UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
| o | 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
| Delaware | 95-3015862 | |
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification) |
| 495-A South Fairview Avenue, Goleta, California | 93117 | |||
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| (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 (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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date.
| Outstanding at | ||||
| Class | November 3, 2003 | |||
Common stock, $.01 par value |
9,675,833 | |||
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
| Page | ||||||
| Part I. Financial Information | ||||||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited): | |||||
| Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 1 | |||||
| Condensed Consolidated Statements of Operations for the Three-Month Periods Ended September 30, 2003 and 2002 | 2 | |||||
| Condensed Consolidated Statements of Operations for the Nine-Month Periods Ended September 30, 2003 and 2002 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2003 and 2002 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 6 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 | ||||
| Item 4. | Disclosure Controls and Procedures | 27 | ||||
| Part II. Other Information | ||||||
| Item 1. | Legal Proceedings | 28 | ||||
| Item 2. | Changes in Securities | 28 | ||||
| Item 3. | Defaults upon Senior Securities | 28 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 28 | ||||
| Item 5. | Other Information | 28 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 28 | ||||
| Signatures | 29 | |||||
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 1,941,000 | 3,941,000 | |||||||
Trade accounts receivable, less allowance for doubtful
accounts and sales discounts of
$2,145,000 and $2,635,000 as of September 30, 2003 and
December 31, 2002, respectively |
18,014,000 | 20,851,000 | ||||||||
Inventories |
22,432,000 | 17,067,000 | ||||||||
Prepaid expenses and other current assets |
566,000 | 783,000 | ||||||||
Deferred tax assets |
1,919,000 | 1,919,000 | ||||||||
Total current assets |
44,872,000 | 44,561,000 | ||||||||
Property and equipment, at cost, net |
3,222,000 | 3,864,000 | ||||||||
Intangible assets |
70,641,000 | 70,773,000 | ||||||||
Deferred tax assets |
1,428,000 | 1,428,000 | ||||||||
Other assets, net |
1,407,000 | 1,786,000 | ||||||||
| $ | 121,570,000 | 122,412,000 | ||||||||
Liabilities and Stockholders’ Equity |
||||||||||
Current liabilities: |
||||||||||
Notes payable and current installments of long-term debt |
$ | 3,541,000 | 3,951,000 | |||||||
Trade accounts payable |
5,818,000 | 12,916,000 | ||||||||
Accrued expenses |
3,761,000 | 4,509,000 | ||||||||
Income taxes payable |
4,215,000 | 732,000 | ||||||||
Total current liabilities |
17,335,000 | 22,108,000 | ||||||||
Long-term debt, less current installments |
31,015,000 | 35,077,000 | ||||||||
Stockholders’ equity: |
||||||||||
Series A preferred stock at liquidation preference, $.01
par value. Authorized, 5,000,000 shares (1,375,000
Series A); issued and outstanding 1,375,000 shares at
September 30, 2003 and December 31, 2002 |
5,500,000 | 5,500,000 | ||||||||
Common stock, $.01 par value. Authorized 20,000,000
shares; issued 10,636,261 shares and outstanding
9,663,309 shares at September 30, 2003; issued 10,434,075
shares and outstanding 9,461,123 shares at December 31,
2002 |
96,000 | 95,000 | ||||||||
Additional paid-in capital |
26,836,000 | 26,210,000 | ||||||||
Retained earnings |
40,588,000 | 33,898,000 | ||||||||
Accumulated other comprehensive income (loss) |
200,000 | (476,000 | ) | |||||||
Total stockholders’ equity |
73,220,000 | 65,227,000 | ||||||||
| $ | 121,570,000 | 122,412,000 | ||||||||
See accompanying notes to condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
| Three-month period ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Net sales |
$ | 24,894,000 | 17,727,000 | |||||||
Cost of sales |
15,392,000 | 11,029,000 | ||||||||
Gross profit |
9,502,000 | 6,698,000 | ||||||||
Selling, general and administrative expenses |
7,720,000 | 7,489,000 | ||||||||
Litigation costs |
— | 3,518,000 | ||||||||
Income (loss) from operations |
1,782,000 | (4,309,000 | ) | |||||||
Other expense (income): |
||||||||||
Interest, net |
981,000 | (31,000 | ) | |||||||
Other |
(1,000 | ) | 45,000 | |||||||
Income (loss) before income taxes |
802,000 | (4,323,000 | ) | |||||||
Income taxes (benefit) |
321,000 | (1,776,000 | ) | |||||||
Net income (loss) |
$ | 481,000 | (2,547,000 | ) | ||||||
Net income (loss) per share: |
||||||||||
Basic |
$ | 0.05 | (0.27 | ) | ||||||
Diluted |
0.04 | (0.27 | ) | |||||||
Weighted-average shares: |
||||||||||
Basic |
9,657,000 | 9,339,000 | ||||||||
Diluted |
12,037,000 | 9,339,000 | ||||||||
See accompanying notes to condensed consolidated financial statements.
2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
| Nine-month period ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Net sales |
$ | 85,338,000 | 73,355,000 | |||||||
Cost of sales |
47,764,000 | 41,472,000 | ||||||||
Gross profit |
37,574,000 | 31,883,000 | ||||||||
Selling, general and administrative expenses |
23,027,000 | 27,856,000 | ||||||||
Litigation costs |
— | 3,518,000 | ||||||||
Income from operations |
14,547,000 | 509,000 | ||||||||
Other expense (income): |
||||||||||
Interest, net |
3,412,000 | (58,000 | ) | |||||||
Other |
(15,000 | ) | 73,000 | |||||||
Income before income taxes
and cumulative effect of
accounting change |
11,150,000 | 494,000 | ||||||||
Income taxes |
4,460,000 | 237,000 | ||||||||
Income before cumulative
effect of accounting change |
6,690,000 | 257,000 | ||||||||
Cumulative effect of accounting change, net of
$843,000 income tax benefit |
— | (8,973,000 | ) | |||||||
Net income (loss) |
$ | 6,690,000 | (8,716,000 | ) | ||||||
Basic income per common share before cumulative effect
of accounting change |
$ | 0.70 | 0.03 | |||||||
Cumulative effect of accounting change per common share |
— | (0.97 | ) | |||||||
Basic net income (loss) per common share |
$ | 0.70 | (0.94 | ) | ||||||
Average basic common shares |
9,582,000 | 9,307,000 | ||||||||
Diluted income per common share before cumulative
effect of accounting change |
$ | 0.57 | 0.03 | |||||||
Cumulative effect of accounting change per common share |
— | (0.93 | ) | |||||||
Diluted net income (loss) per common share |
$ | 0.57 | (0.90 | ) | ||||||
Average diluted common shares |
11,716,000 | 9,642,000 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine-month period ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | 6,690,000 | (8,716,000 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||||||
Cumulative effect of accounting change, net of tax |
— | 8,973,000 | ||||||||||
Depreciation and amortization |
1,297,000 | 2,113,000 | ||||||||||
Provision for doubtful accounts |
428,000 | 1,792,000 | ||||||||||
Write-down of inventories |
1,060,000 | 554,000 | ||||||||||
Loss on disposal of assets |
3,000 | 10,000 | ||||||||||
Non-cash stock compensation |
34,000 | 138,000 | ||||||||||
Loss on foreign currency hedging |
— | 73,000 | ||||||||||
Cumulative foreign currency translation adjustment |
— | 88,000 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
(Increase) decrease in: |
||||||||||||
Trade accounts receivable |
2,409,000 | 2,820,000 | ||||||||||
Inventories |
(6,425,000 | ) | (187,000 | ) | ||||||||
Prepaid expenses and other current assets |
217,000 | 288,000 | ||||||||||
Refundable income taxes |
— | 928,000 | ||||||||||
Other assets |
379,000 | 280,000 | ||||||||||
Increase (decrease) in: |
||||||||||||
Trade accounts payable |
(7,098,000 | ) | (7,018,000 | ) | ||||||||
Accrued expenses |
55,000 | 2,537,000 | ||||||||||
Income taxes payable |
3,483,000 | — | ||||||||||
Net cash provided by operating activities |
2,532,000 | 4,673,000 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Teva acquisition costs |
(75,000 | ) | — | |||||||||
Purchase of property and equipment |
(453,000 | ) | (902,000 | ) | ||||||||
Proceeds from sale of property and equipment |
2,000 | — | ||||||||||
Net cash used in investing activities |
(526,000 | ) | (902,000 | ) | ||||||||
(Continued)
4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
| Nine-month
period ended September 30, |
||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from financing activities: |
||||||||||||
Repayments of long-term debt |
(4,599,000 | ) | (252,000 | ) | ||||||||
Cash received from issuances of common stock |
593,000 | 283,000 | ||||||||||
Net cash provided by
(used in) financing
activities |
(4,006,000 | ) | 31,000 | |||||||||
Net increase (decrease)
in cash and cash
equivalents |
(2,000,000 | ) | 3,802,000 | |||||||||
Cash and cash equivalents at beginning of period |
3,941,000 | 16,689,000 | ||||||||||
Cash and cash equivalents at end of period |
$ | 1,941,000 | 20,491,000 | |||||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 2,116,000 | 44,000 | |||||||||
Income taxes |
1,607,000 | 832,000 | ||||||||||
See accompanying notes to condensed consolidated financial statements.
5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| (1) | General |
| (a) | Basis of Presentation | ||
| 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. | |||
| 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, 2002 included in the Company’s Annual Report on Form 10-K. | |||
| (b) | Use of Estimates | ||
| The preparation of the Company’s 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. The significant areas requiring the use of management’s estimates related to provisions for lower of cost or market inventory writedowns, doubtful accounts receivables, sales returns, deferred taxes and estimated losses on outstanding litigation. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those 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). Under the provisions of SFAS 123, the Company has elected to continue to measure compensation cost for employees and nonemployee directors of the Company under the intrinsic value method of APB No. 25 and comply with the pro forma disclosure requirements under SFAS 123. The Company applies the fair value techniques of SFAS 123 to measure compensation cost for options/warrants granted to nonemployees. |
6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| (1) | General (Continued) |
| The following tables illustrate the effects on net income (loss) if the fair value-based method had been applied to all outstanding and unvested awards in each period. |
| Three-month period ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Net income (loss), as reported |
$ | 481,000 | (2,547,000 | ) | ||||||
Add (deduct) stock-based employee
compensation expense included in reported
net income, net of tax effect |
8,000 | (3,000 | ) | |||||||
Deduct total stock-based employee
compensation expense under fair value-based
method for all awards, net of tax |
(80,000 | ) | (64,000 | ) | ||||||
Pro
forma net income (loss) |
$ | 409,000 | (2,614,000 | ) | ||||||
Pro
forma net (loss) income per share: |
||||||||||
Basic |
$ | 0.04 | ||||||||