17,397 |
| 10,447 |
| 1,795 |
| (3,716 | ) | 25,923 |
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Other (income) expense, net: |
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Interest income |
| (87 | ) | — |
| — |
| — |
| (87 | ) | |||||
Interest expense |
| (45 | ) | 212 |
| — |
| — |
| 167 |
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Other, net |
| (49 | ) | (47 | ) | 48 |
| — |
| (48 | ) | |||||
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| (181 | ) | 165 |
| 48 |
| — |
| 32 |
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Income before income taxes |
| 17,578 |
| 10,282 |
| 1,747 |
| (3,716 | ) | 25,891 |
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Income tax expense |
| 5,273 |
| 162 |
| — |
| 3,163 | (8) | 8,598 |
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Net income |
| 12,305 |
| 10,120 |
| 1,747 |
| (6,879 | ) | 17,293 |
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Net income attributable to noncontrolling interest |
| (466 | ) | — |
| — |
| — |
| (466 | ) | |||||
Net income attributable to Deckers Outdoor Corporation |
| $ | 11,839 |
| $ | 10,120 |
| $ | 1,747 |
| $ | (6,879 | ) | $ | 16,827 |
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Net income per share attributable to Deckers Outdoor Corporation common stockholders: |
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Basic |
| $ | 0.31 |
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| $ | 0.44 |
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Diluted |
| $ | 0.30 |
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| $ | 0.43 |
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Weighted-average common shares outstanding: |
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Basic |
| 38,640 |
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| 38,640 |
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Diluted |
| 39,304 |
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| 39,304 |
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See accompanying notes to the pro forma condensed consolidated financial information.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010
(unaudited)
(amounts in thousands, except per share data)
|
| Deckers |
| C&C |
| Sanuk USA |
| Pro forma |
| Deckers pro |
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Net sales |
| $ | 1,000,989 |
| $ | 42,342 |
| $ | 6,267 |
| (209 | )(5) | $ | 1,049,389 |
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Cost of sales |
| 498,051 |
| 17,829 |
| 4,402 |
| (209 | )(5) | 520,073 |
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Gross profit |
| 502,938 |
| 24,513 |
| 1,865 |
| — |
| 529,316 |
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Royalty revenue, net |
| — |
| — |
| 1,826 |
| (1,826 | )(6) | — |
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Selling, general and administrative expenses |
| 253,850 |
| 14,584 |
| 1,323 |
| 6,718 | (6)(7) | 276,475 |
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Income from operations |
| 249,088 |
| 9,929 |
| 2,368 |
| (8,544 | ) | 252,841 |
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Other (income) expense, net: |
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Interest income |
| (234 | ) | — |
| (1 | ) | — |
| (235 | ) | |||||
Interest expense |
| 566 |
| 432 |
| 2 |
| — |
| 1,000 |
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Other, net |
| (1,353 | ) | (17 | ) | 5 |
| — |
| (1,365 | ) | |||||
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| (1,021 | ) | 415 |
| 6 |
| — |
| (600 | ) | |||||
Income before income taxes |
| 250,109 |
| 9,514 |
| 2,362 |
| (8,544 | ) | 253,441 |
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Income taxes |
| 89,732 |
| 166 |
| — |
| 1,167 | (8) | 91,065 |
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Net income |
| 160,377 |
| 9,348 |
| 2,362 |
| (9,711 | ) | 162,376 |
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Net income attributable to noncontrolling interest |
| (2,142 | ) | — |
| — |
| — |
| (2,142 | ) | |||||
Net income attributable to Deckers Outdoor Corporation |
| $ | 158,235 |
| $ | 9,348 |
| $ | 2,362 |
| $ | (9,711 | ) | $ | 160,234 |
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Net income per share attributable to Deckers Outdoor Corporation common stockholders: |
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Basic |
| $ | 4.10 |
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| $ | 4.15 |
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Diluted |
| $ | 4.03 |
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| $ | 4.08 |
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Weighted-average common shares outstanding: |
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Basic |
| 38,615 |
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| 38,615 |
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Diluted |
| 39,292 |
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| 39,292 |
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See accompanying notes to the pro forma condensed consolidated financial information.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
(amounts in thousands)
1. Basis of presentation
On May 19, 2011, Deckers entered into an asset purchase agreement whereby it would acquire certain assets and liabilities of C&C and Sanuk USA. Certain identified assets and liabilities were excluded from the purchase. On July 1, 2011, Deckers completed the acquisition. The total purchase price was an initial cash payment of approximately $119,800, subject to certain post-closing adjustments. Subsequent to the close of the acquisition, the Company expects to make additional net payments totaling approximately $2,900 related to working capital adjustments. The purchase price also includes additional participation payments (contingent consideration) over the next five years as follows:
· 2011 earnings before interest, taxes, depreciation, and amortization (EBITDA) multiplied by ten, less the closing payment, up to maximum of $30,000;
· 51.8% of the gross profit in 2012, defined as total sales less the cost of sales for the business of the sellers;
· 36.0% of gross profit in 2013;
· 8.0% of the product of gross profit in 2015 multiplied by five.
There is no maximum to the contingent consideration payments for 2012, 2013, and 2015.
The unaudited pro forma condensed consolidated financial statements included herein assume that Deckers acquired these certain net assets of C&C and Sanuk USA. The accompanying pro forma condensed consolidated financial statements are based on preliminary estimates that may change based on revisions once the purchase price allocation is complete. This includes the determination of the fair value of the contingent consideration and identifiable intangible assets and resulting goodwill, which is pending a final valuation.
The following sets forth the adjustments contained in the unaudited pro forma condensed consolidated financial data:
(1) This entry reflects certain assets and liabilities of C&C and Sanuk USA that were excluded from the acquisition. The following table summarizes the assets and liabilities that were excluded and the net assets acquired:
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| C&C |
| Sanuk USA |
| Excluded |
| Net assets |
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Assets: |
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Cash and cash equivalents |
| $ | 2,076 |
| $ | 1,356 |
| $ | (3,432 | ) | $ | — |
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Trade accounts receivable, net of allowances |
| 11,452 |
| 2,161 |
| (804 | ) | 12,809 |
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Inventories |
| 7,121 |
| 424 |
| — |
| 7,545 |
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Prepaid expenses and other current assets |
| 332 |
| — |
| (194 | ) | 138 |
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Property and equipment, at cost, net |
| 300 |
| — |
| (71 | ) | 229 |
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Other assets |
| 102 |
| 1 |
| (103 | ) | — |
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| $ | 21,383 |
| $ | 3,942 |
| $ | (4,604 | ) | $ | 20,721 |
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Liabilities: |
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Trade accounts payable |
| $ | 5,937 |
| $ | 2,665 |
| (2,803 | ) | $ | 5,799 |
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Accrued payroll |
| 1,295 |
| — |
| (1,273 | ) | 22 |
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Other accrued expenses |
| 267 |
| — |
| (199 | ) | 68 |
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Accounts receivable financing obligation |
| 2,327 |
| — |
| (2,327 | ) | — |
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Payable to members |
| — |
| 108 |
| (108 | ) | — |
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Due to affiliated company |
| 1,090 |
| — |
| (1,090 | ) | — |
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Other current liabilites |
| — |
| 213 |
| (213 | ) | — |
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Long-term liabilities |
| 3,059 |
| — |
| (3,059 | ) | — |
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| $ | 13,975 |
| $ | 2,986 |
| $ | (11,072 | ) | $ | 5,889 |
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Net assets acquired |
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| $ | 14,832 |
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(2) This entry reflects the preliminary calculation of the fair value of consideration transferred, as follows:
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| Amount |
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Consideration |
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Cash paid |
| $ | 122,686 |
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Fair value of short-term contingent consideration |
| 30,000 |
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Fair value of long-term contingent consideration |
| 41,300 |
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| $ | 193,986 |
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The contingent consideration is the weighted-average fair value of the participation payments. The short-term contingent consideration is included in the pro forma adjustments for other accrued expenses and the long-term contingent consideration is included in the pro forma adjustments for long-term liabilities.
(3) This entry reflects the preliminary fair value of the intangible assets acquired and the goodwill resulting from the acquisition. The preliminary allocation of the consideration transferred to the net assets acquired is summarized as follows:
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| Amount |
| Estimated |
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Net assets acquired |
| $ | 14,832 |
| N/A |
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Identifiable intangible assets: |
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Trademarks |
| 47,200 |
| 20 |
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Customer relationships |
| 20,600 |
| 10 |
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International distributor relationships |
| 800 |
| 2 |
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Non-compete agreements |
| 5,300 |
| 5 |
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Patents |
| 6,600 |
| 14 |
| |
Order book |
| 1,830 |
| 1 |
| |
Goodwill |
| 96,824 |
| N/A |
| |
Total purchase price |
| $ | 193,986 |
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Deckers expects to amortize all identifiable intangible assets on a straight-line basis over the estimated useful lives indicated above except for customer relationships and order book. Deckers expects to amortize customer relationships utilizing an accelerated method which reflects the pattern in which the economic benefits of the intangible asset are expected to be consumed. Deckers expects to amortize the order book as sales are recognized, which are expected to occur within one year.
(4) This entry represents the elimination of the C&C and Sanuk USA equity.
(5) This entry represents the elimination of product sales from C&C to Sanuk USA.
(6) This entry represents the elimination of royalty payments from C&C to Sanuk USA of $1,630 and $1,826 for the six months ended June 30, 2011 and year ended December 31, 2010, respectively.
(7) This entry represents the pro forma amortization expense of $3,716 and $8,544 for the six months ended June 30, 2011 and year ended December 31, 2010, respectively, on the acquired intangibles. See discussion of estimated useful lives and amortization methods in note (3) above.
(8) This entry represents the pro forma tax adjustment based on a 40% statutory US tax rate, reduced by the provision recorded by C&C. As C&C and Sanuk USA were not directly taxable for income tax purposes, this entry includes the estimated tax impact on the pre-tax income of each entity, as well as the estimated tax impact of the pro forma adjustments.