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, 2005
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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(IRS 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) |
(Registrants telephone number, including area code) (805) 967-7611
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) 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 an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ No o
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 2, 2005 |
Common stock, $.01 par value
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12,359,625 |
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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June 30, |
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December 31, |
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2005 |
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2004 |
Assets |
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Current assets: |
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|
|
|
|
|
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Cash and cash equivalents |
|
$ |
11,102,000 |
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$ |
10,379,000 |
|
Short-term investments |
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|
|
|
|
|
15,475,000 |
|
Trade accounts receivable, less allowances for doubtful
accounts, sales discounts and sales
returns of $3,443,000 and $5,012,000 as of June 30, 2005
and December 31, 2004, respectively |
|
|
26,245,000 |
|
|
|
40,226,000 |
|
Inventories |
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|
66,672,000 |
|
|
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30,260,000 |
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Prepaid expenses and other current assets |
|
|
1,366,000 |
|
|
|
1,491,000 |
|
Deferred tax assets |
|
|
3,240,000 |
|
|
|
3,240,000 |
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|
|
|
|
|
|
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Total current assets |
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108,625,000 |
|
|
|
101,071,000 |
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Property and equipment, at cost, net |
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4,211,000 |
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2,838,000 |
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Intangible assets, net |
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70,164,000 |
|
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70,319,000 |
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Other assets |
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612,000 |
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|
592,000 |
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|
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|
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|
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|
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$ |
183,612,000 |
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$ |
174,820,000 |
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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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$ |
13,395,000 |
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$ |
16,524,000 |
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Accrued expenses |
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|
5,625,000 |
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|
|
7,968,000 |
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Income taxes payable |
|
|
7,880,000 |
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6,725,000 |
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|
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Total current liabilities |
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26,900,000 |
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31,217,000 |
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|
|
|
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|
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|
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|
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|
|
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Deferred tax liabilities |
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2,607,000 |
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|
2,607,000 |
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|
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|
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Stockholders equity: |
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Common stock, $.01 par value. Authorized 20,000,000
shares; 12,352,945 shares issued and outstanding at June
30, 2005; 12,183,080 shares issued and outstanding at
December 31, 2004 |
|
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123,000 |
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122,000 |
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Additional paid-in capital |
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73,543,000 |
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|
71,959,000 |
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Retained earnings |
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80,210,000 |
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68,591,000 |
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Accumulated other comprehensive income |
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229,000 |
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324,000 |
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|
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|
|
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Total stockholders equity |
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154,105,000 |
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|
|
140,996,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
183,612,000 |
|
|
$ |
174,820,000 |
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|
|
|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
1
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
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Three-month period ended |
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June 30, |
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|
2005 |
|
2004 |
Net sales |
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$ |
40,341,000 |
|
|
$ |
40,546,000 |
|
Cost of sales |
|
|
24,372,000 |
|
|
|
21,640,000 |
|
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|
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|
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|
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Gross profit |
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|
15,969,000 |
|
|
|
18,906,000 |
|
|
|
|
|
|
|
|
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Selling, general and administrative expenses |
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11,292,000 |
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9,632,000 |
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Income from operations |
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4,677,000 |
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|
9,274,000 |
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Other (income) expense: |
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Interest, net |
|
|
6,000 |
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|
1,171,000 |
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Other |
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(4,000 |
) |
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1,000 |
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Income before income taxes |
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|
4,675,000 |
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8,102,000 |
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Income taxes |
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|
1,943,000 |
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|
|
3,015,000 |
|
|
|
|
|
|
|
|
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Net income |
|
$ |
2,732,000 |
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|
$ |
5,087,000 |
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Net income per share: |
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Basic |
|
$ |
0.22 |
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$ |
0.47 |
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Diluted |
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|
0.21 |
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|
0.43 |
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Weighted average common shares outstanding: |
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|
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|
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Basic |
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|
12,351,000 |
|
|
|
10,713,000 |
|
Diluted |
|
|
12,886,000 |
|
|
|
11,920,000 |
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|
|
|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
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Six-month period ended |
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June 30, |
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|
2005 |
|
2004 |
Net sales |
|
$ |
104,604,000 |
|
|
$ |
84,818,000 |
|
Cost of sales |
|
|
59,068,000 |
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|
|
45,506,000 |
|
|
|
|
|
|
|
|
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Gross profit |
|
|
45,536,000 |
|
|
|
39,312,000 |
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|
|
|
|
|
|
|
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Selling, general and administrative expenses |
|
|
26,460,000 |
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20,410,000 |
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|
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|
|
|
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Income from operations |
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|
19,076,000 |
|
|
|
18,902,000 |
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Other (income) expense: |
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Interest, net |
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|
(63,000 |
) |
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|
2,289,000 |
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Other |
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(3,000 |
) |
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(5,000 |
) |
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Income before income taxes |
|
|
19,142,000 |
|
|
|
16,618,000 |
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|
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|
|
|
|
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Income taxes |
|
|
7,523,000 |
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|
|
6,149,000 |
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|
|
|
|
|
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Net income |
|
$ |
11,619,000 |
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|
$ |
10,469,000 |
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|
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Net income per share: |
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Basic |
|
$ |
0.94 |
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$ |
1.02 |
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Diluted |
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|
0.90 |
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|
|
0.91 |
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Weighted average common shares outstanding: |
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Basic |
|
|
12,320,000 |
|
|
|
10,233,000 |
|
Diluted |
|
|
12,909,000 |
|
|
|
11,505,000 |
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|
|
|
|
|
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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)
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Six-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,619,000 |
|
|
$ |
10,469,000 |
|
Adjustments to reconcile net income to net cash (used in) provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,134,000 |
|
|
|
877,000 |
|
Provision for doubtful accounts |
|
|
442,000 |
|
|
|
81,000 |
|
Write-down of inventories |
|
|
1,924,000 |
|
|
|
407,000 |
|
Loss on disposal of assets |
|
|
|
|
|
|
6,000 |
|
Non-cash stock compensation |
|
|
363,000 |
|
|
|
93,000 |
|
Changes in assets and liabilities: |
|
|
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|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
13,539,000 |
|
|
|
(1,005,000 |
) |
Inventories |
|
|
(38,336,000 |
) |
|
|
(1,999,000 |
) |
Prepaid expenses and other current assets |
|
|
125,000 |
|
|
|
(503,000 |
) |
Other assets |
|
|
(20,000 |
) |
|
|
722,000 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
(3,129,000 |
) |
|
|
(3,684,000 |
) |
Accrued expenses |
|
|
(2,502,000 |
) |
|
|
2,709,000 |
|
Income taxes payable |
|
|
1,155,000 |
|
|
|
4,597,000 |
|
|
|
|
|
|
|
|
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|
Net cash (used in) provided by operating activities |
|
|
(13,686,000 |
) |
|
|
12,770,000 |
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|
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|
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Cash flows from investing activities: |
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Purchase of property and equipment |
|
|
(2,352,000 |
) |
|
|
(929,000 |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
20,000 |
|
Purchase of short-term investments |
|
|
|
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|
|
(11,000,000 |
) |
Proceeds from sale of short-term investments |
|
|
15,475,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
13,123,000 |
|
|
|
(11,909,000 |
) |
|
|
|
|
|
|
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|
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|
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Cash flows from financing activities: |
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|
|
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|
|
Repayments of long-term debt |
|
|
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|
|
(30,287,000 |
) |
Borrowings from line of credit |
|
|
5,000,000 |
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|
|
|
|
Repayments of line of credit |
|
|
(5,000,000 |
) |
|
|
|
|
Net cash received from issuances of common stock |
|
|
1,222,000 |
|
|
|
36,139,000 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,222,000 |
|
|
|
5,852,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
|
64,000 |
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|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
723,000 |
|
|
|
6,732,000 |
|
Cash and cash equivalents at beginning of period |
|
|
10,379,000 |
|
|
|
6,662,000 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,102,000 |
|
|
$ |
13,394,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
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|
|
|
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|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
23,000 |
|
|
$ |
1,509,000 |
|
Income taxes |
|
|
6,366,000 |
|
|
|
1,675,000 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) General
|
(a) |
|
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, 2004 included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2004. |
|
(b) |
|
Use of Estimates |
|
|
|
|
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 financial instruments,
fair value of acquired intangibles, assets and liabilities. Actual results could differ
from these estimates. |
|
|
(c) |
|
Stock Compensation |
|
|
|
|
The Company accounts for stock-based compensation under the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), as amended by SFAS 148. Under the provisions of SFAS 123 and SFAS 148, the Company
has elected to continue to measure compensation cost for employees and nonemployee
directors of the Company under the intrinsic value method of Accounting Principles Board
(APB) Opinion No. 25 and comply with the pro forma disclosure requirements under SFAS
123 and SFAS 148. The Company applies the fair value techniques of SFAS 123 and SFAS 148
to measure compensation cost for options/warrants granted to nonemployees. |
5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) |
|
General (Continued) |
|
|
|
The following tables illustrate the effects on net income if the fair value-based method had
been applied to all outstanding and unvested awards in each period. |
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Net income as reported |
|
$ |
2,732,000 |
|
|
|
5,087,000 |
|
Add stock-based employee compensation
expense included in reported net income,
net of tax effect |
|
|
98,000 |
|
|
|
31,000 |
|
Deduct total stock-based employee
compensation expense under fair value-based
method for all awards, net of tax |
|
|
(343,000 |
) |
|
|
(182,000 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
2,487,000 |
|
|
|
4,936,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.22 |
|
|
|
0.47 |
|
Basic pro forma |
|
|
0.20 |
|
|
|
0.46 |
|
Diluted as reported |
|
|
0.21 |
|
|
|
0.43 |
|
Diluted pro forma |
|
|
0.19 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Net income as reported |
|
$ |
11,619,000 |
|
|
|
10,469,000 |
|
Add stock-based employee compensation
expense included in reported net income, net
of tax effect |
|
|
220,000 |
|
|
|
59,000 |
|
Deduct total stock-based employee
compensation expense under fair value-based
method for all awards, net of tax |
|
|
(584,000 |
) |
|
|
(338,000 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
11,255,000 |
|
|
|
10,190,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.94 |
|
|
|
1.02 |
|
Basic pro forma |
|
|
0.91 |
|
|
|
1.00 |
|
Diluted as reported |
|
|
0.90 |
|
|
|
0.91 |
|
Diluted pro forma |
|
|
0.88 |
|
|
|
0.89 |
|
6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
(d) |
|
Reclassifications |
|
|
|
|
Certain reclassifications have been made to the December 31, 2004 and June 30, 2004
balances to conform to the 2005 presentation. |
(2) |
|
Comprehensive Income |
|
|
|
Comprehensive income is the total of net income and all other nonowner changes in equity. At
June 30, 2005 and December 31, 2004, accumulated other comprehensive income of $229,000 and
$324,000, 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 |
|
|
June 30, |
|
|
2005 |
|
2004 |
Net income |
|
$ |
2,732,000 |
|
|
|
5,087,000 |
|
Cumulative foreign currency translation
adjustment |
|
|
(58,000 |
) |
|
|
(12,000 |
) |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
2,674,000 |
|
|
|
5,075,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Net income |
|
$ |
11,619,000 |
|
|
|
10,469,000 |
|
Cumulative foreign currency translation
adjustment |
|
|
(95,000 |
) |
|
|
(30,000 |
) |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
11,524,000 |
|
|
|
10,439,000 |
|
|
|
|
|
|
|
|
|
|
(3) |
|
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, 2005 and 2004,
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. |
7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(3) |
|
Income per Share (Continued) |
|
|
|
The reconciliations of basic to diluted weighted average common shares outstanding are as
follows for the three and six-month periods ended June 30, 2005 and 2004: |
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Weighted average shares used in basic computation |
|
|
12,351,000 |
|
|
|
10,713,000 |
|
Dilutive impact of stock options |
|
|
535,000 |
|
|
|
1,207,000 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for diluted computation |
|
|
12,886,000 |
|
|
|
11,920,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Weighted average shares used in basic computation |
|
|
12,320,000 |
|
|
|
10,233,000 |
|
Dilutive impact of stock options |
|
|
589,000 |
|
|
|
1,272,000 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for diluted computation |
|
|
12,909,000 |
|
|
|
11,505,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 20,000 shares of common stock at prices ranging from $27.90 to $33.10 were
outstanding during the three months ended June 30, 2005, and options to purchase 10,000 shares
of common stock at a price of $33.10 were outstanding during the six months ended June 30,
2005, but were not included in the computation of diluted income per share because the
options exercise prices were greater than the average market price of the common stock during
the period, and, therefore, were anti-dilutive. |
|
|
|
All options outstanding as of June 30, 2004 were included in the computation of diluted income
per share for the three and six-month periods ended June 30, 2004. |
|
|
|
The Company excluded 109,750 contingently issuable shares of common stock underlying its
nonvested stock units from the diluted income per share computations for the three and
six-month periods ended June 30, 2005. This is because the necessary conditions had not been
satisfied for any shares to be issuable based on the Companys performance through June 30,
2005. |
8
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) |
|
Credit Facility |
|
|
|
The Company has a revolving credit facility with Comerica Bank-California (the Facility)
that expires June 1, 2007 and provides for a maximum availability of $20,000,000 subject to a
borrowing base. In general, the borrowing base is equal to 75% of eligible accounts
receivable, as defined, and 50% of eligible inventory, as defined. The accounts receivable
advance rate can increase or decrease depending on the Companys accounts receivable dilution,
which is calculated periodically. Up to $10,000,000 of borrowings may be in the form of
letters of credit. The Facility bears interest at the banks prime rate (6.00% at June 30,
2005) or at the Companys option, at LIBOR (3.34% at June 30, 2005) plus 1.0% to 2.5%,
depending on the Companys ratio of liabilities to earnings before interest, taxes,
depreciation and amortization (EBITDA), and is secured by substantially all assets of the
Company. The Facility includes annual commitment fees of $60,000 for 2005. At June 30, 2005,
the Company had no outstanding borrowings under the Facility, no foreign currency reserves for
outstanding forward contracts and no outstanding letters of credit, and as a result, we had
credit availability under the Facility of $20,000,000 at June 30, 2005. |
|
(5) |
|
Income Taxes |
|
|
|
Income taxes for the interim periods were computed using the effective tax rate estimated to
be applicable for the full fiscal year, which is subject to ongoing review and evaluation by
management. For the three months ended June 30, 2005, the Company recorded an income tax
expense of $1,943,000, representing an effective income tax rate of 41.6%. For the three
months ended June 30, 2004, the Company recorded an income tax expense of $3,015,000,
representing an effective income tax rate of 37.2%. For the six months ended June 30, 2005,
the Company recorded an income tax expense of $7,523,000, representing an effective income tax
rate of 39.3%. For the six months ended June 30, 2004, the Company recorded an income tax
expense of $6,149,000, representing an effective income tax rate of 37.0%. The increase in
the effective tax rate for both the three and six months ended June 30, 2005 over the prior
year 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 current year. The effective tax rate is subject
to ongoing review and evaluation by management and can change from quarter to quarter. |
|
(6) |
|
Recent Accounting Pronouncements |
|
|
|
On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA
includes a special one-time 85 percent dividends received deduction for certain foreign
earnings that are repatriated. In December 2004, the FASB issued FASB Staff Position No. FAS
109-2 (FSP FAS 109-2), Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. FSP FAS 109-2 provides
accounting and disclosure guidance for this repatriation provision. The Company is currently
evaluating the repatriation provisions of AJCA, which if implemented by the Company would
affect the Companys tax provision and deferred tax assets and liabilities. However, given
the uncertainties and complexities of the repatriation provision and the Companys continuing
evaluation, it is not possible at this time to determine the amount that may be repatriated or
the related potential income tax effects of such repatriation. |
9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(6) |
|
Recent Accounting Pronouncements (Continued) |
|
|
|
In November 2004, the FASB issued Statement of Financial Accounting Standards, or SFAS No.
151, Inventory Costs An Amendment of 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 is required to be
adopted in the first quarter of fiscal 2006. We do not expect the adoption of SFAS No. 151 to
have a material impact on our consolidated financial statements. |
|
|
|
In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment. SFAS
No. 123R supersedes APB Opinion No. 25, and requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based
on their fair values beginning with the first interim or annual period after June 15, 2005.
The pro forma disclosure permitted under SFAS No.123 will no longer be an alternative to
financial statement recognition. SFAS No. 123R requires the determination of the fair value of
the share-based compensation at the grant date and the recognition of the related expense over
the period in which the share-based compensation vests. In April 2005, the Securities and
Exchange Commission deferred the adoption date of SFAS No. 123R to the first interim period in
the first fiscal year beginning after June 15, 2005. We are, therefore, required to adopt the
provisions of SFAS No. 123R effective January 1, 2006. |
|
|
|
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 plans to
adopt this statement on January 1, 2006 and it is not expected to have a material effect on
the financial statements upon adoption. |
|
(7) |
|
Business Segments |
|
|
|
Management of the Company has determined that its reportable segments are its strategic
business units. The four reportable business segments are the Teva, UGG and Simple wholesale
divisions and the Companys Internet and catalog retailing business. The Company evaluates
performance based on net sales and income from operations. The Companys reportable business
segments are strategic business units responsible for the worldwide operations of each of its
brands. They are managed separately because each business requires different marketing,
research and development, design, sourcing, and sales strategies. The income from operations
for each of the segments includes only those costs that are specifically related to each
brand, which consist primarily of cost of sales, costs for research and development, design,
marketing, sales, commissions, bad debts, depreciation, amortization, and the costs of
employees directly related to the brands. 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 Internet and catalog sales to third parties 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 Internet/catalog segment. |
10
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) |
|
Business Segments (Continued) |
|
|
|
Net sales and operating income (loss) by business segment for the three and six months ended
June 30, 2005 and 2004 are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales to
external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
22,922,000 |
|
|
|
25,283,000 |
|
|
|
61,343,000 |
|
|
|
61,789,000 |
|
UGG wholesale |
|
|
11,987,000 |
|
|
|
8,762,000 |
|
|
|
30,741,000 |
|
|
|
11,409,000 |
|
Simple wholesale |
|
|
1,925,000 |
|
|
|
1,640,000 |
|
|
|
4,048,000 |
|
|
|
3,155,000 |
|
Internet/catalog |
|
|
3,507,000 |
|
|
|
4,861,000 |
|
|
|
8,472,000 |
|
|
|
8,465,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40,341,000 |
|
|
|
40,546,000 |
|
|
|
104,604,000 |
|
|
|
84,818,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Income (loss) from
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
6,297,000 |
|
|
|
8,927,000 |
|
|
|
19,654,000 |
|
|
|
21,310,000 |
|
UGG wholesale |
|
|
3,181,000 |
|
|
|
3,244,000 |
|
|
|
9,062,000 |
|
|
|
4,106,000 |
|
Simple wholesale |
|
|
30,000 |
|
|
|
(177,000 |
) |
|
|
233,000 |
|
|
|
(340,000 |
) |
Internet/catalog |
|
|
762,000 |
|
|
|
1,527,000 |
|
|
|
1,929,000 |
|
|
|
2,528,000 |
|
Unallocated
overhead costs |
|
|
(5,593,000 |
) |
|
|
(4,247,000 |
) |
|
|
(11,802,000 |
) |
|
|
(8,702,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,677,000 |
|
|
|
9,274,000 |
|
|
|
19,076,000 |
|
|
|
18,902,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment asset information as of June 30, 2005 and December 31, 2004 is summarized as
follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Total assets for reportable segments: |
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
87,357,000 |
|
|
|
87,380,000 |
|
UGG wholesale |
|
|
72,595,000 |
|
|
|
50,457,000 |
|
Simple wholesale |
|
|
4,398,000 |
|
|
|
4,303,000 |
|
Internet/catalog |
|
|
218,000 |
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
164,568,000 |
|
|
|
142,300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
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, refundable and deferred tax assets and various other
assets shared by the Companys segments. |
11
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
(7) |
|
Business Segments (Continued) |
|
|
|
|
Reconciliations of total assets from reportable segments to the condensed consolidated balance
sheets at June 30, 2005 and December 31, 2004 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Total assets for reportable segments |
|
$ |
164,568,000 |
|
|
|
142,300,000 |
|
Unallocated deferred tax assets |
|
|
3,225,000 |
|
|
|
3,225,000 |
|
Other unallocated corporate assets |
|
|
15,819,000 |
|
|
|
29,295,000 |
|
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
183,612,000 |
|
|
|
174,820,000 |
|
|
|
|
|
|
|
|
|
|
|
(8) |
|
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
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. 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 contains 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 because of numerous factors, many of which are beyond our control. Some
of the risks, uncertainties and assumptions that may cause actual results to differ from these
forward-looking statements include, without limitation:
|
|
|
our ability to anticipate fashion trends; |
|
|
|
|
whether the UGG brand will continue to grow at the rate it has
experienced in the recent past; |
|
|
|
|
possible shortages in top quality sheepskin, which could
interrupt product manufacturing and increase product costs; |
|
|
|
|
the risk that we are unable to accurately forecast consumer
demand, which may result in excess inventory to liquidate or, conversely, may
result in difficulty in filling customers orders; |
|
|
|
|
the sensitivity of the footwear industry to changes in general economic conditions; |
|
|
|
|
whether we are successful in implementing our growth strategy; |
|
|
|
|
the success of our customers; |
|
|
|
|
our ability to protect our intellectual property; |
13
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
|
|
|
the risk that counterfeiting can harm our sales or our brand image; |
|
|
|
|
our ability to develop and patent new technologies as our existing patents expire; |
|
|
|
|
the difficulty of matching inventory to future customer demand; |
|
|
|
|
the risk that retailers might cancel or postpone delivery on existing orders; |
|
|
|
|
our dependence on independent manufacturers to supply our products; |
|
|
|
|
the risk that raw materials do not meet our specifications or
that the prices of raw materials may increase, which would potentially cause a
high return rate, a loss of sales or a reduction in our gross margins; |
|
|
|
|
risks of international commerce resulting from our reliance on
manufacturers outside the U.S.; |
|
|
|
|
the potential impact of litigation; |
|
|
|
|
the risk that our manufacturers, suppliers or licensees might
fail to conform to labor laws or to our ethical standards; |
|
|
|
|
the need to secure sufficient and affordable sources of raw
materials; |
|
|
|
|
our reliance on licensing partners to expand our business and
their ability to sell their licensed products; |
|
|
|
|
the challenge of managing our brands for growth; |
|
|
|
|
our ability to successfully identify, develop or acquire, and build new brands; |
|
|
|
|
potential fluctuations in quarterly results in future periods,
which may prevent us from meeting expectations and have an adverse effect on
the price of our common stock; |
|
|
|
|
dependence on key employees; |
|
|
|
|
currency risk, including foreign currency fluctuation related
to Chinas revaluation of its currency and its abandonment of its peg to the
U.S. dollar; |
|
|
|
|
the sensitivity of our sales, particularly of the Teva® and
UGG® brands, to seasonal and weather factors; |
|
|
|
|
our reliance on independent distributors in international markets; |
|
|
|
|
economic and political risks that could affect our sales revenue from international markets; |
|
|
|
|
legal compliance challenges and political and economic risk in our international markets; |
|
|
|
|
delays and unexpected costs that can result from customs regulations; |
|
|
|
|
our dependence on computer and communications systems; |
|
|
|
|
the effect of consolidations and restructurings on our customers in the footwear industry; |
|
|
|
|
the effect of intense competition from footwear companies with greater resources; |
14
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
|
|
|
consolidations, restructurings and other ownership changes in
the retail industry, which could affect the ability of our wholesale customers
to purchase and market our products; |
|
|
|
|
the threat that terrorism could disrupt commerce in the U.S. and abroad; |
|
|
|
|
our ability to defend attacks on the validity of our intellectual property; and |
|
|
|
|
our ability to register and protect our intellectual property
in expanding product and geographic markets. |
In addition, our stock price may be affected by:
|
|
|
the degree of control of our company exercised by management through its stock holdings; |
|
|
|
|
historical volatility in our stock price; |
|
|
|
|
the potential dilutive impact of any future issuances of Common Stock; and |
|
|
|
|
the tendency of anti-takeover provisions of our charter
documents, our stockholder rights plan and Delaware law to dissuade potential
purchasers of the Company. |
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 read this report, the documents that we filed as exhibits to this report and the
documents that we incorporate by reference in this report completely and 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.
Overview
We are a leading producer and brand manager of innovative high-quality footwear and the
category creator in the sport sandal and luxury sheepskin footwear segments. Our products are
marketed under three recognized brand names that we own:
|
|
|
Teva: High performance sport sandals and rugged outdoor footwear; |
|
|
|
|
UGG: Authentic luxury sheepskin boots, slippers and other footwear; and |
|
|
|
|
Simple: Innovative shoes that combine the comfort elements of
athletic footwear with casual styling. |
We sell our three brands through our retail customers and directly to our end-user consumers
through our Internet and catalog retailing 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. |
15
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
|
|
|
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. |
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
From
fiscal 2001 to 2004, Tevas wholesale net sales increased at a compound annual growth rate of
10.9%. Tevas products have benefited from several factors, but most prominently a general
shift in consumer preferences and lifestyles to include more outdoor recreational activities.
At the same time, our consumers are increasingly purchasing our Teva products for everyday
wear, and our Teva brand now includes several closed-toe footwear lines. As a result, our
brand remains popular among professional and amateur outdoorsmen seeking authentic,
performance-oriented footwear, as well as general footwear consumers seeking high quality,
durable and comfortable styles for everyday use.
To capitalize on the growth of outdoor recreational activities and the acceptance of certain
footwear products for everyday use, we have selectively expanded the distribution of our Teva
product lines outside 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.
We initially produced Teva products under license from the inventor of the Teva 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 Teva Rights. As a
result of our purchase of the Teva Rights, we have adopted a strategy to expand the Teva brand
and more fully develop its potential.
UGG Overview
Since early 2003, our UGG brand has received increased media exposure, which contributed to
broader public awareness of the UGG brand and significantly increased demand for the
collection. We believe that the increased media focus on UGG was driven by 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. We believe this
increased media attention has enabled us to introduce the brand to consumers much faster than
we would have ordinarily been able to. As a result of the subsequent rapid growth in
demand, we were sold out of key UGG products throughout much of 2004, and given the long lead
times required to replenish our inventory, we were unable to fill many retailer reorders and
many direct Internet and catalog orders. In order to improve our ability to meet demand and
to ensure more timely deliveries in 2005, we have since improved our production timelines and
sourcing, resulting in an increase in our UGG inventory levels to $55,552,000 at June 30, 2005
from $9,951,000 at June 30, 2004. See Liquidity and Capital Resources.
16
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
UGG has been a well-known brand in California for many years and over the past few years has
become a recognized brand across the remainder of the country. We believe that a portion of
UGGs increased demand is due to our continued geographical expansion across the U.S. In
addition, we have recently begun to expand our distribution and marketing overseas in order
to satisfy virtually untapped international markets. We believe the international markets
represent an attractive opportunity to grow UGGs sales.
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 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 86 models in 2005 from 52 models in 2002. 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 possibly decline.
We depend on a limited number of key resources for sheepskin, the principal raw material
for our UGG products. Four suppliers currently provide all of the sheepskin purchased by
our independent manufacturers. The top quality sheepskin used in UGG footwear is in high
demand and limited supply. In addition, sheep are susceptible to hoof and mouth disease,
which can result in the extermination of the infected herd and could have a material
adverse effect on the availability of sheepskin for our products. The supply of sheepskin
can also be adversely impacted by drought conditions. Our potential inability to obtain top
quality sheepskin for UGG products could impair our ability to meet our production
requirements for UGG in a timely manner and could lead to inventory shortages, which can
result in lost potential sales, delays in shipments to customers, strain on our
relationships with customers and diminished brand loyalty. There have also been significant
increases in the prices of footwear quality sheepskin as the demand for this material has
increased. Any further price increases will likely raise our costs, increase our costs of
sales and decrease our profitability unless we are able to pass higher prices on to our
customers. While we believe the supply of top quality sheepskin has improved for the 2005
season, we still expect the demand for this material to continue to outpace supply, leading
to shortages and our inability to produce as much of certain styles as our customers would
like to order. Looking beyond the next year, if demand continues to be strong, we would
expect the supply of top quality sheepskin to continue to increase in response to the
demand. However, we have little control over the supply or the overall demand for top
quality sheepskin and, accordingly, can provide no assurances about the sufficiency of
future supplies of top quality sheepskin.
Simple Overview
Following three consecutive years of net sales declines in our Simple product line through
2003, we recently implemented a strategy to improve Simples results of operations and
generate renewed interest in the Simple brand. As a result, net sales for Simple increased
31.0% in the six months ended June 30, 2005 as compared to the six months ended June 30,
2004, leading to a positive brand contribution to earnings from operations for the brand.
Instrumental in this turnaround has been the renewed focus on Simples successful legacy
collections, including clogs and sneakers, and narrowing the number of styles available.
At the same time, we have changed our sales and distribution efforts. While Simple
products are sold through many of the same retailers that carry our Teva and UGG lines, the
Simple products will also, in
some cases, be sold through distribution channels that are precluded from offering our Teva
and UGG brands. We expect our Simple brand to experience growth as we continue to develop
our re-focused product line and successfully implement our channel management strategies.
Internet and Catalog Retailing Overview
We acquired our Internet and catalog retailing business in November 2002 as part of the
acquisition of the Teva Rights. Our Internet and catalog retailing business, which today
sells all three of our brands, enables us to meet the growing demand for all of these
products and, because this business sells its products at retail
17
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
prices, it also provides
us with an opportunity to add significant incremental operating income. Managing our
Internet business requires us to focus on generating Internet traffic to our websites,
effectively convert website visits into orders and maximize average order sizes. To drive
our catalog order business, we distribute approximately 550,000 catalogs every six months.
Overall, our consumer direct business benefits from the strength of our brands and, as we
grow our brands over time, we expect our Internet and catalog retailing division to
continue to be an important segment of our business.
Licensing Overview
We have recently embarked on a strategy to license our well-known and respected footwear
brands to complementary products outside of footwear, generally in the apparel and
accessories categories. We currently have several licensing agreements for Teva, including
domestic licenses for headwear and socks and a Canadian license for sportswear. We have
recently terminated our previous domestic licensing agreement for time pieces and eyewear
and are in the process of terminating our U.S. mens apparel license. We also have
licensing arrangements for UGG for handbags and other small leather goods, outerwear and
cold weather accessories. We are pursuing additional licensing opportunities for our brands
both in the U.S. and abroad. Because this licensing strategy is in its early stages, and due
to the lead times required to bring the products to market, we have only recently begun to
recognize license revenues and we do not expect significant incremental net sales and
profits from licensing in the near future. However, we believe licensing revenues may become
a more significant portion of our net sales and profits over time if our licensees can sell
the licensed products in the quantities and of the quality they have promised. Beginning in
the third quarter of 2004, our licensees began to ship their products. For the six months
ended June 30, 2005, we recognized net license revenues of $171,000, primarily related to
our UGG handbag and our Teva time pieces and eyewear licenses. The minimum net annual
royalties that we are scheduled to receive under the existing licensing agreements, assuming
renewal options are exercised, are $336,000 in 2005, $704,000 in 2006, $641,000 in 2007,
$659,000 in 2008 and $659,000 in 2009. The activity within the licensing segment is very
small in relation to the consolidated operations and, therefore, separate segment
information is not presented.
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, while the quarter with the highest percentage of annual net sales
for Simple has varied from year to year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
First |
|
Second |
|
|
|
|
|
|
|
|
|
|
Quarter |
|
Quarter |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
64,263,000 |
|
|
$ |
40,341,000 |
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
14,399,000 |
|
|
$ |
4,677,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Net sales |
|
$ |
44,272,000 |
|
|
$ |
40,546,000 |
|
|
$ |
55,797,000 |
|
|
$ |
74,172,000 |
|
Income from operations |
|
$ |
9,628,000 |
|
|
$ |
9,274,000 |
|
|
$ |
9,358,000 |
|
|
$ |
14,202,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Net sales |
|
$ |
36,102,000 |
|
|
$ |
24,342,000 |
|
|
$ |
24,894,000 |
|
|
$ |
35,717,000 |
|
Income from operations |
|
$ |
8,087,000 |
|
|
$ |
4,678,000 |
|
|
$ |
1,782,000 |
|
|
$ |
4,891,000 |
|
18
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
With the dramatic growth in UGG in recent years, combined with the introduction of a Fall Teva
line, net sales in the last half of 2004 exceeded that for the first half of 2004. Given our
expectations for each of our brands in 2005, we currently expect this 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. See Forward-Looking
Statements above.
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, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales by location: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
35,867,000 |
|
|
|
36,048,000 |
|
|
|
85,030,000 |
|
|
|
67,446,000 |
|
International |
|
|
4,474,000 |
|
|
|
4,498,000 |
|
|
|
19,574,000 |
|
|
|
17,372,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,341,000 |
|
|
|
40,546,000 |
|
|
|
104,604,000 |
|
|
|
84,818,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by product line and
consumer direct business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
22,922,000 |
|
|
|
25,283,000 |
|
|
|
61,343,000 |
|
|
|
61,789,000 |
|
Internet/catalog |
|
|
1,921,000 |
|
|
|
1,811,000 |
|
|
|
2,884,000 |
|
|
|
2,746,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
24,843,000 |
|
|
|
27,094,000 |
|
|
|
64,227,000 |
|
|
|
64,535,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGG: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
11,987,000 |
|
|
|
8,762,000 |
|
|
|
30,741,000 |
|
|
|
11,409,000 |
|
Internet/catalog |
|
|
1,350,000 |
|
|
|
2,917,000 |
|
|
|
5,108,000 |
|
|
|
5,418,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,337,000 |
|
|
|
11,679,000 |
|
|
|
35,849,000 |
|
|
|
16,827,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simple: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
1,925,000 |
|
|
|
1,640,000 |
|
|
|
4,048,000 |
|
|
|
3,155,000 |
|
Internet/catalog |
|
|
236,000 |
|
|
|
133,000 |
|
|
|
480,000 |
|
|
|
301,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,161,000 |
|
|
|
1,773,000 |
|
|
|
4,528,000 |
|
|
|
3,456,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,341,000 |
|
|
|
40,546,000 |
|
|
|
104,604,000 |
|
|
|
84,818,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Income (loss) from
operations by product
line and consumer direct
business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teva wholesale |
|
$ |
6,297,000 |
|
|
|
8,927,000 |
|
|
|
19,654,000 |
|
|
|
21,310,000 |
|
UGG wholesale |
|
|
3,181,000 |
|
|
|
3,244,000 |
|
|
|
9,062,000 |
|
|
|
4,106,000 |
|
Simple wholesale |
|
|
30,000 |
|
|
|
(177,000 |
) |
|
|
233,000 |
|
|
|
(340,000 |
) |
Internet/catalog |
|
|
762,000 |
|
|
|
1,527,000 |
|
|
|
1,929,000 |
|
|
|
2,528,000 |
|
Unallocated overhead costs |
|
|
(5,593,000 |
) |
|
|
(4,247,000 |
) |
|
|
(11,802,000 |
) |
|
|
(8,702,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,677,000 |
|
|
|
9,274,000 |
|
|
|
19,076,000 |
|
|
|
18,902,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
The following table sets forth certain operating data as a percentage of net sales for the
periods indicated, and the increase in each item of operating data between the periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Percent |
|
|
June 30, |
|
Increase |
|
|
2005 |
|
2004 |
|
2005 to 2004 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(0.5 |
)% |
Cost of sales |
|
|
60.4 |
|
|
|
53.4 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
39.6 |
|
|
|
46.6 |
|
|
|
(15.5 |
) |
Selling, general and administrative
expenses |
|
|
28.0 |
|
|
|
23.8 |
|
|
|
17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
11.6 |
|
|
|
22.8 |
|
|
|
(49.6 |
) |
Other (income) expense, net |
|
|
(0.0 |
) |
|
|
2.8 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11.6 |
|
|
|
20.0 |
|
|
|
(42.3 |
) |
Income taxes |
|
|
4.8 |
|
|
|
7.4 |
|
|
|
(35.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6.8 |
% |
|
|
12.6 |
% |
|
|
(46.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Percent |
|
|
June 30, |
|
Increase |
|
|
2005 |
|
2004 |
|
2005 to 2004 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
23.3 |
% |
Cost of sales |
|
|
56.5 |
|
|
|
53.7 |
|
|
|
29.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
43.5 |
|
|
|
46.3 |
|
|
|
15.8 |
|
Selling, general and administrative
expenses |
|
|
25.3 |
|
|
|
24.1 |
|
|
|
29.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
18.2 |
|
|
|
22.2 |
|
|
|
0.9 |
|
Other (income) expense, net |
|
|
(0.1 |
) |
|
|
2.6 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18.3 |
|
|
|
19.6 |
|
|
|
15.2 |
|
Income taxes |
|
|
7.2 |
|
|
|
7.3 |
|
|
|
22.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
11.1 |
% |
|
|
12.3 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation of percentage change is not meaningful. |
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
Overview. For the three months ended June 30, 2005, we had net sales of $40,341,000 and
income from operations of $4,677,000 compared to net sales of $40,546,000 and income from
operations of $9,274,000 for the three months ended June 30, 2004. These results were
primarily due to a decrease in Teva sales, partially offset by increased UGG and Simple sales.
Income from operations decreased as a result of lower gross margin caused by increased
closeouts and inventory write-downs as well as increased selling, general and administrative
costs.
Net Sales. Net sales decreased by $205,000, or 0.5%, to $40,341,000 for the three months
ended June 30, 2005 from $40,546,000 for the three months ended June 30, 2004. Net sales
decreased for the three months ended June 30, 2005 due primarily to the negative impact of
Tevas dependency on open toe sandals combined with the lingering cold weather during the
Spring 2005 season, which adversely affected our domestic Teva business during the quarter,
while weakness in certain international markets affected Tevas overseas
business. In addition, the Companys weighted average wholesale selling price per unit
decreased 5.3% to $19.63 for the
20
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
three months ended June 30, 2005 from $20.73 for the three
months ended June 30, 2004, caused by an increase in the volume of closeout sales during the
period, partially offset by increased sales of UGG products, which generally carry a higher
average selling price than sales of other products. During the quarter, the Company
experienced an increase in the total number of units sold for each of our three brands,
resulting in an 11.5% overall increase in the volume of footwear sold to 1,972,000 pairs for
the three months ended June 30, 2005 from 1,769,000 pairs for the three months ended June 30,
2004.
Net wholesale sales of Teva decreased by $2,361,000, or 9.3%, to $22,922,000 for the three
months ended June 30, 2005 from $25,283,000 for the three months ended June 30, 2004 due to
Tevas dependency on open toe sandals combined with the lingering cold weather during the
Spring 2005 season. This negatively impacted our domestic Teva business during the quarter,
while weakness in certain international markets affected Tevas overseas business. See
Overview Teva Overview above.
Net wholesale sales of UGG increased by $3,225,000, or 36.8%, to $11,987,000 for the three
months ended June 30, 2005 from $8,762,000 for the three months ended June 30, 2004, due to
increases in both the domestic market and the international markets. Domestically, the
increase was attributed to continued strength of the UGG brand as well as early shipments of
Fall products. Our sales of UGG products to international markets were $2,427,000 for the
three months ended June 30, 2005 as compared to $649,000 for the three months ended June 30,
2004 as we began to deliver our Fall 2005 line to the European and Asian markets during the
second quarter this year. Fall deliveries for 2004 were not made until the third quarter.
See Overview UGG Overview above.
Net wholesale sales of Simple increased by $285,000, or 17.4%, to $1,925,000 for the three
months ended June 30, 2005 from $1,640,000 for the three months ended June 30, 2004. This
increase was largely due to a renewed interest in the Simple brand, including continued growth
in the sales of the Sugar and other sneaker styles, as well as an increase in closeout sales
during the quarter. See Overview Simple Overview above.
Net sales of the Internet and catalog retailing business decreased by $1,354,000, or 27.9%, to
$3,507,000 for the three months ended June 30, 2005 from $4,861,000 for the three months ended
June 30, 2004. For the three months ended June 30, 2005, net sales of the Internet and
catalog retailing business included retail sales of Teva of $1,921,000, UGG of $1,350,000 and
Simple of $236,000. For the three months ended June 30, 2004, the breakdown consisted of
sales of Teva of $1,811,000, UGG of $2,917,000 and Simple of $133,000. The decrease in net
sales of the Internet and catalog retailing business occurred because pent-up demand and
backorders for UGG product as of March 31, 2004 resulted in higher than expected Internet and
catalog retailing business for UGG during the second quarter of 2004. Whereas, during the
first half of 2005, our deliveries have been on time, so we were able to ship more UGG product
during the first quarter. Also, during the second quarter of 2004, many consumers were unable
to locate UGG product through retail customers of our wholesale division; and thus acquired
more product through our Internet business. This year, because our wholesale division has
delivered product to retailers more timely, this improved availability at the local retailers
has reduced demand for our Internet business. See Overview Internet and Catalog
Retailing Overview above.
International sales for all of our products decreased by $24,000, or 0.5%, to $4,474,000 for
the three months ended June 30, 2005 from $4,498,000 for the three months ended June 30, 2004,
representing 11.1% of net sales for both the three months ended June 30, 2005 and 2004. The
decrease in international sales resulted from decreased sales of Teva product, partially
offset by an increase in UGG and Simple international sales.
Gross Profit. Gross profit decreased by $2,937,000, or 15.5%, to $15,969,000 for the three
months ended June 30, 2005, from $18,906,000 for the three months ended June 30, 2004. As a
percentage of net sales,
gross margin was 39.6% for the three months ended June 30, 2005 compared to 46.6% for the
three months ended June 30, 2004. The decrease in gross margin was primarily due to an
increased impact of closeout sales,
21
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
including sales under Tevas Golden Summer discount
program which provided discounted pricing to existing retail customers on certain Teva styles
during the quarter. We also experienced increased inventory write-downs during the quarter.
In addition, the decrease in the high margin Internet and catalog retail sales compared to the
second quarter of last year also contributed to the lower gross margin.
Selling, General and Administrative Expenses. Selling, general and administrative expenses,
or SG&A, increased by $1,660,000, or 17.2%, to $11,292,000 for the three months ended June 30,
2005 from $9,632,000 for the three months ended June 30, 2004. As a percentage of net sales,
SG&A increased to 28.0% for the three months ended June 30, 2005 from 23.8% for the three
months ended June 30, 2004. The increase in SG&A expenses was largely due to the addition of
a new distribution center, as well as an increase in marketing spending compared to the second
quarter of last year.
Income from Operations. Income from operations decreased by $4,597,000, or 49.6%, to
$4,677,000 in the three-month period ended June 30, 2005 from $9,274,000 in the three-month
period ended June 30, 2004. This was due primarily to the decrease in gross profit as well as
the increase in SG&A expenses as a percentage of sales, as discussed above.
Income from operations of Teva wholesale decreased by $2,630,000, or 29.5%, to $6,297,000 for
the three months ended June 30, 2005 from $8,927,000 for the three months ended June 30, 2004.
This decrease was largely due to the decreased sales volume, the lower gross margin caused by
increased closeout sales and increased inventory write-downs, increased marketing expenses and
higher bad debt expense in this segment, partially offset by lower selling commissions related
to the lower sales volume.
Income from operations of UGG wholesale decreased by $63,000, or 1.9%, to $3,181,000 for the
three months ended June 30, 2005, from $3,244,000 for the three months ended June 30, 2004.
The small decrease was the result of increased inventory write-downs and closeout sales,
partially offset by a higher total sales volume and lower bad debt expense in this segment.
Income from operations of Simple wholesale increased by $207,000 to $30,000 for the three
months ended June 30, 2005 from a loss from operations of $177,000 for the three months ended
June 30, 2004. This was primarily due to a $285,000 increase in net sales and an improvement
in gross margin caused by fewer inventory write-downs in the second quarter of the current
year, partially offset by a slight increase in marketing and bad debt expense in this segment.
Income from operations of our Internet and catalog business decreased by $765,000, or 50.1%,
to $762,000 for the three months ended June 30, 2005, from $1,527,000 for the three months
ended June 30, 2004. This was largely due to the decrease in net sales of $1,354,000 during
the period combined with higher operating costs.
Unallocated overhead costs increased by $1,346,000 or 31.7%, to $5,593,000 for the three
months ended June 30, 2005 from $4,247,000 for the three months ended June 30, 2004, resulting
primarily from the addition of a new distribution center as well as compensation expense
related to nonvested stock units.
Other (Income) Expense. Net interest expense was $6,000 for the three months ended June 30,
2005, compared with a net interest expense of $1,171,000 for the three months ended June 30,
2004. The interest expense in 2004 resulted principally from the borrowings incurred to
finance our purchase of the Teva Rights in November 2002, which we subsequently paid off in
full during the second quarter of 2004. The significantly lower interest expense for the
quarter ended June 30, 2005 occurred as we were debt-free for
most of the quarter, with only seasonal borrowings to fund working capital requirements during
the month of June 2005. Other (income) expense exclusive of net interest expense was not
material in either period.
Income Taxes. For the three months ended June 30, 2005, income tax expense was $1,943,000,
representing an effective income tax rate of 41.6%. For the three months ended June 30, 2004,
income tax expense was $3,015,000 representing an effective income tax rate of 37.2%. The
increase in the effective tax rate was
22
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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 current
year. 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 46.3% to $2,732,000 from $5,087,000 as a result of lower
gross profit dollars and higher SG&A expenses, partially offset by lower net interest expense,
as discussed above. Our earnings per diluted share decreased 51.2% to $0.21 from $0.43 as a
result of the decrease in net income in addition to the increase in the weighted average
common shares outstanding due to the follow-on public offering in May 2004.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Overview. For the six months ended June 30, 2005, we had net sales of $104,604,000 and income
from operations of $19,076,000 compared to net sales of $84,818,000 and income from operations
of $18,902,000 for the six months ended June 30, 2004. These results were primarily due to
increased sales of the UGG product line during the first half of the year, partially offset by
a lower gross margin and higher SG&A expenses.
Net Sales. Net sales increased by $19,786,000, or 23.3%, to $104,604,000 for the six months
ended June 30, 2005 from $84,818,000 for the six months ended June 30, 2004. Net sales
increased for the six months ended June 30, 2005 due primarily to: (1) an increase in the
total number of units sold for each of our three brands, resulting in a 20.3% overall increase
in the volume of footwear sold to 4,794,000 pairs for the six months ended June 30, 2005 from
3,984,000 pairs for the six months ended June 30, 2004, and (2) a 5.3% increase in the
weighted average wholesale selling price per unit to $20.57 for the six months ended June 30,
2005 from $19.54 for the six months ended June 30, 2004, caused by an increase in sales of UGG
products, which generally carry higher average selling prices, partially offset by an increase
in the volume of closeout sales during the six months ended June 30, 2005.
Net wholesale sales of Teva decreased by $446,000, or 0.7%, to $61,343,000 for the six months
ended June 30, 2005 from $61,789,000 for the six months ended June 30, 2004. This decrease was
primarily due to a decrease in net sales in the international markets, primarily reflecting
weakness in sales to Europe and, to a lesser degree, in sales to Asia. This was partially
offset by an increase in net sales in the domestic market. The increase in the domestic
market sales includes an increase in the volume of closeout sales in response to the
unseasonably cold Spring 2005 season. See Overview Teva Overview above.
Net wholesale sales of UGG increased by $19,332,000, or 169.4%, to $30,741,000 for the six
months ended June 30, 2005 from $11,409,000 for the six months ended June 30, 2004, primarily
as a result of deliveries of the first UGG Spring product line during the six months ended
June 30, 2005, whereas, during the six months ended June 30, 2004, we did not offer an UGG
Spring product line. Also, during the first quarter of 2005, we were able to deliver
carryover shipments of our 2004 Fall and Holiday product, whereas, during the first quarter of
2004, we had a limited amount of product available to ship. In addition, our sales of UGG
products to international markets increased to $4,316,000 for the six months ended June 30,
2005 compared to $656,000 in the six months ended June 30, 2004 in part due to initial
deliveries of the Fall 2005 product line;
whereas, in the quarter ended June 30, 2004, we did not have as much of the Fall product line
available for the international deliveries. See Overview UGG Overview above.
Net wholesale sales of Simple increased by $893,000, or 28.3%, to $4,048,000 for the six
months ended June 30, 2005 from $3,155,000 for the six months ended June 30, 2004. This
increase was largely due to a renewed interest in the Simple brand, including continued growth
in the sales of the Sugar and other sneaker styles, and the successful introduction of the new
line of Simple clogs and an increase in the volume of closeout sales compared to the year ago
period. See Overview Simple Overview above.
23
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Net sales of the Internet and catalog retailing business increased by $7,000, or 0.1%, to
$8,472,000 for the six months ended June 30, 2005 from $8,465,000 for the six months ended
June 30, 2004. For the six months ended June 30, 2005, net sales of the Internet and catalog
retailing business included retail sales of Teva of $2,884,000, UGG of $5,108,000 and Simple
of $480,000. For the six months ended June 30, 2004, the breakdown consisted of sales of Teva
of $2,746,000, UGG of $5,418,000 and Simple of $301,000. See Overview Internet and
Catalog Retailing Overview above.
International sales for all of our products increased by $2,202,000, or 12.7%, to $19,574,000
for the six months ended June 30, 2005 from $17,372,000 for the six months ended June 30,
2004, representing 18.7% of net sales for the six months ended June 30, 2005 and 20.5% of net
sales for the six months ended June 30, 2004. The higher dollar amount of international sales
resulted from our sales of more UGG product to the international markets as our inventory
availability allowed us to deliver more of our UGG Fall retail collection during the six
months ended June 30, 2005; whereas, in the year ago period a greater proportion of the UGG
Fall retail collection was not available until the second half of fiscal 2004. Because
domestic sales increased 26.1% in the first six months of 2005 compared to the same period a
year ago, our overall international sales as a percentage of total sales decreased in the
first six months of 2005 compared to the same period in 2004.
Gross Profit. Gross profit increased by $6,224,000, or 15.8%, to $45,536,000 for the six
months ended June 30, 2005, from $39,312,000 for the six months ended June 30, 2004. As a
percentage of net sales, gross profit margin was 43.5% for the six months ended June 30, 2005
compared to 46.3% for the six months ended June 30, 2004. The decrease in gross margin was
the result of increased inventory write-downs, a higher impact of closeout sales, and a shift
in sales mix as a result of the significant increase in net sales of UGG products, which
generally have a lower average gross margin than sales of Teva products.
Selling, General and Administrative Expenses. Selling, general and administrative expenses,
or SG&A, increased by $6,050,000, or 29.6%, to $26,460,000 for the six months ended June 30,
2005 from $20,410,000 for the six months ended June 30, 2004. As a percentage of net sales,
SG&A increased to 25.3% for the six months ended June 30, 2005 from 24.1% for the six months
ended June 30, 2004. The increase in the dollar amount of SG&A expenses was due to a
combination of factors, including higher costs associated with the addition of a new
distribution center since last year, increased marketing costs, increased commissions expense
on higher sales volumes, increased bad debt expenses, and costs related to the initial
compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Income from Operations. Income from operations increased by $174,000, or 0.9%, to $19,076,000
in the six-month period ended June 30, 2005 from $18,902,000 in the six-month period ended
June 30, 2004. This was due primarily to the increase in net sales, partially offset by lower
gross margins and an increase in SG&A expenses, as discussed above.
Income from operations of Teva wholesale decreased by $1,656,000, or 7.8%, to $19,654,000 for
the six months ended June 30, 2005 from $21,310,000 for the six months ended June 30, 2004.
This decrease was largely due to the decreased sales volume, lower gross margins as a result
of a higher volume of closeout sales
and inventory write-downs, and higher marketing expenses, partially offset by lower bad debt
expense in this segment.
Income from operations of UGG wholesale increased by $4,956,000, or 120.7%, to $9,062,000 for
the six months ended June 30, 2005, from $4,106,000 for the six months ended June 30, 2004.
This was largely due to the $19,332,000 increase in net sales, partially offset by higher
selling commissions, marketing costs and bad debt expense related to the higher sales volume
as well as increased inventory write-downs and closeout sales.
Income from operations of Simple wholesale increased by $573,000 to $233,000 for the six
months ended June 30, 2005 from a loss from operations of $340,000 for the six months ended
June 30, 2004. This was primarily due to an $893,000 increase in net sales and an improvement
in gross margin caused by a reduced impact of
24
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
closeout sales and fewer inventory write-downs,
partially offset by a slight increase in bad debt expense in this segment.
Income from operations of our Internet and catalog business decreased by $599,000, or 23.7%,
to $1,929,000 for the six months ended June 30, 2005, from $2,528,000 for the six months ended
June 30, 2004, largely due to higher payroll and marketing costs for the business.
Unallocated overhead costs increased by $3,100,000, or 35.6%, to $11,802,000 for the six
months ended June 30, 2005 from $8,702,000 for the six months ended June 30, 2004, resulting
primarily from the addition of a new distribution center, increased warehousing and shipping
costs on the higher sales volume and increased accounting and audit fees associated with the
Companys compliance with internal controls procedures under Section 404 of the Sarbanes-Oxley
Act of 2002.
Other (Income) Expense. Net interest income was $63,000 for the six months ended June 30,
2005, compared with a net interest expense of $2,289,000 for the six months ended June 30,
2004. The interest expense in 2004 resulted principally from the borrowings incurred to
finance our purchase of the Teva Rights in November 2002, which we subsequently paid off in
full during the second quarter of 2004. Since the Company had virtually no outstanding
borrowings in the first six months of 2005, we received interest income on our cash balances.
Other income exclusive of net interest (income) expense was not material in either period.
Income Taxes. For the six months ended June 30, 2005, income tax expense was $7,523,000,
representing an effective income tax rate of 39.3%. For the six months ended June 30, 2004,
income tax expense was $6,149,000 representing an effective income tax rate of 37.0%. 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 current
year. 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 increased 11.0% to $11,619,000 from $10,469,000 as a result of
higher net sales and lower net interest expense, partially offset by lower gross margin and
increased SG&A expenses, as discussed above. Our earnings per diluted share decreased 1.1% to
$.90 from $0.91 as a result of the increase in net income, which was more than offset by the
increase in the weighted average common shares outstanding due to the follow-on public
offering in May 2004.
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.
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 $20,000,000 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. In addition, at June 30, 2005, we
increased our UGG inventories significantly compared to the levels at June 30, 2004 in order
to better meet demand and ensure more timely deliveries to our retail partners in the Fall
and Winter season this year.
25
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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 used in operating activities was $13,686,000 for the
six months ended June 30, 2005 versus net cash provided by operating activities of $12,770,000
for the six months ended June 30, 2004. The change in net cash from operating activities for
the six months ended June 30, 2005 compared to the six months ended June 30, 2004 was largely
due to an increase in inventories and a pay down of accrued expenses, partially offset by an
improvement in cash collections during the period. Net working capital improved by
$11,871,000 to $81,725,000 as of June 30, 2005 from $69,854,000 as of December 31, 2004,
primarily as a result of earnings for the period.
Cash From Investing Activities. For the six months ended June 30, 2005, net cash provided by
investing activities was $13,123,000, which was comprised primarily of the sale of short-term
investments held by the Company at December 31, 2004. The cash generated from the sale of
these short-term investments was partially offset by cash used for capital expenditures,
primarily related to the opening of an additional distribution center, the replacement of
certain computer equipment and trade show booths, and the purchase of promotional vehicles for
the Teva marketing team. For the six months ended June 30, 2004, net cash used in investing
activities was $11,909,000, which consisted primarily of the purchase of short-term
investments as well as capital expenditures.
Cash from Financing Activities. For the six months ended June 30, 2005, net cash provided by
financing activities was $1,222,000 compared to net cash provided by financing activities of
$5,852,000 for the six months ended June 30, 2004. For the six months ended June 30, 2005,
the net cash provided by financing activities was made up entirely from cash received from the
exercise of stock options. For the six months ended June 30, 2004, we received $36,139,000,
primarily related to the net proceeds received from our follow-on public stock offering and
other issuances of common stock, which was used, in part, to pay off all remaining long-term
debt.
Our liquidity consists primarily of cash, trade accounts receivable, inventories and a
revolving credit facility. At June 30, 2005, working capital was $81,725,000 including
$11,102,000 of cash and cash equivalents. Cash used in operating activities aggregated
$13,686,000 for the six months ended June 30, 2005. Trade accounts receivable decreased by
34.8% to $26,245,000 at June 30, 2005 from $40,226,000 at December 31, 2004,
largely due to normal seasonality. Accounts receivable turnover decreased to 7.5 times in the
twelve months ended June 30, 2005 from 8.1 times in the twelve months ended December 31, 2004.
Inventories increased by 120.3% to $66,672,000 at June 30, 2005 from $30,260,000 at December
31, 2004, reflecting a $42,520,000 increase in UGG inventory, a $6,305,000 decrease in Teva
inventory and a $197,000 increase in Simple inventory. Overall, inventory turnover decreased
to 3.6 times for the twelve months ended June 30, 2005 from 5.5 times for the twelve months
ended December 31, 2004 largely due to increased inventory levels. The $42,520,000 increase
in UGG inventory at June 30, 2005 was due to seasonality, the continued growth in net sales of
the UGG brand, and our continuing efforts to better meet demand and ensure more timely
deliveries to our retail partners in the Fall and Winter season this year. In addition,
whereas last year the independent factories were delivering product late, they are currently
delivering on time and, in some cases, earlier than requested. The $6,305,000 decrease in
Teva inventory occurred largely due to seasonality since most of our Teva sales occur in the
first and second quarters. The $197,000 increase in Simple inventory at June 30, 2005,
compared to December 31, 2004, was largely due to an anticipated sales increase in the second
half of the year compared to the first half of the year.
26
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Our revolving credit facility with Comerica Bank-California provides for a maximum
availability of $20,000,000 subject to a borrowing base. In general, the borrowing base is
equal to 75% of eligible accounts receivable, as defined, and 50% of eligible inventory, as
defined. Up to $10,000,000 of borrowings may be in the form of letters of credit. The facility
bears interest at the lenders prime rate (6.0% at June 30, 2005) or, at our option, at LIBOR
(3.34% at June 30, 2005) plus 1.0% to 2.5%, depending on our ratio of liabilities to earnings
before interest, taxes, depreciation and amortization (EBITDA), and is secured by
substantially all of our assets. The facility includes annual commitment fees, which were
$60,000 for 2005. The facility expires on June 1, 2007. At June 30, 2005, we had no
outstanding borrowings under the facility, no foreign currency reserves for outstanding
forward contracts and no outstanding letters of credit, and as a result, we had credit
availability under the facility of $20,000,000 at June 30, 2005.
The agreements underlying the bank credit 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, 2005, and remain so as of the date of this report.
Capital expenditures totaled $2,352,000 for the six months ended June 30, 2005, and related
primarily to the opening of an additional distribution center, the replacement of certain
computer equipment and trade show booths, as well as the purchase of promotional vehicles for
the Teva marketing team. We currently have no material commitments for future capital
expenditures but estimate that the remaining capital expenditures for 2005 will range from
approximately $1,000,000 to $2,000,000 and may include additional costs associated with the
additional distribution center and upgrades of certain other computer equipment. The actual
amount of capital expenditures for the remainder of 2005 may differ from this estimate,
largely depending on any unforeseen needs to replace existing assets and the timing of
expenditures.
Contractual Obligations. The following table summarizes our contractual obligations at June
30, 2005, and the effects such obligations are expected to have on liquidity and cash flow in
future periods.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than |
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|
|
|
|
|
|
|
|
More than |
|
|
Total |
|
1 Year |
|
1-3 Years |
|
3-5 Years |
|
5 Years |
Operating lease obligations |
|
$ |
7,490,000 |
|
|
$ |
2,702,000 |
|
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$ |
3,189,000 |
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|
$ |
1,599,000 |
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|
We believe that internally generated funds, the available borrowings under our existing credit
facilities and cash on hand will provide sufficient liquidity to enable us to meet our current
and foreseeable working capital requirements. 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. See
Forward-Looking Statements for a discussion of additional factors that may affect our
working capital position.
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.
27
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Critical Accounting Policies
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 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
general reserve for the balance of accounts based on our historical loss experience.
Reserves have been fully established for all expected or probable losses of this nature.
The gross trade accounts receivable balance was $29,688,000 and the allowance for doubtful
accounts was $1,685,000 at June 30, 2005, compared to gross trade accounts receivable of
$45,238,000 and the allowance for doubtful accounts of $1,796,000 at December 31, 2004. The
decrease in the allowance for doubtful accounts at June 30, 2005 compared to December 31,
2004 was primarily related to the decrease in the gross trade accounts receivable during
the period. Our use of different estimates and assumptions in the calculation of our
allowance for doubtful accounts could produce different financial 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, 2005 by $189,000.
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 $677,000 at June 30, 2005 and
$1,485,000 at December 31, 2004. The decrease in the reserve for sales discounts at June
30, 2005 compared to December 31, 2004 was primarily due to the decrease in the gross trade
accounts receivable during the period. 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, 2005 by $68,000.
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,
28
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
among other factors. The
allowance for returns decreased to $1,081,000 at June 30, 2005 from $1,731,000 at December
31, 2004, primarily as a result of lower net sales in the three months ended June 30, 2005
compared to the three months ended December 31, 2004. 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, 2005 by approximately $340,000.
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, 2005, inventories were stated at $66,672,000, net of inventory
write-downs of $2,021,000. At December 31, 2004, inventories were stated at $30,260,000,
net of inventory write-downs of $1,176,000. The increase in the reserve for inventory
write-downs at June 30, 2005 compared to December 31, 2004 was primarily due to the
increase in the related inventory amounts during the period. 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, 2005 by approximately $399,000.
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:
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the assets ability to continue to generate income from operations and
positive cash flow in future periods; |
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our future plans regarding utilization of the assets; |
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any changes in legal ownership of rights to the assets; and |
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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
On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA
includes a special one-time 85 percent dividends received deduction for certain foreign
earnings that are repatriated. In December 2004, the FASB issued FASB Staff Position No. FAS
109-2 (FSP FAS 109-2), Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. FSP FAS 109-2 provides
accounting and disclosure guidance for this repatriation provision. The Company is currently
evaluating the repatriation provisions of AJCA, which if implemented by the Company would
affect the Companys tax provision and deferred tax assets and liabilities. However, given
the uncertainties and complexities of the repatriation provision and the Companys continuing
evaluation, it is not possible at this time to determine the amount that may be repatriated or
the related potential income tax effects of such repatriation.
29
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
In November 2004, the FASB issued Statement of Financial Accounting Standards, or SFAS
No. 151, Inventory Costs An Amendment of 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 is required to be
adopted in the first quarter of fiscal 2006. We do not expect the adoption of SFAS No. 151 to
have a material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment. SFAS
No. 123R supersedes APB Opinion No. 25, and requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based
on their fair values beginning with the first interim or annual period after June 15, 2005.
The pro forma disclosure permitted under SFAS No.123 will no longer be an alternative to
financial statement recognition. SFAS No. 123R requires the determination of the fair value of
the share-based compensation at the grant date and the recognition of the related expense over
the period in which the share-based compensation vests. In April 2005, the Securities and
Exchange Commission deferred the adoption date of SFAS No. 123R to the first interim period in
the first fiscal year beginning after June 15, 2005. We are, therefore, required to adopt the
provisions of SFAS No. 123R effective January 1, 2006.
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 plans to
adopt this statement on January 1, 2006 and it is not expected to have a material effect on
the financial statements upon adoption.
30
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
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 United States 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.
The majority of our footwear is produced by independent factories located in the Peoples
Republic of China (PRC). On July 21, 2005, the PRC revalued its currency and abandoned its
peg to the U.S. dollar. All transactions between ourselves and the PRC factories are
currently denominated in U.S. dollars. We are currently assessing the situation and are not
yet able to determine the effect, if any, of the July 21st revaluation or the
probability or potential impact of any future revaluations.
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, 2005, we had no outstanding borrowings under the revolving line of credit. A 1.00%
increase in interest rates on our current borrowings would have no impact on income before
income taxes.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer, Angel R. Martinez, and
Chief Financial Officer, M. Scott Ash, 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 have concluded
that, as of the end of the period covered by this report, our disclosure controls and
procedures were effective at the reasonable assurance level in making known to them in a
timely manner material information relating to us (including our consolidated subsidiaries)
required to be included in this report.
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.
There was no change in our internal control over financial reporting that occurred during the
period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
31
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.
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 20, 2005, the Company held its Annual Meeting of Stockholders. At this meeting,
Douglas B. Otto and Gene E. Burleson were each re-elected as Class III Directors until
the Annual Meeting of 2008, until such directors successor has been duly elected and
qualified or until such director has otherwise ceased to serve as a director. For
Douglas B. Otto, 10,991,542 votes were cast in favor and 409,520 votes were withheld.
For Gene E. Burleson, 11,135,602 votes were cast in favor and 265,460 were withheld.
There were no broker non-votes.
The stockholders also ratified the selection of KPMG LLP as the Companys independent
auditors. Of the common stock votes, 11,086,822 votes were cast in favor of the
ratification; 280,282 votes were against; and 33,957 abstained. There were no broker
non-votes.
Item 5. Other Information.
Not applicable
Item 6. Exhibits.
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3.1 |
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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) |
32
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
|
3.2 |
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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) |
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10.1 |
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Amendment Number Six to Amended and Restated Revolving Credit
Agreement between the Company and Comerica Bank-California dated as of June 14,
2005 |
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31.1 |
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Certification by the Chief Executive Officer, Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification by the Chief Financial Officer, Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 |
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
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 |
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Date: August 8, 2005
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/s/ M. Scott Ash |
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M. Scott Ash, Chief Financial Officer |
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(Duly Authorized Officer on Behalf of the Registrant |
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and Principal Financial and Accounting Officer) |
34