<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, 1998
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)
495-A 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.
<TABLE>
<CAPTION>
Outstanding at
CLASS May 8, 1998
---------------------------- --------------
<S> <C>
Common stock, $.01 par value 8,782,322
</TABLE>
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 1
Condensed Consolidated Statements of Earnings for the
Three-Month Period Ended March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
Three-Month Period Ended March 31, 1998 and 1997 3-4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
<PAGE> 3
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 2,129,000 3,238,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,191,000 and $1,092,000 as of
March 31, 1998 and December 31, 1997, respectively 37,353,000 23,037,000
Inventories 19,252,000 18,979,000
Prepaid expenses and other current assets 2,880,000 2,190,000
Deferred tax assets 1,357,000 1,357,000
----------- -----------
Total current assets 62,971,000 48,801,000
Property and equipment, at cost, net 2,652,000 2,509,000
Intangible assets, less applicable amortization 21,528,000 21,866,000
Note receivable from supplier, net 771,000 966,000
Other assets, net 561,000 551,000
----------- -----------
$88,483,000 74,693,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- 2,000,000
Current installments of long-term debt 109,000 107,000
Trade accounts payable 3,859,000 3,629,000
Accrued expenses 5,035,000 3,821,000
Income taxes payable -- 22,000
----------- -----------
Total current liabilities 9,003,000 9,579,000
----------- -----------
Long-term debt, less current installments 20,955,000 7,983,000
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
9,471,729 and outstanding 8,777,329 at March 31, 1998; issued
9,444,431 and outstanding 8,789,431 at December 31, 1997 88,000 88,000
Additional paid-in capital 24,675,000 25,034,000
Retained earnings 34,386,000 32,633,000
----------- -----------
59,149,000 57,755,000
Less note receivable from stockholder/officer 624,000 624,000
----------- -----------
Total stockholders' equity 58,525,000 57,131,000
----------- -----------
$88,483,000 74,693,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $32,177,000 34,441,000
Cost of sales 18,640,000 19,491,000
----------- -----------
Gross profit 13,537,000 14,950,000
Selling, general and administrative expenses 10,148,000 10,770,000
Loss on factory closure -- 500,000
----------- -----------
Earnings from operations 3,389,000 3,680,000
Other expense (income):
Interest expense, net 294,000 252,000
Minority interest in net loss of unconsolidated subsidiary -- (81,000)
Miscellaneous expense 7,000 4,000
----------- -----------
Earnings before income taxes 3,088,000 3,505,000
Income taxes 1,335,000 1,515,000
----------- -----------
Net earnings $ 1,753,000 1,990,000
=========== ===========
Net earnings per share:
Basic $ 0.20 0.22
Diluted 0.20 0.22
=========== ===========
Weighted average shares:
Basic 8,807,000 8,984,000
Diluted 8,832,000 9,040,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,753,000 1,990,000
------------ ------------
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 633,000 663,000
Provision for doubtful accounts 160,000 450,000
Loss on disposal of assets 3,000 --
Loss on factory closure -- 500,000
Stock compensation 84,000 --
Minority interest in net loss of unconsolidated
subsidiary -- (81,000)
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (14,476,000) (11,309,000)
Inventories (273,000) 3,594,000
Prepaid expenses and other current assets (690,000) 1,284,000
Note receivable from supplier 195,000 (275,000)
Other assets (11,000) (263,000)
Increase (decrease) in:
Accounts payable 230,000 (1,076,000)
Accrued expenses 1,214,000 2,315,000
Income taxes payable (22,000) 790,000
------------ ------------
Total adjustments (12,953,000) (3,408,000)
------------ ------------
Net cash used in operating activities (11,200,000) (1,418,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (440,000) (724,000)
Cash paid in connection with Ugg acquisition (2,000,000) --
------------ ------------
Net cash used in investing activities (2,440,000) (724,000)
------------ ------------
</TABLE>
(Continued)
3
<PAGE> 6
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from notes payable and long-term
debt 12,975,000 2,501,000
Cash paid for repurchases of common stock (521,000) (165,000)
Cash received from issuances of common stock 77,000 --
------------ ------------
Net cash provided by financing activities 12,531,000 2,336,000
------------ ------------
Net increase (decrease) in cash (1,109,000) 194,000
Cash at beginning of period 3,238,000 1,287,000
------------ ------------
Cash at end of period $ 2,129,000 1,481,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 267,000 245,000
Income taxes 1,402,000 726,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 7
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 condensed 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 condensed consolidated financial
statements and related footnotes have been condensed and do not contain
certain information that will be included in the Company's annual
condensed consolidated financial statements and footnotes thereto. For
further information, refer to the condensed consolidated financial
statements and related footnotes for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K.
(2) Earnings per Share
Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share represents net earnings divided by the
weighted-average number of shares outstanding, inclusive of the dilutive
impact of common stock equivalents. During the first quarters ended March
31, 1998 and March 31, 1997, the difference between basic and diluted
earnings per share was due to the dilutive impact of options to purchase
common stock.
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net earnings used for basic and diluted
earnings per share $1,753,000 $1,990,000
========== ==========
Weighted average shares used in basic
computation 8,807,000 8,984,000
Dilutive stock options 25,000 56,000
---------- ----------
Weighted average shares used for diluted
computation 8,832,000 9,040,000
========== ==========
</TABLE>
5
<PAGE> 8
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(3) Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods $16,146,000 14,081,000
Work in process 1,335,000 1,189,000
Raw materials 1,771,000 3,709,000
----------- -----------
Total inventories $19,252,000 18,979,000
=========== ===========
</TABLE>
(4) Credit Facility
The Company has a revolving credit facility with a bank (the
"Facility"), providing a maximum borrowing availability of $25,000,000,
with an amended credit availability of $30,000,000 from March 16, 1998
to May 31, 1998. The Facility also requires the Company to pay down the
outstanding balance to less than $2,500,000 for at least thirty
consecutive days during each of the thirteen month periods ending April
30, 1999 and 2000. 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 (8.5% at March 31, 1998) 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, 1998 the
Company had borrowed $20,300,000 under the Facility and had outstanding
letters of credit of $7,614,000, leaving approximately $2,086,000
available for borrowings.
(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
<PAGE> 9
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(6) Settlement with Former Ugg Shareholders
In September 1997, the Company settled its on-going arbitration with a
group of former shareholders of Ugg Holdings, Inc., a corporation
purchased by the Company in August 1995. In addition, the remaining
former Ugg shareholders who were not a party to the arbitration agreed
to accept the same economic terms as those involved in the arbitration.
Under the terms of the settlement, the Company made a final payment to
all former Ugg shareholders in the amount of $2 million on January 2,
1998. This payment replaces all future earn-out payments that were to be
paid through the year 2000 in accordance with the original acquisition
agreement. These amounts were included in the overall purchase price and
allocated to goodwill.
(7) Recently Issued Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income" and FAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." FAS No. 130 establishes standards for reporting
and display of comprehensive income and its components. FAS No. 131
supersedes previous reporting requirements for reporting on segments of
a business enterprise. FAS No. 130 and FAS No. 131 are effective for
periods beginning after December 15, 1997.
The Company adopted FAS No. 130 "Reporting Comprehensive Income" on
January 1, 1998. The only difference between "net earnings" and
"comprehensive income" for the Company is the impact from foreign
currency translation adjustments. Foreign currency translation
adjustments were immaterial to the Company's condensed consolidated
financial statements. Accordingly, net earnings approximated
comprehensive income for the first quarters ended March 31, 1998 and
March 31, 1997.
Since FAS No. 131 is not required for interim reporting in the year of
adoption, the Company plans to adopt this standard in the preperation of
its annual financial statements to be included in the December 31, 1998
Form 10-K. As FAS No. 131 only requires additional disclosures, the
Company expects there will be no impact on its financial position or
results of operations from the implementation.
7
<PAGE> 10
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(8) Contingencies
An action was brought against the Company in 1995 whereby the plaintiff
alleges, among other things, that the Company violated certain
non-disclosure agreements and infringed purported trade secrets
regarding certain footwear products and capitalized on the information
by developing a competing product and incorporating certain concepts or
technologies into other product lines. The complaint seeks specified
damages of $15 million and other unspecified damages. The Company
believes such claims are without merit. The Company anticipates that
this matter will proceed to trial in 1998. The Company has contested,
and intends to continue contesting this claim vigorously. A motion for
summary judgment seeking dismissal of this matter is pending. The
Company does not anticipate that the ultimate outcome of the complaint
will have a material adverse effect upon the Company's financial
position, results of operations or cash flows.
The European Commission has enacted anti-dumping duties of 49.2% on
certain types of footwear imported into Europe from China and Indonesia.
Dutch Customs has issued an opinion to the Company that two of the most
popular Teva styles, the Valkyrie and the Storm, are covered by this
anti-dumping duty legislation. The Company does not believe that these
styles are covered by the legislation and is working with Customs to
resolve the situation. In the event that Customs makes a final
determination that such styles are covered by the anti-dumping
provisions, the Company expects that it would have an exposure to prior
anti-dumping duties from 1997. In addition, if Customs determines that
these styles are covered by the legislation, the duty amounts could
cause such products to be too costly to import into Europe from China in
the future. As a result, the Company may have to cease shipping such
styles from China into Europe in the future or may have to begin to
source these styles from countries not covered by the legislation. At
this time the Company is unable to predict the outcome of this matter
and the effect, if any, on the Company's condensed consolidated
financial statements.
8
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March
31, 1997
Net sales decreased by $2,264,000, or 6.6%, between the three months
ended March 31, 1998 and 1997. Sales of the Teva(R) line decreased from
$24,252,000 for the three months ended March 31, 1997 to $23,221,000 for
the three months ended March 31, 1998, a 4.3% decrease. Sales of Teva(R)
products represented 70.4% and 72.2% of net sales in the three months
ended March 31, 1997 and 1998, respectively. Due to the success of
Teva's(R) fourth quarter early delivery program in 1997, approximately
$5 to $6 million of Teva product was shipped in the fourth quarter of
1997, which the Company believes ordinarily would have shipped in the
first quarter of 1998. Net sales of footwear under the Simple(R) product
line decreased 28.2%, from $9,206,000 to $6,612,000, between the three
months ended March 31, 1997 and 1998. Overall, international sales for
all of the Company's products decreased 8.2% from $9,297,000 to
$8,532,000, representing 27.0% of net sales in 1997 and 26.5% in 1998.
The volume of footwear sold decreased 9.8% from 1,319,000 pairs during
the three months ended March 31, 1997 to 1,190,000 pairs during the
three months ended March 31, 1998.
The weighted average wholesale price per pair sold during the three
months ended March 31, 1998 decreased 2.0% to $25.42 from $25.93 for the
three months ended March 31, 1997. The decrease was primarily due to
higher volumes of Simple(R) closeouts in the first quarter of 1998
compared to the first quarter of 1997.
Cost of sales decreased by $851,000, or 4.4%, to $18,640,000 for the
three months ended March 31, 1998, compared with $19,491,000 for the
three months ended March 31, 1997. Gross profit decreased by $1,413,000,
or 9.5%, to $13,537,000 for the three months ended March 31, 1998 from
$14,950,000 for the three months ended March 31, 1997 and decreased as a
percentage of net sales to 42.1% from 43.4%. This decrease was largely
due to an increase in closeout sales and inventory write-downs under the
Simple(R) brand, as well as an increase in the volume of lower margin
component sales.
Selling, general and administrative expenses decreased by $622,000, or
5.8%, between the three months ended March 31, 1997 and March 31, 1998,
and increased slightly as a percentage of net sales from 31.3% in 1997
to 31.5% in 1998. The decrease in absolute dollars was primarily due to
decreases in marketing expenditures and bad debts expense, as well as
reduced sales commission expense related to the lower sales volume.
These expense reductions were partially offset by higher research and
development expenditures and legal related costs.
Net interest expense was $294,000 for the three months ended March 31,
1998 compared with net interest expense of $252,000 for the three months
ended March 31, 1997, primarily due to higher levels of borrowings under
the Company's credit facility in the first quarter of 1998.
Income taxes were $1,335,000 for the three months ended March 31, 1998,
representing an effective income tax rate of 43.2% compared with income
taxes of $1,515,000 for the three months ended March 31, 1997,
representing a comparable effective income tax rate of 43.2%.
9
<PAGE> 12
The Company had net earnings of $1,753,000 for the three months ended
March 31, 1998 as compared with net earnings of $1,990,000 for the three
months ended March 31, 1997, a decrease of 11.9%, 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.
The Company expects that sales for Teva(R) will increase on a season to
season basis (October 1 to September 30). However, due to the success of
Teva's fourth quarter early delivery program in 1997, which the Company
believes shifted approximately $5 to $6 million of sales from the first
quarter of 1998 to the fourth quarter of 1997, the Company expects that
on a calendar basis in 1998 Teva(R) sales will be relatively flat in
comparison to 1997.
Net sales of the Simple(R) product line for the three months ended March
31, 1998 decreased 28.2% from net sales for the three months ended March
31, 1997. The Company currently expects that net sales of Simple(R)
shoes in 1998 will be lower than sales in 1997.
The Company continues to expect that Ugg(R) sales will increase in 1998
in comparison to 1997.
In an effort to position the Company for growth in 1999, the Company
currently plans to increase spending in 1998 in certain areas of the
Company, which may include advertising, research and development,
international sales operations, Teva(R) apparel infrastructure and
continued improvements in the Company's management information systems.
While the Company currently expects that it will fund a portion of these
increased expenditures from efficiencies gained elsewhere, the Company
currently expects that there will be a net increase in the Company's
operating expenses as a percentage of sales in comparison to 1997.
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. Availability of products can also affect the Company's
ability to meet its customers' orders. 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.
Sales of the Company's products, particularly those under the Teva(R)
and Ugg(R) lines, are very sensitive to weather conditions. Extended
periods of unusually cold weather during the spring and summer could
adversely impact demand for the Company's Teva(R) line. Likewise,
unseasonably warm weather during the fall and winter months could
adversely impact demand for the Company's Ugg(R) product line.
10
<PAGE> 13
An action was brought against the Company in 1995 whereby the plaintiff
alleges, among other things, that the Company violated certain
non-disclosure agreements and infringed purported trade secrets
regarding certain footwear products and capitalized on the information
by developing a competing product and incorporating certain concepts or
technologies into other product lines. The complaint seeks specified
damages of $15 million and other unspecified damages. The Company
believes such claims are without merit. The Company anticipates that
this matter will proceed to trial in 1998. The Company has contested,
and intends to continue contesting this claim vigorously. A motion for
summary judgment seeking dismissal of this matter is pending. The
Company does not anticipate that the ultimate outcome of the complaint
will have a material adverse effect upon the Company's financial
position, results of operations or cash flows.
In addition, the Company's ability to maintain or expand its European
distribution could be impacted by the European Commission's 1997
enactment of anti-dumping duty provisions on certain types of footwear
produced in China, if it is determined that certain styles of the
Company's footwear fall under such anti-dumping provisions.
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, trade accounts receivable,
inventories and a revolving credit facility. At March 31, 1998, working
capital was $53,968,000 including $2,129,000 of cash. Cash used in
operating activities aggregated $11,200,000 for the three months ended
March 31, 1998. Trade accounts receivable increased 62.1% from December
31, 1997 to March 31, 1998, largely due to the normal seasonality of the
business as well as extended dating provided in conjunction with the
early delivery program in the fourth quarter of 1997. Payments on these
shipments were not due until May 1, 1998. Inventory levels remained
relatively constant, increasing 1.4% from December 31, 1997 to March 31,
1998.
The Company has a revolving credit facility with a bank (the
"Facility"), providing a maximum borrowing availability of $25,000,000,
with an amended credit availability of $30,000,000 from March 16, 1998
to May 31, 1998. The Facility also requires the Company to pay down the
outstanding balance to less than $2,500,000 for at least thirty
consecutive days during each of the thirteen month periods ending April
30, 1999 and 2000. 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 (8.5% at March 31, 1998) 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, 1998 the
Company had borrowed $20,300,000 under the Facility and had outstanding
letters of credit of $7,614,000, leaving approximately $2,086,000
available for borrowings.
11
<PAGE> 14
The Company has an agreement with a supplier, Prosperous Dragon, to
provide financing to the supplier. At March 31, 1998, $2,271,000 was
outstanding ($771,000 net of allowance). The note is secured by all
assets of the supplier and bears interest at the prime rate (8.5% at
March 31, 1998) plus 1%.
Capital expenditures totaled $440,000 for the three months ended March
31, 1998. The Company's capital expenditures related primarily to molds
purchased for production, upgrades to corporate computer systems and a
new booth for European tradeshows. The Company currently has no material
future commitments for capital expenditures.
In February 1998, the Company's Board of Directors approved an increase
in the number of shares of common stock authorized for repurchase under
its existing stock repurchase program from 900,000 shares to 1,200,000
shares. Such repurchases are authorized to be made from time to time in
open market or in privately negotiated transactions, subject to price
and market conditions. Under this program, the Company repurchased
300,000 shares in 1996 for cash consideration of $2,390,000, 330,000
shares in 1997 for cash consideration of $2,581,000 and 64,400 shares in
the first quarter of 1998 for cash consideration of $521,000.
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.
Year 2000 Issue
The Year 2000 issue results from computer programs written using two
digits to identify the year in the date field. These computer programs
were designed and developed without consideration of the impact of the
upcoming change in the century. If not corrected, those programs could
create erroneous information by or at the year 2000.
The Company is assessing the internal readiness of its computer systems
for handling the Year 2000 issue. The Company expects to implement the
systems and programming changes necessary to address Year 2000 issues
with respect to its internal systems and does not believe that the cost
of such actions will have a material adverse effect on its results of
operations or financial condition. Although the Company is not aware of
any material operational issues or costs associated with preparing its
internal systems for the year 2000, there can be no assurance that there
will not be a delay in, or increased costs associated with, the
implementation of the necessary systems and changes to address the Year
2000 issues, and the Company's inability to implement such systems and
changes in a timely manner could have an adverse effect on future
results of operations.
The Company is in the process of evaluating the extent to which the
Company is vulnerable to third parties' failure to address their own
Year 2000 issues. Those parties include customers, suppliers and other
third party business partners. The Company has not yet completed a
review process with respect to these third parties. As a result, the
Company cannot determine at this time the extent, if any, to which the
Company may be exposed to financial risk from the inability of the
Company's customers, suppliers and other business partners to remediate
their own Year 2000 issues.
12
<PAGE> 15
The Company's above assessment of the risks associated with Year 2000
issues is forward-looking. Actual results may vary for reasons including
those described above.
Seasonality
Financial results for the outdoor and footwear industries are generally
seasonal. Sales of each of the Company's different product 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.
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
For recently issued pronouncements, see Note 7 to the Condensed
Consolidated Financial Statements.
13
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable
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. Not applicable
14
<PAGE> 17
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 15, 1998 /s/ M. Scott Ash
----------------
M. Scott Ash, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
15
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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