EXHIBIT 99.2
Published on
EX-99.2
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Teva Sport Sandals, Inc.:
We have audited the accompanying statements of assets acquired and liabilities
assumed of Teva Sport Sandals, Inc. as of November 25, 2002 and December 31,
2001, and the related statements of earnings and cash flows for the period from
January 1 to November 25, 2002 and the year ended December 31, 2001. 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 audits.
We conducted our audits 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 examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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 Teva Sport Sandals, Inc. as of
November 25, 2002 and December 31, 2001 and the results of its operations and
its cash flows for the periods then ended in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
January 10, 2003
Los Angeles, California
TEVA SPORT SANDALS, INC.
Statements of Assets Acquired and Liabilities Assumed
November 25, 2002 and December 31, 2001
See accompanying notes to financial statements.
TEVA SPORT SANDALS, INC.
Statements of Earnings
Period from January 1 to November 25, 2002 and
for the year ended December 31, 2001
See accompanying notes to financial statements.
TEVA SPORT SANDALS, INC.
Statements of Cash Flows
Period from January 1 to November 25, 2002 and
for the year ended December 31, 2001
See accompanying notes to financial statements.
TEVA SPORT SANDALS, INC.
Notes to Financial Statements
November 25, 2002 and December 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
Teva Sport Sandals, Inc. (the Company) sells footwear and apparel
through a catalog and an on-line website. On November 25, 2002,
Deckers Outdoor Corporation (Deckers) acquired the worldwide Teva
patents, trademarks and other assets from Mark Thatcher and certain
assets and liabilities of Teva Sport Sandals, Inc.(the Acquisition).
The assets and liabilities presented include only those acquired by
Deckers. No adjustments have been made to the accompanying financial
statements related to any step-up in basis or other impact resulting
from the Acquisition.
(B) REVENUE RECOGNITION
Revenue from product sales is recorded when risk of loss and title
passes to the buyer. Allowances for sales returns are provided when
the related revenue is recorded. Billings for freight are included
in revenue and costs of outgoing freight are included in cost of
sales.
(C) INVENTORIES
All inventories represent footwear and apparel purchased for resale.
Substantially all of the purchases of the Company's inventory were
made from Deckers at market prices. Inventories are stated at the
lower of cost or market. Cost is determined under the first-in,
first-out (FIFO) method.
(D) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance and repairs
are charged to expense as incurred. Depreciation and amortization of
property and equipment is computed on the straight-line method based
upon the estimated useful lives of the assets, which range from
three to seven years.
(E) LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value of an
asset may not be recoverable. As part of an ongoing review of the
valuation and amortization of long-lived assets, management assesses
the carrying value of the Company's long-lived assets if facts and
circumstances suggest that it may be impaired. If this review
indicates that certain long-lived assets will not be recoverable, as
determined by undiscounted operating cash flow analysis over the
remaining useful life of the asset, the carrying value of the
Company's long-lived assets would be reduced to its estimated market
value.
(F) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The Company is treated as an S Corporation for both federal and
state income tax purposes. The S Corporation provisions of the
Internal Revenue Code require that federal corporate earnings flow
through and be taxed solely at the stockholder level.
TEVA SPORT SANDALS, INC.
Notes to Financial Statements
November 25, 2002 and December 31, 2001
(G) COMPREHENSIVE INCOME
The Company reports comprehensive income under Financial Accounting
Standards Board Statement No 130 (SFAS No 130), Reporting
Comprehensive Income. The Company does not have any components of
comprehensive income other than its net earnings, and accordingly,
the Company's comprehensive income is equal to net earnings.
(H) BUSINESS CONCENTRATIONS
The Company sells three lines of product: Teva, Ugg and Simple, but
does not design any of them. The Company's business is subject to
the market acceptance of these lines.
(I) ADVERTISING, MARKETING, AND PROMOTION COSTS
Advertising production costs are expensed the first time the
advertisement is run. All other costs of advertising, marketing and
promotion are expensed as incurred. These expenses charged to
operations for the periods ended November 25, 2002 and December 31,
2001 were $622,758 and $66,050, respectively.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of all of the Company's financial assets and
liabilities acquired approximate the carrying values due to the
relatively short maturities of these instruments.
(K) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the balance
sheet date and revenues and expenses during the reporting period to
prepare these financial statements in conformity with accounting
principles generally accepted in the United States of America.
Actual results could differ from those estimates.
(L) NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for
the Impairment or Disposal of Long-Lived Assets," which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. While SFAS 144 supersedes Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it
retains many of the fundamental provisions of that statement. The
adoption of this standard did not have a material impact on the
Company's financial position or results from operations.
TEVA SPORT SANDALS, INC.
Notes to Financial Statements
November 25, 2002 and December 31, 2001
In November 2001, the Emerging Issues Task Force ("EITF") issued
EITF 01-9, "Accounting for Consideration Given by a Vendor to a
Customer," which became effective for the first quarter beginning
after December 31, 2001. EITF 01-9 requires certain consideration
given by and to vendors or a customer be presented as a reduction of
revenue rather than as a cost or an expense. The adoption of EITF
01-9 did not have a material impact on the Company's financial
position or results from operations.
On July 30, 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 146 ("SFAS
146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." It requires that a liability be recognized for
those costs only when the liability is incurred, that is, when it
meets the definition of a liability in the FASB's conceptual
framework. SFAS No. 146 also establishes fair value as the objective
for initial measurement of liabilities related to exit or disposal
activities. SFAS 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The Company does not
expect that the adoption of SFAS 146 will have a material impact on
its financial position or results from operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), Guarantor's Accounting for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor in its financial statements
about its obligations under certain guarantees it has issued. It
also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December
31, 2002. The Company does not expect the adoption of FIN 45 will
have a material impact on its financial position or results from
operations.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
TEVA SPORT SANDALS, INC.
Notes to Financial Statements
November 25, 2002 and December 31, 2001
(3) RELATED PARTY TRANSACTIONS
The Company provides services to its sole shareholder under a management
agreement, including the management of his patent rights, copyrights and
other intellectual property related to the Teva trademark. The Company is
reimbursed for the costs of these services plus 5 percent. Management fees
totaled $1,530,451 and $1,318,898 for the periods ended November 25, 2002
and December 31, 2001, respectively, and are recorded as revenue in the
accompanying statement of earnings.
Deckers loaned $50,000 to the Company immediately prior to the
Acquisition. Such amount is unsecured and payable on demand.
Substantially all of the purchases of the Company's inventory were made
from Deckers at market prices.
(4) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases warehouse space under operating leases expiring
through October 2005, which require monthly minimum rentals of
$2,418. Rent expense paid under these leases in 2002 and 2001 were
$19,175 and $24,194, respectively. Minimum rental commitments under
operating leases are summarized as follows:
(B) LEGAL PROCEEDINGS
The Company is party to routine claims and suits brought against it
in the ordinary course of business. In the opinion of management,
the outcome of such routine claims will not have a material adverse
effect on the Company's financial condition, results of operations
or liquidity.