0001104659-11-052335.txt : 20110919 0001104659-11-052335.hdr.sgml : 20110919 20110919164549 ACCESSION NUMBER: 0001104659-11-052335 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20110701 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20110919 DATE AS OF CHANGE: 20110919 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECKERS OUTDOOR CORP CENTRAL INDEX KEY: 0000910521 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 953015862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22446 FILM NUMBER: 111097681 BUSINESS ADDRESS: STREET 1: 495A SOUTH FAIRVIEW AVENUE CITY: GOLETA STATE: CA ZIP: 93117 BUSINESS PHONE: 8059677611 MAIL ADDRESS: STREET 1: 495-A S FAIRVIEW AVE CITY: GOLETA STATE: CA ZIP: 93117 FORMER COMPANY: FORMER CONFORMED NAME: DECKERS FOOTWEAR CORP DATE OF NAME CHANGE: 19930811 8-K/A 1 a11-26618_18ka.htm 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 1, 2011

DECKERS OUTDOOR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

0-22446

95-3015862

(State or other jurisdiction of
Incorporation)

(Commission File Number)

(I.R.S. Employer

Identification No.)

495A South Fairview Avenue, Goleta, California 93117

(Address of principal executive offices) (Zip Code)

(805) 967-7611

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Amendment No. 1 to Form 8-K (this “Amendment”) is being filed to amend Item 9.01 of the Current Report on Form 8-K filed by Deckers Outdoor Corporation (“Deckers”), on July 6, 2011 (the “July Form 8-K”). This Amendment provides the historical financial statements of the businesses acquired as required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b), which financial statements and information were not included in the July Form 8-K. No other modification to the July Form 8-K is being made by this Amendment.

Deckers reported under Item 2.01 of the July Form 8-K that on July 1, 2011 it completed its previously announced acquisition (the “Acquisition”) of the Purchased Assets and the assumption of the Assumed Liabilities of Sanuk USA, LLC (“Sanuk”) and C&C Partners, Ltd. (“C&C”). The Acquisition was made pursuant to an Asset Purchase Agreement entered into as of May 19, 2011, as amended (the “Purchase Agreement”) by and among Deckers, Deckers Acquisition, Inc., Deckers International Limited, Sanuk, the equity holders of Sanuk, Thomas J. Kelley and Ian L. Kessler, C&C, and the shareholders of C&C, Donald A. Clark and Paul Carr.

The foregoing description of the transactions consummated pursuant to the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, which was filed as Exhibit 2.1 to the Deckers’ Current Report on Form 8-K, filed May 19, 2011, and Amendment No. 1 to the Purchase Agreement, which was filed as Exhibit 10.1 to the July Form 8-K, and each of which are incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited financial statements of C&C as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon is attached as Exhibit 99.1 to this Amendment and is incorporated herein by reference.

The audited financial statements of Sanuk as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon is attached as Exhibit 99.2 to this Amendment and is incorporated herein by reference.

The unaudited condensed financial statements of C&C as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010 are attached as Exhibit 99.3 to this Amendment and are incorporated herein by reference.

The unaudited condensed financial statements of Sanuk as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010 are attached as Exhibit 99.4 to this Amendment and are incorporated herein by reference.

(b) Pro Forma Financial Information.

Unaudited pro forma condensed consolidated financial statements as of June 30, 2011 and for the six months ended June 30, 2011 and year ended December 31, 2010 are attached as Exhibit 99.5 to this Amendment and are incorporated herein by reference.

(d) Exhibits.

The following exhibits are attached to this Current Report on Form 8-K:

Exhibit No.		Description
23.1		Consent of Independent Registered Public Accounting Firm.
23.2		Consent of Independent Registered Public Accounting Firm.
99.1		Audited financial statements of C&C as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon.
99.2		Audited financial statements of Sanuk as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon.
99.3		Unaudited condensed financial statements of C&C as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010.
99.4		Unaudited condensed financial statements of Sanuk as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010.
99.5		Unaudited pro forma condensed consolidated financial statements as of June 30, 2011 and for the six months ended June 30, 2011 and year ended December 31, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DECKERS OUTDOOR CORPORATION


Date: September 19, 2011
	By:	/s/ Thomas A. George
	Name:	Thomas A. George
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
23.1		Consent of Independent Registered Public Accounting Firm.
23.2		Consent of Independent Registered Public Accounting Firm.
99.1		Audited financial statements of C&C as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon.
99.2		Audited financial statements of Sanuk as of and for the year ended December 31, 2010 and Independent Auditors’ Report thereon.
99.3		Unaudited condensed financial statements of C&C as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010.
99.4		Unaudited condensed financial statements of Sanuk as of June 30, 2011 and for the six months ended June 30, 2011 and June 30, 2010.
99.5		Unaudited pro forma condensed consolidated financial statements as of June 30, 2011 and for the six months ended June 30, 2011 and year ended December 31, 2010.

EX-23.1 2 a11-26618_1ex23d1.htm EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Deckers Outdoor Corporation:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-113237 and 333-120717) and Form S-8 (Nos. 333-139874, 333-82538, and 333-47097) of Deckers Outdoor Corporation of our report dated June 30, 2011, with respect to the balance sheet of C&C Partners, Ltd. as of December 31, 2010, and the related statements of income, stockholders’ equity, and cash flows for the year then ended, which report appears in Amendment No. 1 to Form 8-K of Deckers Outdoor Corporation dated July 1, 2011.

/s/ KPMG LLP

Los Angeles, California

September 16, 2011

EX-23.2 3 a11-26618_1ex23d2.htm EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Deckers Outdoor Corporation:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-113237 and 333-120717) and Form S-8 (Nos. 333-139874, 333-82538, and 333-47097) of Deckers Outdoor Corporation of our report dated August 11, 2011, with respect to the balance sheet of Sanuk U.S.A., LLC as of December 31, 2010, and the related statements of income, Members’ equity, and cash flows for the year then ended, which report appears in Amendment No. 1 to Form 8-K of Deckers Outdoor Corporation dated July 1, 2011.

/s/ KPMG LLP

Los Angeles, California

September 16, 2011

EX-99.1 4 a11-26618_1ex99d1.htm EX-99.1

Exhibit 99.1

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Financial Statements

December 31, 2010

(With Independent Auditors’ Report Thereon)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Table of Contents

	Page

Independent Auditors’ Report	1

Financial Statements:

Balance Sheet	2

Statement of Income	3

Statement of Stockholders’ Equity	4

Statement of Cash Flows	5

Notes to Financial Statements	6

Independent Auditors’ Report

The Board of Directors
C&C Partners, Ltd.:
(A California Subchapter S Corporation)

We have audited the accompanying balance sheet of C&C Partners, Ltd. (the Company) as of December 31, 2010, and the related statements of income, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of C&C Partners, Ltd. as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Los Angeles, California

June 30, 2011

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Balance Sheet

December 31, 2010

Assets
Current assets:
Cash	$	375,296
Accounts and other receivables, net of allowance for doubtful accounts and returns of approximately $751,000 (note 3)	4,871,432
Due from related parties (note 7)	40,496
Inventories (note 4)	8,964,391
Prepaid expenses	184,391
Total current assets	14,436,006
Property and equipment, net (note 5)	356,449
Other assets	102,202
	$	14,894,657
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,687,720
Accrued expenses	840,480
Accounts receivable financing obligation (note 3)	1,925,624
Current portion of note payable to bank (note 6)	20,722
Income taxes payable	10,000
Due to affiliated company (note 7)	1,089,764
Total current liabilities	10,574,310
Notes payable to stockholders (note 7)	3,017,943
Note payable to bank, net of current portion (note 6)	52,347
Total liabilities	13,644,600
Commitments and contingencies (note 8)
Stockholder’s equity:
Common stock, no par value. Authorized 100,000 shares; issued and outstanding 20,000 shares	1,805,814
Accumulated deficit	(555,757		)
Total stockholders’ equity	1,250,057
	$	14,894,657

See accompanying notes to financial statements.

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Statement of Income

Year ended December 31, 2010

	Amount
Net sales	$	42,341,981
Cost of sales	17,829,188
Gross profit	24,512,793
Operating expenses	14,584,034
Income from operations	9,928,759
Other expense (income):
Interest expense	431,990
Other, net	(17,220		)
Total other expense (income)	414,770
Income before provision for taxes	9,513,989
Provision for taxes	166,000
Net income	$	9,347,989

See accompanying notes to financial statements.

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Statement of Stockholders’ Equity

Year ended December 31, 2010

						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	—	—		9,347,989		9,347,989
Distributions	—	—		(6,970,199	)	(6,970,199	)
Balance, December 31, 2010	20,000	$	1,805,814	(555,757	)	1,250,057

See accompanying notes to financial statements.

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Statement of Cash Flows

Year ended December 31, 2010

Cash flows from operating activities:
Net income	$	9,347,989
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of plant and equipment	149,569
Provision for allowance for doubtful accounts and returns	2,309,873
Provision for excess and obsolete inventory	68,996
Loss on disposal of property and equipment	3,073
Changes in:
Accounts and other receivables	(3,823,555		)
Due from related party	66,837
Inventories	(3,817,530		)
Prepaid expenses	33,030
Other assets	90,588
Accounts payable and accrued expenses	3,297,985
Net cash provided by operating activities	7,726,855
Cash flows from investing activities:
Repayment of note receivable	57,893
Purchases of property and equipment	(64,540		)
Net cash used in investing activities	(6,647		)
Cash flows from financing activities:
Net decrease in accounts receivable financing obligation	(727,642		)
Principal payments on notes payable to bank	(19,307		)
Distributions	(6,970,199		)
Net cash used in financing activities	(7,717,148		)
Net increase in cash	3,060
Cash, beginning of year	372,236
Cash, end of year	$	375,296
Supplemental disclosure of cash flow information:
Cash paid for interest during the year was $342,478
Cash paid for income taxes during the year was $175,000

See accompanying notes to financial statements.

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

(1) Summary of Significant Accounting Policies

(a) Description of Business

(b) Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowances for doubtful accounts and sales returns; and the valuation of fixed assets and inventory.

(c) Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. There were no cash equivalents at December 31, 2010.

(d) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and generally do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the statement of cash flows.

(e) Concentrations of Credit Risk

The Company is subject to significant concentrations of credit risk, primarily from amounts due from factor, accounts receivable, and cash. At December 31, 2010, the Company’s cash was held at a third-party financial institution located in the United States. At December 31, 2010 and at various times throughout the year then ended, the Company had bank deposits that exceeded Federal Deposit Insurance Corporation insurance limits. The Company did not experience any losses or lack of access to its cash during the year ended December 31, 2010.

The Company assigns most of its account receivables to a third-party factor, who assumes the credit risk with respect to the collection of nonrecourse amounts. The factor evaluates each customer in determining credit limits. Sales shipped in excess of these credit limits or to customers who do not meet certain factor credit criteria may be assigned to the factor with recourse.

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and the customer’s current creditworthiness. The Company maintains an allowance

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments. An estimate of uncollectible amounts is made by management based on historical bad debts, current customer receivable balances, the customer’s financial condition, and current economic trends, all of which are subject to change. The Company does not have any off-balance-sheet credit exposure related to its customers. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables were proven unsuccessful.

(f) Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO).

(g) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation of property and equipment is calculated using the straight-line method over estimated useful lives of the assets, which range from two to five years. Amortization of leasehold improvements is calculated using the straight-line method over the lesser of the term of the related lease or the estimated useful lives of the assets. Depreciation and amortization expense for the year ended December 31, 2010 was approximately $150,000.

(h) Accounting for Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.

(i) Revenue Recognition

Revenue is recognized when merchandise is shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Shipping and handling fees billed to customers are included in net sales, and the related costs are included in cost of sales.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the statement of income.

(j) Advertising and Promotion Costs

The Company’s advertising and promotion programs include athlete sponsorships, event sponsorship, print advertisements, point of purchase and other giveaways, and online marketing, all of which are expensed when incurred. Advertising and promotion costs totaled approximately $1,044,000 for the year ended December 31, 2010 and are included in operating expenses.

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

(k) Major Maintenance Activities

Repairs and maintenance costs on equipment are expensed as incurred.

(l) Income Taxes

The Company has elected to be taxed under the provisions of subchapter S of the Internal Revenue Code for both federal and state purposes. Under these provisions, the Company does not pay corporate income taxes on their taxable income, but is subject to a 1.5% California franchise tax. Stockholders are liable for federal and state income taxes on the Company’s taxable income. The Company may distribute to the stockholders funds necessary to satisfy their estimated personal income tax liabilities.

(m) Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

(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. In 2010, the Company primarily worked with two independent agents who coordinated production at and payments to the various factories. Inventory purchases made from these two agents comprised approximately 66% and 10% of total purchases for the year ended December 31, 2010, respectively. At December 31, 2010, amounts due to the larger of the two agents totaled approximately $4,387,000 and are included in accounts payable. 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% of total inventory purchases for the year ended December 31, 2010. Amounts due to this company at December 31, 2010 totaled approximately $316,000 and are included in accounts payable.

(3) Factoring Agreement

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

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 $924,000 at December 31, 2010 and are included in accounts and other receivables. Total receivables purchased by CIT totaled approximately $5,248,000 and are included in accounts and other receivables.

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 year ended December 31, 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 December 31, 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) Inventories

At December 31, 2010, inventories consist of finished goods, of which approximately $3,010,000 is in-transit.

(5) Property and Equipment

At December 31, 2010, property and equipment consist of the following:

Computer equipment and software	$	501,804
Machinery and equipment	400,275
Automobile	153,046
Furniture and fixtures	105,091
Leasehold improvements	100,206
	1,260,422
Accumulated depreciation and amortization	(903,973		)
	$	356,449

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

(6) Notes Payable

The note payable to the bank is secured by an automobile, bears interest at 7.1% per annum, matures in April 2014, and requires monthly principal and interest payments of approximately $2,000. Included in interest expense is approximately $6,000 related to the note payable to the bank.

Principal payments on the note payable to bank are as follows:

Year ending December 31:
2011	$	20,722
2012	22,241
2013	23,871
2014	6,235
	$	73,069

(7) 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 December 31, 2010, no demand for payment had been made by the stockholders. Included in interest expense is approximately $336,000 related to notes payable to stockholders.

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 $285,000 for the year ended December 31, 2010. Amounts due from this related party totaled approximately $38,000 as of December 31, 2010 and are included in due from related party.

Certain order entry and reporting software utilized by the Company is owned by a company related through common ownership. Service fees from this related party totaled approximately $7,000 for the year ended December 31, 2010. Amounts due from this related party totaled approximately $3,000 at December 31, 2010 and are included in due from related parties.

A seasonal “Sanuk” brand store was opened in November 2009 and ceased operations in March 2010. The store was owned and operated by a third party, and the Company shared 50% of the store’s profit. The store was not provided any special pricing; however, any unsold inventory at store closure could be returned provided it was in salable condition. Net sales to the store totaled approximately $109,000 for the year ended December 31, 2010. Store profit received by the Company totaled approximately $19,000 for the year ended December 31, 2010 and is included in operating expenses.

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

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

during the year ended December 31, 2010. Amounts due to the affiliated company were $1,089,764 at December 31, 2010.

(8) 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 year ended December 31, 2010, royalty expenses totaled approximately $2,201,000 and are included in operating expenses. Net payments received from the licensor for its share of advertising, marketing, and promotion costs totaled approximately $383,000 for the year ended December 31, 2010 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) Leases

The Company leases its primary operating facilities under noncancelable operating lease agreements that expire in August 2013. Rent expense is recorded using the straight-line method to account for scheduled rent increases. The deferred lease obligation related to these scheduled rent increases totaled approximately $53,000 at December 31, 2010 and is included in accrued expenses. Facilities rent expense totaled approximately $500,000 for the year ended December 31, 2010.

The Company also leases an automobile and certain equipment under agreements that expire on various dates through April 2014.

Future minimum commitments under the Company’s lease agreements are as follows:

Year ending December 31:
2011	$	747,554
2012	739,498
2013	515,375
2014	10,000
	$	2,012,427

(Continued)

C&C PARTNERS, LTD.

(A California Subchapter S Corporation)

Notes to Financial Statements

December 31, 2010

(c) Litigation

In November 2010, the Company was contacted by the legal counsel of a former Canadian distributor, claiming breach of contract for failing to provide proper notice of termination of its then existing oral agreement. The distributor claimed damages in the sum of $638,778, but was unclear as to whether this amount was in U.S. or Canadian dollars. In subsequent discussions with the distributor and its attorney, the claim was reduced to $540,017 Canadian dollars (approximately $540,000 U.S. dollars based on the exchange rate at December 31, 2010). In February 2011, the Company advised the distributor that its claims were rejected in their entirety. No further action has been taken in this matter, nor has the distributor made any additional demands since this date. 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.

(9) Retirement Savings Plan

The Company has a defined contribution plan (the Plan) intended to qualify for 401(k) tax status and covers all employees who are a minimum of 21 years of age with six months of service with the Company. The Company’s contributions to the Plan are made at management’s discretion and totaled approximately $28,000 for the year ended December 31, 2010.

(10) Subsequent Events

On May 19, 2011, the stockholders and the owners of the “Sanuk” brand licensor entered into an asset purchase agreement to sell the “Sanuk” brand to Deckers Outdoor Corporation. The agreement is subject to certain closing conditions, including regulatory approvals. The purchase price for the assets of both the Company and the “Sanuk” brand licensor is an initial payment of $120,000,000 in cash subject to certain post-closing adjustments, and includes additional participation payments based on the “Sanuk” brand’s performance over the next five years.

The Company has evaluated subsequent events from the balance sheet date through June 30, 2011, the date at which the financial statements were available to be issued, and determined there are no other subsequent events to disclose.

EX-99.2 5 a11-26618_1ex99d2.htm EX-99.2

Exhibit 99.2

SANUK U.S.A., LLC

Financial Statements

December 31, 2010

(With Independent Auditors’ Report Thereon)

Independent Auditors’ Report

The Members
Sanuk U.S.A., LLC:

We have audited the accompanying balance sheet of Sanuk U.S.A., LLC as of December 31, 2010, and the related statements of income, Members’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanuk U.S.A., LLC as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Los Angeles, California

August 11, 2011

SANUK U.S.A., LLC

Balance Sheet

December 31, 2010

Assets
Current assets:
Cash and cash equivalents	$	144,096
Accounts receivable	1,011,049
Inventories	798,000
Total current assets	1,953,145
Property and equipment, net of accumulated depreciation	1,411
Other assets	1,222
Total assets	$	1,955,778
Liabilities and Members’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	1,382,737
Payable to Members	107,498
Other current liabilities	217,596
Total current liabilities	1,707,831
Members’ equity	247,947
Total liabilities and members’ equity	$	1,955,778

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Statement of Income

Year ended December 31, 2010

	Amount
Net sales	$	6,266,419
Cost of sales	4,401,652
Gross profit	1,864,767
Royalty revenue, net	1,825,621
Operating expenses	1,322,779
Income from operations	2,367,609
Other expense (income):
Interest expense	1,592
Interest income	(874		)
Other, net	4,941
Total other expense	5,659
Net income	$	2,361,950

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Statement of Members’ Equity

Year ended December 31, 2010

	Total
Balance, December 31, 2009	$	220,703
Net income	2,361,950
Distributions	(2,334,706		)
Balance, December 31, 2010	$	247,947

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Statement of Cash Flows

Year ended December 31, 2010

Cash flows from operating activities:
Net income	$	2,361,950
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,940
Changes in:
Accounts and other receivables	(343,927		)
Inventories	(91,000		)
Accounts payable and accrued expenses	289,313
Net cash provided by operating activities	2,221,276
Cash flows from investing activities:
Collection of note receivable	8,202
Purchases of property and equipment	(2,709		)
Net cash provided by investing activities	5,493
Cash flows from financing activity — distributions	(2,334,706		)
Net decrease in cash	(107,937		)
Cash and cash equivalents, beginning of year	252,033
Cash and cash equivalents, end of year	$	144,096
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	1,592

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Notes to Financial Statements

December 31, 2010

(1) Description of Business

Sanuk U.S.A., LLC (the Company) is a wholesaler and distributor of men’s, women’s, junior’s, and children’s sandals and shoes outside the United States, Canada, and Europe bearing the “Sanuk” trade name. The Company was formed in accordance with the laws of California and is an unincorporated association where its members have limited personal liability for the obligations or debts of the entity, and it is classified as a disregarded entity for federal income tax purposes. The Company has granted an exclusive license to the “Sanuk” trade name to C&C Partners, Ltd. (C&C) in the United States, Europe, and Canada. C&C pays the Company royalties and is required to spend a minimum amount on advertising for, and marketing and promotion of the “Sanuk” brand (note 8). The Company will cease to exist on December 31, 2026 based on its operating agreement.

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates include the allowance for doubtful accounts and other sales allowances.

(b) Cash and Cash Equivalents

The Company considers cash and cash equivalents to include cash on hand and all highly liquid investments and demand deposits in banks and financial institutions with an original maturity of ninety days or less. Cash and cash equivalents include approximately $274,000 of money market accounts.

(c) Trade Accounts Receivable

The Company carries its accounts receivable at invoiced amounts without a provision for doubtful accounts. The Company may accrue interest on its trade receivables. Management periodically evaluates the ability to collect accounts receivable and based on this review may record a provision for uncollectible accounts. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proved unsuccessful.

(d) Inventories

Inventories consist entirely of finished goods and are stated at lower of cost, using the first-in, first-out method, or market.

(e) Accounts Payable and Accrued Liabilities

Accounts payables and accrued liabilities consist primarily of amounts payable for inventory purchases.

(Continued)

SANUK U.S.A., LLC

Notes to Financial Statements

December 31, 2010

(f) Revenue Recognition

The Company recognizes revenue when merchandise is shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.

Royalty revenue is recognized in the period it is earned based on correspondence from licensees. Substantially all of royalty revenue is from C&C that serves the United States, Canada, Puerto Rico, Mexico, and Guam.

(g) Property, Plant, and Equipment

Property, plant, and equipment are stated at cost.

Depreciation of property and equipment is computed using the declining balance method over estimated useful lives ranging from five to seven years. Amortization of leasehold improvements is computed using the declining balance method over the lesser of the term of the related lease or the estimated useful lives of the assets. Depreciation and amortization expense related to property and equipment was $4,940 for the year ended December 31, 2010.

(h) Merchandise Risk

The Company’s success is largely dependent upon its ability to gauge the fashion preferences 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.

(i) Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist principally of accounts receivable and cash. Four customers each accounted for more than 10% of the accounts receivable at December 31, 2010. They include C&C, Daehan Solution Co., Ltd., Primer International Management Limited, and Turf “N” Surf which made up 44%, 11%, 10%, and 14% of the total accounts receivable, respectively. The balance of the receivables are spread over various distributors. The Company does not require collateral from its customers. Historically, the Company has not incurred any significant credit related losses. The Company places its cash with major financial institutions. At various times throughout the year the Company had bank deposits in excess of federally insured limits.

(j) International Operations

The Company’s product sales are primarily to distributors located in Asia, with 50% of the 2010 product revenue being sold to the distributor, Primer International Management Limited that has distribution rights to the countries of the Philippines, Thailand, Singapore, Indonesia, Malaysia, Hong Kong, and China. The distributor for Australia, Turf “N” Surf made up 13% of 2010 product revenue. The Company is exposed to increased risks inherent in conducting business outside of the United States. In addition to foreign currency risks and increased difficulty in protecting the Company’s intellectual property rights and trade secrets, these risks include but are not limited to (i) unexpected government action or changes in legal or regulatory requirements, (ii) social,

(Continued)

SANUK U.S.A., LLC

Notes to Financial Statements

December 31, 2010

economic, or political instability, (iii) increased exposure to interruptions in air carrier or shipping services, which could significantly and adversely affect the Company’s ability to obtain timely delivery of products from international suppliers or to timely deliver its products to customers. Although the Company believes the benefits of conducting business internationally outweigh these risks, any significant adverse change in circumstances or conditions could have a significant adverse effect upon the Company’s operations and its financial performance and condition.

(k) Income Tax

The Company is treated as a Limited Liability Company that is disregarded for federal and state income tax purposes and is not subject to federal or state income taxes except for miscellaneous filing fees. All revenues and expenses of the Company are reportable in the consolidated income tax returns of its Members. The Company may distribute to the Members funds necessary to satisfy their estimated personal income tax liabilities.

(l) Long-Lived Assets

Long-lived assets, such as property, plant, and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event the carrying amount of a long-lived asset is not recoverable, an impairment is recognized by the Company to the extent the carrying value exceeds its fair value.

(m) Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expenses as incurred.

(3) Property and Equipment

At December 31, 2010, property and equipment consist of:

Machinery and equipment	$	36,505
Leasehold improvements	17,602
Furniture and fixtures	6,540
	60,647
Accumulated depreciation and amortization	(59,236		)
	$	1,411

(4) Revolving Credit Facility

(Continued)

SANUK U.S.A., LLC

Notes to Financial Statements

December 31, 2010

Journal defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks plus 1.0%. The rate shall not be less than 5% or the maximum allowed by law. The Facility is secured by substantially all assets of the Company and guaranteed by the Members of the LLC. The Facility includes an annual minimum interest charge of $100 per year and expires on May 15, 2012. At December 31, 2010, the Company has an outstanding balance under the Facility of $300. As a result, $499,700 was available under the Facility at December 31, 2010.

The Facility requires the Company to maintain a zero balance for a minimum of 30 consecutive days annually. The agreement underlying the Facility contains a financial covenant. The covenant currently includes a debt/effective tangible net worth ratio not to exceed 2.5x. The Company was in compliance with such covenant at December 31, 2010.

(5) Related-Party Transactions

The Company made compensation payments to the Members of approximately $704,000 in 2010. Such amounts are included in operating expenses of the accompanying statement of income. The Company made distributions to the Members for approximately $2,335,000 in 2010. At December 31, 2010, the Company owes its Members approximately $107,000, which is reflected as a current liability on the accompanying balance sheet. Such obligation does not bear interest.

(6) Commitments and Contingencies

Customer Prepayments — The Company at times requires deposits on purchase orders. As of December 31, 2010, the Company had $130,000 in customer prepayments included in other current liabilities in the accompanying balance sheet.

Leases — The Company leases its primary operating facilities on a month-to-month basis from the Company’s Members. The lease carries a monthly rental of approximately $4,000 plus insurance, maintenance, and utility charges. Rental expense for the year totaled $48,000.

The Company makes monthly lease payments for two vehicles on behalf of a Member. The monthly lease amounts are approximately $1,000 and $600. The annual lease expense for the year totaled approximately $19,500. These are month-to-month leases.

(7) Vendor Concentration

During the year ended December 31, 2010, the Company purchased 89% of its merchandise inventory from three suppliers in Asia. Purchases from these three suppliers comprised 54%, 23%, and 12% of total cost of sales for the year ended December 31, 2010, respectively. Accounts payables to these three suppliers totaled 86%, 0%, and 10% of total accounts payables and accrued liabilities at December 31, 2010.

(8) Royalty Agreement with C&C Partners, Ltd.

(Continued)

SANUK U.S.A., LLC

Notes to Financial Statements

December 31, 2010

agreement, which expires on October 31, 2019. Pursuant to the terms of the licensing agreement, C&C pays royalties on the “Sanuk” brand at percentages ranging from 2% to 5%. In addition, C&C is required to spend a minimum amount on advertising for, and marketing and promoting of the “Sanuk” brand. Sanuk is required to reimburse C&C for half of these expenses above the minimum required amount. For the year ended December 31, 2010, royalty revenue from this agreement totaled approximately $2,200,000 and the advertising and promotion expenses paid to C&C totaled approximately $383,000, which are netted against royalty revenue. A Member of the Company has entered into an employment agreement with C&C to provide design and brand management services.

(9) Subsequent Events

On May 19, 2011, the Members and the stockholders of C&C entered into an asset purchase agreement to sell the “Sanuk” brand to Deckers Outdoor Corporation. The purchase price for the assets of both the Company and C&C is an initial payment of $120,000,000 in cash subject to certain postclosing adjustments, and includes additional participation payments based on the “Sanuk” brand’s performance over the next five years.

The Company has evaluated subsequent events from the balance sheet date through August 11, 2011, the date the financial statements were available to be issued, and determined that there are no other subsequent events to disclose.

EX-99.3 6 a11-26618_1ex99d3.htm EX-99.3

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 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.

(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.

EX-99.4 7 a11-26618_1ex99d4.htm EX-99.4

Exhibit 99.4

SANUK U.S.A., LLC

Condensed Financial Statements

June 30, 2011

(Unaudited)

SANUK U.S.A., LLC

Condensed Balance Sheet

June 30, 2011

(unaudited)

Assets
Current assets:
Cash and cash equivalents	$	1,355,550
Accounts receivable, net of allowance for doubtful accounts of approximately $217,000	2,161,182
Inventories	424,134
Total current assets	3,940,866
Property and equipment, net of accumulated depreciation	609
Other assets	1,000
Total assets	$	3,942,475
Liabilities and Members’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	2,665,442
Payable to Members	107,498
Other current liabilities	213,258
Total current liabilities	2,986,198
Members’ equity	956,277
Total liabilities and members’ equity	$	3,942,475

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Condensed Statements of Income

Six months ended June 30, 2011 and 2010

(unaudited)

	2011			2010
Net sales	$	4,034,453		$	3,312,977
Cost of sales	2,550,981			2,328,654
Gross profit	1,483,472			984,323
Royalty revenue, net	1,630,359			991,021
Operating expenses	1,319,103			412,161
Income from operations	1,794,728			1,563,183
Other expense (income):
Interest expense	3			1,329
Interest income	(591		)	(301		)
Other, net	48,068			1,116
Total other expense	47,480			2,144
Net income	$	1,747,248		$	1,561,039

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Condensed Statements of Members’ Equity

Six months ended June 30, 2011 and 2010

(unaudited)

	Total
Balance, December 31, 2009	$	220,703
Net income	1,561,039
Distributions	(609,226		)
Balance, June 30, 2010	$	1,172,516

Balance, December 31, 2010	$	247,947
Net income	1,747,248
Distributions	(1,038,918		)
Balance, June 30, 2011	$	956,277

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Condensed Statements of Cash Flows

Six months ended June 30, 2011 and 2010

(unaudited)

	2011			2010
Cash flows from operating activities:
Net income	$	1,747,248		$	1,561,039
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,831			1,116
Provision for allowance for doubtful accounts	216,785			—
Changes in:
Accounts and other receivables	(1,366,918		)	(1,322,182		)
Inventories	373,866			566,105
Accounts payable and accrued expenses	1,278,630			40,482
Net cash provided by operating activities	2,251,442			846,560

Cash flows from investing activities:
Purchases of property and equipment	(807		)	—
Net cash used in investing activities	(807		)	—

Cash flows from financing activities
Net (decrease) increase in credit line	(263		)	461
Distributions	(1,038,918		)	(609,226		)
Net cash used in financing activities	(1,039,181		)	(608,765		)
Net increase in cash	1,211,454			237,795
Cash and cash equivalents, beginning of period	144,096			252,033
Cash and cash equivalents, end of period	$	1,355,550		$	489,828

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	3		$	1,329

See accompanying notes to financial statements.

SANUK U.S.A., LLC

Notes to Condensed Financial Statements

(unaudited)

(1) Description of Business

Sanuk U.S.A., LLC (the Company) is a wholesaler and distributor of men’s, women’s, junior’s, and children’s sandals and shoes outside the United States, Canada, and Europe bearing the “Sanuk” trade name. The Company was formed in accordance with the laws of California and is an unincorporated association where its members have limited personal liability for the obligations or debts of the entity, and it is classified as a disregarded entity for federal income tax purposes. The Company has granted an exclusive license to the “Sanuk” trade name to C&C Partners, Ltd. (C&C) in the United States, Europe, and Canada. C&C pays the Company royalties and is required to spend a minimum amount on advertising for, and marketing and promotion of the “Sanuk” brand (note 7). The Company will cease to exist on December 31, 2026 based on its operating agreement.

On May 19, 2011, the Members and the stockholders of C&C 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 C&C (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.

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 results of operations for this interim period are not necessarily indicative of results to be achieved for full fiscal years.

The accompanying condensed financial statements and related footnotes have been 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.

The Company has evaluated subsequent events from the balance sheet date through September 16, 2011, the date the financial statements were available to be issued, and determined that there are no other subsequent events to disclose.

SANUK U.S.A., LLC

Notes to Condensed Financial Statements

(unaudited)

(2) Cash and cash equivalents

The Company considers cash and cash equivalents to include cash on hand and all highly liquid investments and demand deposits in bank and financial institutions with an original maturity of ninety days or less. The Company places its cash with major financial institutions. The majority of the cash is invested in money market accounts. At June 30, 2011, and at various times throughout the six months then ended, the Company had bank deposits in excess of federally insured limits.

(3) Revolving Credit Facility

The Company has a revolving credit facility with Security Business Bank of San Diego (the Facility) providing for a maximum availability of $500,000. The Facility bears interest at the prime rate (3.25% at June 30, 2011), which is the prime rate as published in the Money Rates Section of the Wall Street Journal defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks plus 1.0%. The rate shall not be less than 5% or the maximum allowed by law. The Facility is secured by substantially all assets of the Company and guaranteed by the Members of the LLC. The Facility includes an annual minimum interest charge of $100 per year and expires on May 15, 2012. At June 30, 2011, the Company has no outstanding balance under the Facility. As a result, $500,000 was available under the Facility at June 30, 2011.

(4) Related-Party Transactions

The Company made compensation payments to the Members of approximately $240,000 in each of the six months ended June 30, 2011 and 2010. Such amounts are included in operating expenses of the accompanying statement of income. The Company made distributions to the Members for approximately $1,039,000 and $609,000 in the six months ended June 30, 2011 and 2010, respectively. At June 30, 2011, the Company owes its Members approximately $107,000, which is reflected as a current liability on the accompanying balance sheet. Such obligation does not bear interest.

(5) Commitments and Contingencies

Customer Prepayments — The Company at times requires deposits on purchase orders. As of June 30, 2011, the Company had approximately $98,000 in customer prepayments included in other current liabilities in the accompanying balance sheet.

(6) Vendor Concentration

During the six months ended June 30, 2011, the Company purchased 95% of its merchandise inventory from two suppliers in Asia. Accounts payables to these two suppliers totaled 58% and 7% of total accounts payables and accrued liabilities at June 30, 2011. During the six months ended June 30, 2010, the Company purchased 92% of its merchandise from three suppliers in Asia.

SANUK U.S.A., LLC

Notes to Condensed Financial Statements

(unaudited)

(7) Royalty Agreement with C&C Partners, Ltd.

C&C designs, manufactures, and distributes men’s, women’s, junior’s, and children’s footwear and accessories bearing the “Sanuk” trade name throughout the United States, Canada, Puerto Rico, Mexico, and Guam. C&C obtained certain rights to the “Sanuk” trade name pursuant to the terms of a licensing agreement, which expires on October 31, 2019. Pursuant to the terms of the licensing agreement, C&C pays royalties on the “Sanuk” brand at percentages ranging from 2% to 5%. In addition, C&C is required to spend a minimum amount on advertising for, and marketing and promoting of the “Sanuk” brand. Sanuk is required to reimburse C&C for half of these expenses above the minimum required amount. For the six months ended June 30, 2011 and 2010, royalty revenue from this agreement totaled approximately $1,916,000 and $1,236,000, respectively, and the advertising and promotion expenses paid to C&C totaled approximately $322,000 and $250,000, respectively, which are netted against royalty revenue. A Member of the Company has entered into an employment agreement with C&C to provide design and brand management services.

EX-99.5 8 a11-26618_1ex99d5.htm EX-99.5

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)

	Deckers			C&C		Sanuk USA		Pro forma adjustments			Deckers pro forma
ASSETS
Current assets:
Cash and cash equivalents	$	325,170		$	2,076	$	1,356	$	(126,118	)(1)(2)	$	202,484
Trade accounts receivable, net of allowances	106,952			11,452		2,161		(804		)(1)	119,761
Inventories	210,044			7,121		424		—			217,589
Prepaid expenses and other current assets	21,284			332		—		(194		)(1)	21,422
Income tax receivable	16,285			—		—		—			16,285
Deferred tax assets	12,002			—		—		—			12,002
Total current assets	691,737			20,981		3,941		(127,116		)	589,543

Property and equipment, at cost, net	54,541			300		—		(71		)(1)	54,770
Other intangible assets, net	17,754			—		—		82,330		(3)	100,084
Goodwill	6,101			—		—		96,824		(3)	102,925
Deferred tax assets	16,695			—		—		—			16,695
Other assets	8,299			102		1		(103		)(1)	8,299
Total assets	$	795,127		$	21,383	$	3,942	$	51,864		$	872,316

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Trade accounts payable	$	107,375		$	5,937	$	2,665	(2,803		)(1)	$	113,174
Accrued payroll	12,780			1,295		—		(1,273		)(1)	12,802
Other accrued expenses	12,345			267		—		29,801		(1)(2)	42,413
Accounts receivable financing obligation	—			2,327		—		(2,327		)(1)	—
Income taxes payable	553			—		—		—			553
Payable to members	—			—		108		(108		)(1)	—
Due to affiliated company	—			1,090		—		(1,090		)(1)	—
Other current liabilites	—			—		213		(213		)(1)	—
Total current liabilities	133,053			10,916		2,986		21,987			168,942

Long-term liabilities	9,973			3,059		—		38,241		(1)(2)	51,273

Stockholders’ equity:
Deckers Outdoor Corporation stockholders’ equity:
Common stock	385			1,806		—		(1,806		)(4)	385
Members’ equity	—			—		956		(956		)(4)	—
Additional paid-in capital	144,148			—		—		—			144,148
Retained earnings	505,382			5,602		—		(5,602		)(4)	505,382
Accumulated other comprehensive loss	(968		)	—		—		—			(968		)
Total Deckers Outdoor Corporation stockholders’ equity	648,947			7,408		956		(8,364		)	648,947
Noncontrolling interest	3,154			—		—		—			3,154
Total equity	652,101			7,408		956		(8,364		)	652,101
Total liabilities and equity	$	795,127		$	21,383	$	3,942	$	51,864		$	872,316

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)

	Deckers			C&C			Sanuk USA		Pro forma adjustments			Deckers pro forma

Net sales	$	359,073		$	38,399		$	4,035	$	(159	)(5)	$	401,348
Cost of sales	190,683			15,419			2,551		(159		)(5)	208,494
Gross profit	168,390			22,980			1,484		—			192,854

Royalty revenue, net	—			—			1,630		(1,630		)(6)	—
Selling, general and administrative expenses	150,993			12,533			1,319		2,086		(6)(7)	166,931
Income from operations	17,397			10,447			1,795		(3,716		)	25,923

Other (income) expense, net:
Interest income	(87		)	—			—		—			(87		)
Interest expense	(45		)	212			—		—			167
Other, net	(49		)	(47		)	48		—			(48		)
	(181		)	165			48		—			32
Income before income taxes	17,578			10,282			1,747		(3,716		)	25,891

Income tax expense	5,273			162			—		3,163		(8)	8,598
Net income	12,305			10,120			1,747		(6,879		)	17,293
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

Net income per share attributable to Deckers Outdoor Corporation common stockholders:
Basic	$	0.31										$	0.44
Diluted	$	0.30										$	0.43

Weighted-average common shares outstanding:
Basic	38,640											38,640
Diluted	39,304											39,304

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 adjustments			Deckers pro forma

Net sales	$	1,000,989		$	42,342		$	6,267		(209		)(5)	$	1,049,389
Cost of sales	498,051			17,829			4,402			(209		)(5)	520,073
Gross profit	502,938			24,513			1,865			—			529,316

Royalty revenue, net	—			—			1,826			(1,826		)(6)	—
Selling, general and administrative expenses	253,850			14,584			1,323			6,718		(6)(7)	276,475
Income from operations	249,088			9,929			2,368			(8,544		)	252,841

Other (income) expense, net:
Interest income	(234		)	—			(1		)	—			(235		)
Interest expense	566			432			2			—			1,000
Other, net	(1,353		)	(17		)	5			—			(1,365		)
	(1,021		)	415			6			—			(600		)
Income before income taxes	250,109			9,514			2,362			(8,544		)	253,441

Income taxes	89,732			166			—			1,167		(8)	91,065
Net income	160,377			9,348			2,362			(9,711		)	162,376
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

Net income per share attributable to Deckers Outdoor Corporation common stockholders:
Basic	$	4.10											$	4.15
Diluted	$	4.03											$	4.08

Weighted-average common shares outstanding:
Basic	38,615												38,615
Diluted	39,292												39,292

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:

	C&C		Sanuk USA		Excluded items			Net assets acquired
Assets:
Cash and cash equivalents	$	2,076	$	1,356	$	(3,432	)	$	—
Trade accounts receivable, net of allowances	11,452		2,161		(804		)	12,809
Inventories	7,121		424		—			7,545
Prepaid expenses and other current assets	332		—		(194		)	138
Property and equipment, at cost, net	300		—		(71		)	229
Other assets	102		1		(103		)	—
	$	21,383	$	3,942	$	(4,604	)	$	20,721

Liabilities:
Trade accounts payable	$	5,937	$	2,665	(2,803		)	$	5,799
Accrued payroll	1,295		—		(1,273		)	22
Other accrued expenses	267		—		(199		)	68
Accounts receivable financing obligation	2,327		—		(2,327		)	—
Payable to members	—		108		(108		)	—
Due to affiliated company	1,090		—		(1,090		)	—
Other current liabilites	—		213		(213		)	—
Long-term liabilities	3,059		—		(3,059		)	—
	$	13,975	$	2,986	$	(11,072	)	$	5,889

Net assets acquired								$	14,832

(2) This entry reflects the preliminary calculation of the fair value of consideration transferred, as follows:

	Amount
Consideration
Cash paid	$	122,686
Fair value of short-term contingent consideration	30,000
Fair value of long-term contingent consideration	41,300
	$	193,986

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:

	Amount		Estimated Useful Life (in years)

Net assets acquired	$	14,832	N/A
Identifiable intangible assets:
Trademarks	47,200		20
Customer relationships	20,600		10
International distributor relationships	800		2
Non-compete agreements	5,300		5
Patents	6,600		14
Order book	1,830		1
Goodwill	96,824		N/A
Total purchase price	$	193,986

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.