1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-22446
DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3015862
(State or other jurisdiction of incorporation or IRS Employer Identification
organization)
495-A South Fairview Avenue, Goleta, California 93117
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (805) 967-7611
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of the issuer's class of common stock,
as of the latest practicable date.
Outstanding at
CLASS August 4, 1999
Common stock, $.01 par value 9,019,612
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
Page
----
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations for the Three-Month Period
Ended June 30, 1999 and 1998 2
Condensed Consolidated Statements of Operations for the Six-Month Period Ended
June 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for the Six-Month
Period Ended June 30, 1999 and 1998 4-5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19
Part II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS JUNE 30, DECEMBER 31,
1999 1998
---- ----
Current assets:
Cash ................................................................. $ 4,819,000 263,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,656,000 and
$1,204,000 as of June 30, 1999 and December 31, 1998, ............. 27,689,000 27,180,000
respectively
Inventories, net ..................................................... 16,426,000 23,665,000
Prepaid expenses and other current assets ............................ 1,384,000 2,178,000
Refundable and deferred tax assets ................................... 1,357,000 6,023,000
---------- ----------
Total current assets ........................................ 51,675,000 59,309,000
Property and equipment, at cost, net .......................................... 2,849,000 2,994,000
Intangible assets, less applicable amortization ............................... 22,698,000 20,702,000
Note receivable from supplier, net ............................................ 922,000 782,000
Other assets, net ............................................................. 468,000 586,000
---------- ----------
$78,612,000 84,373,000
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ............................... $ 121,000 6,236,000
Trade accounts payable ............................................... 5,399,000 7,947,000
Accrued expenses ..................................................... 2,862,000 2,991,000
Income taxes payable ................................................. 223,000 --
---------- ----------
Total current liabilities ................................... 8,605,000 17,174,000
---------- ----------
Long-term debt, less current installments ..................................... 12,379,000 15,199,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued ....................................................... -- --
Common stock, $.01 par value. Authorized 20,000,000 shares; issued
9,985,064 shares and outstanding 9,012,112 shares at June 30, 1999;
issued 9,495,631 shares and outstanding
8,522,679 shares at December 31, 1998 ............................. 90,000 85,000
Additional paid-in capital ........................................... 24,523,000 22,813,000
Retained earnings .................................................... 33,639,000 29,726,000
---------- ----------
58,252,000 52,624,000
Less note receivable from stockholder/former director ................ 624,000 624,000
---------- ----------
Total stockholders' equity .................................. 57,628,000 52,000,000
---------- ----------
$78,612,000 84,373,000
=========== ==========
See accompanying notes to condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
THREE-MONTH PERIOD ENDED
JUNE 30,
------------------------
1999 1998
----------- -----------
Net sales ......................................... $31,360,000 31,142,000
Cost of sales ..................................... 17,604,000 18,220,000
---------- ----------
Gross profit .................... 13,756,000 12,922,000
Selling, general and administrative expenses ...... 10,015,000 10,058,000
---------- ----------
Earnings from operations ........ 3,741,000 2,864,000
Other expense (income):
Interest expense, net ....................... 499,000 392,000
Miscellaneous expense (income) .............. 18,000 (4,000)
---------- ----------
Earnings before income taxes .... 3,224,000 2,476,000
Income taxes ...................................... 1,556,000 1,070,000
---------- ----------
Net earnings .................... $1,668,000 1,406,000
========== =========
Net earnings per share:
Basic ....................................... $0.19 0.16
Diluted ..................................... 0.19 0.16
========== =========
Weighted average shares:
Basic ....................................... 8,723,000 8,704,000
Diluted ..................................... 9,004,000 8,727,000
========== =========
See accompanying notes to condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
----------- ----------
Net sales ....................................... $69,400,000 63,319,000
Cost of sales ................................... 38,421,000 36,860,000
---------- ----------
Gross profit .................. 30,979,000 26,459,000
Selling, general and administrative expenses .... 22,684,000 20,206,000
---------- ----------
Earnings from operations ...... 8,295,000 6,253,000
Other expense (income):
Interest expense, net ..................... 1,130,000 686,000
Miscellaneous expense (income) ............ (13,000) 3,000
---------- ----------
Earnings before income taxes .. 7,178,000 5,564,000
Income taxes .................................... 3,265,000 2,405,000
---------- ----------
Net earnings .................. $ 3,913,000 3,159,000
========== =========
Net earnings per share:
Basic ..................................... $ 0.45 0.36
Diluted ................................... 0.44 0.36
========== =========
Weighted average shares:
Basic ..................................... 8,629,000 8,756,000
Diluted ................................... 8,866,000 8,780,000
========== =========
See accompanying notes to condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
---------- ---------
Cash flows from operating activities:
Net earnings .......................................................... $ 3,913,000 3,159,000
------------ ----------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization .................................... 1,527,000 1,308,000
Provision for doubtful accounts .................................. 780,000 333,000
Loss on disposal of assets ....................................... 38,000 24,000
Stock compensation ............................................... 34,000 84,000
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable .................................. (1,289,000) (1,635,000)
Inventories ................................................ 7,239,000 2,434,000
Prepaid expenses and other current assets .................. 794,000 (641,000)
Refundable and deferred tax assets ......................... 4,666,000 (1,286,000)
Note receivable from supplier .............................. (140,000) 302,000
Other assets ............................................... 68,000 (21,000)
Increase (decrease) in:
Accounts payable ........................................... (3,549,000) 756,000
Accrued expenses ........................................... (128,000) (1,192,000)
Income taxes payable ....................................... 223,000 (22,000)
------------ ----------
Total adjustments ....................................... 10,263,000 444,000
------------ ----------
Net cash provided by operating activities ............... 14,176,000 3,603,000
------------ ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment .......................... -- 5,000
Purchase of property and equipment .................................... (758,000) (926,000)
Cash paid in connection with Ugg acquisition .......................... -- (2,000,000)
------------ ----------
Net cash used in investing activities ................... (758,000) (2,921,000)
------------ ----------
(Continued)
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
---------- ---------
Cash flows from financing activities:
Net proceeds from (repayments of) long-term debt ...................... (8,935,000) 3,947,000
Cash paid for repurchases of common stock ............................. -- (2,159,000)
Cash received from issuances of common stock .......................... 73,000 104,000
------------ ----------
Net cash provided by (used in) financing activities .......... (8,862,000) 1,892,000
------------ ----------
Net increase in cash ......................................... 4,556,000 2,574,000
Cash at beginning of period .................................................... 263,000 3,238,000
------------ ----------
Cash at end of period .......................................................... $ 4,819,000 5,812,000
============ ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .............................................................. $ 1,125,000 675,000
Income taxes .......................................................... 1,073,000 3,729,000
============ ==========
Supplemental disclosure of noncash investing and financing activities:
In connection with the Teva License Agreement, dated June 7, 1999, the
Company recorded an increase in intangible assets of $2,608,000 for the
value of the Teva license paid for with indebtedness of $1,000,000 and
issuance of 428,743 shares of common stock valued at approximately
$1,608,000
See accompanying notes to condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) General
The unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations
for interim periods are not necessarily indicative of results to be
achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under
Rule 10-01 of Regulation S-X, the accompanying condensed consolidated
financial statements and related footnotes have been condensed and do not
contain certain information that will be included in the Company's annual
consolidated financial statements and footnotes thereto. For further
information, refer to the consolidated financial statements and related
footnotes for the year ended December 31, 1998 included in the Company's
Annual Report on Form 10-K.
(2) Earnings per Share
Basic earnings per share represents net earnings divided by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted
average number of shares outstanding, inclusive of the dilutive impact of
common stock equivalents. During the three and six-month periods ended
June 30, 1999 and 1998, the difference between the weighted average
number of shares used in the basic computation compared to that used in
the diluted computation was due to the dilutive impact of options to
purchase common stock.
The reconciliations of basic to diluted weighted average shares are as
follows:
THREE-MONTH PERIOD ENDED
JUNE 30,
------------------------
1999 1998
---------- ----------
Net earnings ............................................ $1,668,000 1,406,000
========= =========
Weighted average shares used in basic computation ....... 8,723,000 8,704,000
Dilutive stock options .................................. 281,000 23,000
---------- ---------
Weighted average shares used for diluted computation 9,004,000 8,727,000
========= =========
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) Earnings per Share (Continued)
Options to purchase 317,000 shares of common stock at prices ranging
from $5.50 to $13.75 were outstanding during the three-month period
ended June 30, 1999 and options to purchase 582,000 shares of common
stock at prices ranging from $7.50 to $15.00 were outstanding during
the three-month period ended June 30, 1998, but were not included in
the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the
common shares during the period and, therefore, the options were
anti-dilutive.
SIX-MONTH PERIOD ENDED
JUNE 30,
-----------------------
1999 1998
--------- ---------
Net earnings ......................................................... $3,913,000 3,159,000
========== =========
Weighted average shares used in basic computation .................... 8,629,000 8,756,000
Dilutive stock options ............................................... 237,000 24,000
---------- ---------
Weighted average shares used for diluted computation
8,866,000 8,780,000
========== =========
Options to purchase 322,000 shares of common stock at prices ranging
from $3.03 to $13.75 were outstanding during the six-month period ended
June 30, 1999 and options to purchase 582,000 shares of common stock at
prices ranging from $7.50 to $15.00 were outstanding during the
six-month period ended June 30, 1998, but were not included in the
computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares
during the period and, therefore, the options were anti-dilutive.
(3) Inventories
Inventories are summarized as follows:
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
Finished goods .. $15,906,000 22,396,000
Work in process . 24,000 35,000
Raw materials ... 496,000 1,234,000
----------- -----------
Total inventories $16,426,000 23,665,000
=========== ==========
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) Income Taxes
Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is
subject to ongoing review and evaluation by management. For the three
months ended June 30, 1999, the Company had income tax expense of
$1,556,000, representing an effective income tax rate of 48.3%. For the
three months ended June 30, 1998, the Company had income tax expense of
$1,070,000, representing an effective income tax rate of 43.2%. For the
six months ended June 30, 1999, the Company had income tax expense of
$3,265,000, representing an effective income tax rate of 45.5%. For the
six months ended June 30, 1998, the Company had income tax expense of
$2,405,000, representing an effective income tax rate of 43.2%.
(5) Computer Software Costs
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use." The adoption of SOP 98-1 requires the Company to modify its
method of accounting for software. The Company adopted SOP 98-1
effective January 1, 1999. The adoption of SOP 98-1 did not have a
significant impact on the Company's financial position or results of
operations.
(6) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" on January 1, 1998. SFAS No.
130 establishes standards to measure all changes in equity that result
from transactions and other economic events other than transactions
with owners. Comprehensive income is the total of net earnings and all
other non-owner changes in equity. Except for net earnings and foreign
currency translation adjustments, the Company does not have any
transactions and other economic events that qualify as comprehensive
income as defined under SFAS No. 130. As foreign currency translation
adjustments were immaterial to the Company's consolidated financial
statements, net earnings approximated comprehensive income for each of
the three and six-month periods ended June 30, 1999 and 1998.
(7) Start-Up Activities
The AICPA Accounting Standards Executive Committee issued Statement of
Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that costs of start-up activities,
including organization costs and retail store openings, be expensed as
incurred. The Company adopted SOP 98-5 on January 1, 1999. The adoption
of this statement did not have a material impact on the Company's
financial position or results of operations.
(8) Recently Issued Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 modifies the accounting for derivative and hedging activities
and is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Since the Company does not presently invest in
derivatives or engage in hedging activities, SFAS No. 133 is not
expected to impact the Company's financial position or results of
operations.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(9) Business Segments
The Company's accounting policies of the segments and the basis for
segmentation are the same as those at December 31, 1998. The Company
evaluates performance based on net revenues and profit or loss from
operations. The Company's reportable segments are strategic business
units that offer geographic brand images. They are managed separately
because each business unit requires different marketing, research and
development, design, sourcing and sales strategies.
The Teva-domestic operating segment includes shared costs of the
consolidated group, including domestic payroll costs, facilities costs,
warehouse costs and other administrative costs. The Company has
allocated costs to the Simple-domestic, Ugg-domestic and other segments
based on a percentage of revenues for each of these segments. Because
each segment's sales volume and the resulting allocation of shared
costs continually change, the allocations to individual segments may or
may not be reflective of the actual costs directly attributable to each
segment.
In addition, virtually all shared assets, capital expenditures and the
related depreciation of these assets are generally included in the
Teva-domestic segment. As a result, this segment has a
disproportionately high amount of these items, while the other segments
have a disproportionately low amount.
Business segment information for the six months ended June 30, 1999 and
1998 is summarized as follows:
1999 1998
------------ -------------
Sales to external customers:
Teva, domestic ........................... $ 45,080,000 40,242,000
Simple, domestic ......................... 5,471,000 7,379,000
Ugg, domestic ............................ 424,000 239,000
Other .................................... 18,425,000 15,459,000
------------ ------------
$ 69,400,000 63,319,000
============ ============
Intersegment sales:
Teva, domestic ........................... $ 677,000 1,009,000
Simple, domestic ......................... -- 146,000
Other .................................... 123,000 4,198,000
------------ ------------
$ 800,000 5,353,000
============ ============
Earnings (loss) from operations:
Teva, domestic ........................... $ 5,221,000 4,977,000
Simple, domestic ......................... 988,000 47,000
Ugg, domestic ............................ (1,352,000) (1,306,000)
Other .................................... 3,335,000 2,454,000
------------ ------------
$ 8,192,000 6,172,000
============ ============
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(9) Business Segments (Continued)
1999 1998
------------ -------------
Total assets:
Teva, domestic ... $ 64,979,000 56,161,000
Simple, domestic.. 8,469,000 12,456,000
Ugg, domestic .... 20,913,000 18,548,000
Other ............ 10,869,000 14,653,000
------------ -------------
$105,230,000 101,818,000
============ ============
The reconciliation of segment earnings from operations to consolidated
earnings before income taxes is as follows:
1999 1998
----------- -----------
Total earnings from operations
for reportable segments ......... $ 8,192,000 6,172,000
Intersegment profit change in
beginning and ending inventory... 103,000 81,000
----------- -----------
Consolidated earnings from
operations ...................... 8,295,000 6,253,000
Interest expense, net ............... 1,130,000 686,000
Other expense (income) .............. (13,000) 3,000
----------- -----------
Consolidated earnings before
income taxes .................... $ 7,178,000 5,564,000
=========== ===========
(10) Contingencies
A judgment aggregating $1,785,000 was entered against the Company in
May 1999 in an action brought against the Company in 1995 in the United
States District Court, District of Montana (Missoula Division). The
judgment was for breach of a non-disclosure contract, among other
things. The Company is appealing the judgment and continues to believe
such claims are without merit. The plaintiffs have filed a motion to
increase their damage award, which the Company has opposed. The Company
intends to continue contesting this claim vigorously. The Company,
based on advice from legal counsel, does not anticipate that the
ultimate outcome will have a material adverse effect upon its financial
condition, results of operations or cash flows.
10
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(10) Contingencies (Continued)
The European Commission has enacted anti-dumping duties of 49.2% on
certain types of footwear imported into Europe from China and
Indonesia. Dutch Customs has issued an opinion to the Company that
certain popular Teva styles are covered by this anti-dumping duty
legislation. The Company does not believe that these styles are covered
by the legislation and is working with Customs to resolve the
situation. In the event that Customs makes a final determination that
such styles are covered by the anti-dumping provisions, the Company
expects that it would have an exposure to prior anti-dumping duties
from 1997 of up to approximately $500,000. In addition, if Customs
determines that these styles are covered by the legislation, the duty
amounts could cause such products to be too costly to import into
Europe from China in the future. As a result, the Company may have to
cease shipping such styles from China into Europe in the future or may
have to begin to source these styles from countries not covered by the
legislation. As a precautionary measure, the Company has obtained
alternative sourcing for the potentially impacted products from sources
outside of China in an effort to reduce the potential risk in the
future. The Company is unable to predict the outcome of this matter and
the effect, if any, on the Company's results of operations, financial
condition and cash flows.
(11) License Agreement
On June 7, 1999, the Company signed a new license agreement (the
"License Agreement") for Teva, which becomes effective January 1, 2000.
Under the License Agreement, the Company receives the exclusive
worldwide rights for the manufacture and distribution of Teva footwear
through 2004. The License Agreement is automatically renewed through
2008 and through 2011 under two renewal options, provided that minimum
required sales levels are achieved. As with the previous arrangement,
the new license agreement provides for a sliding scale of royalty
rates, depending on sales levels. Additionally, the Company has agreed
to increase the contractual marketing expenditure, depending on sales
levels and varying by territory, effective June 7, 1999. As additional
consideration, the Company has agreed to pay the licensor a licensing
fee of $1,000,000 and has issued the licensor 428,743 shares of its
previously unissued common stock at $3.75 per share, the market value
on the date of the License Agreement. These shares are subject to
various contractual and other holding period requirements. In addition,
the Company has agreed to grant the licensor not less than 50,000 stock
options on the Company's common stock annually, at the fair market
value on the date of grant.
The Company also received an option to buy Teva and all of its assets,
including all worldwide rights to all Teva products. The option price
is based on formulas tied to net sales and varies depending on when the
option is exercised. The Company's option is exercisable during the
period from January 1, 2000 to December 31, 2001 or during the period
from January 1, 2006 to December 31, 2008. If the Company does not
exercise its option to acquire Teva, the licensor has the option to
acquire the Teva distribution rights from the Company for the remainder
of the license term. The licensor's option is exercisable during the
period from January 1, 2010 to December 31, 2011 and the option price
is based on a formula tied to the Company's earnings before interest,
taxes, depreciation and amortization.
Apparel and other non-footwear products are not covered by the License
Agreement. However, the Company intends to continue to deliver its
Spring 2000 Teva apparel line under the previous apparel license
agreement. Following the Spring 2000 season, the Company intends to
transition out of Teva apparel and is working with the licensor in this
regard.
11
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto, as well
as our Annual Report on Form 10-K for the year ended December 31, 1998.
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934 that involve risk and uncertainty, such as forward-looking
statements relating to sales and operating expense expectations, the
potential imposition of certain customs duties, the potential impact of
certain litigation, the potential impact of the Year 2000 on the
Company and the impact of seasonality on the Company's operations.
Actual results may vary. Some of the factors that could cause actual
results to differ materially from those in the forward looking
statements are identified in the accompanying "Outlook" section of this
Quarterly Report on Form 10-Q.
Three-months Ended June 30, 1999 Compared to Three-months Ended
June 30, 1998
For the three months ended June 30, 1999, net sales increased by
$218,000, or 0.7%, from the comparable three months ended June 30,
1998. Aggregate net sales of Teva increased to $26,756,000 for the
three months ended June 30, 1999 from $25,706,000 for the three months
ended June 30, 1998, a 4.1% increase. This increase was a result of
overall strength in the sandal market and increased demand for Teva
products. Aggregate net sales of Teva represented 85.3% and 82.5% of
net sales in the three months ended June 30, 1999 and 1998,
respectively. Aggregate net sales of footwear under the Simple product
line decreased 18.7% to $3,640,000 from $4,479,000 from the comparable
three months ended June 30, 1998. The decrease in Simple sales occurred
due to a decline in demand for the Simple products caused by a variety
of factors including competition, an abundance of similar products at
retail and a general decrease in the popularity of the products. Due to
the highly seasonal nature of Ugg's business, sales of Ugg are
insignificant in the second quarter of the year. Overall, international
sales for all of the Company's products increased 12.6% to $8,035,000
from $7,133,000, representing 25.6% of net sales in 1999 and 22.9% in
1998. The volume of footwear sold increased 6.9% to 1,250,000 pairs
during the three months ended June 30, 1999 from 1,169,000 pairs during
the three months ended June 30, 1998, for the reasons discussed above.
The weighted average wholesale price per pair sold during the three
months ended June 30, 1999 decreased 6.9% to $23.95 from $25.72 for the
three months ended June 30, 1998. The decrease was primarily due to a
reduction in European selling prices for several styles, a slight shift
in sales mix toward several lower priced styles and the reduction of
the standard wholesale price of a leading women's style in 1999 versus
1998.
Cost of sales decreased by $616,000, or 3.4%, to $17,604,000 for the
three months ended June 30, 1999, compared with $18,220,000 for the
three months ended June 30, 1998. Gross profit increased by $834,000,
or 6.5%, to $13,756,000 for the three months ended June 30, 1999 from
$12,922,000 for the three months ended June 30, 1998 and increased as a
percentage of net sales to 43.9% from 41.5%. The increase in gross
margin during the quarter was due to several factors including improved
product sourcing, a reduction in airfreight costs, a reduction in
materials write-downs and the exiting of the components business which
typically carried a lower gross margin.
Selling, general and administrative expenses decreased slightly by
$43,000, or 0.4%, for the three months ended June 30, 1999, compared
with the three months ended June 30, 1998, and decreased as a
percentage of net sales to 31.9% in 1999 from 32.3% in 1998. The
decrease in selling, general and administrative expenses as a
percentage of net sales was primarily due to decreased marketing costs
during the quarter, as certain marketing costs were incurred earlier in
the year in 1999 than in 1998. As a result, while the year-to-date
marketing costs increased versus the same period in 1998, the marketing
costs incurred in the second quarter of 1999 were lower than those
incurred in the second quarter of 1998. In addition, the
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Company experienced a reduction in payroll costs, partially offset by
increases in bad debt expense, legal fees and warehouse costs. Also,
selling, general and administrative costs as a percentage of sales
decreased as certain selling, general and administrative expenses are
fixed and did not fluctuate in proportion to the sales increase during
the quarter.
Net interest expense was $499,000 for the three months ended June 30,
1999 compared with $392,000 for the three months ended June 30, 1998,
primarily due to increased borrowings on the Company's credit facility
in the current year.
For the three months ended June 30, 1999, the Company recorded income
tax expense of $1,556,000, representing an effective income tax rate of
48.3%. For the three months ended June 30, 1998, the Company recorded
income tax expense of $1,070,000, representing an effective income tax
rate of 43.2%. Income taxes for interim periods are computed using the
effective tax rate estimated to be applicable for the full fiscal year,
which is subject to ongoing review and evaluation by the Company.
During the three-month period ended June 30, 1999, the Company
estimated that certain non-deductible expenses, including goodwill
amortization associated with the acquisitions of Simple Shoes, Inc. and
Ugg Holdings, Inc., would be a greater proportion of earnings before
income taxes for 1999 than the estimates for such items made in the
three-month period ended June 30, 1998, which was the principal cause
for the increase in the tax rate.
Net earnings increased 18.6% to $1,668,000 for the three months ended
June 30, 1999 versus net earnings of $1,406,000 for the three months
ended June 30, 1998, for the reasons discussed above.
Six Months Ended June 30, 1999 Compared to Six Months Ended
June 30, 1998
For the six months ended June 30, 1999, net sales increased by
$6,081,000, or 9.6%, from the comparable six months ended June 30,
1998. Aggregate net sales of Teva increased to $59,700,000 for the six
months ended June 30, 1999 from $48,927,000 for the six months ended
June 30, 1998, a 22.0% increase. This increase was a result of overall
strength in the sandal market and increased demand for the Teva
products. Aggregate net sales of Teva represented 86.0% and 77.3% of
net sales in the six months ended June 30, 1999 and 1998, respectively.
Aggregate net sales of footwear under the Simple product line decreased
31.6% to $7,582,000 from $11,091,000 from the comparable six months
ended June 30, 1998. The decrease in Simple sales occurred due to a
decline in demand for the Simple products caused by a variety of
factors including competition, an abundance of similar products at
retail, and a general decrease in the popularity of the products.
Aggregate net sales of Ugg footwear were $424,000 for the six months
ended June 30, 1999 and $239,000 for the six months ended June 30,
1998. Due to the highly seasonal nature of Ugg's business, the first
half of the year is generally a low volume period for Ugg sales.
Overall, international sales for all of the Company's products
increased 18.9% to $18,624,000 from $15,665,000, representing 26.8% of
net sales in 1999 and 24.7% in 1998. The volume of footwear sold
increased 12.5% to 2,653,000 pairs during the six months ended June 30,
1999 from 2,358,000 pairs during the six months ended June 30, 1998,
for the reasons discussed above.
The weighted average wholesale price per pair sold during the six
months ended June 30, 1999 decreased 2.0% to $25.05 from $25.57 for the
six months ended June 30, 1998. The decrease was primarily due to a
reduction in European selling prices for several styles, a slight shift
in sales mix toward several lower priced styles and the reduction of
the standard wholesale price of a leading women's style in 1999 versus
1998.
Cost of sales increased by $1,561,000, or 4.2%, to $38,421,000 for the
six months ended June 30, 1999, compared with $36,860,000 for the six
months ended June 30, 1998. Gross profit increased by $4,520,000, or
17.1%, to $30,979,000 for the six months ended June 30, 1999 from
$26,459,000 for the six months ended June 30, 1998 and increased as a
percentage of net sales to 44.6% from 41.8%. The increase in gross
margin was due to several factors, including improved product sourcing,
the exiting of the components
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business which typically carried a lower gross margin and a reduction
in the impact of closeouts versus the same period last year. In
addition, the Company experienced a reduction in airfreight costs and
materials write-downs versus the same period last year.
Selling, general and administrative expenses increased by $2,478,000,
or 12.3%, for the six months ended June 30, 1999, compared with the six
months ended June 30, 1998, and increased as a percentage of net sales
to 32.7% in 1999 from 31.9% in 1998. The increase in selling, general
and administrative expenses as a percentage of net sales was primarily
due to nearly $1,000,000 of special charges incurred during the six
months ended June 30, 1999. These costs include legal and other
expenses associated with a lawsuit brought against the Company in 1995
in Montana, as well as severance costs in connection with a corporate
restructuring. See discussion under "Legal Proceedings." In addition,
the Company experienced increased bad debt expenses, warehouse costs,
marketing costs and apparel-related expenses, partially offset by a
reduction in payroll costs which resulted from the Company's
restructuring.
Net interest expense was $1,130,000 for the six months ended June 30,
1999 compared with $686,000 for the six months ended June 30, 1998,
primarily due to increased borrowings on the Company's credit facility
in the current year.
For the six months ended June 30, 1999, the Company recorded income tax
expense of $3,265,000, representing an effective income tax rate of
45.5%. For the six months ended June 30, 1998, the Company recorded
income tax expense of $2,405,000, representing an effective income tax
rate of 43.2%. Income taxes for interim periods are computed using the
effective tax rate estimated to be applicable for the full fiscal year,
which is subject to ongoing review and evaluation by the Company.
During the six-month period ended June 30, 1999, the Company estimated
that certain non-deductible expenses, including goodwill amortization
associated with the acquisitions of Simple Shoes, Inc. and Ugg
Holdings, Inc., would be a greater proportion of earnings before income
taxes for 1999 than the estimates for such items made in the six-month
period ended June 30, 1998, which was the principal cause for the
increase in the tax rate.
Net earnings increased 23.9% to $3,913,000 for the six months ended
June 30, 1999 versus net earnings of $3,159,000 for the six months
ended June 30, 1998, for the reasons discussed above.
Outlook
This "Outlook" section, the last paragraph under "Liquidity and Capital
Resources," the discussion under "Seasonality" and other statements in
this Form 10-Q contain a number of forward-looking statements including
forward-looking statements relating to sales and operating expense
expectations, the potential imposition of certain customs duties, the
potential impact of certain litigation, the potential impact of the
Year 2000 on the Company and the impact of seasonality on the Company's
operations. All of the forward-looking statements are based on current
expectations. Actual results may differ materially for a variety of
reasons, including the reasons discussed below.
Sales and Operating Expense Expectations. For the year ending December
31, 1999, the Company expects that net sales for Teva will be greater
than net sales for the previous year, but the Company expects that
increase to be significantly less than that experienced for the
six-month period ended June 30, 1999. The Company expects net sales
under the Ugg product line to increase for the year ending December 31,
1999 compared to last year and expects net sales of the Simple product
line to decrease in 1999 compared to 1998.
Selling, general and administrative expenses for the year ended
December 31, 1998 were 38.5% of net sales. The Company expects selling,
general and administrative expenses, excluding the special charges for
$1,000,000 incurred in the first quarter of 1999, to decrease as a
percentage of sales for the year ended
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December 31, 1999 compared to 1998 as a result of the Company's
restructuring as well as continued efforts to control operating
expenses.
The foregoing forward-looking statements represent the Company's
current analysis of trends and information. Actual results could vary
as a result of numerous factors. For example, the Company's results are
directly dependent on consumer preferences, which are difficult to
assess and can shift rapidly. Any shift in consumer preferences away
from one or more of the Company's product lines could result in lower
sales as well as obsolete inventory and the necessity of selling
products at significantly reduced selling prices, all of which would
adversely affect the Company's results of operations, financial
condition and cash flows. The Company is also dependent on its
customers continuing to carry and promote its various lines. The
Company's sales can be adversely impacted by the ability of the
Company's suppliers to manufacture and deliver products in time for the
Company to meet its customers' orders. In addition, sales of each of
the Company's different lines have historically been higher in
different seasons with the highest percentage of Teva sales occurring
in the first and second quarter of each year and the highest percentage
of Ugg sales occurring in the fourth quarter, while the quarter with
the highest percentage of annual sales for Simple has varied from year
to year. Consequently, the results during these specified periods are
highly dependent on results for these product lines.
In addition, the Company's results of operations, financial condition
and cash flows are subject to risks and uncertainties with respect to
the following: overall economic and market conditions; competition;
demographic changes; the loss of significant customers or suppliers;
the performance and reliability of the Company's products; customer
service; the Company's ability to secure and maintain intellectual
property rights; the Company's ability to collect its accounts
receivables; the Company's ability to secure and maintain adequate
financing; the Company's ability to forecast and subsequently achieve
those forecasts; the Company's ability to attract and retain key
employees; and the general risks associated with doing international
business including foreign exchange risks, duties, quotas and political
instability.
Sales of the Company's products, particularly those under the Teva and
Ugg lines, are very sensitive to weather conditions. Extended periods
of unusually cold weather during the spring and summer could adversely
impact demand for the Company's Teva line. Likewise, unseasonably warm
weather during the fall and winter months could adversely impact demand
for the Company's Ugg product line.
Potential Imposition of Duties. The European Commission has enacted
anti-dumping duties of 49.2% on certain types of footwear imported into
Europe from China and Indonesia. Dutch Customs has issued an opinion to
the Company that certain popular Teva styles are covered by this
anti-dumping legislation. The Company does not believe that these
styles are covered by the legislation and is working with Dutch Customs
to resolve the situation. In the event that Dutch Customs makes a final
determination that such styles are covered by the anti-dumping
provisions, the Company expects that it would have an exposure to prior
anti-dumping duties for 1997 of up to approximately $500,000. In
addition, if Dutch Customs determines that these styles are covered by
the legislation, the duty amounts could cause such products to be too
costly to import into Europe from China in the future. As a result, the
Company could have to cease shipping such styles from China into Europe
in the future or could have to begin to source these styles from
countries not covered by the legislation. As a precautionary measure,
the Company has obtained alternative sourcing for the potentially
impacted products from sources outside of China in an effort to reduce
the potential risk in the future. The Company is unable to predict the
outcome of this matter and the effect, if any, on the Company's results
of operations, financial condition and cash flows.
Year 2000 Issue. The Year 2000 issue results primarily from computer
hardware or software programs written using two digits to identify the
year. These computer programs and hardware were designed and developed
without consideration of the impact of the upcoming change in the
century. As a result, such systems may not be able to properly
distinguish between years that begin with a "20" and years that begin
with a "19". If not corrected, such hardware and software programs
could create erroneous information by
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DECKERS OUTDOOR CORPORATION
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or at the year 2000. Two other related issues could also lead to
incorrect calculations or failures: i) some systems' programming
assigns special meaning to certain dates, such as 9/9/99, and ii) the
fact that the year 2000 is a leap year. Any of these failures could
cause the Company, or its customers or suppliers, to become unable to
process normal business transactions accurately or at all.
State of Readiness. The Company's Year 2000 compliance strategy
includes several overlapping phases, which the Company has defined as
follows:
Identification - This phase involves the identification of the hardware
and software systems used by the Company which could be adversely
impacted by the Year 2000 issue. It includes identification of
information technology ("IT") systems and non-IT systems (including
telecommunications systems and systems associated with facilities -
such as utilities and security, among others), as well as
identification of the impact that Year 2000 issues may have on the
Company's supply chain and key third party relationships (including
customers, suppliers, transport systems and financing sources, among
others).
Analysis - This phase involves the determination of the likelihood,
impact and magnitude of potential Year 2000 non-compliance for each of
the items in the areas previously identified in the Identification
phase.
Conversion - This phase involves the development and execution of a
plan to bring the previously identified items into Year 2000
compliance.
Testing - This phase involves the testing of the various systems to
ascertain that the conversion procedures were successful at bringing
the systems into compliance.
Implementation - This phase involves putting the various Year 2000
compliant systems into use in the Company's operations.
The Company is continuing to assess the readiness of its various
systems for handling the Year 2000 issue. The Company determined that
the version of the software that operated the Company's enterprise
business systems prior to 1999 was not Year 2000 compliant. These
enterprise business systems include the Company's systems for order
entry and processing, allocations, inventory, accounts receivable,
accounts payable and financial reporting. In late 1998, the Company
received the current version of the underlying software, which the
software vendor has stated is Year 2000 compliant. The Company has
completed the Implementation phase of its Year 2000 strategy with
respect to its enterprise business systems. While the Company has
performed successful testing and implementation of this enterprise
business system, the Company expects to continue to perform additional
testing, including integration testing between its IT systems, through
September 30, 1999.
With respect to the various components of the Company's remaining IT
systems, including desktops, networks and several departmental hardware
and software systems, and its non-IT systems, the Company is in varying
stages of the Conversion and Testing phases. The Company currently
expects completion of the Conversion, Testing and Implementation phases
for the majority of the Company's remaining IT systems and non-IT
systems by September 30, 1999. The Company's plan for addressing the
readiness of its key external business partners includes requesting
information from these partners regarding their own readiness to
address their Year 2000 issues, and an assessment of the potential
impact that any non-compliance might have on the Company's operations.
The Company has requested compliance information from key business
partners and has begun to receive responses. The Company may continue
to add additional business partners to its Year 2000 program as the
Company's Year 2000 readiness plan progresses. The various phases for
this segment are expected to continue throughout 1999.
Estimated Costs. The Company currently estimates that total costs
related to all phases of the Year 2000 strategy with respect to its
enterprise business systems will aggregate $350,000. This estimate is
for outside goods and service providers only. The estimate does not
include the time and costs associated with its in-
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house employees, the amount of which is not currently determinable. In
addition, the estimated costs to bring the remaining IT and non-IT
systems into compliance and to address and remedy any non-compliance
issues at its key business partners are not yet determinable, but will
likely exceed $200,000. These costs are expected to be funded through
operating cash flows and the Company's bank facility. The Company does
not currently anticipate using any independent verification or
validation processes. The Company anticipates that the Year 2000
compliance efforts will ultimately result in the deferral of other IT
projects. However, the deferral of such projects is not expected to
have a material adverse impact on the Company's results of operations,
financial condition or cash flows. The estimated Year 2000 compliance
costs are based on the Company's current assessment of its Year 2000
situation and could change significantly as the Year 2000 compliance
strategy progresses. As of June 30, 1999, the Company had incurred Year
2000 compliance costs of approximately $225,000.
Risks and Contingency Plan. Although the Company is not aware of any
material operational issues associated with preparing its internal
systems for the year 2000, there can be no assurance that there will
not be a delay in, or increased costs associated with, the
implementation of the necessary systems and changes to address the Year
2000 issues, and the Company's inability to implement such systems and
changes in a timely manner could have a material adverse effect on
future results of operations, financial condition and cash flows.
The potential inability of the Company's business partners to address
their own Year 2000 issues sufficiently and timely remains a risk which
is difficult to assess. Among other things, the Company is currently
highly dependent on the combination of approximately 12 key suppliers,
primarily located in the Far East, for the production of its footwear
products. In addition, the Company is dependent on various parties
which are involved in the transportation and delivery of the Company's
products to its worldwide distribution centers. The failure of one or
more of these suppliers or other parties to adequately address their
own Year 2000 issues could cause them to be unable to manufacture or
deliver product to the Company on a timely basis, materially adversely
impacting the Company's results of operations, financial condition and
cash flows. In addition, the inability of one or more of the Company's
significant customers to become compliant could adversely impact the
customers' operations, thus impacting the Company's sales and
subsequent collections with respect to those customers.
The Company's Year 2000 compliance efforts are subject to many
additional risks including the following, among others: the Company's
failure to adequately identify and analyze issues, convert to compliant
systems, fully test converted systems, and implement compliant systems;
unanticipated issues or delays in any of the phases of the Company's
strategy; the inability of customers, suppliers and other business
partners to become compliant; and the breakdown of local and global
infrastructures resulting from the non-compliance of utilities, banking
systems, transportation, government and communications systems.
As the Company has not yet completed various phases of its internal
readiness and has not yet determined the readiness of its key business
partners, the Company cannot yet fully and accurately identify and
quantify the most reasonably likely worst case Year 2000 scenario at
this time. However, the Company is currently assessing scenarios and
will take steps to mitigate the impact of these scenarios if they were
to occur. This contingency planning has been completed for certain
areas while the contingency plans for most areas are still in process.
The Company expects to more fully address such contingencies by the end
of the third quarter of 1999.
The Company's above assessment of the risks associated with Year 2000
issues is forward-looking. Actual results may vary for a variety of
reasons including those described above.
Liquidity and Capital Resources
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The Company's liquidity consists of cash, trade accounts receivable,
inventories and a revolving credit facility. At June 30, 1999, working
capital was $43,070,000, including $4,819,000 of cash. Cash provided by
operating activities aggregated $14,176,000 for the six months ended
June 30, 1999. Trade accounts receivable increased 1.9% from December
31, 1998 as a result of normal seasonality, the high volume of net
sales during the quarter and an increase in the average collection
periods. Inventories decreased 30.6% since December 31, 1998 primarily
as a result of normal seasonality.
On January 21, 1999, the Company replaced the existing credit facility
with a new revolving credit facility (the "Facility") with a new
lender. The Facility provides a maximum availability of $50,000,000,
subject to a borrowing base of up to 85% of eligible accounts
receivables, as defined, and 65% of eligible inventory, as defined. Up
to $15,000,000 of borrowings may be in the form of letters of credit.
The Facility bears interest at the lender's prime rate (7.75% at June
30, 1999), or at the Company's election at an adjusted Eurodollar rate
plus 2%. The Facility is secured by substantially all assets of the
Company. The agreement underlying the Facility includes a tangible net
worth covenant. The Company was in compliance with the covenant at June
30, 1999. As a result of the Company's signing of the new Teva license
agreement the expiration of the Facility has been extended through
January 21, 2002. On June 30, 1999, the Company had outstanding
borrowings under the Facility of $11,874,000, outstanding letters of
credit aggregating $4,535,000 and borrowing availability of $3,812,000.
Under the terms of the Facility, if the Company terminates the
arrangement prior to the expiration date of the Facility, the Company
may be required to pay the lender an early termination fee ranging
between 1% and 3% of the Facility's commitment amount, depending upon
when such termination occurs.
The Company has an agreement with a supplier, Prosperous Dragon, to
provide financing for the supplier's operations, of which $2,422,000
was outstanding at June 30, 1999 ($922,000 net of allowance). The note
is secured by all assets of the supplier and bears interest at the
prime rate (7.75% at June 30, 1999) plus 1%.
Capital expenditures totaled $758,000 for the six months ended June 30,
1999. The Company's capital expenditures related primarily to molds
purchased for use in the production process as well as various computer
hardware and software purchases. The Company currently has no material
future commitments for capital expenditures.
The Company's Board of Directors has authorized the repurchase of up to
2,200,000 shares of common stock under a stock repurchase program. Such
repurchases are authorized to be made from time to time in open market
or in privately negotiated transactions, subject to price and market
conditions as well as the Company's cash availability. Under this
program, the Company repurchased 300,000 shares in 1996 for cash
consideration of $2,390,000, 330,000 shares in 1997 for cash
consideration of $2,581,000 and 343,000 shares in 1998 for cash
consideration of $2,528,000. No shares were repurchased during the
six-month period ended June 30, 1999. At June 30, 1999, approximately
1,227,000 shares remained available for repurchase under the program.
On June 7, 1999, the Company signed a new license agreement for Teva.
Under the new license agreement, the Company receives the exclusive
worldwide rights for the manufacture and distribution of Teva Footwear
through 2004. The license agreement is automatically renewed through
2008 and through 2011 under two renewal options, provided that minimum
annual sales levels are achieved. Apparel and other non-footwear
products are not covered by the new license agreement. However, the
Company intends to continue to deliver its Spring 2000 Teva apparel
line under the previous apparel license agreement. Following the Spring
2000 season, the Company intends to transition out of Teva apparel and
is working with the licensor in this regard. In connection with this
license agreement, the Company has agreed to pay the licensor a
licensing fee of $1,000,000 and issue the licensor 428,743 shares of
previously unissued common stock, subject to various contractual and
other holding period requirements. In addition, the Company entered
into an agreement with the licensor which provides the Company with an
option to buy Teva, including all worldwide rights. The option is
exercisable during the period from January 1, 2000 to December 31, 2001
or during the period from January 1, 2006 to December 31, 2008. The
option prices are based on a formula tied to sales of Teva products.
The exercise of either option will require a significant amount of
additional financing. There are no assurances that the additional
financing will be available.
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The Company believes that internally generated funds, the available
borrowings under its existing credit facility, and the cash on hand
will provide sufficient liquidity to enable it to meet its current and
foreseeable working capital requirements. However, risks and
uncertainties which could impact the Company's ability to maintain its
cash position include the Company's growth rate, its ability to collect
its receivables in a timely manner, the Company's ability to
effectively manage its inventory, and the volume of letters of credit
used to purchase product, among others.
Seasonality
Financial results for the outdoor and footwear industries are generally
seasonal. Sales of each of the Company's different product lines have
historically been higher in different seasons with the highest
percentage of Teva sales occurring in the first and second quarter of
each year and the highest percentage of Ugg sales occurring in the
fourth quarter, while the quarter with the highest percentage of annual
sales for Simple has varied from year to year.
Based on the Company's historical experience, the Company would expect
greater sales in the first and second quarters than in the third and
fourth quarters. The actual results could differ materially depending
upon consumer preferences, availability of product, competition, and
the Company's customers continuing to carry and promote its various
product lines, among other risks and uncertainties. See also the
discussion regarding forward-looking statements under "Outlook".
Other
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net sales or
profitability.
Recently Issued Pronouncements
For recently issued pronouncements, see Note 8 to the Condensed
Consolidated Financial Statements.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A judgment aggregating $1,785,000 was entered against the Company in
May 1999 in an action brought against the Company in 1995 in the United
States District Court, District of Montana (Missoula Division). The
judgment was for breach of a non-disclosure contract, among other
things. The Company is appealing the judgment and continues to believe
such claims are without merit. The plaintiffs have filed a motion to
increase their damage award, which the Company has opposed. The Company
intends to continue contesting this claim vigorously. The Company,
based on advice from legal counsel, does not anticipate that the
ultimate outcome will have a material adverse effect upon its financial
condition, results of operations or cash flows.
Item 2. Changes in Securities. Not applicable
Item 3. Defaults upon Senior Securities. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On May 17, 1999, the Company held its Annual Meeting of Stockholders.
At the meeting, Douglas B. Otto and Gene E. Burleson were each
re-elected as Class III directors until the Annual Meeting of
Stockholders to be held in 2002, until such director's successor has
been duly elected and qualified or until such director has otherwise
ceased to serve as a director. For Douglas B. Otto, 7,904,911 votes
were cast in favor and 141,127 votes were withheld. For Gene E.
Burleson, 7,908,686 votes were cast in favor and 137,352 votes were
withheld. There were no broker non-votes.
The stockholders also ratified the selection of KPMG LLP as the
Company's independent auditors. 8,022,726 votes were cast in favor of
the ratification; 13,522 were voted against; and 9,790 abstained.
There were no broker non-votes.
Item 5. Other Information. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.41* Teva License Agreement, By and Between Mark Thatcher
and Deckers Outdoor Corporation, dated June 7, 1999.
10.42* Intellectual Property Option Agreement, By and
Between Mark Thatcher, an Individual, and Deckers
Outdoor Corporation, a Delaware Corporation, dated
June 7, 1999.
(b) Reports on Form 8-K. None
* Certain information in this Exhibit was omitted and filed
separately with the Securities and Exchange Commission
pursuant to a confidential treatment request as to the omitted
portions of the Exhibit.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Deckers Outdoor Corporation
Date: August 12, 1999 /s/ M. Scott Ash
----------------
M. Scott Ash, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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