Annual Report 2012
www.deckers.com
Live in luxurious comfort
Innovative outdoor footwear
inspiring adventure on water
and trails
Official outfitters to your happy place
13MAR200814173367
Dear Shareholders:
Great brands endure through periods of great success, and great brands endure through periods of
adversity. While 2012 certainly had its challenges, our brands remain as important and relevant to the
consumer as ever, continuing to gain traction within their target markets while our global presence was
strengthened through strategic investments in marketing, product development, and our direct to
consumer platforms. To be clear, 2012 was not without its setbacks. The second of two consecutive years
dubbed the warmest on record, increasingly difficult macroeconomic conditions in Europe and record high
product costs tested our strengths in many ways. But the fundamentals of our business remain strong and
recent brand surveys indicate that consumer sentiment towards the UGG(cid:1) brand is higher than ever.
With the consumer on our side, we repurchased 4,513,884 shares of our common stock this year,
underscoring our confidence in the long-term opportunity for Deckers and its promising portfolio of
brands.
Our Brands
The UGG brand remains one of the most recognized and relevant comfort shoe brands in the
industry. In 2012, we continued to elevate the brand’s status both domestically and overseas with
compelling new product introductions and more integrated marketing programs, including an increased
digital presence, as well as massive growth in our social media engagement. This also included telling the
story of our growing men’s line to a broader audience. Anchored by our partnership with Tom Brady,
combined with the successful opening of our first men’s only store, we believe this business can one day
represent twenty percent of UGG’s overall revenue. That said, in 2012, we experienced slower than
expected initial sell through on our twin-face sheepskin products and significant increases in sheepskin
costs. This, in combination with abnormally warm weather in the US, created pressure on our top line in
2012. However, sales of our slipper product were excellent the entire season and our holiday campaign was
a resounding success, leaving our retailers with a great end to the season after a slow start. We continue to
focus on diversifying the product offering as well as introducing a transitional product so that consumers
can wear UGG in all weather environments. The UGG brand remains a key and profitable brand for our
retailers and beloved by consumers for its exceptional comfort and quality.
Teva(cid:1) continues to strengthen its position as a four-season brand, translating the authenticity of the
traditional sport sandal into the closed-toe, cooler weather market through the launch of multi-sport
footwear, lifestyle bike products and winterized boots. Despite award winning product and an improved
performance in direct to consumer (DTC) sales, Teva brand sales for 2012 reflect the challenges faced by
the entire outdoor industry as the result of unfavorable weather and difficult macroeconomic conditions in
Europe. Setting aside those forces beyond our control, we are encouraged by the traction we’ve seen
across all seasonal styles in the U.S. and Asia, and continue to be optimistic about new growth
opportunities within the broader outdoor space.
Sanuk(cid:1), the newest addition to our brand portfolio, had a great year in 2012, with revenues nearly
double that of 2010, the year prior to when we purchased it. Rooted in the warm climate of Southern
California, the brand’s heritage collections of sandals and slip-on footwear are just now beginning to
scratch the surface of their true potential. As with our other brands, we are developing product to extend
Sanuk’s selling season, introducing several boots and other styles suitable for cooler weather. With
meaningful wholesale distribution opportunities in the U.S., Europe and Asia, a rapidly growing
ecommerce business, and retail store potential, we are very confident about the future prospects for Sanuk.
At the same time, we continue to look for ways to maximize growth potential in our other brands—
including TSUBO(cid:1), Ahnu(cid:1), MOZO(cid:1) and Hoka One One(cid:1)—as they evolve within their respective
markets.
Our Geographies
Several years ago we began a concerted effort to diversify our global presence. Today, over 30% of
our business is done internationally, which has provided us with tremendous opportunities to grow each of
our brands. We continue to invest in growing outside the U.S., establishing subsidiaries in key overseas
markets at opportune times to accelerate growth, while also utilizing distributors to further cultivate
demand and awareness in underpenetrated countries.
In Asia, we acquired the noncontrolling interest in our China joint venture, providing us with full
control over this fast-growing market, which is now our fourth largest international market. Meanwhile,
Japan, our third largest international market, grew an impressive 82% in 2012 thanks to strong gains across
wholesale, retail and ecommerce. We plan to accelerate growth in this region through continued
investments in marketing, infrastructure and retail expansion.
In the U.S., we have been pleased with the response to our expanded product assortments across the
brands, as our brands continued to demonstrate leadership qualities evidenced by solid full price selling.
We are also excited about the opportunity of the Men’s UGG business in the U.S.
The combination of recessionary conditions and warm weather presented us with challenges in
Europe during 2012. That said, sales in the United Kingdom (UK), our largest international market, were
modestly up, driven by changes made to both our wholesale distribution and our DTC channels, which
allowed us to present our full product assortment and enhance our brand presentation in key retail
destinations. These changes have positioned us well in the UK for 2013 and we expect healthy growth
across all channels. With respect to continental Europe, we continue to believe there are meaningful
long-term growth opportunities for our brand portfolio. However, in light of recent trends and economic
instability, we believe it’s prudent to adopt a more conservative outlook in the near-term until visibility
improves.
Our Distribution Channels
Across all regions, our direct to consumer activities are playing a key role in developing a broader
consumer audience while at the same generating high margin revenue. We ended 2012 with 77 stores
worldwide after opening 30 throughout the year. The majority of store openings has and will continue to
be in Asia, particularly China, as we backfill existing markets and penetrate several new large cities. At the
same time, we will strategically open concept stores and outlets in North America and Europe in order to
showcase our growing product assortments and strategically market to the consumer at the point of sale.
As we disclosed during 2012, our stores generate some of the highest sales per square foot in the industry
and have quick payback periods, typically within a year.
Our ecommerce operations took a big step forward in 2012, generating strong domestic sales growth
and the launch of new country specific websites in Japan, France, and the Netherlands. We have invested in
our ecommerce and digital platforms to place our brands in a favorable position to benefit from the
consumer shift in preference towards an omni-channel shopping experience.
Our wholesale business will continue to be an important component of our future success. We are
constantly evaluating the changing landscape to ensure we have the optimal network of retailers in place to
properly support our brands’ ambitions.
Our Marketing
Through our concentrated marketing efforts this year, we increased total spend to approximately 5%
of sales, up from roughly 4% in 2011. Our targeted and highly integrated marketing campaigns are
providing our brands new and creative ways to showcase themselves to consumers like never before, and
have earned us special recognition from the footwear press for our UGG men’s product launch. With
technology continuing to rapidly evolve the way brands connect with consumers, we plan to shift resources
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toward digital platforms as we look to maximize the opportunity to reach new and existing customers and
increase our return on investment.
Our People
Good teams also persevere through challenging times. Our ability to execute through
less-than-favorable economic conditions is a testament to the strength of the Deckers team. Our people
are unique and stand apart as a group that can address challenges, make the tough decisions that we know
are right by our consumer and have fun all the while. We’re proud of the advances our company has made
this year, particularly internationally, and have not lost sight of the persistence and dedication our people
have demonstrated to make those advances happen.
Our Results
Our results for 2012 are a reflection of our enduring strong brand presence in a challenging economic
environment. Once again, we delivered record net sales of $1.4 billion, marking over a decade of
year-over-year top line growth and underscoring continued demand for our brands. However,
macroeconomic challenges, unfavorable weather and continued cost pressures weighed on our bottom line
performance, resulting in the first annual earnings per share decline in over five years. We continue to
look for ways to mitigate these near-term challenges, including the development of more transitional
product for early fall, more accessible opening price points, and supply chain initiatives aimed at reducing
input costs. We are confident that the adjustments we are making to our business model will yield
improved profitability beginning in 2013.
Our Future
We enter 2013 stronger and with conviction in our diversified growth strategy. We intend to continue
our accelerated international growth plans by increasing our retail presence in high-growth markets, such
as China and Japan, and better showcasing our broad product assortments in under-developed markets.
We will continue to invest in integrated marketing efforts aimed at driving our brand awareness, affinity
and loyalty across all brands. Below the top line, cost pressures have recently begun to subside, indicating
the worst may be behind us, although thoughtful cost mitigation is still top of mind going into the new year,
including a new proprietary process developed over the last two years, called UGG pure(cid:2), that we believe
could have meaningful impact on future sales and margins. Underlying our future performance, as always,
is the strength of our brands. Having weathered the challenges of 2012, we are as confident as ever in our
long-term growth plans and ability to leverage our fundamental brand strengths into meaningful growth in
the years to come.
My thanks once again to our employees, shareholders, customers, and our consumers for your
continued loyalty and support.
Angel Martinez
Chairman, President, and Chief Executive Officer
3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
(cid:4)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No. 0-22446
DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
495-A South Fairview Avenue, Goleta, California
(Address of principal executive offices)
95-3015862
(I.R.S. Employer
Identification No.)
93117
(Zip Code)
Registrant’s telephone number, including area code: (805) 967-7611
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No (cid:4)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange
Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:3) No (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:3)
Smaller reporting company (cid:4)
Accelerated filer (cid:4)
Non-accelerated filer (cid:4)
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No (cid:3)
As of June 29, 2012, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the
voting and non-voting stock held by the non-affiliates of the registrant was approximately $1,592,168,078, based on the number of
shares held by non-affiliates of the registrant as of that date, and the last reported last sale price of the registrant’s common stock on
The NASDAQ Global Select market on that date, which was $44.01. This calculation does not reflect a determination that persons
are affiliates for any other purposes.
The number of shares of the registrant’s Common Stock outstanding at February 15, 2013 was 34,402,209.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement on Schedule 14A relating to the registrant’s 2013 annual meeting of
stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this
annual report, are incorporated by reference into Part III of this annual report. With the exception of the portions of the Proxy
Statement specifically incorporated herein by reference, the Proxy Statement and related proxy solicitation materials are not
deemed to be filed as part of this annual report.
DECKERS OUTDOOR CORPORATION
For the Fiscal Year Ended December 31, 2012
Table of Contents to Annual Report on Form 10-K
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 6.
Item 7.
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Item 13.
Item 14.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference in this report contain ‘‘forward-looking
statements’’ within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, that concern matters that involve risks and
uncertainties that could cause actual results to differ materially from those anticipated or projected in the
forward-looking statements. These forward-looking statements are intended to qualify for the safe harbor
from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact contained in this annual report, including statements regarding future events,
our future financial performance, our future business strategy and the plans and objectives of management
for future operations, are forward-looking statements. We have attempted to identify forward-looking
statements by using words such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘may,’’
‘‘project,’’ ‘plan’’, ‘‘predict’’, ‘‘should,’’ ‘‘will,’’ and similar expressions, or the negative of these expressions,
as they relate to us, our management and our industry, to identify forward-looking statements. Specifically,
this report and the information incorporated by reference in this report contain forward-looking
statements relating to, among other things:
(cid:127) our global business, growth, operating, investing, and financing strategies;
(cid:127) our product offerings, distribution channels and geographic mix;
(cid:127) the success of our new products, brands, and growth initiatives;
(cid:127) the impact of seasonality on our operations;
(cid:127) expectations regarding our net sales and earnings growth and other financial metrics;
(cid:127) our development of worldwide distribution channels;
(cid:127) trends affecting our financial condition, results of operations, or cash flows;
(cid:127) our expectations for expansion of our retail and eCommerce capabilities;
(cid:127) information security and privacy of customer, employee or company information;
(cid:127) overall global economic trends;
(cid:127) reliability of overseas factory production and storage; and
(cid:127) the availability and cost of raw materials.
We have based our forward-looking statements on our current expectations and projections about
trends affecting our business and industry and other future events. Although we do not make forward-
looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their
accuracy. As a result, actual results may differ materially from the results stated in or implied by our
forward-looking statements. Some of the risks, uncertainties and assumptions that may cause actual results
to differ from these forward-looking statements are described in Part I, Item 1A of this annual report in
the section entitled ‘‘Risk Factors,’’ as well as in our other filings with the Securities and Exchange
Commission (SEC). In addition, actual results may differ as a result of additional risks and uncertainties of
which we are currently unaware or which we do not currently view as material to our business.
You should read this annual report in its entirety, together with the documents that we file as exhibits
to this annual report and the documents that we incorporate by reference in this annual report, with the
understanding that our future results may be materially different from what we currently expect. We
qualify all of our forward-looking statements by these cautionary statements and we expressly disclaim any
intent or obligation to update any forward-looking statements after the date hereof to conform such
statements to actual results or to changes in our opinions or expectations, except as required by applicable
law or the rules of the NASDAQ Stock Market.
2
PART I
References in this Annual Report on Form 10-K to ‘‘Deckers’’, ‘‘we’’, ‘‘our’’, ‘‘us’’, or the ‘‘Company’’
refer to Deckers Outdoor Corporation together with its consolidated subsidiaries. Ahnu(cid:5), Deckers(cid:5), Hoka
One One(cid:5) (Hoka), MOZO(cid:5), Sanuk(cid:5), Simple(cid:5), Teva(cid:5), TSUBO(cid:5), and UGG(cid:5) are some of our trademarks.
Other trademarks or trade names appearing elsewhere in this report are the property of their respective
owners.
Item 1. Business.
Unless otherwise specifically indicated, all amounts in Item 1. and Item 1A. herein are expressed in
thousands, except for employees, share quantity, per share data, and selling prices.
General
Deckers Outdoor Corporation was incorporated in 1975 under the laws of the State of California and,
in 1993, reincorporated under the laws of the State of Delaware. We strive to be a premier lifestyle
marketer that builds niche brands into global market leaders by designing and marketing innovative,
functional and fashion-oriented footwear developed for both high performance outdoor activities and
everyday casual lifestyle use. We believe that our footwear is distinctive and appeals broadly to men,
women and children. We sell our products, including accessories such as handbags and outerwear, through
quality domestic and international retailers, international distributors, and directly to end-user consumers
both domestically and internationally, through our websites, call centers, retail concept stores and retail
outlet stores. Our primary objective is to build our footwear lines into global lifestyle brands with market
leadership positions. We seek to differentiate our brands and products by offering diverse lines that
emphasize authenticity, functionality, quality, and comfort and products tailored to a variety of activities,
seasons, and demographic groups. Virtually all of our products are currently manufactured by independent
contractors outside of the United States (US). Our continued growth will depend upon the broadening of
our products offered under each brand, the appeal of our products to our consumers, expanding domestic
and international distribution, successfully opening new retail stores, increasing sales to consumers, and
developing or acquiring new brands.
In July 2008, we entered into a joint venture agreement with an affiliate of Stella International
Holdings Limited (‘‘Stella International’’) for the opening of retail stores and wholesale distribution for the
UGG brand in China. The joint venture was owned 51% by Deckers and 49% by Stella International.
Stella International is also one of our major manufacturers in China. In April 2012, we acquired the 49%
noncontrolling interest owned by Stella International. In September 2009, we began to reacquire our
international distribution rights, beginning in Japan. In January 2010, we acquired certain assets and
liabilities, including reacquisition of our distribution rights, from our Teva distributor that sold to retailers
in Belgium, the Netherlands, and Luxemburg (Benelux) as well as France. In September 2010, we
purchased a portion of a privately held footwear company as an equity method investment. In January
2011, we acquired certain assets from our UGG, Teva, and Simple brands distributor that sold to retailers
in the United Kingdom (UK) and from our UGG and Simple brands distributor that sold to retailers in
Benelux and France. The distribution rights in these regions reverted back to us on December 31, 2010
upon the expiration of the distribution agreements. In May 2011, we entered into an asset purchase
agreement with Sanuk USA LLC, C&C Partners, Ltd., and the equity holders of both entities (collectively
referred to as ‘‘Sanuk’’ or the ‘‘Sanuk brand’’). In July 2011, we completed the acquisition of the purchased
assets and the assumption of the assumed liabilities of the Sanuk brand. Our consolidated financial
statements include the operations of Sanuk beginning July 1, 2011. In May 2012, the Company purchased a
noncontrolling interest in the Hoka brand, a privately held footwear company, which was accounted for as
an equity method investment. In September 2012, the Company acquired the remaining ownership interest
in Hoka.
3
Products
We market our products primarily under three proprietary brands:
UGG(cid:5). UGG Australia is our luxurious comfort brand and the category creator for luxury sheepskin
footwear. The UGG brand has enjoyed several years of positive consumer reception, driven by consistent
introductions of new styles in the fall and spring seasons, as well as year-round styles. We have also
strategically expanded our geographic distribution as well as our consumer base with more men’s products.
Additionally, we have broadened the brand into additional product categories beyond footwear, such as
handbags, apparel, and cold weather accessories. We carefully manage the distribution of our UGG
products within higher-end specialty and department store retailers in order to best reach our target
consumers, preserve the UGG brand’s retail channel positioning and maintain the UGG brand’s position
as a mid- to upper-price high-end brand.
In recent years, sales of UGG products have benefited from significant national media attention and
celebrity endorsement through our marketing programs and product placement activities, raising the
profile of our UGG brand as a luxurious comfort brand. We have further supported the UGG brand’s
market positioning by expanding the selection of styles available in order to build consumer interest in our
UGG brand collection.
Teva(cid:5). Teva is our outdoor performance and lifestyle brand and pioneer of the sport sandal market.
We have expanded the Teva product line over time to include open and closed-toe outdoor lifestyle
footwear, as well as additional outdoor performance footwear, including light hiking shoes, freeride
mountain bike shoes, amphibious footwear, and rugged outdoor cross training shoes.
In recent years, we have focused on regaining our leadership position in the performance sandal
market, while broadening our performance platform to include other outdoor activities such as light
hiking, and freestyle mountain bike riding to lessen our overall reliance on sandal sales, while bringing
youthfulness back to the brand through contemporary designs, colors, and materials. Throughout 2011 and
2012, we have continued to expand our closed-toe offering in both performance and lifestyle outdoor
footwear. This includes the award winning outdoor light hiking platform, Riva, and Teva’s entry into
insulated winter boots with the Lifty Collection.
Sanuk(cid:5). Sanuk is our fun lifestyle footwear brand rooted in surf culture but embraced by an eclectic
mix of style-savvy optimists. The Sanuk brand is probably best known for the patented SIDEWALK
SURFERS(cid:5) shoe which effectively introduced the hanging deconstructed footwear movement. Other
primary offerings include the Beer Cozy and Yoga Mat sandal collections made from real yoga mat
material. The brand has a history of innovation, product invention, foot-friendly comfort, unexpected
materials and clever branding.
In recent years, Sanuk products have been recognized by the Surf Industry Manufacturers Association
(SIMA) for being both the 2007 and 2010 Footwear Product of the Year. The brand’s SIDEWALK
SURFERS are marketed with the hand-crafted, humor driven ‘‘Cut&Paste’’ ad campaign and the slogan
‘‘THESE ARE NOT SHOES, THEY’RE SANDALS(cid:5)’’ which references the patented sandal
construction. We plan to build on the Sanuk brand’s authentic position in the surf and outdoor markets
through its relationships with prominent professional athletes and ambassadors, including surfers, rock
climbers, photographers, artists, and musicians known as much for their unique personal styles and
charisma as for their specialized talents.
In addition to our primary brands, our other brands include TSUBO, a line of mid and high-end
casual footwear that incorporates style, function, and maximum comfort; Ahnu, a line of outdoor
performance and lifestyle footwear; MOZO, a line of footwear that combines running shoe technology
with work shoe toughness for individuals that spend long hours working on their feet; Hoka, a line of
4
footwear for all capacities of runner designed to alleviate fatigue, impact and muscle strain; and Simple, a
line for which we ceased distribution effective December 31, 2011.
Sales and Distribution
At the wholesale level, we distribute our products in the US through a dedicated network of
independent sales representatives, as well as through employee sales representatives who serve as territory
representatives or key account executives for several of our largest customers. Our sales representatives
are organized geographically and by brand and visit retail stores to communicate the features, styling, and
technology of our products. In addition to our wholesale business, we also sell products directly to
consumers through our websites and retail stores. Our brands are generally advertised and promoted
through a variety of consumer media campaigns. We benefit from editorial coverage in both consumer and
trade publications. Each brand’s dedicated marketing team works closely with targeted accounts to
maximize advertising and promotional effectiveness. We also manage brand marketing on a global basis to
ensure consistent consumer communications in all regions and channels. We determine our global
communication plans based on brand strategies, consumer insights, and return on investment measures.
Our sales force is generally separated by brand, as each brand generally has certain specialty
consumers; however, there is overlap between the sales teams and customers. We have aligned our brands’
sales forces to position them for the future of the brands. Each brand’s respective sales manager recruits
and manages their network of sales representatives and coordinates sales to national accounts. We believe
this approach for the US market maximizes the selling efforts to our national retail accounts on a
cost-effective basis.
We distribute products sold in the US through our distribution centers in Camarillo and Ventura,
California. Our distribution centers feature a warehouse management system that enables us to efficiently
pick and pack products for direct shipment to customers. For certain customers requiring special handling,
each shipment is pre-labeled and packed to the retailer’s specifications, enabling the retailer to easily
unpack our product and immediately display it on the sales floor. All incoming and outgoing shipments
must meet our quality inspection process.
Internationally, we distribute our products through independent distributors and retailers in many
countries, including throughout Europe, Asia Pacific, Canada, and Latin America, among others. In
addition, as we do in the US, in certain countries, we sell products directly to international consumers
through our websites and our retail stores. For our wholesale and direct to consumer businesses, we
operate distribution centers in certain international locations and utilize third-party distribution companies
in other countries. We may also work with trading companies for importation, as needed. Our principal
wholesale customers include specialty retailers, selected department stores, outdoor retailers, sporting
goods retailers, shoe stores, and online retailers.
Our five largest customers accounted for approximately 22.8% of worldwide net sales for 2012,
compared to 24.0% for 2011. No single customer accounted for greater than 10% of our consolidated net
sales in 2012.
UGG. We sell our UGG footwear and accessories primarily through higher-end department stores
such as Nordstrom, Neiman Marcus and Bloomingdale’s, as well as independent specialty retailers such as
Journey’s and David Z., and internet retailers such as Zappos.com. We believe these retailers support the
luxury positioning of our brand and are the destination shopping choice for the consumer who seeks out
the fashion and functional elements of our UGG products.
Teva. We sell our Teva footwear primarily through specialty outdoor and sporting goods retailers
such as REI, L.L. Bean, Dick’s Sporting Goods, and The Sports Authority as well as on-line retailers such
as Zappos.com. We believe these retail channels are the first choice for athletes, outdoor enthusiasts, and
adventurers seeking technical and performance-oriented outdoor footwear. Furthermore, we believe that
5
retailers who appreciate and can fully market the technical attributes of our performance products to the
consumer are best equipped to sell our Teva footwear.
Sanuk. We sell our Sanuk footwear primarily through independent action sports retailers including
specialty surf and skate shops, outdoor retailers such as REI, Eastern Mountain Sports (EMS), and Bass
Pro Shops, specialty footwear retailers and larger national retail chains including Nordstrom, Journeys,
Dillards, and The Buckle. We believe these retailers showcase the brand’s creativity, fun, and comfort and
allow us to effectively reach our target consumers for the brand.
Other brands. Our other brands are sold throughout the world primarily at better department stores,
outdoor specialty accounts, independent specialty retailers, and with online retailers that support our
brand ideals of comfort, style, and quality. Key accounts of our other brands include Nordstrom, Dillard’s,
Hanigs, REI, and Zappos.com.
eCommerce. Our eCommerce business enables us to market, communicate and build our
relationships with the consumer. eCommerce enables us to meet the growing demand for our products, sell
the products at retail prices, and provide significant incremental operating income. The eCommerce
business provides us an opportunity to communicate to the consumer with a consistent brand message that
is in line with our brands’ promises, drives awareness of key brand initiatives, and offers targeted
information to specific consumer segments. We operate our eCommerce business through the
Uggaustralia.com, Teva.com, Sanuk.com, Tsubo.com, Ahnu.com, and Mozoshoes.com websites. Our
websites also drive wholesale and distributor sales through brand awareness and by directing consumers to
retailers that carry our brands, including our own retail stores. In recent years, our eCommerce business
has had significant revenue growth, much of which occurred as the UGG brand gained popularity and as
consumers continued to increase internet usage for footwear and other purchases.
We have expanded our international capabilities by developing sites to service certain international
markets. These sites are translated into the local language, provide product through local distribution
centers and price the products in the consumers’ local currency. In 2012, we launched additional sites in
the US for our Sanuk brand and launched mobile sites for several of our brands in the US, Europe and
Japan. Our eCommerce business has offices in Flagstaff, Arizona; Richmond, England; and Tokyo, Japan.
In order to reduce the cost of order fulfillment, minimize out of stock positions, and further leverage our
distribution centers’ operations, order fulfillment is performed by our distribution centers in California, the
UK, Canada, and Japan. Products sold through our eCommerce business are sold at prices which
approximate retail prices, enabling us to capture the full retail margin on each direct to consumer
transaction.
Retail Stores. Our retail stores are predominantly UGG Australia concept stores and UGG Australia
outlet stores. Our retail stores enable us to directly impact our customers’ experience, meet the growing
demand for these products, sell the products at retail prices and generate strong annual operating income.
In addition, our UGG Australia concept stores allow us to showcase our entire product line including
footwear, accessories, handbags, and outerwear; whereas, a wholesale account may not represent all of
these categories. Through our outlet stores, we sell some of our discontinued styles from prior seasons,
plus products made specifically for the outlet stores. We sell Teva products as well as some of our other
brands through a few limited outlet locations.
In 2012, we opened seven stores in the US and twenty-three internationally. As of December 31, 2012,
we had a total of 56 UGG Australia concept stores and 21 UGG outlet stores worldwide. During 2013, we
plan to open additional retail stores in the US and internationally.
Product Design and Development
The design and product development staff for each of our brands creates new innovative footwear
products that combine our standards of high quality, comfort, and functionality. The design function for all
6
of our brands is performed by a combination of our internal design and development staff plus outside
freelance designers. By utilizing outside designers, we believe we are able to review a variety of different
design perspectives on a cost-efficient basis and anticipate color and style trends more quickly. Refer to
Note 1 to our accompanying consolidated financial statements for a discussion of our research and
development costs for the last three years.
In order to ensure quality, consistency, and efficiency in our design and product development process,
we continually evaluate the availability and cost of raw materials, the capabilities and capacity of our
independent contract manufacturers, and the target retail price of new models and lines. The design and
development staff works closely with brand management to develop new styles of footwear and accessories
for our various product lines. We develop detailed drawings and prototypes of our new products to aid in
conceptualization and to ensure our contemplated new products meet the standards for innovation and
performance that our consumers demand. Throughout the development process, we have multiple design
and development reviews, which we then coordinate with our independent manufacturers. This ensures
that we are addressing the needs of our consumers and are working toward a common goal of developing
and producing a high quality product to be delivered on a timely basis.
Manufacturing and Supply Chain
We do not manufacture our products; we outsource the production of our brand footwear to
independent manufacturers primarily in China. During 2009, we began to diversify our manufacturing
locations by outsourcing a limited amount of production to manufacturers in Vietnam, and in 2010 and
2011 increased this production volume while also opening manufacturing locations in 2011 in the US and
Latin America. We require our independent contract manufacturers and designated suppliers to adopt our
Supplier Code of Conduct, which specifies that they comply with all local laws and regulations governing
human rights, working conditions, and environmental compliance before we are willing to conduct business
with them. Our Supplier Code of Conduct applies to all of our manufacturers, distributors, vendors, and
other independent contractors. We also require our manufacturing partners to comply with our Ethical
Supply Chain guidelines and Restricted Substances policy as a condition of doing business with our
company. We require our licensees to demand the same from their contract factories and suppliers. We
have no long-term contracts with our manufacturers. As we grow, we expect to continue to rely exclusively
on independent manufacturers for our sourcing needs.
The production of footwear by our independent manufacturers is performed in accordance with our
detailed specifications and is subject to our quality control standards. We maintain an on-site supervisory
office in Pan Yu City, China that serves as a local link to our independent manufacturers, enabling us to
carefully monitor the production process from receipt of the design brief to production of interim and final
samples and shipment of finished product. We believe this local presence provides greater predictability of
material availability, product flow and adherence to final design specifications than we could otherwise
achieve through an agency arrangement. To ensure the production of high quality products, the majority of
the materials and components used in production of our products by these independent manufacturers are
purchased from independent suppliers designated by us. Excluding sheepskin, we believe that substantially
all the various raw materials and components used in the manufacture of our footwear, including rubber,
leather, and nylon webbing are generally available from multiple sources at competitive prices. We
generally outsource our manufacturing requirements on the basis of individual purchase orders or
short-term purchase commitments rather than maintaining long-term purchase commitments with our
independent manufacturers.
At our direction, our manufacturers currently purchase the majority of the sheepskin used in our
products from two tanneries in China, which source their skins for our products primarily from Australia,
Europe, and the US. We maintain constant communication with the tanneries to monitor the supply of
sufficient high quality sheepskin available for our projected UGG brand production. To ensure adequate
supplies for our manufacturers, we forecast our usage of sheepskin in advance at a forward price. We have
7
also entered into minimum purchase commitments with certain sheepskin suppliers (see Note 7 to our
accompanying consolidated financial statements.) We believe current supplies are sufficient to meet our
needs in the near future, but we continue to investigate our options to accommodate any unexpected
future growth.
We have instituted pre-production, in-line, and post-production inspections to meet or exceed the
high quality demanded by us and consumers of our products. Our quality assurance program includes our
own employee on-site inspectors at our independent manufacturers who oversee the production process
and perform quality assurance inspections. We also inspect our products upon arrival at our distribution
centers.
Patents and Trademarks
We utilize trademarks on virtually all of our products and believe that having distinctive marks that
are readily identifiable is an important factor in creating a market for our goods, toward identifying the
Company, and in distinguishing our goods from the goods of others. We currently hold trademark
registrations for UGG, Teva, Sanuk, Simple, TSUBO, Ahnu, MOZO, Hoka One One, and other marks in
the US and in many other countries, including the countries of the European Union, Canada, China, Japan
and Korea. We now hold more than 160 utility and design patent registrations in the US and abroad and
have filed more than 10 new patent applications which are currently pending. These patents expire at
various times; US design patents that are registered this year will remain valid to 2027. Utility patents filed
this year will remain in effect until 2033. We regard our proprietary rights as valuable assets and vigorously
protect such rights against infringement by third parties. No single patent is critical to our business, and no
group of patents expiring in the same year is critical to our business.
Seasonality
Our business is seasonal, with the highest percentage of UGG brand net sales occurring in the third
and fourth calendar quarters and the highest percentage of Teva and Sanuk brand net sales occurring in
the first and second calendar quarters of each year. Our financial results include the Sanuk brand
beginning July 1, 2011. Historically, our total net sales in the last half of the year have exceeded total net
sales for the first half of the year, and we expect this trend to continue. Our other brands do not have a
significant seasonal impact on our business. Nonetheless, actual results could differ materially depending
upon consumer preferences, availability of product, competition, and our wholesale and distributor
customers continuing to carry and promote our various product lines, among other risks and uncertainties.
See Part I, Item 1A, ‘‘Risk Factors.’’ For further discussion on our working capital and inventory
management, see Item 7 of Part II, ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Liquidity and Capital Resources.’’
Backlog
Historically, we have encouraged our wholesale and distributor customers to place, and we have
received, a significant portion of orders as preseason orders, generally four to eight months prior to the
anticipated shipment date. We provide customers with price incentives, and in certain cases extended
payment terms, to participate in such preseason programs to enable us to better plan our production
schedule, inventory and shipping needs. Unfilled customer orders as of any date, which we refer to as
backlog, represent orders scheduled to be shipped at a future date, which can be cancelled prior to
shipment. The backlog as of a particular date is affected by a number of factors, including seasonality,
manufacturing schedule, and the timing of product shipments as well as variations
in the
quarter-to-quarter and year-to-year preseason incentive programs. The mix of future and immediate
delivery orders can vary significantly from quarter-to-quarter and year-to-year. As a result, comparisons of
the backlog from period-to-period may be misleading.
8
At December 31, 2012, our backlog of orders from our wholesale customers and distributors was
approximately $323,000 compared to approximately $387,000 at December 31, 2011. While all orders in
the backlog are subject to cancellation by customers, we expect that the majority of such orders will be
filled in 2013. We believe that backlog at year-end is an imprecise indicator of total revenue that may be
achieved for the full year for several reasons. Backlog only relates to wholesale and distributor orders for
the next season and current season fill-in orders and excludes potential sales in our eCommerce business
and retail stores during the year. Backlog also is affected by the timing of customers’ orders and product
availability. As compared to the prior year end, at December 31, 2012 fewer customers had completed
previewing and writing their Fall 2013 pre-book orders.
Competition
The casual, outdoor, athletic, fashion, and formal footwear markets are highly competitive. Our
competitors include athletic and footwear companies, branded apparel companies, and retailers with their
own private labels. Although the footwear industry is fragmented to a certain degree, many of our
competitors are larger and have substantially greater resources than us, including athletic shoe companies,
several of which compete directly with some of our products. In addition, access to offshore manufacturing
has made it easier for new companies to enter the markets in which we compete, further increasing
competition in the footwear and accessory industries. In particular, in part due to the popularity of our
UGG products, we face increasing competition from a significant number of competitors selling products
designed to compete directly or indirectly with our UGG products.
We believe that our footwear lines and other product lines compete primarily on the basis of brand
recognition and authenticity, product quality and design, functionality, performance, comfort, fashion
appeal, and price. Our ability to successfully compete depends on our ability to:
(cid:127) shape and stimulate consumer tastes and preferences by offering innovative, attractive, and exciting
products;
(cid:127) anticipate and respond to changing consumer demands in a timely manner;
(cid:127) maintain brand authenticity;
(cid:127) develop high quality products that appeal to consumers;
(cid:127) price our products suitably;
(cid:127) provide strong and effective marketing support; and
(cid:127) ensure product availability.
We believe we are well positioned to compete in the footwear industry. We continually look to acquire
or develop more footwear brands to complement our existing portfolio and grow our existing consumer
base.
Employees
At December 31, 2012, we employed approximately 2,300 employees in the US, Europe, and Asia,
none of whom were represented by a union. This figure includes approximately 1,300 employees in our
retail stores worldwide, which includes part-time and seasonal employees. The increase in employees
during the year was primarily related to increased expansion efforts. We intend to increase our employee
count further in 2013 primarily related to the opening of new retail stores and our other expansion
initiatives. We believe our relationships with our employees are good.
9
Financial Information about Segments and Geographic Areas
Our six reportable business segments include the strategic business units responsible for the
worldwide operations of our brands’ (UGG, Teva, Sanuk and other brands) wholesale divisions, as well as
our eCommerce and retail store businesses. The majority of our sales and long-lived assets are in the US.
Refer to Note 8 to our accompanying consolidated financial statements for further discussion of our
business segment data. Refer to Item 1A of this Part I for a discussion of the risks related to our foreign
operations.
Compliance with federal, state, and local environmental regulations has not had, nor is it expected to
have, any material effect on our capital expenditures, earnings, or competitive position based on
information and circumstances known to us at this time.
Available Information
Our internet address is www.deckers.com. We post links to our website to the following filings as soon
as reasonably practicable after they are electronically filed with or furnished to the SEC: annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements, and any
amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended. All such filings are available through our website free of charge. Our filings may
also be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site at www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC.
Item 1A. Risk Factors.
Our short and long-term success is subject to many factors beyond our control. Investing in our common
stock involves substantial risk. Before investing in our stock, stockholders and potential stockholders should
carefully consider the following risk factors related to our company as well as general investor risks, in addition
to the other information contained in this report and the information incorporated by reference in this report. If
any of the following risks occur, our business, financial condition or results of operations could be adversely
affected. In that case, the value of our common stock could decline and stockholders may lose all or part of
their investment. Please also see the section entitled ‘‘Special Note on Forward-Looking Statements’’ on page 2
of this Annual Report on Form 10-K.
Changes in economic conditions may adversely affect our financial condition and results of operations.
Volatile economic conditions and general changes in the market have affected, and will likely continue
to affect consumer spending generally and the buying habits and preferences of our customers and
end-user consumers in particular. A significant portion of the products we sell, especially those sold under
the UGG Australia brand, are considered to be luxury retail products. The purchase of these products by
consumers is largely discretionary, and is therefore highly dependent upon the level of consumer spending,
particularly among affluent consumers. Sales of these products may be adversely affected by a continuation
or worsening of recent economic conditions, increases in consumer debt levels, uncertainties regarding
future economic prospects, or a decline in consumer confidence. During an actual or perceived economic
downturn, fewer consumers may shop for our products and those who do shop may limit the amounts of
their purchases. As a result, we could be required to reduce the price we can charge for our products or
increase our marketing and promotional expenses in response to lower than anticipated levels of demand
for our products. In either case, these changes, or other similar changes in our marketing strategy, would
reduce our revenues and profit margins and could have a material adverse effect on our financial condition
and results of operations.
10
We sell the majority of our products through higher-end specialty and department store retailers.
These retailer customers may be impacted by continuing economic uncertainty, reduced customer demand
for luxury products, and a significant decrease in available credit. If reduced consumer spending, lower
demand for luxury products, or credit pressures result in financial difficulties or insolvency for these
customers, it would adversely impact our estimated allowances and reserves as well as our overall financial
results. Also, economic factors such as increased transportation costs, inflation, higher costs of labor, and
higher insurance and healthcare costs may increase our cost of sales and our operating expenses, and
otherwise adversely affect our financial condition, results of operations, and cash flows. Our business,
access to credit, and trading price of common stock could be materially and adversely affected if the
current economic conditions do not improve or worsen.
Our financial success is influenced by the success of our customers.
Much of our financial success is directly related to the success of our retailers and distributor partners
to market and sell our brands through to the consumer. If a retailer fails to meet annual sales goals, it may
be difficult to locate an acceptable substitute retailer. If a distributor fails to meet annual sales goals, it may
be difficult and costly to either locate an acceptable substitute distributor or convert to a wholesale direct
model. If a change becomes necessary, we may experience increased costs, loss of customers, increased
credit risk, and increased inventory risk, as well as substantial disruption to operations and a potential loss
of sales.
We currently do not have long-term contracts with any of our retailers. We do have contracts with our
distributors with terms ranging up to five-years, however, while these contracts may have annual purchase
minimums which must be met in order to retain the distribution rights, the distributors are not otherwise
obligated to purchase product. Sales to our retailers and distributors are generally on an order-by-order
basis and are subject to rights of cancellation and rescheduling by our wholesale customers. We use the
timing of delivery dates in our wholesale customer orders to forecast our sales and earnings for future
periods. If any of our major customers, including independent distributors, experience a significant
downturn in business or fail to remain committed to our products or brands, then these customers could
postpone, reduce, or discontinue purchases from us. As a result, we could experience a decline in sales or
gross margins, write downs of excess inventory, increased discounts or extended credit terms to our
customers, which could have a material adverse effect on our business, results of operations, financial
condition, cash flows, and our common stock price.
Our five largest customers accounted for approximately 22.8% of worldwide net sales in 2012 and
24.0% of worldwide net sales in 2011. Any loss of a key customer, the financial collapse or bankruptcy of a
key customer, or a significant reduction in purchases from a key customer could have a material adverse
effect on our business, results of operations, and financial condition.
Failure to adequately protect our trademarks, patents, and other intellectual property rights or deter
counterfeiting could diminish the value of our brands and reduce sales.
We believe that our trademarks and other intellectual property rights are of value and are integral to
our success and our competitive position. Some countries’ laws do not protect intellectual property rights
to the same extent as do US laws. Furthermore, our efforts to enforce our intellectual property rights are
typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual
property rights. Unplanned increases in legal fees and other costs associated with the defense of our
intellectual property or rebranding could result in higher operating expenses and lower earnings.
Similarly, from time to time, we may need to defend against claims that the word ‘‘ugg’’ is a generic
term and that ‘‘UGG Australia’’ should not be registered as a trademark. Such a claim was successful in
Australia, but such claims have been rejected by courts in the United States and in the Netherlands. Any
decision or settlement in any of these matters that prevents trademark protection of the ‘‘UGG Australia’’
11
brand in our major markets, or that allows a third party to continue to use our brand trademarks in
connection with the sale of products similar to our products, or to continue to manufacture or distribute
counterfeit products could result in intensified commercial competition and could have a material adverse
effect on our results of operations and financial condition.
From time to time, we discover counterfeit products in the marketplace that infringe upon our
intellectual property rights. If we are unsuccessful in challenging a third party’s products on the basis of
patent, trademark and trade dress rights, particularly in some foreign countries, this could adversely affect
our continued sales, financial condition, and results of operation. If our brands are associated with
infringers’ or competitors’ inferior products, this could also adversely affect the integrity of our brands.
Many of our products are seasonal, and our sales are sensitive to weather conditions.
Sales of our products are highly seasonal and are sensitive to weather conditions, which are beyond
our control. For example, extended periods of unseasonably warm weather during the fall and winter
months may reduce demand for our UGG products. If management is not able to timely adjust expenses in
reaction to adverse events such as unfavorable weather, weak consumer spending patterns or unanticipated
levels of order cancellations because of seasonal circumstances, our profitability may be materially
affected. Even though we are creating more year-round styles for our brands, the effect of favorable or
unfavorable weather on sales can be significant enough to affect our quarterly results, with a resulting
effect on our common stock price.
If raw materials do not meet our specifications, or experience price increases or shortages, we could realize
interruptions in manufacturing, increased costs, higher product return rates, a loss of sales, or a reduction in our
gross margins.
We depend on a limited number of key sources for certain raw materials. For sheepskin, the raw
material used in a significant portion of our UGG products, we rely on two tanneries. Both the top grade
twinface and other grades of sheepskin used in UGG products are in high demand and limited supply.
Furthermore, our unique sheepskin needs require certain types of sheepskin that may only be found in
certain geographic locations and tanneries with sufficient expertise and capacity to deliver sheepskin which
meets our specifications. The supply of sheepskin can be adversely impacted by weather conditions,
disease, and harvesting decisions that are completely outside our control. For example, if the price of wool
increases, sheep herders may choose not to harvest their sheep and instead choose to shear their sheep for
wool, thus decreasing the supply of sheepskin. Sheepskin is also a by-product of the food industry and is
therefore dependent upon the demand by the food industry, which has generally been decreasing thus
leading to an overall reduction in the number of sheep available. The potential inability to obtain
sheepskin and other raw materials could impair our ability to meet our production requirements and could
lead to inventory shortages, which can result in lost 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 sheepskin as the demand from competitors for this material has increased and supply of sheep
has decreased. We experienced an approximate 40% increase in sheepskin costs in 2012 and expect an
overall decrease in 2013, with the majority of the decrease being realized in the fourth quarter of 2013. We
attempt to cover the full amount of our sheepskin purchases under fixed price contracts. Any price
increases in key raw materials will likely raise our costs and decrease our profitability unless we are able to
commensurately increase our selling prices and implement other cost savings measures.
In addition, our sheepskin suppliers warehouse their inventory at a limited number of facilities in
China, the loss of any of which due to natural disasters and other adverse events would likely result in
shortages of sheepskin leading to delays in the production of our products and could result in a loss of sales
and earnings.
12
Our independent manufacturers use various raw materials in the production of our footwear and
accessories that must meet our design specifications and, in some cases, additional technical requirements
for performance footwear. If these raw materials and the end product do not conform to our specifications,
we could experience a higher rate of customer returns and deterioration in the image of our brands, which
could have a material adverse effect on our business, results of operations, and financial condition.
Our new and existing retail stores may not realize returns on our investments.
Our retail segment has grown substantially in both net sales and total assets during the past year, and
we intend to rapidly expand this segment in the future. We have entered into significant long-term leases
for many of our retail locations. Global store openings involve substantial investments, including
constructing leasehold improvements, furniture and fixtures, equipment, information systems, inventory,
and personnel. In addition, since certain of our retail store costs are fixed, if we have insufficient sales, we
may be unable to reduce expenses in order to avoid losses or negative cash flows. Due to the high fixed cost
structure associated with the retail segment, negative cash flows or the closure of a store could result in
significant write-downs of inventory, severance costs, lease termination costs, impairment losses on
long-lived assets, or loss of our working capital, which could adversely impact our financial position, results
of operations, or cash flows.
In addition, from time to time we license the right to operate retail stores for our brands to third
parties, including our independent distributors. We provide training to support these stores, and set and
monitor operational standards. However, the quality of these store operations may decline due to the
failure of these third parties to operate the stores in a manner consistent with our standards, which could
harm their sales and as a result harm our results of operations or cause our brand image to suffer.
If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have difficulty
filling our customers’ orders.
Because the footwear industry has relatively long lead times for design and production, we must plan
our production tooling and projected volumes many months before consumer tastes become apparent. The
footwear and fashion industry is subject to rapid changes in consumer preferences, making it difficult to
accurately forecast demand for our products and our future results of operations. Many factors may
significantly affect demand for our products, which include: consumer acceptance of our products, changes
in consumer demand for products of our competitors, effects of weather conditions, our reliance on
manual processes and judgment for certain supply and demand planning functions that are subject to
human error, unanticipated changes in general market conditions, and weak economic conditions or
consumer confidence that reduces demand for discretionary items, such as our products.
A large number of models, colors, and sizes in our product lines can increase these risks. As a result,
we may fail to accurately forecast styles, colors, and features that will be in demand. If we overestimate
demand for any products or styles, we may be forced to incur higher markdowns or sell excess inventories
at reduced prices resulting in lower, or negative, gross margins. On the other hand, if we underestimate
demand for our products or if our independent factories are unable to supply products when we need
them, we may experience inventory shortages that may prevent us from fulfilling customer orders or
delaying shipments to customers. This could negatively affect our relationship with customers and diminish
our brand loyalty, which may have an adverse effect on our financial condition and results of operations.
Our success depends on our ability to anticipate fashion trends.
Our success depends largely on the continued strength of our brands, on our ability to anticipate,
understand, and react to the rapidly changing fashion tastes of footwear, apparel, and accessory consumers
and to provide appealing merchandise in a timely and cost effective manner. Our products must appeal to
a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid
13
change. We are also dependent on consumer receptivity to our products and marketing strategy. There can
be no assurance that consumers will continue to prefer our brands or that we will (1) respond quickly
enough to changes in consumer preferences, (2) market our products successfully, or (3) successfully
introduce acceptable new models and styles of footwear or accessories to our target consumer. We believe
that the ongoing economic uncertainty in many countries where we sell our products and the
corresponding impact on consumer confidence and discretionary income may increase this uncertainty.
Achieving market acceptance for new products also likely will require us to exert substantial product
development and marketing efforts and expend significant funds to attract consumers. A failure to
introduce new products that gain market acceptance or maintain market share with our current products
would erode our competitive position, which would reduce our profits and could adversely affect the image
of our brands, resulting in long-term harm to our business.
While our UGG brand has experienced strong sales levels over the past several years, UGG brand
sales declined in fiscal year 2012 compared to fiscal year 2011. UGG products include fashion items that
could go out of style at any time and competition for the sale of products by the UGG brand is intense and
has increased over time. UGG products represent a majority of our business, and if UGG product sales
were to decline further or fail to increase in the future, our overall financial performance and common
stock price would be adversely affected.
We may not succeed in implementing our growth strategies.
As part of our growth strategy, we seek to enhance the positioning of our brands, extend our brands
into complementary product categories and markets, partner with or acquire compatible companies or
brands, expand geographically, increase our retail presence, and improve our operational performance. We
continue to expand the nature and scope of our operations considerably, including significantly increasing
the number of our employees worldwide. We anticipate that substantial further expansion will be required
to realize our growth potential and new market opportunities.
We are growing globally through our retail, eCommerce, wholesale, and distributor channels. In
addition, as part of our international growth strategy, we may continue to transition from third-party
distribution to direct distribution through wholly-owned subsidiaries. Implementing our growth strategies,
or failure to effectively execute them, could affect near term revenues from the postponement of sales
recognition to future periods, our rate of growth or profitability, which in turn could have a negative effect
on the value of our common stock. In addition, our growth initiatives could:
(cid:127) increase our working capital needs beyond our capacity;
(cid:127) increase costs if we fail to successfully integrate a newly acquired business or achieve expected cost
savings;
(cid:127) result in impairment charges related to acquired businesses;
(cid:127) create remote-site management issues, which would adversely affect our internal control
environment;
(cid:127) have significant domestic or international legal or compliance implications;
(cid:127) make it difficult to attract, retain, and manage adequate human resources in remote locations;
(cid:127) cause additional inventory manufacturing, distribution, and management costs;
(cid:127) cause us to experience difficulty in filling customer orders;
(cid:127) result in distribution termination transaction costs; or
(cid:127) create other production, distribution, and operating difficulties.
14
Our goodwill and other intangible assets may incur impairment losses.
We conducted our annual impairment tests of goodwill and other intangible assets for 2012, 2011, and
2010. In addition, we conducted interim impairment evaluations when impairment indicators arose. In
2012, 2011, and 2010, we did not recognize any material impairment charges on our goodwill and other
intangible assets.
If any brand’s product sales or operating margins decline to a point that the fair value falls below its
carrying value, we may be required to write down the related intangible assets. These or other related
declines could cause us to incur additional impairment losses, which could materially affect our
consolidated financial statements and results of operations. The value of our trademarks is highly
dependent on forecasted revenues and earnings before interest and taxes for our brands, as well as derived
discount and royalty rates. In addition, the valuation of intangible assets is subject to a high degree of
judgment and complexity. We may also decide to discontinue a brand which would result in the write down
of all related intangible assets. The balances of goodwill and nonamortizable intangibles by brand are as
follows:
As of December 31, 2012
UGG
Teva
Sanuk
Other
Total
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
$ 154
6,101
$15,301
$
— 113,944
— $ — $ 15,455
126,267
6,222
Total nonamortizable intangibles . . . . . . . . . . . . . . .
$6,255
$15,301
$113,944
$6,222
$141,722
Because we depend on independent manufacturers, we face challenges in maintaining a continuous supply of
finished goods that meet our quality standards.
Most of our production is performed by a limited number of independent manufacturers. We depend
on these manufacturers’ ability to finance the production of goods ordered and to maintain manufacturing
capacity, and store completed goods in a safe and sound location pending shipment. We do not possess
direct control over either the independent manufacturers or their materials suppliers, so we may be unable
to obtain timely and continuous delivery of acceptable products. In addition, while we do have long
standing relationships with most of our factories, we currently do not have long-term contracts with these
independent manufacturers, and any of them may unilaterally terminate their relationship with us at any
time or seek to increase the prices they charge us. As a result, we are not assured of an uninterrupted
supply of acceptable quality and competitively priced products from our independent manufacturers. If
there is an interruption, we may not be able to substitute suitable alternative manufacturers to provide
products or services of a comparable quality at an acceptable price or on a timely basis. If a change in our
independent manufacturers becomes necessary, we would likely experience increased costs as well as
substantial disruption of our business, which could result in a loss of sales and earnings.
Interruptions in the supply chain can also result from natural disasters and other adverse events that
would impair our manufacturers’ operations. We keep proprietary materials involved in the production
process, such as shoe molds, knives, and raw materials, under the custody of our independent
manufacturers. If these independent manufacturers were to experience loss or damage to our proprietary
materials involved in the production process, we cannot be assured that such independent manufacturers
would have adequate insurance to cover such loss or damage and, in any event, the replacement of such
materials would likely result in significant delays in the production of our products and could result in a
loss of sales and earnings.
15
Most of our independent manufacturers are located outside the US, where we are subject to the risks of
international commerce.
Most of our independent manufacturers are in China and Vietnam, with the majority of production
performed by a limited number of manufacturers in China. Foreign manufacturing is subject to numerous
risks, including the following:
(cid:127) tariffs, import and export controls, and other non-tariff barriers such as quotas and local content
rules on raw materials and finished products, including the potential threat of anti-dumping duties
and quotas;
(cid:127) increasing transportation costs and a limited supply of international shipping capacity;
(cid:127) increasing labor costs;
(cid:127) poor infrastructure and shortages of equipment, which can disrupt transportation and utilities;
(cid:127) restrictions on the transfer of funds;
(cid:127) changing economic conditions;
(cid:127) violations or changes in governmental policies and regulations including labor, safety, and
environmental regulations in China, Vietnam, the US, and elsewhere;
(cid:127) refusal to adopt or comply with our Supplier Code of Conduct and Restricted Substances Policy;
(cid:127) customary business traditions in China and Vietnam such as local holidays, which are traditionally
accompanied by high levels of turnover in the factories;
(cid:127) labor unrest, which can lead to work stoppages and interruptions in transportation or supply;
(cid:127) delays during shipping, at the port of entry or at the port of departure;
(cid:127) political instability, which can interrupt commerce;
(cid:127) use of unauthorized or prohibited materials or reclassification of materials;
(cid:127) expropriation and nationalization; and
(cid:127) adverse changes in consumer perception of goods, trade, or political relations with China and
Vietnam.
These factors, or others of which we are currently unaware or which we do not currently view as
material, could severely interfere with the manufacture or shipment of our products. This could make it
difficult to obtain adequate supplies of quality products when we need them, thus materially affecting our
sales and results of operations.
While we require that our independent manufacturers adhere to environmental, ethical, health,
safety, and other standard business practices and applicable local laws, and we periodically visit and audit
their operations, we do not control their business practices. If we discovered non-compliant manufacturers
or suppliers that cannot or will not become compliant, we would cease dealing with them, and we could
suffer an interruption in our product supply chain. In addition, the manufacturers’ or designated suppliers’
violations of such standards and laws could damage our reputation and the value of our brands, resulting in
negative publicity and discouraging customers and consumers from buying our products.
We conduct business outside the US, which exposes us to foreign currency, global liquidity, and other risks.
The state of the global economy continues to influence the level of consumer spending for
discretionary items. This affects our business as it is highly dependent on consumer demand for our
products. The current political and economic environments in certain countries in Europe have resulted in
16
significant macroeconomic risks, including high rates of unemployment, high fuel prices, and continued
global economic uncertainty largely precipitated by the European debt crisis.
We operate on a global basis, with approximately 31.2% of our net sales for the year ended
December 31, 2012 from operations outside the US. As we continue to increase our international
operations, our sales and expenditures in foreign currencies become more material and subject to currency
fluctuations and global credit markets. A significant portion of our international operating expenses are
paid in local currencies. Also, our foreign distributors sell in local currencies, which impacts the price to
foreign consumers. Many of our subsidiaries operate with their local currency as their functional currency.
We currently utilize forward contracts or other derivative instruments for the amounts we expect to
purchase and sell in foreign currencies to mitigate exposure to fluctuations in the foreign currency
exchange rate. As we continue to expand international operations and increase purchases and sales in
foreign currencies, we will evaluate and may utilize additional derivative instruments, as needed, to hedge
our foreign currency exposures. Our hedging strategies depend on our forecasts of sales, expenses, and
cash flows, which are inherently subject to inaccuracies. Therefore, our hedging strategies may be
ineffective. Future changes in foreign currency exchange rates and global credit markets may cause
changes in the US dollar value of our purchases or sales and materially affect our sales, profit margins, or
results of operations, when converted to US dollars. In addition, the failure of financial institutions that
underwrite our derivative contracts may negate our efforts to hedge our foreign currency exposures and
result in material foreign currency or contract losses. Foreign currency hedging activities, transactions, or
translations could materially impact our consolidated financial statements.
While our purchases from overseas factories are currently denominated in US dollars, certain
operating and manufacturing costs of the factories are denominated in other currencies. As a result,
fluctuations in these currencies versus the US dollar could impact our purchase prices from the factories in
the event that they adjust their selling prices accordingly.
Key business processes and supporting information systems could be interrupted and adversely affect our
business.
Our future success and growth depend on the continued operation of our key business processes,
including information systems, global communications, the internet, and key personnel. Hackers and
computer viruses have disrupted operations at many major companies. We may be vulnerable to similar
acts of sabotage. Key processes could also be interrupted by a failure due to weather, natural disaster,
power loss, telecommunications failure, failure of our computer systems, sabotage, terrorism, or similar
event such that:
(cid:127) critical business systems become inoperable or require significant costs to restore;
(cid:127) key personnel are unable to perform their duties, communicate, or access information systems;
(cid:127) significant quantities of merchandise are damaged or destroyed;
(cid:127) we are required to make unanticipated investment in state-of-the-art technologies and security
measures;
(cid:127) key wholesale and distributor customers cannot place or receive orders;
(cid:127) eCommerce customer orders may not be received or fulfilled;
(cid:127) confidential information about our customers may be misappropriated or lost damaging our
reputation and customer relationships;
(cid:127) we are exposed to unanticipated liabilities; or
(cid:127) carriers cannot ship or unload shipments.
17
These interruptions to key business processes could have a material adverse effect on our business and
operations and result in lost sales and reduced earnings.
We rely on our information management, internet cloud providers, and other enterprise resource
planning systems to operate our business, prepare forecasts and track our operating results. Our
information management and enterprise planning systems will require modification and refinement as we
grow and our business needs change. We may experience difficulties in transitioning to new or upgraded
information technology systems, including loss of data, unreliable data, and decreases in productivity as
our personnel become familiar with the new systems. If we experience a significant system failure or if we
are unable to competitively modify our information management systems to respond to changes in our
business needs, then our ability to properly run our business and report financial results could be adversely
affected.
The loss of the services and expertise of any key employee could also harm our business. Our future
success depends on our ability to identify, attract, and retain qualified personnel on a timely basis.
We may not be able to attract or retain highly capable employees who can achieve our strategic goals and
objectives.
Our future success depends on our ability to identify, attract, and retain qualified personnel on a
timely basis. The loss of the services and expertise of any key employee could also harm our business
through business process interruptions, loss of institutional knowledge, and recruitment and training costs.
We could be adversely affected by the loss of our warehouses.
The warehousing of our inventory is located at a limited number of self-managed domestic facilities
and self-managed and third party managed international facilities, the loss of any of which could adversely
impact our sales, business performance, and operating results. In addition, we could face a significant
disruption in our domestic distribution center operations if our automated pick module does not perform
as anticipated or ceases to function for an extended period.
Our sales in international markets are subject to a variety of laws and political and economic risks that may
adversely impact our sales and results of operations in certain regions, which could increase our costs and adversely
impact our operating results.
Our ability to capitalize on growth in new international markets and to maintain the current level of
operations in our existing international markets is subject to risks associated with international operations
and joint ventures with international partners that could adversely affect our sales and results of
operations. These include:
(cid:127) changes in currency exchange rates, which impact the price to international consumers;
(cid:127) ability to move currency out of international markets;
(cid:127) the burdens of complying with a variety of foreign laws and regulations, the interpretation and
application of which are uncertain;
(cid:127) legal costs and penalties related to defending allegations of non-compliance;
(cid:127) unexpected changes in legal and regulatory requirements;
(cid:127) inability to successfully import into a country;
(cid:127) changes in tax laws;
(cid:127) complications due to lack of familiarity with local customs;
(cid:127) difficulties associated with promoting products in unfamiliar cultures;
18
(cid:127) political instability;
(cid:127) changes in diplomatic and trade relationships; and
(cid:127) general economic fluctuations in specific countries or markets.
International trade and import regulations may impose unexpected duty costs or other non-tariff barriers to
markets while the increasing number of free trade agreements has the potential to stimulate increased competition;
security procedures may cause significant delays.
Products manufactured overseas and imported into the US and other countries are subject to import
duties. While we have implemented internal measures to comply with applicable customs regulations and
to properly calculate the import duties applicable to imported products, customs authorities may disagree
with our claimed tariff treatment for certain products, resulting in unexpected costs that may not have been
factored into the sales price of the products and our forecasted gross margins.
We cannot predict whether future domestic laws, regulations or trade remedy actions or international
agreements may impose additional duties or other restrictions on the importation of products from one or
more of our sourcing venues. Such changes could increase the cost of our products, require us to withdraw
from certain restricted markets, or change our business methods and could make it difficult to obtain
products of our customary quality at a competitive price. Meanwhile, the continued negotiation of bilateral
and multilateral free trade agreements by the US and our other market countries with countries other than
our principal sourcing venues may stimulate competition from manufacturers in these other sourcing
venues, which now export, or may seek to export, footwear and accessories to our target markets at
preferred rates of duty, which may have an effect on our sales and operations.
Additionally, the increased threat of terrorist activity and law enforcement responses to this threat
have required greater levels of inspection of imported goods and have caused delays in bringing imported
goods to market. Any tightening of security procedures, for example, in the aftermath of a terrorist
incident, could worsen these delays and increase our costs.
Our revolving credit facility provides our lenders with a first-priority lien against substantially all of our assets
and contains financial covenants and other restrictions on our actions.
From time to time, we have financed our liquidity needs in part from borrowing made under a
revolving credit facility. Our credit facility provides for a committed revolving credit line of up to $400,000.
Our obligations under the agreement are guaranteed by our existing and future domestic subsidiaries,
other than certain immaterial subsidiaries and foreign subsidiaries, and are secured by a first priority
security interest in substantially all of our assets and our subsidiaries’ assets, including a portion of the
equity interests of certain of our domestic and foreign subsidiaries. The agreement for our credit facility
also contains a number of customary financial covenants and restrictions, which may restrict our ability to
engage in transactions that would otherwise be in our best interests. Failure to comply with any of the
covenants under the credit agreement could result in a default. A default under the credit agreement could
cause the lenders to accelerate the timing of payments and exercise their lien on essentially all of our
assets, which would have a material adverse effect on our business, operations, financial condition and
liquidity. In addition, because borrowings under the revolving credit facility bear interest at variable
interest rates, which we do not anticipate hedging against, increases in interest rates would increase our
cost of borrowing, resulting in a decline in our net income and cash flow. There was $33,000 outstanding
under our revolving credit facility as of December 31, 2012.
19
The tax laws applicable to our business are very complicated and we may be subject to additional income tax
liabilities as a result of audits by various taxing authorities or changes in tax laws applicable to our business.
We conduct our operations through subsidiaries in several countries including the US, the UK, Japan,
China, Hong Kong, the Netherlands, Bermuda, France, and Canada. As a result, we are subject to tax laws
and regulations in each of those jurisdictions, and to tax treaties between the US and other nations. These
tax laws are highly complex, and significant judgment and specialized expertise is required in evaluating
and estimating our worldwide provision for income taxes.
We are subject to audits in each of the various jurisdictions where we conduct business, and any of
these jurisdictions may assess additional income taxes against us as a result of their audits. Although we
believe our tax estimates are reasonable, and we undertake to prepare our tax filings in accordance with all
applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could
be materially different from our estimates or from our historical income tax provisions and accruals. The
results of an audit or litigation could have a material effect on our operating results or cash flows in the
periods for which that determination is made and may require a restatement of prior financial reports at a
material cost. In addition, future period earnings may be adversely impacted by litigation costs,
settlements, penalties, or interest assessments.
We are also subject to constant changes in tax laws, regulations and treaties in and between the
nations in which we operate. Our income tax expense is based upon our interpretation of the tax laws in
effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or
regulations, including those in and involving the US, or in the interpretation thereof, could result in a
materially higher tax expense or a higher effective tax rate on our worldwide earnings. It is possible that tax
proposals could result in changes to the existing US tax laws that affect us. We are unable to predict
whether any proposals will ultimately be enacted. Any such changes could increase our income tax liability
and adversely affect our net income and long term effective tax rates.
We face intense competition, including competition from companies with significantly greater resources than
ours, and if we are unable to compete effectively with these companies, our market share may decline and our
business could be harmed.
The footwear industry is highly competitive, and many new competitors have entered into the
marketplace. We believe that some of these competitors have entered the market place in response to the
success of our brands and that such competitors have targeted or intend to target our products with their
product offerings. Additionally, we have experienced increased competition from established companies. A
number of our competitors have significantly greater financial, technological, engineering, manufacturing,
marketing, and distribution resources than we do, as well as greater brand awareness in the footwear and
accessory markets. Our competitors include athletic and footwear companies, branded apparel companies,
and retailers with their own private labels. Their greater capabilities in these areas may enable them to
better withstand periodic downturns in the footwear industry, compete more effectively on the basis of
price and production, and develop new products more quickly. In addition, access to offshore
manufacturing has made it easier for new companies to enter the markets in which we compete, further
increasing competition in the footwear and accessory industries.
Additionally, efforts by our competitors to dispose of their excess inventories may significantly reduce
prices that we can expect to receive for the sale of our competing products and may cause our consumers
to shift their purchases away from our products. If we fail to compete successfully in the future, our sales
and earnings will decline, as will the value of our business, financial condition, and common stock price.
The disruption, expense, and potential liability associated with existing and future litigation.
We are involved in various claims, litigations and other legal and regulatory proceedings and
governmental investigations that arise from time to time in the ordinary course of our business. Due to
20
inherent uncertainties of litigation and other such proceedings and investigations, we cannot predict with
accuracy the ultimate outcome of any such matters. An unfavorable outcome could have an adverse impact
on our business, financial position, and results of operations. The amount of insurance coverage we
maintain to address such matters may be inadequate to cover these or other claims. In addition, any
significant litigation, investigation, or proceeding, regardless of its merits, could divert financial and
management resources that would otherwise be used to benefit our operations or could negatively impact
our reputation in the marketplace.
Our common stock price has been volatile, which could result in substantial losses for stockholders.
Our common stock is traded on the NASDAQ Global Select Market. While our average daily trading
volume for the 52-week period ended February 15, 2013 was approximately 2,140,000 shares, we have
experienced more limited volume in the past and may do so in the future. The trading price of our
common stock has been and may continue to be volatile. The closing prices of our common stock, as
reported by the NASDAQ Global Select Market, have ranged from $28.63 to $90.21 for the 52-week
period ended February 15, 2013. The trading price of our common stock could be affected by a number of
factors, including, but not limited to the following:
(cid:127) changes in expectations of our future performance, whether realized or perceived;
(cid:127) changes in estimates by securities analysts or failure to meet such estimates;
(cid:127) published research and opinions by securities analysts and other market forecasters;
(cid:127) changes in our credit ratings;
(cid:127) the financial results and liquidity of our customers;
(cid:127) shift of revenue recognition as a result of changes in our distribution model, delivery of
merchandise, or entering into agreements with related parties;
(cid:127) claims brought against us by a regulatory agency or our stockholders;
(cid:127) quarterly fluctuations in our sales, expenses, and financial results;
(cid:127) general equity market conditions and investor sentiment;
(cid:127) economic conditions and consumer confidence;
(cid:127) broad market fluctuations in volume and price;
(cid:127) increasing short sales of our stock;
(cid:127) announcements to repurchase our stock;
(cid:127) the declaration of stock or cash dividends; and
(cid:127) a variety of risk factors, including the ones described elsewhere in this Annual Report on Form 10-K
and in our other periodic reports.
In addition, the stock market in general has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of individual companies.
Accordingly, the price of our common stock is volatile and any investment in our stock is subject to risk of
loss. These broad market and industry factors and other general macroeconomic conditions unrelated to
our financial performance may also affect our common stock price.
21
The loss, theft or misuse of sensitive customer or company information, or the failure or interruption of key
information technology and resource planning systems, could materially adversely affect our business.
Our business involves the storage and transmission of sensitive information including the personal
information of our customers, credit card information, employee information, data relating to consumer
preferences, and proprietary company financial and strategic data. The protection of our customer,
employee and company data is vitally important to us as the loss, theft or misuse of such information could
lead to significant reputational or competitive harm, litigation and potential liability. As a result, we believe
that our future success and growth depends, in part, on the ability of our key business processes, including
our information and global communication systems, to prevent the theft, loss or misuse of this sensitive
information. However, as with many businesses, we are subject to numerous security and cybersecurity
risks which may prevent us from maintaining the privacy of sensitive information and require us to expend
significant resources attempting to secure such information.
As has been well documented in the media, hackers and computer viruses have disrupted operations
at many major companies, and we may be vulnerable to similar security breaches. While we have
expended, and will continue to expend, significant resources to protect our customers and ourselves against
these breaches and to ensure an effective response to a security or cybersecurity breach, we cannot be
certain that we will be able to adequately defend against any such breach. Techniques used to obtain
unauthorized access to or attack our systems are constantly evolving and, in some cases, becoming more
sophisticated and harder to detect. Despite our efforts, we may be unable to anticipate these techniques or
implement adequate preventive measures in response, and any breaches that we do not detect may remain
undetected for some period. In addition, measures that we do take to prevent risks of fraud and security
breaches have the potential to harm relations with our customers or suppliers, or decrease activity on our
websites by making them more difficult to use or restricting the ability to meet our customers’ expectations
in terms of their online shopping experience.
In addition, we rely on certain information technology management and enterprise resource planning
systems to prepare sales forecasts, track our financial and operating results, and otherwise operate our
business. As our business grows and we expand into additional distribution channels and geographic
regions, these systems may require expansion or modification. We may experience difficulties expanding
these information technology and resource planning systems or transitioning to new or upgraded systems,
which may result in loss of data or unreliable data, decreases in productivity as our personnel become
familiar with the new systems, and increased costs for the implementation of the new or upgraded systems.
If we are unable to modify our information technology or resource planning systems to respond to changes
in our business needs, or if we experience a failure or interruption in these systems, our ability to
accurately forecast sales, report our financial and operating results, or otherwise operate our business
could be adversely affected.
Furthermore, key processes could be interrupted by a failure due to weather, natural disaster, loss of
power, telecommunications failure, failure of our computer systems, terrorism, or similar events such that:
(cid:127) critical business systems become damaged or inoperable or require significant cost or resources to
replace or restore;
(cid:127) key personnel are unable to communicate, access information systems, or otherwise perform their
duties;
(cid:127) significant quantities of merchandise are damaged or destroyed;
(cid:127) we are required to make unanticipated capital expenditures in new or updated technologies;
(cid:127) key wholesale and distributor customers cannot place or receive orders;
(cid:127) eCommerce customer orders cannot be received or fulfilled;
22
(cid:127) sensitive information about our customers or our business may be misappropriated or lost; or
(cid:127) we are exposed to unanticipated liabilities.
Any such failure of or interruption to our key business processes could have a material adverse effect
on our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located in Goleta, California. We have two US distribution centers,
both in California, and an international distribution center in the Netherlands. Our eCommerce operations
are in Arizona, the UK, and Japan. We also have offices in China and Vietnam to oversee the quality and
manufacturing standards of our products, an office in Macau to coordinate logistics, an office in Hong
Kong to coordinate sales and marketing efforts, and offices in the UK and the Netherlands to oversee
European operations and administration. As of December 31, 2012, we had twenty-six retail stores in the
US ranging from approximately 2,000 to 7,000 square feet. Internationally, we had fifty-one retail stores in
the UK, China, Japan, France, Belgium, and Canada. We have no manufacturing facilities, as all of our
products are manufactured by independent manufacturers. We also utilize third-party managed
distribution centers in certain international countries. We lease, rather than own, our facilities from
unrelated parties. In 2011, we purchased approximately fourteen acres of land to build new corporate
headquarters in Goleta, California. We expect the construction of the headquarters to be completed in
2013. With the exception of our eCommerce and retail store facilities, our facilities are attributable to
multiple segments of our business and are not allocated to the reportable segments. We believe our space
is adequate for our current needs and that suitable additional or substitute space will be available to
accommodate the foreseeable expansion of our business and operations. We may utilize additional third-
party managed distribution centers internationally, as we continue converting selective international
distributor businesses into wholesale businesses.
The following table reflects the location, use, segment, and approximate size of our significant physical
properties:
Facility Location
Description
Business Segment
Approximate Square Footage
Camarillo, California . . . . . . . . . . . . . Warehouse Facility
Goleta, California . . . . . . . . . . . . . . . . Corporate Offices
Unallocated
Unallocated
723,000
91,000
Item 3. Legal Proceedings.
We are involved in various routine legal proceedings as both plaintiff and defendant incident to the
ordinary course of our business, including proceedings to protect our intellectual property rights.
On May 31, 2012, a purported shareholder class action lawsuit was filed in the United States District
Court for the Central District of California against the Company and certain of its officers. On August 1,
2012, a similar purported shareholder class action lawsuit was filed in the United States District Court for
the District of Delaware against the Company and certain of its officers. These actions are purportedly
brought on behalf of purchasers of the Company’s publicly traded securities between October 27, 2011 and
April 26, 2012. Plaintiffs in both complaints allege that defendants made false and misleading statements,
purport to assert claims for violations of the federal securities laws, and seek unspecified compensatory
damages and other relief. The California case has been dismissed with prejudice; the Delaware action
remains pending. We believe the claim in the Delaware complaint is without merit and intend to defend
23
the action vigorously. While we believe there is no legal basis for liability, due to the uncertainty
surrounding the litigation process, we are unable to reasonably estimate a range of loss, if any, at this time.
On July 17, 2012 and July 26, 2012, purported shareholder derivative lawsuits were filed in the
California Superior Court for the County of Santa Barbara against our Board of Directors and several of
our officers. The Company is named as nominal defendant. Plaintiffs in the state derivative actions allege
that the Board allowed certain officers to make allegedly false and misleading statements. The complaints
include claims for violation of the federal securities laws, breach of fiduciary duties, mismanagement, waste
of corporate assets, insider trading, unjust enrichment, and violations of the California Corporations Code.
The complaints seek compensatory damages, disgorgement, and other relief. We believe the claims are
without merit and intend to defend the actions vigorously. While we believe there is no legal basis for
liability, due to the uncertainty surrounding the litigation process, we are unable to reasonably estimate a
range of loss, if any, at this time.
As part of our policing program for our intellectual property rights, from time to time, we file lawsuits
in the US and abroad alleging acts of trademark counterfeiting, trademark infringement, patent
infringement, trade dress infringement, trademark dilution, and state or foreign law claims. At any given
point in time, we may have a number of such actions pending. These actions often result in seizure of
counterfeit merchandise or out of court settlements with defendants or both. From time to time, we are
subject to claims where plaintiffs will raise, or defendants will raise, either as affirmative defenses or as
counterclaims, the invalidity or unenforceability of certain of our intellectual properties, including our
trademark registration for UGG Australia. We also are aware of many instances throughout the world in
which a third party is using our UGG trademarks within its internet domain name, and we have discovered
and are investigating several manufacturers and distributors of counterfeit Teva, UGG, and Sanuk
products.
We believe that the outcome of all pending legal proceedings in the aggregate will not have a material
adverse effect on our business or consolidated financial statements.
Item 4. Mine Safety Disclosures.
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our common stock is traded on the NASDAQ Global Select Market under the symbol ‘‘DECK.’’
The following table shows the range of low and high closing sale prices per share of our common stock
as reported by the NASDAQ Global Select Market for the periods indicated.
Year ended December 31, 2012:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Price Per Share
Low
High
$62.90
$43.25
$34.99
$28.63
$72.38
$77.66
$73.28
$75.57
$ 90.21
$ 69.46
$ 51.21
$ 42.76
$ 90.57
$ 96.72
$105.01
$117.66
As of February 15, 2013, we had approximately 59 stockholders of record based upon the records of
our transfer agent, which does not include beneficial owners of our common stock whose shares are held in
the names of various securities brokers, dealers and registered clearing agencies.
We did not sell any equity securities during the year ended December 31, 2012 that were not
registered under the Securities Act of 1933, as amended.
25
STOCK PERFORMANCE GRAPH
Below is a graph comparing the percentage change in the cumulative total stockholder return on the
Company’s common stock against the cumulative total return of the NASDAQ Market Index and a peer
group index for the five-year period commencing December 31, 2007 and ending December 31, 2012. The
data represented below assumes one hundred dollars invested in each of the Company’s common stock,
the NASDAQ Market Index, and the peer group index on January 1, 2008. The stock performance graph
shall not be deemed incorporated by reference by any general statement incorporating by reference this
Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or under the
Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed filed under either of such
Acts. Total return assumes reinvestment of dividends; we have paid no dividends on our common stock and
have not done so since our inception.
COMPARISON OF CUMULATIVE TOTAL RETURN
Deckers Outdoor Corporation
NASDAQ Composite-Total Returns
Peer Group Index
$500
$400
$300
$200
$100
$0
2007
2008
2009
2010
2011
23FEB201310085478
2012
ASSUMES $100 INVESTED ON JAN. 01, 2008
ASSUMES DIVIDEND REINVESTED
2007
2008
2009
2010
2011
2012
December 31,
Deckers Outdoor Corporation . . . . . . . . . . . . . . . .
NASDAQ Market Index# . . . . . . . . . . . . . . . . . . .
Peer Group Index* . . . . . . . . . . . . . . . . . . . . . . . .
$100.0
100.0
100.0
$51.5
60.0
43.2
$65.6
87.2
73.1
$154.3
103.1
94.6
$146.2
102.3
87.0
$ 77.9
120.4
103.0
# The NASDAQ Market Index is the same NASDAQ Index used in our 2011 Form 10-K.
*
The Peer Group Index consists of LaCrosse Footwear, Inc.; Steven Madden, Ltd.; K-Swiss Inc.;
Kenneth Cole Productions, Inc.; Wolverine World Wide, Inc.; Crocs, Inc.; and Skechers USA, Inc.
LaCrosse Footwear, Inc. and Kenneth Cole Productions became private companies during 2012 and
are included in the graph above through their last trading date. In our 2010 Form 10-K, the peer
group also included The Timberland Company, which is not included in the current presentation
because that company was acquired during 2011.
26
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock since our inception. We
currently do not anticipate declaring or paying any cash dividends in the foreseeable future. Our current
credit agreement allows us to make cash dividends, provided that no event of default has occurred or is
continuing and provided that we have a minimum amount of cash plus unused credit of $150,000.
STOCK REPURCHASE PROGRAM
In February 2012, our Board of Directors approved a stock repurchase program to repurchase up to
$100,000 of our common stock in the open market or in privately negotiated transactions, subject to
market conditions, applicable legal requirements, and other factors. The program did not obligate us to
acquire any particular amount of common stock and the program could have been suspended at any time
at our discretion. As of June 30, 2012, the Company repurchased approximately 1,749,000 shares under
this program, for approximately $100,000, or an average price of $57.16. As of June 30, 2012, the Company
had repurchased the full amount authorized under this program. The purchases made under this program
were funded from available working capital.
In June 2012, the Company approved a stock repurchase program to repurchase up to $200,000 of the
Company’s common stock in the open market or in privately negotiated transactions, subject to market
conditions, applicable legal requirements, and other factors. The program does not obligate the Company
to acquire any particular amount of common stock and the program may be suspended at any time at the
Company’s discretion. As of December 31, 2012, the Company had repurchased approximately 2,765,000
shares under this program, for approximately $120,700, or an average price of $43.66, leaving the
remaining approved amount at $79,300.
Period
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
January 1 — January 31, 2012 . . . . . . . . . . . . . . . . .
February 1 — February 29, 2012 . . . . . . . . . . . . . . .
March 1 — March 31, 2012 . . . . . . . . . . . . . . . . . . .
April 1 — April 30, 2012 . . . . . . . . . . . . . . . . . . . . .
May 1 — May 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
June 1 — June 30, 2012 . . . . . . . . . . . . . . . . . . . . .
July 1 — July 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
August 1 — August 31, 2012 . . . . . . . . . . . . . . . . . .
September 1 — September 31, 2012 . . . . . . . . . . . . .
October 1 — October 31, 2012 . . . . . . . . . . . . . . . .
November 1 — November 30, 2012 . . . . . . . . . . . . .
December 1 — December 31, 2012 . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total number
of shares
purchased*
(in thousands)
Average price
paid per
share
Approximate dollar
value of shares that may
yet be purchased
(in thousands)
—
133
141
—
983
492
120
1,639
74
—
932
—
4,514
—
$74.85
$71.11
—
$54.83
$53.02
$41.78
$46.45
$48.27
—
$38.64
—
—
—
$ 90,000
$ 80,000
$ 80,000
$ 26,100
—
$195,000
$118,900
$115,300
$115,300
$ 79,300
$ 79,300
* All shares purchased were purchased as part of a publicly announced program in open-market
transactions.
27
Item 6. Selected Financial Data.
We derived the following selected consolidated financial data from our consolidated financial
statements. Historical results are not necessarily indicative of the results to be expected in the future. You
should read the following consolidated financial information together with our consolidated financial
statements and the related notes and ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations’’ contained in Part II, Item 7 of this annual report.
Years ended December 31,
2012
2011
2010
2009
2008
(In thousands, except per share data)
Statements of operations data
Net sales:
UGG wholesale . . . . . . . . . . . . . . . . . . . . $ 819,256 $ 915,203 $ 663,854 $566,964 $483,781
80,882
Teva wholesale . . . . . . . . . . . . . . . . . . . . .
—
Sanuk wholesale . . . . . . . . . . . . . . . . . . . .
17,558
Other brands wholesale . . . . . . . . . . . . . .
68,769
eCommerce . . . . . . . . . . . . . . . . . . . . . . .
38,455
Retail stores . . . . . . . . . . . . . . . . . . . . . . .
689,445
384,127
305,318
188,399
116,919
(3,583)
120,502
46,631
73,871
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses(1) .
Income from operations . . . . . . . . . . . . . .
. . . . . . . . . . . .
Income before income taxes . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
96,207
—
23,476
91,808
125,644
1,000,989
498,051
502,938
253,850
249,088
(1,021)
250,109
89,732
160,377
118,742
26,039
21,801
106,498
189,000
1,377,283
698,288
678,995
394,157
284,838
(424)
285,262
83,404
201,858
108,591
89,804
20,194
130,592
245,961
1,414,398
782,244
632,154
445,206
186,948
2,830
184,118
55,104
129,014
71,952
—
19,644
75,666
78,951
813,177
442,087
371,090
189,843
181,247
(1,976)
183,223
66,304
116,919
Other expense (income), net
Net (income) loss attributable to
noncontrolling interest . . . . . . . . . . . . . . .
(148)
(2,806)
(2,142)
(133)
77
Net income attributable to Deckers
Outdoor Corporation . . . . . . . . . . . . . $ 128,866 $ 199,052 $ 158,235 $116,786 $ 73,948
Net income per share attributable to Deckers
Outdoor Corporation common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted-average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
3.49 $
3.45 $
5.16 $
5.07 $
4.10 $
2.99 $
4.03 $
2.96 $
1.89
1.87
36,879
37,334
38,605
39,265
38,615
39,292
39,024
39,393
39,126
39,585
(1) 2008 includes impairment losses of $35,825 related to our Teva trademarks, Teva goodwill, and
TSUBO goodwill. During our annual and interim assessments of goodwill and other intangible assets,
we concluded that the fair values were lower than the carrying amounts and therefore wrote down the
trademarks and goodwill to their respective fair values.
As of December 31,
2012
2011
2010
2009
2008
(In thousands)
Balance sheet data
Cash and cash equivalents . . . . . . . . . . . . . . . $ 110,247 $ 263,606 $445,226 $315,862 $176,804
317,755
Working capital . . . . . . . . . . . . . . . . . . . . . . .
483,721
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . .
3,847
Total Deckers Outdoor Corporation stockholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424,569
1,068,064
62,246
585,823
1,146,196
72,687
420,117
599,043
6,269
570,869
808,994
8,456
491,358
652,987
835,936
384,252
738,801
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
References to ‘‘Deckers,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ or similar terms refer to Deckers Outdoor Corporation
together with its consolidated subsidiaries. Unless otherwise specifically indicated, all amounts herein are
expressed in thousands, except for share quantity, per share data, and selling prices. All share and related
information presented herein reflects the increased number of shares resulting from the three-for-one
stock split paid on July 2, 2010. The following discussion of our financial condition and results of
operations should be read together with our consolidated financial statements and the accompanying notes
to those statements included elsewhere in this annual report.
Overview
We are a leading designer, producer, marketer, and brand manager of innovative, high-quality
footwear, apparel, and accessories. We market our products primarily under three proprietary brands:
(cid:127) UGG(cid:5): Premier brand in luxurious comfort footwear, handbags, apparel, and cold weather
accessories;
(cid:127) Teva(cid:5): High performance multi-sport shoes, rugged outdoor footwear, and sport sandals; and
(cid:127) Sanuk(cid:5): Innovative action sport footwear brand rooted in the surf community.
Our financial condition and results of operations include the operations of Sanuk beginning July 1,
2011, the acquisition date. In addition to our primary brands, our other brands include TSUBO(cid:5), a line of
high-end casual footwear that incorporates style, function and maximum comfort; Ahnu(cid:5), a line of outdoor
performance and lifestyle footwear; MOZO(cid:5), a line of footwear that combines running shoe technology
with work shoe toughness for individuals that spend long hours working on their feet; Hoka One One(cid:5)
(Hoka), a line of footwear for all capacities of runner designed to alleviate fatigue, impact and muscle
strain; and Simple(cid:5), a line for which we ceased distribution effective December 31, 2011.
We sell our brands through higher-end domestic retailers and international distributors and retailers,
as well as directly to our end-user consumers through our eCommerce business and our retail stores.
Independent third parties manufacture all of our products. In 2010, we converted our Teva business in
Belgium, the Netherlands, Luxemburg (Benelux) and France from a distributor model to a wholesale
model. In January 2011, we converted from a distributor model to a wholesale model for the UGG, Teva,
and Simple brands in the UK and Ireland and the UGG and Simple brands in Benelux and France.
Our business has been impacted by, what we believe are, several important trends and we expect that
it will continue to be impacted:
(cid:127) Volatile US and global economic conditions and general changes in the market have adversely
impacted businesses worldwide. Some of our customers have been, and more may be, adversely
affected, which in turn has, and may continue to, adversely impact our financial results.
(cid:127) The sheepskin used in certain UGG products is in high demand and limited supply, and there have
been significant increases in the prices of sheepskin as the demand from competitors for this
material has increased. However, we expect our sheepskin costs to decrease in 2013 compared to
2012 due to lower pricing negotiated for our Fall 2013 product costs.
(cid:127) 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.
(cid:127) 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.
29
(cid:127) Consumers have narrowed their footwear product breadth, focusing on brands with a rich heritage
and authenticity as market category creators and leaders.
(cid:127) Consumers have become increasingly focused on luxury and comfort, seeking out products and
brands that are fashionable while still comfortable.
(cid:127) There is an emerging sustainable lifestyle movement happening all around the world, and
consumers are demanding that brands and companies become more environmentally responsible.
(cid:127) Consumers are following a recent trend of buy now, wear now. This trend entails the consumer
waiting to purchase shoes until they will actually wear them, which includes the impact weather will
have on their decision of when to buy, contrasted with a tendency in the past to purchase shoes they
did not plan to wear until later.
By emphasizing our brands’ images and our focus on comfort, performance and authenticity, we
believe we can continue to maintain a loyal consumer following that is less susceptible to fluctuations
caused by changing fashions and changes in consumer preferences. We have also responded to consumer
focus on sustainability by establishing objectives, policies, and procedures to help us drive key sustainability
initiatives around human rights, environmental sustainability, and community affairs.
We have experienced significant cost increases, most over the past several years, notably with respect
to sheepskin. We attempt to cover the full amount of our sheepskin purchases under fixed price contracts.
We continually strive to contain our material costs through increasing the mix of non-sheepskin products,
exploring new footwear materials and new production technologies, and utilizing lower cost production,
including in the US from where we began sourcing products in 2012. Also, refer to Item 7A. Quantitative
and Qualitative Disclosures about Market Risk for further discussion of our commodity price risk.
Below is an overview of the various components of our business, including some key factors that affect
each business and some of our strategies for growing each business.
UGG Brand Overview
UGG Australia has grown to be well-known in the US and internationally in the footwear industry.
With loyal consumers around the world, including high-profile celebrities, the UGG brand continually
earns media exposure from numerous outlets both organically and from strategic public relations efforts.
The UGG brand has invested in paid media creating impactful integrated campaigns across multiple
channels (including television, out-of-home (OOH), print, digital and social) that are globally scalable,
contributing to broader public awareness of the brand.
We believe the increased global media focus and demand for UGG products has been driven by the
following:
(cid:127) consumer brand loyalty, due to the luxurious comfort of UGG footwear;
(cid:127) continued innovation of new product categories and styles, including those beyond footwear;
(cid:127) increased marketing for women and men in targeted high-end print, OOH, digital and social
advertising;
(cid:127) a targeted UGG for Men campaign featuring Tom Brady;
(cid:127) targeted marketing at prospective consumers through email blasts, new catalogs and direct mail
pieces;
(cid:127) successful targeting of higher-end distribution;
(cid:127) expanded product assortment purchases from existing accounts;
(cid:127) adoption by high-profile celebrities as a favored footwear brand;
30
(cid:127) increased media attention that has enabled us to introduce the brand to consumers much faster
than we would have otherwise been able to;
(cid:127) increased exposure to the brand driven by our concept stores that showcase all of our product
offerings;
(cid:127) continued expansion of worldwide retail through new UGG Australia stores;
(cid:127) continued geographic expansion across the US and internationally; and
(cid:127) expansion of our shop-in-shop program worldwide.
We believe the luxurious comfort of UGG products will continue to drive long-term consumer
demand. Recognizing that there is a significant fashion element to UGG footwear and that footwear
fashions fluctuate, our strategy seeks to continually extend 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 increased our product offering, including a growing
spring line, an expanded men’s line, and a fall line that consists of a range of luxurious collections for both
genders, an expanded kids’ line, as well as handbags, cold weather accessories, and apparel. We are
introducing more UGG products to drive excitement and demand during the historically slow retail period
between back to school and Thanksgiving. We have also recently expanded our marketing and promotional
efforts, which we believe has contributed, and will continue to contribute, to our growth. We believe that
the evolution of the UGG brand and our strategy of product diversification also will help decrease our
reliance on sheepskin, which is in high demand and subject to price volatility. Nonetheless, we cannot
assure investors that our efforts will continue to provide UGG brand growth.
Teva Brand Overview
The Teva brand is a leading innovative, global, outdoor adventure brand, with 30 years of
contributions to the outdoor experience. The Teva brand pioneered the water sport sandal category in
1984, and today our brand mission is to inspire better stories through outdoor adventure. Leveraging our
core performance competencies in footwear and delivering our brand promise to help our consumers Live
Better Stories(cid:2), we are focused on driving growth through innovation in the growing outdoor space
through our heritage sandals, off-road trail activities, freeride mountain bike riding, action water sports,
and other outdoor lifestyle products.
Our efforts to expand the Teva brand beyond sandals, while embracing our core water-based
competencies, contributed to significant revenue growth over the past few years. Additionally, our broader
range of footwear demonstrated strong retail sell-through across all channels, and we believe that our retail
partners have viewed both our product and marketing innovations as relevant and compelling.
We see an opportunity to grow the Teva brand significantly outside of the US. In 2013, we plan to
further our Teva brand’s global expansion in Asia and Latin America. Within the US, we see strong growth
opportunities within our current core channels of distribution, outdoor specialty and sporting goods, as our
product assortment evolves and expands. We continue to see strong sandal sales and growth in our
closed-toe offerings. Also, through effective product and distribution segmentation, we see significant
expansion opportunities within the family value, department store, better footwear, and action sports
channels. However, we cannot assure investors that these efforts will be successful.
Sanuk Brand Overview
The Sanuk brand was founded over 15 years ago, and from its origins in the Southern California surf
culture, has grown into a global presence. The Sanuk brand’s use of unexpected materials and
unconventional constructions has contributed to the brand’s identity and growth since its inception, and led
to successful products such as the Yoga Mat sandal collection and the patented SIDEWALK SURFERS(cid:5).
31
We believe that the Sanuk brand provides substantial growth opportunities within the action sports market,
as well as other domestic and global markets and channels.
Other Brands Overview
Our other brands consist of TSUBO, Ahnu, MOZO, and Hoka. Our other brands are all sold through
most of our distribution channels, with the majority sold through wholesale channels.
TSUBO, meaning pressure point in Japanese, is marketed as high-end casual footwear for men and
women. The brand is the synthesis of ergonomics and style, with a full line of sport and dress casuals,
boots, sandals and heels constructed to provide consumers with contemporary footwear that incorporates
style, function, and maximum comfort. We are positioning the TSUBO brand as the premium footwear
solution for people in the city. We are continuing to create products to address consumers’ unique needs of
all-day comfort, innovative style, and superior quality.
The Ahnu brand is an outdoor performance and lifestyle footwear brand for men and women. The
name Ahnu is derived from the Celtic goddess representing the balance of well-being and prosperity. The
brand focuses primarily on women consumers offering style and comfort for active women on both trails
and pavement. The product goal is to achieve uncompromising footwear performance by developing
footwear that will provide the appropriate balance of traction, grip, flexibility, cushioning, and durability
for a variety of outdoor activities — whether on trails, beaches, or sidewalks.
The MOZO brand is dedicated to creative culinary leadership for people who succeed by pushing
their craft and art of food to the edge of possible. MOZO footwear provides protection, support, comfort,
style and ultimately the confidence needed to thrive in a world where consistently flawless execution is the
only way to exist.
The Hoka brand focuses on designing shoes that alleviate fatigue, impact and muscle strain. Runners
from around the world are experiencing the benefits of the Hoka brand products. These shoes are used by
marathon runners, and even ultra-marathon runners as well as every day runners to enjoy running,
maintain top physical performance, and protect against shocks, jolts and injuries.
We expect to leverage our design, marketing, and distribution capabilities to grow our other brands
over the next several years, consistent with our mission to build niche brands into global market leaders.
Nevertheless, we cannot assure investors that our efforts to grow these brands will be successful.
eCommerce Overview
Our eCommerce business, which sells all of our brands, allows us to build our relationship with the
consumer. eCommerce enables us to meet the growing demand for our products, sell the products at retail
prices, and provide significant incremental operating income. The eCommerce business provides us an
opportunity to communicate to the consumer with a consistent brand message that is in line with our
brands’ promises, drives awareness of key brand initiatives, and offers targeted information to specific
consumer segments. Our websites also drive wholesale and distributor sales through brand awareness and
directing consumers to retailers that carry our brands, including our own retail stores. In recent years, our
eCommerce business has had significant revenue growth, much of which occurred as the UGG brand
gained popularity and as consumers continued to increase internet usage for footwear and other purchases.
Managing our eCommerce business requires us to focus on the latest trends and techniques for web
design and marketing, to generate internet traffic to our websites, to effectively convert website visits into
orders, and to maximize average order sizes. We plan to continue to grow our eCommerce business
through improved website features and performance, increased marketing, expansion into more
international markets, and utilization of mobile and tablet technology. Nevertheless, we cannot assure
investors that revenue from our eCommerce business will continue to grow.
32
Retail Stores Overview
Our retail stores are predominantly UGG Australia concept stores and UGG Australia outlet stores.
Our retail stores enable us to directly impact our customers’ experience, meet the growing demand for
these products, sell the products at retail prices and generate strong annual operating income. In addition,
our UGG Australia concept stores allow us to showcase our entire product line including footwear,
accessories, handbags, and outerwear; whereas, a wholesale account may not represent all of these
categories. Through our outlet stores, we sell some of our discontinued styles from prior seasons, plus
products made specifically for the outlet stores. We sell Teva products as well as some of our other brands
through limited outlet locations.
As of December 31, 2012, we had a total of 77 retail stores worldwide. These stores are company-
owned and operated and include our China stores, which prior to April 2, 2012 were owned and operated
with our joint venture partner. On April 2, 2012, we purchased the remaining interest in our Chinese joint
venture. During the remainder of 2013, we plan to open additional retail stores, with the majority to be
located in international locations, with the total being approximately the same as the number of stores we
opened in 2012. We intend to continue opening more retail stores worldwide beyond 2013.
Seasonality
Our business is seasonal, with the highest percentage of UGG brand net sales occurring in the third
and fourth calendar quarters and the highest percentage of Teva and Sanuk brand net sales occurring in
the first and second calendar quarters of each year. Our financial results include the Sanuk brand
beginning July 1, 2011. Our other brands do not have a significant seasonal impact.
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
$246,306
$ 11,933
$174,436
$376,392
$ (28,708) $ 59,609
$617,264
$144,114
2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
$204,851
$ 28,195
$154,222
$414,358
$ (10,798) $ 90,661
$603,852
$176,780
With the level of UGG brand net sales over the past several years, net sales in the last half of the year
have exceeded net sales for the first half of the year. Given our expectations for our brands, we currently
expect this trend to continue. Nonetheless, actual results could differ materially depending upon consumer
preferences, availability of product, competition, and our wholesale and distributor customers continuing
to carry and promote our various product lines, among other risks and uncertainties. See Part I, Item 1A,
‘‘Risk Factors.’’
33
Results of Operations
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
The following table summarizes our results of operations:
Years Ended December 31,
2012
2011
Change
Amount
%
Amount
%
Amount
%
Net sales . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . .
$1,414,398
782,244
100.0% $1,377,283
698,288
55.3
100.0% $ 37,115
83,956
50.7
Gross profit . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses
Income from operations . . . . . . . . . . .
Other expense (income), net . . . . . . . . . .
Income before income taxes . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the
632,154
445,206
186,948
2,830
184,118
55,104
129,014
44.7
31.5
13.2
0.2
13.0
3.9
9.1
678,995
394,157
284,838
(424)
285,262
83,404
201,858
49.3
28.6
20.7
—
20.7
6.1
14.7
2.7%
12.0
(6.9)
13.0
(46,841)
51,049
(97,890)
3,254
(34.4)
767.5
(101,144)
(28,300)
(35.5)
(33.9)
(72,844)
(36.1)
noncontrolling interest . . . . . . . . . . . . .
(148)
—
(2,806)
(0.2)
2,658
94.7
Net income attributable to Deckers
Outdoor Corporation . . . . . . . . . . . . .
$ 128,866
9.1% $ 199,052
14.5% $ (70,186)
(35.3)%
Overview. The Sanuk brand operations are included in our results of operations effective upon the
acquisition date of July 1, 2011. The increase in net sales was primarily due to the addition of the Sanuk
brand as well as increased UGG brand sales through our retail stores and eCommerce sites, partially offset
by decreased UGG, Teva and other brands product sales through our wholesale channel. The decrease in
income from operations resulted from higher selling, general and administrative expenses (SG&A) and
lower gross margin.
34
Net Sales. The following table summarizes net sales by location and net sales by brand and distribution
channel:
Years Ended December 31,
Change
2012
2011
Amount
%
Net sales by location:
US . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
International
$ 972,987
441,411
$ 945,109
432,174
$ 27,878
9,237
Total . . . . . . . . . . . . . . . . . . . . . . .
$1,414,398
$1,377,283
$ 37,115
2.9%
2.1
2.7%
Net sales by brand and distribution
channel:
UGG:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
$ 819,256
118,886
245,397
$ 915,203
98,256
188,377
$(95,947)
20,630
57,020
(10.5)%
21.0
30.3
Total . . . . . . . . . . . . . . . . . . . . . . .
1,183,539
1,201,836
(18,297)
(1.5)
Teva:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Sanuk:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Other brands:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
108,591
6,578
347
115,516
89,804
4,172
20
93,996
20,194
956
197
21,347
118,742
5,571
452
124,765
(10,151)
1,007
(105)
(8.5)
18.1
(23.2)
(9,249)
(7.4)
26,039
539
—
26,578
21,801
2,132
171
24,104
63,765
3,633
20
244.9
674.0
*
67,418
253.7
(1,607)
(1,176)
26
(7.4)
(55.2)
15.2
(2,757)
(11.4)
Total . . . . . . . . . . . . . . . . . . . . .
$1,414,398
$1,377,283
$ 37,115
2.7%
Total eCommerce . . . . . . . . . . . . . . . . .
$ 130,592
$ 106,498
$ 24,094
22.6%
Total Retail stores . . . . . . . . . . . . . . . .
$ 245,961
$ 189,000
$ 56,961
30.1%
*
Calculation of percentage change is not meaningful.
The increase in net sales was primarily driven by the addition of the Sanuk brand as well as increased
UGG brand sales through our retail stores and eCommerce sites, partially offset by decreased UGG, Teva
and other brands wholesale sales. We experienced an increase in the number of pairs sold primarily
through our Sanuk wholesale channel and continued retail and eCommerce growth, partially offset by a
decrease in pairs sold in our UGG, Teva, and other brands wholesale segments. This resulted in a 3.9%
overall increase in the volume of footwear sold for all brands and channels to approximately 23.7 million
pairs for the year ended December 31, 2012 compared to approximately 22.8 million pairs for 2011. Our
weighted-average wholesale selling price per pair decreased to $49.17 for the year ended December 31,
35
2012 from $52.38 for 2011. The decreased average selling price was primarily due to our Sanuk wholesale
segment, which has lower overall average selling prices due to the nature of the brand. We experienced an
increase in the average selling price in all other segments excluding eCommerce.
Wholesale net sales of our UGG brand decreased primarily due to the volume of pairs sold, partially
offset by an increase in the average selling price. The decrease in volume was primarily due to our
wholesale customers in the US, as well as our wholesale customers in Benelux and the UK and distributors
in Europe and Asia, partially offset by an increase in volume to our wholesale customers in Japan and
distributors in Canada and Latin America. For UGG wholesale net sales, the decrease in volume had an
estimated impact of approximately $103,000 and the increase in weighted-average wholesale selling price
per pair had an estimated impact of approximately $7,000. We believe the decline was partially due to
reduced orders for the fall season caused by our customers’ increased carryover inventory levels resulting
from the warm winter in the prior year, a new trend of on-demand purchasing whereby consumers shift the
timing of their purchases to when they plan to actually wear the shoes, as well as the recessionary
conditions in Europe. At this time, we expect our customers’ carryover inventory levels to decrease but not
diminish completely. We expect the trend of on-demand purchasing to continue for the foreseeable future,
thus shifting sales into future periods, and we continue to address pricing and use global strategy to pursue
sales in other parts of the world to mitigate the risk in Europe.
Wholesale net sales of our Teva brand decreased primarily due to a decrease in the volume of pairs
sold, partially offset by an increase in the average selling price. The decrease in volume was primarily due
to our wholesale customers in the US, as well as our distributors in Europe and Asia and wholesale
customers in Benelux and the UK, partially offset by an increase to our wholesale customers in Japan and
France. For Teva wholesale net sales, the decrease in volume had an estimated impact of approximately
$24,000 and the increase in weighted-average wholesale selling price per pair had an estimated impact of
approximately $14,000.
Wholesale net sales of our Sanuk brand were $89,804 for the fiscal year ending December 31, 2012,
compared to $26,039 for the six months commencing on July 1, 2011, the acquisition date, and ending on
December 31, 2011.
Wholesale net sales of our other brands decreased due to a decrease in the volume of pairs sold,
partially offset by an increase in the average selling price. The decrease in volume of pairs sold was due to
ceasing distribution of the Simple brand as of December 31, 2011. Excluding the Simple brand, our other
brands experienced an increase in both average selling price and volume of pairs sold.
Net sales of our eCommerce business increased due to an increase in the volume of pairs sold
primarily attributable to the UGG brand, partially offset by a decrease in the average selling price. The
decrease in the average selling price was primarily due to the addition of Sanuk brand sales which carry
lower average selling prices.
Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to
the addition of 30 new stores opened since December 31, 2011. We do not expect this growth rate to
continue because as we increase the number of our stores, each new store will have less proportional
impact on our growth rate. We cannot assure investors that retail store sales will continue to grow at their
recent pace or that revenue from our retail store business will not at some point decline. For those stores
that were open for the full 52 weeks ending December 30, 2012 compared to the 52 weeks ending
January 1, 2012, same store sales decreased by 3.4%.
International sales, which are included in the segment sales above, for all of our products combined
increased by 2.1% and represented 31.2% and 31.4% of worldwide net sales for the year ended
December 31, 2012 and 2011, respectively. The decrease in international sales as a percentage of
worldwide net sales was largely due to decreased sales to our wholesale customers in Benelux and the UK
36
and distributors in Europe, partially offset by increased sales to our retail, eCommerce and Japan
wholesale customers.
Gross Profit. As a percentage of net sales, gross margin decreased primarily due to increased
sheepskin and other material costs as well as an increased impact of discounted and closeout sales in the
UK and Benelux for our UGG and Teva brands. Our sheepskin costs in 2012 were approximately 40%
higher than our 2011 costs. These decreases to gross margin were partially offset by the contribution of the
Sanuk brand, which generally carries higher margins, and increased gross profits for our eCommerce and
retail stores segments. Our gross margins fluctuate based on several factors, and we expect our gross
margin to increase for the full year 2013 compared to 2012, the majority of which will be realized in the
fourth quarter of 2013.
Selling, General and Administrative Expenses. SG&A increased primarily from:
(cid:127) increased retail costs of approximately $36,000 largely related to 30 new retail stores that were not
open as of December 31, 2011;
(cid:127) approximately $25,000 of expenses for our Sanuk brand, including an increase of approximately
$9,000 to the fair value of the contingent consideration liability from the Company’s purchase of the
brand;
(cid:127) increased marketing expenses of approximately $14,000 largely related to our new UGG women’s
prospects, UGG Men’s and Classic campaigns;
(cid:127) increased eCommerce expenses of approximately $7,000 largely related to increased marketing and
advertising; partially offset by
(cid:127) decreased performance-based cash compensation of approximately $16,000;
(cid:127) decreased legal expense of approximately $10,000, due to having fewer litigation costs in the current
year, a decrease in anti-counterfeiting expenses, as well as receiving increased judgments and
collections in the current year from our website litigation;
(cid:127) decreased sales commissions of approximately $5,000 primarily due to the decrease in wholesale
sales; and
(cid:127) decreased UGG amortization expense of approximately $4,000 primarily related to order books we
acquired from our distributor conversions in Europe being fully amortized in 2011.
Income (Loss) from Operations. The gross profit derived from the sales to third parties of the
eCommerce and retail stores segments is separated into two components, and is recorded at the time of
sale to the third party: (i) the wholesale profit is included in the related operating income or loss of each
wholesale segment, and represents the difference between the Company’s cost and the Company’s
wholesale selling price, and (ii) the retail profit is included in the operating income of the eCommerce and
retail stores segments, and represents the difference between the Company’s wholesale selling price and
the Company’s retail selling price. Each of the wholesale segments charge the eCommerce and retail
segments the same price that they charge third party retail customers, with the resulting profit from
inter-segment sales included in income (loss) from operations of each respective wholesale segment.
37
Inter-segment sales and cost of sales are eliminated upon consolidation. The following table summarizes
operating income (loss) by segment:
Years Ended December 31,
Change
2012
2011
Amount
%
UGG wholesale . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . .
Unallocated overhead costs . . . . . . . . .
$ 267,823
10,072
15,567
(4,317)
29,903
25,590
(157,690)
$ 388,275
20,267
797
(9,524)
24,255
31,461
(170,693)
$(120,452)
(10,195)
14,770
5,207
5,648
(5,871)
13,003
(31.0)%
(50.3)
1,853.2
54.7
23.3
(18.7)
7.6
Total . . . . . . . . . . . . . . . . . . . . . . . .
$ 186,948
$ 284,838
$ (97,890)
(34.4)%
Income from operations as a percentage of sales decreased due to increased SG&A and decreased
gross margin, partially offset by increased sales.
The decrease in income from operations of UGG brand wholesale was primarily the result of the
decrease in net sales and a 8.2 percentage point decrease in gross margin primarily related to increased
sheepskin and other material costs of approximately $16,000 as well as an increase in the impact of
closeout sales in the US and lower sales in Europe, which generally carry higher margins. We also
experienced increases in marketing and promotional expenses of approximately $10,000 and increased
international sales expenses of approximately $3,000. These increases to expenses were partially offset by
decreased sales commissions of approximately $7,000 and decreased amortization expenses, primarily
related to order books we acquired from our distributor conversions in Europe being fully amortized in
2011, of approximately $4,000. At this time, we expect our sheepskin costs to decrease in the latter half of
2013 as a result of lower pricing negotiated for our Fall 2013 product costs. Once our current inventory is
sold through and we begin to sell the product that was purchased with the lower priced sheepskin, we
expect the gross margin and income from operations to be positively impacted. Although we expect to have
discounted sales going forward, we are unable to quantify the impact of the trend in future periods.
The decrease in income from operations of Teva brand wholesale was primarily the result of the
decrease in net sales and a 4.2 percentage point decrease in gross margin primarily due to lower sales in
Europe, which generally carry higher margins, and an increased impact of closeout sales. In addition, we
recognized increased marketing and promotional expenses and other divisional expenses totaling
approximately $2,000.
The income from operations of our Sanuk brand, which we acquired in July 2011, was $15,567.
The loss from operations of our other brands wholesale decreased primarily due to an increase in
gross profit of approximately $2,000 as well as a decrease in operating expenses of approximately $3,000
primarily due to ceasing of the Simple brand operations as of December 31, 2011. Gross profit increased
despite the decrease in net sales because sales of Simple brand products in fiscal year 2011 had significantly
lower gross margins.
The increase in income from operations of our eCommerce business was primarily the result of the
increase in net sales and a 1.6 percentage point increase in gross margin, partially offset by increased
operating expenses of approximately $7,000.
Income from operations of our retail store business, which primarily involves the UGG brand,
decreased due to an increase in operating expenses of approximately $36,000 largely attributable to 30 new
38
stores opened during the year, partially offset by an increase in gross profit of approximately $30,000 due
primarily to the increase in net sales.
The decrease in unallocated overhead costs resulted most significantly from a decrease in legal
expenses of approximately $10,000 due to having fewer litigation costs in the current year, a decrease in
anti-counterfeiting expenses, as well as receiving increased judgments and collections in the current year
from our website litigation. We also experienced a decrease in performance-based cash compensation of
approximately $9,000 and the positive impact of currency exchange rate fluctuations of approximately
$2,000, partially offset by an increase in international expenses of approximately $7,000.
Other Expense (Income), Net. Other expense, net for the twelve months ended December 31, 2012 was
$2,830 compared to other income, net for the twelve months ended December 31, 2011 of $424. In fiscal
year 2012, we had an increase in interest expense related to increases in our short-term borrowings,
partially offset by income primarily related to expired eCommerce website customer credits.
Income Taxes.
Income tax expense and effective income tax rates were as follows:
Years Ended
December 31,
2012
2011
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55,104
$83,404
29.9% 29.2%
The increase in the effective tax rate was primarily due to the increase in our annual US pre-tax
income as a percentage of worldwide pre-tax income, as income generated in the US is taxed at
significantly higher rates than most of our foreign jurisdictions. For the full year 2012, we generated
approximately 21.0% of our pre-tax earnings from a country which does not impose a corporate income
tax. Unremitted earnings of non-US subsidiaries are expected to be reinvested outside of the US
indefinitely. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon
the remittance of dividends. As of December 31, 2012, we had approximately $37,000 of cash and cash
equivalents outside the US that would be subject to additional income taxes if it were to be repatriated. We
have no plans to repatriate any of our foreign cash.
Net Income Attributable to the Noncontrolling Interest. On April 2, 2012, we purchased the remaining
49% noncontrolling interest in our joint venture with Stella International. Prior to this purchase, we
already had a controlling interest in this entity, and therefore, the subsidiary had been and will continue to
be consolidated with our operations. For the twelve months ended December 31, 2012, net income
attributable to the noncontrolling interest was $148, which represents the noncontrolling interest’s share of
income prior to April 2, 2012.
Net Income Attributable to Deckers Outdoor Corporation. Our net income decreased as a result of the
items discussed above. Our diluted earnings per share decreased primarily as a result of the decrease in net
income, partially offset by a reduced number of diluted weighted-average common shares outstanding due
to share repurchases we made under our stock repurchase program.
39
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
The following table summarizes our results of operations:
Years Ended December 31,
2011
2010
Change
Amount
%
Amount
%
Amount
%
Net sales . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
$1,377,283
698,288
100.0% $1,000,989
498,051
50.7
100.0% $376,294
200,237
49.8
37.6%
40.2
Gross profit
. . . . . . . . . . . . . . . . . . . .
678,995
49.3
502,938
50.2
176,057
35.0
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . .
394,157
Income from operations . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Other income, net
Income before income taxes . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the
284,838
(424)
285,262
83,404
201,858
28.6
20.7
—
20.7
6.1
14.7
253,850
249,088
(1,021)
250,109
89,732
160,377
25.4
24.9
(0.1)
25.0
9.0
16.0
140,307
35,750
597
55.3
14.4
58.5
35,153
(6,328)
14.1
(7.1)
41,481
25.9
noncontrolling interest . . . . . . . . . . . . .
(2,806)
(0.2)
(2,142)
(0.2)
(664)
(31.0)
Net income attributable to Deckers
Outdoor Corporation . . . . . . . . . . . . . .
$ 199,052
14.5% $ 158,235
15.8% $ 40,817
25.8%
Overview. The Sanuk brand operations are included in our results of operations effective upon the
acquisition date of July 1, 2011. The increase in net sales was primarily due to an increase in UGG product
sales. The increase in income from operations resulted from higher sales, partially offset by higher SG&A
and lower gross margin.
40
Net Sales. The following table summarizes net sales by location and net sales by brand and distribution
channel:
Years Ended December 31,
Change
2011
2010
Amount
%
Net sales by location:
US . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
International
$ 945,109
432,174
$ 764,111
236,878
$180,998
195,296
23.7%
82.4
Total . . . . . . . . . . . . . . . . . . . . . . .
$1,377,283
$1,000,989
$376,294
37.6%
Net sales by brand and distribution
channel:
UGG:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
$ 915,203
98,256
188,377
$ 663,854
84,574
124,718
$251,349
13,682
63,659
37.9%
16.2
51.0
Total . . . . . . . . . . . . . . . . . . . . . . .
1,201,836
873,146
328,690
37.6
Teva:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Sanuk:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Other brands:
Wholesale . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
118,742
5,571
452
124,765
26,039
539
—
26,578
21,801
2,132
171
24,104
96,207
4,838
302
101,347
—
—
—
—
22,535
733
150
23,418
26,039
539
—
26,578
23.4
15.2
49.7
23.1
*
*
—
*
23,476
2,396
624
26,496
(1,675)
(264)
(453)
(7.1)
(11.0)
(72.6)
(2,392)
(9.0)
Total . . . . . . . . . . . . . . . . . . . . .
$1,377,283
$1,000,989
$376,294
37.6%
Total eCommerce . . . . . . . . . . . . . . . . .
$ 106,498
$
91,808
$ 14,690
16.0%
Total Retail stores . . . . . . . . . . . . . . . .
$ 189,000
$ 125,644
$ 63,356
50.4%
*
Calculation of percentage change is not meaningful.
The increase in net sales was primarily driven by strong sales for the UGG brand. We experienced an
increase in the number of pairs sold primarily through our UGG and Teva wholesale channels, as well as
the addition of the Sanuk brand. This resulted in a 26.7% overall increase in the volume of footwear sold
for all brands to approximately 22.8 million pairs for the year ended December 31, 2011 compared to
approximately 18.0 million pairs for 2010. Our weighted-average wholesale selling price per pair increased
to $52.38 for the year ended December 31, 2011 from $47.71 for 2010. The increased average selling price
was partially due to higher selling prices resulting from our conversion from a distributor model to a direct
wholesale model for our UGG brand in the UK and Benelux and for our Teva brand in the UK.
41
Wholesale net sales of our UGG brand increased primarily due to the volume of pairs sold, as well as
an increase in the average selling price, which was largely related to our conversion to a direct wholesale
model in the UK and Benelux.
Wholesale net sales of our Teva brand increased due to both an increase in the volume of pairs sold, as
well as an increase in the average selling price, which was largely related to our conversion to a direct
wholesale model in the UK, as well as increased closed-toe footwear that carry higher average selling
prices.
Wholesale net sales of our Sanuk brand, which we acquired in July 2011, were $26,039.
Wholesale net sales of our other brands decreased due to a decrease in the average selling price,
primarily due to closeout sales for our Simple brand, partially offset by an increase in pairs sold.
Net sales of our eCommerce business increased due to both an increase in the volume of pairs sold
and an increase in the average selling price, primarily for the UGG brand.
Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to
the addition of 18 new stores that opened since December 31, 2010. New stores that were not open during
the full year ended December 31, 2010 contributed approximately $75,000 of retail sales for the year ended
December 31, 2011 compared to their partial year sales of approximately $19,000 in 2010. For those stores
that were open during the full year ended December 31, 2011 and 2010, same store sales grew by 6.3%.
International sales, which are included in the segment sales above, for all of our products combined
represented 31.4% and 23.7% of worldwide net sales for the year ended December 31, 2011 and 2010,
respectively. The international sales growth was led by the UGG and Teva brands in the European region
largely due to our conversion to a direct wholesale model.
Gross Profit. As a percentage of net sales, gross margin decreased primarily due to increased
sheepskin and other material costs as well as increased factory costs. Our sheepskin costs in 2011 were
approximately 27% higher than 2010 costs, partially offset by increased sales prices. In addition, we
received approximately $7,000 in duty refunds during the year ended December 31, 2010, which did not
recur in 2011. The decrease was partially offset by a higher percentage mix of retail sales and higher
average selling prices. We began realizing the benefit of the direct wholesale model, versus distributor
margins, in the UK for our UGG and Teva brands and in Benelux for our UGG brand starting in January
2011.
Selling, General and Administrative Expenses. SG&A increased primarily from:
(cid:127) increased retail costs of approximately $30,000 largely related to 18 new retail stores that were not
open as of December 31, 2010;
(cid:127) increased international division expenses of approximately $21,000 in support of our international
expansion and our distributor conversions to the wholesale model;
(cid:127) increased marketing expenses of approximately $19,000 primarily related to our UGG brand;
(cid:127) increased commissions and other selling expenses of approximately $17,000 related to our increased
sales; and
(cid:127) increased depreciation, amortization, and accretion expenses of approximately $11,000, primarily
related to our Sanuk acquisition intangible assets and contingent consideration.
Income (Loss) from Operations. The gross profit derived from the sales to third parties of the
eCommerce and retail stores segments is separated into two components, and is recorded at the time of
sale to the third party: (i) the wholesale profit is included in the related operating income or loss of each
wholesale segment, and represents the difference between the Company’s cost and the Company’s
42
wholesale selling price, and (ii) the retail profit is included in the operating income of the eCommerce and
retail stores segments, and represents the difference between the Company’s wholesale selling price and
the Company’s retail selling price. Each of the wholesale segments charge the eCommerce and retail
segments the same price that they charge third party retail customers, with the resulting profit from inter-
segment sales included in income (loss) from operations of each respective wholesale segment.
Inter-segment sales and cost of sales are eliminated upon consolidation. The following table summarizes
operating income (loss) by segment:
Years Ended December 31,
Change
2011
2010
Amount
%
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated overhead costs . . . . . . . . . . . . . . . . . . . . . . . .
$ 388,275
20,267
797
(9,524)
24,255
31,461
(170,693)
$ 307,478
18,684
—
(6,184)
23,536
27,310
(121,736)
$ 80,797
1,583
797
(3,340)
719
4,151
(48,957)
26.3%
8.5
*
(54.0)
3.1
15.2
(40.2)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 284,838
$ 249,088
$ 35,750
14.4%
*
Calculation of percentage change is not meaningful.
Income from operations as a percentage of sales decreased due to increased SG&A and decreased
gross margin, partially offset by increased sales.
The increase in income from operations of UGG brand wholesale was the result of higher sales. The
increase to income was partially offset by a 1.8 percentage point decrease in gross margin primarily related
to the increased sheepskin and other material costs. We also experienced increases in marketing and
promotional expenses of approximately $17,000; increased sales expenses of approximately $6,000;
increased sales commissions of approximately $5,000; and higher amortization expenses, primarily related
to order books we acquired from our distributor conversions in Europe, of approximately $4,000.
The increase in income from operations of Teva brand wholesale was largely due to increased sales
and decreased amortization of approximately $2,000, partially offset by a 0.6 percentage point decrease in
gross margin, primarily due to higher inventory write-downs and an increased impact of closeout sales. In
addition, we recognized increased divisional sales expenses and increased marketing and promotional
expenses totaling approximately $5,000.
The income from operations of our Sanuk brand, which we acquired in July 2011, was $797.
The loss from operations of our other brands wholesale increased primarily due to a 14.8 percentage
point decrease in gross margin as well as the decreased sales. In the process of ceasing distribution of the
Simple brand as of December 31, 2011, we experienced an increased impact from Simple brand closeout
sales. The increase in the loss was partially offset by lower operating expenses of approximately $400.
Income from operations of our eCommerce business increased slightly due to the increased sales,
partially offset by increased operating expenses of approximately $6,000, while gross margin remained flat.
Income from operations of our retail store business, which is primarily the UGG brand, increased due
to the increased sales, partially offset by increased operating expenses of approximately $30,000, while
gross margin remained flat. The increased operating expenses were largely attributable to the 18 new
stores.
43
The increase in unallocated overhead costs resulted most significantly from an increase of
approximately $21,000 related to international infrastructure costs primarily to support our conversions
from distributor models to direct wholesale models, as well as increased legal expenses of approximately
$7,000 primarily related to the protection of our intellectual property including our trademarks. We also
incurred approximately $4,000 related to Sanuk acquisition costs.
Other Income, Net. Other income, net decreased primarily due to a one-time foreign sales tax
exemption of approximately $1,000 recognized in the prior year, partially offset by a credit to interest
expense in the current year resulting from a reversal of a prior year income tax related accrual.
Income Taxes.
Income tax expense and effective income tax rates were as follows:
Years Ended
December 31,
2011
2010
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$83,404
$89,732
29.2% 35.9%
The decrease in the effective tax rate was primarily due to the increase in our annual foreign pre-tax
income as a percentage of worldwide pre-tax income, as income generated in the US is taxed at
significantly higher rates than most of our foreign jurisdictions. For the full year 2011, we generated
approximately 28.0% of our pre-tax earnings from a country which does not impose a corporate income
tax. Unremitted earnings of non-US subsidiaries are expected to be reinvested outside of the US
indefinitely. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon
the remittance of dividends. As of December 31, 2011, we had approximately $43,000 of cash and cash
equivalents outside the US that would be subject to additional income taxes if it were to be repatriated. We
have no plans to repatriate any of our foreign cash.
Net Income Attributable to the Noncontrolling Interest. Net income attributable to the noncontrolling
interest in our joint venture with Stella International increased slightly primarily due to the new stores in
China.
Net Income Attributable to Deckers Outdoor Corporation. Our net income increased as a result of the
items discussed above. Our diluted earnings per share increased for the year ended December 31, 2011
compared to the same period of 2010, primarily as a result of the increase in net income.
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements consisting of guarantee contracts. See ‘‘Contractual
Obligations’’ below.
Liquidity and Capital Resources
We finance our working capital and operating needs using a combination of our cash and cash
equivalents balances, cash generated from operations, and as needed, the credit available under our credit
agreement. Under adverse economic conditions, we may be unable to realize a return on our cash and cash
equivalents, generate sufficient cash from operations, access our credit agreement, or secure additional
credit on favorable terms. Such failures may impact our working capital reserves and have a material
adverse effect on our business.
Our cash flow cycle includes the purchase of inventories, the subsequent sale of the inventories, and
the eventual collection of the resulting accounts receivables. As a result, our working capital requirements
begin when we purchase, or make deposits on, the inventories and continue until we ultimately collect the
resulting receivables. The seasonality of our UGG brand business requires us to build fall and winter
44
inventories in the second and third quarters to support sales for the UGG brand’s major selling seasons,
which historically occur during the third and fourth quarters; whereas, the Teva and Sanuk brands
generally begin to build inventory levels beginning in the fourth and first quarters in anticipation of the
spring selling season that occurs in the first and second quarters. Given the seasonality of our UGG, Teva,
and Sanuk brands, our working capital requirements fluctuate significantly throughout the year. The cash
required to fund these working capital fluctuations has been provided using our cash flows from operations
and short-term borrowings. As needed, we borrow funds under our credit agreement.
The following table summarizes our cash flows and working capital:
Year Ended December 31,
Change
2012
2011
Amount
%
Net cash provided by operating activities . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . .
$ 133,815
$ 30,091
$ 163,906
$ (75,362) $(184,766) $ 109,404
$(242,621) $ (27,160) $(215,461)
$(153,359)
$ 263,606
$ 110,247
(2,619)
193,375
190,756
46,903
253,270
300,173
(17,241)
107,651
90,410
444.7%
59.2%
(793.3)%
(58.2)
(1.4)
18.5
(16.0)
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 691,586
$ 817,902
$(126,316)
(15.4)%
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 133,457
133,560
$ 110,853
121,226
$ 22,604
12,334
20.4
10.2
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 267,017
$ 232,079
$ 34,938
15.1%
Net working capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 424,569
$ 585,823
$(161,254)
(27.5)%
Cash from Operating Activities. Net cash provided by operating activities increased primarily due to the
differences in yearly changes in prepaid expenses and other current assets, inventories and trade accounts
receivable. Prepaid expenses and other current assets decreased in fiscal year 2012, adding to net cash
provided by operating activities, while they increased in fiscal year 2011. Inventories increased by less in
fiscal year 2012 than they did in fiscal year 2011, resulting in less cash used in operating activities. Trade
accounts receivable decreased slightly in fiscal year 2012, while they increased in fiscal year 2011. The
change in prepaid expenses and other current assets was due to refunds of deposits received in accordance
with our contracts to purchase sheepskin in fiscal year 2012 compared to deposits paid in fiscal year 2011.
The smaller increase in inventory was primarily due to the international expansion that occurred in fiscal
year 2011 and did not repeat in fiscal year 2012. The change in accounts receivable was primarily due to
decreased wholesale sales as well as increased cash collections in fiscal year 2012 versus fiscal year 2011.
These increases in operating cash flows were partially offset by a smaller increase in accounts payable,
which increased less in fiscal year 2012 versus fiscal year 2011. Accounts payable increased less primarily
due to our decreased inventory purchases. Net working capital decreased as of December 31, 2012 from
December 31, 2011, primarily as a result of decreased cash and prepaid and other current assets, and an
increase in our short-term borrowings and accounts payable. These decreases to working capital were
partially offset by higher inventory. Changes in working capital are due to the items discussed above, as
well as our normal seasonality and timing of cash receipts and cash payments.
Wholesale accounts receivable turnover decreased to 6.1 times in the twelve months ended
December 31, 2012 from 7.5 times for the twelve months ended December 31, 2011, primarily due to
higher average accounts receivable balances, partially offset by increased cash collections for the twelve
months ended December 31, 2012 compared to the twelve months ended December 31, 2011. The higher
accounts receivable balances were partially the result of the conversion of our European distributor
45
business to our European wholesale operations, which provides us higher selling prices and also extends
the payment terms of our customers compared to sales we make to distributors. Our selling prices through
our wholesale channel directly to retailers are substantially higher than our selling prices to our
distributors, because when we sell product to distributors, the pricing needs to allow for the distributors to
then sell the product to retailers at a profit. Further, our sales terms are longer for wholesale sales made
directly to retailers than for sales made to distributors, because distributors either pre-pay for orders or
have 30-day letters of credit. These longer payment terms for our wholesale customers have lead to higher
accounts receivable balances. We do not expect that the conversion to our European wholesale operations
will be a cause of further decline in our accounts receivable turnover in the near-term as we do not expect
additional conversions in the near-term.
Inventory turnover decreased to 2.4 times for the twelve months ended December 31, 2012 compared
to 3.3 times for the twelve months ended December 31, 2011, primarily due to higher average inventory
levels during the twelve months ended December 31, 2012 compared to the twelve months ended
December 31, 2011, partially offset by increased sales. The higher inventory balances were primarily
attributed to our projected increased sales, increased international inventory, new retail locations, and
increased materials and factory costs. We are maintaining higher international inventory levels in part
because of our recent conversions to a wholesale business from a distributor business. We warehouse
inventory in anticipation of shipping to our wholesale customers, whereas sales to our distributors are
drop-shipped and are not supplied from inventory on hand. This has caused the inventory turnover to
decrease but we expect this trend to level off since we are not expecting any additional conversions in the
near-term.
Cash from Investing Activities. Net cash used in investing activities for the year ended December 31,
2012 resulted from the purchases of property and equipment, as well as our acquisitions of the Hoka brand
and an intangible asset for lease rights for a retail store location in France. Capital expenditures in fiscal
year 2012 included the build out of 30 new retail stores and our corporate facilities.
For the year ended December 31, 2011, net cash used in investing activities resulted primarily from
our acquisition of the Sanuk brand and purchases of property and equipment. Capital expenditures in
fiscal year 2011 included the purchase of land for our new corporate headquarters and the build out of 18
new retail stores. In November 2011, we made a cash payment of approximately $20,000 for approximately
fourteen acres of land for our new headquarters facility in Goleta, California.
As of December 31, 2012, we had approximately $2,000 of material commitments for future capital
expenditures primarily related to the build out of new retail stores. We estimate that the capital
expenditures for 2013 including the aforementioned commitments will range from approximately $85,000
to $90,000. We anticipate these expenditures will primarily include the construction costs of our new
headquarters and new retail stores. The actual amount of capital expenditures for the year may differ from
this estimate, largely depending on the timing of new store openings or any unforeseen needs to replace
existing assets and the timing of other expenditures, including design and construction of the new
headquarters.
Cash from Financing Activities. For the year ended December 31, 2012, net cash used in financing
activities was comprised primarily of repayments of short-term borrowings and repurchases of our common
stock, as well as contingent consideration paid related to our Sanuk acquisition, and the purchase of the
remaining 49% noncontrolling interest in our joint venture with Stella International. Our decision to
borrow $307,000 was largely due to our repurchase of $221,000 of our common stock. The cash used was
partially offset by cash from our short-term borrowings, leaving a $33,000 balance for borrowings as of
December 31, 2012.
For the year ended December 31, 2011, net cash used in financing activities was comprised primarily
of repayments of short-term borrowings, cash paid for shares withheld for taxes from employee stock unit
vesting and for repurchases of our common stock. The cash used was partially offset by cash from our
46
short-term borrowings, leaving a zero balance for borrowings as of December 31, 2011, and excess tax
benefits from stock compensation. The excess tax benefits from stock compensation changes were larger
than the prior period primarily due to the issuance of stock in relation to our long-term incentive program.
In February 2012, our Board of Directors approved a stock repurchase program to repurchase up to
$100,000 of our common stock in the open market or in privately negotiated transactions, subject to
market conditions, applicable legal requirements, and other factors. The program did not obligate us to
acquire any particular amount of common stock and the program could have been suspended at any time
at our discretion. As of June 30, 2012, the Company repurchased approximately 1,749,000 shares under
this program, for approximately $100,000, or an average price of $57.16. As of June 30, 2012, the Company
had repurchased the full amount authorized under this program. The purchases were funded from
available working capital.
In June 2012, the Company approved a stock repurchase program to repurchase up to $200,000 of the
Company’s common stock in the open market or in privately negotiated transactions, subject to market
conditions, applicable legal requirements, and other factors. The program does not obligate the Company
to acquire any particular amount of common stock and the program may be suspended at any time at the
Company’s discretion. As of December 31, 2012, the Company had repurchased approximately 2,765,000
shares under this program, for approximately $120,700, or an average price of $43.66, leaving the
remaining approved amount at $79,300.
In August 2011, we entered into a Credit Agreement (the Credit Agreement) with JPMorgan Chase
Bank, National Association as the administrative agent, Comerica Bank and HSBC Bank USA, National
Association, as syndication agents, and the lenders party thereto. In August 2012 we amended and restated
in its entirety the Credit Agreement (Amended and Restated Credit Agreement). The Amended and
Restated Credit Agreement is a five-year, $400,000 secured revolving credit facility. Refer to Note 3 to our
accompanying consolidated financial statements for further information on our Amended and Restated
Credit Agreement. At December 31, 2012, we had approximately $33,000 of outstanding borrowings under
the Amended and Restated Credit Agreement and outstanding letters of credit of $189, leaving $366,811
available under the Amended and Restated Credit Agreement. As of December 31, 2012, we were in
compliance with all covenants and we remain in compliance as of the date of this report. Subsequent to
December 31, 2012, we repaid $33,000, resulting in no outstanding borrowings under the Amended and
Restated Credit Agreement as of March 1, 2013.
Contractual Obligations. The following table summarizes our contractual obligations at December 31,
2012 and the effects such obligations are expected to have on liquidity and cash flow in future periods.
Payments Due by Period
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Operating lease obligations(1) . . . . . . . . . . . . . .
Purchase obligations(2) . . . . . . . . . . . . . . . . . . .
$221,603
342,234
$ 39,892
341,112
$67,148
1,122
$54,696
—
$59,867
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$563,837
$381,004
$68,270
$54,696
$59,867
(1) Our operating lease obligations consist primarily of building leases for our retail locations, distribution
centers, and corporate and regional offices. The majority of other long-term liabilities on our
consolidated balance sheets, with the exception of our Sanuk contingent consideration liability
discussed below, are related to deferred rents, of which the cash lease payments are included in
operating lease obligations in this table.
(2) Our purchase obligations consist mostly of open purchase orders. They also include promotional
expenses and service contracts. Outstanding purchase orders are primarily with our third party
manufacturers and are expected to be paid within one year. These are outstanding open orders and
47
not minimum purchase obligations. Our promotional expenditures and service contracts are due
periodically through 2014.
We have also entered into minimum purchase commitments with certain suppliers (see Note 7 to our
accompanying consolidated financial statements). Certain of the agreements require that we advance
specified minimum payment amounts. We have included the total remaining cash commitments under
these agreements, net of deposits, as of December 31, 2012 in this table. We expect sheepskin
purchases by third party factories supplying UGG product to us will eventually exceed the minimum
commitment levels; therefore we believe the deposits will become fully refundable, and thus, we
believe this will not materially affect our results of operations, as it is in the normal course of our
business.
Commitments and Contingencies. The following reflect the additional commitments and contingent
liabilities that may have a material impact on liquidity and cash flow in future periods.
The purchase price for the Sanuk brand also includes contingent consideration over the next five years
as follows:
(cid:127) 51.8% of the Sanuk brand gross profit in 2012, which was $25,450,
(cid:127) 36.0% of the Sanuk brand gross profit in 2013, and
(cid:127) 40.0% of the Sanuk brand gross profit in 2015.
There is no maximum to the contingent consideration payments for 2012, 2013, and 2015. Estimated
contingent consideration payments of $70,360 are included within other accrued expenses and long-term
liabilities in the consolidated balance sheet as of December 31, 2012, and are not included in the table
above. See Note 1 to our accompanying consolidated financial statements.
The purchase price for the Hoka brand also includes contingent consideration through 2017, with a
maximum of $2,000. Estimated contingent consideration payments of $1,100 are included within other
accrued expenses and long-term liabilities in the consolidated balance sheet as of December 31, 2012, and
are not included in the table above. See Note 1 to our accompanying consolidated financial statements.
We are currently involved in various legal claims arising from the ordinary course of business.
Management does not believe that the disposition of any of these matters, whether individually or
collectively, will have a material effect on our financial position or results of operations. In addition, we
have agreed to indemnify certain licensees, distributors and promotional partners in connection with
claims related to the use of our intellectual property. The terms of such agreements range up to five years
initially and generally do not provide for a limitation on the maximum potential future payments.
Management believes the likelihood of any payments is remote and would be immaterial. We determined
the risk was low based on a prior history of insignificant claims. We are not currently involved in any
indemnification matters in regards to our intellectual property.
On May 31, 2012, a purported shareholder class action lawsuit was filed in the United States District
Court for the Central District of California against the Company and certain of its officers. On August 1,
2012, a similar purported shareholder class action lawsuit was filed in the United States District Court for
the District of Delaware against the Company and certain of its officers. These actions are purportedly
brought on behalf of purchasers of the Company’s publicly traded securities between October 27, 2011 and
April 26, 2012. Plaintiffs in both complaints allege that defendants made false and misleading statements,
purport to assert claims for violations of the federal securities laws, and seek unspecified compensatory
damages and other relief. The California case has been dismissed with prejudice; the Delaware action
remains pending. We believe the claim in the Delaware complaint is without merit and intend to defend
the action vigorously. While we believe there is no legal basis for liability, due to the uncertainty
surrounding the litigation process, we are unable to reasonably estimate a range of loss, if any, at this time.
48
On July 17, 2012 and July 26, 2012, purported shareholder derivative lawsuits were filed in the
California Superior Court for the County of Santa Barbara against our Board of Directors and several of
our officers. The Company is named as nominal defendant. Plaintiffs in the state derivative actions allege
that the Board allowed certain officers to make allegedly false and misleading statements. The complaints
include claims for violation of the federal securities laws, breach of fiduciary duties, mismanagement, waste
of corporate assets, insider trading, unjust enrichment, and violations of the California Corporations Code.
The complaints seek compensatory damages, disgorgement, and other relief. We believe the claims are
without merit and intend to defend the actions vigorously. While we believe there is no legal basis for
liability, due to the uncertainty surrounding the litigation process, we are unable to reasonably estimate a
range of loss, if any, at this time.
We believe that cash generated from operations, the available borrowings under our existing
Amended and Restated Credit Agreement, and our cash and cash equivalents will provide sufficient
liquidity to enable us to meet our working capital requirements for at least the next 12 months. However,
risks and uncertainties that could impact our ability to maintain or grow our cash position include our
earnings 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, our ability to generate returns on our acquisitions of businesses, and market volatility, among
others. See Part I, Item 1A, ‘‘Risk Factors’’ for a discussion of additional factors that may affect our cash
position. Furthermore, we may require additional cash resources due to changed business conditions or
other future developments, including any investments or acquisitions we may decide to pursue. If these
sources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional
equity securities or to obtain a new credit agreement or draw on our existing Amended and Restated
Credit Agreement. The sale of convertible debt securities or additional equity securities could result in
additional dilution to our stockholders. The incurrence of indebtedness would result in incurring debt
service obligations and could result in operating and financial covenants that would restrict our operations.
In addition, there can be no assurance that any additional financing will be available on acceptable terms, if
at all. Although there are no other material present understandings, commitments or agreements with
respect to the acquisition of any other businesses, we may evaluate acquisitions of other businesses or
brands.
Impact of Inflation
We believe that the rates of inflation in the three most recent fiscal years have not had a significant
impact on our net sales or profitability.
Critical Accounting Policies and Estimates
Refer to Note 1 to our accompanying consolidated financial statements for a discussion of our
significant accounting policies. Those policies and estimates that we believe are most critical to the
understanding of our consolidated financial statements contained in this report are revenue recognition;
use of estimates, which includes the below reserves and allowances; inventories; accounting for long-lived
assets; goodwill and other intangible assets; fair value of contingent consideration; and stock
compensation.
Use of Estimates. The preparation of financial statements in conformity with US generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported
amounts during the reporting period. Management reasonably could use different estimates and
assumptions, and changes in estimates and assumptions could occur from period to period, with the result
in each case being a potential material change in the financial statement presentation of our financial
condition or results of operations. We have historically been materially accurate in our estimates used for
the reserves and allowances below.
49
The following table summarizes data related to the critical accounting estimates for accounts
receivable allowances and reserves, which are discussed below:
Gross trade accounts receivable . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . .
Reserve for sales discounts . . . . . . . . . . . . . . . .
Allowance for estimated chargebacks . . . . . . . . .
December 31, 2012
December 31, 2011
Amount
$215,842
2,782
$
3,836
$
5,563
$
% of Gross
Trade Accounts
Receivable
1.3%
1.8%
2.6%
Amount
$215,067
1,719
$
4,629
$
4,031
$
% of Gross
Trade Accounts
Receivable
0.8%
2.2%
1.9%
Amount
% of Net Sales
Amount
% of Net Sales
Net sales for the three months ended . . . . . . . . . . .
Allowance for estimated returns . . . . . . . . . . . . .
Estimated returns liability . . . . . . . . . . . . . . . . . .
$617,264
$ 12,905
6,471
$
2.1%
1.0%
$603,852
$ 11,313
6,413
$
1.9%
1.1%
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 and
forecasts, 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 all or a portion of are identified as potentially uncollectible,
plus a non-specific reserve for the balance of accounts based on our historical loss experience. Reserves
have been established for all projected losses of this nature. 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 reserve for the accounts we consider to have credit risk and are not specifically identified as
uncollectible would change the allowance for doubtful accounts at December 31, 2012 by approximately
$858.
Reserve for Sales Discounts. A significant portion of our domestic net sales, as well as our international
wholesale sales, and resulting trade accounts receivable reflects a discount that our customers may take,
generally based upon meeting certain order, shipment and payment timelines. We use the amount of the
discounts that are available to be taken against the period-end trade accounts receivable to estimate and
record a corresponding reserve for sales discounts. The decrease in the reserve was primarily due to one of
our largest customers receiving discounted pricing on invoices rather than receiving payment terms
discounts, which lowered the overall reserve.
Allowance for Estimated Chargebacks. When our wholesale customers pay their invoices, they often
take deductions for chargebacks against their invoices, which are often valid. Therefore, we record an
allowance for the balance of chargebacks that are outstanding in our accounts receivable balance as of the
end of each period, along with an estimated reserve for chargebacks that have not yet been taken against
outstanding accounts receivable balances. This estimate is based on historical trends of the timing and
amount of chargebacks taken against invoices.
Allowance for Estimated Returns and Estimated Returns Liability. We record an allowance for
anticipated future returns of goods shipped prior to period-end and a liability for anticipated returns of
goods sold direct to consumers. In general, we accept returns for damaged or defective products. We also
have a policy whereby we accept returns from our retail and eCommerce customers for a thirty day period.
We base the amounts of the allowance and liability on any approved customer requests for returns,
historical returns experience, and any recent events that could result in a change from historical returns
rates, among other factors. The allowance for estimated returns increased as a percentage of net sales due
to higher levels of actual returns received subsequent to year end. Our use of different estimates and
50
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 allowance and
liability reserves for returns in total at December 31, 2012 by approximately $5,029. Our historical
estimates for returns have been reasonably accurate.
Inventory Write-Downs. 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 expected future
net selling prices. At December 31, 2012, inventories were stated at $300,173, net of inventory write-downs
of $3,645. At December 31, 2011, inventories were stated at $253,270 net of inventory write-downs of
$2,419. The amount of inventory write-downs as a percentage of inventory were 1.2 and 1.0 as of
December 31, 2012 and 2011, respectively. Our use of different estimates and assumptions could produce
different financial results. For example, a 10.0% change in the estimated selling prices of our potentially
obsolete inventory would change the inventory write-down reserve at December 31, 2012 by approximately
$1,043.
Valuation of Goodwill, Intangible and Other Long-Lived Assets. We assess the impairment of goodwill,
intangible, and other long-lived assets on a separate asset basis based on assumptions and judgments
regarding the carrying amount of these assets individually.
We performed our 2012 annual impairment tests for goodwill and nonamortizable intangible assets.
We evaluated our UGG, Sanuk and other brands’ goodwill and our Teva trademarks. Based on the carrying
amounts of the UGG, Teva, Sanuk and other brands’ goodwill, trademarks, and net assets, the brands’ 2012
sales and operating results, and the brands’ long-term forecasts of sales and operating results as of their
evaluation dates, we concluded that the carrying amounts of the UGG, Sanuk and other brands’ goodwill,
as well as the Teva trademarks, were not impaired. Our Teva trademarks were evaluated under ASU,
Testing Indefinite-Lived Intangible Assets for Impairment, and we concluded, based on an evaluation of all
relevant qualitative factors, including macroeconomic conditions, industry and market considerations, cost
factors, financial performance, entity-specific events, and legal, regulatory, contractual, political, business,
or other factors, that it is not more likely than not that the fair value of the Teva trademarks is less than its
carrying amount, and accordingly we did not perform a quantitative impairment test for the Teva
trademarks. Our goodwill balance at December 31, 2012 represents goodwill in the UGG, Sanuk and other
brands’ reporting units. We believe that it is not more likely than not that the fair value of the UGG
reporting unit’s fair value is less than its carrying value. We believe that it is not more likely than not that
the fair value of the Sanuk reporting unit’s fair value is less than its carrying value, as we have increased
our Sanuk sales and profitability forecasts since the acquisition. We believe that it is not more likely than
not that the fair value of the other brands’ reporting unit’s fair value is less than its carrying value, as we
only recently completed our acquisition of the related goodwill as of September 27, 2012, and have not
experienced any significant negative trends since acquisition. All goodwill was evaluated based on
qualitative analyses.
We also evaluated amortizable long-lived assets, including intangible assets as of December 31, 2012
and 2011. We recorded immaterial impairment losses in SG&A in our other brands segment and for one of
our retail stores for which the fair values did not exceed their carrying values. We recorded certain
amortizable intangible assets related to our Sanuk and Hoka acquisitions (see Note 11 to our
accompanying consolidated financial statements for the valuation methodologies used). Our other
valuation methodologies used as of December 31, 2012 did not change from the prior year.
51
Fair Value of Contingent Consideration. We have entered into contingent consideration arrangements
when we acquired brands. The fair value of our Sanuk brand contingent consideration is material and
highly subjective. It is based on estimated future sales and gross profits, and discount rates, among other
variables and estimates, and certain years have no maximum payment (see Note 1 to our accompanying
consolidated financial statements). These are evaluated each reporting period and the contingent
consideration is adjusted accordingly. Our estimated revenue forecasts include a compound annual growth
rate of 21.3% through 2015. Our use of different estimates and assumptions could produce different
financial results. For example, a 5.0% change in the estimated compound annual growth rate would change
the total liability balance at December 31, 2012 by approximately $4,000.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Commodity Price Risk. We purchase certain materials that are affected by commodity prices, the most
significant of which is sheepskin. The supply of sheepskin used in certain UGG products is in high demand
and there are a limited number of suppliers able to meet our expectations for the quantity and quality of
sheepskin required. There have been significant increases in the price of sheepskin in recent years as the
demand from us and our competitors for this commodity has increased. We experienced an approximate
40% increase in sheepskin costs in 2012 compared to 2011. We expect an overall decrease in 2013 for this
commodity due to lower pricing negotiated for our Fall 2013 product costs, the majority of which will be
realized in the fourth quarter of 2013. Other significant factors affecting the price of sheepskin include
weather patterns, harvesting decisions, global economic conditions, and other factors which are not
considered predictable or within our control. We use purchasing contracts, pricing arrangements, and
refundable deposits to attempt to reduce the impact of price volatility as an alternative to hedging
commodity prices. The purchasing contracts and pricing arrangements we use may result in unconditional
purchase obligations, which are not reflected in our consolidated balance sheets. In the event of significant
commodity cost increases, we will likely not be able to adjust our selling prices sufficiently to mitigate the
impact on our margins.
Foreign Currency Exchange Rate Risk. We face market risk to the extent that changes in foreign
currency exchange rates affect our foreign assets, liabilities, revenues and expenses. We hedge certain
foreign currency forecasted transactions and exposures from existing assets and liabilities. Other than an
increasing amount of sales, expenses, and financial positions denominated in foreign currencies, we do not
believe that there has been a material change in the nature of our primary market risk exposures, including
the categories of market risk to which we are exposed and the particular markets that present the primary
risk of loss. As of the date of this Annual Report on Form 10-K, we do not know of or expect there to be
any material change in the general nature of our primary market risk exposure in the near term.
We currently utilize forward contracts and other derivative instruments to mitigate exposure to
fluctuations in the foreign currency exchange rate, for a portion of the amounts we expect to purchase and
sell in foreign currencies. As our international operations grow and we increase purchases and sales in
foreign currencies, we will evaluate and may utilize additional derivative instruments, as needed, to hedge
our foreign currency exposures. We do not use foreign currency contracts for trading purposes.
Although the majority of our sales and inventory purchases are denominated in US currency, these
sales and inventory purchases may be impacted by fluctuations in the exchange rates between the US
dollar and the local currencies in the international markets where our products are sold and manufactured.
Our foreign currency exposure is generated primarily from our Asian and European operations.
Approximately $314,000, or 22.2%, of our total net sales for the year ended December 31, 2012 were
denominated in foreign currencies. Certain of our foreign subsidiaries’ local currency is their designated
functional currency. As we begin to hold more cash and other monetary assets and liabilities in currencies
other than our subsidiary’s functional currency, we are exposed to financial statement transaction gains
and losses as a result of remeasuring the operating results and financial positions into their functional
currency. We remeasure these monetary assets and liabilities using the exchange rate as of the end of the
52
reporting period. In addition, we translate assets and liabilities of subsidiaries with reporting currencies
other than US dollars into US dollars using the exchange rates at of the end of the reporting period, which
results in financial statement translation gains and losses in other comprehensive income. Changes in
foreign exchange rates affect our reported profits and can distort comparisons from year to year. In
addition, if the US dollar strengthens, it may result in increased pricing pressure on our foreign
distributors, and retailers, which may have a negative impact on our net sales and gross margins. As of
December 31, 2012, our non-designated derivative contracts had notional amounts totaling approximately
$19,000. These contracts were comprised of offsetting contracts with the same counterparty, each expire in
March 2013, and have an unrealized gain of approximately $500 at December 31, 2012. Subsequent to
December 31, 2012 we entered into designated hedging contracts with notional amounts totaling
approximately $63,000.
Interest Rate Risk. Our market risk exposure with respect to financial instruments is tied to changes in
the prime rate in the US and changes in the London Interbank Offered Rate (LIBOR). Our Amended and
Restated Credit Agreement provides for interest on outstanding borrowings at rates tied to the prime rate
or, at our election, tied to LIBOR. At December 31, 2012, we had outstanding borrowings under the credit
agreement of $33,000. A 1.0% increase in interest rates on our current borrowings would not have a
material impact on income before income taxes.
Item 8. Financial Statements and Supplementary Data.
Financial Statements and the Reports of Independent Registered Public Accounting Firm are filed
with this Annual Report on Form 10-K in a separate section following Part IV, as shown on the index under
Item 15 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures.
The Company maintains a system of disclosure controls and procedures that are designed to provide
reasonable assurance that information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These
disclosure controls and procedures include, among other processes, controls and procedures designed to
ensure that information required to be disclosed in the reports that the Company files or submits under the
Exchange Act is accumulated and communicated to management, including the principal executive officer
and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company carried out an evaluation, under the supervision and with the participation of
management, including the principal executive officer and the principal financial officer of the
effectiveness of the design and operation of our disclosure controls and procedures as of December 31,
2012 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the principal executive officer
and the principal financial officer concluded that the Company’s disclosure controls and procedures, as
defined in Exchange Act Rule 13a-15(e) and 15d-15(e), were effective as of the end of the period covered
by this annual report.
(b) Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting at the Company. Our internal control over financial reporting is a process designed under the
53
supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s financial statements
for external reporting purposes in accordance with US generally accepted accounting principles (GAAP).
A company’s internal control over financial reporting includes those policies and procedures that:
(cid:127) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(cid:127) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and the directors of the
company; and
(cid:127) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2012. Management based this assessment on criteria for effective internal control over
financial reporting described in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an
evaluation of the design of the Company’s internal control over financial reporting and testing of the
operational effectiveness of its internal control over financial reporting. Management reviewed the results
of its assessment with the Audit Committee of our Board of Directors.
Based on this assessment, management determined that, as of December 31, 2012, the Company
maintained effective internal control over financial reporting. The registered public accounting firm that
audited the consolidated financial statements included in this Annual Report has issued an attestation
report on the Company’s internal control over financial reporting. The Reports of our Independent
Registered Public Accounting Firm are filed with this annual report in a separate section following Part IV,
as shown on the index under Item 15 of this Annual Report.
(c) Changes in Internal Control over Financial Reporting.
There was no change in our internal control over financial reporting that occurred during the quarter
ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information.
None.
54
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
We have adopted a written code of ethics that applies to our principal executive officer, principal
financial and accounting officer, controller and persons performing similar functions and is posted on our
website at www.deckers.com. Our code of ethics is designed to meet the requirements of Section 406 of
Regulation S-K and the rules promulgated thereunder. To the extent required by law, any amendments to,
or waivers from, any provision of the code will be promptly disclosed publicly either on a report on
Form 8-K or on our website at www.deckers.com.
All additional information required by this item, including information relating to Directors and
Executive Officers of the Registrant, is set forth in the Company’s definitive proxy statement relating to the
Registrant’s 2013 annual meeting of stockholders, which will be filed pursuant to Regulation 14A within
120 days after the end of the Company’s fiscal year ended December 31, 2012, and such information is
incorporated herein by reference.
Item 11. Executive Compensation.
Information relating to Executive Compensation is set forth under ‘‘Proposal No. 1-Election of
Directors’’ in the Company’s definitive proxy statement relating to the Registrant’s 2013 annual meeting of
stockholders, which will be filed pursuant to Regulation 14A within 120 days after the end of the
Company’s fiscal year ended December 31, 2012, and such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information relating to Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters is set forth under ‘‘Proposal No. 1-Election of Directors’’ in the Company’s
definitive proxy statement relating to the Registrant’s 2013 annual meeting of stockholders, which will be
filed pursuant to Regulation 14A within 120 days after the end of the Company’s fiscal year ended
December 31, 2012, and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information relating to Certain Relationships and Related Transactions is set forth under ‘‘Proposal
No. 1-Election of Directors’’ in the Company’s definitive proxy statement relating to the Registrant’s 2013
annual meeting of stockholders, which will be filed pursuant to Regulation 14A within 120 days after the
end of the Company’s fiscal year ended December 31, 2012, and such information is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services.
Information relating to Principal Accountant Fees and Services is set forth under ‘‘Proposal
No. 2-Independent Registered Public Accounting Firm’’ in the Company’s definitive proxy statement
relating to the Registrant’s 2013 annual meeting of stockholders, which will be filed pursuant to
Regulation 14A within 120 days after the end of the Company’s fiscal year ended December 31, 2012, and
such information is incorporated herein by reference.
55
Item 15. Exhibits, Financial Statement Schedules.
PART IV
Consolidated Financial Statements and Schedules required to be filed hereunder are indexed on
Page F-1 hereof.
Exhibit
Number
Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation of Deckers Outdoor Corporation as
amended through May 27, 2010 (Exhibit 3.1 to the Registrant’s Form 10-Q for the quarterly
period ended June 30, 2010 and incorporated by reference herein)
3.2 Restated Bylaws of Deckers Outdoor Corporation, as amended by the Board of Directors
through September 12, 2011 (Exhibit 3.2 to the Registrant’s Form 10-Q for the quarterly period
ended September 30, 2011 and incorporated by reference herein)
10.1 Lease Agreement dated November 1, 2003 between Ampersand Aviation, LLC and Deckers
Outdoor Corporation for office building at 495-A South Fairview Avenue, Goleta, California,
93117 (Exhibit 10.34 to the Registrant’s Form 10-K for the period ended December 31, 2003
and incorporated by reference herein)
10.2 Lease Agreement dated September 15, 2004 between Mission Oaks Associates, LLC and
Deckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo,
CA 93012 (Exhibit 10.37 to the Registrant’s Form 10-K for the period ended December 31,
2004 and incorporated by reference herein)
10.3 First Amendment to Lease Agreement between Mission Oaks Associates, LLC and Deckers
Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo, CA 93012,
dated December 1, 2004 (Exhibit 10.38 to the Registrant’s Form 10-K for the period ended
December 31, 2004 and incorporated by reference herein)
#10.4 Deckers Outdoor Corporation 2006 Equity Incentive Plan (incorporated herein by reference to
Appendix A to the Registrant’s Definitive Proxy Statement dated April 21, 2006 in connection
with its 2006 Annual Meeting of Stockholders)
#10.5 First Amendment to Deckers Outdoor Corporation 2006 Equity Incentive Plan (incorporated
herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement dated
April 9, 2007 in connection with its 2007 Annual Meeting of Stockholders)
#10.6 Form of Restricted Stock Unit Award Agreement (Level 1) Under 2006 Equity Incentive Plan
(Exhibit 10.2 to the Registrant’s Form 8-K filed on May 11, 2007 and incorporated by reference
herein)
#10.7 Form of Restricted Stock Unit Award Agreement (Level 2) Under 2006 Equity Incentive Plan
(Exhibit 10.3 to the Registrant’s Form 8-K filed on May 11, 2007 and incorporated by reference
herein)
#10.8 Form of Stock Appreciation Rights Award Agreement (Level 1) Under 2006 Equity Incentive
Plan (Exhibit 10.4 to the Registrant’s Form 8-K filed on May 11, 2007 and incorporated by
reference herein)
#10.9 Form of Stock Appreciation Rights Award Agreement (Level 2) Under 2006 Equity Incentive
Plan (Exhibit 10.5 to the Registrant’s Form 8-K filed on May 11, 2007 and incorporated by
reference herein)
#10.10 Form of Indemnification Agreement (Exhibit 10.1 to the Registrant’s Form 8-K filed on June 2,
2008 and incorporated by reference herein)
56
Exhibit
Number
Description of Exhibit
#10.11 Change of Control and Severance Agreement with Deckers Outdoor Corporation for Angel
Martinez on December 22, 2009 (Exhibit 10.33 to the Registrant’s Form 10-K filed on March 1,
2010 and incorporated by reference herein)
#10.12 Change of Control and Severance Agreement with Deckers Outdoor Corporation for Zohar
Ziv on December 22, 2009 (Exhibit 10.34 to the Registrant’s Form 10-K filed on March 1, 2010
and incorporated by reference herein)
#10.13 Change of Control and Severance Agreement with Deckers Outdoor Corporation for Thomas
George on December 22, 2009 (Exhibit 10.35 to the Registrant’s Form 10-K filed on March 1,
2010 and incorporated by reference herein)
#10.14 Change of Control and Severance Agreement with Deckers Outdoor Corporation for
Constance Rishwain on December 22, 2009 (Exhibit 10.36 to the Registrant’s Form 10-K filed
on March 1, 2010 and incorporated by reference herein)
10.15
Second Amended and Restated Credit Agreement among Deckers Outdoor Corporation,
TSUBO, LLC and Comerica Bank (Exhibit 10.1 to the Registrant’s Form 8-K filed on May 28,
2010 and incorporated by reference herein)
#10.16 Deckers Outdoor Corporation Amended and Restated Deferred Stock Unit Compensation
Plan, a Sub Plan under the Deckers Outdoor Corporation 2006 Equity Incentive Plan, adopted
by the Board of Directors on December 14, 2010 (Exhibit 10.24 to the Registrant’s Form 10-K
filed on March 1, 2011 and incorporated by reference herein)
#10.17 Deckers Outdoor Corporation Amended and Restated Deferred Compensation Plan effective
as of January 1, 2011 (Exhibit 10.17 to the Registrant’s Form 10-K filed on February 29, 2012
and incorporated by reference herein)
10.18 Asset Purchase Agreement, dated as of May 19, 2011 by and among Deckers Outdoor
Corporation, Deckers Acquisition, Inc., Deckers International Limited, Sanuk USA, LLC,
Thomas J. Kelley, Ian L. Kessler, C&C Partners, Ltd., Donald A. Clark and Paul Carr
(Exhibit 10.1 to the Registrant’s Form 8-K filed on May 19, 2011 and incorporated herein by
reference)
#10.19 Form of Restricted Stock Unit Award Agreement (Level III) Under 2006 Equity Incentive Plan
adopted on June 22, 2011 (Exhibit 10.1 to the Registrant’s Form 8-K filed on June 28, 2011 and
incorporated by reference herein)
10.20 Amendment No. 1 to Asset Purchase Agreement, dated as of July 1, 2011, by and among
Deckers Outdoor Corporation, Deckers Acquisition, Inc., Deckers International Limited,
Sanuk USA, LLC, Thomas J. Kelley, Ian L. Kessler, C&C Partners, Ltd., Donald A. Clark and
Paul Carr (Exhibit 10.1 to the Registrant’s Form 8-K filed on July 6, 2011 and incorporated by
reference herein)
10.21 Amendment Number Two to Second Amended and Restated Credit Agreement and
Amendment Number One to LIBOR/Prime Rate Addendum, dated August 10, 2011, by and
among Deckers Outdoor Corporation, TSUBO, LLC and Comerica Bank (Exhibit 10.1 to the
Registrant’s Form 8-K filed on August 15, 2011 and incorporated by reference herein)
10.22 Amended and Restated Credit Agreement, dated as of August 10, 2012, by and among Deckers
Outdoor Corporation, as Borrower, JPMorgan Chase Bank, National Association, as
Administrative Agent, Comerica Bank and HSBC Bank USA, National Association, as
Co-Syndication Agents, and the lenders from time to time party thereto (Exhibit 10.1 to the
Registrant’s Form 8-K filed on August 16, 2012 and incorporated by reference herein)
57
Exhibit
Number
Description of Exhibit
10.23 Amendment to Lease Agreement between Mission Oaks Associates, LLC and Deckers
Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo, CA 93012,
dated September 1, 2011 (Exhibit 10.23 to the Registrant’s Form 10-K filed on February 29,
2012 and incorporated by reference herein)
10.24 Amendment to Lease Agreement between 450 N. Baldwin Park Associates, LLC and Deckers
Outdoor Corporation for distribution center at 3175 Mission Oaks Blvd., Camarillo, CA 93012,
dated September 1, 2011 (Exhibit 10.24 to the Registrant’s Form 10-K filed on February 29,
2012 and incorporated by reference herein)
10.25 Purchase and Sale Agreement, dated as of September 2, 2011, by and among Deckers Outdoor
Corporation and Santa Barbara Realty Development, L.L.C. (Exhibit 10.3 to the Registrant’s
Form 10-Q for the quarterly period ended September 30, 2011 and incorporated by reference
herein)
#10.26 Form of Restricted Stock Unit Award Agreement (2012 LTIP) Under 2006 Equity Incentive
Plan (Exhibit 10.1 to the Registrant’s Form 8-K filed on May 31, 2012 and incorporated by
reference herein
*#10.27 Form of Stock Unit Award Agreement under the Deckers Outdoor Corporation 2006 Equity
Incentive Plan
*#10.28 Form of Deckers Outdoor Corporation Management Incentive Program under the 2006 Equity
Incentive Plan
*21.1
Subsidiaries of Registrant
*23.1 Consent of Independent Registered Public Accounting Firm
*31.1 Certification of the Chief Executive Officer pursuant to Rule 13A-14(a) under the Exchange
Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2 Certification of the Chief Financial Officer pursuant to Rule 13A-14(a) under the Exchange
Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1 Certification pursuant to 18 USC. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
**101.1 The following materials from the Company’s Annual Report on Form 10-K for the annual
period ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting
Language); (i) Consolidated Balance Sheets as of December 31, 2011 and 2010;
(ii) Consolidated Statements of Income for the years ended December 31, 2011, 2010, and
2009; (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2011,
2010, and 2009, and (iv) Notes to Consolidated Financial Statements.
*
Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed
not filed or part of registration statement prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities
and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
# Management contract or compensatory plan or arrangement.
58
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
DECKERS OUTDOOR CORPORATION
(Registrant)
/s/ ANGEL R. MARTINEZ
Angel R. Martinez
Chief Executive Officer
Date: March 1, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ ANGEL R. MARTINEZ
Angel R. Martinez
/s/ THOMAS A. GEORGE
Thomas A. George
/s/ KARYN O. BARSA
Karyn O. Barsa
/s/ MAUREEN CONNERS
Maureen Conners
/s/ MICHAEL DEVINE
Michael Devine
/s/ JOHN M. GIBBONS
John M. Gibbons
/s/ REX A. LICKLIDER
Rex A. Licklider
/s/ JOHN G. PERENCHIO
John G. Perenchio
/s/ JAMES QUINN
James Quinn
/s/ LAURI SHANAHAN
Lauri Shanahan
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting
Officer)
March 1, 2013
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
Director
March 1, 2013
59
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for each of the years in the three-year
Page
F-2
F-4
period ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Stockholders’ Equity for each of the years in the three-year period
ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
F-8
Consolidated Financial Statement Schedule
Valuation and Qualifying Accounts for each of the years in the three-year period ended
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42
All other schedules are omitted because they are not applicable or the required information is shown
in the Company’s consolidated financial statements or the related notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Deckers Outdoor Corporation:
We have audited the accompanying consolidated financial statements of Deckers Outdoor
Corporation and subsidiaries (the Company) as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the related consolidated financial
statement schedule as listed in the accompanying index. These consolidated financial statements and
consolidated financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements and the consolidated
financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Deckers Outdoor Corporation and subsidiaries as of December 31, 2012
and 2011, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in
our opinion, the related consolidated financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information
set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the internal control over financial reporting of Deckers Outdoor Corporation as of
December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 1, 2013 expressed an unqualified opinion on the effectiveness of the internal control over financial
reporting of Deckers Outdoor Corporation.
Los Angeles, California
March 1, 2013
/s/ KPMG LLP
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Deckers Outdoor Corporation:
We have audited the internal control over financial reporting of Deckers Outdoor Corporation (the
Company) as of December 31, 2012 based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Deckers Outdoor Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2012, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Deckers Outdoor Corporation and subsidiaries
as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2012, and the related consolidated financial statement schedule, and our report dated March 1, 2013
expressed an unqualified opinion on those consolidated financial statements and consolidated financial
statement schedule.
Los Angeles, California
March 1, 2013
/s/ KPMG LLP
F-3
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except par value)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable, net of allowances of $25,086 and $21,692 in
2012 and 2011, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2012
2011
$ 110,247
$ 263,606
190,756
300,173
14,092
59,028
17,290
691,586
125,370
126,267
98,423
13,372
13,046
193,375
253,270
8,697
84,540
14,414
817,902
90,257
120,045
94,449
13,223
10,320
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,068,064
$1,146,196
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (note7)
Stockholders’ equity:
Deckers Outdoor Corporation stockholders’ equity:
Common stock, $0.01 par value; authorized 125,000 shares; issued and
outstanding 34,400 and 38,692 shares for 2012 and 2011, respectively . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deckers Outdoor Corporation stockholders’ equity . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,000
133,457
15,896
59,597
25,067
267,017
62,246
$
—
110,853
32,594
57,744
30,888
232,079
72,687
344
139,046
600,811
(1,400)
738,801
—
738,801
387
144,684
692,595
(1,730)
835,936
5,494
841,430
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,068,064
$1,146,196
See accompanying notes to consolidated financial statements.
F-4
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
Years Ended December 31,
2012
2011
2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,414,398
782,244
$1,377,283
698,288
$1,000,989
498,051
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
632,154
678,995
502,938
Selling, general and administrative expenses . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
445,206
186,948
394,157
284,838
253,850
249,088
Other expense (income), net:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on foreign currency hedging . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . .
(217)
3,840
(793)
2,830
184,118
55,104
129,014
(180)
249
(493)
(424)
285,262
83,404
201,858
(633)
963
330
(931)
(1,952)
(2,883)
(234)
566
(1,353)
(1,021)
250,109
89,732
160,377
1,564
(905)
659
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . .
$ 129,344
$ 198,975
$ 161,036
Net income attributable to:
Deckers Outdoor Corporation . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 128,866
148
$ 199,052
2,806
$ 158,235
2,142
Comprehensive income attributable to:
Deckers Outdoor Corporation . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest
$ 129,014
$ 201,858
$ 160,377
$ 129,196
148
$ 196,169
2,806
$ 158,894
2,142
$ 129,344
$ 198,975
$ 161,036
Net income per share attributable to Deckers Outdoor
Corporation common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Weighted-average common shares outstanding:
3.49
3.45
$
$
5.16
5.07
$
$
4.10
4.03
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,879
37,334
38,605
39,265
38,615
39,292
See accompanying notes to consolidated financial statements.
F-5
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
Common Stock
Shares Amount
Additional
Paid-in
Capital
Years Ended December 31, 2010, 2011 and 2012
Accumulated
Other
Total Deckers
Outdoor Corp.
Total
Retained Comprehensive Stockholders’ Non-controlling Stockholders’
Earnings
Income (Loss)
Interest
Equity
Equity
.
.
.
.
.
.
.
.
.
Balance December 31, 2009 .
.
Stock compensation expense .
.
Exercise of stock options
.
Shares issued upon vesting .
.
Excess tax benefit from stock
.
.
.
.
.
.
.
Shares withheld for taxes
.
.
Stock repurchase .
Net income .
.
.
.
.
Total other comprehensive income
.
.
compensation .
(loss) .
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance December 31, 2010 .
.
.
compensation .
Stock compensation expense .
.
Exercise of stock options
.
Shares issued upon vesting .
.
Excess tax benefit from stock
.
.
.
.
.
.
.
Shares withheld for taxes
.
.
Stock repurchase .
Net income .
.
.
.
.
Total other comprehensive income
.
.
(loss) .
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance December 31, 2011 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
compensation .
Stock compensation expense .
Exercise of stock options
.
.
.
Shares issued upon vesting .
Deficient tax benefit from stock
.
.
.
.
.
.
.
Shares withheld for taxes
.
.
.
Stock repurchase .
.
.
. .
Net income .
Acquisition of noncontrolling interest
Total other comprehensive income
.
.
(loss) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance December 31, 2012 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. 38,604
30
.
31
.
146
.
$387
—
—
1
$125,173
12,782
89
(1)
$ 365,304
—
—
—
$
.
.
.
.
.
—
—
(230)
—
—
—
—
(2)
—
—
3,525
(3,579)
—
—
—
—
(10,080)
158,235
494
—
—
—
—
—
—
—
$ 491,358
12,782
89
—
3,525
(3,579)
(10,082)
158,235
—
—
659
659
$
546
—
—
—
—
—
—
2,142
—
$ 491,904
12,782
89
—
3,525
(3,579)
(10,082)
160,377
659
. 38,581
$386
$137,989
$ 513,459
$ 1,153
$ 652,987
$ 2,688
$ 655,675
.
.
.
.
.
.
.
.
10
12
334
—
—
(245)
—
—
—
—
3
—
—
(2)
—
—
14,803
62
(3)
15,330
(23,497)
—
—
—
—
—
—
—
(19,916)
199,052
—
—
—
—
—
—
—
14,803
62
—
15,330
(23,497)
(19,918)
199,052
—
—
(2,883)
(2,883)
—
—
—
—
—
—
2,806
—
14,803
62
—
15,330
(23,497)
(19,918)
201,858
(2,883)
. 38,692
$387
$144,684
$ 692,595
$(1,730)
$ 835,936
$ 5,494
$ 841,430
.
.
.
.
.
.
.
.
.
19
4
199
—
—
(4,514)
—
—
—
—
2
—
—
(45)
—
—
14,661
9
(2)
—
—
—
(381)
(5,888)
—
—
— (220,650)
128,866
—
(14,037)
—
—
—
—
—
—
—
—
14,661
9
—
(381)
(5,888)
(220,695)
128,866
(14,037)
—
—
—
—
—
—
148
(5,642)
14,661
9
—
(381)
(5,888)
(220,695)
129,014
(19,679)
—
—
—
330
330
—
330
. 34,400
$344
$139,046
$ 600,811
$(1,400)
$ 738,801
$ —
$ 738,801
See accompanying notes to consolidated financial statements.
F-6
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . . . .
Provision for (recovery of) doubtful accounts, net . . . . . . . . . . . . . . . . . . . . .
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of assets and
liabilities acquired in the acquisition of businesses:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities
Years Ended December 31,
2012
2011
2010
$ 129,014
$ 201,858
$160,377
33,367
8,659
2,128
(5,657)
14,661
1,229
491
(46,903)
23,511
(3,028)
18,932
(959)
(9,983)
(5,820)
4,264
28,977
—
(704)
(67)
14,803
2,735
(63,199)
(120,730)
(75,525)
(5,385)
38,237
—
850
5,722
2,519
12,283
—
(786)
(1,712)
12,782
(391)
(39,449)
(38,642)
(6,766)
(1,651)
19,742
—
16,468
5,480
2,187
Net cash provided by operating activities
. . . . . . . . . . . . . . . . . . . . . . .
163,906
30,091
139,922
Cash flows from investing activities:
Proceeds from sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses and equity method investment . . . . . . . . . . . . . . . .
Purchases of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(61,575)
(8,829)
(4,958)
—
(55,538)
(125,203)
(4,025)
26,080
(22,489)
(5,191)
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75,362)
(184,766)
(1,600)
Cash flows from financing activities:
Proceeds from issuance of short-term borrowings . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of short-term borrowings
Cash paid for shares withheld for taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock compensation . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from issuances of common stock . . . . . . . . . . . . . . . . . . . . . .
Loan origination costs on short-term borrowings . . . . . . . . . . . . . . . . . . . . .
Contingent consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . .
307,000
(274,000)
(6,535)
2,457
—
(1,807)
(29,041)
(20,000)
(220,695)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(242,621)
Effect of exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
718
45,000
(45,000)
(22,634)
15,330
62
—
—
—
(19,918)
(27,160)
215
—
—
(2,584)
3,525
89
—
—
—
(10,082)
(9,052)
94
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
(153,359)
263,606
(181,620)
445,226
129,364
315,862
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 110,247
$ 263,606
$445,226
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
$ 66,899
3,338
$
$ 62,405
88
$
$ 82,493
59
$
Non-cash investing and financing activity:
Deferred purchase payments for acquisition of business . . . . . . . . . . . . . . . . .
Accruals for purchases of property and equipment . . . . . . . . . . . . . . . . . . . .
Contingent consideration arrangement for acquisition of business . . . . . . . . . .
Accruals for asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals for shares withheld for taxes
. . . . . . . . . . . . . . . . . . . . . .
Write-off for shares exercised with a tax deficit
$
$
$
$
$
$
3,671
489
1,128
526
1,804
2,838
See accompanying notes to consolidated financial statements.
F-7
$
$
3,268
$ 88,100
236
$
$
2,460
$
—
— $
247
$
—
$
$
388
$ 1,598
—
— $
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(amounts in thousands, except share quantity and per share data)
(1) The Company and Summary of Significant Accounting Policies
The Company and Basis of Presentation
The consolidated financial statements include the accounts of Deckers Outdoor Corporation and its
wholly-owned subsidiaries (collectively referred to as the ‘‘Company’’). Accordingly, all references herein
to ‘‘Deckers Outdoor Corporation’’ or ‘‘Deckers’’ include the consolidated results of the Company and its
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Deckers Outdoor Corporation strives to be a premier lifestyle marketer that builds niche brands into
global market leaders by designing and marketing innovative, functional, and fashion-oriented footwear
and accessories, developed for both high performance outdoor activities and everyday casual lifestyle use.
The Company’s business is seasonal, with the highest percentage of UGG(cid:5) brand net sales occurring in the
third and fourth quarters and the highest percentage of Teva(cid:5) and Sanuk(cid:5) brand net sales occurring in the
first and second quarters of each year. The other brands do not have a significant seasonal impact on the
Company.
In January 2011, the Company acquired certain assets from its UGG, Teva, and Simple(cid:5) brands
distributor that sold to retailers in the United Kingdom (UK) and from its UGG and Simple brands
distributor that sold to retailers in Benelux and France. The distribution rights in these regions reverted
back to the Company on December 31, 2010 upon the expiration of the distribution agreements. On July 1,
2011, the Company acquired the Sanuk brand. Deckers Outdoor Corporation’s consolidated financial
statements include the operations of Sanuk beginning July 1, 2011.
Prior to April 2, 2012, the Company owned 51% of a joint venture with an affiliate of Stella
International Holdings Limited (Stella International) for the primary purpose of opening and operating
retail stores for the UGG brand in China. Stella International is also one of the Company’s major
manufacturers in China. On April 2, 2012, the Company purchased, for a total purchase price of
approximately $20,000, the 49% noncontrolling interest owned by Stella International. The Company
accounted for this transaction as acquiring the remaining interest of an entity that had already been
majority-owned by the Company. The purchase resulted in a reduction to additional paid in capital of
$14,037 representing excess purchase price over the carrying amount of the noncontrolling interest. Prior
to this purchase, the Company already had a controlling interest in this entity, and therefore, the subsidiary
had been and will continue to be consolidated with the Company’s operations.
On May 19, 2011, the Company entered into an asset purchase agreement with Sanuk USA LLC,
C&C Partners, Ltd., and the equity holders of both entities (collectively referred to as ‘‘Sanuk’’ or the
‘‘Sanuk brand’’). On July 1, 2011, the Company completed the acquisition of the purchased assets and the
assumption of the assumed liabilities of the Sanuk brand. Deckers Outdoor Corporation’s consolidated
financial statements include the operations of Sanuk beginning July 1, 2011.
In May 2012, the Company purchased a noncontrolling interest in Hoka One One(cid:5), a privately held
footwear company, which was accounted for as an equity method investment. In September 2012, the
Company acquired the remaining ownership interest in Hoka. The Company does not expect the Hoka
brand to have a significant seasonal impact in the near term. The acquisition of Hoka is not material to the
Company’s consolidated financial statements.
F-8
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Inventories
Inventories, principally finished goods, are stated at the lower of cost (first-in, first-out) or market (net
realizable value). Cost includes initial molds and tooling that are amortized over the life of the mold in cost
of sales. Cost also includes shipping and handling fees and costs, which are subsequently expensed to cost
of sales. Market values are determined by historical experience with discounted sales, industry trends, and
the retail environment.
Revenue Recognition
The Company recognizes wholesale, eCommerce, and international distributor revenue when
products are shipped and retail revenue at the point of sale. All sales are recognized when the customer
takes title and assumes risk of loss, collection of the related receivable is reasonably assured, persuasive
evidence of an arrangement exists, and the sales price is fixed or determinable. For wholesale and
international distributor sales, allowances for estimated returns, discounts, chargebacks, and bad debts are
provided for when related revenue is recorded. For eCommerce sales, allowances for estimated returns
and bad debts are provided for when related revenue is recorded. For retail sales, allowances for estimated
returns 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. The Company presents revenue net of taxes collected from customers and
remitted to governmental authorities.
Accounting for Long-Lived Assets
Other long-lived assets, such as land, property and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to
be generated by the asset. If the carrying amount exceeds the estimated future cash flows, an impairment
charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.
Intangible assets subject to amortization are amortized over their respective estimated useful lives to their
estimated residual values. The Company uses the straight-line method for depreciation and amortization
of long-lived assets, except for certain intangible assets where the Company can reliably determine the
pattern in which the economic benefits of the assets will be consumed.
At least quarterly, the Company evaluates whether any impairment triggering events, including the
following, have occurred which would require such asset groups to be tested for impairment:
(cid:127) A significant decrease in the market price of a long-lived asset group;
(cid:127) a significant adverse change in the extent or manner in which a long-lived asset group is being used
or in its physical condition;
(cid:127) a significant adverse change in legal factors or in business climate that could affect the value of a
long-lived asset group, including an adverse action or assessment by a regulator;
(cid:127) an accumulation of costs significantly in excess of the amount originally expected for the acquisition
or construction of a long-lived asset group;
F-9
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
(cid:127) a current-period operating or cash flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses associated with the use of a
long-lived asset group; or
(cid:127) a current expectation that, more likely than not, a long-lived asset group will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life.
When an impairment triggering event has occurred, the Company tests for recoverability of the asset
groups carrying value using estimates of undiscounted future cash flows based on the existing service
potential of the applicable asset group. In determining the service potential of a long-lived asset group, the
Company considers its remaining useful life, cash-flow generating capacity, and physical output capacity.
These estimates include the undiscounted cash flows associated with future expenditures necessary to
maintain the existing service potential. Long-lived assets are grouped with other assets and liabilities at the
lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities. The Company assesses potential impairment of its retail group long-lived assets by comparing
trailing twelve month (TTM) store cash flows to the current carrying value of the store’s long-lived assets.
Stores that have been opened for more than one year with TTM cash flows less than the current carrying
amount of the store’s long-lived assets are then reviewed to determine if an impairment exists. An
impairment loss, if any, would only reduce the carrying amount of long-lived assets in the group based on
the fair value of the group assets.
Goodwill and Other Intangible Assets
Intangible assets consist primarily of goodwill, trademarks, customer and distributor relationships,
patents, lease rights, and non-compete agreements arising from the application of purchase accounting.
Intangible assets with estimable useful lives are amortized and reviewed for impairment. Goodwill and
intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least
annually, as of December 31, except for the Teva trademarks and Sanuk goodwill, which are tested as of
October 31.
The assessment of goodwill impairment involves valuing the Company’s reporting units that carry
goodwill. Currently, the Company’s reporting units are the same as the Company’s operating segments.
The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. The Company does not calculate the fair value of the reporting unit
unless the Company determines, based on a qualitative assessment, that it is more likely than not that its
fair value is less than its carrying amount. If the Company determines this, then the first quantitative step is
a comparison of the fair value of the reporting unit with its carrying amount. If the fair value exceeds the
carrying amount, the goodwill is not impaired. If the fair value of the reporting unit is below the carrying
amount, then a second step is performed to measure the amount of the impairment, if any. The test for
impairment involves the use of estimates related to the fair values of the business operations with which
goodwill is associated and the fair values of the intangible assets with indefinite lives.
The Company also evaluates the fair values of other intangible assets with indefinite useful lives in
relation to their carrying values. The Company first assesses qualitative factors to determine whether it is
necessary to perform a quantitative assessment of the indefinite life intangible asset. The Company does
not calculate the fair value of the indefinite life intangible unless the Company determines, based on a
qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If
the Company concludes that it is more likely than not that its fair value is less than its carrying amount,
then the Company compares the fair value of the indefinite life intangible to its carrying amount, and if the
F-10
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
fair value of the indefinite life intangible exceeds its carrying amount, no impairment charge will be
recognized. If the fair value of the indefinite life intangible is less than the carrying amount, the Company
will record an impairment charge to write-down the intangible asset to its fair value.
Determining fair value of goodwill and other intangible assets is highly subjective and requires the use
of estimates and assumptions. The Company uses estimates including future revenues, royalty rates,
discount rates, attrition rates, and market multiples, among others. The Company also considers the
following factors:
(cid:127) the assets’ ability to continue to generate income from operations and positive cash flow in future
periods;
(cid:127) changes in consumer demand or acceptance of the related brand names, products, or features
associated with the assets; and
(cid:127) other considerations that could affect fair value or otherwise indicate potential impairment.
In addition, facts and circumstances could change, including further deterioration of general
economic conditions or the retail environment, customers reducing orders in response to such conditions,
and increased competition. These or other factors could result in changes to the calculation of fair value
which could result in further impairment of the Company’s remaining goodwill and other intangible assets.
Changes in any one or more of these estimates and assumptions could produce different financial results.
Depreciation and Amortization
Depreciation of property and equipment is calculated using the straight-line method based on
estimated useful lives ranging from two to ten years. Leasehold improvements are amortized to their
residual value on the straight-line basis over their estimated economic useful lives or the lease term,
whichever is shorter. Leasehold improvement lives range from one to fifteen years. The Company allocates
depreciation and amortization of property, plant, and equipment to cost of sales and selling, general and
administrative expenses (SG&A). The majority of the Company’s depreciation and amortization is
included in SG&A due to the nature of its operations. Most of the Company’s depreciation is from its
warehouses and its retail stores. The Company outsources all manufacturing; therefore, the amount
allocated to cost of sales is not material.
Fair Value Measurements
The fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid
expenses, and other current assets, short-term borrowings, trade accounts payable, accrued expenses, and
income taxes payable approximate the carrying values due to the relatively short maturities of these
instruments. The fair values of the Company’s long-term liabilities, other than contingent consideration, if
recalculated based on current interest rates, would not significantly differ from the recorded amounts. The
fair value of the contingent consideration related to acquisitions and of the Company’s derivatives are
measured and recorded at fair value on a recurring basis. Changes in fair value resulting from either
accretion or changes in discount rates or in the expectations of achieving the performance targets are
recorded in SG&A. The Company records the fair value of assets or liabilities associated with derivative
instruments and hedging activities in other current assets or other current liabilities, respectively, in the
consolidated balance sheets.
F-11
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
The inputs used in measuring fair value are prioritized into the following hierarchy:
(cid:127) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
(cid:127) Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly
observable.
(cid:127) Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an
entity to develop its own assumptions about the assumptions that market participants would use in
pricing.
The tables below summarize the Company’s financial liabilities and assets that are measured on a
recurring basis at fair value:
Assets (Liabilities) at fair value
Nonqualified deferred compensation .
Nonqualified deferred compensation .
. . . . . . . .
Non-designated derivatives
Non-designated derivatives
. . . . . . . .
Contingent consideration for
Fair Value at
December 31, 2012
Fair Value Measurement Using
Level 1
Level 2
Level 3
$ 3,653
$ (3,653)
839
$
(336)
$
$ 3,653
$ — $
$(3,653) $ — $
$ — $ 839
$
$ — $(336) $
—
—
—
—
acquisition of business . . . . . . . . . .
$(71,460)
$ — $ — $(71,460)
Assets (Liabilities) at fair value
Nonqualified deferred compensation .
Nonqualified deferred compensation .
Designated derivatives . . . . . . . . . . .
Designated derivatives . . . . . . . . . . .
Contingent consideration for
Fair Value at
December 31, 2011
Fair Value Measurement Using
Level 1
Level 2
Level 3
$ 1,991
$ (1,991)
$ 1,117
(87)
$
$ 1,991
$ — $
$(1,991) $ — $
$ — $1,117
$
$ — $ (87) $
—
—
—
—
acquisition of business . . . . . . . . . .
$(91,600)
$ — $ — $(91,600)
The Level 2 inputs consist of forward spot rates at the end of the reporting period (see Note 9).
The fair value of the contingent consideration is based on subjective assumptions. It is reasonably
possible the estimated fair value of the contingent consideration could change in the near-term and the
effect of the change could be material. The estimated fair value of the contingent consideration
attributable to our Sanuk brand acquisition is based on the Sanuk brand estimated future gross profits,
using a probability weighted average sales forecast to determine a best estimate of gross profits. The
estimated sales forecasts include a compound annual growth rate (CAGR) of 16.4% from fiscal year 2012
through fiscal year 2015. The gross profit forecasts for fiscal years 2012 through 2015 range from
approximately $50,000 to $79,000, which are then used to apply the contingent consideration percentages
in accordance with the applicable agreement (see Note 7). The total estimated contingent consideration is
then discounted to the present value with a discount rate of 7.0%. The Company’s use of different
estimates and assumptions could produce different estimates of the value of the contingent consideration.
For example, a 5.0% change in the estimated CAGR would change the total liability balance at
December 31, 2012 by approximately $4,000.
F-12
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
In connection with the Company’s acquisition of the Hoka brand, the purchase price includes
contingent consideration which is based on the Hoka brand’s estimated net sales for each year from 2013
through 2015, with a total maximum payout of $2,000. The Company uses a probability weighted average
sales forecast to determine a best estimate. Estimated contingent consideration payments of $1,100 are
included within other accrued expenses and long-term liabilities in the consolidated balance sheet as of
December 31, 2012. The Company’s use of different estimates and assumptions would not have a material
impact to the value of the contingent consideration.
Refer to Note 7 for further information on the contingent consideration arrangements.
The following table presents a reconciliation of the beginning and ending amounts related to the fair
value for contingent consideration for acquisition of business, categorized as Level 3:
Beginning balance, January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration for acquisition of business . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
88,100
3,500
Balance, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 91,600
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hoka acquisition contingent consideration . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,000)
1,100
8,760
Balance, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 71,460
Stock Compensation
All of the Company’s stock compensation issuances are classified within stockholders’ equity. Stock
compensation cost is measured at the grant date based on the value of the award and is expensed ratably
over the vesting period. The Company recognizes expense only for those awards that management deems
probable of achieving the performance and service objectives. Determining the expense of share-based
awards requires judgment, including estimating the percentage of awards that will be forfeited and
probabilities of meeting the awards’ performance criteria. If actual forfeitures differ significantly from the
estimates or if probabilities change during a period, stock compensation expense and the Company’s
results of operations could be materially impacted.
Nonqualified Deferred Compensation
In 2010, the Company established a nonqualified deferred compensation program (referred to as ‘‘the
Plan’’). The Plan permits a select group of management employees, designated by the Plan Committee, to
defer earnings to a future date on a nonqualified basis. For each plan year, on behalf of the Company, the
Board may, but is not required to, contribute any amount it desires to any participant under the Plan. The
Company’s contribution will be determined by the Board annually in the fourth quarter. No such
contribution has been approved as of December 31, 2012. All amounts deferred under this plan are
presented in long-term liabilities in the consolidated balance sheets. The value of the deferred
compensation is recognized based on the fair value of the participants’ accounts. The Company has
established a rabbi trust as a reserve for the benefits payable under the Plan.
F-13
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Use of Estimates
The preparation of the Company’s consolidated financial statements in accordance with US generally
accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported in these consolidated financial statements and accompanying notes. Management bases
these estimates and assumptions upon historical experience, existing and known circumstances,
authoritative accounting pronouncements and other factors that management believes to be reasonable.
Significant areas requiring the use of management estimates relate to inventory write-downs, accounts
receivable reserves, returns liabilities, stock compensation, impairment assessments, depreciation and
amortization, income tax liabilities and uncertain tax positions, fair value of financial instruments, and fair
values of acquired intangibles, assets and liabilities, including estimated contingent consideration
payments. Actual results could differ materially from these estimates.
Research and Development Costs
All research and development costs are expensed as incurred. Such costs amounted to $15,617,
$14,160 and $11,833 in 2012, 2011 and 2010, respectively, and are included in SG&A in the consolidated
statements of income.
Advertising, Marketing, and Promotion Costs
Advertising production costs are expensed the first time the advertisement is run. All other costs of
advertising, marketing, and promotion are expensed as incurred. These expenses charged to operations for
the years ended 2012, 2011 and 2010 were $78,528, $57,259 and $33,104, respectively. Included in prepaid
and other current assets at December 31, 2012 and 2011 were $119 and $139, respectively, related to
prepaid advertising, marketing, and promotion expenses for programs to take place after December 31,
2012 and 2011, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than
not of being sustained. Recognized income tax positions are measured at the largest amount that is greater
than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs. The Company accounts for interest and penalties generated by
income tax contingencies as interest expense and SG&A, respectively in the consolidated statements of
comprehensive income.
Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders
Basic net income per share represents net income attributable to Deckers Outdoor Corporation
divided by the weighted-average number of common shares outstanding for the period. Diluted net
income per share represents net income attributable to Deckers Outdoor Corporation divided by the
F-14
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
weighted-average number of shares outstanding, including the dilutive impact of potential issuances of
common stock. For the years ended December 31, 2012, 2011 and 2010, the difference between the
weighted-average number of basic and diluted common shares resulted from the dilutive impact of
nonvested stock units (NSUs), restricted stock units (RSUs), stock appreciation rights (SARs), and options
to purchase common stock. The reconciliations of basic to diluted weighted-average common shares
outstanding were as follows:
Year Ended December 31,
2012
2011
2010
Weighted-average shares used in basic
computation . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock-based awards* . . . . . .
36,879,000
455,000
38,605,000
660,000
38,615,000
677,000
Weighted-average shares used for diluted
computation . . . . . . . . . . . . . . . . . . . . . . .
37,334,000
39,265,000
39,292,000
*Excluded NSUs as of December 31, 2012,
2011, and 2010 . . . . . . . . . . . . . . . . . . . . .
200,000
—
—
*Excluded RSUs as of December 31, 2012,
2011, and 2010 . . . . . . . . . . . . . . . . . . . . .
671,000
319,000
85,000
*Excluded SARs as of December 31, 2012,
2011, and 2010 . . . . . . . . . . . . . . . . . . . . .
525,000
525,000
645,000
The share-based awards that were excluded from the dilutive effect were excluded because the
necessary conditions had not been satisfied for the shares to be issuable based on the Company’s
performance through December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, the
excluded RSUs include the maximum amount of the Level III and 2012 LTIP Awards. As of December 31,
2011, the excluded RSUs included the maximum amount of the Level III Awards. (see Note 5.)
Foreign Currency Translation
The Company considers the US dollar as its functional currency. The Company has certain wholly-
owned foreign subsidiaries with functional currencies other than the US dollar. Gains and losses that arise
from exchange rate fluctuations on sales and purchase transactions denominated in a currency other than
the functional currency are included in SG&A in the results of operations as incurred.
Derivative Instruments and Hedging Activities
The Company transacts business in various foreign currencies and has international sales and
expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The
Company may enter into foreign currency forward or option contracts, generally with maturities of
15 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue
denominated in certain foreign currencies. In addition, the Company utilizes foreign exchange forward and
option contracts to mitigate foreign currency exchange rate risk associated with foreign currency-
denominated assets and liabilities, primarily intercompany balances. The Company does not use foreign
currency contracts for speculative or trading purposes.
F-15
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Certain of the Company’s foreign currency forward contracts are designated cash flow hedges of
forecasted intercompany sales and are subject to foreign currency exposures. These contracts allow the
Company to sell Euros and British Pounds in exchange for US dollars at specified contract rates. Forward
contracts are used to hedge forecasted intercompany sales over specific quarters. Changes in the fair value
of these forward contracts designated as cash flow hedges are recorded as a component of accumulated
other comprehensive (loss) income within stockholders’ equity, and are recognized in the consolidated
statements of comprehensive income during the period which approximates the time the corresponding
third-party sales occur. The Company may also enter into foreign exchange contracts that are not
designated as hedging instruments for financial accounting purposes. These contracts are generally entered
into to offset the gains and losses on certain intercompany balances until the expected time of repayment.
Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts
are reported in SG&A in the consolidated statements of income. The gains and losses on these contracts
generally offset the gains and losses associated with the underlying foreign currency-denominated
balances, which are also reported in SG&A. See Note 9 for the impact of derivative instruments and
hedging activities on the Company’s consolidated financial statements.
The Company records the assets or liabilities associated with derivative instruments and hedging
activities at fair value based on Level 2 inputs in other current assets or other current liabilities,
respectively, in the consolidated balance sheets. The Level 2 inputs consist of forward spot rates at the end
of the reporting period. The accounting for gains and losses resulting from changes in fair value depends
on the use of the derivative and whether it is designated and qualifies for hedge accounting.
For all hedging relationships, the Company formally documents the hedging relationship and its risk
management objective and strategy for undertaking the hedge, the hedging instrument, the hedged
transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting
the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to
measure ineffectiveness. The Company factors the nonperformance risk of the Company and the
counterparty into the fair value measurements of its derivatives. The Company also formally assesses, both
at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used
in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. The
Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. For derivative
instruments that are designated and qualify as part of a cash flow hedging relationship, the effective
portion of the gain or loss on the derivative is reported in other comprehensive income (OCI) and
reclassified into earnings in the same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in current earnings.
The Company discontinues hedge accounting prospectively when it determines that the derivative is
no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold,
terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not
probable of occurring, or management determines to remove the designation of the cash flow hedge. In all
situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company
continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent
changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, the
Company discontinues hedge accounting and recognizes immediately in earnings gains and losses that
were accumulated in OCI related to the hedging relationship.
F-16
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Comprehensive Income
Comprehensive income is the total of net earnings and all other non-owner changes in equity. Except
for net income, foreign currency translation adjustments, and unrealized gains and losses on cash flow
hedges and available for sale investments, the Company does not have any transactions and other
economic events that qualify as comprehensive income.
Business Segment Reporting
Management of the Company has determined its reportable segments are its strategic business units
and it is by these segments that information is reported to the Chief Operating Decision Maker (CODM).
The six reportable segments are the UGG, Teva, Sanuk and other brands wholesale divisions, the
eCommerce business, and the retail store business. The CODM is the Principal Executive Officer. The
Company performs an annual analysis of the appropriateness of its reportable segments. Information
related to the Company’s business segments is summarized in Note 8.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less
to be cash equivalents. Cash and cash equivalents include approximately $53,000 and $196,000 of money
market funds at December 31, 2012 and 2011, respectively.
Reclassifications
Certain items in the prior years’ consolidated financial statements have been reclassified to conform
to the current presentation.
Retirement Plan
The Company provides a 401(k) defined contribution plan that eligible US employees may elect to
participate through tax-deferred contributions. The Company matches 50% of each eligible participant’s
tax-deferred contributions on up to 6% of eligible compensation on a per payroll period basis, with a
true-up contribution if such eligible participant is employed by the Company on the last day of the calendar
year. Internationally, the Company has various defined contribution plans. Certain international locations
require mandatory contributions under social programs, and the Company contributes at least the
statutory minimums. Domestic 401(k) matching contributions totaled $1,066, $1,710 and $861 during 2012,
2011 and 2010, respectively. In addition, the Company may also make discretionary profit sharing
contributions to the plan. However, the Company did not make any profit sharing contributions for the
years ended December 31, 2012, 2011 or 2010.
F-17
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
(2) Property and Equipment
Property and equipment is summarized as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . .
December 31,
2012
2011
$ 19,954
67,582
22,280
85,134
194,950
69,580
$ 19,954
50,081
13,794
53,623
137,452
47,195
Net property and equipment . . . . . . . . . . . . . . . . . . . . . .
$125,370
$ 90,257
(3) Notes Payable and Long-Term Debt
In August 2011, the Company entered into a Credit Agreement (the Credit Agreement) with
JPMorgan Chase Bank, National Association as the administrative agent, Comerica Bank and HSBC Bank
USA, National Association as syndication agents, and the lenders party thereto. In August 2012, the
Company amended and restated in its entirety the Credit Agreement (Amended and Restated Credit
Agreement). The Amended and Restated Credit Agreement is a five-year, $400,000 secured revolving
credit facility that contains a $75,000 sublimit for the issuance of letters of credit and a $5,000 sublimit for
swingline loans and matures on August 30, 2017. Subject to customary conditions and the approval of any
lender whose commitment would be increased, the Company has the option to increase the maximum
principal amount available under the Amended and Restated Credit Agreement by up to an additional
$100,000, resulting in a maximum available principal amount of $500,000. None of the lenders under the
Amended and Restated Credit Agreement has committed at this time or is obligated to provide any such
increase in the commitments. At the Company’s option, revolving loans issued under the Amended and
Restated Credit Agreement will bear interest at either the adjusted London Interbank Offered Rate
(LIBOR) for 30 days (0.21% at December 31, 2012) plus 1.75% per annum, in the case of LIBOR
borrowings, or at the alternate base rate plus 0.75% per annum, and thereafter the interest rate will
fluctuate between adjusted LIBOR plus 1.50% per annum and adjusted LIBOR plus 2.25% per annum (or
between the alternate base rate plus 0.50% per annum and the alternate base rate plus 1.25% per annum),
based upon the Company’s total adjusted leverage ratio at such time. In addition, the Company will
initially be required to pay fees of 0.25% per annum on the daily unused amount of the revolving credit
facility, and thereafter the fee rate will fluctuate between 0.20% and 0.35% per annum, based upon the
Company’s total adjusted leverage ratio.
The Company’s obligations under the Amended and Restated Credit Agreement are guaranteed by
the Company’s existing and future domestic subsidiaries, other than certain immaterial subsidiaries, and
foreign subsidiaries (the Guarantors), and is secured by a first-priority security interest in substantially all
of the assets of the Company and the Guarantors, including all or a portion of the equity interests of
certain of the Company’s domestic and foreign subsidiaries.
F-18
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
The Amended and Restated Credit Agreement contains financial covenants which include: the asset
coverage ratio must be greater than 1.10 to 1.00; the sum of the consolidated annual earnings before
interest, taxes, depreciation, and amortization (EBITDA) and annual rental expense, divided by the sum of
the annual interest expense and the annual rental expense must be greater than 2.25 to 1.00; and other
customary limitations. The Amended and Restated Credit Agreement contains certain other covenants
which include: the maximum additional secured debt related to a capital asset may not exceed $65,000 per
year, excluding $75,000 for the Company’s new corporate headquarters, the maximum additional
unsecured debt may not exceed $200,000; the maximum secured debt not related to a capital asset may not
exceed $5,000, a judgment may not exceed $10,000; maximum ERISA event of $10,000 in one year, $20,000
in all years; the Company may not have a change of control (as defined in the Amended and Restated
Credit Agreement); acquisitions may not exceed $100,000, if the total adjusted leverage ratio does not
exceed 2.75 to 1.00 and the Company must have a minimum amount of cash plus unused credit of $75,000.
There is no restriction on dividends or share repurchases if the minimum amount of cash and unused
credit is $150,000 for the first, second and fourth quarter, and $75,000 for the third quarter and the asset
coverage ratio is greater than 1.10 to 1.00, on a proforma basis.
At December 31, 2012, the Company had $33,000 of outstanding borrowings, with a weighted average
interest rate of 2.0%, under the Amended and Restated Credit Agreement and outstanding letters of
credit of $189. As a result, $366,811 was available under the Amended and Restated Credit Agreement at
December 31, 2012. The Company incurred approximately $1,800 of deferred financing costs which were
included in prepaid expenses and are amortized over the term of the Amended and Restated Credit
Agreement using the straight-line method. Subsequent to December 31, 2012, the Company repaid
$33,000, resulting in no outstanding borrowings under the Amended and Restated Credit Agreement as of
March 1, 2013.
(4) Income Taxes
Components of income tax expense (benefit) are as follows:
2012:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,911
(6,083)
$ 6,482
414
$3,368
12
$60,761
(5,657)
Federal
State
Foreign
Total
$44,828
$ 6,896
$3,380
$55,104
2011:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,758
1,003
$12,226
(1,067)
$7,487
(3)
$83,471
(67)
$64,761
$11,159
$7,484
$83,404
2010:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$71,032
(2,182)
$16,764
377
$3,648
93
$91,444
(1,712)
$68,850
$17,141
$3,741
$89,732
Foreign income before income taxes was $51,409, $108,738 and $43,327 during the years ended
December 31, 2012, 2011 and 2010 respectively.
F-19
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Actual income taxes differed from that obtained by applying the statutory federal income tax rate to
income before income taxes as follows:
Computed ‘‘expected’’ income taxes . . . . . . . . . . . .
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31
2012
2011
2010
$ 64,282
$ 99,842
$ 87,517
3,562
(12,908)
168
6,912
(24,783)
1,433
10,566
(11,304)
2,953
$ 55,104
$ 83,404
$ 89,732
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and
deferred tax liabilities are presented below:
2012
2011
Deferred tax assets (liabilities), current:
Uniform capitalization adjustment to inventory . . . . . . . . . . . .
Bad debt and other reserves . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,870
11,582
799
(1,961)
$ 5,271
8,874
1,729
(1,460)
Total deferred tax assets, current
. . . . . . . . . . . . . . . . . . . .
17,290
14,414
Deferred tax assets (liabilities), noncurrent:
Amortization and impairment of intangible assets . . . . . . . . . .
Depreciation of property and equipment
. . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . .
5,312
(8,524)
11,906
244
3,247
834
111
242
7,181
(6,056)
11,305
(744)
169
808
63
497
Total deferred tax assets, noncurrent . . . . . . . . . . . . . . . . . .
13,372
13,223
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,662
$27,637
In order to fully realize the deferred tax assets, the Company will need to generate future taxable
income of $80,480. The deferred tax assets are primarily related to the Company’s domestic operations.
The change in net deferred tax assets between December 31, 2012 and December 31, 2011 includes
approximately $500 attributable to OCI, partially offset by approximately $3,000 of goodwill. Domestic
taxable income for the years ended December 31, 2012 and 2011 was $141,660 and $141,368, respectively.
Based upon the level of historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it is more likely than not that
the results of future operations will generate sufficient taxable income to realize the net deferred tax assets
and, accordingly, no valuation allowance was recorded in 2012 or 2011.
F-20
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
As of December 31, 2012, withholding and US taxes have not been provided on approximately
$234,000 of unremitted earnings of non-US subsidiaries because the earnings are expected to be reinvested
outside of the US indefinitely. Repatriation of all foreign earnings would result in $70,860 of US income
tax. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the
remittance of dividends. As of December 31, 2012, the Company had approximately $37,000 of cash and
cash equivalents outside the US that would be subject to additional income taxes if it were to be
repatriated. If the Company were to repatriate foreign cash, the Company would record the US tax liability
net of any foreign income taxes previously paid on this cash. The Company has no plans to repatriate any
of its foreign cash. For the full year 2012, the Company generated approximately 21.0% of its pre-tax
earnings from a country which does not impose a corporate income tax.
When tax returns are filed, some positions taken are subject to uncertainty about the merits of the
position taken or the amount that would be ultimately sustained. The benefit of a tax position is recognized
in the financial statements in the period during which management believes it is more likely than not that
the position will be sustained upon examination. Tax positions that meet the more likely than not
recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of
being realized upon settlement. The portion of the benefits that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated
balance sheets along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. A reconciliation of the beginning and ending amounts of total unrecognized
tax benefits is as follows:
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decrease related to current year tax positions . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decrease related to prior years’ tax positions . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,506
(2,235)
$ 3,271
—
(3,271)
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
For the year ended December 31, 2012, $144 of interest expense generated by income tax
contingencies was recognized in the consolidated statements of income. As of December 31, 2012 and
2011, interest of $452 and $817, respectively, was accrued in the consolidated balance sheets.
The Company files income tax returns in the US federal jurisdiction and various state, local, and
foreign jurisdictions. With few exceptions, the Company is no longer subject to US federal, state, local, or
non-US income tax examinations by tax authorities for years before 2007. The Company’s federal income
tax returns for the years ended December 31, 2006 through December 31, 2009 were under examination by
the Internal Revenue Service (IRS). In connection with the examination, the Company has received
notices of proposed adjustments (NOPAs), which the Company agreed with and recorded in its
consolidated financial statements. In addition, in March 2011, the Company received a NOPA related to
transfer pricing arrangements with the Company’s subsidiaries. In October 2012, the Company executed a
settlement agreement with the IRS on this matter. The related additional tax and interest approximated
the Company’s reserves; no penalties were assessed.
Although the Company believes its tax estimates are reasonable and prepares its tax filings in
accordance with all applicable tax laws, the final determination with respect to any tax audits, and any
related litigation, could be materially different from the Company’s estimates or from its historical income
F-21
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
tax provisions and accruals. The results of an audit or litigation could have a material effect on operating
results or cash flows in the periods for which that determination is made. In addition, future period
earnings may be adversely impacted by litigation costs, settlements, penalties, or interest assessments.
The Company has on-going income tax examinations under various state tax jurisdictions. It is the
opinion of management that these audits and inquiries will not have a material impact on the Company’s
consolidated financial statements.
(5) Stockholders’ Equity
In May 2006, the Company adopted the 2006 Equity Incentive Plan (the 2006 Plan), which was
amended May 9, 2007. The primary purpose of the 2006 Plan is to encourage ownership in the Company
by key personnel, whose long-term service is considered essential to the Company’s continued success. The
2006 Plan provides for 6,000,000 shares of the Company’s common stock that are reserved for issuance to
employees, directors, or consultants. The maximum aggregate number of shares that may be issued under
the 2006 Plan through the exercise of incentive stock options is 4,500,000. Pursuant to the Deferred Stock
Unit Compensation Plan, a Sub Plan under the 2006 Plan, a participant may elect to defer settlement of
their outstanding unvested awards until such time as elected by the participant.
The Company grants Non-vested Stock Units (NSUs) annually to key personnel. The NSUs granted
entitle the employee recipients to receive shares of common stock in the Company upon vesting of the
NSUs. The vesting of all NSUs is subject to achievement of certain performance targets. For NSUs granted
prior to 2011, these awards vest in quarterly increments between the third and fourth anniversary of the
grant. For NSUs granted in 2012 and 2011, one-third of these awards will vest at the end of each of the
three years after the performance goals are achieved.
The Company also has long-term incentive award agreements under the 2006 Plan for issuance of
Stock Appreciation Right (SAR) awards and Restricted Stock Unit (RSU) awards to the Company’s
current and future executive officers. These awards vest subject to certain long-term performance
objectives and certain long-term service conditions. One-half of the SAR and RSU awards vested 80% on
December 31, 2010 and 20% on December 31, 2011, and, provided that the conditions are met, one-half of
the SAR and RSU awards vest 80% on December 31, 2015 and 20% on December 31, 2016. The awards
that vested on December 31, 2011 were settled on February 29, 2012. The Company fully expensed these
awards as of December 31, 2011. The Company considers achievement of the remaining performance
conditions as probable and is recognizing such compensation cost over the service period.
In June 2011, the Board of Directors of the Company adopted a long-term incentive award under its
2006 Equity Incentive Plan (the ‘‘Level III Awards’’). These awards will be available for issuance to current
and future members of the Company’s management team, including the Company’s named executive
officers. Each recipient will receive a specified maximum number of RSUs, each of which will represent
the right to receive one share of the Company’s common stock. These awards vest subject to certain
long-term performance objectives and certain long-term service conditions. The awards will vest on
December 31, 2014 only if the Company meets certain revenue targets ranging between $1,825,000 and
$2,500,000 and certain diluted earnings per share targets ranging between $7.00 and $9.60 for the year
ended December 31, 2014. No vesting of any Level III Award will occur if either of the threshold
performance criteria is not met for the year ending December 31, 2014. To the extent financial
performance is achieved above the threshold levels, the number of RSUs that will vest will increase up to
the maximum number of units granted under the award. Under this new program, the Company granted a
maximum amount of 275,000 RSUs during the year ended December 31, 2011. The grant date fair value of
F-22
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
these RSUs was $82.09 per share. As of December 31, 2012 and 2011, the Company did not believe that
the achievement of the performance objectives for the Level III Awards was probable, and therefore the
Company did not recognize compensation expense for these awards. If the performance objectives become
probable, the Company will then begin recording an expense for the Level III Awards and would recognize
a cumulative catch-up adjustment in the period they become probable. As of December 31, 2012, the
cumulative amount would be approximately $8,000 based on the maximum number of units if the
performance objectives were probable.
In May 2012, the Board of Directors of the Company adopted a long-term incentive award under its
2006 Equity Incentive Plan (2012 LTIP Awards). These awards will be available for issuance to current and
future members of the Company’s management team, including the Company’s named executive officers.
Each recipient will receive a specified maximum number of RSUs, each of which will represent the right to
receive one share of the Company’s common stock. These awards vest subject to certain long-term
performance objectives and certain long-term service conditions. The awards will vest on December 31,
2015 only if the Company meets certain revenue targets ranging between $2,200,000 and $2,900,000 and
certain diluted earnings per share targets ranging between $7.00 and $10.50 for the year ended
December 31, 2015. No vesting of any 2012 LTIP Award will occur if either of the threshold performance
criteria is not met for the year ending December 31, 2015. To the extent financial performance is achieved
above the threshold levels, the number of RSUs that will vest will increase up to the maximum number of
units granted under the award. Under this new program, during the twelve months ended December 31,
2012, the Company granted awards that contain a maximum amount of 352,000 RSUs. The grant date fair
value of these RSUs was $56.12 per share. As of December 31, 2012, the Company did not believe that the
achievement of the performance objectives of these awards was probable, and therefore the Company did
not recognize compensation expense for these awards. If the performance objectives become probable, the
Company will then begin recording an expense for the 2012 LTIP Awards and would recognize a
cumulative catch-up adjustment in the period they become probable. As of December 31, 2012, the
cumulative amount would be approximately $3,000 based on the maximum number of units if the
performance objectives were probable.
In May 2010, the stockholders approved an amendment to the Company’s Restated Certificate of
Incorporation to increase the authorized number of shares of common stock from 50,000,000 to
125,000,000 shares.
In February 2012, the Company approved a stock repurchase program to repurchase up to $100,000 of
the Company’s common stock in the open market or in privately negotiated transactions, subject to market
conditions, applicable legal requirements, and other factors. The program did not obligate the Company to
acquire any particular amount of common stock and the program could have been suspended at any time
at the Company’s discretion. During the six months ended June 30, 2012, the Company repurchased
approximately 1,749,000 shares under this program, for approximately $100,000, or an average price of
$57.16. As of June 30, 2012, the Company had repurchased the full amount authorized under this program.
The purchases were funded from available working capital.
In June 2012, the Company approved a stock repurchase program to repurchase up to $200,000 of the
Company’s common stock in the open market or in privately negotiated transactions, subject to market
conditions, applicable legal requirements, and other factors. The program does not obligate the Company
to acquire any particular amount of common stock and the program may be suspended at any time at the
Company’s discretion. As of December 31, 2012, the Company had repurchased approximately 2,765,000
F-23
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
shares under this program, for approximately $120,700, or an average price of $43.66, leaving the
remaining approved amount at $79,300.
On a quarterly basis, the Company grants fully-vested shares of its common stock to each of its outside
directors. The fair value of such shares is expensed on the date of issuance.
The table below summarizes stock compensation amounts recognized in the consolidated statements
of comprehensive income:
Year Ended December 31,
2012
2011
2010
Compensation expense recorded for:
NSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors’ shares . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,849
1,501
231
1,080
$11,719
1,813
305
966
$ 7,915
3,420
677
770
Total compensation expense . . . . . . . . . . . . . . . . .
Income tax benefit recognized . . . . . . . . . . . . . . . . . .
14,661
(5,573)
14,803
(5,788)
12,782
(5,127)
Net compensation expense . . . . . . . . . . . . . . . . . . . . .
$ 9,088
$ 9,015
$ 7,655
The table below summarizes the total remaining unrecognized compensation cost related to
nonvested awards that are considered probable of vesting as of December 31, 2012, and the weighted-
average period over which the cost is expected to be recognized as of December 31, 2012:
Unrecognized
Compensation
Cost
Weighted-Average
Remaining
Vesting Period
(Years)
NSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,780
4,883
750
$12,413
0.6
3.2
3.2
The unrecognized compensation cost excludes a maximum of $20,591 and $19,717 of compensation
cost on the Level III Awards and 2012 LTIP Awards, respectively, as achievement of the performance
conditions are not considered probable.
F-24
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Nonvested Stock Units Issued Under the 2006 Plan
Weighted-
Average
Number of Grant-Date
Fair Value
Shares
Nonvested at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
717,000
315,000
(208,000)
(26,000)
798,000
199,000
(263,000)
(57,000)
677,000
209,000
(297,000)
(18,000)
(200,000)
Nonvested at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
371,000
$26.34
45.99
22.83
25.98
$35.61
87.50
40.31
46.61
$48.14
63.18
35.90
63.68
62.17
$58.51
* Nonvested Stock Units cancelled during the period represent awards granted whose performance
criteria were not met.
Stock Appreciation Rights Issued Under the 2006 Plan
Outstanding at January 1, 2010 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2010 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2011 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . . . . . . . . . .
Exercisable at December 31, 2012 . . . . . . . . . . . . . . .
Expected to vest and exercisable at December 31,
Number of
SARs
1,200,000
—
—
(75,000)
1,125,000
—
(365,000)
—
760,000
—
(15,000)
—
745,000
220,000
Weighted-
Average
Exercise
Price
$26.73
—
—
26.73
$26.73
—
26.73
—
$26.73
—
26.73
$26.73
$26.73
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
707,945
$26.73
Weighted-
Average
Remaining
Contractual
Term
(Years)
9.8
Aggregate
Intrinsic
Value
$ 8,608
8.7
$59,636
8.8
$37,118
7.9
4.4
7.8
$10,087
$ 2,979
$ 9,586
F-25
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
The maximum contractual term is 10 and 15 years from the date of grant for those SARs with final
vesting dates of December 31, 2011 and December 31, 2016, respectively. The number of SARs expected to
vest is based on the probability of achieving certain performance conditions and is also reduced by
estimated forfeitures. The difference between the amount outstanding and the amount expected to vest
and exercisable at December 31, 2012 was estimated forfeitures for estimated failure to meet the long-term
service conditions. On February 29, 2012, 120,000 SARs that vested on December 31, 2011 became
exercisable.
Restricted Stock Units Issued Under the 2006 Plan
Weighted-
Average
Number of Grant-Date
Fair Value
Shares
Nonvested at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
159,000
—
(64,000)
(10,000)
85,000
275,000
(16,000)
(25,000)
319,000
352,000
—
—
Nonvested at December 31, 2012 . . . . . . . . . . . . . . . . . . . . .
671,000
$26.73
—
26.73
26.73
$26.73
82.09
26.73
82.09
$70.15
56.12
—
—
$62.80
The amounts granted in 2011 and 2012 are the maximum amount under the Level III Awards and
2012 LTIP Awards, respectively.
(6) Accumulated Other Comprehensive Loss
Accumulated balances of the components within accumulated other comprehensive (loss) income are
as follows:
Cumulative foreign currency translation adjustment . . . . . . . . . . .
Unrealized (loss) gain on foreign currency hedging, net of tax . . .
$(1,400) $(2,363)
633
—
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . .
$(1,400) $(1,730)
December 31,
2012
2011
F-26
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
(7) Commitments and Contingencies
The Company leases office, distribution, retail facilities, and automobiles, under operating lease
agreements, which expire through 2024. Some of the leases contain renewal options for approximately one
to ten years. Future minimum commitments under the lease agreements are as follows:
Year ending December 31:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,892
35,375
31,773
28,448
26,248
59,867
$221,603
Rent expense is recorded using the straight-line method to account for scheduled rental increases or
rent holidays. Lease incentives for tenant improvement allowances are recorded as reductions of rent
expense over the lease term. The rental payments under some of our retail store leases are based on a
minimum rental plus a percentage of the store’s sales in excess of stipulated amounts. The following
schedule shows the composition of total rental expense.
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rentals . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,270
9,366
$26,645
6,085
$18,551
2,496
$46,636
$32,730
$21,047
Years Ended Decemer 31,
2012
2011
2010
Purchase Obligations. The Company had $335,284 of outstanding purchase orders with its
manufacturers as of December 31, 2012. In addition, the Company entered into agreements for
promotional activities and other services. Future commitments under these purchase orders and other
agreements are as follows:
Year ending December 31:
2013* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$341,112
1,122
$342,234
*
Included in the 2013 amount are remaining commitments, net of deposits, that are also
unconditional purchase obligations relating to sheepskin contracts. The Company enters into
contracts requiring minimum purchase commitments of sheepskin that Deckers’ affiliates,
manufacturers, factories, and other agents (each or collectively, a ‘‘Buyer’’) must make on or
before a specified target date. Under certain contracts, the Company may pay an advance
deposit that shall be repaid to the Company as Buyers purchase goods under the terms of
these agreements. Included in other current assets on the consolidated balance sheets is
approximately $39,000 and $69,000 of advance deposits as of December 31, 2012 and 2011
F-27
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
respectively. In the event that a Buyer does not purchase certain minimum commitments on
or before certain target dates, the supplier may retain a portion of the advance deposit until
the amounts of the commitments are fulfilled. All of these agreements may result in
unconditional purchase obligations if a Buyer does not meet the minimum purchase
requirements. In the event that a Buyer does not purchase such minimum commitments, the
Company shall be responsible for compliance with any and all minimum purchase
commitments under these contracts. The contracts do not permit net settlement. The
Company expects sheepskin purchases by third party factories will eventually exceed the
contract levels. Therefore, management believes the likelihood of any non-performance
payments under these contractual arrangements is remote and would have an immaterial
effect on the consolidated statements of comprehensive income. The Company determined
this based upon its projected sales and inventory purchases. Minimum commitments for
these contracts as of December 31, 2012 were as follows:
Contract
Effective Date
Final
Target Date
October 2011
October 2012
July 31, 2013
September 30, 2013
Advance
Deposit
$50,000
$ —
Total
Minimum
Commitment
$270,000
$ 83,000
Remaining
Deposit
$39,383
$ —
Remaining
Commitment,
Net of Deposit
$113,216
$ 79,500
Indemnification and Legal Contingencies. The Company is currently involved in various legal claims
arising from the ordinary course of business. Management does not believe that the disposition of these
matters will have a material effect on the Company’s financial position or results of operations. In addition,
the Company has agreed to indemnify certain of its licensees, distributors, and promotional partners in
connection with claims related to the use of the Company’s intellectual property. The terms of such
agreements range up to five years initially and generally do not provide for a limitation on the maximum
potential future payments. Management believes the likelihood of any payments is remote and would be
immaterial. The Company determined the risk was low based on a prior history of insignificant claims. The
Company is not currently involved in any indemnification matters in regards to its intellectual property.
On May 31, 2012, a purported shareholder class action lawsuit was filed in the United States District
Court for the Central District of California against the Company and certain of its officers. On August 1,
2012, a similar purported shareholder class action lawsuit was filed in the United States District Court for
the District of Delaware against the Company and certain of its officers. These actions are purportedly
brought on behalf of purchasers of the Company’s publicly traded securities between October 27, 2011 and
April 26, 2012. Plaintiffs in both complaints allege that defendants made false and misleading statements,
purport to assert claims for violations of the federal securities laws, and seek unspecified compensatory
damages and other relief. The California case has been dismissed with prejudice; the Delaware action
remains pending. The Company believes the claim in the Delaware complaint is without merit and intends
to defend the action vigorously. While the Company believes there is no legal basis for liability, due to the
uncertainty surrounding the litigation process, the Company is unable to reasonably estimate a range of
loss, if any, at this time.
On July 17, 2012 and July 26, 2012, purported shareholder derivative lawsuits were filed in the
California Superior Court for the County of Santa Barbara against our Board of Directors and several of
our officers. The Company is named as nominal defendant. Plaintiffs in the state derivative actions allege
that the Board allowed certain officers to make allegedly false and misleading statements. The complaints
include claims for violation of the federal securities laws, breach of fiduciary duties, mismanagement, waste
F-28
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
of corporate assets, insider trading, unjust enrichment, and violations of the California Corporations Code.
The complaints seek compensatory damages, disgorgement, and other relief. The Company believes the
claims are without merit and intends to defend the actions vigorously. While the Company believes there is
no legal basis for liability, due to the uncertainty surrounding the litigation process, the Company is unable
to reasonably estimate a range of loss, if any, at this time.
Contingent Consideration.
In July 2011, the Company acquired the Sanuk brand, and the total purchase
price included contingent consideration payments. As of December 31, 2012, the remaining contingent
consideration payments, which have no maximum, are as follows:
(cid:127) 51.8% of the Sanuk brand gross profit in 2012, which was $25,450,
(cid:127) 36.0% of the Sanuk brand gross profit in 2013, and
(cid:127) 40.0% of the Sanuk brand gross profit in 2015.
As of December 31, 2012 and 2011, contingent consideration for the acquisition of the Sanuk brand of
$70,360 and $91,600, respectively, are included within other accrued expenses ($25,450 and $30,000 at
December 31, 2012 and 2011, respectively) and long-term liabilities ($44,910 and $61,600 at December 31,
2012 and 2011, respectively) in the consolidated balance sheets. Refer to Note 12 for further information
on the contingent consideration amounts.
In September 2012, the Company acquired Hoka, and the total purchase price included contingent
consideration payments with a maximum of $2,000. Based on current projections as of December 31, 2012,
contingent consideration for the acquisition of the Hoka brand of $1,100 is included within other accrued
expenses and long-term liabilities in the consolidated balance sheets. Refer to Note 12 for further
information on the contingent consideration amounts.
(8) Business Segments, Concentration of Business, and Credit Risk and Significant Customers
The Company’s accounting policies of the segments below are the same as those described in the
summary of significant accounting policies (see Note 1), except that the Company does not allocate
corporate overhead costs or non-operating income and expenses to segments. The Company evaluates
segment performance primarily based on net sales and income or loss from operations. The Company’s
reportable segments include the strategic business units for the worldwide wholesale operations of the
UGG brand, Teva brand, Sanuk brand, and its other brands, its eCommerce business and its retail store
business. The wholesale operations of each brand are managed separately because each requires different
marketing, research and development, design, sourcing, and sales strategies. The eCommerce and retail
store segments are managed separately because they are direct to consumer sales, while the brand
segments are wholesale sales. The income or loss from operations for each of the segments includes only
those costs which are specifically related to each segment, which consist primarily of cost of sales, costs for
research and development, design, selling and marketing, depreciation, amortization, and the costs of
employees and their respective expenses that are directly related to each business segment. The
unallocated corporate overhead costs include the following: costs of the distribution centers, certain
executive and stock compensation, accounting and finance, legal, information technology, human
resources, and facilities costs, among others. The gross profit derived from the sales to third parties of the
eCommerce and retail stores segments is separated into two components, and is recorded at the time of
sale to the third party: (i) the wholesale profit is included in the related operating income or loss of each
wholesale segment, and represents the difference between the Company’s cost and the Company’s
wholesale selling price, and (ii) the retail profit is included in the operating income of the eCommerce and
F-29
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
retail stores segments, and represents the difference between the Company’s wholesale selling price and
the Company’s retail selling price. Each of the wholesale segments charge the eCommerce and retail
segments the same price that they charge third party retail customers, with the resulting profit from inter-
segment sales included in income (loss) from operations of each respective wholesale segment. Inter-
segment sales and cost of sales are eliminated upon consolidation. In prior periods, the gross profit of the
international portion of the eCommerce and retail stores segments included both the wholesale and retail
profit. This change in segment reporting only changed the presentation within the below table and did not
impact the Company’s consolidated financial statements for any periods. The segment information for the
year ended December 31, 2010 has been adjusted retrospectively to conform to the current period
presentation.
The Company’s other brands include Simple(cid:5), TSUBO(cid:5), Ahnu(cid:5), MOZO(cid:5) and Hoka One One(cid:5). The
Company ceased distribution of the Simple brand effective December 31, 2011. The wholesale operations
of the Company’s other brands are included as one reportable segment, other wholesale, presented in the
F-30
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
figures below. The Sanuk brand operations are included in the Company’s segment reporting effective
upon the acquisition date of July 1, 2011. Business segment information is summarized as follows:
Net sales to external customers:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 819,256
108,591
89,804
20,194
130,592
245,961
$ 915,203
118,742
26,039
21,801
106,498
189,000
$ 663,854
96,207
—
23,476
91,808
125,644
Years Ended Decemer 31,
2012
2011
2010
Income (loss) from operations:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,414,398
$1,377,283
$1,000,989
$ 267,823
10,072
15,567
(4,317)
29,903
25,590
(157,690)
$ 388,275
20,267
797
(9,524)
24,255
31,461
(170,693)
$ 307,478
18,684
—
(6,184)
23,536
27,310
(121,736)
$ 186,948
$ 284,838
$ 249,088
$
$
$
622
515
8,838
1,622
839
12,073
8,911
33,420
314
326
448
197
347
34,004
25,966
$
$
$
4,375
587
5,125
533
540
6,082
8,185
25,427
706
305
1,778
198
1,419
22,297
29,083
$
$
$
112
2,024
—
1,125
232
3,018
5,772
12,283
1,155
150
—
226
1,030
11,296
9,191
$
61,602
$
55,786
$
23,048
Total assets from reportable segments:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 377,997
59,641
209,861
29,446
5,058
134,804
$ 347,213
61,893
217,936
10,690
5,964
80,514
$ 194,028
49,849
—
12,031
4,053
39,377
$ 816,807
$ 724,210
$ 299,338
F-31
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Inter-segment sales from the Company’s wholesale segments to the Company’s eCommerce and retail
segments are as follows:
Years Ended December 31,
2012
2011
2010
Inter-segment sales:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . .
Other wholesale . . . . . . . . . . . . . . . . . . . . . . . .
$182,299
3,260
1,696
507
$140,004
2,369
—
1,040
$102,222
2,129
—
1,446
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$187,762
$143,413
$105,797
Income (loss) from operations of the wholesale segments includes inter-segment gross profit from
sales to the eCommerce and retail segments as follows:
Years Ended December 31,
2012
2011
2010
Inter-segment gross profit:
UGG wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teva wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,932
1,108
825
134
$64,160
1,130
—
425
$44,165
802
—
516
$
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67,999
$65,715
$45,483
The assets allocable to each segment generally include accounts receivable, inventory, fixed assets,
intangible assets, and certain other assets that are specifically identifiable with one of the Company’s
segments. Unallocated assets are the assets not specifically related to the segments and include cash and
cash equivalents, deferred tax assets, and various other assets shared by the Company’s segments.
Reconciliations of total assets from reportable segments to the consolidated balance sheets are as follows:
Total assets from reportable segments . . . . . . . . . . . . . . . .
Unallocated cash and cash equivalents . . . . . . . . . . . . . . .
Unallocated deferred tax assets . . . . . . . . . . . . . . . . . . . . .
Other unallocated corporate assets . . . . . . . . . . . . . . . . . .
$ 816,807
110,247
30,662
110,348
$ 724,210
263,606
27,637
130,743
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . . .
$1,068,064
$1,146,196
December 31,
2012
2011
A portion of the Company’s cash and cash equivalents are held as cash in operating accounts that are
with third party financial institutions. These balances, at times, exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limits. While the Company regularly monitors the cash balances in its
operating accounts and adjusts the balances as appropriate, these cash balances could be impacted if the
underlying financial institutions fail or are subject to other adverse conditions in the financial markets. As
of December 31, 2012, the Company had experienced no loss or lack of access to cash in its operating
accounts.
F-32
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
The remainder of the Company’s cash equivalents is invested in interest bearing funds managed by
third party investment management institutions. These investments can include US treasuries and
government agencies, money market funds, and municipal bonds, among other investments. Certain of
these investments are subject to general credit, liquidity, market, and interest rate risks. Investment risk
has been and may further be exacerbated by US mortgage defaults, credit and liquidity issues, and the
European debt crisis, which have affected various sectors of the financial markets. As of December 31,
2012, the Company had experienced no loss or lack of access to its invested cash and cash equivalents.
The Company’s cash and cash equivalents are as follows:
Money market fund accounts . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,650
57,597
$196,315
67,291
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
$110,247
$263,606
December 31,
2012
2011
The Company sells its products to customers throughout the US and to foreign customers located in
Europe, Canada, Australia, Asia, and Latin America, among other regions. International sales were 31.2%,
31.4% and 23.7%,of the Company’s total net sales for the years ended December 31, 2012, 2011 and 2010,
respectively. For the year ended December 31, 2012, no single foreign country comprised more than 10%
of total sales. The Company does not consider international operations a separate segment, as
management reviews such operations in the aggregate with the aforementioned segments. Long-lived
assets, which consist of property and equipment, by major country were as follows:
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,423
35,947
$65,034
25,223
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$125,370
$90,257
December 31,
2012
2011
* No other country’s long-lived assets comprised more than 10% of total long-lived assets as of
December 31, 2012 and 2011.
Management performs regular evaluations concerning the ability of its customers to satisfy their
obligations and records a provision for doubtful accounts based upon these evaluations. No single
customer accounted for more than 10% of net sales in the years ended December 31, 2012 and 2011. One
customer accounted for 11.9% of the Company’s net sales in 2010. This customer’s revenues were
generated from UGG, Teva, and other wholesale segments. No other customer accounted for more than
10% of net sales in the year ended December 31, 2010. As of December 31, 2012, the Company had one
customer representing 18.8% of net trade accounts receivable. As of December 31, 2011, the Company had
one customer representing 17.1% of net trade accounts receivable.
The Company’s production is concentrated at a limited number of independent contractor factories.
The Company’s materials sourcing is concentrated in Australia and China and includes a limited number
of key sources for the principal raw material for certain UGG products, sheepskin. Sheepskin used in
UGG products is sourced from two tanneries. The Company’s operations are subject to the customary
F-33
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties and
related fees, various import controls and other nontariff barriers, restrictions on the transfer of funds,
labor unrest and strikes and, in certain parts of the world, political instability. The supply of sheepskin can
be adversely impacted by weather conditions, disease, and harvesting decisions that are completely outside
the Company’s control. Further, the price of sheepskin is impacted by demand, industry, and competitors.
(9) Foreign Currency Exchange Contracts and Hedging
As of December 31, 2012, the Company’s total non-designated derivative contracts had notional
amounts totaling approximately $19,000. These contracts were comprised of offsetting contracts with the
same counterparty, each expire in March 2013, and have an unrealized gain of approximately $500.
The nonperformance risk of the Company and the counterparty did not have a material impact on the
fair value of the derivatives. During the year ended December 31, 2012, the ineffective portion relating to
these hedges was immaterial and the hedges remained effective through their respective settlement dates.
As of December 31, 2012, the Company had no outstanding designated hedges.
Subsequent to December 31, 2012 the Company entered into designated hedging contracts with
notional amounts totaling approximately $63,000.
The following tables summarize the effect of derivative instruments on the consolidated financial
statements:
For the Year
Ended
December 31,
2012
2011
Derivatives in
Designated
Cash Flow
Hedging
Relationships
Foreign
Exchange
Contracts
Foreign
Exchange
Contracts
Amount of
Gain (Loss)
Recognized in
OCI on
Derivative
(Effective
Portion)
Location of
Gain (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Amount of
Gain (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Location of
Amount
Excluded from
Effectiveness
Testing
Gain (Loss)
from Amount
Excluded from
Effectiveness
Testing
$(1,191)
Net Sales
$617
SG&A
$ 26
$(1,376)
Net Sales
$125
SG&A
$(260)
For the Year Ended
December 31,
Derivatives Not Designated
as Hedging Instruments
Location of Gain (Loss)
Recognized in Income on
Derivatives
Amount of Gain (Loss)
Recognized in Income on
Derivatives
2012
2011
Foreign Exchange
Contracts
Foreign Exchange
Contracts
SG&A
SG&A
$1,030
$(541)
F-34
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
(10) Quarterly Summary of Information (Unaudited)
Summarized unaudited quarterly financial data are as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Deckers Outdoor
2012
March 31
June 30
September 30
December 31
$246,306
113,288
$174,436
73,579
$376,392
159,293
$617,264
285,994
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,887
(20,139)
43,061
98,057
Net income (loss) per share attributable to Deckers Outdoor Corporation common stockholders:
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.53)
(0.53)
0.20
0.20
1.19
1.18
$
$
$
$
$
$
2.81
2.77
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Deckers Outdoor
2011
March 31
June 30
September 30
December 31
$204,851
102,478
$154,222
65,912
$414,358
202,853
$603,852
307,752
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,178
(7,339)
62,484
124,729
Net income (loss) per share attributable to Deckers Outdoor Corporation common stockholders:
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.19)
(0.19)
0.50
0.49
1.62
1.59
$
$
$
$
$
$
3.23
3.18
F-35
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
(11) Goodwill and Other Intangible Assets
Most of the Company’s goodwill is related to the Sanuk reportable segment, with the remaining
related to the UGG and other brands reportable segments. The Company’s goodwill and other intangible
assets are summarized as follows:
As of December 31, 2012
Intangibles subject to amortization . . . . . . . . . . . . . .
Intangibles not subject to amortization:
Goodwill
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill and other intangible assets . . . . . . . . .
As of December 31, 2011
Intangibles subject to amortization . . . . . . . . . . . . . .
Intangibles not subject to amortization:
Goodwill
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill and other intangible assets . . . . . . . . .
Gross
Carrying
Amount
Weighted-
Average
Amortization
Period
Accumulated
Amortization
Net Carrying
Amount
$99,132
14 years
$16,164
$ 82,968
126,267
15,455
$224,690
$85,847
15 years
$ 6,853
$ 78,994
120,045
15,455
$214,494
The additions to goodwill through acquisitions were attributable to the Sanuk and other brands
reportable segments (see Note 8), and the impairment loss was attributable to the other brands reportable
segment. Changes in the Company’s goodwill are summarized as follows:
Goodwill,
Gross
Accumulated
Impairment
Goodwill, Net
Balance at December 31, 2010 . . . . . . . . . . . . .
Additions through acquisitions . . . . . . . . . . . . .
Impairment loss . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . .
Additions through acquisitions . . . . . . . . . . . . .
Impairment loss . . . . . . . . . . . . . . . . . . . . . . .
$ 21,932
113,944
—
$135,876
6,222
—
$(15,425)
—
(406)
$(15,831)
—
—
6,507
$
113,944
(406)
$120,045
6,222
—
Balance at December 31, 2012 . . . . . . . . . . . . .
$142,098
$(15,831)
$126,267
As of December 31, 2012 and 2011, the Company performed its annual impairment tests and
evaluated its UGG and other brands’ goodwill. As of October 31, 2012 and 2011, the Company performed
its annual impairment tests and evaluated its Teva trademarks and Sanuk goodwill. Based on the carrying
amounts of the UGG, Teva, Sanuk, and other brands’ goodwill, trademarks, and net assets, the brands’
2012 and 2011 sales and operating results, and the brands’ long-term forecasts of sales and operating
results as of their evaluation dates, the Company concluded that the carrying amounts of the UGG, Sanuk
and other brands’ goodwill, as well as the Teva trademarks, were not impaired. As of December 31, 2012
and 2011, and as of October 31, 2012, all goodwill and other nonamortizable intangibles were evaluated
F-36
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
based on qualitative analyses. As of October 31, 2011, all other nonamortizable intangibles were evaluated
based on Level 3 inputs.
As of December 31, 2012 and 2011, total goodwill by segment is as follows:
UGG brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanuk brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,101
113,944
6,222
$
6,101
113,944
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126,267
$120,045
As Of December 31,
2012
2011
Aggregate amortization expense for amortizable intangible assets for the years ended December 31,
2012, 2011 and 2010, was $9,312, $9,599 and $2,598, respectively. The following table summarizes the
expected amortization expense on existing intangible assets for the next five years.
Year ending December 31:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,892
8,662
7,400
5,937
5,574
40,546
$78,011
(12) Business Combination
On May 19, 2011, the Company entered into an asset purchase agreement whereby it agreed to
acquire substantially all of the assets and assume the related liabilities of Sanuk, an action sport footwear
brand rooted in the surf community, known for its original sandals and shoes. On July 1, 2011, the
Company completed the acquisition of the purchased assets and the assumption of the assumed liabilities.
The total purchase price for the assets related to the Sanuk brand was $123,544 plus contingent
consideration. The contingent consideration included 2011 EBITDA of the Sanuk brand multiplied by ten,
less the closing payment, up to a maximum of $30,000. The maximum of $30,000 was paid in March 2012;
and additional contingent consideration payments as follows:
(cid:127) 51.8% of the gross profit of the Sanuk brand in 2012, defined as total sales less the cost of sales for
the business of the sellers, which was $25,450;
(cid:127) 36.0% of gross profit of the Sanuk brand in 2013;
(cid:127) 40.0% of gross profit of the Sanuk brand in 2015.
There is no maximum to the contingent consideration payments for 2012, 2013, and 2015.
The Company acquired the Sanuk brand based upon the belief that Sanuk is a profitable, well-run
business with a similar corporate culture, and provides substantial growth opportunities, particularly within
the action sports market where it has a large and loyal consumer base of active outdoor enthusiasts. The
F-37
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
Sanuk brand complements the Company’s existing brand portfolio with its unique market position through
the combination of original and innovative product designs, as well as authentic and irreverent marketing
campaigns. The brand assists in balancing the Company’s existing seasonality, with its largest revenues
being generated in the first half of the year. The Sanuk brand also brings additional distribution channels
to the Company, as it sells to hundreds of independent specialty surf and skate shops throughout the US
that were not significantly in the Company’s existing customer portfolio. The acquisition was accounted for
as a business combination, and the Sanuk brand is reported as a new reportable segment.
The Company has included the operating results of the Sanuk brand in its consolidated financial
statements since the date of acquisition. For the year ended December 31, 2011, this included worldwide
revenue of $26,578 and operating loss of $3,004 for all distribution channels. The operating loss included
overhead costs that are excluded from worldwide wholesale segment operating income of $797 (see
note 8). The operating loss for the year ended December 31, 2011 also included $5,066 of amortization
expense on the acquired Sanuk intangibles and $3,500 of expense related to the change in fair value of the
Sanuk contingent consideration due to accretion and updated forecasts of the gross profit of the Sanuk
brand through 2015. For the year ended December 31, 2011, the Company incurred approximately $4,000
of transaction costs for the Sanuk acquisition which was included in SG&A.
The fair value of the contingent consideration is based on Level 3 inputs, and further changes in the
fair value of the contingent consideration will be recorded through operating income (see note 1). The
Company allocated the excess of the purchase price over the identifiable intangible and net tangible assets
to goodwill. The goodwill arising from the acquisition of the Sanuk brand relates to the projected earnings
power in the future, which includes the items discussed above. The goodwill is included in the Sanuk
wholesale reportable segment and all of it is expected to be deductible for tax purposes.
The Company used the income approach to value the contingent consideration and identifiable
intangible assets. The contingent consideration used a discounted cash flow method with a discount rate of
5.0% in 2011 and 7.0% thereafter. The following table summarizes the methods used under the income
approach for the identifiable intangible assets and their corresponding discount rates and royalty rates,
where applicable:
Identifiable intangible asset
Method
Discount Rate
Royalty Rate
US trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relief from royalty
International trademarks . . . . . . . . . . . . . . . . . . . . . . Relief from royalty
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . Excess earnings
International distributor relationships . . . . . . . . . . . . . Lost profits
US non-compete agreements . . . . . . . . . . . . . . . . . . . Lost profits
International non-compete agreements . . . . . . . . . . . . Lost profits
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relief from royalty
US backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess earnings
International backlog . . . . . . . . . . . . . . . . . . . . . . . . . Excess earnings
15.0%
17.0%
15.5%
17.5%
15.5%
17.5%
16.5%
14.0%
16.0%
5.0%
5.0%
3.0%
The amortizable intangible assets are being amortized straight-line over their estimated useful lives,
with the exception of the customer relationships, which are being amortized on an accelerated basis based
F-38
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
on their aggregate projected after tax undiscounted cash flows. The following table summarizes the final
purchase price allocation:
Estimated
Fair Value
Estimated
Useful
Life (Years)
Consideration
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from sellers . . . . . . . . . . . . . . . . . . . .
Contingent consideration arrangement . . . . . . . . .
$125,203
(1,659)
88,100
Total consideration transferred . . . . . . . . . . . . . . . . . .
$211,644
Recognized amounts of identifiable assets acquired
and liabilities assumed:
Trade accounts receivable, net of allowances of
$1,130 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,809
7,545
367
(5,544)
(507)
Net tangible assets acquired . . . . . . . . . . . . . . . . . . . .
14,670
Identifiable intangible assets:
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
International distributor relationships . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,200
21,300
800
5,300
6,600
1,830
20
8
2
5
14
1
113,944 Non-amortizable
Total purchase price . . . . . . . . . . . . . . . . . . . . . .
$211,644
F-39
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
The table below reconciles the preliminary purchase price allocation to the final purchase price
allocation. The adjustments to cash paid and receivable from sellers are the final working capital
adjustment.
As of
Acquisition
Adjustments
As of
December 31,
2011
Consideration
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from sellers . . . . . . . . . . . . . . . .
Contingent consideration arrangement . . . . .
$122,524
—
84,300
Trade accounts payable . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
$ (5,590)
109,170
$ 2,679
(1,659)
3,800
$ 4,820
$
46
4,774
$ 4,820
$125,203
(1,659)
88,100
$ (5,544)
113,944
The following table presents the unaudited pro forma results of the Company for the year ended
December 31, 2011 and 2010 as if the acquisition of the Sanuk brand had occurred on January 1, 2010.
These results are not intended to reflect the actual operations of the Company had the acquisition
occurred on January 1, 2010. Acquisition transaction costs have been excluded from the pro forma
operating income.
December 31,
2011
2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,419,557
$ 297,835
$1,049,389
$ 246,130
(13) Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS),
which was issued to provide a consistent definition of fair value and ensure that the fair value measurement
and disclosure requirements are similar between US GAAP and IFRS. Effective for the Company
beginning January 1, 2012, this ASU changed certain fair value measurement principles and enhanced the
disclosure requirements, particularly for Level 3 fair value measurements. The Company adopted this
update on January 1, 2012 and its adoption did not impact its consolidated financial statements and only
enhanced the disclosures for estimates requiring Level 3 fair value measurements (see Note 1).
In June 2011, the FASB issued ASU, Presentation of Comprehensive Income, an amendment to
ASC 220, Comprehensive Income, that brings US GAAP into alignment with International Financial
Reporting Standards for the presentation of OCI. Effective for the Company beginning January 1, 2012,
the option in current GAAP that permits the presentation of OCI in the statement of changes in equity has
been eliminated. The provisions of the update provide that an entity that reports items of OCI has two
options: (1) a single statement must present the components of net income, total net income, the
components of OCI, total OCI, and total comprehensive income; or (2) a two-statement approach whereby
an entity must present the components of net income and total net income in the first statement. That
F-40
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(amounts in thousands, except share quantity and per share data)
statement must be immediately followed by a financial statement that presents the components of OCI, a
total for OCI, and a total for comprehensive income. Beginning January 1, 2012, the Company adopted
this ASU using the single statement approach. The adoption of this ASU only changed the presentation of
OCI on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU, Intangibles — Goodwill and Other, which allows an entity to
first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Under this update, an entity is not required to perform the two step impairment
test for a reporting unit unless the entity determines, based on a qualitative assessment, that it is more
likely than not that its fair value is less than its carrying amount. This ASU was effective for the Company
January 1, 2012, with early adoption permitted. As permitted, the Company early adopted this update
effective with its December 31, 2011 reporting period.
In July 2012, the FASB issued ASU, Testing Indefinite - Lived Intangible Assets for Impairment, which
allows an entity to first assess qualitative factors to determine whether it is more likely than not that an
indefinite-lived intangible asset, other than goodwill is impaired. If an entity concludes, based on an
evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount, it will not be required to perform a
quantitative impairment test for that asset. Entities are required to test indefinite-lived assets for
impairment at least annually and more frequently if indicators of impairment exist. This ASU is effective
for the Company January 1, 2013, with early adoption permitted. As permitted, the Company early
adopted this update with its December 31, 2012 reporting period.
F-41
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 2012, 2011 and 2010
Schedule II
Year ended December 31, 2012:
Allowance for doubtful accounts(1) . . . . . . . . . . . . . .
Allowance for sales discounts(2) . . . . . . . . . . . . . . . .
Allowance for sales returns(3) . . . . . . . . . . . . . . . . . .
Chargeback allowance(4) . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011:
Allowance for doubtful accounts(1) . . . . . . . . . . . . . .
Allowance for sales discounts(2) . . . . . . . . . . . . . . . .
Allowance for sales returns(3) . . . . . . . . . . . . . . . . . .
Chargeback allowance(4) . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010:
Allowance for doubtful accounts(1) . . . . . . . . . . . . . .
Allowance for sales discounts(2) . . . . . . . . . . . . . . . .
Allowance for sales returns(3) . . . . . . . . . . . . . . . . . .
Chargeback allowance(4) . . . . . . . . . . . . . . . . . . . . . .
Balance at
Beginning of
Year
Additions
Deductions
Balance at
End of Year
$ 1,719
4,629
11,313
4,031
$ 1,379
5,819
4,039
2,535
$ 2,710
2,796
3,235
3,049
$ 2,128
35,759
53,165
5,879
$
642
36,254
37,355
1,744
$ (763)
26,514
20,726
(253)
$ 1,065
36,552
51,573
4,347
$
302
37,444
30,081
248
568
$
23,491
19,922
261
$ 2,782
3,836
12,905
5,563
$ 1,719
4,629
11,313
4,031
$ 1,379
5,819
4,039
2,535
(1) The additions to the allowance for doubtful accounts represent the estimates of our bad debt expense
based upon the factors for which we evaluate the collectability of our accounts receivable, with actual
recoveries netted into additions. Deductions are the actual write offs of the receivables. In 2010, the
additions were negative due to recoveries of amounts reserved as of December 31, 2009.
(2) The additions to the reserve for sales discounts represent estimates of discounts to be taken by our
customers based upon the amount of available outstanding terms discounts in the year-end aging.
Deductions are the actual discounts taken by our customers.
(3) The additions to the allowance for returns represent estimates of returns based upon our historical
returns experience. Deductions are the actual returns of products.
(4) The additions to the chargeback allowance represent chargebacks taken in the respective year as well
as an estimate of chargebacks related to sales in the respective reporting period that will be taken
subsequent to the respective reporting period. Deductions are the actual chargebacks written off
against outstanding accounts receivable. The Company has estimated the additions and deductions by
netting each quarter’s change and summing the four quarters for the respective year.
See accompanying report of independent registered public accounting firm.
F-42
Innovative footwear for
culinary influencers
Footwear that balances fashion, comfort,
and performance for consumers that
live an active outdoor lifestyle
Premium footwear rooted
in comfort, influenced by
athleticism, always innovative
Inventors of oversize performance
footwear that lets you Keep Running.
Corporate Headquarters
495-A South Fairview Ave.
Goleta, California, 93117
805.967.7611
NASDAQGS: DECK
© 2013 Deckers Outdoor Corporation