Active Gear Historic

Operating Results
Revenue
Less Cost of Goods Sold
Gross Profit
Less Selling Expense
Less General and Administrative Expense
EBITDA
Less Depreciation and Amortization
EBIT
Less Net Interest Expense
Less Other Net
EBT
Less Taxes
Net Income
Revenue Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
EBT Margin
Tax Rate
Net Income Margin

$
$
$
$
$
$
$
$
$
$
$
$
$

2004
450,174
223,617
226,557
127,705
31,437
67,415
7,049
60,366
5,092
1,211
54,063
19,192
34,871
1.70%
50.33%
14.98%
13.41%
12.01%
35.50%
7.75%

2005
$
469,704
$
231,583
$
238,121
$
130,242
$
33,938
$
73,941
$
7,343
$
66,598
$
5,143
$
(752)
$
62,207
$
21,089
$
41,118
Margins
4.34%
50.70%
15.74%
14.18%
13.24%
33.90%
8.75%

Active Gear Historical Income Statement

$
$
$
$
$
$
$
$
$
$
$
$
$

2006
470,286
234,494
235,792
130,471
36,535
68,786
8,366
60,420
5,098
24
55,298
19,349
35,949

rgins
0.12%
50.14%
14.63%
12.85%
11.76%
34.99%
7.64%

2004

Active Wear Historical Bala

2006

2005

Assets
Cash and Accounts Receivables
Accounts Receivable
Inventory
Prepaid Expense
Deferred Taxes
Derivative Assets
Total Current Assets

$
$
$
$
$
$
$

92,753
46,507
38,493
8,298
8,681
194,732

$
$
$
$
$
$
$

63,949
50,649
50,140
10,051
8,080
1,813
184,682

$
$
$
$
$
$
$

54,509
61,322
56,030
12,223
6,519
53
190,656

Property Plant Equipment

Intangible Assets
Goodwill
Other Assets
Total Assets

$
$
$
$
$

23,694
6,414
4,249
2,982
232,071

$
$
$
$
$

24,712
12,273
11,851
3,079
236,597

$
$
$
$
$

28,392
14,360
11,915
3,249
248,572

Liabilities and Owners Equity

Accounts Payable
Accrued Expenses
Taxes Payable
Derivative Liabilities
Other
Total Current Liabilities

$
$
$
$
$
$

15,711
37,211
10,421
4,514
67,857

$
$
$
$
$
$

29,188
30,553
13,263
73,004

$
$
$
$
$
$

33,009
36,718
10,162
878
80,767

Long-Term Debt
Deferred Compensation
Deferred Taxes
Total Owners Equity

$
$
$
$

178,173
3,763
2,180
(19,921)

$
$
$
$

150,240
4,814
323
8,216

$
$
$
$

140,047
3,919
23,857

Total Liabilities and Owners Eq

232,052 $

236,597 $

248,590

ctive Wear Historical Balance Sheet

D&B Shoe
Marina Wilderness
General Shoe Corp
Kinseley Couler Products
Victory Athletic
Surfside Footwear
Alpine Company
Heartland Outdoor Footwear
Templeton Athletic
Average

Mercury
EBITADA
EBIT
Net Income

Equity MV
$
420,098
$
1,205,795
$
533,463
$
165,560
$
35,303,250
$
570,684
$
1,056,033
$
1,454,875
$
397,709

$
$
$

2006
51,805
42,299
25,999

Net Debt
D/E
$
125,442
29.90%
$
(91,559)
-7.60%
$
171,835
32.20%
$
82,236
49.70%
$ 7,653,207
21.70%
$
195,540
34.30%
$
300,550
28.50%
$
(97,018)
-6.70%
$
169,579
42.60%
24.90%

Selected Data on Public Footwear Companies- March 15th, 2007

Beta E
LTM Rev
2.68 $
2,545,058
1.94 $
313,556
1.92 $
1,322,392
1.12 $
552,594
0.97 $ 15,403,547
2.13 $
1,241,529
1.27 $
1,614,648
1.01 $
1,176,144
0.98 $
516,182

Revenue
LTM Earnings CAGR-2000-06 EBITMargin
$
67,679
6.60%
4.40%
$
41,923
17.80%
22.1%
$
64,567
11.20%
8.8%
$
27,568
4.60%
6.9%
$
1,433,760
7.90%
14.1%
$
73,124
10.10%
9.3%
$
112,015
6.20%
10.4%
$
86,156
8.50%
10.8%
$
79,170
14.40%
19.9%
9.70%
11.9%

Comparable Metrics
Metric
P/E
EV/EBIT
EV/EBITDA

Mercury
P/E
EV/EBIT
EV/EBITDA

Low

Average

High

5.5
13.8
5.5
10.5
3.9
9
Mercury Valuation based on comparables
Low
$
$
$

Average
142,995 $
358,786
232,645 $
444,140
202,040 $
466,245

High
$
$
$

31.6
22.1
19.2

821,568
934,808
994,656

March 15th, 2007

Net
Income
EBIT
EBITDA
P/E
B/V
EBITDA Margin Margin
Multiple Multiple Multiple Multiple Beta Asset
6.10%
2.70%
5.5
3.9
6.8
0.9
2.27
23.10%
13.4%
18
16.9
31.6
6
2.03
11.50%
4.9%
6.8
5.1
9.1
1.6
1.61
8.90%
5.0%
7.3
5.5
6.6
0.7
0.86
16.00%
9.3%
22.1
19.2
27.1
6
0.86
10.80%
5.9%
7.4
6.3
8.6
1.4
1.77
12.20%
6.9%
9
7.6
10.4
2
1.08
12.60%
7.3%
12
10.1
18.6
3.1
1.05
20.20%
15.3%
6.2
6
5.5
1.2
0.78
13.50%
7.9%
10.5
9
13.8
2.5
1.37

able Metrics

Average
$
441,116
$
537,197
$
554,314

Actual
2006
EBIT
EBIT(1-T)
Op Cash Flows
CAPEX
WC
Investment in WC
FCF
TV
Net FCF
Enterprise Value

$
$
$
$
93,944 $
$
$
$

$
$
$
$
$
93,944 $
$
$
$

23,168 $

26,123

Valuation Based on Case

2007
2008
479,328 $
489,028
47,005 $
53,035
28,203 $
31,821
37,790 $
41,602
11,983 $
12,226
94,211 $
96,566
267 $
2,355
25,540 $
27,021
25,540 $

Projections
2009
$
532,136
$
57,604
$
34,562
$
45,205
$
13,303
$
105,069
$
8,503
$
23,399

27,021 $

23,399

$338,263

Valuation based on Case Projections Plus Synbergy

2006
2007
2008
2009
$
47,005 $
53,035 $
57,604
$
28,203 $
31,821 $
34,562
$
37,790 $
41,602 $
45,205
$
11,983 $
12,226 $
13,303

EBIT
EBIT(1-T)
Op Cash Flows
CAPEX
Invetory Projections
WC
Investment in WC
FCF
TV
Net FCF

11,543 $

$350,533

2006
Revenues
EBIT
EBIT(1-T)
Op Cash Flows
CAPEX
WC
Investment in WC
FCF
TV
Net FCF
Enterprise Value

Valuation based on Historical Information

Projected
2007
2008
2009
47,268 $
51,831 $
58,441
28,361 $
31,098 $
35,065
37,252 $
42,589 $
48,021
9,537 $
5,377 $
6,062
110,116 $
124,160 $
139,996
16,172 $
14,045 $
15,836
11,543 $
23,168 $
26,123

$
93,944 $
$
$
$

55,287
65,728
(28,216)
54,023

$
$
$
$

54,023 $

56,406
67,507
1,779
27,597

$
$
$
$

61,378
73,448
5,941
25,961

27,597 $

25,961

Enterprise Value

$381,674

Valuation of Mercury "As is" using

storical Information
ojected
2010
$
65,895
$
39,537
$
54,146
$
6,836
$
157,852
$
17,856
$
29,455
$

$
$
$
$
$
$
$
$
29,455 $

2011
74,300
44,580
61,052
7,707
177,985
20,133
33,212
438,545
471,757

Revenue Comp
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$-

ections

$
$
$
$
$
$
$
$
$

2010
570,319
61,686
37,012
48,418
14,258
112,603
7,534
26,626

$
$
$
$
$
$
$
$
$
26,626 $

2011
597,717
64,612
38,767
50,721
14,943
118,010
5,407
30,371
401,037
431,409

EBIT Compa
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$-

us Synbergy
$
$
$
$

2010
61,686
37,012
48,418
14,258

$
$
$
$

65,782
78,713
5,265
28,894

$
$
$
$

$
$
$
$
$
28,894 $

2011
64,612
38,767
50,721
14,943
68,942
82,492
3,779
31,999
422,532
454,531

CAPEX Comp
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$1

$10,000
$8,000
$6,000
$4,000
$2,000
$1

Working Capital C
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$1

of Mercury "As is" using the WACC Valuation Methodology

evenue Comparison
Valuation Based on Case
Projections
Valuation based on Historical
Information

EBIT Comparison
Valuation Based on Case
Projections
Valuation based on Historical
Information

CAPEX Comparison
Valuation Based on Case
Projections
Valuation based on Historical
Information

Projections
Valuation based on Historical
Information

ing Capital Comparison

Valuation Based on Case
Projections
Valuation based on Historical
Information

Assumtions

Values

Sales Growth

12.75%

CGS

57.02%

SGA

31.42%

Depreciation/NET ppe t-1

Cash
A?R
Inventory
PPE/sales
AP/sales
accruals/sales
Tax Rate
Long-run growth

27.26%
3.90%
9.99%
17.48%
8.67%
3.94%
4.77%
40%
3%

Cost of Capital Estimation

Debt/Value
Cost of Debt(Rd)
Debt/Equity
10 yr treasury(Risk Free Rate)
Risk Premium
Ba(beta asset)
Be(beta Equity)
Required return on equity(Re)
WACC

20%
6%
0.25
4.73%
5%
1.37
1.57
12.60%
10.80%

Synergy Assumptions
Current Day Sales Inventory
Target Day Sales Inventory

63.79
42.1

Mercury Case-Assumptions and Results Summary

DCF Valuation Summary
EV

Model
Valuation as is
using Historical
Information

$350,533

Valuation using
case projections

$338,263

Valuation
including
synergies

D
$390,000
$380,000

$381,674

$370,000
$360,000

Premium based on
historical

$31,141

$350,000
$340,000

Premium based on
Case Projections

$43,411

$330,000
$320,000

Summary of Comparable Valuation

P/E
EV/EBIT
EV/EBITDA
Overall Average

$
$
$
$

441,116
537,197
554,314
510,876

$310,000

V
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$-

P
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000

$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0

s Summary

DCF Valuation Summary

,000

,000

,000

,000

,000

,000

Valuation as is using
Historical Information
Valuation using case
projections
Valuation including synergies

,000

,000

,000

Valuation Comparison

00,000

00,000

Summary of Comparable
Valuation

00,000

Valuation as is using
Historical Information

00,000

Valuation using case

projections

00,000

00,000
$-

Premium Comparison

000

000

000

000

Premium based on historical

000

Premium based on Case

Projections

000

000

000

000

000

000

000

Premium based on historical

000

Premium based on Case

Projections

000

000

000

000

000
$0

Mercury Histor
Operating Results
$
$
$
$
$
$
$
$
$
$
$

2004
340,578
198,115
142,463
102,410
40,053
7,699
32,354
275
32,079
12,190
19,889

$
$
$
$
$
$
$
$
$
$
$

2005
358,750
205,820
152,930
113,892
39,038
8,001
31,037
305
30,732
11,689
19,043

Assets
Cash and Cash Equivalents
Accounts Receivables
Inventory
Prepaid Expenses
Total Current Assets

$
$
$
$
$

2004
12,203
29,115
53,552
7,809
102,679

Property Plant and Equipment

Trademarks and Other Intangibles
Goodwill
Other Assets
Total Assets

$
$
$
$
$

33,090
1,031
554
5,657
143,011

Liabilities and Owners Equity

Accounts Payable
Accrued Expenses
Total Current Liabilities

$
$
$

Deferred Taxes
Pension Obligations
Owners Equity
Total Liabilities &Owners Equity

Net Revenue
Less Cost of Goods Sold
Gross Profit
Less Selling, General & Administrative
EBITDA
Less Depreciation and Amortization
EBIT
Less Corporate Administrative Charge
EBT
Less Taxes
Net Income

Historical Information
Sales Growth
CGS

$
$
$
$
$
$
$
$
$
$
$

2006
431,121
239,383
191,738
139,933
51,805
9,506
42,299
366
41,933
15,934
25,999

$
$
$
$
$

2005
20,187
38,654
70,818
15,810
145,469

$
$
$
$
$

2006
10,676
45,910
73,149
10,172
139,907

$
$
$
$
$

31,334
35,740
34,605
11,884
259,032

$
$
$
$
$

32,618
43,853
43,051
11,162
270,591

12,838 $
13,040 $
25,878 $

14,753 $
21,955 $
36,708 $

16,981
18,810
35,791

$
$

1,635 $
8,131 $

13,795 $
9,256 $

11,654
9,080

$
$

107,367 $
143,011 $

199,274 $
259,033 $

214,067
270,592

2004
58.17%

2005
5.34%
57.37%

2006
20.17%
55.53%

SGA
Depreciation/NET ppe t-1
Cash
A?R
Inventory
PPE/sales
AP/sales
accruals/sales
Tax Rate

30.07%
3.58%
8.55%
15.72%
9.72%
3.77%
3.83%

31.75%
24.18%
5.63%
10.77%
19.74%
8.73%
4.11%
6.12%

32.46%
30.34%
2.48%
10.65%
16.97%
7.57%
3.94%
4.36%

Mercury Historical Financial Statements

$
$

2007
486,108 $
277,191 $

2008
548,108 $
312,544 $

2009
618,015 $
352,408 $

2010
696,839 $
397,355 $

2011
785,717
448,035

152,758 $

172,242 $

194,210 $

218,980 $

246,910

$
$

8,891.20 $
47,268 $

11,490.89 $
51,831 $

12,956.48 $
58,441 $

14,608.99 $
65,895 $

16,472.28
74,300

$
$
$

18,936 $
48,566 $
84,957 $

21,351 $
54,760 $
95,793 $

24,075 $
61,745 $
108,011 $

27,145 $
69,620 $
121,787 $

30,607
78,499
137,320

42,155 $

47,532 $

53,594 $

60,430 $

68,137

$
$

19,154 $
23,190 $

21,597 $
26,148 $

24,351 $
29,483 $

27,457 $
33,243 $

30,959
37,483

3 year average
12.75%
57.02%

31.42%
27.26%
3.90%
9.99%
17.48%
8.67%
3.94%
4.77%
40%

Net Fixed Aset

104117 Net WC
77,332 Other Asset
Excess cash
Total

Asset
$ 32,618 Debt
$ 93,944 Equity
Other liabilty

Liability

214607

Mercury Athletic Segment Data

Fiscal Year 2006
Revenue
Operating Income
Total Assets
EBIT Margin
Fiscal Year 2005
Revenue
Operating Income
Total Assets
EBIT Margin
Fiscal Year 2004
Revenue
Operating Income
Total Assets
EBIT Margin

Men's Athletic
Men's Casual Women's Athletic
$
219,093 $
51,663 $
123,563
$
31,421 $
8,242 $
12,703
$
148,576 $
28,457 $
27,978
14.34%
15.95%
10.28%
$
$
$

151,900 $
18,398 $
173,482 $
12.11%

55,402 $
9,077 $
30,842 $
16.38%

108,097
11,631
24,267
10.76%

131,636 $
17,720 $
39543 $
13.46%

58,787 $
9,196 $
34,966 $
15.64%

95,897
9,109
22,526
9.50%

Athletic Segment Data: 2004-2006 ($000)

Women's Casual
Unallocated Corp
Consolidated
$
36,802 $
- $
$
(843) $
(9,224) $
$
34,701 $
30,880 $
-2.29%
-2.1

431,121
42,299
270,592
9.81%

$
$
$

43,381 $
(1,013) $
12,197 $
-2.34%

- $
(7,027) $
18,244 $
-2.00%

358,780
31,066
259,032
8.66%

$
$
$

54,258 $
462 $
15,056 $
0.85%

- $
(4,134) $
30,919 $
-1.20%

340,578
32,353
143,010
9.50%

Mercury Athletic Footwear: Base Case Projected Segment Performance ($000)

Men's Athletic
Revenue
Less Operating Expense
Operating Income
Men's Casual
Revenue
Less Operating Expenses
Operating Income
Women's Athetic
Revenue
Less Operating Expenses
Operating Income
Women's Casual
Revenue
Less Operating Expense
Operating Income
Consolidated Revenue
Less Operating Expenses
Less Corporate Overhead
Consolidated Operating Inc
NOPAT
Estimated Capital Expenditure
Estimated Depreciation

2007
2008
$ 251,957 $ 282,192 $
218435
244647
$
33,522 $
37,545 $

$
$
$

52,179
43,834
8,345

$ 138,390
$ 124,302
$
14,088

36802
37265
-463

$
$
$

2009
310,411
269112
41,299

53,223 $
44,711 $
8,512 $

54,287
45,605
8,682

$ 153,613 $
$ 137,976 $
$
15,637 $

167,438
150,393
17,045

0
0
0

$ 479,328 $ 489,028 $
$ 423,836 $ 427,334 $
8487
8659
$
47,005 $
53,035 $
28203
31821
11983
12226
9587
9781

0
0
0
532,136
465,110
9422
57,604
34562.4
13303
10643

gment Performance ($000)

2010
335,244 $
290641
44,603 $

$
$
$

55,916 $
46,973 $
8,943 $

57,594
48,382
9,212

$
$
$

179,159 $
160,921 $
18,238 $

188,117
168,967
19,150

0
0
0
$
$
$

570,319 $
498,535 $
10098
61,686 $
37011.6
14258
11406

2011
352,006
305173
46,833

0
0
0
597,717
522,522
10583
64,612
38767.2
14943
11954

Selected Balance Sheet Accounts

Assets
Cash Used in Operations
Accounts Receivable
Inventory
Prepaid Expense

Projection
$
$
$
$

2007
4,161
47,888
83,770
14,474

$
$
$
$

2008
4,195
48,857
85,465
14,767

$
$
$
$

2009
4,566
53,164
92,999
16,069

Property Plant Equipment

Trademarks and Other Intangibles
Goodwill
other Assets

$
$
$
$

35,015
43,853
43,051
11,162

$
$
$
$

37,460
43,853
43,051
11,162

$
$
$
$

40,120
43,853
43,051
11,162

Liabilities
Accounts Payable
Accrued Expenses

$
$

18,830 $
22,778 $

18,985 $
22,966 $

20,664
24,996

Deferred Taxes
Pension Obligations

$
$

11,654 $
9,080 $

11,654 $
9,080 $

11,654
9,080

Projection of Selected Balance Sheet Accounts-2007-2011

2010
2011
$
4,894 $
5,130
$
56,978 $
59,715
$
99,672 $
104,460
$
17,222 $
18,049
$
$
$
$

42,972
43,853
43,051
11,162

$
$
$
$

45,961
43,853
43,051
11,162

$
$

22,149 $
26,792 $

23,214
28,081

$
$

11,654 $
9,080 $

11,654
9,080