EX-99.3
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
On November 25, 2002, Deckers Outdoor Corporation (the "Company") completed an
acquisition (the "Acquisition") of the worldwide Teva patents, trademarks and
other assets (the "Acquired Assets") from Mark Thatcher, the Company's former
licensor and the inventor of the Teva patents. As a result of the Acquisition,
the Company now owns all of the Teva worldwide assets including all patents,
tradenames, trademarks and all other intellectual property, as well as Teva's
existing catalog and internet retailing business, which includes the operations
of Teva Sport Sandals, Inc. (the "Acquired Business").
The following unaudited pro forma condensed consolidated balance sheet assumes
the acquisition of the Acquired Business occurred on September 30, 2002. The
unaudited pro forma condensed consolidated statements of operations show the
results of operations for the year ended December 31, 2001 and for the nine
months ended September 30, 2002 as if the acquisition had occurred on January 1,
2001. See Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements. The unaudited pro forma condensed consolidated balance sheet as of
September 30, 2002 includes the consolidated balance sheet of the Company as of
September 30, 2002 and the balance sheet of the Acquired Business as of November
25, 2002. The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 2001 includes the consolidated statement of
operations for the Company and for the Acquired Business both for the year ended
December 31, 2001. The unaudited pro forma condensed consolidated statement of
operations for the nine months ended September 30, 2002 includes the
consolidated statement of operations for the Company and for the Acquired
Business both for the nine months ended September 30, 2002.
The unaudited pro forma condensed consolidated financial statements may not be
indicative of either what the consolidated operations and financial position
would have been had the Company had control of the Acquired Business's assets as
of January 1, 2001 or the future results of operations of the consolidated
companies.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheets
September 30, 2002
(Unaudited)
DECKERS TEVA SPORT
OUTDOOR SANDALS, PRO FORMA PRO FORMA
CORPORATION INC. ADJUSTMENTS CONSOLIDATED
----------- ---- ----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 20,491,000 -- (11,555,000)(1) 8,936,000
Trade accounts receivable, net 15,783,000 6,000 11,000(1) 15,800,000
Inventories 18,058,000 391,000 18,449,000
Prepaid expenses and other current assets 1,283,000 32,000 1,315,000
Refundable and deferred tax assets 4,070,000 -- 4,070,000
------------ ------- ---------- -----------
Total current assets 59,685,000 429,000 (11,544,000) 48,570,000
Property and equipment, at cost, net 3,592,000 88,000 3,680,000
Trademarks, net 118,000 -- 51,000,000(1) 51,118,000
Goodwill, net 6,782,000 -- 11,329,000(1) 18,111,000
Other intangible assets, net 2,269,000 -- (477,000)(1) 1,792,000
Other assets, net 448,000 -- 1,344,000(1) 1,792,000
------------ ------- ---------- -----------
$ 72,894,000 517,000 51,652,000 125,063,000
============ ======= ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current installments
of long-term debt $ 156,000 -- 156,000
Trade accounts payable 6,897,000 50,000 (50,000)(1) 6,897,000
Accrued expenses 7,864,000 72,000 7,936,000
------------ ------- ---------- -----------
Total current liabilities 14,917,000 122,000 (50,000) 14,989,000
------------ ------- ---------- -----------
Long-term debt, less current installments 41,000 46,042,000(1) 46,083,000
Stockholders' equity:
Preferred stock -- -- 5,500,000(1) 5,500,000
Common stock 93,000 -- 1,000(1) 94,000
Additional paid-in capital 25,486,000 395,000 159,000(1) 26,040,000
Retained earnings 32,535,000 -- 32,535,000
Accumulated other comprehensive income (178,000) -- (178,000)
------------ ------- ---------- -----------
Total stockholders' equity 57,936,000 395,000 5,660,000 63,991,000
------------ ------- ---------- -----------
$ 72,894,000 517,000 51,652,000 125,063,000
============ ======= ========== ===========
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2001
(Unaudited)
DECKERS
OUTDOOR TEVA SPORT PRO FORMA PRO FORMA
CORPORATION SANDALS, INC. ADJUSTMENTS CONSOLIDATED
----------- ------------- ----------- ------------
Net sales $ 91,461,000 5,025,000 (2,927,000)(2) 93,559,000
Cost of sales 52,903,000 1,916,000 (1,609,000)(2) 53,210,000
------------ --------- ---------- ----------
Gross profit 38,558,000 3,109,000 (1,318,000) 40,349,000
Selling, general and administrative
expenses 34,040,000 2,263,000 (5,344,000)(3) 30,959,000
Litigation costs 2,180,000 -- -- 2,180,000
------------ --------- ---------- ----------
Income from operations 2,338,000 846,000 4,026,000 7,210,000
Other expense (income):
Interest, net (308,000) (34,000) 5,342,000(4) 5,000,000
Other (165,000) -- -- (165,000)
------------ --------- ---------- ----------
Income before income taxes 2,811,000 880,000 (1,316,000) 2,375,000
Income taxes 1,185,000 -- (184,000)(5) 1,001,000
------------ --------- ---------- ----------
Net income $ 1,626,000 880,000 (1,132,000) 1,374,000
============ ========= ========== ==========
Net income per share:
Basic $ 0.18 0.15
Diluted 0.17 0.12
============ ==========
Weighted-average shares:
Basic 9,247,000 9,347,000(6)
Diluted 9,661,000 11,299,000(6)
============ ==========
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
Nine months ended September 30, 2002
(Unaudited)
DECKERS
OUTDOOR TEVA SPORT PRO FORMA PRO FORMA
CORPORATION SANDALS, INC. ADJUSTMENTS CONSOLIDATED
----------- ------------- ----------- ------------
Net sales $ 73,355,000 4,774,000 (2,961,000)(2) 75,168,000
Cost of sales 41,472,000 1,798,000 (1,643,000)(2) 41,627,000
------------ --------- ---------- ----------
Gross profit 31,883,000 2,976,000 (1,318,000) 33,541,000
Selling, general and administrative
expenses 27,856,000 2,221,000 (4,603,000)(3) 25,474,000
Litigation costs 3,518,000 -- -- 3,518,000
------------ --------- ---------- ----------
Income from operations 509,000 755,000 3,285,000 4,549,000
Other expense (income):
Interest, net (58,000) (47,000) 3,912,000(4) 3,807,000
Other 73,000 -- -- 73,000
------------ --------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
change 494,000 802,000 (627,000) 669,000
Income taxes 237,000 -- 84,000(5) 321,000
------------ --------- ---------- ----------
Income before cumulative effect of
accounting change 257,000 802,000 (711,000) 348,000
Cumulative effect of accounting change,
net of $843,000 income tax benefit (8,973,000) -- -- (8,973,000)
------------ --------- ---------- ----------
Net income (loss) $ (8,716,000) 802,000 (711,000) (8,625,000)
============ ========= ========== ==========
(Continued)
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations, Continued
Nine months ended September 30, 2002
(Unaudited)
DECKERS
OUTDOOR TEVA SPORT PRO FORMA PRO FORMA
CORPORATION SANDALS, INC. ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
Basic income per common share before
cumulative effect of accounting
change $ 0.03 0.04
Cumulative effect of accounting change (0.97) (0.96)
------------- ----------
Basic loss per common share $ (0.94) (0.92)
============= ==========
Average basic common shares 9,307,000 9,407,000(6)
============= ==========
Diluted income per common share before
cumulative effect of accounting
change $ 0.03 0.03
Cumulative effect of accounting change
(0.93) (0.80)
------------- ----------
Diluted loss per common share $ (0.90) (0.77)
============= ==========
Average diluted common shares 9,642,000 11,271,000(6)
============= ==========
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
The unaudited pro forma condensed consolidated balance sheet as of September 30,
2002 includes the consolidated balance sheet of Deckers Outdoor Corporation
("the Company") as of September 30, 2002 and the balance sheet of Teva Sport
Sandals, Inc. ("the Acquired Business") as of November 25, 2002 on a historical
cost basis. The unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 2001 includes the consolidated
statement of operations for the Company and for the Acquired Business both for
the year ended December 31, 2001 on a historical cost basis. The unaudited pro
forma condensed consolidated statement of operations for the nine months ended
September 30, 2002 includes the consolidated statement of operations for the
Company and for the Acquired Business both for the nine months ended September
30, 2002 on a historical cost basis. Pro forma adjustments to reflect the impact
of applying purchase accounting to the historical basis of the assets acquired
and liabilities assumed and their pro forma impact on the results of operations
are presented below. The allocation of the purchase price is preliminary and is
subject to revision based upon the completion of fair value evaluations
including the allocation to identifiable intangibles and goodwill.
(1) Recognizes the acquisition of Teva by the Company for cash consideration
of $43,000,000 and the issuance of a subordinated note to Mr. Thatcher of
$13,000,000, preferred stock of $5,500,000, 100,000 shares of common stock
valued at $367,000 and 100,000 stock options valued at $187,000. The cash
consideration was financed through the use of existing cash on hand,
$12,042,000 from the Company's revolving line of credit, $7,000,000 of
senior debt provided by Comerica Bank and the issuance of $14,000,000 of
senior subordinated notes to an unaffiliated third party.
DEBIT (CREDIT)
---------------------------------------------------
ELIMINATE NET
RECORD PURCHASE INTERCOMPANY PRO FORMA
TRANSACTION AMOUNTS ADJUSTMENTS
----------- ------- -----------
Cash $(11,555,000) (11,555,000)
Trade accounts receivable, net 456,000 (445,000) 11,000
Trademarks 51,000,000 51,000,000
Goodwill 11,329,000 11,329,000
Other intangible assets (477,000) (477,000)
Other assets 1,344,000 1,344,000
Trade accounts payable -- 50,000 50,000
Long-term debt (46,042,000) (46,042,000)
Preferred stock (5,500,000) (5,500,000)
Common stock (1,000) (1,000)
Additional paid-in capital (554,000) 395,000 (159,000)
------------ ------------ ------------
-- -- --
------------ ------------ ------------
(2) Eliminates sales from the Company to the Acquired Business as well as the
management fee paid to the Acquired Business by Mr. Thatcher during the
respective periods reported.
TWELVE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
Intercompany sales to Acquired Business $1,609,000 1,643,000
Management fee 1,318,000 1,318,000
---------- ---------
Total pro forma adjustments to sales $2,927,000 2,961,000
========== =========
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(3) Eliminates royalty payments made to Mr. Thatcher during the reporting
periods, reverses contractual marketing costs that the Company was
required to spend under the licensing agreement, reverses amortization
expensed for the Teva license agreement and extensions and records
amortization on new patents, trademarks and copyrights acquired in the
Acquisition.
TWELVE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2001 2002
---- ----
Royalty expense $(4,194,000) (3,621,000)
Contractual marketing costs (207,000) (256,000)
Prior amortization on license fees and extension payments (1,190,000) (893,000)
Additional amortization related to purchase agreement 247,000 167,000
----------- ----------
Total pro forma adjustments to selling, general
and administrative expenses $(5,344,000) (4,603,000)
=========== ==========
(4) Eliminates prior interest income on excess cash balances during the
reporting periods and records interest expense on new debt instruments, as
referred to in Note 1 above.
(5) Adjusts income taxes to the Company's tax rate for the period reported,
which were 42.2% and 48.0% for the twelve months ended December 31, 2001
and for the nine months ended September 30, 2002, respectively.
(6) Average basic common shares includes 100,000 shares of common stock issued
to Mr. Thatcher in connection with the acquisition. Average diluted common
shares also includes the potential dilutive impact of the conversion of
the preferred stock (1,514,317 shares) and the impact of the 100,000 stock
options, using the treasury stock method of accounting (23,537 and 16,410
shares for the twelve months ended December 31, 2001 and for the nine
months ended September 30, 2002, respectively).