EX-99.3 8 v87441a1exv99w3.txt EXHIBIT 99.3 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).