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Mercury Athletic
Sales for CompaniesTable 1Days SalesCasual & Athletic Shoe Companies:in InventoryD&B Shoe Company61.3Marina Wilderness39.5General Shoe Corp.73.2Kinsley Coulter Products31.1Victory Athletic50.0Surfside Footwear60.0Alpine Company42.9Heartland Outdoor Footwear58.1Templeton Athletic42.5Average50.9
Active Gear42.5Mercury Athletic61.1
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
T 2Table 2Mercury Operating Metrics:200420052006Return on net assets21.1%10.8%12.9%Return on equity18.5%9.6%12.1%Asset turnover3.58x2.00x2.12x
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Active Gear- Historical ISExhibit 1Active Gear, Inc. - Historical Income Statements
Operating Results:200420052006Revenue450,174469,704470,286Less: Cost of Goods Sold223,617231,583234,494Gross Profit226,557238,121235,792Less: Selling Expenses127,705130,242130,471Less: General & Administrative Expenses31,43733,93836,535EBITDA67,41573,94268,786Less: Depreciation & Amortization7,0497,3438,366EBIT60,36766,59960,420Less: Net Interest Expense5,0925,1435,098Less: Other, net1,211(752)24EBT54,06462,20855,298Less: Taxes19,19221,08919,349Net Income34,87241,12035,949
Margins:Revenue Growth1.7%4.3%0.1%Gross Profit Margin50.3%50.7%50.1%EBITDA Margin15.0%15.7%14.6%EBIT Margin13.4%14.2%12.8%EBT Margin12.0%13.2%11.8%Tax Rate35.5%33.9%35.0%Net Income Margin7.7%8.8%7.6%
RNOA21.1%10.8%12.9%ROE18.5%9.6%12.1%ATO3.58x2.00x2.12x
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Active Gear- Historical BSExhbit 2Active Gear, Inc. - Historical Balance Sheets
200420052006Assets:Cash & Cash Equivalents92,73563,94954,509Accounts Receivable46,50750,64961,322Inventory38,49350,14056,030Prepaid Expenses8,29810,05112,223Deferred Taxes8,6818,0806,519Derivative Assets01,81353Total Current Assets194,714184,682190,655
Property, Plant & Equipment23,69424,71228,392Intangible Assets6,41412,27314,360Goodwill4,24911,85111,915Other Assets2,9823,0793,249Total Assets232,053236,596248,571
Liabilities & Owners' Equity:Accounts Payable15,71129,18833,009Accrued Expenses37,21130,55336,718Taxes Payable10,42113,26310,162Derivative Liabilities000Other4,5140878Total Current Liabilities67,85873,00480,767
Long Term Debt178,173150,240140,047Deferred Compensation3,7634,8143,919Deferred Taxes2,1803230
Total Owners' Equity(19,921)8,21623,837Total Liabilities & Owners' Equity232,053236,596248,571
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Exh 3Exhbit 3Selected Data on Public Footwear Companies, March 15, 2007
RevenueEquityNetEquityLTMLTMCAGRCompanyMarket ValueDebt (1)D/EBetaRevenueEarnings2000-06D&B Shoe Company420,098125,44229.9%2.682,545,05867,6796.6%Marina Wilderness1,205,795(91,559)-7.6%1.94313,55641,92317.8%General Shoe Corp.533,463171,83532.2%1.921,322,39264,56711.2%Kinsley Coulter Products165,56082,23649.7%1.12552,59427,5684.6%Victory Athletic35,303,2507,653,20721.7%0.9715,403,5471,433,7607.9%Surfside Footwear570,684195,54034.3%2.131,241,52973,12410.1%Alpine Company1,056,033300,55028.5%1.271,614,648112,0156.2%Heartland Outdoor Footware1,454,875(97,018)-6.7%1.011,176,14486,1568.5%Templeton Athletic397,709169,57942.6%0.98516,18279,17014.4%Average24.9%9.7%
EBITEBITDANet Inc.EBITEBITDAP/EB/VCompanyMarginMarginMarginMultipleMultipleMultipleMultipleD&B Shoe Company4.4%6.1%2.7%5.5x3.9x6.8x0.9xMarina Wilderness22.1%23.1%13.4%18.0x16.9x31.6x6.0xGeneral Shoe Corp.8.8%11.5%4.9%6.8x5.1x9.1x1.6xKinsley Coulter Products6.9%8.9%5.0%7.3x5.5x6.6x0.7xVictory Athletic14.1%16.0%9.3%22.1x19.2x27.1x6.0xSurfside Footwear9.3%10.8%5.9%7.4x6.3x8.6x1.4xAlpine Company10.4%12.2%6.9%9.0x7.6x10.4x2.0xHeartland Outdoor Footware10.8%12.6%7.3%12.0x10.1x18.6x3.1xTempleton Athletic19.9%20.2%15.3%6.2x6.0x5.5x1.2xAverage11.9%13.5%7.9%10.5x9.0x13.8x2.5x
(1) Net debt is defined as debt less cash & cash equivalentsNote: Market multiples are based on three year averages. "LTM" denotes latest twelve months.
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Mercury Athletic FSExhibit 4Mercury Athletic - Historical Financial Statements
Operating Results:200420052006Net Revenue340,578358,780431,121Less: Cost of Goods Sold198,115205,820239,383Gross Profit142,463152,960191,738Less: Selling, General & Administrative102,410113,892139,933EBITDA40,05339,06751,804Less: Depreciation & Amortization7,6998,0019,506EBIT32,35331,06642,299Less: Corporate Administrative Charge275305366EBT32,07930,76141,933Less: Taxes12,19011,68915,934Net Income19,88919,07225,998Assets:200420052006Cash & Cash Equivalents12,20320,18710,676Accounts Receivable29,11538,65445,910Inventory53,55270,81873,149Prepaid Expenses7,80915,81010,172Total Current Assets102,679145,470139,908
Property, Plant & Equipment33,09031,33432,618Trademarks & Other Intangibles1,03135,74043,853Goodwill55434,60543,051Other Assets5,65711,88411,162Total Assets143,011259,032270,592
Liabilities & Owners' Equity:Accounts Payable12,83814,75316,981Accrued Expenses13,04021,95518,810Total Current Liabilities25,87836,70835,791
Deferred Taxes1,63513,79511,654Pension Obligation8,1319,2569,080
Owners' Equity107,367199,274214,067Total Liabilities & Owners' Equity143,011259,032270,592
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Exh 5Exhibit 5Mercury Athletic Footwear Segment Data 2004-06 (in $ thousands)
Men'sMen'sWomen'sWomen'sUnallocatedFiscal Year 2006:AthleticCasualAthleticCasualCorporateConsolidatedRevenue219,09351,663123,56336,8020431,121Operating Income31,4218,24212,703(843)(9,224)42,299Total Assets148,57628,45727,97834,70130,880270,592
Fiscal Year 2005:Revenue151,90055,402108,09743,3810358,780Operating Income18,3989,07711,631(1,013)(7,027)31,066Total Assets173,48230,84224,26712,19718,244259,032
Fiscal Year 2004:Revenue131,63658,78795,89754,2580340,578Operating Income17,7209,1969,109462(4,134)32,353Total Assets39,54334,96622,52615,05630,919143,011
Men'sMen'sWomen'sWomen'sUnallocatedAthleticCasualAthleticCasualCorporateConsolidated2006 EBIT Margins14.3%16.0%10.3%-2.3%-2.1%9.8%2005 EBIT Margins12.1%16.4%10.8%-2.3%-2.0%8.7%2004 EBIT Margins13.5%15.6%9.5%0.9%-1.2%9.5%
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
Mercury Athletic Revenue ForecExhibit 6Mercury Athletic Footwear: Base Case Projected Segment Performance (in $ thousands)
Men's Athletic:20072008200920102011Revenue251,957282,192310,411335,244352,006Less: Operating Expenses*218,435244,647269,112290,641305,173Operating Income33,52237,54541,29944,60346,834
Men's Casual:Revenue52,17953,22354,28755,91657,594Less: Operating Expenses*43,83444,71145,60546,97348,382Operating Income8,3458,5128,6828,9439,211
Women's Athletic:Revenue138,390153,613167,438179,159188,117Less: Operating Expenses*124,302137,976150,393160,921168,967Operating Income14,08815,63817,04518,23819,150
Women's Casual:Revenue36,8020000Less: Operating Expenses*37,2650000Operating Income(463)0000
Consolidated Revenue479,329489,028532,137570,319597,717Less: Operating Expenses*423,836427,333465,110498,535522,522Less: Corporate Overhead8,4878,6599,42210,09810,583Consolidated Operating Income47,00653,03657,60561,68664,612
Estimated Capital Expenditures11,98312,22613,30314,25814,943Estimated Depreciation9,5879,78110,64311,40611,954
* Operating Expenses include an allocation of depreciation for each segment.
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
BS ForecastExhibit 7Mercury Athletic Footwear: Projection of Selected Balance Seet Accounts; 2007-11 (in $ thousands)Select Balance Sheet Accounts20072008200920102011Cash Used in Operations4,1614,1954,5664,8945,130Accounts Receivable47,88848,85753,16456,97859,715Inventory83,77085,46592,99999,672104,460Prepaid Expenses14,47414,76716,06917,22218,049
Property, Plant & Equipment35,01537,46040,12042,97245,961Trademarks & Other Intangibles43,85343,85343,85343,85343,853Goodwill43,05143,05143,05143,05143,051Other Assets11,16211,16211,16211,16211,162Total Assets Used283,374288,810304,984319,804331,381LiabilitiesAccounts Payable18,83018,98520,66422,14923,214Accrued Expenses22,77822,96624,99626,79228,081
Deferred Taxes11,65411,65411,65411,65411,654Pension Obligation9,0809,0809,0809,0809,08092,86995,484104,918113,277119,275
Mercury Athletic Footwear: Valuing the Opportunity (HBS Case, Exhibits)
FCF20072008200920102011Revenue479,329489,028532,137570,319597,717Less: Operating Expenses*423,836427,333465,110498,535522,522Less: Corporate Overhead8,4878,6599,42210,09810,583Consolidated Operating Income47,00653,03657,60561,68664,612NOPAT28203.443952363931821.58316774234562.884729978537011.797655696938766.9535827582Plus: Depreciation9,5879,78110,64311,40611,954Less: Changes in Working Capital3,5322,6159,4348,3595,998Less: Estimated Capital Expenditures11,98312,22613,30314,25814,943FCF22,27426,76122,46825,80129,781Discount Factor0.9130553030.83366998630.7611868020.69500564610.6345785908PV20337.835313645522310.258086025317102.507167541817931.797832591818898.0794535516Terminal value449126.5300441308WACC9.52%g2.71%PV Terminal Value285006.08Enterprise Value381586.56
Changes in WC200620072008200920102011Accounts Receivable45,91047,88848,85753,16456,97859,715Plus: Inventory73,14983,77085,46592,99999,672104,460Plus: Prepaid Expenses7,80914,47414,76716,06917,22218,049Less: Accounts Payable12,83818,83018,98520,66422,14923,214Less: Accrued Expenses13,04022,77822,96624,99626,79228,081Less: Deferred Taxes11,65411,65411,65411,65411,65411,654WC89,33792,86995,484104,918113,277119,275Changes in WC3,5322,6159,4348,3595,998
Cost of CapitalEquity Market ValueNet DebtD/EE/VEquity BetaAsset BetaD&B Shoe Company420,098125,44229.86%77.01%2.682.0637602947Marina Wilderness1,205,795(91,559)-7.59%108.22%1.942.099413191General Shoe Corp.533,463171,83532.21%75.64%1.921.4522215091Kinsley Coulter Products165,56082,23649.67%66.81%1.120.7483057739Victory Athletic35,303,2507,653,20721.68%82.18%0.970.797182897Surfside Footwear570,684195,54034.26%74.48%2.131.5864249998Alpine Company1,056,033300,55028.46%77.85%1.270.9886323538Heartland Outdoor Footware1,454,875(97,018)-6.67%107.14%1.011.0821636522Templeton Athletic397,709169,57942.64%70.11%0.980.68704864231.55777777781.2783503682
WACC9.52%Cost of DebtWeight of DebtEquity BetaCost of EquityWeight of Equity6.00%0.21.597937960211.00%0.8Assumptions:Risk Free Rate4.02%(US Treasurry Bond Rate 2007)Risk Premium4.37%
Terminal Value2011NOPAT38766.9535827582Invested Capital (1)331,381ROC11.70%
Net Reinvestment8,986NOPAT38766.9535827582Reinvestment Rate23.18%Terminal Growth Rate2.71%