<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 022446
DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 953015862
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or IRS Employer Identification
organization)
495A S. Fairview Avenue, Goleta, California 93117
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (805) 967-7611
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of the issuer's class of common stock,
as of the latest practicable date.
OUTSTANDING AT
CLASS MAY 8, 1997
---------------------------- -----------------
Common stock, $.01 par value 8,930,531
<PAGE> 2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Earnings for the Three-Month Period Ended
March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the Three-Month
Period Ended March 31, 1997 and 1996 3-4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
<PAGE> 3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,481,000 1,287,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,491,000 and
$1,292,000 as of March 31,
1997 and December 31, 1996, respectively 28,975,000 17,866,000
Inventories 21,336,000 24,930,000
Prepaid expenses and other current assets 2,359,000 3,643,000
Deferred tax assets 1,622,000 1,622,000
------------ ------------
Total current assets 55,773,000 49,348,000
Property and equipment, at cost, net 2,668,000 2,794,000
Intangible assets, less applicable amortization 20,617,000 20,805,000
Note receivable from supplier, net 1,863,000 1,838,000
Other assets, net 250,000 112,000
------------ ------------
$81,171,000 74,897,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 101,000 99,000
Trade accounts payable 4,418,000 5,494,000
Accrued expenses 5,276,000 3,042,000
Income taxes payable 1,773,000 983,000
------------ ------------
Total current liabilities 11,568,000 9,618,000
------------ ------------
Long-term debt, less current maturities 12,789,000 10,290,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 -- --
shares; none issued
Common stock, $.01 par value. Authorized 20,000,000
shares; issued 9,293,431 and outstanding 8,958,556
at March 31, 1997; issued 9,283,556 and outstanding
8,983,556 at December 31, 1996 90,000 90,000
Additional paid-in capital 26,625,000 26,790,000
Retained earnings 30,099,000 28,109,000
------------ ------------
Total stockholders' equity 56,814,000 54,989,000
------------ ------------
$81,171,000 74,897,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
-------------------------------
1997 1996
------------ ----------
<S> <C> <C>
Net sales $ 34,441,000 28,772,000
Cost of sales 19,491,000 16,182,000
------------ ------------
Gross profit 14,950,000 12,590,000
Selling, general and administrative expenses 10,770,000 9,849,000
Loss on factory closure 500,000 --
------------ ------------
Earnings from operations 3,680,000 2,741,000
Other expense (income):
Interest expense 252,000 282,000
Minority interest in net loss of subsidiary (81,000) (63,000)
Miscellaneous expense (income) 4,000 (148,000)
------------ ------------
Earnings before income taxes 3,505,000 2,670,000
Income taxes 1,515,000 1,191,000
------------ ------------
Net earnings $ 1,990,000 1,479,000
============ ============
Net earnings per common and common equivalent shares $ 0.22 0.16
============ ============
Weighted average common and common equivalent shares
outstanding
9,040,000 9,304,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
-------------------------------
1997 1996
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,990,000 1,479,000
------------ ----------
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 663,000 460,000
Provision for doubtful accounts 450,000 1,235,000
Minority interest in net loss of subsidiary (81,000) (63,000)
Loss on factory closure 500,000 --
Changes in assets and liabilities:
Increase in trade accounts receivable (11,309,000) (6,077,000)
Decrease in inventory 3,594,000 1,991,000
Decrease in prepaid expenses and other current
assets 1,284,000 1,347,000
Decrease in refundable income taxes -- 2,418,000
Increase in note receivable from supplier (275,000) (196,000)
Decrease (increase) in other assets (263,000) 357,000
Decrease in accounts payable (1,076,000) (58,000)
Increase in accrued expenses 2,315,000 1,480,000
Increase in income taxes payable 790,000 --
------------ ----------
Total adjustments (3,408,000) 2,894,000
------------ ----------
Net cash provided by (used in) operating
activities (1,418,000) 4,373,000
------------ ----------
Cash flows from investing activities:
Purchase of property and equipment (724,000) (220,000)
------------ ----------
Net cash used in investing activities (724,000) (220,000)
------------ ----------
</TABLE>
(Continued)
3
<PAGE> 6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
---------------------------
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from (repayments of) notes payable and
long-term debt 2,501,000 (3,800,000)
Repurchase of common stock (165,000) --
Other -- 21,000
----------- ----------
Net cash provided by (used in) financing
activities 2,336,000 (3,779,000)
----------- ----------
Net increase in cash and cash equivalents 194,000 374,000
Cash and cash equivalents at beginning of period 1,287,000 3,222,000
----------- ----------
Cash and cash equivalents at end of period $ 1,481,000 3,596,000
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 245,000 269,000
Income taxes 726,000 141,000
=========== ==========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In connection with the repurchase of outstanding stock options of a
subsidiary from the Founder of the subsidiary during the three month
period ended March 31, 1996, the Company gave consideration of
$2,111,000, consisting of notes payable to the Founder of $1,736,000
and the forgiveness of a $375,000 note receivable from the Founder. The
Company allocated the entire purchase price to goodwill.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) General
The unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations
for interim periods are not necessarily indicative of results to be
achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under
Rule 10-01 of Regulation S-X, the accompanying consolidated financial
statements and related footnotes have been condensed and do not contain
certain information that will be included in the Company's annual
consolidated financial statements and footnotes thereto. For further
information, refer to the consolidated financial statements and related
footnotes for the year ended December 31, 1996 included in the Company's
Annual Report on Form 10-K.
(2) Earnings per Share
Net earnings per share is based on the weighted average number of common
and common equivalent shares outstanding. Common stock equivalents
represent the number of shares which would be issued assuming the
exercise of common stock options and reduced by the number of shares
which could be purchased with the proceeds from the exercise of those
options.
Fully diluted net earnings per share are not presented since the amounts
do not differ significantly from the primary net earnings per share
presented.
(3) Inventory
Inventory at March 31, 1997 and December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Raw materials $ 2,447,000 3,239,000
Work in process 974,000 1,197,000
Finished goods 17,915,000 20,494,000
----------- -----------
Total inventory $21,336,000 24,930,000
=========== ===========
</TABLE>
5
<PAGE> 8
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(4) Income Taxes
Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is
subject to ongoing review and evaluation by management.
(5) Legal Proceedings with Former Ugg Shareholders
Some of the former shareholders of Ugg Holdings gave notice of a demand
for arbitration regarding the periodic payments due under the
acquisition agreement. These former shareholders are asserting claims
that additional payments are due them. The Company does not believe
these claims are meritorious. On April 23, 1997, the former
shareholders filed their claims and the Company filed its counterclaims
against the former shareholders. On May 7, 1997, the Company and the
former shareholders had a status conference with the arbitrator. The
date for arbitration is pending.
(6) Recently Issued Pronouncements
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is
effective for both interim and annual periods ending after December 15,
1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS
128 requires the presentation of "Basic" earnings per share which
represents income available to common shareholders divided by the
weighted average number of common shares outstanding for the period. A
dual presentation of "Diluted" earnings per share will also be
required. The Diluted presentation is similar to the current earnings
per share presentation. Management believes the adoption of FAS 128
will not have a material impact on the Company's earnings per share.
6
<PAGE> 9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March
31, 1996
Net sales increased by $5,669,000 or 19.7% between the three months
ended March 31, 1997 and 1996. Sales of the Teva(R) line increased from
$18,600,000 for the three months ended March 31, 1996 to $24,252,000
for the three months ended March 31, 1997, a 30.4% increase. Sales of
Teva(R) products represented 64.6% and 70.4% of net sales in the three
months ended March 31, 1996 and 1997, respectively. The Company
experienced a continued increase in the net sales of footwear under the
Simple(R) product line, which increased 15.3% from $7,983,000 to
$9,206,000 between the three months ended March 31, 1996 and 1997.
Overall, international sales for the Company's products increased 2.9%
from $9,035,000 to $9,297,000, representing 31.4% of net sales in 1996
and 27.0% in 1997. The combination of these factors led to a net
increase in the volume of footwear sold, which increased from 1,107,000
pairs during the three months ended March 31, 1996 to 1,319,000 pairs
during the three months ended March 31, 1997, a 19.2% increase.
The weighted average wholesale price per pair sold during these
respective periods increased from $24.88 to $25.93 or by 4.2%. The
increase in the average wholesale price primarily relates to the
non-recurrence of the sale of certain Teva(R) sport sandals at
discounted prices in the first quarter of 1996, which selling prices
approximated the carrying value of the inventory.
Cost of sales increased by $3,309,000 to $19,491,000 for the three
months ended March 31, 1997, compared with $16,182,000 for the three
months ended March 31, 1996, an increase of 20.4%. Gross profit
increased by $2,360,000, or 18.7%, to $14,950,000 for the three months
ended March 31, 1997 from $12,590,000 for the three months ended March
31, 1996 and decreased as a percentage of net sales to 43.4% from
43.8%. The slight decrease in gross profit margin as a percentage of
net sales is primarily the result of the closure of the Company's
California manufacturing facility in March 1997. The Company recorded a
$500,000 charge to operations for the closure during the three month
period ended March 31, 1997.
Selling, general and administrative expenses increased by $921,000, or
9.4%, between the three months ended March 31, 1996 and March 31, 1997
and decreased as a percentage of net sales from 34.2% in 1996 to 31.3%
in 1997. The $921,000 increase was the result of increased net sales.
The decrease as a percentage of net sales was largely a result of the
non-recurrence of certain Ugg operating expenses which occurred in the
first quarter of 1996. These 1996 costs related to Ugg's Carlsbad
facility, which was subsequently closed and integrated into Deckers'
operations in the second quarter of 1996. In addition, the Company
experienced lower bad debt expense in the first quarter of 1997 than in
the first quarter of 1996. The decrease as a percentage of net sales
also occurred as certain selling, general and administrative expenses
include certain fixed costs and, therefore, total selling, general and
administrative expenses do not fluctuate proportionately with changes
in sales volume.
Income taxes were $1,515,000 for the three months ended March 31, 1997,
representing an effective income tax rate of 43.2% compared with income
taxes of $1,191,000 for the three
7
<PAGE> 10
months ended March 31, 1996, representing an effective income tax rate
of 44.6%. The higher effective income tax rate in 1996 compared to 1997
is due to certain non-deductible expenses and losses being a greater
proportion to earnings before income taxes in 1996 than in 1997. Such
non-deductible items include the amortization of goodwill and losses at
certain subsidiaries which are consolidated for financial reporting
purposes but which are not consolidated for income tax reporting
purposes.
The Company had net earnings of $1,990,000 for the three months ended
March 31, 1997 as compared with net earnings of $1,479,000 for the
three months ended March 31, 1996, an increase of 34.6%, for the
reasons discussed above.
Outlook
This outlook section contains a number of forward-looking statements,
all of which are based on current expectations. Actual results may
differ materially.
Although net sales of the Simple(R) product line for the first quarter
of 1997 increased 15.3% over net sales during the first quarter of
1996, the Company anticipates that sales of the Simple(R) line will not
grow at the same rate as sales grew in 1996. The Company currently
expects that sales of Simple(R) shoes in 1997 will be flat or slightly
higher than sales in 1996. Sales of Ugg(R) footwear are expected to be
slightly lower in 1997 than sales of Ugg(R) footwear in 1996, which
were approximately $14.8 million. The Company anticipates that any
decrease in the rate of sales growth or decrease in sales for the
Simple(R) and Ugg(R) lines will be more than offset by sales of the
Teva(R) product line.
The foregoing forward-looking statements represent the Company's
current analysis of trends and information. Actual results could be
affected by a variety of factors. For example, the Company's results
are directly dependent on consumer preferences, which are difficult to
assess and can shift rapidly. Any shift in consumer preferences away
from one or more of the Company's product lines could result in lower
sales as well as obsolete inventory, both of which could adversely
affect the Company's results of operations, financial condition and
cash flows. The Company is also dependent on its customers continuing
to carry and promote its various lines. In addition, sales of each of
the Company's different lines have historically been higher in
different seasons, with the highest percentage of Teva(R) sales
occurring in the first and second quarter of each year, the highest
percentage of Simple(R) sales occurring in the third quarter and the
highest percentage of Ugg(R) sales occurring in the fourth quarter.
Consequently, the results for these product lines are highly dependent
on results during these specified periods. The Company cautions the
reader not to rely on the forward-looking statements in this section.
They merely represent the Company's current assessment of trends and
information and may not be indicative of actual future results. The
Company disclaims any intent or obligation to update these
forward-looking statements.
Liquidity and Capital Resources
The Company's liquidity consists of cash and cash equivalents, trade
accounts receivable, inventories and a revolving credit facility. At
March 31, 1997, working capital was $44,205,000 including $1,481,000 of
cash and cash equivalents. Cash used in operating activities aggregated
$1,418,000 for the three months ended March 31, 1997. Trade accounts
receivable increased 62.2% from December 31, 1996 to March 31, 1997,
largely due to increased Teva(R) sales
8
<PAGE> 11
occurring primarily in the latter part of the first quarter of 1997.
Inventories decreased 14.4% during this period for the same reason.
The Company has a revolving credit facility with a bank (the
"Facility"), providing a maximum borrowing availability of $25,000,000
based on certain eligible assets, as defined. The Facility can be used
for working capital and general corporate purposes and expires August
1, 2000. Borrowings bear interest at the bank's prime rate (8.50% at
March 31, 1997) plus up to 0.25%, depending on whether the Company
satisfies certain financial ratios. Alternatively, the Company may
elect to have borrowings bear interest at LIBOR plus 1.5% to 1.75%,
depending on whether the Company satisfies such financial ratios. Up to
$10,000,000 of borrowings may be in the form of letters of credit. The
Facility is secured by substantially all assets of the Company. As of
March 31, 1997, the Company had borrowed $11,525,000 under the Facility
and had approximately $9,582,000 available for borrowings.
The agreement underlying the Facility includes certain restrictive
covenants which, among other things, require the Company to maintain
certain financial tests. The Company was in compliance with all
requirements as of March 31, 1997.
The Company has an agreement with a supplier to provide financing for
the start-up and the expansion of the supplier's operations, of which
$1,863,000 (net of related allowance) was outstanding at March 31,
1997. The note is secured by all assets of the supplier and bears
interest at the prime rate (8.50% at March 31, 1997) plus 1%.
Capital expenditures totaled $724,000 for the three months ended March
31, 1997. The Company's capital expenditures related primarily to
leasehold improvements associated with the Company's move to new
facilities in Goleta, California. The Company currently has no material
future commitments for capital expenditures.
In connection with the acquisition of Ugg Holdings, Inc. in 1995, the
Company is required to make further future payments equal to 2 1/2% of
net sales of Ugg Holdings for the years ending March 31, 1996 through
March 31, 2000, and an amount equal to earnings before income taxes of
Ugg Holdings, as adjusted for certain items, for the year ended March
31, 1996. In May 1996, the Company made a $495,000 payment to the
former shareholders related to its required payments for the year ended
March 31, 1996.
In 1996, the Company's Board of Directors authorized the repurchase of
up to 300,000 shares from time to time in open market or in privately
negotiated transactions, subject to price and market conditions. During
1996, the Company repurchased 300,000 shares of the Company's
outstanding common stock for cash consideration of $2,390,000. In
February 1997, the Company's Board of Directors authorized the
repurchase of up to an additional 300,000 shares. During the three
months ended March 31, 1997, the Company repurchased 25,000 shares for
cash consideration of $166,000. From April 1, 1997 through May 8, 1997,
the Company repurchased 37,900 shares for cash consideration of
$259,000.
The Company believes that internally generated funds, the available
borrowings under its existing credit facilities and the cash on hand
will provide sufficient liquidity to enable it to meet its current and
foreseeable working capital requirements.
9
<PAGE> 12
Seasonality
Financial results for the outdoor and footwear industries are generally
seasonal. Based on the Company's historical product mix, the Company
would expect greater sales in the first and second quarters than in the
third and fourth quarters.
Other
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net sales or
profitability.
Recently Issued Pronouncements
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is
effective for both interim and annual periods ending after December 15,
1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS
128 requires the presentation of "Basic" earnings per share which
represents income available to common shareholders divided by the
weighted average number of common shares outstanding for the period. A
dual presentation of "Diluted" earnings per share will also be
required. The Diluted presentation is similar to the current earnings
per share presentation. Management believes the adoption of FAS 128
will not have a material impact on the Company's earnings per share.
10
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Some of the former shareholders of Ugg Holdings gave notice of a demand
for arbitration regarding the periodic payments due under the
acquisition agreement. These former shareholders are asserting claims
that additional payments are due them. The Company does not believe
these claims are meritorious. On April 23, 1997, the former
shareholders filed their claims and the Company filed its counterclaims
against the former shareholders. On May 7, 1997, the Company and the
former shareholders had a status conference with the arbitrator. The
date for arbitration is pending.
Item 2. Changes in Securities. Not applicable
Item 3. Defaults upon Senior Securities. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable
Item 5. Other Information. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.37 Extension and Restatement of Employment
Agreement between Diana M. Wilson and
Deckers Outdoor Corporation, dated April 18,
1997.
Exhibit 10.38 Limited Recourse Secured Promissory Note
between Diana M. Wilson and Deckers
Outdoor Corporation, dated April 18, 1997.
Exhibit 10.39 Stock Pledge Agreement between Diana M.
Wilson and Deckers Outdoor Corporation,
dated April 18, 1997.
Exhibit 11.1 Statement of Computation of Earnings per
Share.
(b) Reports on Form 8-K. None
11
<PAGE> 14
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Signature
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 thereunto duly authorized.
Deckers Outdoor Corporation
Date: May 14, 1997 ----------------------------------------------
M. Scott Ash, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
12
<PAGE> 1
EXHIBIT 10.37
Ms. Diana M. Wilson
April 18, 1997
Page 1
DECKERS OUTDOOR CORPORATION
495-A South Fairview Avenue
Goleta, CA 93117
April 18, 1997
Personal and Confidential
Ms. Diana M. Wilson
Deckers Outdoor Corporation
1140 Mark Avenue
Carpinteria, CA 93013
Dear Diana:
On behalf of Deckers Outdoor Corporation ("Deckers"), I am confirming
the extension and restatement of your employment agreement through December 31,
1999 effective as of January 1, 1997. The terms and conditions, as approved by
the Compensation Committee and the Board of Directors, of this offer are as
follows:
1. Positions and Titles:
- Chief Operating Officer, Vice President and a member
of the Board of Directors.
- You will be promoted to President when the minimum
performance criteria for Level Three is achieved to
raise your base salary to Level Three.
- You will report to the Chief Executive Officer ("CEO").
- You will be responsible for implementing the plan to
meet corporate objectives by managing operations,
which includes production planning, manufacturing,
sales, marketing, distribution, accounting, finance,
logistics, inventory control, MIS, human resources,
sales service, product development, the coordination
of departments and other areas as directed by the
CEO.
2. Compensation and Bonus:
- You will receive a Level One base salary of Two
Hundred Forty Thousand Dollars ($240,000) per annum.
The raise to this level will commence as of January
1, 1997.
<PAGE> 2
Ms. Diana M. Wilson
April 18, 1997
Page 2
- You will receive a Level Two base salary of Two
Hundred Ninety Thousand Dollars ($290,000) when
certain minimum performance criteria have been
achieved. The raise to this level will commence as of
January 1 of the year following the year in which
these events have occurred:
(a) The Teva License has been extended
for a minimum of 5 years to 2006.
(b) Earnings per share are at least $.60.
(c) The end-of-the-year backlog is at
least 15% greater than that of
December 31, 1996.
(d) Deckers' stock performance is at
least in the fifty percentile of its
peer group.
- You will receive a Level Three base salary of Three
Hundred Fifty Thousand Dollars ($350,000) when
certain minimum performance criteria have been
achieved. The raise to this level will commence as of
January 1 of the year following the year in which
these events have occurred:
(a) The Teva License has been extended
for a minimum of 5 years to 2006.
(b) Earnings per share are at least $.90.
(c) The end-of-the-year backlog is at
least 30% greater than that of
December 31, 1996.
(d) Deckers' stock performance is at
least in the fifty percentile of its
peer group.
- Your annual bonuses will be based on the following,
with excellent being the budgeted plan:
<PAGE> 3
Ms. Diana M. Wilson
April 18, 1997
Page 3
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C> <C>
Very good (60%): $144,000 $174,000 $210,000
Excellent (80%): $192,000 $232,000 $280,000
Outstanding (100%): $240,000 $290,000 $350,000
</TABLE>
- Your individual bonus goals will be established prior
to the start of each year and will be based on goals
and milestones that measure performance in the
following areas, each being weighted at the
percentages below:
<TABLE>
<S> <C> <C>
Earnings Per Share 25%
Stock Performance vs. Peer Group 25%
Discretionary 20%
Sales 10%
Positioning for the Future 10%
Team Bonus and Other 10%
---
100%
</TABLE>
The goals for 1997 are as follows:
<TABLE>
<CAPTION>
60% 80% 100%
--- --- ----
<S> <C> <C> <C>
EPS: .55 .60 .65
Sales 112 114 116
Stock if Peer Group
is 10 companies: #5 performer #4 performer #1, 2, 3 performer
Stock if Peer Group
is 12 companies: #6 performer #4, 5 performer #1, 2, 3 performer
</TABLE>
The "Discretionary," "Position for the Future," "Team Bonus" and others
will be established subsequently.
<PAGE> 4
Ms. Diana M. Wilson
April 18, 1997
Page 4
3. Loan to Purchase Stock:
- Deckers will provide you with a loan to purchase up
to 100,000 shares of Deckers' Common Stock under the
following terms:
- The amount of the loan will be for the
amount paid for the stock, which will be
purchased from Deckers at the fair market
value at April 18, 1997.
- The promissory note will bear interest at
the applicable federal rate and will be
secured by the stock so acquired and by any
severance pay, including any unpaid bonuses.
- This sale will be effective as of April 18,
1997.
4. Termination and Change of Control:
- In the event that termination occurs for reasons
other than: (1) cause, or (2) your voluntary
termination, six (6) months' severance will be
provided, plus committed incentives.
- For purposes of this letter agreement, "cause" will
be defined as contemplated by Section 2924 of the
California Labor Code (a copy of which is in effect
as of the date hereof is attached to this letter
agreement as Exhibit A and made a part of this letter
agreement).
- In the event that there is a change of control and
termination or constructive termination occurs, there
will be twelve (12) months' of severance, including
minimum guarantees, plus the acceleration of vesting
of all stock options.
- A "change of control" shall be deemed to have taken
place if (1) there is a merger, consolidation, sale
of all or a major portion of the assets of Deckers
(or a successor organization) or similar transaction
or circumstance where any person or group (other than
Douglas B. Otto) acquires or obtains the right to
acquire, in one or more transactions, beneficial
ownership of more than fifty percent (50%) of the
outstanding shares of any class of voting stock of
Deckers (or a successor organization); and (2) as a
result of or in connection with such event, your
position is affected (in terms of compensation,
benefits, title,
<PAGE> 5
Ms. Diana M. Wilson
April 18, 1997
Page 5
authority, duties, reporting relationships, reports
etc.) and no equivalent or better position is
available at Deckers or a successor organization.
5. Other Benefits:
- You are to receive insurance, medical and health
benefits currently available pursuant to existing
policies.
- You will receive all other benefits currently
available to members of Deckers' senior management
and you will be subject to the policies and terms
outlined in Deckers' human resources policy manual.
- You will be covered by Deckers' standard Directors
and Officers insurance policy and indemnification
agreements. You will also be subject to Deckers'
confidentiality and trade secret agreements.
- Your annual fees for YPO International and the Santa
Barbara Chapter will be paid by Deckers.
- One YPO University, seminar, or conference per year,
including travel but not user-pay off-sites or
academies, will be paid by Deckers up to $15,000 per
year.
6. Effective Date:
- The Effective Date of this letter agreement is
January 1, 1997 and shall continue through
December 31, 1999 unless terminated earlier.
7. Arbitration Agreement:
- Any claim or controversy arising out of or related to
this letter agreement, the employment relationship or
the subject matter hereof, shall be settled by
binding arbitration before one arbitrator in Santa
Barbara, California in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association; and judgment upon any award rendered by
the arbitrator may be entered as a judgment in any
court having competent jurisdiction. The parties
shall have rights to discovery as provided in Section
1283.05 of the California Code of Civil Procedure,
which is incorporated herein by this reference. The
prevailing party in any such dispute shall be awarded
all of its costs and expenses, including reasonable
attorneys' fees.
<PAGE> 6
Ms. Diana M. Wilson
April 18, 1997
Page 6
Very truly yours,
DECKERS OUTDOOR CORPORATION
By: /s/ Douglas B. Otto
----------------------------------
Douglas B. Otto,
Chairman of the Board and
Chief Executive Officer
Please acknowledge your acceptance of the terms and conditions of this
letter agreement by signing and returning one copy of this letter agreement.
Date: April 18, 1997
/s/ Diana M. Wilson
------------------------------------
Diana M. Wilson
<PAGE> 7
Ms. Diana M. Wilson
April 18, 1997
Page 7
Exhibit A
Section 2924 of the California Labor Code
<PAGE> 8
Ms. Diana M. Wilson
April 18, 1997
Page 8
EXHIBIT A
Section 2924
California Labor Code
Section 2924. Employment for specified term; Grounds for termination by employer
An employment for a specified term may be terminated at any time by the
employer in case of any willful breach of duty by the employee in the course of
his employment, or in case of his habitual neglect of his duty or continued
incapacity to perform it.
<PAGE> 1
EXHIBIT 10.38
LIMITED RECOURSE SECURED PROMISSORY NOTE
$624,000.00 Goleta, California
April 18, 1997
FOR VALUE RECEIVED, Diana M. Wilson, an individual ("Payor"),
hereby promises to pay to Deckers Outdoor Corporation, a Delaware corporation,
or order ("Payee"), the principal sum of Six Hundred Twenty-Four Thousand and
no/100 Dollars ($624,000.00), together with interest from the date hereof on the
unpaid principal balance hereunder at the rate of six and thirty-nine one
hundredths percent (6.39%) (the "Rate") per annum, on the earlier to occur of
(i) the fifth anniversary of the date hereof (the "Maturity Date"), (ii) within
ten (10) days following written demand by Payee if Payor's employment with Payee
is terminated by Payee For Cause (as defined below) or (iii) within ten (10)
days following written demand by Payee if Payor voluntary terminates her
employment with Payee other than for Just Cause (as defined below). Interest
hereunder shall be calculated on the basis of a 360-day year consisting of
twelve 30-day months. All payments of principal and interest under this Note are
payable only in lawful money of the United States at 495A South Fairview,
Goleta, California, 93117, or such other location as Payee may designate in
writing. This Note may be prepaid in whole or in part at any time or from time
to time at the option of Payor without any premium or penalty whatsoever. All
prepayments shall be first applied to accrued interest on the date of such
prepayment. The amount of any prepayment in excess of the accrued interest on
the date of such prepayment shall be applied to reduce the principal balance due
hereunder.
This Note and the obligations of Payor hereunder shall be
secured by the One Hundred Thousand Shares (100,000) of Common Stock of Payee
(the "Pledged Shares") pledged by Payor to Payee pursuant to that certain Stock
Pledge Agreement of even date herewith between Payor and Payee. In the event
that (a) Payor's employment is terminated by Payee For Cause or (b) Payor
voluntarily terminates her employment other than for Just Cause, this Note and
the obligations of Payor hereunder shall also be secured by any and all accrued
and unpaid bonus and severance payments payable to Payor by Payee upon such
termination of Payor's employment (the "Post-Termination Payments"). THE
OBLIGATIONS OF PAYOR UNDER THIS NOTE ARE SECURED SOLELY BY THE PLEDGED SHARES
AND, IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PRECEDING SENTENCE, THE
POST-TERMINATION PAYMENTS. THIS NOTE AND THE OBLIGATIONS OF PAYOR HEREUNDER ARE
NON-RECOURSE. For purposes of this agreement, (a) "Just Cause" means, without
Payor's written consent, (i) any material diminution of Payor's duties,
authority, responsibility, compensation or benefits (other than any reduction in
benefits applicable to similarly situated executives as a group) including,
without limitation, the removal of Payor's title as Chief Operating Officer and
Vice President of Payee, any material reduction of Payor's authority to act in a
capacity commensurate with such positions or any failure to provide or make
available to Payor any material benefit provided or made available to similarly
situated executives of Payee, or (ii) any relocation of Payor's principal place
of employment to a location more than twenty-five (25) miles from Santa
<PAGE> 2
Barbara, California and (b) "For Cause" means the occurrence or existence of any
of the following, as determined by a majority of the disinterested directors of
Payee's Board: (i) a material breach by Payor of Payor's duty not to engage in
any transaction that represents self-dealing with Payee or any of Payee's
affiliates that has not been approved by a majority of the disinterested
directors of Payee's Board, if in any such case such material breach remains
uncured after the lapse of fifteen (15) days following the date that Payee has
given Payor written notice thereof; (ii) any material act of dishonesty,
misappropriation, embezzlement, intentional fraud or similar conduct by Payor
involving Payee or any of its affiliates; (iii) Payor's conviction or plea of
nolo contendere or the equivalent in respect of a felony involving moral
turpitude (other than driving while intoxicated); (iv) any damage of a material
nature to any property of Payee or any of its affiliates caused by Payor's
willful or grossly negligent conduct; (v) the repeated non-prescription use of
any controlled substance or the repeated use of alcohol or any other
non-controlled substance that renders Payor materially unfit to serve in Payor's
capacity as an officer or employee of Payee or its affiliates; (vi) Payor's
wilful failure to comply with the reasonable instructions of the Board of
Directors after written notice to do so; or (vii) gross insubordination. For
purposes of this Note, termination of Payor's employment as a result of Payor's
death or disability shall not constitute termination "For Cause" but shall
constitute termination by Payor for "Just Cause."
To the extent permitted by law, Payor agrees to pay interest
on any interest payment due but unpaid on the unpaid principal balance hereof at
the Rate, plus two percent (2%) per annum. Payor agrees to pay all costs and
expenses, including reasonable attorneys' fees, incurred by Payee upon the
failure by Payor to make any payment hereunder when due.
Nothing contained in this Note or in any agreements between
Payor and Payee shall be deemed to require the payment by Payor of interest on
the indebtedness evidenced by this Note in excess of the amount that Payee may
lawfully contract to charge under applicable usury and other laws (the "Maximum
Legal Rate"). All agreements between Payor and Payee deemed to pertain to this
Note are expressly limited so that in no contingency or event shall the amount
paid or agreed to be paid to Payee for the use, forbearance, or detention of
money to be loaned hereunder exceed the Maximum Legal Rate. If, under any
circumstance whatsoever, the fulfillment of any obligation under this Note or
any other agreement between Payee and Payor deemed to pertain to this Note shall
involve exceeding the Maximum Legal Rate, then the obligation to be fulfilled by
Payor shall be reduced the minimum amount required so that such obligation shall
not exceed the Maximum Legal Rate.
Payor hereby waives presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest. No
failure to exercise and no delay in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other right,
power or privilege. The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by law.
2
<PAGE> 3
Payee agrees that this Note shall not be transferred without
the prior written consent of Payor, which consent shall not be unreasonably
withheld.
This Note is being delivered in connection with the loan by
Payee to Payor of the principal amount hereunder, which Payor has used to
purchase the Pledged Shares from Payee pursuant to an "Award" made by Payee to
Payor within the meaning of Section 3 of Payee's 1993 Employee Stock Incentive
Plan.
This Note has been executed and delivered in the State of
California and shall be governed by and construed in accordance with the laws
thereof without regard to its laws regarding choice of law or conflict of laws.
/s/ Diana M. Wilson
--------------------------------
Diana M. Wilson
3
<PAGE> 1
EXHIBIT 10.39
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT dated as of April 18, 1997 (this
"Agreement"), is by and between Diana M. Wilson, an individual ("Pledgor"), and
Deckers Outdoor Corporation, a Delaware corporation ("Lender").
R E C I T A L S
A. Lender has concurrently herewith advanced the sum of
Six Hundred Twenty-Four Thousand Dollars ($624,000.00) (the "Loan").
B. Pledgor has delivered to Lender that certain Limited
Recourse Secured Promissory Note of even date herewith (the "Note") setting
forth Pledgor's obligations with respect to the repayment of the Loan.
C. Pledgor has used the proceeds of the Loan to purchase
from Lender One Hundred Thousand (100,000) newly-issued shares of common stock
of Lender (the "Pledged Stock").
D. Such issuance and sale by Lender to Pledgor is
being made pursuant to an "Award" in accordance with Lender's 1993 Employee
Stock Incentive Plan.
E. Pledgor desires to pledge the Pledged Stock to Lender
pursuant to the Note.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals,
the terms and provisions hereof and the Note and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. SECURITY INTEREST. To secure the payment and
performance of the Note as and when due, Pledgor hereby grants, conveys,
pledges, assigns and transfers to Lender, a security interest in all right,
title, claim and interest of Pledgor in and to (a) the Pledged Stock and all
certificates and instruments representing or evidencing the Pledged Stock and
(b) all securities issued by Lender, or any successor thereto, that Pledgor
acquires or has the right to acquire from time to time in any manner in
substitution for or in respect of the Pledged Stock, including securities or
other property (other than cash) issued and delivered as a dividend or
distribution on, or in exchange for, the Pledged Stock including, without
limitation, in connection with any reclassification, increase or reduction of
capital or issued or delivered in connection with any merger or other
reorganization, such additional securities being thenceforth included in the
definition of "Pledged Stock."
<PAGE> 2
SECTION 2. REPRESENTATIONS AND WARRANTIES.
2.1. Pledgor has good title to the Pledged Stock,
free and clear of all liens other than as created by this Agreement.
2.2. This Agreement has been duly executed and
delivered by Pledgor and constitutes the valid and binding obligation of
Pledgor, enforceable against Pledgor in accordance with its terms..
SECTION 3. DELIVERY OF PLEDGED STOCK, ETC. As of the date
hereof, Pledgor is delivering to Lender certificates or instruments in respect
of the Pledged Stock, in suitable form for transfer by delivery, accompanied by
duly executed instruments of transfer or assignment in blank. If Pledgor
receives or becomes entitled to receive any securities in substitution for or in
respect of the Pledged Stock, Pledgor shall receive the same as the agent for
Lender and shall hold the same in trust for and deliver the same promptly to
Lender in the exact form in which received, together with appropriate
instruments of transfer or assignments in blank, to be held by Lender as
collateral hereunder. Promptly upon payment in full of all amounts due under the
Note, Lender shall return to Pledgor all Pledged Stock and instruments of
transfer theretofore delivered.
SECTION 4. VOTING AND OTHER CONSENSUAL RIGHTS; DISTRIBUTIONS.
Pledgor shall be entitled to exercise any and all voting rights pertaining to
any Pledged Stock and to receive and retain any and all dividends and other
distributions paid in cash in respect of any of the Pledged Stock.
Notwithstanding the foregoing, in the event the Note is not paid in full upon
maturity, at the sole option of Lender, any or all rights of Pledgor to exercise
voting and other consensual rights shall cease, and Lender, if and when it
notifies Pledgor in writing of the exercise of such option, shall have the sole
right to exercise any or all such voting rights and to receive and hold as
collateral for the Note any or all cash and other dividends and distributions
thereafter paid in respect of the Pledged Stock.
SECTION 5. REMEDIES. If the Note is not paid in full upon
maturity, in addition to all its other rights, powers and remedies under this
Agreement and applicable law, Lender shall have, and may exercise with respect
to the Pledged Stock, any and all of the rights, powers and remedies of a
secured party under the Uniform Commercial Code, all of which rights, powers and
remedies shall be cumulative and not exclusive, to the extent permitted by
applicable law.
SECTION 6. GENERAL.
Section 6.1. Applicable Law. Except to the extent
otherwise required under applicable law, this Agreement shall be governed
by, and construed in accordance with, the laws of the State of California (other
than choice of law rules that would require the application of the laws of any
other jurisdiction).
Section 6.2. Amendments and Other Modifications. No
amendment of any provision of this Agreement (including a waiver thereof or
consent relating thereto) shall be effective unless the same shall be in writing
and signed by the party to be charged with enforcement thereof.
2
<PAGE> 3
Section 6.3. Notices. All notices and other
communications under this Agreement shall be in writing and shall be
personally delivered or sent by prepaid courier, by overnight, registered or
certified mail (postage prepaid) or by prepaid telex, telecopy or telegram, and
shall be deemed given when received by the intended recipient thereof. Unless
otherwise specified in a notice given in accordance with the foregoing
provisions of this Section 6, notices and other communications shall be given to
the parties hereto at their respective addresses (or to their respective telex
or telecopier numbers) set forth below.
Section 6.4. Successors and Assigns. This Agreement
shall be binding upon and, subject to the next sentence, inure to the benefit of
Pledgor and Lender and their respective successors and assigns. Lender shall not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of Pledgor.
Section 6.5. Choice of Forum. All actions or
proceedings arising in connection with this Agreement shall be tried and
litigated in state or Federal courts located in the City of Santa Barbara, State
of California, unless such actions or proceedings are required to be brought in
another court to obtain subject matter jurisdiction over the matter in
controversy. EACH OF PLEDGOR AND LENDER WAIVES ANY RIGHT IT MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS NOT SUBJECT TO THE
JURISDICTION OF SUCH COURTS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING
IS BROUGHT IN ACCORDANCE WITH THIS SECTION 6.5.
Section 6.6. Execution in Counterparts. This
Agreement may be executed in any number of counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
Section 6.7. Complete Agreement. This Agreement,
together with the Note, is intended by the parties as a final expression of
their agreement regarding the subject matter hereof and as a complete and
exclusive statement of the terms and conditions of such agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first set forth above.
PLEDGOR
/s/ Diana M. Wilson
---------------------------------
Diana M. Wilson
LENDER
DECKERS OUTDOOR CORPORATION,
a Delaware corporation
By: /s/ Douglas B. Otto
---------------------------------
Name: Douglas B. Otto
Title: Chief Executive Officer
Address: 495A South Fairview
Goleta, California 93117
4
<PAGE> 1
Exhibit 11.1
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Statement of Computation of Earnings per Share
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
--------------------------
1997 1996
---------- ---------
<S> <C> <C>
Net earnings available to common stockholders $1,990,000 1,479,000
---------- ---------
Weighted average common stock outstanding 8,984,000 9,242,000
Common stock equivalents - stock options 56,000 62,000
---------- ---------
9,040,000 9,304,000
========== ==========
Net earnings per share $ 0.22 0.16
========== ==========
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,481,000
<SECURITIES> 0
<RECEIVABLES> 30,466,000
<ALLOWANCES> 1,491,000
<INVENTORY> 21,336,000
<CURRENT-ASSETS> 55,773,000
<PP&E> 4,968,000
<DEPRECIATION> 2,300,000
<TOTAL-ASSETS> 81,171,000
<CURRENT-LIABILITIES> 11,568,000
<BONDS> 12,789,000
0
0
<COMMON> 90,000
<OTHER-SE> 56,724,000
<TOTAL-LIABILITY-AND-EQUITY> 81,171,000
<SALES> 34,441,000
<TOTAL-REVENUES> 34,441,000
<CGS> 19,491,000
<TOTAL-COSTS> 19,491,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 450,000
<INTEREST-EXPENSE> 252,000
<INCOME-PRETAX> 3,505,000
<INCOME-TAX> 1,515,000
<INCOME-CONTINUING> 1,990,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,990,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
