e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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o |
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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)
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Delaware
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95-3015862 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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495-A South Fairview Avenue, Goleta, California
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93117 |
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(Address of principal executive offices)
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(zip code) |
(805) 967-7611
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Outstanding at |
Class |
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August 4, 2006 |
Common Stock, $0.01 par value |
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12,529,268 |
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
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Page |
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Part I. Financial Information |
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Item 1. Financial Statements (Unaudited): |
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1 |
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2 |
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4 |
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5 |
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13 |
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29 |
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29 |
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30 |
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30 |
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32 |
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32 |
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32 |
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33 |
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33 |
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34 |
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35 |
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Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32 |
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EXHIBIT 31.1 |
EXHIBIT 31.2 |
EXHIBIT 32 |
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands, except par value)
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June 30, |
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December 31, |
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2006 |
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2005 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
9,499 |
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$ |
50,749 |
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Short-term investments |
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55,434 |
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2,500 |
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Trade accounts receivable, less allowances for doubtful
accounts, sales discounts and sales
returns of $2,977 and $7,149 as of June 30, 2006 and
December 31, 2005, respectively |
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24,617 |
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40,918 |
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Inventories |
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45,246 |
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33,374 |
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Prepaid expenses and other current assets |
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2,067 |
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1,364 |
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Deferred tax assets |
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5,949 |
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5,949 |
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Total current assets |
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142,812 |
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134,854 |
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Property and equipment, at cost, net |
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4,939 |
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4,711 |
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Intangible assets, net |
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69,854 |
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70,009 |
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Other assets |
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54 |
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52 |
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$ |
217,659 |
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$ |
209,626 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Trade accounts payable |
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$ |
14,718 |
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$ |
14,506 |
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Accrued expenses |
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4,781 |
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6,095 |
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Income taxes payable |
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5,284 |
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7,133 |
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Total current liabilities |
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24,783 |
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27,734 |
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Deferred tax liabilities |
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4,337 |
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4,337 |
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Stockholders equity: |
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Common stock, $.01 par value. Authorized 20,000 shares;
12,523 shares issued and outstanding at June 30, 2006;
12,432 shares issued and outstanding at December 31, 2005 |
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125 |
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124 |
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Additional paid-in capital |
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79,324 |
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76,788 |
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Retained earnings |
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108,816 |
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100,436 |
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Accumulated other comprehensive income |
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274 |
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207 |
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Total stockholders equity |
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188,539 |
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177,555 |
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$ |
217,659 |
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$ |
209,626 |
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See accompanying notes to condensed consolidated financial statements.
1
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(amounts in thousands, except per share data)
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Three-month period ended |
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June 30, |
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2006 |
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2005 |
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Net sales |
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$ |
41,721 |
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$ |
40,341 |
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Cost of sales |
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22,680 |
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24,372 |
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Gross profit |
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19,041 |
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15,969 |
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Selling, general and administrative expenses |
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15,033 |
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11,292 |
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Income from operations |
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4,008 |
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4,677 |
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Other (income) expense, net: |
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Interest, net |
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(687 |
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6 |
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Other, net |
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(17 |
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(4 |
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Income before income taxes |
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4,712 |
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4,675 |
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Income taxes |
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1,981 |
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1,943 |
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Net income |
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$ |
2,731 |
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$ |
2,732 |
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Net income per share: |
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Basic |
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$ |
0.22 |
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$ |
0.22 |
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Diluted |
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0.21 |
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0.21 |
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Weighted-average common shares outstanding: |
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Basic |
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12,510 |
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12,351 |
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Diluted |
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12,806 |
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12,886 |
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See accompanying notes to condensed consolidated financial statements.
2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(amounts in thousands, except per share data)
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Six-month period ended |
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June 30, |
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2006 |
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2005 |
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Net sales |
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$ |
97,725 |
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$ |
104,604 |
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Cost of sales |
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53,984 |
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59,068 |
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Gross profit |
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43,741 |
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45,536 |
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Selling, general and administrative expenses |
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30,819 |
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26,460 |
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Income from operations |
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12,922 |
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19,076 |
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Other income, net: |
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Interest, net |
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(1,267 |
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(63 |
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Other, net |
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(17 |
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(3 |
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Income before income taxes |
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14,206 |
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19,142 |
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Income taxes |
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5,826 |
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7,523 |
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Net income |
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$ |
8,380 |
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$ |
11,619 |
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Net income per share: |
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Basic |
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$ |
0.67 |
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$ |
0.94 |
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Diluted |
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0.65 |
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0.90 |
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Weighted-average common shares outstanding: |
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Basic |
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12,516 |
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12,320 |
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Diluted |
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12,815 |
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12,909 |
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See accompanying notes to condensed consolidated financial statements.
3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
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Six-month period ended |
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June 30, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net income |
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$ |
8,380 |
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$ |
11,619 |
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Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |
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Depreciation and amortization |
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1,483 |
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1,134 |
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(Recovery of) provision for doubtful accounts |
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(238 |
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442 |
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Write-down of inventories |
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1,550 |
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1,924 |
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Gain on sale of property and equipment |
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(7 |
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Non-cash stock compensation |
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927 |
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363 |
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Changes in assets and liabilities: |
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Trade accounts receivable |
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16,539 |
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13,539 |
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Inventories |
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(13,422 |
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(38,336 |
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Prepaid expenses and other current assets |
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(703 |
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125 |
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Other assets |
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(2 |
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(20 |
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Trade accounts payable |
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212 |
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(3,129 |
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Accrued expenses |
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(1,201 |
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(2,502 |
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Income taxes payable |
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(1,679 |
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1,155 |
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Net cash provided by (used in) operating activities |
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11,839 |
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(13,686 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(1,581 |
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(2,352 |
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Proceeds from sale of property and equipment |
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32 |
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Purchases of short-term investments |
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(86,835 |
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Proceeds from sale of short-term investments |
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33,901 |
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15,475 |
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Net cash (used in) provided by investing activities |
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(54,483 |
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13,123 |
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Cash flows from financing activities: |
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Borrowings from line of credit |
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5,000 |
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Repayments of line of credit |
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(5,000 |
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Excess tax benefits from stock-based compensation |
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608 |
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Net cash received from issuances of common stock |
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832 |
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1,222 |
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Net cash provided by financing activities |
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1,440 |
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1,222 |
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Effect of exchange rates on cash |
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(46 |
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64 |
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Net change in cash and cash equivalents |
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(41,250 |
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723 |
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Cash and cash equivalents at beginning of period |
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50,749 |
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10,379 |
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Cash and cash equivalents at end of period |
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$ |
9,499 |
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$ |
11,102 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
23 |
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Income taxes |
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7,292 |
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6,366 |
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See accompanying notes to condensed consolidated financial statements.
4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
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(a) |
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Basis of Presentation |
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The unaudited condensed consolidated financial statements have been prepared on the same
basis as the annual 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. Our business is seasonal, with the highest percentage of Teva net sales occurring
in the first and second quarters of each year and the highest percentage of UGG net sales
occurring in the third and fourth quarters, while the quarter with the highest percentage
of annual net sales for Simple has varied from year to year. |
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As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of
Regulation S-X, the accompanying condensed consolidated financial statements and related
footnotes have been condensed and do not contain certain information that will be included
in the Companys 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, 2005 included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2005. |
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(b) |
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Use of Estimates |
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The preparation of the Companys condensed consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Significant areas
requiring the use of management estimates relate to inventory reserves, allowances for bad
debts, returns and discounts, impairment assessments and charges, deferred taxes,
depreciation and amortization, litigation reserves, fair value of share based payments,
fair value of financial instruments, fair value of acquired intangibles, assets and
liabilities. Actual results could differ from these estimates. |
(2) |
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Stock Compensation (Share quantity and per share data shown as actual, not thousands) |
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On January 1, 2006, the Company adopted the fair value recognition provisions of Financial
Accounting Standards Board (the FASB) Statement of Financial Accounting Standards No. 123R
(SFAS 123R), Share-Based Payment to account for stock-based compensation. Prior to January
1, 2006, the Company accounted for stock-based compensation under the intrinsic value
provisions of Accounting Principles Board, Opinion No. 25 (APB 25) Accounting for Stock
Issued to Employees. |
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The Companys 1993 Stock Incentive Plan (the 1993 Plan) provides for 3,000,000 shares of common stock that are reserved for issuance
to officers, directors, employees, and consultants of the Company. Awards to 1993 Plan
participants are not restricted to any specified form and may include stock options,
securities convertible into or redeemable for stock, stock appreciation rights, stock purchase
warrants, or other rights to acquire stock. Stock option awards are granted with an exercise
price equal to the market price of the Companys stock at the date of grant; those option
awards generally vest on a graded basis over four years of continuous service and have
ten-year contractual terms. The fair value of stock options is calculated using the
Black-Scholes pricing model. No stock options were granted during the three and six months
ended June 30, 2006 and 2005. New shares are expected to be issued for all awards. |
5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
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Beginning December 2004, the Company replaced its annual employee stock option grants with
grants of nonvested stock units (NSUs). The NSUs granted pursuant to the 1993 Plan entitle
the employee recipients to receive shares of common stock in the Company, which vest in
quarterly increments between the third and fourth anniversary of the grant. Many of these
awards include vesting that is also subject to achievement of certain performance targets. |
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In August 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the 1995 Plan).
The 1995 Plan is intended to qualify as an Employee Stock Purchase Plan under Section 423 of
the Internal Revenue Code. Under the terms of the 1995 Plan, as amended, 300,000 shares of
common stock are reserved for issuance to employees who have been employed by the Company for
at least six months. The 1995 Plan provides for employees to purchase the Companys common
stock at a discount below market value, as defined by the 1995 Plan. Under the 1995 Plan,
4,000 shares were issued in the six months ended June 30, 2006. The 1995 Plan will terminate
in September 2006, with the possibility of up to 4,000 shares being issued at that time.
There will be no additional share issuances after that date. |
|
|
|
In May 2006, the Company adopted the 2006 Equity Incentive Plan (the 2006 Plan). The
primary purpose of the 2006 Plan is to encourage ownership in the Company by key personnel,
whose long-term service is considered essential to the Companys continued progress. The 2006 Plan provides for 2,000,000 new shares of common stock that are reserved for issuance to employees, directors, or consultants. The
maximum aggregate number of shares that may be issued under the 2006 Plan through the exercise
of incentive stock options is 1,500,000. The 2006 Plan supersedes the 1993 Plan, which now has
been terminated for new grants. |
|
|
|
Prior to January 1, 2006, in accordance with APB 25, the intrinsic value of the NSUs was
recorded to compensation expense over the vesting period. Awards with performance conditions
were accounted as variable with the intrinsic value remeasured at each reporting date. All
NSUs are recorded as equity-based awards under SFAS 123R, whereby the fair value of the NSU is
calculated based on the closing stock price on the grant date. |
|
|
|
Additionally, on a quarterly basis, the Company grants 400 fully-vested shares of its common
stock to each of its outside directors. The fair value of such shares is expensed on the date
of issuance. |
|
|
|
As a result of our January 1, 2006 adoption of SFAS 123R, the impact to the condensed
consolidated financial statements for the six months ended June 30, 2006 on income before
taxes and on net income were reductions of $234 and $139, respectively. There was a $0.01
impact on both basic and diluted earnings per share for the six months ended June 30, 2006.
In addition, prior to the adoption of SFAS 123R, the Company presented the tax benefit of
stock option exercises as operating cash flows. Upon the adoption of SFAS 123R, tax benefits
resulting from tax deductions in excess of the compensation cost recognized for those options
are classified as financing cash flows. |
6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
|
|
The table below summarizes certain stock compensation amounts recognized in the three and six
months ended June 30, 2006 and 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month |
|
|
Six-month |
|
|
|
period ended |
|
|
period ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Compensation expense recorded
for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock units |
|
$ |
366 |
|
|
|
125 |
|
|
$ |
679 |
|
|
|
257 |
|
Stock options |
|
|
112 |
|
|
|
|
|
|
|
223 |
|
|
|
|
|
1995 Plan |
|
|
32 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
Directors shares |
|
|
86 |
|
|
|
40 |
|
|
|
150 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense |
|
|
596 |
|
|
|
165 |
|
|
|
1,116 |
|
|
|
363 |
|
Income tax benefit recognized
in income statement |
|
|
(244 |
) |
|
|
(67 |
) |
|
|
(456 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net compensation expense |
|
$ |
352 |
|
|
|
98 |
|
|
$ |
660 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the activity under the 1993 Plan as of June 30, 2006, and changes during the
period are presented below. |
|
|
|
Summary Details for 1993 Plan Share Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
of Shares |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
Outstanding at January 1, 2006 |
|
|
628,000 |
|
|
$ |
7.16 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(83,000 |
) |
|
|
8.92 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(21,000 |
) |
|
|
11.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
524,000 |
|
|
|
6.71 |
|
|
|
4.67 |
|
|
$ |
16,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2006 |
|
|
405,000 |
|
|
|
5.45 |
|
|
|
4.04 |
|
|
|
13,407 |
|
|
|
During the six months ended June 30, 2006 and 2005, stock options exercised totaled 83,000 and
138,000, respectively, with a total intrinsic value of $1,946 and $4,690, respectively. There
were no stock options granted during the six months ended June 30, 2006 and 2005. |
7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
|
|
Nonvested Stock Units Issued Under the 1993 Plan and 2006 Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant- |
|
|
|
Number of |
|
|
Date Fair |
|
|
|
Shares |
|
|
Value |
|
Nonvested at January 1, 2006 |
|
|
155,800 |
|
|
$ |
30.76 |
|
Granted |
|
|
20,500 |
|
|
|
36.00 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(12,500 |
) |
|
|
24.33 |
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2006 |
|
|
163,800 |
|
|
|
31.91 |
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2006, the Company
granted 6,000 NSUs under the 2006 Plan and the remaining NSUs under the 1993 Plan. As of June 30, 2006, there was $4,614 of total unrecognized compensation cost related to stock
options and NSUs that will vest in the future, over a weighted-average vesting period of 3.1
years. Tax benefit realized from stock options exercised during the three months ended June
30, 2006 and 2005 was $366 and $80, respectively. The tax benefit realized for the six months
ended June 30, 2006 and 2005 was $778 and $1,876, respectively. |
|
|
|
Pro Forma Information for Periods Prior to the Adoption of SFAS 123R |
|
|
|
Pro forma information regarding the effect on net income and basic and diluted income per
share for the three and six months ended June 30, 2005, had the Company applied the fair value
recognition provisions of SFAS No. 123, is as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three-month |
|
|
Six-month |
|
|
|
period ended |
|
|
period ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2005 |
|
Net income as reported |
|
$ |
2,732 |
|
|
$ |
11,619 |
|
Add stock-based employee
compensation expense included
in reported net income, net of
tax effect |
|
|
98 |
|
|
|
220 |
|
Deduct total stock-based
employee compensation expense
under fair value-based method
for all awards, net of tax |
|
|
(343 |
) |
|
|
(584 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
2,487 |
|
|
$ |
11,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.22 |
|
|
$ |
0.94 |
|
Basic pro forma |
|
|
0.20 |
|
|
|
0.91 |
|
Diluted as reported |
|
|
0.21 |
|
|
|
0.90 |
|
Diluted pro forma |
|
|
0.19 |
|
|
|
0.88 |
|
8
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
(3) |
|
Comprehensive Income |
|
|
|
Comprehensive income is the total of net income and all other nonowner changes in equity. At
June 30, 2006 and December 31, 2005, accumulated other comprehensive income of $274 and $207,
respectively, consisted entirely of cumulative foreign currency translation adjustment. The
Company does not have any other transactions or other economic events that qualify as
comprehensive income. |
|
|
|
Comprehensive income is determined as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended |
|
|
Six-month period ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
2,731 |
|
|
|
2,732 |
|
|
$ |
8,380 |
|
|
|
11,619 |
|
Cumulative foreign
currency
translation
adjustment |
|
|
38 |
|
|
|
(58 |
) |
|
|
67 |
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
2,769 |
|
|
|
2,674 |
|
|
$ |
8,447 |
|
|
|
11,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Income per Share |
|
|
|
Basic income per share represents net income divided by the weighted-average number of common
shares outstanding for the period. Diluted income per share represents net income divided by
the weighted-average number of shares outstanding, including the dilutive impact of potential
issuances of common stock. For the three and six-month periods ended June 30, 2006 and 2005,
the difference between the weighted-average number of shares used in the basic computation and
that used in the diluted computation resulted from the dilutive impact of options to purchase
common stock and nonvested stock units. |
|
|
|
The reconciliations of basic to diluted weighted-average common shares outstanding are as
follows for the three and six month periods ended June 30, 2006 and 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period |
|
|
|
|
|
|
ended |
|
|
Six-month period ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted-average
shares
used in
basic
computation |
|
|
12,510 |
|
|
|
12,351 |
|
|
|
12,516 |
|
|
|
12,320 |
|
Dilutive
effect of
stock
options
and
nonvested
stock
units |
|
|
296 |
|
|
|
535 |
|
|
|
299 |
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used for diluted computation |
|
|
12,806 |
|
|
|
12,886 |
|
|
|
12,815 |
|
|
|
12,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All options outstanding as of June 30, 2006 and 2005 were included in the computation of
diluted income per share for the three and six month periods ended June 30, 2006 and 2005. |
9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
|
|
The Company excluded 78 contingently issuable shares of common stock underlying its nonvested
stock units from the diluted income per share computations for both the three and six-month
periods ended June 30, 2006 and 110 contingently issuable shares of common stock for both the
three and six-month periods ended June 30, 2005. The shares were excluded because the
necessary conditions had not been satisfied for any shares to be issuable based on the
Companys performance through June 30, 2006 and 2005, respectively. |
|
(5) |
|
Credit Facility |
|
|
|
The Companys revolving credit facility with Comerica Bank (the Facility) provides for a
maximum availability of $20,000, subject to a borrowing base. In general, the borrowing base
is equal to 75% of eligible accounts receivable and 50% of eligible inventory each, as defined
in the Facility agreement. Up to $10,000 of borrowings may be in the form of letters of
credit. The Facility bears interest at the lenders prime rate (8.25% at June 30, 2006) or, at
our option, at LIBOR (5.33% at June 30, 2006) plus 1.0% to 2.5%, depending on our ratio of
liabilities to earnings before interest, taxes, depreciation and amortization, and is secured
by substantially all of our assets. The Facility includes annual commitment fees of $60 per
year and expires on June 1, 2007. At June 30, 2006, the Company had no outstanding borrowings
under the Facility, no foreign currency reserves for outstanding forward contracts, and
outstanding letters of credit of $52. As a result, $19,948 was available under the Facility
at June 30, 2006. |
|
(6) |
|
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. For the three and six months ended June 30, 2006, the Company recorded an income
tax expense of $1,981 and $5,826, respectively, representing an effective income tax rate of
42.0% and 41.0%, respectively. For the three and six months ended June 30, 2005, the Company
recorded an income tax expense of $1,943 and $7,523, respectively, representing an effective
income tax rate of 41.6% and 39.3%, respectively. |
|
(7) |
|
Recent Accounting Pronouncements |
|
|
|
The Company adopted SFAS 123R on January 1, 2006. The impact of the adoption is discussed in
note 2 above. |
|
|
|
In November 2004, the FASB issued Statement of Financial Accounting Standards, or SFAS No.
151, Inventory Costs An Amendment of Accounting Research Bulletin (ARB) No. 43, Chapter
4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). SFAS No. 151 is effective for fiscal years beginning after June
15, 2005 and was adopted on January 1, 2006. The adoption of this statement did not have a
material effect on our condensed consolidated financial statements. |
|
|
|
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of Accounting Principles Board Opinion (APB) No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. This statement
requires retrospective application to prior periods financial statements of a change in
accounting principle. It applies both to voluntary changes and to changes required by an
accounting pronouncement if the pronouncement does not
include specific transition provisions. APB 20 previously required that most voluntary changes
in accounting |
10
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
|
|
principles be recognized by recording the cumulative effect of a change in accounting
principle. SFAS 154 is effective for fiscal years beginning after December 15, 2005. The Company adopted this
statement on January 1, 2006, and it did not have a material effect on the financial
statements upon adoption. |
|
|
|
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of SFAS No. 109, which prescribes a recognition threshold
and measurement process for recording in the financial statements uncertain tax positions
taken or expected to be taken in a tax return. FIN 48 also provides guidance on the
derecognition, classification, accounting in interim periods, and disclosure requirements for
uncertain tax positions. The provisions of FIN 48 are effective for the Company as of January
1, 2007. The Company is currently evaluating the impact of adopting FIN 48, if any, on the
Companys financial statements. |
|
(8) |
|
Business Segments |
The Companys accounting policies of the segments below are the same as those described in
the summary of significant accounting policies, except that the Company does not allocate
interest, income taxes, or unusual items to segments. The Company evaluates performance
based on net sales and profit or loss from operations. The Companys reportable segments
include the strategic business units responsible for the worldwide operations of each of
its brands and its Consumer Direct business. They are managed separately because each
business requires different marketing, research and development, design, sourcing and sales
strategies. The earnings from operations for each of the segments includes only those costs
which are specifically related to each segment, which consist primarily of cost of sales,
costs for research and development, design, marketing, sales, commissions, royalties, bad
debts, depreciation, amortization and the costs of employees directly related to each
business segment. The unallocated corporate overhead costs are the shared costs of the
organization and include, among others, the following costs: costs of the distribution
center, information technology, human resources, accounting and finance, credit and
collections, executive compensation and facilities costs. The operating income derived
from the sales to third parties of the Consumer Direct segment is separated into two
components: (i) the wholesale profit is included in the operating income of each of the
three brands, and (ii) the retail profit is included in the operating income of the
Consumer Direct segment.
Net sales and operating income (loss) by business segment for the three and six months
ended June 30, 2006 and 2005 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net sales to external
customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
20,574 |
|
|
|
22,922 |
|
|
|
54,400 |
|
|
|
61,343 |
|
UGG wholesale |
|
|
14,489 |
|
|
|
11,987 |
|
|
|
26,917 |
|
|
|
30,741 |
|
Simple wholesale |
|
|
2,676 |
|
|
|
1,925 |
|
|
|
5,893 |
|
|
|
4,048 |
|
Consumer Direct |
|
|
3,982 |
|
|
|
3,507 |
|
|
|
10,515 |
|
|
|
8,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,721 |
|
|
|
40,341 |
|
|
|
97,725 |
|
|
|
104,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Income (loss) from
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
6,336 |
|
|
|
6,297 |
|
|
$ |
16,762 |
|
|
|
19,654 |
|
UGG wholesale |
|
|
5,091 |
|
|
|
3,181 |
|
|
|
9,222 |
|
|
|
9,062 |
|
Simple wholesale |
|
|
(176 |
) |
|
|
30 |
|
|
|
(244 |
) |
|
|
233 |
|
Consumer Direct |
|
|
638 |
|
|
|
762 |
|
|
|
2,835 |
|
|
|
1,929 |
|
Unallocated overhead costs |
|
|
(7,881 |
) |
|
|
(5,593 |
) |
|
|
(15,653 |
) |
|
|
(11,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,008 |
|
|
|
4,677 |
|
|
$ |
12,922 |
|
|
|
19,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment asset information as of June 30, 2006 and December 31, 2005 is summarized as
follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets for reportable segments: |
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
82,643 |
|
|
$ |
83,901 |
|
UGG wholesale |
|
|
50,483 |
|
|
|
56,907 |
|
Simple wholesale |
|
|
8,035 |
|
|
|
5,211 |
|
Consumer Direct |
|
|
1,152 |
|
|
|
945 |
|
|
|
|
|
|
|
|
|
|
$ |
142,313 |
|
|
$ |
146,964 |
|
|
|
|
|
|
|
|
|
|
The assets allocable to each reporting segment generally include accounts receivable,
inventories, intangible assets, and certain other assets that are specifically identifiable
with one of the Companys business segments. Unallocated corporate assets are the assets not
specifically related to one of the segments and generally include the Companys cash and cash
equivalents, short-term investments, deferred tax assets and various other assets shared by
the Companys segments. |
|
|
|
Reconciliations of total assets from reportable segments to the condensed consolidated balance
sheets at June 30, 2006 and December 31, 2005 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets for reportable segments |
|
$ |
142,313 |
|
|
$ |
146,964 |
|
Unallocated deferred tax assets |
|
|
5,949 |
|
|
|
5,949 |
|
Other unallocated corporate assets |
|
|
69,397 |
|
|
|
56,713 |
|
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
217,659 |
|
|
$ |
209,626 |
|
|
|
|
|
|
|
|
(9) |
|
Contingencies |
|
|
|
The Company is currently involved in various legal claims arising from the ordinary course of
its business. Management does not believe that the disposition of these matters will have a
material effect on the Companys consolidated financial position or results of operations. |
12
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
|
|
Forward-Looking Statements |
|
|
|
The matters discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this report that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We sometimes use
words such as anticipate, believe, continue, estimate, expect, intend, may,
project, will and similar expressions, as they relate to us, our management and our
industry, to identify forward-looking statements. Forward-looking statements relate to our
expectations, beliefs, plans, strategies, prospects, future performance, anticipated trends
and other future events. Specifically, this report and the information incorporated by
reference in this report contain forward-looking statements relating to, among other things: |
|
|
|
our business, growth, operating and financing strategies; |
|
|
|
|
our product mix; |
|
|
|
|
the success of new products; |
|
|
|
|
our licensing strategy; |
|
|
|
|
the impact of seasonality on our operations; |
|
|
|
|
expectations regarding our net sales and earnings growth; |
|
|
|
|
expectations regarding our liquidity; |
|
|
|
|
our future financing plans; and |
|
|
|
|
trends affecting our financial condition or results of operations. |
|
|
We have based our forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting our business. Actual results
may differ materially. Some of the risks, uncertainties and assumptions that may cause actual
results to differ from these forward-looking statements are described in our Annual Report on
Form 10-K under Item 1A. Risk Factors and in this quarterly report on Form 10-Q under Item 1A.
Risk Factors. In light of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this report and the information
incorporated by reference in this report might not happen. |
|
|
|
You should completely read this report, the documents that we filed as exhibits to this report
and the documents that we incorporate by reference in this report with the understanding that
our future results may be materially different from what we expect. We qualify all of our
forward-looking statements by these cautionary statements and we assume no obligation to
update such forward-looking statements publicly for any reason. |
|
|
|
The Deckers, UGG, Teva, and Simple families of related marks, images and symbols are
our trademarks and intellectual property. Other trademarks, trade names and service marks
appearing in this
report are the property of their respective holders. References to Deckers, we, us,
our, or similar terms refer to Deckers Outdoor Corporation together with its consolidated
subsidiaries. Unless otherwise specifically indicated, all dollar amounts herein are
expressed in thousands, except for weighted-average wholesale prices per pair. |
13
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Overview
We are a leading designer, producer and brand manager of innovative high-quality footwear and
the category creator in the sport sandal and luxury sheepskin footwear segments. We market our
products under three proprietary brands:
|
|
|
Teva: High performance sport sandals and rugged outdoor footwear; |
|
|
|
|
UGG: Authentic luxury sheepskin boots and a full line of luxury and comfort
footwear; and |
|
|
|
|
Simple: Innovative shoes that combine the comfort elements of athletic
footwear with casual styling. |
We sell our three brands through our quality domestic retailers and international distributors
and directly to our end-user consumers through our Consumer Direct business. We sell our
footwear in both the domestic market and the international markets. Independent third parties
manufacture all of our footwear.
Our business has been impacted by several important trends affecting our end markets:
|
|
|
The markets for casual, outdoor and athletic footwear have grown
significantly during the last decade. We believe this growth is a result of the
trend toward casual dress in the workplace, increasingly active outdoor
lifestyles and a growing emphasis on comfort. |
|
|
|
|
Consumers are more often seeking footwear designed to address a broader
array of activities with the same quality, comfort and high performance
attributes they have come to expect from traditional athletic footwear. |
|
|
|
|
Our customers have narrowed their footwear product breadth, focusing on
brands with a rich heritage and authenticity as market creators and leaders. |
|
|
|
|
Consumers have become increasingly focused on luxury and comfort, seeking
out products and brands that are fashionable while still comfortable. |
By emphasizing our brand image and our focus on comfort, performance and authenticity, we
believe we can better maintain a loyal consumer following that is less susceptible to
fluctuations caused by changing fashions and changes in consumer preferences.
Set forth below is an overview of the various components of our business, including some of
the important factors that affect each business and some of our strategies for growing each
business.
Teva Overview
We initially produced Teva products under a license from the inventor of the Teva Universal
Strap technology, Mark Thatcher. In November 2002, we purchased from Mr. Thatcher the Teva
worldwide assets, including the Teva Internet and catalog business and all patents, trade
names, trademarks and other intellectual property associated with the acquired Teva assets, or
the Teva Rights.
From fiscal 2001 to 2004, Tevas wholesale net sales increased at a compound annual growth
rate of 10.9%. However, for the fiscal year 2005 and the first half of 2006, Teva wholesale
net sales decreased by approximately 3.6% and 11.3%, respectively, compared to the year ago
periods. For the second quarter of 2006, Tevas wholesale net sales decreased by 10.2%
compared to the second quarter of 2005. We attribute the continuing decline in sales
primarily to a lack of new product innovation, coupled with a significant increase in
competitor activity. We have begun to address this situation by dedicating significantly
greater
14
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
resources to product planning, design and development. However, given the lead times
required for new products to yield results, we do not expect growth for Teva in 2006, but
expect to return to positive year over year growth beginning in first quarter of 2007.
Despite the continued decrease in sales for 2006, we expect Teva will finish the year in a
much healthier place than it was in 2005. In the second half of 2005, steps were taken to
reduce inventory of old Teva product. Beginning in the first quarter of 2006, we
significantly increased and will continue to substantially increase our investment in
measurable media (advertising and in-store display materials). We shifted the target of our
advertising to a younger, trend-setting consumer. We also introduced a modest collection of
new styles for both Spring and Fall 2006. As a result, closeout sales represented a
significantly smaller percentage of total sales, and key retailers reported improved
sell-through of Teva products for the second quarter of 2006 versus the second quarter of
2005.
We see a continuing shift in consumer preferences and lifestyles to include more outdoor
recreational activities. Teva has remained popular among professional and amateur outdoor
enthusiasts, who consider the brand authentic and performance oriented. Our Spring 2007
product line is over 70% new, and includes innovative technical performance styles, as well as
new colors and fresh new casual styles, which target a new generation of young outdoor
athletes and enthusiasts.
To further capitalize on the growth of outdoor recreational activities and the acceptance of
certain outdoor footwear products for everyday use, we will continue to explore opportunities
to broaden Tevas distribution with image-enhancing retailers beyond our core outdoor
specialty and sporting goods channels. Through effective channel management, we believe we can
continue to expand into new distribution channels without diluting our outdoor heritage and
our appeal to outdoor enthusiasts. Through appropriate channel product line expansion, we plan
to continue to broaden our product offerings beyond sport sandals to new products that meet
the style and functional needs of our consumers.
UGG Overview
UGG has been a well-known brand in California for many years and over the past few years has
become a recognized brand throughout the remainder of the country. Since early 2003, our UGG
brand has received increased media exposure including increased print media in national ads
and coop advertising with our customers, which contributed to broader public awareness of the
UGG brand and significantly increased
demand for the collection. We believe that the increased media focus and demand on UGG was
driven by the following:
|
|
|
the products unique styling and resulting brand name identification, |
|
|
|
|
Australian heritage and adoption by high-profile film and television celebrities
as a favored footwear brand, |
|
|
|
|
increased media attention that has enabled us to introduce the brand to consumers
much faster than we would have ordinarily been able to, and |
|
|
|
|
our continued geographical expansion across the U.S. |
We have also recently begun to expand our distribution and marketing overseas in order to
address the under-penetrated international markets. Net sales of UGG in the international
markets aggregated $971 in 2003, $13,297 in 2004 and $12,332 in 2005. Despite the slight
decline in 2005, we believe that with our strategy to develop an international infrastructure,
the international markets represent an attractive opportunity to grow UGGs sales over the
next few years. For the six months ended June 30, 2006, international sales were $6,803, up
57.6% from $4,316 in the same period of 2005.
We believe the fundamental comfort and functionality of UGG products will continue to drive
long-term consumer demand. Recognizing that there is a significant fashion element to UGG and
that footwear fashions fluctuate, our strategy seeks to prolong the longevity of the brand by
offering a broader product line suitable
15
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
for wear in a variety of climates and occasions and
by limiting distribution to selected higher-end retailers. As part of this strategy, we have
expanded our product line to 125 styles in 2006 from 52 styles in 2002. This product line
expansion includes our significantly expanded Spring and Fall 2006 Fashion Collection and
Mens offering, as well as new styles in our Driving Collection, our newly introduced Surf
Collection, our Cold Weather Collection and our luxury slipper category. Nevertheless, we
cannot assure investors that UGG sales will continue to grow at their recent pace or that
revenue from UGG products will not at some point decline. For the three months ended June 30,
2006, UGG wholesale sales increased 20.9% over the same period in 2005. For the six months
ended June 30, 2006, UGG wholesale sales decreased 12.4% compared to the same period in 2005.
Simple Overview
Simple Shoes began in 1991 as an alternative to all the over-built, over-priced, and
over-hyped products in the marketplace. The brands foundation was built on the Old School
Sneaker and the New Original Clog. In 2005, the Simple product line focused on rebuilding
the segments that made the brand successful: clogs and sneakers. In Fall 2005, as a
response to the massive amount of waste produced by the footwear industry, Simple launched a
new collection of ecologically friendly footwear called Green Toe, a product collection that
consists of 100% sustainable materials and is revolutionizing the footwear industry. In
2005, we also hired an in-house public relations manager, increased our print media
campaigns, as well as improved our distribution initiatives through the establishment of
dedicated sales representatives in key markets. These strategies, combined with innovative
products and unique marketing, has created greater trust amongst our retailers, which is
something that previously marked a challenge for the brand based on past performance. It is
more apparent now that the brand is dedicated to creating a cohesive and consistent message
to both the retailer and consumer. In the first half of 2006, our mens and womens sandals
performed well at retail, and because of the increased demand for our Green Toe products, we
sold out of several styles. These efforts resulted in an increase of Simples wholesale net
sales of 45.6% in the first half of 2006 compared to the same period in 2005. We expect the
Simple brand to grow as we continue to bring fresh, sustainable product designs to the
market and successfully implement our sales strategy to expand distribution channels.
Consumer Direct Overview
Our Consumer Direct business includes our Internet and catalog retailing operations as
well as our retail outlet stores. We acquired our Internet and catalog retailing business in
November 2002 as part of the
acquisition of the Teva rights. In addition, we have opened two retail outlet stores,
one in Camarillo, California and one in Wrentham, Massachusetts. Based on the success of the
existing stores, we currently expect to open two to three additional retail outlet stores in
select premium outlet malls in the U.S. by the end of 2007, as well as a concept store in New
York City by the end of 2006. Our Consumer Direct business, which today sells all three of our brands,
enables us to meet the growing demand for these products, to sell the products at retail
prices and to provide us with significant incremental operating income. From the time we
initiated our Consumer Direct business through the second quarter of 2006, we have had
significant revenue growth, much of which occurred as the underlying brands gained
popularity, as consumers have continued to increase reliance on the Internet for footwear and
other purchases and as we began to open retail outlet stores. Net sales of the Consumer
Direct business were $3,982 and $10,515, respectively, in the three and six months ended June
30, 2006, compared to $3,507 and $8,472, respectively for the three and six months ended June
30, 2005.
Managing our Internet business requires us to focus on generating Internet traffic to
our websites, to effectively convert website visits into orders and to maximize average order
sizes. We distribute approximately 400,000 catalogs every six months to drive our catalog
order business. Overall, our Consumer Direct business benefits from the strength of our
brands and, as we grow our brands over time, we expect this business to continue to be an
important segment of our business.
16
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Licensing Overview
In 2004, we embarked on a strategy to license our footwear brands to complementary products
outside of footwear, generally in the apparel and accessories categories. We currently have
nine licensing agreements with six licensees for Teva and UGG combined. The activity is very
small in relation to the consolidated operations. We do not expect significant incremental
net sales and profits from licensing in the near future.
Seasonality
Our business is seasonal, with the highest percentage of Teva net sales occurring in the first
and second quarters of each year and the highest percentage of UGG net sales occurring in the
third and fourth quarters. To date, Simple has not had a seasonal impact on the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
First |
|
Second |
|
|
|
|
|
|
|
|
|
|
Quarter |
|
Quarter |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
56,004 |
|
|
$ |
41,721 |
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
8,914 |
|
|
$ |
4,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Net sales |
|
$ |
64,263 |
|
|
$ |
40,341 |
|
|
$ |
69,193 |
|
|
$ |
90,963 |
|
Income from operations |
|
$ |
14,399 |
|
|
$ |
4,677 |
|
|
$ |
14,018 |
|
|
$ |
19,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Net sales |
|
$ |
44,272 |
|
|
$ |
40,546 |
|
|
$ |
55,797 |
|
|
$ |
74,172 |
|
Income from operations |
|
$ |
9,628 |
|
|
$ |
9,274 |
|
|
$ |
9,358 |
|
|
$ |
14,202 |
|
Given our expectations for each of our brands in 2006, we currently expect this seasonality
trend to continue. Nonetheless, actual results could differ materially depending upon
consumer preferences, whether the UGG brand will continue to grow at the rate it has
experienced in the recent past, availability of product, competition and our customers
continuing to carry and promote our various product lines, among other risks and
uncertainties. Please refer to our Annual Report on Form 10-K under Item 1A. Risk Factors and
in this quarterly report on Form 10-Q under Item 1A. Risk Factors.
17
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Results of Operations
The following table sets forth certain operating data for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net sales by location: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
34,385 |
|
|
$ |
35,867 |
|
|
$ |
78,041 |
|
|
$ |
85,030 |
|
International |
|
|
7,336 |
|
|
|
4,474 |
|
|
|
19,684 |
|
|
|
19,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
41,721 |
|
|
$ |
40,341 |
|
|
$ |
97,725 |
|
|
$ |
104,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by product line and
Consumer Direct business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
20,574 |
|
|
$ |
22,922 |
|
|
$ |
54,400 |
|
|
$ |
61,343 |
|
Consumer Direct |
|
|
2,224 |
|
|
|
1,921 |
|
|
|
3,075 |
|
|
|
2,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
22,798 |
|
|
|
24,843 |
|
|
|
57,475 |
|
|
|
64,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGG: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
14,489 |
|
|
|
11,987 |
|
|
|
26,917 |
|
|
|
30,741 |
|
Consumer Direct |
|
|
1,410 |
|
|
|
1,350 |
|
|
|
6,767 |
|
|
|
5,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15,899 |
|
|
|
13,337 |
|
|
|
33,684 |
|
|
|
35,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simple: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
2,676 |
|
|
|
1,925 |
|
|
|
5,893 |
|
|
|
4,048 |
|
Consumer Direct |
|
|
348 |
|
|
|
236 |
|
|
|
673 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,024 |
|
|
|
2,161 |
|
|
|
6,566 |
|
|
|
4,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
41,721 |
|
|
$ |
40,341 |
|
|
$ |
97,725 |
|
|
$ |
104,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Income (loss) from
operations by product
line and Consumer Direct
business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
6,336 |
|
|
$ |
6,297 |
|
|
$ |
16,762 |
|
|
$ |
19,654 |
|
UGG wholesale |
|
|
5,091 |
|
|
|
3,181 |
|
|
|
9,222 |
|
|
|
9,062 |
|
Simple wholesale |
|
|
(176 |
) |
|
|
30 |
|
|
|
(244 |
) |
|
|
233 |
|
Consumer Direct |
|
|
638 |
|
|
|
762 |
|
|
|
2,835 |
|
|
|
1,929 |
|
Unallocated overhead costs |
|
|
(7,881 |
) |
|
|
(5,593 |
) |
|
|
(15,653 |
) |
|
|
(11,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,008 |
|
|
$ |
4,677 |
|
|
$ |
12,922 |
|
|
$ |
19,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
The following table sets forth certain operating data as a percentage of net sales for the
periods indicated, and the increase (decrease) in each item of operating data between the
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Percent |
|
|
|
June 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
2006 to 2005 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
3.4 |
% |
Cost of sales |
|
|
54.4 |
|
|
|
60.4 |
|
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
45.6 |
|
|
|
39.6 |
|
|
|
19.2 |
|
Selling, general and administrative
expenses |
|
|
36.0 |
|
|
|
28.0 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
9.6 |
|
|
|
11.6 |
|
|
|
(14.3 |
) |
Other income, net |
|
|
(1.7 |
) |
|
|
(0.0 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11.3 |
|
|
|
11.6 |
|
|
|
0.8 |
|
Income taxes |
|
|
4.7 |
|
|
|
4.8 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6.5 |
% |
|
|
6.8 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Percent |
|
|
|
June 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
2006 to 2005 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(6.6 |
)% |
Cost of sales |
|
|
55.2 |
|
|
|
56.5 |
|
|
|
(8.6 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
44.8 |
|
|
|
43.5 |
|
|
|
(3.9 |
) |
Selling, general and administrative
expenses |
|
|
31.5 |
|
|
|
25.3 |
|
|
|
16.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
13.2 |
|
|
|
18.2 |
|
|
|
(32.3 |
) |
Other income, net |
|
|
(1.3 |
) |
|
|
(0.1 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
14.5 |
|
|
|
18.3 |
|
|
|
(25.8 |
) |
Income taxes |
|
|
6.0 |
|
|
|
7.2 |
|
|
|
(22.6 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
8.6 |
% |
|
|
11.1 |
% |
|
|
(27.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation of percentage change is not meaningful. |
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Overview. For the three months ended June 30, 2006, we had net sales of $41,721 and income
from operations of $4,008 compared to net sales of $40,341 and income from operations of
$4,677 for the three months ended June 30, 2005. These results were primarily due to an
increase in UGG and Simple sales, partially offset by a decrease in Teva sales. Income from
operations decreased as a result of the increase in selling, general and administrative
expenses, partially offset by increased net sales and gross margins.
Net Sales. Net sales increased by $1,380, or 3.4%, to $41,721 for the three months ended June
30, 2006 from $40,341 for the three months ended June 30, 2005. Net sales increased for the
three months ended June 30, 2006 due primarily to the increase in UGG and Simple sales,
partially offset by decreased Teva sales, as discussed below. In addition, our
weighted-average wholesale selling price per unit increased 12.8% to
$22.15 for the three months ended June 30, 2006 from $19.63 for the three months ended June
30, 2005, resulting
19
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
primarily from higher UGG sales, which generally carry a higher average
selling price, as well as lower closeout sales during the three months ended June 30, 2006.
During the quarter, we experienced a decrease in the number of units sold of Teva, partially
offset by an increase in the number of units sold of UGG and Simple, resulting in a 9.3%
overall decrease in the volume of footwear sold to 1.8 million pairs for the three months
ended June 30, 2006 from 2.0 million pairs for the three months ended June 30, 2005.
Net wholesale sales of Teva decreased by $2,348, or 10.2%, to $20,574 for the three months
ended June 30, 2006 from $22,922 for the three months ended June 30, 2005 due to fewer
closeout sales, which was partially offset by an increase in full margin sales that were
driven by solid sell-through of mens, womens and kids products including the introduction
of new styles. See Overview Teva Overview above.
Net wholesale sales of UGG increased by $2,502, or 20.9%, to $14,489 for the three months
ended June 30, 2006 from $11,987 for the three months ended June 30, 2005, due primarily to a
strong reorder business for the UGG Spring line, as well as continued demand for core
products. See Overview UGG Overview above.
Net wholesale sales of Simple increased by $751, or 39.0%, to $2,676 for the three months
ended June 30, 2006 from $1,925 for the three months ended June 30, 2005. This increase was
largely due to the introduction of the Sandal and Green Toe Collections. See Overview
Simple Overview above.
Net sales of the Consumer Direct business increased by $475, or 13.5%, to $3,982 for the three
months ended June 30, 2006 from $3,507 for the three months ended June 30, 2005. For the
three months ended June 30, 2006, net sales of the Consumer Direct business included retail
sales of Teva of $2,224, UGG of $1,410 and Simple of $348. For the three months ended June
30, 2005, the breakdown consisted of sales of Teva of $1,921, UGG of $1,350 and Simple of
$236. The increase in net sales of the Consumer Direct business occurred due to the greater
demand for products and the additional sales of our retail outlet stores, which were not in
place in the same period in 2005. See Overview Consumer Direct Overview above.
International sales for all of our products increased by $2,862, or 64.0%, to $7,336 for the
three months ended June 30, 2006 from $4,474 for the three months ended June 30, 2005,
representing 17.6% of net sales for the three months ended June 30, 2006 and 11.1% of net
sales for the three months ended June 30, 2005. The increase in international sales resulted
from increased sales of UGG and Simple product, partially offset by an decrease in Teva
international sales.
Gross Profit. Gross profit increased by $3,072, or 19.2%, to $19,041 for the three months
ended June 30, 2006, from $15,969 for the three months ended June 30, 2005. As a percentage of
net sales, gross margin was 45.6% for the three months ended June 30, 2006, compared to 39.6%
for the three months ended June 30, 2005, primarily due to a lower amount of closeout sales
and inventory write-downs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses,
or SG&A, increased by $3,741, or 33.1%, to $15,033 for the three months ended June 30, 2006
from $11,292 for the three months ended June 30, 2005. As a percentage of net sales, SG&A
increased to 36.0% for the three months ended June 30, 2006 from 28.0% for the three months
ended June 30, 2005. The increase in SG&A expenses was largely due to an increase in payroll,
marketing, bad debt expense, and warehouse, partially offset by lower sales commissions
expense.
Income from Operations. Income from operations decreased by $669, or 14.3%, to $4,008 in the
three-month period ended June 30, 2006 from $4,677 in the three-month period ended June 30,
2005. This was due primarily to the increase in SG&A expenses, partially offset by the
increase in gross profit.
Income from operations of Teva wholesale increased slightly by $39, or 0.6%, to $6,336 for the
three months ended June 30, 2006 from $6,297 for the three months ended June 30, 2005. This
increase was largely due to
20
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
an increased gross margin due to fewer closeouts and inventory
write-downs, partially offset by lower sales and increased marketing and bad debt expense.
Income from operations of UGG wholesale increased by $1,910, or 60.0%, to $5,091 for the three
months ended June 30, 2006, from $3,181 for the three months ended June 30, 2005. The
increase was primarily the result of the higher sales volume and higher gross margins due to
the decreased impact of closeouts and inventory write-downs, partially offset by higher bad
debt expense.
Loss from operations of Simple wholesale was $176 for the three months ended June 30, 2006
compared to income from operations of $30 for the three months ended June 30, 2005. In spite
of achieving higher net sales and gross margins for the second quarter of 2006, we increased
the direct sales and marketing expenses to expand this product throughout the market, which
resulted in a loss from operations for the second quarter of 2006.
Income from operations of our Consumer Direct business decreased by $124, or 16.3%, to $638
for the three months ended June 30, 2006, from $762 for the three months ended June 30, 2005.
This was largely due to higher operating costs primarily from the opening of two new retail
stores, partially offset by the increase in net sales of $475.
Unallocated overhead costs increased by $2,288 or 40.9%, to $7,881 for the three months ended
June 30, 2006 from $5,593 for the three months ended June 30, 2005, resulting primarily from
higher warehouse and international division costs, which are not allocated to the brands, as
well as higher corporate payroll costs.
Other (Income) Expense, net. Net interest income was $687 for the three months ended June 30,
2006, compared to net interest expense of $6 for the three months ended June 30, 2005. The
interest income in 2006 resulted primarily from the investment of our higher cash and
short-term investments balances as well as higher return rates in the current year compared to
the same period a year ago. Other income exclusive of net interest income was not material in
either period.
Income Taxes. For the three months ended June 30, 2006, income tax expense was $1,981,
representing an effective income tax rate of 42.0%. For the three months ended June 30, 2005,
income tax expense was $1,943 representing an effective income tax rate of 41.6%. The increase
in the effective tax rate was primarily due to a higher projected annual pre-tax income for
our domestic operating unit, which bears a higher tax rate than that of our international
subsidiaries, resulting in a higher blended effective tax rate for the full year 2006. The
effective tax rate is subject to ongoing review and evaluation by management and can change
from quarter to quarter.
Net Income. Our net income decreased slightly to $2,731 from $2,732 as a result of the items
discussed above. Our earnings per diluted share remained constant at $0.21 in the second
quarter of both 2006 and 2005.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Overview. For the six months ended June 30, 2006, we had net sales of $97,725 and income from
operations of $12,922 compared to net sales of $104,604 and income from operations of $19,076
for the six months ended June 30, 2005. These results were primarily due to a decrease in UGG
and Teva sales, partially offset by an increase in Simple sales. Income from operations
decreased as a result of the decrease in sales, a gross profit decline and an increase in
selling, general and administrative expenses.
Net Sales. Net sales decreased by $6,879 or 6.6%, to $97,725 for the six months ended June
30, 2006 from $104,604 for the six months ended June 30, 2005. Net sales decreased for the six
months ended June 30, 2006 due primarily to the reduction of UGG and Teva sales, partially
offset by higher Simple sales, as discussed
21
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
below. In addition, the Companys weighted-average
wholesale selling price per unit decreased 3.2% to $19.92 for the six months ended June 30,
2006 from $20.57 for the six months ended June 30, 2005, resulting primarily from lower UGG
sales and higher closeout sales. During the first six months of the year, the Company
experienced a decrease in the number of units sold of Teva, partially offset by an increase in
the number of units sold of Simple and UGG, resulting in a 5.4% overall decrease in the volume
of footwear sold to 4.5 million pairs for the six months ended
June 30, 2006 from 4.8 million pairs for the six months ended June 30, 2005.
Net wholesale sales of Teva decreased by $6,943, or 11.3%, to $54,400 for the six months ended
June 30, 2006 from $61,343 for the six months ended June 30, 2005 due to increased
competition, a recent lack of meaningful product innovation, and a decline in sales in the
European market. See Overview Teva Overview above.
Net wholesale sales of UGG decreased by $3,824, or 12.4%, to $26,917 for the six months ended
June 30, 2006 from $30,741 for the six months ended June 30, 2005, due primarily to
approximately $10,000 of Fall 2004 holiday sales that did not ship until the first quarter of
2005. The decline was partially offset with sales of the brands inaugural Spring line. See
Overview UGG Overview above.
Net wholesale sales of Simple increased by $1,845, or 45.6%, to $5,893 for the six months
ended June 30, 2006 from $4,048 for the six months ended June 30, 2005. This increase was
largely due to the introduction of the Sandal and Green Toe Collections. See Overview
Simple Overview above.
Net sales of the Consumer Direct business increased by $2,043, or 24.1%, to $10,515 for the
six months ended June 30, 2006 from $8,472 for the six months ended June 30, 2005. For the
six months ended June 30, 2006, net sales of the Consumer Direct business included retail
sales of Teva of $3,075, UGG of $6,767 and Simple of $673. For the six months ended June 30,
2005, the breakdown consisted of sales of Teva of $2,884, UGG of $5,108 and Simple of $480.
The increase in net sales of the Consumer Direct business occurred due to the greater demand
for our products and the additional sales of our retail outlet stores, which were not in place
in the same period in 2005. See Overview Consumer Direct Overview above.
International sales for all of our products increased by $110, or 0.6%, to $19,684 for the six
months ended June 30, 2006 from $19,574 for the six months ended June 30, 2005, representing
20.1% of net sales for the six months ended June 30, 2006 and 18.7% of net sales for the six
months ended June 30, 2005. The increase in international sales resulted from an increase in
UGG and Simple international sales, partially offset by decreased sales of Teva product.
Gross Profit. Gross profit decreased by $1,795, or 3.9%, to $43,741 for the six months ended
June 30, 2006, from $45,536 for the six months ended June 30, 2005. As a percentage of net
sales, gross margin increased to 44.8% for the six months ended June 30, 2006, compared to
43.5% for the six months ended June 30, 2005, primarily due to an increase in the UGG wholesale gross margin, related to higher initial sell-in margins, partially offset by increased closeout sales.
Selling, General and Administrative Expenses. Selling, general and administrative expenses,
or SG&A, increased by $4,359, or 16.5%, to $30,819 for the six months ended June 30, 2006 from
$26,460 for the six months ended June 30, 2005. As a percentage of net sales, SG&A increased
to 31.5% for the six months ended June 30, 2006 from 25.3% for the six months ended June 30,
2005. The increase in SG&A expenses
was largely due to an increase in payroll, marketing and warehouse costs, partially offset by
lower commissions and bad debt expense.
22
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Income from Operations. Income from operations decreased by $6,154, or 32.3%, to $12,922 in
the six-month period ended June 30, 2006 from $19,076 in the six-month period ended June 30,
2005. This was due primarily to the increase in SG&A expenses as well as decreased gross
profit on the lower sales volume.
Income from operations of Teva wholesale decreased by $2,892, or 14.7%, to $16,762 for the six
months ended June 30, 2006 from $19,654 for the six months ended June 30, 2005. This decrease
was largely due to the $6,943 decrease in net sales as well as the increase in marketing, bad
debt expense and research and development costs. This was partially offset by lower selling
commissions related to the lower sales volume.
Income from operations of UGG wholesale increased by $160, or 1.8%, to $9,222 for the six
months ended June 30, 2006, from $9,062 for the six months ended June 30, 2005. The increase
was primarily the result of lower bad debt expense and selling commissions, partially offset
by the lower sales volume and increased marketing and selling expenses.
Loss from operations of Simple wholesale was $244 for the six months ended June 30, 2006
compared to income from operations of $233 for the six months ended June 30, 2005. In spite of
achieving higher net sales for the first six months of 2006, Simple experienced lower gross
margins from increased inventory write-downs along with higher marketing costs, which resulted
in a loss from operations for the six months ended June 30, 2006.
Income from operations of our Consumer Direct business increased by $906, or 47.0%, to $2,835
for the six months ended June 30, 2006, from $1,929 for the six months ended June 30, 2005.
This was largely due to the increase in net sales of $2,043, partially offset by higher
operating costs.
Unallocated overhead costs increased by $3,851 or 32.6%, to $15,653 for the six months ended
June 30, 2006 from $11,802 for the six months ended June 30, 2005, resulting primarily from
higher warehouse and international division costs, which are not allocated to the brands, as
well as higher corporate payroll costs.
Other Income, Net. Net interest income was $1,267 for the six months ended June 30, 2006,
compared with net interest income of $63 for the six months ended June 30, 2005. The interest
income in 2006 resulted primarily from the investment of our higher cash balances as well as
higher return rates in the first six months of 2006 compared to the same period a year ago.
Other income exclusive of net interest income was not material in either period.
Income Taxes. For the six months ended June 30, 2006, income tax expense was $5,826,
representing an effective income tax rate of 41.0%. For the six months ended June 30, 2005,
income tax expense was $7,523 representing an effective income tax rate of 39.3%. The increase
in the effective tax rate was primarily due to a higher projected annual pre-tax income for
our domestic operating unit, which bears a higher tax rate than that of our international
subsidiaries, resulting in a higher blended effective tax rate for the full year 2006. The
effective tax rate is subject to ongoing review and evaluation by management and can change
from quarter to quarter.
Net Income. Our net income decreased 27.9% to $8,380 from $11,619 as a result of the items
discussed above. Our earnings per diluted share decreased 27.8% to $0.65 from $0.90,
primarily as a result of the decrease in net income.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases. See Contractual
Obligations below. We do not believe that these operating leases are material to our current
or future financial condition, results of operations, liquidity, capital resources or capital
expenditures.
23
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Liquidity and Capital Resources
We finance our working capital and operating needs using a combination of our cash and cash
equivalents balances, short-term investments, cash generated from operations and the credit
availability under our revolving credit facility.
The seasonality of our business requires us to build inventory levels in anticipation of
the sales for the coming season. Teva generally begins to build inventory levels beginning in
the fourth quarter and first quarter in anticipation of the Spring selling season that occurs
in the first and second quarters, whereas UGG generally builds its inventories in the second
quarter and third quarter to support sales for the Fall and Winter selling seasons, which
historically occur during the third and fourth quarters.
Our cash flow cycle includes the purchase of these inventories, the subsequent sale of the
inventories and the eventual collection of the resulting accounts receivable. As a result,
our working capital requirements begin when we purchase the inventories and continue until we
ultimately collect the resulting receivables. Given the seasonality of our Teva and UGG
brands, our working capital requirements fluctuate significantly throughout the year. The
cash required to fund these working capital fluctuations is generally provided using a
combination of our internal cash flows and borrowings under our revolving credit facility.
Cash from Operating Activities. Net cash provided by operating activities was $11,839 for the
six months ended June 30, 2006 compared to net cash used in operating activities of $13,686
for the six months ended June 30, 2005. The change in net cash from operating activities for
the six months ended June 30, 2006 compared to the six months ended June 30, 2005 was
primarily due to a lesser increase in inventories in the first six months of 2006 compared to
a more significant increase in inventory in the first six months of 2005. The lower increase
in inventories is a result of tighter inventory management and buying closer to the required
shipping dates. Net working capital improved by $10,909 to $118,029 as of June 30, 2006 from
$107,120 as of December 31, 2005, primarily as a result of higher cash, short-term investments
and inventory balances along with lower accrued income taxes and expenses. The increase in
working capital was partially offset by a decrease in trade accounts receivable.
Cash from Investing Activities. For the six months ended June 30, 2006, net cash used in
investing activities was $54,483, which was comprised primarily of the net purchases of
short-term investments held by us at June 30, 2006. In addition, we used $1,581 for capital
expenditures, primarily related to the replacement and upgrading of certain computer
equipment, new racking for the distribution center in Camarillo, California, and the initial
build-out of the new retail outlet store in Wrentham, Massachusetts. For the six months ended
June 30, 2005, net cash provided by investing activities was $13,123, which was comprised
primarily of the sale of short-term investments held by us at December 31, 2004.
Cash from Financing Activities. For the six months ended June 30, 2006, net cash provided by
financing activities was $1,440 compared to net cash provided by financing activities of
$1,222 for the six months ended June 30, 2005. For the six months ended June 30, 2006, the
net cash provided by financing activities consisted primarily of cash received from the
exercise of stock options as well as the excess tax benefits from stock-based compensation.
For the six months ended June 30, 2005, net cash provided by financing activities was made up
entirely from cash received from the exercise of stock options.
Our working capital consists primarily of cash, short-term investments, trade accounts
receivable, inventories and a revolving credit facility. At June 30, 2006, working capital was
$118,029 including $9,499 of cash and cash equivalents and $55,434 of short-term investments.
Cash provided by operating activities aggregated $11,839 for the six months ended June 30,
2006. Trade accounts receivable decreased by 39.8% to $24,617 at June 30, 2006 from $40,918 at
December 31, 2005, largely due to normal seasonality. Accounts receivable turnover increased
to 7.9 times in the twelve months ended June 30, 2006 from 6.9 times in the twelve months
ended December 31, 2005.
24
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Inventories increased by 35.6% to $45,246 at June 30, 2006 from $33,374 at December 31, 2005,
reflecting a $14,492 increase in UGG inventory, a $4,037 decrease in Teva inventory, and a
$1,417 increase in Simple inventory. Overall, inventory turnover decreased slightly to 3.0
times for the twelve months ended June 30, 2006 from 3.2 times for the twelve months ended
December 31, 2005 due in part to lower sales levels during the twelve months ended June 30,
2006 compared to net sales in the twelve months ended December 31, 2005. The $14,492 increase in UGG inventory at June 30, 2006 was due to normal seasonality as well as the high
sell-through of UGG products in the six months ended June 30, 2006. The $4,037 decrease in
Teva inventory occurred largely due to normal seasonality. The $1,417 increase in Simple
inventory at June 30, 2006, compared to December 31, 2005, was largely due to higher
anticipated sales in the second half of 2006.
Our revolving credit facility with Comerica Bank (the Facility) provides for a maximum
availability of $20,000, subject to a borrowing base. In general, the borrowing base is equal
to 75% of eligible accounts receivable and 50% of eligible inventory, each as defined in the
Facility agreement. Up to $10,000 of borrowings may be in the form of letters of credit. The
Facility bears interest at the lenders prime rate (8.25% at June 30, 2006) or, at our option,
at LIBOR (5.33% at June 30, 2006) plus 1.0% to 2.5%, depending on our ratio of liabilities to
earnings before interest, taxes, depreciation and amortization, and is secured by
substantially all of our assets. The Facility includes annual commitment fees of $60 per year
and expires on June 1, 2007. At June 30, 2006, we had no outstanding borrowings under the
Facility, no foreign currency reserves for outstanding forward contracts, and outstanding
letters of credit of $52. As a result, $19,948 was available under the Facility at June 30,
2006.
The agreements underlying the Facility contain several financial covenants including a quick
ratio requirement, profitability requirements and a tangible net worth requirement, among
others, as well as a prohibition on the payment of dividends. We were in compliance with all
covenants at June 30, 2006, and remain so as of the date of this report.
We currently have no material commitments for future capital expenditures but estimate that
the remaining capital expenditures for 2006 will range from approximately $4,000 to $5,000 and
may include additional costs associated with upgrades to our distribution centers, the
build-out of new retail outlet stores and a new Teva trade show booth. The actual amount of
capital expenditures for the remainder of 2006 may differ from this estimate, largely
depending on any unforeseen needs to replace existing assets and the timing of expenditures.
We believe that internally generated funds, the available borrowings under our existing
Facility and cash on hand will provide sufficient liquidity to enable us to meet our working
capital requirements for at least the next twelve months. However, risks and uncertainties
that could impact our ability to maintain our cash position include our growth rate, the
continued strength of our brands, our ability to respond to changes in consumer preferences,
our ability to collect our receivables in a timely manner, our ability to effectively manage
our inventories and the volume of letters of credit used to purchase product, among others.
Please refer to our Annual Report on Form 10-K under Item 1A. Risk Factors and in this
quarterly report on Form 10-Q under Item 1A. Risk Factors for a discussion of additional
factors that may affect our working capital position. Furthermore, we may require additional
cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to pursue. If
these sources are insufficient to satisfy our cash requirement, we may seek to sell debt
securities or additional equity securities or to obtain a new facility or draw on our existing
facility. The sale of convertible debt securities or additional equity securities could result
in additional dilution to our stockholders. The incurrence of indebtedness would result in
incurring debt service obligations and could result in operating and financial covenants that
would restrict our operations. In addition, there can be no assurance that any additional
financing will be available on acceptable terms, if at all. Although there are no present
understandings, commitments or agreements with respect to the acquisition of any other
businesses, we may, from time to time, evaluate acquisitions of other businesses or brands.
25
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Contractual Obligations. The following table summarizes our contractual obligations at June
30, 2006, and the effects such obligations are expected to have on liquidity and cash flow in
future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Operating lease obligations |
|
$ |
14,099 |
|
|
$ |
3,537 |
|
|
$ |
6,464 |
|
|
$ |
1,989 |
|
|
$ |
2,109 |
|
Impact of Inflation
We believe that the relatively moderate rates of inflation in recent years have not had a
significant impact on our net sales or profitability.
Critical Accounting Policies and Estimates
Revenue Recognition. We recognize revenue when products are shipped and the customer takes
title and assumes risk of loss, collection of relevant receivable is probable, persuasive
evidence of an arrangement exists, and the sales price is fixed or determinable. Allowances
for estimated returns, discounts, and bad debts are provided for when related revenue is
recorded. Amounts billed for shipping and handling costs are recorded as a component of net
sales, while the related costs paid to third-party shipping companies are recorded as a cost
of sales.
Use of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures about
contingent liabilities and the reported amounts of net sales and expenses during the
reporting period. Management bases these estimates and assumptions upon historical
experience, existing, known circumstances, authoritative accounting pronouncements and other
factors that management believes to be reasonable under the circumstances. Management
reasonably could use different estimates and assumptions, and changes in estimates and
assumptions could occur from period to period, with the result in each case being a potential
material change in the financial statement presentation of our financial condition or results
of operations. We have historically been accurate in our estimates used for the reserves and
allowances below. We believe that the estimates and assumptions below are among those most
important to an understanding of our condensed consolidated financial statements contained in
this report.
Allowance for Doubtful Accounts. We provide a reserve against trade accounts receivable
for estimated losses that may result from customers inability to pay. We determine the
amount of the reserve by analyzing known uncollectible accounts, aged trade accounts
receivables, economic conditions, historical experience and the customers
credit-worthiness. Trade accounts receivable that are subsequently
determined to be uncollectible are charged or written off against this reserve. The reserve
includes specific reserves for accounts which are identified as potentially uncollectible,
plus a non-specific reserve for the balance of accounts based on our historical loss
experience with bad debts. Reserves have been established for all probable losses of this
nature. The gross trade accounts receivable balance was $27,594 and the allowance for
doubtful accounts was $1,334 at June 30, 2006, compared to gross trade accounts receivable
of $48,067 and the allowance for doubtful accounts of $2,574 at December 31, 2005. The
decrease in the allowance for doubtful accounts at June 30, 2006 compared to December 31,
2005 was primarily related to the decrease in the gross trade accounts receivable during
the period due to normal seasonality as well as the collection of accounts for which we had
previously reserved as doubtful. Our use of different estimates and assumptions in the
calculation of our allowance for doubtful accounts could produce different financial
26
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
results. For example, a 1.0% change in the rate used to estimate the reserve for the
accounts not specifically identified as uncollectible would change the allowance for
doubtful accounts at June 30, 2006 by $135.
Reserve for Sales Discounts. A significant portion of our domestic net sales and resulting
trade accounts receivable reflects a discount that the customers may take, generally based
upon meeting certain order, shipment and payment timelines. We estimate the amount of the
discounts that are expected to be taken against the period-end trade accounts receivable
and we record a corresponding reserve for sales discounts. We determine the amount of the
reserve for sales discounts considering the amounts of available discounts in the
period-end accounts receivable aging and historical discount experience, among other
factors. The reserve for sales discounts was approximately $630 at June 30, 2006 and $1,710
at December 31, 2005. The decrease in the reserve for sales discounts at June 30, 2006
compared to December 31, 2005 was primarily due to the decrease in the gross trade accounts
receivable during the period in addition to normal seasonality. Our use of different
estimates and assumptions could produce different financial results. For example, a 10%
change in the estimate of the percentage of accounts that will ultimately take their
discount would change the reserve for sales discounts at June 30, 2006 by $63.
Allowance for Estimated Returns. We record an allowance for anticipated future returns of
goods shipped prior to period-end. In general, we accept returns for damaged or defective
products but discourage returns for other reasons. We base the amount of the allowance on
any approved customer requests for returns, historical returns experience and any recent
events that could result in a change in historical returns rates, among other factors. The
allowance for returns decreased to $1,013 at June 30, 2006 from $2,865 at December 31,
2005, primarily as a result of lower net sales in the six months ended June 30, 2006
compared to the six months ended December 31, 2005. Our use of different estimates and
assumptions could produce different financial results. For example, a 1.0% change in the
rate used to estimate the percentage of sales expected to ultimately be returned would
change the reserve for returns at June 30, 2006 by approximately $194.
Inventory Write-Downs. Inventories are stated at lower of cost or market. We review the
various items in inventory on a regular basis for excess, obsolete and impaired inventory.
In doing so, we write the inventory down to the lower of cost or estimated future net
selling prices. At June 30, 2006, inventories were stated at $45,246, net of inventory
write-downs of $2,883. At December 31, 2005, inventories were stated at $33,374, net of
inventory write-downs of $3,346. The decrease in the reserve for inventory write-downs at
June 30, 2006 compared to December 31, 2005 was primarily due to the sale of inventory that
had been previously written down at December 31, 2005, partially offset by new inventory
write-downs during the first six months of 2006. Our use of different estimates and
assumptions could produce different financial results. For example, a 10% change in
estimated selling prices of our potentially obsolete inventory would change the inventory
write-down amount at June 30, 2006 by approximately $506.
Valuation of Goodwill, Intangible and Other Long-Lived Assets. We periodically assess the
impairment of goodwill, intangible and other long-lived assets on a separate asset basis
based on assumptions and judgments regarding the carrying value of these assets
individually. We test goodwill and nonamortizable intangible assets for impairment on an
annual basis based on the fair value of the reporting unit (goodwill) or assets
(nonamortizable intangibles) compared to its carrying value. We consider other long-lived
assets to be impaired if we determine that the carrying value may not be recoverable. Among
other considerations, we consider the following factors:
|
|
|
the assets ability to continue to generate income from operations and
positive cash flow in future periods; |
|
|
|
|
our future plans regarding utilization of the assets; |
|
|
|
|
any changes in legal ownership of rights to the assets; and |
27
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
|
|
|
changes in consumer demand or acceptance of the related brand names, products
or features associated with the assets. |
If we consider the assets to be impaired, we recognize an impairment loss equal to the
amount by which the carrying value of the assets exceeds the estimated fair value of the
assets. In addition, as it relates to long-lived assets, we base the useful lives and
related amortization or depreciation expense on the estimate of the period that the assets
will generate sales or otherwise be used by us.
Recent Accounting Pronouncements
The Company adopted SFAS 123R on January 1, 2006. The impact of the adoption is discussed in
note 2 to the condensed consolidated financial statements above.
In November 2004, the FASB issued Statement of Financial Accounting Standards, or SFAS No.
151, Inventory Costs An Amendment of Accounting Research Bulletin (ARB) No. 43, Chapter
4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). SFAS No. 151 is effective for fiscal years beginning after June
15, 2005 and was adopted on January 1, 2006. The adoption of this Statement did not have a
material effect on our condensed consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of Accounting Principles Board Opinion (APB) No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. This Statement
requires retrospective application to prior periods financial statements of a change in
accounting principle. It applies both to voluntary changes and to changes required by an
accounting pronouncement if the pronouncement does not include specific transition provisions.
APB 20 previously required that most voluntary changes in accounting principles be recognized
by recording the cumulative effect of a change in accounting principle. SFAS 154 is effective
for fiscal years beginning after December 15, 2005. The Company adopted this statement on
January 1, 2006, and it did not have a material effect on the financial statements upon
adoption.
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of SFAS No. 109, which prescribes a recognition threshold
and measurement process for recording in the financial statements uncertain tax positions
taken or expected to be taken in a tax return. FIN 48 also provides guidance on the
derecognition, classification, accounting in interim periods, and disclosure
requirements for uncertain tax positions. The provisions of FIN 48 are effective for Deckers
as of January 1, 2007. We are currently evaluating the impact of adopting FIN 48, if any, on
our financial statements.
28
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
(amounts in thousands, except per share data)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
Although we have used foreign currency hedges in the past, we no longer utilize forward
contracts or other derivative instruments to mitigate exposure to fluctuations in the foreign
currency exchange rate as all of our purchases and sales for the foreseeable future will be
denominated in U.S. currency.
Although our sales are denominated in U.S. currency, our sales may be impacted by fluctuations
in the exchange rates between the U.S. dollar and the local currencies in the international
markets where our products are sold. If the U.S. dollar strengthens, it may result in
increased pricing pressure on our distributors, which may have a negative impact on our net
sales. We are unable to estimate the amount of any impact on sales attributed to pricing
pressures caused by fluctuations in exchange rates.
Market Risk
Our market risk exposure with respect to financial instruments is to changes in the prime
rate in the U.S. and changes in LIBOR. Our revolving line of credit provides for interest on
outstanding borrowings at rates tied to the prime rate or at our election tied to LIBOR. At
June 30, 2006, we had no outstanding borrowings under the revolving line of credit. A 1.0%
increase in interest rates on our current borrowings would have no impact on income before
income taxes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, Angel R. Martinez, and Chief Financial Officer, Zohar Ziv, with
the participation of our management, carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon
that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that,
as of the end of the period covered by this report, our disclosure controls and procedures are
designed at a reasonable assurance level and are effective to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act (i) is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and (ii) that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
Disclosure controls and procedures, no matter how well designed and implemented, can provide
only reasonable assurance of achieving an entitys disclosure objectives. The likelihood of
achieving such objectives is affected by limitations inherent in disclosure controls and
procedures. These include the fact that human judgment in decision-making can be faulty and
that breakdowns in internal control can occur because of human failures such as simple errors,
mistakes or intentional circumvention of the established processes. Our disclosure controls
and procedures are designed to provide reasonable assurance of achieving our disclosure
objectives.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the
quarter ended June 30, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
29
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Part II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings. |
We are involved in routine litigation arising in the ordinary course of business. Such
routine matters, if decided adversely to us, would not, in the opinion of management,
have a material adverse effect on our financial condition or results of operations.
Additionally, we have many pending disputes in the U.S. Patent and Trademark Office,
foreign trademark offices and U.S. federal and foreign courts regarding unauthorized
use or registration of our Teva, UGG and Simple trademarks. We also are aware of many
instances throughout the world in which a third party is using our UGG trademark within
its Internet domain name, and we have discovered and are investigating several
manufacturers and distributors of counterfeit Teva and UGG products. We have contacted
a majority of these unauthorized users and counterfeiters and in some instances may
have to escalate the enforcement of our rights by filing suit against the unauthorized
users and counterfeiters. Any decision or settlement in any of these matters that
allowed a third party to continue to use our Teva, UGG or Simple trademarks or a domain
name with our UGG trademark in connection with the sale of products similar to our
products or to continue to manufacture or distribute counterfeit products could have an
adverse effect on our sales and on our intellectual property, which could have a
material adverse effect on our results of operations and financial condition.
Other than with respect to the risk factors below, there have been no material changes
from the risk factors disclosed in the Risk Factors section of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005, filed on March 9, 2006.
The following risk factors are new risk factors compared to the risk factors in our Annual Report on Form 10-K:
Our Teva brand may continue to decline at the same rate it has experienced in the
recent past.
If our Teva sales continue to decline to a point that the fair value of our Teva
reporting unit does not exceed its carrying value, we may be required to write down the
related intangible assets and goodwill, causing us to incur an impairment charge. An
impairment charge could materially affect our financial position and results of
operations. As of June 30, 2006, management feels a triggering event has not occurred,
and therefore no impairment test is necessary under the provisions of SFAS No. 142 Goodwill and Other Intangible Assets.
Our publicly-filed SEC reports are reviewed by the SEC from time to time and any
significant changes required as a result of any such review may result in material
liability to us and have a material adverse impact on the trading price of our common
stock.
The reports of publicly-traded companies are subject to review by the SEC from time to
time for the purpose of assisting companies in complying with applicable disclosure
requirements and to enhance the overall effectiveness of companies public filings, and
comprehensive reviews of such reports are now required at least every three years under
the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. While we
believe that our previously filed SEC reports comply, and we intend that all future
reports will comply in all material respects with the published rules and regulations
of the SEC, we could be required to modify or reformulate information contained in
prior filings as a
result of an SEC review. Any modification or reformulation of information contained in
such reports could be
30
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
significant and result in material liability to us and have a
material adverse impact on the trading price of our common stock.
The following risk factors were previously disclosed in our Annual Report on Form 10-K but have been updated as set forth below:
Our common stock price has been volatile, which could result in substantial losses for
stockholders.
Our common stock is traded on the NASDAQ National Market. While our average daily
trading volume for the 52-week period ended August 4, 2006 was approximately 411,000
shares, we have experienced more limited volume in the past and may do so in the
future. The trading price of our common stock has been and may continue to be volatile.
The closing sale prices of our common stock, as reported by the NASDAQ National Market,
have ranged from $17.15 to $44.14 for the 52-week period ended August 4, 2006. The
trading price of our common stock could be affected by a number of factors, including,
but not limited to the following:
|
|
|
changes in expectations of our future performance; |
|
|
|
|
changes in estimates by securities analysts (or failure to meet such estimates); |
|
|
|
|
quarterly fluctuations in our sales and financial results; |
|
|
|
|
broad market fluctuations in volume and price; and |
|
|
|
|
a variety of risk factors, including the ones described elsewhere in this report and our Annual Report on Form 10-K. |
Accordingly, the price of our common stock is volatile and any investment in our
securities is subject to risk of loss.
Anti-takeover provisions of our certificate of incorporation, bylaws, stockholder
rights plan and Delaware law could prevent or delay a change in control of our company,
even if such a change of control would benefit our stockholders.
Provisions of our certificate of incorporation and bylaws, as well as provisions of
Delaware law, could discourage, delay or prevent a merger, acquisition or other change
in control of our company, even if such a change in control might benefit our
stockholders. These provisions could also discourage proxy contests and make it more
difficult for you and other stockholders to elect directors and take other corporate
actions. As a result, these provisions could limit the price that investors are willing
to pay in the future for shares of our common stock. These provisions might also
discourage a potential acquisition proposal or tender offer, even if the acquisition
proposal or tender offer is at a price above the then current market price for our
common stock. These provisions include the following:
|
|
|
beginning at the 2007 Annual Meeting of Stockholders, the board of directors will
be elected to a one-year term; |
|
|
|
|
authorization of blank check preferred stock, which our board of directors could
issue with provisions designed to thwart a takeover attempt; |
|
|
|
|
limitations on the ability of stockholders to call special meetings of stockholders; |
|
|
|
|
a prohibition against stockholder action by written consent and a requirement that
all stockholder actions be taken at a meeting of our stockholders; and |
31
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
|
|
|
advance notice requirements for nominations for election to our board of directors
or for proposing matters that can be acted upon by stockholders at stockholder
meetings. |
We adopted a stockholder rights plan in 1998 under a stockholder rights agreement
intended to protect stockholders against unsolicited attempts to acquire control of our
company that do not offer what our board of directors believes to be an adequate price
to all stockholders or that our board of directors otherwise opposes. As part of the
plan, our board of directors declared a dividend that resulted in the issuance of one
preferred share purchase right for each outstanding share of our common stock. Unless
extended, the preferred share purchase rights will terminate on November 11, 2008. If a
bidder proceeds with an unsolicited attempt to purchase our stock and acquires 20% or
more (or announces its intention to acquire 20% or more) of our outstanding stock, and
the board of directors does not redeem the preferred stock purchase right, the right
will become exercisable at a price that significantly dilutes the interest of the
bidder in our common stock.
The effect of the stockholder rights plan is to make it more difficult to acquire our
company without negotiating with the board of directors. However, the stockholder
rights plan could discourage offers even if made at a premium over the market price of
our common stock, and even if the stockholders might believe the transaction would
benefit them.
In addition, we are subject to Section 203 of the Delaware General Corporation Law,
which limits business combination transactions with 15% or greater stockholders that
our board of directors has not approved. These provisions and other similar provisions
make it more difficult for a third party to acquire us without negotiation. These
provisions apply even if some stockholders would consider the transaction beneficial.
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
Not applicable
|
|
Item 3. Defaults upon Senior Securities. |
Not applicable
|
|
Item 4. Submission of Matters to a Vote of Security Holders. |
On May 19, 2006, the Company held its Annual Meeting of Stockholders. At this meeting,
John M. Gibbons, Daniel L. Terheggen and John G. Perenchio were each re-elected as
Class I Directors until the Annual Meeting of 2009, until such directors successor has
been duly elected and qualified or until such director has otherwise ceased to serve as
a director. For John M. Gibbons, 11,342,766 votes were cast in favor and 467,411 votes
were withheld; for Daniel L. Terheggen, 11,127,199 votes were cast in favor and 682,978
votes were withheld; and for John G. Perenchio, 11,398,375 votes were cast in favor and
411,802 votes were withheld.
The stockholders also ratified the selection of KPMG LLP as the Companys independent
auditors. Of the common stock votes, 11,411,851 votes were cast in favor of the
ratification; 394,738 votes were against; and 3,588 abstained. There were no broker
non-votes.
The stockholders approved the 2006 Equity Incentive Plan (the 2006 Plan). Of the
common stock votes, 6,124,182 votes were cast in favor of the 2006 Plan, 1,657,125
votes were against. There were no abstentions or broker non-votes.
32
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Lastly, the stockholders approved an amendment to the Companys certificate of
incorporation to authorize the annual election of directors. Of the common stock
votes, 11,419,184 votes were cast in favor of the amendment, 387,682 votes were
against, and 3,311 votes abstained. There were no broker non-votes.
|
|
Item 5. Other Information. |
Not applicable
The exhibits to this report are listed in the Exhibit Index on page 35 of this report.
33
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Signatures
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.
|
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|
|
|
|
Deckers Outdoor Corporation
|
|
Date: August 9, 2006 |
/s/ Zohar Ziv
|
|
|
Zohar Ziv |
|
|
Chief Financial Officer
(Duly Authorized Officer on Behalf of the Registrant
and Principal Financial and Accounting Officer) |
|
34
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
3.1
|
|
Amended and Restated Certificate of Incorporation of
Deckers Outdoor Corporation (Exhibit 3.1 to the
Registrants Registration Statement on Form S-1,
File No. 33-67248 and incorporated by reference
herein) |
|
|
|
3.2
|
|
Restated Bylaws of Deckers Outdoor Corporation
(Exhibit 3.2 to the Registrants Registration
Statement on Form S-1, File No. 33-47097 and
incorporated by reference herein) |
|
10.1#
|
|
Amendment No. 1 to Amended and Restated Employment
Agreement between the Company and Douglas B. Otto,
dated April 4, 2006 (Incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on April 7, 2006) |
|
|
|
10.2#
|
|
Employment Agreement between the Company and
Constance X. Rishwain, dated April 3, 2006
(Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on April
7, 2006) |
|
|
|
10.3#
|
|
Employment Agreement between the Company and Patrick
C. Devaney, dated April 3, 2006 (Incorporated by
reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K filed on April 7, 2006) |
|
|
|
10.4#
|
|
Employment Agreement between the Company and Colin
G. Clark, dated April 17, 2006 (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on April 18, 2006) |
|
|
|
10.5#
|
|
Employment Agreement between the Company and Janice
M. Howell, dated April 17, 2006 (Incorporated by
reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on April 18, 2006) |
|
|
|
10.6#
|
|
Amendment No. 1 to Employment Agreement between the
Company and John A. Kalinich, dated April 18, 2006
(Incorporated by reference to Exhibit 10.3 to the
Companys Current Report on Form 8-K filed on April
18, 2006) |
|
|
|
31.1*
|
|
Certification of Chief Executive Officer,
Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2*
|
|
Certification of Chief Financial Officer,
Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32*
|
|
Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
# |
|
Management contract or compensatory plan or arrangement. |
|
* |
|
Filed herewith. |
35