Global Business

Deckers to Restate for Errors at a China Unit

The footwear concern finds underreported payroll and tax amounts at Holbrook Ltd.
Stephen TaubSeptember 11, 2007

Deckers Outdoor Corp. said it will restate its financial reports for 2004 through 2006, along with some earlier financial information, to reflect past underreported payroll declarations and tax payments in China.

The Goleta, California-based footwear company said the total amount to be restated will range between $6.1 million and $9.1 million, and noted in a regulatory filing that a significant portion of the error relates to periods prior to 2004, according to a regulatory filing. It attributed the revisions to the underreporting at its Hong Kong-based Holbrook Ltd. subsidiary.

Retained earnings as of January 1, 2004, will be restated, it said. Further, certain financial information that was related to 2002 and 2003, but that appeared in ithe Deckers annual report for 2006 and in is its March 31, 2007, quarterly report, will be restated.

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The changes in the years from 2004 to 2006 will be recorded as adjustments to cost of sales, interest, and other expense; net; and income taxes in the consolidated statements of operations.

Deckers said that a material weakness resulting from insufficient supervision and oversight of local accounting personnel at the Holbrook subsidiary affected internal controls for those years, and through last March 31. Thus, it said, its previous certifications about internal controls should no longer be relied upon.

The company said it has changed the management and reporting structure of its accounting personnel in China, installing remedial measures to strengthen internal controls over subsidiary financial reporting. The measures include segregation of financial accounting and disbursement functions; third-party preparation and reporting of payroll, payroll taxes, and corporate taxes; and periodic internal audit of the application of company policies and procedures at its foreign subsidiaries. More measures may be needed, it said.