Attached files
| file | filename |
|---|---|
| EX-23.1 - EX-23.1 - DECKERS OUTDOOR CORP | a11-26618_1ex23d1.htm |
| 8-K/A - 8-K/A - DECKERS OUTDOOR CORP | a11-26618_18ka.htm |
| EX-99.4 - EX-99.4 - DECKERS OUTDOOR CORP | a11-26618_1ex99d4.htm |
| EX-99.1 - EX-99.1 - DECKERS OUTDOOR CORP | a11-26618_1ex99d1.htm |
| EX-99.5 - EX-99.5 - DECKERS OUTDOOR CORP | a11-26618_1ex99d5.htm |
| EX-99.2 - EX-99.2 - DECKERS OUTDOOR CORP | a11-26618_1ex99d2.htm |
| EX-23.2 - EX-23.2 - DECKERS OUTDOOR CORP | a11-26618_1ex23d2.htm |
Exhibit 99.3
C&C PARTNERS, LTD.
(A California Subchapter S Corporation)
Condensed Financial Statements
June 30, 2011
(Unaudited)
C&C PARTNERS, LTD.
(A California Subchapter S Corporation)
Condensed Balance Sheet
June 30, 2011
(Unaudited)
|
Assets | ||||
|
Current assets: |
|
|
| |
|
Cash |
|
$ |
2,076,269 |
|
|
Accounts receivable, net of allowance for doubtful accounts and returns of approximately $1,130,000 (note 3) |
|
11,451,801 |
| |
|
Inventories |
|
7,120,958 |
| |
|
Prepaid expenses and other current assets |
|
332,401 |
| |
|
Total current assets |
|
20,981,429 |
| |
|
Property and equipment, net |
|
299,558 |
| |
|
Other assets |
|
101,630 |
| |
|
|
|
$ |
21,382,617 |
|
|
Liabilities and Stockholders’ Equity | ||||
|
Current liabilities: |
|
|
| |
|
Accounts payable |
|
$ |
5,936,862 |
|
|
Accrued expenses |
|
1,562,462 |
| |
|
Accounts receivable financing obligation (note 3) |
|
2,326,711 |
| |
|
Due to affiliated company (note 4) |
|
1,089,764 |
| |
|
Total current liabilities |
|
10,915,799 |
| |
|
Notes payable to stockholders (note 4) |
|
3,017,943 |
| |
|
Note payable to bank, net of current portion |
|
41,424 |
| |
|
Total liabilities |
|
13,975,166 |
| |
|
|
|
|
| |
|
Commitments and contingencies (note 5) |
|
|
| |
|
|
|
|
| |
|
Stockholder’s equity: |
|
|
| |
|
Common stock, no par value. Authorized 100,000 shares; issued and outstanding 20,000 shares |
|
1,805,814 |
| |
|
Retained earnings |
|
5,601,637 |
| |
|
Total stockholders’ equity |
|
7,407,451 |
| |
|
|
|
$ |
21,382,617 |
|
See accompanying notes to financial statements.
C&C PARTNERS, LTD.
(A California Subchapter S Corporation)
Condensed Statements of Income
Six Months Ended June 30, 2011 and 2010
(Unaudited)
|
|
|
2011 |
|
2010 |
| ||
|
Net sales |
|
$ |
38,398,689 |
|
$ |
24,115,848 |
|
|
Cost of sales |
|
15,419,014 |
|
9,570,820 |
| ||
|
Gross profit |
|
22,979,675 |
|
14,545,028 |
| ||
|
Operating expenses |
|
12,532,647 |
|
6,889,093 |
| ||
|
Income from operations |
|
10,447,028 |
|
7,655,935 |
| ||
|
Other expense (income): |
|
|
|
|
| ||
|
Interest expense |
|
211,855 |
|
251,967 |
| ||
|
Other, net |
|
(46,610 |
) |
(102,467 |
) | ||
|
Total other expense (income) |
|
165,245 |
|
149,500 |
| ||
|
Income before provision for taxes |
|
10,281,783 |
|
7,506,435 |
| ||
|
Provision for taxes |
|
162,000 |
|
85,000 |
| ||
|
Net income |
|
$ |
10,119,783 |
|
$ |
7,421,435 |
|
See accompanying notes to financial statements.
C&C PARTNERS, LTD.
(A California Subchapter S Corporation)
Condensed Statements of Stockholders’ Equity
Six Months Ended June 30, 2011 and 2010
(Unaudited)
|
|
|
|
|
|
|
Retained |
|
|
| |||
|
|
|
|
|
|
|
earnings |
|
Total |
| |||
|
|
|
Common stock |
|
(Accumulated |
|
stockholders’ |
| |||||
|
|
|
Shares |
|
Amount |
|
deficit) |
|
equity |
| |||
|
Balance, December 31, 2009 |
|
20,000 |
|
$ |
1,805,814 |
|
$ |
(2,933,547 |
) |
$ |
(1,127,733 |
) |
|
Net income |
|
— |
|
— |
|
7,421,435 |
|
7,421,435 |
| |||
|
Distributions |
|
— |
|
— |
|
(4,451,889 |
) |
(4,451,889 |
) | |||
|
Balance, June 30, 2010 |
|
20,000 |
|
$ |
1,805,814 |
|
$ |
35,999 |
|
$ |
1,841,813 |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Balance, December 31, 2010 |
|
20,000 |
|
$ |
1,805,814 |
|
$ |
(555,757 |
) |
$ |
1,250,057 |
|
|
Net income |
|
— |
|
— |
|
10,119,783 |
|
10,119,783 |
| |||
|
Distributions |
|
— |
|
— |
|
(3,962,389 |
) |
(3,962,389 |
) | |||
|
Balance, June 30, 2011 |
|
20,000 |
|
$ |
1,805,814 |
|
$ |
5,601,637 |
|
$ |
7,407,451 |
|
See accompanying notes to financial statements.
C&C PARTNERS, LTD.
(A California Subchapter S Corporation)
Condensed Statements of Cash Flows
Six Months Ended June 30, 2011 and 2010
(Unaudited)
|
|
|
2011 |
|
2010 |
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
10,119,783 |
|
$ |
7,421,435 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization of plant and equipment |
|
75,931 |
|
72,693 |
| ||
|
Provision for allowance for doubtful accounts and returns |
|
605,785 |
|
482,317 |
| ||
|
Provision for excess and obsolete inventory |
|
78,311 |
|
95,708 |
| ||
|
Changes in: |
|
|
|
|
| ||
|
Accounts receivable |
|
(7,201,602 |
) |
(5,326,034 |
) | ||
|
Inventories |
|
1,765,122 |
|
1,956,782 |
| ||
|
Prepaid expenses and other current assets |
|
(91,494 |
) |
321,348 |
| ||
|
Accounts payable and accrued expenses |
|
(60,343 |
) |
(1,424,309 |
) | ||
|
Net cash provided by operating activities |
|
5,291,493 |
|
3,599,940 |
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Purchases of property and equipment |
|
(19,040 |
) |
(28,977 |
) | ||
|
Decrease in notes receivable |
|
— |
|
57,893 |
| ||
|
Net cash (used in) provided by investing activities |
|
(19,040 |
) |
28,916 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Net increase in accounts receivable financing obligation |
|
401,087 |
|
922,060 |
| ||
|
Principal payments on notes payable to bank |
|
(10,178 |
) |
(9,482 |
) | ||
|
Distributions |
|
(3,962,389 |
) |
(4,451,889 |
) | ||
|
Net cash used in financing activities |
|
(3,571,480 |
) |
(3,539,311 |
) | ||
|
Net increase in cash |
|
1,700,973 |
|
89,545 |
| ||
|
Cash, beginning of period |
|
375,296 |
|
372,236 |
| ||
|
Cash, end of period |
|
$ |
2,076,269 |
|
$ |
461,781 |
|
|
|
|
|
|
|
| ||
|
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
|
Cash paid for interest |
|
$ |
211,855 |
|
$ |
251,967 |
|
|
Cash paid for taxes |
|
$ |
— |
|
$ |
85,000 |
|
See accompanying notes to financial statements.
C&C PARTNERS, LTD.
Notes to Condensed Financial Statements
June 30, 2011
(unaudited)
(1) Description of Business
C&C Partners, Ltd. (the Company) is a Subchapter S Corporation under the laws of the State of California that designs, produces, markets, and distributes men’s, women’s, and children’s footwear and accessories bearing the “Sanuk” tradename. The Company sells its products to customers throughout the United States and its territories, and to foreign distributors located in Canada and various European countries. The Company obtained certain rights to the “Sanuk” tradename pursuant to the terms of a licensing agreement, which expires on December 31, 2019.The unaudited interim financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments necessary for a fair presentation for the period presented. The Company’s business is seasonal, with the highest percentage of net sales occurring in the first half of the year. The results of operations for interim periods are not necessarily indicative of results that may be achieved in full fiscal years.
The accompanying condensed financial statements and related footnotes are condensed and do not contain certain information that is included in the Company’s annual financial statements and footnotes thereto. For further information, refer to the financial statements and related footnotes for the year ended December 31, 2010.
On May 19, 2011, the stockholders of the Company and the owners of the “Sanuk” brand licensor entered into an Asset Purchase Agreement with Deckers Outdoor Corporation (Deckers). This agreement called for Deckers to purchase substantially all of the assets and assume substantially all of the liabilities of the Company and the “Sanuk” brand licensor (collectively, the “Sanuk” companies). On July 1, 2011, the “Sanuk” companies and Deckers entered into Amendment No. 1 to Asset Purchase Agreement and completed the sales transaction. The purchase price paid by Deckers upon the close of the transaction included an initial cash payment to the “Sanuk” companies of approximately $119,800,000, subject to certain post-closing adjustments. Deckers expects to make estimated net payments totaling approximately $2,900,000 related to working capital adjustments. The purchase price also includes additional participation payments (contingent consideration) based upon performance of the “Sanuk” brand over the next five years as follows:
· 2011 earnings before interest, taxes, depreciation and amortization multiplied by ten, less the closing payment, up to a maximum of $30,000,000;
· 51.8% of the gross profit in 2012, defined as total sales less the cost of sales for the business of the “Sanuk” companies;
· 36.0% of gross profit in 2013;
· 8.0% of the product of gross profit in 2015 multiplied by five.
(2) Significant Risk and Uncertainties, Including Business Concentrations
The Company’s success is largely dependent upon its ability to gauge the fashion tastes of its targeted consumers and provide merchandise that satisfies consumer demand. Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect on the Company’s business, operating results, and financial condition.
The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations; customs, duties, and related fees; various import controls and other nontariff barriers; restrictions on the transfer of funds; strikes and labor unrest; and social, economic, climatic, or political instability.
The Company’s production is concentrated at a limited number of independent contractor factories in China. During the six months ended June 30, 2011 and 2010, the Company primarily worked with two independent agents who coordinated production at and payments to the various factories. Inventory purchases made from the primary agent comprised approximately 87% of total purchases for the six months ended June 30, 2011. At June 30, 2011, amounts due to the primary agent totaled approximately $1,934,000 and are included in accounts payable. Inventory purchases for the two agents comprised approximately 64% and 21% of total purchases, respectively, for the six months ended June 30, 2010. The Company also uses a third-party logistics company to import goods procured from the primary agent. Amounts paid to this company for customs, duty, freight, and related fees totaled approximately 10% and 11% of total inventory purchases for the six months ended June 30, 2011 and 2010, respectively. Amounts due to this company at June 30, 2011 totaled approximately $164,000 and are included in accounts payable.
(3) Factoring Agreement
The Company has a factoring agreement with CIT Commercial Services (CIT) to sell to CIT all of the Company’s eligible accounts receivable at the gross amount of such receivables, less any discounts and allowances. The factoring agreement may be terminated by either party by giving written notice of no less than 60 days. CIT is responsible for the servicing and administration of the accounts receivables purchased. Receivables assigned to CIT are generally nonrecourse; however, at the Company’s request, CIT does purchase certain receivables with recourse, which may be subject to additional fees. All purchased receivables are subject to full recourse to the Company in the event of nonpayment by the customer due to any reason other than credit risk. Open receivables purchased by CIT with recourse totaled approximately $1,883,000 at June 30, 2011 and are included in accounts receivable. Open receivables purchased by CIT without recourse totaled approximately $11,589,000 at June 30, 2011 and are included in accounts receivable.
CIT may, at the Company’s request, make advances to the Company against purchased accounts receivable, subject to any reserves deemed necessary by CIT as security for payment and performance of any and all of the Company’s obligations. For the six months ended June 30, 2011 and 2010, up to 90% of the value of purchased accounts receivable was available for advances. The Company may also borrow up to $2,500,000 against eligible inventory. The Company granted CIT a lien on and security interest in substantially all of its assets.
The interest rate charged by CIT on advances or borrowings is equal to the Chase Prime Rate, as defined in the factoring agreement, which was 3.25% at June 30, 2011 and 2010. Prior to May 1, 2010, the interest rate charged by CIT on advances and borrowings was the Chase Prime Rate (as defined) plus 1.00%. The Company also pays to CIT a factoring fee equal to 0.50% of purchased accounts receivable. Prior to May 1, 2010, the factoring fee charged by CIT was equal to 0.75% of purchased accounts receivable.
The Company accounts for the sale of accounts receivable under the CIT factoring agreement as a secured borrowing with a pledge of the subject receivables as collateral, in accordance with Accounting Standards Codification 860, Transfers and Servicing.
(4) Transactions with Related Parties
Unsecured notes payable to stockholders are due 13 months from demand, with interest ranging from 10.85% to 10.98%. Principal balances totaling $3,017,943 are subordinated to the interest of the factor. As of June 30, 2011, no demand for payment had been made by the stockholders. Included in interest expense
is approximately $168,000 related to notes payable to stockholders for each of the six months ended June 30, 2011 and 2010, respectively.
The Company provides distribution and various administrative services to, and shares office and warehouse space with, a company related through common ownership. Revenue generated from these services is recognized in the period services are provided. The Company also bills this related party for its portion of shared expenses, such as rent, property taxes, and insurance, and expenses paid by the Company on behalf of the related party. Services fees are included in operating expenses and totaled approximately $194,000 and $157,000 for the six months ended June 30, 2011 and 2010, respectively. Amounts due from this related party totaled approximately $108,000 as of June 30, 2011 and are included in prepaid expenses and other current assets.
Certain order entry and reporting software utilized by the Company is owned by a company related through common ownership. Maintenance fees to this related party totaled approximately $5,000 for the six months ended June 30, 2011. Included in property and equipment at June 30, 2011 was approximately $9,000 related to an ongoing project being developed for the Company by this related party.
Amount due to affiliated company relates to amounts paid to suppliers on behalf of the Company by a company under common ownership. There were no payments made to suppliers on behalf of the Company during the six months ended June 30, 2011 and 2010. Amounts due to the affiliated company totaled approximately $1,090,000 at June 30, 2011.
(5) Commitments and Contingencies
(a) Licensing Agreement
The Company pays royalties on “Sanuk” brand sales at percentages ranging from 2% to 5%. In addition, the Company is required to spend a minimum amount on advertising for, and marketing and promoting of, the “Sanuk” brand, based on a percentage of net sales. Any amounts spent on advertising, marketing, and promotion in excess of the required amount are shared equally by the Company and the “Sanuk” brand licensor. For the six months ended June 30, 2011 and 2010, royalty expenses related to the “Sanuk” brand license totaled approximately $1,916,000 and $1,236,000, respectively, and are included in operating expenses. Net payments received or accrued from the licensor for its share of advertising, marketing, and promotion costs totaled approximately $322,000 and $250,000 for the six months ended June 30, 2011 and 2010, respectively, and are included in operating expenses. The Company has entered into an employment agreement with an owner of the licensor to provide design and brand management services. The licensing agreement expires on December 31, 2019.
(b) Litigation
On April 20, 2011, the Company filed a complaint against a former Canadian distributor for breach of contract and declaratory relief. On June 17, 2011, the former Canadian distributor filed their answer and counterclaimed for breach of contract relating to the Company’s termination of its relationship. In the opinion of management, the resolution of this matter will not have a material adverse effect on the Company’s financial position or results of operations; however, the range of possible loss is $0 to $540,000.
(6) Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through September 16, 2011, the date at which the unaudited financial statements were available to be issued, and determined there are no other subsequent events to disclose.