Phoenix Footwear Group, Inc. has entered into a definitive agreement to purchase Altama Delta Corporation, which makes high performance combat and tactical boots for U.S. and foreign militaries, government agencies and the commercial sector. The acquisition is in line with Phoenix Footwear's strategy of developing a portfolio of sustainable niche brands that the Company believes offer consistent cash flow and brand growth potential.
Under the definitive agreement, which has been approved by Phoenix Footwear's Board of Directors, the Company will pay to Altama's sole shareholder $39.0 million, plus an earnout payment of $2.0 million subject to Altama meeting certain sales requirements. Additionally, the Company has agreed to pay Altama's sole shareholder $2.0 million in consideration for a five-year covenant-not-to-compete and other restrictive covenants, and to enter into a two-year consulting agreement with him for an annual consulting fee of $100,000. The acquisition will be financed by a combination of debt and equity. The transaction, which is subject to financing and other customary closing conditions, is expected to close in the next 90 days.
In its second quarter ended April 3, 2004, Altama generated net sales of $12.0 million and operating income of $2.5 million. During the same period, Altama's income before taxes was $2.6 million, and its income after a provision for taxes at Phoenix Footwear's assumed income tax rate of 42% would have been $1.5 million. For the 12 months ended April 3, 2004, Altama generated net sales of $39.8 million and operating income of $7.9 million. During the same period, Altama's income before taxes was $7.8 million, and its income after a provision for taxes at an assumed income tax rate of 42% would have been $4.5 million. Altama had elected to be taxed as an S corporation effective October 1, 2003 and, as a result, its provision for income taxes was made at different rates than the Company would expect Altama to incur going forward as part of its consolidated tax group. The Company believes that the presentation of these figures at its assumed tax rate provides a more useful comparison for investors.
