Form: 10-Q

Quarterly report [Sections 13 or 15(d)]

Documents

10-Q: Quarterly report [Sections 13 or 15(d)]

Published on


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q


(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number 0-22446


DECKERS OUTDOOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)


Delaware 95-3015862
- --------------------------------------------------------------------------------
(State or other jurisdiction of IRS Employer Identification
incorporation or organization)


1140 Mark Avenue, Carpinteria, California 93013
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)


Registrant's telephone number, including (805) 684-7722
area code -------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
-------- --------

Indicate the number of shares outstanding of the issuer's class of common
stock, as of the latest practicable date.




Outstanding at
CLASS October 31, 1996
----------------------------- ----------------------------

Common stock, $.01 par value 9,266,383

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents





Page
----

Part I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 1

Condensed Consolidated Statements of Operations for the Three-Month Period
Ended September 30, 1996 and 1995 2

Condensed Consolidated Statements of Operations for the Nine-Month
Period Ended September 30, 1996 and 1995 3

Condensed Consolidated Statements of Cash Flows for the Nine-Month Period
Ended September 30, 1996 and 1995 4-5

Notes to Condensed Consolidated Financial Statements 6-7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11

Part II. Other Information

Item 1. Legal Proceedings 12

Item 2. Changes in Securities 12

Item 3. Defaults upon Senior Securities 12

Item 4. Submission of Matters to a Vote of Security Holders 12

Item 5. Other Information 12

Item 6. Exhibits and Reports on Form 8-K 12

Signature 13

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)




ASSETS SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------

Current assets:
Cash and cash equivalents $ 2,269,000 3,222,000
Trade accounts receivable, less allowance for doubtful accounts of
$2,513,000 and $2,625,000 as of September 30,
1996 and December 31, 1995, respectively 18,537,000 19,716,000
Inventories 21,341,000 19,556,000
Prepaid expenses and other current assets 1,642,000 2,542,000
Refundable and deferred income taxes 2,026,000 4,995,000
------------- -------------
Total current assets 45,815,000 50,031,000

Property and equipment, at cost, net 2,999,000 3,273,000
Intangible assets, less applicable amortization 21,118,000 16,907,000
Note receivable from supplier 2,540,000 2,839,000
Other assets 114,000 1,867,000
------------- -------------
$ 72,586,000 74,917,000
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable $ 1,077,000 -----
Current maturities of long-term debt 95,000 111,000
Trade accounts payable 4,082,000 3,020,000
Accrued expenses 4,272,000 3,131,000
Income taxes payable 1,062,000 -----
------------- -------------
Total current liabilities 10,588,000 6,262,000
------------- -------------
Long-term debt, less current maturities 5,318,000 15,170,000

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued ----- -----
Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 9,266,383 and 9,242,375 shares at
September 30, 1996 and December 31, 1995, respectively 93,000 92,000
Additional paid-in capital 29,064,000 28,940,000
Retained earnings 27,523,000 24,453,000
------------- -------------
Total stockholders' equity 56,680,000 53,485,000
------------- -------------
$ 72,586,000 74,917,000
============= =============



See accompanying notes to condensed consolidated financial statements.
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)



THREE-MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------

Net sales $ 23,485,000 22,258,000
Cost of sales 14,291,000 16,510,000
------------ ------------
Gross profit 9,194,000 5,748,000

Selling, general and administrative expenses 7,965,000 7,131,000
------------ ------------
Earnings (loss) from operations 1,229,000 (1,383,000)

Other expense (income):
Interest expense, net 215,000 246,000
Minority interest in net (loss) earnings of subsidiary 23,000 (26,000)
Loss on disposal of property and equipment 140,000 418,000
Miscellaneous expense (income) (173,000) 30,000
------------ ------------
Earnings (loss) before income tax expense (benefit) 1,024,000 (2,051,000)

Income tax expense (benefit) 457,000 (851,000)
============ ============
Net earnings (loss) $ 567,000 (1,200,000)
============ ============
Net earnings (loss) per common and common equivalent shares $ 0.06 (0.15)
============ ============
Weighted average common and common equivalent shares outstanding 9,349,000 9,242,000
============ ============


See accompanying notes to condensed consolidated financial statements.





2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)



NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------

Net sales $ 79,807,000 80,122,000
Cost of sales 46,928,000 47,849,000
------------ ------------
Gross profit 32,879,000 32,273,000

Selling, general and administrative expenses 26,354,000 23,593,000
------------ ------------
Earnings from operations 6,525,000 8,680,000

Other expense (income):
Interest expense, net 723,000 261,000
Minority interest in net loss of subsidiary (58,000) (26,000)
Loss on disposal of property and equipment 489,000 418,000
Miscellaneous expense (income) (170,000) 82,000
------------ ------------
Earnings before income taxes 5,541,000 7,945,000

Income taxes 2,471,000 3,297,000
------------ ------------
Net earnings $ 3,070,000 4,648,000
============ ============
Net earnings per common and common equivalent shares $ 0.33 0.47
============ ============
Weighted average common and common equivalent shares outstanding 9,317,000 9,379,000
============ ============


See accompanying notes to condensed consolidated financial statements.





3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)



NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------

Cash flows from operating activities:
Net earnings $ 3,070,000 4,648,000
------------ ------------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 1,538,000 1,110,000
Provision for doubtful accounts 985,000 296,000
Stock compensation ---- 17,000
Minority interest in net loss of subsidiary (58,000) (26,000)
Loss on disposal of property and equipment 489,000 418,000
Changes in assets and liabilities
(Increase) decrease in:
Trade accounts receivable 194,000 (5,812,000)
Inventories (1,785,000) 10,167,000
Prepaid expenses and other current assets 900,000 (2,166,000)
Note receivable from supplier 299,000 108,000
Refundable and deferred income taxes 2,969,000 ----
Other assets (879,000) (1,192,000)
Increase (decrease) in:
Accounts payable 1,062,000 (3,824,000)
Accrued expenses 1,265,000 2,575,000
Income taxes payable 1,062,000 (68,000)
------------ ------------
Total adjustments 8,041,000 1,603,000
------------ ------------
Net cash provided by operating activities 11,111,000 6,251,000
------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 5,000 ----
Purchase of property and equipment (1,106,000) (1,380,000)
Increase in intangible assets ---- (38,000)
Cash advance to Ugg prior to acquisition ---- (3,000,000)
Cash paid for acquisition, net of cash acquired (495,000) (11,200,000)
Cash paid for repurchase of outstanding stock options
in a subsidiary (725,000) ----
Net proceeds from the sale of short-term investments ---- 4,850,000
------------ ------------
Net cash used in investing activities (2,321,000) (10,768,000)


(Continued)





4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)



NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------

Cash flows from financing activities:
Cash received from borrowings under credit facility $ 5,050,000 25,850,000
Repayments under credit line and long-term debt (14,918,000) (14,980,000)
Proceeds from exercise of stock options 125,000 12,000
Repurchase of common stock ---- (4,900,000)
------------ ------------
Net cash provided by (used in) financing activities (9,743,000) 5,982,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (953,000) 1,465,000




Cash and cash equivalents at beginning of period 3,222,000 2,872,000
------------ ------------
Cash and cash equivalents at end of period $ 2,269,000 4,337,000
============ ============

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 736,000 212,000
Income taxes 249,000 5,852,000
============ ============




Supplemental disclosure of noncash investing and financing activities:

In connection with the repurchase of outstanding stock options of a subsidiary
from the Founder of the subsidiary during the nine-month period ended
September 30, 1996, the Company gave consideration of $2,111,000,
consisting of $725,000 of cash, notes payable to the Founder (net of
imputed interest) aggregating $1,011,000 and the forgiveness of a
$375,000 note receivable from the Founder.

In connection with the acquisition of substantially all of the assets of Alp
Sport Sandals during the nine-month period ended September 30, 1995,
the Company acquired net assets aggregating $1,258,000 for cash
consideration and $1,066,000 of indebtedness.

See accompanying notes to condensed consolidated financial statements.





5

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) General

The unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of
operations for interim periods are not necessarily indicative of
results to be achieved for full fiscal years.

As contemplated by the Securities and Exchange Commission (SEC) under
Rule 10-01 of Regulation S-X, the accompanying consolidated financial
statements and related footnotes have been condensed and do not
contain certain information that will be included in the Company's
annual consolidated financial statements and footnotes thereto. For
further information, refer to the consolidated financial statements
and related footnotes for the year ended December 31, 1995 included in
the Company's Annual Report on Form 10-K.

(2) Earnings per Share

Net earnings per share is based on the weighted average number of
common and common equivalent shares outstanding. Common stock
equivalents represent the number of shares which would be issued
assuming the exercise of common stock options and reduced by the
number of shares which could be purchased with the proceeds from the
exercise of those options.

Fully diluted net earnings per share are not presented since the
amounts do not differ significantly from the primary net earnings per
share presented.

(3) Inventory

Inventory at September 30, 1996 and December 31, 1995 is summarized as
follows:



SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------

Raw materials $ 2,428,000 1,892,000
Work in process 1,465,000 1,379,000
Finished goods 17,448,000 16,285,000
------------- -------------
Total inventory $ 21,341,000 19,556,000
============= =============






6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)

(4) Income Taxes

Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is
subject to ongoing review and evaluation by management.

(5) Stock-Based Compensation

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), which was issued in October 1995. This
statement encourages, but does not require, a fair value based method
of accounting for employee stock options or similar equity
instruments. FAS 123 allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires
pro forma disclosures of net earnings and earnings per share as if the
fair value based method of accounting had been applied. The Company
has elected to continue to measure compensation cost under APBO No.
25, "Accounting for Stock Issued to Employees," and will comply with
the pro forma disclosure requirements in its December 31, 1996 Annual
Report on Form 10-K. The adoption of FAS 123 had no impact on the
Company's financial position or results of operations.

(6) Impairment of Long-Lived Assets

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which was issued in March 1995. This statement establishes accounting
standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill
either to be held or disposed of. The adoption of FAS 121 did not
have a material impact on the Company's financial position or results
of operations.





7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995

Net sales increased by $1,227,000 or 5.5% between the three months
ended September 30, 1996 and 1995 due to several offsetting factors.
Following the first quarter of 1995, the Company's Teva(R) line was
adversely impacted by the poor overall retail markets and an abundance
of sport sandals in the marketplace. As a result, the Company offered
heavy discounting in the third quarter of 1995 in efforts to move the
resulting oversupply of 1995 Teva(R) product. The Company was able to
sell a significant portion of this excess inventory at these reduced
prices in the third quarter of 1995, causing the usually lower volume
third quarter to be higher than it would have otherwise been. Because
this volume of closeout sales did not recur in the third quarter of
1996, sales of the Teva(R) line decreased from $5,953,000 for the
three months ended September 30, 1995 to $3,573,000 for the three
months ended September 30, 1996, a 40.0% decrease. Sales of Teva(R)
products represented 26.7% and 15.2% of net sales in the three months
ended September 30, 1995 and 1996, respectively. The Company also
experienced a decline in third quarter sales of its Ugg(R) product
line in 1996 as the Company repositioned this brand toward higher-end
retailers, avoiding some of the lower-end retailers to which the
Company previously sold. Consistent with the Teva(R) and Simple(R)
lines, the Company is targeting Ugg(R) primarily to the higher-end
retailers in efforts to promote the brand in markets which can support
higher prices and margins. In addition, last year's unseasonably late
winter resulted in a carryover of Ugg(R) product at retailers to 1996.
These factors, combined with the increased competition for the brand
caused net sales to decrease from $6,368,000 for the quarter ended
September 30, 1995 to $3,827,000 for the quarter ended September 30,
1996, a 40.0% decrease. Offsetting these sales declines, net sales of
footwear under the Simple(R) product line increased 56.8%, from
$9,109,000 to $14,279,000 between the three months ended September 30,
1995 and 1996. In addition, international sales for the Company's
products as a whole increased 45.7% from $4,432,000 to $6,459,000,
representing 19.9% of net sales in 1995 and 27.5% in 1996. The
combination of these offsetting factors led to a net decrease in the
volume of footwear sold, which decreased from 818,000 pairs during the
three months ended September 30, 1995, to 776,000 pairs during the
three months ended September 30, 1996, a 5.1% decrease.

The weighted average wholesale price per pair sold during these
respective periods increased from $26.45 to $28.94, or by 9.4%. The
increase in the average wholesale price reflects the non-recurrence of
the heavy discounting of Teva(R) product which was experienced in the
third quarter of 1995. The effects of this were partially offset by
the reduction in Ugg(R) sales, which have a higher weighted average
selling price than the Company's other lines.

Cost of sales decreased by $2,219,000 to $14,291,000 for the three
months ended September 30, 1996, compared with $16,510,000 for the
three months ended September 30, 1995, a decrease of 13.4%. Gross
profit increased by $3,446,000 or 60.0% to $9,194,000 for the three
months ended September 30, 1996, from $5,748,000 for the three months
ended September 30, 1995, and increased as a percentage of net sales
to 39.1% from 25.8%. The reduction in cost of sales and the increase
in gross profit margin as a percentage of net sales were primarily due
to the non-recurrence in 1996 of the $950,000 write-down of Teva(R)
inventory which was experienced in the third quarter of 1995 as well
as the non-recurrence of the discounted pricing offered for the Teva(R)
product line in the third quarter of 1995.





8
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

Selling, general and administrative expenses increased by $834,000 or
11.7% between the three months ended September 30, 1995 and September
30, 1996, and increased as a percentage of net sales from 32.0% in
1995 to 33.9% in 1996. The increase was primarily due to increased
warehouse costs, partially related to the move to a new warehouse
facility in Ventura, California. Also, selling commissions increased
in comparison to the third quarter of 1995, as the Company paid
reduced commissions on the close-out sales in 1995.

Income taxes were $457,000 for the three months ended September 30,
1996, representing an effective income tax rate of 44.6% compared with
income tax benefit of $851,000 for the three months ended September
30, 1995, representing an effective income tax rate of 41.5% The
increase in the effective income tax rate from 1995 to 1996 is largely
a result of the goodwill associated with the acquisition of Ugg
Holdings, Inc., which is not deductible for income tax reporting
purposes. In addition, the Company experienced non-deductible losses
at certain subsidiaries which are consolidated for financial reporting
purposes but which are not consolidated for income tax reporting
purposes.

The Company had net earnings of $567,000 for the three months ended
September 30, 1996, as compared with a net loss of $1,200,000 for the
three months ended September 30, 1995, for the reasons discussed
above.

Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995

Net sales decreased by $315,000 or 0.4% between the nine months ended
September 30, 1996 and 1995. Several offsetting factors have led to
the comparable net sales for the nine months ended September 30, 1996
and 1995. In early 1995, the Company experienced strong sales of the
Tev(R) line. However, beginning in the second quarter of 1995, the
Company was impacted by the poor overall retail markets and the
abundance of sport sandals in the marketplace. As a result, the
Company began heavy discounting in efforts to move the resulting
oversupply of 1995 Teva(R) product and was able to sell a significant
portion of this excess inventory in the third quarter of 1995 and the
first half of 1996. This excess 1995 inventory was carried by
retailers into 1996, thus negatively impacting the Company's 1996
Teva(R) sales. As a result, net sales of the Teva(R) line decreased
from $51,681,000 to $39,587,000, a 23.4% decrease between the nine
months ended September 30, 1995 and 1996, respectively. Sales of
Tev(R) products represented 64.5% and 49.6% of net sales in the nine
months ended September 30, 1995 and 1996, respectively. The Company
also experienced a decline in sales of its Ug(R) product line as the
Company repositioned this brand toward higher-end retailers, avoiding
some of the lower-end retailers to which the Company had previously
sold. Consistent with the Teva(R) and Simple(R) lines, the Company is
targeting Ugg(R) primarily to the higher-end retailers in efforts to
promote the brand in markets which can support higher prices and
margins. In addition, last year's unseasonably late winter resulted
in a carryover of Ugg(R) product at retailers to 1996. These factors,
combined with the increased competition for the brand caused net sales
for Ugg(R) to decrease from $6,368,000 for the nine months ended
September 30, 1995, to $4,158,000 for the nine months ended September
30, 1996, a 34.7% decrease. Offsetting these factors, net sales of
footwear under the Simple(R) product line increased 63.9% from
$19,159,000 to $31,403,000 between the nine months ended September 30,
1995 and 1996. Simple sales represented 23.0% and 39.4% of net sales
in the nine months ended September 30, 1995 and 1996, respectively.
Overall, international sales for all of the Company's products
increased 42.9% from $14,220,000 to $20,315,000, representing 17.7% of
net sales in 1995 and 25.5% in 1996. The combination of these factors
lead to a net increase in the volume of footwear sold, which increased
from 2,870,000 pairs during the nine months ended September 30, 1995,
to 2,993,000 pairs during the nine months ended September 30, 1996, a
4.3% increase.





9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

The weighted average wholesale price per pair sold during these
respective periods decreased from $28.16 to $26.57, or by 5.6%. The
decrease in the average wholesale price reflects the sale of the
remaining 1995 Teva(R) sport sandals at discounted prices in 1996,
which selling prices approximated the carrying value of the inventory.
Also, the Company reduced the prices of certain Teva(R) styles since
the nine months ended September 30, 1995, in order to promote a more
even distribution of price points between the high and low points.
The Company believes that having such an even price point distribution
will place one or more styles at each desired price level. In
addition, the Company experienced a reduction in Ugg(R) sales, which
have a higher weighted average selling price than the Company's other
lines.

Cost of sales decreased by $921,000 to $46,928,000 for the nine months
ended September 30, 1996, compared with $47,849,000 for the nine
months ended September 30, 1995, a decrease of 1.9%. Gross profit
increased by $606,000 or 1.9% to $32,879,000 for the nine months ended
September 30, 1996, from $32,273,000 for the nine months ended
September 30, 1995, and increased as a percentage of net sales to
41.2% from 40.3% The increase in gross profit margin as a percentage
of net sales was primarily due to the non-recurrence of the
significant inventory write-downs experienced in the second and third
quarters of 1995 as well as the discounted selling prices discussed
above.

Selling, general and administrative expenses increased by $2,761,000
or 11.7% between the nine months ended September 30, 1995 and
September 30, 1996, and increased as a percentage of net sales from
29.4% in 1995 to 33.0% in 1996. The increase was primarily due the
addition of the operations of Ugg Holdings, Inc., increased
advertising expenditures, increased payroll costs resulting from newly
created positions, and increased warehouse costs, which were partially
a result of the Company's move to a new warehouse facility in the
third quarter of 1996.

Income taxes were $2,471,000 for the nine months ended September 30,
1996, representing an effective income tax rate of 44.6% compared with
income taxes of $3,297,000 for the nine months ended September 30,
1995, representing an effective income tax rate of 41.5%. The
increase in the effective income tax rate from 1995 to 1996 is largely
a result of the goodwill associated with the acquisition of Ugg
Holdings, Inc. which is not deductible for income tax reporting
purposes. In addition, the Company experienced non-deductible losses
at certain subsidiaries which are consolidated for financial reporting
purposes but which are not consolidated for income tax reporting
purposes.

The Company had net earnings of $3,070,000 for the nine months ended
September 30, 1996, as compared with net earnings of $4,648,000 for
the nine months ended September 30, 1995, a decrease of 34.0% for the
reasons discussed above.

Liquidity and Capital Resources

At September 30, 1996, working capital was $35,227,000 including
$2,269,000 of cash and cash equivalents. Cash provided by operating
activities aggregated $11,111,000 for the nine months ended September
30, 1996, as compared to $6,251,000 for the nine months ended
September 30, 1995.

The Company has a revolving credit facility with a bank (the
"Facility"), providing a maximum borrowing availability of $25,000,000
based on certain eligible assets, as defined. The Facility can be used
for working capital and general corporate purposes and expires August
1, 2000. Borrowings bear interest at the bank's prime rate (8.25% at
September 30, 1996) plus up to 0.25%, depending on whether





10
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

the Company satisfies certain financial ratios. Alternatively, the
Company may elect to have borrowings bear interest at LIBOR plus 1.5%
to 1.75%, depending on whether the Company satisfies such financial
ratios. Up to $10,000,000 of borrowings may be in the form of letters
of credit. The Facility is secured by substantially all assets of the
Company. As of September 30, 1996, the Company had $4,000,000 in
borrowings outstanding under the Facility as compared to $13,050,000
as of Septebmer 30, 1995.

The agreement underlying the Facility includes certain restrictive
covenants which, among other things, require the Company to maintain
certain financial tests. The Company was in compliance with all
requirements as of September 30, 1996.

The Company has an agreement with a supplier to provide financing to
that supplier for the initial start-up and the expansion of the
supplier's operations, as well as for working capital needs. At
September 30, 1996, $2,540,000 was outstanding as compared to
$3,564,000 as of September 30, 1995. The note is secured by all
assets of the supplier and bears interest at the prime rate (8.25% at
September 30, 1996) plus 1%.

Capital expenditures totaled $1,106,000 for the nine months ended
September 30, 1996. The Company's capital expenditures related
primarily to the purchase of production molds, machinery and
equipment, the continued expansion of the Company's facilities and
upgrades to the Company's computer systems. The Company currently has
no material future commitments for capital expenditures.

In connection with the acquisition of Ugg Holdings, Inc. in 1995, the
Company is required to make payments to the former shareholders equal
to 2 1/2% of net sales of Ugg Holdings, Inc. for the years ending
March 31, 1996 through March 31, 2000, an amount equal to earnings
before income taxes of Ugg Holdings, Inc., as adjusted for certain
items, for the year ended March 31, 1996 and an additional $500,000
payment in March 2000. In May 1996, the Company made a $495,000
payment to the former shareholders related to its required payments
for the year ended March 31, 1996. The Company allocated the entire
payment amount to goodwill, which is being amortized over the
remaining 29 year life of the goodwill.

The Company believes that internally generated funds, the available
borrowings under its existing credit facilities and the cash on hand
will provide sufficient liquidity to enable it to meet its current and
foreseeable working capital requirements.

Seasonality

Financial results for the outdoor and footwear industries are
generally seasonal. Based on the Company's historical product mix,
the Company would expect greater sales in the first and second
quarters than in the third and fourth quarters. However, the Company
anticipates that the recent acquisition of Ugg Holdings, Inc., the
expansion of the Simple product sales and the acquisition of a 50%
interest in Trukke Winter Sports Products, Inc., which are
counterseasonal to the Company's sport sandal line, will help reduce
the impact of seasonality.

Other

The Company believes that the relatively moderate rates of inflation
in recent years have not had a significant impact on its net sales or
profitability.





11
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES




PART II. OTHER INFORMATION


Item 1. Legal Proceedings. Not applicable

Item 2. Changes in Securities. Not applicable

Item 3. Defaults upon Senior Securities. Not applicable

Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable

Item 5. Other Information. Not applicable

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit 10.42 Amended Compensation Plan for
Outside Members of the Board of
Directors.

Exhibit 11.1 Statement of Computation of Earnings
(Loss) per Share.


(b) Reports on Form 8-K. None





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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES




Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Deckers Outdoor Corporation



Date: November 14, 1996 /s/ Diana M. Wilson
-----------------------------------------
Diana M. Wilson, Chief Operating
and Financial Officer,
Vice President and Secretary

(Duly Authorized Officer and Principal
Financial and Accounting Officer)





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