-----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, Vm5kJo4BjkvuXCE8FUuUfNZt/+siuEc+CiDd6NE+Y+a0fdK+XNYyS4AAwu0j6d+Z OIv68eTGIS1NfmpYzQM8dw== 0000950148-97-001448.txt : 19970520 0000950148-97-001448.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950148-97-001448 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97607708 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 March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 022446 DECKERS OUTDOOR CORPORATION (Exact name of registrant as specified in its charter) Delaware 953015862 - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or IRS Employer Identification organization) 495A S. Fairview Avenue, Goleta, California 93117 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (805) 967-7611 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of the issuer's class of common stock, as of the latest practicable date. OUTSTANDING AT CLASS MAY 8, 1997 ---------------------------- ----------------- Common stock, $.01 par value 8,930,531 2 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Table of Contents
Page ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Earnings for the Three-Month Period Ended March 31, 1997 and 1996 2 Condensed Consolidated Statements of Cash Flows for the Three-Month Period Ended March 31, 1997 and 1996 3-4 Notes to Condensed Consolidated Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. Other Information Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature 12
3 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
ASSETS MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 1,481,000 1,287,000 Trade accounts receivable, less allowance for doubtful accounts of $1,491,000 and $1,292,000 as of March 31, 1997 and December 31, 1996, respectively 28,975,000 17,866,000 Inventories 21,336,000 24,930,000 Prepaid expenses and other current assets 2,359,000 3,643,000 Deferred tax assets 1,622,000 1,622,000 ------------ ------------ Total current assets 55,773,000 49,348,000 Property and equipment, at cost, net 2,668,000 2,794,000 Intangible assets, less applicable amortization 20,617,000 20,805,000 Note receivable from supplier, net 1,863,000 1,838,000 Other assets, net 250,000 112,000 ------------ ------------ $81,171,000 74,897,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 101,000 99,000 Trade accounts payable 4,418,000 5,494,000 Accrued expenses 5,276,000 3,042,000 Income taxes payable 1,773,000 983,000 ------------ ------------ Total current liabilities 11,568,000 9,618,000 ------------ ------------ Long-term debt, less current maturities 12,789,000 10,290,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 -- -- shares; none issued Common stock, $.01 par value. Authorized 20,000,000 shares; issued 9,293,431 and outstanding 8,958,556 at March 31, 1997; issued 9,283,556 and outstanding 8,983,556 at December 31, 1996 90,000 90,000 Additional paid-in capital 26,625,000 26,790,000 Retained earnings 30,099,000 28,109,000 ------------ ------------ Total stockholders' equity 56,814,000 54,989,000 ------------ ------------ $81,171,000 74,897,000 ============ ============
See accompanying notes to condensed consolidated financial statements. 4 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31, ------------------------------- 1997 1996 ------------ ---------- Net sales $ 34,441,000 28,772,000 Cost of sales 19,491,000 16,182,000 ------------ ------------ Gross profit 14,950,000 12,590,000 Selling, general and administrative expenses 10,770,000 9,849,000 Loss on factory closure 500,000 -- ------------ ------------ Earnings from operations 3,680,000 2,741,000 Other expense (income): Interest expense 252,000 282,000 Minority interest in net loss of subsidiary (81,000) (63,000) Miscellaneous expense (income) 4,000 (148,000) ------------ ------------ Earnings before income taxes 3,505,000 2,670,000 Income taxes 1,515,000 1,191,000 ------------ ------------ Net earnings $ 1,990,000 1,479,000 ============ ============ Net earnings per common and common equivalent shares $ 0.22 0.16 ============ ============ Weighted average common and common equivalent shares outstanding 9,040,000 9,304,000 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 5 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31, ------------------------------- 1997 1996 ------------ --------- Cash flows from operating activities: Net earnings $ 1,990,000 1,479,000 ------------ ---------- Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 663,000 460,000 Provision for doubtful accounts 450,000 1,235,000 Minority interest in net loss of subsidiary (81,000) (63,000) Loss on factory closure 500,000 -- Changes in assets and liabilities: Increase in trade accounts receivable (11,309,000) (6,077,000) Decrease in inventory 3,594,000 1,991,000 Decrease in prepaid expenses and other current assets 1,284,000 1,347,000 Decrease in refundable income taxes -- 2,418,000 Increase in note receivable from supplier (275,000) (196,000) Decrease (increase) in other assets (263,000) 357,000 Decrease in accounts payable (1,076,000) (58,000) Increase in accrued expenses 2,315,000 1,480,000 Increase in income taxes payable 790,000 -- ------------ ---------- Total adjustments (3,408,000) 2,894,000 ------------ ---------- Net cash provided by (used in) operating activities (1,418,000) 4,373,000 ------------ ---------- Cash flows from investing activities: Purchase of property and equipment (724,000) (220,000) ------------ ---------- Net cash used in investing activities (724,000) (220,000) ------------ ----------
(Continued) 3 6 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31, --------------------------- 1997 1996 --------- ---------- Cash flows from financing activities: Proceeds from (repayments of) notes payable and long-term debt 2,501,000 (3,800,000) Repurchase of common stock (165,000) -- Other -- 21,000 ----------- ---------- Net cash provided by (used in) financing activities 2,336,000 (3,779,000) ----------- ---------- Net increase in cash and cash equivalents 194,000 374,000 Cash and cash equivalents at beginning of period 1,287,000 3,222,000 ----------- ---------- Cash and cash equivalents at end of period $ 1,481,000 3,596,000 =========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 245,000 269,000 Income taxes 726,000 141,000 =========== ==========
Supplemental disclosure of noncash investing and financing activities: In connection with the repurchase of outstanding stock options of a subsidiary from the Founder of the subsidiary during the three month period ended March 31, 1996, the Company gave consideration of $2,111,000, consisting of notes payable to the Founder of $1,736,000 and the forgiveness of a $375,000 note receivable from the Founder. The Company allocated the entire purchase price to goodwill. See accompanying notes to condensed consolidated financial statements. 4 7 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) General The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results to be achieved for full fiscal years. As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of Regulation S-X, the accompanying consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual consolidated financial statements and footnotes thereto. For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K. (2) Earnings per Share Net earnings per share is based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents represent the number of shares which would be issued assuming the exercise of common stock options and reduced by the number of shares which could be purchased with the proceeds from the exercise of those options. Fully diluted net earnings per share are not presented since the amounts do not differ significantly from the primary net earnings per share presented. (3) Inventory Inventory at March 31, 1997 and December 31, 1996 is summarized as follows:
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ Raw materials $ 2,447,000 3,239,000 Work in process 974,000 1,197,000 Finished goods 17,915,000 20,494,000 ----------- ----------- Total inventory $21,336,000 24,930,000 =========== ===========
5 8 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) (4) Income Taxes Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. (5) Legal Proceedings with Former Ugg Shareholders Some of the former shareholders of Ugg Holdings gave notice of a demand for arbitration regarding the periodic payments due under the acquisition agreement. These former shareholders are asserting claims that additional payments are due them. The Company does not believe these claims are meritorious. On April 23, 1997, the former shareholders filed their claims and the Company filed its counterclaims against the former shareholders. On May 7, 1997, the Company and the former shareholders had a status conference with the arbitrator. The date for arbitration is pending. (6) Recently Issued Pronouncements The Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation of "Basic" earnings per share which represents income available to common shareholders divided by the weighted average number of common shares outstanding for the period. A dual presentation of "Diluted" earnings per share will also be required. The Diluted presentation is similar to the current earnings per share presentation. Management believes the adoption of FAS 128 will not have a material impact on the Company's earnings per share. 6 9 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Net sales increased by $5,669,000 or 19.7% between the three months ended March 31, 1997 and 1996. Sales of the Teva(R) line increased from $18,600,000 for the three months ended March 31, 1996 to $24,252,000 for the three months ended March 31, 1997, a 30.4% increase. Sales of Teva(R) products represented 64.6% and 70.4% of net sales in the three months ended March 31, 1996 and 1997, respectively. The Company experienced a continued increase in the net sales of footwear under the Simple(R) product line, which increased 15.3% from $7,983,000 to $9,206,000 between the three months ended March 31, 1996 and 1997. Overall, international sales for the Company's products increased 2.9% from $9,035,000 to $9,297,000, representing 31.4% of net sales in 1996 and 27.0% in 1997. The combination of these factors led to a net increase in the volume of footwear sold, which increased from 1,107,000 pairs during the three months ended March 31, 1996 to 1,319,000 pairs during the three months ended March 31, 1997, a 19.2% increase. The weighted average wholesale price per pair sold during these respective periods increased from $24.88 to $25.93 or by 4.2%. The increase in the average wholesale price primarily relates to the non-recurrence of the sale of certain Teva(R) sport sandals at discounted prices in the first quarter of 1996, which selling prices approximated the carrying value of the inventory. Cost of sales increased by $3,309,000 to $19,491,000 for the three months ended March 31, 1997, compared with $16,182,000 for the three months ended March 31, 1996, an increase of 20.4%. Gross profit increased by $2,360,000, or 18.7%, to $14,950,000 for the three months ended March 31, 1997 from $12,590,000 for the three months ended March 31, 1996 and decreased as a percentage of net sales to 43.4% from 43.8%. The slight decrease in gross profit margin as a percentage of net sales is primarily the result of the closure of the Company's California manufacturing facility in March 1997. The Company recorded a $500,000 charge to operations for the closure during the three month period ended March 31, 1997. Selling, general and administrative expenses increased by $921,000, or 9.4%, between the three months ended March 31, 1996 and March 31, 1997 and decreased as a percentage of net sales from 34.2% in 1996 to 31.3% in 1997. The $921,000 increase was the result of increased net sales. The decrease as a percentage of net sales was largely a result of the non-recurrence of certain Ugg operating expenses which occurred in the first quarter of 1996. These 1996 costs related to Ugg's Carlsbad facility, which was subsequently closed and integrated into Deckers' operations in the second quarter of 1996. In addition, the Company experienced lower bad debt expense in the first quarter of 1997 than in the first quarter of 1996. The decrease as a percentage of net sales also occurred as certain selling, general and administrative expenses include certain fixed costs and, therefore, total selling, general and administrative expenses do not fluctuate proportionately with changes in sales volume. Income taxes were $1,515,000 for the three months ended March 31, 1997, representing an effective income tax rate of 43.2% compared with income taxes of $1,191,000 for the three 7 10 months ended March 31, 1996, representing an effective income tax rate of 44.6%. The higher effective income tax rate in 1996 compared to 1997 is due to certain non-deductible expenses and losses being a greater proportion to earnings before income taxes in 1996 than in 1997. Such non-deductible items include the amortization of goodwill and losses at certain subsidiaries which are consolidated for financial reporting purposes but which are not consolidated for income tax reporting purposes. The Company had net earnings of $1,990,000 for the three months ended March 31, 1997 as compared with net earnings of $1,479,000 for the three months ended March 31, 1996, an increase of 34.6%, for the reasons discussed above. Outlook This outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Although net sales of the Simple(R) product line for the first quarter of 1997 increased 15.3% over net sales during the first quarter of 1996, the Company anticipates that sales of the Simple(R) line will not grow at the same rate as sales grew in 1996. The Company currently expects that sales of Simple(R) shoes in 1997 will be flat or slightly higher than sales in 1996. Sales of Ugg(R) footwear are expected to be slightly lower in 1997 than sales of Ugg(R) footwear in 1996, which were approximately $14.8 million. The Company anticipates that any decrease in the rate of sales growth or decrease in sales for the Simple(R) and Ugg(R) lines will be more than offset by sales of the Teva(R) product line. The foregoing forward-looking statements represent the Company's current analysis of trends and information. Actual results could be affected by a variety of factors. For example, the Company's results are directly dependent on consumer preferences, which are difficult to assess and can shift rapidly. Any shift in consumer preferences away from one or more of the Company's product lines could result in lower sales as well as obsolete inventory, both of which could adversely affect the Company's results of operations, financial condition and cash flows. The Company is also dependent on its customers continuing to carry and promote its various lines. In addition, sales of each of the Company's different lines have historically been higher in different seasons, with the highest percentage of Teva(R) sales occurring in the first and second quarter of each year, the highest percentage of Simple(R) sales occurring in the third quarter and the highest percentage of Ugg(R) sales occurring in the fourth quarter. Consequently, the results for these product lines are highly dependent on results during these specified periods. The Company cautions the reader not to rely on the forward-looking statements in this section. They merely represent the Company's current assessment of trends and information and may not be indicative of actual future results. The Company disclaims any intent or obligation to update these forward-looking statements. Liquidity and Capital Resources The Company's liquidity consists of cash and cash equivalents, trade accounts receivable, inventories and a revolving credit facility. At March 31, 1997, working capital was $44,205,000 including $1,481,000 of cash and cash equivalents. Cash used in operating activities aggregated $1,418,000 for the three months ended March 31, 1997. Trade accounts receivable increased 62.2% from December 31, 1996 to March 31, 1997, largely due to increased Teva(R) sales 8 11 occurring primarily in the latter part of the first quarter of 1997. Inventories decreased 14.4% during this period for the same reason. The Company has a revolving credit facility with a bank (the "Facility"), providing a maximum borrowing availability of $25,000,000 based on certain eligible assets, as defined. The Facility can be used for working capital and general corporate purposes and expires August 1, 2000. Borrowings bear interest at the bank's prime rate (8.50% at March 31, 1997) plus up to 0.25%, depending on whether the Company satisfies certain financial ratios. Alternatively, the Company may elect to have borrowings bear interest at LIBOR plus 1.5% to 1.75%, depending on whether the Company satisfies such financial ratios. Up to $10,000,000 of borrowings may be in the form of letters of credit. The Facility is secured by substantially all assets of the Company. As of March 31, 1997, the Company had borrowed $11,525,000 under the Facility and had approximately $9,582,000 available for borrowings. The agreement underlying the Facility includes certain restrictive covenants which, among other things, require the Company to maintain certain financial tests. The Company was in compliance with all requirements as of March 31, 1997. The Company has an agreement with a supplier to provide financing for the start-up and the expansion of the supplier's operations, of which $1,863,000 (net of related allowance) was outstanding at March 31, 1997. The note is secured by all assets of the supplier and bears interest at the prime rate (8.50% at March 31, 1997) plus 1%. Capital expenditures totaled $724,000 for the three months ended March 31, 1997. The Company's capital expenditures related primarily to leasehold improvements associated with the Company's move to new facilities in Goleta, California. The Company currently has no material future commitments for capital expenditures. In connection with the acquisition of Ugg Holdings, Inc. in 1995, the Company is required to make further future payments equal to 2 1/2% of net sales of Ugg Holdings for the years ending March 31, 1996 through March 31, 2000, and an amount equal to earnings before income taxes of Ugg Holdings, as adjusted for certain items, for the year ended March 31, 1996. In May 1996, the Company made a $495,000 payment to the former shareholders related to its required payments for the year ended March 31, 1996. In 1996, the Company's Board of Directors authorized the repurchase of up to 300,000 shares from time to time in open market or in privately negotiated transactions, subject to price and market conditions. During 1996, the Company repurchased 300,000 shares of the Company's outstanding common stock for cash consideration of $2,390,000. In February 1997, the Company's Board of Directors authorized the repurchase of up to an additional 300,000 shares. During the three months ended March 31, 1997, the Company repurchased 25,000 shares for cash consideration of $166,000. From April 1, 1997 through May 8, 1997, the Company repurchased 37,900 shares for cash consideration of $259,000. The Company believes that internally generated funds, the available borrowings under its existing credit facilities and the cash on hand will provide sufficient liquidity to enable it to meet its current and foreseeable working capital requirements. 9 12 Seasonality Financial results for the outdoor and footwear industries are generally seasonal. Based on the Company's historical product mix, the Company would expect greater sales in the first and second quarters than in the third and fourth quarters. Other The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net sales or profitability. Recently Issued Pronouncements The Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation of "Basic" earnings per share which represents income available to common shareholders divided by the weighted average number of common shares outstanding for the period. A dual presentation of "Diluted" earnings per share will also be required. The Diluted presentation is similar to the current earnings per share presentation. Management believes the adoption of FAS 128 will not have a material impact on the Company's earnings per share. 10 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. Some of the former shareholders of Ugg Holdings gave notice of a demand for arbitration regarding the periodic payments due under the acquisition agreement. These former shareholders are asserting claims that additional payments are due them. The Company does not believe these claims are meritorious. On April 23, 1997, the former shareholders filed their claims and the Company filed its counterclaims against the former shareholders. On May 7, 1997, the Company and the former shareholders had a status conference with the arbitrator. The date for arbitration is pending. Item 2. Changes in Securities. Not applicable Item 3. Defaults upon Senior Securities. Not applicable Item 4. Submission of Matters to a Vote of Security Holders. Not applicable Item 5. Other Information. Not applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 10.37 Extension and Restatement of Employment Agreement between Diana M. Wilson and Deckers Outdoor Corporation, dated April 18, 1997. Exhibit 10.38 Limited Recourse Secured Promissory Note between Diana M. Wilson and Deckers Outdoor Corporation, dated April 18, 1997. Exhibit 10.39 Stock Pledge Agreement between Diana M. Wilson and Deckers Outdoor Corporation, dated April 18, 1997. Exhibit 11.1 Statement of Computation of Earnings per Share. (b) Reports on Form 8-K. None 11 14 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Deckers Outdoor Corporation Date: May 14, 1997 ---------------------------------------------- M. Scott Ash, Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 12 EX-10.37 2 EXHIBIT 10.37 1 EXHIBIT 10.37 Ms. Diana M. Wilson April 18, 1997 Page 1 DECKERS OUTDOOR CORPORATION 495-A South Fairview Avenue Goleta, CA 93117 April 18, 1997 Personal and Confidential Ms. Diana M. Wilson Deckers Outdoor Corporation 1140 Mark Avenue Carpinteria, CA 93013 Dear Diana: On behalf of Deckers Outdoor Corporation ("Deckers"), I am confirming the extension and restatement of your employment agreement through December 31, 1999 effective as of January 1, 1997. The terms and conditions, as approved by the Compensation Committee and the Board of Directors, of this offer are as follows: 1. Positions and Titles: - Chief Operating Officer, Vice President and a member of the Board of Directors. - You will be promoted to President when the minimum performance criteria for Level Three is achieved to raise your base salary to Level Three. - You will report to the Chief Executive Officer ("CEO"). - You will be responsible for implementing the plan to meet corporate objectives by managing operations, which includes production planning, manufacturing, sales, marketing, distribution, accounting, finance, logistics, inventory control, MIS, human resources, sales service, product development, the coordination of departments and other areas as directed by the CEO. 2. Compensation and Bonus: - You will receive a Level One base salary of Two Hundred Forty Thousand Dollars ($240,000) per annum. The raise to this level will commence as of January 1, 1997. 2 Ms. Diana M. Wilson April 18, 1997 Page 2 - You will receive a Level Two base salary of Two Hundred Ninety Thousand Dollars ($290,000) when certain minimum performance criteria have been achieved. The raise to this level will commence as of January 1 of the year following the year in which these events have occurred: (a) The Teva License has been extended for a minimum of 5 years to 2006. (b) Earnings per share are at least $.60. (c) The end-of-the-year backlog is at least 15% greater than that of December 31, 1996. (d) Deckers' stock performance is at least in the fifty percentile of its peer group. - You will receive a Level Three base salary of Three Hundred Fifty Thousand Dollars ($350,000) when certain minimum performance criteria have been achieved. The raise to this level will commence as of January 1 of the year following the year in which these events have occurred: (a) The Teva License has been extended for a minimum of 5 years to 2006. (b) Earnings per share are at least $.90. (c) The end-of-the-year backlog is at least 30% greater than that of December 31, 1996. (d) Deckers' stock performance is at least in the fifty percentile of its peer group. - Your annual bonuses will be based on the following, with excellent being the budgeted plan: 3 Ms. Diana M. Wilson April 18, 1997 Page 3
1997 1998 1999 ---- ---- ---- Very good (60%): $144,000 $174,000 $210,000 Excellent (80%): $192,000 $232,000 $280,000 Outstanding (100%): $240,000 $290,000 $350,000
- Your individual bonus goals will be established prior to the start of each year and will be based on goals and milestones that measure performance in the following areas, each being weighted at the percentages below: Earnings Per Share 25% Stock Performance vs. Peer Group 25% Discretionary 20% Sales 10% Positioning for the Future 10% Team Bonus and Other 10% --- 100%
The goals for 1997 are as follows:
60% 80% 100% --- --- ---- EPS: .55 .60 .65 Sales 112 114 116 Stock if Peer Group is 10 companies: #5 performer #4 performer #1, 2, 3 performer Stock if Peer Group is 12 companies: #6 performer #4, 5 performer #1, 2, 3 performer
The "Discretionary," "Position for the Future," "Team Bonus" and others will be established subsequently. 4 Ms. Diana M. Wilson April 18, 1997 Page 4 3. Loan to Purchase Stock: - Deckers will provide you with a loan to purchase up to 100,000 shares of Deckers' Common Stock under the following terms: - The amount of the loan will be for the amount paid for the stock, which will be purchased from Deckers at the fair market value at April 18, 1997. - The promissory note will bear interest at the applicable federal rate and will be secured by the stock so acquired and by any severance pay, including any unpaid bonuses. - This sale will be effective as of April 18, 1997. 4. Termination and Change of Control: - In the event that termination occurs for reasons other than: (1) cause, or (2) your voluntary termination, six (6) months' severance will be provided, plus committed incentives. - For purposes of this letter agreement, "cause" will be defined as contemplated by Section 2924 of the California Labor Code (a copy of which is in effect as of the date hereof is attached to this letter agreement as Exhibit A and made a part of this letter agreement). - In the event that there is a change of control and termination or constructive termination occurs, there will be twelve (12) months' of severance, including minimum guarantees, plus the acceleration of vesting of all stock options. - A "change of control" shall be deemed to have taken place if (1) there is a merger, consolidation, sale of all or a major portion of the assets of Deckers (or a successor organization) or similar transaction or circumstance where any person or group (other than Douglas B. Otto) acquires or obtains the right to acquire, in one or more transactions, beneficial ownership of more than fifty percent (50%) of the outstanding shares of any class of voting stock of Deckers (or a successor organization); and (2) as a result of or in connection with such event, your position is affected (in terms of compensation, benefits, title, 5 Ms. Diana M. Wilson April 18, 1997 Page 5 authority, duties, reporting relationships, reports etc.) and no equivalent or better position is available at Deckers or a successor organization. 5. Other Benefits: - You are to receive insurance, medical and health benefits currently available pursuant to existing policies. - You will receive all other benefits currently available to members of Deckers' senior management and you will be subject to the policies and terms outlined in Deckers' human resources policy manual. - You will be covered by Deckers' standard Directors and Officers insurance policy and indemnification agreements. You will also be subject to Deckers' confidentiality and trade secret agreements. - Your annual fees for YPO International and the Santa Barbara Chapter will be paid by Deckers. - One YPO University, seminar, or conference per year, including travel but not user-pay off-sites or academies, will be paid by Deckers up to $15,000 per year. 6. Effective Date: - The Effective Date of this letter agreement is January 1, 1997 and shall continue through December 31, 1999 unless terminated earlier. 7. Arbitration Agreement: - Any claim or controversy arising out of or related to this letter agreement, the employment relationship or the subject matter hereof, shall be settled by binding arbitration before one arbitrator in Santa Barbara, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association; and judgment upon any award rendered by the arbitrator may be entered as a judgment in any court having competent jurisdiction. The parties shall have rights to discovery as provided in Section 1283.05 of the California Code of Civil Procedure, which is incorporated herein by this reference. The prevailing party in any such dispute shall be awarded all of its costs and expenses, including reasonable attorneys' fees. 6 Ms. Diana M. Wilson April 18, 1997 Page 6 Very truly yours, DECKERS OUTDOOR CORPORATION By: /s/ Douglas B. Otto ---------------------------------- Douglas B. Otto, Chairman of the Board and Chief Executive Officer Please acknowledge your acceptance of the terms and conditions of this letter agreement by signing and returning one copy of this letter agreement. Date: April 18, 1997 /s/ Diana M. Wilson ------------------------------------ Diana M. Wilson 7 Ms. Diana M. Wilson April 18, 1997 Page 7 Exhibit A Section 2924 of the California Labor Code 8 Ms. Diana M. Wilson April 18, 1997 Page 8 EXHIBIT A Section 2924 California Labor Code Section 2924. Employment for specified term; Grounds for termination by employer An employment for a specified term may be terminated at any time by the employer in case of any willful breach of duty by the employee in the course of his employment, or in case of his habitual neglect of his duty or continued incapacity to perform it. EX-10.38 3 EXHIBIT 10.38 1 EXHIBIT 10.38 LIMITED RECOURSE SECURED PROMISSORY NOTE $624,000.00 Goleta, California April 18, 1997 FOR VALUE RECEIVED, Diana M. Wilson, an individual ("Payor"), hereby promises to pay to Deckers Outdoor Corporation, a Delaware corporation, or order ("Payee"), the principal sum of Six Hundred Twenty-Four Thousand and no/100 Dollars ($624,000.00), together with interest from the date hereof on the unpaid principal balance hereunder at the rate of six and thirty-nine one hundredths percent (6.39%) (the "Rate") per annum, on the earlier to occur of (i) the fifth anniversary of the date hereof (the "Maturity Date"), (ii) within ten (10) days following written demand by Payee if Payor's employment with Payee is terminated by Payee For Cause (as defined below) or (iii) within ten (10) days following written demand by Payee if Payor voluntary terminates her employment with Payee other than for Just Cause (as defined below). Interest hereunder shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. All payments of principal and interest under this Note are payable only in lawful money of the United States at 495A South Fairview, Goleta, California, 93117, or such other location as Payee may designate in writing. This Note may be prepaid in whole or in part at any time or from time to time at the option of Payor without any premium or penalty whatsoever. All prepayments shall be first applied to accrued interest on the date of such prepayment. The amount of any prepayment in excess of the accrued interest on the date of such prepayment shall be applied to reduce the principal balance due hereunder. This Note and the obligations of Payor hereunder shall be secured by the One Hundred Thousand Shares (100,000) of Common Stock of Payee (the "Pledged Shares") pledged by Payor to Payee pursuant to that certain Stock Pledge Agreement of even date herewith between Payor and Payee. In the event that (a) Payor's employment is terminated by Payee For Cause or (b) Payor voluntarily terminates her employment other than for Just Cause, this Note and the obligations of Payor hereunder shall also be secured by any and all accrued and unpaid bonus and severance payments payable to Payor by Payee upon such termination of Payor's employment (the "Post-Termination Payments"). THE OBLIGATIONS OF PAYOR UNDER THIS NOTE ARE SECURED SOLELY BY THE PLEDGED SHARES AND, IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PRECEDING SENTENCE, THE POST-TERMINATION PAYMENTS. THIS NOTE AND THE OBLIGATIONS OF PAYOR HEREUNDER ARE NON-RECOURSE. For purposes of this agreement, (a) "Just Cause" means, without Payor's written consent, (i) any material diminution of Payor's duties, authority, responsibility, compensation or benefits (other than any reduction in benefits applicable to similarly situated executives as a group) including, without limitation, the removal of Payor's title as Chief Operating Officer and Vice President of Payee, any material reduction of Payor's authority to act in a capacity commensurate with such positions or any failure to provide or make available to Payor any material benefit provided or made available to similarly situated executives of Payee, or (ii) any relocation of Payor's principal place of employment to a location more than twenty-five (25) miles from Santa 2 Barbara, California and (b) "For Cause" means the occurrence or existence of any of the following, as determined by a majority of the disinterested directors of Payee's Board: (i) a material breach by Payor of Payor's duty not to engage in any transaction that represents self-dealing with Payee or any of Payee's affiliates that has not been approved by a majority of the disinterested directors of Payee's Board, if in any such case such material breach remains uncured after the lapse of fifteen (15) days following the date that Payee has given Payor written notice thereof; (ii) any material act of dishonesty, misappropriation, embezzlement, intentional fraud or similar conduct by Payor involving Payee or any of its affiliates; (iii) Payor's conviction or plea of nolo contendere or the equivalent in respect of a felony involving moral turpitude (other than driving while intoxicated); (iv) any damage of a material nature to any property of Payee or any of its affiliates caused by Payor's willful or grossly negligent conduct; (v) the repeated non-prescription use of any controlled substance or the repeated use of alcohol or any other non-controlled substance that renders Payor materially unfit to serve in Payor's capacity as an officer or employee of Payee or its affiliates; (vi) Payor's wilful failure to comply with the reasonable instructions of the Board of Directors after written notice to do so; or (vii) gross insubordination. For purposes of this Note, termination of Payor's employment as a result of Payor's death or disability shall not constitute termination "For Cause" but shall constitute termination by Payor for "Just Cause." To the extent permitted by law, Payor agrees to pay interest on any interest payment due but unpaid on the unpaid principal balance hereof at the Rate, plus two percent (2%) per annum. Payor agrees to pay all costs and expenses, including reasonable attorneys' fees, incurred by Payee upon the failure by Payor to make any payment hereunder when due. Nothing contained in this Note or in any agreements between Payor and Payee shall be deemed to require the payment by Payor of interest on the indebtedness evidenced by this Note in excess of the amount that Payee may lawfully contract to charge under applicable usury and other laws (the "Maximum Legal Rate"). All agreements between Payor and Payee deemed to pertain to this Note are expressly limited so that in no contingency or event shall the amount paid or agreed to be paid to Payee for the use, forbearance, or detention of money to be loaned hereunder exceed the Maximum Legal Rate. If, under any circumstance whatsoever, the fulfillment of any obligation under this Note or any other agreement between Payee and Payor deemed to pertain to this Note shall involve exceeding the Maximum Legal Rate, then the obligation to be fulfilled by Payor shall be reduced the minimum amount required so that such obligation shall not exceed the Maximum Legal Rate. Payor hereby waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest. No failure to exercise and no delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 2 3 Payee agrees that this Note shall not be transferred without the prior written consent of Payor, which consent shall not be unreasonably withheld. This Note is being delivered in connection with the loan by Payee to Payor of the principal amount hereunder, which Payor has used to purchase the Pledged Shares from Payee pursuant to an "Award" made by Payee to Payor within the meaning of Section 3 of Payee's 1993 Employee Stock Incentive Plan. This Note has been executed and delivered in the State of California and shall be governed by and construed in accordance with the laws thereof without regard to its laws regarding choice of law or conflict of laws. /s/ Diana M. Wilson -------------------------------- Diana M. Wilson 3 EX-10.39 4 EXHIBIT 10.39 1 EXHIBIT 10.39 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT dated as of April 18, 1997 (this "Agreement"), is by and between Diana M. Wilson, an individual ("Pledgor"), and Deckers Outdoor Corporation, a Delaware corporation ("Lender"). R E C I T A L S A. Lender has concurrently herewith advanced the sum of Six Hundred Twenty-Four Thousand Dollars ($624,000.00) (the "Loan"). B. Pledgor has delivered to Lender that certain Limited Recourse Secured Promissory Note of even date herewith (the "Note") setting forth Pledgor's obligations with respect to the repayment of the Loan. C. Pledgor has used the proceeds of the Loan to purchase from Lender One Hundred Thousand (100,000) newly-issued shares of common stock of Lender (the "Pledged Stock"). D. Such issuance and sale by Lender to Pledgor is being made pursuant to an "Award" in accordance with Lender's 1993 Employee Stock Incentive Plan. E. Pledgor desires to pledge the Pledged Stock to Lender pursuant to the Note. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing recitals, the terms and provisions hereof and the Note and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. SECURITY INTEREST. To secure the payment and performance of the Note as and when due, Pledgor hereby grants, conveys, pledges, assigns and transfers to Lender, a security interest in all right, title, claim and interest of Pledgor in and to (a) the Pledged Stock and all certificates and instruments representing or evidencing the Pledged Stock and (b) all securities issued by Lender, or any successor thereto, that Pledgor acquires or has the right to acquire from time to time in any manner in substitution for or in respect of the Pledged Stock, including securities or other property (other than cash) issued and delivered as a dividend or distribution on, or in exchange for, the Pledged Stock including, without limitation, in connection with any reclassification, increase or reduction of capital or issued or delivered in connection with any merger or other reorganization, such additional securities being thenceforth included in the definition of "Pledged Stock." 2 SECTION 2. REPRESENTATIONS AND WARRANTIES. 2.1. Pledgor has good title to the Pledged Stock, free and clear of all liens other than as created by this Agreement. 2.2. This Agreement has been duly executed and delivered by Pledgor and constitutes the valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms.. SECTION 3. DELIVERY OF PLEDGED STOCK, ETC. As of the date hereof, Pledgor is delivering to Lender certificates or instruments in respect of the Pledged Stock, in suitable form for transfer by delivery, accompanied by duly executed instruments of transfer or assignment in blank. If Pledgor receives or becomes entitled to receive any securities in substitution for or in respect of the Pledged Stock, Pledgor shall receive the same as the agent for Lender and shall hold the same in trust for and deliver the same promptly to Lender in the exact form in which received, together with appropriate instruments of transfer or assignments in blank, to be held by Lender as collateral hereunder. Promptly upon payment in full of all amounts due under the Note, Lender shall return to Pledgor all Pledged Stock and instruments of transfer theretofore delivered. SECTION 4. VOTING AND OTHER CONSENSUAL RIGHTS; DISTRIBUTIONS. Pledgor shall be entitled to exercise any and all voting rights pertaining to any Pledged Stock and to receive and retain any and all dividends and other distributions paid in cash in respect of any of the Pledged Stock. Notwithstanding the foregoing, in the event the Note is not paid in full upon maturity, at the sole option of Lender, any or all rights of Pledgor to exercise voting and other consensual rights shall cease, and Lender, if and when it notifies Pledgor in writing of the exercise of such option, shall have the sole right to exercise any or all such voting rights and to receive and hold as collateral for the Note any or all cash and other dividends and distributions thereafter paid in respect of the Pledged Stock. SECTION 5. REMEDIES. If the Note is not paid in full upon maturity, in addition to all its other rights, powers and remedies under this Agreement and applicable law, Lender shall have, and may exercise with respect to the Pledged Stock, any and all of the rights, powers and remedies of a secured party under the Uniform Commercial Code, all of which rights, powers and remedies shall be cumulative and not exclusive, to the extent permitted by applicable law. SECTION 6. GENERAL. Section 6.1. Applicable Law. Except to the extent otherwise required under applicable law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of California (other than choice of law rules that would require the application of the laws of any other jurisdiction). Section 6.2. Amendments and Other Modifications. No amendment of any provision of this Agreement (including a waiver thereof or consent relating thereto) shall be effective unless the same shall be in writing and signed by the party to be charged with enforcement thereof. 2 3 Section 6.3. Notices. All notices and other communications under this Agreement shall be in writing and shall be personally delivered or sent by prepaid courier, by overnight, registered or certified mail (postage prepaid) or by prepaid telex, telecopy or telegram, and shall be deemed given when received by the intended recipient thereof. Unless otherwise specified in a notice given in accordance with the foregoing provisions of this Section 6, notices and other communications shall be given to the parties hereto at their respective addresses (or to their respective telex or telecopier numbers) set forth below. Section 6.4. Successors and Assigns. This Agreement shall be binding upon and, subject to the next sentence, inure to the benefit of Pledgor and Lender and their respective successors and assigns. Lender shall not assign or transfer any of its rights or obligations hereunder without the prior written consent of Pledgor. Section 6.5. Choice of Forum. All actions or proceedings arising in connection with this Agreement shall be tried and litigated in state or Federal courts located in the City of Santa Barbara, State of California, unless such actions or proceedings are required to be brought in another court to obtain subject matter jurisdiction over the matter in controversy. EACH OF PLEDGOR AND LENDER WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS, TO ASSERT THAT IT IS NOT SUBJECT TO THE JURISDICTION OF SUCH COURTS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 6.5. Section 6.6. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. Section 6.7. Complete Agreement. This Agreement, together with the Note, is intended by the parties as a final expression of their agreement regarding the subject matter hereof and as a complete and exclusive statement of the terms and conditions of such agreement. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above. PLEDGOR /s/ Diana M. Wilson --------------------------------- Diana M. Wilson LENDER DECKERS OUTDOOR CORPORATION, a Delaware corporation By: /s/ Douglas B. Otto --------------------------------- Name: Douglas B. Otto Title: Chief Executive Officer Address: 495A South Fairview Goleta, California 93117 4 EX-11.1 5 EXHIBIT 11.1 1 Exhibit 11.1 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Statement of Computation of Earnings per Share (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31, -------------------------- 1997 1996 ---------- --------- Net earnings available to common stockholders $1,990,000 1,479,000 ---------- --------- Weighted average common stock outstanding 8,984,000 9,242,000 Common stock equivalents - stock options 56,000 62,000 ---------- --------- 9,040,000 9,304,000 ========== ========== Net earnings per share $ 0.22 0.16 ========== ==========
13 EX-27 6 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 MAR-31-1997 1,481,000 0 30,466,000 1,491,000 21,336,000 55,773,000 4,968,000 2,300,000 81,171,000 11,568,000 12,789,000 0 0 90,000 56,724,000 81,171,000 34,441,000 34,441,000 19,491,000 19,491,000 0 450,000 252,000 3,505,000 1,515,000 1,990,000 0 0 0 1,990,000 0.22 0.22
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