-----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, PKtgn3/6tuZpV35QPD7f6wj5Ddr8/AdsxXILvwuwg6TzVK8gmHf5r9WANPJCWmta mGKosRVAZX7kRRhYRprLIg== 0000950148-97-002815.txt : 19971113 0000950148-97-002815.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950148-97-002815 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-22446 FILM NUMBER: 97716430 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 10-Q (DATED SEPTEMBER 30,1997) 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, 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 October 31, 1997 ---------------------------- ---------------- Common stock, $.01 par value 8,946,231 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, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Earnings for the Three-Month Period Ended September 30, 1997 and 1996 2 Condensed Consolidated Statements of Earnings for the Nine-Month Period Ended September 30, 1997 and 1996 3 Condensed Consolidated Statements of Cash Flows for the Nine-Month Period Ended September 30, 1997 and 1996 4-5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 Part II. Other Information Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15
3 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
ASSETS SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 8,449,000 1,287,000 Trade accounts receivable, less allowance for doubtful accounts of $1,091,000 and $1,292,000 as of September 30, 1997 17,568,000 17,866,000 and December 31, 1996, respectively Inventories 14,303,000 24,930,000 Prepaid expenses and other current assets 2,368,000 3,643,000 Deferred tax assets 1,622,000 1,622,000 ------------ ------------ Total current assets 44,310,000 49,348,000 Property and equipment, at cost, net 2,303,000 2,794,000 Intangible assets, less applicable amortization 22,529,000 20,805,000 Note receivable from supplier, net 1,080,000 1,838,000 Other assets 414,000 112,000 ------------ ------------ $ 70,636,000 74,897,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 2,603,000 ----- Current maturities of long-term debt 130,000 99,000 Trade accounts payable 4,651,000 5,494,000 Accrued expenses 3,099,000 3,042,000 Income taxes payable 1,082,000 983,000 ------------ ------------ Total current liabilities 11,565,000 9,618,000 ------------ ------------ Long-term debt, less current maturities 711,000 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 8,989,331 at September 30, 1997; issued 9,283,556 and outstanding 8,983,556 at December 31, 1996 90,000 90,000 Additional paid-in capital 26,738,000 26,790,000 Retained earnings 32,156,000 28,109,000 ------------ ------------ 58,984,000 54,989,000 Less: note receivable from stockholder/officer 624,000 ---- ------------ ------------ Total stockholders' equity 58,360,000 54,989,000 ------------ ------------ $ 70,636,000 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 SEPTEMBER 30 ------------------------------- 1997 1996 ------------ ------------ Net sales $ 20,783,000 23,485,000 Cost of sales 13,453,000 14,291,000 ------------ ------------ Gross profit 7,330,000 9,194,000 Selling, general and administrative expenses 6,454,000 7,965,000 ------------ ------------ Earnings from operations 876,000 1,229,000 Other expense (income): Interest, net (57,000) 215,000 Minority interest in net income of subsidiary 98,000 23,000 Loss on disposal of property, plant and equipment -- 140,000 Miscellaneous expense (income) 10,000 (173,000) ------------ ------------ Earnings before income taxes 825,000 1,024,000 Income taxes 357,000 457,000 ------------ ------------ Net earnings $ 468,000 567,000 ============ ============ Net earnings per common and common equivalent shares $ 0.05 0.06 ============ ============ Weighted average common and common equivalent shares outstanding 9,069,000 9,349,000 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 5 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
NINE-MONTH PERIOD ENDED SEPTEMBER 30 ------------------------------ 1997 1996 ------------ ------------ Net sales $ 83,327,000 79,807,000 Cost of sales 48,515,000 46,928,000 ------------ ----------- Gross profit 34,812,000 32,879,000 Selling, general and administrative expenses 26,838,000 26,354,000 Loss on factory closure 500,000 -- ------------ ----------- Earnings from operations 7,474,000 6,525,000 Other expense (income): Interest expense, net 324,000 723,000 Minority interest in net income (loss) of subsidiary 17,000 (58,000) Loss on disposal of property, plant and equipment -- 489,000 Miscellaneous expense (income) 4,000 (170,000) ------------ ----------- Earnings before income taxes 7,129,000 5,541,000 Income taxes 3,082,000 2,471,000 ------------ ----------- Net earnings $ 4,047,000 3,070,000 ============ =========== Net earnings per common and common equivalent shares $ 0.45 0.33 ============ =========== Weighted average common and common equivalent shares outstanding 9,062,000 9,317,000 ============ ===========
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 ------------------------------- 1997 1996 ------------ ------------ Cash flows from operating activities: Net earnings $ 4,047,000 3,070,000 ------------ ------------ Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,861,000 1,538,000 Provision for doubtful accounts 300,000 985,000 Minority interest in net income (loss) of 17,000 (58,000) subsidiary Loss on factory closure 500,000 -- Loss on disposal of property, plant and equipment -- 489,000 Changes in assets and liabilities (Increase) decrease in: Trade accounts receivable 498,000 194,000 Inventories 10,627,000 (1,785,000) Prepaid expenses and other current assets 1,275,000 900,000 Note receivable from supplier 258,000 299,000 Refundable income taxes -- 2,969,000 Other assets (302,000) (879,000) Increase (decrease) in: Accounts payable (843,000) 1,062,000 Accrued expenses 305,000 1,265,000 Income taxes payable 99,000 1,062,000 ------------ ------------ Total adjustments 14,595,000 8,041,000 ------------ ------------ Net cash provided by operating activities 18,642,000 11,111,000 ------------ ------------ Cash flows from investing activities: Proceeds from sale of property and equipment 13,000 5,000 Purchase of property, plant and equipment (1,218,000) (1,106,000) Purchase of intangible assets (200,000) -- Payment for acquisition of Ugg (351,000) (495,000) Cash paid to stockholder/officer for loan (624,000) -- ------------ ------------ Net cash used in investing activities (2,380,000) (1,596,000) ------------ ------------
(Continued) 4 7 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued (Unaudited)
NINE-MONTH PERIOD ENDED SEPTEMBER 30 ------------------------------- 1997 1996 ------------ ------------ Cash flows from financing activities: Cash received from borrowings under credit $ -- 5,050,000 facility Repayments of notes payable and long-term debt (9,048,000) (14,918,000) Proceeds from issuances of common stock 625,000 -- Repurchase of common stock (728,000) -- Cash paid for repurchase of outstanding stock options in a subsidiary -- (725,000) Cash received from exercise of stock options 51,000 125,000 ------------ ------------ Net cash used in financing activities (9,100,000) (10,468,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents 7,162,000 (953,000) Cash and cash equivalents at beginning of period 1,287,000 3,222,000 ------------ ------------ Cash and cash equivalents at end of period $ 8,449,000 2,269,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 449,000 736,000 Income taxes 2,263,000 249,000 ============ ============
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. The Company allocated the entire purchase price to goodwill. In connection with its settlement with the former Ugg shareholders in September 1997, the Company recorded current notes payable of $2,603,000 and a corresponding increase 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) Inventories Inventories at September 30, 1997 and December 31, 1996 are summarized as follows: SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------ ------------ Raw materials $ 1,236,000 $ 3,239,000 Work in process 527,000 1,197,000 Finished goods 12,540,000 20,494,000 ------------ ------------ Total inventory $ 14,303,000 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) Settlement with Former Ugg Shareholders In September 1997, the Company settled its on-going arbitration with a group of former shareholders of Ugg Holdings, Inc., a corporation purchased by the Company in August 1995. In addition, the remaining former Ugg shareholders who were not a party to the arbitration agreed to accept the same economic terms as those involved in the arbitration. Under the terms of the settlement, the Company will make a final payment to all former Ugg shareholders in the amount of $2.6 million on January 2, 1998. This payment replaces all future earn-out payments that were to be paid through the year 2000 in accordance with the original acquisition agreement. The liability and corresponding increase to goodwill have been reflected in the September 30, 1997 condensed consolidated financial statements. (7) Recently Issued Pronouncements The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), in February 1997. SFAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt SFAS 128 in the fourth quarter of 1997. SFAS 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 SFAS 128 will not have a material impact on the Company's earnings per share. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period covered by that financial statement. SFAS 130 requires an enterprise to (a) classify items of 7 10 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Management has not determined whether the adoption of SFAS 130 will have a material impact on the Company's financial position or results of operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries", to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items and segment assets, information about the revenues derived from the enterprise's products or services, and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's segment reporting. 8 11 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Net sales decreased by $2,702,000, or 11.5% between the three months ended September 30, 1997 and 1996. Sales of the Teva(R) line increased from $3,573,000 for the three months ended September 30, 1996 to $4,365,000 for the three months ended September 30, 1997, a 22.2% increase. Sales of Teva(R) products represented 15.2% and 21.0% of net sales in the three months ended September 30, 1996 and 1997, respectively. Net sales of footwear under the Simple(R) product line decreased 26.2%, from $14,279,000 to $10,542,000, between the three months ended September 30, 1996 and 1997. This decrease was due to the continued repositioning of the Simple(R) brand and its distribution, the non-recurrence of last year's demand for certain styles of Simple(R) clogs, sluggish demand for the sneaker line and late deliveries of some key styles. Net sales of footwear under the Ugg(R) product line decreased 11.3%, from $3,827,000 to $3,396,000, between the three months ended September 30, 1996 and 1997. Overall, international sales for all of the Company's products decreased 17.9% from $6,459,000 to $5,301,000, representing 27.5% of net sales in 1996 and 25.5% 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) and Ugg(R) footwear products, the volume of footwear sold decreased 10.2% from 776,000 pairs during the three months ended September 30, 1996 to 697,000 pairs during the three months ended September 30, 1997. The weighted average wholesale price per pair sold during these respective periods decreased 5.9% from $28.94 to $27.23. The decrease was primarily due to an increase in the number of pairs of Simple(R) footwear sold at discounted prices during the three months ended September 30, 1997. Cost of sales decreased by $838,000, or 5.9%, to $13,453,000 for the three months ended September 30, 1997, compared with $14,291,000 for the three months ended September 30, 1996. Gross profit decreased by $1,864,000, or 20.3% to $7,330,000 for the three months ended September 30, 1997 from $9,194,000 for the three months ended September 30, 1996 and decreased as a percentage of net sales to 35.3% from 39.1%. The decrease in gross profit margin as a percentage of net sales was primarily due to the increase in the number of pairs of Simple(R) footwear sold at discounted prices during the three months ended September 30, 1997. Selling, general and administrative expenses decreased by $1,511,000, or 19.0% between the three months ended September 30, 1996 and September 30, 1997, and decreased as a percentage of net sales from 33.9% in 1996 to 31.1% in 1997. The decrease was primarily due to decreases in management bonuses, bad debt expense, warehouse costs and sales samples expenses. 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. Net interest income was $57,000 for the three months ended September 30, 1997 compared with net interest expense of $215,000 for the three months ended September 30, 1996, primarily due to the repayment of the Company's borrowings under its credit facility in 1997. Miscellaneous 9 12 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES expense was $10,000 for the three months ended September 30, 1997 compared with miscellaneous income of $173,000 for the three months ended September 30, 1996, primarily due to insurance proceeds related to an insured loss in the third quarter of 1996. Income taxes were $357,000 for the three months ended September 30, 1997, representing an effective income tax rate of 43.3% compared with income taxes of $457,000 for the three months ended September 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. The Company had net earnings of $468,000 for the three months ended September 30, 1997 as compared with net earnings of $567,000 for the three months ended September 30, 1996, a decrease of 17.5%, for the reasons discussed above. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Net sales increased by $3,520,000 or 4.4% between the nine months ended September 30, 1997 and 1996. Sales of the Teva(R) line increased from $39,587,000 for the nine months ended September 30, 1996 to $49,370,000 for the nine months ended September 30, 1997, a 24.7% increase. Sales of Teva(R) products represented 49.6% and 59.3% of net sales in the nine months ended September 30, 1996 and 1997, respectively. Net sales of footwear under the Simple(R) product line decreased 18.0% from $31,403,000 to $25,766,000 between the nine months ended September 30, 1996 and 1997. This decrease was due to the continued repositioning of the Simple(R) brand and its distribution, the non-recurrence of last year's demand for certain styles of Simple(R) clogs, sluggish demand for the sneaker line and late deliveries of some key styles. Net sales of footwear under the Ugg(R) product line decreased 26.2%, from $4,158,000 to $3,069,000, between the nine months ended September 30, 1996 and 1997. Overall, international sales for all of the Company's products decreased 3.8% from $20,315,000 to $19,541,000 representing 25.5% of net sales in 1996 and 23.5% 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) and Ugg(R) footwear products, the volume of footwear sold increased 3.2% from 2,993,000 pairs during the nine months ended September 30, 1996 to 3,090,000 pairs during the nine months ended September 30, 1997. The weighted average wholesale price per pair sold during these respective periods decreased 4.0% from $26.57 to $25.50. 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 and fewer close-outs during the nine months ended September 30, 1996 compared to the nine months ended September 30, 1997. This decrease was partially offset by the lower volume of Teva(R) close-outs during the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996. Cost of sales increased by $1,587,000, or 3.4%, to $48,515,000 for the nine months ended September 30, 1997, compared with $46,928,000 for the nine months ended September 30, 1996. 10 13 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Gross profit increased by $1,933,000, or 5.9% to $34,812,000 for the nine months ended September 30, 1997 from $32,879,000 for the nine months ended September 30, 1996 and increased as a percentage of net sales to 41.8% from 41.2%. 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 during the nine months ended September 30, 1997. This increase was partially offset by higher levels of Simple(R) close-outs during this period. Selling, general and administrative expenses increased by $484,000, or 1.8% between the nine months ended September 30, 1996 and September 30, 1997 and decreased as a percentage of net sales from 33.0% in 1996 to 32.2% in 1997. The increase of $484,000 was the result of 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, Inc. This increase was partially offset by a decrease in bad debt expense between the nine months ended September 30, 1996 and September 30, 1997. The decrease as a percentage of net sales 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. Net interest expense was $324,000 for the nine months ended September 30, 1997 compared with net interest expense of $723,000 for the nine months ended September 30, 1996, primarily due to the repayment of the Company's borrowings under its credit facility in 1997. Miscellaneous expense was $4,000 for the nine months ended September 30, 1997 compared with miscellaneous income of $170,000 for the nine months ended September 30, 1996, primarily due to insurance proceeds related to an insured loss in the third quarter of 1996. Income taxes were $3,082,000 for the nine months ended September 30, 1997, representing an effective income tax rate of 43.2% compared with income taxes of $2,471,000 for the nine months ended September 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. The Company had net earnings of $4,047,000 for the nine months ended September 30, 1997 as compared with net earnings of $3,070,000 for the nine months ended September 30, 1996, an increase of 31.8%, 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 nine months ended September 30, 1997 decreased 18.0% from net sales for the nine months ended September 30, 1996. The Company currently expects that net sales of Simple(R) shoes in 1997 will be lower than sales in 1996. Net sales of the Ugg(R) product line for the nine months ended September 30, 1997 decreased 26.2% from net sales for the nine months ended September 30, 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 11 14 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES million. The Company anticipates that any decrease in the net sales for the Simple(R) and Ugg(R) lines will be mitigated 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 September 30, 1997, working capital was $32,745,000 including $8,449,000 of cash and cash equivalents. Cash provided by operating activities aggregated $18,642,000 for the nine months ended September 30, 1997. Trade accounts receivable decreased 1.7% from December 31, 1996 to September 30, 1997, largely due to the decline in sales in the third quarter of 1997 versus the fourth quarter of 1996. Inventories decreased 42.6% during this period due to normal seasonality and management's ongoing efforts to reduce inventory levels. 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 September 30, 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 September 30, 1997, the Company had repaid all of its borrowings under the Facility and had approximately $10,186,000 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 September 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 $1,080,000 (net of related allowance) was 12 15 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES outstanding at September 30, 1997. The note is secured by all assets of the supplier and bears interest at the prime rate (8.50% at September 30, 1997) plus 1%. Capital expenditures totaled $1,218,000 for the nine months ended September 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 was required to make further future payments equal to 2 1/2% of net sales of Ugg Holdings, Inc. 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 September 1997, the Company entered into agreements with the former shareholders whereby the Company will make a final payment to them of $2.6 million on January 2, 1998. This payment replaces all future earn-out payments that were to be paid through the year 2000 in accordance with the original acquisition agreement. The liability and corresponding increase to goodwill have been reflected in the September 30, 1997 condensed consolidated financial statements. 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 nine months ended September 30, 1997, the Company repurchased 104,100 shares for cash consideration of $728,000. From October 1, 1997 through October 31, 1997, the Company repurchased 43,100 shares for cash consideration of $371,000. 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. Recently Issued Pronouncements For recently issued pronouncements, see Note 7 to the Condensed Consolidated Financial Statements. 13 16 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings. In September 1997, the Company settled its on-going arbitration with a group of former shareholders of Ugg Holdings, Inc. In addition, the remaining former Ugg shareholders who were not a party to the arbitration agreed to accept the same economic terms as those involved in the arbitration. Under the terms of the settlement, the Company will make a final payment to all former Ugg shareholders in the amount of $2.6 million on January 2, 1998. This payment replaces all future earn-out payments that were to be paid through the year 2000 in accordance with the original acquisition agreement. 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 11.1 Statement of Computation of Earnings per Share. (b) Reports on Form 8-K. The Company filed the following Current Reports on Form 8-K: (1) Form 8-K filed on October 1, 1997 (Item 5 - reporting the settlement reached in arbitration involving a group of former shareholders of Ugg Holdings, including the related press release dated September 22, 1997). 14 17 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 12, 1997 /s/ M. Scott Ash ---------------- M. Scott Ash, Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 15 EX-11.1 2 EXHIBIT 11.1 1 Exhibit 11.1 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Statement of Computation of Earnings per Share (Unaudited)
THREE-MONTH PERIOD ENDED SEPTEMBER 30, ------------------------------ 1997 1996 ---------- ---------- Net earnings available to common stockholders $ 468,000 567,000 ========== ========== Weighted average common stock outstanding 8,997,000 9,257,000 Common stock equivalents - stock options 72,000 92,000 ---------- ---------- 9,069,000 9,349,000 ========== ========== Net earnings per share $ 0.05 0.06 ========== ==========
NINE-MONTH PERIOD ENDED SEPTEMBER 30, ------------------------------ 1997 1996 ---------- ---------- Net earnings available to common stockholders $4,047,000 3,070,000 ========== ========== Weighted average common stock outstanding 8,996,000 9,252,000 Common stock equivalents - stock options 66,000 65,000 ---------- ---------- 9,062,000 9,317,000 ========== ========== Net earnings per share $ 0.45 0.33 ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 8,449,000 0 18,659,000 1,091,000 14,303,000 44,310,000 5,037,000 2,734,000 70,636,000 11,565,000 711,000 0 0 90,000 58,270,000 70,636,000 83,327,000 83,327,000 48,515,000 48,515,000 0 300,000 324,000 7,129,000 3,082,000 4,047,000 0 0 0 4,047,000 0.45 0.45
-----END PRIVACY-ENHANCED MESSAGE-----