Question

7-88 Analyzing Financial Statements Using the Internet: Deckers Outdoor Corporation Go to Deckers Outdoor Corporation's latest annual report information on its Web site. Deckers Outdoor Corporation is the exclusive licensee for the manufacture of Teva footwear. Use the latest 10-K filing to find financial report data. Answer the following questions about Deckers: 1. What percentage of revenues does Teva represent? Have revenues related to Teva products increased or decreased over the past few years? 2. Read the Summary of Significant Accounting Policies section of the Notes to Consolidated Financial Statements. How are inventories valued and accounted for? Why do you think the company uses this particular costing method? 3. Locate the income statement. How much gross profit is reported for the most recent year? What is the gross profit percentage? Have these amounts increased or decreased compared with the previous year? What explanation does management give for the changes? (Hint: Look in the Management's Discussion and Analysis section.)

Answer 1

1.         In 2011 Teva represented ($118,742 ÷ $1,377,283) = 8.6% of Deckers’ sales. This percentage is down from ($82,003 ÷$448,929) = 18.3% in 2007. UGG is the largest brand representing ($915,203 ÷ $1,377,283) = 66.5% of 2011 sales. These numbers are calculated from information in item 6 of the 10-K which provides selected financial data for Teva and other subsidiaries.

2.         Inventories are reported at the lower of FIFO cost or market. The costs of inventories are probably not increasing fast enough to give LIFO a large tax advantage. Using LCM is important to a company such as Deckers because shoes can become out-of-style and therefore have market values below cost.

3.         In 2011 the gross profit was $678,995,000, up from $502,938,000 in 2010. The gross profit percentage decreased from ($502,938 ÷ $1,000,989) = 50.2% in 2010 to ($678,995,000 ÷ $1,377,283,000) = 49.3% in 2011.  The Management Discussion and Analysis refers specifically to high demand for the sheepskin used in Decker’s products, and associated cost increases, which put pressure on the profit margins.