-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+gWmZUz7hrKrG8AOXJu1VCPWSfV1Y+d/Th90m74GEeow6RzU6QmZPam/vbgZbP5 //wN73pTI71dSRucK3Ccgw== 0000950148-96-002672.txt : 19961118 0000950148-96-002672.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950148-96-002672 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECKERS OUTDOOR CORP CENTRAL INDEX KEY: 0000910521 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 770346633 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22446 FILM NUMBER: 96663971 BUSINESS ADDRESS: STREET 1: P O BOX 5022 CITY: CARPINTERIA STATE: CA ZIP: 93013 BUSINESS PHONE: 8056847722 FORMER COMPANY: FORMER CONFORMED NAME: DECKERS FOOTWEAR CORP DATE OF NAME CHANGE: 19930811 10-Q 1 FORM 10-Q 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 September 30, 1996 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 IRS Employer Identification incorporation or organization) 1140 Mark Avenue, Carpinteria, California 93013 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including (805) 684-7722 area code ------------------------------------- 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 October 31, 1996 ----------------------------- ---------------------------- Common stock, $.01 par value 9,266,383
2 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Table of Contents
Page ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Operations for the Three-Month Period Ended September 30, 1996 and 1995 2 Condensed Consolidated Statements of Operations for the Nine-Month Period Ended September 30, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows for the Nine-Month Period Ended September 30, 1996 and 1995 4-5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II. Other Information Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signature 13
3 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
ASSETS SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------- Current assets: Cash and cash equivalents $ 2,269,000 3,222,000 Trade accounts receivable, less allowance for doubtful accounts of $2,513,000 and $2,625,000 as of September 30, 1996 and December 31, 1995, respectively 18,537,000 19,716,000 Inventories 21,341,000 19,556,000 Prepaid expenses and other current assets 1,642,000 2,542,000 Refundable and deferred income taxes 2,026,000 4,995,000 ------------- ------------- Total current assets 45,815,000 50,031,000 Property and equipment, at cost, net 2,999,000 3,273,000 Intangible assets, less applicable amortization 21,118,000 16,907,000 Note receivable from supplier 2,540,000 2,839,000 Other assets 114,000 1,867,000 ------------- ------------- $ 72,586,000 74,917,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,077,000 ----- Current maturities of long-term debt 95,000 111,000 Trade accounts payable 4,082,000 3,020,000 Accrued expenses 4,272,000 3,131,000 Income taxes payable 1,062,000 ----- ------------- ------------- Total current liabilities 10,588,000 6,262,000 ------------- ------------- Long-term debt, less current maturities 5,318,000 15,170,000 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 and outstanding 9,266,383 and 9,242,375 shares at September 30, 1996 and December 31, 1995, respectively 93,000 92,000 Additional paid-in capital 29,064,000 28,940,000 Retained earnings 27,523,000 24,453,000 ------------- ------------- Total stockholders' equity 56,680,000 53,485,000 ------------- ------------- $ 72,586,000 74,917,000 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
THREE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Net sales $ 23,485,000 22,258,000 Cost of sales 14,291,000 16,510,000 ------------ ------------ Gross profit 9,194,000 5,748,000 Selling, general and administrative expenses 7,965,000 7,131,000 ------------ ------------ Earnings (loss) from operations 1,229,000 (1,383,000) Other expense (income): Interest expense, net 215,000 246,000 Minority interest in net (loss) earnings of subsidiary 23,000 (26,000) Loss on disposal of property and equipment 140,000 418,000 Miscellaneous expense (income) (173,000) 30,000 ------------ ------------ Earnings (loss) before income tax expense (benefit) 1,024,000 (2,051,000) Income tax expense (benefit) 457,000 (851,000) ============ ============ Net earnings (loss) $ 567,000 (1,200,000) ============ ============ Net earnings (loss) per common and common equivalent shares $ 0.06 (0.15) ============ ============ Weighted average common and common equivalent shares outstanding 9,349,000 9,242,000 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 5 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
NINE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Net sales $ 79,807,000 80,122,000 Cost of sales 46,928,000 47,849,000 ------------ ------------ Gross profit 32,879,000 32,273,000 Selling, general and administrative expenses 26,354,000 23,593,000 ------------ ------------ Earnings from operations 6,525,000 8,680,000 Other expense (income): Interest expense, net 723,000 261,000 Minority interest in net loss of subsidiary (58,000) (26,000) Loss on disposal of property and equipment 489,000 418,000 Miscellaneous expense (income) (170,000) 82,000 ------------ ------------ Earnings before income taxes 5,541,000 7,945,000 Income taxes 2,471,000 3,297,000 ------------ ------------ Net earnings $ 3,070,000 4,648,000 ============ ============ Net earnings per common and common equivalent shares $ 0.33 0.47 ============ ============ Weighted average common and common equivalent shares outstanding 9,317,000 9,379,000 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 6 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
NINE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Cash flows from operating activities: Net earnings $ 3,070,000 4,648,000 ------------ ------------ Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,538,000 1,110,000 Provision for doubtful accounts 985,000 296,000 Stock compensation ---- 17,000 Minority interest in net loss of subsidiary (58,000) (26,000) Loss on disposal of property and equipment 489,000 418,000 Changes in assets and liabilities (Increase) decrease in: Trade accounts receivable 194,000 (5,812,000) Inventories (1,785,000) 10,167,000 Prepaid expenses and other current assets 900,000 (2,166,000) Note receivable from supplier 299,000 108,000 Refundable and deferred income taxes 2,969,000 ---- Other assets (879,000) (1,192,000) Increase (decrease) in: Accounts payable 1,062,000 (3,824,000) Accrued expenses 1,265,000 2,575,000 Income taxes payable 1,062,000 (68,000) ------------ ------------ Total adjustments 8,041,000 1,603,000 ------------ ------------ Net cash provided by operating activities 11,111,000 6,251,000 ------------ ------------ Cash flows from investing activities: Proceeds from sale of property and equipment 5,000 ---- Purchase of property and equipment (1,106,000) (1,380,000) Increase in intangible assets ---- (38,000) Cash advance to Ugg prior to acquisition ---- (3,000,000) Cash paid for acquisition, net of cash acquired (495,000) (11,200,000) Cash paid for repurchase of outstanding stock options in a subsidiary (725,000) ---- Net proceeds from the sale of short-term investments ---- 4,850,000 ------------ ------------ Net cash used in investing activities (2,321,000) (10,768,000)
(Continued) 4 7 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued (Unaudited)
NINE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Cash flows from financing activities: Cash received from borrowings under credit facility $ 5,050,000 25,850,000 Repayments under credit line and long-term debt (14,918,000) (14,980,000) Proceeds from exercise of stock options 125,000 12,000 Repurchase of common stock ---- (4,900,000) ------------ ------------ Net cash provided by (used in) financing activities (9,743,000) 5,982,000 ------------ ------------ Net increase (decrease) in cash and cash equivalents (953,000) 1,465,000 Cash and cash equivalents at beginning of period 3,222,000 2,872,000 ------------ ------------ Cash and cash equivalents at end of period $ 2,269,000 4,337,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 736,000 212,000 Income taxes 249,000 5,852,000 ============ ============
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 nine-month period ended September 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. In connection with the acquisition of substantially all of the assets of Alp Sport Sandals during the nine-month period ended September 30, 1995, the Company acquired net assets aggregating $1,258,000 for cash consideration and $1,066,000 of indebtedness. See accompanying notes to condensed consolidated financial statements. 5 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, 1995 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 September 30, 1996 and December 31, 1995 is summarized as follows:
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------- Raw materials $ 2,428,000 1,892,000 Work in process 1,465,000 1,379,000 Finished goods 17,448,000 16,285,000 ------------- ------------- Total inventory $ 21,341,000 19,556,000 ============= =============
6 9 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) Stock-Based Compensation Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which was issued in October 1995. This statement encourages, but does not require, a fair value based method of accounting for employee stock options or similar equity instruments. FAS 123 allows an entity to elect to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma disclosures of net earnings and earnings per share as if the fair value based method of accounting had been applied. The Company has elected to continue to measure compensation cost under APBO No. 25, "Accounting for Stock Issued to Employees," and will comply with the pro forma disclosure requirements in its December 31, 1996 Annual Report on Form 10-K. The adoption of FAS 123 had no impact on the Company's financial position or results of operations. (6) Impairment of Long-Lived Assets Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which was issued in March 1995. This statement establishes accounting standards for the recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill either to be held or disposed of. The adoption of FAS 121 did not have a material impact on the Company's financial position or results of operations. 7 10 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Net sales increased by $1,227,000 or 5.5% between the three months ended September 30, 1996 and 1995 due to several offsetting factors. Following the first quarter of 1995, the Company's Teva(R) line was adversely impacted by the poor overall retail markets and an abundance of sport sandals in the marketplace. As a result, the Company offered heavy discounting in the third quarter of 1995 in efforts to move the resulting oversupply of 1995 Teva(R) product. The Company was able to sell a significant portion of this excess inventory at these reduced prices in the third quarter of 1995, causing the usually lower volume third quarter to be higher than it would have otherwise been. Because this volume of closeout sales did not recur in the third quarter of 1996, sales of the Teva(R) line decreased from $5,953,000 for the three months ended September 30, 1995 to $3,573,000 for the three months ended September 30, 1996, a 40.0% decrease. Sales of Teva(R) products represented 26.7% and 15.2% of net sales in the three months ended September 30, 1995 and 1996, respectively. The Company also experienced a decline in third quarter sales of its Ugg(R) product line in 1996 as the Company repositioned this brand toward higher-end retailers, avoiding some of the lower-end retailers to which the Company previously sold. Consistent with the Teva(R) and Simple(R) lines, the Company is targeting Ugg(R) primarily to the higher-end retailers in efforts to promote the brand in markets which can support higher prices and margins. In addition, last year's unseasonably late winter resulted in a carryover of Ugg(R) product at retailers to 1996. These factors, combined with the increased competition for the brand caused net sales to decrease from $6,368,000 for the quarter ended September 30, 1995 to $3,827,000 for the quarter ended September 30, 1996, a 40.0% decrease. Offsetting these sales declines, net sales of footwear under the Simple(R) product line increased 56.8%, from $9,109,000 to $14,279,000 between the three months ended September 30, 1995 and 1996. In addition, international sales for the Company's products as a whole increased 45.7% from $4,432,000 to $6,459,000, representing 19.9% of net sales in 1995 and 27.5% in 1996. The combination of these offsetting factors led to a net decrease in the volume of footwear sold, which decreased from 818,000 pairs during the three months ended September 30, 1995, to 776,000 pairs during the three months ended September 30, 1996, a 5.1% decrease. The weighted average wholesale price per pair sold during these respective periods increased from $26.45 to $28.94, or by 9.4%. The increase in the average wholesale price reflects the non-recurrence of the heavy discounting of Teva(R) product which was experienced in the third quarter of 1995. The effects of this were partially offset by the reduction in Ugg(R) sales, which have a higher weighted average selling price than the Company's other lines. Cost of sales decreased by $2,219,000 to $14,291,000 for the three months ended September 30, 1996, compared with $16,510,000 for the three months ended September 30, 1995, a decrease of 13.4%. Gross profit increased by $3,446,000 or 60.0% to $9,194,000 for the three months ended September 30, 1996, from $5,748,000 for the three months ended September 30, 1995, and increased as a percentage of net sales to 39.1% from 25.8%. The reduction in cost of sales and the increase in gross profit margin as a percentage of net sales were primarily due to the non-recurrence in 1996 of the $950,000 write-down of Teva(R) inventory which was experienced in the third quarter of 1995 as well as the non-recurrence of the discounted pricing offered for the Teva(R) product line in the third quarter of 1995. 8 11 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Selling, general and administrative expenses increased by $834,000 or 11.7% between the three months ended September 30, 1995 and September 30, 1996, and increased as a percentage of net sales from 32.0% in 1995 to 33.9% in 1996. The increase was primarily due to increased warehouse costs, partially related to the move to a new warehouse facility in Ventura, California. Also, selling commissions increased in comparison to the third quarter of 1995, as the Company paid reduced commissions on the close-out sales in 1995. Income taxes were $457,000 for the three months ended September 30, 1996, representing an effective income tax rate of 44.6% compared with income tax benefit of $851,000 for the three months ended September 30, 1995, representing an effective income tax rate of 41.5% The increase in the effective income tax rate from 1995 to 1996 is largely a result of the goodwill associated with the acquisition of Ugg Holdings, Inc., which is not deductible for income tax reporting purposes. In addition, the Company experienced non-deductible 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 $567,000 for the three months ended September 30, 1996, as compared with a net loss of $1,200,000 for the three months ended September 30, 1995, for the reasons discussed above. Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995 Net sales decreased by $315,000 or 0.4% between the nine months ended September 30, 1996 and 1995. Several offsetting factors have led to the comparable net sales for the nine months ended September 30, 1996 and 1995. In early 1995, the Company experienced strong sales of the Tev(R) line. However, beginning in the second quarter of 1995, the Company was impacted by the poor overall retail markets and the abundance of sport sandals in the marketplace. As a result, the Company began heavy discounting in efforts to move the resulting oversupply of 1995 Teva(R) product and was able to sell a significant portion of this excess inventory in the third quarter of 1995 and the first half of 1996. This excess 1995 inventory was carried by retailers into 1996, thus negatively impacting the Company's 1996 Teva(R) sales. As a result, net sales of the Teva(R) line decreased from $51,681,000 to $39,587,000, a 23.4% decrease between the nine months ended September 30, 1995 and 1996, respectively. Sales of Tev(R) products represented 64.5% and 49.6% of net sales in the nine months ended September 30, 1995 and 1996, respectively. The Company also experienced a decline in sales of its Ug(R) product line as the Company repositioned this brand toward higher-end retailers, avoiding some of the lower-end retailers to which the Company had previously sold. Consistent with the Teva(R) and Simple(R) lines, the Company is targeting Ugg(R) primarily to the higher-end retailers in efforts to promote the brand in markets which can support higher prices and margins. In addition, last year's unseasonably late winter resulted in a carryover of Ugg(R) product at retailers to 1996. These factors, combined with the increased competition for the brand caused net sales for Ugg(R) to decrease from $6,368,000 for the nine months ended September 30, 1995, to $4,158,000 for the nine months ended September 30, 1996, a 34.7% decrease. Offsetting these factors, net sales of footwear under the Simple(R) product line increased 63.9% from $19,159,000 to $31,403,000 between the nine months ended September 30, 1995 and 1996. Simple sales represented 23.0% and 39.4% of net sales in the nine months ended September 30, 1995 and 1996, respectively. Overall, international sales for all of the Company's products increased 42.9% from $14,220,000 to $20,315,000, representing 17.7% of net sales in 1995 and 25.5% in 1996. The combination of these factors lead to a net increase in the volume of footwear sold, which increased from 2,870,000 pairs during the nine months ended September 30, 1995, to 2,993,000 pairs during the nine months ended September 30, 1996, a 4.3% increase. 9 12 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES The weighted average wholesale price per pair sold during these respective periods decreased from $28.16 to $26.57, or by 5.6%. The decrease in the average wholesale price reflects the sale of the remaining 1995 Teva(R) sport sandals at discounted prices in 1996, which selling prices approximated the carrying value of the inventory. Also, the Company reduced the prices of certain Teva(R) styles since the nine months ended September 30, 1995, in order to promote a more even distribution of price points between the high and low points. The Company believes that having such an even price point distribution will place one or more styles at each desired price level. In addition, the Company experienced a reduction in Ugg(R) sales, which have a higher weighted average selling price than the Company's other lines. Cost of sales decreased by $921,000 to $46,928,000 for the nine months ended September 30, 1996, compared with $47,849,000 for the nine months ended September 30, 1995, a decrease of 1.9%. Gross profit increased by $606,000 or 1.9% to $32,879,000 for the nine months ended September 30, 1996, from $32,273,000 for the nine months ended September 30, 1995, and increased as a percentage of net sales to 41.2% from 40.3% The increase in gross profit margin as a percentage of net sales was primarily due to the non-recurrence of the significant inventory write-downs experienced in the second and third quarters of 1995 as well as the discounted selling prices discussed above. Selling, general and administrative expenses increased by $2,761,000 or 11.7% between the nine months ended September 30, 1995 and September 30, 1996, and increased as a percentage of net sales from 29.4% in 1995 to 33.0% in 1996. The increase was primarily due the addition of the operations of Ugg Holdings, Inc., increased advertising expenditures, increased payroll costs resulting from newly created positions, and increased warehouse costs, which were partially a result of the Company's move to a new warehouse facility in the third quarter of 1996. Income taxes were $2,471,000 for the nine months ended September 30, 1996, representing an effective income tax rate of 44.6% compared with income taxes of $3,297,000 for the nine months ended September 30, 1995, representing an effective income tax rate of 41.5%. The increase in the effective income tax rate from 1995 to 1996 is largely a result of the goodwill associated with the acquisition of Ugg Holdings, Inc. which is not deductible for income tax reporting purposes. In addition, the Company experienced non-deductible 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 $3,070,000 for the nine months ended September 30, 1996, as compared with net earnings of $4,648,000 for the nine months ended September 30, 1995, a decrease of 34.0% for the reasons discussed above. Liquidity and Capital Resources At September 30, 1996, working capital was $35,227,000 including $2,269,000 of cash and cash equivalents. Cash provided by operating activities aggregated $11,111,000 for the nine months ended September 30, 1996, as compared to $6,251,000 for the nine months ended September 30, 1995. 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 (8.25% at September 30, 1996) plus up to 0.25%, depending on whether 10 13 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 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 September 30, 1996, the Company had $4,000,000 in borrowings outstanding under the Facility as compared to $13,050,000 as of Septebmer 30, 1995. 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 September 30, 1996. The Company has an agreement with a supplier to provide financing to that supplier for the initial start-up and the expansion of the supplier's operations, as well as for working capital needs. At September 30, 1996, $2,540,000 was outstanding as compared to $3,564,000 as of September 30, 1995. The note is secured by all assets of the supplier and bears interest at the prime rate (8.25% at September 30, 1996) plus 1%. Capital expenditures totaled $1,106,000 for the nine months ended September 30, 1996. The Company's capital expenditures related primarily to the purchase of production molds, machinery and equipment, the continued expansion of the Company's facilities and upgrades to the Company's computer systems. 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 payments to the former shareholders equal to 2 1/2% of net sales of Ugg Holdings, Inc. for the years ending March 31, 1996 through March 31, 2000, an amount equal to earnings before income taxes of Ugg Holdings, Inc., as adjusted for certain items, for the year ended March 31, 1996 and an additional $500,000 payment in March 2000. 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. The Company allocated the entire payment amount to goodwill, which is being amortized over the remaining 29 year life of the goodwill. 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. However, the Company anticipates that the recent acquisition of Ugg Holdings, Inc., the expansion of the Simple product sales and the acquisition of a 50% interest in Trukke Winter Sports Products, Inc., which are counterseasonal to the Company's sport sandal line, will help reduce the impact of seasonality. 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 14 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 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. (a) Exhibits Exhibit 10.42 Amended Compensation Plan for Outside Members of the Board of Directors. Exhibit 11.1 Statement of Computation of Earnings (Loss) per Share. (b) Reports on Form 8-K. None 12 15 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: November 14, 1996 /s/ Diana M. Wilson ----------------------------------------- Diana M. Wilson, Chief Operating and Financial Officer, Vice President and Secretary (Duly Authorized Officer and Principal Financial and Accounting Officer) 13 EX-10.42 2 EXHIBIT 10.42 1 Exhibit 10.42 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Amended Compensation Plan for Outside Members of the Board of Directors On September 14, 1996, the Board of Directors approved an amended compensation plan for the outside members of the Board of Directors of Deckers Outdoor Corporation. Below is a summary of the amendment to the plan: Prior to the amendment, the compensation structure for the outside members of the Board of Directors provides for an annual retainer fee of $22,000, $5,500 of which is paid in the form of shares of Common Stock with a market value equal to such amount (the "Annual Retainer"), together with a fee of $1,500 for each meeting attended, $1,000 for each Board meeting attended, and $1,000 for each Special Committee meeting attended (collectively, the "Meeting Fees"). In addition, each committee chairman receives a retainer of $4,000 per year (the "Chairman Fees"). In addition, each non-employee director receives an option for 10,000 shares of the Corporation's stock (the "Director's Option"), which vests in one-third (1/3rd) installments, with the first installment vesting on the first anniversary date of the grant, with an exercise price equal to the fair market value at the date of grant. Commencing on the fourth year of a non-employee director's continuous tenure as a Board member, such director will receive an option to purchase 2,000 shares of the Corporation's stock, which will vest immediately upon the date of grant and will have an exercise price equal to the fair market value on the date of grant of the shares underlying such option. The Board of Directors approved a modification as follows. Effective January 1, 1996, the Annual Retainer shall be paid as follows: (i) $11,000 in cash, or, at the option of a director, exercised 10 days prior to the start of each year in Common Stock of the Corporation at a 20% discount off the price of the shares at the closing price; and (ii) 500 shares of the Common Stock of the Corporation per quarter (2,000 shares annually), vesting on the first (1st) day of each quarter, for the next three (3) years. On January 1, 1999, and every three (3) years thereafter, the Board will set the number of shares for the following three (3) years. The Meeting Fees, the Chairman Fees and the Director's Option would remain the same. 14 EX-11.1 3 EXHIBIT 11.1 1 Exhibit 11.1 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Statement of Computation of Earnings (Loss) per Share (Unaudited)
THREE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Net earnings (loss) $ 567,000 (1,200,000) Less: earnings attributed to holders of stock options in a subsidiary of the Company (assuming exercise) ---- 170,000 ------------ ------------ Net earnings (loss) available to common stockholders $ 567,000 (1,370,000) ============ ============ Weighted average common stock outstanding 9,257,000 9,242,000 Common stock equivalents - stock options 92,000 ---- ------------ ------------ 9,349,000 9,242,000 ============ ============ Net earnings (loss) per share $ 0.06 (0.15) ============ ============ NINE-MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ Net earnings $ 3,070,000 4,648,000 Less: earnings attributed to holders of stock options in a subsidiary of the Company (assuming exercise) ---- 207,000 ------------ ------------ Net earnings available to common stockholders $ 3,070,000 4,441,000 ============ ============ Weighted average common stock outstanding 9,252,000 9,351,000 Common stock equivalents - stock options 65,000 28,000 ------------ ------------ 9,317,000 9,379,000 ============ ============ Net earnings per share $ 0.33 0.47 ============ ============
15 EX-27 4 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 SEP-30-1996 2,269,000 0 21,050,000 2,513,000 21,341,000 45,815,000 5,057,000 2,058,000 72,586,000 10,588,000 5,318,000 0 0 93,000 56,587,000 72,586,000 79,807,000 79,807,000 46,928,000 46,928,000 0 985,000 723,000 5,541,000 2,471,000 3,070,000 0 0 0 3,070,000 .33 .33
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