<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 June 30, 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 0-22446
DECKERS OUTDOOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3015862
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation IRS Employer Identification
or organization)
495A South 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 July 31, 1997
----------------------------- -------------------
Common stock, $.01 par value 9,007,631
<PAGE> 2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
<TABLE>
Page
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Earnings for the Three-Month Period Ended
June 30, 1997 and 1996 2
Condensed Consolidated Statements of Earnings for the Six-Month Period Ended
June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows for the Six-Month
Period Ended June 30, 1997 and 1996 4-5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
Part II Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
<PAGE> 3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,277,000 1,287,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,491,000 and
$1,292,000 as of June 30,
1997 and December 31, 1996, respectively 21,862,000 17,866,000
Inventories 13,887,000 24,930,000
Prepaid expenses and other current assets 2,970,000 3,643,000
Deferred tax assets 1,622,000 1,622,000
---------- ----------
Total current assets 42,618,000 49,348,000
Property and equipment, at cost, net 2,317,000 2,794,000
Intangible assets, less applicable amortization 20,650,000 20,805,000
Note receivable from supplier, net 1,666,000 1,838,000
Other assets, net 65,000 112,000
---------- ----------
$ 67,316,000 74,897,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 103,000 99,000
Trade accounts payable 3,703,000 5,494,000
Accrued expenses 3,453,000 3,042,000
Income taxes payable 753,000 983,000
---------- ----------
Total current liabilities 8,012,000 9,618,000
---------- ----------
Long-term debt, less current maturities 1,238,000 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
9,393,431 and outstanding 9,013,031 at June 30, 1997; issued
9,283,556 and outstanding 8,983,556 at December 31, 1996 90,000 90,000
Additional paid-in capital 26,912,000 26,790,000
Retained earnings 31,688,000 28,109,000
---------- ----------
58,690,000 54,989,000
Less: note receivable from stockholder/officer (624,000) --
---------- ----------
Total stockholders' equity 58,066,000 54,989,000
---------- ----------
$ 67,316,000 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
JUNE 30,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 28,103,000 27,550,000
Cost of sales 15,571,000 16,455,000
---------- ----------
Gross profit 12,532,000 11,095,000
Selling, general and administrative expenses 9,614,000 8,540,000
---------- ----------
Earnings from operations 2,918,000 2,555,000
Other expense (income):
Interest expense, net 129,000 226,000
Minority interest in net loss of subsidiary -- (18,000)
Loss on disposal of property, plant and equipment -- 349,000
Miscellaneous expense (income) (10,000) 151,000
---------- ----------
Earnings before income taxes 2,799,000 1,847,000
Income taxes 1,210,000 823,000
---------- ----------
Net earnings $ 1,589,000 1,024,000
========== ==========
Net earnings per common and common equivalent shares $ 0.18 0.11
========== ==========
Weighted average common and common equivalent shares outstanding
9,070,000 9,325,000
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE> 5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
-----------------------------
1997 1996
----------- ----------
<S> <C> <C>
Net sales $ 62,544,000 56,322,000
Cost of sales 35,062,000 32,637,000
----------- ----------
Gross profit 27,482,000 23,685,000
Selling, general and administrative expenses 20,384,000 18,389,000
Loss on factory closure 500,000 --
----------- ----------
Earnings from operations 6,598,000 5,296,000
Other expense (income):
Interest expense, net 381,000 508,000
Minority interest in net loss of subsidiary (81,000) (81,000)
Loss on disposal of property, plant and equipment -- 349,000
Miscellaneous expense (income) (6,000) 3,000
----------- ----------
Earnings before income taxes 6,304,000 4,517,000
Income taxes 2,725,000 2,014,000
----------- ----------
Net earnings $ 3,579,000 2,503,000
=========== ==========
Net earnings per common and common equivalent shares $ 0.40 0.27
=========== ===========
Weighted average common and common equivalent shares outstanding
9,057,000 9,306,000
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------------
1997 1996
---------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 3,579,000 2,503,000
---------- ---------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 1,146,000 974,000
Provision for doubtful accounts 700,000 985,000
Minority interest in net loss of subsidiary (81,000) (81,000)
Loss on disposal of property, plant and equipment 626,000 349,000
Loss on factory closure 500,000
Changes in assets and liabilities (Increase) decrease in:
Trade accounts receivable (4,196,000) (2,279,000)
Inventories 11,043,000 3,453,000
Prepaid expenses and other current assets 673,000 726,000
Note receivable from supplier (328,000) (93,000)
Refundable income taxes -- 2,756,000
Other assets (53,000) 350,000
Increase (decrease) in:
Accounts payable (1,791,000) (475,000)
Accrued expenses 492,000 630,000
Income taxes payable (230,000) 860,000
---------- ---------
Total adjustments 8,501,000 8,155,000
---------- ---------
Net cash provided by operating activities 12,080,000 10,658,000
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,189,000) (595,000)
Payment for acquisition of Ugg (351,000) (495,000)
Cash paid to stockholder/officer for loan (624,000) ---
Other --- (192,000)
---------- ---------
Net cash used in investing activities (2,164,000) (1,282,000)
---------- ---------
</TABLE>
(Continued)
4
<PAGE> 7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from financing activities:
Repayments of notes payable and long-term debt $ (9,048,000) (5,822,000)
Proceeds from issuances of common stock 625,000 60,000
Repurchase of common stock (554,000) ---
Cash paid for repurchase of outstanding stock options in a
subsidiary --- (725,000)
Cash received from exercise of stock options 51,000 ---
Other --- 43,000
---------- ---------
Net cash used in financing activities (8,926,000) (6,444,000)
---------- ---------
Net increase in cash and cash equivalents 990,000 2,932,000
Cash and cash equivalents at beginning of period 1,287,000 3,222,000
---------- ---------
Cash and cash equivalents at end of period $ 2,277,000 6,154,000
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 435,000 524,000
Income taxes 2,230,000 183,000
========== =========
</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 six-month
period ended June 30, 1996, the Company gave consideration of
$2,111,000, consisting of $725,000 of cash, notes payable to the
Founder (net of imputed interest) aggregating $1,011,000 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.
5
<PAGE> 8
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 June 30, 1997 and December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 966,000 3,239,000
Work in process 484,000 1,197,000
Finished goods 12,437,000 20,494,000
---------- ----------
Total inventory $ 13,887,000 24,930,000
========== ==========
</TABLE>
6
<PAGE> 9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(4) Note Receivable from Stockholder/Officer
On April 18, 1997, the Company issued one of its officers a $624,000
loan to purchase 100,000 shares of the Company's common stock at the
fair market value on that date. The loan bears interest at 6.39% and is
secured by the stock so acquired and by any severance pay, including
any unpaid bonuses.
(5) 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.
(6) 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, but has incurred substantial costs to
date in defending itself. These costs are expected to continue until
the conclusion of the arbitration. 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
arbitration will occur in September 1997.
(7) 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.
7
<PAGE> 10
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June
30, 1996
Net sales increased by $553,000 or 2.0% between the three months ended
June 30, 1997 and 1996. Sales of the Teva(R) line increased from
$17,414,000 for the three months ended June 30, 1996 to $20,752,000 for
the three months ended June 30, 1997, a 19.2% increase. Sales of
Teva(R) products represented 63.2% and 73.8% of net sales in the three
months ended June 30, 1996 and 1997, respectively. Net sales of
footwear under the Simple(R) product line decreased 34.2%, from
$9,141,000 to $6,018,000 between the three months ended June 30, 1996
and 1997. This decrease was largely due to the non-recurrence of last
year's demand for certain styles of Simple(R) clogs. Overall,
international sales for all of the Company's products increased 1.9%
from $4,851,000 to $4,943,000, representing 17.5% of net sales in 1996
and 17.6% in 1997. Because the increase in the volume of sales of
Teva(R) footwear products did not offset the decrease in the volume of
sales of Simple(R) footwear products, the volume of footwear sold
decreased 3.2% from 1,110,000 pairs during the three months ended June
30, 1996 to 1,074,000 pairs during the three months ended June 30,
1997.
The weighted average wholesale price per pair sold during these
respective periods decreased 0.8% from $25.08 to $24.89. The decrease
was primarily due to a change in the sales mix for Simple(R) products,
with significantly greater sales of the relatively higher priced clogs
during second quarter 1996 compared to second quarter 1997. This
decrease was partially offset by the lower volume of Teva(R) close-outs
in second quarter 1997 compared to second quarter 1996.
Cost of sales decreased by $884,000, or 5.4%, to $15,571,000 for the
three months ended June 30, 1997, compared with $16,455,000 for the
three months ended June 30, 1996. Gross profit increased by $1,437,000,
or 13.0% to $12,532,000 for the three months ended June 30, 1997 from
$11,095,000 for the three months ended June 30, 1996 and increased as a
percentage of net sales to 44.6% from 40.3%. The increase in gross
profit margin as a percentage of net sales was primarily due to
significantly reduced levels of Teva(R) close-outs, the closure of the
Company's California manufacturing facility in March 1997 and decreased
freight costs.
Selling, general and administrative expenses increased by $1,074,000,
or 12.6% between the three months ended June 30, 1996 and June 30,
1997, and increased as a percentage of net sales from 31.0% in 1996 to
34.2% in 1997. The increase was primarily due to legal costs related to
disputes with some of the former shareholders of Ugg Holdings,
additional royalties on increased Teva(R) sales and amortization of the
Teva(R) license fee.
Income taxes were $1,210,000 for the three months ended June 30, 1997,
representing an effective income tax rate of 43.2% compared with income
taxes of $823,000 for the three months ended June 30, 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.
8
<PAGE> 11
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
The Company had net earnings of $1,589,000 for the three months ended
June 30, 1997 as compared with net earnings of $1,024,000 for the three
months ended June 30, 1996, an increase of 55.2% for the reasons
discussed above.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30,
1996
Net sales increased by $6,222,000 or 11.0% between the six months ended
June 30, 1997 and 1996. Sales of the Teva(R) line increased from
$36,014,000 for the six months ended June 30, 1996 to $45,005,000 for
the six months ended June 30, 1997, a 25.0% increase. Sales of Teva(R)
products represented 63.9% and 72.0% of net sales in the six months
ended June 30, 1996 and 1997, respectively. Net sales of footwear under
the Simple(R) product line decreased 11.1% from $17,124,000 to
$15,224,000 between the six months ended June 30, 1996 and 1997. This
decrease was largely due to the non-recurrence of last year's demand
for certain styles of Simple(R) clogs. Overall, international sales for
all of the Company's products increased 2.8% from $13,856,000 to
$14,240,000 representing 24.6% of net sales in 1996 and 22.8% in 1997.
Because the increase in the volume of sales of Teva(R) footwear
products more than offset the decrease in the volume of sales of
Simple(R) footwear products, the volume of footwear sold increased 7.9%
from 2,217,000 pairs during the six months ended June 30, 1996 to
2,393,000 pairs during the six months ended June 30, 1997.
The weighted average wholesale price per pair sold during these
respective periods decreased 2.9% from $25.74 to $25.00. The decrease
was primarily due to a change in the sales mix for Simple(R) products,
with significantly greater sales of the relatively higher priced clogs
during second quarter 1996 compared to second quarter 1997. This
decrease was partially offset by the lower volume of Teva(R) close-outs
in second quarter 1997 compared to second quarter 1996.
Cost of sales increased by $2,425,000, or 7.4%, to $35,062,000 for the
six months ended June 30, 1997, compared with $32,637,000 for the six
months ended June 30, 1996. Gross profit increased by $3,797,000 or
16.0% to $27,482,000 for the six months ended June 30, 1997 from
$23,685,000 for the six months ended June 30, 1996 and increased as a
percentage of net sales to 43.9% from 42.1%. The increase in gross
profit margin as a percentage of net sales was primarily due to
significantly reduced levels of Teva(R) close-outs and decreased
freight costs.
Selling, general and administrative expenses increased by $1,995,000 or
10.8% between the six months ended June 30, 1996 and June 30, 1997 and
was consistent as a percentage of net sales at 32.6% in 1996 and 1997.
The increase of $1,995,000 was the result of increased net sales,
increased royalties due to a change in the sales mix and increased
legal costs related to disputes with some of the former shareholders of
Ugg Holdings.
Income taxes were $2,725,000 for the six months ended June 30, 1997,
representing an effective income tax rate of 43.2% compared with income
taxes of $2,014,000 for the six months ended June 30, 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.
9
<PAGE> 12
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
The Company had net earnings of $3,579,000 for the six months ended
June 30, 1997 as compared with net earnings of $2,503,000 for the six
months ended June 30, 1996, an increase of 43.0%, 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.
Net sales of the Simple(R) product line for the six months ended June
30, 1997 decreased 11.1% from net sales for the six months ended June
30, 1996. The Company currently expects that net sales of Simple(R)
shoes in 1997 will be flat or lower than sales in 1996. Net sales of
Ugg(R) footwear are expected to be lower in 1997 than net 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 net sales for the Simple(R) and Ugg(R) lines will be more
than offset by increased net 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
June 30, 1997, working capital was $34,606,000 including $2,277,000 of
cash and cash equivalents. Cash provided by operating activities
aggregated $12,080,000 for the six months ended June 30, 1997. Trade
accounts receivable increased 22.4% from December 31, 1996 to June 30,
1997, largely due to normal seasonality and increased Teva(R) sales as
discussed above. Inventories decreased 44.3% 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
June 30, 1997) plus up to 0.25%,
10
<PAGE> 13
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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 June 30, 1997, the Company had repaid all
of its borrowings under the Facility and had approximately $14,237,000
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 June 30, 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
$1,666,000 (net of related allowance) was outstanding at June 30, 1997.
The note is secured by all assets of the supplier and bears interest at
the prime rate (8.50% at June 30, 1997) plus 1%.
Capital expenditures totaled $1,189,000 for the six months ended June
30, 1997. The Company's capital expenditures related primarily to
leasehold improvements and equipment 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. In May 1997, the Company made a $351,000 payment to the
former shareholders related to its required payments for the year ended
March 31, 1997.
In 1996, the Company's Board of Directors authorized the repurchase of
up to 300,000 shares of the Company's outstanding common stock 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 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 six months
ended June 30, 1997, the Company repurchased 80,400 shares for cash
consideration of $554,000. From July 1, 1997 through July 31, 1997, the
Company repurchased 5,400 shares for cash consideration of $40,000.
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.
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.
11
<PAGE> 14
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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.
12
<PAGE> 15
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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, but has incurred substantial costs to
date in defending itself. These costs are expected to continue until
the conclusion of the arbitration. 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
arbitration will occur in September 1997.
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.
On May 30, 1997, the Company held its Annual Meeting of Stockholders.
At the meeting, Ronald D. Page and Diana M. Wilson were each re-elected
as Class I directors until the Annual Meeting of Stockholders to be
held in 2000, until such director's successor has been duly elected and
qualified or until such director has otherwise ceased to serve as a
director. For Ronald D. Page, 8,519,845 votes were cast in favor and
15,905 votes were withheld. For Diana M. Wilson, 8,514,420 votes were
cast in favor and 21,330 were withheld. There were no broker non-votes.
The stockholders also ratified the selection of KPMG Peat Marwick LLP
as the Company's independent auditors. 8,511,596 votes were cast in
favor of the ratification; 6,030 were voted against; and 18,124
abstained. There were no broker non-votes.
Item 5. Other Information. Not applicable
Item 6. Exhibits and Reports on Form 8 K.
(a) Exhibits
Exhibit 11.1 Statement of Computation of Earnings per Share.
(b) Reports on Form 8 K. None
13
<PAGE> 16
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: August 5, 1997 /s/ M. SCOTT ASH
----------------------------------------
M. Scott Ash, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
14
<PAGE> 1
EXHIBIT 11.1
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Statement of Computation of Earnings per Share
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
JUNE 30,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
Net earnings available to common stockholders $ 1,589,000 1,024,000
========= =========
Weighted average common stock outstanding 9,008,000 9,247,000
Common stock equivalents - stock options 62,000 78,000
--------- ---------
9,070,000 9,325,000
========= =========
Net earnings per share $ 0.18 0.11
========= =========
SIX-MONTH PERIOD ENDED
JUNE 30,
-----------------------------
1997 1996
--------- ---------
Net earnings available to common stockholders $ 3,579,000 2,503,000
========= =========
Weighted average common stock outstanding 8,996,000 9,245,000
Common stock equivalents - stock options 61,000 61,000
--------- ---------
9,057,000 9,306,000
========= =========
Net earnings per share $ 0.40 0.27
========= =========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,277,000
<SECURITIES> 0
<RECEIVABLES> 23,353,000
<ALLOWANCES> 1,491,000
<INVENTORY> 13,887,000
<CURRENT-ASSETS> 42,618,000
<PP&E> 4,804,000
<DEPRECIATION> 2,487,000
<TOTAL-ASSETS> 67,316,000
<CURRENT-LIABILITIES> 8,012,000
<BONDS> 1,238,000
0
0
<COMMON> 90,000
<OTHER-SE> 57,976,000
<TOTAL-LIABILITY-AND-EQUITY> 67,316,000
<SALES> 62,544,000
<TOTAL-REVENUES> 62,544,000
<CGS> 35,062,000
<TOTAL-COSTS> 35,062,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 700,000
<INTEREST-EXPENSE> 381,000
<INCOME-PRETAX> 6,304,000
<INCOME-TAX> 2,725,000
<INCOME-CONTINUING> 3,579,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,579,000
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
