-----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, CQIyJC02ncaXV3ZDl/lFKNFEOH1xMKiAZx6mNTkmwSkyLtPQpmflnTyV4ZKXBzOR uN9aFG62RCeO21euTZoUSA== 0000950148-97-001933.txt : 19970807 0000950148-97-001933.hdr.sgml : 19970807 ACCESSION NUMBER: 0000950148-97-001933 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970806 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: 97651939 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 June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-22446 DECKERS OUTDOOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-3015862 - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation IRS Employer Identification or organization) 495A South Fairview Avenue, Goleta, California 93117 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (805) 967-7611 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of the issuer's class of common stock, as of the latest practicable date. Outstanding at CLASS July 31, 1997 ----------------------------- ------------------- Common stock, $.01 par value 9,007,631 2 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Table of Contents Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Earnings for the Three-Month Period Ended June 30, 1997 and 1996 2 Condensed Consolidated Statements of Earnings for the Six-Month Period Ended June 30, 1997 and 1996 3 Condensed Consolidated Statements of Cash Flows for the Six-Month Period Ended June 30, 1997 and 1996 4-5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 14
3 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
ASSETS JUNE 30, DECEMBER 31, 1997 1996 ---------- ---------- Current assets: Cash and cash equivalents $ 2,277,000 1,287,000 Trade accounts receivable, less allowance for doubtful accounts of $1,491,000 and $1,292,000 as of June 30, 1997 and December 31, 1996, respectively 21,862,000 17,866,000 Inventories 13,887,000 24,930,000 Prepaid expenses and other current assets 2,970,000 3,643,000 Deferred tax assets 1,622,000 1,622,000 ---------- ---------- Total current assets 42,618,000 49,348,000 Property and equipment, at cost, net 2,317,000 2,794,000 Intangible assets, less applicable amortization 20,650,000 20,805,000 Note receivable from supplier, net 1,666,000 1,838,000 Other assets, net 65,000 112,000 ---------- ---------- $ 67,316,000 74,897,000 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 103,000 99,000 Trade accounts payable 3,703,000 5,494,000 Accrued expenses 3,453,000 3,042,000 Income taxes payable 753,000 983,000 ---------- ---------- Total current liabilities 8,012,000 9,618,000 ---------- ---------- Long-term debt, less current maturities 1,238,000 10,290,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued -- -- Common stock, $.01 par value. Authorized 20,000,000 shares; issued 9,393,431 and outstanding 9,013,031 at June 30, 1997; issued 9,283,556 and outstanding 8,983,556 at December 31, 1996 90,000 90,000 Additional paid-in capital 26,912,000 26,790,000 Retained earnings 31,688,000 28,109,000 ---------- ---------- 58,690,000 54,989,000 Less: note receivable from stockholder/officer (624,000) -- ---------- ---------- Total stockholders' equity 58,066,000 54,989,000 ---------- ---------- $ 67,316,000 74,897,000 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
THREE-MONTH PERIOD ENDED JUNE 30, ---------------------------- 1997 1996 ---------- ---------- Net sales $ 28,103,000 27,550,000 Cost of sales 15,571,000 16,455,000 ---------- ---------- Gross profit 12,532,000 11,095,000 Selling, general and administrative expenses 9,614,000 8,540,000 ---------- ---------- Earnings from operations 2,918,000 2,555,000 Other expense (income): Interest expense, net 129,000 226,000 Minority interest in net loss of subsidiary -- (18,000) Loss on disposal of property, plant and equipment -- 349,000 Miscellaneous expense (income) (10,000) 151,000 ---------- ---------- Earnings before income taxes 2,799,000 1,847,000 Income taxes 1,210,000 823,000 ---------- ---------- Net earnings $ 1,589,000 1,024,000 ========== ========== Net earnings per common and common equivalent shares $ 0.18 0.11 ========== ========== Weighted average common and common equivalent shares outstanding 9,070,000 9,325,000 ========== ========== See accompanying notes to condensed consolidated financial statements.
2 5 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
SIX-MONTH PERIOD ENDED JUNE 30, ----------------------------- 1997 1996 ----------- ---------- Net sales $ 62,544,000 56,322,000 Cost of sales 35,062,000 32,637,000 ----------- ---------- Gross profit 27,482,000 23,685,000 Selling, general and administrative expenses 20,384,000 18,389,000 Loss on factory closure 500,000 -- ----------- ---------- Earnings from operations 6,598,000 5,296,000 Other expense (income): Interest expense, net 381,000 508,000 Minority interest in net loss of subsidiary (81,000) (81,000) Loss on disposal of property, plant and equipment -- 349,000 Miscellaneous expense (income) (6,000) 3,000 ----------- ---------- Earnings before income taxes 6,304,000 4,517,000 Income taxes 2,725,000 2,014,000 ----------- ---------- Net earnings $ 3,579,000 2,503,000 =========== ========== Net earnings per common and common equivalent shares $ 0.40 0.27 =========== =========== Weighted average common and common equivalent shares outstanding 9,057,000 9,306,000 =========== ==========
See accompanying notes to condensed consolidated financial statements. 3 6 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
SIX-MONTH PERIOD ENDED JUNE 30, ---------------------------- 1997 1996 ---------- --------- Cash flows from operating activities: Net earnings $ 3,579,000 2,503,000 ---------- --------- Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,146,000 974,000 Provision for doubtful accounts 700,000 985,000 Minority interest in net loss of subsidiary (81,000) (81,000) Loss on disposal of property, plant and equipment 626,000 349,000 Loss on factory closure 500,000 Changes in assets and liabilities (Increase) decrease in: Trade accounts receivable (4,196,000) (2,279,000) Inventories 11,043,000 3,453,000 Prepaid expenses and other current assets 673,000 726,000 Note receivable from supplier (328,000) (93,000) Refundable income taxes -- 2,756,000 Other assets (53,000) 350,000 Increase (decrease) in: Accounts payable (1,791,000) (475,000) Accrued expenses 492,000 630,000 Income taxes payable (230,000) 860,000 ---------- --------- Total adjustments 8,501,000 8,155,000 ---------- --------- Net cash provided by operating activities 12,080,000 10,658,000 ---------- --------- Cash flows from investing activities: Purchase of property, plant and equipment (1,189,000) (595,000) Payment for acquisition of Ugg (351,000) (495,000) Cash paid to stockholder/officer for loan (624,000) --- Other --- (192,000) ---------- --------- Net cash used in investing activities (2,164,000) (1,282,000) ---------- ---------
(Continued) 4 7 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued (Unaudited)
SIX-MONTH PERIOD ENDED JUNE 30, ---------------------------- 1997 1996 ---------- --------- Cash flows from financing activities: Repayments of notes payable and long-term debt $ (9,048,000) (5,822,000) Proceeds from issuances of common stock 625,000 60,000 Repurchase of common stock (554,000) --- Cash paid for repurchase of outstanding stock options in a subsidiary --- (725,000) Cash received from exercise of stock options 51,000 --- Other --- 43,000 ---------- --------- Net cash used in financing activities (8,926,000) (6,444,000) ---------- --------- Net increase in cash and cash equivalents 990,000 2,932,000 Cash and cash equivalents at beginning of period 1,287,000 3,222,000 ---------- --------- Cash and cash equivalents at end of period $ 2,277,000 6,154,000 ========== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 435,000 524,000 Income taxes 2,230,000 183,000 ========== =========
Supplemental disclosure of noncash investing and financing activities: In connection with the repurchase of outstanding stock options of a subsidiary from the Founder of the subsidiary during the six-month period ended June 30, 1996, the Company gave consideration of $2,111,000, consisting of $725,000 of cash, notes payable to the Founder (net of imputed interest) aggregating $1,011,000 and the forgiveness of a $375,000 note receivable from the Founder. The Company allocated the entire purchase price to goodwill. See accompanying notes to condensed consolidated financial statements. 5 8 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) General The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results to be achieved for full fiscal years. As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of Regulation S-X, the accompanying consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual consolidated financial statements and footnotes thereto. For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K. (2) Earnings per Share Net earnings per share is based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents represent the number of shares which would be issued assuming the exercise of common stock options and reduced by the number of shares which could be purchased with the proceeds from the exercise of those options. Fully diluted net earnings per share are not presented since the amounts do not differ significantly from the primary net earnings per share presented. (3) Inventory Inventory at June 30, 1997 and December 31, 1996 is summarized as follows:
JUNE 30, DECEMBER 31, 1997 1996 ---------- ---------- Raw materials $ 966,000 3,239,000 Work in process 484,000 1,197,000 Finished goods 12,437,000 20,494,000 ---------- ---------- Total inventory $ 13,887,000 24,930,000 ========== ==========
6 9 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) (4) Note Receivable from Stockholder/Officer On April 18, 1997, the Company issued one of its officers a $624,000 loan to purchase 100,000 shares of the Company's common stock at the fair market value on that date. The loan bears interest at 6.39% and is secured by the stock so acquired and by any severance pay, including any unpaid bonuses. (5) Income Taxes Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. (6) Legal Proceedings with Former Ugg Shareholders Some of the former shareholders of Ugg Holdings gave notice of a demand for arbitration regarding the periodic payments due under the acquisition agreement. These former shareholders are asserting claims that additional payments are due them. The Company does not believe these claims are meritorious, but has incurred substantial costs to date in defending itself. These costs are expected to continue until the conclusion of the arbitration. On April 23, 1997, the former shareholders filed their claims and the Company filed its counterclaims against the former shareholders. On May 7, 1997, the Company and the former shareholders had a status conference with the arbitrator. The arbitration will occur in September 1997. (7) Recently Issued Pronouncements The Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation of "Basic" earnings per share which represents income available to common shareholders divided by the weighted average number of common shares outstanding for the period. A dual presentation of "Diluted" earnings per share will also be required. The Diluted presentation is similar to the current earnings per share presentation. Management believes the adoption of FAS 128 will not have a material impact on the Company's earnings per share. 7 10 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 Net sales increased by $553,000 or 2.0% between the three months ended June 30, 1997 and 1996. Sales of the Teva(R) line increased from $17,414,000 for the three months ended June 30, 1996 to $20,752,000 for the three months ended June 30, 1997, a 19.2% increase. Sales of Teva(R) products represented 63.2% and 73.8% of net sales in the three months ended June 30, 1996 and 1997, respectively. Net sales of footwear under the Simple(R) product line decreased 34.2%, from $9,141,000 to $6,018,000 between the three months ended June 30, 1996 and 1997. This decrease was largely due to the non-recurrence of last year's demand for certain styles of Simple(R) clogs. Overall, international sales for all of the Company's products increased 1.9% from $4,851,000 to $4,943,000, representing 17.5% of net sales in 1996 and 17.6% in 1997. Because the increase in the volume of sales of Teva(R) footwear products did not offset the decrease in the volume of sales of Simple(R) footwear products, the volume of footwear sold decreased 3.2% from 1,110,000 pairs during the three months ended June 30, 1996 to 1,074,000 pairs during the three months ended June 30, 1997. The weighted average wholesale price per pair sold during these respective periods decreased 0.8% from $25.08 to $24.89. The decrease was primarily due to a change in the sales mix for Simple(R) products, with significantly greater sales of the relatively higher priced clogs during second quarter 1996 compared to second quarter 1997. This decrease was partially offset by the lower volume of Teva(R) close-outs in second quarter 1997 compared to second quarter 1996. Cost of sales decreased by $884,000, or 5.4%, to $15,571,000 for the three months ended June 30, 1997, compared with $16,455,000 for the three months ended June 30, 1996. Gross profit increased by $1,437,000, or 13.0% to $12,532,000 for the three months ended June 30, 1997 from $11,095,000 for the three months ended June 30, 1996 and increased as a percentage of net sales to 44.6% from 40.3%. The increase in gross profit margin as a percentage of net sales was primarily due to significantly reduced levels of Teva(R) close-outs, the closure of the Company's California manufacturing facility in March 1997 and decreased freight costs. Selling, general and administrative expenses increased by $1,074,000, or 12.6% between the three months ended June 30, 1996 and June 30, 1997, and increased as a percentage of net sales from 31.0% in 1996 to 34.2% in 1997. The increase was primarily due to legal costs related to disputes with some of the former shareholders of Ugg Holdings, additional royalties on increased Teva(R) sales and amortization of the Teva(R) license fee. Income taxes were $1,210,000 for the three months ended June 30, 1997, representing an effective income tax rate of 43.2% compared with income taxes of $823,000 for the three months ended June 30, 1996, representing an effective income tax rate of 44.6%. The higher effective income tax rate in 1996 compared to 1997 is due to certain non-deductible expenses and losses being a greater proportion to earnings before income taxes in 1996 than in 1997. Such non-deductible items include the amortization of goodwill and losses at certain subsidiaries which are consolidated for financial reporting purposes but which are not consolidated for income tax reporting purposes. 8 11 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES The Company had net earnings of $1,589,000 for the three months ended June 30, 1997 as compared with net earnings of $1,024,000 for the three months ended June 30, 1996, an increase of 55.2% for the reasons discussed above. Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Net sales increased by $6,222,000 or 11.0% between the six months ended June 30, 1997 and 1996. Sales of the Teva(R) line increased from $36,014,000 for the six months ended June 30, 1996 to $45,005,000 for the six months ended June 30, 1997, a 25.0% increase. Sales of Teva(R) products represented 63.9% and 72.0% of net sales in the six months ended June 30, 1996 and 1997, respectively. Net sales of footwear under the Simple(R) product line decreased 11.1% from $17,124,000 to $15,224,000 between the six months ended June 30, 1996 and 1997. This decrease was largely due to the non-recurrence of last year's demand for certain styles of Simple(R) clogs. Overall, international sales for all of the Company's products increased 2.8% from $13,856,000 to $14,240,000 representing 24.6% of net sales in 1996 and 22.8% in 1997. Because the increase in the volume of sales of Teva(R) footwear products more than offset the decrease in the volume of sales of Simple(R) footwear products, the volume of footwear sold increased 7.9% from 2,217,000 pairs during the six months ended June 30, 1996 to 2,393,000 pairs during the six months ended June 30, 1997. The weighted average wholesale price per pair sold during these respective periods decreased 2.9% from $25.74 to $25.00. The decrease was primarily due to a change in the sales mix for Simple(R) products, with significantly greater sales of the relatively higher priced clogs during second quarter 1996 compared to second quarter 1997. This decrease was partially offset by the lower volume of Teva(R) close-outs in second quarter 1997 compared to second quarter 1996. Cost of sales increased by $2,425,000, or 7.4%, to $35,062,000 for the six months ended June 30, 1997, compared with $32,637,000 for the six months ended June 30, 1996. Gross profit increased by $3,797,000 or 16.0% to $27,482,000 for the six months ended June 30, 1997 from $23,685,000 for the six months ended June 30, 1996 and increased as a percentage of net sales to 43.9% from 42.1%. The increase in gross profit margin as a percentage of net sales was primarily due to significantly reduced levels of Teva(R) close-outs and decreased freight costs. Selling, general and administrative expenses increased by $1,995,000 or 10.8% between the six months ended June 30, 1996 and June 30, 1997 and was consistent as a percentage of net sales at 32.6% in 1996 and 1997. The increase of $1,995,000 was the result of increased net sales, increased royalties due to a change in the sales mix and increased legal costs related to disputes with some of the former shareholders of Ugg Holdings. Income taxes were $2,725,000 for the six months ended June 30, 1997, representing an effective income tax rate of 43.2% compared with income taxes of $2,014,000 for the six months ended June 30, 1996, representing an effective income tax rate of 44.6%. The higher effective income tax rate in 1996 compared to 1997 is due to certain non-deductible expenses and losses being a greater proportion to earnings before income taxes in 1996 than in 1997. Such non-deductible items include the amortization of goodwill and losses at certain subsidiaries which are consolidated for financial reporting purposes but which are not consolidated for income tax reporting purposes. 9 12 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES The Company had net earnings of $3,579,000 for the six months ended June 30, 1997 as compared with net earnings of $2,503,000 for the six months ended June 30, 1996, an increase of 43.0%, for the reasons discussed above. Outlook This outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Net sales of the Simple(R) product line for the six months ended June 30, 1997 decreased 11.1% from net sales for the six months ended June 30, 1996. The Company currently expects that net sales of Simple(R) shoes in 1997 will be flat or lower than sales in 1996. Net sales of Ugg(R) footwear are expected to be lower in 1997 than net sales of Ugg(R) footwear in 1996, which were approximately $14.8 million. The Company anticipates that any decrease in the rate of sales growth or decrease in net sales for the Simple(R) and Ugg(R) lines will be more than offset by increased net sales of the Teva(R) product line. The foregoing forward-looking statements represent the Company's current analysis of trends and information. Actual results could be affected by a variety of factors. For example, the Company's results are directly dependent on consumer preferences, which are difficult to assess and can shift rapidly. Any shift in consumer preferences away from one or more of the Company's product lines could result in lower sales as well as obsolete inventory, both of which could adversely affect the Company's results of operations, financial condition and cash flows. The Company is also dependent on its customers continuing to carry and promote its various lines. In addition, sales of each of the Company's different lines have historically been higher in different seasons, with the highest percentage of Teva(R) sales occurring in the first and second quarter of each year, the highest percentage of Simple(R) sales occurring in the third quarter and the highest percentage of Ugg(R) sales occurring in the fourth quarter. Consequently, the results for these product lines are highly dependent on results during these specified periods. The Company cautions the reader not to rely on the forward-looking statements in this section. They merely represent the Company's current assessment of trends and information and may not be indicative of actual future results. The Company disclaims any intent or obligation to update these forward-looking statements. Liquidity and Capital Resources The Company's liquidity consists of cash and cash equivalents, trade accounts receivable, inventories and a revolving credit facility. At June 30, 1997, working capital was $34,606,000 including $2,277,000 of cash and cash equivalents. Cash provided by operating activities aggregated $12,080,000 for the six months ended June 30, 1997. Trade accounts receivable increased 22.4% from December 31, 1996 to June 30, 1997, largely due to normal seasonality and increased Teva(R) sales as discussed above. Inventories decreased 44.3% during this period for the same reason. The Company has a revolving credit facility with a bank (the "Facility"), providing a maximum borrowing availability of $25,000,000 based on certain eligible assets, as defined. The Facility can be used for working capital and general corporate purposes and expires August 1, 2000. Borrowings bear interest at the bank's prime rate (8.50% at June 30, 1997) plus up to 0.25%, 10 13 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES depending on whether the Company satisfies certain financial ratios. Alternatively, the Company may elect to have borrowings bear interest at LIBOR plus 1.5% to 1.75%, depending on whether the Company satisfies such financial ratios. Up to $10,000,000 of borrowings may be in the form of letters of credit. The Facility is secured by substantially all assets of the Company. As of June 30, 1997, the Company had repaid all of its borrowings under the Facility and had approximately $14,237,000 available for borrowings. The agreement underlying the Facility includes certain restrictive covenants which, among other things, require the Company to maintain certain financial tests. The Company was in compliance with all requirements as of June 30, 1997. The Company has an agreement with a supplier to provide financing for the start-up and the expansion of the supplier's operations, of which $1,666,000 (net of related allowance) was outstanding at June 30, 1997. The note is secured by all assets of the supplier and bears interest at the prime rate (8.50% at June 30, 1997) plus 1%. Capital expenditures totaled $1,189,000 for the six months ended June 30, 1997. The Company's capital expenditures related primarily to leasehold improvements and equipment associated with the Company's move to new facilities in Goleta, California. The Company currently has no material future commitments for capital expenditures. In connection with the acquisition of Ugg Holdings, Inc. in 1995, the Company is required to make further future payments equal to 2 1/2% of net sales of Ugg Holdings for the years ending March 31, 1996 through March 31, 2000. In May 1997, the Company made a $351,000 payment to the former shareholders related to its required payments for the year ended March 31, 1997. In 1996, the Company's Board of Directors authorized the repurchase of up to 300,000 shares of the Company's outstanding common stock from time to time in open market or in privately negotiated transactions, subject to price and market conditions. During 1996, the Company repurchased 300,000 shares for cash consideration of $2,390,000. In February 1997, the Company's Board of Directors authorized the repurchase of up to an additional 300,000 shares. During the six months ended June 30, 1997, the Company repurchased 80,400 shares for cash consideration of $554,000. From July 1, 1997 through July 31, 1997, the Company repurchased 5,400 shares for cash consideration of $40,000. The Company believes that internally generated funds, the available borrowings under its existing credit facilities and the cash on hand will provide sufficient liquidity to enable it to meet its current and foreseeable working capital requirements. Seasonality Financial results for the outdoor and footwear industries are generally seasonal. Based on the Company's historical product mix, the Company would expect greater sales in the first and second quarters than in the third and fourth quarters. Other The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net sales or profitability. 11 14 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Recently Issued Pronouncements The Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt FAS 128 in the fourth quarter of 1997. FAS 128 requires the presentation of "Basic" earnings per share which represents income available to common shareholders divided by the weighted average number of common shares outstanding for the period. A dual presentation of "Diluted" earnings per share will also be required. The Diluted presentation is similar to the current earnings per share presentation. Management believes the adoption of FAS 128 will not have a material impact on the Company's earnings per share. 12 15 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings. Some of the former shareholders of Ugg Holdings gave notice of a demand for arbitration regarding the periodic payments due under the acquisition agreement. These former shareholders are asserting claims that additional payments are due them. The Company does not believe these claims are meritorious, but has incurred substantial costs to date in defending itself. These costs are expected to continue until the conclusion of the arbitration. On April 23, 1997, the former shareholders filed their claims and the Company filed its counterclaims against the former shareholders. On May 7, 1997, the Company and the former shareholders had a status conference with the arbitrator. The arbitration will occur in September 1997. Item 2. Changes in Securities. Not applicable Item 3. Defaults upon Senior Securities. Not applicable Item 4. Submission of Matters to a Vote of Security Holders. On May 30, 1997, the Company held its Annual Meeting of Stockholders. At the meeting, Ronald D. Page and Diana M. Wilson were each re-elected as Class I directors until the Annual Meeting of Stockholders to be held in 2000, until such director's successor has been duly elected and qualified or until such director has otherwise ceased to serve as a director. For Ronald D. Page, 8,519,845 votes were cast in favor and 15,905 votes were withheld. For Diana M. Wilson, 8,514,420 votes were cast in favor and 21,330 were withheld. There were no broker non-votes. The stockholders also ratified the selection of KPMG Peat Marwick LLP as the Company's independent auditors. 8,511,596 votes were cast in favor of the ratification; 6,030 were voted against; and 18,124 abstained. There were no broker non-votes. Item 5. Other Information. Not applicable Item 6. Exhibits and Reports on Form 8 K. (a) Exhibits Exhibit 11.1 Statement of Computation of Earnings per Share. (b) Reports on Form 8 K. None 13 16 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Deckers Outdoor Corporation Date: August 5, 1997 /s/ M. SCOTT ASH ---------------------------------------- M. Scott Ash, Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 14 EX-11.1 2 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Statement of Computation of Earnings per Share (Unaudited)
THREE-MONTH PERIOD ENDED JUNE 30, ----------------------------- 1997 1996 --------- --------- Net earnings available to common stockholders $ 1,589,000 1,024,000 ========= ========= Weighted average common stock outstanding 9,008,000 9,247,000 Common stock equivalents - stock options 62,000 78,000 --------- --------- 9,070,000 9,325,000 ========= ========= Net earnings per share $ 0.18 0.11 ========= ========= SIX-MONTH PERIOD ENDED JUNE 30, ----------------------------- 1997 1996 --------- --------- Net earnings available to common stockholders $ 3,579,000 2,503,000 ========= ========= Weighted average common stock outstanding 8,996,000 9,245,000 Common stock equivalents - stock options 61,000 61,000 --------- --------- 9,057,000 9,306,000 ========= ========= Net earnings per share $ 0.40 0.27 ========= =========
15 EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,277,000 0 23,353,000 1,491,000 13,887,000 42,618,000 4,804,000 2,487,000 67,316,000 8,012,000 1,238,000 0 0 90,000 57,976,000 67,316,000 62,544,000 62,544,000 35,062,000 35,062,000 0 700,000 381,000 6,304,000 2,725,000 3,579,000 0 0 0 3,579,000 0.40 0.40
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