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+10-K405
+1
+a2042942z10-k405.txt
+FORM 10-K405
+1
+UNITED STATES
+SECURITIES AND EXCHANGE COMMISSION
+WASHINGTON, DC 20549
+FORM 10-K
+[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
+OF 1934
+[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
+ACT OF 1934
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
+Commission File No. 1-8726
+RPC, INC.
+DELAWARE 58-1550825
+(State of Incorporation) (I.R.S. Employer
+Identification No.)
+2170 PIEDMONT ROAD, NE
+ATLANTA, GEORGIA 30324
+(404) 321-2140
+Securities registered pursuant to Section 12(b) of the Act:
+TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
+COMMON STOCK, $0.10 PAR VALUE THE NEW YORK STOCK EXCHANGE
+(28,353,795 shares outstanding
+as of February 26, 2001)
+The aggregate market value of shares of common stock held by non-affiliates at
+February 26, 2001 was $137,449,325.
+Securities registered pursuant to Section 12(g) of the Act:
+NONE
+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. [X] Yes [ ] No
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
+of Regulation S-K 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. [X]
+Documents Incorporated by Reference
+Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders of
+RPC, Inc. are incorporated by reference into Part III, Items 10 through 13 of
+this report.
+1
+PART I
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries as
+"we," "us," or "the Company."
+FORWARD-LOOKING STATEMENTS
+Certain statements made in this report that are not historical facts are
+"forward-looking statements" under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future.
+The words "may," "will," "expect," "believe," "anticipate," "project,"
+"estimate," and similar expressions generally identify forward-looking
+statements. Such statements are based on certain assumptions and analyses made
+by our management in light of its experience and its perception of historical
+trends, current conditions, expected future developments and other factors it
+believes to be appropriate. We caution you that such statements are only
+predictions and not guarantees of future performance and that actual results,
+developments and business decisions may differ from those envisioned by the
+forward-looking statements. See "Risk Factors" contained in Item 1.
+ITEM 1. BUSINESS
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as part
+of a spin-off from Rollins, Inc. (NYSE:ROL). Two of RPC's businesses, Cudd
+Pressure Control ("Cudd") and Patterson Services ("Patterson"), have been
+conducted for more than 20 years. Effective February 28, 2001, RPC completed the
+spin-off of its powerboat manufacturing business through a distribution of
+shares in Marine Products Corporation ("Marine Products"). See "Discontinued
+Operation" for additional information.
+RPC provides a broad range of specialized oilfield services and equipment
+primarily to independent and major oilfield companies engaged in the
+exploration, production and development of oil and gas properties throughout the
+United States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include among other things, (1) snubbing services, (2) coiled
+tubing services, (3) pressure pumping services, (4) marine services, (5)
+firefighting and well control, and (6) the rental of drill pipe and other
+specialized oilfield equipment. RPC acts as a holding company for its operating
+subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc. and
+Patterson Tubular Services, Inc. together with several smaller non-core
+businesses.
+RPC's service lines have been aggregated into two reportable oil and gas
+services business segments - Technical Services and Support Services - because
+of the similarities between the financial performance and approach to managing
+these service lines within each of the segments as well as the economic and
+business conditions impacting their business activity levels. The other business
+segment includes information concerning RPC's business units that do not qualify
+for separate segment reporting. These business units include an overhead crane
+fabricator, an enhanced facsimile service provider and other non-oilfield
+research and development operations. The research and development operations
+have been scaled back since approximately 1997.
+Technical Services include RPC's oil and gas service lines that utilize people
+and equipment to perform value-added completion, production and maintenance
+services directly to a customer's well. These services are generally directed
+toward improving the flow of oil and natural gas from producing formations or to
+address well control issues. The Technical Services business segment consists
+primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control,
+down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and
+casing installation services. The principal markets for this business segment
+include the United States, including the Gulf of Mexico, mid-continent,
+southwest and Rocky Mountain regions, and international locations including
+primarily Algeria and Venezuela. Customers include major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Support Services include RPC's oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels, and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, Gulf of Mexico and mid-continent
+regions. Customers include domestic operations of major multi-national and
+independent oil and gas producers.
+TECHNICAL SERVICES
+The following is a description of the primary service lines conducted within the
+Technical Services business segment.
+SNUBBING. Snubbing involves using a high-pressure workover rig that permits an
+operator to repair damaged casing, production tubing and down-hole production
+equipment in a high-pressure environment. Using a series of highly sophisticated
+blowout
+2
+prevention devices, a snubbing unit makes it possible to remove and
+replace down-hole equipment in a pressurized environment. Customers benefit
+because these operations can be performed without removing the pressure from or
+"killing" the well. "Killing" a well can result in formation damage and may
+cause difficulties on the subsequent repressurization. Typically, performing
+snubbing workover operations can be done quickly and is therefore more cost
+effective than alternative procedures. Since snubbing is a very hazardous
+process that entails high risk, the snubbing segment of the oil and gas services
+industry is limited to a few operators who have the experience and knowledge
+required to safely and efficiently perform such services.
+COILED TUBING. Coiled tubing services involve the injection of coiled tubing
+into wells to perform various applications and functions for use principally in
+well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than five inches manufactured in continuous lengths of
+thousands of feet and wound or coiled around a large reel on a truck or
+skid-mounted unit. Due to the small diameter of coiled tubing, it can be
+inserted through existing production tubing and used to perform workovers
+without using a larger, more costly workover rig. Principal advantages of
+employing coiled tubing in a workover include: (i) not having to "shut-in" the
+well during such operations, thereby allowing production to continue and
+reducing the risk of formation damage to the well, (ii) the ability to reel
+continuous coiled tubing in and out of a well significantly faster than
+conventional pipe which must be jointed and unjointed, (iii) the ability to
+direct fluids into a wellbore with more precision, allowing for localized
+stimulation treatments and providing a source of energy to power a down-hole
+motor or manipulate down-hole tools and (iv) enhanced access to remote or
+offshore fields due to the smaller size and mobility of a coiled tubing unit.
+Recent technological improvements to coiled tubing have increased its
+dependability and durability, expanding coiled tubing's potential uses and
+markets.
+PRESSURE PUMPING SERVICES. Cudd provides pumping services to customers
+throughout the Gulf Coast and mid-continent regions of the United States. Cudd
+utilizes complex, truck-or skid-mounted equipment designed and constructed for
+each specific pumping service offered. After such equipment is moved to a well
+location, it is configured with appropriate connections to perform the specific
+services required. The mobility of this equipment permits Cudd to provide
+pressure pumping services in varying geographic areas. Principal materials
+utilized in the pressure pumping business include fracturing proppants, acid and
+bulk chemical additives. Generally, these items are available from several
+suppliers, and Cudd utilizes more than one supplier for each item. Pressure
+Pumping Services offered include:
+Fracturing - Fracturing services are performed to enhance the production of
+oil and natural gas from formations where the well's natural flow is
+restricted due to permeability issues. The fracturing process consists of
+pumping a fluid gel into a cased well at sufficient pressure to "fracture"
+the formation. Sand, bauxite or synthetic proppant, which is suspended in
+the gel, is pumped into the fracture to prop it open. The main pieces of
+equipment used in the fracturing process are the blender, which blends the
+proppant and chemicals into the fracturing fluid, the pumping unit, which
+is capable of pumping significant volumes at high pressures, and a
+monitoring van loaded with real time monitoring equipment and computers
+used to control the fracturing process. In some cases, fracturing is
+performed by an acid solution pumped under pressure without a proppant or
+with small amounts of proppant. An important element of fracturing services
+is the design of the fracturing treatment, which includes determining the
+proper fracturing fluid, proppants and injection program to maximize
+results. Cudd's field engineering staff provides technical evaluation and
+job design recommendations as an integral element of its fracturing
+services.
+Acidizing - Acidizing services are performed to enhance the flow rate of
+oil and natural gas from wells with reduced flow caused by formation damage
+due to drilling or completion fluids, or the buildup over time of various
+materials that block the formation. Acidizing entails pumping large volumes
+of specially formulated acids into reservoirs to dissolve barriers and
+enlarge crevices in the formation, thereby eliminating obstacles to the
+flow of oil and natural gas. Cudd maintains a fleet of mobile acid
+transport and pumping units to provide acidizing services for the onshore
+market.
+NITROGEN. There are a number of uses for nitrogen, an inert gas, in pressure
+pumping operations. Used alone, it is effective in displacing fluids in various
+oilfield applications, including underbalanced drilling and pipeline purging.
+Nitrogen services are used principally in applications which support Cudd's
+coiled tubing, snubbing and pressure pumping services.
+WELL CONTROL. Cudd Pressure Control specializes in responding to and controlling
+oil and gas well emergencies, including blowouts and well fires domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+necessary to contain the oil and hazardous materials spills and discharges
+associated with such oil and gas well emergencies, to remediate affected sites
+and to restore affected oil and gas wells to production. In the last five years,
+Cudd has responded to well control situations in several international locations
+including Argentina, Australia, Bolivia, Colombia, Egypt, India, Peru, Taiwan
+and Venezuela.
+Cudd Pressure Control's professional firefighting staff has more than 340 years
+of aggregate industry experience in responding to well fires and blowouts. This
+team of 17 experts responds to well control projects where hydrocarbons are
+escaping from a well bore, regardless of whether a fire has occurred. In the
+most critical situations, there are explosive fires, loss of life, the
+destruction of drilling and production facilities, substantial environmental
+damage and the loss of hundreds of thousands of
+3
+dollars per day in production revenue. Since these events ordinarily arise
+from equipment failures or human error, it is impossible to predict
+accurately the timing or scope of this work. Additionally, less critical
+events frequently occur in connection with the drilling of new wells into
+high-pressure reservoirs. In these situations, the blowout preventers and
+other safety systems on the drilling rig function according to design and
+Cudd is then called upon to supervise and assist in the well control effort
+so that drilling operations can resume as promptly as safety permits.
+DOWN-HOLE TOOLS. Cudd Pressure Control's division ThruTubing Solutions (TTS)
+provides proprietary down-hole motors and fishing tools to operators and service
+companies throughout the oil and gas industry. TTS' experience for reliable tool
+services allows it to work with virtually any coiled tubing unit or snubbing
+unit that is equipped for the task. TTS' engineered solutions are backed by more
+than 70 years of "hands on" experience.
+WIRELINE SERVICES. Cudd provides mechanical wireline services. A wireline
+unit is a spooled wire that can be unwound and lowered into a well carrying
+various types of tools. Wireline services are used for a variety of purposes,
+such as: accessing a well to assist in data acquisition or logging activities,
+fishing tool operations to retrieve lost or broken equipment, pipe recovery, and
+remedial activities. In addition, wireline services are an integral part of plug
+and abandonment services.
+SPECIAL SERVICES. When a valve malfunctions, the only solution may be to drill
+out the gate or the plug. If pressure is trapped, hot-tapping, a technique of
+drilling into a medium that is under pressure, is one method of relieving that
+pressure. Cudd Pressure Control maintains hot-tapping and valve drilling
+equipment capable of drilling out valve seats in an environment with up to
+15,000 psi working pressure and hydrogen sulfide. In order to isolate wellheads,
+valves and other circulating equipment from subsurface or upstream pressure,
+Cudd Pressure Control also performs freezing operations.
+CASING AND TORQUE-TURN SERVICES. Casing and laydown principally consists of
+installing casing and production tubing into a wellbore. Casing is run to
+protect the structural integrity of the wellbore and to seal various zones in
+the well. These services are normally provided during the drilling and
+completion phases of a well. Production tubing is run inside the casing. Oil and
+natural gas are produced through the tubing. These services are provided during
+the completion and workover phases.
+Torque-Turn is used on tubulars in the deeper, higher pressure gas wells where
+connection integrity and leak resistance are most critical. By monitoring the
+makeup of connections with both torque and turns simultaneously, we are able to
+achieve the optimum bearing pressure between the connection. The level of
+bearing pressure directly affects the leak resistance of the connection. The use
+of the Torque-Turn system allows us to obtain the maximum bearing pressure
+without permanently deforming the material.
+SUPPORT SERVICES
+The following is a description of the primary service lines conducted within the
+Support Services business segment.
+RENTAL TOOLS - RPC rents specialized equipment for use with onshore and offshore
+oil and gas well drilling, completion and workover activities. The drilling and
+operation of oil and gas wells generally requires a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+well area and the size of the well itself. As a result, operators and drilling
+contractors often find it more economical to supplement their inventories with
+rental tools instead of maintaining a complete inventory of tools. RPC is
+strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico and mid-continent regions.
+RPC, through Patterson Rental Tools, offers a broad range of rental tools
+including:
+Blowout Preventors High Pressure Manifolds
+Coflexip Hoses Hydraulic Torque Wrenches
+Drill Collars Power Tongs
+Drill Pipe Pressure Control Equipment
+Flow Iron Test Pumps
+Gravel Pack Equipment Tubing
+Handling Tools Tubulars
+Hevi-wate Tubular Handling Tools
+MARINE SERVICES. A liftboat is a self-propelled, self-elevating work platform
+with legs, cranes and living accommodations. Our fleet consists of five
+liftboats, two of which have leg lengths of 200 feet or more. Upon arriving at a
+destination, a liftboat hydraulically lowers its legs until they are positioned
+on the ocean floor, and then jacks up until the work platform is sufficiently
+above the water level. Once positioned, the stability, open deck area, crane
+capacity, and relatively low cost of operation make liftboats ideal work
+platforms for a wide range of offshore activity from platform construction to
+plug and abandonment services. Our liftboats have either one or two cranes with
+lift capacities up to 75 tons. A liftboat's capability to reposition at a work
+site or to move to another location within a short time adds to its versatility.
+These boats are also subcontracted to customers in a bare
+4
+boat charter, whereby
+RPC provides only the crew to operate the boat. In addition, liftboat services
+are also highly complementary to RPC's service lines within the Technical
+Services business segment as it relates to providing services offshore.
+PIPE INSPECTION AND HANDLING SERVICES. Pipe inspection services involve the
+inspection and testing of the integrity of pipe used in oil and gas wells. These
+services are provided primarily at RPC's inspection yards located on a water
+channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on
+tubular inspection services to avoid failure of in-service tubing, casing,
+flowlines, and drill pipe. Such tubular failures are expensive and in some cases
+catastrophic. All inspection equipment is maintained and calibrated in strict
+compliance with required specifications. In addition to electromagnetic
+inspections of tubulars from 2 3/8" to 13 5/8" and full length ultrasonic
+inspection of tubulars from 2 3/8" to 20," RPC offers ultrasonic weld line
+inspections and complete thread gauging. RPC's yard in Houston, Texas is
+equipped with bulkhead waterfronts, large capacity cranes, specially designed
+forklifts, and a computerized inventory system to serve a variety of other
+storage and handling issues.
+WELL CONTROL SCHOOL. Well Control School provides industry and government
+accredited training for the oil and gas industry. Well Control School provides
+this training in various formats including conventional classroom training,
+interactive computer training and mobile simulator training. Well Control
+School, through its division, Interactive Training Solutions (ITS), also
+develops customized training solutions for clients.
+ENERGY PERSONNEL INTERNATIONAL. Energy Personnel International provides
+consultants to the oil and gas industry to meet customers' needs for staff
+engineering and wellsite management.
+INDUSTRY
+UNITED STATES. The United States represents the largest single oilfield services
+market in the world. RPC provides its services to its U.S. customers through a
+network of strategic locations including the Gulf of Mexico, the mid-continent,
+the southwest and the Rocky Mountains. Demand for RPC's services in the U.S. is
+driven by the current and projected prices of oil and natural gas and the
+resulting drilling activities. Our business tends to be extremely volatile and
+fluctuates with the price level of these commodities and customer
+production-enhancement activities.
+Due to aging oilfields and lower-cost sources of oil internationally, drilling
+activity in the U.S. has declined more than 75% from its peak in 1981. Record
+low drilling activity levels were experienced in 1986, 1992 and again in 1999,
+with April 1999 recording the lowest U.S. drilling rig count in recorded
+history.
+Currently, the industry is in the midst of a dramatic increase in drilling
+activity in North America. At the end of 2000, there were 1,114 working drilling
+rigs domestically compared to only 797 at the end of 1999, a one year increase
+of approximately 40 percent. Natural gas has been the key driver of the cyclical
+recovery thus far. Since 1991, gas drilling rigs have typically represented just
+over 50 percent of the total drilling rig count. However, gas-directed drilling
+rigs have averaged approximately 80 percent of the total domestic drilling rig
+count since the record low seen in the second quarter of 1999. Demand for
+natural gas is continuing to rise, primarily as a result of increased emphasis
+on gas-fired power generation. Based on the current demand for natural gas as
+well as the high depletion rates experienced over the past several years, it is
+anticipated that gas-directed drilling will represent at least 70 percent of the
+total drilling rig count in the foreseeable future.
+Thus, in North America the demand for our services and products associated with
+natural gas development is currently more robust than demand related to oil
+drilling. We expect to see continued improvement in oil exploration and
+development in 2001 and we expect natural gas development activity will continue
+in North America at the current improved levels as our customers seek to meet
+increased demand and to replace depleting reserves and inventory levels.
+INTERNATIONAL. RPC operates in several countries including the major
+international oil and natural gas producing areas of Algeria, Argentina,
+Bolivia, Colombia, Gabon, Indonesia, Mexico and Venezuela. RPC provides services
+to its international customers through wholly-owned foreign subsidiaries or
+branch locations. The international market is somewhat less volatile than the
+U.S. market although prone to risk of political uncertainties. Due to the
+significant investment and complexity in international projects, drilling
+decisions relating to such projects tend to be evaluated and monitored with a
+longer-term perspective with regard to oil and natural gas pricing.
+Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more
+operating stability than the typical independent producer in the U.S.
+International activities have been increasingly important to RPC's results of
+operations since 1995, when RPC implemented a strategy to expand its
+international presence.
+GROWTH STRATEGIES
+RPC's primary objective is to provide stockholders with excellent long-term
+returns on their investment through income growth and asset appreciation. This
+objective will be pursued through strategic investments and opportunities
+designed to enhance the long-term value of RPC while improving market share,
+product offerings and the profitability of existing businesses. Growth
+5
+strategies are focused on selected areas and markets in which there exist
+opportunities for higher market growth or penetration or enhanced returns
+through consolidations or through the provision of proprietary value-added
+products and services. RPC does not seek to provide all products and services
+necessary for the exploration and development of oil and gas reserves. Rather it
+intends to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC seeks to expand its service capabilities through a combination of internal
+growth, acquisitions, joint ventures and strategic alliances. Because of the
+fragmented nature of the oil and gas services industry, RPC believes a number of
+attractive acquisition opportunities exist. The oil and gas services business is
+generally characterized by a small number of dominant global competitors and a
+significant number of locally oriented businesses, many of which tend to be
+viable acquisition targets. RPC believes that the owners of locally oriented
+companies may be willing to consider becoming part of a larger organization.
+CUSTOMERS
+Demand for RPC's services and products depends primarily upon the number of oil
+and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity
+worldwide. RPC's principal customers consist of major and independent oil and
+natural gas producing companies. During 2000 RPC provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of
+consolidated revenues. While the loss of certain of RPC's largest customers
+could have a material adverse effect on Company revenues and operating results
+in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers.
+COMPETITION
+RPC operates in highly competitive areas of the oilfield services industry. The
+products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by
+changes in prices, fluctuations in the level of activity in major markets,
+general economic conditions and governmental regulation. RPC competes with the
+oil and gas industry's largest integrated oilfield services companies. RPC
+believes that the principal competitive factors in the market areas that it
+serves are product and service quality, availability, price and technical
+proficiency.
+FACILITIES/EQUIPMENT
+RPC's equipment consists primarily of oil and gas services equipment used either
+in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and
+leases regional and district facilities from which its oilfield services are
+provided to land-based and offshore customers. RPC's principal executive offices
+in Atlanta, Georgia are leased. RPC believes that its facilities are adequate
+for its current operations. RPC owns and operates five offshore liftboats,
+including three in Venezuela and two in the Gulf of Mexico. For additional
+information with respect to RPC's lease commitments, see Note 9 of the Notes to
+Consolidated Financial Statements.
+GOVERNMENTAL REGULATION
+RPC's business is significantly affected by state and federal laws and other
+regulations relating to the oil and gas industry. RPC cannot predict the level
+of enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on it,
+its businesses or financial condition.
+INTELLECTUAL PROPERTY
+RPC uses several patented items in its operations, which management believes are
+important but are not indispensable to RPC's operations. Although RPC
+anticipates seeking patent protection when possible, it relies to a greater
+extent on the technical expertise and know-how of its personnel to maintain its
+competitive position.
+EMPLOYEES
+As of December 31, 2000, RPC had approximately 2,300 employees, comprising 1,500
+in the continuing operations and 800 in the discontinued operation. None of the
+employees is represented by a union or covered by a collective bargaining
+agreement. RPC believes that it has good relations with its employees.
+DISCONTINUED OPERATION
+In January 2000, RPC announced plans to spin-off Chaparral Boats, Inc.
+("Chaparral"), the recreational powerboat manufacturing business of RPC, to
+RPC's stockholders. RPC accomplished the spin-off by contributing 100% of the
+issued and outstanding stock of Chaparral to Marine Products, a newly formed
+wholly-owned subsidiary of RPC, and then distributing the common stock of Marine
+Products to RPC stockholders effective February 28, 2001. As part of the
+transaction, RPC's stockholders received 0.6 shares of Marine Products common
+stock for every one share of RPC common stock owned as of February 16, 2001, the
+record date for the spin-off. Marine Products is listed on the American Stock
+Exchange and traded under the ticker symbol MPX.
+6
+In connection with the spin-off, RPC and Marine Products entered into an
+Agreement Regarding Distribution and Plan of Reorganization (the "Distribution
+Agreement"), providing for the principal corporate transactions required to
+effect the spin-off.
+In addition to the Distribution Agreement, RPC and Marine Products also entered
+into other agreements governing the spin-off and the subsequent relationship
+between the two companies, including a Tax Sharing Agreement, an Employee
+Benefits Agreement and a Transition Support Services Agreement.
+No consideration was payable by RPC stockholders for the shares of Marine
+Products common stock received in the spin-off, nor were RPC stockholders
+required to surrender or exchange shares of RPC common stock or take any other
+action in order to receive the Marine Products shares pursuant to the spin-off.
+RPC's powerboat manufacturing business segment has been classified for
+accounting purposes as a discontinued operation in light of the spin-off of that
+business to RPC stockholders. This business is conducted through Marine
+Products, a newly formed holding company, the primary asset of which consists of
+the stock of Chaparral.
+RISK FACTORS
+DEMAND FOR OUR PRODUCTS AND SERVICES IS AFFECTED BY THE VOLATILITY OF OIL
+PRICES.
+Oil prices affect demand throughout the oil and natural gas industry, including
+the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital
+expenditures of our customers related to the exploration and production of oil
+and natural gas. When these expenditures decline, our customers' demand for our
+services declines.
+Although the production sector of the oil and gas industry is less immediately
+affected by changing prices, and, as a result, less volatile than the
+exploration sector, producers react to declining oil and gas prices by reducing
+expenditures. This would adversely affect our business. A prolonged low level of
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of operations.
+WE MAY BE UNABLE TO COMPETE IN THE HIGHLY COMPETITIVE OIL AND GAS INDUSTRY IN
+THE FUTURE.
+We operate in highly competitive areas of the oilfield services industry. The
+products and services of each of our principal industry segments are sold in
+highly competitive markets, and our revenues and earnings may be affected by the
+following factors: changes in competitive prices, fluctuations in the level of
+activity and major markets, general economic conditions, and governmental
+regulation. We compete with the oil and gas industry's largest integrated
+oilfield service providers. We believe that the principal competitive factors in
+the market areas that we serve are product and service quality and availability,
+reputation for safety, technical proficiency and price. Although we believe that
+our reputation for safety and quality service is good, we cannot assure you that
+we will be able to maintain our competitive position.
+WE MAY BE UNABLE TO IDENTIFY OR COMPLETE ACQUISITIONS.
+Acquisitions have been and will continue to be a key element of our business
+strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may
+be required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to consolidate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition.
+OUR OPERATIONS ARE AFFECTED BY ADVERSE WEATHER CONDITIONS.
+Our operations are directly affected by the weather conditions in the Gulf of
+Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns,
+our crews may operate more days in some periods than others. Rainy weather,
+hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf
+Coast throughout the year may also affect our operations. Accordingly, our
+operating results may vary from quarter to quarter, depending on factors outside
+of our control.
+OUR INABILITY TO ATTRACT AND RETAIN SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL
+AND PROFITABILITY.
+Our ability to remain productive and profitable will depend substantially on
+our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force.
+The demand for skilled oil and gas services employees in the Gulf Coast
+region is high and the supply is very limited. A significant increase in the
+wages paid by competing employers could result in a reduction in our skilled
+labor force, increases in the wage rates paid by us, or both. If either of
+these events occurred, our capacity and profitability could be diminished and
+our growth potential could be impaired.
+7
+OUR INABILITY TO PERFORM SERVICES FOR A NUMBER OF OUR LARGE EXISTING CUSTOMERS
+COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS.
+Our inability to continue to perform services for a number of our large
+existing customers could have a material adverse effect on our business and
+operations. Substantially all of our customers are engaged in the energy
+industry. This concentration of customers may impact our overall exposure to
+credit risk, either positively or negatively, in that customers may be
+similarly affected by changes in economic and industry conditions. We perform
+ongoing credit evaluations of our customers and do not generally require
+collateral in support of our trade receivables. While we maintain reserves
+for potential credit losses, our actual losses have historically been within
+expectations.
+OUR BUSINESS HAS POTENTIAL LIABILITY FOR PERSONAL INJURY AND PROPERTY DAMAGE
+CLAIMS.
+Our operations involve the use of heavy equipment and exposure to inherent
+risks, including blowouts, explosions and fires. If any of these events were to
+occur, this could result in liability for personal injury and property damage,
+pollution or other environmental hazards or loss of production. Litigation may
+arise from a catastrophic occurrence at a location where our equipment and
+services are used. This could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. This could have a
+material adverse effect on us. We maintain what we believe is prudent insurance
+protection. We cannot assure you that we will be able to maintain adequate
+insurance in the future at rates we consider reasonable or that our insurance
+coverage will be adequate to cover future claims that may arise.
+OUR OPERATIONS MAY BE AFFECTED IF WE ARE UNABLE TO COMPLY WITH REGULATORY AND
+ENVIRONMENTAL LAWS.
+Our business is significantly affected by environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development drilling for oil and gas in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations. We believe that our present operations substantially comply with
+applicable federal and state pollution control and environmental protection laws
+and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will in the future materially adversely affect our operations and financial
+condition.
+OUR INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
+BUSINESS.
+Our operations in Venezuela, Algeria and other foreign countries, although
+presently limited, are subject to risks inherent in doing business in foreign
+countries. These risks include, but are not limited to, political changes,
+expropriation, currency restrictions and changes in currency exchange rates,
+taxes, and boycotts and other civil disturbances. Although it is impossible to
+predict the likelihood of such occurrences or their effect on our operations,
+our management believes that these risks are acceptable. However, the occurrence
+of any one of these events could have a material adverse effect on our
+operations.
+OUR COMMON STOCK PRICE MAY BE ADVERSELY AFFECTED BY CHANGES IN OIL AND GAS
+PRICES AND THE SUPPLY AND DEMAND FOR OIL AND GAS.
+Historically, and in recent months in particular, the market price of common
+stock of companies engaged in the oil and gas services industry has been
+highly volatile. Likewise, the market price of our common stock has varied
+significantly in the past. Changes in oil and natural gas prices, changes in
+the demand for oil and natural gas exploration, and changes in the supply and
+demand for oil and natural gas have all been factors affecting the price of
+our common stock.
+ITEM 2. PROPERTIES
+RPC owns or leases 58 offices and operating facilities, comprising 55 properties
+owned or leased by the continuing operations and 3 properties owned by the
+discontinued operation. RPC believes its current operating facilities are
+suitable and adequate to meet current and reasonably anticipated future needs.
+Descriptions of the major facilities of continuing operations are as follows:
+OWNED LOCATIONS
+Houston, Texas - Pipe storage terminal, inspection shed, and pipe coating
+facility Irving, Texas - Crane fabrication plant
+Houma, Louisiana - Oil and gas administrative office
+8
+ITEM 3. LEGAL PROCEEDINGS
+RPC is a party to various routine legal proceedings primarily involving
+commercial claims, workers' compensation claims and claims for personal injury.
+RPC insures against these risks to the extent deemed prudent by its management,
+but no assurance can be given that the nature and amount of such insurance will
+in every case fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if
+determined adversely, would not have a material adverse effect on RPC's business
+or financial condition.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+There were no matters submitted to a vote of security holders during the fourth
+quarter of 2000.
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
+Each of the executive officers of RPC was elected by the Board of Directors to
+serve until the Board of Directors' meeting immediately following the next
+annual meeting of stockholders or until his or her earlier removal by the Board
+of Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with RPC.
+NAME AND OFFICE DATE FIRST ELECTED
+WITH REGISTRANT AGE TO OFFICE
+R. Randall Rollins
+Chairman of the Board and
+Chief Executive Officer 69 1/24/84
+Richard A. Hubbell
+President and
+Chief Operating Officer 56 1/27/87
+Jonathan W. Moss
+Executive Vice President 70 5/1/99
+Linda H. Graham
+Vice President and
+Secretary 64 1/27/87
+Ben M. Palmer
+Vice President,
+Chief Financial Officer
+and Treasurer 40 7/8/96
+PART II
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+RPC common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. At the close of business on December 31, 2000, there were
+approximately 2,300 holders of record of common stock. The high and low prices
+of RPC's common stock for each quarter in the years ended December 31, 2000 and
+1999 were as follows:
+2000 1999
+Quarter High Low High Low
+-----------------------------------------------------------------------------------------------------------------------
+First $ 9.750 $ 5.375 $7.688 $5.750
+Second 10.750 8.938 9.813 5.875
+Third 14.625 9.500 8.875 6.500
+Fourth 15.625 10.000 7.735 5.688
+-----------------------------------------------------------------------------------------------------------------------
+During 2000 and 1999, RPC declared and paid quarterly cash dividends of $0.035
+per common share. Dividends were first paid in the third quarter of 1997.
+9
+ITEM 6. SELECTED FINANCIAL DATA
+The following summary financial data of RPC highlights selected historical
+financial data and should be read in conjunction with the consolidated financial
+statements included elsewhere in this document.
+STATEMENT OF INCOME DATA:
+YEAR ENDED DECEMBER 31, 2000 1999 1998 1997 1996
+-------------------------------------------------------------------------------------------------------------------------
+(In thousands, except employees and per share amounts)
+Revenues $184,215 $107,585 $140,777 $150,770 $114,608
+Cost of services rendered and goods sold 107,246 71,439 83,691 90,046 68,765
+-------------------------------------------------------------------------------------------------------------------------
+Gross profit 76,969 36,146 57,086 60,724 45,843
+Selling, general and administrative expenses 34,630 23,364 30,529 27,694 27,180
+Depreciation and amortization 17,805 15,837 14,877 11,857 8,477
+-------------------------------------------------------------------------------------------------------------------------
+Operating profit (loss) 24,534 (3,055) 11,680 21,173 10,186
+Interest income 1,443 1,485 1,783 2,162 1,884
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations
+before income taxes 25,977 (1,570) 13,463 23,335 12,070
+Income tax provision (benefit) 9,850 (603) 5,112 7,651 3,879
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations 16,127 (967) 8,351 15,684 8,191
+Income from discontinued operation,
+net of income taxes 13,961 9,118 7,674 6,561 5,064
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 30,088 $ 8,151 $ 16,025 $ 22,245 $ 13,255
+=========================================================================================================================
+Earnings per share - basic:
+Income (loss) from continuing operations $ 0.58 ($ 0.03) $ 0.29 $ 0.54 $ 0.28
+Income from discontinued operation 0.50 0.32 0.26 0.22 0.18
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 1.08 $ 0.29 $ 0.55 $ 0.76 $ 0.46
+=========================================================================================================================
+Earnings per share - diluted:
+Income (loss) from continuing operations $ 0.57 ($ 0.03) $ 0.29 $ 0.53 $ 0.28
+Income from discontinued operation 0.49 0.32 0.26 0.22 0.18
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 1.06 $ 0.29 $ 0.55 $ 0.75 $ 0.46
+=========================================================================================================================
+OTHER DATA:
+EBITDA(a) $ 42,529 $ 12,907 $ 26,617 $ 33,208 $ 18,731
+Gross profit margin percent 41.8% 33.6% 40.6% 40.3% 40%
+Operating margin percent 13.3% (2.8%) 8.3% 14.0% 8.9%
+Net cash provided by continuing operations $ 11,272 $ 16,419 $ 16,808 $ 23,462 $ 19,623
+Net cash used for investing activities (19,890) (16,352) (17,145) (24,680) (27,032)
+Net cash (used for) provided by
+financing activities (4,392) (9,388) (13,233) (1,010) 531
+Depreciation and amortization(b) 17,995 15,962 14,937 12,035 8,545
+Capital expenditures $ 35,526 $ 20,319 $ 28,840 $ 19,800 $ 19,850
+Employees at end of period(c) 1,487 1,066 1,043 1,253 1,168
+BALANCE SHEET DATA:
+Inventories $ 7,212 $ 5,928 $ 6,758 $ 6,273 $ 6,050
+Working capital 47,794 25,851 28,827 40,043 33,057
+Property, plant and equipment, net 85,032 68,758 64,438 51,381 43,563
+Total assets(d) 277,915 235,715 219,677 217,239 180,454
+Total stockholders' equity(d) $169,319 $ 142,808 $143,066 $139,376 $117,797
+(a) EBITDA represents income (loss) from continuing operations before income
+taxes and interest income, plus depreciation and amortization. EBITDA is
+not presented as a substitute for income from operations, net income or net
+cash provided by operating activities. RPC has presented EBITDA data (which
+is not a measure of financial performance under accounting principles
+generally accepted in the United States) because such data is used by
+certain investors to analyze and compare companies on the basis of
+operating performance, leverage and liquidity, and to determine a company's
+ability to service debt.
+(b) Depreciation and amortization was derived from the statement of cash flows.
+This amount differs from depreciation and amortization presented on the
+statement of income due to depreciation related to the manufacturing of
+goods which is included in cost of goods sold and services rendered.
+(c) Represents employees of continuing operations for all periods presented.
+(d) Includes assets and stockholders' equity associated with the discontinued
+operation.
+10
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS
+The following discussion should be read in conjunction with "Selected Financial
+Data," and the "Consolidated Financial Statements" included elsewhere in this
+document. See also "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION"
+above.
+RESULTS OF OPERATIONS
+YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
+REVENUES. RPC generated revenues of $184,215,000 in 2000 compared to
+$107,585,000 in 1999, an increase of $76,630,000 or 71 percent. Revenues
+increased as a result of improvements in overall customer activity levels
+domestically and internationally, especially in Venezuela, the start-up of a
+pressure pumping service line, and several well control jobs in the United
+States and various international locations, including Egypt and Argentina.
+Beginning in the fourth quarter of 1999, revenues began to improve as customer
+spending increased in response to higher oil and natural gas prices. As of the
+end of 2000, the number of active drilling rigs in the United States was
+approximately 40 percent higher than at the end of 1999. Our services that
+increase production from existing wells have been increasingly in demand as
+production companies seek to take advantage of the higher prices for oil and
+natural gas; there has been less customer emphasis on exploration activities
+until the last two quarters of 2000.
+COST OF SERVICES RENDERED AND GOODS SOLD. Cost of services rendered and goods
+sold were $107,246,000 in 2000 compared to $71,439,000 in 1999. Cost of services
+rendered and goods sold, as a percent of revenue, decreased from 66 percent in
+1999 to 58 percent in 2000. This improvement resulted from an improved operating
+environment allowing for better utilization of our equipment and personnel. In
+addition, the increasing industry demand for oil and gas services has allowed
+for slightly improved pricing.
+SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
+administrative expenses were $34,630,000 in 2000 compared to $23,364,000 in
+1999. This increase of $11,266,000, or 48 percent, was due to additional
+overhead required to administer the significant growth in the company's oil and
+gas services business lines. Selling, general and administrative expenses as a
+percent of revenues fell from 22 percent in 1999 to 19 percent in 2000.
+DEPRECIATION AND AMORTIZATION. Depreciation and amortization were $17,805,000 in
+2000, an increase of $1,968,000 or 12 percent compared to $15,837,000 in 1999.
+This increase in depreciation and amortization results primarily from capital
+expenditures relating to a new pressure pumping service line, and various
+maintenance and growth capital expenditures in other oil and gas service lines.
+OPERATING PROFIT (LOSS). Operating profit was $24,534,000 in 2000, an increase
+of $27,589,000 compared to an operating loss of $3,055,000 in 1999. This
+significant improvement in operating profits resulted from improvements in
+industry conditions in 2000 compared to 1999.
+INTEREST INCOME. Interest income was $1,443,000 in 2000 compared to $1,485,000
+in 1999. RPC generates interest income from investment of its available cash
+primarily in marketable securities. The decrease in interest income results
+primarily from a decrease in average investable cash balances. See "Liquidity
+and Capital Resources" for additional explanations.
+INCOME (LOSS) FROM CONTINUING OPERATIONS (NET OF INCOME TAXES). RPC's results of
+continuing operations improved $17,094,000 from a loss of $967,000 in 1999 to an
+income of $16,127,000 in 2000. This improvement is consistent with the increases
+in operating profits, as the income tax rate was the same in both periods.
+INCOME FROM DISCONTINUED OPERATION (NET OF INCOME TAXES). RPC's powerboat
+manufacturing segment, classified as a discontinued operation, earned
+$13,961,000 in 2000 compared to $9,118,000 in 1999, an increase of $4,843,000 or
+53 percent. This increase was primarily due to the after-tax gain of $4,227,000
+from the settlement of a claim.
+11
+YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
+REVENUES. RPC generated revenues of $107,585,000 in 1999 compared to
+$140,777,000 in 1998, a decrease of $33,192,000 or 24 percent. The decrease in
+revenues during 1999 was similar to that experienced by the overall oil and gas
+services industry and was the result of a perceived imbalance between the supply
+and demand for oil and natural gas. Despite a significant improvement in the
+price of oil and natural gas during 1999, exploration and production spending
+increased only modestly.
+COST OF SERVICES RENDERED AND GOODS SOLD. Cost of services rendered and goods
+sold were $71,439,000 in 1999 compared to $83,691,000 in 1998, a decrease of
+$12,252,000 or 15 percent. Cost of services rendered and goods sold as a percent
+of revenues increased to 66 percent in 1999 compared to 59 percent in 1998. This
+increase was the result of significantly lower utilization of our equipment and
+personnel combined with softness in pricing experienced as a result of declines
+in overall oil and gas industry activity levels.
+SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
+administrative expenses were $23,364,000 in 1999 compared to $30,529,000 in
+1998, a decrease of $7,165,000 or 24 percent. The decrease in selling, general
+and administrative expenses in 1999 compared to 1998 can be attributed to RPC's
+efforts to reduce overhead in its oil and gas services businesses because of the
+reduction in industry activity levels. Also contributing to the reduction was
+RPC's decision to discontinue some business development efforts unrelated to the
+oil and gas services industry. Selling, general and administrative expenses as a
+percent of revenues were 22 percent for 1999 and 1998.
+DEPRECIATION AND AMORTIZATION. Depreciation and amortization were $15,837,000 in
+1999 compared to $14,877,000 in 1998, an increase of $960,000 or 6 percent. This
+increase can be attributed to the capital expenditures in 1998 and 1999 to both
+rebuild certain of RPC's existing oil and gas services equipment and expand our
+fleet of equipment.
+OPERATING PROFIT (LOSS). RPC experienced an operating loss in 1999 of $3,055,000
+compared to an operating profit of $11,680,000 in 1998, a decrease of
+$14,735,000. This decrease in operating profits resulted from the rapid
+decreases in revenues experienced during 1999 due to poor industry conditions.
+RPC was not able to decrease its costs as quickly as revenues declined.
+INTEREST INCOME. Interest income was $1,485,000 in 1999 compared to $1,783,000
+in 1998. Interest income decreased 17 percent as a result of lower average
+investable cash balances and moderately lower yields. RPC generates interest
+income from investment of its available cash primarily in marketable securities.
+The amount of cash available for investment varies. See "Liquidity and Capital
+Resources" for additional explanations.
+INCOME (LOSS) FROM CONTINUING OPERATIONS (NET OF INCOME TAXES). RPC's results of
+continuing operations, net of income taxes, declined $9,318,000 to a loss of
+$967,000 in 1999 compared to an income of $8,351,000 in 1998. This decrease is
+consistent with the decrease in revenues partially offset by decreases in
+selling, general and administrative expenses. The income tax rates were the same
+in both periods.
+INCOME FROM DISCONTINUED OPERATION (NET OF INCOME TAXES). RPC's powerboat
+manufacturing segment, classified as a discontinued operation, earned $9,118,000
+in 1999 compared to $7,674,000 in 1998, a 19 percent increase. The increase was
+due to several factors including, selling 8 percent more boats and selling a
+larger quantity of higher priced and more profitable deckboats and cruisers.
+LIQUIDITY AND CAPITAL RESOURCES
+Net cash provided by continuing operations was $11,272,000 in 2000 compared to
+$16,419,000 in 1999. The decrease is due primarily to higher working capital
+requirements necessary to support the increased level of oil and gas services
+business activity levels. The higher working capital, primarily accounts
+receivable, was partially offset by increases in net income from continuing
+operations.
+Net cash used for investing activities increased from $16,352,000 in 1999 to
+$19,890,000 in 2000. Capital expenditures in 2000 were $35,526,000 related to
+the purchase of revenue producing equipment primarily in the oil and gas
+services businesses. Funding for capital requirements over the next twelve
+months is expected to be provided by available cash and marketable securities
+and cash flow generated from continuing operations.
+Net cash used for financing activities was $4,392,000 in 2000 compared to
+$9,388,000 in 1999. This decrease is due primarily to less stock repurchased in
+2000 compared to 1999.
+In connection with the spin-off, RPC transferred approximately $13.8 million in
+cash to Marine Products.
+12
+Management has commenced preliminary discussions with a number of companies
+engaged in complementary businesses to explore the potential for mutually
+beneficial business arrangements. While none of these discussions has progressed
+to the point where RPC believes a particular transaction is probable, management
+believes that additional acquisitions, joint ventures and strategic alliances
+are likely. While RPC has historically completed acquisitions using a
+combination of cash and seller financing, RPC expects that it may use its stock
+as acquisition currency now that it is separated from its powerboat
+manufacturing business segment.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+RPC maintains an investment portfolio, comprised of U.S. Government and
+corporate debt securities, which is subject to interest rate risk exposure. This
+risk is managed through conservative policies to invest in high-quality
+obligations. RPC has performed an interest rate sensitivity analysis using a
+duration model over the near term with a 10 percent change in interest rates.
+RPC's portfolio is not subject to material interest rate risk exposure based on
+this analysis, and no material changes in market risk exposures or how those
+risks are managed is expected.
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+CONSOLIDATED BALANCE SHEETS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS EXCEPT SHARE INFORMATION)
+DECEMBER 31, 2000 1999
+------------------------------------------------------------------------------------------------------------------------
+ASSETS
+Cash and cash equivalents $ 5,437 $ 4,847
+Marketable securities 3,888 4,798
+Accounts receivable, net 55,485 33,454
+Inventories 7,212 5,928
+Deferred income taxes 6,837 5,612
+Federal income taxes receivable - 1,806
+Prepaid expenses and other current assets 2,322 1,786
+------------------------------------------------------------------------------------------------------------------------
+Current assets 81,181 58,231
+------------------------------------------------------------------------------------------------------------------------
+Property, plant and equipment, net 85,032 68,758
+Intangibles, net of accumulated amortization of $1,183 in 2000 and $796 in 1999 4,044 4,330
+Marketable securities 13,868 24,871
+Other assets 1,197 893
+Net assets of discontinued operation 92,593 78,632
+------------------------------------------------------------------------------------------------------------------------
+Total assets $277,915 $235,715
+========================================================================================================================
+LIABILITIES AND STOCKHOLDERS' EQUITY
+Accounts payable $ 10,237 $ 11,617
+Accrued payroll and related expenses 7,108 4,758
+Accrued insurance expenses 5,927 7,092
+Accrued state, local and other taxes 3,804 4,164
+Current portion of long-term debt 470 255
+Other accrued expenses 2,904 4,494
+Federal income taxes payable 2,937 -
+------------------------------------------------------------------------------------------------------------------------
+Current liabilities 33,387 32,380
+------------------------------------------------------------------------------------------------------------------------
+Payable to Marine Products Corporation 68,276 54,676
+Long-term accrued insurance expenses 5,007 3,684
+Long-term debt 848 1,547
+Deferred income taxes 1,078 620
+------------------------------------------------------------------------------------------------------------------------
+Total liabilities 108,596 92,907
+------------------------------------------------------------------------------------------------------------------------
+Commitments and contingencies
+Common stock, $.10 par value, 79,000,000 shares authorized,
+28,303,019 shares issued in 2000, 28,262,463 shares issued in 1999 2,830 2,826
+Capital in excess of par value 22,541 22,548
+Earnings retained 143,948 117,434
+------------------------------------------------------------------------------------------------------------------------
+Total stockholders' equity 169,319 142,808
+------------------------------------------------------------------------------------------------------------------------
+Total liabilities and stockholders' equity $277,915 $235,715
+========================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+14
+CONSOLIDATED STATEMENTS OF INCOME
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS EXCEPT PER SHARE DATA)
+YEARS ENDED DECEMBER 31, 2000 1999 1998
+-------------------------------------------------------------------------------------------------------------------------
+REVENUES $184,215 $107,585 $140,777
+Cost of services rendered and goods sold 107,246 71,439 83,691
+-------------------------------------------------------------------------------------------------------------------------
+Gross profit 76,969 36,146 57,086
+Selling, general and administrative expenses 34,630 23,364 30,529
+Depreciation and amortization 17,805 15,837 14,877
+-------------------------------------------------------------------------------------------------------------------------
+Operating profit (loss) 24,534 (3,055) 11,680
+Interest income 1,443 1,485 1,783
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations before income taxes 25,977 (1,570) 13,463
+Income tax provision (benefit) 9,850 (603) 5,112
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations 16,127 (967) 8,351
+Income from discontinued operation, net of income
+taxes of $8,591 in 2000, $5,599 in 1999 and $4,709 in 1998 13,961 9,118 7,674
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 30,088 $ 8,151 $ 16,025
+=========================================================================================================================
+EARNINGS PER SHARE - BASIC
+Income (loss) from continuing operations $ 0.58 ($ 0.03) $ 0.29
+Income from discontinued operation 0.50 0.32 0.26
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 1.08 $ 0.29 $ 0.55
+=========================================================================================================================
+EARNINGS PER SHARE - DILUTED
+Income (loss) from continuing operations $ 0.57 ($ 0.03) $ 0.29
+Income from discontinued operation 0.49 0.32 0.26
+-------------------------------------------------------------------------------------------------------------------------
+Net income $ 1.06 $ 0.29 $ 0.55
+-------------------------------------------------------------------------------------------------------------------------
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS)
+Capital in
+Three years ended Common Excess of Earnings Treasury
+DECember 31, 2000 Stock Par Value Retained Stock Total
+======================================================================================================================
+Balance December 31, 1997 $2,978 $35,211 $101,805 $ 618 $140,612
+Stock issued for stock incentive plans, net 5 437 (82) 19 379
+Stock purchased and retired (95) (9,110) - (637) (9,842)
+Net income - - 16,025 - 16,025
+Dividends declared - - (4,108) - (4,108)
+----------------------------------------------------------------------------------------------------------------------
+Balance December 31, 1998 2,888 26,538 113,640 - 143,066
+Stock issued for stock incentive plans, net 14 758 (355) - 417
+Stock purchased and retired (76) (4,748) - - (4,824)
+Net income - - 8,151 - 8,151
+Dividends declared - - (4,002) - (4,002)
+-----------------------------------------------------------------------------------------------------------------------
+Balance December 31, 1999 2,826 22,548 117,434 - 142,808
+Stock issued for stock incentive plans, net 8 319 380 - 707
+Stock purchased and retired (4) (326) - - (330)
+Net income - - 30,088 - 30,088
+Dividends declared - - (3,954) - (3,954)
+----------------------------------------------------------------------------------------------------------------------
+Balance December 31, 2000 $2,830 $22,541 $143,948 $ - $169,319
+======================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+15
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS)
+YEARS ENDED DECEMBER 31, 2000 1999 1998
+-----------------------------------------------------------------------------------------------------------------------
+OPERATING ACTIVITIES
+Net income $ 30,088 $ 8,151 $ 16,025
+Noncash charges (credits) to earnings:
+Depreciation and amortization 17,995 15,962 14,937
+Gain on sale of equipment and property (1,849) (1,474) (2,349)
+Deferred income tax (benefit) provision (767) 2,369 (778)
+Income from discontinued operation (13,961) (9,118) (7,674)
+(Increase) decrease in assets:
+Accounts receivable (22,031) (10,374) 7,470
+Inventories (1,284) 830 (485)
+Federal income taxes receivable 1,806 1,867 (3,673)
+Prepaid expenses and other current assets (536) (150) (108)
+Other noncurrent assets (304) (169) 452
+Increase (decrease) in liabilities:
+Accounts payable (1,380) 6,985 (2,324)
+Federal income taxes payable 2,937 - (1,060)
+Accrued payroll and related expenses 2,350 1,440 (1,792)
+Accrued insurance expenses 158 1,704 (1,628)
+Other accrued expenses (1,950) (1,604) (205)
+-----------------------------------------------------------------------------------------------------------------------
+Net cash provided by continuing operations 11,272 16,419 16,808
+Net cash provided by discontinued operation 13,600 7,619 5,414
+-----------------------------------------------------------------------------------------------------------------------
+Net cash provided by operating activities 24,872 24,038 22,222
+-----------------------------------------------------------------------------------------------------------------------
+INVESTING ACTIVITIES
+Capital expenditures (35,526) (20,319) (28,840)
+Proceeds from sale of equipment and property 3,723 2,103 3,657
+Net sale of marketable securities 11,913 3,252 8,038
+Other - (1,388) -
+-----------------------------------------------------------------------------------------------------------------------
+Net cash used for investing activities (19,890) (16,352) (17,145)
+-----------------------------------------------------------------------------------------------------------------------
+FINANCING ACTIVITIES
+Payment of dividends (3,954) (4,002) (4,108)
+Reduction of long-term debt (484) (680) (877)
+Cash paid for common stock purchased and retired (330) (4,815) (8,587)
+Proceeds received upon exercise of stock options 376 109 339
+-----------------------------------------------------------------------------------------------------------------------
+Net cash used for financing activities (4,392) (9,388) (13,233)
+-----------------------------------------------------------------------------------------------------------------------
+Net increase (decrease) in cash and cash equivalents 590 (1,702) (8,156)
+Cash and cash equivalents at beginning of year 4,847 6,549 14,705
+-----------------------------------------------------------------------------------------------------------------------
+Cash and cash equivalents at end of year $ 5,437 $ 4,847 $ 6,549
+=======================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+16
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+RPC, INC. AND SUBSIDIARIES
+YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
+NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
+PRINCIPLES OF CONSOLIDATION
+The consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries ("RPC"or the "Company"). All material intercompany
+accounts and transactions have been eliminated. On February 28, 2001, the
+Company distributed the Powerboat Manufacturing Segment of the Company to RPC
+stockholders through a tax-free spin-off transaction. Accordingly, as discussed
+in Note 2, this segment has been accounted for as a discontinued operation and
+the accompanying consolidated financial statements for all periods presented
+have been restated to report separately the net assets and operating results of
+this discontinued operation.
+NATURE OF OPERATIONS
+RPC provides a broad range of specialized oil and gas services and equipment
+primarily to independent and major oilfield companies engaged in the
+exploration, production and development of oil and gas properties in the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. These services and
+equipment include among other things, (1) snubbing services, (2) coiled tubing
+services, (3) firefighting and well control, and (4) the rental of drill pipe
+and other specialized oilfield equipment. RPC acts as a holding company for its
+operating subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc.
+and Patterson Tubular Services, Inc. along with several smaller non-oilfield
+businesses.
+USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
+The preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates.
+REVENUES
+The Company's revenue recognition policy is in accordance with the Securities
+and Exchange Commission's recently released Staff Accounting Bulletin No. 101,
+"Revenue Recognition in Financial Statements" which clarifies the basic criteria
+for recognizing revenue. RPC recognizes revenue when an agreement exists, prices
+are determinable, services and products are delivered and collectibility is
+reasonably assured.
+CASH EQUIVALENTS
+Highly liquid investments with original maturities of 3 months or less are
+considered to be cash equivalents.
+MARKETABLE SECURITIES
+RPC maintains cash equivalents and investments in several large,
+well-capitalized financial institutions, and RPC's policy disallows
+investment in any securities rated less than "investment grade" by national
+rating services.
+Management determines the appropriate classification of debt securities at the
+time of purchase and re-evaluates such designations as of each balance sheet
+date. Debt securities are classified as available-for-sale because the Company
+does not have the intent to hold the securities to maturity. Available-for-sale
+securities are stated at their fair values, with the unrealized gains and
+losses, net of tax, reported in a separate component of stockholders' equity. As
+of December 31, 2000 and l999, the unrealized gains or losses were immaterial.
+The amortized cost of debt securities classified as available-for-sale is
+adjusted for amortization of premiums and accretion of discounts to maturity.
+Such amortization is included in investment income. Realized gains and losses
+and declines in value judged to be other than temporary on available-for-sale
+securities are included in investment income. The cost of securities sold is
+based on the specific identification method. Interest and dividends on
+securities classified as available-for-sale are included in interest income.
+Investments with original maturities between 3 and 12 months are considered to
+be current marketable securities. Investments with original maturities greater
+than 12 months are considered to be noncurrent marketable securities.
+INVENTORIES
+Inventories, which consist principally of (i) products which are consumed in
+RPC's services provided to customers, (ii) spare parts for equipment used in
+providing these services and (iii) manufacturing components and attachments for
+equipment used in providing services, are recorded at the lower of cost
+(first-in, first-out basis) or market value.
+17
+LONG-LIVED ASSETS
+RPC records impairment losses on long-lived assets used in operations when
+events and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less than
+the carrying amount of those assets. The Company periodically reviews the values
+assigned to long-lived assets, such as property, plant and equipment and other
+assets, to determine if any impairments are other than temporary. Management
+believes that the long-lived assets in the accompanying balance sheets are
+appropriately valued.
+PROPERTY, PLANT AND EQUIPMENT
+Depreciation is provided principally on a straight-line basis over the estimated
+useful lives of assets. Annual provisions for depreciation are computed using
+the following useful lives: operating equipment and property, 3 to 10 years;
+buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5
+to 7 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise
+disposed of and the related accumulated depreciation are eliminated from the
+accounts in the year of disposal with the resulting gain or loss credited or
+charged to income. Expenditures for additions, major renewals, and betterments
+are capitalized.
+INTANGIBLES
+Intangibles represent the excess of the purchase price over the fair value of
+net assets of businesses acquired and noncompete agreements related to
+businesses acquired. Intangibles are presented net of accumulated amortization
+and are amortized using the straight-line method over a period not exceeding 20
+years or the period of the noncompete agreement. Amortization of intangibles for
+the years ended December 31, 2000, 1999, and 1998 amounted to approximately
+$717,000, $594,000, and $464,000, respectively.
+INSURANCE EXPENSES
+RPC self insures, up to specified limits, certain risks related to general
+liability, product liability, workers' compensation, and vehicle liability. The
+estimated cost of claims under the self-insurance program is accrued as the
+claims are incurred (although actual settlement of the claims may not be made
+until future periods) and may subsequently be revised based on developments
+relating to such claims. The noncurrent portion of these estimated outstanding
+claims is classified as long-term accrued insurance expenses.
+INCOME TAXES
+Deferred tax liabilities and assets are determined based on the difference
+between the financial and tax bases of assets and liabilities using enacted tax
+rates in effect for the year in which the differences are expected to reverse.
+EARNINGS PER SHARE
+Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
+Share," requires a basic earnings per share and diluted earnings per share
+presentation. The two calculations differ as a result of the Dilutive effect of
+stock options and restricted shares included in diluted earnings per share, but
+excluded in basic earnings per share. A reconciliation of the weighted shares
+outstanding is as follows:
+2000 1999 1998
+----------------------------------------------------------------------------------------------------------------
+Basic 27,843,921 28,177,251 28,987,345
+Dilutive effect of stock options
+and restricted shares 426,355 - 377,870
+----------------------------------------------------------------------------------------------------------------
+Diluted 28,270,276 28,177,251 29,365,215
+================================================================================================================
+NEW ACCOUNTING STANDARDS
+SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
+establishes accounting and reporting standards for derivative instruments
+including certain derivative instruments embedded in other contracts, and for
+hedging activities. It requires entities to recognize all instruments as either
+assets or liabilities in the balance sheet and measure those instruments at fair
+value. As amended, the adoption of SFAS No. 133, effective for the Company as of
+January 1, 2001, did not impact the results of operations or financial condition
+of the Company as the Company is not a party to any derivative transactions that
+fall under the provisions of this statement.
+NOTE 2: DISCONTINUED OPERATION
+In January 2000, the Board of Directors of RPC, Inc. announced that it planned
+to spin-off to stockholders the business conducted through Chaparral Boats, Inc.
+("Chaparral"), RPC's Powerboat Manufacturing Segment (the "spin-off"). The
+spin-off transaction was approved by RPC's Board of Directors on February 12,
+2001. RPC accomplished the spin-off by contributing 100% of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) ("Marine Products"), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to
+18
+RPC stockholders.
+RPC stockholders received 0.6 shares of Marine Products Common Stock for each
+share of RPC Common Stock owned as of the record date. Based on an Internal
+Revenue Service Private Letter ruling, the spin-off is tax-free to RPC and RPC
+stockholders, except for cash received for any fractional shares. The spin-off
+was consummated on February 28, 2001, with 17,012,277 shares of Marine Products
+Common Stock distributed to RPC stockholders.
+The Powerboat Manufacturing Segment of RPC has been accounted for as a
+discontinued operation and, accordingly, the accompanying consolidated financial
+statements of RPC have been restated to report separately the net assets and
+operating results of this discontinued operation. A summary of the net assets of
+this segment is as follows:
+DECEMBER 31, 2000 1999
+--------------------------------------------------------------------------------------------------------------
+(in thousands)
+Current assets $ 21,000 $21,744
+Property, plant and equipment, net 9,796 6,714
+Goodwill, net 3,992 4,676
+Receivable from RPC, Inc. 68,276 54,676
+Other assets 385 358
+Current liabilities (10,512) (9,230)
+Long-term liabilities (344) (306)
+--------------------------------------------------------------------------------------------------------------
+Net assets of discontinued operation $ 92,593 $78,632
+==============================================================================================================
+A summary of the operating results of RPC's Powerboat Manufacturing Segment is
+as follows:
+YEARS ENDED DECEMBER 31, 2000 1999 1998
+--------------------------------------------------------------------------------------------------------------
+(in thousands)
+Revenues $148,276 $122,878 $103,497
+Operating income 15,455 14,484 12,143
+Income before income taxes 22,552 14,717 12,383
+Income tax provision 8,591 5,599 4,709
+--------------------------------------------------------------------------------------------------------------
+Net income $ 13,961 $ 9,118 $ 7,674
+==============================================================================================================
+In conjunction with the spin-off, RPC and Marine Products have entered into
+various agreements that address the allocation of assets and liabilities between
+the two companies and that define the companies' relationship after the
+separation. These include the Distribution Agreement and Plan of Reorganization,
+the Transition Support Services Agreement, the Employee Benefits Agreement, and
+the Tax Sharing Agreement.
+The Distribution Agreement and Plan of Reorganization provides for the principal
+corporate transactions required to effect the spin-off including the
+distribution ratio of Marine Products shares to RPC shares, the contribution of
+cash by RPC to Marine Products at the date of the spin-off, and the cancellation
+of any remaining intercompany balances.
+The Transition Support Services Agreement provides for RPC to provide certain
+services, including financial reporting and income tax administration,
+acquisition assistance, etc. to Marine Products until the agreement is
+terminated by either party. During 2000, 1999, and 1998, RPC allocated expenses
+for these services to Marine Products totaling $2,372,000, $1,966,000, and
+$1,777,000, respectively. The allocation was based on Marine Products' revenues
+as a percent of RPC's total revenues. Management believes that such allocation
+methodology is reasonable. The costs allocated to Marine Products for these
+services are not necessarily indicative of the costs that would have been
+incurred if Marine Products had been a separate, independent entity and had
+otherwise independently managed these functions. Subsequent to the spin-off,
+Marine Products will reimburse RPC for its allocable share of costs incurred for
+services rendered on behalf of Marine Products.
+The Employee Benefits Agreement provides for Marine Products to continue
+participating subsequent to the spin-off in two RPC sponsored benefit plans,
+specifically, the defined contribution 401(k) plan and the defined benefit
+retirement income plan. It also sets forth the method of handling the stock
+options and other stock incentive awards issued to RPC employees that will be
+employed by Marine Products subsequent to the spin-off.
+The Tax Sharing Agreement provides for the treatment of income tax matters for
+periods through the date of the spin-off and responsibility for any adjustments
+as a result of audit by any taxing authority. The general terms provide for the
+indemnification for any tax detriment incurred by one party caused by the other
+party's action.
+19
+In the first quarter of 2000, RPC recorded an after-tax gain of $4,227,000 in
+its powerboat manufacturing business segment. The gain is a result of
+Chaparral's receipt of its share of a non-refundable $35 million settlement
+payment made by Brunswick Corporation (Brunswick), a major engine supplier, to
+the members of the American Boatbuilders Association (ABA), a buying group which
+includes Chaparral. Under the terms of this agreement between the ABA and
+Brunswick, additional payments were to be made to the ABA depending on the final
+judgment or settlement of a lawsuit brought by Independent Boatbuilders
+Association (IBBI), another buying group supplied engines by Brunswick. In March
+2000, the U.S. Court of Appeals for the Eighth Circuit ordered the trial court
+to enter a judgment for Brunswick, thereby reversing the initial decision in
+favor of IBBI. No additional payments will be received by Marine Products in
+connection with this settlement.
+NOTE 3: ACCOUNTS RECEIVABLE
+Accounts receivable, net, at December 31, 2000, of $55,485,000 and at December
+31, 1999, of $33,454,000 are net of allowances for doubtful accounts of
+$4,994,000 in 2000 and $4,590,000 in 1999.
+NOTE 4: INVENTORIES
+Inventories consist of the following:
+DECEMBER 31, 2000 1999
+------------------------------------------------------------------------------------------------------------
+(in thousands)
+Raw materials and supplies $5,061 $3,798
+Work in process 625 1,426
+Finished goods 1,526 704
+-------------------------------------------------------------------------------------------------------------
+Total inventories $7,212 $5,928
+============================================================================================================
+NOTE 5: PROPERTY, PLANT AND EQUIPMENT
+Property, plant and equipment are presented at cost net of accumulated
+depreciation and consist of the following:
+DECEMBER 31, 2000 1999
+------------------------------------------------------------------------------------------------------------
+(in thousands)
+Operating equipment and property $202,026 $182,820
+Buildings 12,606 12,707
+Furniture and fixtures 2,934 3,959
+Vehicles 20,019 18,092
+Land 4,654 4,649
+Construction in progress 2,081 1,115
+------------------------------------------------------------------------------------------------------------
+Gross property, plant and equipment 244,320 223,342
+Less: accumulated depreciation 159,288 154,584
+------------------------------------------------------------------------------------------------------------
+Net property, plant and equipment $ 85,032 $ 68,758
+============================================================================================================
+Depreciation expense amounted to $17,278,000, $15,368,000, and $14,473,000 for
+the years ended December 31, 2000, 1999, and 1998, respectively.
+NOTE 6: INCOME TAXES
+The following table lists the components of the provision (benefit) for income
+taxes from continuing operations:
+(in thousands)
+YEAR ENDED DECEMBER 31, 2000 1999 1998
+------------------------------------------------------------------------------------------------------------
+Current:
+Federal $9,936 ($2,874) $5,511
+State 681 (98) 379
+Deferred (767) 2,369 (778)
+------------------------------------------------------------------------------------------------------------
+Total income tax provision (benefit) $9,850 ($ 603) $5,112
+============================================================================================================
+20
+A reconciliation between the federal statutory rate and RPC's effective tax rate
+is as follows:
+YEAR ENDED DECEMBER 31, 2000 1999 1998
+------------------------------------------------------------------------------------------------------------
+Federal statutory rate 35.0% 35.0% 35.0%
+State income taxes 2.9 4.1 1.8
+Other - (0.7) 1.2
+------------------------------------------------------------------------------------------------------------
+Effective tax rate 37.9% 38.4% 38.0%
+============================================================================================================
+The components of the net deferred tax assets (liabilities) of continuing
+operations are as follows:
+DECEMBER 31, 2000 1999
+------------------------------------------------------------------------------------------------------------
+(in thousands)
+Current deferred tax assets (liabilities):
+Self-insurance reserves $2,472 $2,111
+Bad debt reserves 1,826 1,726
+State, local & other taxes (20) 698
+Payroll accruals 1,129 786
+All others 1,430 291
+------------------------------------------------------------------------------------------------------------
+Total current deferred tax assets $6,837 $5,612
+============================================================================================================
+Noncurrent deferred tax assets (liabilities):
+Self-insurance reserves $1,729 $ 1,761
+Depreciation (2,714) $(2,191)
+All others (93) (190)
+------------------------------------------------------------------------------------------------------------
+Total noncurrent deferred tax liabilities ($1,078) ($ 620)
+============================================================================================================
+Total income tax payments, net of refunds, were $13,825,000 in 2000, $1,616,000
+in 1999, and $12,765,000 in 1998.
+NOTE 7: PAYABLE TO MARINE PRODUCTS CORPORATION
+At December 31, 2000 and 1999, the consolidated balance sheets reflect a Payable
+to Marine Products Corporation. This represents the amount of cash transferred
+from Marine Products to RPC since RPC's acquisition of Chaparral in 1986.
+Subsequent to year-end, effective with the spin-off, RPC established a cash
+balance at Marine Products of approximately $15 million by contributing
+approximately $13.8 million. The remaining Payable to Marine Products totalling
+approximately $53.6 million was cancelled and RPC's retained earnings was
+increased by an equal amount.
+NOTE 8: LONG-TERM DEBT
+At December 31, 2000, future minimum payments on long-term debt and capitalized
+lease obligations were as follows:
+(IN THOUSANDS)
+---------------------------------------------------------------------------------------------------
+2001 $470
+2002 701
+2003 147
+2004 -
+2005 -
+---------------------------------------------------------------------------------------------------
+Total minimum principal payments $1,318
+===================================================================================================
+The long-term debt of RPC as of December 31, 2000, and December 31, 1999, is
+summarized as follows:
+(IN THOUSANDS)
+--------------------------------------------------------------------------------------------------------------------
+Maturity Range of
+Type Dates Interest Rates 2000 1999
+--------------------------------------------------------------------------------------------------------------------
+Notes payable 2001-2002 5.8%-8.50% $ 804 $1,703
+Capital leases 2003 11.17% 514 99
+---------------------------------------------------------------------------------------------------------------------
+Total debt 1,318 1,802
+Less current portion 470 255
+---------------------------------------------------------------------------------------------------------------------
+Long-term debt $ 848 $1,547
+=====================================================================================================================
+21
+The net book value of equipment under capital leases was $712,100 at December
+31, 2000.
+NOTE 9: COMMITMENTS AND CONTINGENCIES
+Minimum annual rentals, principally for noncancelable real estate leases with
+terms in excess of one year, in effect at December 31, 2000, are summarized in
+the following table:
+(in thousands)
+-----------------------------------------------------------------------------------
+2001 $1,225
+2002 925
+2003 714
+2004 585
+2005 338
+Thereafter 83
+-----------------------------------------------------------------------------------
+Total rental commitments $3,870
+===================================================================================
+Total rental expense charged to operations was $3,110,000 in 2000, $2,014,000 in
+1999, and $2,514,000 in 1998.
+RPC is a defendant in a number of lawsuits which allege that plaintiffs have
+been damaged as a result of the rendering of services by RPC personnel and
+equipment. RPC is vigorously contesting these actions. Management is of the
+opinion that the outcome of these lawsuits will not have a material adverse
+effect on the financial position, results of operations or liquidity of RPC.
+NOTE 10: STOCK-BASED COMPENSATION
+SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair
+value-based method of accounting for an employee stock option plan or similar
+equity instrument. However, it also allows an entity to continue to measure
+compensation cost for those plans using the method of accounting prescribed in
+Accounting Principles Board ("APB") Opinion No. 25. Entities electing to remain
+with the accounting in APB No. 25 must make pro forma disclosures of net income
+and earnings per share, as if the fair value-based method of accounting defined
+in the statement had been applied.
+RPC has elected to account for its stock-based compensation plans under APB No.
+25. The Company has computed for pro forma disclosure purposes the value of all
+options granted during 2000, 1999, and 1998 using the Black-Scholes option
+pricing model as prescribed by SFAS No. 123 using the following weighted average
+assumptions for grants:
+2000 1999 1998
+-------------------------------------------------------------------------------------------------
+Risk free interest rate N/A 4.6% 5.4%
+Expected dividend yield N/A 1% 2%
+Expected lives N/A 7 years 7 years
+Expected volatility N/A 34-37% 31-34%
+=================================================================================================
+The total fair value of options granted to RPC and Marine Products employees was
+computed as follows:
+Year ended December 31, 2000 1999 1998
+------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Continuing operations $ - $583 $ 731
+Discontinued operation - 159 361
+------------------------------------------------------------------------------------------------
+Total $ - $742 $ 1,092
+================================================================================================
+The total fair value of options granted would be amortized over the vesting
+period of the options. If RPC had accounted for these plans in accordance with
+SFAS No. 123, RPC's reported pro forma net income and pro forma diluted net
+income per share would have been as follows:
+22
+YEAR ENDED DECEMBER 31, 2000 1999 1998
+-------------------------------------------------------------------------------------------------
+(in thousands)
+AS REPORTED
+Income (loss)
+Continuing operations $16,127 ($ 967) $ 8,351
+Discontinued operation 13,961 9,118 7,674
+--------------------------------------------------------------------------------------------------
+Net Income $30,088 $8,151 $16,025
+Income (loss) per share
+Continuing operations $ 0.57 ($ 0.03) $ 0.29
+Discontinued operation 0.49 0.32 0.26
+--------------------------------------------------------------------------------------------------
+Net Income $ 1.06 $ 0.29 $ 0.55
+==================================================================================================
+PRO FORMA
+Income (loss)
+Continuing operations $15,908 ($1,174) $ 8,219
+Discontinued operation 13,863 9,022 7,599
+--------------------------------------------------------------------------------------------------
+Net Income $29,771 $7,848 $15,818
+Income (loss) per share
+Continuing operations $ 0.56 ($ 0.04) $ 0.28
+Discontinued operation 0.49 0.32 0.26
+--------------------------------------------------------------------------------------------------
+Net Income $ 1.05 $ 0.28 $ 0.54
+==================================================================================================
+NOTE 11: EMPLOYEE BENEFIT PLANS
+RETIREMENT PLAN
+RPC has a tax-qualified defined benefit, noncontributory, trusteed retirement
+income plan that covers substantially all RPC and Marine Products employees with
+at least one year of service. Benefits are based on an employee's years of
+service and compensation near retirement. RPC has the right to terminate or
+modify the plan at any time.
+SFAS No. 132, "Employers' Disclosures About Pensions and Other Post Retirement
+Benefits," standardizes the disclosure requirements for pensions and other post
+retirement benefits to the extent possible.
+The following table sets forth the funded status of the retirement income plan
+and the amounts recognized in RPC's consolidated balance sheets:
+DECEMBER 31 2000 1999
+----------------------------------------------------------------------------------------------------------
+(in thousands)
+CHANGE IN BENEFIT OBLIGATION:
+Benefit obligation at beginning of year $19,796 $20,126
+Service cost 903 1,031
+Interest cost 1,509 1,453
+Actuarial (gain) loss (880) (2,115)
+Benefits paid (688) (699)
+-----------------------------------------------------------------------------------------------------------
+Benefit obligation at end of year 20,640 19,796
+-----------------------------------------------------------------------------------------------------------
+CHANGE IN PLAN ASSETS:
+Fair value of plan assets at beginning of year 18,544 18,107
+Actual return on plan assets 868 1,136
+Employer contribution 1,052 -
+Benefits paid (688) (699)
+-----------------------------------------------------------------------------------------------------------
+Fair value of plan assets at end of year 19,776 18,544
+-----------------------------------------------------------------------------------------------------------
+Funded status (864) (1,252)
+Unrecognized net asset (289) (482)
+Unrecognized net loss 845 824
+Unrecognized prior service cost (1) (14)
+-----------------------------------------------------------------------------------------------------------
+Net accrued benefit cost ($ 309) ($ 924)
+===========================================================================================================
+23
+ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
+Accumulated benefit obligation $17,483 $16,192
+-----------------------------------------------------------------------------------------------------------
+Plan assets at fair value $19,776 $18,544
+===========================================================================================================
+RPC's funding policy is to contribute to the retirement income plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974. RPC
+contributed $1,052,000 to the retirement income plan in 2000. No contributions
+were required in 1999 and 1998.
+The net accrued benefit cost is included on the balance sheet in the line item
+Accrued payroll and related expenses.
+The components of net periodic benefit cost are summarized as follows:
+YEAR ENDED DECEMBER 31, 2000 1999 1998
+----------------------------------------------------------------------------------------------------------
+Service cost for benefits earned
+during the period $ 903 $ 1,031 $ 914
+Interest cost on projected
+benefit obligation 1,509 1,453 1,342
+Expected return on plan assets (1,771) (1,680) (1,531)
+Net amortization and deferral (205) (141) (156)
+-----------------------------------------------------------------------------------------------------------
+Net periodic benefit cost $ 436 $ 663 $ 569
+===========================================================================================================
+Total retirement plan cost attributable to Marine Products, which is included in
+net periodic benefit cost above, was $147,000 in 2000, $136,000 in 1999, and
+$127,000 in 1998.
+The weighted average assumptions were as follows:
+December 31, 2000 1999 1998
+------------------------------------------------------------------------------------------------
+Discount rate 7.75% 8.00% 7.00%
+Expected return on plan assets 9.50% 9.50% 9.50%
+Rate of compensation increase 4.75% 5.00% 4.00%
+================================================================================================
+401(k) PLAN
+RPC sponsors a defined contribution 401(k) plan that is available to
+substantially all full-time employees with more than 6 months of service. This
+plan allows employees to make tax-deferred contributions of up to 15 percent of
+their annual compensation, not exceeding the permissible deduction imposed by
+the Internal Revenue Code. RPC matches 40 percent of each employee's
+contributions up to 3 percent of the employee's compensation. Employees vest in
+the RPC contributions after 5 years of service. Marine Products will continue
+participating subsequent to the spin-off in the RPC sponsored defined
+contribution 401(k) plan. The charges to expense for RPC's continuing operations
+were $295,000 in 2000, $282,000 in 1999, and $318,000 in 1998. The charges to
+expense for Marine Products were $76,000 in 2000, $74,000 in 1999, and $74,000
+in 1998.
+STOCK INCENTIVE PLANS
+RPC has an Employee Incentive Stock Option Plan (the "1984 Plan") under which
+1,000,000 shares of common stock were reserved for issuance. The 1984 Plan
+expired in October 1994. On January 25, 1994, RPC adopted a new 10-year Employee
+Stock Incentive Plan (the "1994 Plan") under which 1,000,000 shares of common
+stock were reserved for issuance. During 1997, an additional 1,600,000 shares
+were reserved for issuance. These plans provide for the issuance of various
+forms of stock incentives, including, among others, incentive stock options and
+restricted stock. Historically, certain RPC employees, including employees of
+Marine Products, have participated in these RPC Stock Incentive Plans (the "RPC
+SIP").
+In conjunction with the spin-off, Marine Products has adopted a 10-year Employee
+Stock Incentive Plan (the "Marine Products SIP") under which 2,000,000 shares of
+common stock have been reserved for issuance to Marine Products employees. The
+Marine Products SIP provides for the issuance of various forms of stock
+incentives, including, among others, incentive stock options and restricted
+stock.
+Following the spin-off, outstanding stock option grants under the RPC SIP held
+by Marine Products employees who will not also be RPC employees will be replaced
+with the Marine Products SIP stock option grants. The Marine Products SIP grants
+will have the same relative ratio of the exercise price per option to the market
+value per share, the same aggregate difference between market value and exercise
+price and the same vesting provisions, option periods and other applicable terms
+and conditions as the
+24
+RPC SIP stock option grants being replaced. At December
+31, 2000 there were 129,800 RPC SIP stock options held by Marine Products
+employees subject to replacement with Marine Products SIP stock option grants.
+RPC cannot currently determine the number of shares of Marine Products' common
+stock that will be subject to substitute grant. As of December 31, 2000, there
+were 1,351,200 shares available for the granting of options or other awards
+under the RPC SIP.
+Employees of RPC with outstanding options that have not been earned and issued
+into escrow will be adjusted to account for the spin-off, based on the average
+trading price of RPC's common stock relative to that of the combined daily
+average trading prices of one share of RPC and 0.6 shares of Marine Products, in
+each case during the 10 consecutive trading days beginning on the trading day
+that is 10 trading days after the effective date of the spin-off.
+INCENTIVE STOCK OPTIONS
+Transactions involving the RPC SIP were as follows:
+Weighted
+Option Average
+Price Exercise
+SHARES (PER SHARE) PRICE
+-----------------------------------------------------------------------------------------------------------
+Outstanding 12/31/97 442,800 $ 3.000-$7.500 $ 5.11
+Granted 218,000 12.750 12.75
+Canceled (28,400) 3.063-12.750 4.44
+Exercised (30,300) 3.063-7.500 3.63
+-----------------------------------------------------------------------------------------------------------
+Outstanding 12/31/98 602,100 $3.000-$12.750 $ 7.85
+Granted 246,500 6.875 6.88
+Exercised (65,200) 3.063-7.500 3.21
+-----------------------------------------------------------------------------------------------------------
+Outstanding 12/31/99 783,400 $3.000-$12.750 $ 7.93
+Granted 0 0 0
+Canceled (27,300) 4.438-12.750 8.60
+Exercised (77,625) 3.000-12.750 4.80
+-----------------------------------------------------------------------------------------------------------
+Outstanding 12/31/00 678,475 $4.000-$12.750 $ 8.26
+===========================================================================================================
+2000 1999 1998
+-----------------------------------------------------------------------------------------------------------
+Exercisable at December 31 310,734 232,600 210,660
+Weighted average exercise
+price of exercisable
+options $7.65 $6.51 $4.27
+Per share weighted
+average grant date fair
+value of options granted $0.00 $3.01 $5.20
+------------------------------------------------------------------------------------------------------------
+The weighted average remaining contractual life of options outstanding at
+December 31, 2000 was 7 years.
+RESTRICTED STOCK
+RPC has granted employees two forms of restricted stock: performance restricted
+and time lapse restricted. The performance restricted shares are granted, but
+not earned and issued, until certain 5-year tiered performance criteria are met.
+The performance criteria are predetermined market prices of RPC stock. On the
+date the stock appreciates to each level (determination date), 20 percent of
+performance shares are earned. Once earned, the performance shares vest 5 years
+from the determination date. Time lapse restricted shares vest 10 years from the
+grant date. Units granted under these restricted stock programs were 0 in 2000,
+90,000 in 1999, and 52,000 in 1998. There were 3,800 performance shares earned
+under the plans in 2000. During 2000, 1999 and 1998, no shares were forfeited or
+canceled. Deferred compensation was $1,337,000 and $1,669,000 as of December 31,
+2000 and December 31, 1999, respectively. Shares of performance restricted stock
+totalling 10,000 will be forfeited and replaced with grants of performance
+restricted stock under the Marine Products SIP pursuant to the spin-off.
+Employees of RPC with outstanding performance restricted stock awards that have
+not been earned and issued into escrow will be adjusted to account for the
+spin-off, based on average trading price of RPC's common stock relative to that
+of the combined daily average trading prices of one share of RPC and 0.6 times
+one share of Marine Products, in each case during the 10 consecutive trading
+days beginning on the trading day that is 10 trading days after the effective
+date of the spin-off. In addition, RPC employees with time lapse restricted
+stock awards or performance restricted stock awards that have been issued and
+are being held in escrow on their behalf as of the close of business on the
+record date will receive 0.6 shares of Marine Products common stock for each
+share of RPC common stock held in escrow as of the close of business on the
+record date, pursuant to the
+25
+spin-off. Any shares of Marine Products common
+stock received by an RPC employee will also be held in escrow on the same terms
+as the time lapse or performance restricted stock awards with respect to which
+they were issued.
+The agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions as
+established under the RPC SIP have lapsed. Upon termination of employment from
+RPC or, in certain cases, termination of employment from Marine Products or
+Chaparral, shares with restrictions must be returned to RPC.
+As of December 31, 2000, no shares of restricted stock were vested.
+NOTE 12: BUSINESS SEGMENT INFORMATION
+RPC's service lines have been aggregated into two reportable oil and gas
+services segments - technical services and support services - because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments as well as the economic and business
+conditions impacting their business activity levels.
+Technical services include RPC's oilfield service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer's well. These services include coiled tubing, fluid
+pumping, nitrogen pumping, fracturing and acidizing services, wireline,
+snubbing, well control consulting and firefighting, down-hole tools, and casing
+installation services. These technical services are primarily used in the
+completion, production and maintenance of oil and gas wells. The principal
+markets for this segment include the United States, including the Gulf of
+Mexico, the mid-continent, southwest and Rocky Mountain regions, and
+international locations including primarily Algeria and Venezuela. Customers
+include major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies.
+Support services include RPC's oilfield service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels, and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, including the Gulf of Mexico and the
+mid-continent regions. Customers include domestic operations of major
+multi-national and independent oil and gas producers.
+The other business segment includes information concerning RPC's business units
+that do not qualify for separate segment reporting. These business units include
+an overhead crane fabricator, an enhanced facsimile service provider and other
+non-oilfield business development activities.
+The accounting policies of the reportable segments are the same as those
+described in Note 1 to these consolidated financial statements. RPC evaluates
+the performance of its segments based on revenues, operating profits, and
+earnings before interest, taxes, depreciation and amortization and other
+non-cash charges (EBITDA). RPC's balance sheets are generally managed on a
+consolidated basis and therefore it is impractical to report assets by business
+segment.
+26
+Summarized financial information concerning RPC's reportable segments from
+continuing operations for the years ended December 31, 2000, 1999, and 1998 are
+shown in the following table.
+Technical Support
+(IN THOUSANDS) SERVICES SERVICES OTHER CORPORATE TOTAL
+-------------------------------------------------------------------------------------------------------------------
+2000
+Revenues $125,960 $43,613 $14,642 $ - $184,215
+Operating profit (loss) 19,250 7,873 (139) (2,450) 24,534
+Capital expenditures 25,212 8,830 79 1,405 35,526
+Depreciation and amortization 9,941 7,319 190 545 17,995
+EBITDA 29,191 15,192 51 (1,905) 42,529
+1999
+Revenues $ 70,366 $24,500 $12,719 $ - $107,585
+Operating profit (loss) 5,142 (5,424) (819) (1,954) (3,055)
+Capital expenditures 13,138 6,059 102 1,020 20,319
+Depreciation and amortization 7,949 7,371 318 324 15,962
+EBITDA 13,091 1,947 (501) (1,630) 12,907
+1998
+Revenues $ 79,031 $44,918 $16,828 $ - $140,777
+Operating profit (loss) 12,031 5,304 (3,520) (2,135) 11,680
+Capital expenditures 7,560 21,162 118 - 28,840
+Depreciation and amortization 7,909 6,452 350 226 14,937
+EBITDA 19,940 11,756 (3,170) (1,909) 26,617
+====================================================================================================================
+The following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2000, 1999,
+and 1998. The revenues are presented based on the location of the use of the
+product or service. Assets related to international operations are less than 10
+percent of RPC's consolidated assets, and therefore are not presented.
+(IN THOUSANDS) 2000 1999 1998
+---------------------------------------------------------------------------------------------------
+United States
+Revenues $162,090 $ 96,062 $130,955
+International
+Revenues 22,125 11,523 9,822
+---------------------------------------------------------------------------------------------------
+$184,215 $107,585 $140,777
+===================================================================================================
+PART III
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE
+None.
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
+Information concerning directors and executive officers is included in the RPC
+Proxy for its 2001 Annual Meeting of Stockholders, in the sections entitled
+"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
+Compliance." This information is incorporated herein by reference. Information
+about executive officers is contained on page 9.
+ITEM 11. EXECUTIVE COMPENSATION
+Information concerning executive compensation is included in the RPC Proxy for
+its 2001 Annual Meeting of Stockholders, in the section entitled "Executive
+Compensation." This information is incorporated herein by reference.
+27
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+Information concerning security ownership is included in the RPC Proxy for its
+2001 Annual Meeting of Stockholders, in the sections entitled "Capital Stock"
+and "Election of Directors." This information is incorporated herein by
+reference.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+Information concerning certain relationships and related transactions is
+included in the RPC Proxy for its 2001 Annual Meeting of Stockholders, in the
+sections entitled "Certain Relationships and Related Transactions" and
+"Compensation Committee Interlocks and Insider Participation." This information
+is incorporated herein by reference.
+PART IV
+ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
+The following documents are filed as part of this report.
+FINANCIAL STATEMENTS PAGE
+----------------------------------------------------------------------------------------------------------------------
+Consolidated Balance Sheets as of December 31, 2000 and 1999 14
+Consolidated Statements of Income for the 3 years ended December 31, 2000 15
+Consolidated Statements of Stockholders' Equity for the 3 years ended December 31, 2000 15
+Consolidated Statements of Cash Flows for the 3 years ended December 31, 2000 16
+Notes to Consolidated Financial Statements 17
+SCHEDULES
+----------------------------------------------------------------------------------------------------------------------
+Schedule II - Valuation and Qualifying Accounts 29
+EXHIBITS
+Exhibit
+Number Description
+-------------------------------------------------------------------------------------------------------------------------------
+3.1 Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the
+Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
+3.2 Bylaws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the
+fiscal year ended December 31, 1993).
+4 Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the
+fiscal year ended December 31, 1998).
+10.1 RPC's 1994 Employees Stock Incentive Plan (incorporated herein by reference to Exhibit A of the definitive
+Proxy Statement dated March 20, 1994).
+10.2 Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to
+the Form 10 filed on February 13, 2001).
+10.3 Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and
+Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10 filed on
+February 13, 2001).
+10.4 Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products
+Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10 filed on February 13, 2001).
+10.5 Tax Sharing Agreement dated February 12, 2001, by and between
+RPC, Inc. and Marine Products Corporation (incorporated herein
+by reference to Exhibit 10.5 to the Form 10 filed on February
+13, 2001).
+21 Subsidiaries of RPC.
+28
+23 Consent of Arthur Andersen LLP.
+24 Powers of Attorney for Directors.
+REPORTS ON FORM 8-K
+On December 8, 2000, the Company filed a report announcing its plans to
+spin-off, on a tax free basis, its powerboat manufacturing business, conducted
+through Chaparral Boats, to its shareholders.
+SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS)
+Balance at Charged to Net Balance
+Beginning Cost and Recoveries at End of
+of Period Expenses (Write-Offs) Period
+For the years ended December 31, 2000, 1999, and 1998
+---------------------------------------------------------------------------------------------------------------------
+Year ended December 31, 2000
+Allowance for Doubtful Accounts $4,590 $ 26 $ 378 $4,994
+Year ended December 31, 1999
+Allowance for Doubtful Accounts $6,927 $ 123 ($2,460) $4,590
+Year ended December 31, 1998
+Allowance for Doubtful Accounts $6,888 $1,675 ($1,636) $6,927
+---------------------------------------------------------------------------------------------------------------------
+SIGNATURES
+Pursuant to the requirements of Section 13 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.
+RPC, INC.
+By:
+/s/ R. RANDALL ROLLINS
+----------------------------------
+R. Randall Rollins
+Chairman of the Board of Directors
+(Principal Executive Officer)
+March 26, 2001
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report
+has been signed by the following persons on behalf of the Registrant and in the
+capacities and on the dates indicated.
+/s/ R. RANDALL ROLLINS /s/ BEN M. PALMER
+---------------------------------- ----------------------------------
+R. Randall Rollins Ben M. Palmer
+Chairman of the Board of Directors Chief Financial Officer
+(Principal Executive Officer) (Principal Financial and Accounting Officer)
+March 26, 2001 March 26, 2001
+The Directors of RPC, Inc. (listed below) executed a power of attorney
+appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign
+this report on their behalf.
+Wilton Looney, Director
+Gary W. Rollins, Director
+James A. Lane, Jr., Director
+Henry B. Tippie, Director
+James B. Williams, Director
+/s/RICHARD A. HUBBELL
+----------------------------------
+Richard A. Hubbell
+Director and as Attorney-in-fact
+March 26, 2001
+29
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
+To RPC, Inc.:
+We have audited the accompanying consolidated balance sheets of RPC, Inc. (a
+Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the
+related consolidated statements of income, stockholders' equity, and cash flows
+for each of the three years in the period ended December 31, 2000. These
+financial statements and the schedule referred to below are the responsibility
+of the Company's management. Our responsibility is to express an opinion on
+these financial statements and schedule based on our audits.
+We conducted our audits in accordance with auditing standards generally accepted
+in the United States. Those standards require that we plan and perform the audit
+to obtain reasonable assurance about whether the financial statements are free
+from 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 financial statements referred to above present fairly, in
+all material respects, the financial position of RPC, Inc. and subsidiaries as
+of December 31, 2000 and 1999, and the results of their operations and their
+cash flows for each of the three years in the period ended December 31, 2000, in
+conformity with accounting principles generally accepted in the United States.
+Our audit was made for the purpose of forming an opinion on the basic financial
+statements taken as a whole. The schedule listed in Item 14 is presented for the
+purposes of complying with the Securities and Exchange Commission's rules and is
+not part of the basic financial statements. This schedule has been subjected to
+the auditing procedures applied in our audit of the basic financial statements
+and, in our opinion, fairly states in all material respects, the financial data
+required to be set forth therein in relation to the basic financial statements
+taken as a whole.
+Atlanta, Georgia Arthur Andersen LLP
+March 2, 2001
+30
+SELECTED QUARTERLY FINANCIAL DATA
+QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
+------------------------------------------------------------------------------------------------------------------------
+(in thousands except per share data)
+2000
+Revenues $35,883 $39,864 $51,116 $57,352
+Income (loss) from continuing operations 2,258 2,051 5,785 6,033
+Income from discontinued operation 6,696 3,121 2,332 1,812
+------------------------------------------------------------------------------------------------------------------------
+Net income $ 8,954 $ 5,172 $ 8,117 $ 7,845
+========================================================================================================================
+Net income (loss) per share - basic:
+Continuing operations $ 0.08 $ 0.07 $ 0.21 $ 0.22
+Discontinued operation 0.24 0.12 0.08 0.06
+------------------------------------------------------------------------------------------------------------------------
+Total $ 0.32 $ 0.19 $ 0.29 $ 0.28
+========================================================================================================================
+Net income (loss) per share - diluted:
+Continuing operations $ 0.08 $ 0.07 $ 0.21 $ 0.22
+Discontinued operation 0.24 0.11 0.08 0.06
+------------------------------------------------------------------------------------------------------------------------
+Total $ 0.32 $ 0.18 $ 0.29 $ 0.28
+========================================================================================================================
+1999
+Revenues $23,702 $24,843 $27,861 $31,179
+(Loss) income from continuing operations (1,153) 38 (214) 362
+Income from discontinued operation 2,382 2,866 1,614 2,256
+------------------------------------------------------------------------------------------------------------------------
+Net income $ 1,229 $ 2,904 $ 1,400 $ 2,618
+========================================================================================================================
+Net income (loss) per share - basic:
+Continuing operations ($ 0.04) $ 0.00 ($ 0.01) $ 0.01
+Discontinued operation 0.08 0.10 0.06 0.08
+------------------------------------------------------------------------------------------------------------------------
+Total $ 0.04 $ 0.10 $ 0.05 $ 0.09
+========================================================================================================================
+Net income (loss) per share - diluted:
+Continuing operations ($ 0.04) $ 0.00 ($ 0.01) $ 0.01
+Discontinued operation 0.08 0.10 0.06 0.08
+------------------------------------------------------------------------------------------------------------------------
+Total $ 0.04 $ 0.10 $ 0.05 $ 0.09
+========================================================================================================================
+OFFICERS
+R. RANDALL ROLLINS
+Chairman of the Board and Chief Executive Officer
+RICHARD A. HUBBELL
+President and Chief Operating Officer
+JONATHAN W. MOSS
+Executive Vice President
+LINDA H. GRAHAM
+Vice President and Secretary
+BEN M. PALMER
+Vice President, Chief Financial Officer and Treasurer
+DIRECTORS
+R. RANDALL ROLLINS
+Chairman of the Board and Chief Executive Officer, Rollins, Inc.
+(consumer services)
+31
+HENRY B. TIPPIE*+
+Chairman of the Board and Chief Executive Officer, Tippie Services, Inc.
+(management services)
+WILTON LOONEY*
+Honorary Chairman of the Board, Genuine Parts company (automotive parts
+distributor)
+JAMES A. LANE, JR.
+President of Chaparral Boats, Inc.
+JAMES B. WILLLAMS*
+Chairman of the Executive Committee, SunTrust Banks, Inc.(bank holding
+company)
+GARY W. ROLLINS
+President and Chief Operating Officer, Rollins, Inc. (consumer services)
+RICHARD A. HUBBELL
+President and Chief Operating Officer
+LINDA H. GRAHAM
+Vice President and Secretary
+*Member of the Audit Committee and Executive Compensation Committee
++Chairman of the Audit Committee and Executive Compensation Committee
+STOCKHOLDER INFORMATION
+CORPORATE OFFICES
+RPC, Inc.
+2170 Piedmont Road, NE
+Atlanta, Georgia 30324
+Telephone: (404) 321-2140
+STOCK LISTING
+The New York Stock Exchange
+TICKER SYMBOL
+RES
+NEWSPAPER TABLE STOCK
+RPC
+INVESTOR RELATIONS WEB SITE
+WWW.RPC.NET
+TRANSFER AGENT AND REGISTRAR
+For inquiries related to stock certificates, including changes of address,
+please contact:
+SunTrust Bank, Atlanta
+Stock Transfer Department
+PO Box 4625
+Atlanta, Georgia 30302
+Telephone: (404) 588-7817
+ANNUAL MEETING
+The Annual Meeting of RPC will be held at 9:30 am, April 24, 2001, at the
+corporate offices in Atlanta, Georgia.
+32
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..76107047a1fa883ba6e2d74b917f6b4db912f9ef
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@@ -0,0 +1,2 @@
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+0000742278,RES,RPC INC,10-K405,2001-03-28,2000-12-31,2001-03-28T05:00:00.000Z,0000912057-01-505166,a2042942z10-k405.txt,FORM 10-K405,166396,0,0,https://www.sec.gov/Archives/edgar/data/742278/000091205701505166/a2042942z10-k405.txt,https://www.sec.gov/Archives/edgar/data/742278/000091205701505166/,2000,2000,1
diff --git a/raw/filings/0000742278/2000/0000912057-01-505166/item1.txt b/raw/filings/0000742278/2000/0000912057-01-505166/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..de2d31ac2e06e18fd72e8946216cc70d3a187540
--- /dev/null
+++ b/raw/filings/0000742278/2000/0000912057-01-505166/item1.txt
@@ -0,0 +1,530 @@
+ITEM 1. BUSINESS
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as part
+of a spin-off from Rollins, Inc. (NYSE:ROL). Two of RPC's businesses, Cudd
+Pressure Control ("Cudd") and Patterson Services ("Patterson"), have been
+conducted for more than 20 years. Effective February 28, 2001, RPC completed the
+spin-off of its powerboat manufacturing business through a distribution of
+shares in Marine Products Corporation ("Marine Products"). See "Discontinued
+Operation" for additional information.
+RPC provides a broad range of specialized oilfield services and equipment
+primarily to independent and major oilfield companies engaged in the
+exploration, production and development of oil and gas properties throughout the
+United States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include among other things, (1) snubbing services, (2) coiled
+tubing services, (3) pressure pumping services, (4) marine services, (5)
+firefighting and well control, and (6) the rental of drill pipe and other
+specialized oilfield equipment. RPC acts as a holding company for its operating
+subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc. and
+Patterson Tubular Services, Inc. together with several smaller non-core
+businesses.
+RPC's service lines have been aggregated into two reportable oil and gas
+services business segments - Technical Services and Support Services - because
+of the similarities between the financial performance and approach to managing
+these service lines within each of the segments as well as the economic and
+business conditions impacting their business activity levels. The other business
+segment includes information concerning RPC's business units that do not qualify
+for separate segment reporting. These business units include an overhead crane
+fabricator, an enhanced facsimile service provider and other non-oilfield
+research and development operations. The research and development operations
+have been scaled back since approximately 1997.
+Technical Services include RPC's oil and gas service lines that utilize people
+and equipment to perform value-added completion, production and maintenance
+services directly to a customer's well. These services are generally directed
+toward improving the flow of oil and natural gas from producing formations or to
+address well control issues. The Technical Services business segment consists
+primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control,
+down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and
+casing installation services. The principal markets for this business segment
+include the United States, including the Gulf of Mexico, mid-continent,
+southwest and Rocky Mountain regions, and international locations including
+primarily Algeria and Venezuela. Customers include major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Support Services include RPC's oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels, and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, Gulf of Mexico and mid-continent
+regions. Customers include domestic operations of major multi-national and
+independent oil and gas producers.
+TECHNICAL SERVICES
+The following is a description of the primary service lines conducted within the
+Technical Services business segment.
+SNUBBING. Snubbing involves using a high-pressure workover rig that permits an
+operator to repair damaged casing, production tubing and down-hole production
+equipment in a high-pressure environment. Using a series of highly sophisticated
+blowout
+2
+prevention devices, a snubbing unit makes it possible to remove and
+replace down-hole equipment in a pressurized environment. Customers benefit
+because these operations can be performed without removing the pressure from or
+"killing" the well. "Killing" a well can result in formation damage and may
+cause difficulties on the subsequent repressurization. Typically, performing
+snubbing workover operations can be done quickly and is therefore more cost
+effective than alternative procedures. Since snubbing is a very hazardous
+process that entails high risk, the snubbing segment of the oil and gas services
+industry is limited to a few operators who have the experience and knowledge
+required to safely and efficiently perform such services.
+COILED TUBING. Coiled tubing services involve the injection of coiled tubing
+into wells to perform various applications and functions for use principally in
+well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than five inches manufactured in continuous lengths of
+thousands of feet and wound or coiled around a large reel on a truck or
+skid-mounted unit. Due to the small diameter of coiled tubing, it can be
+inserted through existing production tubing and used to perform workovers
+without using a larger, more costly workover rig. Principal advantages of
+employing coiled tubing in a workover include: (i) not having to "shut-in" the
+well during such operations, thereby allowing production to continue and
+reducing the risk of formation damage to the well, (ii) the ability to reel
+continuous coiled tubing in and out of a well significantly faster than
+conventional pipe which must be jointed and unjointed, (iii) the ability to
+direct fluids into a wellbore with more precision, allowing for localized
+stimulation treatments and providing a source of energy to power a down-hole
+motor or manipulate down-hole tools and (iv) enhanced access to remote or
+offshore fields due to the smaller size and mobility of a coiled tubing unit.
+Recent technological improvements to coiled tubing have increased its
+dependability and durability, expanding coiled tubing's potential uses and
+markets.
+PRESSURE PUMPING SERVICES. Cudd provides pumping services to customers
+throughout the Gulf Coast and mid-continent regions of the United States. Cudd
+utilizes complex, truck-or skid-mounted equipment designed and constructed for
+each specific pumping service offered. After such equipment is moved to a well
+location, it is configured with appropriate connections to perform the specific
+services required. The mobility of this equipment permits Cudd to provide
+pressure pumping services in varying geographic areas. Principal materials
+utilized in the pressure pumping business include fracturing proppants, acid and
+bulk chemical additives. Generally, these items are available from several
+suppliers, and Cudd utilizes more than one supplier for each item. Pressure
+Pumping Services offered include:
+Fracturing - Fracturing services are performed to enhance the production of
+oil and natural gas from formations where the well's natural flow is
+restricted due to permeability issues. The fracturing process consists of
+pumping a fluid gel into a cased well at sufficient pressure to "fracture"
+the formation. Sand, bauxite or synthetic proppant, which is suspended in
+the gel, is pumped into the fracture to prop it open. The main pieces of
+equipment used in the fracturing process are the blender, which blends the
+proppant and chemicals into the fracturing fluid, the pumping unit, which
+is capable of pumping significant volumes at high pressures, and a
+monitoring van loaded with real time monitoring equipment and computers
+used to control the fracturing process. In some cases, fracturing is
+performed by an acid solution pumped under pressure without a proppant or
+with small amounts of proppant. An important element of fracturing services
+is the design of the fracturing treatment, which includes determining the
+proper fracturing fluid, proppants and injection program to maximize
+results. Cudd's field engineering staff provides technical evaluation and
+job design recommendations as an integral element of its fracturing
+services.
+Acidizing - Acidizing services are performed to enhance the flow rate of
+oil and natural gas from wells with reduced flow caused by formation damage
+due to drilling or completion fluids, or the buildup over time of various
+materials that block the formation. Acidizing entails pumping large volumes
+of specially formulated acids into reservoirs to dissolve barriers and
+enlarge crevices in the formation, thereby eliminating obstacles to the
+flow of oil and natural gas. Cudd maintains a fleet of mobile acid
+transport and pumping units to provide acidizing services for the onshore
+market.
+NITROGEN. There are a number of uses for nitrogen, an inert gas, in pressure
+pumping operations. Used alone, it is effective in displacing fluids in various
+oilfield applications, including underbalanced drilling and pipeline purging.
+Nitrogen services are used principally in applications which support Cudd's
+coiled tubing, snubbing and pressure pumping services.
+WELL CONTROL. Cudd Pressure Control specializes in responding to and controlling
+oil and gas well emergencies, including blowouts and well fires domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+necessary to contain the oil and hazardous materials spills and discharges
+associated with such oil and gas well emergencies, to remediate affected sites
+and to restore affected oil and gas wells to production. In the last five years,
+Cudd has responded to well control situations in several international locations
+including Argentina, Australia, Bolivia, Colombia, Egypt, India, Peru, Taiwan
+and Venezuela.
+Cudd Pressure Control's professional firefighting staff has more than 340 years
+of aggregate industry experience in responding to well fires and blowouts. This
+team of 17 experts responds to well control projects where hydrocarbons are
+escaping from a well bore, regardless of whether a fire has occurred. In the
+most critical situations, there are explosive fires, loss of life, the
+destruction of drilling and production facilities, substantial environmental
+damage and the loss of hundreds of thousands of
+3
+dollars per day in production revenue. Since these events ordinarily arise
+from equipment failures or human error, it is impossible to predict
+accurately the timing or scope of this work. Additionally, less critical
+events frequently occur in connection with the drilling of new wells into
+high-pressure reservoirs. In these situations, the blowout preventers and
+other safety systems on the drilling rig function according to design and
+Cudd is then called upon to supervise and assist in the well control effort
+so that drilling operations can resume as promptly as safety permits.
+DOWN-HOLE TOOLS. Cudd Pressure Control's division ThruTubing Solutions (TTS)
+provides proprietary down-hole motors and fishing tools to operators and service
+companies throughout the oil and gas industry. TTS' experience for reliable tool
+services allows it to work with virtually any coiled tubing unit or snubbing
+unit that is equipped for the task. TTS' engineered solutions are backed by more
+than 70 years of "hands on" experience.
+WIRELINE SERVICES. Cudd provides mechanical wireline services. A wireline
+unit is a spooled wire that can be unwound and lowered into a well carrying
+various types of tools. Wireline services are used for a variety of purposes,
+such as: accessing a well to assist in data acquisition or logging activities,
+fishing tool operations to retrieve lost or broken equipment, pipe recovery, and
+remedial activities. In addition, wireline services are an integral part of plug
+and abandonment services.
+SPECIAL SERVICES. When a valve malfunctions, the only solution may be to drill
+out the gate or the plug. If pressure is trapped, hot-tapping, a technique of
+drilling into a medium that is under pressure, is one method of relieving that
+pressure. Cudd Pressure Control maintains hot-tapping and valve drilling
+equipment capable of drilling out valve seats in an environment with up to
+15,000 psi working pressure and hydrogen sulfide. In order to isolate wellheads,
+valves and other circulating equipment from subsurface or upstream pressure,
+Cudd Pressure Control also performs freezing operations.
+CASING AND TORQUE-TURN SERVICES. Casing and laydown principally consists of
+installing casing and production tubing into a wellbore. Casing is run to
+protect the structural integrity of the wellbore and to seal various zones in
+the well. These services are normally provided during the drilling and
+completion phases of a well. Production tubing is run inside the casing. Oil and
+natural gas are produced through the tubing. These services are provided during
+the completion and workover phases.
+Torque-Turn is used on tubulars in the deeper, higher pressure gas wells where
+connection integrity and leak resistance are most critical. By monitoring the
+makeup of connections with both torque and turns simultaneously, we are able to
+achieve the optimum bearing pressure between the connection. The level of
+bearing pressure directly affects the leak resistance of the connection. The use
+of the Torque-Turn system allows us to obtain the maximum bearing pressure
+without permanently deforming the material.
+SUPPORT SERVICES
+The following is a description of the primary service lines conducted within the
+Support Services business segment.
+RENTAL TOOLS - RPC rents specialized equipment for use with onshore and offshore
+oil and gas well drilling, completion and workover activities. The drilling and
+operation of oil and gas wells generally requires a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+well area and the size of the well itself. As a result, operators and drilling
+contractors often find it more economical to supplement their inventories with
+rental tools instead of maintaining a complete inventory of tools. RPC is
+strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico and mid-continent regions.
+RPC, through Patterson Rental Tools, offers a broad range of rental tools
+including:
+Blowout Preventors High Pressure Manifolds
+Coflexip Hoses Hydraulic Torque Wrenches
+Drill Collars Power Tongs
+Drill Pipe Pressure Control Equipment
+Flow Iron Test Pumps
+Gravel Pack Equipment Tubing
+Handling Tools Tubulars
+Hevi-wate Tubular Handling Tools
+MARINE SERVICES. A liftboat is a self-propelled, self-elevating work platform
+with legs, cranes and living accommodations. Our fleet consists of five
+liftboats, two of which have leg lengths of 200 feet or more. Upon arriving at a
+destination, a liftboat hydraulically lowers its legs until they are positioned
+on the ocean floor, and then jacks up until the work platform is sufficiently
+above the water level. Once positioned, the stability, open deck area, crane
+capacity, and relatively low cost of operation make liftboats ideal work
+platforms for a wide range of offshore activity from platform construction to
+plug and abandonment services. Our liftboats have either one or two cranes with
+lift capacities up to 75 tons. A liftboat's capability to reposition at a work
+site or to move to another location within a short time adds to its versatility.
+These boats are also subcontracted to customers in a bare
+4
+boat charter, whereby
+RPC provides only the crew to operate the boat. In addition, liftboat services
+are also highly complementary to RPC's service lines within the Technical
+Services business segment as it relates to providing services offshore.
+PIPE INSPECTION AND HANDLING SERVICES. Pipe inspection services involve the
+inspection and testing of the integrity of pipe used in oil and gas wells. These
+services are provided primarily at RPC's inspection yards located on a water
+channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on
+tubular inspection services to avoid failure of in-service tubing, casing,
+flowlines, and drill pipe. Such tubular failures are expensive and in some cases
+catastrophic. All inspection equipment is maintained and calibrated in strict
+compliance with required specifications. In addition to electromagnetic
+inspections of tubulars from 2 3/8" to 13 5/8" and full length ultrasonic
+inspection of tubulars from 2 3/8" to 20," RPC offers ultrasonic weld line
+inspections and complete thread gauging. RPC's yard in Houston, Texas is
+equipped with bulkhead waterfronts, large capacity cranes, specially designed
+forklifts, and a computerized inventory system to serve a variety of other
+storage and handling issues.
+WELL CONTROL SCHOOL. Well Control School provides industry and government
+accredited training for the oil and gas industry. Well Control School provides
+this training in various formats including conventional classroom training,
+interactive computer training and mobile simulator training. Well Control
+School, through its division, Interactive Training Solutions (ITS), also
+develops customized training solutions for clients.
+ENERGY PERSONNEL INTERNATIONAL. Energy Personnel International provides
+consultants to the oil and gas industry to meet customers' needs for staff
+engineering and wellsite management.
+INDUSTRY
+UNITED STATES. The United States represents the largest single oilfield services
+market in the world. RPC provides its services to its U.S. customers through a
+network of strategic locations including the Gulf of Mexico, the mid-continent,
+the southwest and the Rocky Mountains. Demand for RPC's services in the U.S. is
+driven by the current and projected prices of oil and natural gas and the
+resulting drilling activities. Our business tends to be extremely volatile and
+fluctuates with the price level of these commodities and customer
+production-enhancement activities.
+Due to aging oilfields and lower-cost sources of oil internationally, drilling
+activity in the U.S. has declined more than 75% from its peak in 1981. Record
+low drilling activity levels were experienced in 1986, 1992 and again in 1999,
+with April 1999 recording the lowest U.S. drilling rig count in recorded
+history.
+Currently, the industry is in the midst of a dramatic increase in drilling
+activity in North America. At the end of 2000, there were 1,114 working drilling
+rigs domestically compared to only 797 at the end of 1999, a one year increase
+of approximately 40 percent. Natural gas has been the key driver of the cyclical
+recovery thus far. Since 1991, gas drilling rigs have typically represented just
+over 50 percent of the total drilling rig count. However, gas-directed drilling
+rigs have averaged approximately 80 percent of the total domestic drilling rig
+count since the record low seen in the second quarter of 1999. Demand for
+natural gas is continuing to rise, primarily as a result of increased emphasis
+on gas-fired power generation. Based on the current demand for natural gas as
+well as the high depletion rates experienced over the past several years, it is
+anticipated that gas-directed drilling will represent at least 70 percent of the
+total drilling rig count in the foreseeable future.
+Thus, in North America the demand for our services and products associated with
+natural gas development is currently more robust than demand related to oil
+drilling. We expect to see continued improvement in oil exploration and
+development in 2001 and we expect natural gas development activity will continue
+in North America at the current improved levels as our customers seek to meet
+increased demand and to replace depleting reserves and inventory levels.
+INTERNATIONAL. RPC operates in several countries including the major
+international oil and natural gas producing areas of Algeria, Argentina,
+Bolivia, Colombia, Gabon, Indonesia, Mexico and Venezuela. RPC provides services
+to its international customers through wholly-owned foreign subsidiaries or
+branch locations. The international market is somewhat less volatile than the
+U.S. market although prone to risk of political uncertainties. Due to the
+significant investment and complexity in international projects, drilling
+decisions relating to such projects tend to be evaluated and monitored with a
+longer-term perspective with regard to oil and natural gas pricing.
+Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more
+operating stability than the typical independent producer in the U.S.
+International activities have been increasingly important to RPC's results of
+operations since 1995, when RPC implemented a strategy to expand its
+international presence.
+GROWTH STRATEGIES
+RPC's primary objective is to provide stockholders with excellent long-term
+returns on their investment through income growth and asset appreciation. This
+objective will be pursued through strategic investments and opportunities
+designed to enhance the long-term value of RPC while improving market share,
+product offerings and the profitability of existing businesses. Growth
+5
+strategies are focused on selected areas and markets in which there exist
+opportunities for higher market growth or penetration or enhanced returns
+through consolidations or through the provision of proprietary value-added
+products and services. RPC does not seek to provide all products and services
+necessary for the exploration and development of oil and gas reserves. Rather it
+intends to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC seeks to expand its service capabilities through a combination of internal
+growth, acquisitions, joint ventures and strategic alliances. Because of the
+fragmented nature of the oil and gas services industry, RPC believes a number of
+attractive acquisition opportunities exist. The oil and gas services business is
+generally characterized by a small number of dominant global competitors and a
+significant number of locally oriented businesses, many of which tend to be
+viable acquisition targets. RPC believes that the owners of locally oriented
+companies may be willing to consider becoming part of a larger organization.
+CUSTOMERS
+Demand for RPC's services and products depends primarily upon the number of oil
+and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity
+worldwide. RPC's principal customers consist of major and independent oil and
+natural gas producing companies. During 2000 RPC provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of
+consolidated revenues. While the loss of certain of RPC's largest customers
+could have a material adverse effect on Company revenues and operating results
+in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers.
+COMPETITION
+RPC operates in highly competitive areas of the oilfield services industry. The
+products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by
+changes in prices, fluctuations in the level of activity in major markets,
+general economic conditions and governmental regulation. RPC competes with the
+oil and gas industry's largest integrated oilfield services companies. RPC
+believes that the principal competitive factors in the market areas that it
+serves are product and service quality, availability, price and technical
+proficiency.
+FACILITIES/EQUIPMENT
+RPC's equipment consists primarily of oil and gas services equipment used either
+in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and
+leases regional and district facilities from which its oilfield services are
+provided to land-based and offshore customers. RPC's principal executive offices
+in Atlanta, Georgia are leased. RPC believes that its facilities are adequate
+for its current operations. RPC owns and operates five offshore liftboats,
+including three in Venezuela and two in the Gulf of Mexico. For additional
+information with respect to RPC's lease commitments, see Note 9 of the Notes to
+Consolidated Financial Statements.
+GOVERNMENTAL REGULATION
+RPC's business is significantly affected by state and federal laws and other
+regulations relating to the oil and gas industry. RPC cannot predict the level
+of enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on it,
+its businesses or financial condition.
+INTELLECTUAL PROPERTY
+RPC uses several patented items in its operations, which management believes are
+important but are not indispensable to RPC's operations. Although RPC
+anticipates seeking patent protection when possible, it relies to a greater
+extent on the technical expertise and know-how of its personnel to maintain its
+competitive position.
+EMPLOYEES
+As of December 31, 2000, RPC had approximately 2,300 employees, comprising 1,500
+in the continuing operations and 800 in the discontinued operation. None of the
+employees is represented by a union or covered by a collective bargaining
+agreement. RPC believes that it has good relations with its employees.
+DISCONTINUED OPERATION
+In January 2000, RPC announced plans to spin-off Chaparral Boats, Inc.
+("Chaparral"), the recreational powerboat manufacturing business of RPC, to
+RPC's stockholders. RPC accomplished the spin-off by contributing 100% of the
+issued and outstanding stock of Chaparral to Marine Products, a newly formed
+wholly-owned subsidiary of RPC, and then distributing the common stock of Marine
+Products to RPC stockholders effective February 28, 2001. As part of the
+transaction, RPC's stockholders received 0.6 shares of Marine Products common
+stock for every one share of RPC common stock owned as of February 16, 2001, the
+record date for the spin-off. Marine Products is listed on the American Stock
+Exchange and traded under the ticker symbol MPX.
+6
+In connection with the spin-off, RPC and Marine Products entered into an
+Agreement Regarding Distribution and Plan of Reorganization (the "Distribution
+Agreement"), providing for the principal corporate transactions required to
+effect the spin-off.
+In addition to the Distribution Agreement, RPC and Marine Products also entered
+into other agreements governing the spin-off and the subsequent relationship
+between the two companies, including a Tax Sharing Agreement, an Employee
+Benefits Agreement and a Transition Support Services Agreement.
+No consideration was payable by RPC stockholders for the shares of Marine
+Products common stock received in the spin-off, nor were RPC stockholders
+required to surrender or exchange shares of RPC common stock or take any other
+action in order to receive the Marine Products shares pursuant to the spin-off.
+RPC's powerboat manufacturing business segment has been classified for
+accounting purposes as a discontinued operation in light of the spin-off of that
+business to RPC stockholders. This business is conducted through Marine
+Products, a newly formed holding company, the primary asset of which consists of
+the stock of Chaparral.
+RISK FACTORS
+DEMAND FOR OUR PRODUCTS AND SERVICES IS AFFECTED BY THE VOLATILITY OF OIL
+PRICES.
+Oil prices affect demand throughout the oil and natural gas industry, including
+the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital
+expenditures of our customers related to the exploration and production of oil
+and natural gas. When these expenditures decline, our customers' demand for our
+services declines.
+Although the production sector of the oil and gas industry is less immediately
+affected by changing prices, and, as a result, less volatile than the
+exploration sector, producers react to declining oil and gas prices by reducing
+expenditures. This would adversely affect our business. A prolonged low level of
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of operations.
+WE MAY BE UNABLE TO COMPETE IN THE HIGHLY COMPETITIVE OIL AND GAS INDUSTRY IN
+THE FUTURE.
+We operate in highly competitive areas of the oilfield services industry. The
+products and services of each of our principal industry segments are sold in
+highly competitive markets, and our revenues and earnings may be affected by the
+following factors: changes in competitive prices, fluctuations in the level of
+activity and major markets, general economic conditions, and governmental
+regulation. We compete with the oil and gas industry's largest integrated
+oilfield service providers. We believe that the principal competitive factors in
+the market areas that we serve are product and service quality and availability,
+reputation for safety, technical proficiency and price. Although we believe that
+our reputation for safety and quality service is good, we cannot assure you that
+we will be able to maintain our competitive position.
+WE MAY BE UNABLE TO IDENTIFY OR COMPLETE ACQUISITIONS.
+Acquisitions have been and will continue to be a key element of our business
+strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may
+be required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to consolidate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition.
+OUR OPERATIONS ARE AFFECTED BY ADVERSE WEATHER CONDITIONS.
+Our operations are directly affected by the weather conditions in the Gulf of
+Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns,
+our crews may operate more days in some periods than others. Rainy weather,
+hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf
+Coast throughout the year may also affect our operations. Accordingly, our
+operating results may vary from quarter to quarter, depending on factors outside
+of our control.
+OUR INABILITY TO ATTRACT AND RETAIN SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL
+AND PROFITABILITY.
+Our ability to remain productive and profitable will depend substantially on
+our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force.
+The demand for skilled oil and gas services employees in the Gulf Coast
+region is high and the supply is very limited. A significant increase in the
+wages paid by competing employers could result in a reduction in our skilled
+labor force, increases in the wage rates paid by us, or both. If either of
+these events occurred, our capacity and profitability could be diminished and
+our growth potential could be impaired.
+7
+OUR INABILITY TO PERFORM SERVICES FOR A NUMBER OF OUR LARGE EXISTING CUSTOMERS
+COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS.
+Our inability to continue to perform services for a number of our large
+existing customers could have a material adverse effect on our business and
+operations. Substantially all of our customers are engaged in the energy
+industry. This concentration of customers may impact our overall exposure to
+credit risk, either positively or negatively, in that customers may be
+similarly affected by changes in economic and industry conditions. We perform
+ongoing credit evaluations of our customers and do not generally require
+collateral in support of our trade receivables. While we maintain reserves
+for potential credit losses, our actual losses have historically been within
+expectations.
+OUR BUSINESS HAS POTENTIAL LIABILITY FOR PERSONAL INJURY AND PROPERTY DAMAGE
+CLAIMS.
+Our operations involve the use of heavy equipment and exposure to inherent
+risks, including blowouts, explosions and fires. If any of these events were to
+occur, this could result in liability for personal injury and property damage,
+pollution or other environmental hazards or loss of production. Litigation may
+arise from a catastrophic occurrence at a location where our equipment and
+services are used. This could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. This could have a
+material adverse effect on us. We maintain what we believe is prudent insurance
+protection. We cannot assure you that we will be able to maintain adequate
+insurance in the future at rates we consider reasonable or that our insurance
+coverage will be adequate to cover future claims that may arise.
+OUR OPERATIONS MAY BE AFFECTED IF WE ARE UNABLE TO COMPLY WITH REGULATORY AND
+ENVIRONMENTAL LAWS.
+Our business is significantly affected by environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development drilling for oil and gas in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations. We believe that our present operations substantially comply with
+applicable federal and state pollution control and environmental protection laws
+and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will in the future materially adversely affect our operations and financial
+condition.
+OUR INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
+BUSINESS.
+Our operations in Venezuela, Algeria and other foreign countries, although
+presently limited, are subject to risks inherent in doing business in foreign
+countries. These risks include, but are not limited to, political changes,
+expropriation, currency restrictions and changes in currency exchange rates,
+taxes, and boycotts and other civil disturbances. Although it is impossible to
+predict the likelihood of such occurrences or their effect on our operations,
+our management believes that these risks are acceptable. However, the occurrence
+of any one of these events could have a material adverse effect on our
+operations.
+OUR COMMON STOCK PRICE MAY BE ADVERSELY AFFECTED BY CHANGES IN OIL AND GAS
+PRICES AND THE SUPPLY AND DEMAND FOR OIL AND GAS.
+Historically, and in recent months in particular, the market price of common
+stock of companies engaged in the oil and gas services industry has been
+highly volatile. Likewise, the market price of our common stock has varied
+significantly in the past. Changes in oil and natural gas prices, changes in
+the demand for oil and natural gas exploration, and changes in the supply and
+demand for oil and natural gas have all been factors affecting the price of
+our common stock.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2000/0000912057-01-505166/item13.txt b/raw/filings/0000742278/2000/0000912057-01-505166/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f6a7f5f8b086150bdd80f2b7296c8d010a9ea0ff
--- /dev/null
+++ b/raw/filings/0000742278/2000/0000912057-01-505166/item13.txt
@@ -0,0 +1,6 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+Information concerning certain relationships and related transactions is
+included in the RPC Proxy for its 2001 Annual Meeting of Stockholders, in the
+sections entitled "Certain Relationships and Related Transactions" and
+"Compensation Committee Interlocks and Insider Participation." This information
+is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2000/0000912057-01-505166/item9a.txt b/raw/filings/0000742278/2000/0000912057-01-505166/item9a.txt
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index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2000/0000912057-01-505166/rp_note.txt b/raw/filings/0000742278/2000/0000912057-01-505166/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2000/0000912057-01-505166/rpt_disclosure.txt b/raw/filings/0000742278/2000/0000912057-01-505166/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..29a0b097824dd905c0c75d5b8eff8a673a91fe84
--- /dev/null
+++ b/raw/filings/0000742278/2000/0000912057-01-505166/rpt_disclosure.txt
@@ -0,0 +1,12 @@
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Prior to June 30, 1984, the Company was a wholly-owned subsidiary of Rollins, Inc. ("Rollins"). On June 30, 1984, Rollins effected a
+spin-off distribution to its stockholders of all of the outstanding shares of the Company (the "Rollins Spin-off"). Messrs. Gary W. Rollins and R. Randall Rollins, named
+in the table under "Capital Stock" on page 2, have substantially similar interests in Rollins as they do in the Company. 
+The
+Company receives certain administrative services from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement
+basis and are terminable on six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges to the
+Company (or to corporations which are subsidiaries of the Company) for such services aggregated $30,200 in 2000. 
+12 
+Effective February 28, 2001, the Company will provide certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide
+for the provision of services on a cost reimbursement basis and are terminable on 30 days notice. The services covered by these agreements include administration of certain employee benefit programs
+and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services will be billed to Marine Products starting in March, 2001.
\ No newline at end of file
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+10-K405
+1
+a2074107z10-k405.htm
+10-K405
+QuickLinks 
+-- Click here to rapidly navigate through this document 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, DC 20549 
+FORM 10-K 
+ý 
+Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For the fiscal year ended December 31, 2001 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2170 Piedmont Road, NE 
+Atlanta, Georgia 30324 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of each class 
+Common Stock, $0.10 Par Value 
+(28,704,075 shares outstanding as of February 26, 2002) 
+Name of each exchange on which registered 
+The New York Stock Exchange 
+The aggregate market value of shares of common stock held by non-affiliates at February 26, 2002 was $160,732,188. 
+Securities
+registered pursuant to Section 12(g) of the Act: 
+None 
+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. ý Yes o No 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ý 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2002 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 13 of this report. 
+PART I 
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries as "we," "us," or "the Company." 
+Forward-Looking Statements 
+Certain statements made in this report that are not historical facts are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995.
+Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our
+products and services and other events and conditions that may influence the oilfield services market and our performance in the future. 
+The
+words "may," "will," "expect," "believe," "anticipate," "project," "estimate," and similar expressions generally identify forward-looking statements. Such statements are based on
+certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it
+believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ
+from those envisioned by the forward-looking statements. See "Risk Factors" contained in Item 1. 
+ITEM 1. BUSINESS 
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as part of a spin-off from Rollins, Inc. (NYSE:ROL). Two of
+RPC's businesses, Cudd Pressure Control ("Cudd") and Patterson Services ("Patterson"), have been in operation for more than 20 years. Effective February 28, 2001, RPC completed the
+spin-off of its powerboat manufacturing business through a distribution of shares of Marine Products Corporation ("Marine Products"). See "Discontinued Operation" for additional
+information. 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of
+oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected international markets. The services
+and equipment provided include among other things, (1) snubbing services, (2) coiled tubing services, (3) pressure pumping services, (4) marine services,
+(5) firefighting and well control, and (6) the rental of drill pipe and other specialized oilfield equipment. RPC acts as a holding company for its operating subsidiaries, Cudd Pressure
+Control, Inc., Patterson Services, Inc. and Patterson Tubular Services, Inc. together with several smaller non-core businesses. 
+RPC's
+service lines have been aggregated into two reportable oil and gas services business segments—Technical Services and Support Services—because of the
+similarities between the financial performance and approach to managing these service lines within each of the segments as well as the economic and business conditions impacting their business
+activity levels. The other business segment includes information concerning RPC's business units that do not qualify for separate segment reporting. These business units include an overhead crane
+fabricator, and other non-oilfield operations. 
+Technical
+Services include RPC's oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer's well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services business
+segment consists primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and
+casing installation services. The principal markets for this 
+2 
+business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and international locations including primarily Africa,
+Latin America and Canada. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support
+Services include RPC's oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels, and oilfield training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, Gulf of Mexico and mid-continent regions. Customers include
+domestic operations of major multi-national and independent oil and gas producers. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Snubbing. Snubbing involves using a high-pressure workover rig that permits an operator to repair damaged casing,
+production tubing and down-hole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace down-hole equipment in
+a pressurized environment. Customers benefit because these operations can be performed without removing the pressure from or "killing" the well. Since snubbing is a very hazardous process that entails
+high risk, the snubbing segment of the oil and gas services industry is limited to a few operators who have the experience and knowledge required to safely and efficiently perform such services. 
+Coiled Tubing. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and
+functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a diameter of less than five inches manufactured in continuous lengths of thousands
+of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal
+advantages of employing coiled tubing in a workover include: (i) not having to "shut-in" the well during such operations, (ii) the ability to reel continuous coiled tubing in
+and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit. 
+Pressure Pumping Services. Cudd provides pumping services to customers throughout the Gulf Coast and
+mid-continent regions of the United States. Cudd utilizes complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The
+mobility of this equipment permits Cudd to provide pressure pumping services in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants,
+acid and bulk chemical additives. Generally, these items are available from several suppliers, and Cudd utilizes more than one supplier for each item. Pressure Pumping Services offered include: 
+Fracturing—Fracturing
+services are performed to enhance the production of oil and natural gas from formations where the well's natural flow is restricted due to permeability issues. The
+fracturing process consists of pumping a fluid gel into a cased well at sufficient pressure to "fracture" the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in
+the gel, is pumped into the fracture to prop it open. In some cases, fracturing is performed by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+3 
+Acidizing—Acidizing
+services are performed to enhance the flow rate of oil and natural gas from wells with reduced flow caused by formation damage due to drilling or completion fluids, or
+the buildup over time of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in
+the formation, thereby eliminating obstacles to the flow of oil and natural gas. 
+Nitrogen. There are a number of uses for nitrogen, an inert gas, in providing services to our oilfield customers. Used alone,
+it is effective in displacing fluids in various oilfield applications, including underbalanced drilling and pipeline purging. 
+Well Control. Cudd Pressure Control specializes in responding to and controlling oil and gas well emergencies, including
+blowouts and well fires domestically and internationally. In connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last five years, Cudd has responded to well control situations in several international locations including Argentina, Australia,
+Bolivia, Colombia, Egypt, India, Peru, Taiwan and Venezuela. 
+Cudd
+Pressure Control's professional firefighting staff has more than 340 years of aggregate industry experience in responding to well
+fires and blowouts. This team of 17 experts responds to well control projects where hydrocarbons are escaping from a well bore, regardless of whether a
+fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of
+thousands of dollars per day in production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work.
+Additionally, less critical events frequently occur in connection with the drilling of new wells into high-pressure reservoirs. In these situations, Cudd is called upon to supervise and
+assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Down-hole Tools. Cudd Pressure Control's division, ThruTubing Solutions (TTS) provides proprietary
+down-hole motors and fishing tools to operators and service companies throughout the oil and gas industry. TTS' experience for reliable tool services allows it to work with virtually any
+coiled tubing unit or snubbing unit that is equipped for the task. 
+Wireline Services. Cudd provides mechanical wireline services. A wireline unit is a spooled wire that can be unwound and
+lowered into a well carrying various types of tools. Wireline services are used for a variety of purposes, such as: accessing a well to assist in data acquisition or logging activities, fishing tool
+operations to retrieve lost or broken equipment, pipe recovery, and remedial activities. In addition, wireline services are an integral part of plug and abandonment services. 
+Special Services. When a valve malfunctions, the only solution may be to drill out the gate or the plug. If pressure is
+trapped, hot-tapping, a technique of drilling into a medium that is under pressure, is one method of relieving that pressure. Cudd Pressure Control maintains hot-tapping and
+valve drilling
+equipment capable of drilling out valve seats in an environment with up to 15,000 psi working pressure and hydrogen sulfide. In order to isolate wellheads, valves and other circulating equipment from
+subsurface or upstream pressure, Cudd Pressure Control also performs freezing operations. 
+Casing and Torque-Turn Services. Casing and laydown principally consists of installing casing and production
+tubing into a wellbore. Casing is run to protect the structural integrity of the wellbore and to seal various production zones in the well. These services are normally provided during the drilling and
+completion phases of a well. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases. 
+4 
+Torque-Turn
+is used on tubulars in the deeper, higher pressure gas wells where connection integrity and leak resistance are most critical. By monitoring the makeup of
+connections with both torque and turns simultaneously, we are able to achieve the optimum bearing pressure between the connection. The level of bearing pressure directly affects the leak resistance of
+the connection. The use of the Torque-Turn system allows us to obtain the maximum bearing pressure without permanently deforming the material. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools. RPC rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and
+workover activities. The drilling and operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the well
+area and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their inventories with rental tools instead of maintaining a complete
+inventory of tools. RPC is strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico and mid-continent regions. 
+RPC,
+through Patterson Rental Tools, offers a broad range of rental tools including: 
+Blowout Preventors 
+High Pressure Manifolds 
+Coflexip Hoses 
+Hydraulic Torque Wrenches 
+Drill Collars 
+Power Tongs 
+Drill Pipe 
+Pressure Control Equipment 
+Flow Iron 
+Test Pumps 
+Gravel Pack Equipment 
+Tubing 
+Handling Tools 
+Tubulars 
+Hevi-wate 
+Tubular Handling Tools 
+Marine Services. A liftboat is a self-propelled, self-elevating work platform with legs, cranes and
+living accommodations. Our fleet consists of five liftboats, two of which have leg lengths of 200 feet or more. Upon arriving at a destination, a liftboat hydraulically lowers its legs until they are
+positioned on the ocean floor, and then jacks up until the work platform is sufficiently above the water level. Once positioned, the stability, open deck area, crane capacity, and relatively low cost
+of operation make liftboats ideal work platforms for a wide range of offshore activity from platform construction to plug and abandonment services. Our liftboats have either one or two cranes with
+lift capacities up to 75 tons. A liftboat's capability to reposition at a work site or to move to another location within a short time adds to its versatility. In addition, liftboat services are also
+highly complementary to RPC's service lines within the Technical Services business segment as it relates to providing services offshore. 
+Pipe Inspection and Handling Services. Pipe inspection services involve the inspection and testing of the integrity of pipe
+used in oil and gas wells. These services are provided primarily at RPC's inspection yards located on a water channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on tubular
+inspection services to avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such tubular failures are expensive and in some cases catastrophic RPC's yard in Houston,
+Texas is equipped with bulkhead waterfronts, large capacity cranes, specially designed forklifts, and a computerized inventory system to serve a variety of other storage and handling issues. 
+Well Control School. Well Control School provides industry and government accredited training for the oil and gas industry.
+Well Control School provides this training in various formats including 
+5 
+conventional classroom training, interactive computer training and mobile simulator training. Well Control School also develops customized training solutions for clients. 
+Energy Personnel International. Energy Personnel International provides consultants to the oil and gas industry to meet
+customers' needs for staff engineering and wellsite management. 
+Industry 
+United States. The United States represents the largest single oilfield services market in the world. RPC provides its
+services to its U.S. customers through a network of strategic locations including the Gulf of Mexico, the mid-continent, the southwest and the Rocky Mountains. Demand for RPC's services in
+the U.S. is driven by the current and projected prices of oil and natural gas and the resulting drilling and production activity levels. Our business tends to be extremely volatile and fluctuates with
+the price level of these commodities and customer production-enhancement activities. 
+Due
+to aging oilfields and lower-cost sources of oil internationally, drilling activity in the U.S. has declined more than 75% from its peak in 1981. Record low drilling
+activity levels were experienced in 1986, 1992 and again in 1999, with April 1999 recording the lowest U.S. drilling rig count in recorded history. 
+Currently,
+the industry is in the midst of a decrease in drilling activity in North America. At the end of 2001, there were 887 working drilling rigs domestically compared to 1,114 at
+the end of 2000, a one year decrease of approximately 20 percent. Since 1991, gas drilling rigs have typically represented just over 50 percent of the total drilling rig count. However,
+gas-directed drilling rigs have averaged approximately 80 percent of the total domestic drilling rig count since the record low seen in the second quarter of 1999. Demand for
+natural gas is continuing to rise, primarily as a result of increased emphasis on gas-fired power generation. Based on the current demand for natural gas as well as the high well depletion
+rates experienced over the past several years, it is anticipated that gas-directed drilling will represent at least 70 percent of the total drilling rig count in the foreseeable
+future. 
+Thus,
+in North America the demand for our services and products associated with natural gas development is currently more robust than demand related to oil drilling. We expect that the
+tremendous downturn in domestic drilling activity that took place in the fourth quarter of 2001 will continue during the first part of 2002. Drilling activity, and demand for our services, will
+increase when the domestic economy recovers and current high storage levels of natural gas decrease. 
+International. RPC operates in several countries including the major international oil and natural gas producing areas of
+Algeria, Argentina, Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela. RPC provides services to its international customers through wholly-owned foreign subsidiaries or
+branch locations. The international market is somewhat less volatile than the
+U.S. market although prone to risk of political uncertainties. Due to the significant investment requirement and complexity of international projects, drilling decisions relating to such projects tend
+to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more operating stability than the typical independent producer in the U.S. International activities have been increasingly important
+to RPC's results of operations since 1995, when RPC implemented a strategy to expand its international presence. Refer to Note 13 in the Notes to Consolidated Financial Statements for further
+details. 
+Growth Strategies 
+RPC's primary objective is to provide stockholders with excellent long-term returns on their investment through income growth and asset appreciation.
+This objective will be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while 
+6 
+improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected areas and markets in which there exist opportunities for higher
+market growth or penetration or enhanced returns through consolidations or through the provision of proprietary value-added products and services. RPC intends to focus on specific market segments in
+which it believes that it has a competitive advantage or there exists significant growth potential. 
+RPC
+seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil
+and gas services industry, RPC believes a number of attractive acquisition opportunities exist. The oil and gas services business includes a small number of dominant global competitors and a
+significant number of locally oriented businesses, many of which tend to be viable acquisition targets. 
+Customers 
+Demand for RPC's services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity worldwide. RPC's principal customers consist of major and independent oil and natural gas producing companies. During 2001, RPC
+provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of consolidated revenues. While the loss of certain of RPC's largest customers could
+have a material adverse effect on Company revenues and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of
+any of its largest customers. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. The products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of activity in major markets, general economic conditions and
+governmental regulation. RPC competes with the oil and gas industry's largest integrated oilfield services companies. RPC believes that the principal competitive factors in the market areas that it
+serves are product and service quality, availability, price and technical proficiency. 
+Facilities/Equipment 
+RPC's equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and
+offshore customers. RPC's principal executive offices in Atlanta, Georgia are leased. RPC believes that its facilities are adequate for its current operations. RPC owns and operates five offshore
+liftboats. For additional information with respect to RPC's lease commitments, see Note 10 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC's business is significantly affected by state and federal laws and other regulations relating to the oil and gas industry. RPC cannot predict the level of
+enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or
+the effect such changes may have on it, its businesses or financial condition. 
+7 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC's operations. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Employees 
+As of December 31, 2001, RPC had approximately 1,500 employees. None of the employees is represented by a union or covered by a collective bargaining
+agreement. RPC believes that it has good relations with its employees. 
+Discontinued Operation 
+In January 2000, RPC announced plans to spin-off Chaparral Boats, Inc. ("Chaparral"), the recreational powerboat manufacturing business
+of RPC, to RPC's stockholders. RPC accomplished the spin-off by contributing 100% of the issued and outstanding stock of Chaparral to Marine Products, a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders effective February 28, 2001. As part of the transaction, RPC's stockholders received 0.6 shares
+of Marine Products common stock for every one share of RPC common stock owned as of February 16, 2001, the record date for the spin-off. Marine Products is listed on the American
+Stock Exchange and traded under the ticker symbol MPX. 
+For
+the first two months of 2001 and for the twelve months of 2000 and 1999, RPC's powerboat manufacturing business segment has been classified for accounting purposes as a discontinued
+operation in light of the spin-off of that business to RPC stockholders. 
+Risk Factors 
+Demand for our products and services is affected by the volatility of oil prices. 
+Oil prices affect demand throughout the oil and natural gas industry, including the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital expenditures of our customers related to the exploration and production of oil and natural gas. When these expenditures
+decline, our customers' demand for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react
+to declining oil and gas prices by reducing expenditures. This would adversely affect our business. A prolonged low level of
+activity in the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of operations. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services of each of our principal industry segments are sold in highly
+competitive markets, and our revenues and earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity and major markets, general economic
+conditions, and governmental regulation. We compete with the oil and gas industry's largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas
+that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and quality service is good,
+we cannot assure you that we will be able to maintain our competitive position. 
+8 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and will continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in
+connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own business. Any inability on our part to consolidate and manage the growth from acquired businesses could have a material
+adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in the Gulf of Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns, our
+crews may operate more days in some periods than others. Rainy weather, hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the year may also affect our
+operations. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control. 
+Our inability to attract and retain skilled workers may impair growth potential and profitability. 
+Our ability to remain productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The demand for skilled oilfield employees is high and the supply is very limited. A significant increase in the wages paid by
+competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could be
+diminished and our growth potential could be impaired. 
+Our inability to perform services for a number of our large existing customers could have a material adverse effect on our business and operations. 
+Our inability to continue to perform services for a number of our large existing customers could have a material adverse effect on our business and operations.
+Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that
+customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our
+trade receivables. We maintain reserves for estimated credit losses. 
+Our business has potential liability for personal injury and property damage claims. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur,
+this could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a
+location where our equipment and services are used. This could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. This could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will
+be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims that may arise. 
+9 
+Our operations may be affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level
+of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court
+rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations for
+economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore
+and onshore operations. We believe that our present operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also
+believe that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether
+environmental laws will in the future materially adversely affect our operations and financial condition. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in Africa, Canada and Latin America and other foreign countries, although presently limited, are subject to risks inherent in doing business in
+foreign countries. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. Although it is impossible to predict the likelihood of such occurrences or their effect on our operations, our management believes that these risks are acceptable. However, the
+occurrence of any one of these events could have a material adverse effect on our operations. 
+Our common stock price may be adversely affected by changes in oil and gas prices and the supply and demand for oil and gas. 
+Historically, and in recent months in particular, the market price of common stock of companies engaged in the oil and gas services industry has been highly
+volatile. Likewise, the market price of our common stock has varied significantly in the past. Changes in oil and natural gas prices, changes in the demand for oil and natural gas exploration, and
+changes in the supply and demand for oil and natural gas have all been factors affecting the price of our common stock. 
+ITEM 2. PROPERTIES 
+RPC owns or leases 59 offices and operating facilities. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably
+anticipated future needs. Descriptions of the major facilities of continuing operations are as follows: 
+Owned Locations 
+Houston, Texas—Pipe storage terminal, inspection shed, and pipe coating facility 
+Irving,
+Texas—Crane fabrication plant 
+Houma,
+Louisiana—Oil and gas administrative office 
+Morgan
+city, Louisiana—Pipe Cleaning Facility 
+ITEM 3. LEGAL PROCEEDINGS 
+RPC is a party to various routine legal proceedings primarily involving commercial claims, workers' compensation claims and claims for personal injury. RPC
+insures against these risks to the extent 
+10 
+deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will in every case fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome
+of all such proceedings, even if determined adversely, would not have a material adverse effect on RPC's business or financial condition. 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+There were no matters submitted to a vote of security holders during the fourth quarter of 2001. 
+11 
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 
+Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors' meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and
+terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected 
+to Office 
+R. Randall Rollins Chairman of the Board and Chief Executive Officer 
+70 
+1/24/84 
+Richard A. Hubbell President and Chief Operating Officer 
+57 
+1/27/87 
+Linda H. Graham Vice President and Secretary 
+65 
+1/27/87 
+Ben M. Palmer Vice President, Chief Financial Officer and Treasurer 
+41 
+7/8/96 
+PART II 
+Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 
+RPC common stock is listed for trading on the New York Stock Exchange under the symbol RES. At the close of business on December 31, 2001, there were
+approximately 2,500 holders of record of common stock. The following table sets forth the high and low prices of RPC's common stock for each quarter in the years ended December 31, 2001 and
+2000: 
+2001 
+2000 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+15.350 
+$ 
+10.400 
+$ 
+0.035 
+$ 
+9.750 
+$ 
+5.375 
+$ 
+0.035 
+Second 
+16.300 
+11.450 
+0.025 
+10.750 
+8.938 
+0.035 
+Third 
+17.900 
+11.400 
+0.025 
+14.625 
+9.500 
+0.035 
+Fourth 
+17.900 
+12.300 
+0.025 
+15.625 
+10.000 
+0.035 
+The
+Company has paid cash dividends since the third quarter of 1997. The Company expects to continue to pay cash dividends, subject to the earnings and financial condition of the Company
+and other relevant factors. After taking into consideration the spin-off in February 2001, the Company reduced the cash dividend in the second quarter of 2001 to $0.025 per share
+from $0.035 per share. 
+12 
+Item 6. Selected Financial Data 
+The following summary financial data of RPC highlights selected historical financial data and should be read in conjunction with the consolidated financial
+statements included elsewhere in this document. 
+STATEMENT OF INCOME DATA: 
+Year Ended December 31, 
+2001 
+2000 
+1999 
+1998 
+1997 
+(In thousands, except employee, per share amounts and percentages) 
+Revenues 
+$ 
+264,942 
+$ 
+184,215 
+$ 
+107,585 
+$ 
+140,777 
+$ 
+150,770 
+Cost of services rendered and goods sold 
+148,573 
+107,246 
+71,439 
+83,691 
+90,046 
+Gross profit 
+116,369 
+76,969 
+36,146 
+57,086 
+60,724 
+Selling, general and administrative expenses 
+49,747 
+34,630 
+23,364 
+30,529 
+27,694 
+Depreciation and amortization 
+25,434 
+17,805 
+15,837 
+14,877 
+11,857 
+Operating profit (loss) 
+41,188 
+24,534 
+(3,055 
+) 
+11,680 
+21,173 
+Interest (expense) income 
+(65 
+) 
+1,443 
+1,485 
+1,783 
+2,162 
+Income (loss) from continuing operations before income taxes 
+41,123 
+25,977 
+(1,570 
+) 
+13,463 
+23,335 
+Income tax provision (benefit) 
+15,627 
+9,850 
+(603 
+) 
+5,112 
+7,651 
+Income (loss) from continuing operations 
+25,496 
+16,127 
+(967 
+) 
+8,351 
+15,684 
+Income from discontinued operation, net of income taxes 
+1,486 
+13,961 
+9,118 
+7,674 
+6,561 
+Net income 
+$ 
+26,982 
+$ 
+30,088 
+$ 
+8,151 
+$ 
+16,025 
+$ 
+22,245 
+Earnings per share—basic: 
+Income (loss) from continuing operations 
+$ 
+0.91 
+$ 
+0.58 
+$ 
+(0.03 
+) 
+$ 
+0.29 
+$ 
+0.54 
+Income from discontinued operation 
+0.05 
+0.50 
+0.32 
+0.26 
+0.22 
+Net income 
+$ 
+0.96 
+$ 
+1.08 
+$ 
+0.29 
+$ 
+0.55 
+$ 
+0.76 
+Earnings per share—diluted: 
+Income (loss) from continuing operations 
+$ 
+0.89 
+$ 
+0.57 
+$ 
+(0.03 
+) 
+$ 
+0.29 
+$ 
+0.53 
+Income from discontinued operation 
+0.05 
+0.49 
+0.32 
+0.26 
+0.22 
+Net income 
+$ 
+0.94 
+$ 
+1.06 
+$ 
+0.29 
+$ 
+0.55 
+$ 
+0.75 
+OTHER DATA: 
+EBITDA(a) 
+$ 
+66,724 
+$ 
+42,529 
+$ 
+12,907 
+$ 
+26,617 
+$ 
+33,208 
+Gross profit margin percent 
+43.9 
+% 
+41.8 
+% 
+33.6 
+% 
+40.6 
+% 
+40.3 
+% 
+Operating margin percent 
+15.5 
+% 
+13.3 
+% 
+(2.8 
+%) 
+8.3 
+% 
+14.0 
+% 
+Net cash provided by continuing operations 
+$ 
+55,938 
+$ 
+11,272 
+$ 
+16,419 
+$ 
+16,808 
+$ 
+23,462 
+Net cash used for investing activities 
+(52,817 
+) 
+(19,890 
+) 
+(16,352 
+) 
+(17,145 
+) 
+(24,680 
+) 
+Net cash used for financing activities 
+(4,283 
+) 
+(4,392 
+) 
+(9,388 
+) 
+(13,233 
+) 
+(1,010 
+) 
+Depreciation and amortization(b) 
+25,536 
+17,995 
+15,962 
+14,937 
+12,035 
+Capital expenditures 
+$ 
+45,850 
+$ 
+35,526 
+$ 
+20,319 
+$ 
+28,840 
+$ 
+19,800 
+Employees at end of period(c) 
+1,533 
+1,487 
+1,066 
+1,043 
+1,253 
+BALANCE SHEET DATA: 
+Accounts receivable, net 
+$ 
+46,928 
+$ 
+55,485 
+$ 
+33,454 
+$ 
+23,080 
+$ 
+30,550 
+Working capital 
+41,124 
+47,794 
+25,851 
+28,827 
+40,043 
+Property, plant and equipment, net 
+115,046 
+85,032 
+68,758 
+64,438 
+51,381 
+Total assets(d) 
+202,402 
+277,915 
+235,715 
+219,677 
+217,239 
+Long-term debt 
+2,937 
+848 
+1,547 
+636 
+1,315 
+Total stockholders' equity(d) 
+$ 
+156,436 
+$ 
+169,319 
+$ 
+142,808 
+$ 
+143,066 
+$ 
+139,376 
+(a) EBITDA
+represents income (loss) from continuing operations before income taxes and interest income, plus depreciation and amortization. EBITDA is not presented as a substitute for
+income from operations, net income or net cash provided by operating
+activities. RPC has presented EBITDA data (which is not a measure of financial performance under accounting principles generally accepted in the United States) because such data is used by certain
+investors to analyze and compare companies on the basis of operating performance, leverage and liquidity, and to determine a company's ability to service debt. 
+13 
+(b) Depreciation
+and amortization was derived from the statement of cash flows. This amount differs from depreciation and amortization presented on the statement of income due to
+depreciation related to the manufacturing of goods which is included in cost of services rendered and goods sold.
+(c) Represents
+employees of continuing operations for all periods presented.
+(d) Includes
+assets and stockholders' equity associated with the discontinued operation prior to 2001. 
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+The following discussion should be read in conjunction with "Selected Financial Data," and the "Consolidated Financial Statements" included elsewhere in this
+document. See also "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION" on page 2. 
+Overview 
+RPC provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and
+development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and selected international markets. 
+Critical Accounting Policies 
+The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the
+industry, and information available from other
+outside sources, as appropriate. The Company believes that of its significant accounting policies the following involve a higher degree of judgment and complexity: 
+Allowance
+for Doubtful Accounts—Accounts receivable are reduced by an allowance for amounts that may not be collected in the future. Substantially all of the Company's
+receivables are due from oil and gas exploration and production companies in the United States, selected international locations, and foreign national owned oil companies. We have established credit
+evaluation procedures that seek to minimize the amount of business we conduct with higher risk customers. Our customers' ability to pay is directly related to their ability to generate cash flow on
+their projects and is significantly affected by the volatility in the price of oil and natural gas. The estimated allowance for doubtful accounts is based on management's evaluation of the overall
+trends in the oil and gas industry, financial condition of our customers, our historical collection experience, and in the case of oil companies owned by foreign governments, our observations about
+the economic and political environment of the related country and region. We have favorable collections experience with most of our customers except for certain companies owned by foreign governments
+that tend to extend their payments. If the contracts with these customers are not renewed, or if we elect to no longer perform work in that particular country, collection risk could increase. 
+Income
+Taxes—The determination of our income tax provision is complex due to operations in several tax jurisdictions outside the United States which may be subject to certain
+risks which ordinarily would not be expected in the United States. Tax regimes in certain jurisdictions are subject to significant changes which may be applied on a retroactive basis. If this were to
+occur, our tax expense could be materially different than the amounts reported. Furthermore, in determining the valuation allowance related to deferred tax assets, we estimate taxable income into the
+future and determine the magnitude of deferred tax assets which are more likely than not to be realized. Future taxable income could be materially different than amounts estimated, in which case a
+valuation allowance would need to be created. 
+14 
+Accrued
+Insurance Expenses—The Company self insures, up to specified limits, certain risks related to general liability, workers' compensation, vehicle and equipment
+liability. The cost of claims under the self-insurance program is estimated and accrued as the claims are incurred although actual settlement of the claims may not be made until future
+periods. These claims are closely monitored and the cost estimates are revised as developments occur relating to such claims. To estimate the ultimate cost of the claims, the Company applies loss
+development factors to its outstanding claims based on our own historical experience and available industry statistical data. The noncurrent portion of these estimated outstanding claims is classified
+as long-term accrued insurance expenses. The ultimate cost of these claims depends upon many events beyond our control and could significantly vary from our current estimates. 
+Results of Operations 
+Year Ended December 31, 2001 Compared To Year Ended December 31, 2000 
+Revenues. RPC generated revenues of $264,942,000 in 2001 compared to $184,215,000 in 2000, an increase of $80,727,000 or
+44 percent. Revenues increased as a result of improvements in overall customer activity levels domestically and internationally, as the average domestic rig count was 1,207 during the first
+three quarters of 2001 compared to 1,114 at the end of 2000. Also contributing to the strength of reported revenues was the addition of new equipment through asset purchases and acquisitions of
+businesses. 
+Beginning
+in the fourth quarter of 2001, the domestic rig count experienced its second steepest quarterly decline since 1992. At the end of the fourth quarter of 2001, the number of
+active drilling rigs in the United States was approximately 31 percent lower than its July 2001 peak. Other factors that contributed to the decreased revenues in the fourth quarter of
+2001 were the lower price for natural gas, terrorism and the war in Afghanistan, economic recession, and political instability in Venezuela. The demand for our services decreased in the fourth quarter
+of 2001 as many energy companies responded to the lower prices for oil and natural gas by curtailing their capital expenditures. 
+Cost of Services Rendered and Goods Sold. Cost of services rendered and goods sold were $148,573,000 in 2001 compared to
+$107,246,000 in 2000. Cost of services rendered and goods sold, as a percent of revenues, decreased from 58 percent in 2000 to 56 percent in 2001. This improvement resulted from an
+improved operating environment allowing for better utilization of our equipment and personnel and improved pricing. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses were $49,747,000 in 2001 compared
+to $34,630,000 in 2000. This increase of $15,117,000, or 44 percent, was due to additional overhead required to administer the significant growth in the Company's oil and gas service lines.
+Selling, general and administrative expenses as a percent of revenues held steady at 19 percent in 2001and 2000. 
+Depreciation and Amortization. Depreciation and amortization were $25,434,000 in 2001, an increase of $7,629,000 or
+43 percent compared to $17,805,000 in 2000. This increase in depreciation and amortization results primarily from capital expenditures relating to the pressure pumping service line, and various
+maintenance and growth capital expenditures in other oil and gas service lines. 
+Operating Profit (Loss). Operating profit was $41,188,000 in 2001, an increase of $16,654,000, or 68 percent, compared
+to $24,534,000 in 2000. This significant improvement in operating profit resulted from improvements in industry conditions in the first three quarters of 2001, offset by the fourth quarter's sharp
+retraction and weakened industry conditions. 
+Interest (Expense) Income. Interest expense was $65,000 in 2001 compared to interest income of $1,443,000 in 2000. RPC
+generates interest income from investment of its available cash primarily in 
+15 
+marketable securities. The decrease in interest income results primarily from a decrease in average investable cash balances. See "Liquidity and Capital Resources" for additional explanations. 
+Income (Loss) from Continuing Operations (net of income taxes). RPC's income from continuing operations was $25,496,000, an
+increase of $9,369,000 or 58 percent compared to $16,127,000 in 2000. This improvement is consistent with the increases in operating profit, as the income tax rate was the same in both periods. 
+Income from Discontinued Operation (net of income taxes). RPC's powerboat manufacturing segment, classified as a discontinued
+operation, earned $1,486,000 in 2001 compared to $13,961,000 in 2000. This decrease was due primarily to the fact that the discontinued operation was included in RPC's consolidated financial results
+for the first two months of 2001 prior to its spin-off, compared to being included for the full year of 2000. 
+Year Ended December 31, 2000 Compared To Year Ended December 31, 1999 
+Revenues. RPC generated revenues of $184,215,000 in 2000 compared to $107,585,000 in 1999, an increase of $76,630,000 or
+71 percent. Revenues increased as a result of improvements in overall customer activity levels domestically and internationally, especially in Venezuela, the start-up of the
+pressure pumping service line, and several well control jobs in the United States and various international locations, including Egypt and Argentina. 
+Beginning
+in the fourth quarter of 1999, revenues began to improve as customer spending increased in response to higher oil and natural gas prices. As of the end of 2000, the number of
+active drilling rigs in the United States was approximately 40 percent higher than at the end of 1999. Our services that increase production from existing wells have been increasingly in demand
+as production companies seek
+to take advantage of the higher prices for oil and natural gas; there was less customer emphasis on exploration activities until the last two quarters of 2000. 
+Cost of Services Rendered and Goods Sold. Cost of services rendered and goods sold were $107,246,000 in 2000 compared to
+$71,439,000 in 1999. Cost of services rendered and goods sold, as a percent of revenues, decreased from 66 percent in 1999 to 58 percent in 2000. This improvement resulted from an
+improved operating environment allowing for better utilization of our equipment and personnel. In addition, the increasing industry demand for oil and gas services allowed for slightly improved
+pricing. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses were $34,630,000 in 2000 compared
+to $23,364,000 in 1999. This increase of $11,266,000, or 48 percent, was due to additional overhead required to administer the significant growth in the Company's oil and gas services business
+lines. Selling, general and administrative expenses as a percent of revenues fell from 22 percent in 1999 to 19 percent in 2000. 
+Depreciation and Amortization. Depreciation and amortization were $17,805,000 in 2000, an increase of $1,968,000 or
+12 percent compared to $15,837,000 in 1999. This increase in depreciation and amortization results primarily from capital expenditures relating to the new pressure pumping service line, and
+various maintenance and growth capital expenditures in other oil and gas service lines. 
+Operating Profit (Loss). Operating profit was $24,534,000 in 2000, an increase of $27,589,000 compared to an operating loss
+of $3,055,000 in 1999. This significant improvement in operating profit resulted from improvements in industry conditions in 2000 compared to 1999. 
+Interest Income. Interest income was $1,443,000 in 2000 compared to $1,485,000 in 1999. RPC generates interest income from
+investment of its available cash primarily in overnight securities and 
+16 
+short-term marketable securities. The decrease in interest income results primarily from a decrease in average investable cash balances. See "Liquidity and Capital Resources" for
+additional explanations. 
+Income (Loss) from Continuing Operations (net of income taxes). RPC's results from continuing operations improved $17,094,000
+from a loss of $967,000 in 1999 to an income of $16,127,000 in 2000. This improvement is consistent with the increases in operating profit, as the income tax rate was the same in both periods. 
+Income from Discontinued Operation (net of income taxes). RPC's powerboat manufacturing segment, classified as a discontinued
+operation, earned $13,961,000 in 2000 compared to $9,118,000 in 1999, an
+increase of $4,843,000 or 53 percent. This increase was primarily due to the after-tax gain of $4,227,000 from the settlement of a claim. 
+Liquidity and Capital Resources 
+The Company's decisions about the amount of cash to be used for investing and financing purposes are influenced by our capital position and the amount of cash to
+be provided by operations. In February 2001, the Company spun-off its powerboat manufacturing segment in a tax-free spin-off. Historically, the powerboat
+manufacturing segment has generated more cash than it has needed. To fund its investing and financing requirements in prior years, the Company's oil and gas services businesses have used cash from
+operations (cash provided by continuing operations), and excess cash generated by the powerboat manufacturing segment. In connection with the spin-off, the Company transferred payments and
+cash and marketable securities to this discontinued operation totaling $14,447,000 in 2001. Subsequent to the spin-off, the cash generated by the spun-off segment is no longer
+available to the Company. 
+During
+2001, cash and cash equivalents, and marketable securities decreased $12,458,000 from December 31, 2000. Cash provided by continuing operations during 2001 was $55,938,000,
+an increase of $44,666,000 compared to 2000. Cash used for investing activities and financing activities, excluding payments made to Marine Products, increased $18,371,000 from $24,282,000 in 2000 to
+$42,653,000 in 2001. In summary, the cash flows provided by continuing operations were used in the following investing and financing activities: (1) capital expenditures for purchases of new
+equipment and maintenance of existing equipment, (2) funding of purchases of businesses, (3) payment of dividends to stockholders, and (4) repurchases of Company common stock. 
+Cash
+provided by continuing operations was generated primarily from income from continuing operations (adjusted for depreciation and amortization) and lower working capital requirements
+at December 31, 2001. Accounts receivable decreased to $46,928,000 at December 31, 2001 compared to $55,485,000 at December 31, 2000. Federal income tax receivable increased
+$4,789,000 from an income tax payable at December 31, 2000. Accrued payroll and related expenses increased $4,061,000 due to higher management incentive bonuses. The decrease in accounts
+receivable and the increase in income tax receivable resulted from a significant decline in revenues and profit in the fourth quarter of 2001 caused by lower oil and gas customer activity levels.
+Customers were paying receivables faster than new receivables were being recorded, and the estimated federal income tax payment calculations during 2001 could not anticipate the sharp decline in
+income experienced in the fourth quarter of 2001. Higher management incentive bonuses resulted from the strong profitability for the full year of 2001. 
+Net
+cash used for investing activities, excluding payments to Marine Products, increased to $38,984,000 in 2001 from $19,890,000 in 2000. The increase was due to an increase in capital
+expenditures related to the purchase of revenue producing equipment, primarily in the Technical Services business segment. Capital expenditures were also made in 2001 related to RPC's acquisition of
+Sooner Testing and Mathews Energy Services. 
+17 
+Net
+cash used for financing activities, excluding payments to Marine Products, decreased to $3,669,000 in 2001 from $4,392,000 in 2000. This decrease was due to lower dividend payments
+due to a change in RPC's dividend per share, following the spin-off of its powerboat manufacturing segment. The decrease was also caused by an increase in debt and increase in the proceeds
+from the exercise of stock options. It was also offset by the increase in cash used to purchase and retire the Company's common stock. 
+Management
+has commenced preliminary discussions with a number of companies engaged in complementary businesses to explore the potential for mutually beneficial business arrangements.
+While none of these discussions has progressed to the point where RPC believes a particular transaction is probable, management believes that additional acquisitions, joint ventures and strategic
+alliances are likely. While RPC has historically completed acquisitions using a combination of cash and seller financing, RPC used its stock in the acquisition of Mathews Energy Services, and expects
+to use its stock as acquisition currency in future transactions. 
+The
+Company's obligations and commitments that require future payments include notes payable in connection with acquisitions and a capital lease, a bank line of credit, and certain
+non-cancelable operating leases. As of December 31, 2001, these obligations and commitments totaled approximately $9.4 million and require payments in 2002 of
+$3.1 million, and substantially all the remainder of $6.3 million is due during the period 2003 to 2005. 
+We
+believe the liquidity provided by our existing cash, cash equivalents and marketable securities, our overall strong capitalization, and cash expected to be generated from operations,
+will provide sufficient capital to meet our requirements for at least the next twelve months. We believe our liquidity will allow us to continue to grow and provide the opportunity to take advantage
+of business opportunities that may arise. 
+Related Party Transactions 
+Effective with the spin-off, the Company established a cash balance at Marine Products of approximately $15 million by transferring a total of
+$13.8 million in cash and marketable securities. See Note 8 to the consolidated financial statements for further information. Effective February 28, 2001, the Company began
+providing certain administrative services to Marine Products. The service agreements are more fully described in Note 2 to the consolidated financial statements. Charges from the Company (or
+from corporations which are subsidiaries of the Company) for such services aggregated approximately $868,000 in 2001. The Company's directors are also directors of Marine Products and certain officers
+are employees of both the Company and Marine Products. 
+Also,
+the Company periodically purchases in the ordinary course of business, products or services from vendors who are owned by significant officers or shareholders of RPC. During 2001,
+the total amounts paid to these affiliated parties totaled approximately $486,000. 
+New Accounting Standards 
+Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and
+reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all instruments as
+either assets or liabilities in the balance sheet and measure those instruments at fair value. As amended, the adoption of SFAS No. 133, effective for the Company as of January 1, 2001,
+did not impact the results of operations or financial condition of the Company as the Company is not a party to any derivative transactions that fall under the provisions of this statement. 
+18 
+In
+June 2001, the Financial Accounting Standards Board (FASB) approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
+Assets." SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires
+companies to cease amortizing goodwill that existed on June 30, 2001 after December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be
+amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce
+the fair value of a reporting unit below its carrying value. Beginning in the first quarter of 2002, if an impairment occurs, the adoption of SFAS No. 142 could have an adverse effect on the
+Company's future results of operations. No part of the Company's goodwill as of December 31, 2001 is considered impaired based on the provisions of SFAS No. 142. Adoption of SFAS
+No. 142 will increase the net income after taxes by approximately $245,000 in 2002 due to cessation of amortization of goodwill. 
+In
+June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses accounting and reporting for asset retirement costs of long lived
+assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company plans to adopt SFAS No. 143 in January 2003. Management has
+determined the adoption of this statement will not have a material effect on the Company's future results of operations. 
+In
+August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which clarifies accounting and reporting for
+assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company adopted SFAS
+No. 144 in January 2002. Management does not believe
+the adoption of this statement will have a material effect on the Company's future results of operations. 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+RPC maintains an investment portfolio, comprised of U.S. Government, corporate and municipal debt securities, which is subject to interest rate risk exposure.
+Also, as of December 31, 2001, RPC had debt with variable interest rates which exposes RPC to certain market risks. RPC has performed an interest rate sensitivity analysis using a duration
+model over the near term of the securities and the term of the debt with a 10 percent change in interest rates. RPC is not subject to material interest rate risk exposure based on this
+analysis, and no material changes in market risk exposures or how those risks are managed is expected. 
+As
+of December 31, 2001, RPC had accounts receivable of $47 million (net of an allowance for doubtful accounts of $4 million). RPC is subject to a concentration of
+credit risk because most of the accounts receivable are due from companies in the oil and gas industry. 
+19 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+CONSOLIDATED BALANCE SHEETS 
+RPC, Inc. and Subsidiaries 
+(in thousands except share information) 
+December 31, 
+2001 
+2000 
+ASSETS 
+Cash and cash equivalents 
+$ 
+4,275 
+$ 
+5,437 
+Marketable securities 
+6,460 
+3,888 
+Accounts receivable, net 
+46,928 
+55,485 
+Inventories 
+8,412 
+7,212 
+Deferred income taxes 
+6,270 
+6,837 
+Federal income taxes receivable 
+2,072 
+— 
+Prepaid expenses and other current assets 
+3,704 
+2,322 
+Current assets 
+78,121 
+81,181 
+Property, plant and equipment, net 
+115,046 
+85,032 
+Intangibles, net of accumulated amortization of $1,407 in 2001 and $1,189 in 2000 
+7,804 
+4,044 
+Marketable securities 
+— 
+13,868 
+Other assets 
+1,431 
+1,197 
+Net assets of discontinued operation 
+— 
+92,593 
+Total assets 
+$ 
+202,402 
+$ 
+277,915 
+LIABILITIES AND STOCKHOLDERS' EQUITY 
+Accounts payable 
+$ 
+12,075 
+$ 
+10,237 
+Accrued payroll and related expenses 
+12,031 
+7,108 
+Accrued insurance expenses 
+5,980 
+5,927 
+Accrued state, local and other taxes 
+2,896 
+3,804 
+Short-term debt 
+1,390 
+470 
+Other accrued expenses 
+2,625 
+2,904 
+Federal income taxes payable 
+— 
+2,937 
+Current liabilities 
+36,997 
+33,387 
+Payable to Marine Products Corporation 
+— 
+68,276 
+Long-term accrued insurance expenses 
+4,121 
+5,007 
+Long-term debt 
+2,937 
+848 
+Deferred income taxes 
+1,911 
+1,078 
+Total liabilities 
+45,966 
+108,596 
+Commitments and contingencies 
+Common stock, $.10 par value, 79,000,000 shares authorized, 28,690,690 shares issued in 2001, 28,303,019 shares issued in 2000 
+2,869 
+2,830 
+Capital in excess of par value 
+27,182 
+22,541 
+Earnings retained 
+127,246 
+143,948 
+Accumulated other comprehensive loss 
+(861 
+) 
+— 
+Total stockholders' equity 
+156,436 
+169,319 
+Total liabilities and stockholders' equity 
+$ 
+202,402 
+$ 
+277,915 
+The accompanying notes are an integral part of these statements. 
+20 
+CONSOLIDATED STATEMENTS OF INCOME 
+RPC, Inc. and Subsidiaries 
+(in thousands except per share data) 
+Years ended December 31, 
+2001 
+2000 
+1999 
+REVENUES 
+$ 
+264,942 
+$ 
+184,215 
+$ 
+107,585 
+Cost of services rendered and goods sold 
+148,573 
+107,246 
+71,439 
+Gross profit 
+116,369 
+76,969 
+36,146 
+Selling, general and administrative expenses 
+49,747 
+34,630 
+23,364 
+Depreciation and amortization 
+25,434 
+17,805 
+15,837 
+Operating profit (loss) 
+41,188 
+24,534 
+(3,055 
+) 
+Interest (expense) income 
+(65 
+) 
+1,443 
+1,485 
+Income (loss) from continuing operations before income taxes 
+41,123 
+25,977 
+(1,570 
+) 
+Income tax provision (benefit) 
+15,627 
+9,850 
+(603 
+) 
+Income (loss) from continuing operations 
+25,496 
+16,127 
+(967 
+) 
+Income from discontinued operation, net of income taxes of $834 in 2001, $8,591 in 2000 and $5,599 in 1999 
+1,486 
+13,961 
+9,118 
+Net income 
+$ 
+26,982 
+$ 
+30,088 
+$ 
+8,151 
+EARNINGS PER SHARE—BASIC 
+Income (loss) from continuing operations 
+$ 
+0.91 
+$ 
+0.58 
+$ 
+(0.03 
+) 
+Income from discontinued operation 
+0.05 
+0.50 
+0.32 
+Net income 
+$ 
+0.96 
+$ 
+1.08 
+$ 
+0.29 
+EARNINGS PER SHARE—DILUTED 
+Income (loss) from continuing operations 
+$ 
+0.89 
+$ 
+0.57 
+$ 
+(0.03 
+) 
+Income from discontinued operation 
+0.05 
+0.49 
+0.32 
+Net income 
+$ 
+0.94 
+$ 
+1.06 
+$ 
+0.29 
+The accompanying notes are an integral part of these statements. 
+21 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Three Years Ended December 31, 2001 
+Comprehensive 
+Income 
+Common 
+Stock 
+Capital in 
+Excess of 
+Par Value 
+Earnings 
+Retained 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Total 
+Balance, December 31, 1998 
+$ 
+2,888 
+$ 
+26,538 
+$ 
+113,640 
+$ 
+— 
+$ 
+143,066 
+Stock issued for stock incentive plans, net 
+14 
+758 
+(355 
+) 
+— 
+417 
+Stock purchased and retired 
+(76 
+) 
+(4,748 
+) 
+— 
+— 
+(4,824 
+) 
+Net Income/Comprehensive Income 
+$ 
+8,151 
+— 
+— 
+8,151 
+— 
+8,151 
+Dividends declared 
+— 
+— 
+(4,002 
+) 
+— 
+(4,002 
+) 
+Balance, December 31, 1999 
+$ 
+2,826 
+$ 
+22,548 
+$ 
+117,434 
+$ 
+— 
+$ 
+142,808 
+Stock issued for stock incentive plans, net 
+8 
+319 
+380 
+— 
+707 
+Stock purchased and retired 
+(4 
+) 
+(326 
+) 
+— 
+— 
+(330 
+) 
+Net Income/Comprehensive Income 
+$ 
+30,088 
+— 
+— 
+30,088 
+— 
+30,088 
+Dividends declared 
+— 
+— 
+(3,954 
+) 
+— 
+(3,954 
+) 
+Balance, December 31, 2000 
+$ 
+2,830 
+$ 
+22,541 
+$ 
+143,948 
+$ 
+— 
+$ 
+169,319 
+Stock issued for stock incentive plans, net 
+17 
+1,489 
+(298 
+) 
+— 
+1,208 
+Stock purchased and retired 
+(6 
+) 
+(820 
+) 
+— 
+— 
+(826 
+) 
+Spin-off of Marine Products Corporation 
+— 
+— 
+(40,250 
+) 
+— 
+(40,250 
+) 
+Stock issued in connection with purchase of business 
+28 
+3,972 
+— 
+— 
+4,000 
+Net Income 
+$ 
+26,982 
+— 
+— 
+26,982 
+— 
+26,982 
+Minimum pension 
+Liability adjustment, net of taxes of $528 
+(861 
+) 
+— 
+— 
+— 
+(861 
+) 
+(861 
+) 
+Comprehensive Income 
+$ 
+26,121 
+Dividends declared 
+— 
+— 
+(3,136 
+) 
+— 
+(3,136 
+) 
+Balance, December 31,2001 
+$ 
+2,869 
+$ 
+27,182 
+$ 
+127,246 
+$ 
+(861 
+) 
+$ 
+156,436 
+The accompanying notes are an integral part of these statements. 
+22 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Years ended December 31, 
+2001 
+2000 
+1999 
+OPERATING ACTIVITIES 
+Net income 
+$ 
+26,982 
+$ 
+30,088 
+$ 
+8,151 
+Noncash charges (credits) to earnings: 
+Depreciation and amortization 
+25,536 
+17,995 
+15,962 
+Gain on sale of equipment and property 
+(1,642 
+) 
+(1,849 
+) 
+(1,474 
+) 
+Deferred income tax (benefit) provision 
+1,400 
+(767 
+) 
+2,369 
+Income from discontinued operation 
+(1,486 
+) 
+(13,961 
+) 
+(9,118 
+) 
+(Increase) decrease in assets: 
+Accounts receivable 
+8,557 
+(22,031 
+) 
+(10,374 
+) 
+Inventories 
+(883 
+) 
+(1,284 
+) 
+830 
+Federal income taxes receivable 
+(2,072 
+) 
+1,806 
+1,867 
+Prepaid expenses and other current assets 
+(1,382 
+) 
+(536 
+) 
+(150 
+) 
+Other noncurrent assets 
+(234 
+) 
+(304 
+) 
+(169 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+1,838 
+(1,380 
+) 
+6,985 
+Federal income taxes payable 
+(2,717 
+) 
+2,937 
+— 
+Accrued payroll and related expenses 
+4,061 
+2,350 
+1,440 
+Accrued insurance expenses 
+(833 
+) 
+158 
+1,704 
+Other accrued expenses 
+(1,187 
+) 
+(1,950 
+) 
+(1,604 
+) 
+Net cash provided by continuing operations 
+55,938 
+11,272 
+16,419 
+Net cash provided by discontinued operation 
+— 
+13,600 
+7,619 
+Net cash provided by operating activities 
+55,938 
+24,872 
+24,038 
+INVESTING ACTIVITIES 
+Capital expenditures 
+(45,850 
+) 
+(35,526 
+) 
+(20,319 
+) 
+Purchase of businesses 
+(8,391 
+) 
+— 
+— 
+Proceeds from sale of assets 
+3,961 
+3,723 
+2,103 
+Net sale of marketable securities 
+11,296 
+11,913 
+3,252 
+Transfer of cash and marketable securities to discontinued operation 
+(13,833 
+) 
+— 
+— 
+Other 
+— 
+— 
+(1,388 
+) 
+Net cash used for investing activities 
+(52,817 
+) 
+(19,890 
+) 
+(16,352 
+) 
+FINANCING ACTIVITIES 
+Payment of dividends 
+(3,136 
+) 
+(3,954 
+) 
+(4,002 
+) 
+Payment to discontinued operation 
+(614 
+) 
+— 
+— 
+Reduction of debt 
+(241 
+) 
+(484 
+) 
+(680 
+) 
+Cash paid for common stock purchased and retired 
+(826 
+) 
+(330 
+) 
+(4,815 
+) 
+Proceeds received upon exercise of stock options 
+534 
+376 
+109 
+Net cash used for financing activities 
+(4,283 
+) 
+(4,392 
+) 
+(9,388 
+) 
+Net increase (decrease) in cash and cash equivalents 
+(1,162 
+) 
+590 
+(1,702 
+) 
+Cash and cash equivalents at beginning of year 
+5,437 
+4,847 
+6,549 
+Cash and cash equivalents at end of year 
+$ 
+4,275 
+$ 
+5,437 
+$ 
+4,847 
+The accompanying notes are an integral part of these statements. 
+23 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2001, 2000, and 1999 
+Note 1: Significant Accounting Policies 
+Principles of Consolidation 
+The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries ("RPC"or the "Company"). All material
+intercompany accounts and transactions have been eliminated. On February 28, 2001, the Company distributed the Powerboat Manufacturing Segment of the Company to RPC stockholders through a
+tax-free spin-off transaction. Accordingly, as discussed in Note 2, this segment has been accounted for as a discontinued operation and the accompanying consolidated
+financial statements for all periods presented have been restated to report separately the net assets, cashflows and operating results of this discontinued operation. 
+Nature of Operations 
+RPC provides a broad range of specialized oil and gas services and equipment primarily to independent and major oilfield companies engaged in the exploration,
+production and development of oil and gas properties in the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected international
+markets. These services and equipment include among other things, (1) snubbing services, (2) coiled tubing services, (3) pressure pumping services, (4) firefighting and
+well control, and (5) the rental of drill pipe and other specialized oilfield equipment. RPC acts as a holding company for its operating subsidiaries, Cudd Pressure Control, Inc.,
+Patterson Services, Inc. and Patterson Tubular Services, Inc. along with other smaller non-oilfield businesses. 
+Use of Estimates in the Preparation of Financial Statements 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
+assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
+and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant
+estimates are used in the determination of Allowance for Doubtful Accounts, Income Taxes and Accrued Insurance Expenses. 
+Revenues 
+The Company's revenue recognition policy is in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue
+Recognition in Financial Statements" which clarifies the basic criteria for recognizing revenue. RPC recognizes revenue when an agreement exists, prices are determinable, services and products are
+delivered and collectibility is reasonably assured. 
+Concentration of Credit Risk 
+Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. 
+24 
+Cash Equivalents 
+Highly liquid investments with original maturities of 3 months or less are considered to be cash equivalents. 
+Marketable Securities 
+RPC maintains cash equivalents and investments in several large, well-capitalized financial institutions, and RPC's policy disallows investment in any
+securities rated less than "investment grade" by national rating services. 
+Management
+determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designations as of each balance sheet date. Debt
+securities are classified as available-for-sale because the Company does not have the intent to hold the securities to maturity. Available-for-sale
+securities are stated at their fair values, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. As of December 31, 2001 and 2000, cost
+approximated fair value. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income.
+The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest
+income. 
+Investments
+with original maturities between 3 and 12 months are considered to be current marketable securities. Investments with original maturities greater than 12 months
+are considered to be noncurrent marketable securities. 
+Allowance for Doubtful Accounts 
+Accounts receivable are reduced by an allowance for estimated amounts that may not be collectible in the future. 
+Inventories 
+Inventories, which consist principally of (i) products which are consumed in RPC's services provided to customers, (ii) spare parts for equipment
+used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of cost (first-in,
+first-out basis) or market value. 
+Long-Lived Assets 
+RPC records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated
+by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and
+other assets, to determine if any impairments are other than temporary. Management believes that the long-lived assets in the accompanying balance sheets are appropriately valued. 
+Property, Plant and Equipment 
+Depreciation is provided principally on a straight-line basis over the estimated useful lives of assets. Annual provisions for depreciation are
+computed using the following useful lives: operating equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; and
+vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal with the resulting
+gain or loss credited or charged to income. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for 
+25 
+maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred. 
+Intangibles 
+Intangibles represent the excess of the purchase price over the fair value of net assets of businesses acquired and noncompete agreements related to businesses
+acquired. Intangibles are presented net of accumulated amortization and are amortized using the straight-line method over a period not exceeding 20 years or the period of the
+noncompete agreement. Amortization of intangibles for the years ended December 31, 2001, 2000, and 1999 amounted to approximately $880,000, $717,000, and $594,000. For the year ended
+December 31, 2001, goodwill totaling $5.9 million was amortized and the remaining goodwill of $2.8 million relating to an acquisition completed in July 2001 was not
+amortized. 
+See
+"New Accounting Standards" in this note for information regarding the effects of a new pronouncement on the Company's prospective accounting for goodwill and goodwill amortization. 
+Insurance Expenses 
+RPC self insures, up to specified limits, certain risks related to general liability, product liability, workers' compensation, and vehicle liability. The
+estimated cost of claims under the self-insurance program is accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may
+subsequently be revised based on developments relating to such
+claims. The non-current portion of these estimated outstanding claims is classified as long-term accrued insurance expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates
+in effect for the year in which the differences are expected to reverse. 
+Earnings per Share 
+Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," requires a basic earnings per share and diluted earnings per share
+presentation. The two calculations differ as a result of the dilutive effect of stock options and restricted shares included in diluted earnings per share, but excluded in basic earnings per share. A
+reconciliation of the weighted shares outstanding is as follows: 
+2001 
+2000 
+1999 
+Basic 
+28,077,514 
+27,843,921 
+28,177,251 
+Dilutive effect of stock options and restricted shares 
+515,288 
+426,355 
+— 
+Diluted 
+28,592,802 
+28,270,276 
+28,177,251 
+New Accounting Standards 
+SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments
+including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all instruments as either assets or liabilities in the balance sheet
+and measure those instruments at fair value. As amended, the adoption of SFAS No. 133, effective for the Company as of January 1, 2001, did not impact the results of operations or
+financial condition of the Company as the Company is not a party to any derivative transactions that fall under the provisions of this statement. 
+26 
+In
+June 2001, the Financial Accounting Standards Board ("FASB") approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
+Assets." SFAS No. 141 prospectively prohibits the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS
+No. 142 requires companies to cease amortizing goodwill that existed on June 30, 2001 after December 31, 2001. Any goodwill resulting from acquisitions completed after
+June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or
+circumstances change that would reduce the fair value of a reporting unit below its carrying value. Beginning in the first quarter of 2002, if an impairment occurs, the adoption of SFAS No. 142
+could have an adverse effect on the Company's future results of operations. No part of the Company's goodwill as of December 31, 2001 is considered impaired based on the provisions of SFAS
+No. 142. Adoption of SFAS No. 142 will increase net income after taxes by approximately $245,000 in 2002 due to cessation of amortization of goodwill. 
+In
+June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses accounting and reporting for asset retirement costs of
+long-lived assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company is required to adopt SFAS No. 143 in
+January 2003. Management has determined the adoption of this statement will not have a material effect on the Company's future results of operations. 
+In
+August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which clarifies accounting and reporting for
+assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company adopted SFAS
+No. 144 in January 2002. Management does not believe the adoption of this statement will have a material effect on the Company's future results of operations. 
+Note 2: Discontinued Operation 
+In January 2000, the Board of Directors of RPC announced that it planned to spin-off to stockholders the business conducted through Chaparral
+Boats, Inc. ("Chaparral"), RPC's Powerboat Manufacturing Segment (the "spin-off"). The spin-off transaction was approved by RPC's Board of Directors on
+February 12, 2001. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) ("Marine Products"), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. RPC stockholders received 0.6 shares of
+Marine Products Common Stock for each share of RPC Common Stock owned as of the record date. Based on an Internal Revenue Service Private Letter ruling, the spin-off was
+tax-free to RPC and RPC stockholders, except for cash received for any fractional shares. The spin-off was consummated on February 28, 2001, with 17,012,277 shares of
+Marine Products Common Stock distributed to RPC stockholders. 
+For
+the first two months of 2001 and for the twelve months of 2000 and 1999, the Powerboat Manufacturing Segment of RPC has been accounted for as a discontinued operation and,
+accordingly, the accompanying consolidated financial statements of RPC have been restated to report separately the 
+27 
+operating results of this discontinued operation. For 2000, the net assets of the discontinued operation had been reported separately and can be summarized as follows: 
+December 31, 
+2000 
+(in thousands) 
+Current assets 
+$ 
+21,000 
+Property, plant and equipment, net 
+9,796 
+Goodwill, net 
+3,992 
+Receivable from RPC, Inc. 
+68,276 
+Other assets 
+385 
+Current liabilities 
+(10,512 
+) 
+Long-term liabilities 
+(344 
+) 
+Net assets of discontinued operation 
+$ 
+92,593 
+A
+summary of the operating results of RPC's Powerboat Manufacturing Segment for the two months in 2001, and for the twelve months in 2000 and 1999 is as follows: 
+Years ended December 31, 
+2001 
+2000 
+1999 
+(in thousands) 
+Revenues 
+$ 
+24,092 
+$ 
+148,276 
+$ 
+122,878 
+Operating income 
+2,747 
+15,455 
+14,484 
+Income before income taxes 
+2,320 
+22,552 
+14,717 
+Income tax provision 
+834 
+8,591 
+5,599 
+Net income 
+$ 
+1,486 
+$ 
+13,961 
+$ 
+9,118 
+The
+Transition Support Services Agreement stipulates that RPC provide certain services, including financial reporting and income tax administration, acquisition assistance, etc. to
+Marine Products until the agreement is terminated by either party. During 2001, RPC charged $868,000 to Marine Products for these services. Certain costs allocated by RPC to Marine Products in the
+past are now incurred directly by Marine Products. During 2000 and 1999, RPC allocated expenses totaling $2,372,000, and $1,966,000, respectively, which was based on Marine Products' revenues as a
+percent of RPC's total revenues. 
+In
+the first quarter of 2000, RPC recorded an after-tax gain of $4,227,000 in its powerboat manufacturing business segment. The gain is a result of Chaparral's receipt of its
+share of a non-refundable $35 million settlement payment made by Brunswick Corporation ("Brunswick"), a major engine supplier, to the members of the American Boatbuilders
+Association ("ABA"), a buying group which includes Chaparral. Under the terms of this agreement between the ABA and Brunswick, additional payments were to be made to the ABA depending on the final
+judgment or settlement of a lawsuit brought by Independent Boatbuilders Association ("IBBI"), another buying group supplied engines by Brunswick. In March 2000, the U.S. Court of Appeals for
+the Eighth Circuit ordered the trial court to enter a judgment for Brunswick, thereby reversing the initial decision in favor of IBBI. No additional payments will be received by Marine Products in
+connection with this settlement. 
+Refer
+to Note 12 for details regarding certain officers being employees of both RPC and Marine Products. 
+Note 3: Acquisitions 
+During the year ended December 31, 2001, the Company completed two acquisitions, which were accounted for under the purchase method of accounting. Proforma
+results of operations have not been presented for either of the acquisitions because the effects of these acquisitions were not material to 
+28 
+the Company on either an individual or aggregate basis. The results of operations of each acquisition are included in the Company's consolidated statements of income from the respective dates of
+acquisition. 
+A
+summary of the Company's purchase transactions for the year ended December 31, 2001 is included in the following table (in thousands, except share amounts): 
+Entity Name 
+and Description 
+of Business 
+Acquired 
+Date 
+Consideration 
+Inventory 
+Operating 
+equipment 
+and vehicles 
+Goodwill 
+and 
+non-compete 
+agreement 
+Other 
+fixed 
+assets 
+Form of 
+consideration 
+Sooner Testing, Inc. (Pressure Pumping) 
+2/01 
+$ 
+4,355 
+$ 
+317 
+$ 
+2,788 
+$ 
+1,250 
+$ 
+— 
+•$3,105 in cash 
+•$1,250 in promissory note payable in three annual installments plus interest at prime rate 
+•Potential earnout 
+Mathews Energy Services, Inc. (Pressure Pumping) 
+7/01 
+$ 
+11,000 
+$ 
+— 
+$ 
+7,396 
+$ 
+2,956 
+$ 
+648 
+•$5,000 in cash 
+•280,446 shares valued at $4,000 
+•$2,000 in promissory note, payable in full after four years, plus interest payable quarterly at prime rate 
+•Potential earnout 
+Potential
+earnouts may have to be paid in accordance with the respective agreements on an annual basis and will be recorded as goodwill when paid. The consolidated statements of cash
+flows for the year ended December 31, 2001 excludes the $3.25 million of promissory notes payable in connection with these acquisitions and the $4.0 million stock issuance. 
+Payments
+totaling $286,000 were made in 2001 in connection with earnouts related to acquisitions prior to 2001. These amounts have been recorded as goodwill. 
+Note 4: Accounts Receivable 
+Accounts receivable are stated net of allowances for doubtful accounts of $4,118,000 in 2001 and $4,994,000 in 2000. 
+Note 5: Inventories 
+Inventories consist of the following: 
+December 31, 
+2001 
+2000 
+(in thousands) 
+Raw materials and supplies 
+$ 
+6,289 
+$ 
+5,061 
+Work in process 
+271 
+625 
+Finished goods 
+1,852 
+1,526 
+Total inventories 
+$ 
+8,412 
+$ 
+7,212 
+29 
+Note 6: Property, Plant and Equipment 
+Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2001 
+2000 
+(in thousands) 
+Operating equipment and property 
+$ 
+219,113 
+$ 
+176,480 
+Buildings 
+25,064 
+22,199 
+Furniture and fixtures 
+2,081 
+1,791 
+Vehicles 
+28,526 
+26,998 
+Land 
+5,394 
+4,654 
+Construction in progress 
+327 
+12,198 
+Gross property, plant and equipment 
+280,505 
+244,320 
+Less: accumulated depreciation 
+165,459 
+159,288 
+Net property, plant and equipment 
+$ 
+115,046 
+$ 
+85,032 
+Depreciation
+expense amounted to $24,656,000, $17,278,000, and $15,368,000 for the years ended December 31, 2001, 2000, and 1999. 
+Note 7: Income Taxes 
+The following table lists the components of the provision (benefit) for income taxes from continuing operations: 
+Year ended December 31, 
+2001 
+2000 
+1999 
+(in thousands) 
+Current: 
+Federal 
+$ 
+12,119 
+$ 
+9,936 
+($ 
+2,874 
+) 
+State 
+1,271 
+681 
+(98 
+) 
+Foreign 
+837 
+— 
+— 
+Deferred 
+1,400 
+(767 
+) 
+2,369 
+Total income tax provision (benefit) 
+$ 
+15,627 
+$ 
+9,850 
+($ 
+603 
+) 
+A
+reconciliation between the federal statutory rate and RPC's effective tax rate is as follows: 
+Year ended December 31, 
+2001 
+2000 
+1999 
+Federal statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income taxes 
+3.0 
+2.9 
+4.1 
+Other 
+— 
+— 
+(0.7 
+) 
+Effective tax rate 
+38.0 
+% 
+37.9 
+% 
+38.4 
+% 
+30 
+Significant
+components of the Company's deferred tax assets and liabilities are as follows: 
+December 31, 
+2001 
+2000 
+(in thousands) 
+Deferred tax assets: 
+Stock-based compensation 
+$ 
+536 
+$ 
+517 
+Bad debt reserves 
+1,501 
+1,826 
+Accrued payroll expenses 
+1,943 
+1,129 
+Self-insurance reserves 
+4,079 
+4,202 
+All others 
+1,018 
+1,629 
+Gross deferred tax assets 
+$ 
+9,077 
+$ 
+9,303 
+Deferred tax liabilities: 
+Depreciation 
+$ 
+(3,502 
+) 
+$ 
+(2,714 
+) 
+Pension expense 
+(809 
+) 
+(273 
+) 
+All others 
+(407 
+) 
+(557 
+) 
+Gross deferred tax liabilities 
+$ 
+(4,718 
+) 
+$ 
+(3,544 
+) 
+Net deferred tax assets 
+$ 
+4,359 
+$ 
+5,759 
+Total
+income tax payments, net of refunds, were $15,615,000 in 2001, $13,825,000 in 2000, and $1,616,000 in 1999. 
+Note 8: Payable to Marine Products Corporation 
+At December 31, 2000, the consolidated balance sheet reflects a Payable to Marine Products Corporation. This represents the amount of cash transferred from
+Marine Products to RPC since RPC's acquisition of Chaparral in 1986. In February 2001, effective with the spin-off, RPC established a cash balance at Marine Products of
+$15 million by contributing approximately $13.8 million. The remaining Payable to Marine Products totaling approximately $53.8 million was cancelled and RPC's retained earnings
+was increased by an equal amount. 
+Note 9: Long-Term Debt 
+At December 31, 2001, future minimum payments on long-term debt and capitalized lease obligations were as follows: 
+(in thousands) 
+2002 
+$ 
+1,390 
+2003 
+2,937 
+Total minimum principal payments 
+$ 
+4,327 
+Cash
+interest paid was approximately $262,000 in 2001, $125,000 in 2000 and $50,000 in 1999. 
+The
+Company has access to a $25 million credit facility with a financial institution encompassing letters of credit and advances. It is renewable annually with interest payable
+monthly at LIBOR plus 50 basis points. As of December 31, 2001, the balance on this facility was $160,000 and is reflected as part of short-term debt on the consolidated balance
+sheet. The Company is required to maintain various financial ratios and as of December 31, 2001, the Company is in compliance with all of the covenants. 
+31 
+The
+long-term debt of RPC as of December 31, 2001, and December 31, 2000, is summarized as follows: 
+(in thousands) 
+Type 
+Maturity 
+Dates 
+Range of 
+Interest Rates 
+2001 
+2000 
+Notes payable related to acquisitions 
+2002-2003 
+Prime; 8.0%-8.5% 
+$ 
+3,832 
+$ 
+804 
+Bank Line of Credit 
+2002 
+LIBOR+50BP 
+162 
+— 
+Capital lease 
+2003 
+11.17% 
+333 
+514 
+Total debt 
+4,327 
+1,318 
+Less current portion 
+1,390 
+470 
+Long-term debt 
+$ 
+2,937 
+$ 
+848 
+The
+net book value of equipment under capital lease was $658,000 at December 31, 2001. 
+Note 10: Commitments and Contingencies 
+Minimum annual rentals, principally for noncancelable real estate leases with terms in excess of one year, in effect at December 31, 2001, are summarized
+in the following table: 
+(in thousands) 
+2002 
+$ 
+1,685 
+2003 
+1,189 
+2004 
+1,002 
+2005 
+674 
+2006 
+298 
+Thereafter 
+258 
+Total rental commitments 
+$ 
+5,106 
+Total
+rental expense charged to operations was approximately $4,164,000 in 2001, $3,110,000 in 2000, and $2,014,000 in 1999. 
+RPC
+is a defendant in a number of lawsuits which allege that plaintiffs have been damaged as a result of the rendering of services by RPC personnel and equipment. RPC is vigorously
+contesting these actions. Management is of the opinion that the outcome of these lawsuits will not have a material adverse effect on the financial position, results of operations or liquidity of RPC. 
+32 
+Note 11: Employee Benefit Plans 
+Retirement Plan 
+RPC has a tax-qualified defined benefit, noncontributory, trusteed retirement income plan that covers substantially all employees of RPC, and Marine
+Products prior to the spin-off, with atleast one year of service. Benefits are based on an employee's years of service and compensation near retirement. RPC has the right to terminate or
+modify the plan at any time. 
+SFAS
+No. 132, "Employers' Disclosures About Pensions and Other Post Retirement Benefits," standardizes the disclosure requirements for pensions and other post retirement benefits
+to the extent possible. 
+The
+following table sets forth the funded status of the retirement income plan and the amounts recognized in RPC's consolidated balance sheets: 
+December 31, 
+2001 
+2000 
+(in thousands) 
+CHANGE IN BENEFIT OBLIGATION: 
+Benefit obligation at beginning of year 
+$ 
+20,640 
+$ 
+19,796 
+Service cost 
+954 
+903 
+Interest cost 
+1,751 
+1,509 
+Actuarial (gain) loss 
+2,500 
+(880 
+) 
+Benefits paid 
+(861 
+) 
+(688 
+) 
+Benefit obligation at end of year 
+24,984 
+20,640 
+CHANGE IN PLAN ASSETS: 
+Fair value of plan assets at beginning of year 
+19,776 
+18,544 
+Actual return on plan assets 
+(239 
+) 
+868 
+Employer contribution 
+118 
+1,052 
+Benefits paid 
+(861 
+) 
+(688 
+) 
+Fair value of plan assets at end of year 
+18,794 
+19,776 
+Funded status 
+(6,190 
+) 
+(864 
+) 
+Unrecognized net asset 
+(96 
+) 
+(289 
+) 
+Unrecognized net loss 
+5,402 
+845 
+Unrecognized prior service cost 
+— 
+(1 
+) 
+Net accrued cost 
+$ 
+(884 
+) 
+$ 
+(309 
+) 
+Pursuant
+to the provisions of SFAS No. 87, "Employers' Accounting for Pensions," the Company recorded a minimum pension liability adjustment of $1.4 million as of
+December 31, 2001. As there were no previously unrecognized prior service costs as of December 31, 2001, the full amount of the adjustments, net of related deferred tax benefit, are
+reflected as a reduction of stockholders' equity. 
+Amounts
+recognized in the consolidated balance sheets consist of: 
+(in thousands) 
+2001 
+2000 
+Net accrued benefit cost 
+$ 
+(884 
+) 
+$ 
+(309 
+) 
+Minimum pension liability adjustment 
+(1,389 
+) 
+— 
+$ 
+(2,273 
+) 
+$ 
+(309 
+) 
+RPC's
+funding policy is to contribute to the retirement income plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. RPC contributed $118,000 and
+$1,052,000 to the retirement income plan in 2001 and 2000. No contributions were required in 1999. 
+33 
+The
+net accrued benefit cost is included in Accrued payroll and related expenses in the accompanying consolidated balance sheets. 
+The
+components of net periodic benefit cost are summarized as follows: 
+Year ended December 31,
+2001 
+2000 
+1999 
+(in thousands) 
+Service cost for benefits earned during the period 
+$ 
+954 
+$ 
+903 
+$ 
+1,031 
+Interest cost on projected benefit obligation 
+1,751 
+1,509 
+1,453 
+Expected return on plan assets 
+(1,836 
+) 
+(1,771 
+) 
+(1,680 
+) 
+Net amortization and deferral 
+(176 
+) 
+(205 
+) 
+(141 
+) 
+Net periodic benefit cost 
+$ 
+693 
+$ 
+436 
+$ 
+663 
+Total
+retirement plan cost attributable to Marine Products, which is included in net periodic benefit cost above, was $25,000 for the first two months in 2001, $147,000 for the twelve
+months in 2000 and $136,000 for the twelve months in 1999. 
+The
+weighted average assumptions were as follows: 
+December 31, 
+2001 
+2000 
+1999 
+Discount rate 
+7.375 
+% 
+7.750 
+% 
+8.000 
+% 
+Expected return on plan assets 
+8.500 
+% 
+9.500 
+% 
+9.500 
+% 
+Rate of compensation increase 
+4.375 
+% 
+4.750 
+% 
+5.000 
+% 
+401(k) Plan 
+RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than 6 months of service.
+This plan allows employees to make tax-deferred contributions of up to 15 percent of their annual compensation, not exceeding the permissible deduction imposed by the Internal
+Revenue Code. RPC matches 40 percent of each employee's contributions up to 3 percent of the employee's compensation. Employees vest in the RPC contributions after 5 years of
+service. Marine Products is continuing to participate in the RPC sponsored defined contribution 401(k) plan. The charges to expense for RPC's continuing operations were $380,000 in 2001, $295,000 in
+2000, and $282,000 in 1999. The Company match is funded in the first quarter following the respective year in which they are expensed. The charges to expense for Marine Products were $14,000 for the
+first two months in 2001, $76,000 in 2000, and $74,000 in 1999. 
+Benefit Plan Changes Subsequent To Year-End 
+The Company has elected to cease benefit accruals under the Retirement Income Plan after March 31, 2002. The curtailment gain or loss is expected to be
+immaterial. There will be additional Company contributions for longer serviced employees into their 401(k) or other non-qualified plan, as appropriate. These additional contributions will
+be paid over 7 years and vest after five years of service. This is expected to total approximately $2.8 million plus interest. In addition, the 401(k) plan has been amended to allow an
+employee to be eligible to receive 50 cents for every dollar contributed, up to six percent of the employee's pay. The vesting schedule for the 401(k) match has been changed to three years starting in
+2002. 
+Stock Incentive Plans 
+RPC has an Employee Incentive Stock Option Plan (the "1984 Plan") under which 1,000,000 shares of common stock were reserved for issuance. The 1984 Plan expired
+in October 1994. On January 25, 1994, RPC adopted a new 10-year Employee Stock Incentive Plan (the "1994 Plan") under 
+34 
+which 1,000,000 shares of common stock were reserved for issuance. During 1997, an additional 1,600,000 shares were reserved for issuance. These plans provide for the issuance of various forms of
+stock incentives, including, among others, incentive stock options and restricted stock. Historically, certain RPC employees, including employees of Marine Products, have participated in these RPC
+Stock Incentive Plans (the "RPC SIP"). 
+Following
+the spin-off, outstanding stock option grants under the RPC SIP held by Marine Products employees who did not also become RPC employees were replaced with the
+Marine Products SIP stock option grants. After the spin-off, 180,464 RPC SIP stock options held by Marine Products employees were replaced with Marine Products SIP stock option grants. As
+of December 31, 2001, there were 945,410 shares available for the granting of options or other awards under the RPC SIP. 
+Stock-Based Compensation 
+SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair value-based method of accounting for an employee stock option plan or similar equity
+instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed in Accounting Principles Board ("APB") Opinion
+No. 25. Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and earnings per share, as if the fair value-based method of
+accounting defined in the statement had been applied. 
+RPC
+has elected to account for its stock-based compensation plans under APB No. 25. The Company has computed for pro forma disclosure purposes the value of all options granted
+during 2001, 2000, and 1999 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions for grants: 
+2001 
+2000 
+1999 
+Risk-free interest rate 
+4.9% 
+N/A 
+4.6% 
+Expected dividend yield 
+1% 
+N/A 
+1% 
+Expected lives 
+7 years 
+N/A 
+7 years 
+Expected volatility 
+43-46% 
+N/A 
+34-37% 
+The
+total fair value of options granted to RPC and Marine Products employees was computed as follows: 
+Year ended December 31, 
+2001 
+2000 
+1999 
+(in thousands) 
+Continuing operations 
+$ 
+2,913 
+$ 
+— 
+$ 
+583 
+Discontinued operation 
+— 
+— 
+159 
+Total 
+$ 
+2,913 
+$ 
+— 
+$ 
+742 
+35 
+If
+RPC had accounted for these plans in accordance with SFAS No. 123, the total fair value of options granted would be amortized over the vesting period of the options, and RPC's
+reported pro forma net income and pro forma diluted net income per share would have been as follows: 
+Year ended December 31, 
+2001 
+2000 
+1999 
+(in thousands) 
+As reported 
+Income (loss) 
+Continuing operations 
+$ 
+25,496 
+$ 
+16,127 
+($ 
+967 
+) 
+Discontinued operation 
+1,486 
+13,961 
+9,118 
+Net income 
+$ 
+26,982 
+$ 
+30,088 
+$ 
+8,151 
+Diluted income (loss) per share 
+Continuing operations 
+$ 
+0.89 
+$ 
+0.57 
+($ 
+0.03 
+) 
+Discontinued operation 
+0.05 
+0.49 
+0.32 
+Net income 
+$ 
+0.94 
+$ 
+1.06 
+$ 
+0.29 
+Pro forma 
+Income (loss) 
+Continuing operations 
+$ 
+25,050 
+$ 
+15,908 
+($ 
+1,174 
+) 
+Discontinued operation 
+1,486 
+13,863 
+9,022 
+Net income 
+$ 
+26,536 
+$ 
+29,771 
+$ 
+7,848 
+Diluted income (loss) per share 
+Continuing operations 
+$ 
+0.88 
+$ 
+0.56 
+($ 
+0.04 
+) 
+Discontinued operation 
+0.05 
+0.49 
+0.32 
+Net income 
+$ 
+0.93 
+$ 
+1.05 
+$ 
+0.28 
+Proforma
+income for 2000 and 1999 disclosed above is based on the fair value of options held by RPC employees prior to the spin-off. 
+36 
+Incentive Stock Options 
+Transactions involving the RPC SIP were as follows: 
+Shares 
+Option 
+Price 
+(Per Share) 
+Weighted Average 
+Exercise Price 
+Outstanding 12/31/98 
+602,100 
+$ 
+3.000-$12.750 
+$ 
+7.85 
+Granted 
+246,500 
+6.875 
+6.88 
+Exercised 
+(65,200 
+) 
+3.063-7.500 
+3.21 
+Outstanding 12/31/99 
+783,400 
+$ 
+3.000-$12.750 
+$ 
+7.93 
+Granted 
+0 
+0 
+0 
+Canceled 
+(27,300 
+) 
+4.438-12.750 
+8.60 
+Exercised 
+(77,625 
+) 
+3.000-12.750 
+4.80 
+Outstanding 12/31/00 
+678,475 
+$ 
+4.000-$12.750 
+$ 
+8.26 
+Granted 
+457,500 
+13.100 
+13.10 
+Spin-off adjustments 
+(119,935 
+) 
+3.520-12.750 
+9.80 
+Canceled 
+(8,405 
+) 
+6.875-13.100 
+8.77 
+Exercised 
+(92,053 
+) 
+3.520-12.750 
+5.80 
+Outstanding 12/31/01 
+915,582 
+$ 
+3.520-$13.100 
+$ 
+10.25 
+2001 
+2000 
+1999 
+Exercisable at December 31, 
+280,923 
+310,734 
+232,600 
+Weighted average exercise price of exercisable options 
+$ 
+7.22 
+$ 
+7.65 
+$ 
+6.51 
+Per share weighted average grant date fair value of options granted 
+$ 
+6.41 
+$ 
+0.00 
+$ 
+3.01 
+The
+weighted average remaining contractual life of options outstanding at December 31, 2001, was eight years. 
+Restricted Stock 
+RPC has granted employees two forms of restricted stock: performance restricted and time lapse restricted. The performance restricted shares are granted, but not
+earned and issued, until certain 5-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC stock. On the date the stock appreciates to
+each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest 5 years from the determination date. Time lapse restricted shares
+vest 10 years from the grant date. Units granted under these restricted stock programs were 87,000 in 2001, 0 in 2000, and 90,000 in 1999. There were 17,385 performance shares earned under the
+plans in 2001. During 2001, 2000 and 1999, no shares were forfeited or canceled. Deferred compensation was $1,686,000 and $1,337,000 as of December 31, 2001 and December 31, 2000.
+Shares of performance restricted stock totaling 13,201 were forfeited and replaced with grants of performance restricted stock under the Marine Products SIP pursuant to the spin-off. 
+The
+agreements under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions as established under the RPC SIP have
+lapsed. Upon termination of employment from RPC or, in certain cases, termination of employment from Marine Products or Chaparral, shares with restrictions must be returned to RPC. During 2001, 60,800
+shares of restricted stock were vested and released to the employees. 
+37 
+Note 12: Related Party Transactions 
+Effective with the spin-off, the Company established a cash balance at Marine Products of approximately $15 million by transferring a total of
+$13.8 million in cash and marketable securities. See Note 8 for further information. Effective February 28, 2001, the Company began providing certain administrative services to
+Marine Products. The service agreements are more fully described in Note 2. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated
+approximately $868,000 in 2001. The Company's directors are also directors of Marine Products and certain officers are employees of both the Company and Marine Products. 
+Also,
+the Company periodically purchases in the ordinary course of business products or services from vendors who are owned by significant officers or shareholders of RPC. During 2001,
+the total amounts paid to these affiliated parties totaled approximately $486,000. 
+Note 13: Business Segment Information 
+RPC's service lines have been aggregated into two reportable oil and gas services segments—Technical Services and Support Services—because
+of the similarities between the financial performance and approach to managing the service lines within each of the segments as well as the economic and business conditions impacting their business
+activity levels. 
+Technical
+Services include RPC's oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's
+well. These services include coiled tubing, fluid pumping, nitrogen pumping, fracturing and acidizing pumping services, wireline, snubbing, well control consulting and firefighting,
+down-hole tools, and casing installation services. These technical services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets for
+this segment include the United States,
+including the Gulf of Mexico, the mid-continent, southwest and Rocky Mountain regions, and international locations including primarily Africa, Canada and Latin America. Customers include
+major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support
+Services include RPC's oilfield service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels, and oilfield training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico and the mid-continent regions.
+Customers include domestic operations of major multi-national and independent oil and gas producers. 
+The
+other business segment includes information concerning RPC's business units that do not qualify for separate segment reporting. These business units include an overhead crane
+fabricator, and other non-oilfield business development activities. 
+The
+accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its
+segments based on revenues, operating profits, and earnings before interest, taxes, depreciation and amortization and other non-cash charges ("EBITDA"). RPC's balance sheets are generally
+managed on a consolidated basis and therefore it is impractical to report assets by business segment. 
+38 
+Summarized
+financial information concerning RPC's reportable segments from continuing operations for the years ended December 31, 2001, 2000, and 1999 are shown in the following
+table. 
+(in thousands) 
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Total 
+2001 
+Revenues 
+$ 
+203,277 
+$ 
+49,437 
+$ 
+12,228 
+$ 
+— 
+$ 
+264,942 
+Operating profit (loss) 
+34,799 
+11,937 
+(1,045 
+) 
+(4,503 
+) 
+41,188 
+Capital expenditures(1) 
+36,236 
+7,649 
+544 
+1,421 
+45,850 
+Depreciation and amortization 
+17,331 
+6,954 
+149 
+1,102 
+25,536 
+2000 
+Revenues 
+$ 
+125,960 
+$ 
+43,613 
+$ 
+14,642 
+$ 
+— 
+$ 
+184,215 
+Operating profit (loss) 
+19,250 
+7,873 
+(139 
+) 
+(2,450 
+) 
+24,534 
+Capital expenditures 
+25,212 
+8,830 
+79 
+1,405 
+35,526 
+Depreciation and amortization 
+9,941 
+7,319 
+190 
+545 
+17,995 
+1999 
+Revenues 
+$ 
+70,366 
+$ 
+24,500 
+$ 
+12,719 
+$ 
+— 
+$ 
+107,585 
+Operating profit (loss) 
+5,142 
+(5,424 
+) 
+(819 
+) 
+(1,954 
+) 
+(3,055 
+) 
+Capital expenditures 
+13,138 
+6,059 
+102 
+1,020 
+20,319 
+Depreciation and amortization 
+7,949 
+7,371 
+318 
+324 
+15,962 
+(1) Excludes
+assets acquired as part of purchases of new businesses during the year. 
+The
+following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2001, 2000, and 1999. The
+revenues are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC's consolidated assets, and
+therefore are not presented. 
+(in thousands) 
+2001 
+2000 
+1999 
+United States 
+Revenues 
+$ 
+246,321 
+$ 
+162,090 
+$ 
+96,062 
+International 
+Revenues 
+18,621 
+22,125 
+11,523 
+$ 
+264,942 
+$ 
+184,215 
+$ 
+107,585 
+39 
+PART III 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None. 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+Information concerning directors and executive officers is included in the RPC Proxy for its 2002 Annual Meeting of Stockholders, in the sections entitled
+"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance." This information is incorporated herein by reference. Information about executive officers is contained on
+page 9. 
+ITEM 11. EXECUTIVE COMPENSATION 
+Information concerning executive compensation is included in the RPC Proxy for its 2002 Annual Meeting of Stockholders, in the section entitled "Executive
+Compensation." This information is incorporated herein by reference. 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
+Information concerning security ownership is included in the RPC Proxy for its 2002 Annual Meeting of Stockholders, in the sections entitled "Capital Stock" and
+"Election of Directors." This information is incorporated herein by reference. 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Information concerning certain relationships and related transactions is included in the RPC Proxy for its 2002 Annual Meeting of Stockholders, in the sections
+entitled "Certain Relationships and Related Transactions" and "Compensation Committee Interlocks and Insider Participation." This information is incorporated herein by reference. 
+PART IV 
+Item 14. Exhibits, Financial Statement schedules, and reports on Form 8-K 
+The following documents are filed as part of this report. 
+PAGE 
+FINANCIAL STATEMENTS 
+Consolidated Balance Sheets as of December 31, 2001 and 2000 
+20 
+Consolidated Statements of Income for the three years ended December 31, 2001 
+21 
+Consolidated Statements of Stockholders' Equity for the three years ended December 31, 2001 
+22 
+Consolidated Statements of Cash Flows for the three years ended December 31, 2001 
+23 
+Notes to Consolidated Financial Statements 
+24 
+SCHEDULES 
+Schedule II—Valuation and Qualifying Accounts 
+42 
+40 
+EXHIBITS 
+Exhibit 
+Number 
+Description 
+3.1 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 
+3.2 
+Bylaws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 
+4 
+Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 
+10.1 
+RPC's 1994 Employees Stock Incentive Plan (incorporated herein by reference to Exhibit A of the definitive Proxy Statement dated March 20, 1994). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10 filed on
+February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10 filed on February 13,
+2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10 filed on February 13,
+2001). 
+10.5 
+Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10 filed on February 13, 2001). 
+21 
+Subsidiaries of RPC. 
+23 
+Consent of Arthur Andersen LLP. 
+24 
+Powers of Attorney for Directors. 
+REPORTS ON FORM 8-K 
+None.
+41 
+SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+For the years ended December 31, 2001, 2000, and 1999 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Cost and 
+Expenses 
+Net 
+Recoveries 
+(Write-Offs) 
+Balance 
+at End of 
+Period 
+Year ended December 31, 2001 
+Allowance for Doubtful Accounts 
+$ 
+4,994 
+$ 
+300 
+$ 
+(1,176 
+) 
+$ 
+4,118 
+Year ended December 31, 2000 
+Allowance for Doubtful Accounts 
+$ 
+4,590 
+$ 
+26 
+$ 
+378 
+$ 
+4,994 
+Year ended December 31, 1999 
+Allowance for Doubtful Accounts 
+$ 
+6,927 
+$ 
+123 
+$ 
+(2,460 
+) 
+$ 
+4,590 
+42 
+SIGNATURES 
+Pursuant to the requirements of Section 13 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. 
+RPC, INC. 
+BY: 
+/S/ R. RANDALL ROLLINS R. Randall Rollins 
+Chairman of the Board of Directors 
+(Principal Executive Officer) 
+March 22, 2002 
+Pursuant
+to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the
+dates indicated. 
+/s/ R. RANDALL ROLLINS R. Randall Rollins 
+Chairman of the Board of Directors 
+(Principal Executive Officer) 
+March 22, 2002 
+/s/ BEN M. PALMER Ben M. Palmer 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) March 22, 2002 
+The
+Directors of RPC, Inc. (listed below) executed a power of attorney appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this
+report on their behalf. 
+Wilton Looney, Director 
+Gary W. Rollins, Director 
+James A. Lane, Jr., Director 
+Henry B. Tippie, Director 
+James B. Williams, Director 
+Linda H. Graham, Director 
+/s/ RICHARD A. HUBBELL Richard A. Hubbell 
+Director and as Attorney-in-fact 
+March 22, 2002 
+43 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+To
+RPC, Inc.: 
+We
+have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related
+consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred
+to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. 
+We
+conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
+assurance about whether the financial statements are free from 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 financial statements referred to above present fairly, in all material respects, the financial position of RPC, Inc. and subsidiaries as of December 31,
+2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally
+accepted in the United States. 
+Our
+audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 is presented for the purposes of complying
+with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic
+financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. 
+Atlanta,
+Georgia 
+Arthur Andersen LLP 
+February 28, 2002 
+44 
+SELECTED QUARTERLY FINANCIAL DATA 
+Quarter ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share data) 
+2001 
+Revenues 
+$ 
+62,733 
+$ 
+70,831 
+$ 
+75,674 
+$ 
+55,704 
+Income (loss) from continuing operations 
+6,870 
+9,703 
+9,959 
+(1,036 
+) 
+Income from discontinued operation 
+1,486 
+— 
+— 
+— 
+Net income 
+$ 
+8,356 
+$ 
+9,703 
+$ 
+9,959 
+$ 
+(1,036 
+) 
+Net income (loss) per share—basic: 
+Continuing operations 
+$ 
+0.25 
+$ 
+0.35 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Discontinued operation 
+0.05 
+— 
+— 
+— 
+Total 
+$ 
+0.30 
+$ 
+0.35 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Net income (loss) per share—diluted: 
+Continuing operations 
+$ 
+0.24 
+$ 
+0.34 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Discontinued operation 
+0.05 
+— 
+— 
+— 
+Total 
+$ 
+0.29 
+$ 
+0.34 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+2000 
+Revenues 
+$ 
+35,883 
+$ 
+39,864 
+$ 
+51,116 
+$ 
+57,352 
+Income (loss) from continuing operations 
+2,258 
+2,051 
+5,785 
+6,033 
+Income from discontinued operation 
+6,696 
+3,121 
+2,332 
+1,812 
+Net income 
+$ 
+8,954 
+$ 
+5,172 
+$ 
+8,117 
+$ 
+7,845 
+Net income (loss) per share—basic: 
+Continuing operations 
+$ 
+0.08 
+$ 
+0.07 
+$ 
+0.21 
+$ 
+0.22 
+Discontinued operation 
+0.24 
+0.12 
+0.08 
+0.06 
+Total 
+$ 
+0.32 
+$ 
+0.19 
+$ 
+0.29 
+$ 
+0.28 
+Net income (loss) per share—diluted: 
+Continuing operations 
+$ 
+0.08 
+$ 
+0.07 
+$ 
+0.21 
+$ 
+0.22 
+Discontinued operation 
+0.24 
+0.11 
+0.08 
+0.06 
+Total 
+$ 
+0.32 
+$ 
+0.18 
+$ 
+0.29 
+$ 
+0.28 
+OFFICERS AND DIRECTORS 
+OFFICERS 
+R. Randall Rollins 
+Chairman of the Board and Chief Executive Officer 
+Richard A. Hubbell 
+President and Chief Operating Officer 
+Linda H. Graham 
+Vice President and Secretary 
+Ben M. Palmer 
+Vice President, Chief Financial Officer, and Treasurer 
+DIRECTORS 
+R. Randall Rollins 
+Chairman of the Board, Rollins, Inc. (consumer services) 
+45 
+Henry B. Tippie*† 
+Chairman of the Board and Chief Executive Officer, Tippie Services, Inc. (management services) 
+Wilton Looney* 
+Honorary Chairman of the Board, Genuine Parts company (automotive parts distributor) 
+James A. Lane, Jr. 
+Executive Vice President of Marine Products Corporation, President, Chaparral Boats, Inc. (pleasure boat manufacturer) 
+James B. Willlams* 
+Chairman of the Executive Committee, SunTrust Banks, Inc.(bank holding company) 
+Gary W. Rollins 
+Chief Executive Officer, Rollins, Inc. (consumer services) 
+Richard A. Hubbell 
+President and Chief Operating Officer 
+Linda H. Graham 
+Vice President and Secretary 
+* Member
+of the Audit Committee and Executive Compensation Committee
+† Chairman
+of the Audit Committee and Executive Compensation Committee 
+STOCKHOLDER INFORMATION 
+CORPORATE OFFICES 
+RPC, Inc. 
+2170 Piedmont Road, NE 
+Atlanta, Georgia 30324 
+Telephone: (404) 321-2140 
+STOCK LISTING 
+The New York Stock Exchange 
+TICKER SYMBOL 
+RES 
+NEWSPAPER TABLE STOCK 
+RPC 
+INVESTOR RELATIONS WEB SITE 
+www.rpc.net 
+TRANSFER AGENT AND REGISTRAR 
+For inquiries related to stock certificates, including changes of address, please contact: 
+SunTrust
+Bank, Atlanta 
+Stock Transfer Department 
+PO Box 4625 
+Atlanta, Georgia 30302 
+Telephone: 800 568 3476 
+ANNUAL MEETING 
+The Annual Meeting of RPC, Inc. will be held at 9:20 am, April 23, 2002, at the corporate offices in Atlanta, Georgia. 
+46 
+QuickLinks 
+ITEM 1. BUSINESS 
+ITEM 2. PROPERTIES 
+ITEM 3. LEGAL PROCEEDINGS 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 
+Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 
+Item 6. Selected Financial Data 
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+ITEM 11. EXECUTIVE COMPENSATION 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Item 14. Exhibits, Financial Statement schedules, and reports on Form 8-K
\ No newline at end of file
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/filing_metadata.csv b/raw/filings/0000742278/2001/0000912057-02-011203/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..6239bbbf4b07ff242faba7e881fb36222c977c01
--- /dev/null
+++ b/raw/filings/0000742278/2001/0000912057-02-011203/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K405,2002-03-22,2001-12-31,2002-03-22T05:00:00.000Z,0000912057-02-011203,a2074107z10-k405.htm,10-K405,444566,0,0,https://www.sec.gov/Archives/edgar/data/742278/000091205702011203/a2074107z10-k405.htm,https://www.sec.gov/Archives/edgar/data/742278/000091205702011203/,2001,2001,1
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/item1.txt b/raw/filings/0000742278/2001/0000912057-02-011203/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e1a02251550a07f783f634da47926f951a29a0ce
--- /dev/null
+++ b/raw/filings/0000742278/2001/0000912057-02-011203/item1.txt
@@ -0,0 +1,260 @@
+ITEM 1. BUSINESS 
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as part of a spin-off from Rollins, Inc. (NYSE:ROL). Two of
+RPC's businesses, Cudd Pressure Control ("Cudd") and Patterson Services ("Patterson"), have been in operation for more than 20 years. Effective February 28, 2001, RPC completed the
+spin-off of its powerboat manufacturing business through a distribution of shares of Marine Products Corporation ("Marine Products"). See "Discontinued Operation" for additional
+information. 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of
+oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected international markets. The services
+and equipment provided include among other things, (1) snubbing services, (2) coiled tubing services, (3) pressure pumping services, (4) marine services,
+(5) firefighting and well control, and (6) the rental of drill pipe and other specialized oilfield equipment. RPC acts as a holding company for its operating subsidiaries, Cudd Pressure
+Control, Inc., Patterson Services, Inc. and Patterson Tubular Services, Inc. together with several smaller non-core businesses. 
+RPC's
+service lines have been aggregated into two reportable oil and gas services business segments—Technical Services and Support Services—because of the
+similarities between the financial performance and approach to managing these service lines within each of the segments as well as the economic and business conditions impacting their business
+activity levels. The other business segment includes information concerning RPC's business units that do not qualify for separate segment reporting. These business units include an overhead crane
+fabricator, and other non-oilfield operations. 
+Technical
+Services include RPC's oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer's well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services business
+segment consists primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and
+casing installation services. The principal markets for this 
+2 
+business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and international locations including primarily Africa,
+Latin America and Canada. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support
+Services include RPC's oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels, and oilfield training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, Gulf of Mexico and mid-continent regions. Customers include
+domestic operations of major multi-national and independent oil and gas producers. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Snubbing. Snubbing involves using a high-pressure workover rig that permits an operator to repair damaged casing,
+production tubing and down-hole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace down-hole equipment in
+a pressurized environment. Customers benefit because these operations can be performed without removing the pressure from or "killing" the well. Since snubbing is a very hazardous process that entails
+high risk, the snubbing segment of the oil and gas services industry is limited to a few operators who have the experience and knowledge required to safely and efficiently perform such services. 
+Coiled Tubing. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and
+functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a diameter of less than five inches manufactured in continuous lengths of thousands
+of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal
+advantages of employing coiled tubing in a workover include: (i) not having to "shut-in" the well during such operations, (ii) the ability to reel continuous coiled tubing in
+and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit. 
+Pressure Pumping Services. Cudd provides pumping services to customers throughout the Gulf Coast and
+mid-continent regions of the United States. Cudd utilizes complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The
+mobility of this equipment permits Cudd to provide pressure pumping services in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants,
+acid and bulk chemical additives. Generally, these items are available from several suppliers, and Cudd utilizes more than one supplier for each item. Pressure Pumping Services offered include: 
+Fracturing—Fracturing
+services are performed to enhance the production of oil and natural gas from formations where the well's natural flow is restricted due to permeability issues. The
+fracturing process consists of pumping a fluid gel into a cased well at sufficient pressure to "fracture" the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in
+the gel, is pumped into the fracture to prop it open. In some cases, fracturing is performed by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+3 
+Acidizing—Acidizing
+services are performed to enhance the flow rate of oil and natural gas from wells with reduced flow caused by formation damage due to drilling or completion fluids, or
+the buildup over time of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in
+the formation, thereby eliminating obstacles to the flow of oil and natural gas. 
+Nitrogen. There are a number of uses for nitrogen, an inert gas, in providing services to our oilfield customers. Used alone,
+it is effective in displacing fluids in various oilfield applications, including underbalanced drilling and pipeline purging. 
+Well Control. Cudd Pressure Control specializes in responding to and controlling oil and gas well emergencies, including
+blowouts and well fires domestically and internationally. In connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last five years, Cudd has responded to well control situations in several international locations including Argentina, Australia,
+Bolivia, Colombia, Egypt, India, Peru, Taiwan and Venezuela. 
+Cudd
+Pressure Control's professional firefighting staff has more than 340 years of aggregate industry experience in responding to well
+fires and blowouts. This team of 17 experts responds to well control projects where hydrocarbons are escaping from a well bore, regardless of whether a
+fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of
+thousands of dollars per day in production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work.
+Additionally, less critical events frequently occur in connection with the drilling of new wells into high-pressure reservoirs. In these situations, Cudd is called upon to supervise and
+assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Down-hole Tools. Cudd Pressure Control's division, ThruTubing Solutions (TTS) provides proprietary
+down-hole motors and fishing tools to operators and service companies throughout the oil and gas industry. TTS' experience for reliable tool services allows it to work with virtually any
+coiled tubing unit or snubbing unit that is equipped for the task. 
+Wireline Services. Cudd provides mechanical wireline services. A wireline unit is a spooled wire that can be unwound and
+lowered into a well carrying various types of tools. Wireline services are used for a variety of purposes, such as: accessing a well to assist in data acquisition or logging activities, fishing tool
+operations to retrieve lost or broken equipment, pipe recovery, and remedial activities. In addition, wireline services are an integral part of plug and abandonment services. 
+Special Services. When a valve malfunctions, the only solution may be to drill out the gate or the plug. If pressure is
+trapped, hot-tapping, a technique of drilling into a medium that is under pressure, is one method of relieving that pressure. Cudd Pressure Control maintains hot-tapping and
+valve drilling
+equipment capable of drilling out valve seats in an environment with up to 15,000 psi working pressure and hydrogen sulfide. In order to isolate wellheads, valves and other circulating equipment from
+subsurface or upstream pressure, Cudd Pressure Control also performs freezing operations. 
+Casing and Torque-Turn Services. Casing and laydown principally consists of installing casing and production
+tubing into a wellbore. Casing is run to protect the structural integrity of the wellbore and to seal various production zones in the well. These services are normally provided during the drilling and
+completion phases of a well. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases. 
+4 
+Torque-Turn
+is used on tubulars in the deeper, higher pressure gas wells where connection integrity and leak resistance are most critical. By monitoring the makeup of
+connections with both torque and turns simultaneously, we are able to achieve the optimum bearing pressure between the connection. The level of bearing pressure directly affects the leak resistance of
+the connection. The use of the Torque-Turn system allows us to obtain the maximum bearing pressure without permanently deforming the material. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools. RPC rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and
+workover activities. The drilling and operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the well
+area and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their inventories with rental tools instead of maintaining a complete
+inventory of tools. RPC is strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico and mid-continent regions. 
+RPC,
+through Patterson Rental Tools, offers a broad range of rental tools including: 
+Blowout Preventors 
+High Pressure Manifolds 
+Coflexip Hoses 
+Hydraulic Torque Wrenches 
+Drill Collars 
+Power Tongs 
+Drill Pipe 
+Pressure Control Equipment 
+Flow Iron 
+Test Pumps 
+Gravel Pack Equipment 
+Tubing 
+Handling Tools 
+Tubulars 
+Hevi-wate 
+Tubular Handling Tools 
+Marine Services. A liftboat is a self-propelled, self-elevating work platform with legs, cranes and
+living accommodations. Our fleet consists of five liftboats, two of which have leg lengths of 200 feet or more. Upon arriving at a destination, a liftboat hydraulically lowers its legs until they are
+positioned on the ocean floor, and then jacks up until the work platform is sufficiently above the water level. Once positioned, the stability, open deck area, crane capacity, and relatively low cost
+of operation make liftboats ideal work platforms for a wide range of offshore activity from platform construction to plug and abandonment services. Our liftboats have either one or two cranes with
+lift capacities up to 75 tons. A liftboat's capability to reposition at a work site or to move to another location within a short time adds to its versatility. In addition, liftboat services are also
+highly complementary to RPC's service lines within the Technical Services business segment as it relates to providing services offshore. 
+Pipe Inspection and Handling Services. Pipe inspection services involve the inspection and testing of the integrity of pipe
+used in oil and gas wells. These services are provided primarily at RPC's inspection yards located on a water channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on tubular
+inspection services to avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such tubular failures are expensive and in some cases catastrophic RPC's yard in Houston,
+Texas is equipped with bulkhead waterfronts, large capacity cranes, specially designed forklifts, and a computerized inventory system to serve a variety of other storage and handling issues. 
+Well Control School. Well Control School provides industry and government accredited training for the oil and gas industry.
+Well Control School provides this training in various formats including 
+5 
+conventional classroom training, interactive computer training and mobile simulator training. Well Control School also develops customized training solutions for clients. 
+Energy Personnel International. Energy Personnel International provides consultants to the oil and gas industry to meet
+customers' needs for staff engineering and wellsite management. 
+Industry 
+United States. The United States represents the largest single oilfield services market in the world. RPC provides its
+services to its U.S. customers through a network of strategic locations including the Gulf of Mexico, the mid-continent, the southwest and the Rocky Mountains. Demand for RPC's services in
+the U.S. is driven by the current and projected prices of oil and natural gas and the resulting drilling and production activity levels. Our business tends to be extremely volatile and fluctuates with
+the price level of these commodities and customer production-enhancement activities. 
+Due
+to aging oilfields and lower-cost sources of oil internationally, drilling activity in the U.S. has declined more than 75% from its peak in 1981. Record low drilling
+activity levels were experienced in 1986, 1992 and again in 1999, with April 1999 recording the lowest U.S. drilling rig count in recorded history. 
+Currently,
+the industry is in the midst of a decrease in drilling activity in North America. At the end of 2001, there were 887 working drilling rigs domestically compared to 1,114 at
+the end of 2000, a one year decrease of approximately 20 percent. Since 1991, gas drilling rigs have typically represented just over 50 percent of the total drilling rig count. However,
+gas-directed drilling rigs have averaged approximately 80 percent of the total domestic drilling rig count since the record low seen in the second quarter of 1999. Demand for
+natural gas is continuing to rise, primarily as a result of increased emphasis on gas-fired power generation. Based on the current demand for natural gas as well as the high well depletion
+rates experienced over the past several years, it is anticipated that gas-directed drilling will represent at least 70 percent of the total drilling rig count in the foreseeable
+future. 
+Thus,
+in North America the demand for our services and products associated with natural gas development is currently more robust than demand related to oil drilling. We expect that the
+tremendous downturn in domestic drilling activity that took place in the fourth quarter of 2001 will continue during the first part of 2002. Drilling activity, and demand for our services, will
+increase when the domestic economy recovers and current high storage levels of natural gas decrease. 
+International. RPC operates in several countries including the major international oil and natural gas producing areas of
+Algeria, Argentina, Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela. RPC provides services to its international customers through wholly-owned foreign subsidiaries or
+branch locations. The international market is somewhat less volatile than the
+U.S. market although prone to risk of political uncertainties. Due to the significant investment requirement and complexity of international projects, drilling decisions relating to such projects tend
+to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more operating stability than the typical independent producer in the U.S. International activities have been increasingly important
+to RPC's results of operations since 1995, when RPC implemented a strategy to expand its international presence. Refer to Note 13 in the Notes to Consolidated Financial Statements for further
+details. 
+Growth Strategies 
+RPC's primary objective is to provide stockholders with excellent long-term returns on their investment through income growth and asset appreciation.
+This objective will be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while 
+6 
+improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected areas and markets in which there exist opportunities for higher
+market growth or penetration or enhanced returns through consolidations or through the provision of proprietary value-added products and services. RPC intends to focus on specific market segments in
+which it believes that it has a competitive advantage or there exists significant growth potential. 
+RPC
+seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil
+and gas services industry, RPC believes a number of attractive acquisition opportunities exist. The oil and gas services business includes a small number of dominant global competitors and a
+significant number of locally oriented businesses, many of which tend to be viable acquisition targets. 
+Customers 
+Demand for RPC's services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity worldwide. RPC's principal customers consist of major and independent oil and natural gas producing companies. During 2001, RPC
+provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of consolidated revenues. While the loss of certain of RPC's largest customers could
+have a material adverse effect on Company revenues and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of
+any of its largest customers. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. The products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of activity in major markets, general economic conditions and
+governmental regulation. RPC competes with the oil and gas industry's largest integrated oilfield services companies. RPC believes that the principal competitive factors in the market areas that it
+serves are product and service quality, availability, price and technical proficiency. 
+Facilities/Equipment 
+RPC's equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and
+offshore customers. RPC's principal executive offices in Atlanta, Georgia are leased. RPC believes that its facilities are adequate for its current operations. RPC owns and operates five offshore
+liftboats. For additional information with respect to RPC's lease commitments, see Note 10 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC's business is significantly affected by state and federal laws and other regulations relating to the oil and gas industry. RPC cannot predict the level of
+enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or
+the effect such changes may have on it, its businesses or financial condition. 
+7 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC's operations. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Employees 
+As of December 31, 2001, RPC had approximately 1,500 employees. None of the employees is represented by a union or covered by a collective bargaining
+agreement. RPC believes that it has good relations with its employees. 
+Discontinued Operation 
+In January 2000, RPC announced plans to spin-off Chaparral Boats, Inc. ("Chaparral"), the recreational powerboat manufacturing business
+of RPC, to RPC's stockholders. RPC accomplished the spin-off by contributing 100% of the issued and outstanding stock of Chaparral to Marine Products, a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders effective February 28, 2001. As part of the transaction, RPC's stockholders received 0.6 shares
+of Marine Products common stock for every one share of RPC common stock owned as of February 16, 2001, the record date for the spin-off. Marine Products is listed on the American
+Stock Exchange and traded under the ticker symbol MPX. 
+For
+the first two months of 2001 and for the twelve months of 2000 and 1999, RPC's powerboat manufacturing business segment has been classified for accounting purposes as a discontinued
+operation in light of the spin-off of that business to RPC stockholders. 
+Risk Factors 
+Demand for our products and services is affected by the volatility of oil prices. 
+Oil prices affect demand throughout the oil and natural gas industry, including the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital expenditures of our customers related to the exploration and production of oil and natural gas. When these expenditures
+decline, our customers' demand for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react
+to declining oil and gas prices by reducing expenditures. This would adversely affect our business. A prolonged low level of
+activity in the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of operations. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services of each of our principal industry segments are sold in highly
+competitive markets, and our revenues and earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity and major markets, general economic
+conditions, and governmental regulation. We compete with the oil and gas industry's largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas
+that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and quality service is good,
+we cannot assure you that we will be able to maintain our competitive position. 
+8 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and will continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in
+connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own business. Any inability on our part to consolidate and manage the growth from acquired businesses could have a material
+adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in the Gulf of Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns, our
+crews may operate more days in some periods than others. Rainy weather, hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the year may also affect our
+operations. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control. 
+Our inability to attract and retain skilled workers may impair growth potential and profitability. 
+Our ability to remain productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The demand for skilled oilfield employees is high and the supply is very limited. A significant increase in the wages paid by
+competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could be
+diminished and our growth potential could be impaired. 
+Our inability to perform services for a number of our large existing customers could have a material adverse effect on our business and operations. 
+Our inability to continue to perform services for a number of our large existing customers could have a material adverse effect on our business and operations.
+Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that
+customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our
+trade receivables. We maintain reserves for estimated credit losses. 
+Our business has potential liability for personal injury and property damage claims. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur,
+this could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a
+location where our equipment and services are used. This could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. This could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will
+be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims that may arise. 
+9 
+Our operations may be affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level
+of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court
+rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations for
+economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore
+and onshore operations. We believe that our present operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also
+believe that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether
+environmental laws will in the future materially adversely affect our operations and financial condition. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in Africa, Canada and Latin America and other foreign countries, although presently limited, are subject to risks inherent in doing business in
+foreign countries. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. Although it is impossible to predict the likelihood of such occurrences or their effect on our operations, our management believes that these risks are acceptable. However, the
+occurrence of any one of these events could have a material adverse effect on our operations. 
+Our common stock price may be adversely affected by changes in oil and gas prices and the supply and demand for oil and gas. 
+Historically, and in recent months in particular, the market price of common stock of companies engaged in the oil and gas services industry has been highly
+volatile. Likewise, the market price of our common stock has varied significantly in the past. Changes in oil and natural gas prices, changes in the demand for oil and natural gas exploration, and
+changes in the supply and demand for oil and natural gas have all been factors affecting the price of our common stock.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/item13.txt b/raw/filings/0000742278/2001/0000912057-02-011203/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..197d855719dc8a2b791bae0405f94282aba38daf
--- /dev/null
+++ b/raw/filings/0000742278/2001/0000912057-02-011203/item13.txt
@@ -0,0 +1,3 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Information concerning certain relationships and related transactions is included in the RPC Proxy for its 2002 Annual Meeting of Stockholders, in the sections
+entitled "Certain Relationships and Related Transactions" and "Compensation Committee Interlocks and Insider Participation." This information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/item9a.txt b/raw/filings/0000742278/2001/0000912057-02-011203/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/rp_note.txt b/raw/filings/0000742278/2001/0000912057-02-011203/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..98b1245174aa7377c279e245b18e29bdc1317f3a
--- /dev/null
+++ b/raw/filings/0000742278/2001/0000912057-02-011203/rp_note.txt
@@ -0,0 +1,8 @@
+Note 12: Related Party Transactions 
+Effective with the spin-off, the Company established a cash balance at Marine Products of approximately $15 million by transferring a total of
+$13.8 million in cash and marketable securities. See Note 8 for further information. Effective February 28, 2001, the Company began providing certain administrative services to
+Marine Products. The service agreements are more fully described in Note 2. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated
+approximately $868,000 in 2001. The Company's directors are also directors of Marine Products and certain officers are employees of both the Company and Marine Products. 
+Also,
+the Company periodically purchases in the ordinary course of business products or services from vendors who are owned by significant officers or shareholders of RPC. During 2001,
+the total amounts paid to these affiliated parties totaled approximately $486,000.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2001/0000912057-02-011203/rpt_disclosure.txt b/raw/filings/0000742278/2001/0000912057-02-011203/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ef2c41d7c19b816f2d13180296313c3375e2a471
--- /dev/null
+++ b/raw/filings/0000742278/2001/0000912057-02-011203/rpt_disclosure.txt
@@ -0,0 +1,11 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products
+and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months' notice. The services covered by these agreements include administration of certain
+employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $454,000
+in 2002. During 2002, a division of RPC conducted business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine Products. The Company recorded $332,000 in revenues from Chaparral
+related to the sale, installation and service of overhead cranes. 
+During
+2002, a subsidiary of RPC conducted business with a company owned by LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. R. Randall
+Rollins, Chairman and Chief Executive Officer, and Mr. Gary W. Rollins, Director. In 2002, payments totaling approximately $381,000 were made to this LOR, Inc. company for the purchase
+of parts and repair services related to certain of RPC's oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been
+incurred for similar services from unaffiliated third parties.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/filing.txt b/raw/filings/0000742278/2002/0001047469-03-009676/filing.txt
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@@ -0,0 +1,3682 @@
+10-K
+1
+a2105863z10-k.htm
+10-K
+QuickLinks 
+-- Click here to rapidly navigate through this document 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, DC 20549 
+FORM 10-K 
+ý 
+Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For the fiscal year ended December 31, 2002 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2170 Piedmont Road, NE 
+Atlanta, Georgia 30324 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of each class 
+Common Stock, $0.10 Par Value 
+Name of each exchange on which registered 
+The New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+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 ý No o 
+Indicate
+by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
+Act): Yes ý No o 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2002 was $127,774,518 based on the closing price on the New York Stock
+Exchange on June 28, 2002 of $11.80 per share. 
+RPC, Inc.
+had 28,607,601 shares of Common Stock outstanding as of February 24, 2003. 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ý 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2003 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 13 of this report. 
+PART I 
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries, as "we," "us," or "the Company." 
+Forward-Looking Statements 
+Certain statements made in this report that are not historical facts are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995.
+Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our
+products and services and other events and conditions that may influence the oilfield services market and our performance in the future. 
+The
+words "may," "will," "expect," "believe," "anticipate," "project," "estimate," and similar expressions generally identify forward-looking statements. Such statements are based on
+certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it
+believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ
+from those envisioned by the forward-looking statements. See "Risk Factors" contained in Item 1. 
+ITEM 1. BUSINESS 
+Organization 
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies. Two of RPC's
+businesses, Cudd Pressure Control ("Cudd") and
+Patterson Services ("Patterson"), have been in operation for more than 20 years. Effective February 28, 2001, RPC completed the spin-off of its powerboat manufacturing
+business through a distribution of shares of Marine Products Corporation ("Marine Products"). 
+Overview 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected
+international markets. The services and equipment provided include, among other things, (1) snubbing services, (2) coiled tubing services, (3) pressure pumping services,
+(4) nitrogen services, (5) firefighting and well control, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) marine services. RPC acts as a
+holding company for its operating subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc. and Patterson Tubular Services, Inc. together with other smaller
+non-core businesses. 
+Business Segments 
+RPC's service lines have been aggregated into two reportable oil and gas services business segments—Technical Services and Support
+Services—because of the similarities between the financial performance and approach to managing the service lines within each of the segments as well as the economic and business
+conditions impacting their business activity levels. The other business segment aggregates information concerning RPC's business units that do not qualify for separate segment reporting, including an
+overhead crane fabricator and an interactive software training developer. 
+Technical
+Services include RPC's oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer's well. 
+2 
+The demand for these services is generally influenced by customers' decisions to invest capital toward improving the flow of oil and natural gas from producing formations or to address well control
+issues. This business segment consists primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping and casing installation
+services. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and international
+locations including primarily Africa, Latin America and Canada. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support
+Services include RPC's oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels and oilfield training
+services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, Gulf of Mexico
+and mid-continent regions. Customers include domestic operations of major multi-national and independent oil and gas producers. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Snubbing. Snubbing involves using a hydraulic workover rig that permits an operator to repair damaged casing, production
+tubing and down-hole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace down-hole equipment in a
+pressurized environment. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a
+snubbing rig can perform many applications at a lower cost than other alternatives. Since snubbing is a very hazardous process that entails high risk, the snubbing segment of the oil and gas services
+industry is limited to a relatively few operators who have the experience and knowledge required to perform such services safely and efficiently. 
+Coiled Tubing. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and
+functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a diameter of less than five inches manufactured in continuous lengths of thousands
+of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal
+advantages of employing coiled tubing in a workover include: (i) not having to "shut-in" the well during such operations, (ii) the ability to reel continuous coiled tubing in
+and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit. 
+Pressure Pumping. Pumping services are provided to customers throughout the Gulf Coast and mid-continent regions
+of the United States and are generally utilized in production. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific
+pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business
+include fracturing proppants, acid and bulk chemical additives. Generally, these items are available 
+3 
+from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing—Fracturing
+services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping a
+fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in the gel, is pumped into the fracture. When
+the pressure is released at the surface, the fluid gel returns to the well, but the proppant remain in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into
+the well. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing—Acidizing
+services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of
+various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby
+eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Nitrogen. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to
+oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling
+applications. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition to
+fracturing, nitrogen serves as a compliment to our snubbing and coiled tubing service lines. For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a
+non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping
+units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control. Cudd Pressure Control specializes in responding to and controlling oil and gas well emergencies, including
+blowouts and well fires domestically and internationally. In connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last five years, the Company has responded to well control situations in several international locations including Argentina,
+Australia, Bolivia, Colombia, Egypt, India, Peru, Taiwan and Venezuela. 
+The
+Company's professional firefighting staff has more than 300 years of aggregate industry experience in responding to well fires and blowouts. This team of 16 experts responds
+to well control projects where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of
+drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators' production revenue. Since these events ordinarily arise
+from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of
+new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly
+as safety permits. 
+Down-hole Tools. ThruTubing Solutions ("TTS"), a division of the Company, provides services and proprietary
+down-hole motors and fishing tools to operators and service companies in drilling and production operations. TTS' experience providing reliable tool services allows it to work in a
+pressure environment with virtually any coiled tubing unit or snubbing unit that is equipped for the task. 
+4 
+Wireline Services. A wireline unit is a spooled wire that can be unwound and lowered into a well carrying various types of
+tools. Wireline services are used for a variety of purposes, such as accessing a well to assist in data acquisition or logging activities, fishing tool operations to retrieve lost or broken equipment,
+pipe recovery and remedial activities. In addition, wireline services are an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Casing and Laydown. Casing and laydown principally consists of installing casing and production tubing into a wellbore.
+Casing is run to protect the structural integrity of the wellbore and to seal various production zones in the well. These services are normally provided during the drilling and completion phases of a
+well. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases of a well. 
+Torque-Turn. Torque-Turn is used on tubulars in the deeper, higher pressure gas wells where
+connection integrity and leak resistance are most critical. By monitoring the makeup of connections with both torque and turns simultaneously, we are able to achieve the optimum bearing pressure
+between the connection. The level of bearing pressure directly affects the leak resistance of the connection. The use of the torque-turn system allows the maximum bearing pressure to be
+achieved without permanently deforming the tubular material. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools. RPC rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and
+workover activities. The drilling and operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubulars inventories with rental items
+instead of owning a complete inventory. RPC is strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico and mid-continent regions. 
+RPC,
+through Patterson Rental Tools, offers a broad range of rental tools including: 
+Blowout Preventors 
+High Pressure Manifolds 
+Coflexip Hoses 
+Hydraulic Torque Wrenches 
+Drill Collars 
+Power Tongs 
+Drill Pipe 
+Pressure Control Equipment 
+Production Related Rental Tools 
+Test Pumps 
+Gravel Pack Equipment 
+Tubing 
+Handling Tools 
+Tubulars 
+Hevi-wate Pipe 
+Tubular Handling Tools 
+Marine Services. A liftboat is a self-propelled, self-elevating work platform with legs, cranes and
+living accommodations. Our fleet consists of four liftboats, two of which have leg lengths of 200 feet. Upon arriving at a destination, a liftboat hydraulically lowers its legs until they are
+positioned on the ocean floor, and then jacks up until the work platform is sufficiently above the water level. Once positioned, the stability, open deck area, crane capacity, and relatively low cost
+of operation make liftboats ideal work platforms for a wide range of offshore activities, including platform construction, plug and abandonment services, and other non-oilfield related
+construction work. Our liftboats have either one or two cranes with lift capacities up to 75 tons. A liftboat's capability to reposition at a work site or to move to another work location within a
+short timeframe adds to its versatility. In addition, 
+5 
+liftboat services are also highly complementary to RPC's service lines within the Technical Services business segment as it relates to providing services offshore. 
+Pipe Inspection and Handling Services. Pipe inspection services involve the inspection and testing of the integrity of pipe
+used in oil and gas wells. These services are provided primarily at RPC's inspection yards located on a water channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on tubular
+inspection services to avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such tubular failures are expensive and, in some cases, catastrophic. RPC's yard in Houston,
+Texas is equipped with bulkhead waterfronts, large capacity cranes, specially designed forklifts and a
+computerized inventory system to serve a variety of other storage and handling services that can serve both oilfield and non-oilfield customers. 
+Well Control School. Well Control School provides industry and government accredited training for the oil and gas industry.
+Well Control School provides this training in various formats including conventional classroom training, interactive computer training and mobile simulator training. Well Control School also develops
+customized training solutions for clients. 
+Energy Personnel International. Energy Personnel International provides drilling and production engineers, project management
+specialists and workover specialists on a consulting basis to the oil and gas industry to meet customers' needs for staff engineering and wellsite management. 
+Industry 
+United States. RPC provides its services to its domestic customers through a network of strategic locations including the
+Gulf of Mexico, the mid-continent, the southwest and the Rocky Mountains. Demand for RPC's services in the U.S. tends to be extremely volatile and fluctuates with current and projected
+price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and
+production of oil and gas reserves. 
+Due
+to aging oilfields and lower-cost sources of oil internationally, drilling activity in the U.S. has declined more than 75 percent from its peak in 1981. Record low
+drilling activity levels were experienced in 1986, 1992 and again in 1999, with April 1999 recording the lowest U.S. drilling rig count in recorded history. 
+At
+the end of 2001, there were 887 domestic working drilling rigs, down 31 percent from the third quarter 2001 peak. U.S. domestic drilling activity in 2002 continued the decline
+that started in the fourth quarter of 2001. During 2002 the rig count fell to 738 in the second quarter. Although the prices of oil and natural gas began to rise during the year, drilling activity was
+not as closely correlated as in past cycles. The rig count began a slow recovery during the remainder of 2002 and stood at 862 by the end of the year. The average rig count for the calendar year 2002
+was 28 percent lower than in the calendar year 2001. 
+Historically,
+gas drilling rigs have typically represented just over 50 percent of the total drilling rig count. However, gas-directed drilling rigs have averaged
+approximately 70 percent of the total domestic drilling rig count during the past three years. Demand for natural gas is continuing to rise, primarily as
+a result of increased emphasis on gas-fired power generation. Based on the current demand for natural gas as well as the high well depletion rates experienced over the past several years,
+it is anticipated that gas-directed drilling will represent at least 70 percent of the total drilling rig count in the foreseeable future. The demand for RPC's services is driven
+more by gas-directed drilling than oil-directed drilling, because our services are more applicable to deeper, high pressure wells, which tend to be the wells that produce
+natural gas. 
+6 
+Thus,
+in North America the demand for our services and products associated with natural gas development is currently more robust than demand related to oil drilling. Drilling activity
+and demand for our services has started to increase and is expected to continue to increase when the domestic economy recovers and current high storage levels of natural gas decrease. 
+International. RPC has operated in several countries including the major international oil and natural gas producing areas of
+Algeria, Argentina, Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela. During 2002, RPC shut down its Venezuelan operation because of the high degree of risk associated with
+the political instability in that country. Also, RPC ceased its operation in Algeria during 2002 due to the termination of its contract under which it provided services in that country. We are
+evaluating new business opportunities in each of these markets and may resume our operations in one or both markets. 
+RPC
+provides services to its international customers through wholly-owned foreign subsidiaries or branch locations. The international market is somewhat less volatile than the U.S.
+market although prone to political uncertainties, the risk of civil unrest and conflicts. Due to the significant investment requirement and complexity of international projects, customers' drilling
+decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is
+dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Pursuing
+selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 13 in the Notes to Consolidated Financial Statements for further information on
+international operations. 
+Growth Strategies 
+RPC's primary objective is to provide stockholders with excellent long-term returns on their investment through the effective and conservative
+management of its invested capital, thus yielding strong cash flow and asset appreciation. This objective will be pursued through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected areas and markets in which we
+believe there exist opportunities for higher growth, market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added
+products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage or there exists significant growth potential. 
+RPC
+seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil
+and gas services industry, RPC believes a number of attractive acquisition opportunities exist. 
+Customers 
+Demand for RPC's services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity worldwide. RPC's principal customers consist of major and independent oil and natural gas producing companies. During 2002, RPC
+provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of consolidated revenues. While the loss of certain of RPC's largest customers could
+have a material adverse effect on Company revenues and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of
+any of its largest customers. Sales are generated by RPC's sales force and through referrals from existing customers. With the exception of RPC's international customers, there are no
+long-term written contracts for services or equipment. Due 
+7 
+to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no sales backlog. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. The products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of activity in major markets, general economic conditions and
+governmental regulation. RPC competes with the oil and gas industry's many large and small oilfield industry competitors, including the largest integrated oilfield services companies. RPC believes
+that the principal competitive factors in the market areas that it serves are product and service quality and availability, reputation for safety and technical proficiency and price. 
+The
+oil and gas services business includes a small number of dominant global competitors including Halliburton Energy Services, a division of Halliburton Company, and
+Schlumberger Ltd., and a significant number of locally oriented businesses, many of which tend to be viable acquisition targets. 
+Facilities/Equipment 
+RPC's equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and
+offshore customers. RPC's principal executive offices in Atlanta, Georgia are leased. During 2002, RPC also purchased real property and began construction of an administrative facility in Houston,
+Texas, which will be occupied during 2003 and eliminate the need for several leased office facilities in metropolitan Houston, Texas. RPC believes that its facilities are adequate for its current
+operations. RPC owns and operates four offshore liftboats. For additional information with respect to RPC's lease commitments, see Note 10 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC's business is significantly affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and
+regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by
+enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are
+subject to change, and new regulations may curtail or eliminate our customers' activities in certain areas of our operations. We cannot determine the extent to which new legislation may impact our
+customers' activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC's operations. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+8 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net , the annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange
+Commission and has done so since November 15, 2002. 
+Risk Factors 
+Demand for our products and services is affected by the volatility of oil prices. 
+Oil prices affect demand throughout the oil and natural gas industry, including the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital expenditures of our customers related to the exploration and production of oil and natural gas. When these expenditures
+decline, our customers' demand for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react
+to declining oil and gas prices by reducing their expenditures, which would adversely affect our business. A prolonged low level of activity in the oil and gas industry will adversely affect the
+demand for our products and services and our financial condition and results of operations. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services of each of our principal industry segments are sold in highly
+competitive markets, and our revenues and earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity in major markets, general economic
+conditions, and governmental regulation. We compete with the oil and gas industry's many large and small industry competitors, including the largest integrated oilfield service providers. We believe
+that the principal competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe
+that our reputation for safety and quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and will continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in
+connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own business. Any inability on our part to consolidate and manage the growth from acquired businesses could have a material
+adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in the Gulf of Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns, our
+crews may operate more days in some periods than others. Rainy weather, hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the year may also affect our
+operations. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control. 
+9 
+Our inability to attract and retain skilled workers may impair growth potential and profitability. 
+Our ability to remain productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The demand for skilled oilfield employees is high, and the supply is very limited. A significant increase in the wages paid
+by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+Our inability to perform services for a number of our large existing customers could have a material adverse effect on our business and operations. 
+Our inability to continue to perform services for a number of our large existing customers could have a material adverse effect on our business and operations.
+Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that
+customers may be similarly affected by changes in economic and
+industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. We maintain reserves for estimated credit
+losses. 
+Our business has potential liability for litigation, personal injury and property damage claims assessments. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location
+where our equipment and services are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. These occurrences could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you
+that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and assessments that may arise. 
+Our operations may be adversely affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or
+court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations
+for economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our
+offshore and onshore operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be
+unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. We believe that our present
+operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, 
+10 
+in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective
+actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in Africa, Canada and Latin America and other foreign countries are subject to risks inherent in doing business in foreign countries. These risks
+include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil disturbances. Although it is
+impossible to predict the likelihood of such occurrences or their effect on our operations, our management believes that these risks are acceptable. However, the occurrence of any one of these events
+could have a material adverse effect on our operations. 
+Our common stock price has been volatile. 
+Historically, the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of
+our common stock has varied significantly in the past. 
+Our management has a substantial ownership interest, and public shareholders may have no effective voice in the management of the Company. 
+RPC's executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 66 percent
+of RPC's outstanding common stock. As a result, these stockholders will effectively control the operations of RPC, including the election of directors and approval of significant corporate
+transactions such as acquisitions. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. In addition,
+the availability of RPC's common stock to the investing public is limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC's stock
+trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also
+negatively affect the trading price of our common stock. 
+ITEM 2. PROPERTIES 
+RPC owns or leases 61 offices and operating facilities. In addition, RPC leases 6,165 square feet of office space in Atlanta that serves as its headquarters. The
+lease agreement on the headquarters is effective through May 2007. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future
+needs. Descriptions of the major facilities of continuing operations are as follows: 
+Owned Locations 
+Houston, Texas—Pipe storage terminal, inspection shed, and pipe coating facility 
+Irving, Texas—Crane fabrication plant 
+Houma, Louisiana—Oil and gas administrative office 
+Morgan City, Louisiana—Pipe cleaning facility 
+Houston, Texas—Administrative office [Occupied in February 2003] 
+Leased Locations 
+Kilgore, Texas—Pumping services facility 
+Elk City, Oklahoma—Pumping services facility 
+11 
+ITEM 3. LEGAL PROCEEDINGS 
+RPC is a party to various routine legal proceedings primarily involving commercial claims, workers' compensation claims and claims for personal injury. RPC
+insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against
+liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on RPC's business or financial condition. 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+There were no matters submitted to a vote of security holders during the fourth quarter of 2002. 
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 
+Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors' meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and
+terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected 
+to Office 
+R. Randall Rollins 
+Chairman of the Board and Chief Executive Officer 
+71 
+1/24/84 
+Richard A. Hubbell 
+President and Chief Operating Officer 
+58 
+1/27/87 
+Linda H. Graham 
+Vice President and Secretary 
+66 
+1/27/87 
+Ben M. Palmer 
+Vice President, Chief Financial Officer and Treasurer 
+42 
+7/8/96 
+12 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
+RPC's common stock is listed for trading on the New York Stock Exchange under the symbol RES. At the close of business on February 24, 2003, there were
+approximately 2,200 holders of record of the Company's common stock. The following table sets forth the high and low prices of RPC's common stock for each quarter in the years ended
+December 31, 2002 and 2001: 
+2002 
+2001 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+17.800 
+$ 
+12.770 
+$ 
+0.025 
+$ 
+15.350 
+$ 
+10.400 
+$ 
+0.035 
+Second 
+16.700 
+8.500 
+0.025 
+16.300 
+11.450 
+0.025 
+Third 
+14.300 
+9.700 
+0.025 
+17.900 
+11.400 
+0.025 
+Fourth 
+12.750 
+8.800 
+0.025 
+17.900 
+12.300 
+0.025 
+The
+Company has paid cash dividends since the third quarter of 1997. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and
+financial condition of the Company and other relevant factors. After taking into consideration the spin-off of Marine Products in February 2001, the Company reduced the cash
+dividend in the second quarter of 2001 to $0.025 per share from $0.035 per share. 
+13 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following summary financial data of RPC highlights selected historical financial data and should be read in conjunction with the consolidated financial
+statements included elsewhere in this document. 
+STATEMENT OF OPERATIONS DATA: 
+Years Ended December 31, 
+2002 
+2001 
+2000 
+1999 
+1998 
+(In thousands, except employee, per share amounts and percentages) 
+Revenues 
+$ 
+209,030 
+$ 
+284,521 
+$ 
+201,958 
+$ 
+119,908 
+$ 
+154,352 
+Cost of services rendered and goods sold 
+143,362 
+168,152 
+124,989 
+83,762 
+97,266 
+Selling, general and administrative expenses 
+42,506 
+49,747 
+34,630 
+23,364 
+30,529 
+Depreciation and amortization 
+31,242 
+25,434 
+17,805 
+15,837 
+14,877 
+Operating profit (loss) 
+(8,080 
+) 
+41,188 
+24,534 
+(3,055 
+) 
+11,680 
+Interest (expense) income 
+(74 
+) 
+(65 
+) 
+1,443 
+1,485 
+1,783 
+Income (loss) from continuing operations before income taxes 
+(8,154 
+) 
+41,123 
+25,977 
+(1,570 
+) 
+13,463 
+Income tax provision (benefit) 
+(2,894 
+) 
+15,627 
+9,850 
+(603 
+) 
+5,112 
+Income (loss) from continuing operations 
+(5,260 
+) 
+25,496 
+16,127 
+(967 
+) 
+8,351 
+Income from discontinued operation, net of income taxes 
+— 
+1,486 
+13,961 
+9,118 
+7,674 
+Net income (loss) 
+$ 
+(5,260 
+) 
+$ 
+26,982 
+$ 
+30,088 
+$ 
+8,151 
+$ 
+16,025 
+Earnings (loss) per share—basic: 
+Income (loss) from continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.91 
+$ 
+0.58 
+$ 
+(0.03 
+) 
+$ 
+0.29 
+Income from discontinued operation 
+— 
+0.05 
+0.50 
+0.32 
+0.26 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.96 
+$ 
+1.08 
+$ 
+0.29 
+$ 
+0.55 
+Earnings (loss) per share—diluted: 
+Income (loss) from continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.89 
+$ 
+0.57 
+$ 
+(0.03 
+) 
+$ 
+0.29 
+Income from discontinued operation 
+— 
+0.05 
+0.49 
+0.32 
+0.26 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.94 
+$ 
+1.06 
+$ 
+0.29 
+$ 
+0.55 
+OTHER DATA: 
+Operating margin percent 
+(3.9 
+)% 
+14.5 
+% 
+12.1 
+% 
+(2.5 
+)% 
+7.6 
+% 
+Net cash provided by continuing operations 
+$ 
+27,556 
+$ 
+55,938 
+$ 
+11,272 
+$ 
+16,419 
+$ 
+16,808 
+Net cash used for investing activities 
+(21,831 
+) 
+(46,357 
+) 
+(19,890 
+) 
+(16,352 
+) 
+(17,145 
+) 
+Net cash used for financing activities 
+(4,927 
+) 
+(4,283 
+) 
+(4,392 
+) 
+(9,388 
+) 
+(13,233 
+) 
+Depreciation and amortization(a) 
+31,342 
+25,536 
+17,995 
+15,962 
+14,937 
+Capital expenditures 
+$ 
+22,481 
+$ 
+45,850 
+$ 
+35,526 
+$ 
+20,319 
+$ 
+28,840 
+Employees at end of period(b) 
+1,419 
+1,533 
+1,487 
+1,066 
+1,043 
+BALANCE SHEET DATA: 
+Accounts receivable, net 
+$ 
+40,168 
+$ 
+46,928 
+$ 
+55,485 
+$ 
+33,454 
+$ 
+23,080 
+Working capital 
+49,495 
+42,513 
+47,794 
+25,851 
+28,827 
+Property, plant and equipment, net 
+105,338 
+115,046 
+85,032 
+68,758 
+64,438 
+Total assets(c) 
+195,954 
+202,402 
+277,915 
+235,715 
+219,677 
+Long-term debt 
+2,410 
+2,937 
+848 
+1,547 
+636 
+Total stockholders' equity(c) 
+$ 
+145,081 
+$ 
+156,436 
+$ 
+169,319 
+$ 
+142,808 
+$ 
+143,066 
+(a) Depreciation
+and amortization was derived from the statements of cash flows. This amount differs from depreciation and amortization presented on the statements of operations due to
+depreciation related to the manufacturing of goods which is included in cost of services rendered and goods sold.
+(b) Represents
+employees of continuing operations for all periods presented.
+(c) Includes
+assets and stockholders' equity associated with the discontinued operation prior to 2001. 
+14 
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+The following discussion should be read in conjunction with "Selected Financial Data," and the "Consolidated Financial Statements" included elsewhere in this
+document. See also "FORWARD-LOOKING STATEMENTS" on page 2. 
+Critical Accounting Policies 
+The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the
+industry, and information available from other outside sources, as appropriate. The Company believes that of its significant accounting policies the following involve a higher degree of judgment and
+complexity: 
+Allowance
+for doubtful accounts—Accounts receivable are reduced by an allowance for amounts that may not be collected in the future. Substantially all of the Company's
+receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign national owned oil companies. We have established credit
+evaluation procedures that seek to minimize the amount of business we conduct with higher risk customers. Our customers' ability to pay is directly
+related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. The estimated allowance for doubtful accounts is
+based on management's evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical collection experience, and in the case of foreign customers,
+our judgments about the economic and political environment of the related country and region. We have favorable collections experience with most of our customers except for certain companies owned by
+foreign governments that tend to extend their payments. 
+Income
+taxes—The determination of our income tax provision is complex due to operations in several tax jurisdictions outside the United States which may be subject to certain
+risks that ordinarily would not be expected in the United States. Tax regimes in certain jurisdictions are subject to significant changes, which may be applied on a retroactive basis. If this were to
+occur, our tax expense could be materially different than the amounts reported. Furthermore, in determining the valuation allowance related to deferred tax assets, we estimate taxable income into the
+future and determine the magnitude of deferred tax assets that are more likely than not to be realized. 
+Accrued
+insurance liabilities—The Company has exposure to various contingent liabilities and future claims. The Company self insures, up to specified limits, certain risks
+related to general liability, workers' compensation, vehicle and equipment liability, and employee health insurance plan costs. The cost of claims under these self-insurance programs are
+estimated and accrued as the claims are incurred although actual settlement of the claims may not be made until future periods. These claims are monitored and the cost estimates are revised as
+developments occur relating to such claims. To estimate the ultimate cost of the claims, the Company applies loss development factors to its outstanding claims and uses its experience, and where
+appropriate, the advice of outside counsel or other experts. The non-current portion of these estimated outstanding claims is classified as long-term accrued insurance
+expenses. Upon the ultimate resolution of these uncertainties, our future financial results will be impacted by the difference between our estimates and the actual amounts paid to settle the
+liability. 
+Depreciable
+life of assets—The selection of the useful lives of many of the assets require the judgment of our personnel to estimate the length of their useful lives. To the
+extent that the estimate differs from the actual life of the assets, our future financial results could be impacted by any changes to the depreciable lives. We believe the current estimates of the
+useful lives are reasonable. 
+15 
+Pension
+liabilities—Pension costs are actuarially determined and affected by assumptions including the discount rate, the estimated future return on plan assets and other
+factors. The Company evaluates assumptions used on a periodic basis and makes adjustments to these liabilities as necessary. The Company utilizes the Moody's Aa long-term corporate bond
+yield as a basis for determining the discount rate with a yield adjustment made for the longer duration of the Company's obligations. The Company evaluates its assumption regarding the estimated
+long-term rate of return on plan assets based on the historical experience and future expectation on investment returns. The Company chooses a rate of return on plan assets that it
+believes is an appropriate long-term average return. The expected return on plan assets takes into account estimated future investment returns for various asset classes held in
+the plans' portfolio. To the extent changes are required in the assumptions discussed above, the Company's recorded liabilities may have to be adjusted and may result in material impact to the results
+of operations. 
+Results of Operations 
+Year Ended December 31, 2002 Compared To Year Ended December 31, 2001 
+Revenues. RPC generated revenues of $209,030,000 in 2002 compared to $284,521,000 in 2001, a decrease of $75,491,000 or
+27 percent. Revenues decreased as a result of weak drilling activity domestically and the shut down of operations in Algeria and Venezuela early in the second quarter, which were previously our
+largest international operations. The assets and personnel involved in these operations related to both the Technical and Support Services business segments and were re-deployed to the
+extent possible in our domestic market areas. The domestic rig count continued the decline begun in the fourth quarter of 2001 and hit a low of 738 early in the second quarter of 2002. The average
+domestic rig count was 830 in 2002 compared to 1,156 in 2001, a 28 percent decrease. 
+Although
+oil prices increased 29 percent from the first quarter 2002 to the fourth quarter 2002 and natural gas prices rose 65 percent during the same period, the rise in
+commodity prices failed to lead to a significant increase in drilling activity during the year. Some of the factors causing this continued depressed activity during 2002 were U.S. domestic economic
+weakness, global political uncertainty, and a warmer than average winter. 
+Cost of Services Rendered and Goods Sold. Cost of services rendered and goods sold were $143,362,000 in 2002 compared to
+$168,152,000 in 2001, a 15 percent decrease. This decrease was due to lower customer activity levels and RPC's cost reduction efforts. Cost of services rendered and goods sold increased from
+59 percent of revenues in 2001 to 69 percent in 2002. This percentage increase resulted from lower utilization of equipment and personnel during the period and because of the fixed
+nature of many of these expenses. The rate of decline in cost of services rendered and goods sold was lower than the corresponding rate of decline in revenues, because of weaker industry conditions,
+resulting in significantly lower pricing for our services. Beginning in the fourth quarter of 2001 and continuing throughout 2002, the Company made efforts to reduce its costs of providing services
+including reducing its employee headcount. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses were $42,506,000 in 2002 compared
+to $49,747,000 in 2001. This decrease of $7,241,000, or 15 percent, was
+primarily the result of decreased employment costs from expense reduction efforts prompted by reduced revenues and reduction in activity. Selling, general and administrative expenses as a percent of
+revenues increased from 17 percent in 2001 to 20 percent in 2002. The decrease also resulted from the elimination of several small non-oilfield business units which did not
+incur expenses during 2002. Selling, general and administrative expenses also declined as a result of the shut down of our operations in Algeria and Venezuela and the deployment of those resources to
+lower cost operating environments. However, the rate of decline in selling, general and administrative expenses was lower than the rate of decline in revenues due to the fixed nature of many of these
+expenses. 
+16 
+Depreciation and Amortization. Depreciation and amortization were $31,242,000 in 2002, an increase of $5,808,000 or
+23 percent compared to $25,434,000 in 2001. The increase in depreciation and amortization resulted from the cumulative effect of the higher levels of growth capital expenditures made during the
+past few years, offset slightly by relatively lower capital expenditures during 2002 and the cessation of goodwill amortization. Beginning in 2002, RPC ceased amortizing goodwill pursuant to
+SFAS 142. In 2001, the amortization of goodwill was approximately $382,000. 
+Operating Profit (Loss). Operating loss was $8,080,000 in 2002, a decrease of $49,268,000, compared to an operating profit of
+$41,188,000 in 2001. This significant decline in operating profit resulted from an overall weakening in industry conditions, offset somewhat by RPC's cost reduction efforts, as discussed above. 
+Interest (Expense) Income, net. Interest expense was $74,000 in 2002 compared to $65,000 in 2001. RPC's interest expense
+relates to notes payable to the former owners of its acquired businesses, and is offset by interest income from investment of its available cash. RPC's available cash is invested in
+short-term marketable debt securities. The increase in interest expense, net of interest income, was due to notes associated with acquisitions consummated in 2001, lower investment
+returns, and lower cash and marketable securities balances during 2002. See "Liquidity and Capital Resources" for additional explanations. 
+Income Tax Provision (Benefit). The effective income tax rate for 2002 was 35.5 percent while the rate for 2001 was
+38 percent. The decrease in the tax rate is primarily due to unrecognized tax benefits because of losses incurred in 2002. 
+Income (Loss) from Continuing Operations (net of income taxes). RPC's loss from continuing operations was $5,260,000, a
+decrease of $30,756,000 compared to an income of $25,496,000 in 2001. This decline is consistent with the decreases in operating profit. 
+Income from Discontinued Operation (net of income taxes). RPC realized no income or loss from discontinued operations in
+2002, compared to net income from discontinued operations of $1,486,000 in 2001. This decrease is due to the spin-off of RPC's powerboat manufacturing segment in February 2001,
+which was classified as a discontinued operation during 2001. 
+Year Ended December 31, 2001 Compared To Year Ended December 31, 2000 
+Revenues. RPC generated revenues of $284,521,000 in 2001 compared to $201,958,000 in 2000, an increase of $82,563,000 or
+41 percent. Revenues increased as a result of improvements in overall customer activity levels domestically and internationally, as the average domestic rig count was 1,207 during the first
+three quarters of 2001 compared to 1,114 at the end of 2000. Also contributing to the strength of reported revenues was the addition of new equipment through asset purchases and acquisitions of
+businesses. 
+Beginning
+in the fourth quarter of 2001, the domestic rig count experienced its second steepest quarterly decline since 1992. At the end of the fourth quarter of 2001, the number of
+active drilling rigs in the United States was approximately 31 percent lower than its July 2001 peak. Other factors that contributed to the decreased revenues in the fourth quarter of
+2001 were the lower price for natural gas, terrorism and the war in Afghanistan, economic recession, and political instability in Venezuela. The demand for our services decreased in the fourth quarter
+of 2001 as many energy companies responded to the lower prices for oil and natural gas by curtailing their capital expenditures. 
+Cost of Services Rendered and Goods Sold. Cost of services rendered and goods sold were $168,152,000 in 2001 compared to
+$124,989,000 in 2000. Cost of services rendered and goods sold, as a percent of revenues, decreased from 62 percent in 2000 to 59 percent in 2001. This improvement 
+17 
+resulted from an improved operating environment allowing for better utilization of our equipment and personnel and improved pricing. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses were $49,747,000 in 2001 compared
+to $34,630,000 in 2000. This increase of $15,117,000, or 44 percent, was due to additional overhead required to administer the significant growth in the Company's oil and gas service lines as
+well as additional overhead from acquisitions made during the year. Selling, general and administrative expenses as a percent of revenues were 17 percent of revenues in 2001 and 2000. 
+Depreciation and Amortization. Depreciation and amortization were $25,434,000 in 2001, an increase of $7,629,000 or
+43 percent compared to $17,805,000 in 2000. This increase in depreciation and
+amortization results primarily from capital expenditures relating to the pressure pumping service line, and various maintenance and growth capital expenditures in other oil and gas service lines. 
+Operating Profit (Loss). Operating profit was $41,188,000 in 2001, an increase of $16,654,000, or 68 percent, compared
+to $24,534,000 in 2000. This significant improvement in operating profit resulted from improvements in industry conditions in the first three quarters of 2001, offset by the fourth quarter's sharp
+retraction and weakened industry conditions. 
+Interest (Expense) Income, net. Interest expense was $65,000 in 2001 compared to interest income of $1,443,000 in 2000. RPC
+generates interest income from investment of its available cash primarily in marketable securities. The decrease in interest income results primarily from a decrease in average investable cash
+balances. 
+Income Tax Provision (Benefit). The effective income tax rate in 2001 of 38 percent was the same in 2000. 
+Income (Loss) from Continuing Operations (net of income taxes). RPC's income from continuing operations was $25,496,000, an
+increase of $9,369,000 or 58 percent compared to $16,127,000 in 2000. This improvement is consistent with the increases in operating profit, as the income tax rate was the same in both periods. 
+Income from Discontinued Operation (net of income taxes). RPC's powerboat manufacturing segment, classified as a discontinued
+operation, earned $1,486,000 in 2001 compared to $13,961,000 in 2000. This decrease was due primarily to the fact that the discontinued operation was included in RPC's consolidated financial results
+for the first two months of 2001 prior to its spin-off, compared to being included for the full year of 2000. 
+Liquidity and Capital Resources 
+In February 2001, the Company spun off its powerboat manufacturing segment in a tax-free spin-off. Historically, the powerboat
+manufacturing segment generated more cash than it needed to fund its operations and the excess was transferred to RPC. Subsequent to the spin-off, any excess cash generated by the
+spun-off segment is no longer available to the Company. 
+The
+Company's decisions about the amount of cash to be used for investing and financing purposes are influenced by our capital position and the amount of cash expected to be provided by
+operations. The Company's liquidity requirements are used to fund expansion of our working capital as business activity levels increase, to fund growth and maintenance capital expenditures and to fund
+acquisitions of other
+businesses. In addition, the Company uses its liquidity to pay dividends to its common stockholders and to repurchase common stock on the open market. 
+Our
+primary sources of liquidity have been cash provided from operations and debt provided by sellers of acquired businesses, supplemented where needed, by access to a $25 million
+credit facility with a financial institution encompassing letters of credit and a demand note. The credit facility is 
+18 
+renewable annually with interest payable monthly on outstanding advances under the demand note generally at LIBOR plus 50 basis points. Generally we have not maintained balances under this bank note
+for extended periods of time. Unless we were to make a large strategic business acquisition, we do not currently anticipate maintaining large outstanding debt balances in the future. Beginning in the
+fourth quarter of 2001 and throughout 2002, the Company reduced its capital expenditure levels in response to weaker industry conditions and uncertain timing of a recovery in customer activity levels.
+In addition, the Company has been assessing current operations and focusing on reducing costs to enhance the Company's financial performance. 
+Cash
+provided by continuing operations was generated primarily from continuing operations (adjusted for depreciation and amortization) offset slightly by higher working capital
+requirements at December 31, 2002 compared to December 31, 2001. Income taxes receivable increased $6,564,000 at December 31, 2002 because of the operating losses and favorable
+temporary differences such as accelerated depreciation. Accounts receivable decreased to $40,168,000 at December 31, 2002 compared to $46,928,000 at December 31, 2001 because of the
+decrease in business activity levels and revenues. Accrued payroll and related expenses decreased $2,482,000 due to fewer employees and lower incentive compensation payable corresponding to the lower
+profitability in 2002. 
+Net
+cash used for investing activities decreased to $21,831,000 in 2002 from $46,357,000 in 2001. The reduction is attributable to lower levels of capital expenditures in response to
+weaker business conditions and the absence of payments to Marine Products in 2002, while the Company had to transfer cash and marketable securities of $13,800,000 to Marine Products in 2001 in
+connection with the spin-off. In addition, there were no acquisitions completed during 2002 while Sooner Testing and Mathews Energy Services were acquired in 2001. During 2002, the Company
+made earnout payments of $1,885,000 relating to the 2001 performance of companies acquired in prior years. 
+Net
+cash used for financing activities increased to $4,927,000 in 2002 from $4,283,000 in 2001. The increase was due to higher debt payments related to acquisitions from prior years,
+increased costs associated with the repurchase of RPC's common stock, and fewer proceeds being received from the exercise of employee stock options. This increase was offset by lower dividend payments
+in 2002 compared to 2001, due to a change in RPC's dividend declared per common share following the spin-off of its powerboat manufacturing segment. In addition, there were no payments to
+Marine Products in 2002 while there were payments totaling $614,000 to Marine Products in 2001 in connection with the spin-off. 
+Management
+has commenced preliminary discussions with a number of companies engaged in complementary businesses to explore the potential for mutually beneficial business arrangements.
+While RPC has historically completed acquisitions using a combination of cash and seller financing, RPC used its stock in the acquisition of Mathews Energy Services, and expects to use its stock as
+acquisition currency in one or more future transactions. RPC is currently negotiating the purchase of a company specializing in rental and service of hydraulic chokes, valves, manifolds and flow iron.
+The consideration will total approximately $11,000,000 funded through a combination of cash, seller-financed debt and Company stock. RPC expects to close the transaction in the near future, but there
+is no guarantee that the transaction will be consummated on these or any other terms. 
+The
+Company's Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In the first quarter of 2002,
+the Company's Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan effective March 31, 2002. However, the adverse conditions
+in the equity markets, along with the low interest rate environment, have had an unfavorable impact on the funded status of the Company's defined benefit pension plan. Additional contributions to the
+pension plan may be required in 2003 to achieve the Company's funding objectives. 
+19 
+The
+Company's obligations and commitments that require future payments include notes payable in connection with acquisitions, a capital lease, a bank demand note, and certain
+non-cancelable operating leases. As of December 31, 2002, these obligations and commitments totaled approximately $7,135,000 with expected payments as follows: 
+Payments due by period 
+Contractual obligations 
+Total 
+Less than 
+1 year 
+1-3 
+years 
+3-5 
+years 
+More than 
+5 years 
+(in thousands) 
+Long-term debt 
+$ 
+2,830 
+$ 
+420 
+$ 
+2,410 
+$ 
+— 
+$ 
+— 
+Capital lease obligations 
+132 
+132 
+— 
+— 
+— 
+Operating leases 
+4,173 
+1,452 
+2,659 
+62 
+— 
+Total contractual obligations 
+$ 
+7,135 
+$ 
+2,004 
+$ 
+5,069 
+$ 
+62 
+$ 
+— 
+We
+believe the liquidity provided by our existing cash, cash equivalents and marketable securities, and cash expected to be generated from operations, will be sufficient to meet our
+liquidity requirements through at least December 31, 2003. We believe our liquidity and overall strong capital position will allow us to continue to grow and provide the opportunity to take
+advantage of business opportunities that may arise. 
+Related Party Transactions 
+Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements are more fully
+described in Note 2 to the consolidated financial statements. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately
+$454,000 in 2002 and $868,000 in 2001. The Company's directors are also directors of Marine Products and certain officers are employees of both the Company and Marine Products. 
+The
+Company periodically purchases in the ordinary course of business products or services from vendors who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. During 2002, the total amounts paid to these affiliated parties totaled approximately $502,000. In addition, during 2002, the overhead crane fabrication division of RPC recorded
+$332,000 in revenues, from the powerboat manufacturing segment that is now a subsidiary of Marine Products pursuant to the spin-off, related to the sale, installation and service of
+overhead cranes. 
+New Accounting Standards 
+In June 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") SFAS No. 143, "Accounting for Asset Retirement Obligations,"
+which addresses accounting and reporting for asset retirement costs of long-lived assets resulting from legal obligations associated with acquisition, construction or development
+transactions. The Company adopted SFAS No. 143 on January 1, 2003. Management has determined the adoption of this statement will not have a material effect on the financial positions,
+results of operations or liquidity of the Company. 
+In
+April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
+which rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
+Sinking-Fund Requirements," and SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends SFAS No. 13, "Accounting for Leases." This
+Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted
+the provisions of SFAS No. 145 related to the rescission of SFAS 
+20 
+No. 4 on January 1, 2003. The Company adopted the provisions of this SFAS No. 145 related to Statement 13, as well as all other provisions of this Statement, effective
+May 15, 2002. The adoption of these provisions did not have a material impact on the Company's financial position, results of operations or liquidity for the year ended December 31,
+2002. The Company does not believe the impact of adopting the provisions of SFAS No. 145 related to the rescission of SFAS No. 4 will have a material impact on its financial position,
+results of operations or liquidity. 
+In
+June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires that a liability for a cost associated with
+an exit or disposal activity be recognized when the liability is incurred and replaces the current accounting for costs associated with an exit or disposal activity contained in Emerging Issues Task
+Force ("EITF") 94-3. The Company adopted SFAS No. 146 on January 1, 2003. Management believes that the adoption of this statement will not have a material effect on the
+financial position, results of operations or liquidity of the Company. 
+In
+December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." This statement provides alternative methods of
+transition for a voluntary change to the fair value-based method of accounting for employee stock based compensation and requires expanded disclosure regarding stock-based compensation in the "Summary
+of Significant Accounting Policies," or its equivalent, in the Notes to the Consolidated Financial Statements about the method of accounting and the effect of the method used on reported results. The
+disclosure provisions of this statement are effective for financial statements issued for fiscal years ending after December 15, 2002. The Company does not currently expect to transition to
+using the fair value-based method of accounting for stock-based compensation; therefore, management believes the adoption of SFAS No. 148 will not have a material effect on the financial
+position, results of operations or liquidity of the Company. 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+RPC maintains an investment portfolio, comprised of U.S. Government, corporate and municipal debt securities, which is subject to interest rate risk exposure. As
+of December 31, 2002, we are not subject to material interest rate risk exposure on these securities since they are highly liquid with maturities of three months or less. Also, as of
+December 31, 2002, RPC had debt with variable interest rates that exposes RPC to certain market risks. RPC has performed an interest rate sensitivity analysis related to the debt instruments
+using a duration model over the near term of the securities and the term of the debt with a 10 percent change in interest rates. RPC is not subject to material interest rate risk exposure based
+on this analysis, and no material changes in market risk exposures or how those risks are managed is expected. 
+As
+of December 31, 2002, RPC had accounts receivable of approximately $40 million (net of an allowance for doubtful accounts of approximately $2 million). RPC is
+subject to a concentration of credit risk because most of the accounts receivable are due from companies in the oil and gas industry. 
+21 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+CONSOLIDATED BALANCE SHEETS 
+RPC, Inc. and Subsidiaries 
+(in thousands except share information) 
+December 31, 
+2002 
+2001 
+ASSETS 
+Cash and cash equivalents 
+$ 
+11,533 
+$ 
+10,735 
+Accounts receivable, net 
+40,168 
+46,928 
+Inventories 
+9,206 
+8,412 
+Deferred income taxes 
+5,873 
+6,270 
+Income taxes receivable 
+8,817 
+2,072 
+Prepaid expenses and other current assets 
+3,478 
+3,704 
+Current assets 
+79,075 
+78,121 
+Property, plant and equipment, net 
+105,338 
+115,046 
+Intangibles, net 
+9,609 
+7,804 
+Other assets 
+1,932 
+1,431 
+Total assets 
+$ 
+195,954 
+$ 
+202,402 
+LIABILITIES AND STOCKHOLDERS' EQUITY 
+Accounts payable 
+$ 
+12,280 
+$ 
+12,075 
+Accrued payroll and related expenses 
+8,160 
+10,642 
+Accrued insurance expenses 
+4,115 
+5,980 
+Accrued state, local and other taxes 
+1,659 
+2,896 
+Short-term debt 
+552 
+1,390 
+Other accrued expenses 
+2,814 
+2,625 
+Current liabilities 
+29,580 
+35,608 
+Long-term accrued insurance expenses 
+3,583 
+4,121 
+Long-term debt 
+2,410 
+2,937 
+Long-term pension liability 
+6,412 
+1,389 
+Deferred income taxes 
+8,888 
+1,911 
+Total liabilities 
+50,873 
+45,966 
+Commitments and contingencies 
+Preferred stock, $.10 par value, 1,000,000 shares authorized, none issued 
+Common stock, $.10 par value, 79,000,000 shares authorized, 28,607,601 shares issued in 2002, 28,690,690 shares issued in 2001 
+2,861 
+2,869 
+Capital in excess of par value 
+26,431 
+27,182 
+Earnings retained 
+119,619 
+127,246 
+Accumulated other comprehensive loss 
+(3,830 
+) 
+(861 
+) 
+Total stockholders' equity 
+145,081 
+156,436 
+Total liabilities and stockholders' equity 
+$ 
+195,954 
+$ 
+202,402 
+The accompanying notes are an integral part of these statements. 
+22 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+RPC, Inc. and Subsidiaries 
+(in thousands except per share data) 
+Years ended December 31, 
+2002 
+2001 
+2000 
+REVENUES 
+$ 
+209,030 
+$ 
+284,521 
+$ 
+201,958 
+COSTS AND EXPENSES: 
+Cost of services rendered and goods sold 
+143,362 
+168,152 
+124,989 
+Selling, general and administrative expenses 
+42,506 
+49,747 
+34,630 
+Depreciation and amortization 
+31,242 
+25,434 
+17,805 
+Operating profit (loss) 
+(8,080 
+) 
+41,188 
+24,534 
+Interest (expense) income, net 
+(74 
+) 
+(65 
+) 
+1,443 
+Income (loss) from continuing operations before income taxes 
+(8,154 
+) 
+41,123 
+25,977 
+Income tax provision (benefit) 
+(2,894 
+) 
+15,627 
+9,850 
+Income (loss) from continuing operations 
+(5,260 
+) 
+25,496 
+16,127 
+Income from discontinued operation, net of income taxes of $834 in 2001 and $8,591 in 2000 
+— 
+1,486 
+13,961 
+Net income (loss) 
+$ 
+(5,260 
+) 
+$ 
+26,982 
+$ 
+30,088 
+EARNINGS (LOSS) PER SHARE—BASIC 
+Income (loss) from continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.91 
+$ 
+0.58 
+Income from discontinued operation 
+— 
+0.05 
+0.50 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.96 
+$ 
+1.08 
+EARNINGS (LOSS) PER SHARE—DILUTED 
+Income (loss) from continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.89 
+$ 
+0.57 
+Income from discontinued operation 
+— 
+0.05 
+0.49 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.94 
+$ 
+1.06 
+Dividends paid per share 
+$ 
+0.10 
+$ 
+0.11 
+$ 
+0.14 
+The accompanying notes are an integral part of these statements . 
+23 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
+AND COMPREHENSIVE INCOME (LOSS) 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Common Stock 
+Capital in 
+Excess of 
+Par Value 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Three Years Ended December 31, 2002 
+Comprehensive 
+Income (Loss) 
+Earnings 
+Retained 
+Shares 
+Amount 
+Total 
+Balance, December 31, 1999 
+28,262 
+$ 
+2,826 
+$ 
+22,548 
+$ 
+117,434 
+$ 
+— 
+$ 
+142,808 
+Stock issued for stock incentive plans, net 
+81 
+8 
+319 
+380 
+— 
+707 
+Stock purchased and retired 
+(40 
+) 
+(4 
+) 
+(326 
+) 
+— 
+— 
+(330 
+) 
+Net income/comprehensive income 
+$ 
+30,088 
+— 
+— 
+30,088 
+— 
+30,088 
+Dividends declared 
+— 
+— 
+(3,954 
+) 
+— 
+(3,954 
+) 
+Balance, December 31, 2000 
+28,303 
+2,830 
+22,541 
+143,948 
+— 
+169,319 
+Stock issued for stock incentive plans, net 
+169 
+17 
+1,489 
+(298 
+) 
+— 
+1,208 
+Stock purchased and retired 
+(61 
+) 
+(6 
+) 
+(820 
+) 
+— 
+— 
+(826 
+) 
+Spin-off of Marine Products Corporation 
+— 
+— 
+(40,250 
+) 
+— 
+(40,250 
+) 
+Stock issued in connection with purchase of business 
+280 
+28 
+3,972 
+— 
+— 
+4,000 
+Net income 
+$ 
+26,982 
+— 
+— 
+26,982 
+— 
+26,982 
+Minimum pension liability adjustment, net of taxes of $528 
+(861 
+) 
+— 
+— 
+— 
+(861 
+) 
+(861 
+) 
+Comprehensive income 
+$ 
+26,121 
+Dividends declared 
+— 
+— 
+(3,136 
+) 
+— 
+(3,136 
+) 
+Balance, December 31, 2001 
+28,691 
+2,869 
+27,182 
+127,246 
+(861 
+) 
+156,436 
+Stock issued for stock incentive plans, net 
+1 
+1 
+122 
+500 
+— 
+623 
+Stock purchased and retired 
+(85 
+) 
+(9 
+) 
+(873 
+) 
+— 
+— 
+(882 
+) 
+Net loss 
+$ 
+(5,260 
+) 
+— 
+— 
+(5,260 
+) 
+— 
+(5,260 
+) 
+Minimum pension liability adjustment, net of taxes of $1,909 
+(3,114 
+) 
+— 
+— 
+— 
+(3,114 
+) 
+(3,114 
+) 
+Unrealized gain on securities, net of taxes of $90 
+145 
+145 
+145 
+Comprehensive loss 
+$ 
+(8,229 
+) 
+Dividends declared 
+— 
+— 
+(2,867 
+) 
+— 
+(2,867 
+) 
+Balance, December 31, 2002 
+28,607 
+$ 
+2,861 
+$ 
+26,431 
+$ 
+119,619 
+$ 
+(3,830 
+) 
+$ 
+145,081 
+The accompanying notes are an integral part of these statements . 
+24 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Years ended December 31, 
+2002 
+2001 
+2000 
+OPERATING ACTIVITIES 
+Net income (loss) 
+$ 
+(5,260 
+) 
+$ 
+26,982 
+$ 
+30,088 
+Noncash charges (credits) to earnings: 
+Depreciation and amortization 
+31,342 
+25,536 
+17,995 
+Gain on sale of equipment and property 
+(1,353 
+) 
+(1,642 
+) 
+(1,849 
+) 
+Deferred income tax provision (benefit) 
+9,193 
+1,400 
+(767 
+) 
+Income from discontinued operation 
+— 
+(1,486 
+) 
+(13,961 
+) 
+(Increase) decrease in assets: 
+Accounts receivable 
+6,760 
+8,557 
+(22,031 
+) 
+Inventories 
+(794 
+) 
+(883 
+) 
+(1,284 
+) 
+Income taxes receivable 
+(6,564 
+) 
+(2,072 
+) 
+1,806 
+Prepaid expenses and other current assets 
+461 
+(1,382 
+) 
+(536 
+) 
+Other noncurrent assets 
+(501 
+) 
+(234 
+) 
+(304 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+205 
+1,838 
+(1,380 
+) 
+Income taxes payable 
+— 
+(2,717 
+) 
+2,937 
+Accrued payroll and related expenses 
+(2,482 
+) 
+4,061 
+2,350 
+Accrued insurance expenses 
+(2,403 
+) 
+(833 
+) 
+158 
+Other accrued expenses and accrued state, local and other taxes 
+(1,048 
+) 
+(1,187 
+) 
+(1,950 
+) 
+Net cash provided by continuing operations 
+27,556 
+55,938 
+11,272 
+Net cash provided by discontinued operation 
+— 
+— 
+13,600 
+Net cash provided by operating activities 
+27,556 
+55,938 
+24,872 
+INVESTING ACTIVITIES 
+Capital expenditures 
+(22,481 
+) 
+(45,850 
+) 
+(35,526 
+) 
+Purchase of businesses 
+(1,885 
+) 
+(8,391 
+) 
+— 
+Proceeds from sale of assets 
+2,535 
+3,961 
+3,723 
+Net sale of marketable securities 
+— 
+17,756 
+11,913 
+Transfer of cash and marketable securities to discontinued operation 
+— 
+(13,833 
+) 
+— 
+Net cash used for investing activities 
+(21,831 
+) 
+(46,357 
+) 
+(19,890 
+) 
+FINANCING ACTIVITIES 
+Payment of dividends 
+(2,867 
+) 
+(3,136 
+) 
+(3,954 
+) 
+Payment to discontinued operation 
+— 
+(614 
+) 
+— 
+Payments on debt 
+(1,365 
+) 
+(241 
+) 
+(484 
+) 
+Cash paid for common stock purchased and retired 
+(882 
+) 
+(826 
+) 
+(330 
+) 
+Proceeds received upon exercise of stock options 
+187 
+534 
+376 
+Net cash used for financing activities 
+(4,927 
+) 
+(4,283 
+) 
+(4,392 
+) 
+Net increase in cash and cash equivalents 
+798 
+5,298 
+590 
+Cash and cash equivalents at beginning of year 
+10,735 
+5,437 
+4,847 
+Cash and cash equivalents at end of year 
+$ 
+11,533 
+$ 
+10,735 
+$ 
+5,437 
+The accompanying notes are an integral part of these statements. 
+25 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2002, 2001 and 2000 
+Note 1: Significant Accounting Policies 
+Principles of Consolidation and Basis of Presentation 
+The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries ("RPC" or the "Company"). All significant
+intercompany accounts and transactions have been eliminated. On February 28, 2001, the Company distributed the powerboat manufacturing segment of the Company to RPC stockholders through a
+tax-free spin-off transaction (the "spin-off"). Accordingly, as discussed in Note 2, this segment has been accounted for as a discontinued operation and the
+accompanying consolidated financial statements for all periods presented have been restated to report separately the cashflows and operating results of this discontinued operation. 
+Nature of Operations 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected
+international markets. The services and equipment provided include Technical Services such as snubbing services, coiled tubing services, pressure pumping services, nitrogen services, and firefighting
+and well control, and Support Services such as the rental of drill pipe
+and other specialized oilfield equipment, marine services, and oilfield training. RPC acts as a holding company for its operating subsidiaries, Cudd Pressure Control, Inc., Patterson
+Services, Inc. and Patterson Tubular Services, Inc. together with other smaller non-core businesses. 
+Use of Estimates in the Preparation of Financial Statements 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
+assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
+and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant
+estimates are used in the determination of allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets and pension liabilities. 
+Revenues 
+The Company's revenue recognition policy is in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue
+Recognition in Financial Statements," which clarifies the basic criteria for recognizing revenue. RPC recognizes revenue when an agreement exists, prices are determinable, services and products are
+delivered and collectibility is reasonably assured. 
+During
+2002, the Company adopted Emerging Issues Task Force ("EITF") No. 01-14 "Income Statement Characterization of Reimbursements Received for
+'Out-of-Pocket' Expenses Incurred," which clarifies that the classification of such expenses be reported gross in the statement of operations. The effect of this adoption was
+to increase revenues and cost of services rendered and goods sold by $3,312,000, $4,595,000 and $3,586,000 for the years ended December 31, 2002, 2001 and 2000. In conjunction with the adoption
+of EITF No. 01-14 in the fourth quarter of 2002, the Company 
+26 
+determined that certain other pass through costs and expenses billable to customers are more appropriately classified as gross in the statement of operations. This change resulted in a corresponding
+increase in revenues and cost of services rendered and goods sold of $10,192,000 in 2002, $14,984,000 in 2001 and $14,157,000 in 2000. These changes in presentation had no impact on operating profit,
+net income, or earnings per share. 
+Reclassifications 
+Certain prior year balances including revenues and cost of services rendered and goods sold have been reclassified to conform with current year presentation. 
+Concentration of Credit Risk 
+Substantially all of the Company's customers are engaged in the energy industry. This concentration of customers may impact overall exposure to credit risk,
+either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. 
+Cash Equivalents 
+Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. RPC maintains cash equivalents and
+investments in several large, well-capitalized financial institutions, and RPC's policy disallows investment in any securities rated less than "investment grade" by national rating
+services. 
+Management
+determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designations as of each balance sheet date. 
+Investments 
+Investments classified as available-for-sale are stated at their fair values, with the unrealized gains and losses, net of tax, reported
+in a separate component of stockholders' equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included
+in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are
+included in interest income. 
+Allowance for Doubtful Accounts 
+Accounts receivable are carried at the amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The
+allowance for doubtful accounts is estimated based upon historical write-off percentages, known problem accounts, and current economic
+conditions. Uncollectible balances are written off against the allowance for doubtful accounts. The allowance for doubtful accounts was $2,461,000 and $4,118,000 at December 31, 2002 and 2001,
+respectively. 
+27 
+Inventories 
+Inventories, which consist principally of (i) products that are consumed in RPC's services provided to customers, (ii) spare parts for equipment
+used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of cost (first-in,
+first-out basis) or market value. Inventories are reduced by an allowance for obsolescence. 
+Long-Lived Assets 
+On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." RPC records
+impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated
+by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and
+other assets, to determine if any impairments are other than temporary. Management believes that the long-lived assets in the accompanying balance sheets are appropriately valued. 
+Property, Plant and Equipment 
+Property, plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the assets. Costs of developing software for sale are charged to expense when incurred until technological feasibility has been
+established for the product. Thereafter, until the software is ready for general release to customers the costs are capitalized. Annual provisions for depreciation and amortization are computed using
+the following useful lives: operating equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; software,
+5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the
+year of disposal with the resulting gain or loss credited or charged to income. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable
+asset to working condition or for maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred. 
+Intangibles 
+Intangibles consist primarily of goodwill and non-compete agreements related to businesses acquired. Goodwill represents the excess of the purchase
+price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $9,476,000 and $7,591,000 as of December 31, 2002 and 2001, respectively. During the years
+ended December 31, 2000 and 2001, the values assigned to all intangible assets, including goodwill, were amortized on a straight-line basis over the estimated useful lives of the
+assets, not exceeding 20 years. On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In connection with the adoption, the Company reviewed
+the classification of its goodwill and other intangible assets. Goodwill is no longer amortized to earnings, but instead is subject to periodic testing for impairment. The Company completed an initial
+impairment analysis upon adoption of SFAS No. 142 and a subsequent analysis during the fourth quarter of 2002. Based upon the results of these analyses, the Company has 
+28 
+concluded that no impairment of its goodwill has occurred. Non-compete agreements are amortized on a straight-line basis over the period of the agreement, as this method best
+estimates the ratio that current revenues bear to the total of current and anticipated revenues, based on the estimated useful life. 
+The
+carrying amount and accumulated amortization for non-compete agreements are as follows: 
+December 31, 
+2002 
+2001 
+Non-compete agreements 
+$ 
+450,000 
+$ 
+450,000 
+Less: accumulated amortization 
+(331,675 
+) 
+(253,056 
+) 
+$ 
+118,325 
+$ 
+196,944 
+Had
+the Company adopted the provisions of SFAS No. 142 as of January 1, 2000, the effects on income from continuing operations, discontinued operation and net income would
+have been as follows: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+Income (loss) from continuing operations 
+$ 
+(5,260 
+) 
+$ 
+25,496 
+$ 
+16,127 
+Income from discontinued operation 
+— 
+1,486 
+13,961 
+Net income (loss)—as reported 
+(5,260 
+) 
+26,982 
+30,088 
+Effect of goodwill amortization, net of taxes: 
+Continuing operations 
+— 
+237 
+180 
+Discontinued operation 
+— 
+71 
+424 
+Pro forma net income (loss) 
+$ 
+(5,260 
+) 
+$ 
+27,290 
+$ 
+30,692 
+Pro forma basic (loss) income per share: 
+Continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.92 
+$ 
+0.59 
+Discontinued operation 
+— 
+0.06 
+0.52 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.98 
+$ 
+1.11 
+Pro forma diluted (loss) income per share: 
+Continuing operations 
+$ 
+(0.19 
+) 
+$ 
+0.90 
+$ 
+0.58 
+Discontinued operation 
+— 
+0.05 
+0.51 
+Net income (loss) 
+$ 
+(0.19 
+) 
+$ 
+0.95 
+$ 
+1.09 
+29 
+Amortization
+of non-compete agreements was approximately $80,000 in 2002, $43,000 in 2001 and $94,000 in 2000. Goodwill amortization was $382,000 in 2001 and $290,000 in
+2000. Estimated amortization expense for each of the five succeeding fiscal years is as follows: 
+2003 
+$ 
+40,000 
+2004 
+40,000 
+2005 
+28,300 
+2006 
+10,000 
+2007 
+— 
+Insurance Expenses 
+RPC self insures, up to specified limits, certain risks related to general liability, product liability, workers' compensation, and vehicle and equipment
+liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance programs are accrued as the claims are incurred (although actual settlement of
+the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The non-current portion of these estimated outstanding
+claims is classified as long-term accrued insurance expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates
+in effect for the year in which the differences are expected to reverse. 
+Earnings per Share 
+SFAS No. 128, "Earnings Per Share," requires a basic earnings per share and diluted earnings per share presentation. The two calculations differ as a
+result of the dilutive effect of stock options and time lapse restricted and performance restricted shares included in diluted earnings per share, but excluded in basic earnings per share. A
+reconciliation of the weighted shares outstanding is as follows: 
+2002 
+2001 
+2000 
+Basic 
+28,262,016 
+28,077,514 
+27,843,921 
+Dilutive effect of stock options and restricted shares 
+— 
+515,288 
+426,355 
+Diluted 
+28,262,016 
+28,592,802 
+28,270,276 
+The
+effect of the Company's stock options and restricted shares have been excluded from the calculation of diluted earnings per share in 2002, as their effect would have been
+antidilutive. 
+Fair Value of Financial Instruments 
+The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable and notes payable. The carrying value of cash, accounts
+receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The carrying value of 
+30 
+long-term and short-term debt approximates fair value since the interest rates are market based and variable. 
+New Accounting Standards 
+In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses accounting and reporting for asset
+retirement costs of long-lived assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company adopted SFAS No. 143 on
+January 1, 2003. Management has determined that the adoption of this statement will not have a material effect on the financial position, results of operations or liquidity of the Company. 
+In
+April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
+which rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
+Sinking-Fund Requirements," and SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends SFAS No. 13, "Accounting for Leases." This
+Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted
+the provisions of SFAS No. 145 related to the rescission of SFAS No. 4 on January 1, 2003. The Company adopted the provisions of this SFAS No. 145 related to Statement 13,
+as well as all other provisions of this Statement, effective May 15, 2002. The adoption of these provisions did not have a material impact on the Company's financial position, results of
+operations or liquidity for the year ended December 31, 2002. The Company does not believe the impact of adopting the provisions of SFAS No. 145 related to the rescission of SFAS
+No. 4 will have a material impact on its financial position, results of operations or liquidity. 
+In
+June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires that a liability for a cost associated with
+an exit or disposal activity be recognized when the liability is incurred and replaces the current accounting for costs associated with an exit or disposal activity contained in EITF 94-3.
+The Company adopted SFAS No. 146 on January 1, 2003. Management believes that the adoption of this statement will not have a material effect on the financial position, results of
+operations or liquidity of the Company. 
+In
+December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure." This statement provides alternative methods of
+transition for a voluntary change to the fair value-based method of accounting for employee stock based compensation and requires expanded disclosure regarding stock-based compensation in the "Summary
+of Significant Accounting Policies," or its equivalent, in the Notes to the Consolidated Financial Statements about the method of accounting and the effect of the method used on reported results. This
+statement is effective for financial statements for fiscal years ending after December 15, 2002 and effective for financial reports containing condensed financial statements for interim periods
+beginning after December 15, 2002. The Company does not expect to currently change to using the fair value-based method of accounting for stock-based compensation; therefore, management
+believes the adoption of SFAS No. 148 will not have a material effect on the financial position, results of operations or liquidity of the Company. 
+31 
+Stock-Based Compensation 
+As of December 31, 2002, RPC has certain stock-based employee compensation plans, which are detailed in Note 11, "Employee Benefit Plans." RPC
+accounts for the stock incentive plan using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." RPC records
+deferred compensation related to the restricted stock grants based on the fair market value of the shares at the date of the grant and amortizes such amounts over the vesting period for the shares.
+RPC recorded amortization of deferred compensation totaling $255,000 in 2002, $455,000 in 2001 and $332,000 in 2000. 
+If
+RPC had accounted for the stock incentive plans in accordance with SFAS No. 123, the total fair value of options granted would be amortized over the vesting period of the
+options, and RPC's reported pro forma net income (loss) and pro forma diluted net income (loss) per share would have been as follows: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+Income (loss) from continuing operations 
+$ 
+(5,260 
+) 
+$ 
+25,496 
+$ 
+16,127 
+Income from discontinued operation 
+— 
+1,486 
+13,961 
+Net income (loss)—as reported 
+(5,260 
+) 
+26,982 
+30,088 
+Add: Stock-based employee compensation expense included in reported net income, net of related tax: 
+Continuing operations 
+164 
+282 
+206 
+Discontinued operation 
+— 
+— 
+— 
+(5,096 
+) 
+27,264 
+30,294 
+Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect 
+Continuing operations 
+767 
+728 
+425 
+Discontinued operation 
+— 
+— 
+98 
+Pro forma net income (loss) 
+$ 
+(5,863 
+) 
+$ 
+26,536 
+$ 
+29,771 
+Pro forma basic (loss) income per share: 
+Continuing operations 
+$ 
+(0.21 
+) 
+$ 
+0.89 
+$ 
+0.57 
+Discontinued operation 
+— 
+0.05 
+0.50 
+Net income (loss) 
+$ 
+(0.21 
+) 
+$ 
+0.94 
+$ 
+1.07 
+Pro forma diluted (loss) income per share: 
+Continuing operations 
+$ 
+(0.21 
+) 
+$ 
+0.88 
+$ 
+0.56 
+Discontinued operation 
+— 
+0.05 
+0.49 
+Net income (loss) 
+$ 
+(0.21 
+) 
+$ 
+0.93 
+$ 
+1.05 
+Pro
+forma income for 2000 disclosed above is based on the fair value of options held by RPC employees prior to the spin-off. 
+32 
+Note 2: Discontinued Operation 
+In January 2000, the Board of Directors of RPC announced that it planned to spin-off to stockholders the business conducted through Chaparral
+Boats, Inc. ("Chaparral"), RPC's powerboat manufacturing segment. The spin-off transaction was approved by RPC's Board of Directors on February 12, 2001. RPC accomplished the
+spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) ("Marine Products"), a newly formed
+wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. RPC stockholders received 0.6 shares of Marine Products common stock for each share of
+RPC common stock owned as of the record date. Based on an Internal Revenue Service Private Letter ruling, the spin-off was tax-free to RPC and RPC stockholders, except for cash
+received for any fractional shares. The spin-off was consummated on February 28, 2001, with 17,012,277 shares of Marine Products common stock distributed to RPC stockholders. 
+For
+the first two months of 2001 and for the twelve months of 2000, the powerboat manufacturing segment of RPC has been accounted for as a discontinued operation and, accordingly, the
+accompanying consolidated financial statements of RPC have been restated to report separately the operating results of this discontinued operation. 
+A
+summary of the operating results of RPC's powerboat manufacturing segment for the two months in 2001, and for the twelve months in 2000 is as follows: 
+Years ended December 31, 
+2001 
+2000 
+(in thousands) 
+Revenues 
+$ 
+24,092 
+$ 
+148,276 
+Operating income 
+2,747 
+15,455 
+Income before income taxes 
+2,320 
+22,552 
+Income tax provision 
+834 
+8,591 
+Net income 
+$ 
+1,486 
+$ 
+13,961 
+The
+Transition Support Services Agreement executed in connection with the spin-off stipulates that RPC provide certain services, including financial reporting and income tax
+administration, acquisition assistance, etc. to Marine Products until the agreement is terminated by either party. During 2002 and 2001, RPC charged $454,000 and $868,000 to Marine Products for these
+services. Certain costs allocated by RPC to Marine Products in the past are now incurred directly by Marine Products. During 2000, RPC allocated expenses totaling $2,372,000, which was based on Marine
+Products' revenues as a percent of RPC's total revenues. 
+In
+the first quarter of 2000, RPC recorded an after-tax gain of $4,227,000 in its powerboat manufacturing business segment. The gain is a result of Chaparral's receipt of its
+share of a non-refundable $35 million settlement payment made by Brunswick Corporation ("Brunswick"), a major engine supplier, to the members of the American Boatbuilders
+Association ("ABA"), a buying group which includes Chaparral. Under the terms of this agreement between the ABA and Brunswick, additional payments were to be made to the ABA depending on the final
+judgment or settlement of a
+lawsuit brought by Independent Boatbuilders Association ("IBBI"), another buying group supplied engines by Brunswick. In March 2000, the U.S. Court of Appeals for the Eighth Circuit ordered the 
+33 
+trial court to enter a judgment for Brunswick, thereby reversing the initial decision in favor of IBBI. No additional payments will be received by Marine Products in connection with this settlement. 
+Refer
+to Note 12 for details regarding certain officers being employees of both RPC and Marine Products. 
+Note 3: Acquisitions 
+During the year ended December 31, 2001, the Company completed two acquisitions, which were accounted for under the purchase method of accounting. Pro
+forma results of operations have not been presented for either of the acquisitions because the effects of these acquisitions were not material to the Company on either an individual or aggregate
+basis. The results of operations of each acquisition are included in the Company's consolidated statements of operations from the respective dates of acquisition. 
+A
+summary of the Company's purchase transactions for the year ended December 31, 2001 is included in the following table (in thousands, except share amounts): 
+Entity Name 
+and Description 
+of Business 
+Acquired 
+Date 
+Consideration 
+Inventory 
+Operating 
+equipment 
+and vehicles 
+Goodwill 
+and 
+non-compete 
+agreement 
+Other 
+fixed 
+assets 
+Form of consideration 
+Sooner Testing, Inc. 
+(Pressure Pumping) 
+2/01 
+$ 
+4,355 
+$ 
+317 
+$ 
+2,788 
+$ 
+1,250 
+$ 
+— 
+• $3,105 in cash 
+• $1,250 in promissory note payable in three annual installments plus interest at prime rate 
+• Potential earnout 
+Mathews Energy Services, Inc. 
+(Pressure Pumping) 
+7/01 
+$ 
+11,000 
+$ 
+— 
+$ 
+7,396 
+$ 
+2,956 
+$ 
+648 
+• $5,000 in cash 
+• 280,446 restricted shares valued at $4,000 
+• $2,000 in promissory note, payable in full after four years, plus interest payable quarterly at prime rate 
+• Potential earnout 
+Earnout payments to sellers of acquired businesses may have to be paid in accordance with the respective agreements on an annual basis and are
+recorded as goodwill when the earnout payment amounts are determinable. The consolidated statements of cash flows for the year ended December 31, 2001 excludes the $3,250,000 million of
+promissory notes payable in connection with these acquisitions and the $4,000,000 million common stock issuance. Earnout payments to sellers of acquired businesses totaling $286,000 and
+$1,885,000 were made in 2001 and 2002, respectively, and recorded as an increase to the purchase price of the business. No earnouts are payable in 2003 related to 2002 operating results. 
+34 
+Note 4: Accounts Receivable 
+Accounts receivable are stated net of allowances for doubtful accounts of $2,461,000 in 2002 and $4,118,000 in 2001. 
+Note 5: Inventories 
+Inventories consist of the following: 
+December 31, 
+2002 
+2001 
+(in thousands) 
+Raw materials and supplies 
+$ 
+6,920 
+$ 
+6,289 
+Work in process 
+428 
+271 
+Finished goods 
+1,858 
+1,852 
+Total inventories 
+$ 
+9,206 
+$ 
+8,412 
+Note 6: Property, Plant and Equipment 
+Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2002 
+2001 
+(in thousands) 
+Land 
+$ 
+5,298 
+$ 
+5,394 
+Buildings and leasehold improvements 
+28,789 
+25,064 
+Operating equipment 
+199,247 
+191,767 
+Furniture and fixtures 
+1,916 
+1,908 
+Vehicles 
+57,876 
+56,045 
+Construction in progress 
+850 
+327 
+Gross property, plant and equipment 
+293,976 
+280,505 
+Less: accumulated depreciation 
+188,638 
+165,459 
+Net property, plant and equipment 
+$ 
+105,338 
+$ 
+115,046 
+Depreciation
+expense was $31,007,000, $24,656,000, and $17,278,000 for the years ended December 31, 2002, 2001 and 2000. The original cost of equipment under capital lease was
+$846,000, and accumulated depreciation at December 31, 2002 was $357,000. 
+35 
+Note 7: Income Taxes 
+The following table lists the components of the (benefit) provision for income taxes from continuing operations: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+Current: 
+Federal 
+$ 
+(11,882 
+) 
+$ 
+12,119 
+$ 
+9,936 
+State 
+(380 
+) 
+1,271 
+681 
+Foreign 
+175 
+837 
+— 
+Deferred 
+9,193 
+1,400 
+(767 
+) 
+Total income tax (benefit) provision 
+$ 
+(2,894 
+) 
+$ 
+15,627 
+$ 
+9,850 
+A
+reconciliation between the federal statutory rate and RPC's effective tax rate is as follows: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+Federal statutory rate 
+34.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income taxes 
+3.1 
+3.0 
+2.9 
+Other 
+(1.6 
+) 
+— 
+— 
+Effective tax rate 
+35.5 
+% 
+38.0 
+% 
+37.9 
+% 
+36 
+Significant
+components of the Company's deferred tax assets and liabilities are as follows: 
+December 31, 
+2002 
+2001 
+(in thousands) 
+Deferred tax assets: 
+Self-insurance reserves 
+$ 
+3,221 
+$ 
+4,079 
+Pension expense 
+1,924 
+— 
+Net operating loss carryforwards 
+1,431 
+— 
+Bad debt reserves 
+803 
+1,501 
+Accrued payroll expenses 
+380 
+1,943 
+Stock-based compensation 
+— 
+536 
+All others 
+607 
+1,018 
+Valuation allowance 
+(978 
+) 
+— 
+Gross deferred tax assets 
+$ 
+7,388 
+$ 
+9,077 
+Deferred tax liabilities: 
+Depreciation 
+$ 
+(9,619 
+) 
+$ 
+(3,502 
+) 
+Stock based compensation 
+(35 
+) 
+— 
+Pension expense 
+— 
+(809 
+) 
+All others 
+(749 
+) 
+(407 
+) 
+Gross deferred tax liabilities 
+$ 
+(10,403 
+) 
+$ 
+(4,718 
+) 
+Net deferred tax (liabilities) assets 
+$ 
+(3,015 
+) 
+$ 
+4,359 
+The
+Company and Marine Products Corporation have entered into a tax-sharing and indemnification agreement whereby any subsequent income tax adjustment resulting in a change
+in income tax assets or liabilities of either RPC or Marine Products prior to the spin-off will be settled through an exchange of cash. An immaterial amount of settlements occurred in 2002
+and no settlements occurred in 2001. 
+Undistributed
+earnings of the Company's foreign subsidiaries are considered indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been accrued. Upon
+distribution of those earnings in the form of dividends or otherwise, RPC would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and witholding taxes payable to
+the various countries. Determining the amount of unrecognized deferred U.S. income tax liability is not practicable. 
+RPC
+has operating loss carryforwards of approximately $1.4 million that expire in 2003 through 2016. The Company has booked a valuation allowance of approximately
+$1 million against this amount that represents carryforwards that the Company does not expect to utilize. 
+Total
+income tax (refunds) payments, net, were ($4,097,000) in 2002, $15,615,000 in 2001, and $13,825,000 in 2000. 
+37 
+Note 8: Long-Term Debt 
+At December 31, 2002, future minimum payments on long-term debt and capitalized lease obligations were as follows: 
+(in thousands) 
+2003 
+$ 
+552 
+2004 
+410 
+2005 
+2,000 
+Total minimum principal payments 
+$ 
+2,962 
+Cash
+interest paid was approximately $266,000 in 2002, $262,000 in 2001 and $125,000 in 2000. 
+The
+Company has access to a $25 million credit facility with a financial institution encompassing letters of credit and a demand note. The credit facility is renewable annually
+with interest payable monthly on outstanding advances under the demand note generally at LIBOR plus 50 basis points. As of December 31, 2002, there were $10,587,000 in letters of credit issued
+under this facility. 
+The
+long-term debt of RPC as of December 31, 2002 and 2001 is summarized as follows: 
+Type 
+Maturity 
+Dates 
+Range of 
+Interest Rates 
+2002 
+2001 
+(in thousands) 
+Notes payable related to acquisitions 
+2003-2005 
+Prime 
+$ 
+2,830 
+$ 
+3,832 
+Bank demand note 
+2003 
+LIBOR+50BP 
+— 
+162 
+Capital lease 
+2003 
+11.76% 
+132 
+333 
+Total debt 
+2,962 
+4,327 
+Less: current portion 
+552 
+1,390 
+Long-term debt 
+$ 
+2,410 
+$ 
+2,937 
+38 
+Note 9: Accumulated Other Comprehensive Loss 
+Accumulated other comprehensive loss consists of the following (in thousands): 
+Minimum 
+Pension 
+Liability 
+Unrealized 
+gain (loss) 
+on securities 
+Total 
+Balance at December 31, 2000 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Change during 2001: 
+Before-tax amount 
+(1,389 
+) 
+— 
+(1,389 
+) 
+Tax benefit 
+528 
+— 
+528 
+Total activity in 2001 
+(861 
+) 
+— 
+(861 
+) 
+Balance at December 31, 2001 
+(861 
+) 
+— 
+(861 
+) 
+Change during 2002: 
+Before-tax amount 
+(5,023 
+) 
+235 
+(4,788 
+) 
+Tax (expense) benefit 
+1,909 
+(90 
+) 
+1,819 
+Total activity in 2002 
+(3,114 
+) 
+145 
+(2,969 
+) 
+Balance at December 31, 2002 
+$ 
+(3,975 
+) 
+$ 
+145 
+$ 
+(3,830 
+) 
+Note 10: Commitments and Contingencies 
+Minimum annual rentals, principally for noncancelable real estate leases with terms in excess of one year, in effect at December 31, 2002, are summarized
+in the following table: 
+(in thousands) 
+2003 
+$ 
+1,452 
+2004 
+1,333 
+2005 
+964 
+2006 
+362 
+2007 
+62 
+Total rental commitments 
+$ 
+4,173 
+Total
+rental expense charged to operations was approximately $3,930,000 in 2002, $4,164,000 in 2001, and $3,110,000 in 2000. 
+RPC
+is a defendant in a number of lawsuits that allege that plaintiffs have been damaged as a result of the rendering of services by RPC personnel and equipment. RPC is vigorously
+contesting these actions. Management is of the opinion that the outcome of these lawsuits will not have a material adverse effect on the financial position, results of operations or liquidity of RPC. 
+39 
+Note 11: Employee Benefit Plans 
+Retirement Plan 
+The Company's Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In the
+first quarter of 2002, the Company's Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan effective March 31, 2002. In lieu
+thereof, the Company began providing enhanced benefits in the form of cash contributions to certain longer serviced employees that had not reached the normal retirement age of 65 as of
+March 31, 2002. The contributions are discretionary and made annually based on continued employment over a seven year period beginning in 2002. The contributions are made either to a
+non-qualified supplemental executive retirement plan ("nonqualified plan") established by the Company or to the 401(k) plan for each employee who is entitled to the enhanced benefit. The
+expense related to the enhanced benefits for 2002 was $437,000. The Company permits eligible employees to defer a portion of their compensation into the nonqualified plan. 
+SFAS
+No. 132, "Employers' Disclosures About Pensions and Other Post Retirement Benefits," standardizes the disclosure requirements for pensions and other post retirement benefits
+to the extent possible. 
+40 
+The
+following table sets forth the funded status of the retirement income plan and the amounts recognized in RPC's consolidated balance sheets: 
+December 31, 
+2002 
+2001 
+(in thousands) 
+CHANGE IN BENEFIT OBLIGATION: 
+Benefit obligation at beginning of year 
+$ 
+24,984 
+$ 
+20,640 
+Service cost 
+332 
+954 
+Interest cost 
+1,749 
+1,751 
+Amendments 
+154 
+— 
+Actuarial loss 
+4,039 
+2,500 
+Benefits paid 
+(929 
+) 
+(861 
+) 
+Curtailments 
+(5,961 
+) 
+— 
+Benefit obligation at end of year 
+$ 
+24,368 
+$ 
+24,984 
+CHANGE IN PLAN ASSETS: 
+Fair value of plan assets at beginning of year 
+$ 
+18,794 
+$ 
+19,776 
+Actual return on plan assets 
+(1,475 
+) 
+(239 
+) 
+Employer contribution 
+1,258 
+118 
+Benefits paid 
+(929 
+) 
+(861 
+) 
+Fair value of plan assets at end of year 
+17,648 
+18,794 
+Funded status 
+(6,720 
+) 
+(6,190 
+) 
+Unrecognized net asset 
+— 
+(96 
+) 
+Unrecognized net loss 
+6,412 
+5,402 
+Net accrued cost 
+$ 
+(308 
+) 
+$ 
+(884 
+) 
+Pursuant
+to the provisions of SFAS No. 87, "Employers' Accounting for Pensions," the Company recorded incremental minimum pension liability adjustments of $5,023,000 in 2002 and
+$1,389,000 million in 2001. As there were no previously unrecognized prior service costs as of December 31, 2002 and 2001, the full amount of the adjustments, net of related deferred tax
+benefit, are reflected as a reduction of stockholders' equity. Amounts recognized in the consolidated balance sheets consist of: 
+December 31, 
+2002 
+2001 
+(in thousands) 
+Net accrued benefit cost 
+$ 
+(308 
+) 
+$ 
+(884 
+) 
+Minimum pension liability adjustment 
+(6,412 
+) 
+(1,389 
+) 
+Net amount recognized 
+$ 
+(6,720 
+) 
+$ 
+(2,273 
+) 
+RPC's
+funding policy is to contribute to the retirement income plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. RPC contributed $1,258,000 in
+2002, $118,000 in 2001, and $1,052,000 in 2000. 
+41 
+The
+net accrued benefit cost is included in accrued payroll and related expenses in the accompanying consolidated balance sheets. The components of net periodic benefit cost are
+summarized as follows: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+Service cost for benefits earned during the period 
+$ 
+332 
+$ 
+954 
+$ 
+903 
+Interest cost on projected benefit obligation 
+1,749 
+1,751 
+1,509 
+Expected return on plan assets 
+(1,622 
+) 
+(1,836 
+) 
+(1,771 
+) 
+Net amortization and deferral 
+72 
+(176 
+) 
+(205 
+) 
+Curtailments 
+150 
+— 
+— 
+Net periodic benefit cost 
+$ 
+681 
+$ 
+693 
+$ 
+436 
+Total
+retirement plan cost attributable to Marine Products, which is included in net periodic benefit cost above, was $25,000 for the first two months in 2001, and $147,000 for the
+twelve months in 2000. 
+The
+weighted average assumptions were as follows: 
+December 31, 
+2002 
+2001 
+2000 
+Discount rate 
+6.875% 
+7.375% 
+7.750% 
+Expected return on plan assets 
+8.000% 
+8.500% 
+9.500% 
+Rate of compensation increase 
+N/A 
+4.375% 
+4.750% 
+401(k) Plan 
+RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than six months of service. This
+plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible deduction imposed by the Internal Revenue
+Code. RPC matches 50 percent of each employee's contributions that does not exceed six percent of the employee's compensation. Employees vest in the RPC contributions after three years of
+service. Marine Products is continuing to participate in the RPC sponsored defined contribution 401(k) plan. The cash payments for RPC's continuing operations were $858,000 in 2002, $380,000 in 2001,
+and $295,000 in 2000. The charges to expense for Marine Products were $14,000 for the first two months in 2001 and $76,000 in 2000. 
+Stock Incentive Plans 
+RPC has an Employee Incentive Stock Option Plan (the "1984 Plan") under which 1,000,000 shares of common stock were reserved for issuance. The 1984 Plan expired
+in October 1994. On January 25, 1994, RPC adopted a new 10-year Employee Stock Incentive Plan (the "1994 Plan") under which 1,000,000 shares of common stock were reserved for
+issuance. During 1997, an additional 1,600,000 shares were reserved for issuance. These plans provide for the issuance of various forms of stock incentives, including, among others, incentive and
+non-qualified stock options and restricted stock. Historically, certain RPC employees, including employees of Marine Products, have participated in 
+42 
+these RPC Stock Incentive Plans (the "RPC SIP"). The options generally vest over five years and expire in 10 years. 
+Following
+the spin-off, outstanding stock option grants under the RPC SIP held by Marine Products employees who did not also become RPC employees were replaced with the
+Marine Products Stock Incentive Plan stock option grants. After the spin-off, 180,464 RPC SIP stock options held by Marine Products employees were replaced with Marine Products Stock
+Incentive Plan stock option grants. As of December 31, 2002, there were 1,014,650 shares available for the granting of options or other awards under the RPC SIP. 
+Stock-Based Compensation 
+SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair value-based method of accounting for an employee stock option plan or similar equity
+instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed in APB Opinion No. 25. Entities electing to
+remain with the accounting in APB No. 25 must make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in the statement had been
+applied. 
+RPC
+has elected to account for its stock-based compensation plans under APB No. 25. The Company has computed for pro forma disclosure purposes the value of all options granted
+during 2002, 2001, and 2000 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions for grants: 
+2002 
+2001 
+2000 
+Risk-free interest rate 
+2.9% 
+4.9% 
+N/A 
+Expected dividend yield 
+1% 
+1% 
+N/A 
+Expected lives 
+7 years 
+7 years 
+N/A 
+Expected volatility 
+43-46% 
+43-46% 
+N/A 
+The
+total fair value of options granted to RPC and Marine Products employees was computed as follows: 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+Continuing operations 
+$ 
+663 
+$ 
+2,913 
+$ 
+— 
+Discontinued operation 
+— 
+— 
+— 
+Total 
+$ 
+663 
+$ 
+2,913 
+$ 
+— 
+43 
+Stock Options 
+Transactions involving the RPC SIP were as follows: 
+Shares 
+Weighted Average 
+Exercise 
+Price 
+Outstanding December 31, 1999 
+783,400 
+$ 
+7.93 
+Granted 
+0 
+0 
+Canceled 
+(27,300 
+) 
+8.60 
+Exercised 
+(77,625 
+) 
+4.80 
+Outstanding December 31, 2000 
+678,475 
+$ 
+8.26 
+Granted 
+457,500 
+13.10 
+Spin-off adjustments 
+(119,935 
+) 
+9.80 
+Canceled 
+(8,405 
+) 
+8.77 
+Exercised 
+(92,053 
+) 
+5.80 
+Outstanding December 31, 2001 
+915,582 
+$ 
+10.25 
+Granted 
+104,500 
+14.06 
+Canceled 
+(130,241 
+) 
+11.33 
+Exercised 
+(27,243 
+) 
+6.89 
+Outstanding December 31, 2002 
+862,598 
+$ 
+10.65 
+As
+of December 31, 2002, the options outstanding and the range of exercise prices together with the weighted-average remaining contractual life are as follows: 
+Weighted average 
+exercise prices 
+Number of Options 
+Weighted 
+average 
+remaining 
+contractual life 
+Range of exercise prices 
+Total 
+Exercisable 
+Total 
+Exercisable 
+$ 3.52 - $ 3.91 
+63,111 
+63,111 
+$ 
+3.74 
+$ 
+3.74 
+2.3 years 
+$ 6.06 - $ 6.61 
+202,459 
+133,072 
+$ 
+6.19 
+$ 
+6.26 
+5.6 years 
+$11.23 - $14.06 
+597,028 
+168,313 
+$ 
+12.89 
+$ 
+12.07 
+7.8 years 
+862,598 
+364,496 
+$ 
+10.65 
+$ 
+8.51 
+6.9 years 
+Restricted Stock 
+RPC has granted employees two forms of restricted stock: performance restricted and time lapse restricted. The performance restricted shares are granted, but not
+earned and issued, until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC stock. On the date the stock appreciates to
+each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. After the determination date, the
+grantee will receive all dividends declared and also voting rights to the shares. Time lapse restricted shares vest 10 years from the grant date. During these 10 years, grantees receive
+all dividends declared and retain voting rights for the granted shares. 
+44 
+Units granted under these restricted stock programs were 0 in 2002, 87,000 in 2001 and 0 in 2000. There were 5,700 performance shares earned under the plans in 2002. During 2002, 30,404 restricted
+shares were forfeited. The fair market value of the stock, on the date of issuance, is being amortized and charged to income over the vesting periods. The unamortized deferred compensation balance was
+$1,186,000 and $1,686,000 as of December 31, 2002 and December 31, 2001, respectively, and has been included in earnings retained. Pursuant to the spin-off in 2001, shares of
+performance restricted stock totaling 13,201 were forfeited and replaced with grants of performance restricted stock under the Marine Products Stock Incentive Plan. 
+The
+agreements under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the RPC SIP have
+lapsed. Upon termination of employment from RPC or, in certain cases, termination of employment from Marine Products or Chaparral, shares with restrictions must be returned to RPC. During 2002 and
+2001, 56,400 shares and 60,800 shares of restricted stock vested and were released to the applicable employees. 
+Note 12: Related Party Transactions 
+Effective with the spin-off, the Company established a cash balance at Marine Products of approximately $15 million by transferring a total of
+$13.8 million in cash and marketable securities. Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements are
+more fully described in Note 2. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $454,000 in 2002 and $868,000 in
+2001. The Company's directors are also directors of Marine Products and certain officers are employees of both the Company and Marine Products. 
+The
+Company periodically purchases in the ordinary course of business products or services from vendors, who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. The total amounts paid to these affiliated parties totaled approximately $502,000 in 2002 and $486,000 in 2001. In addition, during 2002, the overhead crane fabrication division of
+RPC recorded $332,000 in revenues from the powerboat manufacturing segment that is now a subsidiary of Marine Products pursuant to the spin-off, related to the sale, installation and
+service of overhead cranes. 
+Note 13: Business Segment Information 
+RPC's service lines have been aggregated into two reportable oil and gas services segments—Technical Services and Support Services—because
+of the similarities between the financial performance and approach to managing the service lines within each of the segments as well as the economic and business conditions impacting their business
+activity levels. The other business segment includes information concerning RPC's business units that do not qualify for separate segment reporting. These business units include an overhead crane
+fabricator and interactive training software producer. Corporate includes overall administrative costs incurred for the Company. 
+Technical
+Services include RPC's oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's
+well. These services include coiled tubing, fluid pumping, nitrogen pumping, fracturing and acidizing pumping services, wireline, snubbing, well control consulting and firefighting,
+down-hole tools, and casing 
+45 
+installation services. These Technical Services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets for this segment include the United
+States, including the Gulf of Mexico, the mid-continent, southwest and Rocky Mountain regions, and international locations including primarily Africa, Canada and Latin America. Customers
+include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support
+Services include RPC's oilfield service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels, and oilfield training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico and the mid-continent regions.
+Customers include domestic operations of major multi-national and independent oil and gas producers. 
+The
+accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its
+segments based on revenues and operating profits. 
+Summarized
+financial information concerning RPC's reportable segments from continuing operations for the years ended December 31, 2002, 2001 and 2000 are shown in the following
+table. 
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Total 
+(in thousands) 
+2002 
+Revenues 
+$ 
+163,593 
+$ 
+35,784 
+$ 
+9,653 
+$ 
+— 
+$ 
+209,030 
+Operating profit (loss) 
+(868 
+) 
+(1,814 
+) 
+(1,297 
+) 
+(4,101 
+) 
+(8,080 
+) 
+Capital expenditures (1) 
+11,222 
+7,370 
+312 
+3,577 
+22,481 
+Depreciation and amortization 
+22,742 
+7,394 
+224 
+982 
+31,342 
+Identifiable assets 
+105,586 
+47,243 
+5,629 
+37,496 
+195,954 
+2001 
+Revenues 
+$ 
+214,361 
+$ 
+57,932 
+$ 
+12,228 
+$ 
+— 
+$ 
+284,521 
+Operating profit (loss) 
+34,799 
+11,937 
+(1,045 
+) 
+(4,503 
+) 
+41,188 
+Capital expenditures (1) 
+36,236 
+7,649 
+544 
+1,421 
+45,850 
+Depreciation and amortization 
+17,331 
+6,954 
+149 
+1,102 
+25,536 
+Identifiable assets 
+123,498 
+46,617 
+5,520 
+26,767 
+202,402 
+2000 
+Revenues 
+$ 
+136,228 
+$ 
+51,088 
+$ 
+14,642 
+$ 
+— 
+$ 
+201,958 
+Operating profit (loss) 
+19,250 
+7,873 
+(139 
+) 
+(2,450 
+) 
+24,534 
+Capital expenditures 
+25,212 
+8,830 
+79 
+1,405 
+35,526 
+Depreciation and amortization 
+9,941 
+7,319 
+190 
+545 
+17,995 
+Identifiable assets 
+95,634 
+47,974 
+6,231 
+35,483 
+185,322 
+(1) Excludes
+assets acquired as part of purchases of new businesses during the year. 
+46 
+The
+following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2002, 2001 and 2000. The revenues
+are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC's consolidated assets, and therefore are not
+presented. 
+Years ended December 31, 
+2002 
+2001 
+2000 
+(in thousands) 
+United States Revenues 
+$ 
+199,392 
+$ 
+259,761 
+$ 
+176,373 
+International Revenues 
+9,638 
+24,760 
+25,585 
+$ 
+209,030 
+$ 
+284,521 
+$ 
+201,958 
+47 
+PART III 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+Information regarding the change in independent accountants was filed on Form 8-K with the Securities and Exchange Commission on
+July 24, 2002. The information is incorporated herein by reference. 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+Information concerning directors and executive officers is included in the RPC Proxy for its 2003 Annual Meeting of Stockholders, in the sections entitled
+"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance." This information is incorporated herein by reference. Information about executive officers is contained on
+page 12. 
+ITEM 11. EXECUTIVE COMPENSATION 
+Information concerning executive compensation is included in the RPC Proxy for its 2003 Annual Meeting of Stockholders, in the section entitled "Executive
+Compensation." This information is incorporated herein by reference. 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
+Information concerning security ownership is included in the RPC Proxy for its 2003 Annual Meeting of Stockholders, in the sections entitled "Capital Stock" and
+"Election of Directors." This information is incorporated herein by reference. 
+Equity Compensation Plan Information: 
+The following table sets forth certain information regarding equity compensation plans as of December 31, 2002. 
+Plan Category 
+Number of Securities To 
+Be Issued Under Exercise 
+of Outstanding Options, 
+Warrants and Rights 
+(A) 
+Weighted Average 
+Exercise Price of 
+Outstanding Options, 
+Warrants and Rights 
+(B) 
+Number of Securities 
+Remaining Available 
+for Future 
+Issuance Under 
+Equity Compensation 
+Plans (Excluding 
+Securities Reflected in 
+Column (A)) 
+(C) 
+Equity compensation plans approved by securityholders 
+882,948 
+(1) 
+$ 
+10.65 
+(2) 
+1,014,650 
+Equity compensation plans not approved by securityholders 
+0 
+0 
+0 
+Total 
+882,948 
+$ 
+10.65 
+1,014,650 
+(1) Includes
+performance restricted shares granted but not issued.
+(2) Does
+not include performance restricted shares granted but not issued because these grants do not have exercise prices. 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Information concerning certain relationships and related party transactions is included in the RPC Proxy for its 2003 Annual Meeting of Stockholders, in the
+sections entitled "Certain Relationships and 
+48 
+Related Party Transactions" and "Compensation Committee Interlocks and Insider Participation." This information is incorporated herein by reference. 
+ITEM 14. CONTROLS AND PROCEDURES 
+Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an
+evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in rules 13a-14(c) and 15d-14(c) under the Securities
+Exchange Act of 1934, within 90 days of the filing date of this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer
+concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission
+("SEC") reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to RPC, Inc., including our consolidated subsidiaries, and was
+made known to them by others within those entities, particularly during the period when this report was being prepared. 
+In
+addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not
+identified any significant deficiency or material weaknesses in our internal controls, and therefore there were no corrective actions taken. 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 
+Consolidated Financial Statements, Financial Statement Schedule and Exhibits . 
+1. Consolidated
+financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report.
+2. The
+financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report.
+3. Exhibits
+listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1 
+RPC's 1994 Employees Stock Incentive Plan 
+10.6 
+Form of Stock option grant agreement 
+10.7 
+Form of Time lapse restricted stock grant agreement 
+10.8 
+Form of Performance restricted stock grant agreement 
+REPORTS ON FORM 8-K 
+No reports on Form 8-K were filed or required to be filed by RPC for the quarter ended December 31, 2002. Any schedules or exhibits not
+shown above have been omitted because they are not applicable. 
+49 
+EXHIBITS (inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 
+3.2 
+Bylaws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 
+4 
+Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 
+10.1 
+RPC's 1994 Employees Stock Incentive Plan (incorporated herein by reference to Exhibit A of the definitive Proxy Statement dated March 20, 1994). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the
+Form 10 filed on February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the
+Form 10 filed on February 13, 2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10 filed on
+February 13, 2001). 
+10.5 
+Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10 filed on February 13,
+2001). 
+10.6 
+Form of Stock option grant agreement 
+10.7 
+Form of Time lapse restricted stock grant agreement 
+10.8 
+Form of Performance restricted stock grant agreement 
+21 
+Subsidiaries of RPC. 
+23 
+Consent of Ernst & Young LLP. 
+24 
+Powers of Attorney for Directors. 
+99.1 
+Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by the Chief Executive Officer and Chief Financial Officer 
+50 
+SIGNATURES 
+Pursuant to the requirements of Section 13 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. 
+RPC, INC. 
+By: 
+/s/ R. RANDALL ROLLINS R. Randall Rollins 
+Chairman of the Board of Directors 
+(Principal Executive Officer) 
+March 21, 2003 
+Pursuant
+to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the
+dates indicated. 
+Name 
+Title 
+Date 
+/s/ R. RANDALL ROLLINS R. Randall Rollins 
+Chairman of the Board of Directors 
+(Principal Executive Officer) 
+March 21, 2003 
+/s/ BEN M. PALMER Ben M. Palmer 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+March 21, 2003 
+The
+Directors of RPC, Inc. (listed below) executed a power of attorney appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+Wilton
+Looney, Director 
+Gary W. Rollins, Director 
+James A. Lane, Jr., Director 
+Henry B. Tippie, Director 
+James B. Williams, Director 
+Linda H. Graham, Director 
+/s/ RICHARD A. HUBBELL Richard A. Hubbell 
+Director and as Attorney-in-fact 
+March 21, 2003 
+51 
+CERTIFICATIONS 
+I,
+R. Randall Rollins, Chairman of the Board and Chief Executive Officer, certify that: 
+1. I
+have reviewed this annual report on Form 10-K of RPC, Inc.;
+2. Based
+on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
+the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
+3. Based
+on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
+results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
+4. The
+registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
+Rules 13a-14 and 15d-14) for the registrant and have:
+a. designed
+such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
+within those entities, particularly during the period in which this annual report is being prepared;
+b. evaluated
+the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation
+Date"); and
+c. presented
+in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 
+5. The
+registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
+directors (or persons performing the equivalent functions):
+a. all
+significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
+data and have identified for the registrant's auditors any material weaknesses in internal controls; and
+b. any
+fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 
+6. The
+registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could
+significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 
+Date: March 21, 2003 
+/s/ R. RANDALL ROLLINS R. Randall Rollins 
+Chairman of the Board and Chief Executive Officer 
+(Principal Executive Officer) 
+52 
+I,
+Ben M. Palmer, Vice President, Chief Financial Officer and Treasurer, certify that: 
+1. I
+have reviewed this annual report on Form 10-K of RPC, Inc.;
+2. Based
+on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
+the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
+3. Based
+on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
+results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
+4. The
+registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
+Rules 13a-14 and 15d-14) for the registrant and have:
+a. designed
+such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
+within those entities, particularly during the period in which this annual report is being prepared;
+b. evaluated
+the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation
+Date"); and
+c. presented
+in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 
+5. The
+registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
+directors (or persons performing the equivalent functions):
+a. all
+significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
+data and have identified for the registrant's auditors any material weaknesses in internal controls; and
+b. any
+fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 
+6. The
+registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could
+significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 
+Date: March 21, 2003 
+/s/ BEN M. PALMER Ben M. Palmer 
+Vice President, Chief Financial Officer and Treasurer 
+(Principal Financial and Accounting Officer) 
+53 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (Item 15) 
+FINANCIAL STATEMENTS 
+Page 
+Consolidated Balance Sheets as of December 31, 2002 and 2001 
+22 
+Consolidated Statements of Operations for the three years ended December 31, 2002 
+23 
+Consolidated Statements of Stockholders' Equity for the three years ended December 31, 2002 
+24 
+Consolidated Statements of Cash Flows for the three years ended December 31, 2002 
+25 
+Notes to Consolidated Financial Statements 
+26-47 
+SCHEDULES 
+Schedule II—Valuation and Qualifying Accounts 
+54 
+SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS 
+RPC, Inc. and Subsidiaries 
+For the years ended December 31, 2002, 2001 and 2000 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Net 
+Adjustments 
+Balance 
+at End of 
+Period 
+(in thousands) 
+Year ended December 31, 2002 
+Allowance for doubtful accounts 
+$ 
+4,118 
+$ 
+(400 
+) 
+$ 
+(1,257 
+) 
+$ 
+2,461 
+Inventory reserves 
+$ 
+350 
+$ 
+53 
+$ 
+(273 
+) 
+$ 
+130 
+Deferred tax valuation allowance 
+$ 
+0 
+$ 
+978 
+$ 
+0 
+$ 
+978 
+Year ended December 31, 2001 
+Allowance for doubtful accounts 
+$ 
+4,994 
+$ 
+300 
+$ 
+(1,176 
+) 
+$ 
+4,118 
+Inventory reserves 
+$ 
+219 
+$ 
+55 
+$ 
+76 
+$ 
+350 
+Deferred tax valuation allowance 
+$ 
+0 
+$ 
+0 
+$ 
+0 
+$ 
+0 
+Year ended December 31, 2000 
+Allowance for doubtful accounts 
+$ 
+4,590 
+$ 
+26 
+$ 
+378 
+$ 
+4,994 
+Inventory reserves 
+$ 
+235 
+$ 
+50 
+$ 
+(66 
+) 
+$ 
+219 
+Deferred tax valuation allowance 
+$ 
+0 
+$ 
+0 
+$ 
+0 
+$ 
+0 
+54 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+The
+Board of Directors and Stockholders 
+RPC, Inc. 
+We
+have audited the accompanying consolidated balance sheet of RPC, Inc. and Subsidiaries as of December 31, 2002, and the related consolidated statements of operations,
+stockholders' equity and comprehensive income (loss) and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended December 31, 2002,
+listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
+and schedule based on our audit. The consolidated financial statements and schedule of RPC, Inc. and Subsidiaries as of December 31, 2001, and for each of the two years in the period
+ended December 31, 2001, were audited by other auditors who have ceased operations and whose report dated February 28, 2002 expressed an unqualified opinion on those statements and
+schedule before the restatement adjustments reflected on the balance sheet and statements of cash flows and in Notes 1 and 13. 
+We
+conducted our audit in accordance with auditing standards generally accepted in the 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 audit provides a reasonable basis for our opinion. 
+In
+our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of RPC, Inc. and Subsidiaries at
+December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United
+States. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2002, when considered in relation to the basic
+financial statements taken as a whole, presents fairly in all material respects the information set forth therein. 
+As
+described in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible
+assets to conform with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets . 
+As
+discussed above, the consolidated financial statements and schedule of RPC, Inc. and Subsidiaries as of December 31, 2001 and for each of the two years then ended were
+audited by other auditors who have ceased operations. In the 2001 balance sheet presented, the Company reclassified certain investments previously classified as marketable securities to cash and cash
+equivalents and reflected such changes in the statement of cash flows. Our audit procedures with respect to the restatements of these amounts in the 2001 balance sheet and the 2001 and 2000 statements
+of cash flows included agreeing the investment balance to the investment statement and verifying maturity dates to determine proper classification, (b) agreeing the changes to the statement of
+cash flows to the changes in the balance sheet and (c) testing the mathematical accuracy of the restatement on the balance sheet and resulting changes to the statements of cash flows. 
+As
+described in Note 1, the statements of operations for the years ended December 31, 2001 and 2000 have been restated to present certain costs and expenses billable to
+customers gross in the statements of operations. Our audit procedures with respect to the restatements of these amounts in the statements of operations, and the corresponding disclosures in
+Note 1 and Note 13 for 2001 and 2000 included (a) agreeing revenue restatements to the Company's underlying records and (b) testing the mathematical accuracy of the
+restatements. 
+55 
+As
+also discussed in Note 1, the consolidated financial statements of RPC, Inc. and Subsidiaries as of December 31, 2001 and for each of the two years then ended
+have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
+Assets , which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 1 with respect to 2001 and 2000
+included (a) agreeing the previously reported net income to the previously issued financial statements, (b) agreeing the adjustments to reported net income representing amortization
+expense (including any related tax effects) recognized in those periods related to goodwill that is no longer being amortized as a result of initially applying Statement No. 142 (including any
+related tax effects) to the Company's underlying records obtained from management, (c) agreeing all 2001 separate asset, accumulated amortization, and expense balances as disclosed for
+individual intangibles to the Company's underlying accounting records obtained from management, and (d) testing the mathematical accuracy of the reconciliation of pro forma net income to
+reported net income. 
+As
+also discussed in Note 1, the consolidated financial statements of RPC, Inc. and Subsidiaries as of December 31, 2001 and for each of the two years then ended
+have been revised to include the disclosures required by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and
+Disclosure, which was adopted by the Company as of December 31, 2002. Our audit procedures with respect to the disclosures in Note 1 for 2001 and 2000 included
+(a) agreeing the previously reported net income to the previously issued financial statements, (b) agreeing the adjustments to reported net income representing compensation expense and
+pro forma compensation expense (including any related tax effects) related to those periods to the Company's underlying records obtained from management and (c) testing the mathematical
+accuracy of the reconciliation of pro forma net income to reported net income and related earnings per share amounts. 
+In
+our opinion, the adjustments and disclosures for 2001 and 2000 on the balance sheet, in the statements of operations and cash flows and in Notes 1 and 13 with respect to the matters
+referred to in the preceding four paragraphs are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of the
+Company other than with respect to such adjustments and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements
+taken as a whole. 
+Ernst & Young LLP 
+Atlanta, Georgia 
+March 14, 2003 
+56 
+NOTE: THE FOLLOWING IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP ("ARTHUR ANDERSEN") IN CONNECTION WITH RPC, INC.'S
+FORM 10-K FILING FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. THE INCLUSION OF THIS PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT IS PURSUANT TO THE "TEMPORARY FINAL RULE AND
+FINAL RULE REQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS," ISSUED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT
+INCLUDES REFERENCES TO CERTAIN FISCAL YEARS THAT ARE NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000.
+THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN IN CONNECTION WITH THIS FILING ON FORM 10-K. 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+To
+RPC, Inc.: 
+We
+have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related
+consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred
+to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. 
+We
+conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
+assurance about whether the financial statements are free from 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 financial statements referred to above present fairly, in all material respects, the financial position of RPC, Inc. and subsidiaries as of December 31,
+2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally
+accepted in the United States. 
+Our
+audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 is presented for the purposes of complying
+with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic
+financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. 
+Arthur Andersen LLP 
+Atlanta, Georgia 
+February 28, 2002 
+57 
+SELECTED QUARTERLY FINANCIAL DATA 
+Quarters ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share data) 
+2002 
+Revenues—as reported 
+$ 
+46,728 
+$ 
+46,774 
+$ 
+50,342 
+$ 
+55,073 
+Revenues—restated (1) 
+50,766 
+49,821 
+53,370 
+55,073 
+Net income (loss) 
+$ 
+(1,167 
+) 
+$ 
+(1,953 
+) 
+$ 
+(1,040 
+) 
+$ 
+(1,100 
+) 
+Net income (loss) per share—basic: 
+$ 
+(0.04 
+) 
+$ 
+(0.07 
+) 
+$ 
+(0.04 
+) 
+$ 
+(0.04 
+) 
+Net income (loss) per share—diluted: 
+(0.04 
+) 
+(0.07 
+) 
+(0.04 
+) 
+(0.04 
+) 
+2001 
+Revenues—as reported 
+$ 
+62,733 
+$ 
+70,831 
+$ 
+75,674 
+$ 
+55,704 
+Revenues—restated (1) 
+67,080 
+76,112 
+81,856 
+59,473 
+Income (loss) from continuing operations 
+6,870 
+9,703 
+9,959 
+(1,036 
+) 
+Income from discontinued operation 
+1,486 
+— 
+— 
+— 
+Net income (loss) 
+$ 
+8,356 
+$ 
+9,703 
+$ 
+9,959 
+$ 
+(1,036 
+) 
+Net income (loss) per share—basic: 
+Continuing operations 
+$ 
+0.25 
+$ 
+0.35 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Discontinued operation 
+0.05 
+— 
+— 
+— 
+Total 
+$ 
+0.30 
+$ 
+0.35 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Net income (loss) per share—diluted: 
+Continuing operations 
+$ 
+0.24 
+$ 
+0.34 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+Discontinued operation 
+0.05 
+— 
+— 
+— 
+Total 
+$ 
+0.29 
+$ 
+0.34 
+$ 
+0.35 
+$ 
+(0.04 
+) 
+(1) Certain
+pass through costs and expenses billable to customers have been classified as gross revenues. 
+58 
+QuickLinks 
+PART I 
+ITEM 1. BUSINESS 
+ITEM 2. PROPERTIES 
+ITEM 3. LEGAL PROCEEDINGS 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
+ITEM 6. SELECTED FINANCIAL DATA 
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+CONSOLIDATED BALANCE SHEETS RPC, Inc. and Subsidiaries (in thousands except share information) 
+CONSOLIDATED STATEMENTS OF OPERATIONS RPC, Inc. and Subsidiaries (in thousands except per share data) 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) RPC, Inc. and Subsidiaries (in thousands) 
+CONSOLIDATED STATEMENTS OF CASH FLOWS RPC, Inc. and Subsidiaries (in thousands) 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RPC, Inc. and Subsidiaries Years ended December 31, 2002, 2001 and 2000 
+PART III 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+ITEM 11. EXECUTIVE COMPENSATION 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+ITEM 14. CONTROLS AND PROCEDURES 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 
+SIGNATURES 
+CERTIFICATIONS 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (Item 15) 
+SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS RPC, Inc. and Subsidiaries 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+SELECTED QUARTERLY FINANCIAL DATA
\ No newline at end of file
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/filing_metadata.csv b/raw/filings/0000742278/2002/0001047469-03-009676/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..ec02032cd2198ec02b94d951747ad30f729f4a34
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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2003-03-21,2002-12-31,2003-03-21T22:16:16.000Z,0001047469-03-009676,a2105863z10-k.htm,10-K,567817,0,0,https://www.sec.gov/Archives/edgar/data/742278/000104746903009676/a2105863z10-k.htm,https://www.sec.gov/Archives/edgar/data/742278/000104746903009676/,2002,2002,1
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/item1.txt b/raw/filings/0000742278/2002/0001047469-03-009676/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4994d026c10126a59b3698adff814b6805117931
--- /dev/null
+++ b/raw/filings/0000742278/2002/0001047469-03-009676/item1.txt
@@ -0,0 +1,285 @@
+ITEM 1. BUSINESS 
+Organization 
+RPC, Inc. ("RPC") is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies. Two of RPC's
+businesses, Cudd Pressure Control ("Cudd") and
+Patterson Services ("Patterson"), have been in operation for more than 20 years. Effective February 28, 2001, RPC completed the spin-off of its powerboat manufacturing
+business through a distribution of shares of Marine Products Corporation ("Marine Products"). 
+Overview 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and in selected
+international markets. The services and equipment provided include, among other things, (1) snubbing services, (2) coiled tubing services, (3) pressure pumping services,
+(4) nitrogen services, (5) firefighting and well control, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) marine services. RPC acts as a
+holding company for its operating subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc. and Patterson Tubular Services, Inc. together with other smaller
+non-core businesses. 
+Business Segments 
+RPC's service lines have been aggregated into two reportable oil and gas services business segments—Technical Services and Support
+Services—because of the similarities between the financial performance and approach to managing the service lines within each of the segments as well as the economic and business
+conditions impacting their business activity levels. The other business segment aggregates information concerning RPC's business units that do not qualify for separate segment reporting, including an
+overhead crane fabricator and an interactive software training developer. 
+Technical
+Services include RPC's oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer's well. 
+2 
+The demand for these services is generally influenced by customers' decisions to invest capital toward improving the flow of oil and natural gas from producing formations or to address well control
+issues. This business segment consists primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping and casing installation
+services. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and international
+locations including primarily Africa, Latin America and Canada. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support
+Services include RPC's oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels and oilfield training
+services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, Gulf of Mexico
+and mid-continent regions. Customers include domestic operations of major multi-national and independent oil and gas producers. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Snubbing. Snubbing involves using a hydraulic workover rig that permits an operator to repair damaged casing, production
+tubing and down-hole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace down-hole equipment in a
+pressurized environment. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a
+snubbing rig can perform many applications at a lower cost than other alternatives. Since snubbing is a very hazardous process that entails high risk, the snubbing segment of the oil and gas services
+industry is limited to a relatively few operators who have the experience and knowledge required to perform such services safely and efficiently. 
+Coiled Tubing. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and
+functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a diameter of less than five inches manufactured in continuous lengths of thousands
+of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal
+advantages of employing coiled tubing in a workover include: (i) not having to "shut-in" the well during such operations, (ii) the ability to reel continuous coiled tubing in
+and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit. 
+Pressure Pumping. Pumping services are provided to customers throughout the Gulf Coast and mid-continent regions
+of the United States and are generally utilized in production. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific
+pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business
+include fracturing proppants, acid and bulk chemical additives. Generally, these items are available 
+3 
+from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing—Fracturing
+services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping a
+fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in the gel, is pumped into the fracture. When
+the pressure is released at the surface, the fluid gel returns to the well, but the proppant remain in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into
+the well. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing—Acidizing
+services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of
+various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby
+eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Nitrogen. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to
+oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling
+applications. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition to
+fracturing, nitrogen serves as a compliment to our snubbing and coiled tubing service lines. For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a
+non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping
+units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control. Cudd Pressure Control specializes in responding to and controlling oil and gas well emergencies, including
+blowouts and well fires domestically and internationally. In connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last five years, the Company has responded to well control situations in several international locations including Argentina,
+Australia, Bolivia, Colombia, Egypt, India, Peru, Taiwan and Venezuela. 
+The
+Company's professional firefighting staff has more than 300 years of aggregate industry experience in responding to well fires and blowouts. This team of 16 experts responds
+to well control projects where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of
+drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators' production revenue. Since these events ordinarily arise
+from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of
+new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly
+as safety permits. 
+Down-hole Tools. ThruTubing Solutions ("TTS"), a division of the Company, provides services and proprietary
+down-hole motors and fishing tools to operators and service companies in drilling and production operations. TTS' experience providing reliable tool services allows it to work in a
+pressure environment with virtually any coiled tubing unit or snubbing unit that is equipped for the task. 
+4 
+Wireline Services. A wireline unit is a spooled wire that can be unwound and lowered into a well carrying various types of
+tools. Wireline services are used for a variety of purposes, such as accessing a well to assist in data acquisition or logging activities, fishing tool operations to retrieve lost or broken equipment,
+pipe recovery and remedial activities. In addition, wireline services are an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Casing and Laydown. Casing and laydown principally consists of installing casing and production tubing into a wellbore.
+Casing is run to protect the structural integrity of the wellbore and to seal various production zones in the well. These services are normally provided during the drilling and completion phases of a
+well. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases of a well. 
+Torque-Turn. Torque-Turn is used on tubulars in the deeper, higher pressure gas wells where
+connection integrity and leak resistance are most critical. By monitoring the makeup of connections with both torque and turns simultaneously, we are able to achieve the optimum bearing pressure
+between the connection. The level of bearing pressure directly affects the leak resistance of the connection. The use of the torque-turn system allows the maximum bearing pressure to be
+achieved without permanently deforming the tubular material. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools. RPC rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and
+workover activities. The drilling and operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubulars inventories with rental items
+instead of owning a complete inventory. RPC is strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico and mid-continent regions. 
+RPC,
+through Patterson Rental Tools, offers a broad range of rental tools including: 
+Blowout Preventors 
+High Pressure Manifolds 
+Coflexip Hoses 
+Hydraulic Torque Wrenches 
+Drill Collars 
+Power Tongs 
+Drill Pipe 
+Pressure Control Equipment 
+Production Related Rental Tools 
+Test Pumps 
+Gravel Pack Equipment 
+Tubing 
+Handling Tools 
+Tubulars 
+Hevi-wate Pipe 
+Tubular Handling Tools 
+Marine Services. A liftboat is a self-propelled, self-elevating work platform with legs, cranes and
+living accommodations. Our fleet consists of four liftboats, two of which have leg lengths of 200 feet. Upon arriving at a destination, a liftboat hydraulically lowers its legs until they are
+positioned on the ocean floor, and then jacks up until the work platform is sufficiently above the water level. Once positioned, the stability, open deck area, crane capacity, and relatively low cost
+of operation make liftboats ideal work platforms for a wide range of offshore activities, including platform construction, plug and abandonment services, and other non-oilfield related
+construction work. Our liftboats have either one or two cranes with lift capacities up to 75 tons. A liftboat's capability to reposition at a work site or to move to another work location within a
+short timeframe adds to its versatility. In addition, 
+5 
+liftboat services are also highly complementary to RPC's service lines within the Technical Services business segment as it relates to providing services offshore. 
+Pipe Inspection and Handling Services. Pipe inspection services involve the inspection and testing of the integrity of pipe
+used in oil and gas wells. These services are provided primarily at RPC's inspection yards located on a water channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on tubular
+inspection services to avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such tubular failures are expensive and, in some cases, catastrophic. RPC's yard in Houston,
+Texas is equipped with bulkhead waterfronts, large capacity cranes, specially designed forklifts and a
+computerized inventory system to serve a variety of other storage and handling services that can serve both oilfield and non-oilfield customers. 
+Well Control School. Well Control School provides industry and government accredited training for the oil and gas industry.
+Well Control School provides this training in various formats including conventional classroom training, interactive computer training and mobile simulator training. Well Control School also develops
+customized training solutions for clients. 
+Energy Personnel International. Energy Personnel International provides drilling and production engineers, project management
+specialists and workover specialists on a consulting basis to the oil and gas industry to meet customers' needs for staff engineering and wellsite management. 
+Industry 
+United States. RPC provides its services to its domestic customers through a network of strategic locations including the
+Gulf of Mexico, the mid-continent, the southwest and the Rocky Mountains. Demand for RPC's services in the U.S. tends to be extremely volatile and fluctuates with current and projected
+price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and
+production of oil and gas reserves. 
+Due
+to aging oilfields and lower-cost sources of oil internationally, drilling activity in the U.S. has declined more than 75 percent from its peak in 1981. Record low
+drilling activity levels were experienced in 1986, 1992 and again in 1999, with April 1999 recording the lowest U.S. drilling rig count in recorded history. 
+At
+the end of 2001, there were 887 domestic working drilling rigs, down 31 percent from the third quarter 2001 peak. U.S. domestic drilling activity in 2002 continued the decline
+that started in the fourth quarter of 2001. During 2002 the rig count fell to 738 in the second quarter. Although the prices of oil and natural gas began to rise during the year, drilling activity was
+not as closely correlated as in past cycles. The rig count began a slow recovery during the remainder of 2002 and stood at 862 by the end of the year. The average rig count for the calendar year 2002
+was 28 percent lower than in the calendar year 2001. 
+Historically,
+gas drilling rigs have typically represented just over 50 percent of the total drilling rig count. However, gas-directed drilling rigs have averaged
+approximately 70 percent of the total domestic drilling rig count during the past three years. Demand for natural gas is continuing to rise, primarily as
+a result of increased emphasis on gas-fired power generation. Based on the current demand for natural gas as well as the high well depletion rates experienced over the past several years,
+it is anticipated that gas-directed drilling will represent at least 70 percent of the total drilling rig count in the foreseeable future. The demand for RPC's services is driven
+more by gas-directed drilling than oil-directed drilling, because our services are more applicable to deeper, high pressure wells, which tend to be the wells that produce
+natural gas. 
+6 
+Thus,
+in North America the demand for our services and products associated with natural gas development is currently more robust than demand related to oil drilling. Drilling activity
+and demand for our services has started to increase and is expected to continue to increase when the domestic economy recovers and current high storage levels of natural gas decrease. 
+International. RPC has operated in several countries including the major international oil and natural gas producing areas of
+Algeria, Argentina, Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela. During 2002, RPC shut down its Venezuelan operation because of the high degree of risk associated with
+the political instability in that country. Also, RPC ceased its operation in Algeria during 2002 due to the termination of its contract under which it provided services in that country. We are
+evaluating new business opportunities in each of these markets and may resume our operations in one or both markets. 
+RPC
+provides services to its international customers through wholly-owned foreign subsidiaries or branch locations. The international market is somewhat less volatile than the U.S.
+market although prone to political uncertainties, the risk of civil unrest and conflicts. Due to the significant investment requirement and complexity of international projects, customers' drilling
+decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is
+dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Pursuing
+selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 13 in the Notes to Consolidated Financial Statements for further information on
+international operations. 
+Growth Strategies 
+RPC's primary objective is to provide stockholders with excellent long-term returns on their investment through the effective and conservative
+management of its invested capital, thus yielding strong cash flow and asset appreciation. This objective will be pursued through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected areas and markets in which we
+believe there exist opportunities for higher growth, market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added
+products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage or there exists significant growth potential. 
+RPC
+seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil
+and gas services industry, RPC believes a number of attractive acquisition opportunities exist. 
+Customers 
+Demand for RPC's services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity worldwide. RPC's principal customers consist of major and independent oil and natural gas producing companies. During 2002, RPC
+provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of consolidated revenues. While the loss of certain of RPC's largest customers could
+have a material adverse effect on Company revenues and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of
+any of its largest customers. Sales are generated by RPC's sales force and through referrals from existing customers. With the exception of RPC's international customers, there are no
+long-term written contracts for services or equipment. Due 
+7 
+to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no sales backlog. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. The products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of activity in major markets, general economic conditions and
+governmental regulation. RPC competes with the oil and gas industry's many large and small oilfield industry competitors, including the largest integrated oilfield services companies. RPC believes
+that the principal competitive factors in the market areas that it serves are product and service quality and availability, reputation for safety and technical proficiency and price. 
+The
+oil and gas services business includes a small number of dominant global competitors including Halliburton Energy Services, a division of Halliburton Company, and
+Schlumberger Ltd., and a significant number of locally oriented businesses, many of which tend to be viable acquisition targets. 
+Facilities/Equipment 
+RPC's equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is owned and unencumbered. RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and
+offshore customers. RPC's principal executive offices in Atlanta, Georgia are leased. During 2002, RPC also purchased real property and began construction of an administrative facility in Houston,
+Texas, which will be occupied during 2003 and eliminate the need for several leased office facilities in metropolitan Houston, Texas. RPC believes that its facilities are adequate for its current
+operations. RPC owns and operates four offshore liftboats. For additional information with respect to RPC's lease commitments, see Note 10 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC's business is significantly affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and
+regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by
+enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are
+subject to change, and new regulations may curtail or eliminate our customers' activities in certain areas of our operations. We cannot determine the extent to which new legislation may impact our
+customers' activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC's operations. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+8 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net , the annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange
+Commission and has done so since November 15, 2002. 
+Risk Factors 
+Demand for our products and services is affected by the volatility of oil prices. 
+Oil prices affect demand throughout the oil and natural gas industry, including the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital expenditures of our customers related to the exploration and production of oil and natural gas. When these expenditures
+decline, our customers' demand for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react
+to declining oil and gas prices by reducing their expenditures, which would adversely affect our business. A prolonged low level of activity in the oil and gas industry will adversely affect the
+demand for our products and services and our financial condition and results of operations. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services of each of our principal industry segments are sold in highly
+competitive markets, and our revenues and earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity in major markets, general economic
+conditions, and governmental regulation. We compete with the oil and gas industry's many large and small industry competitors, including the largest integrated oilfield service providers. We believe
+that the principal competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe
+that our reputation for safety and quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and will continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in
+connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own business. Any inability on our part to consolidate and manage the growth from acquired businesses could have a material
+adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in the Gulf of Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns, our
+crews may operate more days in some periods than others. Rainy weather, hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the year may also affect our
+operations. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control. 
+9 
+Our inability to attract and retain skilled workers may impair growth potential and profitability. 
+Our ability to remain productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The demand for skilled oilfield employees is high, and the supply is very limited. A significant increase in the wages paid
+by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+Our inability to perform services for a number of our large existing customers could have a material adverse effect on our business and operations. 
+Our inability to continue to perform services for a number of our large existing customers could have a material adverse effect on our business and operations.
+Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that
+customers may be similarly affected by changes in economic and
+industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. We maintain reserves for estimated credit
+losses. 
+Our business has potential liability for litigation, personal injury and property damage claims assessments. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location
+where our equipment and services are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. These occurrences could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you
+that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and assessments that may arise. 
+Our operations may be adversely affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or
+court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations
+for economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our
+offshore and onshore operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be
+unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. We believe that our present
+operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, 
+10 
+in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective
+actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in Africa, Canada and Latin America and other foreign countries are subject to risks inherent in doing business in foreign countries. These risks
+include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil disturbances. Although it is
+impossible to predict the likelihood of such occurrences or their effect on our operations, our management believes that these risks are acceptable. However, the occurrence of any one of these events
+could have a material adverse effect on our operations. 
+Our common stock price has been volatile. 
+Historically, the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of
+our common stock has varied significantly in the past. 
+Our management has a substantial ownership interest, and public shareholders may have no effective voice in the management of the Company. 
+RPC's executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 66 percent
+of RPC's outstanding common stock. As a result, these stockholders will effectively control the operations of RPC, including the election of directors and approval of significant corporate
+transactions such as acquisitions. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. In addition,
+the availability of RPC's common stock to the investing public is limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC's stock
+trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also
+negatively affect the trading price of our common stock.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/item13.txt b/raw/filings/0000742278/2002/0001047469-03-009676/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0c2bb610a00222b0660b87a3368ddbd5693f45b5
--- /dev/null
+++ b/raw/filings/0000742278/2002/0001047469-03-009676/item13.txt
@@ -0,0 +1,5 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Information concerning certain relationships and related party transactions is included in the RPC Proxy for its 2003 Annual Meeting of Stockholders, in the
+sections entitled "Certain Relationships and 
+48 
+Related Party Transactions" and "Compensation Committee Interlocks and Insider Participation." This information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/item9a.txt b/raw/filings/0000742278/2002/0001047469-03-009676/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/rp_note.txt b/raw/filings/0000742278/2002/0001047469-03-009676/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..34660021f4c83fdd42eeb26fe1c140b82b9044fe
--- /dev/null
+++ b/raw/filings/0000742278/2002/0001047469-03-009676/rp_note.txt
@@ -0,0 +1,10 @@
+Note 12: Related Party Transactions 
+Effective with the spin-off, the Company established a cash balance at Marine Products of approximately $15 million by transferring a total of
+$13.8 million in cash and marketable securities. Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements are
+more fully described in Note 2. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $454,000 in 2002 and $868,000 in
+2001. The Company's directors are also directors of Marine Products and certain officers are employees of both the Company and Marine Products. 
+The
+Company periodically purchases in the ordinary course of business products or services from vendors, who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. The total amounts paid to these affiliated parties totaled approximately $502,000 in 2002 and $486,000 in 2001. In addition, during 2002, the overhead crane fabrication division of
+RPC recorded $332,000 in revenues from the powerboat manufacturing segment that is now a subsidiary of Marine Products pursuant to the spin-off, related to the sale, installation and
+service of overhead cranes.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2002/0001047469-03-009676/rpt_disclosure.txt b/raw/filings/0000742278/2002/0001047469-03-009676/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2c5119d5f12459933ea645c1a17057ec811f9a78
--- /dev/null
+++ b/raw/filings/0000742278/2002/0001047469-03-009676/rpt_disclosure.txt
@@ -0,0 +1,28 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
+Effective February 28, 2001, the Company began providing certain
+administrative services to Marine Products. The service agreements between
+Marine Products and the Company provide for the provision of services on a cost
+reimbursement basis and may be terminated upon six months notice. The services
+covered by these agreements include administration of certain employee benefit
+programs and other administrative services. Charges from the Company (or from
+corporations which are subsidiaries of the Company) for such services aggregated
+approximately $496,000 in 2003. During 2003, a division of RPC conducted
+business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine
+Products. The Company recorded $171,000 in revenues from Chaparral related to
+the sale, installation and service of overhead cranes.
+During 2003, a subsidiary of RPC conducted business with companies owned by
+LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr.
+Randall Rollins, Chairman, and Mr. Gary W. Rollins,
+10
+Director. In 2003, payments totaling approximately $871,000 were made to these
+LOR, Inc. companies for the purchase of parts and repair services related to
+certain of RPC's oilfield operating equipment. RPC believes the charges incurred
+by its subsidiary are at least as favorable as the charges that would have been
+incurred for similar services from unaffiliated third parties.
+RPC sponsors a multiple employer benefit plan that includes Marine
+Products. Following the spin-off, RPC charged Marine Products for, and Marine
+Products has been obligated to pay, its allocable share of pension costs and the
+associated funding obligation related to the prior service liabilities of
+Chaparral employees. Effective December 2003, the related prior service
+liabilities totaling $3,314,000 and pension assets totaling $2,517,000 were
+transferred within the multiple employer plan from RPC to Marine Products.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/filing.txt b/raw/filings/0000742278/2006/0001188112-07-000585/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..47c1e38cf7b24ee8d7be49b6ee4ed9ef37e736b4
--- /dev/null
+++ b/raw/filings/0000742278/2006/0001188112-07-000585/filing.txt
@@ -0,0 +1,7495 @@
+10-K
+1
+t13155_10k.htm
+FORM 10-K
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+FORM
+10-K 
+(Mark
+One) 
+x 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities Exchange
+Act of
+1934 
+o 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities Exchange
+Act of
+1934 
+For
+the fiscal year ended December 31, 2006 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+58-1550825 
+(State
+of Incorporation) 
+(I.R.S.
+Employer Identification
+No.) 
+2801
+BUFORD HIGHWAY 
+SUITE
+520 
+ATLANTA,
+GEORGIA 30329 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+Name
+of each exchange on which registered 
+COMMON
+STOCK, $0.10 PAR VALUE 
+NEW
+YORK STOCK EXCHANGE 
+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. o 
+Yes x 
+No 
+Indicate
+by check mark if the registrant is not required to file reports pursuant
+to
+Section 13 or Section 15(d) of the Act. o Yes x 
+No 
+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 o 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K 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. x 
+Indicate
+by check mark whether the registrant is a large accelerated filer, an
+accelerated filer, or a non-accelerated filer. See definition of “accelerated
+filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
+one): 
+Large accelerated filer o 
+Accelerated filer x 
+Non-accelerated filer o 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule
+12b-2 of the Exchange Act). Yes o No
+x 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on
+June
+30, 2006, the last business day of the registrant’s most recently completed
+second fiscal quarter, was $510,582,153 based on the closing price on the
+New
+York Stock Exchange on June 30, 2006 of $16.19 per share. 
+RPC,
+Inc. had 97,753,233 shares of Common Stock outstanding as of February 15,
+2007. 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2007 Annual Meeting of Stockholders of RPC,
+Inc.
+are incorporated by reference into Part III, Items 10 through 14 of this
+report. 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,”
+“us,” “RPC” or “the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are
+“forward-looking statements” under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and
+our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services
+market
+and our performance in the future. Forward-looking statements made elsewhere
+in
+this report include without limitation statements regarding our expectations
+regarding continued increases in oil and gas exploration and production,
+our
+belief that high returns on our investments will continue long-term, our
+ability
+to obtain other customers in the event of a loss of our largest customers,
+the
+adequacy of our insurance coverage, the impact of lawsuits, legal proceedings
+and claims on our business and financial condition, our expectations regarding
+revenues in 2007, our expectations regarding capital expenditures in 2007,
+our
+ability to maintain sufficient liquidity and a conservative capital structure,
+our ability to fund capital requirements in the future, the adequacy of our
+liquidity in the future, the estimated amount of our capital expenditures
+and
+contractual obligations for future periods, our expectation to continue to
+pay
+cash dividends, estimates made with respect to our critical accounting policies,
+and the effect of new accounting standards. 
+The
+words
+“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and
+similar expressions generally identify forward-looking statements. Such
+statements are based on certain assumptions and analyses made by our management
+in light of its experience and its perception of historical trends, current
+conditions, expected future developments and other factors it believes to
+be
+appropriate. We caution you that such statements are only predictions and
+not
+guarantees of future performance and that actual results, developments and
+business decisions may differ from those envisioned by the forward-looking
+statements. See “Risk Factors” contained in Item 1A. for a discussion of factors
+that may cause actual results to differ from our projections. 
+Item
+1. Business 
+Organization
+and Overview 
+RPC
+is a
+Delaware corporation originally organized in 1984 as a holding company for
+several oilfield services companies and is headquartered in Atlanta, Georgia.
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among others, (1) pressure pumping services,
+(2)
+snubbing services (also referred to as hydraulic workover services), (3)
+coiled
+tubing services, (4) nitrogen services, (5) the rental of drill pipe and
+other
+specialized oilfield equipment, (6) downhole tool rental services and (7)
+firefighting and well control. RPC acts as a holding company for its operating
+units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield
+Services (acquired in April 2004), Thru-Tubing Solutions, Well Control School,
+and others. As of December 31, 2006, RPC had approximately 2,000
+employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+business segments, Technical Services and Support Services, because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. The Other business segment
+aggregates information concerning RPC’s business units that do not qualify for
+separate segment reporting, including an interactive training software developer
+(until its sale in May 2005) and an overhead crane fabricator (until its
+sale in
+April 2004). 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. The demand for these services is generally
+influenced by customers’ decisions to invest capital toward initiating
+production in a new oil or natural gas well, improving production flows in
+an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen,
+well
+control, down-hole tools, wireline, fluid pumping and casing installation
+services (until its sale in August 2005). The principal markets for this
+business segment include the United States, including the Gulf of Mexico,
+mid-continent, southwest and Rocky Mountain regions, and international locations
+including primarily Africa, Canada, China, Eastern Europe, Latin America
+and the
+Middle East. Customers include major multi-national and independent oil and
+gas
+producers, and selected nationally owned oil companies. 
+2 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+pipe
+inspection and storage services, work platform marine vessels (until its
+sale in
+October 2004) and oilfield training services. The demand for these services
+tends to be influenced primarily by customer drilling-related activity levels.
+The principal markets for this segment include the United States, including
+the
+Gulf of Mexico, mid-continent and Rocky Mountain regions and international
+locations including primarily Canada, Latin America and the Middle East.
+Customers primarily include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within
+the
+Technical Services business segment: 
+Pressure
+Pumping .
+Pressure pumping services, which accounted for approximately 38 percent of
+2006
+revenues, 37 percent of 2005 revenues and 31 percent of 2004 revenues, are
+provided to customers throughout the Gulf Coast, mid-continent and Rocky
+Mountain regions of the United States and are generally utilized to initiate
+or
+enhance production in existing customer wells. Pressure pumping services
+involve
+using complex, truck or skid-mounted equipment designed and constructed for
+each
+specific pumping service offered. The mobility of this equipment permits
+pressure pumping services to be performed in varying geographic areas. Principal
+materials utilized in the pressure pumping business include fracturing
+proppants, acid and bulk chemical additives. Generally, these items are
+available from several suppliers, and the Company utilizes more than one
+supplier for each item. Pressure pumping services offered include: 
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural
+gas by increasing the permeability of a formation. The fracturing process
+consists of pumping nitrogen or a fluid gel into a cased well at sufficient
+pressure to fracture the formation at desired depths. Sand, bauxite or synthetic
+proppant, which is suspended in the gel, is pumped into the fracture. When
+the
+pressure is released at the surface, the fluid gel returns to the well, but
+the
+proppant remain in the fracture, thus keeping it open so that oil and natural
+gas can flow through the fracture into the well. In some cases, fracturing
+is
+performed in formations with a high amount of carbonate rock by an acid solution
+pumped under pressure without a proppant or with small amounts of proppant.
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and
+natural gas, but they are used in wells that have undergone formation damage
+due
+to the buildup of various materials that block the formation. Acidizing entails
+pumping large volumes of specially formulated acids into reservoirs to dissolve
+barriers and enlarge crevices in the formation, thereby eliminating obstacles
+to
+the flow of oil and natural gas. Acidizing services can also enhance production
+in limestone formations. 
+Snubbing .
+Snubbing (also referred to as hydraulic workover services), which accounted
+for
+approximately 11 percent of 2006 revenues, 11 percent of 2005 revenues and
+12
+percent of 2004 revenues, involves using a hydraulic workover rig that permits
+an operator to repair damaged casing, production tubing and down-hole production
+equipment in a high-pressure environment. A snubbing unit makes it possible
+to
+remove and replace down-hole equipment while maintaining pressure in the
+well.
+Customers benefit because these operations can be performed without removing
+the
+pressure from the well, which stops production and can damage the formation,
+and
+because a snubbing rig can perform many applications at a lower cost than
+other
+alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry
+is
+limited to a relatively few operators who have the experience and knowledge
+required to perform such services safely and efficiently. 
+Coiled
+Tubing .
+Coiled
+tubing services, which accounted for approximately 10 percent of 2006 and
+2005
+revenues and 11 percent of 2004 revenues, involve the injection of coiled
+tubing
+into wells to perform various applications and functions for use principally
+in
+well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than four inches manufactured in continuous lengths of
+thousands of feet and wound or coiled around a large reel. It can be inserted
+through existing production tubing and used to perform workovers without
+using a
+larger, more costly workover rig. Principal advantages of employing coiled
+tubing in a workover operation include: (i) not having to “shut-in” the well
+during such operations, (ii) the ability to reel continuous coiled tubing
+in and
+out of a well significantly faster than conventional pipe, (iii) the ability
+to
+direct fluids into a wellbore with more precision, and (iv) enhanced access
+to
+remote or offshore fields due to the smaller size and mobility of a coiled
+tubing unit compared to a workover rig. There are several manufacturers of
+flexible steel pipe used in coiled tubing services, and the Company believes
+that its sources of supply are adequate. 
+3 
+Nitrogen .
+Nitrogen accounted for approximately eight percent of 2006 and 2005 revenues
+and
+nine percent of 2004 revenues. There are a number of uses for nitrogen, an
+inert, non-combustible element, in providing services to oilfield customers
+and
+industrial users outside of the oilfield. For our oilfield customers, nitrogen
+can be used to clean drilling and production pipe and displace fluids in
+various
+drilling applications. It also can be used to create a fire-retardant
+environment in hazardous blowout situations and as a fracturing medium for
+our
+fracturing service line. In addition, nitrogen can be complementary to our
+snubbing and coiled tubing service lines, because it is a non-corrosive medium
+and is frequently injected into a well using coiled tubing. Nitrogen is
+complementary to our pressure pumping service line as well, because foam-based
+nitrogen stimulation is appropriate in certain sensitive formations in which
+the
+fluids used in fracturing or acidizing would damage a customer’s well.
+For
+non-oilfield industrial users, nitrogen can be used to purge pipelines and
+create a non-combustible environment. RPC stores and transports nitrogen
+and has
+a number of pumping unit configurations that inject nitrogen in its various
+applications. Some of these pumping units are set up for use on offshore
+platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are adequate.
+Well
+Control .
+Cudd
+Pressure Control specializes in responding to and controlling oil and gas
+well
+emergencies, including blowouts and well fires, domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last
+eight
+years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia,
+Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The
+Company’s professional firefighting staff has many years of aggregate industry
+experience in responding to well fires and blowouts. This team of 19 experts
+responds to well control situations where hydrocarbons are escaping from
+a well
+bore, regardless of whether a fire has occurred. In the most critical
+situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds
+of thousands of dollars per day in well operators’ production revenue. Since
+these events ordinarily arise from equipment failures or human error, it
+is
+impossible to predict accurately the timing or scope of this work. Additionally,
+less critical events frequently occur in connection with the drilling of
+new
+wells in high-pressure reservoirs. In these situations, the Company is called
+upon to supervise and assist in the well control effort so that drilling
+operations can resume as promptly as safety permits. 
+Down-hole
+Tools .
+ThruTubing Solutions (“TTS”), a division of the Company, provides services and
+proprietary down-hole motors and fishing tools to operators and service
+companies in drilling and production operations. TTS’ experience providing
+reliable tool services allows it to work in a pressurized environment with
+virtually any coiled tubing unit or snubbing unit that is equipped for the
+task.
+Wireline
+Services .
+A
+wireline unit is a spooled wire that can be unwound and lowered into a well
+carrying various types of tools. Wireline services are used for a variety
+of
+purposes, such as accessing a well to assist in data acquisition or logging
+activities, fishing tool operations to retrieve lost or broken equipment,
+pipe
+recovery and remedial activities. In addition, wireline services are an integral
+part of the plug and abandonment process, near the end of the life cycle
+of a
+well. 
+Fishing .
+Fishing
+involves the use of specialized tools and procedures to retrieve lost equipment
+from drill operations and producing wells. It is a service required by oil
+and
+gas operators who have lost equipment in a well. Oil and natural gas production
+from an affected well typically declines until the lost equipment can be
+retrieved. In some cases, the Company creates customized tools to perform
+a
+fishing operation. The customized tools are maintained by the Company after
+the
+particular fishing job for future use if a similar need arises. 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within
+the
+Support Services business segment: 
+Rental
+Tools .
+Rental
+tools accounted for approximately 13 percent of 2006 revenues, 10 percent
+of
+2005 revenues and 11 percent of 2004 revenues. The Company rents specialized
+equipment for use with onshore and offshore oil and gas well drilling,
+completion and workover activities. The drilling and subsequent operation
+of oil
+and gas wells generally require a variety of equipment. The equipment needed
+is
+in large part determined by the geological features of the production zone
+and
+the size of the well itself. As a result, operators and drilling contractors
+often find it more economical to supplement their tool and tubular inventories
+with rental items instead of owning a complete inventory. The Company’s
+facilities are strategically located to serve the major staging points for
+oil
+and gas activities in the Gulf of Mexico, mid-continent region and Rocky
+Mountains. 
+4 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High
+Pressure Manifolds and valves 
+Drill
+Pipe 
+Hevi-wate
+Drill Pipe 
+Drill
+Collars 
+Tubing
+Handling
+Tools 
+Production
+Related Rental Tools 
+Coflexip
+Hoses 
+Pumps 
+Pipe
+Inspection and Handling Services. 
+Pipe
+inspection services involve the inspection and testing of the integrity of
+pipe
+used in oil and gas wells. These services are provided primarily at the
+Company’s inspection yards located on a water channel near Houston, Texas, and
+in Morgan City, Louisiana. Customers rely on tubular inspection services to
+avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such
+tubular failures are expensive and, in some cases, catastrophic. Our facility
+in
+Houston, Texas is equipped with bulkhead waterfronts, large capacity cranes,
+specially designed forklifts and a computerized inventory system to serve a
+variety of storage and handling services for both oilfield and non-oilfield
+customers. 
+Well
+Control School .
+Well
+Control School provides industry and government accredited training for the
+oil
+and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats
+including conventional classroom training, interactive computer training and
+mobile simulator training. Well Control School also develops customized training
+solutions for clients. 
+Energy
+Personnel International .
+Energy
+Personnel International provides drilling and production engineers, project
+management specialists and workover specialists on a consulting basis to the
+oil
+and gas industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Refer
+to Note 12 in the Notes to the Consolidated Financial Statements for additional
+financial information on our business segments. 
+Industry
+United
+States .
+RPC
+provides its services to its domestic customers through a network of facilities
+strategically located to serve the Gulf of Mexico, the mid-continent, the
+southwest and the Rocky Mountains production fields. Demand for RPC’s services
+in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil
+and
+gas industry. Customer activity levels are influenced by their decisions about
+capital investment toward the development and production of oil and gas
+reserves. 
+Due
+to
+aging oilfields and lower-cost sources of oil internationally, the drilling
+rig
+count in the U.S. has declined more than 61 percent from its peak in 1981.
+Due
+to enhanced technology, however, more wells are being drilled and the domestic
+production of oil and natural gas remains roughly equivalent to prior years.
+Record low drilling activity levels were experienced in 1986, 1992, 1999 (with
+April 1999 recording the lowest U.S. drilling rig count in the industry’s
+history) and again in 2002. At the beginning of 2006, there were 1,464 domestic
+working drilling rigs, up 13 percent from the third quarter 2001 peak during
+that industry cycle. U.S. domestic drilling activity steadily rose during 2006
+and peaked in the third quarter at a rig count of 1,762, which was 36 percent
+higher than the third quarter 2001 peak. In 2006 the average rig count of 1,649
+increased 19 percent compared to the prior year. During 2006 the average price
+of natural gas declined by almost 25 percent, and the average price of oil
+increased by over 17 percent. We believe that the change in the U.S. domestic
+rig count was not positively correlated with the changes in the prices of oil
+and natural gas as in prior years for several reasons. One factor is that the
+prices of oil and natural gas in late 2005 were extraordinarily high due to
+disruptions in domestic oil and gas infrastructure caused by the hurricanes
+in
+the Gulf of Mexico during 2005. Also, we believe that the current prices of
+oil
+and natural gas are high enough to encourage our customers to undertake
+exploration and production activities, that many of them have entered into
+hedging contracts to sell their production at higher prices, and that our
+customers believe that in the long-term, the prices of oil and natural gas
+will
+remain high enough to yield profitable returns for their exploration and
+production activities. 
+Gas
+drilling rigs have represented an increasing percentage of the total drilling
+rig count, and have represented at least 80 percent of the drilling rig count
+each year since 2001. In 2006, gas drilling rigs represented 83 percent of
+total
+drilling activity. Demand for natural gas is continuing to rise, primarily
+as a
+result of increased emphasis on gas-fired power generation. Also, unlike oil,
+foreign imports of natural gas do not compete with domestic production. This
+lack of foreign competition tends to keep prices high. Based on current demand
+levels for natural gas as well as the high oil and gas well depletion rates
+experienced over the past several years, it is anticipated that gas-directed
+drilling will represent at least 80 percent of the total drilling rig count
+in
+the foreseeable future. The demand for RPC’s services is driven more by
+gas-directed drilling than oil-directed drilling, because our services are
+more
+applicable to deeper, higher pressure wells, which tend to be the wells that
+produce natural gas. In addition, there are certain types of gas wells being
+drilled in the U.S. domestic market for which there is a higher demand for
+RPC’s
+services. Known as either directional or horizontal wells, these natural gas
+wells are more difficult and costly to complete. Because they are drilled
+through a narrow formation, they require additional stimulation when they are
+completed, and since they are not drilled in a straight vertical direction
+from
+the Earth’s surface, they require tools and drilling mechanisms that are
+flexible, rather than rigid, and can be steered once they are downhole.
+Specifically, these types of wells require RPC’s pressure pumping and coiled
+tubing services, as well as our downhole tools and services. 
+5 
+Thus,
+in
+North America the demand for our services and products associated with natural
+gas development is currently more robust than demand related to oil drilling.
+Drilling activity and demand for our services have continued to increase and
+are
+expected to continue increasing with domestic economic improvements.
+International.
+RPC
+has
+historically operated in several countries outside of the United States,
+although international revenues have never accounted for more than 10 percent
+of
+total revenues. Over the past several years, RPC has increased its focus on
+developing international opportunities, although our long-term growth plan
+emphasizes domestic rather than international expansion. As a result of this
+focus, international revenues for 2006 increased due to higher customer activity
+levels in Angola, Argentina, Canada and Turkmenistan. During 2006, RPC performed
+snubbing work in Cameroon, China, Gabon, Hungary, Kuwait and Turkmenistan,
+among
+other countries. We also provided rental tools, well control services, downhole
+motors, fishing tool services and oilfield training to customers located in
+Algeria, Angola, Argentina, Australia, Bahrain, Bolivia, Canada, Chile, China,
+Ecuador, Equatorial Guinea, India, Indonesia, Mexico, Peru, Qatar, the United
+Kingdom and Venezuela. We continue to focus on the development of international
+opportunities in these and other markets, although we believe that it will
+continue to be less than 10 percent of total revenues. 
+RPC
+provides services to its international customers through branch locations or
+wholly-owned foreign subsidiaries. The international market is prone to
+political uncertainties, including the risk of civil unrest and conflicts.
+However, due to the significant investment requirement and complexity of
+international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard
+to
+oil and natural gas pricing, and therefore have the potential to be more stable
+than most U.S. domestic operations. Additionally, the international market
+is
+dominated by major oil companies and national oil companies which tend to have
+different objectives and more operating stability than the typical independent
+oil and gas producer in the U.S. Predicting the timing and duration of contract
+work is not possible. Pursuing selective international opportunities for revenue
+growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes
+to Consolidated Financial Statements for further information on our
+international operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital,
+thus
+yielding strong cash flow and asset appreciation. This objective will be pursued
+through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and
+the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC
+seeks
+to expand its service capabilities through a combination of internal growth,
+acquisitions, joint ventures and strategic alliances. Because of the fragmented
+nature of the oil and gas services industry, RPC believes a number of attractive
+acquisition opportunities exist. Although current price expectations reduce
+the
+near-term possibility of completing a transaction, we believe we generate better
+returns growing organically in service lines and geographic locations in which
+we have experience and presence. 
+RPC
+has
+traditionally had a conservative capital structure with minimal debt. During
+2006, however, we established a new revolving credit facility to fund the
+purchase of revenue-producing equipment and other working capital requirements
+to pursue our growth plan. RPC is pursuing this growth plan, including funding
+with debt, because of the high returns on investment historically generated
+by
+many of its service lines, RPC’s belief that these high returns will continue
+long-term with minimal downside risk, and the low cost and ready availability
+of
+debt capital. 
+6 
+Customers
+Demand
+for RPC’s services and products depends primarily upon the number of oil and
+natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of production enhancement
+activity worldwide. RPC’s principal customers consist of major and independent
+oil and natural gas producing companies. During 2006, RPC provided oilfield
+services to several hundred customers, none of which accounted for more than
+10
+percent of consolidated revenues. While the loss of certain of RPC’s largest
+customers could have a material adverse effect on Company revenues and operating
+results in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers. Sales are generated by RPC’s sales force and through referrals from
+existing customers. With the exception of certain international customers,
+there
+are no long-term written contracts for services or equipment. Due to the short
+lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog in most of our
+service lines. 
+Competition
+RPC
+operates in highly competitive areas of the oilfield services industry. RPC’s
+products and services are sold in highly competitive markets, and its revenues
+and earnings are affected by changes in prices for our services, fluctuations
+in
+the level of customer activity in major markets, general economic conditions
+and
+governmental regulation. RPC competes with many large and small oilfield
+industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market
+areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The
+oil
+and gas services industry includes a small number of dominant global competitors
+including, among others, Halliburton Energy Services Group, a division of
+Halliburton Company, BJ Services Company and Schlumberger Ltd., and a
+significant number of locally oriented businesses. 
+Facilities/Equipment
+RPC’s
+equipment consists primarily of oil and gas services equipment used either
+in
+servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned and unencumbered. RPC
+purchases oilfield service equipment from a limited number of manufacturers.
+These manufacturers of our oilfield service equipment may not be able to meet
+our requests for timely delivery during periods of high demand which may result
+in delayed deliveries of equipment and higher prices for equipment. At the
+end
+of 2006, the Company experienced a delay of new equipment deliveries anticipated
+for the fourth quarter of 2006 due to high manufacturing backlogs resulting
+from
+high demand; however, we have received the majority of this equipment by the
+first two months of 2007 and expect to receive the remainder of the 2006
+deliveries by the end of the first quarter of 2007. 
+RPC
+both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC’s principal
+executive offices in Atlanta, Georgia are leased. The Company has two primary
+administrative buildings, one in Houston, Texas that includes the Company’s
+operations, sales and marketing headquarters, and one in Houma, Louisiana that
+includes certain administrative functions. RPC believes that its facilities
+are
+adequate for its current operations but as the business continues to grow,
+we
+are evaluating the need for additional facilities. For additional information
+with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated
+Financial Statements. 
+Governmental
+Regulation 
+RPC’s
+business is affected by state, federal and foreign laws and other regulations
+relating to the oil and gas industry, as well as laws and regulations relating
+to worker safety and environmental protection. RPC cannot predict the level
+of
+enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on
+it,
+its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural
+gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers’ activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our services.
+7 
+Intellectual
+Property 
+RPC
+uses
+several patented items in its operations, which management believes are
+important but are not indispensable to RPC’s success. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the
+technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability
+of Filings 
+RPC
+makes
+available, free of charge, on its website, www.rpc.net, its annual report on
+Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
+all
+amendments to those reports on the same day as they are filed with the
+Securities and Exchange Commission. 
+1A.
+Risk Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural
+gas prices. 
+Oil
+prices affect demand throughout the oil and natural gas industry, including
+the
+demand for our products and services. Our business depends in large part on
+the
+conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers’ demand
+for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected
+by changing prices, and, as a result, less volatile than the exploration sector,
+producers react to declining oil and gas prices by curtailing capital spending,
+which would adversely affect our business. A prolonged low level of customer
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of operations.
+The
+relationship between the prices of oil and natural gas and our customers’
+drilling and production activities may not be highly correlated in the future.
+Historically,
+a rise in the prices of oil and natural gas has led to an immediate increase
+in
+our customers’ drilling and production activities as measured by the domestic
+rig count. However, this relationship has not been as strong in the recent
+past
+as it was historically, due in part to limited drilling rig capacity in the
+United States. For example, during 2006 the average drilling rig count rose
+by
+19 percent, despite the 25 percent decline in the average price of natural
+gas
+and the 17 percent increase in the average price of oil. If this correlation
+is
+weak in the future, then it is possible that increases in the prices of oil
+and
+natural gas will not lead to an increase in our customers’ activities, and our
+future operating results could be negatively impacted. 
+We
+may be unable to compete in the highly competitive oil and gas industry in
+the
+future. 
+We
+operate in highly competitive areas of the oilfield services industry. The
+products and services in our industry segments are sold in highly competitive
+markets, and our revenues and earnings may be affected by the following factors:
+changes in competitive prices, fluctuations in the level of activity in major
+markets, general economic conditions, and governmental regulation. We compete
+with the oil and gas industry’s many large and small industry competitors,
+including the largest integrated oilfield service providers. We believe that
+the
+principal competitive factors in the market areas that we serve are product
+and
+service quality and availability, reputation for safety, technical proficiency
+and price. Although we believe that our reputation for safety and quality
+service is good, we cannot assure you that we will be able to maintain our
+competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and will continue to be a key element of our business strategy. We
+cannot assure you that we will be able to identify and acquire acceptable
+acquisition candidates on terms favorable to us in the future. We may be
+required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution
+to
+our stockholders. We cannot assure you that we will be able to integrate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+8 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic
+regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent and
+the
+Rocky Mountains. Hurricanes and other storms prevalent in the Gulf of Mexico
+and
+along the Gulf Coast during certain times of the year may also affect our
+operations, and severe hurricanes may affect our customers’ activities for a
+period of several years. While the impact of these storms may increase the
+need
+for certain of our services over a longer period of time, such storms can also
+decrease our customers’ activities immediately after they occur. Such hurricanes
+may also affect the prices of oil and natural gas by disrupting supplies in
+the
+short term, which may increase demand for our services in geographic areas
+not
+damaged by the storms. Prolonged rain, snow or ice in many of our locations
+may
+temporarily prevent our crews and equipment from reaching customer work sites.
+Due to seasonal differences in weather patterns, our crews may operate more
+days
+in some periods than others. Accordingly, our operating results may vary from
+quarter to quarter, depending on the impact of these weather conditions.
+Our
+inability to attract and retain skilled workers may impair growth potential
+and
+profitability. 
+Our
+ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force.
+The
+demand for skilled oilfield employees is high, and the supply is very limited.
+A
+significant increase in the wages paid by competing employers could result
+in a
+reduction in our skilled labor force, increases in the wage rates paid by us,
+or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+Our
+concentration of customers in one industry may impact overall exposure to credit
+risk. 
+Substantially
+all of our customers operate in the energy industry. This concentration of
+customers in one industry may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. We perform ongoing credit evaluations
+of
+our customers and do not generally require collateral in support of our trade
+receivables. 
+Our
+business has potential liability for litigation, personal injury and property
+damage claims assessments. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks,
+including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution
+or other environmental hazards or loss of production. Litigation may arise
+from
+a catastrophic occurrence at a location where our equipment and services are
+used. This litigation could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability
+and
+relationships with customers, employees and regulators. These occurrences could
+have a material adverse effect on us. We maintain what we believe is prudent
+insurance protection. We cannot assure you that we will be able to maintain
+adequate insurance in the future at rates we consider reasonable or that our
+insurance coverage will be adequate to cover future claims and assessments
+that
+may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulatory
+and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws
+and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations
+may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but
+is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had
+no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental
+laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results. 
+Our
+international operations could have a material adverse effect on our business.
+Our
+operations in various countries including, but not limited to, Africa, Canada,
+China, Eastern Europe, Latin America and the Middle East are subject to risks.
+These risks include, but are not limited to, political changes, expropriation,
+currency restrictions and changes in currency exchange rates, taxes, and
+boycotts and other civil disturbances. The occurrence of any one of these events
+could have a material adverse effect on our operations. 
+9 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas
+services industry has been highly volatile. Likewise, the market price of our
+common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public shareholders may
+have no effective voice in the management of the Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Rule 303A of
+the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
+Corporation” because a group that includes the Company’s Chairman of the Board,
+R. Randall Rollins and his brother, Gary W. Rollins, who is also a director
+of
+the Company, and certain companies under their control, controls in excess
+of
+fifty percent of the Company’s voting power. As a “Controlled Corporation,” the
+Company need not comply with certain NYSE rules including those requiring a
+majority of independent directors. 
+RPC’s
+executive officers, directors and their affiliates hold directly or through
+indirect beneficial ownership, in the aggregate, approximately 67 percent of
+RPC’s outstanding shares of common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions and
+other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from
+acquiring control over the Company at a premium. 
+Our
+management has a substantial ownership interest, and the availability of the
+Company’s common stock to the investing public may be
+limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC’s stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock.
+Provisions
+in RPC’s Certificate of Incorporation and Bylaws may inhibit a takeover of
+RPC. 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions
+including advance notice requirements for shareholder proposals and staggered
+terms of office for the Board of Directors. These provisions may make a tender
+offer, change in control or takeover attempt that is opposed by RPC’s Board of
+Directors more difficult or expensive. 
+Some
+of our equipment and several types of materials used in providing our services
+are available from a limited number of suppliers. 
+There
+are
+a limited number of suppliers for certain materials used in pressure pumping
+services, our largest service line. While these materials are generally
+available, supply disruptions can occur due to factors beyond our control.
+We
+purchase equipment provided by a limited number of manufacturers who specialize
+in oilfield service equipment. During periods of high demand, these
+manufacturers may not be able to meet our requests for timely delivery,
+resulting in delayed deliveries of equipment and higher prices for equipment.
+Such disruptions, delayed deliveries, and higher prices can limit our ability
+to
+provide services, or increase the costs of providing services, thus reducing
+our
+revenues and profits. 
+We
+may decide to seek outside financing to accomplish our growth strategy, and
+outside financing may not be available or may be unfavorable to
+us. 
+Our
+business requires a great deal of capital in order to maintain our equipment
+and
+increase our fleet of equipment to expand our operations, and we have access
+to
+our $250 million credit facility to fund our capital requirements. Our existing
+credit facility bears interest at a floating rate, which exposes us to market
+risks as interest rates rise. If our existing capital resources become
+unavailable, inadequate or unfavorable for purposes of funding our capital
+requirements, we would need to raise additional funds through alternative debt
+or equity financings to maintain our equipment and continue our growth. Such
+additional financing sources may not be available when we need them, or may
+not
+be available on favorable terms. If we fund our growth through the issuance
+of
+public equity, the holdings of shareholders will be diluted. If capital
+generated either by cash provided by operating activities or outside financing
+is not available or sufficient for our needs, we may be unable to maintain
+our
+equipment, expand our fleet of equipment, or take advantage of other potentially
+profitable business opportunities, which could reduce our future revenues and
+profits. 
+10 
+Item
+1B. Unresolved Staff Comments 
+None. 
+Item
+2. Properties 
+RPC
+owns
+or leases approximately 85 offices and operating facilities. The Company leases
+approximately 13,400 square feet of office space in Atlanta, Georgia that serves
+as its headquarters, a portion of which is allocated and charged to Marine
+Products Corporation. See “Related Party Transactions” contained in Item 7. The
+lease agreement on the headquarters is effective through October 2013. RPC
+believes its current operating facilities are suitable and adequate to meet
+current and reasonably anticipated future needs although as our business
+continues to grow we are evaluating the need for additional facilities.
+Descriptions of the major facilities used in our operations are as follows:
+Owned
+Locations 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Houston,
+Texas — Operations, sales and administrative office 
+Morgan
+City, Louisiana — Pipe cleaning facility 
+Elk
+City,
+Oklahoma — Operations, sales and equipment storage yards 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yards 
+Leased
+Locations 
+Seminole,
+Oklahoma — Pumping services facility 
+Elk
+City,
+Oklahoma — Operations, sales and equipment storage yards 
+Kilgore,
+Texas — Pumping services facility 
+Odessa,
+Texas — Operations, sales and equipment storage yards 
+Item
+3. Legal Proceedings 
+RPC
+is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending
+and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even
+if
+determined adversely, would not have a material adverse effect on RPC’s business
+or financial condition. 
+Item
+4. Submission of Matters to a Vote of Security Holders 
+There
+were no matters submitted to a vote of security holders during the fourth
+quarter of 2006. 
+11 
+Item
+4A. Executive Officers of the Registrant 
+Each
+of
+the executive officers of RPC was elected by the Board of Directors to serve
+until the Board of Directors’ meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of
+Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with RPC.
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+75 
+1/24/84 
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+62 
+4/22/03 
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+70 
+1/27/87 
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+46 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer
+(1) 
+R.
+Randall Rollins began working for Rollins, Inc. (consumer services)
+in
+1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr.
+Rollins was elected Chairman of the Board and Chief Executive Officer
+of
+RPC. He remains Chairman of RPC and stepped down as the Chief Executive
+Officer effective April 22, 2003. He has served as Chairman of the
+Board
+of Marine Products Corporation (boat manufacturing) since it was
+spun-off
+in February 2001 and Chairman of the Board of Rollins, Inc. since
+October
+1991. He is also a director of Dover Downs Gaming and Entertainment,
+Inc.
+and Dover Motorsports, Inc. and, until April 2004, he served as a
+director
+of SunTrust Banks, Inc. and SunTrust Banks of
+Georgia. 
+(2) 
+Richard
+A. Hubbell has been the President of RPC since 1987 and Chief Executive
+Officer since April 22, 2003. He has also been the President and
+Chief
+Executive Officer of Marine Products Corporation since it was spun-off
+in
+February 2001. Mr. Hubbell serves on the Board of Directors for both
+of
+these companies. 
+(3) 
+Linda
+H. Graham has been the Vice President and Secretary of RPC since
+1987. She
+has also been the Vice President and Secretary of Marine Products
+Corporation since it was spun-off in February 2001. Ms. Graham serves
+on
+the Board of Directors for both of these companies.
+(4) 
+Ben
+M. Palmer has been the Vice President, Chief Financial Officer and
+Treasurer of RPC since 1996. He has also been the Vice President,
+Chief
+Financial Officer and Treasurer of Marine Products Corporation since
+it
+was spun-off in February 2001. 
+12 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
+Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. On October 24, 2006, RPC’s Board of Directors declared a
+three-for-two stock split of the Company’s common shares. The additional shares
+were distributed on December 11, 2006, to shareholders of record on November
+10,
+2006. All share, earnings per share, and dividends per share data presented
+throughout this document have been adjusted to reflect this stock split. At
+February 15, 2007, there were 97,753,233 shares of common stock outstanding
+and approximately 6,896 holders of record of common stock. The following table
+sets forth the high and low prices of RPC’s common stock and dividends paid for
+each quarter in the years ended December 31, 2006 and 2005: 
+2006 
+2005 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+23.72 
+$ 
+12.33 
+$ 
+0.033 
+$ 
+8.91 
+$ 
+6.22 
+$ 
+0.018 
+Second 
+23.19 
+12.83 
+0.033 
+7.77 
+5.85 
+0.018
+Third 
+16.97 
+11.53 
+0.033 
+11.72 
+7.40 
+0.018
+Fourth 
+17.95 
+11.17 
+0.033 
+17.92 
+9.35 
+0.018
+On
+January 23, 2007, the Board of Directors approved a quarterly cash dividend
+per
+common share of $0.05 payable March 12, 2007 to stockholders of record at the
+close of business February 12, 2007. The Company expects to continue to pay
+cash
+dividends to the common stockholders, subject to the earnings and financial
+condition of the Company and other relevant factors. 
+Issuer
+Purchases of Equity Securities 
+Shares
+repurchased in the fourth quarter of 2006 are outlined below. 
+Period 
+Total
+Number 
+of
+Shares (or 
+Units) 
+Purchased 
+Average
+Price 
+Paid
+Per Share 
+(or
+Unit) 
+Total
+Number of 
+Shares
+(or Units 
+Purchased
+as Part of 
+Publicly
+Announced 
+Plans
+or Programs 
+Maximum
+Number (or 
+Approximate
+Dollar 
+Value)
+of Shares (or Units) 
+that
+May Yet Be 
+Purchased
+Under the 
+Plans
+or Programs 
+October
+1, 2006 to October 31, 2006 
+— 
+(1 ) 
+— 
+—
+4,066,965
+November
+1, 2006 to November 30, 2006 
+2,331
+(1 ) 
+14.74
+—
+4,066,965
+December
+1, 2006 to December 31, 2006 
+245,986
+(2 ) 
+15.60 
+—
+4,066,965
+Totals 
+248,317
+$ 
+15.59 
+—
+4,066,965
+(1)
+All
+shares shown were tendered to the Company in connection with employee
+stock option exercises. 
+(2)
+Consists
+of 9,986 shares tendered to the Company in connection with employee
+stock
+option exercises. Also includes 236,000 shares purchased by “affiliated
+purchasers” under Rule 10b - 18 of the Securities Exchange Act of open
+market transactions. These affiliated purchases were made by RFT
+Investment Co. LLC of which LOR, Inc. is the manager. Mr. R. Randall
+Rollins and Mr. Gary W. Rollins having voting control of LOR,
+Inc. 
+The
+Company’s Board of Directors announced a stock buyback program in March 1998
+authorizing the repurchase of 11,812,500 shares in the open market. During
+the
+fourth quarter of 2006, there were no open market purchases of the Company’s
+shares under this stock repurchase program. Currently the program does not
+have 
+a
+predetermined expiration date. 
+13 
+Performance
+Graph 
+The
+following graph shows a five year comparison of the cumulative total stockholder
+return based on the performance of the stock of the Company, assuming dividend
+reinvestment, as compared with both a broad equity market index and an industry
+or peer group index. The indices included in the following graph are the Russell
+2000 Index (“Russell 2000”), the Philadelphia Stock Exchange’s Oil Service Index
+(“OSX”), and a peer group which includes companies that are considered peers of
+the Company, as discussed below (the “Peer Group”). The Company has voluntarily
+chosen to provide both an industry and a peer group index. 
+The
+Russell 2000 is a stock index representing small capitalization U.S. stocks.
+The
+components of the index had an average market capitalization in 2006 of $1.25
+billion, and the Company was a component of the Russell 2000 during 2006. The
+Russell 2000 was chosen because it represents companies with comparable market
+capitalizations to the Company. The OSX is a stock index of 15 U.S. companies
+that provide oil drilling and production services, oilfield equipment, support
+services and geophysical/reservoir services. The Company is not a component
+of
+the OSX, but it was chosen because it represents a large group of companies
+that
+provide the same or similar products and services as the Company. The
+companies included in the Peer Group are Weatherford International, Inc., BJ
+Services Company, Superior Energy Services, Inc., and Halliburton Company.
+The
+companies included in the peer group have been weighted according to each
+respective issuer’s stock market capitalization at the beginning of each year.
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the Company.
+The
+historical information may not be indicative of the Company’s future results of
+operations. The information set forth below should be read in conjunction with
+“Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and the Consolidated Financial Statements and the notes thereto
+included elsewhere in this document. 
+14 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2006 
+2005 
+2004 
+2003 
+2002 
+(in
+thousands, except employee and per share amounts) 
+Revenues 
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+Cost
+of services rendered and goods sold 
+287,037 
+227,492 
+193,659 
+168,766 
+143,362 
+Selling,
+general and administrative expenses 
+91,051 
+75,478 
+65,871 
+52,268 
+44,852 
+Depreciation
+and amortization 
+46,711 
+39,129 
+34,473 
+33,094 
+31,242 
+Gain
+on disposition of assets, net (a) 
+(5,969 
+) 
+(12,169 
+) 
+(5,551 
+) 
+(36 
+) 
+(1,597 
+) 
+Operating
+profit (loss) 
+177,800 
+97,713 
+51,340 
+16,435 
+(8,829 
+) 
+Interest
+expense 
+(418 
+) 
+(127 
+) 
+(311 
+) 
+(284 
+) 
+(210 
+) 
+Interest
+income 
+381 
+1,077 
+243 
+131 
+136 
+Other
+income, net 
+1,085 
+2,077 
+1,931 
+1,288 
+749 
+Income
+(loss) before income taxes 
+178,848 
+100,740 
+53,203 
+17,570 
+(8,154 
+) 
+Income
+tax provision (benefit) (b) 
+68,054 
+34,256 
+18,430 
+6,677 
+(2,894 
+) 
+Net
+income (loss) 
+(b) 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+Earnings
+(loss) per share: 
+Basic 
+$ 
+1.16 
+$ 
+0.70 
+$ 
+0.36 
+$ 
+0.11 
+$ 
+(0.06 
+) 
+Diluted 
+$ 
+1.13 
+$ 
+0.67 
+$ 
+0.36 
+$ 
+0.11 
+$ 
+(0.06 
+) 
+Dividends
+paid per share 
+$ 
+0.133 
+$ 
+0.071 
+$ 
+0.036 
+$ 
+0.030 
+$ 
+0.030 
+OTHER
+DATA: 
+Operating
+margin percent 
+29.8 
+% 
+22.8 
+% 
+15.1 
+% 
+6.1 
+% 
+(4.2 
+%) 
+Net
+cash provided by operations 
+$ 
+118,228 
+$ 
+66,362 
+$ 
+50,374 
+$ 
+50,631 
+$ 
+27,556 
+Net
+cash used for investing activities 
+(151,085 
+) 
+(62,415 
+) 
+(37,215 
+) 
+(34,670 
+) 
+(21,831 
+) 
+Net
+cash provided by (used for) financing activities 
+22,777 
+(20,774 
+) 
+(5,825 
+) 
+(5,192 
+) 
+(4,927 
+) 
+Depreciation
+and amortization (c) 
+46,711 
+39,129 
+34,500 
+33,182 
+31,342 
+Capital
+expenditures 
+$ 
+159,831 
+$ 
+72,808 
+$ 
+49,869 
+$ 
+30,356 
+$ 
+22,481 
+Employees
+at end of period 
+2,000 
+1,649 
+1,596 
+1,529 
+1,419 
+BALANCE
+SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+148,469 
+$ 
+107,428 
+$ 
+75,793 
+$ 
+53,719 
+$ 
+40,168 
+Working
+capital 
+111,302 
+95,215 
+77,509 
+63,226 
+52,646 
+Property,
+plant and equipment, net 
+262,797 
+141,218 
+114,222 
+109,163 
+105,338 
+Total
+assets 
+474,307 
+311,785 
+262,942 
+226,864 
+195,954 
+Current
+portion of long-term debt 
+— 
+— 
+2,700 
+1,110 
+552 
+Long-term
+debt (d) 
+35,600 
+— 
+2,100 
+4,800 
+2,410 
+Total
+stockholders’ equity 
+$ 
+335,287 
+$ 
+232,501 
+$ 
+181,423 
+$ 
+151,106 
+$ 
+145,081 
+(a) 
+Gain
+on disposition of assets, net in 2005 includes a $10.7 million pre-tax
+gain ($0.07 after tax per diluted share) on the sale of certain assets
+during third quarter of 2005. In 2004 the gain on disposition, net
+includes a $3.3 million pre-tax gain ($0.02 after tax per diluted
+share)
+on the sale of certain operating assets during the fourth quarter
+of
+2004. 
+(b) 
+During
+the fourth quarter of 2005, the income tax provision and net income
+reflect the receipt of tax refunds of $3.5 million related to the
+successful resolution of certain tax matters, which had a positive
+impact
+of $0.04 after tax per diluted
+share. 
+(c) 
+Prior
+to the sale of our overhead crane fabricator in April 2004, depreciation
+and amortization differed from depreciation and amortization presented
+in
+the statements of operations. This difference is due to depreciation
+related to the manufacturing of goods which was included in cost
+of
+services rendered and goods sold. 
+(d) 
+Effective
+September 2006, the Company closed on a new revolving credit facility
+for
+up to $250 million. In 2005, the Company prepaid a $2.8 million promissory
+note and the remaining balance was paid in full upon maturity of
+a
+promissory note in July 2005. 
+15 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of
+Operations 
+Overview
+The
+following discussion should be read in conjunction with “Selected Financial
+Data,” and the Consolidated Financial Statements included elsewhere in this
+document. See also “Forward-Looking Statements” on page 2. 
+RPC,
+Inc.
+(“RPC”) provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production
+and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and
+selected international locations. The Company’s revenues and profits are
+generated by providing equipment and services to customers who operate oil
+and
+gas properties and invest capital to drill new wells and enhance production
+or
+perform maintenance on existing wells. 
+Our
+key
+business and financial strategies are: 
+· 
+To
+focus our management resources on and invest our capital in equipment
+and
+geographic markets that we believe will earn high returns on capital,
+and
+maintain an appropriate capital
+structure. 
+· 
+To
+maintain a flexible cost structure that can respond quickly to
+volatile
+industry conditions and business activity
+levels. 
+· 
+To
+deliver equipment and services to our customers
+safely. 
+· 
+To
+maintain and increase market share. 
+· 
+To
+maximize shareholder return by optimizing the balance between cash
+invested in the Company’s productive assets, the payment of dividends to
+shareholders, and the repurchase of our common stock on the open
+market. 
+· 
+To
+align the interests of our management and
+shareholders. 
+· 
+To
+maintain an efficient, low-cost capital structure, which includes
+an
+appropriate use of debt. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and
+operating performance, management generally reviews periodic forecast data,
+monthly actual results, and other similar information. We also consider trends
+related to certain key financial data, including revenues, utilization of our
+equipment and personnel, pricing for our services and equipment, profit margins,
+selling, general and administrative expenses, cash flows and the return on
+our
+invested capital. We continuously monitor factors that impact the level of
+current and expected customer activity levels, such as the price of oil and
+natural gas, changes in pricing for our services and equipment and utilization
+of our equipment and personnel. Our financial results are affected by
+geopolitical factors such as political instability in the petroleum-producing
+regions of the world, overall economic conditions and weather in the United
+States, the prices of oil and natural gas, and our customers’ drilling and
+production activities. 
+Current
+industry conditions include natural gas prices that, while high by historical
+levels, are extremely volatile and have recently declined significantly compared
+to prior year. Oil prices are historically high, although they have declined
+somewhat during the second half of 2006. During 2006, the price of natural
+gas
+increased at the beginning of the year compared to 2005, as U.S. natural gas
+production continued to be disrupted as a result of the severe hurricanes in
+the
+Gulf of Mexico in the third quarter of 2005, which significantly disrupted
+U.S.
+natural gas production. However, during the second half of 2006 natural gas
+prices decreased dramatically due to a much less severe 2006 hurricane season,
+increasing natural gas storage levels, and expectations of warm weather in
+the
+winter of 2007. In spite of these volatile, declining commodity prices, the
+rig
+count increased steadily throughout the year, as our customers continued to
+earn
+strong returns on their investments and believed that the long-term operating
+environment would be profitable. These trends in 2006 resulted in higher pricing
+for the Company’s services and equipment, high utilization of new equipment
+placed in service during the year, and continued high utilization of our
+existing equipment and personnel. Cash flow generated by our improved results
+and proceeds from our revolving credit facility have also allowed us to make
+higher capital expenditures, which has led to an increase in capacity for
+providing services to our customers. 
+The
+results of our strategies are reflected in our 2006 financial and operational
+performance. We generated record revenues and profitability in 2006 because
+of
+better industry conditions, improved pricing, increased capacity and growth
+in
+the utilization of our personnel and equipment. Revenues in 2006 of $596.6
+million increased 39.5 percent compared to the prior year. The growth in
+revenues resulted primarily from improved pricing for our equipment and
+services, increased capacity due to our expenditures for new equipment and
+maintenance on existing equipment, and a slight increase in utilization
+consistent with higher customer activity levels. The increase in prices is
+partially attributable to the issuance of new price books during the third
+quarter of 2005 and the first and third quarters of 2006. International revenues
+for 2006 increased due to higher customer activity levels in Angola, Argentina,
+Canada and Turkmenistan. We continue to focus on developing international growth
+opportunities; however, it is difficult to predict when contracts and projects
+will be initiated and their ultimate duration. International revenues remain
+less than 10 percent of consolidated revenues. Based on current industry
+conditions and trends during 2007 and our planned capital expenditures, we
+expect consolidated revenues for 2007 to increase compared to 2006, although
+the
+volatility in our industry makes accurate near-term forecasts unreliable.
+16 
+Income
+before income taxes was $178.8 million in 2006 compared to $100.7 million in
+the
+prior year. The effective tax rate for 2006 was 38.1 percent compared to 34.0
+percent in the prior year. Diluted earnings per share increased to $1.13 in
+2006
+compared to $0.67 for the prior year, which included an after tax gain of $7.1
+million or $0.07 diluted earnings per share due to sale of certain assets in
+the
+third quarter of 2005. Cash flows from operating activities were $118.2 million
+in 2006 compared to $66.4 million in the prior year, and cash and cash
+equivalents were $2.7 million at December 31, 2006, a decrease of $10.1 million
+compared to December 31, 2005. This decrease in cash and cash equivalents
+occurred despite higher cash flows from operating activities primarily because
+of increased capital expenditures to expand our fleet of revenue producing
+equipment. During the third quarter of 2006, we replaced our $50 million credit
+facility with a new $250 million revolving credit facility in order to support
+our growth plan. As of December 31, 2006, there was $35.6 million in outstanding
+borrowings on our revolving credit facility. 
+Cost
+of
+services rendered and goods sold as a percentage of revenues decreased
+approximately 5.1 percentage points in 2006 compared to 2005. This improvement
+was due to improved pricing and higher equipment and personnel utilization
+resulting in the leverage of our fixed costs over higher revenues. 
+Selling,
+general and administrative expenses as a percentage of revenues decreased
+approximately 2.3 percentage points in 2006 compared to 2005, which was due
+to the leverage of these costs over higher revenues partially offset by an
+increase in employment costs consistent with higher activity levels, and
+increased incentive compensation consistent with improved financial
+results. 
+Consistent
+with our strategy to selectively grow our capacity and maintain our existing
+fleet of high demand equipment, capital expenditures were $159.8 million in
+2006. In September 2006, we selected a group of banks that put a credit facility
+in place that allows for up to $250 million in borrowings. Although we currently
+expect capital expenditures to be approximately $275 million during 2007, the
+total amount of 2007 expenditures will depend primarily on equipment maintenance
+requirements and the ultimate delivery dates for equipment on order. We expect
+these expenditures to be primarily directed toward our larger, core service
+lines including primarily pressure pumping, but also hydraulic workover, coiled
+tubing, nitrogen, and rental tools. 
+On
+October 24, 2006, RPC’s Board of Directors declared a three-for-two stock split
+of the Company’s common shares. The additional shares were distributed on
+December 11, 2006, to shareholders of record on November 10, 2006. All share,
+earnings per share, and dividends per share data presented throughout this
+document, including the accompanying financial statements and management’s
+discussion and analysis, have been adjusted to reflect this stock
+split. 
+Outlook
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling
+rig
+count, has been stable or gradually increasing for several years, and the
+overall domestic rig count during the fourth quarter of 2006 was approximately
+16 percent higher than in the comparable period in 2005. The average price
+of
+oil rose by approximately one percent while the average price of natural gas
+declined by more than 44 percent during the fourth quarter compared to the
+prior
+year. The natural gas price was substantially higher one year ago because of
+the
+reduction in gas production following hurricanes Katrina and Rita. While the
+overall drilling rig count has increased, drilling activity in the Gulf of
+Mexico has been weak, although it has recently improved. The Company has
+responded to these trends by emphasizing investments in more robust domestic
+markets and making only selective investments in the Gulf of Mexico market.
+In
+spite of recent strong industry conditions, the Company understands that factors
+influencing the industry are unpredictable. The Company is monitoring recent
+declines in oil and natural gas prices for any signs of weakness in domestic
+customer activity levels. Our response to the industry’s potential uncertainty
+is to maintain sufficient liquidity and a conservative capital structure.
+Although we have recently decided to expand our bank credit facility to finance
+our expansion, we will still maintain a conservative financial structure. Based
+on current industry conditions and trends during 2006, we expect consolidated
+revenues for 2007 to increase compared to 2006. 
+The
+high
+activity levels in the domestic oilfield have increased demand for equipment
+from the manufacturers of equipment and components used in the Company’s
+business. This increased demand has increased the lead times for ordering and
+delivery of such equipment and components. If this increased demand and
+resulting delays in delivery extends indefinitely, it could constrain the
+Company’s ability to expand its capacity, which would negatively impact the
+Company’s future financial results. 
+17 
+Results
+of Operations 
+Years
+Ended December 31, 
+2006 
+2005 
+2004 
+Consolidated
+revenues 
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+Revenues
+by business segment: 
+Technical 
+$ 
+495,090 
+$ 
+363,139 
+$ 
+279,070 
+Support 
+101,540 
+64,487 
+56,917 
+Other 
+— 
+17 
+3,805 
+Consolidated
+operating profit 
+$ 
+177,800 
+$ 
+97,713 
+$ 
+51,340 
+Operating
+profit by business segment: 
+Technical 
+$ 
+153,126 
+$ 
+84,048 
+$ 
+47,027 
+Support 
+30,953 
+11,990 
+8,287 
+Other 
+— 
+(273 
+) 
+(975 
+) 
+Corporate
+expenses 
+(12,248 
+) 
+(10,221 
+) 
+(8,550 
+) 
+Gain
+on disposition of assets, net 
+5,969 
+12,169 
+5,551 
+Net
+income 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+Earnings
+per share — diluted 
+$ 
+1.13 
+$ 
+0.67 
+$ 
+0.36 
+Percentage
+of cost of services rendered and goods sold to revenues 
+48 
+% 
+53 
+% 
+57 
+% 
+Percentage
+of selling, general and administrative expenses to
+revenues 
+15 
+% 
+18 
+% 
+19 
+% 
+Percentage
+of depreciation and amortization expense to revenues 
+8 
+% 
+9 
+% 
+10 
+% 
+Effective
+income tax rate 
+38.1 
+% 
+34.0 
+% 
+34.6 
+% 
+Average
+U.S. domestic rig count 
+1,649 
+1,383 
+1,190 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+6.65 
+$ 
+8.86 
+$ 
+5.88 
+Average
+oil price (per barrel) 
+$ 
+66.36 
+$ 
+56.61 
+$ 
+41.35 
+Year
+Ended December 31, 2006 Compared To Year Ended December 31, 2005
+Revenues.
+Revenues
+for 2006 increased $169.0 million or 39.5 percent compared to 2005. The
+Technical Services segment revenues for 2006 increased 36.3 percent from the
+prior year due primarily to improved pricing and increased capacity driven
+by
+higher capital expenditures. The Support Services segment revenues for 2006
+increased 57.5 percent from the prior year due to increased capacity driven
+by
+higher capital expenditures in the rental tool service line, the largest within
+this segment, as well as improved pricing in the service lines which comprise
+this segment. 
+Domestic
+revenues increased 37 percent to $566.6 million during 2006 compared to the
+prior year. The increase in revenues is due to higher pricing and increased
+capacity in our largest service lines, such as pressure pumping and rental
+tools. The increase in pricing is mostly attributed to price book adjustments
+effective during the third quarter of 2005 and the first and third quarters
+of
+2006 and higher customer demand for our services. The average price of natural
+gas decreased by almost 25 percent and the average price of oil increased by
+over 17 percent during 2006 compared to the prior year. In spite of the decrease
+in natural gas, the average domestic rig count during 2006 was 19 percent higher
+than the same period in 2005. This increase in drilling activity had a positive
+impact on our financial results. We believe that our activity levels are
+affected more by the price of natural gas than by the price of oil, because
+the
+majority of U.S. domestic drilling activity relates to natural gas, and many
+of
+our services are more appropriate for gas wells than oil wells. Foreign revenues
+increased from $14.3 million in 2005 to $30.0 million in 2006, or only five
+percent of consolidated revenues. Revenue increases were realized due mainly
+to
+higher customer activity levels in Angola, Argentina, Canada and Turkmenistan
+compared to the prior year. Our international revenues are impacted by the
+timing of project initiation and their ultimate duration. 
+Cost
+of services rendered and goods sold. Costs
+of
+services rendered and goods sold in 2006 was $287.0 million compared to $227.5
+million in 2005, an increase of $59.5 million or 26.2 percent. The increase
+in
+these costs was due to the variable nature of many of these expenses, including
+compensation, materials and supplies expenses and maintenance and repair
+expenses. Cost of services rendered and goods sold, as a percent of revenues,
+decreased in 2006 from 2005 due to leveraging of fixed costs over higher
+revenues as a result of improved pricing and increased equipment and personnel
+utilization. 
+18 
+Selling,
+general and administrative expenses. Selling,
+general and administrative expenses increased
+20.6 percent to $91.1 million in 2006 compared to $75.5 million in 2005. This
+increase was primarily due to higher employee headcount consistent with higher
+activity levels, and increased compensation costs consistent with improved
+profitability. These costs as a percent of revenues, however, decreased due
+to
+leveraging of these expenses, most of which are of a fixed nature, over higher
+revenues. 
+Depreciation
+and amortization. Depreciation
+and amortization were $46.7 million in 2006, an increase of $7.6 million or
+19.4
+percent compared to $39.1 million in 2005. This increase in depreciation and
+amortization resulted from a higher level of capital expenditures during recent
+quarters within both Support Services and Technical Services to increase
+capacity and to maintain our existing equipment. 
+Gain
+on disposition of assets, net. Gain
+on
+the disposition of assets, net decreased due primarily to the sale of operating
+and intangible assets related to the hammer, casing, laydown and casing
+torque-turn service lines which generated a pre-tax gain of $10.7 million in
+the
+third quarter of 2005. The remaining gain on disposition of assets, net during
+2006 and 2005 includes gains or losses related to various property and equipment
+dispositions or sales to customers of lost or damaged rental
+equipment. 
+Other
+income, net.
+Other
+income, net in 2006 was $1.1 million, a decrease of $1.0 million compared to
+$2.1 million in 2005. The decrease is primarily due to proceeds from a
+litigation settlement that were realized during the first quarter of 2005.
+The
+remaining other income, net primarily includes gains from settlements of various
+other legal and insurance claims. 
+Interest
+expense and interest income. Interest
+expense was $418 thousand in 2006 compared to $127 thousand in 2005. The
+increase is due primarily to higher interest expense in 2006 incurred on
+outstanding interest bearing advances on our revolving line of credit. Interest
+income declined to $381 thousand in 2006 compared to $1.1 million in 2005 as
+a
+result of a lower average cash balance in 2006 compared to 2005 and $412
+thousand of interest income related to income tax refunds received during the
+fourth quarter of 2005. 
+Income
+tax provision. The
+income tax provision increased to $68.1 million in 2006 from $34.3 million
+in
+2005. The increase is due to the increase in income before taxes and an increase
+in the effective tax rate to 38.1 percent in 2006 from 34.0 percent in 2005.
+Adjustments of $3.5 million in 2005 related to receipt of income tax refunds
+resulted in an income tax benefit of 3.4 percent. 
+Net
+income and diluted earnings per share .
+Net
+income increased 66.6 percent to $110.8 million, or $1.13 earnings per diluted
+share, compared to $66.5 million, or $0.67 earnings per diluted share in 2005,
+which included an after-tax gain on the sale of certain assets in the third
+quarter of 2005 of $0.07 diluted earnings per share. 
+Year
+Ended December 31, 2005 Compared To Year Ended December 31, 2004
+Revenues.
+Revenues
+for 2005 increased $87.9 million or 25.9 percent compared to 2004. The Technical
+Services segment revenues for 2005 increased 30.1 percent from the prior year
+due primarily to increases in capacity driven by higher capital expenditures,
+improved utilization, and increased pricing driven by higher customer demand
+for
+our services. This increase was partially offset by the disposal of our casing
+installation services in the third quarter of 2005. The Support Services segment
+revenues for 2005 increased 13.3 percent from the prior year as a result of
+higher capacity, equipment utilization and increased pricing in rental tools,
+which is the largest service line within this segment. The growth in this
+segment was lower than the change in the domestic rig count and in Technical
+Services due to this segment’s exposure to the Gulf of Mexico, a region in which
+activity has been very weak since the hurricanes in the third quarter of 2005.
+In addition, these increases were also offset by the lack of revenues for 2005
+from our marine liftboat division, which was sold in the fourth quarter of
+2004.
+The marine liftboat division generated revenues of $3.3 million in 2004.
+Domestic
+revenues increased during 2005 due to increased customer demand for our
+services, which we were able to meet with increases in capacity, utilization
+and
+improved pricing as a result of new
+price
+books issued during the third quarter of 2005 .
+The
+average domestic rig count during 2005 was 16 percent higher than the same
+period in 2004. In addition, the average price of natural gas increased by
+approximately 51 percent and the average price of oil increased by approximately
+37 percent during 2005 compared to the prior year. This
+increase in oil and gas prices and the resulting increase in drilling activity
+had a positive impact on our financial results. These
+increases were partially offset by continued weakness in the Gulf of Mexico
+market, which was especially weak in the third and fourth quarters as a result
+of the hurricanes that occurred in the third quarter. Foreign revenues decreased
+from $15.9 million in 2004 to $14.3 million in 2005 due to a large decline
+in
+our Kuwait operation . 
+This
+decline was due to the sporadic nature of the contract as well as
+customer-imposed delays. This decline was offset by increases in almost all
+of
+our other international locations as well as the inception of a new contract
+in
+Turkmenistan. These increases were due to our increased focus on international
+business and our business development efforts. 
+19 
+Cost
+of
+services rendered and goods sold. Costs
+of
+services rendered and goods sold in 2005 was $227.5 million compared to $193.7
+million in 2004, an increase of $33.8 million or 17.5 percent. The increase
+in
+these costs was due to the variable nature of many of these expenses, including
+compensation, materials and supplies, maintenance and repair, and fuel costs
+and
+the increase in the price of fuel. Cost of services rendered and goods sold,
+as
+a percent of revenues, decreased to 53.2 percent in 2005 from 57.0 percent
+in
+2004 as a result of higher utilization of personnel and operating equipment,
+improved pricing, and the leveraging of fixed costs over higher revenues.
+Selling,
+general and administrative expenses. Selling,
+general and administrative expenses increased
+14.6 percent to $75.5 million in 2005 compared to $65.9 million in 2004.
+However, as a percentage of revenues, these expenses decreased 1.7 percentage
+points to 17.7 percent. The increase was primarily due to higher employment
+costs associated with additions to field administrative personnel to handle
+higher business activity levels and costs to implement additional information
+technology to support operational efficiencies. 
+Depreciation
+and amortization. Depreciation
+and amortization were $39.1 million in 2005, an increase of $4.6 million
+or 13.3
+percent compared to $34.5 million in 2004. This increase in depreciation
+and
+amortization resulted from various capital expenditures made during 2005
+within
+Support Services and Technical Services. A larger percentage of the increase
+in
+depreciation and amortization was due to capital expenditures made in the
+Support Services segment than the Technical Services segment, despite its
+smaller relative revenues and total assets, because of investments made in
+the
+rental tools service line, the largest service line within Support Services,
+and
+a new Support Services operational facility that was constructed in
+2005. 
+Gain
+on disposition of assets, net. Gain
+on
+the disposition of assets, net increased primarily due to the sale of certain
+assets of the hammer, casing, laydown and casing torque-turn service lines
+for
+net proceeds of $15.7 million which generated a pre-tax gain of $10.7 million,
+or $0.07 after tax gain per diluted share. The gain on disposition of assets
+in
+2004 was due primarily to the pre-tax gain of $3.3 million on the sale of
+the
+domestic liftboat fleet which occurred during the fourth quarter of 2004.
+The
+remaining gain on disposition of assets, net in 2005 and 2004 also includes
+gains or losses related to various real property and equipment dispositions
+or
+sales to customers of lost or damaged rental equipment. 
+Other
+income, net.
+Other
+income, net in 2005 of $2.1 million primarily includes proceeds of approximately
+$1.3 million from a litigation settlement in the first quarter of 2005. The
+remaining other income, net in 2005 and 2004 also includes gains from various
+other legal and insurance claims. 
+Interest
+expense and interest income. Interest
+expense decreased to $127 thousand in 2005 compared to $311 thousand in 2004.
+The decrease resulted primarily from the reduction in outstanding debt through
+annual principal payments made during 2004 and 2005. Interest income increased
+to $1.1 million in 2005 compared to $243 thousand in 2004 as a result of
+$412
+thousand of interest income related to income tax refunds received during
+the
+fourth quarter of 2005 and higher percentage yields on a slightly higher
+average
+cash balance in 2005 compared to 2004. 
+Income
+tax provision. The
+effective tax rate was 34.0 percent in 2005 and 34.6 percent in 2004.
+Adjustments of $3.5 million in 2005 resulted in an income tax benefit of
+3.4
+percent related to income tax refunds received primarily during the fourth
+quarter of 2005. Adjustments of $1.1 million in 2004 resulted in an income
+tax
+benefit of 3.2 percent primarily related to the recognition of previously
+reserved foreign tax credit carryovers and an adjustment to the liability
+for
+foreign taxes. 
+Net
+income and diluted earnings per share .
+Net
+income for 2005 was $66.5 million, or $0.67 earnings per diluted share. This
+included a $7.1 million after tax gain, or $0.07 per diluted share, related
+to
+the sale of the operating and intangible assets of the hammer, casing, laydown
+and casing torque-turn service lines. Net income for 2004 was $34.8 million
+or
+$0.36 earnings per diluted share, and included a pre-tax gain of $3.3 million
+related to the sale of the domestic liftboat fleet. 
+20 
+Liquidity
+and Capital Resources 
+Cash
+and Cash Flows 
+The
+Company’s cash and cash equivalents were $2.7 million as of December 31, 2006,
+$12.8 million as of December 31, 2005 and $29.6 million as of December 31,
+2004.
+The
+following table sets forth the historical cash flows for the year ended December
+31: 
+(in
+thousands) 
+2006 
+2005 
+2004 
+Net
+cash provided by operating activities 
+$ 
+118,228 
+$ 
+66,362 
+$ 
+50,374 
+Net
+cash used for investing activities 
+(151,085 
+) 
+(62,415 
+) 
+(37,215 
+) 
+Net
+cash provided by (used for) financing activities 
+22,777 
+(20,774 
+) 
+(5,825 
+) 
+2006 
+Cash
+provided by operating activities increased by $51.9 million in 2006 compared
+to
+the prior year. This increase is due primarily to the $44.3 million increase
+in
+net income partially offset by a small increase in working capital requirements.
+Increased business activity levels and revenues resulted in higher accounts
+receivable, inventories and prepaid expenses partially offset by the increased
+accounts payable and accrued payroll. 
+Cash
+used
+for investing activities in 2006 increased by $88.7 million compared to 2005,
+primarily as a result of higher capital expenditures to increase capacity and
+maintain our existing equipment. This increase was partially offset by earnout
+payments made in the second and third quarters of 2005 which did not recur
+in
+the current period. 
+Cash
+provided by financing activities in 2006 increased by $43.6 million compared
+to
+2005, primarily
+due to net borrowings from notes payable to banks during the third and fourth
+quarters of 2006, a decrease in repurchases of common shares, principal loan
+repayments made in the first and third quarters of 2005 which did not recur
+in
+the current year and excess tax benefits for share-based payments. This increase
+was partially offset by an 88 percent increase in dividends paid to common
+shareholders. 
+2005 
+Cash
+provided by operating activities was $66.4 million in 2005 compared to $50.4
+million in 2004. The large improvement in operating results and increased gains
+on sale of assets was partially offset by higher working capital requirements
+and a lower cash contribution to the defined benefit pension plan in 2005
+compared to 2004. Increased business activity levels and revenues resulted
+in
+increased accounts receivable and inventories which was partially offset by
+higher accounts payable. Also, the company received income tax refunds of $3.5
+million in 2005 that did not occur in 2004. 
+Cash
+used
+for investing activities in 2005 increased by $25.2 million compared to 2004,
+primarily as a result of an increase in capital expenditures to increase
+capacity and maintain our existing equipment and an increase of $5.5 million
+in
+2005 compared to 2004 in earnout payments for acquisitions. These increases
+were
+partially offset by higher proceeds from the sale of assets. 
+Cash
+used
+for financing activities in 2005 increased by $14.9 million compared to 2004,
+due to increased cost of open market share repurchases of Company common stock,
+a 100 percent increase in dividends paid to common shareholders, and principal
+repayments totaling $4.8 million during the first and third quarters of
+2005. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2006, remains strong. We
+believe the liquidity provided by our existing cash and cash equivalents, our
+overall strong capitalization which includes a revolving credit facility and
+cash expected to be generated from operations will provide sufficient capital
+to
+meet our requirements for at least the next twelve months. During the third
+quarter of 2006, the Company replaced its $50 million line of credit with a
+$250
+million revolving credit facility (the “Revolving Credit Agreement”), with a
+term of five years. The Revolving Credit Agreement contains customary terms
+and
+conditions, including certain financial covenants including covenants
+restricting RPC’s ability to incur liens, merge or consolidate with another
+entity. A total of $199.4 million was available under our facility as of
+December 31, 2006 and $190.6 million was available as of February 28, 2007;
+approximately $15.0 million of the credit facility supports outstanding letters
+of credit relating to self-insurance programs or contract bids. For additional
+information with respect to RPC’s credit facility, see Note 7 of the Notes to
+Consolidated Financial Statements. 
+21 
+The
+Company’s decisions about the amount of cash to be used for investing and
+financing purposes are influenced by its capital position, including access
+to
+borrowings under our credit facility, and the expected amount of cash to be
+provided by operations. We believe our liquidity will continue to provide the
+opportunity to grow our asset base and revenues during periods with positive
+business conditions and strong customer activity levels. The Company’s decisions
+about the amount of cash to be used for investing and financing activities
+could
+be influenced by the financial covenants in our credit facility but we do not
+expect the covenants to restrict our planned activities. 
+Cash
+Requirements 
+Capital
+expenditures were $159.8 million in 2006, and we currently expect capital
+expenditures to be approximately $275 million in 2007. We expect these
+expenditures to be primarily directed towards revenue-producing equipment in
+our
+larger, core service lines including pressure pumping, snubbing, nitrogen,
+and
+rental tools. The actual amount of 2007 expenditures will depend primarily
+on
+equipment maintenance requirements, expansion opportunities, and equipment
+delivery schedules. 
+The
+Company’s Retirement Income Plan, a multiple employer trusteed defined benefit
+pension plan, provides monthly benefits upon retirement at age 65 to eligible
+employees. During
+the first quarter of 2006, the Company contributed $2.6 million to the
+pension
+plan. We expect that additional contributions to the defined benefit pension
+plan of approximately $4.75 million will be required in 2007 to achieve the
+Company’s funding objective. 
+The
+Company’s Board of Directors announced a stock buyback program on March 9, 1998
+authorizing the repurchase of up to 11,812,500 shares of which 4,066,965
+additional shares were available to be repurchased as of December 31, 2006.
+The
+program does not have a predetermined expiration date. 
+On
+January 23, 2007, the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.03 to $0.05, payable March 12, 2007
+to
+stockholders of record at the close of business February 12, 2007. The Company
+expects to continue to pay cash dividends to common stockholders, subject to
+the
+earnings and financial condition of the Company and other relevant
+factors. 
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include a
+bank demand note, certain non-cancelable operating leases, purchase obligations
+and other long-term liabilities. The following table summarizes the Company’s
+significant contractual obligations as of December 31, 2006: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt obligations 
+$ 
+35,600 
+$ 
+— 
+$ 
+— 
+$ 
+35,600 
+$ 
+— 
+Interest
+on long-term debt obligations 
+10,346 
+2,072 
+6,248 
+2,026 
+— 
+Capital
+lease obligations 
+— 
+— 
+— 
+— 
+—
+Operating
+leases (1) 
+9,627 
+182 
+6,065 
+2,056 
+1,324
+Purchase
+obligations (2) 
+55,356 
+55,356 
+— 
+— 
+—
+Other
+long-term liabilities (3) 
+8,132 
+4,750 
+3,382 
+— 
+—
+Total
+contractual obligations 
+$ 
+119,061 
+$ 
+62,360 
+$ 
+15,695 
+$ 
+39,682 
+$ 
+1,324 
+(1) 
+Operating
+leases include agreements for various office locations, office
+equipment,
+and certain operating equipment. 
+(2) 
+Includes
+agreements to purchase goods or services that have been approved
+and that
+specify all significant terms (pricing, quantity, and timing).
+As part of
+the normal course of business the Company enters into purchase
+commitments
+to manage its various operating needs.
+(3) 
+Includes
+expected cash payments for long-term liabilities reflected on the
+balance
+sheet where the timing of the payments are known. These amounts
+include
+primarily known pension plan funding obligations and incentive
+compensation. These amounts exclude pension obligations with uncertain
+funding requirements and deferred compensation liabilities.
+22 
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide
+competitive prices, and employs skilled workers from competitive labor markets.
+If inflation in the general economy increases, the Company’s costs for
+equipment, materials and labor could increase as well. Due to the increases
+in
+activity in the domestic oilfield over the past several years, as well as
+a
+shortage of a skilled work force due to historically low activity in the
+oilfield, the Company has experienced some upward wage pressures in the labor
+markets from which it hires employees. Also over the past several years,
+the
+price of steel, for both the commodity and for products manufactured with
+steel,
+has increased dramatically. Recently, steel prices have moderated, although
+they
+remain high by historical standards. This factor has affected the Company’s
+operations by extending time for deliveries of new equipment and receipt
+of
+price quotations that may only be valid for a limited period of time. If
+this
+factor continues, it is possible that the cost of the Company’s new equipment
+will increase which would result in higher capital expenditures and depreciation
+expense. RPC has been able to recover such increased costs through price
+increases to its customers, but it may not be able to do so in the future,
+thereby reducing the Company’s future profits. 
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $739,000
+in 2006, $616,000 in 2005 and $546,000 in 2004. The
+Company’s receivable due from Marine Products for these services as of December
+31, 2006 and 2005 was approximately $236,000 and $66,000. The
+Company’s directors are also directors of Marine Products and all of the
+executive officers are employees of both the Company and Marine Products.
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $1,248,000 in 2006, $926,000 in 2005
+and
+$529,000 in 2004. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement
+basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and
+rent
+totaled to $70,000 in 2006, $71,000 in 2005 and $76,000 in 2004. 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has discussed
+the
+development, selection and disclosure of its critical accounting estimates
+with
+the Audit Committee of our Board of Directors. The Company believes the
+following critical accounting policies involve estimates that require a higher
+degree of judgment and complexity: 
+23 
+Allowance
+for doubtful accounts —
+Substantially all of the Company’s receivables are due from oil and gas
+exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil companies. Our
+allowance for doubtful accounts is determined using a combination of factors
+to
+ensure that our receivables are not overstated due to uncollectibility. Our
+established credit evaluation procedures seek to minimize the amount of business
+we conduct with higher risk customers. Our customers’ ability to pay is directly
+related to their ability to generate cash flow on their projects and is
+significantly affected by the volatility in the price of oil and natural
+gas.
+Provisions for doubtful accounts are recorded in selling, general and
+administrative expenses. Accounts are written-off against the allowance for
+doubtful accounts when the Company determines that amounts are uncollectible
+and
+recoveries of amounts previously written off are recorded when collected.
+Significant recoveries will generally reduce the required provision in the
+period of recovery. Therefore, the provision for doubtful accounts can fluctuate
+significantly from period to period. There were no large recoveries in 2006,
+2005 and 2004. We record specific provisions when we become aware of a
+customer’s inability to meet its financial obligations to us, such as in the
+case of bankruptcy filings or deterioration in the customer’s operating results
+or financial position. If circumstances related to customers change, our
+estimates of the realizability of receivables would be further adjusted,
+either
+upward or downward. 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the
+overall trends in the oil and gas industry, financial condition of our
+customers, our historical write-off experience, current economic conditions,
+and
+in the case of international customers, our judgments about the economic
+and
+political environment of the related country and region. In addition to reserves
+established for specific customers, we establish general reserves by using
+different percentages depending on the age of the receivables. Excluding
+the
+effect of the recoveries referred to above, the annual provisions for doubtful
+accounts have ranged from 0.25 percent to 0.40 percent of revenues over the
+last
+three years. Increasing or decreasing the estimated general reserve percentages
+by 0.50 percentage points as of December 31, 2006 would have resulted in
+a
+change of approximately $0.8 million to the allowance for doubtful accounts
+and
+a corresponding change to selling, general and administrative expenses.
+Income
+taxes —
+The
+effective income tax rates were 38.1 percent in 2006, 34.0 percent in 2005,
+and
+34.6 percent in 2004. Our effective tax rates vary due to changes in estimates
+of our future taxable income, fluctuations in the tax jurisdictions in which
+our
+earnings and deductions are realized, and favorable or unfavorable adjustments
+to our estimated tax liabilities related to proposed or probable assessments.
+As
+a result, our effective tax rate may fluctuate significantly on a quarterly
+or
+annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax
+assets when we determine that it is more likely than not that the asset will
+not
+be realized through future taxable income. Such amounts are charged to earnings
+in the period in which we make such determination. Likewise, if we later
+determine that it is more likely than not that the net deferred tax assets
+would
+be realized, we would reverse the applicable portion of the previously provided
+valuation allowance. We have considered future market growth, forecasted
+earnings, future taxable income, the mix of earnings in the jurisdictions
+in
+which we operate, and prudent and feasible tax planning strategies in
+determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and
+assumptions that could differ from the actual results reflected in income
+tax
+returns filed during the subsequent year. Adjustments based on filed returns
+are
+recorded when identified, which is generally in the third quarter of the
+subsequent year for U.S. federal and state provisions. Deferred tax liabilities
+and assets are determined based on the differences between the financial and tax
+bases of assets and liabilities using enacted tax rates in effect in the
+year
+the differences are expected to reverse. 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state
+and
+foreign tax authorities, which often result in proposed assessments. Our
+estimate for the potential outcome for any uncertain tax issue is highly
+judgmental. We believe we have adequately provided for any reasonably
+foreseeable outcome related to these matters. However, our future results
+may
+include favorable or unfavorable adjustments to our estimated tax liabilities
+in
+the period the assessments are made or resolved or when statutes of limitation
+on potential assessments expire. Additionally, the jurisdictions in which
+our
+earnings or deductions are realized may differ from our current estimates.
+Insurance
+expenses – 
+The Company self
+insures, up to certain policy-specified limits, certain risks related to
+general
+liability, workers’ compensation, vehicle and equipment liability. The cost of
+claims under these self-insurance programs is estimated and accrued using
+individual case-based valuations and statistical analysis and is based upon
+judgment and historical experience; however, the ultimate cost of many of
+these
+claims may not be known for several years. These claims are monitored and
+the
+cost estimates are revised as developments occur relating to such claims.
+The
+Company has retained an independent third party actuary to assist in the
+calculation of a range of exposure for these claims. As of December 31, 2006,
+the Company estimates the range of exposure to be from $8.9 million to $11.6
+million. The Company has recorded liabilities at December 31, 2006 of
+approximately $10.2 million which represents management’s best estimate of
+probable loss. 
+24 
+Depreciable
+life of assets —
+RPC’s
+net property, plant and equipment at December 31, 2006 was $262.8 million
+representing 55.4 percent of the Company’s consolidated assets. Depreciation and
+amortization expenses for the year ended December 31, 2006 were $46.7 million,
+or 11.0 percent of total operating costs. Management judgment is required
+in the
+determination of the estimated useful lives used to calculate the annual
+and
+accumulated depreciation and amortization expense. 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and
+amortization, which is generally provided on a straight-line basis over the
+estimated useful lives of the assets. The estimated useful life represents
+the
+projected period of time that the asset will be productively employed by
+the
+Company and is determined by management based on many factors including
+historical experience with similar assets. Assets are monitored to ensure
+changes in asset lives, are identified and prospective depreciation and
+amortization expense is adjusted accordingly. We have not made any changes
+to
+the estimated lives of assets resulting in a material impact in the last
+three
+years. 
+Defined
+benefit pension plan – In 2002, the
+Company ceased all future benefit accruals under the defined benefit plan,
+although the Company remains obligated to provide employees benefits earned
+through March 2002. The Company accounts for the defined benefit plan in
+accordance with the provisions of Statement of Financial Accounting Standards
+No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
+Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and
+132(R)” and engages an outside actuary to calculate its obligations and costs.
+With the assistance of the actuary, the Company evaluates the significant
+assumptions used on a periodic basis including the estimated future return
+on
+plan assets, the discount rate, and other factors, and makes adjustments
+to
+these liabilities as necessary. 
+The
+Company chooses an expected rate of return on plan assets based on historical
+results for similar allocations among asset classes, the investments strategy,
+and the views of our investment adviser. Differences between the expected
+long-term return on plan assets and the actual return are amortized over
+future
+years. Therefore, the net deferral of past asset gains (losses) ultimately
+affects future pension expense. The Company’s assumption for the expected return
+on plan assets is 8.0 percent which is unchanged from the prior
+year. 
+The
+discount rate reflects the current rate at which the pension liabilities
+could
+be effectively settled at the end of the year. In estimating this rate, the
+Company utilizes the Moody’s Aa long-term corporate bond yield with a yield
+adjustment made for the longer duration of the Company’s obligations. A lower
+discount rate increases the present value of benefit obligations. The Company
+determined a discount rate of 5.50 percent as of December 31, 2006 and 2005,
+compared to a discount rate of 5.75 percent in 2004. 
+In
+2006,
+the change in the minimum pension liability within accumulated other
+comprehensive loss increased stockholders’ equity by $2.1 million after tax.
+Holding all other factors constant, a decrease in the discount rate used
+to
+measure plan liabilities by 0.25 percentage points would result in an after
+tax
+increase of approximately $0.7 million in accumulated other comprehensive
+loss
+and an increase in the discount rate used to measure plan liabilities by
+0.25
+percentage points would result in an after tax decrease of approximately
+$0.8
+million in accumulated other comprehensive loss. 
+The
+Company recognized pre-tax pension expense of $0.8 million in 2006, $1.1
+million
+in 2005, and $1.2 million in 2004. Pension expense is anticipated to decrease
+by
+62 percent to approximately $0.5 million in 2007. Holding all other factors
+constant, a change in the expected long-term rate of return on plan assets
+by
+0.50 percentage points would result in an increase or decrease in pension
+expense of approximately $0.1 million in 2007. Holding all other factors
+constant, a change in the discount rate used to measure plan liabilities
+by 0.25
+percentage points would result in an increase or decrease in pension expense
+of
+approximately $0.1 million in 2006. 
+New
+Accounting Standards 
+In
+February 2006, the Financial Accounting Standards Board (“FASB”) issued
+Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for
+Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and
+140”, to permit fair value remeasurement for any hybrid financial instrument
+that contains an embedded derivative that otherwise would require bifurcation
+in
+accordance with the provisions of SFAS No. 133, “Accounting for Derivative
+Instruments and Hedging Activities.” This statement is effective for fiscal
+years beginning after September 15, 2006. Accordingly, the Company will adopt
+SFAS No. 155 in fiscal year 2007. The adoption of this Statement is not expected
+to have a material effect on the Company’s consolidated operating results and
+financial condition. 
+25 
+In
+March
+2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
+Assets—an amendment of FASB Statement No. 140,” that provides guidance on
+accounting for separately recognized servicing assets and servicing liabilities.
+In accordance with the provisions of SFAS No. 156, separately recognized
+servicing assets and servicing liabilities must be initially measured at
+fair
+value, if practicable. Subsequent to initial recognition, the Company may
+use
+either the amortization method or the fair value measurement method to account
+for servicing assets and servicing liabilities within the scope of this
+Statement. This statement will be effective for the fiscal years beginning
+after
+November 15, 2007, and interim periods within those fiscal years. The Company
+will adopt SFAS No. 156 in fiscal year 2008. The adoption of this Statement
+is
+not expected to have a material effect on the Company’s consolidated results of
+operations and financial condition. 
+In
+June
+2006, the FASB issued Financial Interpretation No. 48, “Accounting for
+Uncertainty in Income Taxes - an interpretation of FASB Statement 109” (“FIN
+48”). FIN 48 prescribes a recognition threshold and a measurement attribute
+for
+the financial statement recognition and measurement of a tax position taken
+or
+expected to be taken in a tax return. This interpretation also provides guidance
+on de-recognition, classification, interest and penalties, accounting in
+interim
+periods, disclosure and transition. This interpretation is effective for
+fiscal
+years beginning after December 15, 2006. The Company is currently evaluating
+the
+impact of applying the provisions of FIN 48. 
+In
+June
+2006, the FASB ratified a consensus opinion reached by the Emerging Issues
+Task
+Force (“EITF”) on EITF Issue 06-3, “How Taxes Collected from Customers and
+Remitted to Governmental Authorities Should Be Presented in the Income Statement
+(That Is, Gross versus Net Presentation).” The guidance in EITF Issue 06-3
+requires disclosure in interim and annual financial statements of the amount
+of
+taxes on a gross basis, if significant, that are assessed by a governmental
+authority that are imposed on and concurrent with a specific revenue producing
+transaction between a seller and customer such as sales, use, value added,
+and
+some excise taxes. Additionally, the income statement presentation (gross
+or
+net) of such taxes is an accounting policy decision that must be disclosed.
+The
+consensus in EITF Issue 06-3 is effective for interim and annual reporting
+periods beginning after December 15, 2006. The Company intends to adopt EITF
+Issue 06-3 effective January 1, 2007, and does not believe that the adoption
+will have a significant effect on its financial statements as it does not
+intend
+to change its existing accounting policy which is to present taxes within
+the
+scope of EITF Issue 06-3 on a net basis. 
+In
+September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
+provides guidance for using fair value to measure assets and liabilities.
+Under
+SFAS No. 157, fair value refers to the price that would be received to sell
+an
+asset or paid to transfer a liability in an orderly transaction between market
+participants in the market in which the 
+reporting
+entity transacts business. SFAS No. 157 establishes a fair value hierarchy
+that
+prioritizes the information used to develop the assumptions that market
+participants would use when pricing the asset or liability. The fair value
+hierarchy gives the highest priority to quoted prices in active markets and
+the
+lowest priority to unobservable data. In addition, SFAS 157 requires that
+fair
+value measurements be separately disclosed by level within the fair value
+hierarchy. This standard will be effective for financial statements issued
+for
+fiscal periods beginning after November 15, 2007 and interim periods within
+those fiscal years. The Company is currently evaluating the impact of applying
+the various provisions of SFAS 157. 
+In
+September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
+Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements
+No. 87, 88, 106, and 132(R)” (SFAS 158). This Statement improves financial
+reporting by requiring an employer to recognize the over-funded or under-funded
+status of a defined benefit pension plan (other than a multiemployer plan)
+as an
+asset or liability in its statement of financial position and to recognize
+changes in that funded status in the year in which the changes occur through
+comprehensive income. This Statement also requires the Company to measure
+the
+funded status of a plan as of the date of its year-end statement of financial
+position, with limited exceptions. The requirement to recognize the funded
+status of a benefit plan and the disclosure requirements are effective as
+of the
+fiscal year ending after December 15, 2006. The requirement to measure plan
+assets and benefit obligations as of the date of the employer’s fiscal year-end
+statement of financial position is effective for fiscal years ending after
+December 15, 2008. Effective
+December 31, 2006, t he
+Company has adopted the recognition provisions of SFAS 158 which did not
+result
+in a material impact to its consolidated results of operations and financial
+condition. The
+Company currently measures the plan assets and benefit obligations as of
+its
+fiscal year-end and therefore adoption of the measurement provisions will
+not
+have an affect on its consolidated results of operation and financial condition.
+See Note 10 to the consolidated financial statements for further information.
+26 
+In
+September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
+Accounting Bulletin (‘SAB”) 108, “Considering the Effects of Prior Year
+Misstatements when Quantifying Misstatements in Current Year Financial
+Statements”. SAB 108 provides interpretive guidance on how the effects of the
+carryover or reversal of prior year misstatements should be considered in
+quantifying a current year misstatement. The SEC staff believes that registrants
+should quantify errors using both a balance sheet and an income statement
+approach and evaluate whether either approach results in quantifying a
+misstatement that, when all relevant quantitative and qualitative factors
+are
+considered, is material. The guidance in SAB 108 must be applied to annual
+financial statements for fiscal years ending after November 15, 2006. The
+Company has adopted SAB 108 which did not result in a material impact to
+its
+consolidated results of operations and financial condition. 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk
+The
+Company is subject to interest rate risk exposure through borrowings on its
+credit facility. As of December 31, 2006, there are outstanding interest-bearing
+advances of $35.6 million on our credit facility which bear interest at a
+floating rate. A change in the interest rate of one percent on the balance
+outstanding at December 31, 2006 would cause a change of $360,000 in total
+annual interest costs. 
+Additionally,
+the Company is exposed to market risk resulting from changes in foreign exchange
+rates. However, since the majority of the Company’s transactions occur in U.S.
+currency, this risk is not expected to have a material effect on its
+consolidated results of operations and financial condition. 
+27 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To
+the
+Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate
+internal control over financial reporting for the Company. RPC, Inc. maintains
+a
+system of internal accounting controls designed to provide reasonable assurance,
+at a reasonable cost, that assets are safeguarded against loss or unauthorized
+use and that the financial records are adequate and can be relied upon to
+produce financial statements in accordance with accounting principles generally
+accepted in the United States of America. The internal control system is
+augmented by written policies and procedures, an internal audit program and
+the
+selection and training of qualified personnel. This system includes policies
+that require adherence to ethical business standards and compliance with
+all
+applicable laws and regulations. 
+There
+are
+inherent limitations to the effectiveness of any controls system. A controls
+system, no matter how well designed and operated, can provide only reasonable,
+not absolute, assurance that the objectives of the controls system are met.
+Also, no evaluation of controls can provide absolute assurance that all control
+issues and any instances of fraud, if any, within the Company will be detected.
+Further, the design of a controls system must reflect the fact that there
+are
+resource constraints, and the benefits of controls must be considered relative
+to their costs. The Company intends to continually improve and refine its
+internal controls. 
+Under
+the
+supervision and with the participation of our management, including our
+principal executive officer and principal financial officer, we conducted
+an
+evaluation of the effectiveness of the design and operations of our internal
+control over financial reporting as of December 31, 2006 based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control
+over financial reporting as of December 31, 2006. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited
+the consolidated financial statements as of and for the year ended December
+31,
+2006, and has also issued their report on management’s assessment of the
+Company’s internal control over financial reporting, included in this report on
+page 29. 
+/s/
+Richard A.
+Hubbell 
+/s/
+Ben M.
+Palmer 
+Richard A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+February
+27, 2007 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control over
+Financial Reporting 
+Board
+of
+Directors and Stockholders of RPC, Inc. 
+We
+have
+audited management’s assessment included in Management’s Report on Internal
+Control Over Financial Reporting included in RPC, Inc.’s Form 10-K for 2006,
+that RPC, Inc. (a Delaware Corporation) and subsidiaries (the “Company”)
+maintained effective internal control over financial reporting as of December
+31, 2006 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. Our
+responsibility is to express an opinion on management’s assessment and an
+opinion on the effectiveness of 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, evaluating management’s assessment, testing
+and evaluating the design and operating effectiveness of internal control,
+and
+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, management’s assessment that the Company maintained effective internal
+control over financial reporting as of December 31, 2006, is fairly stated,
+in
+all material respects, based on criteria established in Internal
+Control—Integrated Framework issued by the COSO. Also in our opinion, the
+Company maintained, in all material respects, effective internal control
+over
+financial reporting as of December 31, 2006, based on criteria established
+in
+Internal Control—Integrated Framework issued by the COSO. 
+We
+have
+also audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of the Company
+as of December 31, 2006 and 2005, and the related consolidated statements
+of
+operations, stockholders’ equity, and cash flows for each of the three years in
+the period ended December 31, 2006 and our report dated February 27, 2007
+expressed an unqualified opinion on those consolidated financial
+statements. 
+Atlanta,
+Georgia 
+February
+27, 2007 
+29 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements 
+Board
+of
+Directors and Stockholders of RPC, Inc. 
+We
+have
+audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware
+corporation) and subsidiaries (the “Company”) as of December 31, 2006 and 2005,
+and the related consolidated statements of operations, stockholders’ equity, and
+cash flows for each of the three years in the period ended December 31, 2006.
+These financial statements are the responsibility of the Company’s management.
+Our responsibility is to express an opinion on these financial statements
+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 audits 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 the Company as of December
+31, 2006 and 2005, and the consolidated results of its operations and its
+consolidated cash flows for each of the three years in the period ended December
+31, 2006 in conformity with accounting principles generally accepted in the
+United States of America. 
+Our
+audits were conducted for the purpose of forming an opinion on the basic
+consolidated financial statements taken as a whole. Schedule II, as listed
+in the Index, is presented for purposes of additional analysis and is not
+a
+required part of the basic consolidated financial statements. This
+schedule has been subjected to the auditing procedures applied in the audits
+of
+the basic consolidated financial statements and, in our opinion, is fairly
+stated in all material respects in relation to the basic consolidated financial
+statements taken as a whole. 
+As
+described in Note 1 to the consolidated financial statements, the Company
+adopted the recognition provisions of Statement of Financial Accounting
+Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
+Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
+132(R)” and also the provisions of Statement of Financial Accounting Standards
+No. 123 (revised 2004), “Share-Based Payment” during 2006. 
+We
+also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the effectiveness of the Company’s internal
+control over financial reporting as of December 31, 2006, 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
+February 27, 2007 expressed an unqualified opinion. 
+Atlanta,
+Georgia 
+February
+27, 2007 
+30 
+Item
+8. Financial Statements and Supplementary Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2006 
+2005 
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+2,729 
+$ 
+12,809 
+Accounts
+receivable, net 
+148,469 
+107,428 
+Inventories 
+21,188 
+13,298 
+Deferred
+income taxes 
+4,384 
+5,304 
+Income
+taxes receivable 
+239 
+— 
+Prepaid
+expenses and other current assets 
+5,245 
+4,004 
+Current
+assets 
+182,254 
+142,843 
+Property,
+plant and equipment, net 
+262,797 
+141,218 
+Goodwill
+24,093 
+24,093 
+Other
+assets 
+5,163 
+3,631 
+Total
+assets 
+$ 
+474,307 
+$ 
+311,785 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+50,568 
+$ 
+30,437 
+Accrued
+payroll and related expenses 
+13,289 
+9,576 
+Accrued
+insurance expenses 
+3,327 
+3,695 
+Accrued
+state, local and other taxes 
+3,314 
+2,585 
+Income
+taxes payable 
+— 
+791 
+Other
+accrued expenses 
+454 
+544 
+Current
+liabilities 
+70,952 
+47,628 
+Long-term
+accrued insurance expenses 
+6,892 
+6,168 
+Notes
+payable to banks 
+35,600 
+— 
+Long-term
+pension liabilities 
+9,185 
+13,614 
+Deferred
+income taxes 
+12,073 
+8,758 
+Other
+long-term liabilities 
+4,318 
+3,116 
+Total
+liabilities 
+139,020 
+79,284 
+Commitments
+and contingencies 
+STOCKHOLDERS’
+EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none
+issued 
+— 
+— 
+Common
+stock, $0.10 par value, 159,000,000 shares authorized, 97,213,668
+and
+96,678,759 shares issued and outstanding in 2006 and 2005, respectively
+9,721 
+9,668 
+Capital
+in excess of par value 
+13,595 
+16,012 
+Deferred
+compensation 
+— 
+(5,391 
+) 
+Retained
+earnings 
+317,705 
+219,907 
+Accumulated
+other comprehensive loss 
+(5,734 
+) 
+(7,695 
+) 
+Total
+stockholders’ equity 
+335,287 
+232,501 
+Total
+liabilities and stockholders’ equity 
+$ 
+474,307 
+$ 
+311,785 
+The
+accompanying notes are an integral part of these statements. 
+31 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2006 
+2005 
+2004 
+REVENUES
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+COSTS
+AND EXPENSES: 
+Cost
+of services rendered and goods sold 
+287,037 
+227,492 
+193,659 
+Selling,
+general and administrative expenses 
+91,051 
+75,478 
+65,871 
+Depreciation
+and amortization 
+46,711 
+39,129 
+34,473 
+Gain
+on disposition of assets, net 
+(5,969 
+) 
+(12,169 
+) 
+(5,551 
+) 
+Operating
+profit 
+177,800 
+97,713 
+51,340 
+Interest
+expense 
+(418 
+) 
+(127 
+) 
+(311 
+) 
+Interest
+income 
+381 
+1,077 
+243 
+Other
+income, net 
+1,085 
+2,077 
+1,931 
+Income
+before income taxes 
+178,848 
+100,740 
+53,203 
+Income
+tax provision 
+68,054 
+34,256 
+18,430 
+Net
+income 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+EARNINGS
+PER SHARE 
+Basic 
+$ 
+1.16 
+$ 
+0.70 
+$ 
+0.36 
+Diluted 
+$ 
+1.13 
+$ 
+0.67 
+$ 
+0.36 
+Dividends
+paid per share 
+$ 
+0.133 
+$ 
+0.071 
+$ 
+0.036 
+The
+accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Three
+Years Ended 
+Comprehensive 
+Common
+Stock 
+Capital 
+in 
+Excess
+of 
+Par 
+Deferred 
+Retained 
+Accumulated 
+Other 
+Comprehensive 
+December
+31, 2006 
+Income
+(Loss) 
+Shares 
+Amount 
+Value 
+Compensation 
+Earnings 
+Loss 
+Total 
+Balance,
+December 31, 2003 
+64,409 
+$ 
+6,441 
+$ 
+23,217 
+$ 
+(1,076 
+) 
+$ 
+128,824 
+$ 
+(6,300 
+) 
+$ 
+151,106 
+Stock
+issued for stock incentive plans, net 
+354
+36
+4,074
+(3,087 
+) 
+— 
+— 
+1,023 
+Stock
+purchased and retired 
+(170 
+) 
+(17 
+) 
+(2,312 
+) 
+— 
+— 
+— 
+(2,329 
+) 
+Net
+income 
+$ 
+34,773 
+— 
+— 
+— 
+— 
+34,773
+— 
+34,773
+Minimum
+pension liability, net of taxes 
+(605 
+) 
+— 
+— 
+— 
+— 
+— 
+(605 
+) 
+(605 
+) 
+Unrealized
+gain on securities, net of taxes 
+19
+— 
+— 
+— 
+— 
+— 
+19
+19
+Comprehensive
+income 
+$ 
+34,187 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(3,408 
+) 
+— 
+(3,408 
+) 
+Stock-based
+compensation 
+— 
+— 
+— 
+636 
+— 
+— 
+636 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+208 
+— 
+— 
+— 
+208 
+Three-for-two
+stock split 
+32,641
+3,263
+(3,263 
+) 
+— 
+— 
+— 
+— 
+Balance,
+December 31, 2004 
+97,234
+9,723
+21,924
+(3,527 
+) 
+160,189
+(6,886 
+) 
+181,423
+Stock
+issued for stock incentive plans, net 
+417
+42
+5,344
+(3,125 
+) 
+— 
+— 
+2,261 
+Stock
+purchased and retired 
+(739 
+) 
+(74 
+) 
+(11,332 
+) 
+— 
+— 
+— 
+(11,406 
+) 
+Net
+income 
+$ 
+66,484 
+— 
+— 
+— 
+— 
+66,484
+— 
+66,484
+Minimum
+pension liability, net of taxes 
+(987 
+) 
+— 
+— 
+— 
+— 
+— 
+(987 
+) 
+(987 
+) 
+Unrealized
+gain on securities, net of taxes 
+178
+— 
+— 
+— 
+— 
+— 
+178
+178
+Comprehensive
+income 
+$ 
+65,675 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(6,766 
+) 
+— 
+(6,766 
+) 
+Stock-based
+compensation 
+— 
+— 
+— 
+1,261 
+— 
+— 
+1,261 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+53 
+— 
+— 
+— 
+53 
+Three-for-two
+stock split 
+(234 
+) 
+(23 
+) 
+23 
+— 
+— 
+— 
+— 
+Balance,
+December 31, 2005 
+96,678
+9,668
+16,012
+(5,391 
+) 
+219,907
+(7,695 
+) 
+232,501
+Stock
+issued for stock incentive plans, net 
+491
+49
+2,533 
+— 
+— 
+— 
+2,582 
+Stock
+purchased and retired 
+(119 
+) 
+(12 
+) 
+(3,252 
+) 
+— 
+— 
+— 
+(3,264 
+) 
+Net
+income 
+$ 
+110,794 
+— 
+— 
+— 
+— 
+110,794
+— 
+110,794 
+Minimum
+pension liability, net of taxes 
+2,108 
+— 
+— 
+— 
+— 
+— 
+2,108 
+2,108 
+Unrealized
+loss on securities, net of taxes 
+(147 
+) 
+— 
+— 
+— 
+— 
+— 
+(147 
+) 
+(147 
+) 
+Comprehensive
+income 
+$ 
+112,755 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(12,996 
+) 
+— 
+(12,996 
+) 
+Stock-based
+compensation 
+— 
+— 
+2,384 
+— 
+— 
+— 
+2,384 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+1,325 
+— 
+— 
+— 
+1,325 
+Adoption
+of SFAS 123(R) See Note 10 
+— 
+— 
+(5,391 
+) 
+5,391 
+— 
+— 
+— 
+Three-for-two
+stock split 
+164 
+16 
+(16 
+) 
+— 
+— 
+— 
+— 
+Balance,
+December 31, 2006 
+97,214
+$ 
+9,721 
+$ 
+13,595 
+$ 
+— 
+$ 
+317,705 
+$ 
+(5,734 
+) 
+$ 
+335,287 
+The
+accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2006 
+2005 
+2004 
+OPERATING
+ACTIVITIES 
+Net
+income 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+Adjustments
+to reconcile net income to net cash provided by operating
+activities: 
+Depreciation
+and amortization 
+46,726 
+39,129 
+34,418 
+Stock-based
+compensation 
+2,384 
+1,261 
+636 
+Gain
+on disposition of assets, net 
+(5,969 
+) 
+(12,169 
+) 
+(5,551 
+) 
+Deferred
+income tax provision (benefit) 
+2,817 
+(1,851 
+) 
+(756 
+) 
+Excess
+tax benefits from share based-payments 
+(1,325 
+) 
+— 
+— 
+Changes
+in current assets and liabilities: 
+Accounts
+receivable 
+(41,093 
+) 
+(31,635 
+) 
+(22,074 
+) 
+Income
+taxes receivable 
+1,086 
+— 
+4,472 
+Inventories 
+(7,886 
+) 
+(2,445 
+) 
+(530 
+) 
+Prepaid
+expenses and other current assets 
+(1,463 
+) 
+(81 
+) 
+41 
+Accounts
+payable 
+8,958 
+7,048 
+3,786 
+Income
+taxes payable 
+(791 
+) 
+796 
+113 
+Accrued
+payroll and related expenses 
+3,713 
+(49 
+) 
+2,316 
+Accrued
+insurance expenses 
+(368 
+) 
+(180 
+) 
+1,023 
+Accrued
+state, local and other taxes 
+729 
+402 
+520 
+Other
+accrued expenses 
+(90 
+) 
+(381 
+) 
+391 
+Changes
+in working capital 
+(37,205 
+) 
+(26,525 
+) 
+(9,942 
+) 
+Changes
+in other assets and liabilities: 
+Pension
+liabilities 
+(802 
+) 
+643 
+(2,568 
+) 
+Accrued
+insurance expenses 
+724 
+(283 
+) 
+595 
+Other
+non-current assets 
+(1,118 
+) 
+(871 
+) 
+(875 
+) 
+Other
+non-current liabilities 
+1,202 
+544 
+(356 
+) 
+Net
+cash provided by operating activities 
+118,228 
+66,362 
+50,374 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(159,831 
+) 
+(72,808 
+) 
+(49,869 
+) 
+Purchase
+of businesses 
+— 
+(8,836 
+) 
+(3,310 
+) 
+Proceeds
+from sale of assets 
+8,746 
+19,229 
+15,964 
+Net
+cash used for investing activities 
+(151,085 
+) 
+(62,415 
+) 
+(37,215 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(12,996 
+) 
+(6,766 
+) 
+(3,408 
+) 
+Borrowings
+from notes payable to banks 
+115,171 
+— 
+— 
+Repayments
+of notes payable to banks 
+(79,571 
+) 
+— 
+— 
+Debt
+issue costs for notes payable to banks 
+(469 
+) 
+— 
+— 
+Payments
+on debt 
+— 
+(4,800 
+) 
+(1,110 
+) 
+Excess
+tax benefits from share-based payments 
+1,325 
+— 
+— 
+Cash
+paid for common stock purchased and retired 
+(2,024 
+) 
+(10,268 
+) 
+(1,728 
+) 
+Proceeds
+received upon exercise of stock options 
+1,341 
+1,060 
+421 
+Net
+cash provided by (used for) financing activities 
+22,777 
+(20,774 
+) 
+(5,825 
+) 
+Net
+(decrease) increase in cash and cash equivalents 
+(10,080 
+) 
+(16,827 
+) 
+7,334 
+Cash
+and cash equivalents at beginning of year 
+12,809 
+29,636 
+22,302 
+Cash
+and cash equivalents at end of year 
+$ 
+2,729 
+$ 
+12,809 
+$ 
+29,636 
+The
+accompanying notes are an integral part of these statements. 
+34 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany
+accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+snubbing services (also referred to as hydraulic workover services), coiled
+tubing services, nitrogen services, and firefighting and well control, and
+Support Services such as the rental of drill pipe and other specialized oilfield
+equipment and oilfield training. 
+Dividends 
+On
+January 23, 2007, the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.033 to $0.050, payable March 12, 2007
+to
+stockholders of record at the close of business February 12, 2007. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities
+and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates.
+Significant
+estimates are used in the determination of the allowance for doubtful accounts,
+income taxes, accrued insurance expenses, depreciable lives of assets, and
+pension liabilities. 
+Revenues
+RPC’s
+revenues are generated from product sales, equipment rentals and services.
+Revenues from product sales, equipment rentals and services are based on fixed
+or determinable priced purchase orders or contracts with the customer and do
+not
+include the right of return. The Company recognizes revenue from product sales
+when title passes to the customer, the customer assumes risks and rewards of
+ownership, and collectibility is reasonably assured. Equipment rental and
+service revenues are recognized when the services are rendered and
+collectibility is reasonably assured. Rates for rentals and services are priced
+on a per day, per unit of measure, per man hour or similar basis. 
+Reclassifications
+Certain
+prior year balances have been reclassified to conform with the current year
+presentation. 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This
+concentration of customers may impact overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. The Company provided oilfield services
+to
+several hundred customers, none of which accounted for more than 10 percent
+of
+consolidated revenues. 
+35 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. RPC maintains cash equivalents
+and investments in one or more large, well-capitalized financial institutions,
+and RPC’s policy restricts investment in any securities rated less than
+“investment grade” by national rating services. 
+Investments
+Investments
+classified as available-for-sale are stated at their fair values, with the
+unrealized gains and losses, net of tax, reported as a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific
+identification method. Realized gains and losses, declines in value judged
+to be
+other than temporary, interest, and dividends with respect to available-for-sale
+securities are included in interest income. The Company did not realize any
+gains on securities during 2006, 2005 and 2004 on its available for sale
+securities. In 2004, the Company reclassed approximately $59,000 from other
+comprehensive income as a result of the securities that are held in a
+Supplemental Retirement Plan being classified as trading. This reclassification
+of securities from available-for-sale to trading was due to a change in the
+frequency of participant directed investment choices for the supplemental
+retirement plan. See Note 10 for further information regarding the supplemental
+retirement plan. The investment income earned on trading securities is presented
+in other income on the consolidated statements of operations. 
+Management
+determines the appropriate classification of investments at the time of purchase
+and re-evaluates such designations as of each balance sheet date. 
+Accounts
+Receivable 
+The
+majority of the Company’s accounts receivable are due principally from major and
+independent oil and natural gas exploration and production companies. Credit
+is
+extended based on evaluation of a customer’s financial condition and, generally,
+collateral is not required. Accounts receivable are considered past due after
+60
+days and are stated at amounts due from customers, net of an allowance for
+doubtful accounts. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance
+for estimated amounts that may not be collectible in the future. The estimated
+allowance for doubtful accounts is based on our evaluation of industry trends,
+financial condition of our customers, our historical write-off experience,
+current economic conditions, and in the case of our international customers,
+our
+judgments about the economic and political environment of the related country
+and region. Accounts are written off against the allowance for doubtful accounts
+when the Company determines that amounts are uncollectible and recoveries of
+previously written-off accounts are recorded when collected. 
+Inventories
+Inventories,
+which consist principally of (i) raw materials and supplies that are consumed
+in
+RPC’s services provided to customers, (ii) spare parts for equipment used in
+providing these services and (iii) manufactured components and attachments
+for
+equipment used in providing services, are recorded at the lower of weighted
+average cost or market value. Market value is determined based on replacement
+cost for material and supplies. The Company regularly reviews inventory
+quantities on hand and records provisions for excess or obsolete inventory
+based
+primarily on its estimated forecast of product demand, market conditions,
+production requirements and technological developments. 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less
+accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the assets. Annual
+depreciation and amortization expense is computed using the following useful
+lives: operating equipment, 3 to 10 years; buildings and leasehold improvements,
+15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and
+vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of
+and
+the related accumulated depreciation and amortization are eliminated from the
+accounts in the year of disposal with the resulting gain or loss credited or
+charged to income from operations. Expenditures for additions, major renewals,
+and betterments are capitalized. Expenditures for restoring an identifiable
+asset to working condition or for maintaining the asset in good working order
+constitute repairs and maintenance and are expensed as incurred.
+36 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+RPC
+records impairment losses on long-lived assets used in operations when events
+and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less
+than
+the carrying
+amount of those assets. The Company periodically reviews the values assigned
+to
+long-lived assets, such as property, plant and equipment and other assets,
+to
+determine if any impairments should be recognized. Management believes that
+the
+long-lived assets in the accompanying balance sheets have not been impaired.
+Goodwill
+and Other Intangibles 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets
+of
+businesses acquired. In the prior years, earnout payments to sellers of acquired
+businesses have been paid in accordance with the respective agreements on an
+annual or interim basis and were recorded as goodwill when the earnout payment
+amounts were determined. For additional information with respect to earnout
+payments, see Note 2 of the Notes to Consolidated Financial Statements. The
+carrying amount of goodwill was $24,093,000 at December 31, 2006 and 2005.
+Goodwill is reviewed annually for impairment in accordance with the provisions
+of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and
+Other Intangible Assets.” In reviewing goodwill for impairment, potential
+impairment is measured by comparing the estimated fair value of a reporting
+unit
+with its carrying value. Based upon the results of these analyses, the Company
+has concluded that no impairment of its goodwill has occurred. 
+Other
+intangibles primarily represent non-compete agreements related to businesses
+acquired. Non-compete agreements are amortized on a straight-line basis over
+the
+period of the agreement, as this method best estimates the ratio that current
+revenues bear to the total of current and anticipated revenues. The carrying
+amount and accumulated amortization for non-compete agreements are as follows:
+December
+31, 
+2006 
+2005 
+Non-compete
+agreements 
+$ 
+300,000 
+$ 
+300,000 
+Less:
+accumulated amortization 
+(300,000 
+) 
+(290,016 
+) 
+$ 
+— 
+$ 
+9,984 
+Amortization
+of non-compete agreements was approximately $10,000 in 2006, $28,000 in 2005,
+and $40,000 in 2004. 
+Insurance
+Expenses 
+RPC
+self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability, and employee
+health insurance plan costs. The estimated cost of claims under these
+self-insurance programs is estimated and accrued as the claims are incurred
+(although actual settlement of the claims may not be made until future periods)
+and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more
+than
+one year in the future is classified as long-term accrued insurance expenses.
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect for the year in which the differences are expected to reverse. The
+Company establishes a valuation allowance against the carrying value of deferred
+tax assets when the Company determines that it is more likely than not that
+the
+asset will not be realized through future taxable income. 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon
+retirement at age 65 to eligible employees. In September 2006, the FASB issued
+SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
+Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and
+132(R).” SFAS
+158
+requires the Company to recognize the funded status of its defined
+benefit pension plan in the Company’s consolidated balance
+sheets. Effective for fiscal years ending
+after December 15, 2008, SFAS 158 also removes the existing option to use a
+plan
+measurement date that is up to 90 days prior to the date of the balance sheet.
+The recognition and disclosure provisions of SFAS 158 are effective for fiscal
+years ending after December 15, 2006, for entities with publicly traded equity
+securities that have defined benefit plans and is to be applied as of the year
+of adoption. Accordingly,
+t he
+Company has adopted the recognition and disclosure provisions of SFAS 158 as
+of
+December 31, 2006 which
+did
+not result in a material impact to its consolidated results of operations and
+financial condition. 
+The
+Company uses a December 31 measurement date for its pension plan and thus the
+measurement date provisions will not affect the Company. See
+Note
+10 for a full description of this plan and the related accounting and funding
+policies. 
+37 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Share
+Repurchases 
+The
+Company records the cost of share repurchases in stockholders’ equity as a
+reduction to common stock to the extent of par value of the shares acquired
+and
+the remainder is allocated to capital in excess of par value. 
+Earnings
+per Share 
+SFAS
+No.
+128, “Earnings Per Share,” requires a basic earnings per share and diluted
+earnings per share presentation. The two calculations differ as a result of
+the
+dilutive effect of stock options and time lapse restricted and performance
+restricted shares included in diluted earnings per share, but excluded from
+basic earnings per share. A reconciliation of the weighted shares outstanding
+is
+as follows: 
+2006 
+2005 
+2004 
+Basic 
+95,242,593 
+95,052,283 
+95,544,434 
+Dilutive
+effect of stock options and restricted shares 
+2,953,428 
+3,457,083 
+2,171,803 
+Diluted 
+98,196,021 
+98,509,366 
+97,716,237 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist primarily of cash and cash equivalents,
+accounts receivable, accounts payable and debt. The carrying value of cash,
+accounts receivable and accounts payable approximate their fair value due to
+the
+short-term nature of such instruments. The securities held in the non-qualified
+Supplemental Retirement Plan (“SERP”) are classified as trading and carried at
+fair value in the accompanying consolidated balance sheets. The carrying value
+of debt as of December 31, 2006 approximated fair value since the interest
+rates
+are market based and are adjusted periodically. 
+New
+Accounting Standards 
+In
+February 2006, the Financial Accounting Standards Board (“FASB”) issued
+Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for
+Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and
+140”, to permit fair value remeasurement for any hybrid financial instrument
+that contains an embedded derivative that otherwise would require bifurcation
+in
+accordance with the provisions of SFAS No. 133, “Accounting for Derivative
+Instruments and Hedging Activities.” This statement is effective for fiscal
+years beginning after September 15, 2006. Accordingly, the Company will adopt
+SFAS No. 155 in fiscal year 2007. The adoption of this Statement is not expected
+to have a material effect on the Company’s consolidated operating results and
+financial condition. 
+In
+March
+2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
+Assets—an amendment of FASB Statement No. 140,” that provides guidance on
+accounting for separately recognized servicing assets and servicing liabilities.
+In accordance with the provisions of SFAS No. 156, separately recognized
+servicing assets and servicing liabilities must be initially measured at fair
+value, if practicable. Subsequent to initial recognition, the Company may use
+either the amortization method or the fair value measurement method to account
+for servicing assets and servicing liabilities within the scope of this
+Statement. This statement will be effective for the fiscal years beginning
+after
+November 15, 2007, and interim periods within those fiscal years. The Company
+will adopt SFAS No. 156 in fiscal year 2008. The adoption of this Statement
+is
+not expected to have a material effect on the Company’s consolidated results of
+operations and financial condition. 
+38 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+In
+June
+2006, the FASB issued Financial Interpretation No. 48, “Accounting for
+Uncertainty in Income Taxes - an interpretation of FASB Statement 109” (“FIN
+48”). FIN 48 prescribes a recognition threshold and a measurement attribute for
+the financial statement recognition and measurement of a tax position taken
+or
+expected to be taken in a tax return. This interpretation also provides guidance
+on de-recognition, classification, interest and penalties, accounting in interim
+periods, disclosure and transition. This interpretation is effective for fiscal
+years beginning after December 15, 2006. The Company is currently evaluating
+the impact of applying the provisions of FIN 48. 
+In
+June
+2006, the FASB ratified a consensus opinion reached by the Emerging Issues
+Task
+Force (“EITF”) on EITF Issue 06-3, “How Taxes Collected from Customers and
+Remitted to Governmental Authorities Should Be Presented in the Income Statement
+(That Is, Gross versus Net Presentation).” The guidance in EITF Issue 06-3
+requires disclosure in interim and annual financial statements of the amount
+of
+taxes on a gross basis, if significant, that are assessed by a governmental
+authority that are imposed on and concurrent with a specific revenue producing
+transaction between a seller and customer such as sales, use, value added,
+and
+some excise taxes. Additionally, the income statement presentation (gross or
+net) of such taxes is an accounting policy decision that must be disclosed.
+The
+consensus in EITF Issue 06-3 is effective for interim and annual reporting
+periods beginning after December 15, 2006. The Company intends to adopt EITF
+Issue 06-3 effective January 1, 2007, and does not believe that the adoption
+will have a significant effect on its financial statements as it does not intend
+to change its existing accounting policy which is to present taxes within the
+scope of EITF Issue 06-3 on a net basis. 
+In
+September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
+provides guidance for using fair value to measure assets and liabilities. Under
+SFAS No. 157, fair value refers to the price that would be received to sell
+an
+asset or paid to transfer a liability in an orderly transaction between market
+participants in the market in which the reporting
+entity transacts business. SFAS No. 157 establishes a fair value hierarchy
+that
+prioritizes the information used to develop the assumptions that market
+participants would use when pricing the asset or liability. The fair value
+hierarchy gives the highest priority to quoted prices in active markets and
+the
+lowest priority to unobservable data. In addition, SFAS 157 requires that fair
+value measurements be separately disclosed by level within the fair value
+hierarchy. This standard will be effective for financial statements issued
+for
+fiscal periods beginning after November 15, 2007 and interim periods within
+those fiscal years. The Company is currently evaluating the impact of applying
+the various provisions of SFAS 157. 
+In
+September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
+Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements
+No. 87, 88, 106, and 132(R)” (SFAS 158). This Statement improves financial
+reporting by requiring an employer to recognize the over-funded or under-funded
+status of a defined benefit pension plan (other than a multiemployer plan)
+as an
+asset or liability in its statement of financial position and to recognize
+changes in that funded status in the year in which the changes occur through
+comprehensive income. This Statement also requires the Company to measure the
+funded status of a plan as of the date of its year-end statement of financial
+position, with limited exceptions. The requirement to recognize the funded
+status of a benefit plan and the disclosure requirements are effective as of
+the
+fiscal year ending after December 15, 2006. The requirement to measure plan
+assets and benefit obligations as of the date of the employer’s fiscal year-end
+statement of financial position is effective for fiscal years ending after
+December 15, 2008. Effective
+December 31, 2006, t he
+Company has adopted the recognition provisions of SFAS 158 which did not result
+in a material impact to its consolidated results of operations and financial
+condition. The
+Company currently measures the plan assets and benefit obligations as of its
+fiscal year-end and therefore adoption of the measurement provisions will not
+have an affect on its consolidated results of operation and financial condition.
+See Note 10 to the consolidated financial statements for further information.
+In
+September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
+Accounting Bulletin ( “ SAB”) 108,
+“Considering the Effects of Prior Year Misstatements when Quantifying
+Misstatements in Current Year Financial Statements”. SAB 108 provides
+interpretive guidance on how the effects of the carryover or reversal of prior
+year misstatements should be considered in quantifying a current year
+misstatement. The SEC staff believes that registrants should quantify errors
+using both a balance sheet and an income statement approach and evaluate whether
+either approach results in quantifying a misstatement that, when all relevant
+quantitative and qualitative factors are considered, is material. The guidance
+in SAB 108 must be applied to annual financial statements for fiscal years
+ending after November 15, 2006. The Company has adopted SAB 108 which did not
+result in a material impact to its consolidated results of operations and
+financial condition. 
+39 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Stock-Based
+Compensation 
+Effective
+January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
+2004), “Share-Based Payments” (“SFAS 123(R)”), which revises SFAS 123,
+“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
+Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires
+all share-based payments to employees, including grants of employee stock
+options, to be measured based on their fair values and recognized in the
+financial statements over the requisite service period. See Note 10 regarding
+the Company’s adoption of SFAS 123(R). 
+Prior
+to
+January 1, 2006, the Company provided the disclosures required by SFAS 123,
+as
+amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and
+Disclosures”, and accounted for all of its stock-based compensation under the
+provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
+for Stock Issued to Employees” using the intrinsic value method prescribed
+therein. Accordingly, the Company did not recognize compensation expense for
+the
+options granted since the exercise price was the same as the market price of
+the
+shares on the date of grant. Compensation cost on the restricted stock was
+recorded as deferred compensation in stockholders’ equity based on the fair
+market value of the shares on the date of issuance and amortized ratably over
+the respective vesting period. Forfeitures related to restricted stock were
+previously accounted for as they occurred. See Note 10 for additional
+information. 
+Three-for-Two
+Stock Split 
+On
+October 24, 2006, RPC’s Board of Directors declared a three-for-two stock split
+of the Company’s common shares. The additional shares were distributed on
+December 11, 2006, to shareholders of record on November 10, 2006. All share,
+earnings per share, and dividends per share data presented in the accompanying
+financial statements have been adjusted to reflect this stock
+split. 
+Note
+2: Acquisitions 
+Earnout
+payments to sellers of acquired businesses have been paid in accordance with
+the
+respective agreements on an annual or interim basis and recorded as goodwill
+when the earnout payment amounts are determinable. The Company made earnout
+payments of $4,600,000 in April 2005 related to the 2004 operating results
+for
+an acquired business. Final earnout payments of $4,300,000 were made during
+2005
+to the sellers of the acquired business based on the results for the interim
+period ended June 30, 2005. Earnout payments made to sellers of acquired
+businesses totaled $3,310,000 in 2004, based on 2003 operating results. As
+of
+December 31, 2005, all earnout obligations under purchase agreements have been
+recognized and paid. 
+Note
+3: Accounts Receivable 
+Accounts
+receivable, net consist of the following: 
+December
+31, 
+2006 
+2005 
+(in
+thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+118,018 
+$ 
+91,635 
+Unbilled 
+34,624 
+18,878 
+Other
+receivables 
+731 
+995 
+Total 
+153,373 
+111,508 
+Less:
+Allowance for doubtful accounts 
+(4,904 
+) 
+(4,080 
+) 
+Accounts
+receivable, net 
+$ 
+148,469 
+$ 
+107,428 
+Trade
+receivables relate to sale of our services and products, for which credit is
+extended based on the customer’s credit history. Other receivables consist
+primarily of amounts due from purchasers of company property and rebates from
+suppliers. 
+40 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Changes
+in the Company’s allowance for doubtful accounts are as follows: 
+Years
+Ended December 31, 
+2006 
+2005 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+4,080 
+$ 
+2,576 
+Bad
+debt expense 
+1,492 
+1,618 
+Accounts
+written-off 
+(1,379 
+) 
+(230 
+) 
+Recoveries 
+711 
+116 
+Ending
+balance 
+$ 
+4,904 
+$ 
+4,080 
+Note
+4: Inventories 
+Inventories
+are $21,188,000 at December 31, 2006 and $13,298,000 at December 31, 2005 and
+consist of raw materials, parts and supplies. 
+Note
+5: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and
+consist of the following: 
+December
+31, 
+2006 
+2005 
+(in
+thousands) 
+Land 
+$ 
+9,715 
+$ 
+5,085 
+Buildings
+and leasehold improvements 
+33,650 
+31,836 
+Operating
+equipment 
+347,230 
+257,030 
+Capitalized
+software 
+13,457 
+12,651 
+Furniture
+and fixtures 
+3,545 
+3,080 
+Vehicles 
+110,714 
+63,413 
+Construction
+in progress 
+8,396 
+3,699 
+Gross
+property, plant and equipment 
+526,707 
+376,794 
+Less:
+accumulated depreciation 
+263,910 
+235,576 
+Net
+property, plant and equipment 
+$ 
+262,797 
+$ 
+141,218 
+Depreciation
+expense was $46,698,000 in 2006, $39,100,000 in 2005 and $34,397,000 in 2004.
+There are no capital leases outstanding as of December 31, 2006 and December
+31,
+2005. The Company also had accounts payable for purchases of property and
+equipment of approximately $16.4 million, $5.2 million and $4.7 million at
+December 31, 2006, 2005 and 2004. 
+Note
+6: Income Taxes 
+The
+following table lists the components of the provision (benefit) for income
+taxes: 
+Years
+ended December 31, 
+2006 
+2005 
+2004 
+(in
+thousands) 
+Current
+provision: 
+Federal 
+56,104 
+$ 
+31,563 
+$ 
+16,028 
+State 
+8,155 
+4,305 
+2,300 
+Foreign 
+978 
+239 
+858 
+Deferred
+provision (benefit): 
+Federal 
+2,429 
+(1,890 
+) 
+(1,210 
+) 
+State 
+388 
+39 
+454 
+Total
+income tax provision (benefit) 
+$ 
+68,054 
+$ 
+34,256 
+$ 
+18,430 
+41 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as
+follows: 
+Years
+ended December 31, 
+2006 
+2005 
+2004 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State
+income taxes, net of federal benefit 
+3.2 
+2.9 
+3.4 
+Tax
+credits 
+(0.6 
+) 
+(1.1 
+) 
+(3.0 
+) 
+Federal
+and state refunds 
+0.0 
+(3.4 
+) 
+(0.6 
+) 
+Adjustments
+to foreign tax liabilities 
+(1.1 
+) 
+(0.7 
+) 
+(1.2 
+) 
+Other 
+1.6 
+1.3 
+1.0 
+Effective
+tax rate 
+38.1 
+% 
+34.0 
+% 
+34.6 
+% 
+Significant
+components of the Company’s deferred tax assets and liabilities are as
+follows: 
+December
+31, 
+2006 
+2005 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+4,298 
+$ 
+4,106 
+Pension 
+3,427 
+5,238 
+State
+net operating loss carryforwards 
+1,560 
+1,802 
+Bad
+debts 
+1,875 
+1,629 
+Accrued
+payroll 
+1,730 
+787 
+Stock-based
+compensation 
+1,238 
+980 
+Foreign
+tax credit 
+– 
+657 
+All
+others 
+– 
+296 
+Valuation
+allowance 
+(1,342 
+) 
+(1,945 
+) 
+Gross
+deferred tax assets 
+12,786 
+13,550 
+Deferred
+tax liabilities: 
+Depreciation 
+(18,164 
+) 
+(15,168 
+) 
+Goodwill
+amortization 
+(2,258 
+) 
+(1,606 
+) 
+All
+others 
+(53 
+) 
+(230 
+) 
+Gross
+deferred tax liabilities 
+(20,475 
+) 
+(17,004 
+) 
+Net
+deferred tax liabilities 
+$
+(7,689 
+) 
+$ 
+(3,454 
+) 
+Historically,
+undistributed earnings of the Company’s foreign subsidiaries were considered
+indefinitely reinvested and, accordingly, no provision for U.S. federal income
+taxes was recorded. Deferred taxes are provided for earnings outside the
+United
+States when those earnings are not considered indefinitely reinvested.
+The
+American Jobs Creation Act of 2004 created a temporary incentive for U.S.
+multinationals to repatriate accumulated income earned outside the United
+States. As a result, the Company revisited its policy of indefinite reinvestment
+of foreign earnings and repatriated approximately $1.1 million in 2005. The
+Company recorded a one-time income tax provision of $65 thousand attributable
+to
+these earnings. For 2006 and forward, the Company considers undistributed
+earnings of the Company’s foreign subsidiaries to be indefinitely
+invested. 
+During
+2006, the valuation allowance and foreign tax credits of $657 thousand were
+reduced to reflect the Company's anticipated use of these previously reserved
+credits in the 2006 return. 
+As
+of
+December 31, 2006, the Company has net operating loss carryforwards related
+to
+state income taxes of approximately $36.8 million that will expire between
+2007
+through 2026. A valuation allowance of approximately $1.3 million, representing
+the tax affected amount of loss carryforwards that the Company does not expect
+to utilize, has been established against the corresponding deferred tax
+asset. 
+42 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Total
+income tax payments (refunds), net were $65,208,000 in 2006, $36,031,000
+in
+2005, and $14,692,000 in 2004. 
+Note
+7: Long-Term Debt 
+On
+September 8, 2006 the Company replaced its $50 million credit facility with
+a
+new revolving credit agreement (the “Revolving Credit Agreement”). The Revolving
+Credit Agreement has a term of five years and provides for an unsecured line
+of
+credit of up to $250 million, which includes a $50 million letter of credit
+subfacility, and a $20 million swingline subfacility. Under certain
+circumstances, the line of credit may be increased by an additional amount
+of up
+to $50 million. The maturity date of all revolving loans under the Credit
+Agreement is September 8, 2011, although RPC may request two one-year extensions
+of the maturity date at the first and second anniversaries of the closing
+of the
+revolving credit agreement. Additionally, the Revolving Credit Agreement
+includes a full and unconditional guarantee by RPC’s 100 percent owned domestic
+subsidiaries whose assets equal substantially all of the consolidated assets
+of
+RPC and its subsidiaries. 
+Revolving
+loans under the Revolving Credit Agreement bear interest at one of the following
+two rates, at RPC’s election: 
+· 
+the
+Base Rate, which is the greater of (1) the lender’s “prime rate” for the
+day of the borrowing or (2) the Federal Funds Rate plus 0.50 percent;
+or 
+· 
+with
+respect to any Eurodollar borrowings, Adjusted LIBOR (which equals
+LIBOR
+as increased to account for the maximum reserve percentages established
+by
+the U.S. Federal Reserve) plus a margin ranging from 0.40 percent
+to 0.80
+percent, based upon RPC’s then-current consolidated debt-to-EBITDA ratio.
+In addition, RPC will pay an annual fee ranging from 0.10 percent
+to 0.20
+percent of the total credit facility based upon RPC’s then-current
+consolidated debt-to-EBITDA ratio. 
+The
+Revolving Credit Agreement contains customary terms and conditions, including
+certain financial covenants and non-financial covenants restricting RPC’s
+ability to incur liens, merge or consolidate with another entity. Further,
+the
+Revolving Credit Agreement contains financial covenants restricting RPC’s
+ability to permit the ratio of RPC’s consolidated debt to EBITDA to exceed 2.5
+to 1 and to permit the ratio of RPC’s consolidated EBIT to interest expense to
+exceed 2.0 to 1. In addition, the Revolving Credit Agreement restricts RPC’s
+ability to pay dividends to holders of its common stock. RPC’s ability to pay
+dividends to holders of its common stock in any fiscal year is limited to
+the
+greater of (1) a specified dollar amount, as long as the ratio of RPC’s
+consolidated debt to EBITDA ratio does not exceed 2.0 to 1, with such
+calculation including the dividend payments, or (2) a specified percentage
+of
+the previous fiscal year’s net income. 
+As
+of
+December 31, 2006, RPC has outstanding borrowings of $35.6 million at a weighted
+average interest rate of 5.78 percent under the Revolving Credit
+Agreement. 
+The
+Company was charged an annual commitment fee of $64 thousand during 2006
+on the
+facility calculated at 0.10 percent of the $250 million credit facility.
+Additionally there were letters of credit relating to self-insurance programs
+and contract bids outstanding for $15 million. As of December 31, 2006, a
+total
+of $199.4 million was available under our facility. During the third quarter
+of
+2006, the Company incurred loan origination fees and other debt related costs
+associated with the line of credit of approximately $469 thousand which are
+classified as non-current other assets on the consolidated balance sheet
+and are
+being amortized over the five year term of the loan. 
+Cash
+interest paid was approximately $232 thousand in 2006, $204 thousand in 2005,
+and $309 thousand in 2004. 
+43 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Note
+8: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in
+thousands): 
+Minimum 
+Pension 
+Liability 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Total 
+Balance
+at December 31, 2004 
+$ 
+(7,083 
+) 
+$ 
+197 
+$ 
+(6,886 
+) 
+Change
+during 2005: 
+Before-tax
+amount 
+(1,592 
+) 
+286 
+(1,306 
+) 
+Tax
+(expense) benefit 
+605 
+(108 
+) 
+497 
+Total
+activity in 2005 
+(987 
+) 
+178 
+(809 
+) 
+Balance
+at December 31, 2005 
+(8,070 
+) 
+375 
+(7,695 
+) 
+Change
+during 2006: 
+Before-tax
+amount 
+3,627 
+(248 
+) 
+3,379 
+Tax
+(expense) benefit 
+(1,519 
+) 
+101 
+(1,418 
+) 
+Total
+activity in 2006 
+2,108 
+(147 
+) 
+1,961 
+Balance
+at December 31, 2006 
+$ 
+(5,962 
+) 
+$ 
+228 
+$ 
+(5,734 
+) 
+Note
+9: Commitments and Contingencies 
+Lease
+Commitments - 
+Minimum
+annual rentals, principally for noncancelable real estate leases with terms
+in
+excess of one year, in effect at December 31, 2006, are summarized in the
+following table: 
+(in
+thousands) 
+2007 
+$ 
+2,421 
+2008 
+2,028 
+2009 
+1,615 
+2010 
+1,276 
+2011 
+779 
+Thereafter 
+1,324 
+Total
+rental commitments 
+$ 
+9,443 
+Total
+rental expense charged to operations was approximately $6,276,000 in 2006,
+$5,252,000 in 2005 and $4,203,000 in 2004. 
+Income
+Taxes - 
+The
+amount of income taxes the Company pays is subject to ongoing audits by federal
+and state tax authorities, which often result in proposed assessments. Other
+long-term liabilities include $922,000 as of December 31, 2006 and $789,000
+as
+of December 31, 2005, that represents the Company’s estimated liabilities for
+the probable assessments payable. 
+Litigation
+- 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will,
+in
+every case, fully indemnify RPC against liabilities arising out of pending
+and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management, after consultation with legal counsel, believes that
+the
+outcome of all such proceedings, even if determined adversely, would not
+have a
+material adverse effect on the Company’s business or financial condition.
+44 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to substantially all
+employees with at least one year of service prior to 2002. As of February
+28,
+2001, the plan became a multiple employer plan, with Marine Products as an
+adopting employer. 
+In
+2002,
+the Company’s Board of Directors approved a resolution to cease all future
+retirement benefit accruals under the defined benefit pension plan. In lieu
+thereof, the Company began providing enhanced benefits in the form of cash
+contributions for certain longer serviced employees that had not reached
+the
+normal retirement age of 65 as of March 31, 2002. The contributions are
+discretionary and made annually based on continued employment over a seven
+year
+period beginning in 2002. These discretionary contributions are made to either
+a
+non-qualified Supplemental Retirement Plan (“SERP”) established by the Company
+or to the 401(k) plan for each employee that is entitled to the enhanced
+benefit. The expense related to the enhanced benefits was $320,000 for 2006,
+$390,000 for 2005 and $415,000 for 2004. 
+The
+Company permits selected highly compensated employees to defer a portion
+of
+their compensation into the nonqualified SERP. The SERP assets are marked
+to
+market and totaled $3,031,000 as of December 31, 2006 and $1,967,000 as of
+December 31, 2005. The SERP assets are reported in other assets on the balance
+sheet and changes related to the fair value of assets are recorded in the
+consolidated statement of operations as part of other income, net. The SERP
+deferrals and the contributions are recorded on the balance sheet in pension
+liabilities with any change in the fair value of the liabilities recorded
+as
+compensation cost in the statement of operations. 
+As
+previously mentioned, the Company has adopted the provisions of SFAS 158.
+In
+accordance with the provisions of SFAS 158, the Company’s projected benefit
+obligation under its pension plan exceeded the fair value of the plan assets
+by
+$6,045,000 and thus the plan was under-funded as of December 31, 2006. Prior
+to
+the adoption of SFAS 158, the Company’s disclosure of the funded status in the
+notes to the consolidated financial statements did not differ from the amount
+recognized in the consolidated balance sheets; therefore, the adoption of
+SFAS
+158 did not have an affect on the balance sheet. The adoption of SFAS
+158 had the following effect on the Company’s consolidated balance sheet as
+of December 31, 2006: 
+As
+of December 31, 2006 
+(in
+thousands) 
+Prior
+to adoption of SFAS 158 
+Effect
+of adopting SFAS 158 
+Adjusted 
+Liability
+for pension benefits 
+$ 
+6,045 
+$ 
+— 
+$ 
+6,045 
+Deferred
+income taxes 
+3,427 
+— 
+3,427 
+Accumulated
+other comprehensive loss 
+9,389 
+— 
+9,389 
+45 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+The
+following table sets forth the funded status of the Retirement Income Plan
+and
+the amounts recognized in RPC’s consolidated balance sheets subsequent to the
+adoption of SFAS 158: 
+December
+31, 
+2006 
+2005 
+(in
+thousands) 
+Accumulated
+Benefit Obligation at end of year 
+$ 
+32,172 
+$ 
+33,801 
+CHANGE
+IN PROJECTED BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+33,801 
+$ 
+31,270 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,705 
+1,744 
+Amendments 
+— 
+— 
+Actuarial
+(gain) loss 
+(2,131 
+) 
+2,013 
+Benefits
+paid 
+(1,203 
+) 
+(1,226 
+) 
+Projected
+benefit obligation at end of year 
+$ 
+32,172 
+$ 
+33,801 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+22,344 
+$ 
+20,888 
+Actual
+return on plan assets 
+2,386 
+1,082 
+Employer
+contribution 
+2,600 
+1,600 
+Benefits
+paid 
+(1,203 
+) 
+(1,226 
+) 
+Fair
+value of plan assets at end of year 
+26,127 
+22,344 
+Funded
+status at end of year 
+$ 
+(6,045 
+) 
+(11,458 
+) 
+Unrecognized
+net loss 
+13,017 
+Net
+prepaid benefit cost 
+$ 
+1,559 
+December
+31, 
+2006 
+(in
+thousands) 
+AMOUNTS
+RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent
+assets 
+$ 
+— 
+Current
+liabilities 
+— 
+Noncurrent
+liabilities 
+(6,045 
+) 
+$ 
+(6,045 
+) 
+AMOUNTS
+RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST
+OF: 
+Net
+actuarial loss 
+$ 
+9,389 
+Prior
+service cost 
+— 
+Net
+transition obligation 
+— 
+$ 
+9,389 
+The
+accumulated benefit obligation for the defined benefit pension plan at December
+31, 2006 and 2005 has been disclosed above. The Company uses a December 31
+measurement date for this qualified plan. 
+46 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Amounts
+recognized in the consolidated balance sheets and reflected as pension
+liabilities consist of: 
+December
+31, 
+2006
+2005
+(in
+thousands) 
+Funded
+status 
+$ 
+(6,045 
+) 
+$ 
+— 
+Net
+prepaid benefit cost 
+— 
+1,559 
+Minimum
+pension liability 
+— 
+(13,017 
+) 
+SERP
+employer contributions 
+(1,071 
+) 
+(1,054 
+) 
+SERP
+employee deferrals 
+(2,069 
+) 
+(1,102 
+) 
+Net
+amount recognized 
+$ 
+(9,185 
+) 
+$ 
+(13,614 
+) 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the
+amount
+required, if any, under the Employee Retirement Income Security Act of
+1974. RPC
+contributed $2,600,000 in 2006 and $1,600,000 in 2005. 
+The
+components of net periodic benefit cost are summarized as follows: 
+Years
+ended December 31, 
+2006
+2005
+2004 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest
+cost on projected benefit obligation 
+1,705 
+1,744 
+1,747 
+Expected
+return on plan assets 
+(1,888 
+) 
+(1,714 
+) 
+(1,445 
+) 
+Amortization
+of net loss (gain) 
+998 
+1,054 
+922 
+Net
+periodic benefit cost 
+$ 
+815 
+$ 
+1,084 
+$ 
+1,224 
+The
+Company recorded a (decrease) increase to the pre-tax minimum pension liability
+of $(3,627,000) in 2006 and $1,592,000 in 2005. There were no previously
+unrecognized prior service costs as of December 31, 2006 and 2005. The
+pre-tax
+amounts recognized in other comprehensive income at December 31, 2006 are
+summarized as follows: 
+(in
+thousands) 
+2006
+Net
+loss (gain) 
+$ 
+(2,629 
+) 
+Amortization
+of net (loss) gain 
+(998 
+) 
+Net
+transition obligation (asset) 
+— 
+Amount
+recognized in other comprehensive income 
+$ 
+(3,627 
+) 
+The
+amounts in accumulated other comprehensive income expected to be recognized
+as
+components of net periodic benefit cost in 2007 are as follows: 
+(in
+thousands) 
+2006
+Amortization
+of net loss (gain) 
+$ 
+873 
+Prior
+service cost (credit) 
+— 
+Net
+transition obligation (asset) 
+— 
+Estimated
+net periodic cost 
+$ 
+873 
+47 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+The
+weighted average assumptions as of December 31 used to determine the projected
+benefit obligation and net benefit cost were as follows: 
+December
+31, 
+2006 
+2005 
+2004 
+Projected
+Benefit Obligation : 
+Discount
+rate 
+5.50 
+% 
+5.50 
+% 
+5.75 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+5.50 
+% 
+5.75 
+% 
+6.25 
+% 
+Expected
+return on plan assets 
+8.00 
+% 
+8.00 
+% 
+8.00 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser.
+It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate
+of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of
+eight
+percent is reasonable. 
+At
+December 31, 2006 and 2005, the Plan’s assets were comprised of listed common
+stocks and U.S. Government and corporate securities. The Plan’s weighted average
+asset allocation at December 31, 2006 and 2005 by asset category along with
+the
+target allocation for 2007 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2007 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2006 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2005
+Equity
+Securities 
+48.1% 
+49.6% 
+48.3% 
+Debt
+Securities — Core Fixed Income 
+28.3% 
+28.6% 
+28.7% 
+Tactical
+— Fund of Equity and Debt Securities 
+5.4% 
+5.4% 
+2.6% 
+Real
+Estate 
+5.4% 
+5.5% 
+5.4% 
+Other 
+12.8% 
+10.9% 
+15.0% 
+Total 
+100.0% 
+100.0% 
+100.0% 
+The
+Company’s investment strategy for its defined benefit pension plan is to
+maximize the long-term rate of return on plan assets within an acceptable level
+of risk in order to minimize the cost of providing pension benefits. The
+investment policy establishes a target allocation for each asset class, which
+is
+rebalanced as required. The Company utilizes a number of investment approaches,
+including individual marketable securities, equity and fixed income funds in
+which the underlying securities are marketable, and debt funds to achieve this
+target allocation. The Company expects to contribute approximately $4,750,000
+to
+the defined benefit pension plan in 2007 and does not expect to receive a refund
+in 2007. 
+48 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+The
+Company estimates that the future benefits payable for the defined benefit
+pension plan over the next ten years are as follows: 
+(in
+thousands) 
+2007 
+$ 
+1,440 
+2008 
+1,545 
+2009 
+1,588 
+2010 
+1,647 
+2011 
+1,661 
+2012-2016 
+9,417 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially
+all full-time employees with more than three months of service. This plan
+allows employees to make tax-deferred contributions from one to 25 percent
+of
+their annual compensation, not exceeding the permissible contribution imposed
+by
+the Internal Revenue Code. RPC matches 50 percent of each employee’s
+contributions that do not exceed six percent of the employee’s compensation, as
+defined by the plan. Employees vest in the RPC contributions after three years
+of service. The charges to expense for the Company’s contributions to the 401(k)
+plan were approximately $1,500,000 in 2006, $1,150,000 in 2005 and $990,000
+in
+2004. 
+Stock
+Incentive Plans 
+The
+Company has issued stock options and restricted stock to employees under two
+10
+year stock incentive plans that were approved by shareholders in 1994 and 2004.
+The 1994 plan expired in 2004. The Company reserved 5,062,500 shares of common
+stock under the 2004 Plan which expires ten years from the date of approval.
+This plan provides for the issuance of various forms of stock incentives,
+including, among others, incentive and non-qualified stock options and
+restricted stock which are discussed in detail below. As of December 31, 2006,
+there were 3,854,818 shares available for grants. 
+As
+previously noted, the Company adopted the provisions of SFAS 123(R),
+“Share-Based Payments”, effective January 1, 2006. As permitted by SFAS 123(R),
+the Company has elected to use the modified prospective transition method and
+therefore financial results for prior periods have not been restated. Under
+this
+transition method, we will apply the provisions of SFAS 123(R) to new awards
+and
+the awards modified, repurchased, or cancelled after January 1, 2006.
+Additionally, the Company will recognize compensation expense for the unvested
+portion of awards outstanding over the remainder of the service period. The
+compensation cost recorded for these awards will be based on their fair value
+at
+grant date as calculated for the pro forma disclosures required by Statement
+123
+less the cost of estimated forfeitures. SFAS 123(R) requires forfeitures to
+be
+estimated at the time of grant and revised, if necessary, in subsequent periods
+to reflect actual forfeitures. SFAS 123(R) also requires that cash flows related
+to share-based payment awards to employees that result in tax benefits in excess
+of recognized cumulative compensation cost (excess tax benefits) be classified
+as financing cash flows. 
+Pre-tax
+stock-based employee compensation expense was $2,384,000 ($1,722,000 after
+tax)
+for 2006, $1,261,000 ($781,000 after tax) for 2005 and $636,000 ($510,000 after
+tax) for 2004. As a result of the adoption of SFAS 123(R), financial results
+were lower than under the previous accounting method for share-based
+compensation by the following amounts: 
+(In
+thousands) 
+Year
+Ended 
+December
+31, 2006 
+Earnings
+before income taxes 
+$ 
+691 
+Net
+earnings 
+$ 
+673 
+Basic
+net earnings per common share 
+$ 
+0.01 
+Diluted
+net earnings per common share 
+$ 
+0.01 
+As
+a
+result of the adoption of SFAS 123(R), basic earnings per share decreased from
+$1.17 to $1.16 and diluted earnings per share decreased from $1.14 to $1.13
+for
+the year ended December 31, 2006. 
+49 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+The
+following table illustrates the effect on net income and net income per common
+share as if the Company had applied the fair value recognition provisions of
+SFAS 123 to stock-based compensation for the years ended December 31, 2005
+and
+2004: 
+Years
+ended December 31, 
+2005 
+2004 
+(in
+thousands) 
+Net
+income — as reported 
+$ 
+66,484 
+$ 
+34,773 
+Add:
+Stock-based employee compensation expense included in reported net
+income,
+net of related tax effect 
+781 
+510 
+Deduct:
+Total stock-based employee compensation expense determined under
+fair
+value based method for all awards, net of related tax
+effect 
+(1,859 
+) 
+(1,193 
+) 
+Pro
+forma net income 
+$ 
+65,406 
+$ 
+34,090 
+Pro
+forma income per share would have been as follows: 
+Basic
+- as reported 
+$ 
+0.70 
+$ 
+0.36 
+Basic
+- pro forma 
+$ 
+0.69 
+$ 
+0.36 
+Diluted
+- as reported 
+$ 
+0.67 
+$ 
+0.36 
+Diluted
+- pro forma 
+$ 
+0.66 
+$ 
+0.35 
+Stock
+Options 
+Stock
+options are granted at an exercise price equal to the fair market value of
+the
+Company’s common stock at the date of grant except for grants of incentive stock
+options to owners of greater than 10 percent of the Company’s voting securities
+which must be made at 110 percent of the fair market value of the Company’s
+common stock. Options generally vest ratably over a period of five years
+and
+expire in 10 years, except incentive stock options granted to owners of greater
+than 10 percent of the Company’s voting securities, which expire in five years.
+As
+prescribed by SFAS 123(R), the Company estimates the
+fair value of stock options as of the date of grant using the Black-Scholes
+option pricing model. For options granted during 2003, the latest year for
+which
+the Company granted stock options, the weighted average assumptions used
+in the
+Black-Scholes option pricing model were as follows: 
+Risk-free
+interest rate 
+1.1 
+% 
+Expected
+dividend yield 
+1 
+% 
+Expected
+lives 
+7
+years 
+Expected
+volatility 
+43-46 
+% 
+Transactions
+involving RPC’s stock options for the year ended December 31, 2006 were as
+follows: 
+Shares 
+Weighted
+Average 
+Exercise
+Price 
+Weighted 
+Average 
+Remaining 
+Contractual
+Life 
+Aggregate 
+Intrinsic 
+Value 
+Outstanding
+at January 1, 2006 
+3,493,666 
+$ 
+3.09 
+5.40
+years 
+Granted 
+— 
+— 
+N/A 
+Exercised 
+(841,954 
+) 
+3.09 
+N/A 
+Forfeited 
+(179,866 
+) 
+3.14 
+N/A 
+Expired 
+— 
+— 
+N/A 
+Outstanding
+at December 31, 2006 
+2,471,846 
+$ 
+3.10 
+4.41
+years 
+$ 
+34,062,000 
+Exercisable
+at December 31, 2006 
+1,785,034 
+$ 
+3.17 
+3.89
+years 
+$ 
+24,473,000 
+50 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+The
+Company has not granted stock options to employees since 2003. The total
+intrinsic value of stock options exercised was approximately $12,468,000 during
+2006, $4,644,000 during 2005 and $1,605,000 during 2004. There were no
+recognized excess tax benefits associated with the exercise of stock options
+during 2006, 2005 and 2004, since all of the stock options exercised were
+incentive stock options which do not generate tax deductions for the
+Company. 
+Restricted
+Stock 
+The
+Company has granted employees two forms of restricted stock: time lapse
+restricted and performance restricted. 
+Time
+Lapse restricted shares 
+Time
+lapse restricted shares vest after a stipulated number of years from the grant
+date, depending on the terms of the issue. Time lapse restricted shares issued
+in years 2003 and prior vest after ten years. Time lapse restricted shares
+issued subsequent to fiscal year 2003 vest in 20 percent increments annually
+starting with the second anniversary of the grant, over six years from the
+date
+of grant. Grantees receive dividends declared and retain voting rights for
+the
+granted shares. 
+Performance
+restricted shares 
+The
+performance restricted shares are granted, but not earned and issued until
+certain five-year tiered performance criteria are met. The performance criteria
+are predetermined market prices of RPC’s common stock. On the date the common
+stock appreciates to each level (determination date), 20 percent of performance
+shares are earned. Once earned, the performance shares vest five years from
+the
+determination date. After the determination date, the grantee will receive
+dividends declared and voting rights to the shares. 
+The
+agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the stock plans have lapsed. Upon termination of employment from RPC
+or,
+in certain cases, termination of employment from Marine Products or Chaparral,
+shares with restrictions must be returned to RPC. 
+The
+following is a summary of the changes in non-vested restricted shares for the
+year ended December 31, 2006: 
+Shares 
+Weighted
+Average 
+Grant-Date
+Fair Value 
+Non-vested
+shares at January 1, 2006 
+1,853,985 
+$ 
+4.44 
+Granted 
+250,350 
+22.32 
+Vested 
+(282,250 
+) 
+3.25 
+Forfeited 
+(384,226 
+) 
+4.75 
+Non-vested
+shares at December 31, 2006 
+1,437,859 
+$ 
+7.70 
+The
+total
+fair value of shares vested was approximately $5,380,000 during 2006, $527,000
+during 2005 and $1,326,000 during 2004. The tax benefit for compensation tax
+deductions in excess of compensation expense was credited to capital in excess
+of par value aggregating $1,325,000 for 2006, $53,000 for 2005 and $208,000
+for
+2004. The excess tax deductions during the year ended December 31, 2006 are
+classified as financing cash flows in accordance with SFAS 123(R). 
+Other
+Information 
+As
+of
+December 31, 2006, total unrecognized compensation cost related to non-vested
+restricted shares was approximately $9,287,000 which is expected to be
+recognized over a weighted-average period of 3.37 years. Unearned compensation
+cost associated with non-vested restricted shares of $5,391,000 previously
+reflected as deferred compensation in stockholders’ equity at January 1, 2006
+was reclassified to capital in excess of par value as required by SFAS 123(R).
+As of December 31, 2006, total unrecognized compensation cost related to
+non-vested stock options was approximately $464,000 which is expected to be
+recognized over a weighted-average period of 1.06 years. 
+The
+Company received cash from options exercised of $1,341,000 during 2006,
+$1,060,000 during 2005 and $421,000 during 2004. These cash receipts are
+classified as financing cash flows in the accompanying consolidated statements
+of cash flows. The fair value of shares tendered to exercise employee stock
+options totaled approximately $1,240,000 during 2006, $1,138,000 during 2005
+and
+$602,000 during 2004 have been excluded from the consolidated statements of
+cash
+flows. 
+51 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Note
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $739,000
+in 2006, $616,000 in 2005 and $546,000 in 2004. The
+Company’s receivable due from Marine Products for these services as of December
+31, 2006 and 2005 was approximately $236,000 and $66,000. The
+Company’s directors are also directors of Marine Products and all of the
+executive officers are employees of both the Company and Marine Products.
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $1,248,000 in 2006, $926,000 in 2005
+and
+$529,000 in 2004. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and rent
+totaled to $70,000 in 2006, $71,000 in 2005 and $76,000 in 2004. 
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+segments — Technical Services and Support Services — because of the similarities
+between the financial performance and approach to managing the service lines
+within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. The Other business segment includes
+information concerning RPC’s business units that do not qualify for separate
+segment reporting. These business units include an interactive training software
+developer, prior to its disposition in May 2005, and an overhead crane
+fabricator, prior to its disposition in April 2004. Corporate includes selected
+administrative costs incurred by the Company. 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. These services include pressure pumping services,
+snubbing, coiled tubing, nitrogen pumping, well control consulting and
+firefighting, down-hole tools, wireline, and fluid pumping services. These
+Technical Services are primarily used in the completion, production and
+maintenance of oil and gas wells. The principal markets for this segment include
+the United States, including the Gulf of Mexico, the mid-continent, southwest
+and Rocky Mountain regions, and international locations including primarily
+Africa, Canada, China, Latin America and the Middle East. Customers include
+major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies. 
+52 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, and oilfield training services. The demand
+for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico and the mid-continent regions, and
+international locations, including primarily Canada, Latin America, and the
+Middle East. Customers include domestic operations of major multi-national
+and
+independent oil and gas producers, and selected nationally-owned oil
+companies. 
+In
+August
+of 2005, RPC generated approximately $15.7 million in cash proceeds related
+to
+the sale of certain assets of its hammer, casing, laydown and casing torque-turn
+service lines with a net book value of approximately $5.0 million. These service
+lines, previously reported in the Technical Services segment, were closely
+integrated with the operations of other Company service lines. Therefore, the
+pre-tax gain of $10.7 million on this sale has been included in the gain on
+disposition of assets, net. 
+The
+accounting policies of the reportable segments are the same as those described
+in Note 1 to these consolidated financial statements. RPC evaluates the
+performance of its segments based on revenues, operating profits and return
+on
+invested capital. Gains or losses on disposition of assets are reviewed by
+the
+Company’s chief decision maker on a consolidated basis, and accordingly the
+Company does not report gains or losses at the segment level. Inter-segment
+revenues are generally recorded in segment operating results at prices that
+management believes approximate prices for arm’s length transactions and are not
+material to operating results. 
+53 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2006, 2005 and 2004 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended
+December 31, 2006, 2005 and 2004 are shown in the following table. 
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Gain
+on disposition of assets, net 
+Total 
+(in
+thousands) 
+2006 
+Revenues 
+$ 
+495,090 
+$ 
+101,540 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+596,630 
+Operating
+profit (loss) 
+153,126 
+30,953 
+— 
+(12,248 
+) 
+5,969 
+177,800 
+Capital
+expenditures 
+125,138 
+28,902 
+— 
+5,791 
+— 
+159,831 
+Depreciation
+and amortization 
+31,805 
+13,974 
+— 
+932 
+— 
+46,711 
+Identifiable
+assets 
+320,637 
+125,627 
+— 
+28,043 
+— 
+474,307 
+2005 
+Revenues 
+$ 
+363,139 
+$ 
+64,487 
+$ 
+17 
+$ 
+— 
+$ 
+— 
+$ 
+427,643 
+Operating
+profit (loss) 
+84,048 
+11,990 
+(273 
+) 
+(10,221 
+) 
+12,169 
+97,713 
+Capital
+expenditures 
+43,626 
+28,280 
+— 
+902 
+— 
+72,808 
+Depreciation
+and amortization 
+27,510 
+10,453 
+— 
+1,166 
+— 
+39,129 
+Identifiable
+assets 
+192,172 
+88,067 
+— 
+31,546 
+— 
+311,785 
+2004 
+Revenues 
+$ 
+279,070 
+$ 
+56,917 
+$ 
+3,805 
+$ 
+— 
+$ 
+— 
+$ 
+339,792 
+Operating
+profit (loss) 
+47,027 
+8,287 
+(975 
+) 
+(8,550 
+) 
+5,551 
+51,340 
+Capital
+expenditures 
+34,765 
+14,026 
+— 
+1,078 
+— 
+49,869
+Depreciation
+and amortization 
+25,161 
+7,785 
+302 
+1,252 
+— 
+34,500 
+Identifiable
+assets 
+145,196 
+69,399 
+661 
+47,686 
+— 
+262,942
+The
+following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2006, 2005
+and
+2004. The revenues are presented based on the location of the use of the product
+or service. Assets related to international operations are less than 10 percent
+of RPC’s consolidated assets, and therefore are not presented. 
+Years
+ended December 31, 
+2006 
+2005 
+2004 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+566,636 
+$ 
+413,315 
+$ 
+323,910 
+International
+Revenues 
+29,994 
+14,328 
+15,882
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+54 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial
+Disclosure 
+None.
+Item
+9A. Controls and Procedures 
+Evaluation
+of disclosure controls and procedures - 
+The
+Company maintains disclosure controls and procedures that are designed to ensure
+that information required to be disclosed in its Exchange Act reports is
+recorded, processed, summarized and reported within the time periods specified
+in the Commission’s rules and forms, and that such information is accumulated
+and communicated to its management, including the Chief Executive Officer and
+Chief Financial Officer, as appropriate, to allow timely decisions regarding
+required disclosure. 
+As
+of the
+end of the period covered by this report, December 31, 2006 (the “Evaluation
+Date”), the Company carried out an evaluation, under the supervision and with
+the participation of its management, including the Chief Executive Officer
+and
+Chief Financial Officer, of the effectiveness of the design and operation of
+its
+disclosure controls and procedures. Based upon this evaluation, the Chief
+Executive Officer and the Chief Financial Officer concluded that the Company’s
+disclosure controls and procedures were effective at a reasonable assurance
+level as of the Evaluation Date. 
+Management’s
+report on internal control over financial reporting — Management is
+responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
+and
+15d-15(f). Management’s report on internal control over financial reporting is
+included on page 28 of this report. Grant Thornton LLP, the Company’s
+independent registered public accounting firm, has audited management’s
+assessment of the effectiveness of internal control as of December 31, 2006
+and
+issued a report thereon which is included on page 29 of this report.
+Changes
+in internal control over financial reporting - 
+Management’s evaluation of changes in internal control did not identify any
+changes in the Company’s internal control over financial reporting that occurred
+during the Company’s most recent fiscal quarter that have materially affected,
+or are reasonably likely to materially affect, the Company’s internal control
+over financial reporting. 
+Item
+9B. Other Information 
+None.
+55 
+PART
+III 
+Item
+10. Directors, Executive Officers and Corporate Governance
+Information
+concerning directors and executive officers will be included in the RPC Proxy
+for its 2007 Annual Meeting of Stockholders, in the section titled “Election of
+Directors.” This information is incorporated herein by reference. Information
+about executive officers is contained on page 12 of this document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial
+Expert(s) will be included in the RPC Proxy Statement for its 2007 Annual
+Meeting of Stockholders, in the section titled “Corporate Governance and Board
+of Directors, Committees and Meetings - Audit Committee.” This information is
+incorporated herein by reference. 
+Code
+of Ethics 
+RPC,
+Inc.
+has a Code of Business Conduct that applies to all employees. In addition,
+the
+Company has a Supplemental Code of Business Conduct and Ethics for Directors,
+the Principal Executive Officer and Principal Financial and Accounting Officer.
+Both of these documents are available on the Company’s website at www.rpc.net .
+Copies
+are available at no charge by writing to Attention: Human Resources, RPC Inc.,
+2801 Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included
+under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2007 Annual Meeting of Stockholders, which is
+incorporated herein by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning director and executive compensation will be included in the RPC
+Proxy
+Statement for its 2007 Annual Meeting of Stockholders, in the sections titled
+“Compensation Committee Interlocks and Insider Participation,” “Director
+Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee
+Report” and “Executive Compensation.” This information is incorporated herein by
+reference. 
+Item
+12. Security Ownership of Certain Beneficial Owners and Management and Related
+Stockholder Matters 
+Information
+concerning security ownership will be included in the RPC Proxy Statement for
+its 2007 Annual Meeting of Stockholders, in the sections “Capital Stock” and
+“Election of Directors.” This information is incorporated herein by reference.
+Securities
+Authorized for Issuance Under Equity Compensation Plans 
+The
+following table sets forth certain information regarding equity compensation
+plans as of December 31, 2006. 
+56 
+Plan
+Category 
+(A) 
+Number
+of Securities 
+To
+Be Issued Upon 
+Exercise
+of 
+Outstanding
+Options, 
+Warrants
+and Rights 
+(B) 
+Weighted
+Average Exercise 
+Price
+of Outstanding 
+Options,
+Warrants and 
+Rights 
+(C) 
+Number
+of Securities 
+Remaining
+Available for 
+Future
+Issuance Under 
+Equity
+Compensation 
+Plans
+(Excluding 
+Securities
+Reflected in 
+Column
+(A)) 
+Equity
+compensation plans approved by securityholders 
+2,471,846 
+$ 
+3.10 
+3,854,818
+(1) 
+Equity
+compensation plans not approved by securityholders 
+— 
+— 
+— 
+Total 
+2,471,846 
+$ 
+3.10 
+3,854,818 
+(1) 
+All
+of the securities can be issued in the form of restricted stock or
+other
+stock awards. 
+See
+Note
+10 to the Consolidated Financial Statements for information regarding the
+material terms of the equity compensation plans. 
+Item
+13. Certain Relationships and Related Party Transactions and Director
+Independence 
+Information
+concerning certain relationships and related party transactions will be included
+in the RPC Proxy Statement for its 2007 Annual Meeting of Stockholders, in
+the
+section titled, “Certain Relationships and Related Party
+Transactions.” Information
+regarding director independence will be included in the RPC Proxy Statement
+for
+its 2007 Annual Meeting of Stockholders in the section titled “Director
+Independence and NYSE Requirements.” This
+information is incorporated herein by reference. 
+Item
+14. Principal Accounting Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section
+titled “Independent Registered Public Accountants” in the RPC Proxy Statement
+for its 2007 Annual Meeting of Stockholders. This information is incorporated
+herein by reference. 
+57 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated
+Financial Statements, Financial Statement Schedule and Exhibits .
+1. 
+Consolidated
+financial statements listed in the accompanying Index to Consolidated
+Financial Statements and Schedule are filed as part of this report.
+2. 
+The
+financial statement schedule listed in the accompanying Index
+to
+Consolidated Financial Statements and Schedule is filed as part
+of this
+report. 
+3. 
+Exhibits
+listed in the accompanying Index to Exhibits are filed as part of
+this
+report. The following such exhibits are management contracts or
+compensatory plans or arrangements:
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix
+B to
+the Registrant’s definitive Proxy Statement filed on March 24, 2004).
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference
+to
+Exhibit 10.1 to Form 10-Q filed on November 2, 2004).
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004).
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.3 to Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive Officers as of
+February 28, 2006 (incorporated by reference to Exhibit 10.9 to the
+Form
+10-K filed on March 13, 2006). 
+10.10 
+Summary
+of compensation arrangements with the Directors as of February 28,
+2005
+(incorporated herein by reference to Exhibit 10.10 to the Form 10-K
+filed
+on March 16, 2005). 
+10.11 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11
+to the
+Form 10-K filed on March 16, 2005). 
+10.12 
+Summary
+of ‘At-Will’ compensation arrangements with the Executive Officers as of
+February 28, 2007. 
+10.13 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2007. 
+10.14 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan. 
+10.15 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28,
+2007). 
+58 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number
+Description
+3.1A
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by
+reference to exhibit 3.1 to the Annual Report on Form 10-K for the
+fiscal
+year ended December 31, 1999). 
+3.1B
+Certificate
+of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated
+by
+reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q
+filed May
+8, 2006). 
+3.2
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.2 to
+the Form
+10-Q filed on May 5, 2004). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual
+Report on Form 10-K for the fiscal year ended December 31, 1998).
+10.1
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix
+B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February
+12,
+2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K
+filed
+on February 13, 2001). 
+10.3
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc.,
+Chaparral Boats, Inc. and Marine Products Corporation (incorporated
+herein
+by reference to Exhibit 10.3 to the Form 10-K filed on February 13,
+2001).
+10.4
+Transition
+Support Services Agreement dated February 12, 2001 by and between
+RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference
+to
+Exhibit 10.4 to the Form 10-K filed on February 13, 2001).
+10.5
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc.
+and
+Marine Products Corporation (incorporated herein by reference to
+Exhibit
+10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference
+to
+Exhibit 10.1 to the Form 10-Q filed on November 2,
+2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive Officers as of
+February 28, 2006 (incorporated by reference to Exhibit 10.9 to the
+Form
+10-K filed on March 13, 2006). 
+10.10 
+Summary
+of compensation arrangements with the Directors as of February 28,
+2005
+(incorporated herein by reference to Exhibit 10.10 to the Form 10-K
+filed
+on March 16, 2005). 
+10.11 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11
+to the
+Form 10-K filed on March 16, 2005). 
+10.12 
+Summary
+of ‘At-Will’ compensation arrangements with the Executive Officers as of
+February 28, 2007. 
+10.13 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2007. 
+10.14 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan. 
+10.15 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28, 2007). 
+10.16 
+Revolving
+Credit Agreement dated September 8, 2006 between RPC, Banc of America,
+N.A., SunTrust Bank and certain other Lenders party thereto (incorporated
+by reference to Exhibit 99.1 to the Form 8-K dated September 8,
+2006). 
+21 
+Subsidiaries
+of RPC 
+23 
+Consent
+of Grant Thornton LLP 
+24 
+Powers
+of Attorney for Directors 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial
+Officer 
+59 
+SIGNATURES
+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. 
+RPC,
+Inc. 
+/s/
+Richard
+A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+2, 2007 
+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. 
+Name 
+Title 
+Date
+/s/
+Richard
+A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+2, 2007 
+/s/
+Ben
+M. Palmer 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+March
+2, 2007 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard
+A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R.
+Randall Rollins, Director 
+James
+B. Williams, Director 
+Wilton
+Looney, Director 
+James
+A. Lane, Jr., Director 
+Gary
+W. Rollins, Director 
+Linda
+H. Graham, Director 
+Henry
+B. Tippie, Director 
+Bill
+J. Dismuke, Director 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+March
+2, 2007 
+60 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The
+following documents are filed as part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management’s
+Report on Internal Control Over Financial Reporting 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control
+Over
+Financial Reporting 
+29 
+Report
+of Independent Registered Public Accounting Firm on Consolidated
+Financial
+Statements 
+30 
+Consolidated
+Balance Sheets as of December 31, 2006 and 2005 
+31 
+Consolidated
+Statements of Operations for the three years ended December 31,
+2006 
+32 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31,
+2006 
+33 
+Consolidated
+Statements of Cash Flows for the three years ended December 31,
+2006 
+34 
+Notes
+to Consolidated Financial Statements 
+35
+- 54 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying Accounts 
+61 
+Schedules
+not listed above have been omitted because they are not applicable or the
+required information is included in the consolidated financial statements or
+notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+For
+the years ended 
+December
+31, 2006, 2005 and 2004 
+(in
+thousands) 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net
+(Deductions)Recoveries 
+Balance 
+at
+End of 
+Period 
+Year
+ended December 31, 2006 
+Allowance
+for doubtful accounts 
+$ 
+4,080 
+$ 
+1,492 
+$ 
+(668 
+) 
+(1) 
+$ 
+4,904 
+Deferred
+tax asset valuation allowance 
+$ 
+1,945 
+$ 
+54 
+$ 
+(657 
+) 
+(2) 
+$ 
+1,342 
+Year
+ended December 31, 2005 
+Allowance
+for doubtful accounts 
+$ 
+2,576 
+$ 
+1,618 
+$ 
+(114 
+) 
+(1) 
+$ 
+4,080 
+Deferred
+tax asset valuation allowance 
+$ 
+2,451 
+$ 
+129 
+$ 
+(635 
+) 
+(2) 
+$ 
+1,945 
+Year
+ended December 31, 2004 
+Allowance
+for doubtful accounts 
+$ 
+2,539 
+$ 
+1,155 
+$ 
+(1,118 
+) 
+(1) 
+$ 
+2,576 
+Inventory
+reserves 
+$ 
+134 
+$ 
+– 
+$ 
+(134 
+) 
+(3) 
+$ 
+– 
+Deferred
+tax asset valuation allowance 
+$ 
+977 
+$ 
+190 
+$ 
+1,284 
+(2) 
+$ 
+2,451 
+(1) 
+Deductions
+in the allowance for doubtful accounts principally reflect the write-off
+of previously reserved accounts net of recoveries.
+(2) 
+In
+2006, the valuation allowance was increased by $54,000 to reflect
+state
+net operating losses that Management does not believe will be utilized
+before they expire, and reduced by $657,000 to reflect previously
+reserved
+foreign tax credit carryforwards expected to be realized. In 2005,
+the
+valuation allowance was increased by $129,000 to reflect state net
+operating losses that Management does not believe will be utilized
+before
+they expire, and reduced by $635,000 to reflect previously reserved
+foreign tax credit carryforwards expected to be realized. In 2004,
+the
+valuation allowance was increased $1,292,000 to reflect foreign tax
+credit
+carryforwards on a gross rather than a net basis. The amount includes
+an
+addition of $1,770,000 representing previously un-utilized foreign
+tax
+credits generated in prior years, and a deduction of $478,000 for
+those
+credits utilized during 2004. 
+(3) 
+Deductions
+in the reserve for inventory obsolescence and adjustment principally
+reflect the sale or disposal of related inventory. Balance represented
+allowance for inventory held by a subsidiary which was sold during
+the
+second quarter of 2004. 
+61 
+SELECTED
+QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+2006 
+Revenues
+$ 
+136,024 
+$ 
+146,065 
+$ 
+154,209 
+$ 
+160,332 
+Net
+income 
+$ 
+24,900 
+$ 
+27,614 
+$ 
+28,770 
+$ 
+29,510 
+Net
+income per share — basic: 
+$ 
+0.26 
+$ 
+0.29 
+$ 
+0.30 
+$ 
+0.31 
+Net
+income per share — diluted: 
+$ 
+0.25 
+$ 
+0.28 
+$ 
+0.29 
+$ 
+0.30 
+2005 
+Revenues
+$ 
+92,330 
+$ 
+101,945 
+$ 
+115,801 
+$ 
+117,567 
+Net
+income 
+$ 
+9,927 
+$ 
+11,910 
+$ 
+23,107 
+$ 
+21,540 
+(1) 
+Net
+income per share — basic: 
+$ 
+0.10 
+$ 
+0.13 
+$ 
+0.24 
+$ 
+0.23 
+Net
+income per share — diluted: 
+$ 
+0.10 
+$ 
+0.12 
+$ 
+0.23 
+$ 
+0.22 
+(1) 
+(1) 
+The
+fourth quarter of 2005 reflects receipt of $3.1 million in tax refunds
+related to the successful resolution of certain tax matters, which
+had a
+positive impact of $0.03 after tax per diluted share. Also reflected
+during the fourth quarter 2005 is the gain on sale of certain assets
+of
+the hammer, casing, laydown and casing torque-turn service lines
+which
+generated a pre-tax gain of $10.7 million, or $0.07 after-tax gain
+per
+diluted share. 
+62
\ No newline at end of file
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/filing_metadata.csv b/raw/filings/0000742278/2006/0001188112-07-000585/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..8997278f6811cee94245e99ac00b91b0a5f4a702
--- /dev/null
+++ b/raw/filings/0000742278/2006/0001188112-07-000585/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2007-03-02,2006-12-31,2007-03-02T21:15:10.000Z,0001188112-07-000585,t13155_10k.htm,FORM 10-K,2178593,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811207000585/t13155_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811207000585/,2006,2006,1
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/item1.txt b/raw/filings/0000742278/2006/0001188112-07-000585/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/item13.txt b/raw/filings/0000742278/2006/0001188112-07-000585/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/item9a.txt b/raw/filings/0000742278/2006/0001188112-07-000585/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/rp_note.txt b/raw/filings/0000742278/2006/0001188112-07-000585/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0405ec285acefb9a90a22d447667e7ed6921b6a
--- /dev/null
+++ b/raw/filings/0000742278/2006/0001188112-07-000585/rp_note.txt
@@ -0,0 +1,59 @@
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $739,000
+in 2006, $616,000 in 2005 and $546,000 in 2004. The
+Company’s receivable due from Marine Products for these services as of December
+31, 2006 and 2005 was approximately $236,000 and $66,000. The
+Company’s directors are also directors of Marine Products and all of the
+executive officers are employees of both the Company and Marine Products.
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $1,248,000 in 2006, $926,000 in 2005
+and
+$529,000 in 2004. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and rent
+totaled to $70,000 in 2006, $71,000 in 2005 and $76,000 in 2004. 
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2006/0001188112-07-000585/rpt_disclosure.txt b/raw/filings/0000742278/2006/0001188112-07-000585/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0a26d69cdf2dc16ab85c2c7388f24e3be69842d
--- /dev/null
+++ b/raw/filings/0000742278/2006/0001188112-07-000585/rpt_disclosure.txt
@@ -0,0 +1,41 @@
+Related Party Transactions. Copies are also available in print,
+without charge, to any shareholder who requests one by writing to: The
+Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia
+30324. 
+Code
+of Business Conduct 
+The
+Company has adopted a Code of Business Conduct applicable to all directors,
+officers and employees generally, as well as a Code of Business Conduct and
+Ethics for Directors and Executive Officers and Related Party Transaction Policy
+applicable to the principal executive officer, principal financial officer, and
+directors. Both codes are available on the Company’s website at www.rpc.net under the
+Governance section. Copies are also available in print, without
+charge, to any shareholder who requests one by writing to: The Secretary, RPC,
+Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. 
+Director
+Communications 
+The
+Company also has a process for interested parties, including stockholders, to
+send communications to the Board of Directors, Presiding Director, any of the
+Board Committees or the non-management directors as a group. Such
+communications should be addressed as follows: 
+Mr.
+Henry B. Tippie 
+c/o
+Internal Audit Department 
+RPC,
+Inc. 
+2801
+Buford Highway, Suite 520 
+Atlanta,
+Georgia 30329. 
+10 
+The above
+instructions for communications with the directors are also posted on our
+website at www.rpc.net under the
+Governance section. All communications received from interested
+parties are forwarded to the Board of Directors. Any communication
+addressed solely to the Presiding Director or the non-management directors will
+be forwarded directly to the appropriate addressee(s). 
+COMPENSATION
\ No newline at end of file
diff --git a/raw/filings/0000742278/2008/0001188112-09-000487/filing.txt b/raw/filings/0000742278/2008/0001188112-09-000487/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22147b473215fb7e5ee660de19c7257880f89220
--- /dev/null
+++ b/raw/filings/0000742278/2008/0001188112-09-000487/filing.txt
@@ -0,0 +1,6874 @@
+10-K
+1
+t64662_10k.htm
+FORM 10-K
+t64662_10k.htm 
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+FORM
+10-K 
+(Mark
+One) 
+x 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
+1934 
+o 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
+1934 
+For
+the fiscal year ended December 31, 2008 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+(State
+of Incorporation) 
+58-1550825 
+(I.R.S.
+Employer Identification No.) 
+2801
+BUFORD HIGHWAY 
+SUITE 520 
+ATLANTA,
+GEORGIA 30329 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+COMMON
+STOCK, $0.10 PAR VALUE 
+Name
+of each exchange on which registered 
+NEW
+YORK STOCK EXCHANGE 
+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. 
+o Yes x No 
+Indicate
+by check mark if the registrant is not required to file reports pursuant to
+Section 13 or Section 15(d) of the Act. o Yes x No 
+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 o 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K 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. x 
+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 definitions of “large accelerated filer,” “accelerated
+filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
+one): 
+Large
+accelerated filer o 
+Accelerated
+filer x 
+Non-accelerated
+filer o 
+Smaller
+reporting company o 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule
+12b-2 of the Exchange Act). Yes o No x 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June
+30, 2008, the last business day of the registrant’s most recently completed
+second fiscal quarter, was $472,396,172 based on the closing price on the New
+York Stock Exchange on June 30, 2008 of $16.80 per share. 
+RPC, Inc.
+had 98,419,782 shares of Common Stock outstanding as of February 13,
+2009. 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2009 Annual Meeting of Stockholders of RPC, Inc.
+are incorporated by reference into Part III, Items 10 through 14 of this
+report. 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,”
+“us,” “RPC” or “the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are
+“forward-looking statements” under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future. Forward-looking statements made
+elsewhere in this report include without limitation statements regarding our
+belief that the long term prospects for our business are favorable due to
+growing demand for oil and natural gas and declining production of these
+commodities; our belief that the gas - directed drilling will
+represent at least 75 percent of the total drilling rig count in the foreseeable
+future; our belief that drilling activity and demand for our services appears to
+be weakening in the first quarter of 2009; our expectation to continue to focus
+on the development of international business opportunities in current and other
+international markets; our belief that the high returns on our purchases of
+revenue-producing equipment will continue, thus justifying the funding of these
+expenditures with debt; our ability to obtain other customers in the event of a
+loss of our largest customers; the adequacy of our insurance coverage; the
+impact of lawsuits, legal proceedings and claims on our business and financial
+condition; our expectation to continue to pay cash dividends to the common
+stockholders, subject to the earnings and financial condition of the Company and
+other relevant factors; our expectation that our consolidated revenues for 2009
+will decrease compared to 2008; our expectations regarding capital expenditures
+in 2009; our ability to maintain sufficient liquidity and a conservative capital
+structure; our belief that the Company will not make any additional
+contributions to the defined benefit pension plan in 2009; our ability to reduce
+the amount drawn on our credit facility over the course of 2009; our ability to
+fund capital requirements in the future; the adequacy of our liquidity in the
+future; the estimated amount of our capital expenditures and contractual
+obligations for future periods; estimates made with respect to our critical
+accounting policies; and the effect of new accounting standards. 
+The words
+“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and
+similar expressions generally identify forward-looking statements. Such
+statements are based on certain assumptions and analyses made by our management
+in light of its experience and its perception of historical trends, current
+conditions, expected future developments and other factors it believes to be
+appropriate. We caution you that such statements are only predictions and not
+guarantees of future performance and that actual results, developments and
+business decisions may differ from those envisioned by the forward-looking
+statements. See “Risk Factors” contained in Item 1A. for a discussion
+of factors that may cause actual results to differ from our
+projections. 
+Item
+1. Business 
+Organization
+and Overview 
+RPC is a
+Delaware corporation originally organized in 1984 as a holding company for
+several oilfield services companies and is headquartered in Atlanta,
+Georgia. 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among others, (1) pressure pumping services, (2)
+coiled tubing services, (3) snubbing services (also referred to as
+hydraulic workover services), (4) nitrogen services, (5) the rental of drill
+pipe and other specialized oilfield equipment, (6) downhole tool rental services
+and (7) firefighting and well control. RPC acts as a holding company for its
+operating units, Cudd Energy Services, Patterson Rental and Fishing Tools,
+Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and
+others. As of December 31, 2008, RPC had approximately 2,500
+employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+business segments, Technical Services and Support Services, because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. 
+2 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. The demand for these services is generally
+influenced by customers’ decisions to invest capital toward initiating
+production in a new oil or natural gas well, improving production flows in an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, coiled tubing, snubbing, nitrogen, well
+control, downhole tools, wireline, and fishing. The principal markets for this
+business segment include the United States, including the Gulf of Mexico,
+mid-continent, southwest and Rocky Mountain regions, and contract or project
+work in selected international locations in the last three years including
+primarily Africa, Canada, China, Eastern Europe, Latin America and the Middle
+East. Customers include major multi-national and independent oil and gas
+producers, and selected nationally owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling, pipe
+inspection and storage services, and oilfield training services. The demand for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico, mid-continent and Rocky Mountain regions
+and project work in selected international locations in the last three years
+including primarily Canada, Latin America and the Middle East. Customers
+primarily include domestic operations of major multi-national and independent
+oil and gas producers, and selected nationally owned oil companies. 
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within the
+Technical Services business segment: 
+Pressure Pumping . Pressure
+pumping services, which accounted for approximately 41 percent of 2008 revenues,
+40 percent of 2007 revenues and 38 percent of 2006 revenues, are provided to
+customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of
+the United States and are generally utilized to initiate production in new or
+enhance production in existing customer wells. Pressure pumping services involve
+using complex, truck or skid-mounted equipment designed and constructed for each
+specific pumping service offered. The mobility of this equipment permits
+pressure pumping services to be performed in varying geographic areas. Principal
+materials utilized in the pressure pumping business include fracturing
+proppants, acid and bulk chemical additives. Generally, these items are
+available from several suppliers, and the Company utilizes more than one
+supplier for each item. Pressure pumping services offered include: 
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural
+gas by increasing the permeability of a formation. The fracturing process
+consists of pumping nitrogen or a fluid gel into a cased well at sufficient
+pressure to fracture the formation at desired depths. Sand, bauxite or synthetic
+proppant, which is suspended in the gel, is pumped into the fracture. When the
+pressure is released at the surface, the fluid gel returns to the well, but the
+proppant remain in the fracture, thus keeping it open so that oil and natural
+gas can flow through the fracture into the well. In some cases, fracturing is
+performed in formations with a high amount of carbonate rock by an acid solution
+pumped under pressure without a proppant or with small amounts of
+proppant. 
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and
+natural gas, but they are used in wells that have undergone formation damage due
+to the buildup of various materials that block the formation. Acidizing entails
+pumping large volumes of specially formulated acids into reservoirs to dissolve
+barriers and enlarge crevices in the formation, thereby eliminating obstacles to
+the flow of oil and natural gas. Acidizing services can also enhance production
+in limestone formations. 
+Coiled Tubing . Coiled tubing
+services, which accounted for approximately nine percent of 2008 and 2007
+revenues, and 10 percent of 2006 revenues, involve the injection of
+coiled tubing into wells to perform various applications and functions for use
+principally in well-servicing operations. Coiled tubing is a flexible steel pipe
+with a diameter of less than four inches manufactured in continuous lengths of
+thousands of feet and wound or coiled around a large reel. It can be inserted
+through existing production tubing and used to perform workovers without using a
+larger, more costly workover rig. Principal advantages of employing coiled
+tubing in a workover operation include: (i) not having to “shut-in” the well
+during such operations, (ii) the ability to reel continuous coiled tubing in and
+out of a well significantly faster than conventional pipe, (iii) the ability to
+direct fluids into a wellbore with more precision, and (iv) enhanced access to
+remote or offshore fields due to the smaller size and mobility of a coiled
+tubing unit compared to a workover rig. There are several
+manufacturers of flexible steel pipe used in coiled tubing services, and the
+Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also
+referred to as hydraulic workover services), which accounted for approximately
+seven percent of 2008 revenues, 10 percent of 2007 revenues, and 11 percent of
+2006 revenues, involves using a hydraulic workover rig that permits an operator
+to repair damaged casing, production tubing and downhole production equipment in
+a high-pressure environment. A snubbing unit makes it possible to remove and
+replace downhole equipment while maintaining pressure in the well. Customers
+benefit because these operations can be performed without removing the pressure
+from the well, which stops production and can damage the formation, and because
+a snubbing rig can perform many applications at a lower cost than other
+alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry is
+limited to a relatively few operators who have the experience and knowledge
+required to perform such services safely and efficiently. 
+3 
+Nitrogen . Nitrogen accounted
+for approximately eight percent of 2008 revenues, seven percent of 2007
+revenues, and eight percent of 2006 revenues. There are a number of
+uses for nitrogen, an inert, non-combustible element, in providing services to
+oilfield customers and industrial users outside of the oilfield. For our
+oilfield customers, nitrogen can be used to clean drilling and production pipe
+and displace fluids in various drilling applications. It also can be used to
+create a fire-retardant environment in hazardous blowout situations and as a
+fracturing medium for our fracturing service line. In addition, nitrogen can be
+complementary to our snubbing and coiled tubing service lines, because it is a
+non-corrosive medium and is frequently injected into a well using coiled tubing.
+Nitrogen is complementary to our pressure pumping service line as well, because
+foam-based nitrogen stimulation is appropriate in certain sensitive formations
+in which the fluids used in fracturing or acidizing would damage a customer's
+well. 
+For
+non-oilfield industrial users, nitrogen can be used to purge pipelines and
+create a non-combustible environment. RPC stores and transports nitrogen and has
+a number of pumping unit configurations that inject nitrogen in its various
+applications. Some of these pumping units are set up for use on offshore
+platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are
+adequate. 
+Downhole Tools . Thru Tubing
+Solutions (“TTS”) accounted for approximately nine percent of 2008 revenues,
+seven percent of 2007 revenues, and six percent of 2006 revenues. TTS
+provides services and proprietary downhole motors, fishing tools and other
+specialized downhole tools and processes to operators and service companies in
+drilling and production operations, including casing perforation at the
+completion stage of an oil or gas well. The services that TTS
+provides are especially suited for unconventional drilling and completion
+activities. TTS’ experience providing reliable tool services allows
+it to work in a pressurized environment with virtually any coiled tubing unit or
+snubbing unit. 
+Well Control . Cudd Energy
+Services specializes in responding to and controlling oil and gas well
+emergencies, including blowouts and well fires, domestically and
+internationally. In connection with these services, Cudd Energy Services, along
+with Patterson Services, has the capacity to supply the equipment, expertise and
+personnel necessary to restore affected oil and gas wells to production. In the
+last nine years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia,
+Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The
+Company’s professional firefighting staff has many years of aggregate industry
+experience in responding to well fires and blowouts. This team of 11 experts
+responds to well control situations where hydrocarbons are escaping from a well
+bore, regardless of whether a fire has occurred. In the most critical
+situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds
+of thousands of dollars per day in well operators’ production revenue. Since
+these events ordinarily arise from equipment failures or human error, it is
+impossible to predict accurately the timing or scope of this work. Additionally,
+less critical events frequently occur in connection with the drilling of new
+wells in high-pressure reservoirs. In these situations, the Company is called
+upon to supervise and assist in the well control effort so that drilling
+operations can resume as promptly as safety permits. 
+Wireline Services . Wireline
+is classified into two types of services: slick or braided line and electric
+line. In both, a spooled wire is unwound and lowered into a well,
+conveying various types of tools or equipment. Slick or braided line
+services use a non-conductive line primarily for jarring objects into or out of
+a well, as in fishing or plug-setting operations. Electric line
+services lower an electrical conductor line into a well allowing the use of
+electrically-operated tools such as perforators, bridge plugs and logging
+tools. Wireline services can be an integral part of the plug and
+abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the
+use of specialized tools and procedures to retrieve lost equipment from a well
+drilling operation and producing wells. It is a service required by oil and gas
+operators who have lost equipment in a well. Oil and natural gas production from
+an affected well typically declines until the lost equipment can be retrieved.
+In some cases, the Company creates customized tools to perform a fishing
+operation. The customized tools are maintained by the Company after the
+particular fishing job for future use if a similar need arises. 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within the
+Support Services business segment: 
+Rental Tools . Rental tools
+accounted for approximately 11 percent of 2008 revenues, and 13 percent of 2007
+and 2006 revenues. The Company rents specialized equipment for use
+with onshore and offshore oil and gas well drilling, completion and workover
+activities. The drilling and subsequent operation of oil and gas wells generally
+require a variety of equipment. The equipment needed is in large part determined
+by the geological features of the production zone and the size of the well
+itself. As a result, operators and drilling contractors often find it more
+economical to supplement their tool and tubular inventories with rental items
+instead of owning a complete inventory. The Company’s facilities are
+strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico, mid-continent region and Rocky
+Mountains. 
+4 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High
+Pressure Manifolds and Valves 
+Drill
+Pipe 
+Hevi-wate
+Drill Pipe 
+Drill
+Collars 
+Tubing 
+Handling
+Tools 
+Production
+Related Rental Tools 
+Coflexip
+Hoses 
+Pumps 
+Oilfield Pipe Inspection Services,
+Pipe Management and Pipe Storage . Pipe inspection services
+include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe
+used in oil and gas wells. These services are provided at both the Company’s
+inspection facilities and at pipe mills in accordance with negotiated sales
+and/or service contracts. Our customers are major oil companies and steel mills,
+for which we provide in-house inspection services, inventory management and
+process control of tubing, casing, and drill pipe. Our locations in
+Channelview, Texas and Morgan City, Louisiana are equipped with large capacity
+cranes, specially designed forklifts and a computerized inventory system to
+serve a variety of storage and handling services for both the oilfield and
+non-oilfield customers. 
+Well Control School . Well
+Control School provides industry and government accredited training for the oil
+and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats
+including conventional classroom training, interactive computer training
+including training delivered over the internet, and mobile simulator
+training. 
+Energy Personnel
+International . Energy Personnel International provides drilling and
+production engineers, well site supervisors, project management specialists, and
+workover and completion specialists on a consulting basis to the oil and gas
+industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Refer to
+Note 12 in the Notes to the Consolidated Financial Statements for additional
+financial information on our business segments. 
+Industry 
+United States . RPC provides
+its services to its domestic customers through a network of facilities
+strategically located to serve the Gulf of Mexico, the mid-continent, the
+southwest and the Rocky Mountains production fields. Demand for RPC’s services
+in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil and
+gas industry. Customer activity levels are influenced by their decisions about
+capital investment toward the development and production of oil and gas
+reserves. 
+Due to
+aging oilfields and lower-cost sources of oil internationally, the drilling rig
+count in the U.S. has declined by approximately 62 percent from its peak in
+1981. Due to enhanced technology, however, more wells are being drilled and the
+domestic production of oil and natural gas remains roughly equivalent to prior
+years. Record low drilling activity levels were experienced in 1986,
+1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the
+industry’s history) and again in 2002. At the beginning of 2008,
+there were 1,774 domestic working drilling rigs, up 37 percent from the third
+quarter 2001 peak during that industry cycle. U.S. domestic drilling
+activity rose during the first three quarters of 2008 and peaked in the third
+quarter at a rig count of 2,031, which was 57 percent higher than the third
+quarter 2001 peak. In 2008 the average rig count of 1,879 increased
+seven percent compared to the prior year. During 2008 the average
+price of natural gas increased by approximately 27 percent, and the average
+price of oil increased by over 37 percent. However, the price
+of oil fell almost 37 percent during the fourth quarter of 2008 compared to the
+prior year and the price of natural gas fell almost 10 percent during the period
+compared to the prior year. The average domestic rig count was more
+than six percent higher in the fourth quarter of 2008 than the prior
+year. However, it began to fall during the fourth quarter of 2008 as
+declining commodity prices and the global economic slowdown, coupled with
+declining availability of capital for drilling projects, caused industry
+activity levels to decline. The change in domestic drilling activity
+was consistent with the change in the prices of oil and natural
+gas. We are concerned that the current prices of oil and natural gas
+are not high enough to sustain recent exploration and production activity
+levels. However, we also believe, along with our customers, that the
+long term prospects for our business are favorable due to growing demand for oil
+and natural gas and declining production of these commodities. 
+5 
+Gas
+drilling rigs have represented an increasing percentage of the total drilling
+rig count, and have represented at least 75 percent of the drilling rig count
+each year since 2001. In 2008, gas drilling rigs represented 79
+percent of total drilling activity. This percentage, which is lower than in
+previous years, is partly due to the tremendous increase in the price of oil
+that occurred in 2008. Demand for natural gas is continuing to rise,
+primarily as a result of increased emphasis on gas-fired power generation,
+although demand fluctuates in the short term due to factors such as economic
+activity and the weather. Also, unlike oil, foreign imports of natural gas do
+not compete with domestic production. This lack of foreign competition tends to
+keep prices high. Based on current demand levels for natural gas as well as the
+high oil and gas well depletion rates experienced over the past several years,
+it is anticipated that gas-directed drilling will represent at least 75 percent
+of the total drilling rig count in the foreseeable future. The demand for RPC’s
+services is driven more by gas-directed drilling than oil-directed drilling,
+because our services are particularly useful for deeper, higher pressure wells,
+which tend to be the wells that produce natural gas. In addition,
+there are certain types of wells, predominately natural gas, being drilled
+in the U.S. domestic market for which there is a higher demand for RPC’s
+services. Known as either directional or horizontal wells, these
+natural gas wells are more difficult and costly to complete. Because
+they are drilled through a narrow formation, they require additional stimulation
+when they are completed, and since they are not drilled in a straight vertical
+direction from the Earth’s surface, they require tools and drilling mechanisms
+that are flexible, rather than rigid, and can be steered once they are
+downhole. Specifically, these types of wells require RPC’s pressure
+pumping and coiled tubing services, as well as our downhole tools and
+services. 
+Thus, in
+North America the demand for our services and products depends more on natural
+gas than oil development. Drilling activity and demand for our
+services was very strong during the first three quarters of 2008 but decreased
+during the fourth quarter of 2008 and appears to be weakening early in the first
+quarter of 2009. 
+International. RPC has
+historically operated in several countries outside of the United States,
+although international revenues have never accounted for more than 10 percent of
+total revenues. Over the past several years, RPC has continued its
+focus on developing international opportunities, although our equipment
+investments over the last couple of years has emphasized domestic rather than
+international expansion. International revenues for 2008 decreased
+due to lower customer activity levels in Turkmenistan and
+Hungary. During 2008, RPC provided snubbing and oilfield training
+services in Australia, Bolivia, Canada, Egypt, Gabon, Mexico, Oman, Saudi Arabia
+and the United Arab Emirates, among other countries. We also provided rental
+tools, well control services, downhole motors, fishing tool services and
+oilfield training to customers located in Australia, Bolivia and
+Mexico. We continue to focus on the development of international
+opportunities in these and other markets, although we believe that it will
+continue to be less than 10 percent of total revenues. 
+RPC
+provides services to its international customers through branch locations or
+wholly-owned foreign subsidiaries. The international market is prone to
+political uncertainties, including the risk of civil unrest and conflicts.
+However, due to the significant investment requirement and complexity of
+international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard to
+oil and natural gas pricing, and therefore have the potential to be more stable
+than most U.S. domestic operations. Additionally, the international
+market is dominated by major oil companies and national oil companies which tend
+to have different objectives and more operating stability than the typical
+independent oil and gas producer in the U.S. Predicting the timing
+and duration of contract work is not possible. Pursuing selective
+international opportunities for revenue growth continues to be a strong emphasis
+for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for
+further information on our international operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital, thus
+yielding strong cash flow and asset appreciation. This objective continues to be
+pursued through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential. 
+RPC seeks
+to expand its service capabilities through a combination of internal growth,
+acquisitions, joint ventures and strategic alliances. Because of the fragmented
+nature of the oil and gas services industry, RPC believes a number of attractive
+acquisition opportunities exist. However, near-term business
+conditions do not justify sellers’ price expectations, so we believe we generate
+better returns growing organically in service lines and geographic locations in
+which we have experience and presence. 
+6 
+RPC has
+traditionally had a conservative capital structure with minimal
+debt. During 2006, however, we established a new revolving credit
+facility to fund the purchase of revenue-producing equipment and other working
+capital requirements to pursue our growth plan. We pursued this capital source
+because of the high returns on investment that had been generated by many of our
+service lines during the previous several years, and because of the low cost and
+ready availability of debt capital. By 2008, purchases of revenue-producing
+equipment under our growth plan were substantially complete, and we believe that
+the high returns on investment generated by many of our service lines will
+continue, thus justifying the funding of these expenditures with
+debt. At the end of 2008, RPC easily complied with the debt covenants
+in our revolving credit agreement and our level of debt was conservative
+compared to a number of our peers. 
+Customers 
+Demand
+for RPC’s services and products depends primarily upon the number of oil and
+natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of production enhancement
+activity worldwide. RPC’s principal customers consist of major and independent
+oil and natural gas producing companies. During 2008, RPC provided oilfield
+services to several hundred customers, none of which accounted for more than 10
+percent of consolidated revenues. While the loss of certain of RPC’s largest
+customers could have a material adverse effect on Company revenues and operating
+results in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers. Sales are generated by RPC’s sales force and through referrals from
+existing customers. There are long-term written contracts for services and
+equipment with certain international and domestic customers, although revenues
+earned under such contracts are a small percentage of total revenues. Due to the
+short lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog in most of our
+service lines. 
+Competition 
+RPC
+operates in highly competitive areas of the oilfield services industry. RPC’s
+products and services are sold in highly competitive markets, and its revenues
+and earnings are affected by changes in prices for our services, fluctuations in
+the level of customer activity in major markets, general economic conditions and
+governmental regulation. RPC competes with many large and small oilfield
+industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market
+areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The oil
+and gas services industry includes a small number of dominant global competitors
+including, among others, Halliburton Energy Services Group, a division of
+Halliburton Company, BJ Services Company and Schlumberger Ltd., and a
+significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s
+equipment consists primarily of oil and gas services equipment used either in
+servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned. RPC purchases
+oilfield service equipment from a limited number of
+manufacturers. These manufacturers of our oilfield service equipment
+may not be able to meet our requests for timely delivery during periods of high
+demand which may result in delayed deliveries of equipment and higher prices for
+equipment. 
+RPC both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC’s principal
+executive offices in Atlanta, Georgia are leased. The Company has two primary
+administrative buildings, one in Houston, Texas that includes the Company’s
+operations, engineering, sales and marketing headquarters, and one in Houma,
+Louisiana that includes certain administrative functions. RPC believes that its
+facilities are adequate for its current operations. For additional
+information with respect to RPC’s lease commitments, see Note 9 of the Notes to
+Consolidated Financial Statements. 
+Governmental
+Regulation 
+RPC’s
+business is affected by state, federal and foreign laws and other regulations
+relating to the oil and gas industry, as well as laws and regulations relating
+to worker safety and environmental protection. RPC cannot predict the level of
+enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on it,
+its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers’ activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our
+services. 
+7 
+Intellectual
+Property 
+RPC uses
+several patented items in its operations, which management believes are
+important but are not indispensable to RPC’s success. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the
+technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability
+of Filings 
+RPC makes
+available, free of charge, on its website, www.rpc.net, its annual report on
+Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
+amendments to those reports on the same day as they are filed with the
+Securities and Exchange Commission. 
+1A.
+Risk Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural
+gas prices. 
+Oil
+prices affect demand throughout the oil and natural gas industry, including the
+demand for our products and services. Our business depends in large part on the
+conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers’ demand
+for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected
+by changing prices, and, as a result, less volatile than the exploration sector,
+producers react to declining oil and gas prices by curtailing capital spending,
+which would adversely affect our business. A prolonged low level of customer
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of
+operations. 
+The
+relationship between the prices of oil and natural gas and our customers’
+drilling and production activities may not be highly correlated in the
+future. 
+Historically,
+fluctuations in the prices of oil and natural gas have led to immediate
+corresponding changes in our customers’ drilling and production activities as
+measured by the domestic rig count. This relationship was very strong in 2008
+and recent years, although it was not as strong several years ago. If this
+correlation is weak in the future, then it is possible that increases in the
+prices of oil and natural gas will not lead to an increase in our customers’
+activities, and our future operating results could be negatively
+impacted. 
+We
+may be unable to compete in the highly competitive oil and gas industry in the
+future. 
+We
+operate in highly competitive areas of the oilfield services industry. The
+products and services in our industry segments are sold in highly competitive
+markets, and our revenues and earnings have in the past been affected by changes
+in competitive prices, fluctuations in the level of activity in major markets
+and general economic conditions. We compete with the oil and gas industry’s many
+large and small industry competitors, including the largest integrated oilfield
+service providers. We believe that the principal competitive factors in the
+market areas that we serve are product and service quality and availability,
+reputation for safety, technical proficiency and price. Although we believe that
+our reputation for safety and quality service is good, we cannot assure you that
+we will be able to maintain our competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and may continue to be a key element of our business strategy. We
+cannot assure you that we will be able to identify and acquire acceptable
+acquisition candidates on terms favorable to us in the future. We may be
+required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to integrate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+8 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic
+regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent and the
+Rocky Mountains. Hurricanes and other storms prevalent in the Gulf of Mexico and
+along the Gulf Coast during certain times of the year may also affect our
+operations, and severe hurricanes may affect our customers' activities for a
+period of several years. While the impact of these storms may
+increase the need for certain of our services over a longer period of time, such
+storms can also decrease our customers' activities immediately after they
+occur. Such hurricanes may also affect the prices of oil and natural
+gas by disrupting supplies in the short term, which may increase demand for our
+services in geographic areas not damaged by the storms. Prolonged
+rain, snow or ice in many of our locations may temporarily prevent our crews and
+equipment from reaching customer work sites. Due to seasonal
+differences in weather patterns, our crews may operate more days in some periods
+than others. Accordingly, our operating results may vary from quarter to
+quarter, depending on the impact of these weather conditions. 
+Our
+inability to attract and retain skilled workers may impair growth potential and
+profitability. 
+Our
+ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The
+demand for skilled oilfield employees is high, and the supply is very limited. A
+significant increase in the wages paid by competing employers could result in a
+reduction in our skilled labor force, increases in the wage rates paid by us, or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+Our
+concentration of customers in one industry may impact our overall exposure to
+credit risk. 
+Substantially
+all of our customers operate in the energy industry. This concentration of
+customers in one industry may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. We perform ongoing credit evaluations of
+our customers and do not generally require collateral in support of our trade
+receivables. 
+Our
+business has potential liability for litigation, personal injury and property
+damage claims assessments. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks,
+including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution
+or other environmental hazards or loss of production. Litigation may arise from
+a catastrophic occurrence at a location where our equipment and services are
+used. This litigation could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. These occurrences could
+have a material adverse effect on us. We maintain what we believe is prudent
+insurance protection. We cannot assure you that we will be able to maintain
+adequate insurance in the future at rates we consider reasonable or that our
+insurance coverage will be adequate to cover future claims and assessments that
+may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulatory
+and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results. 
+Our
+international operations could have a material adverse effect on our
+business. 
+Our
+operations in various countries including, but not limited to, Africa, Canada,
+China, Eastern Europe, Latin America and the Middle East are subject to risks.
+These risks include, but are not limited to, political changes, expropriation,
+currency restrictions and changes in currency exchange rates, taxes, boycotts
+and other civil disturbances. The occurrence of any one of these
+events could have a material adverse effect on our operations. 
+9 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas
+services industry has been highly volatile. Likewise, the market price of our
+common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public shareholders may
+have no effective voice in the management of the Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Rule 303A of
+the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
+Corporation” because a group that includes the Company’s Chairman of the Board,
+R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of
+the Company, and certain companies under their control, controls in excess of
+fifty percent of the Company’s voting power. As a “Controlled Corporation,” the
+Company need not comply with certain NYSE rules including those requiring a
+majority of independent directors. 
+RPC’s
+executive officers, directors and their affiliates hold directly or through
+indirect beneficial ownership, in the aggregate, approximately 71 percent of
+RPC’s outstanding shares of common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions and
+other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from
+acquiring control over the Company at a premium. 
+Our
+management has a substantial ownership interest, and the availability of the
+Company’s common stock to the investing public may be limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC’s stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock. 
+Provisions
+in RPC's Certificate of Incorporation and Bylaws may inhibit a takeover of
+RPC. 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions
+including advance notice requirements for shareholder proposals and staggered
+terms of office for the Board of Directors. These provisions may make
+a tender offer, change in control or takeover attempt that is opposed by RPC’s
+Board of Directors more difficult or expensive. 
+Some
+of our equipment and several types of materials used in providing our services
+are available from a limited number of suppliers. 
+We
+purchase equipment provided by a limited number of manufacturers who specialize
+in oilfield service equipment. During periods of high demand, these
+manufacturers may not be able to meet our requests for timely delivery,
+resulting in delayed deliveries of equipment and higher prices for
+equipment. There are a limited number of suppliers for certain
+materials used in pressure pumping services, our largest service
+line. While these materials are generally available, supply
+disruptions can occur due to factors beyond our control. Such
+disruptions, delayed deliveries, and higher prices can limit our ability to
+provide services, or increase the costs of providing services, thus reducing our
+revenues and profits. 
+We
+have used outside financing to accomplish our growth strategy, and outside
+financing may become unavailable or may be unfavorable to us. 
+Our
+business requires a great deal of capital in order to maintain our equipment and
+increase our fleet of equipment to expand our operations, and we have access to
+our $296.5 million credit facility to fund our capital requirements. Most of our
+existing credit facility bears interest at a floating rate, which exposes us to
+market risks as interest rates rise. If our existing capital
+resources become unavailable, inadequate or unfavorable for purposes of funding
+our capital requirements, we would need to raise additional funds through
+alternative debt or equity financings to maintain our equipment and continue our
+growth. Such additional financing sources may not be available when
+we need them, or may not be available on favorable terms. If we fund
+our growth through the issuance of public equity, the holdings of shareholders
+will be diluted. If capital generated either by cash provided by
+operating activities or outside financing is not available or sufficient for our
+needs, we may be unable to maintain our equipment, expand our fleet of
+equipment, or take advantage of other potentially profitable business
+opportunities, which could reduce our future revenues and profits. 
+10 
+Item
+1B. Unresolved Staff Comments 
+None. 
+Item
+2. Properties 
+RPC owns
+or leases approximately 100 offices and operating facilities. The Company leases
+approximately 13,400 square feet of office space in Atlanta, Georgia that serves
+as its headquarters, a portion of which is allocated and charged to Marine
+Products Corporation. See “Related Party Transactions” contained in
+Item 7. The lease agreement on the headquarters is effective through
+October 2013. RPC believes its current operating facilities are
+suitable and adequate to meet current and reasonably anticipated future needs
+although as our business continues to grow we are evaluating the need for
+additional facilities. Descriptions of the major facilities used in
+our operations are as follows: 
+Owned
+Locations 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Houston,
+Texas — Operations, sales and administrative office 
+Elk City,
+Oklahoma — Operations, sales and equipment storage yards 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yards 
+Lafayette,
+Louisiana — Operations, sales and equipment storage yards 
+Conway,
+Arkansas — Operations, sales and equipment storage yards 
+Fruita,
+Colorado — Operations, sales and equipment storage yards 
+Kilgore,
+Texas — Pumping services facility 
+Leased
+Locations 
+Seminole,
+Oklahoma — Pumping services facility 
+Oklahoma
+City, Oklahoma — Operations, sales and administrative office 
+Houston,
+Texas — Operations, sales and administrative office 
+Odessa,
+Texas — Operations, sales and equipment storage yards 
+Item
+3. Legal Proceedings 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if
+determined adversely, would not have a material adverse effect on RPC’s business
+or financial condition. 
+Item
+4. Submission of Matters to a Vote of Security Holders 
+There
+were no matters submitted to a vote of security holders during the fourth
+quarter of 2008. 
+11 
+Item
+4A. Executive Officers of the Registrant 
+Each of
+the executive officers of RPC was elected by the Board of Directors to serve
+until the Board of Directors’ meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of
+Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with
+RPC. 
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+77 
+1/24/84 
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+64 
+4/22/03 
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+72 
+1/27/87 
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+48 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer 
+(1) 
+R.
+Randall Rollins began working for Rollins, Inc. (consumer services) in
+1949. At the time of the spin-off of RPC from Rollins, Inc., in 1984, Mr.
+Rollins was elected Chairman of the Board and Chief Executive Officer of
+RPC. He remains Chairman of RPC and stepped down as the Chief Executive
+Officer effective April 22, 2003. He has served as Chairman of the Board
+of Marine Products Corporation (boat manufacturing) since it was spun off
+from RPC in February 2001 and Chairman of the Board of Rollins, Inc. since
+October 1991. He is also a director of Dover Downs Gaming and
+Entertainment, Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard
+A. Hubbell has been the President of RPC since 1987 and Chief Executive
+Officer since April 22, 2003. He has also been the President and Chief
+Executive Officer of Marine Products Corporation since it was spun off
+from RPC in February 2001. Mr. Hubbell serves on the Board of Directors
+for both of these companies. 
+(3) 
+Linda
+H. Graham has been the Vice President and Secretary of RPC since
+1987. She has also been the Vice President and Secretary of
+Marine Products Corporation since it was spun off from RPC in February
+2001. Ms. Graham serves on the Board of Directors for both of these
+companies. 
+(4) 
+Ben
+M. Palmer has been the Vice President, Chief Financial Officer and
+Treasurer of RPC since 1996. He has also been the Vice
+President, Chief Financial Officer and Treasurer of Marine Products
+Corporation since it was spun off from RPC in February
+2001. 
+12 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
+Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. At February 13, 2009, there were 98,419,782 shares of
+common stock outstanding and approximately 4,300 holders of record of common
+stock. The following table sets forth the high and low prices of
+RPC’s common stock and dividends paid for each quarter in the years ended
+December 31, 2008 and 2007: 
+2008 
+2007 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+15.32 
+$ 
+8.52 
+$ 
+0.06 
+$ 
+18.35 
+$ 
+14.20 
+$ 
+0.05 
+Second 
+17.80 
+12.50 
+0.06 
+18.94 
+15.77 
+0.05 
+Third 
+18.91 
+13.15 
+0.06 
+17.25 
+11.34 
+0.05 
+Fourth 
+14.10 
+6.02 
+0.06 
+14.40 
+10.65 
+0.05 
+On
+January 27, 2009, the Board of Directors approved an increase in the quarterly
+cash dividend per common share from $0.06 to $0.07, payable March 10, 2009 to
+stockholders of record at the close of business February 10,
+2009. The Company expects to continue to pay cash dividends to the
+common stockholders, subject to the earnings and financial condition of the
+Company and other relevant factors. 
+Issuer
+Purchases of Equity Securities 
+Shares
+repurchased in the fourth quarter of 2008 are outlined below. 
+Period 
+Total
+Number 
+of
+Shares (or 
+Units) 
+Purchased 
+Average
+Price 
+Paid
+Per Share 
+(or
+Unit) 
+Total
+Number of 
+Shares
+(or Units) 
+Purchased
+as Part of 
+Publicly
+Announced 
+Plans
+or Programs 
+Maximum
+Number (or 
+Approximate
+Dollar 
+Value)
+of Shares (or Units) 
+that
+May Yet Be 
+Purchased
+Under the Plans 
+or
+Programs 
+October
+1, 2008 to October 31, 2008 
+- 
+$ 
+- 
+- 
+3,207,265 
+November
+1, 2008 to November 30, 2008 
+556,250 
+(1) 
+8.53 
+400,000 
+2,807,265 
+December
+1, 2008 to December 31, 2008 
+- 
+- 
+- 
+2,807,265 
+Totals 
+556,250 
+$ 
+8.53 
+400,000 
+2,807,265 
+(1) 
+Includes
+shares purchased by an “affiliated purchaser” under Rule 10b - 18 of the
+Securities Exchange Act in open market transactions. These
+affiliated purchases were made by Henry B. Tippie who is a Director of the
+Company. 
+The
+Company’s Board of Directors announced a stock buyback program in March 1998
+authorizing the repurchase of 11,812,500 shares in the open
+market. Currently the program does not have a predetermined
+expiration date. 
+Performance
+Graph 
+The
+following graph shows a five year comparison of the cumulative total stockholder
+return based on the performance of the stock of the Company, assuming dividend
+reinvestment, as compared with both a broad equity market index and an industry
+or peer group index. The indices included in the following graph are
+the Russell 2000 Index (“Russell 2000”), the Philadelphia Stock Exchange’s Oil
+Service Index (“OSX”), and a peer group which includes companies that are
+considered peers of the Company, as discussed below (the “Peer
+Group”). The Company has voluntarily chosen to provide both an
+industry and a peer group index. 
+13 
+The
+Russell 2000 is a stock index representing small capitalization U.S.
+stocks. The components of the index had an average market
+capitalization in 2008 of $881 million, and the Company was a component of the
+Russell 2000 during 2008. The Russell 2000 was chosen because it
+represents companies with comparable market capitalizations to the
+Company. The OSX is a stock index of 15 U.S. companies that provide
+oil drilling and production services, oilfield equipment, support services and
+geophysical/reservoir services. The Company is not a component of the
+OSX, but it was chosen because it represents a large group of companies that
+provide the same or similar products and services as the Company. The
+companies included in the Peer Group are Weatherford International, Inc., BJ
+Services Company, Superior Energy Services, Inc., and Halliburton Company. The
+companies included in the peer group have been weighted according to each
+respective issuer's stock market capitalization at the beginning of each
+year. 
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the
+Company. The historical information may not be indicative of the
+Company’s future results of operations. The information set forth
+below should be read in conjunction with “Management’s Discussion and Analysis
+of Financial Condition and Results of Operations” and the Consolidated Financial
+Statements and the notes thereto included elsewhere in this
+document. 
+14 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2008 
+2007 
+2006 
+2005 
+2004 
+(in
+thousands, except employee and per share amounts) 
+Revenues 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+Cost
+of revenues 
+503,631 
+368,175 
+287,037 
+227,492 
+193,659 
+Selling,
+general and administrative expenses 
+117,140 
+107,800 
+91,051 
+75,478 
+65,871 
+Depreciation
+and amortization 
+118,403 
+78,506 
+46,711 
+39,129 
+34,473 
+Gain
+on disposition of assets, net (a) 
+(6,367 
+) 
+(6,293 
+) 
+(5,969 
+) 
+(12,169 
+) 
+(5,551 
+) 
+Operating
+profit 
+144,170 
+142,038 
+177,800 
+97,713 
+51,340 
+Interest
+expense 
+(5,282 
+) 
+(4,179 
+) 
+(356 
+) 
+(127 
+) 
+(311 
+) 
+Interest
+income 
+73 
+70 
+319 
+1,077 
+243 
+Other
+(expense) income, net 
+(1,176 
+) 
+1,905 
+1,085 
+2,077 
+1,931 
+Income
+before income taxes 
+137,785 
+139,834 
+178,848 
+100,740 
+53,203 
+Income
+tax provision (b) 
+54,382 
+52,785 
+68,054 
+34,256 
+18,430 
+Net
+income (b) 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+Earnings
+per share: 
+Basic 
+$ 
+0.86 
+$ 
+0.90 
+$ 
+1.16 
+$ 
+0.70 
+$ 
+0.36 
+Diluted 
+$ 
+0.85 
+$ 
+0.89 
+$ 
+1.13 
+$ 
+0.67 
+$ 
+0.36 
+Dividends
+paid per share 
+$ 
+0.240 
+$ 
+0.200 
+$ 
+0.133 
+$ 
+0.071 
+$ 
+0.036 
+OTHER
+DATA: 
+Operating
+margin percent 
+16.4 
+% 
+20.6 
+% 
+29.8 
+% 
+22.8 
+% 
+15.1 
+% 
+Net
+cash provided by operations 
+$ 
+177,320 
+$ 
+141,872 
+$ 
+118,228 
+$ 
+66,362 
+$ 
+50,374 
+Net
+cash used for investing activities 
+(158,953 
+) 
+(239,624 
+) 
+(151,085 
+) 
+(62,415 
+) 
+(37,215 
+) 
+Net
+cash (used for) provided by financing activities 
+(21,668 
+) 
+101,361 
+22,777 
+(20,774 
+) 
+(5,825 
+) 
+Depreciation
+and amortization 
+118,403 
+78,506 
+46,711 
+39,129 
+34,500 
+Capital
+expenditures 
+$ 
+170,318 
+$ 
+248,758 
+$ 
+159,831 
+$ 
+72,808 
+$ 
+49,869 
+Employees
+at end of period 
+2,532 
+2,370 
+2,000 
+1,649 
+1,596 
+BALANCE
+SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+210,375 
+$ 
+176,154 
+$ 
+148,469 
+$ 
+107,428 
+$ 
+75,793 
+Working
+capital 
+200,494 
+144,338 
+111,302 
+95,215 
+77,509 
+Property,
+plant and equipment, net 
+470,115 
+433,126 
+262,797 
+141,218 
+114,222 
+Total
+assets 
+793,461 
+701,015 
+478,007 
+311,785 
+262,942 
+Current
+portion of long-term debt 
+— 
+— 
+— 
+— 
+2,700 
+Long-term
+debt (c) 
+174,450 
+156,400 
+35,600 
+— 
+2,100 
+Total
+stockholders’ equity 
+$ 
+449,084 
+$ 
+409,272 
+$ 
+335,287 
+$ 
+232,501 
+$ 
+181,423 
+(a) 
+Gain
+on disposition of assets, net in 2005 includes a $10.7 million pre-tax
+gain ($0.07 after tax per diluted share) on the sale of certain operating
+assets during the third quarter of 2005. In 2004 the gain on
+disposition, net includes a $3.3 million pre-tax gain ($0.02 after tax per
+diluted share) on the sale of certain operating assets during the fourth
+quarter of 2004. 
+(b) 
+During
+the fourth quarter of 2005, the income tax provision and net income
+reflect the receipt of tax refunds of $3.5 million related to the
+successful resolution of certain tax matters, which had a positive impact
+of $0.04 after tax per diluted share. 
+(c) 
+Effective
+September 2006, the Company closed on a new revolving credit facility that
+was expanded to $296.5 million in the second quarter of
+2008. In February 2005, the Company prepaid a $2.8 million
+promissory note and the remaining balance of long-term debt was paid in
+full upon maturity of a promissory note in July
+2005. 
+15 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of
+Operations 
+Overview 
+The
+following discussion should be read in conjunction with “Selected Financial
+Data,” and the Consolidated Financial Statements included elsewhere in this
+document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc.
+(“RPC”) provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and
+selected international locations. The Company’s revenues and profits
+are generated by providing equipment and services to customers who operate oil
+and gas properties and invest capital to drill new wells and enhance production
+or perform maintenance on existing wells. 
+Our key
+business and financial strategies are: 
+- 
+To
+focus our management resources on and invest our capital in equipment and
+geographic markets that we believe will earn high returns on capital, and
+maintain an appropriate capital structure. 
+- 
+To
+maintain a flexible cost structure that can respond quickly to volatile
+industry conditions and business activity levels. 
+- 
+To
+deliver equipment and services to our customers safely. 
+- 
+To
+maintain and increase market share. 
+- 
+To
+maximize shareholder return by optimizing the balance between cash
+invested in the Company's productive assets, the payment of dividends to
+shareholders, and the repurchase of our common stock on the open
+market. 
+- 
+To
+align the interests of our management and shareholders. 
+- 
+To
+maintain an efficient, low-cost capital structure, which includes an
+appropriate use of debt. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and
+operating performance, management generally reviews periodic forecast data,
+monthly actual results, and other similar information. We also
+consider trends related to certain key financial data, including revenues,
+utilization of our equipment and personnel, pricing for our services and
+equipment, profit margins, selling, general and administrative expenses, cash
+flows and the return on our invested capital. We continuously monitor
+factors that impact the level of current and expected customer activity levels,
+such as the price of oil and natural gas, changes in pricing for our services
+and equipment and utilization of our equipment and personnel. Our
+financial results are affected by geopolitical factors such as political
+instability in the petroleum-producing regions of the world, overall economic
+conditions and weather in the United States, the prices of oil and natural gas,
+and our customers’ drilling and production activities. 
+Current
+industry conditions include natural gas prices that have been very volatile, and
+while high by historical levels, declined tremendously during
+2008. Oil prices are also extremely volatile, having reached record
+highs at the beginning of the third quarter of 2008, prior to declining to a low
+of slightly more than $32 per barrel by the end of the year, which is the lowest
+level for oil prices since the first quarter of 2005. In the
+beginning of 2009, natural gas prices are falling dramatically compared to 2008,
+and during the first quarter are approximately 38 percent lower than the same
+period last year. The price of oil has fallen as well, and is
+approximately 56 percent lower than the same period last year. The
+average rig count in 2008 increased by 6.3 percent compared to the prior year,
+but fell during the fourth quarter of 2008 and into early
+2009. During the first quarter the average rig count is approximately
+16 percent lower than the same period last year. In addition to the
+overall rig count, the Company also monitors the number of horizontal and
+directional wells drilled in the U.S. domestic market, because this type of well
+is more service-intensive than a vertical oil or gas well, thus requiring more
+of the Company’s services provided for a longer period of time. The
+number of horizontal and directional wells drilled in the United States
+increased in 2008, and was 49 percent of total wells drilled during the
+year. During the first part of 2009, the percentage of horizontal and
+directional wells drilled as a percentage of total wells increased to
+approximately 56 percent. Over the past several years, the supply of
+oilfield service equipment in the U.S. domestic market has increased
+tremendously, both from existing service companies and new entrants to the
+oilfield services business. Although the supply of oilfield equipment
+did not increase as much in 2008 as in prior years, the large supply of
+equipment and service providers has caused pricing for the Company’s services to
+decrease, which has had a negative impact on the Company’s financial results and
+returns. The Company responded by reducing its capital expenditures
+during 2008, closely monitoring its competitors’ activities, and scrutinizing
+planned capital expenditures more closely for acceptable financial
+returns. In spite of increased competition and declining financial
+results, the Company’s returns are still high by historical standards, and cash
+flow from operations as well as proceeds from our revolving credit facility have
+allowed us to make significant capital expenditures during 2008. 
+16 
+Income
+before income taxes was $137.8 million in 2008 compared to $139.8 million in the
+prior year. The effective tax rate for 2008 was 39.5 percent compared
+to 37.7 percent in the prior year. Diluted earnings per share
+decreased to $0.85 in 2008 compared to $0.89 for the prior year. Cash
+flows from operating activities were $177.3 million in 2008 compared to $141.9
+million in the prior year, and cash and cash equivalents were $3.0 million at
+December 31, 2008, a decrease of $3.3 million compared to December 31,
+2007. During the second quarter of 2008, we expanded our revolving
+credit facility to $296.5 million. As of December 31, 2008,
+there was $174.5 million in outstanding borrowings on our revolving credit
+facility. 
+Cost of
+revenues as a percentage of revenues increased approximately 4.1 percentage
+points in 2008 compared to 2007, because of lower pricing for our services due
+to competition and higher cost for materials and supplies, personnel and
+fuel. 
+Selling,
+general and administrative expenses as a percentage of revenues decreased
+approximately 2.2 percentage points in 2008 compared to 2007, which was
+primarily due to positive leverage of these costs realized from the higher
+revenues. 
+Consistent
+with our strategy to selectively grow our capacity and maintain our existing
+fleet of high demand equipment, capital expenditures were $170.3 million in
+2008. 
+Outlook 
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling rig
+count, has been stable or gradually increasing for several years, and the
+overall domestic rig count during the fourth quarter of 2008 was approximately
+6.3 percent higher than in the comparable period in 2007. The average price of
+oil during the fourth quarter fell by approximately 37 percent as compared to
+the prior year while the average price of natural gas fell by approximately 10
+percent. Horizontal and directional wells drilled during 2008 were 49
+percent of total domestic activity, an increase from 44 percent in the prior
+year, and the highest percentage of total drilling activity during the time that
+this data has been reported. This trend has continued in early
+2009. The price of oil has fallen dramatically due in part to low
+global demand, especially among newly-industrializing countries such as China
+and India, in spite of political instability and conflict in the oil-producing
+regions of the Middle East. While the overall drilling rig count has
+increased, it began to fall in the fourth quarter of 2008 as declining commodity
+prices and the global economic slowdown, coupled with declining availability of
+capital for drilling projects, caused industry activity levels to
+decline. These declines continued during the early part of 2009, and
+do not show signs of improvement in the near term. 
+The
+Company continues to monitor the competitive environment in 2009, and is
+concerned about the rapidly-declining rig count and commodity prices, especially
+in light of the higher level of competition which has arisen from the large
+amount of additional equipment that has been placed in service in the domestic
+market during the past several years. The Company’s response to these
+deteriorating industry conditions is to reduce our planned capital expenditures,
+implement cost-reduction plans and enhance our sales and marketing
+efforts. The Company understands that factors influencing the
+industry are unpredictable, and our response to the industry's potential
+uncertainty is to maintain sufficient liquidity and a conservative capital
+structure and monitor our discretionary spending. Although we used
+our bank credit facility to finance our expansion, we will still maintain a
+conservative financial structure, and intend to reduce the amount drawn on this
+facility over the course of 2009. Based on current industry
+conditions and the deep global recession, we expect consolidated revenues for
+2009 to decrease compared to 2008. 
+17 
+Results
+of Operations 
+Years
+Ended December 31, 
+2008 
+2007 
+2006 
+Consolidated
+revenues 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+Revenues
+by business segment: 
+Technical 
+$ 
+745,991 
+$ 
+574,723 
+$ 
+495,090 
+Support 
+130,986 
+115,503 
+101,540 
+Consolidated
+operating profit 
+$ 
+144,170 
+$ 
+142,038 
+$ 
+177,800 
+Operating
+profit by business segment: 
+Technical 
+$ 
+110,648 
+$ 
+116,493 
+$ 
+153,126 
+Support 
+36,515 
+29,955 
+30,953 
+Corporate
+expenses 
+(9,360 
+) 
+(10,703 
+) 
+(12,248 
+) 
+Gain
+on disposition of assets, net 
+6,367 
+6,293 
+5,969 
+Net
+income 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+Earnings
+per share — diluted 
+$ 
+0.85 
+$ 
+0.89 
+$ 
+1.13 
+Percentage
+of cost of revenues to revenues 
+57 
+% 
+53 
+% 
+48 
+% 
+Percentage
+of selling, general and administrative expenses to
+revenues 
+13 
+% 
+16 
+% 
+15 
+% 
+Percentage
+of depreciation and amortization expense to revenues 
+14 
+% 
+11 
+% 
+8 
+% 
+Effective
+income tax rate 
+39.5 
+% 
+37.7 
+% 
+38.1 
+% 
+Average
+U.S. domestic rig count 
+1,879 
+1,768 
+1,649 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+8.81 
+$ 
+6.93 
+$ 
+6.65 
+Average
+oil price (per barrel) 
+$ 
+99.96 
+$ 
+72.78 
+$ 
+66.36 
+Year
+Ended December 31, 2008 Compared To Year Ended December 31, 2007 
+Revenues. Revenues for 2008
+increased $186.8 million or 27.1 percent compared to 2007. The
+Technical Services segment revenues for 2008 increased 29.8 percent from the
+prior year due primarily to a higher drilling rig count and increased capacity
+driven by higher capital expenditures partially offset by lower pricing for
+services. The Support Services segment revenues for 2008 increased
+13.4 percent from the prior year due to increased capacity driven by higher
+capital expenditures as well as a more profitable job mix in the rental tool
+service line, the largest within this segment. 
+Domestic
+revenues increased 30 percent to $846.2 million during 2008 compared to 2007 due
+to increased capacity in our largest service lines, such as pressure pumping and
+rental tools. The average price of natural gas increased by 27
+percent and the average price of oil increased by approximately 37 percent
+during 2008 compared to the prior year. In conjunction with the
+increase in natural gas prices, the average domestic rig count during 2008 was
+seven percent higher than in 2007. This increase in drilling activity
+had a positive impact on our financial results. We believe that our
+activity levels are affected more by the price of natural gas than by the price
+of oil, because the majority of U.S. domestic drilling activity relates to
+natural gas, and many of our services are more appropriate for gas wells than
+oil wells. Foreign revenues, which decreased from $41.1 million in
+2007 to $30.8 million in 2008, were four percent of consolidated
+revenues. These revenue decreases were due mainly to lower customer
+activity levels in Turkmenistan and Hungary compared to the prior
+year. Our international revenues are impacted by the timing of
+project initiation and their ultimate duration. 
+Cost of
+revenues. Costs of revenues in 2008 was $503.6 million
+compared to $368.2 million in 2007, an increase of $135.4 million or 36.8
+percent. The increase in these costs was due to the variable nature
+of many of these expenses, including materials and supplies, compensation, and
+maintenance and repairs. Cost of revenues, as a percent of revenues,
+increased in 2008 from 2007 due to more competitive pricing, higher costs of
+proppant used in our pressure pumping service line and increased maintenance and
+repairs expenses. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses increased 8.7 percent
+to $117.1 million in 2008 compared to $107.8 million in 2007. This
+increase was primarily due to higher employment costs consistent with higher
+activity levels and geographic expansion under RPC’s long-term growth
+plan. As a percentage of revenues, selling, general and
+administrative expenses decreased to 13.4 percent in 2008 compared to 15.6
+percent in 2007. 
+18 
+Depreciation and
+amortization. Depreciation and amortization were $118.4
+million in 2008, an increase of $39.9 million or 50.8 percent compared to $78.5
+million in 2007. This increase resulted from a higher level of capital
+expenditures during recent quarters within both Support Services and Technical
+Services to increase capacity and to maintain our existing
+equipment. 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net increased due primarily to gains
+related to various property and equipment dispositions or sales to customers of
+lost or damaged rental equipment. 
+Other(expense) income, net. Other
+(expense), net in 2008 was $(1.2) million, a decrease of $3.1 million compared
+to other income of $1.9 million in 2007. The decrease is mainly due
+to the current year decline in the fair value of trading securities
+held in the non-qualified Supplemental Retirement Plan. In
+addition to changes in the fair value of trading securities, other (expense)
+income includes gains from settlements of various legal and insurance claims and
+royalty payments. 
+Interest
+expense. Interest expense was $5.3 million in 2008
+compared to $4.2 million in 2007. The increase is due to higher
+interest expense in 2008 incurred on larger outstanding interest bearing
+advances on our revolving line of credit. 
+Interest income. 
+Interest income increased to $73 thousand in 2008 compared to $70 thousand in
+2007 as a result of a higher average investable cash balance in 2008 compared to
+2007. 
+Income tax
+provision. The income tax provision increased to $54.4 million
+in 2008 from $52.8 million in 2007. The increase is due to an
+increase in the effective tax rate to 39.5 percent in 2008 from 37.7 percent in
+2007. 
+Net income and diluted earnings per
+share . Net income decreased 4.2 percent to $83.4
+million, or $0.85 earnings per diluted share, compared to $87.0 million, or
+$0.89 earnings per diluted share in 2007. This decrease is due to
+higher costs of revenues, selling, general and administrative expenses,
+depreciation expense, other expense, and interest expense partially offset by
+increased revenues. 
+Year
+Ended December 31, 2007 Compared To Year Ended December 31, 2006 
+Revenues. Revenues for 2007
+increased $93.6 million or 15.7 percent compared to 2006. The
+Technical Services segment revenues for 2007 increased 16.1 percent from the
+prior year due primarily to increased capacity driven by higher capital
+expenditures partially offset by lower pricing for services and increased
+drilling rig count. The Support Services segment revenues for 2007
+increased 13.8 percent from the prior year due to increased capacity driven by
+higher capital expenditures as well as a more profitable job mix in the rental
+tool service line, the largest within this segment. 
+Domestic
+revenues increased 15 percent to $649.1 million during 2007 compared to 2006 due
+to increased capacity in our largest service lines, such as pressure pumping and
+rental tools. The average price of natural gas increased by four
+percent and the average price of oil increased by approximately ten percent
+during 2007 compared to 2006. In conjunction with the increase in
+natural gas prices, the average domestic rig count during 2007 was seven percent
+higher than in 2006. This increase in drilling activity had a
+positive impact on our financial results. Foreign revenues, which
+increased from $30.0 million in 2006 to $41.1 million in 2007, were six percent
+of consolidated revenues. These revenue increases were realized due
+mainly to higher customer activity levels in Bolivia, Canada, Egypt and
+Turkmenistan compared to the prior year. Our international revenues
+are impacted by the timing of project initiation and their ultimate
+duration. 
+Cost of
+revenues. Costs of revenues in 2007 was $368.2 million
+compared to $287.0 million in 2006, an increase of $81.2 million or 28.3
+percent. The increase in these costs was due to the variable nature
+of many of these expenses, including compensation, materials and supplies, fuel
+and maintenance and repair costs. Cost of revenues, as a percent of
+revenues, increased in 2007 from 2006 due to upward cost pressures for materials
+and supplies, personnel, fuel, delays in the delivery of revenue producing
+equipment and resulting inefficiencies, as well as lower pricing for our
+services, due to increased competition. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses increased 18.4 percent
+to $107.8 million in 2007 compared to $91.1 million in 2006. This
+increase was primarily due to higher employment costs consistent with higher
+activity levels and geographic expansion under RPC’s long-term growth
+plan. As a percentage of revenues, selling, general and
+administrative expenses increased to 15.6 percent in 2007 compared to 15.3
+percent in 2006. 
+Depreciation and
+amortization. Depreciation and amortization were $78.5 million
+in 2007, an increase of $31.8 million or 68.1 percent compared to $46.7 million
+in 2006. This increase resulted from a higher level of capital expenditures
+during 2006 and 2007 within both Support Services and Technical Services to
+increase capacity and to maintain our existing equipment. 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net increased due primarily to gains
+related to various property and equipment dispositions or sales to customers of
+lost or damaged rental equipment. 
+Other income, net. Other income,
+net in 2007 was $1.9 million, an increase of $0.8 million compared to $1.1
+million in 2006. Other income includes gains from settlements of
+various legal and insurance claims and royalty payments. 
+19 
+Interest
+expense. Interest expense was $4.2 million in 2007
+compared to $356 thousand in 2006. The increase is due to higher
+interest expense in 2007 incurred on larger outstanding interest bearing
+advances on our revolving line of credit. 
+Interest Income. 
+Interest income declined to $70 thousand in 2007 compared to $319 thousand in
+2006 as a result of a lower average investable cash balance in 2007 compared to
+2006. 
+Income tax
+provision. The income tax provision decreased to $52.8 million
+in 2007 from $68.1 million in 2006. The decrease is due to the
+decline in income before taxes coupled with a decrease in the effective tax rate
+to 37.7 percent in 2007 from 38.1 percent in 2006. 
+Net income and diluted earnings per
+share . Net income decreased 21.4 percent to $87.0
+million, or $0.89 earnings per diluted share, compared to $110.8 million, or
+$1.13 earnings per diluted share in 2006. 
+20 
+Liquidity
+and Capital Resources 
+Cash
+and Cash Flows 
+The
+Company’s cash and cash equivalents were $3.0 million as of December 31, 2008,
+$6.3 million as of December 31, 2007 and $2.7 million as of December 31,
+2006. 
+The following table sets forth the
+historical cash flows for the years ended December 31: 
+(in
+thousands) 
+2008 
+2007 
+2006 
+Net
+cash provided by operating activities 
+$ 
+177,320 
+$ 
+141,872 
+$ 
+118,228 
+Net
+cash used for investing activities 
+(158,953 
+) 
+(239,624 
+) 
+(151,085 
+) 
+Net
+cash (used for) provided by financing activities 
+(21,668 
+) 
+101,361 
+22,777 
+2008 
+Cash
+provided by operating activities increased by $35.4 million in 2008 compared to
+the prior year. Although net income decreased $3.6 million in 2008
+compared to 2007, cash provided by operating activities increased due primarily
+to an increase in depreciation due to higher capital expenditures and a higher
+deferred tax provision due to accelerated tax depreciation. Increased
+business activity levels and revenues in 2008 resulted in higher accounts
+receivable, inventories and prepaid expenses partially offset by increased
+accounts payable and accrued payroll including bonuses. 
+Cash used
+for investing activities in 2008 decreased by $80.7 million compared to 2007,
+primarily as a result of lower capital expenditures. 
+Cash
+(used for) provided by financing activities in 2008 increased by $123.0 million
+compared to 2007, primarily due to lower net borrowings from notes payable to
+banks during 2008, an increase in common stock purchased and retired, and a 20
+percent increase in dividends paid per share to common
+shareholders. 
+2007 
+Cash
+provided by operating activities increased by $23.6 million in 2007 compared to
+the prior year. Although net income decreased $23.7 million in 2007
+compared to 2006, cash provided by operating activities increased due primarily
+to an increase in depreciation due to higher capital expenditures, a higher
+deferred tax provision due to accelerated tax depreciation and lower growth in
+working capital requirements. Increased business activity levels and
+revenues in 2007 resulted in higher accounts receivable, inventories and prepaid
+expenses partially offset by increased accounts payable and accrued payroll
+including bonuses. 
+Cash used
+for investing activities in 2007 increased by $88.5 million compared to 2006,
+primarily as a result of higher capital expenditures to increase capacity and
+maintain our existing equipment. 
+Cash
+provided by financing activities in 2007 increased by $78.6 million compared to
+2006, primarily due to net borrowings from notes payable to banks during 2007,
+partially offset by a 50 percent increase in dividends paid per share to common
+shareholders. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2008, remains
+strong. We believe the liquidity provided by our existing cash and
+cash equivalents, our overall strong capitalization which includes a revolving
+credit facility and cash expected to be generated from operations will provide
+sufficient capital to meet our requirements for at least the next twelve
+months. During the third quarter of 2006, the Company replaced its
+$50 million line of credit with a $250 million revolving credit facility (the
+"Revolving Credit Agreement"), with a term of five years. During the second
+quarter of 2008, the Company entered into a certain Commitment Increase
+Amendment to the Revolving Credit Agreement to increase the amount of the credit
+facility by $46.5 million to its current amount of $296.5
+million. The Revolving Credit Agreement contains customary terms and
+conditions, including certain financial covenants including covenants
+restricting RPC's ability to incur liens, merge or consolidate with another
+entity. A total of $99.9 million was available under our facility as
+of December 31, 2008; approximately $22.2 million of the credit facility
+supports outstanding letters of credit relating to self-insurance programs or
+contract bids. For additional information with respect to RPC’s
+credit facility, see Note 6 of the Notes to Consolidated Financial
+Statements. 
+21 
+The
+Company’s decisions about the amount of cash to be used for investing and
+financing purposes are influenced by its capital position, including access to
+borrowings under our credit facility, and the expected amount of cash to be
+provided by operations. We believe our liquidity will continue to
+provide the opportunity to grow our asset base and revenues during periods with
+positive business conditions and strong customer activity levels. The
+Company's decisions about the amount of cash to be used for investing and
+financing activities could be influenced by the financial covenants in our
+credit facility but we do not expect the covenants to restrict our planned
+activities. 
+Cash
+Requirements 
+Capital
+expenditures were $170.3 million in 2008, and we currently expect capital
+expenditures to be approximately $90.0 million in 2009. We expect
+these expenditures to be primarily directed towards revenue-producing equipment
+in our larger, core service lines including pressure pumping, snubbing,
+nitrogen, and rental tools. The actual amount of 2009 expenditures
+will depend primarily on equipment maintenance requirements, expansion
+opportunities, and equipment delivery schedules. 
+The Company’s Retirement Income Plan, a
+multiple employer trusteed defined benefit pension plan, provides monthly
+benefits upon retirement at age 65 to eligible employees. The Company
+does not currently expect to make any contributions to the defined benefit
+pension plan in 2009 to meet its funding objectives. 
+The Company’s Board of Directors
+announced a stock buyback program on March 9, 1998 authorizing the repurchase of
+up to 11,812,500 shares of which 2,807,265 additional shares were available to
+be repurchased as of December 31, 2008. The program does not have a
+predetermined expiration date. 
+On
+January 27, 2009, the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.06 to $0.07, payable March 10, 2009 to
+stockholders of record at the close of business February 10,
+2009. The Company expects to continue to pay cash dividends to common
+stockholders, subject to the earnings and financial condition of the Company and
+other relevant factors. 
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include a
+bank demand note, certain non-cancelable operating leases, purchase obligations
+and other long-term liabilities. The following table summarizes the Company’s
+significant contractual obligations as of December 31, 2008: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt obligations 
+$ 
+174,450 
+$ 
+- 
+$ 
+174,450 
+$ 
+- 
+$ 
+- 
+Interest
+on long-term debt obligations 
+9,705 
+3,611 
+6,094 
+- 
+- 
+Capital
+lease obligations 
+- 
+- 
+- 
+- 
+- 
+Operating
+leases (1) 
+12,784 
+344 
+8,838 
+2,461 
+1,141 
+Purchase
+obligations (2) 
+6,435 
+6,435 
+- 
+- 
+- 
+Other
+long-term liabilities (3) 
+2,718 
+- 
+2,718 
+- 
+- 
+Total
+contractual obligations 
+$ 
+206,092 
+$ 
+10,390 
+$ 
+192,100 
+$ 
+2,461 
+$ 
+1,141 
+(1) 
+Operating
+leases include agreements for various office locations, office equipment,
+and certain operating equipment. 
+(2) 
+Includes
+agreements to purchase goods or services that have been approved and that
+specify all significant terms (pricing, quantity, and
+timing). As part of the normal course of business the Company
+enters into purchase commitments to manage its various operating
+needs. 
+(3) 
+Includes
+expected cash payments for long-term liabilities reflected on the balance
+sheet where the timing of the payments are known. These amounts include
+incentive compensation. These amounts exclude pension obligations with
+uncertain funding requirements and deferred compensation
+liabilities. 
+22 
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide
+competitive prices, and employs skilled workers from competitive labor
+markets. If inflation in the general economy increases, the Company’s
+costs for equipment, materials and labor could increase as well. Due
+to the increases in activity in the domestic oilfield over the past several
+years, as well as a shortage of a skilled work force due to historically high
+activity in the oilfield, the Company has experienced some upward wage pressures
+in the labor markets from which it hires employees. Also over the
+past several years, the price of steel, for both the commodity and for products
+manufactured with steel, has increased dramatically. Recently, steel
+prices have moderated, although they remain high by historical
+standards. This factor has affected the Company's operations by
+extending time for deliveries of new equipment and receipt of price quotations
+that may only be valid for a limited period of time. If this factor
+continues, it is possible that the cost of the Company's new equipment will
+increase which would result in higher capital expenditures and depreciation
+expense. RPC attempts to recover such increased costs through price increases to
+its customers, although competitive pressures have recently adversely affected
+the Company’s ability to do so. 
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$842,000 in 2008, $957,000 in 2007 and $739,000 in 2006. The Company’s
+receivable due from Marine Products for these services as of December 31, 2008
+and 2007 was approximately $70,000 and $223,000. The Company’s
+directors are also directors of Marine Products and all of the executive
+officers are employees of both the Company and Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $393,000 in 2008, $1,035,000 in 2007 and
+$1,248,000 in 2006. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $90,000 in 2008, $72,000 in 2007 and $70,000 in
+2006. 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has
+discussed the development, selection and disclosure of its critical accounting
+estimates with the Audit Committee of our Board of Directors. The
+Company believes the following critical accounting policies involve estimates
+that require a higher degree of judgment and complexity: 
+23 
+Allowance for doubtful
+accounts — Substantially all of the Company’s receivables are due from
+oil and gas exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil
+companies. Our allowance for doubtful accounts is determined using a
+combination of factors to ensure that our receivables are not overstated due to
+uncollectibility. Our established credit evaluation procedures seek
+to minimize the amount of business we conduct with higher risk customers. Our
+customers’ ability to pay is directly related to their ability to generate cash
+flow on their projects and is significantly affected by the volatility in the
+price of oil and natural gas. Provisions for doubtful accounts are recorded in
+selling, general and administrative expenses. Accounts are
+written-off against the allowance for doubtful accounts when the Company
+determines that amounts are uncollectible and recoveries of amounts previously
+written off are recorded when collected. Significant recoveries will
+generally reduce the required provision in the period of
+recovery. Therefore, the provision for doubtful accounts can
+fluctuate significantly from period to period. Recoveries in 2008
+totaled $1.5 million, causing a reduction in bad debt
+expense. Recoveries in 2007 and 2006 were
+insignificant. We record specific provisions when we become aware of
+a customer's inability to meet its financial obligations to us, such as in the
+case of bankruptcy filings or deterioration in the customer's operating results
+or financial position. If circumstances related to customers change, our
+estimates of the realizability of receivables would be further adjusted, either
+upward or downward. 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the
+overall trends in the oil and gas industry, financial condition of our
+customers, our historical write-off experience, current economic conditions, and
+in the case of international customers, our judgments about the economic and
+political environment of the related country and region. In addition
+to reserves established for specific customers, we establish general reserves by
+using different percentages depending on the age of the
+receivables. Excluding the effect of the recoveries referred to
+above, the annual provisions for doubtful accounts have ranged from 0.10 percent
+to 0.45 percent of revenues over the last three years. Increasing or
+decreasing the estimated general reserve percentages by 0.50 percentage points
+as of December 31, 2008 would have resulted in a change of approximately $1.1
+million to the allowance for doubtful accounts and a corresponding change to
+selling, general and administrative expenses. 
+Income taxes — The effective
+income tax rates were 39.5 percent in 2008, 37.7 percent in 2007, and 38.1
+percent in 2006. Our effective tax rates vary due to changes in
+estimates of our future taxable income, fluctuations in the tax jurisdictions in
+which our earnings and deductions are realized, and favorable or unfavorable
+adjustments to our estimated tax liabilities related to proposed or probable
+assessments. As a result, our effective tax rate may fluctuate
+significantly on a quarterly or annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax
+assets when we determine that it is more likely than not that the asset will not
+be realized through future taxable income. Such amounts are charged
+to earnings in the period in which we make such determination. Likewise, if we
+later determine that it is more likely than not that the net deferred tax assets
+would be realized, we would reverse the applicable portion of the previously
+provided valuation allowance. We have considered future market growth,
+forecasted earnings, future taxable income, the mix of earnings in the
+jurisdictions in which we operate, and prudent and feasible tax planning
+strategies in determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and
+assumptions that could differ from the actual results reflected in income tax
+returns filed during the subsequent year. Adjustments based on filed returns are
+recorded when identified, which is generally in the third quarter of the
+subsequent year for U.S. federal and state provisions. Deferred tax
+liabilities and assets are determined based on the differences between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect in the year the differences are expected to reverse. 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state and
+foreign tax authorities, which often result in proposed assessments. Our
+estimate for the potential outcome for any uncertain tax issue is highly
+judgmental. We believe we have adequately provided for any reasonably
+foreseeable outcome related to these matters. However, our future results may
+include favorable or unfavorable adjustments to our estimated tax liabilities in
+the period the assessments are made or resolved or when statutes of limitation
+on potential assessments expire. Additionally, the jurisdictions in which our
+earnings or deductions are realized may differ from our current
+estimates. 
+Insurance expenses – The
+Company self insures, up to certain policy-specified limits, certain risks
+related to general liability, workers’ compensation, vehicle and equipment
+liability. The cost of claims under these self-insurance programs is
+estimated and accrued using individual case-based valuations and statistical
+analysis and is based upon judgment and historical experience; however, the
+ultimate cost of many of these claims may not be known for several years. These
+claims are monitored and the cost estimates are revised as developments occur
+relating to such claims. The Company has retained an independent
+third party actuary to assist in the calculation of a range of exposure for
+these claims. As of December 31, 2008, the Company estimates the
+range of exposure to be from $11.3 million to $14.9 million. The
+Company has recorded liabilities at December 31, 2008 of approximately $13.0
+million which represents management’s best estimate of probable
+loss. 
+Depreciable life of assets —
+RPC’s net property, plant and equipment at December 31, 2008 was $470.1 million
+representing 59.2 percent of the Company’s consolidated
+assets. Depreciation and amortization expenses for the year ended
+December 31, 2008 were $118.4 million, or 16.0 percent of total operating
+costs. Management judgment is required in the determination of the
+estimated useful lives used to calculate the annual and accumulated depreciation
+and amortization expense. 
+24 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and
+amortization, which is generally provided on a straight-line basis over the
+estimated useful lives of the assets. The estimated useful life represents the
+projected period of time that the asset will be productively employed by the
+Company and is determined by management based on many factors including
+historical experience with similar assets. Assets are monitored to
+ensure changes in asset lives are identified and prospective depreciation and
+amortization expense is adjusted accordingly. We have not made any
+changes to the estimated lives of assets resulting in a material impact in the
+last three years. 
+Defined benefit pension
+plan – In
+2002, the Company ceased all future benefit accruals under the defined benefit
+plan, although the Company remains obligated to provide employees benefits
+earned through March 2002. The Company accounts for the defined
+benefit plan in accordance with the provisions of Statement of Financial
+Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined
+Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements
+No. 87, 88, 106, and 132(R)” and engages an outside actuary to calculate its
+obligations and costs. With the assistance of the actuary, the
+Company evaluates the significant assumptions used on a periodic basis including
+the estimated future return on plan assets, the discount rate, and other
+factors, and makes adjustments to these liabilities as necessary. 
+The
+Company chooses an expected rate of return on plan assets based on historical
+results for similar allocations among asset classes, the investments strategy,
+and the views of our investment adviser. Differences between
+the expected long-term return on plan assets and the actual return are amortized
+over future years. Therefore, the net deferral of past asset gains
+(losses) ultimately affects future pension expense. The Company’s
+assumption for the expected return on plan assets is eight percent which is
+unchanged from the prior year. 
+The
+discount rate reflects the current rate at which the pension liabilities could
+be effectively settled at the end of the year. In estimating this rate, the
+Company utilizes a yield curve approach. The approach utilizes an
+economic model whereby the Company’s expected benefit payments over the life of
+the plan is forecasted and then compared to a portfolio of investment grade
+corporate bonds that will mature at the same time that the benefit payments are
+due in any given year. The economic model then calculates the one
+discount rate to apply to all benefit payments over the life of the plan which
+will result in the same total lump sum as the payments from the corporate
+bonds. A lower discount rate increases the present value of
+benefit obligations. The discount rate was 6.84 percent as of
+December 31, 2008 compared to 6.25 percent in 2007 and 5.50 percent in
+2006. 
+As of
+December 31, 2008, the defined benefit plan was under-funded and the recorded
+change within accumulated other comprehensive loss decreased stockholders’
+equity by $6.1 million after tax. Holding all other factors
+constant, a decrease in the discount rate used to measure plan liabilities by
+0.25 percentage points would result in a pre-tax increase of $0.5 million to the
+net loss related to pension in accumulated other comprehensive loss and an
+increase in the discount rate used to measure plan liabilities by 0.25
+percentage points would result in a pre-tax decrease of $0.5 million to the net
+loss related to pension in accumulated other comprehensive loss. 
+The
+Company recognized pre-tax pension (income) expense of $(0.4) million in 2008,
+$0.3 million in 2007, and $0.8 million in 2006. Based on the
+under-funded status of the defined benefit plan as of December 31, 2008 due
+primarily to declines in pension assets, the Company expects to recognize
+pension expense of $2.0 million in 2009. Holding all other factors
+constant, a change in the expected long-term rate of return on plan assets by
+0.50 percentage points would result in an increase or decrease in pension
+expense/income of approximately $0.1 million in 2009. Holding
+all other factors constant, a change in the discount rate used to measure plan
+liabilities by 0.25 percentage points would result in an increase or decrease in
+pension expense/income of approximately $0.1 million in 2009. 
+New
+Accounting Standards 
+In
+December 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1, “Employers’
+Disclosures about Postretirement Benefit Plan Assets.” The FASB issued the FSP,
+which amends FASB Statement 132R, Employers’ Disclosures about
+Pensions and Other Postretirement Benefits , in order to provide adequate
+transparency about the types of assets and associated risks in employers’
+postretirement plans. Disclosures are designed to provide an
+understanding of how investment decisions are made: the major categories of plan
+assets; the inputs and valuation techniques used to measure the fair value of
+plan assets; the effect of fair value measurements using significant
+unobservable inputs (Level 3 measurements in FASB Statement 157, Fair Value
+Measurements) on changes in plan assets for the period; and significant
+concentrations of risk within plan assets. The disclosures about plan
+assets required by this FSP are required to be provided for fiscal years ending
+after December 15, 2009, with the provisions of this FSP not required for
+earlier periods that are presented for comparative purposes, upon initial
+application. Earlier application of the provisions of this FSP is permitted. The
+Company is currently in the process of determining the additional disclosures
+required upon the adoption of this FSP. 
+25 
+In
+October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3,
+“Determining the Fair Value of a Financial Asset When the Market for That Asset
+Is Not Active.” FSP 157-3 clarifies the application of SFAS No.
+157, “ Fair Value
+Measurements ,” in a market that is not active and provides an example to
+illustrate key considerations in determining the fair value of a financial asset
+when the market for that financial asset is not active. The FSP
+stipulates that determining fair value in a dislocated market depends on the
+facts and circumstances and may require the use of significant judgment when
+evaluating individual transactions or broker quotes which are some of the
+sources of the fair value measurement. In addition, FSP FAS 157-3
+states that if an entity uses its own assumptions to determine fair value, it
+must include appropriate risk adjustments that market participants would make
+for nonperformance and liquidity risks. FSP FAS 157-3 is effective
+upon issuance, including prior periods for which financial statements have not
+been issued. The Company adopted FSP FAS 157-3 in the third quarter
+of 2008 and has concluded that it does not have a material effect on its
+consolidated financial statements. 
+In
+September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures
+about Credit Derivatives and Certain Guarantees – An Amendment of FASB Statement
+No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
+of FASB Statement No. 161.” This FSP amends SFAS No. 133,
+“Accounting for Derivative Instruments and Hedging Activities,” to require
+disclosures by sellers of credit derivatives, including credit derivatives
+embedded in a hybrid instrument. This FSP also amends FASB
+Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements
+for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to
+require an additional disclosure about the current status of the
+payment/performance risk of a guarantee. Further this FSP
+clarifies the FASB’s intent about the effective date of SFAS No. 161,
+“Disclosures about Derivative Instruments and Hedging
+Activities.” The provisions of this FSP that amend SFAS No. 161 and
+FIN 45 are effective for reporting periods ending after November 15, 2008 and
+the clarification of the effective date of SFAS No. 161 is effective upon
+issuance of this FSP. The Company adopted FSP FAS 133-1 and FIN 45-4
+in the fourth quarter of 2008 and has concluded that it does not have a material
+effect on its consolidated financial statements. 
+In June
+2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
+in Share-Based Payment Transactions Are Participating Securities,” to clarify
+that all outstanding unvested share-based payment awards that contain
+nonforfeitable rights to dividends or dividend equivalents, whether paid or
+unpaid, are participating securities. An entity must include participating
+securities in its calculation of basic and diluted earnings per share (EPS)
+pursuant to the two-class method, as described in FASB Statement 128, Earnings
+per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after
+December 15, 2008 and interim periods within those fiscal years. The Company
+intends to adopt FSP EITF 03-6-1 effective January 1, 2009 and apply its
+provisions retrospectively to all prior-period EPS data presented in its
+financial statements. The Company has periodically issued share-based payment
+awards that contain non-forfeitable rights to dividends and does not expect the
+adoption of this accounting guidance to have a material effect on its
+consolidated financial statements or EPS. 
+In May
+2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
+Principles.” SFAS 162 is intended to improve financial
+reporting by identifying a consistent framework, or hierarchy, for selecting
+accounting principles to be used in financial statements that are presented in
+conformity with U.S. generally accepted accounting principles for
+nongovernmental entities. This Statement became effective
+on November 15, 2008. The Company adopted SFAS 162 in the fourth quarter of
+2008 and has concluded that it does not have a material effect on its
+consolidated financial statements. 
+In April
+2008, the FASB issued FSP FAS No. 142-3, which amends the factors that must be
+considered in developing renewal or extension assumptions used to determine the
+useful life over which to amortize the cost of a recognized intangible asset
+under SFAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an
+entity that is estimating the useful life of a recognized intangible asset to
+consider its historical experience in renewing or extending similar arrangements
+or, in the absence of historical experience, must consider assumptions that
+market participants would use about renewal or extension that are both
+consistent with the asset’s highest and best use and adjusted for
+entity-specific factors under SFAS No. 142. The FSP is effective for
+fiscal years beginning after December 15, 2008, and the guidance for determining
+the useful life of a recognized intangible asset must be applied prospectively
+to intangible assets acquired after the effective date. The Company does not
+expect the adoption of FSP FAS No. 142-3 to have a material effect on its
+consolidated financial statements. 
+26 
+In March
+2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
+Hedging Activities - an Amendment of FASB Statement No. 133.” SFAS 161 requires
+enhanced disclosures regarding how: (a) an entity uses derivative instruments;
+(b) derivative instruments and related hedged items are accounted for under FASB
+Statement No. 133, “Accounting for Derivative Instruments and Hedging
+Activities;” and (c) derivative instruments and related hedged items affect an
+entity's financial position, financial performance, and cash
+flows. SFAS 161 is effective for fiscal years and interim periods
+beginning after November 15, 2008 with early application being
+encouraged. The Company does not expect the adoption of SFAS 161 to
+have a significant impact on the Company’s consolidated financial
+statements. 
+In
+February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-1, “Application
+of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
+Pronouncements that Address Fair Value Measurements for Purposes of Lease
+Classification or Measurement under Statement 13,” and FSP FAS 157-2, “Effective
+Date of FASB Statement No. 157.” These FSPs: 
+• Exclude
+certain leasing transactions accounted for under FASB Statement No. 13,
+Accounting for Leases, from the scope of FASB Statement No. 157, “Fair Value
+Measurements” (Statement 157). The exclusion does not apply to fair value
+measurements of assets and liabilities recorded as a result of a lease
+transaction but measured pursuant to other pronouncements within the scope of
+Statement 157. 
+• Defer
+the effective date in Statement 157 for one year for certain nonfinancial assets
+and nonfinancial liabilities, except those that are recognized or disclosed at
+fair value in the financial statements on a recurring basis (at least
+annually). 
+FSP FAS
+157-1 is effective upon the initial adoption of Statement 157. FSP
+FAS 157-2 is effective February 12, 2008. The Company adopted the
+provisions of FSP 157-1 and 157-2 in the first quarter of 2008. See
+Note 8 for details regarding impact of adoption. 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk 
+The
+Company is subject to interest rate risk exposure through borrowings on its
+credit facility. As of December 31, 2008, there are outstanding
+interest-bearing advances of $174.5 million on our credit facility which bear
+interest at a floating rate. Effective December 2008 we entered into a
+$50,000,000 interest rate swap agreement that effectively converted this portion
+of the outstanding variable-rate borrowings under the revolving credit agreement
+to a fixed-rate basis, thereby hedging against the impact of potential interest
+rate changes. Under this agreement we pay a fixed interest rate of
+2.07%. In return, the issuing lender refunds us the variable-rate interest paid
+to the syndicate of lenders under our revolving credit agreement on the same
+notional amount, excluding the margin. The agreement terminates on
+September 8, 2011. As of December 31, 2008 the interest rate swap had
+a negative fair value of $830,000. An increase in interest rates of
+one percent would result in the interest rate swap having a positive fair value
+of approximately $407,000 at December 31, 2008. A decrease in
+interest rates of one percent would result in the interest rate swap having a
+negative fair value of approximately $2,176,000 at December 31,
+2008. A change in interest rates will have no impact on the
+interest expense associated with the $50,000,000 of borrowings under the
+revolving credit agreement that are subject to the interest rate
+swap. A change in interest rates of one percent on the balance
+outstanding on the revolving credit agreement at December 31, 2008 not subject
+to the interest rate swap would cause a change of $1.2 million in total annual
+interest costs. 
+Additionally,
+the Company is exposed to market risk resulting from changes in foreign exchange
+rates. However, since the majority of the Company’s transactions
+occur in U.S. currency, this risk is not expected to have a material effect on
+its consolidated results of operations and financial condition. 
+27 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the
+Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate
+internal control over financial reporting for the Company. RPC, Inc.
+maintains a system of internal accounting controls designed to provide
+reasonable assurance, at a reasonable cost, that assets are safeguarded against
+loss or unauthorized use and that the financial records are adequate and can be
+relied upon to produce financial statements in accordance with accounting
+principles generally accepted in the United States of America. The internal
+control system is augmented by written policies and procedures, an internal
+audit program and the selection and training of qualified personnel. This system
+includes policies that require adherence to ethical business standards and
+compliance with all applicable laws and regulations. 
+There are
+inherent limitations to the effectiveness of any controls system. A
+controls system, no matter how well designed and operated, can provide only
+reasonable, not absolute, assurance that the objectives of the controls system
+are met. Also, no evaluation of controls can provide absolute
+assurance that all control issues and any instances of fraud, if any, within the
+Company will be detected. Further, the design of a controls system
+must reflect the fact that there are resource constraints, and the benefits of
+controls must be considered relative to their costs. The Company intends to
+continually improve and refine its internal controls. 
+Under the
+supervision and with the participation of our management, including our
+principal executive officer and principal financial officer, we conducted an
+evaluation of the effectiveness of the design and operations of our internal
+control over financial reporting as of December 31, 2008 based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control
+over financial reporting as of December 31, 2008. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited
+the consolidated financial statements as of and for the year ended December 31,
+2008, and has also issued their report on the effectiveness of the Company’s
+internal control over financial reporting, included in this report on page
+29. 
+/s/
+Richard A. Hubbell 
+/s/
+Ben M. Palmer 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+March 3,
+2009 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over
+Financial Reporting 
+Board of
+Directors and Stockholders 
+RPC,
+Inc. 
+We have
+audited RPC, Inc.’s (a Delaware Corporation) and subsidiaries (the “Company”)
+internal control over financial reporting as of December 31, 2008 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. 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, testing and evaluating the design and operating effectiveness of
+internal control based on the assessed risk, and 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, the Company maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2008, based on criteria
+established in Internal
+Control—Integrated Framework issued by COSO. 
+We also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of the Company
+as of December 31, 2008 and 2007, and the related consolidated statements of
+income, stockholders’ equity, and cash flows for each of the three years in the
+period ended December 31, 2008 and our report dated March 3, 2009 expressed an
+unqualified opinion on those consolidated financial statements. 
+/s/
+Grant Thornton LLP 
+Atlanta,
+Georgia 
+March 3,
+2009 
+29 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements 
+Board of
+Directors and Stockholders 
+RPC,
+Inc. 
+We have
+audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware
+corporation) and subsidiaries (the “Company”) as of December 31, 2008 and 2007,
+and the related consolidated statements of operations, stockholders’ equity, and
+cash flows for each of the three years in the period ended December 31,
+2008. Our audits of the basic consolidated financial statements
+included the financial statement schedule listed in the index appearing under
+Item 15. These financial statements and financial statement schedule
+are the responsibility of the Company’s management. Our responsibility is to
+express an opinion on these financial statements and 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 audits 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 the Company as of December
+31, 2008 and 2007, and the results of its operations and its cash flows for each
+of the three years in the period ended December 31, 2008 in conformity with
+accounting principles generally accepted in the United States of
+America. Also in our opinion, the related 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. 
+As
+described in Note 5 
+to the consolidated financial statements, the Company adopted the provisions of
+Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes –
+an interpretation of FASB Statement 109” during 2007. As described in
+Note 1 
+to the consolidated financial statements, the Company adopted the provisions of
+Statement of Financial Accounting Standards No. 123 (revised 2004),
+“Share-Based Payment” during 2006. 
+We also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the Company’s internal control over financial
+reporting as of December 31, 2008, 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 3, 2009 expressed an
+unqualified opinion thereon. 
+/s/ Grant
+Thornton LLP 
+Atlanta,
+Georgia 
+March 3,
+2009 
+30 
+Item 8. Financial Statements and Supplementary
+Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2008 
+2007 
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+3,037 
+$ 
+6,338 
+Accounts
+receivable, net 
+210,375 
+176,154 
+Inventories 
+49,779 
+29,602 
+Deferred
+income taxes 
+6,187 
+3,974 
+Income
+taxes receivable 
+15,604 
+12,296 
+Prepaid
+expenses and other current assets 
+7,841 
+6,696 
+Current
+assets 
+292,823 
+235,060 
+Property,
+plant and equipment, net 
+470,115 
+433,126 
+Goodwill 
+24,093 
+24,093 
+Other
+assets 
+6,430 
+8,736 
+Total
+assets 
+$ 
+793,461 
+$ 
+701,015 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+61,217 
+$ 
+61,371 
+Accrued
+payroll and related expenses 
+20,398 
+17,972 
+Accrued
+insurance expenses 
+4,640 
+4,753 
+Accrued
+state, local and other taxes 
+2,395 
+1,719 
+Income
+taxes payable 
+3,359 
+4,340 
+Other
+accrued expenses 
+320 
+567 
+Current
+liabilities 
+92,329 
+90,722 
+Long-term
+accrued insurance expenses 
+8,398 
+8,166 
+Notes
+payable to banks 
+174,450 
+156,400 
+Long-term
+pension liabilities 
+11,177 
+4,527 
+Other
+long-term liabilities 
+3,628 
+2,692 
+Deferred
+income taxes 
+54,395 
+29,236 
+Total
+liabilities 
+344,377 
+291,743 
+Commitments
+and contingencies 
+STOCKHOLDERS’
+EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none
+issued 
+- 
+- 
+Common
+stock, $0.10 par value, 159,000,000 shares authorized, 97,705,142 and
+98,039,336 shares issued and outstanding in 2008 and 2007,
+respectively 
+9,770 
+9,804 
+Capital
+in excess of par value 
+3,990 
+16,728 
+Retained
+earnings 
+445,356 
+385,281 
+Accumulated
+other comprehensive loss 
+(10,032 
+) 
+(2,541 
+) 
+Total
+stockholders’ equity 
+449,084 
+409,272 
+Total
+liabilities and stockholders’ equity 
+$ 
+793,461 
+$ 
+701,015 
+The
+accompanying notes are an integral part of these statements. 
+31 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+REVENUES 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+COSTS
+AND EXPENSES: 
+Cost
+of revenues 
+503,631 
+368,175 
+287,037 
+Selling,
+general and administrative expenses 
+117,140 
+107,800 
+91,051 
+Depreciation
+and amortization 
+118,403 
+78,506 
+46,711 
+Gain
+on disposition of assets, net 
+(6,367 
+) 
+(6,293 
+) 
+(5,969 
+) 
+Operating
+profit 
+144,170 
+142,038 
+177,800 
+Interest
+expense 
+(5,282 
+) 
+(4,179 
+) 
+(356 
+) 
+Interest
+income 
+73 
+70 
+319 
+Other
+(expense) income, net 
+(1,176 
+) 
+1,905 
+1,085 
+Income
+before income taxes 
+137,785 
+139,834 
+178,848 
+Income
+tax provision 
+54,382 
+52,785 
+68,054 
+Net
+income 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+EARNINGS
+PER SHARE 
+Basic 
+$ 
+0.86 
+$ 
+0.90 
+$ 
+1.16 
+Diluted 
+$ 
+0.85 
+$ 
+0.89 
+$ 
+1.13 
+Dividends
+paid per share 
+$ 
+0.240 
+$ 
+0.200 
+$ 
+0.133 
+The
+accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Capital
+in 
+Accumulated 
+Excess
+of 
+Other 
+Three Years
+Ended 
+Comprehensive 
+Common
+Stock 
+Par 
+Deferred 
+Retained 
+Comprehensive 
+December 31,
+2008 
+Income
+(Loss) 
+Shares 
+Amount 
+Value 
+Compensation 
+Earnings 
+Loss 
+Total 
+Balance,
+December 31, 2005 
+96,678 
+$ 
+9,668 
+$ 
+16,012 
+$ 
+(5,391 
+) 
+$ 
+219,907 
+$ 
+(7,695 
+) 
+$ 
+232,501 
+Stock
+issued for stock incentive plans, net 
+491 
+49 
+2,533 
+— 
+— 
+— 
+2,582 
+Stock
+purchased and retired 
+(119 
+) 
+(12 
+) 
+(3,252 
+) 
+— 
+— 
+— 
+(3,264 
+) 
+Net
+income 
+$ 
+110,794 
+— 
+— 
+— 
+— 
+110,794 
+— 
+110,794 
+Minimum
+pension liability, net of taxes 
+2,108 
+— 
+— 
+— 
+— 
+— 
+2,108 
+2,108 
+Unrealized
+loss on securities, net of taxes 
+(147 
+) 
+— 
+— 
+— 
+— 
+— 
+(147 
+) 
+(147 
+) 
+Comprehensive
+income 
+$ 
+112,755 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(12,996 
+) 
+— 
+(12,996 
+) 
+Stock-based
+compensation 
+— 
+— 
+2,384 
+— 
+— 
+— 
+2,384 
+Excess
+tax benefits for share- based payments 
+— 
+— 
+1,325 
+— 
+— 
+— 
+1,325 
+Adoption
+of SFAS 123(R) 
+— 
+— 
+(5,391 
+) 
+5,391 
+— 
+— 
+— 
+Three-for-two
+stock split 
+164 
+16 
+(16 
+) 
+— 
+— 
+— 
+— 
+Balance,
+December 31, 2006 
+97,214 
+9,721 
+13,595 
+— 
+317,705 
+(5,734 
+) 
+335,287 
+Stock
+issued for stock incentive plans, net 
+989 
+99 
+1,654 
+— 
+— 
+— 
+1,753 
+Stock
+purchased and retired 
+(163 
+) 
+(16 
+) 
+(2,838 
+) 
+— 
+— 
+— 
+(2,854 
+) 
+Net
+income 
+$ 
+87,049 
+— 
+— 
+— 
+— 
+87,049 
+— 
+87,049 
+Pension
+adjustment, net of taxes 
+2,535 
+— 
+— 
+— 
+— 
+— 
+2,535 
+2,535 
+Unrealized
+gain on securities, net of taxes 
+486 
+— 
+— 
+— 
+— 
+— 
+486 
+486 
+Foreign
+currency translation, net of taxes 
+172 
+— 
+— 
+— 
+— 
+— 
+172 
+172 
+Comprehensive
+income 
+$ 
+90,242 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(19,473 
+) 
+— 
+(19,473 
+) 
+Stock-based
+compensation 
+— 
+— 
+3,189 
+— 
+— 
+— 
+3,189 
+Excess
+tax benefits for share- based payments 
+— 
+— 
+1,128 
+— 
+— 
+— 
+1,128 
+Balance,
+December 31, 2007 
+98,040 
+9,804 
+16,728 
+— 
+385,281 
+(2,541 
+) 
+409,272 
+Stock
+issued for stock incentive plans, net 
+1,288 
+128 
+1,922 
+— 
+— 
+— 
+2,050 
+Stock
+purchased and retired 
+(1,623 
+) 
+(162 
+) 
+(19,238 
+) 
+— 
+— 
+— 
+(19,400 
+) 
+Net
+income 
+$ 
+83,403 
+— 
+— 
+— 
+— 
+83,403 
+— 
+83,403 
+Pension
+adjustment, net of taxes 
+(6,053 
+) 
+— 
+— 
+— 
+— 
+— 
+(6,053 
+) 
+(6,053 
+) 
+Loss
+on cash flow hedge, net of taxes 
+(527 
+) 
+— 
+— 
+— 
+— 
+— 
+(527 
+) 
+(527 
+) 
+Unrealized
+loss on securities, net of taxes 
+(585 
+) 
+— 
+— 
+— 
+— 
+— 
+(585 
+) 
+(585 
+) 
+Foreign
+currency translation, net of taxes 
+(326 
+) 
+— 
+— 
+— 
+— 
+— 
+(326 
+) 
+(326 
+) 
+Comprehensive
+income 
+$ 
+75,912 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(23,328 
+) 
+— 
+(23,328 
+) 
+Stock-based
+compensation 
+— 
+— 
+3,732 
+— 
+— 
+— 
+3,732 
+Excess
+tax benefits for share- based payments 
+— 
+— 
+846 
+— 
+— 
+— 
+846 
+Balance,
+December 31, 2008 
+97,705 
+$ 
+9,770 
+$ 
+3,990 
+$ 
+— 
+$ 
+445,356 
+$ 
+(10,032 
+) 
+$ 
+449,084 
+The
+accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+OPERATING
+ACTIVITIES 
+Net
+income 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+Adjustments
+to reconcile net income to net cash provided by operating
+activities: 
+Depreciation,
+amortization and other non-cash charges 
+118,444 
+78,493 
+46,726 
+Stock-based
+compensation expense 
+3,732 
+3,189 
+2,384 
+Gain
+on disposition of assets, net 
+(6,367 
+) 
+(6,293 
+) 
+(5,969 
+) 
+Deferred
+income tax provision 
+27,199 
+15,738 
+2,817 
+Excess
+tax benefits for share-based payments 
+(846 
+) 
+(1,128 
+) 
+(1,325 
+) 
+Changes
+in current assets and liabilities: 
+Accounts
+receivable 
+(34,508 
+) 
+(27,497 
+) 
+(41,093 
+) 
+Income
+taxes receivable 
+(2,462 
+) 
+(7,229 
+) 
+(1,347 
+) 
+Inventories 
+(20,377 
+) 
+(8,316 
+) 
+(7,886 
+) 
+Prepaid
+expenses and other current assets 
+(2,231 
+) 
+(568 
+) 
+(1,463 
+) 
+Accounts
+payable 
+9,691 
+7,826 
+8,958 
+Income
+taxes payable 
+(981 
+) 
+123 
+774 
+Accrued
+payroll and related expenses 
+2,426 
+4,683 
+3,713 
+Accrued
+insurance expenses 
+(113 
+) 
+1,426 
+(368 
+) 
+Accrued
+state, local and other taxes 
+676 
+(1,078 
+) 
+1,597 
+Other
+accrued expenses 
+(203 
+) 
+46 
+(90 
+) 
+Changes
+in working capital 
+(48,082 
+) 
+(30,584 
+) 
+(37,205 
+) 
+Changes
+in other assets and liabilities: 
+Accrued
+pension 
+(481 
+) 
+(3,067 
+) 
+(802 
+) 
+Accrued
+insurance expenses 
+232 
+1,274 
+724 
+Other
+non-current assets 
+(20 
+) 
+(1,173 
+) 
+(1,118 
+) 
+Other
+non-current liabilities 
+106 
+(1,626 
+) 
+1,202 
+Net
+cash provided by operating activities 
+177,320 
+141,872 
+118,228 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(170,318 
+) 
+(248,758 
+) 
+(159,831 
+) 
+Proceeds
+from sale of assets 
+11,365 
+9,134 
+8,746 
+Net
+cash used for investing activities 
+(158,953 
+) 
+(239,624 
+) 
+(151,085 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(23,328 
+) 
+(19,473 
+) 
+(12,996 
+) 
+Borrowings
+from notes payable to banks 
+392,300 
+478,600 
+115,171 
+Repayments
+of notes payable to banks 
+(374,250 
+) 
+(357,800 
+) 
+(79,571 
+) 
+Debt
+issue costs for notes payable to banks 
+(94 
+) 
+— 
+(469 
+) 
+Excess
+tax benefits for share-based payments 
+846 
+1,128 
+1,325 
+Cash
+paid for common stock purchased and retired 
+(17,489 
+) 
+(1,730 
+) 
+(2,024 
+) 
+Proceeds
+received upon exercise of stock options 
+347 
+636 
+1,341 
+Net
+cash (used for) provided by financing activities 
+(21,668 
+) 
+101,361 
+22,777 
+Net
+(decrease) increase in cash and cash equivalents 
+(3,301 
+) 
+3,609 
+(10,080 
+) 
+Cash
+and cash equivalents at beginning of year 
+6,338 
+2,729 
+12,809 
+Cash
+and cash equivalents at end of year 
+$ 
+3,037 
+$ 
+6,338 
+$ 
+2,729 
+The
+accompanying notes are an integral part of these statements. 
+34 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany
+accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+coiled tubing services, snubbing services (also referred to as hydraulic
+workover services), nitrogen services, and firefighting and well control, and
+Support Services such as the rental of drill pipe and other specialized oilfield
+equipment and oilfield training. 
+Dividends 
+On
+January 27, 2009, the Board of Directors approved an increase in the quarterly
+cash dividend per common share from $0.06 to $0.07, payable March 10, 2009 to
+stockholders of record at the close of business February 10, 2009. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates. 
+Significant
+estimates are used in the determination of the allowance for doubtful accounts,
+income taxes, accrued insurance expenses, depreciable lives of assets, and
+pension liabilities. 
+Revenues 
+RPC’s
+revenues are generated principally from providing services and the related
+equipment. Revenues are recognized when the services are rendered and
+collectibility is reasonably assured. Revenues from services and
+equipment are based on fixed or determinable priced purchase orders or contracts
+with the customer and do not include the right of return. Rates for
+services and equipment are priced on a per day, per unit of measure, per man
+hour or similar basis. Sales tax charged to customers is presented on
+a net basis within the consolidated statement of operations and excluded from
+revenues. 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This
+concentration of customers may impact overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. The Company provided oilfield
+services to several hundred customers, none of which accounted for more than 10
+percent of consolidated revenues. 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. The Company maintains its cash
+in bank deposit accounts which, at times, may exceed federally insured
+limits. RPC maintains cash equivalents and investments in one or more
+large financial institutions, and RPC’s policy restricts investment in any
+securities rated less than “investment grade” by national rating
+services. 
+35 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Investments 
+Investments
+classified as available-for-sale are stated at their fair values, with the
+unrealized gains and losses, net of tax, reported as a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific
+identification method. Realized gains and losses, declines in value judged to be
+other than temporary, interest, and dividends with respect to available-for-sale
+securities are included in interest income. The Company did not realize any
+gains or losses on securities during 2008, 2007 and 2006 on its
+available-for-sale securities. Securities that are held in the
+non-qualified Supplemental Retirement Plan (“SERP”) are classified as
+trading. See Note 10 for further information regarding the
+SERP. The change in fair value of trading securities is presented in
+other (expense) income on the consolidated statements of
+operations. 
+Management
+determines the appropriate classification of investments at the time of purchase
+and re-evaluates such designations as of each balance sheet date. 
+Accounts
+Receivable 
+The
+majority of the Company’s accounts receivable are due principally from major and
+independent oil and natural gas exploration and production
+companies. Credit is extended based on evaluation of a customer’s
+financial condition and, generally, collateral is not
+required. Accounts receivable are considered past due after 60 days
+and are stated at amounts due from customers, net of an allowance for doubtful
+accounts. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance
+for estimated amounts that may not be collectible in the future. The estimated
+allowance for doubtful accounts is based on our evaluation of industry trends,
+financial condition of our customers, our historical write-off experience,
+current economic conditions, and in the case of our international customers, our
+judgments about the economic and political environment of the related country
+and region. Accounts are written off against the allowance for doubtful accounts
+when the Company determines that amounts are uncollectible and recoveries of
+previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories,
+which consist principally of (i) raw materials and supplies that are consumed in
+RPC’s services provided to customers, (ii) spare parts for equipment used in
+providing these services and (iii) manufactured components and attachments for
+equipment used in providing services, are recorded at the lower of weighted
+average cost or market value. Market value is determined based on replacement
+cost for material and supplies. The Company regularly reviews inventory
+quantities on hand and records provisions for excess or obsolete inventory based
+primarily on its estimated forecast of product demand, market conditions,
+production requirements and technological developments. 
+Derivative
+Instruments and Hedging Activities 
+The
+Company is subject to interest rate risk on the variable component of the
+interest rate under our revolving credit agreement. Effective
+December 2008, the Company entered into a $50,000,000 interest rate swap
+agreement. The agreement terminates on September 8,
+2011. The Company has designated the interest rate swap as a cash
+flow hedge. Changes in the fair value of the effective portion of the
+interest rate swap are recognized in other comprehensive loss until the hedge
+item is recognized in earnings. 
+36 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less
+accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the
+assets. Annual depreciation and amortization expense is computed
+using the following useful lives: operating equipment, 3 to 10 years; buildings
+and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7
+years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired
+or otherwise disposed of and the related accumulated depreciation and
+amortization are eliminated from the accounts in the year of disposal with the
+resulting gain or loss credited or charged to income from operations.
+Expenditures for additions, major renewals, and betterments are capitalized.
+Expenditures for restoring an identifiable asset to working condition or for
+maintaining the asset in good working order constitute repairs and maintenance
+and are expensed as incurred. 
+RPC
+records impairment losses on long-lived assets used in operations when events
+and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less than
+the carrying
+amount of those assets. The Company periodically reviews the values assigned to
+long-lived assets, such as property, plant and equipment and other assets, to
+determine if any impairments should be recognized. Management believes that the
+long-lived assets in the accompanying balance sheets have not been
+impaired. 
+Goodwill
+and Other Intangibles 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets of
+businesses acquired. The carrying amount of goodwill was $24,093,000
+at December 31, 2008 and 2007. Goodwill is reviewed annually for
+impairment in accordance with the provisions of Statement of Financial
+Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible
+Assets.” In reviewing goodwill for impairment, potential impairment
+is measured by comparing the estimated fair value of a reporting unit with its
+carrying value. Based upon the results of these analyses, the Company
+has concluded that no impairment of its goodwill has occurred for the years
+ended December 31, 2008, 2007 and 2006. 
+Other
+intangibles primarily represent non-compete agreements related to businesses
+acquired. Non-compete agreements are amortized on a straight-line
+basis over the period of the agreement, as this method best estimates the ratio
+that current revenues bear to the total of current and anticipated
+revenues. These non-compete agreements are fully amortized as of
+December 31, 2008 and 2007. 
+Advertising 
+Advertising
+expenses are charged to expense during the period in which they are
+incurred. Advertising expenses totaled $1,957,000 in 2008, $1,594,000
+in 2007 and $1,180,000 in 2006. 
+Insurance
+Expenses 
+RPC self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability, and employee
+health insurance plan costs. The estimated cost of claims under these
+self-insurance programs is estimated and accrued as the claims are incurred
+(although actual settlement of the claims may not be made until future periods)
+and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more than
+one year in the future is classified as long-term accrued insurance
+expenses. 
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect for the year in which the differences are expected to reverse. The
+Company establishes a valuation allowance against the carrying value of deferred
+tax assets when the Company determines that it is more likely than not that the
+asset will not be realized through future taxable income. 
+37 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon
+retirement at age 65 to eligible employees. In September 2006, the FASB issued
+SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
+Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and
+132(R).” SFAS 158 requires the Company to recognize the funded status of its
+defined benefit pension plan in the Company’s consolidated balance
+sheets. Effective for fiscal years ending after December 15, 2008, SFAS 158
+also removes the existing option to use a plan measurement date that is up to 90
+days prior to the date of the balance sheet. The recognition and disclosure
+provisions of SFAS 158 are effective for fiscal years ending after December 15,
+2006, for entities with publicly traded equity securities that have defined
+benefit plans and is to be applied as of the year of adoption. Accordingly, the
+Company has adopted the recognition and disclosure provisions of SFAS 158 as of
+December 31, 2006 which did not result in a material impact to its consolidated
+financial statements. The Company uses a December 31 measurement date for its
+pension plan and thus the measurement date provisions did not affect the
+Company. See Note 10 for a full description of this plan and the related
+accounting and funding policies. 
+Share
+Repurchases 
+The
+Company records the cost of share repurchases in stockholders’ equity as a
+reduction to common stock to the extent of par value of the shares acquired and
+the remainder is allocated to capital in excess of par value. 
+Earnings
+per Share 
+SFAS No.
+128, “Earnings Per Share,” requires a basic earnings per share and diluted
+earnings per share presentation. The two calculations differ as a result of the
+dilutive effect of stock options and time lapse restricted and performance
+restricted shares included in diluted earnings per share, but excluded from
+basic earnings per share. A reconciliation of the weighted shares outstanding is
+as follows: 
+2008 
+2007 
+2006 
+Basic 
+96,565,148 
+96,267,732 
+95,242,593 
+Dilutive
+effect of stock options and restricted shares 
+1,299,890 
+2,094,333 
+2,953,428 
+Diluted 
+97,865,038 
+98,362,065 
+98,196,021 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist primarily of cash and cash equivalents,
+accounts receivable, marketable securities, accounts payable, an interest rate
+swap, and debt. The carrying value of cash and cash equivalents, accounts
+receivable and accounts payable approximate their fair value due to the
+short-term nature of such instruments. The marketable securities
+classified as available-for-sale and the securities held in the SERP classified
+as trading are carried at fair value in the accompanying consolidated balance
+sheets. The interest rate swap is carried at fair value, which is
+based on quotes from the issuer of the swap and represents the estimated amounts
+that we would expect to pay to terminate the swap. The carrying value
+of debt approximates fair value since the interest rates are market based and
+are adjusted periodically. 
+Stock-Based
+Compensation 
+Effective
+January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
+2004), “Share-Based Payments” (“SFAS 123(R)”), which revises SFAS 123,
+“Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25,
+“Accounting for Stock Issued to Employees.” SFAS 123(R) requires all share-based
+payments to employees, including grants of employee stock options, to be
+measured based on their fair values and recognized in the financial statements
+over the requisite service period. See Note 10 regarding the Company’s adoption
+of SFAS 123(R). 
+38 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Prior to
+January 1, 2006, the Company provided the disclosures required by SFAS 123, as
+amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and
+Disclosures,” and accounted for all of its stock-based compensation under the
+provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
+for Stock Issued to Employees” using the intrinsic value method prescribed
+therein. Accordingly, the Company did not recognize compensation expense for the
+options granted since the exercise price was the same as the market price of the
+shares on the date of grant. Compensation cost on the restricted stock was
+recorded as deferred compensation in stockholders’ equity based on the fair
+market value of the shares on the date of issuance and amortized ratably over
+the respective vesting period. Forfeitures related to restricted stock were
+previously accounted for as they occurred. See Note 10 for additional
+information. 
+New
+Accounting Standards 
+In
+December 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1, “Employers’
+Disclosures about Postretirement Benefit Plan Assets.” The FASB issued the FSP,
+which amends FASB Statement 132R, Employers’ Disclosures about
+Pensions and Other Postretirement Benefits , in order to provide adequate
+transparency about the types of assets and associated risks in employers’
+postretirement plans. Disclosures are designed to provide an
+understanding of how investment decisions are made: the major categories of plan
+assets; the inputs and valuation techniques used to measure the fair value of
+plan assets; the effect of fair value measurements using significant
+unobservable inputs (Level 3 measurements in FASB Statement 157, Fair Value
+Measurements) on changes in plan assets for the period; and significant
+concentrations of risk within plan assets. The disclosures about plan
+assets required by this FSP are required to be provided for fiscal years ending
+after December 15, 2009, with the provisions of this FSP not required for
+earlier periods that are presented for comparative purposes, upon initial
+application. Earlier application of the provisions of this FSP is permitted. The
+Company is currently in the process of determining the additional disclosures
+required upon the adoption of this FSP. 
+In
+October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3,
+“Determining the Fair Value of a Financial Asset When the Market for That Asset
+Is Not Active.” FSP 157-3 clarifies the application of SFAS No.
+157, “ Fair Value
+Measurements ,” in a market that is not active and provides an example to
+illustrate key considerations in determining the fair value of a financial asset
+when the market for that financial asset is not active. The FSP
+stipulates that determining fair value in a dislocated market depends on the
+facts and circumstances and may require the use of significant judgment when
+evaluating individual transactions or broker quotes which are some of the
+sources of the fair value measurement. In addition, FSP FAS 157-3
+states that if an entity uses its own assumptions to determine fair value, it
+must include appropriate risk adjustments that market participants would make
+for nonperformance and liquidity risks. FSP FAS 157-3 is effective
+upon issuance, including prior periods for which financial statements have not
+been issued. The Company adopted FSP FAS 157-3 in the third quarter
+of 2008 and has concluded that it does not have a material effect on its
+consolidated financial statements. 
+In
+September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures
+about Credit Derivatives and Certain Guarantees – An Amendment of FASB Statement
+No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
+of FASB Statement No. 161.” This FSP amends SFAS No. 133,
+“Accounting for Derivative Instruments and Hedging Activities,” to require
+disclosures by sellers of credit derivatives, including credit derivatives
+embedded in a hybrid instrument. This FSP also amends FASB
+Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements
+for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to
+require an additional disclosure about the current status of the
+payment/performance risk of a guarantee. Further this FSP
+clarifies the FASB’s intent about the effective date of SFAS No. 161,
+“Disclosures about Derivative Instruments and Hedging
+Activities.” The provisions of this FSP that amend SFAS No. 161 and
+FIN 45 are effective for reporting periods ending after November 15, 2008 and
+the clarification of the effective date of SFAS No. 161 is effective upon
+issuance of this FSP. The Company adopted FSP FAS 133-1 and FIN 45-4
+in the fourth quarter of 2008 and has concluded that it does not have a material
+effect on its consolidated financial statements. 
+39 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+In June
+2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
+in Share-Based Payment Transactions Are Participating Securities,” to clarify
+that all outstanding unvested share-based payment awards that contain
+nonforfeitable rights to dividends or dividend equivalents, whether paid or
+unpaid, are participating securities. An entity must include participating
+securities in its calculation of basic and diluted earnings per share (EPS)
+pursuant to the two-class method, as described in FASB Statement 128, Earnings
+per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after
+December 15, 2008 and interim periods within those fiscal years. The Company
+intends to adopt FSP EITF 03-6-1 effective January 1, 2009 and apply its
+provisions retrospectively to all prior-period EPS data presented in its
+financial statements. The Company has periodically issued share-based payment
+awards that contain non-forfeitable rights to dividends and does not expect the
+adoption of this accounting guidance to have a material effect on its
+consolidated financial statements or EPS. 
+In May
+2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
+Principles.” SFAS 162 is intended to improve financial reporting by
+identifying a consistent framework, or hierarchy, for selecting accounting
+principles to be used in financial statements that are presented in conformity
+with U.S. generally accepted accounting principles for nongovernmental
+entities. SFAS 162 is effective 60 days following the SEC’s approval
+of the Public Company Accounting Oversight Board amendments to AU Section 411,
+“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
+Principles.” This Statement became effective on November 15,
+2008. The Company adopted SFAS 162 in the fourth quarter of 2008 and has
+concluded that it does not have a material effect on its consolidated financial
+statements. 
+In April
+2008, the FASB issued FSP FAS No. 142-3, which amends the factors that must be
+considered in developing renewal or extension assumptions used to determine the
+useful life over which to amortize the cost of a recognized intangible asset
+under SFAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an
+entity that is estimating the useful life of a recognized intangible asset to
+consider its historical experience in renewing or extending similar arrangements
+or, in the absence of historical experience, must consider assumptions that
+market participants would use about renewal or extension that are both
+consistent with the asset’s highest and best use and adjusted for
+entity-specific factors under SFAS No. 142. The FSP is effective for
+fiscal years beginning after December 15, 2008, and the guidance for determining
+the useful life of a recognized intangible asset must be applied prospectively
+to intangible assets acquired after the effective date. The Company does not
+expect the adoption of FSP FAS No. 142-3 to have a material effect on its
+consolidated financial statements. 
+In March
+2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
+Hedging Activities - an Amendment of FASB Statement No. 133.” SFAS 161 requires
+enhanced disclosures regarding how: (a) an entity uses derivative instruments;
+(b) derivative instruments and related hedged items are accounted for under FASB
+Statement No. 133, “Accounting for Derivative Instruments and Hedging
+Activities;” and (c) derivative instruments and related hedged items affect an
+entity's financial position, financial performance, and cash
+flows. SFAS 161 is effective for fiscal years and interim periods
+beginning after November 15, 2008 with early application being
+encouraged. The Company does not expect the adoption of SFAS 161 to
+have a significant impact on the Company’s consolidated financial
+statements. 
+In
+February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-1, “Application
+of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
+Pronouncements that Address Fair Value Measurements for Purposes of Lease
+Classification or Measurement under Statement 13,” and FSP FAS 157-2, “Effective
+Date of FASB Statement No. 157.” These FSPs: 
+• Exclude
+certain leasing transactions accounted for under FASB Statement No. 13,
+Accounting for Leases, from the scope of FASB Statement No. 157, “Fair Value
+Measurements” (Statement 157). The exclusion does not apply to fair value
+measurements of assets and liabilities recorded as a result of a lease
+transaction but measured pursuant to other pronouncements within the scope of
+Statement 157. 
+• Defer
+the effective date in Statement 157 for one year for certain nonfinancial assets
+and nonfinancial liabilities, except those that are recognized or disclosed at
+fair value in the financial statements on a recurring basis (at least
+annually). 
+FSP FAS
+157-1 is effective upon the initial adoption of Statement 157. FSP
+FAS 157-2 is effective February 12, 2008. The Company adopted the
+provisions of FSP 157-1 and 157-2 in the first quarter of 2008. See
+Note 8 for details regarding impact of adoption. 
+40 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+2: Accounts Receivable 
+Accounts
+receivable, net consists of the following: 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+168,989 
+$ 
+134,522 
+Unbilled 
+47,034 
+43,513 
+Other
+receivables 
+551 
+3,336 
+Total 
+216,574 
+181,371 
+Less:
+Allowance for doubtful accounts 
+(6,199 
+) 
+(5,217 
+) 
+Accounts
+receivable, net 
+$ 
+210,375 
+$ 
+176,154 
+Trade
+receivables relate to sale of our services and products, for which credit is
+extended based on the customer’s credit history. Unbilled receivables
+represent revenues earned but not billed to the customer until future dates,
+usually within one month. Other receivables consist primarily of
+amounts due from purchasers of company property and rebates from
+suppliers. 
+Changes
+in the Company’s allowance for doubtful accounts are as follows: 
+Years
+Ended December 31, 
+2008 
+2007 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+5,217 
+$ 
+4,904 
+Bad
+debt (credit) expense 
+(84 
+) 
+3,119 
+Accounts
+written-off 
+(392 
+) 
+(2,940 
+) 
+Recoveries 
+1,458 
+134 
+Ending
+balance 
+$ 
+6,199 
+$ 
+5,217 
+Note
+3: Inventories 
+Inventories
+are $49,779,000 at December 31, 2008 and $29,602,000 at December 31, 2007 and
+consist of raw materials, parts and supplies. 
+41 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+4: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and
+consist of the following: 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+Land 
+$ 
+14,927 
+$ 
+14,817 
+Buildings
+and leasehold improvements 
+77,867 
+43,959 
+Operating
+equipment 
+595,217 
+496,216 
+Capitalized
+software 
+15,700 
+14,300 
+Furniture
+and fixtures 
+4,398 
+3,764 
+Vehicles 
+181,102 
+170,647 
+Construction
+in progress 
+231 
+9,926 
+Gross
+property, plant and equipment 
+889,442 
+753,629 
+Less:
+accumulated depreciation 
+(419,327 
+) 
+(320,503 
+) 
+Net
+property, plant and equipment 
+$ 
+470,115 
+$ 
+433,126 
+Depreciation
+expense was $118.4 million in 2008, $78.5 million in 2007 and $46.7 million in
+2006. There are no capital leases outstanding as of December 31, 2008
+and December 31, 2007. The Company had accounts payable for purchases
+of property and equipment of approximately $9.4 million, $19.1 million and $16.4
+million at December 31, 2008, 2007 and 2006. 
+Note
+5: Income Taxes 
+The
+following table lists the components of the provision for income
+taxes: 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+(in
+thousands) 
+Current
+provision: 
+Federal 
+$ 
+20,793 
+$ 
+29,589 
+$ 
+56,104 
+State 
+5,453 
+4,857 
+8,155 
+Foreign 
+937 
+2,601 
+978 
+Deferred
+provision: 
+Federal 
+25,486 
+14,531 
+2,429 
+State 
+1,713 
+1,207 
+388 
+Total
+income tax provision 
+$ 
+54,382 
+$ 
+52,785 
+$ 
+68,054 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as
+follows: 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State
+income taxes, net of federal benefit 
+3.2 
+2.8 
+3.2 
+Tax
+credits 
+(0.8 
+) 
+(1.6 
+) 
+(0.6 
+) 
+Federal
+and state refunds 
+— 
+0.1 
+— 
+Adjustments
+to foreign tax liabilities 
+— 
+— 
+(1.1 
+) 
+Other 
+2.1 
+1.4 
+1.6 
+Effective
+tax rate 
+39.5 
+% 
+37.7 
+% 
+38.1 
+% 
+42 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Significant
+components of the Company’s deferred tax assets and liabilities are as
+follows: 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+5,404 
+$ 
+5,220 
+Pension 
+4,054 
+— 
+State
+net operating loss carryforwards 
+1,649 
+1,704 
+Bad
+debts 
+2,418 
+2,099 
+Accrued
+payroll 
+1,579 
+857 
+Stock-based
+compensation 
+2,294 
+1,785 
+All
+others 
+501 
+52 
+Valuation
+allowance 
+(1,454 
+) 
+(1,503 
+) 
+Gross
+deferred tax assets 
+16,445 
+10,214 
+Deferred
+tax liabilities: 
+Depreciation 
+(60,946 
+) 
+(30,909 
+) 
+Goodwill
+amortization 
+(3,707 
+) 
+(2,954 
+) 
+Pension 
+— 
+(962 
+) 
+All
+others 
+— 
+(651 
+) 
+Gross
+deferred tax liabilities 
+(64,653 
+) 
+(35,476 
+) 
+Net
+deferred tax liabilities 
+$ 
+(48,208 
+) 
+$ 
+(25,262 
+) 
+Historically,
+undistributed earnings of the Company's forgein subsidiaries were considered
+indefinitely reinvested and, accordingly, no provision for U.S. federal income
+taxes was recorded. Deferred taxes are provided for earnings outside the
+United States when those earnings are not considered indefinitely
+reinvested. 
+As of
+December 31, 2008, the Company has net operating loss carryforwards related to
+state income taxes of approximately $39.1 million that will expire between 2009
+and 2028. As of December 31, 2008 the Company has a valuation
+allowance of approximately $1.5 million, representing the tax affected amount of
+loss carryforwards that the Company does not expect to utilize, against the
+corresponding deferred tax asset. 
+Total
+income tax payments, net of refunds were $29,714,000 in 2008, $46,328,000 in
+2007, and $65,208,000 in 2006. 
+In July
+2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
+Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
+provides criteria for the recognition, measurement, presentation and disclosure
+of uncertain tax positions. The Company was subject to the provisions
+of FIN 48 as of January 1, 2007, and has analyzed filing positions in federal,
+state and foreign filing jurisdictions where it is required to file income tax
+returns, as well as all open years in those jurisdictions. As a
+result of the implementation of FIN 48, the Company did not recognize a material
+adjustment in the liability for unrecognized income tax benefits. As
+of the adoption date the Company had gross tax affected unrecognized tax
+benefits of $922,000, of which $850,000, if recognized, would affect the
+Company’s effective tax rate. As of December 31, 2008 the Company had
+remaining gross tax affected unrecognized benefits of $11,000. A
+reconciliation of the beginning and ending amount of unrecognized tax benefits
+is as follows: 
+43 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Years
+Ended December 31, 
+2008 
+2007 
+(in
+thousands 
+Beginning
+balance 
+$ 
+10 
+$ 
+922 
+Additions
+based on tax positions related to current year 
+- 
+- 
+Additions
+for tax positions of prior years 
+1 
+3 
+Reductions
+for tax positions of prior years 
+- 
+(915 
+) 
+Ending
+balance 
+$ 
+11 
+$ 
+10 
+The
+Company and its subsidiaries are subject to U.S. federal and state income tax in
+multiple jurisdictions. In many cases our uncertain tax positions are
+related to tax years that remain open and subject to examination by the relevant
+taxing authorities. The Company’s 2005 through 2008 tax years remain
+open to examination. 
+It is
+reasonably possible that the amount of the unrecognized tax benefits with
+respect to our unrecognized tax positions will increase or decrease in the next
+12 months. These changes may be the result of, among other things,
+state tax settlements under Voluntary Disclosure Agreements. However,
+quantification of an estimated range cannot be made at this time. 
+The
+Company’s policy is to record interest and penalties related to income tax
+matters as income tax expense. Accrued interest and penalties were
+immaterial as of December 31, 2008 and December 31, 2007. 
+Note
+6: Long-Term Debt 
+The
+Company currently has a revolving credit agreement (the "Revolving Credit
+Agreement") with SunTrust Capital Markets, Inc, as Joint Lead Arranger and Sole
+Book Manager, Banc of America Securities LLC as Joint Lead Arranger, and a
+syndicate of six other lenders. The Revolving Credit Agreement
+includes a full and unconditional guarantee by RPC's 100% owned domestic
+subsidiaries whose assets equal substantially all of the consolidated assets of
+RPC and its subsidiaries. The subsidiaries of the Company that are
+not guarantors are considered minor. 
+The
+Revolving Credit Agreement has a general term of five years and provides for an
+unsecured line of credit of up to $250 million, which includes a $50 million
+letter of credit subfacility, and a $20 million swingline
+subfacility. The maturity date of all revolving loans under the
+Credit Agreement is September 8, 2011. During the second quarter of
+2008, the Company entered into a certain Commitment Increase Amendment to the
+Revolving Credit Agreement to increase the amount of the credit facility by
+$46.5 million to its current amount of $296.5 million. The Company
+incurred loan origination fees and other debt related costs associated with the
+line of credit and Commitment Increase Amendment in the aggregate of
+approximately $514,000. These costs are being amortized to interest
+expense over the remaining term of the five year loan, and the net amount is
+classified as non-current other assets on the consolidated balance
+sheet. 
+Revolving
+loans under the Revolving Credit Agreement bear interest at one of the following
+two rates, at RPC's election: 
+● 
+the
+Base Rate, which is the greater of SunTrust Bank's "prime rate" for the
+day of the borrowing and a fluctuating rate per annum equal to the Federal
+Funds Rate plus .50%; or 
+● 
+with
+respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR
+as increased to account for the maximum reserve percentages established by
+the U.S. Federal Reserve) plus a margin ranging from .40% to .80%, based
+upon RPC's then-current consolidated debt-to-EBITDA ratio. In
+addition, RPC will pay an annual fee ranging from .10% to .20% of the
+total credit facility based upon RPC's then-current consolidated
+debt-to-EBITDA ratio. 
+The
+Revolving Credit Agreement contains customary terms and conditions, including
+certain financial covenants and restrictions on indebtedness, dividend payments,
+business combinations and other related items. Further, the Revolving
+Credit Agreement contains financial covenants restricting RPC's ability to
+permit the ratio of RPC's consolidated
+debt to EBITDA to exceed 2.5 to 1, and to permit the ratio of RPC's consolidated
+EBIT to interest expense to exceed 2 to 1. 
+44 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+As of
+December 31, 2008, RPC has outstanding borrowings of $174.45 million under the
+Revolving Credit Agreement. Interest incurred and
+recorded as expense on the line of credit was $5,188,000 in 2008, $4,083,000 in
+2007 and $356,000 in 2006. The weighted average interest rate was 3.6% in 2008,
+6.1% for 2007 and 5.8% for 2006. The Company capitalized interest
+incurred of $1,064,000 in 2008 and $2,300,000 in 2007 related to facilities and
+equipment under construction. Additionally there were letters of
+credit relating to self-insurance programs and contract bids outstanding for
+$22.2 million as of December 31, 2008. 
+Cash
+interest paid (net of capitalized interest) was approximately $5,232,000 in
+2008, $3,849,000 in 2007, and $232,000 in 2006. 
+Effective
+December 2008 the Company entered into an interest rate swap agreement that
+effectively converted $50 million of our variable-rate debt to a fixed rate
+basis, thereby hedging against the impact of potential interest rate changes on
+future interest expense. The agreement terminates on September 8,
+2011. Under this agreement we pay a fixed interest rate of
+2.07%. In return, the issuing lender refunds us the variable-rate
+interest paid to the syndicate of lenders under our revolving credit agreement
+on the same notional amount, excluding the margin that varies from 0.40% to
+0.80%, depending upon RPC's then-current consolidated debt-to-EBITDA
+ratio. 
+Note
+7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in
+thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Foreign
+Currency Translation 
+Net
+Loss 
+On
+Cash Flow Hedge 
+Total 
+Balance
+at December 31, 2006 
+$ 
+(5,962 
+) 
+$ 
+228 
+$ 
+— 
+$ 
+— 
+$ 
+(5,734 
+) 
+Change
+during 2007: 
+Before-tax
+amount 
+3,992 
+757 
+271 
+— 
+5,027 
+Tax
+expense 
+(1,457 
+) 
+(271 
+) 
+(99 
+) 
+— 
+(1,834 
+) 
+Total
+activity in 2007 
+2,535 
+486 
+172 
+— 
+3,193 
+Balance
+at December 31, 2007 
+$ 
+(3,427 
+) 
+$ 
+714 
+$ 
+172 
+$ 
+— 
+$ 
+(2,541 
+) 
+Change
+during 2008: 
+Before-tax
+amount 
+(9,532 
+) 
+(921 
+) 
+(513 
+) 
+(830 
+) 
+(11,796 
+) 
+Tax
+benefit 
+3,479 
+336 
+187 
+303 
+4,305 
+Total
+activity in 2008 
+(6,053 
+) 
+(585 
+) 
+(326 
+) 
+(527 
+) 
+(7,491 
+) 
+Balance
+at December 31, 2008 
+$ 
+(9,480 
+) 
+$ 
+129 
+$ 
+(154 
+) 
+$ 
+(527 
+) 
+$ 
+(10,032 
+) 
+45 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+8: Fair Value Disclosures 
+The
+Company adopted SFAS 157, “Fair Value Measurements,” and FSP 157-2, “Effective
+Date of FASB Statement No. 157,” in the first quarter of 2008 for financial
+assets and liabilities. There was no impact from the adoption of SFAS
+157 to the consolidated financial statements. SFAS 157 defines fair
+value, establishes a framework for measuring fair value and expands disclosure
+requirements about items measured at fair value. SFAS 157 does not
+require any new fair value measurements. It applies to accounting
+pronouncements that already require or permit fair value measures. As
+a result, the Company will not be required to recognize any new assets or
+liabilities at fair value. FSP 157-2 delays the effective date of SFAS 157 for
+nonfinancial assets and nonfinancial liabilities, except for items that are
+recognized or disclosed at fair value in the financial statements on a recurring
+basis. 
+SFAS 157
+establishes a fair value hierarchy that distinguishes between assumptions based
+on market data (observable inputs) and the Company’s assumptions (unobservable
+inputs). The hierarchy consists of three broad levels as
+follows: 
+1. 
+Level
+1 – Quoted market prices in active markets for identical assets or
+liabilities. 
+2. 
+Level
+2 – Inputs other than level 1 that are either directly or indirectly
+observable. 
+3. 
+Level
+3 – Unobservable inputs developed using the Company’s estimates and
+assumptions, which reflect those that market participants would
+use. 
+The
+following table summarizes the valuation of financial instruments measured at
+fair value on a recurring basis in the balance sheet as of December 31,
+2008: 
+Fair
+Value Measurements at December 31, 2008 with: 
+(in
+thousands ) 
+Quoted
+prices in 
+active
+markets for identical assets 
+Significant
+other 
+observable
+inputs 
+Significant 
+unobservable 
+inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading
+securities 
+$ 
+4,074 
+$ 
+- 
+$ 
+- 
+Available-for-sale
+securities 
+511 
+- 
+- 
+Liabilities: 
+Interest
+rate swap 
+$ 
+- 
+$ 
+830 
+$ 
+- 
+The
+Company determines the fair value of the marketable securities that are trading
+and available-for-sale through quoted market prices. 
+At
+December 31, 2008 and 2007, there was $174,450,000 and $156,400,000 outstanding
+under our revolving credit agreement. The borrowings under our
+revolving credit agreement bear interest at the variable rate described in Note
+6 and therefore approximate fair value at December 31, 2008 and
+2007. We are subject to interest rate risk on the variable component
+of the interest rate. Our risk management objective is to lock in the
+interest cash outflows on a portion of our debt. As a result, as
+described in Note 6, we entered into an interest rate swap agreement effectively
+converting a portion of the outstanding borrowings under the revolving credit
+agreement to a fixed-rate, thereby hedging against the impact of potential
+interest rate changes on future interest expense. At December 31,
+2008 the interest rate swap had a negative fair value of $830,000, which is
+recorded in other long-term liabilities. The fair value of the
+interest rate swap was based on quotes from the issuer of the swap and
+represents the estimated amounts that we would expect to pay to terminate the
+swap. 
+The
+carrying amounts of other financial instruments reported in the balance sheet
+for current assets and current liabilities approximate their fair values because
+of the short maturity of these instruments. 
+In
+February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
+for Financial Assets and Financial Liabilities — including an amendment of FASB
+Statement No. 115.” This statement permits entities to choose to measure
+many financial instruments and certain other items at fair value. This statement
+is effective for financial statements issued for fiscal years beginning after
+November 15, 2007, including interim periods within that fiscal year. The
+Company did not elect the fair value option for any of its existing financial
+instruments as of December 31, 2008 and the Company has not determined whether
+or not it will elect this option for financial instruments it may acquire in the
+future. 
+46 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+9: Commitments and Contingencies 
+Lease Commitments - Minimum
+annual rentals, principally for noncancelable real estate leases with terms in
+excess of one year, in effect at December 31, 2008, are summarized in the
+following table: 
+(in
+thousands) 
+2009 
+$ 
+3,396 
+2010 
+3,155 
+2011 
+2,287 
+2012 
+1,469 
+2013 
+993 
+Thereafter 
+1,141 
+Total
+rental commitments 
+$ 
+12,441 
+Total
+rental expense charged to operations was approximately $9,109,000 in 2008,
+$7,116,000 in 2007, and $6,276,000 in 2006. 
+Income Taxes - The amount of
+income taxes the Company pays is subject to ongoing audits by federal and state
+tax authorities, which often result in proposed assessments. Other
+long-term liabilities include $11,000 as of December 31, 2008 and $10,000 as of
+December 31, 2007, that represents the Company’s estimated liabilities for the
+probable assessments payable. 
+Sales and Use Taxes - The
+Company has ongoing sales and use tax audits in various jurisdictions and may be
+subjected to varying interpretations of statue that could result in unfavorable
+outcomes that cannot be currently estimated. 
+Litigation - RPC is a party
+to various routine legal proceedings primarily involving commercial claims,
+workers’ compensation claims and claims for personal injury. RPC insures against
+these risks to the extent deemed prudent by its management, but no assurance can
+be given that the nature and amount of such insurance will, in every case, fully
+indemnify RPC against liabilities arising out of pending and future legal
+proceedings related to its business activities. While the outcome of these
+lawsuits, legal proceedings and claims cannot be predicted with certainty,
+management, after consultation with legal counsel, believes that the outcome of
+all such proceedings, even if determined adversely, would not have a material
+adverse effect on the Company’s business or financial condition. 
+47 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to substantially all
+employees with at least one year of service prior to 2002. As of
+February 28, 2001, the plan became a multiple employer plan, with Marine
+Products Corporation as an adopting employer. 
+In
+2002, the Company’s Board of Directors approved a resolution to cease all future
+retirement benefit accruals under the defined benefit pension plan. In lieu
+thereof, the Company began providing enhanced benefits in the form of cash
+contributions for certain longer serviced employees that had not reached the
+normal retirement age of 65 as of March 31, 2002. The contributions are
+discretionary and made annually based on continued employment over a seven year
+period beginning in 2002. These discretionary contributions are made to either
+the SERP established by the Company or to the 401(k) plan for each employee that
+is entitled to the enhanced benefit. The expense related to the enhanced
+benefits was $295,000 for 2008, $315,000 for 2007 and $320,000 for
+2006. 
+The
+Company permits selected highly compensated employees to defer a portion of
+their compensation into the SERP. The SERP assets are marked to market and
+totaled $4,073,000 as of December 31, 2008 and $4,270,000 as of December 31,
+2007. The SERP assets are reported in other assets on the balance
+sheet and changes related to the fair value of assets are recorded in the
+consolidated statement of operations as part of other (expense) income, net.
+Trading (losses) gains related to the SERP assets totaled $(1,661,000) for 2008,
+$73,000 for 2007 and $143,000 for 2006. The SERP deferrals and the
+contributions are recorded on the balance sheet in pension liabilities with any
+change in the fair value of the liabilities recorded as compensation cost in the
+statement of operations. 
+As
+previously mentioned, the Company has adopted the provisions of SFAS 158. In
+accordance with the provisions of SFAS 158, the Company’s projected
+benefit obligation exceeds the fair value of the plan assets under its pension
+plan by $6,715,000 and thus the plan was under-funded as of December 31,
+2008. Prior to the adoption of SFAS 158, the Company’s disclosure of
+the funded status in the notes to the consolidated financial statements did not
+differ from the amount recognized in the consolidated balance sheet; therefore,
+the adoption of SFAS 158 did not have an affect on the consolidated balance
+sheet. 
+48 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+The
+following table sets forth the funded status of the Retirement Income Plan and
+the amounts recognized in RPC’s consolidated balance sheets: 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+Accumulated
+Benefit Obligation at end of year 
+$ 
+29,203 
+$ 
+30,149 
+CHANGE
+IN PROJECTED BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+30,149 
+$ 
+32,172 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,841 
+1,759 
+Amendments 
+— 
+— 
+Actuarial
+(gain) loss 
+(1,239 
+) 
+(2,415 
+) 
+Benefits
+paid 
+(1,548 
+) 
+(1,367 
+) 
+Projected
+benefit obligation at end of year 
+$ 
+29,203 
+$ 
+30,149 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+32,548 
+$ 
+26,127 
+Actual
+return on plan assets 
+(8,512 
+) 
+3,038 
+Employer
+contribution 
+— 
+4,750 
+Benefits
+paid 
+(1,548 
+) 
+(1,367 
+) 
+Fair
+value of plan assets at end of year 
+22,488 
+32,548 
+Funded
+status at end of year 
+$ 
+(6,715 
+) 
+$ 
+2,399 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+AMOUNTS
+RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent
+assets 
+$ 
+— 
+$ 
+2,399 
+Current
+liabilities 
+— 
+— 
+Noncurrent
+liabilities 
+(6,715 
+) 
+— 
+$ 
+(6,715 
+) 
+$ 
+2,399 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+AMOUNTS
+(PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
+CONSIST OF: 
+Net
+loss 
+$ 
+14,928 
+$ 
+5,398 
+Prior
+service cost 
+— 
+— 
+Net
+transition obligation 
+— 
+— 
+$ 
+14,928 
+$ 
+5,398 
+The
+accumulated benefit obligation for the defined benefit pension plan at December
+31, 2008 and 2007 has been disclosed above. The Company uses a
+December 31 measurement date for this qualified plan. 
+49 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Amounts
+recognized in the consolidated balance sheets consist of: 
+December
+31, 
+2008 
+2007 
+(in
+thousands) 
+Funded
+status 
+$ 
+(6,715 
+) 
+$ 
+2,399 
+(1) 
+SERP
+employer contributions/deferrals 
+(4,462 
+) 
+(4,527 
+) 
+Long-term
+pension liabilities 
+$ 
+(11,177 
+) 
+$ 
+(4,527 
+) 
+(1)The
+defined benefit pension plan over-funded position at December 31, 2007 has been
+included as part of other assets in the balance sheet. 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974. RPC
+made no contributions in 2008 and $4,750,000 in 2007. 
+The
+components of net periodic benefit cost are summarized as follows: 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest
+cost on projected benefit obligation 
+1,841 
+1,759 
+1,705 
+Expected
+return on plan assets 
+(2,543 
+) 
+(2,321 
+) 
+(1,888 
+) 
+Amortization
+of net loss (gain) 
+285 
+860 
+998 
+Net
+periodic benefit plan (credit) cost 
+$ 
+(417 
+) 
+$ 
+298 
+$ 
+815 
+The
+Company recognized pre-tax (increases) decreases to the funded status in
+comprehensive loss of $9,532,000 in 2008, $(3,992,000) in 2007, and $(3,627,000)
+in 2006. There were no previously unrecognized prior service costs as
+of December 31, 2008 and 2007. The pre-tax amounts recognized in
+comprehensive loss for the years ended December 31, 2008, 2007 and 2006 are
+summarized as follows: 
+(in
+thousands) 
+2008 
+2007 
+2006 
+Net
+loss (gain) 
+$ 
+9,817 
+$ 
+(3,132 
+) 
+$ 
+(2,629 
+) 
+Amortization
+of net (loss) gain 
+(285 
+) 
+(860 
+) 
+(998 
+) 
+Net
+transition obligation (asset) 
+— 
+— 
+— 
+Amount
+recognized in other comprehensive loss 
+$ 
+9,532 
+$ 
+(3,992 
+) 
+$ 
+(3,627 
+) 
+The
+amounts in accumulated other comprehensive loss expected to be recognized as
+components of net periodic benefit cost in 2009 are as follows: 
+(in
+thousands) 
+2009 
+Amortization
+of net loss (gain) 
+$ 
+1,540 
+Prior
+service cost (credit) 
+— 
+Net
+transition obligation (asset) 
+— 
+Estimated
+net periodic benefit plan cost 
+$ 
+1,540 
+50 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+The
+weighted average assumptions as of December 31 used to determine the projected
+benefit obligation and net benefit cost were as follows: 
+December
+31, 
+2008 
+2007 
+2006 
+Projected Benefit
+Obligation : 
+Discount
+rate 
+6.84 
+% 
+6.25 
+% 
+5.50 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+6.25 
+% 
+5.50 
+% 
+5.50 
+% 
+Expected
+return on plan assets 
+8.00 
+% 
+8.00 
+% 
+8.00 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser. It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of eight
+percent is reasonable. 
+The
+Plan’s weighted average asset allocation at December 31, 2008 and 2007 by asset
+category along with the target allocation for 2009 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2009 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2008 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2007 
+Equity
+Securities 
+43.0 
+% 
+37.5 
+% 
+48.1 
+% 
+Debt
+Securities — Core Fixed Income 
+27.0 
+% 
+14.0 
+% 
+27.1 
+% 
+Tactical
+— Fund of Equity and Debt Securities 
+5.0 
+% 
+4.3 
+% 
+5.2 
+% 
+Real
+Estate 
+5.0 
+% 
+7.7 
+% 
+5.7 
+% 
+Other 
+20.0 
+% 
+36.5 
+% 
+13.9 
+% 
+Total 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+The
+Company’s investment strategy for its defined benefit pension plan is to
+maximize the long-term rate of return on plan assets within an acceptable level
+of risk in order to minimize the cost of providing pension benefits. The
+investment policy establishes a target allocation for each asset class, which is
+rebalanced as required. The Company utilizes a number of investment approaches,
+including individual marketable securities, equity and fixed income funds in
+which the underlying securities are marketable, and debt funds to achieve this
+target allocation. The Company does not currently expect to make a contribution
+to the defined benefit pension plan in 2009 and does not expect to receive a
+refund in 2009. 
+The
+Company estimates that the future benefits payable for the defined benefit
+pension plan over the next ten years are as follows: 
+(in
+thousands) 
+2009 
+$ 
+1,581 
+2010 
+1,682 
+2011 
+1,706 
+2012 
+1,795 
+2013 
+1,884 
+2014-2018 
+10,748 
+51 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially
+all full-time employees with more than three months of service. This plan allows
+employees to make tax-deferred contributions from one to 25 percent of their
+annual compensation, not exceeding the permissible contribution imposed by the
+Internal Revenue Code. RPC matches 50 percent of each employee’s contributions
+that do not exceed six percent of the employee’s compensation, as defined by the
+plan. Employees vest in the RPC contributions after three years of service. The
+charges to expense for the Company’s contributions to the 401(k) plan were
+approximately $2,814,000 in 2008, $2,300,000 in 2007 and $1,500,000 in
+2006. 
+Stock
+Incentive Plans 
+The
+Company has issued stock options and restricted stock to employees under two 10
+year stock incentive plans that were approved by shareholders in 1994 and
+2004. The 1994 plan expired in 2004. The Company reserved
+5,062,500 shares of common stock under the 2004 Plan which expires ten years
+from the date of approval. This plan provides for the issuance of
+various forms of stock incentives, including, among others, incentive and
+non-qualified stock options and restricted stock which are discussed in detail
+below. As of December 31, 2008, there were approximately 2,900,000
+shares available for grants. The Company issues new shares from its
+authorized but unissued share pool. 
+As
+previously noted, the Company adopted the provisions of SFAS 123(R),
+“Share-Based Payments,” effective January 1, 2006. As permitted by SFAS 123(R),
+the Company has elected to use the modified prospective transition method and
+therefore financial results for prior periods have not been restated. Under this
+transition method, the Company applies the provisions of SFAS 123(R) to new
+awards and the awards modified, repurchased, or cancelled after January 1, 2006.
+Additionally, the Company recognizes compensation expense for the unvested
+portion of awards outstanding over the remainder of the service period. The
+compensation cost recorded for these awards is based on their fair value at
+grant date as calculated for the pro forma disclosures required by SFAS 123 less
+the cost of estimated forfeitures. SFAS 123(R) requires forfeitures to be
+estimated at the time of grant and revised, if necessary, in subsequent periods
+to reflect actual forfeitures. SFAS 123(R) also requires that cash flows related
+to share-based payment awards to employees that result in tax benefits in excess
+of recognized cumulative compensation cost (excess tax benefits) be classified
+as financing cash flows. 
+Pre-tax
+stock-based employee compensation expense was $3,732,000 in 2008 ($2,382,000
+after tax), $3,189,000 in 2007 ($2,167,000 after tax) and $2,384,000 ($1,722,000
+after tax) for 2006. 
+52 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Stock
+Options 
+Stock
+options are granted at an exercise price equal to the fair market value of the
+Company’s common stock at the date of grant except for grants of incentive stock
+options to owners of greater than 10 percent of the Company’s voting securities
+which must be made at 110 percent of the fair market value of the Company’s
+common stock. Options generally vest ratably over a period of five
+years and expire in 10 years, except incentive stock options granted to owners
+of greater than 10 percent of the Company’s voting securities, which expire in
+five years. 
+As
+prescribed by SFAS 123(R), the Company estimates the fair value of stock options
+as of the date of grant using the Black-Scholes option pricing
+model. The Company has not granted stock options to employees since
+2003. 
+Transactions
+involving RPC’s stock options for the year ended December 31, 2008 were as
+follows: 
+Shares 
+Weighted
+Average 
+Exercise
+Price 
+Weighted 
+Average 
+Remaining 
+Contractual
+Life 
+Aggregate
+Intrinsic Value 
+Outstanding
+at January 1, 2008 
+1,878,252 
+$ 
+3.11 
+3.32
+years 
+Granted 
+- 
+- 
+N/A 
+Exercised 
+(750,601 
+) 
+3.06 
+N/A 
+Forfeited 
+(19,629 
+) 
+3.92 
+N/A 
+Expired 
+- 
+- 
+N/A 
+Outstanding
+at December 31, 2008 
+1,108,022 
+$ 
+3.12 
+2.68
+years 
+$ 
+7,357,000 
+Exercisable
+at December 31, 2008 
+1,108,022 
+$ 
+3.12 
+2.68
+years 
+$ 
+7,357,000 
+The total
+intrinsic value of stock options exercised was approximately $6,214,000 during
+2008, $7,758,000 during 2007 and $12,468,000 during 2006. Recognized
+excess tax benefits associated with the exercise of stock options were
+approximately $344,000 during 2008. There were no recognized excess
+tax benefits associated with the exercise of stock options during 2007 and 2006,
+since all of the stock options exercised in 2007 and 2006 were incentive stock
+options which do not generate tax deductions for the Company. 
+Restricted
+Stock 
+The
+Company has granted employees two forms of restricted stock: time lapse
+restricted and performance restricted. 
+Time
+Lapse restricted shares 
+Time
+lapse restricted shares vest after a stipulated number of years from the grant
+date, depending on the terms of the issue. Time lapse restricted shares issued
+in years 2003 and prior vest after ten years. Time lapse restricted
+shares issued subsequent to fiscal year 2003 vest in 20 percent increments
+annually starting with the second anniversary of the grant, over six years from
+the date of grant. Grantees receive dividends declared and retain
+voting rights for the granted shares. 
+Performance
+restricted shares 
+The
+performance restricted shares are granted, but not earned and issued until
+certain five-year tiered performance criteria are met. The performance criteria
+are predetermined market prices of RPC’s common stock. On the date the common
+stock appreciates to each level (determination date), 20 percent of performance
+shares are earned. Once earned, the performance shares vest five years from the
+determination date. After the determination date, the grantee will receive
+dividends declared and voting rights to the shares. The Company has
+not granted performance restricted shares since 1999. 
+The
+agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the stock plans have lapsed. Upon termination of employment from RPC or,
+in certain cases, termination of employment from Marine Products Corporation or
+Chaparral Boats, Inc., shares with restrictions must be returned to
+RPC. 
+53 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+The
+following is a summary of the changes in non-vested restricted shares for the
+year ended December 31, 2008: 
+Shares 
+Weighted
+Average 
+Grant-Date
+Fair Value 
+Non-vested
+shares at January 1, 2008 
+1,570,232 
+$ 
+11.01 
+Granted 
+608,500 
+9.81 
+Vested 
+(345,758 
+) 
+8.86 
+Forfeited 
+(70,496 
+) 
+11.60 
+Non-vested
+shares at December 31, 2008 
+1,762,478 
+$ 
+11.34 
+The fair
+value of restricted awards is based on the market price of the Company’s stock
+on the date of the grant and is amortized to compensation expense on a
+straight-line basis over the requisite service period. The weighted
+average grant date fair value of these restricted stock awards was $9.81, $17.61
+and $22.32 for the years ended December 31, 2008, 2007, and 2006,
+respectively. The total fair value of shares vested was approximately
+$3,675,000 during 2008, $4,903,000 during 2007 and $5,380,000 during
+2006. The tax benefit for compensation tax deductions in excess of
+compensation expense was credited to capital in excess of par value aggregating
+$502,000 for 2008, $1,128,000 for 2007 and $1,325,000 for 2006. The
+excess tax deductions are classified as financing cash flows in accordance with
+SFAS 123(R). 
+Other
+Information 
+As of
+December 31, 2008, total unrecognized compensation cost related to non-vested
+restricted shares was approximately $17,002,000 which is expected to be
+recognized over a weighted-average period of 3.3 years. Unearned
+compensation cost associated with non-vested restricted shares of $5,391,000
+previously reflected as deferred compensation in stockholders’ equity at January
+1, 2006 was reclassified to capital in excess of par value as required by SFAS
+123(R). As of December 31, 2008, there was no unrecognized
+compensation cost related to non-vested stock options. 
+The
+Company received cash from options exercised of $347,000 during 2008, $636,000
+during 2007 and $1,341,000 during 2006. These cash receipts are classified as
+financing cash flows in the accompanying consolidated statements of cash flows.
+The fair value of shares tendered to exercise employee stock options totaled
+approximately $1,911,000 during 2008, $1,123,000 during 2007 and $1,240,000
+during 2006 and have been excluded from the consolidated statements of cash
+flows. 
+Note
+11: Related Party Transactions 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$842,000 in 2008, $957,000 in 2007 and $739,000 in 2006. The Company’s
+receivable due from Marine Products for these services as of December 31, 2008
+and 2007 was approximately $70,000 and $223,000. The Company’s
+directors are also directors of Marine Products and all of the executive
+officers are employees of both the Company and Marine Products. 
+54 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $393,000 in 2008, $1,035,000 in 2007 and
+$1,248,000 in 2006. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $90,000 in 2008, $72,000 in 2007 and $70,000 in
+2006. 
+A group
+that includes the Company’s Chairman of the Board, R. Randall Rollins and his
+brother Gary W. Rollins, who is also a director of the Company, and certain
+companies under their control, controls in excess of fifty percent of the
+Company’s voting power. 
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+segments — Technical Services and Support Services — because of the similarities
+between the financial performance and approach to managing the service lines
+within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. Corporate includes selected
+administrative costs incurred by the Company. 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. These services include pressure pumping services,
+coiled tubing, snubbing, nitrogen pumping, well control consulting and
+firefighting, downhole tools, wireline, and fluid pumping services. These
+Technical Services are primarily used in the completion, production and
+maintenance of oil and gas wells. The principal markets for this segment include
+the United States, including the Gulf of Mexico, the mid-continent, southwest
+and Rocky Mountain regions, and international locations including primarily
+Africa, Canada, China, Latin America and the Middle East. Customers include
+major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, and oilfield training services. The demand for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico and the mid-continent regions, and
+international locations, including primarily Canada, Latin America, and the
+Middle East. Customers include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally-owned oil
+companies. 
+The
+accounting policies of the reportable segments are the same as those described
+in Note 1 to these consolidated financial statements. RPC evaluates the
+performance of its segments based on revenues, operating profits and return on
+invested capital. Gains or losses on disposition of assets are
+reviewed by the Company’s chief decision maker on a consolidated basis, and
+accordingly the Company does not report gains or losses at the segment
+level. Inter-segment revenues are generally recorded in segment
+operating results at prices that management believes approximate prices for
+arm’s length transactions and are not material to operating
+results. 
+55 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended
+December 31, 2008, 2007 and 2006 are shown in the following
+table. 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+Gain
+on disposition of assets, net 
+Total 
+(in
+thousands) 
+2008 
+Revenues 
+$ 
+745,991 
+$ 
+130,986 
+$ 
+— 
+$ 
+— 
+$ 
+876,977 
+Operating
+profit (loss) 
+110,648 
+36,515 
+(9,360 
+) 
+6,367 
+144,170 
+Capital
+expenditures 
+127,054 
+42,238 
+1,026 
+— 
+170,318 
+Depreciation
+and amortization 
+92,738 
+24,798 
+867 
+— 
+118,403 
+Identifiable
+assets 
+564,708 
+181,991 
+46,762 
+— 
+793,461 
+2007 
+Revenues 
+$ 
+574,723 
+$ 
+115,503 
+$ 
+— 
+$ 
+— 
+$ 
+690,226 
+Operating
+profit (loss) 
+116,493 
+29,955 
+(10,703 
+) 
+6,293 
+142,038 
+Capital
+expenditures 
+211,389 
+35,138 
+2,231 
+— 
+248,758 
+Depreciation
+and amortization 
+59,436 
+18,106 
+964 
+— 
+78,506 
+Identifiable
+assets 
+480,840 
+168,027 
+52,148 
+— 
+701,015 
+2006 
+Revenues 
+$ 
+495,090 
+$ 
+101,540 
+$ 
+— 
+$ 
+— 
+$ 
+596,630 
+Operating
+profit (loss) 
+153,126 
+30,953 
+(12,248 
+) 
+5,969 
+177,800 
+Capital
+expenditures 
+125,138 
+28,902 
+5,791 
+— 
+159,831 
+Depreciation
+and amortization 
+31,805 
+13,974 
+932 
+— 
+46,711 
+Identifiable
+assets 
+320,637 
+125,627 
+31,743 
+— 
+478,007 
+The
+following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2008, 2007 and
+2006. The revenues are presented based on the location of the use of the product
+or service. Assets related to international operations are less than 10 percent
+of RPC’s consolidated assets, and therefore are not presented. 
+Years
+ended December 31, 
+2008 
+2007 
+2006 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+846,202 
+$ 
+649,116 
+$ 
+566,636 
+International
+Revenues 
+30,775 
+41,110 
+29,994 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+56 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial
+Disclosure 
+None. 
+Item
+9A. Controls and Procedures 
+Evaluation of disclosure controls
+and procedures — The Company maintains disclosure controls and procedures
+that are designed to ensure that information required to be disclosed in its
+Exchange Act reports is recorded, processed, summarized and reported within the
+time periods specified in the Commission’s rules and forms, and that such
+information is accumulated and communicated to its management, including the
+Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
+timely decisions regarding required disclosure. 
+As of the
+end of the period covered by this report, December 31, 2008 (the “Evaluation
+Date”), the Company carried out an evaluation, under the supervision and with
+the participation of its management, including the Chief Executive Officer and
+Chief Financial Officer, of the effectiveness of the design and operation of its
+disclosure controls and procedures. Based upon this evaluation, the
+Chief Executive Officer and the Chief Financial Officer concluded that the
+Company’s disclosure controls and procedures were effective as of the Evaluation
+Date. 
+Management’s report on internal
+control over financial reporting — Management is responsible for
+establishing and maintaining adequate internal control over financial reporting,
+as such term is defined in Exchange Act Rules 13a-15(f) and
+15d-15(f). Management’s report on internal control over
+financial reporting is included on page 28 of this report. Grant
+Thornton LLP, the Company’s independent registered public accounting firm, has
+audited the effectiveness of internal control as of December 31, 2008 and
+issued a report thereon which is included on page 29 of this
+report. 
+Changes in internal control over
+financial reporting — Management’s evaluation of changes in internal
+control did not identify any changes in the Company’s internal control over
+financial reporting that occurred during the Company’s most recent fiscal
+quarter that have materially affected, or are reasonably likely to materially
+affect, the Company’s internal control over financial reporting. 
+Item
+9B. Other Information 
+None. 
+57 
+PART
+III 
+Item
+10. Directors, Executive Officers and Corporate Governance 
+Information
+concerning directors and executive officers will be included in the RPC Proxy
+Statement for its 2009 Annual Meeting of Stockholders, in the section titled
+“Election of Directors.” This information is incorporated herein by reference.
+Information about executive officers is contained on page 12 of this
+document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial
+Expert(s) will be included in the RPC Proxy Statement for its 2009 Annual
+Meeting of Stockholders, in the section titled “Corporate Governance and Board
+of Directors, Committees and Meetings – Audit Committee.” This information is
+incorporated herein by reference. 
+Code
+of Ethics 
+RPC, Inc.
+has a Code of Business Conduct that applies to all employees. In addition, the
+Company has a Code of Business Conduct and Ethics for Directors and Executive
+Officers and Related Party Transaction Policy. Both of these documents are
+available on the Company’s website at www.rpc.net. Copies are
+available at no charge by writing to Attention: Human Resources, RPC Inc., 2801
+Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+RPC, Inc.
+intends to satisfy the disclosure requirement under Item 10 of Form 8-K
+regarding an amendment to, or waiver from, a provision of its code that relates
+to any elements of the code of ethics definition enumerated in SEC rules by
+posting such information on its internet website, the address of which is
+provided above. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included
+under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2009 Annual Meeting of Stockholders, which is
+incorporated herein by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning director and executive compensation will be included in the RPC Proxy
+Statement for its 2009 Annual Meeting of Stockholders, in the sections titled
+“Compensation Committee Interlocks and Insider Participation,” “Director
+Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee
+Report” and “Executive Compensation.” This information is incorporated herein by
+reference. 
+Item
+12. Security Ownership of Certain Beneficial Owners and Management and Related
+Stockholder Matters 
+Information
+concerning security ownership will be included in the RPC Proxy Statement for
+its 2009 Annual Meeting of Stockholders, in the sections “Capital Stock” and
+“Election of Directors.” This information is incorporated herein by
+reference. 
+Securities
+Authorized for Issuance Under Equity Compensation Plans 
+The
+following table sets forth certain information regarding equity compensation
+plans as of December 31, 2008. 
+58 
+Plan
+Category 
+(A) 
+Number
+of Securities 
+To
+Be Issued Upon 
+Exercise
+of 
+Outstanding
+Options, 
+Warrants
+and Rights 
+(B) 
+Weighted
+Average Exercise 
+Price
+of Outstanding 
+Options,
+Warrants and 
+Rights 
+(C) 
+Number
+of Securities 
+Remaining
+Available for 
+Future
+Issuance Under 
+Equity
+Compensation 
+Plans
+(Excluding 
+Securities
+Reflected in 
+Column
+(A)) 
+Equity
+compensation plans approved by securityholders 
+1,108,322 
+$ 
+3.12 
+2,899,664 
+(1) 
+Equity
+compensation plans not approved by securityholders 
+- 
+- 
+- 
+Total 
+1,108,322 
+$ 
+3.12 
+2,899,664 
+(1) 
+All
+of the securities can be issued in the form of restricted stock or other
+stock awards. 
+See Note
+10 to the Consolidated Financial Statements for information regarding the
+material terms of the equity compensation plans. 
+Item
+13. Certain Relationships and Related Party Transactions and Director
+Independence 
+Information
+concerning certain relationships and related party transactions will be included
+in the RPC Proxy Statement for its 2009 Annual Meeting of Stockholders, in the
+sections titled, “Certain Relationships and Related Party
+Transactions.” Information regarding director independence will be
+included in the RPC Proxy Statement for its 2009 Annual Meeting of Stockholders
+in the section titled “Director Independence and NYSE
+Requirements.” This information is incorporated herein by
+reference. 
+Item
+14. Principal Accounting Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section
+titled “Independent Registered Public Accountants” in the RPC Proxy Statement
+for its 2009 Annual Meeting of Stockholders. This information is incorporated
+herein by reference. 
+59 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements,
+Financial Statement Schedule and Exhibits . 
+1.   
+Consolidated
+financial statements listed in the accompanying Index to Consolidated
+Financial Statements and Schedule are filed as part of this
+report. 
+2.   
+The
+financial statement schedule listed in the accompanying Index to
+Consolidated Financial Statements and Schedule is filed as part of this
+report. 
+3.   
+Exhibits
+listed in the accompanying Index to Exhibits are filed as part of this
+report. The following such exhibits are management contracts or
+compensatory plans or arrangements: 
+10.1   
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.6   
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7   
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to Form 10-Q filed on November 2,
+2004). 
+10.8   
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to Form 10-Q filed on November 2,
+2004). 
+10.9 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the
+Form 10-K filed on March 16, 2005). 
+10.10 
+Summary
+of ‘At-Will’ compensation arrangements with the Executive Officers as of
+February 28, 2007 (incorporated herein by reference to Exhibit 10.12 to
+the Form 10-K filed on March 2, 2007). 
+10.11 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2007 (incorporated herein by reference to Exhibit 10.13 to the Form
+10-K filed on March 2, 2007). 
+10.12 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K
+filed on March 2, 2007). 
+10.13 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28, 2006). 
+10.14 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form
+10-K filed on March 4, 2008). 
+10.15 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K
+filed on March 4, 2008). 
+10.18 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2009. 
+60 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by
+reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal
+year ended December 31, 1999). 
+3.1B 
+Certificate
+of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by
+reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May
+8, 2006). 
+3.2 
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form
+8-K filed on October 25, 2007). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual
+Report on Form 10-K for the fiscal year ended December 31,
+1998). 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2 
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February 12,
+2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed
+on February 13, 2001). 
+10.3 
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc.,
+Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein
+by reference to Exhibit 10.3 to the Form 10-K filed on February 13,
+2001). 
+10.4 
+Transition
+Support Services Agreement dated February 12, 2001 by and between RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference to
+Exhibit 10.4 to the Form 10-K filed on February 13,
+2001). 
+10.5 
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and
+Marine Products Corporation (incorporated herein by reference to Exhibit
+10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to the Form 10-Q filed on November 2,
+2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the
+Form 10-K filed on March 16, 2005). 
+10.10 
+Summary
+of ‘At-Will’ compensation arrangements with the Executive Officers as of
+February 28, 2007 (incorporated herein by reference to Exhibit 10.12 to
+the Form 10-K filed on March 2, 2007). 
+10.11 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2007 (incorporated herein by reference to Exhibit 10.13 to the Form
+10-K filed on March 2, 2007). 
+10.12 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K
+filed on March 2, 2007). 
+10.13 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28, 2006). 
+10.14 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form
+10-K filed on March 4, 2008). 
+10.15 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K
+filed on March 4, 2008). 
+10.16 
+Revolving
+Credit Agreement dated September 8, 2006 between RPC, Banc of America,
+N.A., SunTrust Bank and certain other Lenders party thereto (incorporated
+by reference to Exhibit 99.1 to the Form 8-K dated September 8,
+2006). 
+10.17 
+Commitment
+Increase Amendment to Revolving Credit Agreement dated as of June 9, 2008,
+by and among the Company, the several banks and other financial
+institutions from time to time party thereto and SunTrust Bank, in its
+capacity as Administrative Agent (incorporated herein by reference to
+Exhibit 99.1 to the Company’s Current Report on Form 8-K dated June 9,
+2008). 
+10.18 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2009. 
+21 
+Subsidiaries
+of RPC (incorporated herein by reference to Exhibit 21 to the Form 10-K
+filed on March 4, 2008) 
+23 
+Consent
+of Grant Thornton LLP 
+24 
+Powers
+of Attorney for Directors 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial
+Officer 
+61 
+SIGNATURES 
+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. 
+RPC,
+Inc. 
+/s/ Richard
+A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+4, 2009 
+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. 
+Name 
+Title 
+Date 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+4, 2009 
+/s/
+Ben M. Palmer 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+March
+4, 2009 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard
+A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R.
+Randall Rollins, Director 
+James
+B. Williams, Director 
+Wilton
+Looney, Director 
+James
+A. Lane, Jr., Director 
+Gary
+W. Rollins, Director 
+Linda
+H. Graham, Director 
+Henry
+B. Tippie, Director 
+Bill
+J. Dismuke, Director 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+March
+4, 2009 
+62 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The
+following documents are filed as part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management’s
+Report on Internal Control Over Financial Reporting 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over
+Financial Reporting 
+29 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements 
+30 
+Consolidated
+Balance Sheets as of December 31, 2008 and 2007 
+31 
+Consolidated
+Statements of Operations for the three years ended December 31,
+2008 
+32 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31,
+2008 
+33 
+Consolidated
+Statements of Cash Flows for the three years ended December 31,
+2008 
+34 
+Notes
+to Consolidated Financial Statements 
+35
+- 56 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying Accounts 
+63 
+Schedules
+not listed above have been omitted because they are not applicable or the
+required information is included in the consolidated financial statements or
+notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+For
+the years ended 
+December
+31, 2008, 2007 and 2006 
+(in
+thousands) 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net 
+(Deductions) 
+Recoveries 
+Balance 
+at
+End of 
+Period 
+Year
+ended December 31, 2008 
+Allowance
+for doubtful accounts 
+$ 
+5,217 
+$ 
+(84 
+) 
+$ 
+1,066 
+(1) 
+$ 
+6,199 
+Deferred
+tax asset valuation allowance 
+$ 
+1,503 
+$ 
+— 
+$ 
+(49 
+) (2) 
+$ 
+1,454 
+Year
+ended December 31, 2007 
+Allowance
+for doubtful accounts 
+$ 
+4,904 
+$ 
+3,119 
+$ 
+(2,806 
+) (1) 
+$ 
+5,217 
+Deferred
+tax asset valuation allowance 
+$ 
+1,342 
+$ 
+161 
+$ 
+0 
+(2) 
+$ 
+1,503 
+Year
+ended December 31, 2006 
+Allowance
+for doubtful accounts 
+$ 
+4,080 
+$ 
+1,492 
+$ 
+(668 
+) (1) 
+$ 
+4,904 
+Deferred
+tax asset valuation allowance 
+$ 
+1,945 
+$ 
+54 
+$ 
+(657 
+) (2) 
+$ 
+1,342 
+(1) 
+Deductions
+in the allowance for doubtful accounts principally reflect the write-off
+of previously reserved accounts net of recoveries. 
+(2) 
+The
+valuation allowance for deferred tax assets was decreased by $49,000
+during 2008 to reflect state net operating losses that management believes
+will be utilized before they expire, The valuation allowance for deferred
+tax assets was increased by $161,000 and $54,000 during 2007
+and 2006 to reflect state net operating losses that management does not
+believe will be utilized before they expire. During 2006 the allowance for
+deferred tax assets was reduced by $657,000 to reflect previously reserved
+foreign tax credit carry forwards expected to be
+realized. 
+63 
+SELECTED
+QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+2008 
+Revenues 
+$ 
+197,227 
+$ 
+214,689 
+$ 
+237,217 
+$ 
+227,844 
+Net
+income 
+$ 
+14,757 
+$ 
+22,458 
+$ 
+25,780 
+$ 
+20,408 
+Net
+income per share — basic: 
+$ 
+0.15 
+$ 
+0.23 
+$ 
+0.27 
+$ 
+0.21 
+Net
+income per share — diluted: 
+$ 
+0.15 
+$ 
+0.23 
+$ 
+0.26 
+$ 
+0.21 
+2007 
+Revenues 
+$ 
+171,045 
+$ 
+171,031 
+$ 
+161,961 
+$ 
+186,189 
+Net
+income 
+$ 
+28,045 
+$ 
+23,815 
+$ 
+14,893 
+$ 
+20,296 
+Net
+income per share — basic: 
+$ 
+0.29 
+$ 
+0.25 
+$ 
+0.15 
+$ 
+0.21 
+Net
+income per share — diluted: 
+$ 
+0.29 
+$ 
+0.24 
+$ 
+0.15 
+$ 
+0.21 
+64
\ No newline at end of file
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new file mode 100644
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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2009-03-05,2008-12-31,2009-03-04T23:00:48.000Z,0001188112-09-000487,t64662_10k.htm,FORM 10-K,1970632,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811209000487/t64662_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811209000487/,2008,2008,1
diff --git a/raw/filings/0000742278/2008/0001188112-09-000487/item1.txt b/raw/filings/0000742278/2008/0001188112-09-000487/item1.txt
new file mode 100644
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new file mode 100644
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diff --git a/raw/filings/0000742278/2008/0001188112-09-000487/item9a.txt b/raw/filings/0000742278/2008/0001188112-09-000487/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2008/0001188112-09-000487/rp_note.txt b/raw/filings/0000742278/2008/0001188112-09-000487/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..28060fb354affcc2f30c68ac5fd324372a135283
--- /dev/null
+++ b/raw/filings/0000742278/2008/0001188112-09-000487/rp_note.txt
@@ -0,0 +1,57 @@
+11: Related Party Transactions 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$842,000 in 2008, $957,000 in 2007 and $739,000 in 2006. The Company’s
+receivable due from Marine Products for these services as of December 31, 2008
+and 2007 was approximately $70,000 and $223,000. The Company’s
+directors are also directors of Marine Products and all of the executive
+officers are employees of both the Company and Marine Products. 
+54 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2008, 2007 and 2006 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $393,000 in 2008, $1,035,000 in 2007 and
+$1,248,000 in 2006. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $90,000 in 2008, $72,000 in 2007 and $70,000 in
+2006. 
+A group
+that includes the Company’s Chairman of the Board, R. Randall Rollins and his
+brother Gary W. Rollins, who is also a director of the Company, and certain
+companies under their control, controls in excess of fifty percent of the
+Company’s voting power. 
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2008/0001188112-09-000487/rpt_disclosure.txt b/raw/filings/0000742278/2008/0001188112-09-000487/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e498c86135a432dccfdb677178c3a92eacd80c65
--- /dev/null
+++ b/raw/filings/0000742278/2008/0001188112-09-000487/rpt_disclosure.txt
@@ -0,0 +1,7 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $713,000 in 2009. 
+During 2009, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2009, payments totaling approximately $409,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $87,000 in 2009. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2009 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. 
+26
\ No newline at end of file
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/filing.txt b/raw/filings/0000742278/2009/0001188112-10-000460/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..715ab4d9c9f69fc6e09fb5ca71b7e98071e99632
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+++ b/raw/filings/0000742278/2009/0001188112-10-000460/filing.txt
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+10-K
+1
+t67253_10k.htm
+FORM 10-K
+t67253_10k.htm 
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+FORM
+10-K 
+(Mark
+One) 
+x 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
+1934 
+o 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
+1934 
+For
+the fiscal year ended December 31, 2009 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+(State
+of Incorporation) 
+58-1550825 
+(I.R.S.
+Employer Identification No.) 
+2801
+BUFORD HIGHWAY, SUITE 520 
+ATLANTA,
+GEORGIA 30329 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+COMMON
+STOCK, $0.10 PAR VALUE 
+Name
+of each exchange on which registered 
+NEW
+YORK STOCK EXCHANGE 
+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. o Yes x No 
+Indicate
+by check mark if the registrant is not required to file reports pursuant to
+Section 13 or Section 15(d) of the Act. o Yes x No 
+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 o 
+Indicate
+by check mark whether the registrant has submitted electronically and posted on
+its corporate Website, if any, every Interactive Data File required to be
+submitted and posted pursuant to Rule 405 of Regulations 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 o No o 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K 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. x 
+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 definitions of “large accelerated filer,” “accelerated
+filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
+one): 
+Large
+accelerated filer o Accelerated
+filer x Non-accelerated
+filer o Smaller
+reporting company o 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule
+12b-2 of the Exchange Act). Yes o No x 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June
+30, 2009, the last business day of the registrant’s most recently completed
+second fiscal quarter, was $232,379,112 based on the closing price on the New
+York Stock Exchange on June 30, 2009 of $8.35 per share. 
+RPC, Inc.
+had 98,823,439 shares of Common Stock outstanding as of February 12,
+2010. 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2010 Annual Meeting of Stockholders of RPC, Inc.
+are incorporated by reference into Part III, Items 10 through 14 of this
+report. 
+1 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,”
+“us,” “RPC” or “the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are
+“forward-looking statements” under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future. Forward-looking statements made
+elsewhere in this report include without limitation statements regarding our
+belief that the long-term prospects for our business are favorable due to
+growing demand for oil and natural gas and declining production of these
+commodities; our belief that the gas - directed drilling will
+represent at least 70 percent of the total drilling rig count in the foreseeable
+future; our belief that drilling activity and demand for our services began to
+recover in the fourth quarter of 2009; our expectation to continue to focus on
+the development of international business opportunities in current and other
+international markets; our belief that the favorable long-term returns on our
+purchases of revenue-producing equipment will continue, thus justifying the
+funding of these expenditures with debt; our ability to obtain other customers
+in the event of a loss of our largest customers; the adequacy of our insurance
+coverage; the impact of lawsuits, legal proceedings and claims on our business
+and financial condition; our expectation to continue to pay cash dividends to
+the common stockholders, subject to the earnings and financial condition of the
+Company and other relevant factors; our expectation that our consolidated
+revenues and financial performance will improve; our expectations regarding
+capital expenditures in 2010; our ability to maintain sufficient liquidity and a
+conservative capital structure; our belief that the Company will not make a
+significant contribution to the defined benefit pension plan in 2010; our
+ability to reduce the amount drawn on our credit facility over the course of
+2010; our ability to fund capital requirements in the future; the adequacy of
+our liquidity in the future; the estimated amount of our capital expenditures
+and contractual obligations for future periods; estimates made with respect to
+our critical accounting policies; and the effect of new accounting
+standards. 
+The words
+“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and
+similar expressions generally identify forward-looking statements. Such
+statements are based on certain assumptions and analyses made by our management
+in light of its experience and its perception of historical trends, current
+conditions, expected future developments and other factors it believes to be
+appropriate. We caution you that such statements are only predictions and not
+guarantees of future performance and that actual results, developments and
+business decisions may differ from those envisioned by the forward-looking
+statements. See “Risk Factors” contained in Item 1A. for a discussion
+of factors that may cause actual results to differ from our
+projections. 
+Item
+1. Business 
+Organization
+and Overview 
+RPC is a
+Delaware corporation originally organized in 1984 as a holding company for
+several oilfield services companies and is headquartered in Atlanta,
+Georgia. 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain
+and Appalachian regions, and in selected international markets. The services and
+equipment provided include, among others, (1) pressure pumping services, (2)
+coiled tubing services, (3) snubbing services (also referred to as hydraulic
+workover services), (4) nitrogen services, (5) the rental of drill pipe and
+other specialized oilfield equipment, (6) downhole tool rental services and (7)
+firefighting and well control. RPC acts as a holding company for its operating
+units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield
+Services, Thru Tubing Solutions, Well Control School, and others. As
+of December 31, 2009, RPC had approximately 2,000 employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+business segments, Technical Services and Support Services, because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. 
+2 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. The demand for these services is generally
+influenced by customers’ decisions to invest capital toward initiating
+production in a new oil or natural gas well, improving production flows in an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, coiled tubing, snubbing, nitrogen, well
+control, downhole tools, wireline and fishing. The principal markets for this
+business segment include the United States, including the Gulf of Mexico,
+mid-continent, southwest, Rocky Mountain, and Appalachian regions, and contract
+or project work in selected international locations in the last three years
+including primarily Africa, Canada, China, Eastern Europe, Latin America, the
+Middle East and New Zealand. Customers include major multi-national and
+independent oil and gas producers, and selected nationally owned oil
+companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling, pipe
+inspection and storage services, and oilfield training services. The demand for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico, mid-continent, Rocky Mountain and
+Appalachian regions and project work in selected international locations in the
+last three years including primarily Canada, Latin America and the Middle East.
+Customers primarily include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally owned oil
+companies. 
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within the
+Technical Services business segment: 
+Pressure Pumping . Pressure
+pumping services, which accounted for approximately 38 percent of 2009 revenues,
+41 percent of 2008 revenues and 40 percent of 2007 revenues, are provided to
+customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of
+the United States and are generally utilized to initiate production in new or
+enhance production in existing customer wells. Pressure pumping services involve
+using complex, truck or skid-mounted equipment designed and constructed for each
+specific pumping service offered. The mobility of this equipment permits
+pressure pumping services to be performed in varying geographic areas. Principal
+materials utilized in the pressure pumping business include fracturing
+proppants, acid and bulk chemical additives. Generally, these items are
+available from several suppliers, and the Company utilizes more than one
+supplier for each item. Pressure pumping services offered include: 
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural
+gas by increasing the permeability of a formation. The fracturing process
+consists of pumping nitrogen or a fluid gel into a cased well at sufficient
+pressure to fracture the formation at desired depths. Sand, bauxite or synthetic
+proppant, which is suspended in the gel, is pumped into the fracture. When the
+pressure is released at the surface, the fluid gel returns to the well, but the
+proppant remains in the fracture, thus keeping it open so that oil and natural
+gas can flow through the fracture into the well. In some cases, fracturing is
+performed in formations with a high amount of carbonate rock by an acid solution
+pumped under pressure without a proppant or with small amounts of
+proppant. 
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and
+natural gas, but they are used in wells that have undergone formation damage due
+to the buildup of various materials that block the formation. Acidizing entails
+pumping large volumes of specially formulated acids into reservoirs to dissolve
+barriers and enlarge crevices in the formation, thereby eliminating obstacles to
+the flow of oil and natural gas. Acidizing services can also enhance production
+in limestone formations. 
+Coiled Tubing . Coiled tubing
+services, which accounted for approximately nine percent of 2009, 2008 and 2007
+revenues, involve the injection of coiled tubing into wells to perform
+various applications and functions for use principally in well-servicing
+operations and more recently to facilitate completion of horizontal wells.
+Coiled tubing is a flexible steel pipe with a diameter of less than four inches
+manufactured in continuous lengths of thousands of feet and wound or coiled
+around a large reel. It can be inserted through existing production tubing and
+used to perform workovers without using a larger, more costly workover rig.
+Principal advantages of employing coiled tubing in a workover operation include:
+(i) not having to “shut-in” the well during such operations, (ii) the ability to
+reel continuous coiled tubing in and out of a well significantly faster than
+conventional pipe, (iii) the ability to direct fluids into a wellbore with more
+precision, and (iv) enhanced access to remote or offshore fields due to the
+smaller size and mobility of a coiled tubing unit compared to a workover
+rig. There are several manufacturers of flexible steel pipe used in
+coiled tubing services, and the Company believes that its sources of supply are
+adequate. 
+Snubbing . Snubbing (also
+referred to as hydraulic workover services), which accounted for approximately
+eight percent of 2009 revenues, seven percent of 2008 revenues and 10 percent of
+2007 revenues, involves using a hydraulic workover rig that permits an operator
+to repair damaged casing, production tubing and downhole production equipment in
+a high-pressure environment. A snubbing unit makes it possible to remove and
+replace downhole equipment while maintaining pressure in the well. Customers
+benefit because these operations can be performed without removing the pressure
+from the well, which stops production and can damage the formation, and because
+a snubbing rig can perform many applications at a lower cost than other
+alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry is
+limited to a relatively few operators who have the experience and knowledge
+required to perform such services safely and efficiently. 
+3 
+Nitrogen . Nitrogen accounted
+for approximately seven percent of 2009 revenues, eight percent of 2008 revenues
+and seven percent of 2007 revenues. There are a number of uses for
+nitrogen, an inert, non-combustible element, in providing services to oilfield
+customers and industrial users outside of the oilfield. For our oilfield
+customers, nitrogen can be used to clean drilling and production pipe and
+displace fluids in various drilling applications. It also can be used to create
+a fire-retardant environment in hazardous blowout situations and as a fracturing
+medium for our fracturing service line. In addition, nitrogen can be
+complementary to our snubbing and coiled tubing service lines, because it is a
+non-corrosive medium and is frequently injected into a well using coiled tubing.
+Nitrogen is complementary to our pressure pumping service line as well, because
+foam-based nitrogen stimulation is appropriate in certain sensitive formations
+in which the fluids used in fracturing or acidizing would damage a customer’s
+well. 
+For
+non-oilfield industrial users, nitrogen can be used to purge pipelines and
+create a non-combustible environment. RPC stores and transports nitrogen and has
+a number of pumping unit configurations that inject nitrogen in its various
+applications. Some of these pumping units are set up for use on offshore
+platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are
+adequate. 
+Downhole Tools . Thru Tubing
+Solutions (“TTS”) accounted for approximately 15 percent of 2009 revenues, nine
+percent of 2008 revenues and seven percent of 2007 revenues. TTS
+provides services and proprietary downhole motors, fishing tools and other
+specialized downhole tools and processes to operators and service companies in
+drilling and production operations, including casing perforation at the
+completion stage of an oil or gas well. The services that TTS
+provides are especially suited for unconventional drilling and completion
+activities. TTS’ experience providing reliable tool services allows
+it to work in a pressurized environment with virtually any coiled tubing unit or
+snubbing unit. 
+Well Control . Cudd Energy
+Services specializes in responding to and controlling oil and gas well
+emergencies, including blowouts and well fires, domestically and
+internationally. In connection with these services, Cudd Energy Services, along
+with Patterson Services, has the capacity to supply the equipment, expertise and
+personnel necessary to restore affected oil and gas wells to production. In the
+last nine years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia,
+Canada, Colombia, Egypt, Hungary, India, Kuwait, Libya, Mexico, Peru, Qatar,
+Taiwan, Trinidad, Turkmenistan and Venezuela. 
+The
+Company’s professional firefighting staff has many years of aggregate industry
+experience in responding to well fires and blowouts. This team of experts
+responds to well control situations where hydrocarbons are escaping from a well
+bore, regardless of whether a fire has occurred. In the most critical
+situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds
+of thousands of dollars per day in well operators’ production revenue. Since
+these events ordinarily arise from equipment failures or human error, it is
+impossible to predict accurately the timing or scope of this work. Additionally,
+less critical events frequently occur in connection with the drilling of new
+wells in high-pressure reservoirs. In these situations, the Company is called
+upon to supervise and assist in the well control effort so that drilling
+operations can resume as promptly as safety permits. 
+Wireline Services . Wireline
+is classified into two types of services: slick or braided line and electric
+line. In both, a spooled wire is unwound and lowered into a well,
+conveying various types of tools or equipment. Slick or braided line
+services use a non-conductive line primarily for jarring objects into or out of
+a well, as in fishing or plug-setting operations. Electric line
+services lower an electrical conductor line into a well allowing the use of
+electrically-operated tools such as perforators, bridge plugs and logging
+tools. Wireline services can be an integral part of the plug and
+abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the
+use of specialized tools and procedures to retrieve lost equipment from a well
+drilling operation and producing wells. It is a service required by oil and gas
+operators who have lost equipment in a well. Oil and natural gas production from
+an affected well typically declines until the lost equipment can be retrieved.
+In some cases, the Company creates customized tools to perform a fishing
+operation. The customized tools are maintained by the Company after the
+particular fishing job for future use if a similar need arises. 
+4 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within the
+Support Services business segment: 
+Rental Tools . Rental tools
+accounted for approximately eight percent of 2009 revenues, 11 percent of 2008
+revenues and 13 percent of 2007 revenues. The Company rents
+specialized equipment for use with onshore and offshore oil and gas well
+drilling, completion and workover activities. The drilling and subsequent
+operation of oil and gas wells generally require a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and
+drilling contractors often find it more economical to supplement their tool and
+tubular inventories with rental items instead of owning a complete inventory.
+The Company’s facilities are strategically located to serve the major staging
+points for oil and gas activities in the Gulf of Mexico, mid-continent region
+and Rocky Mountains. 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High
+Pressure Manifolds and Valves 
+Drill
+Pipe 
+Hevi-wate
+Drill Pipe 
+Drill
+Collars 
+Tubing 
+Handling
+Tools 
+Production
+Related Rental Tools 
+Coflexip
+Hoses 
+Pumps 
+Oilfield Pipe
+Inspection Services, Pipe Management and Pipe Storage. Pipe inspection
+services include Full Body Electromagnetic and Phased Array Ultrasonic
+inspection of pipe used in oil and gas wells. These services are provided at
+both the Company’s inspection facilities and at pipe mills in accordance with
+negotiated sales and/or service contracts. Our customers are major oil companies
+and steel mills, for which we provide in-house inspection services, inventory
+management and process control of tubing, casing and drill pipe. Our
+locations in Channelview, Texas and Morgan City, Louisiana are equipped with
+large capacity cranes, specially designed forklifts and a computerized inventory
+system to serve a variety of storage and handling services for both the oilfield
+and non-oilfield customers. 
+Well Control School . Well
+Control School provides industry and government accredited training for the oil
+and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats
+including conventional classroom training, interactive computer training
+including training delivered over the internet, and mobile simulator
+training. 
+Energy Personnel
+International . Energy Personnel International provides drilling and
+production engineers, well site supervisors, project management specialists, and
+workover and completion specialists on a consulting basis to the oil and gas
+industry to meet customers’ needs for staff engineering and well site
+management. 
+Refer to
+Note 12 in the Notes to the Consolidated Financial Statements for additional
+financial information on our business segments. 
+Industry 
+United States . RPC provides
+its services to its domestic customers through a network of facilities
+strategically located to serve the Gulf of Mexico, the mid-continent, the
+southwest, the Rocky Mountains and the northeast production fields. Demand for
+RPC’s services in the U.S. tends to be extremely volatile and fluctuates with
+current and projected price levels of oil and natural gas and activity levels in
+the oil and gas industry. Customer activity levels are influenced by their
+decisions about capital investment toward the development and production of oil
+and gas reserves. 
+Due to
+aging oilfields and lower-cost sources of oil internationally, the drilling rig
+count in the U.S. has declined by approximately 74 percent from its peak in
+1981. Due to enhanced technology, however, more wells are being drilled and the
+domestic production of oil and natural gas remains roughly equivalent to prior
+years. Record low drilling activity levels were experienced in 1986,
+1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the
+industry’s history), 2002 and again in 2009. 
+The rig
+count during the most recent cycle peaked at the end of the third quarter of
+2008, and began to decline sharply during the fourth quarter. At the
+beginning of 2009, there were 1,623 domestic working drilling rigs, down 20
+percent from the third quarter of 2008. U.S. domestic drilling activity declined
+by 57 percent from the third quarter of 2008 to the second quarter of 2009,
+which was the steepest annualized decline rate in the industry’s
+history. 
+5 
+During
+2009 the average price of natural gas decreased by approximately 56 percent, and
+the average price of oil decreased by approximately 38 percent. The price of
+natural gas rose sequentially in the fourth quarter compared to the third
+quarter of 2009, and the price of oil rose during each quarter of
+2009. The change in domestic drilling activity during 2008 and
+2009 was consistent with the direction and severity of the changes in the prices
+of oil and natural gas, as well as the overall fluctuations in the general
+economy. During the first quarter of 2010, the domestic drilling rig count has
+continued to increase steadily, along with the prices of oil and natural
+gas. Although our business has repeatedly demonstrated that it is
+cyclical, we continue to believe that the long-term prospects for our business
+are favorable due to growing demand for, and declining production of, oil and
+natural gas. 
+Gas
+drilling rigs have represented an increasing percentage of the total drilling
+rig count, and have represented over 70 percent of the drilling rig count each
+year since 2001. In 2009, gas drilling rigs represented 74 percent of
+total drilling activity. The demand trend for natural gas is continuing to rise,
+although it fluctuates in the short term due to factors such as economic
+activity and the weather. Also, unlike oil, foreign imports of natural gas do
+not compete with domestic production to a meaningful degree. This lack of
+foreign competition tends to keep prices high. Based on current demand levels
+for natural gas as well as the high oil and gas well depletion rates experienced
+over the past several years, it is anticipated that gas-directed drilling will
+represent at least 70 percent of the total drilling rig count in the foreseeable
+future. 
+In
+addition, there are certain types of wells, predominately natural gas, being
+drilled in the U.S. domestic market for which there is a higher demand for RPC’s
+services. Known as either directional or horizontal wells, these
+wells are more difficult and costly to complete. Because they are
+drilled through a narrow formation and the formation is typically a relatively
+impermeable formation such as shale, they require additional stimulation when
+they are completed. Also, many of these formations require high pumping rates of
+stimulation fluids under high pressures, which in turn means that there is a
+great deal of pressure pumping horsepower required to complete the
+well. Furthermore, since they are not drilled in a straight vertical
+direction from the Earth’s surface, they require tools and drilling mechanisms
+that are flexible, rather than rigid, and can be steered once they are
+downhole. Specifically, these types of wells require RPC’s pressure
+pumping and coiled tubing services, as well as our downhole tools and
+services. 
+International. RPC has
+historically operated in several countries outside of the United States,
+although international revenues have never accounted for more than 10 percent of
+total revenues. Over the past several years, RPC has continued its
+focus on developing international opportunities, although our equipment
+investments over the last couple of years have emphasized domestic rather than
+international expansion. International revenues for 2009 increased
+due to higher customer activity levels in New Zealand, Mexico and Egypt, among
+other countries, partially offset by decreases in Saudi Arabia and the
+elimination of revenue in Venezuela. During 2009, RPC provided
+snubbing, well control and oilfield training services in Cameroon, Egypt, Gabon,
+Mexico, New Zealand, Oman and the United Arab Emirates, among other
+countries. We also provided rental tools in Bolivia and Mexico, and
+downhole motors and tools in Canada, the Congo, Mexico and South
+Africa. We continue to focus on the development of international
+opportunities in these and other markets, although we believe that it will
+continue to be less than 10 percent of total revenues. 
+RPC
+provides services to its international customers through branch locations or
+wholly owned foreign subsidiaries. The international market is prone to
+political uncertainties, including the risk of civil unrest and conflicts.
+However, due to the significant investment requirement and complexity of
+international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard to
+oil and natural gas pricing, and therefore have the potential to be more stable
+than most U.S. domestic operations. Additionally, the international
+market is dominated by major oil companies and national oil companies which tend
+to have different objectives and more operating stability than the typical
+independent oil and gas producer in the U.S. Predicting the timing
+and duration of contract work is not possible. Pursuing selective
+international opportunities for revenue growth continues to be a strong emphasis
+for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for
+further information on our international operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital, thus
+yielding strong cash flow and asset appreciation. This objective continues to be
+pursued through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential. 
+RPC seeks
+to expand its service capabilities through a combination of internal growth,
+acquisitions, joint ventures and strategic alliances. Because of the fragmented
+nature of the oil and gas services industry, RPC believes a number of attractive
+acquisition opportunities exist. However, near-term business
+conditions do not justify sellers’ price expectations, so we believe we generate
+better returns growing organically in service lines and geographic locations in
+which we have experience and presence. 
+6 
+RPC has
+traditionally had a conservative capital structure with minimal
+debt. During 2006, however, we established a new revolving credit
+facility to fund the purchase of revenue-producing equipment and other working
+capital requirements to pursue our growth plan. We pursued this capital source
+because of the high returns on investment that had been generated by many of our
+service lines during the previous several years, and because of the low cost and
+ready availability of debt capital. We completed purchases of revenue-producing
+equipment under our growth plan during 2008, and during 2009 we reduced capital
+expenditures due to the industry downturn and the resulting lower near-term
+expected returns on investment. In addition, we reduced capital
+expenditures in order to reduce the balance on our revolving credit facility and
+enhance our conservative capital structure. At the end of 2009, our level of
+debt was conservative compared to a number of our peers, and we believe that the
+favorable long-term returns on investment in our revenue-producing equipment
+justify financing their purchase using debt. 
+Customers 
+Demand
+for RPC’s services and products depends primarily upon the number of oil and
+natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of production enhancement
+activity worldwide. RPC’s principal customers consist of major and independent
+oil and natural gas producing companies. During 2009, RPC provided oilfield
+services to several hundred customers. Of these customers,
+Southwestern Energy Company accounted for approximately 13 percent of revenues
+and Chesapeake Energy Corporation accounted for approximately 12 percent of
+revenues. RPC believes that its relationship with these customers is
+good. Although the Company believes that we would be able to obtain
+other customers for our services in the event of the loss of either of these
+major customers, the loss of these customers could have a material adverse
+effect on Company revenues and operating results in the near
+term. Sales are generated by RPC’s sales force and through referrals
+from existing customers. There are long-term written contracts for services and
+equipment with certain international and domestic customers, although revenues
+earned under such contracts are a small percentage of total revenues. Due to the
+short lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog in most of our
+service lines. 
+Competition 
+RPC
+operates in highly competitive areas of the oilfield services industry. RPC’s
+products and services are sold in highly competitive markets, and its revenues
+and earnings are affected by changes in prices for our services, fluctuations in
+the level of customer activity in major markets, general economic conditions and
+governmental regulation. RPC competes with many large and small oilfield
+industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market
+areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The oil
+and gas services industry includes a small number of dominant global competitors
+including, among others, Halliburton Energy Services Group, a division of
+Halliburton Company, BJ Services Company and Schlumberger Ltd., and a
+significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s
+equipment consists primarily of oil and gas services equipment used either in
+servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned. RPC purchases
+oilfield service equipment from a limited number of
+manufacturers. These manufacturers of our oilfield service equipment
+may not be able to meet our requests for timely delivery during periods of high
+demand which may result in delayed deliveries of equipment and higher prices for
+equipment. 
+RPC both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC’s principal
+executive offices in Atlanta, Georgia are leased. The Company has two primary
+administrative buildings, one in Houston, Texas that includes the Company’s
+operations, engineering, sales and marketing headquarters, and one in Houma,
+Louisiana that includes certain administrative functions. RPC believes that its
+facilities are adequate for its current operations. For additional
+information with respect to RPC’s lease commitments, see Note 9 of the Notes to
+Consolidated Financial Statements. 
+Governmental
+Regulation 
+RPC’s
+business is affected by state, federal and foreign laws and other regulations
+relating to the oil and gas industry, as well as laws and regulations relating
+to worker safety and environmental protection. RPC cannot predict the level of
+enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on it,
+its businesses or financial condition. 
+7 
+In
+addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers’ activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our
+services. 
+Intellectual
+Property 
+RPC uses
+several patented items in its operations, which management believes are
+important but are not indispensable to RPC’s success. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the
+technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability
+of Filings 
+RPC makes
+available, free of charge, on its website, www.rpc.net, its annual report on
+Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
+amendments to those reports on the same day as they are filed with the
+Securities and Exchange Commission. 
+8 
+Item
+1A. Risk Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural
+gas prices. 
+Oil
+prices affect demand throughout the oil and natural gas industry, including the
+demand for our products and services. Our business depends in large part on the
+conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers’ demand
+for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected
+by changing prices, and, as a result, less volatile than the exploration sector,
+producers react to declining oil and gas prices by curtailing capital spending,
+which would adversely affect our business. A prolonged low level of customer
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of
+operations. 
+The
+relationship between the prices of oil and natural gas and our customers’
+drilling and production activities may not be highly correlated in the
+future. 
+Historically,
+fluctuations in the prices of oil and natural gas have led to corresponding
+changes in our customers’ drilling and production activities as measured by the
+domestic rig count. As drilling and production activities increase
+(or remain active) or decrease (or remain stagnant), our operating results are
+correspondingly favorably or adversely impacted. If this correlation weakens in
+the future, then it is possible that increases in the prices of oil and natural
+gas will not lead to corresponding increases in our customers’ activities, and
+our future operating results could be negatively impacted. 
+We
+may be unable to compete in the highly competitive oil and gas industry in the
+future. 
+We
+operate in highly competitive areas of the oilfield services industry. The
+products and services in our industry segments are sold in highly competitive
+markets, and our revenues and earnings have in the past been affected by changes
+in competitive prices, fluctuations in the level of activity in major markets
+and general economic conditions. We compete with the oil and gas industry’s many
+large and small industry competitors, including the largest integrated oilfield
+service providers. We believe that the principal competitive factors in the
+market areas that we serve are product and service quality and availability,
+reputation for safety, technical proficiency and price. Although we believe that
+our reputation for safety and quality service is good, we cannot assure you that
+we will be able to maintain our competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and may continue to be a key element of our business strategy. We
+cannot assure you that we will be able to identify and acquire acceptable
+acquisition candidates on terms favorable to us in the future. We may be
+required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to integrate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic
+regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent, the
+Rocky Mountains and the Northeast. Hurricanes and other storms prevalent in the
+Gulf of Mexico and along the Gulf Coast during certain times of the year may
+also affect our operations, and severe hurricanes may affect our customers’
+activities for a period of several years. While the impact of these
+storms may increase the need for certain of our services over a longer period of
+time, such storms can also decrease our customers’ activities immediately after
+they occur. Such hurricanes may also affect the prices of oil and
+natural gas by disrupting supplies in the short term, which may increase demand
+for our services in geographic areas not damaged by the
+storms. Prolonged rain, snow or ice in many of our locations may
+temporarily prevent our crews and equipment from reaching customer work
+sites. Due to seasonal differences in weather patterns, our crews may
+operate more days in some periods than others. Accordingly, our operating
+results may vary from quarter to quarter, depending on the impact of these
+weather conditions. 
+Our
+ability to attract and retain skilled workers may impact growth potential and
+profitability. 
+Our
+ability to be productive and profitable will depend substantially on our ability
+to attract and retain skilled workers. Our ability to expand our operations is,
+in part, impacted by our ability to increase our labor force. A significant
+increase in the wages paid by competing employers could result in a reduction in
+our skilled labor force, increases in the wage rates paid by us, or both. If
+either of these events occurred, our capacity and profitability could be
+diminished, and our growth potential could be impaired. 
+9 
+Our
+concentration of customers in one industry may impact our overall exposure to
+credit risk. 
+Substantially
+all of our customers operate in the energy industry. This concentration of
+customers in one industry may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. We perform ongoing credit evaluations of
+our customers and do not generally require collateral in support of our trade
+receivables. 
+Reliance
+upon a few large customers may adversely affect our revenues and operating
+results. 
+During
+2009, two of our largest customers accounted for approximately 25 percent of our
+total revenues. This reliance on large customers for a significant
+portion of our total revenues exposes us to the risk that the loss or reduction
+in revenues from any one or more of these customers, which could occur
+unexpectedly, could have a material and disproportionate adverse impact upon our
+net revenues and operating results. 
+Our
+business has potential liability for litigation, personal injury and property
+damage claims assessments. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks,
+including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution
+or other environmental hazards or loss of production. Litigation may arise from
+a catastrophic occurrence at a location where our equipment and services are
+used. This litigation could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. These occurrences could
+have a material adverse effect on us. We maintain what we believe is prudent
+insurance protection. We cannot assure you that we will be able to maintain
+adequate insurance in the future at rates we consider reasonable or that our
+insurance coverage will be adequate to cover future claims and assessments that
+may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulatory
+and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results. 
+Our
+international operations could have a material adverse effect on our
+business. 
+Our
+operations in various countries including, but not limited to, Africa, Canada,
+China, Eastern Europe, Latin America, the Middle East and New Zealand are
+subject to risks. These risks include, but are not limited to, political
+changes, expropriation, currency restrictions and changes in currency exchange
+rates, taxes, boycotts and other civil disturbances. The occurrence
+of any one of these events could have a material adverse effect on our
+operations. 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas
+services industry has been highly volatile. Likewise, the market price of our
+common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public stockholders may
+have no effective voice in the management of the Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Rule 303A of
+the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
+Corporation” because a group that includes the Company’s Chairman of the Board,
+R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of
+the Company, and certain companies under their control, controls in excess of
+fifty percent of the Company’s voting power. As a “Controlled Corporation,” the
+Company need not comply with certain NYSE rules including those requiring a
+majority of independent directors. 
+10 
+RPC’s
+executive officers, directors and their affiliates hold directly or through
+indirect beneficial ownership, in the aggregate, approximately 71 percent of
+RPC’s outstanding shares of common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions and
+other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from
+acquiring control over the Company at a premium. 
+Our
+management has a substantial ownership interest, and the availability of the
+Company’s common stock to the investing public may be limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC’s stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock. 
+Provisions
+in RPC’s Certificate of Incorporation and Bylaws may inhibit a takeover of
+RPC. 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions
+including advance notice requirements for stockholder proposals and staggered
+terms for the Board of Directors. These provisions may make a tender
+offer, change in control or takeover attempt that is opposed by RPC’s Board of
+Directors more difficult or expensive. 
+Some
+of our equipment and several types of materials used in providing our services
+are available from a limited number of suppliers. 
+We
+purchase equipment provided by a limited number of manufacturers who specialize
+in oilfield service equipment. During periods of high demand, these
+manufacturers may not be able to meet our requests for timely delivery,
+resulting in delayed deliveries of equipment and higher prices for
+equipment. There are a limited number of suppliers for certain
+materials used in pressure pumping services, our largest service
+line. While these materials are generally available, supply
+disruptions can occur due to factors beyond our control. Such
+disruptions, delayed deliveries, and higher prices can limit our ability to
+provide services, or increase the costs of providing services, thus reducing our
+revenues and profits. 
+We
+have used outside financing to accomplish our growth strategy, and outside
+financing may become unavailable or may be unfavorable to us. 
+Our
+business requires a great deal of capital in order to maintain our equipment and
+increase our fleet of equipment to expand our operations, and we have access to
+our $200 million credit facility to fund our necessary working capital and
+equipment requirements. Most of our existing credit facility bears interest at a
+floating rate, which exposes us to market risks as interest rates
+rise. If our existing capital resources become unavailable,
+inadequate or unfavorable for purposes of funding our capital requirements, we
+would need to raise additional funds through alternative debt or equity
+financings to maintain our equipment and continue our growth. Such
+additional financing sources may not be available when we need them, or may not
+be available on favorable terms. If we fund our growth through the
+issuance of public equity, the holdings of stockholders will be
+diluted. If capital generated either by cash provided by operating
+activities or outside financing is not available or sufficient for our needs, we
+may be unable to maintain our equipment, expand our fleet of equipment, or take
+advantage of other potentially profitable business opportunities, which could
+reduce our future revenues and profits. 
+11 
+Item
+1B. Unresolved Staff Comments 
+None. 
+Item
+2. Properties 
+RPC owns
+or leases approximately 100 offices and operating facilities. The Company leases
+approximately 13,400 square feet of office space in Atlanta, Georgia that serves
+as its headquarters, a portion of which is allocated and charged to Marine
+Products Corporation. See “Related Party Transactions” contained in
+Item 7. The lease agreement on the headquarters is effective through
+October 2013. RPC believes its current operating facilities are
+suitable and adequate to meet current and reasonably anticipated future
+needs. Descriptions of the major facilities used in our operations
+are as follows: 
+Owned
+Locations 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Houston,
+Texas — Operations, sales and administrative office 
+Elk City,
+Oklahoma — Operations, sales and equipment storage yards 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yards 
+Lafayette,
+Louisiana — Operations, sales and equipment storage yards 
+Conway,
+Arkansas — Operations, sales and equipment storage yards 
+Kilgore,
+Texas — Pumping services facility 
+Leased
+Locations 
+Seminole,
+Oklahoma — Pumping services facility 
+Oklahoma
+City, Oklahoma — Operations, sales and administrative office 
+Houston,
+Texas — Operations, sales and administrative office 
+Odessa,
+Texas — Operations, sales and equipment storage yards 
+Washington,
+Pennsylvania — Operations, sales and equipment storage yards 
+Item
+3. Legal Proceedings 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if
+determined adversely, would not have a material adverse effect on RPC’s business
+or financial condition. 
+12 
+Item
+4. Reserved 
+Item
+4A. Executive Officers of the Registrant 
+Each of
+the executive officers of RPC was elected by the Board of Directors to serve
+until the Board of Directors’ meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of
+Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with
+RPC. 
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+78 
+1/24/84 
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+65 
+4/22/03 
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+73 
+1/27/87 
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+49 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer 
+(1) 
+R.
+Randall Rollins began working for Rollins, Inc. (consumer services) in
+1949. Mr. Rollins has served as Chairman of the Board of RPC since the
+spin-off of RPC from Rollins, Inc. in 1984. He has served as
+Chairman of the Board of Marine Products Corporation (boat manufacturing)
+since it was spun off from RPC in 2001 and Chairman of the Board of
+Rollins, Inc. since October 1991. He is also a director of Dover Downs
+Gaming and Entertainment, Inc. and Dover Motorsports,
+Inc. 
+(2) 
+Richard
+A. Hubbell has been the President of RPC since 1987 and Chief Executive
+Officer since 2003. He has also been the President and Chief Executive
+Officer of Marine Products Corporation since it was spun off from RPC in
+February 2001. Mr. Hubbell serves on the Board of Directors for both of
+these companies. 
+(3) 
+Linda
+H. Graham has been the Vice President and Secretary of RPC since
+1987. She has also been the Vice President and Secretary of
+Marine Products Corporation since it was spun off from RPC in 2001. Ms.
+Graham serves on the Board of Directors for both of these
+companies. 
+(4)
+Ben
+M. Palmer has been the Vice President, Chief Financial Officer and
+Treasurer of RPC since 1996. He has also been the Vice
+President, Chief Financial Officer and Treasurer of Marine Products
+Corporation since it was spun off from RPC in
+2001. 
+13 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
+Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. At February 12, 2010, there were 98,523,276 shares of
+common stock outstanding and approximately 4,300 beneficial holders of common
+stock. The following table sets forth the high and low prices of
+RPC’s common stock and dividends paid for each quarter in the years ended
+December 31, 2009 and 2008: 
+2009 
+2008 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+11.45 
+$ 
+5.17 
+$ 
+0.07 
+$ 
+15.32 
+$ 
+8.52 
+$ 
+0.06 
+Second 
+11.97 
+6.43 
+0.07 
+17.80 
+12.50 
+0.06 
+Third 
+10.94 
+7.10 
+0.04 
+18.91 
+13.15 
+0.06 
+Fourth 
+11.35 
+9.15 
+0.04 
+14.10 
+6.02 
+0.06 
+On
+January 26, 2010, the Board of Directors approved a $0.04 per share cash
+dividend, payable March 10, 2010 to stockholders of record at the close of
+business on February 10, 2010. The Company expects to continue to pay
+cash dividends to the common stockholders, subject to the earnings and financial
+condition of the Company and other relevant factors. 
+Issuer
+Purchases of Equity Securities 
+Shares
+repurchased in the fourth quarter of 2009 are outlined below. 
+Period 
+Total
+Number 
+of Shares (or 
+Units) 
+Purchased 
+Average
+Price 
+Paid Per Share 
+(or Unit) 
+Total
+Number of 
+Shares (or Units) 
+Purchased as Part of 
+Publicly
+Announced 
+Plans or Programs 
+Maximum
+Number (or 
+Approximate Dollar 
+Value) of Shares (or Units) 
+that
+May Yet Be 
+Purchased Under the Plans 
+or Programs 
+October
+1, 2009 to October 31, 2009 
+12,812 
+(1) 
+$ 
+9.68 
+- 
+2,807,265 
+November
+1, 2009 to November 30, 2009 
+2,147 
+(1) 
+9.60 
+- 
+2,807,265 
+December
+1, 2009 to December 31, 2009 
+- 
+- 
+- 
+2,807,265 
+Totals 
+14,959 
+$ 
+9.67 
+- 
+2,807,265 
+(1) 
+Consists
+of shares repurchased by the Company in connection with option exercises
+and taxes related to vesting of restricted
+shares. 
+The
+Company’s Board of Directors announced a stock buyback program in March 1998
+authorizing the repurchase of 11,812,500 shares in the open
+market. Currently the program does not have a predetermined
+expiration date. 
+Performance
+Graph 
+The
+following graph shows a five year comparison of the cumulative total stockholder
+return based on the performance of the stock of the Company, assuming dividend
+reinvestment, as compared with both a broad equity market index and an industry
+or peer group index. The indices included in the following graph are
+the Russell 2000 Index (“Russell 2000”), the Philadelphia Stock Exchange’s Oil
+Service Index (“OSX”), and a peer group which includes companies that are
+considered peers of the Company, as discussed below (the “Peer
+Group”). The Company has voluntarily chosen to provide both an
+industry and a peer group index. 
+14 
+The
+Russell 2000 is a stock index representing small capitalization U.S.
+stocks. The components of the index had an average market
+capitalization in 2009 of over $1.0 billion, and the Company was a component of
+the Russell 2000 during 2009. The Russell 2000 was chosen because it
+represents companies with comparable market capitalizations to the
+Company. The OSX is a stock index of 15 U.S. companies that provide
+oil drilling and production services, oilfield equipment, support services and
+geophysical/reservoir services. The Company is not a component of the
+OSX, but it was chosen because it represents a large group of companies that
+provide the same or similar products and services as the Company. The
+companies included in the Peer Group are Weatherford International, Inc., BJ
+Services Company, Superior Energy Services, Inc., and Halliburton Company. The
+companies included in the peer group have been weighted according to each
+respective issuer’s stock market capitalization at the beginning of each
+year. 
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the
+Company. The historical information may not be indicative of the
+Company’s future results of operations. The information set forth
+below should be read in conjunction with “Management’s Discussion and Analysis
+of Financial Condition and Results of Operations” and the Consolidated Financial
+Statements and the notes thereto included elsewhere in this
+document. 
+15 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2009 
+2008 
+2007 
+2006 
+2005 
+(in
+thousands, except employee and per share amounts) 
+Revenues 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+Cost
+of revenues 
+393,806 
+503,631 
+368,175 
+287,037 
+227,492 
+Selling,
+general and administrative expenses 
+97,672 
+117,140 
+107,800 
+91,051 
+75,478 
+Depreciation
+and amortization 
+130,580 
+118,403 
+78,506 
+46,711 
+39,129 
+Gain
+on disposition of assets, net (a) 
+(1,143 
+) 
+(6,367 
+) 
+(6,293 
+) 
+(5,969 
+) 
+(12,169 
+) 
+Operating
+(loss) profit 
+(33,052 
+) 
+144,170 
+142,038 
+177,800 
+97,713 
+Interest
+expense 
+(2,176 
+) 
+(5,282 
+) 
+(4,179 
+) 
+(356 
+) 
+(127 
+) 
+Interest
+income 
+147 
+73 
+70 
+319 
+1,077 
+Other
+income (expense), net 
+1,582 
+(1,176 
+) 
+1,905 
+1,085 
+2,077 
+(Loss)
+income before income taxes 
+(33,499 
+) 
+137,785 
+139,834 
+178,848 
+100,740 
+Income
+tax (benefit) provision (b) 
+(10,754 
+) 
+54,382 
+52,785 
+68,054 
+34,256 
+Net
+(loss) income (b) 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+(Loss)
+earnings per share: 
+Basic 
+$ 
+(0.24 
+) 
+$ 
+0.86 
+$ 
+0.90 
+$ 
+1.16 
+$ 
+0.70 
+Diluted 
+$ 
+(0.24 
+) 
+$ 
+0.85 
+$ 
+0.89 
+$ 
+1.13 
+$ 
+0.67 
+Dividends
+paid per share 
+$ 
+0.220 
+$ 
+0.240 
+$ 
+0.200 
+$ 
+0.133 
+$ 
+0.071 
+OTHER
+DATA: 
+Operating
+margin percent 
+(5.6 
+)% 
+16.4 
+% 
+20.6 
+% 
+29.8 
+% 
+22.8 
+% 
+Net
+cash provided by operating activities 
+$ 
+168,740 
+$ 
+177,320 
+$ 
+141,872 
+$ 
+118,228 
+$ 
+66,362 
+Net
+cash used for investing activities 
+(61,144 
+) 
+(158,953 
+) 
+(239,624 
+) 
+(151,085 
+) 
+(62,415 
+) 
+Net
+cash (used for) provided by financing activities 
+(106,144 
+) 
+(21,668 
+) 
+101,361 
+22,777 
+(20,774 
+) 
+Depreciation
+and amortization 
+130,580 
+118,403 
+78,506 
+46,711 
+39,129 
+Capital
+expenditures 
+$ 
+67,830 
+$ 
+170,318 
+$ 
+248,758 
+$ 
+159,831 
+$ 
+72,808 
+Employees
+at end of period 
+1,980 
+2,532 
+2,370 
+2,000 
+1,649 
+BALANCE
+SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+130,619 
+$ 
+210,375 
+$ 
+176,154 
+$ 
+148,469 
+$ 
+107,428 
+Working
+capital 
+151,681 
+200,494 
+144,338 
+111,302 
+95,215 
+Property,
+plant and equipment, net 
+396,222 
+470,115 
+433,126 
+262,797 
+141,218 
+Total
+assets 
+649,043 
+793,461 
+701,015 
+478,007 
+311,785 
+Long-term
+debt (c) 
+90,300 
+174,450 
+156,400 
+35,600 
+— 
+Total
+stockholders’ equity 
+$ 
+409,723 
+$ 
+449,084 
+$ 
+409,272 
+$ 
+335,287 
+$ 
+232,501 
+(a) 
+Gain
+on disposition of assets, net in 2005 includes a $10.7 million pre-tax
+gain ($0.07 after tax per diluted share) on the sale of certain operating
+assets during the third quarter of
+2005. 
+(b) 
+During
+the fourth quarter of 2005, the income tax provision and net income
+reflect the receipt of tax refunds of $3.5 million related to the
+successful resolution of certain tax matters, which had a positive impact
+of $0.04 after tax per diluted
+share. 
+(c) 
+Effective
+September 2006, the Company closed on a revolving credit facility that was
+reduced to $200 million in the third quarter of 2009. In
+February 2005, the Company prepaid a $2.8 million promissory note and the
+remaining balance of long-term debt was paid in full upon maturity of a
+promissory note in July 2005. 
+16 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of
+Operations 
+Overview 
+The
+following discussion should be read in conjunction with “Selected Financial
+Data,” and the Consolidated Financial Statements included elsewhere in this
+document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc.
+(“RPC”) provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest, northeast and Rocky Mountain
+regions, and selected international locations. The Company’s revenues
+and profits are generated by providing equipment and services to customers who
+operate oil and gas properties and invest capital to drill new wells and enhance
+production or perform maintenance on existing wells. 
+Our key
+business and financial strategies are: 
+- 
+To
+focus our management resources on and invest our capital in equipment and
+geographic markets that we believe will earn high returns on capital, and
+maintain an appropriate capital structure. 
+- 
+To
+maintain a flexible cost structure that can respond quickly to volatile
+industry conditions and business activity levels. 
+- 
+To
+deliver equipment and services to our customers safely. 
+- 
+To
+maintain and increase market share. 
+- 
+To
+maximize stockholder return by optimizing the balance between cash
+invested in the Company ’ s productive
+assets, the payment of dividends to stockholders, and the repurchase of
+our common stock on the open market. 
+- 
+To
+align the interests of our management and stockholders. 
+- 
+To
+maintain an efficient, low-cost capital structure, which includes an
+appropriate use of debt. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and
+operating performance, management generally reviews periodic forecast data,
+monthly actual results, and other similar information. We also
+consider trends related to certain key financial data, including revenues,
+utilization of our equipment and personnel, pricing for our services and
+equipment, profit margins, selling, general and administrative expenses, cash
+flows and the return on our invested capital. We continuously monitor
+factors that impact the level of current and expected customer activity levels,
+such as the price of oil and natural gas, changes in pricing for our services
+and equipment and utilization of our equipment and personnel. Our
+financial results are affected by geopolitical factors such as political
+instability in the petroleum-producing regions of the world, overall economic
+conditions and weather in the United States, the prices of oil and natural gas,
+and our customers’ drilling and production activities. 
+Current
+industry conditions include natural gas prices which stabilized during 2009
+following a steep decline in 2008, and during the first quarter of 2010 have
+increased slightly. Oil prices have increased gradually during 2009
+and the first quarter of 2010, following a five-year low of $32 per barrel at
+the end of 2008. In the beginning of 2010, natural gas prices are
+approximately 27 percent higher than they were during the first quarter of 2009,
+and the price of oil is approximately 74 percent higher than it was in the first
+quarter of 2009. The average U.S. rig count declined by 42 percent in
+2009, although it began to increase during the third and fourth quarters of
+2009. During the first quarter of 2010, the rig count returned to the
+same levels experienced in the first quarter of 2009. 
+In
+addition to the overall rig count, the Company also monitors the number of
+horizontal and directional wells drilled in the U.S. domestic market, because
+this type of well is more service-intensive than a vertical oil or gas well,
+thus requiring more of the Company’s services provided for a longer period of
+time. The number of horizontal and directional wells drilled in the
+United States increased in 2009, and was 60 percent of total wells drilled
+during the year. During the first part of 2010, the percentage of
+horizontal and directional wells drilled as a percentage of total wells
+increased to approximately 66 percent. Between 2006 and 2008, the
+supply of oilfield service equipment in the U.S. domestic market increased
+tremendously, both from existing service companies and new entrants to the
+oilfield services business. Although the supply of oilfield equipment
+did not increase in 2009, the large supply of equipment and service providers
+coupled with the tremendous decline in domestic oilfield activity has caused
+pricing for the Company’s services to decrease tremendously during the past few
+years, which has had a negative impact on the Company’s financial results and
+returns. The Company responded by reducing its capital expenditures
+during 2008 and 2009, managing working capital carefully, closely monitoring its
+competitors’ activities, and scrutinizing planned capital expenditures more
+closely for acceptable financial returns. In spite of a decline in
+revenues and an operating loss during 2009, the Company generated sufficient
+cash from operating activities to decrease the balance on its revolving credit
+facility by 48 percent. 
+17 
+Loss
+before income taxes was $33.5 million in 2009 compared to income before taxes of
+$137.8 million in the prior year. The effective tax rate for 2009 was
+32.1 percent compared to 39.5 percent in the prior year. Diluted loss
+per share was $0.24 in 2009 compared to diluted earnings per share of $0.85 for
+the prior year. Cash flows from operating activities were $168.7
+million in 2008 compared to $177.3 million in the prior year, and cash and cash
+equivalents were $4.5 million at December 31, 2009, an increase of $1.5 million
+compared to December 31, 2008. During the third quarter of 2009, we
+reduced the size of our revolving credit facility to $200 million. As of
+December 31, 2009, there was $90.3 million in outstanding borrowings under this
+credit facility. 
+Cost of
+revenues as a percentage of revenues increased approximately 9.6 percentage
+points in 2009 compared to 2008, because of lower pricing for our services and
+lower revenues. 
+Selling,
+general and administrative expenses as a percentage of revenues increased
+approximately 3.3 percentage points in 2009 compared to 2008, which was due
+to the fixed nature of many of these expenses and lower revenues. 
+Consistent
+with our strategy to selectively grow our capacity and maintain our existing
+fleet of high demand equipment, capital expenditures were $67.8 million in
+2009. 
+Outlook 
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling rig
+count, had been gradually increasing since about 2003 when rig count was just
+over 800 through the latter half of 2008 when the U.S. rig count peaked at 2,031
+during the third quarter. The global recession that began in the
+fourth quarter of 2007 precipitated the steepest annualized decline in U.S.
+domestic oilfield history. From the third quarter of 2008 to the
+second quarter of 2009, the U.S. domestic rig count dropped almost 57 percent,
+reaching a trough of 876 in June 2009. Since June 2009, the rig count
+has increased by 42 percent to 1,248 early in the first quarter of
+2010. The outlook for U.S. domestic oilfield activity is to increase
+slowly during the remainder of 2010. The price of oil fell by 77
+percent from $147 per barrel in the third quarter of 2008 to $34 early in
+2009. Since that time, the price of oil has increased by over 100
+percent to approximately $80 per barrel in the first quarter of
+2010. The price of natural gas fell by 85 percent from approximately
+$13 per Mcf in the second quarter of 2008 to slightly below $2 per Mcf in the
+third quarter of 2009. Since that time, the price of natural gas has
+increased to almost $6 per Mcf early in the first quarter of 2010. 
+Unconventional
+drilling activity, which requires more of RPC’s services, accounted for 65
+percent of total U.S. domestic drilling at the end of
+2009. Unconventional activity as a percentage of total oilfield
+activity had grown to 66 percent by the first quarter of 2010. 
+We
+continue to monitor the competitive environment in 2010, and are concerned about
+pricing for our services. The highly competitive pricing levels are
+due to lower activity levels and the large amount of additional equipment that
+has been placed in service in the domestic market during the past several
+years. Our recent response to industry conditions was to reduce
+capital expenditures, continue cost-reduction plans and enhance our sales and
+marketing efforts. We understand that factors influencing the
+industry are unpredictable, and our response to the industry’s potential
+uncertainty is to maintain sufficient liquidity and a conservative capital
+structure and monitor our discretionary spending. Although we used
+our bank credit facility to finance our expansion, we will still maintain a
+conservative financial structure. We intend to closely manage the amount drawn
+on this facility over the course of 2010. Based on current industry
+conditions, we believe that the Company’s consolidated revenues will increase
+and financial performance will improve. 
+18 
+Results
+of Operations 
+Years
+Ended December 31, 
+2009 
+2008 
+2007 
+Consolidated
+revenues 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+Revenues
+by business segment: 
+Technical 
+$ 
+513,289 
+$ 
+745,991 
+$ 
+574,723 
+Support 
+74,574 
+130,986 
+115,503 
+Consolidated
+operating (loss) profit 
+$ 
+(33,052 
+) 
+$ 
+144,170 
+$ 
+142,038 
+Operating
+(loss) profit by business segment: 
+Technical 
+$ 
+(20,328 
+) 
+$ 
+110,648 
+$ 
+116,493 
+Support 
+(1,636 
+) 
+36,515 
+29,955 
+Corporate
+expenses 
+(12,231 
+) 
+(9,360 
+) 
+(10,703 
+) 
+Gain
+on disposition of assets, net 
+1,143 
+6,367 
+6,293 
+Net
+(loss) income 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+(Loss)
+earnings per share — diluted 
+$ 
+(0.24 
+) 
+$ 
+0.85 
+$ 
+0.89 
+Percentage
+of cost of revenues to revenues 
+67 
+% 
+57 
+% 
+53 
+% 
+Percentage
+of selling, general and administrative expenses to
+revenues 
+17 
+% 
+13 
+% 
+16 
+% 
+Percentage
+of depreciation and amortization expense to revenues 
+22 
+% 
+14 
+% 
+11 
+% 
+Effective
+income tax rate 
+32.1 
+% 
+39.5 
+% 
+37.7 
+% 
+Average
+U.S. domestic rig count 
+1,089 
+1,879 
+1,768 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+3.90 
+$ 
+8.81 
+$ 
+6.93 
+Average
+oil price (per barrel) 
+$ 
+61.90 
+$ 
+99.96 
+$ 
+72.78 
+Year
+Ended December 31, 2009 Compared To Year Ended December 31, 2008 
+Revenues. Revenues for 2009
+decreased $289.1 million or 33.0 percent compared to 2008. The
+Technical Services segment revenues for 2009 decreased 31.2 percent from the
+prior year due primarily to highly competitive pricing coupled with lower
+equipment utilization. The Support Services segment revenues for 2009
+decreased 43.1 percent from the prior year due to decreased customer activity
+and significantly lower pricing in the rental tool service line, the largest
+within this segment. 
+Domestic
+revenues decreased 36 percent to $543.0 million during 2009 compared to 2008 due
+to decreased customer activity and competitive pricing in our largest service
+lines, such as pressure pumping and rental tools. The average price
+of natural gas decreased by 56 percent and the average price of oil decreased by
+approximately 38 percent during 2009 compared to the prior year. In
+conjunction with the decrease in natural gas prices, the average domestic rig
+count during 2009 was 42 percent lower than in 2008. This decrease in
+drilling activity had a negative impact on our financial results. We
+believe that our activity levels are affected more by the price of natural gas
+than by the price of oil, because the majority of U.S. domestic drilling
+activity relates to natural gas, and many of our services are more appropriate
+for gas wells than oil wells. Foreign revenues, which increased from
+$30.8 million in 2008 to $44.8 million in 2009, were eight percent of
+consolidated revenues. These revenue increases were due mainly to
+higher customer activity levels in New Zealand and Mexico compared to the prior
+year. Our international revenues are impacted by the timing of
+project initiation and their ultimate duration. 
+Cost of
+revenues. Cost of revenues in 2009 was $393.8 million compared
+to $503.6 million in 2008, a decrease of $109.8 million or 21.8
+percent. The decrease in these costs was due to the variable nature
+of most of these expenses as well as the impact of expense reduction measures
+taken during 2009, including employment cost reductions. Cost of
+revenues, as a percent of revenues, increased in 2009 from 2008 due to lower
+pricing for our services. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses decreased 16.6 percent
+to $97.7 million in 2009 compared to $117.1 million in 2008. This
+decrease was primarily due to lower employment costs and other expenses
+resulting from expense reduction efforts instituted during 2009. As a
+percentage of revenues, selling, general and administrative expenses increased
+to 16.6 percent in 2009 compared to 13.4 percent in 2008. 
+Depreciation and
+amortization. Depreciation and amortization were $130.6
+million in 2009, an increase of $12.2 million or 10.3 percent compared to $118.4
+million in 2008. This increase resulted from a higher level of capital
+expenditures during recent quarters within both Support Services and Technical
+Services to increase capacity and to maintain our existing
+equipment. 
+19 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net decreased due primarily to reduced
+gains related to various property and equipment dispositions or sales to
+customers of lost or damaged rental equipment. 
+Other income (expense), net. Other income,
+net was $1.6 million in 2009, an increase of $2.8 million compared to other
+expense of $1.2 million in 2008. The increase is mainly due to the
+current year increase in the fair value of trading securities held in the
+non-qualified Supplemental Retirement Plan. In addition to
+changes in the fair value of trading securities, other income (expense) includes
+gains from settlements of various legal and insurance claims and royalty
+payments. 
+Interest
+expense. Interest expense was $2.2 million in 2009
+compared to $5.3 million in 2008. The decrease is due to lower
+interest expense in 2009 incurred on lower outstanding interest bearing advances
+on our revolving credit facility. 
+Interest income. 
+Interest income increased to $147 thousand in 2009 compared to $73 thousand in
+2008 as a result of a higher average investable cash balance in 2009 compared to
+2008. 
+Income tax (benefit)
+provision. The income tax benefit was $10.8 million in 2009
+compared to a tax provision of $54.4 million in 2008. The change is
+due to 2009’s loss before income tax, partially offset by a decrease in the
+effective tax rate to 32.1 percent in 2009 from 39.5 percent in
+2008. 
+Net (loss) income and diluted (loss)
+earnings per share . Net loss was $22.7 million in 2009,
+or $0.24 per share, compared to net income of $83.4 million, or $0.85 per
+diluted share in 2008. This decrease is due to decreased revenues and
+higher, as a percentage of revenues, costs of revenues, selling, general and
+administrative expenses and depreciation expense. 
+Year
+Ended December 31, 2008 Compared To Year Ended December 31, 2007 
+Revenues. Revenues for 2008
+increased $186.8 million or 27.1 percent compared to 2007. The
+Technical Services segment revenues for 2008 increased 29.8 percent from the
+prior year due primarily to a higher drilling rig count and increased capacity
+driven by higher capital expenditures partially offset by lower pricing for
+services. The Support Services segment revenues for 2008 increased
+13.4 percent from the prior year due to increased capacity driven by higher
+capital expenditures as well as a more profitable job mix in the rental tool
+service line, the largest within this segment. 
+Domestic
+revenues increased 30 percent to $846.2 million during 2008 compared to 2007 due
+to increased capacity in our largest service lines, such as pressure pumping and
+rental tools. The average price of natural gas increased by 27
+percent and the average price of oil increased by approximately 37 percent
+during 2008 compared to the prior year. In conjunction with the
+increase in natural gas prices, the average domestic rig count during 2008 was
+seven percent higher than in 2007. This increase in drilling activity
+had a positive impact on our financial results. We believe that our
+activity levels are affected more by the price of natural gas than by the price
+of oil, because the majority of U.S. domestic drilling activity relates to
+natural gas, and many of our services are more appropriate for gas wells than
+oil wells. Foreign revenues, which decreased from $41.1 million in
+2007 to $30.8 million in 2008, were four percent of consolidated
+revenues. These revenue decreases were due mainly to lower customer
+activity levels in Turkmenistan and Hungary compared to the prior
+year. Our international revenues are impacted by the timing of
+project initiation and their ultimate duration. 
+Cost of
+revenues. Costs of revenues in 2008 was $503.6 million
+compared to $368.2 million in 2007, an increase of $135.4 million or 36.8
+percent. The increase in these costs was due to the variable nature
+of many of these expenses, including materials and supplies, compensation, and
+maintenance and repairs. Cost of revenues, as a percent of revenues,
+increased in 2008 from 2007 due to more competitive pricing, higher costs of
+proppant used in our pressure pumping service line and increased maintenance and
+repairs expenses. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses increased 8.7 percent
+to $117.1 million in 2008 compared to $107.8 million in 2007. This
+increase was primarily due to higher employment costs consistent with higher
+activity levels and geographic expansion under RPC’s long-term growth
+plan. As a percentage of revenues, selling, general and
+administrative expenses decreased to 13.4 percent in 2008 compared to 15.6
+percent in 2007. 
+Depreciation and
+amortization. Depreciation and amortization were $118.4
+million in 2008, an increase of $39.9 million or 50.8 percent compared to $78.5
+million in 2007. This increase resulted from a higher level of capital
+expenditures during 2008 as compared to 2007 within both Support Services and
+Technical Services to increase capacity and to maintain our existing
+equipment. 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net increased due primarily to gains
+related to various property and equipment dispositions or sales to customers of
+lost or damaged rental equipment. 
+Other (expense) income, net. Other
+(expense), net in 2008 was $(1.2) million, a decrease of $3.1 million compared
+to other income of $1.9 million in 2007. The decrease is mainly due
+to the 2008 decline in the fair value of trading securities held in the
+non-qualified Supplemental Retirement Plan. In addition to
+changes in the fair value of trading securities, other (expense) income in 2008
+includes gains from settlements of various legal and insurance claims and
+royalty payments. 
+Interest
+expense. Interest expense was $5.3 million in 2008
+compared to $4.2 million in 2007. The increase is due to higher
+interest expense in 2008 incurred on larger outstanding interest bearing
+advances on our revolving line of credit. 
+20 
+Interest income. 
+Interest income increased to $73 thousand in 2008 compared to $70 thousand in
+2007 as a result of a higher average investable cash balance in 2008 compared to
+2007. 
+Income tax
+provision. The income tax provision increased to $54.4 million
+in 2008 from $52.8 million in 2007. The increase is due to an
+increase in the effective tax rate to 39.5 percent in 2008 from 37.7 percent in
+2007. 
+Net income and diluted earnings per
+share . Net income decreased 4.2 percent to $83.4
+million, or $0.85 earnings per diluted share in 2008, compared to $87.0 million,
+or $0.89 earnings per diluted share in 2007. This decrease is due to
+higher costs of revenues, selling, general and administrative expenses,
+depreciation expense, other expense, and interest expense partially offset by
+increased revenues. 
+21 
+Liquidity
+and Capital Resources 
+Cash
+and Cash Flows 
+The
+Company’s cash and cash equivalents were $4.5 million as of December 31, 2009,
+$3.0 million as of December 31, 2008 and $6.3 million as of December 31,
+2007. 
+The following table sets forth the
+historical cash flows for the years ended December 31: 
+(in
+thousands) 
+2009 
+2008 
+2007 
+Net
+cash provided by operating activities 
+$ 
+168,740 
+$ 
+177,320 
+$ 
+141,872 
+Net
+cash used for investing activities 
+(61,144 
+) 
+(158,953 
+) 
+(239,624 
+) 
+Net
+cash (used for) provided by financing activities 
+(106,144 
+) 
+(21,668 
+) 
+101,361 
+2009 
+Cash
+provided by operating activities decreased by $8.6 million in 2009 compared to
+the prior year. Net loss was $22.7 million in 2009 compared to net
+income of $83.4 million in 2008, decreasing cash provided by operating
+activities partially offset by decreases in working capital
+requirements. Decreased business activity levels and revenues in 2009
+resulted in lower accounts receivable and prepaid expenses partially offset by
+increased inventory and declines in accounts payable and accrued payroll
+including bonuses, consistent with lower activity levels and
+profitability. 
+Cash used
+for investing activities in 2009 decreased by $97.8 million compared to 2008,
+primarily as a result of lower capital expenditures. 
+Cash used
+for financing activities in 2009 increased by $84.5 million compared to 2008,
+primarily due to the reduction in notes payable to banks during 2009, partially
+offset by a decrease in common stock purchased and retired. 
+2008 
+Cash
+provided by operating activities increased by $35.4 million in 2008 compared to
+the prior year. Although net income decreased $3.6 million in 2008
+compared to 2007, cash provided by operating activities increased due primarily
+to an increase in depreciation due to higher capital expenditures and a higher
+deferred tax provision due to accelerated tax depreciation. Increased
+business activity levels and revenues in 2008 resulted in higher accounts
+receivable, inventories and prepaid expenses partially offset by increased
+accounts payable and accrued payroll including bonuses. 
+Cash used
+for investing activities in 2008 decreased by $80.7 million compared to 2007,
+primarily as a result of lower capital expenditures. 
+Cash
+(used for) provided by financing activities in 2009 increased by $123.0 million
+compared to 2007, primarily due to lower net borrowings from notes payable to
+banks during 2008, an increase in common stock purchased and retired, and a 20
+percent increase in dividends paid per share to common
+stockholders. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2009, remains
+strong. We believe the liquidity provided by our existing cash and
+cash equivalents, our overall strong capitalization which includes a revolving
+credit facility and cash expected to be generated from operations will provide
+sufficient capital to meet our requirements for at least the next twelve
+months. The Company currently has a $200 million revolving credit
+facility (the “Revolving Credit Agreement”) that matures in September
+2011. The Revolving Credit Agreement contains customary terms
+and conditions, including certain financial covenants including covenants
+restricting RPC’s ability to incur liens, merge or consolidate with another
+entity. A total of $91.9 million was available under our facility as
+of December 31, 2009; approximately $17.8 million of the credit facility
+supports outstanding letters of credit relating to self-insurance programs or
+contract bids. For additional information with respect to RPC’s
+credit facility, see Note 6 of the Notes to Consolidated Financial
+Statements. 
+The
+Company’s decisions about the amount of cash to be used for investing and
+financing purposes are influenced by its capital position, including access to
+borrowings under our credit facility, and the expected amount of cash to be
+provided by operations. We believe our liquidity will continue to
+provide the opportunity to grow our asset base and revenues during periods with
+positive business conditions and strong customer activity levels. The
+Company’s decisions about the amount of cash to be used for investing and
+financing activities could be influenced by the financial covenants in our
+credit facility but we do not expect the covenants to restrict our planned
+activities. 
+22 
+Cash
+Requirements 
+Capital
+expenditures were $67.8 million in 2009, and we currently expect capital
+expenditures to be approximately $70.0 million in 2010. We expect
+these expenditures to be primarily directed towards revenue-producing equipment
+in our larger, core service lines including pressure pumping, snubbing,
+nitrogen, and rental tools. The actual amount of 2010 expenditures
+will depend primarily on equipment maintenance requirements, expansion
+opportunities, and equipment delivery schedules. 
+The Company’s Retirement Income Plan, a
+multiple employer trusteed defined benefit pension plan, provides monthly
+benefits upon retirement at age 65 to eligible employees. The Company
+does not currently expect to make a significant contribution to the defined
+benefit pension plan in 2010 to meet its funding objectives. 
+The Company’s Board of Directors
+announced a stock buyback program on March 9, 1998 authorizing the repurchase of
+up to 11,812,500 shares of which 2,807,265 additional shares were available to
+be repurchased as of December 31, 2009. The program does not have a
+predetermined expiration date. 
+On
+January 26, 2010, the Board of Directors approved a $0.04 per share cash
+dividend, payable March 10, 2010 to stockholders of record at the close of
+business on February 10, 2010. The Company expects to continue to pay
+cash dividends to common stockholders, subject to the earnings and financial
+condition of the Company and other relevant factors. 
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include our
+credit facility, certain non-cancelable operating leases, purchase obligations
+and other long-term liabilities. The following table summarizes the Company’s
+significant contractual obligations as of December 31, 2009: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt obligations 
+$ 
+90,300 
+$ 
+- 
+$ 
+90,300 
+$ 
+- 
+$ 
+- 
+Interest
+on long-term debt obligations 
+3,154 
+1,869 
+1,285 
+- 
+- 
+Capital
+lease obligations 
+- 
+- 
+- 
+- 
+- 
+Operating
+leases (1) 
+13,023 
+4,389 
+5,318 
+2,504 
+812 
+Purchase
+obligations (2) 
+- 
+- 
+- 
+- 
+- 
+Other
+long-term liabilities (3) 
+988 
+- 
+988 
+- 
+- 
+Total
+contractual obligations 
+$ 
+107,465 
+$ 
+6,258 
+$ 
+97,891 
+$ 
+2,504 
+$ 
+812 
+(1) 
+Operating leases include
+agreements for various office locations, office equipment, and certain
+operating equipment. 
+(2) 
+Includes
+agreements to purchase goods or services that have been approved and that
+specify all significant terms (pricing, quantity, and
+timing). As part of the normal course of business the Company
+occasionally enters into purchase commitments to manage its various
+operating needs. 
+(3) 
+Includes expected cash payments
+for long-term liabilities reflected on the balance sheet where the timing
+of the payments are known. These amounts include incentive compensation.
+These amounts exclude pension obligations with uncertain funding
+requirements and deferred compensation
+liabilities. 
+Fair
+Value Measurements 
+The
+Company’s assets and liabilities measured at fair value are classified in the
+fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation.
+Assets and liabilities that are traded on an exchange with a quoted price are
+classified as Level 1. Assets and liabilities that are valued using significant
+observable inputs in addition to quoted market prices are classified as Level 2.
+The Company currently has no assets or liabilities measured on a recurring basis
+that are valued using unobservable inputs and therefore no assets or liabilities
+measured on a recurring basis are classified as Level 3. For defined benefit
+plan assets classified as Level 3, the values are computed using inputs such as
+cost, discounted future cash flows, independent appraisals and market based
+comparable data or on net asset values calculated by the fund and not publicly
+available. 
+In 2009, the Company transferred trading securities from assets
+utilizing Level 1 inputs to assets utilizing Level 2 inputs because significant
+observable inputs in addition to quoted market prices were used to value these
+trading securities. 
+23 
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide
+competitive prices, and employs skilled workers from competitive labor
+markets. If inflation in the general economy increases, the Company’s
+costs for equipment, materials and labor could increase as
+well. Also, increases in activity in the domestic oilfield can cause
+upward wage pressures in the labor markets from which it hires employees as well
+as increases in the costs of certain materials used to provide services to the
+Company’s customers. Both the costs of equipment and labor increased
+prior to and during 2008. In the third and fourth quarters of 2008
+and 2009, however, the prices of commodities such as steel decreased
+dramatically, as did demand for oilfield equipment and personnel. As
+a result, the Company’s labor costs declined, and equipment that the Company
+ordered was not subject to extended lead time for deliveries. The costs of
+certain materials used to provide services to RPC’s customers have remained high
+throughout 2009, however, which has resulted in higher costs of
+revenues. The Company has attempted to mitigate these high costs by
+securing materials through different sources, although no assurance can be given
+that these efforts will mitigate these high costs. 
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$713,000 in 2009, $842,000 in 2008 and $957,000 in 2007. The Company’s receivable due from Marine Products for
+these services as of December 31, 2009 and 2008 was approximately $65,000 and
+$70,000. The Company’s directors are also directors of Marine
+Products and all of the executive officers are employees of both the Company and
+Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or stockholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $409,000 in 2009, $393,000 in 2008 and
+$1,035,000 in 2007. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $87,000 in 2009, $90,000 in 2008 and $72,000 in
+2007. 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has
+discussed the development, selection and disclosure of its critical accounting
+estimates with the Audit Committee of our Board of Directors. The
+Company believes the following critical accounting policies involve estimates
+that require a higher degree of judgment and complexity: 
+24 
+Allowance for doubtful
+accounts — Substantially all of the Company’s receivables are due from
+oil and gas exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil
+companies. Our allowance for doubtful accounts is determined using a
+combination of factors to ensure that our receivables are not overstated due to
+uncollectibility. Our established credit evaluation procedures seek
+to minimize the amount of business we conduct with higher risk customers. Our
+customers’ ability to pay is directly related to their ability to generate cash
+flow on their projects and is significantly affected by the volatility in the
+price of oil and natural gas. Provisions for doubtful accounts are recorded in
+selling, general and administrative expenses. Accounts are
+written-off against the allowance for doubtful accounts when the Company
+determines that amounts are uncollectible and recoveries of amounts previously
+written off are recorded when collected. Significant recoveries will
+generally reduce the required provision in the period of
+recovery. Therefore, the provision for doubtful accounts can
+fluctuate significantly from period to period. Recoveries were
+insignificant in 2009 and 2007. Recoveries in 2008 totaled $1.5
+million, causing a reduction in bad debt expense in 2008. We record
+specific provisions when we become aware of a customer’s inability to meet its
+financial obligations to us, such as in the case of bankruptcy filings or
+deterioration in the customer’s operating results or financial position. If
+circumstances related to customers change, our estimates of the realizability of
+receivables would be further adjusted, either upward or downward. 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the
+overall trends in the oil and gas industry, financial condition of our
+customers, our historical write-off experience, current economic conditions, and
+in the case of international customers, our judgments about the economic and
+political environment of the related country and region. In addition
+to reserves established for specific customers, we establish general reserves by
+using different percentages depending on the age of the
+receivables. Excluding the effect of the recoveries referred to
+above, the annual provisions for doubtful accounts have ranged from 0.10 percent
+to 0.45 percent of revenues over the last three years. Increasing or
+decreasing the estimated general reserve percentages by 0.50 percentage points
+as of December 31, 2009 would have resulted in a change of approximately $0.7
+million to the allowance for doubtful accounts and a corresponding change to
+selling, general and administrative expenses. 
+Income taxes — The effective
+income tax rates were 32.1 percent in 2009, 39.5 percent in 2008 and 37.7
+percent in 2007. Our effective tax rates vary due to changes in
+estimates of our future taxable income, fluctuations in the tax jurisdictions in
+which our earnings and deductions are realized, and favorable or unfavorable
+adjustments to our estimated tax liabilities related to proposed or probable
+assessments. As a result, our effective tax rate may fluctuate
+significantly on a quarterly or annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax
+assets when we determine that it is more likely than not that the asset will not
+be realized through future taxable income. Such amounts are charged
+to earnings in the period in which we make such determination. Likewise, if we
+later determine that it is more likely than not that the net deferred tax assets
+would be realized, we would reverse the applicable portion of the previously
+provided valuation allowance. We have considered future market growth,
+forecasted earnings, future taxable income, the mix of earnings in the
+jurisdictions in which we operate, and prudent and feasible tax planning
+strategies in determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and
+assumptions that could differ from the actual results reflected in income tax
+returns filed during the subsequent year. Adjustments based on filed returns are
+recorded when identified, which is generally in the third quarter of the
+subsequent year for U.S. federal and state provisions. Deferred tax
+liabilities and assets are determined based on the differences between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect in the year the differences are expected to reverse. 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state and
+foreign tax authorities, which may result in proposed assessments. Our estimate
+for the potential outcome for any uncertain tax issue is highly judgmental. We
+believe we have adequately provided for any reasonably foreseeable outcome
+related to these matters. However, our future results may include favorable or
+unfavorable adjustments to our estimated tax liabilities in the period the
+assessments are made or resolved or when statutes of limitation on potential
+assessments expire. Additionally, the jurisdictions in which our earnings or
+deductions are realized may differ from our current estimates. 
+Insurance expenses – The
+Company self insures, up to certain policy-specified limits, certain risks
+related to general liability, workers’ compensation, vehicle and equipment
+liability. The cost of claims under these self-insurance programs is
+estimated and accrued using individual case-based valuations and statistical
+analysis and is based upon judgment and historical experience; however, the
+ultimate cost of many of these claims may not be known for several years. These
+claims are monitored and the cost estimates are revised as developments occur
+relating to such claims. The Company has retained an independent
+third party actuary to assist in the calculation of a range of exposure for
+these claims. As of December 31, 2009, the Company estimates the
+range of exposure to be from $11.1 million to $14.9 million. The
+Company has recorded liabilities at December 31, 2009 of approximately $12.9
+million which represents management’s best estimate of probable
+loss. 
+Depreciable life of assets —
+RPC’s net property, plant and equipment at December 31, 2009 was $396.2 million
+representing 61.0 percent of the Company’s consolidated
+assets. Depreciation and amortization expenses for the year ended
+December 31, 2009 were $130.6 million. Management judgment is
+required in the determination of the estimated useful lives used to calculate
+the annual and accumulated depreciation and amortization expense. 
+25 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and
+amortization, which is provided on a straight-line basis over the estimated
+useful lives of the assets. The estimated useful life represents the projected
+period of time that the asset will be productively employed by the Company and
+is determined by management based on many factors including historical
+experience with similar assets. Assets are monitored to ensure
+changes in asset lives are identified and prospective depreciation and
+amortization expense is adjusted accordingly. We have not made any
+changes to the estimated lives of assets resulting in a material impact in the
+last three years. 
+Defined benefit pension
+plan – In
+2002, the Company ceased all future benefit accruals under the defined benefit
+plan, although the Company remains obligated to provide employees benefits
+earned through March 2002. The Company accounts for the defined
+benefit plan in accordance with the provisions of FASB ASC 715, “Compensation –
+Retirement Benefits” and engages an outside actuary to calculate its obligations
+and costs. With the assistance of the actuary, the Company evaluates
+the significant assumptions used on a periodic basis including the estimated
+future return on plan assets, the discount rate, and other factors, and makes
+adjustments to these liabilities as necessary. 
+The
+Company chooses an expected rate of return on plan assets based on historical
+results for similar allocations among asset classes, the investments strategy,
+and the views of our investment adviser. Differences between
+the expected long-term return on plan assets and the actual return are amortized
+over future years. Therefore, the net deferral of past asset gains
+(losses) ultimately affects future pension expense. The Company’s
+assumption for the expected return on plan assets was seven percent for 2009 and
+eight percent for 2008 and 2007. 
+The
+discount rate reflects the current rate at which the pension liabilities could
+be effectively settled at the end of the year. In estimating this rate, the
+Company utilizes a yield curve approach. The approach utilizes an
+economic model whereby the Company’s expected benefit payments over the life of
+the plan are forecasted and then compared to a portfolio of investment
+grade corporate bonds that will mature at the same time that the benefit
+payments are due in any given year. The economic model then
+calculates the one discount rate to apply to all benefit payments over the life
+of the plan which will result in the same total lump sum as the payments from
+the corporate bonds. A lower discount rate increases the
+present value of benefit obligations. The discount rate was 6.00
+percent as of December 31, 2009 compared to 6.84 percent in 2008 and 6.25
+percent in 2007. 
+As of
+December 31, 2009, the defined benefit plan was under-funded and the recorded
+change within accumulated other comprehensive loss increased stockholders’
+equity by $0.9 million after tax. Holding all other factors
+constant, a change in the discount rate used to measure plan liabilities by 0.25
+percentage points would not result in a significant pre-tax change to the net
+loss related to pension reflected in accumulated other comprehensive
+loss. 
+The
+Company recognized pre-tax pension (income) expense of $2.0 million in 2009,
+$(0.4) million in 2008 and $0.3 million in 2007. Based on the
+under-funded status of the defined benefit plan as of December 31, 2009, the
+Company expects to recognize pension expense of $0.6 million in
+2010. Holding all other factors constant, a change in the expected
+long-term rate of return on plan assets by 0.50 percentage points would result
+in an increase or decrease in pension expense/income of approximately $0.1
+million in 2010. Holding all other factors constant, a change
+in the discount rate used to measure plan liabilities by 0.25 percentage points
+would result in an increase or decrease in pension expense/income of
+approximately $0.1 million in 2010. 
+New
+Accounting Pronouncements 
+Recently Adopted Accounting
+Pronouncements : 
+During
+2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-01(ASU
+2009-01) titled “Topic
+105-Generally Accepted Accounting Principles amendments based on Statement of
+Financial Accounting Standards No. 168-The FASB Accounting Standards
+Codification TM and
+the Hierarchy of Generally Accepted Accounting Principles .” FASB
+Accounting Standards Codification TM (ASC)
+Topic 105 , “Generally Accepted Accounting
+Principles” has become the single source of authoritative U.S. generally
+accepted accounting principles (GAAP) recognized by the FASB to be applied by
+nongovernmental entities, effective for financial statements issued for interim
+and annual periods ending after September 15, 2009. Rules and
+interpretive releases of the Securities and Exchange Commission (SEC) under
+authority of federal securities laws are also sources of authoritative GAAP for
+SEC registrants. The FASB now issues Accounting Standards Updates
+that are not considered authoritative in their own right, but will serve to
+update the Codification, provide background information about the guidance, and
+provide the bases for conclusions on the change(s) in the
+Codification. References to accounting literature throughout this
+document have been updated to reflect the codification. 
+In
+September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain
+Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (ASU
+2009-12). ASU 2009-12 amends Accounting Standards Codification Topic 820-10,
+“Fair Value Measurements-Overall.” The amendments in ASU 2009-12
+provide a practical expedient to measure investments that are required to be
+measured at fair value on a recurring or non-recurring basis but do not have a
+readily determinable fair value. The investments can be valued on the basis of
+the net asset value per share of the investment. There are additional
+disclosure requirements by major category of investments and the nature of
+restrictions on the investor’s ability to redeem its investments. The amendments
+in this ASU are effective for annual periods ending after December 15, 2009. See
+Note 10 of the Consolidated Financial Statements for related disclosures
+regarding pension assets that do not have readily determinable fair
+value. 
+26 
+In August 2009, the FASB issued Accounting Standards
+Update No. 2009-5, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU
+2009-05 amends Accounting Standards Codification Topic 820, “Fair Value
+Measurements.” ASU 2009-05 provides clarification that in
+circumstances in which a quoted price in an active market for the identical
+liability is not available, a reporting entity is required to measure fair value
+using one or more of the following methods: 1) a valuation technique that
+uses a) the quoted price of the identical liability when traded as an asset
+or b) quoted prices for similar liabilities or similar liabilities when
+traded as assets and/or 2) a valuation technique that is consistent with
+the principles of ASC Topic 820 (e.g. an income approach or market approach).
+ASU 2009-05 also clarifies that when estimating the fair value of a liability, a
+reporting entity is not required to adjust to include inputs relating to the
+existence of transfer restrictions on that liability. The Company adopted
+these provisions in the fourth quarter of 2009 and the a doption did not have a material impact on the Company’s
+consolidated financial statements. 
+In
+December 2008, the FASB issued certain amendments
+as codified in ASC 715-20-65, “Compensation – Retirement Benefits, Defined
+Benefit Plans.” These amendments require additional disclosures regarding
+how investment decisions are made: the major categories of plan assets; the
+inputs and valuation techniques used to measure the fair value of plan assets;
+the effect of fair value measurements using significant unobservable inputs on
+changes in plan assets for the period; and significant concentrations of risk
+within plan assets. The disclosures about plan assets are required to be
+provided for fiscal years ending after December 15, 2009, with no restatement
+required for earlier periods that are presented for comparative purposes, upon
+initial application. Earlier application of the provisions is permitted. See Note 10 of the Consolidated Financial Statements for
+related disclosures. 
+In May
+2009, the FASB issued a new standard, as codified in ASC Topic 855 “Subsequent
+Events.” ASC Topic 855 establishes general standards of accounting
+for and disclosure of events that occur after the balance sheet date but before
+financial statements are issued or are available to be issued. In addition, it
+provides guidance regarding the period after the balance sheet date during which
+management of a reporting entity should evaluate events or transactions that may
+occur for potential recognition or disclosure in the financial statements; the
+circumstances under which an entity should recognize events or transactions
+occurring after the balance sheet date in its financial statements; and the
+disclosures that an entity should make about events or transactions that
+occurred after the balance sheet date. The Company adopted this
+standard in the second quarter of 2009 and the adoption did not have a material
+effect on the Company’s consolidated financial statements. 
+In April 2009, the FASB issued certain amendments as
+codified in ASC 820-10-65, “Fair Value Disclosures.” ASC 820-10-65
+affirms that the objective of fair value when the market for an asset is not
+active is the price that would be received to sell the asset in an orderly
+transaction, and includes additional factors for determining whether there has
+been a significant decrease in market activity for an asset when the market for
+that asset is not active. An entity is required to base its
+conclusion about whether a transaction was not orderly on the weight of the
+evidence. The Company adopted these provisions in the second quarter of
+2009 and the a doption did not have a material
+impact on the Company’s consolidated financial statements. 
+In April 2009, the FASB issued certain amendments as
+codified in ASC Topic 320-10-65, “Investments — Debt and Equity Securities.”
+These amendments (i) change existing guidance for determining whether an
+impairment is other than temporary to debt securities and (ii) replace the
+existing requirement that the entity’s management assert it has both the intent
+and ability to hold an impaired security until recovery with a requirement that
+management assert: (a) it does not have the intent to sell the security;
+and (b) it is more likely than not it will not have to sell the security
+before recovery of its cost basis. Declines in the fair value of
+held-to-maturity and available-for-sale securities below their cost that are
+deemed to be other than temporary are reflected in earnings as realized losses
+to the extent the impairment is related to credit losses. The amount of the
+impairment related to other factors is recognized in other comprehensive income.
+The Company adopted ASC 320 in the second quarter of 2009 and the a doption did not have a material impact on the Company’s
+consolidated financial statements. 
+In April 2009, the FASB issued certain amendments as
+codified in ASC 825-10-65, “Financial Instruments,” that require an entity to
+provide disclosures about fair value of financial instruments in interim
+financial information including whenever it issues summarized financial
+information for interim reporting periods. In addition, entities must disclose,
+in the body or in the accompanying notes of its summarized financial information
+for interim reporting periods and in its financial statements for annual
+reporting periods, the fair value of all financial instruments for which it is
+practicable to estimate that value, whether recognized or not recognized in the
+statement of financial position. The Company adopted these amendments in
+the second quarter of 2009. See Note 8 of the Consolidated Financial Statements for
+related disclosures. 
+27 
+Recently
+Issued Accounting Pronouncements Not Yet Adopted: 
+In
+November 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810) –
+Improvements to Financial Reporting by Enterprises Involved with Variable
+Interest Entities,” which codifies FASB Statement No. 167, “Amendments to FASB
+Interpretation No. 46(R).” The ASU changes how a reporting entity
+determines when an entity that is insufficiently capitalized or is not
+controlled through voting (or similar rights) should be consolidated. The
+determination of whether a reporting entity is required to consolidate another
+entity is based on, among other things, the other entity’s purpose and design
+and the reporting entity’s ability to direct the activities of the other entity
+that most significantly impact the other entity’s economic
+performance. These provisions are effective January 1, 2010, for a
+calendar year-end entity, with early application not being
+permitted. Adoption of these provisions is not expected to have a
+material impact on the Company’s consolidated financial statements. 
+In
+November 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860)
+– Accounting for Transfers of Financial Assets,” which formally codifies FASB
+Statement No. 166, “Accounting for Transfers of Financial
+Assets.” ASU 2009-16 is a revision to SFAS No. 140, “Accounting
+for Transfers and Servicing of Financial Assets and Extinguishments of
+Liabilities,” and requires more information about transfers of financial assets,
+including securitization transactions, and where entities have continuing
+exposure to the risks related to transferred financial assets. It eliminates the
+concept of a “qualifying special-purpose entity,” changes the requirements for
+derecognizing financial assets, and requires additional
+disclosures. The provisions are effective January 1, 2010, for a
+calendar year-end entity, with early application not being
+permitted. Adoption of these provisions is not expected to have a
+material impact on the Company’s consolidated financial statements. 
+In
+September 2009, the FASB issued certain amendments as codified in ASC 605-25,
+“Revenue Recognition; Multiple-Element Arrangements.” These
+amendments provide clarification on whether multiple deliverables exist, how the
+arrangement should be separated, and the consideration allocated. An
+entity is required to allocate revenue in an arrangement using estimated selling
+prices of deliverables in the absence of vendor-specific objective evidence or
+third-party evidence of selling price. These amendments also eliminate the use
+of the residual method and require an entity to allocate revenue using the
+relative selling price method. The amendments significantly expand
+the disclosure requirements for multiple-deliverable revenue
+arrangements. These provisions are to be applied on a prospective
+basis for revenue arrangements entered into or materially modified in fiscal
+years beginning on or after June 15, 2010, with earlier application
+permitted. The Company is currently evaluating the impact of these
+amendments to its consolidated financial statements. 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk 
+The
+Company is subject to interest rate risk exposure through borrowings on its
+credit facility. As of December 31, 2009, there are outstanding
+interest-bearing advances of $90.3 million on our credit facility which bear
+interest at a floating rate. Effective December 2008, we entered into an
+interest rate swap agreement that effectively converted $50 million of the
+outstanding variable-rate borrowings under the revolving credit agreement to a
+fixed-rate basis, thereby hedging against the impact of potential interest rate
+changes. Under this agreement, the Company and the issuing lender
+settle each month for the difference between a fixed interest rate of 2.07
+percent and a comparable one month variable-rate interest paid to the syndicate
+of lenders under our Revolving Credit Agreement on the same notional amount,
+excluding the margin. The swap agreement terminates on September 8,
+2011. As of December 31, 2009 the interest rate swap had a negative
+fair value of $820,000. An increase in interest rates of one percent
+would result in the interest rate swap having a negative fair value of
+approximately $18,000 at December 31, 2009. A decrease in interest
+rates of one percent would result in the interest rate swap having a negative
+fair value $1,647,000 at December 31, 2009. A change in
+interest rates will have no impact on the interest expense associated with the
+$50,000,000 of borrowings under the revolving credit agreement that are subject
+to the interest rate swap. A change in interest rates of one percent
+on the balance outstanding on the revolving credit agreement at December 31,
+2009 not subject to the interest rate swap would cause a change of $0.9 million
+in total annual interest costs. 
+Additionally,
+the Company is exposed to market risk resulting from changes in foreign exchange
+rates. However, since the majority of the Company’s transactions
+occur in U.S. currency, this risk is not expected to have a material effect on
+its consolidated results of operations and financial condition. 
+28 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the
+Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate
+internal control over financial reporting for the Company. RPC, Inc.
+maintains a system of internal accounting controls designed to provide
+reasonable assurance, at a reasonable cost, that assets are safeguarded against
+loss or unauthorized use and that the financial records are adequate and can be
+relied upon to produce financial statements in accordance with accounting
+principles generally accepted in the United States of America. The internal
+control system is augmented by written policies and procedures, an internal
+audit program and the selection and training of qualified personnel. This system
+includes policies that require adherence to ethical business standards and
+compliance with all applicable laws and regulations. 
+There are
+inherent limitations to the effectiveness of any controls system. A
+controls system, no matter how well designed and operated, can provide only
+reasonable, not absolute, assurance that the objectives of the controls system
+are met. Also, no evaluation of controls can provide absolute
+assurance that all control issues and any instances of fraud, if any, within the
+Company will be detected. Further, the design of a controls system
+must reflect the fact that there are resource constraints, and the benefits of
+controls must be considered relative to their costs. The Company intends to
+continually improve and refine its internal controls. 
+Under the
+supervision and with the participation of our management, including our
+principal executive officer and principal financial officer, we conducted an
+evaluation of the effectiveness of the design and operations of our internal
+control over financial reporting as of December 31, 2009 based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control
+over financial reporting as of December 31, 2009. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited
+the consolidated financial statements as of and for the year ended December 31,
+2009, and has also issued their report on the effectiveness of the Company’s
+internal control over financial reporting, included in this report on page
+30. 
+/s/ Richard A. Hubbell 
+/s/ Ben M. Palmer 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+March
+3 , 
+2010 
+29 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over
+Financial Reporting 
+Board of
+Directors and Stockholders 
+RPC,
+Inc. 
+We have
+audited RPC, Inc. (a Delaware Corporation) and subsidiaries’ (the “Company”)
+internal control over financial reporting as of December 31, 2009, 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. 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 , testing and
+evaluating the design and operating effectiveness of internal control based on
+the assessed risk, and 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, the Company maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2009, based on criteria
+established in Internal
+Control—Integrated Framework issued by COSO. 
+We also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of the Company
+as of December 31, 2009 and 2008, and the related consolidated statements of
+operations, stockholders’ equity, and cash flows for each of the three years in
+the period ended December 31, 2009 and our report dated March 3, 2010 expressed
+an unqualified opinion on those consolidated financial statements. 
+/s/ Grant Thornton LLP 
+Atlanta,
+Georgia 
+March 3,
+2010 
+30 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements 
+Board of
+Directors and Stockholders 
+RPC,
+Inc. 
+We have
+audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware
+corporation) and subsidiaries (the “Company”) as of December 31, 2009 and 2008,
+and the related consolidated statements of operations, stockholders’ equity, and
+cash flows for each of the three years in the period ended December 31,
+2009. Our audits of the basic consolidated financial statements
+included the financial statement schedule listed in the index appearing under
+Item 15. These financial statements and financial statement schedule
+are the responsibility of the Company’s management. Our responsibility is to
+express an opinion on these financial statements and 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 the Company as of December
+31, 2009 and 2008, and the results of its operations and its cash flows for each
+of the three years in the period ended December 31, 2009 in conformity with
+accounting principles generally accepted in the United States of
+America. Also in our opinion, the related 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. 
+As
+described in Note 5 to the consolidated financial statements, the Company
+adopted new accounting guidance related to the accounting for uncertainty in
+income tax reporting during 2007. 
+We also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the Company’s internal control over financial
+reporting as of December 31, 2009, 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 3 , 2010 expressed an
+unqualified opinion thereon. 
+/s/ Grant Thornton LLP 
+Atlanta,
+Georgia 
+March 3,
+2010 
+31 
+Item 8. Financial Statements and
+Supplementary Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2009 
+2008 
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+4,489 
+$ 
+3,037 
+Accounts
+receivable, net 
+130,619 
+210,375 
+Inventories 
+55,783 
+49,779 
+Deferred
+income taxes 
+4,894 
+6,187 
+Income
+taxes receivable 
+18,184 
+15,604 
+Prepaid
+expenses and other current assets 
+5,485 
+7,841 
+Current
+assets 
+219,454 
+292,823 
+Property,
+plant and equipment, net 
+396,222 
+470,115 
+Goodwill 
+24,093 
+24,093 
+Other
+assets 
+9,274 
+6,430 
+Total
+assets 
+$ 
+649,043 
+$ 
+793,461 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+49,882 
+$ 
+61,217 
+Accrued
+payroll and related expenses 
+10,708 
+20,398 
+Accrued
+insurance expenses 
+4,315 
+4,640 
+Accrued
+state, local and other taxes 
+2,001 
+2,395 
+Income
+taxes payable 
+647 
+3,359 
+Other
+accrued expenses 
+220 
+320 
+Current
+liabilities 
+67,773 
+92,329 
+Long-term
+accrued insurance expenses 
+8,597 
+8,398 
+Notes
+payable to banks 
+90,300 
+174,450 
+Long-term
+pension liabilities 
+14,647 
+11,177 
+Other
+long-term liabilities 
+1,838 
+3,628 
+Deferred
+income taxes 
+56,165 
+54,395 
+Total
+liabilities 
+239,320 
+344,377 
+Commitments
+and contingencies 
+STOCKHOLDERS’
+EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none
+issued 
+- 
+- 
+Common
+stock, $0.10 par value, 159,000,000 shares authorized, 98,364,669 and
+97,705,142 shares issued and outstanding in 2009 and 2008,
+respectively 
+9,836 
+9,770 
+Capital
+in excess of par value 
+7,638 
+3,990 
+Retained
+earnings 
+401,055 
+445,356 
+Accumulated
+other comprehensive loss 
+(8,806 
+) 
+(10,032 
+) 
+Total
+stockholders’ equity 
+409,723 
+449,084 
+Total
+liabilities and stockholders’ equity 
+$ 
+649,043 
+$ 
+793,461 
+The
+accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+REVENUES 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+COSTS
+AND EXPENSES: 
+Cost
+of revenues 
+393,806 
+503,631 
+368,175 
+Selling,
+general and administrative expenses 
+97,672 
+117,140 
+107,800 
+Depreciation
+and amortization 
+130,580 
+118,403 
+78,506 
+Gain
+on disposition of assets, net 
+(1,143 
+) 
+(6,367 
+) 
+(6,293 
+) 
+Operating
+(loss) profit 
+(33,052 
+) 
+144,170 
+142,038 
+Interest
+expense 
+(2,176 
+) 
+(5,282 
+) 
+(4,179 
+) 
+Interest
+income 
+147 
+73 
+70 
+Other
+income (expense), net 
+1,582 
+(1,176 
+) 
+1,905 
+(Loss)
+income before income taxes 
+(33,499 
+) 
+137,785 
+139,834 
+Income
+tax (benefit) provision 
+(10,754 
+) 
+54,382 
+52,785 
+Net
+(loss) income 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+(LOSS)
+EARNINGS PER SHARE 
+Basic 
+$ 
+(0.24 
+) 
+$ 
+0.86 
+$ 
+0.90 
+Diluted 
+$ 
+(0.24 
+) 
+$ 
+0.85 
+$ 
+0.89 
+Dividends
+paid per share 
+$ 
+0.22 
+$ 
+0.24 
+$ 
+0.20 
+The
+accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Capital 
+in 
+Accumulated 
+Excess of 
+Other 
+Three Years
+Ended 
+Comprehensive 
+Common
+Stock 
+Par 
+Retained 
+Comprehensive 
+December 31,
+2009 
+Income
+(Loss) 
+Shares 
+Amount 
+Value 
+Earnings 
+Income
+(Loss) 
+Total 
+Balance,
+December 31, 2006 
+97,214 
+$ 
+9,721 
+$ 
+13,595 
+$ 
+317,705 
+$ 
+(5,734 
+) 
+$ 
+335,287 
+Stock
+issued for stock incentive plans, net 
+989 
+99 
+4,843 
+— 
+— 
+4,942 
+Stock
+purchased and retired 
+(163 
+) 
+(16 
+) 
+(2,838 
+) 
+— 
+— 
+(2,854 
+) 
+Net
+income 
+$ 
+87,049 
+— 
+— 
+— 
+87,049 
+— 
+87,049 
+Pension
+adjustment, net of taxes 
+2,535 
+— 
+— 
+— 
+— 
+2,535 
+2,535 
+Unrealized
+gain on securities, net of taxes 
+486 
+— 
+— 
+— 
+— 
+486 
+486 
+Foreign
+currency translation, net of taxes 
+172 
+— 
+— 
+— 
+— 
+172 
+172 
+Comprehensive
+income 
+$ 
+90,242 
+Dividends
+declared 
+— 
+— 
+— 
+(19,473 
+) 
+— 
+(19,473 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+1,128 
+— 
+— 
+1,128 
+Balance,
+December 31, 2007 
+98,040 
+9,804 
+16,728 
+385,281 
+(2,541 
+) 
+409,272 
+Stock
+issued for stock incentive plans, net 
+1,288 
+128 
+5,654 
+— 
+— 
+5,782 
+Stock
+purchased and retired 
+(1,623 
+) 
+(162 
+) 
+(19,238 
+) 
+— 
+— 
+(19,400 
+) 
+Net
+income 
+$ 
+83,403 
+— 
+— 
+— 
+83,403 
+— 
+83,403 
+Pension
+adjustment, net of taxes 
+(6,053 
+) 
+— 
+— 
+— 
+— 
+(6,053 
+) 
+(6,053 
+) 
+Loss
+on cash flow hedge, net of taxes 
+(527 
+) 
+— 
+— 
+— 
+— 
+(527 
+) 
+(527 
+) 
+Unrealized
+loss on securities, net of taxes 
+(585 
+) 
+— 
+— 
+— 
+— 
+(585 
+) 
+(585 
+) 
+Foreign
+currency translation, net of taxes 
+(326 
+) 
+— 
+— 
+— 
+— 
+(326 
+) 
+(326 
+) 
+Comprehensive
+income 
+$ 
+75,912 
+Dividends
+declared 
+— 
+— 
+— 
+(23,328 
+) 
+— 
+(23,328 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+846 
+— 
+— 
+846 
+Balance,
+December 31, 2008 
+97,705 
+9,770 
+3,990 
+445,356 
+(10,032 
+) 
+449,084 
+Stock
+issued for stock incentive plans, net 
+911 
+91 
+4,323 
+— 
+— 
+4,414 
+Stock
+purchased and retired 
+(252 
+) 
+(25 
+) 
+(2,096 
+) 
+— 
+— 
+(2,121 
+) 
+Net
+loss 
+$ 
+(22,745 
+) 
+— 
+— 
+— 
+(22,745 
+) 
+— 
+(22,745 
+) 
+Pension
+adjustment, net of taxes 
+897 
+— 
+— 
+— 
+— 
+897 
+897 
+Gain
+on cash flow hedge, net of taxes 
+7 
+— 
+— 
+— 
+— 
+7 
+7 
+Unrealized
+gain on securities, net of taxes 
+91 
+— 
+— 
+— 
+— 
+91 
+91 
+Foreign
+currency translation, net of taxes 
+231 
+— 
+— 
+— 
+— 
+231 
+231 
+Comprehensive
+loss 
+$ 
+(21,519 
+) 
+Dividends
+declared 
+— 
+— 
+— 
+(21,556 
+) 
+— 
+(21,556 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+1,421 
+— 
+— 
+1,421 
+Balance,
+December 31, 2009 
+98,364 
+$ 
+9,836 
+$ 
+7,638 
+$ 
+401,055 
+$ 
+(8,806 
+) 
+$ 
+409,723 
+The
+accompanying notes are an integral part of these statements. 
+34 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+OPERATING
+ACTIVITIES 
+Net
+(loss) income 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+Adjustments
+to reconcile net (loss) income to net cash provided by operating
+activities: 
+Depreciation,
+amortization and other non-cash charges 
+130,581 
+118,444 
+78,493 
+Stock-based
+compensation expense 
+4,440 
+3,732 
+3,189 
+Gain
+on disposition of assets, net 
+(1,143 
+) 
+(6,367 
+) 
+(6,293 
+) 
+Deferred
+income tax provision 
+1,669 
+27,199 
+15,738 
+Excess
+tax benefits for share-based payments 
+(1,421 
+) 
+(846 
+) 
+(1,128 
+) 
+Changes
+in current assets and liabilities: 
+Accounts
+receivable 
+80,035 
+(34,508 
+) 
+(27,497 
+) 
+Income
+taxes receivable 
+(1,159 
+) 
+(2,462 
+) 
+(7,229 
+) 
+Inventories 
+(5,798 
+) 
+(20,377 
+) 
+(8,316 
+) 
+Prepaid
+expenses and other current assets 
+2,575 
+(2,231 
+) 
+(568 
+) 
+Accounts
+payable 
+(5,711 
+) 
+9,691 
+7,826 
+Income
+taxes payable 
+(2,712 
+) 
+(981 
+) 
+123 
+Accrued
+payroll and related expenses 
+(9,690 
+) 
+2,426 
+4,683 
+Accrued
+insurance expenses 
+(325 
+) 
+(113 
+) 
+1,426 
+Accrued
+state, local and other taxes 
+(394 
+) 
+676 
+(1,078 
+) 
+Other
+accrued expenses 
+(167 
+) 
+(203 
+) 
+46 
+Changes
+in working capital 
+56,654 
+(48,082 
+) 
+(30,584 
+) 
+Changes
+in other assets and liabilities: 
+Pension
+liabilities 
+4,882 
+(481 
+) 
+(3,067 
+) 
+Accrued
+insurance expenses 
+199 
+232 
+1,274 
+Other
+non-current assets 
+(2,597 
+) 
+(20 
+) 
+(1,173 
+) 
+Other
+non-current liabilities 
+(1,779 
+) 
+106 
+(1,626 
+) 
+Net
+cash provided by operating activities 
+168,740 
+177,320 
+141,872 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(67,830 
+) 
+(170,318 
+) 
+(248,758 
+) 
+Proceeds
+from sale of assets 
+6,686 
+11,365 
+9,134 
+Net
+cash used for investing activities 
+(61,144 
+) 
+(158,953 
+) 
+(239,624 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(21,556 
+) 
+(23,328 
+) 
+(19,473 
+) 
+Borrowings
+from notes payable to banks 
+276,100 
+392,300 
+478,600 
+Repayments
+of notes payable to banks 
+(360,250 
+) 
+(374,250 
+) 
+(357,800 
+) 
+Debt
+issue costs for notes payable to banks 
+(234 
+) 
+(94 
+) 
+— 
+Excess
+tax benefits for share-based payments 
+1,421 
+846 
+1,128 
+Cash
+paid for common stock purchased and retired 
+(1,747 
+) 
+(17,489 
+) 
+(1,730 
+) 
+Proceeds
+received upon exercise of stock options 
+122 
+347 
+636 
+Net
+cash (used for) provided by financing activities 
+(106,144 
+) 
+(21,668 
+) 
+101,361 
+Net
+increase (decrease) in cash and cash equivalents 
+1,452 
+(3,301 
+) 
+3,609 
+Cash
+and cash equivalents at beginning of year 
+3,037 
+6,338 
+2,729 
+Cash
+and cash equivalents at end of year 
+$ 
+4,489 
+$ 
+3,037 
+$ 
+6,338 
+The
+accompanying notes are an integral part of these statements. 
+35 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany
+accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest, northeast and
+Rocky Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+coiled tubing services, snubbing services (also referred to as hydraulic
+workover services), nitrogen services, and firefighting and well control, and
+Support Services such as the rental of drill pipe and other specialized oilfield
+equipment and oilfield training. 
+Common Stock 
+RPC is
+authorized to issue 159,000,000 shares of common stock, $0.10 par value. Holders
+of common stock are entitled to receive dividends when, as, and if declared by
+the Board of Directors out of legally available funds. Each share of common
+stock is entitled to one vote on all matters submitted to a vote of
+stockholders. Holders of common stock do not have cumulative voting rights. In
+the event of any liquidation, dissolution or winding up of the Company, holders
+of common stock are entitled to ratable distribution of the remaining assets
+available for distribution to stockholders. 
+Preferred
+Stock 
+RPC is authorized to issue up to 1,000,000 shares of
+preferred stock, $0.10 par value. As of December 31, 2009, there were no shares
+of preferred stock issued. The Board of Directors is authorized, subject to any
+limitations prescribed by law, to provide for the issuance of preferred stock as
+a class without series or, if so determined from time to time, in one or more
+series, and by filing a certificate pursuant to the applicable laws of the state
+of Delaware and to fix the designations, powers, preferences and rights,
+exchangeability for shares of any other class or classes of stock. Any preferred
+stock to be issued could rank prior to the common stock with respect to dividend
+rights and rights on liquidation. 
+Dividends 
+On
+January 26, 2010, the Board of Directors approved a $0.04 per share cash
+dividend payable March 10, 2010 to stockholders of record at the close of
+business on February 10, 2010. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates. 
+Significant
+estimates are used in the determination of the allowance for doubtful accounts,
+income taxes, accrued insurance expenses, depreciable lives of assets, and
+pension liabilities. 
+Revenues 
+RPC’s
+revenues are generated principally from providing services and the related
+equipment. Revenues are recognized when the services are rendered and
+collectibility is reasonably assured. Revenues from services and
+equipment are based on fixed or determinable priced purchase orders or contracts
+with the customer and do not include the right of return. Rates for
+services and equipment are priced on a per day, per unit of measure, per man
+hour or similar basis. Sales tax charged to customers is presented on
+a net basis within the consolidated statement of operations and excluded from
+revenues. 
+36 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This
+concentration of customers may impact overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. The Company provided oilfield
+services to several hundred customers. Two customers individually accounted for
+13 percent and 12 percent of the Company’s 2009 revenues. No
+customers accounted for more than 10 percent of 2008 or 2007
+revenues. Additionally, one of these customers accounted for 12
+percent of accounts receivable as of December 31, 2009 and no customers
+accounted for more than 10 percent of accounts receivable as of December 31,
+2008. 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. The Company maintains its cash
+in bank accounts which, at times, may exceed federally insured
+limits. RPC maintains cash equivalents and investments in one or more
+large financial institutions, and RPC’s policy restricts investment in any
+securities rated less than “investment grade” by national rating
+services. 
+Investments 
+Investments
+classified as available-for-sale are stated at their fair values, with the
+unrealized gains and losses, net of tax, reported as a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific
+identification method. Realized gains and losses, declines in value judged to be
+other than temporary, interest, and dividends with respect to available-for-sale
+securities are included in interest income. The Company did not realize any
+gains or losses on securities during 2009, 2008 or 2007 on its
+available-for-sale securities. Securities that are held in the
+non-qualified Supplemental Retirement Plan (“SERP”) are classified as
+trading. See Note 10 for further information regarding the
+SERP. The change in fair value of trading securities is presented in
+other (expense) income on the consolidated statements of
+operations. 
+Management
+determines the appropriate classification of investments at the time of purchase
+and re-evaluates such designations as of each balance sheet date. 
+Accounts
+Receivable 
+The
+majority of the Company’s accounts receivable are due principally from major and
+independent oil and natural gas exploration and production
+companies. Credit is extended based on evaluation of a customer’s
+financial condition and, generally, collateral is not
+required. Accounts receivable are considered past due after 60 days
+and are stated at amounts due from customers, net of an allowance for doubtful
+accounts. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance
+for estimated amounts that may not be collectible in the future. The estimated
+allowance for doubtful accounts is based on our evaluation of industry trends,
+financial condition of our customers, our historical write-off experience,
+current economic conditions, and in the case of our international customers, our
+judgments about the economic and political environment of the related country
+and region. Accounts are written off against the allowance for doubtful accounts
+when the Company determines that amounts are uncollectible and recoveries of
+previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories,
+which consist principally of (i) raw materials and supplies that are consumed in
+RPC’s services provided to customers, (ii) spare parts for equipment used in
+providing these services and (iii) manufactured components and attachments for
+equipment used in providing services, are recorded at the lower of weighted
+average cost or market value. Market value is determined based on replacement
+cost for material and supplies. The Company regularly reviews inventory
+quantities on hand and records provisions for excess or obsolete inventory based
+primarily on its estimated forecast of product demand, market conditions,
+production requirements and technological developments. 
+37 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Derivative
+Instruments and Hedging Activities 
+The
+Company is subject to interest rate risk on the variable component of the
+interest rate under our revolving credit agreement. Effective
+December 2008, the Company entered into a $50 million interest rate swap
+agreement. The agreement terminates on September 8,
+2011. The Company has designated the interest rate swap as a cash
+flow hedge. Changes in the fair value of the effective portion of the
+interest rate swap are recognized in other comprehensive loss until the hedged
+item is recognized in earnings. 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less
+accumulated depreciation and amortization, which is provided on a straight-line
+basis over the estimated useful lives of the assets. Annual
+depreciation and amortization expense is computed using the following useful
+lives: operating equipment, 3 to 10 years; buildings and leasehold improvements,
+15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and
+vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and
+the related accumulated depreciation and amortization are eliminated from the
+accounts in the year of disposal with the resulting gain or loss credited or
+charged to income from operations. Expenditures for additions, major renewals,
+and betterments are capitalized. Expenditures for restoring an identifiable
+asset to working condition or for maintaining the asset in good working order
+constitute repairs and maintenance and are expensed as incurred. 
+RPC
+records impairment losses on long-lived assets used in operations when events
+and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less than
+the carrying amount of those assets. The Company periodically reviews the values
+assigned to long-lived assets, such as property, plant and equipment and other
+assets, to determine if any impairments should be recognized. Management
+believes that the long-lived assets in the accompanying balance sheets have not
+been impaired. 
+Goodwill
+and Other Intangibles 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets of
+businesses acquired. The carrying amount of goodwill was $24,093,000
+at December 31, 2009 and 2008. Goodwill is reviewed annually, or more
+frequently if events occur or circumstances change that would more likely than
+not reduce the fair value of the reporting unit below its carrying
+amount, for impairment. In reviewing goodwill for impairment,
+potential impairment is measured by comparing the estimated fair value of a
+reporting unit with its carrying value. Based upon the results of
+these analyses, the Company has concluded that no impairment of its goodwill has
+occurred for the years ended December 31, 2009, 2008 and 2007. 
+Other
+intangibles primarily represent non-compete agreements related to businesses
+acquired. Non-compete agreements are amortized on a straight-line
+basis over the period of the agreement, as this method best estimates the ratio
+that current revenues bear to the total of current and anticipated
+revenues. These non-compete agreements are fully amortized as of
+December 31, 2009 and 2008. 
+Advertising 
+Advertising
+expenses are charged to expense during the period in which they are
+incurred. Advertising expenses totaled $1,065,000 in 2009, $1,957,000
+in 2008 and $1,594,000 in 2007. 
+Insurance
+Expenses 
+RPC self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability, and employee
+health insurance plan costs. The estimated cost of claims under these
+self-insurance programs is estimated and accrued as the claims are incurred
+(although actual settlement of the claims may not be made until future periods)
+and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more than
+one year in the future is classified as long-term accrued insurance
+expenses. 
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect for the year in which the differences are expected to reverse. The
+Company establishes a valuation allowance against the carrying value of deferred
+tax assets when the Company determines that it is more likely than not that the
+asset will not be realized through future taxable income. 
+38 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon
+retirement at age 65 to eligible employees with at least one year of service
+prior to 2002. In 2002, the Company’s Board of Directors approved a
+resolution to cease all future retirement benefit accruals under the defined
+benefit pension plan. See Note 10 for a full description of this plan and the
+related accounting and funding policies. 
+Share
+Repurchases 
+The
+Company records the cost of share repurchases in stockholders’ equity as a
+reduction to common stock to the extent of par value of the shares acquired and
+the remainder is allocated to capital in excess of par value. 
+Earnings
+per Share 
+FASB ASC
+Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share
+and diluted earnings per share presentation. During 2009, the Company
+adopted certain amendments to ASC 260-10 which requires that all outstanding
+unvested share-based payment awards that contain non-forfeitable rights to
+dividends or dividend equivalents, whether paid or unpaid, be considered
+participating securities and included in the calculation of its basic earnings
+per share. 
+The
+Company has periodically issued share-based payment awards that contain
+non-forfeitable rights to dividends, and therefore are considered participating
+securities. See Note 10 for further information on restricted stock
+granted to employees. 
+The basic
+and diluted calculations differ as a result of the dilutive effect of stock
+options and time lapse restricted shares and performance restricted shares
+included in diluted earnings per share, but excluded from basic earnings per
+share. Basic and diluted earnings per share are computed by dividing net (loss)
+income by the weighted average number of shares outstanding during the
+respective periods. 
+A
+reconciliation of weighted average shares outstanding along with the (loss)
+earnings per share attributable to restricted shares of common stock
+(participating securities) is as follows: 
+(In
+thousands except per share data) 
+2009 
+2008 
+2007 
+Net
+(loss) income available for stockholders: 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+Less: Dividends
+paid 
+Common
+stock 
+(21,229 
+) 
+(22,905 
+) 
+(19,159 
+) 
+Restricted
+shares of common stock 
+(327 
+) 
+(423 
+) 
+(314 
+) 
+Undistributed
+(loss) earnings 
+$ 
+(44,301 
+) 
+$ 
+60,075 
+$ 
+67,576 
+Allocation
+of undistributed earnings: 
+Common
+stock 
+$ 
+(43,408 
+) 
+$ 
+58,992 
+$ 
+66,494 
+Restricted
+shares of common stock 
+(893 
+) 
+1,083 
+1,082 
+Basic
+shares outstanding: 
+Common
+stock 
+94,260 
+94,750 
+94,664 
+Restricted
+shares of common stock 
+2,045 
+1,815 
+1,604 
+96,305 
+96,565 
+96,268 
+Diluted
+shares outstanding: 
+Common
+stock 
+94,260 
+94,750 
+94,664 
+Dilutive
+effect of options 
+- 
+1,300 
+2,094 
+94,260 
+96,050 
+96,758 
+Restricted shares of
+common stock 
+2,045 
+1,815 
+1,604 
+96,305 
+97,865 
+98,362 
+Basic
+earnings per share: 
+Common
+stock: 
+Distributed
+earnings 
+$ 
+0.22 
+$ 
+0.24 
+$ 
+0.20 
+Undistributed
+(loss) earnings 
+(0.46 
+) 
+0.62 
+0.70 
+$ 
+(0.24 
+) 
+$ 
+0.86 
+$ 
+0.90 
+Restricted
+shares of common stock: 
+Distributed
+earnings 
+$ 
+0.16 
+$ 
+0.23 
+$ 
+0.20 
+Undistributed
+(loss) earnings 
+(0.44 
+) 
+0.60 
+0.67 
+$ 
+(0.28 
+) 
+$ 
+0.83 
+$ 
+0.87 
+Diluted
+earnings per share: 
+Common
+Stock: 
+Distributed
+earnings 
+$ 
+0.22 
+$ 
+0.24 
+$ 
+0.20 
+Undistributed
+(loss) earnings 
+(0.46 
+) 
+0.61 
+0.69 
+$ 
+(0.24 
+) 
+$ 
+0.85 
+$ 
+0.89 
+39 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+During
+the year ended December 31, 2009, the Company incurred a net loss from
+continuing operations and consequently the common stock equivalents were
+excluded from the computation of diluted loss per share because the effect would
+have been anti-dilutive. 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist of cash and cash equivalents, accounts
+receivable, marketable securities, accounts payable, an interest rate swap, and
+debt. The carrying value of cash and cash equivalents, accounts receivable and
+accounts payable approximate their fair value due to the short-term nature of
+such instruments. The marketable securities classified as
+available-for-sale and the securities held in the SERP classified as trading are
+carried at fair value in the accompanying consolidated balance
+sheets. The interest rate swap is carried at fair value, which is
+based on quotes from the issuer of the swap and represents the estimated amounts
+that we would expect to pay to terminate the swap. See Note 8 for
+additional information. 
+Stock-Based
+Compensation 
+Stock-based
+compensation expense is recognized for all share-based payment awards, net of an
+estimated forfeiture rate. Thus, compensation cost is amortized for those shares
+expected to vest on a straight-line basis over the requisite service period of
+the award. See Note 10 for additional information. 
+Reclassifications 
+In the
+current year the Company classified stock-based compensation together with stock
+issued for stock incentive plans, net in the consolidated statements of
+stockholders' equity. For comparative purposes, amounts in the prior
+year have been reclassified to conform to current year
+presentation. 
+New
+Accounting Pronouncements 
+Recently
+Adopted Accounting Pronouncements: 
+During
+2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-01(ASU
+2009-01) titled “Topic
+105-Generally Accepted Accounting Principles amendments based on Statement of
+Financial Accounting Standards No. 168-The FASB Accounting Standards
+Codification TM and
+the Hierarchy of Generally Accepted Accounting Principles.” FASB
+Accounting Standards Codification TM (ASC)
+Topic 105 , “Generally Accepted Accounting
+Principles” has become the single source of authoritative U.S. generally
+accepted accounting principles (GAAP) recognized by the FASB to be applied by
+nongovernmental entities, effective for financial statements issued for interim
+and annual periods ending after September 15, 2009. Rules and
+interpretive releases of the Securities and Exchange Commission (SEC) under
+authority of federal securities laws are also sources of authoritative GAAP for
+SEC registrants. The FASB now issues Accounting Standards Updates
+that are not considered authoritative in their own right, but will serve to
+update the Codification, provide background information about the guidance, and
+provide the bases for conclusions on the change(s) in the
+Codification. References to accounting literature throughout this
+document have been updated to reflect the codification. 
+In
+September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain
+Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (ASU
+2009-12). ASU 2009-12 amends Accounting Standards Codification Topic 820-10,
+“Fair Value Measurements-Overall.” The amendments in ASU 2009-12
+provide a practical expedient to measure investments that are required to be
+measured at fair value on a recurring or non-recurring basis but do not have a
+readily determinable fair value. The investments can be valued on the basis of
+the net asset value per share of the investment. There are additional
+disclosure requirements by major category of investments and the nature of
+restrictions on the investor’s ability to redeem its investments. The amendments
+in this ASU are effective for annual periods ending after December 15, 2009. See
+Note 10 for related disclosures regarding pension assets that do not have
+readily determinable fair value. 
+40 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+In August 2009, the FASB issued Accounting Standards
+Update No. 2009-5, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU
+2009-05 amends Accounting Standards Codification Topic 820, “Fair Value
+Measurements.” ASU 2009-05 provides clarification that in
+circumstances in which a quoted price in an active market for the identical
+liability is not available, a reporting entity is required to measure fair value
+using one or more of the following methods: 1) a valuation technique that
+uses a) the quoted price of the identical liability when traded as an asset
+or b) quoted prices for similar liabilities or similar liabilities when
+traded as assets and/or 2) a valuation technique that is consistent with
+the principles of ASC Topic 820 (e.g. an income approach or market approach).
+ASU 2009-05 also clarifies that when estimating the fair value of a liability, a
+reporting entity is not required to adjust to include inputs relating to the
+existence of transfer restrictions on that liability. The Company adopted
+these provisions in the fourth quarter of 2009 and the a doption did not have a material impact on the Company’s
+consolidated financial statements. 
+In
+December 2008, the FASB issued certain amendments
+as codified in ASC 715-20-65, “Compensation – Retirement Benefits, Defined
+Benefit Plans.” These amendments require additional disclosures regarding
+how investment decisions are made: the major categories of plan assets; the
+inputs and valuation techniques used to measure the fair value of plan assets;
+the effect of fair value measurements using significant unobservable inputs on
+changes in plan assets for the period; and significant concentrations of risk
+within plan assets The disclosures about plan assets are required to
+be provided for fiscal years ending after December 15, 2009, with no restatement
+required for earlier periods that are presented for comparative purposes, upon
+initial application. Earlier application of the provisions is permitted. See Note 10 for related disclosures. 
+In May
+2009, the FASB issued a new standard, as codified in ASC Topic 855 “Subsequent
+Events.” ASC Topic 855 establishes general standards of accounting
+for and disclosure of events that occur after the balance sheet date but before
+financial statements are issued or are available to be issued. In addition, it
+provides guidance regarding the period after the balance sheet date during which
+management of a reporting entity should evaluate events or transactions that may
+occur for potential recognition or disclosure in the financial statements; the
+circumstances under which an entity should recognize events or transactions
+occurring after the balance sheet date in its financial statements; and the
+disclosures that an entity should make about events or transactions that
+occurred after the balance sheet date. The Company adopted this
+standard in the second quarter of 2009 and the adoption did not have a material
+effect on the Company’s consolidated financial statements. 
+In April 2009, the FASB issued certain amendments as
+codified in ASC 820-10-65, “Fair Value Disclosures.” ASC 820-10-65
+affirms that the objective of fair value when the market for an asset is not
+active is the price that would be received to sell the asset in an orderly
+transaction, and includes additional factors for determining whether there has
+been a significant decrease in market activity for an asset when the market for
+that asset is not active. An entity is required to base its
+conclusion about whether a transaction was not orderly on the weight of the
+evidence. The Company adopted these provisions in the second quarter of
+2009 and the a doption did not have a material
+impact on the Company’s consolidated financial statements. 
+In April 2009, the FASB issued certain amendments as
+codified in ASC Topic 320-10-65, “Investments — Debt and Equity Securities.”
+These amendments (i) changes existing guidance for determining whether an
+impairment is other than temporary to debt securities and (ii) replace the
+existing requirement that the entity’s management assert it has both the intent
+and ability to hold an impaired security until recovery with a requirement that
+management assert: (a) it does not have the intent to sell the security;
+and (b) it is more likely than not it will not have to sell the security
+before recovery of its cost basis. Declines in the fair value of
+held-to-maturity and available-for-sale securities below their cost that are
+deemed to be other than temporary are reflected in earnings as realized losses
+to the extent the impairment is related to credit losses. The amount of the
+impairment related to other factors is recognized in other comprehensive income.
+The Company adopted ASC 320 in the second quarter of 2009 and the a doption did not have a material impact on the Company’s
+consolidated financial statements. 
+41 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+In April 2009, the FASB issued certain amendments as
+codified in ASC 825-10-65, “Financial Instruments,” that require an entity to
+provide disclosures about fair value of financial instruments in interim
+financial information including whenever it issues summarized financial
+information for interim reporting periods. In addition, entities must disclose,
+in the body or in the accompanying notes of its summarized financial information
+for interim reporting periods and in its financial statements for annual
+reporting periods, the fair value of all financial instruments for which it is
+practicable to estimate that value, whether recognized or not recognized in the
+statement of financial position. The Company adopted these amendments in
+the second quarter of 2009. See Note 8 for related
+disclosures. 
+Recently
+Issued Accounting Pronouncements Not Yet Adopted: 
+In
+November 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810) –
+Improvements to Financial Reporting by Enterprises Involved with Variable
+Interest Entities,” which codifies FASB Statement No. 167, “Amendments to FASB
+Interpretation No. 46(R).” The ASU changes how a reporting entity
+determines when an entity that is insufficiently capitalized or is not
+controlled through voting (or similar rights) should be consolidated. The
+determination of whether a reporting entity is required to consolidate another
+entity is based on, among other things, the other entity’s purpose and design
+and the reporting entity’s ability to direct the activities of the other entity
+that most significantly impact the other entity’s economic
+performance. These provisions are effective January 1, 2010, for a
+calendar year-end entity, with early application not being
+permitted. Adoption of these provisions is not expected to have a
+material impact on the Company’s consolidated financial statements. 
+In
+November 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860)
+– Accounting for Transfers of Financial Assets,” which formally codifies FASB
+Statement No. 166, “Accounting for Transfers of Financial
+Assets.” ASU 2009-16 is a revision to SFAS No. 140, “Accounting
+for Transfers and Servicing of Financial Assets and Extinguishments of
+Liabilities,” and requires more information about transfers of financial assets,
+including securitization transactions, and where entities have continuing
+exposure to the risks related to transferred financial assets. It eliminates the
+concept of a “qualifying special-purpose entity,” changes the requirements for
+derecognizing financial assets, and requires additional
+disclosures. The provisions are effective January 1, 2010, for a
+calendar year-end entity, with early application not being
+permitted. Adoption of these provisions is not expected to have a
+material impact on the Company’s consolidated financial statements. 
+In
+September 2009, the FASB issued certain amendments as codified in ASC 605-25,
+“Revenue Recognition; Multiple-Element Arrangements.” These
+amendments provide clarification on whether multiple deliverables exist, how the
+arrangement should be separated, and the consideration allocated. An
+entity is required to allocate revenue in an arrangement using estimated selling
+prices of deliverables in the absence of vendor-specific objective evidence or
+third-party evidence of selling price. These amendments also eliminate the use
+of the residual method and require an entity to allocate revenue using the
+relative selling price method. The amendments significantly expand
+the disclosure requirements for multiple-deliverable revenue
+arrangements. These provisions are to be applied on a prospective
+basis for revenue arrangements entered into or materially modified in fiscal
+years beginning on or after June 15, 2010, with earlier application
+permitted. The Company is currently evaluating the impact of these
+amendments to its consolidated financial statements. 
+Note
+2: Accounts Receivable 
+Accounts
+receivable, net consists of the following: 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+98,275 
+$ 
+168,989 
+Unbilled 
+34,753 
+47,034 
+Other
+receivables 
+801 
+551 
+Total 
+133,829 
+216,574 
+Less:
+Allowance for doubtful accounts 
+(3,210 
+) 
+(6,199 
+) 
+Accounts
+receivable, net 
+$ 
+130,619 
+$ 
+210,375 
+Trade
+receivables relate to sale of our services and products, for which credit is
+extended based on the customer’s credit history. Unbilled receivables
+represent revenues earned but not billed to the customer until future dates,
+usually within one month. Other receivables consist primarily of
+amounts due from purchasers of Company property and rebates from
+suppliers. 
+42 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Changes
+in the Company’s allowance for doubtful accounts are as follows: 
+Years
+Ended December 31, 
+2009 
+2008 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+6,199 
+$ 
+5,217 
+Bad
+debt expense (credit) 
+660 
+(84 
+) 
+Accounts
+written-off 
+(3,763 
+) 
+(392 
+) 
+Recoveries 
+114 
+1,458 
+Ending
+balance 
+$ 
+3,210 
+$ 
+6,199 
+Note
+3: Inventories 
+Inventories
+are $55,783,000 at December 31, 2009 and $49,779,000 at December 31, 2008 and
+consist of raw materials, parts and supplies. 
+Note
+4: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and
+consist of the following: 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+Land 
+$ 
+14,980 
+$ 
+14,927 
+Buildings
+and leasehold improvements 
+80,928 
+77,867 
+Operating
+equipment 
+631,666 
+595,217 
+Capitalized
+software 
+15,391 
+15,700 
+Furniture
+and fixtures 
+4,342 
+4,398 
+Vehicles 
+180,408 
+181,102 
+Construction
+in progress 
+35 
+231 
+Gross
+property, plant and equipment 
+927,750 
+889,442 
+Less:
+accumulated depreciation 
+(531,528 
+) 
+(419,327 
+) 
+Net
+property, plant and equipment 
+$ 
+396,222 
+$ 
+470,115 
+Depreciation
+expense was $130.6 million in 2009, $118.4 million in 2008 and $78.5 million in
+2007. There are no capital leases outstanding as of December 31, 2009
+and December 31, 2008. The Company had accounts payable for purchases
+of property and equipment of approximately $3.7 million, $9.4 million and $19.1
+million as of December 31, 2009, 2008 and 2007. 
+43 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Note
+5: Income Taxes 
+The
+following table lists the components of the (benefit) provision for income
+taxes: 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+(in
+thousands) 
+Current
+(benefit) provision: 
+Federal 
+$ 
+(
+13,490 
+) 
+$ 
+20,793 
+$ 
+29,589 
+State 
+235 
+5,453 
+4,857 
+Foreign 
+832 
+937 
+2,601 
+Deferred
+(benefit) provision: 
+Federal 
+1,698 
+25,486 
+14,531 
+State 
+(
+29 
+) 
+1,713 
+1,207 
+Total
+income tax (benefit) provision 
+$ 
+(10,754 
+) 
+$ 
+54,382 
+$ 
+52,785 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as
+follows: 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State
+income taxes, net of federal benefit 
+(2.4 
+) 
+3.2 
+2.8 
+Tax
+credits 
+1.3 
+(0.8 
+) 
+(1.6 
+) 
+Federal
+and state refunds 
+— 
+— 
+0.1 
+Non-deductible
+expenses 
+(2.6 
+) 
+0.9 
+0.7 
+Other 
+0.8 
+1.2 
+0.7 
+Effective
+tax rate 
+32.1 
+% 
+39.5 
+% 
+37.7 
+% 
+Significant
+components of the Company’s deferred tax assets and liabilities are as
+follows: 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+5,445 
+$ 
+5,404 
+Pension 
+5,346 
+4,054 
+State
+net operating loss carryforwards 
+1,742 
+1,649 
+Bad
+debts 
+1,361 
+2,418 
+Accrued
+payroll 
+866 
+1,579 
+Stock-based
+compensation 
+2,413 
+2,294 
+All
+others 
+149 
+501 
+Valuation
+allowance 
+(1,550 
+) 
+(1,454 
+) 
+Gross
+deferred tax assets 
+15,772 
+16,445 
+Deferred
+tax liabilities: 
+Depreciation 
+(62,640 
+) 
+(60,946 
+) 
+Goodwill
+amortization 
+(4,403 
+) 
+(3,707 
+) 
+Gross
+deferred tax liabilities 
+(67,043 
+) 
+(64,653 
+) 
+Net
+deferred tax liabilities 
+$ 
+(51,271 
+) 
+$ 
+(48,208 
+) 
+Historically
+and currently, undistributed earnings of the Company’s foreign subsidiaries are
+considered indefinitely reinvested and, accordingly, no provision for U.S.
+federal income taxes has been recorded. Deferred taxes are provided
+for earnings outside the United States when those earnings are not considered
+indefinitely reinvested. 
+44 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+As of
+December 31, 2009, the Company has net operating loss carryforwards related to
+state income taxes of approximately $40.6 million that will expire between 2010
+and 2029. As of December 31, 2009 the Company has a valuation
+allowance of approximately $1.6 million, representing the tax affected amount of
+loss carryforwards that the Company does not expect to utilize, against the
+corresponding deferred tax asset. 
+Total net
+income tax payments (refunds) were ($8,351,000) in 2009, $29,714,000 in 2008 and
+$46,328,000 in 2007. 
+The
+Company’s policy is to record interest and penalties related to income tax
+matters as income tax expense. Accrued interest and penalties were
+immaterial to the financial statements as of December 31, 2009 and
+2008. 
+During
+2007 the Company adopted new accounting guidance relating to the accounting for
+uncertainty in income tax reporting, which provided criteria for the
+recognition, measurement, presentation and disclosure of uncertain tax
+positions. As a result of the adoption the Company did not recognize
+a material adjustment in the liability for unrecognized income tax
+benefits. 
+The
+Company’s liability for unrecognized tax benefits was $30 thousand as of
+December 31, 2009 and $11 thousand as of December 31, 2008, all of which would
+affect our effective rate if recognized. A reconciliation of the
+beginning and ending amount of unrecognized tax benefits for 2009 and 2008 are
+as follows: 
+Years
+Ended December 31, 
+2009 
+2008 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+11 
+$ 
+10 
+Additions
+based on tax positions related to current year 
+- 
+- 
+Additions
+for tax positions of prior years 
+19 
+1 
+Reductions
+for tax positions of prior years 
+- 
+- 
+Ending
+balance 
+$ 
+30 
+$ 
+11 
+The
+Company and its subsidiaries are subject to U.S. federal and state income tax in
+multiple jurisdictions. In many cases our uncertain tax positions are
+related to tax years that remain open and subject to examination by the relevant
+taxing authorities. The Company’s 2006 through 2009 tax years remain
+open to examination. 
+It is
+reasonably possible that the amount of the unrecognized tax benefits with
+respect to our unrecognized tax positions will increase or decrease in the next
+12 months. These changes may be the result of, among other things,
+state tax settlements under Voluntary Disclosure Agreements. However,
+quantification of an estimated range cannot be made at this time. 
+Note
+6: Long-Term Debt 
+The
+Company currently has a revolving credit agreement (the “Revolving Credit
+Agreement”) with SunTrust Capital Markets, Inc, as Joint Lead Arranger and Sole
+Book Manager, Banc of America Securities LLC as Joint Lead Arranger, and a
+syndicate of six other lenders. The Revolving Credit Agreement
+includes a full and unconditional guarantee by RPC’s 100 percent owned domestic
+subsidiaries whose assets equal substantially all of the consolidated assets of
+RPC and its subsidiaries. The subsidiaries of the Company that are
+not guarantors are considered minor. 
+The
+Revolving Credit Agreement has a general term of five years and provides for an
+unsecured line of credit of up to $200 million, which includes a $50 million
+letter of credit subfacility, and a $20 million swingline subfacility. During
+the third quarter of 2009, the Company and its banking syndicate lenders entered
+into an agreement to amend two substantive components of the Revolving Credit
+Agreement. First, the aggregate revolving commitment amount was
+reduced from $296.5 million to $200 million. Second, the numerator of
+the interest coverage ratio, one of two financial covenants contained in the
+Revolving Credit Agreement, was changed from EBIT to EBITDA. In
+addition, the amendment revises the definition of the term “Base Rate” to
+provide that such rate will be not less than the per annum rate determined by
+increasing the one (1) month LIBOR rate by 1.0%. The maturity date of
+all revolving loans under the Credit Agreement is September 8,
+2011. The Company has incurred loan origination fees and other debt
+related costs associated with the Revolving Credit Agreement, including
+amendment costs in the aggregate of approximately $753
+thousand. These costs are being amortized over the five year term of
+the loan, and the net amount is classified as non-current other assets on the
+consolidated balance sheets. 
+45 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Revolving
+loans under the Revolving Credit Agreement bear interest at one of the following
+two rates, at RPC’s election: 
+● 
+the
+Base Rate, which is the highest of SunTrust Bank’s “prime rate” for the
+day of the borrowing, a fluctuating rate per annum equal to the Federal
+Funds Rate plus .50%, and a rate per annum equal to one (1) month LIBOR
+rate plus 1.00%; or 
+● 
+with
+respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR
+as increased to account for the maximum reserve percentages established by
+the U.S. Federal Reserve) plus a margin ranging from .40% to .80%, based
+upon RPC’s then-current consolidated debt-to-EBITDA ratio. 
+In
+addition, RPC will pay an annual fee ranging from .10% to .20% of the total
+credit facility based upon RPC’s then-current consolidated debt-to-EBITDA
+ratio. The Revolving Credit Agreement contains customary terms and
+conditions, including certain financial covenants and restrictions on
+indebtedness, dividend payments, business combinations and other related
+items. Further, the Revolving Credit Agreement contains financial
+covenants limiting the ratio of the Company’s consolidated debt-to-EBITDA to no
+more than 2.5 to 1, and limiting the ratio of the Company’s consolidated EBITDA
+to interest expense to no less than 2 to 1. 
+As of
+December 31, 2009, RPC has outstanding borrowings of $90.3 million under the
+Revolving Credit Agreement. 
+Interest incurred and recorded as expense on
+the facility was $2,327,000 in 2009, $5,188,000 in 2008 and $4,083,000 in 2007.
+The weighted average interest rate was 1.8% in 2009, 3.6% in 2008 and 6.1% for
+2007. The Company capitalized interest incurred of $150,000 in 2009,
+$1,064,000 in 2008 and $2,300,000 in 2007 related to facilities and equipment
+under construction. Additionally there were letters of credit
+relating to self-insurance programs and contract bids outstanding for $17.8
+million as of December 31, 2009. 
+Cash
+interest paid (net of capitalized interest) was approximately $2,192,000 in
+2009, $5,232,000 in 2008 and $3,849,000 in 2007. 
+Effective
+December 2008 the Company entered into an interest rate swap agreement that
+effectively converted $50 million of our variable-rate debt to a fixed rate
+basis, thereby hedging against the impact of potential interest rate changes on
+future interest expense. The agreement terminates on September 8,
+2011. Under this agreement the Company and the issuing lender settle
+on a monthly basis for the difference between a fixed interest rate of 2.07% and
+a comparable one month LIBOR rate. 
+46 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Note
+7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in
+thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Foreign 
+Currency 
+Translation 
+Net Gain
+(Loss) 
+On
+Cash Flow 
+Hedge 
+Total 
+Balance
+at December 31, 2007 
+$ 
+(3,427 
+) 
+$ 
+714 
+$ 
+172 
+$ 
+— 
+$ 
+(2,541 
+) 
+Change
+during 2008: 
+Before-tax
+amount 
+(9,532 
+) 
+(921 
+) 
+(513 
+) 
+(830 
+) 
+(11,796 
+) 
+Tax
+benefit 
+3,479 
+336 
+187 
+303 
+4,305 
+Total
+activity in 2008 
+(6,053 
+) 
+(585 
+) 
+(326 
+) 
+(527 
+) 
+(7,491 
+) 
+Balance
+at December 31, 2008 
+$ 
+(9,480 
+) 
+$ 
+129 
+$ 
+(154 
+) 
+$ 
+(527 
+) 
+$ 
+(10,032 
+) 
+Change
+during 2009: 
+Before-tax
+amount 
+1,413 
+143 
+530 
+11 
+2,097 
+Tax
+expense 
+(516 
+) 
+(52 
+) 
+(299 
+) 
+(4 
+) 
+(871 
+) 
+Total
+activity in 2009 
+897 
+91 
+231 
+7 
+1,226 
+Balance
+at December 31, 2009 
+$ 
+(8,583 
+) 
+$ 
+220 
+$ 
+77 
+$ 
+(520 
+) 
+$ 
+(8,806 
+) 
+47 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Note
+8: Fair Value Disclosures 
+The
+various inputs used to measure assets at fair value establish a hierarchy that
+distinguishes between assumptions based on market data (observable inputs) and
+the Company’s assumptions (unobservable inputs). The hierarchy
+consists of three broad levels as follows: 
+1. 
+Level
+1 – Quoted market prices in active markets for identical assets or
+liabilities. 
+2. 
+Level 2 –
+Quoted prices for similar instruments in active markets, quoted
+prices for identical or similar instruments in markets that are not
+active, and model-based valuation techniques for which all significant
+assumptions are observable in the market or can be corroborated by
+observable market data for substantially the full term of the assets or
+liabilities. 
+3. 
+Level
+3 – Unobservable inputs developed using the Company’s estimates and
+assumptions, which reflect those that market participants would
+use. 
+The
+following table summarizes the valuation of financial instruments measured at
+fair value on a recurring basis on the balance sheet as of December 31, 2009 and
+2008: 
+Fair
+Value Measurements at December 31, 2009 with: 
+(in
+thousands ) 
+Quoted
+prices in 
+active markets for 
+identical assets 
+Significant
+other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level
+1) 
+(Level
+2) 
+(Level
+3) 
+Assets: 
+Trading
+securities 
+$ 
+- 
+$ 
+6,905 
+$ 
+- 
+Available-for-sale
+securities 
+653 
+- 
+- 
+Liabilities: 
+Interest
+rate swap 
+$ 
+- 
+$ 
+820 
+$ 
+- 
+Fair
+Value Measurements at December 31, 2008 with: 
+(in
+thousands ) 
+Quoted
+prices in 
+active markets for 
+identical assets 
+Significant
+other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level
+1) 
+(Level
+2) 
+(Level
+3) 
+Assets: 
+Trading
+securities 
+$ 
+4,074 
+$ 
+- 
+$ 
+- 
+Available-for-sale
+securities 
+511 
+- 
+- 
+Liabilities: 
+Interest
+rate swap 
+$ 
+- 
+$ 
+830 
+$ 
+- 
+The
+Company determines the fair value of the marketable securities that are
+available-for-sale through quoted market prices. The total fair value
+is the final closing price, as defined by the exchange in which the asset is
+actively traded, on the last trading day of the period, multiplied by the number
+of units held without consideration of transaction costs. During fiscal year 2009, significant observable inputs
+in addition to quoted market prices were used to value trading securities. As a
+result, the Company classified these investments as using level 2
+inputs. 
+At
+December 31, 2009 and 2008, there was $90,300,000 and $174,450,000 outstanding
+under our revolving credit agreement. The fair value of these
+borrowings was $88,043,000 in 2009 and $174,450,000 in 2008. The fair
+value of these borrowings was based on quotes from the lender (level 2
+inputs). The borrowings under our revolving credit agreement bear
+interest at the variable rate described in Note 6. We are subject to interest
+rate risk on the variable component of the interest rate. Our risk
+management objective is to lock in the interest cash outflows on a portion of
+our debt. As a result, as described in Note 6, we entered into an
+interest rate swap agreement effectively converting a portion of the outstanding
+borrowings under the revolving credit agreement to a fixed-rate, thereby hedging
+against the impact of potential interest rate changes on future interest
+expense. At December 31, 2009 the interest rate swap had a negative
+fair value of $820,000, which is recorded in other long-term
+liabilities. The fair value of the interest rate swap was based on
+quotes from the issuer of the swap and represents the estimated amounts that we
+would expect to pay to terminate the swap. 
+48 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+The
+carrying amounts of other financial instruments reported in the balance sheet
+for current assets and current liabilities approximate their fair values because
+of the short maturity of these instruments. The Company currently does not use the fair value option
+to measure any of its existing financial instruments and has not determined
+whether or not it will elect this option for financial instruments it may
+acquire in the future. 
+Note
+9: Commitments and Contingencies 
+Lease Commitments - Minimum
+annual rentals, principally for noncancelable real estate and equipment leases
+with terms in excess of one year, in effect at December 31, 2009, are summarized
+in the following table: 
+(in
+thousands) 
+2010 
+$ 
+3,671 
+2011 
+3,172 
+2012 
+2,146 
+2013 
+1,554 
+2014 
+950 
+Thereafter 
+812 
+Total
+rental commitments 
+$ 
+12,305 
+Total
+rental expense, including short-term rentals, charged to operations was
+approximately $10,787,000 in 2009, $9,109,000 in 2008 and $7,116,000 in
+2007. 
+Income Taxes - The amount of
+income taxes the Company pays is subject to ongoing audits by federal and state
+tax authorities, which often result in proposed assessments. Other
+long-term liabilities include $30,000 as of December 31, 2009 and $11,000 as of
+December 31, 2008, that represents the Company’s estimated statute for the
+probable assessments payable. 
+Sales and Use Taxes - The
+Company has ongoing sales and use tax audits in various jurisdictions and may be
+subjected to varying interpretations of statute that could result in unfavorable
+outcomes that cannot be currently estimated. 
+Litigation - RPC is a party
+to various routine legal proceedings primarily involving commercial claims,
+workers’ compensation claims and claims for personal injury. RPC insures against
+these risks to the extent deemed prudent by its management, but no assurance can
+be given that the nature and amount of such insurance will, in every case, fully
+indemnify RPC against liabilities arising out of pending and future legal
+proceedings related to its business activities. While the outcome of these
+lawsuits, legal proceedings and claims cannot be predicted with certainty,
+management, after consultation with legal counsel, believes that the outcome of
+all such proceedings, even if determined adversely, would not have a material
+adverse effect on the Company’s business or financial condition. 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to substantially all
+employees with at least one year of service prior to 2002. As of
+February 28, 2001, the plan became a multiple employer plan, with Marine
+Products Corporation as an adopting employer. 
+In
+2002, the Company’s Board of Directors approved a resolution to cease all future
+retirement benefit accruals under the Retirement Income Plan. In lieu thereof,
+the Company began providing enhanced benefits in the form of cash contributions
+for certain longer serviced employees that had not reached the normal retirement
+age of 65 as of March 31, 2002. The contributions were discretionary and made
+annually based on continued employment over a seven year period ending in 2008.
+These discretionary contributions were made to either the SERP established by
+the Company or to the 401(k) plan for each employee that was entitled to the
+enhanced benefit. There was no expense related to the enhanced benefits for
+2009. The expense related to enhanced benefits was $295,000 for 2008
+and $315,000 for 2007. 
+49 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+The
+Company permits selected highly compensated employees to defer a portion of
+their compensation into the SERP. The SERP assets are marked to market and
+totaled $6,905,000 as of December 31, 2009 and $4,073,000 as of December 31,
+2008. The SERP assets are reported in other assets on the balance
+sheet and changes related to the fair value of assets are recorded in the
+consolidated statement of operations as part of other (expense) income, net.
+Trading gains (losses) related to the SERP assets totaled $1,373,000 for 2009,
+$(1,661,000) for 2008 and $73,000 for 2007. The SERP deferrals and
+the contributions are recorded on the balance sheet in pension liabilities with
+any change in the fair value of the liabilities recorded as compensation cost in
+the statement of operations. 
+The
+Company’s projected benefit obligation exceeds the fair value of the plan assets
+under its pension plan by $7,258,000 and thus the plan was under-funded as of
+December 31, 2009. 
+The
+following table sets forth the funded status of the Retirement Income Plan and
+the amounts recognized in RPC’s consolidated balance sheets: 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+Accumulated
+Benefit Obligation at end of year 
+$ 
+32,190 
+$ 
+29,203 
+CHANGE
+IN PROJECTED BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+29,203 
+$ 
+30,149 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,938 
+1,841 
+Amendments 
+— 
+— 
+Actuarial
+(gain) loss 
+2,706 
+(1,239 
+) 
+Benefits
+paid 
+(1,657 
+) 
+(1,548 
+) 
+Projected
+benefit obligation at end of year 
+$ 
+32,190 
+$ 
+29,203 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+22,488 
+$ 
+32,548 
+Actual
+return on plan assets 
+4,101 
+(8,512 
+) 
+Employer
+contribution 
+— 
+— 
+Benefits
+paid 
+(1,657 
+) 
+(1,548 
+) 
+Fair
+value of plan assets at end of year 
+24,932 
+22,488 
+Funded
+status at end of year 
+$ 
+(7,258 
+) 
+$ 
+(6,715 
+) 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+AMOUNTS
+RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent
+assets 
+$ 
+— 
+$ 
+— 
+Current
+liabilities 
+— 
+— 
+Noncurrent
+liabilities 
+(7,258 
+) 
+(6,715 
+) 
+$ 
+(7,258 
+) 
+$ 
+(6,715 
+) 
+50 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+AMOUNTS
+(PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
+CONSIST OF: 
+Net
+loss (gain) 
+$ 
+13,517 
+$ 
+14,928 
+Prior
+service cost (credit) 
+— 
+— 
+Net
+transition obligation (asset) 
+— 
+— 
+$ 
+13,517 
+$ 
+14,928 
+The
+accumulated benefit obligation for the Retirement Income Plan at December 31,
+2009 and 2008 has been disclosed above. The Company uses a December
+31 measurement date for this qualified plan. 
+Amounts
+recognized in the consolidated balance sheets consist of: 
+December
+31, 
+2009 
+2008 
+(in
+thousands) 
+Funded
+status 
+$ 
+(7,258 
+) 
+$ 
+(6,715 
+) 
+SERP
+employer contributions/deferrals 
+(7,389 
+) 
+(4,462 
+) 
+Long-term
+pension liabilities 
+$ 
+(14,647 
+) 
+$ 
+(11,177 
+) 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974. RPC
+made no contributions in 2009 or in 2008. 
+The
+components of net periodic benefit cost are summarized as follows: 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest
+cost on projected benefit obligation 
+1,938 
+1,841 
+1,759 
+Expected
+return on plan assets 
+(1,521 
+) 
+(2,543 
+) 
+(2,321 
+) 
+Amortization
+of net loss 
+1,538 
+285 
+860 
+Net
+periodic benefit plan cost (credit) 
+$ 
+1,955 
+$ 
+(417 
+) 
+$ 
+298 
+The
+Company recognized pre-tax (increases) decreases to the funded status in
+comprehensive loss of $(1,413,000) in 2009, $9,532,000 in 2008 and $(3,992,000)
+in 2007. There were no previously unrecognized prior service costs as
+of December 31, 2009, 2008 and 2007. The pre-tax amounts recognized
+in comprehensive loss for the years ended December 31, 2009, 2008 and 2007 are
+summarized as follows: 
+(in
+thousands) 
+2009 
+2008 
+2007 
+Net
+loss (gain) 
+$ 
+125 
+$ 
+9,817 
+$ 
+(3,132 
+) 
+Amortization
+of net (loss) gain 
+(1,538 
+) 
+(285 
+) 
+(860 
+) 
+Net
+transition obligation (asset) 
+— 
+— 
+— 
+Amount
+recognized in other comprehensive loss 
+$ 
+(1,413 
+) 
+$ 
+9,532 
+$ 
+(3,992 
+) 
+51 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+The
+amounts in accumulated other comprehensive loss expected to be recognized as
+components of net periodic benefit cost in 2010 are as follows: 
+(in
+thousands) 
+2010 
+Amortization
+of net loss (gain) 
+$ 
+388 
+Prior
+service cost (credit) 
+— 
+Net
+transition obligation (asset) 
+— 
+Estimated
+net periodic benefit plan cost 
+$ 
+388 
+The
+weighted average assumptions as of December 31 used to determine the projected
+benefit obligation and net benefit cost were as follows: 
+December
+31, 
+2009 
+2008 
+2007 
+Projected Benefit
+Obligation : 
+Discount
+rate 
+6.00 
+% 
+6.84 
+% 
+6.25 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+6.84 
+% 
+6.25 
+% 
+5.50 
+% 
+Expected
+return on plan assets 
+7.00 
+% 
+8.00 
+% 
+8.00 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser. It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of seven
+percent is reasonable. 
+The
+Plan’s weighted average asset allocation at December 31, 2009 and 2008 by asset
+category along with the target allocation for 2010 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2010 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2009 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2008 
+Debt
+Securities – Core Fixed Income 
+27.0 
+% 
+26.2 
+% 
+14.0 
+% 
+Tactical
+– Fund of Equity and Debt Securities 
+5.0 
+% 
+5.2 
+% 
+4.3 
+% 
+Domestic
+Equity Securities 
+32.5 
+% 
+25.0 
+% 
+22.7 
+% 
+Global
+Equity Securities 
+2.5 
+% 
+4.4 
+% 
+3.6 
+% 
+International
+Equity Securities 
+8.0 
+% 
+13.8 
+% 
+11.2 
+% 
+Real
+Estate 
+5.0 
+% 
+4.2 
+% 
+7.7 
+% 
+Other 
+20.0 
+% 
+21.2 
+% 
+36.5 
+% 
+Total 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+The
+Company’s overall investment strategy is to achieve a mix of approximately 70
+percent of investments for long-term growth and 30 percent for near-term benefit
+payments, with a wide diversification of asset types, fund strategies and fund
+managers. Equity securities primarily include investments
+in large-cap and mid-cap companies. Fixed-income securities include
+corporate bonds of companies in diversified securities, mortgage-backed
+securities, and U.S. Treasuries. Other types of investments include
+hedge funds and private equity funds that follow several different investment
+strategies. For each of the asset categories in the pension plan, the investment
+strategy is identical – maximize the long-term rate of return on plan assets
+with an acceptable level of risk in order to minimize the cost of providing
+pension benefits. The investment policy establishes a target allocation
+for each asset class which is rebalanced as required. 
+52 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Some of
+our assets, primarily our private equity, real estate and hedge funds, do not
+have readily determinable market values given the specific investment structures
+involved and the nature of the underlying investments. For the December 31,
+2009 plan asset reporting, publicly traded asset pricing was used where
+possible. For assets without readily determinable values, estimates were derived
+from investment manager discussions focusing on underlying fundamentals and
+significant events. 
+The
+following table presents our plan assets using the fair value hierarchy as of
+December 31, 2009. The fair value hierarchy has three levels based on the
+reliability of the inputs used to determine fair value. See Note 8
+for a brief description of the three levels under the fair value
+hierarchy. 
+Investments
+( in thousands ) 
+Total 
+Level
+1 
+Level
+2 
+Level
+3 
+Cash
+and Cash Equivalents 
+(1) 
+$ 
+943 
+$ 
+943 
+$ 
+- 
+$ 
+- 
+Fixed
+Income Securities 
+(2) 
+6,529 
+- 
+6,529 
+- 
+Domestic
+Equity Securities 
+6,237 
+6,237 
+- 
+- 
+Global
+Equity Securities 
+(3) 
+1,085 
+- 
+1,085 
+- 
+International
+Equity Securities 
+(3) 
+3,440 
+1,475 
+1,965 
+- 
+Real
+Estate 
+(4) 
+1,039 
+- 
+- 
+1,039 
+Hedge
+Funds 
+(5) 
+5,659 
+- 
+1,302 
+4,357 
+$ 
+24,932 
+$ 
+8,655 
+$ 
+10,881 
+$ 
+5,396 
+(1) 
+Cash
+and cash equivalents, which are used to pay benefits and plan
+administrative expenses, are held in Rule 2a-7 money market
+funds. 
+(2) 
+Fixed
+income securities are primarily valued using a market approach with inputs
+that include broker quotes, benchmark yields, base spreads and reported
+trades. 
+(3) 
+Global
+equity securities and certain international securities are valued using a
+market approach based on the quoted market prices of similar instruments
+in their respective markets. 
+(4) 
+Real
+estate fund values are primarily reported by the fund manager and are
+based on valuation of the underlying investments, which include inputs
+such as cost, discounted future cash flows, independent appraisals and
+market based comparable data. 
+(5) 
+Hedge
+funds consist of fund-of-fund LLC or commingled fund structures. The LLCs
+are primarily valued based on Net Asset Values [NAV] calculated by the
+fund and are not publicly available. Liquidity for the LLCs is monthly and
+is subject to liquidity of the underlying funds. The commingled fund NAV
+is calculated by the manager on a daily basis and has monthly
+liquidity. 
+The
+following table presents a reconciliation of Level 3 assets held during the year
+ended December 31, 2009: 
+Investments
+( in thousands ) 
+Balance
+at 
+December 31, 
+2008 
+Net
+Realized 
+and Unrealized 
+Gains/(Losses) 
+Net
+Purchases, 
+Issuances and 
+Settlements 
+Net 
+Transfers 
+In
+to (Out 
+of) Level 3 
+Balance
+at 
+December 31, 
+2009 
+Real
+Estate 
+$ 
+1,723 
+$ 
+(360 
+) 
+$ 
+(324 
+) 
+$ 
+- 
+$ 
+1,039 
+Hedge
+Funds 
+4,114 
+243 
+- 
+- 
+4,357 
+$ 
+5,837 
+$ 
+(117 
+) 
+$ 
+(324 
+) 
+$ 
+- 
+$ 
+5,396 
+The
+Company does not currently expect to make a significant contribution to the
+Retirement Income Plan in 2010 and does not expect to receive a refund in
+2010. 
+53 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+The
+Company estimates that the future benefits payable for the Retirement Income
+Plan over the next ten years are as follows: 
+(in
+thousands) 
+2010 
+$ 
+1,658 
+2011 
+1,683 
+2012 
+1,771 
+2013 
+1,867 
+2014 
+1,946 
+2015-2019 
+11,060 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially
+all full-time employees with more than three months of service. This plan allows
+employees to make tax-deferred contributions from one to 25 percent of their
+annual compensation, not exceeding the permissible contribution imposed by the
+Internal Revenue Code. RPC matches 50 percent of each employee’s contributions
+that do not exceed six percent of the employee’s compensation, as defined by the
+plan. Employees vest in the RPC contributions after three years of service. The
+charges to expense for the Company’s contributions to the 401(k) plan were
+approximately $2,621,000 in 2009, $2,814,000 in 2008 and $2,300,000 in
+2007. 
+Stock
+Incentive Plans 
+The
+Company has issued stock options and restricted stock to employees under two 10
+year stock incentive plans that were approved by stockholders in 1994 and
+2004. The 1994 plan expired in 2004. The Company reserved
+5,062,500 shares of common stock under the 2004 Plan which expires in
+2014. This plan provides for the issuance of various forms of stock
+incentives, including, among others, incentive and non-qualified stock options
+and restricted stock which are discussed in detail below. As of
+December 31, 2009, there were approximately 2,200,000 shares available for
+grants. The Company issues new shares from its authorized but
+unissued share pool. 
+The
+Company recognizes compensation expense for the unvested portion of awards
+outstanding over the remainder of the service period. The compensation cost
+recorded for these awards is based on their fair value at grant date less the
+cost of estimated forfeitures. Forfeitures are estimated at the time of grant
+and revised, if necessary, in subsequent periods to reflect actual forfeitures.
+Cash flows related to share-based payment awards to employees that result in tax
+benefits in excess of recognized cumulative compensation cost (excess tax
+benefits) are classified as financing activity in the accompanying consolidated
+statements of cash flows. 
+Pre-tax
+stock-based employee compensation expense was $4,440,000 in 2009 ($2,819,000
+after tax), $3,732,000 in 2008 ($2,382,000 after tax) and $3,189,000 in 2007
+($2,167,000 after tax). 
+Stock
+Options 
+Stock
+options are granted at an exercise price equal to the fair market value of the
+Company’s common stock at the date of grant except for grants of incentive stock
+options to owners of greater than 10 percent of the Company’s voting securities
+which must be made at 110 percent of the fair market value of the Company’s
+common stock. Options generally vest ratably over a period of five
+years and expire in 10 years, except incentive stock options granted to owners
+of greater than 10 percent of the Company’s voting securities, which expire in
+five years. 
+The
+Company estimates the fair value of stock options as of the date of grant using
+the Black-Scholes option pricing model. The Company has not granted
+stock options to employees since 2003. 
+54 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Transactions
+involving RPC’s stock options for the year ended December 31, 2009 were as
+follows: 
+Shares 
+Weighted
+Average 
+Exercise Price 
+Weighted 
+Average 
+Remaining 
+Contractual
+Life 
+Aggregate
+Intrinsic Value 
+Outstanding
+at January 1, 2009 
+1,108,022 
+$ 3.12 
+2.68
+years 
+Granted 
+- 
+- 
+N/A 
+Exercised 
+(238,579) 
+2.89 
+N/A 
+Forfeited 
+(8,715) 
+3.76 
+N/A 
+Expired 
+- 
+- 
+N/A 
+Outstanding
+at December 31, 2009 
+860,728 
+$ 3.39 
+2.25
+years 
+$ 
+6,034,000 
+Exercisable
+at December 31, 2009 
+860,728 
+$ 3.39 
+2.25
+years 
+$ 
+6,034,000 
+The total
+intrinsic value of stock options exercised was approximately $1,519,000 during
+2009, $6,214,000 during 2008 and $7,758,000 during 2007. Recognized
+excess tax benefits associated with the exercise of stock options were
+approximately $353,000 during 2009 and $344,000 during 2008. There
+were no recognized excess tax benefits associated with the exercise of stock
+options during 2007, since all of the stock options exercised in 2007 were
+incentive stock options which do not generate tax deductions for the
+Company. 
+Restricted
+Stock 
+The
+Company has granted employees two forms of restricted stock: time lapse
+restricted and performance restricted. 
+Time
+lapse restricted shares 
+Time
+lapse restricted shares vest after a stipulated number of years from the grant
+date, depending on the terms of the issue. Time lapse restricted shares issued
+in years 2003 and prior vest after ten years. Time lapse restricted
+shares issued subsequent to fiscal year 2003 vest in 20 percent increments
+annually starting with the second anniversary of the grant, over six years from
+the date of grant. Grantees receive dividends declared and retain
+voting rights for the granted shares. 
+Performance
+restricted shares 
+The
+performance restricted shares are granted, but not earned and issued until
+certain five-year tiered performance criteria are met. The performance criteria
+are predetermined market prices of RPC’s common stock. On the date the common
+stock appreciates to each level (determination date), 20 percent of performance
+shares are earned. Once earned, the performance shares vest five years from the
+determination date. After the determination date, the grantee will receive
+dividends declared and voting rights to the shares. The Company has
+not granted performance restricted shares since 1999. 
+The
+agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the stock plans have lapsed. Upon termination of employment from RPC or,
+in certain cases, termination of employment from Marine Products Corporation or
+Chaparral Boats, Inc., shares with restrictions must be returned to
+RPC. 
+The
+following is a summary of the changes in non-vested restricted shares for the
+year ended December 31, 2009: 
+Shares 
+Weighted
+Average 
+Grant-Date Fair Value 
+Non-vested
+shares at January 1, 2009 
+1,762,478 
+$ 
+11.34 
+Granted 
+722,000 
+8.55 
+Vested 
+(453,200 
+) 
+8.87 
+Forfeited 
+(49,162 
+) 
+12.03 
+Non-vested
+shares at December 31, 2009 
+1,982,116 
+$ 
+10.88 
+The fair
+value of restricted awards is based on the market price of the Company’s stock
+on the date of the grant and is amortized to compensation expense on a
+straight-line basis over the requisite service period. The weighted
+average grant date fair value of these restricted stock awards was $8.55, $9.81
+and $17.61 for the years ended December 31, 2009, 2008 and 2007. The
+total fair value of shares vested was approximately $3,976,000 during 2009,
+$3,675,000 during 2008 and $4,903,000 during 2007. The tax benefit
+for compensation tax deductions in excess of compensation expense was credited
+to capital in excess of par value aggregating $1,068,000 for 2009, $502,000 for
+2008 and $1,128,000 for 2007. The excess tax deductions are
+classified as financing activity in the accompanying consolidated statements of
+cash flows. 
+55 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Other
+Information 
+As of
+December 31, 2009, total unrecognized compensation cost related to non-vested
+restricted shares was approximately $18,754,000 which is expected to be
+recognized over a weighted-average period of 3.7 years. As of
+December 31, 2009, there was no unrecognized compensation cost related to
+non-vested stock options. 
+The
+Company received cash from options exercised of $122,000 during 2009, $347,000
+during 2008 and $636,000 during 2007. These cash receipts are classified as
+financing activity in the accompanying consolidated statements of cash flows.
+The fair value of shares tendered to exercise employee stock options totaled
+approximately $389,000 during 2009, $1,911,000 during 2008 and $1,123,000 during
+2007 and have been excluded from the consolidated statements of cash
+flows. 
+Note
+11: Related Party Transactions 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$713,000 in 2009, $842,000 in 2008 and $957,000 in 2007. The Company’s receivable due from Marine Products for
+these services as of December 31, 2009 and 2008 was approximately $65,000 and
+$70,000. The Company’s directors are also directors of Marine
+Products and all of the executive officers are employees of both the Company and
+Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or stockholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $409,000 in 2009, $393,000 in 2008 and
+$1,035,000 in 2007. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $87,000 in 2009, $90,000 in 2008 and $72,000 in
+2007. 
+A group
+that includes the Company’s Chairman of the Board, R. Randall Rollins and his
+brother Gary W. Rollins, who is also a director of the Company, and certain
+companies under their control, controls in excess of fifty percent of the
+Company’s voting power. 
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+segments — Technical Services and Support Services — because of the similarities
+between the financial performance and approach to managing the service lines
+within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. Corporate includes selected
+administrative costs incurred by the Company. 
+56 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. These services include pressure pumping services,
+coiled tubing, snubbing, nitrogen pumping, well control consulting and
+firefighting, downhole tools, wireline, and fluid pumping services. These
+Technical Services are primarily used in the completion, production and
+maintenance of oil and gas wells. The principal markets for this segment include
+the United States, including the Gulf of Mexico, the mid-continent, southwest,
+Rocky Mountain and Appalachian regions, and international locations including
+primarily Africa, Canada, China, Latin America, the Middle East and New Zealand.
+Customers include major multi-national and independent oil and gas producers,
+and selected nationally-owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, and oilfield training services. The demand for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico, the mid-continent and Appalachian regions,
+and international locations, including primarily Canada, Latin America, and the
+Middle East. Customers include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally-owned oil
+companies. 
+The
+accounting policies of the reportable segments are the same as those described
+in Note 1 to these consolidated financial statements. RPC evaluates the
+performance of its segments based on revenues, operating profits and return on
+invested capital. Gains or losses on disposition of assets are
+reviewed by the Company’s chief decision maker on a consolidated basis, and
+accordingly the Company does not report gains or losses at the segment
+level. Inter-segment revenues are generally recorded in segment
+operating results at prices that management believes approximate prices for
+arm’s length transactions and are not material to operating
+results. 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended
+December 31, 2009, 2008 and 2007 are shown in the following table. 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+Gain
+on 
+disposition of 
+assets, net 
+Total 
+(in
+thousands) 
+2009 
+Revenues 
+$ 
+513,289 
+$ 
+74,574 
+$ 
+— 
+$ 
+— 
+$ 
+587,863 
+Operating
+profit (loss) 
+(20,328 
+) 
+(1,636 
+) 
+(12,231 
+) 
+1,143 
+(33,052 
+) 
+Capital
+expenditures 
+48,175 
+19,220 
+435 
+— 
+67,830 
+Depreciation
+and amortization 
+101,780 
+28,085 
+715 
+— 
+130,580 
+Identifiable
+assets 
+453,133 
+144,905 
+51,005 
+— 
+649,043 
+2008 
+Revenues 
+$ 
+745,991 
+$ 
+130,986 
+$ 
+— 
+$ 
+— 
+$ 
+876,977 
+Operating
+profit (loss) 
+110,648 
+36,515 
+(9,360 
+) 
+6,367 
+144,170 
+Capital
+expenditures 
+127,054 
+42,238 
+1,026 
+— 
+170,318 
+Depreciation
+and amortization 
+92,738 
+24,798 
+867 
+— 
+118,403 
+Identifiable
+assets 
+564,708 
+181,991 
+46,762 
+— 
+793,461 
+2007 
+Revenues 
+$ 
+574,723 
+$ 
+115,503 
+$ 
+— 
+$ 
+— 
+$ 
+690,226 
+Operating
+profit (loss) 
+116,493 
+29,955 
+(10,703 
+) 
+6,293 
+142,038 
+Capital
+expenditures 
+211,389 
+35,138 
+2,231 
+— 
+248,758 
+Depreciation
+and amortization 
+59,436 
+18,106 
+964 
+— 
+78,506 
+Identifiable
+assets 
+480,840 
+168,027 
+52,148 
+— 
+701,015 
+57 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2009, 2008 and 2007 
+The
+following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2009, 2008 and
+2007. The revenues are presented based on the location of the use of the product
+or service. Assets related to international operations are less than 10 percent
+of RPC’s consolidated assets, and therefore are not presented. 
+Years
+ended December 31, 
+2009 
+2008 
+2007 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+543,026 
+$ 
+846,202 
+$ 
+649,116 
+International
+Revenues 
+44,837 
+30,775 
+41,110 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+58 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial
+Disclosure 
+None. 
+Item
+9A. Controls and Procedures 
+Evaluation of disclosure controls
+and procedures — The Company maintains disclosure controls and procedures
+that are designed to ensure that information required to be disclosed in its
+Exchange Act reports is recorded, processed, summarized and reported within the
+time periods specified in the Commission’s rules and forms, and that such
+information is accumulated and communicated to its management, including the
+Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
+timely decisions regarding required disclosure. 
+As of the
+end of the period covered by this report, December 31, 2009 (the “Evaluation
+Date”), the Company carried out an evaluation, under the supervision and with
+the participation of its management, including the Chief Executive Officer and
+Chief Financial Officer, of the effectiveness of the design and operation of its
+disclosure controls and procedures. Based upon this evaluation, the
+Chief Executive Officer and the Chief Financial Officer concluded that the
+Company’s disclosure controls and procedures were effective at a reasonable
+assurance level as of the Evaluation Date. 
+Management’s report on internal
+control over financial reporting — Management is responsible for
+establishing and maintaining adequate internal control over financial reporting,
+as such term is defined in Exchange Act Rules 13a-15(f) and
+15d-15(f). Management’s report on internal control over
+financial reporting is included on page 29 
+of this report. Grant Thornton LLP, the Company’s independent
+registered public accounting firm, has audited the effectiveness of internal
+control as of December 31, 2009 and issued a report thereon which is included on
+page 30 of this report. 
+Changes in internal control over
+financial reporting — Management’s evaluation of changes in internal
+control did not identify any changes in the Company’s internal control over
+financial reporting that occurred during the Company’s most recent fiscal
+quarter that have materially affected, or are reasonably likely to materially
+affect, the Company’s internal control over financial reporting. 
+Item
+9B. Other Information 
+None. 
+59 
+PART
+III 
+Item
+10. Directors, Executive Officers and Corporate Governance 
+Information
+concerning directors and executive officers will be included in the RPC Proxy
+Statement for its 2010 Annual Meeting of Stockholders, in the section titled
+“Election of Directors.” This information is incorporated herein by reference.
+Information about executive officers is contained on page 13 
+of this document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial
+Expert(s) will be included in the RPC Proxy Statement for its 2010 Annual
+Meeting of Stockholders, in the section titled “Corporate Governance and Board
+of Directors, Committees and Meetings – Audit Committee.” This information is
+incorporated herein by reference. 
+Code
+of Ethics 
+RPC, Inc.
+has a Code of Business Conduct that applies to all employees. In addition, the
+Company has a Code of Business Conduct and Ethics for Directors and Executive
+Officers and Related Party Transaction Policy. Both of these documents are
+available on the Company’s website at www.rpc.net. Copies are
+available at no charge by writing to Attention: Human Resources, RPC Inc., 2801
+Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+RPC, Inc.
+intends to satisfy the disclosure requirement under Item 10 of Form 8-K
+regarding an amendment to, or waiver from, a provision of its code that relates
+to any elements of the code of ethics definition enumerated in SEC rules by
+posting such information on its internet website, the address of which is
+provided above. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included
+under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2010 Annual Meeting of Stockholders, which is
+incorporated herein by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning director and executive compensation will be included in the RPC Proxy
+Statement for its 2010 Annual Meeting of Stockholders, in the sections titled
+“Compensation Committee Interlocks and Insider Participation,” “Director
+Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee
+Report” and “Executive Compensation.” This information is incorporated herein by
+reference. 
+Item
+12. Security Ownership of Certain Beneficial Owners and Management and Related
+Stockholder Matters 
+Information
+concerning security ownership will be included in the RPC Proxy Statement for
+its 2010 Annual Meeting of Stockholders, in the sections “Capital Stock” and
+“Election of Directors.” This information is incorporated herein by
+reference. 
+60 
+Securities
+Authorized for Issuance Under Equity Compensation Plans 
+The
+following table sets forth certain information regarding equity compensation
+plans as of December 31, 2009. 
+Plan
+Category 
+(A) 
+Number
+of Securities 
+To Be Issued Upon 
+Exercise of 
+Outstanding
+Options, 
+Warrants and Rights 
+(B) 
+Weighted
+Average Exercise 
+Price of Outstanding 
+Options, Warrants
+and 
+Rights 
+(C) 
+Number
+of Securities 
+Remaining Available for 
+Future Issuance
+Under 
+Equity Compensation 
+Plans (Excluding 
+Securities Reflected
+in 
+Column (A)) 
+Equity
+compensation plans approved by securityholders 
+860,728 
+$ 
+3.39 
+2,226,824 
+(1) 
+Equity
+compensation plans not approved by securityholders 
+- 
+- 
+- 
+Total 
+860,728 
+$ 
+3.39 
+2,226,824 
+(1) 
+All
+of the securities can be issued in the form of restricted stock or other
+stock awards. 
+See Note
+10 to the Consolidated Financial Statements for information regarding the
+material terms of the equity compensation plans. 
+Item
+13. Certain Relationships and Related Party Transactions and Director
+Independence 
+Information
+concerning certain relationships and related party transactions will be included
+in the RPC Proxy Statement for its 2010 Annual Meeting of Stockholders, in the
+sections titled, “Certain Relationships and Related Party
+Transactions.” Information regarding director independence will be
+included in the RPC Proxy Statement for its 2010 Annual Meeting of Stockholders
+in the section titled “Director Independence and NYSE
+Requirements.” This information is incorporated herein by
+reference. 
+Item
+14. Principal Accounting Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section
+titled “Independent Registered Public Accountants” in the RPC Proxy Statement
+for its 2010 Annual Meeting of Stockholders. This information is incorporated
+herein by reference. 
+61 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements,
+Financial Statement Schedule and Exhibits 
+1. 
+Consolidated
+financial statements listed in the accompanying Index to Consolidated
+Financial Statements and Schedule are filed as part of this
+report. 
+2. 
+The
+financial statement schedule listed in the accompanying Index to
+Consolidated Financial Statements and Schedule is filed as part of this
+report. 
+3. 
+Exhibits
+listed in the accompanying Index to Exhibits are filed as part of this
+report. The following such exhibits are management contracts or
+compensatory plans or arrangements: 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to Form 10-Q filed on November 2,
+2004). 
+10.9 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the
+Form 10-K filed on March 16, 2005). 
+10.10 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K
+filed on March 2, 2007). 
+10.11 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form
+10-K filed on March 4, 2008). 
+10.13 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K
+filed on March 4, 2008). 
+10.16 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2009 (incorporated by reference to Exhibit 10.18 to the Form
+10-K filed on March 5, 2009). 
+10.17 
+Summary
+of Compensation Arrangements with Executive
+Officers. 
+62 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by
+reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal
+year ended December 31, 1999). 
+3.1B 
+Certificate
+of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by
+reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May
+8, 2006). 
+3.2 
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form
+8-K filed on October 25, 2007). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual
+Report on Form 10-K for the fiscal year ended December 31,
+1998). 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2 
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February 12,
+2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed
+on February 13, 2001). 
+10.3 
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc.,
+Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein
+by reference to Exhibit 10.3 to the Form 10-K filed on February 13,
+2001). 
+10.4 
+Transition
+Support Services Agreement dated February 12, 2001 by and between RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference to
+Exhibit 10.4 to the Form 10-K filed on February 13,
+2001). 
+10.5 
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and
+Marine Products Corporation (incorporated herein by reference to Exhibit
+10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to the Form 10-Q filed on November 2,
+2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the
+Form 10-K filed on March 16, 2005). 
+10.10 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive
+Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K
+filed on March 2, 2007). 
+10.11 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit
+10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form
+10-K filed on March 4, 2008). 
+10.13 
+Summary
+of Compensation Arrangements with Non-Employee Directors as of February
+28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K
+filed on March 4, 2008). 
+10.14 
+Revolving
+Credit Agreement dated September 8, 2006 between RPC, Banc of America,
+N.A., SunTrust Bank and certain other Lenders party thereto (incorporated
+by reference to Exhibit 99.1 to the Form 8-K dated September 8,
+2006). 
+10.15 
+Commitment
+Increase Amendment to Revolving Credit Agreement dated as of June 9, 2008,
+by and among the Company, the several banks and other financial
+institutions from time to time party thereto and SunTrust Bank, in its
+capacity as Administrative Agent (incorporated herein by reference to
+Exhibit 99.1 to the Company’s Current Report on Form 8-K dated June 9,
+2008). 
+10.16 
+Summary
+of “At-Will” of Compensation Arrangements with Executive Officers as of
+February 28, 2009 (incorporated herein by reference to Exhibit 10.18 to
+the Form 10-K filed on March 5, 2009). 
+10.17 
+Summary
+of Compensation Arrangements with Executive Officers. 
+10.18 
+Second
+Amendment to Revolving Credit Agreement dated as of September 2, 2009 by
+and among the Company, the several banks and other financial institutions
+from time to time party thereto and SunTrust Bank, in its capacity as
+administrative agent (incorporated herein by reference to Exhibit 99.1 to
+the Company’s Current Report on Form 8-K dated September 2,
+2009). 
+21 
+Subsidiaries
+of RPC (incorporated herein by reference to Exhibit 21 to the Form 10-K
+filed on March 4, 2008) 
+23 
+Consent
+of Grant Thornton LLP 
+24 
+Powers
+of Attorney for Directors 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial
+Officer 
+63 
+SIGNATURES 
+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. 
+RPC,
+Inc. 
+/s/ Richard A. Hubbell
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March 3,
+2010 
+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. 
+Name 
+Title 
+Date 
+/s/ Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+3, 2010 
+/s/ Ben M. Palmer 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+March
+3, 2010 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard
+A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R.
+Randall Rollins, Director 
+Wilton
+Looney, Director 
+Gary
+W. Rollins, Director 
+Henry
+B. Tippie, Director 
+James
+B. Williams, Director 
+James
+A. Lane, Jr., Director 
+Linda
+H. Graham, Director 
+Bill J. Dismuke, Director 
+Larry
+L. Prince, Director 
+/s/ Richard A. Hubbell 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+March
+3, 2010 
+64 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The following documents are filed as
+part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management’s
+Report on Internal Control Over Financial Reporting 
+29 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over
+Financial Reporting 
+30 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements 
+31 
+Consolidated
+Balance Sheets as of December 31, 2009 and 2008 
+32 
+Consolidated
+Statements of Operations for the three years ended December 31,
+2009 
+33 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31,
+2009 
+34 
+Consolidated
+Statements of Cash Flows for the three years ended December 31,
+2009 
+35 
+Notes
+to Consolidated Financial Statements 
+36
+- 58 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying Accounts 
+65 
+Schedules
+not listed above have been omitted because they are not applicable or the
+required information is included in the consolidated financial statements or
+notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+For
+the years ended 
+December
+31, 2009, 2008 and 2007 
+(in
+thousands) 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net 
+(Deductions) 
+Recoveries 
+Balance 
+at
+End of 
+Period 
+Year
+ended December 31, 2009 
+Allowance
+for doubtful accounts 
+$ 
+6,199 
+$ 
+660 
+$ 
+(3,649 
+) 
+(1) 
+$ 
+3,210 
+Deferred
+tax asset valuation allowance 
+$ 
+1,454 
+$ 
+96 
+$ 
+— 
+(2) 
+$ 
+1,550 
+Year
+ended December 31, 2008 
+Allowance
+for doubtful accounts 
+$ 
+5,217 
+$ 
+(84 
+) 
+$ 
+1,066 
+(1) 
+$ 
+6,199 
+Deferred
+tax asset valuation allowance 
+$ 
+1,503 
+$ 
+— 
+$ 
+(49 
+) 
+(2) 
+$ 
+1,454 
+Year
+ended December 31, 2007 
+Allowance
+for doubtful accounts 
+$ 
+4,904 
+$ 
+3,119 
+$ 
+(2,806 
+) 
+(1) 
+$ 
+5,217 
+Deferred
+tax asset valuation allowance 
+$ 
+1,342 
+$ 
+161 
+$ 
+0 
+(2) 
+$ 
+1,503 
+(1) 
+Deductions
+in the allowance for doubtful accounts principally reflect the write-off
+of previously reserved accounts net of
+recoveries. 
+(2) 
+The
+valuation allowance for deferred tax assets is increased or decreased each
+year to reflect the state net operating losses that management believes
+will be utilized before they expire. In 2009, the valuation allowance for
+deferred tax assets was increased by $96. In 2008, the
+valuation allowance for deferred tax assets was decreased by
+$49. In 2007 the valuation allowance for deferred tax assets
+was increased by $161. 
+65 
+SELECTED
+QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+2009 
+Revenues 
+$ 
+176,271 
+$ 
+127,018 
+$ 
+132,159 
+$ 
+152,415 
+Net
+(loss) income 
+$ 
+4,466 
+$ 
+(11,624 
+) 
+$ 
+(10,385 
+) 
+$ 
+(5,202 
+) 
+Net
+(loss) income per share — basic:(a) 
+$ 
+0.05 
+$ 
+(0.12 
+) 
+$ 
+(0.11 
+) 
+$ 
+(0.05 
+) 
+Net
+(loss) income per share — diluted:(a) 
+$ 
+0.05 
+$ 
+(0.12 
+) 
+$ 
+(0.11 
+) 
+$ 
+(0.05 
+) 
+2008 
+Revenues 
+$ 
+197,227 
+$ 
+214,689 
+$ 
+237,217 
+$ 
+227,844 
+Net
+income 
+$ 
+14,757 
+$ 
+22,458 
+$ 
+25,780 
+$ 
+20,408 
+Net
+income per share — basic:(a) 
+$ 
+0.15 
+$ 
+0.23 
+$ 
+0.27 
+$ 
+0.21 
+Net
+income per share — diluted:(a) 
+$ 
+0.15 
+$ 
+0.23 
+$ 
+0.26 
+$ 
+0.21 
+(a) 
+The sum of the
+(loss) income per share for the four quarters may differ from
+annual amounts due to the required method of computing the weighted
+average shares in interim periods. 
+66
\ No newline at end of file
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/filing_metadata.csv b/raw/filings/0000742278/2009/0001188112-10-000460/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..1a5140230fee20621a7fa889d39ed981fbb3e2c0
--- /dev/null
+++ b/raw/filings/0000742278/2009/0001188112-10-000460/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2010-03-03,2009-12-31,2010-03-03T21:56:20.000Z,0001188112-10-000460,t67253_10k.htm,FORM 10-K,2098438,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811210000460/t67253_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811210000460/,2009,2009,1
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/item1.txt b/raw/filings/0000742278/2009/0001188112-10-000460/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/item13.txt b/raw/filings/0000742278/2009/0001188112-10-000460/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/item9a.txt b/raw/filings/0000742278/2009/0001188112-10-000460/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/rp_note.txt b/raw/filings/0000742278/2009/0001188112-10-000460/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6f705f34bbbe0627e031b478195193188737358e
--- /dev/null
+++ b/raw/filings/0000742278/2009/0001188112-10-000460/rp_note.txt
@@ -0,0 +1,50 @@
+11: Related Party Transactions 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing
+segment. RPC accomplished the spin-off by contributing 100 percent of
+the issued and outstanding stock of Chaparral to Marine Products Corporation (a
+Delaware corporation) (“Marine Products”), a newly formed wholly-owned
+subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine
+Products entered into various agreements that define the companies’
+relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations
+that are subsidiaries of the Company) for such services aggregated approximately
+$713,000 in 2009, $842,000 in 2008 and $957,000 in 2007. The Company’s receivable due from Marine Products for
+these services as of December 31, 2009 and 2008 was approximately $65,000 and
+$70,000. The Company’s directors are also directors of Marine
+Products and all of the executive officers are employees of both the Company and
+Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or stockholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $409,000 in 2009, $393,000 in 2008 and
+$1,035,000 in 2007. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is
+otherwise affiliated with RPC). The service agreements between
+Rollins, Inc. and the Company provide for the provision of services on a cost
+reimbursement basis and are terminable on six months notice. The
+services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent totaled $87,000 in 2009, $90,000 in 2008 and $72,000 in
+2007. 
+A group
+that includes the Company’s Chairman of the Board, R. Randall Rollins and his
+brother Gary W. Rollins, who is also a director of the Company, and certain
+companies under their control, controls in excess of fifty percent of the
+Company’s voting power. 
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2009/0001188112-10-000460/rpt_disclosure.txt b/raw/filings/0000742278/2009/0001188112-10-000460/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e498c86135a432dccfdb677178c3a92eacd80c65
--- /dev/null
+++ b/raw/filings/0000742278/2009/0001188112-10-000460/rpt_disclosure.txt
@@ -0,0 +1,7 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $713,000 in 2009. 
+During 2009, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2009, payments totaling approximately $409,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $87,000 in 2009. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2009 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. 
+26
\ No newline at end of file
diff --git a/raw/filings/0000742278/2010/0001188112-11-000495/filing.txt b/raw/filings/0000742278/2010/0001188112-11-000495/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4dcc04db24e9da8a568721baa95d637b16ef4dbb
--- /dev/null
+++ b/raw/filings/0000742278/2010/0001188112-11-000495/filing.txt
@@ -0,0 +1,3817 @@
+10-K
+1
+t69879_10k.htm
+FORM 10-K
+t69879_10k.htm 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+x 
+Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For the fiscal year ended December 31, 2010 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2801 BUFORD HIGHWAY, SUITE 520 
+ATLANTA, GEORGIA 30329 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of each class 
+COMMON STOCK, $0.10 PAR VALUE 
+Name of each exchange on which registered 
+NEW YORK STOCK EXCHANGE 
+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. 
+o Yes x No 
+Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No 
+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 o 
+Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 o No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. x 
+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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
+Large accelerated filer o 
+Accelerated filer x 
+Non-accelerated filer o 
+Smaller reporting company o 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x 
+The aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, was $384,671,517 based on the closing price on the New York Stock Exchange on June 30, 2010 of $13.65 per share. 
+RPC, Inc. had 147,964,000 shares of Common Stock outstanding as of February 18, 2011. 
+Documents Incorporated by Reference 
+Portions of the Proxy Statement for the 2011 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of this report. 
+1 
+PART I 
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or “the Company.” 
+Forward-Looking Statements 
+Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and our performance in the future. Forward-looking statements made elsewhere in this report include without limitation statements regarding our belief that the long-term prospects for our business are favorable due to growing demand for oil and natural gas; our belief that the long-term demand outlook for natural gas is still favorable; our belief that the lack of foreign competition with domestic natural gas production tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels; our belief that gas-directed drilling will continue to represent the majority of the total drilling rig count in the foreseeable future; our expectation to continue to focus on the development of international business opportunities in current and other international markets; our ability to obtain other customers in the event of a loss of our largest customers; the adequacy of our insurance coverage; the impact of lawsuits, legal proceedings and claims on our business and financial condition; our expectation to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors; our belief that the favorable long-term returns on our purchases of revenue producing equipment will continue, thus justifying the funding of these expenditures with debt; our belief that continued increases in the U.S. domestic rig count during 2011 may be limited by the number of rigs available to drill new wells; that the outlook for the U.S. domestic rig count is for it to remain stable or increase slightly during 2011 with the service-intensive nature of the activity being projected to continue to increase; our belief that an increase in the supply in oilfield equipment in our markets can cause a decrease in the price we receive for our services if commodity prices and drilling activity do not also increase; our expectations to take delivery of a large amount of revenue-producing equipment during the first and second quarters of 2011; our expectation that our consolidated revenues and financial performance will improve; our ability to maintain sufficient liquidity and a conservative capital structure; our belief about the amount of the contribution to the defined benefit pension plan in 2011; our ability to fund capital requirements in the future; the estimated amount of our capital expenditures and contractual obligations for future periods; estimates made with respect to our critical accounting policies; and the effect of new accounting standards. 
+The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. See “Risk Factors” contained in Item 1A. for a discussion of factors that may cause actual results to differ from our projections. 
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain and northeast regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) coiled tubing services, (3) snubbing services (also referred to as hydraulic workover services), (4) nitrogen services, (5) the rental of drill pipe and other specialized oilfield equipment, (6) downhole tool services and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2010, RPC had approximately 2,500 employees. 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+2 
+During 2010, approximately three percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of other countries, principally in New Zealand. We also estimate that 33 percent of our 2010 revenues were related to drilling and production activities for oil, and 67 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain, and Appalachian regions, and contract or project work in selected international locations in the last three years including primarily Africa, Canada, China, Eastern Europe, Latin America, the Middle East and New Zealand. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 48 percent of 2010 revenues, 38 percent of 2009 revenues and 41 percent of 2008 revenues, are provided to customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of the United States and are generally utilized to initiate production in new or enhance production in existing customer wells. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping nitrogen or a fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in the gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the well. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 12 percent of 2010 revenues, 15 percent of 2009 revenues and nine percent of 2008 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+3 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 10 percent of 2010 revenues and nine percent of 2009 and 2008 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately five percent of 2010 revenues, eight percent of 2009 revenues, and seven percent of 2008 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. 
+Nitrogen . Nitrogen accounted for approximately five percent of 2010 revenues, seven percent of 2009 revenues, and eight percent of 2008 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. The Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Hungary, India, Kuwait, Libya, Mexico, Peru, Qatar, Taiwan, Trinidad, Turkmenistan and Venezuela. 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+4 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+5 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately eight percent of 2010 and 2009 revenues and 11 percent of 2008 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, northeast and Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage. Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both the oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides this training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the northeast production fields. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 63 percent from its peak in 1981. Due to enhanced technology, however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Record low drilling activity levels were experienced in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the most recent prior cycle peaked at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the end of 2010, U.S. domestic drilling activity increased by 93 percent, but is 17 percent lower than the prior cyclical peak in the third quarter of 2008. As of a recent date in 2011, U.S. domestic drilling activity has increased by approximately two percent compared to the fourth quarter of 2010. 
+6 
+During 2010 the average price of natural gas increased by approximately 12 percent, and the average price of oil increased by approximately 17 percent. The change in domestic drilling activity during 2010 was consistent with the recovery in the prices of oil and natural gas, as well as the improvement in the overall economy following the financial crisis and recession in 2008 and 2009. Although our business has repeatedly demonstrated that it is cyclical, we continue to believe that the long-term prospects for our business are favorable due to growing global demand for oil and natural gas. In addition, we believe in the long-term growth of our business due to increased need for RPC’s services demanded by current drilling and completion techniques. 
+Since 2001 and 2009, gas drilling rigs represented an increasing percentage of the total drilling rig count, and have represented over 70 percent of the drilling rig count during these years. In 2010, the percentage of drilling rigs drilling for natural gas declined, and represented 61 percent of total drilling activity. Although the demand trend for natural gas is continuing to rise, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. In contrast, the price of oil has increased, and producers in the domestic market have started to exploit new resource plays that are economical at current high oil prices The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Based on current demand levels for natural gas as well as the high oil and gas well depletion rates experienced over the past several years, it is anticipated that gas-directed drilling will continue to represent the majority of the total drilling rig count in the foreseeable future. 
+In addition, there are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. These wells are predominantly natural gas wells, although they are increasingly being drilled for oil as well. Because they are drilled through a narrow formation and the formation is typically a relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn means that there is a great deal of pressure pumping horsepower required to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. Over the past several years, RPC has continued its focus on developing international opportunities, although our equipment investments over the last couple of years have emphasized domestic rather than international expansion. International revenues for 2010 increased due to higher customer activity levels in Canada, Columbia, and Qatar, among other countries, partially offset by decreases in Mexico and the elimination of revenue in Egypt. During 2010, RPC provided snubbing, well control and oilfield training services in New Zealand, Qatar, Columbia, Gabon, Saudi Arabia, and Mexico, among other countries. We also provided rental tools in Columbia and Argentina, and downhole motors and tools in Canada, Tunisia, Mexico, the Congo and Oman. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues. 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+7 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. However, current strong business conditions have encouraged potential sellers of businesses to expect high prices for their businesses, so we believe we generate better returns growing organically in service lines and geographic locations in which we have experience and presence. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. During the third quarter of 2010, we renewed our facility to fund our ongoing capital needs. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2009 we reduced capital expenditures due to the industry downturn and the resulting lower near-term expected returns on investment. However, we increased our purchases of revenue-producing equipment in 2010 to support new and projected significant customer agreements. In spite of increased capital expenditures and working capital requirements during 2010, at the end of the year our level of debt was conservative compared to a number of our peers. Furthermore, we believe that the favorable long-term returns on investment in our revenue-producing equipment justify financing their purchase using debt. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2010, RPC provided oilfield services to several hundred customers. Of these customers, only one, Chesapeake Energy Corporation at approximately 15 percent of revenues, accounted for more than 10 percent of revenues. RPC believes that its relationship with this customer is good. Although the Company believes that we would be able to obtain other customers for our services in the event of the loss of this major customer, the loss of this customer could have a material adverse effect on Company revenues and operating results in the near term. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. During 2010 we entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. These agreements represent a growing percentage of our revenues, and we monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. RPC believes that the principal competitive factors in the market areas that it serves are product and service quality and availability, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company owns two primary administrative buildings, one in Houston, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+8 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission. 
+9 
+Item 1A. Risk Factors 
+Demand for our products and services is affected by the volatility of oil and natural gas prices. 
+Oil and natural gas prices affect demand throughout the oil and gas industry, including the demand for our products and services. Our business depends in large part on the conditions of the oil and gas industry, and specifically on the capital investments of our customers related to the exploration and production of oil and natural gas. When these capital investments decline, our customers’ demand for our services declines. 
+Although the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react to declining oil and gas prices by curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of operations. 
+The relationship between the prices of oil and natural gas and our customers’ drilling and production activities may not be highly correlated in the future. 
+Historically, fluctuations in the prices of oil and natural gas have led to corresponding changes in our customers’ drilling and production activities as measured by the domestic rig count. As drilling and production activities increase (or remain active) or decrease (or remain stagnant), our operating results are correspondingly favorably or adversely impacted. If this correlation weakens in the future, then it is possible that increases in the prices of oil and natural gas will not lead to corresponding increases in our customers’ activities, and our future operating results could be negatively impacted. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and earnings have in the past been affected by changes in competitive prices, fluctuations in the level of activity in major markets and general economic conditions. We compete with the oil and gas industry’s many large and small industry competitors, including the largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and may continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent, the Rocky Mountains and the Northeast. Hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others. Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our ability to attract and retain skilled workers may impact growth potential and profitability. 
+Our ability to be productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our operations is, in part, impacted by our ability to increase our labor force. A significant increase in the wages paid by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be impaired. 
+10 
+Our concentration of customers in one industry may impact our overall exposure to credit risk. 
+Substantially all of our customers operate in the energy industry. This concentration of customers in one industry may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. 
+Reliance upon a large customer may adversely affect our revenues and operating results. 
+During 2010, one of our largest customers accounted for approximately 15 percent of our total revenues. This reliance on a large customer for a significant portion of our total revenues exposes us to the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and disproportionate adverse impact upon our revenues and operating results. 
+Our business has potential liability for litigation, personal injury and property damage claims assessments. 
+RPC’s subsidiaries have a number of agreements of various types in place with our customers. In general, these agreements indemnify RPC and its subsidiaries against damage or liabilities that arise from the actions of our employees or the operation of our equipment. The provisions in these agreements do not make a distinction among the types of services that RPC provides or the location of the work. These agreements also require that RPC maintain a certain level and type of insurance coverage against any claims that are determined to be our responsibility. RPC has insurance coverage in place with several well-capitalized insurance companies for accidental environmental claims. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur, it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and relationships with customers, employees and regulators. These occurrences could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and assessments that may arise. 
+Our operations may be adversely affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations for economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. We believe that our present operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in various countries including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America, the Middle East and New Zealand are subject to risks. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, boycotts and other civil disturbances. The occurrence of any one of these events could have a material adverse effect on our operations. 
+Our common stock price has been volatile. 
+Historically, the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of our common stock has varied significantly in the past. 
+Our management has a substantial ownership interest, and public stockholders may have no effective voice in the management of the Company. 
+The Company has elected the “Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of independent directors. 
+11 
+RPC’s executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 71 percent of RPC’s outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. 
+Our management has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited. 
+The availability of RPC’s common stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock. 
+Provisions in RPC’s Certificate of Incorporation and Bylaws may inhibit a takeover of RPC. 
+RPC’s certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for stockholder proposals and staggered terms for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board of Directors more difficult or expensive. 
+Some of our equipment and several types of materials used in providing our services are available from a limited number of suppliers. 
+We purchase equipment provided by a limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in pressure pumping services, our largest service line. While these materials are generally available, supply disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our ability to provide services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We have used outside financing to accomplish our growth strategy, and outside financing may become unavailable or may be unfavorable to us. 
+Our business requires a great deal of capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $350 million credit facility to fund our necessary working capital and equipment requirements. Most of our existing credit facility bears interest at a floating rate, which exposes us to market risks as interest rates rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public equity, the holdings of stockholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other potentially profitable business opportunities, which could reduce our future revenues and profits. 
+12 
+Item 1B. Unresolved Staff Comments 
+None. 
+Item 2. Properties 
+RPC owns or leases approximately 100 offices and operating facilities. The Company leases approximately 17,250 square feet of office space in Atlanta, Georgia that serves as its headquarters, a portion of which is allocated and charged to Marine Products Corporation. See “Related Party Transactions” contained in Item 7. The lease agreement on the headquarters is effective through October 2013. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future needs. Descriptions of the major facilities used in our operations are as follows: 
+Owned Locations 
+Houma, Louisiana — Administrative office 
+Houston, Texas — Pipe storage terminal and inspection sheds 
+Houston, Texas — Operations, sales and administrative office 
+Elk City, Oklahoma — Operations, sales and equipment storage yards 
+Rock Springs, Wyoming — Operations, sales and equipment storage yards 
+Lafayette, Louisiana — Operations, sales and equipment storage yards 
+Conway, Arkansas — Operations, sales and equipment storage yards 
+Kilgore, Texas — Pumping services facility 
+Leased Locations 
+Seminole, Oklahoma — Pumping services facility 
+Oklahoma City, Oklahoma — Operations, sales and administrative office 
+Houston, Texas — Operations, sales and administrative office 
+Odessa, Texas — Operations, sales and equipment storage yards 
+Washington, Pennsylvania — Operations, sales and equipment storage yards 
+Item 3. Legal Proceedings 
+RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on RPC’s business or financial condition. 
+13 
+Item 4. Reserved 
+Item 4A. Executive Officers of the Registrant 
+Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately following the next annual meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected to Present Office 
+R. Randall Rollins (1) 
+79 
+1/24/84 
+Chairman of the Board 
+Richard A. Hubbell (2) 
+66 
+4/22/03 
+President and 
+Chief Executive Officer 
+Linda H. Graham (3) 
+74 
+1/27/87 
+Vice President and 
+Secretary 
+Ben M. Palmer (4) 
+50 
+7/8/96 
+Vice President, 
+Chief Financial Officer and 
+Treasurer 
+(1) 
+R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984. He has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001 and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard A. Hubbell has been the President of RPC since 1987 and Chief Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was spun off from RPC in February 2001. Mr. Hubbell serves on the Board of Directors for both of these companies. 
+(3) 
+Linda H. Graham has been the Vice President and Secretary of RPC since 1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from RPC in 2001. Ms. Graham serves on the Board of Directors for both of these companies. 
+(4) 
+Ben M. Palmer has been the Vice President, Chief Financial Officer and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation since it was spun off from RPC in 2001. 
+14 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+RPC’s common stock is listed for trading on the New York Stock Exchange under the symbol RES. On October 26, 2010 RPC’s Board of Directors declared a three-for-two stock split of the Company’s common shares. The additional shares were distributed on December 10, 2010 to stockholders of record on November 10, 2010. All share, earnings per share, and dividends per share data presented throughout this document have been adjusted to reflect this stock split. At February 18, 2011 there were 147,964,000 shares of common stock outstanding and approximately 7,800 beneficial holders of common stock. The following table sets forth the high and low prices of RPC’s common stock and dividends paid for each quarter in the years ended December 31, 2010 and 2009: 
+2010 
+2009 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+9.00 
+$ 
+7.07 
+$ 
+0.027 
+$ 
+7.63 
+$ 
+3.45 
+$ 
+0.047 
+Second 
+10.00 
+6.61 
+0.027 
+7.98 
+4.29 
+0.047 
+Third 
+14.47 
+8.69 
+0.040 
+7.29 
+4.73 
+0.027 
+Fourth 
+22.53 
+13.64 
+0.047 
+7.57 
+6.10 
+0.027 
+On January 26, 2011, the Board of Directors approved a $0.07 per share cash dividend, payable March 10, 2011 to stockholders of record at the close of business on February 10, 2011. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+Issuer Purchases of Equity Securities 
+Shares repurchased in the fourth quarter of 2010 are outlined below. 
+Period 
+Total Number 
+of Shares (or 
+Units) 
+Purchased 
+Average Price 
+Paid Per Share 
+(or Unit) 
+Total Number of 
+Shares (or Units) 
+Purchased as Part of 
+Publicly Announced 
+Plans or Programs 
+Maximum Number (or 
+Approximate Dollar 
+Value) of Shares (or Units) 
+that May Yet Be 
+Purchased Under the Plans 
+or Programs 
+October 1, 2010 to October 31, 2010 
+- 
+$ 
+- 
+- 
+4,210,898 
+November 1, 2010 to November 30, 2010 
+- 
+- 
+- 
+4,210,898 
+December 1, 2010 to December 31, 2010 
+2,700 
+(1) 
+14.03 
+- 
+4,210,898 
+Totals 
+2,700 
+$ 
+14.03 
+- 
+4,210,898 
+(1) 
+Consists of shares repurchased by the Company in connection with option exercises. 
+The Company’s Board of Directors announced a stock buyback program in March 1998 authorizing the repurchase of 17,718,750 shares in the open market. Currently the program does not have a predetermined expiration date. 
+Performance Graph 
+The following graph shows a five year comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 2000 Index (“Russell 2000”), the Philadelphia Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that are considered peers of the Company, as discussed below (the “Peer Group”). The Company has voluntarily chosen to provide both an industry and a peer group index. 
+15 
+The Russell 2000 is a stock index representing small capitalization U.S. stocks. The components of the index had an average market capitalization in 2010 of $1.255 billion, and the Company was a component of the Russell 2000 during 2010. The Russell 2000 was chosen because it represents companies with comparable market capitalizations to the Company. The OSX is a stock index of 15 companies that provide oil drilling and production services, oilfield equipment, support services and geophysical/reservoir services. The Company is not a component of the OSX, but this index was chosen because it represents a large group of companies that provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., Basic Energy Services, Inc., Superior Energy Services, Inc., and Halliburton Company. BJ Services, Inc., a member of the 2009 Peer Group, is no longer publicly traded and was substituted with Basic Energy Services, Inc. for the 2010 Peer Group. The companies included in the Peer Group have been weighted according to each respective issuer’s stock market capitalization at the beginning of each year. 
+Item 6. Selected Financial Data 
+The following table summarizes certain selected financial data of the Company. The historical information may not be indicative of the Company’s future results of operations. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document. 
+16 
+STATEMENT OF OPERATIONS DATA: 
+Years Ended December 31, 
+2010 
+2009 
+2008 
+2007 
+2006 
+(in thousands, except employee and per share amounts) 
+Revenues 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+$ 
+596,630 
+Cost of revenues 
+606,098 
+393,806 
+503,631 
+368,175 
+287,037 
+Selling, general and administrative expenses 
+121,839 
+97,672 
+117,140 
+107,800 
+91,051 
+Depreciation and amortization 
+133,360 
+130,580 
+118,403 
+78,506 
+46,711 
+Gain on disposition of assets, net 
+(3,758 
+) 
+(1,143 
+) 
+(6,367 
+) 
+(6,293 
+) 
+(5,969 
+) 
+Operating profit (loss) 
+238,845 
+(33,052 
+) 
+144,170 
+142,038 
+177,800 
+Interest expense 
+(2,662 
+) 
+(2,176 
+) 
+(5,282 
+) 
+(4,179 
+) 
+(356 
+) 
+Interest income 
+46 
+147 
+73 
+70 
+319 
+Other income (expense), net 
+1,303 
+1,582 
+(1,176 
+) 
+1,905 
+1,085 
+Income (loss) before income taxes 
+237,532 
+(33,499 
+) 
+137,785 
+139,834 
+178,848 
+Income tax provision (benefit) 
+90,790 
+(10,754 
+) 
+54,382 
+52,785 
+68,054 
+Net income (loss) 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+$ 
+110,794 
+Earnings (loss) per share: 
+Basic (a) 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+$ 
+0.60 
+$ 
+0.77 
+Diluted (a) 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+$ 
+0.59 
+$ 
+0.75 
+Dividends paid per share (a) 
+$ 
+0.140 
+$ 
+0.147 
+$ 
+0.160 
+$ 
+0.133 
+$ 
+0.089 
+OTHER DATA: 
+Operating margin percent 
+21.8 
+% 
+(5.6 
+)% 
+16.4 
+% 
+20.6 
+% 
+29.8 
+% 
+Net cash provided by operating activities 
+$ 
+168,657 
+$ 
+168,740 
+$ 
+177,320 
+$ 
+141,872 
+$ 
+118,228 
+Net cash used for investing activities 
+(171,769 
+) 
+(61,144 
+) 
+(158,953 
+) 
+(239,624 
+) 
+(151,085 
+) 
+Net cash provided (used for) by financing activities 
+7,658 
+(106,144 
+) 
+(21,668 
+) 
+101,361 
+22,777 
+Depreciation and amortization 
+133,360 
+130,580 
+118,403 
+78,506 
+46,711 
+Capital expenditures 
+$ 
+187,486 
+$ 
+67,830 
+$ 
+170,318 
+$ 
+248,758 
+$ 
+159,831 
+Employees at end of period 
+2,500 
+1,980 
+2,532 
+2,370 
+2,000 
+BALANCE SHEET DATA AT END OF YEAR: 
+Accounts receivable, net 
+$ 
+294,002 
+$ 
+130,619 
+$ 
+210,375 
+$ 
+176,154 
+$ 
+148,469 
+Working capital 
+281,174 
+151,681 
+200,494 
+144,338 
+111,302 
+Property, plant and equipment, net 
+453,017 
+396,222 
+470,115 
+433,126 
+262,797 
+Total assets 
+887,871 
+649,043 
+793,461 
+701,015 
+478,007 
+Long-term debt (b) 
+121,250 
+90,300 
+174,450 
+156,400 
+35,600 
+Total stockholders’ equity 
+$ 
+538,895 
+$ 
+409,723 
+$ 
+449,084 
+$ 
+409,272 
+$ 
+335,287 
+(a) 
+Earnings (loss) per share and dividends paid per share have been restated to reflect the December 2010 stock split. 
+(b) 
+During the third quarter of 2010, the company closed on a new $350 million revolving credit facility. This facility replaced the revolving credit facility that was effective beginning in September 2006. 
+17 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+The following discussion should be read in conjunction with “Selected Financial Data,” and the Consolidated Financial Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, northeast, the Rocky Mountains regions and selected international locations. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. 
+Our key business and financial strategies are: 
+- 
+To focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital, and maintain an appropriate capital structure. 
+- 
+To maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels. 
+- 
+To deliver equipment and services to our customers safely. 
+- 
+To secure adequate sources of supplies of certain high-demand raw materials used in our operations, both in order to conduct our operations and to enhance our competitive position. 
+- 
+To maintain and selectively increase market share. 
+- 
+To maximize stockholder return by optimizing the balance between cash invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of our common stock on the open market. 
+- 
+To align the interests of our management and stockholders. 
+- 
+To maintain an efficient, low-cost capital structure, which includes an appropriate use of debt financing. 
+In assessing the outcomes of these strategies and RPC’s financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and personnel, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our invested capital. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities. 
+Current industry conditions are characterized by natural gas prices which stabilized during 2010 at higher levels than in 2009, and are stable during the first quarter of 2011 compared to the fourth quarter of 2010. Oil prices also increased during 2010 compared to 2009, and have continued to increase during the first quarter of 2011. Compared to the first quarter of 2010, the price of natural gas in 2011 is approximately 12 percent lower, but the price of oil is approximately 14 percent higher. The average U.S. rig count increased by 41 percent during 2010, all of which took place during the second through the fourth quarters. During the first quarter of 2011, the rig count was approximately 27 percent higher than the first quarter of 2010 and slightly higher than the fourth quarter of 2010. Continued increases in the U.S. domestic rig count during 2011 may be limited by the number of rigs available to drill new wells. 
+In addition to the overall rig count, the Company also monitors the number of horizontal and directional wells drilled in the U.S. domestic market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the Company’s services provided for a longer period of time. The number of horizontal and directional wells drilled in the United States increased in 2010, and was 67 percent of total wells drilled during the year. During the first part of 2011, the percentage of horizontal and directional wells drilled as a percentage of total wells increased to approximately 70 percent. In addition, the percentage of wells drilled for oil increased during 2010, and we believe that this percentage will increase in 2011 due to the high price of oil and the renewed civil unrest in the Middle East. During 2010, the increase in U.S. domestic oilfield activity and the increasingly service-intensive nature of this activity caused the demand for the Company’s services to increase significantly. This increased demand was especially evident in the Company’s service lines which are used in unconventional completion work, such as pressure pumping, coiled tubing and downhole tools. Also, due to the repetitive nature of this work and the long-term capital commitment required by our customers to execute their drilling programs, several of our large customers entered into contractual relationships with us to provide services to support their drilling and completion programs. These arrangements typically have terms that are greater than one year, and have specific pricing and other financial arrangements which provide satisfactory financial returns to us in the event that the customer’s activities decline for any reason. 
+18 
+The Company’s response to our current operating environment has been to increase our fleet of equipment, and in some cases, to open new operational locations, to support these significant customer relationships. The capital expenditures have been funded by cash flows from operating activities as well as borrowings under our revolving credit facility. During the third quarter of 2010 the Company re-financed its existing syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure requirements. 
+Income before income taxes was $237.5 million in 2010 compared to a loss before taxes of $33.5 million in the prior year. The effective tax rate for 2010 was 38.2 percent compared to 32.1 percent in the prior year. Diluted earnings per share were $1.00 in 2010 compared to a loss per share of $0.16 for the prior year. Cash flows from operating activities were $168.7 million in 2010, the same as in the prior year, and cash and cash equivalents were $9.0 million at December 31, 2010, an increase of $4.5 million compared to December 31, 2009. As of December 31, 2010, there was $121.3 million in outstanding borrowings under our credit facility. 
+Cost of revenues as a percentage of revenues decreased approximately 11.8 percentage points in 2010 compared to 2009, because of higher utilization of equipment and personnel, which improved operational leverage, and improved pricing for our services. 
+Selling, general and administrative expenses as a percentage of revenues decreased approximately 11.1 percentage points in 2010 compared to 2009, which was due to the fixed nature of many of these expenses which we were able to leverage over higher revenues. 
+Consistent with our strategy to selectively grow our capacity, support our significant customer relationships and maintain our existing fleet of high demand equipment, capital expenditures increased to $187.5 million in 2010, a significant increase compared to $67.8 million last year. 
+Outlook 
+Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, had been gradually increasing since about 2003 when rig count was just over 800 through a cyclical peak in the latter half of 2008 when the U.S. rig count peaked at 2,031 during the third quarter. The global recession that began in the fourth quarter of 2007 precipitated the steepest annualized rig count decline in U.S. domestic oilfield history. From the third quarter of 2008 to the second quarter of 2009, the U.S. domestic rig count dropped almost 57 percent, reaching a trough of 876 in June 2009. Since June 2009, the rig count has increased by 98 percent to 1,732 early in the first quarter of 2011. The outlook for the U.S. domestic rig count is for it to remain stable or increase slightly during 2011, although the service-intensive nature of the activity is projected to continue to increase. From a low of $34 per barrel early in 2009, the price of oil increased to $92 per barrel during the fourth quarter of 2010. The average price of oil in 2010 was approximately $79 per barrel, an increase of 17 percent compared to 2009. During the first quarter of 2011, the price of oil increased to over $100, an increase of 27 percent compared to the average price of oil in 2010. The price of natural gas fell by 85 percent from approximately $13 per Mcf in the second quarter of 2008 to slightly below $2 per Mcf in the third quarter of 2009. The average price of natural gas in 2010 was approximately $4 per Mcf, 12.3 percent higher than the average price in 2009. During the first quarter of 2011, the price of natural gas increased slightly compared to 2010. Unconventional drilling activity, which requires more of RPC’s services, accounted for 67 percent of total U.S. domestic drilling during 2010. Unconventional activity as a percentage of total oilfield activity had grown to 70 percent during the first quarter of 2011. 
+We continue to monitor the competitive environment in 2011, and while we are concerned about the low price of natural gas, we are encouraged by the increasingly service-intensive nature of the completion activities in our markets. We are also encouraged by the high price of oil, and the fact that early in 2011 approximately 47 percent of U.S. domestic drilling activity was directed towards oil, the highest percentage of U.S. domestic drilling activity directed to oil since 1995. We are also monitoring the amount of new oilfield equipment that is projected to be placed in service during 2011, because an increase in the supply of oilfield equipment in our markets can cause a decrease in the price we receive for our services if commodity prices and drilling activity do not also increase. We increased our commitments to purchase equipment in 2010 and also intend to take delivery of a large amount of revenue-producing equipment during the first and second quarters of 2011. This is consistent with our business and financial strategies because we believe that the equipment will produce high financial returns. However, we understand that factors influencing the industry are unpredictable, and our response to the industry’s potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending. Although we used our bank credit facility to finance our expansion, we will still maintain a conservative financial structure by industry standards. Based on current industry conditions, we believe that the Company’s consolidated revenues will increase in 2011 compared to 2010 and financial performance for the same period will also improve. 
+19 
+Results of Operations 
+Years Ended December 31, 
+2010 
+2009 
+2008 
+Consolidated revenues 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+Revenues by business segment: 
+Technical 
+$ 
+979,834 
+$ 
+513,289 
+$ 
+745,991 
+Support 
+116,550 
+74,574 
+130,986 
+Consolidated operating profit (loss) 
+$ 
+238,845 
+$ 
+(33,052 
+) 
+$ 
+144,170 
+Operating profit (loss) by business segment: 
+Technical 
+$ 
+217,144 
+$ 
+(20,328 
+) 
+$ 
+110,648 
+Support 
+31,086 
+(1,636 
+) 
+36,515 
+Corporate expenses 
+(13,143 
+) 
+(12,231 
+) 
+(9,360 
+) 
+Gain on disposition of assets, net 
+3,758 
+1,143 
+6,367 
+Net income (loss) 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+Earnings (loss) per share — diluted 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+$ 
+0.85 
+Percentage of cost of revenues to revenues 
+55 
+% 
+67 
+% 
+57 
+% 
+Percentage of selling, general and administrative expenses to revenues 
+11 
+% 
+17 
+% 
+13 
+% 
+Percentage of depreciation and amortization expense to revenues 
+12 
+% 
+22 
+% 
+14 
+% 
+Effective income tax rate 
+38.2 
+% 
+32.1 
+% 
+39.5 
+% 
+Average U.S. domestic rig count 
+1,536 
+1,089 
+1,879 
+Average natural gas price (per thousand cubic feet (mcf)) 
+$ 
+4.38 
+$ 
+3.90 
+$ 
+8.81 
+Average oil price (per barrel) 
+$ 
+79.27 
+$ 
+61.90 
+$ 
+99.96 
+Year Ended December 31, 2010 Compared To Year Ended December 31, 2009 
+Revenues. Revenues in 2010 increased $508.5 million or 86.5 percent compared to 2009. The Technical Services segment revenues for 2010 increased 90.9 percent from the prior year due primarily to higher activity levels from expanded customer commitments and improved pricing. The Support Services segment revenues for 2010 increased 56.3 percent from the prior year due to higher activity levels and improved pricing. 
+Domestic revenues increased 92 percent during 2010 compared to 2009 to $1,041.5 million due to increased customer activity levels coupled with increased capacity of equipment. The average price of natural gas increased by 12 percent and the average price of oil increased by approximately 28 percent during 2010 compared to the prior year. In conjunction with the increase in natural gas prices, the average domestic rig count during 2010 was 41 percent higher than in 2009. This increase in drilling activity had a positive impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells. International revenues, which increased from $44.8 million in 2009 to $54.9 million in 2010, were five percent of consolidated revenues. These international revenue increases were due mainly to higher customer activity levels in Canada and Qatar, compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+Cost of revenues. Cost of revenues in 2010 was $606.1 million compared to $393.8 million in 2009, an increase of $212.3 million or 53.9 percent. The increase in these costs was due to the variable nature of most of these expenses. However, cost of revenues, as a percent of revenues, decreased significantly due to leverage of employment and other direct costs over higher activity levels coupled with improved pricing for our services in 2010 compared to 2009. 
+Selling, general and administrative expenses. Selling, general and administrative expenses increased 24.7 percent to $121.8 million in 2010 compared to $97.7 million in 2009. This increase was primarily due to increases in total employment costs, including increased incentive compensation consistent with improved operating results. However, as a percentage of revenues, selling, general and administrative expenses decreased to 11.1 percent in 2010 compared to 16.6 percent in 2009 due to leverage of the fixed costs over higher revenues. 
+Depreciation and amortization. Depreciation and amortization were $133.4 million in 2010, an increase of $2.8 million or 2.1 percent compared to $130.6 million in 2009. This increase resulted from a higher level of capital expenditures during recent quarters within both Support Services and Technical Services to increase capacity and to maintain our existing equipment. 
+20 
+Gain on disposition of assets, net. Gain on the disposition of assets, net increased due primarily to increased gains related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment due to the increased intensity of work. 
+Other income, net. Other income, net was $1.3 million in 2010, a decrease of $279 thousand compared to other expense of $1.6 million in 2009. The increase is mainly due to the current year increase in the fair value of trading securities held in the non-qualified Supplemental Retirement Plan. In addition to changes in the fair value of trading securities, other income (expense) includes gains (losses) from settlements of various legal and insurance claims and royalty payments. 
+Interest expense. Interest expense was $2.7 million in 2010 compared to $2.2 million in 2009. The increase is primarily due to higher interest rates in 2010 incurred on outstanding interest bearing advances on our revolving credit facility. 
+Interest income. Interest income decreased to $46 thousand in 2010 compared to $147 thousand in 2009 as a result of a lower average investable cash balance in 2010 compared to 2009. 
+Income tax provision (benefit). The income tax provision was $90.8 million in 2010 compared to an income tax benefit of $10.8 million in 2009. The change is due to the level of income before income tax in 2010, coupled with an increase in the effective tax rate to 38.2 percent in 2010 from 32.1 percent in 2009. 
+Net income (loss)and diluted earnings (loss) per share . Net income was $146.7 million in 2010, or $1.00 per diluted share, compared to net loss of $22.7 million, or $0.16 per share in 2009. This improvement was due to increased revenues and lower, as a percentage of revenues, costs of revenues, selling, general and administrative expenses and depreciation expense. 
+Year Ended December 31, 2009 Compared To Year Ended December 31, 2008 
+Revenues. Revenues in 2009 decreased $289.1 million or 33.0 percent compared to 2008. The Technical Services segment revenues for 2009 decreased 31.2 percent from the prior year due primarily to highly competitive pricing coupled with lower equipment utilization. The Support Services segment revenues for 2009 decreased 43.1 percent from 2008 due to decreased customer activity and significantly lower pricing in the rental tool service line, the largest within this segment. 
+Domestic revenues decreased 36 percent to $543.0 million during 2009 compared to 2008 due to decreased customer activity and competitive pricing in our largest service lines, such as pressure pumping and rental tools. The average price of natural gas decreased by 56 percent and the average price of oil decreased by approximately 38 percent during 2009 compared to 2008. In conjunction with the decrease in natural gas prices, the average domestic rig count during 2009 was 42 percent lower than in 2008. This decrease in drilling activity had a negative impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells. Foreign revenues, which increased from $30.8 million in 2008 to $44.8 million in 2009, were eight percent of consolidated revenues. These revenue increases were due mainly to higher customer activity levels in New Zealand and Mexico compared to 2008. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+Cost of revenues. Cost of revenues in 2009 was $393.8 million compared to $503.6 million in 2008, a decrease of $109.8 million or 21.8 percent. The decrease in these costs was due to the variable nature of most of these expenses as well as the impact of expense reduction measures taken during 2009, including employment cost reductions. Cost of revenues, as a percent of revenues, increased in 2009 from 2008 due to lower pricing for our services. 
+Selling, general and administrative expenses. Selling, general and administrative expenses decreased 16.6 percent to $97.7 million in 2009 compared to $117.1 million in 2008. This decrease was primarily due to lower employment costs and other expenses resulting from expense reduction efforts instituted during 2009. In response to the industry downturn that RPC experienced in the third and fourth quarters of 2008 and most of 2009, the Company undertook several measures which it believes reduced its operating and net losses for the 12 months ended December 31, 2009. Primary among these measures was a reduction in employment costs, which we accomplished by headcount reductions among both field and administrative employees. During 2009, RPC reduced its headcount by 22 percent. This headcount reduction, along with other compensation reductions, resulted in a 22 percent decrease in total employment costs in 2009 as compared to 2008. As a percentage of revenues, selling, general and administrative expenses increased to 16.6 percent in 2009 compared to 13.4 percent in 2008. 
+Depreciation and amortization. Depreciation and amortization were $130.6 million in 2009, an increase of $12.2 million or 10.3 percent compared to $118.4 million in 2008. This increase resulted from a higher level of capital expenditures during 2009 within both Support Services and Technical Services to increase capacity and to maintain our existing equipment. 
+Gain on disposition of assets, net. Gain on the disposition of assets, net decreased due primarily to decreased gains related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment. 
+21 
+Other income (expense), net. Other income, net was $1.6 million in 2009, an increase of $2.8 million compared to other expense of $1.2 million in 2008. The increase is mainly due to the 2009 increase in the fair value of trading securities held in the non-qualified Supplemental Retirement Plan. In addition to changes in the fair value of trading securities, other income (expense) includes gains (losses) from settlements of various legal and insurance claims and royalty payments. 
+Interest expense. Interest expense was $2.2 million in 2009 compared to $5.3 million in 2008. The decrease is due to lower interest expense in 2009 incurred on lower outstanding interest bearing advances on our revolving credit facility. During 2009 RPC also reduced its capital expenditures due to the industry downturn. While we reduced capital expenditures in order to strengthen our balance sheet and preserve cash, and because we did not believe the potential expenditures met our financial return criteria, this action also had the effect of reducing interest expense. 
+Interest income. Interest income increased to $147 thousand in 2009 compared to $73 thousand in 2008 as a result of a higher average investable cash balance in 2009 compared to 2008. 
+Income tax (benefit) provision. The income tax benefit was $10.8 million in 2009 compared to a tax provision of $54.4 million in 2008. The change is due to 2009’s loss before income tax, partially offset by a decrease in the effective tax rate to 32.1 percent in 2009 from 39.5 percent in 2008. 
+Net (loss) income and diluted (loss) earnings per share . Net loss was $22.7 million in 2009, or $0.16 per share, compared to net income of $83.4 million, or $0.57 per diluted share in 2008. This decrease is due to decreased revenues and higher, as a percentage of revenues, costs of revenues, selling, general and administrative expenses and depreciation expense. 
+22 
+Liquidity and Capital Resources 
+Cash and Cash Flows 
+The Company’s cash and cash equivalents were $9.0 million as of December 31, 2010, $4.5 million as of December 31, 2009 and $3.0 million as of December 31, 2008. 
+The following table sets forth the historical cash flows for the years ended December 31: 
+(in thousands) 
+2010 
+2009 
+2008 
+Net cash provided by operating activities 
+$ 
+168,657 
+$ 
+168,740 
+$ 
+177,320 
+Net cash used for investing activities 
+(171,769 
+) 
+(61,144 
+) 
+(158,953 
+) 
+Net cash provided by (used for) financing activities 
+7,658 
+(106,144 
+) 
+(21,668 
+) 
+2010 
+Cash provided by operating activities was comparable in 2010 compared to the prior year despite net income increasing significantly to $146.7 million in 2010 compared to net loss of $22.7 million in 2009. This contribution of net income to cash provided by operating activities was largely offset by increases in working capital requirements. Increased business activity levels and revenues in 2010 resulted in higher accounts receivable and increased inventory, partially offset by increases in accounts payable and accrued payroll including bonuses, consistent with higher activity levels and profitability. 
+Cash used for investing activities in 2010 increased by $110.6 million compared to 2009, primarily as a result of higher capital expenditures. 
+Cash provided by (used for) financing activities in 2010 increased by $113.8 million compared to 2009, primarily due to the net increase in borrowings under our credit facility during 2010 to fund working capital requirements and capital expenditures. 
+2009 
+Cash provided by operating activities decreased by $8.6 million in 2009 compared to 2008. Net loss was $22.7 million in 2009 compared to net income of $83.4 million in 2008, decreasing cash provided by operating activities partially offset by decreases in working capital requirements. Decreased business activity levels and revenues in 2009 resulted in lower accounts receivable and prepaid expenses partially offset by increased inventory and declines in accounts payable and accrued payroll including bonuses, consistent with lower activity levels and profitability. 
+Cash used for investing activities in 2009 decreased by $97.8 million compared to 2008, primarily as a result of lower capital expenditures. 
+Cash used for financing activities in 2009 increased by $84.5 million compared to 2008, primarily due to the reduction in notes payable to banks during 2009, partially offset by a decrease in common stock purchased and retired. 
+Financial Condition and Liquidity 
+The Company’s financial condition as of December 31, 2010, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization which includes a revolving credit facility and cash expected to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months. The Company currently has a $350 million revolving credit facility that matures in August 2015. The facility contains customary terms and conditions, including certain financial covenants including covenants restricting RPC’s ability to incur liens, merge or consolidate with another entity. A total of $209.9 million was available under the facility as of December 31, 2010; approximately $18.8 million of the facility supports outstanding letters of credit relating to self-insurance programs or contract bids. For additional information with respect to RPC’s facility, see Note 6 of the Notes to Consolidated Financial Statements. 
+The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels. The Company’s decisions about the amount of cash to be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do not expect the covenants to restrict our planned activities. The Company is in compliance with these financial covenants. 
+23 
+Cash Requirements 
+Capital expenditures were $187.5 million in 2010, and we currently expect capital expenditures to be in excess of $250.0 million in 2011. We expect these expenditures to be primarily directed towards revenue-producing equipment in our larger, core service lines including pressure pumping, snubbing, nitrogen, and rental tools. The actual amount of 2011 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules. 
+The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During the second quarter of 2010, the Company contributed $0.6 million to the pension plan. The Company expects that additional contributions to the defined benefit pension plan of $0.6 million will be required in 2011 to achieve the Company’s funding objective. 
+The Company’s Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of up to 17,718,750 shares of which 4,210,898 additional shares were available to be repurchased as of December 31, 2010. The program does not have a predetermined expiration date. 
+On January 26, 2011, the Board of Directors approved a $0.07 per share cash dividend, payable March 10, 2011 to stockholders of record at the close of business on February 10, 2011. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+Contractual Obligations 
+The Company’s obligations and commitments that require future payments include our credit facility, certain non-cancelable operating leases, purchase obligations and other long-term liabilities. The following table summarizes the Company’s significant contractual obligations as of December 31, 2010: 
+Contractual obligations 
+Payments due by period 
+(in thousands) 
+Total 
+Less than 
+1 year 
+1-3 
+years 
+3-5 
+years 
+More than 
+5 years 
+Long-term debt obligations 
+$ 
+121,250 
+$ 
+- 
+$ 
+- 
+$ 
+121,250 
+$ 
+- 
+Interest on long-term debt obligations 
+21,898 
+4,692 
+9,385 
+7,821 
+- 
+Capital lease obligations 
+- 
+- 
+- 
+- 
+- 
+Operating leases (1) 
+14,098 
+5,202 
+6,051 
+2,559 
+286 
+Purchase obligations (2) 
+209 
+209 
+- 
+- 
+- 
+Other long-term liabilities (3) 
+2,415 
+- 
+2,415 
+- 
+- 
+Total contractual obligations 
+$ 
+159,870 
+$ 
+10,103 
+$ 
+17,851 
+$ 
+131,360 
+$ 
+286 
+(1) 
+Operating leases include agreements for various office locations, office equipment, and certain operating equipment. 
+(2) 
+Includes agreements to purchase goods or services that have been approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course of business the Company occasionally enters into purchase commitments to manage its various operating needs. 
+(3) 
+Includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known. These amounts include incentive compensation. These amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities. 
+Fair Value Measurements 
+The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan assets classified as Level 3, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available. 
+24 
+In 2009, the Company transferred trading securities from assets utilizing Level 1 inputs to assets utilizing Level 2 inputs because significant observable inputs in addition to quoted market prices were used to value these trading securities. 
+Inflation 
+The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. Also, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the Company’s customers. During 2010, the Company incurred higher fuel costs due to increased commodity prices compared to 2009. Also, the Company believes that it will be subject to upward wage pressures 2011. Finally, the costs of certain materials and equipment used to provide services to RPC’s customers remain high and may increase during 2011 if oilfield activity remains strong. The Company has attempted to mitigate the risk of cost increases by securing materials and equipment through additional sources and increasing amounts held in inventory, although no assurance can be given that these efforts will be successful. 
+Off Balance Sheet Arrangements 
+The Company does not have any material off balance sheet arrangements. 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $689,000 in 2010, $713,000 in 2009 and $842,000 in 2008. The Company’s receivable due from Marine Products for these services as of December 31, 2010 and 2009 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $551,000 in 2010, $409,000 in 2009 and $393,000 in 2008. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $94,000 in 2010, $87,000 in 2009 and $90,000 in 2008. 
+Critical Accounting Policies 
+The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting policies involve estimates that require a higher degree of judgment and complexity: 
+Allowance for doubtful accounts — Substantially all of the Company’s receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our allowance for doubtful accounts is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts are recorded in selling, general and administrative expenses. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore, the provision for doubtful accounts can fluctuate significantly from period to period. Recoveries were insignificant in 2010 and 2009. Recoveries in 2008 totaled $1.5 million, causing a reduction in bad debt expense in 2008. We record specific provisions when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, our estimates of the realizability of receivables would be further adjusted, either upward or downward. 
+25 
+The estimated allowance for doubtful accounts is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. Excluding the effect of the recoveries referred to above, the net provisions for doubtful accounts have ranged from 0.10 percent to 0.45 percent of revenues over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2010 would have resulted in a change of approximately $1.5 million to the allowance for doubtful accounts and a corresponding change to selling, general and administrative expenses. 
+Income taxes — The effective income tax rates were 38.2 percent in 2010, 32.1 percent in 2009 and 39.5 percent in 2008. Our effective tax rates vary due to changes in estimates of our future taxable income, fluctuations in the tax jurisdictions in which our earnings and deductions are realized, and favorable or unfavorable adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis. 
+We establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. 
+We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are expected to reverse. 
+The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. 
+Insurance expenses – The Company self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2010, the Company estimates the range of exposure to be from $12.0 million to $15.3 million. The Company has recorded liabilities at December 31, 2010 of approximately $13.6 million which represents management’s best estimate of probable loss. 
+26 
+Depreciable life of assets — RPC’s net property, plant and equipment at December 31, 2010 was $453.0 million representing 51.0 percent of the Company’s consolidated assets. Depreciation and amortization expenses for the year ended December 31, 2010 were $133.4 million. Management judgment is required in the determination of the estimated useful lives used to calculate the annual and accumulated depreciation and amortization expense. 
+Property, plant and equipment are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. The estimated useful life represents the projected period of time that the asset will be productively employed by the Company and is determined by management based on many factors including historical experience with similar assets. Assets are monitored to ensure changes in asset lives are identified and prospective depreciation and amortization expense is adjusted accordingly. We have not made any changes to the estimated lives of assets resulting in a material impact in the last three years. 
+Defined benefit pension plan – In 2002, the Company ceased all future benefit accruals under the defined benefit plan, although the Company remains obligated to provide employees benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of FASB ASC 715, “Compensation – Retirement Benefits” and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary. 
+The Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our investment adviser. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on plan assets was seven percent for 2010 and 2009 and eight percent for 2008. 
+The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilizes a yield curve approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plan are forecasted and then compared to a portfolio of investment grade corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the payments from the corporate bonds. A lower discount rate increases the present value of benefit obligations. The discount rate was 5.49 percent as of December 31, 2010 compared to 6.00 percent in 2009 and 6.84 percent in 2008. 
+As set forth in note 10 to the Company’s financial statements, included among the asset categories for the Plan’s investments are real estate, tactical composite and alternative investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+As of December 31, 2010, the defined benefit plan was under-funded and the recorded change within accumulated other comprehensive loss decreased stockholders’ equity by $1.4 million after tax. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.50 percentage points would not result in a significant pre-tax change to the net loss related to pension reflected in accumulated other comprehensive loss. 
+The Company recognized pre-tax pension (income) expense of $0.6 million in 2010, $2.0 million in 2009 and $(0.4) million in 2008. Based on the under-funded status of the defined benefit plan as of December 31, 2010, the Company expects to recognize pension expense of $0.5 million in 2011. Holding all other factors constant, a change in the expected long-term rate of return on plan assets by 0.50 percentage points would result in an increase or decrease in pension expense of approximately $0.1 million in 2011. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in an increase or decrease in pension expense of approximately $1.0 million in 2011. 
+New Accounting Pronouncements 
+Recently Adopted Accounting Pronouncements: 
+● 
+ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments to the Codification in this ASU clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and not a share dividend. The Company adopted these provisions in the first quarter of 2010 and the adoption did not have a material impact on the Company’s consolidated financial statements. 
+27 
+● 
+ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The amendments to the Codification in this ASU now require 
+1. 
+the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfer be disclosed separately and 
+2. 
+in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances and settlements. 
+3. 
+judgment in determining the appropriate classes of assets and liabilities when reporting fair value measurements for each class 
+4. 
+disclosures about valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. 
+The Company complied with these disclosure requirements in its annual report on Form 10-K for the year ended December 31, 2009 and plans to provide the disclosures in every reporting period as necessary. Adoption of these disclosure requirements did not have a material impact on the Company’s consolidated financial statements. 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+● 
+ASU 2010-13, Compensation – Stock Compensation (topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification in this ASU provide guidance on share-based payment awards to employees with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trade. The ASU states that if such awards meet all the criteria for equity should be classified as such and not liability based solely on the currency it is denominated in. The amendments are effective beginning in 2011 with adoption required in the first quarter of that year. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+● 
+ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments to the Codification in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. Goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These amendments are effective starting in the first quarter of 2011 with early adoption not permitted. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+● 
+ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments to the Codification in this ASU apply to any public entity that enters into business combinations that are material on an individual or aggregate basis and specify that the entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning in January 2011 with early adoption permitted. The Company plans to adopt these provisions for all acquisitions completed beginning in 2011 and provide the appropriate disclosures. 
+28 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+The Company is subject to interest rate risk exposure through borrowings on its credit facility. As of December 31, 2010, there are outstanding interest-bearing advances of $121.3 million on our credit facility which bear interest at a floating rate. Effective December 2008, we entered into an interest rate swap agreement that effectively converted $50 million of the outstanding variable-rate borrowings under the revolving credit facility to a fixed-rate basis, thereby hedging against the impact of potential interest rate changes. Under this agreement, the Company and the issuing lender settle each month for the difference between a fixed interest rate of 2.07 percent and a comparable one month variable-rate interest paid to the syndicate of lenders under our credit facility on the same notional amount, excluding the margin. The swap agreement terminates on September 8, 2011. As of December 31, 2010 the interest rate swap had a negative fair value of $610,000. An increase in interest rates of one half of one percent would result in the interest rate swap having a negative fair value of approximately $458,000 at December 31, 2010. A decrease in interest rates of one half of one percent would result in the interest rate swap having a negative fair value $765,000 at December 31, 2010. A change in interest rates will have no impact on the interest expense associated with the $50,000,000 of borrowings under the credit facility that are subject to the interest rate swap. A change in interest rates of one percent on the balance outstanding on the credit facility at December 31, 2010 not subject to the interest rate swap would cause a change of $0.7 million in total annual interest costs. 
+Additionally, the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated results of operations or financial condition. 
+29 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the Stockholders of RPC, Inc.: 
+The management of RPC, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. RPC, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations. 
+There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its internal controls. 
+Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting as of December 31, 2010 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December 31, 2010. 
+The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2010, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 31. 
+/s/ Richard A. Hubbell 
+/s/ Ben M. Palmer 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+Ben M. Palmer 
+Chief Financial Officer and Treasurer 
+Atlanta, Georgia 
+March 4, 2011 
+30 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited RPC, Inc. (a Delaware Corporation) and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2010, 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. 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by COSO. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010 and our report dated March 4, 2011 expressed an unqualified opinion on those consolidated financial statements. 
+/s/ Grant Thornton LLP 
+Atlanta, Georgia 
+March 4, 2011 
+31 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and 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 the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related 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 Company’s internal control over financial reporting as of December 31, 2010, 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 4, 2011 expressed an unqualified opinion thereon. 
+/s/ Grant Thornton LLP 
+Atlanta, Georgia 
+March 4, 2011 
+32 
+Item 8. Financial Statements and Supplementary Data 
+CONSOLIDATED BALANCE SHEETS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except share information) 
+December 31, 
+2010 
+2009 
+ASSETS 
+Cash and cash equivalents 
+$ 
+9,035 
+$ 
+4,489 
+Accounts receivable, net 
+294,002 
+130,619 
+Inventories 
+64,059 
+55,783 
+Deferred income taxes 
+7,426 
+4,894 
+Income taxes receivable 
+17,251 
+18,184 
+Prepaid expenses and other current assets 
+6,905 
+5,485 
+Current assets 
+398,678 
+219,454 
+Property, plant and equipment, net 
+453,017 
+396,222 
+Goodwill 
+24,093 
+24,093 
+Other assets 
+12,083 
+9,274 
+Total assets 
+$ 
+887,871 
+$ 
+649,043 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts payable 
+$ 
+78,743 
+$ 
+49,882 
+Accrued payroll and related expenses 
+23,881 
+10,708 
+Accrued insurance expenses 
+5,141 
+4,315 
+Accrued state, local and other taxes 
+2,988 
+2,001 
+Income taxes payable 
+5,788 
+647 
+Other accrued expenses 
+963 
+220 
+Current liabilities 
+117,504 
+67,773 
+Long-term accrued insurance expenses 
+8,489 
+8,597 
+Notes payable to banks 
+121,250 
+90,300 
+Long-term pension liabilities 
+18,397 
+14,647 
+Other long-term liabilities 
+2,448 
+1,838 
+Deferred income taxes 
+80,888 
+56,165 
+Total liabilities 
+348,976 
+239,320 
+Commitments and contingencies 
+STOCKHOLDERS’ EQUITY 
+Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+- 
+- 
+Common stock, $0.10 par value, 159,000,000 shares authorized, 148,175,995 and 147,547,004 shares issued and outstanding in 2010 and 2009, respectively 
+14,818 
+14,754 
+Capital in excess of par value 
+6,460 
+2,720 
+Retained earnings 
+527,150 
+401,055 
+Accumulated other comprehensive loss 
+(9,533 
+) 
+(8,806 
+) 
+Total stockholders’ equity 
+538,895 
+409,723 
+Total liabilities and stockholders’ equity 
+$ 
+887,871 
+$ 
+649,043 
+The accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except per share data) 
+Years ended December 31, 
+2010 
+2009 
+2008 
+REVENUES 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+COSTS AND EXPENSES: 
+Cost of revenues 
+606,098 
+393,806 
+503,631 
+Selling, general and administrative expenses 
+121,839 
+97,672 
+117,140 
+Depreciation and amortization 
+133,360 
+130,580 
+118,403 
+Gain on disposition of assets, net 
+(3,758 
+) 
+(1,143 
+) 
+(6,367 
+) 
+Operating profit (loss) 
+238,845 
+(33,052 
+) 
+144,170 
+Interest expense 
+(2,662 
+) 
+(2,176 
+) 
+(5,282 
+) 
+Interest income 
+46 
+147 
+73 
+Other income (expense), net 
+1,303 
+1,582 
+(1,176 
+) 
+Income (loss) before income taxes 
+237,532 
+(33,499 
+) 
+137,785 
+Income tax provision (benefit) 
+90,790 
+(10,754 
+) 
+54,382 
+Net income (loss) 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+EARNINGS (LOSS) PER SHARE 
+Basic 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+Diluted 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+Dividends paid per share 
+$ 
+0.141 
+$ 
+0.148 
+$ 
+0.160 
+The accompanying notes are an integral part of these statements. 
+34 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands) 
+Accumulated Other Comprehensive Income (Loss) 
+Comprehensive 
+Income (Loss) 
+Capital in Excess of Par Value 
+Three Years Ended December 31, 2010 
+Common Stock 
+Retained Earnings 
+Shares 
+Amount 
+Total 
+Balance, December 31, 2007 
+98,040 
+$ 
+9,804 
+$ 
+16,728 
+$ 
+385,281 
+$ 
+(2,541 
+) 
+$ 
+409,272 
+Stock issued for stock incentive plans, net 
+1,288 
+128 
+5,654 
+— 
+— 
+5,782 
+Stock purchased and retired 
+(1,623 
+) 
+(162 
+) 
+(19,238 
+) 
+— 
+— 
+(19,400 
+) 
+Net income 
+$ 
+83,403 
+— 
+— 
+— 
+83,403 
+— 
+83,403 
+Pension adjustment, net of taxes 
+(6,053 
+) 
+— 
+— 
+— 
+— 
+(6,053 
+) 
+(6,053 
+) 
+Loss on cash flow hedge, net of taxes 
+(527 
+) 
+— 
+— 
+— 
+— 
+(527 
+) 
+(527 
+) 
+Unrealized loss on securities, net of taxes 
+(585 
+) 
+— 
+— 
+— 
+— 
+(585 
+) 
+(585 
+) 
+Foreign currency translation, net of taxes 
+(326 
+) 
+— 
+— 
+— 
+— 
+(326 
+) 
+(326 
+) 
+Comprehensive income 
+$ 
+75,912 
+Dividends declared 
+— 
+— 
+— 
+(23,328 
+) 
+— 
+(23,328 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+846 
+— 
+— 
+846 
+Three-for-two stock split 
+48,853 
+4,885 
+(4,885 
+) 
+— 
+Balance, December 31, 2008 
+146,558 
+14,655 
+(895 
+) 
+445,356 
+(10,032 
+) 
+449,084 
+Stock issued for stock incentive plans, net 
+911 
+91 
+4,323 
+— 
+— 
+4,414 
+Stock purchased and retired 
+(252 
+) 
+(25 
+) 
+(2,096 
+) 
+— 
+— 
+(2,121 
+) 
+Net loss 
+$ 
+(22,745 
+) 
+— 
+— 
+— 
+(22,745 
+) 
+— 
+(22,745 
+) 
+Pension adjustment, net of taxes 
+897 
+— 
+— 
+— 
+— 
+897 
+897 
+Gain on cash flow hedge, net of taxes 
+7 
+— 
+— 
+— 
+— 
+7 
+7 
+Unrealized gain on securities, net of taxes 
+91 
+— 
+— 
+— 
+— 
+91 
+91 
+Foreign currency translation, net of taxes 
+231 
+— 
+— 
+— 
+— 
+231 
+231 
+Comprehensive loss 
+$ 
+(21,519 
+) 
+Dividends declared 
+— 
+— 
+— 
+(21,556 
+) 
+— 
+(21,556 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+1,421 
+— 
+— 
+1,421 
+Three-for-two stock split 
+330 
+33 
+(33 
+) 
+— 
+Balance, December 31, 2009 
+147,547 
+$ 
+14,754 
+$ 
+2,720 
+$ 
+401,055 
+$ 
+(8,806 
+) 
+$ 
+409,723 
+Stock issued for stock incentive plans, net 
+587 
+59 
+4,889 
+— 
+— 
+4,948 
+Stock purchased and retired 
+(144 
+) 
+(14 
+) 
+(1,781 
+) 
+— 
+— 
+(1,795 
+) 
+Net income 
+$ 
+146,742 
+— 
+— 
+— 
+146,742 
+— 
+146,742 
+Pension adjustment, net of taxes 
+(1,350 
+) 
+— 
+— 
+— 
+— 
+(1,350 
+) 
+(1,350 
+) 
+Gain on cash flow hedge, net of taxes 
+133 
+— 
+— 
+— 
+— 
+133 
+133 
+Unrealized gain on securities, net of taxes 
+281 
+— 
+— 
+— 
+— 
+281 
+281 
+Foreign currency translation, net of taxes 
+209 
+— 
+— 
+— 
+— 
+209 
+209 
+Comprehensive income 
+$ 
+146,015 
+Dividends declared 
+— 
+— 
+— 
+(20,647 
+) 
+— 
+(20,647 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+651 
+— 
+— 
+651 
+Three-for-two stock split 
+186 
+19 
+(19 
+) 
+— 
+Balance, December 31, 2010 
+148,176 
+$ 
+14,818 
+$ 
+6,460 
+$ 
+527,150 
+$ 
+(9,533 
+) 
+$ 
+538,895 
+The accompanying notes are an integral part of these statements. 
+35 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Years ended December 31, 
+2010 
+2009 
+2008 
+OPERATING ACTIVITIES 
+Net income (loss) 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
+Depreciation, amortization and other non-cash charges 
+133,253 
+130,581 
+118,444 
+Stock-based compensation expense 
+4,909 
+4,440 
+3,732 
+Gain on disposition of assets, net 
+(3,758 
+) 
+(1,143 
+) 
+(6,367 
+) 
+Deferred income tax provision 
+22,262 
+1,669 
+27,199 
+Excess tax benefits for share-based payments 
+(651 
+) 
+(1,421 
+) 
+(846 
+) 
+Changes in current assets and liabilities: 
+Accounts receivable 
+(163,162 
+) 
+80,035 
+(34,508 
+) 
+Income taxes receivable 
+1,584 
+(1,159 
+) 
+(2,462 
+) 
+Inventories 
+(8,130 
+) 
+(5,798 
+) 
+(20,377 
+) 
+Prepaid expenses and other current assets 
+(852 
+) 
+2,575 
+(2,231 
+) 
+Accounts payable 
+14,191 
+(5,711 
+) 
+9,691 
+Income taxes payable 
+5,141 
+(2,712 
+) 
+(981 
+) 
+Accrued payroll and related expenses 
+13,173 
+(9,690 
+) 
+2,426 
+Accrued insurance expenses 
+826 
+(325 
+) 
+(113 
+) 
+Accrued state, local and other taxes 
+987 
+(394 
+) 
+676 
+Other accrued expenses 
+112 
+(167 
+) 
+(203 
+) 
+Changes in working capital 
+(136,130 
+) 
+56,654 
+(48,082 
+) 
+Changes in other assets and liabilities: 
+Pension liabilities 
+1,628 
+4,882 
+(481 
+) 
+Accrued insurance expenses 
+(108 
+) 
+199 
+232 
+Other non-current assets 
+(920 
+) 
+(2,597 
+) 
+(20 
+) 
+Other non-current liabilities 
+1,430 
+(1,779 
+) 
+106 
+Net cash provided by operating activities 
+168,657 
+168,740 
+177,320 
+INVESTING ACTIVITIES 
+Capital expenditures 
+(187,486 
+) 
+(67,830 
+) 
+(170,318 
+) 
+Proceeds from sale of assets 
+15,717 
+6,686 
+11,365 
+Net cash used for investing activities 
+(171,769 
+) 
+(61,144 
+) 
+(158,953 
+) 
+FINANCING ACTIVITIES 
+Payment of dividends 
+(20,647 
+) 
+(21,556 
+) 
+(23,328 
+) 
+Borrowings from notes payable to banks 
+516,600 
+276,100 
+392,300 
+Repayments of notes payable to banks 
+(485,650 
+) 
+(360,250 
+) 
+(374,250 
+) 
+Debt issue costs for notes payable to banks 
+(1,886 
+) 
+(234 
+) 
+(94 
+) 
+Excess tax benefits for share-based payments 
+651 
+1,421 
+846 
+Cash paid for common stock purchased and retired 
+(1,650 
+) 
+(1,747 
+) 
+(17,489 
+) 
+Proceeds received upon exercise of stock options 
+240 
+122 
+347 
+Net cash provided by (used for) financing activities 
+7,658 
+(106,144 
+) 
+(21,668 
+) 
+Net increase (decrease) in cash and cash equivalents 
+4,546 
+1,452 
+(3,301 
+) 
+Cash and cash equivalents at beginning of year 
+4,489 
+3,037 
+6,338 
+Cash and cash equivalents at end of year 
+$ 
+9,035 
+$ 
+4,489 
+$ 
+3,037 
+The accompanying notes are an integral part of these statements. 
+36 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Note 1: Significant Accounting Policies 
+Principles of Consolidation and Basis of Presentation 
+The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany accounts and transactions have been eliminated. 
+Nature of Operations 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, northeast and Rocky Mountain regions, and in selected international markets. The services and equipment provided include Technical Services such as pressure pumping services, coiled tubing services, snubbing services (also referred to as hydraulic workover services), nitrogen services, and firefighting and well control, and Support Services such as the rental of drill pipe and other specialized oilfield equipment and oilfield training. 
+Common Stock 
+RPC is authorized to issue 159,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends when, as, and if declared by the Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders. 
+Preferred Stock 
+RPC is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2010, there were no shares of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior to the common stock with respect to dividend rights and rights on liquidation. 
+Dividends 
+On January 26, 2011, the Board of Directors approved a $0.07 per share cash dividend payable March 10, 2011 to stockholders of record at the close of business on February 10, 2011. 
+Use of Estimates in the Preparation of Financial Statements 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant estimates are used in the determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets, and pension liabilities. 
+Revenues 
+RPC’s revenues are generated principally from providing services and the related equipment. Revenues are recognized when the services are rendered and collectibility is reasonably assured. Revenues from services and equipment are based on fixed or determinable priced purchase orders or contracts with the customer and do not include the right of return. Rates for services and equipment are priced on a per day, per unit of measure, per man hour or similar basis. Sales tax charged to customers is presented on a net basis within the consolidated statement of operations and excluded from revenues. 
+37 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Concentration of Credit Risk 
+Substantially all of the Company’s customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company provided oilfield services to several hundred customers. One customer at, 15 percent, accounted for more than ten percent of the Company’s 2010 revenues. Two customers individually accounted for 13 percent and 12 percent of the Company’s 2009 revenues. No customers accounted for more than 10 percent of 2008 revenues. Additionally, one customer accounted for 15 percent of accounts receivable as of December 31, 2010 and one customer accounted for 12 percent of accounts receivable as of December 31, 2009. 
+Cash and Cash Equivalents 
+Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. RPC maintains cash equivalents and investments in one or more large financial institutions, and RPC’s policy restricts investment in any securities rated less than “investment grade” by national rating services. 
+Investments 
+Investments classified as available-for-sale are stated at their fair values, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value judged to be other than temporary, interest, and dividends with respect to available-for-sale securities are included in interest income. The Company did not realize any gains or losses on securities during 2010, 2009 or 2008 on its available-for-sale securities. Securities that are held in the non-qualified Supplemental Retirement Plan (“SERP”) are classified as trading. See Note 10 for further information regarding the SERP. The change in fair value of trading securities is presented in other income (expense) on the consolidated statements of operations. 
+Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designations as of each balance sheet date. 
+Accounts Receivable 
+The majority of the Company’s accounts receivable are due principally from major and independent oil and natural gas exploration and production companies. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are considered past due after 60 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. 
+Allowance for Doubtful Accounts 
+Accounts receivable are carried at the amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The estimated allowance for doubtful accounts is based on an evaluation of industry trends, financial condition of customers, historical write-off experience, current economic conditions, and in the case of international customers, judgments about the economic and political environment of the related country and region. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories, which consist principally of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of weighted average cost or market value. Market value is determined based on replacement cost for material and supplies. The Company regularly reviews inventory quantities on hand and records provisions for excess or obsolete inventory based primarily on its estimated forecast of product demand, market conditions, production requirements and technological developments. 
+38 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Derivative Instruments and Hedging Activities 
+The Company is subject to interest rate risk on the variable component of the interest rate under our credit facility. Effective December 2008, the Company entered into a $50 million interest rate swap agreement. The agreement terminates on September 8, 2011. The Company has designated the interest rate swap as a cash flow hedge. Changes in the fair value of the effective portion of the interest rate swap are recognized in other comprehensive loss until the hedged item is recognized in earnings. 
+Property, Plant and Equipment 
+Property, plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. Annual depreciation and amortization expense is computed using the following useful lives: operating equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred. 
+RPC records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and other assets, to determine if any impairments should be recognized. Management believes that the long-lived assets in the accompanying balance sheets have not been impaired. 
+Goodwill and Other Intangibles 
+Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $24,093,000 at December 31, 2010 and 2009. Goodwill is reviewed annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, for impairment. In reviewing goodwill for impairment, potential impairment is measured by comparing the estimated fair value of a reporting unit with its carrying value. Based upon the results of these analyses, the Company has concluded that no impairment of its goodwill has occurred for the years ended December 31, 2010, 2009 and 2008. 
+Other intangibles primarily represent non-compete agreements related to businesses acquired. Non-compete agreements are amortized on a straight-line basis over the period of the agreement, as this method best estimates the ratio that current revenues bear to the total of current and anticipated revenues. These non-compete agreements are fully amortized as of December 31, 2010 and 2009. 
+Advertising 
+Advertising expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $1,782,000 in 2010, $1,065,000 in 2009 and $1,957,000 in 2008. 
+Insurance Expenses 
+RPC self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance programs is estimated and accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The portion of these estimated outstanding claims expected to be paid more than one year in the future is classified as long-term accrued insurance expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets when the Company determines that it is more likely than not that the asset will not be realized through future taxable income. 
+39 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Defined Benefit Pension Plan 
+The Company has a defined benefit pension plan that provides monthly benefits upon retirement at age 65 to eligible employees with at least one year of service prior to 2002. In 2002, the Company’s Board of Directors approved a resolution to cease all future retirement benefit accruals under the defined benefit pension plan. See Note 10 for a full description of this plan and the related accounting and funding policies. 
+Share Repurchases 
+The Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is allocated to capital in excess of par value. 
+Three-for-Two Stock Split 
+On October 26, 2010 RPC’s Board of Directors declared a three-for-two stock split of the Company’s common shares. The additional shares were distributed on December 10, 2010, to stockholders of record on November 10, 2010. All share, earnings per share, and dividends per share data presented in the accompanying financial statements have been adjusted to reflect this stock split. 
+Earnings per Share 
+FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. During 2009, the Company adopted certain amendments to ASC 260-10 which requires that all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, be considered participating securities and included in the calculation of its basic earnings per share. 
+The Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends, and therefore are considered participating securities. See Note 10 for further information on restricted stock granted to employees. 
+The basic and diluted calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares and performance restricted shares included in diluted earnings per share, but excluded from basic earnings per share. Basic and diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares outstanding during the respective periods. 
+A reconciliation of weighted average shares outstanding along with the earnings (loss) per share attributable to restricted shares of common stock (participating securities) is as follows: 
+(In thousands except per share data ) 
+2010 
+2009 
+2008 
+Net income (loss) available for stockholders: 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+Less: Dividends paid 
+Common stock 
+(20,294 
+) 
+(21,229 
+) 
+(22,905 
+) 
+Restricted shares of common stock 
+(353 
+) 
+(327 
+) 
+(423 
+) 
+Undistributed earnings (loss) 
+$ 
+126,095 
+$ 
+(44,301 
+) 
+$ 
+60,075 
+Allocation of undistributed earnings: 
+Common stock 
+$ 
+123,536 
+$ 
+(43,408 
+) 
+$ 
+58,992 
+Restricted shares of common stock 
+2,559 
+(893 
+) 
+1,083 
+Basic shares outstanding: 
+Common stock 
+141,866 
+141,390 
+142,125 
+Restricted shares of common stock 
+3,123 
+3,068 
+2,723 
+144,989 
+144,458 
+144,848 
+Diluted shares outstanding: 
+Common stock 
+141,866 
+141,390 
+142,125 
+Dilutive effect of options 
+1,548 
+- 
+1,950 
+143,414 
+141,390 
+144,075 
+Restricted shares of common stock 
+3,123 
+3,068 
+2,723 
+146,537 
+144,458 
+146,798 
+Basic earnings per share: 
+Common stock: 
+Distributed earnings 
+$ 
+0.14 
+$ 
+0.15 
+$ 
+0.16 
+Undistributed earnings (loss) 
+0.87 
+(0.31 
+) 
+0.42 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+$ 
+0.58 
+Restricted shares of common stock: 
+Distributed earnings 
+$ 
+0.11 
+$ 
+0.11 
+$ 
+0.16 
+Undistributed earnings (loss) 
+0.82 
+(0.29 
+) 
+0.40 
+$ 
+0.93 
+$ 
+(0.18 
+) 
+$ 
+0.56 
+Diluted earnings per share: 
+Common Stock: 
+Distributed earnings 
+$ 
+0.14 
+$ 
+0.15 
+$ 
+0.16 
+Undistributed earnings (loss) 
+0.86 
+(0.31 
+) 
+0.41 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+40 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+During the year ended December 31, 2009, the Company incurred a net loss from continuing operations and consequently the common stock equivalents were excluded from the computation of diluted loss per share because the effect would have been anti-dilutive. 
+Fair Value of Financial Instruments 
+The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, marketable securities, accounts payable, an interest rate swap, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The marketable securities classified as available-for-sale and the securities held in the SERP classified as trading are carried at fair value in the accompanying consolidated balance sheets. The interest rate swap is carried at fair value, which is based on quotes from the issuer of the swap and represents the estimated amounts that we would expect to pay to terminate the swap. See Note 8 for additional information. 
+Stock-Based Compensation 
+Stock-based compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for additional information. 
+New Accounting Pronouncements 
+Recently Adopted Accounting Pronouncements: 
+● 
+ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments to the Codification in this ASU clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and not a share dividend. The Company adopted these provisions in the first quarter of 2010 and the adoption did not have a material impact on the Company’s consolidated financial statements. 
+● 
+ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The amendments to the Codification in this ASU now require 
+1. 
+the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfer be disclosed separately and 
+2. 
+in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances and settlements. 
+3. 
+judgment in determining the appropriate classes of assets and liabilities when reporting fair value measurements for each class 
+41 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+4. 
+disclosures about valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. 
+The Company complied with these disclosure requirements in its annual report on Form 10-K for the year ended December 31, 2009 and plans to provide the disclosures in every reporting period as necessary. Adoption of these disclosure requirements did not have a material impact on the Company’s consolidated financial statements. 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+● 
+ASU 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification in this ASU provide guidance on share-based payment awards to employees with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trade. The ASU states that if such awards meet all the criteria for equity should be classified as such and not liability based solely on the currency it is denominated in. The amendments are effective beginning in 2011 with adoption required in the first quarter of that year. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+● 
+ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments to the Codification in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. Goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These amendments are effective starting in the first quarter of 2011 with early adoption not permitted. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+● 
+ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments to the Codification in this ASU apply to any public entity that enters into business combinations that are material on an individual or aggregate basis and specify that the entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning in January 2011 with early adoption permitted. The Company plans to adopt these provisions for all acquisitions completed beginning in 2011 and provide the appropriate disclosures. 
+Note 2: Accounts Receivable 
+Accounts receivable, net consists of the following: 
+December 31, 
+2010 
+2009 
+(in thousands) 
+Trade receivables: 
+Billed 
+$ 
+216,201 
+$ 
+98,275 
+Unbilled 
+84,977 
+34,753 
+Other receivables 
+1,519 
+801 
+Total 
+302,697 
+133,829 
+Less: allowance for doubtful accounts 
+(8,695 
+) 
+(3,210 
+) 
+Accounts receivable, net 
+$ 
+294,002 
+$ 
+130,619 
+42 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Trade receivables relate to sale of our services and products, for which credit is extended based on our evaluation of the customer’s credit worthiness. Unbilled receivables represent revenues earned but not billed to the customer until future dates, usually within one month. Other receivables consist primarily of amounts due from purchasers of Company property and rebates from suppliers. 
+Changes in the Company’s allowance for doubtful accounts are as follows: 
+Years Ended December 31, 
+2010 
+2009 
+(in thousands) 
+Beginning balance 
+$ 
+3,210 
+$ 
+6,199 
+Bad debt expense 
+4,812 
+660 
+Accounts written-off 
+(730 
+) 
+(3,763 
+) 
+Recoveries 
+1,403 
+114 
+Ending balance 
+$ 
+8,695 
+$ 
+3,210 
+Note 3: Inventories 
+Inventories are $64,059,000 at December 31, 2010 and $55,783,000 at December 31, 2009 and consist of raw materials, parts and supplies. 
+Note 4: Property, Plant and Equipment 
+Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2010 
+2009 
+(in thousands) 
+Land 
+$ 
+15,053 
+$ 
+14,980 
+Buildings and leasehold improvements 
+82,457 
+80,928 
+Operating equipment 
+755,028 
+631,666 
+Capitalized software 
+15,899 
+15,391 
+Furniture and fixtures 
+4,690 
+4,342 
+Vehicles 
+219,555 
+180,408 
+Construction in progress 
+1,821 
+35 
+Gross property, plant and equipment 
+1,094,503 
+927,750 
+Less: accumulated depreciation 
+(641,486 
+) 
+(531,528 
+) 
+Net property, plant and equipment 
+$ 
+453,017 
+$ 
+396,222 
+Depreciation expense was $133.4 million in 2010, $130.6 million in 2009 and $118.4 million in 2008. There are no capital leases outstanding as of December 31, 2010 and December 31, 2009. The Company had accounts payable for purchases of property and equipment of approximately $18.1 million, $3.7 million and $9.4 million as of December 31, 2010, 2009 and 2008. 
+43 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Note 5: Income Taxes 
+The following table lists the components of the provision (benefit) for income taxes: 
+Years ended December 31, 
+2010 
+2009 
+2008 
+(in thousands) 
+Current provision (benefit): 
+Federal 
+$ 
+56,289 
+$ 
+(13,490 
+) 
+$ 
+20,793 
+State 
+11,180 
+235 
+5,453 
+Foreign 
+1,059 
+832 
+937 
+Deferred provision (benefit): 
+Federal 
+22,833 
+1,698 
+25,486 
+State 
+(571 
+) 
+(29 
+) 
+1,713 
+Total income tax provision (benefit) 
+$ 
+90,790 
+$ 
+(10,754 
+) 
+$ 
+54,382 
+Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows: 
+Years ended December 31, 
+2010 
+2009 
+2008 
+Federal statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income taxes, net of federal benefit 
+2.9 
+(2.4 
+) 
+3.2 
+Tax credits 
+(0.6 
+) 
+1.3 
+(0.8 
+) 
+Non-deductible expenses 
+0.4 
+(2.6 
+) 
+0.9 
+Other 
+0.5 
+0.8 
+1.2 
+Effective tax rate 
+38.2 
+% 
+32.1 
+% 
+39.5 
+% 
+Significant components of the Company’s deferred tax assets and liabilities are as follows: 
+December 31, 
+2010 
+2009 
+(in thousands) 
+Deferred tax assets: 
+Self-insurance 
+$ 
+5,643 
+$ 
+5,445 
+Pension 
+6,715 
+5,346 
+State net operating loss carryforwards 
+2,955 
+1,742 
+Bad debts 
+3,219 
+1,361 
+Accrued payroll 
+1,460 
+866 
+Stock-based compensation 
+2,538 
+2,413 
+All others 
+232 
+149 
+Valuation allowance 
+(1,295 
+) 
+(1,550 
+) 
+Gross deferred tax assets 
+21,467 
+15,772 
+Deferred tax liabilities: 
+Depreciation 
+(89,456 
+) 
+(62,640 
+) 
+Goodwill amortization 
+(5,020 
+) 
+(4,403 
+) 
+All others 
+(453 
+) 
+- 
+Gross deferred tax liabilities 
+(94,929 
+) 
+(67,043 
+) 
+Net deferred tax liabilities 
+$ 
+(73,462 
+) 
+$ 
+(51,271 
+) 
+Historically and currently, undistributed earnings of the Company’s foreign subsidiaries are considered indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been recorded. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested. 
+44 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+As of December 31, 2010, the Company has net operating loss carryforwards related to state income taxes of approximately $68.2 million that will expire between 2011 and 2030. As of December 31, 2010 the Company has a valuation allowance of approximately $1.3 million, representing the tax affected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset. 
+Total net income tax payments (refunds) were $61,632,000 in 2010, ($8,351,000) in 2009 and $29,714,000 in 2008. 
+The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial to the financial statements as of December 31, 2010 and 2009. 
+The Company’s liability for unrecognized tax benefits was $33 thousand as of December 31, 2010 and $30 thousand as of December 31, 2009, all of which would affect our effective rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2010 and 2009 are as follows: 
+Years Ended December 31, 
+2010 
+2009 
+(in thousands) 
+Beginning balance 
+$ 
+30 
+$ 
+11 
+Additions based on tax positions related to current year 
+- 
+- 
+Additions for tax positions of prior years 
+3 
+19 
+Reductions for tax positions of prior years 
+- 
+- 
+Ending balance 
+$ 
+33 
+$ 
+30 
+The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2007 through 2010 tax years remain open to examination. 
+It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under Voluntary Disclosure Agreements. However, quantification of an estimated range cannot be made at this time. 
+Note 6: Long-Term Debt 
+On August 31, 2010, the Company replaced its $200 million credit facility with a new $350 million revolving credit facility with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers and Joint Book Managers, and a syndicate of other lenders. The facility includes a full and unconditional guarantee by the Company’s 100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPC and its subsidiaries. The subsidiaries of the Company that are not guarantors are considered minor. 
+The facility has a general term of five years and provides for an unsecured line of credit of up to $350 million, which includes a $50 million letter of credit subfacility, and a $25 million swingline subfacility. The maturity date of all revolving loans under the facility is August 31, 2015. The Company has incurred loan origination fees and other debt related costs associated with the facility in the aggregate of approximately $1.9 million. These costs are being amortized to interest expense over the five year term of the loan, and the net amount is classified as non-current other assets on the consolidated balance sheets. 
+Revolving loans under the Revolving Credit Agreement bear interest at one of the following two rates, at the Company’s election: 
+● the Base Rate, which is the highest of Bank of America’s “prime rate” for the day of the borrowing, a fluctuating rate per annum equal to the Federal Funds Rate plus .50%, and a rate per annum equal to the one (1) month LIBOR rate plus 1.00%, in each case plus a margin that ranges from 0.75% to 1.50% based on a quarterly debt covenant calculation; or 
+45 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+● with respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve) plus a margin ranging from 1.75% to 2.50%, based upon a quarterly debt covenant calculation. 
+In addition, the Company pays an annual fee ranging from .25% to .40%, based on a quarterly debt covenant calculation, of the unused portion of the credit facility. 
+The facility contains customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend payments, business combinations and other related items. Further, the facility contains financial covenants limiting the ratio of the Company’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and limiting the ratio of the Company’s consolidated EBITDA to interest expense to no less than 2 to 1. The Company was in compliance with these covenants as of and for the year ended December 31, 2010. 
+As of December 31, 2010, RPC has outstanding borrowings of $121.3 million under the facility. Interest incurred and recorded as expense on the facility was $3,170,000 in 2010, $2,327,000 in 2009 and $5,188,000 in 2008. The weighted average interest rate was 3.0% in 2010, 1.8% in 2009 and 3.6% in 2008. The Company capitalized interest incurred of $554,000 in 2010, $150,000 in 2009 and $1,064,000 in 2008 related to facilities and equipment under construction. Additionally there were letters of credit relating to self-insurance programs and contract bids outstanding for $18.8 million as of December 31, 2010. 
+Cash interest paid (net of capitalized interest) was approximately $1,899,000 in 2010, $2,192,000 in 2009 and $5,232,000 in 2008. 
+Effective December 2008 the Company entered into an interest rate swap agreement that effectively converted $50 million of the Company’s variable-rate debt to a fixed rate basis, thereby hedging against the impact of potential interest rate changes on future interest expense. The agreement terminates on September 8, 2011. Under this agreement the Company and the issuing lender settle on a monthly basis for the difference between a fixed interest rate of 2.07% and a comparable one month LIBOR rate. 
+46 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Note 7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated other comprehensive (loss) income consists of the following (in thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain (Loss) On 
+Securities 
+Foreign 
+Currency 
+Translation 
+Net Loss 
+On Cash Flow 
+Hedge 
+Total 
+Balance at December 31, 2008 
+$ 
+(9,480 
+) 
+$ 
+129 
+$ 
+(154 
+) 
+$ 
+(527 
+) 
+$ 
+(10,032 
+) 
+Change during 2009: 
+Before-tax amount 
+1,413 
+143 
+530 
+11 
+2,097 
+Tax benefit 
+(516 
+) 
+(52 
+) 
+(299 
+) 
+(4 
+) 
+(871 
+) 
+Total activity in 2009 
+897 
+91 
+231 
+7 
+1,226 
+Balance at December 31, 2009 
+$ 
+(8,583 
+) 
+$ 
+220 
+$ 
+77 
+$ 
+(520 
+) 
+$ 
+(8,806 
+) 
+Change during 2010: 
+Before-tax amount 
+(2,125 
+) 
+441 
+329 
+209 
+(1,146 
+) 
+Tax expense (benefit) 
+775 
+(160 
+) 
+(120 
+) 
+(76 
+) 
+419 
+Total activity in 2010 
+(1,350 
+) 
+281 
+209 
+133 
+(727 
+) 
+Balance at December 31, 2010 
+$ 
+(9,933 
+) 
+$ 
+501 
+$ 
+286 
+$ 
+(387 
+) 
+$ 
+(9,533 
+) 
+47 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Note 8: Fair Value Disclosures 
+The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows: 
+1. 
+Level 1 – Quoted market prices in active markets for identical assets or liabilities. 
+2. 
+Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 
+3. 
+Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use. 
+The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of December 31, 2010 and 2009: 
+Fair Value Measurements at December 31, 2010 with: 
+(in thousands ) 
+Quoted prices in 
+active markets for 
+identical assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+8,445 
+$ 
+- 
+Available-for-sale securities – equity securities 
+1,124 
+- 
+- 
+Liabilities: 
+Interest rate swap 
+$ 
+- 
+$ 
+610 
+$ 
+- 
+Fair Value Measurements at December 31, 2009 with: 
+(in thousands ) 
+Quoted prices in 
+active markets for 
+identical assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+6,905 
+$ 
+- 
+Available-for-sale securities – equity securities 
+653 
+- 
+- 
+Liabilities: 
+Interest rate swap 
+$ 
+- 
+$ 
+820 
+$ 
+- 
+The Company determines the fair value of the marketable securities that are available-for-sale through quoted market prices. The total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. The trading securities are comprised of the SERP assets, as described in Note 10, and are recorded primarily at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to quoted market prices, were used to value the trading securities. As a result, the Company classified these investments as using level 2 inputs. 
+At December 31, 2010 and 2009, there was $121,250,000 and $90,300,000 outstanding under the Company’s credit facility. The fair value of these borrowings was $121,250,000 in 2010 and $88,043,000 in 2009. The fair value of these borrowings was based on quotes from the lender (level 2 inputs). The borrowings under our revolving credit facility bear interest at the variable rate described in Note 6. We are subject to interest rate risk on the variable component of the interest rate. Our risk management objective is to lock in the interest cash outflows on a portion of our debt. As a result, as described in Note 6, we entered into an interest rate swap agreement effectively converting a portion of the outstanding borrowings under the revolving credit facility to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense. The fair value of this swap was negative $610,000 at December 31, 2010 and is recorded in other accrued expenses. At December 31, 2009 the fair value of this swap was negative $820,000 and is recorded in other long-term liabilities. The fair value of the interest rate swap was based on quotes from the issuer of the swap and represents the estimated amounts that we would expect to pay to terminate the swap. 
+48 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether or not it will elect this option for financial instruments it may acquire in the future. 
+Note 9: Commitments and Contingencies 
+Lease Commitments - Minimum annual rentals, principally for noncancelable real estate and equipment leases with terms in excess of one year, in effect at December 31, 2010, are summarized in the following table: 
+(in thousands) 
+2011 
+$ 
+4,105 
+2012 
+3,612 
+2013 
+2,439 
+2014 
+1,565 
+2015 
+994 
+Thereafter 
+286 
+Total rental commitments 
+$ 
+13,001 
+Total rental expense, including short-term rentals, charged to operations was approximately $11,970,000 in 2010, $10,787,000 in 2009 and $9,109,000 in 2008. 
+Income Taxes - The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. Other long-term liabilities include $33,000 as of December 31, 2010 and $30,000 as of December 31, 2009, that represents the Company’s estimated liabilities for the probable assessments payable. 
+Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes that cannot be currently estimated. 
+Litigation - RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management, after consultation with legal counsel, believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on the Company’s business or financial condition. 
+Note 10: Employee Benefit Plans 
+Defined Benefit Pension Plan 
+The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to substantially all employees with at least one year of service prior to 2002. As of February 28, 2001, the plan became a multiple employer plan, with Marine Products Corporation as an adopting employer. 
+In 2002, the Company’s Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan. In lieu thereof, the Company began providing enhanced benefits in the form of cash contributions for certain longer serviced employees that had not reached the normal retirement age of 65 as of March 31, 2002. The contributions were discretionary and made annually based on continued employment over a seven year period ending in 2008. These discretionary contributions were made to either the SERP established by the Company or to the 401(k) plan for each employee that was entitled to the enhanced benefit. There was no expense related to the enhanced benefits for 2010 or 2009. The expense related to enhanced benefits was $295,000 for 2008. 
+49 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+The Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $9,351,000 and thus the plan was under-funded as of December 31, 2010. 
+The following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets: 
+December 31, 
+2010 
+2009 
+(in thousands) 
+Accumulated Benefit Obligation at end of year 
+$ 
+35,873 
+$ 
+32,190 
+CHANGE IN PROJECTED BENEFIT OBLIGATION: 
+Benefit obligation at beginning of year 
+$ 
+32,190 
+$ 
+29,203 
+Service cost 
+— 
+— 
+Interest cost 
+1,893 
+1,938 
+Amendments 
+— 
+— 
+Actuarial (gain) loss 
+3,362 
+2,706 
+Benefits paid 
+(1,572 
+) 
+(1,657 
+) 
+Projected benefit obligation at end of year 
+$ 
+35,873 
+$ 
+32,190 
+CHANGE IN PLAN ASSETS: 
+Fair value of plan assets at beginning of year 
+$ 
+24,932 
+$ 
+22,488 
+Actual return on plan assets 
+2,548 
+4,101 
+Employer contribution 
+614 
+— 
+Benefits paid 
+(1,572 
+) 
+(1,657 
+) 
+Fair value of plan assets at end of year 
+26,522 
+24,932 
+Funded status at end of year 
+$ 
+(9,351 
+) 
+$ 
+(7,258 
+) 
+December 31, 
+2010 
+2009 
+(in thousands) 
+AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent assets 
+$ 
+— 
+$ 
+— 
+Current liabilities 
+— 
+— 
+Noncurrent liabilities 
+(9,351 
+) 
+(7,258 
+) 
+$ 
+(9,351 
+) 
+$ 
+(7,258 
+) 
+50 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+December 31, 
+2010 
+2009 
+(in thousands) 
+AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF: 
+Net loss (gain) 
+$ 
+15,642 
+$ 
+13,517 
+Prior service cost (credit) 
+— 
+— 
+Net transition obligation (asset) 
+— 
+— 
+$ 
+15,642 
+$ 
+13,517 
+The accumulated benefit obligation for the Retirement Income Plan at December 31, 2010 and 2009 has been disclosed above. The Company uses a December 31 measurement date for this qualified plan. 
+Amounts recognized in the consolidated balance sheets consist of: 
+December 31, 
+2010 
+2009 
+(in thousands) 
+Funded status 
+$ 
+(9,351 
+) 
+$ 
+(7,258 
+) 
+SERP contributions/deferrals 
+(9,046 
+) 
+(7,389 
+) 
+Long-term pension liabilities 
+$ 
+(18,397 
+) 
+$ 
+(14,647 
+) 
+RPC’s funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. RPC contributed $614,000 in 2010 but made no contributions in 2009. 
+The components of net periodic benefit cost are summarized as follows: 
+Years ended December 31, 
+2010 
+2009 
+2008 
+(in thousands) 
+Service cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest cost on projected benefit obligation 
+1,893 
+1,938 
+1,841 
+Expected return on plan assets 
+(1,720 
+) 
+(1,521 
+) 
+(2,543 
+) 
+Amortization of net loss 
+409 
+1,538 
+285 
+Net periodic benefit plan cost (credit) 
+$ 
+582 
+$ 
+1,955 
+$ 
+(417 
+) 
+The Company recognized pre-tax decreases (increases) to the funded status in comprehensive loss of $2,125,000 in 2010, $(1,413,000) in 2009 and $9,532,000 in 2008. There were no previously unrecognized prior service costs as of December 31, 2010, 2009 and 2008. The pre-tax amounts recognized in comprehensive loss for the years ended December 31, 2010, 2009 and 2008 are summarized as follows: 
+(in thousands) 
+2010 
+2009 
+2008 
+Net loss (gain) 
+$ 
+2,534 
+$ 
+125 
+$ 
+9,817 
+Amortization of net (loss) gain 
+(409 
+) 
+(1,538 
+) 
+(285 
+) 
+Net transition obligation (asset) 
+— 
+— 
+— 
+Amount recognized in other comprehensive loss 
+$ 
+2,125 
+$ 
+(1,413 
+) 
+$ 
+9,532 
+51 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2011 are as follows: 
+(in thousands) 
+2011 
+Amortization of net loss (gain) 
+$ 
+458 
+Prior service cost (credit) 
+— 
+Net transition obligation (asset) 
+— 
+Estimated net periodic benefit plan cost 
+$ 
+458 
+The weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as follows: 
+December 31, 
+2010 
+2009 
+2008 
+Projected Benefit Obligation : 
+Discount rate 
+5.49 
+% 
+6.00 
+% 
+6.84 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+Net Benefit Cost: 
+Discount rate 
+6.00 
+% 
+6.84 
+% 
+6.25 
+% 
+Expected return on plan assets 
+7.00 
+% 
+7.00 
+% 
+8.00 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+The Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management and its investment adviser. It includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of seven percent is reasonable. 
+The Plan’s weighted average asset allocation at December 31, 2010 and 2009 by asset category along with the target allocation for 2011 are as follows: 
+Asset Category 
+Target 
+Allocation 
+for 2011 
+Percentage of 
+Plan Assets 
+as of 
+December 31, 
+2010 
+Percentage of 
+Plan Assets 
+as of 
+December 31, 
+2009 
+Debt Securities – Core Fixed Income 
+30.0 
+% 
+26.2 
+% 
+26.2 
+% 
+Tactical – Fund of Equity and Debt Securities 
+20.0 
+% 
+10.1 
+% 
+5.2 
+% 
+Domestic Equity Securities 
+25.0 
+% 
+26.4 
+% 
+25.0 
+% 
+Global Equity Securities 
+2.8 
+% 
+4.3 
+% 
+4.4 
+% 
+International Equity Securities 
+8.9 
+% 
+13.8 
+% 
+13.8 
+% 
+Real Estate 
+5.6 
+% 
+4.6 
+% 
+4.2 
+% 
+Real Return 
+5.6 
+% 
+5.6 
+% 
+- 
+Other 
+2.1 
+% 
+9.0 
+% 
+21.2 
+% 
+Total 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers. Equity securities primarily include investments in large-cap and mid-cap companies. Fixed-income securities include corporate bonds of companies in diversified securities, mortgage-backed securities, and U.S. Treasuries. Other types of investments include hedge funds and private equity funds that follow several different investment strategies. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. 
+52 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Some of our assets, primarily our private equity, real estate and hedge funds, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2010 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager discussions focusing on underlying fundamentals and significant events. 
+Included among the asset categories for the Plans’ investments are real estate and other investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+The following table presents our plan assets using the fair value hierarchy as of December 31, 2010 and December 31, 2009. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy. 
+Fair Value Hierarchy as of December 31, 2010: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1) 
+$ 
+2,081 
+$ 
+2,081 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2) 
+6,937 
+- 
+6,937 
+- 
+Domestic Equity Securities 
+7,015 
+7,015 
+- 
+- 
+Global Equity Securities 
+1,153 
+- 
+1,153 
+- 
+International Equity Securities 
+(3) 
+3,672 
+1,636 
+2,036 
+- 
+Tactical Composite 
+(4) 
+2,687 
+- 
+2,687 
+- 
+Real Estate 
+(5) 
+1,210 
+- 
+- 
+1,210 
+Real Return 
+(6) 
+1,492 
+- 
+1,492 
+- 
+Alternative Investments 
+(7) 
+275 
+- 
+- 
+275 
+$ 
+26,522 
+$ 
+10,732 
+$ 
+14,305 
+$ 
+1,485 
+Fair Value Hierarchy as of December 31, 2009: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1) 
+$ 
+943 
+$ 
+943 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2) 
+6,529 
+- 
+6,529 
+- 
+Domestic Equity Securities 
+6,237 
+6,237 
+- 
+- 
+Global Equity Securities 
+1,085 
+- 
+1,085 
+- 
+International Equity Securities 
+(3) 
+3,440 
+1,475 
+1,965 
+- 
+Real Estate 
+(5) 
+1,039 
+- 
+- 
+1,039 
+Alternative Investments 
+(7) 
+5,659 
+- 
+1,302 
+4,357 
+$ 
+24,932 
+$ 
+8,655 
+$ 
+10,881 
+$ 
+5,396 
+(1) 
+Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds. 
+(2) 
+Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades. 
+(3) 
+Some international equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(4) 
+Tactical composite funds invest in stocks, bonds and cash, both domestic and international. These assets are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(5) 
+Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. 
+53 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+(6) 
+Real return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(7) 
+Alternative investments consist of fund-of-fund LLC or commingled fund structures. The LLCs are primarily valued based on Net Asset Values [NAV] calculated by the fund and are not publicly available. Liquidity for the LLCs is monthly and is subject to liquidity of the underlying funds. The commingled fund NAV is calculated by the manager on a daily basis and has monthly liquidity. 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2010: 
+Investments 
+( in thousands ) 
+Balance at 
+December 31, 
+2009 
+Net Realized 
+and Unrealized 
+Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out 
+of) Level 3 
+Balance at 
+December 31, 
+2010 
+Real Estate 
+$ 
+1,039 
+$ 
+171 
+$ 
+- 
+$ 
+- 
+$ 
+1,210 
+Alternative Investments 
+4,357 
+(235) 
+(2,127) 
+(1,720) 
+275 
+$ 
+5,396 
+$ 
+(64) 
+$ 
+(2,127) 
+$ 
+(1,720) 
+$ 
+1,485 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2009: 
+Investments 
+( in thousands ) 
+Balance at 
+December 31, 
+2009 
+Net Realized 
+and Unrealized 
+Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out 
+of) Level 3 
+Balance at 
+December 31, 
+2010 
+Real Estate 
+$ 
+1,723 
+$ 
+(360) 
+$ 
+(324) 
+$ 
+- 
+$ 
+1,039 
+Alternative Investments 
+4,114 
+243 
+- 
+- 
+4,357 
+$ 
+5,837 
+$ 
+(117) 
+$ 
+(324) 
+$ 
+- 
+$ 
+5,396 
+The Company expects to contribute approximately $600,000 to the Retirement Income Plan in 2011 and does not expect to receive a refund in 2011. 
+The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows: 
+(in thousands) 
+2011 
+$ 
+1,659 
+2012 
+1,761 
+2013 
+1,867 
+2014 
+1,962 
+2015 
+2,036 
+2016-2020 
+11,716 
+Supplemental Executive Retirement Plan (SERP) 
+The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source for the deferred compensation obligations in the SERP. The assets are subject to claims by creditors, and the Company can designate them to another purpose at any time. Investments in COLI policies consisted of $17.3 million in variable life insurance policies as of December 31, 2010 and December 31, 2009. In the COLI policies, the Company is able to allocate investment of the assets across a set of choices provided by the insurance company, including fixed income securities and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company, whose Standard & Poor’s credit rating was A+. 
+54 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets totaled $8,445,000 as of December 31, 2010 and $6,905,000 as of December 31, 2009. The SERP assets are reported in other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in the consolidated statement of operations as part of other income (expense), net. Trading gains (losses) related to the SERP assets totaled $701,000 for 2010, $1,373,000 for 2009 and $(1,661,000) for 2008. The SERP deferrals and the contributions are recorded on the balance sheet in pension liabilities with any change in the fair value of the liabilities recorded as compensation cost in the statement of operations. 
+401(k) Plan 
+RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal Revenue Code. RPC matches 50 percent of each employee’s contributions that do not exceed six percent of the employee’s compensation, as defined by the plan. Employees vest in the RPC contributions after three years of service. The charges to expense for the Company’s contributions to the 401(k) plan were approximately $2,485,000 in 2010, $2,621,000 in 2009 and $2,814,000 in 2008. 
+Stock Incentive Plans 
+The Company has issued stock options and restricted stock to employees under two 10 year stock incentive plans that were approved by stockholders in 1994 and 2004. The 1994 plan expired in 2004. The Company reserved 7,593,750 shares of common stock under the 2004 Plan which expires in 2014. This plan provides for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock which are discussed in detail below. As of December 31, 2010, there were approximately 2,700,000 shares available for grants. The Company issues new shares from its authorized but unissued share pool. 
+The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their fair value at grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. Cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing activity in the accompanying consolidated statements of cash flows. 
+Pre-tax stock-based employee compensation expense was $4,909,000 in 2010 ($3,117,000 after tax), $4,440,000 in 2009 ($2,819,000 after tax) and $3,732,000 in 2008 ($2,382,000 after tax). 
+Stock Options 
+Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years. 
+The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options to employees since 2003. 
+55 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Transactions involving RPC’s stock options for the year ended December 31, 2010 were as follows: 
+Shares 
+Weighted Average 
+Exercise Price 
+Weighted Average 
+Remaining 
+Contractual Life 
+Aggregate Intrinsic Value 
+Outstanding at January 1, 2010 
+1,291,091 
+$ 
+2.26 
+2.25 years 
+Granted 
+- 
+- 
+N/A 
+Exercised 
+(180,192 
+) 
+2.73 
+N/A 
+Forfeited 
+(40,511 
+) 
+2.13 
+N/A 
+Expired 
+- 
+- 
+N/A 
+Outstanding at December 31, 2010 
+1,070,388 
+$ 
+2.26 
+1.23 years 
+$ 
+16,977,000 
+Exercisable at December 31, 2010 
+1,070,388 
+$ 
+2.26 
+1.23 years 
+$ 
+16,977,000 
+The total intrinsic value of stock options exercised was approximately $2,293,000 during 2010, $1,519,000 during 2009 and $6,214,000 during 2008. There were no recognized excess tax benefits associated with the exercise of stock options during 2010, since all of the stock options exercised in 2010 were incentive stock options which do not generate tax deductions for the Company. Recognized excess tax benefits associated with the exercise of stock options were approximately $353,000 during 2009 and $344,000 during 2008. 
+Restricted Stock 
+The Company has granted employees two forms of restricted stock: time lapse restricted and performance restricted. 
+Time lapse restricted shares 
+Time lapse restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest after ten years. Time lapse restricted shares issued subsequent to fiscal year 2003 vest in 20 percent increments annually starting with the second anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting rights for the granted shares. 
+Performance restricted shares 
+The performance restricted shares are granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC’s common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. After the determination date, the grantee will receive dividends declared and voting rights to the shares. The Company has not granted performance restricted shares since 1999. 
+The agreements under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans have lapsed. Upon termination of employment from RPC or, in certain cases, termination of employment from Marine Products Corporation or Chaparral Boats, Inc., shares with restrictions must be returned to RPC. 
+The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2010: 
+Shares 
+Weighted Average 
+Grant-Date Fair Value 
+Non-vested shares at January 1, 2010 
+2,973,174 
+$ 
+7.25 
+Granted 
+849,000 
+8.21 
+Vested 
+(629,933 
+) 
+7.25 
+Forfeited 
+(184,888 
+) 
+7.31 
+Non-vested shares at December 31, 2010 
+3,007,353 
+$ 
+7.58 
+The fair value of restricted awards is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense on a straight-line basis over the requisite service period. The weighted average grant date fair value of these restricted stock awards was $8.21, $5.70 and $6.54 for the years ended December 31, 2010, 2009 and 2008. The total fair value of shares vested was approximately $5,079,000 during 2010, $3,976,000 during 2009 and $3,675,000 during 2008. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating $651,000 for 2010, $1,068,000 for 2009 and $502,000 for 2008. The excess tax deductions are classified as a financing activity in the accompanying consolidated statements of cash flows. 
+56 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Other Information 
+As of December 31, 2010, total unrecognized compensation cost related to non-vested restricted shares was approximately $20,812,000 which is expected to be recognized over a weighted-average period of 3.6 years. As of December 31, 2010, there was no unrecognized compensation cost related to non-vested stock options. 
+The Company received cash from options exercised of $240,000 during 2010, $122,000 during 2009 and $347,000 during 2008. These cash receipts are classified as a financing activity in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled approximately $144,000 during 2010, $389,000 during 2009 and $1,911,000 during 2008 and have been excluded from the consolidated statements of cash flows. 
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $689,000 in 2010, $713,000 in 2009 and $842,000 in 2008. The Company’s receivable due from Marine Products for these services as of December 31, 2010 and 2009 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $551,000 in 2010, $409,000 in 2009 and $393,000 in 2008. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $94,000 in 2010, $87,000 in 2009 and $90,000 in 2008. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. 
+Note 12: Business Segment Information 
+RPC’s service lines have been aggregated into two reportable oil and gas services segments — Technical Services and Support Services — because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. Corporate includes selected administrative costs incurred by the Company. 
+57 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. These services include pressure pumping services, coiled tubing, snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services. These Technical Services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent, southwest, Rocky Mountain and northeast regions, and international locations including primarily Africa, Canada, China, Latin America, the Middle East and New Zealand. Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent and Appalachian regions, and international locations, including primarily Canada, Latin America, and the Middle East. Customers include domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+The accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the Company’s chief decision maker on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not material to operating results. 
+Summarized financial information concerning RPC’s reportable segments for the years ended December 31, 2010, 2009 and 2008 are shown in the following table. 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+Gain on 
+disposition of 
+assets, net 
+Total 
+(in thousands) 
+2010 
+Revenues 
+$ 
+979,834 
+$ 
+116,550 
+$ 
+— 
+$ 
+— 
+$ 
+1,096,384 
+Operating profit (loss) 
+217,144 
+31,086 
+(13,143 
+) 
+3,758 
+238,845 
+Capital expenditures 
+163,362 
+23,012 
+1,112 
+— 
+187,486 
+Depreciation and amortization 
+106,480 
+26,640 
+240 
+— 
+133,360 
+Identifiable assets 
+668,081 
+158,577 
+61,213 
+— 
+887,871 
+2009 
+Revenues 
+$ 
+513,289 
+$ 
+74,574 
+$ 
+— 
+$ 
+— 
+$ 
+587,863 
+Operating profit (loss) 
+(20,328 
+) 
+(1,636 
+) 
+(12,231 
+) 
+1,143 
+(33,052 
+) 
+Capital expenditures 
+48,175 
+19,220 
+435 
+— 
+67,830 
+Depreciation and amortization 
+101,780 
+28,085 
+715 
+— 
+130,580 
+Identifiable assets 
+453,133 
+144,905 
+51,005 
+— 
+649,043 
+2008 
+Revenues 
+$ 
+745,991 
+$ 
+130,986 
+$ 
+— 
+$ 
+— 
+$ 
+876,977 
+Operating profit (loss) 
+110,648 
+36,515 
+(9,360 
+) 
+6,367 
+144,170 
+Capital expenditures 
+127,054 
+42,238 
+1,026 
+— 
+170,318 
+Depreciation and amortization 
+92,738 
+24,798 
+867 
+— 
+118,403 
+Identifiable assets 
+564,708 
+181,991 
+46,762 
+— 
+793,461 
+58 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2010, 2009 and 2008 
+The following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2010, 2009 and 2008. The revenues are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented. 
+Years ended December 31, 
+2010 
+2009 
+2008 
+(in thousands) 
+United States Revenues 
+$ 
+1,041,461 
+$ 
+543,026 
+$ 
+846,202 
+International Revenues 
+54,923 
+44,837 
+30,775 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+59 
+Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+None. 
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2010 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 30 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2010 and issued a report thereon which is included on page 31 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+Item 9B. Other Information 
+None. 
+60 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+Information concerning directors and executive officers will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the section titled “Election of Directors.” This information is incorporated herein by reference. Information about executive officers is contained on page 14 of this document. 
+Audit Committee and Audit Committee Financial Expert 
+Information concerning the Audit Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and Meetings – Audit Committee.” This information is incorporated herein by reference. 
+Code of Ethics 
+RPC, Inc. has a Code of Business Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transaction Policy. Both of these documents are available on the Company’s website at www.rpc.net. Copies are available at no charge by writing to Attention: Human Resources, RPC Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+RPC, Inc. intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code that relates to any elements of the code of ethics definition enumerated in SEC rules by posting such information on its internet website, the address of which is provided above. 
+Section 16(a) Beneficial Ownership Reporting Compliance 
+Information regarding compliance with Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2011 Annual Meeting of Stockholders, which is incorporated herein by reference. 
+Item 11. Executive Compensation 
+Information concerning director and executive compensation will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the sections titled “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.” This information is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Information concerning security ownership will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the sections “Capital Stock” and “Election of Directors.” This information is incorporated herein by reference. 
+61 
+Securities Authorized for Issuance Under Equity Compensation Plans 
+The following table sets forth certain information regarding equity compensation plans as of December 31, 2010. 
+Plan Category 
+(A) 
+Number of Securities 
+To Be Issued Upon 
+Exercise of 
+Outstanding Options, 
+Warrants and Rights 
+(B) 
+Weighted Average Exercise 
+Price of Outstanding 
+Options, Warrants and 
+Rights 
+(C) 
+Number of Securities 
+Remaining Available for 
+Future Issuance Under 
+Equity Compensation 
+Plans (Excluding 
+Securities Reflected in 
+Column (A)) 
+Equity compensation plans approved by securityholders 
+1,070,388 
+$ 
+2.26 
+2,676,129 
+(1) 
+Equity compensation plans not approved by securityholders 
+- 
+- 
+- 
+Total 
+1,070,388 
+$ 
+2.26 
+2,676,129 
+(1) 
+All of the securities can be issued in the form of restricted stock or other stock awards. 
+See Note 10 to the Consolidated Financial Statements for information regarding the material terms of the equity compensation plans. 
+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference. 
+Item 14. Principal Accounting Fees and Services 
+Information regarding principal accountant fees and services will be included in the section titled “Independent Registered Public Accounting Firm” in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders. This information is incorporated herein by reference. 
+62 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements, Financial Statement Schedule and Exhibits 
+1. 
+Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report. 
+2. 
+The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report. 
+3. 
+Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of “At-Will” of Compensation Arrangements with Executive Officers as of February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form 10-K filed on March 4, 2008). 
+10.13 
+Summary of Compensation Arrangements with Non-Employee Directors as of February 28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K filed on March 4, 2008). 
+10.16 
+Summary of “At-Will” of Compensation Arrangements with Executive Officers as of February 28, 2009 (incorporated by reference to Exhibit 10.18 to the Form 10-K filed on March 5, 2009). 
+10.17 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.19 
+Summary of Compensation Arrangements with Non-Employee Directors 
+63 
+Exhibits (inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 
+3.1B 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May 8, 2006). 
+3.2 
+Bylaws of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 8-K filed on October 25, 2007). 
+4 
+Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001). 
+10.5 
+Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of “At-Will” of Compensation Arrangements with Executive Officers as of February 28, 2008 (incorporated by reference to Exhibit 10.16 to the Form 10-K filed on March 4, 2008). 
+10.13 
+Summary of Compensation Arrangements with Non-Employee Directors as of February 28, 2008 (incorporated by reference to Exhibit 10.17 to the Form 10-K filed on March 4, 2008). 
+10.14 
+Revolving Credit Agreement dated September 8, 2006 between RPC, Banc of America, N.A., SunTrust Bank and certain other Lenders party thereto (incorporated by reference to Exhibit 99.1 to the Form 8-K dated September 8, 2006). 
+10.15 
+Commitment Increase Amendment to Revolving Credit Agreement dated as of June 9, 2008, by and among the Company, the several banks and other financial institutions from time to time party thereto and SunTrust Bank, in its capacity as Administrative Agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated June 9, 2008). 
+10.16 
+Summary of “At-Will” of Compensation Arrangements with Executive Officers as of February 28, 2009 (incorporated herein by reference to Exhibit 10.18 to the Form 10-K filed on March 5, 2009). 
+10.17 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.18 
+Second Amendment to Revolving Credit Agreement dated as of September 2, 2009 by and among the Company, the several banks and other financial institutions from time to time party thereto and SunTrust Bank, in its capacity as administrative agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated September 2, 2009). 
+10.19 
+Summary of Compensation Arrangements with Non-Employee Directors. 
+10.20 
+Credit Agreement dated August 31, 2010 between the Company, Banc of America, N.A., SunTrust Bank, Regions Bank and certain other lenders party thereto (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on September 7, 2010) 
+21 
+Subsidiaries of RPC 
+23 
+Consent of Grant Thornton LLP 
+24 
+Powers of Attorney for Directors 
+31.1 
+Section 302 certification for Chief Executive Officer 
+31.2 
+Section 302 certification for Chief Financial Officer 
+32.1 
+Section 906 certifications for Chief Executive Officer and Chief Financial Officer 
+64 
+SIGNATURES 
+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. 
+RPC, Inc. 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+March 4, 2011 
+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. 
+Name 
+Title 
+Date 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+March 4, 2011 
+/s/ Ben M. Palmer 
+Ben M. Palmer 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+March 4, 2011 
+The Directors of RPC (listed below) executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their behalf. 
+R. Randall Rollins, Director 
+James A. Lane, Jr., Director 
+Wilton Looney, Director 
+Linda H. Graham, Director 
+Gary W. Rollins, Director 
+Bill J. Dismuke, Director 
+Henry B. Tippie, Director 
+Larry L. Prince, Director 
+James B. Williams, Director 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+Director and as Attorney-in-fact 
+March 4, 2011 
+65 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The following documents are filed as part of this report. 
+FINANCIAL STATEMENTS AND REPORTS 
+PAGE 
+Management’s Report on Internal Control Over Financial Reporting 
+30 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+31 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+32 
+Consolidated Balance Sheets as of December 31, 2010 and 2009 
+33 
+Consolidated Statements of Operations for the three years ended December 31, 2010 
+34 
+Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2010 
+35 
+Consolidated Statements of Cash Flows for the three years ended December 31, 2010 
+36 
+Notes to Consolidated Financial Statements 
+37 - 59 
+SCHEDULE 
+Schedule II — Valuation and Qualifying Accounts 
+66 
+Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+For the years ended 
+December 31, 2010, 2009 and 2008 
+(in thousands) 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Net 
+Recoveries 
+(Deductions) 
+Balance 
+at End of 
+Period 
+Year ended December 31, 2010 
+Allowance for doubtful accounts 
+$ 
+3,210 
+$ 
+4,812 
+$ 
+672 
+(1) 
+$ 
+8,694 
+Deferred tax asset valuation allowance 
+$ 
+1,550 
+$ 
+— 
+$ 
+(255 
+) 
+(2) 
+$ 
+1,295 
+Year ended December 31, 2009 
+Allowance for doubtful accounts 
+$ 
+6,199 
+$ 
+660 
+$ 
+(3,649 
+) 
+(1) 
+$ 
+3,210 
+Deferred tax asset valuation allowance 
+$ 
+1,454 
+$ 
+96 
+$ 
+— 
+(2) 
+$ 
+1,550 
+Year ended December 31, 2008 
+Allowance for doubtful accounts 
+$ 
+5,217 
+$ 
+(84 
+) 
+$ 
+1,066 
+(1) 
+$ 
+6,199 
+Deferred tax asset valuation allowance 
+$ 
+1,503 
+$ 
+— 
+$ 
+(49 
+) 
+(2) 
+$ 
+1,454 
+(1) 
+Deductions in the allowance for doubtful accounts principally reflect the write-off of previously reserved accounts net of recoveries. 
+(2) 
+The valuation allowance for deferred tax assets is increased or decreased each year to reflect the state net operating losses that management believes will not be utilized before they expire. 
+66 
+SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share data) 
+2010 
+Revenues 
+$ 
+213,144 
+$ 
+252,896 
+$ 
+302,200 
+$ 
+328,144 
+Net income 
+$ 
+13,400 
+$ 
+31,602 
+$ 
+46,269 
+$ 
+55,471 
+Net income per share — basic (a) 
+$ 
+0.09 
+$ 
+0.22 
+$ 
+0.32 
+$ 
+0.38 
+Net income per share — diluted (a) 
+$ 
+0.09 
+$ 
+0.21 
+$ 
+0.31 
+$ 
+0.38 
+2009 
+Revenues 
+$ 
+176,271 
+$ 
+127,018 
+$ 
+132,159 
+$ 
+152,415 
+Net (loss) income 
+$ 
+4,466 
+$ 
+(11,624 
+) 
+$ 
+(10,385 
+) 
+$ 
+(5,202 
+) 
+Net (loss) income per share — basic (a) 
+$ 
+0.03 
+$ 
+(0.08 
+) 
+$ 
+(0.07 
+) 
+$ 
+(0.03 
+) 
+Net (loss) income per share — diluted (a) 
+$ 
+0.03 
+$ 
+(0.08 
+) 
+$ 
+(0.07 
+) 
+$ 
+(0.03 
+) 
+(a) 
+The sum of the income (loss) per share for the four quarters may differ from annual amounts due to the required method of computing the weighted average shares for the respective periods. 
+67
\ No newline at end of file
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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2011-03-04,2010-12-31,2011-03-04T19:17:51.000Z,0001188112-11-000495,t69879_10k.htm,FORM 10-K,2110219,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811211000495/t69879_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811211000495/,2010,2010,1
diff --git a/raw/filings/0000742278/2010/0001188112-11-000495/item1.txt b/raw/filings/0000742278/2010/0001188112-11-000495/item1.txt
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+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain and northeast regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) coiled tubing services, (3) snubbing services (also referred to as hydraulic workover services), (4) nitrogen services, (5) the rental of drill pipe and other specialized oilfield equipment, (6) downhole tool services and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2010, RPC had approximately 2,500 employees. 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+2 
+During 2010, approximately three percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of other countries, principally in New Zealand. We also estimate that 33 percent of our 2010 revenues were related to drilling and production activities for oil, and 67 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain, and Appalachian regions, and contract or project work in selected international locations in the last three years including primarily Africa, Canada, China, Eastern Europe, Latin America, the Middle East and New Zealand. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 48 percent of 2010 revenues, 38 percent of 2009 revenues and 41 percent of 2008 revenues, are provided to customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of the United States and are generally utilized to initiate production in new or enhance production in existing customer wells. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping nitrogen or a fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant, which is suspended in the gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the well. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 12 percent of 2010 revenues, 15 percent of 2009 revenues and nine percent of 2008 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+3 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 10 percent of 2010 revenues and nine percent of 2009 and 2008 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately five percent of 2010 revenues, eight percent of 2009 revenues, and seven percent of 2008 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. 
+Nitrogen . Nitrogen accounted for approximately five percent of 2010 revenues, seven percent of 2009 revenues, and eight percent of 2008 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. The Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Hungary, India, Kuwait, Libya, Mexico, Peru, Qatar, Taiwan, Trinidad, Turkmenistan and Venezuela. 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+4 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+5 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately eight percent of 2010 and 2009 revenues and 11 percent of 2008 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, northeast and Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage. Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both the oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides this training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the northeast production fields. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 63 percent from its peak in 1981. Due to enhanced technology, however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Record low drilling activity levels were experienced in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the most recent prior cycle peaked at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the end of 2010, U.S. domestic drilling activity increased by 93 percent, but is 17 percent lower than the prior cyclical peak in the third quarter of 2008. As of a recent date in 2011, U.S. domestic drilling activity has increased by approximately two percent compared to the fourth quarter of 2010. 
+6 
+During 2010 the average price of natural gas increased by approximately 12 percent, and the average price of oil increased by approximately 17 percent. The change in domestic drilling activity during 2010 was consistent with the recovery in the prices of oil and natural gas, as well as the improvement in the overall economy following the financial crisis and recession in 2008 and 2009. Although our business has repeatedly demonstrated that it is cyclical, we continue to believe that the long-term prospects for our business are favorable due to growing global demand for oil and natural gas. In addition, we believe in the long-term growth of our business due to increased need for RPC’s services demanded by current drilling and completion techniques. 
+Since 2001 and 2009, gas drilling rigs represented an increasing percentage of the total drilling rig count, and have represented over 70 percent of the drilling rig count during these years. In 2010, the percentage of drilling rigs drilling for natural gas declined, and represented 61 percent of total drilling activity. Although the demand trend for natural gas is continuing to rise, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. In contrast, the price of oil has increased, and producers in the domestic market have started to exploit new resource plays that are economical at current high oil prices The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Based on current demand levels for natural gas as well as the high oil and gas well depletion rates experienced over the past several years, it is anticipated that gas-directed drilling will continue to represent the majority of the total drilling rig count in the foreseeable future. 
+In addition, there are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. These wells are predominantly natural gas wells, although they are increasingly being drilled for oil as well. Because they are drilled through a narrow formation and the formation is typically a relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn means that there is a great deal of pressure pumping horsepower required to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. Over the past several years, RPC has continued its focus on developing international opportunities, although our equipment investments over the last couple of years have emphasized domestic rather than international expansion. International revenues for 2010 increased due to higher customer activity levels in Canada, Columbia, and Qatar, among other countries, partially offset by decreases in Mexico and the elimination of revenue in Egypt. During 2010, RPC provided snubbing, well control and oilfield training services in New Zealand, Qatar, Columbia, Gabon, Saudi Arabia, and Mexico, among other countries. We also provided rental tools in Columbia and Argentina, and downhole motors and tools in Canada, Tunisia, Mexico, the Congo and Oman. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues. 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+7 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. However, current strong business conditions have encouraged potential sellers of businesses to expect high prices for their businesses, so we believe we generate better returns growing organically in service lines and geographic locations in which we have experience and presence. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. During the third quarter of 2010, we renewed our facility to fund our ongoing capital needs. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2009 we reduced capital expenditures due to the industry downturn and the resulting lower near-term expected returns on investment. However, we increased our purchases of revenue-producing equipment in 2010 to support new and projected significant customer agreements. In spite of increased capital expenditures and working capital requirements during 2010, at the end of the year our level of debt was conservative compared to a number of our peers. Furthermore, we believe that the favorable long-term returns on investment in our revenue-producing equipment justify financing their purchase using debt. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2010, RPC provided oilfield services to several hundred customers. Of these customers, only one, Chesapeake Energy Corporation at approximately 15 percent of revenues, accounted for more than 10 percent of revenues. RPC believes that its relationship with this customer is good. Although the Company believes that we would be able to obtain other customers for our services in the event of the loss of this major customer, the loss of this customer could have a material adverse effect on Company revenues and operating results in the near term. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. During 2010 we entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. These agreements represent a growing percentage of our revenues, and we monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. RPC believes that the principal competitive factors in the market areas that it serves are product and service quality and availability, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company owns two primary administrative buildings, one in Houston, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+8 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission. 
+9
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diff --git a/raw/filings/0000742278/2010/0001188112-11-000495/item13.txt b/raw/filings/0000742278/2010/0001188112-11-000495/item13.txt
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+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2011 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference.
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diff --git a/raw/filings/0000742278/2010/0001188112-11-000495/item9a.txt b/raw/filings/0000742278/2010/0001188112-11-000495/item9a.txt
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@@ -0,0 +1,5 @@
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2010 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 30 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2010 and issued a report thereon which is included on page 31 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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diff --git a/raw/filings/0000742278/2010/0001188112-11-000495/rp_note.txt b/raw/filings/0000742278/2010/0001188112-11-000495/rp_note.txt
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@@ -0,0 +1,9 @@
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $689,000 in 2010, $713,000 in 2009 and $842,000 in 2008. The Company’s receivable due from Marine Products for these services as of December 31, 2010 and 2009 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $551,000 in 2010, $409,000 in 2009 and $393,000 in 2008. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $94,000 in 2010, $87,000 in 2009 and $90,000 in 2008. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.
\ No newline at end of file
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@@ -0,0 +1,7 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011. 
+During 2011, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2011, payments totaling approximately $1,458,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $102,000 in 2011. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2011 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. 
+26
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diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/filing.txt b/raw/filings/0000742278/2011/0001188112-12-000533/filing.txt
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@@ -0,0 +1,3849 @@
+10-K
+1
+t72617_10k.htm
+FORM 10-K
+t72617_10k.htm 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+x 
+Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For the fiscal year ended December 31, 2011 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2801 BUFORD HIGHWAY, SUITE 520 
+ATLANTA, GEORGIA 30329 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of each class 
+COMMON STOCK, $0.10 PAR VALUE 
+Name of each exchange on which registered 
+NEW YORK STOCK EXCHANGE 
+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. x Yes o No 
+Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No 
+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 o 
+Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 x No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. x 
+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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
+Large accelerated filer x 
+Accelerated filer o 
+Non-accelerated filer o 
+Smaller reporting company o 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x 
+The aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2011, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,050,367,129 based on the closing price on the New York Stock Exchange on June 30, 2011 of $24.54 per share. 
+RPC, Inc. had 146,333,777 shares of Common Stock outstanding as of February 17, 2012. 
+Documents Incorporated by Reference 
+Portions of the Proxy Statement for the 2012 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of this report. 
+1 
+PART I 
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or “the Company.” 
+Forward-Looking Statements 
+Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and our performance in the future. Forward-looking statements made elsewhere in this report include without limitation statements regarding our belief that sources of supply for various of our raw materials are adequate; our belief that the long-term prospects for our business are favorable due to the continued demand for oil and natural gas; our belief that the long-term demand outlook for natural gas is still favorable in spite of near-term price weakness; our belief that oil-directed drilling will continue to represent the majority of the total drilling rig count in the immediate future; our expectation to continue to focus on the development of international business opportunities in current and other international markets; our ability to obtain other customers in the event of a loss of our largest customers; the adequacy of our insurance coverage; the impact of lawsuits, legal proceedings and claims on our business and financial condition; our expectation to continue to pay cash dividends to the common stockholders subject to the earnings and financial condition of the Company and other relevant factors; our intention to increase our presence in areas in which drilling activity is directed towards oil; our belief that continued increases in U.S. domestic rig count during 2012 are unlikely; our belief that the trend of an increased percentage of oil-directed drilling and a decreased percentage of gas-directed drilling will continue in the near term; our belief that an increase in the supply in oilfield equipment in our markets can cause a decrease in the price we receive for our services if commodity prices and drilling activity do not also increase and that this effect may be more pronounced in the current environment; our expectation that our consolidated revenues and financial performance will improve in 2012 compared to 2011; our ability to maintain sufficient liquidity and a conservative capital structure; our belief about the amount of the contribution to the defined benefit pension plan in 2012; our ability to fund capital requirements in the future; the estimated amount of our capital expenditures and contractual obligations for future periods; estimates made with respect to our critical accounting policies; and the effect of new accounting standards. 
+The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. See “Risk Factors” contained in Item 1A. for a discussion of factors that may cause actual results to differ from our projections. 
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services (3) coiled tubing services, (4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2011, RPC had approximately 3,400 employees. 
+2 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+During 2011, approximately two percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, less than one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of New Zealand. We also estimate that 45 percent of our 2011 revenues were related to drilling and production activities for oil, and 55 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 55 percent of 2011 revenues, 48 percent of 2010 revenues and 38 percent of 2009 revenues are provided to customers throughout Texas and the Appalachian and other mid-continent regions of the United States. We primarily provide these services to customers in order to enhance the initial production of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation at desired locations and depths. Sand, bauxite or synthetic proppant, which is often suspended in gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately the well surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+3 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 12 percent of 2011 revenues, 12 percent of 2010 revenues and 15 percent of 2009 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 11 percent of 2011 revenues, 10 percent of 2010 revenues and nine percent of 2009 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately four percent of 2011 revenues, five percent of 2010 revenues and eight percent of 2009 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill pipe conveyed by a snubbing unit. 
+Nitrogen . Nitrogen accounted for approximately four percent of 2011 revenues, five percent of 2010 revenues and seven percent of 2009 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. The Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Hungary, India, Kuwait, Libya, Mexico, Peru, Qatar, Taiwan, Trinidad, Turkmenistan and Venezuela. 
+4 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately six percent of 2011 revenues, eight percent of 2010 revenues and eight percent of 2009 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, Appalachian region and the Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Wear Knot TM Drill Pipe 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage . Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+5 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve oil and gas production of its customers in the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the Appalachian region. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 56 percent from its peak in 1981. Due to enhanced technology, however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Oil and gas industry activity levels have historically been volatile, experiencing multiple up and down cycles including 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the peak of the most recent prior cycle occurred at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the end of 2011, U.S. domestic drilling activity increased by 129 percent, and is approximately equal to the prior cyclical peak in the third quarter of 2008. As of a recent date in 2012, U.S. domestic drilling activity is approximately equal to the fourth quarter of 2011 although the industry is experiencing shifts in activity from gas-directed plays to oil and more liquids rich plays. 
+The increase in domestic drilling activity to a level equal to the prior cyclical peak is consistent with the recovery in the prices of oil and natural gas, the overall economic recovery following the recession in 2008 and 2009, and the high financial returns from drilling in unconventional shale plays during the past several years. During 2011 the average price of natural gas decreased by approximately 33 percent, while the average price of oil increased by approximately 12 percent. The increase in the price of oil has increased the attractiveness of drilling for oil and petroleum liquids in several unconventional basins in the U.S. domestic market. The growth in this type of drilling activity is the sole cause of the increase in overall drilling activity that occurred during 2011. Although our market has repeatedly demonstrated that it is cyclical, and the price of natural gas has recently declined to the lowest level in approximately 10 years, we continue to believe in the long-term growth opportunities for our business due to the continued high demand for oil and natural gas. Furthermore, we note that the techniques used to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its customers. 
+From 2001 to 2009, gas drilling rigs on average represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling rigs drilling for natural gas began to decline, and by the end of 2011 represented approximately 40 percent of total drilling activity. Although the demand for natural gas has remained stable, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. The price of natural gas has continued to fall during the first quarter of 2012 due to an unseasonably warm winter in the United States. In contrast, the price of oil has increased, and producers in the domestic market have started to exploit new resource plays that are economical at current high oil prices. The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Because of the unseasonably warm winter in 2012, the high price of oil, and the new opportunities to drill for oil in the United States, we anticipate that oil-directed drilling will continue to represent the majority of the total drilling rig count for the immediate future. 
+There are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. These wells have become an increasingly large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprised the majority of U.S. domestic drilling. These wells have predominantly been natural gas wells, although a growing percentage are being drilled for heavier petroleum liquids and oil as well. Because they are drilled through a narrow formation and the formation is typically a relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn means that there is a great deal of pressure pumping horsepower required to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. RPC’s equipment investments over the last couple of years have emphasized domestic rather than international expansion because of higher expected financial returns. International revenues for 2011 decreased due to lower customer activity levels in Colombia, New Zealand and Qatar, and accounted for approximately three percent of consolidated RPC revenues. International revenues increased in Canada, Mexico and Saudi Arabia. During 2011, RPC provided snubbing, well control and oilfield training services in New Zealand, Gabon, and Saudi Arabia, among other countries. We also provided rental tools in Canada, Mexico, Oman and Tunisia. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues. 
+6 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. However, current strong business conditions have encouraged potential sellers of businesses to expect high prices for their businesses, so we believe we generate better returns on investments growing organically in service lines and geographic locations in which we have experience and presence. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. At December 31, 2011, this facility had a remaining term of almost four years. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2010 and 2011, we increased our purchases of revenue-producing equipment to support industry growth and significant customer agreements. Despite increased capital expenditures and working capital requirements during 2011, as well as large purchases of scarce raw materials in the fourth quarter of 2011, at the end of the year our level of debt was conservative compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2011, RPC provided oilfield services to several hundred customers. Of these customers, only one, Chesapeake Energy Corporation at approximately 12 percent of revenues, accounted for more than 10 percent of revenues. RPC believes that its relationship with this customer is good. Although the Company believes that we would be able to obtain other customers for our services in the event of the loss of this major customer, the loss of this customer could have a material adverse effect on Company revenues and operating results in the near term. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. Over the past two years we have entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. These agreements represent a growing percentage of our revenues, and we monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+7 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Recent strong oilfield activity and the availability of capital have encouraged several new, smaller companies to seek debt and equity capital and accelerate their growth rates. Several of these competitors have filed registration statements to sell equity securities in initial public offerings, which further increases their access to capital markets. RPC believes that the principal competitive factors in the market areas that it serves are product availability and quality of our equipment service, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company owns two primary administrative buildings, one in Houston, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission. 
+8 
+Item 1A. Risk Factors 
+Demand for our products and services is affected by the volatility of oil and natural gas prices. 
+Oil and natural gas prices affect demand throughout the oil and gas industry, including the demand for our products and services. Our business depends in large part on the conditions of the oil and gas industry, and specifically on the capital investments of our customers related to the exploration and production of oil and natural gas. When these capital investments decline, our customers’ demand for our services declines. 
+Although the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react to declining oil and gas prices by curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of operations. 
+We are becoming increasingly reliant on a few large customers and long-term contractual relationships, the loss of any of which may adversely affect our revenues and profits. 
+Over the past several years, the U.S. domestic oilfield services market has come to be dominated by unconventional shale resource plays. A number of our large customers in these resource plays have entered into multi-year contractual relationships with us to provide services that enable them to operate more efficiently in these plays. If we do not perform adequately under the terms of these relationships, or if our customers decide to terminate these relationships, our revenues and profits may be adversely affected. At the end of the terms of these relationships, we may not be able to renew them on favorable terms, or may not be able to renew them at all. In any of these cases, our future revenues and profits may be adversely affected. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and earnings have in the past been affected by changes in competitive prices, fluctuations in the level of activity in major markets and general economic conditions. We compete with the oil and gas industry’s many large and small industry competitors, including the largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and may continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent, the Rocky Mountains and the Appalachian region. Hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others. Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our ability to attract and retain skilled workers may impact growth potential and profitability. 
+Our ability to be productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our operations is, in part, impacted by our ability to increase our labor force. A significant increase in the wages paid by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be impaired. 
+9 
+Our concentration of customers in one industry may impact our overall exposure to credit risk. 
+Substantially all of our customers operate in the energy industry. This concentration of customers in one industry may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. 
+Reliance upon a large customer may adversely affect our revenues and operating results. 
+During 2011, one of our largest customers accounted for approximately 12 percent of our total revenues. This reliance on a large customer for a significant portion of our total revenues exposes us to the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and disproportionate adverse impact upon our revenues and operating results. 
+Our business has potential liability for litigation, personal injury and property damage claims assessments. 
+RPC’s subsidiaries have a number of agreements of various types in place with our customers. In general, these agreements indemnify RPC and its subsidiaries against damage or liabilities that arise from the actions of our employees or the operation of our equipment. The provisions in these agreements do not make a distinction among the types of services that RPC provides or the location of the work. These agreements also require that RPC maintain a certain level and type of insurance coverage against any claims that are determined to be our responsibility. RPC has insurance coverage in place with several well-capitalized insurance companies for accidental environmental claims. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur, it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and relationships with customers, employees and regulators. These occurrences could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and assessments that may arise. 
+Our operations may be adversely affected if we are unable to comply with regulatory and environmental laws. 
+Our business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations for economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. We believe that our present operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse effect on our business. 
+Our operations in various countries including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America, the Middle East and New Zealand are subject to risks. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, boycotts and other civil disturbances. The occurrence of any one of these events could have a material adverse effect on our operations. 
+10 
+Our common stock price has been volatile. 
+Historically, the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of our common stock has varied significantly in the past. 
+Our management has a substantial ownership interest, and public stockholders may have no effective voice in the management of the Company. 
+The Company has elected the “Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of independent directors. 
+RPC’s executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 71 percent of RPC’s outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. 
+Our management has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited. 
+The availability of RPC’s common stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock. 
+Provisions in RPC’s Certificate of Incorporation and Bylaws may inhibit a takeover of RPC. 
+RPC’s certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for stockholder proposals and staggered terms for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board of Directors more difficult or expensive. 
+Some of our equipment and several types of materials used in providing our services are available from a limited number of suppliers. 
+We purchase equipment provided by a limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in pressure pumping services, our largest service line. While these materials are generally available, supply disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our ability to provide services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We have used outside financing to accomplish our growth strategy, and outside financing may become unavailable or may be unfavorable to us. 
+Our business requires a great deal of capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $350 million credit facility to fund our necessary working capital and equipment requirements. Most of our existing credit facility bears interest at a floating rate, which exposes us to market risks as interest rates rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public equity, the holdings of stockholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other potentially profitable business opportunities, which could reduce our future revenues and profits. 
+Item 1B. Unresolved Staff Comments 
+None. 
+11 
+Item 2. Properties 
+RPC owns or leases approximately 100 offices and operating facilities. The Company leases approximately 17,000 square feet of office space in Atlanta, Georgia that serves as its headquarters, a portion of which is allocated and charged to Marine Products Corporation. See “Related Party Transactions” contained in Item 7. The lease agreement on the headquarters is effective through October 2013. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future needs. Descriptions of the major facilities used in our operations are as follows: 
+Owned Locations 
+Conway, Arkansas — Operations, sales and equipment storage yards 
+Elk City, Oklahoma — Operations, sales and equipment storage yards 
+Houma, Louisiana — Administrative office 
+Houston, Texas — Pipe storage terminal and inspection sheds 
+Houston, Texas — Operations, sales and administrative office 
+Kilgore, Texas — Pumping services facility 
+Lafayette, Louisiana — Operations, sales and equipment storage yards 
+Rock Springs, Wyoming — Operations, sales and equipment storage yards 
+Leased Locations 
+Canton, Pennsylvania — Pumping services facility 
+Houston, Texas — Operations, sales and administrative office 
+Odessa, Texas — Operations, sales and equipment storage yards 
+Oklahoma City, Oklahoma — Operations, sales and administrative office 
+Seminole, Oklahoma — Pumping services facility 
+Washington, Pennsylvania — Operations, sales and equipment storage yards 
+Item 3. Legal Proceedings 
+RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on RPC’s business or financial condition. 
+12 
+Item 4. Mine Safety Disclosures. 
+Not Applicable. 
+Item 4A. Executive Officers of the Registrant 
+Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately following the next annual meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected to Present Office 
+R. Randall Rollins (1) 
+80 
+1/24/84 
+Chairman of the Board 
+Richard A. Hubbell (2) 
+67 
+4/22/03 
+President and 
+Chief Executive Officer 
+Linda H. Graham (3) 
+75 
+1/27/87 
+Vice President and 
+Secretary 
+Ben M. Palmer (4) 
+51 
+7/8/96 
+Vice President, 
+Chief Financial Officer and 
+Treasurer 
+(1) 
+R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984. He has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001 and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard A. Hubbell has been the President of RPC since 1987 and Chief Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was spun off from RPC in February 2001. Mr. Hubbell serves on the Board of Directors for both of these companies. 
+(3) 
+Linda H. Graham has been the Vice President and Secretary of RPC since 1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from RPC in 2001. Ms. Graham serves on the Board of Directors for both of these companies. 
+(4) 
+Ben M. Palmer has been the Vice President, Chief Financial Officer and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation since it was spun off from RPC in 2001. 
+13 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+RPC’s common stock is listed for trading on the New York Stock Exchange under the symbol RES. At February 17, 2012 there were 146,333,777 shares of common stock outstanding and approximately 8,788 beneficial holders of common stock. The following table sets forth the high and low prices of RPC’s common stock and dividends paid for each quarter in the years ended December 31, 2011 and 2010: 
+2011 
+2010 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+25.73 
+$ 
+15.83 
+$ 
+0.07 
+$ 
+9.00 
+$ 
+7.07 
+$ 
+0.027 
+Second 
+29.05 
+19.82 
+0.07 
+10.00 
+6.61 
+0.027 
+Third 
+27.31 
+17.29 
+0.08 
+14.47 
+8.69 
+0.040 
+Fourth 
+22.32 
+14.21 
+0.10 
+22.53 
+13.64 
+0.047 
+On January 24, 2012 RPC’s Board of Directors declared a three-for-two stock split of the Company’s common shares. The split will be effected by issuing an additional share of common stock for every two shares of common stock held. The additional shares will be distributed on March 9, 2012 to stockholders of record on February 10, 2012. The stock split will increase the Company’s outstanding shares from approximately 146,333,777 shares to 219,500,666 shares. Our historical outstanding shares will be recast upon the distribution. Additionally, the Board of Directors approved a $0.12 per share cash dividend, payable March 9, 2012 to stockholders of record at the close of business on February 10, 2012. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+Issuer Purchases of Equity Securities 
+Shares repurchased in the fourth quarter of 2011 are outlined below. 
+Period 
+Total 
+Number of 
+Shares (or 
+Units) 
+Purchased 
+Average 
+Price Paid 
+Per Share 
+(or Unit) 
+Total Number of 
+Shares (or Units) 
+Purchased as 
+Part of Publicly 
+Announced 
+Plans or 
+Programs 
+Maximum Number 
+(or Approximate 
+Dollar Value) of 
+Shares (or Units) that 
+May Yet Be 
+Purchased Under the 
+Plans or Programs 
+October 1, 2011 to October 31, 2011 
+- 
+$ 
+- 
+- 
+3,400,521 
+November 1, 2011 to November 30, 2011 
+696,455 
+18.89 
+696,455 
+2,704,066 
+December 1, 2011 to December 31, 2011 
+140,000 
+17.20 
+140,000 
+2,564,066 
+Totals 
+836,455 
+$ 
+18.60 
+836,455 
+2,564,066 
+The Company’s Board of Directors announced a stock buyback program in March 1998 authorizing the repurchase of 17,718,750 shares in the open market. There were 836,455 shares repurchased as part of this program during the fourth quarter of 2011. Currently the program does not have a predetermined expiration date. 
+Performance Graph 
+The following graph shows a five year comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 1000 Index (“Russell 1000”), the Philadelphia Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that are considered peers of the Company, as discussed below (the “Peer Group”). The Company has voluntarily chosen to provide both an industry and a peer group index. 
+14 
+The Company was a component of the Russell 1000 during 2011. The Russell 1000 is a stock index representing large capitalization U.S. stocks with high historical growth in revenues and earnings. The components of the index had a weighted average market capitalization in 2011 of $97.5 billion, and a median market capitalization of $5.6 billion. The Russell 1000 was chosen because it represents companies with comparable market capitalizations to the Company, and because the Company is a component of the index. The performance of the Russell 2000 Index (“Russell 2000”) is also included in the following graph because the Company was previously a component of the Russell 2000 and the performance of the Russell 2000 was formerly included in the following graph. The OSX is a stock index of 15 companies that provide oil drilling and production services, oilfield equipment, support services and geophysical/reservoir services. The Company is not a component of the OSX, but this index was chosen because it represents a large group of companies that provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., Basic Energy Services, Inc., Superior Energy Services, Inc., and Halliburton Company. The companies included in the Peer Group have been weighted according to each respective issuer’s stock market capitalization at the beginning of each year. 
+15 
+Item 6. Selected Financial Data 
+The following table summarizes certain selected financial data of the Company. The historical information may not be indicative of the Company’s future results of operations. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document. 
+STATEMENT OF OPERATIONS DATA: 
+Years Ended December 31, 
+2011 
+2010 
+2009 
+2008 
+2007 
+(in thousands, except employee and per share amounts) 
+Revenues 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+$ 
+690,226 
+Cost of revenues 
+992,704 
+606,098 
+393,806 
+503,631 
+368,175 
+Selling, general and administrative expenses 
+151,286 
+121,839 
+97,672 
+117,140 
+107,800 
+Depreciation and amortization 
+179,905 
+133,360 
+130,580 
+118,403 
+78,506 
+Loss (gain) on disposition of assets, net 
+3,831 
+(3,758 
+) 
+(1,143 
+) 
+(6,367 
+) 
+(6,293 
+) 
+Operating profit (loss) 
+482,081 
+238,845 
+(33,052 
+) 
+144,170 
+142,038 
+Interest expense 
+(3,453 
+) 
+(2,662 
+) 
+(2,176 
+) 
+(5,282 
+) 
+(4,179 
+) 
+Interest income 
+18 
+46 
+147 
+73 
+70 
+Other income (expense), net 
+169 
+1,303 
+1,582 
+(1,176 
+) 
+1,905 
+Income (loss) before income taxes 
+478,815 
+237,532 
+(33,499 
+) 
+137,785 
+139,834 
+Income tax provision (benefit) 
+182,434 
+90,790 
+(10,754 
+) 
+54,382 
+52,785 
+Net income (loss) 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+$ 
+87,049 
+Earnings (loss) per share : 
+Basic 
+$ 
+2.04 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+$ 
+0.60 
+Diluted 
+$ 
+2.02 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+$ 
+0.57 
+$ 
+0.59 
+Dividends paid per share 
+$ 
+0.320 
+$ 
+0.141 
+$ 
+0.148 
+$ 
+0.160 
+$ 
+0.133 
+OTHER DATA: 
+Operating margin percent 
+26.6 
+% 
+21.8 
+% 
+(5.6 
+)% 
+16.4 
+% 
+20.6 
+% 
+Net cash provided by operating activities 
+$ 
+386,007 
+$ 
+168,657 
+$ 
+168,740 
+$ 
+177,320 
+$ 
+141,872 
+Net cash used for investing activities 
+(391,637 
+) 
+(171,769 
+) 
+(61,144 
+) 
+(158,953 
+) 
+(239,624 
+) 
+Net cash provided by (used for) financing activities 
+3,988 
+7,658 
+(106,144 
+) 
+(21,668 
+) 
+101,361 
+Depreciation and amortization 
+179,905 
+133,360 
+130,580 
+118,403 
+78,506 
+Capital expenditures 
+$ 
+416,400 
+$ 
+187,486 
+$ 
+67,830 
+$ 
+170,318 
+$ 
+248,758 
+Employees at end of period 
+3,400 
+2,500 
+1,980 
+2,532 
+2,370 
+BALANCE SHEET DATA AT END OF YEAR: 
+Accounts receivable, net 
+$ 
+461,272 
+$ 
+294,002 
+$ 
+130,619 
+$ 
+210,375 
+$ 
+176,154 
+Working capital 
+447,089 
+281,174 
+151,681 
+200,494 
+144,338 
+Property, plant and equipment, net 
+675,360 
+453,017 
+396,222 
+470,115 
+433,126 
+Total assets 
+1,338,211 
+887,871 
+649,043 
+793,461 
+701,015 
+Long-term debt 
+203,300 
+121,250 
+90,300 
+174,450 
+156,400 
+Total stockholders’ equity 
+$ 
+762,592 
+$ 
+538,895 
+$ 
+409,723 
+$ 
+449,084 
+$ 
+409,272 
+16 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+The following discussion should be read in conjunction with “Selected Financial Data,” and the Consolidated Financial Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. 
+Our key business and financial strategies are: 
+- 
+To focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital, and maintain an appropriate capital structure. 
+- 
+To maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels. 
+- 
+To maintain an appropriate blend of revenues between long-term committed contractual relationships and spot market revenues. Committed contractual relationships allow us to plan our operations with more certainty and efficiency. Under spot market work, we work at prevailing market rates and can take advantage of short-term opportunities which may be more profitable under certain circumstances. 
+- 
+To maintain high asset utilization, which leads to increased revenues and leverage of direct and overhead costs, while also ensuring that increased maintenance resulting from high utilization does not interfere with customer performance requirements or jeopardize safety. 
+- 
+To deliver equipment and services to our customers safely. 
+- 
+To secure adequate sources of supplies of certain high-demand raw materials used in our operations, both in order to conduct our operations and to enhance our competitive position. 
+- 
+To maintain and selectively increase market share. 
+- 
+To maximize stockholder return by optimizing the balance between cash invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of our common stock on the open market. 
+- 
+To align the interests of our management and stockholders. 
+- 
+To maintain an efficient, low-cost capital structure, which includes an appropriate use of debt financing. 
+In assessing the outcomes of these strategies and RPC’s financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and personnel, maintenance and repair expenses, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our invested capital. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities. 
+Current industry conditions are characterized by natural gas prices which have declined steadily during 2010 and 2011, and continue to decline during the first quarter of 2012. Average natural gas prices during the first quarter of 2012 are at their lowest level since the first quarter of 2002. This has negative implications for our industry, because almost 40 percent of U.S. domestic drilling activity during the first quarter of 2012 is directed towards the production of natural gas, and low natural gas prices discourage our customers from conducting drilling activities directed towards natural gas. Oil prices have steadily increased since the fourth quarter of 2009, and continue to increase during the first quarter of 2012. This trend has positive implications for our industry, since the majority of drilling activity in the United States is directed currently towards oil for the first time in many years. RPC has operations in most of the areas in which drilling activity is directed towards oil, and we intend to increase our presence in these areas. The average U.S. rig count increased by 22 percent during 2011. During the first quarter of 2012, the rig count was approximately 17 percent higher than the first quarter of 2011 and comparable to the fourth quarter of 2011. The rig count during the first quarter of 2012 is less than one percent lower than the peak rig count attained during the prior U.S. drilling cycle, which occurred during the third quarter of 2008. Continued increases in the U.S. domestic rig count during 2012 are unlikely due to weak natural gas prices and a limited number of rigs available to drill new wells. 
+17 
+In addition to the overall rig count, the Company also monitors the number of horizontal and directional wells drilled in the U.S. domestic market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the Company’s services provided for a longer period of time. The number of horizontal and directional wells drilled in the United States increased in 2011, and was 70 percent of total wells drilled during the year. During the first part of 2012, the percentage of horizontal and directional wells drilled as a percentage of total wells was approximately 69 percent. In addition, the percentage of wells drilled for oil increased during 2011, and we believe that this percentage will increase in 2012 due to the continued high price of oil and the low price of natural gas. During 2011, the increase in U.S. domestic oilfield activity and the increasingly service-intensive nature of this activity caused the demand for the Company’s services to increase. This increased demand was especially evident in the Company’s service lines which are used in unconventional completion work, such as pressure pumping, coiled tubing and downhole tools. Also, due to the repetitive nature of this work and the long-term capital commitment required by our customers to execute their drilling programs, several of our large customers continued to enter into contractual relationships with us to provide services to support their drilling and completion programs in 2010 and 2011. These arrangements typically have terms that are greater than one year, and include activity commitments and some financial arrangements which allow us to plan our activities with some certainty. These arrangements also serve to supplement our financial returns to us in the event that the customer’s activities decline for any reason. 
+The Company’s response to the operating environment during the past several years has been to increase our fleet of equipment, and in some cases, to open new operational locations in close proximity to new resource plays, to support higher industry activity levels and significant customer relationships. The capital expenditures have been funded by cash flows from operating activities as well as borrowings under our revolving credit facility. The Company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure requirements. 
+Income before income taxes was $478.8 million in 2011 compared to $237.5 million in the prior year. The effective tax rate for 2011 was 38.1 percent compared to 38.2 percent in the prior year. Diluted earnings per share were $2.02 in 2011 compared to $1.00 for the prior year. Cash flows from operating activities were $386.0 million in 2011 and $168.7 million in 2010 and cash and cash equivalents were $7.4 million at December 31, 2011, a decrease of $1.6 million compared to December 31, 2010. As of December 31, 2011, there was $203.3 million in outstanding borrowings under our credit facility. 
+Cost of revenues increased $386.7 million in 2011 compared to the prior year due to the variable nature of many of these expenses and was approximately 55 percent of revenues in 2011 and 2010. 
+Selling, general and administrative expenses as a percentage of revenues decreased approximately 2.7 percentage points in 2011 compared to 2010, which was due to the fixed nature of many of these expenses which we were able to leverage over higher revenues. 
+Consistent with our strategy to selectively grow our capacity, support our significant customer relationships and maintain our existing fleet of high demand equipment, capital expenditures increased to $416.4 million in 2011, a significant increase compared to $187.5 million last year. 
+Outlook 
+Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a recent cyclical peak of 2,031 during the third quarter of 2008. The global recession that began during the fourth quarter of 2007 precipitated the steepest annualized rig count decline in U.S. domestic oilfield history. From the third quarter of 2008 to the second quarter of 2009, the U.S. domestic rig count dropped almost 57 percent, reaching a trough of 876 in June 2009. Since June 2009, the rig count has increased by 129 percent to 2,008 early in the first quarter of 2012, approximately the same rig count level as the most recent cyclical rig count peak. Unconventional drilling activity, which requires more of RPC’s services, accounted for 67 percent of total U.S. domestic drilling during 2010. Unconventional activity as a percentage of total oilfield activity has grown steadily over the past several years and was 70 percent of total wells drilled during 2011. During the first quarter of 2012, unconventional drilling activity as a percentage of total wells drilled was 69 percent. The current and projected prices of oil and natural gas are important catalysts for U.S. domestic drilling activity. The price of natural gas has declined steadily during 2010, 2011 and the first quarter of 2012. During the first quarter of 2012, the price of natural gas was the lowest it had been since the first quarter of 2002. This trend has negative implications for our near-term activity levels, since a large percentage of U.S. drilling is directed towards natural gas. On the other hand, the price of oil has risen steadily since the fourth quarter of 2009, and continues to rise during the first quarter of 2012. This is a positive development for our industry, since there are a number of significant U.S. domestic shale resource plays which produce oil and petroleum liquids, and activity in these basins has increased significantly. 
+18 
+The effect of these trends is evident in the current composition of the U.S. domestic rig count, approximately 60 percent of which was directed towards oil during the first quarter of 2012. We believe that the trend of an increased percentage of oil-directed drilling and a decreased percentage of gas-directed drilling will continue in the near term. We believe that this trend will continue due to the mild winter in 2012 and the increased production of natural gas, as well as continued high oil prices and increased oil-directed drilling in the recently developed shale resource plays in the U.S. domestic market. We do not believe that the overall rig count will increase significantly during 2012, however, due to a limited supply of drilling rigs and the impact of the decline in natural gas drilling. 
+We continue to monitor the market for our services and the competitive environment in 2012. We are encouraged by the high overall rig count and the service-intensive nature of the completion activities in our markets. However, we are also concerned about the declining price of natural gas, and the fact that the cost of completing wells is high in many unconventional shale plays, thus discouraging our customers from conducting drilling and completion activities in these areas. Also, we are concerned about the fact that many of the oil-directed wells that are being drilled in 2012 also produce a significant amount of natural gas, which increases overall supply and may depress natural gas prices. We are monitoring the competitive environment very closely, because the high financial returns in our industry continue to attract new entrants and encourage existing service companies to purchase additional revenue-producing equipment. An increased fleet of revenue-producing equipment in our industry can cause a decrease in the prices we receive for our services. This effect may be more pronounced in the current environment, as the drilling activity that our customers are curtailing is particularly service intensive, which further increases the amount of available revenue-producing equipment. We increased our equipment purchases in 2011 and will take delivery of some of the equipment in the first and second quarters of 2012. This is consistent with our business and financial strategies because we believe that the equipment will produce high financial returns. However, we are concerned about the current market for our services and anticipate that our equipment purchases will be lower in 2012 than in 2011. Our consistent response to the industry’s potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending. Although we used our bank credit facility to finance our expansion, we will still maintain a conservative financial structure by industry standards. Based on current industry conditions, we believe that the Company’s consolidated revenues will increase in 2012 compared to 2011 and financial performance for the same period will also improve. 
+Stock Split 
+On January 24, 2012 RPC’s Board of Directors declared a three-for-two stock split of the Company’s common shares. The split will be effected by issuing an additional share of common stock for every two shares of common stock held. The additional shares will be distributed on March 9, 2012 to stockholders of record on February 10, 2012. The stock split will increase the Company’s outstanding shares from approximately 146,333,777 shares to 219,500,666 shares. Our historical outstanding shares will be recast upon the distribution. 
+19 
+Results of Operations 
+Years Ended December 31, 
+2011 
+2010 
+2009 
+(in thousands except per share amounts and industry data) 
+Consolidated revenues 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+Revenues by business segment: 
+Technical 
+$ 
+1,663,793 
+$ 
+979,834 
+$ 
+513,289 
+Support 
+146,014 
+116,550 
+74,574 
+Consolidated operating profit (loss) 
+$ 
+482,081 
+$ 
+238,845 
+$ 
+(33,052 
+) 
+Operating profit (loss) by business segment: 
+Technical 
+$ 
+451,259 
+$ 
+217,144 
+$ 
+(20,328 
+) 
+Support 
+51,672 
+31,086 
+(1,636 
+) 
+Corporate expenses 
+(17,019 
+) 
+(13,143 
+) 
+(12,231 
+) 
+(Loss) gain on disposition of assets, net 
+(3,831 
+) 
+3,758 
+1,143 
+Net income (loss) 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+Earnings (loss) per share — diluted 
+$ 
+2.02 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+Percentage of cost of revenues to revenues 
+55 
+% 
+55 
+% 
+67 
+% 
+Percentage of selling, general and administrative expenses to revenues 
+8 
+% 
+11 
+% 
+17 
+% 
+Percentage of depreciation and amortization expenses to revenues 
+10 
+% 
+12 
+% 
+22 
+% 
+Effective income tax rate 
+38.1 
+% 
+38.2 
+% 
+32.1 
+% 
+Average U.S. domestic rig count 
+1,877 
+1,543 
+1,089 
+Average natural gas price (per thousand cubic feet (mcf)) 
+$ 
+3.95 
+$ 
+4.34 
+$ 
+3.90 
+Average oil price (per barrel) 
+$ 
+94.94 
+$ 
+79.39 
+$ 
+61.90 
+Year Ended December 31, 2011 Compared To Year Ended December 31, 2010 
+Revenues. Revenues in 2011 increased $713.4 million or 65.1 percent compared to 2010. The Technical Services segment revenues for 2011 increased 69.8 percent from the prior year due primarily to a larger fleet of revenue-producing equipment, higher activity levels from expanded customer commitments and improved pricing. The Support Services segment revenues for 2011 increased 25.3 percent from the prior year due to improved pricing and higher activity levels. 
+Domestic revenues increased 69 percent during 2011 compared to 2010 to $1,757.7 million due to increased customer activity levels coupled with increased capacity of equipment and improved pricing. The average price of oil increased by approximately 20 percent while the average price of natural gas decreased by nine percent during 2011 compared to the prior year. The average domestic rig count during 2011 was 22 percent higher than in 2010. Our revenues and earnings grew at a greater rate than the changes in these industry indicators because of an increased capacity of revenue-producing equipment, higher equipment utilization and improved pricing compared to 2010. This increase in drilling activity, as well as the increased amount of horizontal and directional drilling, had a positive impact on our financial results. At the present time, we believe that our activity levels are affected equally by the price of natural gas and the price of oil, since oil-directed activity as a percentage of total U.S. activity has increased significantly during 2011. We also believe that the total number of directional and horizontal wells more directly affect our activity levels, regardless of whether the wells are directed towards oil or natural gas. This belief is based on the fact that directional and horizontal wells require more of several of the services within our technical services segment. International revenues, which decreased slightly from $54.9 million in 2010 to $52.1 million in 2011, were three percent of consolidated revenues in 2011 compared to five percent of revenues in 2010. These international revenue decreases were due mainly to lower customer activity levels in New Zealand and Qatar partially offset by an increase in activity in Canada, compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+Cost of revenues. Cost of revenues in 2011 was $992.7 million compared to $606.1 million in 2010, an increase of $386.6 million or 63.8 percent. The increase in these costs was due to the variable nature of most of these expenses as cost of revenues, as a percent of revenues was unchanged in 2011 compared to 2010. 
+Selling, general and administrative expenses. Selling, general and administrative expenses increased 24.2 percent to $151.3 million in 2011 compared to $121.8 million in 2010. This increase was primarily due to increases in total employment costs, including increased incentive compensation consistent with improved operating results. However, as a percentage of revenues, selling, general and administrative expenses decreased to 8.4 percent in 2011 compared to 11.1 percent in 2010 due to leverage of the fixed costs over higher revenues. 
+20 
+Depreciation and amortization. Depreciation and amortization were $179.9 million in 2011, an increase of $46.5 million or 34.9 percent compared to $133.4 million in 2010. This increase resulted from a higher level of capital expenditures during recent quarters within both Technical Services and Support Services to increase capacity and to maintain our existing equipment. However, as a percentage of revenues, depreciation and amortization decreased to 9.9 percent in 2011 compared to 12.2 percent in 2010 due to leverage over higher revenues. 
+(Loss) gain on disposition of assets, net. Loss on disposition of assets, net was $3.8 million in 2011 compared to a gain on disposition of assets, net of $3.8 million in 2010. The (loss) gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment. 
+Other income, net. Other income, net was $0.2 million in 2011, a decrease of $1.1 million compared to $1.3 million in 2010. The decrease is mainly due to mark-to-market net losses on investments held in the non-qualified Supplemental Retirement Plan during 2011 compared to net gains in 2010. 
+Interest expense. Interest expense was $3.5 million in 2011 compared to $2.7 million in 2010. The increase is primarily due to a higher average balance on our revolving credit facility in 2011 compared to 2010. 
+Interest income. Interest income decreased to $18 thousand in 2011 compared to $46 thousand in 2010. 
+Income tax provision (benefit). The income tax provision was $182.4 million in 2011 compared to $90.8 million in 2010. This increase was due to higher income before taxes in 2011 compared to 2010 as the effective tax rate of 38.1 percent in 2011 was similar to the effective tax rate of 38.2 percent in 2010. 
+Net income and diluted earnings per share . Net income was $296.4 million in 2011, or $2.02 per diluted share, compared to net income of $146.7 million, or $1.00 per diluted share in 2010. This improvement was due to increased revenues and lower, as a percentage of revenues, costs of revenues, selling, general and administrative expenses, and depreciation and amortization expenses. 
+Year Ended December 31, 2010 Compared To Year Ended December 31, 2009 
+Revenues. Revenues in 2010 increased $508.5 million or 86.5 percent compared to 2009. The Technical Services segment revenues for 2010 increased 90.9 percent from the prior year due primarily to higher activity levels from expanded customer commitments and improved pricing. The Support Services segment revenues for 2010 increased 56.3 percent from the prior year due to higher activity levels and improved pricing. 
+Domestic revenues increased 92 percent during 2010 compared to 2009 to $1,041.5 million due to increased customer activity levels coupled with increased capacity of equipment. The average price of natural gas increased by 12 percent and the average price of oil increased by approximately 28 percent during 2010 compared to the prior year. In conjunction with the increase in natural gas prices, the average domestic rig count during 2010 was 41 percent higher than in 2009. This increase in drilling activity had a positive impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells. International revenues, which increased from $44.8 million in 2009 to $54.9 million in 2010, were five percent of consolidated revenues. These international revenue increases were due mainly to higher customer activity levels in Canada and Qatar, compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+Cost of revenues. Cost of revenues in 2010 was $606.1 million compared to $393.8 million in 2009, an increase of $212.3 million or 53.9 percent. The increase in these costs was due to the variable nature of most of these expenses. However, cost of revenues, as a percent of revenues, decreased significantly due to leverage of employment and other direct costs over higher activity levels coupled with improved pricing for our services in 2010 compared to 2009. 
+Selling, general and administrative expenses. Selling, general and administrative expenses increased 24.7 percent to $121.8 million in 2010 compared to $97.7 million in 2009. This increase was primarily due to increases in total employment costs, including increased incentive compensation consistent with improved operating results. However, as a percentage of revenues, selling, general and administrative expenses decreased to 11.1 percent in 2010 compared to 16.6 percent in 2009 due to leverage of the fixed costs over higher revenues. 
+Depreciation and amortization. Depreciation and amortization were $133.4 million in 2010, an increase of $2.8 million or 2.1 percent compared to $130.6 million in 2009. This increase resulted from a higher level of capital expenditures during late 2010 quarters within both Support Services and Technical Services to increase capacity and to maintain our existing equipment. 
+21 
+Gain on disposition of assets, net. Gain on the disposition of assets, net increased due primarily to increased gains related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment due to the increased intensity of work. 
+Other income, net. Other income, net was $1.3 million in 2010, a decrease of $279 thousand compared to other expense of $1.6 million in 2009. The increase is mainly due to the 2010 increase in the fair value of trading securities held in the non-qualified Supplemental Retirement Plan. 
+Interest expense. Interest expense was $2.7 million in 2010 compared to $2.2 million in 2009. The increase is primarily due to higher interest rates in 2010 incurred on outstanding interest bearing advances on our revolving credit facility. 
+Interest income. Interest income decreased to $46 thousand in 2010 compared to $147 thousand in 2009 as a result of a lower average investable cash balance in 2010 compared to 2009. 
+Income tax provision (benefit). The income tax provision was $90.8 million in 2010 compared to an income tax benefit of $10.8 million in 2009. The change is due to the level of income before income tax in 2010, coupled with an increase in the effective tax rate to 38.2 percent in 2010 from 32.1 percent in 2009. 
+Net income (loss) and diluted earnings (loss) per share . Net income was $146.7 million in 2010, or $1.00 per diluted share, compared to net loss of $22.7 million, or $0.16 per share in 2009. This improvement was due to increased revenues and lower, as a percentage of revenues, costs of revenues, selling, general and administrative expenses and depreciation expense. 
+22 
+Liquidity and Capital Resources 
+Cash and Cash Flows 
+The Company’s cash and cash equivalents were $7.4 million as of December 31, 2011, $9.0 million as of December 31, 2010 and $4.5 million as of December 31, 2009. 
+The following table sets forth the historical cash flows for the years ended December 31: 
+(in thousands) 
+2011 
+2010 
+2009 
+Net cash provided by operating activities 
+$ 
+386,007 
+$ 
+168,657 
+$ 
+168,740 
+Net cash used for investing activities 
+(391,637 
+) 
+(171,769 
+) 
+(61,144 
+) 
+Net cash provided by (used for) financing activities 
+3,988 
+7,658 
+(106,144 
+) 
+2011 
+Cash provided by operating activities increased $217.4 million in 2011 compared to the prior year due primarily to a $149.6 million increase in net income in 2011 compared to 2010. This improvement in net income was partially offset by increases in working capital requirements. Increased business activity levels and revenues in 2011 resulted in increased inventory, other current assets and accounts receivables, partially offset by an increase in accounts payable. 
+Cash used for investing activities in 2011 increased by $219.9 million compared to 2010, primarily as a result of higher capital expenditures made to increase our fleet of revenue-producing equipment. 
+Cash provided by financing activities for 2011 decreased by $3.7 million compared to 2010, as a result of higher common stock dividends in 2011 compared to the prior year, coupled with cost of higher open market share repurchases during 2011 partially offset by a net increase in borrowings under our credit facility during 2011 to fund working capital requirements and capital expenditures. 
+2010 
+Cash provided by operating activities was comparable in 2010 compared to the prior year despite net income increasing significantly to $146.7 million in 2010 compared to net loss of $22.7 million in 2009. This contribution of net income to cash provided by operating activities was largely offset by increases in working capital requirements. Increased business activity levels and revenues in 2010 resulted in higher accounts receivable and increased inventory, partially offset by increases in accounts payable and accrued payroll including bonuses, consistent with higher activity levels and profitability. 
+Cash used for investing activities in 2010 increased by $110.6 million compared to 2009, primarily as a result of higher capital expenditures. 
+Cash provided by (used for) financing activities in 2010 increased by $113.8 million compared to 2009, primarily due to the net increase in borrowings under our credit facility during 2010 to fund working capital requirements and capital expenditures. 
+Financial Condition and Liquidity 
+The Company’s financial condition as of December 31, 2011, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization which includes a revolving credit facility and cash expected to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months. The Company currently has a $350 million revolving credit facility that matures in August 2015. The facility contains customary terms and conditions, including certain financial covenants including covenants restricting RPC’s ability to incur liens, merge or consolidate with another entity. A total of $128.3 million was available under the facility as of December 31, 2011; approximately $18.4 million of the facility supports outstanding letters of credit relating to self-insurance programs or contract bids. For additional information with respect to RPC’s facility, see Note 6 of the Notes to Consolidated Financial Statements. 
+The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels. The Company’s decisions about the amount of cash to be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do not expect the covenants to restrict our planned activities. The Company is in compliance with these financial covenants. 
+23 
+Cash Requirements 
+Capital expenditures were $416.4 million in 2011, and we currently expect capital expenditures to be in excess of $350 million in 2012. We expect these expenditures to be primarily directed towards revenue-producing equipment in several of our larger, core service lines such as pressure pumping and coiled tubing, as well as towards refurbishment of our existing fleet of revenue-producing equipment. The actual amount of 2012 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules. 
+The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During the first quarter of 2011, the Company contributed $0.6 million to the pension plan. The Company expects that additional contributions to the defined benefit pension plan of $0.6 million will be required in 2012 to achieve the Company’s funding objective. 
+The Company’s Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of up to 17,718,750 shares of which 2,564,066 additional shares were available to be repurchased as of December 31, 2011. The program does not have a predetermined expiration date. 
+On January 24, 2012, the Board of Directors approved a $0.12 per share cash dividend, payable March 9, 2012 to stockholders of record at the close of business on February 10, 2012. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+Contractual Obligations 
+The Company’s obligations and commitments that require future payments include our credit facility, certain non-cancelable operating leases, purchase obligations and other long-term liabilities. The following table summarizes the Company’s significant contractual obligations as of December 31, 2011: 
+Contractual obligations 
+Payments due by period 
+(in thousands) 
+Total 
+Less than 
+1 year 
+1-3 
+years 
+3-5 
+years 
+More than 
+5 years 
+Long-term debt obligations 
+$ 
+203,300 
+$ 
+- 
+$ 
+- 
+$ 
+203,300 
+$ 
+- 
+Interest on long-term debt obligations 
+15,281 
+4,168 
+8,335 
+2,778 
+- 
+Capital lease obligations 
+- 
+- 
+- 
+- 
+- 
+Operating leases (1) 
+27,985 
+6,085 
+9,415 
+5,405 
+7,080 
+Purchase obligations (2) 
+186,724 
+183,382 
+3,342 
+- 
+- 
+Other long-term liabilities (3) 
+3,445 
+- 
+3,445 
+- 
+- 
+Total contractual obligations 
+$ 
+436,735 
+$ 
+193,635 
+$ 
+24,537 
+$ 
+211,483 
+$ 
+7,080 
+(1) 
+Operating leases include agreements for various office locations, office equipment, and certain operating equipment. 
+(2) 
+Includes agreements to purchase raw materials, goods or services that have been approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course of business the Company occasionally enters into purchase commitments to manage its various operating needs. 
+(3) 
+Includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known. These amounts include incentive compensation. These amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities. 
+Fair Value Measurements 
+The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan assets classified as Level 3, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available. 
+24 
+Inflation 
+The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. Also, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the Company’s customers. During 2011, the Company incurred higher costs for fuel and several of the materials used to provide its services. Fuel costs increased significantly due to increased diesel fuel prices compared to 2010. In addition, the prices of certain raw materials used to provide the Company’s services increased significantly during 2011 as compared to 2010. The price of diesel fuel and the prices of these raw materials continue to remain high during the first quarter of 2012. Also, the Company was subjected to upward wage pressures in 2011, and believes that these upward wage pressures will continue, though to a lesser degree, in 2012. The Company has attempted to mitigate the risk of cost increases by securing materials through additional sources and increasing amounts held in inventory, although no assurance can be given that these efforts will be successful. 
+Off Balance Sheet Arrangements 
+The Company does not have any material off balance sheet arrangements. 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011, $689,000 in 2010 and $713,000 in 2009. The Company’s receivable due from Marine Products for these services as of December 31, 2011 was approximately $3,000 and as of December 31, 2010 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,469,000 in 2011, $551,000 in 2010 and $409,000 in 2009. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $102,000 in 2011, $94,000 in 2010 and $87,000 in 2009. 
+Critical Accounting Policies 
+The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting policies involve estimates that require a higher degree of judgment and complexity: 
+25 
+Allowance for doubtful accounts — Substantially all of the Company’s receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our allowance for doubtful accounts is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts are recorded in selling, general and administrative expenses. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore, the provision for doubtful accounts can fluctuate significantly from period to period. Recoveries were insignificant in 2011, 2010 and 2009. We record specific provisions when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, our estimates of the realizability of receivables would be further adjusted, either upward or downward. 
+The estimated allowance for doubtful accounts is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The net provisions for doubtful accounts have ranged from 0.11 percent to 0.45 percent of revenues over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2011 would have resulted in a change of approximately $2.3 million to the allowance for doubtful accounts and a corresponding change to selling, general and administrative expenses. 
+Income taxes — The effective income tax rates were 38.1 percent in 2011, 38.2 percent in 2010 and 32.1 percent in 2009. Our effective tax rates vary due to changes in estimates of our future taxable income, fluctuations in the tax jurisdictions in which our earnings and deductions are realized, and favorable or unfavorable adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis. 
+We establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. 
+We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are expected to reverse. 
+The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. 
+Insurance expenses – The Company self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2011, the Company estimates the range of exposure to be from $12.8 million to $16.7 million. The Company has recorded liabilities at December 31, 2011 of approximately $14.7 million which represents management’s best estimate of probable loss. 
+26 
+Depreciable life of assets — RPC’s net property, plant and equipment at December 31, 2011 was $675.4 million representing 50.5 percent of the Company’s consolidated assets. Depreciation and amortization expenses for the year ended December 31, 2011 were $179.9 million. Management judgment is required in the determination of the estimated useful lives used to calculate the annual and accumulated depreciation and amortization expense. 
+Property, plant and equipment are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. The estimated useful life represents the projected period of time that the asset will be productively employed by the Company and is determined by management based on many factors including historical experience with similar assets. Assets are monitored to ensure changes in asset lives are identified and prospective depreciation and amortization expense is adjusted accordingly. We have not made any changes to the estimated lives of assets resulting in a material impact in the last three years. 
+Defined benefit pension plan – In 2002, the Company ceased all future benefit accruals under the defined benefit plan, although the Company remains obligated to provide employees benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of FASB ASC 715, “Compensation – Retirement Benefits” and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary. 
+The Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our investment adviser. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on plan assets was seven percent for 2011, 2010 and 2009. 
+The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilizes a yield curve approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plan are forecasted and then compared to a portfolio of investment grade corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the payments from the corporate bonds. A lower discount rate increases the present value of benefit obligations. The discount rate was 5.00 percent as of December 31, 2011 compared to 5.49 percent as of December 31, 2010 and 6.00 percent in 2009. 
+As set forth in note 10 to the Company’s financial statements, included among the asset categories for the Plan’s investments are real estate, tactical composite and alternative investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+As of December 31, 2011, the defined benefit plan was under-funded and the recorded change within accumulated other comprehensive loss decreased stockholders’ equity by approximately $3.0 million after tax. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in a pre-tax increase or decrease of approximately $1.2 million to the net loss related to pension reflected in accumulated other comprehensive loss. 
+The Company recognized pre-tax pension (income) expense of $0.5 million in 2011, $0.6 million in 2010 and $2.0 million in 2009. Based on the under-funded status of the defined benefit plan as of December 31, 2011, the Company expects to recognize pension expense of $0.9 million in 2012. Holding all other factors constant, a change in the expected long-term rate of return on plan assets by 0.50 percentage points would result in an increase or decrease in pension expense of approximately $0.1 million in 2012. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in an increase or decrease in pension expense of approximately $0.01 million in 2012. 
+27 
+RECENT ACCOUNTING PRONOUNCEMENTS: 
+During the year ended December 31, 2011, the Financial Accounting Standards Board (FASB) issued the following Accounting Standards Updates (ASU): 
+Recently Adopted Accounting Pronouncement: 
+● 
+ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The amendments in this codification permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount. This can be used as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. These amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company adopted these provisions in the fourth quarter of 2011, for annual and interim goodwill impairment tests performed starting this year. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+● 
+Accounting Standards Update 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments to the Codification in this ASU defer the presentation of reclassification adjustments out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. This ASU supersedes certain presentation requirements in ASU No. 2011-05, Comprehensive Income, discussed below, so that entities will not be required to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12 is deferring. While the presentation requirements are being re-deliberated, entities are required to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. The amendments to this ASU are effective at the same time as the amendments in ASU No. 2011-05. The Company plans to adopt these provisions in the first quarter of 2012 and is currently evaluating the impact of the adoption of these provisions on the presentation of its consolidated financial statements. 
+● 
+Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort to bring congruence between U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU require an entity to disclose information about derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy and can be presented as a single net amount in the statement of financial position. The amendments in this ASU are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with the required disclosures being provided retrospectively for all comparative periods presented. The Company is currently evaluating the impact of adoption of these provisions in the first quarter of 2013. 
+● 
+ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of 2012 and is currently evaluating the impact of the adoption of these provisions on the presentation of its consolidated financial statements. 
+● 
+ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs . This ASU represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. These amendments have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The common requirements are expected to result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments are to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of 2012. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+28 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+The Company is subject to interest rate risk exposure through borrowings on its credit agreement. As of December 31, 2011, there are outstanding interest-bearing advances of $203.3 million on our credit facility which bear interest at a floating rate. A change in interest rates of one percent on the balance outstanding on the credit facility at December 31, 2011 would cause a change of approximately $2.0 million in total annual interest costs. 
+Additionally, the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated results of operations or financial condition. 
+29 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the Stockholders of RPC, Inc.: 
+The management of RPC, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. RPC, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations. 
+There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its internal controls. 
+Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting as of December 31, 2011 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December 31, 2011. 
+The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2011, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 31. 
+/s/ Richard A. Hubbell 
+/s/ Ben M. Palmer 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+Ben M. Palmer 
+Chief Financial Officer and Treasurer 
+Atlanta, Georgia 
+February 29, 2012 
+30 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited RPC, Inc. (a Delaware Corporation) and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2011, 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. 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by COSO. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 and our report dated February 29, 2012 expressed an unqualified opinion on those consolidated financial statements. 
+/s/ Grant Thorton LLP 
+Atlanta, Georgia 
+February 29, 2012 
+31 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and 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 the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related 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 Company’s internal control over financial reporting as of December 31, 2011, 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 February 29, 2012 expressed an unqualified opinion thereon. 
+/s/ Grant Thorton LLP 
+Atlanta, Georgia 
+February 29, 2012 
+32 
+Item 8. Financial Statements and Supplementary Data 
+CONSOLIDATED BALANCE SHEETS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except share information) 
+December 31, 
+2011 
+2010 
+ASSETS 
+Cash and cash equivalents 
+$ 
+7,393 
+$ 
+9,035 
+Accounts receivable, net 
+461,272 
+294,002 
+Inventories 
+100,438 
+64,059 
+Deferred income taxes 
+7,183 
+7,426 
+Income taxes receivable 
+10,805 
+17,251 
+Prepaid expenses 
+8,478 
+5,695 
+Other current assets 
+30,986 
+1,210 
+Current assets 
+626,555 
+398,678 
+Property, plant and equipment, net 
+675,360 
+453,017 
+Goodwill 
+24,093 
+24,093 
+Other assets 
+12,203 
+12,083 
+Total assets 
+$ 
+1,338,211 
+$ 
+887,871 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts payable 
+$ 
+122,987 
+$ 
+78,743 
+Accrued payroll and related expenses 
+33,680 
+23,881 
+Accrued insurance expenses 
+5,744 
+5,141 
+Accrued state, local and other taxes 
+5,066 
+2,988 
+Income taxes payable 
+10,705 
+5,788 
+Other accrued expenses 
+1,284 
+963 
+Current liabilities 
+179,466 
+117,504 
+Long-term accrued insurance expenses 
+9,000 
+8,489 
+Notes payable to banks 
+203,300 
+121,250 
+Long-term pension liabilities 
+24,445 
+18,397 
+Other long-term liabilities 
+3,480 
+2,448 
+Deferred income taxes 
+155,928 
+80,888 
+Total liabilities 
+575,619 
+348,976 
+Commitments and contingencies 
+STOCKHOLDERS’ EQUITY 
+Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+- 
+- 
+Common stock, $0.10 par value, 349,000,000 shares authorized, 147,458,440 and 148,175,995 shares issued and outstanding in 2011 and 2010, respectively 
+14,746 
+14,818 
+Capital in excess of par value 
+- 
+6,460 
+Retained earnings 
+760,492 
+527,150 
+Accumulated other comprehensive loss 
+(12,646 
+) 
+(9,533 
+) 
+Total stockholders’ equity 
+762,592 
+538,895 
+Total liabilities and stockholders’ equity 
+$ 
+1,338,211 
+$ 
+887,871 
+The accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except per share data) 
+Years ended December 31, 
+2011 
+2010 
+2009 
+REVENUES 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+COSTS AND EXPENSES: 
+Cost of revenues 
+992,704 
+606,098 
+393,806 
+Selling, general and administrative expenses 
+151,286 
+121,839 
+97,672 
+Depreciation and amortization 
+179,905 
+133,360 
+130,580 
+Loss (gain) on disposition of assets, net 
+3,831 
+(3,758 
+) 
+(1,143 
+) 
+Operating profit (loss) 
+482,081 
+238,845 
+(33,052 
+) 
+Interest expense 
+(3,453 
+) 
+(2,662 
+) 
+(2,176 
+) 
+Interest income 
+18 
+46 
+147 
+Other income, net 
+169 
+1,303 
+1,582 
+Income (loss) before income taxes 
+478,815 
+237,532 
+(33,499 
+) 
+Income tax provision (benefit) 
+182,434 
+90,790 
+(10,754 
+) 
+Net income (loss) 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+EARNINGS (LOSS) PER SHARE 
+Basic 
+$ 
+2.04 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+Diluted 
+$ 
+2.02 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+Dividends paid per share 
+$ 
+0.32 
+$ 
+0.141 
+$ 
+0.148 
+The accompanying notes are an integral part of these statements. 
+34 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands) 
+Capital in 
+Excess of 
+Par 
+Value 
+Accumulated Other Comprehensive Income (Loss) 
+Three Years Ended December 31, 2011 
+Comprehensive Income (Loss) 
+Common Stock 
+Retained Earnings 
+Shares 
+Amount 
+Total 
+Balance, December 31, 2008 
+146,558 
+$ 
+14,655 
+$ 
+(895 
+) 
+$ 
+445,356 
+$ 
+(10,032 
+) 
+$ 
+449,084 
+Stock issued for stock incentive plans, net 
+911 
+91 
+4,323 
+— 
+— 
+4,414 
+Stock purchased and retired 
+(252 
+) 
+(25 
+) 
+(2,096 
+) 
+— 
+— 
+(2,121 
+) 
+Net loss 
+$ 
+(22,745 
+) 
+— 
+— 
+— 
+(22,745 
+) 
+— 
+(22,745 
+) 
+Pension adjustment, net of taxes 
+897 
+— 
+— 
+— 
+— 
+897 
+897 
+Gain on cash flow hedge, net of taxes 
+7 
+— 
+— 
+— 
+— 
+7 
+7 
+Unrealized gain on securities, net of taxes 
+91 
+— 
+— 
+— 
+— 
+91 
+91 
+Foreign currency translation, net of taxes 
+231 
+— 
+— 
+— 
+— 
+231 
+231 
+Comprehensive loss 
+$ 
+(21,519 
+) 
+Dividends declared 
+— 
+— 
+— 
+(21,556 
+) 
+— 
+(21,556 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+1,421 
+— 
+— 
+1,421 
+Three-for-two stock splits 
+330 
+33 
+(33 
+) 
+— 
+Balance, December 31, 2009 
+147,547 
+14,754 
+2,720 
+401,055 
+(8,806 
+) 
+409,723 
+Stock issued for stock incentive plans, net 
+587 
+59 
+4,889 
+— 
+— 
+4,948 
+Stock purchased and retired 
+(144 
+) 
+(14 
+) 
+(1,781 
+) 
+— 
+— 
+(1,795 
+) 
+Net income 
+$ 
+146,742 
+— 
+— 
+— 
+146,742 
+— 
+146,742 
+Pension adjustment, net of taxes 
+(1,350 
+) 
+— 
+— 
+— 
+— 
+(1,350 
+) 
+(1,350 
+) 
+Gain on cash flow hedge, net of taxes 
+133 
+— 
+— 
+— 
+— 
+133 
+133 
+Unrealized gain on securities, net of taxes 
+281 
+— 
+— 
+— 
+— 
+281 
+281 
+Foreign currency translation, net of taxes 
+209 
+— 
+— 
+— 
+— 
+209 
+209 
+Comprehensive income 
+$ 
+146,015 
+Dividends declared 
+— 
+— 
+— 
+(20,647 
+) 
+— 
+(20,647 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+651 
+— 
+— 
+651 
+Three-for-two stock splits 
+186 
+19 
+(19 
+) 
+— 
+Balance, December 31, 2010 
+148,176 
+14,818 
+6,460 
+527,150 
+(9,533 
+) 
+538,895 
+Stock issued for stock incentive plans, net 
+1,218 
+122 
+9,455 
+— 
+— 
+9,577 
+Stock purchased and retired 
+(1,936 
+) 
+(194 
+) 
+(19,286 
+) 
+(15,712 
+) 
+— 
+(35,192 
+) 
+Net income 
+$ 
+296,381 
+— 
+— 
+— 
+296,381 
+— 
+296,381 
+Pension adjustment, net of taxes 
+(3,048 
+) 
+— 
+— 
+— 
+— 
+(3,048 
+) 
+(3,048 
+) 
+Gain on cash flow hedge, net of taxes 
+387 
+— 
+— 
+— 
+— 
+387 
+387 
+Unrealized gain on securities, net of taxes 
+(314 
+) 
+— 
+— 
+— 
+— 
+(314 
+) 
+(314 
+) 
+Foreign currency translation, net of taxes 
+(138 
+) 
+— 
+— 
+— 
+— 
+(138 
+) 
+(138 
+) 
+Comprehensive income 
+$ 
+293,268 
+Dividends declared 
+— 
+— 
+— 
+(47,327 
+) 
+— 
+(47,327 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+3,371 
+— 
+— 
+3,371 
+Balance, December 31, 2011 
+147,458 
+$ 
+14,746 
+$ 
+— 
+$ 
+760,492 
+$ 
+(12,646 
+) 
+$ 
+762,592 
+The accompanying notes are an integral part of these statements. 
+35 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Years ended December 31, 
+2011 
+2010 
+2009 
+OPERATING ACTIVITIES 
+Net income (loss) 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
+Depreciation, amortization and other non-cash charges 
+179,787 
+133,253 
+130,581 
+Stock-based compensation expense 
+8,075 
+4,909 
+4,440 
+Loss (gain) on disposition of assets, net 
+3,831 
+(3,758 
+) 
+(1,143 
+) 
+Deferred income tax provision 
+77,074 
+22,262 
+1,669 
+Excess tax benefits for share-based payments 
+(3,371 
+) 
+(651 
+) 
+(1,421 
+) 
+Changes in current assets and liabilities: 
+Accounts receivable 
+(167,312 
+) 
+(163,162 
+) 
+80,035 
+Income taxes receivable 
+9,817 
+1,584 
+(1,159 
+) 
+Inventories 
+(36,511 
+) 
+(8,130 
+) 
+(5,798 
+) 
+Prepaid expenses 
+(2,783 
+) 
+(1,041 
+) 
+2,567 
+Other current assets 
+(30,524 
+) 
+189 
+8 
+Accounts payable 
+30,102 
+14,191 
+(5,711 
+) 
+Income taxes payable 
+4,917 
+5,141 
+(2,712 
+) 
+Accrued payroll and related expenses 
+9,799 
+13,173 
+(9,690 
+) 
+Accrued insurance expenses 
+603 
+826 
+(325 
+) 
+Accrued state, local and other taxes 
+2,078 
+987 
+(394 
+) 
+Other accrued expenses 
+958 
+112 
+(167 
+) 
+Changes in working capital 
+(178,856 
+) 
+(136,130 
+) 
+56,654 
+Changes in other assets and liabilities: 
+Pension liabilities 
+1,249 
+1,628 
+4,882 
+Accrued insurance expenses 
+511 
+(108 
+) 
+199 
+Other non-current assets 
+294 
+(920 
+) 
+(2,597 
+) 
+Other non-current liabilities 
+1,032 
+1,430 
+(1,779 
+) 
+Net cash provided by operating activities 
+386,007 
+168,657 
+168,740 
+INVESTING ACTIVITIES 
+Capital expenditures 
+(416,400 
+) 
+(187,486 
+) 
+(67,830 
+) 
+Proceeds from sale of assets 
+24,763 
+15,717 
+6,686 
+Net cash used for investing activities 
+(391,637 
+) 
+(171,769 
+) 
+(61,144 
+) 
+FINANCING ACTIVITIES 
+Payment of dividends 
+(47,327 
+) 
+(20,647 
+) 
+(21,556 
+) 
+Borrowings from notes payable to banks 
+940,850 
+516,600 
+276,100 
+Repayments of notes payable to banks 
+(858,800 
+) 
+(485,650 
+) 
+(360,250 
+) 
+Debt issue costs for notes payable to banks 
+(415 
+) 
+(1,886 
+) 
+(234 
+) 
+Excess tax benefits for share-based payments 
+3,371 
+651 
+1,421 
+Cash paid for common stock purchased and retired 
+(34,419 
+) 
+(1,650 
+) 
+(1,747 
+) 
+Proceeds received upon exercise of stock options 
+728 
+240 
+122 
+Net cash provided by (used for) financing activities 
+3,988 
+7,658 
+(106,144 
+) 
+Net (decrease) increase in cash and cash equivalents 
+(1,642 
+) 
+4,546 
+1,452 
+Cash and cash equivalents at beginning of year 
+9,035 
+4,489 
+3,037 
+Cash and cash equivalents at end of year 
+$ 
+7,393 
+$ 
+9,035 
+$ 
+4,489 
+The accompanying notes are an integral part of these statements. 
+36 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Note 1: Significant Accounting Policies 
+Principles of Consolidation and Basis of Presentation 
+The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany accounts and transactions have been eliminated. 
+Nature of Operations 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include Technical Services such as pressure pumping services, coiled tubing services, snubbing services (also referred to as hydraulic workover services), nitrogen services, and firefighting and well control, and Support Services such as the rental of drill pipe and other specialized oilfield equipment and oilfield training. 
+Common Stock 
+RPC is authorized to issue 349,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends when, as, and if declared by the Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders. 
+Preferred Stock 
+RPC is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2011, there were no shares of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior to the common stock with respect to dividend rights and rights on liquidation. 
+Dividends 
+On January 24, 2012, the Board of Directors approved a $0.12 per share cash dividend payable March 9, 2012 to stockholders of record at the close of business on February 10, 2012. 
+Use of Estimates in the Preparation of Financial Statements 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant estimates are used in the determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets, and pension liabilities. 
+37 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Revenues 
+RPC’s revenues are generated principally from providing services and the related equipment. Revenues are recognized when the services are rendered and collectibility is reasonably assured. Revenues from services and equipment are based on fixed or determinable priced purchase orders or contracts with the customer and do not include the right of return. Rates for services and equipment are priced on a per day, per unit of measure, per man hour or similar basis. Sales tax charged to customers is presented on a net basis within the consolidated statement of operations and excluded from revenues. 
+Concentration of Credit Risk 
+Substantially all of the Company’s customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company provided oilfield services to several hundred customers. One customer at approximately 12 percent of revenues in 2011 and approximately 15 percent of revenues in 2010, accounted for more than ten percent of the Company’s revenues. Two customers individually accounted for 13 percent and 12 percent of the Company’s 2009 revenues. Additionally, one customer accounted for approximately 19 percent of accounts receivable as of December 31, 2011 and approximately 15 percent of accounts receivable as of December 31, 2010. 
+Cash and Cash Equivalents 
+Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. RPC maintains cash equivalents and investments in one or more large financial institutions, and RPC’s policy restricts investment in any securities rated less than “investment grade” by national rating services. 
+Investments 
+Investments classified as available-for-sale are stated at their fair values, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value judged to be other than temporary, interest, and dividends with respect to available-for-sale securities are included in interest income. The Company did not realize any gains or losses on securities during 2011, 2010 or 2009 on its available-for-sale securities. Securities that are held in the non-qualified Supplemental Retirement Plan (“SERP”) are classified as trading. See Note 10 for further information regarding the SERP. The change in fair value of trading securities is presented in other income (expense) on the consolidated statements of operations. 
+Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designations as of each balance sheet date. 
+Accounts Receivable 
+The majority of the Company’s accounts receivable are due principally from major and independent oil and natural gas exploration and production companies. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are considered past due after 60 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. 
+Allowance for Doubtful Accounts 
+Accounts receivable are carried at the amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The estimated allowance for doubtful accounts is based on an evaluation of industry trends, financial condition of customers, historical write-off experience, current economic conditions, and in the case of international customers, judgments about the economic and political environment of the related country and region. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories, which consist principally of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of weighted average cost or market value. Market value is determined based on replacement cost for materials and supplies. The Company regularly reviews inventory quantities on hand and records provisions for excess or obsolete inventory based primarily on its estimated forecast of product demand, market conditions, production requirements and technological developments. 
+38 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Derivative Instruments and Hedging Activities 
+The Company is subject to interest rate risk on the variable component of the interest rate under our credit facility. Effective December 2008, the Company entered into a $50 million interest rate swap agreement. The Company designated the interest rate swap as a cash flow hedge. Changes in the fair value of the effective portion of the interest rate swap were recognized in other comprehensive loss until the hedged item was recognized in earnings. This agreement terminated on September 8, 2011. 
+Property, Plant and Equipment 
+Property, plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. Annual depreciation and amortization expenses are computed using the following useful lives: operating equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred. 
+RPC records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and other assets, to determine if any impairments should be recognized. Management believes that the long-lived assets in the accompanying balance sheets have not been impaired. 
+Goodwill and Other Intangibles 
+Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $24,093,000 at December 31, 2011 and 2010. Goodwill is reviewed annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, for impairment. In accordance with recently adopted accounting guidance, the Company completed a comprehensive qualitative assessment of the various factors that impact goodwill and concluded it is more likely than not that the fair value of its reporting units exceeds their carrying amounts on the annual test date. Therefore the Company did not proceed to Step 1 of the goodwill impairment test in 2011. In prior years, the Company completed the Step 1 quantitative analysis by comparing the estimated fair value of a reporting unit with its carrying value. Based on the qualitative assessment and results of prior years’ analyses, the Company has concluded that no impairment of its goodwill has occurred for the years ended December 31, 2011, 2010 and 2009. 
+Other intangibles primarily represent non-compete agreements related to businesses acquired. Non-compete agreements are amortized on a straight-line basis over the period of the agreement, as this method best estimates the ratio that current revenues bear to the total of current and anticipated revenues. These non-compete agreements are fully amortized as of December 31, 2011 and 2010. 
+Advertising 
+Advertising expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $2,406,000 in 2011, $1,782,000 in 2010 and $1,065,000 in 2009. 
+Insurance Expenses 
+RPC self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance programs is estimated and accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The portion of these estimated outstanding claims expected to be paid more than one year in the future is classified as long-term accrued insurance expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets when the Company determines that it is more likely than not that the asset will not be realized through future taxable income. 
+39 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Defined Benefit Pension Plan 
+The Company has a defined benefit pension plan that provides monthly benefits upon retirement at age 65 to eligible employees with at least one year of service prior to 2002. In 2002, the Company’s Board of Directors approved a resolution to cease all future retirement benefit accruals under the defined benefit pension plan. See Note 10 for a full description of this plan and the related accounting and funding policies. 
+Share Repurchases 
+The Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is allocated to capital in excess of par value and retained earnings if capital in excess of par value is depleted. 
+Earnings per Share 
+FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. During 2009, the Company adopted certain amendments to ASC 260-10 which requires that all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, be considered participating securities and included in the calculation of its basic earnings per share. 
+The Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends, and therefore are considered participating securities. See Note 10 for further information on restricted stock granted to employees. 
+The basic and diluted calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares and performance restricted shares included in diluted earnings per share, but excluded from basic earnings per share. Basic and diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares outstanding during the respective periods. 
+40 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+A reconciliation of weighted average shares outstanding along with the earnings (loss) per share attributable to restricted shares of common stock (participating securities) is as follows: 
+(In thousands except per share data ) 
+2011 
+2010 
+2009 
+Net income (loss) available for stockholders: 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+Less: Dividends paid 
+Common stock 
+(46,479 
+) 
+(20,294 
+) 
+(21,229 
+) 
+Restricted shares of common stock 
+(848 
+) 
+(353 
+) 
+(327 
+) 
+Undistributed earnings (loss) 
+$ 
+249,054 
+$ 
+126,095 
+$ 
+(44,301 
+) 
+Allocation of undistributed earnings: 
+Common stock 
+$ 
+244,053 
+$ 
+123,536 
+$ 
+(43,408 
+) 
+Restricted shares of common stock 
+5,001 
+2,559 
+(893 
+) 
+Basic shares outstanding : 
+Common stock 
+142,102 
+141,866 
+141,390 
+Restricted shares of common stock 
+3,020 
+3,123 
+3,068 
+145,122 
+144,989 
+144,458 
+Diluted shares outstanding : 
+Common stock 
+142,102 
+141,866 
+141,390 
+Dilutive effect of options 
+1,711 
+1,548 
+- 
+143,813 
+143,414 
+141,390 
+Restricted shares of common stock 
+3,020 
+3,123 
+3,068 
+146,833 
+146,537 
+144,458 
+Basic earnings per share: 
+Common stock: 
+Distributed earnings 
+$ 
+0.32 
+$ 
+0.14 
+$ 
+0.15 
+Undistributed earnings (loss) 
+1.72 
+0.87 
+(0.31 
+) 
+$ 
+2.04 
+$ 
+1.01 
+$ 
+(0.16 
+) 
+Restricted shares of common stock: 
+Distributed earnings 
+$ 
+0.28 
+$ 
+0.11 
+$ 
+0.11 
+Undistributed earnings (loss) 
+1.66 
+0.82 
+(0.29 
+) 
+$ 
+1.94 
+$ 
+0.93 
+$ 
+(0.18 
+) 
+Diluted earnings per share: 
+Common Stock: 
+Distributed earnings 
+$ 
+0.32 
+$ 
+0.14 
+$ 
+0.15 
+Undistributed earnings (loss) 
+1.70 
+0.86 
+(0.31 
+) 
+$ 
+2.02 
+$ 
+1.00 
+$ 
+(0.16 
+) 
+During the year ended December 31, 2009, the Company incurred a net loss from continuing operations and consequently the common stock equivalents were excluded from the computation of diluted loss per share because the effect would have been anti-dilutive. See Note 13 for information regarding the three-for-two stock split. 
+Fair Value of Financial Instruments 
+The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, marketable securities, accounts payable, an interest rate swap, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The marketable securities classified as available-for-sale and the securities held in the SERP classified as trading are carried at fair value in the accompanying consolidated balance sheets. The interest rate swap which expired in September of 2011 was carried at fair value based on quotes from the issuer of the swap and represented the estimated amount that the Company expected to pay to terminate the swap. See Note 8 for additional information. 
+Stock-Based Compensation 
+Stock-based compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for additional information. 
+41 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Reclassifications 
+In the current year the Company classified prepaid expenses and other current assets separately. For comparative purposes, amounts in the prior year have been reclassified to conform to current year presentation. 
+RECENT ACCOUNTING PRONOUNCEMENTS: 
+During the year ended December 31, 2011, the Financial Accounting Standards Board (FASB) issued the following Accounting Standards Updates (ASU): 
+Recently Adopted Accounting Pronouncement: 
+● 
+ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The amendments in this codification permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount. This can be used as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. These amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company adopted these provisions in the fourth quarter of 2011, for annual and interim goodwill impairment tests performed starting this year. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+● 
+Accounting Standards Update 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments to the Codification in this ASU defer the presentation of reclassification adjustments out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. This ASU supersedes certain presentation requirements in ASU No. 2011-05, Comprehensive Income, discussed below, so that entities will not be required to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12 is deferring. While the presentation requirements are being re-deliberated, entities are required to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. The amendments to this ASU are effective at the same time as the amendments in ASU No. 2011-05. The Company plans to adopt these provisions in the first quarter of 2012 and is currently evaluating the impact of the adoption of these provisions on the presentation of its consolidated financial statements. 
+● 
+Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort to bring congruence between U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU require an entity to disclose information about derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy and can be presented as a single net amount in the statement of financial position. The amendments in this ASU are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with the required disclosures being provided retrospectively for all comparative periods presented. The Company is currently evaluating the impact of adoption of these provisions in the first quarter of 2013. 
+● 
+ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of 2012 and is currently evaluating the impact of the adoption of these provisions on the presentation of its consolidated financial statements. 
+42 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+● 
+ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. These amendments have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The common requirements are expected to result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments are to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of 2012. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements. 
+Note 2: Accounts Receivable 
+Accounts receivable, net consists of the following: 
+December 31, 
+2011 
+2010 
+(in thousands) 
+Trade receivables: 
+Billed 
+$ 
+367,718 
+$ 
+216,201 
+Unbilled 
+99,913 
+84,977 
+Other receivables 
+1,734 
+1,519 
+Total 
+469,365 
+302,697 
+Less: allowance for doubtful accounts 
+(8,093 
+) 
+(8,695 
+) 
+Accounts receivable, net 
+$ 
+461,272 
+$ 
+294,002 
+Trade receivables relate to sale of our services and products, for which credit is extended based on our evaluation of the customer’s credit worthiness. Unbilled receivables represent revenues earned but not billed to the customer until future dates, usually within one month. Other receivables consist primarily of amounts due from purchasers of Company property and rebates from suppliers. 
+Changes in the Company’s allowance for doubtful accounts are as follows: 
+Years Ended December 31, 
+2011 
+2010 
+(in thousands) 
+Beginning balance 
+$ 
+8,695 
+$ 
+3,210 
+Bad debt expense 
+2,868 
+4,812 
+Accounts written-off 
+(3,820 
+) 
+(730 
+) 
+Recoveries 
+350 
+1,403 
+Ending balance 
+$ 
+8,093 
+$ 
+8,695 
+Note 3: Inventories 
+Inventories are $100,438,000 at December 31, 2011 and $64,059,000 at December 31, 2010 and consist of raw materials, parts and supplies. 
+43 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Note 4: Property, Plant and Equipment 
+Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2011 
+2010 
+(in thousands) 
+Land 
+$ 
+17,403 
+$ 
+15,053 
+Buildings and leasehold improvements 
+94,152 
+82,457 
+Operating equipment 
+990,186 
+755,028 
+Capitalized software 
+18,662 
+15,899 
+Furniture and fixtures 
+5,679 
+4,690 
+Vehicles 
+306,716 
+219,555 
+Construction in progress 
+9,828 
+1,821 
+Gross property, plant and equipment 
+1,442,626 
+1,094,503 
+Less: accumulated depreciation 
+(767,266 
+) 
+(641,486 
+) 
+Net property, plant and equipment 
+$ 
+675,360 
+$ 
+453,017 
+Depreciation expense was $179.9 million in 2011, $133.4 million in 2010 and $130.6 million in 2009. There are no capital leases outstanding as of December 31, 2011 and December 31, 2010. The Company had accounts payable for purchases of property and equipment of approximately $32.7 million as of December 31 2011, $18.1 million as of December 31, 2010 and $3.7 million as of December 31, 2009. 
+Note 5: Income Taxes 
+The following table lists the components of the provision (benefit) for income taxes: 
+Years ended December 31, 
+2011 
+2010 
+2009 
+(in thousands) 
+Current provision (benefit): 
+Federal 
+$ 
+91,415 
+$ 
+56,289 
+$ 
+(13,490 
+) 
+State 
+12,938 
+11,180 
+235 
+Foreign 
+1,007 
+1,059 
+832 
+Deferred provision (benefit): 
+Federal 
+70,599 
+22,833 
+1,698 
+State 
+6,475 
+(571 
+) 
+(29 
+) 
+Total income tax provision (benefit) 
+$ 
+182,434 
+$ 
+90,790 
+$ 
+(10,754 
+) 
+Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows: 
+Years ended December 31, 
+2011 
+2010 
+2009 
+Federal statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income taxes, net of federal benefit 
+3.1 
+2.9 
+(2.4 
+) 
+Tax credits 
+(0.2 
+) 
+(0.6 
+) 
+1.3 
+Non-deductible expenses 
+0.4 
+0.4 
+(2.6 
+) 
+Other 
+(0.2 
+) 
+0.5 
+0.8 
+Effective tax rate 
+38.1 
+% 
+38.2 
+% 
+32.1 
+% 
+44 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Significant components of the Company’s deferred tax assets and liabilities are as follows: 
+December 31, 
+2011 
+2010 
+(in thousands) 
+Deferred tax assets: 
+Self-insurance 
+$ 
+6,344 
+$ 
+5,643 
+Pension 
+8,922 
+6,715 
+State net operating loss carryforwards 
+1,671 
+2,955 
+Bad debts 
+3,044 
+3,219 
+Accrued payroll 
+2,099 
+1,460 
+Stock-based compensation 
+3,680 
+2,538 
+All others 
+1 
+232 
+Valuation allowance 
+(1,295 
+) 
+(1,295 
+) 
+Gross deferred tax assets 
+24,466 
+21,467 
+Deferred tax liabilities: 
+Depreciation 
+(166,190 
+) 
+(89,456 
+) 
+Goodwill amortization 
+(5,707 
+) 
+(5,020 
+) 
+All Others 
+(1,314 
+) 
+(453 
+) 
+Gross deferred tax liabilities 
+(173,211 
+) 
+(94,929 
+) 
+Net deferred tax liabilities 
+$ 
+(148,745 
+) 
+$ 
+(73,462 
+) 
+Historically and currently, undistributed earnings of the Company’s foreign subsidiaries are considered indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been recorded. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested. 
+As of December 31, 2011, the Company has net operating loss carryforwards related to state income taxes of approximately $38.2 million that will expire between 2012 and 2030. As of December 31, 2011 the Company has a valuation allowance of approximately $1.3 million, representing the tax effected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset. 
+Total net income tax payments (refunds) were $90,729,000 in 2011, $61,632,000 in 2010, and ($8,351,000) in 2009. 
+The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial to the financial statements as of December 31, 2011 and 2010. 
+In accordance with the accounting guidance relating to the accounting for uncertainty in income tax reporting, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions, the Company did not recognize a material adjustment in the liability for unrecognized income tax benefits. 
+The Company’s liability for unrecognized tax benefits was $35,000 as of December 31, 2011 and $33,000 as of December 31, 2010, all of which would affect our effective rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2011 and 2010 are as follows: 
+Years Ended December 31, 
+2011 
+2010 
+(in thousands) 
+Beginning balance 
+$ 
+33 
+$ 
+30 
+Additions based on tax positions related to current year 
+- 
+- 
+Additions for tax positions of prior years 
+2 
+3 
+Reductions for tax positions of prior years 
+- 
+- 
+Ending balance 
+$ 
+35 
+$ 
+33 
+The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2008 through 2011 tax years remain open to examination. 
+45 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under Voluntary Disclosure Agreements. However, quantification of an estimated range cannot be made at this time. 
+Note 6: Long-Term Debt 
+On August 31, 2010, the Company replaced its $200 million credit facility with a new $350 million revolving credit facility with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers and Joint Book Managers, and a syndicate of other lenders. The facility includes a full and unconditional guarantee by the Company’s 100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPC and its subsidiaries. The subsidiaries of the Company that are not guarantors are considered minor. 
+The facility has a general term of five years and provides for an unsecured line of credit of up to $350 million, which includes a $50 million letter of credit subfacility, and a $25 million swingline subfacility. The maturity date of all revolving loans under the Credit Agreement is August 31, 2015. The Company has incurred loan origination fees and other debt related costs associated with the Revolving Credit Agreement in the aggregate of approximately $2.3 million. These costs are being amortized to interest expense over the five year term of the loan, and the net amount is classified as non-current other assets on the consolidated balance sheets. 
+Revolving loans under the facility bear interest at one of the following two rates, at the Company’s election: 
+● the Base Rate, which is the highest of Bank of America’s “prime rate” for the day of the borrowing, a fluctuating rate per annum equal to the Federal Funds Rate plus 0.50%, and a rate per annum equal to the one (1) month LIBOR rate plus 1.00%, in each case plus a margin that ranges from 0.25% to 1.25% based on a quarterly debt covenant calculation; or 
+● with respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve) plus a margin ranging from 1.25% to 2.25%, based upon a quarterly debt covenant calculation. 
+In addition, the Company pays an annual fee ranging from 0.25% to 0.35%, based on a quarterly debt covenant calculation, of the unused portion of the credit facility. 
+The facility contains customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend payments, business combinations and other related items. Further, the facility contains financial covenants limiting the ratio of the Company’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and limiting the ratio of the Company’s consolidated EBITDA to interest expense to no less than 2 to 1. The Company was in compliance with these covenants as of and for the year ended December 31, 2011. 
+As of December 31, 2011, RPC has outstanding borrowings of $203.3 million under the facility. Interest incurred on the facility was $4,146,000 in 2011, $3,170,000 in 2010, and $2,327,000 in 2009. The weighted average interest rate was 2.8% in 2011, 3.0% in 2010, and 1.8% in 2009. The Company capitalized interest incurred of $627,000 in 2011, $554,000 in 2010 and $150,000 in 2009 related to facilities and equipment under construction. Additionally there were letters of credit relating to self-insurance programs and contract bids outstanding for $18.4 million as of December 31, 2011. 
+Cash interest paid (net of capitalized interest) was approximately $3,168,000 in 2011, $1,899,000 in 2010 and $2,192,000 in 2009. 
+Effective December 2008 the Company entered into an interest rate swap agreement that effectively converted $50 million of the Company’s variable-rate debt to a fixed rate basis, thereby hedging against the impact of potential interest rate changes on future interest expense. Under this agreement the Company and the issuing lender settled on a monthly basis for the difference between a fixed interest rate of 2.07% and a comparable one month LIBOR rate. This agreement terminated on September 8, 2011. 
+46 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Note 7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated other comprehensive (loss) income consists of the following (in thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain (Loss) On 
+Securities 
+Foreign 
+Currency 
+Translation 
+Net Loss 
+On Cash Flow 
+Hedge 
+Total 
+Balance at December 31, 2009 
+$ 
+(8,583 
+) 
+$ 
+220 
+$ 
+77 
+$ 
+(520 
+) 
+$ 
+(8,806 
+) 
+Change during 2010: 
+Before-tax amount 
+(2,125 
+) 
+441 
+329 
+209 
+(1,146 
+) 
+Tax expense (benefit) 
+775 
+(160 
+) 
+(120 
+) 
+(76 
+) 
+419 
+Total activity in 2010 
+(1,350 
+) 
+281 
+209 
+133 
+(727 
+) 
+Balance at December 31, 2010 
+$ 
+(9,933 
+) 
+$ 
+501 
+$ 
+286 
+$ 
+(387 
+) 
+$ 
+(9,533 
+) 
+Change during 2011: 
+Before-tax amount 
+(4,800 
+) 
+(495 
+) 
+(218 
+) 
+610 
+(4,903 
+) 
+Tax expense (benefit) 
+1,752 
+181 
+80 
+(223 
+) 
+1,790 
+Total activity in 2011 
+(3,048 
+) 
+(314 
+) 
+(138 
+) 
+387 
+(3,113 
+) 
+Balance at December 31, 2011 
+$ 
+(12,981 
+) 
+$ 
+187 
+$ 
+148 
+$ 
+- 
+$ 
+(12,646 
+) 
+Note 8: Fair Value Disclosures 
+The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows: 
+1. 
+Level 1 – Quoted market prices in active markets for identical assets or liabilities. 
+2. 
+Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 
+3. 
+Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use. 
+The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of December 31, 2011 and 2010: 
+Fair Value Measurements at December 31, 2011 with: 
+(in thousands ) 
+Quoted prices in 
+active markets for 
+identical assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+8,251 
+$ 
+- 
+Available-for-sale securities – equity securities 
+$ 
+629 
+$ 
+- 
+$ 
+- 
+Fair Value Measurements at December 31, 2010 with: 
+(in thousands ) 
+Quoted prices in 
+active markets for 
+identical assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable 
+inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+8,445 
+$ 
+- 
+Available-for-sale securities – equity securities 
+1,124 
+- 
+- 
+Liabilities: 
+Interest rate swap 
+$ 
+- 
+$ 
+610 
+$ 
+- 
+47 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+The Company determines the fair value of the marketable securities that are available-for-sale through quoted market prices. The total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. The trading securities are comprised of the SERP assets, as described in Note 10, and are recorded primarily at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to quoted market prices, were used to value the trading securities. As a result, the Company classified these investments as using level 2 inputs. 
+At December 31, 2011 and 2010, there was $203,300,000 and $121,250,000 outstanding under the Company’s credit facility and based on quotes from the lender (level 2 inputs) is similar to the fair values of these borrowings. The borrowings under our revolving credit facility bear interest at the variable rate described in Note 6. The Company is subject to interest rate risk on the variable component of the interest rate. In 2008 the Company entered into an interest rate swap agreement effectively converting a portion of the outstanding borrowings under the revolving credit facility to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense; this agreement terminated in September of 2011. The fair value of this swap was negative $610,000 at December 31, 2010 and was reflected in other accrued expenses. 
+The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether or not it will elect this option for financial instruments it may acquire in the future. 
+Note 9: Commitments and Contingencies 
+Lease Commitments - Minimum annual rentals, principally for noncancelable real estate and equipment leases with terms in excess of one year, in effect at December 31, 2011, are summarized in the following table: 
+(in thousands) 
+2012 
+$ 
+5,005 
+2013 
+5,210 
+2014 
+4,205 
+2015 
+3,408 
+2016 
+1,997 
+Thereafter 
+7,080 
+Total rental commitments 
+$ 
+26,905 
+Total rental expense, including short-term rentals, charged to operations was approximately $19,814,000 in 2011, $11,970,000 in 2010 and $10,787,000 in 2009. 
+Income Taxes - The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. Other long-term liabilities include $35,000 as of December 31, 2011 and $33,000 as of December 31, 2010, that represents the Company’s estimated liabilities for the probable assessments payable. 
+Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes that cannot be currently estimated. 
+Litigation - RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management, after consultation with legal counsel, believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on the Company’s business or financial condition. 
+48 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Note 10: Employee Benefit Plans 
+Defined Benefit Pension Plan 
+The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to substantially all employees with at least one year of service prior to 2002. During 2001, the plan became a multiple employer plan, with Marine Products Corporation as an adopting employer. 
+The Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $14.1 million and thus the plan was under-funded as of December 31, 2011. 
+The following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets: 
+December 31, 
+2011 
+2010 
+(in thousands) 
+Accumulated Benefit Obligation at end of year 
+$ 
+38,278 
+$ 
+35,873 
+CHANGE IN PROJECTED BENEFIT OBLIGATION: 
+Benefit obligation at beginning of year 
+$ 
+35,873 
+$ 
+32,190 
+Service cost 
+— 
+— 
+Interest cost 
+1,916 
+1,893 
+Amendments 
+— 
+— 
+Actuarial (gain) loss 
+2,123 
+3,362 
+Benefits paid 
+(1,634 
+) 
+(1,572 
+) 
+Projected benefit obligation at end of year 
+$ 
+38,278 
+$ 
+35,873 
+CHANGE IN PLAN ASSETS: 
+Fair value of plan assets at beginning of year 
+$ 
+26,523 
+$ 
+24,932 
+Actual return on plan assets 
+(1,309 
+) 
+2,548 
+Employer contribution 
+600 
+614 
+Benefits paid 
+(1,634 
+) 
+(1,572 
+) 
+Fair value of plan assets at end of year 
+24,180 
+26,522 
+Funded status at end of year 
+$ 
+(14,098 
+) 
+$ 
+(9,351 
+) 
+December 31, 
+2011 
+2010 
+(in thousands) 
+AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent assets 
+$ 
+— 
+$ 
+— 
+Current liabilities 
+— 
+— 
+Noncurrent liabilities 
+(14,098 
+) 
+(9,351 
+) 
+$ 
+(14,098 
+) 
+$ 
+(9,351 
+) 
+December 31, 
+2011 
+2010 
+(in thousands) 
+AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF: 
+Net loss (gain) 
+$ 
+20,441 
+$ 
+15,642 
+Prior service cost (credit) 
+— 
+— 
+Net transition obligation (asset) 
+— 
+— 
+$ 
+20,441 
+$ 
+15,642 
+49 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+The accumulated benefit obligation for the Retirement Income Plan at December 31, 2011 and 2010 has been disclosed above. The Company uses a December 31 measurement date for this qualified plan. 
+Amounts recognized in the consolidated balance sheets consist of: 
+December 31, 
+2011 
+2010 
+(in thousands) 
+Funded status 
+$ 
+(14,098 
+) 
+$ 
+(9,351 
+) 
+SERP contributions/deferrals 
+(10,347 
+) 
+(9,046 
+) 
+Long-term pension liabilities 
+$ 
+(24,445 
+) 
+$ 
+(18,397 
+) 
+RPC’s funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. RPC contributed $600,000 in 2011 and $614,000 in 2010. 
+The components of net periodic benefit cost are summarized as follows: 
+Years ended December 31, 
+2011 
+2010 
+2009 
+(in thousands) 
+Service cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest cost on projected benefit obligation 
+1,916 
+1,893 
+1,938 
+Expected return on plan assets 
+(1,831 
+) 
+(1,720 
+) 
+(1,521 
+) 
+Amortization of net loss 
+463 
+409 
+1,538 
+Net periodic benefit plan cost (credit) 
+$ 
+548 
+$ 
+582 
+$ 
+1,955 
+The Company recognized pre-tax decreases (increases) to the funded status in comprehensive loss of $4,800,000 in 2011, $2,125,000 in 2010, and $(1,413,000) in 2009. There were no previously unrecognized prior service costs as of December 31, 2011, 2010 and 2009. The pre-tax amounts recognized in comprehensive loss for the years ended December 31, 2011, 2010 and 2009 are summarized as follows: 
+(in thousands) 
+2011 
+2010 
+2009 
+Net loss (gain) 
+$ 
+5,263 
+$ 
+2,534 
+$ 
+125 
+Amortization of net (loss) gain 
+(463 
+) 
+(409 
+) 
+(1,538 
+) 
+Net transition obligation (asset) 
+— 
+— 
+— 
+Amount recognized in other comprehensive loss 
+$ 
+4,800 
+$ 
+2,125 
+$ 
+(1,413 
+) 
+The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2012 are as follows: 
+(in thousands) 
+2012 
+Amortization of net loss (gain) 
+$ 
+673 
+Prior service cost (credit) 
+— 
+Net transition obligation (asset) 
+— 
+Estimated net periodic benefit plan cost 
+$ 
+673 
+The weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as follows: 
+December 31, 
+2011 
+2010 
+2009 
+Projected Benefit Obligation : 
+Discount rate 
+5.00 
+% 
+5.49 
+% 
+6.00 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+Net Benefit Cost: 
+Discount rate 
+5.49 
+% 
+6.00 
+% 
+6.84 
+% 
+Expected return on plan assets 
+7.00 
+% 
+7.00 
+% 
+7.00 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+50 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+The Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management and its investment adviser. It includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of seven percent is reasonable. 
+The Plan’s weighted average asset allocation at December 31, 2011 and 2010 by asset category along with the target allocation for 2012 are as follows: 
+Asset Category 
+Target 
+Allocation 
+for 2012 
+Percentage of 
+Plan Assets 
+as of 
+December 31, 
+2011 
+Percentage of 
+Plan Assets 
+as of 
+December 31, 
+2010 
+Debt Securities – Core Fixed Income 
+15.0% – 50.0 
+% 
+23.2 
+% 
+26.2 
+% 
+Tactical – Fund of Equity and Debt Securities 
+10.0% – 20.0 
+% 
+16.3 
+% 
+10.1 
+% 
+Domestic Equity Securities 
+20.0% – 40.0 
+% 
+15.2 
+% 
+26.4 
+% 
+Global Equity Securities 
+10.0% – 20.0 
+% 
+14.8 
+% 
+4.3 
+% 
+International Equity Securities 
+10.0% – 20.0 
+% 
+14.6 
+% 
+13.8 
+% 
+Real Estate 
+0.0% – 10.0 
+% 
+5.6 
+% 
+4.6 
+% 
+Real Return 
+0.0% – 10.0 
+% 
+9.6 
+% 
+5.6 
+% 
+Other 
+0.0% – 5.0 
+% 
+0.7 
+% 
+9.0 
+% 
+Total 
+100 
+% 
+100.0 
+% 
+100.0 
+% 
+The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers. Equity securities primarily include investments in large-cap and mid-cap companies. Fixed-income securities include corporate bonds of companies in diversified securities, mortgage-backed securities, and U.S. Treasuries. Other types of investments include hedge funds and private equity funds that follow several different investment strategies. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. The plans utilize a number of investment approaches, including individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation. 
+Some of our assets, primarily our private equity, real estate and hedge funds, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2011 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager discussions focusing on underlying fundamentals and significant events. 
+Included among the asset categories for the Plans’ investments are real estate and other investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+The following tables present our plan assets using the fair value hierarchy as of December 31, 2011 and December 31, 2010. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy. 
+51 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Fair Value Hierarchy as of December 31, 2011: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1) 
+$ 
+175 
+$ 
+175 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2) 
+5,608 
+- 
+5,608 
+- 
+Domestic Equity Securities 
+3,680 
+3,680 
+- 
+- 
+Global Equity Securities 
+3,568 
+3,568 
+- 
+- 
+International Equity Securities 
+(3) 
+3,537 
+1,671 
+1,866 
+- 
+Tactical Composite 
+(4) 
+3,935 
+- 
+3,935 
+- 
+Real Estate 
+(5) 
+1,350 
+- 
+- 
+1,350 
+Real Return 
+(6) 
+2,327 
+- 
+2,327 
+$ 
+24,180 
+$ 
+9,094 
+$ 
+13,736 
+$ 
+1,350 
+Fair Value Hierarchy as of December 31, 2010: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1) 
+$ 
+2,081 
+$ 
+2,081 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2) 
+6,937 
+- 
+6,937 
+- 
+Domestic Equity Securities 
+7,015 
+7,015 
+- 
+- 
+Global Equity Securities 
+1,153 
+- 
+1,153 
+- 
+International Equity Securities 
+(3) 
+3,672 
+1,636 
+2,036 
+- 
+Tactical Composite 
+(4) 
+2,687 
+- 
+2,687 
+- 
+Real Estate 
+(5) 
+1,210 
+- 
+- 
+1,210 
+Real Return 
+(6) 
+1,492 
+- 
+1,492 
+- 
+Alternative Investments 
+(7) 
+275 
+- 
+- 
+275 
+$ 
+26,522 
+$ 
+10,732 
+$ 
+14,305 
+$ 
+1,485 
+(1) 
+Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds. 
+(2) 
+Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades. 
+(3) 
+Some international equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(4) 
+Tactical composite funds invest in stocks, bonds and cash, both domestic and international. These assets are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(5) 
+Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. 
+(6) 
+Real return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(7) 
+Alternative investments consist of fund-of-fund LLC or commingled fund structures. The LLCs are primarily valued based on Net Asset Values [NAV] calculated by the fund and are not publicly available. Liquidity for the LLCs is monthly and is subject to liquidity of the underlying funds. The commingled fund NAV is calculated by the manager on a daily basis and has monthly liquidity. 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2011: 
+Investments 
+( in thousands ) 
+Balance at December 31, 2010 
+Net Realized 
+and Unrealized Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out 
+of) Level 
+3 
+Balance at December 31, 2011 
+Real Estate 
+$ 
+1,210 
+$ 
+142 
+$ 
+- 
+$ 
+- 
+$ 
+1,352 
+Alternative Investments 
+275 
+(2 
+) 
+(273 
+) 
+- 
+- 
+$ 
+1,485 
+$ 
+140 
+$ 
+(273 
+) 
+$ 
+- 
+$ 
+1,352 
+52 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2010: 
+Investments 
+( in thousands ) 
+Balance at December 31, 2009 
+Net Realized 
+and Unrealized Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out of) Level 
+3 
+Balance at December 31, 2010 
+Real Estate 
+$ 
+1,039 
+$ 
+171 
+$ 
+- 
+$ 
+- 
+$ 
+1,210 
+Alternative Investments 
+4,357 
+(235 
+) 
+(2,127 
+) 
+(1,720 
+) 
+275 
+$ 
+5,396 
+$ 
+(64 
+) 
+$ 
+(2,127 
+) 
+$ 
+(1,720 
+) 
+$ 
+1,485 
+The Company expects to contribute approximately $600,000 to the Retirement Income Plan in 2012 and does not expect to receive a refund in 2012. 
+The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows: 
+(in thousands) 
+2012 
+1,730 
+2013 
+1,841 
+2014 
+1,940 
+2015 
+2,020 
+2016 
+2,212 
+2017-2021 
+12,027 
+Supplemental Executive Retirement Plan (SERP) 
+The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source for the deferred compensation obligations in the SERP. The assets are subject to claims by creditors, and the Company can designate them to another purpose at any time. Investments in COLI policies consisted of $17.7 million in variable life insurance policies as of December 31, 2011 and $17.3 million as of December 31, 2010. In the COLI policies, the Company is able to allocate investment of the assets across a set of choices provided by the insurance company, including fixed income securities and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company, whose Standard & Poor’s credit rating was A+. 
+The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets totaled $8,251,000 as of December 31, 2011 and $8,445,000 as of December 31, 2010. The SERP assets are reported in other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in the consolidated statement of operations as part of other income (expense), net. Trading gains (losses) related to the SERP assets totaled $(194,000) in 2011, $701,000 for 2010, and $1,373,000 for 2009. The SERP deferrals and the contributions are recorded on the balance sheet in pension liabilities with any change in the fair value of the liabilities recorded as compensation cost in the statement of operations. 
+401(k) Plan 
+RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal Revenue Code. RPC matches 50 percent of each employee’s contributions that do not exceed six percent of the employee’s compensation, as defined by the plan. Employees vest in the RPC contributions after three years of service. The charges to expense for the Company’s contributions to the 401(k) plan were approximately $4,074,000 in 2011, $2,485,000 in 2010, and $2,621,000 in 2009. 
+53 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Stock Incentive Plans 
+The Company has issued stock options and restricted stock to employees under two 10 year stock incentive plans that were approved by stockholders in 1994 and 2004. The 1994 plan expired in 2004. The Company reserved 7,593,750 shares of common stock under the 2004 Plan which expires in 2014. This plan provides for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock which are discussed in detail below. As of December 31, 2011, there were approximately 2,059,000 shares available for grants. The Company issues new shares from its authorized but unissued share pool. 
+The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their fair value at grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. Cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing activity in the accompanying consolidated statements of cash flows. 
+Pre-tax stock-based employee compensation expense was $8,075,000 in 2011 ($5,128,000 after tax), $4,909,000 in 2010 ($3,117,000 after tax), and $4,440,000 in 2009 ($2,819,000 after tax). 
+Stock Options 
+Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years. 
+The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options to employees since 2003. 
+Transactions involving RPC’s stock options for the year ended December 31, 2011 were as follows: 
+Shares 
+Weighted Average 
+Exercise Price 
+Weighted 
+Average 
+Remaining 
+Contractual Life 
+Aggregate Intrinsic Value 
+Outstanding at January 1, 2011 
+1,070,388 
+$ 
+2.26 
+1.23 years 
+Granted 
+- 
+- 
+N/A 
+Exercised 
+(600,594 
+) 
+2.50 
+N/A 
+Forfeited 
+- 
+- 
+N/A 
+Expired 
+- 
+- 
+N/A 
+Outstanding and exercisable at December 31, 2011 
+469,794 
+$ 
+1.96 
+0.99 years 
+$ 
+7,653,000 
+The total intrinsic value of stock options exercised was approximately $11,882,000 during 2011, $2,293,000 during 2010 and $1,519,000 during 2009. Tax benefits associated with the exercise of stock options exercised totaled $799,000 during 2011 and were credited to capital in excess of par value and are classified as financing cash flows. There were no recognized excess tax benefits associated with the exercise of stock options during 2010. Recognized excess tax benefits associated with the exercise of stock options were approximately $353,000 during 2009. 
+Restricted Stock 
+The Company has granted employees two forms of restricted stock: time lapse restricted and performance restricted. 
+Time lapse restricted shares 
+Time lapse restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest after ten years. Time lapse restricted shares issued subsequent to fiscal year 2003 vest in 20 percent increments annually starting with the second anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting rights for the granted shares. 
+Performance restricted shares 
+The performance restricted shares are granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC’s common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. After the determination date, the grantee will receive dividends declared and voting rights to the shares. The Company has not granted performance restricted shares since 1999. 
+54 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+The agreements under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans have lapsed. Upon termination of employment from RPC or, in certain cases, termination of employment from Marine Products Corporation or Chaparral Boats, Inc., shares with restrictions must be returned to RPC. 
+The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2011: 
+Shares 
+Weighted Average 
+Grant-Date Fair Value 
+Non-vested shares at January 1, 2011 
+3,007,353 
+$ 
+7.58 
+Granted 
+740,500 
+17.39 
+Vested 
+(664,248 
+) 
+7.43 
+Forfeited 
+(123,051 
+) 
+9.18 
+Non-vested shares at December 31, 2011 
+2,960,554 
+$ 
+9.93 
+The fair value of restricted awards is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense on a straight-line basis over the requisite service period. The weighted average grant date fair value of these restricted stock awards was $17.39, $8.21 and $5.70 for the years ended December 31, 2011, 2010 and 2009. The total fair value of shares vested was approximately $11,861,000 during 2011, $5,079,000 during 2010 and $3,976,000 during 2009. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating $2,572,000 for 2011, $651,000 for 2010 and $1,068,000 for 2009. The excess tax deductions are classified as a financing activity in the accompanying consolidated statements of cash flows. 
+Other Information 
+As of December 31, 2011, total unrecognized compensation cost related to non-vested restricted shares was approximately $25,614,000 which is expected to be recognized over a weighted-average period of 3.5 years. As of December 31, 2011, there was no unrecognized compensation cost related to non-vested stock options. 
+The Company received cash from options exercised of $728,000 during 2011, $240,000 during 2010, and $122,000 during 2009. These cash receipts are classified as a financing activity in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled approximately $720,000 during 2011, $144,000 during 2010 and $389,000 during 2009 and have been excluded from the consolidated statements of cash flows. 
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011, $689,000 in 2010 and $713,000 in 2009. The Company’s receivable due from Marine Products for these services as of December 31, 2011 was approximately $3,000 and as of December 31, 2010 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,469,000 in 2011, $551,000 in 2010 and $409,000 in 2009. 
+55 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $102,000 in 2011, $94,000 in 2010 and $87,000 in 2009. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. 
+Note 12: Business Segment Information 
+RPC’s service lines have been aggregated into two reportable oil and gas services segments — Technical Services and Support Services — because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. Corporate includes selected administrative costs incurred by the Company. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. These services include pressure pumping services, coiled tubing, snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services. These Technical Services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent, southwest, Rocky Mountain and Appalachian regions, and international locations including primarily Africa, Canada, China, Latin America, the Middle East and New Zealand. Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent and Appalachian regions, and international locations, including primarily Canada, Latin America, and the Middle East. Customers include domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+The accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the Company’s chief decision maker on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not material to operating results. 
+56 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+Summarized financial information concerning RPC’s reportable segments for the years ended December 31, 2011, 2010 and 2009 are shown in the following table: 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+(Loss) Gain on disposition of assets, net 
+Total 
+(in thousands) 
+2011 
+Revenues 
+$ 
+1,663,793 
+$ 
+146,014 
+$ 
+— 
+$ 
+— 
+$ 
+1,809,807 
+Operating profit (loss) 
+451,259 
+51,672 
+(17,019 
+) 
+(3,831 
+) 
+482,081 
+Capital expenditures 
+369,568 
+42,837 
+3,995 
+— 
+416,400 
+Depreciation and amortization 
+152,252 
+27,464 
+189 
+— 
+179,905 
+Identifiable assets 
+1,103,341 
+177,974 
+56,896 
+— 
+1,338,211 
+2010 
+Revenues 
+$ 
+979,834 
+$ 
+116,550 
+$ 
+— 
+$ 
+— 
+$ 
+1,096,384 
+Operating profit (loss) 
+217,144 
+31,086 
+(13,143 
+) 
+3,758 
+238,845 
+Capital expenditures 
+163,362 
+23,012 
+1,112 
+— 
+187,486 
+Depreciation and amortization 
+106,480 
+26,640 
+240 
+— 
+133,360 
+Identifiable assets 
+668,081 
+158,577 
+61,213 
+— 
+887,871 
+2009 
+Revenues 
+$ 
+513,289 
+$ 
+74,574 
+$ 
+— 
+$ 
+— 
+$ 
+587,863 
+Operating profit (loss) 
+(20,328 
+) 
+(1,636 
+) 
+(12,231 
+) 
+1,143 
+(33,052 
+) 
+Capital expenditures 
+48,175 
+19,220 
+435 
+— 
+67,830 
+Depreciation and amortization 
+101,780 
+28,085 
+715 
+— 
+130,580 
+Identifiable assets 
+453,133 
+144,905 
+51,005 
+— 
+649,043 
+The following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2011, 2010 and 2009. The revenues are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented. 
+Years ended December 31, 
+2011 
+2010 
+2009 
+(in thousands) 
+United States Revenues 
+$ 
+1,757,661 
+$ 
+1,041,461 
+$ 
+543,026 
+International Revenues 
+52,146 
+54,923 
+44,837 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+57 
+Note 13: Stock Split 
+On January 24, 2012, RPC’s Board of Directors declared a three-for-two stock split of the Company’s common shares. The split will be effected by issuing an additional share of common stock for every two shares of common stock held. The additional shares will be distributed on March 9, 2012 to stockholders of record on February 10, 2012. The stock split will increase the Company’s outstanding shares from approximately 146,333,777 shares to 219,500,666 shares. Our historical outstanding shares will be recast upon the distribution. 
+Below is an estimate of the pro forma effects of the stock split on the Company’s Stockholders’ equity. 
+(in thousands) 
+December 31, 
+2011 
+(Audited) 
+Adjustment 
+(Unaudited) 
+December 31, 2011 
+(Pro forma) 
+(Unaudited) 
+STOCKHOLDERS’ EQUITY 
+Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+$ 
+- 
+$ 
+$ 
+- 
+Common stock, $0.10 par value, 349,000,000 shares authorized, Shares issued (1) and outstanding – 221,187,660 outstanding in 2011 and 222,263,993 outstanding in 2010 
+$ 
+14,746 
+7,373 
+22,119 
+Capital in excess of par value 
+- 
+Retained earnings 
+760,492 
+(7,373 
+) 
+753,119 
+Accumulated other comprehensive loss 
+(12,646 
+) 
+(12,646 
+) 
+Total stockholders’ equity 
+$ 
+762,592 
+$ 
+- 
+$ 
+762,592 
+(1) Shares issued increased as follows: 2011- 73,729,220; 2010 – 74,087,998 
+Below is an estimate of the pro forma effects of the stock split on the Company’s earnings per share: 
+(in thousands, except per share amounts) 
+December 31, 
+2011 
+(Audited) 
+Adjustment 
+(unaudited) 
+December 31,2011 
+(Pro forma) 
+(unaudited) 
+Net income 
+$ 
+296,381 
+$ 
+- 
+$ 
+296,381 
+Basic Earnings Per Share 
+2.04 
+(0.68 
+) 
+1.36 
+Diluted Earnings Per Share 
+2.02 
+(0.67 
+) 
+1.35 
+Shares used for computation: 
+Basic 
+145,122 
+72,561 
+217,683 
+Diluted 
+146,833 
+73,417 
+220,250 
+58 
+Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+None. 
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2011 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 30 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2011 and issued a report thereon which is included on page 31 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+Item 9B. Other Information 
+None. 
+59 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+Information concerning directors and executive officers will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the section titled “Election of Directors.” This information is incorporated herein by reference. Information about executive officers is contained on page 13 of this document. 
+Audit Committee and Audit Committee Financial Expert 
+Information concerning the Audit Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and Meetings – Audit Committee.” This information is incorporated herein by reference. 
+Code of Ethics 
+RPC, Inc. has a Code of Business Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transaction Policy. Both of these documents are available on the Company’s Web site at www.rpc.net. Copies are available at no charge by writing to Attention: Human Resources, RPC, Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+RPC, Inc. intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code that relates to any elements of the code of ethics definition enumerated in SEC rules by posting such information on its internet website, the address of which is provided above. 
+Section 16(a) Beneficial Ownership Reporting Compliance 
+Information regarding compliance with Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2012 Annual Meeting of Stockholders, which is incorporated herein by reference. 
+Item 11. Executive Compensation 
+Information concerning director and executive compensation will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the sections titled “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.” This information is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Information concerning security ownership will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the sections “Capital Stock” and “Election of Directors.” This information is incorporated herein by reference. 
+60 
+Securities Authorized for Issuance Under Equity Compensation Plans 
+The following table sets forth certain information regarding equity compensation plans as of December 31, 2011. 
+Plan Category 
+(A) 
+Number of Securities 
+To Be Issued Upon 
+Exercise of 
+Outstanding Options, Warrants and Rights 
+(B) 
+Weighted Average Exercise 
+Price of Outstanding 
+Options, Warrants and 
+Rights 
+(C) 
+Number of Securities 
+Remaining Available for 
+Future Issuance Under 
+Equity Compensation 
+Plans (Excluding 
+Securities Reflected in 
+Column (A)) 
+Equity compensation plans approved by securityholders 
+469,794 
+$ 
+1.96 
+2,058,679 
+(1) 
+Equity compensation plans not approved by securityholders 
+- 
+- 
+- 
+Total 
+469,794 
+$ 
+1.96 
+2,058,679 
+(1) 
+All of the securities can be issued in the form of restricted stock or other stock awards. 
+See Note 10 to the Consolidated Financial Statements for information regarding the material terms of the equity compensation plans. 
+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference. 
+Item 14. Principal Accounting Fees and Services 
+Information regarding principal accountant fees and services will be included in the section titled “Independent Registered Public Accounting Firm” in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders. This information is incorporated herein by reference. 
+61 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements, Financial Statement Schedule and Exhibits 
+1. 
+Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report. 
+2. 
+The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report. 
+3. 
+Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.14 
+Summary of Compensation Arrangements with Non-Employee Directors (incorporated herein by reference to Exhibit 10.19 to the Form 10-K filed on March 4, 2011). 
+62 
+Exhibits (inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 
+3.1B 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May 8, 2006). 
+3.1C 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(C) to the Quarterly Report on Form 10-Q filed August 2, 2011). 
+3.2 
+Bylaws of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 8-K filed on October 25, 2007). 
+4 
+Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001). 
+10.5 
+Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.13 
+Second Amendment to Revolving Credit Agreement dated as of September 2, 2009 by and among the Company, the several banks and other financial institutions from time to time party thereto and SunTrust Bank, in its capacity as administrative agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated September 2, 2009). 
+10.14 
+Summary of Compensation Arrangements with Non-Employee Directors (incorporated herein by reference to Exhibit 10.19 to the Form 10-K filed on March 4, 2011). 
+10.15 
+Credit Agreement dated August 31, 2010 between the Company, Banc of America, N.A., SunTrust Bank, Regions Bank and certain other lenders party thereto (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on September 7, 2010) 
+10.16 
+Amendment and No. 1 to Credit Agreement dated as of June 16, 2011 between the Company, the Subsidiary Loan Parties party thereto, Bank of America, N.A. and certain other lenders party thereto. 
+21 
+Subsidiaries of RPC 
+23 
+Consent of Grant Thornton LLP 
+24 
+Powers of Attorney for Directors 
+31.1 
+Section 302 certification for Chief Executive Officer 
+31.2 
+Section 302 certification for Chief Financial Officer 
+32.1 
+Section 906 certifications for Chief Executive Officer and Chief Financial Officer 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema Document 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase Document 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase Document 
+101.DEF 
+XBRL Taxonomy Extension Definition Linkbase Document 
+63 
+SIGNATURES 
+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. 
+RPC, Inc. 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+February 29, 2012 
+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. 
+Name 
+Title 
+Date 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+February 29, 2012 
+/s/ Ben M. Palmer 
+Ben M. Palmer 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+February 29, 2012 
+The Directors of RPC (listed below) executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their behalf. 
+R. Randall Rollins, Director 
+James A. Lane, Jr., Director 
+Wilton Looney, Director 
+Linda H. Graham, Director 
+Gary W. Rollins, Director 
+Bill J. Dismuke, Director 
+Henry B. Tippie, Director 
+Larry L. Prince, Director 
+James B. Williams, Director 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+Director and as Attorney-in-fact 
+February 29, 2012 
+64 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The following documents are filed as part of this report. 
+FINANCIAL STATEMENTS AND REPORTS 
+PAGE 
+Management’s Report on Internal Control Over Financial Reporting 
+30 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+31 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+32 
+Consolidated Balance Sheets as of December 31, 2011 and 2010 
+33 
+Consolidated Statements of Operations for the three years ended December 31, 2011 
+34 
+Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2011 
+35 
+Consolidated Statements of Cash Flows for the three years ended December 31, 2011 
+36 
+Notes to Consolidated Financial Statements 
+37 - 58 
+SCHEDULE 
+Schedule II — Valuation and Qualifying Accounts 
+65 
+Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+For the years ended 
+December 31, 2011, 2010 and 2009 
+(in thousands) 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Net (Deductions) Recoveries 
+Balance 
+at End of 
+Period 
+Year ended December 31, 2011 
+Allowance for doubtful accounts 
+$ 
+8,694 
+$ 
+2,868 
+$ 
+(3,469 
+) 
+(1) 
+$ 
+8,093 
+Deferred tax asset valuation allowance 
+$ 
+1,295 
+$ 
+— 
+$ 
+— 
+$ 
+1,295 
+Year ended December 31, 2010 
+Allowance for doubtful accounts 
+$ 
+3,210 
+$ 
+4,812 
+$ 
+672 
+(1) 
+$ 
+8,694 
+Deferred tax asset valuation allowance 
+$ 
+1,550 
+$ 
+— 
+$ 
+(255 
+) 
+(2) 
+$ 
+1,295 
+Year ended December 31, 2009 
+Allowance for doubtful accounts 
+$ 
+6,199 
+$ 
+660 
+$ 
+(3,649 
+) 
+(1) 
+$ 
+3,210 
+Deferred tax asset valuation allowance 
+$ 
+1,454 
+$ 
+96 
+$ 
+— 
+(2) 
+$ 
+1,550 
+(1) 
+Net (deductions) recoveries in the allowance for doubtful accounts principally reflect the write-off of previously reserved accounts net of recoveries. 
+(2) 
+The valuation allowance for deferred tax assets is increased or decreased each year to reflect the state net operating losses that management believes will not be utilized before they expire. 
+65 
+SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share data) 
+2011 
+Revenues 
+$ 
+381,761 
+$ 
+443,029 
+$ 
+502,235 
+$ 
+482,782 
+Net income 
+$ 
+65,524 
+$ 
+73,165 
+$ 
+83,111 
+$ 
+74,581 
+Net income per share — basic (a) 
+$ 
+0.45 
+$ 
+0.50 
+$ 
+0.57 
+$ 
+0.51 
+Net income per share — diluted (a) 
+$ 
+0.45 
+$ 
+0.50 
+$ 
+0.57 
+$ 
+0.51 
+2010 
+Revenues 
+$ 
+213,144 
+$ 
+252,896 
+$ 
+302,200 
+$ 
+328,144 
+Net income 
+$ 
+13,400 
+$ 
+31,602 
+$ 
+46,269 
+$ 
+55,471 
+Net income per share — basic (a) 
+$ 
+0.09 
+$ 
+0.22 
+$ 
+0.32 
+$ 
+0.38 
+Net income per share — diluted (a) 
+$ 
+0.09 
+$ 
+0.21 
+$ 
+0.31 
+$ 
+0.38 
+(a) 
+The sum of the income (loss) per share for the four quarters may differ from annual amounts due to the required method of computing the weighted average shares for the respective periods. 
+66
\ No newline at end of file
diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/filing_metadata.csv b/raw/filings/0000742278/2011/0001188112-12-000533/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..eefafd8ee642d985cc445acc861c3cc1d07f7294
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2012-02-29,2011-12-31,2012-02-29T14:01:17.000Z,0001188112-12-000533,t72617_10k.htm,FORM 10-K,6778748,1,0,https://www.sec.gov/Archives/edgar/data/742278/000118811212000533/t72617_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811212000533/,2011,2011,1
diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/item1.txt b/raw/filings/0000742278/2011/0001188112-12-000533/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..316f6e222b9edacfc4a97fd0e0b88d3ae4a6aafa
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/item1.txt
@@ -0,0 +1,79 @@
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services (3) coiled tubing services, (4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2011, RPC had approximately 3,400 employees. 
+2 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+During 2011, approximately two percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, less than one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of New Zealand. We also estimate that 45 percent of our 2011 revenues were related to drilling and production activities for oil, and 55 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 55 percent of 2011 revenues, 48 percent of 2010 revenues and 38 percent of 2009 revenues are provided to customers throughout Texas and the Appalachian and other mid-continent regions of the United States. We primarily provide these services to customers in order to enhance the initial production of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation at desired locations and depths. Sand, bauxite or synthetic proppant, which is often suspended in gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately the well surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+3 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 12 percent of 2011 revenues, 12 percent of 2010 revenues and 15 percent of 2009 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 11 percent of 2011 revenues, 10 percent of 2010 revenues and nine percent of 2009 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately four percent of 2011 revenues, five percent of 2010 revenues and eight percent of 2009 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill pipe conveyed by a snubbing unit. 
+Nitrogen . Nitrogen accounted for approximately four percent of 2011 revenues, five percent of 2010 revenues and seven percent of 2009 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. The Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Hungary, India, Kuwait, Libya, Mexico, Peru, Qatar, Taiwan, Trinidad, Turkmenistan and Venezuela. 
+4 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately six percent of 2011 revenues, eight percent of 2010 revenues and eight percent of 2009 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, Appalachian region and the Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Wear Knot TM Drill Pipe 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage . Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+5 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve oil and gas production of its customers in the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the Appalachian region. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 56 percent from its peak in 1981. Due to enhanced technology, however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Oil and gas industry activity levels have historically been volatile, experiencing multiple up and down cycles including 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the peak of the most recent prior cycle occurred at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the end of 2011, U.S. domestic drilling activity increased by 129 percent, and is approximately equal to the prior cyclical peak in the third quarter of 2008. As of a recent date in 2012, U.S. domestic drilling activity is approximately equal to the fourth quarter of 2011 although the industry is experiencing shifts in activity from gas-directed plays to oil and more liquids rich plays. 
+The increase in domestic drilling activity to a level equal to the prior cyclical peak is consistent with the recovery in the prices of oil and natural gas, the overall economic recovery following the recession in 2008 and 2009, and the high financial returns from drilling in unconventional shale plays during the past several years. During 2011 the average price of natural gas decreased by approximately 33 percent, while the average price of oil increased by approximately 12 percent. The increase in the price of oil has increased the attractiveness of drilling for oil and petroleum liquids in several unconventional basins in the U.S. domestic market. The growth in this type of drilling activity is the sole cause of the increase in overall drilling activity that occurred during 2011. Although our market has repeatedly demonstrated that it is cyclical, and the price of natural gas has recently declined to the lowest level in approximately 10 years, we continue to believe in the long-term growth opportunities for our business due to the continued high demand for oil and natural gas. Furthermore, we note that the techniques used to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its customers. 
+From 2001 to 2009, gas drilling rigs on average represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling rigs drilling for natural gas began to decline, and by the end of 2011 represented approximately 40 percent of total drilling activity. Although the demand for natural gas has remained stable, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. The price of natural gas has continued to fall during the first quarter of 2012 due to an unseasonably warm winter in the United States. In contrast, the price of oil has increased, and producers in the domestic market have started to exploit new resource plays that are economical at current high oil prices. The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Because of the unseasonably warm winter in 2012, the high price of oil, and the new opportunities to drill for oil in the United States, we anticipate that oil-directed drilling will continue to represent the majority of the total drilling rig count for the immediate future. 
+There are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. These wells have become an increasingly large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprised the majority of U.S. domestic drilling. These wells have predominantly been natural gas wells, although a growing percentage are being drilled for heavier petroleum liquids and oil as well. Because they are drilled through a narrow formation and the formation is typically a relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn means that there is a great deal of pressure pumping horsepower required to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. RPC’s equipment investments over the last couple of years have emphasized domestic rather than international expansion because of higher expected financial returns. International revenues for 2011 decreased due to lower customer activity levels in Colombia, New Zealand and Qatar, and accounted for approximately three percent of consolidated RPC revenues. International revenues increased in Canada, Mexico and Saudi Arabia. During 2011, RPC provided snubbing, well control and oilfield training services in New Zealand, Gabon, and Saudi Arabia, among other countries. We also provided rental tools in Canada, Mexico, Oman and Tunisia. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues. 
+6 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. However, current strong business conditions have encouraged potential sellers of businesses to expect high prices for their businesses, so we believe we generate better returns on investments growing organically in service lines and geographic locations in which we have experience and presence. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. At December 31, 2011, this facility had a remaining term of almost four years. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2010 and 2011, we increased our purchases of revenue-producing equipment to support industry growth and significant customer agreements. Despite increased capital expenditures and working capital requirements during 2011, as well as large purchases of scarce raw materials in the fourth quarter of 2011, at the end of the year our level of debt was conservative compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2011, RPC provided oilfield services to several hundred customers. Of these customers, only one, Chesapeake Energy Corporation at approximately 12 percent of revenues, accounted for more than 10 percent of revenues. RPC believes that its relationship with this customer is good. Although the Company believes that we would be able to obtain other customers for our services in the event of the loss of this major customer, the loss of this customer could have a material adverse effect on Company revenues and operating results in the near term. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. Over the past two years we have entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. These agreements represent a growing percentage of our revenues, and we monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+7 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Recent strong oilfield activity and the availability of capital have encouraged several new, smaller companies to seek debt and equity capital and accelerate their growth rates. Several of these competitors have filed registration statements to sell equity securities in initial public offerings, which further increases their access to capital markets. RPC believes that the principal competitive factors in the market areas that it serves are product availability and quality of our equipment service, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company owns two primary administrative buildings, one in Houston, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission. 
+8
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diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/item13.txt b/raw/filings/0000742278/2011/0001188112-12-000533/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0c7718e39727466cf79de6af9344f6f3aec88079
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/item13.txt
@@ -0,0 +1,2 @@
+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2012 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/item9a.txt b/raw/filings/0000742278/2011/0001188112-12-000533/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bf54f2a69e67e2aff29d65c74fa6bdf24349e6d5
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/item9a.txt
@@ -0,0 +1,5 @@
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2011 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 30 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2011 and issued a report thereon which is included on page 31 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/rp_note.txt b/raw/filings/0000742278/2011/0001188112-12-000533/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0a760a4deaa813d05643733a2089445963b81f5f
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/rp_note.txt
@@ -0,0 +1,13 @@
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011, $689,000 in 2010 and $713,000 in 2009. The Company’s receivable due from Marine Products for these services as of December 31, 2011 was approximately $3,000 and as of December 31, 2010 was approximately $65,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,469,000 in 2011, $551,000 in 2010 and $409,000 in 2009. 
+55 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2011, 2010 and 2009 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $102,000 in 2011, $94,000 in 2010 and $87,000 in 2009. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.
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diff --git a/raw/filings/0000742278/2011/0001188112-12-000533/rpt_disclosure.txt b/raw/filings/0000742278/2011/0001188112-12-000533/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0aae229a70ec4520625f42ae13a30d386009ea9
--- /dev/null
+++ b/raw/filings/0000742278/2011/0001188112-12-000533/rpt_disclosure.txt
@@ -0,0 +1,7 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011. 
+During 2011, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2011, payments totaling approximately $1,458,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $102,000 in 2011. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2011 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. 
+26
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diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/filing.txt b/raw/filings/0000742278/2013/0001188112-14-000518/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bae82b8ecf7d953760c716a51e2515cd1a3d2252
--- /dev/null
+++ b/raw/filings/0000742278/2013/0001188112-14-000518/filing.txt
@@ -0,0 +1,6086 @@
+10-K
+1
+t78386_10k.htm
+FORM 10-K
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+FORM
+10-K 
+(Mark
+One) 
+x 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For
+the fiscal year ended December 31, 2013 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+(State
+of Incorporation) 
+58-1550825 
+(I.R.S.
+Employer Identification No.) 
+2801
+BUFORD HIGHWAY NE, SUITE 520 
+ATLANTA,
+GEORGIA 30329 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+COMMON
+STOCK, $0.10 PAR VALUE 
+Name
+of each exchange on which registered 
+NEW
+YORK STOCK EXCHANGE 
+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. x
+Yes o 
+No 
+Indicate
+by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o
+Yes x 
+No 
+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 o 
+Indicate
+by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive
+data file required to be submitted and posted pursuant to Rule 405 of Regulations 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 x
+No o 
+Indicate
+by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. x 
+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 definitions of “large accelerated filer,” “accelerated filer” and “smaller
+reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
+Large accelerated filer x 
+Accelerated filer o 
+Non-accelerated filer o 
+Smaller reporting company o 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
+No x 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2013, the last business day of the registrant’s
+most recently completed second fiscal quarter, was $852,785,460 based on the closing price on the New York Stock Exchange on June
+30, 2013 of $13.81 per share. 
+RPC,
+Inc. had 219,289,400 shares of Common Stock outstanding as of February 14, 2014. 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2014 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items
+10 through 14 of this report. 
+1 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or
+“the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities
+Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our
+business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market and our performance in the future. Forward-looking
+statements made elsewhere in this report include without limitation statements regarding our beliefs regarding natural gas prices,
+production levels and drilling activities; our belief that oil-directed drilling will continue to represent the majority of the
+total drilling rig count unless the sustained level of demand for natural gas increases tremendously; our expectation to continue
+to focus on the development of international business opportunities in current and other international markets; the adequacy of
+our insurance coverage; the impact of lawsuits, legal proceedings and claims on our business and financial condition; our expectation
+to continue to pay cash dividends to the common stockholders subject to the earnings and financial condition of the Company and
+other relevant factors; our belief that no catalysts exist which will change overall industry activity in the near term; our belief
+that the consistently high price of oil over the past three years and during the beginning of the first quarter of 2014 holds
+positive implications for RPC’s activity levels for 2014; our belief that the percentage of wells drilled for oil will remain
+high in 2014; our expectation not to enter into additional contractual arrangements with customers on terms similar to those having
+expired during 2012 and 2013; our belief that the high price of oil should continue to have a positive impact on our customers’
+activity levels and our financial results; our belief that the overall rig count will not increase significantly during 2014 unless
+the price of natural gas observed during the beginning of the first quarter of 2014 is sustained during the year; our belief that
+the excess service capacity in the industry is still an issue in the U.S. domestic market; our plans not to significantly increase
+the size of our revenue-producing fleet of equipment during 2014; our ability to maintain sufficient liquidity and a conservative
+capital structure; our belief about the amount of the contribution to the defined benefit pension plan in 2013; our ability to
+fund capital requirements in the future; the estimated amount of our capital expenditures and contractual obligations for future
+periods; estimates made with respect to our critical accounting policies; and the effect of new accounting standards. 
+The
+words “may,” “will,” “expect,” “believe,” “anticipate,” “project,”
+“estimate,” and similar expressions generally identify forward-looking statements. Such statements are based on certain
+assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions,
+expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions
+and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned
+by the forward-looking statements. See “Risk Factors” contained in Item 1A. for a discussion of factors
+that may cause actual results to differ from our projections. 
+Item
+1. Business 
+Organization
+and Overview 
+RPC
+is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered
+in Atlanta, Georgia. 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies
+engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest,
+mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services
+and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services, (3) coiled tubing services,
+(4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and
+other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy
+Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As
+of December 31, 2013, RPC had approximately 3,900 employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support
+Services, because of the similarities between the financial performance and approach to managing the service lines within each
+of the segments, as well as the economic and business conditions impacting their business activity levels. 
+2 
+During
+2013, approximately three percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf
+of Mexico and in the Gulf of Alaska. We also estimate that 64 percent of our 2013 revenues were related to drilling
+and production activities for oil, and 36 percent were related to drilling and production activities for natural gas. 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production
+and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’
+decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing
+formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled
+tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United
+States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international
+markets. Customers include major multi-national and independent oil and gas producers, and selected nationally owned
+oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist
+customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage
+services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent,
+Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including
+primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies. 
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure
+Pumping . Pressure pumping services, which accounted for approximately 55 percent of 2013 revenues, 53 percent of 2012 revenues
+and 55 percent of 2011 revenues are provided to customers throughout Texas, and the Appalachian, mid-continent and Rocky Mountain
+regions of the United States. We primarily provide these services to customers in order to enhance the initial production
+of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or
+skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits
+pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business
+include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and
+the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing
+is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation
+containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing
+process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation
+at desired locations and depths. Sand, bauxite or synthetic proppant, which is often suspended in gel, is pumped into the fracture.
+When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture,
+thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately the well
+surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped
+under pressure without a proppant or with small amounts of proppant. 
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that
+have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large
+volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating
+obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Downhole
+Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 16 percent of 2013 revenues, 14 percent of 2012
+revenues and 12 percent of 2011 revenues. TTS provides services and proprietary downhole motors, fishing tools and
+other specialized downhole tools and processes to operators and service companies in drilling and production operations, including
+casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited
+for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows
+it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+3 
+Coiled
+Tubing . Coiled tubing services, which accounted for approximately nine percent of 2013 revenues and 11 percent of 2012 and
+2011 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally
+in well-servicing operations and to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter
+of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can
+be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig.
+Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well
+during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional
+pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields
+due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing
+units are also used to support completion activities in directional and horizontal wells. Such completion activities
+usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A
+coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other
+than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string
+allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional
+and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled
+tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities
+currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing
+services, and the Company believes that its sources of supply are adequate. 
+Snubbing .
+Snubbing (also referred to as hydraulic workover services), which accounted for approximately four percent of revenues in 2013,
+2012 and 2011, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and
+downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole
+equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing
+the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications
+at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing
+segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required
+to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer
+reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill
+pipe conveyed by a snubbing unit. 
+Nitrogen .
+Nitrogen accounted for approximately four percent of revenues in 2013, 2012 and 2011. There are a number of uses for
+nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield.
+For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling
+applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production
+has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium
+for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because
+it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure
+pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which
+the fluids used in fracturing or acidizing would damage a customer’s well. 
+For
+non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and
+transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of
+these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are adequate. 
+Well
+Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts
+and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with
+Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas
+wells to production. During the past several years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Kuwait, Mexico, Qatar, Taiwan,
+Trinidad, Turkmenistan, Tanzania, Abu Dhabi and Venezuela. 
+The
+Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and
+blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a wellbore, regardless
+of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production
+facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’
+production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately
+the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells
+in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort
+so that drilling operations can resume as promptly as safety permits. 
+Wireline
+Services . Wireline is classified into two types of services: slick or braided line and electric line. In both,
+a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided
+line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric
+line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators,
+bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near
+the end of the life cycle of a well. 
+4 
+Fishing .
+Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing
+wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from
+an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools
+to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future
+use if a similar need arises. 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental
+Tools . Rental tools accounted for approximately four percent of 2013 revenues, five percent of 2012 revenues and six percent
+of 2011 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling,
+completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of
+equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of
+the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular
+inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located
+to serve the major staging points for oil and gas activities in Texas, the Gulf of Mexico, mid-continent region, Appalachian region
+and the Rocky Mountains. 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High
+Pressure Manifolds and Valves 
+Drill
+Pipe 
+Hevi-wate
+Drill Pipe 
+Drill
+Collars 
+Tubing 
+Handling
+Tools 
+Production
+Related Rental Tools 
+Coflexip
+® Hoses 
+Pumps 
+Wear
+Knot TM 
+Drill Pipe 
+Oilfield
+Pipe Inspection Services, Pipe Management and Pipe Storage . Pipe inspection services include Full Body Electromagnetic
+and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s
+inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers
+are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control
+of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with
+large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling
+services for both oilfield and non-oilfield customers. 
+Well
+Control School . Well Control School provides industry and government accredited training for the oil and gas industry both
+in the United States and in limited international locations. Well Control School provides training in various formats including
+conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator
+training. 
+Energy
+Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors,
+project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet
+customers’ needs for staff engineering and well site management. 
+Refer
+to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United
+States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve
+oil and gas drilling and production activities of its customers in Texas, the Gulf of Mexico, the mid-continent, the southwest,
+the Rocky Mountains and the Appalachian regions. Demand for RPC’s services in the U.S. tends to be extremely volatile and
+fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer
+activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas
+reserves. 
+Due
+to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately
+61 percent from its peak in 1981. However, due to recently enhanced technology, more wells are being drilled, and these
+wells are increasingly productive. For these reasons, the domestic production of natural gas has risen to record levels,
+and we estimate that the domestic production of crude oil during 2013 was at its highest level since 1989. Oil and
+gas industry activity levels have historically been volatile, experiencing multiple cycles, including down cycle troughs in 1986,
+1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+5 
+The
+rig count during the peak of the most recent cycle occurred at the end of the third quarter of 2008, and began to decline sharply
+during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of
+2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between
+the second quarter of 2009 and the fourth quarter of 2011, U.S. domestic drilling activity increased by 129 percent before declining
+gradually throughout the remainder of 2011 and 2012. At the end of 2013, the U.S. domestic rig count was approximately
+100 percent higher than the cyclical trough recorded during the second quarter of 2009. 
+The
+fluctuations in domestic drilling activity since 2008 are consistent with the changes in the prices of oil and natural gas, the
+overall economic recovery following the recession in 2008 and 2009, and the financial returns from drilling in unconventional
+shale plays during the past several years. During 2013 the average price of natural gas increased by approximately
+36 percent and the price of benchmark natural gas liquids was unchanged compared to prior year. The average price of
+oil increased by approximately four percent during 2013 compared to 2012. The current sustained high price of oil has
+increased the attractiveness of drilling for oil in several unconventional basins in the U.S. domestic market. During
+2013, oil-directed drilling activity increased slightly, offset by a decrease in natural gas-directed drilling during the year. The
+price of natural gas liquids has become an increasingly important determinant of our customers’ activity levels, since it
+is produced in many of the shale resource plays which also produce oil, and production of various natural gas liquids has increased
+to a level comparable to that of natural gas. The price of benchmark natural gas liquids peaked during the third quarter
+of 2008, and declined by approximately 69 percent during the third and fourth quarters of 2008. Thereafter, the price
+of benchmark natural gas liquids climbed steadily until the third quarter of 2011, but declined by 45 percent by the end of 2012. The
+average price of benchmark natural gas liquids was unchanged in 2013 compared to 2012, but its price increased by approximately
+46 percent between the beginning and the end of 2013, and early in the first quarter of 2014 increased by approximately 43 percent
+compared to the average price in 2013. 
+From
+2001 to 2009, gas drilling rigs represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling
+rigs drilling for natural gas began to decline, and by the end of 2013 had fallen to approximately 21 percent of total drilling
+activity. Although the demand for natural gas has remained stable, the price of natural gas has fallen in recent years
+due to increased domestic reserves and productivity of new wells. The price of natural gas rose during 2013 and has
+risen again early in 2014 to levels not observed since the first quarter of 2010, and the amount of U.S. domestic natural gas
+in storage was approximately 27 percent below its five-year average. Although the current industry metrics regarding
+natural gas are favorable, we do not believe that they are sufficient to encourage renewed natural gas-directed drilling because
+of continued record natural gas production levels and the opinion among our customers that the high price of natural gas is due
+to unseasonably cold weather in the first quarter of 2014 and will not be sustainable in the near term. Although the
+price of oil did not increase significantly during 2013 or early in the first quarter of 2014, it remains high, and producers
+are exploiting resource plays that are economical at current high oil prices. Although natural gas-directed drilling
+activity has declined to its lowest level in almost 19 years, the long-term demand outlook for natural gas is still favorable
+because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack
+of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain
+minimum levels. We anticipate that oil-directed drilling will continue to represent the majority of the total drilling
+rig count unless the sustained level of demand for natural gas increases significantly due to U.S. exports of natural gas or changes
+in demand due to increased use of natural gas as a transportation fuel or for other purposes. We continue to
+believe in the long-term growth opportunities for our business due to the continued high demand for hydrocarbons generally and
+the growing production of oil in the domestic U.S. market in particular. Furthermore, we note that the techniques used
+to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its
+customers, so the composition of the U.S. domestic drilling rig count is not as meaningful as the overall level of drilling activity. 
+There
+are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known
+as either directional or horizontal wells, these wells are more difficult and costly to complete. They have become an increasingly
+large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprised the majority of
+U.S. domestic drilling. Because they are drilled through a typically narrow and relatively impermeable formation such
+as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates
+of stimulation fluids under high pressures, which in turn requires a great deal of pressure pumping horsepower to complete the
+well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they
+require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically,
+these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+6 
+International.
+RPC has historically operated in several countries outside of the United States, although international revenues have never
+accounted for more than 10 percent of total revenues. RPC’s equipment investments over the last several years
+have emphasized domestic rather than international expansion because of higher expected financial returns. International
+revenues for 2013 decreased compared to 2012 due to lower customer activity levels in New Zealand and Mexico, and in the aggregate
+accounted for approximately four percent of consolidated RPC revenues. International revenues in 2013 compared to 2012
+increased in Equatorial Guinea, Gabon, Australia, Argentina and Bolivia. During 2013, RPC provided snubbing, well control
+and oilfield training services in several countries including Gabon, Australia and China. We also provided downhole
+motors and tools in Canada, Mexico, China, Argentina, Tunisia and Oman. We continue to focus on the selected development
+of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent
+of total revenues in 2014. 
+RPC
+provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international
+market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant
+investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have
+the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated
+by major oil companies and national oil companies which tend to have different objectives and more operating stability than the
+typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Refer
+to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment through the effective and conservative management of
+its invested capital to generate strong cash flow. This objective continues to be pursued through strategic investments
+and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability
+of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist
+opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through
+providing proprietary value-added products and services. RPC intends to focus on specific market segments in which
+it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in
+markets in which we operate. 
+RPC
+seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic
+alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of acquisition
+opportunities exist. However, the favorable long-term outlook for our industry and the strong historical profitability
+of many potential acquisitions has encouraged potential sellers of businesses to expect high valuations for their businesses. Due
+to these high valuations and the potential difficulty of integrating acquired businesses into our existing operations, we believe
+we generate better returns on investments growing organically in service lines and geographic locations in which we have experience
+and presence. We will continue to be selective in pursuing growth through acquisitions of existing businesses. 
+RPC
+has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. In
+January 2014, this facility was extended for five years. We have pursued this capital source because of the high returns
+on investment that have been generated by many of our service lines during the previous several years, and because of the low
+cost and ready availability of debt capital. During 2011 and the first two quarters of 2012, we purchased additional revenue-producing
+equipment to support high industry activity levels. Our scheduled purchases of equipment declined during the third
+and fourth quarters of 2012 and during 2013 as pricing for our services became increasingly competitive, and the anticipated near-term
+financial returns of a larger fleet of revenue-producing equipment also declined. The outstanding balance on our credit
+facility at the end of 2013 was lower than at the end of the prior year due to a reduction in capital expenditures and working
+capital, and our ratio of debt to total capitalization continues to be conservative compared to a number of our peers. 
+Customers 
+Demand
+for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth
+and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide.
+RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2013,
+RPC provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of revenues. 
+Sales
+are generated by RPC’s sales force and through referrals from existing customers. Over the past three years we
+have from time to time entered into agreements, with terms beyond one year, to provide services to certain domestic customers. We
+monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling
+and completion activities. Due to the short lead time between ordering services or equipment and providing services
+or delivering equipment, there is no significant sales backlog in most of our service lines. 
+7 
+Competition 
+RPC
+operates in highly competitive areas of the oilfield services industry. Our products and services are sold in highly
+competitive markets, and the revenues and earnings generated are affected by changes in prices for our services, fluctuations
+in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes
+with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Strong
+oilfield activity during the past several years and the availability of capital have encouraged several new, smaller companies
+to seek debt and equity capital and accelerate their growth rates. The presence of these new competitors has increased
+competitive pricing pressures as domestic oilfield activity moderated during the third and fourth quarters of 2011 and throughout
+2012 and 2013. Although the growth in the overall domestic fleet of revenue-producing equipment has moderated, pricing
+for our services remains competitive. RPC believes that the principal competitive factors in the market areas
+that it serves are product availability and quality of our equipment and raw materials used to provide our services, service quality,
+reputation for safety and technical proficiency, and price. 
+The
+oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy
+Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented
+businesses. 
+Facilities/Equipment 
+RPC’s
+equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental
+basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment
+from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet
+our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher
+prices for equipment. 
+RPC
+both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore
+customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company has two primary administrative
+buildings, one it leases in The Woodlands, Texas that includes the Company’s operations, engineering, sales and marketing
+headquarters, and one it owns in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities
+are adequate for its current operations. For additional information with respect to RPC’s lease commitments,
+see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental
+Regulation 
+RPC’s
+business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as
+laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing
+laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources
+such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’
+activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual
+Property 
+RPC
+uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s
+success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise
+and know-how of its personnel to maintain its competitive position. 
+Availability
+of Filings 
+RPC
+makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q,
+current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange
+Commission. 
+8 
+Item
+1A. Risk Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural gas prices. 
+Oil
+and natural gas prices affect demand throughout the oil and gas industry, including the demand for our products and services.
+Our business depends in large part on the conditions of the oil and gas industry, and specifically on the capital investments
+of our customers related to the exploration and production of oil and natural gas. When these capital investments decline, our
+customers’ demand for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile
+than the exploration sector, producers react to declining oil and gas prices by curtailing capital spending, which would adversely
+affect our business. A prolonged low level of customer activity in the oil and gas industry will adversely affect the demand for
+our products and services and our financial condition and results of operations. 
+We
+may be unable to compete in the highly competitive oil and gas industry in the future. 
+We
+operate in highly competitive areas of the oilfield services industry. The products and services in our industry segments are
+sold in highly competitive markets, and our revenues and earnings have in the past been affected by changes in competitive prices,
+fluctuations in the level of activity in major markets and general economic conditions. We compete with the oil and gas industry’s
+many large and small industry competitors, including the largest integrated oilfield service providers. We believe that the principal
+competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety,
+technical proficiency and price. Although we believe that our reputation for safety and quality service is good, we cannot assure
+you that we will be able to maintain our competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and may continue to be a key element of our business strategy. We cannot assure you that we will be able to identify
+and acquire acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial
+indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. The issuance
+of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be
+able to integrate successfully the operations and assets of any acquired business with our own business. Any inability on our
+part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of operations
+and financial condition. 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf
+Coast, the mid-continent, the Rocky Mountains and the Appalachian region. Hurricanes and other storms prevalent in the Gulf of
+Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe hurricanes may affect
+our customers’ activities for a period of several years. While the impact of these storms may increase the need
+for certain of our services over a longer period of time, such storms can also decrease our customers’ activities immediately
+after they occur. Such hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short
+term, which may increase demand for our services in geographic areas not damaged by the storms. Prolonged rain, snow
+or ice in many of our locations may temporarily prevent our crews and equipment from reaching customer work sites. Due
+to seasonal differences in weather patterns, our crews may operate more days in some periods than others. Accordingly, our operating
+results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our
+ability to attract and retain skilled workers may impact growth potential and profitability. 
+Our
+ability to be productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability
+to expand our operations is, in part, impacted by our ability to increase our labor force. A significant increase in the wages
+paid by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or
+both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be
+impaired. 
+Our
+concentration of customers in one industry may impact our overall exposure to credit risk. 
+Substantially
+all of our customers operate in the energy industry. This concentration of customers in one industry may impact our overall exposure
+to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry
+conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade
+receivables. 
+9 
+Reliance
+upon a large customer may adversely affect our revenues and operating results. 
+At
+times our business has had a concentration of one or more major customers. In 2013 and 2012, none of our customers
+exceeded 10 percent of our total revenues, while in 2011, one of our customers accounted for approximately 12 percent of our total
+revenues. In addition, no customer accounted for more than ten percent of accounts receivable as of December
+31, 2013 and 2012. Reliance on a large customer for a significant portion of our total revenues could expose us to
+the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and
+disproportionate adverse impact upon our revenues and operating results. 
+Our
+business has potential liability for litigation, personal injury and property damage claims assessments. 
+RPC’s
+subsidiaries have a number of agreements of various types in place with our customers. In general, these agreements
+indemnify RPC and its subsidiaries against damage or liabilities that arise from the actions of our employees or the operation
+of our equipment. The provisions in these agreements do not make a distinction among the types of services that RPC
+provides or the location of the work. These agreements also require that RPC maintain a certain level and type of insurance
+coverage against any claims that are determined to be our responsibility. RPC has insurance coverage in place with
+several well-capitalized insurance companies for accidental environmental claims. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any
+of these events were to occur, it could result in liability for personal injury and property damage, pollution or other environmental
+hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location where our equipment and services
+are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our
+operating costs, insurability and relationships with customers, employees and regulators. These occurrences could have a material
+adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to
+maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover
+future claims and assessments that may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulations and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry
+and by changes in such laws and the level of enforcement of such laws. We are unable to predict the level of enforcement of existing
+laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas
+fields in our areas of operations for economic, environmental or other policy reasons would adversely affect our operations by
+limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore operations,
+and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time
+it occurred, but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to
+the generation of hazardous substances in connection with our operations. We believe that our present operations substantially
+comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe
+that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws
+are changed frequently. We are unable to predict whether environmental laws will, in the future, materially adversely affect our
+operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and
+other corrective actions, which would negatively affect our future financial results. 
+Compliance
+with federal and state regulations relating to hydraulic fracturing and designation of economic development zones related to natural
+gas-directed drilling from shale formations could increase our operating costs, cause operational delays, and could reduce or
+eliminate the demand for our pressure pumping services. 
+RPC’s
+pressure pumping services are the subject of continuing federal, state and local regulatory oversight. This scrutiny
+is prompted in part by public concern regarding the potential impact on drinking and ground water and other environmental issues
+arising from the growing use of hydraulic fracturing. Among these regulatory entities is the White House Council on
+Environmental Quality, which is coordinating a review of hydraulic fracturing practices. In addition, a committee of
+the United States House of Representatives has investigated hydraulic fracturing practices and publicized information regarding
+the materials used in hydraulic fracturing. The U.S. Environmental Protection Agency has also undertaken a study of
+the environmental impact of hydraulic fracturing practices, and is expected to issue its findings in 2014. One of the
+results of this scrutiny has been to require disclosure of materials used in hydraulic fracturing on certain public lands. RPC
+participates in this disclosure process and has cooperated fully with all governmental requests for information regarding our
+operations. In addition, during the first quarter of 2014, the federal government proposed that specific geographic
+areas in which natural gas-directed drilling and production from shale formations be set aside as economic development zones. Such
+designations, if they arise in geographic areas in which RPC conducts its operations, may increase demand for our customers’
+natural gas production, thus increasing demand for RPC’s services. Such designations may also increase our operating
+costs due to the cost of compliance with increased regulation as well as subsidies paid by firms engaged in natural gas-directed
+drilling to other industries which establish operations in these economic development zones. We are unable to predict
+whether the scrutiny of RPC’s pressure pumping business and any resulting regulatory change will impact our business through
+increased operational costs, operational delays, or a reduction in demand for hydraulic fracturing services. Also,
+we are unable to predict the magnitude and timing of the impact on our operations and operational costs, if any, of the creation
+of economic development zones in geographic areas in which natural gas-directed drilling and production from shale formations
+take place. 
+10 
+Our
+international operations could have a material adverse effect on our business. 
+Our
+operations in various countries including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America, the Middle
+East and New Zealand are subject to risks. These risks include, but are not limited to, political changes, expropriation, currency
+restrictions and changes in currency exchange rates, taxes, boycotts and other civil disturbances. The occurrence of
+any one of these events could have a material adverse effect on our operations. 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise,
+the market price of our common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public stockholders may have no effective voice in the management of the
+Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Section 303A of the New York Stock Exchange (“NYSE”)
+Listed Company Manual. The Company is a “Controlled Corporation” because a group that includes the Company’s
+Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of the Company, and certain
+companies under their control, controls in excess of fifty percent of the Company’s voting power. As a “Controlled
+Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of independent directors. 
+RPC’s
+executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately
+72 percent of RPC’s outstanding shares of common stock. As a result, these stockholders effectively control the operations
+of RPC, including the election of directors and approval of significant corporate transactions such as acquisitions and other
+matters requiring stockholder approval. This concentration of ownership could also have the effect of delaying or preventing a
+third party from acquiring control over the Company at a premium. 
+Our
+management has a substantial ownership interest, and the availability of the Company’s common stock to the investing public
+may be limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to those shares not held by the executive officers,
+directors and their affiliates, which could negatively impact RPC’s stock trading prices and affect the ability of minority
+stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their
+shares could also negatively affect the trading price of our common stock. 
+Provisions
+in RPC’s certificate of incorporation and bylaws may inhibit a takeover of RPC. 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for stockholder
+proposals and staggered terms for the Board of Directors. These provisions may make a tender offer, change in control
+or takeover attempt that is opposed by RPC’s Board of Directors more difficult or expensive. 
+Some
+of our equipment and several types of materials used in providing our services are available from a limited number of suppliers. 
+We
+purchase equipment provided by a limited number of manufacturers who specialize in oilfield service equipment. During
+periods of high demand, these manufacturers may not be able to meet our requests for timely delivery, resulting in delayed deliveries
+of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in
+pressure pumping services, our largest service line. While these materials are generally available, supply disruptions
+can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our
+ability to provide services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We
+have used outside financing to accomplish our growth strategy, and outside financing may become unavailable or may be unfavorable
+to us. 
+Our
+business requires a great deal of capital in order to maintain our equipment and increase our fleet of equipment to expand our
+operations, and we have access to our $350 million credit facility to fund our necessary working capital and equipment requirements.
+Most of our existing credit facility bears interest at a floating rate, which exposes us to market risks as interest rates rise. If
+our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements,
+we would need to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our
+growth. Such additional financing sources may not be available when we need them, or may not be available on favorable
+terms. If we fund our growth through the issuance of public equity, the holdings of stockholders will be diluted. If
+capital generated either by cash provided by operating activities or outside financing is not available or sufficient for our
+needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other potentially profitable
+business opportunities, which could reduce our future revenues and profits. 
+11 
+Item
+1B. Unresolved Staff Comments 
+None. 
+Item
+2. Properties 
+RPC
+owns or leases approximately 120 offices and operating facilities. The Company leases approximately 18,600 square feet of office
+space in Atlanta, Georgia that serves as its headquarters, a portion of which is allocated and charged to Marine Products Corporation. See
+“Related Party Transactions” contained in Item 7. The lease agreement on the headquarters is effective
+through October 2020. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably
+anticipated future needs. Descriptions of the major facilities used in our operations are as follows: 
+Owned
+Locations 
+Broussard,
+Louisiana — Operations, sales and equipment storage yards 
+Vilonia,
+Arkansas — Maintenance and rebuild facilities 
+Elk
+City, Oklahoma — Operations, sales and equipment storage yards 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Kilgore,
+Texas — Operations, sales and equipment storage yards 
+Odessa,
+Texas — Operations, sales and equipment storage yards 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yards 
+Vernal,
+Utah — Operations, sales and equipment storage yards 
+Williston,
+North Dakota — Operations, sales and equipment storage yards 
+Leased
+Locations 
+Canton,
+Pennsylvania — Pumping services facility 
+Hobbs,
+New Mexico — Pumping services facility 
+Odessa,
+Texas — Operations, sales and equipment storage yards 
+Oklahoma
+City, Oklahoma — Operations, sales and administrative office 
+San
+Antonio, Texas — Operations, sales and equipment storage yards 
+Seminole,
+Oklahoma — Pumping services facility 
+The
+Woodlands, Texas — Operations, sales and administrative office 
+Washington,
+Pennsylvania — Operations, sales and equipment storage yards 
+Item
+3. Legal Proceedings 
+RPC
+is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and
+claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can
+be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out
+of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings
+and claims cannot be predicted with certainty, management believes that the outcome of all such proceedings, even if determined
+adversely, would not have a material adverse effect on RPC’s business or financial condition. 
+12 
+Item
+4. Mine Safety Disclosures 
+The
+information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104
+of Regulation S-K is included in Exhibit 95.1 to this Form 10-K. 
+Item
+4A. Executive Officers of the Registrant 
+Each
+of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately
+following the next annual meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her
+resignation. The following table lists the executive officers of RPC and their ages, offices, and terms of office with RPC. 
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+82 
+1/24/84 
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+69 
+4/22/03 
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+77 
+1/27/87 
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+53 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer 
+(1) 
+R. Randall Rollins began working for Rollins, Inc. (consumer services)
+in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984. He
+has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001
+and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment,
+Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard A. Hubbell has been the President of RPC since 1987 and Chief
+Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since
+it was spun off from RPC in February 2001. Mr. Hubbell serves on the Board of Directors of both of these companies. 
+(3) 
+Linda H. Graham has been the Vice President and Secretary of RPC since
+1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from
+RPC in 2001. Ms. Graham serves on the Board of Directors of both of these companies. 
+(4) 
+Ben M. Palmer has been the Vice President, Chief Financial Officer
+and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine
+Products Corporation since it was spun off from RPC in 2001. 
+13 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the symbol RES. As of February 14, 2014 there
+were 219,289,400 shares of common stock outstanding and approximately 22,300 beneficial holders of our common stock. The
+following table sets forth the high and low prices of RPC’s common stock and dividends paid for each quarter in the years
+ended December 31, 2013 and 2012: 
+2013 
+2012 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+17.40 
+$ 
+12.46 
+$ 
+0.10 
+$ 
+14.03 
+$ 
+9.31 
+$ 
+0.08 
+Second 
+15.55 
+12.41 
+0.10 
+11.95 
+8.75 
+0.08 
+Third 
+15.94 
+13.48 
+0.10 
+14.64 
+11.04 
+0.08 
+Fourth 
+18.88 
+15.34 
+0.10 
+12.70 
+10.45 
+0.28 
+On
+January 28, 2014 RPC’s Board of Directors approved a $0.105 per share cash dividend, payable March 10, 2014 to stockholders
+of record at the close of business on February 10, 2014. The Company expects to continue to pay cash dividends to the common stockholders,
+subject to the earnings and financial condition of the Company and other relevant factors. 
+Issuer
+Purchases of Equity Securities 
+The
+Company has a stock buyback program initially adopted in 1993 that authorizes the repurchase of up to 26,578,125 shares. On
+June 5, 2013, the Board of Directors authorized an additional 5,000,000 shares for repurchase under this program. There
+were no shares repurchased as part of this program during the fourth quarter of 2013. As of December 31, 2013, there
+are 4,712,234 shares available to be repurchased under the current authorization. Currently the program does not have a predetermined
+expiration date. 
+Performance
+Graph 
+The
+following graph shows a five-year comparison of the cumulative total stockholder return based on the performance of the stock
+of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group
+index. The indices included in the following graph are the Russell 1000 Index (“Russell 1000”), the Philadelphia
+Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that are considered peers
+of the Company (the “Peer Group”). The Company has voluntarily chosen to provide both an industry and a
+peer group index. 
+14 
+The
+Company was a component of the Russell 1000 during 2013. The Russell 1000 is a stock index representing large capitalization
+U.S. stocks with high historical growth in revenues and earnings. The components of the index had a weighted average
+market capitalization in 2013 of $108.9 billion, and a median market capitalization of $7.5 billion. The Russell 1000 was chosen
+because it represents companies with comparable market capitalizations to the Company, and because the Company is a component
+of the index. The OSX is a stock index of 15 companies that provide oil drilling and production services, oilfield
+equipment, support services and geophysical/reservoir services. The Company is not a component of the OSX, but this
+index was chosen because it represents a large group of companies that provide the same or similar products and services as the
+Company. The companies included in the Peer Group are Weatherford International, Inc., Basic Energy Services, Inc.,
+Superior Energy Services, Inc., and Halliburton Company. The companies included in the Peer Group have been weighted
+according to each respective issuer’s stock market capitalization at the beginning of each year. 
+15 
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the Company. The historical information may not be indicative
+of the Company’s future results of operations. The information set forth below should be read in conjunction
+with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated
+Financial Statements and the notes thereto included elsewhere in this document. 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2013 
+2012 
+2011 
+2010 
+2009 
+(in
+thousands, except employee and per share amounts) 
+Revenues 
+$ 
+1,861,489 
+$ 
+1,945,023 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+Cost
+of revenues 
+1,178,412 
+1,105,886 
+992,704 
+606,098 
+393,806 
+Selling,
+general and administrative expenses 
+185,165 
+175,749 
+151,286 
+121,839 
+97,672 
+Depreciation
+and amortization 
+213,128 
+214,899 
+179,905 
+133,360 
+130,580 
+Loss
+(gain) on disposition of assets, net 
+9,371 
+6,099 
+3,831 
+(3,758 
+) 
+(1,143 
+) 
+Operating
+profit (loss) 
+275,413 
+442,390 
+482,081 
+238,845 
+(33,052 
+) 
+Interest
+expense 
+(1,822 
+) 
+(1,976 
+) 
+(3,453 
+) 
+(2,662 
+) 
+(2,176 
+) 
+Interest
+income 
+419 
+30 
+18 
+46 
+147 
+Other
+income, net 
+2,260 
+2,175 
+169 
+1,303 
+1,582 
+Income
+(loss) before income taxes 
+276,270 
+442,619 
+478,815 
+237,532 
+(33,499 
+) 
+Income
+tax provision (benefit) 
+109,375 
+168,183 
+182,434 
+90,790 
+(10,754 
+) 
+Net
+income (loss) 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+Earnings
+(loss) per share: 
+Basic 
+$ 
+0.77 
+$ 
+1.28 
+$ 
+1.36 
+$ 
+0.67 
+$ 
+(0.11 
+) 
+Diluted 
+$ 
+0.77 
+$ 
+1.27 
+$ 
+1.35 
+$ 
+0.67 
+$ 
+(0.11 
+) 
+Dividends
+paid per share 
+$ 
+0.40 
+$ 
+0.52 
+$ 
+0.21 
+$ 
+0.09 
+$ 
+0.10 
+OTHER DATA: 
+Operating
+margin percent 
+14.8 
+% 
+22.7 
+% 
+26.6 
+% 
+21.8 
+% 
+(5.6 
+)% 
+Net
+cash provided by operating activities 
+$ 
+365,624 
+$ 
+559,933 
+$ 
+386,007 
+$ 
+168,657 
+$ 
+168,740 
+Net
+cash used for investing activities 
+(207,654 
+) 
+(315,838 
+) 
+(391,637 
+) 
+(171,769 
+) 
+(61,144 
+) 
+Net
+cash (used for) provided by financing activities 
+(163,433 
+) 
+(237,325 
+) 
+3,988 
+7,658 
+(106,144 
+) 
+Capital
+expenditures 
+$ 
+201,681 
+$ 
+328,936 
+$ 
+416,400 
+$ 
+187,486 
+$ 
+67,830 
+Employees
+at end of period 
+3,900 
+3,600 
+3,400 
+2,500 
+1,980 
+BALANCE SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+437,132 
+$ 
+387,530 
+$ 
+461,272 
+$ 
+294,002 
+$ 
+130,619 
+Working
+capital 
+436,873 
+403,316 
+447,089 
+281,174 
+151,681 
+Property,
+plant and equipment, net 
+726,307 
+756,326 
+675,360 
+453,017 
+396,222 
+Total
+assets 
+1,383,860 
+1,367,163 
+1,338,211 
+887,871 
+649,043 
+Long-term
+debt 
+53,300 
+107,000 
+203,300 
+121,250 
+90,300 
+Total
+stockholders’ equity 
+$ 
+968,702 
+$ 
+899,232 
+$ 
+762,592 
+$ 
+538,895 
+$ 
+409,723 
+16 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+The
+following discussion should be read in conjunction with “Selected Financial Data,” and the Consolidated Financial
+Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2. 
+RPC,
+Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies
+engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest,
+mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The Company’s
+revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest
+capital to drill new wells and enhance production or perform maintenance on existing wells. 
+Our
+key business and financial strategies are: 
+- 
+To focus our management resources on and invest our capital in equipment
+and geographic markets that we believe will earn high returns on capital. 
+- 
+To maintain a flexible cost structure that can respond quickly to volatile
+industry conditions and business activity levels. 
+- 
+To maintain an efficient, low-cost capital structure which includes
+an appropriate use of debt financing. 
+- 
+To maintain an appropriate blend of revenues between long-term committed
+contractual relationships and spot market revenues. Committed contractual relationships allow us to plan our operations
+with more certainty and efficiency. Under spot market work, we work at prevailing market rates and can take advantage of short-term
+opportunities which may be more profitable under certain circumstances. 
+- 
+To maintain high asset utilization which leads to increased revenues
+and leverage of direct and overhead costs, while also ensuring that increased maintenance resulting from high utilization does
+not interfere with customer performance requirements or jeopardize safety. 
+- 
+To deliver equipment and services to our customers safely. 
+- 
+To secure adequate sources of supplies of certain high-demand raw materials
+used in our operations, both in order to conduct our operations and to enhance our competitive position. 
+- 
+To maintain and selectively increase market share. 
+- 
+To maximize stockholder return by optimizing the balance between cash
+invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of our common
+stock on the open market. 
+- 
+To align the interests of our management and stockholders. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and operating performance, management generally
+reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related
+to certain key financial data, including revenues, utilization of our equipment and personnel, maintenance and repair expenses,
+pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return
+on our invested capital. We continuously monitor factors that impact the level of current and expected customer activity
+levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment
+and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing
+regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our
+customers’ drilling and production activities. 
+Current
+industry conditions are characterized by overall industry metrics which are significantly less volatile than historical norms. Moreover,
+we do not believe that any catalysts exist which will change overall industry activity in the near term. For example,
+although the average U.S. domestic rig count declined by 8.2 percent during 2013 as compared to 2012, the domestic rig count during
+2013 changed by less than one percent. The average price of oil during 2013 increased by 3.9 percent and remained high
+enough that our customers continued to conduct oil-directed drilling activities. During the beginning of the first
+quarter of 2014, each of these industry indicators remained essentially unchanged compared to the end of 2013. In contrast,
+the price of natural gas increased significantly during 2013 and the beginning of the first quarter of 2014, partially due to
+winter weather that was colder than average in both years. However, these price increases have not been sufficient
+to encourage our customers to increase their natural gas-related drilling activities, which during the beginning of the first
+quarter of 2014 remained at depressed levels not observed since the second quarter of 1995. Furthermore, we do not
+believe that natural gas-directed drilling will increase during the near term because domestic natural gas production during 2013
+was higher than in 2012, due to the high natural gas production from existing wells including residual production from new oil-directed
+wells. The consistently high price of oil over the past three years and during the beginning of the first quarter of
+2014 holds positive implications for RPC’s activity levels for 2014. RPC has operations in most of the areas
+in which drilling activity is directed towards oil, and we maintained our presence in these areas during 2013. During the beginning
+of the first quarter of 2014, the rig count was less than one percent higher the same period in 2013 and the fourth quarter of
+2013. The U.S. domestic rig count may increase during 2014, but any increases are likely to be prompted by current
+high natural gas prices and probably will not lead to a long-term trend of increased drilling directed towards natural gas. 
+17 
+In
+addition to the overall rig count, the Company also monitors the number of horizontal and directional wells drilled in the U.S.
+domestic market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the
+Company’s services provided for a longer period of time. The average number of horizontal and directional wells
+drilled in the United States decreased by approximately three percent in 2013, and was 75 percent of total wells drilled during
+the year. During the first part of 2014, the percentage of horizontal and directional wells drilled as a percentage
+of total wells was approximately 78 percent. In addition, the percentage of wells drilled for oil increased to 78 percent
+during 2013 compared to 71 percent during 2012. During the beginning of the first quarter of 2014, the percentage of
+wells drilled for oil increased slightly to 79 percent. We believe that this percentage will remain high in 2014 due
+to the continued high price of oil and the high production levels of natural gas. During 2013 we also began to monitor
+the U.S. domestic well count, which is a measure of wells drilled by the existing drilling rig fleet. We believe that
+the well count is an important measure of our potential activity levels because it reflects changes in rig efficiencies. During
+2013, the total U.S. domestic well count decreased by approximately three percent. In the markets in which RPC has
+operational locations, the well count increased by approximately seven percent. During 2013, a combination of a larger
+U.S. domestic fleet of revenue-producing equipment and relatively flat activity levels continued to negatively impact pricing
+for the Company’s services. These negative impacts were most pronounced in the Company’s pressure pumping
+service line, which is highly utilized in unconventional completion work, and is a service line which has seen a significant increase
+in the overall fleet of revenue-producing equipment during the last several years. During the past several years, a
+number of our customers entered into contractual relationships with us to provide services to support their completion programs. Such
+arrangements were advantageous to our customers because of the repetitive nature of this type of activity and their need to have
+service providers dedicated exclusively to their drilling programs. These arrangements also positively impacted the
+Company’s financial results, because of increased utilization of our revenue-producing equipment and increased efficiency. All
+of these arrangements expired during 2012 and 2013 and were not renewed at the same or similar terms. We do not expect
+to enter into additional contractual arrangements with such terms during 2014. 
+During
+2013 the Company reduced our purchases of revenue-producing equipment, and concentrated instead on optimizing the utilization
+of our existing fleet of revenue-producing equipment. In support of this objective, we have increased the capitalized
+maintenance expenditures of our equipment fleet. Cash flows from operating activities as well as borrowings under our
+revolving credit facility have been sufficient to fund the Company’s lower capital expenditures which decreased to $201.7
+million in 2013 compared to $328.9 million in 2012. The Company has a syndicated revolving credit facility in order to maintain
+sufficient liquidity to fund its capital expenditure and other funding requirements. 
+Revenues
+during 2013 totaled $1.9 billion, a decrease of 4.3 percent compared to 2012. Cost of revenues increased $72.5 million
+in 2013 compared to the prior year due to higher materials and supplies expense and employment costs associated with higher activity
+levels and was approximately 63 percent of revenues in 2013 compared to 57 percent of revenues in 2012. Selling, general
+and administrative expenses as a percentage of revenues increased approximately 0.9 percentage points in 2013 compared to 2012. 
+Income
+before income taxes declined due to competitive pricing to $276.3 million in 2013 compared to $442.6 million in the prior year. Diluted
+earnings per share were $0.77 in 2013 compared to $1.27 for the prior year. 
+Cash
+flows from operating activities decreased primarily due to lower earnings to $365.6 million in 2013 compared to $559.9 million
+in 2012. As of December 31, 2013, there were $53.3 million in outstanding borrowings under our credit facility, a decline
+from $107.0 million at December 31, 2012. 
+Outlook 
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a recent cyclical peak of 2,031
+during the third quarter of 2008. The global recession that began during the fourth quarter of 2007 precipitated the
+steepest annualized rig count decline in U.S. domestic oilfield history. From the third quarter of 2008 to the second
+quarter of 2009, the U.S. domestic rig count dropped almost 57 percent, reaching a trough of 876 in June 2009. Between
+its cyclical trough in the second quarter of 2009 and the fourth quarter of 2011, U.S. domestic drilling activity increased by
+approximately 129 percent, before declining during the remainder of 2011 and throughout 2012. Between the beginning
+of 2013 and the first quarter of 2014, domestic drilling activity was essentially unchanged, varying by slightly more than one
+percent during the period. However, unconventional activity as a percentage of total oilfield activity has grown steadily
+over the past several years and was 75 percent of total wells drilled during 2013. Early in the first quarter of 2014,
+unconventional drilling activity was 78 percent of total U.S. domestic drilling activity. 
+18 
+The
+current and projected prices of oil and natural gas are important catalysts for U.S. domestic drilling activity. The
+price of natural gas declined steadily during 2011 and the first quarter of 2012. The price of natural gas began to
+recover during the third and fourth quarters of 2012 and throughout 2013, and during the first quarter of 2014 had risen to the
+highest price observed since the first quarter of 2010. In spite of these increases, the price expectations for natural
+gas has not risen adequately to encourage drilling in the service-intensive natural gas resource shale plays in the U.S. domestic
+market due in part to record U.S. natural gas production. The price of natural gas liquids has become an increasingly
+important determinant of our customers’ activities, since its sales comprise a large part of our customers’ revenues,
+and it is produced in many of the shale resource plays that also produce oil. During 2013, the average price of benchmark
+natural gas liquids was unchanged compared to the prior year, but it increased by 43 percent early in the first quarter of 2014
+compared to the prior year. The average price of oil has remained high during 2013 and early in the first quarter of
+2014. In general, these trends have positive implications for our near-term activity levels. In particular,
+the high price of oil should continue to have a positive impact on our customers’ activity levels and our financial results,
+since many U.S. domestic shale resource plays produce oil and petroleum liquids, and RPC has operational locations and revenue-producing
+equipment in these locations. 
+The
+effect of the sustained high price of oil is evident in the current composition of the U.S. domestic rig count, approximately
+79 percent of which was directed towards oil during the beginning of the first quarter of 2014. We believe that oil-directed
+drilling will remain a very high percentage of domestic drilling, and that natural gas-directed drilling will remain a low percentage
+of U.S. domestic drilling in the near term. We believe that this relationship will continue due to relatively low prices
+for natural gas, high production from existing natural gas wells, and industry projections of limited increases in domestic natural
+gas demand during the near term. We do not believe that the overall rig count will increase significantly during 2014
+unless the price of natural gas observed during the beginning of the first quarter of 2014 is sustained during the year. 
+We
+continue to monitor the market for our services and the competitive environment in 2014. We are encouraged that the
+price of oil has remained high and that our customers’ oil-directed drilling activities have remained high also. Furthermore,
+we are encouraged by the recent increases in the prices of natural gas and natural gas liquids, although we believe that these
+increases are the result of unseasonably cold weather in the first quarter of 2014 and thus may not be sustainable for a long
+period of time. We also monitor the competitive environment because many new service companies have entered the
+industry over the past few years, and existing service companies have purchased additional revenue-producing equipment. The
+new entrants and larger service companies in the oilfield services industry have created downward pressure on pricing for our
+services, as well as increased the costs for skilled labor by recruiting skilled employees from existing service companies. Although
+these increased competitive pressures have begun to subside, we believe that excess service capacity is still an issue in the
+U.S. domestic market, given the fact that domestic drilling activity has not changed since the beginning of 2013. Because
+of these concerns, we do not plan to significantly increase the size of our revenue-producing fleet of equipment during 2014. Our
+consistent response to the industry’s potential uncertainty is to maintain sufficient liquidity and a conservative capital
+structure and monitor our discretionary spending. Although we have used our bank credit facility to finance our expansion,
+we will continue to maintain a conservative financial and capital structure by industry standards. 
+19 
+Results
+of Operations 
+Years
+Ended December 31, 
+2013 
+2012 
+2011 
+(in
+thousands except per share amounts and industry data) 
+Consolidated
+revenues 
+$ 
+1,861,489 
+$ 
+1,945,023 
+$ 
+1,809,807 
+Revenues
+by business segment: 
+Technical 
+$ 
+1,729,732 
+$ 
+1,794,015 
+$ 
+1,663,793 
+Support 
+131,757 
+151,008 
+146,014 
+Consolidated
+operating profit 
+$ 
+275,413 
+$ 
+442,390 
+$ 
+482,081 
+Operating
+profit by business segment: 
+Technical 
+$ 
+276,246 
+$ 
+420,231 
+$ 
+451,259 
+Support 
+26,223 
+45,912 
+51,672 
+Corporate
+expenses 
+(17,685 
+) 
+(17,654 
+) 
+(17,019 
+) 
+Loss
+on disposition of assets, net 
+(9,371 
+) 
+(6,099 
+) 
+(3,831 
+) 
+Net
+income 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+Earnings
+per share — diluted 
+$ 
+0.77 
+$ 
+1.27 
+$ 
+1.35 
+Percentage
+of cost of revenues to revenues 
+63 
+% 
+57 
+% 
+55 
+% 
+Percentage
+of selling, general and administrative expenses to revenues 
+10 
+% 
+9 
+% 
+8 
+% 
+Percentage
+of depreciation and amortization expenses to revenues 
+11 
+% 
+11 
+% 
+10 
+% 
+Effective
+income tax rate 
+39.6 
+% 
+38.0 
+% 
+38.1 
+% 
+Average
+U.S. domestic rig count 
+1,762 
+1,919 
+1,877 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+3.71 
+$ 
+2.73 
+$ 
+3.95 
+Average
+oil price (per barrel) 
+$ 
+98.06 
+$ 
+94.20 
+$ 
+94.94 
+Year
+Ended December 31, 2013 Compared To Year Ended December 31, 2012 
+Revenues.
+Revenues in 2013 decreased $83.5 million or 4.3 percent compared to 2012. The Technical Services segment revenues
+for 2013 decreased 3.6 percent from the prior year due primarily to lower pricing experienced in most of our service lines within
+this segment partially offset by higher service intensity and activity in our pressure pumping service line. The Support
+Services segment revenues for 2013 decreased 12.7 percent compared to 2012 due primarily to lower pricing in the rental tool service
+line, which is the largest service line within this segment. Operating profit in the both Technical Services and Support
+Services segment declined due to lower pricing. Operating profit in the Technical Services segment also declined due
+to higher materials and supplies expense consistent with increased service intensity. 
+Domestic
+revenues decreased 4.0 percent during 2013 compared to 2012 to $1.8 billion due primarily to continued competitive pricing for
+our services in most service lines. The average price of oil increased by four percent while the average price of natural
+gas increased by 36 percent during 2013 compared to the prior year. The average domestic rig count during 2013 was
+eight percent lower than in 2012. Increasingly competitive pricing for our services negatively impacted our operating
+income, income before income taxes, net income and earnings per share. At the present time, we believe that our activity
+levels are affected primarily by the price of oil, since oil-directed activity has become the majority of total U.S. drill activity. The
+prices of natural gas and natural gas liquids also impact our activity levels because of the service-intensive nature of the drilling
+and completion associated with this type of drilling and completion. We also believe that the total number of directional
+and horizontal wells more directly affect our activity levels, regardless of whether the wells are directed towards oil or natural
+gas. This belief is based on the fact that directional and horizontal wells require more of some of the services within
+our technical services segment. International revenues, which decreased from $74.2 million in 2012 to $65.9 million
+in 2013, were four percent of consolidated revenues in 2013 and 2012. These international revenue decreases were due
+mainly to lower customer activity levels in New Zealand and Mexico in 2013 partially offset by an increase in activity in Equatorial
+Guinea, Gabon, Australia, Argentina and Bolivia, compared to the prior year. Our international revenues are impacted
+by the timing of project initiation and their ultimate duration. 
+Cost
+of revenues. Cost of revenues in 2013 was $1.2 billion compared to $1.1 billion in 2012, an increase of $72.5 million
+or 6.6 percent. The increase in these costs was due to the variable nature of these expenses especially materials and
+supplies expenses and employment costs associated with higher activity levels. Cost of revenues, as a percent of revenues,
+increased in 2013 compared to 2012 due primarily to competitive pricing for our services. 
+20 
+Selling,
+general and administrative expenses. Selling, general and administrative expenses increased 5.4 percent
+to $185.2 million in 2013 compared to $175.7 million in 2012. This increase was due primarily to increases in total employment
+costs and bad debt expense. As a percentage of revenues, selling, general and administrative expenses increased to 9.9 percent
+in 2013 compared to 9.0 percent in 2012. 
+Depreciation
+and amortization. Depreciation and amortization were $213.1 million in 2013, a decrease of $1.8 million, compared
+to $214.9 million in 2012. As a percentage of revenues, depreciation and amortization remained relatively unchanged at 11.4 percent
+in 2013 compared to 11.0 percent in 2012. 
+Loss
+on disposition of assets, net. Loss on disposition of assets, net was $9.4 million in 2013 compared to $6.1 million in 2012. The
+loss of disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain
+equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or
+damaged rental equipment. 
+Other
+income, net. Other income, net was $2.3 million in 2013 compared to $2.2 million in 2012. Other
+income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan. 
+Interest
+expense and interest income. Interest expense was $1.8 million in 2013 compared to $2.0 million in 2012. The
+decrease in 2013 is due to a lower average debt balance on our revolving credit facility partially offset by slightly higher interest
+rates net of interest capitalized on equipment and facilities under construction. Interest income increased to $419
+thousand in 2013 compared to $30 thousand in 2012. 
+Income
+tax provision. The income tax provision was $109.4 million in 2013 compared to $168.2 million in 2012. This
+decrease was due to lower income before taxes in 2013 compared to 2012 partially offset by an increase in the effective tax rate
+to 39.6 percent in 2013 compared to the effective tax rate of 38.0 percent in 2012. 
+Net
+income and diluted earnings per share . Net income was $166.9 million in 2013, or $0.77 per diluted share,
+compared to net income of $274.4 million, or $1.27 per diluted share in 2012. This decline was due to lower profitability. 
+Year
+Ended December 31, 2012 Compared To Year Ended December 31, 2011 
+Revenues.
+Revenues in 2012 increased $135.2 million or 7.5 percent compared to 2011. The Technical Services segment revenues
+for 2012 increased 7.8 percent from the prior year due primarily to an increase in the fleet of revenue-producing equipment and
+higher activity levels partially offset by lower pricing for our services within this segment. The Support Services
+segment revenues for 2012 increased 3.4 percent compared to 2011 due primarily to higher activity levels in several of the service
+lines. Operating profit in the Technical Services segment declined due to lower personnel and equipment utilization
+as well as lower pricing. Operating profit in the Support Services segment declined due primarily to lower utilization
+and pricing in our rental tools service line. 
+Domestic
+revenues increased 6.4 percent during 2012 compared to 2011 to $1.9 billion due primarily to a larger fleet of revenue-producing
+equipment and higher activity levels in several service lines partially offset by lower pricing for our services in most service
+lines. The average price of oil remained stable while the average price of natural gas decreased by 31 percent during
+2012 compared to the prior year. The average domestic rig count during 2012 was two percent higher than in 2011. Our
+revenues grew at a higher rate than the changes in our industry indicators because of increases in our fleet of revenue-producing
+equipment compared to 2011. However, increasingly competitive pricing for our services, as well as lower utilization
+of our revenue-producing equipment and personnel in 2012 compared to 2011, negatively impacted our operating income, income before
+income taxes, net income and earnings per share. International revenues, which increased from $52.1 million in 2011
+to $74.2 million in 2012, were four percent of consolidated revenues in 2012 compared to three percent of revenues in 2011. These
+international revenue increases were due mainly to higher customer activity levels in Canada, China, Mexico and New Zealand in
+2012 partially offset by a decrease in activity in Australia, Gabon and Saudi Arabia, compared to the prior year. 
+Cost
+of revenues. Cost of revenues in 2012 was $1.1 billion compared to $992.7 million in 2011, an increase of $113.2
+million or 11.4 percent. The increase in these costs was due to the variable nature of most of these expenses. Cost
+of revenues, as a percent of revenues, increased in 2012 compared to 2011 due primarily to lower pricing and inefficiencies resulting
+from lower utilization of our equipment and personnel. 
+Selling,
+general and administrative expenses. Selling, general and administrative expenses increased 16.2 percent
+to $175.7 million in 2012 compared to $151.3 million in 2011. This increase was primarily due to increases in total
+employment costs. As a percentage of revenues, selling, general and administrative expenses increased to 9.0 percent
+in 2012 compared to 8.4 percent in 2011. 
+Depreciation
+and amortization. Depreciation and amortization expense were $214.9 million in 2012, an increase of $35.0 million
+or 19.5 percent, compared to $179.9 million in 2011. This increase resulted from capital expenditures within both Technical Services
+and Support Services to increase capacity and to maintain our existing fleet of equipment. As a percentage of revenues,
+depreciation and amortization increased to 11.0 percent in 2012 compared to 9.9 percent in 2011. 
+21 
+Loss
+on disposition of assets, net. Loss on disposition of assets, net was $6.1 million in 2012 compared to $3.8 million in 2011. The
+loss of disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain
+equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or
+damaged rental equipment. 
+Other
+income, net. Other income, net was $2.2 million in 2012, an increase of $2.0 million compared to $0.2 million
+in 2011. Other income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit
+plan. 
+Interest
+expense and interest income. Interest expense was $2.0 million in 2012 compared to $3.5 million in 2011. The
+decrease in 2012 is due to a lower average debt balance on our revolving credit facility coupled with slightly lower interest
+rates net of interest capitalized on equipment and facilities under construction. Interest income increased to $30
+thousand in 2012 compared to $18 thousand in 2011. 
+Income
+tax provision. The income tax provision was $168.2 million in 2012 compared to $182.4 million in 2011. This
+decrease was due to lower income before taxes in 2012 compared to 2011 as the effective tax rate of 38.0 percent in 2012 was comparable
+to the effective tax rate of 38.1 percent in 2011. 
+Net
+income and diluted earnings per share . Net income was $274.4 million in 2012, or $1.27 per diluted share,
+compared to net income of $296.4 million, or $1.35 per diluted share in 2011. This decline was due to higher, as a
+percentage of revenues, costs of revenues, selling, general and administrative expenses, and depreciation and amortization expenses. 
+Liquidity
+and Capital Resources 
+Cash
+and Cash Flows 
+The
+Company’s cash and cash equivalents were $8.7 million as of December 31, 2013, $14.2 million as of December 31, 2012 and
+$7.4 million as of December 31, 2011. 
+The
+following table sets forth the historical cash flows for the years ended December 31: 
+(in
+thousands) 
+2013 
+2012 
+2011 
+Net
+cash provided by operating activities 
+$ 
+365,624 
+$ 
+559,933 
+$ 
+386,007 
+Net
+cash used for investing activities 
+(207,654 
+) 
+(315,838 
+) 
+(391,637 
+) 
+Net
+cash (used for) provided by financing activities 
+(163,433 
+) 
+(237,325 
+) 
+3,988 
+2013 
+Cash
+provided by operating activities decreased $194.3 million in 2013 compared to the prior year due primarily to a decrease in net
+income of $107.5 million, an unfavorable change in deferred taxes of $17.9 million due to a decrease in tax depreciation benefits
+resulting from lower capital expenditures coupled with an unfavorable change in working capital of $83.2 million. 
+The
+unfavorable change in working capital is primarily due to the following: an unfavorable change of $123.8 million in accounts receivable
+due to slightly higher business activity levels at the end of 2013 compared to declining activity levels at the end of the prior
+year; an unfavorable change of $25.1 million in other current assets due to lower deposits for raw materials; an unfavorable net
+change of $9.8 million in net current income taxes receivable/payable; and an unfavorable change of $4.6 million in accrued state,
+local and other taxes due to the timing of payments. These unfavorable changes were partially offset by a favorable
+change of $54.4 million in inventories due to improved sourcing of critical materials and supplies that require longer lead times. 
+Cash
+used for investing activities in 2013 decreased by $108.2 million compared to 2012, primarily as a result of lower capital expenditures
+in response to highly competitive pricing. 
+Cash
+used for financing activities in 2013 decreased by $73.9 million primarily as a result of lower net loan repayments
+coupled with lower open market share repurchases, partially offset by a 25 percent increase in the per share common stock dividend
+declared during 2013 compared to the prior year. 
+2012 
+Cash
+provided by operating activities increased $173.9 million in 2012 compared to the prior year due primarily to a net decrease in
+working capital requirements in 2012 compared to 2011. This decrease in working capital requirements was partially offset by a
+decrease in the deferred tax provision and net income. Decreasing business activity levels in 2012 resulted in decreased
+accounts receivable, other current assets and accounts payable partially offset by an increase in inventory. 
+22 
+Cash
+used for investing activities in 2012 decreased by $75.8 million compared to 2011, primarily as a result of lower capital expenditures. 
+Cash
+used for financing activities in 2012 increased by $241.3 million primarily as a result of higher net loan repayments during 2012
+compared to the prior year as a result of improvements in working capital and an increase in common stock dividends during 2012
+compared to the prior year. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2013, remains strong. We believe the liquidity provided by our
+existing cash and cash equivalents, our overall strong capitalization which includes a revolving credit facility and cash expected
+to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months. On
+January 17, 2014, the Company amended a $350 million revolving credit facility which extended the maturity of the loan to January
+2019. The facility contains customary terms and conditions, including certain financial covenants including covenants
+restricting RPC’s ability to incur liens, merge or consolidate with another entity. A total of $272.6 million
+was available under the facility as of December 31, 2013; $24.1 million of the facility supports outstanding letters of credit
+relating to self-insurance programs or contract bids. For additional information with respect to RPC’s facility,
+see Note 6 of the Notes to Consolidated Financial Statements. 
+The
+Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital
+position, including access to borrowings under our facility, and the expected amount of cash to be provided by operations. We
+believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive
+business conditions and strong customer activity levels. The Company’s decisions about the amount of cash to
+be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do
+not expect the covenants to restrict our planned activities. The Company is in compliance with these financial covenants. 
+Cash
+Requirements 
+Capital
+expenditures were $201.7 million in 2013, and we currently expect capital expenditures to be approximately $200 million in 2014. 
+We expect that a majority of these expenditures in 2014 will be directed towards maintenance of our revenue-producing equipment
+and refurbishment of our existing fleet of pressure pumping equipment. The remaining capital expenditures will be directed
+towards the purchase of revenue-producing equipment in several of our core service lines, including pressure pumping, coiled tubing
+and rental tools. The actual amount of expenditures will depend primarily on equipment maintenance requirements, customer
+opportunities, and equipment delivery schedules. 
+The
+Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon
+retirement at age 65 to eligible employees. During 2013, the Company contributed $0.8 million to the pension plan. The
+Company expects that additional contributions to the defined benefit pension plan of approximately $0.8 million will be required
+in 2014 to achieve the Company’s funding objective. 
+The
+Company has a stock buyback program initially adopted in 1998 that authorizes the repurchase of up to 26,578,125 shares. On
+June 5, 2013, the Board of Directors authorized an additional 5,000,000 shares for repurchase under this program. There
+were 1,511,614 shares purchased on the open market during 2013, and 4,712,234 shares remain available to be repurchased under
+the current authorization as of December 31, 2013. The Company may repurchase outstanding common shares periodically
+based on market conditions and our capital allocation strategies considering restrictions under our credit facility. The
+stock buyback program does not have a predetermined expiration date. 
+On
+January 28, 2014, the Board of Directors approved a $0.105 per share cash dividend, payable March 10, 2014 to stockholders of
+record at the close of business on February 10, 2014. The Company expects to continue to pay cash dividends to common
+stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+23 
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include our credit facility, certain non-cancelable operating
+leases, purchase obligations and other long-term liabilities. The following table summarizes the Company’s significant contractual
+obligations as of December 31, 2013: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt obligations 
+$ 
+53,300 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+53,300 
+Interest
+on long-term debt obligations 
+9,917 
+1,951 
+3,901 
+3,901 
+164 
+Capital
+lease obligations 
+— 
+— 
+— 
+— 
+— 
+Operating
+leases (1) 
+35,408 
+11,604 
+12,594 
+5,220 
+5,990 
+Purchase
+obligations (2) 
+16,467 
+16,467 
+— 
+— 
+— 
+Other
+long-term liabilities (3) 
+2,885 
+— 
+2,785 
+100 
+— 
+Total
+contractual obligations 
+$ 
+117,977 
+$ 
+30,022 
+$ 
+19,280 
+$ 
+9,221 
+$ 
+59,454 
+(1) 
+Operating leases include agreements for various office locations, office
+equipment, and certain operating equipment. 
+(2) 
+Includes agreements to purchase raw materials, goods or services that
+have been approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course
+of business the Company occasionally enters into purchase commitments to manage its various operating needs. 
+(3) 
+Includes expected cash payments for long-term liabilities reflected
+on the balance sheet where the timing of the payments are known. These amounts include incentive compensation. These amounts exclude
+pension obligations with uncertain funding requirements and deferred compensation liabilities. 
+Fair
+Value Measurements 
+The
+Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based
+on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified
+as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are
+classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued
+using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For
+defined benefit plan assets classified as Level 3, the values are computed using inputs such as cost, discounted future cash flows,
+independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available. 
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from
+competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment,
+materials and labor could increase as well. Also, increases in activity in the domestic oilfield can cause upward wage
+pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment
+components used to provide services to the Company’s customers. During 2012 and 2013, the Company incurred higher
+employment costs due to a continued shortage of skilled labor in many of its markets. Although these costs pressure
+subsided somewhat during the third and fourth quarters of 2013, our employment costs remain high and the Company expects that
+they will remain high during 2014. During 2012, the prices of certain raw materials used to provide the Company’s
+services fluctuated significantly. The Company mitigated some of the cost increases for raw materials by securing materials
+through additional sources, and the Company continued to source raw materials from these additional sources in 2013. Increased
+availability of many of these raw materials in response to high market prices has caused prices of some of these raw materials
+to decline. Furthermore, favorable crop yields have improved the availability of certain of these raw materials, thus
+decreasing these costs. Finally, the price of equipment used to provide services to the Company’s customers has
+remained relatively constant in spite of declining demand, and in certain cases has decreased due to lower demand in the current
+environment for such equipment by oilfield service companies. 
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+24 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former
+powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding
+stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly
+owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction
+with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative
+services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges
+from the Company (or from corporations that are subsidiaries of the Company) for such services were $670,000 in 2013, $544,000
+in 2012, and $639,000 in 2011. The Company’s receivable due from Marine Products for these services was $145,000 as of December
+31, 2013 and $94,000 as of December 31, 2012. The Company’s directors are also directors of Marine Products and
+all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant
+officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were $1,039,000
+in 2013, $1,676,000 in 2012 and $1,469,000 in 2011. 
+RPC
+receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins
+is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the
+Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The
+services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative
+services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$83,000 in 2013 and 2012, and $102,000 in 2011. 
+A
+group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also
+a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
+voting power. 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States,
+which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates.
+These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure
+of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the following
+critical accounting policies involve estimates that require a higher degree of judgment and complexity: 
+Allowance
+for doubtful accounts — Substantially all of the Company’s receivables are due from oil and gas exploration and
+production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our
+allowance for doubtful accounts is determined using a combination of factors to ensure that our receivables are not overstated
+due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct
+with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on
+their projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts
+are recorded in selling, general and administrative expenses. Accounts are written off against the allowance for doubtful
+accounts when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded
+when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore,
+the provision for doubtful accounts can fluctuate significantly from period to period. Recoveries were insignificant
+in 2013, 2012 and 2011. We record specific provisions when we become aware of a customer’s inability to meet
+its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating
+results or financial position. If circumstances related to customers change, our estimates of the realizability of receivables
+would be further adjusted, either upward or downward. 
+25 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the overall trends in the oil and gas industry, financial
+condition of our customers, our historical write-off experience, current economic conditions, and in the case of international
+customers, our judgments about the economic and political environment of the related country and region. In addition
+to reserves established for specific customers, we establish general reserves by using different percentages depending on the
+age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The
+net provisions for doubtful accounts have ranged from 0.47 percent to 0.15 percent of revenues over the last three years. Increasing
+or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2013 would have resulted
+in a change of approximately $2.2 million to the allowance for doubtful accounts and a corresponding change to selling, general
+and administrative expenses. 
+Income
+taxes — The effective income tax rates were 39.6 percent in 2013, 38.0 percent in 2012 and 38.1 percent in 2011. Our
+effective tax rates vary due to changes in estimates of our future taxable income, fluctuations in the tax jurisdictions in which
+our earnings and deductions are realized, and favorable or unfavorable adjustments to our estimated tax liabilities related to
+proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or
+annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than
+not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the
+period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred
+tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. We have
+considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which
+we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results
+reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified,
+which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax
+liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using
+enacted tax rates in effect in the year the differences are expected to reverse. 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in
+proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have
+adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable
+or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes
+of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized
+may differ from our current estimates. 
+Insurance
+expenses – The Company self insures, up to certain policy-specified limits, certain risks related to general liability,
+workers’ compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs
+is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical
+experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored
+and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent
+third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2013,
+the Company estimates the range of exposure to be from $14.1 million to $18.6 million. The Company has recorded liabilities
+at December 31, 2013 of approximately $16.3 million which represents management’s best estimate of probable loss. 
+Depreciable
+life of assets — RPC’s net property, plant and equipment at December 31, 2013 was $726.3 million representing
+52.5 percent of the Company’s consolidated assets. Depreciation and amortization expenses for the year ended
+December 31, 2013 were $215.4 million. Management judgment is required in the determination of the estimated useful
+lives used to calculate the annual and accumulated depreciation and amortization expense. 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line
+basis over the estimated useful lives of the assets. The estimated useful life represents the projected period of time that the
+asset will be productively employed by the Company and is determined by management based on many factors including historical
+experience with similar assets. Assets are monitored to ensure changes in asset lives are identified and prospective
+depreciation and amortization expense is adjusted accordingly. We have not made any changes to the estimated lives
+of assets resulting in a material impact in the last three years. 
+Defined
+benefit pension plan – In 2002, the Company ceased all future benefit accruals under the defined benefit
+plan, although the Company remains obligated to provide employees benefits earned through March 2002. The Company accounts
+for the defined benefit plan in accordance with the provisions of FASB ASC 715, “Compensation – Retirement Benefits”
+and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company
+evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount
+rate, and other factors, and makes adjustments to these liabilities as necessary. 
+26 
+The
+Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes,
+the investments strategy, and the views of our investment adviser. Differences between the expected long-term
+return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset
+gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on
+plan assets was seven percent for 2013, 2012 and 2011. 
+The
+discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year.
+In estimating this rate, the Company utilizes a yield curve approach. The approach utilizes an economic model whereby
+the Company’s expected benefit payments over the life of the plan are forecasted and then compared to a portfolio of investment
+grade corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic
+model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the
+same total lump sum as the payments from the corporate bonds. A lower discount rate increases the present value
+of benefit obligations. The discount rate was 5.20 percent as of December 31, 2013 compared to 4.16 percent as of December
+31, 2012 and 5.00 percent in 2011. 
+As
+set forth in note 10 to the Company’s financial statements, included among the asset categories for the Plan’s investments
+are real estate and tactical composite investments comprised of investments in real estate funds and private equity funds. These
+investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a
+readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate
+Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated
+by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds
+which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks
+to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the
+financial data included in the funds’ financial statements for reasonableness. 
+As
+of December 31, 2013, the defined benefit plan was under-funded and the recorded change within accumulated other comprehensive
+loss increased stockholders’ equity by approximately $4.9 million after tax. Holding all other factors constant,
+a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in a pre-tax increase or
+decrease of approximately $1.1 million to the net loss related to pension reflected in accumulated other comprehensive loss. 
+The
+Company recognized pre-tax pension expense of $0.5 million in 2013, $0.7 million in 2012 and $0.5 million in 2011. Based
+on the under-funded status of the defined benefit plan as of December 31, 2013, the Company expects to recognize pension expense
+of $0.1 million in 2014. Holding all other factors constant, a change in the expected long-term rate of return on plan
+assets by 0.50 percentage points would result in an increase or decrease in pension expense of approximately $0.2 million in 2014. Holding
+all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result
+in an increase or decrease in pension expense of approximately $3 thousand in 2014. 
+Recent
+Accounting Pronouncements 
+During
+the year ended December 31, 2013, the Financial Accounting Standards Board (FASB) issued the following applicable Accounting Standards
+Updates (ASU): 
+Recently
+Adopted Accounting Pronouncements: 
+Accounting
+Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
+Income. The amendments in this ASU do not change the current requirements for reporting net income or other
+comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed
+elsewhere in the financial statements under U.S. GAAP. In addition, an entity is required to present (either on the face of the
+statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified
+out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified
+to net income in its entirety in the same reporting period. The Company adopted these provisions in the first quarter of
+2013 and has included the required additional disclosures in the accompanying financial statements and notes. 
+Recently
+Issued Accounting Pronouncements Not Yet Adopted: 
+Accounting
+Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment
+upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
+The amendments in this ASU requires that when a reporting entity (parent) ceases to have a controlling financial interest
+in a subsidiary or group of assets within a foreign entity, the parent should release the cumulative translation adjustment into
+net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in
+which the subsidiary or group of assets had resided. Additionally, the amendments in this ASU clarify that the sale
+of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in
+a foreign entity; and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest
+immediately before the acquisition date. Upon the occurrence of those events, the cumulative translation adjustment should be
+released into net income. The amendments in this ASU are effective prospectively for fiscal years beginning after December
+15, 2013 and for interim reporting periods within those years, with early adoption being permitted. The Company plans
+to adopt these provisions in the first quarter of 2014 and does not expect the adoption to have a material impact on the Company’s
+consolidated financial statements. 
+27 
+Accounting
+Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
+a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this ASU requires an unrecognized
+tax benefit, or a portion of thereof, to be presented in the financial statements as a reduction to a deferred tax asset for a
+net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The only exception would be if the
+deferred taxes related to these items are not available to settle any additional income taxes that would result from the disallowance
+of a tax position either by statute or at the entity’s choosing. In such cases, the unrecognized tax benefit
+should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The
+amendments in this ASU are effective prospectively for fiscal years beginning after December 15, 2013 and for interim reporting
+periods within those years, with early adoption being permitted. The Company plans to adopt these provisions in the
+first quarter of 2014 and does not expect the adoption to have a material impact on the Company’s consolidated financial
+statements. 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk 
+The
+Company is subject to interest rate risk exposure through borrowings on its credit agreement. As of December 31, 2013,
+there are outstanding interest-bearing advances of $53.3 million on our credit facility which bear interest at a floating rate. A
+change in interest rates of one percent on the balance outstanding on the credit facility at December 31, 2013 would cause a change
+of approximately $0.5 million in total annual interest costs. 
+Additionally,
+the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority
+of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated
+results of operations or financial condition. 
+28 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To
+the Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for
+the Company. RPC, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance,
+at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate
+and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United
+States of America. The internal control system is augmented by written policies and procedures, an internal audit program and
+the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards
+and compliance with all applicable laws and regulations. 
+There
+are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed
+and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also,
+no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the
+Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints,
+and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine
+its internal controls. 
+Under
+the supervision and with the participation of our management, including our principal executive officer and principal
+financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over
+financial reporting as of December 31, 2013 based on criteria established in the 1992 Internal Control—Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December
+31, 2013. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and
+for the year ended December 31, 2013, and has also issued their report on the effectiveness of the Company’s internal control
+over financial reporting, included in this report on page 30. 
+/s/
+Richard A. Hubbell 
+/s/
+Ben M. Palmer 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+February
+28, 2014 
+29 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+Board
+of Directors and Shareholders 
+RPC,
+Inc. 
+We
+have audited the internal control over financial reporting of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”)
+as of December 31, 2013, based on criteria established in the 1992 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. 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, testing and evaluating the design and operating effectiveness of
+internal control based on the assessed risk, and 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December
+31, 2013, based on criteria established in the 1992 Internal Control—Integrated Framework issued by COSO. 
+We
+also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
+financial statements of the Company as of and for the year ended December 31, 2013, and our report dated February 28, 2014 expressed
+an unqualified opinion on those financial statements 
+/S/
+GRANT THORNTON LLP 
+Atlanta,
+Georgia 
+February
+28, 2014 
+30 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+Board
+of Directors and Shareholders 
+RPC,
+Inc. 
+We
+have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”)
+as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’
+equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits of the basic consolidated
+financial statements included the financial statement schedule listed in the index appearing under Item 15(2). These financial
+statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to
+express an opinion on these financial statements and 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 RPC, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each
+of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United
+States of America. Also in our opinion, the related 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 Company’s
+internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control—Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February
+28, 2014 expressed an unqualified opinion thereon.. 
+/S/
+GRANT THORNTON LLP 
+Atlanta,
+Georgia 
+February
+28, 2014 
+31 
+Item
+8. Financial Statements and Supplementary Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2013 
+2012 
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+8,700 
+$ 
+14,163 
+Accounts
+receivable, net 
+437,132 
+387,530 
+Inventories 
+126,604 
+140,867 
+Deferred
+income taxes 
+14,185 
+5,777 
+Income
+taxes receivable 
+5,720 
+4,234 
+Prepaid
+expenses 
+9,143 
+10,762 
+Other
+current assets 
+3,441 
+4,494 
+Current
+assets 
+604,925 
+567,827 
+Property,
+plant and equipment, net 
+726,307 
+756,326 
+Goodwill 
+31,861 
+24,093 
+Other
+assets 
+20,767 
+18,917 
+Total
+assets 
+$ 
+1,383,860 
+$ 
+1,367,163 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+119,170 
+$ 
+109,846 
+Accrued
+payroll and related expenses 
+36,638 
+32,053 
+Accrued
+insurance expenses 
+6,072 
+6,152 
+Accrued
+state, local and other taxes 
+5,002 
+7,326 
+Income
+taxes payable 
+— 
+6,428 
+Other
+accrued expenses 
+1,170 
+2,706 
+Current
+liabilities 
+168,052 
+164,511 
+Long-term
+accrued insurance expenses 
+10,225 
+10,400 
+Notes
+payable to banks 
+53,300 
+107,000 
+Long-term
+pension liabilities 
+21,966 
+26,543 
+Deferred
+income taxes 
+153,176 
+155,007 
+Other
+long-term liabilities 
+8,439 
+4,470 
+Total
+liabilities 
+415,158 
+467,931 
+Commitments
+and contingencies (Note 9) 
+STOCKHOLDERS’
+EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+— 
+— 
+Common
+stock, $0.10 par value, 349,000,000 shares authorized, 218,985,816 and 220,144,287 shares issued and outstanding in 2013 and 2012,
+respectively 
+21,899 
+22,014 
+Capital
+in excess of par value 
+— 
+— 
+Retained
+earnings 
+956,918 
+891,464 
+Accumulated
+other comprehensive loss 
+(10,115 
+) 
+(14,246 
+) 
+Total
+stockholders’ equity 
+968,702 
+899,232 
+Total
+liabilities and stockholders’ equity 
+$ 
+1,383,860 
+$ 
+1,367,163 
+The
+accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+REVENUES 
+$ 
+1,861,489 
+$ 
+1,945,023 
+$ 
+1,809,807 
+COSTS
+AND EXPENSES: 
+Cost
+of revenues (exclusive of items shown separately below) 
+1,178,412 
+1,105,886 
+992,704 
+Selling,
+general and administrative expenses 
+185,165 
+175,749 
+151,286 
+Depreciation
+and amortization 
+213,128 
+214,899 
+179,905 
+Loss
+on disposition of assets, net 
+9,371 
+6,099 
+3,831 
+Operating
+profit 
+275,413 
+442,390 
+482,081 
+Interest
+expense 
+(1,822 
+) 
+(1,976 
+) 
+(3,453 
+) 
+Interest
+income 
+419 
+30 
+18 
+Other
+income, net 
+2,260 
+2,175 
+169 
+Income
+before income taxes 
+276,270 
+442,619 
+478,815 
+Income
+tax provision 
+109,375 
+168,183 
+182,434 
+Net
+income 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+EARNINGS
+PER SHARE 
+Basic 
+$ 
+0.77 
+$ 
+1.28 
+$ 
+1.36 
+Diluted 
+$ 
+0.77 
+$ 
+1.27 
+$ 
+1.35 
+Dividends
+paid per share 
+$ 
+0.40 
+$ 
+0.52 
+$ 
+0.21 
+The
+accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED
+STATEMENTS OF COMPREHENSIVE INCOME 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+NET
+INCOME 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+OTHER
+COMPREHENSIVE INCOME, NET OF TAXES: 
+Pension
+adjustment 
+4,928 
+(1,707 
+) 
+(3,048 
+) 
+Cash
+flow hedge 
+— 
+— 
+387 
+Foreign
+currency translation 
+(778 
+) 
+265 
+(138 
+) 
+Unrealized
+loss on securities and reclassification adjustments 
+(19 
+) 
+(158 
+) 
+(314 
+) 
+COMPREHENSIVE
+INCOME 
+$ 
+171,026 
+$ 
+272,836 
+$ 
+293,268 
+The
+accompanying notes are an integral part of these statements. 
+34 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Three
+Years Ended 
+December 31, 2013 
+Common
+Stock 
+Capital
+in 
+Excess of 
+Par Value 
+Retained
+Earnings 
+Accumulated
+Other 
+Comprehensive 
+Income (Loss) 
+Total 
+Shares 
+Amount 
+Balance,
+December 31, 2010 
+222,264 
+$ 
+22,227 
+$ 
+— 
+$ 
+526,201 
+$ 
+(9,533 
+) 
+$ 
+538,895 
+Stock
+issued for stock incentive plans, net 
+1,218 
+122 
+9,455 
+— 
+— 
+9,577 
+Stock
+purchased and retired 
+(1,936 
+) 
+(194 
+) 
+(12,862 
+) 
+(22,136 
+) 
+— 
+(35,192 
+) 
+Net
+income 
+— 
+— 
+— 
+296,381 
+— 
+296,381 
+Pension
+adjustment, net of taxes 
+— 
+— 
+— 
+— 
+(3,048 
+) 
+(3,048 
+) 
+Gain
+on cash flow hedge, net of taxes 
+— 
+— 
+— 
+— 
+387 
+387 
+Foreign
+currency translation, net of taxes 
+— 
+— 
+— 
+— 
+(138 
+) 
+(138 
+) 
+Unrealized
+gain on securities, net of taxes 
+— 
+— 
+— 
+— 
+(314 
+) 
+(314 
+) 
+Dividends
+declared 
+— 
+— 
+— 
+(47,327 
+) 
+— 
+(47,327 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+3,371 
+— 
+— 
+3,371 
+Three-for-two
+stock split 
+(358 
+) 
+(36 
+) 
+36 
+— 
+Balance,
+December 31, 2011 
+221,188 
+22,119 
+— 
+753,119 
+(12,646 
+) 
+762,592 
+Stock
+issued for stock incentive plans and other, net 
+1,530 
+152 
+11,105 
+— 
+— 
+11,257 
+Stock
+purchased and retired 
+(2,011 
+) 
+(201 
+) 
+(13,885 
+) 
+(16,515 
+) 
+— 
+(30,601 
+) 
+Increased
+ownership interest in subsidiary, net of taxes 
+— 
+— 
+— 
+(5,507 
+) 
+— 
+(5,507 
+) 
+Net
+income 
+— 
+— 
+— 
+274,436 
+— 
+274,436 
+Pension
+adjustment, net of taxes 
+— 
+— 
+— 
+— 
+(1,707 
+) 
+(1,707 
+) 
+Foreign
+currency translation, net of taxes 
+— 
+— 
+— 
+— 
+265 
+265 
+Unrealized
+loss on securities, net of taxes 
+— 
+— 
+— 
+— 
+(158 
+) 
+(158 
+) 
+Dividends
+declared 
+— 
+— 
+— 
+(114,069 
+) 
+— 
+(114,069 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+2,724 
+— 
+— 
+2,724 
+Three-for-two
+stock split 
+(563 
+) 
+(56 
+) 
+56 
+— 
+Balance,
+December 31, 2012 
+220,144 
+22,014 
+— 
+891,464 
+(14,246 
+) 
+899,232 
+Stock
+issued for stock incentive plans and other, net 
+699 
+70 
+8,107 
+— 
+— 
+8,177 
+Stock
+purchased and retired 
+(1,857 
+) 
+(185 
+) 
+(11,285 
+) 
+(13,652 
+) 
+— 
+(25,122 
+) 
+Net
+income 
+— 
+— 
+— 
+166,895 
+— 
+166,895 
+Pension
+adjustment, net of taxes 
+— 
+— 
+— 
+— 
+4,928 
+4,928 
+Foreign
+currency translation, net of taxes 
+— 
+— 
+— 
+— 
+(778 
+) 
+(778 
+) 
+Unrealized
+loss on securities, net of taxes 
+— 
+— 
+— 
+— 
+(19 
+) 
+(19 
+) 
+Dividends
+declared 
+— 
+— 
+— 
+(87,789 
+) 
+— 
+(87,789 
+) 
+Excess
+tax benefits for share-based payments 
+— 
+— 
+3,178 
+— 
+— 
+3,178 
+Balance,
+December 31, 2013 
+218,986 
+$ 
+21,899 
+$ 
+— 
+$ 
+956,918 
+$ 
+(10,115 
+) 
+$ 
+968,702 
+The
+accompanying notes are an integral part of these statements. 
+35 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+OPERATING
+ACTIVITIES 
+Net
+income 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+Adjustments
+to reconcile net income to net cash provided by operating activities: 
+Depreciation,
+amortization and other non-cash charges 
+215,812 
+214,153 
+179,787 
+Stock-based
+compensation expense 
+8,177 
+7,860 
+8,075 
+Loss
+on disposition of assets, net 
+9,371 
+6,099 
+3,831 
+Deferred
+income tax (benefit) provision 
+(13,060 
+) 
+4,821 
+77,074 
+Excess
+tax benefits for share-based payments 
+(3,178 
+) 
+(2,724 
+) 
+(3,371 
+) 
+(Increase)
+decrease in assets: 
+Accounts
+receivable 
+(49,959 
+) 
+73,809 
+(167,312 
+) 
+Income
+taxes receivable 
+1,692 
+9,295 
+9,817 
+Inventories 
+14,078 
+(40,354 
+) 
+(36,511 
+) 
+Prepaid
+expenses 
+1,519 
+(2,284 
+) 
+(2,783 
+) 
+Other
+current assets 
+1,114 
+26,189 
+(30,524 
+) 
+Other
+non-current assets 
+(1,881 
+) 
+(6,415 
+) 
+294 
+(Increase)
+decrease in liabilities: 
+Accounts
+payable 
+14,062 
+(4,929 
+) 
+30,102 
+Income
+taxes payable 
+(6,428 
+) 
+(4,277 
+) 
+4,917 
+Accrued
+payroll and related expenses 
+4,585 
+(1,627 
+) 
+9,799 
+Accrued
+insurance expenses 
+(80 
+) 
+408 
+603 
+Accrued
+state, local and other taxes 
+(2,324 
+) 
+2,260 
+2,078 
+Other
+accrued expenses 
+(1,548 
+) 
+1,412 
+958 
+Pension
+liabilities 
+3,183 
+(589 
+) 
+1,249 
+Long-term
+accrued insurance expenses 
+(175 
+) 
+1,400 
+511 
+Other
+long-term liabilities 
+3,769 
+990 
+1,032 
+Net
+cash provided by operating activities 
+365,624 
+559,933 
+386,007 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(201,681 
+) 
+(328,936 
+) 
+(416,400 
+) 
+Increased
+ownership interest in subsidiary 
+— 
+(6,211 
+) 
+— 
+Proceeds
+from sale of assets 
+11,071 
+19,309 
+24,763 
+Purchase
+of business 
+(17,044 
+) 
+— 
+— 
+Net
+cash used for investing activities 
+(207,654 
+) 
+(315,838 
+) 
+(391,637 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(87,789 
+) 
+(114,069 
+) 
+(47,327 
+) 
+Borrowings
+from notes payable to banks 
+686,700 
+844,050 
+940,850 
+Repayments
+of notes payable to banks 
+(740,400 
+) 
+(940,350 
+) 
+(858,800 
+) 
+Debt
+issue costs for notes payable to banks 
+— 
+— 
+(415 
+) 
+Excess
+tax benefits for share-based payments 
+3,178 
+2,724 
+3,371 
+Cash
+paid for common stock purchased and retired 
+(25,122 
+) 
+(30,224 
+) 
+(34,419 
+) 
+Proceeds
+received upon exercise of stock options 
+— 
+544 
+728 
+Net
+cash (used for) provided by financing activities 
+(163,433 
+) 
+(237,325 
+) 
+3,988 
+Net
+(decrease) increase in cash and cash equivalents 
+(5,463 
+) 
+6,770 
+(1,642 
+) 
+Cash
+and cash equivalents at beginning of year 
+14,163 
+7,393 
+9,035 
+Cash
+and cash equivalents at end of year 
+$ 
+8,700 
+$ 
+14,163 
+$ 
+7,393 
+The
+accompanying notes are an integral part of these statements. 
+36 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the
+“Company”). All significant intercompany accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies
+engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest,
+mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services
+and equipment provided include Technical Services such as pressure pumping services, coiled tubing services, snubbing services
+(also referred to as hydraulic workover services), nitrogen services, and firefighting and well control, and Support Services
+such as the rental of drill pipe and other specialized oilfield equipment and oilfield training. 
+Common
+Stock 
+RPC
+is authorized to issue 349,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends
+when, as, and if declared by the Board of Directors out of legally available funds. Each share of common stock is entitled to
+one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In
+the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution
+of the remaining assets available for distribution to stockholders. 
+Preferred
+Stock 
+RPC
+is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2013, there were no shares
+of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for
+the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by
+filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences
+and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior
+to the common stock with respect to dividend rights and rights on liquidation. 
+Dividends 
+On
+January 28, 2014, the Board of Directors approved a $0.105 per share cash dividend payable March 10, 2014 to stockholders of record
+at the close of business on February 10, 2014. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
+requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
+of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
+during the reporting period. Actual results could differ from those estimates. 
+Significant
+estimates are used in the determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable
+lives of assets, and pension liabilities. 
+Revenues 
+RPC’s
+revenues are generated principally from providing services and the related equipment. Revenues are recognized when
+the services are rendered and collectibility is reasonably assured. Revenues from services and equipment are based
+on fixed or determinable priced purchase orders or contracts with the customer and do not include the right of return. Rates
+for services and equipment are priced on a per day, per unit of measure, per man hour or similar basis. Sales tax charged
+to customers is presented on a net basis within the consolidated statement of operations and excluded from revenues. 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This concentration of customers may impact
+overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic
+and industry conditions. The Company provided oilfield services to several hundred customers. In 2013 and
+2012, there were no customers that accounted for more than 10 percent of the Company’s revenues. In 2011, one
+of our customers accounted for approximately 12 percent of revenues. Additionally, no customer accounted for more than
+10 percent of accounts receivable as of December 31, 2013 and 2012. 
+37 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company
+maintains its cash in bank accounts which, at times, may exceed federally insured limits. RPC maintains cash equivalents
+and investments in one or more large financial institutions, and RPC’s policy restricts investment in any securities rated
+less than “investment grade” by national rating services. 
+Investments 
+Investments
+classified as available-for-sale securities are stated at their fair values, with the unrealized gains and losses, net of tax,
+reported as a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification
+method. Realized gains and losses, declines in value judged to be other than temporary, interest, and dividends with respect to
+available-for-sale securities are included in interest income. The Company did not realize any gains or losses during 2013, 2012
+or 2011 on its available-for-sale securities. Securities that are held in the non-qualified Supplemental Executive
+Retirement Plan (“SERP”) are classified as trading. See Note 10 for further information regarding
+the SERP. The change in fair value of trading securities is presented in other income (expense) on the consolidated
+statements of operations. 
+Management
+determines the appropriate classification of investments at the time of purchase and re-evaluates such designations as of each
+balance sheet date. 
+Accounts
+Receivable 
+The
+majority of the Company’s accounts receivable is due principally from major and independent oil and natural gas exploration
+and production companies. Credit is extended based on evaluation of a customer’s financial condition and, generally,
+collateral is not required. Accounts receivable are considered past due after 60 days and are stated at amounts due
+from customers, net of an allowance for doubtful accounts. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible
+in the future. The estimated allowance for doubtful accounts is based on an evaluation of industry trends, financial condition
+of customers, historical write-off experience, current economic conditions, and in the case of international customers, judgments
+about the economic and political environment of the related country and region. Accounts are written off against the allowance
+for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of previously written-off accounts
+are recorded when collected. 
+Inventories 
+Inventories,
+which consist principally of (i) raw materials and supplies that are consumed providing services to the Company’s customers,
+(ii) spare parts for equipment used in providing these services and (iii) manufactured components and attachments for equipment
+used in providing services, are recorded at the lower of cost or market value. Cost is determined using first-in, first-out
+(“FIFO”) method or the weighted average cost method. Market value is determined based on replacement cost
+for materials and supplies. The Company regularly reviews inventory quantities on hand and records provisions for excess or obsolete
+inventory based primarily on its estimated forecast of product demand, market conditions, production requirements and technological
+developments. 
+Derivative
+Instruments and Hedging Activities 
+The
+Company is subject to interest rate risk on the variable component of the interest rate under our credit facility. Effective
+December 2008, the Company entered into a $50 million interest rate swap agreement. The Company designated the interest
+rate swap as a cash flow hedge. Changes in the fair value of the effective portion of the interest rate swap were recognized
+in other comprehensive loss until the hedged item was recognized in earnings. This agreement terminated in September
+2011. 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is provided
+on a straight-line basis over the estimated useful lives of the assets. Annual depreciation and amortization expenses
+are computed using the following useful lives: operating equipment, 3 to 20 years; buildings and leasehold improvements, 15 to
+39 years; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise
+disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal
+with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major renewals, and
+betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset
+in good working order constitute repairs and maintenance and are expensed as incurred. 
+38 
+RPC
+records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might
+be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those
+assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and other
+assets, to determine if any impairments should be recognized. Management believes that the long-lived assets in the accompanying
+balance sheets have not been impaired. 
+Goodwill 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying
+amount of goodwill was $31,861,000 at December 31, 2013 and $24,093,000 at December 31, 2012. During 2013, the Company
+completed an acquisition of assets of a business totaling $17,044,000 that included goodwill of $7,768,000. Goodwill
+is reviewed annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair
+value of the reporting unit below its carrying amount, for impairment. The Company completed a comprehensive qualitative
+assessment of the various factors that impact goodwill and concluded it is more likely than not that the fair value of its reporting
+units exceeds their carrying amounts on the annual test date. Therefore the Company did not proceed to Step 1 of the goodwill
+impairment test in 2013, 2012 and 2011. Based on the qualitative assessment, the Company has concluded that no impairment
+of its goodwill occurred for the years ended December 31, 2013, 2012 and 2011. 
+Advertising 
+Advertising
+expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $3,458,000
+in 2013, $2,965,000 in 2012, and $2,406,000 in 2011. 
+Insurance
+Expenses 
+RPC
+self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation,
+vehicle and equipment liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance
+programs is estimated and accrued as the claims are incurred (although actual settlement of the claims may not be made until future
+periods) and may subsequently be revised based on developments relating to such claims. The portion of these estimated outstanding
+claims expected to be paid more than one year in the future is classified as long-term accrued insurance expenses. 
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities
+using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation
+allowance against the carrying value of deferred tax assets when the Company determines that it is more likely than not that the
+asset will not be realized through future taxable income. 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon retirement at age 65 to eligible employees with
+at least one year of service prior to 2002. In 2002, the Company’s Board of Directors approved a resolution to
+cease all future retirement benefit accruals under the defined benefit pension plan. See Note 10 for a full description of this
+plan and the related accounting and funding policies. 
+Share
+Repurchases 
+The
+Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par
+value of the shares acquired and the remainder is allocated to capital in excess of par value and retained earnings if capital
+in excess of par value is depleted. 
+Earnings
+per Share 
+FASB
+ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share
+presentation. The Company considers all outstanding unvested share-based payment awards that contain non-forfeitable
+rights to dividends or dividend equivalents, whether paid or unpaid, to be participating securities. The Company has
+periodically issued share-based payment awards that contain non-forfeitable rights to dividends, and therefore are considered
+participating securities. See Note 10 for further information on restricted stock granted to employees. 
+The
+basic and diluted calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares and
+performance restricted shares included in diluted earnings per share, but excluded from basic earnings per share. Basic and diluted
+earnings per share are computed by dividing net income (loss) by the weighted average number of shares outstanding during the
+respective periods. 
+39 
+A
+reconciliation of weighted average shares outstanding along with the earnings (loss) per share attributable to restricted shares
+of common stock (participating securities) is as follows: 
+(In
+thousands except per share data ) 
+2013 
+2012 
+2011 
+Net
+income available for stockholders: 
+$ 
+166,895 
+$ 
+274,436 
+$ 
+296,381 
+Less: Dividends
+paid 
+Common
+stock 
+(86,282 
+) 
+(111,966 
+) 
+(46,479 
+) 
+Restricted
+shares of common stock 
+(1,507 
+) 
+(2,103 
+) 
+(848 
+) 
+Undistributed
+earnings 
+$ 
+79,106 
+$ 
+160,367 
+$ 
+249,054 
+Allocation
+of undistributed earnings: 
+Common
+stock 
+$ 
+77,620 
+$ 
+157,093 
+$ 
+244,053 
+Restricted
+shares of common stock 
+1,486 
+3,274 
+5,001 
+Basic
+shares outstanding : 
+Common
+stock 
+211,305 
+210,707 
+213,153 
+Restricted
+shares of common stock 
+4,199 
+4,534 
+4,530 
+215,504 
+215,241 
+217,683 
+Diluted
+shares outstanding: 
+Common
+stock 
+211,305 
+210,707 
+213,153 
+Dilutive
+effect of stock-based awards 
+1,229 
+1,555 
+2,567 
+212,534 
+212,262 
+215,720 
+Restricted
+shares of common stock 
+4,199 
+4,534 
+4,530 
+216,733 
+216,796 
+220,250 
+Basic
+earnings per share: 
+Common
+stock: 
+Distributed
+earnings 
+$ 
+0.40 
+$ 
+0.53 
+$ 
+0.22 
+Undistributed
+earnings 
+0.37 
+0.75 
+1.14 
+$ 
+0.77 
+$ 
+1.28 
+$ 
+1.36 
+Restricted
+shares of common stock: 
+Distributed
+earnings 
+$ 
+0.36 
+$ 
+0.46 
+$ 
+0.19 
+Undistributed
+earnings 
+0.35 
+0.72 
+1.10 
+$ 
+0.71 
+$ 
+1.18 
+$ 
+1.29 
+Diluted
+earnings per share: 
+Common
+Stock: 
+Distributed
+earnings 
+$ 
+0.40 
+$ 
+0.53 
+$ 
+0.22 
+Undistributed
+earnings 
+0.37 
+0.74 
+1.13 
+$ 
+0.77 
+$ 
+1.27 
+$ 
+1.35 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts
+payable, an interest rate swap, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable
+approximate their fair value due to the short-term nature of such instruments. The Company’s investments are
+classified as available-for-sale securities with the exception of investments held in the non-qualified Supplemental Executive
+Retirement Plan (“SERP”) which are classified as trading securities. All of these securities are carried
+at fair value in the accompanying consolidated balance sheets. See Note 8 for additional information. 
+Stock-Based
+Compensation 
+Stock-based
+compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation
+cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See
+Note 10 for additional information. 
+Recent
+Accounting Pronouncements 
+During
+the year ended December 31, 2013, the Financial Accounting Standards Board (FASB) issued the following applicable accounting Standards
+Updates (ASU): 
+Recently
+Adopted Accounting Pronouncements: 
+Accounting
+Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
+Income. The amendments in this ASU do not change the current requirements for reporting net income or other
+comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed
+elsewhere in the financial statements under U.S. GAAP. In addition, an entity is required to present (either on the face of the
+statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified
+out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified
+to net income in its entirety in the same reporting period. The Company adopted these provisions in the first quarter of
+2013 and has included the required additional disclosures in the accompanying financial statements and notes. 
+40 
+Recently
+Issued Accounting Pronouncements Not Yet Adopted: 
+Accounting
+Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment
+upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
+The amendments in this ASU requires that when a reporting entity (parent) ceases to have a controlling financial interest
+in a subsidiary or group of assets within a foreign entity, the parent should release the cumulative translation adjustment into
+net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in
+which the subsidiary or group of assets had resided. Additionally, the amendments in this ASU clarify that the sale
+of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in
+a foreign entity; and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest
+immediately before the acquisition date. Upon the occurrence of those events, the cumulative translation adjustment
+should be released into net income. The amendments in this ASU are effective prospectively for fiscal years beginning
+after December 15, 2013 and for interim reporting periods within those years, with early adoption being permitted. The
+Company plans to adopt these provisions in the first quarter of 2014 and does not expect the adoption to have a material impact
+on the Company’s consolidated financial statements. 
+Accounting
+Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
+a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this ASU requires an unrecognized
+tax benefit, or a portion of thereof, to be presented in the financial statements as a reduction to a deferred tax asset for a
+net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The only exception would be if the
+deferred taxes related to these items are not available to settle any additional income taxes that would result from the disallowance
+of a tax position either by statute or at the entity’s choosing. In such cases, the unrecognized tax benefit
+should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The
+amendments in this ASU are effective prospectively for fiscal years beginning after December 15, 2013 and for interim reporting
+periods within those years, with early adoption being permitted. The Company plans to adopt these provisions in the
+first quarter of 2014 and does not expect the adoption to have a material impact on the Company’s consolidated financial
+statements. 
+Note
+2: Accounts Receivable 
+Accounts
+receivable, net consists of the following: 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+368,583 
+$ 
+310,997 
+Unbilled 
+80,806 
+82,649 
+Other
+receivables 
+1,240 
+2,994 
+Total 
+450,629 
+396,640 
+Less:
+allowance for doubtful accounts 
+(13,497 
+) 
+(9,110 
+) 
+Accounts
+receivable, net 
+$ 
+437,132 
+$ 
+387,530 
+Trade
+receivables relate to sale of our services and products, for which credit is extended based on our evaluation of the customer’s
+credit worthiness. Unbilled receivables represent revenues earned but not billed to the customer until future dates,
+usually within one month. Other receivables consist primarily of amounts due from purchasers of Company property and
+rebates from suppliers. 
+Changes
+in the Company’s allowance for doubtful accounts are as follows: 
+Years
+Ended December 31, 
+2013 
+2012 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+9,110 
+$ 
+8,093 
+Bad
+debt expense 
+8,815 
+1,784 
+Accounts
+written-off 
+(5,421 
+) 
+(1,132 
+) 
+Recoveries 
+993 
+365 
+Ending
+balance 
+$ 
+13,497 
+$ 
+9,110 
+Note
+3: Inventories 
+Inventories
+are $126,604,000 at December 31, 2013 and $140,867,000 at December 31, 2012 and consist of raw materials, parts and supplies. 
+41 
+Note
+4: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+Land 
+$ 
+19,264 
+$ 
+17,420 
+Buildings
+and leasehold improvements 
+130,072 
+111,986 
+Operating
+equipment 
+1,231,504 
+1,155,600 
+Computer
+software 
+17,121 
+20,581 
+Furniture
+and fixtures 
+7,737 
+7,232 
+Vehicles 
+387,854 
+357,913 
+Construction
+in progress 
+2,076 
+9,829 
+Gross
+property, plant and equipment 
+1,795,628 
+1,680,561 
+Less:
+accumulated depreciation 
+(1,069,321 
+) 
+(924,235 
+) 
+Net
+property, plant and equipment 
+$ 
+726,307 
+$ 
+756,326 
+Depreciation
+expense was $215.4 million in 2013, $214.9 million in 2012, and $179.9 million in 2011, and includes amounts recorded as costs
+of sales and inventory. There were no capital leases outstanding as of December 31, 2013 and December 31, 2012. The
+Company had accounts payable for purchases of property and equipment of $19.7 million as of December 31, 2013, $24.4 million as
+of December 31, 2012, and $32.7 million as of December 31, 2011. 
+Note
+5: Income Taxes 
+The
+following table lists the components of the provision (benefit) for income taxes: 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+(in
+thousands) 
+Current
+provision: 
+Federal 
+$ 
+104,890 
+$ 
+147,580 
+$ 
+91,415 
+State 
+15,627 
+14,673 
+12,938 
+Foreign 
+1,918 
+1,109 
+1,007 
+Deferred
+(benefit) provision: 
+Federal 
+(12,025 
+) 
+5,027 
+70,599 
+State 
+(1,035 
+) 
+(206 
+) 
+6,475 
+Total
+income tax provision 
+$ 
+109,375 
+$ 
+168,183 
+$ 
+182,434 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as follows: 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State
+income taxes, net of federal benefit 
+3.8 
+3.2 
+3.1 
+Tax
+credits 
+(0.3 
+) 
+(0.3 
+) 
+(0.2 
+) 
+Non-deductible
+expenses 
+0.5 
+0.5 
+0.4 
+Other 
+0.6 
+(0.4 
+) 
+(0.2 
+) 
+Effective
+tax rate 
+39.6 
+% 
+38.0 
+% 
+38.1 
+% 
+42 
+Significant
+components of the Company’s deferred tax assets and liabilities are as follows: 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+7,247 
+$ 
+7,417 
+Pension 
+8,018 
+9,688 
+State
+net operating loss carryforwards 
+484 
+1,165 
+Bad
+debts 
+4,748 
+3,489 
+Accrued
+payroll 
+2,019 
+2,038 
+Stock-based
+compensation 
+5,183 
+4,567 
+Tangible
+property regulations 481(a) 
+7,665 
+— 
+All
+others 
+1,541 
+274 
+Valuation
+allowance 
+(83 
+) 
+(1,003 
+) 
+Gross
+deferred tax assets 
+36,822 
+27,635 
+Deferred
+tax liabilities: 
+Depreciation 
+(165,960 
+) 
+(168,717 
+) 
+Goodwill
+amortization 
+(7,094 
+) 
+(6,394 
+) 
+All
+Others 
+(2,759 
+) 
+(1,754 
+) 
+Gross
+deferred tax liabilities 
+(175,813 
+) 
+(176,865 
+) 
+Net
+deferred tax liabilities 
+$ 
+(138,991 
+) 
+$ 
+(149,230 
+) 
+As
+of December 31, 2013, undistributed earnings of the Company’s foreign subsidiaries amounted to $12.0 million. Those earnings
+are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon.
+Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes
+and withholding taxes payable to the foreign countries. The Company’s current intention is to permanently reinvest funds
+held in our foreign subsidiaries outside of the U.S., with the possible exception of repatriation of funds that have been previously
+subject to U.S. federal and state taxation or when it would be tax effective through the utilization of foreign tax credits, or
+would otherwise create no additional U.S. tax cost. 
+As
+of December 31, 2013, the Company has net operating loss carry forwards related to state income taxes of approximately $11.8 million
+that will expire between 2014 and 2033. As of December 31, 2013 the Company has a valuation allowance of approximately
+$0.1 million, representing the tax affected amount of loss carry forwards that the Company does not expect to utilize, against
+the corresponding deferred tax asset. 
+Total
+net income tax payments were $122,916,000 in 2013, $158,700,000 in 2012, and $90,729,000 in 2011. 
+The
+Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases
+our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The
+Company’s 2010 through 2013 tax years remain open to examination. Additional years may be open to the extent
+attributes are being carried forward to an open year. The Internal Revenue Service (IRS) commenced an examination of
+the Company’s US federal income tax return for the 2011 tax year during the fourth quarter of 2013 that is anticipated to
+be completed by the end of 2014. As of December 31, 2013, the IRS has not proposed any adjustments in connection with
+the examination. 
+In
+accordance with the accounting guidance relating to the accounting for uncertainty in income tax reporting, which provides criteria
+for the recognition, measurement, presentation and disclosure of uncertain tax positions, the Company recognized a significant
+increase in its liability for unrecognized tax benefits in the current year related primarily to refund claims filed for state
+income taxes. 
+A
+reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 
+2013 
+2012 
+Balance
+at January 1 
+$ 
+38,000 
+$ 
+35,000 
+Additions
+based on tax positions related to the current year 
+3,430,000 
+— 
+Additions
+for tax positions of prior years 
+12,877,000 
+3,000 
+Balance
+at December 31 
+$ 
+16,345,000 
+$ 
+38,000 
+43 
+The
+Company’s liability for unrecognized tax benefits as disclosed above, would affect our effective rate if recognized. Additionally,
+interest and penalties related to the unrecognized tax benefits as disclosed above as of December 31, 2013 and December 31, 2012
+amounted to $276,000 and $3,000, respectively. 
+The
+Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued
+interest and penalties were immaterial to the financial statements as of December 31, 2013 and 2012. 
+It
+is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will significantly
+decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under
+or conclusions of ongoing examinations or reviews. However, quantification of an estimated range cannot be made at
+this time. 
+The
+American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013 and included an extension for one year of the
+50% bonus depreciation allowance. The provision specifically applied to qualifying property placed in service before January 1,
+2014. The acceleration of deductions on 2013 qualifying capital expenditures resulting from the bonus depreciation
+provision had no impact on our 2013 effective tax rate. 
+On
+September 23, 2013, the U.S. Department of the Treasury issued final regulations under Internal Revenue Code Sections 162(a) and
+263(a) that provide guidance on the deduction and capitalization of expenditures related to tangible property. These
+regulations will result in our adoption of certain mandatory and elective accounting methods with respect to property and equipment,
+inventory and supplies. The regulations are generally effective for taxable years beginning on or after January 1,
+2014. 
+In
+connection with the issuance of the regulations, RPC has assessed and estimated the impact of the method changes on its financial
+statements. We have estimated favorable IRC Section 481(a) adjustments of approximately $21 million (gross). The
+tax affected amount of the assessment ($7.7 million) has been separately disclosed in our schedule of deferred tax assets and
+liabilities. This amount is subject to change as we finalize our analysis and file method changes under the new regulations
+during 2014. 
+Note
+6: Long-Term Debt 
+In
+August 2010, the Company replaced its $200 million credit facility with a new $350 million revolving credit facility with Banc
+of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers and Joint Book
+Managers, and a syndicate of other lenders. The facility includes a full and unconditional guarantee by the Company’s
+100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPC and its subsidiaries. The
+subsidiaries of the Company that are not guarantors are considered minor. 
+The
+facility has a general term of five years and provides for an unsecured line of credit of up to $350 million, which includes a
+$50 million letter of credit subfacility, and a $25 million swingline subfacility. The maturity date of all revolving
+loans under the Credit Agreement is August 31, 2015. The Company has incurred loan origination fees and other debt
+related costs associated with the Revolving Credit Agreement in the aggregate of $2.3 million. These costs are being
+amortized to interest expense over the five year term of the loan, and the net amount is classified as non-current other assets
+on the consolidated balance sheets. 
+Revolving
+loans under the facility bear interest at one of the following two rates, at the Company’s election: 
+● 
+the Base Rate, which is the highest of Bank of America’s “prime
+rate” for the day of the borrowing, a fluctuating rate per annum equal to the Federal Funds Rate plus 0.50%, and a rate
+per annum equal to the one (1) month LIBOR rate plus 1.00%, in each case plus a margin that ranges from 0.25% to 1.25% based on
+a quarterly debt covenant calculation; or 
+● 
+with respect to any Eurodollar borrowings, Adjusted LIBOR (which equals
+LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve) plus a margin ranging
+from 1.25% to 2.25%, based upon a quarterly debt covenant calculation. 
+In
+addition, the Company pays a commitment fee ranging from 0.25% to 0.35%, based on a quarterly debt covenant calculation, of the
+unused portion of the credit facility. 
+The
+facility contains customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend
+payments, business combinations and other related items. Further, the facility contains financial covenants limiting
+the ratio of the Company’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and limiting the ratio of the Company’s
+consolidated EBITDA to interest expense to no less than 2 to 1. The Company was in compliance with these covenants
+as of and for the year ended December 31, 2013. 
+44 
+As
+of December 31, 2013, RPC has outstanding borrowings of $53.3 million under the facility. Additionally
+there were letters of credit relating to self-insurance programs and contract bids outstanding for $24.1 million as of December
+31, 2013. Interest incurred and paid on the credit facility, interest capitalized related to facilities and equipment
+under construction, and the related weighted average interest rates were as follows for the periods indicated: 
+Years
+Ended December 31, 
+2013 
+2012 
+2011 
+(in
+thousands except interest rate data) 
+Interest
+incurred 
+$ 
+2,090 
+$ 
+2,936 
+$ 
+4,146 
+Capitalized
+interest 
+$ 
+935 
+$ 
+1,026 
+$ 
+627 
+Interest
+paid (net of capitalized interest) 
+$ 
+618 
+$ 
+1,498 
+$ 
+3,168 
+Weighted
+average interest rate 
+3.7 
+% 
+2.3 
+% 
+2.8 
+% 
+Effective
+December 2008 the Company entered into an interest rate swap agreement that effectively converted $50 million of the Company’s
+variable-rate debt to a fixed rate basis, thereby hedging against the impact of potential interest rate changes on future interest
+expense. Under this agreement the Company and the issuing lender settled on a monthly basis for the difference between
+a fixed interest rate of 2.07% and a comparable one month LIBOR rate. This agreement terminated in September 2011. 
+On
+January 17, 2014, the Company amended the Credit Agreement which extended the maturity date of all the revolving loans from August
+31, 2015 to January 17, 2019 (as amended, the “Credit Agreement”.) RPC incurred commitment fees and other
+debt related costs associated with the amendment of approximately $0.7 million. Interest rates on the revolving loans
+under the Credit Agreement are reduced by 0.125% at all pricing levels under the Credit Agreement. The amount of the
+swing line sub-facility under the Credit Agreement has increased from $25 million to $35 million. 
+Note
+7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Foreign
+Currency 
+Translation 
+Total 
+Balance
+at December 31, 2011 
+$ 
+(12,981 
+) 
+$ 
+187 
+$ 
+148 
+$ 
+(12,646 
+) 
+Change
+during 2012: 
+Before-tax
+amount 
+(3,355 
+) 
+(249 
+) 
+180 
+(3,424 
+) 
+Tax
+benefit 
+1,224 
+91 
+85 
+1,400 
+Reclassification
+adjustment, net of taxes: 
+Amortization
+of net loss (1) 
+424 
+— 
+— 
+424 
+Total
+activity in 2012 
+(1,707 
+) 
+(158 
+) 
+265 
+(1,600 
+) 
+Balance
+at December 31, 2012 
+$ 
+(14,688 
+) 
+$ 
+29 
+$ 
+413 
+$ 
+(14,246 
+) 
+Change
+during 2013: 
+Before-tax
+amount 
+6,976 
+(30 
+) 
+(778 
+) 
+6,168 
+Tax
+(expense) benefit 
+(2,546 
+) 
+11 
+— 
+(2,535 
+) 
+Reclassification
+adjustment, net of taxes: 
+Amortization
+of net loss (1) 
+498 
+— 
+— 
+498 
+Total
+activity in 2013 
+4,928 
+(19 
+) 
+(778 
+) 
+4,131 
+Balance
+at December 31, 2013 
+$ 
+(9,760 
+) 
+$ 
+10 
+$ 
+(365 
+) 
+$ 
+(10,115 
+) 
+(1) 
+Reported as part of selling, general and administrative expenses. 
+Note
+8: Fair Value Disclosures 
+The
+various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market
+data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three
+broad levels as follows: 
+1. 
+Level 1 – Quoted market prices in active markets for identical
+assets or liabilities. 
+2. 
+Level 2 – Quoted prices for similar instruments in active markets,
+quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which
+all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the
+full term of the assets or liabilities. 
+3. 
+Level 3 – Unobservable inputs developed using the Company’s
+estimates and assumptions, which reflect those that market participants would use. 
+45 
+The
+following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet
+as of December 31, 2013 and 2012: 
+Fair
+Value Measurements at December 31, 2013 with: 
+(in
+thousands ) 
+Quoted
+prices in active 
+markets for identical 
+assets 
+Significant
+other 
+observable inputs 
+Significant
+unobservable inputs 
+(Level
+1) 
+(Level
+2) 
+(Level
+3) 
+Assets: 
+Trading
+securities 
+$ 
+— 
+$ 
+13,963 
+$ 
+— 
+Available-for-sale
+securities – equity securities 
+$ 
+445 
+$ 
+— 
+$ 
+— 
+Fair
+Value Measurements at December 31, 2012 with: 
+(in
+thousands ) 
+Quoted
+prices in active 
+markets
+for identical 
+assets 
+Significant
+other 
+observable inputs 
+Significant
+unobservable inputs 
+(Level
+1) 
+(Level
+2) 
+(Level
+3) 
+Assets: 
+Trading
+securities 
+$ 
+— 
+$ 
+11,103 
+$ 
+— 
+Available-for-sale
+securities – equity securities 
+$ 
+380 
+$ 
+— 
+$ 
+— 
+The
+Company determines the fair value of the marketable securities that are available-for-sale through quoted market prices. The
+total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading
+day of the period, multiplied by the number of units held without consideration of transaction costs. The trading securities
+are comprised of the SERP assets, as described in Note 10, and are recorded primarily at their net cash surrender values, which
+approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to
+quoted market prices, were used to value the trading securities. As a result, the Company classified these investments as using
+level 2 inputs. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting
+periods. For the year ended December 31, 2013 there were no significant transfers in or out of levels 1, 2 or 3. 
+At
+December 31, 2013 and 2012, amounts outstanding under the Company’s credit facility were $53,300,000 and $107,000,000 and
+based on quotes from the lender (level 2 inputs) is similar to the fair values of these amounts at the respective dates. The
+borrowings under our revolving credit facility bear interest at the variable rate described in Note 6. The Company
+is subject to interest rate risk on the variable component of the interest rate. 
+The
+carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate
+their fair values because of the short maturity of these instruments. The Company currently does not use the fair value
+option to measure any of its existing financial instruments and has not determined whether or not it will elect this option for
+financial instruments it may acquire in the future. 
+Note
+9: Commitments and Contingencies 
+Lease
+Commitments - Minimum annual rentals, principally for noncancelable real estate and equipment leases with terms in excess
+of one year, in effect at December 31, 2013, are summarized in the following table: 
+(in
+thousands) 
+2014 
+$ 
+8,984 
+2015 
+7,664 
+2016 
+4,929 
+2017 
+2,989 
+2018 
+2,231 
+Thereafter 
+5,991 
+Total
+rental commitments 
+$ 
+32,788 
+Total
+rental expense, including short-term rentals, charged to operations was $20,582,000 in 2013, $18,224,000 in 2012, $19,814,000
+in 2011. 
+Income
+Taxes - The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which
+often result in proposed assessments. 
+46 
+Sales
+and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying
+interpretations of statute that could result in unfavorable outcomes. Any probable and estimable assessment costs are
+included in accrued state, local and other taxes. 
+Litigation
+- RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims
+and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance
+can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising
+out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings
+and claims cannot be predicted with certainty, management, after consultation with legal counsel, believes that the outcome of
+all such proceedings, even if determined adversely, would not have a material adverse effect on the Company’s business or
+financial condition. 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at
+age 65 to substantially all employees with at least one year of service prior to 2002. During 2001, the plan became
+a multiple employer plan, with Marine Products Corporation as an adopting employer. 
+The
+Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $5.1 million
+and thus the plan was under-funded as of December 31, 2013. 
+The
+following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated
+balance sheets: 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+Accumulated
+Benefit Obligation at end of year 
+$ 
+37,528 
+$ 
+42,699 
+CHANGE
+IN PROJECTED BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+42,699 
+$ 
+38,278 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,741 
+1,869 
+Amendments 
+— 
+— 
+Actuarial
+loss 
+(5,199 
+) 
+4,221 
+Benefits
+paid 
+(1,713 
+) 
+(1,669 
+) 
+Projected
+benefit obligation at end of year 
+$ 
+37,528 
+$ 
+42,699 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+29,519 
+$ 
+24,180 
+Actual
+return on plan assets 
+3,820 
+2,712 
+Employer
+contribution 
+800 
+4,296 
+Benefits
+paid 
+(1,713 
+) 
+(1,669 
+) 
+Fair
+value of plan assets at end of year 
+32,426 
+29,519 
+Funded
+status at end of year 
+$ 
+(5,102 
+) 
+$ 
+(13,180 
+) 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+AMOUNTS
+RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent
+assets 
+$ 
+— 
+$ 
+— 
+Current
+liabilities 
+— 
+— 
+Noncurrent
+liabilities 
+(5,102 
+) 
+(13,180 
+) 
+$ 
+(5,102 
+) 
+$ 
+(13,180 
+) 
+47 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+AMOUNTS
+(PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF: 
+Net
+loss (gain) 
+$ 
+15,369 
+$ 
+23,129 
+Prior
+service cost (credit) 
+— 
+— 
+Net
+transition obligation (asset) 
+— 
+— 
+$ 
+15,369 
+$ 
+23,129 
+The
+accumulated benefit obligation for the Retirement Income Plan at December 31, 2013 and 2012 has been disclosed above. The
+Company uses a December 31 measurement date for this qualified plan. 
+Amounts
+recognized in the consolidated balance sheets consist of: 
+December
+31, 
+2013 
+2012 
+(in
+thousands) 
+Funded
+status 
+$ 
+(5,102 
+) 
+$ 
+(13,180 
+) 
+SERP
+liability 
+(16,864 
+) 
+(13,363 
+) 
+Long-term
+pension liability 
+$ 
+(21,966 
+) 
+$ 
+(26,543 
+) 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement
+Income Security Act of 1974. Amounts contributed to the plan totaled $800,000 in 2013 and $4,296,000 in 2012. 
+The
+components of net periodic benefit cost are summarized as follows: 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest
+cost on projected benefit obligation 
+1,741 
+1,869 
+1,916 
+Expected
+return on plan assets 
+(2,043 
+) 
+(1,846 
+) 
+(1,831 
+) 
+Amortization
+of net loss 
+784 
+667 
+463 
+Net
+periodic benefit plan cost 
+$ 
+482 
+$ 
+690 
+$ 
+548 
+The
+Company recognized pre-tax (increases) decreases to the funded status in accumulated other comprehensive loss of $(7,760,000)
+in 2013, $2,688,000 in 2012 and $4,800,000 in 2011. There were no previously unrecognized prior service costs as of
+December 31, 2013, 2012 and 2011. The pre-tax amounts recognized in accumulated other comprehensive loss for the years
+ended December 31, 2013, 2012 and 2011 are summarized as follows: 
+(in
+thousands) 
+2013 
+2012 
+2011 
+Net
+(gain) loss 
+$ 
+(6,976 
+) 
+$ 
+3,355 
+$ 
+5,263 
+Amortization
+of net loss 
+(784 
+) 
+(667 
+) 
+(463 
+) 
+Net
+transition obligation (asset) 
+— 
+— 
+— 
+Amount
+recognized in accumulated other comprehensive loss 
+(7,760 
+) 
+$ 
+2,688 
+$ 
+4,800 
+The
+amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2014 are
+as follows: 
+(in
+thousands) 
+2014 
+Amortization
+of net loss 
+$ 
+484 
+Prior
+service cost (credit) 
+— 
+Net
+transition obligation (asset) 
+— 
+Estimated
+net periodic benefit plan cost 
+$ 
+484 
+48 
+The
+weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as
+follows: 
+December
+31, 
+2013 
+2012 
+2011 
+Projected
+Benefit Obligation : 
+Discount
+rate 
+5.20 
+% 
+4.16 
+% 
+5.00 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+4.16 
+% 
+5.00 
+% 
+5.49 
+% 
+Expected
+return on plan assets 
+7.00 
+% 
+7.00 
+% 
+7.00 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management
+and its investment advisor. It includes a review of anticipated future long-term performance of individual asset classes and consideration
+of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings
+expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration
+to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective
+view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of seven
+percent is reasonable. 
+The
+plan’s weighted average asset allocation at December 31, 2013 and 2012 by asset category along with the target allocation
+for 2014 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2014 
+Percentage
+of 
+Plan
+Assets as of 
+December
+31, 
+2013 
+Percentage
+of 
+Plan
+Assets as of 
+December
+31, 
+2012 
+Cash
+and Cash Equivalents 
+0% - 5 
+% 
+0.6 
+% 
+0.2 
+% 
+Debt
+Securities – Core Fixed Income 
+15% - 50 
+% 
+25.3 
+% 
+20.2 
+% 
+Tactical
+– Fund of Equity and Debt Securities 
+— 
+— 
+15.1 
+% 
+Domestic
+Equity Securities 
+0% - 30 
+% 
+26.6 
+% 
+15.2 
+% 
+Global
+Equity Securities 
+— 
+— 
+16.0 
+% 
+International
+Equity Securities 
+0% - 30 
+% 
+31.4 
+% 
+15.1 
+% 
+Real
+Estate 
+0% - 20 
+% 
+8.3 
+% 
+9.2 
+% 
+Real
+Return 
+0%
+- 20 
+% 
+7.8
+% 
+9.0
+% 
+Total 
+100
+% 
+100.0
+% 
+100.0
+% 
+The
+Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth
+and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers. 
+Equity securities primarily include investments in large-cap and small-cap companies domiciled domestically and internationally. Fixed-income
+securities include corporate bonds, mortgage-backed securities, sovereign bonds, and U.S. Treasuries. Other types of investments
+include real estate funds and private equity funds that follow several different investment strategies. For each of
+the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on
+plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment
+policy establishes a target allocation for each asset class which is rebalanced as required. The plans utilize a number
+of investment approaches, including but not limited to individual market securities, equity and fixed income funds in which the
+underlying securities are marketable, and debt funds to achieve this target allocation. The Company expects to contribute
+approximately $765,000 to the pension plan during fiscal year 2014. 
+Some
+of our assets, primarily our private equity and real estate funds, do not have readily determinable market values given the specific
+investment structures involved and the nature of the underlying investments. For the December 31, 2013 plan asset
+reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates
+were derived from investment manager statements combined with discussions focusing on underlying fundamentals and significant
+events. Additionally, these investments are categorized as level 3 investments and are valued using significant non-observable
+inputs which do not have a readily determinable fair value. In accordance with ASU No. 2009-12 “Investments In Certain
+Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset
+value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and
+assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The
+Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions
+by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+The
+following tables present our plan assets using the fair value hierarchy as of December 31, 2013 and December 31, 2012. The
+fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note
+8 for a brief description of the three levels under the fair value hierarchy. 
+49 
+Fair
+Value Hierarchy as of December 31, 2013: 
+Investments
+( in thousands ) 
+Total 
+Level
+1 
+Level
+2 
+Level
+3 
+Cash
+and Cash Equivalents 
+(1 
+) 
+$ 
+210 
+$ 
+210 
+$ 
+— 
+$ 
+— 
+Fixed
+Income Securities 
+(2 
+) 
+8,201 
+— 
+8,201 
+— 
+Domestic
+Equity Securities 
+8,590 
+8,590 
+— 
+— 
+Global
+Equity Securities 
+— 
+— 
+— 
+— 
+International
+Equity Securities 
+(3 
+) 
+10,192 
+— 
+10,192 
+— 
+Tactical
+Composite 
+(4 
+) 
+— 
+— 
+— 
+— 
+Real
+Estate 
+(5 
+) 
+2,705 
+— 
+— 
+2,705 
+Real
+Return 
+(6 
+) 
+2,528 
+— 
+2,528 
+— 
+$ 
+32,426 
+$ 
+8,800 
+$ 
+20,921 
+$ 
+2,705 
+Fair
+Value Hierarchy as of December 31, 2012: 
+Investments
+( in thousands ) 
+Total 
+Level
+1 
+Level
+2 
+Level
+3 
+Cash
+and Cash Equivalents 
+(1 
+) 
+$ 
+61 
+$ 
+61 
+$ 
+— 
+$ 
+— 
+Fixed
+Income Securities 
+(2 
+) 
+5,959 
+— 
+5,959 
+— 
+Domestic
+Equity Securities 
+4,475 
+4,475 
+— 
+— 
+Global
+Equity Securities 
+4,446 
+4,446 
+— 
+— 
+International
+Equity Securities 
+(3 
+) 
+4,737 
+2,205 
+2,532 
+— 
+Tactical
+Composite 
+(4 
+) 
+4,454 
+— 
+4,454 
+— 
+Real
+Estate 
+(5 
+) 
+2,730 
+— 
+— 
+2,730 
+Real
+Return 
+(6 
+) 
+2,657 
+— 
+2,657 
+— 
+$ 
+29,519 
+$ 
+11,187 
+$ 
+15,602 
+$ 
+2,730 
+(1) 
+Cash and cash equivalents, which are used to pay benefits and plan
+administrative expenses, are held in Rule 2a-7 money market funds. 
+(2) 
+Fixed income securities are primarily valued using a market approach
+with inputs that include broker quotes, benchmark yields, base spreads and reported trades. 
+(3) 
+Some international equity securities are valued using a market approach
+based on the quoted market prices of identical instruments in their respective markets. 
+(4) 
+Tactical composite funds invest in stocks, bonds and cash, both domestic
+and international. These assets are valued primarily using a market approach based on the quoted market prices of identical
+instruments in their respective markets. 
+(5) 
+Real estate fund values are primarily reported by the fund manager
+and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent
+appraisals and market based comparable data. 
+(6) 
+Real return funds invest in global equities, commodities and inflation
+protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments
+in their respective markets. 
+The
+following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2013: 
+Investments
+( in thousands ) 
+Balance
+at December 31, 2012 
+Net
+Realized and 
+Unrealized 
+Gains/(Losses) 
+Net
+Purchases, Issuances and Settlements 
+Net
+Transfers 
+In to (Out 
+of) Level 3 
+Balance
+at December 31, 2013 
+Real
+Estate 
+$ 
+2,730 
+$ 
+217 
+$ 
+(242 
+) 
+$ 
+— 
+$ 
+2,705 
+The
+following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2012: 
+Investments
+( in thousands ) 
+Balance
+at December 31, 2011 
+Net
+Realized and 
+Unrealized 
+Gains/(Losses) 
+Net
+Purchases, Issuances and Settlements 
+Net
+Transfers 
+In to (Out 
+of) Level 3 
+Balance
+at December 31, 2012 
+Real
+Estate 
+$ 
+1,350 
+$ 
+365 
+$ 
+1,015 
+$ 
+— 
+$ 
+2,730 
+The
+Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows: 
+(in
+thousands) 
+2014 
+$ 
+1,896 
+2015 
+1,989 
+2016 
+2,189 
+2017 
+2,254 
+2018 
+2,346 
+2019-2023 
+12,614 
+50 
+Supplemental
+Executive Retirement Plan (SERP) 
+The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The
+SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source to satisfy
+the obligations of the SERP. The assets are subject to claims by creditors, and the Company can designate them
+to another purpose at any time. Investments in COLI policies consisted of $47.4 million in variable life insurance
+policies as of December 31, 2013 and $44.3 million as of December 31, 2012. In the COLI policies, the Company is able
+to allocate investment of the assets across a set of choices provided by the insurance company, including fixed income securities
+and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided
+by the issuing insurance company, whose Standard & Poor’s credit rating was A+. 
+The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets
+totaled $13,963,000 as of December 31, 2013 and $11,103,000 as of December 31, 2012. The SERP assets are reported in
+other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in
+the consolidated statement of operations as part of other income (expense), net. Trading gains (losses) related to the SERP assets
+totaled $2,026,000 in 2013, $1,352,000 in 2012, and $(194,000) for 2011. The SERP liability is recorded on the balance
+sheet in long-term pension liabilities with any change in the fair value of the liabilities recorded as compensation cost within
+selling, general and administrative expenses in the statement of operations. 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than three months
+of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation,
+not exceeding the permissible contribution imposed by the Internal Revenue Code. RPC matches 50 percent of each employee’s
+contributions that do not exceed six percent of the employee’s compensation, as defined by the plan. Employees vest in the
+RPC contributions after three years of service. The charges to expense for the Company’s contributions to the 401(k) plan
+were $5,451,000 in 2013, $5,088,000 in 2012, and $4,074,000 in 2011. 
+Stock
+Incentive Plans 
+The
+Company has issued stock options and restricted stock to employees under two 10 year stock incentive plans that were approved
+by stockholders in 1994 and 2004. The 1994 plan expired in 2004. The Company reserved 7,593,750 shares of
+common stock under the 2004 Plan which expires in 2014. This plan provides for the issuance of various forms of stock
+incentives, including, among others, incentive and non-qualified stock options and restricted stock which are discussed in detail
+below. As of December 31, 2013, there were 1,355,431 shares available for grants. 
+The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service
+period. The compensation cost recorded for these awards is based on their fair value at the grant date less the cost of estimated
+forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual
+forfeitures. Cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized
+cumulative compensation cost (excess tax benefits) are classified as a financing activity in the accompanying consolidated statements
+of cash flows. 
+Pre-tax
+stock-based employee compensation expense was $8,177,000 in 2013 ($5,192,000 after tax), $7,860,000 in 2012 ($4,991,000 after
+tax) and $8,075,000 in 2011 ($5,128,000 after tax). 
+Stock
+Options 
+Stock
+options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant
+except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which
+must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably
+over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent
+of the Company’s voting securities, which expire in five years. 
+The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing
+model. The Company has not granted stock options to employees since 2003. 
+There
+were no stock options exercised during 2013 and there have been no stock options outstanding since December 31, 2012. The
+total intrinsic value of stock options exercised was $7,467,000 during 2012 and $11,882,000 during 2011. Tax benefits
+associated with the exercise of stock options exercised totaled $431,000 during 2012 and $799,000 during 2011 and were credited
+to capital in excess of par value and are classified as financing cash flows. 
+51 
+Restricted
+Stock 
+The
+Company has granted employees time lapse restricted stock which vest after a stipulated number of years from the grant date, depending
+on the terms of the issue. Time lapse restricted shares issued vest in 20 percent increments annually starting with the second
+anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting
+rights for the granted shares. The agreement under which the restricted stock is issued provides that shares awarded
+may not be sold or otherwise transferred until restrictions or, established under the stock plans have lapsed. Upon
+termination of employment from RPC (other than due to death, disability or retirement on or after age 65), shares with restrictions
+must be returned to the Company. 
+The
+following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2013: 
+Shares 
+Weighted
+Average Grant- 
+Date
+Fair Value 
+Non-vested
+shares at January 1, 2013 
+4,494,191 
+$ 
+8.12 
+Granted 
+850,500 
+13.68 
+Vested 
+(1,078,534 
+) 
+6.36 
+Forfeited 
+(151,357 
+) 
+9.72 
+Non-vested
+shares at December 31, 2013 
+4,114,800 
+$ 
+9.67 
+The
+fair value of restricted share awards is based on the market price of the Company’s stock on the date of the grant and is
+amortized to compensation expense on a straight-line basis over the requisite service period. The weighted average
+grant date fair value of these restricted stock awards was $13.68 for 2013, $11.69 for 2012 and $11.59 for 2011. The
+total fair value of shares vested was $15,471,000 during 2013, $10,695,000 during 2012 and $11,861,000 during 2011. The
+tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating
+$3,178,000 for 2013, $2,293,000 for 2012 and $2,572,000 for 2011. The excess tax deductions are classified as a financing
+activity in the accompanying consolidated statements of cash flows. 
+Other
+Information 
+As
+of December 31, 2013, total unrecognized compensation cost related to non-vested restricted shares was $34,614,000 which is expected
+to be recognized over a weighted-average period of 3.2 years. As of December 31, 2013, there was no unrecognized compensation
+cost related to non-vested stock options. 
+The
+Company received cash from options exercised of $544,000 during 2012 and $728,000 during 2011. These cash receipts are classified
+as a financing activity in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise
+employee stock options totaled $377,000 during 2012 and $720,000 during 2011 and have been excluded from the consolidated statements
+of cash flows. 
+Note
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former
+powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding
+stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly
+owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction
+with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative
+services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges
+from the Company (or from corporations that are subsidiaries of the Company) for such services were $670,000 in 2013, $544,000
+in 2012, and $639,000 in 2011. The Company’s receivable due from Marine Products for these services was $145,000 as of December
+31, 2013 and $94,000 as of December 31, 2012. The Company’s directors are also directors of Marine Products and
+all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant
+officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were $1,039,000
+in 2013, $1,676,000 in 2012 and $1,469,000 in 2011. 
+RPC
+receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins
+is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the
+Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The
+services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative
+services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$83,000 in 2013 and 2012, and $102,000 in 2011. 
+52 
+A
+group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also
+a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
+voting power. 
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services segments — Technical Services and Support Services
+— because of the similarities between the financial performance and approach to managing the service lines within each of
+the segments, as well as the economic and business conditions impacting their business activity levels. Corporate includes
+selected administrative costs incurred by the Company. 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production
+and maintenance services directly to a customer’s well. These services include pressure pumping services, coiled tubing,
+snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services. These
+Technical Services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets
+for this segment include the United States, including the Gulf of Mexico, the mid-continent, southwest, Rocky Mountain and Appalachian
+regions, and international locations including primarily Africa, Canada, China, Latin America, the Middle East and New Zealand.
+Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist
+customer operations. The equipment and services include drill pipe and related tools, pipe handling, inspection and storage services,
+and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity
+levels. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent and
+Appalachian regions, and international locations, including primarily Canada, Latin America, and the Middle East. Customers include
+domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+The
+accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements.
+RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains
+or losses on disposition of assets are reviewed by the Company’s chief decision maker on a consolidated basis, and accordingly
+the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in
+segment operating results at prices that management believes approximate prices for arm’s length transactions and are not
+material to operating results. 
+53 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended December 31, 2013, 2012 and 2011 are shown
+in the following table: 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+Loss
+on 
+disposition
+of assets, 
+net 
+Total 
+(in
+thousands) 
+2013 
+Revenues 
+$ 
+1,729,732 
+$ 
+131,757 
+$ 
+— 
+$ 
+— 
+$ 
+1,861,489 
+Operating
+profit (loss) 
+276,246 
+26,223 
+(17,685 
+) 
+(9,371 
+) 
+275,413 
+Capital
+expenditures 
+167,586 
+32,250 
+1,845 
+— 
+201,681 
+Depreciation
+and amortization 
+181,026 
+31,417 
+685 
+— 
+213,128 
+Identifiable
+assets 
+1,113,877 
+202,243 
+67,740 
+— 
+1,383,860 
+2012 
+Revenues 
+$ 
+1,794,015 
+$ 
+151,008 
+$ 
+— 
+$ 
+— 
+$ 
+1,945,023 
+Operating
+profit (loss) 
+420,231 
+45,912 
+(17,654 
+) 
+(6,099 
+) 
+442,390 
+Capital
+expenditures 
+277,686 
+46,053 
+5,197 
+— 
+328,936 
+Depreciation
+and amortization 
+183,762 
+30,707 
+430 
+— 
+214,899 
+Identifiable
+assets 
+1,128,124 
+175,611 
+63,428 
+— 
+1,367,163 
+2011 
+Revenues 
+$ 
+1,663,793 
+$ 
+146,014 
+$ 
+— 
+$ 
+— 
+$ 
+1,809,807 
+Operating
+profit (loss) 
+451,259 
+51,672 
+(17,019 
+) 
+(3,831 
+) 
+482,081 
+Capital
+expenditures 
+369,568 
+42,837 
+3,995 
+— 
+416,400 
+Depreciation
+and amortization 
+152,252 
+27,464 
+189 
+— 
+179,905 
+Identifiable
+assets 
+1,103,341 
+177,974 
+56,896 
+— 
+1,338,211 
+The
+following summarizes selected information between the United States and all international locations combined for the years ended
+December 31, 2013, 2012 and 2011. The revenues are presented based on the location of the use of the product or service. Assets
+related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented. 
+Years
+ended December 31, 
+2013 
+2012 
+2011 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+1,795,592 
+$ 
+1,870,815 
+$ 
+1,757,661 
+International
+Revenues 
+65,897 
+74,208 
+52,146 
+$ 
+1,861,489 
+$ 
+1,945,023 
+$ 
+1,809,807 
+54 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+None. 
+Item
+9A. Controls and Procedures 
+Evaluation
+of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to
+ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within
+the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated
+to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
+regarding required disclosure. 
+As
+of the end of the period covered by this report, December 31, 2013 (the “Evaluation Date”), the Company carried out
+an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief
+Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based
+upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure
+controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s
+report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate
+internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s
+report on internal control over financial reporting is included on page 29 of this report. Grant Thornton LLP, the
+Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December
+31, 2013 and issued a report thereon which is included on page 30 of this report. 
+Changes
+in internal control over financial reporting — Management’s evaluation of changes in internal control did not
+identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s
+most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal
+control over financial reporting. 
+Item
+9B. Other Information 
+None. 
+PART
+III 
+Item
+10. Directors, Executive Officers and Corporate Governance 
+Information
+concerning directors and executive officers will be included in the RPC Proxy Statement for its 2014 Annual Meeting of Stockholders,
+in the section titled “Election of Directors.” This information is incorporated herein by reference. Information about
+executive officers is contained on page 13 of this document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement
+for its 2014 Annual Meeting of Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees
+and Meetings – Audit Committee.” This information is incorporated herein by reference. 
+Code
+of Ethics 
+RPC,
+Inc. has a Code of Business Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and
+Ethics for Directors and Executive Officers and Related Party Transaction Policy. Both of these documents are available on the
+Company’s Web site at www.rpc.net. Copies are available at no charge by writing to Attention: Human Resources,
+RPC, Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta GA 30329. 
+RPC,
+Inc. intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision
+of its code that relates to any elements of the code of ethics definition enumerated in SEC rules by posting such information
+on its internet website, the address of which is provided above. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting
+Compliance” in the Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders, which is incorporated herein
+by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning director and executive compensation will be included in the RPC Proxy Statement for its 2014 Annual Meeting of Stockholders,
+in the sections titled “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,”
+“Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.”
+This information is incorporated herein by reference. 
+Item
+12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Information
+concerning security ownership will be included in the RPC Proxy Statement for its 2014 Annual Meeting of Stockholders, in the
+sections “Capital Stock” and “Election of Directors.” This information is incorporated herein by reference. 
+55 
+Securities
+Authorized for Issuance Under Equity Compensation Plans 
+The
+following table sets forth certain information regarding equity compensation plans as of December 31, 2013. 
+Plan
+Category 
+(A) 
+Number
+of Securities To 
+Be
+Issued Upon Exercise of 
+Outstanding
+Options, 
+Warrants
+and Rights 
+(B) 
+Weighted
+Average Exercise Price of 
+Outstanding
+Options, Warrants and 
+Rights 
+(C) 
+Number
+of Securities Remaining 
+Available
+for Future Issuance 
+Under
+Equity Compensation 
+Plans
+(Excluding Securities 
+Reflected
+in Column (A)) 
+Equity
+compensation plans approved by securityholders 
+— 
+$ — 
+1,355,431 
+(1) 
+Equity
+compensation plans not approved by securityholders 
+— 
+— 
+— 
+Total 
+— 
+$ — 
+1,355,431 
+(1) 
+All of the securities can be issued in the form of restricted stock
+or other stock awards. 
+See
+Note 10 to the Consolidated Financial Statements for information regarding the material terms of the equity compensation plans. 
+Item
+13. Certain Relationships and Related Party Transactions and Director Independence 
+Information
+concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2014 Annual
+Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information
+regarding director independence will be included in the RPC Proxy Statement for its 2014 Annual Meeting of Stockholders in the
+section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by
+reference. 
+Item
+14. Principal Accounting Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section titled “Independent Registered Public Accounting
+Firm” in the RPC Proxy Statement for its 2014 Annual Meeting of Stockholders. This information is incorporated herein by
+reference. 
+56 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated
+Financial Statements, Financial Statement Schedule and Exhibits 
+1.  
+Consolidated financial statements listed in the accompanying Index
+to Consolidated Financial Statements and Schedule are filed as part of this report. 
+2.  
+The financial statement schedule listed in the accompanying Index to
+Consolidated Financial Statements and Schedule is filed as part of this report. 
+3.  
+Exhibits listed in the accompanying Index to Exhibits are filed as
+part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1  
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix
+B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.6  
+Form of time restricted stock grant agreement (incorporated herein
+by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004). 
+10.7  
+Form of performance restricted stock grant agreement (incorporated
+herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004). 
+10.8 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit
+10.11 to the Form 10-K filed on March 16, 2005). 
+10.9 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock
+Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.10 
+Performance-Based Incentive Cash Compensation Plan (incorporated by
+reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.11 
+Summary of Compensation Arrangements with Executive Officers (incorporated
+herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.14 
+Form of Time Lapse Restricted Stock Agreement (incorporated herein
+by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012). 
+10.15 
+Summary of Compensation Arrangements with Non-Employee Directors (incorporated
+herein by reference to Exhibit 10.18 to the Form 10-K filed on March 1, 2013). 
+57 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for
+the fiscal year ended December 31, 1999). 
+3.1B 
+Certificate
+of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report
+on Form 10-Q filed May 8, 2006). 
+3.1C 
+Certificate
+of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(C) to the Quarterly Report
+on Form 10-Q filed August 2, 2011). 
+3.2 
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 8-K filed on October 25, 2007). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31,
+1998). 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed
+on March 24, 2004). 
+10.2 
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001). 
+10.3 
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated
+herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001). 
+10.4 
+Transition
+Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein
+by reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001). 
+10.5 
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference
+to Exhibit 10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November
+2, 2004). 
+10.7 
+Form
+of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November
+2, 2004). 
+10.8 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.9 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14
+to the Form 10-K filed on March 2, 2007). 
+10.10 
+Performance-Based
+Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.11 
+Summary
+of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed
+on March 3, 2010). 
+10.12 
+Credit
+Agreement dated August 31, 2010 between the Company, Banc of America, N.A., SunTrust Bank, Regions Bank and certain other lenders
+party thereto (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on September 7, 2010). 
+10.13 
+Amendment
+and No. 1 to Credit Agreement dated as of June 16, 2011 between the Company, the Subsidiary Loan Parties party thereto, Bank of
+America, N.A. and certain other lenders party thereto (incorporated herein by reference to Exhibit 10.16 to the Form 10-K filed
+on February 29, 2012 ). 
+10.14 
+Form
+of Time Lapse Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012). 
+10.15 
+Summary
+of Compensation Arrangements with Non-Employee Directors (incorporated herein by reference to Exhibit 10.18 to the Form 10-K filed
+on March 1, 2013). 
+10.16 
+Amendment
+No. 2 to Credit Agreement and Amendment No. 1 to Subsidiary Guaranty Agreement dated as of January 17, 2014 between RPC, Bank
+of America, N.A., certain other Lenders party thereto, and the Subsidiary Loan Parties party thereto (incorporated herein by reference
+to Exhibit 99.1 to the Company’s Form 8-K dated January 17, 2014 ). 
+21 
+Subsidiaries
+of RPC 
+23 
+Consent
+of Grant Thornton LLP 
+24 
+Powers
+of Attorney for Directors 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial Officer 
+95.1 
+Mine
+Safety Disclosure 
+101.INS 
+XBRL
+Instance Document 
+101.SCH 
+XBRL
+Taxonomy Extension Schema Document 
+101.CAL 
+XBRL
+Taxonomy Extension Calculation Linkbase Document 
+101.LAB 
+XBRL
+Taxonomy Extension Label Linkbase Document 
+101.PRE 
+XBRL
+Taxonomy Extension Presentation Linkbase Document 
+101.DEF 
+XBRL
+Taxonomy Extension Definition Linkbase Document 
+58 
+SIGNATURES 
+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. 
+RPC,
+Inc. 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+February
+28, 2014 
+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. 
+Name 
+Title 
+Date 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+February
+28, 2014 
+/s/
+Ben M. Palmer 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+February
+28, 2014 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering
+him to sign this report on their behalf. 
+R.
+Randall Rollins, Director 
+James
+A. Lane, Jr., Director 
+Gary
+W. Rollins, Director 
+Linda
+H. Graham, Director 
+Henry
+B. Tippie, Director 
+Bill
+J. Dismuke, Director 
+James
+B. Williams, Director 
+Larry
+L. Prince, Director 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+February
+28, 2014 
+59 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The
+following documents are filed as part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management’s
+Report on Internal Control Over Financial Reporting 
+29 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+30 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+31 
+Consolidated
+Balance Sheets as of December 31, 2013 and 2012 
+32 
+Consolidated
+Statements of Operations for the three years ended December 31, 2013 
+33 
+Consolidated
+Statements of Comprehensive Income for the three years ended December 31, 2013 
+34 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31, 2013 
+35 
+Consolidated
+Statements of Cash Flows for the three years ended December 31, 2013 
+36 
+Notes
+to Consolidated Financial Statements 
+37
+- 54 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying Accounts 
+60 
+Schedules
+not listed above have been omitted because they are not applicable or the required information is included in the consolidated
+financial statements or notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+For
+the years ended 
+December
+31, 2013, 2012 and 2011 
+(in
+thousands) 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net
+(Deductions) 
+Recoveries 
+Balance 
+at
+End of 
+Period 
+Year
+ended December 31, 2013 
+Allowance
+for doubtful accounts 
+$ 
+9,110 
+$ 
+8,815 
+$ 
+(4,428 
+) (1) 
+$ 
+13,497 
+Deferred
+tax asset valuation allowance 
+$ 
+1,003 
+$ 
+— 
+$ 
+(920 
+) (2) 
+$ 
+83 
+Year
+ended December 31, 2012 
+Allowance
+for doubtful accounts 
+$ 
+8,093 
+$ 
+1,784 
+$ 
+(767 
+) (1) 
+$ 
+9,110 
+Deferred
+tax asset valuation allowance 
+$ 
+1,295 
+$ 
+— 
+$ 
+(292 
+) (2) 
+$ 
+1,003 
+Year
+ended December 31, 2011 
+Allowance
+for doubtful accounts 
+$ 
+8,694 
+$ 
+2,868 
+$ 
+(3,469 
+) (1) 
+$ 
+8,093 
+Deferred
+tax asset valuation allowance 
+$ 
+1,295 
+$ 
+— 
+$ 
+— 
+$ 
+1,295 
+(1) 
+Net (deductions) recoveries in the allowance for doubtful accounts
+principally reflect the write-off of previously reserved accounts net of recoveries. 
+(2) 
+The valuation allowance for deferred tax assets is increased or decreased
+each year to reflect the state net operating losses that management believes will not be utilized before they expire. 
+60 
+SELECTED QUARTERLY
+FINANCIAL DATA (UNAUDITED) 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+2013 
+Revenues 
+$ 
+425,821 
+$ 
+457,566 
+$ 
+491,121 
+$ 
+486,981 
+Operating
+profit 
+$ 
+57,219 
+$ 
+67,853 
+$ 
+85,839 
+$ 
+64,502 
+Net
+income 
+$ 
+35,076 
+$ 
+40,416 
+$ 
+53,760 
+$ 
+37,643 
+Net
+income per share — basic (a) 
+$ 
+0.16 
+$ 
+0.19 
+$ 
+0.25 
+$ 
+0.18 
+Net
+income per share — diluted (a) 
+$ 
+0.16 
+$ 
+0.19 
+$ 
+0.25 
+$ 
+0.17 
+2012 
+Revenues 
+$ 
+502,557 
+$ 
+500,106 
+$ 
+472,418 
+$ 
+469,942 
+Operating
+profit 
+$ 
+130,857 
+$ 
+119,858 
+$ 
+102,368 
+$ 
+89,307 
+Net
+income 
+$ 
+80,755 
+$ 
+72,260 
+$ 
+66,040 
+$ 
+55,381 
+Net
+income per share — basic (a) 
+$ 
+0.37 
+$ 
+0.34 
+$ 
+0.31 
+$ 
+0.26 
+Net
+income per share — diluted (a) 
+$ 
+0.37 
+$ 
+0.33 
+$ 
+0.30 
+$ 
+0.26 
+(a) 
+The sum of the income per share for the four quarters may differ from
+annual amounts due to the required method of computing the weighted average shares for the respective periods. 
+61
\ No newline at end of file
diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/filing_metadata.csv b/raw/filings/0000742278/2013/0001188112-14-000518/filing_metadata.csv
new file mode 100644
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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2014-02-28,2013-12-31,2014-02-28T18:58:49.000Z,0001188112-14-000518,t78386_10k.htm,FORM 10-K,12247959,1,0,https://www.sec.gov/Archives/edgar/data/742278/000118811214000518/t78386_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811214000518/,2013,2013,1
diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/item1.txt b/raw/filings/0000742278/2013/0001188112-14-000518/item1.txt
new file mode 100644
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diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/item13.txt b/raw/filings/0000742278/2013/0001188112-14-000518/item13.txt
new file mode 100644
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diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/item9a.txt b/raw/filings/0000742278/2013/0001188112-14-000518/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/rp_note.txt b/raw/filings/0000742278/2013/0001188112-14-000518/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..673dacba3c2fac377254e37607fcb7f3d86d9fca
--- /dev/null
+++ b/raw/filings/0000742278/2013/0001188112-14-000518/rp_note.txt
@@ -0,0 +1,34 @@
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former
+powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding
+stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly
+owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction
+with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative
+services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges
+from the Company (or from corporations that are subsidiaries of the Company) for such services were $670,000 in 2013, $544,000
+in 2012, and $639,000 in 2011. The Company’s receivable due from Marine Products for these services was $145,000 as of December
+31, 2013 and $94,000 as of December 31, 2012. The Company’s directors are also directors of Marine Products and
+all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant
+officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were $1,039,000
+in 2013, $1,676,000 in 2012 and $1,469,000 in 2011. 
+RPC
+receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins
+is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the
+Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The
+services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative
+services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$83,000 in 2013 and 2012, and $102,000 in 2011. 
+52 
+A
+group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also
+a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
+voting power. 
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2013/0001188112-14-000518/rpt_disclosure.txt b/raw/filings/0000742278/2013/0001188112-14-000518/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..37b6e08a3e07855ff618467a5d30191f498747de
--- /dev/null
+++ b/raw/filings/0000742278/2013/0001188112-14-000518/rpt_disclosure.txt
@@ -0,0 +1,8 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months’ notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $663,000 in 2014. 
+During the year ended December 31, 2014, RPC and Marine Products entered into a joint venture creating a limited liability company called 255 RC, LLC, that is owned 50 percent each for the purchase and ownership of a corporate aircraft. 255 RC, LLC was funded with a contribution of approximately $2,554,000 each from RPC and Marine Products. The purchase of the aircraft was completed in January 2015 and each of RPC and Marine Products have entered into an operating lease agreement with 255 RC, LLC for a period of five years. 
+During 2014, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2014, payments totaling approximately $1,092,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred are at least as favorable as the charges that would have been incurred for similar purchases from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $84,000 in 2014. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+27 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2014 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code.
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+10-K
+1
+v88494e10vk.htm
+FORM 10-K, DATED 12/31/2002
+Form 10-K - Deckers Outdoor Corporation 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31,
+2002 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to
+Commission File No. 0-22446 
+DECKERS OUTDOOR CORPORATION 
+(Exact name of registrant as specified in its
+charter) 
+Delaware 
+95-3015862 
+(State or other jurisdiction of 
+incorporation or organization) 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue, Goleta,
+California 
+93117 
+(Address of principal executive
+offices) 
+(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 
+None 
+None 
+Securities registered pursuant to
+Section 12(g) of the Act: 
+Common Stock, $.01 par value 
+(Title of Class) 
+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 o 
+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. o 
+Indicate by check mark whether the registrant is
+an accelerated filer (as defined in Exchange Act
+Rule 12b-2). Yes o No x 
+Aggregate market value of the Common Stock of the
+registrant held by non-affiliates of the registrant on
+June 30, 2002 based on the closing price of the Common
+Stock on the NASDAQ National Market System on such date was
+$23,873,217.
+The number of shares of the registrant’s
+Common Stock outstanding at February 28, 2003 was 9,463,843.
+Portions of registrant’s definitive proxy
+statement relating to registrant’s 2003 annual meeting of
+shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of
+registrant’s fiscal year ended December 31, 2002, are
+incorporated by reference in Part III of this Form 10-K.
+TABLE OF CONTENTS 
+PART I 
+Item 2.Properties 
+Item 3.Legal Proceedings 
+Item 4.Submission of Matters to a Vote of Security Holders 
+PART II 
+Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters 
+Item 6.Selected Financial Data 
+Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Item 7A.Quantitative and Qualitative Disclosures about Market Risk 
+Item 8.Financial Statements and Supplementary Data 
+Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
+CONSOLIDATED BALANCE SHEETS 
+PART III 
+Item 10.Directors and Executive Officers of the Registrant 
+Item 11.Executive Compensation 
+Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Item 13.Certain Relationships and Related Transactions 
+Item 14.Controls and Procedures 
+Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K 
+SIGNATURES 
+CERTIFICATION OF CHIEF EXECUTIVE OFFICER 
+Exhibit 10.17 
+Exhibit 10.20 
+Exhibit 10.21 
+Exhibit 10.22 
+Exhibit 10.23 
+Exhibit 10.24 
+Exhibit 21.1 
+Exhibit 23.1 
+Exhibit 99.1 
+Exhibit 99.2 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31,
+2002 
+Index to Annual Report on
+Form 10-K 
+Page 
+PART I 
+Item 1.
+Business
+3 
+Item 2.
+Properties
+18 
+Item 3.
+Legal Proceedings
+18 
+Item 4.
+Submission of Matters to a Vote of Security
+Holders
+19 
+PART II 
+Item 5.
+Market for Registrant’s Common Equity and
+Related Stockholder Matters
+20 
+Item 6.
+Selected Financial Data
+21 
+Item 7.
+Management’s Discussion and Analysis of
+Financial Condition and Results of Operations
+22 
+Item 7A.
+Quantitative and Qualitative Disclosures about
+Market Risk
+33 
+Item 8.
+Financial Statements and Supplementary Data
+33 
+Item 9.
+Changes in and Disagreements with Accountants on
+Accounting and Financial Disclosure
+33 
+PART III 
+Item 10.
+Directors and Executive Officers of the Registrant
+62 
+Item 11.
+Executive Compensation
+62 
+Item 12.
+Security Ownership of Certain Beneficial Owners
+and Management and Related Stockholder Matters
+62 
+Item 13.
+Certain Relationships and Related Transactions
+62 
+Item 14.
+Controls and Procedures
+62 
+Item 15.
+Exhibits, Financial Statement Schedules and
+Reports on Form 8-K
+62 
+Signatures
+65 
+Certifications
+66 
+2
+Table of Contents 
+PART I 
+Item 1. Business 
+General 
+The Company builds niche products into global
+lifestyle brands by designing and marketing innovative,
+functional and fashion-oriented footwear, developed for both
+high performance outdoor activities and everyday casual
+lifestyle use. Currently, the Company offers three primary
+product lines under the following recognized brand names:
+Teva® — high-performance sports sandals and
+rugged outdoor footwear;
+Simple® — innovative shoes that combine the
+comfort elements of athletic footwear with casual styling; and
+Ugg® — authentic sheepskin boots and other
+footwear. In November 2002, the Company acquired all of the Teva
+worldwide assets, including all trademarks, tradenames and all
+other intellectual property (“Teva Rights”). From 1985
+until November 2002, the Company had sold its Teva products
+under a licensing arrangement. Teva, Simple and Ugg are
+registered trademarks of the Company and its subsidiaries. All
+of the Company’s footwear possess the common features of
+high quality with a primary focus on functionality and comfort.
+In 2002, the Company sold approximately 4,120,000 pairs of
+footwear. Revenues from wholesale sales (domestic and
+international) of Teva products have been $64,849,000,
+$61,221,000 and $79,732,000 during 2002, 2001 and 2000,
+representing 65.4%, 66.9% and 70.1% of net sales, respectively.
+For financial information regarding the Company’s industry
+segments, see note 10 to the accompanying consolidated financial
+statements.
+Market Overview 
+The casual, outdoor and athletic footwear market
+is comprised of footwear worn for casual everyday use and for
+outdoor and athletic activities such as hiking, boating,
+basketball, tennis, fitness and jogging. The market for such
+footwear has grown significantly during the last decade. The
+Company believes that the principal reasons for the growth in
+sales of such footwear have been the growing acceptance of
+athletic footwear as casual wear and the growing acceptance of
+casual wear, in general, including the trend toward casual dress
+in the workplace, increasingly active consumer lifestyles and
+the growing emphasis on comfort.
+Over the last few years the overall footwear
+market has seen significant growth of the outdoor segment as
+well as the growing emphasis on comfort. Outdoor footwear
+includes shoes, boots and sandals for outdoor recreational
+activities such as hiking, river rafting, camping and casual
+wear. Companies engaged in the outdoor footwear market include
+Nike, Adidas, Timberland, Columbia and Salomon. The Company
+believes that the growth in outdoor footwear is driven by
+several factors including a general shift in consumer
+preferences and lifestyles to include more outdoor, sports and
+recreational activities such as hiking and camping. In addition,
+the increasing popularity of extreme sports, including
+skateboarding, snowboarding, kayaking and river rafting, among
+others, has created an additional emphasis and awareness of
+outdoor activities and lifestyles. As consumers engage in
+outdoor activities, they typically desire footwear specifically
+designed for these purposes, yet they demand the same level of
+quality and high performance that they have come to expect from
+traditional athletic footwear. In addition, more consumers are
+turning to an emphasis on casual and comfortable footwear and
+apparel, as evidenced by the trend toward casual workplaces in
+recent years. The Company believes that its products have
+benefited from this growing trend and that its footwear
+addresses consumers’ demands for highly functional footwear
+that is durable as well as comfortable and fashionable.
+The casual, outdoor and athletic footwear markets
+are generally characterized by a high level of recognition of
+brand names, logos and trademarks. Unique and identifying
+features create brand awareness among consumers and allow a
+favorable reputation to be transferred to new products. The
+manufacture of casual, outdoor and athletic footwear is
+typically conducted overseas through independent manufacturers.
+Casual and athletic footwear is distributed through athletic
+footwear stores, department stores and specialty retailers.
+Outdoor footwear is generally distributed through these channels
+as well but is to a large extent distributed through outdoor
+specialty retailers. Retailers may purchase footwear on a
+“futures” basis (orders placed at a discount in
+advance of a season) or an “at once” basis (orders
+placed and filled immediately). Futures orders allow the Company
+to more accurately predict its manufacturing and sourcing needs.
+By
+3
+Table of Contents 
+placing futures orders, retailers are also able
+to reduce the risk that the Company will be unable to meet their
+delivery requirements. Retailers are generally encouraged to
+purchase goods on a futures basis by receiving discounts or
+special payment terms not otherwise available.
+Risk Factors 
+This Annual Report on Form 10-K contains a
+variety of forward-looking statements within the meaning of the
+Private Securities Litigation Reform Act of 1995 including
+forward-looking statements in this “Risk Factors”
+section, the “Outlook” section, the last paragraph
+under “Liquidity and Capital Resources”, the
+“Teva Acquisition” section, the discussion under
+“Seasonality” and other statements in this Annual
+Report. Forward-looking statements relating to sales, earnings
+per share, and the Company’s liquidity may be significantly
+impacted by future developments such as certain litigation,
+economic factors and world events, the Company’s dependence
+on foreign manufacturers, competition, the Company’s
+dependence upon key personnel, weather conditions, and the
+impact of seasonality on the Company’s operations, among
+others. These forward-looking statements are based on the
+Company’s expectations as of March 2003. No one should
+assume that any forward-looking statement made by the Company
+will remain consistent with the Company’s expectations
+after the date the forward-looking statement is made. The
+Company disclaims any obligation to update any such factors or
+to publicly announce the results of any revisions to any of the
+forward-looking statements contained in this Annual Report on
+Form 10-K. These forward-looking statements involve known
+and unknown risks, uncertainties and other factors which may
+cause the actual results, performance or achievement of the
+Company, or industry results, to differ materially from any
+future results, performance or achievements expressed or implied
+by such forward-looking statements. The factors listed below
+represent certain important factors the Company believes could
+cause such results to differ. These factors are not intended to
+represent a complete list of the general or specific risks that
+may affect the Company. Other risks may be significant,
+presently or in the future, and the risks set forth below may
+affect the Company to a greater extent than indicated.
+Brand
+Strength; Changes in Fashion Trends 
+The Company’s success is largely dependent
+on the continued strength of the Teva, Simple and Ugg brands
+(collectively, “Deckers Brands”) and on its ability to
+anticipate the rapidly changing fashion tastes of footwear
+customers and to provide merchandise that appeals to their
+preferences in a timely manner. There can be no assurance that
+consumers will continue to prefer the Deckers Brands or that the
+Company will respond in a timely manner to changes in consumer
+preferences or that the Company will successfully introduce new
+models and styles of footwear. Achieving market acceptance for
+new products will also likely require substantial marketing and
+product development efforts and the expenditure of significant
+funds to create consumer demand. Decisions with respect to
+product designs often need to be made many months in advance of
+the time when consumer acceptance can be determined. As a
+result, the Company’s failure to anticipate, identify or
+react appropriately to changes in styles and features could lead
+to, among other things, excess inventories and higher markdowns
+and lower gross margins due to the necessity of providing
+discounts to retailers. Conversely, failure by the Company to
+anticipate consumer demand could result in inventory shortages,
+which can adversely affect the timing of shipments to customers,
+negatively impacting retailer and distributor relationships and
+diminishing brand loyalty. The failure to introduce new products
+that gain market acceptance would have a material adverse effect
+on the Company’s business, financial condition and results
+of operations, and could adversely affect the image of the
+Deckers Brands.
+Inventory
+Risk 
+The footwear industry has relatively long lead
+times for design and production of product and, thus, the
+Company must commit to production tooling and to production in
+advance of orders. In addition, the industry is highly subject
+to fashion risks and changes in consumer preferences. This risk
+is exacerbated by the large number of models, colors and sizes
+in the Company’s three product lines. If the Company fails
+to accurately forecast consumer demand, or if there are changes
+in consumer preference or market demand after the Company has
+made such production commitments, the Company may encounter
+difficulty in filling customer
+4
+Table of Contents 
+orders or in liquidating excess inventory, which
+may have an adverse effect on the Company’s sales, margins
+and brand image.
+Debt
+and Interest Obligations 
+At December 31, 2002, the Company had
+$39,028,000 of long-term and short-term debt, largely due to the
+Teva acquisition, and is obligated to make periodic principal
+and interest payments. The Company believes that its cash on
+hand, internally generated funds and the borrowing availability
+under its existing line of credit will enable the Company to pay
+its obligations as they come due. However, risks and
+uncertainties which could impact the Company’s ability to
+maintain its cash position include the Company’s growth
+rate, the continued strength of the Company’s brands, its
+ability to respond to changes in consumer preferences, its
+ability to collect its receivables in a timely manner, its
+ability to effectively manage its inventory, and the volume of
+letters of credit used to purchase product, among others. Any
+inability to meet these contractual requirements could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Quality
+and Performance 
+In response to consumer demand, the Company also
+uses certain specialized materials in its footwear. The failure
+of products using such materials to perform to the
+Company’s specifications or customer satisfaction could
+result in a higher rate of customer returns and could adversely
+affect the image of the Deckers Brands, which could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Economic
+Cyclicality and Footwear Retailing 
+The footwear industry historically has been
+subject to cyclical variation and can be negatively impacted by
+decreased consumer spending or softness in the retail market.
+This cyclicality could adversely affect the Company’s
+business. In addition, various retailers, including some of the
+Company’s customers, have experienced financial
+difficulties during the past several years, thereby increasing
+the risk that such retailers may not be able to pay for the
+Company’s products in a timely manner. No assurance can be
+given that the Company’s bad debt expense will not increase
+relative to net sales in the future. Any significant increase in
+the Company’s bad debt expense relative to net sales would
+adversely impact the Company’s net income and cash flow and
+could affect the Company’s ability to pay its obligations
+as they become due.
+Dependence
+on Foreign Manufacturers 
+Virtually all of the Deckers footwear products
+are manufactured by third party suppliers in the Far East,
+Australia and New Zealand, with the vast majority of production
+occurring at four suppliers in China. There can be no assurance
+that the Company will not experience difficulties with such
+manufacturers, including reduction in the availability of
+production capacity, errors in complying with product
+specifications, inability to obtain sufficient raw materials,
+insufficient quality control, failure to meet production and
+delivery deadlines or increases in manufacturing costs. In
+addition, if the Company’s relationship with any of its
+manufacturers were to be interrupted or terminated, alternative
+manufacturing sources will have to be located. The establishment
+of new manufacturing relationships involves numerous
+uncertainties, and there can be no assurance that the Company
+would be able to obtain alternative manufacturing sources on
+terms satisfactory to it. If a change in its suppliers becomes
+necessary, the Company would likely experience increased costs,
+as well as substantial disruption and a resulting loss of sales.
+Foreign manufacturing is subject to a number of
+risks, including work stoppage, transportation delays and
+interruptions, political instability, foreign currency
+fluctuations, changing economic conditions, expropriation,
+nationalization, imposition of tariffs, import and export
+controls and other non-tariff barriers (including quotas),
+restrictions on the transfer of funds, environmental regulation
+and other changes in governmental policies. The Company may also
+experience general risks associated with managing operations
+effectively and efficiently from a far distance and
+understanding and complying with local laws, regulations and
+customs.
+5
+Table of Contents 
+There can be no assurance that such factors will
+not materially adversely affect the Company’s business,
+financial condition and results of operations.
+Products manufactured overseas and imported into
+the United States and other countries are subject to duties
+collected by the Customs Service in the applicable country.
+Customs information submitted by the Company is subject to
+review by the Customs Service. The Company is unable to predict
+whether additional customs duties, quotas or restrictions may be
+imposed on the importation of its products in the future. The
+enactment of any such duties, quotas or restrictions could
+result in increases in the cost of such products generally and
+might adversely affect the sales or profitability of the Company.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs has
+issued an opinion to the Company that certain popular Teva
+styles are covered by this anti-dumping duty legislation, which
+the Company has appealed. As a precautionary measure, the
+Company obtained and has been using alternative sourcing for the
+potentially impacted products from sources outside of China in
+an effort to avoid potential risk on future imports. In 2001,
+the European Commission added additional explanatory language
+that more clearly identified the types of footwear subject to
+anti-dumping duties. The Company believes that based on the new
+language, it is probable that the Company will not prevail in
+its appeal. Therefore, the Company has established a reserve of
+$500,000, which is the Company’s estimate of its exposure
+for anti-dumping levies. In 2002, the European Commission
+repealed the anti-dumping duties on future footwear imports
+beginning November 1, 2002. While this recent repeal of the
+legislation allows for future imports from China without
+anti-dumping duties, it does not eliminate the potential
+liability for past imports.
+Competition
+and Infringing Products 
+The outdoor and footwear industries are both
+highly competitive, and the recent growth in the markets for
+sports sandals and casual footwear has encouraged the entry of
+many new competitors into the marketplace as well as increased
+competition from established companies. Most of the
+Company’s competitors have substantially greater financial,
+distribution and marketing resources, as well as greater brand
+awareness in the footwear market, than the Company. In addition,
+the general availability of offshore manufacturing capacity
+allows rapid expansion by competitors and new market entrants.
+The Company believes that it has been able to compete
+successfully because of the brand recognition, quality and
+selective distribution of its products. From time to time, the
+Company discovers products in the marketplace that infringe upon
+its patent and trademark rights. Historically, the Company and
+its former Teva licensor have successfully defended their
+intellectual property from potential infringements. The Company
+intends to continue to vigorously defend its intellectual
+property following discovery. However, if the Company is
+unsuccessful in challenging a third party’s products on the
+basis of patent and trademark infringement, continued sales of
+such competing products by third parties could adversely impact
+the Company’s business, financial condition and results of
+operations. See
+“Business — Competition” and
+“Business — Legal Proceedings.”
+Dependence
+on Key Personnel 
+The Company’s continued success will depend
+substantially upon its ability to retain Douglas B. Otto, its
+Chairman of the Board, President and Chief Executive Officer,
+and a core group of key executive officers and employees. The
+Company believes that its future success will depend in large
+part on its ability to attract and retain highly skilled
+personnel. Competition for such personnel is intense, and there
+can be no assurance that the Company will be successful in
+attracting and retaining such personnel. The loss of certain key
+employees or the Company’s inability to attract and retain
+other qualified employees could have an adverse impact on the
+Company’s business.
+Intellectual
+Property 
+The Company believes that its trademarks,
+technologies and designs are of great value. From time to time,
+the Company may be the subject of litigation challenging its
+ownership of certain intellectual property. Loss of the
+Company’s Teva, Simple or Ugg trademark rights could have a
+serious impact on the Company’s
+6
+Table of Contents 
+business. Because of the importance of such
+intellectual property rights, the Company’s business is
+subject to the risk of counterfeiting, parallel trade or
+intellectual property infringement.
+Economic
+Factors and World Events 
+The Company’s business is subject to
+economic conditions in its major markets, including, without
+limitation, recession, inflation, general weakness in retail
+markets and changes in consumer purchasing power and
+preferences. Adverse changes in such economic factors could have
+a negative effect on the Company’s business.
+In addition, the Company’s results, and the
+domestic and international economies in general, may be further
+negatively impacted by world events including potential future
+terrorist activities as well as the impact of the United
+States’ war efforts. The overall negative impact of these
+activities, including the effect on the economy and commerce in
+general, cannot currently be determined but could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Weather
+Conditions 
+Sales of the Company’s products,
+particularly those under the Teva and Ugg lines, are very
+sensitive to weather conditions. Extended periods of unusually
+cold weather during the spring and summer could adversely impact
+demand for the Company’s Teva line. Likewise, unseasonably
+warm weather during the fall and winter months could adversely
+impact demand for the Company’s Ugg product line.
+Substantial
+Ownership of the Company and Shareholder Rights
+Agreement 
+The Company adopted a shareholder rights plan in
+1998 pursuant to a shareholder rights agreement (the
+“Rights Agreement”) to protect stockholders against
+unsolicited attempts to acquire control of the Company that do
+not offer what the Board of Directors of the Company believes to
+be an adequate price to all stockholders. As part of the plan,
+the Board of Directors of the Company declared a dividend so
+that one preferred share purchase right was and will be issued
+for each outstanding share of Common Stock of the Company until
+the expiration date of the Rights Agreement.
+At December 31, 2002, Douglas B. Otto and
+all executive officers and directors of the Company, as a group,
+owned approximately 32.0% and 40.7%, respectively, of the
+outstanding shares of the Company’s Common Stock. The
+ownership positions of Mr. Otto and the executive officers
+of the Company, as a group, together with the anti-takeover
+effects of certain provisions in the Delaware General
+Corporation Law (the “DGCL”), in the Company’s
+Certificate of Incorporation and Bylaws and in the
+Company’s shareholder rights plan would likely have the
+effect of delaying, deferring or preventing a change in control
+of the Company and could have a negative effect on the market
+price of the Company’s Common Stock.
+Other
+Factors 
+In the first quarter of 2002, the Company
+completed an implementation of a new Enterprise Resource
+Planning (“ERP”) computer system to replace its legacy
+system. In connection with this conversion, the Company
+initially encountered various difficulties. The effectiveness of
+the ERP system’s operation can impact the Company’s
+ability to receive and accept orders, monitor its inventory
+levels, and coordinate the shipment of products to customers,
+among other activities. In the event that significant
+difficulties are encountered in the future, the Company may
+experience lower sales and increased expenses, which would
+negatively impact the Company’s results of operations and
+cash flows.
+The Company’s results of operations,
+financial condition and cash flows are also subject to risks and
+uncertainties with respect to the Company’s ability to
+secure and maintain adequate financing, to forecast its future
+sales, inventory needs and cash flows and to subsequently
+achieve those forecasts.
+7
+Table of Contents 
+Business
+Strategy 
+Management’s mission is to build niche
+products into global brands and its business strategy is to
+offer diverse lines of footwear that emphasize functionality,
+quality, comfort and technical performance tailored to a variety
+of activities and demographic groups. Specifically, the
+Company’s business strategy emphasizes the following
+elements:
+Introduce New Categories and Styles under
+Existing Brands. The Company intends
+to leverage consumer recognition of its existing brands by
+developing and introducing additional innovative footwear
+products that satisfy the Company’s high standards of
+practicality, comfort and quality. The Company believes the
+introduction of additional products at a variety of price
+points, such as the range of new models in its Teva, Simple and
+Ugg lines being offered in the Company’s 2003 product
+offerings, have broadened the Company’s customer base,
+further diversified the Company’s product lines, and helped
+reduce the effects of seasonality on the Company’s sales.
+See “Management’s Discussion and Analysis of Financial
+Condition and Results of
+Operations — Seasonality.” In recent years,
+the Teva product offering has been greatly expanded to include a
+variety of new sport sandal styles at a variety of price points
+and incorporating a range of new uppers and technologies. In
+addition, the Company has begun to leverage the success of the
+Teva brand in the outdoor markets by launching into several new
+categories of footwear, including amphibious footwear, hikers,
+trailrunners, cold-weather boots, and other rugged outdoor
+footwear. The Spring 2003 and Fall 2003 Teva product lines
+include a significant redesign and the introduction of several
+new styles and categories. One of the features prevalent in the
+Spring 2003 line is the use of the Wraptor technology, a
+patented 360 degree continuous strapping system that
+simultaneously secures the instep and arch shank to the foot.
+Following on the success of this feature in the Company’s
+running sandals, the Company has also designed a line of hikers
+around this technology and has added it to certain styles of the
+Company’s high performance Guide offering for professional
+paddlers and adventurers. The Company continues to expand into
+the hiking, trailrunning and rugged outdoor arenas, where the
+aggregate market size is considerably greater than the market
+for sport sandals, the area in which the Teva brand was
+initially founded. By launching into these new areas of closed
+footwear, the Company hopes to increase sales while at the same
+time reducing the impact of seasonality on the Company’s
+business. The 2003 line also includes athletically inspired
+styles aimed directly at the athletic distribution channels,
+another significant area where the Company hopes to gain
+distribution along with its historically strong outdoor market.
+In addition to these new categories for the
+brand, Teva has also re-designed its core sport sandal offering
+by adding many new features and styles, incorporating the latest
+technologies and innovations. The Company continues to use the
+knowledge and experience of Team Teva, an elite group of the
+world’s best male and female whitewater athletes, to
+enhance the development of future technical offerings in this
+category. As the Company moves to the future, it plans to
+strengthen existing categories and further expand into new
+channels of distribution.
+The 2003 Simple product line includes a
+re-emphasis on the men’s footwear business, an area where
+the brand had been very successful several years ago, as well as
+a focus on athletically inspired designs. The 2003 Simple line
+also includes a collection of women’s casual styles
+featuring low profiles. The Simple line targets consumers in the
+seventeen to thirty year old age group. The line focuses on
+lifestyle comfort based products such as clogs, sandals, casuals
+and non-performance sneakers that are priced affordably. In
+2003, the Company’s Ugg product offering continues to
+include its heritage boots and slippers, as well as an expanded
+women’s Fall Collection of casual, fashionable boots and
+clogs and the Adirondack Collection of rugged cold-weather
+footwear featuring seam sealed lugged outsoles and waterproof
+leathers combined with sheepskin linings.
+Pursue Licensing of
+Brands. Given the strength of the
+Company’s brands, the Company is also pursuing the
+licensing of its brand names to other ancillary products, beyond
+the Company’s existing core footwear products. Through this
+type of brand extension, the Company hopes to generate
+additional revenues in the form of royalty income; to further
+increase awareness for the Company’s brands and their
+related products, and thereby increase sales of its footwear;
+and to build the long-term value of the brands. As part of this
+approach, the Company has signed agency agreements with BHPC
+Global Licensing, Inc., whose chief
+8
+Table of Contents 
+executive officer is a member of the
+Company’s board of directors, to assist in identifying
+candidates and coordinating the efforts for the licensing of the
+Ugg and Simple trademarks on various products ranging from
+sportswear and outerwear to housewares and accessories. In
+addition, with the recent acquisition of Teva Rights, the
+pursuit of licensing arrangements for the Teva brand has been
+added to the long-term strategy for this brand as well. Because
+the Company is currently in the early stages of pursuing
+licensing opportunities for its brands it cannot yet provide any
+assurances regarding how successful its efforts will be or how
+significant the market size will be.
+Pursue Additional Market
+Opportunities. Management intends to
+continue to consider new markets for its existing line of
+products. For the years ended December 31, 2002, 2001 and
+2000 international net sales totaled $20,829,000, $21,096,000
+and $31,135,000, representing 21.0%, 23.1% and 27.4% of net
+sales, respectively. Management believes that significant
+opportunities exist to market its products abroad and intends to
+selectively expand its distribution worldwide. To bolster these
+efforts, the Company entered into an agency arrangement in 2002
+with a firm in the United Kingdom for the coordination of the
+sales, distribution, marketing and advertising efforts in the
+European markets. In addition, to strengthen sales efforts in
+the Asian markets, the Company recently entered into a similar
+arrangement effective January 1, 2003 with a firm headed by
+Peter Benjamin, the Company’s former President, who has
+redirected his efforts to developing the Company’s sales in
+the Asian markets, a responsibility he previously held from July
+1997 to March 1999.
+The Company believes significant opportunities
+exist to expand distribution domestically too. For example, the
+Company’s Teva brand has had its roots in the outdoor
+market where it has successfully distributed its products for
+many years. The Company sees the potential for expansion into
+the athletic retail distribution channel as a significant
+opportunity for the Teva brand in future years. The Company
+intends to pursue this channel of distribution going forward and
+has recently designed product targeted at this market and has
+added sales personnel with significant experience in this
+market. In addition, the Ugg brand has historically been popular
+in California for many years. The Company believes that
+significant opportunities exist to expand distribution for this
+brand throughout the United States, especially in light of its
+suitability to a variety of climates. In recent years, the
+Company has been successful in expanding outside of California
+and expects to continue to pursue this expansion in the future.
+With the recent acquisition of the Teva Rights,
+the Company acquired the direct to consumer catalog and internet
+retailing business from the previous Teva licensor. In addition
+to providing additional sales opportunities, this distribution
+channel provides the Company with improved gross margins and
+direct access to the Company’s consumers, thereby providing
+immediate feedback on product. The previous licensor had
+experienced significant growth in sales from this business in
+recent years and the Company believes that continued
+opportunities for growth and expansion of this business exist.
+For further discussion of the Teva acquisition, see note 12 to
+the accompanying consolidated financial statements.
+Acquire or Develop New
+Brands. The Company intends to
+continue to focus on identifying and building new brands for
+growth. The Company has been successful in the past in taking
+the concepts of entrepreneurs for innovative, fashionable
+footwear targeted at niche markets and building the products
+into viable brands and intends to continue to identify concepts
+for potential future niche products which have the potential of
+developing into successful brands or product lines.
+Products 
+The Company currently offers three primary
+product lines: (1) Teva sport sandals and footwear;
+(2) Simple casual footwear; and (3) Ugg sheepskin
+footwear. Each of these lines, as well as individual models
+within these lines, is designed to appeal to various demographic
+groups. The Company’s footwear products emphasize function,
+comfort and technical performance and are suitable for a variety
+of demanding outdoor and athletic activities, as well as casual
+and everyday use. The Company’s products are designed and
+marketed to promote a high level of brand name recognition and
+consumer appeal by combining functional and creative designs
+with quality materials and construction. The Teva and Simple
+footwear lines are generally previewed twice per year, once in
+the summer for deliveries that commence in the fall and once in
+the winter for the following back to school and fall season. The
+Ugg line of sheepskin footwear is generally previewed in the
+9
+Table of Contents 
+winter with most deliveries occurring in the
+following fall and winter. The following sets forth a summary
+description of each of the Company’s primary product lines:
+Teva Sport Sandals and
+Footwear. The Teva sport sandal was
+one of the first sport sandals to be developed and remains
+popular among outdoor enthusiasts and the general public.
+Certain styles of the Teva sport sandal incorporate a variety of
+proprietary strapping configurations ideally suited for outdoor
+activities such as hiking, boating and river rafting. These
+strapping systems generally consist of high-quality nylon
+webbing or leather, are fully adjustable, and hold the foot
+firmly to the sandal’s durable cellular rubber, molded EVA,
+polyurethane or leather footbed. Teva sport sandals are
+extremely durable, with many styles designed specifically for
+performance in and around the water. In addition, the Company
+has recently leveraged the brand’s success in the outdoor
+markets by launching into various natural progressions for the
+brand including hiking boots, trailrunning shoes, amphibious
+footwear and other rugged outdoor footwear styles. For Spring
+2003, the Teva line has been redesigned to include numerous new
+styles, categories and features and now includes 103 different
+models spread across various categories and designed for a
+variety of uses. The Hydro Series, a category of sandals and
+other amphibious footwear built for high performance and rugged
+outdoor use, includes men’s and women’s styles of
+sport sandals, neoprene and quick draining monofilament mesh
+watershoes and other outdoor footwear ideal for professional
+outdoorsmen and adventurers. The Terrain Series is a line of
+sandals and hiking boots primarily designed for use on land that
+includes performance walking sandals and convertible sandals
+with removable heel straps that allow the sandal to be worn as a
+slide, as well as hiking boots and running sandals incorporating
+the patented Wraptor technology, an upper which encircles the
+instep and continually adjusts to the movement of the foot to
+provide a consistently secure fit. The Originals Series is a
+collection of sandals and thongs that combine the elements of
+performance with casual everyday use and includes several of the
+most popular styles as well as models with retro-1970’s
+inspired colors and stylings. Continuing on the success of
+recent years, the Spring 2003 line consists of men’s and
+women’s leather casuals under the Nomadic Series, including
+a variety of sandals, slides and clogs. The Sun and Moon Series
+has slides and thongs in a variety of materials including
+waterproof leather, nylon, suede and airmesh. The Spring 2003
+Children’s category is an assortment of sandals
+incorporating a variety of materials including leather,
+waterproof suede, nylon, neoprene and mesh as well as slip-on
+watershoes, hikers and other styles of amphibious footwear. In
+addition, for the Fall 2003 season, the Company has
+significantly expanded its Fall product offering with a variety
+of different types of closed footwear, including hiking boots,
+cold weather boots, trailrunners and an assortment of other
+rugged outdoor styles. The domestic manufacturer’s
+suggested retail prices for adult sizes of Spring and Fall 2003
+Teva footwear products range from $20.00 to $120.00.
+Simple Casual
+Footwear. The Simple line consists of
+casual shoes that combine the comfort and function of athletic
+footwear construction with the simple, understated styling of
+“back-to-basics,” casual lifestyle footwear. The
+Simple product line includes a variety of comfortable,
+fashionable, basic shoes for men and women including sneakers,
+sandals, slides, clogs and leather casuals. The Spring 2003
+collection reflects the Company’s emphasis on a target
+consumer in the seventeen to thirty year old age group. For the
+2003 line, the Company has added several new styles of clogs,
+sandals, sneakers and leather casuals to its offerings including
+several athletically inspired styles for men and women as well
+as a re-emphasis on the men’s footwear business, an area
+where the Company had considerable success in the past. The 2003
+Simple line also includes a series of innovative styles of
+women’s footwear featuring models with low profiles. For
+Spring 2003, Simple is offering a variety of styles for men and
+women, including an assortment of sneakers, sandals, thongs,
+leather casuals and clogs in a variety of colors. The domestic
+manufacturer’s suggested retail prices for adult sizes for
+the Spring 2003 line range from $40.00 to $88.00.
+Ugg Sheepskin
+Footwear. Ugg is a line of authentic
+sheepskin footwear, popularized in Australia in the 1960’s
+and 1970’s. These sheepskin boots, slippers and other
+footwear styles have high-grade sheepskin linings which act as a
+natural insulator, keeping feet warm and comfortable. The 2003
+Ugg line offers a range of casual, fashionable and streetwise
+styles in various colors, including several new styles of shoes
+and boots for men and women. The 2003 line includes several
+styles with new innovative fashionable uppers and several styles
+with water resistant leather treatments to address more
+inclement and cold weather conditions. The 2003 line continues
+the tradition of the highly successful Classic and Ultra boots,
+as well as the Home/Spa
+10
+Table of Contents 
+Collection of slippers and other comfort
+footwear. In addition, for 2003, the line includes an expanded
+Fall collection of men’s and women’s casual footwear,
+including the men’s Boston and Cambridge styles, the
+women’s Midtown styles, and the women’s Brooks styles
+featuring lug bottoms for traction combined with sleek profiles.
+The 2003 line also includes an Adirondack Collection of rugged
+cold-weather footwear featuring seam sealed lugged outsoles and
+waterproof leathers combined with sheepskin linings to prevent
+water from coming in and to prevent warmth from escaping. The
+domestic manufacturer’s suggested retail prices for adult
+sizes for the Ugg line range from $50.00 to $275.00.
+Marketing and Distribution 
+The Company’s products are currently
+distributed throughout the United States by a network of
+approximately 37 independent sales representatives, organized
+geographically, who make sales, visit retail stores to train
+personnel and review sales of the Company’s footwear on a
+periodic basis. In addition, the Company has five in-house sales
+representatives that serve as key account executives for several
+of the Company’s larger customers. The Company has two
+separate dedicated sales forces, one for Teva and one for Simple
+and Ugg, as the Simple and Ugg brands are generally sold through
+different distribution channels and are targeted toward a
+different consumer than the Company’s Teva brand. The
+Company’s sales managers for each brand manage their
+networks of representatives, recruit experienced sales
+representatives in the industry and coordinate sales to national
+accounts. The Company currently sells its products
+internationally through 34 independent distributors. The
+Company’s goal is to promote retail sales of its products
+at attractive profit margins for its accounts through selective
+distribution and marketing, targeted toward distinct groups of
+consumers. As a result of this approach, the Company’s
+accounts have a strong incentive to devote greater selling space
+to the Company’s products, and the Company is better able
+to assess consumer preferences, the future ordering needs of its
+customers and inventory requirements.
+The Company’s principal domestic customers
+include specialty retailers, upscale department stores, outdoor
+retailers, sporting goods retailers and shoe stores which market
+products consistent with the Company’s standards. The
+Company’s five largest customers accounted for
+approximately 23.1% of the Company’s net sales for the year
+ended December 31, 2002, compared to 20.6% for the year
+ended December 31, 2001. No single customer accounted for
+more than 8% of the Company’s net sales for the years ended
+December 31, 2002 and 2001.
+In order to encourage accounts to place orders
+early in the season the Company offers a preseason discount
+program under which accounts are provided discounts on preseason
+orders placed. The Company’s strategy is to emphasize this
+“futures” program, as compared to “at once”
+sales, in order to stabilize its supply arrangements, determine
+which styles to take an inventory position in, reduce the risk
+of customer cancellations and to benefit from the significant
+positive impact of the program on the Company’s inventory
+costs, sourcing schedule and allocation of marketing resources.
+Consistent with prior years, the Company offered an early
+delivery program for the spring 2003 season which was delivered
+the fourth quarter of 2002. This early delivery program allows
+the Company to reduce the impact of peak warehouse inventory
+levels during the spring and provides retailers the opportunity
+to have earlier sell through, lengthen the retail selling season
+and increase the potential for inventory turns at retail.
+Domestic deliveries generally originate from the
+Company’s 126,000 square foot warehouse facility in Ventura
+County, California. European deliveries generally originate from
+a distribution center in the Netherlands, while all other
+international deliveries originate from offshore factories.
+The acquisition of the Teva Rights included the
+licensor’s catalog and internet retailing business located
+in Flagstaff, Arizona. The Company expects to continue to pursue
+expansion opportunities in this “direct-to-consumer”
+distribution channel and contemplates eventually opening its own
+retail stores.
+Advertising and Promotion 
+The Company attempts to maximize the impact of
+its advertising, public relations and promotional expenditures
+by utilizing media that provide high visibility within targeted
+market segments. The Company’s brand names are generally
+advertised and promoted through a variety of consumer print
+advertising campaigns
+11
+Table of Contents 
+in addition to highly visible editorial coverage
+in both consumer and trade publications. Retail presence and
+“point of purchase” materials along with production
+packaging provide additional visible brand support. The
+Company’s in-house marketing departments for each brand
+work closely with targeted accounts in many aspects of these
+activities.
+The Company advertises its Teva brand through a
+national print advertising campaign targeted at various
+different demographic groups. For its core outdoor market, Teva
+advertises in several outdoor-related magazines, including
+Backpacker, Outside, National Geographic Adventurer, Paddler,
+Blue and Dandelion, among others. In addition, to
+promote its trailrunner offering, Teva is advertising in
+Trail Runner, Runner’s World Regional and Running
+Times, among other publications. With the broadened appeal
+of the Teva offerings, including the leather casual models, the
+Company has also focused its print advertising toward more
+mainstream print publications, including Men’s Journal
+and Organic Style. The success of The Teva Mountain
+Games has warranted a media push in local publications such as
+Rocky Mountain Sports and national publications such as
+Sports Illustrated . In addition, with the recent
+expansion of the Teva fall product offering, an increased
+proportion of Teva advertising will occur in the fall and winter
+months compared to prior years.
+In order to maintain the Company’s history
+of high visibility among core outdoor enthusiasts such as
+professional river rafters, kayakers, mountain bikers and rock
+climbers, Teva products are given or sold at professional
+discounts to members of this group. In order to further bolster
+the loyalty of these individuals, the Company offers categories
+called “Hydro” and “Terrain,” incorporating
+the latest technological developments and highest quality
+materials. The Company actively sponsors a group of the
+world’s best male and female whitewater athletes called
+Team Teva. Teva also sponsors teams from other outdoor
+disciplines including the Teva US Mountain Running Team and the
+SOBE Cannondale Mountain Bike Team. By outfitting and sponsoring
+these highly visible athletes and teams, the Company creates
+awareness among targeted consumers at relatively low cost. In
+addition, the Company has traveling promotional and technical
+representatives who represent the Teva brand at a wide variety
+of festivals, outdoor sporting events and competitions. Teva is
+sponsoring approximately fifty events in 2003. Internationally,
+the Company also sponsors events in France, Switzerland and
+Italy. Teva sponsors and promotes these events in order to
+increase the Company’s visibility for its core outdoor
+consumer, in addition to the significant marketing available to
+the more mainstream public with the increasing popularity of
+viewing these extreme sports. The Teva promotional team also
+attends and sponsors other events including the Teva Mountain
+Games at Vail, Teva Vail Trail Running Series, Santa Cruz Surf
+Kayak Festival in Santa Cruz, California, the Telluride
+Bluegrass Festival in Telluride, Colorado and Reggae on the
+River in Garberville, California, among others.
+The Teva mobile promotions team attends the
+events in dedicated state of the art promotional vehicles where
+they showcase Teva products and provide consumers with the
+opportunity to see and try on the latest styles. The Teva brand
+has also recently initiated a partnership with Volkswagen
+whereby the Teva Technical Representatives are outfitted in Teva
+branded Volkswagen Eurovans throughout the United States.
+With respect to the Simple product line, the
+Company has continued its national print advertising campaign.
+Simple print advertisements will appear in mainstream,
+youth-oriented consumer fashion magazines such as InStyle,
+Jane and Nylon . In addition, the marketing effort
+focuses around grass roots advertising and includes a consumer
+focused direct mail campaign, retailer events and product
+endorsement by high profile young artists and musicians. Recent
+public relations coverage has appeared in Footwear News, Teen
+People, Nylon, YM, Footwear Plus, W Magazine, Lucky, Shuz,
+Shape, and Surfing Girl. These public relations efforts have
+also resulted in Simple products appearing on television shows
+such as Friends, Dawson’s Creek, and MTV .
+Simple’s marketing efforts are performed
+internally by an in-house Simple marketing team which works to
+promote the Simple brand positioning of being “simple”
+and “down to earth”.
+In 2003, the Company plans to continue to build
+on the success of Ugg’s national print advertising
+campaign. The Company continues to target its Ugg products
+toward luxury consumers who seek high quality, luxurious and
+fashionable products for cold weather. The Company expects to
+advertise Fall 2003 Ugg products in upscale publications such as
+Vogue, InStyle and O Magazine . In February 2002,
+Ugg’s were featured in the Opening and Closing Ceremonies
+of the 2002 Winter Olympic Games. 1,000 Ugg boots were
+12
+Table of Contents 
+used to outfit both the children in the Children
+of Light performances and the individuals presenting medals to
+athletes at all the events. Both the children and adults were
+outfitted in Ultra Short Ugg boots. Ugg also received Olympic
+exposure on the Today Show with Katie Couric the day after the
+opening ceremonies.
+In addition to this national advertising
+campaign, the Ugg brand is being supported by national public
+relations and product placement efforts. In-house marketing
+personnel work closely with a public relations firm and a
+product placement agency to gain brand visibility in popular
+magazines, television shows and feature films. Recent editorial
+coverage includes articles in magazines such as Glamour,
+InStyle, Cosmopolitan, Marie Claire, People, US Weekly, Maxim,
+Shape, Self, O Magazine and Real Simple. Television
+coverage of Ugg product includes shows such as Judging Amy,
+The King of Queens, Still Standing, Will and Grace, AUSA, Cedric
+the Entertainer Presents, Dawson’s Creek, Everwood and
+Friends. These public relations efforts have also resulted
+in Ugg product appearances in the following recent and upcoming
+feature films: Eternal Sunshine of the Spotless Mind
+starring Kate Winslet and Jim Carrey, Haunted Mansion
+starring Eddie Murphy, Raising Helen starring Kate
+Hudson, Surviving Christmas starring Ben Affleck and
+Christina Applegate and Wicker Park starring Josh
+Hartnett. In addition, Ugg has been embraced by Hollywood
+celebrities, who are often seen and photographed in their Ugg
+boots. This celebrity exposure for Ugg has been the subject of
+recent publicity including articles in Us Weekly, USA Today
+and People.com. 
+In 2002, 2001 and 2000, the Company incurred
+$7,456,000, $6,087,000 and $7,108,000, respectively, for
+advertising, marketing and promotional expenses. In addition to
+these expenditures, the Company’s 34 international
+distributors spend additional amounts for marketing the
+Company’s brands within their respective territories.
+Design and Product Development 
+The design and product development staff for each
+of the Company’s brands creates and introduces new
+innovative footwear products that are consistent with the
+Company’s standards of high quality, combined with comfort
+and functionality. The Company’s design function is
+performed by a combination of its internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, the Company is able to see
+a variety of different design perspectives at a low cost. Total
+research and development costs aggregated $1,092,000, $1,034,000
+and $1,076,000 in 2002, 2001 and 2000.
+With respect to Teva, in order to ensure that the
+Company’s high performance technical products continue to
+satisfy the requirements of its historical customer base of
+performance-oriented “core enthusiasts,” the
+Company’s design staff solicits comments and feedback from
+its Team Teva whitewater athletes, the Teva US Mountain Running
+Team and other professional outdoorsmen, as well as several of
+its retailers, including REI, EMS, Galyans and L.L. Bean.
+Certain models are modified and technical innovations are
+developed in response to such comments and feedback. The Company
+adds new innovations, components and styles to its product line
+continually. For example, the Company recently designed and
+introduced a new line of trailrunners incorporating the patented
+Liquid Frame technology and has incorporated its newly developed
+Wraptor technology into performance running sandals, an
+assortment of hikers and certain styles of its high performance
+Guide sport sandals specifically targeted at professional
+outdoorsmen and adventurers. In addition, for added traction and
+durability, the Company has incorporated various materials in
+its sandals, including Spider Rubber® — a sticky,
+non-slip rubber outsole material for use across wet and dry
+terrain, Traction Rubber™ — a highly durable and
+abrasion resistant material designed specifically for the extra
+rigors of land use, and River Rubber® — a
+non-slip material designed to offer superior grip on smooth wet
+surfaces such as rocks, fiberglass and raft rubber.
+While Teva continues to develop high performance
+sport sandals and other rugged outdoor footwear by continually
+updating and designing new styles for these categories, the
+Company also continues to increase its focus on the casual
+footwear market through its Teva, Simple and Ugg brands. The
+Company continues to introduce and offer new styles of leather
+and other casual footwear for men and women and has added new
+styles to its Teva children’s offering of hikers, sport
+sandals, slip-ons and other shoes for Spring 2003. Simple has
+also added several new styles of clogs, sandals, sneakers and
+leather casuals to its offerings for 2003 including several
+athletically inspired styles for men and women as well as a
+re-emphasis on the men’s
+13
+Table of Contents 
+footwear business, an area where the Company had
+considerable success in the past. By monitoring changes in
+consumer lifestyles and preferences and then focusing first on
+function and practicality, the Company develops footwear
+designed to appeal to quality-minded consumers seeking
+comfortable casual footwear.
+In recent years, the Company has taken steps to
+take Ugg’s longtime success in the Southern California
+market and duplicate that success across the United States. In
+support of this effort, the Company has taken steps in recent
+years to update the Ugg products in order to make them more
+functional for use in cold and wet climates. For example, the
+2003 line includes the Adirondack Collection of cold weather
+boots, shoes and clogs featuring seam sealed lugged outsoles and
+waterproof leathers combined with sheepskin linings for high
+functionality and comfort. In addition, the Company has added a
+new Brooks Series to its women’s Ugg Fall Collection,
+featuring styles with a lugged outsole, contemporary styling and
+wool fleece linings which are designed to keep feet dry and
+comfortable in both warm and cold climates. The Ugg brand
+continues to design and offer more fashionable and unique upper
+styles to help differentiate Ugg from the low cost imitation
+brands.
+Integral factors in the design and product
+development process include an evaluation of the availability
+and cost of raw materials, the capabilities of the factories
+that will manufacture products 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 components for their various product lines. Drawings and
+prototypes are utilized to produce samples of proposed new
+concepts. Throughout the development process, members of the
+design staff coordinate closely with each other and with the
+Company’s product development, manufacturing and sourcing
+personnel toward a common goal of developing and sourcing a
+high-quality product that will be delivered on a timely basis.
+The Company endeavors to minimize the risk of changing fashion
+trends by offering a diverse line of functional products and
+closely monitoring sales to its accounts after introduction.
+Product Sourcing 
+The Company currently sources all of its Teva and
+Simple footwear and a portion of its Ugg footwear from
+independent contract manufacturers in the Far East. The Company
+imports the remainder of its Ugg footwear from independent
+contract manufacturers in Australia and New Zealand. The Company
+is not involved in the direct manufacture of footwear, but
+rather sources completed footwear, produced to required
+specifications, directly from these independent contractors. As
+the Company grows, it expects to continue to rely heavily on its
+independent contractors for its sourcing needs.
+The manufacturing of footwear by the
+Company’s independent contractors is performed in
+accordance with detailed specifications provided by the Company
+and is subject to quality control standards and applicable
+safety requirements. In efforts to ensure the production of high
+quality products, many of the materials and components used in
+production are purchased from independent suppliers designated
+by the Company. The Company believes that its completed footwear
+as well as the various raw materials and components used in the
+manufacture of the footwear, including rubber, leather, nylon
+webbing and sheepskin, are generally available from multiple
+sources at competitive prices.
+The Company generally does not have any long-term
+agreements with the manufacturers or suppliers of its products,
+but does business based on individual purchase orders.
+Quality Control 
+The Company has instituted inspections and other
+procedures to satisfy the high quality demanded by users of the
+Company’s products. The Company’s quality assurance
+program includes inspection procedures at the factory level as
+well as a final inspection upon arrival of product at the
+Company’s distribution center. The Company uses on-site
+inspectors at its independent suppliers who oversee the
+production process and perform quality assurance inspections. In
+addition, the products undergo further inspection procedures
+prior to being accepted at the Company’s domestic
+distribution center.
+14
+Table of Contents 
+Acquisition of Teva 
+In connection with the 1999 Teva license renewal,
+the Company received an option to buy the Teva Rights from
+Mr. Thatcher, the founder and owner of Teva, which was
+subsequently renegotiated in 2001. On November 25, 2002,
+the Company completed the acquisition of the Teva worldwide
+assets including all patents, tradenames, trademarks and all
+other intellectual property, as well as Teva’s existing
+catalog and internet retailing business for an acquisition price
+of approximately $62.3 million, including transaction costs
+of approximately $0.3 million.
+The Company paid cash in the amount of
+$43.0 million and issued to Mr. Thatcher subordinated notes
+of $13.0 million, Preferred Stock of $5.5 million,
+100,000 shares of common stock valued at approximately
+$0.3 million and options to purchase 100,000 shares of
+common stock valued at approximately $0.2 million. The
+$13.0 million of subordinated notes include a coupon
+interest rate of 7% and an additional 2% interest, which is to
+be accrued and paid at the maturity date in 2008. The
+$5.5 million of Preferred Stock pays no dividends unless
+dividends are declared and paid on the Company’s common
+stock, is callable by the Company through November 25, 2005
+at face amount plus an additional 10% per year and is
+convertible into common stock by the holder after
+November 25, 2005, if it is still outstanding, at a
+conversion price of $3.632 per share. In addition, the Preferred
+Stock provides the holder with the right to designate one member
+of the Company’s Board of Directors.
+Concurrent with the acquisition, the Company
+entered into an employment agreement with Mr. Thatcher
+through November 2007, which provides for an annual base salary
+of $276,875, and received a non-compete agreement from Mr.
+Thatcher, which expires two years after termination of
+employment.
+The Company currently expects the acquisition to
+be accretive to its fiscal 2003 earnings by approximately
+$1 million, or $0.03 per diluted share, primarily as a
+result of the elimination of approximately $5 million of
+minimum annual royalties under the previous Teva license
+agreement, offset by the interest costs associated with
+financing the transaction. In addition, The Company plans to
+further develop the acquired catalog and internet retailing
+business which had sales in excess of $4 million in 2002.
+Longer term, the Company believes it will be able to leverage
+the strong Teva brand name by selectively expanding into
+apparel, accessories, and other outdoor-related products, which
+the Company expects to accomplish primarily through licensing
+arrangements.
+Licenses 
+Teva License. Prior
+to the acquisition of the Teva Rights on November 25, 2002,
+the Company had been operating its Teva footwear business since
+1985 pursuant to license agreements with Mr. Thatcher, the
+Company’s former licensor for Teva.
+Under the previous license agreement, the Company
+had the exclusive license to the worldwide rights for the
+manufacture and distribution of Teva footwear through 2004,
+which was automatically renewable through 2008 and through 2011
+under two renewal options, provided that minimum required sales
+levels were achieved. Whereas the recent Teva acquisition
+includes all rights to all footwear, apparel and all other
+potential products, the previous licensing arrangement was for
+footwear only.
+The previous license agreement provided for a
+sliding scale of royalty rates, depending on sales levels, and
+included guaranteed minimum annual royalty amounts. The previous
+agreement also required the Company to grant the licensor 50,000
+stock options on the Company’s common stock annually, at an
+exercise price equal to the market value on the date of grant
+for the duration of the license term. Additionally, the previous
+license agreement included minimum spending levels for marketing
+and research and development, required the previous
+licensor’s approval of product, marketing, distribution and
+customers to whom the company could sell, restricted the volume
+of closeouts and seconds which the Company could sell and
+prohibited the transfer of substantially all of the
+Company’s property or stock to other parties. The previous
+license agreement also prohibited the Company from introducing
+and selling non-Teva sandals or other competing footwear
+products for the duration of the license term plus two years
+following termination of the license. Because the Company’s
+primary business is the design, marketing and sale of sandals
+and other footwear, these previous
+15
+Table of Contents 
+non-competition provisions significantly impaired
+the Company’s ability to compete and expand outside of Teva
+and severely restricted the Company’s future footwear
+business in the event that the Company was not able to renew its
+Teva license agreement beyond 2004. The recent Teva acquisition
+terminated these requirements and restrictions.
+Sale of Heirlooms, Inc. 
+The Company and Bob Eason, the designer and
+founder of Picante clothing, were parties to an agreement
+pursuant to which the Company owned 50% of Heirlooms, Inc.
+(“Heirlooms”), the manufacturer and distributor of
+Picante clothing. In January 2001, the Company sold its 50%
+interest in Heirlooms back to Mr. Eason for cash of
+approximately $1,200,000 and a note receivable of approximately
+$420,000, which is secured by a secondary security interest in
+the assets of Heirlooms. The selling price was for an amount
+that approximated the net carrying value of the underlying
+assets and, accordingly, the resulting gain on the sale was not
+significant. Mr. Eason is currently in default on payment
+of the $420,000 note receivable, which was due March 31,
+2002. The Company has recorded a bad debt reserve for the entire
+amount at December 31, 2002 and is currently in
+negotiations with Mr. Eason to endeavor to collect the
+amount due.
+Patents and Trademarks 
+As a result of the Teva acquisition, the Company
+now holds thirteen United States patents and one patent in each
+of Canada, Australia, New Zealand, South Korea, Germany, France,
+China, Japan and the United Kingdom for Teva footwear. As a
+result of the expiration of the applicable period during which
+foreign patent applications were required to have been filed by
+the former licensor, the Company does not and cannot hold
+certain patent rights in certain countries. The Company also
+currently holds Teva trademark rights in the United States and
+in several other countries, including, among others, France,
+Germany, the United Kingdom, Japan and Australia. The Company
+regards its proprietary rights as valuable assets and vigorously
+protects such rights against infringement by third parties.
+Prior to the Teva acquisition, Mr. Thatcher successfully
+enforced his patent and trademark rights in all 20 concluded
+lawsuits brought against such third parties.
+The Company owns the Simple and Ugg trademarks
+and has applied for or received registrations for them in the
+United States and in many foreign countries. The Company has
+selectively registered style category names and marketing
+slogans. In addition, the Company holds two design patents for
+its footwear products.
+In 1995, the Company acquired the patent and
+trademarks for Alp® sport sandals, and has also registered
+the Deckers® trademark.
+Backlog 
+Historically, the Company has encouraged and has
+received a significant portion of its orders as preseason
+orders, which are generally placed by customers approximately
+four to eight months prior to shipment date. As discussed above,
+the Company has emphasized this “futures” business, as
+compared to “at once” sales, as it allows the Company
+to better forecast its inventory requirements and assists with
+the Company’s sourcing schedule. As a result, the Company
+provides its customers with incentives to participate in such
+preseason programs. Unfilled customer orders
+(“backlog”), as of any date, represent orders
+scheduled to be shipped at a future date and do not represent
+firm sales. The mix of future and immediate delivery orders can
+vary significantly from quarter to quarter and year to year. The
+backlog as of a particular date is affected by a number of
+factors, including seasonality and the scheduling of manufacture
+and shipment of products as well as variations in the quarter to
+quarter and year to year preseason incentive programs. As a
+result, comparisons of backlog from period to period are not
+meaningful and the Company’s backlog at any given time is
+generally not indicative of sales levels expected to be achieved
+in the future.
+Competition 
+The casual, outdoor and athletic footwear markets
+are highly competitive. The Company believes that currently its
+largest competitors of the Teva line are Nike, Adidas,
+Timberland, Merrell, Columbia and
+16
+Table of Contents 
+Salomon. The principal competitors of
+Simple’s casual line include Steve Madden, Dr. Marten,
+Camper, and Kenneth Cole and of Simple’s sneaker/sandal
+line include Skechers, Diesel, Steve Madden, Puma and Guess.
+Ugg’s competitors include Merrell, Acorn, Aussie Dogs, LB
+Evans and Timberland, as well as retailers’ private label
+footwear.
+Competition in the Company’s footwear is
+primarily based on brand awareness, product quality, design,
+price points, fashion appeal, marketing, distribution,
+performance and brand positioning. The Company’s Teva line
+of footwear competes primarily on the basis of its authenticity
+as a recognized brand in the outdoor market, its consumer brand
+recognition as one of the first sandals of its kind, as well as
+its high performance nature and its diversity of styles offered.
+In addition, several of the most popular styles employ a
+distinctive patented strapping system, which contributes to
+performance and the brand’s consumer recognition. The
+Company competes through its Simple line as an alternative brand
+offering a diversity of simple, back-to-basics styles designed
+for a variety of recreational and leisure activities. Ugg
+competes primarily on the basis of its authenticity as well as
+its brand name recognition as a high quality premium luxury
+brand, identifiable with the United States sheepskin footwear
+market. The Company believes its business strategy has resulted
+in increased awareness for its brands. However, no assurance can
+be given that in the future the Company will be able to maintain
+or further increase its brand awareness, maintain or increase
+its market share or respond to changing consumer preferences.
+Risks of Foreign Operations/Restrictions on
+Imports 
+The Company’s operations are subject to the
+customary risks of doing business abroad, including, but not
+limited to, currency fluctuations, customs duties and related
+fees, various import controls and other non-tariff barriers
+(e.g., quotas), the cost of transportation, restrictions on the
+transfer of funds, labor unrest and strikes, and in certain
+parts of the world, political instability. Countries where the
+Company’s products are manufactured and sold may, from time
+to time, seek to increase customs duties or impose quotas, all
+of which have the potential to affect the Company’s
+operations and its ability to maintain or increase the current
+level of importation of the Company’s products. The Company
+is unable to predict the likelihood or frequency of the
+occurrence of any of these events.
+The products imported by the Company into the
+United States are subject to various duty rates which are
+established by law. At the present time these duties range
+between 8.5% and 12.5% of the entered value of footwear with
+uppers made principally of leather or sheepskin, and 6.0% and
+37.5%, plus $.90 per pair, of the entered value of footwear with
+uppers made principally of synthetic textiles or plastic.
+“Entered value” means the value taken into account for
+purposes of determining the amount of any customs duties or any
+other duties which may be imposed on the importation of any
+property. In general, the entered value is normally based on the
+price paid or payable by the Company to the seller of the
+imported merchandise.
+From time to time, the Company may be subject to
+claims for additional duties arising as a result of the United
+States Customs Service, or similar agencies of foreign
+countries, disagreeing with the classification and/or valuation
+used by the Company to enter various styles of footwear.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs has
+issued an opinion to the Company that certain popular Teva
+styles are covered by this anti-dumping duty legislation, which
+the Company has appealed. As a precautionary measure, the
+Company obtained and has been using alternative sourcing for the
+potentially impacted products from sources outside of China in
+an effort to avoid potential risk on future imports. In 2001,
+the European Commission added additional explanatory language
+that more clearly identified the types of footwear subject to
+anti-dumping duties. The Company believes that based on the new
+language, it is probable that the Company will not prevail in
+its appeal. Therefore, the Company has provided a reserve of
+$500,000, which is the Company’s estimate of its exposure
+for anti-dumping levies. In 2002, the European Commission
+repealed the anti-dumping duties on future footwear imports
+beginning November 1, 2002. While this recent repeal of the
+legislation allows for future imports from China without
+anti-dumping duties, it does not eliminate the potential
+liability for past imports.
+17
+Table of Contents 
+The European communities also impose quantitative
+limits on imports from China of certain leather upper and
+textile upper footwear. The Company is unable to predict the
+future extent of import quota restrictions or any changes in the
+scope or severity of such restrictions.
+Employees 
+At December 31, 2002, the Company employed
+approximately 133 full-time employees in its U.S. facilities and
+29 at its Hong Kong subsidiaries, none of whom is represented by
+a union. The Company believes its relationship with its
+employees is good.
+Item 2. Properties 
+The Company leases approximately 30,000 square
+feet for its corporate offices in Goleta, California and
+approximately 126,000 square feet for its warehouse facility in
+Ventura County, California. The Company also leases
+approximately 2,000 square feet of office space in Macau, 2,600
+square feet in China for its Far East staff, approximately 2,400
+square feet in Flagstaff, Arizona for the catalog/internet
+business offices and approximately 3,000 square feet for the
+catalog/internet business’s related warehouse. The Company
+paid approximately $1,188,000 in rent for all of its facilities
+in 2002. The term of the lease for the Company’s corporate
+office is currently on a month to month basis with a six-month
+termination notice required. The lease for the Company’s
+Ventura County warehouse expires in December 2006 with a three
+year option to extend at that time, the lease for the
+Company’s Macau office space expires in August 2003, the
+lease for the Company’s China office expires in June 2003,
+the lease for the Company’s catalog/internet business
+offices expires in November 2005 and the lease for the
+catalog/internet business’s warehouse expires in October
+2005. The Company believes that its existing corporate,
+manufacturing and warehousing space will be adequate to meet its
+current and foreseeable requirements, or that suitable
+additional or alternative space for the Company’s corporate
+office will be available as needed on commercially reasonable
+terms.
+Item 3. Legal
+Proceedings 
+An action was brought against the Company in
+Montana in 1995 by Molly Strong-Butts and Yeti by Molly, Ltd.
+(collectively, “Molly”) which alleged, among other
+things, that the Company violated a certain nondisclosure
+agreement and obtained purported trade secrets regarding a line
+of winter footwear which Deckers stopped producing in 1994. A
+jury verdict was obtained against the Company in district court
+in March 1999 aggregating $1,785,000 for the two plaintiffs. In
+August 2001 the United States Court of Appeals for the Ninth
+Circuit affirmed the district court’s decision for a
+judgment against the Company, resulting in a payment of
+approximately $2.0 million, including interest, which the
+Company paid in November 2001. In addition, the court of appeals
+reversed the district court’s refusal to consider an award
+of exemplary damages or attorney fees and remanded to the
+district court for further proceedings. On September 30,
+2002, the federal district judge ruled that the Company must pay
+an additional $4,290,000 to the plaintiffs to cover exemplary
+damages and plaintiff’s attorney fees. In November 2002,
+the Company negotiated and paid in full a final settlement of
+the litigation for $4,000,000. The Company recorded charges for
+this litigation of approximately $3,228,000 during 2002 and
+approximately $2,180,000 during 2001.
+The Company is a party to litigation in the
+Netherlands with a former European distributor (the
+“Distributor”), alleging breach of contract related to
+the Company’s termination of the previous distributor
+arrangement. The Company denies the allegations and has filed a
+countersuit against the Distributor for breach of contract. In
+the event that the Company is not successful in this matter, the
+Company believes it would have a maximum exposure of $550,000
+beyond the amounts provided for in the financial statements.
+The Company is also involved in routine
+litigation arising in the ordinary course of business. Such
+routine matters, if decided adversely to the Company, would not,
+in the opinion of management, have a material adverse effect on
+the financial condition or results of operations of the Company.
+From time to time, the Company is also involved in other legal
+proceedings to protect the Company’s various patents and
+trademarks from infringement by third parties. Any decision or
+settlement in any such infringement proceeding which allowed a
+third party to continue to manufacture and sell the products at
+issue could have an adverse effect on
+18
+Table of Contents 
+the Company’s sales to the extent such other
+similar competing products are purchased in lieu of the
+Company’s products.
+Item 4. Submission of Matters to
+a Vote of Security Holders 
+None.
+19
+Table of Contents 
+PART II 
+Item 5. Market for Registrant’s
+Common Equity and Related Stockholder Matters 
+The Company’s Common Stock is traded in the
+National Market System of the NASDAQ stock market (the
+“NMS”) under the symbol “DECK.”
+As of February 28, 2003, the number of
+holders of record of the Common Stock was 155 and the number of
+beneficial owners was approximately 2,000.
+2002 
+2001 
+High 
+Low 
+High 
+Low 
+First Quarter
+$ 
+6.30 
+$ 
+3.99 
+$ 
+5.13 
+$ 
+3.38 
+Second Quarter
+5.79 
+4.25 
+4.80 
+3.41 
+Third Quarter
+5.25 
+3.56 
+4.90 
+3.23 
+Fourth Quarter
+4.53 
+2.56 
+4.75 
+3.41 
+The Company has never declared or paid cash
+dividends on its Common Stock and currently intends to retain
+any income for use in its business and does not anticipate
+paying any cash dividends in the foreseeable future. Payment of
+dividends is within the discretion of the Company’s Board
+of Directors and will depend upon, among other factors, dividend
+restrictions within the Company’s credit facilities, the
+Company’s earnings, financial condition and capital
+requirements. The Company’s credit facility currently
+prohibits the issuance of dividends. See “Management’s
+Discussion and Analysis of Financial Condition and Results of
+Operations — Liquidity and Capital Resources.”
+20
+Table of Contents 
+Item 6. Selected Financial
+Data 
+The following tables set forth selected
+consolidated financial data of the Company as of and for each of
+the years in the five-year period ended December 31, 2002.
+Years ended December 31 
+2002 
+2001 
+2000 
+1999 
+1998 
+(In thousands, except per share data) 
+Income Statement Data 
+Net sales
+$ 
+99,107 
+91,461 
+113,738 
+111,099 
+103,534 
+Cost of sales
+57,577 
+52,903 
+63,540 
+66,051 
+67,268 
+Gross profit
+41,530 
+38,558 
+50,198 
+45,048 
+36,266 
+Selling, general and administrative expenses
+34,954 
+34,040 
+37,568 
+38,298 
+39,064 
+Litigation Charges
+3,228 
+2,180 
+— 
+— 
+— 
+Income (loss) from operations
+3,348 
+2,338 
+12,630 
+6,750 
+(2,798 
+) 
+Other expense (income)
+504 
+(473 
+) 
+295 
+1,508 
+1,320 
+Income (loss) before income taxes
+(benefit) and cumulative effect of accounting change
+2,844 
+2,811 
+12,335 
+5,242 
+(4,118 
+) 
+Income taxes (benefit)
+1,224 
+1,185 
+5,320 
+2,358 
+(1,211 
+) 
+Income (loss) before cumulative effect of
+accounting change
+1,620 
+1,626 
+7,015 
+2,884 
+(2,907 
+) 
+Cumulative effect of accounting change, net of
+$843,000 income tax benefit
+(8,973 
+) 
+— 
+— 
+— 
+— 
+Net income (loss)
+$ 
+(7,353 
+) 
+1,626 
+7,015 
+2,884 
+(2,907 
+) 
+Basic income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.17 
+0.18 
+0.77 
+0.33 
+(0.34 
+) 
+Cumulative effect of accounting change
+(0.96 
+) 
+— 
+— 
+— 
+— 
+Basic net income (loss) per common share
+$ 
+(0.79 
+) 
+0.18 
+0.77 
+0.33 
+(0.34 
+) 
+Average basic common shares
+9,328 
+9,247 
+9,093 
+8,834 
+8,632 
+Diluted income (loss) per common share
+before cumulative effect of accounting change
+$ 
+0.17 
+0.17 
+0.74 
+0.32 
+(0.34 
+) 
+Cumulative effect of accounting change
+(0.92 
+) 
+— 
+— 
+— 
+— 
+Diluted net income (loss) per common share
+$ 
+(0.75 
+) 
+0.17 
+0.74 
+0.32 
+(0.34 
+) 
+Average diluted common shares
+9,806 
+9,661 
+9,476 
+8,981 
+8,632 
+At December 31 
+2002 
+2001 
+2000 
+1999 
+1998 
+(In thousands) 
+Balance Sheet Data 
+Current assets
+$ 
+44,561 
+60,580 
+53,650 
+49,044 
+59,309 
+Current liabilities
+22,108 
+19,193 
+13,168 
+10,386 
+17,174 
+Total assets
+122,412 
+85,884 
+77,712 
+73,482 
+84,373 
+Long-term debt, less current installments
+35,077 
+159 
+449 
+6,276 
+15,199 
+Total stockholders’ equity
+65,227 
+66,532 
+64,095 
+56,820 
+52,000 
+21
+Table of Contents 
+Item 7. 
+Management’s Discussion and Analysis
+of Financial Condition and Results of Operations 
+The following discussion should be read in
+conjunction with the consolidated financial statements and notes
+thereto. This Annual Report on Form 10-K includes
+forward-looking statements within the meaning of
+Section 21E of the Securities Exchange Act of 1934 that
+involve risk and uncertainty, such as forward-looking statements
+relating to expectations regarding sales and income per share,
+expectations regarding the incremental earnings and benefits of
+the Teva acquisition, expectations regarding the Company’s
+liquidity, the potential impact of certain litigation and the
+impact of seasonality on the Company’s operations. Actual
+results may vary. Some of the factors that could cause actual
+results to differ materially from those in the forward-looking
+statements are identified in the accompanying “Risk
+Factors” section, the last paragraph under “Liquidity
+and Capital Resources”, the discussion under
+“Seasonality” and other sections of this Annual Report
+on Form 10-K. These forward-looking statements are based on
+the Company’s expectations as of March 2003. No one should
+assume that any forward-looking statement made by the Company
+will remain consistent with the Company’s expectations
+after the date the forward-looking statement is made. The
+Company disclaims any obligation to update any such factors or
+to publicly announce the results of any revisions to any of the
+forward-looking statements contained in this Annual Report on
+Form 10-K.
+Results of Operations 
+The following table is derived from the
+Company’s statement of operations and sets forth, for the
+periods indicated, certain operating data as a percentage of net
+sales.
+Years ended December 31 
+2002 
+2001 
+2000 
+Net sales
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+Cost of sales
+58.1 
+57.8 
+55.9 
+Gross profit
+41.9 
+42.2 
+44.1 
+Selling, general and administrative expenses
+35.3 
+37.2 
+33.0 
+Litigation costs
+3.2 
+2.4 
+— 
+Income from operations
+3.4 
+2.6 
+11.1 
+Other expense (income)
+0.5 
+(0.5 
+) 
+0.2 
+Income before income taxes and cumulative effect
+of accounting change
+2.9 
+3.1 
+10.9 
+Income taxes
+1.2 
+1.3 
+4.7 
+Income before cumulative effect of accounting
+change
+1.7 
+1.8 
+6.2 
+Cumulative effect of accounting change
+(9.1 
+) 
+— 
+— 
+Net income (loss)
+(7.4 
+) 
+1.8 
+6.2 
+Year Ended December 31, 2002 Compared
+to Year Ended December 31, 2001 
+The Company operates its business in four
+distinct operating segments: Teva, Simple, and Ugg wholesale
+divisions and its newly acquired internet and catalog retailing
+business.
+Total net sales increased by $7,646,000, or 8.4%,
+between the years ended December 31, 2002 and 2001.
+Aggregate wholesale sales of Teva increased to $64,849,000 for
+the year ended December 31, 2002 from $61,221,000 for the
+year ended December 31, 2001, a 5.9% increase. Teva
+wholesale sales represented 65.4% and 66.9% of net sales in the
+years ended December 31, 2002 and 2001, respectively. The
+increase in Teva wholesale sales was largely attributable to an
+improvement in retail sell-through, strength in sales of the
+Company’s sport sandals and the introduction of the new
+Fall 2002 line of closed toe rugged outdoor footwear. Also,
+certain European distributors brought in $1,600,000 more of the
+upcoming Spring season’s product in the fourth quarter of
+2002 than they did in the fourth quarter of 2001, a portion of
+which is likely a shift in sales between the fourth quarter of
+2002 and the first quarter of 2003. This shift in quarterly
+sales is expected to result in reduced European deliveries in
+the first quarter of 2003 compared to 2002. Net wholesale sales
+of footwear under the Simple product line decreased 6.4% to
+$10,159,000 from $10,853,000 for the year ended
+December 31, 2001, which decline was attributed to a
+shortfall in the international markets of $1,326,000.
+22
+Table of Contents 
+This international decline was partially offset
+by increased sales in the domestic market of $632,000 resulting
+primarily from an increase in the volume of discounted sales.
+Net wholesale sales of Ugg increased 22.4% to a record
+$23,491,000 for the year ended December 31, 2002 from
+$19,185,000 for the year ended December 31, 2001 as a
+result of continued geographical expansion across the United
+States, the success of its third quarter delivery program, the
+introduction of several new styles of casual footwear and strong
+retail sell-through for the brand. As part of the Company’s
+acquisition of Teva in November 2002, the Company acquired the
+catalog and internet retailing footwear business which sells the
+Company’s Teva, Simple and Ugg brands directly to
+consumers. For the period from the November 25, 2002
+acquisition date through December 31, 2002, net sales of
+the catalog and internet retailing business aggregated $608,000,
+including retail sales of Teva of $255,000, Simple of $43,000,
+and Ugg of $310,000. The Teva acquisition did not have a
+significant impact upon operations for 2002 due to its close
+proximity to year-end. Overall, international sales for all of
+the Company’s products decreased 1.3% to $20,829,000 from
+$21,096,000, representing 21.0% of net sales in 2002 and 23.1%
+in 2001. The volume of footwear sold increased 11.2% to
+4,120,000 pairs during the year ended December 31, 2002
+from 3,705,000 pairs during the year ended December 31,
+2001, for the reasons discussed above.
+The weighted-average wholesale price per pair
+sold during the year ended December 31, 2002 decreased 2.5%
+to $23.66 from $24.26 for the year ended December 31, 2001.
+The decrease was primarily due to a $1,445,000 increase in the
+volume of discounted sales during the year ended
+December 31, 2002, as well as the introduction of several
+new styles at lower price points to facilitate market
+penetration. These factors were partially offset by an increase
+in the proportion of Ugg sales to total sales, as the average
+selling price of the Ugg products is generally more than twice
+that of the Company’s Teva and Simple products.
+Cost of sales increased by $4,674,000, or 8.8%,
+to $57,577,000 for the year ended December 31, 2002,
+compared with $52,903,000 for the year ended December 31,
+2001. Gross profit increased by $2,972,000, or 7.7%, to
+$41,530,000 for the year ended December 31, 2002 from
+$38,558,000 for the year ended December 31, 2001 while
+gross margin decreased slightly to 41.9% from 42.2%. The
+decrease in gross margin was due to several factors including an
+increased impact of closeout sales, particularly for the Simple
+brand. As a result of the lowered net sales of Simple in recent
+years, the sales volume for some of Simple’s models is now
+below the purchase minimums imposed by the Company’s third
+party manufacturing factories. Accordingly, Simple is
+occasionally faced with buying more inventory of certain styles
+than it desires in order to meet factory production minimums.
+This ultimately results in a greater proportion of closeout
+sales for Simple than that of the Company’s other brands
+and contributed to a $1,445,000 increase in closeout sales for
+all brands in 2002 compared to 2001. In addition, the gross
+margin for 2002 was negatively impacted by a $260,000 factory
+charge for tooling costs in 2002. The impact of these items was
+partially offset by a $262,000 reduction in inventory
+write-downs in 2002 compared to 2001, gross margin improvement
+as a result of a shift in Ugg’s sales mix toward higher
+margin styles sourced from the Far East and the negotiation and
+receipt of a $300,000 chargeback from a factory in the first
+quarter of 2002 related to a dispute which arose in 2001.
+The Company carries its inventories at the lower
+of cost or market, using a reserve for write-downs for inventory
+obsolescence to adjust the carrying values to market where
+necessary based on ongoing reviews of estimated net realizable
+values of its inventories. During the year ended
+December 31, 2002, the Company had a net increase in the
+reserve for write-downs for inventory obsolescence of
+approximately $67,000 in order to write-down inventory to net
+realizable value on certain discontinued and slow-moving styles
+of Simple and Teva. During the year ended December 31,
+2001, the Company had a net decrease in the reserve for
+inventory obsolescence of approximately $321,000, primarily due
+to the sale of domestic inventory for Teva and Simple product
+for which a write-down had previously been recorded, as well as
+the sale of the Company’s remaining Canadian inventory, for
+which a write-down had also previously been recorded in
+connection with the Company’s transition to a distributor
+in the Canadian market.
+Selling, general and administrative expenses
+increased by $914,000, or 2.7%, to $34,954,000 for the year
+ended December 31, 2002, compared with $34,040,000 for the
+year ended December 31, 2001, and decreased as a percentage
+of net sales to 35.3% in 2002 from 37.2% in 2001. The increase
+in selling, general and administrative expenses was primarily
+due to an increase in personnel costs of $1,568,000, increased
+marketing spending of $1,435,000 and increased costs related to
+a new ERP computer system of $625,000 during the year
+23
+Table of Contents 
+ended December 31, 2002. These increases
+were partially offset by the elimination of approximately
+$809,000 of goodwill amortization resulting from the
+Company’s implementation of SFAS 142 on January 1,
+2002, a net reduction in warehousing costs of $516,000 resulting
+from bringing this function in-house, the net reductions in
+royalty and other expenses caused by the Company’s
+acquisition of Teva during the fourth quarter of 2002 of
+$479,000, reduced sales commissions of $384,000 paid to the
+Company’s independent sales force as a result of bringing
+more accounts in-house, and a $206,000 reduction in bank fees
+resulting from the Company’s move to a new bank in 2002,
+among other cost reductions. Despite the overall increase in
+dollar amounts, the selling, general and administrative expenses
+as a percentage of net sales decreased for the year ended
+December 31, 2002 compared to the year ended
+December 31, 2001 as certain operating costs are fixed and
+did not increase in proportion to the increase in consolidated
+net sales.
+The Company recorded litigation charges of
+$3,228,000 during the year ended December 31, 2002 and
+$2,180,000 during the year ended December 31, 2001 related
+to a lawsuit filed against the Company in Montana in 1995. The
+matter was settled in full and paid in full during the fourth
+quarter of 2002. For further discussion, see Note 8 to the
+accompanying consolidated financial statements.
+Income from operations for the Teva brand was
+$12,622,000 for the year ended December 31, 2002 compared
+to $12,407,000 for year ended December 31, 2001. The
+increase was largely due to the increase in sales in both the
+domestic and international markets, lower royalty and other
+costs resulting from the purchase of Teva during the fourth
+quarter of 2002 of $479,000 and reduced sales commissions of
+$319,000 paid to the Company’s independent sales force as a
+result of bringing more accounts in-house. These factors were
+partially offset by several factors including increased
+marketing costs of $906,000, increased bad debt expense of
+$261,000, slightly lower gross margins on the Company’s
+newly introduced closed toe footwear line and a $260,000 factory
+charge for tooling costs in 2002. The Simple brand experienced
+income from operations of $285,000 for the year ended
+December 31, 2002 compared to $241,000 for the year ended
+December 31, 2001, reflecting several offsetting factors.
+Income from operations for Simple was positively impacted by a
+decrease in inventory write-downs of $202,000, a reduction in
+bad debt expense of $345,000 and the elimination of goodwill
+amortization of $167,000 resulting from the Company’s
+adoption of SFAS 142 during the current year, among other
+cost reductions. These improvements were nearly offset by a
+decrease in sales, an increase in the proportion of closeout
+sales to regular full margin sales and a slight increase in
+marketing and promotional costs of $88,000. Income from
+operations for the Ugg brand was $6,589,000 for the year ended
+December 31, 2002 compared to $3,674,000 for the year ended
+December 31, 2001 largely due to the increase in sales,
+gross margin improvement as a result of a shift in sales mix
+toward higher margin styles sourced from the Far East, an
+increase in gross margin from the receipt of a factory
+chargeback of $300,000 in 2002 and the elimination of goodwill
+amortization of $590,000 resulting from the Company’s
+adoption of SFAS 142 during the current year, partially offset
+by a $420,000 increase in marketing spending. Income from
+operations of the Catalog/Internet retailing business acquired
+as part of the Teva acquisition was $194,000 in 2002,
+representing the operating earnings attributed to this newly
+acquired operating segment for the period from the
+November 25, 2002 acquisition date through
+December 31, 2002.
+Net interest expense was $406,000 for the year
+ended December 31, 2002 compared with net interest income
+of $308,000 for the year ended December 31, 2001, primarily
+due to the Company’s significantly increased borrowings in
+order to finance the purchase of Teva in 2002, as well as lower
+interest rates earned on invested cash in 2002.
+For the year ended December 31, 2002, income
+tax expense was $1,224,000, representing an effective income tax
+rate of 43.0%. For the year ended December 31, 2001, income
+tax expense was $1,185,000, representing an effective income tax
+rate of 42.2%. The effective income tax rate was slightly lower
+in 2001 due to the elimination of a previously existing
+valuation allowance against deferred tax assets in 2001 related
+to net operating loss and other income tax credit carryforwards
+being fully utilized. This was partially offset by the favorable
+impact of the elimination of the non-deductible goodwill
+amortization in 2002 resulting from the implementation of
+SFAS 142.
+On January 1, 2002, the Company implemented
+SFAS 142, Goodwill and Other Intangible Assets, which
+requires that goodwill and intangible assets with indefinite
+useful lives no longer be amortized to earnings but
+24
+Table of Contents 
+instead be reviewed periodically for impairment.
+The implementation of SFAS 142 resulted in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000), or $0.92 per diluted share, during the
+year ended December 31, 2002. This non-cash impairment
+charge included a write down of approximately $1.2 million,
+on an after tax basis, for Simple goodwill and approximately
+$7.8 million for Ugg goodwill. The impairment charge has
+been recorded as a cumulative effect of a change in accounting
+principle in the Company’s consolidated statement of
+operations for the year ended December 31, 2002.
+The Company experienced net income before
+cumulative effect of accounting change of $1,620,000, or $0.17
+per diluted share, for the year ended December 31, 2002 and a
+net loss after the cumulative effect of accounting change of
+$7,353,000, or $0.75 per diluted share. For the year ended
+December 31, 2001, the Company had net income of
+$1,626,000, or $0.17 per diluted share.
+Year Ended
+December 31, 2001 Compared to Year Ended December 31,
+2000 
+In 2001, the Company operated its business in
+three distinct operating segments: the Teva, Simple and Ugg
+wholesale divisions.
+Total net sales decreased by $22,277,000, or
+19.6%, between the years ended December 31, 2001 and 2000.
+The decrease is largely attributable to the weakness in the
+domestic economy, the softness in the retail environment, the
+reduction in international sales, an overall decrease in demand
+for sandals in 2001, delays in new product introductions for
+Teva, the colder weather during Spring 2001 in the
+Company’s key markets for Teva sandals and a $3,126,000
+reduction in sales to Track ‘n Trail, one of the
+Company’s largest customers, which filed for bankruptcy in
+April 2001. In addition, in January 2001, the Company sold its
+interest in Heirlooms, Inc., the distributor of Picante brand
+apparel, and approximately $2,316,000 of the decrease in sales
+is due to the exclusion of sales resulting from the
+Company’s sale of this brand. Aggregate net sales of Teva
+decreased to $61,221,000 for the year ended December 31,
+2001 from $79,732,000 for the year ended December 31, 2000,
+a 23.2% decrease. Net sales of Teva represented 66.9% and 70.1%
+of net sales in the years ended December 31, 2001 and 2000,
+respectively. Net sales of footwear under the Simple product
+line decreased 33.5% to $10,853,000 from $16,328,000 from the
+year ended December 31, 2000. Net sales of Ugg increased
+25.3% to a record $19,185,000 for the year ended
+December 31, 2001 from $15,310,000 for the year ended
+December 31, 2000 resulting from continued strength in the
+brand’s historically strong California market, a continuing
+expansion outside California, an overall increase in the
+popularity of the Ugg brand and the introduction of several new
+Ugg styles in 2001. Overall, international sales for all of the
+Company’s products decreased 32.2% to $21,096,000 from
+$31,135,000, representing 23.1% of net sales in 2001 and 27.4%
+in 2000. The volume of footwear sold decreased 13.1% to
+3,705,000 pairs during the year ended December 31, 2001
+from 4,265,000 pairs during the year ended December 31,
+2000, for the reasons discussed above.
+The weighted-average wholesale price per pair
+sold during the year ended December 31, 2001 decreased 4.9%
+to $24.26 from $25.51 for the year ended December 31, 2000.
+The decrease was primarily due to a $527,000 increase in the
+sales volume of closeouts and discounted products during 2001
+compared to 2000. In addition, the Company experienced a change
+in sales mix away from certain higher priced styles, including
+the leather casuals, and toward styles with lower average
+selling prices, including thongs and several styles introduced
+in 2001 at lower price points. This was partially offset by the
+impact of a shift in sales mix toward domestic sales, which
+generally had a 20% higher average selling price than sales in
+the international markets, and an increase in the sales of Ugg
+products in proportion to total sales, as the average selling
+price of the Ugg products is generally more than twice that of
+Company’s Teva and Simple products.
+Cost of sales decreased by $10,637,000, or 16.7%,
+to $52,903,000 for the year ended December 31, 2001,
+compared with $63,540,000 for the year ended December 31,
+2000. Gross profit decreased by $11,640,000, or 23.2%, to
+$38,558,000 for the year ended December 31, 2001 from
+$50,198,000 for the year ended December 31, 2000 and gross
+margin decreased to 42.2% from 44.1%. The decrease in gross
+margin was primarily due to an increased impact of closeout
+sales, as well as lower margins in the pricing of the 2001
+product line compared to the 2000 line in response to
+competitive pressures, partially offset by a reduction in
+inventory write-downs of $446,000.
+25
+Table of Contents 
+The Company carries its inventories at the lower
+of cost or market, using a reserve for inventory obsolescence to
+adjust the carrying values to market where necessary based on
+ongoing reviews of estimated net realizable values of its
+inventories. For the year ended December 31, 2001, the
+Company had a net decrease in the reserve for inventory
+obsolescence of approximately $321,000, primarily due to the
+sale of domestic inventory for Teva and Simple product for which
+a write-down had previously been recorded, as well as the sale
+of the Company’s remaining Canadian inventory, for which a
+write-down had also previously been recorded in connection with
+the Company’s transition to a distributor in the Canadian
+market. For the year ended December 31, 2000, the Company
+had net additions to the reserve for inventory obsolescence of
+approximately $435,000, reflecting inventory write-downs to
+estimated market values for Teva and Simple in the United States
+and write-downs of Canadian Teva and Simple inventory in
+connection with the shift to a distributor for that territory.
+Selling, general and administrative expenses
+decreased by $3,528,000, or 9.4%, to $34,040,000 for the year
+ended December 31, 2001, compared with $37,568,000 the year
+ended December 31, 2000, and increased as a percentage of
+net sales to 37.2% in 2001 from 33.0% in 2000. The decrease in
+selling, general and administrative expenses was primarily due
+to reductions in marketing costs of $978,000, lower commissions
+and royalty expense of an aggregate amount of $973,000 on the
+lower sales levels, the elimination of selling, general and
+administrative expenses associated with the Company’s
+former Heirlooms subsidiary of $860,000, reduced payroll costs
+of $679,000 and decreased bad debt expense of $311,000. In
+addition, during 2000 the Company had a non-recurring charge of
+approximately $400,000 for European anti-dumping duties dating
+back to 1997. These reductions were partially offset by
+increases in other areas, including additional amortization
+expense in 2001 of $522,000 resulting from the Company’s
+$1,600,000 payment for an extension of the option term for the
+Company’s option to acquire Teva, which was being amortized
+over the three year option term. Despite the overall decrease in
+dollar amounts, the selling, general and administrative expenses
+as a percentage of net sales increased for the year ended
+December 31, 2001 compared to the year ended
+December 31, 2000 as certain operating costs are fixed and
+did not decrease in proportion to the decrease in consolidated
+net sales.
+During the year ended December 31, 2001, the
+United States Court of Appeals affirmed the March 17, 1999
+judgment against the Company in connection with a case brought
+in Montana. As a result, the Company recorded a charge of
+$2,180,000 related to this litigation in 2001. The matter was
+settled in full and paid in full during the fourth quarter of
+2002. For further discussion, see Note 8 to the
+accompanying consolidated financial statements.
+Income from operations for the Teva brand were
+$12,407,000 for the year ended December 31, 2001 compared
+to $19,953,000 for year ended December 31, 2000. The
+decrease was largely due to the decrease in sales in both the
+domestic and international markets, an increased impact of
+closeout sales, lower gross margins in the pricing of the 2001
+line compared to the 2000 line and increased amortization costs
+of $522,000 related to the $1,600,000 extension of the Teva
+purchase option, partially offset by a reduced impact of
+inventory write-downs of $376,000 and lower marketing costs of
+$566,000. The Simple brand experienced income from operations of
+$241,000 for the year ended December 31, 2001 compared to
+$2,501,000 for the year ended December 31, 2000 as a result
+of the decrease in sales, the increased impact of closeout sales
+during the period, lower gross margins on certain newly
+introduced styles and the bad debt write-off for Track ‘n
+Trail of $257,000. Income from operations for the Ugg brand was
+$3,674,000 for the year ended December 31, 2001 compared to
+income from operations of $2,863,000 for the year ended
+December 31, 2000 largely due to the increase in sales,
+partially offset by the related increase in sales commissions of
+$211,000 and an increase in bad debt expense of $288,000,
+partially due to the Track ‘n Trail bankruptcy.
+Additionally, the income from operations for the Teva and Simple
+segments decreased versus that experienced in the year ago
+period as certain costs are fixed and did not decrease in
+proportion to the decrease in consolidated net sales.
+26
+Table of Contents 
+Net interest income was $308,000 for the year
+ended December 31, 2001 compared with net interest expense
+of $67,000 for the year ended December 31, 2000, primarily
+due to the Company’s significantly improved cash position
+in 2001.
+For the year ended December 31, 2001, income
+tax expense was $1,185,000, representing an effective income tax
+rate of 42.2%. For the year ended December 31, 2000, income
+tax expense was $5,320,000, representing an effective income tax
+rate of 43.1%. The decrease in the effective income tax rate in
+2001 is largely attributed to the elimination of a previously
+existing valuation allowance against deferred tax assets in 2001
+related to net operating loss and other income tax credit
+carryforwards being fully utilized, partially offset by the
+increased impact of non-deductible goodwill amortization in 2001.
+For the year ended December 31, 2001, the
+Company’s net income decreased 76.8%, to $1,626,000 from
+$7,015,000 for the year ended December 31, 2000, for the
+reasons discussed above.
+Off-Balance Sheet Arrangements 
+Other than operating leases discussed in
+Note 8 to the accompanying consolidated financial
+statements, the Company has no off-balance sheet arrangements.
+Outlook 
+Sales and Earnings per Share
+Expectations. For the year ending
+December 31, 2003, the Company currently expects net sales
+to range from $101 million to $106 million and diluted
+earnings per share to range from $0.41 to $0.46. For the
+calendar year 2003, including sales from the wholesale divisions
+and the newly acquired catalog and internet retailing business
+combined, the Company currently expects sales of its Teva
+product line to range from $67 million to $69 million;
+Simple to range from $11 million to $12 million; and
+Ugg to range from $23 million to $25 million.
+Liquidity and Capital Resources 
+The Company’s liquidity consists primarily
+of cash, trade accounts receivable, inventories and a revolving
+credit facility. At December 31, 2002, working capital was
+$22,453,000 including $3,941,000 of cash. Cash provided by
+operating activities aggregated $7,441,000 for the year ended
+December 31, 2002, which reflects the Company’s
+payment in 2002 of a $4,000,000 litigation settlement. Through
+improvements in cash collections efforts, trade accounts
+receivable increased only 2% to $20,851,000 at December 31,
+2002 compared to $20,395,000 at the end of 2001 while net sales
+during the fourth quarter ended December 31, 2002 increased
+23% as compared to the fourth quarter ended December 31,
+2001. During the same period, the Company also reduced its
+inventories by 7% from $18,425,000 at December 31, 2001 to
+$17,067,000 at December 31, 2002, reflecting a $3,617,000
+decrease in Teva inventory, a $2,081,000 increase in Ugg
+inventory and a $178,000 increase in Simple inventory at year
+end.
+In February 2002, the Company obtained a new
+revolving credit facility with Comerica Bank, which was
+subsequently amended in November 2002 in connection with the
+financing of the Teva acquisition (“the Facility”).
+The Facility expires June 1, 2004 and provides for a
+maximum availability of $20,000,000 including $18,000,000 of
+borrowing availability which is subject to a borrowing base,
+plus an additional $2,000,000 of availability beyond the
+borrowing base during the period from November 1, 2002
+through April 30, 2003 and from December 1, 2003 to
+April 30, 2004. In general, the borrowing base is equal to
+75% of eligible accounts receivable, as defined, and 50% of
+eligible inventory, as defined. The accounts receivable advance
+rate can increase or decrease depending on the Company’s
+accounts receivable dilution, which is calculated periodically.
+Up to $10,000,000 of borrowings may be in the form of letters of
+credit. The Facility bears interest at the bank’s prime
+rate (4.25% at December 31, 2002) or at the Company’s
+option, at LIBOR plus 1.0% to 2.5%, depending on the
+Company’s ratio of liabilities to earnings before interest,
+taxes, depreciation and amortization (“EBITDA”), and
+is secured by substantially all assets of the Company. The
+Facility included an upfront fee of $230,000 when it was amended
+in November 2002 and a subsequent annual commitment fee of
+$100,000 on November 25, 2003. At December 31, 2002, the
+Company had outstanding borrowings under the Facility of
+$4,775,000, a foreign currency reserve of approximately $800,000
+for outstanding forward contracts
+27
+Table of Contents 
+and had no outstanding letters of credit. The
+Company had credit availability under the Facility of
+$14,425,000 at December 31, 2002.
+In November 2002, in order to finance the Teva
+acquisition the Company entered into several additional
+financing arrangements including a $7,000,000 term loan from
+Comerica Bank (“the Term Loan”), $14,000,000 of
+subordinated debt from an unrelated party (“the
+Subordinated Debt”), $13,000,000 of junior subordinated
+notes from the Teva seller (“the Seller’s Notes”)
+and $5.5 million of preferred stock issued to the Teva
+seller (“the Preferred Stock”). Based on intercreditor
+agreements between the various parties, the Company is generally
+not permitted to repay the Subordinated Debt or the
+Seller’s Notes or repurchase (“call”) the
+Preferred Stock without the prior approval and consent of
+Comerica Bank, the senior lender. Likewise, the Company is
+generally not permitted to repay the Seller’s Notes or call
+the Preferred Stock without the prior approval and consent of
+both Comerica Bank and the holder of the Subordinated Notes.
+The $7,000,000 Term Loan is secured by all assets
+of the Company and bears interest at the prime rate (4.25% at
+December 31, 2002) plus 2.5%, or at the Company’s
+option at LIBOR plus 4.0%, depending on the Company’s ratio
+of liabilities to EBITDA. Interest is payable monthly, an
+initial principal payment of $1,750,000 is payable May 31,
+2003 and the remaining principal is payable in monthly
+installments of approximately $292,000 from June 2003 to
+November 2004.
+The $14,000,000 of Subordinated Debt is secured
+by a secondary security position in all of the Company’s
+assets, with principal payable in quarterly installments of
+$1,500,000 beginning November 2007 and the balance is due in
+full in November 2008. The Subordinated Debt bears interest
+at 16.75% of which 12% is payable monthly and 4.75% is deferred
+(at the Company’s option) and compounds monthly until the
+2008 maturity date. Except for certain limited exceptions, in
+the event that the Company decides to prepay all or a portion of
+the Subordinated Debt, it will be required to pay prepayment
+penalties ranging from 4% to 5% of the portion prepaid prior to
+November 2004, with no penalties for prepayments thereafter. In
+connection with arranging the Subordinated Debt, the Company
+incurred costs of approximately $1,000,000, including investment
+banking fees, loan commitment fees and legal costs. These
+origination costs are included in Other Assets in the
+accompanying financial statements and are being amortized over
+the term of the loan.
+The $13,000,000 of Seller’s Notes are
+unsecured and are due in November 2008. The Seller’s Notes
+bear interest at 9% of which 7% is payable annually and 2% is
+deferred (at the Company’s option) and compounds annually
+until the 2008 maturity date. The Seller’s Notes are
+subordinated to the Subordinated Debt, the Term Loan and the
+Facility and do not have prepayment penalties.
+The $5,500,000 of Preferred Stock pays no
+dividends unless dividends are declared and paid on the
+Company’s common stock, is callable by the Company through
+November 25, 2005 at face amount plus an additional 10% per
+year and is convertible into common stock by the holder after
+November 25, 2005, if it is still outstanding, at a
+conversion price of $3.632 per share. In addition, the preferred
+stock provides the holder with the right to designate one member
+of the Company’s Board of Directors. The Preferred Stock
+also votes on an as converted to common stock basis regarding
+other matters excluding the election of directors.
+The agreements underlying the Facility, the Term
+Loan, and the Subordinated Debt contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and cash flow coverage requirements, among others.
+The Company was in compliance with all covenants at
+December 31, 2002.
+Capital expenditures totaled $1,477,000 for the
+year ended December 31, 2002. The Company’s capital
+expenditures related primarily to costs associated with the
+Company’s implementation of a new computer system that was
+completed in 2002 as well as improvements to the racking system
+at the Company’s distribution center. The Company currently
+has no material commitments for future capital expenditures and
+estimates that capital expenditures for 2003 will likely range
+from $700,000 to $1,000,000. The actual amount of capital
+expenditures for 2003 may differ from this estimate, largely
+depending on any unforeseen needs to replace existing assets.
+In February 2002, the Company agreed to guarantee
+up to $1,000,000 of a home construction bank loan of an officer
+of the Company, which matures June 1, 2004. As of
+December 31, 2002, approximately $1,200,000 was outstanding
+under the officer’s loan from the bank. The guarantee,
+which was approved by the
+28
+Table of Contents 
+Company’s Board of Directors, was provided
+on behalf of the officer in order to avoid any need for the
+officer to sell a portion of his common stock in the Company.
+The fair value of the guarantee was immaterial at
+December 31, 2002.
+In November 2002, the Company guaranteed on
+behalf of a third party manufacturing factory up to $450,000 of
+its payables with a key supplier related to purchases through
+September 30, 2003. In prior years, the Company had
+provided a letter of credit, which the factory had used to
+obtain credit at its suppliers for the production of the
+Company’s Ugg inventory. The Company entered into this
+guarantee arrangement to avoid providing a letter of credit and
+thereby using a portion of the Company’s credit
+availability under its revolving credit facility. The Company
+received a corresponding personal guarantee of the related debt
+from the owner of the factory. The fair value of the guarantee
+was immaterial at December 31, 2002.
+The following table summarizes the Company’s
+contractual obligations at December 31, 2002 and the
+effects such obligations are expected to have on liquidity and
+cash flow in future periods.
+Payments due by period 
+Less than 
+More than 
+Contractual Obligations 
+Total 
+1 year 
+1-3 years 
+3-5 years 
+5 years 
+Long-Term Debt Obligations
+$ 
+39,028,000 
+3,951,000 
+7,983,000 
+1,500,000 
+25,594,000 
+Operating Lease Obligations
+2,981,000 
+972,000 
+1,379,000 
+630,000 
+— 
+Total
+$ 
+42,009,000 
+4,923,000 
+9,362,000 
+2,130,000 
+25,594,000 
+The Company’s Board of Directors has
+authorized the repurchase of up to 2,200,000 shares of common
+stock under a stock repurchase program. Such repurchases are
+authorized to be made from time to time in open market or in
+privately negotiated transactions, subject to price and market
+conditions, the Company’s cash availability and the terms
+of the Company’s new revolving credit facility, which
+provides that the proceeds from the Facility cannot be used for
+stock buy-back purposes. Under this program, the Company
+repurchased approximately 973,000 shares for aggregate cash
+consideration of approximately $7,499,000 prior to 1999. No
+shares were repurchased during or subsequent to the year ended
+December 31, 1999. At December 31, 2002, approximately
+1,227,000 shares remain available for repurchase under the
+program.
+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. However, risks and uncertainties
+which could impact the Company’s ability to maintain its
+cash position include the Company’s growth rate, the
+continued strength of the Company’s brands, its ability to
+respond to changes in consumer preferences, its ability to
+collect its receivables in a timely manner, its ability to
+effectively manage its inventory, and the volume of letters of
+credit used to purchase product, among others.
+Seasonality 
+Financial results for the outdoor and footwear
+industries are generally seasonal. Sales of each of the
+Company’s different product lines have historically been
+higher in different seasons with the highest percentage of Teva
+sales occurring in the first and second quarter of each year and
+the highest percentage of Ugg sales occurring in the fourth
+quarter, while the quarter with the highest percentage of annual
+sales for Simple has varied from year to year.
+Historically, the Company has experienced its
+highest sales level in the first quarter, which has been
+Teva’s strongest selling season, while the third quarter
+has historically had the lowest sales volume. In 2002, as a
+result of the continued growth in Ugg and the introduction of
+the Fall closed toe Teva offering, the fourth quarter was the
+quarter with the second highest sales volume. Given the
+Company’s expectations for each of its brands in 2003, the
+Company currently expects this seasonal pattern to continue in
+2003. The actual results could differ materially depending upon
+consumer preferences, availability of product, competition, and
+the Company’s customers continuing to carry and promote its
+various product lines, among other risks and uncertainties. See
+also the discussion regarding forward-looking statements under
+“Risk Factors”.
+29
+Table of Contents 
+Impact of Inflation 
+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.
+Critical Accounting Policies 
+Revenue Recognition. 
+The Company derives its revenue from the sale of its products.
+In general, revenue is recognized upon shipment of the
+merchandise. Domestically, goods are shipped directly from the
+Company’s domestic distribution center in California, and
+revenue is recognized upon shipment from the distribution center
+(FOB shipping point). For certain European accounts, product is
+shipped from the independent factories on a delivered duty paid
+basis (“DDP”) whereby the goods are delivered from the
+independent factories to a third party warehouse in the
+Netherlands where the goods are custom cleared and transferred
+to the distributors. In accordance with the DDP terms, the
+related revenue is recognized upon customs clearance. For
+virtually all other international accounts, the goods are
+delivered directly from the independent factories to the
+distributors on an FOB shipping point basis and revenue is
+recognized upon shipment from the factory. In all of the above
+cases, each of the following conditions have been met prior to
+revenue recognition: persuasive evidence of an arrangement
+exists, delivery has occurred, price is fixed and determinable
+and collectibility is reasonably assured.
+Use of Estimates. 
+The preparation of financial statements in conformity with
+accounting principles generally accepted in the United States
+requires management to make estimates and assumptions that
+affect the reported amounts of assets and liabilities,
+disclosures about contingent liabilities and the reported
+amounts of revenues and expenses during the reporting period.
+The Company bases these estimates and assumptions upon
+historical experience and existing, known circumstances. Actual
+results could differ from those estimates. Specifically,
+management must make estimates in the following areas:
+Allowance for doubtful
+accounts. The Company provides a
+reserve against receivables for estimated losses that may result
+from its customers’ inability to pay. The Company
+determines the amount of the reserve by analyzing known
+uncollectible accounts, aged receivables, economic conditions,
+historical experience and the customers’ credit-worthiness.
+Receivables which are subsequently determined to be
+uncollectible are charged or written off against this reserve.
+Reserves have been fully established for all expected or
+probable losses of this nature. The gross trade accounts
+receivable balance was $23.5 million and the allowance for
+doubtful accounts was $2.0 million at December 31,
+2002.
+Reserve for sales
+discounts. A significant portion of
+the Company’s domestic net sales and resulting accounts
+receivable have an associated discount which the customers may
+take, generally based upon meeting certain order, shipment and
+payment timelines. The Company estimates the amount of
+discounts, which are expected to be taken against the period-end
+accounts receivable, and records a corresponding reserve for
+sales discounts. The Company determines the amount of the
+reserve for sales discounts considering the amounts of available
+discounts in the period-end accounts receivable aging and
+historical discount experience, among other factors. At
+December 31, 2002 the reserve for sales discounts was
+approximately $0.7 million.
+Allowance for estimated
+returns. The Company records an
+allowance for anticipated future returns of goods shipped prior
+to period-end. In general, the Company accepts returns for
+damaged or defective products, but discourages returns for other
+reasons. The amount of the allowance is determined based upon
+any approved customer requests for returns, historical returns
+experience, and any recent events which could result in a change
+in historical returns rates, among other factors. The allowance
+for returns at December 31, 2002 was $1.3 million.
+Inventory
+write-downs. Inventories are stated at
+lower of cost or market. The Company reviews the various items
+in inventory on a regular basis for excess, obsolete and
+impaired inventory. In doing so, the Company writes the
+inventory down to estimated future net selling prices.
+Inventories were stated at $17.1 million, net of a reserve for
+inventory write-downs of $0.9 million at December 31, 2002.
+30
+Table of Contents 
+Valuation of goodwill, intangible and other
+long-lived assets. The Company
+periodically assesses the impairment of goodwill, intangible and
+other long-lived assets based on assumptions and judgments
+regarding the carrying value of these assets. The assets are
+considered to be impaired if the Company determines that the
+carrying value may not be recoverable. Among other
+considerations, the following factors are considered:
+• 
+the asset’s ability to continue to generate
+income from operations and positive cash flow in future periods;
+• 
+the Company’s future plans regarding
+utilization of the asset;
+• 
+any changes in legal ownership of rights to the
+asset; and
+• 
+changes in customer demand or acceptance of the
+related brand names, products or features associated with the
+assets.
+If the assets are considered to be impaired, an
+impairment loss is recognized equal to the amount by which the
+carrying value of the assets exceeds the fair value of the
+assets. In addition, as it relates to long-lived assets, the
+Company bases the useful lives and related amortization or
+depreciation expense on the estimate of the period that the
+assets will generate revenues or otherwise be used by the
+Company.
+In 2002, Statement of Financial Accounting
+Standards No. 142, “Goodwill and Other Intangible
+Assets,” became effective and as a result, the Company
+recorded a goodwill impairment charge in the first quarter of
+2002. See full discussion under “Recently Issued
+Pronouncements”.
+Litigation reserves. 
+Estimated amounts for claims that are probable and that can be
+reasonably estimated are recorded as liabilities in the
+consolidated balance sheets. The likelihood of a material change
+in these estimated reserves would be dependent on new claims as
+they may arise and the favorable or unfavorable outcome of the
+particular litigation.
+Valuation of deferred income
+taxes. Valuation allowances are
+established, when necessary, to reduce deferred tax assets to
+the amount expected to be realized. The likelihood of a material
+change in the expected realization of these assets depends on
+future taxable income, the ability to deduct tax loss
+carryforwards against future taxable income, and the
+effectiveness of the Company’s tax planning.
+Derivatives. The
+Company may enter into foreign currency forward contracts in the
+ordinary course of business to mitigate the risk associated with
+foreign exchange rate fluctuations related to sales of goods in
+Euros. Derivative financial instruments are not used for
+speculative purposes. At December 31, 2002, the Company had
+foreign currency forward contracts to purchase approximately
+$7.5 million U.S. dollars for approximately
+8.0 million Euros.
+In accordance with Statement of Financial
+Accounting Standards No. 133, Accounting for Derivative
+Instruments and Hedging Activities, these foreign currency
+cash flow hedges are recorded at fair value in the accompanying
+balance sheet with unrealized gains and losses on outstanding
+foreign currency forward contracts recorded in the financial
+statements as a component of other comprehensive income net of
+deferred taxes, to the extent they are effective hedges.
+Recently Issued Pronouncements 
+In July 2001, the FASB issued Statement of
+Financial Accounting Standards No. 141 (“SFAS
+141”), Business Combinations, and Statement of
+Financial Accounting Standards No. 142 (“SFAS
+142”), Goodwill and Other Intangible Assets . SFAS
+141 requires that the purchase method be used for all business
+combinations initiated after June 30, 2001. SFAS 142
+requires that goodwill and intangible assets with indefinite
+useful lives no longer be amortized to earnings, but instead be
+reviewed for impairment in accordance with the provisions of
+SFAS 142. The amortization of goodwill and intangible assets
+with indefinite useful lives ceases upon adoption of SFAS 142,
+which became effective for fiscal years starting after
+December 15, 2001. The Company implemented SFAS 142 as of
+January 1, 2002, resulting in a goodwill impairment charge
+of $8,973,000 (net of the related income tax benefit of
+$843,000), or $0.92 per diluted
+31
+Table of Contents 
+share, during the year ended December 31,
+2002. This non-cash impairment charge included a write down of
+approximately $1.2 million, on an after tax basis, for
+Simple goodwill and approximately $7.8 million for Ugg
+goodwill. As a result of these write downs, Simple has no
+remaining goodwill and Ugg has approximately $6.1 million
+of goodwill remaining at December 31, 2002, which has been
+included in intangible assets in the accompanying consolidated
+balance sheet at December 31, 2002. The impairment charge
+has been recorded as a cumulative effect of a change in
+accounting principle in the Company’s statement of
+operations for the year ended December 31, 2002. In
+addition, SFAS 142 provides that goodwill no longer be
+amortized, and as a result the Company recorded no goodwill
+amortization during the year ended December 31, 2002,
+whereas the Company had recorded approximately $809,000 and
+$811,000 for fiscal years ended December 31, 2001 and 2000,
+respectively.
+Effective January 1, 2002, the Company
+adopted Statement of Financial Accounting Standards No. 144
+(“SFAS 144”), Accounting for the Impairment or
+Disposal of Long-Lived Assets, which addresses financial
+accounting and reporting for the impairment or disposal of
+long-lived assets. While SFAS 144 supersedes Statement of
+Financial Accounting Standards No. 121, “Accounting
+for the Impairment of Long-Lived Assets and for Long-Lived
+Assets to be Disposed Of,” it retains many of the
+fundamental provisions of that statement. The adoption of this
+standard did not have a material impact on the Company’s
+financial position or results from operations.
+In June 2001, FASB issued SFAS No. 143,
+Accounting for Asset Retirement Obligations. SFAS
+No. 143 requires the Company to record the fair value of an
+asset retirement obligation as a liability in the period in
+which it incurs a legal obligation associated with the
+retirement of tangible long-lived assets that result from the
+acquisition, construction, development, and/or normal use of the
+assets. The Company also records a corresponding asset that is
+depreciated over the life of the asset. Subsequent to the
+initial measurement of the asset retirement obligation, the
+obligation will be adjusted at the end of each period to reflect
+the passage of time and changes in the estimated future cash
+flows underlying the obligation. The Company will adopt SFAS No.
+143 on January 1, 2003. The adoption of SFAS No. 143
+is not expected to have a material effect on the Company’s
+financial statements.
+In April 2002, the FASB issued SFAS No. 145,
+Rescission of FASB Statements No. 4, 44 and 64,
+Amendment of FASB Statement No. 13, and Technical
+Corrections . SFAS No. 145 amends existing guidance on
+reporting gains and losses on the extinguishment of debt to
+prohibit the classification of the gain or loss as
+extraordinary, as the use of such extinguishments have become
+part of the risk management strategy of many companies. SFAS
+No. 145 also amends SFAS No. 13 to require
+sale-leaseback accounting for certain lease modifications that
+have economic effects similar to sale-leaseback transactions.
+The provisions of the Statement related to the rescission of
+Statement No. 4 is applied in fiscal years beginning after
+May 15, 2002. Earlier application of these provisions is
+encouraged. The provisions of the Statement related to Statement
+No. 13 were effective for transactions occurring after
+May 15, 2002, with early application encouraged. The
+adoption of SFAS No. 145 is not expected to have a material
+effect on the Company’s financial statements.
+In June 2002, the FASB issued SFAS No. 146,
+Accounting for Costs Associated with Exit or Disposal
+Activities . SFAS No. 146 addresses financial accounting
+and reporting for costs associated with exit or disposal
+activities and nullifies Emerging Issues Task Force (EITF)
+Issue 94-3, Liability Recognition for Certain Employee
+Termination Benefits and Other Costs to Exit an Activity .
+The provisions of this Statement are effective for exit or
+disposal activities that are initiated after December 31,
+2002, with early application encouraged. The adoption of SFAS
+No. 146 is not expected to have a material effect on the
+Company’s financial statements.
+In November 2002, the FASB issued
+Interpretation No. 45, Guarantor’s Accounting and
+Disclosure Requirements for Guarantees, Including Indirect
+Guarantees of Indebtedness to Others, an interpretation of FASB
+Statements No. 5, 57 and 107 and a rescission of FASB
+Interpretation No. 34 . This Interpretation elaborates
+on the disclosures to be made by a guarantor in its interim and
+annual financial statements about its obligations under
+guarantees issued. The Interpretation also clarifies that a
+guarantor is required to recognize, at inception of a guarantee,
+a liability for the fair value of the obligation undertaken. The
+initial recognition and measurement provisions of the
+Interpretation are applicable to guarantees issued or modified
+after
+32
+Table of Contents 
+December 31, 2002 and are not expected to
+have a material effect on the Company’s financial
+statements. The disclosure requirements are effective for
+financial statements of interim and annual periods ending after
+December 31, 2002, and are included in the notes to the
+accompanying consolidated financial statements.
+In December 2002, the FASB issued SFAS
+No. 148, Accounting for Stock-Based Compensation –
+Transition and Disclosure, an amendment of FASB Statement
+No. 123 . This Statement amends FASB Statement
+No. 123, Accounting for Stock-Based Compensation , to
+provide alternative methods of transition for a voluntary change
+to the fair value method of accounting for stock-based employee
+compensation. In addition, this Statement amends the disclosure
+requirements of Statement No. 123 to require prominent
+disclosures in both annual and interim financial statements.
+Certain of the disclosure modifications are required for fiscal
+years ending after December 15, 2002 and are included in
+the notes to the accompanying consolidated financial statements.
+In January 2003, the FASB issued
+Interpretation No. 46, Consolidation of Variable
+Interest Entities, an interpretation of ARB No. 51 .
+This Interpretation addresses the consolidation by business
+enterprises of variable interest entities as defined in the
+Interpretation. The Interpretation applies immediately to
+variable interests in variable interest entities created after
+January 31, 2003, and to variable interests in variable
+interest entities obtained after January 31, 2003. The
+application of this Interpretation is not expected to have a
+material effect on the Company’s financial statements.
+Item 7A. Quantitative and Qualitative
+Disclosures about Market Risk 
+Derivative
+Instruments. A substantial portion of
+the Company’s European sales for the year ending
+December 31, 2003 will be denominated in Euros. In order to
+mitigate the Company’s exposure to fluctuations in the
+foreign currency exchange rate, the Company has entered into
+forward contracts for approximately 8.0 million Euros. See
+Note 9 to the accompanying consolidated financial
+statements.
+Market Risk. The
+Company’s market risk exposure with respect to financial
+instruments is to changes in the “prime rate” in the
+United States and changes in the Eurodollar rate. The
+Company’s revolving line of credit and senior term debt
+provide for interest on outstanding borrowings at rates tied to
+prime rate, or at the Company’s election tied to the
+Eurodollar rate. At December 31, 2002, the Company had
+outstanding borrowings aggregating $11,775,000 under these two
+credit facilities. A 1% increase in interest rates on current
+borrowings would have a $118,000 impact on income
+(loss) before income taxes.
+Item 8. Financial Statements and
+Supplementary Data 
+See Item 15(a) and page 34 for an index
+to the consolidated financial statements and supplementary
+information included herein.
+Item 9. Changes in and Disagreements
+With Accountants on Accounting and Financial
+Disclosure 
+None.
+33
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL
+STATEMENTS 
+AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+Independent Auditors’ Report
+35 
+Consolidated Balance Sheets as of
+December 31, 2002 and 2001
+36 
+Consolidated Statements of Operations for each of
+the years in the three-year period ended December 31, 2002
+37 
+Consolidated Statements of Stockholders’
+Equity and Other Comprehensive Income (Loss) for each of the
+years in the three-year period ended December 31, 2002
+38 
+Consolidated Statements of Cash Flows for each of
+the years in the three-year period ended December 31, 2002
+39 
+Notes to Consolidated Financial Statements
+40 
+Consolidated Financial Statement
+Schedule 
+Valuation and Qualifying Accounts
+61 
+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.
+34
+Table of Contents 
+INDEPENDENT AUDITORS’ REPORT 
+The Board of Directors and Stockholders
+Deckers Outdoor Corporation:
+We have audited the accompanying consolidated
+financial statements of Deckers Outdoor Corporation and
+subsidiaries as listed in the accompanying index. In connection
+with our audits of the consolidated financial statements, we
+also have audited the financial statement schedule as listed in
+the accompanying index. These consolidated financial statements
+and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an
+opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with
+auditing standards generally accepted in the United States of
+America. 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, 2002 and 2001 and the
+results of their operations and their cash flows for each of the
+years in the three-year period ended December 31, 2002 in
+conformity with accounting principles generally accepted in the
+United States of America. 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.
+As discussed in note 13 to the consolidated
+financial statements, the Company implemented Statement of
+Financial Accounting Standards No. 142, Goodwill and
+Other Intangible Assets, on January 1, 2002.
+KPMG LLP
+Los Angeles, California
+February 17, 2003
+35
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+December 31, 2002 and 2001 
+2002 
+2001 
+ASSETS (NOTE 4)
+Current assets:
+Cash and cash equivalents
+$ 
+3,941,000 
+16,689,000 
+Trade accounts receivable, less allowance for
+doubtful accounts and sales discounts of $2,635,000 and
+$2,820,000 as of December 31, 2002 and 2001, respectively
+20,851,000 
+20,395,000 
+Inventories
+17,067,000 
+18,425,000 
+Prepaid expenses and other current assets
+783,000 
+1,694,000 
+Refundable income taxes (note 5)
+— 
+995,000 
+Deferred tax assets (note 5)
+1,919,000 
+2,382,000 
+Total current assets
+44,561,000 
+60,580,000 
+Property and equipment, at cost, net (note 3)
+3,864,000 
+3,857,000 
+Trademarks, net (notes 12 and 13)
+51,152,000 
+— 
+Goodwill, net (notes 12 and 13)
+17,955,000 
+16,597,000 
+Intangible assets (notes 12 and 13)
+1,666,000 
+3,344,000 
+Deferred tax assets (note 5)
+1,428,000 
+778,000 
+Other assets, net
+1,786,000 
+728,000 
+$ 
+122,412,000 
+85,884,000 
+LIABILITIES AND STOCKHOLDERS’ EQUITY
+Current liabilities:
+Notes payable and current installments of
+long-term debt (note 4)
+$ 
+3,951,000 
+290,000 
+Trade accounts payable
+12,916,000 
+13,915,000 
+Reserve for returns
+1,255,000 
+1,235,000 
+Accrued sales commissions
+434,000 
+1,215,000 
+Accrued payroll
+1,908,000 
+982,000 
+Other accrued expenses
+912,000 
+1,556,000 
+Income tax payable
+732,000 
+— 
+Total current liabilities
+22,108,000 
+19,193,000 
+Long-term debt, less current installments
+(note 4)
+35,077,000 
+159,000 
+Commitments and contingencies (note 8)
+Stockholders’ equity (note 6):
+Series A preferred stock at liquidation
+preference, $0.01 par value. Preferred stock, 5,000,000 shares
+(1,375,000 Series A); issued and outstanding 1,375,000
+shares at December 31, 2002
+5,500,000 
+— 
+Common stock, $0.01 par value. Authorized
+20,000,000 shares; issued 10,434,075 shares and outstanding
+9,461,123 shares at December 31, 2002; issued 10,297,309
+shares and outstanding 9,324,357 shares at December 31, 2001
+95,000 
+93,000 
+Additional paid-in capital
+26,210,000 
+25,689,000 
+Retained earnings
+33,898,000 
+41,251,000 
+Accumulated other comprehensive income (loss)
+(note 9)
+(476,000 
+) 
+123,000 
+65,227,000 
+67,156,000 
+Less note receivable from stockholder/former
+officer
+— 
+624,000 
+Total stockholders’ equity
+65,227,000 
+66,532,000 
+$ 
+122,412,000 
+85,884,000 
+See accompanying notes to consolidated financial
+statements.
+36
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF
+OPERATIONS 
+Three-year period ended December 31,
+2002 
+2002 
+2001 
+2000 
+Net sales (note 10)
+$ 
+99,107,000 
+91,461,000 
+113,738,000 
+Cost of sales
+57,577,000 
+52,903,000 
+63,540,000 
+Gross profit
+41,530,000 
+38,558,000 
+50,198,000 
+Selling, general, and administrative expenses
+(note 7)
+34,954,000 
+34,040,000 
+37,568,000 
+Litigation costs (note 8)
+3,228,000 
+2,180,000 
+— 
+Income from operations
+3,348,000 
+2,338,000 
+12,630,000 
+Other expense (income):
+Interest expense (income), net
+406,000 
+(308,000 
+) 
+67,000 
+Other expense (income)
+98,000 
+(165,000 
+) 
+228,000 
+504,000 
+(473,000 
+) 
+295,000 
+Income before income taxes and cumulative effect
+of a change in accounting principle
+2,844,000 
+2,811,000 
+12,335,000 
+Income taxes (note 5)
+1,224,000 
+1,185,000 
+5,320,000 
+Income before cumulative effect of a change in
+accounting principle
+1,620,000 
+1,626,000 
+7,015,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit of $843,000 (note 13)
+(8,973,000 
+) 
+— 
+— 
+Net income (loss)
+$ 
+(7,353,000 
+) 
+1,626,000 
+7,015,000 
+Basic income (loss) per common share before
+cumulative
+effect of a change in accounting principle
+$ 
+0.17 
+0.18 
+0.77 
+Cumulative effect of a change in accounting
+principle
+(0.96 
+) 
+— 
+— 
+Basic net income (loss) per common share
+$ 
+(0.79 
+) 
+0.18 
+0.77 
+Diluted income (loss) per common share
+before cumulative effect of a change in accounting principle
+$ 
+0.17 
+0.17 
+0.74 
+Cumulative effect of a change in accounting
+principle
+(0.92 
+) 
+— 
+— 
+Diluted net income (loss) per common share
+$ 
+(0.75 
+) 
+0.17 
+0.74 
+Weighted average shares:
+Basic
+9,328,000 
+9,247,000 
+9,093,000 
+Diluted
+9,806,000 
+9,661,000 
+9,476,000 
+See accompanying notes to consolidated financial
+statements.
+37
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
+EQUITY 
+AND OTHER COMPREHENSIVE INCOME
+(LOSS) 
+Three-year period ended December 31,
+2002 
+Accumulated 
+Note receivable 
+Preferred stock 
+Common stock 
+Additional 
+other 
+from 
+Total 
+paid-in 
+Retained 
+comprehensive 
+stockholder/ 
+stockholders’ 
+Comprehensive 
+Shares 
+Amount 
+Shares 
+Amount 
+capital 
+earnings 
+income 
+former officer 
+equity 
+income (loss) 
+Balance at December 31, 1999
+— 
+$ 
+— 
+9,065,005 
+$ 
+91,000 
+24,743,000 
+32,610,000 
+— 
+(624,000 
+) 
+56,820,000 
+— 
+Fair value of options issued under Teva license
+agreement 
+(note 7)
+— 
+— 
+— 
+— 
+78,000 
+— 
+— 
+— 
+78,000 
+— 
+Common stock issued under stock incentive plan
+— 
+— 
+40,671 
+— 
+118,000 
+— 
+— 
+— 
+118,000 
+— 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+30,301 
+— 
+64,000 
+— 
+— 
+— 
+64,000 
+— 
+Net earnings
+— 
+— 
+— 
+— 
+— 
+7,015,000 
+— 
+— 
+7,015,000 
+7,015,000 
+Total comprehensive income
+$ 
+7,015,000 
+Balance at December 31, 2000
+— 
+— 
+9,135,977 
+91,000 
+25,003,000 
+39,625,000 
+— 
+(624,000 
+) 
+64,095,000 
+— 
+Fair value of options issued under Teva license
+agreement 
+(note 7)
+— 
+— 
+— 
+— 
+152,000 
+— 
+— 
+— 
+152,000 
+— 
+Common stock issued under stock incentive plan
+— 
+— 
+162,344 
+2,000 
+475,000 
+— 
+— 
+— 
+477,000 
+— 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+26,036 
+— 
+59,000 
+— 
+— 
+— 
+59,000 
+— 
+Net earnings
+— 
+— 
+— 
+— 
+— 
+1,626,000 
+— 
+— 
+1,626,000 
+1,626,000 
+Unrealized gains on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+123,000 
+— 
+123,000 
+123,000 
+Total comprehensive income
+$ 
+1,749,000 
+Balance at December 31, 2001
+— 
+— 
+9,324,357 
+93,000 
+25,689,000 
+41,251,000 
+123,000 
+(624,000 
+) 
+66,532,000 
+— 
+Fair value of equity issued as consideration in
+the acquisition of Teva (note 12)
+1,375,000 
+5,500,000 
+100,000 
+1,000 
+554,000 
+— 
+— 
+— 
+6,055,000 
+— 
+Fair value of options issued under Teva license
+agreement 
+(note 7)
+— 
+— 
+— 
+— 
+111,000 
+— 
+— 
+— 
+111,000 
+— 
+Common stock issued under stock incentive plan
+— 
+— 
+124,896 
+2,000 
+442,000 
+— 
+— 
+— 
+444,000 
+— 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+11,870 
+— 
+37,000 
+— 
+— 
+— 
+37,000 
+— 
+Net loss
+— 
+— 
+— 
+— 
+— 
+(7,353,000 
+) 
+— 
+— 
+(7,353,000 
+) 
+(7,353,000 
+) 
+Write off of note receivable from
+stockholder/former officer
+— 
+— 
+(100,000 
+) 
+(1,000 
+) 
+(623,000 
+) 
+— 
+— 
+624,000 
+— 
+— 
+Foreign currency translation adjustment
+— 
+— 
+— 
+— 
+— 
+— 
+130,000 
+— 
+130,000 
+130,000 
+Unrealized losses on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+(729,000 
+) 
+— 
+(729,000 
+) 
+(729,000 
+) 
+Total comprehensive loss
+$ 
+(7,952,000 
+) 
+Balance at December 31, 2002
+1,375,000 
+$ 
+5,500,000 
+9,461,123 
+$ 
+95,000 
+26,210,000 
+33,898,000 
+(476,000 
+) 
+— 
+65,227,000 
+See accompanying notes to consolidated financial
+statements.
+38
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH
+FLOWS 
+Three-year period ended December 31,
+2002 
+2002 
+2001 
+2000 
+Cash flows from operating
+activities: 
+Net income (loss)
+$ 
+(7,353,000 
+) 
+1,626,000 
+7,015,000 
+Adjustments to reconcile net income
+(loss) to net cash provided by operating activities:
+Cumulative effect of accounting change
+8,973,000 
+— 
+— 
+Depreciation and amortization of property and
+equipment
+1,535,000 
+1,492,000 
+1,374,000 
+Amortization of intangible assets
+1,049,000 
+2,085,000 
+1,566,000 
+Provision for doubtful accounts
+1,785,000 
+1,658,000 
+1,994,000 
+Gain on sale of Heirlooms
+— 
+(185,000 
+) 
+— 
+Loss on disposal of assets
+23,000 
+10,000 
+57,000 
+Deferred tax provision
+656,000 
+(444,000 
+) 
+(1,591,000 
+) 
+Stock compensation
+192,000 
+227,000 
+130,000 
+Changes in assets and liabilities:
+(Increase) decrease in:
+Trade accounts receivable
+(2,224,000 
+) 
+784,000 
+(741,000 
+) 
+Inventories
+1,749,000 
+(2,012,000 
+) 
+957,000 
+Prepaid expenses and other current assets
+943,000 
+(594,000 
+) 
+841,000 
+Refundable income taxes
+995,000 
+(961,000 
+) 
+1,505,000 
+Other assets
+286,000 
+275,000 
+(317,000 
+) 
+Increase (decrease) in:
+Trade accounts payable
+(844,000 
+) 
+5,951,000 
+759,000 
+Accrued expenses
+(1,056,000 
+) 
+1,137,000 
+1,102,000 
+Income taxes payable
+732,000 
+— 
+— 
+Net cash provided by operating activities
+7,441,000 
+11,049,000 
+14,651,000 
+Cash flows from investing
+activities: 
+Cash paid for acquisition of Teva
+(43,254,000 
+) 
+— 
+— 
+Proceeds from sale of property and equipment
+— 
+18,000 
+19,000 
+Purchase of property and equipment
+(1,477,000 
+) 
+(2,455,000 
+) 
+(1,755,000 
+) 
+Proceeds from the sale of Heirlooms
+— 
+599,000 
+— 
+Cash paid for intangible assets
+— 
+(1,566,000 
+) 
+— 
+Net cash used in investing activities
+(44,731,000 
+) 
+(3,404,000 
+) 
+(1,736,000 
+) 
+Cash flows from financing
+activities: 
+Net borrowings (repayments) under line of
+credit
+4,775,000 
+— 
+(5,834,000 
+) 
+Proceeds from issuance of long-term debt
+21,000,000 
+— 
+644,000 
+Repayments of long-term debt
+(290,000 
+) 
+(402,000 
+) 
+(431,000 
+) 
+Cash payments of loan fees
+(1,343,000 
+) 
+— 
+— 
+Cash received from issuances of common stock
+400,000 
+389,000 
+130,000 
+Net cash provided by (used in) financing
+activities
+24,542,000 
+(13,000 
+) 
+(5,491,000 
+) 
+Net increase (decrease) in cash and cash
+equivalents
+(12,748,000 
+) 
+7,632,000 
+7,424,000 
+Cash and cash equivalents at beginning of year
+16,689,000 
+9,057,000 
+1,633,000 
+Cash and cash equivalents at end of year
+$ 
+3,941,000 
+16,689,000 
+9,057,000 
+Supplemental disclosure of cash flow information:
+Cash paid during the year for:
+Interest
+$ 
+264,000 
+112,000 
+352,000 
+Income taxes
+836,000 
+3,308,000 
+5,971,000 
+Supplemental disclosure of noncash investing and
+financing activities:
+In 2002, the Company issued to the seller
+1,375,000 shares of Series A preferred stock with a value
+of $5,500,000, 100,000 shares of common stock with a value of
+$368,000, options to purchase 100,000 shares of common stock
+with a value of $187,000 and $13,000,000 of long-term debt in
+connection with the acquisition of Teva.
+In 2000, the Company incurred $715,000 of
+long-term debt in connection with the acquisition of $568,000 of
+property and equipment and $147,000 of prepaid expenses.
+See accompanying notes to consolidated financial
+statements.
+39
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements 
+December 31, 2002 and 2001 
+(1) The Company and Summary of
+Significant Accounting Policies 
+(a) 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”). All significant intercompany balances and
+transactions have been eliminated in consolidation.
+The Company builds niche products into global
+lifestyle brands by designing and marketing innovative,
+functional, and fashion-oriented footwear, developed for both
+high performance outdoor activities and everyday casual
+lifestyle use.
+(b) Inventories 
+Inventories, principally finished goods, are
+stated at the lower of cost (first-in, first-out) or market (net
+realizable value).
+(c) Revenue
+Recognition 
+The Company recognizes revenue when products are
+shipped and the customer takes title and assumes risk of loss,
+collection of relevant receivable is probable, persuasive
+evidence of an arrangement exists, and the sales price is fixed
+or determinable. Allowances for estimated returns, discounts,
+and bad debts are provided for when related revenue is recorded.
+Amounts billed for shipping and handling costs are recorded as a
+component of net sales, totaling $993,000, $1,116,000, and
+$1,399,000 for the years ended December 31, 2002, 2001, and
+2000, respectively. Related costs paid to third-party shipping
+companies are recorded as a cost of sales, totaling $1,124,000,
+$983,000, and $1,244,000 for the years ended December 31,
+2002, 2001, and 2000, respectively.
+(d) Goodwill
+and Other Intangibles Assets 
+Intangible assets consist primarily of goodwill,
+trademarks, patents, and noncompete covenants arising from the
+application of purchase accounting. On January 1, 2002, the
+Company adopted Statement of Financial Accounting Standards
+No. 142 (SFAS 142), Goodwill and Other Intangible
+Assets . Accordingly, goodwill and intangible assets with
+indefinite useful lives are no longer amortized, but instead
+tested for impairment at least annually in accordance with the
+provisions of SFAS 142. Intangible assets with estimable useful
+lives are amortized over their respective estimated useful lives
+to their estimated residual values and reviewed for impairment
+in accordance with SFAS 144, Accounting for Impairment
+or Disposal of Long-Lived Assets .
+In connection with the implementation of
+SFAS 142, a goodwill impairment charge of $8,973,000 (net
+of related income tax benefit of $843,000) was recorded for the
+year ended December 31, 2002.
+(e) Impairment
+of Long-Lived Assets 
+SFAS No. 144 provides a single accounting
+model for long-lived assets to be disposed of. SFAS No. 144
+also changes the criteria for classifying an asset as held for
+sale and broadens the scope of businesses to be disposed of that
+qualify for reporting as discontinued operations and changes the
+timing of recognizing losses on such operations. The Company
+adopted SFAS No. 144 on January 1, 2002. The adoption
+of SFAS No. 144 did not affect the Company’s financial
+statements.
+In accordance with SFAS No. 144, long-lived
+assets, such as property, plant, and equipment, and purchased
+intangibles subject to amortization are reviewed for impairment
+whenever events or changes in
+40
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+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 of an asset to estimated undiscounted future cash flows
+expected to be generated by the asset. If the carrying amount of
+an asset exceeds its estimated future cash flows, an impairment
+charge is recognized by the amount by which the carrying amount
+of the asset exceeds the fair value of the asset.
+Prior to the adoption of SFAS No. 144, the
+Company accounted for long-lived assets in accordance with SFAS
+No. 121, Accounting for Impairment of Long-Lived Assets
+and for Long-Lived Assets to Be Disposed Of .
+(f) Depreciation
+and Amortization 
+Depreciation of property and equipment is
+computed using the straight-line method based on estimated
+useful lives ranging from one to seven years. Leasehold
+improvements are amortized on the straight-line basis over their
+estimated economic useful lives or the lease term, whichever is
+shorter.
+(g) Fair
+Value of Financial Instruments 
+The fair values of the Company’s cash
+equivalents, trade accounts receivable, prepaid expenses and
+other current assets, refundable income taxes, trade accounts
+payable, and accrued expenses approximate the carrying values
+due to the relatively short maturities of these instruments.
+The fair value of the Company’s revolving
+credit line approximates the carrying value due to variable
+interest rates associated with the credit line.
+The fair values of the Company’s other notes
+payable are estimated by discounting future cash flows of each
+instrument at rates currently available to the Company for
+similar debt instruments of comparable maturities by the
+Company’s bankers. The fair values of these notes
+approximate the carrying value.
+The fair values of the guarantees of
+officer’s debt and factory debt are estimated based on
+their expected present values (see note 8).
+(h) Stock
+Compensation 
+The Company accounts for stock-based compensation
+under the provisions of Statement of Financial Accounting
+Standards No. 123, Accounting for Stock-Based
+Compensation (SFAS 123). Under the provisions of SFAS
+123, the Company has elected to continue to measure compensation
+cost for employees and nonemployee directors of the Company
+under the intrinsic value method of APB No. 25 and comply
+with the pro forma disclosure requirements under SFAS 123.
+The Company applies the fair value techniques of SFAS 123 to
+measure compensation cost for options/warrants granted to
+nonemployees.
+41
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+The following table illustrates the effects on
+net income (loss) if the fair value-based method had been
+applied to all outstanding and unvested awards in each period.
+2002 
+2001 
+2000 
+Net income (loss), as reported
+$ 
+(7,353,000 
+) 
+1,626,000 
+7,015,000 
+Add stock-based employee compensation expense
+included in reported net income, net of tax
+109,000 
+132,000 
+75,000 
+Deduct total stock-based employee compensation
+expense under fair value-based method for all awards, net of tax
+(494,000 
+) 
+(598,000 
+) 
+(403,000 
+) 
+Pro forma net income (loss)
+$ 
+(7,738,000 
+) 
+1,160,000 
+6,687,000 
+Pro forma net income (loss) per share:
+Basic
+$ 
+(0.83 
+) 
+0.13 
+0.74 
+Diluted
+(0.79 
+) 
+0.12 
+0.71 
+(i) Use of
+Estimates 
+Management of the Company has made a number of
+estimates and assumptions relating to the reporting of assets,
+liabilities, revenues, and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated
+financial statements in conformity with accounting principles
+generally accepted in the United States of America. Significant
+areas requiring the use of management estimates relate to
+inventory reserves, allowances for bad debts, returns and
+discounts, impairment assessments and charges, deferred taxes,
+depreciation and amortization, litigation reserves, fair value
+of financial instruments, fair value of acquired intangibles,
+assets and liabilities, and hedging activities. Actual results
+could differ from these estimates.
+(j) Research
+and Development Costs 
+Research and development costs are charged to
+expense as incurred. Such costs amounted to $1,092,000,
+$1,034,000, and $1,076,000 in 2002, 2001, and 2000, respectively.
+(k) 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 2002,
+2001, and 2000 were $7,456,000, $6,087,000, and $7,108,000,
+respectively. Included in prepaid and other current assets at
+December 31, 2002 and 2001 were $403,000 and $714,000,
+respectively, related to prepaid advertising and promotion
+expenses for programs that take place after December 31,
+2002 and 2001, respectively.
+(l) Income
+Taxes 
+Income taxes are accounted for under the asset
+and liability method. Deferred tax assets and liabilities are
+recognized for the future tax consequences attributable to
+differences between the financial statement carrying amounts of
+existing assets and liabilities and their respective tax bases.
+Deferred tax assets and liabilities are measured using enacted
+tax rates expected to apply to taxable income in the years in
+which those temporary differences are expected to be recovered
+or settled. The effect on deferred taxes of a change in tax
+rates is recognized in income in the period that includes the
+enactment date.
+42
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+(m) Earnings
+per Share 
+Basic earnings per share (EPS) is computed
+by dividing net income (loss) available to common
+stockholders by the weighted average number of common shares
+outstanding for the period. Diluted EPS reflects the potential
+dilution from securities that could share in the earnings of the
+Company. Antidilutive securities are excluded from diluted EPS.
+The reconciliations of basic to diluted weighted
+average shares are as follows:
+2002 
+2001 
+2000 
+Income (loss) used for basic and diluted
+income (loss) per share:
+Income before cumulative effect of a change in
+accounting principle
+$ 
+1,620,000 
+1,626,000 
+7,015,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+(8,973,000 
+) 
+— 
+— 
+Net income (loss)
+$ 
+(7,353,000 
+) 
+1,626,000 
+7,015,000 
+Weighted average shares used in basic computation
+9,328,000 
+9,247,000 
+9,093,000 
+Dilutive effect of stock options
+478,000 
+414,000 
+383,000 
+Weighted average shares used for diluted
+computation
+9,806,000 
+9,661,000 
+9,476,000 
+Options to purchase 286,000, 282,000, and 267,000
+shares of common stock at prices ranging from $4.80 to $9.88,
+$5.25 to $9.88, and $5.50 to $13.75 were outstanding during
+2002, 2001, and 2000, respectively, but were not included in the
+computation of diluted earnings per share because the
+options’ exercise price was greater than the average market
+price of the common shares during the respective periods, and
+therefore their inclusion would be antidilutive.
+(n) Foreign
+Currency Translation 
+The Company considers the U.S. dollar as the
+functional currency. Assets and liabilities of the foreign
+operations denominated in local currencies are translated at the
+rate of exchange at the balance sheet date. Revenues and
+expenses are translated at the weighted average rate of exchange
+during the period.
+(o) Hedging
+Activities 
+The Company may enter into foreign currency
+forward contracts in the ordinary course of business to mitigate
+the risk associated with foreign exchange rate fluctuations
+related to sales of goods in Eurodollars. Derivative financial
+instruments are not used for speculative purposes. At
+December 31, 2002, the Company had foreign currency forward
+contracts to purchase $7,482,000 U.S. dollars for approximately
+8,000,000 Eurodollars.
+In accordance with Statement of Financial
+Accounting Standards No. 133, Accounting for Derivative
+Instruments and Hedging Activities, these foreign currency
+cash flow hedges are recorded at fair value in the accompanying
+balance sheet with unrealized gains and losses on outstanding
+foreign currency forward contracts recorded in the financial
+statements as a component of other comprehensive income, net of
+deferred taxes, to the extent they are effective hedges. When
+the transaction occurs, the effective portion of the gain or
+loss from the derivative designated as a hedge of the
+transaction is reclassified from accumulated other comprehensive
+income to the same statement of earnings line item affected by
+the hedged forecasted transaction due to foreign currency
+fluctuations. Any terminated derivatives or ineffective portion
+of gains and
+43
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+losses resulting from changes in the fair value
+of the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+(p) Comprehensive
+Income 
+Comprehensive income is the total of net earnings
+and all other nonowner changes in equity. Except for net income
+(loss), foreign currency translation adjustments, and unrealized
+gains and losses as a result of hedging activities, the Company
+does not have any transactions and other economic events that
+qualify as comprehensive income as defined under SFAS
+No. 130.
+(q) Business
+Segment Reporting 
+Management of the Company has determined its
+reportable segments are strategic business units. The four
+significant reportable business segments are the Teva, Simple,
+and Ugg wholesale divisions and the Company’s newly
+acquired internet and catalog retailing business. Information
+related to these segments is summarized in note 10.
+(r) Reclassifications 
+Certain reclassifications have been made to the
+2001 and 2000 balances to conform to the 2002 presentation.
+(s) New
+Accounting Standards 
+Effective January 1, 2002, the Company
+adopted Statement of Financial Accounting Standards No. 144
+(SFAS 144), Accounting for the Impairment or Disposal of
+Long-Lived Assets, which addresses financial accounting and
+reporting for the impairment or disposal of long-lived assets.
+While SFAS 144 supersedes Statement of Financial Accounting
+Standards No. 121, Accounting for the Impairment of
+Long-Lived Assets and for Long-Lived Assets to Be Disposed
+Of, it retains many of the fundamental provisions of that
+statement. The adoption of this standard did not have a material
+impact on the Company’s financial position or results from
+operations.
+In June 2001, FASB issued SFAS No. 143,
+Accounting for Asset Retirement Obligations . SFAS
+No. 143 requires the Company to record the fair value of an
+asset retirement obligation as a liability in the period in
+which it incurs a legal obligation associated with the
+retirement of tangible long-lived assets that result from the
+acquisition, construction, development, and/or normal use of the
+assets. The Company also records a corresponding asset that is
+depreciated over the life of the asset. Subsequent to the
+initial measurement of the asset retirement obligation, the
+obligation will be adjusted at the end of each period to reflect
+the passage of time and changes in the estimated future cash
+flows underlying the obligation. The Company will adopt SFAS
+No. 143 on January 1, 2003. The adoption of SFAS
+No. 143 is not expected to have a material effect on the
+Company’s financial statements.
+In April 2002, the FASB issued SFAS No. 145,
+Rescission of FASB Statements No. 4, 44, and 64,
+Amendment of FASB Statement No. 13, and Technical
+Corrections . SFAS No. 145 amends existing guidance on
+reporting gains and losses on the extinguishment of debt to
+prohibit the classification of the gain or loss as
+extraordinary, as the use of such extinguishments have become
+part of the risk management strategy of many companies. SFAS
+No. 145 also amends SFAS No. 13 to require
+sale-leaseback accounting for certain lease modifications that
+have economic effects similar to sale-leaseback transactions.
+The provisions of the Statement related to the rescission of
+Statement No. 4 is applied in fiscal years beginning after
+May 15, 2002. Earlier application of these provisions is
+encouraged. The provisions of the Statement related to Statement
+44
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+No. 13 were effective for transactions
+occurring after May 15, 2002, with early application
+encouraged. The adoption of SFAS No. 145 is not expected to
+have a material effect on the Company’s financial
+statements.
+In June 2002, the FASB issued SFAS No. 146,
+Accounting for Costs Associated with Exit or Disposal
+Activities . SFAS No. 146 addresses financial accounting
+and reporting for costs associated with exit or disposal
+activities and nullifies Emerging Issues Task Force (EITF) Issue
+94-3, Liability Recognition for Certain Employee Termination
+Benefits and Other Costs to Exit an Activity . The provisions
+of this Statement are effective for exit or disposal activities
+that are initiated after December 31, 2002, with early
+application encouraged. The adoption of SFAS No. 146 is not
+expected to have a material effect on the Company’s
+financial statements.
+In November 2002, the FASB issued Interpretation
+No. 45, Guarantor’s Accounting and Disclosure
+Requirements for Guarantees, Including Indirect Guarantees of
+Indebtedness to Others, an interpretation of FASB Statements
+No. 5, 57, and 107 and a rescission of FASB Interpretation
+No. 34 . This Interpretation elaborates on the
+disclosures to be made by a guarantor in its interim and annual
+financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is
+required to recognize, at inception of a guarantee, a liability
+for the fair value of the obligation undertaken. The initial
+recognition and measurement provisions of the Interpretation are
+applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material
+effect on the Company’s financial statements. The
+disclosure requirements are effective for financial statements
+of interim and annual periods ending after December 31,
+2002 and are included in the notes to these consolidated
+financial statements.
+In December 2002, the FASB issued SFAS
+No. 148, Accounting for Stock-Based
+Compensation — Transition and Disclosure, an
+amendment of FASB Statement No. 123 . This Statement
+amends FASB Statement No. 123, Accounting for
+Stock-Based Compensation, to provide alternative methods of
+transition for a voluntary change to the fair value method of
+accounting for stock-based employee compensation. In addition,
+this Statement amends the disclosure requirements of Statement
+No. 123 to require prominent disclosures in both annual and
+interim financial statements. Certain of the disclosure
+modifications are required for fiscal years ending after
+December 15, 2002 and are included in the notes to these
+consolidated financial statements.
+In January 2003, the FASB issued Interpretation
+No. 46, Consolidation of Variable Interest Entities, 
+an interpretation of ARB No. 51. This Interpretation
+addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The
+Interpretation applies immediately to variable interests in
+variable interest entities created after January 31, 2003
+and to variable interests in variable interest entities obtained
+after January 31, 2003. The application of this
+Interpretation is not expected to have a material effect on the
+Company’s financial statements.
+(2) Retirement Plan 
+Effective August 1, 1992, the Company
+established a 401(k) defined contribution plan. Substantially
+all employees are eligible to participate in the plan through
+tax-deferred contributions. The Company matches 50% of an
+employee’s contribution up to $1,200 per year. Matching
+contributions totaled $90,000, $67,000, and $73,000 during 2002,
+2001, and 2000, respectively. In addition, the Company may also
+make discretionary profit sharing contributions to the plan. The
+Company did not make profit sharing contributions for the years
+ended December 31, 2002, 2001, and 2000.
+45
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+(3) Property and Equipment 
+Property and equipment is summarized as follows:
+2002 
+2001 
+Machinery and equipment
+$ 
+7,609,000 
+9,913,000 
+Furniture and fixtures
+1,031,000 
+981,000 
+Leasehold improvements
+1,087,000 
+561,000 
+9,727,000 
+11,455,000 
+Less accumulated depreciation and amortization
+5,863,000 
+7,598,000 
+Net property and equipment
+$ 
+3,864,000 
+3,857,000 
+(4) Notes Payable and Long-Term
+Debt 
+Notes payable and long-term debt consists of the
+following:
+2002 
+2001 
+Revolving line of credit with Comerica Bank,
+weighted average interest rate of 3.75% at December 31,
+2002 (described below)
+$ 
+4,775,000 
+— 
+Term loan with Comerica Bank, secured by all
+assets of the Company, interest (5.42% at December 31,
+2002) at Bank’s base rate or LIBOR plus a margin, as
+defined, principal payment of $1,750,000 due on May 31,
+2003 with equal monthly payments of $292,000 beginning
+June 30, 2003, with final payment due on November 25,
+2004
+7,000,000 
+— 
+Unsecured subordinated note, payable in quarterly
+principal installments of $1,500,000 beginning November 2007,
+interest at a rate of 16.75%, of which 12% is payable monthly
+and 4.75% is payable at maturity, compounded monthly, due
+November 2008. A prepayment penalty ranging from 4% to 5% is
+incurred for any portion repaid prior to November 2004
+14,068,000 
+— 
+Unsecured junior subordinated 9% note payable to
+the seller of Teva, interest payable in annual installments at a
+rate of 7% through November 2008. Principal and additional
+interest of 2% are due in November 2008, compounded annually
+13,026,000 
+— 
+Note payable for purchase of computer equipment,
+secured by underlying equipment, payable in quarterly
+installments of $74,200, including interest at a rate of 9.51%
+through May 2002
+— 
+143,000 
+Unsecured note payable in quarterly installments
+of $49,200, including interest at a rate of 7.93%, due December
+2003
+159,000 
+306,000 
+39,028,000 
+449,000 
+Less current installments
+3,951,000 
+290,000 
+$ 
+35,077,000 
+159,000 
+46
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+The aggregate maturities of long-term debt as of
+December 31, 2002 are as follows:
+2003
+$ 
+3,951,000 
+2004
+7,983,000 
+2005
+— 
+2006
+— 
+2007
+1,500,000 
+Thereafter
+25,594,000 
+Total
+$ 
+39,028,000 
+In February 2002, the Company obtained a new
+revolving credit facility with Comercia Bank, which was
+subsequently amended in November 2002 in connection with the
+financing of the Teva acquisition (the “Facility”).
+The Facility expires June 1, 2004 and provides for a
+maximum availability of $20,000,000 including $18,000,000 of
+borrowing availability which is subject to a borrowing base,
+plus an additional $2,000,000 of availability beyond the
+borrowing base during the period from November 1, 2002
+through April 30, 2003 and from December 1, 2003 to
+April 30, 2004. In general, the borrowing base is equal to
+75% of eligible accounts receivable, as defined, and 50% of
+eligible inventory, as defined. The accounts receivable advance
+rate can increase or decrease depending on the Company’s
+accounts receivable dilution, which is calculated periodically.
+Up to $10,000,000 of borrowings may be in the form of letters of
+credit. The Facility bears interest at the bank’s prime
+rate (4.25% at December 31, 2002) or at the Company’s
+option, at LIBOR plus 1.0% to 2.5%, depending on the
+Company’s ratio of liabilities to earnings before interest,
+taxes, depreciation and amortization (EBITDA), and is secured by
+substantially all assets of the Company. The Facility included
+an upfront fee of $230,000 when it was amended in November 2002
+and a subsequent annual commitment fee of $100,000 on
+November 25, 2003. At December 31, 2002, the Company
+had outstanding borrowings under the Facility of $4,775,000, a
+foreign currency reserve of approximately $800,000 for
+outstanding forward contracts and had no outstanding letters of
+credit. The Company had credit availability under the Facility
+of $14,425,000 at December 31, 2002.
+The agreements underlying the Facility, the Term
+Loan, and the Subordinated Note contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and cash flow coverage requirements, among others.
+The Company was in compliance with all covenants at
+December 31, 2002.
+47
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+(5) Income Taxes 
+Components of income taxes are as follows:
+Federal 
+State 
+Total 
+2002:
+Current
+$ 
+575,000 
+(7,000 
+) 
+568,000 
+Deferred
+493,000 
+163,000 
+656,000 
+$ 
+1,068,000 
+156,000 
+1,224,000 
+2001:
+Current
+$ 
+1,392,000 
+394,000 
+1,786,000 
+Deferred
+(465,000 
+) 
+(136,000 
+) 
+(601,000 
+) 
+$ 
+927,000 
+258,000 
+1,185,000 
+2000:
+Current
+$ 
+5,492,000 
+1,419,000 
+6,911,000 
+Deferred
+(1,286,000 
+) 
+(305,000 
+) 
+(1,591,000 
+) 
+$ 
+4,206,000 
+1,114,000 
+5,320,000 
+Actual income taxes differed from that obtained
+by applying the statutory federal income tax rate to earnings
+before income taxes as follows:
+2002 
+2001 
+2000 
+Computed “expected” income taxes
+$ 
+967,000 
+956,000 
+4,194,000 
+State income taxes, net of federal income tax
+benefit
+166,000 
+164,000 
+688,000 
+Other
+91,000 
+65,000 
+438,000 
+$ 
+1,224,000 
+1,185,000 
+5,320,000 
+The tax effects of temporary differences that
+give rise to significant portions of deferred tax assets and
+deferred tax liabilities at December 31, 2002 and 2001 are
+presented below:
+2002 
+2001 
+Deferred tax assets:
+Uniform capitalization adjustment to inventory
+$ 
+448,000 
+789,000 
+Bad debt and other reserves
+1,580,000 
+1,685,000 
+Amortization of intangible assets
+956,000 
+580,000 
+Depreciation of property and equipment
+472,000 
+198,000 
+Other
+62,000 
+— 
+Total gross deferred tax assets
+3,518,000 
+3,252,000 
+Deferred tax liabilities:
+State taxes
+171,000 
+84,000 
+Other
+— 
+8,000 
+Total deferred tax liabilities
+171,000 
+92,000 
+Net deferred tax assets
+$ 
+3,347,000 
+3,160,000 
+48
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+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.
+Refundable income taxes as of December 31,
+2001 arise primarily from the overpayment of estimated taxes.
+(6) Stockholders’ Equity 
+The Company is authorized to issue 5,000,000
+shares of preferred stock with a par value of $0.01, of which
+1,375,000 shares are designated as Series A Preferred
+Stock. The 1,375,000 shares of Series A Preferred
+Stock were issued to Mark Thatcher in connection with the
+acquisition of Teva (note 12). The Series A Preferred Stock
+has voting rights equal to common stock (on a pre-conversion
+basis) and dividend rights equal to common stock (on a
+post-conversion basis). Subject to the approval of the
+Company’s board of directors, the Series A Preferred
+Stockholders may elect one director. A majority vote of the
+Series A Preferred Stock holders is required prior to the
+Company: creating additional classes or series of stock ranking
+above or in parity with the Series A Preferred Stock,
+amending the Certificate of Incorporation, changing the
+authorized shares of Series A Preferred Stock, or
+increasing the number of directors. Until November 25,
+2005, the Company may redeem the Series A Preferred stock
+for $4.00 per share plus 10%, compounded annually. After
+November 25, 2005, each share of Series A Preferred
+Stock is convertible to 1.1013215 shares of common stock.
+In February 2001, the Company amended the 1993
+Stock Incentive Plan (“the 1993 Plan”). Under the
+terms of the amended 1993 Plan, 3,000,000 shares of common stock
+are reserved for issuance to officers, directors, employees, and
+consultants of the Company. Awards to 1993 Plan participants are
+not restricted to any specified form and may include stock
+options, securities convertible into or redeemable for stock,
+stock appreciation rights, stock purchase warrants, or other
+rights to acquire stock. Under the 1993 Plan, 124,896, 162,344,
+and 40,671 shares of common stock were issued to employees in
+2002, 2001, and 2000, respectively. In 1997, 100,000 shares of
+common stock were issued under the 1993 plan to a former officer
+of the Company, which was financed through the issuance of a
+note receivable of $624,000 to such officer (bearing interest at
+6.39%, secured by the underlying Company stock, with principal
+and interest due April 18, 2002). The Company has secured
+the return of the Company’s common stock and the note
+receivable has been reversed.
+Common stock option activity under the 1993 Plan
+for the years ended December 31, 2002, 2001, and 2000 is as
+follows:
+Weighted 
+average 
+Shares 
+exercise price 
+Outstanding at December 31, 1999
+1,141,600 
+$ 
+3.68 
+Granted
+215,500 
+3.28 
+Exercised
+(21,800 
+) 
+2.23 
+Canceled
+(56,400 
+) 
+3.37 
+Outstanding at December 31, 2000
+1,278,900 
+3.66 
+Granted
+584,800 
+3.90 
+Exercised
+(147,500 
+) 
+2.24 
+Canceled
+(135,400 
+) 
+4.61 
+Outstanding at December 31, 2001
+1,580,800 
+3.80 
+Granted
+624,400 
+4.13 
+49
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+Weighted 
+average 
+Shares 
+exercise price 
+Exercised
+(107,900 
+) 
+2.32 
+Canceled
+(165,300 
+) 
+3.26 
+Outstanding at December 31, 2002
+1,932,000 
+4.04 
+Options exercisable at December 31, 2000
+636,000 
+4.28 
+Options exercisable at December 31, 2001
+854,000 
+4.17 
+Options exercisable at December 31, 2002
+1,245,900 
+4.07 
+The per share weighted average fair value of
+stock options granted during 2002, 2001, and 2000 was $2.25,
+$2.13, and $1.95, respectively, on the date of grant using the
+Black-Scholes option pricing model with the following weighted
+average assumptions: 2002 — expected dividend yield of
+0%, stock volatility of 48.46%, risk-free interest rate of 3.7%,
+and an expected life of seven years; 2001 — expected
+dividend yield of 0%, stock volatility of 49.56%, risk-free
+interest rate of 3.3%, and an expected life of seven years;
+2000 — expected dividend yield of 0%, stock volatility
+of 50.47%, risk-free interest rate of 5.8%, and an expected life
+of seven years.
+The following table summarizes information about
+stock options outstanding and exercisable at December 31,
+2002.
+Options outstanding 
+Options exercisable 
+Weighted 
+Number 
+average 
+Weighted 
+Number 
+Weighted 
+outstanding 
+remaining 
+average 
+exercisable at 
+average 
+Range of 
+December 31, 
+contractual 
+exercise 
+December 31, 
+exercise 
+exercise price 
+2002 
+life 
+price 
+2002 
+price 
+$1.56 to $3.19
+506,700 
+6.35 years 
+$ 
+2.27 
+474,200 
+$ 
+2.21 
+$3.50 to $3.76
+480,000 
+8.82 years 
+3.59 
+266,500 
+3.60 
+$4.03 to $4.30
+659,300 
+9.57 years 
+4.21 
+219,200 
+4.18 
+$4.80 to $9.88
+286,000 
+4.77 years 
+7.49 
+286,000 
+7.49 
+1,932,000 
+7.83 years 
+4.03 
+1,245,900 
+4.07 
+In August 1995, the Company adopted the 1995
+Employee Stock Purchase Plan (the “1995 Plan”). The
+1995 Plan is intended to qualify as an Employee Stock Purchase
+Plan under Section 423 of the Internal Revenue Code. Under
+the terms of the 1995 Plan, as amended, 300,000 shares of common
+stock are reserved for issuance to employees who have been
+employed by the Company for at least six months. The 1995 Plan
+provides for employees to purchase the Company’s common
+stock at a discount below market value, as defined by the 1995
+Plan. Under the 1995 Plan, 11,870, 26,036, and 30,301 shares
+were issued in 2002, 2001, and 2000, respectively. Consistent
+with the application of APB Opinion No. 25, no compensation
+has been recorded for stock purchases.
+The Company adopted a stockholder rights plan in
+1998 to protect stockholders against unsolicited attempts to
+acquire control of the Company that do not offer what the
+Company believes to be an adequate price to all stockholders. As
+part of the plan, the board of directors of the Company declared
+a dividend of one preferred share purchase right (a
+“Right”) for each outstanding share of common stock,
+par value $0.01 per share (the “Common Shares”), of
+the Company.
+The dividend was payable to stockholders of
+record on December 1, 1998 (the “Record Date”).
+In addition, one Right shall be issued with each Common Share
+that becomes outstanding (i) between the Record Date and
+the earliest of the Distribution Date, the Redemption Date, and
+the Final Expiration Date
+50
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+(as such terms are defined in the Rights
+Agreement) or (ii) following the Distribution Date and
+prior to the Redemption Date or Final Expiration Date, pursuant
+to the exercise of stock options or under any employee plan or
+arrangement or upon the exercise, conversion, or exchange of
+other securities of the Company, which options or securities
+were outstanding prior to the Distribution Date, in each case
+upon the issuance of the Company’s common stock in
+connection with any of the foregoing. Each right entitles the
+registered holder to purchase from the Company one one-hundredth
+of a share of Series B Junior Participating Preferred
+Stock, par value $0.01 per share (the “Preferred
+Shares”), of the Company, at a price of $50.00, subject to
+adjustment.
+The rights have no voting power and expire on
+November 11, 2008. The rights may be redeemed by the
+Company for $0.01 per right until the right becomes exercisable.
+The Company’s board of directors has
+authorized the repurchase of up to 2,200,000 shares of common
+stock under a stock repurchase program subject to the terms of
+the Company’s new credit facility, which provides that the
+proceeds from the facility cannot be used for stock buy-back
+purposes. There were no shares repurchased under this program in
+2002, 2001, and 2000. At December 31, 2002, approximately
+1,227,000 shares remained available for repurchase under the
+program.
+(7) Licensing Agreement 
+As discussed in note 12, on
+November 25, 2002, the Company acquired the worldwide Teva
+patents, trademarks, and other assets. Prior to the acquisition,
+the Company had been selling its Teva line of sport sandals and
+other footwear since 1985, pursuant to various license
+arrangements with Mark Thatcher, the inventor of the Teva sports
+sandal and previous holder of the Teva patents and trademarks.
+In 1999, the Company signed a new license
+agreement (the “License Agreement”) for Teva, which
+was effective January 1, 2000. Under the License Agreement,
+the Company received the exclusive worldwide rights for the
+manufacture and distribution of Teva footwear through 2004. In
+connection with the License Agreement, the Company paid the
+licensor a licensing fee of $1,000,000 and issued the licensor
+428,743 shares of its previously unissued common stock with a
+fair value of $1,608,000. The Company recorded the license as an
+intangible asset for the value of the cash and common stock
+issued pursuant to the License Agreement. The shares are subject
+to various contractual and other holding period requirements. In
+addition, the Company agreed to grant the licensor not less than
+50,000 stock options on the Company’s common stock
+annually, with an exercise price at the market value on the date
+of grant. The fair value of options granted under the License
+Agreement aggregated $111,000 and $152,000 in 2002 and 2001,
+respectively.
+In connection with the 1999 Teva license renewal,
+the Company received an option to buy Teva from
+Mr. Thatcher, which was subsequently renegotiated in 2001.
+On November 25, 2002, the Company completed the acquisition
+of Teva.
+The License Agreement provided for royalties
+using a sliding scale ranging from 5.0% to 6.5% of annual sales,
+depending upon sales levels, and included minimum annual
+royalties ranging from $4,400,000 in 2002 to $7,600,000 in 2011.
+The agreement also required minimum advertising and promotional
+expenditures of 5.0% of annual sales for domestic sales and 6.5%
+for international sales. In addition to the minimum advertising
+and promotional costs, the Company and the licensor had agreed
+to each contribute annually 0.5% of annual sales toward the
+promotion of the Teva brand and trademark, with or without
+particular reference to individual styles.
+Royalty expense related to Teva sales is included
+in selling, general, and administrative expenses in the
+accompanying consolidated financial statements and was
+$3,739,000, $4,194,000, and $4,307,000 during the years ended
+December 31, 2002, 2001, and 2000, respectively.
+Advertising expense, which is included in selling, general, and
+administrative expenses in the accompanying consolidated
+financial statements, related to
+51
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+Teva sales was $5,178,000, $4,313,000, and
+$4,829,000 during the years ended December 31, 2002, 2001,
+and 2000, respectively.
+Subsequent to acquiring Teva on November 25,
+2002, the Company ceased granting stock options and paying
+royalties on Teva footwear sales and owns all Teva rights and
+assets worldwide.
+(8) Commitments and
+Contingencies 
+The Company leases office facilities under
+operating lease agreements, which expire through December 2006:
+Future minimum commitments under the lease
+agreements are as follows:
+Year ending December 31: 
+2003
+$ 
+972,000 
+2004
+694,000 
+2005
+685,000 
+2006
+630,000 
+$ 
+2,981,000 
+Total rent expense for the years ended
+December 31, 2002, 2001, and 2000 was approximately
+$1,188,000, $1,074,000, and $1,072,000, respectively.
+In February 2002, the Company agreed to guarantee
+up to $1,000,000 of a bank loan of an officer of the Company,
+which matures June 1, 2004. The guarantee is through the
+maturity date of the officer’s loan and the Company would
+have to pay under the guarantee should the officer default on
+the loan. As of December 31, 2002, approximately $1,200,000
+was outstanding under the officer’s loan from the bank. The
+fair value of the guarantee was immaterial at December 31,
+2002.
+In November 2002, the Company guaranteed on
+behalf of a third-party manufacturing factory up to $450,000 of
+its payables with a key supplier related to purchases through
+September 30, 2003. In prior years, the Company had
+provided a letter of credit, which was used by the factory to
+obtain credit at its suppliers for the production of Ugg
+inventory. The Company entered into this guarantee arrangement
+to avoid providing a letter of credit, and thereby, using a
+portion of the Company’s credit availability under its
+revolving credit facility. The Company received a corresponding
+personal guarantee of the related debt from the owner of the
+factory. The fair value of the guarantee was immaterial at
+December 31, 2002.
+An action was brought against the Company in 1995
+by Molly Strong-Butts and Yeti by Molly, Ltd. (collectively,
+Molly) which alleged, among other things, that the Company
+violated a certain nondisclosure agreement and obtained
+purported trade secrets regarding a line of winter footwear
+which Deckers stopped producing in 1994. A jury verdict was
+obtained against the Company in district court in March 1999
+aggregating $1,785,000 for the two plaintiffs. In August 2001
+the United States Court of Appeals for the Ninth Circuit
+affirmed the district court’s decision for a judgment
+against the Company, resulting in a settlement of approximately
+$2,000,000, including interest, which the Company paid in
+November 2001. In addition, the court of appeals reversed the
+district court’s refusal to consider an award of exemplary
+damages or attorney fees and remanded to the district court for
+further proceedings. On September 30, 2002, a federal judge
+ruled that the Company must pay an additional $4,290,000 to
+Molly, including $2,450,000 of exemplary damages and $1,840,000
+to cover the plaintiff’s attorney fees. Deckers and Molly
+agreed to settle without going to appeal for the total sum of
+$4,000,000. This was paid prior to December 31, 2002. The
+Company recorded these litigation costs in the accompanying
+consolidated statement of operations in 2001 and 2002,
+respectively.
+52
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+The Company is a party to litigation in the
+Netherlands with a former European distributor (the
+Distributor), alleging breach of contract related to the
+Company’s termination of the previous distributor
+arrangement. The Company denies the allegations and has filed a
+countersuit against the Distributor for breach of contract. In
+the event that the Company is not successful in this matter, the
+Company believes it would have a maximum exposure of $550,000
+beyond the amounts provided for in the financial statements,
+based on advice from legal counsel.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs has
+issued an opinion to the Company that certain popular Teva
+styles are covered by this anti-dumping duty legislation, which
+the Company has appealed. As a precautionary measure, the
+Company obtained and has been using alternative sourcing for the
+potentially impacted products from sources outside of China in
+an effort to avoid potential risk on future imports. In 2001,
+the European Commission added additional explanatory language
+that more clearly identified the types of footwear subject to
+anti-dumping duties. The Company believes that based on the new
+language, it is probable that the Company will not prevail in
+its appeal. Therefore, the Company has established a reserve of
+$500,000, which is the Company’s estimate of its exposure
+for anti-dumping levies. In 2002, the European Commission
+repealed the anti-dumping duties on future footwear imports
+beginning November 1, 2002. While this recent repeal of the
+legislation allows for future imports from China without
+anti-dumping duties, it does not eliminate the potential
+liability for past imports.
+The Company is currently involved in various
+other 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.
+(9) Foreign Currency Forward
+Contracts 
+The Company uses foreign currency forward
+contracts to hedge the foreign currency exposure associated with
+a portion of its forecasted transactions in foreign currency.
+These forward contracts are designated as foreign currency cash
+flow hedges and are recorded at fair value in the accompanying
+consolidated balance sheet. The effective portion of gains and
+losses resulting from recording forward contracts at fair value
+are deferred in accumulated other comprehensive income in the
+accompanying consolidated balance sheet until the underlying
+forecasted foreign currency transaction occurs. When the
+transaction occurs, the effective portion of the gain or loss
+from the derivative designated as a hedge of the transaction is
+reclassified from accumulated other comprehensive income to the
+same statement of earnings line item affected by the hedged
+forecasted transaction due to foreign currency fluctuations.
+Because the amounts and the maturities of the
+derivatives approximate those of the forecasted transactions,
+changes in the fair value of the derivatives are expected to be
+highly effective in offsetting changes in the cash flows of the
+hedged items. Any terminated derivatives or ineffective portion
+of gains and losses resulting from changes in the fair value of
+the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+At December 31, 2002, the Company had
+foreign currency forward contracts to purchase $7,482,000 U.S.
+dollars for approximately 8,000,000 Eurodollars, expiring
+through March 2003. An unrealized loss of $606,000 has been
+recorded as of December 31, 2002 as a component of
+accumulated other comprehensive income.
+(10) Business Segments, Concentration of
+Business, and Credit Risk and Significant Customers 
+The Company’s accounting policies of the
+segments below are the same as those described in the summary of
+significant accounting policies, except that the Company does
+not allocate interest, income taxes,
+53
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+or unusual items to segments. The Company
+evaluates performance based on net sales and profit or loss from
+operations. The Company’s reportable segments are strategic
+business units responsible for the worldwide operations of each
+of its brands. They are managed separately because each business
+requires different marketing, research and development, design,
+sourcing, and sales strategies. The earnings from operations for
+each of the segments includes only those costs which are
+specifically related to each brand, which consist primarily of
+cost of sales, costs for research and development, design,
+marketing, sales, commissions, royalties, bad debts,
+depreciation, amortization, and the costs of employees directly
+related to the brands. The unallocated corporate overhead costs
+are the shared costs of the organization and include, among
+others, the following costs: costs of the distribution center,
+information technology, human resources, accounting and finance,
+credit and collections, executive compensation, facilities
+costs, and the 2001 and 2002 litigation costs. Business segment
+information is summarized as follows:
+2002 
+2001 
+2000 
+Net sales to external customers:
+Teva wholesale
+$ 
+64,849,000 
+61,221,000 
+79,732,000 
+Simple wholesale
+10,159,000 
+10,853,000 
+16,328,000 
+Ugg wholesale
+23,491,000 
+19,185,000 
+15,310,000 
+Catalog/internet
+608,000 
+— 
+— 
+Other
+— 
+202,000 
+2,368,000 
+$ 
+99,107,000 
+91,461,000 
+113,738,000 
+Income from operations:
+Teva wholesale
+$ 
+12,622,000 
+12,407,000 
+19,953,000 
+Simple wholesale
+285,000 
+241,000 
+2,501,000 
+Ugg wholesale
+6,589,000 
+3,674,000 
+2,863,000 
+Catalog/internet
+194,000 
+— 
+— 
+Other (primarily unallocated overhead)
+(16,342,000 
+) 
+(13,984,000 
+) 
+(12,687,000 
+) 
+$ 
+3,348,000 
+2,338,000 
+12,630,000 
+54
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+2002 
+2001 
+2000 
+Depreciation and amortization:
+Teva wholesale
+$ 
+1,217,000 
+1,386,000 
+818,000 
+Simple wholesale
+57,000 
+206,000 
+208,000 
+Ugg wholesale
+13,000 
+648,000 
+642,000 
+Catalog/internet
+2,000 
+— 
+— 
+Other
+— 
+1,000 
+12,000 
+Unallocated
+1,295,000 
+1,336,000 
+1,260,000 
+$ 
+2,584,000 
+3,577,000 
+2,940,000 
+Capital expenditures:
+Teva wholesale
+$ 
+142,000 
+144,000 
+393,000 
+Simple wholesale
+69,000 
+10,000 
+71,000 
+Ugg wholesale
+16,000 
+— 
+63,000 
+Catalog/internet
+— 
+— 
+— 
+Other
+— 
+— 
+1,000 
+Unallocated
+1,250,000 
+2,301,000 
+1,795,000 
+$ 
+1,477,000 
+2,455,000 
+2,323,000 
+Total assets from reportable segments:
+Teva wholesale
+$ 
+83,168,000 
+24,051,000 
+Simple wholesale
+5,708,000 
+8,173,000 
+Ugg wholesale
+20,904,000 
+27,204,000 
+Catalog/internet
+1,176,000 
+— 
+$ 
+110,956,000 
+59,428,000 
+The assets allocable to each reporting segment
+generally include accounts receivable, inventory, intangible
+assets and certain other assets which are specifically
+identifiable with one of the Company’s business segments.
+Unallocated corporate assets are the assets not specifically
+related to one of the segments and generally include the
+Company’s cash, refundable and deferred tax assets, and
+various other assets shared by the Company’s brands.
+Reconciliations of total assets from reportable
+segments to the consolidated financial statements are as follows:
+2002 
+2001 
+Total assets for reportable segments
+$ 
+110,956,000 
+59,428,000 
+Elimination of intersegment payables
+29,000 
+10,000 
+Unallocated refundable income taxes and deferred
+tax assets
+3,100,000 
+3,946,000 
+Other unallocated corporate assets
+8,327,000 
+22,500,000 
+Consolidated total assets
+$ 
+122,412,000 
+85,884,000 
+The Company sells its footwear products
+principally to customers throughout the United States. The
+Company also sells its footwear products to foreign customers
+located in Europe, Canada, Australia, and Asia, among other
+regions. International sales to unaffiliated customers were
+21.0%, 23.1%, and 27.4% of net sales
+55
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+for the years ended December 31, 2002, 2001,
+and 2000, respectively. The Company does not consider
+international sales a separate segment. Such sales are not
+reviewed by the Chief Operating Decision Maker separately, but
+rather in the aggregate with the aforementioned segments.
+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.
+For the years ended December 31, 2002, 2001, and 2000, the
+Company had no single customer exceeding 10% of consolidated net
+sales. As of December 31, 2002, the Company had one
+customer representing 14.4% of net trade accounts receivable. As
+of December 31, 2001, the Company had one customer
+representing 16.4% of net trade accounts receivable.
+The Company’s production and sourcing is
+concentrated primarily in the Far East, with the vast majority
+being produced at four independent contractor factories in
+China. The Company’s operations are subject to the
+customary 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.
+(11) Quarterly Summary of Information
+(Unaudited) 
+Summarized unaudited quarterly financial data are
+as follows:
+2002 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+33,259,000 
+22,369,000 
+17,727,000 
+25,752,000 
+Gross profit
+15,114,000 
+10,071,000 
+6,698,000 
+9,647,000 
+Income (loss) before cumulative effect of a
+change in accounting principle
+2,162,000 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+(8,973,000 
+) 
+— 
+— 
+— 
+Net income (loss)
+(6,811,000 
+) 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Basic income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.23 
+0.07 
+(0.27 
+) 
+0.15 
+Cumulative effect of accounting change
+(0.96 
+) 
+— 
+— 
+— 
+Basic net income (loss) per common share
+$ 
+(0.73 
+) 
+0.07 
+(0.27 
+) 
+0.15 
+2002 
+March 31 
+June 30 
+September 30 
+December 31 
+Diluted income (loss) per common share
+before cumulative effect of accounting change
+$ 
+0.22 
+0.07 
+(0.27 
+) 
+0.13 
+Cumulative effect of accounting change
+(0.92 
+) 
+— 
+— 
+— 
+Diluted net income (loss) per common share
+$ 
+(0.70 
+) 
+0.07 
+(0.27 
+) 
+0.13 
+56
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+2001 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+34,911,000 
+21,586,000 
+14,023,000 
+20,941,000 
+Gross profit
+15,734,000 
+9,597,000 
+4,748,000 
+8,479,000 
+Net income (loss)
+2,487,000 
+731,000 
+(2,098,000 
+) 
+506,000 
+Net income (loss) per share:
+Basic
+$ 
+0.27 
+0.08 
+(0.23 
+) 
+0.05 
+Diluted
+0.26 
+0.08 
+(0.23 
+) 
+0.05 
+(12) Acquisition of Teva 
+On November 25, 2002, the Company completed
+an acquisition of the worldwide Teva patents, trademarks, and
+other assets from Mark Thatcher, the Company’s former
+licensor and the holder of the Teva patents and trademarks. As a
+result of the acquisition, the Company now owns all of the Teva
+worldwide assets including all patents, tradenames, trademarks
+and all other intellectual property, as well as Teva’s
+existing catalog and internet retailing business, which includes
+the operations of Teva Sport Sandals, Inc. As a result of the
+acquisition, the Company will experience cost savings by not
+having to pay royalties and is able to control and build the
+Teva brand.
+The aggregate purchase price was approximately
+$62,300,000. The Company paid cash in the amount of $43,300,000,
+including transaction costs of $300,000, and issued junior
+subordinated notes of $13,000,000, preferred stock with a fair
+value of $5,500,000, 100,000 shares of common stock valued at
+approximately $300,000 and options to purchase 100,000 shares of
+common stock valued at approximately $200,000. The preferred
+stock was valued based on it’s redemption value, and stock
+options were valued based on the Black-Scholes valuation model.
+The results of the operations of Teva Sport
+Sandals, Inc. are included in the consolidated statement of
+operations from the acquisition date.
+The following table summarizes the fair value of
+the assets and liabilities assumed at the date of acquisition:
+Net current assets
+$ 
+357,000 
+Property and equipment
+88,000 
+Trademarks
+51,000,000 
+Intangible assets
+1,580,000 
+Goodwill
+11,174,000 
+Net assets acquired
+$ 
+64,199,000 
+Intangibles of $51,000,000 were assigned to
+registered trademarks that are not subject to amortization. The
+remaining $1,580,000 of acquired intangible assets consists
+primarily of patents and have a weighted average useful life of
+approximately seven years. The $11,174,000 of goodwill is
+expected to be fully deductible for income tax purposes. The
+entire goodwill balance was recorded to the Teva segment. Such
+allocations were based upon an independent appraisal of the
+assets acquired in accordance with SFAS No. 141,
+Business Combinations .
+57
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+The following table summarizes supplemental
+statement of income (loss) information on a pro forma basis as
+if the acquisition had occurred on January 1, 2001.
+2002 
+2001 
+Pro forma net sales
+$ 
+101,267,000 
+93,559,000 
+Pro forma net income before cumulative effect of
+a change in accounting principle
+1,341,000 
+1,374,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+(8,973,000 
+) 
+— 
+Pro forma net income (loss)
+$ 
+(7,632,000 
+) 
+1,374,000 
+Basic income (loss) per share:
+Pro forma net income (loss) before
+cumulative effect of a change in accounting principle
+$ 
+0.14 
+0.15 
+Cumulative effect of a change in accounting
+principle
+(0.95 
+) 
+— 
+Pro forma net income (loss)
+$ 
+(0.81 
+) 
+0.15 
+Diluted income (loss) per share:
+Pro forma net income before cumulative effect of
+a change in accounting principle
+$ 
+0.14 
+0.12 
+Cumulative effect of a change in accounting
+principle
+(0.91 
+) 
+— 
+Pro forma net income (loss)
+$ 
+(0.77 
+) 
+0.12 
+(13) Goodwill and Other Intangible
+Assets 
+In July 2001, The Financial Accounting Standards
+Board (FASB) issued Statement of Financial Accounting
+Standards No. 142 (SFAS 142), Goodwill and Other
+Intangible Assets . SFAS 142 requires that goodwill and
+intangible assets with indefinite useful lives no longer be
+amortized to earnings but instead be reviewed periodically for
+impairment, including an annual test performed on
+December 31. The Company implemented this new accounting
+standard on January 1, 2002, resulting in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000) during the year ended December 31,
+2002. This noncash impairment charge included a write-down of
+approximately $1,200,000 on an after-tax basis for Simple
+goodwill, and approximately $7,800,000 for Ugg goodwill. As a
+result of these write-downs, Simple has no remaining goodwill
+and Ugg has approximately $6,100,000 of goodwill remaining at
+December 31, 2002, which has been included in intangible
+assets in the accompanying consolidated balance sheets. The
+impairment charge has been recorded as a cumulative effect of a
+change in accounting principle in the Company’s
+consolidated statement of operations for the year ended
+December 31, 2002.
+In addition, SFAS 142 provides that goodwill
+no longer be amortized, and as a result the Company recorded no
+goodwill amortization during the year ended December 31,
+2002, whereas the Company had recorded approximately $809,000
+and $811,000 of goodwill amortization during the years ended
+December 31, 2001 and 2000, respectively. For comparative
+purposes, the following schedule reconciles reported net income
+(loss) to adjusted net income (loss) for the years
+ended December 31, 2001 and 2000, adjusted to exclude
+goodwill amortization, along with comparative information for
+the year ended December 31, 2002.
+58
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+2002 
+2001 
+2000 
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+1,620,000 
+1,626,000 
+7,015,000 
+Add back goodwill amortization, net of related
+$70,000 tax benefit in 2001 and 2000
+— 
+739,000 
+741,000 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+1,620,000 
+2,365,000 
+7,756,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+(8,973,000 
+) 
+— 
+— 
+Adjusted net income (loss)
+$ 
+(7,353,000 
+) 
+2,365,000 
+7,756,000 
+2002 
+2001 
+2000 
+Basic income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.17 
+0.18 
+0.77 
+Goodwill amortization, net of tax benefit
+— 
+0.08 
+0.08 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.17 
+0.26 
+0.85 
+Cumulative effect of a change in accounting
+principle
+(0.96 
+) 
+— 
+— 
+Adjusted net income (loss)
+$ 
+(0.79 
+) 
+0.26 
+0.85 
+Diluted income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.17 
+0.17 
+0.74 
+Goodwill amortization, net of tax benefit
+— 
+0.08 
+0.08 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.17 
+0.25 
+0.82 
+Cumulative effect of a change in accounting
+principle
+(0.92 
+) 
+— 
+— 
+Adjusted net income (loss)
+$ 
+(0.75 
+) 
+0.25 
+0.82 
+Summary of
+Intangible Assets 
+As of December 31, 2002 
+Weighted 
+Gross 
+average 
+Net 
+carrying 
+amortization 
+Accumulated 
+carrying 
+amount 
+period 
+amortization 
+amount 
+Amortizable intangible assets
+$ 
+1,858,000 
+7 years 
+$ 
+192,000 
+$ 
+1,666,000 
+Nonamortizable intangible assets:
+Trademark
+$ 
+51,152,000 
+Goodwill
+17,955,000 
+$ 
+69,107,000 
+Aggregate amortization expense for amortizable
+intangible assets for the year ended December 31, 2002 was
+$1,049,000. Estimated amortization expense for the next five
+years is: $265,000 in 2003, $242,000 in 2004, $242,000 in 2005,
+$242,000 in 2006, and $242,000 in 2007.
+59
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements
+(Continued) 
+The changes in the carrying amount of goodwill
+for the year ended December 31, 2002 are as follows:
+Teva 
+Simple 
+Ugg 
+Total 
+Balance as of January 1, 2002
+$ 
+680,000 
+2,007,000 
+13,910,000 
+16,597,000 
+Goodwill acquired during year
+11,174,000 
+— 
+— 
+11,174,000 
+Impairment losses
+— 
+(2,007,000 
+) 
+(7,809,000 
+) 
+(9,816,000 
+) 
+Balance as of December 31, 2002
+$ 
+11,854,000 
+— 
+6,101,000 
+17,955,000 
+60
+Table of Contents 
+SCHEDULE II 
+DECKERS OUTDOOR CORPORATION 
+AND SUBSIDIARIES 
+Valuation and Qualifying Accounts 
+Three-year period ended December 31,
+2002 
+Balance at 
+beginning of 
+Balance at 
+Description 
+year 
+Additions 
+Deductions 
+end of year 
+Year ended December 31, 2000:
+Allowance for doubtful accounts
+$ 
+1,813,000 
+1,994,000 
+1,663,000 
+2,144,000 
+Reserve for sales discounts
+290,000 
+1,007,000 
+589,000 
+708,000 
+Year ended December 31, 2001:
+Allowance for doubtful accounts
+2,144,000 
+1,658,000 
+1,788,000 
+2,014,000 
+Reserve for sales discounts
+708,000 
+946,000 
+848,000 
+806,000 
+Year ended December 31, 2002:
+Allowance for doubtful accounts
+2,014,000 
+1,785,000 
+1,846,000 
+1,953,000 
+Reserve for sales discounts
+806,000 
+713,000 
+837,000 
+682,000 
+See accompanying independent auditors’
+report.
+61
+Table of Contents 
+PART III 
+Item 10. Directors and Executive
+Officers of the Registrant 
+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
+2003 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2002, and such information is incorporated herein by reference.
+Item 11. Executive
+Compensation 
+Information relating to Executive Compensation is
+set forth in the Company’s definitive proxy statement
+relating to the Registrant’s 2003 annual meeting of
+shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of the
+Company’s fiscal year ended December 31, 2002, 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 in the Company’s definitive proxy
+statement relating to the Registrant’s 2003 annual meeting
+of shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of the
+Company’s fiscal year ended December 31, 2002, and
+such information is incorporated herein by reference.
+Item 13. Certain Relationships and
+Related Transactions 
+Information relating to Certain Relationships and
+Related Transactions is set forth in the Company’s
+definitive proxy statement relating to the Registrant’s
+2003 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2002, and such information is incorporated herein by reference.
+Item 14. Controls and
+Procedures 
+Within the 90 days prior to the filing date
+of this report, the Chief Executive Officer and the Chief
+Financial Officer of the Company, with the participation of the
+Company’s management, carried out an evaluation of the
+effectiveness of the Company’s disclosure controls and
+procedures pursuant to Exchange Act Rule 13a-14. Based on
+that evaluation, the Chief Executive Officer and the Chief
+Financial Officer believe that, as of the date of the
+evaluation, the Company’s disclosure controls and
+procedures are effective in making known to them material
+information relating to the Company (including its consolidated
+subsidiaries) required to be included in this report.
+Disclosure controls and procedures, no matter how
+well designed and implemented, can provide only reasonable
+assurance of achieving an entity’s disclosure objectives.
+The likelihood of achieving such objectives is affected by
+limitations inherent in disclosure controls and procedures.
+These include the fact that human judgment in decision-making
+can be faulty and that breakdowns in internal control can occur
+because of human failures such as simple errors or mistakes or
+intentional circumvention of the established process.
+There were no significant changes in the
+Company’s internal controls or in other factors that could
+significantly affect internal controls, known to the Chief
+Executive Officer or the Chief Financial Officer, subsequent to
+the date of the evaluation.
+Item 15. Exhibits, Financial Statement
+Schedules and Reports on Form 8-K 
+(a) Consolidated Financial Statements and
+Schedules required to be filed hereunder are indexed on page 34
+hereof.
+62
+Table of Contents 
+(b) Reports on Form 8-K. 
+A report on Form 8-K was dated and filed on
+October 4, 2002 by the Company reporting on Item 5
+that a federal judge had ruled that the Company must pay a
+$4.29 million award for a lawsuit filed against the Company
+in Montana in 1995.
+A report on Form 8-K was dated and filed
+October 15, 2002 by the Company reporting on Item 5
+that the Company entered into a definitive agreement to acquire
+Teva in a cash and stock transaction valued at approximately
+$62.0 million.
+A report on Form 8-K dated November 8,
+2002 was filed on November 12, 2002 by the Company
+reporting on Item 5 that Peter Benjamin, President and
+Chief Operating Officer, will be resigning in order to return to
+his role of directing Asian sales operations effective
+January 1, 2003.
+A report on Form 8-K was dated and filed
+December 9, 2002 by the Company reporting on Item 5
+that the Company completed the acquisition of the worldwide Teva
+patents, trademarks and other assets from Mark Thatcher, the
+Company’s former licensor and the inventor of the Teva
+patents.
+A report on Form 8-K/A was dated and filed
+February 7, 2003 by the Company amending the report on
+Form 8-K filed December 9, 2002 by reporting under
+Item 7 certain required pro forma financial information
+required as a result of the acquisition of the worldwide Teva
+patents, trademarks and other assets from Mark Thatcher.
+A report on Form 8-K dated February 27,
+2003 was filed on March 3, 2003 by the Company reporting on
+Item 5 the announcement of the Company’s fourth
+quarter and fiscal 2002 financial results.
+(c) Exhibits 
+Exhibit 
+2.1 
+Certificate of Ownership and Merger Merging
+Deckers Corporation into Deckers Outdoor Corporation.
+(Exhibit 2.1 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+3.1 
+Amended and Restated Certificate of Incorporation
+of Deckers Outdoor Corporation. (Exhibit 3.1 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein)
+3.2 
+Restated Bylaws of Deckers Outdoor Corporation.
+(Exhibit 3.2 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+10.1 
+1993 Employee Stock Incentive Plan.
+(Exhibit 99 to the Registrant’s Registration Statement
+on Form S-8, File No. 33-47097 and incorporated by
+reference herein)
+10.2 
+Form of Incentive Stock Option Agreement under
+1993 Employee Stock Incentive Plan. (Exhibit 10.9 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein)
+10.3 
+Form of Non-Qualified Stock Option Agreement
+under 1993 Employee Stock Incentive Plan. (Exhibit 10.10 to
+the Registrant’s Registration Statement on Form S-1,
+File No. 33-67248 and incorporated by reference herein)
+10.4 
+Form of Restricted Stock Agreement.
+(Exhibit 10.11 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+10.5 
+Employment Agreement with Douglas B. Otto.
+(Exhibit 10.13 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+10.6 
+First Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.14 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+10.7 
+Second Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.15 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+10.8 
+Third Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.30 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+63
+Table of Contents 
+Exhibit 
+10.9 
+Agreement for Sales of Assets, dated
+January 26, 1995, between Ken and Nancy Young and Deckers
+Acquisition Corporation. (Exhibit 10.36 to the
+Registrant’s Form 10-K for the period ended
+December 31, 1994 and incorporated by reference herein)
+10.10 
+Deckers Outdoor Corporation 1995 Employee Stock
+Purchase Plan. (Exhibit 4.4 to the Registrant’s
+Registration Statement on Form S-8, File No. 33-96850
+and incorporated by reference herein)
+10.11 
+Amended Compensation Plan for Outside Members of
+the Board of Directors. (Exhibit 10.42 to the Registrant’s
+Form 10-Q for the period ended September 30, 1996 and
+incorporated by reference herein)
+10.12 
+Extension Agreement to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.36 to the Registrant’s
+Form 10-K for the period ended December 31, 1996 and
+incorporated by reference herein)
+10.13 
+Shareholder Rights Agreement, dated as of
+November 12, 1998. (Exhibit 10.39 to the
+Registrant’s Form 10-Q for the period ended
+September 30, 1998 and incorporated by reference herein)
+10.14 
+Employment Agreement dated February 27, 2001
+between Deckers Outdoor Corporation and Peter Benjamin.
+(Exhibit 10.20 to the Registrant’s Form 10-Q for
+the period ended June 30, 2001 and incorporated by
+reference herein)
+10.15 
+Revolving Credit Agreement dated as of
+February 21, 2002 among Deckers Outdoor Corporation, UGG
+Holdings, Inc. and Comerica Bank — California.
+(Exhibit 10.21 to the Registrant’s Form 10-K for
+the year ended December 31, 2001 and incorporated by
+reference herein.)
+10.16 
+Employment Agreement dated March 29, 2002
+between Douglas B. Otto and Deckers Outdoor Corporation.
+(Exhibit 10.22 to the Registrant’s Form 10-Q for
+the period ended March 31, 2002 and incorporated by
+reference herein.)
+10.17 
+*Employment Agreement dated August 20, 2002
+between Peter C. Benjamin and Deckers Outdoor Corporation.
+10.18 
+Asset Purchase Agreement dated as of
+October 9, 2002 by and Among Mark Thatcher, Teva Sport
+Sandals, Inc. and Deckers Outdoor Corporation. (Exhibit 2.1
+to the Registrant’s Form 8-K/A filed February 7,
+2003 and incorporated herein by reference.)
+10.19 
+Disclosure letter associated with the Asset
+Purchase Agreement. (Exhibit 2.2 to the Registrant’s
+Form 8-K/A filed February 7, 2003 and incorporated
+herein by reference.)+
+10.20 
+*Employment Agreement dated November 25,
+2002 between John A. Kalinich and Deckers Outdoor Corporation.
+10.21 
+*Employment Agreement dated November 25,
+2002 between Mark Thatcher and Deckers Outdoor Corporation.
+10.22 
+*Unsecured Subordinated Promissory Note dated
+November 25, 2002 between Mark Thatcher and Deckers Outdoor
+Corporation.
+10.23 
+*Note Purchase Agreement dated as of
+November 25, 2002 by and among Deckers Outdoor Corporation
+and The Peninsula Fund III Limited Partnership.
+10.24 
+*Amended and Restated Credit Agreement, dated as
+of November 25, 2002, by and among Deckers Outdoor
+Corporation, UGG Holdings Inc., and Comerica Bank-California.
+21.1 
+*Subsidiaries of Registrant.
+23.1 
+*Independent Auditors’ Consent.
+99.1 
+*Certification of the Chief Executive Officer.
+99.2 
+*Certification of the Chief Financial Officer.
+* 
+Filed herewith.
++ 
+Certain information in this Exhibit was omitted
+and filed separately with the Securities and Exchange Commission
+pursuant to a confidential treatment request as to the omitted
+portions of the Exhibit.
+64
+Table of Contents 
+SIGNATURES 
+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.
+DECKERS OUTDOOR CORPORATION
+(Registrant)
+/s/ DOUGLAS B. OTTO
+Douglas B. Otto
+Chief Executive Officer 
+Date: March 31, 2003
+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.
+Signature 
+Title 
+Date 
+/s/ DOUGLAS B. OTTO 
+Douglas B. Otto
+Chairman of the Board, President and Chief
+Executive Officer
+/s/ M. SCOTT ASH 
+M. Scott Ash
+Chief Financial Officer (Principal Financial and
+Accounting Officer)
+/s/ GENE E. BURLESON 
+Gene E. Burleson
+Director
+/s/ JOHN M. GIBBONS 
+John M. Gibbons
+Director
+/s/ REX A. LICKLIDER 
+Rex A. Licklider
+Director
+/s/ DANIEL L. TERHEGGEN 
+Daniel L. Terheggen
+Director
+/s/ JOHN A. KALINICH 
+John A. Kalinich
+Director
+65
+Table of Contents 
+CERTIFICATION OF CHIEF EXECUTIVE
+OFFICER 
+I, Douglas B. Otto certify that:
+1. I have reviewed this annual report on
+Form 10-K of Deckers Outdoor Corporation;
+2. Based on my knowledge, this annual report
+does not contain any untrue statement of a material fact or omit
+to state a material fact necessary to make the statements made,
+in light of the circumstances under which such statements were
+made, not misleading with respect to the period covered by this
+annual report;
+3. Based on my knowledge, the financial
+statements, and other financial information included in this
+annual report, fairly present in all material respects the
+financial condition, results of operations and cash flows of the
+registrant as of, and for, the periods presented in this annual
+report;
+4. The registrant’s other certifying
+officers and I are responsible for establishing and maintaining
+disclosure controls and procedures (as defined in Exchange Act
+Rules 13a-14 and 15d-14) for the registrant and have:
+a) Designed such disclosure controls and
+procedures to ensure that material information relating to the
+registrant, including its consolidated subsidiaries, is made
+known to us by others within those entities, particularly during
+the period in which this annual report is being prepared;
+b) Evaluated the effectiveness of the
+registrant’s disclosure controls and procedures as of a
+date within 90 days prior to the filing date of this annual
+report (the “Evaluation Date”); and
+c) Presented in this annual report our
+conclusions about the effectiveness of the disclosure controls
+and procedures based on our evaluation as of the Evaluation Date;
+5. The registrant’s other certifying
+officers and I have disclosed, based on our most recent
+evaluation, to the registrant’s auditors and the audit
+committee of registrant’s board of directors (or persons
+performing the equivalent functions):
+a) All significant deficiencies in the
+design or operation of internal controls which could adversely
+affect the registrant’s ability to record, process,
+summarize and report financial data and have identified for the
+registrant’s auditors any material weaknesses in internal
+controls; and
+b) Any fraud, whether or not material, that
+involves management or other employees who have a significant
+role in the registrant’s internal controls; and
+6. The registrant’s other certifying
+officers and I have indicated in this annual report whether
+there were significant changes in internal controls or in other
+factors that could significantly affect internal controls
+subsequent to the date of our most recent evaluation, including
+any corrective actions with regard to significant deficiencies
+and material weaknesses.
+/s/ DOUGLAS B. OTTO
+Douglas B. Otto
+Chief Executive Officer 
+Deckers Outdoor Corporation 
+Date: March 31, 2003
+66
+Table of Contents 
+CERTIFICATION OF CHIEF FINANCIAL
+OFFICER 
+I, M. Scott Ash certify that:
+1. I have reviewed this annual report on
+Form 10-K of Deckers Outdoor Corporation;
+2. Based on my knowledge, this annual report
+does not contain any untrue statement of a material fact or omit
+to state a material fact necessary to make the statements made,
+in light of the circumstances under which such statements were
+made, not misleading with respect to the period covered by this
+annual report;
+3. Based on my knowledge, the financial
+statements, and other financial information included in this
+annual report, fairly present in all material respects the
+financial condition, results of operations and cash flows of the
+registrant as of, and for, the periods presented in this annual
+report;
+4. The registrant’s other certifying
+officers and I are responsible for establishing and maintaining
+disclosure controls and procedures (as defined in Exchange Act
+Rules 13a-14 and 15d-14) for the registrant and have:
+a) Designed such disclosure controls and
+procedures to ensure that material information relating to the
+registrant, including its consolidated subsidiaries, is made
+known to us by others within those entities, particularly during
+the period in which this annual report is being prepared;
+b) Evaluated the effectiveness of the
+registrant’s disclosure controls and procedures as of a
+date within 90 days prior to the filing date of this annual
+report (the “Evaluation Date”); and
+c) Presented in this annual report our
+conclusions about the effectiveness of the disclosure controls
+and procedures based on our evaluation as of the Evaluation Date;
+5. The registrant’s other certifying
+officers and I have disclosed, based on our most recent
+evaluation, to the registrant’s auditors and the audit
+committee of registrant’s board of directors (or persons
+performing the equivalent functions):
+a) All significant deficiencies in the
+design or operation of internal controls which could adversely
+affect the registrant’s ability to record, process,
+summarize and report financial data and have identified for the
+registrant’s auditors any material weaknesses in internal
+controls; and
+b) Any fraud, whether or not material, that
+involves management or other employees who have a significant
+role in the registrant’s internal controls; and
+6. The registrant’s other certifying
+officers and I have indicated in this annual report whether
+there were significant changes in internal controls or in other
+factors that could significantly affect internal controls
+subsequent to the date of our most recent evaluation, including
+any corrective actions with regard to significant deficiencies
+and material weaknesses.
+/s/ M. SCOTT ASH
+M. Scott Ash
+Chief Financial Officer 
+Deckers Outdoor Corporation 
+Date: March 31, 2003
+67
\ No newline at end of file
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+0000910521,DECK,DECKERS OUTDOOR CORP,10-K,2003-03-31,2002-12-31,2003-03-31T16:02:21.000Z,0000950148-03-000685,v88494e10vk.htm,"FORM 10-K, DATED 12/31/2002",1324235,0,0,https://www.sec.gov/Archives/edgar/data/910521/000095014803000685/v88494e10vk.htm,https://www.sec.gov/Archives/edgar/data/910521/000095014803000685/,2002,2002,1
diff --git a/raw/filings/0000910521/2002/0000950148-03-000685/item1.txt b/raw/filings/0000910521/2002/0000950148-03-000685/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..048a4bb085f024174babc172531ee7a7ffc12ac8
--- /dev/null
+++ b/raw/filings/0000910521/2002/0000950148-03-000685/item1.txt
@@ -0,0 +1,1300 @@
+Item 1. Business 
+General 
+The Company builds niche products into global
+lifestyle brands by designing and marketing innovative,
+functional and fashion-oriented footwear, developed for both
+high performance outdoor activities and everyday casual
+lifestyle use. Currently, the Company offers three primary
+product lines under the following recognized brand names:
+Teva® — high-performance sports sandals and
+rugged outdoor footwear;
+Simple® — innovative shoes that combine the
+comfort elements of athletic footwear with casual styling; and
+Ugg® — authentic sheepskin boots and other
+footwear. In November 2002, the Company acquired all of the Teva
+worldwide assets, including all trademarks, tradenames and all
+other intellectual property (“Teva Rights”). From 1985
+until November 2002, the Company had sold its Teva products
+under a licensing arrangement. Teva, Simple and Ugg are
+registered trademarks of the Company and its subsidiaries. All
+of the Company’s footwear possess the common features of
+high quality with a primary focus on functionality and comfort.
+In 2002, the Company sold approximately 4,120,000 pairs of
+footwear. Revenues from wholesale sales (domestic and
+international) of Teva products have been $64,849,000,
+$61,221,000 and $79,732,000 during 2002, 2001 and 2000,
+representing 65.4%, 66.9% and 70.1% of net sales, respectively.
+For financial information regarding the Company’s industry
+segments, see note 10 to the accompanying consolidated financial
+statements.
+Market Overview 
+The casual, outdoor and athletic footwear market
+is comprised of footwear worn for casual everyday use and for
+outdoor and athletic activities such as hiking, boating,
+basketball, tennis, fitness and jogging. The market for such
+footwear has grown significantly during the last decade. The
+Company believes that the principal reasons for the growth in
+sales of such footwear have been the growing acceptance of
+athletic footwear as casual wear and the growing acceptance of
+casual wear, in general, including the trend toward casual dress
+in the workplace, increasingly active consumer lifestyles and
+the growing emphasis on comfort.
+Over the last few years the overall footwear
+market has seen significant growth of the outdoor segment as
+well as the growing emphasis on comfort. Outdoor footwear
+includes shoes, boots and sandals for outdoor recreational
+activities such as hiking, river rafting, camping and casual
+wear. Companies engaged in the outdoor footwear market include
+Nike, Adidas, Timberland, Columbia and Salomon. The Company
+believes that the growth in outdoor footwear is driven by
+several factors including a general shift in consumer
+preferences and lifestyles to include more outdoor, sports and
+recreational activities such as hiking and camping. In addition,
+the increasing popularity of extreme sports, including
+skateboarding, snowboarding, kayaking and river rafting, among
+others, has created an additional emphasis and awareness of
+outdoor activities and lifestyles. As consumers engage in
+outdoor activities, they typically desire footwear specifically
+designed for these purposes, yet they demand the same level of
+quality and high performance that they have come to expect from
+traditional athletic footwear. In addition, more consumers are
+turning to an emphasis on casual and comfortable footwear and
+apparel, as evidenced by the trend toward casual workplaces in
+recent years. The Company believes that its products have
+benefited from this growing trend and that its footwear
+addresses consumers’ demands for highly functional footwear
+that is durable as well as comfortable and fashionable.
+The casual, outdoor and athletic footwear markets
+are generally characterized by a high level of recognition of
+brand names, logos and trademarks. Unique and identifying
+features create brand awareness among consumers and allow a
+favorable reputation to be transferred to new products. The
+manufacture of casual, outdoor and athletic footwear is
+typically conducted overseas through independent manufacturers.
+Casual and athletic footwear is distributed through athletic
+footwear stores, department stores and specialty retailers.
+Outdoor footwear is generally distributed through these channels
+as well but is to a large extent distributed through outdoor
+specialty retailers. Retailers may purchase footwear on a
+“futures” basis (orders placed at a discount in
+advance of a season) or an “at once” basis (orders
+placed and filled immediately). Futures orders allow the Company
+to more accurately predict its manufacturing and sourcing needs.
+By
+3
+Table of Contents 
+placing futures orders, retailers are also able
+to reduce the risk that the Company will be unable to meet their
+delivery requirements. Retailers are generally encouraged to
+purchase goods on a futures basis by receiving discounts or
+special payment terms not otherwise available.
+Risk Factors 
+This Annual Report on Form 10-K contains a
+variety of forward-looking statements within the meaning of the
+Private Securities Litigation Reform Act of 1995 including
+forward-looking statements in this “Risk Factors”
+section, the “Outlook” section, the last paragraph
+under “Liquidity and Capital Resources”, the
+“Teva Acquisition” section, the discussion under
+“Seasonality” and other statements in this Annual
+Report. Forward-looking statements relating to sales, earnings
+per share, and the Company’s liquidity may be significantly
+impacted by future developments such as certain litigation,
+economic factors and world events, the Company’s dependence
+on foreign manufacturers, competition, the Company’s
+dependence upon key personnel, weather conditions, and the
+impact of seasonality on the Company’s operations, among
+others. These forward-looking statements are based on the
+Company’s expectations as of March 2003. No one should
+assume that any forward-looking statement made by the Company
+will remain consistent with the Company’s expectations
+after the date the forward-looking statement is made. The
+Company disclaims any obligation to update any such factors or
+to publicly announce the results of any revisions to any of the
+forward-looking statements contained in this Annual Report on
+Form 10-K. These forward-looking statements involve known
+and unknown risks, uncertainties and other factors which may
+cause the actual results, performance or achievement of the
+Company, or industry results, to differ materially from any
+future results, performance or achievements expressed or implied
+by such forward-looking statements. The factors listed below
+represent certain important factors the Company believes could
+cause such results to differ. These factors are not intended to
+represent a complete list of the general or specific risks that
+may affect the Company. Other risks may be significant,
+presently or in the future, and the risks set forth below may
+affect the Company to a greater extent than indicated.
+Brand
+Strength; Changes in Fashion Trends 
+The Company’s success is largely dependent
+on the continued strength of the Teva, Simple and Ugg brands
+(collectively, “Deckers Brands”) and on its ability to
+anticipate the rapidly changing fashion tastes of footwear
+customers and to provide merchandise that appeals to their
+preferences in a timely manner. There can be no assurance that
+consumers will continue to prefer the Deckers Brands or that the
+Company will respond in a timely manner to changes in consumer
+preferences or that the Company will successfully introduce new
+models and styles of footwear. Achieving market acceptance for
+new products will also likely require substantial marketing and
+product development efforts and the expenditure of significant
+funds to create consumer demand. Decisions with respect to
+product designs often need to be made many months in advance of
+the time when consumer acceptance can be determined. As a
+result, the Company’s failure to anticipate, identify or
+react appropriately to changes in styles and features could lead
+to, among other things, excess inventories and higher markdowns
+and lower gross margins due to the necessity of providing
+discounts to retailers. Conversely, failure by the Company to
+anticipate consumer demand could result in inventory shortages,
+which can adversely affect the timing of shipments to customers,
+negatively impacting retailer and distributor relationships and
+diminishing brand loyalty. The failure to introduce new products
+that gain market acceptance would have a material adverse effect
+on the Company’s business, financial condition and results
+of operations, and could adversely affect the image of the
+Deckers Brands.
+Inventory
+Risk 
+The footwear industry has relatively long lead
+times for design and production of product and, thus, the
+Company must commit to production tooling and to production in
+advance of orders. In addition, the industry is highly subject
+to fashion risks and changes in consumer preferences. This risk
+is exacerbated by the large number of models, colors and sizes
+in the Company’s three product lines. If the Company fails
+to accurately forecast consumer demand, or if there are changes
+in consumer preference or market demand after the Company has
+made such production commitments, the Company may encounter
+difficulty in filling customer
+4
+Table of Contents 
+orders or in liquidating excess inventory, which
+may have an adverse effect on the Company’s sales, margins
+and brand image.
+Debt
+and Interest Obligations 
+At December 31, 2002, the Company had
+$39,028,000 of long-term and short-term debt, largely due to the
+Teva acquisition, and is obligated to make periodic principal
+and interest payments. The Company believes that its cash on
+hand, internally generated funds and the borrowing availability
+under its existing line of credit will enable the Company to pay
+its obligations as they come due. However, risks and
+uncertainties which could impact the Company’s ability to
+maintain its cash position include the Company’s growth
+rate, the continued strength of the Company’s brands, its
+ability to respond to changes in consumer preferences, its
+ability to collect its receivables in a timely manner, its
+ability to effectively manage its inventory, and the volume of
+letters of credit used to purchase product, among others. Any
+inability to meet these contractual requirements could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Quality
+and Performance 
+In response to consumer demand, the Company also
+uses certain specialized materials in its footwear. The failure
+of products using such materials to perform to the
+Company’s specifications or customer satisfaction could
+result in a higher rate of customer returns and could adversely
+affect the image of the Deckers Brands, which could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Economic
+Cyclicality and Footwear Retailing 
+The footwear industry historically has been
+subject to cyclical variation and can be negatively impacted by
+decreased consumer spending or softness in the retail market.
+This cyclicality could adversely affect the Company’s
+business. In addition, various retailers, including some of the
+Company’s customers, have experienced financial
+difficulties during the past several years, thereby increasing
+the risk that such retailers may not be able to pay for the
+Company’s products in a timely manner. No assurance can be
+given that the Company’s bad debt expense will not increase
+relative to net sales in the future. Any significant increase in
+the Company’s bad debt expense relative to net sales would
+adversely impact the Company’s net income and cash flow and
+could affect the Company’s ability to pay its obligations
+as they become due.
+Dependence
+on Foreign Manufacturers 
+Virtually all of the Deckers footwear products
+are manufactured by third party suppliers in the Far East,
+Australia and New Zealand, with the vast majority of production
+occurring at four suppliers in China. There can be no assurance
+that the Company will not experience difficulties with such
+manufacturers, including reduction in the availability of
+production capacity, errors in complying with product
+specifications, inability to obtain sufficient raw materials,
+insufficient quality control, failure to meet production and
+delivery deadlines or increases in manufacturing costs. In
+addition, if the Company’s relationship with any of its
+manufacturers were to be interrupted or terminated, alternative
+manufacturing sources will have to be located. The establishment
+of new manufacturing relationships involves numerous
+uncertainties, and there can be no assurance that the Company
+would be able to obtain alternative manufacturing sources on
+terms satisfactory to it. If a change in its suppliers becomes
+necessary, the Company would likely experience increased costs,
+as well as substantial disruption and a resulting loss of sales.
+Foreign manufacturing is subject to a number of
+risks, including work stoppage, transportation delays and
+interruptions, political instability, foreign currency
+fluctuations, changing economic conditions, expropriation,
+nationalization, imposition of tariffs, import and export
+controls and other non-tariff barriers (including quotas),
+restrictions on the transfer of funds, environmental regulation
+and other changes in governmental policies. The Company may also
+experience general risks associated with managing operations
+effectively and efficiently from a far distance and
+understanding and complying with local laws, regulations and
+customs.
+5
+Table of Contents 
+There can be no assurance that such factors will
+not materially adversely affect the Company’s business,
+financial condition and results of operations.
+Products manufactured overseas and imported into
+the United States and other countries are subject to duties
+collected by the Customs Service in the applicable country.
+Customs information submitted by the Company is subject to
+review by the Customs Service. The Company is unable to predict
+whether additional customs duties, quotas or restrictions may be
+imposed on the importation of its products in the future. The
+enactment of any such duties, quotas or restrictions could
+result in increases in the cost of such products generally and
+might adversely affect the sales or profitability of the Company.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs has
+issued an opinion to the Company that certain popular Teva
+styles are covered by this anti-dumping duty legislation, which
+the Company has appealed. As a precautionary measure, the
+Company obtained and has been using alternative sourcing for the
+potentially impacted products from sources outside of China in
+an effort to avoid potential risk on future imports. In 2001,
+the European Commission added additional explanatory language
+that more clearly identified the types of footwear subject to
+anti-dumping duties. The Company believes that based on the new
+language, it is probable that the Company will not prevail in
+its appeal. Therefore, the Company has established a reserve of
+$500,000, which is the Company’s estimate of its exposure
+for anti-dumping levies. In 2002, the European Commission
+repealed the anti-dumping duties on future footwear imports
+beginning November 1, 2002. While this recent repeal of the
+legislation allows for future imports from China without
+anti-dumping duties, it does not eliminate the potential
+liability for past imports.
+Competition
+and Infringing Products 
+The outdoor and footwear industries are both
+highly competitive, and the recent growth in the markets for
+sports sandals and casual footwear has encouraged the entry of
+many new competitors into the marketplace as well as increased
+competition from established companies. Most of the
+Company’s competitors have substantially greater financial,
+distribution and marketing resources, as well as greater brand
+awareness in the footwear market, than the Company. In addition,
+the general availability of offshore manufacturing capacity
+allows rapid expansion by competitors and new market entrants.
+The Company believes that it has been able to compete
+successfully because of the brand recognition, quality and
+selective distribution of its products. From time to time, the
+Company discovers products in the marketplace that infringe upon
+its patent and trademark rights. Historically, the Company and
+its former Teva licensor have successfully defended their
+intellectual property from potential infringements. The Company
+intends to continue to vigorously defend its intellectual
+property following discovery. However, if the Company is
+unsuccessful in challenging a third party’s products on the
+basis of patent and trademark infringement, continued sales of
+such competing products by third parties could adversely impact
+the Company’s business, financial condition and results of
+operations. See
+“Business — Competition” and
+“Business — Legal Proceedings.”
+Dependence
+on Key Personnel 
+The Company’s continued success will depend
+substantially upon its ability to retain Douglas B. Otto, its
+Chairman of the Board, President and Chief Executive Officer,
+and a core group of key executive officers and employees. The
+Company believes that its future success will depend in large
+part on its ability to attract and retain highly skilled
+personnel. Competition for such personnel is intense, and there
+can be no assurance that the Company will be successful in
+attracting and retaining such personnel. The loss of certain key
+employees or the Company’s inability to attract and retain
+other qualified employees could have an adverse impact on the
+Company’s business.
+Intellectual
+Property 
+The Company believes that its trademarks,
+technologies and designs are of great value. From time to time,
+the Company may be the subject of litigation challenging its
+ownership of certain intellectual property. Loss of the
+Company’s Teva, Simple or Ugg trademark rights could have a
+serious impact on the Company’s
+6
+Table of Contents 
+business. Because of the importance of such
+intellectual property rights, the Company’s business is
+subject to the risk of counterfeiting, parallel trade or
+intellectual property infringement.
+Economic
+Factors and World Events 
+The Company’s business is subject to
+economic conditions in its major markets, including, without
+limitation, recession, inflation, general weakness in retail
+markets and changes in consumer purchasing power and
+preferences. Adverse changes in such economic factors could have
+a negative effect on the Company’s business.
+In addition, the Company’s results, and the
+domestic and international economies in general, may be further
+negatively impacted by world events including potential future
+terrorist activities as well as the impact of the United
+States’ war efforts. The overall negative impact of these
+activities, including the effect on the economy and commerce in
+general, cannot currently be determined but could have a
+material adverse effect on the Company’s business,
+financial condition and results of operations.
+Weather
+Conditions 
+Sales of the Company’s products,
+particularly those under the Teva and Ugg lines, are very
+sensitive to weather conditions. Extended periods of unusually
+cold weather during the spring and summer could adversely impact
+demand for the Company’s Teva line. Likewise, unseasonably
+warm weather during the fall and winter months could adversely
+impact demand for the Company’s Ugg product line.
+Substantial
+Ownership of the Company and Shareholder Rights
+Agreement 
+The Company adopted a shareholder rights plan in
+1998 pursuant to a shareholder rights agreement (the
+“Rights Agreement”) to protect stockholders against
+unsolicited attempts to acquire control of the Company that do
+not offer what the Board of Directors of the Company believes to
+be an adequate price to all stockholders. As part of the plan,
+the Board of Directors of the Company declared a dividend so
+that one preferred share purchase right was and will be issued
+for each outstanding share of Common Stock of the Company until
+the expiration date of the Rights Agreement.
+At December 31, 2002, Douglas B. Otto and
+all executive officers and directors of the Company, as a group,
+owned approximately 32.0% and 40.7%, respectively, of the
+outstanding shares of the Company’s Common Stock. The
+ownership positions of Mr. Otto and the executive officers
+of the Company, as a group, together with the anti-takeover
+effects of certain provisions in the Delaware General
+Corporation Law (the “DGCL”), in the Company’s
+Certificate of Incorporation and Bylaws and in the
+Company’s shareholder rights plan would likely have the
+effect of delaying, deferring or preventing a change in control
+of the Company and could have a negative effect on the market
+price of the Company’s Common Stock.
+Other
+Factors 
+In the first quarter of 2002, the Company
+completed an implementation of a new Enterprise Resource
+Planning (“ERP”) computer system to replace its legacy
+system. In connection with this conversion, the Company
+initially encountered various difficulties. The effectiveness of
+the ERP system’s operation can impact the Company’s
+ability to receive and accept orders, monitor its inventory
+levels, and coordinate the shipment of products to customers,
+among other activities. In the event that significant
+difficulties are encountered in the future, the Company may
+experience lower sales and increased expenses, which would
+negatively impact the Company’s results of operations and
+cash flows.
+The Company’s results of operations,
+financial condition and cash flows are also subject to risks and
+uncertainties with respect to the Company’s ability to
+secure and maintain adequate financing, to forecast its future
+sales, inventory needs and cash flows and to subsequently
+achieve those forecasts.
+7
+Table of Contents 
+Business
+Strategy 
+Management’s mission is to build niche
+products into global brands and its business strategy is to
+offer diverse lines of footwear that emphasize functionality,
+quality, comfort and technical performance tailored to a variety
+of activities and demographic groups. Specifically, the
+Company’s business strategy emphasizes the following
+elements:
+Introduce New Categories and Styles under
+Existing Brands. The Company intends
+to leverage consumer recognition of its existing brands by
+developing and introducing additional innovative footwear
+products that satisfy the Company’s high standards of
+practicality, comfort and quality. The Company believes the
+introduction of additional products at a variety of price
+points, such as the range of new models in its Teva, Simple and
+Ugg lines being offered in the Company’s 2003 product
+offerings, have broadened the Company’s customer base,
+further diversified the Company’s product lines, and helped
+reduce the effects of seasonality on the Company’s sales.
+See “Management’s Discussion and Analysis of Financial
+Condition and Results of
+Operations — Seasonality.” In recent years,
+the Teva product offering has been greatly expanded to include a
+variety of new sport sandal styles at a variety of price points
+and incorporating a range of new uppers and technologies. In
+addition, the Company has begun to leverage the success of the
+Teva brand in the outdoor markets by launching into several new
+categories of footwear, including amphibious footwear, hikers,
+trailrunners, cold-weather boots, and other rugged outdoor
+footwear. The Spring 2003 and Fall 2003 Teva product lines
+include a significant redesign and the introduction of several
+new styles and categories. One of the features prevalent in the
+Spring 2003 line is the use of the Wraptor technology, a
+patented 360 degree continuous strapping system that
+simultaneously secures the instep and arch shank to the foot.
+Following on the success of this feature in the Company’s
+running sandals, the Company has also designed a line of hikers
+around this technology and has added it to certain styles of the
+Company’s high performance Guide offering for professional
+paddlers and adventurers. The Company continues to expand into
+the hiking, trailrunning and rugged outdoor arenas, where the
+aggregate market size is considerably greater than the market
+for sport sandals, the area in which the Teva brand was
+initially founded. By launching into these new areas of closed
+footwear, the Company hopes to increase sales while at the same
+time reducing the impact of seasonality on the Company’s
+business. The 2003 line also includes athletically inspired
+styles aimed directly at the athletic distribution channels,
+another significant area where the Company hopes to gain
+distribution along with its historically strong outdoor market.
+In addition to these new categories for the
+brand, Teva has also re-designed its core sport sandal offering
+by adding many new features and styles, incorporating the latest
+technologies and innovations. The Company continues to use the
+knowledge and experience of Team Teva, an elite group of the
+world’s best male and female whitewater athletes, to
+enhance the development of future technical offerings in this
+category. As the Company moves to the future, it plans to
+strengthen existing categories and further expand into new
+channels of distribution.
+The 2003 Simple product line includes a
+re-emphasis on the men’s footwear business, an area where
+the brand had been very successful several years ago, as well as
+a focus on athletically inspired designs. The 2003 Simple line
+also includes a collection of women’s casual styles
+featuring low profiles. The Simple line targets consumers in the
+seventeen to thirty year old age group. The line focuses on
+lifestyle comfort based products such as clogs, sandals, casuals
+and non-performance sneakers that are priced affordably. In
+2003, the Company’s Ugg product offering continues to
+include its heritage boots and slippers, as well as an expanded
+women’s Fall Collection of casual, fashionable boots and
+clogs and the Adirondack Collection of rugged cold-weather
+footwear featuring seam sealed lugged outsoles and waterproof
+leathers combined with sheepskin linings.
+Pursue Licensing of
+Brands. Given the strength of the
+Company’s brands, the Company is also pursuing the
+licensing of its brand names to other ancillary products, beyond
+the Company’s existing core footwear products. Through this
+type of brand extension, the Company hopes to generate
+additional revenues in the form of royalty income; to further
+increase awareness for the Company’s brands and their
+related products, and thereby increase sales of its footwear;
+and to build the long-term value of the brands. As part of this
+approach, the Company has signed agency agreements with BHPC
+Global Licensing, Inc., whose chief
+8
+Table of Contents 
+executive officer is a member of the
+Company’s board of directors, to assist in identifying
+candidates and coordinating the efforts for the licensing of the
+Ugg and Simple trademarks on various products ranging from
+sportswear and outerwear to housewares and accessories. In
+addition, with the recent acquisition of Teva Rights, the
+pursuit of licensing arrangements for the Teva brand has been
+added to the long-term strategy for this brand as well. Because
+the Company is currently in the early stages of pursuing
+licensing opportunities for its brands it cannot yet provide any
+assurances regarding how successful its efforts will be or how
+significant the market size will be.
+Pursue Additional Market
+Opportunities. Management intends to
+continue to consider new markets for its existing line of
+products. For the years ended December 31, 2002, 2001 and
+2000 international net sales totaled $20,829,000, $21,096,000
+and $31,135,000, representing 21.0%, 23.1% and 27.4% of net
+sales, respectively. Management believes that significant
+opportunities exist to market its products abroad and intends to
+selectively expand its distribution worldwide. To bolster these
+efforts, the Company entered into an agency arrangement in 2002
+with a firm in the United Kingdom for the coordination of the
+sales, distribution, marketing and advertising efforts in the
+European markets. In addition, to strengthen sales efforts in
+the Asian markets, the Company recently entered into a similar
+arrangement effective January 1, 2003 with a firm headed by
+Peter Benjamin, the Company’s former President, who has
+redirected his efforts to developing the Company’s sales in
+the Asian markets, a responsibility he previously held from July
+1997 to March 1999.
+The Company believes significant opportunities
+exist to expand distribution domestically too. For example, the
+Company’s Teva brand has had its roots in the outdoor
+market where it has successfully distributed its products for
+many years. The Company sees the potential for expansion into
+the athletic retail distribution channel as a significant
+opportunity for the Teva brand in future years. The Company
+intends to pursue this channel of distribution going forward and
+has recently designed product targeted at this market and has
+added sales personnel with significant experience in this
+market. In addition, the Ugg brand has historically been popular
+in California for many years. The Company believes that
+significant opportunities exist to expand distribution for this
+brand throughout the United States, especially in light of its
+suitability to a variety of climates. In recent years, the
+Company has been successful in expanding outside of California
+and expects to continue to pursue this expansion in the future.
+With the recent acquisition of the Teva Rights,
+the Company acquired the direct to consumer catalog and internet
+retailing business from the previous Teva licensor. In addition
+to providing additional sales opportunities, this distribution
+channel provides the Company with improved gross margins and
+direct access to the Company’s consumers, thereby providing
+immediate feedback on product. The previous licensor had
+experienced significant growth in sales from this business in
+recent years and the Company believes that continued
+opportunities for growth and expansion of this business exist.
+For further discussion of the Teva acquisition, see note 12 to
+the accompanying consolidated financial statements.
+Acquire or Develop New
+Brands. The Company intends to
+continue to focus on identifying and building new brands for
+growth. The Company has been successful in the past in taking
+the concepts of entrepreneurs for innovative, fashionable
+footwear targeted at niche markets and building the products
+into viable brands and intends to continue to identify concepts
+for potential future niche products which have the potential of
+developing into successful brands or product lines.
+Products 
+The Company currently offers three primary
+product lines: (1) Teva sport sandals and footwear;
+(2) Simple casual footwear; and (3) Ugg sheepskin
+footwear. Each of these lines, as well as individual models
+within these lines, is designed to appeal to various demographic
+groups. The Company’s footwear products emphasize function,
+comfort and technical performance and are suitable for a variety
+of demanding outdoor and athletic activities, as well as casual
+and everyday use. The Company’s products are designed and
+marketed to promote a high level of brand name recognition and
+consumer appeal by combining functional and creative designs
+with quality materials and construction. The Teva and Simple
+footwear lines are generally previewed twice per year, once in
+the summer for deliveries that commence in the fall and once in
+the winter for the following back to school and fall season. The
+Ugg line of sheepskin footwear is generally previewed in the
+9
+Table of Contents 
+winter with most deliveries occurring in the
+following fall and winter. The following sets forth a summary
+description of each of the Company’s primary product lines:
+Teva Sport Sandals and
+Footwear. The Teva sport sandal was
+one of the first sport sandals to be developed and remains
+popular among outdoor enthusiasts and the general public.
+Certain styles of the Teva sport sandal incorporate a variety of
+proprietary strapping configurations ideally suited for outdoor
+activities such as hiking, boating and river rafting. These
+strapping systems generally consist of high-quality nylon
+webbing or leather, are fully adjustable, and hold the foot
+firmly to the sandal’s durable cellular rubber, molded EVA,
+polyurethane or leather footbed. Teva sport sandals are
+extremely durable, with many styles designed specifically for
+performance in and around the water. In addition, the Company
+has recently leveraged the brand’s success in the outdoor
+markets by launching into various natural progressions for the
+brand including hiking boots, trailrunning shoes, amphibious
+footwear and other rugged outdoor footwear styles. For Spring
+2003, the Teva line has been redesigned to include numerous new
+styles, categories and features and now includes 103 different
+models spread across various categories and designed for a
+variety of uses. The Hydro Series, a category of sandals and
+other amphibious footwear built for high performance and rugged
+outdoor use, includes men’s and women’s styles of
+sport sandals, neoprene and quick draining monofilament mesh
+watershoes and other outdoor footwear ideal for professional
+outdoorsmen and adventurers. The Terrain Series is a line of
+sandals and hiking boots primarily designed for use on land that
+includes performance walking sandals and convertible sandals
+with removable heel straps that allow the sandal to be worn as a
+slide, as well as hiking boots and running sandals incorporating
+the patented Wraptor technology, an upper which encircles the
+instep and continually adjusts to the movement of the foot to
+provide a consistently secure fit. The Originals Series is a
+collection of sandals and thongs that combine the elements of
+performance with casual everyday use and includes several of the
+most popular styles as well as models with retro-1970’s
+inspired colors and stylings. Continuing on the success of
+recent years, the Spring 2003 line consists of men’s and
+women’s leather casuals under the Nomadic Series, including
+a variety of sandals, slides and clogs. The Sun and Moon Series
+has slides and thongs in a variety of materials including
+waterproof leather, nylon, suede and airmesh. The Spring 2003
+Children’s category is an assortment of sandals
+incorporating a variety of materials including leather,
+waterproof suede, nylon, neoprene and mesh as well as slip-on
+watershoes, hikers and other styles of amphibious footwear. In
+addition, for the Fall 2003 season, the Company has
+significantly expanded its Fall product offering with a variety
+of different types of closed footwear, including hiking boots,
+cold weather boots, trailrunners and an assortment of other
+rugged outdoor styles. The domestic manufacturer’s
+suggested retail prices for adult sizes of Spring and Fall 2003
+Teva footwear products range from $20.00 to $120.00.
+Simple Casual
+Footwear. The Simple line consists of
+casual shoes that combine the comfort and function of athletic
+footwear construction with the simple, understated styling of
+“back-to-basics,” casual lifestyle footwear. The
+Simple product line includes a variety of comfortable,
+fashionable, basic shoes for men and women including sneakers,
+sandals, slides, clogs and leather casuals. The Spring 2003
+collection reflects the Company’s emphasis on a target
+consumer in the seventeen to thirty year old age group. For the
+2003 line, the Company has added several new styles of clogs,
+sandals, sneakers and leather casuals to its offerings including
+several athletically inspired styles for men and women as well
+as a re-emphasis on the men’s footwear business, an area
+where the Company had considerable success in the past. The 2003
+Simple line also includes a series of innovative styles of
+women’s footwear featuring models with low profiles. For
+Spring 2003, Simple is offering a variety of styles for men and
+women, including an assortment of sneakers, sandals, thongs,
+leather casuals and clogs in a variety of colors. The domestic
+manufacturer’s suggested retail prices for adult sizes for
+the Spring 2003 line range from $40.00 to $88.00.
+Ugg Sheepskin
+Footwear. Ugg is a line of authentic
+sheepskin footwear, popularized in Australia in the 1960’s
+and 1970’s. These sheepskin boots, slippers and other
+footwear styles have high-grade sheepskin linings which act as a
+natural insulator, keeping feet warm and comfortable. The 2003
+Ugg line offers a range of casual, fashionable and streetwise
+styles in various colors, including several new styles of shoes
+and boots for men and women. The 2003 line includes several
+styles with new innovative fashionable uppers and several styles
+with water resistant leather treatments to address more
+inclement and cold weather conditions. The 2003 line continues
+the tradition of the highly successful Classic and Ultra boots,
+as well as the Home/Spa
+10
+Table of Contents 
+Collection of slippers and other comfort
+footwear. In addition, for 2003, the line includes an expanded
+Fall collection of men’s and women’s casual footwear,
+including the men’s Boston and Cambridge styles, the
+women’s Midtown styles, and the women’s Brooks styles
+featuring lug bottoms for traction combined with sleek profiles.
+The 2003 line also includes an Adirondack Collection of rugged
+cold-weather footwear featuring seam sealed lugged outsoles and
+waterproof leathers combined with sheepskin linings to prevent
+water from coming in and to prevent warmth from escaping. The
+domestic manufacturer’s suggested retail prices for adult
+sizes for the Ugg line range from $50.00 to $275.00.
+Marketing and Distribution 
+The Company’s products are currently
+distributed throughout the United States by a network of
+approximately 37 independent sales representatives, organized
+geographically, who make sales, visit retail stores to train
+personnel and review sales of the Company’s footwear on a
+periodic basis. In addition, the Company has five in-house sales
+representatives that serve as key account executives for several
+of the Company’s larger customers. The Company has two
+separate dedicated sales forces, one for Teva and one for Simple
+and Ugg, as the Simple and Ugg brands are generally sold through
+different distribution channels and are targeted toward a
+different consumer than the Company’s Teva brand. The
+Company’s sales managers for each brand manage their
+networks of representatives, recruit experienced sales
+representatives in the industry and coordinate sales to national
+accounts. The Company currently sells its products
+internationally through 34 independent distributors. The
+Company’s goal is to promote retail sales of its products
+at attractive profit margins for its accounts through selective
+distribution and marketing, targeted toward distinct groups of
+consumers. As a result of this approach, the Company’s
+accounts have a strong incentive to devote greater selling space
+to the Company’s products, and the Company is better able
+to assess consumer preferences, the future ordering needs of its
+customers and inventory requirements.
+The Company’s principal domestic customers
+include specialty retailers, upscale department stores, outdoor
+retailers, sporting goods retailers and shoe stores which market
+products consistent with the Company’s standards. The
+Company’s five largest customers accounted for
+approximately 23.1% of the Company’s net sales for the year
+ended December 31, 2002, compared to 20.6% for the year
+ended December 31, 2001. No single customer accounted for
+more than 8% of the Company’s net sales for the years ended
+December 31, 2002 and 2001.
+In order to encourage accounts to place orders
+early in the season the Company offers a preseason discount
+program under which accounts are provided discounts on preseason
+orders placed. The Company’s strategy is to emphasize this
+“futures” program, as compared to “at once”
+sales, in order to stabilize its supply arrangements, determine
+which styles to take an inventory position in, reduce the risk
+of customer cancellations and to benefit from the significant
+positive impact of the program on the Company’s inventory
+costs, sourcing schedule and allocation of marketing resources.
+Consistent with prior years, the Company offered an early
+delivery program for the spring 2003 season which was delivered
+the fourth quarter of 2002. This early delivery program allows
+the Company to reduce the impact of peak warehouse inventory
+levels during the spring and provides retailers the opportunity
+to have earlier sell through, lengthen the retail selling season
+and increase the potential for inventory turns at retail.
+Domestic deliveries generally originate from the
+Company’s 126,000 square foot warehouse facility in Ventura
+County, California. European deliveries generally originate from
+a distribution center in the Netherlands, while all other
+international deliveries originate from offshore factories.
+The acquisition of the Teva Rights included the
+licensor’s catalog and internet retailing business located
+in Flagstaff, Arizona. The Company expects to continue to pursue
+expansion opportunities in this “direct-to-consumer”
+distribution channel and contemplates eventually opening its own
+retail stores.
+Advertising and Promotion 
+The Company attempts to maximize the impact of
+its advertising, public relations and promotional expenditures
+by utilizing media that provide high visibility within targeted
+market segments. The Company’s brand names are generally
+advertised and promoted through a variety of consumer print
+advertising campaigns
+11
+Table of Contents 
+in addition to highly visible editorial coverage
+in both consumer and trade publications. Retail presence and
+“point of purchase” materials along with production
+packaging provide additional visible brand support. The
+Company’s in-house marketing departments for each brand
+work closely with targeted accounts in many aspects of these
+activities.
+The Company advertises its Teva brand through a
+national print advertising campaign targeted at various
+different demographic groups. For its core outdoor market, Teva
+advertises in several outdoor-related magazines, including
+Backpacker, Outside, National Geographic Adventurer, Paddler,
+Blue and Dandelion, among others. In addition, to
+promote its trailrunner offering, Teva is advertising in
+Trail Runner, Runner’s World Regional and Running
+Times, among other publications. With the broadened appeal
+of the Teva offerings, including the leather casual models, the
+Company has also focused its print advertising toward more
+mainstream print publications, including Men’s Journal
+and Organic Style. The success of The Teva Mountain
+Games has warranted a media push in local publications such as
+Rocky Mountain Sports and national publications such as
+Sports Illustrated . In addition, with the recent
+expansion of the Teva fall product offering, an increased
+proportion of Teva advertising will occur in the fall and winter
+months compared to prior years.
+In order to maintain the Company’s history
+of high visibility among core outdoor enthusiasts such as
+professional river rafters, kayakers, mountain bikers and rock
+climbers, Teva products are given or sold at professional
+discounts to members of this group. In order to further bolster
+the loyalty of these individuals, the Company offers categories
+called “Hydro” and “Terrain,” incorporating
+the latest technological developments and highest quality
+materials. The Company actively sponsors a group of the
+world’s best male and female whitewater athletes called
+Team Teva. Teva also sponsors teams from other outdoor
+disciplines including the Teva US Mountain Running Team and the
+SOBE Cannondale Mountain Bike Team. By outfitting and sponsoring
+these highly visible athletes and teams, the Company creates
+awareness among targeted consumers at relatively low cost. In
+addition, the Company has traveling promotional and technical
+representatives who represent the Teva brand at a wide variety
+of festivals, outdoor sporting events and competitions. Teva is
+sponsoring approximately fifty events in 2003. Internationally,
+the Company also sponsors events in France, Switzerland and
+Italy. Teva sponsors and promotes these events in order to
+increase the Company’s visibility for its core outdoor
+consumer, in addition to the significant marketing available to
+the more mainstream public with the increasing popularity of
+viewing these extreme sports. The Teva promotional team also
+attends and sponsors other events including the Teva Mountain
+Games at Vail, Teva Vail Trail Running Series, Santa Cruz Surf
+Kayak Festival in Santa Cruz, California, the Telluride
+Bluegrass Festival in Telluride, Colorado and Reggae on the
+River in Garberville, California, among others.
+The Teva mobile promotions team attends the
+events in dedicated state of the art promotional vehicles where
+they showcase Teva products and provide consumers with the
+opportunity to see and try on the latest styles. The Teva brand
+has also recently initiated a partnership with Volkswagen
+whereby the Teva Technical Representatives are outfitted in Teva
+branded Volkswagen Eurovans throughout the United States.
+With respect to the Simple product line, the
+Company has continued its national print advertising campaign.
+Simple print advertisements will appear in mainstream,
+youth-oriented consumer fashion magazines such as InStyle,
+Jane and Nylon . In addition, the marketing effort
+focuses around grass roots advertising and includes a consumer
+focused direct mail campaign, retailer events and product
+endorsement by high profile young artists and musicians. Recent
+public relations coverage has appeared in Footwear News, Teen
+People, Nylon, YM, Footwear Plus, W Magazine, Lucky, Shuz,
+Shape, and Surfing Girl. These public relations efforts have
+also resulted in Simple products appearing on television shows
+such as Friends, Dawson’s Creek, and MTV .
+Simple’s marketing efforts are performed
+internally by an in-house Simple marketing team which works to
+promote the Simple brand positioning of being “simple”
+and “down to earth”.
+In 2003, the Company plans to continue to build
+on the success of Ugg’s national print advertising
+campaign. The Company continues to target its Ugg products
+toward luxury consumers who seek high quality, luxurious and
+fashionable products for cold weather. The Company expects to
+advertise Fall 2003 Ugg products in upscale publications such as
+Vogue, InStyle and O Magazine . In February 2002,
+Ugg’s were featured in the Opening and Closing Ceremonies
+of the 2002 Winter Olympic Games. 1,000 Ugg boots were
+12
+Table of Contents 
+used to outfit both the children in the Children
+of Light performances and the individuals presenting medals to
+athletes at all the events. Both the children and adults were
+outfitted in Ultra Short Ugg boots. Ugg also received Olympic
+exposure on the Today Show with Katie Couric the day after the
+opening ceremonies.
+In addition to this national advertising
+campaign, the Ugg brand is being supported by national public
+relations and product placement efforts. In-house marketing
+personnel work closely with a public relations firm and a
+product placement agency to gain brand visibility in popular
+magazines, television shows and feature films. Recent editorial
+coverage includes articles in magazines such as Glamour,
+InStyle, Cosmopolitan, Marie Claire, People, US Weekly, Maxim,
+Shape, Self, O Magazine and Real Simple. Television
+coverage of Ugg product includes shows such as Judging Amy,
+The King of Queens, Still Standing, Will and Grace, AUSA, Cedric
+the Entertainer Presents, Dawson’s Creek, Everwood and
+Friends. These public relations efforts have also resulted
+in Ugg product appearances in the following recent and upcoming
+feature films: Eternal Sunshine of the Spotless Mind
+starring Kate Winslet and Jim Carrey, Haunted Mansion
+starring Eddie Murphy, Raising Helen starring Kate
+Hudson, Surviving Christmas starring Ben Affleck and
+Christina Applegate and Wicker Park starring Josh
+Hartnett. In addition, Ugg has been embraced by Hollywood
+celebrities, who are often seen and photographed in their Ugg
+boots. This celebrity exposure for Ugg has been the subject of
+recent publicity including articles in Us Weekly, USA Today
+and People.com. 
+In 2002, 2001 and 2000, the Company incurred
+$7,456,000, $6,087,000 and $7,108,000, respectively, for
+advertising, marketing and promotional expenses. In addition to
+these expenditures, the Company’s 34 international
+distributors spend additional amounts for marketing the
+Company’s brands within their respective territories.
+Design and Product Development 
+The design and product development staff for each
+of the Company’s brands creates and introduces new
+innovative footwear products that are consistent with the
+Company’s standards of high quality, combined with comfort
+and functionality. The Company’s design function is
+performed by a combination of its internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, the Company is able to see
+a variety of different design perspectives at a low cost. Total
+research and development costs aggregated $1,092,000, $1,034,000
+and $1,076,000 in 2002, 2001 and 2000.
+With respect to Teva, in order to ensure that the
+Company’s high performance technical products continue to
+satisfy the requirements of its historical customer base of
+performance-oriented “core enthusiasts,” the
+Company’s design staff solicits comments and feedback from
+its Team Teva whitewater athletes, the Teva US Mountain Running
+Team and other professional outdoorsmen, as well as several of
+its retailers, including REI, EMS, Galyans and L.L. Bean.
+Certain models are modified and technical innovations are
+developed in response to such comments and feedback. The Company
+adds new innovations, components and styles to its product line
+continually. For example, the Company recently designed and
+introduced a new line of trailrunners incorporating the patented
+Liquid Frame technology and has incorporated its newly developed
+Wraptor technology into performance running sandals, an
+assortment of hikers and certain styles of its high performance
+Guide sport sandals specifically targeted at professional
+outdoorsmen and adventurers. In addition, for added traction and
+durability, the Company has incorporated various materials in
+its sandals, including Spider Rubber® — a sticky,
+non-slip rubber outsole material for use across wet and dry
+terrain, Traction Rubber™ — a highly durable and
+abrasion resistant material designed specifically for the extra
+rigors of land use, and River Rubber® — a
+non-slip material designed to offer superior grip on smooth wet
+surfaces such as rocks, fiberglass and raft rubber.
+While Teva continues to develop high performance
+sport sandals and other rugged outdoor footwear by continually
+updating and designing new styles for these categories, the
+Company also continues to increase its focus on the casual
+footwear market through its Teva, Simple and Ugg brands. The
+Company continues to introduce and offer new styles of leather
+and other casual footwear for men and women and has added new
+styles to its Teva children’s offering of hikers, sport
+sandals, slip-ons and other shoes for Spring 2003. Simple has
+also added several new styles of clogs, sandals, sneakers and
+leather casuals to its offerings for 2003 including several
+athletically inspired styles for men and women as well as a
+re-emphasis on the men’s
+13
+Table of Contents 
+footwear business, an area where the Company had
+considerable success in the past. By monitoring changes in
+consumer lifestyles and preferences and then focusing first on
+function and practicality, the Company develops footwear
+designed to appeal to quality-minded consumers seeking
+comfortable casual footwear.
+In recent years, the Company has taken steps to
+take Ugg’s longtime success in the Southern California
+market and duplicate that success across the United States. In
+support of this effort, the Company has taken steps in recent
+years to update the Ugg products in order to make them more
+functional for use in cold and wet climates. For example, the
+2003 line includes the Adirondack Collection of cold weather
+boots, shoes and clogs featuring seam sealed lugged outsoles and
+waterproof leathers combined with sheepskin linings for high
+functionality and comfort. In addition, the Company has added a
+new Brooks Series to its women’s Ugg Fall Collection,
+featuring styles with a lugged outsole, contemporary styling and
+wool fleece linings which are designed to keep feet dry and
+comfortable in both warm and cold climates. The Ugg brand
+continues to design and offer more fashionable and unique upper
+styles to help differentiate Ugg from the low cost imitation
+brands.
+Integral factors in the design and product
+development process include an evaluation of the availability
+and cost of raw materials, the capabilities of the factories
+that will manufacture products 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 components for their various product lines. Drawings and
+prototypes are utilized to produce samples of proposed new
+concepts. Throughout the development process, members of the
+design staff coordinate closely with each other and with the
+Company’s product development, manufacturing and sourcing
+personnel toward a common goal of developing and sourcing a
+high-quality product that will be delivered on a timely basis.
+The Company endeavors to minimize the risk of changing fashion
+trends by offering a diverse line of functional products and
+closely monitoring sales to its accounts after introduction.
+Product Sourcing 
+The Company currently sources all of its Teva and
+Simple footwear and a portion of its Ugg footwear from
+independent contract manufacturers in the Far East. The Company
+imports the remainder of its Ugg footwear from independent
+contract manufacturers in Australia and New Zealand. The Company
+is not involved in the direct manufacture of footwear, but
+rather sources completed footwear, produced to required
+specifications, directly from these independent contractors. As
+the Company grows, it expects to continue to rely heavily on its
+independent contractors for its sourcing needs.
+The manufacturing of footwear by the
+Company’s independent contractors is performed in
+accordance with detailed specifications provided by the Company
+and is subject to quality control standards and applicable
+safety requirements. In efforts to ensure the production of high
+quality products, many of the materials and components used in
+production are purchased from independent suppliers designated
+by the Company. The Company believes that its completed footwear
+as well as the various raw materials and components used in the
+manufacture of the footwear, including rubber, leather, nylon
+webbing and sheepskin, are generally available from multiple
+sources at competitive prices.
+The Company generally does not have any long-term
+agreements with the manufacturers or suppliers of its products,
+but does business based on individual purchase orders.
+Quality Control 
+The Company has instituted inspections and other
+procedures to satisfy the high quality demanded by users of the
+Company’s products. The Company’s quality assurance
+program includes inspection procedures at the factory level as
+well as a final inspection upon arrival of product at the
+Company’s distribution center. The Company uses on-site
+inspectors at its independent suppliers who oversee the
+production process and perform quality assurance inspections. In
+addition, the products undergo further inspection procedures
+prior to being accepted at the Company’s domestic
+distribution center.
+14
+Table of Contents 
+Acquisition of Teva 
+In connection with the 1999 Teva license renewal,
+the Company received an option to buy the Teva Rights from
+Mr. Thatcher, the founder and owner of Teva, which was
+subsequently renegotiated in 2001. On November 25, 2002,
+the Company completed the acquisition of the Teva worldwide
+assets including all patents, tradenames, trademarks and all
+other intellectual property, as well as Teva’s existing
+catalog and internet retailing business for an acquisition price
+of approximately $62.3 million, including transaction costs
+of approximately $0.3 million.
+The Company paid cash in the amount of
+$43.0 million and issued to Mr. Thatcher subordinated notes
+of $13.0 million, Preferred Stock of $5.5 million,
+100,000 shares of common stock valued at approximately
+$0.3 million and options to purchase 100,000 shares of
+common stock valued at approximately $0.2 million. The
+$13.0 million of subordinated notes include a coupon
+interest rate of 7% and an additional 2% interest, which is to
+be accrued and paid at the maturity date in 2008. The
+$5.5 million of Preferred Stock pays no dividends unless
+dividends are declared and paid on the Company’s common
+stock, is callable by the Company through November 25, 2005
+at face amount plus an additional 10% per year and is
+convertible into common stock by the holder after
+November 25, 2005, if it is still outstanding, at a
+conversion price of $3.632 per share. In addition, the Preferred
+Stock provides the holder with the right to designate one member
+of the Company’s Board of Directors.
+Concurrent with the acquisition, the Company
+entered into an employment agreement with Mr. Thatcher
+through November 2007, which provides for an annual base salary
+of $276,875, and received a non-compete agreement from Mr.
+Thatcher, which expires two years after termination of
+employment.
+The Company currently expects the acquisition to
+be accretive to its fiscal 2003 earnings by approximately
+$1 million, or $0.03 per diluted share, primarily as a
+result of the elimination of approximately $5 million of
+minimum annual royalties under the previous Teva license
+agreement, offset by the interest costs associated with
+financing the transaction. In addition, The Company plans to
+further develop the acquired catalog and internet retailing
+business which had sales in excess of $4 million in 2002.
+Longer term, the Company believes it will be able to leverage
+the strong Teva brand name by selectively expanding into
+apparel, accessories, and other outdoor-related products, which
+the Company expects to accomplish primarily through licensing
+arrangements.
+Licenses 
+Teva License. Prior
+to the acquisition of the Teva Rights on November 25, 2002,
+the Company had been operating its Teva footwear business since
+1985 pursuant to license agreements with Mr. Thatcher, the
+Company’s former licensor for Teva.
+Under the previous license agreement, the Company
+had the exclusive license to the worldwide rights for the
+manufacture and distribution of Teva footwear through 2004,
+which was automatically renewable through 2008 and through 2011
+under two renewal options, provided that minimum required sales
+levels were achieved. Whereas the recent Teva acquisition
+includes all rights to all footwear, apparel and all other
+potential products, the previous licensing arrangement was for
+footwear only.
+The previous license agreement provided for a
+sliding scale of royalty rates, depending on sales levels, and
+included guaranteed minimum annual royalty amounts. The previous
+agreement also required the Company to grant the licensor 50,000
+stock options on the Company’s common stock annually, at an
+exercise price equal to the market value on the date of grant
+for the duration of the license term. Additionally, the previous
+license agreement included minimum spending levels for marketing
+and research and development, required the previous
+licensor’s approval of product, marketing, distribution and
+customers to whom the company could sell, restricted the volume
+of closeouts and seconds which the Company could sell and
+prohibited the transfer of substantially all of the
+Company’s property or stock to other parties. The previous
+license agreement also prohibited the Company from introducing
+and selling non-Teva sandals or other competing footwear
+products for the duration of the license term plus two years
+following termination of the license. Because the Company’s
+primary business is the design, marketing and sale of sandals
+and other footwear, these previous
+15
+Table of Contents 
+non-competition provisions significantly impaired
+the Company’s ability to compete and expand outside of Teva
+and severely restricted the Company’s future footwear
+business in the event that the Company was not able to renew its
+Teva license agreement beyond 2004. The recent Teva acquisition
+terminated these requirements and restrictions.
+Sale of Heirlooms, Inc. 
+The Company and Bob Eason, the designer and
+founder of Picante clothing, were parties to an agreement
+pursuant to which the Company owned 50% of Heirlooms, Inc.
+(“Heirlooms”), the manufacturer and distributor of
+Picante clothing. In January 2001, the Company sold its 50%
+interest in Heirlooms back to Mr. Eason for cash of
+approximately $1,200,000 and a note receivable of approximately
+$420,000, which is secured by a secondary security interest in
+the assets of Heirlooms. The selling price was for an amount
+that approximated the net carrying value of the underlying
+assets and, accordingly, the resulting gain on the sale was not
+significant. Mr. Eason is currently in default on payment
+of the $420,000 note receivable, which was due March 31,
+2002. The Company has recorded a bad debt reserve for the entire
+amount at December 31, 2002 and is currently in
+negotiations with Mr. Eason to endeavor to collect the
+amount due.
+Patents and Trademarks 
+As a result of the Teva acquisition, the Company
+now holds thirteen United States patents and one patent in each
+of Canada, Australia, New Zealand, South Korea, Germany, France,
+China, Japan and the United Kingdom for Teva footwear. As a
+result of the expiration of the applicable period during which
+foreign patent applications were required to have been filed by
+the former licensor, the Company does not and cannot hold
+certain patent rights in certain countries. The Company also
+currently holds Teva trademark rights in the United States and
+in several other countries, including, among others, France,
+Germany, the United Kingdom, Japan and Australia. The Company
+regards its proprietary rights as valuable assets and vigorously
+protects such rights against infringement by third parties.
+Prior to the Teva acquisition, Mr. Thatcher successfully
+enforced his patent and trademark rights in all 20 concluded
+lawsuits brought against such third parties.
+The Company owns the Simple and Ugg trademarks
+and has applied for or received registrations for them in the
+United States and in many foreign countries. The Company has
+selectively registered style category names and marketing
+slogans. In addition, the Company holds two design patents for
+its footwear products.
+In 1995, the Company acquired the patent and
+trademarks for Alp® sport sandals, and has also registered
+the Deckers® trademark.
+Backlog 
+Historically, the Company has encouraged and has
+received a significant portion of its orders as preseason
+orders, which are generally placed by customers approximately
+four to eight months prior to shipment date. As discussed above,
+the Company has emphasized this “futures” business, as
+compared to “at once” sales, as it allows the Company
+to better forecast its inventory requirements and assists with
+the Company’s sourcing schedule. As a result, the Company
+provides its customers with incentives to participate in such
+preseason programs. Unfilled customer orders
+(“backlog”), as of any date, represent orders
+scheduled to be shipped at a future date and do not represent
+firm sales. The mix of future and immediate delivery orders can
+vary significantly from quarter to quarter and year to year. The
+backlog as of a particular date is affected by a number of
+factors, including seasonality and the scheduling of manufacture
+and shipment of products as well as variations in the quarter to
+quarter and year to year preseason incentive programs. As a
+result, comparisons of backlog from period to period are not
+meaningful and the Company’s backlog at any given time is
+generally not indicative of sales levels expected to be achieved
+in the future.
+Competition 
+The casual, outdoor and athletic footwear markets
+are highly competitive. The Company believes that currently its
+largest competitors of the Teva line are Nike, Adidas,
+Timberland, Merrell, Columbia and
+16
+Table of Contents 
+Salomon. The principal competitors of
+Simple’s casual line include Steve Madden, Dr. Marten,
+Camper, and Kenneth Cole and of Simple’s sneaker/sandal
+line include Skechers, Diesel, Steve Madden, Puma and Guess.
+Ugg’s competitors include Merrell, Acorn, Aussie Dogs, LB
+Evans and Timberland, as well as retailers’ private label
+footwear.
+Competition in the Company’s footwear is
+primarily based on brand awareness, product quality, design,
+price points, fashion appeal, marketing, distribution,
+performance and brand positioning. The Company’s Teva line
+of footwear competes primarily on the basis of its authenticity
+as a recognized brand in the outdoor market, its consumer brand
+recognition as one of the first sandals of its kind, as well as
+its high performance nature and its diversity of styles offered.
+In addition, several of the most popular styles employ a
+distinctive patented strapping system, which contributes to
+performance and the brand’s consumer recognition. The
+Company competes through its Simple line as an alternative brand
+offering a diversity of simple, back-to-basics styles designed
+for a variety of recreational and leisure activities. Ugg
+competes primarily on the basis of its authenticity as well as
+its brand name recognition as a high quality premium luxury
+brand, identifiable with the United States sheepskin footwear
+market. The Company believes its business strategy has resulted
+in increased awareness for its brands. However, no assurance can
+be given that in the future the Company will be able to maintain
+or further increase its brand awareness, maintain or increase
+its market share or respond to changing consumer preferences.
+Risks of Foreign Operations/Restrictions on
+Imports 
+The Company’s operations are subject to the
+customary risks of doing business abroad, including, but not
+limited to, currency fluctuations, customs duties and related
+fees, various import controls and other non-tariff barriers
+(e.g., quotas), the cost of transportation, restrictions on the
+transfer of funds, labor unrest and strikes, and in certain
+parts of the world, political instability. Countries where the
+Company’s products are manufactured and sold may, from time
+to time, seek to increase customs duties or impose quotas, all
+of which have the potential to affect the Company’s
+operations and its ability to maintain or increase the current
+level of importation of the Company’s products. The Company
+is unable to predict the likelihood or frequency of the
+occurrence of any of these events.
+The products imported by the Company into the
+United States are subject to various duty rates which are
+established by law. At the present time these duties range
+between 8.5% and 12.5% of the entered value of footwear with
+uppers made principally of leather or sheepskin, and 6.0% and
+37.5%, plus $.90 per pair, of the entered value of footwear with
+uppers made principally of synthetic textiles or plastic.
+“Entered value” means the value taken into account for
+purposes of determining the amount of any customs duties or any
+other duties which may be imposed on the importation of any
+property. In general, the entered value is normally based on the
+price paid or payable by the Company to the seller of the
+imported merchandise.
+From time to time, the Company may be subject to
+claims for additional duties arising as a result of the United
+States Customs Service, or similar agencies of foreign
+countries, disagreeing with the classification and/or valuation
+used by the Company to enter various styles of footwear.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs has
+issued an opinion to the Company that certain popular Teva
+styles are covered by this anti-dumping duty legislation, which
+the Company has appealed. As a precautionary measure, the
+Company obtained and has been using alternative sourcing for the
+potentially impacted products from sources outside of China in
+an effort to avoid potential risk on future imports. In 2001,
+the European Commission added additional explanatory language
+that more clearly identified the types of footwear subject to
+anti-dumping duties. The Company believes that based on the new
+language, it is probable that the Company will not prevail in
+its appeal. Therefore, the Company has provided a reserve of
+$500,000, which is the Company’s estimate of its exposure
+for anti-dumping levies. In 2002, the European Commission
+repealed the anti-dumping duties on future footwear imports
+beginning November 1, 2002. While this recent repeal of the
+legislation allows for future imports from China without
+anti-dumping duties, it does not eliminate the potential
+liability for past imports.
+17
+Table of Contents 
+The European communities also impose quantitative
+limits on imports from China of certain leather upper and
+textile upper footwear. The Company is unable to predict the
+future extent of import quota restrictions or any changes in the
+scope or severity of such restrictions.
+Employees 
+At December 31, 2002, the Company employed
+approximately 133 full-time employees in its U.S. facilities and
+29 at its Hong Kong subsidiaries, none of whom is represented by
+a union. The Company believes its relationship with its
+employees is good.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2002/0000950148-03-000685/item13.txt b/raw/filings/0000910521/2002/0000950148-03-000685/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..373ce0a3773ab6754dba68db3fa85ada310de2fe
--- /dev/null
+++ b/raw/filings/0000910521/2002/0000950148-03-000685/item13.txt
@@ -0,0 +1,9 @@
+Item 13. Certain Relationships and
+Related Transactions 
+Information relating to Certain Relationships and
+Related Transactions is set forth in the Company’s
+definitive proxy statement relating to the Registrant’s
+2003 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2002, and such information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2002/0000950148-03-000685/item9a.txt b/raw/filings/0000910521/2002/0000950148-03-000685/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2002/0000950148-03-000685/rp_note.txt b/raw/filings/0000910521/2002/0000950148-03-000685/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2002/0000950148-03-000685/rpt_disclosure.txt b/raw/filings/0000910521/2002/0000950148-03-000685/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/filing.txt b/raw/filings/0000910521/2003/0000950148-04-000712/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..67245f4b0b988c7c439f773672e769b2a3a0a3b3
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/filing.txt
@@ -0,0 +1,7447 @@
+10-K
+1
+v97221e10vk.htm
+FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 2003
+Deckers Outdoor Corporation 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31,
+2003 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to
+Commission File No. 0-22446 
+DECKERS OUTDOOR CORPORATION 
+(Exact name of registrant as specified in its
+charter) 
+Delaware 
+95-3015862 
+(State or other jurisdiction of 
+incorporation or organization) 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue, Goleta,
+California 
+93117 
+(Address of principal executive
+offices) 
+(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 
+None 
+None 
+Securities registered pursuant to
+Section 12(g) of the Act: 
+Common Stock, $.01 par value 
+(Title of Class) 
+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 o 
+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. o 
+Indicate by check mark whether the registrant is
+an accelerated filer (as defined in Exchange Act
+Rule 12b-2). Yes o No x 
+Aggregate market value of the Common Stock of the
+registrant held by non-affiliates of the registrant on
+June 30, 2003 based on the closing price of the Common
+Stock on the NASDAQ National Market System on such date was
+$37,438,285.
+The number of shares of the registrant’s
+Common Stock outstanding at March 24, 2004 was 9,787,541.
+Portions of registrant’s definitive proxy
+statement relating to registrant’s 2004 annual meeting of
+shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of
+registrant’s fiscal year ended December 31, 2003, are
+incorporated by reference in Part III of this Form 10-K.
+TABLE OF CONTENTS 
+Item 1. Business 
+DIVIDEND POLICY 
+Item 6. Selected Consolidated Financial Data 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+RISK FACTORS 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+PART III 
+Item 10.Directors and Executive Officers of the Registrant 
+Item 11.Executive Compensation 
+Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Item 13.Certain Relationships and Related Transactions 
+Item 14.Principal Accountant Fees and Services 
+Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K 
+SIGNATURES 
+Exhibit 10.27 
+Exhibit 10.28 
+Exhibit 10.29 
+Exhibit 10.30 
+Exhibit 10.31 
+Exhibit 10.32 
+Exhibit 10.33 
+Exhibit 10.34 
+Exhibit 10.35 
+Exhibit 14.1 
+Exhibit 21.1 
+Exhibit 23.1 
+Exhibit 31.1 
+Exhibit 31.2 
+Exhibit 32.1 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31,
+2003 
+Index to Annual Report on
+Form 10-K 
+Page 
+PART I 
+Item 1.
+Business
+3 
+Item 2.
+Properties
+14 
+Item 3.
+Legal Proceedings
+14 
+Item 4.
+Submission of Matters to a Vote of Security
+Holders
+15 
+PART II 
+Item 5.
+Market for Registrant’s Common Equity and
+Related Stockholder Matters
+16 
+Item 6.
+Selected Financial Data
+17 
+Item 7.
+Management’s Discussion and Analysis of
+Financial Condition and Results of Operations
+19 
+Item 7A.
+Quantitative and Qualitative Disclosures about
+Market Risk
+47 
+Item 8.
+Financial Statements and Supplementary Data
+47 
+Item 9.
+Changes in and Disagreements with Accountants on
+Accounting and Financial Disclosure
+47 
+Item 9A.
+Controls and Procedures
+47 
+PART III 
+Item 10.
+Directors and Executive Officers of the Registrant
+76 
+Item 11.
+Executive Compensation
+76 
+Item 12.
+Security Ownership of Certain Beneficial Owners
+and Management and Related Stockholder Matters
+76 
+Item 13.
+Certain Relationships and Related Transactions
+76 
+Item 14.
+Principal Accountant Fees and Services
+76 
+PART IV 
+Item 15.
+Exhibits, Financial Statement Schedules and
+Reports on Form 8-K
+76 
+Signatures
+80 
+2
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+We are a leading designer, producer and brand
+manager of innovative, high-quality footwear and the category
+creator in the sport sandal and luxury sheepskin footwear
+segments. Our footwear is distinctive and appeals broadly to
+men, women and children. We sell our products through quality
+domestic retailers and international distributors and directly
+to end-user consumers through our websites and catalogs. Our
+primary objective is to build our footwear lines into global
+lifestyle brands with market leadership positions.
+We market our products under three proprietary
+brands:
+Teva. Teva is
+our outdoor lifestyle brand and the category creator of the
+outdoor sport sandal segment. Teva was created in the
+1980’s to serve the demanding footwear needs of the
+professional river guide community, and this authentic outdoor
+heritage and commitment to function and performance remain core
+elements of the Teva brand. We have expanded Teva’s sports
+sandal line to include casual open-toe footwear, as well as
+hiking boots, trail running shoes, amphibious footwear and other
+rugged outdoor footwear styles.
+UGG. UGG is
+our luxury brand and the category creator in luxury sheepskin
+footwear. Our UGG line has enjoyed several years of strong
+growth and positive consumer receptivity, driven by consistent
+introductions of new styles, introductions of UGG products in
+the fall and spring seasons and geographic expansion of
+distribution. We carefully manage the distribution of our UGG
+line within high-end specialty and department store retailers in
+order to best reach our target consumers, preserve UGG’s
+retail channel positioning and maintain UGG’s position as a
+mid- to upper-price luxury brand.
+Simple. 
+Simple is our moderately priced “anti-brand,” serving
+the needs of a youthful, irreverent consumer base seeking the
+comfort of athletic footwear but the styling of more
+traditional, understated, “back-to-basics” footwear.
+We have recently revised the Simple line to focus on its
+successful legacy categories, including sandals, clogs and
+casual athletic footwear. In addition, Simple enables us to
+selectively leverage our core footwear design and production
+competencies in channels of distribution not served by Teva or
+UGG.
+We believe our ability to continue to grow our
+future sales, earnings and market share has been significantly
+enhanced through achievement of three key recent initiatives:
+Teva Rights Acquisition.
+From 1985 until November 2002, we
+sold our Teva products under a licensing arrangement with
+Teva’s founder, Mark Thatcher. In November 2002, we
+acquired all of the Teva Rights from Mr. Thatcher and his
+wholly-owned corporation, Teva Sport Sandals, Inc. The
+acquisition enabled us to gain ownership of the Teva Internet
+and catalog business and allowed our brand managers to broaden
+the Teva line into attractive casual open-toe lines and rugged
+outdoor closed-toe footwear. This expansion of the Teva product
+line has increased the appeal of the brand and expanded overall
+retail placement. The acquisition also enabled us to:
+• 
+eliminate significant royalties and other license
+costs;
+• 
+eliminate product line expansion constraints
+under our former license agreement;
+• 
+realize license opportunities for the Teva brand
+into additional brand-appropriate outdoor categories; and
+• 
+enhance our ability to recruit and retain key
+senior management.
+Organizational Restructuring.
+In the last several years, we have
+reorganized our management infrastructure and developed a
+decentralized approach that gives our brand managers greater
+control over product development, marketing, and distribution
+for their respective brands. This approach strengthens our
+product development efforts and enables each brand manager to
+react quickly to important market trends and concentrate on the
+footwear demands of our customers and consumers. Our brand teams
+are highly focused on
+3
+Table of Contents 
+developing new products and marketing programs
+that drive strong sales growth but that remain true to each
+brand’s heritage. As a result, we have generated gross
+margins in excess of 41.8% in each of the past three years
+and achieved compound annual sales growth of approximately 15%
+in this period, while increasing our inventory levels by only 5%
+over the same period. Our central management team provides
+important expertise in disciplines common to each of our brands,
+including sourcing, time-to-market, quality control, credit,
+information systems technology and overall management of our
+capital resources.
+UGG
+Repositioning. UGG gained brand
+recognition in the U.S. beginning in 1979 and was adopted as a
+favored brand by the California surf community. We acquired UGG
+in 1995 and have carefully re-positioned the brand as the luxury
+sheepskin collection sold through high-end retailers. While our
+sales have grown steadily over the past six years, over the past
+two years UGG has benefited from significant national media
+attention and celebrity endorsement through our marketing
+programs and product seeding activities, further raising the
+profile of UGG as a luxury sheepskin brand. We intend to
+maintain UGG’s market positioning by carefully expanding
+the selection of styles available in order to build consumer
+interest in our UGG collection. We also remain committed to
+limiting distribution of UGG through high-end retail channels.
+Largely as a result of these three initiatives,
+our net sales have increased by 22.1%, from $99,107,000 in 2002
+to $121,055,000 in 2003 and our income from operations has
+increased by 480.6% from $3,348,000 in 2002 to $19,438,000 in
+2003. For 2003, wholesale shipments of Teva, UGG and Simple
+represented 60.1%, 28.5% and 6.0% of our total net sales,
+respectively. Sales of our brands through our Internet and
+catalog division are incremental to our wholesale shipments and
+generated 5.4% of total net sales in 2003.
+History 
+We were co-founded by Doug Otto in 1973 as a
+domestic manufacturer of sandals. We originally manufactured a
+single line of sandals under the Deckers’ brand name in a
+small factory in Carpinteria, California. Since then, we have
+grown through the development and licensing of proprietary
+technology, targeted marketing and selective acquisitions. In
+1985, we entered into our first licensing agreement for Teva
+sport sandals with Teva’s founder, Mark Thatcher. In 1986,
+we developed the Universal Strapping System, establishing Teva
+as the sport sandal category-creator and generating significant
+national attention for the Teva brand.
+We experienced a period of rapid growth during
+the late 1980’s and completed our initial public offering
+in 1993. As our sales grew, we terminated our manufacturing
+operations in the U.S., Mexico and Costa Rica, and today all of
+our footwear products are manufactured for us by independent
+manufacturers in the Far East, Australia and New Zealand. We
+maintain our own offices in China and Macau to monitor the
+operations of our Far East manufacturers.
+In order to diversify our sales and leverage our
+product development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva
+products under a licensing arrangement with Teva’s founder,
+Mark Thatcher. In November 2002, we acquired all of the Teva
+Rights from Mr. Thatcher and his wholly owned corporation,
+Teva Sport Sandals, Inc.
+Business Strategies 
+We seek to differentiate our brands by offering
+diverse lines that emphasize authenticity, functionality,
+quality and comfort and products tailored to a variety of
+activities and demographic groups. Key elements of our business
+strategies are:
+Build Leading Global
+Brands. Our mission is to build
+niche footwear lines into global brands with market leadership
+positions. Our Teva and UGG brands began as footwear lines
+appealing to a narrow core enthusiast market. We have since
+built these lines into substantial global lifestyle brands with
+significant
+4
+Table of Contents 
+potential for further growth and line extension.
+Across our brands, our styles remain true to the brands’
+heritage but have been selectively extended over time to broaden
+our appeal to men, women and children seeking high quality,
+comfortable styles for everyday use. Furthermore, we actively
+manage our brands to ensure that we reach brand appropriate
+retail distribution channels. We believe that building our
+domestic and international brand image is best accomplished
+through a decentralized management structure that empowers a
+single brand manager to coordinate all aspects of brand image,
+from product development to marketing and retail channel
+management.
+Sustain Brand
+Authenticity. We believe our
+ability to grow our brands, sustain strong gross margins and
+maintain strong market share results, in part, from consumer
+loyalty to the heritage of our brands. We believe Teva consumers
+are passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy highlights the brand’s
+positioning as functional footwear, but also as a premium,
+luxury collection. UGG is primarily marketed through national
+print advertising in major women’s magazines and through
+our retailers and their catalogs and advertising. We promote our
+Simple brand by emphasizing Simple’s heritage sneaker and
+clog businesses in marketing targeted to youth-oriented markets
+in major U.S. cities. In 2004, our key marketing objective
+for Simple is to reintroduce the brand to the marketplace using
+a grass roots approach in our marketing and media plan. We will
+focus our advertising on our “we clog” and “we
+sneaker” campaigns in alternative weekly publications and
+other non-mainstream media.
+Drive Demand Through Innovation and
+Technical Leadership. We believe
+our reputation for innovation and technical leadership
+distinguishes our Teva and UGG products from those of our
+competitors and provides us with significant competitive
+advantages. Our proprietary Universal Strapping System launched
+Teva’s popularity in the mid-1980’s. Recent technical
+advances in our Teva footwear include our Liquid Frame
+Technology and our Wraptor technology, all designed to provide
+maximum stability, support and comfort under rugged usage. We
+recently introduced closed-toe footwear, which currently
+represents approximately 14.1% of Teva’s net sales. We
+anticipate introducing new styles for fall 2004 that incorporate
+Vibram® soles and Gore-Tex® fabrics. We continue to
+develop innovative styles, products and product categories for
+our UGG collection in order to support UGG’s positioning as
+a functional lifestyle brand. UGG has benefited from expansion
+into non-boot casuals and other sheepskin-trimmed footwear,
+designed to expand our market share in new categories and
+increase our sales in the fall and spring.
+Maintain Efficient Production
+Process. We believe our product
+development processes enable us to produce leading edge products
+on a timely and a cost effective basis. We design our products
+domestically. We maintain an on-site supervisory office in Pan
+Yu City, China that serves as a local link to our independent
+manufacturers in the Far East, 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.
+Growth Strategies 
+Our growth will depend upon our broadening of the
+products offered under each brand, expanding domestic and
+international distribution, licensing our brand names and
+developing or acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under
+Existing Brands. We intend to
+increase our sales by developing and introducing additional
+footwear products under our existing brands that meet our high
+standards of performance, practicality, authenticity, comfort
+and quality. We have expanded Teva’s open-toe footwear
+category by launching new casual styles. We also have introduced
+several closed-toe lines under the Teva brand, including
+amphibious footwear, hikers, trail runners and other rugged
+outdoor footwear. We plan further expansion into the hiking,
+trail running and rugged outdoor arenas, where the aggregate
+market is considerably greater than the market size for
+Teva’s core sport sandals. We have expanded our UGG
+5
+Table of Contents 
+collection to incorporate additional styles and
+fabrications in order to further penetrate the fall, spring and
+winter seasons. We expect to grow our Simple brand by
+re-introducing our heritage clog and sneaker categories for both
+men and women. Simple has introduced “comfy” sandals,
+leveraging one of our core competencies. We have also introduced
+suede, fleece-lined footwear under the Simple brand to reach
+retail distribution not currently offered by UGG.
+Expand Domestic
+Distribution. We believe that we
+have significant opportunities to increase our sales by
+expanding domestic distribution of our products. Our Teva brand
+has generally been distributed through the outdoor specialty and
+sporting goods retail channels. We have identified the potential
+for expansion into additional retail channels through the
+development of special make-up styles for retailers who have
+limited store overlap with our core specialty outdoor and
+sporting goods customers. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+four years we have experienced increasing demand for UGG
+distribution outside California, and we expect to capitalize on
+significant demand in the Midwest and East Coast markets. For
+Simple, we are repositioning the brand by focusing on our legacy
+styles in order to re-connect with our consumer base and by
+broadening the appeal of Simple to new channels of distribution.
+The legacy products are primarily clogs, athletic-inspired
+footwear and comfort sandals. We have also introduced a Simple
+suede, fleece-lined product line to access retail channels that
+are precluded from selling our UGG product line.
+Expand International
+Distribution. In 2003, our
+international net sales totaled $22,345,000, representing
+approximately 18.5% of total net sales. We believe significant
+opportunities exist to market our products abroad, and we intend
+to selectively expand their distribution worldwide. We entered
+into an agency arrangement with a firm in the United Kingdom for
+the coordination of our sales, distribution, marketing and
+advertising efforts in the European markets. In addition, in
+2003 we entered into an agency agreement with a U.S. firm
+to coordinate our sales and marketing efforts in Asia.
+Pursue Licensing of Brands in Complementary
+Product Lines. We are pursuing
+selective licensing of our brand names in product categories
+beyond footwear. We have signed an agreement with an agency to
+assist in coordinating the efforts for the licensing of products
+that complement our trademark protected products. In July 2003,
+we initiated a domestic Teva licensing program, consisting of
+U.S. licenses for men’s sportswear, headwear, eyewear
+and timepieces. We have also signed a license agreement for UGG
+handbags and related small leather goods and have several UGG
+related licensing opportunities under consideration, including
+outerwear and accessories. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. We have only
+recently initiated the licensing strategy and, as a result of
+the lead times required to bring products to market, we have not
+realized revenue from these licensing initiatives.
+Build New
+Brands. We intend to continue to
+focus on identifying, developing or acquiring, and building new
+brands. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing our expertise in product development,
+production and marketing. We intend to continue to identify and
+build new brands with the potential for significant future
+growth.
+Products 
+Our primary product lines are:
+Teva Sport Sandals and
+Footwear. “The brand of
+choice for the new outdoor athlete.” We believe there has
+been a general shift in consumer preferences and lifestyles to
+include more outdoor recreational activities, including hiking,
+trail running, bouldering, kayaking, kite boarding and
+whitewater river rafting. These consumers typically seek
+footwear specifically designed with the same quality and high
+performance attributes they have come to expect from traditional
+athletic footwear. The first Teva sport sandal was developed in
+the 1980’s to meet the demanding needs of professional
+rafting guides navigating the Colorado River and the rugged
+Grand Canyon terrain. As our core consumers’ pursuits have
+evolved, we have retained our outdoor heritage while adding new
+products to our line, including slides, thongs, amphibious
+footwear, trail running shoes, hiking boots and rugged
+closed-toe footwear. Our brand remains popular among
+professional and
+6
+Table of Contents 
+amateur outdoorsmen seeking authentic,
+performance-oriented footwear, as well as general footwear
+consumers seeking high quality, durable and comfortable styles
+for everyday use.
+Our Teva line comprises six core footwear
+collections:
+Originals.
+The Originals Series is a
+collection of sandals and thongs utilizing Teva’s classic
+rugged architecture. This Series leverages the Teva brand
+heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Our Originals feature our proprietary Universal
+Strapping System or Wraptor technology as well as cellular
+rubber, molded EVA or polyurethane soles and high-quality nylon
+webbing or leather designed to hold the foot firmly in place.
+Our U.S. patent on our Universal Strapping System, which we use
+in most of our Teva sandals, expires in September 2007.
+Hydro. The
+Hydro Series builds upon our legacy as the category leader in
+whitewater-designed footwear. Hydro consists of sandals and
+closed-toe amphibious footwear built for high performance and
+rugged outdoor use. This series includes men’s and
+women’s sport sandals and other outdoor footwear ideal for
+professional and amateur outdoor enthusiasts and adventurers.
+Our Hydro Series incorporates many proprietary technologies
+including our Wraptor or Liquid Frame technologies as well as
+quick draining monofilament mesh, specially formulated sticky
+rubber outsoles designed to adhere to slippery rocks, form
+fitting neoprene and water-repelling leathers.
+Terrain. The
+Terrain Series is a line of sandals and closed-toe footwear
+designed with Teva technologies applied to a performance terrain
+product for use in rugged outdoor environments such as hiking
+trails and canyons. The Terrain Series includes performance
+walking sandals and running sandals, as well as hiking boots and
+trail running shoes. To meet our consumers’ expanded needs
+and to provide them with the best product possible, we have
+partnered with many of the world’s leading providers of
+footwear technology for specialty component materials, including
+Vibram®, Five Ten® and Gore-Tex®.
+Nomadic. Our
+Nomadic Series represents a collection of leather casual sandals
+and closed-toe footwear true to Teva’s performance-oriented
+outdoor heritage but designed for more casual use. The Nomadic
+Series consists of men’s and women’s leather and suede
+sandals, closed-toe shoes, slides and clogs featuring rugged,
+contemporary styles for the traveler and adventurer.
+Sun and Moon. 
+Our Sun and Moon Series features fun, youthful and colorful
+slides and thongs in a variety of materials including waterproof
+leather, nylon, suede and air mesh. The Sun and Moon Series is
+designed to leverage our sandal making capabilities and to
+appeal to fashion-oriented consumers seeking pre-activity and
+post-activity footwear alternatives that express a casual
+lifestyle and individual spirit.
+Kids and Infants.
+Our children’s series is an
+assortment of sandals incorporating a variety of materials
+including leather, waterproof suede, nylon, neoprene and mesh,
+as well as slip-on water shoes, hikers and other styles of
+amphibious footwear. In addition, for the 2004 season, we have
+expanded our product offering with a variety of styles of
+sandals and closed-toe footwear, including an assortment of
+styles that are reflective of our adult offerings.
+We intend to continue to build upon Teva’s
+broad and deep line of performance and casual footwear. Our 2004
+line features over 100 different product styles with domestic
+manufacturer’s suggested retail prices for adult sizes
+ranging from $20.00 to $120.00.
+UGG Footwear. 
+“The premier brand in luxury and comfort sheepskin.”
+Beginning in 1979, UGG gained brand recognition in the U.S. for
+sheepskin boots and slippers and was later adopted as a favored
+brand by the California surf community. We acquired the brand in
+1995 and expanded the collection, offering consumers a luxurious
+and distinctive look in sheepskin fabrications.
+Our UGG product line comprises six core footwear
+collections:
+Classic
+Collection. We offer a complete
+line of sheepskin boots built on the heritage and distinctive
+look of our first product, the Classic Sheepskin boot. Our
+classic collection products are distinctive in styling,
+featuring earth tones and pastels.
+7
+Table of Contents 
+Ultra
+Collection. The Ultra Collection
+builds upon the heritage of our original Classic. These boots
+are designed with our comfort system, featuring a multi-surfaced
+lugged bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures.
+Fall
+Collection. This collection
+features a more modern and refined look with sheepskin combined
+with smooth leather uppers in distinctive patterns and styles.
+This collection features a variety of shoes, clogs and boots and
+provides UGG consumers with the versatility to utilize sheepskin
+styling for a wider variety of occasions and outfits.
+Adirondack
+Collection. This collection is
+designed for consumers seeking more rugged styling. The
+Adirondack line features seam-sealed rugged outsoles and
+waterproof leathers designed to withstand colder, wetter
+climates.
+Fluff Momma
+Collection. This is our most
+playful and distinctive assortment. The Fluff Momma features
+untrimmed and colored sheepskin fleece exposed on the entire
+boot.
+Slipper
+Collection. Our popular Slipper
+Collection builds upon the UGG heritage of foot comfort and
+warmth.
+We have expanded our UGG collection from the
+Classic Sheepskin boot to a broad sheepskin footwear line for
+men, women and children in a variety of styles and colors,
+designed for wear in a variety of climates and occasions. Line
+expansion strategies have resulted in significantly increased
+exposure for our UGG collection and have contributed to the
+growth of UGG’s first, second and third quarter business,
+in addition to our well developed fourth quarter business. The
+domestic manufacturer’s suggested retail prices for adult
+sizes for the UGG line range from $50.00 to $275.00.
+Simple Casual
+Footwear. “The brand of
+choice for a simple, uncomplicated lifestyle.” The Simple
+line of casual shoes combines the comfort of athletic footwear
+construction with the simple, understated styling of
+“back-to-basics” casual footwear. The line was
+launched in the early 1990s as an “anti-brand”
+catering to irreverent 17 to 30 year old consumers unhappy with
+the trend toward flashy footwear produced by national athletic
+brands. The brand has expanded to a line of casual clogs,
+sneakers, sandals and suede, fleece-lined footwear, and remains
+an important brand for retailers seeking to attract young
+consumers desiring practical, expressive styling.
+Our Simple product line comprises four core
+footwear collections:
+Sneakers. Our
+sneaker line features stylish yet understated footwear designed
+to be both functional and expressive. Our sneakers feature
+performance-oriented construction including EVA insoles,
+non-marking, durable rubber outsoles and performance leather and
+suede uppers.
+Clogs. 
+Building on the heritage of our original clogs, our current clog
+series features comfortable insoles and fashionable uppers.
+Sandals. We
+offer a wide variety of casual sandals for men and women plus a
+newly introduced line of fun and colorful sandals designed
+principally for young female consumers.
+Suede, Fleece-Lined
+Boots. We have introduced a casual
+line incorporating fleece lining and suede uppers.
+We have revised the Simple line in order to
+return our focus on male and female consumers between the ages
+of 17 and 30. We have refined the line and added several new
+styles of clogs, sandals, sneakers and leather casuals to our
+offerings, including several athletically inspired styles for
+men and women. We also offer suede, fleece-lined footwear, which
+enables us to leverage our sheepskin production capabilities and
+sell this footwear at lower price points than our UGG brand into
+distribution channels that are precluded from offering our UGG
+brand. The domestic manufacturer’s suggested retail prices
+for adult sizes of Simple products range from $30.00 to $88.00.
+8
+Table of Contents 
+Licensing 
+To capitalize on the strength of our brands, we
+are pursuing the licensing of our brand names in product
+categories beyond footwear. As part of this approach, in 2002,
+we signed agency agreements with BHPC Global Licensing, Inc.,
+our licensing agency, to assist us in identifying license
+candidates and coordinating the efforts for the licensing of the
+Teva, UGG and Simple trademarks on products ranging from
+sportswear and outerwear to bags, packs and other accessories.
+In July 2003, we initiated a Teva licensing
+program with strategic partners, which currently consists of
+U.S. licenses for men’s sportswear, headwear, eyewear
+and timepieces. We are selectively developing additional
+licensing programs to ensure that licensed goods remain
+consistent with the Teva brand’s heritage. In addition, we
+have signed a license agreement for UGG handbags and related
+small leather goods and have several other UGG related licensing
+opportunities under consideration, including outerwear and
+accessories.
+BHPC is a full-service licensing agency that has
+substantial experience in product licensing. We pay BHPC a
+commission on royalty income that we receive. To date, we have
+not recorded any royalty income or any related commissions
+expense. BHPC is owned by one of our directors, Daniel L.
+Terheggen.
+Products made under license will be sold
+primarily through the same retail channels as our footwear
+product offering. Products sold under license are currently
+under development and are expected to be sold at retail
+beginning in the fourth quarter of 2004. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and Distribution 
+We distribute our products in the
+U.S. through a dedicated network of approximately 37
+independent sales representatives. Our sales representatives are
+organized geographically and visit retail stores to communicate
+the features, look and technology of our products. In addition,
+we have five in-house sales representatives who serve as key
+account executives for several of our largest customers.
+Our sales force is divided into two teams, one
+for Teva and one for UGG and Simple, as the UGG and Simple
+brands are generally sold through non-outdoor specialty and
+non-sporting goods distribution channels and are targeted toward
+a different customer than our Teva brand. Our sales manager for
+each brand recruits and manages his or her networks of sales
+representatives and coordinates sales to national accounts. We
+believe this approach for the U.S. market maximizes the
+selling efforts to our national retail account base on a
+cost-effective basis.
+Internationally, we distribute our products
+through 32 independent distributors. Shipments to Europe are
+primarily facilitated through third party distribution in the
+Netherlands. All other international shipments are made directly
+from our independent manufacturers.
+Our principal customers include specialty
+retailers, selected department stores, outdoor retailers,
+sporting goods retailers and shoe stores. Our five largest
+customers accounted for approximately 20.5% of our net sales for
+2003, compared to 23.1% for 2002. No single customer accounted
+for more than 9.0% of our net sales for 2002 or 2003.
+Teva. We sell
+our Teva products primarily through specialty outdoor and
+sporting goods retailers such as REI, Eastern Mountain Sports,
+L.L. Bean, Dick’s Sporting Goods and The Sports Authority.
+We believe this retail channel is the first choice for athletes,
+enthusiasts and adventurers seeking technical and
+performance-oriented footwear. Furthermore, we believe that our
+Teva products are best sold by retailers who appreciate and can
+fully market the technical attributes of our products to the
+consumer. We also sell special make-up Teva products in selected
+retailers in order to reach consumers who are less
+outdoor-oriented but who seek out our products due to their
+durability, comfort and fit.
+UGG. We sell
+our UGG products primarily through independent specialty
+retailers such as Fred Segal, David Z. and Sport Chalet and
+high-end department stores such as Nordstrom, Marshall
+Field’s and Neiman Marcus. We believe these retailers
+support the luxury positioning of our brand and are the
+destination shopping choice for the consumer who appreciates the
+fashion and functional elements of our UGG products.
+9
+Table of Contents 
+Simple. We
+market our Simple products primarily to independent specialty
+retailers such as J. Jill and Steve’s Shoes and
+selected department stores such as Nordstrom, targeting
+consumers seeking understated styling and
+“back-to-basics” looks. Our Simple products are
+broadly distributed in order to attract our target demographic,
+men and women between the ages of 17 and 30.
+We distribute products sold in the
+U.S. through our 126,000 square foot distribution
+center in Ventura, California. The distribution center features
+an inventory management system that enables us to efficiently
+pick and pack products for direct shipment to retailers across
+the country. 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 a rigorous quality
+inspection.
+Consumer Direct 
+We acquired the Internet and catalog businesses
+as part of the acquisition of the Teva Rights. The consumer
+direct business enables us to reach consumers through our
+Internet business under the Teva.com, UGGs.com, UGGAustralia.com
+and SimpleShoes.com Internet addresses and through direct
+mailings. Our mailing list includes approximately 300,000
+consumers who have purchased at least once in the past
+36 months. We currently average approximately
+450 direct orders daily and have recently reorganized our
+order fulfillment operations from Flagstaff, Arizona to our
+distribution center in Ventura, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs. We
+generally sell our products through our direct channels at the
+manufacturer’s suggested retail price, enabling us to
+capture the full retail margin on each direct transaction.
+Marketing and Advertising 
+Our brands are generally advertised and promoted
+through a variety of consumer print advertising campaigns. We
+benefit from highly visible 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 incurred
+approximately $6,087,000, $7,456,000 and $6,594,000 in
+advertising, marketing and promotion expenses in 2001, 2002 and
+2003, respectively.
+Teva. We use
+several marketing methods to promote the Teva brand, including:
+• 
+a targeted print advertising campaign;
+• 
+promotions at a variety of festivals, events and
+competitions;
+• 
+sponsorship of local athletes and national
+athletes such as the Teva Whitewater Team, the Teva
+U.S. Mountain Running Team and the SOBE Headshock Mountain
+Bike Team;
+• 
+discount programs to professional river guides,
+kayakers, mountain bikers and rock climbers;
+• 
+product seeding with professional
+athletes; and
+• 
+in-store promotions.
+We advertise the Teva brand through the placement
+of print advertisements in leading outdoor magazines such as
+Backpacker, Outside, National Geographic Adventurer, Hooked
+on the Outdoors and Paddler . As we have added new
+product categories to the Teva brand, we have broadened our
+advertising presence to reach new consumers. To support our
+introduction of Teva trail running shoes, we advertise in
+Trail Runner, Runner’s World and Running
+Times , among other publications. We also advertise in more
+mainstream publications such as Men’s Journal in
+order to support our casual footwear lines.
+The Teva brand is closely associated with outdoor
+lifestyle pursuits such as river rafting, kayaking, mountain
+biking, hiking and trail running. We sponsor outdoor events in
+the U.S. including the Teva Mountain Games at Vail, the
+Teva Vail Trail Running Series, the Santa Cruz Surf Kayak
+Festival in Santa Cruz, California, the Telluride Bluegrass
+Festival in Telluride, Colorado and the Reggae on the River
+event in Garberville, California, among others. We believe our
+sponsorship of these events further links our Teva brand
+10
+Table of Contents 
+with its outdoor heritage and generates increased
+product exposure and brand awareness. Internationally, we
+sponsor outdoor events in France, Switzerland and Italy in order
+to increase our brand visibility to the core European outdoor
+consumer.
+We sponsor some of the world’s best male and
+female professional and amateur athletes across several sports.
+Our Teva promotional team attends events across the U.S. in
+dedicated, state-of-the-art promotional vehicles prominently
+featuring our Teva logo. The promotions team showcases Teva
+products at events and provides consumers with the opportunity
+to see and sample our latest styles. We recently initiated a
+partnership with Volkswagen whereby the Teva technical
+representatives are outfitted in Teva branded Volkswagen
+Eurovans and Touaregs for travels across the U.S. We believe by
+outfitting and sponsoring these highly visible athletes and
+teams, we create brand and product awareness among our targeted
+consumers at a relatively low cost.
+UGG. We seek
+to build upon the success of our UGG national print advertising
+campaign. We currently advertise in upscale national magazines
+such as Vogue, Elle , and O Magazine . We
+believe such advertising is an effective means to target our
+intended consumers and to convey the high quality and luxurious
+appeal of UGG products. We also benefit from editorial coverage
+of the UGG product. Articles have appeared in such magazines as
+Glamour, InStyle, Cosmopolitan, Marie Claire, People,
+US Weekly, Maxim, Shape, Self, O Magazine and
+Real Simple . In 2003, UGG was awarded “Brand of the
+Year” by Footwear News, a leading industry trade
+publication.
+We also actively seek to place UGG products at
+selected events. During the 2002 Winter Olympic Games we
+outfitted all of the children in the Children of the Light
+performance with UGG boots. During the Medal Ceremonies, Olympic
+staff presenting medals to the Olympic athletes also wore UGG
+boots. We believe this product placement further strengthened
+the consumer’s image of UGG products as high quality,
+luxurious sheepskin goods well-suited for use in cold weather.
+We also have improved visibility of the UGG brand
+through placement of the product in selected television shows
+and feature films. UGGs have appeared on numerous shows,
+including Sex and the City, Judging Amy, The King of Queens,
+Still Standing, Will and Grace, Cedric the Entertainer Presents,
+Dawson’s Creek, Everwood, Friends and Saturday Night
+Live . Our marketing efforts have also resulted in UGG
+product appearances in the following recent and upcoming feature
+films: Eternal Sunshine of the Spotless Mind starring
+Kate Winslet and Jim Carrey, Haunted Mansion starring
+Eddie Murphy, Raising Helen starring Kate Hudson,
+Surviving Christmas starring Ben Affleck and Christina
+Applegate and Wicker Park starring Josh Hartnett. In
+addition, UGG has been embraced by Hollywood celebrities, who
+are often seen and photographed in UGG boots. This celebrity
+exposure for UGG has been the subject of recent publicity
+including articles in US Weekly, USA Today, People 
+and People.com . UGG boots have been a featured item on
+the Oprah Winfrey gift show in 2000 and 2003. We believe our
+targeted consumers identify with celebrities and that greater
+exposure further heightens awareness of the brand and stimulates
+sales.
+Simple. The
+Simple consumer identifies with a certain irreverent culture,
+and we seek to reach that consumer through a focused grassroots
+marketing approach that will introduce the brand to influential
+communities around the country. These marketing efforts will
+focus on the following major cities: Los Angeles,
+San Francisco, New York City, Chicago, Boulder, Austin
+and Nashville. In support of our grassroots initiatives, we will
+focus on advertising in alternative weekly publications, which
+will provide us with the opportunity to reach a large number of
+people through a cost efficient, non-mainstream medium.
+Publications will include New York City’s Time Out,
+Los Angeles Weekly, San Francisco Bay Guardian, New City
+(Chicago), Boulder Weekly, Nashville Scene and Austin
+Insite . We will identify our key customers in these
+advertisements to drive store traffic.
+Simple will continue to work with its public
+relations agency to get editorial placement of key styles in
+youth and trend magazines, television shows, independent films
+and with cutting-edge influential artists and musicians. Our
+efforts have resulted in publication appearances in Teen
+People, Maxim, Nylon, Lucky and Surfing Girl , and television
+appearances on VH1 and MTV.
+11
+Table of Contents 
+Product Design and Development 
+The design and product development staff for each
+of our brands creates and introduces new innovative footwear
+products that combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance
+technical products continue to satisfy the requirements of our
+historical consumer base of performance-oriented “core
+enthusiasts,” our design staff solicits comments and
+feedback from our Team Teva whitewater athletes, the Teva
+U.S. Mountain Running Team and other professional
+outdoorsmen, as well as several of our retailers, including REI,
+Eastern Mountain Sports, Galyan’s and L.L. Bean. We add new
+innovations, components and styles to our product line regularly
+based on their input. We recently designed and introduced a new
+line of trail runner shoes incorporating our patented Liquid
+Frame Technology, a technology designed to provide a precise
+running fit based on input from our trail running team. We have
+also incorporated our proprietary Wraptor technology into
+performance running sandals, an assortment of hikers and certain
+styles of our high performance guide sport sandals specifically
+targeted at professional outdoorsmen and adventurers. In
+addition, for added traction and durability, we have
+incorporated various materials in our Teva sandals, including
+Spider Rubber — a sticky, non-slip rubber outsole
+material for use across wet and dry terrain, Traction
+Rubber — a highly durable and abrasion resistant
+material designed specifically for the extra rigors of land use,
+and River Rubber — a non-slip material designed to
+offer superior grip on smooth wet surfaces such as rocks,
+fiberglass and raft rubber.
+Our UGG and Simple products are designed to
+appeal to consumers seeking our distinctive and innovative
+styling. We strive to be a leader in product uniqueness and
+appearance by regularly updating our UGG and Simple lines, which
+also generates further awareness and interest in the UGG and
+Simple collections. We believe our ability to incorporate
+up-to-date styles without deviating from UGG’s classic
+look, combined with performance-oriented features consumers have
+come to expect, results in continued enthusiasm for our brand in
+the marketplace.
+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 for their various
+product lines. We develop detailed drawings and prototypes of
+our new products to aid in the conceptualization and to ensure
+our contemplated new products meet the standards for innovation
+and performance our consumers demand. Throughout the development
+process, members of the design staff coordinate internally and
+with our domestic and overseas product development,
+manufacturing and sourcing personnel toward a common goal of
+developing and producing a high quality product to be delivered
+on a timely basis.
+Manufacturing 
+We are not involved in the direct manufacture of
+footwear. We outsource the manufacturing of our Teva and Simple
+footwear and a portion of our UGG footwear to independent
+manufacturers in the Far East. We also outsource the
+manufacturing of the remaining UGG footwear to independent
+manufacturers in Australia and New Zealand. 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.
+To ensure the production of high quality products, many of the
+materials and components used in production 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 the footwear, including
+rubber, leather and nylon webbing are generally available from
+multiple sources at competitive prices. We outsource our
+manufacturing requirements on the basis of individual purchase
+orders rather than maintaining long-term purchase commitments
+with our manufacturers.
+12
+Table of Contents 
+At our direction, our manufacturers currently
+purchase the majority of our sheepskin used in our products from
+two tanneries in New Zealand and China. We maintain a constant
+dialog with the tanneries to monitor the supply of sufficient
+high quality sheepskin available for our UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We have instituted pre-production and
+post-production inspections to meet or exceed the high quality
+demanded by consumers of our products. Our quality assurance
+program includes 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 U.S. distribution center.
+Patents and Trademarks 
+We now hold 16 U.S. patents, two Australian
+patents and one patent in each of New Zealand, China, South
+Korea, Germany, France, Japan and the United Kingdom for Teva
+footwear. In addition, we have pending patent applications in
+Australia, Canada, China, Hong Kong, Mexico and the U.S. Our
+U.S. patent for the Teva Universal Strapping System, which is
+used in most of our Teva sandals, expires in 2007. As a result
+of the expiration of the applicable period during which foreign
+patent applications were required to have been filed by the
+former licensor, we do not and cannot hold certain patent rights
+for Teva footwear in certain countries. We also currently hold
+Teva trademark registrations in the U.S. and in many other
+countries, including France, Germany, the United Kingdom, Japan
+and Australia. We regard our proprietary rights as valuable
+assets and vigorously protect such rights against infringement
+by third parties. Prior to the Teva Rights acquisition, Mark
+Thatcher successfully enforced his patent and trademark rights
+in all 20 concluded lawsuits brought against such third parties.
+We own the UGG and Simple trademarks and have
+applied for or received registrations for them in the U.S. and
+in many foreign countries. We have selectively registered style
+category names and marketing slogans. In addition, we hold two
+design patents for our Simple footwear products.
+Backlog 
+Historically, we have encouraged our customers to
+place, and we have received, a significant portion of orders as
+pre-season orders, generally four to eight months prior to
+shipment date. We provide customers with incentives to
+participate in such pre-season 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 and do not represent firm orders. The backlog as of a
+particular date is affected by a number of factors, including
+seasonality and the scheduling of manufacture and shipment of
+products as well as variations in the quarter to quarter and
+year to year preseason incentive program. 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.
+Competition 
+The casual, outdoor, athletic and fashion
+footwear markets are highly competitive. We compete with
+numerous domestic and foreign footwear designers, manufacturers
+and marketers. Our Teva footwear line primarily competes with
+Nike, adidas-Salomon, Timberland, Merrell and Columbia
+Sportswear. Our UGG footwear line primarily competes with
+Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as
+retailers’ private label footwear. In addition, due to the
+popularity of our UGG products, we face increasing competition
+from a significant number of competitors selling
+“knock-off” products. Our Simple footwear line
+primarily competes with Steve Madden, Dr. Marten, Camper,
+Kenneth Cole, Skechers, Diesel, Guess? and Puma. Some of our
+competitors are significantly larger and have significantly
+greater resources than we do.
+13
+Table of Contents 
+Our three footwear lines compete primarily on the
+basis of brand recognition and authenticity, product quality and
+design, functionality and performance, fashion appeal and price.
+Our ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and
+preferences by offering innovative, attractive and exciting
+products;
+• 
+anticipate and respond to changing consumer
+demands in a timely manner;
+• 
+maintain brand authenticity;
+• 
+develop high quality products that appeal to
+consumers;
+• 
+appropriately price our products;
+• 
+provide strong and effective marketing
+support; and
+• 
+ensure product availability.
+We believe we are particularly well positioned to
+compete in the footwear industry. Our diversified portfolio of
+footwear brands and products allows us to operate a business
+that does not depend on any one demographic group, merchandise
+preference or product trend. We have developed a portfolio of
+brands that appeals to a broad spectrum of consumers. 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, 2003, we employed
+approximately 134 full-time employees in our U.S.
+facilities and 29 full-time employees located in China and
+Macau, none of whom is represented by a union. We believe our
+relationships with our employees are good.
+Item 2. 
+Properties 
+We lease, rather than own, all of our facilities.
+Our corporate headquarters is located in Goleta, California. We
+have a distribution center in Ventura, California, and our
+Internet and catalog operations are located in Flagstaff,
+Arizona. We also have small offices in Macau and in China to
+oversee the quality and manufacturing standards of our products.
+We have no manufacturing facilities since all of our products
+are manufactured by independent manufacturers in the Far East,
+Australia and New Zealand. All of our facilities are leased from
+unrelated parties. We consider our facilities to be suitable for
+our needs.
+The following table reflects the location, use
+and approximate size of our significant real properties:
+Approximate 
+Facility Location 
+Description 
+Square Footage 
+Ventura, California
+Warehouse Facility
+126,000 
+Goleta, California
+Corporate Offices
+30,000 
+China
+Office Facility
+4,200 
+Flagstaff, Arizona
+Internet/ Catalog Vacant Warehouse
+3,000 
+Flagstaff, Arizona
+Internet/ Catalog Office Facility
+2,400 
+Macau
+Office Facility
+2,000 
+Item 3. 
+Legal Proceedings 
+We are involved in routine litigation arising in
+the ordinary course of business. Such routine matters, if
+decided adversely to us, would not, in the opinion of
+management, have a material adverse effect on our financial
+condition or results of operations. Additionally, we have many
+pending disputes in the U.S. Patent and Trademark Office,
+foreign trademark offices and U.S. federal and foreign
+courts regarding unauthorized
+14
+Table of Contents 
+use or registration of our Teva, UGG and Simple
+trademarks. We also are aware of many instances throughout the
+world in which a third party is using our UGG trademark within
+its Internet domain name, and we have discovered and are
+investigating several manufacturers and distributors of
+counterfeit Teva and UGG products. We have contacted a majority
+of these unauthorized users and counterfeiters and in some
+instances may have to escalate the enforcement of our rights by
+filing suit against the unauthorized users and counterfeiters.
+Any decision or settlement in any of these matters that allowed
+a third party to continue to use our Teva, UGG or Simple
+trademarks or a domain name with our UGG trademark in connection
+with the sale of products similar to our products or to continue
+to manufacture or distribute counterfeit products could have an
+adverse effect on our sales and on our intellectual property,
+which could have a material adverse effect on our results of
+operations and financial condition.
+We were recently notified by a governmental
+agency that we have improperly shipped certain water repellant
+and a cleaning solution for our footwear manufactured by one of
+our suppliers that is listed as a hazardous material in federal
+regulations. We are reporting to the agency directly and have
+discontinued shipping the product. The agency might assert
+sanctions against us which could range from a nominal amount to
+a larger amount which might have a material adverse effect on
+our results of operations and financial condition.
+Item 4. 
+Submission of Matters to a Vote of Security
+Holders 
+None.
+15
+Table of Contents 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity
+and Related Stockholder Matters 
+Our common stock is traded on the Nasdaq National
+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 National Market for
+the periods indicated.
+Common Stock 
+Price Per Share 
+Low 
+High 
+Year ended December 31, 2002: 
+First Quarter
+$ 
+4.02 
+$ 
+5.25 
+Second Quarter
+$ 
+4.28 
+$ 
+5.52 
+Third Quarter
+$ 
+3.75 
+$ 
+5.00 
+Fourth Quarter
+$ 
+2.83 
+$ 
+4.48 
+Year ended December 31, 2003: 
+First Quarter
+$ 
+3.45 
+$ 
+4.99 
+Second Quarter
+$ 
+4.20 
+$ 
+6.69 
+Third Quarter
+$ 
+6.40 
+$ 
+10.13 
+Fourth Quarter
+$ 
+10.00 
+$ 
+20.81 
+As of March 1, 2004, there were
+approximately 132 record holders of our common stock.
+DIVIDEND POLICY 
+We have not declared or paid any cash dividends
+on our common stock since our inception. We currently anticipate
+that we will retain all of our earnings for the continued
+development and expansion of our business and do not anticipate
+declaring or paying any cash dividends in the foreseeable
+future. Moreover, our debt facilities contain covenants
+expressly prohibiting us from paying cash dividends.
+16
+Table of Contents 
+Item 6. Selected
+Consolidated Financial Data 
+We derived the following selected consolidated
+financial data from our consolidated financial statements, which
+have been audited by KPMG LLP, independent auditors. 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 or
+incorporated by reference herein.
+Years Ended December 31, 
+1999 
+2000 
+2001 
+2002 
+2003 
+(In thousands, except per share data) 
+Statement of Operations Data: 
+Net sales:
+Teva wholesale
+$ 
+80,963 
+$ 
+79,732 
+$ 
+61,221 
+$ 
+64,849 
+$ 
+72,783 
+UGG wholesale
+12,104 
+15,310 
+19,185 
+23,491 
+34,561 
+Simple wholesale
+15,529 
+16,328 
+10,853 
+10,159 
+7,210 
+Internet/ catalog
+— 
+— 
+— 
+608 
+6,501 
+Other
+2,503 
+2,368 
+202 
+— 
+— 
+Total net sales
+111,099 
+113,738 
+91,461 
+99,107 
+121,055 
+Cost of sales
+66,051 
+63,540 
+52,903 
+57,577 
+69,710 
+Gross profit
+45,048 
+50,198 
+38,558 
+41,530 
+51,345 
+Selling, general and administrative expenses
+38,298 
+37,568 
+34,040 
+34,954 
+31,907 
+Litigation costs (1) 
+— 
+— 
+2,180 
+3,228 
+— 
+Income from operations
+6,750 
+12,630 
+2,338 
+3,348 
+19,438 
+Other expense (income)
+1,508 
+295 
+(473 
+) 
+504 
+4,554 
+Income before income taxes and cumulative effect
+of a change in accounting principle
+5,242 
+12,335 
+2,811 
+2,844 
+14,884 
+Income taxes
+2,358 
+5,320 
+1,185 
+1,224 
+5,730 
+Income before cumulative effect of a change in
+accounting principle
+2,884 
+7,015 
+1,626 
+1,620 
+9,154 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit (2) 
+— 
+— 
+— 
+(8,973 
+) 
+— 
+Net income (loss)
+$ 
+2,884 
+$ 
+7,015 
+$ 
+1,626 
+$ 
+(7,353 
+) 
+$ 
+9,154 
+Per common share:
+Basic net income before cumulative effect of a
+change in accounting principle
+$ 
+0.33 
+$ 
+0.77 
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+Cumulative effect of a change in accounting
+principle (2) 
+— 
+— 
+— 
+(0.96 
+) 
+— 
+Basic net income (loss)
+$ 
+0.33 
+$ 
+0.77 
+$ 
+0.18 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+Diluted net income before cumulative effect of
+change in accounting principle
+$ 
+0.32 
+$ 
+0.74 
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+Cumulative effect of a change in accounting
+principle (2) 
+— 
+— 
+— 
+(0.92 
+) 
+— 
+Diluted net income (loss)
+$ 
+0.32 
+$ 
+0.74 
+$ 
+0.17 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+Weighted average common shares outstanding:
+Basic
+8,834 
+9,093 
+9,247 
+9,328 
+9,610 
+Diluted
+8,981 
+9,476 
+9,661 
+9,806 
+11,880 
+17
+Table of Contents 
+As of December 31, 
+1999 
+2000 
+2001 
+2002 
+2003 
+(In thousands) 
+Balance Sheet Data: 
+Cash and cash equivalents
+$ 
+1,633 
+$ 
+9,057 
+$ 
+16,689 
+$ 
+3,941 
+$ 
+6,662 
+Working capital
+$ 
+38,658 
+$ 
+40,482 
+$ 
+41,387 
+$ 
+22,453 
+$ 
+22,803 
+Total assets
+$ 
+73,482 
+$ 
+77,712 
+$ 
+85,884 
+$ 
+122,412 
+$ 
+121,026 
+Long-term debt, including current installments
+$ 
+6,401 
+$ 
+1,495 
+$ 
+449 
+$ 
+39,028 
+$ 
+30,287 
+Total stockholders’ equity
+$ 
+56,820 
+$ 
+64,095 
+$ 
+66,532 
+$ 
+65,227 
+$ 
+70,524 
+(1) 
+The litigation costs relate to a lawsuit filed
+against us in Montana in 1995 which we settled and paid in full
+in the fourth quarter of 2002.
+(2) 
+Our adoption of Statement of Financial Accounting
+Standards No. 142, Goodwill and Other Intangible
+Assets, on January 1, 2002 resulted in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000), or $0.92 per diluted share, during 2002.
+18
+Table of Contents 
+Item 7. 
+Management’s Discussion and Analysis
+of Financial Condition and Results of Operations 
+FORWARD-LOOKING STATEMENTS 
+This report and the information incorporated by
+reference in this report contain forward-looking statements. We
+sometimes use words such as “anticipate,”
+“believe,” “continue,” “estimate,”
+“expect,” “intend,” “may,”
+“project,” “will” and similar expressions,
+as they relate to us, our management and our industry, to
+identify forward-looking statements. Forward-looking statements
+relate to our expectations, beliefs, plans, strategies,
+prospects, future performance, anticipated trends and other
+future events. Specifically, this report and the information
+incorporated by reference in this report contain forward-looking
+statements relating to, among other things:
+• 
+our business, growth, operating and financing
+strategies;
+• 
+our product mix;
+• 
+the success of new products;
+• 
+the incremental earnings and benefits of the Teva
+acquisition;
+• 
+our licensing strategy;
+• 
+the impact of seasonality on our operations;
+• 
+expectations regarding our net sales and earnings
+growth;
+• 
+expectations regarding our liquidity;
+• 
+our future financing plans; and
+• 
+trends affecting our financial condition or
+results of operations.
+We have based our forward-looking statements
+largely on our current expectations and projections about future
+events and financial trends affecting our business. Actual
+results may differ materially. Some of the risks, uncertainties
+and assumptions that may cause actual results to differ from
+these forward-looking statements are described in “Risk
+Factors.” In light of these risks, uncertainties and
+assumptions, the forward-looking events and circumstances
+discussed in this report and the information incorporated by
+reference in this report might not happen.
+You should read this report, the documents that
+we filed as exhibits to this report and the documents that we
+incorporate by reference in this report completely and with the
+understanding that our future results may be materially
+different from what we expect. We qualify all of our
+forward-looking statements by these cautionary statements. The
+forward-looking statements included or incorporated by reference
+herein are only made as of the date such statements are made
+and, except as required by law, we assume no obligation to
+update such forward-looking statements publicly for any reason,
+or to update the reasons actual results could differ materially
+from those anticipated in such forward-looking statements, even
+if new information becomes available in the future.
+Overview 
+We are a leading producer and brand manager of
+innovative high-quality footwear and the category creator in the
+sport sandal and luxury sheepskin footwear segments. Our
+products are marketed under three recognized brand names that we
+own:
+• 
+Teva: High performance sport sandals and rugged
+outdoor footwear;
+• 
+UGG: Authentic luxury sheepskin boots and other
+footwear; and
+• 
+Simple: Innovative shoes that combine the comfort
+elements of athletic footwear with casual styling.
+19
+Table of Contents 
+We sell our three brands through our customers
+and directly to our consumers through our Internet and catalog
+retailing business. We sell our footwear in both the domestic
+market and the international markets. Independent third parties
+manufacture all of our footwear.
+Our business has been impacted by several
+important trends affecting our end markets:
+• 
+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.
+• 
+Consumers are more often seeking footwear
+designed to address a broader array of activities with the same
+quality and high performance attributes they have come to expect
+from traditional athletic footwear.
+• 
+Our retailers have narrowed their footwear
+product breadth, focusing on brands with a rich heritage and
+authenticity as market creators and leaders.
+By emphasizing our brand image and our focus on
+comfort, performance and authenticity, we believe we can better
+maintain a loyal consumer following that is less susceptible to
+fluctuations caused by changing fashions and changes in consumer
+preferences.
+Set forth below is an overview of the various
+components of our business, including some of the important
+factors that affect each business and some of our strategies for
+growing each business.
+Teva Overview 
+Our Teva lines experienced strong market
+acceptance in 2003. Teva’s products have benefited recently
+from several factors, but most prominently a general shift in
+consumer preferences and lifestyles to include more outdoor
+recreational activities. At the same time, our consumers are
+increasingly purchasing our Teva products for everyday wear, and
+our Teva brand now includes several closed-toe footwear lines.
+As a result, our brand remains popular among professional and
+amateur outdoorsmen seeking authentic, performance-oriented
+footwear, as well as general footwear consumers seeking high
+quality, durable and comfortable styles for everyday use.
+To capitalize on the growth of outdoor
+recreational activities and the acceptance of certain footwear
+products for everyday use, we have selectively expanded the
+distribution of our Teva product lines outside our core outdoor
+specialty and sporting goods channels. Through effective channel
+management, we believe we can continue to expand into new
+distribution channels without diluting our outdoor heritage and
+our appeal to outdoor enthusiasts. Through channel appropriate
+product line expansion, we plan to continue to broaden our
+product offerings beyond sport sandals to new products that meet
+the style and functional needs of our consumers.
+UGG Overview 
+In the latter half of 2003, our UGG brand
+received increased publicity and experienced heightened demand
+that was ahead of our expectations. As a result of the rapid
+growth in demand, we sold out of key UGG product early in the
+season, and given the long lead times required to replenish our
+inventory levels, we were unable to fill many retailer reorders
+and many direct Internet and catalog orders. Continuing a
+strategy utilized with our UGG casual line, we have begun
+shifting a portion of our UGG sheepskin boot production from
+factories in Australia to a factory in China where the
+production capacity is much greater and quality standards are
+comparable. We expect to receive our first deliveries of
+sheepskin boots from the China factory in March 2004.
+UGG has been a well-known brand in California for
+many years and has only recently become a recognized brand
+across the remainder of the country. We believe that a portion
+of UGG’s increased demand is due to our continued
+geographical expansion across the U.S., which has increased
+consumer awareness of the quality, comfort and usefulness of the
+products offered by our luxury brand. In addition, in order to
+satisfy
+20
+Table of Contents 
+virtually untapped international demand, we will
+expand our distribution and marketing overseas. We believe the
+international markets represent an attractive opportunity to
+build upon UGG’s broad U.S. appeal.
+We also recognize that a portion of the increased
+demand is a result of a current fashion trend, particularly with
+respect to the new colors recently added to our UGG boot line.
+Recognizing that there is a fashion element to this increasing
+demand, our strategy seeks to prolong the longevity of the trend
+by offering a broader product line of luxurious and distinctive
+sheepskin fabrications suitable for wear in a variety of
+climates and occasions and by limiting distribution to selected
+higher-end retailers. We have expanded our product line from 52
+models in 2002 to 69 models in 2004.
+Simple Overview 
+After three consecutive years of net sales
+declines in our Simple product line, we recently implemented a
+strategy to improve Simple’s results of operations and
+generate renewed interest in the Simple brand. We began a
+process of repositioning our Simple product line by focusing on
+our successful legacy collections and narrowing the number of
+styles. In addition, we have begun to implement a strategy
+whereby we leverage our Teva and UGG expertise to produce Simple
+branded sandals and suede, fleece-lined products. The Simple
+products will be sold at price points lower than our Teva and
+UGG brands and through distribution channels that are precluded
+from offering our Teva and UGG brands. We expect our Simple
+brand to experience growth as we successfully implement our
+product line rationalization and channel management strategies.
+Internet and Catalog Retailing
+Overview 
+We acquired our Internet and catalog retailing
+business in November 2002; accordingly, 2003 was our first full
+year of operation of this consumer direct business. Our Internet
+and catalog retailing business, which today sells all three of
+our brands, enables us to meet the growing demand for all of
+these products and also provides us with an opportunity to add
+significant incremental contribution margin. Managing our
+Internet business requires us to focus on generating Internet
+traffic to our websites, effectively converting website visits
+into orders and maximizing average order sizes. To drive our
+catalog order business, we distribute approximately 300,000
+catalogs semi-annually. Overall, our consumer direct business
+benefits from the strength of our brands and, as we grow our
+brands over time, we expect our Internet and catalog retailing
+business to benefit.
+Licensing Overview 
+In 2003 we embarked on a strategy to license our
+well-known and respected footwear brands to complementary
+products outside of footwear, generally in the apparel and
+accessories categories. To date, we have entered into four
+licensing agreements for Teva, including domestic licenses for
+men’s sportswear, timepieces, eyewear and headwear, and one
+domestic licensing arrangement for UGG handbags and other small
+leather goods. We are pursuing additional licensing
+opportunities for our brands both in the U.S. and abroad. This
+licensing strategy is in its early stages, and due to the lead
+times required to bring the products to market, we have received
+no sales from licensing to date and we do not expect significant
+incremental net sales and profits from licensing in the near
+future. However, we believe licensing opportunities for our
+brands may become a more significant portion of our net sales
+and profits over time. The minimum net annual royalties that we
+will receive under the five existing licensing agreements,
+assuming renewal options are exercised, are $216,000 in 2004,
+$325,000 in 2005, $649,000 in 2006, $850,000 in 2007 and
+$850,000 in 2008.
+Seasonality 
+Our business is seasonal, with the highest
+percentage of Teva net sales occurring in the first and second
+quarters of each year and the highest percentage of UGG net
+sales occurring in the third and fourth quarters, while the
+quarter with the highest percentage of annual net sales for
+Simple has varied from year to year.
+21
+Table of Contents 
+2002 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+(In thousands) 
+Net sales
+$ 
+33,259 
+$ 
+22,369 
+$ 
+17,727 
+$ 
+25,752 
+Income (loss) from operations
+$ 
+3,714 
+$ 
+1,104 
+$ 
+(4,309 
+) 
+$ 
+2,839 
+2003 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+(In thousands) 
+Net sales
+$ 
+36,102 
+$ 
+24,342 
+$ 
+24,894 
+$ 
+35,717 
+Income from operations
+$ 
+8,087 
+$ 
+4,678 
+$ 
+1,782 
+$ 
+4,891 
+In previous years we have experienced our highest
+sales level in the first quarter, which has been Teva’s
+strongest selling season, while the third quarter has
+historically had the lowest sales volume. However, in 2003, as a
+result of the continued growth in UGG and the introduction of
+the fall closed-toe Teva offering, the first and fourth quarters
+had comparable sales volumes and the second and third quarters
+had comparable sales volumes. Given our expectations for each of
+our brands in 2004, we currently expect this trend to continue
+and anticipate that net sales in the last half of 2004 will
+likely exceed net sales during the first half of 2004.
+Nonetheless, actual results could differ materially depending
+upon consumer preferences, availability of product, competition
+and our customers continuing to carry and promote our various
+product lines, among other risks and uncertainties. See
+“Risk Factors.”
+Results of Operations 
+The following table sets forth certain operating
+data for the periods indicated.
+Years Ended December 31, 
+2001 
+2002 
+2003 
+(In thousands) 
+Net sales by location: 
+United States
+$ 
+70,365 
+$ 
+78,278 
+$ 
+98,710 
+International
+21,096 
+20,829 
+22,345 
+Total
+$ 
+91,461 
+$ 
+99,107 
+$ 
+121,055 
+Net sales by product line and consumer direct
+business: 
+Teva:
+Wholesale
+$ 
+61,221 
+$ 
+64,849 
+$ 
+72,783 
+Internet/catalog
+— 
+255 
+3,687 
+Total
+61,221 
+65,104 
+76,470 
+UGG:
+Wholesale
+19,185 
+23,491 
+34,561 
+Internet/catalog
+— 
+310 
+2,300 
+Total
+19,185 
+23,801 
+36,861 
+Simple:
+Wholesale
+10,853 
+10,159 
+7,210 
+Internet/catalog
+— 
+43 
+514 
+Total
+10,853 
+10,202 
+7,724 
+Other (1) 
+202 
+— 
+— 
+Total
+$ 
+91,461 
+$ 
+99,107 
+$ 
+121,055 
+22
+Table of Contents 
+Years Ended December 31, 
+2001 
+2002 
+2003 
+(In thousands) 
+Income from operations by product line and
+consumer direct business: 
+Teva wholesale
+$ 
+12,407 
+$ 
+12,011 
+$ 
+21,739 
+UGG wholesale
+3,674 
+6,589 
+10,002 
+Simple wholesale
+241 
+279 
+(1,176 
+) 
+Internet and catalog
+— 
+194 
+1,148 
+Other (2) 
+(13,984 
+) 
+(15,725 
+) 
+(12,275 
+) 
+Total
+$ 
+2,338 
+$ 
+3,348 
+$ 
+19,438 
+(1) 
+Net sales from discontinued brand.
+(2) 
+Primarily unallocated overhead.
+The following table sets forth certain operating
+data as a percentage of net sales for the periods indicated.
+Years Ended December 31, 
+Percent Increase (Decrease) 
+2001 
+2002 
+2003 
+2001 to 2002 
+2002 to 2003 
+Net sales
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+8.4 
+% 
+22.1 
+% 
+Cost of sales
+57.8 
+58.1 
+57.6 
+8.8 
+21.1 
+Gross profit
+42.2 
+41.9 
+42.4 
+7.7 
+23.6 
+Selling, general and administrative expenses
+37.2 
+35.3 
+26.4 
+2.7 
+(8.7 
+) 
+Litigation costs
+2.4 
+3.2 
+— 
+48.1 
+NM 
+Income from operations
+2.6 
+3.4 
+16.0 
+43.2 
+480.6 
+Interest expense (income) and other
+(0.5 
+) 
+0.5 
+3.7 
+NM 
+803.6 
+Income before income taxes and cumulative effect
+of a change in accounting principle
+3.1 
+2.9 
+12.3 
+1.2 
+423.3 
+Income taxes
+1.3 
+1.2 
+4.7 
+3.3 
+368.1 
+Income before cumulative effect of a change in
+accounting principle
+1.8 
+1.7 
+7.6 
+(0.4 
+) 
+465.1 
+Cumulative effect of a change in accounting
+principle
+— 
+(9.1 
+) 
+— 
+NM 
+NM 
+Net income (loss)
+1.8 
+% 
+(7.4 
+)% 
+7.6 
+% 
+NM 
+NM 
+Year Ended
+December 31, 2002 Compared to Year Ended December 31,
+2003 
+Overview. In
+2003, we had net sales of $121,055,000 and income from
+operations of $19,438,000 compared to net sales of $99,107,000
+and income from operations of $3,348,000 in 2002. These results
+were due in part to increased demand for our Teva and UGG
+product lines, partially offset by a decline in net sales of our
+Simple product line. In addition, 2003 was the first full year
+of operations following our acquisition in November 2002 of
+the Teva Rights, which resulted in the elimination of royalty
+and other license costs of $4,495,000 and resulted in net sales
+of $6,501,000 attributed to our Internet and catalog retailing
+business that was a part of the Teva Rights acquisition. The
+acquisition of the Teva Rights resulted in significant new
+borrowings and incremental interest expense in 2003 of
+$4,557,000.
+Net Sales. 
+Net sales increased by $21,948,000, or 22.1%, from $99,107,000
+in 2002 to $121,055,000 in 2003. Net sales increased in 2003 due
+primarily to: (1) an increase in the number of units sold
+of Teva and UGG offset in part by a decline in the number of
+units sold of Simple, resulting in a 22.9% overall increase in
+the volume of footwear sold from 4,120,000 pairs in 2002 to
+5,063,000 pairs in 2003, and (2) the inclusion of
+23
+Table of Contents 
+the Internet and catalog retailing business
+obtained as part of the Teva Rights acquisition. These increases
+in net sales resulted from increased unit sales volume,
+partially offset by a 2.7% decline in average selling price per
+unit from $23.66 in 2002 to $23.03 in 2003.
+Net wholesale sales of Teva increased by
+$7,934,000, or 12.2%, from $64,849,000 in 2002 to $72,783,000 in
+2003. This increase was primarily due to an increasing sales
+volume of sport sandals resulting from an improvement in retail
+sell-through, the favorable impact of the strong Euro on
+European sales, selective addition of new distribution channels
+in our domestic market, increased sales volume of thongs and
+slides and increased sales volume of certain styles of the
+recently introduced closed-toe footwear offerings. See
+“— Overview — Teva Overview” above.
+Net wholesale sales of UGG increased by
+$11,070,000, or 47.1%, from $23,491,000 in 2002 to $34,561,000
+in 2003. This was largely as a result of heightened demand in
+2003 caused by the growing popularity of the brand,
+significantly increased brand awareness and considerable
+celebrity exposure. The UGG sales volume increase was also due
+to strong retail sell-through, expansion of the product line to
+include more casual footwear styles and continued geographical
+expansion across the U.S. See
+“— Overview — UGG Overview” above.
+Net wholesale sales of Simple decreased by
+$2,949,000, or 29.0%, from $10,159,000 in 2002 to $7,210,000 in
+2003. This decline was caused by a variety of factors, including
+competition in the casual footwear market and a $668,000 decline
+in sales volume in the international markets. These volume
+declines were partially offset by a $469,000 increase in sales
+volume of the moderately priced Simple suede, fleece-lined boot,
+which we introduced in the fourth quarter of 2003. See
+“— Overview — Simple Overview”
+above.
+For the period from the November 25, 2002
+acquisition date through December 31, 2002, net sales of
+the Internet and catalog retailing business totaled $608,000,
+including retail sales of Teva of $255,000, UGG of $310,000 and
+Simple of $43,000. In 2003, net sales of the Internet and
+catalog retailing business aggregated $6,501,000, including
+retail sales of Teva of $3,687,000, UGG of $2,300,000 and Simple
+of $514,000. See “— Overview — Internet
+and Catalog Retailing Overview” above.
+International sales for all of our products
+increased by $1,516,000, or 7.3%, from $20,829,000 in 2002 to
+$22,345,000 in 2003, representing 21.0% of net sales in 2002 and
+18.5% of net sales in 2003. The higher dollar amount of
+international sales resulted from our international expansion
+strategy in 2003 combined with the favorable impact of the
+strong Euro while the lower percentage of international sales to
+net sales for 2003 reflects the growth of our domestic business.
+Gross Profit.
+Gross profit increased by
+$9,815,000, or 23.6%, from $41,530,000 in 2002 to $51,345,000 in
+2003. As a percentage of net sales, gross profit margin
+increased from 41.9% in 2002 to 42.4% in 2003. The increase in
+gross margin was due to several factors, including an above
+average gross margin at the newly acquired Internet and catalog
+retailing business, the favorable impact of the strong Euro and
+lower production overhead costs per pair, partially offset by an
+increase in close-out sales.
+Selling, General and Administrative
+Expenses. Selling, general and
+administrative expenses, or SG&A, decreased by $3,047,000,
+or 8.7%, from $34,954,000 in 2002 to $31,907,000 in 2003. As a
+percentage of net sales, SG&A decreased from 35.3% in 2002
+to 26.4% in 2003. The decrease in the dollar amount of SG&A
+expenses was primarily due to the elimination of Teva royalty
+expenses and related Teva license cost amortization of
+$4,495,000. We also experienced a reduction in overall
+advertising expenses of $862,000 and bad debt expense of
+$1,281,000. These cost reductions were partially offset by
+increased operating expenses related to the newly acquired
+Internet and catalog retailing business of $1,715,000. SG&A
+expenses as a percentage of net sales decreased in 2003 due to
+the overall reduction in SG&A expenses as discussed above as
+well as the leverage of our fixed costs over a larger revenue
+base.
+Litigation
+Costs. In 2002, we recorded
+special litigation charges of $3,228,000 related to a lawsuit
+filed against us in the state of Montana in 1995. The case was
+settled and paid in full in November 2002.
+Income from
+Operations. Income from operations
+increased by $16,090,000, or 480.6%, from $3,348,000 in 2002 to
+$19,438,000 in 2003. This was due primarily to:
+(1) increased margin on sales volume of
+24
+Table of Contents 
+$9,815,000, (2) elimination of the Teva
+royalty expenses and related Teva license cost amortization of
+$4,495,000, (3) the non-recurrence of the 2002 litigation
+costs of $3,228,000 and (4) improved profitability
+resulting from the acquisition of the Internet and catalog
+retailing business in November 2002 of approximately $954,000.
+Income from operations of Teva wholesale
+increased by $9,728,000, or 81.0%, from $12,011,000 in 2002 to
+$21,739,000 in 2003. This increase was largely due to the
+$7,934,000 increase in net sales, the elimination of $3,739,000
+of Teva royalty expense and $756,000 of Teva license cost
+amortization, a decrease in Teva advertising and marketing
+costs, and a reduction in bad debt expense of $965,000. These
+were partially offset by increases in Teva selling commissions
+on the higher sales volume and increased payroll costs of
+$783,000.
+Income from operations of UGG wholesale increased
+by $3,413,000, or 51.8%, from $6,589,000 in 2002 to $10,002,000
+in 2003. This was largely due to the $11,070,000 increase in net
+sales, partially offset by an increase in sales commissions on
+the higher sales volume of $583,000, increased payroll costs of
+$232,000, increased advertising and marketing costs and the
+non-recurrence of a $300,000 chargeback received from a factory
+in 2002.
+Income from operations of Simple wholesale
+decreased by $1,455,000 from income from operations of $279,000
+in 2002 to a loss from operations of $1,176,000 in 2003. This
+was primarily due to a $2,949,000 decline in net sales during
+the period attributed to both the domestic and international
+markets. In addition, the Simple brand was negatively affected
+by the increased impact of closeout sales and increased payroll
+costs in 2003.
+Income from operations of our Internet and
+catalog business increased by $954,000, or 491.8%, from $194,000
+for the period from the November 25, 2002 acquisition date
+through December 31, 2002 to $1,148,000 in 2003. This was
+largely due to the full year impact during 2003 and the general
+continued growth in popularity of online sales.
+Income from operations included unallocated
+overhead costs, which decreased by $3,450,000, or 21.9%, from
+$15,725,000 in 2002 to $12,275,000 in 2003. This was largely due
+to the litigation charges of $3,228,000 incurred in 2002.
+Other Expense
+(Income). Net interest expense was
+$406,000 in 2002 compared with a net interest expense of
+$4,557,000 in 2003. This was primarily due to our significantly
+increased borrowings in order to finance our purchase of the
+Teva Rights in November 2002. In addition, in connection with
+early repayments of $2,000,000 of subordinated notes in June
+2003 and $2,000,000 in December 2003, we incurred approximately
+$380,000 of expenses, including prepayment penalties and the
+write-off of a pro rata share of the previously capitalized loan
+costs. Other expense (income) exclusive of interest expense
+(income) was not material in either year.
+Income Taxes. 
+In 2002, income tax expense was $1,224,000, representing an
+effective income tax rate of 43.0%. In 2003, income tax expense
+was $5,730,000 representing an effective income tax rate of
+38.5%. The decrease in the effective tax rate was primarily due
+to two factors. First, the rate reduction occurred as certain
+non-deductible Teva license amortization costs were eliminated
+in connection with the Teva Rights acquisition. Second, we
+restructured our international operations which resulted in a
+reduced effective tax rate.
+Net Income. 
+On January 1, 2002, we implemented Statement of Financial
+Accounting Standards, or SFAS, No. 142, Goodwill and
+Other Intangible Assets , which requires that goodwill and
+intangible assets with indefinite useful lives no longer be
+amortized to earnings but instead be reviewed periodically for
+impairment. The implementation of SFAS No. 142 resulted in
+a goodwill impairment charge of $8,973,000 (net of the related
+income tax benefit of $843,000), or $0.92 per diluted share,
+during 2002. This non-cash impairment charge included a write
+down of approximately $1,200,000, on an after tax basis, for
+Simple goodwill and approximately $7,800,000 for UGG goodwill.
+We recorded the impairment charge as a cumulative effect of a
+change in accounting principle in the accompanying consolidated
+statement of operations for 2002. In 2002, net income before
+cumulative effect of a change in accounting principle was
+$1,620,000, or $0.17 per diluted share, and the net loss after
+the cumulative effect of a change in accounting principle was
+$7,353,000, or $0.75 per diluted share. In 2003, net income was
+$9,154,000, or $0.77 per diluted share.
+25
+Table of Contents 
+Year Ended December 31, 2001 Compared
+to Year Ended December 31, 2002 
+Overview. In
+2002, we had sales of $99,107,000 and income from operations of
+$3,348,000 compared to net sales of $91,461,000 and income from
+operations of $2,338,000 in 2001. These results were due in part
+to increased demand for our Teva and UGG product lines,
+partially offset by a slight decline in net sales of our Simple
+product line. In addition, we acquired the Teva Rights in
+November 2002, which added $608,000 in net sales from the
+Internet and catalog business, and we settled the Montana
+lawsuit for $3,228,000 in November 2002.
+Net Sales. 
+Net sales increased by $7,646,000, or 8.4%, from $91,461,000 in
+2001 to $99,107,000 in 2002. This was largely due to an increase
+in the number of units sold, primarily in the domestic Teva and
+UGG brands, but offset by a decrease in the number of Simple
+units sold, which contributed to an overall increase of 11.2% in
+the volume of footwear sold from 3,705,000 pairs in 2001 to
+4,120,000 in 2002. The increase also resulted from the addition
+of net sales from the Internet and catalog retailing business of
+$608,000 which was acquired in November 2002. These net sales
+increases were partially offset by a 2.5% decline in average
+selling price per unit from $24.26 in 2001 to $23.66 in 2002.
+Net wholesale sales of Teva increased by
+$3,628,000, or 5.9%, from $61,221,000 in 2001 to $64,849,000 in
+2002. This increase was largely attributable to an improvement
+in retail sell-through, increasing sales volume of our sport
+sandals and the introduction of our new fall 2002 line of
+closed-toe rugged outdoor footwear. Also, certain European
+distributors purchased $1,600,000 more of the upcoming spring
+season’s product in the fourth quarter of 2002 than they
+did in the fourth quarter of 2001, a portion of which was a
+shift in volume between the fourth quarter of 2002 and the first
+quarter of 2003.
+Net wholesale sales of UGG increased by
+$4,306,000, or 22.4%, from $19,185,000 for 2001 to $23,491,000
+in 2002. This was as a result of continued geographical
+expansion across the U.S., the introduction of several new
+styles of casual footwear and strong retail sell-through for the
+brand . 
+Net wholesale sales of Simple decreased by
+$694,000, or 6.4%, from $10,853,000 for 2001 to $10,159,000 in
+2002. This was attributed to a decline in international sales of
+$1,326,000. This international volume decline was partially
+offset by increased sales volume in the domestic market of
+$632,000 resulting primarily from an increase in the volume of
+discounted sales.
+Net sales of the Internet and catalog retailing
+business for the period from the November 25, 2002
+acquisition date through December 31, 2002 aggregated
+$608,000, including retail sales of Teva of $255,000, UGG of
+$310,000 and Simple of $43,000. The Teva Rights acquisition did
+not have a significant impact upon operations in 2002 due to its
+close proximity to year-end.
+International sales for all brands decreased
+slightly from $21,096,000 in 2001 to $20,829,000 in 2002,
+representing 23.1% of net sales in 2001 and 21.0% in 2002.
+Gross Profit.
+Gross profit increased by
+$2,972,000, or 7.7%, from $38,558,000 in 2001 to $41,530,000 in
+2002. As a percentage of net sales, gross profit margin
+decreased slightly from 42.2% in 2001 to 41.9% in 2002. The
+decrease in gross margin was due to several factors including an
+increased impact of closeout volume, particularly for the Simple
+brand. In addition, the gross margin in 2002 was negatively
+impacted by a $260,000 factory charge for tooling costs in 2002.
+The impact of these items was partially offset by a $262,000
+reduction in inventory write-downs in 2002 compared to 2001,
+gross margin improvement as a result of a shift in UGG’s
+sales mix toward higher margin styles sourced from the Far East
+and the negotiation and receipt of a $300,000 chargeback from a
+factory in the first quarter of 2002 related to the settlement
+of a dispute that arose in 2001.
+Selling, General and Administrative
+Expenses. SG&A increased by
+$914,000, or 2.7%, from $34,040,000 in 2001 to $34,954,000 in
+2002. As a percentage of net sales, SG&A decreased from
+37.2% in 2001 to 35.3% in 2002. The increase in SG&A
+expenses was primarily due to an increase in personnel costs of
+$1,568,000, increased marketing expenses of $1,435,000 and
+increased costs related to a new computer system of $625,000
+during 2002. These increases were partially offset by the
+elimination of approximately $809,000 of goodwill amortization
+resulting from the implementation of SFAS 142 on January 1,
+2002, a net reduction in warehousing costs of $516,000 resulting
+from bringing this function in-house, the net reductions in
+royalty and
+26
+Table of Contents 
+other expenses of $479,000 caused by our
+acquisition of the Teva Rights during the fourth quarter of
+2002, reduced sales commissions of $384,000 paid to our
+independent sales force as a result of bringing more accounts
+in-house and a $206,000 reduction in bank fees resulting from
+our move to a new bank in 2002, among other cost reductions.
+Despite the overall increase in dollar amount, SG&A expenses
+as a percentage of net sales decreased from 2001 to 2002 as
+certain operating costs are fixed and did not increase in
+proportion to the increase in net sales.
+Litigation Costs.
+We recorded litigation charges of
+$2,180,000 in 2001 and $3,228,000 in 2002 related to the lawsuit
+filed against us in Montana in 1995. The matter was settled and
+paid in full during the fourth quarter of 2002.
+Income from Operations.
+Income from operations increased
+by $1,010,000, or 43.2%, from $2,338,000 in 2001 to $3,348,000
+in 2002. This was due primarily to the increased margin on sales
+volume of $2,972,000 and the elimination of $809,000 of goodwill
+amortization resulting from the adoption of SFAS 142 in
+2002, partially offset by increases in certain operating costs
+and increased litigation costs of $1,048,000.
+Income from wholesale operations of Teva
+decreased by $396,000, or 3.2%, from $12,407,000 in 2001 to
+$12,011,000 in 2002. This slight decrease was largely due to
+increased marketing costs of $906,000, the addition of European
+sales agency commissions of $618,000, increased bad debt expense
+of $261,000, slightly lower gross margins on our newly
+introduced closed-toe footwear line and the $260,000 factory
+charge for tooling costs in 2002. These factors were partially
+offset by the increase in sales in both the domestic and
+international markets, lower royalty and other costs of $479,000
+resulting from the purchase of the Teva Rights during the fourth
+quarter of 2002 and reduced domestic sales commissions of
+$293,000 paid to our independent sales force as a result of
+bringing more accounts in-house.
+Income from wholesale operations of UGG increased
+by $2,915,000, or 79.3%, from $3,674,000 in 2001 to $6,589,000
+for 2002. This was largely due to the increase in sales, gross
+margin improvement as a result of a shift in sales mix toward
+higher margin styles sourced from the Far East, an increase in
+gross margin from the receipt of the factory credit of $300,000
+in 2002 and the elimination of goodwill amortization of $590,000
+resulting from the adoption of SFAS No. 142 in 2002,
+partially offset by a $420,000 increase in marketing expense.
+Income from wholesale operations of Simple
+increased by $38,000, or 15.8%, from $241,000 in 2001 to
+$279,000 in 2002. This increase was due primarily to a decrease
+in inventory write-downs of $202,000, a reduction in bad debt
+expense of $345,000 and the elimination of goodwill amortization
+of $167,000 resulting from the adoption of SFAS No. 142
+during 2002, among other cost reductions. These improvements
+were nearly offset by a $694,000 decrease in net sales, an
+increase in the proportion of closeout sales compared to regular
+full margin sales and a slight increase in marketing and
+promotional costs of $88,000.
+Income from operations of our Internet and
+catalog retailing business was $194,000 in 2002, representing
+the operating earnings attributed to this newly acquired
+business for the period from the November 25, 2002
+acquisition date through December 31, 2002.
+Income from operations included unallocated
+overhead costs, which increased by $1,741,000, or 12.4%, from
+$13,984,000 in 2001 to $15,725,000 in 2002. This was largely due
+to an increase of $1,048,000 in litigation charges in 2002.
+Other Expense (Income).
+Net interest income was $308,000
+in 2001 compared with net interest expense of $406,000 in 2002.
+This was primarily due to the significantly increased borrowings
+in order to finance the purchase of the Teva Rights in 2002, as
+well as lower interest rates earned on invested cash in 2002.
+Other expense (income) exclusive of interest expense (income)
+was not material in either year.
+Income Taxes.
+In 2001, income tax expense was
+$1,185,000, representing an effective income tax rate of 42.2%.
+In 2002, income tax expense was $1,224,000, representing an
+effective income tax rate of 43.0%. The increase was due to
+minor fluctuations in the treatment of various financial
+statement and taxable basis differences.
+27
+Table of Contents 
+Net Income (Loss).
+In 2001, we had net income of
+$1,626,000, or $0.17 per diluted share. Our adoption of SFAS
+No. 142 on January 1, 2002 resulted in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000), or $0.92 per diluted share, during 2002.
+We experienced net income before cumulative effect of a change
+in accounting principle of $1,620,000, or $0.17 per diluted
+share, in 2002 and a net loss after the cumulative effect of a
+change in accounting principle of $7,353,000, or $0.75 per
+diluted share.
+Off-Balance Sheet Arrangements 
+We have no off-balance sheet arrangements other
+than operating leases. See “— Contractual
+Obligations” below. We do not believe that these operating
+leases are material to our current or future financial
+condition, results of operations, liquidity, capital resources
+or capital expenditures.
+Liquidity and Capital Resources 
+Prior to the acquisition of the Teva Rights, we
+financed our capital and operating needs using a combination of
+the cash generated from operations and the credit availability
+under our $20,000,000 revolving credit facility. In addition to
+these sources of financing, in connection with the acquisition
+of the Teva Rights in 2002, we obtained approximately
+$34,000,000 of incremental financing from additional senior and
+subordinated debt arrangements. This additional financing was
+used solely to fund the Teva acquisition, whereas the cash from
+operations and the available credit under the revolving credit
+facility continue to provide the cash required for our capital
+and operating needs.
+The seasonality of our business requires us to
+build inventory levels in anticipation of the sales for the
+coming season. Teva generally begins to build inventory levels
+beginning in the fourth quarter and first quarter in
+anticipation of the spring selling season that occurs in the
+first and second quarters, whereas UGG begins to build its
+inventories in the second quarter and third quarter to support
+sales for the fall and winter selling seasons, which
+historically occur during the third and fourth quarters.
+However, given the currently increased demand for UGG products,
+we also expect to build additional UGG inventories during the
+first quarter of 2004 for deliveries that will begin in the
+second quarter. Our Simple product line is less seasonal than
+our Teva and UGG lines and has significantly fewer inventory
+fluctuations.
+Our cash flow cycle includes the purchase of
+these inventories, the subsequent sale of the inventories and
+the eventual collection of the resulting accounts receivable. As
+a result, our working capital requirements begin when we
+purchase the inventories and continue until we ultimately
+collect the resulting receivables. Given the seasonality of our
+Teva and UGG brands, our working capital requirements fluctuate
+significantly throughout the year. The cash required to fund
+these working capital fluctuations is generally provided using a
+combination of our internal cash flows and borrowings under our
+revolving credit facility. During 2003, the net borrowings under
+our line of credit, net of cash balances, fluctuated by
+approximately $9,935,000 between our highest net cash position
+in December 2003 and our peak borrowing period in September 2003.
+Cash from Operating Activities.
+Net cash provided by operating
+activities increased from $7,441,000 in 2002 to $16,781,000 in
+2003. Net cash provided by operating activities in 2003 was
+largely due to an improvement in net earnings (exclusive of the
+cumulative effect of the change in accounting principle in 2002)
+of $7,534,000 and an improvement in cash collections of
+$2,106,000 in 2003 as compared to 2002. Working capital remained
+essentially the same from 2002 to 2003.
+Cash from Investing Activities.
+In 2002, net cash used in
+investing activities was $44,731,000, including $43,254,000 of
+cash paid in conjunction with the acquisition of the Teva
+Rights, plus approximately $1,477,000 of capital expenditures.
+In 2003, net cash used in investing activities was $705,000,
+which was comprised almost entirely of cash used for capital
+expenditures. In 2002, our capital expenditures were greater
+than in 2003 because in 2002 we completed the implementation of
+our Enterprise Resource Planning (“ERP”) computer
+system and we incurred most of the costs related to the
+expansion of our distribution facility that we began in
+September 2002 and completed in March 2003.
+28
+Table of Contents 
+Cash from Financing
+Activities. In 2002, net cash
+provided by financing activities was $24,542,000, largely due to
+the proceeds from the various sources of financing obtained to
+finance the acquisition of the Teva Rights. In 2003, net cash
+used in financing activities aggregated $14,091,000, including
+the repayment of long-term debt of $8,934,000 and the repurchase
+of all outstanding convertible preferred stock for $5,938,000,
+offset by proceeds from stock issuances of $781,000.
+Our liquidity consists primarily of cash, trade
+accounts receivable, inventories and a revolving credit
+facility. At December 31, 2003, working capital was
+$22,803,000 including $6,662,000 of cash. Cash provided by
+operating activities aggregated $16,781,000 in 2003. Trade
+accounts receivable decreased by 10.1% from $20,851,000 at
+December 31, 2002 to $18,745,000 at December 31, 2003
+notwithstanding net sales having increased 38.7% during the
+fourth quarter ended December 31, 2003 over the comparable
+prior period. Accounts receivable turnover improved from 4.8
+times in 2002 to 6.1 times in 2003. This improvement resulted
+from the hiring of more qualified credit and collections staff,
+the improvement in collections policies and procedures and the
+non-recurrence of the fiscal 2002 collections difficulties
+encountered during the initial stages of the implementation of
+the new ERP system.
+During the same period, inventories increased by
+5.5% from $17,067,000 at December 31, 2002 to $18,004,000
+at December 31, 2003, reflecting a $4,486,000 increase in
+Teva inventory, a $1,921,000 decrease in UGG inventory and a
+$1,628,000 decrease in Simple inventory at year end. Overall,
+inventory turnover improved from 3.2 times in 2002 to 4.0 times
+in 2003. The $4,486,000 increase in Teva inventory occurred
+because the factories delivered more Teva products in 2003 for
+the 2004 season than they did in 2002 for the 2003 season, due
+to our efforts to improve our on-time deliveries to our
+customers and to enable us to better deliver complete orders to
+our customers earlier for the 2004 spring season. The increase
+in Teva inventory was also needed to support an expected
+increase in Teva sales for the first quarter of 2004 compared to
+actual sales for the first quarter of 2003. The $1,921,000
+decrease in UGG inventory at December 31, 2003 was due to
+the heightened demand experienced in the latter part of 2003,
+which significantly depleted our year-end inventory levels for
+many of the most popular UGG styles. The $1,628,000 decrease in
+Simple inventory at December 31, 2003 reflects our
+continuing efforts to reduce the levels of our closeout
+inventories and to bring our Simple inventory into stock closer
+to when it is expected to be shipped to our customers.
+Our revolving credit facility with Comerica
+Bank-California provides for a maximum availability of
+$20,000,000 subject to a borrowing base. In general, the
+borrowing base is equal to 75% of eligible accounts receivable,
+as defined, and 50% of eligible inventory, as defined. Up to
+$10,000,000 of borrowings may be in the form of letters of
+credit. The facility bears interest at the lender’s prime
+rate (4.00% at December 31, 2003) or, at our option, at
+LIBOR (1.12% at December 31, 2003) plus 1.00% to 2.50%,
+depending on our ratio of liabilities to earnings before
+interest, taxes, depreciation and amortization, (termed
+“EBITDA”) and is secured by substantially all of our
+assets. The facility included an upfront fee of $230,000 and
+includes subsequent annual commitment fees of $100,000. The
+facility expires on June 1, 2005. At December 31,
+2003, we had no outstanding borrowings under the facility, no
+foreign currency reserves for outstanding forward contracts and
+no outstanding letters of credit. We had credit availability
+under the facility of $19,283,000 at December 31, 2003.
+On November 25, 2002, we completed the
+acquisition of the Teva Rights from Mark Thatcher and his
+wholly-owned company, Teva Sport Sandals, Inc., for
+approximately $62,300,000, including transaction costs of
+approximately $300,000. We paid cash in the amount of
+$43,000,000 and issued to Mr. Thatcher a junior
+subordinated note in the principal amount of $13,000,000,
+convertible preferred stock of $5,500,000, 100,000 shares
+of common stock valued at approximately $368,000 and options to
+purchase 100,000 shares of common stock valued at
+approximately $187,000. The $13,000,000 of junior subordinated
+note includes a coupon interest rate of 7.00% and an additional
+interest rate of 2.00%, which is to be accrued and paid at the
+maturity date in 2008. The note may be prepaid without penalty.
+Concurrent with the acquisition, we entered into an employment
+agreement for advice on Teva matters with Mr. Thatcher
+through November 2007, which provides for an annual base salary
+of $276,875, and we received a non-compete agreement from
+Mr. Thatcher, which expires two years after termination of
+employment.
+29
+Table of Contents 
+In connection with the Teva Rights acquisition,
+we entered into two additional financing arrangements, including
+a $7,000,000 term loan from Comerica Bank-California and a
+$14,000,000 subordinated note from an unrelated party. Based on
+intercreditor agreements between the various parties, we
+generally were not permitted to repay the subordinated note or
+the junior subordinated note or repurchase the convertible
+preferred stock without the prior approval and consent of
+Comerica Bank-California. Likewise, we generally were not
+permitted to repay the junior subordinated note or repurchase
+the convertible preferred stock without the prior approval and
+consent of both Comerica Bank-California and the holder of the
+subordinated notes.
+Since initially entering into these financing
+arrangements, we have taken several steps to improve our capital
+structure. After obtaining the requisite approvals discussed
+above, we made the following changes:
+• 
+During 2003, we prepaid $4,000,000 of the
+$14,000,000 subordinated note, consisting of a $2,000,000
+prepayment in June 2003 and another $2,000,000 in December 2003.
+In connection with the prepayments in 2003, we incurred
+prepayment penalties of $100,000 and wrote off approximately
+$280,000 of previously capitalized loan origination costs. These
+costs have been included in interest expense in the accompanying
+consolidated statement of operations for the year ended
+December 31, 2003. Additionally, we prepaid $3,000,000 of
+the subordinated note in January 2004, bringing the total
+prepayments to an aggregate of $7,000,000 since inception. As a
+result of the prepayments, the balance of the subordinated note
+outstanding at December 31, 2003 was $10,000,000 and the
+balance outstanding at January 31, 2004 was $7,000,000. By
+making these prepayments, replacing $7,000,000 of the
+subordinated note with lower cost financing, we expect to save
+more than $750,000 in annual interest costs for each of the next
+five years.
+• 
+In December 2003, we repurchased all of the
+outstanding convertible preferred stock for $5,500,000. In
+connection with the repurchase, we paid the holder a premium of
+approximately $438,000, which is treated as a capital
+transaction and accordingly had no impact on net income in 2003,
+although the repayment reduced income (loss) per share
+applicable to common stockholders. Going forward, the
+transaction is expected to eliminate approximately
+1,514,000 shares from the weighted average diluted shares
+outstanding calculation beginning in 2004.
+• 
+During 2003, we paid $3,500,000 of the term loan
+in accordance with the scheduled payment terms. In December
+2003, we renegotiated with the lender and reset the term loan to
+$7,000,000. We used the $3,500,000 of additional proceeds in
+conjunction with cash generated from operations to fund the
+repayment of the subordinated notes and to repurchase the
+convertible preferred stock discussed above to take advantage of
+lower interest rates.
+The renegotiated $7,000,000 term loan is secured
+by all of our assets and bears interest at the prime rate (4.00%
+at December 31, 2003) plus 2.50%, or, at our option, at
+LIBOR (1.12% at December 31, 2003) plus 3.25%. In
+accordance with the amended payment terms, interest is payable
+monthly, an initial principal payment of $1,750,000 is payable
+May 31, 2004 and the remaining principal is payable in
+monthly installments of approximately $292,000 from June 2004 to
+November 2005. We incurred a fee of $35,000 in connection with
+the increase in term loan borrowings in December 2003.
+The remaining $10,000,000 of the subordinated
+note outstanding at December 31, 2003 ($7,000,000 at
+January 31, 2004) is secured by a secondary security
+position in all assets, with principal payable in quarterly
+installments of $1,500,000 beginning in November 2007 and the
+balance due in full in November 2008. The subordinated note
+bears interest at 16.75%, of which 12.00% is payable monthly and
+4.75% can be deferred at our option and compounds monthly until
+the 2008 maturity date. During 2003, we elected not to defer any
+interest costs and as a result paid all interest as it was
+incurred. In the event that we decide to prepay all or a portion
+of the subordinated note, we will be required to pay prepayment
+penalties of 4.00% of the portion prepaid prior to
+November 25, 2004, with no penalties for prepayments
+thereafter. In connection with the issuance of the subordinated
+note, we incurred costs of approximately $1,000,000, including
+investment banking fees, loan commitment fees and legal costs.
+These origination costs are included in other assets in the
+accompanying consolidated financial statements and are being
+amortized over the term of the loan.
+30
+Table of Contents 
+The $13,000,000 junior subordinated note is due
+in November 2008. The junior subordinated note bears interest at
+9.00%, of which 7.00% is payable annually and 2.00% may be
+deferred at our option and compounds annually until the 2008
+maturity date. During 2003, we elected to defer payment of the
+2.00% deferred interest component. The junior subordinated note
+is unsecured and subordinated to the subordinated note, the term
+loan and the bank credit facility and does not have prepayment
+penalties. The junior subordinated note provides the holder with
+the right to designate one member of our board of directors. At
+December 31, 2003, the outstanding balance on the junior
+subordinated note was $13,000,000, plus the deferred interest of
+$287,000.
+In accordance with its terms, the convertible
+preferred stock was callable by us through November 25,
+2005 at face amount plus an additional 10.00% per year and
+was convertible into common stock by the holder after
+November 25, 2005, if not previously called, at a
+conversion price of $3.632 per share (the fair market value
+of the common stock on the issue date). As noted above, we
+repurchased the convertible preferred stock in its entirety in
+December 2003, thus eliminating the potential for any future
+conversion into common stock.
+The agreements underlying the bank credit
+facility, the term loan and the subordinated note contain
+several financial covenants including a quick ratio requirement,
+profitability requirements and cash flow coverage requirements,
+among others, as well as a prohibition on the payment of
+dividends. We were in compliance with all covenants at
+December 31, 2003 and remain so as of the date of this
+report.
+We have announced that we have filed a
+registration statement with the Securities and Exchange
+Commission to sell up to 1,500,000 shares of our Common
+Stock and up to 2,000,000 shares of Common Stock held by
+selling stockholders (not counting any exercise of the
+over-allotment option to purchase up to 525,000 shares of
+Common Stock granted by the selling stockholders to the
+underwriters).
+We expect to pay off the remaining $7,000,000 of
+the term loan, $7,000,000 of the subordinated note and
+$13,000,000 of the junior subordinated note from the proceeds of
+the potential offering. Upon the completion of the potential
+offering and repayment of our outstanding debt, the borrowing
+availability under our revolving credit facility will be the
+full $20,000,000 amount of the facility, subject to the
+borrowing base lending requirements.
+Capital expenditures totaled $663,000 in 2003 and
+related primarily to the replacement of certain computer
+equipment, the expansion and new racking at our distribution
+center and costs related to new Teva promotional vehicles. We
+currently have no material commitments for future capital
+expenditures but estimate that the capital expenditures for 2004
+will range from $700,000 to $1,000,000 and will include an
+upgrade of the distribution center computer system, new trade
+show booths and replacements and upgrades of certain other
+computer equipment. The actual amount of capital expenditures
+for 2004 may differ from this estimate, largely depending on any
+unforeseen needs to replace existing assets.
+Contractual
+Obligations. The following table
+summarizes our contractual obligations at December 31, 2003
+and the effects such obligations are expected to have on
+liquidity and cash flow in future periods.
+Payments Due by Period 
+More than 
+Total 
+Less than 1 Year 
+1-3 Years 
+3-5 Years 
+5 Years 
+Long-term debt obligations
+$ 
+30,287,000 
+$ 
+3,792,000 
+$ 
+3,208,000 
+$ 
+23,287,000 
+— 
+Operating lease obligations
+3,804,000 
+1,176,000 
+2,250,000 
+378,000 
+— 
+Total
+$ 
+34,091,000 
+$ 
+4,968,000 
+$ 
+5,458,000 
+$ 
+23,665,000 
+— 
+Additionally, we have significant interest
+payment requirements on the long-term debt obligations discussed
+above. Assuming we continue to pay both the current interest
+portion (12.00%) and the deferred interest portion (4.75%) of
+the subordinated note on a monthly basis and assuming we
+continue to pay
+31
+Table of Contents 
+annually only the current interest portion
+(7.00%) while deferring the deferred interest portion (2.00%) of
+the junior subordinated note, the annual interest payment
+requirements for our long-term debt obligations are as follows,
+after giving effect to the $3,000,000 prepayment of the
+subordinated note in January 2004:
+Payments Due by Period 
+Less than 
+More than 
+Total 
+1 Year 
+1-3 Years 
+3-5 Years 
+5 Years 
+Interest payments
+$ 
+11,922,000 
+$ 
+2,397,000 
+$ 
+4,343,000 
+$ 
+5,182,000 
+— 
+The above table does not include interest on the
+bank credit facility, as the outstanding borrowings on the
+facility are variable. While there were no outstanding
+borrowings under the facility at December 31, 2003, we
+anticipate that we may borrow under the facility in 2004 in
+order to meet our seasonal working capital needs. In 2003, the
+average outstanding borrowings under the facility were
+$2,136,000 and the aggregate interest costs under the facility
+were $103,000.
+In February 2002, we agreed to guarantee up
+to $1,000,000 of a bank loan of Doug Otto, our Chairman of the
+Board, Chief Executive Officer and President, which matures
+June 1, 2004. The guarantee is through the maturity date of
+the loan, and we would have to pay under the guarantee should
+Mr. Otto default on the loan. As of December 31, 2003,
+approximately $1,000,000 was outstanding under the loan. The
+fair value of the guarantee was immaterial at December 31,
+2003.
+We believe that internally generated funds, the
+available borrowings under our existing credit facilities, cash
+on hand and the net proceeds of the potential offering will
+provide sufficient liquidity to enable us to meet our current
+and foreseeable working capital requirements. However, risks and
+uncertainties that could impact our ability to maintain our cash
+position include our 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 and
+the volume of letters of credit used to purchase product, among
+others. We have demonstrated our strong liquidity by the debt
+prepayments and the convertible preferred stock redemption in
+2003 totaling $14,872,000. See “Risk Factors” for a
+discussion of additional factors that may affect our working
+capital position.
+Impact of Inflation 
+We believe that the relatively moderate rates of
+inflation in recent years have not had a significant impact on
+our net sales or profitability.
+Critical Accounting Policies 
+The preparation of financial statements in
+conformity with accounting principles generally accepted in the
+U.S. requires management to make estimates and assumptions that
+affect the reported amounts of assets and liabilities,
+disclosures about contingent liabilities and the reported
+amounts of net sales and expenses during the reporting period.
+Management bases these estimates and assumptions upon historical
+experience, existing, known circumstances, authoritative
+accounting pronouncements and other factors that management
+believes to be reasonable under the circumstances. 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
+accurate in our estimates used for the reserves and allowances
+below. We believe that the estimates and assumptions below are
+among those most important to an understanding of our
+consolidated financial statements contained in this report.
+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, 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
+32
+Table of Contents 
+are identified as potentially uncollectible, plus
+a general reserve for the balance of accounts. Reserves have
+been fully established for all expected or probable losses of
+this nature. The gross trade accounts receivable balance was
+$20,871,000 and the allowance for doubtful accounts was
+$1,581,000 at December 31, 2003. 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 not specifically identified as
+uncollectible would change the allowance for doubtful accounts
+by $174,000.
+Reserve for Sales Discounts.
+A significant portion of our
+domestic net sales and resulting trade accounts receivable
+reflects a discount that the customers may take, generally based
+upon meeting certain order, shipment and payment timelines. We
+estimate the amount of the discounts that are expected to be
+taken against the period-end trade accounts receivable and we
+record a corresponding reserve for sales discounts. We determine
+the amount of the reserve for sales discounts considering the
+amounts of available discounts in the period-end accounts
+receivable aging and historical discount experience, among other
+factors. At December 31, 2003 the reserve for sales
+discounts was approximately $545,000. Our use of different
+estimates and assumptions could produce different financial
+results. For example a 10.0% change in the estimate of the
+percentage of accounts that will ultimately take their discount
+would change the reserve for sales discounts by $50,000.
+Allowance for Estimated Returns.
+We record an allowance for
+anticipated future returns of goods shipped prior to period-end.
+In general, we accept returns for damaged or defective products
+but discourage returns for other reasons. We base the amount of
+the allowance on any approved customer requests for returns,
+historical returns experience and any recent events that could
+result in a change in historical returns rates, among other
+factors. The allowance for returns at December 31, 2003 was
+$1,245,000. 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 percentage of sales expected to
+ultimately be returned would change the reserve for returns by
+approximately $300,000.
+Inventory Write-Downs.
+Inventories are stated at lower of
+cost or market. 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
+estimated future net selling prices. Inventories were stated at
+$18,004,000, net of inventory write-downs of $882,000 at
+December 31, 2003. 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 amount by approximately $204,000.
+Valuation of Goodwill, Intangible and Other
+Long-Lived Assets. We periodically
+assess the impairment of goodwill, intangible and other
+long-lived assets based on assumptions and judgments regarding
+the carrying value of these assets. We consider the assets to be
+impaired if we determine that the carrying value may not be
+recoverable. Among other considerations, we consider the
+following factors:
+• 
+the assets’ ability to continue to generate
+income from operations and positive cash flow in future periods;
+• 
+our future plans regarding utilization of the
+assets;
+• 
+any changes in legal ownership of rights to the
+assets; and
+• 
+changes in consumer demand or acceptance of the
+related brand names, products or features associated with the
+assets.
+If we consider the assets to be impaired, we
+recognize an impairment loss equal to the amount by which the
+carrying value of the assets exceeds the estimated fair value of
+the assets. In addition, as it relates to long-lived assets, we
+base the useful lives and related amortization or depreciation
+expense on the estimate of the period that the assets will
+generate sales or otherwise be used by us.
+In 2002, SFAS No. 142,
+“ Goodwill and Other Intangible Assets ,” became
+effective and as a result, we recorded a goodwill impairment
+charge in the first quarter of 2002. See note 13 to the
+accompanying consolidated financial statements.
+33
+Table of Contents 
+Recent Accounting Pronouncements 
+In June 2001, the Financial Accounting Standards
+Board, or FASB, issued SFAS No. 143, Accounting for
+Asset Retirement Obligations . SFAS No. 143
+requires us to record the fair value of an asset retirement
+obligation as a liability in the period in which we incur a
+legal obligation associated with the retirement of tangible
+long-lived assets that result from the acquisition,
+construction, development, and/or normal use of the assets. We
+also record a corresponding asset that is depreciated over the
+life of the asset. Subsequent to the initial measurement of the
+asset retirement obligation, the obligation will be adjusted at
+the end of each period to reflect the passage of time and
+changes in the estimated future cash flows underlying the
+obligation. We adopted SFAS No. 143 on January 1,
+2003. The adoption of SFAS No. 143 did not have a
+material effect on our consolidated financial position or
+results from operations.
+Effective January 1, 2002, we adopted SFAS
+No. 144, Accounting for the Impairment or Disposal of
+Long-Lived Assets , which addresses financial accounting and
+reporting for the impairment or disposal of long-lived assets.
+While SFAS No. 144 supersedes SFAS No. 121,
+Accounting for the Impairment of Long-Lived Assets and for
+Long-Lived Assets to Be Disposed Of , it retains many of the
+fundamental provisions of that statement. The adoption of this
+standard did not have a material impact on our consolidated
+financial position or results from operations.
+In April 2002, the FASB issued
+SFAS No. 145, Rescission of FASB Statements
+No. 4, 44, and 64, Amendment of FASB Statement No. 13,
+and Technical Corrections . SFAS No. 145 amends
+existing guidance on reporting gains and losses on the
+extinguishment of debt to prohibit the classification of the
+gain or loss as extraordinary, as the use of such
+extinguishments have become part of the risk management strategy
+of many companies. SFAS No. 145 also amends
+SFAS No. 13 to require sale-leaseback accounting for
+certain lease modifications that have economic effects similar
+to sale-leaseback transactions. The provisions of the Statement
+related to the rescission of Statement No. 4 is applied in
+fiscal years beginning after May 15, 2002. We adopted SFAS
+No. 143 on January 1, 2003. The adoption of
+SFAS No. 145 did not have a material effect on our
+consolidated financial position or results from operations.
+In June 2002, the FASB issued
+SFAS No. 146, Accounting for Costs Associated with
+Exit or Disposal Activities . SFAS No. 146
+addresses financial accounting and reporting for costs
+associated with exit or disposal activities and nullifies
+Emerging Issues Task Force Issue 94-3, Liability
+Recognition for Certain Employee Termination Benefits and Other
+Costs to Exit an Activity . The provisions of this Statement
+are effective for exit or disposal activities that are initiated
+after December 31, 2002, with early application encouraged.
+The adoption of SFAS No. 146 did not have a material
+effect on our consolidated financial position or results from
+operations.
+In November 2002, the FASB issued Interpretation
+No. 45, Guarantor’s Accounting and Disclosure
+Requirements for Guarantees, Including Indirect Guarantees of
+Indebtedness to Others, an interpretation of FASB Statements
+No. 5, 57, and 107 and a rescission of FASB Interpretation
+No. 34 . This Interpretation elaborates on the
+disclosures to be made by a guarantor in its interim and annual
+financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is
+required to recognize, at inception of a guarantee, a liability
+for the fair value of the obligation undertaken. The initial
+recognition and measurement provisions of the Interpretation are
+applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material
+effect on our consolidated financial position or results from
+operations. The disclosure requirements are effective for
+financial statements of interim and annual periods ending after
+December 31, 2002 and are included in the notes to our
+consolidated financial statements.
+In December 2002, the FASB issued
+SFAS No. 148, Accounting for Stock-Based
+Compensation — Transition and Disclosure, an amendment
+of FASB Statement No. 123 . This Statement amends FASB
+Statement No. 123, Accounting for Stock-Based
+Compensation , to provide alternative methods of transition
+for a voluntary change to the fair value method of accounting
+for stock-based employee compensation. In addition, this
+Statement amends the disclosure requirements of Statement
+No. 123 to require prominent disclosures in both annual and
+interim financial statements. Certain of the disclosure
+modifications are
+34
+Table of Contents 
+required for fiscal years ending after
+December 15, 2002 and are included in the notes to our
+consolidated financial statements.
+In January 2003, the FASB issued Interpretation
+No. 46, Consolidation of Variable Interest Entities ,
+an interpretation of ARB No. 51. This Interpretation
+addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The
+Interpretation generally applies immediately to variable
+interests in variable interest entities created after
+January 31, 2003 and to variable interests in variable
+interest entities obtained after January 31, 2003. The
+application of this Interpretation did not have a material
+effect on our consolidated financial statements. In December
+2003, the FASB revised FIN 46 to exempt certain entities
+from its requirements and to clarify certain issues arising
+during the implementation of FIN 46. The adoption of this
+revised interpretation in the first quarter of 2004 is not
+expected to have any impact on our consolidated financial
+statements.
+In May 2003, the FASB issued
+SFAS No. 150 “Accounting for Certain Financial
+Instruments with Characteristics of both Liabilities and
+Equity.” SFAS No. 150 establishes standards for
+how a company classifies and measures certain financial
+instruments with characteristics of both liabilities and equity.
+It requires that companies classify a financial instrument that
+is within its scope as a liability (or an asset in some
+circumstances). Many of those instruments were previously
+classified as equity. The provisions of this Statement are
+generally effective for financial instruments entered into or
+modified after May 31, 2003, and otherwise are effective at
+the beginning of the first interim period beginning after
+June 15, 2003. The adoption of this Statement did not have
+a material effect on our consolidated financial statements.
+35
+Table of Contents 
+RISK FACTORS 
+Our short- and long-term success is subject to
+many factors beyond our control. Shareholders and potential
+shareholders should carefully consider the following risk
+factors 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 shareholders and potential shareholders may lose all
+or part of their investment . 
+Risks Relating to Our Business 
+Our success depends on our ability to
+anticipate fashion trends. 
+Our success depends largely on the continued
+strength of our Teva, UGG and Simple brands and on our ability
+to anticipate, understand and react to the rapidly changing
+fashion tastes of footwear consumers and to provide appealing
+merchandise in a timely manner. Our products must appeal to a
+broad range of consumers whose preferences cannot be predicted
+with certainty and are subject to rapid change. We are also
+dependent on customer receptivity to our products and marketing
+strategy. There can be no assurance that consumers will continue
+to prefer our brands, that we will respond quickly enough to
+changes in consumer preferences or that we will successfully
+introduce new models and styles of footwear. Achieving market
+acceptance for new products also will likely require us to exert
+substantial marketing and product development efforts and expend
+significant funds to create consumer demand. The failure to
+introduce new products that gain market acceptance will erode
+our competitive position, which will reduce our profits and
+could adversely affect the image of our brands, resulting in
+long-term harm to our business.
+Our UGG brand may not continue to grow at the
+same rate it has experienced in the recent past. 
+Our UGG brand has experienced strong growth over
+the past two years, with net wholesale sales of UGG products
+having increased from $19,185,000 in 2001 to $34,561,000 in
+2003, representing a compound annual growth rate of 34.2%. UGG
+may be a fashion item that could go out of style at any time.
+UGG represents a significant portion of our business, and if UGG
+sales fail to increase in the future our overall financial
+performance likely will not continue its current pace of growth.
+We may experience shortages of top grade
+sheepskin, which could interrupt product manufacturing and
+increase product costs. 
+We depend on a limited number of key resources
+for sheepskin, the principal raw material for our UGG products.
+In 2003, two suppliers provided all of the sheepskin purchased
+by our independent manufacturers. The top grade sheepskin used
+in UGG footwear is in high demand and limited supply. In
+addition, sheep are susceptible to hoof and mouth disease, which
+can result in the extermination of the infected herd and could
+have a material adverse effect on the availability of sheepskin
+for our products. Our potential inability to obtain top grade
+sheepskin for UGG products could impair our ability to meet our
+production requirements for UGG in a timely manner and could
+lead to inventory shortages, which can result in potential lost
+sales, delays in shipments to customers, strain on our
+relationships with customers and diminished brand loyalty.
+Additionally, there have been significant increases in the
+prices of footwear quality sheepskin as the demand for this
+material has increased. Any further price increases will likely
+raise our costs, increase our costs of sales and decrease our
+profitability unless we are able to pass higher prices on to our
+customers.
+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 commit to
+production tooling and production volumes many months before
+consumer tastes become apparent. The footwear industry is
+subject to fashion risks and rapid changes in consumer
+preferences, as well as the effects of weather, general market
+conditions and other factors affecting demand. Our large number
+of models, colors
+36
+Table of Contents 
+and sizes in our three product lines exacerbates
+these risks. As a result, we may fail to accurately forecast
+styles and features that will be in demand. If we overestimate
+demand for our products, we may be forced to liquidate excess
+inventories at a discount to customers, resulting in higher
+markdowns and lower gross margins. Further, the excess
+inventories may prolong our cash flow cycle, resulting in
+reduced cash flow and increased liquidity risks. Conversely, if
+we underestimate consumer demand, we could have inventory
+shortages, which can result in lost potential sales, delays in
+shipments to customers, strains on our relationships with
+customers and diminished brand loyalty. This may be particularly
+true with regard to our UGG product line, which continues to
+experience strong consumer demand and rapid sales growth.
+We may not succeed in implementing our growth
+strategy. 
+As part of our growth strategy, we seek to
+enhance the positioning of our brands, extend our brands into
+complementary product categories and markets through licensing,
+expand geographically and improve our operational performance.
+Another element of our growth strategy includes our licensing
+initiatives. We may not be able to successfully implement any or
+all of these strategies. If we fail to do so, our rate of growth
+may slow or our results of operations may decline, which in turn
+could have a negative effect on the value of our stock.
+Our financial success is limited to the
+success of our customers. 
+Our financial success is directly related to the
+success of our customers and the willingness of our customers to
+continue to buy our products. We do not have long-term contracts
+with any of our customers. Sales to our customers are generally
+on an order-by-order basis and are subject to rights of
+cancellation and rescheduling by our customers. If we cannot
+fill our customers’ orders in a timely manner, our
+relationships with our customers may suffer, and this could have
+a material adverse effect on us. Furthermore, if any of our
+major customers experiences a significant downturn in its
+business, or fails to remain committed to our products or
+brands, then these customers may reduce or discontinue purchases
+from us, which could have a material adverse effect on our
+business, results of operations and financial condition.
+Establishing and protecting our trademarks,
+patents and other intellectual property is costly and may be
+difficult outside the U.S. If our efforts to do so are
+unsuccessful, the value of our brands could suffer. 
+We believe that our trade names, copyrights,
+trade secrets, trademarks, patents, trade dress and designs are
+of value and are integral to our success and our competitive
+position. Some countries’ laws do not protect proprietary
+intellectual property rights to the same extent as do
+U.S. laws. From time to time, we discover products in the
+marketplace that infringe upon our trade name, trademark,
+patent, trade dress and design rights. If we are unsuccessful in
+challenging a third party’s products on the basis of patent
+and trade dress rights, continued sales of such competing
+products by third parties could adversely impact our business,
+financial condition and results of operations. Furthermore, our
+efforts to enforce our trademark and other intellectual property
+rights are typically met with defenses and counterclaims
+attacking the validity and enforceability of our trademark and
+other intellectual property rights. Similarly, from time to time
+we may be the subject of litigation challenging our ownership of
+intellectual property. Loss of our Teva, UGG or Simple trade
+name, trademark, patent or trade dress rights could have a
+material adverse effect on our business.
+We face particularly strong challenges to our UGG
+trademark in Australia. There can be no assurance that we will
+prevail in such challenges. Many Australian manufacturers sell
+competitive footwear on the Internet. The loss of our UGG
+trademark in Australia could cause us to lose significant sales
+and could harm the integrity of our brand by association with
+inferior products.
+We may lose pending litigation and the rights
+to certain of our intellectual property. 
+We are currently involved in several informal
+disputes, disputes in the U.S. Patent and Trademark Office
+and foreign trademark offices, and disputes in U.S. federal and
+foreign court litigation regarding infringement by third parties
+of our trade names, trademarks, trade dress, copyrights and
+other intellectual property. Any decision or settlement in any
+of these disputes that allows a third party to continue to use
+our intellectual
+37
+Table of Contents 
+property in connection with products that are
+similar to ours could have an adverse effect on our sales and on
+our intellectual property, which could have a material adverse
+effect on our results of operations and financial condition.
+Counterfeiting of our brands can divert sales
+and damage our brand image. 
+Our brands and designs are constantly at risk for
+counterfeiting and infringement of our intellectual property
+rights, and we frequently find counterfeit products and products
+that infringe on our intellectual property rights in our
+markets. We have not always been successful, particularly in
+some foreign countries, in combating counterfeit products and
+stopping infringing uses of our products. Counterfeit and
+infringing products not only cause us to lose significant sales,
+they also can harm the integrity of our brands by associating
+our trademarks or designs with lesser quality or defective goods.
+We are also experiencing more infringers of our
+UGG trademark and more counterfeit products seeking to benefit
+from the consumer demand for our UGG products. We expect this
+trend to continue, which could result in the loss of sales for
+UGG products and a diminution of the brand’s reputation for
+quality if it is associated with inferior counterfeit goods.
+As our patents expire, our competitors will be
+able to copy our technology or incorporate it in their products
+without paying royalties. 
+Patents generally have a life of 20 years
+from filing, and some of our patents will expire in the next ten
+years. For example, the patent for our Universal Strapping
+System used in Teva sandals will expire in September 2007. Our
+Universal Strapping System is currently used in most of our Teva
+sandals. Once patent protection has expired, our competitors can
+copy our products or incorporate our innovations in their
+products without paying royalties. To combat this, we must
+continually create new designs and technology, obtain patent
+protection and incorporate the new technology or design in our
+footwear. We cannot provide assurance that we will be able to do
+so. Sales of our Teva sandals may decline significantly if we
+incorporate substitute technologies in lieu of our Universal
+Strapping System for our Teva sandals.
+Because we depend on independent
+manufacturers, we face challenges in maintaining a continuous
+supply of goods that meet our quality standards. 
+We use independent manufacturers to produce all
+of our products, with almost all of the production occurring
+among four manufacturers in China. We depend on these
+manufacturers’ ability to finance the production of goods
+ordered and to maintain manufacturing capacity. The
+manufacturers in turn depend upon their suppliers of raw
+materials. We do not exert direct control over either the
+independent manufacturers or their raw materials suppliers, so
+we may be unable to obtain timely delivery of acceptable
+products.
+In addition, we 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 products of an
+acceptable quality from our independent manufacturers. If there
+is an interruption, we may not be able to substitute suitable
+alternative manufacturers because substitutes may not be
+available or they may not be able to provide us with 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 and a
+resulting loss of sales.
+Similarly, if we experience a significant
+increase in demand and a manufacturer is unable to ship orders
+of our products in accordance with our timing demands and our
+quality standards, we could miss customer delivery date
+requirements. This in turn could result in cancellation of
+orders, customer refusals of shipments or a reduction in
+purchase prices, any of which could have a material adverse
+effect on our sales and financial condition. We compete with
+other companies for the production capacity and the import quota
+capacity of our manufacturers. Accordingly, our independent
+manufacturers may not produce and ship some or all of any orders
+placed by us.
+38
+Table of Contents 
+If raw materials do not meet our
+specifications or if the prices of raw materials increase, we
+could experience a high return rate, a loss of sales or a
+reduction in our gross margins. 
+Our independent manufacturers use various raw
+materials in the manufacture of our footwear that must meet our
+specifications generally and, in some cases, additional
+technical requirements for performance footwear. If these raw
+materials and the end product do not perform to our
+specifications or consumer satisfaction, we could experience a
+higher rate of customer returns and a diminution in the image of
+our brands, which could have a material adverse effect on our
+business, financial condition and results of operations.
+There may be significant increases in the prices
+of the raw materials used in our footwear, which would increase
+the cost of our products from our independent manufacturers. Our
+gross profit margins are adversely affected to the extent that
+the selling prices of our products do not increase
+proportionately with increases in their costs. Any significant
+unanticipated increase in the prices of raw materials could
+materially affect our results of operations. No assurances can
+be given that we will be protected from future changes in the
+prices of such raw materials.
+Our independent manufacturers are located
+outside the U.S., where we are subject to the risks of
+international commerce. 
+All of our third party manufacturers are in the
+Far East, Australia and New Zealand, with the vast majority of
+production performed by four manufacturers in China. Foreign
+manufacturing is subject to numerous risks, including the
+following:
+• 
+tariffs, import and export controls and other
+non-tariff barriers such as quotas and local content rules;
+• 
+increasing transportation costs due to energy
+prices or other factors;
+• 
+poor infrastructure and shortages of equipment,
+which can delay or interrupt transportation and utilities;
+• 
+foreign currency fluctuations;
+• 
+restrictions on the transfer of funds;
+• 
+changing economic conditions;
+• 
+changes in governmental policies;
+• 
+environmental regulation;
+• 
+labor unrest, which can lead to work stoppages
+and interruptions in transportation or supply;
+• 
+political unrest, which can interrupt commerce
+and make travel dangerous; and
+• 
+expropriation and nationalization.
+In particular, because most of our products are
+manufactured in China, adverse change in trade or political
+relations with China or political instability in the Far East
+could severely interfere with the manufacture of our products
+and could materially adversely affect our results of operations.
+Uncertainty regarding the short-term and long-term effects of
+the severe acute respiratory syndrome, or SARS, and the outbreak
+of avian influenza in China and elsewhere in the Far East could
+disrupt the manufacture and transportation of our products,
+which would harm our results of operations.
+We are also subject to general risks associated
+with managing operations effectively and efficiently from the
+U.S. and understanding and complying with local laws,
+regulations and customs. These factors and the failure to
+properly respond to them could make it difficult to obtain
+adequate supplies of quality products when we need them,
+resulting in reduced sales and harm to our business.
+39
+Table of Contents 
+We may be subject to certain federal
+regulatory fines. 
+We were recently notified by a governmental
+agency that we have improperly shipped certain water repellant
+and a cleaning solution for our footwear manufactured by one of
+our suppliers that is listed as a hazardous material in federal
+regulations. We are reporting to the agency directly and have
+discontinued shipping the product. The agency might assert
+sanctions against us which could range from a nominal amount to
+a larger amount which might have a material adverse effect on
+our results of operations and financial condition.
+Our business could suffer if our independent
+manufacturers, their suppliers or our licensees violate labor
+laws or fail to conform to our ethical standards. 
+We require our independent contract
+manufacturers, their suppliers and our licensees to meet our
+standards for working conditions, environmental protection and
+other matters before we are willing to place business with them.
+As a result, we do not always obtain the lowest cost production.
+We do not control our independent manufacturers, their suppliers
+or their respective labor practices. If one of our independent
+contract manufacturers or one of their suppliers violates our
+labor standards by, for example, using convicted, forced or
+indentured labor or child labor, fails to pay compensation in
+accordance with local law or fails to operate its factories in
+compliance with local safety regulations, we likely would
+immediately cease dealing with that manufacturer (or, in the
+case of a supplier, we would likely require our manufacturer to
+immediately cease using that supplier), and we could suffer an
+interruption in our product supply. In addition, the
+manufacturers’ or their suppliers’ actions could
+damage our reputation and the value of our brands, resulting in
+negative publicity and discouraging customers and consumers from
+buying our products.
+Similarly, we do not control our licensees or any
+of their suppliers or their respective labor practices. If one
+of our licensees violates our labor standards or local laws, we
+would immediately terminate the license agreement, which would
+reduce our license revenue. In addition, the licensee’s
+actions could damage our reputation and the value of our brands.
+We also may not be able to replace the licensee.
+If our licensing partners are unable to meet
+our expectations regarding the quality of their products or the
+conduct of their business, the value of our brands could
+suffer. 
+One element of our growth strategy depends on our
+ability to successfully enter into and maintain license
+agreements with manufacturers and distributors of products in
+complementary categories. Although we have not received any
+material license revenue to date, we will be relying on our
+licensees to maintain our standards with their manufacturers in
+the future, and any failure to do so could harm our reputation
+and the value of the licensed brand. The interruption of the
+business of any one of our material licensing partners due to
+any of the factors discussed immediately below could also
+adversely affect our future licensing sales and net income. The
+risks associated with our own products will also apply to our
+licensed products in addition to any number of possible risks
+specific to a licensing partner’s business, including, for
+example, risks associated with a particular licensing
+partner’s ability to:
+• 
+obtain capital;
+• 
+manage manufacturing and product sourcing
+activities;
+• 
+manage labor relations;
+• 
+maintain relationships with suppliers;
+• 
+manage credit risk effectively; and
+• 
+maintain relationships with customers.
+Our licensing agreements generally do not
+preclude our licensing partners from offering, under other
+brands, products similar to those covered by their license
+agreements with us. If we cannot replace existing licensing
+partners who fail to perform adequately, our net sales, both
+directly from reduced licensing revenue and indirectly from
+reduced sales of our other products, will suffer.
+40
+Table of Contents 
+If our brand managers cannot properly manage
+the licensees of their respective brands, our growth strategy
+could be impaired. 
+Our growth strategy and future profits depend
+upon each of our brand managers finding and successfully
+managing licensees for each of their respective brands. Our
+brand managers may not be able to successfully implement the
+licensing aspect of our growth strategy and to develop and
+manage profitable license arrangements. We compete for
+opportunities to license our brands with other companies who
+have greater resources than we do and who may have more valuable
+brands and more licensing experience than we do. As a result,
+even if we do identify a suitable licensee, we may lose the
+opportunity to a competitor. Our brand managers’ failure to
+execute our licensing strategy successfully could negatively
+impact our results from operations.
+We may be unable to successfully identify,
+develop or acquire, and build new brands. 
+We intend to continue to focus on identifying,
+developing or acquiring and building new brands. Our search may
+not yield any complementary brands, and even if we do find a
+suitable brand we may not be able to obtain sufficient financing
+to fund the development or acquisition of the brand. We may not
+be able to successfully integrate the management of a new brand
+into our existing operations, and we cannot assure you that any
+developed or acquired brand will achieve the results we expect.
+We compete with other companies who have greater resources than
+we do for the opportunities to license brands or buy other
+brands. As a result, even if we do identify a suitable license
+or acquisition, we may lose the opportunity to a competitor who
+offers a more attractive price. In such event, we may incur
+significant costs in pursuing a license or an acquisition
+without success.
+Our quarterly sales and operating results may
+fluctuate in future periods, and if we fail to meet expectations
+the price of our common stock may decline. 
+Our quarterly sales and operating results have
+fluctuated significantly in the past and are likely to do so in
+the future due to a number of factors, many of which are not
+within our control. If our quarterly sales or operating results
+fall below the expectations of investors or securities analysts,
+the price of our common stock could decline substantially.
+Factors that might cause quarterly fluctuations in our sales and
+operating results include the following:
+• 
+variation in demand for our products, including
+variation due to changing consumer tastes and seasonality;
+• 
+our ability to develop, introduce, market and
+gain market acceptance of new products and product enhancements
+in a timely manner;
+• 
+our ability to manage inventories, accounts
+receivable and cash flows;
+• 
+our ability to control costs;
+• 
+the size, timing, rescheduling or cancellation of
+orders from customers;
+• 
+the introduction of new products by competitors;
+• 
+the availability and reliability of raw materials
+used to manufacture our products;
+• 
+changes in our pricing policies or those of our
+independent manufacturers and competitors, as well as increased
+price competition in general;
+• 
+the mix of our domestic and international sales,
+and the risks and uncertainties associated with our
+international business;
+• 
+our ability to forecast future sales and
+operating results and subsequently attain them;
+• 
+developments concerning the protection of our
+intellectual property rights; and
+• 
+general global economic and political conditions,
+including international conflicts and acts of terrorism.
+41
+Table of Contents 
+In addition, our expenses depend, in part, on our
+expectations regarding future sales. In particular, we expect to
+continue incurring substantial expenses relating to the
+marketing and promotion of our products. Since many of our costs
+are fixed in the short term, if we have a shortfall in sales, we
+may be unable to reduce expenses quickly enough to avoid losses.
+Accordingly, you should not rely on quarter-to-quarter
+comparisons of our operating results as an indication of our
+future performance.
+Loss of the services of our key personnel
+could adversely affect our business. 
+Our future success and growth depend on the
+continued services of Doug Otto, our Chairman of the Board,
+Chief Executive Officer and President, Scott Ash, our Chief
+Financial Officer, Bob Orlando, the President of the Teva
+Division, Connie Rishwain, the President of the UGG and Simple
+Divisions, and Pat Devaney, Senior Vice President of Global
+Sourcing, Production and Development, as well as other key
+officers and employees. The loss of the services of any of these
+individuals or any other key employee could materially affect
+our business. Our future success also depends on our ability to
+identify, attract and retain additional qualified personnel.
+Competition for employees in our industry is intense and we may
+not be successful in attracting or retaining them.
+We conduct business outside the U.S., which
+exposes us to foreign currency and other risks. 
+Our products are manufactured outside the U.S.,
+and our independent manufacturers procure most of their supplies
+outside the U.S. We sell our products in the U.S. and
+internationally. Although we pay for the purchase and
+manufacture of our products primarily in U.S. dollars and we
+sell our products primarily in U.S. dollars, we are routinely
+subject to currency rate movements on non-U.S. denominated
+assets, liabilities and income since our foreign distributors
+sell in local currencies, which impacts the price to foreign
+customers. We currently do not use currency hedges since
+substantially all our transactions are in U.S. dollars. Future
+changes in foreign currency exchange rates may cause changes in
+the dollar value of our purchases or sales and materially affect
+our results of operations.
+Our most popular products are seasonal, and
+our sales are sensitive to weather conditions. 
+Sales of our products, particularly those under
+the Teva and UGG brands, are highly seasonal and are sensitive
+to weather conditions. Extended periods of unusually cold
+weather during the spring and summer can reduce demand for Teva
+footwear. Likewise, unseasonably warm weather during the fall
+and winter months may reduce demand for our UGG products. 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.
+We depend on independent distributors to sell
+our products in international markets. 
+We sell our products in international markets
+through independent distributors. If a distributor fails to meet
+annual sales goals, it may be difficult and costly to locate an
+acceptable substitute distributor. If a change in our
+distributors becomes necessary, we may experience increased
+costs, as well as substantial disruption and a resulting loss of
+sales.
+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. 
+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 sales operations. These
+include:
+• 
+changes in currency exchange rates which impact
+the price to international consumers;
+• 
+the burdens of complying with a variety of
+foreign laws and regulations;
+• 
+unexpected changes in regulatory requirements; and
+• 
+the difficulties associated with promoting
+products in unfamiliar cultures.
+42
+Table of Contents 
+We are also subject to general political and
+economic risks in connection with our international sales
+operations, including:
+• 
+political instability;
+• 
+changes in diplomatic and trade relationships; and
+• 
+general economic fluctuations in specific
+countries or markets.
+Any of the abovementioned factors could adversely
+affect our sales and results of operations in international
+markets.
+International trade regulations may impose
+unexpected duty costs or other non-tariff barriers to markets
+while the increasing number of free trade agreements have the
+potential to stimulate increased competition. 
+Products manufactured overseas and imported into
+the U.S. 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.
+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 generally make it difficult to
+obtain products of our customary quality at a desired price.
+Meanwhile, the continued negotiation of bilateral and
+multilateral free trade agreements by the U.S. 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 to our market countries at preferred rates of
+duty, though we are uncertain precisely what effect these new
+agreements may have on our operations.
+Finally, the increased threat of terrorist
+activity and the 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.
+We depend on our computer and communications
+systems. 
+We extensively utilize computer and
+communications systems to operate our Internet and catalog
+business and manage our internal operations. Any interruption of
+this service from power loss, telecommunications failure,
+failure of our computer system, failure due to weather, natural
+disasters or any similar event could disrupt our operations and
+result in lost sales. In addition, hackers and computer viruses
+have disrupted operations at many major companies. We may be
+vulnerable to similar acts of sabotage, which could have a
+material adverse effect on our business and operations.
+We rely on our management information systems to
+operate our business and to track our operating results. Our
+management information systems will require modification and
+refinement as we grow and our business needs change. If we
+experience a significant system failure or if we are unable to
+modify our management information systems to respond to changes
+in our business needs, then our ability to properly run our
+business could be adversely affected.
+43
+Table of Contents 
+Risks Related to Our Industry 
+Because the footwear market is sensitive to
+decreased consumer spending and slow economic cycles, if general
+economic conditions deteriorate many of our customers may
+significantly reduce their purchases from us or may not be able
+to pay for our products when due. 
+The footwear industry historically has been
+subject to cyclical variation and decline in performance when
+consumer spending decreases or softness appears in the retail
+market. Many factors affect the level of consumer spending in
+the footwear industry, including:
+• 
+general business conditions;
+• 
+interest rates;
+• 
+the availability of consumer credit;
+• 
+weather;
+• 
+taxation; and
+• 
+consumer confidence in future economic conditions.
+Consumer purchases of discretionary items,
+including our products, may decline during recessionary periods
+and also may decline at other times when disposable income is
+lower. A downturn in economies where we or our licensing
+partners sell products, whether in the U.S. or abroad, may
+reduce sales.
+In addition, we extend credit to our customers
+based on an evaluation of each customer’s financial
+condition. Many retailers, including some of our customers, have
+experienced financial difficulties during the past several
+years, thereby increasing the risk that such customers may not
+be able to pay for our products in a timely manner. Our bad debt
+expense may increase relative to net sales in the future. Any
+significant increase in our bad debt expense relative to net
+sales would adversely impact our net income and cash flow and
+could affect our ability to pay our own obligations as they
+become due.
+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
+the recent growth in the market for sport sandals, casual
+footwear and other products manufactured by our licensees has
+encouraged the entry of many new competitors into the
+marketplace as well as 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 market. 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 more
+quickly develop new 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 industry.
+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 customers to shift their
+purchases away from our products.
+We believe that our ability to compete
+successfully depends on a number of factors, including the
+quality, style and authenticity of our products and the strength
+of our brands, as well as many factors beyond our control.
+Maintaining our competitiveness depends on our ability to defend
+our products from infringement, our continued ability to
+anticipate and react to consumer tastes and our continued
+ability to deliver quality products at an acceptable price. If
+we fail to compete successfully in the future, our sales and
+profits will decline, as will the value of our business,
+financial condition and common stock.
+44
+Table of Contents 
+Consolidations, restructurings and other
+ownership changes in the retail industry could affect the
+ability of our wholesale customers to purchase and market our
+products. 
+In the future, retailers in the U.S. and in
+foreign markets may undergo changes that could decrease the
+number of stores that carry our products or increase the
+concentration of ownership within the retail industry, including:
+• 
+consolidating their operations;
+• 
+undergoing restructurings;
+• 
+undergoing reorganizations; or
+• 
+realigning their affiliations.
+These consolidations could result in a shift of
+bargaining power to the retail industry and in fewer outlets for
+our products. Further consolidations could result in price and
+other competition that could reduce our margins and our net
+sales.
+Terrorism, government response to terrorism
+and other world events could affect our ability to do
+business. 
+We market and sell our products and services
+throughout the world. The September 11, 2001 terrorist
+attacks disrupted commerce across the U.S. and in many other
+parts of the world. World events, including the threat of
+similar attacks in the future, and the impact of the U.S.’s
+military campaigns may cause significant disruption to commerce
+throughout the world. We are unable to predict whether the
+threat of new attacks or the resulting response will result in
+any long-term commercial disruptions or do long-term harm to our
+business, results of operations or financial condition. To the
+extent that future disruptions further slow the global economy
+or, more particularly, result in delays or cancellations of
+purchase orders for our products or delays in shipping, our
+business and results of operations could suffer material damage.
+Risks Relating to Our Common Stock 
+Members of management own sufficient shares to
+substantially control our company. 
+At February 29, 2004, Doug Otto beneficially
+owned approximately 33.3% of our common stock and all of our
+executive officers and directors as a group beneficially owned
+approximately 41.1%. These ownership percentages will be reduced
+to 18.1% and 22.3% if the offering discussed in the following
+page occurs. The ownership positions of Mr. Otto and our
+executive officers as a group, together with the anti-takeover
+effects of the Delaware General Corporation Law and provisions
+of our certificate of incorporation, our bylaws and our
+stockholder rights plan, would likely delay, defer or prevent a
+change in control of our company, may deprive our stockholders
+of an opportunity to receive a premium for their common stock as
+part of a change in control and could have a negative effect on
+the market price of our common stock.
+Our common stock price has been volatile,
+which could result in substantial losses for
+stockholders. 
+Our common stock is traded on the Nasdaq National
+Market. While our average daily trading volume for the 52-week
+period ended February 27, 2004 was approximately
+98,710 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 sale prices of our common stock, as reported by the
+Nasdaq National Market, have ranged from $3.96 to $26.87 for the
+52-week period ended February 27, 2004. The trading price
+of our common stock could be affected by a number of factors,
+including, but not limited to the following:
+• 
+changes in expectations of our future performance;
+• 
+changes in estimates by securities analysts (or
+failure to meet such estimates);
+• 
+quarterly fluctuations in our sales and financial
+results;
+45
+Table of Contents 
+• 
+broad market fluctuations in volume and price; and
+• 
+a variety of risk factors, including the ones
+described elsewhere in this report.
+Accordingly, the price of our common stock is
+volatile and any investment in our securities is subject to risk
+of loss.
+We have filed for a public offering of our
+securities. 
+On March 3, 2004 we filed a registration
+statement with the Securities and Exchange Commission to sell up
+to 1,500,000 newly issued shares of Common Stock and up to
+2,000,000 shares of Common Stock held by selling
+stockholders (not including the overallotment option granted by
+the selling stockholders to the underwriters). There are no
+assurances that this offering will be completed or at what price
+these shares will be sold.
+Future sales of our common stock could
+adversely affect our stock price. 
+Future sales of substantial amounts of shares of
+our common stock in the public market, or the perception that
+these sales could occur, may cause the market price of our
+common stock to decline. In addition, we may be required to
+issue additional shares upon exercise of previously granted
+options that are currently outstanding.
+Anti-takeover provisions of our certificate of
+incorporation, bylaws, stockholder rights plan and Delaware law
+could prevent or delay a change in control of our company, even
+if such a change of control would benefit our
+stockholders. 
+Provisions of our certificate of incorporation
+and bylaws, as well as provisions of Delaware law, could
+discourage, delay or prevent a merger, acquisition or other
+change in control of our company, even if such a change in
+control might benefit our stockholders. These provisions could
+also discourage proxy contests and make it more difficult for
+you and other stockholders to elect directors and take other
+corporate actions. As a result, these provisions could limit the
+price that investors are willing to pay in the future for shares
+of our common stock. These provisions might also discourage a
+potential acquisition proposal or tender offer, even if the
+acquisition proposal or tender offer is at a price above the
+then current market price for our common stock. These provisions
+include the following:
+• 
+a board of directors that is classified so that
+only one-third of directors stand for election each year;
+• 
+authorization of “blank check”
+preferred stock, which our board of directors could issue with
+provisions designed to thwart a takeover attempt;
+• 
+limitations on the ability of stockholders to
+call special meetings of stockholders;
+• 
+a prohibition against stockholder action by
+written consent and a requirement that all stockholder actions
+be taken at a meeting of our stockholders; and
+• 
+advance notice requirements for nominations for
+election to our board of directors or for proposing matters that
+can be acted upon by stockholders at stockholder meetings.
+We adopted a stockholder rights plan in 1998
+under a stockholder rights agreement intended to protect
+stockholders against unsolicited attempts to acquire control of
+our company that do not offer what our board of directors
+believes to be an adequate price to all stockholders or that our
+board of directors otherwise opposes. As part of the plan, our
+board of directors declared a dividend that resulted in the
+issuance of one preferred share purchase right for each
+outstanding share of our common stock for a period of ten years.
+If a bidder proceeds with an unsolicited attempt to purchase our
+stock and acquires 20% or more (or announces its intention to
+acquire 20% or more) of our outstanding stock, and the board of
+directors does not redeem the preferred stock purchase right,
+the right will become exercisable at a price that significantly
+dilutes the interest of the bidder in our common stock.
+46
+Table of Contents 
+The effect of the stockholder rights plan is to
+make it more difficult to acquire our company without
+negotiating with the board of directors. However, the
+stockholder rights plan could discourage offers even if made at
+a premium over the market price of our common stock, and even if
+the stockholders might believe the transaction would benefit
+them.
+In addition, we are subject to Section 203
+of the Delaware General Corporation Law, which limits business
+combination transactions with 15% or greater stockholders that
+our board of directors has not approved. These provisions and
+other similar provisions make it more difficult for a third
+party to acquire us without negotiation. These provisions apply
+even if some stockholders would consider the transaction
+beneficial.
+Item 7A. 
+Quantitative and Qualitative Disclosures
+About Market Risk 
+Derivative
+Instruments. Although we have used
+foreign currency hedges in the past, we no longer utilize
+forward contracts or other derivative instruments to mitigate
+exposure to fluctuations in the foreign currency exchange rate
+as all of our purchases and sales for the foreseeable future
+will be denominated in U.S. currency.
+Although our sales are denominated in U.S.
+currency, our sales may be impacted by fluctuations in the
+exchange rates between the U.S. dollar and the local currencies
+in the international markets where our products are sold. If the
+United States dollar strengthens, it may result in increased
+pricing pressure on our distributors, which may have a negative
+impact on our net sales. We are unable to estimate the amount of
+any impact on sales attributed to pricing pressures caused by
+fluctuations in exchange rates.
+Market Risk. 
+Our market risk exposure with respect to financial instruments
+is to changes in the “prime rate” in the U.S. and
+changes in LIBOR. Our revolving line of credit and our term loan
+provide for interest on outstanding borrowings at rates tied to
+the prime rate or at our election tied to LIBOR. At
+December 31, 2003, we had no outstanding borrowings under
+the revolving line of credit and $7,000,000 outstanding
+borrowings under the term loan. A 1.00% increase in interest
+rates on our current borrowings would have a $70,000 impact on
+income (loss) before income taxes.
+Item 8. 
+Financial Statements and Supplementary
+Data 
+See Item 15(a) and page 48 for an index
+to the consolidated financial statements and supplementary
+information included herein.
+Item 9. 
+Changes in and Disagreements With
+Accountants on Accounting and Financial Disclosure 
+None.
+Item 9A. 
+Controls and Procedures 
+The Company’s Chief Executive Officer,
+Douglas B. Otto, and Chief Financial Officer, M. Scott Ash, with
+the participation of the Company’s management, carried out
+an evaluation of the effectiveness of the Company’s
+disclosure controls and procedures pursuant to Exchange Act
+Rule 13a-15(e). Based upon that evaluation, the Chief
+Executive Officer and the Chief Financial Officer believe that,
+as of the end of the period covered by this report, the
+Company’s disclosure controls and procedures are effective
+in making known to them material information relating to the
+Company (including its consolidated subsidiaries) required to be
+included in this report.
+Disclosure controls and procedures, no matter how
+well designed and implemented, can provide only reasonable
+assurance of achieving an entity’s disclosure objectives.
+The likelihood of achieving such objectives is affected by
+limitations inherent in disclosure controls and procedures.
+These include the fact that human judgment in decision-making
+can be faulty and that breakdowns in internal control can occur
+because of human failures such as simple errors, mistakes or
+intentional circumvention of the established processes.
+There was no change in the Company’s
+internal control over financial reporting, known to the Chief
+Executive Officer or the Chief Financial Officer, that occurred
+during the period covered by this report that has materially
+affected, or is reasonably likely to materially affect, the
+Company’s internal control over financial reporting.
+47
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
+FINANCIAL STATEMENT SCHEDULE 
+Page 
+Consolidated Financial Statements 
+Independent Auditors’ Report
+49 
+Consolidated Balance Sheets as of
+December 31, 2002 and 2003
+50 
+Consolidated Statements of Operations for each of
+the years in the three years ended December 31, 2003
+51 
+Consolidated Statements of Stockholders’
+Equity and Comprehensive Income (Loss) for each of the years in
+the three years ended December 31, 2003
+52 
+Consolidated Statements of Cash Flows for each of
+the years in the three years ended December 31, 2003
+53 
+Notes to Consolidated Financial Statements
+54 
+Consolidated Financial Statement
+Schedule 
+Valuation and Qualifying Accounts
+75 
+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.
+48
+Table of Contents 
+INDEPENDENT AUDITORS’ REPORT 
+The Board of Directors and Stockholders
+Deckers Outdoor Corporation:
+We have audited the accompanying consolidated
+financial statements of Deckers Outdoor Corporation and
+subsidiaries as listed in the accompanying index. In connection
+with our audits of the consolidated financial statements, we
+also have audited the financial statement schedule as listed in
+the accompanying index. These consolidated financial statements
+and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an
+opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with
+auditing standards generally accepted in the United States of
+America. 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, 2002 and 2003, and the
+results of their operations and their cash flows for each of the
+years in the three-year period ended December 31, 2003, in
+conformity with accounting principles generally accepted in the
+United States of America. 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.
+As discussed in note 13 to the consolidated
+financial statements, the Company adopted Statement of Financial
+Accounting Standards No. 142, Goodwill and Other
+Intangible Assets , on January 1, 2002.
+/s/ KPMG LLP
+Los Angeles, California
+February 26, 2004
+49
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+December 31, 2002 and 2003 
+2002 
+2003 
+Assets 
+Current assets:
+Cash and cash equivalents
+$ 
+3,941,000 
+$ 
+6,662,000 
+Trade accounts receivable, less allowance for
+doubtful accounts and sales discounts of $2,635,000 and
+$2,126,000 as of December 31, 2002 and 2003, respectively
+20,851,000 
+18,745,000 
+Inventories
+17,067,000 
+18,004,000 
+Prepaid expenses and other current assets
+783,000 
+694,000 
+Deferred tax assets
+1,919,000 
+2,137,000 
+Total current assets
+44,561,000 
+46,242,000 
+Property and equipment, at cost, net
+3,864,000 
+2,969,000 
+Trademarks, net
+51,152,000 
+51,152,000 
+Goodwill
+17,955,000 
+18,030,000 
+Intangible assets
+1,666,000 
+1,390,000 
+Deferred tax assets
+1,428,000 
+— 
+Other assets, net
+1,786,000 
+1,243,000 
+$ 
+122,412,000 
+$ 
+121,026,000 
+Liabilities and Stockholders’
+Equity 
+Current liabilities:
+Notes payable and current installments of
+long-term debt
+$ 
+3,951,000 
+$ 
+3,792,000 
+Trade accounts payable
+12,916,000 
+11,220,000 
+Reserve for returns
+1,255,000 
+1,245,000 
+Accrued sales commissions
+434,000 
+623,000 
+Accrued payroll
+1,908,000 
+2,657,000 
+Other accrued expenses
+912,000 
+434,000 
+Income tax payable
+732,000 
+3,468,000 
+Total current liabilities
+22,108,000 
+23,439,000 
+Long-term debt, less current installments
+35,077,000 
+26,495,000 
+Deferred tax liabilities
+— 
+568,000 
+Commitments and contingencies
+Stockholders’ equity:
+Series A preferred stock at liquidation
+preference, $0.01 par value. Authorized
+5,000,000 shares (1,375,000 designated as Series A);
+issued and outstanding 1,375,000 shares at
+December 31, 2002; no shares issued and outstanding at
+December 31, 2003
+5,500,000 
+— 
+Common stock, $0.01 par value. Authorized
+20,000,000 shares; issued 10,434,075 shares and
+outstanding 9,461,123 shares at December 31, 2002;
+issued 10,703,433 shares and outstanding
+9,730,481 shares at December 31, 2003
+95,000 
+97,000 
+Additional paid-in capital
+26,210,000 
+27,115,000 
+Retained earnings
+33,898,000 
+43,052,000 
+Accumulated other comprehensive income (loss)
+(476,000 
+) 
+260,000 
+Total stockholders’ equity
+65,227,000 
+70,524,000 
+$ 
+122,412,000 
+$ 
+121,026,000 
+See accompanying notes to consolidated financial
+statements.
+50
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+Three Years Ended December 31, 2001, 2002 and 2003 
+2001 
+2002 
+2003 
+Net sales
+$ 
+91,461,000 
+$ 
+99,107,000 
+$ 
+121,055,000 
+Cost of sales
+52,903,000 
+57,577,000 
+69,710,000 
+Gross profit
+38,558,000 
+41,530,000 
+51,345,000 
+Selling, general, and administrative expenses
+34,040,000 
+34,954,000 
+31,907,000 
+Litigation costs
+2,180,000 
+3,228,000 
+— 
+Income from operations
+2,338,000 
+3,348,000 
+19,438,000 
+Other expense (income):
+Interest expense (income), net
+(308,000 
+) 
+406,000 
+4,557,000 
+Other expense (income)
+(165,000 
+) 
+98,000 
+(3,000 
+) 
+(473,000 
+) 
+504,000 
+4,554,000 
+Income before income taxes and cumulative effect
+of a change in accounting principle
+2,811,000 
+2,844,000 
+14,884,000 
+Income taxes
+1,185,000 
+1,224,000 
+5,730,000 
+Income before cumulative effect of a change in
+accounting principle
+1,626,000 
+1,620,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit of $843,000
+— 
+(8,973,000 
+) 
+— 
+Net income (loss)
+1,626,000 
+(7,353,000 
+) 
+9,154,000 
+Less preferred stock redemption premium
+— 
+— 
+(438,000 
+) 
+Income (loss) applicable to common stockholders
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+Basic income (loss) per common share before
+cumulative effect of a change in accounting principle
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.96 
+) 
+— 
+Basic net income (loss) per common share
+$ 
+0.18 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+Diluted income (loss) per common share before
+cumulative effect of a change in accounting principle
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.92 
+) 
+— 
+Diluted net income (loss) per common share
+$ 
+0.17 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+Weighted average common shares:
+Basic
+9,247,000 
+9,328,000 
+9,610,000 
+Diluted
+9,661,000 
+9,806,000 
+11,880,000 
+See accompanying notes to consolidated financial
+statements.
+51
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND
+SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
+EQUITY AND COMPREHENSIVE INCOME (LOSS) 
+Three Years Ended December 31, 2001, 2002
+and 2003 
+Note 
+Accumulated 
+Receivable 
+Preferred Stock 
+Common Stock 
+Additional 
+Other 
+from 
+Total 
+Comprehensive 
+Paid-in 
+Retained 
+Comprehensive 
+Stockholder/ 
+Stockholders’ 
+Income 
+Shares 
+Amount 
+Shares 
+Amount 
+Capital 
+Earnings 
+Income 
+Former Officer 
+Equity 
+(Loss) 
+Balance at December 31, 2000
+— 
+— 
+9,135,977 
+$ 
+91,000 
+$ 
+25,003,000 
+$ 
+39,625,000 
+— 
+$ 
+(624,000 
+) 
+$ 
+64,095,000 
+Fair value of options issued under Teva license
+agreement (note 7)
+— 
+— 
+— 
+— 
+152,000 
+— 
+— 
+— 
+152,000 
+Common stock issued under stock incentive plan
+— 
+— 
+162,344 
+2,000 
+475,000 
+— 
+— 
+— 
+477,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+26,036 
+— 
+59,000 
+— 
+— 
+— 
+59,000 
+Net earnings
+— 
+— 
+— 
+— 
+— 
+1,626,000 
+— 
+— 
+1,626,000 
+$ 
+1,626,000 
+Unrealized gains on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+123,000 
+— 
+123,000 
+123,000 
+Total comprehensive income
+$ 
+1,749,000 
+Balance at December 31, 2001
+— 
+— 
+9,324,357 
+93,000 
+25,689,000 
+41,251,000 
+123,000 
+(624,000 
+) 
+66,532,000 
+Fair value of equity issued as consideration in
+the acquisition of Teva (note 12)
+1,375,000 
+$ 
+5,500,000 
+100,000 
+1,000 
+554,000 
+— 
+— 
+— 
+6,055,000 
+Fair value of options issued under Teva license
+agreement (note 7)
+— 
+— 
+— 
+— 
+111,000 
+— 
+— 
+— 
+111,000 
+Common stock issued under stock incentive plan
+— 
+— 
+124,896 
+2,000 
+442,000 
+— 
+— 
+— 
+444,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+11,870 
+— 
+37,000 
+— 
+— 
+— 
+37,000 
+Net loss
+— 
+— 
+— 
+— 
+— 
+(7,353,000 
+) 
+— 
+— 
+(7,353,000 
+) 
+$ 
+(7,353,000 
+) 
+Write off of note receivable from
+stockholder/former officer
+— 
+— 
+(100,000 
+) 
+(1,000 
+) 
+(623,000 
+) 
+— 
+— 
+624,000 
+— 
+Foreign currency translation adjustment
+— 
+— 
+— 
+— 
+— 
+— 
+130,000 
+— 
+130,000 
+130,000 
+Unrealized losses on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+(729,000 
+) 
+— 
+(729,000 
+) 
+(729,000 
+) 
+Total comprehensive loss
+$ 
+(7,952,000 
+) 
+Balance at December 31, 2002
+1,375,000 
+5,500,000 
+9,461,123 
+95,000 
+26,210,000 
+33,898,000 
+(476,000 
+) 
+— 
+65,227,000 
+Repurchase preferred stock (note 6)
+(1,375,000 
+) 
+(5,500,000 
+) 
+— 
+— 
+(438,000 
+) 
+— 
+— 
+— 
+(5,938,000 
+) 
+Common stock issued under stock incentive plan
+— 
+— 
+262,577 
+2,000 
+874,000 
+— 
+— 
+— 
+876,000 
+Tax benefit attributable to stock options
+— 
+— 
+— 
+— 
+445,000 
+— 
+— 
+— 
+445,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+6,781 
+— 
+24,000 
+— 
+— 
+— 
+24,000 
+Net income
+— 
+— 
+— 
+— 
+— 
+9,154,000 
+— 
+— 
+9,154,000 
+$ 
+9,154,000 
+Foreign currency translation adjustment and
+reversal of unrealized hedging losses
+— 
+— 
+— 
+— 
+— 
+— 
+736,000 
+— 
+736,000 
+736,000 
+Total comprehensive income
+$ 
+9,890,000 
+Balance at December 31, 2003
+— 
+$ 
+— 
+9,730,481 
+$ 
+97,000 
+$ 
+27,115,000 
+$ 
+43,052,000 
+$ 
+260,000 
+— 
+$ 
+70,524,000 
+See accompanying notes to consolidated financial
+statements.
+52
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND
+SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH
+FLOWS 
+Three Years Ended December 31, 2001, 2002
+and 2003 
+2001 
+2002 
+2003 
+Cash flows from operating activities:
+Net income (loss)
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+Adjustments to reconcile net income (loss) to net
+cash provided by operating activities:
+Cumulative effect of accounting change
+— 
+8,973,000 
+— 
+Depreciation and amortization of property and
+equipment
+1,492,000 
+1,535,000 
+1,463,000 
+Amortization of intangible assets
+2,085,000 
+1,049,000 
+276,000 
+Provision for doubtful accounts
+1,658,000 
+1,785,000 
+504,000 
+Write-offs of inventory
+1,361,000 
+1,099,000 
+1,329,000 
+Gain on sale of Heirlooms
+(185,000 
+) 
+— 
+— 
+Loss on disposal of assets
+10,000 
+23,000 
+3,000 
+Loss on write-down of assets
+— 
+— 
+59,000 
+Deferred tax provision
+(444,000 
+) 
+656,000 
+1,752,000 
+Stock compensation
+227,000 
+192,000 
+119,000 
+Tax benefit attributable to stock options
+— 
+— 
+445,000 
+Changes in assets and liabilities:
+(Increase) decrease in:
+Trade accounts receivable
+784,000 
+(2,224,000 
+) 
+1,602,000 
+Inventories
+(3,373,000 
+) 
+650,000 
+(2,266,000 
+) 
+Prepaid expenses and other current assets
+(594,000 
+) 
+943,000 
+89,000 
+Refundable income taxes
+(961,000 
+) 
+995,000 
+— 
+Other assets
+275,000 
+286,000 
+543,000 
+Increase (decrease) in:
+Trade accounts payable
+5,951,000 
+(844,000 
+) 
+(1,696,000 
+) 
+Accrued expenses
+1,137,000 
+(1,056,000 
+) 
+669,000 
+Income taxes payable
+— 
+732,000 
+2,736,000 
+Net cash provided by operating activities
+11,049,000 
+7,441,000 
+16,781,000 
+Cash flows from investing activities:
+Cash paid for acquisition of Teva
+— 
+(43,254,000 
+) 
+(75,000 
+) 
+Proceeds from sale of property and equipment
+18,000 
+— 
+33,000 
+Purchase of property and equipment
+(2,455,000 
+) 
+(1,477,000 
+) 
+(663,000 
+) 
+Proceeds from the sale of Heirlooms
+599,000 
+— 
+— 
+Cash paid for intangible assets
+(1,566,000 
+) 
+— 
+— 
+Net cash used in investing activities
+(3,404,000 
+) 
+(44,731,000 
+) 
+(705,000 
+) 
+Cash flows from financing activities:
+Borrowings under line of credit
+— 
+19,075,000 
+42,706,000 
+Repayments under line of credit
+— 
+(14,300,000 
+) 
+(47,481,000 
+) 
+Proceeds from issuance of long-term debt
+— 
+21,000,000 
+— 
+Repayments of long-term debt
+(402,000 
+) 
+(290,000 
+) 
+(4,159,000 
+) 
+Cash payments of loan fees
+— 
+(1,343,000 
+) 
+— 
+Cash paid for repurchase of preferred stock
+— 
+— 
+(5,938,000 
+) 
+Cash received from issuances of common stock
+389,000 
+400,000 
+781,000 
+Net cash provided by (used in) financing
+activities
+(13,000 
+) 
+24,542,000 
+(14,091,000 
+) 
+Effect of exchange rates on cash
+— 
+— 
+736,000 
+Net increase (decrease) in cash and cash
+equivalents
+7,632,000 
+(12,748,000 
+) 
+2,721,000 
+Cash and cash equivalents at beginning of year
+9,057,000 
+16,689,000 
+3,941,000 
+Cash and cash equivalents at end of year
+$ 
+16,689,000 
+$ 
+3,941,000 
+$ 
+6,662,000 
+Supplemental disclosure of cash flow information:
+Cash paid during the year for:
+Interest
+$ 
+112,000 
+$ 
+264,000 
+$ 
+3,640,000 
+Income taxes
+$ 
+3,308,000 
+$ 
+836,000 
+$ 
+1,607,000 
+Supplemental disclosure of noncash investing and
+financing activities:
+In 2002, the Company issued to the seller
+1,375,000 shares of Series A preferred stock with a
+value of $5,500,000, 100,000 shares of common stock with a
+value of $368,000, options to purchase 100,000 shares of
+common stock with a value of $187,000 and $13,000,000 of
+long-term debt in connection with the acquisition of Teva.
+See accompanying notes to consolidated financial
+statements.
+53
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements 
+December 31, 2002 and 2003
+(1) 
+The Company and Summary of Significant
+Accounting Policies 
+(a) 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”). All intercompany balances and transactions
+have been eliminated in consolidation.
+The Company builds niche products into global
+lifestyle brands by designing and marketing innovative,
+functional and fashion-oriented footwear, developed for both
+high performance outdoor activities and everyday casual
+lifestyle use.
+(b) Inventories 
+Inventories, principally finished goods, are
+stated at the lower of cost (first-in, first-out) or market (net
+realizable value). Market values are determined by historical
+experience with discounted sales, industry trends and the retail
+environment.
+(c) Revenue
+Recognition 
+The Company recognizes revenue when products are
+shipped and the customer takes title and assumes risk of loss,
+collection of relevant receivable is probable, persuasive
+evidence of an arrangement exists, and the sales price is fixed
+or determinable. Allowances for estimated returns, discounts,
+and bad debts are provided for when related revenue is recorded.
+Amounts billed for shipping and handling costs are recorded as a
+component of net sales, totaling $1,116,000, $993,000, and
+$2,041,000 for the years ended December 31, 2001, 2002, and
+2003, respectively. Related costs paid to third-party shipping
+companies are recorded as a cost of sales, totaling $983,000,
+$1,124,000, and $2,057,000 for the years ended December 31,
+2001, 2002, and 2003, respectively.
+(d) Goodwill
+and Other Intangibles Assets 
+Intangible assets consist primarily of goodwill,
+trademarks, patents, and noncompete covenants arising from the
+application of purchase accounting. On January 1, 2002, the
+Company adopted Statement of Financial Accounting Standards
+(“SFAS”) No. 142, Goodwill and Other
+Intangible Assets (“SFAS 142”). Accordingly,
+goodwill and intangible assets with indefinite useful lives are
+no longer amortized, but instead tested for impairment at least
+annually in accordance with the provisions of SFAS No. 142.
+Intangible assets with estimable useful lives are amortized over
+their respective estimated useful lives to their estimated
+residual values and reviewed for impairment in accordance with
+SFAS No. 144, Accounting for Impairment or Disposal of
+Long-Lived Assets (“SFAS 144”).
+In connection with the implementation of
+SFAS 142, a goodwill impairment charge of $8,973,000 (net
+of related income tax benefit of $843,000) was recorded for the
+year ended December 31, 2002.
+(e) Impairment
+of Long-Lived Assets 
+SFAS 144 provides a single accounting model
+for long-lived assets to be disposed of. SFAS 144 also
+changes the criteria for classifying an asset as held for sale
+and broadens the scope of businesses to be disposed of that
+qualify for reporting as discontinued operations and changes the
+timing of recognizing losses on such operations. The Company
+adopted SFAS 144 on January 1, 2002. The adoption of
+SFAS 144 did not have a significant impact on the
+Company’s consolidated financial statements.
+54
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In accordance with SFAS 144, long-lived
+assets, such as property, plant, 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 of an asset to estimated
+undiscounted future cash flows expected to be generated by the
+asset. If the carrying amount of an asset exceeds its estimated
+future cash flows, an impairment charge is recognized by the
+amount by which the carrying amount of the asset exceeds the
+fair value of the asset.
+Prior to the adoption of SFAS No. 144,
+the Company accounted for long-lived assets in accordance with
+SFAS No. 121, Accounting for Impairment of
+Long-Lived Assets and for Long-Lived Assets to Be Disposed
+Of. 
+(f) Depreciation
+and Amortization 
+Depreciation of property and equipment is
+computed using the straight-line method based on estimated
+useful lives ranging from one to seven years. Leasehold
+improvements are amortized on the straight-line basis over their
+estimated economic useful lives or the lease term, whichever is
+shorter.
+(g) Fair
+Value of Financial Instruments 
+The fair values of the Company’s cash
+equivalents, trade accounts receivable, prepaid expenses and
+other current assets, refundable income taxes, trade accounts
+payable, and accrued expenses approximate the carrying values
+due to the relatively short maturities of these instruments.
+The fair value of the Company’s revolving
+credit line approximates the carrying value due to variable
+interest rates associated with the credit line.
+The fair values of the Company’s other notes
+payable are estimated by discounting future cash flows of each
+instrument at rates currently available to the Company for
+similar debt instruments of comparable maturities by the
+Company’s bankers. The fair values of these notes
+approximate the carrying value.
+The fair value of the guarantee of officer’s
+debt is estimated based on the expected present value (see
+note 8).
+(h) Stock
+Compensation 
+The Company accounts for stock-based compensation
+under the provisions of Statement of Financial Accounting
+Standards No. 123, Accounting for Stock-Based
+Compensation (“SFAS 123”), as amended by
+SFAS 148. Under the provisions of SFAS 123 and
+SFAS 148, the Company has elected to continue to measure
+compensation cost for employees and nonemployee directors of the
+Company under the intrinsic value method of APB No. 25 and
+comply with the pro forma disclosure requirements under
+SFAS 123 and SFAS 148. The Company applies the fair
+value techniques of SFAS 123 and SFAS 148 to measure
+compensation cost for options/warrants granted to nonemployees.
+55
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The following table illustrates the effects on
+net income (loss) if the fair value-based method had been
+applied to all outstanding and unvested awards in each period.
+2001 
+2002 
+2003 
+Net income (loss), as reported
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+Add stock-based employee compensation expense
+included in reported net income, net of tax
+132,000 
+109,000 
+73,000 
+Deduct total stock-based employee compensation
+expense under fair value-based method for all awards, net of tax
+(598,000 
+) 
+(494,000 
+) 
+(596,000 
+) 
+Pro forma net income (loss)
+$ 
+1,160,000 
+$ 
+(7,738,000 
+) 
+$ 
+8,631,000 
+Pro forma net income (loss) per share:
+Basic
+$ 
+0.13 
+$ 
+(0.83 
+) 
+$ 
+0.85 
+Diluted
+$ 
+0.12 
+$ 
+(0.79 
+) 
+$ 
+0.74 
+(i) 
+Use of Estimates 
+Management of the Company has made a number of
+estimates and assumptions relating to the reporting of assets,
+liabilities, net sales, and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated
+financial statements in conformity with accounting principles
+generally accepted in the U.S. Significant areas requiring the
+use of management estimates relate to inventory reserves,
+allowances for bad debts, returns and discounts, impairment
+assessments and charges, deferred taxes, depreciation and
+amortization, litigation reserves, fair value of financial
+instruments, fair value of acquired intangibles, assets and
+liabilities, and hedging activities. Actual results could differ
+from these estimates.
+(j) Research
+and Development Costs 
+Research and development costs are charged to
+expense as incurred. Such costs amounted to $1,034,000,
+$1,092,000, and $1,099,000 in 2001, 2002, and 2003, respectively.
+(k) 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 2001,
+2002, and 2003 were $6,087,000, $7,456,000, and $6,594,000,
+respectively. Included in prepaid and other current assets at
+December 31, 2002 and 2003 were $403,000 and $221,000,
+respectively, related to prepaid advertising and promotion
+expenses for programs to take place after December 31, 2002
+and 2003, respectively.
+(l) Income
+Taxes 
+Income taxes are accounted for under the asset
+and liability method. Deferred tax assets and liabilities are
+recognized for the future tax consequences attributable to
+differences between the financial statement carrying amounts of
+existing assets and liabilities and their respective tax bases.
+Deferred tax assets and liabilities are measured using enacted
+tax rates expected to apply to taxable income in the years in
+which those temporary differences are expected to be recovered
+or settled. The effect on deferred taxes of a change in tax
+rates is recognized in income in the period that includes the
+enactment date.
+56
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+(m) Income
+(Loss) per Share 
+Basic income (loss) per share
+(“EPS”) is computed by dividing net income (loss)
+available to common stockholders by the weighted average number
+of common shares outstanding for the period. Diluted EPS
+reflects the potential dilution from securities that could share
+in the earnings of the Company. Antidilutive securities are
+excluded from diluted EPS.
+The reconciliations of basic to diluted weighted
+average shares are as follows:
+2001 
+2002 
+2003 
+Income (loss) used for basic and diluted income
+(loss) per share:
+Income before cumulative effect of a change in
+accounting principle
+$ 
+1,626,000 
+$ 
+1,620,000 
+$ 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+— 
+(8,973,000 
+) 
+— 
+Net income (loss)-diluted
+1,626,000 
+(7,353,000 
+) 
+9,154,000 
+Less redemption premium on preferred stock
+— 
+— 
+(438,000 
+) 
+Net income (loss) available for common
+stockholders-basic
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+Weighted average shares used in basic computation
+9,247,000 
+9,328,000 
+9,610,000 
+Dilutive effect of stock options
+414,000 
+327,000 
+882,000 
+Dilutive effect of convertible preferred stock
+— 
+151,000 
+1,388,000 
+Weighted average shares used for diluted
+computation
+9,661,000 
+9,806,000 
+11,880,000 
+The dilutive effect of convertible preferred
+stock above relates to preferred stock that was outstanding
+between November 25, 2002 and December 3, 2003. The
+Company repurchased all of the outstanding preferred stock on
+December 3, 2003.
+Options to purchase 282,000, 286,000 and
+217,000 shares of common stock at prices ranging from $5.25
+to $9.88, $4.80 to $9.88 and $9.88 to $19.00, were outstanding
+during 2001, 2002 and 2003, respectively, but were not included
+in the computation of diluted earnings per share because the
+options’ exercise price was greater than the average market
+price of the common shares during the respective periods, and
+therefore their inclusion would be antidilutive.
+(n) 
+Foreign Currency Translation 
+The Company considers the U.S. dollar as the
+functional currency. Assets and liabilities of the foreign
+operations denominated in local currencies are translated at the
+rate of exchange at the balance sheet date. Net sales and
+expenses are translated at the weighted average rate of exchange
+during the period.
+(o) 
+Hedging Activities 
+The Company may enter into foreign currency
+forward contracts in the ordinary course of business to mitigate
+the risk associated with foreign exchange rate fluctuations
+related to sales of goods in Eurodollars.
+57
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Derivative financial instruments are not used for
+speculative purposes. At December 31, 2003, the Company had
+no foreign currency forward contracts.
+In accordance with Statement of Financial
+Accounting Standards No. 133, Accounting for Derivative
+Instruments and Hedging Activities , these foreign currency
+cash flow hedges are recorded at fair value in the accompanying
+balance sheet with unrealized gains and losses on outstanding
+foreign currency forward contracts recorded in the financial
+statements as a component of other comprehensive income, net of
+deferred taxes, to the extent they are effective hedges. When
+the transaction occurs, the effective portion of the gain or
+loss from the derivative designated as a hedge of the
+transaction is reclassified from accumulated other comprehensive
+income to the same statement of operations line item affected by
+the hedged forecasted transaction due to foreign currency
+fluctuations. Any terminated derivatives or ineffective portion
+of gains and losses resulting from changes in the fair value of
+the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+(p) Comprehensive Income (Loss) 
+Comprehensive income is the total of net earnings
+(loss) and all other nonowner changes in equity. Except for net
+income (loss), foreign currency translation adjustments, and
+unrealized gains and losses as a result of hedging activities,
+the Company does not have any transactions and other economic
+events that qualify as comprehensive income as defined under
+SFAS No. 130.
+(q) Business Segment Reporting 
+Management of the Company has determined its
+reportable segments are strategic business units. The four
+reportable segments are the Teva, UGG and Simple wholesale
+divisions and the Company’s Internet and catalog retailing
+business. Information related to these segments is summarized in
+note 10.
+(r) Reclassifications 
+Certain reclassifications have been made to the
+2001 and 2002 balances to conform to the 2003 presentation.
+(s) New Accounting Standards 
+In June 2001, Financial Accounting Standards
+Board, or FASB, issued SFAS No. 143, Accounting for
+Asset Retirement Obligations . SFAS No. 143
+requires the Company to record the fair value of an asset
+retirement obligation as a liability in the period in which it
+incurs a legal obligation associated with the retirement of
+tangible long-lived assets that result from the acquisition,
+construction, development, and/or normal use of the assets. The
+Company also records a corresponding asset that is depreciated
+over the life of the asset. Subsequent to the initial
+measurement of the asset retirement obligation, the obligation
+will be adjusted at the end of each period to reflect the
+passage of time and changes in the estimated future cash flows
+underlying the obligation. The Company adopted
+SFAS No. 143 on January 1, 2003. The adoption of
+SFAS No. 143 did not have a material effect on the
+Company’s consolidated financial position or results from
+operations.
+Effective January 1, 2002, the Company
+adopted SFAS No. 144, Accounting for the Impairment or
+Disposal of Long-Lived Assets , which addresses financial
+accounting and reporting for the impairment or disposal of
+long-lived assets. While SFAS No. 144 supersedes SFAS
+No. 121, Accounting for the Impairment of Long-Lived
+Assets and for Long-Lived Assets to Be Disposed Of , it
+retains many of the fundamental provisions of that statement.
+The adoption of this standard did not have a material impact on
+the Company’s consolidated financial position or results
+from operations.
+58
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In April 2002, the FASB issued
+SFAS No. 145, Rescission of FASB Statements
+No. 4, 44, and 64, Amendment of FASB Statement No. 13,
+and Technical Corrections . SFAS No. 145 amends
+existing guidance on reporting gains and losses on the
+extinguishment of debt to prohibit the classification of the
+gain or loss as extraordinary, as the use of such
+extinguishments have become part of the risk management strategy
+of many companies. SFAS No. 145 also amends
+SFAS No. 13 to require sale-leaseback accounting for
+certain lease modifications that have economic effects similar
+to sale-leaseback transactions. The provisions of the Statement
+related to the rescission of Statement No. 4 is applied in
+fiscal years beginning after May 15, 2002. The Company
+adopted SFAS No. 145 on January 1, 2003. The adoption
+of SFAS No. 145 did not have a material effect on the
+Company’s consolidated financial position or results from
+operations.
+In June 2002, the FASB issued
+SFAS No. 146, Accounting for Costs Associated with
+Exit or Disposal Activities . SFAS No. 146
+addresses financial accounting and reporting for costs
+associated with exit or disposal activities and nullifies
+Emerging Issues Task Force Issue 94-3, Liability
+Recognition for Certain Employee Termination Benefits and Other
+Costs to Exit an Activity . The provisions of this Statement
+are effective for exit or disposal activities that are initiated
+after December 31, 2002, with early application encouraged.
+The adoption of SFAS No. 146 did not have a material
+effect on the Company’s consolidated financial position or
+results from operations.
+In November 2002, the FASB issued Interpretation
+No. 45, Guarantor’s Accounting and Disclosure
+Requirements for Guarantees, Including Indirect Guarantees of
+Indebtedness to Others, an interpretation of FASB Statements
+No. 5, 57, and 107 and a rescission of FASB Interpretation
+No. 34 . This Interpretation elaborates on the
+disclosures to be made by a guarantor in its interim and annual
+financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is
+required to recognize, at inception of a guarantee, a liability
+for the fair value of the obligation undertaken. The initial
+recognition and measurement provisions of the Interpretation are
+applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material
+effect on the Company’s consolidated financial position or
+results from operations. The disclosure requirements are
+effective for financial statements of interim and annual periods
+ending after December 31, 2002 and are included in the
+notes to these consolidated financial statements.
+In December 2002, the FASB issued
+SFAS No. 148, Accounting for Stock-Based
+Compensation — Transition and Disclosure, an amendment
+of FASB Statement No. 123 . This Statement amends FASB
+Statement No. 123, Accounting for Stock-Based
+Compensation , to provide alternative methods of transition
+for a voluntary change to the fair value method of accounting
+for stock-based employee compensation. In addition, this
+Statement amends the disclosure requirements of Statement
+No. 123 to require prominent disclosures in both annual and
+interim financial statements. Certain of the disclosure
+modifications are required for fiscal years ending after
+December 15, 2002 and are included in the notes to these
+consolidated financial statements.
+In January 2003, the FASB issued Interpretation
+No. 46, Consolidation of Variable Interest Entities ,
+an interpretation of ARB No. 51. This Interpretation
+addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The
+Interpretation generally applies immediately to variable
+interests in variable interest entities created after
+January 31, 2003 and to variable interests in variable
+interest entities obtained after January 31, 2003. The
+application of this Interpretation did not have a material
+effect on the Company’s consolidated financial position or
+results of operation. In December 2003, the FASB revised
+FIN 46 to exempt certain entities from its requirements and
+to clarify certain issues arising during the implementation of
+FIN 46. The adoption of this revised interpretation in the
+first quarter of 2004 is not expected to have any impact on our
+consolidated financial statements.
+In May 2003, the FASB issued
+SFAS No. 150 “Accounting for Certain Financial
+Instruments with Characteristics of both Liabilities and
+Equity.” SFAS No. 150 establishes standards for
+how a company
+59
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+classifies and measures certain financial
+instruments with characteristics of both liabilities and equity.
+It requires that companies classify a financial instrument that
+is within its scope as a liability (or an asset in some
+circumstances). Many of those instruments were previously
+classified as equity. The provisions of this Statement are
+generally effective for financial instruments entered into or
+modified after May 31, 2003, and otherwise are effective at
+the beginning of the first interim period beginning after
+June 15, 2003. The adoption of this Statement did not have
+a material effect on the Company’s consolidated financial
+position or results of operation.
+(2) 
+Retirement Plan 
+Effective August 1, 1992, the Company
+established a 401(k) defined contribution plan. Substantially
+all employees are eligible to participate in the plan through
+tax-deferred contributions. The Company matches 50% of an
+employee’s contribution up to $1,200 per year.
+Matching contributions totaled $67,000, $90,000 and $67,000
+during 2001, 2002 and 2003, respectively. In addition, the
+Company may also make discretionary profit sharing contributions
+to the plan. The Company did not make profit sharing
+contributions for the years ended December 31, 2001, 2002
+or 2003.
+(3) 
+Property and Equipment 
+Property and equipment is summarized as follows:
+2002 
+2003 
+Machinery and equipment
+$ 
+7,609,000 
+$ 
+5,602,000 
+Furniture and fixtures
+1,031,000 
+663,000 
+Leasehold improvements
+1,087,000 
+724,000 
+9,727,000 
+6,989,000 
+Less accumulated depreciation and amortization
+5,863,000 
+4,020,000 
+Net property and equipment
+$ 
+3,864,000 
+$ 
+2,969,000 
+During 2003, the Company wrote-off certain fully
+depreciated assets with an original cost of $3,402,000.
+(4) 
+Notes Payable and Long-Term Debt 
+Notes payable and long-term debt consists of the
+following:
+2002 
+2003 
+Revolving line of credit with Comerica Bank
+(described below)
+$ 
+4,775,000 
+$ 
+— 
+Term loan with Comerica Bank, secured by all
+assets of the Company, interest (4.37% at December 31,
+2003) at Bank’s base rate or LIBOR plus a margin, as
+defined, principal payment of $1,750,000 due on May 31,
+2004 with equal monthly payments of $292,000 beginning
+June 30, 2004, with final payment due on November 25,
+2005
+7,000,000 
+7,000,000 
+60
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2002 
+2003 
+Secured subordinated note, payable in quarterly
+principal installments of $1,500,000 beginning November 2007,
+interest at a rate of 16.75%, of which 12.00% is payable monthly
+and 4.75% is payable at maturity, compounded monthly, due
+November 2008. A prepayment penalty ranging from 4.00% to 5.00%
+is incurred for any portion repaid prior to November 2004
+14,068,000 
+10,000,000 
+Unsecured junior subordinated 9.00% note
+payable to the seller of Teva, interest payable in annual
+installments at a rate of 7.00% through November 2008. Principal
+and additional interest of 2.00% are due in November 2008,
+compounded annually
+13,026,000 
+13,287,000 
+Unsecured note payable in quarterly installments
+of $49,200, including interest at a rate of 7.93%, due December
+2003
+159,000 
+— 
+39,028,000 
+30,287,000 
+Less current installments
+3,951,000 
+3,792,000 
+$ 
+35,077,000 
+$ 
+26,495,000 
+The aggregate maturities of long-term debt as of
+December 31, 2003 are as follows:
+2004
+$ 
+3,792,000 
+2005
+3,208,000 
+2006
+— 
+2007
+1,500,000 
+2008
+21,787,000 
+Total
+$ 
+30,287,000 
+We amended the Facility with Comerica
+Bank-California (the “Bank”) in November 2003. As
+amended, the Facility expires June 1, 2005 and provides for
+a maximum availability of $20,000,000 subject to a borrowing
+base. In general, the borrowing base is equal to 75% of eligible
+accounts receivable, as defined, and 50% of eligible inventory,
+as defined. The accounts receivable advance rate can increase or
+decrease depending on our accounts receivable dilution, which is
+calculated periodically. Up to $10,000,000 of borrowings may be
+in the form of letters of credit. The Facility bears interest at
+the Bank’s prime rate (4.00% at December 31, 2003) or
+at our option, at LIBOR plus 1.00% to 2.50%, depending on our
+ratio of liabilities to earnings before interest, taxes,
+depreciation and amortization (“EBITDA”), and is
+secured by substantially all assets. The Facility included an
+upfront fee of $230,000 and includes subsequent annual
+commitment fees of $100,000. At December 31, 2003, the
+Company had no outstanding borrowings under the Facility, no
+foreign currency reserves for outstanding forward contracts and
+no outstanding letters of credit. We had credit availability
+under the Facility of $19,283,000 at December 31, 2003.
+The agreements underlying the Facility, the Term
+Loan, and the Subordinated Note contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and cash flow coverage requirements, among others.
+The Company was in compliance with all covenants at
+December 31, 2003.
+61
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The unsecured junior subordinated note payable to
+the seller of Teva is payable to a current stockholder of the
+Company, Mark Thatcher. This note provides the holder with the
+right to designate one member of the Board of Directors.
+(5) 
+Income Taxes 
+Components of income taxes are as follows:
+Federal 
+State 
+Total 
+2001:
+Current
+$ 
+1,392,000 
+$ 
+394,000 
+$ 
+1,786,000 
+Deferred
+(465,000 
+) 
+(136,000 
+) 
+(601,000 
+) 
+$ 
+927,000 
+$ 
+258,000 
+$ 
+1,185,000 
+2002:
+Current
+$ 
+575,000 
+$ 
+(7,000 
+) 
+$ 
+568,000 
+Deferred
+493,000 
+163,000 
+656,000 
+$ 
+1,068,000 
+$ 
+156,000 
+$ 
+1,224,000 
+2003:
+Current
+$ 
+3,495,000 
+$ 
+483,000 
+$ 
+3,978,000 
+Deferred
+1,334,000 
+418,000 
+1,752,000 
+$ 
+4,829,000 
+$ 
+901,000 
+$ 
+5,730,000 
+Foreign income tax expenses (primarily current)
+were $289,000, $522,000 and $1,452,000 during the years ended
+December 31, 2001, 2002 and 2003, respectively, and are
+included in federal current tax expenses above.
+Actual income taxes differed from that obtained
+by applying the statutory federal income tax rate to earnings
+before income taxes as follows:
+2001 
+2002 
+2003 
+Computed “expected” income taxes
+$ 
+956,000 
+$ 
+967,000 
+$ 
+5,060,000 
+State income taxes, net of federal income tax
+benefit
+164,000 
+166,000 
+623,000 
+Other
+65,000 
+91,000 
+47,000 
+$ 
+1,185,000 
+$ 
+1,224,000 
+$ 
+5,730,000 
+62
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The tax effects of temporary differences that
+give rise to significant portions of deferred tax assets and
+deferred tax liabilities at December 31, 2002 and 2003 are
+presented below:
+2002 
+2003 
+Deferred tax assets, current:
+Uniform capitalization adjustment to inventory
+$ 
+448,000 
+$ 
+483,000 
+Bad debt and other reserves
+1,580,000 
+1,576,000 
+State taxes
+(171,000 
+) 
+78,000 
+Other
+62,000 
+— 
+Total deferred tax assets, current
+1,919,000 
+2,137,000 
+Deferred tax assets, noncurrent:
+Amortization of intangible assets
+956,000 
+— 
+Depreciation of property and equipment
+472,000 
+— 
+Total deferred tax assets, noncurrent
+1,428,000 
+— 
+Deferred tax liabilities, noncurrent:
+Amortization of intangible assets
+— 
+(224,000 
+) 
+Depreciation of property and equipment
+— 
+(344,000 
+) 
+Total deferred tax liabilities, noncurrent
+— 
+(568,000 
+) 
+Net deferred tax assets
+$ 
+3,347,000 
+$ 
+1,569,000 
+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.
+(6) 
+Stockholders’ Equity 
+The Company is authorized to issue
+5,000,000 shares of preferred stock with a par value of
+$0.01, of which 1,375,000 shares are designated as
+Series A Preferred Stock. The 1,375,000 shares of
+Series A Preferred Stock were issued to Mark Thatcher in
+connection with the acquisition of Teva (note 12). In
+December 2003, the Company redeemed all of the outstanding
+Preferred Stock. In connection with the redemption, the Company
+paid Mr. Thatcher a premium of approximately $438,000,
+which was recorded as a reduction of additional paid-in capital.
+The premium reduced income (loss) applicable to common
+stockholders and, therefore is reflected in the income (loss)
+per share calculations.
+In February 2001, the Company amended the 1993
+Stock Incentive Plan (the “1993 Plan”). Under the
+terms of the amended 1993 Plan, 3,000,000 shares of common
+stock are reserved for issuance to officers, directors,
+employees, and consultants of the Company. Awards to 1993 Plan
+participants are not restricted to any specified form and may
+include stock options, securities convertible into or redeemable
+for stock, stock appreciation rights, stock purchase warrants,
+or other rights to acquire stock. Under the 1993 Plan, 162,344,
+124,896 and 262,577 shares of common stock were issued to
+employees in 2001, 2002, and 2003, respectively. In 1997,
+100,000 shares of common stock were issued under the 1993
+plan to a former officer of the Company, which was financed
+through the issuance of a note receivable of $624,000 to such
+officer (bearing interest at 6.39%, secured by the underlying
+Company stock, with principal and interest due April 18,
+2002). The former officer returned the Company’s common
+stock and the note receivable was reversed in 2002.
+63
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Common stock option activity under the 1993 Plan
+for the years ended December 31, 2001, 2002 and 2003 is as
+follows:
+Weighted 
+Average 
+Exercise 
+Shares 
+Price 
+Outstanding at December 31, 2000
+1,278,900 
+$ 
+3.66 
+Granted
+584,800 
+3.90 
+Exercised
+(147,500 
+) 
+2.24 
+Canceled
+(135,400 
+) 
+4.61 
+Outstanding at December 31, 2001
+1,580,800 
+3.80 
+Granted
+624,400 
+4.13 
+Exercised
+(107,900 
+) 
+2.32 
+Canceled
+(165,300 
+) 
+3.26 
+Outstanding at December 31, 2002
+1,932,000 
+4.04 
+Granted
+206,000 
+18.75 
+Exercised
+(238,100 
+) 
+3.19 
+Canceled
+(125,400 
+) 
+7.51 
+Outstanding at December 31, 2003
+1,774,500 
+5.62 
+Options exercisable at December 31, 2001
+854,000 
+4.17 
+Options exercisable at December 31, 2002
+1,245,900 
+4.07 
+Options exercisable at December 31, 2003
+1,168,800 
+4.36 
+The per share weighted average fair value of
+stock options granted during 2001, 2002, and 2003 was $2.13,
+$2.25, and $10.83, respectively, on the date of grant using the
+Black-Scholes option pricing model with the following weighted
+average assumptions: 2001 — expected dividend yield of
+0%, stock volatility of 49.56%, risk-free interest rate of
+3.30%, and an expected life of seven years; 2002 —
+expected dividend yield of 0%, stock volatility of 48.46%,
+risk-free interest rate of 3.70%, and an expected life of seven
+years; 2003 — expected dividend yield of 0%, stock
+volatility of 51.70%, risk-free interest rate of 3.70%, and an
+expected life of seven years.
+64
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The following table summarizes information about
+stock options outstanding and exercisable at December 31,
+2003.
+Options Outstanding 
+Options Exercisable 
+Weighted 
+Weighted 
+Weighted 
+Number 
+Average 
+Average 
+Number 
+Average 
+Range of 
+Outstanding 
+Remaining 
+Exercise 
+Exercisable at 
+Exercise 
+Exercise Price 
+December 31, 2003 
+Contractual Life 
+Price 
+December 31, 2003 
+Price 
+$1.56 to $3.19
+391,000 
+5.13 years 
+$ 
+2.24 
+391,000 
+$ 
+2.24 
+$3.50 to $3.76
+401,500 
+7.93 years 
+3.61 
+269,200 
+3.60 
+$4.03 to $4.80
+585,000 
+8.12 years 
+4.23 
+273,200 
+4.21 
+$5.25 to $9.88
+195,000 
+4.37 years 
+6.83 
+195,000 
+6.83 
+$19.00
+202,000 
+9.92 years 
+19.00 
+40,400 
+19.00 
+1,774,500 
+7.21 years 
+5.62 
+1,168,800 
+4.36 
+In August 1995, the Company adopted the 1995
+Employee Stock Purchase Plan (the “1995 Plan”). The
+1995 Plan is intended to qualify as an Employee Stock Purchase
+Plan under Section 423 of the Internal Revenue Code. Under
+the terms of the 1995 Plan, as amended, 300,000 shares of
+common stock are reserved for issuance to employees who have
+been employed by the Company for at least six months. The 1995
+Plan provides for employees to purchase the Company’s
+common stock at a discount below market value, as defined by the
+1995 Plan. Under the 1995 Plan, 26,036, 11,870 and
+6,781 shares were issued in 2001, 2002, and 2003,
+respectively. Consistent with the application of APB Opinion
+No. 25, no compensation has been recorded for stock
+purchases.
+The Company adopted a stockholder rights plan in
+1998 to protect stockholders against unsolicited attempts to
+acquire control of the Company that do not offer what the
+Company believes to be an adequate price to all stockholders. As
+part of the plan, the board of directors of the Company declared
+a dividend of one preferred share purchase right (a
+“Right”) for each outstanding share of common stock,
+par value $0.01 per share (the “Common Shares”),
+of the Company. The dividend was payable to stockholders of
+record on December 1, 1998 (the “Record Date”).
+In addition, one Right shall be issued with each Common Share
+that becomes outstanding (i) between the Record Date and
+the earliest of the Distribution Date, the Redemption Date, and
+the Final Expiration Date (as such terms are defined in the
+Rights Agreement) or (ii) following the Distribution Date
+and prior to the Redemption Date or Final Expiration Date,
+pursuant to the exercise of stock options or under any employee
+plan or arrangement or upon the exercise, conversion, or
+exchange of other securities of the Company, which options or
+securities were outstanding prior to the Distribution Date, in
+each case upon the issuance of the Company’s common stock
+in connection with any of the foregoing. Each right entitles the
+registered holder to purchase from the Company one one-hundredth
+of a share of Series B Junior Participating Preferred
+Stock, par value $0.01 per share (the “Preferred
+Shares”), of the Company, at a price of $50.00, subject to
+adjustment.
+The rights have no voting power and expire on
+November 11, 2008. The rights may be redeemed by the
+Company for $0.01 per right until the right becomes
+exercisable.
+(7) 
+Licensing Agreement 
+As discussed in note 12, on
+November 25, 2002, the Company acquired the worldwide Teva
+patents, trademarks and other assets. Prior to the acquisition,
+the Company had been selling its Teva line of sport
+65
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+sandals and other footwear since 1985, pursuant
+to various license arrangements with Mark Thatcher, the inventor
+of the Teva sports sandal and previous holder of the Teva
+patents and trademarks.
+In 1999, the Company signed a new license
+agreement (the “License Agreement”) for Teva, which
+was effective January 1, 2000. Under the License Agreement,
+the Company received the exclusive worldwide rights for the
+manufacture and distribution of Teva footwear through 2004. In
+connection with the License Agreement, the Company paid the
+licensor a licensing fee of $1,000,000 and issued the licensor
+428,743 shares of its previously unissued common stock with
+a fair value of $1,608,000. The Company recorded the license as
+an intangible asset for the value of the cash and common stock
+issued pursuant to the License Agreement. The shares are subject
+to various contractual and other holding period requirements. In
+addition, the Company agreed to grant the licensor not less than
+50,000 stock options on the Company’s common stock
+annually, with an exercise price at the market value on the date
+of grant. The fair value of options granted under the License
+Agreement aggregated $152,000 and $111,000 in 2001 and 2002,
+respectively.
+In connection with the 1999 Teva license renewal,
+the Company received an option to buy Teva from
+Mr. Thatcher, which was subsequently renegotiated in 2001.
+On November 25, 2002, the Company completed the acquisition
+of Teva.
+The License Agreement provided for royalties
+using a sliding scale ranging from 5.0% to 6.5% of annual sales,
+depending upon sales levels, and included minimum annual
+royalties ranging from $4,400,000 in 2002 to $7,600,000 in 2011.
+The agreement also required minimum advertising and promotional
+expenditures of 5.0% of annual sales for domestic sales and 6.5%
+for international sales. In addition to the minimum advertising
+and promotional costs, the Company and the licensor had agreed
+to each contribute annually 0.5% of annual sales toward the
+promotion of the Teva brand and trademark, with or without
+particular reference to individual styles.
+Royalty expense related to Teva sales is included
+in selling, general, and administrative expenses in the
+accompanying consolidated financial statements and was
+$4,194,000 and $3,739,000 during the years ended
+December 31, 2001 and 2002, respectively.
+Subsequent to acquiring Teva on November 25,
+2002, the Company ceased granting stock options and paying
+royalties on Teva footwear sales and owns all Teva rights and
+assets worldwide.
+(8) 
+Commitments and Contingencies 
+The Company leases office facilities under
+operating lease agreements, which expire through December 2007:
+Future minimum commitments under the lease
+agreements are as follows:
+Year ending December 31:
+2004
+$ 
+1,176,000 
+2005
+1,156,000 
+2006
+1,094,000 
+2007
+378,000 
+$ 
+3,804,000 
+Total rent expense for the years ended
+December 31, 2001, 2002, and 2003 was approximately
+$1,074,000, $1,188,000, and $1,271,000, respectively.
+66
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In February 2002, the Company agreed to guarantee
+up to $1,000,000 of a bank loan of an officer of the Company,
+which matures June 1, 2004. The guarantee is through the
+maturity date of the officer’s loan and the Company would
+have to pay under the guarantee should the officer default on
+the loan. As of December 31, 2003, approximately $1,000,000
+was outstanding under the officer’s loan from the bank. The
+fair value of the guarantee was immaterial at December 31,
+2003.
+An action was brought against the Company in 1995
+by Molly Strong-Butts and Yeti by Molly, Ltd. (collectively,
+Molly) which alleged, among other things, that the Company
+violated a certain nondisclosure agreement and obtained
+purported trade secrets regarding a line of winter footwear
+which Deckers stopped producing in 1994. A jury verdict was
+obtained against the Company in district court in March 1999
+aggregating $1,785,000 for the two plaintiffs. In August 2001
+the U.S. Court of Appeals for the Ninth Circuit affirmed the
+district court’s decision for a judgment against the
+Company, resulting in a settlement of approximately $2,000,000,
+including interest, which the Company paid in November 2001. In
+addition, the court of appeals reversed the district
+court’s refusal to consider an award of exemplary damages
+or attorney fees and remanded to the district court for further
+proceedings. On September 30, 2002, a federal judge ruled
+that the Company must pay an additional $4,290,000 to Molly,
+including $2,450,000 of exemplary damages and $1,840,000 to
+cover the plaintiff’s attorney fees. Deckers and Molly
+agreed to settle without going to appeal for the total sum of
+$4,000,000. This was paid prior to December 31, 2002. The
+Company recorded these litigation costs in the accompanying
+consolidated statement of operations in 2001 and 2002,
+respectively.
+The Company was a party to litigation in the
+Netherlands with a former European distributor (the
+“Distributor”), alleging breach of contract related to
+the Company’s termination of the previous distributor
+arrangement. During May 2003, the Company settled this matter
+out of court, paying the distributor $200,000 as full and final
+settlement. The settlement amount approximated the previously
+recorded accrual for this matter and, as a result, did not have
+a significant impact on the results of operations for the period.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs had
+issued an opinion to the Company that certain popular Teva
+styles were covered by this anti-dumping duty legislation. Based
+on this opinion, Dutch Customs sought anti-dumping duties of
+approximately $500,000 from the Company, which the Company had
+appealed. In March 2003, an appeals court ruled that the duties
+were not levied by the appropriate governing body and ordered
+The Ministry of Economic Affairs (the “Ministry”) to
+determine the portion of the duties that was improperly levied
+and to nullify that portion. In May 2003, the Ministry completed
+its analysis and nullified the entire claim. As a result of this
+favorable final ruling, the Company reversed the previously
+established $500,000 accrual during June 2003, which is
+reflected as a reduction of selling, general and administrative
+expenses in the accompanying consolidated statement of
+operations for the year ended December 31, 2003.
+The Company is currently involved in various
+other 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.
+(9) 
+Foreign Currency Forward Contracts 
+The Company uses foreign currency forward
+contracts to hedge the foreign currency exposure associated with
+a portion of its forecasted transactions in foreign currency.
+These forward contracts are designated as foreign currency cash
+flow hedges and are recorded at fair value in the accompanying
+consolidated balance sheet. The effective portion of gains and
+losses resulting from recording forward contracts at fair value
+are deferred in accumulated other comprehensive income in the
+accompanying consolidated balance sheet until the underlying
+forecasted foreign currency transaction occurs. When the
+transaction occurs, the effective portion of the gain or loss
+from the derivative designated as a hedge of the transaction is
+reclassified from
+67
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+accumulated other comprehensive income to the
+same statement of earnings line item affected by the hedged
+forecasted transaction due to foreign currency fluctuations.
+Because the amounts and the maturities of the
+derivatives approximate those of the forecasted transactions,
+changes in the fair value of the derivatives are expected to be
+highly effective in offsetting changes in the cash flows of the
+hedged items. Any terminated derivatives or ineffective portion
+of gains and losses resulting from changes in the fair value of
+the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+(10) 
+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, except that the Company does
+not allocate interest, income taxes, or unusual items to
+segments. The Company evaluates performance based on net sales
+and profit or loss from operations. The Company’s
+reportable segments are strategic business units responsible for
+the worldwide operations of each of its brands. They are managed
+separately because each business requires different marketing,
+research and development, design, sourcing and sales strategies.
+The earnings from operations for each of the segments includes
+only those costs which are specifically related to each brand,
+which consist primarily of cost of sales, costs for research and
+development, design, marketing, sales, commissions, royalties,
+bad debts, depreciation, amortization and the costs of employees
+directly related to the brands. The unallocated corporate
+overhead costs are the shared costs of the organization and
+include, among others, the following costs: costs of the
+distribution center, information technology, human resources,
+accounting and finance, credit and collections, executive
+compensation, facilities costs and the 2001 and 2002 litigation
+costs. Business segment information is summarized as follows:
+2001 
+2002 
+2003 
+Net sales to external customers:
+Teva wholesale
+$ 
+61,221,000 
+$ 
+64,849,000 
+$ 
+72,783,000 
+UGG wholesale
+19,185,000 
+23,491,000 
+34,561,000 
+Simple wholesale
+10,853,000 
+10,159,000 
+7,210,000 
+Internet/catalog
+— 
+608,000 
+6,501,000 
+Other
+202,000 
+— 
+— 
+$ 
+91,461,000 
+$ 
+99,107,000 
+$ 
+121,055,000 
+Income from operations:
+Teva wholesale
+$ 
+12,407,000 
+$ 
+12,011,000 
+$ 
+21,739,000 
+UGG wholesale
+3,674,000 
+6,589,000 
+10,002,000 
+Simple wholesale
+241,000 
+279,000 
+(1,176,000 
+) 
+Internet/catalog
+— 
+194,000 
+1,148,000 
+Other (primarily unallocated overhead)
+(13,984,000 
+) 
+(15,725,000 
+) 
+(12,275,000 
+) 
+$ 
+2,338,000 
+$ 
+3,348,000 
+$ 
+19,438,000 
+68
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2001 
+2002 
+2003 
+Depreciation and amortization:
+Teva wholesale
+$ 
+1,386,000 
+$ 
+1,217,000 
+$ 
+502,000 
+UGG wholesale
+648,000 
+13,000 
+21,000 
+Simple wholesale
+206,000 
+57,000 
+42,000 
+Internet/catalog
+— 
+2,000 
+41,000 
+Other
+1,000 
+— 
+— 
+Unallocated overhead
+1,336,000 
+1,295,000 
+1,133,000 
+$ 
+3,577,000 
+$ 
+2,584,000 
+$ 
+1,739,000 
+Capital expenditures:
+Teva wholesale
+$ 
+144,000 
+$ 
+142,000 
+$ 
+65,000 
+UGG wholesale
+— 
+16,000 
+46,000 
+Simple wholesale
+10,000 
+69,000 
+27,000 
+Internet/catalog
+— 
+— 
+— 
+Unallocated overhead
+2,301,000 
+1,250,000 
+525,000 
+$ 
+2,455,000 
+$ 
+1,477,000 
+$ 
+663,000 
+Total assets from reportable segments:
+Teva wholesale
+$ 
+83,168,000 
+$ 
+85,491,000 
+UGG wholesale
+20,904,000 
+18,033,000 
+Simple wholesale
+5,708,000 
+4,231,000 
+Internet/catalog
+1,176,000 
+440,000 
+$ 
+110,956,000 
+$ 
+108,195,000 
+The assets allocable to each reporting segment
+generally include accounts receivable, inventory, intangible
+assets and certain other assets which are specifically
+identifiable with one of the Company’s business segments.
+Unallocated corporate assets are the assets not specifically
+related to one of the segments and generally include the
+Company’s cash, refundable and deferred tax assets, and
+various other assets shared by the Company’s brands.
+Reconciliations of total assets from reportable
+segments to the consolidated financial statements are as follows:
+2002 
+2003 
+Total assets for reportable segments
+$ 
+110,956,000 
+$ 
+108,195,000 
+Elimination of intersegment payables
+29,000 
+34,000 
+Unallocated refundable income taxes and deferred
+tax assets
+3,100,000 
+2,107,000 
+Other unallocated corporate assets
+8,327,000 
+10,690,000 
+Consolidated total assets
+$ 
+122,412,000 
+$ 
+121,026,000 
+69
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The Company sells its footwear products
+principally to customers throughout the U.S. The Company also
+sells its footwear products to foreign customers located in
+Europe, Canada, Australia, and Asia, among other regions.
+International sales to unaffiliated customers were 23.1%, 21.0%,
+and 18.5% of net sales for the years ended December 31,
+2001, 2002, and 2003, respectively. The Company does not
+consider international operations a separate segment. Such
+operations are not reviewed by the Chief Operating Decision
+Maker separately, but rather in the aggregate with the
+aforementioned segments. 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. For the years ended December 31,
+2001, 2002, and 2003, the Company had no single customer
+exceeding 10.0% of consolidated net sales. As of
+December 31, 2002, the Company had one customer
+representing 14.4% of net trade accounts receivable. As of
+December 31, 2003, the Company had one customer
+representing 13.8% of net trade accounts receivable.
+The Company’s production and sourcing is
+concentrated primarily in the Far East, with the vast majority
+being produced at four independent contractor factories in
+China. The Company’s operations are subject to the
+customary 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.
+(11) 
+Quarterly Summary of Information
+(Unaudited) 
+Summarized unaudited quarterly financial data are
+as follows:
+2002 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+33,259,000 
+$ 
+22,369,000 
+$ 
+17,727,000 
+$ 
+25,752,000 
+Gross profit
+15,114,000 
+10,071,000 
+6,698,000 
+9,647,000 
+Income (loss) before cumulative effect of a
+change in accounting principle
+2,162,000 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+(8,973,000 
+) 
+— 
+— 
+— 
+Net income (loss)
+(6,811,000 
+) 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Basic income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.23 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.15 
+Cumulative effect of accounting change
+(0.96 
+) 
+— 
+— 
+— 
+Basic net income (loss) per common share
+$ 
+(0.73 
+) 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.15 
+Diluted income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.22 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.13 
+Cumulative effect of accounting change
+(0.92 
+) 
+— 
+— 
+— 
+Diluted net income (loss) per common share
+$ 
+(0.70 
+) 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.13 
+70
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2003 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+36,102,000 
+$ 
+24,342,000 
+$ 
+24,894,000 
+$ 
+35,717,000 
+Gross profit
+16,240,000 
+11,832,000 
+9,502,000 
+13,771,000 
+Net income
+4,203,000 
+2,006,000 
+481,000 
+2,464,000 
+Net income per share:
+Basic
+$ 
+0.44 
+$ 
+0.21 
+$ 
+0.05 
+$ 
+0.21 
+Diluted
+$ 
+0.37 
+$ 
+0.17 
+$ 
+0.04 
+$ 
+0.19 
+(12) 
+Acquisition of Teva 
+On November 25, 2002, the Company completed
+an acquisition of the worldwide Teva patents, trademarks, and
+other assets from Mark Thatcher, the Company’s former
+licensor and the holder of the Teva patents and trademarks and
+his wholly-owned corporation, Teva Sport Sandals, Inc., the
+owner of the Teva Internet and catalog business. As a result of
+the acquisition, the Company now owns all of the Teva worldwide
+assets including all patents, tradenames, trademarks and all
+other intellectual property, as well as Teva’s existing
+catalog and internet retailing business, which includes the
+operations of Teva Sport Sandals, Inc. As a result of the
+acquisition, the Company will experience cost savings by not
+having to pay royalties and is able to control and build the
+Teva brand.
+The aggregate purchase price was approximately
+$62,300,000. The Company paid cash in the amount of $43,300,000,
+including transaction costs of $300,000, and issued junior
+subordinated notes of $13,000,000, preferred stock with a fair
+value of $5,500,000, 100,000 shares of common stock valued
+at approximately $300,000 and options to purchase
+100,000 shares of common stock valued at approximately
+$200,000. The preferred stock was valued based on it’s
+redemption value, and stock options were valued based on the
+Black-Scholes valuation model.
+The results of the operations of Teva Sport
+Sandals, Inc. are included in the consolidated statement of
+operations from the acquisition date.
+The following table summarizes the fair value of
+the assets and liabilities assumed at the date of acquisition:
+Net current assets
+$ 
+357,000 
+Property and equipment
+88,000 
+Trademarks
+51,000,000 
+Intangible assets
+1,580,000 
+Goodwill
+11,174,000 
+Net assets acquired
+$ 
+64,199,000 
+(1) 
+(1) 
+Includes $1,899,000 of amounts previously
+capitalized, primarily for payments to Mark Thatcher for
+contract extensions of the option to purchase the Teva patents
+and trademarks.
+Intangibles of $51,000,000 were assigned to
+registered trademarks that are not amortized for financial
+reporting purposes, but are expected to be amortized and fully
+deductible for income tax reporting purposes. The remaining
+$1,580,000 of acquired intangible assets consists primarily of
+patents and have a weighted
+71
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+average useful life of approximately seven years.
+The $11,174,000 of goodwill is expected to be fully deductible
+for income tax purposes but is not amortizable for financial
+reporting purposes. The entire goodwill balance was recorded to
+the Teva segment. Such allocations were based upon an
+independent appraisal of the assets acquired in accordance with
+SFAS No. 141, Business Combinations .
+The following table summarizes supplemental
+statement of income (loss) information on a pro forma basis as
+if the acquisition had occurred on January 1, 2001.
+2001 
+2002 
+2003 
+Pro forma net sales
+$ 
+93,559,000 
+$ 
+101,267,000 
+$ 
+121,055,000 
+Pro forma net income before cumulative effect of
+a change in accounting principle
+1,374,000 
+1,341,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+— 
+(8,973,000 
+) 
+— 
+Pro forma net income (loss)
+$ 
+1,374,000 
+$ 
+(7,632,000 
+) 
+$ 
+9,154,000 
+Basic income (loss) per share:
+Pro forma net income before cumulative effect of
+a change in accounting principle
+$ 
+0.15 
+$ 
+0.14 
+$ 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.95 
+) 
+— 
+Pro forma net income (loss)
+$ 
+0.15 
+$ 
+(0.81 
+) 
+$ 
+0.91 
+Diluted income (loss) per share:
+Pro forma net income before cumulative effect of
+a change in accounting principle
+$ 
+0.12 
+$ 
+0.14 
+$ 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.91 
+) 
+— 
+Pro forma net income (loss)
+$ 
+0.12 
+$ 
+(0.77 
+) 
+$ 
+0.77 
+(13) 
+Goodwill and Other Intangible Assets 
+In July 2001, The Financial Accounting Standards
+Board (FASB) issued Statement of Financial Accounting
+Standards No. 142 (SFAS 142), Goodwill and Other
+Intangible Assets . SFAS 142 requires that goodwill and
+intangible assets with indefinite useful lives no longer be
+amortized to earnings but instead be reviewed periodically for
+impairment, including an annual test performed on
+December 31. The Company implemented this accounting
+standard on January 1, 2002, resulting in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000) during the year ended December 31,
+2002. This noncash impairment charge included a write-down of
+approximately $7,800,000 for UGG goodwill and approximately
+$1,200,000 on an after-tax basis for Simple goodwill. As a
+result of these write-downs, UGG has approximately $6,100,000 of
+goodwill remaining at December 31, 2002 and Simple has no
+remaining goodwill, which has been included in intangible assets
+in the accompanying consolidated balance sheets. The
+72
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+impairment charge has been recorded as a
+cumulative effect of a change in accounting principle in the
+Company’s consolidated statement of operations for the year
+ended December 31, 2002.
+In addition, SFAS 142 provides that goodwill
+no longer be amortized, and as a result the Company recorded
+approximately $809,000 of goodwill amortization during the year
+ended December 31, 2001, whereas the Company had recorded
+no goodwill amortization during the years ended
+December 31, 2002 and 2003. For comparative purposes, the
+following schedule reconciles reported net income (loss) to
+adjusted net income (loss) for the year ended December 31,
+2001, adjusted to exclude goodwill amortization, along with
+comparative information for the years ended December 31,
+2002 and 2003.
+2001 
+2002 
+2003 
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+1,626,000 
+$ 
+1,620,000 
+$ 
+9,154,000 
+Add back goodwill amortization, net of related
+$70,000 tax benefit in 2001
+739,000 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+2,365,000 
+1,620,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+— 
+(8,973,000 
+) 
+— 
+Adjusted net income (loss)
+$ 
+2,365,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+2001 
+2002 
+2003 
+Basic income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+Goodwill amortization, net of tax benefit
+0.08 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.26 
+0.17 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.96 
+) 
+— 
+Adjusted net income (loss)
+$ 
+0.26 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+Diluted income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+Goodwill amortization, net of tax benefit
+0.08 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.25 
+0.17 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.92 
+) 
+— 
+Adjusted net income (loss)
+$ 
+0.25 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+73
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Summary of
+Intangible Assets 
+As of December 31, 2003 
+Weighted 
+Gross 
+Average 
+Net 
+Carrying 
+Amortization 
+Accumulated 
+Carrying 
+Amount 
+Period 
+Amortization 
+Amount 
+Amortizable intangible assets
+$ 
+1,858,000 
+9 years 
+$ 
+468,000 
+$ 
+1,390,000 
+Nonamortizable intangible assets:
+Trademark
+$ 
+51,152,000 
+Goodwill
+18,030,000 
+$ 
+69,182,000 
+Aggregate amortization expense for amortizable
+intangible assets for the year ended December 31, 2003 was
+$276,000. Estimated amortization expense for the next five years
+is: $253,000 in 2004, $253,000 in 2005, $253,000 in 2006,
+$210,000 in 2007, and $71,000 in 2008.
+The changes in the carrying amount of goodwill
+for the year ended December 31, 2003 are as follows:
+Teva 
+UGG 
+Total 
+Balance as of January 1, 2003
+$ 
+11,854,000 
+6,101,000 
+17,955,000 
+Adjustment to purchase allocation
+75,000 
+— 
+75,000 
+Balance as of December 31, 2003
+$ 
+11,929,000 
+6,101,000 
+18,030,000 
+74
+Table of Contents 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION AND QUALIFYING ACCOUNTS 
+Three Years Ended December 31, 2001, 2002 and 2003 
+Balance at 
+Balance at 
+Beginning 
+End of 
+Description 
+of Year 
+Additions 
+Deductions 
+Year 
+Year ended December 31, 2001:
+Allowance for doubtful accounts
+$ 
+2,144,000 
+1,658,000 
+1,788,000 
+2,014,000 
+Reserve for sales discounts
+708,000 
+946,000 
+848,000 
+806,000 
+Year ended December 31, 2002:
+Allowance for doubtful accounts
+$ 
+2,014,000 
+1,785,000 
+1,846,000 
+1,953,000 
+Reserve for sales discounts
+806,000 
+713,000 
+837,000 
+682,000 
+Year ended December 31, 2003:
+Allowance for doubtful accounts
+$ 
+1,953,000 
+504,000 
+876,000 
+1,581,000 
+Reserve for sales discounts
+682,000 
+741,000 
+878,000 
+545,000 
+See accompanying independent auditors’
+report.
+75
+Table of Contents 
+PART III 
+Item 10. Directors and Executive
+Officers of the Registrant 
+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. Our code of ethics is designed to meet the
+requirements of Section 406 of the Sarbanes-Oxley Act of
+2002 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
+2004 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2003, and such information is incorporated herein by reference.
+Item 11. Executive
+Compensation 
+Information relating to Executive Compensation is
+set forth in the Company’s definitive proxy statement
+relating to the Registrant’s 2004 annual meeting of
+shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of the
+Company’s fiscal year ended December 31, 2003, 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 in the Company’s definitive proxy
+statement relating to the Registrant’s 2004 annual meeting
+of shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of the
+Company’s fiscal year ended December 31, 2003, and
+such information is incorporated herein by reference.
+Item 13. Certain Relationships and
+Related Transactions 
+Information relating to Certain Relationships and
+Related Transactions is set forth in the Company’s
+definitive proxy statement relating to the Registrant’s
+2004 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2003, and such information is incorporated herein by reference.
+Item 14. Principal Accountant Fees and
+Services 
+Information relating to Principal Accountant Fees
+and Services is set forth in the Company’s definitive proxy
+statement relating to the Registrant’s 2004 annual meeting
+of shareholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of the
+Company’s fiscal year ended December 31, 2003, and
+such information is incorporated herein by reference.
+PART IV 
+Item 15. Exhibits, Financial Statement
+Schedules and Reports on Form 8-K 
+(a) Consolidated Financial Statements and
+Schedules required to be filed hereunder are indexed on
+page 48 hereof.
+76
+Table of Contents 
+(b) Reports on Form 8-K. 
+None.
+(c) Exhibits 
+Exhibit 
+2.1 
+Certificate of Ownership and Merger Merging
+Deckers Corporation into Deckers Outdoor Corporation.
+(Exhibit 2.1 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+3.1 
+Amended and Restated Certificate of Incorporation
+of Deckers Outdoor Corporation. (Exhibit 3.1 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein)
+3.2 
+Restated Bylaws of Deckers Outdoor Corporation.
+(Exhibit 3.2 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+#10.1 
+1993 Employee Stock Incentive Plan.
+(Exhibit 99 to the Registrant’s Registration Statement
+on Form S-8, File No. 33-47097 and incorporated by
+reference herein)
+#10.2 
+Form of Incentive Stock Option Agreement under
+1993 Employee Stock Incentive Plan. (Exhibit 10.9 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein)
+#10.3 
+Form of Non-Qualified Stock Option Agreement
+under 1993 Employee Stock Incentive Plan. (Exhibit 10.10 to
+the Registrant’s Registration Statement on Form S-1,
+File No. 33-67248 and incorporated by reference herein)
+#10.4 
+Form of Restricted Stock Agreement.
+(Exhibit 10.11 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+#10.5 
+Employment Agreement with Douglas B. Otto.
+(Exhibit 10.13 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein)
+#10.6 
+First Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.14 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+#10.7 
+Second Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.15 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+10.8 
+Third Amendment to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.30 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein)
+#10.9 
+Deckers Outdoor Corporation 1995 Employee Stock
+Purchase Plan. (Exhibit 4.4 to the Registrant’s
+Registration Statement on Form S-8, File No. 33-96850
+and incorporated by reference herein)
+#10.10 
+Amended Compensation Plan for Outside Members of
+the Board of Directors. (Exhibit 10.42 to the Registrant’s
+Form 10-Q for the period ended September 30, 1996 and
+incorporated by reference herein)
+#10.11 
+Extension Agreement to Employment Agreement with
+Douglas B. Otto. (Exhibit 10.36 to the Registrant’s
+Form 10-K for the period ended December 31, 1996 and
+incorporated by reference herein)
+10.12 
+Shareholder Rights Agreement, dated as of
+November 12, 1998. (Exhibit 10.39 to the
+Registrant’s Form 10-Q for the period ended
+September 30, 1998 and incorporated by reference herein)
+10.13 
+Revolving Credit Agreement dated as of
+February 21, 2002 among Deckers Outdoor Corporation, UGG
+Holdings, Inc. and Comerica Bank — California.
+(Exhibit 10.21 to the Registrant’s Form 10-K for
+the year ended December 31, 2001 and incorporated by
+reference herein.)
+#10.14 
+Employment Agreement dated March 29, 2002
+between Douglas B. Otto and Deckers Outdoor Corporation.
+(Exhibit 10.22 to the Registrant’s Form 10-Q for
+the period ended March 31, 2002 and incorporated by
+reference herein.)
+10.15 
+Asset Purchase Agreement dated as of
+October 9, 2002 by and Among Mark Thatcher, Teva Sport
+Sandals, Inc. and Deckers Outdoor Corporation. (Exhibit 2.1
+to the Registrant’s Form 8-K/A filed February 7,
+2003 and incorporated herein by reference.)
+10.16 
+Disclosure letter associated with the Asset
+Purchase Agreement. (Exhibit 2.2 to the Registrant’s
+Form 8-K/A filed February 7, 2003 and incorporated
+herein by reference.)+
+77
+Table of Contents 
+Exhibit 
+#10.17 
+Employment Agreement dated November 25, 2002
+between John A. Kalinich and Deckers Outdoor Corporation.
+(Exhibit 10.20 to the Registrant’s Form 10-K for the
+period ended December 31, 2002 and incorporated by
+reference herein)
+#10.18 
+Employment Agreement dated November 25, 2002
+between Mark Thatcher and Deckers Outdoor Corporation. (Exhibit
+10.21 to the Registrant’s Form 10-K for the period
+ended December 31, 2002 and incorporated by reference
+herein)
+10.19 
+Unsecured Subordinated Promissory Note dated
+November 25, 2002 between Mark Thatcher and Deckers Outdoor
+Corporation. (Exhibit 10.22 to the Registrant’s
+Form 10-K for the period ended December 31, 2002 and
+incorporated by reference herein)
+10.20 
+Note Purchase Agreement dated as of
+November 25, 2002 by and among Deckers Outdoor Corporation
+and The Peninsula Fund III Limited Partnership. (Exhibit
+10.23 to the Registrant’s Form 10-K for the period
+ended December 31, 2002 and incorporated by reference
+herein)
+10.21 
+Amended and Restated Credit Agreement, dated as
+of November 25, 2002, by and among Deckers Outdoor
+Corporation, UGG Holdings Inc., and Comerica Bank-California.
+(Exhibit 10.24 to the Registrant’s Form 10-K for the
+period ended December 31, 2002 and incorporated by
+reference herein)
+10.22 
+Amendment Number One to Amended and Restated
+Revolving Credit Agreement dated April 29, 2003. (Exhibit
+10.1 to the Registrant’s Form 10-Q for the period
+ended June 30, 2003 and incorporated by reference herein)
+10.23 
+Amendment Number Two to Amended and Restated
+Revolving Credit Agreement dated June 27, 2003. (Exhibit
+10.2 to the Registrant’s Form 10-Q for the period
+ended June 30, 2003 and incorporated by reference herein)
+10.24 
+Amendment Number One to Senior Subordination
+Agreement dated April 29, 2003. (Exhibit 10.3 to the
+Registrant’s Form 10-Q for the period ended
+June 30, 2003 and incorporated by reference herein).
+10.25 
+Amendment Number Two to Senior Subordination
+Agreement dated June 27, 2003. (Exhibit 10.4 to the
+Registrant’s Form 10-Q for the period ended
+June 30, 2003 and incorporated by reference herein)
+10.26 
+Amendment Number Three to Amended and Restated
+Revolving Credit Agreement between the Company and Comerica
+Bank - California dated as of August 6, 2003. (Exhibit
+10.1 to the Registrant’s Form 10-Q for the period
+ended September 30, 2003 and incorporated by reference
+herein)
+10.27 
+*Amendment Number Four to Amended and Restated
+Revolving Credit Agreement between the Company and Comerica
+Bank-California dated as of November 13, 2003
+10.28 
+*Amendment Number Three to Senior Subordination
+Agreement dated November 13, 2003
+#10.29 
+*Employment Agreement effective as of
+January 1, 2004 between Douglas B. Otto and Deckers Outdoor
+Corporation
+#10.30 
+*Employment Agreement effective as of
+January 1, 2004 between M. Scott Ash and Deckers Outdoor
+Corporation
+#10.31 
+*Employment Agreement effective as of
+January 1, 2004 between Patrick C. Devaney and Deckers
+Outdoor Corporation
+#10.32 
+*Employment Agreement effective as of
+January 1, 2004 between Constance X. Rishwain and Deckers
+Outdoor Corporation
+#10.33 
+*Employment Agreement effective as of
+January 1, 2004 between Robert P. Orlando and Deckers
+Outdoor Corporation
+10.34 
+*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
+10.35 
+*Exclusive Independent Contractor Representation
+Agreement between Deckers Outdoor Corporation and BHPC
+Marketing, Inc. effective as of January 1, 2003 for
+representation of the Teva brand
+14.1 
+*Deckers Outdoor Corporation’s Code of
+Ethics for Senior Officers, as approved by the Board of
+Directors on December 5, 2003.
+21.1 
+*Subsidiaries of Registrant.
+23.1 
+*Independent Auditors’ Consent.
+78
+Table of Contents 
+Exhibit 
+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 U.S.C.
+Section 1350, adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002.
+* 
+Filed herewith.
++ 
+Certain information in this Exhibit was omitted
+and filed separately with the Securities and Exchange Commission
+pursuant to a confidential treatment request as to the omitted
+portions of the Exhibit.
+# 
+Management contract or compensatory plan or
+arrangement.
+79
+Table of Contents 
+SIGNATURES 
+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.
+DECKERS OUTDOOR CORPORATION
+(Registrant)
+/s/ DOUGLAS B. OTTO
+Douglas B. Otto
+Chief Executive Officer 
+Date: March 26, 2004
+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.
+Signature 
+Title 
+Date 
+/s/ DOUGLAS B. OTTO 
+Douglas B. Otto
+Chairman of the Board, President and Chief
+Executive Officer
+March 26, 2004
+/s/ M. SCOTT ASH 
+M. Scott Ash
+Chief Financial Officer (Principal Financial and
+Accounting Officer)
+March 26, 2004
+/s/ GENE E. BURLESON 
+Gene E. Burleson
+Director
+March 26, 2004
+/s/ JOHN M. GIBBONS 
+John M. Gibbons
+Director
+March 26, 2004
+/s/ REX A. LICKLIDER 
+Rex A. Licklider
+Director
+March 26, 2004
+/s/ DANIEL L. TERHEGGEN 
+Daniel L. Terheggen
+Director
+March 26, 2004
+/s/ JOHN A. KALINICH 
+John A. Kalinich
+Director
+March 26, 2004
+80
\ No newline at end of file
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/filing_metadata.csv b/raw/filings/0000910521/2003/0000950148-04-000712/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..230a123157fd619ec6d53307c9882dc93a6e55bc
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000910521,DECK,DECKERS OUTDOOR CORP,10-K,2004-03-26,2003-12-31,2004-03-26T22:26:10.000Z,0000950148-04-000712,v97221e10vk.htm,"FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 2003",1366775,0,0,https://www.sec.gov/Archives/edgar/data/910521/000095014804000712/v97221e10vk.htm,https://www.sec.gov/Archives/edgar/data/910521/000095014804000712/,2003,2003,1
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/item1.txt b/raw/filings/0000910521/2003/0000950148-04-000712/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..98515b57f09a55677ba078873bf28d98dceaf96d
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/item1.txt
@@ -0,0 +1,981 @@
+Item 1. 
+Business 
+General 
+We are a leading designer, producer and brand
+manager of innovative, high-quality footwear and the category
+creator in the sport sandal and luxury sheepskin footwear
+segments. Our footwear is distinctive and appeals broadly to
+men, women and children. We sell our products through quality
+domestic retailers and international distributors and directly
+to end-user consumers through our websites and catalogs. Our
+primary objective is to build our footwear lines into global
+lifestyle brands with market leadership positions.
+We market our products under three proprietary
+brands:
+Teva. Teva is
+our outdoor lifestyle brand and the category creator of the
+outdoor sport sandal segment. Teva was created in the
+1980’s to serve the demanding footwear needs of the
+professional river guide community, and this authentic outdoor
+heritage and commitment to function and performance remain core
+elements of the Teva brand. We have expanded Teva’s sports
+sandal line to include casual open-toe footwear, as well as
+hiking boots, trail running shoes, amphibious footwear and other
+rugged outdoor footwear styles.
+UGG. UGG is
+our luxury brand and the category creator in luxury sheepskin
+footwear. Our UGG line has enjoyed several years of strong
+growth and positive consumer receptivity, driven by consistent
+introductions of new styles, introductions of UGG products in
+the fall and spring seasons and geographic expansion of
+distribution. We carefully manage the distribution of our UGG
+line within high-end specialty and department store retailers in
+order to best reach our target consumers, preserve UGG’s
+retail channel positioning and maintain UGG’s position as a
+mid- to upper-price luxury brand.
+Simple. 
+Simple is our moderately priced “anti-brand,” serving
+the needs of a youthful, irreverent consumer base seeking the
+comfort of athletic footwear but the styling of more
+traditional, understated, “back-to-basics” footwear.
+We have recently revised the Simple line to focus on its
+successful legacy categories, including sandals, clogs and
+casual athletic footwear. In addition, Simple enables us to
+selectively leverage our core footwear design and production
+competencies in channels of distribution not served by Teva or
+UGG.
+We believe our ability to continue to grow our
+future sales, earnings and market share has been significantly
+enhanced through achievement of three key recent initiatives:
+Teva Rights Acquisition.
+From 1985 until November 2002, we
+sold our Teva products under a licensing arrangement with
+Teva’s founder, Mark Thatcher. In November 2002, we
+acquired all of the Teva Rights from Mr. Thatcher and his
+wholly-owned corporation, Teva Sport Sandals, Inc. The
+acquisition enabled us to gain ownership of the Teva Internet
+and catalog business and allowed our brand managers to broaden
+the Teva line into attractive casual open-toe lines and rugged
+outdoor closed-toe footwear. This expansion of the Teva product
+line has increased the appeal of the brand and expanded overall
+retail placement. The acquisition also enabled us to:
+• 
+eliminate significant royalties and other license
+costs;
+• 
+eliminate product line expansion constraints
+under our former license agreement;
+• 
+realize license opportunities for the Teva brand
+into additional brand-appropriate outdoor categories; and
+• 
+enhance our ability to recruit and retain key
+senior management.
+Organizational Restructuring.
+In the last several years, we have
+reorganized our management infrastructure and developed a
+decentralized approach that gives our brand managers greater
+control over product development, marketing, and distribution
+for their respective brands. This approach strengthens our
+product development efforts and enables each brand manager to
+react quickly to important market trends and concentrate on the
+footwear demands of our customers and consumers. Our brand teams
+are highly focused on
+3
+Table of Contents 
+developing new products and marketing programs
+that drive strong sales growth but that remain true to each
+brand’s heritage. As a result, we have generated gross
+margins in excess of 41.8% in each of the past three years
+and achieved compound annual sales growth of approximately 15%
+in this period, while increasing our inventory levels by only 5%
+over the same period. Our central management team provides
+important expertise in disciplines common to each of our brands,
+including sourcing, time-to-market, quality control, credit,
+information systems technology and overall management of our
+capital resources.
+UGG
+Repositioning. UGG gained brand
+recognition in the U.S. beginning in 1979 and was adopted as a
+favored brand by the California surf community. We acquired UGG
+in 1995 and have carefully re-positioned the brand as the luxury
+sheepskin collection sold through high-end retailers. While our
+sales have grown steadily over the past six years, over the past
+two years UGG has benefited from significant national media
+attention and celebrity endorsement through our marketing
+programs and product seeding activities, further raising the
+profile of UGG as a luxury sheepskin brand. We intend to
+maintain UGG’s market positioning by carefully expanding
+the selection of styles available in order to build consumer
+interest in our UGG collection. We also remain committed to
+limiting distribution of UGG through high-end retail channels.
+Largely as a result of these three initiatives,
+our net sales have increased by 22.1%, from $99,107,000 in 2002
+to $121,055,000 in 2003 and our income from operations has
+increased by 480.6% from $3,348,000 in 2002 to $19,438,000 in
+2003. For 2003, wholesale shipments of Teva, UGG and Simple
+represented 60.1%, 28.5% and 6.0% of our total net sales,
+respectively. Sales of our brands through our Internet and
+catalog division are incremental to our wholesale shipments and
+generated 5.4% of total net sales in 2003.
+History 
+We were co-founded by Doug Otto in 1973 as a
+domestic manufacturer of sandals. We originally manufactured a
+single line of sandals under the Deckers’ brand name in a
+small factory in Carpinteria, California. Since then, we have
+grown through the development and licensing of proprietary
+technology, targeted marketing and selective acquisitions. In
+1985, we entered into our first licensing agreement for Teva
+sport sandals with Teva’s founder, Mark Thatcher. In 1986,
+we developed the Universal Strapping System, establishing Teva
+as the sport sandal category-creator and generating significant
+national attention for the Teva brand.
+We experienced a period of rapid growth during
+the late 1980’s and completed our initial public offering
+in 1993. As our sales grew, we terminated our manufacturing
+operations in the U.S., Mexico and Costa Rica, and today all of
+our footwear products are manufactured for us by independent
+manufacturers in the Far East, Australia and New Zealand. We
+maintain our own offices in China and Macau to monitor the
+operations of our Far East manufacturers.
+In order to diversify our sales and leverage our
+product development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva
+products under a licensing arrangement with Teva’s founder,
+Mark Thatcher. In November 2002, we acquired all of the Teva
+Rights from Mr. Thatcher and his wholly owned corporation,
+Teva Sport Sandals, Inc.
+Business Strategies 
+We seek to differentiate our brands by offering
+diverse lines that emphasize authenticity, functionality,
+quality and comfort and products tailored to a variety of
+activities and demographic groups. Key elements of our business
+strategies are:
+Build Leading Global
+Brands. Our mission is to build
+niche footwear lines into global brands with market leadership
+positions. Our Teva and UGG brands began as footwear lines
+appealing to a narrow core enthusiast market. We have since
+built these lines into substantial global lifestyle brands with
+significant
+4
+Table of Contents 
+potential for further growth and line extension.
+Across our brands, our styles remain true to the brands’
+heritage but have been selectively extended over time to broaden
+our appeal to men, women and children seeking high quality,
+comfortable styles for everyday use. Furthermore, we actively
+manage our brands to ensure that we reach brand appropriate
+retail distribution channels. We believe that building our
+domestic and international brand image is best accomplished
+through a decentralized management structure that empowers a
+single brand manager to coordinate all aspects of brand image,
+from product development to marketing and retail channel
+management.
+Sustain Brand
+Authenticity. We believe our
+ability to grow our brands, sustain strong gross margins and
+maintain strong market share results, in part, from consumer
+loyalty to the heritage of our brands. We believe Teva consumers
+are passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy highlights the brand’s
+positioning as functional footwear, but also as a premium,
+luxury collection. UGG is primarily marketed through national
+print advertising in major women’s magazines and through
+our retailers and their catalogs and advertising. We promote our
+Simple brand by emphasizing Simple’s heritage sneaker and
+clog businesses in marketing targeted to youth-oriented markets
+in major U.S. cities. In 2004, our key marketing objective
+for Simple is to reintroduce the brand to the marketplace using
+a grass roots approach in our marketing and media plan. We will
+focus our advertising on our “we clog” and “we
+sneaker” campaigns in alternative weekly publications and
+other non-mainstream media.
+Drive Demand Through Innovation and
+Technical Leadership. We believe
+our reputation for innovation and technical leadership
+distinguishes our Teva and UGG products from those of our
+competitors and provides us with significant competitive
+advantages. Our proprietary Universal Strapping System launched
+Teva’s popularity in the mid-1980’s. Recent technical
+advances in our Teva footwear include our Liquid Frame
+Technology and our Wraptor technology, all designed to provide
+maximum stability, support and comfort under rugged usage. We
+recently introduced closed-toe footwear, which currently
+represents approximately 14.1% of Teva’s net sales. We
+anticipate introducing new styles for fall 2004 that incorporate
+Vibram® soles and Gore-Tex® fabrics. We continue to
+develop innovative styles, products and product categories for
+our UGG collection in order to support UGG’s positioning as
+a functional lifestyle brand. UGG has benefited from expansion
+into non-boot casuals and other sheepskin-trimmed footwear,
+designed to expand our market share in new categories and
+increase our sales in the fall and spring.
+Maintain Efficient Production
+Process. We believe our product
+development processes enable us to produce leading edge products
+on a timely and a cost effective basis. We design our products
+domestically. We maintain an on-site supervisory office in Pan
+Yu City, China that serves as a local link to our independent
+manufacturers in the Far East, 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.
+Growth Strategies 
+Our growth will depend upon our broadening of the
+products offered under each brand, expanding domestic and
+international distribution, licensing our brand names and
+developing or acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under
+Existing Brands. We intend to
+increase our sales by developing and introducing additional
+footwear products under our existing brands that meet our high
+standards of performance, practicality, authenticity, comfort
+and quality. We have expanded Teva’s open-toe footwear
+category by launching new casual styles. We also have introduced
+several closed-toe lines under the Teva brand, including
+amphibious footwear, hikers, trail runners and other rugged
+outdoor footwear. We plan further expansion into the hiking,
+trail running and rugged outdoor arenas, where the aggregate
+market is considerably greater than the market size for
+Teva’s core sport sandals. We have expanded our UGG
+5
+Table of Contents 
+collection to incorporate additional styles and
+fabrications in order to further penetrate the fall, spring and
+winter seasons. We expect to grow our Simple brand by
+re-introducing our heritage clog and sneaker categories for both
+men and women. Simple has introduced “comfy” sandals,
+leveraging one of our core competencies. We have also introduced
+suede, fleece-lined footwear under the Simple brand to reach
+retail distribution not currently offered by UGG.
+Expand Domestic
+Distribution. We believe that we
+have significant opportunities to increase our sales by
+expanding domestic distribution of our products. Our Teva brand
+has generally been distributed through the outdoor specialty and
+sporting goods retail channels. We have identified the potential
+for expansion into additional retail channels through the
+development of special make-up styles for retailers who have
+limited store overlap with our core specialty outdoor and
+sporting goods customers. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+four years we have experienced increasing demand for UGG
+distribution outside California, and we expect to capitalize on
+significant demand in the Midwest and East Coast markets. For
+Simple, we are repositioning the brand by focusing on our legacy
+styles in order to re-connect with our consumer base and by
+broadening the appeal of Simple to new channels of distribution.
+The legacy products are primarily clogs, athletic-inspired
+footwear and comfort sandals. We have also introduced a Simple
+suede, fleece-lined product line to access retail channels that
+are precluded from selling our UGG product line.
+Expand International
+Distribution. In 2003, our
+international net sales totaled $22,345,000, representing
+approximately 18.5% of total net sales. We believe significant
+opportunities exist to market our products abroad, and we intend
+to selectively expand their distribution worldwide. We entered
+into an agency arrangement with a firm in the United Kingdom for
+the coordination of our sales, distribution, marketing and
+advertising efforts in the European markets. In addition, in
+2003 we entered into an agency agreement with a U.S. firm
+to coordinate our sales and marketing efforts in Asia.
+Pursue Licensing of Brands in Complementary
+Product Lines. We are pursuing
+selective licensing of our brand names in product categories
+beyond footwear. We have signed an agreement with an agency to
+assist in coordinating the efforts for the licensing of products
+that complement our trademark protected products. In July 2003,
+we initiated a domestic Teva licensing program, consisting of
+U.S. licenses for men’s sportswear, headwear, eyewear
+and timepieces. We have also signed a license agreement for UGG
+handbags and related small leather goods and have several UGG
+related licensing opportunities under consideration, including
+outerwear and accessories. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. We have only
+recently initiated the licensing strategy and, as a result of
+the lead times required to bring products to market, we have not
+realized revenue from these licensing initiatives.
+Build New
+Brands. We intend to continue to
+focus on identifying, developing or acquiring, and building new
+brands. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing our expertise in product development,
+production and marketing. We intend to continue to identify and
+build new brands with the potential for significant future
+growth.
+Products 
+Our primary product lines are:
+Teva Sport Sandals and
+Footwear. “The brand of
+choice for the new outdoor athlete.” We believe there has
+been a general shift in consumer preferences and lifestyles to
+include more outdoor recreational activities, including hiking,
+trail running, bouldering, kayaking, kite boarding and
+whitewater river rafting. These consumers typically seek
+footwear specifically designed with the same quality and high
+performance attributes they have come to expect from traditional
+athletic footwear. The first Teva sport sandal was developed in
+the 1980’s to meet the demanding needs of professional
+rafting guides navigating the Colorado River and the rugged
+Grand Canyon terrain. As our core consumers’ pursuits have
+evolved, we have retained our outdoor heritage while adding new
+products to our line, including slides, thongs, amphibious
+footwear, trail running shoes, hiking boots and rugged
+closed-toe footwear. Our brand remains popular among
+professional and
+6
+Table of Contents 
+amateur outdoorsmen seeking authentic,
+performance-oriented footwear, as well as general footwear
+consumers seeking high quality, durable and comfortable styles
+for everyday use.
+Our Teva line comprises six core footwear
+collections:
+Originals.
+The Originals Series is a
+collection of sandals and thongs utilizing Teva’s classic
+rugged architecture. This Series leverages the Teva brand
+heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Our Originals feature our proprietary Universal
+Strapping System or Wraptor technology as well as cellular
+rubber, molded EVA or polyurethane soles and high-quality nylon
+webbing or leather designed to hold the foot firmly in place.
+Our U.S. patent on our Universal Strapping System, which we use
+in most of our Teva sandals, expires in September 2007.
+Hydro. The
+Hydro Series builds upon our legacy as the category leader in
+whitewater-designed footwear. Hydro consists of sandals and
+closed-toe amphibious footwear built for high performance and
+rugged outdoor use. This series includes men’s and
+women’s sport sandals and other outdoor footwear ideal for
+professional and amateur outdoor enthusiasts and adventurers.
+Our Hydro Series incorporates many proprietary technologies
+including our Wraptor or Liquid Frame technologies as well as
+quick draining monofilament mesh, specially formulated sticky
+rubber outsoles designed to adhere to slippery rocks, form
+fitting neoprene and water-repelling leathers.
+Terrain. The
+Terrain Series is a line of sandals and closed-toe footwear
+designed with Teva technologies applied to a performance terrain
+product for use in rugged outdoor environments such as hiking
+trails and canyons. The Terrain Series includes performance
+walking sandals and running sandals, as well as hiking boots and
+trail running shoes. To meet our consumers’ expanded needs
+and to provide them with the best product possible, we have
+partnered with many of the world’s leading providers of
+footwear technology for specialty component materials, including
+Vibram®, Five Ten® and Gore-Tex®.
+Nomadic. Our
+Nomadic Series represents a collection of leather casual sandals
+and closed-toe footwear true to Teva’s performance-oriented
+outdoor heritage but designed for more casual use. The Nomadic
+Series consists of men’s and women’s leather and suede
+sandals, closed-toe shoes, slides and clogs featuring rugged,
+contemporary styles for the traveler and adventurer.
+Sun and Moon. 
+Our Sun and Moon Series features fun, youthful and colorful
+slides and thongs in a variety of materials including waterproof
+leather, nylon, suede and air mesh. The Sun and Moon Series is
+designed to leverage our sandal making capabilities and to
+appeal to fashion-oriented consumers seeking pre-activity and
+post-activity footwear alternatives that express a casual
+lifestyle and individual spirit.
+Kids and Infants.
+Our children’s series is an
+assortment of sandals incorporating a variety of materials
+including leather, waterproof suede, nylon, neoprene and mesh,
+as well as slip-on water shoes, hikers and other styles of
+amphibious footwear. In addition, for the 2004 season, we have
+expanded our product offering with a variety of styles of
+sandals and closed-toe footwear, including an assortment of
+styles that are reflective of our adult offerings.
+We intend to continue to build upon Teva’s
+broad and deep line of performance and casual footwear. Our 2004
+line features over 100 different product styles with domestic
+manufacturer’s suggested retail prices for adult sizes
+ranging from $20.00 to $120.00.
+UGG Footwear. 
+“The premier brand in luxury and comfort sheepskin.”
+Beginning in 1979, UGG gained brand recognition in the U.S. for
+sheepskin boots and slippers and was later adopted as a favored
+brand by the California surf community. We acquired the brand in
+1995 and expanded the collection, offering consumers a luxurious
+and distinctive look in sheepskin fabrications.
+Our UGG product line comprises six core footwear
+collections:
+Classic
+Collection. We offer a complete
+line of sheepskin boots built on the heritage and distinctive
+look of our first product, the Classic Sheepskin boot. Our
+classic collection products are distinctive in styling,
+featuring earth tones and pastels.
+7
+Table of Contents 
+Ultra
+Collection. The Ultra Collection
+builds upon the heritage of our original Classic. These boots
+are designed with our comfort system, featuring a multi-surfaced
+lugged bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures.
+Fall
+Collection. This collection
+features a more modern and refined look with sheepskin combined
+with smooth leather uppers in distinctive patterns and styles.
+This collection features a variety of shoes, clogs and boots and
+provides UGG consumers with the versatility to utilize sheepskin
+styling for a wider variety of occasions and outfits.
+Adirondack
+Collection. This collection is
+designed for consumers seeking more rugged styling. The
+Adirondack line features seam-sealed rugged outsoles and
+waterproof leathers designed to withstand colder, wetter
+climates.
+Fluff Momma
+Collection. This is our most
+playful and distinctive assortment. The Fluff Momma features
+untrimmed and colored sheepskin fleece exposed on the entire
+boot.
+Slipper
+Collection. Our popular Slipper
+Collection builds upon the UGG heritage of foot comfort and
+warmth.
+We have expanded our UGG collection from the
+Classic Sheepskin boot to a broad sheepskin footwear line for
+men, women and children in a variety of styles and colors,
+designed for wear in a variety of climates and occasions. Line
+expansion strategies have resulted in significantly increased
+exposure for our UGG collection and have contributed to the
+growth of UGG’s first, second and third quarter business,
+in addition to our well developed fourth quarter business. The
+domestic manufacturer’s suggested retail prices for adult
+sizes for the UGG line range from $50.00 to $275.00.
+Simple Casual
+Footwear. “The brand of
+choice for a simple, uncomplicated lifestyle.” The Simple
+line of casual shoes combines the comfort of athletic footwear
+construction with the simple, understated styling of
+“back-to-basics” casual footwear. The line was
+launched in the early 1990s as an “anti-brand”
+catering to irreverent 17 to 30 year old consumers unhappy with
+the trend toward flashy footwear produced by national athletic
+brands. The brand has expanded to a line of casual clogs,
+sneakers, sandals and suede, fleece-lined footwear, and remains
+an important brand for retailers seeking to attract young
+consumers desiring practical, expressive styling.
+Our Simple product line comprises four core
+footwear collections:
+Sneakers. Our
+sneaker line features stylish yet understated footwear designed
+to be both functional and expressive. Our sneakers feature
+performance-oriented construction including EVA insoles,
+non-marking, durable rubber outsoles and performance leather and
+suede uppers.
+Clogs. 
+Building on the heritage of our original clogs, our current clog
+series features comfortable insoles and fashionable uppers.
+Sandals. We
+offer a wide variety of casual sandals for men and women plus a
+newly introduced line of fun and colorful sandals designed
+principally for young female consumers.
+Suede, Fleece-Lined
+Boots. We have introduced a casual
+line incorporating fleece lining and suede uppers.
+We have revised the Simple line in order to
+return our focus on male and female consumers between the ages
+of 17 and 30. We have refined the line and added several new
+styles of clogs, sandals, sneakers and leather casuals to our
+offerings, including several athletically inspired styles for
+men and women. We also offer suede, fleece-lined footwear, which
+enables us to leverage our sheepskin production capabilities and
+sell this footwear at lower price points than our UGG brand into
+distribution channels that are precluded from offering our UGG
+brand. The domestic manufacturer’s suggested retail prices
+for adult sizes of Simple products range from $30.00 to $88.00.
+8
+Table of Contents 
+Licensing 
+To capitalize on the strength of our brands, we
+are pursuing the licensing of our brand names in product
+categories beyond footwear. As part of this approach, in 2002,
+we signed agency agreements with BHPC Global Licensing, Inc.,
+our licensing agency, to assist us in identifying license
+candidates and coordinating the efforts for the licensing of the
+Teva, UGG and Simple trademarks on products ranging from
+sportswear and outerwear to bags, packs and other accessories.
+In July 2003, we initiated a Teva licensing
+program with strategic partners, which currently consists of
+U.S. licenses for men’s sportswear, headwear, eyewear
+and timepieces. We are selectively developing additional
+licensing programs to ensure that licensed goods remain
+consistent with the Teva brand’s heritage. In addition, we
+have signed a license agreement for UGG handbags and related
+small leather goods and have several other UGG related licensing
+opportunities under consideration, including outerwear and
+accessories.
+BHPC is a full-service licensing agency that has
+substantial experience in product licensing. We pay BHPC a
+commission on royalty income that we receive. To date, we have
+not recorded any royalty income or any related commissions
+expense. BHPC is owned by one of our directors, Daniel L.
+Terheggen.
+Products made under license will be sold
+primarily through the same retail channels as our footwear
+product offering. Products sold under license are currently
+under development and are expected to be sold at retail
+beginning in the fourth quarter of 2004. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and Distribution 
+We distribute our products in the
+U.S. through a dedicated network of approximately 37
+independent sales representatives. Our sales representatives are
+organized geographically and visit retail stores to communicate
+the features, look and technology of our products. In addition,
+we have five in-house sales representatives who serve as key
+account executives for several of our largest customers.
+Our sales force is divided into two teams, one
+for Teva and one for UGG and Simple, as the UGG and Simple
+brands are generally sold through non-outdoor specialty and
+non-sporting goods distribution channels and are targeted toward
+a different customer than our Teva brand. Our sales manager for
+each brand recruits and manages his or her networks of sales
+representatives and coordinates sales to national accounts. We
+believe this approach for the U.S. market maximizes the
+selling efforts to our national retail account base on a
+cost-effective basis.
+Internationally, we distribute our products
+through 32 independent distributors. Shipments to Europe are
+primarily facilitated through third party distribution in the
+Netherlands. All other international shipments are made directly
+from our independent manufacturers.
+Our principal customers include specialty
+retailers, selected department stores, outdoor retailers,
+sporting goods retailers and shoe stores. Our five largest
+customers accounted for approximately 20.5% of our net sales for
+2003, compared to 23.1% for 2002. No single customer accounted
+for more than 9.0% of our net sales for 2002 or 2003.
+Teva. We sell
+our Teva products primarily through specialty outdoor and
+sporting goods retailers such as REI, Eastern Mountain Sports,
+L.L. Bean, Dick’s Sporting Goods and The Sports Authority.
+We believe this retail channel is the first choice for athletes,
+enthusiasts and adventurers seeking technical and
+performance-oriented footwear. Furthermore, we believe that our
+Teva products are best sold by retailers who appreciate and can
+fully market the technical attributes of our products to the
+consumer. We also sell special make-up Teva products in selected
+retailers in order to reach consumers who are less
+outdoor-oriented but who seek out our products due to their
+durability, comfort and fit.
+UGG. We sell
+our UGG products primarily through independent specialty
+retailers such as Fred Segal, David Z. and Sport Chalet and
+high-end department stores such as Nordstrom, Marshall
+Field’s and Neiman Marcus. We believe these retailers
+support the luxury positioning of our brand and are the
+destination shopping choice for the consumer who appreciates the
+fashion and functional elements of our UGG products.
+9
+Table of Contents 
+Simple. We
+market our Simple products primarily to independent specialty
+retailers such as J. Jill and Steve’s Shoes and
+selected department stores such as Nordstrom, targeting
+consumers seeking understated styling and
+“back-to-basics” looks. Our Simple products are
+broadly distributed in order to attract our target demographic,
+men and women between the ages of 17 and 30.
+We distribute products sold in the
+U.S. through our 126,000 square foot distribution
+center in Ventura, California. The distribution center features
+an inventory management system that enables us to efficiently
+pick and pack products for direct shipment to retailers across
+the country. 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 a rigorous quality
+inspection.
+Consumer Direct 
+We acquired the Internet and catalog businesses
+as part of the acquisition of the Teva Rights. The consumer
+direct business enables us to reach consumers through our
+Internet business under the Teva.com, UGGs.com, UGGAustralia.com
+and SimpleShoes.com Internet addresses and through direct
+mailings. Our mailing list includes approximately 300,000
+consumers who have purchased at least once in the past
+36 months. We currently average approximately
+450 direct orders daily and have recently reorganized our
+order fulfillment operations from Flagstaff, Arizona to our
+distribution center in Ventura, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs. We
+generally sell our products through our direct channels at the
+manufacturer’s suggested retail price, enabling us to
+capture the full retail margin on each direct transaction.
+Marketing and Advertising 
+Our brands are generally advertised and promoted
+through a variety of consumer print advertising campaigns. We
+benefit from highly visible 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 incurred
+approximately $6,087,000, $7,456,000 and $6,594,000 in
+advertising, marketing and promotion expenses in 2001, 2002 and
+2003, respectively.
+Teva. We use
+several marketing methods to promote the Teva brand, including:
+• 
+a targeted print advertising campaign;
+• 
+promotions at a variety of festivals, events and
+competitions;
+• 
+sponsorship of local athletes and national
+athletes such as the Teva Whitewater Team, the Teva
+U.S. Mountain Running Team and the SOBE Headshock Mountain
+Bike Team;
+• 
+discount programs to professional river guides,
+kayakers, mountain bikers and rock climbers;
+• 
+product seeding with professional
+athletes; and
+• 
+in-store promotions.
+We advertise the Teva brand through the placement
+of print advertisements in leading outdoor magazines such as
+Backpacker, Outside, National Geographic Adventurer, Hooked
+on the Outdoors and Paddler . As we have added new
+product categories to the Teva brand, we have broadened our
+advertising presence to reach new consumers. To support our
+introduction of Teva trail running shoes, we advertise in
+Trail Runner, Runner’s World and Running
+Times , among other publications. We also advertise in more
+mainstream publications such as Men’s Journal in
+order to support our casual footwear lines.
+The Teva brand is closely associated with outdoor
+lifestyle pursuits such as river rafting, kayaking, mountain
+biking, hiking and trail running. We sponsor outdoor events in
+the U.S. including the Teva Mountain Games at Vail, the
+Teva Vail Trail Running Series, the Santa Cruz Surf Kayak
+Festival in Santa Cruz, California, the Telluride Bluegrass
+Festival in Telluride, Colorado and the Reggae on the River
+event in Garberville, California, among others. We believe our
+sponsorship of these events further links our Teva brand
+10
+Table of Contents 
+with its outdoor heritage and generates increased
+product exposure and brand awareness. Internationally, we
+sponsor outdoor events in France, Switzerland and Italy in order
+to increase our brand visibility to the core European outdoor
+consumer.
+We sponsor some of the world’s best male and
+female professional and amateur athletes across several sports.
+Our Teva promotional team attends events across the U.S. in
+dedicated, state-of-the-art promotional vehicles prominently
+featuring our Teva logo. The promotions team showcases Teva
+products at events and provides consumers with the opportunity
+to see and sample our latest styles. We recently initiated a
+partnership with Volkswagen whereby the Teva technical
+representatives are outfitted in Teva branded Volkswagen
+Eurovans and Touaregs for travels across the U.S. We believe by
+outfitting and sponsoring these highly visible athletes and
+teams, we create brand and product awareness among our targeted
+consumers at a relatively low cost.
+UGG. We seek
+to build upon the success of our UGG national print advertising
+campaign. We currently advertise in upscale national magazines
+such as Vogue, Elle , and O Magazine . We
+believe such advertising is an effective means to target our
+intended consumers and to convey the high quality and luxurious
+appeal of UGG products. We also benefit from editorial coverage
+of the UGG product. Articles have appeared in such magazines as
+Glamour, InStyle, Cosmopolitan, Marie Claire, People,
+US Weekly, Maxim, Shape, Self, O Magazine and
+Real Simple . In 2003, UGG was awarded “Brand of the
+Year” by Footwear News, a leading industry trade
+publication.
+We also actively seek to place UGG products at
+selected events. During the 2002 Winter Olympic Games we
+outfitted all of the children in the Children of the Light
+performance with UGG boots. During the Medal Ceremonies, Olympic
+staff presenting medals to the Olympic athletes also wore UGG
+boots. We believe this product placement further strengthened
+the consumer’s image of UGG products as high quality,
+luxurious sheepskin goods well-suited for use in cold weather.
+We also have improved visibility of the UGG brand
+through placement of the product in selected television shows
+and feature films. UGGs have appeared on numerous shows,
+including Sex and the City, Judging Amy, The King of Queens,
+Still Standing, Will and Grace, Cedric the Entertainer Presents,
+Dawson’s Creek, Everwood, Friends and Saturday Night
+Live . Our marketing efforts have also resulted in UGG
+product appearances in the following recent and upcoming feature
+films: Eternal Sunshine of the Spotless Mind starring
+Kate Winslet and Jim Carrey, Haunted Mansion starring
+Eddie Murphy, Raising Helen starring Kate Hudson,
+Surviving Christmas starring Ben Affleck and Christina
+Applegate and Wicker Park starring Josh Hartnett. In
+addition, UGG has been embraced by Hollywood celebrities, who
+are often seen and photographed in UGG boots. This celebrity
+exposure for UGG has been the subject of recent publicity
+including articles in US Weekly, USA Today, People 
+and People.com . UGG boots have been a featured item on
+the Oprah Winfrey gift show in 2000 and 2003. We believe our
+targeted consumers identify with celebrities and that greater
+exposure further heightens awareness of the brand and stimulates
+sales.
+Simple. The
+Simple consumer identifies with a certain irreverent culture,
+and we seek to reach that consumer through a focused grassroots
+marketing approach that will introduce the brand to influential
+communities around the country. These marketing efforts will
+focus on the following major cities: Los Angeles,
+San Francisco, New York City, Chicago, Boulder, Austin
+and Nashville. In support of our grassroots initiatives, we will
+focus on advertising in alternative weekly publications, which
+will provide us with the opportunity to reach a large number of
+people through a cost efficient, non-mainstream medium.
+Publications will include New York City’s Time Out,
+Los Angeles Weekly, San Francisco Bay Guardian, New City
+(Chicago), Boulder Weekly, Nashville Scene and Austin
+Insite . We will identify our key customers in these
+advertisements to drive store traffic.
+Simple will continue to work with its public
+relations agency to get editorial placement of key styles in
+youth and trend magazines, television shows, independent films
+and with cutting-edge influential artists and musicians. Our
+efforts have resulted in publication appearances in Teen
+People, Maxim, Nylon, Lucky and Surfing Girl , and television
+appearances on VH1 and MTV.
+11
+Table of Contents 
+Product Design and Development 
+The design and product development staff for each
+of our brands creates and introduces new innovative footwear
+products that combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance
+technical products continue to satisfy the requirements of our
+historical consumer base of performance-oriented “core
+enthusiasts,” our design staff solicits comments and
+feedback from our Team Teva whitewater athletes, the Teva
+U.S. Mountain Running Team and other professional
+outdoorsmen, as well as several of our retailers, including REI,
+Eastern Mountain Sports, Galyan’s and L.L. Bean. We add new
+innovations, components and styles to our product line regularly
+based on their input. We recently designed and introduced a new
+line of trail runner shoes incorporating our patented Liquid
+Frame Technology, a technology designed to provide a precise
+running fit based on input from our trail running team. We have
+also incorporated our proprietary Wraptor technology into
+performance running sandals, an assortment of hikers and certain
+styles of our high performance guide sport sandals specifically
+targeted at professional outdoorsmen and adventurers. In
+addition, for added traction and durability, we have
+incorporated various materials in our Teva sandals, including
+Spider Rubber — a sticky, non-slip rubber outsole
+material for use across wet and dry terrain, Traction
+Rubber — a highly durable and abrasion resistant
+material designed specifically for the extra rigors of land use,
+and River Rubber — a non-slip material designed to
+offer superior grip on smooth wet surfaces such as rocks,
+fiberglass and raft rubber.
+Our UGG and Simple products are designed to
+appeal to consumers seeking our distinctive and innovative
+styling. We strive to be a leader in product uniqueness and
+appearance by regularly updating our UGG and Simple lines, which
+also generates further awareness and interest in the UGG and
+Simple collections. We believe our ability to incorporate
+up-to-date styles without deviating from UGG’s classic
+look, combined with performance-oriented features consumers have
+come to expect, results in continued enthusiasm for our brand in
+the marketplace.
+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 for their various
+product lines. We develop detailed drawings and prototypes of
+our new products to aid in the conceptualization and to ensure
+our contemplated new products meet the standards for innovation
+and performance our consumers demand. Throughout the development
+process, members of the design staff coordinate internally and
+with our domestic and overseas product development,
+manufacturing and sourcing personnel toward a common goal of
+developing and producing a high quality product to be delivered
+on a timely basis.
+Manufacturing 
+We are not involved in the direct manufacture of
+footwear. We outsource the manufacturing of our Teva and Simple
+footwear and a portion of our UGG footwear to independent
+manufacturers in the Far East. We also outsource the
+manufacturing of the remaining UGG footwear to independent
+manufacturers in Australia and New Zealand. 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.
+To ensure the production of high quality products, many of the
+materials and components used in production 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 the footwear, including
+rubber, leather and nylon webbing are generally available from
+multiple sources at competitive prices. We outsource our
+manufacturing requirements on the basis of individual purchase
+orders rather than maintaining long-term purchase commitments
+with our manufacturers.
+12
+Table of Contents 
+At our direction, our manufacturers currently
+purchase the majority of our sheepskin used in our products from
+two tanneries in New Zealand and China. We maintain a constant
+dialog with the tanneries to monitor the supply of sufficient
+high quality sheepskin available for our UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We have instituted pre-production and
+post-production inspections to meet or exceed the high quality
+demanded by consumers of our products. Our quality assurance
+program includes 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 U.S. distribution center.
+Patents and Trademarks 
+We now hold 16 U.S. patents, two Australian
+patents and one patent in each of New Zealand, China, South
+Korea, Germany, France, Japan and the United Kingdom for Teva
+footwear. In addition, we have pending patent applications in
+Australia, Canada, China, Hong Kong, Mexico and the U.S. Our
+U.S. patent for the Teva Universal Strapping System, which is
+used in most of our Teva sandals, expires in 2007. As a result
+of the expiration of the applicable period during which foreign
+patent applications were required to have been filed by the
+former licensor, we do not and cannot hold certain patent rights
+for Teva footwear in certain countries. We also currently hold
+Teva trademark registrations in the U.S. and in many other
+countries, including France, Germany, the United Kingdom, Japan
+and Australia. We regard our proprietary rights as valuable
+assets and vigorously protect such rights against infringement
+by third parties. Prior to the Teva Rights acquisition, Mark
+Thatcher successfully enforced his patent and trademark rights
+in all 20 concluded lawsuits brought against such third parties.
+We own the UGG and Simple trademarks and have
+applied for or received registrations for them in the U.S. and
+in many foreign countries. We have selectively registered style
+category names and marketing slogans. In addition, we hold two
+design patents for our Simple footwear products.
+Backlog 
+Historically, we have encouraged our customers to
+place, and we have received, a significant portion of orders as
+pre-season orders, generally four to eight months prior to
+shipment date. We provide customers with incentives to
+participate in such pre-season 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 and do not represent firm orders. The backlog as of a
+particular date is affected by a number of factors, including
+seasonality and the scheduling of manufacture and shipment of
+products as well as variations in the quarter to quarter and
+year to year preseason incentive program. 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.
+Competition 
+The casual, outdoor, athletic and fashion
+footwear markets are highly competitive. We compete with
+numerous domestic and foreign footwear designers, manufacturers
+and marketers. Our Teva footwear line primarily competes with
+Nike, adidas-Salomon, Timberland, Merrell and Columbia
+Sportswear. Our UGG footwear line primarily competes with
+Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as
+retailers’ private label footwear. In addition, due to the
+popularity of our UGG products, we face increasing competition
+from a significant number of competitors selling
+“knock-off” products. Our Simple footwear line
+primarily competes with Steve Madden, Dr. Marten, Camper,
+Kenneth Cole, Skechers, Diesel, Guess? and Puma. Some of our
+competitors are significantly larger and have significantly
+greater resources than we do.
+13
+Table of Contents 
+Our three footwear lines compete primarily on the
+basis of brand recognition and authenticity, product quality and
+design, functionality and performance, fashion appeal and price.
+Our ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and
+preferences by offering innovative, attractive and exciting
+products;
+• 
+anticipate and respond to changing consumer
+demands in a timely manner;
+• 
+maintain brand authenticity;
+• 
+develop high quality products that appeal to
+consumers;
+• 
+appropriately price our products;
+• 
+provide strong and effective marketing
+support; and
+• 
+ensure product availability.
+We believe we are particularly well positioned to
+compete in the footwear industry. Our diversified portfolio of
+footwear brands and products allows us to operate a business
+that does not depend on any one demographic group, merchandise
+preference or product trend. We have developed a portfolio of
+brands that appeals to a broad spectrum of consumers. 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, 2003, we employed
+approximately 134 full-time employees in our U.S.
+facilities and 29 full-time employees located in China and
+Macau, none of whom is represented by a union. We believe our
+relationships with our employees are good.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/item13.txt b/raw/filings/0000910521/2003/0000950148-04-000712/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5ce3ed5262dced3a8fa93ccb4cdddbf0be4643c6
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/item13.txt
@@ -0,0 +1,9 @@
+Item 13. Certain Relationships and
+Related Transactions 
+Information relating to Certain Relationships and
+Related Transactions is set forth in the Company’s
+definitive proxy statement relating to the Registrant’s
+2004 annual meeting of shareholders, which will be filed
+pursuant to Regulation 14A within 120 days after the
+end of the Company’s fiscal year ended December 31,
+2003, and such information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/item9a.txt b/raw/filings/0000910521/2003/0000950148-04-000712/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d07dcefb153c1febc71c4df3b516db64a13c965b
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/item9a.txt
@@ -0,0 +1,2972 @@
+Item 9A. 
+Controls and Procedures 
+The Company’s Chief Executive Officer,
+Douglas B. Otto, and Chief Financial Officer, M. Scott Ash, with
+the participation of the Company’s management, carried out
+an evaluation of the effectiveness of the Company’s
+disclosure controls and procedures pursuant to Exchange Act
+Rule 13a-15(e). Based upon that evaluation, the Chief
+Executive Officer and the Chief Financial Officer believe that,
+as of the end of the period covered by this report, the
+Company’s disclosure controls and procedures are effective
+in making known to them material information relating to the
+Company (including its consolidated subsidiaries) required to be
+included in this report.
+Disclosure controls and procedures, no matter how
+well designed and implemented, can provide only reasonable
+assurance of achieving an entity’s disclosure objectives.
+The likelihood of achieving such objectives is affected by
+limitations inherent in disclosure controls and procedures.
+These include the fact that human judgment in decision-making
+can be faulty and that breakdowns in internal control can occur
+because of human failures such as simple errors, mistakes or
+intentional circumvention of the established processes.
+There was no change in the Company’s
+internal control over financial reporting, known to the Chief
+Executive Officer or the Chief Financial Officer, that occurred
+during the period covered by this report that has materially
+affected, or is reasonably likely to materially affect, the
+Company’s internal control over financial reporting.
+47
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
+FINANCIAL STATEMENT SCHEDULE 
+Page 
+Consolidated Financial Statements 
+Independent Auditors’ Report
+49 
+Consolidated Balance Sheets as of
+December 31, 2002 and 2003
+50 
+Consolidated Statements of Operations for each of
+the years in the three years ended December 31, 2003
+51 
+Consolidated Statements of Stockholders’
+Equity and Comprehensive Income (Loss) for each of the years in
+the three years ended December 31, 2003
+52 
+Consolidated Statements of Cash Flows for each of
+the years in the three years ended December 31, 2003
+53 
+Notes to Consolidated Financial Statements
+54 
+Consolidated Financial Statement
+Schedule 
+Valuation and Qualifying Accounts
+75 
+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.
+48
+Table of Contents 
+INDEPENDENT AUDITORS’ REPORT 
+The Board of Directors and Stockholders
+Deckers Outdoor Corporation:
+We have audited the accompanying consolidated
+financial statements of Deckers Outdoor Corporation and
+subsidiaries as listed in the accompanying index. In connection
+with our audits of the consolidated financial statements, we
+also have audited the financial statement schedule as listed in
+the accompanying index. These consolidated financial statements
+and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an
+opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with
+auditing standards generally accepted in the United States of
+America. 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, 2002 and 2003, and the
+results of their operations and their cash flows for each of the
+years in the three-year period ended December 31, 2003, in
+conformity with accounting principles generally accepted in the
+United States of America. 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.
+As discussed in note 13 to the consolidated
+financial statements, the Company adopted Statement of Financial
+Accounting Standards No. 142, Goodwill and Other
+Intangible Assets , on January 1, 2002.
+/s/ KPMG LLP
+Los Angeles, California
+February 26, 2004
+49
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+December 31, 2002 and 2003 
+2002 
+2003 
+Assets 
+Current assets:
+Cash and cash equivalents
+$ 
+3,941,000 
+$ 
+6,662,000 
+Trade accounts receivable, less allowance for
+doubtful accounts and sales discounts of $2,635,000 and
+$2,126,000 as of December 31, 2002 and 2003, respectively
+20,851,000 
+18,745,000 
+Inventories
+17,067,000 
+18,004,000 
+Prepaid expenses and other current assets
+783,000 
+694,000 
+Deferred tax assets
+1,919,000 
+2,137,000 
+Total current assets
+44,561,000 
+46,242,000 
+Property and equipment, at cost, net
+3,864,000 
+2,969,000 
+Trademarks, net
+51,152,000 
+51,152,000 
+Goodwill
+17,955,000 
+18,030,000 
+Intangible assets
+1,666,000 
+1,390,000 
+Deferred tax assets
+1,428,000 
+— 
+Other assets, net
+1,786,000 
+1,243,000 
+$ 
+122,412,000 
+$ 
+121,026,000 
+Liabilities and Stockholders’
+Equity 
+Current liabilities:
+Notes payable and current installments of
+long-term debt
+$ 
+3,951,000 
+$ 
+3,792,000 
+Trade accounts payable
+12,916,000 
+11,220,000 
+Reserve for returns
+1,255,000 
+1,245,000 
+Accrued sales commissions
+434,000 
+623,000 
+Accrued payroll
+1,908,000 
+2,657,000 
+Other accrued expenses
+912,000 
+434,000 
+Income tax payable
+732,000 
+3,468,000 
+Total current liabilities
+22,108,000 
+23,439,000 
+Long-term debt, less current installments
+35,077,000 
+26,495,000 
+Deferred tax liabilities
+— 
+568,000 
+Commitments and contingencies
+Stockholders’ equity:
+Series A preferred stock at liquidation
+preference, $0.01 par value. Authorized
+5,000,000 shares (1,375,000 designated as Series A);
+issued and outstanding 1,375,000 shares at
+December 31, 2002; no shares issued and outstanding at
+December 31, 2003
+5,500,000 
+— 
+Common stock, $0.01 par value. Authorized
+20,000,000 shares; issued 10,434,075 shares and
+outstanding 9,461,123 shares at December 31, 2002;
+issued 10,703,433 shares and outstanding
+9,730,481 shares at December 31, 2003
+95,000 
+97,000 
+Additional paid-in capital
+26,210,000 
+27,115,000 
+Retained earnings
+33,898,000 
+43,052,000 
+Accumulated other comprehensive income (loss)
+(476,000 
+) 
+260,000 
+Total stockholders’ equity
+65,227,000 
+70,524,000 
+$ 
+122,412,000 
+$ 
+121,026,000 
+See accompanying notes to consolidated financial
+statements.
+50
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+Three Years Ended December 31, 2001, 2002 and 2003 
+2001 
+2002 
+2003 
+Net sales
+$ 
+91,461,000 
+$ 
+99,107,000 
+$ 
+121,055,000 
+Cost of sales
+52,903,000 
+57,577,000 
+69,710,000 
+Gross profit
+38,558,000 
+41,530,000 
+51,345,000 
+Selling, general, and administrative expenses
+34,040,000 
+34,954,000 
+31,907,000 
+Litigation costs
+2,180,000 
+3,228,000 
+— 
+Income from operations
+2,338,000 
+3,348,000 
+19,438,000 
+Other expense (income):
+Interest expense (income), net
+(308,000 
+) 
+406,000 
+4,557,000 
+Other expense (income)
+(165,000 
+) 
+98,000 
+(3,000 
+) 
+(473,000 
+) 
+504,000 
+4,554,000 
+Income before income taxes and cumulative effect
+of a change in accounting principle
+2,811,000 
+2,844,000 
+14,884,000 
+Income taxes
+1,185,000 
+1,224,000 
+5,730,000 
+Income before cumulative effect of a change in
+accounting principle
+1,626,000 
+1,620,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit of $843,000
+— 
+(8,973,000 
+) 
+— 
+Net income (loss)
+1,626,000 
+(7,353,000 
+) 
+9,154,000 
+Less preferred stock redemption premium
+— 
+— 
+(438,000 
+) 
+Income (loss) applicable to common stockholders
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+Basic income (loss) per common share before
+cumulative effect of a change in accounting principle
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.96 
+) 
+— 
+Basic net income (loss) per common share
+$ 
+0.18 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+Diluted income (loss) per common share before
+cumulative effect of a change in accounting principle
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.92 
+) 
+— 
+Diluted net income (loss) per common share
+$ 
+0.17 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+Weighted average common shares:
+Basic
+9,247,000 
+9,328,000 
+9,610,000 
+Diluted
+9,661,000 
+9,806,000 
+11,880,000 
+See accompanying notes to consolidated financial
+statements.
+51
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND
+SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
+EQUITY AND COMPREHENSIVE INCOME (LOSS) 
+Three Years Ended December 31, 2001, 2002
+and 2003 
+Note 
+Accumulated 
+Receivable 
+Preferred Stock 
+Common Stock 
+Additional 
+Other 
+from 
+Total 
+Comprehensive 
+Paid-in 
+Retained 
+Comprehensive 
+Stockholder/ 
+Stockholders’ 
+Income 
+Shares 
+Amount 
+Shares 
+Amount 
+Capital 
+Earnings 
+Income 
+Former Officer 
+Equity 
+(Loss) 
+Balance at December 31, 2000
+— 
+— 
+9,135,977 
+$ 
+91,000 
+$ 
+25,003,000 
+$ 
+39,625,000 
+— 
+$ 
+(624,000 
+) 
+$ 
+64,095,000 
+Fair value of options issued under Teva license
+agreement (note 7)
+— 
+— 
+— 
+— 
+152,000 
+— 
+— 
+— 
+152,000 
+Common stock issued under stock incentive plan
+— 
+— 
+162,344 
+2,000 
+475,000 
+— 
+— 
+— 
+477,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+26,036 
+— 
+59,000 
+— 
+— 
+— 
+59,000 
+Net earnings
+— 
+— 
+— 
+— 
+— 
+1,626,000 
+— 
+— 
+1,626,000 
+$ 
+1,626,000 
+Unrealized gains on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+123,000 
+— 
+123,000 
+123,000 
+Total comprehensive income
+$ 
+1,749,000 
+Balance at December 31, 2001
+— 
+— 
+9,324,357 
+93,000 
+25,689,000 
+41,251,000 
+123,000 
+(624,000 
+) 
+66,532,000 
+Fair value of equity issued as consideration in
+the acquisition of Teva (note 12)
+1,375,000 
+$ 
+5,500,000 
+100,000 
+1,000 
+554,000 
+— 
+— 
+— 
+6,055,000 
+Fair value of options issued under Teva license
+agreement (note 7)
+— 
+— 
+— 
+— 
+111,000 
+— 
+— 
+— 
+111,000 
+Common stock issued under stock incentive plan
+— 
+— 
+124,896 
+2,000 
+442,000 
+— 
+— 
+— 
+444,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+11,870 
+— 
+37,000 
+— 
+— 
+— 
+37,000 
+Net loss
+— 
+— 
+— 
+— 
+— 
+(7,353,000 
+) 
+— 
+— 
+(7,353,000 
+) 
+$ 
+(7,353,000 
+) 
+Write off of note receivable from
+stockholder/former officer
+— 
+— 
+(100,000 
+) 
+(1,000 
+) 
+(623,000 
+) 
+— 
+— 
+624,000 
+— 
+Foreign currency translation adjustment
+— 
+— 
+— 
+— 
+— 
+— 
+130,000 
+— 
+130,000 
+130,000 
+Unrealized losses on hedging derivatives
+— 
+— 
+— 
+— 
+— 
+— 
+(729,000 
+) 
+— 
+(729,000 
+) 
+(729,000 
+) 
+Total comprehensive loss
+$ 
+(7,952,000 
+) 
+Balance at December 31, 2002
+1,375,000 
+5,500,000 
+9,461,123 
+95,000 
+26,210,000 
+33,898,000 
+(476,000 
+) 
+— 
+65,227,000 
+Repurchase preferred stock (note 6)
+(1,375,000 
+) 
+(5,500,000 
+) 
+— 
+— 
+(438,000 
+) 
+— 
+— 
+— 
+(5,938,000 
+) 
+Common stock issued under stock incentive plan
+— 
+— 
+262,577 
+2,000 
+874,000 
+— 
+— 
+— 
+876,000 
+Tax benefit attributable to stock options
+— 
+— 
+— 
+— 
+445,000 
+— 
+— 
+— 
+445,000 
+Common stock issued under the employee stock
+purchase plan
+— 
+— 
+6,781 
+— 
+24,000 
+— 
+— 
+— 
+24,000 
+Net income
+— 
+— 
+— 
+— 
+— 
+9,154,000 
+— 
+— 
+9,154,000 
+$ 
+9,154,000 
+Foreign currency translation adjustment and
+reversal of unrealized hedging losses
+— 
+— 
+— 
+— 
+— 
+— 
+736,000 
+— 
+736,000 
+736,000 
+Total comprehensive income
+$ 
+9,890,000 
+Balance at December 31, 2003
+— 
+$ 
+— 
+9,730,481 
+$ 
+97,000 
+$ 
+27,115,000 
+$ 
+43,052,000 
+$ 
+260,000 
+— 
+$ 
+70,524,000 
+See accompanying notes to consolidated financial
+statements.
+52
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND
+SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH
+FLOWS 
+Three Years Ended December 31, 2001, 2002
+and 2003 
+2001 
+2002 
+2003 
+Cash flows from operating activities:
+Net income (loss)
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+Adjustments to reconcile net income (loss) to net
+cash provided by operating activities:
+Cumulative effect of accounting change
+— 
+8,973,000 
+— 
+Depreciation and amortization of property and
+equipment
+1,492,000 
+1,535,000 
+1,463,000 
+Amortization of intangible assets
+2,085,000 
+1,049,000 
+276,000 
+Provision for doubtful accounts
+1,658,000 
+1,785,000 
+504,000 
+Write-offs of inventory
+1,361,000 
+1,099,000 
+1,329,000 
+Gain on sale of Heirlooms
+(185,000 
+) 
+— 
+— 
+Loss on disposal of assets
+10,000 
+23,000 
+3,000 
+Loss on write-down of assets
+— 
+— 
+59,000 
+Deferred tax provision
+(444,000 
+) 
+656,000 
+1,752,000 
+Stock compensation
+227,000 
+192,000 
+119,000 
+Tax benefit attributable to stock options
+— 
+— 
+445,000 
+Changes in assets and liabilities:
+(Increase) decrease in:
+Trade accounts receivable
+784,000 
+(2,224,000 
+) 
+1,602,000 
+Inventories
+(3,373,000 
+) 
+650,000 
+(2,266,000 
+) 
+Prepaid expenses and other current assets
+(594,000 
+) 
+943,000 
+89,000 
+Refundable income taxes
+(961,000 
+) 
+995,000 
+— 
+Other assets
+275,000 
+286,000 
+543,000 
+Increase (decrease) in:
+Trade accounts payable
+5,951,000 
+(844,000 
+) 
+(1,696,000 
+) 
+Accrued expenses
+1,137,000 
+(1,056,000 
+) 
+669,000 
+Income taxes payable
+— 
+732,000 
+2,736,000 
+Net cash provided by operating activities
+11,049,000 
+7,441,000 
+16,781,000 
+Cash flows from investing activities:
+Cash paid for acquisition of Teva
+— 
+(43,254,000 
+) 
+(75,000 
+) 
+Proceeds from sale of property and equipment
+18,000 
+— 
+33,000 
+Purchase of property and equipment
+(2,455,000 
+) 
+(1,477,000 
+) 
+(663,000 
+) 
+Proceeds from the sale of Heirlooms
+599,000 
+— 
+— 
+Cash paid for intangible assets
+(1,566,000 
+) 
+— 
+— 
+Net cash used in investing activities
+(3,404,000 
+) 
+(44,731,000 
+) 
+(705,000 
+) 
+Cash flows from financing activities:
+Borrowings under line of credit
+— 
+19,075,000 
+42,706,000 
+Repayments under line of credit
+— 
+(14,300,000 
+) 
+(47,481,000 
+) 
+Proceeds from issuance of long-term debt
+— 
+21,000,000 
+— 
+Repayments of long-term debt
+(402,000 
+) 
+(290,000 
+) 
+(4,159,000 
+) 
+Cash payments of loan fees
+— 
+(1,343,000 
+) 
+— 
+Cash paid for repurchase of preferred stock
+— 
+— 
+(5,938,000 
+) 
+Cash received from issuances of common stock
+389,000 
+400,000 
+781,000 
+Net cash provided by (used in) financing
+activities
+(13,000 
+) 
+24,542,000 
+(14,091,000 
+) 
+Effect of exchange rates on cash
+— 
+— 
+736,000 
+Net increase (decrease) in cash and cash
+equivalents
+7,632,000 
+(12,748,000 
+) 
+2,721,000 
+Cash and cash equivalents at beginning of year
+9,057,000 
+16,689,000 
+3,941,000 
+Cash and cash equivalents at end of year
+$ 
+16,689,000 
+$ 
+3,941,000 
+$ 
+6,662,000 
+Supplemental disclosure of cash flow information:
+Cash paid during the year for:
+Interest
+$ 
+112,000 
+$ 
+264,000 
+$ 
+3,640,000 
+Income taxes
+$ 
+3,308,000 
+$ 
+836,000 
+$ 
+1,607,000 
+Supplemental disclosure of noncash investing and
+financing activities:
+In 2002, the Company issued to the seller
+1,375,000 shares of Series A preferred stock with a
+value of $5,500,000, 100,000 shares of common stock with a
+value of $368,000, options to purchase 100,000 shares of
+common stock with a value of $187,000 and $13,000,000 of
+long-term debt in connection with the acquisition of Teva.
+See accompanying notes to consolidated financial
+statements.
+53
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements 
+December 31, 2002 and 2003
+(1) 
+The Company and Summary of Significant
+Accounting Policies 
+(a) 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”). All intercompany balances and transactions
+have been eliminated in consolidation.
+The Company builds niche products into global
+lifestyle brands by designing and marketing innovative,
+functional and fashion-oriented footwear, developed for both
+high performance outdoor activities and everyday casual
+lifestyle use.
+(b) Inventories 
+Inventories, principally finished goods, are
+stated at the lower of cost (first-in, first-out) or market (net
+realizable value). Market values are determined by historical
+experience with discounted sales, industry trends and the retail
+environment.
+(c) Revenue
+Recognition 
+The Company recognizes revenue when products are
+shipped and the customer takes title and assumes risk of loss,
+collection of relevant receivable is probable, persuasive
+evidence of an arrangement exists, and the sales price is fixed
+or determinable. Allowances for estimated returns, discounts,
+and bad debts are provided for when related revenue is recorded.
+Amounts billed for shipping and handling costs are recorded as a
+component of net sales, totaling $1,116,000, $993,000, and
+$2,041,000 for the years ended December 31, 2001, 2002, and
+2003, respectively. Related costs paid to third-party shipping
+companies are recorded as a cost of sales, totaling $983,000,
+$1,124,000, and $2,057,000 for the years ended December 31,
+2001, 2002, and 2003, respectively.
+(d) Goodwill
+and Other Intangibles Assets 
+Intangible assets consist primarily of goodwill,
+trademarks, patents, and noncompete covenants arising from the
+application of purchase accounting. On January 1, 2002, the
+Company adopted Statement of Financial Accounting Standards
+(“SFAS”) No. 142, Goodwill and Other
+Intangible Assets (“SFAS 142”). Accordingly,
+goodwill and intangible assets with indefinite useful lives are
+no longer amortized, but instead tested for impairment at least
+annually in accordance with the provisions of SFAS No. 142.
+Intangible assets with estimable useful lives are amortized over
+their respective estimated useful lives to their estimated
+residual values and reviewed for impairment in accordance with
+SFAS No. 144, Accounting for Impairment or Disposal of
+Long-Lived Assets (“SFAS 144”).
+In connection with the implementation of
+SFAS 142, a goodwill impairment charge of $8,973,000 (net
+of related income tax benefit of $843,000) was recorded for the
+year ended December 31, 2002.
+(e) Impairment
+of Long-Lived Assets 
+SFAS 144 provides a single accounting model
+for long-lived assets to be disposed of. SFAS 144 also
+changes the criteria for classifying an asset as held for sale
+and broadens the scope of businesses to be disposed of that
+qualify for reporting as discontinued operations and changes the
+timing of recognizing losses on such operations. The Company
+adopted SFAS 144 on January 1, 2002. The adoption of
+SFAS 144 did not have a significant impact on the
+Company’s consolidated financial statements.
+54
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In accordance with SFAS 144, long-lived
+assets, such as property, plant, 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 of an asset to estimated
+undiscounted future cash flows expected to be generated by the
+asset. If the carrying amount of an asset exceeds its estimated
+future cash flows, an impairment charge is recognized by the
+amount by which the carrying amount of the asset exceeds the
+fair value of the asset.
+Prior to the adoption of SFAS No. 144,
+the Company accounted for long-lived assets in accordance with
+SFAS No. 121, Accounting for Impairment of
+Long-Lived Assets and for Long-Lived Assets to Be Disposed
+Of. 
+(f) Depreciation
+and Amortization 
+Depreciation of property and equipment is
+computed using the straight-line method based on estimated
+useful lives ranging from one to seven years. Leasehold
+improvements are amortized on the straight-line basis over their
+estimated economic useful lives or the lease term, whichever is
+shorter.
+(g) Fair
+Value of Financial Instruments 
+The fair values of the Company’s cash
+equivalents, trade accounts receivable, prepaid expenses and
+other current assets, refundable income taxes, trade accounts
+payable, and accrued expenses approximate the carrying values
+due to the relatively short maturities of these instruments.
+The fair value of the Company’s revolving
+credit line approximates the carrying value due to variable
+interest rates associated with the credit line.
+The fair values of the Company’s other notes
+payable are estimated by discounting future cash flows of each
+instrument at rates currently available to the Company for
+similar debt instruments of comparable maturities by the
+Company’s bankers. The fair values of these notes
+approximate the carrying value.
+The fair value of the guarantee of officer’s
+debt is estimated based on the expected present value (see
+note 8).
+(h) Stock
+Compensation 
+The Company accounts for stock-based compensation
+under the provisions of Statement of Financial Accounting
+Standards No. 123, Accounting for Stock-Based
+Compensation (“SFAS 123”), as amended by
+SFAS 148. Under the provisions of SFAS 123 and
+SFAS 148, the Company has elected to continue to measure
+compensation cost for employees and nonemployee directors of the
+Company under the intrinsic value method of APB No. 25 and
+comply with the pro forma disclosure requirements under
+SFAS 123 and SFAS 148. The Company applies the fair
+value techniques of SFAS 123 and SFAS 148 to measure
+compensation cost for options/warrants granted to nonemployees.
+55
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The following table illustrates the effects on
+net income (loss) if the fair value-based method had been
+applied to all outstanding and unvested awards in each period.
+2001 
+2002 
+2003 
+Net income (loss), as reported
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+Add stock-based employee compensation expense
+included in reported net income, net of tax
+132,000 
+109,000 
+73,000 
+Deduct total stock-based employee compensation
+expense under fair value-based method for all awards, net of tax
+(598,000 
+) 
+(494,000 
+) 
+(596,000 
+) 
+Pro forma net income (loss)
+$ 
+1,160,000 
+$ 
+(7,738,000 
+) 
+$ 
+8,631,000 
+Pro forma net income (loss) per share:
+Basic
+$ 
+0.13 
+$ 
+(0.83 
+) 
+$ 
+0.85 
+Diluted
+$ 
+0.12 
+$ 
+(0.79 
+) 
+$ 
+0.74 
+(i) 
+Use of Estimates 
+Management of the Company has made a number of
+estimates and assumptions relating to the reporting of assets,
+liabilities, net sales, and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated
+financial statements in conformity with accounting principles
+generally accepted in the U.S. Significant areas requiring the
+use of management estimates relate to inventory reserves,
+allowances for bad debts, returns and discounts, impairment
+assessments and charges, deferred taxes, depreciation and
+amortization, litigation reserves, fair value of financial
+instruments, fair value of acquired intangibles, assets and
+liabilities, and hedging activities. Actual results could differ
+from these estimates.
+(j) Research
+and Development Costs 
+Research and development costs are charged to
+expense as incurred. Such costs amounted to $1,034,000,
+$1,092,000, and $1,099,000 in 2001, 2002, and 2003, respectively.
+(k) 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 2001,
+2002, and 2003 were $6,087,000, $7,456,000, and $6,594,000,
+respectively. Included in prepaid and other current assets at
+December 31, 2002 and 2003 were $403,000 and $221,000,
+respectively, related to prepaid advertising and promotion
+expenses for programs to take place after December 31, 2002
+and 2003, respectively.
+(l) Income
+Taxes 
+Income taxes are accounted for under the asset
+and liability method. Deferred tax assets and liabilities are
+recognized for the future tax consequences attributable to
+differences between the financial statement carrying amounts of
+existing assets and liabilities and their respective tax bases.
+Deferred tax assets and liabilities are measured using enacted
+tax rates expected to apply to taxable income in the years in
+which those temporary differences are expected to be recovered
+or settled. The effect on deferred taxes of a change in tax
+rates is recognized in income in the period that includes the
+enactment date.
+56
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+(m) Income
+(Loss) per Share 
+Basic income (loss) per share
+(“EPS”) is computed by dividing net income (loss)
+available to common stockholders by the weighted average number
+of common shares outstanding for the period. Diluted EPS
+reflects the potential dilution from securities that could share
+in the earnings of the Company. Antidilutive securities are
+excluded from diluted EPS.
+The reconciliations of basic to diluted weighted
+average shares are as follows:
+2001 
+2002 
+2003 
+Income (loss) used for basic and diluted income
+(loss) per share:
+Income before cumulative effect of a change in
+accounting principle
+$ 
+1,626,000 
+$ 
+1,620,000 
+$ 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+— 
+(8,973,000 
+) 
+— 
+Net income (loss)-diluted
+1,626,000 
+(7,353,000 
+) 
+9,154,000 
+Less redemption premium on preferred stock
+— 
+— 
+(438,000 
+) 
+Net income (loss) available for common
+stockholders-basic
+$ 
+1,626,000 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+Weighted average shares used in basic computation
+9,247,000 
+9,328,000 
+9,610,000 
+Dilutive effect of stock options
+414,000 
+327,000 
+882,000 
+Dilutive effect of convertible preferred stock
+— 
+151,000 
+1,388,000 
+Weighted average shares used for diluted
+computation
+9,661,000 
+9,806,000 
+11,880,000 
+The dilutive effect of convertible preferred
+stock above relates to preferred stock that was outstanding
+between November 25, 2002 and December 3, 2003. The
+Company repurchased all of the outstanding preferred stock on
+December 3, 2003.
+Options to purchase 282,000, 286,000 and
+217,000 shares of common stock at prices ranging from $5.25
+to $9.88, $4.80 to $9.88 and $9.88 to $19.00, were outstanding
+during 2001, 2002 and 2003, respectively, but were not included
+in the computation of diluted earnings per share because the
+options’ exercise price was greater than the average market
+price of the common shares during the respective periods, and
+therefore their inclusion would be antidilutive.
+(n) 
+Foreign Currency Translation 
+The Company considers the U.S. dollar as the
+functional currency. Assets and liabilities of the foreign
+operations denominated in local currencies are translated at the
+rate of exchange at the balance sheet date. Net sales and
+expenses are translated at the weighted average rate of exchange
+during the period.
+(o) 
+Hedging Activities 
+The Company may enter into foreign currency
+forward contracts in the ordinary course of business to mitigate
+the risk associated with foreign exchange rate fluctuations
+related to sales of goods in Eurodollars.
+57
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Derivative financial instruments are not used for
+speculative purposes. At December 31, 2003, the Company had
+no foreign currency forward contracts.
+In accordance with Statement of Financial
+Accounting Standards No. 133, Accounting for Derivative
+Instruments and Hedging Activities , these foreign currency
+cash flow hedges are recorded at fair value in the accompanying
+balance sheet with unrealized gains and losses on outstanding
+foreign currency forward contracts recorded in the financial
+statements as a component of other comprehensive income, net of
+deferred taxes, to the extent they are effective hedges. When
+the transaction occurs, the effective portion of the gain or
+loss from the derivative designated as a hedge of the
+transaction is reclassified from accumulated other comprehensive
+income to the same statement of operations line item affected by
+the hedged forecasted transaction due to foreign currency
+fluctuations. Any terminated derivatives or ineffective portion
+of gains and losses resulting from changes in the fair value of
+the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+(p) Comprehensive Income (Loss) 
+Comprehensive income is the total of net earnings
+(loss) and all other nonowner changes in equity. Except for net
+income (loss), foreign currency translation adjustments, and
+unrealized gains and losses as a result of hedging activities,
+the Company does not have any transactions and other economic
+events that qualify as comprehensive income as defined under
+SFAS No. 130.
+(q) Business Segment Reporting 
+Management of the Company has determined its
+reportable segments are strategic business units. The four
+reportable segments are the Teva, UGG and Simple wholesale
+divisions and the Company’s Internet and catalog retailing
+business. Information related to these segments is summarized in
+note 10.
+(r) Reclassifications 
+Certain reclassifications have been made to the
+2001 and 2002 balances to conform to the 2003 presentation.
+(s) New Accounting Standards 
+In June 2001, Financial Accounting Standards
+Board, or FASB, issued SFAS No. 143, Accounting for
+Asset Retirement Obligations . SFAS No. 143
+requires the Company to record the fair value of an asset
+retirement obligation as a liability in the period in which it
+incurs a legal obligation associated with the retirement of
+tangible long-lived assets that result from the acquisition,
+construction, development, and/or normal use of the assets. The
+Company also records a corresponding asset that is depreciated
+over the life of the asset. Subsequent to the initial
+measurement of the asset retirement obligation, the obligation
+will be adjusted at the end of each period to reflect the
+passage of time and changes in the estimated future cash flows
+underlying the obligation. The Company adopted
+SFAS No. 143 on January 1, 2003. The adoption of
+SFAS No. 143 did not have a material effect on the
+Company’s consolidated financial position or results from
+operations.
+Effective January 1, 2002, the Company
+adopted SFAS No. 144, Accounting for the Impairment or
+Disposal of Long-Lived Assets , which addresses financial
+accounting and reporting for the impairment or disposal of
+long-lived assets. While SFAS No. 144 supersedes SFAS
+No. 121, Accounting for the Impairment of Long-Lived
+Assets and for Long-Lived Assets to Be Disposed Of , it
+retains many of the fundamental provisions of that statement.
+The adoption of this standard did not have a material impact on
+the Company’s consolidated financial position or results
+from operations.
+58
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In April 2002, the FASB issued
+SFAS No. 145, Rescission of FASB Statements
+No. 4, 44, and 64, Amendment of FASB Statement No. 13,
+and Technical Corrections . SFAS No. 145 amends
+existing guidance on reporting gains and losses on the
+extinguishment of debt to prohibit the classification of the
+gain or loss as extraordinary, as the use of such
+extinguishments have become part of the risk management strategy
+of many companies. SFAS No. 145 also amends
+SFAS No. 13 to require sale-leaseback accounting for
+certain lease modifications that have economic effects similar
+to sale-leaseback transactions. The provisions of the Statement
+related to the rescission of Statement No. 4 is applied in
+fiscal years beginning after May 15, 2002. The Company
+adopted SFAS No. 145 on January 1, 2003. The adoption
+of SFAS No. 145 did not have a material effect on the
+Company’s consolidated financial position or results from
+operations.
+In June 2002, the FASB issued
+SFAS No. 146, Accounting for Costs Associated with
+Exit or Disposal Activities . SFAS No. 146
+addresses financial accounting and reporting for costs
+associated with exit or disposal activities and nullifies
+Emerging Issues Task Force Issue 94-3, Liability
+Recognition for Certain Employee Termination Benefits and Other
+Costs to Exit an Activity . The provisions of this Statement
+are effective for exit or disposal activities that are initiated
+after December 31, 2002, with early application encouraged.
+The adoption of SFAS No. 146 did not have a material
+effect on the Company’s consolidated financial position or
+results from operations.
+In November 2002, the FASB issued Interpretation
+No. 45, Guarantor’s Accounting and Disclosure
+Requirements for Guarantees, Including Indirect Guarantees of
+Indebtedness to Others, an interpretation of FASB Statements
+No. 5, 57, and 107 and a rescission of FASB Interpretation
+No. 34 . This Interpretation elaborates on the
+disclosures to be made by a guarantor in its interim and annual
+financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is
+required to recognize, at inception of a guarantee, a liability
+for the fair value of the obligation undertaken. The initial
+recognition and measurement provisions of the Interpretation are
+applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material
+effect on the Company’s consolidated financial position or
+results from operations. The disclosure requirements are
+effective for financial statements of interim and annual periods
+ending after December 31, 2002 and are included in the
+notes to these consolidated financial statements.
+In December 2002, the FASB issued
+SFAS No. 148, Accounting for Stock-Based
+Compensation — Transition and Disclosure, an amendment
+of FASB Statement No. 123 . This Statement amends FASB
+Statement No. 123, Accounting for Stock-Based
+Compensation , to provide alternative methods of transition
+for a voluntary change to the fair value method of accounting
+for stock-based employee compensation. In addition, this
+Statement amends the disclosure requirements of Statement
+No. 123 to require prominent disclosures in both annual and
+interim financial statements. Certain of the disclosure
+modifications are required for fiscal years ending after
+December 15, 2002 and are included in the notes to these
+consolidated financial statements.
+In January 2003, the FASB issued Interpretation
+No. 46, Consolidation of Variable Interest Entities ,
+an interpretation of ARB No. 51. This Interpretation
+addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The
+Interpretation generally applies immediately to variable
+interests in variable interest entities created after
+January 31, 2003 and to variable interests in variable
+interest entities obtained after January 31, 2003. The
+application of this Interpretation did not have a material
+effect on the Company’s consolidated financial position or
+results of operation. In December 2003, the FASB revised
+FIN 46 to exempt certain entities from its requirements and
+to clarify certain issues arising during the implementation of
+FIN 46. The adoption of this revised interpretation in the
+first quarter of 2004 is not expected to have any impact on our
+consolidated financial statements.
+In May 2003, the FASB issued
+SFAS No. 150 “Accounting for Certain Financial
+Instruments with Characteristics of both Liabilities and
+Equity.” SFAS No. 150 establishes standards for
+how a company
+59
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+classifies and measures certain financial
+instruments with characteristics of both liabilities and equity.
+It requires that companies classify a financial instrument that
+is within its scope as a liability (or an asset in some
+circumstances). Many of those instruments were previously
+classified as equity. The provisions of this Statement are
+generally effective for financial instruments entered into or
+modified after May 31, 2003, and otherwise are effective at
+the beginning of the first interim period beginning after
+June 15, 2003. The adoption of this Statement did not have
+a material effect on the Company’s consolidated financial
+position or results of operation.
+(2) 
+Retirement Plan 
+Effective August 1, 1992, the Company
+established a 401(k) defined contribution plan. Substantially
+all employees are eligible to participate in the plan through
+tax-deferred contributions. The Company matches 50% of an
+employee’s contribution up to $1,200 per year.
+Matching contributions totaled $67,000, $90,000 and $67,000
+during 2001, 2002 and 2003, respectively. In addition, the
+Company may also make discretionary profit sharing contributions
+to the plan. The Company did not make profit sharing
+contributions for the years ended December 31, 2001, 2002
+or 2003.
+(3) 
+Property and Equipment 
+Property and equipment is summarized as follows:
+2002 
+2003 
+Machinery and equipment
+$ 
+7,609,000 
+$ 
+5,602,000 
+Furniture and fixtures
+1,031,000 
+663,000 
+Leasehold improvements
+1,087,000 
+724,000 
+9,727,000 
+6,989,000 
+Less accumulated depreciation and amortization
+5,863,000 
+4,020,000 
+Net property and equipment
+$ 
+3,864,000 
+$ 
+2,969,000 
+During 2003, the Company wrote-off certain fully
+depreciated assets with an original cost of $3,402,000.
+(4) 
+Notes Payable and Long-Term Debt 
+Notes payable and long-term debt consists of the
+following:
+2002 
+2003 
+Revolving line of credit with Comerica Bank
+(described below)
+$ 
+4,775,000 
+$ 
+— 
+Term loan with Comerica Bank, secured by all
+assets of the Company, interest (4.37% at December 31,
+2003) at Bank’s base rate or LIBOR plus a margin, as
+defined, principal payment of $1,750,000 due on May 31,
+2004 with equal monthly payments of $292,000 beginning
+June 30, 2004, with final payment due on November 25,
+2005
+7,000,000 
+7,000,000 
+60
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2002 
+2003 
+Secured subordinated note, payable in quarterly
+principal installments of $1,500,000 beginning November 2007,
+interest at a rate of 16.75%, of which 12.00% is payable monthly
+and 4.75% is payable at maturity, compounded monthly, due
+November 2008. A prepayment penalty ranging from 4.00% to 5.00%
+is incurred for any portion repaid prior to November 2004
+14,068,000 
+10,000,000 
+Unsecured junior subordinated 9.00% note
+payable to the seller of Teva, interest payable in annual
+installments at a rate of 7.00% through November 2008. Principal
+and additional interest of 2.00% are due in November 2008,
+compounded annually
+13,026,000 
+13,287,000 
+Unsecured note payable in quarterly installments
+of $49,200, including interest at a rate of 7.93%, due December
+2003
+159,000 
+— 
+39,028,000 
+30,287,000 
+Less current installments
+3,951,000 
+3,792,000 
+$ 
+35,077,000 
+$ 
+26,495,000 
+The aggregate maturities of long-term debt as of
+December 31, 2003 are as follows:
+2004
+$ 
+3,792,000 
+2005
+3,208,000 
+2006
+— 
+2007
+1,500,000 
+2008
+21,787,000 
+Total
+$ 
+30,287,000 
+We amended the Facility with Comerica
+Bank-California (the “Bank”) in November 2003. As
+amended, the Facility expires June 1, 2005 and provides for
+a maximum availability of $20,000,000 subject to a borrowing
+base. In general, the borrowing base is equal to 75% of eligible
+accounts receivable, as defined, and 50% of eligible inventory,
+as defined. The accounts receivable advance rate can increase or
+decrease depending on our accounts receivable dilution, which is
+calculated periodically. Up to $10,000,000 of borrowings may be
+in the form of letters of credit. The Facility bears interest at
+the Bank’s prime rate (4.00% at December 31, 2003) or
+at our option, at LIBOR plus 1.00% to 2.50%, depending on our
+ratio of liabilities to earnings before interest, taxes,
+depreciation and amortization (“EBITDA”), and is
+secured by substantially all assets. The Facility included an
+upfront fee of $230,000 and includes subsequent annual
+commitment fees of $100,000. At December 31, 2003, the
+Company had no outstanding borrowings under the Facility, no
+foreign currency reserves for outstanding forward contracts and
+no outstanding letters of credit. We had credit availability
+under the Facility of $19,283,000 at December 31, 2003.
+The agreements underlying the Facility, the Term
+Loan, and the Subordinated Note contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and cash flow coverage requirements, among others.
+The Company was in compliance with all covenants at
+December 31, 2003.
+61
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The unsecured junior subordinated note payable to
+the seller of Teva is payable to a current stockholder of the
+Company, Mark Thatcher. This note provides the holder with the
+right to designate one member of the Board of Directors.
+(5) 
+Income Taxes 
+Components of income taxes are as follows:
+Federal 
+State 
+Total 
+2001:
+Current
+$ 
+1,392,000 
+$ 
+394,000 
+$ 
+1,786,000 
+Deferred
+(465,000 
+) 
+(136,000 
+) 
+(601,000 
+) 
+$ 
+927,000 
+$ 
+258,000 
+$ 
+1,185,000 
+2002:
+Current
+$ 
+575,000 
+$ 
+(7,000 
+) 
+$ 
+568,000 
+Deferred
+493,000 
+163,000 
+656,000 
+$ 
+1,068,000 
+$ 
+156,000 
+$ 
+1,224,000 
+2003:
+Current
+$ 
+3,495,000 
+$ 
+483,000 
+$ 
+3,978,000 
+Deferred
+1,334,000 
+418,000 
+1,752,000 
+$ 
+4,829,000 
+$ 
+901,000 
+$ 
+5,730,000 
+Foreign income tax expenses (primarily current)
+were $289,000, $522,000 and $1,452,000 during the years ended
+December 31, 2001, 2002 and 2003, respectively, and are
+included in federal current tax expenses above.
+Actual income taxes differed from that obtained
+by applying the statutory federal income tax rate to earnings
+before income taxes as follows:
+2001 
+2002 
+2003 
+Computed “expected” income taxes
+$ 
+956,000 
+$ 
+967,000 
+$ 
+5,060,000 
+State income taxes, net of federal income tax
+benefit
+164,000 
+166,000 
+623,000 
+Other
+65,000 
+91,000 
+47,000 
+$ 
+1,185,000 
+$ 
+1,224,000 
+$ 
+5,730,000 
+62
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The tax effects of temporary differences that
+give rise to significant portions of deferred tax assets and
+deferred tax liabilities at December 31, 2002 and 2003 are
+presented below:
+2002 
+2003 
+Deferred tax assets, current:
+Uniform capitalization adjustment to inventory
+$ 
+448,000 
+$ 
+483,000 
+Bad debt and other reserves
+1,580,000 
+1,576,000 
+State taxes
+(171,000 
+) 
+78,000 
+Other
+62,000 
+— 
+Total deferred tax assets, current
+1,919,000 
+2,137,000 
+Deferred tax assets, noncurrent:
+Amortization of intangible assets
+956,000 
+— 
+Depreciation of property and equipment
+472,000 
+— 
+Total deferred tax assets, noncurrent
+1,428,000 
+— 
+Deferred tax liabilities, noncurrent:
+Amortization of intangible assets
+— 
+(224,000 
+) 
+Depreciation of property and equipment
+— 
+(344,000 
+) 
+Total deferred tax liabilities, noncurrent
+— 
+(568,000 
+) 
+Net deferred tax assets
+$ 
+3,347,000 
+$ 
+1,569,000 
+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.
+(6) 
+Stockholders’ Equity 
+The Company is authorized to issue
+5,000,000 shares of preferred stock with a par value of
+$0.01, of which 1,375,000 shares are designated as
+Series A Preferred Stock. The 1,375,000 shares of
+Series A Preferred Stock were issued to Mark Thatcher in
+connection with the acquisition of Teva (note 12). In
+December 2003, the Company redeemed all of the outstanding
+Preferred Stock. In connection with the redemption, the Company
+paid Mr. Thatcher a premium of approximately $438,000,
+which was recorded as a reduction of additional paid-in capital.
+The premium reduced income (loss) applicable to common
+stockholders and, therefore is reflected in the income (loss)
+per share calculations.
+In February 2001, the Company amended the 1993
+Stock Incentive Plan (the “1993 Plan”). Under the
+terms of the amended 1993 Plan, 3,000,000 shares of common
+stock are reserved for issuance to officers, directors,
+employees, and consultants of the Company. Awards to 1993 Plan
+participants are not restricted to any specified form and may
+include stock options, securities convertible into or redeemable
+for stock, stock appreciation rights, stock purchase warrants,
+or other rights to acquire stock. Under the 1993 Plan, 162,344,
+124,896 and 262,577 shares of common stock were issued to
+employees in 2001, 2002, and 2003, respectively. In 1997,
+100,000 shares of common stock were issued under the 1993
+plan to a former officer of the Company, which was financed
+through the issuance of a note receivable of $624,000 to such
+officer (bearing interest at 6.39%, secured by the underlying
+Company stock, with principal and interest due April 18,
+2002). The former officer returned the Company’s common
+stock and the note receivable was reversed in 2002.
+63
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Common stock option activity under the 1993 Plan
+for the years ended December 31, 2001, 2002 and 2003 is as
+follows:
+Weighted 
+Average 
+Exercise 
+Shares 
+Price 
+Outstanding at December 31, 2000
+1,278,900 
+$ 
+3.66 
+Granted
+584,800 
+3.90 
+Exercised
+(147,500 
+) 
+2.24 
+Canceled
+(135,400 
+) 
+4.61 
+Outstanding at December 31, 2001
+1,580,800 
+3.80 
+Granted
+624,400 
+4.13 
+Exercised
+(107,900 
+) 
+2.32 
+Canceled
+(165,300 
+) 
+3.26 
+Outstanding at December 31, 2002
+1,932,000 
+4.04 
+Granted
+206,000 
+18.75 
+Exercised
+(238,100 
+) 
+3.19 
+Canceled
+(125,400 
+) 
+7.51 
+Outstanding at December 31, 2003
+1,774,500 
+5.62 
+Options exercisable at December 31, 2001
+854,000 
+4.17 
+Options exercisable at December 31, 2002
+1,245,900 
+4.07 
+Options exercisable at December 31, 2003
+1,168,800 
+4.36 
+The per share weighted average fair value of
+stock options granted during 2001, 2002, and 2003 was $2.13,
+$2.25, and $10.83, respectively, on the date of grant using the
+Black-Scholes option pricing model with the following weighted
+average assumptions: 2001 — expected dividend yield of
+0%, stock volatility of 49.56%, risk-free interest rate of
+3.30%, and an expected life of seven years; 2002 —
+expected dividend yield of 0%, stock volatility of 48.46%,
+risk-free interest rate of 3.70%, and an expected life of seven
+years; 2003 — expected dividend yield of 0%, stock
+volatility of 51.70%, risk-free interest rate of 3.70%, and an
+expected life of seven years.
+64
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The following table summarizes information about
+stock options outstanding and exercisable at December 31,
+2003.
+Options Outstanding 
+Options Exercisable 
+Weighted 
+Weighted 
+Weighted 
+Number 
+Average 
+Average 
+Number 
+Average 
+Range of 
+Outstanding 
+Remaining 
+Exercise 
+Exercisable at 
+Exercise 
+Exercise Price 
+December 31, 2003 
+Contractual Life 
+Price 
+December 31, 2003 
+Price 
+$1.56 to $3.19
+391,000 
+5.13 years 
+$ 
+2.24 
+391,000 
+$ 
+2.24 
+$3.50 to $3.76
+401,500 
+7.93 years 
+3.61 
+269,200 
+3.60 
+$4.03 to $4.80
+585,000 
+8.12 years 
+4.23 
+273,200 
+4.21 
+$5.25 to $9.88
+195,000 
+4.37 years 
+6.83 
+195,000 
+6.83 
+$19.00
+202,000 
+9.92 years 
+19.00 
+40,400 
+19.00 
+1,774,500 
+7.21 years 
+5.62 
+1,168,800 
+4.36 
+In August 1995, the Company adopted the 1995
+Employee Stock Purchase Plan (the “1995 Plan”). The
+1995 Plan is intended to qualify as an Employee Stock Purchase
+Plan under Section 423 of the Internal Revenue Code. Under
+the terms of the 1995 Plan, as amended, 300,000 shares of
+common stock are reserved for issuance to employees who have
+been employed by the Company for at least six months. The 1995
+Plan provides for employees to purchase the Company’s
+common stock at a discount below market value, as defined by the
+1995 Plan. Under the 1995 Plan, 26,036, 11,870 and
+6,781 shares were issued in 2001, 2002, and 2003,
+respectively. Consistent with the application of APB Opinion
+No. 25, no compensation has been recorded for stock
+purchases.
+The Company adopted a stockholder rights plan in
+1998 to protect stockholders against unsolicited attempts to
+acquire control of the Company that do not offer what the
+Company believes to be an adequate price to all stockholders. As
+part of the plan, the board of directors of the Company declared
+a dividend of one preferred share purchase right (a
+“Right”) for each outstanding share of common stock,
+par value $0.01 per share (the “Common Shares”),
+of the Company. The dividend was payable to stockholders of
+record on December 1, 1998 (the “Record Date”).
+In addition, one Right shall be issued with each Common Share
+that becomes outstanding (i) between the Record Date and
+the earliest of the Distribution Date, the Redemption Date, and
+the Final Expiration Date (as such terms are defined in the
+Rights Agreement) or (ii) following the Distribution Date
+and prior to the Redemption Date or Final Expiration Date,
+pursuant to the exercise of stock options or under any employee
+plan or arrangement or upon the exercise, conversion, or
+exchange of other securities of the Company, which options or
+securities were outstanding prior to the Distribution Date, in
+each case upon the issuance of the Company’s common stock
+in connection with any of the foregoing. Each right entitles the
+registered holder to purchase from the Company one one-hundredth
+of a share of Series B Junior Participating Preferred
+Stock, par value $0.01 per share (the “Preferred
+Shares”), of the Company, at a price of $50.00, subject to
+adjustment.
+The rights have no voting power and expire on
+November 11, 2008. The rights may be redeemed by the
+Company for $0.01 per right until the right becomes
+exercisable.
+(7) 
+Licensing Agreement 
+As discussed in note 12, on
+November 25, 2002, the Company acquired the worldwide Teva
+patents, trademarks and other assets. Prior to the acquisition,
+the Company had been selling its Teva line of sport
+65
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+sandals and other footwear since 1985, pursuant
+to various license arrangements with Mark Thatcher, the inventor
+of the Teva sports sandal and previous holder of the Teva
+patents and trademarks.
+In 1999, the Company signed a new license
+agreement (the “License Agreement”) for Teva, which
+was effective January 1, 2000. Under the License Agreement,
+the Company received the exclusive worldwide rights for the
+manufacture and distribution of Teva footwear through 2004. In
+connection with the License Agreement, the Company paid the
+licensor a licensing fee of $1,000,000 and issued the licensor
+428,743 shares of its previously unissued common stock with
+a fair value of $1,608,000. The Company recorded the license as
+an intangible asset for the value of the cash and common stock
+issued pursuant to the License Agreement. The shares are subject
+to various contractual and other holding period requirements. In
+addition, the Company agreed to grant the licensor not less than
+50,000 stock options on the Company’s common stock
+annually, with an exercise price at the market value on the date
+of grant. The fair value of options granted under the License
+Agreement aggregated $152,000 and $111,000 in 2001 and 2002,
+respectively.
+In connection with the 1999 Teva license renewal,
+the Company received an option to buy Teva from
+Mr. Thatcher, which was subsequently renegotiated in 2001.
+On November 25, 2002, the Company completed the acquisition
+of Teva.
+The License Agreement provided for royalties
+using a sliding scale ranging from 5.0% to 6.5% of annual sales,
+depending upon sales levels, and included minimum annual
+royalties ranging from $4,400,000 in 2002 to $7,600,000 in 2011.
+The agreement also required minimum advertising and promotional
+expenditures of 5.0% of annual sales for domestic sales and 6.5%
+for international sales. In addition to the minimum advertising
+and promotional costs, the Company and the licensor had agreed
+to each contribute annually 0.5% of annual sales toward the
+promotion of the Teva brand and trademark, with or without
+particular reference to individual styles.
+Royalty expense related to Teva sales is included
+in selling, general, and administrative expenses in the
+accompanying consolidated financial statements and was
+$4,194,000 and $3,739,000 during the years ended
+December 31, 2001 and 2002, respectively.
+Subsequent to acquiring Teva on November 25,
+2002, the Company ceased granting stock options and paying
+royalties on Teva footwear sales and owns all Teva rights and
+assets worldwide.
+(8) 
+Commitments and Contingencies 
+The Company leases office facilities under
+operating lease agreements, which expire through December 2007:
+Future minimum commitments under the lease
+agreements are as follows:
+Year ending December 31:
+2004
+$ 
+1,176,000 
+2005
+1,156,000 
+2006
+1,094,000 
+2007
+378,000 
+$ 
+3,804,000 
+Total rent expense for the years ended
+December 31, 2001, 2002, and 2003 was approximately
+$1,074,000, $1,188,000, and $1,271,000, respectively.
+66
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+In February 2002, the Company agreed to guarantee
+up to $1,000,000 of a bank loan of an officer of the Company,
+which matures June 1, 2004. The guarantee is through the
+maturity date of the officer’s loan and the Company would
+have to pay under the guarantee should the officer default on
+the loan. As of December 31, 2003, approximately $1,000,000
+was outstanding under the officer’s loan from the bank. The
+fair value of the guarantee was immaterial at December 31,
+2003.
+An action was brought against the Company in 1995
+by Molly Strong-Butts and Yeti by Molly, Ltd. (collectively,
+Molly) which alleged, among other things, that the Company
+violated a certain nondisclosure agreement and obtained
+purported trade secrets regarding a line of winter footwear
+which Deckers stopped producing in 1994. A jury verdict was
+obtained against the Company in district court in March 1999
+aggregating $1,785,000 for the two plaintiffs. In August 2001
+the U.S. Court of Appeals for the Ninth Circuit affirmed the
+district court’s decision for a judgment against the
+Company, resulting in a settlement of approximately $2,000,000,
+including interest, which the Company paid in November 2001. In
+addition, the court of appeals reversed the district
+court’s refusal to consider an award of exemplary damages
+or attorney fees and remanded to the district court for further
+proceedings. On September 30, 2002, a federal judge ruled
+that the Company must pay an additional $4,290,000 to Molly,
+including $2,450,000 of exemplary damages and $1,840,000 to
+cover the plaintiff’s attorney fees. Deckers and Molly
+agreed to settle without going to appeal for the total sum of
+$4,000,000. This was paid prior to December 31, 2002. The
+Company recorded these litigation costs in the accompanying
+consolidated statement of operations in 2001 and 2002,
+respectively.
+The Company was a party to litigation in the
+Netherlands with a former European distributor (the
+“Distributor”), alleging breach of contract related to
+the Company’s termination of the previous distributor
+arrangement. During May 2003, the Company settled this matter
+out of court, paying the distributor $200,000 as full and final
+settlement. The settlement amount approximated the previously
+recorded accrual for this matter and, as a result, did not have
+a significant impact on the results of operations for the period.
+In 1997, the European Commission enacted
+anti-dumping duties of 49.2% on certain types of footwear
+imported into Europe from China and Indonesia. Dutch Customs had
+issued an opinion to the Company that certain popular Teva
+styles were covered by this anti-dumping duty legislation. Based
+on this opinion, Dutch Customs sought anti-dumping duties of
+approximately $500,000 from the Company, which the Company had
+appealed. In March 2003, an appeals court ruled that the duties
+were not levied by the appropriate governing body and ordered
+The Ministry of Economic Affairs (the “Ministry”) to
+determine the portion of the duties that was improperly levied
+and to nullify that portion. In May 2003, the Ministry completed
+its analysis and nullified the entire claim. As a result of this
+favorable final ruling, the Company reversed the previously
+established $500,000 accrual during June 2003, which is
+reflected as a reduction of selling, general and administrative
+expenses in the accompanying consolidated statement of
+operations for the year ended December 31, 2003.
+The Company is currently involved in various
+other 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.
+(9) 
+Foreign Currency Forward Contracts 
+The Company uses foreign currency forward
+contracts to hedge the foreign currency exposure associated with
+a portion of its forecasted transactions in foreign currency.
+These forward contracts are designated as foreign currency cash
+flow hedges and are recorded at fair value in the accompanying
+consolidated balance sheet. The effective portion of gains and
+losses resulting from recording forward contracts at fair value
+are deferred in accumulated other comprehensive income in the
+accompanying consolidated balance sheet until the underlying
+forecasted foreign currency transaction occurs. When the
+transaction occurs, the effective portion of the gain or loss
+from the derivative designated as a hedge of the transaction is
+reclassified from
+67
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+accumulated other comprehensive income to the
+same statement of earnings line item affected by the hedged
+forecasted transaction due to foreign currency fluctuations.
+Because the amounts and the maturities of the
+derivatives approximate those of the forecasted transactions,
+changes in the fair value of the derivatives are expected to be
+highly effective in offsetting changes in the cash flows of the
+hedged items. Any terminated derivatives or ineffective portion
+of gains and losses resulting from changes in the fair value of
+the derivatives is recognized in current earnings. The
+ineffective portion of these gains and losses, which results
+primarily from the time value component of gains and losses on
+forward contracts, was immaterial for all periods presented.
+(10) 
+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, except that the Company does
+not allocate interest, income taxes, or unusual items to
+segments. The Company evaluates performance based on net sales
+and profit or loss from operations. The Company’s
+reportable segments are strategic business units responsible for
+the worldwide operations of each of its brands. They are managed
+separately because each business requires different marketing,
+research and development, design, sourcing and sales strategies.
+The earnings from operations for each of the segments includes
+only those costs which are specifically related to each brand,
+which consist primarily of cost of sales, costs for research and
+development, design, marketing, sales, commissions, royalties,
+bad debts, depreciation, amortization and the costs of employees
+directly related to the brands. The unallocated corporate
+overhead costs are the shared costs of the organization and
+include, among others, the following costs: costs of the
+distribution center, information technology, human resources,
+accounting and finance, credit and collections, executive
+compensation, facilities costs and the 2001 and 2002 litigation
+costs. Business segment information is summarized as follows:
+2001 
+2002 
+2003 
+Net sales to external customers:
+Teva wholesale
+$ 
+61,221,000 
+$ 
+64,849,000 
+$ 
+72,783,000 
+UGG wholesale
+19,185,000 
+23,491,000 
+34,561,000 
+Simple wholesale
+10,853,000 
+10,159,000 
+7,210,000 
+Internet/catalog
+— 
+608,000 
+6,501,000 
+Other
+202,000 
+— 
+— 
+$ 
+91,461,000 
+$ 
+99,107,000 
+$ 
+121,055,000 
+Income from operations:
+Teva wholesale
+$ 
+12,407,000 
+$ 
+12,011,000 
+$ 
+21,739,000 
+UGG wholesale
+3,674,000 
+6,589,000 
+10,002,000 
+Simple wholesale
+241,000 
+279,000 
+(1,176,000 
+) 
+Internet/catalog
+— 
+194,000 
+1,148,000 
+Other (primarily unallocated overhead)
+(13,984,000 
+) 
+(15,725,000 
+) 
+(12,275,000 
+) 
+$ 
+2,338,000 
+$ 
+3,348,000 
+$ 
+19,438,000 
+68
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2001 
+2002 
+2003 
+Depreciation and amortization:
+Teva wholesale
+$ 
+1,386,000 
+$ 
+1,217,000 
+$ 
+502,000 
+UGG wholesale
+648,000 
+13,000 
+21,000 
+Simple wholesale
+206,000 
+57,000 
+42,000 
+Internet/catalog
+— 
+2,000 
+41,000 
+Other
+1,000 
+— 
+— 
+Unallocated overhead
+1,336,000 
+1,295,000 
+1,133,000 
+$ 
+3,577,000 
+$ 
+2,584,000 
+$ 
+1,739,000 
+Capital expenditures:
+Teva wholesale
+$ 
+144,000 
+$ 
+142,000 
+$ 
+65,000 
+UGG wholesale
+— 
+16,000 
+46,000 
+Simple wholesale
+10,000 
+69,000 
+27,000 
+Internet/catalog
+— 
+— 
+— 
+Unallocated overhead
+2,301,000 
+1,250,000 
+525,000 
+$ 
+2,455,000 
+$ 
+1,477,000 
+$ 
+663,000 
+Total assets from reportable segments:
+Teva wholesale
+$ 
+83,168,000 
+$ 
+85,491,000 
+UGG wholesale
+20,904,000 
+18,033,000 
+Simple wholesale
+5,708,000 
+4,231,000 
+Internet/catalog
+1,176,000 
+440,000 
+$ 
+110,956,000 
+$ 
+108,195,000 
+The assets allocable to each reporting segment
+generally include accounts receivable, inventory, intangible
+assets and certain other assets which are specifically
+identifiable with one of the Company’s business segments.
+Unallocated corporate assets are the assets not specifically
+related to one of the segments and generally include the
+Company’s cash, refundable and deferred tax assets, and
+various other assets shared by the Company’s brands.
+Reconciliations of total assets from reportable
+segments to the consolidated financial statements are as follows:
+2002 
+2003 
+Total assets for reportable segments
+$ 
+110,956,000 
+$ 
+108,195,000 
+Elimination of intersegment payables
+29,000 
+34,000 
+Unallocated refundable income taxes and deferred
+tax assets
+3,100,000 
+2,107,000 
+Other unallocated corporate assets
+8,327,000 
+10,690,000 
+Consolidated total assets
+$ 
+122,412,000 
+$ 
+121,026,000 
+69
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+The Company sells its footwear products
+principally to customers throughout the U.S. The Company also
+sells its footwear products to foreign customers located in
+Europe, Canada, Australia, and Asia, among other regions.
+International sales to unaffiliated customers were 23.1%, 21.0%,
+and 18.5% of net sales for the years ended December 31,
+2001, 2002, and 2003, respectively. The Company does not
+consider international operations a separate segment. Such
+operations are not reviewed by the Chief Operating Decision
+Maker separately, but rather in the aggregate with the
+aforementioned segments. 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. For the years ended December 31,
+2001, 2002, and 2003, the Company had no single customer
+exceeding 10.0% of consolidated net sales. As of
+December 31, 2002, the Company had one customer
+representing 14.4% of net trade accounts receivable. As of
+December 31, 2003, the Company had one customer
+representing 13.8% of net trade accounts receivable.
+The Company’s production and sourcing is
+concentrated primarily in the Far East, with the vast majority
+being produced at four independent contractor factories in
+China. The Company’s operations are subject to the
+customary 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.
+(11) 
+Quarterly Summary of Information
+(Unaudited) 
+Summarized unaudited quarterly financial data are
+as follows:
+2002 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+33,259,000 
+$ 
+22,369,000 
+$ 
+17,727,000 
+$ 
+25,752,000 
+Gross profit
+15,114,000 
+10,071,000 
+6,698,000 
+9,647,000 
+Income (loss) before cumulative effect of a
+change in accounting principle
+2,162,000 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Cumulative effect of a change in accounting
+principle, net of income tax benefit
+(8,973,000 
+) 
+— 
+— 
+— 
+Net income (loss)
+(6,811,000 
+) 
+642,000 
+(2,547,000 
+) 
+1,363,000 
+Basic income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.23 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.15 
+Cumulative effect of accounting change
+(0.96 
+) 
+— 
+— 
+— 
+Basic net income (loss) per common share
+$ 
+(0.73 
+) 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.15 
+Diluted income (loss) per common share before
+cumulative effect of accounting change
+$ 
+0.22 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.13 
+Cumulative effect of accounting change
+(0.92 
+) 
+— 
+— 
+— 
+Diluted net income (loss) per common share
+$ 
+(0.70 
+) 
+$ 
+0.07 
+$ 
+(0.27 
+) 
+$ 
+0.13 
+70
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+2003 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$ 
+36,102,000 
+$ 
+24,342,000 
+$ 
+24,894,000 
+$ 
+35,717,000 
+Gross profit
+16,240,000 
+11,832,000 
+9,502,000 
+13,771,000 
+Net income
+4,203,000 
+2,006,000 
+481,000 
+2,464,000 
+Net income per share:
+Basic
+$ 
+0.44 
+$ 
+0.21 
+$ 
+0.05 
+$ 
+0.21 
+Diluted
+$ 
+0.37 
+$ 
+0.17 
+$ 
+0.04 
+$ 
+0.19 
+(12) 
+Acquisition of Teva 
+On November 25, 2002, the Company completed
+an acquisition of the worldwide Teva patents, trademarks, and
+other assets from Mark Thatcher, the Company’s former
+licensor and the holder of the Teva patents and trademarks and
+his wholly-owned corporation, Teva Sport Sandals, Inc., the
+owner of the Teva Internet and catalog business. As a result of
+the acquisition, the Company now owns all of the Teva worldwide
+assets including all patents, tradenames, trademarks and all
+other intellectual property, as well as Teva’s existing
+catalog and internet retailing business, which includes the
+operations of Teva Sport Sandals, Inc. As a result of the
+acquisition, the Company will experience cost savings by not
+having to pay royalties and is able to control and build the
+Teva brand.
+The aggregate purchase price was approximately
+$62,300,000. The Company paid cash in the amount of $43,300,000,
+including transaction costs of $300,000, and issued junior
+subordinated notes of $13,000,000, preferred stock with a fair
+value of $5,500,000, 100,000 shares of common stock valued
+at approximately $300,000 and options to purchase
+100,000 shares of common stock valued at approximately
+$200,000. The preferred stock was valued based on it’s
+redemption value, and stock options were valued based on the
+Black-Scholes valuation model.
+The results of the operations of Teva Sport
+Sandals, Inc. are included in the consolidated statement of
+operations from the acquisition date.
+The following table summarizes the fair value of
+the assets and liabilities assumed at the date of acquisition:
+Net current assets
+$ 
+357,000 
+Property and equipment
+88,000 
+Trademarks
+51,000,000 
+Intangible assets
+1,580,000 
+Goodwill
+11,174,000 
+Net assets acquired
+$ 
+64,199,000 
+(1) 
+(1) 
+Includes $1,899,000 of amounts previously
+capitalized, primarily for payments to Mark Thatcher for
+contract extensions of the option to purchase the Teva patents
+and trademarks.
+Intangibles of $51,000,000 were assigned to
+registered trademarks that are not amortized for financial
+reporting purposes, but are expected to be amortized and fully
+deductible for income tax reporting purposes. The remaining
+$1,580,000 of acquired intangible assets consists primarily of
+patents and have a weighted
+71
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+average useful life of approximately seven years.
+The $11,174,000 of goodwill is expected to be fully deductible
+for income tax purposes but is not amortizable for financial
+reporting purposes. The entire goodwill balance was recorded to
+the Teva segment. Such allocations were based upon an
+independent appraisal of the assets acquired in accordance with
+SFAS No. 141, Business Combinations .
+The following table summarizes supplemental
+statement of income (loss) information on a pro forma basis as
+if the acquisition had occurred on January 1, 2001.
+2001 
+2002 
+2003 
+Pro forma net sales
+$ 
+93,559,000 
+$ 
+101,267,000 
+$ 
+121,055,000 
+Pro forma net income before cumulative effect of
+a change in accounting principle
+1,374,000 
+1,341,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+— 
+(8,973,000 
+) 
+— 
+Pro forma net income (loss)
+$ 
+1,374,000 
+$ 
+(7,632,000 
+) 
+$ 
+9,154,000 
+Basic income (loss) per share:
+Pro forma net income before cumulative effect of
+a change in accounting principle
+$ 
+0.15 
+$ 
+0.14 
+$ 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.95 
+) 
+— 
+Pro forma net income (loss)
+$ 
+0.15 
+$ 
+(0.81 
+) 
+$ 
+0.91 
+Diluted income (loss) per share:
+Pro forma net income before cumulative effect of
+a change in accounting principle
+$ 
+0.12 
+$ 
+0.14 
+$ 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.91 
+) 
+— 
+Pro forma net income (loss)
+$ 
+0.12 
+$ 
+(0.77 
+) 
+$ 
+0.77 
+(13) 
+Goodwill and Other Intangible Assets 
+In July 2001, The Financial Accounting Standards
+Board (FASB) issued Statement of Financial Accounting
+Standards No. 142 (SFAS 142), Goodwill and Other
+Intangible Assets . SFAS 142 requires that goodwill and
+intangible assets with indefinite useful lives no longer be
+amortized to earnings but instead be reviewed periodically for
+impairment, including an annual test performed on
+December 31. The Company implemented this accounting
+standard on January 1, 2002, resulting in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000) during the year ended December 31,
+2002. This noncash impairment charge included a write-down of
+approximately $7,800,000 for UGG goodwill and approximately
+$1,200,000 on an after-tax basis for Simple goodwill. As a
+result of these write-downs, UGG has approximately $6,100,000 of
+goodwill remaining at December 31, 2002 and Simple has no
+remaining goodwill, which has been included in intangible assets
+in the accompanying consolidated balance sheets. The
+72
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+impairment charge has been recorded as a
+cumulative effect of a change in accounting principle in the
+Company’s consolidated statement of operations for the year
+ended December 31, 2002.
+In addition, SFAS 142 provides that goodwill
+no longer be amortized, and as a result the Company recorded
+approximately $809,000 of goodwill amortization during the year
+ended December 31, 2001, whereas the Company had recorded
+no goodwill amortization during the years ended
+December 31, 2002 and 2003. For comparative purposes, the
+following schedule reconciles reported net income (loss) to
+adjusted net income (loss) for the year ended December 31,
+2001, adjusted to exclude goodwill amortization, along with
+comparative information for the years ended December 31,
+2002 and 2003.
+2001 
+2002 
+2003 
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+1,626,000 
+$ 
+1,620,000 
+$ 
+9,154,000 
+Add back goodwill amortization, net of related
+$70,000 tax benefit in 2001
+739,000 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+2,365,000 
+1,620,000 
+9,154,000 
+Cumulative effect of a change in accounting
+principle, net of tax benefit
+— 
+(8,973,000 
+) 
+— 
+Adjusted net income (loss)
+$ 
+2,365,000 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+2001 
+2002 
+2003 
+Basic income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+Goodwill amortization, net of tax benefit
+0.08 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.26 
+0.17 
+0.91 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.96 
+) 
+— 
+Adjusted net income (loss)
+$ 
+0.26 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+Diluted income (loss) per share:
+Reported net income before cumulative effect of a
+change in accounting principle
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+Goodwill amortization, net of tax benefit
+0.08 
+— 
+— 
+Adjusted net income before cumulative effect of a
+change in accounting principle
+0.25 
+0.17 
+0.77 
+Cumulative effect of a change in accounting
+principle
+— 
+(0.92 
+) 
+— 
+Adjusted net income (loss)
+$ 
+0.25 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+73
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements —
+(Continued) 
+Summary of
+Intangible Assets 
+As of December 31, 2003 
+Weighted 
+Gross 
+Average 
+Net 
+Carrying 
+Amortization 
+Accumulated 
+Carrying 
+Amount 
+Period 
+Amortization 
+Amount 
+Amortizable intangible assets
+$ 
+1,858,000 
+9 years 
+$ 
+468,000 
+$ 
+1,390,000 
+Nonamortizable intangible assets:
+Trademark
+$ 
+51,152,000 
+Goodwill
+18,030,000 
+$ 
+69,182,000 
+Aggregate amortization expense for amortizable
+intangible assets for the year ended December 31, 2003 was
+$276,000. Estimated amortization expense for the next five years
+is: $253,000 in 2004, $253,000 in 2005, $253,000 in 2006,
+$210,000 in 2007, and $71,000 in 2008.
+The changes in the carrying amount of goodwill
+for the year ended December 31, 2003 are as follows:
+Teva 
+UGG 
+Total 
+Balance as of January 1, 2003
+$ 
+11,854,000 
+6,101,000 
+17,955,000 
+Adjustment to purchase allocation
+75,000 
+— 
+75,000 
+Balance as of December 31, 2003
+$ 
+11,929,000 
+6,101,000 
+18,030,000 
+74
+Table of Contents 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION AND QUALIFYING ACCOUNTS 
+Three Years Ended December 31, 2001, 2002 and 2003 
+Balance at 
+Balance at 
+Beginning 
+End of 
+Description 
+of Year 
+Additions 
+Deductions 
+Year 
+Year ended December 31, 2001:
+Allowance for doubtful accounts
+$ 
+2,144,000 
+1,658,000 
+1,788,000 
+2,014,000 
+Reserve for sales discounts
+708,000 
+946,000 
+848,000 
+806,000 
+Year ended December 31, 2002:
+Allowance for doubtful accounts
+$ 
+2,014,000 
+1,785,000 
+1,846,000 
+1,953,000 
+Reserve for sales discounts
+806,000 
+713,000 
+837,000 
+682,000 
+Year ended December 31, 2003:
+Allowance for doubtful accounts
+$ 
+1,953,000 
+504,000 
+876,000 
+1,581,000 
+Reserve for sales discounts
+682,000 
+741,000 
+878,000 
+545,000 
+See accompanying independent auditors’
+report.
+75
+Table of Contents 
+PART III
\ No newline at end of file
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/rp_note.txt b/raw/filings/0000910521/2003/0000950148-04-000712/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2003/0000950148-04-000712/rpt_disclosure.txt b/raw/filings/0000910521/2003/0000950148-04-000712/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cf796bea65748cd089d319ff8c7763c09f589dc0
--- /dev/null
+++ b/raw/filings/0000910521/2003/0000950148-04-000712/rpt_disclosure.txt
@@ -0,0 +1,6 @@
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Daniel L. Terheggen, a member of the Company’s Board of
+Directors, is the owner and Chief Executive Officer of BHPC
+Global Licensing, Inc. (“BHPC”). The Company paid BHPC
+an aggregate of approximately $168,000 for agency fees related
+to licensing of the Company’s products during 2004.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/filing.txt b/raw/filings/0000910521/2004/0000950129-05-002490/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..31f1ebe4971e19eedd4510666e60997f4817763e
--- /dev/null
+++ b/raw/filings/0000910521/2004/0000950129-05-002490/filing.txt
@@ -0,0 +1,7301 @@
+10-K
+1
+v06639e10vk.htm
+DECKER'S OUTDOOR CORP.- DECEMBER 31, 2004
+e10vk 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2004 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
+THE 
+SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to
+Commission File No. 0-22446 
+DECKERS OUTDOOR CORPORATION 
+(Exact name of registrant as specified in its charter) 
+Delaware 
+95-3015862 
+(State or other jurisdiction of 
+incorporation or organization) 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue, Goleta, California 
+93117 
+(Address of principal executive offices) 
+(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 
+None 
+None 
+Securities registered pursuant to Section 12(g) of the
+Act: 
+Common Stock, $.01 par value 
+(Title of Class) 
+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 o
+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.
+Indicate by check mark whether the registrant is an accelerated
+filer (as defined in Exchange Act
+Rule 12b-2). Yes x No o
+Aggregate market value of the Common Stock of the registrant
+held by non-affiliates of the registrant on June 30, 2004
+based on the closing price of the Common Stock on the NASDAQ
+National Market System on such date was $278,083,416.
+The number of shares of the registrant’s Common Stock
+outstanding at March 8, 2005 was 12,303,458.
+Portions of registrant’s definitive proxy statement
+relating to registrant’s 2005 annual meeting of
+stockholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of
+registrant’s fiscal year ended December 31, 2004, are
+incorporated by reference in Part III of this
+Form 10-K.
+DECKERS OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31, 2004 
+Index to Annual Report on Form 10-K 
+Page 
+PART I 
+Item 1. 
+Business 
+3 
+Item 2. 
+Properties 
+15 
+Item 3. 
+Legal Proceedings 
+16 
+Item 4. 
+Submission of Matters to a Vote of Security
+Holders 
+16 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity,
+Related Stockholder Matters and Issuer Purchases of Equity
+Securities 
+17 
+Item 6. 
+Selected Financial Data 
+18 
+Item 7. 
+Management’s Discussion and Analysis
+of Financial Condition and Results of Operations 
+20 
+Item 7A. 
+Quantitative and Qualitative Disclosures
+about Market Risk 
+47 
+Item 8. 
+Financial Statements and Supplementary
+Data 
+47 
+Item 9. 
+Changes in and Disagreements with
+Accountants on Accounting and Financial Disclosure 
+47 
+Item 9A. 
+Controls and Procedures 
+47 
+Item 9B. 
+Other Information 
+48 
+PART III 
+Item 10. 
+Directors and Executive Officers of the
+Registrant 
+79 
+Item 11. 
+Executive Compensation 
+79 
+Item 12. 
+Security Ownership of Certain Beneficial
+Owners and Management and Related Stockholder Matters 
+79 
+Item 13. 
+Certain Relationships and Related
+Transactions 
+79 
+Item 14. 
+Principal Accountant Fees and Services 
+79 
+PART IV 
+Item 15. 
+Exhibits and Financial Statement
+Schedules 
+79 
+Signatures 
+83 
+EX-10.36 
+EX-10.37 
+EX-10.38 
+EX-21.1 
+EX-23.1 
+EX-31.1 
+EX-31.2 
+EX-32.1 
+2
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+We are a leading designer, producer and brand manager of
+innovative, high-quality footwear and the category creator in
+the sport sandal and luxury sheepskin footwear segments. Our
+footwear is distinctive and appeals broadly to men, women and
+children. We sell our products through quality domestic
+retailers and international distributors and directly to
+end-user consumers through our websites and catalogs. Our
+primary objective is to build our footwear lines into global
+lifestyle brands with market leadership positions.
+We market our products under three proprietary brands:
+Teva. Teva is our outdoor lifestyle brand and the
+category creator for the sport sandal segment. Teva was created
+in the 1980’s to serve the demanding footwear needs of the
+professional river guide community, and this authentic heritage
+and commitment to function and performance remain core elements
+of the Teva brand. We have expanded Teva’s sport sandal
+line to include casual open-toe footwear, as well as hiking
+boots, trail running shoes, amphibious footwear and other rugged
+outdoor footwear styles. 
+UGG. UGG is our luxury brand and the category
+creator for luxury sheepskin footwear. Our UGG line has enjoyed
+several years of strong growth and positive consumer
+receptivity, driven by consistent introductions of new styles,
+introductions of UGG products in the fall and spring seasons and
+geographic expansion of distribution. We carefully manage the
+distribution of our UGG line within high-end specialty and
+department store retailers in order to best reach our target
+consumers, preserve UGG’s retail channel positioning and
+maintain UGG’s position as a mid- to upper-price luxury
+brand. 
+Simple. Simple is our moderately priced
+“anti-brand,” serving the needs of a youthful,
+irreverent consumer base seeking the comfort of athletic
+footwear but the styling of more traditional, understated,
+“back-to-basics” footwear. We have recently revised
+the Simple line to focus on its successful legacy models,
+including sneakers, clogs, sandals and other casual footwear. In
+addition, Simple enables us to selectively leverage our core
+footwear design and production competencies for channels of
+distribution not served by Teva or UGG. 
+We believe our ability to continue to grow our future sales,
+earnings and market share has been significantly enhanced
+through achievement of three key recent initiatives:
+Teva Rights Acquisition. From 1985 until November
+2002, we sold our Teva products under a license arrangement with
+Teva’s founder, Mark Thatcher. In November 2002, we
+acquired all of the Teva Rights from Mr. Thatcher and his
+wholly-owned corporation, Teva Sport Sandals, Inc. The
+acquisition enabled us to gain ownership of the Teva Internet
+and catalog business and allowed our brand managers to broaden
+the Teva line into attractive casual open-toe lines and rugged
+outdoor closed-toe footwear. This expansion of the Teva product
+line has increased the appeal of the brand and expanded our
+overall retail placement. The acquisition also enabled us to: 
+• 
+eliminate significant royalties and other license costs; 
+• 
+eliminate product line expansion constraints under our former
+license agreement; 
+• 
+realize license opportunities for the Teva brand into additional
+brand-appropriate outdoor categories; and 
+• 
+enhance our ability to recruit and retain key senior management. 
+Organizational Restructuring. In the last several
+years, we have reorganized our management infrastructure and
+developed a decentralized approach that gives our brand managers
+greater control over product development, marketing, and
+distribution for their respective brands. This approach
+strengthens our product development efforts and enables each
+brand manager to react quickly to important market 
+3
+Table of Contents 
+trends and concentrate on the footwear demands of our customers
+and end-user consumers. Our brand teams are highly focused on
+developing new products and marketing programs that drive strong
+sales growth but remain true to each brand’s heritage. As a
+result, we have generated gross margins of 42.4% in 2003 and
+42.1% in 2004 and achieved compound annual sales growth of
+approximately 47.2% since 2002. Our central management team
+provides important expertise in disciplines common to each of
+our brands, including sourcing, time-to-market, quality control,
+credit, information systems technology and overall management of
+our capital resources. 
+UGG Repositioning. UGG gained brand recognition in
+the U.S. beginning in 1979 and was adopted as a favored
+brand by the California surf community. We acquired UGG in 1995
+and have carefully re-positioned the brand as the luxury
+sheepskin collection sold through high-end retailers. While our
+sales have grown steadily over the past seven years, over the
+past few years UGG has benefited from significant national media
+attention and celebrity endorsement through our marketing
+programs and product seeding activities, further raising the
+profile of UGG as a luxury sheepskin brand. We intend to further
+support UGG’s market positioning by carefully expanding the
+selection of styles available in order to build consumer
+interest in our UGG collection. We also remain committed to
+limiting distribution of UGG through high-end retail channels. 
+Largely as a result of these three recent initiatives, our net
+sales have increased by 77.4%, from $121,055,000 in 2003 to
+$214,787,000 in 2004 and our income from operations has
+increased by 118.4% from $19,438,000 in 2003 to $42,462,000 in
+2004. For 2004, wholesale shipments of Teva, UGG and Simple
+represented 38.9%, 47.4% and 4.5% of our total net sales,
+respectively. Sales of our brands through our Internet and
+catalog division are in addition to our wholesale shipments and
+generated 9.2% of total net sales in 2004.
+History 
+We were founded by Doug Otto in 1973 as a domestic manufacturer
+of sandals. We originally manufactured a single line of sandals
+under the Deckers’ brand name in a small factory in
+Carpinteria, California. Since then, we have grown through the
+development and licensing of proprietary technology, targeted
+marketing and selective acquisitions. In 1985, we entered into
+our first license agreement for Teva sport sandals with
+Teva’s founder, Mark Thatcher. In 1986, we developed the
+Universal Strapping System, establishing Teva as the sport
+sandal category-creator and generating significant national
+attention for the Teva brand.
+We experienced a period of rapid growth during the late
+1980’s and completed our initial public offering in 1993.
+As our sales grew, we terminated our manufacturing operations in
+the U.S., Mexico and Costa Rica, and today independent
+manufacturers in the Far East, Australia and New Zealand
+manufacture all of our footwear products for us. We maintain our
+own offices in China and Macau to monitor the operations of our
+Far East manufacturers.
+In order to diversify our sales and leverage our product
+development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva products under a
+licensing arrangement with Teva’s founder, Mark Thatcher.
+In November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly owned corporation, Teva Sport
+Sandals, Inc. The Teva Rights include the Teva Internet and
+catalog business and all patents, trade names, trademarks and
+other intellectual property associated with the acquired Teva
+assets.
+4
+Table of Contents 
+Business Strategies 
+We seek to differentiate our brands by offering diverse lines
+that emphasize authenticity, functionality, quality and comfort
+and products tailored to a variety of activities and demographic
+groups. Key elements of our business strategies are:
+Build Leading Global Brands. Our mission is to
+build niche footwear lines into global brands with market
+leadership positions. Our Teva and UGG brands began as footwear
+lines appealing to a narrow core enthusiast market. We have
+since built these lines into substantial global lifestyle brands
+with significant potential for further growth and line
+extension. Across our brands, our styles remain true to the
+brands’ heritage but have been selectively extended over
+time to broaden their appeal to men, women and children seeking
+high quality, comfortable styles for everyday use. Furthermore,
+we actively manage our brands to ensure that we reach brand
+appropriate retail distribution channels. We believe that
+building our domestic and international brand image is best
+accomplished through a decentralized management structure that
+empowers a single brand manager to coordinate all aspects of
+brand image, from product development to marketing and retail
+channel management. 
+Sustain Brand Authenticity. We believe our ability
+to grow our brands, sustain strong gross margins and maintain
+strong market share results, in part, from consumer loyalty to
+the heritage of our brands. We believe Teva consumers are
+passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy highlights the brand’s
+positioning as functional footwear, but also as a premium,
+luxury collection. UGG is primarily marketed through national
+print advertising in major women’s magazines and through
+our retailers and their catalogs and advertising. We promote our
+Simple brand by emphasizing Simple’s heritage sneaker and
+clog businesses in marketing targeted to youth-oriented markets
+in major U.S. cities. Our key marketing objective for
+Simple is to reintroduce the brand to the marketplace using a
+grass roots approach in our marketing and media plan. We have
+focused our advertising on our “we clog” and “we
+sneaker” campaigns in alternative weekly publications and
+other non-mainstream media. 
+Drive Demand Through Innovation and Technical
+Leadership. We believe our reputation for innovation and
+technical leadership distinguishes our Teva and UGG products
+from those of our competitors and provides us with significant
+competitive advantages. Our proprietary Universal Strapping
+System launched Teva’s popularity in the mid-1980’s.
+Recent technical advances in our Teva footwear include our
+Liquid Frame Technology, our Wraptor technology and our
+Wraptor-Lite technology, all designed to provide maximum
+stability, support and comfort under rugged usage. We recently
+introduced closed-toe footwear, which represented approximately
+12.5% of Teva’s net sales in 2004. In the Fall 2004 season,
+we introduced new Teva styles that incorporate Vibram®
+soles and Gore-Tex® fabrics. We continue to develop
+innovative styles, products and product categories for our UGG
+collection in order to support UGG’s positioning as a
+functional lifestyle brand, which can be worn in a variety of
+climates and weather conditions. UGG has benefited from
+expansion into non-boot casuals, sheepskin-trimmed footwear and
+styles combining sheepskin with fine-grade suede and leathers,
+all designed to expand our market share in new categories and
+increase our sales in the fall and spring. 
+Maintain Efficient Development and Production
+Process. We believe our product development processes
+enable us to produce leading edge products on a timely and a
+cost effective basis. We design our products domestically. We
+maintain on-site supervisory offices in Pan Yu City, China and
+Macau that serve as local links to our independent manufacturers
+in the Far East, 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. 
+5
+Table of Contents 
+Growth Strategies 
+Our growth will depend upon our broadening of the products
+offered under each brand, expanding domestic and international
+distribution, licensing our brand names and developing or
+acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under Existing
+Brands. We intend to increase our sales by developing
+and introducing additional footwear products under our existing
+brands that meet our high standards of performance,
+practicality, authenticity, comfort and quality. We have
+expanded Teva’s open-toe footwear category by launching new
+casual styles. We have also introduced several closed-toe lines
+under the Teva brand, including amphibious footwear, hikers,
+trail runners and other rugged outdoor footwear. We plan further
+expansion into the hiking, trail running and rugged outdoor
+arenas, where the aggregate market is considerably greater than
+the market size for Teva’s core sport sandals. We have
+expanded our UGG collection to incorporate additional styles and
+fabrications in order to further penetrate the fall, spring and
+winter seasons. We have expanded our men’s and kids’
+business for 2005 and have introduced a cold-weather series
+featuring sheepskin and Gore-Tex®, which will be delivered
+in Fall 2005. We expect to grow our Simple brand with the
+re-focus on our heritage clog and sneaker categories for both
+men and women. Simple has introduced “comfy” sandals,
+leveraging another of our core competencies. By introducing new
+categories under our brands, in particular, the closed-toe
+footwear under Teva and the Spring product offerings under UGG,
+we believe we have expanded the selling seasons for our brands
+which has resulted in increased sales and has contributed to a
+more balanced year round business for each of these brands. 
+Expand Domestic Distribution. We believe that we
+have significant opportunities to increase our sales by
+expanding domestic distribution of our products. Our Teva brand
+has generally been distributed through the outdoor specialty and
+sporting goods retail channels. We have identified the potential
+for expansion into additional retail channels through the
+development of special make-up styles for retailers who have
+limited store overlap with our core specialty outdoor and
+sporting goods customers. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+several years we have experienced increasing demand for
+UGG distribution outside California, and we expect to
+capitalize on significant demand in the Midwest and East Coast
+markets. For Simple, we are repositioning the brand by focusing
+on our legacy styles in order to re-connect with our consumer
+base and by broadening the appeal of Simple to new channels of
+distribution. The legacy products are primarily clogs,
+athletic-inspired sneakers and comfort sandals. 
+Expand International Distribution. In 2004, our
+international net sales totaled $39,368,000, representing
+approximately 18.3% of total net sales. We believe significant
+opportunities exist to market our products abroad, and we intend
+to selectively expand their distribution worldwide. We have
+entered into an agency agreement with a firm in the United
+Kingdom for the coordination of our sales, distribution,
+marketing and advertising efforts in the European markets. For
+UGG, in particular, we have greatly expanded our international
+efforts, increasing the number of international distributors
+from six at December 31, 2002 to 13 at December 31,
+2004. 
+Pursue Licensing of Brands in Complementary Product
+Lines. We are pursuing selective licensing of our brand
+names in product categories beyond footwear. In 2004, we hired a
+Vice President of Corporate Licensing, who has extensive
+licensing experience at several leading companies in our
+industry, to coordinate the efforts for the licensing of
+products that complement our trademark-protected products. We
+successfully launched UGG handbags and outerwear in 2004
+and have signed a license for UGG cold weather accessories,
+which are expected to begin deliveries in the Fall 2005 season.
+We have also initiated a domestic Teva licensing program,
+consisting of U.S. licenses for men’s sportswear,
+headwear, eyewear, timepieces and socks, and have signed a
+Canadian sportswear license. We expect to begin deliveries for
+all of these items in 2005. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. Because this
+licensing strategy is in its early stages, and due to the lead
+times required to bring the products to market, we have only
+recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from 
+6
+Table of Contents 
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have promised. For the year
+ended December 31, 2004, our licensees began to ship their
+products and, accordingly, we recognized net license revenues of
+$950,000, primarily related to our UGG handbag and
+outerwear licenses. 
+Build New Brands. We intend to continue to focus
+on identifying, developing or acquiring, and building new
+brands. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing our expertise in product development,
+production and marketing. We intend to continue to identify and
+build new brands that demonstrate potential for significant
+future growth. 
+Products 
+Our primary product lines are:
+Teva Sport Sandals and Footwear. “The brand
+of choice for the new outdoor athlete.” We believe there
+has been a general shift in consumer preferences and lifestyles
+to include more outdoor recreational activities, including
+hiking, trail running, bouldering, kayaking, kite boarding and
+whitewater river rafting. These consumers typically seek
+footwear specifically designed with the same quality and high
+performance attributes they have come to expect from traditional
+athletic footwear. The first Teva sport sandal was developed in
+the 1980’s to meet the demanding needs of professional
+rafting guides navigating the Colorado River and the rugged
+Grand Canyon terrain. As our core consumers’ pursuits have
+evolved, we have retained our outdoor heritage while adding new
+products to our line, including slides, thongs, amphibious
+footwear, trail running shoes, hiking boots and rugged
+closed-toe footwear. Our brand remains popular among
+professional and amateur outdoorsmen seeking authentic,
+performance-oriented footwear, as well as general footwear
+consumers seeking high quality, durable and comfortable styles
+for everyday use. 
+Our Teva line comprises six core footwear collections:
+Originals. The Originals Series is a collection of
+sandals and thongs utilizing Teva’s classic rugged
+architecture. The Originals Series leverages the Teva brand
+heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Our Originals feature our proprietary Universal
+Strapping System or Wraptor technology as well as cellular
+rubber, molded EVA or polyurethane mid-soles and high-quality
+nylon webbing or leather designed to hold the foot firmly in
+place. Our U.S. patent on our Universal Strapping System,
+which we utilize in most of our Teva sandals, expires in
+September 2007. 
+Hydro. The Hydro Series builds upon our legacy as
+the category leader in whitewater-designed footwear. Hydro
+consists of sandals and closed-toe amphibious footwear built for
+high performance and rugged outdoor use. This series includes
+men and women’s sport sandals and other outdoor footwear
+ideal for professional and amateur outdoor enthusiasts and
+adventurers. Our Hydro Series incorporates many proprietary
+technologies including our Wraptor, Universal, or Liquid Frame
+technologies as well as quick draining monofilament mesh,
+specially formulated sticky rubber outsoles designed to adhere
+to slippery rocks, form fitting neoprene and water-repelling
+leathers. 
+Terrain. The Terrain Series is a line of sandals
+and closed-toe footwear that incorporates Teva technologies and
+is designed for use in rugged outdoor environments such as
+hiking trails and canyons. The Terrain Series includes
+performance walking sandals and running sandals, as well as
+hiking boots and trail running shoes. To meet our
+consumers’ expanded needs and to provide them with the best
+product possible, we have partnered with many of the
+world’s leading providers of footwear technology for
+specialty component materials, including Vibram®, Five
+Ten® and Gore-Tex®. 
+Nomadic. Our Nomadic Series is a collection of
+leather casual sandals and closed-toe footwear true to
+Teva’s performance-oriented outdoor heritage but designed
+for more casual use. The Nomadic Series consists of men’s
+and women’s leather and suede sandals, closed toe shoes,
+slides and clogs 
+7
+Table of Contents 
+featuring rugged, contemporary styles for the traveler and
+adventurer. Our 2005 line includes several closed-toe styles
+featuring our patent-pending
+flipsole tm ,
+a removable insole that can be easily converted to a flip-flop. 
+Sun and Moon. Our Sun and Moon Series features
+fun, youthful and colorful slides and thongs in a variety of
+materials including waterproof leather, nylon, suede and air
+mesh. The Sun and Moon Series is designed to leverage our
+sandal-making capabilities and to appeal to fashion-oriented
+consumers seeking pre-activity and post-activity footwear
+alternatives that express a casual lifestyle and individual
+spirit. 
+Kids and Infants. Our children’s series is an
+assortment of sandals incorporating a variety of materials
+including leather, waterproof suede, nylon, neoprene and mesh,
+as well as slip-on water shoes, hikers and other styles of
+amphibious footwear. In addition, for the 2005 season, we have
+expanded our product offering with a variety of styles of
+sandals and closed-toe footwear, including an assortment of
+styles that are reflective of our adult offerings. 
+We intend to continue to build upon Teva’s broad and deep
+line of performance and casual footwear. Our Spring 2005 line
+features 126 different product styles with manufacturer’s
+suggested domestic retail prices for adult sizes ranging from
+$20.00 to $120.00.
+UGG Footwear. “The premier brand in luxury
+and comfort sheepskin.” Beginning in 1979, UGG gained brand
+recognition in the U.S. for sheepskin boots and slippers
+and was later adopted as a favored brand by the California surf
+community. We acquired the brand in 1995 and expanded the
+collection, offering consumers a luxurious and distinctive look
+in sheepskin fabrications.
+Our UGG product line comprises seven core footwear collections:
+Classic Collection. We offer a complete line of
+sheepskin boots built on the heritage and distinctive look of
+our first product, the Classic Sheepskin boot. Our Classic
+Collection products are distinctive in styling, featuring an
+array of neutral and fashion colors. Our Classic Collection
+includes styles for men, women and children. 
+Ultra Collection. The Ultra Collection builds upon
+the heritage of our original Classic. These boots are designed
+with our comfort system, featuring a multi-surfaced lugged
+bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures. This collection features styles for
+men, women and children. 
+Casual Collection. This women’s collection
+features a more tailored and refined look with sheepskin
+combined with smooth leather uppers and suede in distinctive
+patterns and styles. This collection features a variety of
+shoes, clogs and boots and provides UGG consumers with the
+versatility to utilize sheepskin styling for a wider variety of
+occasions and outfits. 
+Metropolitan Collection. This is a new collection
+of women’s styles for the Fall 2005 season. The
+Metropolitan Collection features styles that combine high
+quality suede uppers with sheepskin linings, including models
+with high fashion, bohemian and other casual stylings. 
+Cold Weather Collection. This collection is
+designed for men and women seeking more rugged styling. The Cold
+Weather line features a Vibram® outsole and waterproof
+Gore-Tex® uppers designed to withstand colder, wetter
+climates. 
+Fluff Momma Collection. This is our most playful
+and distinctive style for women. The Fluff Momma features
+untrimmed and colored sheepskin fleece exposed on the entire
+boot. 
+Slipper Collection. Our popular Slipper Collection
+builds upon the UGG reputation for comfort, warmth and
+luxury. We offer a wide selection of styles and colors for men,
+women and children. 
+8
+Table of Contents 
+We have expanded our UGG collection from the Classic
+Sheepskin boot to a broad footwear line for men, women and
+children in a variety of styles, colors and materials designed
+for wear in a variety of climates and occasions. Over the last
+few years, our line expansion strategies have resulted in
+significantly increased exposure for our UGG collection and
+have contributed to the growth of UGG’s year round
+business. The manufacturer’s suggested domestic retail
+prices for adult sizes for the UGG collection range from
+$55.00 to $300.00.
+Simple Casual Footwear. “The brand of choice
+for a simple, uncomplicated lifestyle.” The Simple line of
+casual shoes combines the comfort of athletic footwear
+construction with the simple, understated styling of
+“back-to-basics” casual footwear. Simple was launched
+in the 1990’s as an anti-brand that catered to
+21-35 year old consumers who were looking for an
+alternative to the flashy athletic footwear brands that were
+saturating the market. Since then, we’ve expanded into a
+full line of clogs, sneakers, and sandals; and in 2005, we are
+introducing our new Unclog and Green
+Toe tm 
+segments to the line.
+Our product line is comprised of these five key categories,
+which range in price from $20.00 to $80.00:
+Sneakers. We’ve evolved our classic sneaker
+collection with successful styles like the Sugar. We continue to
+keep this segment fresh by updating colors and materials
+seasonally. We’ve introduced several new sneaker styles
+that incorporate a sneaker specific
+pedbed tm ,
+durable rubber outsoles, and leather and suede uppers. 
+Clogs. Building on the heritage of our original
+clogs, our current clog series features the
+pedbed tm 
+and updated material and color options. 
+Unclogs: This collection is our twist on the
+traditional casual segment. It features oxfords, loafers, and
+boots that incorporate our comfortable
+pedbed tm 
+with suede and leather uppers. 
+Sandals: We offer a range of warm weather footwear
+for men and women in rich leathers and colorful nubucks. We also
+offer a flip-flop program that caters to the surf channel of
+distribution. 
+Green
+Toe tm :
+The Green
+Toe tm 
+segment represents an effort on the part of Simple to reduce the
+ecological footprint made by shoes around the world. All Green
+Toe products are made with 100% natural materials (textiles and
+rubbers), use water-based glues, and soy-based dyes. This
+collection is currently comprised of two styles for men and
+women. 
+Licensing 
+To capitalize on the strength of our brands, we are pursuing the
+licensing of our brand names for use in complementary product
+categories beyond footwear. As part of this approach, in 2004,
+we hired a Vice President of Corporate Licensing, who has
+extensive licensing experience at several leading companies in
+our industry, to coordinate the efforts for the licensing of the
+Teva, UGG and Simple trademarks on products ranging from
+sportswear and outerwear to bags, packs and other accessories.
+Products sold under license began selling at retail in the third
+quarter of 2004. For the year ended December 31, 2004, we
+recognized net license revenues of approximately $950,000.
+We have initiated a Teva licensing program with strategic
+partners, which currently consist of U.S. licenses for
+men’s sportswear, headwear, eyewear, timepieces, and socks,
+as well as a Canadian license for men’s sportswear. We are
+selectively developing additional licensing programs to ensure
+that licensed goods remain consistent with Teva’s brand
+heritage. In addition, we have signed license agreements for
+UGG handbags and related small leather goods, outerwear,
+and cold weather accessories, and have several other
+UGG related licensing opportunities under consideration,
+including “at home” apparel, home accessories and
+other categories to complement our UGG business. We are
+also planning to expand our licensing program to the
+international markets.
+BHPC Global Licensing, Inc. is a full service licensing agency
+that we initially used to assist us in identifying licensing
+candidates and coordinating our licensing business until August
+2004, when we hired our Vice President of Corporate Licensing to
+coordinate these efforts for us. We pay BHPC a commission on
+royalty income that we receive related to licensing agreements
+that BHPC coordinated on our behalf. In 2004, we paid BHPC
+approximately $168,000. BHPC is owned by one of our directors,
+Daniel L. Terheggen.
+9
+Table of Contents 
+Products made under license are sold primarily through the same
+retail channels as our footwear product offering. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and Distribution 
+We distribute our products in the U.S. through a dedicated
+network of approximately 40 independent sales representatives.
+Our sales representatives are organized geographically and visit
+retail stores to communicate the features, styling and
+technology of our products. In addition, we have five employee
+sales representatives who serve as key account executives for
+several of our largest customers.
+Our sales force is divided into two teams, one for Teva and one
+for UGG and Simple, as the UGG and Simple brands are
+generally sold through non-outdoor specialty and non-sporting
+goods distribution channels and are targeted toward a different
+consumer than our Teva brand. The sales manager for each brand
+recruits and manages his or her networks of sales
+representatives and coordinates sales to national accounts. We
+believe this approach for the U.S. market maximizes the
+selling efforts to our national retail accounts on a
+cost-effective basis.
+Internationally, we distribute our products through 35
+independent distributors. Shipments to Europe are primarily
+facilitated through third party distribution in the Netherlands.
+All other international shipments are made directly from our
+independent manufacturers.
+Our principal customers include specialty retailers, selected
+department stores, outdoor retailers, sporting goods retailers
+and shoe stores. Our five largest customers accounted for
+approximately 25.2% of our net sales for 2004, compared to 20.5%
+for 2003. No single customer accounted for more than 10.0% of
+our net sales in 2004 or 2003, except that a West Coast based
+upscale department store, which is a significant customer for
+each of our three brands, accounted for 14.1% of net sales in
+2004.
+Teva. We sell our Teva products primarily through
+specialty outdoor and sporting goods retailers such as REI,
+Eastern Mountain Sports, L.L. Bean, Dick’s Sporting Goods
+and The Sports Authority. We believe this retail channel is the
+first choice for athletes, enthusiasts and adventurers seeking
+technical and performance-oriented footwear. Furthermore, we
+believe that our Teva products are best sold by retailers who
+appreciate and can fully market the technical attributes of our
+products to the consumer. We also sell a limited selection of
+styles and special make-up Teva products through selected
+retailers in order to reach consumers who are less
+outdoor-oriented but who seek out our products due to their
+durability, comfort and fit.
+UGG. We sell our UGG products primarily
+through high-end department stores such as Nordstrom, Neiman
+Marcus and Marshall Field’s, as well as independent
+specialty retailers such as Fred Segal, David Z. and Sport
+Chalet. 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.
+Simple. Our Simple products are targeted primarily
+towards independent specialty retailers and select department
+stores that target consumers seeking comfortable, high quality
+footwear at a fair price. Key accounts such as J. Jill,
+Nordstrom, Journeys, and REI cater to consumers in our
+demographic — men and women between the ages
+of 21 and 35.
+In 2004, we distributed products sold in the U.S. through
+our 126,000 square foot distribution center in Ventura,
+California. In 2005, we are also distributing products from an
+additional 175,000 square foot U.S. distribution
+center in Camarillo, California. Our distribution centers
+feature an inventory management system that enables us to
+efficiently pick and pack products for direct shipment to
+retailers across the country. 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
+rigorous quality inspection process.
+See the discussion of the cash flow cycle, inventories and other
+items of working capital under “Liquidity and Capital
+Resources”.
+10
+Table of Contents 
+Consumer Direct 
+We acquired the Internet and catalog business as part of the
+acquisition of the Teva Rights. The consumer direct business
+enables us to reach consumers through our Internet business
+under the Teva.com , UGGs.com ,
+UGGAustralia.com and SimpleShoes.com Internet
+addresses and through direct mailings. Our mailing list includes
+approximately 300,000 consumers who have purchased at least once
+in the past 36 months. We currently average approximately
+600 direct orders daily. In late 2003 we moved our order
+fulfillment operations from Flagstaff, Arizona to our
+distribution center in Ventura, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs. We
+generally sell our products through our direct channels at
+approximate retail prices, enabling us to capture the full
+retail margin on each direct transaction.
+Marketing and Advertising 
+Our brands are generally advertised and promoted through a
+variety of consumer print advertising campaigns. We benefit from
+highly visible 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 incurred approximately $7,456,000,
+$6,594,000 and $8,687,000 in advertising, marketing and
+promotion expenses in 2002, 2003 and 2004, respectively.
+Teva. We use several marketing methods to promote
+the Teva brand, including:
+• 
+a targeted print advertising campaign; 
+• 
+promotions at a variety of festivals, events and competitions; 
+• 
+sponsorship of local athletes and national athletes such as the
+Teva Whitewater Team, the Teva U.S. Mountain Running Team
+and the Cannondale Mountain Bike Team; 
+• 
+discount programs to professional river guides, kayakers,
+mountain bikers and rock climbers; 
+• 
+product seeding with professional athletes; and 
+• 
+in-store promotions. 
+We advertise the Teva brand through the placement of print
+advertisements in leading outdoor magazines such as
+Backpacker, Outside, National Geographic Adventurer, Hooked
+on the Outdoors and Paddler . As we have added new
+product categories to the Teva brand, we have broadened our
+advertising presence to reach new consumers. To support our
+introduction of Teva trail running shoes, we advertise in
+Trail Runner and Running Times , among other
+publications. We also advertise in more mainstream publications
+such as Men’s Journal, Sports Illustrated , and
+Organic Style in order to support our casual footwear
+lines.
+The Teva brand is closely associated with outdoor lifestyle
+pursuits such as river rafting, kayaking, mountain biking,
+hiking and trail running. We sponsor outdoor events in the U.S.
+including the Teva Mountain Games at Vail, the Teva Vail Trail
+Running Series, the Santa Cruz Surf Kayak Festival in Santa
+Cruz, California, the Telluride Bluegrass Festival in Telluride,
+Colorado and the Reggae on the River event in Garberville,
+California, among others. We believe our sponsorship of these
+events further links our Teva brand with its outdoor heritage
+and generates increased product exposure and brand awareness.
+Internationally, we sponsor outdoor events in France,
+Switzerland and Italy in order to increase our brand visibility
+to the core European outdoor consumer.
+We sponsor some of the world’s best male and female
+professional and amateur athletes across several sports. Our
+Teva promotional team attends events across the U.S. in
+dedicated, state-of-the-art promotional vehicles prominently
+featuring our Teva logo. The promotions team showcases Teva
+products at events and provides consumers with the opportunity
+to see and sample our latest styles. We recently initiated a
+partnership with Volkswagen whereby the Teva technical
+representatives and Team Teva athletes are outfitted in seven
+Teva branded Volkswagen Eurovans and seven Volkswagen Touaregs
+for travels across the U.S. We believe by outfitting and
+sponsoring these highly visible athletes and teams, we create
+brand and product awareness among our targeted consumers at a
+relatively low cost.
+11
+Table of Contents 
+UGG. We seek to build upon the success of our UGG
+national print advertising campaign. We currently advertise in
+upscale national magazines such as Vogue, ELLE , and O
+Magazine . We believe such advertising is an effective means
+to target our intended consumers and to convey the high quality
+and luxurious appeal of UGG products. We also benefit from
+editorial coverage of the UGG collection. Articles have appeared
+in such magazines as Glamour, InStyle, Cosmopolitan, Marie
+Claire, People, US Weekly, Maxim, Shape, Self, O Magazine
+and Real Simple . In 2003, UGG was awarded “Brand
+of the Year” by Footwear News , a leading industry
+trade publication. In 2004, UGG was awarded “Brand of the
+Year” by Footwear Plus , another leading trade
+publication, and was recognized with the ACE Award for the
+“it” accessory of the year by the Accessories Council.
+We also actively seek to place UGG products at selected events.
+During the 2002 Winter Olympic Games we outfitted all of the
+children in the Children of the Light performance with UGG
+boots. During the Medal Ceremonies, Olympic staff presenting
+medals to the Olympic athletes also wore UGG boots. We believe
+this product placement further strengthened the consumer’s
+image of UGG products as high quality, luxurious sheepskin goods
+well-suited for use in cold weather.
+We also have improved visibility of the UGG brand through
+placement of the product in selected television shows and
+feature films. UGG products have appeared on numerous shows,
+including Entourage, Six Feet Under, The Oprah Winfrey Show,
+Judging Amy, The King of Queens, Still Standing, Will and Grace,
+Everwood, The George Lopez Show, Jeopardy and Saturday
+Night Live . Our marketing efforts have also resulted in UGG
+product appearances in the following recent and upcoming feature
+films: Fever Pitch starring Drew Barrymore and Jimmy
+Fallon, White Chicks starring the Wayans Brothers,
+Surviving Christmas starring Ben Affleck and Christina
+Applegate, Raising Helen starring Kate Hudson and
+Wicker Park starring Josh Hartnett. In addition, UGG has
+been embraced by Hollywood celebrities, who are often seen and
+photographed wearing UGG boots. This celebrity exposure for UGG
+has been the subject of recent publicity including articles in
+US Weekly, USA Today, People and
+People.com . UGG boots have been a featured item on
+the Oprah Winfrey gift show in 2000 and 2003 and her surprise
+baby shower for military families in 2004. We believe our target
+consumer identifies with celebrities and that greater exposure
+further heightens awareness of the brand and stimulates sales.
+Simple. The Simple consumer identifies with a
+certain irreverent culture, and we seek to reach that consumer
+through a focused grassroots marketing approach that will
+introduce the brand to influential communities around the
+country. These marketing efforts will focus on the following
+cities: Los Angeles, San Francisco, New York City, Chicago,
+Boulder, Austin and Nashville. In support of our grassroots
+initiatives, we will focus on advertising in alternative weekly
+publications, which will provide us with the opportunity to
+reach a large number of people through a cost efficient,
+non-mainstream medium.
+Simple will continue to work with its public relations agency to
+get editorial placement of key styles in youth and trend
+magazines, television shows, independent films and with
+cutting-edge influential artists and musicians. Our efforts have
+resulted in product appearances in Teen People, Maxim, Nylon,
+Lucky and Surfing Girl , and product appearances on VH1 and
+MTV.
+Product Design and Development 
+The design and product development staff for each of our brands
+creates and introduces new innovative footwear products that
+combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance technical products
+continue to satisfy the requirements of our historical consumer
+base of performance-oriented “core enthusiasts,” our
+design staff solicits input from our Team Teva whitewater
+athletes, the Teva U.S. Mountain Running Team and other
+professional outdoorsmen, as well as several of our retailers,
+including REI, Eastern Mountain Sports, Dick’s Sporting
+Goods and L.L. Bean. We regularly add new innovations,
+components and styles to our product line based on their input.
+For example, our Fall 2005 Teva offering features several styles
+of casual closed toe footwear with our new
+12
+Table of Contents 
+Flipsole tm 
+technology, a removable midsole that can be easily removed and
+converted to a thong, making it two shoes in one. We have also
+incorporated our proprietary Wraptor technology into performance
+running sandals, an assortment of hikers and certain styles of
+our high performance guide sport sandals specifically targeted
+at professional outdoorsmen and adventurers. In addition, for
+added traction and durability, we have incorporated various
+materials in our Teva sandals, including Spider
+Rubber — a sticky, non-slip rubber outsole material
+for use across wet and dry terrain, Traction Rubber —
+a highly durable and abrasion resistant material designed
+specifically for the extra rigors of land use, and River
+Rubber — a non-slip material designed to offer
+superior grip on smooth wet surfaces such as rocks, fiberglass
+and raft rubber.
+Our UGG and Simple products are designed to appeal to consumers
+seeking our distinctive and innovative styling. We strive to be
+a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further
+awareness and interest in the UGG and Simple collections. We
+believe our ability to incorporate up-to-date styles without
+deviating from UGG’s classic look, combined with
+performance-oriented features consumers have come to expect,
+results in continued enthusiasm for our brand in the marketplace.
+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 for their various product lines. We
+develop detailed drawings and prototypes of our new products to
+aid in the conceptualization and to ensure our contemplated new
+products meet the standards for innovation and performance our
+consumers demand. Throughout the development process, members of
+the design staff coordinate internally and with our domestic and
+overseas product development, manufacturing and sourcing
+personnel toward a common goal of developing and producing a
+high quality product to be delivered on a timely basis.
+Manufacturing 
+We do not manufacture our footwear. We outsource the
+manufacturing of our Teva, Simple, and UGG footwear to
+independent manufacturers in the Far East. We also outsource the
+manufacturing of our UGG footwear to independent manufacturers
+in Australia and New Zealand. 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. To ensure the
+production of high quality products, many of the materials and
+components used in production of our products by the 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 outsource our manufacturing
+requirements on the basis of individual purchase orders 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 one tannery
+in New Zealand and three in China. We maintain a constant dialog
+with the tanneries to monitor the supply of sufficient high
+quality sheepskin available for our projected UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We have instituted pre-production and post-production
+inspections to meet or exceed the high quality demanded by
+consumers of our products. Our quality assurance program
+includes 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
+U.S. distribution center.
+13
+Table of Contents 
+Patents and Trademarks 
+We now hold 16 U.S. patents, two patents in each of
+Australia and China and one patent in each of Canada, New
+Zealand, South Korea, Germany, France, Japan and the United
+Kingdom for Teva footwear. In addition, we have pending patent
+applications in Australia, Hong Kong, Mexico, Germany, France,
+Belgium, Luxembourg, the Netherlands, Italy, Switzerland, the
+United Kingdom and the U.S. Our U.S. patent for the Teva
+Universal Strapping System, which is used in most of our Teva
+sandals, expires in 2007. As a result of the expiration of the
+applicable period during which foreign patent applications were
+required to have been filed by the former licensor, we do not
+and cannot hold certain patent rights for Teva footwear in
+certain countries. We also currently hold Teva trademark
+registrations in the U.S. and in many other countries, including
+France, Germany, the United Kingdom, Japan and Australia. We
+regard our proprietary rights as valuable assets and vigorously
+protect such rights against infringement by third parties.
+Deckers and its predecessor, Mark Thatcher, have successfully
+enforced their intellectual property rights in the courts and
+other forums, obtaining numerous judgments, consent judgments
+and settlement agreements that uphold the validity of
+Deckers’ patent, trademark and trade dress rights.
+We currently hold UGG trademark registrations in the U.S. and in
+more than 40 other countries, including the countries in the
+European Community, Canada, Japan and Australia, among others.
+We also hold various Simple trademark registrations around the
+world, including registrations in the U.S. and in more than 40
+foreign countries worldwide. We have also selectively registered
+style category names and marketing slogans. In addition, we hold
+two design patents for our Simple footwear products and have two
+pending design patent applications for UGG footwear products.
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters, while the quarter with the
+highest percentage of annual net sales for Simple has varied
+from year to year. With the dramatic growth in UGG in recent
+years, combined with the introduction of a fall Teva line, net
+sales in the last half of the year have exceeded that for the
+first half of the year. Given our expectations for each of our
+brands in 2005, we currently expect this trend to continue.
+Nonetheless, actual results could differ materially depending
+upon consumer preferences, availability of product, competition
+and our customers continuing to carry and promote our various
+product lines, among other risks and uncertainties. See
+“Risk Factors.”
+Backlog 
+Historically, we have encouraged our customers to place, and we
+have received, a significant portion of orders as pre-season
+orders, generally four to eight months prior to shipment date.
+We provide customers with incentives to participate in such
+pre-season 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 and do not represent
+firm orders. The backlog as of a particular date is affected by
+a number of factors, including seasonality, manufacturing
+schedule and the timing of shipments of products 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.
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are
+highly competitive. We compete with numerous domestic and
+foreign footwear designers, manufacturers and marketers. Our
+Teva footwear line primarily competes with Nike, adidas-Salomon,
+Timberland, Merrell and Columbia Sportswear. Our UGG footwear
+line primarily competes with Merrell, Acorn, Aussie Dogs,
+LB Evans and Timberland, as well as retailers’ own
+private label footwear. In addition, due to the popularity of
+our UGG products, we face increasing competition from a
+significant number of competitors selling “knock-off
+“products. Our Simple footwear line primarily competes with
+Steve Madden, Dr. Marten, Camper, Kenneth Cole, Skechers,
+Diesel,
+14
+Table of Contents 
+Guess? and Puma. Some of our competitors are significantly
+larger and have significantly greater resources than we do.
+Our three footwear lines compete primarily on the basis of brand
+recognition and authenticity, product quality and design,
+functionality and performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and preferences by offering
+innovative, attractive and exciting products; 
+• 
+anticipate and respond to changing consumer demands in a timely
+manner; 
+• 
+maintain brand authenticity; 
+• 
+develop high quality products that appeal to consumers; 
+• 
+appropriately price our products; 
+• 
+provide strong and effective marketing support; and 
+• 
+ensure product availability. 
+We believe we are particularly well positioned to compete in the
+footwear industry. Our diversified portfolio of footwear brands
+and products allows us to operate a business that does not
+depend on any one demographic group, merchandise preference or
+product trend. We have developed a portfolio of brands that
+appeals to a broad spectrum of consumers. 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, 2004, we employed approximately
+156 full-time employees in our U.S. facilities and
+31 full-time employees located in China and Macau, none of
+whom is represented by a union. We believe our relationships
+with our employees are good.
+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 Securities and Exchange Commission
+(“SEC”): annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K and
+any amendment to those reports filed or furnished pursuant to
+Section 13(a) 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 450 Fifth
+Street, NW, 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 that
+contains reports, proxy and information statements, and other
+information regarding issuers that file electronically with the
+SEC. The address of that site is www.sec.gov .
+Item 2. 
+Properties 
+Our corporate headquarters is located in Goleta, California. We
+have two distribution centers in Ventura and Camarillo,
+California, and our Internet and catalog operations are located
+in Flagstaff, Arizona. We also have a small office in China to
+oversee the quality and manufacturing standards of our products
+and a small office in Macau to coordinate logistics. We have no
+manufacturing facilities, as all of our products are
+manufactured by independent manufacturers in the Far East,
+Australia and New Zealand. We lease, rather than own, all of our
+facilities. Our facilities are leased from unrelated parties. We
+consider our facilities to be suitable for our needs.
+15
+Table of Contents 
+The following table reflects the location, use and approximate
+size of our significant real properties: 
+Approximate 
+Facility Location 
+Description 
+Square Footage 
+Camarillo, California 
+Warehouse Facility 
+175,000 
+Ventura, California 
+Warehouse Facility 
+126,000 
+Goleta, California 
+Corporate Offices 
+30,000 
+China 
+Office Facility 
+4,200 
+Flagstaff, Arizona 
+Internet/Catalog Vacant Warehouse 
+3,000 
+Flagstaff, Arizona 
+Internet/Catalog Office Facility 
+2,400 
+Macau 
+Office Facility 
+2,000 
+Item 3. 
+Legal Proceedings 
+We are involved in routine litigation arising in the ordinary
+course of business. Such routine matters, if decided adversely
+to us, would not, in the opinion of management, have a material
+adverse effect on our financial condition or results of
+operations. Additionally, we have many pending disputes in the
+U.S. Patent and Trademark Office, foreign trademark offices
+and U.S. federal and foreign courts regarding unauthorized
+use or registration of our Teva, UGG and Simple trademarks. We
+also are aware of many instances throughout the world in which a
+third party is using our UGG trademark within its Internet
+domain name, and we have discovered and are investigating
+several manufacturers and distributors of counterfeit Teva and
+UGG products. We have contacted a majority of these unauthorized
+users and counterfeiters and in some instances may have to
+escalate the enforcement of our rights by filing suit against
+the unauthorized users and counterfeiters. Any decision or
+settlement in any of these matters that allowed a third party to
+continue to use our Teva, UGG or Simple trademarks or a domain
+name with our UGG trademark in connection with the sale of
+products similar to our products or to continue to manufacture
+or distribute counterfeit products could have an adverse effect
+on our sales and on our intellectual property, which could have
+a material adverse effect on our results of operations and
+financial condition.
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+None.
+16
+Table of Contents 
+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 National 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 National Market for the periods
+indicated.
+Common Stock 
+Price Per Share 
+Low 
+High 
+Year ended December 31, 2003: 
+First Quarter 
+$3.45 
+$4.99 
+Second Quarter 
+$4.20 
+$6.69 
+Third Quarter 
+$6.40 
+$10.13 
+Fourth Quarter 
+$11.22 
+$20.81 
+Year ended December 31, 2004: 
+First Quarter 
+$17.70 
+$27.68 
+Second Quarter 
+$22.94 
+$30.28 
+Third Quarter 
+$26.93 
+$34.76 
+Fourth Quarter 
+$32.05 
+$48.02 
+As of March 8, 2005, there were approximately 110 record
+holders of our common stock.
+DIVIDEND POLICY 
+We have not declared or paid any cash dividends on our common
+stock since our inception. We currently anticipate that we will
+retain all of our earnings for the continued development and
+expansion of our business and do not anticipate declaring or
+paying any cash dividends in the foreseeable future. Moreover,
+our debt facilities contain covenants expressly prohibiting us
+from paying cash dividends.
+17
+Table of Contents 
+Item 6. 
+Selected Consolidated Financial Data 
+We derived the following selected consolidated financial data
+from our consolidated financial statements, which have been
+audited by KPMG LLP, independent registered public accounting
+firm. Historical results are not necessarily indicative of the
+results to be expected in the future. You should read the
+following consolidated financial information together with our
+consolidated financial statements and the related notes and
+“Management’s Discussion and Analysis of Financial
+Condition and Results of Operations.”
+Years Ended December 31, 
+2000 
+2001 
+2002 
+2003 
+2004 
+(In thousands, except per share data) 
+Statement of Operations Data 
+Net sales: 
+Teva wholesale 
+$ 
+79,732 
+$ 
+61,221 
+$ 
+64,849 
+$ 
+72,783 
+$ 
+83,477 
+UGG wholesale 
+15,310 
+19,185 
+23,491 
+34,561 
+101,806 
+Simple wholesale 
+16,328 
+10,853 
+10,159 
+7,210 
+9,633 
+Internet/catalog 
+— 
+— 
+608 
+6,501 
+19,871 
+Other 
+2,368 
+202 
+— 
+— 
+— 
+Net sales 
+113,738 
+91,461 
+99,107 
+121,055 
+214,787 
+Cost of sales 
+63,540 
+52,903 
+57,577 
+69,710 
+124,354 
+Gross profit 
+50,198 
+38,558 
+41,530 
+51,345 
+90,433 
+Selling, general and administrative expenses 
+37,168 
+33,940 
+34,954 
+32,407 
+47,971 
+Litigation expense
+(income) (1) 
+400 
+2,280 
+3,228 
+(500 
+) 
+— 
+Income from operations 
+12,630 
+2,338 
+3,348 
+19,438 
+42,462 
+Other expense (income) 
+295 
+(473 
+) 
+504 
+4,554 
+2,239 
+Income before income taxes and cumulative effect of accounting
+change 
+12,335 
+2,811 
+2,844 
+14,884 
+40,223 
+Income taxes 
+5,320 
+1,185 
+1,224 
+5,730 
+14,684 
+Income before cumulative effect of accounting change 
+7,015 
+1,626 
+1,620 
+9,154 
+25,539 
+Cumulative effect of accounting change, net of $843,000 income
+tax
+benefit (2) 
+— 
+— 
+(8,973 
+) 
+— 
+— 
+Net income (loss) 
+$ 
+7,015 
+$ 
+1,626 
+$ 
+(7,353 
+) 
+$ 
+9,154 
+$ 
+25,539 
+Per common share: 
+Basic net income before cumulative effect of accounting change 
+$ 
+0.77 
+$ 
+0.18 
+$ 
+0.17 
+$ 
+0.91 
+$ 
+2.32 
+Cumulative effect of accounting
+change (2) 
+— 
+— 
+(0.96 
+) 
+— 
+— 
+Basic net income (loss) 
+$ 
+0.77 
+$ 
+0.18 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+$ 
+2.32 
+Diluted income before cumulative effect of accounting change 
+$ 
+0.74 
+$ 
+0.17 
+$ 
+0.17 
+$ 
+0.77 
+$ 
+2.10 
+Cumulative effect of accounting
+change (2) 
+— 
+— 
+(0.92 
+) 
+— 
+— 
+Diluted net income (loss) 
+$ 
+0.74 
+$ 
+0.17 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+$ 
+2.10 
+Weighted average common shares outstanding: 
+Basic 
+9,093 
+9,247 
+9,328 
+9,610 
+11,005 
+Diluted 
+9,476 
+9,661 
+9,806 
+11,880 
+12,142 
+18
+Table of Contents 
+As of December 31, 
+2000 
+2001 
+2002 
+2003 
+2004 
+(In thousands) 
+Balance Sheet Data 
+Cash and cash equivalents 
+$ 
+9,057 
+$ 
+16,689 
+$ 
+3,941 
+$ 
+6,662 
+$ 
+10,379 
+Working capital 
+$ 
+40,482 
+$ 
+41,387 
+$ 
+22,453 
+$ 
+22,803 
+$ 
+69,854 
+Total assets 
+$ 
+77,712 
+$ 
+85,884 
+$ 
+122,412 
+$ 
+121,026 
+$ 
+176,551 
+Long-term debt, including current installments 
+$ 
+1,495 
+$ 
+449 
+$ 
+39,028 
+$ 
+30,287 
+$ 
+— 
+Total stockholders’ equity 
+$ 
+64,095 
+$ 
+66,532 
+$ 
+65,227 
+$ 
+70,524 
+$ 
+140,996 
+(1) 
+The litigation expense (income) includes: (i) expenses of
+$2,180,000 in 2001 and $3,228,000 in 2002 related to a lawsuit
+filed against us in Montana in 1995 which we settled and paid in
+full in 2002, and (ii) expenses of $400,000 in 2000,
+expenses of $100,000 in 2001 and income of $500,000 in 2003
+related to a European anti-dumping duties matter that was
+ultimately resolved in our favor in 2003. 
+(2) 
+Our adoption of Statement of Financial Accounting Standards
+No. 142, Goodwill and Other Intangible Assets , on
+January 1, 2002 resulted in a goodwill impairment charge of
+$8,973,000 (net of the related income tax benefit of $843,000),
+or $0.92 per diluted share, during 2002. 
+19
+Table of Contents 
+Item 7. 
+Management’s Discussion and Analysis of Financial
+Condition and Results of Operations 
+FORWARD-LOOKING STATEMENTS 
+This report and the information incorporated by reference in
+this report contain forward-looking statements. We sometimes use
+words such as “anticipate,” “believe,”
+“continue,” “estimate,” “expect,”
+“intend,” “may,” “project,”
+“will” and similar expressions, as they relate to us,
+our management and our industry, to identify forward-looking
+statements. Forward-looking statements relate to our
+expectations, beliefs, plans, strategies, prospects, future
+performance, anticipated trends and other future events.
+Specifically, this report and the information incorporated by
+reference in this report contain forward-looking statements
+relating to, among other things:
+• 
+our business, growth, operating and financing strategies; 
+• 
+our product mix; 
+• 
+the success of new products; 
+• 
+our licensing strategy; 
+• 
+the impact of seasonality on our operations; 
+• 
+expectations regarding our net sales and earnings growth; 
+• 
+expectations regarding our liquidity; 
+• 
+our future financing plans; and 
+• 
+trends affecting our financial condition or results of
+operations. 
+We have based our forward-looking statements largely on our
+current expectations and projections about future events and
+financial trends affecting our business. Actual results may
+differ materially. Some of the risks, uncertainties and
+assumptions that may cause actual results to differ from these
+forward-looking statements are described in “Risk
+Factors.” In light of these risks, uncertainties and
+assumptions, the forward-looking events and circumstances
+discussed in this report and the information incorporated by
+reference in this report might not happen.
+You should completely read this report, the documents that we
+filed as exhibits to this report and the documents that we
+incorporate by reference in this report with the understanding
+that our future results may be materially different from what we
+expect. We qualify all of our forward-looking statements by
+these cautionary statements and we assume no obligation to
+update such forward-looking statements publicly for any reason.
+Overview 
+We are a leading producer and brand manager of innovative
+high-quality footwear and the category creator in the sport
+sandal and luxury sheepskin footwear segments. Our products are
+marketed under three recognized brand names that we own:
+• 
+Teva: High performance sport sandals and rugged outdoor footwear; 
+• 
+UGG: Authentic luxury sheepskin boots and other
+footwear; and 
+• 
+Simple: Innovative shoes that combine the comfort elements of
+athletic footwear with casual styling. 
+We sell our three brands through our retail customers and
+directly to our end-user consumers through our Internet and
+catalog retailing business. We sell our footwear in both the
+domestic market and the international markets. Independent third
+parties manufacture all of our footwear.
+20
+Table of Contents 
+Our business has been impacted by several important trends
+affecting our end markets:
+• 
+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. 
+• 
+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. 
+• 
+Our customers have narrowed their footwear product breadth,
+focusing on brands with a rich heritage and authenticity as
+market creators and leaders. 
+By emphasizing our brand image and our focus on comfort,
+performance and authenticity, we believe we can better maintain
+a loyal consumer following that is less susceptible to
+fluctuations caused by changing fashions and changes in consumer
+preferences.
+Set forth below is an overview of the various components of our
+business, including some of the important factors that affect
+each business and some of our strategies for growing each
+business.
+Teva Overview 
+Our Teva lines experienced strong market acceptance in recent
+years. Teva’s products have benefited recently from several
+factors, but most prominently a general shift in consumer
+preferences and lifestyles to include more outdoor recreational
+activities. At the same time, our consumers are increasingly
+purchasing our Teva products for everyday wear, and our Teva
+brand now includes several closed-toe footwear lines. As a
+result, our brand remains popular among professional and amateur
+outdoorsmen seeking authentic, performance-oriented footwear, as
+well as general footwear consumers seeking high quality, durable
+and comfortable styles for everyday use.
+To capitalize on the growth of outdoor recreational activities
+and the acceptance of certain footwear products for everyday
+use, we have selectively expanded the distribution of our Teva
+product lines outside our core outdoor specialty and sporting
+goods channels. Through effective channel management, we believe
+we can continue to expand into new distribution channels without
+diluting our outdoor heritage and our appeal to outdoor
+enthusiasts. Through channel appropriate product line expansion,
+we plan to continue to broaden our product offerings beyond
+sport sandals to new products that meet the style and functional
+needs of our consumers.
+We initially produced Teva products under license from the
+inventor of the Teva technology, Mark Thatcher. In November
+2002, we purchased from Mr. Thatcher the Teva worldwide
+assets, including the Teva Internet and catalog business and all
+patents, trade names, trademarks and other intellectual property
+associated with the acquired Teva assets, or Teva Rights. As a
+result of our purchase of the Teva Rights, we have adopted a
+strategy to expand the Teva brand and more fully develop its
+potential.
+UGG Overview 
+Since early 2003, our UGG brand received increased media
+exposure, which contributed to broader public awareness of the
+UGG brand and significantly increased demand for the collection.
+We believe that the increased media focus on UGG was driven by
+the product’s unique styling and resulting brand name
+identification, Australian heritage and adoption by high-profile
+film and television celebrities as a favored footwear brand. We
+believe this increased media attention has enabled us to
+introduce the brand to consumers much faster than we would have
+ordinarily been able to. As a result of the subsequent rapid
+growth in demand, we were sold out of key UGG products
+throughout much of 2004, and given the long lead times required
+to replenish our inventory, we have been unable to fill many
+retailer reorders and many direct Internet and catalog orders.
+Continuing a strategy utilized with our UGG casual line, we have
+been shifting a portion of our UGG sheepskin boot production
+from factories in Australia to three factories in China where
+the production capacity is much greater and quality standards
+are comparable.
+21
+Table of Contents 
+We believe the fundamental comfort and functionality of UGG
+products will continue to drive long-term consumer demand.
+Recognizing that there is a significant fashion element to UGG
+and that footwear fashions fluctuate, our strategy seeks to
+prolong 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 expanded our product line over
+time from 52 models in 2002 to 86 models in 2005.
+Increased media exposure has also broadened appeal for our UGG
+products. UGG has been a well-known brand in California for many
+years and has only recently become a recognized brand across the
+remainder of the country. We believe that a portion of
+UGG’s increased demand is due to our continued geographical
+expansion across the U.S. In addition, we have recently
+begun to expand our distribution and marketing overseas in order
+to satisfy virtually untapped international markets. We believe
+the international markets represent an attractive opportunity to
+grow UGG’s sales.
+We depend on a limited number of key resources for sheepskin,
+the principal raw material for our UGG products. Four suppliers
+currently provide all of the sheepskin purchased by our
+independent manufacturers. The top grade sheepskin used in UGG
+footwear is in high demand and limited supply. In addition,
+sheep are susceptible to hoof and mouth disease, which can
+result in the extermination of the infected herd and could have
+a material adverse effect on the availability of sheepskin for
+our products. The supply of sheepskin can also be adversely
+impacted by drought conditions. Our potential inability to
+obtain top grade sheepskin for UGG products could impair our
+ability to meet our production requirements for UGG in a timely
+manner and could lead to inventory shortages, which can result
+in lost potential 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 footwear quality sheepskin as the demand for this
+material has increased. Any further price increases will likely
+raise our costs, increase our costs of sales and decrease our
+profitability unless we are able to pass higher prices on to our
+customers. While we believe the supply of top quality sheepskin
+has improved for the 2005 season, we still expect the demand for
+this material to continue to outpace supply, leading to
+shortages and our inability to produce as much of certain styles
+as our customers would like to order. Looking beyond the next
+year, if demand continues to be strong, we would expect the
+supply of top grade sheepskin to continue to increase in
+response to the demand. However, we have little control over the
+supply or the overall demand for top grade sheepskin and,
+accordingly, can provide no assurances about the sufficiency of
+future supplies of top grade sheepskin.
+Simple Overview 
+Following three consecutive years of net sales declines in our
+Simple product line through 2003, we recently implemented a
+strategy to improve Simple’s results of operations and
+generate renewed interest in the Simple brand. As a result, net
+sales for Simple increased 34% in 2004 leading to slightly
+positive earnings from operations for the brand, a significant
+improvement over the 2003 loss from operations for Simple of
+$1,176,000. Instrumental in this turnaround has been the renewed
+emphasis on product, where we began a process of repositioning
+our Simple product line by focusing on our successful legacy
+collections, including clogs and sneakers, and narrowing the
+number of styles available. At the same time, we have refocused
+our sales and distribution efforts. While Simple products are
+sold through many of the same retailers that carry our Teva and
+UGG lines, the Simple products will also, in some cases, be sold
+through distribution channels that are precluded from offering
+our Teva and UGG brands. We expect our Simple brand to
+experience growth as we successfully implement our product line
+rationalization and channel management strategies.
+Internet and Catalog Retailing Overview 
+We acquired our Internet and catalog retailing business in
+November 2002 as part of the acquisition of the Teva Rights. Our
+Internet and catalog retailing business, which today sells all
+three of our brands, enables us to meet the growing demand for
+all of these products and, because this business sells its
+products at retail prices, it also provides us with an
+opportunity to add significant incremental operating income.
+Managing our Internet business requires us to focus on
+generating Internet traffic to our websites, effectively convert
+website visits into orders and maximize average order sizes. To
+drive our catalog order business, we distribute approximately
+550,000 catalogs every six months. Overall, our consumer direct
+business benefits from the
+22
+Table of Contents 
+strength of our brands and, as we grow our brands over time, we
+expect our Internet and catalog retailing business to increase.
+Licensing Overview 
+We have recently embarked on a strategy to license our
+well-known and respected footwear brands to complementary
+products outside of footwear, generally in the apparel and
+accessories categories. To date, we have entered into six
+licensing agreements for Teva, including domestic licenses for
+men’s sportswear, timepieces, eyewear, headwear and socks
+and a Canadian license for sportswear. We also have three
+licensing arrangements for UGG for handbags and other small
+leather goods, outerwear and cold weather accessories. We are
+pursuing additional licensing opportunities for our brands both
+in the U.S. and abroad. Because this licensing strategy is in
+its early stages, and due to the lead times required to bring
+the products to market, we have only recently begun to recognize
+license revenues and we do not expect significant incremental
+net sales and profits from licensing in the near future.
+However, we believe licensing revenues may become a more
+significant portion of our net sales and profits over time if
+our licensees can sell the licensed products in the quantities
+they have promised. For the year ended December 31, 2004,
+our licensees began to ship their products and, accordingly, we
+recognized net license revenues of $950,000, primarily related
+to our UGG handbag and outerwear licenses. The minimum net
+annual royalties that we are scheduled to receive under the nine
+existing licensing agreements, assuming renewal options are
+exercised, are $453,000 in 2005, $978,000 in 2006, $1,281,000 in
+2007, $1,344,000 in 2008 and $1,391,000 in 2009. The activity
+within the licensing segment is very small in relation to the
+consolidated operations and, therefore, separate segment
+information is not presented.
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters, while the quarter with the
+highest percentage of annual net sales for Simple has varied
+from year to year.
+2003 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales 
+$ 
+36,102,000 
+$ 
+24,342,000 
+$ 
+24,894,000 
+$ 
+35,717,000 
+Income from operations 
+$ 
+8,087,000 
+$ 
+4,678,000 
+$ 
+1,782,000 
+$ 
+4,891,000 
+2004 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales 
+$ 
+44,272,000 
+$ 
+40,546,000 
+$ 
+55,797,000 
+$ 
+74,172,000 
+Income from operations 
+$ 
+9,628,000 
+$ 
+9,274,000 
+$ 
+9,358,000 
+$ 
+14,202,000 
+With the dramatic growth in UGG in recent years, combined with
+the introduction of a fall Teva line, net sales in the last half
+of the year exceeded that for the first half of the year. Given
+our expectations for each of our brands in 2005, we currently
+expect this trend to continue. Nonetheless, actual results could
+differ materially depending upon consumer preferences,
+availability of product, competition and our customers
+continuing to carry and promote our various product lines, among
+other risks and uncertainties. See “Risk Factors.”
+23
+Table of Contents 
+Results of Operations 
+The following table sets forth certain operating data for the
+periods indicated.
+Years Ended December 31, 
+2002 
+2003 
+2004 
+Net sales by location: 
+United States 
+$ 
+78,278,000 
+$ 
+98,710,000 
+$ 
+175,419,000 
+International 
+20,829,000 
+22,345,000 
+39,368,000 
+Total 
+$ 
+99,107,000 
+$ 
+121,055,000 
+$ 
+214,787,000 
+Net sales by product line and consumer direct business: 
+Teva: 
+Wholesale 
+$ 
+64,849,000 
+$ 
+72,783,000 
+$ 
+83,477,000 
+Internet/catalog 
+255,000 
+3,687,000 
+4,759,000 
+Total 
+65,104,000 
+76,470,000 
+88,236,000 
+UGG: 
+Wholesale 
+23,491,000 
+34,561,000 
+101,806,000 
+Internet/catalog 
+310,000 
+2,300,000 
+14,415,000 
+Total 
+23,801,000 
+36,861,000 
+116,221,000 
+Simple: 
+Wholesale 
+10,159,000 
+7,210,000 
+9,633,000 
+Internet/catalog 
+43,000 
+514,000 
+697,000 
+Total 
+10,202,000 
+7,724,000 
+10,330,000 
+Total 
+$ 
+99,107,000 
+$ 
+121,055,000 
+$ 
+214,787,000 
+Income (loss) from operations by product line and consumer
+direct business: 
+Teva wholesale 
+$ 
+12,011,000 
+$ 
+21,739,000 
+$ 
+24,901,000 
+UGG wholesale 
+6,589,000 
+10,002,000 
+31,674,000 
+Simple wholesale 
+279,000 
+(1,176,000 
+) 
+45,000 
+Internet/catalog 
+194,000 
+1,148,000 
+5,533,000 
+Unallocated overhead costs 
+(15,725,000 
+) 
+(12,275,000 
+) 
+(19,691,000 
+) 
+Total 
+$ 
+3,348,000 
+$ 
+19,438,000 
+$ 
+42,462,000 
+24
+Table of Contents 
+The following table sets forth certain operating data as a
+percentage of net sales for the periods indicated, and the
+increase (decrease) in each item of operating data between the
+periods.
+Years Ended December 31, 
+Percent Increase (Decrease) 
+2002 
+2003 
+2004 
+2002 to 2003 
+2003 to 2004 
+Net sales 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+22.1 
+% 
+77.4 
+% 
+Cost of sales 
+58.1 
+57.6 
+57.9 
+21.1 
+78.4 
+Gross profit 
+41.9 
+42.4 
+42.1 
+23.6 
+76.1 
+Selling, general and administrative expenses 
+35.3 
+26.8 
+22.3 
+(7.3 
+) 
+48.0 
+Litigation expense (income) 
+3.2 
+(0.4 
+) 
+— 
+* 
+(100.0 
+) 
+Income from operations 
+3.4 
+16.0 
+19.8 
+480.6 
+118.4 
+Interest expense and other 
+0.5 
+3.7 
+1.1 
+803.6 
+(50.8 
+) 
+Income before income taxes and cumulative effect of a change in
+accounting principle 
+2.9 
+12.3 
+18.7 
+423.3 
+170.2 
+Income taxes 
+1.2 
+4.7 
+6.8 
+368.1 
+156.3 
+Income before cumulative effect of a change in accounting
+principle 
+1.7 
+7.6 
+11.9 
+465.1 
+179.0 
+Cumulative effect of a change in accounting principle 
+(9.1 
+) 
+— 
+— 
+* 
+0.0 
+Net income (loss) 
+(7.4 
+)% 
+7.6 
+% 
+11.9 
+% 
+* 
+179.0 
+* 
+Calculation of percentage change is not meaningful. 
+Year Ended December 31, 2003 Compared to Year Ended
+December 31, 2004 
+Overview. In 2004, we had net sales of
+$214,787,000 and income from operations of $42,462,000 compared
+to net sales of $121,055,000 and income from operations of
+$19,438,000 in 2003. These results were primarily due to
+increased demand for all three of our product lines during the
+year.
+Net Sales. Net sales increased by $93,732,000, or
+77.4%, from $121,055,000 in 2003 to $214,787,000 in 2004. Net
+sales increased in 2004 due primarily to: (1) an increase
+in the number of units sold for each of our three brands,
+resulting in a 51.6% overall increase in the volume of footwear
+sold from 5,063,000 pairs in 2003 to 7,678,000 pairs in 2004,
+and (2) the expansion of the Internet and catalog retailing
+business. In addition, the weighted average wholesale selling
+price per unit increased 13.3% from $23.03 in 2003 to $26.10 in
+2004, caused by an increase in sales of UGG products, which
+generally carry higher average selling prices, partially offset
+by increased sales of Teva thongs, which generally carry a lower
+average selling price than sales of our other products, and
+lower average selling prices on the closeout sales in 2004
+compared to 2003.
+Net wholesale sales of Teva increased by $10,694,000, or 14.7%,
+from $72,783,000 in 2003 to $83,477,000 in 2004. This increase
+was primarily due to increased sales volume of sport sandals
+resulting from an improvement in retail sell-through, increased
+sales in the international markets, selective addition of new
+distribution channels in our domestic market, increased sales
+volume of thongs and slides and increased sales volume of
+certain styles of the recently introduced closed-toe footwear
+offerings. See “— Overview — Teva
+Overview” above.
+Net wholesale sales of UGG increased by $67,245,000, or 194.6%,
+from $34,561,000 in 2003 to $101,806,000 in 2004. This was
+largely as a result of the growing popularity of the brand,
+significantly increased brand awareness and considerable
+celebrity exposure, as well as the fulfillment of the pent-up
+demand for the UGG product in the first half of 2004. We also
+increased our sales of UGG products to the international
+markets, resulting in an increase in international UGG sales of
+$12,326,000, or 1269.4%, from $971,000 in 2003 to $13,297,000 in
+2004. The UGG sales volume increase was also due to strong
+retail sell-through, expansion of the product line to include
+more women’s and kids’ boot styles and continued
+geographical expansion across the U.S. See
+“— Overview — UGG Overview” above.
+25
+Table of Contents 
+Net wholesale sales of Simple increased by $2,423,000, or 33.6%,
+from $7,210,000 in 2003 to $9,633,000 in 2004. This increase was
+due to several factors, including strong initial sales to
+retailers (sell-in) of the Simple shearling boots in the third
+quarter of 2004. The increase in Simple sales in 2004 was also
+due to a renewed interest in the Simple brand, including
+continued growth in the sales of the Sugar and other sneaker
+styles, and the successful introduction of the new line of
+Simple clogs. The Simple sneaker and clog styles have continued
+to retail well; however, while initial sell-in of the Simple
+shearling boots was strong, the sell-through to consumers of
+this type of boot at these price points, including sell-through
+of similarly-priced products offered by competitors, was slow
+and accordingly these shearling styles will not be carried
+forward in the 2005 Simple product line. The sell-through of
+these shearling boots, as well as similar products offered by
+competitors, was not strong as the boots were mid-priced boots
+with retail selling prices in the $50 to $80 range, which was
+too close to the $110 selling price of the similar Classic boot
+offering from UGG, which was by far the preferred brand by
+consumers. See “— Overview — Simple
+Overview” above.
+Net sales of the Internet and catalog retailing business
+increased by $13,370,000, or 205.7%, from $6,501,000 in 2003 to
+$19,871,000 in 2004. In 2003, net sales of the Internet and
+catalog retailing business included retail sales of Teva of
+$3,687,000, UGG of $2,300,000 and Simple of $514,000. In 2004,
+net sales of the Internet and catalog retailing business
+included retail sales of Teva of $4,759,000, UGG of $14,415,000
+and Simple of $697,000. The increase in net sales of the
+Internet and catalog retailing business was due to the increased
+demand for the underlying brands, increased awareness of the
+Internet site and increased consumer acceptance of online
+purchasing. Our Internet sales for UGG were especially strong,
+increasing 526.7% in 2004 compared to 2003, as consumers who
+were unable to find the UGG products at their local retailers
+frequently searched the Internet for availability of the UGG
+products, which further contributed to increased sales for our
+Internet and catalog retailing business. See
+“— Overview — Internet and Catalog
+Retailing Overview” above.
+International sales for all of our products increased by
+$17,023,000, or 76.2%, from $22,345,000 in 2003 to $39,368,000
+in 2004, representing 18.5% of net sales in 2003 and 18.3% of
+net sales in 2004. The higher dollar amount of international
+sales resulted from our sales of more UGG product to the
+international markets in order to begin to expand in those
+territories, our international expansion strategy and the lower
+relative pricing to European customers due to the strength of
+the Euro.
+Gross Profit. Gross profit increased by
+$39,088,000, or 76.1%, from $51,345,000 in 2003 to $90,433,000
+in 2004. As a percentage of net sales, gross profit margin
+decreased slightly from 42.4% in 2003 to 42.1% in 2004. The
+decrease in gross profit margin was due in part to the
+significant increase in UGG sales during 2004, which generally
+carry a lower gross margin than Teva, an increase in airfreight
+costs in our efforts to improve deliveries of UGG products, and
+the non-recurrence of last year’s gain caused by the
+favorable impact of selling in Euros in the European markets in
+2003, whereas all sales were denominated in U.S. dollars in
+2004. These factors were partially offset by a higher volume of
+Internet sales, which carry a higher gross margin than items
+sold at wholesale prices, a reduced impact of closeout sales,
+lower overhead costs per pair, and the addition of approximately
+$950,000 of net license revenues, primarily related to UGG
+handbags and outerwear.
+Selling, General and Administrative Expenses. 
+Selling, general and administrative expenses, or SG&A,
+increased by $15,564,000, or 48.0%, from $32,407,000 in 2003 to
+$47,971,000 in 2004. As a percentage of net sales, SG&A
+decreased from 26.8% in 2003 to 22.3% in 2004 largely due to the
+continued leverage of operating costs on the increased sales
+volume. The increase in the dollar amount of SG&A expenses
+was due to a combination of factors, including increased sales
+commissions of $3,817,000 on the higher sales volume; increased
+payroll costs of $3,764,000 attributed to increased performance
+compensation on the significantly improved operating results
+combined with an increase in headcount to support the
+substantial growth; increased warehouse and distribution costs
+of $1,563,000; higher legal costs associated with increased
+efforts to protect our intellectual property rights of
+$1,523,000; increased costs of our growing Internet and catalog
+retailing business of $1,442,000; increased marketing and
+advertising costs of $1,067,000; and, other general increases in
+costs to support the increased sales.
+26
+Table of Contents 
+Litigation Income. In 2003, we received a
+favorable resolution in a European anti-dumping duties matter in
+the amount of $500,000.
+Income from Operations. Income from operations
+increased by $23,024,000, or 118.4%, from $19,438,000 in 2003 to
+$42,462,000 in 2004. This was due primarily to the factors
+discussed above.
+Income from operations of Teva wholesale increased by
+$3,162,000, or 14.5%, from $21,739,000 in 2003 to $24,901,000 in
+2004. This increase was largely due to the $10,694,000, or
+14.7%, increase in net sales and a reduction in bad debt expense
+of $547,000. These were partially offset by increases in Teva
+selling commissions of $593,000 on the higher sales volume,
+increased payroll costs of $256,000 and the non-recurrence of
+last year’s gain caused by the favorable impact of selling
+in Euros in the European markets in 2003, whereas all sales were
+denominated in U.S. dollars in 2004.
+Income from operations of UGG wholesale increased by
+$21,672,000, or 216.7%, from $10,002,000 in 2003 to $31,674,000
+in 2004. This was largely due to the $67,245,000, or 194.6%
+increase in net sales, partially offset by a $3,190,000 increase
+in sales commissions on the higher sales volume, increased
+airfreight costs of $3,374,000, increased payroll costs of
+$985,000 and increased advertising and marketing costs of
+$1,161,000.
+Income from operations of Simple wholesale increased by
+$1,221,000 from a loss from operations of $1,176,000 in 2003 to
+income from operations of $45,000 in 2004. This was primarily
+due to a $2,423,000, or 33.6%, increase in net sales during the
+period combined with an increase in gross margin resulting from
+a reduced impact of inventory write-downs and closeout sales in
+2004 compared to 2003.
+Income from operations of our Internet and catalog business
+increased by $4,385,000, or 382.0%, from $1,148,000 in 2003 to
+$5,533,000 in 2004. This was largely due to the $13,370,000, or
+205.7%, increase in sales during the period, partially offset by
+a corresponding increase in related costs.
+Unallocated overhead costs increased by $7,416,000, or 60.4%,
+from $12,275,000 in 2003 to $19,691,000 in 2004. These costs
+included increased payroll costs, increased warehouse and
+distribution costs and increased legal costs associated with
+protection of our intellectual property rights that support our
+business segments.
+Other Expense (Income). Net interest expense was
+$4,557,000 in 2003 compared with $2,236,000 in 2004. The
+interest expense resulted principally from the borrowings
+incurred to finance our purchase of the Teva Rights in November
+2002. The decrease in interest expense for 2004 reflects the
+repayment of outstanding borrowings, partially through the
+equity offering in May 2004, offset by the prepayment penalties
+and the write-off of a pro rata share of the previously
+capitalized loan costs incurred as a result of paying down our
+debt early. Other expense (income) exclusive of net interest
+expense was not material in either period.
+Income Taxes. In 2003, income tax expense was
+$5,730,000, representing an effective income tax rate of 38.5%.
+In 2004, income tax expense was $14,684,000 representing an
+effective income tax rate of 36.5%. The decrease in the
+effective tax rate was primarily due to the restructuring our
+international operations, which resulted in a reduced effective
+tax rate.
+Net Income. In 2003, net income was $9,154,000, or
+$0.77 per diluted share. In 2004, net income was
+$25,539,000, or $2.10 per diluted share. The dramatic
+increases in net income and earnings per diluted share resulted
+from the factors discussed above.
+Year Ended December 31, 2002 Compared to Year Ended
+December 31, 2003 
+Overview. In 2003, we had net sales of
+$121,055,000 and income from operations of $19,438,000 compared
+to net sales of $99,107,000 and income from operations of
+$3,348,000 in 2002. These results were due in part to increased
+demand for our Teva and UGG product lines, partially offset by a
+decline in net sales of our Simple product line. In addition,
+2003 was the first full year of operations following our
+acquisition in November 2002 of the Teva Rights, which resulted
+in the elimination of royalty and other license costs of
+$4,495,000 and resulted in net sales of $6,501,000 attributed to
+our Internet and catalog retailing business that was a part of
+the Teva Rights acquisition. The acquisition of the Teva Rights
+resulted in significant new borrowings and incremental interest
+expense in 2003 of $4,557,000.
+27
+Table of Contents 
+Net Sales. Net sales increased by $21,948,000, or
+22.1%, from $99,107,000 in 2002 to $121,055,000 in 2003. Net
+sales increased in 2003 due primarily to: (1) an increase
+in the number of units sold of Teva and UGG offset in part by a
+decline in the number of units sold of Simple, resulting in a
+22.9% overall increase in the volume of footwear sold from
+4,120,000 pairs in 2002 to 5,063,000 pairs in 2003, and
+(2) the inclusion of the Internet and catalog retailing
+business obtained as part of the Teva Rights acquisition. This
+increase in unit sales volume was partially offset by a 2.7%
+decline in average selling price per unit from $23.66 in 2002 to
+$23.03 in 2003.
+Net wholesale sales of Teva increased by $7,934,000, or 12.2%,
+from $64,849,000 in 2002 to $72,783,000 in 2003. This increase
+was primarily due to increased sales volume of sport sandals
+resulting from an improvement in retail sell-through, the
+favorable impact of the strong Euro on European sales, selective
+addition of new distribution channels in our domestic market,
+increased sales volume of thongs and slides and increased sales
+volume of certain styles of the recently introduced closed-toe
+footwear offerings. See “— Overview —
+Teva Overview” above.
+Net wholesale sales of UGG increased by $11,070,000, or 47.1%,
+from $23,491,000 in 2002 to $34,561,000 in 2003. This was
+largely as a result of heightened demand in 2003 caused by the
+growing popularity of the brand, significantly increased brand
+awareness and considerable celebrity exposure. The UGG sales
+volume increase was also due to strong retail sell-through,
+expansion of the product line to include more casual footwear
+styles and continued geographical expansion across the
+U.S. See “— Overview — UGG
+Overview” above.
+Net wholesale sales of Simple decreased by $2,949,000, or 29.0%,
+from $10,159,000 in 2002 to $7,210,000 in 2003. This decline was
+caused by a variety of factors, including competition in the
+casual footwear market and a $668,000 decline in sales volume in
+the international markets. These volume declines were partially
+offset by a $469,000 increase in sales volume of the moderately
+priced Simple suede, fleece-lined boot, which we introduced in
+the fourth quarter of 2003. See
+“— Overview — Simple Overview”
+above.
+For the period from the November 25, 2002 acquisition date
+through December 31, 2002, net sales of the Internet and
+catalog retailing business totaled $608,000, including retail
+sales of Teva of $255,000, UGG of $310,000 and Simple of
+$43,000. In 2003, net sales of the Internet and catalog
+retailing business aggregated $6,501,000, including retail sales
+of Teva of $3,687,000, UGG of $2,300,000 and Simple of $514,000.
+See “— Overview — Internet and Catalog
+Retailing Overview” above.
+International sales for all of our products increased by
+$1,516,000, or 7.3%, from $20,829,000 in 2002 to $22,345,000 in
+2003, representing 21.0% of net sales in 2002 and 18.5% of net
+sales in 2003. The higher dollar amount of international sales
+resulted from our international expansion strategy in 2003
+combined with the favorable impact of the strong Euro while the
+lower percentage of international sales to net sales for 2003
+reflects the growth of our domestic business.
+Gross Profit. Gross profit increased by
+$9,815,000, or 23.6%, from $41,530,000 in 2002 to $51,345,000 in
+2003. As a percentage of net sales, gross profit margin
+increased from 41.9% in 2002 to 42.4% in 2003. The increase in
+gross margin was due to several factors, including an above
+average gross margin at the newly acquired Internet and catalog
+retailing business, the favorable impact of the strong Euro and
+lower production overhead costs per pair, partially offset by an
+increase in closeout sales.
+Selling, General and Administrative Expenses. 
+Selling, general and administrative expenses, or SG&A,
+decreased by $2,547,000, or 7.3%, from $34,954,000 in 2002 to
+$32,407,000 in 2003. As a percentage of net sales, SG&A
+decreased from 35.3% in 2002 to 26.8% in 2003. The decrease in
+the dollar amount of SG&A expenses was primarily due to the
+elimination of Teva royalty expenses and related Teva license
+cost amortization of $4,495,000. In addition, we had a
+$1,281,000 decrease in bad debt expense which was largely due to
+improvements in our credit and collections staff, improvements
+in our credit and collections policies and procedures and the
+non-recurrence of the 2002 collections difficulties encountered
+during the initial stages of the implementation of a new
+enterprise resource planning, or ERP, computer system. While we
+believe these improvements will continue to benefit our future
+collections efforts, we can provide no assurances about the
+levels of future bad debt expenses, as many other factors
+contribute to our overall bad debt risk including
+28
+Table of Contents 
+the future financial strength of our customers, which is
+difficult to predict. We also experienced a reduction in overall
+advertising expenses of $862,000. These cost reductions were
+partially offset by increased operating expenses related to the
+newly acquired Internet and catalog retailing business of
+$1,715,000. SG&A expenses as a percentage of net sales
+decreased in 2003 due to the overall reduction in SG&A
+expenses as discussed above as well as the leverage of our fixed
+costs over a larger revenue base.
+Litigation Expense (Income). In 2002, we recorded
+special litigation charges of $3,228,000 related to a lawsuit
+filed against us in the state of Montana in 1995. The case was
+settled and paid in full in November 2002. In 2003, we received
+a favorable $500,000 resolution in a European anti-dumping
+duties matter.
+Income from Operations. Income from operations
+increased by $16,090,000, or 480.6%, from $3,348,000 in 2002 to
+$19,438,000 in 2003. This was due primarily to:
+(1) increased gross profit contribution of $9,815,000,
+(2) elimination of the Teva royalty expenses and related
+Teva license cost amortization of $4,495,000, (3) the
+non-recurrence of the 2002 litigation costs of $3,228,000 and
+(4) improved profitability resulting from the acquisition
+of the Internet and catalog retailing business in November 2003
+of approximately $954,000.
+Income from operations of Teva wholesale increased by
+$9,728,000, or 81.0%, from $12,011,000 in 2002 to $21,739,000 in
+2003. This increase was largely due to the $7,934,000 increase
+in net sales, the elimination of $3,739,000 of Teva royalty
+expense and $756,000 of Teva license cost amortization, a
+decrease in Teva advertising and marketing costs, and a
+reduction in bad debt expense of $965,000. These were partially
+offset by increases in Teva selling commissions on the higher
+sales volume and increased payroll costs of $783,000.
+Income from operations of UGG wholesale increased by $3,413,000,
+or 51.8%, from $6,589,000 in 2002 to $10,002,000 in 2003. This
+was largely due to the $11,070,000 increase in net sales,
+partially offset by a $583,000 increase in sales commissions on
+the higher sales volume, increased payroll costs of $232,000,
+increased advertising and marketing costs and the non-recurrence
+of a $300,000 chargeback received from a factory in 2002.
+Income from operations of Simple wholesale decreased by
+$1,455,000 from income from operations of $279,000 in 2002 to a
+loss from operations of $1,176,000 in 2003. This was primarily
+due to a $2,949,000 decline in net sales during the period
+attributed to both the domestic and international markets. In
+addition, the Simple brand was negatively affected by the
+increased impact of closeout sales and increased payroll costs
+in 2003.
+Income from operations of our Internet and catalog business
+increased by $954,000, or 491.8%, from $194,000 for the period
+from the November 25, 2002 acquisition date through
+December 31, 2002 to $1,148,000 in 2003. This was largely
+due to the full year impact during 2003 and the general
+continued growth in popularity of online sales.
+Unallocated overhead costs decreased by $3,450,000, or 21.9%,
+from $15,725,000 in 2002 to $12,275,000 in 2003. This was
+largely due to the net change in litigation expense (income) of
+$3,728,000 between 2002 and 2003.
+Other Expense (Income). Net interest expense was
+$406,000 in 2002 compared with a net interest expense of
+$4,557,000 in 2003. This was primarily due to our significantly
+increased borrowings in order to finance our purchase of the
+Teva Rights in November 2002. In addition, in connection with
+early repayments of $2,000,000 of subordinated notes in June
+2003 and $2,000,000 in December 2003, we incurred approximately
+$380,000 of expenses, including prepayment penalties and the
+write-off of a pro rata share of the previously capitalized loan
+costs. Other expense (income) exclusive of interest expense
+(income) was not material in either year.
+Income Taxes. In 2002, income tax expense was
+$1,224,000, representing an effective income tax rate of 43.0%.
+In 2003, income tax expense was $5,730,000 representing an
+effective income tax rate of 38.5%. The decrease in the
+effective tax rate was primarily due to two factors. First, the
+rate reduction occurred as certain non-deductible Teva license
+amortization costs were eliminated in connection with the Teva
+Rights
+29
+Table of Contents 
+acquisition. Second, we restructured our international
+operations, which resulted in a reduced effective tax rate.
+Net Income. On January 1, 2002, we
+implemented Statement of Financial Accounting Standards, or
+SFAS, No. 142, Goodwill and Other Intangible Assets ,
+which requires that goodwill and intangible assets with
+indefinite useful lives no longer be amortized to earnings but
+instead be reviewed periodically for impairment. The
+implementation of SFAS No. 142 resulted in a goodwill
+impairment charge of $8,973,000 (net of the related income tax
+benefit of $843,000), or $0.92 per diluted share, during
+2002. This non-cash impairment charge included a write down of
+approximately $1,200,000, on an after tax basis, for Simple
+goodwill and approximately $7,800,000 for UGG goodwill. We
+recorded the impairment charge as a cumulative effect of a
+change in accounting principle in the accompanying consolidated
+statement of operations for 2002. In 2002, net income before
+cumulative effect of a change in accounting principle was
+$1,620,000, or $0.17 per diluted share, and the net loss
+after the cumulative effect of a change in accounting principle
+was $7,353,000, or $0.75 per diluted share. In 2003, net
+income was $9,154,000, or $0.77 per diluted share.
+Off-Balance Sheet Arrangements 
+We have no off-balance sheet arrangements other than operating
+leases. See “— Contractual Obligations”
+below. We do not believe that these operating leases are
+material to our current or future financial condition, results
+of operations, liquidity, capital resources or capital
+expenditures.
+Liquidity and Capital Resources 
+In May 2004, we completed a follow-on public stock offering and
+used a portion of the proceeds to repay all outstanding
+borrowings, including all debt associated with the acquisition
+of the Teva Rights. We finance our working capital and operating
+needs using a combination of the proceeds from the 2004 stock
+offering, cash generated from operations and the credit
+availability under our $20,000,000 revolving credit facility.
+The seasonality of our business requires us to build inventory
+levels in anticipation of the sales for the coming season. Teva
+generally begins to build inventory levels beginning in the
+fourth quarter and first quarter in anticipation of the spring
+selling season that occurs in the first and second quarters,
+whereas UGG generally begins to build its inventories in the
+second quarter and third quarter to support sales for the fall
+and winter selling seasons, which historically occur during the
+third and fourth quarters. However, given the currently
+increased demand for UGG products, we have also built our
+December 31, 2004 inventory levels to support the increased
+sales expectations for UGG’s Spring 2005 season. Our Simple
+product line is less seasonal and less significant to total
+inventory than our Teva and UGG lines.
+Our cash flow cycle includes the purchase of these inventories,
+the subsequent sale of the inventories and the eventual
+collection of the resulting accounts receivable. As a result,
+our working capital requirements begin when we purchase the
+inventories and continue until we ultimately collect the
+resulting receivables. Given the seasonality of our Teva and UGG
+brands, our working capital requirements fluctuate significantly
+throughout the year. The cash required to fund these working
+capital fluctuations is generally provided using a combination
+of our internal cash flows and borrowings under our revolving
+credit facility.
+Cash from Operating Activities. Net cash provided
+by operating activities decreased from $17,627,000 in 2003 to
+$12,416,000 in 2004. The decrease in net cash provided by
+operating activities in 2004 was largely due to a larger
+increase in trade accounts receivable of $25,394,000 resulting
+from significant year end sales and a larger increase in
+inventory of $16,420,000 in 2004, partially offset by an
+improvement in net earnings of $16,385,000, a larger increase in
+trade accounts payable and accrued expenses of $10,328,000 and
+the $6,030,000 income tax benefit attributable to the exercise
+of stock options in 2004. Net working capital at
+December 31, 2004 improved by $47,051,000, or 206.3%, from
+$22,803,000 in 2003 to $69,854,000 in 2004, primarily as a
+result of the sale of common stock in our follow-on public stock
+offering in May 2004.
+Cash from Investing Activities. Net cash used in
+investing activities was $705,000 in 2003 and $16,873,000 in
+2004. Net cash used in investing activities in 2004 was
+primarily a result of $15,475,000 of net purchases of short-term
+investments in order to improve the yield on available cash, and
+$1,441,000 of
+30
+Table of Contents 
+purchases of property and equipment. In 2003, net cash used in
+investing activities was comprised almost entirely of purchases
+of property and equipment. The increase in purchases of property
+and equipment in 2004 compared to 2003 occurred as we replaced
+tradeshow booths and our phone system in 2004 and we began the
+expansion and build out of our distribution center.
+Cash from Financing Activities. In 2003, net cash
+used in financing activities aggregated $14,091,000, including
+the repayment of long-term debt of $8,934,000 and the repurchase
+of all outstanding convertible preferred stock for $5,938,000,
+offset by proceeds from stock issuances of $781,000. In 2004,
+net cash provided by financing activities aggregated $8,213,000,
+including cash received from the issuances of common stock of
+$38,500,000, primarily in connection with the follow-on public
+stock offering in May 2004, which was used, in part, to pay off
+all remaining long-term debt.
+Our liquidity consists primarily of cash, short-term
+investments, trade accounts receivable, inventories and a
+revolving credit facility. At December 31, 2004, working
+capital was $69,854,000 including $10,379,000 of cash and
+$15,475,000 of short-term investments. Cash provided by
+operating activities aggregated $12,416,000 in 2004. Trade
+accounts receivable increased by 123.8% from $18,745,000 at
+December 31, 2003 to $41,957,000 at December 31, 2004
+largely due to the 107.7% increase in net sales during the
+fourth quarter ended December 31, 2004 compared to the
+fourth quarter of last year. In addition, the fourth quarter
+sales were weighted more heavily toward the end of the fourth
+quarter, with a 130.5% increase in sales in the month of
+December of 2004 compared to December 2003, which further
+contributed to the increase in trade accounts receivable at year
+end. Accounts receivable turnover improved from 6.1 times in
+2003 to 7.7 times in 2004. This improvement resulted from the
+hiring of more qualified credit and collections staff, the
+improvement in collections policies and procedures and the
+strength of our brands, which provides strong incentive for
+customers to pay us timely so that we can avoid placing then on
+credit hold, which would delay shipments of their future orders.
+During the same period, inventories increased by 68.1% from
+$18,004,000 at December 31, 2003 to $30,260,000 at
+December 31, 2004, reflecting a $1,703,000 increase in Teva
+inventory, an $11,083,000 increase in UGG inventory and a
+$530,000 decrease in Simple inventory at year end. Overall,
+inventory turnover improved from 3.6 times in 2003 to 5.5 times
+in 2004. The $1,703,000 increase in Teva inventory occurred
+because the factories delivered more Teva products in 2004 for
+the 2005 season than they did in 2003 for the 2004 season, due
+to our efforts to improve our on-time deliveries of complete
+orders to our customers earlier for the 2005 spring season. The
+increase in Teva inventory was also needed to support an
+expected increase in Teva sales for the first quarter of 2005
+compared to actual sales for the first quarter of 2004. The
+$11,083,000 increase in UGG inventory at December 31, 2004
+is in support of our expectations for significantly higher UGG
+sales in the first quarter of 2005, resulting from the carryover
+of holiday sales as well as the deliveries of the first Spring
+product offering for UGG. The $530,000 decrease in Simple
+inventory at December 31, 2004 reflects our continuing
+efforts to reduce the levels of our closeout inventories, to
+bring our Simple inventory into stock closer to when we expect
+it to be shipped to our customers, and to refocus the line and
+the related inventory levels on a fewer number of core styles.
+Our revolving credit facility with Comerica Bank-California
+provides for a maximum availability of $20,000,000 subject to a
+borrowing base. In general, the borrowing base is equal to 75%
+of eligible accounts receivable, as defined, and 50% of eligible
+inventory, as defined. Up to $10,000,000 of borrowings may be in
+the form of letters of credit. The facility bears interest at
+the lender’s prime rate (5.25% at December 31, 2004)
+or, at our option, at LIBOR (2.40% at December 31, 2004)
+plus 1.00% to 2.50%, depending on our ratio of liabilities to
+earnings before interest, taxes, depreciation and amortization,
+or EBITDA, and is secured by substantially all of our assets.
+The facility includes annual commitment fees, which were
+$100,000 for 2004 and $60,000 for 2005. The facility expires on
+June 1, 2006. At December 31, 2004, we had no
+outstanding borrowings under the facility, no foreign currency
+reserves for outstanding forward contracts and no outstanding
+letters of credit. We had credit availability under the facility
+of $20,000,000 at December 31, 2004.
+On November 25, 2002, we completed the acquisition of the
+Teva Rights from Mark Thatcher and his wholly owned company,
+Teva Sport Sandals, Inc., for approximately $62,300,000,
+including transaction costs
+31
+Table of Contents 
+of approximately $300,000. We paid cash in the amount of
+$43,000,000 and issued to Mr. Thatcher a junior
+subordinated note in the principal amount of $13,000,000,
+convertible preferred stock of $5,500,000, 100,000 shares
+of common stock valued at approximately $368,000 and options to
+purchase 100,000 shares of common stock valued at
+approximately $187,000. The $13,000,000 junior subordinated note
+included a coupon interest rate of 7.00% and an additional
+interest rate of 2.00%, which was to be accrued and paid at the
+maturity date in 2008. The note allowed prepayment without
+penalty. Concurrent with the acquisition, we entered into an
+employment agreement for advice on Teva matters with
+Mr. Thatcher through November 2007, which provides for an
+annual base salary of $276,875, and we received a non-compete
+agreement from Mr. Thatcher, which expires two years after
+termination of employment.
+In connection with the Teva Rights acquisition, we entered into
+two additional financing arrangements, including a $7,000,000
+term loan from Comerica Bank-California and a $14,000,000
+subordinated note from The Peninsula Fund III Limited
+Partnership, both unrelated parties.
+As mentioned above, in May 2004 we completed a follow-on public
+offering of our common stock in which we sold
+1,500,000 shares of newly issued common stock and
+2,000,000 shares of our common stock were sold by selling
+stockholders. Using a portion of the proceeds from this stock
+offering, as well as the cash flow from operations, between
+January 2003 and June 2004 we repurchased all of the outstanding
+convertible preferred stock and repaid all of the outstanding
+debt incurred for the acquistion of the Teva Rights.
+Upon the completion of the public offering and repayment of our
+outstanding debt, the borrowing availability under our revolving
+credit facility became the full $20,000,000 amount of the
+facility, subject to the borrowing base lending requirements.
+The agreements underlying the bank credit facility contain
+several financial covenants including a quick ratio requirement,
+profitability requirements and a tangible net worth requirement,
+among others, as well as a prohibition on the payment of
+dividends. We were in compliance with all covenants at
+December 31, 2004, and remain so as of the date of this
+report.
+Capital expenditures totaled $1,441,000 in 2004 and related
+primarily to the replacement of certain computer equipment and
+trade show booths, the upgrade of our phone system and the build
+out of our newly leased distribution center. We currently have
+no material commitments for future capital expenditures but
+estimate that the capital expenditures for 2005 will range from
+$2,500,000 to $3,500,000 and will include further distribution
+center expansion, a new UGG trade show booth and upgrades of
+certain other computer equipment. The actual amount of capital
+expenditures for 2005 may differ from this estimate, largely
+depending on any unforeseen needs to replace existing assets.
+Contractual Obligations. The following table
+summarizes our contractual obligations at December 31, 2004
+and the effects such obligations are expected to have on
+liquidity and cash flow in future periods.
+Payments Due by Period 
+Less than 
+More than 
+Total 
+1 Year 
+1-3 Years 
+3-5 Years 
+5 Years 
+Operating lease obligations 
+$ 
+8,144,000 
+$ 
+2,274,000 
+$ 
+3,690,000 
+$ 
+2,180,000 
+— 
+We previously had significant interest payment requirements on
+the long-term debt obligations discussed above. However, since
+we paid off all the outstanding balances on our long-term debt,
+we have no future interest payments scheduled.
+We believe that internally generated funds, the available
+borrowings under our existing credit facilities and cash on hand
+will provide sufficient liquidity to enable us to meet our
+current and foreseeable working capital requirements. However,
+risks and uncertainties that could impact our ability to
+maintain our cash position include our 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 and the volume of letters of credit used
+to purchase product, among others. See “Risk Factors”
+for a discussion of additional factors that may affect our
+working capital position.
+32
+Table of Contents 
+Impact of Inflation 
+We believe that the relatively moderate rates of inflation in
+recent years have not had a significant impact on our net sales
+or profitability.
+Critical Accounting Policies 
+Revenue Recognition. We recognize revenue when
+products are shipped and the customer takes title and assumes
+risk of loss, collection of relevant receivable is probable,
+persuasive evidence of an arrangement exists, and the sales
+price is fixed or determinable. Allowances for estimated
+returns, discounts, and bad debts 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.
+In addition, the preparation of financial statements in
+conformity with accounting principles generally accepted in the
+U.S. requires management to make estimates and assumptions
+that affect the reported amounts of assets and liabilities,
+disclosures about contingent liabilities and the reported
+amounts of net sales and expenses during the reporting period.
+Management bases these estimates and assumptions upon historical
+experience, existing, known circumstances, authoritative
+accounting pronouncements and other factors that management
+believes to be reasonable under the circumstances. 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
+accurate in our estimates used for the reserves and allowances
+below. We believe that the estimates and assumptions below are
+among those most important to an understanding of our
+consolidated financial statements contained in this report.
+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, 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 are identified as
+potentially uncollectible, plus a general reserve for the
+balance of accounts. Reserves have been fully established for
+all expected or probable losses of this nature. The gross trade
+accounts receivable balance was $45,238,000 and the allowance
+for doubtful accounts was $1,796,000 at December 31, 2004,
+compared to gross trade accounts receivable of $20,871,000 and
+allowance for doubtful accounts of $1,581,000 at
+December 31, 2003. 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 not specifically identified as uncollectible
+would change the allowance for doubtful accounts at
+December 31, 2004 by $390,000.
+Reserve for Sales Discounts. A significant portion
+of our domestic net sales and resulting trade accounts
+receivable reflects a discount that the customers may take,
+generally based upon meeting certain order, shipment and payment
+timelines. We estimate the amount of the discounts that are
+expected to be taken against the period-end trade accounts
+receivable and we record a corresponding reserve for sales
+discounts. We determine the amount of the reserve for sales
+discounts considering the amounts of available discounts in the
+period-end accounts receivable aging and historical discount
+experience, among other factors. The reserve for sales discounts
+was approximately $1,485,000 at December 31, 2004 and
+$545,000 at December 31, 2003. Our use of different
+estimates and assumptions could produce different financial
+results. For example a 10.0% change in the estimate of the
+percentage of accounts that will ultimately take their discount
+would change the reserve for sales discounts at
+December 31, 2004 by $148,000.
+Allowance for Estimated Returns. We record an
+allowance for anticipated future returns of goods shipped prior
+to period-end. In general, we accept returns for damaged or
+defective products but discourage returns for other reasons. We
+base the amount of the allowance on any approved customer
+requests for returns, historical returns experience and any
+recent events that could result in a change in historical
+returns rates, among other factors. The allowance for returns
+was $1,731,000 at December 31, 2004 and $1,245,000 at
+33
+Table of Contents 
+December 31, 2003. 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
+percentage of sales expected to ultimately be returned would
+change the reserve for returns at December 31, 2004 by
+approximately $595,000.
+Inventory Write-Downs. Inventories are stated at
+lower of cost or market. 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 estimated future net selling prices. At
+December 31, 2004, inventories were stated at $30,260,000,
+net of inventory write-downs of $1,176,000. At December 31,
+2003, inventories were stated at $18,004,000, net of inventory
+write-downs of $882,000. 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 amount at December 31, 2004 by approximately
+$310,000.
+Valuation of Goodwill, Intangible and Other Long-Lived
+Assets. We periodically assess the impairment of
+goodwill, intangible and other long-lived assets based on
+assumptions and judgments regarding the carrying value of these
+assets. We test goodwill and nonamortizable intangible assets
+for impairment on an annual basis based on the fair value of the
+reporting unit (goodwill) or assets (nonamortizable
+intangibles) compared to its carrying value. We consider other
+long-lived assets to be impaired if we determine that the
+carrying value may not be recoverable. Among other
+considerations, we consider the following factors:
+• 
+the assets’ ability to continue to generate income from
+operations and positive cash flow in future periods; 
+• 
+our future plans regarding utilization of the assets; 
+• 
+any changes in legal ownership of rights to the assets; and 
+• 
+changes in consumer demand or acceptance of the related brand
+names, products or features associated with the assets. 
+If we consider the assets to be impaired, we recognize an
+impairment loss equal to the amount by which the carrying value
+of the assets exceeds the estimated fair value of the assets. In
+addition, as it relates to long-lived assets, we base the useful
+lives and related amortization or depreciation expense on the
+estimate of the period that the assets will generate sales or
+otherwise be used by us.
+In 2002, SFAS No. 142, “Goodwill and Other
+Intangible Assets,” became effective and as a result,
+we recorded a goodwill impairment charge in the first quarter of
+2002. See note 13 to the accompanying consolidated
+financial statements.
+Recent Accounting Pronouncements 
+In January 2003, the Financial Accounting Standards Board, or
+FASB, issued FASB Interpretation, or FIN No. 46,
+Consolidation of Variable Interest Entities, an interpretation
+of Accounting Research Bulletin, or ARB No. 51.
+FIN No. 46 addresses the consolidation by business
+enterprises of variable interest entities as defined in the
+Interpretation. FIN No. 46 generally applies
+immediately to variable interests in variable interest entities
+created after January 31, 2003 and to variable interests in
+variable interest entities obtained after January 31, 2003.
+The application of FIN No. 46 did not have a material
+effect on our consolidated financial statements. In December
+2003, the FASB revised FIN No. 46 to exempt certain
+entities from its requirements and to clarify certain issues
+arising during the implementation of FIN No. 46. The
+adoption of this revised interpretation in the first quarter of
+2004 did not have any impact on our consolidated financial
+statements.
+On October 22, 2004, the American Jobs Creation Act
+(AJCA) was signed into law. The AJCA includes a special
+one-time 85 percent dividends received deduction for
+certain foreign earnings that are repatriated. In December 2004,
+the FASB issued FASB Staff Position No. FAS 109-2 (FSP
+FAS 109-2), “Accounting and Disclosure Guidance for
+the Foreign Earnings Repatriation Provision within the American
+Jobs Creation Act of 2004.” FSP FAS 109-2 provides
+accounting and disclosure guidance for this repatriation
+provision. We have begun our evaluation of the effects of this
+provision. Although FSP FAS 109-2 is effective immediately,
+34
+Table of Contents 
+we will not be able to complete our evaluation until after
+Congress or the Treasury Department provides additional
+clarifying language on key elements of the provision. We expect
+to complete our evaluation of the effects of the repatriation
+provision within a reasonable period of time following the
+publication of the additional clarifying language.
+In November 2004, the FASB issued Statement of Financial
+Accounting Standards, or SFAS No. 151, “Inventory
+Costs — An Amendment of ARB No. 43,
+Chapter 4”. SFAS No. 151 amends the guidance
+in ARB No. 43, Chapter 4, “Inventory
+Pricing”, to clarify the accounting for abnormal amounts of
+idle facility expense, freight, handling costs, and wasted
+material (spoilage). SFAS No. 151 is effective for
+fiscal years beginning after June 15, 2005 and is required
+to be adopted in the first quarter of fiscal 2006. We do not
+expect the adoption of SFAS No. 151 to have a material
+impact on our consolidated financial statements.
+In December 2004, the FASB issued SFAS No. 123R
+(revised 2004), “Share-Based Payment”.
+SFAS No. 123R supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+of employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005. The pro forma
+disclosure permitted under SFAS No. 123 will no longer
+be an alternative to financial statement recognition.
+SFAS No. 123R requires the determination of the fair
+value of the share-based compensation at the grant date and the
+recognition of the related expense over the period in which the
+share-based compensation vests. We are required to adopt the
+provisions of SFAS No. 123R effective July 1,
+2005. The adoption of this Statement is expected to result in an
+additional expense for the year ending December 31, 2005 of
+approximately $400,000, which will be recorded in the third and
+fourth quarters of 2005.
+35
+Table of Contents 
+RISK FACTORS 
+Our short- and long-term success is subject to many factors
+beyond our control. Stockholders and potential stockholders
+should carefully consider the following risk factors 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 and
+potential stockholders may lose all or part of their
+investment. 
+Risks Relating to Our Business 
+Our success depends on our ability to anticipate fashion
+trends. 
+Our success depends largely on the continued strength of our
+Teva, UGG and Simple brands and on our ability to anticipate,
+understand and react to the rapidly changing fashion tastes of
+footwear consumers and to provide appealing merchandise in a
+timely manner. Our products must appeal to a broad range of
+consumers whose preferences cannot be predicted with certainty
+and are subject to rapid change. We are also dependent on
+customer receptivity to our products and marketing strategy.
+There can be no assurance that consumers will continue to prefer
+our brands, that we will respond quickly enough to changes in
+consumer preferences or that we will successfully introduce new
+models and styles of footwear. Achieving market acceptance for
+new products also will likely require us to exert substantial
+marketing and product development efforts and expend significant
+funds to create consumer demand. A failure to introduce new
+products that gain market acceptance 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.
+Our UGG brand may not continue to grow at the same rate it
+has experienced in the recent past. 
+Our UGG brand has experienced strong growth over the past few
+years, with net wholesale sales of UGG products having increased
+from $23,491,000 in 2002 to $101,806,000 in 2004, representing a
+compound annual growth rate of 108.2%. We do not expect to
+sustain this growth rate in the future. UGG may be a fashion
+item that could go out of style at any time. UGG represents a
+significant portion of our business, and if UGG sales were to
+decline or to fail to increase in the future, our overall
+financial performance would be adversely affected.
+We may experience shortages of top grade sheepskin, which
+could interrupt product manufacturing and increase product
+costs. 
+We depend on a limited number of key resources for sheepskin,
+the principal raw material for our UGG products. In 2004, four
+suppliers provided all of the sheepskin purchased by our
+independent manufacturers. The top grade sheepskin used in UGG
+footwear is in high demand and limited supply. In addition,
+sheep are susceptible to hoof and mouth disease, which can
+result in the extermination of an infected herd and could have a
+material adverse effect on the availability of top grade
+sheepskin for our products. Additionally, the supply of
+sheepskin can be adversely impacted by drought conditions. Our
+potential inability to obtain top grade sheepskin for UGG
+products could impair our ability to meet our production
+requirements for UGG in a timely manner and could lead to
+inventory shortages, which can result in lost potential sales,
+delays in shipments to customers, strain on our relationships
+with customers and diminished brand loyalty. Additionally, there
+have been significant increases in the prices of top grade
+sheepskin as the demand for this material has increased. Any
+further price increases will likely raise our costs, increase
+our costs of sales and decrease our profitability unless we are
+able to pass higher prices on to our customers.
+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 commit to production tooling and
+production volumes many months before consumer tastes become
+apparent. The
+36
+Table of Contents 
+footwear industry is subject to fashion risks and rapid changes
+in consumer preferences, as well as the effects of weather,
+general market conditions and other factors affecting demand.
+Our large number of models, colors and sizes in our three
+product lines exacerbates these risks. As a result, we may fail
+to accurately forecast styles and features that will be in
+demand. If we overestimate demand for our products, we may be
+forced to liquidate excess inventories at a discount to
+customers, resulting in higher markdowns and lower gross
+margins. Further, the excess inventories may prolong our cash
+flow cycle, resulting in reduced cash flow and increased
+liquidity risks. Conversely, if we underestimate consumer
+demand, we could have inventory shortages, which can result in
+lost potential sales, delays in shipments to customers, strains
+on our relationships with customers and diminished brand
+loyalty. This may be particularly true with regard to our UGG
+product line, which continues to experience strong consumer
+demand and rapid sales growth.
+We may not succeed in implementing our growth strategy. 
+As part of our growth strategy, we seek to enhance the
+positioning of our brands, extend our brands into complementary
+product categories and markets through licensing, expand
+geographically and improve our operational performance. Another
+element of our growth strategy is our licensing initiatives. We
+may not be able to successfully implement any or all of these
+strategies. If we fail to do so, our rate of growth may slow or
+our results of operations may decline, which in turn could have
+a negative effect on the value of our stock.
+Our financial success is limited to the success of our
+customers. 
+Our financial success is directly related to the success of our
+customers and the willingness of our customers to continue to
+buy our products. We do not have long-term contracts with any of
+our customers. Sales to our customers are generally on an
+order-by-order basis and are subject to rights of cancellation
+and rescheduling by our customers. If we cannot fill our
+customers’ orders in a timely manner, our relationships
+with our customers may suffer, and this could have a material
+adverse effect on us. Furthermore, if any of our major customers
+experiences a significant downturn in its business, or fails to
+remain committed to our products or brands, then these customers
+may reduce or discontinue purchases from us, which could have a
+material adverse effect on our business, results of operations
+and financial condition.
+Establishing and protecting our trademarks, patents and other
+intellectual property is costly and difficult. If our efforts to
+do so are unsuccessful, the value of our brands could suffer. 
+We believe that our trade names, copyrights, trade secrets,
+trademarks, patents, trade dress and designs are of value and
+are integral to our success and our competitive position. Some
+countries’ laws do not protect proprietary intellectual
+property rights to the same extent as do U.S. laws. From
+time to time, we discover products in the marketplace that
+infringe upon our trade name, trademark, patent, trade dress,
+design rights and other intellectual property. If we are
+unsuccessful in challenging a third party’s products on the
+basis of patent and trade dress rights, continued sales of such
+competing products by third parties could adversely impact our
+business, financial condition and results of operations.
+Furthermore, our efforts to enforce our trademark and other
+intellectual property rights are typically met with defenses and
+counterclaims attacking the validity and enforceability of our
+trademark and other intellectual property rights. Similarly,
+from time to time we may be the subject of litigation
+challenging our ownership of intellectual property. Loss of our
+Teva, UGG or Simple trade name, trademark, patent, trade dress
+or other intellectual property rights could have a material
+adverse effect on our business.
+We face particularly strong challenges to our UGG trademark in
+Australia, where many Australian manufacturers sell competitive
+footwear on the Internet. Our trademark registrations in
+Australia are subject to challenge, which we are contesting. In
+addition, certain Australian sheepskin boot manufacturers are
+alleging that the UGH, UGG-BOOT and the UGG Australia trademarks
+are not valid as being generic terms for sheepskin boots. If the
+challenges are successful, our rights in the trademarks,
+including our ability to prevent Australian competitors from
+using these trademarks in commerce in Australia, will be
+adversely affected. Although we derived less than 1% of our
+revenue in the UGG product line from Australian sales in 2004,
+our ability to prevent Australian competitors from using the
+marks on the Internet and in other channels
+37
+Table of Contents 
+of trade that may reach consumers in other countries, including
+the United States, could also be adversely affected and the
+integrity of our UGG brand could be harmed by the association
+with inferior products.
+We may lose pending litigation and the rights to certain of
+our intellectual property. 
+We are currently involved in several informal disputes, disputes
+in the U.S. Patent and Trademark Office and foreign
+trademark offices, and disputes in U.S. federal and foreign
+courts regarding infringement by third parties of our trade
+names, trademarks, trade dress, copyrights, patents and other
+intellectual property and the validity of our intellectual
+property. Any decision or settlement in any of these disputes
+that renders our intellectual property invalid or unenforceable,
+or that allows a third party to continue to use our intellectual
+property in connection with products that are similar to ours
+could have an adverse effect on our sales and on our
+intellectual property, which could have a material adverse
+effect on our results of operations and financial condition.
+Counterfeiting of our brands can divert sales and damage our
+brand image. 
+Our brands and designs are constantly at risk for counterfeiting
+and infringement of our intellectual property rights, and we
+frequently find counterfeit products and products that infringe
+on our intellectual property rights in our markets as well as
+domain names that use our trade names or trademarks without our
+consent. We have not always been successful, particularly in
+some foreign countries, in combating counterfeit products and
+stopping infringement of our intellectual property rights.
+Counterfeit and infringing products not only cause us to lose
+significant sales, but also can harm the integrity of our brands
+by associating our trademarks or designs with lesser quality or
+defective goods.
+In particular, we are experiencing more infringers of our UGG
+trademark and more counterfeit products seeking to benefit from
+the consumer demand for our UGG products. Enforcement of our
+rights to the UGG trademarks faces many challenges due in part
+to the proliferation of the term UGG in third party domain names
+that promote counterfeit products or otherwise use the trademark
+UGG without our permission. In spite of our enforcement efforts,
+we expect such unauthorized use to continue, which could result
+in a loss of sales for authorized UGG products and a diminution
+in the goodwill associated with the UGG trademarks.
+As our patents expire, our competitors will be able to copy
+our technology or incorporate it in their products without
+paying royalties. 
+Patents generally have a life of 20 years from filing, and
+some of our patents will expire in the next ten years. For
+example, the patent for our Universal Strapping System used in
+Teva sandals will expire in September 2007. Our Universal
+Strapping System is currently used in most of our Teva sandals.
+Once patent protection has expired, our competitors can copy our
+products or incorporate our innovations in their products
+without paying royalties. To combat this, we must continually
+create new designs and technology, obtain patent protection and
+incorporate the new technology or design in our footwear. We
+cannot provide assurance that we will be able to do so. Sales of
+our Teva sandals may decline significantly if we incorporate
+substitute technologies in lieu of our Universal Strapping
+System for our Teva sandals.
+Because we depend on independent manufacturers, we face
+challenges in maintaining a continuous supply of goods that meet
+our quality standards. 
+We use independent manufacturers to produce all of our products,
+with almost all of the production occurring among four
+manufacturers in China. We depend on these manufacturers’
+ability to finance the production of goods ordered and to
+maintain manufacturing capacity. The manufacturers in turn
+depend upon their suppliers of raw materials. We do not exert
+direct control over either the independent manufacturers or
+their raw materials suppliers, so we may be unable to obtain
+timely delivery of acceptable products.
+In addition, we 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 products of an acceptable
+quality from our independent manufacturers. If there is an
+interruption, we may not be able to substitute suitable
+alternative
+38
+Table of Contents 
+manufacturers because substitutes may not be available or they
+may not be able to provide us with 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 and a resulting loss of
+sales.
+Similarly, if we experience a significant increase in demand and
+a manufacturer is unable to ship orders of our products in
+accordance with our timing demands and our quality standards, we
+could miss customer delivery date requirements. This in turn
+could result in cancellation of orders, customer refusals of
+shipments or a reduction in purchase prices, any of which could
+have a material adverse effect on our sales and financial
+condition. We compete with other companies for the production
+capacity and the import quota capacity of our manufacturers.
+Accordingly, our independent manufacturers may not produce and
+ship some or all of any orders placed by us.
+If raw materials do not meet our specifications or if the
+prices of raw materials increase, we could experience a high
+return rate, a loss of sales or a reduction in our gross
+margins. 
+Our independent manufacturers use various raw materials in the
+manufacture of our footwear that must meet our specifications
+generally and, in some cases, additional technical requirements
+for performance footwear. If these raw materials and the end
+product do not perform to our specifications or consumer
+satisfaction, we could experience a higher rate of customer
+returns and a diminution in the image of our brands, which could
+have a material adverse effect on our business, financial
+condition and results of operations.
+There may be significant increases in the prices of the raw
+materials used in our footwear, which would increase the cost of
+our products from our independent manufacturers. Our gross
+profit margins are adversely affected to the extent that the
+selling prices of our products do not increase proportionately
+with increases in their costs. Any significant unanticipated
+increase in the prices of raw materials could materially affect
+our results of operations. No assurances can be given that we
+will be protected from future changes in the prices of such raw
+materials.
+Our independent manufacturers are located outside the U.S.,
+where we are subject to the risks of international commerce. 
+All of our third party manufacturers are in the Far East,
+Australia and New Zealand, with the vast majority of production
+performed by four manufacturers in China. Foreign manufacturing
+is subject to numerous risks, including the following:
+• 
+tariffs, import and export controls and other non-tariff
+barriers such as quotas and local content rules; 
+• 
+increasing transportation costs due to energy prices or other
+factors; 
+• 
+poor infrastructure and shortages of equipment, which can delay
+or interrupt transportation and utilities; 
+• 
+foreign currency fluctuations; 
+• 
+restrictions on the transfer of funds; 
+• 
+changing economic conditions; 
+• 
+changes in governmental policies; 
+• 
+environmental regulation; 
+• 
+labor unrest, which can lead to work stoppages and interruptions
+in transportation or supply; 
+• 
+political unrest, which can interrupt commerce and make travel
+dangerous; and 
+• 
+expropriation and nationalization. 
+39
+Table of Contents 
+In particular, because most of our products are manufactured in
+China, adverse change in trade or political relations with China
+or political instability in the Far East could severely
+interfere with the manufacture of our products and could
+materially adversely affect our results of operations.
+Uncertainty regarding the short-term and long-term effects of
+the severe acute respiratory syndrome, or SARS, and the outbreak
+of avian influenza in China and elsewhere in the Far East could
+disrupt the manufacture and transportation of our products,
+which would harm our results of operations.
+We are also subject to general risks associated with managing
+foreign operations effectively and efficiently from the U.S. and
+understanding and complying with local laws, regulations and
+customs in foreign jurisdictions. These factors and the failure
+to properly respond to them could make it difficult to obtain
+adequate supplies of quality products when we need them,
+resulting in reduced sales and harm to our business.
+Our business could suffer if our independent manufacturers,
+their suppliers or our licensees violate labor laws or fail to
+conform to our ethical standards. 
+We require our independent contract manufacturers, their
+suppliers and our licensees to meet our standards for working
+conditions, environmental protection and other matters before we
+are willing to place business with them. As a result, we do not
+always obtain the lowest cost production. We do not control our
+independent manufacturers, their suppliers or their respective
+labor practices. If one of our independent contract
+manufacturers or one of their suppliers violates our labor
+standards by, for example, using convicted, forced or indentured
+labor or child labor, fails to pay compensation in accordance
+with local law or fails to operate its factories in compliance
+with local safety regulations, we likely would immediately cease
+dealing with that manufacturer (or, in the case of a supplier,
+we would likely require our manufacturer to immediately cease
+using that supplier), and we could suffer an interruption in our
+product supply. In addition, the manufacturers’ or their
+suppliers’ actions could damage our reputation and the
+value of our brands, resulting in negative publicity and
+discouraging customers and consumers from buying our products.
+Similarly, we do not control our licensees or any of their
+suppliers or their respective labor practices. If one of our
+licensees violates our labor standards or local laws, we would
+immediately terminate the license agreement, which would reduce
+our license revenue. In addition, the licensee’s actions
+could damage our reputation and the value of our brands. We also
+may not be able to replace the licensee.
+If our licensing partners are unable to meet our expectations
+regarding the quality of their products or the conduct of their
+business, the value of our brands could suffer. 
+One element of our growth strategy depends on our ability to
+successfully enter into and maintain license agreements with
+manufacturers and distributors of products in complementary
+categories. We will be relying on our licensees to maintain our
+standards with their manufacturers in the future, and any
+failure to do so could harm our reputation and the value of the
+licensed brand. The interruption of the business of any one of
+our material licensing partners due to any of the factors
+discussed immediately below could also adversely affect our
+future licensing sales and net income. The risks associated with
+our own products will also apply to our licensed products in
+addition to any number of possible risks specific to a licensing
+partner’s business, including, for example, risks
+associated with a particular licensing partner’s ability to:
+• 
+obtain capital; 
+• 
+manage manufacturing and product sourcing activities; 
+• 
+manage labor relations; 
+• 
+maintain relationships with suppliers; 
+• 
+manage credit risk effectively; and 
+• 
+maintain relationships with customers. 
+Our licensing agreements generally do not preclude our licensing
+partners from offering, under other brands, products similar to
+those covered by their license agreements with us, which could
+reduce the sales of
+40
+Table of Contents 
+our licensed products. In addition, if we cannot replace
+existing licensing partners who fail to perform adequately, our
+net sales, both directly from reduced licensing revenue and
+indirectly from reduced sales of our other products, will suffer.
+If our brand managers cannot properly manage the licensees of
+their respective brands, our growth strategy could be
+impaired. 
+Our growth strategy and future profits depend upon each of our
+brand managers finding and successfully managing licensees for
+each of their respective brands. Our brand managers may not be
+able to successfully implement the licensing aspect of our
+growth strategy and to develop and manage profitable license
+arrangements. We compete for opportunities to license our brands
+with other companies who have greater resources than we do and
+who may have more valuable brands and more licensing experience
+than we do. As a result, even if we do identify a suitable
+licensee, we may lose the opportunity to a competitor. Our brand
+managers’ failure to execute our licensing strategy
+successfully could negatively impact our results from operations.
+We may be unable to successfully identify, develop or
+acquire, and build new brands. 
+We intend to continue to focus on identifying, developing or
+acquiring and building new brands. Our search may not yield any
+complementary brands, and even if we do find a suitable brand we
+may not be able to obtain sufficient financing to fund the
+development or acquisition of the brand. We may not be able to
+successfully integrate the management of a new brand into our
+existing operations, and we cannot assure you that any developed
+or acquired brand will achieve the results we expect. We compete
+with other companies who have greater resources than we do for
+the opportunities to license brands or buy other brands. As a
+result, even if we do identify a suitable license or
+acquisition, we may lose the opportunity to a competitor who
+offers a more attractive price. In such event, we may incur
+significant costs in pursuing a license or an acquisition
+without success.
+Our quarterly sales and operating results may fluctuate in
+future periods, and if we fail to meet expectations the price of
+our common stock may decline. 
+Our quarterly sales and operating results have fluctuated
+significantly in the past and are likely to do so in the future
+due to a number of factors, many of which are not within our
+control. If our quarterly sales or operating results fall below
+the expectations of investors or securities analysts, the price
+of our common stock could decline substantially. Factors that
+might cause quarterly fluctuations in our sales and operating
+results include the following:
+• 
+variation in demand for our products, including variation due to
+changing consumer tastes and seasonality; 
+• 
+our ability to develop, introduce, market and gain market
+acceptance of new products and product enhancements in a timely
+manner; 
+• 
+our ability to manage inventories, accounts receivable and cash
+flows; 
+• 
+our ability to control costs; 
+• 
+the size, timing, rescheduling or cancellation of orders from
+customers; 
+• 
+the introduction of new products by competitors; 
+• 
+the availability and reliability of raw materials used to
+manufacture our products; 
+• 
+changes in our pricing policies or those of our independent
+manufacturers and competitors, as well as increased price
+competition in general; 
+• 
+the mix of our domestic and international sales, and the risks
+and uncertainties associated with our international business; 
+41
+Table of Contents 
+• 
+our ability to forecast future sales and operating results and
+subsequently attain them; 
+• 
+developments concerning the protection of our intellectual
+property rights; and 
+• 
+general global economic and political conditions, including
+international conflicts and acts of terrorism. 
+In addition, our expenses depend, in part, on our expectations
+regarding future sales. In particular, we expect to continue
+incurring substantial expenses relating to the marketing and
+promotion of our products. Since many of our costs are fixed in
+the short term, if we have a shortfall in sales, we may be
+unable to reduce expenses quickly enough to avoid losses.
+Accordingly, you should not rely on quarter-to-quarter
+comparisons of our operating results as an indication of our
+future performance.
+Loss of the services of our key personnel could adversely
+affect our business. 
+Our future success and growth depend on the continued services
+of Doug Otto, our Chairman of the Board, Chief Executive Officer
+and President, Scott Ash, our Chief Financial Officer, Bob
+Orlando, the President of the Teva Division, Connie Rishwain,
+the President of the UGG and Simple Divisions, Pat Devaney,
+Senior Vice President of Global Sourcing, Production and
+Development, Janice Howell, Vice President of Operations, John
+Kalinich, Vice President of Consumer Direct, and Tracey Nelson,
+Vice President of Corporate Licensing, as well as other key
+officers and employees. The loss of the services of any of these
+individuals or any other key employee could materially affect
+our business. Our future success also depends on our ability to
+identify, attract and retain additional qualified personnel.
+Competition for employees in our industry is intense and we may
+not be successful in attracting or retaining them.
+We conduct business outside the U.S., which exposes us to
+foreign currency and other risks. 
+Our products are manufactured outside the U.S., and our
+independent manufacturers procure most of their supplies outside
+the U.S. We sell our products in the U.S. and
+internationally. Although we pay for the purchase and
+manufacture of our products primarily in U.S. dollars and
+we sell our products primarily in U.S. dollars, we are
+routinely subject to currency rate movements on
+non-U.S. denominated assets, liabilities and income since
+our foreign distributors sell in local currencies, which impacts
+the price to foreign customers. We currently do not use currency
+hedges since substantially all our transactions are in
+U.S. dollars. Future changes in foreign currency exchange
+rates may cause changes in the dollar value of our purchases or
+sales and materially affect our results of operations.
+Our most popular products are seasonal, and our sales are
+sensitive to weather conditions. 
+Sales of our products, particularly those under the Teva and UGG
+brands, are highly seasonal and are sensitive to weather
+conditions. Extended periods of unusually cold weather during
+the spring and summer can reduce demand for Teva footwear.
+Likewise, unseasonably warm weather during the fall and winter
+months may reduce demand for our UGG products. 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.
+We depend on independent distributors to sell our products in
+international markets. 
+We sell our products in international markets through
+independent distributors. If a distributor fails to meet annual
+sales goals, it may be difficult and costly to locate an
+acceptable substitute distributor. If a change in our
+distributors becomes necessary, we may experience increased
+costs, as well as substantial disruption and a resulting loss of
+sales.
+42
+Table of Contents 
+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. 
+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 sales operations. These include:
+• 
+changes in currency exchange rates which impact the price to
+international consumers; 
+• 
+the burdens of complying with a variety of foreign laws and
+regulations; 
+• 
+unexpected changes in regulatory requirements; and 
+• 
+the difficulties associated with promoting products in
+unfamiliar cultures. 
+We are also subject to general political and economic risks in
+connection with our international sales operations, including:
+• 
+political instability; 
+• 
+changes in diplomatic and trade relationships; and 
+• 
+general economic fluctuations in specific countries or markets. 
+Any of the abovementioned factors could adversely affect our
+sales and results of operations in international markets.
+International trade 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 U.S. 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.
+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 generally make it difficult to obtain products of our
+customary quality at a desired price. Meanwhile, the continued
+negotiation of bilateral and multilateral free trade agreements
+by the U.S. 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 to our market countries
+at preferred rates of duty, though we are uncertain precisely
+what effect these new agreements may have on our operations.
+Finally, the increased threat of terrorist activity and the 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.
+We depend on our computer and communications systems. 
+We extensively utilize computer and communications systems to
+operate our Internet and catalog business and manage our
+internal operations. Any interruption of this service from power
+loss, telecommunications failure, failure of our computer
+system, failure due to weather, natural disasters or any similar
+event could disrupt our operations and result in lost sales. In
+addition, hackers and computer viruses have disrupted operations
+at many major companies. We may be vulnerable to similar acts of
+sabotage, which could have a material adverse effect on our
+business and operations.
+43
+Table of Contents 
+We rely on our management information systems to operate our
+business and to track our operating results. Our management
+information systems will require modification and refinement as
+we grow and our business needs change. If we experience a
+significant system failure or if we are unable to modify our
+management information systems to respond to changes in our
+business needs, then our ability to properly run our business
+could be adversely affected.
+Risks Related to Our Industry 
+Because the footwear market is sensitive to decreased
+consumer spending and slow economic cycles, if general economic
+conditions deteriorate many of our customers may significantly
+reduce their purchases from us or may not be able to pay for our
+products in a timely manner. 
+The footwear industry historically has been subject to cyclical
+variation and decline in performance when consumer spending
+decreases or softness appears in the retail market. Many factors
+affect the level of consumer spending in the footwear industry,
+including:
+• 
+general business conditions; 
+• 
+interest rates; 
+• 
+the availability of consumer credit; 
+• 
+weather; 
+• 
+taxation; and 
+• 
+consumer confidence in future economic conditions. 
+Consumer purchases of discretionary items, including our
+products, may decline during recessionary periods and also may
+decline at other times when disposable income is lower. A
+downturn in economies where our licensing partners or we sell
+products, whether in the U.S. or abroad, may reduce sales.
+In addition, we extend credit to our customers based on an
+evaluation of each customer’s financial condition. Many
+retailers, including some of our customers, have experienced
+financial difficulties during the past several years, thereby
+increasing the risk that such customers may not be able to pay
+for our products in a timely manner. Our bad debt expense may
+increase relative to net sales in the future. Any significant
+increase in our bad debt expense relative to net sales would
+adversely impact our net income and cash flow and could affect
+our ability to pay our own obligations as they become due.
+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 the recent
+growth in the market for sport sandals, casual footwear and
+other products manufactured by our licensees has encouraged the
+entry of many new competitors into the marketplace as well as
+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 market. 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 more
+quickly develop new 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 industry.
+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 customers to shift their purchases away from our
+products.
+44
+Table of Contents 
+We believe that our ability to compete successfully depends on a
+number of factors, including the quality, style and authenticity
+of our products and the strength of our brands, as well as many
+factors beyond our control. Maintaining our competitiveness
+depends on our ability to defend our products from infringement,
+our continued ability to anticipate and react to consumer tastes
+and our continued ability to deliver quality products at an
+acceptable price. If we fail to compete successfully in the
+future, our sales and profits will decline, as will the value of
+our business, financial condition and common stock.
+Consolidations, restructurings and other ownership changes in
+the retail industry could affect the ability of our wholesale
+customers to purchase and market our products. 
+In the future, retailers in the U.S. and in foreign markets may
+undergo changes that could decrease the number of stores that
+carry our products or increase the concentration of ownership
+within the retail industry, including:
+• 
+consolidating their operations; 
+• 
+undergoing restructurings; 
+• 
+undergoing reorganizations; or 
+• 
+realigning their affiliations. 
+These consolidations could result in a shift of bargaining power
+to the retail industry and in fewer outlets for our products.
+Further consolidations could result in price and other
+competition that could reduce our margins and our net sales.
+Terrorism, government response to terrorism and other world
+events could affect our ability to do business. 
+We market and sell our products and services throughout the
+world. The September 11, 2001 terrorist attacks disrupted
+commerce across the U.S. and in many other parts of the world.
+World events, including the threat of similar attacks in the
+future, and the impact of the U.S.’s military campaigns may
+cause significant disruption to commerce throughout the world.
+We are unable to predict whether the threat of new attacks or
+the resulting response will result in any long-term commercial
+disruptions or do long-term harm to our business, results of
+operations or financial condition. To the extent that future
+disruptions further slow the global economy or, more
+particularly, result in delays or cancellations of purchase
+orders for our products or delays in shipping, our business and
+results of operations could suffer material damage.
+Risks Relating to Our Common Stock 
+Members of management own sufficient shares to substantially
+control our company. 
+At March 8, 2005, Doug Otto beneficially owned
+approximately 15.2% of our common stock and all of our executive
+officers and directors as a group beneficially owned
+approximately 17.8%. The ownership positions of Mr. Otto
+and our executive officers as a group, together with the
+anti-takeover effects of the Delaware General Corporation Law
+and provisions of our certificate of incorporation, our bylaws
+and our stockholder rights plan, would likely delay, defer or
+prevent a change in control of our company, may deprive our
+stockholders of an opportunity to receive a premium for their
+common stock as part of a change in control and could have a
+negative effect on the market price of our common stock.
+Our common stock price has been volatile, which could result
+in substantial losses for stockholders. 
+Our common stock is traded on the NASDAQ National Market. While
+our average daily trading volume for the 52-week period ended
+March 8, 2005 was approximately 402,000 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 sale prices of our
+common stock, as reported by the NASDAQ National Market, have
+ranged from $22.94 to $48.02 for the 52-week period ended
+March 8, 2005. The
+45
+Table of Contents 
+trading price of our common stock could be affected by a number
+of factors, including, but not limited to the following:
+• 
+changes in expectations of our future performance; 
+• 
+changes in estimates by securities analysts (or failure to meet
+such estimates); 
+• 
+quarterly fluctuations in our sales and financial results; 
+• 
+broad market fluctuations in volume and price; and 
+• 
+a variety of risk factors, including the ones described
+elsewhere in this report. 
+Accordingly, the price of our common stock is volatile and any
+investment in our securities is subject to risk of loss.
+Future sales of our common stock could adversely affect our
+stock price. 
+Future sales of substantial amounts of shares of our common
+stock in the public market, or the perception that these sales
+could occur, may cause the market price of our common stock to
+decline. In addition, we may be required to issue additional
+shares upon exercise of previously granted options that are
+currently outstanding.
+Anti-takeover provisions of our certificate of incorporation,
+bylaws, stockholder rights plan and Delaware law could prevent
+or delay a change in control of our company, even if such a
+change of control would benefit our stockholders. 
+Provisions of our certificate of incorporation and bylaws, as
+well as provisions of Delaware law, could discourage, delay or
+prevent a merger, acquisition or other change in control of our
+company, even if such a change in control might benefit our
+stockholders. These provisions could also discourage proxy
+contests and make it more difficult for you and other
+stockholders to elect directors and take other corporate
+actions. As a result, these provisions could limit the price
+that investors are willing to pay in the future for shares of
+our common stock. These provisions might also discourage a
+potential acquisition proposal or tender offer, even if the
+acquisition proposal or tender offer is at a price above the
+then current market price for our common stock. These provisions
+include the following:
+• 
+a board of directors that is classified so that only one-third
+of directors stand for election each year; 
+• 
+authorization of “blank check” preferred stock, which
+our board of directors could issue with provisions designed to
+thwart a takeover attempt; 
+• 
+limitations on the ability of stockholders to call special
+meetings of stockholders; 
+• 
+a prohibition against stockholder action by written consent and
+a requirement that all stockholder actions be taken at a meeting
+of our stockholders; and 
+• 
+advance notice requirements for nominations for election to our
+board of directors or for proposing matters that can be acted
+upon by stockholders at stockholder meetings. 
+We adopted a stockholder rights plan in 1998 under a stockholder
+rights agreement intended to protect stockholders against
+unsolicited attempts to acquire control of our company that do
+not offer what our board of directors believes to be an adequate
+price to all stockholders or that our board of directors
+otherwise opposes. As part of the plan, our board of directors
+declared a dividend that resulted in the issuance of one
+preferred share purchase right for each outstanding share of our
+common stock. Unless extended, the preferred share purchase
+rights will terminate on November 11, 2008. If a bidder
+proceeds with an unsolicited attempt to purchase our stock and
+acquires 20% or more (or announces its intention to acquire 20%
+or more) of our outstanding stock, and the board of directors
+does not redeem the preferred stock purchase right, the right
+will become exercisable at a price that significantly dilutes
+the interest of the bidder in our common stock.
+46
+Table of Contents 
+The effect of the stockholder rights plan is to make it more
+difficult to acquire our company without negotiating with the
+board of directors. However, the stockholder rights plan could
+discourage offers even if made at a premium over the market
+price of our common stock, and even if the stockholders might
+believe the transaction would benefit them.
+In addition, we are subject to Section 203 of the Delaware
+General Corporation Law, which limits business combination
+transactions with 15% or greater stockholders that our board of
+directors has not approved. These provisions and other similar
+provisions make it more difficult for a third party to acquire
+us without negotiation. These provisions apply even if some
+stockholders would consider the transaction beneficial.
+Item 7A. 
+Quantitative and Qualitative Disclosures About Market
+Risk 
+Derivative Instruments. Although we have used
+foreign currency hedges in the past, we no longer utilize
+forward contracts or other derivative instruments to mitigate
+exposure to fluctuations in the foreign currency exchange rate
+as all of our purchases and sales for the foreseeable future
+will be denominated in U.S. currency.
+Although our sales are denominated in U.S. currency, our
+sales may be impacted by fluctuations in the exchange rates
+between the U.S. dollar and the local currencies in the
+international markets where our products are sold. If the United
+States dollar strengthens, it may result in increased pricing
+pressure on our distributors, which may have a negative impact
+on our net sales. We are unable to estimate the amount of any
+impact on sales attributed to pricing pressures caused by
+fluctuations in exchange rates.
+Market Risk. Our market risk exposure with respect
+to financial instruments is to changes in the “prime
+rate” in the U.S. and changes in LIBOR. Our revolving line
+of credit provides for interest on outstanding borrowings at
+rates tied to the prime rate or at our election tied to LIBOR.
+At December 31, 2004, we had no outstanding borrowings
+under the revolving line of credit. A 1.00% increase in interest
+rates on our current borrowings would have no impact on income
+before income taxes.
+Item 8. 
+Financial Statements and Supplementary Data 
+See Item 15 and page 49 for an index to the
+consolidated financial statements and supplementary information
+included herein.
+Item 9. 
+Changes in and Disagreements With Accountants on
+Accounting and Financial Disclosure 
+None.
+Item 9A. 
+Controls and Procedures 
+The Company’s Chief Executive Officer, Douglas B. Otto, and
+Chief Financial Officer, M. Scott Ash, with the participation of
+the Company’s management, carried out an evaluation of the
+effectiveness of the Company’s disclosure controls and
+procedures pursuant to Exchange Act Rule 13a-15(e). Based
+upon that evaluation, the Chief Executive Officer and the Chief
+Financial Officer believe that, as of the end of the period
+covered by this report, the Company’s disclosure controls
+and procedures are effective in making known to them material
+information relating to the Company (including its consolidated
+subsidiaries) required to be included in this report.
+Disclosure controls and procedures, no matter how well designed
+and implemented, can provide only reasonable assurance of
+achieving an entity’s disclosure objectives. The likelihood
+of achieving such objectives is affected by limitations inherent
+in disclosure controls and procedures. These include the fact
+that human judgment in decision-making can be faulty and that
+breakdowns in internal control can occur because of human
+failures such as simple errors, mistakes or intentional
+circumvention of the established processes.
+Although there were no significant changes to our internal
+controls or in other factors that could significantly affect our
+internal controls subsequent to the Evaluation Date, we have
+completed our efforts regarding compliance with Section 404
+of the Sarbanes- Oxley Act of 2002 for our fiscal year ending
+47
+Table of Contents 
+December 31, 2004. The results of our evaluation are
+discussed below in the Report of Management on Internal Control
+Over Financial Reporting.
+This effort included internal control documentation and review
+under the direction of senior management. During the course of
+our evaluation, we reviewed identified data errors and control
+problems and confirmed that appropriate corrective actions,
+including process improvements, were undertaken. These
+improvements included formalization of policies and procedures,
+improved segregation of duties and additional monitoring
+controls. Many of the components of our internal controls are
+also evaluated on an ongoing basis by members of our
+organization. The overall goals of these various evaluation
+activities are to monitor our internal controls, and to modify
+them as necessary. Our intent is to maintain the internal
+controls as dynamic systems that change as conditions warrant.
+REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
+REPORTING 
+Management of Deckers Outdoor Corporation (the
+“Company”) is responsible for establishing and
+maintaining adequate internal control over financial reporting
+as defined in Rules 13a-15(f) and 15d-15(f) under the
+Securities Exchange Act of 1934. The 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 accounting principles
+generally accepted in the United States of America. Internal
+control over financial reporting includes those written policies
+and procedures that:
+• 
+pertain to the maintenance of records that, in reasonable
+detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the Company; 
+• 
+provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in
+accordance with accounting principles generally accepted in the
+United States of America; 
+• 
+provide reasonable assurance that receipts and expenditures of
+the Company are being made only in accordance with authorization
+of management and directors of the Company; and 
+• 
+provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use or disposition of
+assets that could have a material effect on the consolidated
+financial statements. 
+Internal control over financial reporting includes the controls
+themselves, as well as the monitoring of practices and actions
+taken to correct deficiencies as identified.
+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.
+Management assessed the effectiveness of the Company’s
+internal control over financial reporting as of
+December 31, 2004. 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. 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, 2004, the Company maintained effective
+internal control over financial reporting.
+KPMG LLP, independent registered public accounting firm, who
+audited and reported on the consolidated financial statements of
+the Company included in this report, has issued an attestation
+report on management’s assessment of internal control over
+financial reporting.
+Item 9B. 
+Other Information 
+None.
+48
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND 
+FINANCIAL STATEMENT SCHEDULE 
+Page 
+Consolidated Financial Statements 
+Reports of Independent Registered Public
+Accounting Firm 
+50 
+Consolidated Balance Sheets as of
+December 31, 2003 and 2004 
+53 
+Consolidated Statements of Operations for
+each of the years in the three-year period ended
+December 31, 2004 
+54 
+Consolidated Statements of
+Stockholders’ Equity and Comprehensive Income (Loss) for
+each of the years in the three-year period ended
+December 31, 2004 
+55 
+Consolidated Statements of Cash Flows for
+each of the years in the three-year period ended
+December 31, 2004 
+56 
+Notes to Consolidated Financial
+Statements 
+57 
+Consolidated Financial Statement Schedule 
+Valuation and Qualifying Accounts 
+78 
+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.
+49
+Table of Contents 
+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 as
+listed in the accompanying index. In connection with our audits
+of the consolidated financial statements, we also have audited
+the financial statement schedule as listed in the accompanying
+index. These consolidated financial statements and financial
+statement schedule are the responsibility of the Company’s
+management. Our responsibility is to express an opinion on these
+consolidated financial statements and 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, 2003 and 2004, and the results of their
+operations and their cash flows for each of the years in the
+three-year period ended December 31, 2004, 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.
+As discussed in note 13 to the consolidated financial
+statements, the Company adopted Statement of Financial
+Accounting Standards No. 142, Goodwill and Other
+Intangible Assets, on January 1, 2002.
+We also have audited, in accordance with the standards of the
+Public Company Accounting Oversight Board (United States), the
+effectiveness of the Company’s internal control over
+financial reporting as of December 31, 2004, 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 11, 2005 expressed an unqualified opinion on
+management’s assessment of, and the effective operation of,
+internal control over financial reporting.
+/s/ KPMG LLP 
+Los Angeles, California
+March 11, 2005
+50
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
+FIRM 
+The Board of Directors and Stockholders
+Deckers Outdoor Corporation:
+We have audited management’s assessment, included in the
+accompanying Report of Management on Internal Control Over
+Financial Reporting appearing under Item 9A, that Deckers
+Outdoor Corporation maintained effective internal control over
+financial reporting as of December 31, 2004, based on
+criteria established in Internal Control — Integrated
+Framework issued by the Committee of Sponsoring Organizations of
+the Treadway Commission (COSO). Deckers Outdoor
+Corporation’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. Our responsibility is to express an opinion
+on management’s assessment and an opinion on the
+effectiveness of 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, evaluating
+management’s assessment, testing and evaluating the design
+and operating effectiveness of internal control, and 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, management’s assessment that Deckers
+Outdoor Corporation maintained effective internal control over
+financial reporting as of December 31, 2004, is fairly
+stated, in all material respects, based on criteria established
+in Internal Control — Integrated Framework issued by
+the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO). Also, in our opinion, Deckers Outdoor
+Corporation maintained, in all material respects, effective
+internal control over financial reporting as of
+December 31, 2004, based on criteria established in
+Internal Control — Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission
+(COSO).
+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, 2003 and 2004, and the
+related consolidated statements of operations,
+stockholders’ equity and comprehensive income (loss), and
+cash flows for each of the years in the three-year period ended
+December 31, 2004, and the related financial statement
+schedule, and our report dated March 11, 2005 expressed an
+unqualified opinion on those consolidated financial statements
+and financial statement schedule.
+51
+Table of Contents 
+Our report also refers to the Company’s adoption of
+Statement of Financial Accounting Standards No. 142,
+Goodwill and Other Intangible Assets, on
+January 1, 2002.
+/s/ KPMG LLP 
+Los Angeles, California
+March 11, 2005
+52
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+December 31, 2003 and 2004 
+2003 
+2004 
+Assets 
+Current assets: 
+Cash and cash equivalents 
+$ 
+6,662,000 
+$ 
+10,379,000 
+Short-term investments 
+— 
+15,475,000 
+Trade accounts receivable, less allowance for doubtful accounts
+and sales discounts of $2,126,000 and $3,281,000 as of
+December 31, 2003 and 2004, respectively 
+18,745,000 
+41,957,000 
+Inventories 
+18,004,000 
+30,260,000 
+Prepaid expenses and other current assets 
+694,000 
+1,491,000 
+Deferred tax assets 
+2,137,000 
+3,240,000 
+Total current assets 
+46,242,000 
+102,802,000 
+Property and equipment, at cost, net 
+2,969,000 
+2,838,000 
+Trademarks 
+51,152,000 
+51,152,000 
+Goodwill 
+18,030,000 
+18,030,000 
+Intangible assets, net 
+1,390,000 
+1,137,000 
+Other assets, net 
+1,243,000 
+592,000 
+$ 
+121,026,000 
+$ 
+176,551,000 
+Liabilities and Stockholders’ Equity 
+Current liabilities: 
+Notes payable and current installments of long-term debt 
+$ 
+3,792,000 
+$ 
+— 
+Trade accounts payable 
+11,220,000 
+16,524,000 
+Reserve for returns 
+1,245,000 
+1,731,000 
+Accrued sales commissions 
+623,000 
+1,714,000 
+Accrued payroll 
+2,657,000 
+3,623,000 
+Other accrued expenses 
+434,000 
+2,631,000 
+Income taxes payable 
+3,468,000 
+6,725,000 
+Total current liabilities 
+23,439,000 
+32,948,000 
+Long-term debt, less current installments 
+26,495,000 
+— 
+Deferred tax liabilities 
+568,000 
+2,607,000 
+Commitments and contingencies 
+Stockholders’ equity: 
+Series A preferred stock at liquidation preference,
+$0.01 par value. Authorized 5,000,000 shares
+(1,375,000 designated as Series A); no shares issued and
+outstanding at December 31, 2003 and 2004 
+— 
+— 
+Common stock, $0.01 par value. Authorized
+20,000,000 shares; issued 10,703,433 shares and
+outstanding 9,730,481 shares at December 31, 2003;
+issued and outstanding 12,183,080 at December 31, 2004 
+97,000 
+122,000 
+Additional paid-in capital 
+27,115,000 
+71,959,000 
+Retained earnings 
+43,052,000 
+68,591,000 
+Accumulated other comprehensive income 
+260,000 
+324,000 
+Total stockholders’ equity 
+70,524,000 
+140,996,000 
+$ 
+121,026,000 
+$ 
+176,551,000 
+See accompanying notes to consolidated financial statements.
+53
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+Years Ended December 31, 2002, 2003 and 2004 
+2002 
+2003 
+2004 
+Net sales 
+$ 
+99,107,000 
+$ 
+121,055,000 
+$ 
+214,787,000 
+Cost of sales 
+57,577,000 
+69,710,000 
+124,354,000 
+Gross profit 
+41,530,000 
+51,345,000 
+90,433,000 
+Selling, general and administrative expenses 
+34,954,000 
+32,407,000 
+47,971,000 
+Litigation expense (income) 
+3,228,000 
+(500,000 
+) 
+— 
+Income from operations 
+3,348,000 
+19,438,000 
+42,462,000 
+Other expense (income): 
+Interest expense, net 
+406,000 
+4,557,000 
+2,236,000 
+Other expense (income) 
+98,000 
+(3,000 
+) 
+3,000 
+504,000 
+4,554,000 
+2,239,000 
+Income before income taxes and cumulative effect of a change in
+accounting principle 
+2,844,000 
+14,884,000 
+40,223,000 
+Income taxes 
+1,224,000 
+5,730,000 
+14,684,000 
+Income before cumulative effect of a change in accounting
+principle 
+1,620,000 
+9,154,000 
+25,539,000 
+Cumulative effect of a change in accounting principle, net of
+income tax benefit of $843,000 
+(8,973,000 
+) 
+— 
+— 
+Net income (loss) 
+(7,353,000 
+) 
+9,154,000 
+25,539,000 
+Less preferred stock redemption premium 
+— 
+(438,000 
+) 
+— 
+Income (loss) applicable to common stockholders 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+$ 
+25,539,000 
+Basic income per common share before cumulative effect of a
+change in accounting principle 
+$ 
+0.17 
+$ 
+0.91 
+$ 
+2.32 
+Cumulative effect of a change in accounting principle 
+(0.96 
+) 
+— 
+— 
+Basic net income (loss) per common share 
+$ 
+(0.79 
+) 
+$ 
+0.91 
+$ 
+2.32 
+Diluted income per common share before cumulative effect of a
+change in accounting principle 
+$ 
+0.17 
+$ 
+0.77 
+$ 
+2.10 
+Cumulative effect of a change in accounting principle 
+(0.92 
+) 
+— 
+— 
+Diluted net income (loss) per common share 
+$ 
+(0.75 
+) 
+$ 
+0.77 
+$ 
+2.10 
+Weighted average common shares: 
+Basic 
+9,328,000 
+9,610,000 
+11,005,000 
+Diluted 
+9,806,000 
+11,880,000 
+12,142,000 
+See accompanying notes to consolidated financial statements.
+54
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
+COMPREHENSIVE INCOME (LOSS) 
+Years Ended December 31, 2002, 2003 and 2004 
+Note 
+Accumulated 
+Receivable 
+Preferred Stock 
+Common Stock 
+Additional 
+Other 
+From 
+Total 
+Comprehensive 
+Paid-In 
+Retained 
+Comprehensive 
+Stockholder/ 
+Stockholders’ 
+Income 
+Shares 
+Amount 
+Shares 
+Amount 
+Capital 
+Earnings 
+Income 
+Former Officer 
+Equity 
+(Loss) 
+Balance at December 31, 2001 
+— 
+— 
+9,324,357 
+$ 
+93,000 
+$ 
+25,689,000 
+$ 
+41,251,000 
+$ 
+123,000 
+$ 
+(624,000 
+) 
+$ 
+66,532,000 
+Fair value of equity issued as consideration in the acquisition
+of Teva (note 12) 
+1,375,000 
+$ 
+5,500,000 
+100,000 
+1,000 
+554,000 
+— 
+— 
+— 
+6,055,000 
+Fair value of options issued under Teva license agreement
+(note 7) 
+— 
+— 
+— 
+— 
+111,000 
+— 
+— 
+— 
+111,000 
+Common stock issued under stock incentive plan 
+— 
+— 
+124,896 
+2,000 
+442,000 
+— 
+— 
+— 
+444,000 
+Common stock issued under the employee stock purchase plan 
+— 
+— 
+11,870 
+— 
+37,000 
+— 
+— 
+— 
+37,000 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(7,353,000 
+) 
+— 
+— 
+(7,353,000 
+) 
+$ 
+(7,353,000 
+) 
+Write off of note receivable from stockholder/former officer 
+— 
+— 
+(100,000 
+) 
+(1,000 
+) 
+(623,000 
+) 
+— 
+— 
+624,000 
+— 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+— 
+130,000 
+— 
+130,000 
+130,000 
+Unrealized losses on hedging derivatives 
+— 
+— 
+— 
+— 
+— 
+— 
+(729,000 
+) 
+— 
+(729,000 
+) 
+(729,000 
+) 
+Total comprehensive loss 
+$ 
+(7,952,000 
+) 
+Balance at December 31, 2002 
+1,375,000 
+5,500,000 
+9,461,123 
+95,000 
+26,210,000 
+33,898,000 
+(476,000 
+) 
+— 
+65,227,000 
+Repurchase preferred stock (note 6) 
+(1,375,000 
+) 
+(5,500,000 
+) 
+— 
+— 
+(438,000 
+) 
+— 
+— 
+— 
+(5,938,000 
+) 
+Common stock issued under stock incentive plan 
+— 
+— 
+262,577 
+2,000 
+874,000 
+— 
+— 
+— 
+876,000 
+Tax benefit attributable to stock options 
+— 
+— 
+— 
+— 
+445,000 
+— 
+— 
+— 
+445,000 
+Common stock issued under the employee stock purchase plan 
+— 
+— 
+6,781 
+— 
+24,000 
+— 
+— 
+— 
+24,000 
+Net income 
+— 
+— 
+— 
+— 
+— 
+9,154,000 
+— 
+— 
+9,154,000 
+$ 
+9,154,000 
+Foreign currency translation adjustment and reversal of
+unrealized hedging losses 
+— 
+— 
+— 
+— 
+— 
+— 
+736,000 
+— 
+736,000 
+736,000 
+Total comprehensive income 
+$ 
+9,890,000 
+Balance at December 31, 2003 
+— 
+— 
+9,730,481 
+97,000 
+27,115,000 
+43,052,000 
+260,000 
+— 
+70,524,000 
+Common stock issued under follow-on offering 
+— 
+— 
+1,500,000 
+15,000 
+34,446,000 
+— 
+— 
+— 
+34,461,000 
+Compensation expense from nonvested stock units 
+— 
+— 
+— 
+— 
+61,000 
+— 
+— 
+— 
+61,000 
+Common stock issued under stock incentive plan 
+— 
+— 
+910,262 
+10,000 
+4,083,000 
+— 
+— 
+— 
+4,093,000 
+Tax benefit attributable to stock options 
+— 
+— 
+— 
+— 
+6,030,000 
+— 
+— 
+— 
+6,030,000 
+Common stock issued under the employee stock purchase plan 
+— 
+— 
+42,337 
+— 
+224,000 
+— 
+— 
+— 
+224,000 
+Net income 
+— 
+— 
+— 
+— 
+— 
+25,539,000 
+— 
+— 
+25,539,000 
+$ 
+25,539,000 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+— 
+64,000 
+— 
+64,000 
+64,000 
+Total comprehensive income 
+$ 
+25,603,000 
+Balance at December 31, 2004 
+— 
+$ 
+— 
+12,183,080 
+$ 
+122,000 
+$ 
+71,959,000 
+$ 
+68,591,000 
+$ 
+324,000 
+$ 
+— 
+$ 
+140,996,000 
+See accompanying notes to consolidated financial statements.
+55
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Years Ended December 31, 2002, 2003 and 2004 
+2002 
+2003 
+2004 
+Cash flows from operating activities: 
+Net income (loss) 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+$ 
+25,539,000 
+Adjustments to reconcile net income (loss) to net cash provided
+by operating activities: 
+Cumulative effect of accounting change 
+8,973,000 
+— 
+— 
+Depreciation and amortization of property and equipment 
+1,535,000 
+1,463,000 
+1,534,000 
+Amortization of intangible assets 
+1,049,000 
+276,000 
+253,000 
+Provision for doubtful accounts 
+1,785,000 
+504,000 
+580,000 
+Write-off of inventory 
+1,099,000 
+1,329,000 
+1,898,000 
+Loss (gain) on disposal of assets 
+23,000 
+3,000 
+(5,000 
+) 
+Loss on write-down of assets 
+— 
+59,000 
+— 
+Deferred tax provision 
+656,000 
+1,752,000 
+936,000 
+Stock compensation 
+192,000 
+119,000 
+339,000 
+Write-down of debt issuance costs 
+— 
+287,000 
+671,000 
+Tax benefit attributable to stock options 
+— 
+445,000 
+6,030,000 
+Changes in operating assets and liabilities, net of acquisitions: 
+(Increase) decrease in: 
+Trade accounts receivable 
+(2,224,000 
+) 
+1,602,000 
+(23,792,000 
+) 
+Inventories 
+650,000 
+(2,266,000 
+) 
+(14,154,000 
+) 
+Prepaid expenses and other current assets 
+943,000 
+89,000 
+(832,000 
+) 
+Refundable income taxes 
+995,000 
+— 
+— 
+Other assets 
+286,000 
+256,000 
+15,000 
+Increase (decrease) in: 
+Trade accounts payable 
+(844,000 
+) 
+(1,696,000 
+) 
+5,304,000 
+Accrued expenses 
+(506,000 
+) 
+1,515,000 
+4,843,000 
+Income taxes payable 
+732,000 
+2,736,000 
+3,257,000 
+Net cash provided by operating activities 
+7,991,000 
+17,627,000 
+12,416,000 
+Cash flows from investing activities: 
+Cash paid for acquisition of Teva 
+(43,254,000 
+) 
+(75,000 
+) 
+— 
+Purchases of short-term investments 
+— 
+— 
+(31,250,000 
+) 
+Proceeds from sales of short-term investments 
+— 
+— 
+15,775,000 
+Proceeds from sale of property and equipment 
+— 
+33,000 
+43,000 
+Purchase of property and equipment 
+(1,477,000 
+) 
+(663,000 
+) 
+(1,441,000 
+) 
+Net cash used in investing activities 
+(44,731,000 
+) 
+(705,000 
+) 
+(16,873,000 
+) 
+Cash flows from financing activities: 
+Borrowings under line of credit 
+19,075,000 
+42,706,000 
+— 
+Repayments under line of credit 
+(14,300,000 
+) 
+(47,481,000 
+) 
+— 
+Proceeds from issuance of long-term debt 
+21,000,000 
+— 
+— 
+Repayments of long-term debt 
+(290,000 
+) 
+(4,159,000 
+) 
+(30,287,000 
+) 
+Loan fees paid 
+(1,343,000 
+) 
+— 
+— 
+Cash paid for repurchase of preferred stock 
+— 
+(5,938,000 
+) 
+— 
+Cash received from issuances of common stock 
+400,000 
+781,000 
+38,500,000 
+Net cash provided by (used in) financing activities 
+24,542,000 
+(14,091,000 
+) 
+8,213,000 
+Effect of exchange rates on cash 
+(550,000 
+) 
+(110,000 
+) 
+(39,000 
+) 
+Net change in cash and cash equivalents 
+(12,748,000 
+) 
+2,721,000 
+3,717,000 
+Cash and cash equivalents at beginning of year 
+16,689,000 
+3,941,000 
+6,662,000 
+Cash and cash equivalents at end of year 
+$ 
+3,941,000 
+$ 
+6,662,000 
+$ 
+10,379,000 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+264,000 
+$ 
+3,640,000 
+$ 
+1,512,000 
+Income taxes 
+$ 
+836,000 
+$ 
+1,607,000 
+$ 
+4,597,000 
+Supplemental disclosure of noncash investing and financing
+activities:
+In 2002, the Company issued to the seller 1,375,000 shares
+of Series A preferred stock with a value of $5,500,000,
+100,000 shares of common stock with a value of $368,000,
+options to purchase 100,000 shares of common stock
+with a value of $187,000 and $13,000,000 of long-term debt in
+connection with the acquisition of Teva.
+See accompanying notes to consolidated financial statements.
+56
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements 
+December 31, 2003 and 2004
+(1) 
+The Company and Summary of Significant Accounting Policies 
+(a) 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”). All
+intercompany balances and transactions have been eliminated in
+consolidation.
+The Company builds niche products into global lifestyle brands
+by designing and marketing innovative, functional and
+fashion-oriented footwear, developed for both high performance
+outdoor activities and everyday casual lifestyle use.
+(b) Inventories 
+Inventories, principally finished goods, are stated at the lower
+of cost (first-in, first-out) or market (net realizable value).
+Market values are determined by historical experience with
+discounted sales, industry trends and the retail environment.
+(c) Revenue
+Recognition 
+The Company recognizes revenue when products are shipped and the
+customer takes title and assumes risk of loss, collection of
+relevant receivable is probable, persuasive evidence of an
+arrangement exists, and the sales price is fixed or
+determinable. Allowances for estimated returns, discounts, and
+bad debts are provided for when related revenue is recorded.
+Amounts billed for shipping and handling costs are recorded as a
+component of net sales, totaling $993,000, $2,041,000, and
+$3,863,000 for the years ended December 31, 2002, 2003, and
+2004, respectively. Related costs paid to third-party shipping
+companies are recorded as a cost of sales, totaling $1,124,000,
+$2,057,000, and $4,094,000 for the years ended December 31,
+2002, 2003, and 2004, respectively.
+(d) Goodwill and
+Other Intangibles Assets 
+Intangible assets consist primarily of goodwill, trademarks,
+patents, and noncompete covenants arising from the application
+of purchase accounting. On January 1, 2002, the Company
+adopted Statement of Financial Accounting Standards
+(“SFAS”) No. 142, Goodwill and Other
+Intangible Assets (“SFAS 142”). Accordingly,
+goodwill and intangible assets with indefinite useful lives are
+no longer amortized, but instead tested for impairment at least
+annually, on December 31 of each year, in accordance with
+the provisions of SFAS No. 142. Intangible assets with
+estimable useful lives are amortized over their respective
+estimated useful lives to their estimated residual values and
+reviewed for impairment in accordance with
+SFAS No. 144, Accounting for Impairment or Disposal
+of Long-Lived Assets (“SFAS 144”).
+In connection with the implementation of SFAS 142, a
+goodwill impairment charge of $8,973,000 (net of related income
+tax benefit of $843,000) was recorded for the year ended
+December 31, 2002. There were no impairments during the
+years ended December 31, 2003 and 2004.
+(e) Impairment of
+Long-Lived Assets 
+SFAS 144 provides a single accounting model for long-lived
+assets to be disposed of. SFAS 144 also changes the
+criteria for classifying an asset as held for sale and broadens
+the scope of businesses to be disposed of that qualify for
+reporting as discontinued operations and changes the timing of
+recognizing losses on such operations. The Company adopted
+SFAS 144 on January 1, 2002. The adoption of
+SFAS 144 did not have a significant impact on the
+Company’s consolidated financial statements.
+57
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+In accordance with SFAS 144, long-lived assets, such as
+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
+of an asset to estimated undiscounted future cash flows expected
+to be generated by the asset. If the carrying amount of an asset
+exceeds its estimated future cash flows, an impairment charge is
+recognized by the amount by which the carrying amount of the
+asset exceeds the fair value of the asset.
+(f) 
+Depreciation and Amortization 
+Depreciation of property and equipment is computed using the
+straight-line method based on estimated useful lives ranging
+from one to seven years. Leasehold improvements are amortized on
+the straight-line basis over their estimated economic useful
+lives or the lease term, whichever is shorter.
+(g) 
+Fair Value of Financial Instruments 
+The fair values of the Company’s cash equivalents, trade
+accounts receivable, prepaid expenses and other current assets,
+refundable income taxes, trade accounts payable, accrued
+expenses, and income taxes payable approximate the carrying
+values due to the relatively short maturities of these
+instruments.
+The fair value of the Company’s revolving credit line
+approximates the carrying value due to variable interest rates
+associated with the credit line.
+The fair values of the Company’s other notes payable are
+estimated by discounting future cash flows of each instrument at
+rates currently available to the Company for similar debt
+instruments of comparable maturities by the Company’s
+bankers. The fair values of these notes approximate the carrying
+value.
+(h) 
+Stock Compensation 
+The Company accounts for stock-based compensation under the
+provisions of Statement of Financial Accounting Standards
+No. 123, Accounting for Stock-Based Compensation
+(“SFAS 123”), as amended by SFAS 148.
+Under the provisions of SFAS 123 and SFAS 148, the
+Company has elected to continue to measure compensation cost for
+employees and nonemployee directors of the Company under the
+intrinsic value method of APB No. 25 and comply with the
+pro forma disclosure requirements under SFAS 123 and
+SFAS 148. The Company applies the fair value techniques of
+SFAS 123 and SFAS 148 to measure compensation cost for
+options/ warrants granted to nonemployees.
+As discussed in note 1(u), the Financial Accounting
+Standards Board, or FASB, recently issued
+SFAS No. 123R (revised 2004), “Share-Based
+Payment” which supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+of employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005.
+58
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+The following table illustrates the effects on net income (loss)
+if the fair value-based method had been applied to all
+outstanding and unvested awards in each period. See assumptions
+used to determine the fair value of the awards in note 6.
+2002 
+2003 
+2004 
+Net income (loss), as reported 
+$ 
+(7,353,000 
+) 
+$ 
+9,154,000 
+$ 
+25,539,000 
+Add stock-based employee compensation expense included in
+reported net income, net of tax 
+109,000 
+73,000 
+215,000 
+Deduct total stock-based employee compensation expense under
+fair value-based method for all awards, net of tax 
+(494,000 
+) 
+(596,000 
+) 
+(1,015,000 
+) 
+Pro forma net income (loss) 
+$ 
+(7,738,000 
+) 
+$ 
+8,631,000 
+$ 
+24,739,000 
+Pro forma net income per share: 
+Basic 
+$ 
+(0.83 
+) 
+$ 
+0.85 
+$ 
+2.25 
+Diluted 
+$ 
+(0.79 
+) 
+$ 
+0.74 
+$ 
+2.05 
+(i) Use of
+Estimates 
+Management of the Company has made a number of estimates and
+assumptions relating to the reporting of assets, liabilities,
+net sales, and expenses and the disclosure of contingent assets
+and liabilities to prepare these consolidated financial
+statements in conformity with accounting principles generally
+accepted in the U.S. Significant areas requiring the use of
+management estimates relate to inventory reserves, allowances
+for bad debts, returns and discounts, impairment assessments and
+charges, deferred taxes, depreciation and amortization,
+litigation reserves, fair value of financial instruments, fair
+value of acquired intangibles, assets and liabilities, and
+hedging activities. Actual results could differ from these
+estimates.
+(j) Research and
+Development Costs 
+Research and development costs are charged to expense as
+incurred. Such costs amounted to $1,092,000, $1,099,000, and
+$1,438,000 in 2002, 2003, and 2004, respectively.
+(k) 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 2002, 2003, and 2004 were
+$7,456,000, $6,594,000, and $8,687,000, respectively. Included
+in prepaid and other current assets at December 31, 2003
+and 2004 were $221,000 and $851,000, respectively, related to
+prepaid advertising and promotion expenses for programs to take
+place after December 31, 2003 and 2004, respectively.
+(l) Income Taxes 
+Income taxes are accounted for under the asset and liability
+method. Deferred tax assets and liabilities are recognized for
+the future tax consequences attributable to differences between
+the financial statement carrying amounts of existing assets and
+liabilities and their respective tax bases. Deferred tax assets
+and liabilities are measured using enacted tax rates expected to
+apply to taxable income in the years in which those temporary
+differences are expected to be recovered or settled. The effect
+on deferred taxes of a change in tax rates is recognized in
+income in the period that includes the enactment date.
+59
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+(m) Income (Loss)
+per Share 
+Basic income (loss) per share (“EPS”) is computed by
+dividing net income (loss) available to common stockholders by
+the weighted average number of common shares outstanding for the
+period. Diluted EPS reflects the potential dilution from
+securities that could share in the earnings of the Company.
+Antidilutive securities are excluded from diluted EPS.
+The reconciliations of basic to diluted weighted average shares
+are as follows:
+2002 
+2003 
+2004 
+Income (loss) used for basic and diluted income (loss) per share: 
+Income before cumulative effect of a change in accounting
+principle 
+$ 
+1,620,000 
+$ 
+9,154,000 
+$ 
+25,539,000 
+Cumulative effect of a change in accounting principle, net of
+income tax benefit 
+(8,973,000 
+) 
+— 
+— 
+Net income (loss) — diluted 
+(7,353,000 
+) 
+9,154,000 
+25,539,000 
+Less redemption premium on preferred stock 
+— 
+(438,000 
+) 
+— 
+Net income (loss) available for common stockholders —
+basic 
+$ 
+(7,353,000 
+) 
+$ 
+8,716,000 
+$ 
+25,539,000 
+Weighted average shares used in basic computation 
+9,328,000 
+9,610,000 
+11,005,000 
+Dilutive effect of stock options 
+327,000 
+882,000 
+1,137,000 
+Dilutive effect of convertible preferred stock 
+151,000 
+1,388,000 
+— 
+Weighted average shares used for diluted computation 
+9,806,000 
+11,880,000 
+12,142,000 
+The dilutive effect of convertible preferred stock above relates
+to preferred stock that was outstanding between
+November 25, 2002 and December 3, 2003. The Company
+repurchased all of the outstanding preferred stock on
+December 3, 2003.
+Options to purchase 286,000, 217,000 and 10,000 shares
+of common stock at prices ranging from $4.80 to $9.88, $9.88 to
+$19.00 and $33.10 were outstanding during 2002, 2003 and 2004,
+respectively, but were not included in the computation of
+diluted earnings per share because the options’ exercise
+price was greater than the average market price of the common
+shares during the respective periods, and therefore their
+inclusion would be antidilutive. Nonvested stock units in the
+amount of 59,750 shares were outstanding at
+December 31, 2004 but were not included in the computation
+of diluted earnings per share because they were antidilutive.
+(n) 
+Foreign Currency Translation 
+The Company considers the U.S. dollar as the functional
+currency. Assets and liabilities of the foreign operations
+denominated in local currencies are translated at the rate of
+exchange at the balance sheet date. Net sales and expenses are
+translated at the weighted average rate of exchange during the
+period. The effects of translation are recorded in other
+comprehensive income as currency translation adjustment.
+(o) 
+Hedging Activities 
+The Company may enter into foreign currency forward contracts in
+the ordinary course of business to mitigate the risk associated
+with foreign exchange rate fluctuations related to sales of
+goods in Eurodollars. Derivative financial instruments are not
+used for speculative purposes. At December 31, 2004, the
+Company had no foreign currency forward contracts.
+60
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+In accordance with Statement of Financial Accounting Standards
+No. 133, Accounting for Derivative Instruments and
+Hedging Activities , these foreign currency cash flow hedges
+are recorded at fair value in the accompanying balance sheet
+with unrealized gains and losses on outstanding foreign currency
+forward contracts recorded in the financial statements as a
+component of other comprehensive income, net of deferred taxes,
+to the extent they are effective hedges. When the transaction
+occurs, the effective portion of the gain or loss from the
+derivative designated as a hedge of the transaction is
+reclassified from accumulated other comprehensive income to the
+same statement of operations line item affected by the hedged
+forecasted transaction due to foreign currency fluctuations. Any
+terminated derivatives or ineffective portion of gains and
+losses resulting from changes in the fair value of the
+derivatives is recognized in current earnings. The ineffective
+portion of these gains and losses, which results primarily from
+the time value component of gains and losses on forward
+contracts, was immaterial for all periods presented.
+(p) Comprehensive
+Income (Loss) 
+Comprehensive income is the total of net earnings (loss) and all
+other nonowner changes in equity. Except for net income (loss),
+foreign currency translation adjustments, and unrealized gains
+and losses as a result of hedging activities, the Company does
+not have any transactions and other economic events that qualify
+as comprehensive income as defined under SFAS No. 130.
+(q) Business
+Segment Reporting 
+Management of the Company has determined its reportable segments
+are strategic business units. The four reportable segments are
+the Teva, UGG and Simple wholesale divisions and the
+Company’s Internet and catalog retailing business.
+Information related to these segments is summarized in
+note 10.
+(r) Cash
+Equivalents 
+The Company considers all highly liquid investments with
+original maturities of three months or less to be cash
+equivalents.
+(s) Short-term
+Investments 
+Short-term investments, which consist of market auction rate
+preferred securities are classified as “available for
+sale” under the provisions of SFAS No. 115,
+“Accounting for Certain Investments in Debt and Equity
+Securities.” Accordingly, the short-term investments are
+reported at fair value, with any unrealized gains and losses
+included as a separate component of stockholders’ equity,
+net of applicable taxes. Realized gains and losses, interest and
+dividends are included in interest expense, net. The fair value
+of the short-term investments approximated cost at
+December 31, 2004, based on quoted market prices.
+(t) Reclassifications 
+Certain reclassifications have been made to the 2002 and 2003
+balances to conform to the 2004 presentation.
+(u) New Accounting
+Standards 
+In January 2003, the Financial Accounting Standards Board, or
+FASB, issued FASB Interpretation, or FIN No. 46,
+Consolidation of Variable Interest Entities, an interpretation
+of Accounting Research Bulletin, or ARB No. 51.
+FIN No. 46 addresses the consolidation by business
+enterprises of variable interest entities as defined in the
+Interpretation. FIN No. 46 generally applies
+immediately to variable interests in variable interest entities
+created after January 31, 2003 and to variable interests in
+variable interest entities obtained after January 31, 2003.
+The application of FIN No. 46 did not have a material
+effect on the Company’s
+61
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+consolidated financial statements. In December 2003, the FASB
+revised FIN No. 46 to exempt certain entities from its
+requirements and to clarify certain issues arising during the
+implementation of FIN No. 46. The adoption of this
+revised interpretation in the first quarter of 2004 did not have
+any impact on the Company’s consolidated financial
+statements.
+On October 22, 2004, the American Jobs Creation Act (AJCA)
+was signed into law. The AJCA includes a special one-time
+85 percent dividends received deduction for certain foreign
+earnings that are repatriated. In December 2004, the FASB issued
+FASB Staff Position No. FAS 109-2
+(FSP FAS 109-2), “Accounting and Disclosure
+Guidance for the Foreign Earnings Repatriation Provision within
+the American Jobs Creation Act of 2004.” FSP FAS 109-2
+provides accounting and disclosure guidance for this
+repatriation provision. The Company has begun its evaluation of
+the effects of this provision. Although FSP FAS 109-2 is
+effective immediately, the Company will not be able to complete
+its evaluation until after Congress or the Treasury Department
+provides additional clarifying language on key elements of the
+provision. The Company expects to complete its evaluation of the
+effects of the repatriation provision within a reasonable period
+of time following the publication of the additional clarifying
+language.
+In November 2004, the FASB issued Statement of Financial
+Accounting Standard, or SFAS No. 151, “Inventory
+Costs — An Amendment of ARB No. 43,
+Chapter 4”. SFAS No. 151 amends the guidance
+in ARB No. 43, Chapter 4, “Inventory
+Pricing”, to clarify the accounting for abnormal amounts of
+idle facility expense, freight, handling costs, and wasted
+material (spoilage). SFAS No. 151 is effective for
+fiscal years beginning after June 15, 2005 and is required
+to be adopted by us in the first quarter of fiscal 2006. The
+Company does not expect the adoption of SFAS No. 151
+to have a material impact on its consolidated financial
+statements.
+In December 2004, the FASB issued SFAS No. 123R
+(revised 2004), “Share-Based Payment”.
+SFAS No. 123R supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+or employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005. The pro forma
+disclosure permitted under SFAS No. 123 will no longer
+be an alternative to financial statement recognition.
+SFAS No. 123R requires the determination of the fair
+value of the share-based compensation at the grant date and the
+recognition of the related expense over the period in which the
+share-based compensation vests. The Company is required to adopt
+the provisions of SFAS No. 123R effective July 1,
+2005. The adoption of this Statement is expected to result in an
+additional expense for the year ending December 31, 2005 of
+approximately $400,000, which will be recorded in the third and
+fourth quarter of 2005.
+(2) 
+Retirement Plan 
+Effective August 1, 1992, the Company established a 401(k)
+defined contribution plan. Substantially all employees are
+eligible to participate in the plan through tax-deferred
+contributions. The Company matches 50% of an employee’s
+contribution up to $1,200 per year. Matching contributions
+totaled $90,000, $67,000 and $92,000 during 2002, 2003 and 2004,
+respectively. In addition, the Company may also make
+discretionary profit sharing contributions to the plan. The
+Company did not make profit sharing contributions for the years
+ended December 31, 2002, 2003 or 2004.
+62
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+(3) 
+Property and Equipment 
+Property and equipment is summarized as follows:
+2003 
+2004 
+Machinery and equipment 
+$ 
+5,602,000 
+$ 
+6,441,000 
+Furniture and fixtures 
+663,000 
+666,000 
+Leasehold improvements 
+724,000 
+927,000 
+6,989,000 
+8,034,000 
+Less accumulated depreciation and amortization 
+4,020,000 
+5,196,000 
+Net property and equipment 
+$ 
+2,969,000 
+$ 
+2,838,000 
+During 2004, the Company wrote-off certain fully depreciated
+assets with an original cost of $395,000.
+(4) 
+Notes Payable and Long-Term Debt 
+Notes payable and long-term debt consists of the following:
+2003 
+2004 
+Revolving line of credit with Comerica Bank (described below) 
+$ 
+— 
+$ 
+— 
+Term loan with Comerica Bank, secured by all assets of the
+Company, interest (4.37% at December 31, 2003) at
+Bank’s base rate or LIBOR plus a margin, as defined,
+principal payment of $1,750,000 due on May 31, 2004 with
+equal monthly payments of $292,000 beginning June 30, 2004,
+with final payment due on November 25, 2005, fully repaid
+in 2004 
+7,000,000 
+— 
+Secured subordinated note, payable in quarterly principal
+installments of $1,500,000 beginning November 2007, interest at
+a rate of 16.75%, of which 12.00% is payable monthly and 4.75%
+is payable at maturity, compounded monthly, due November 2008. A
+prepayment penalty ranging from 4.00% to 5.00% is incurred for
+any portion repaid prior to November 2004, fully repaid in 2004 
+10,000,000 
+— 
+Unsecured junior subordinated 9.00% note payable to the
+seller of Teva, interest payable in annual installments at a
+rate of 7.00% through November 2008. Principal and additional
+interest of 2.00% are due in November 2008, compounded annually,
+fully repaid in 2004 
+13,287,000 
+— 
+30,287,000 
+— 
+Less current installments 
+3,792,000 
+— 
+$ 
+26,495,000 
+$ 
+— 
+We amended the Facility with Comerica Bank-California (the
+“Bank”) in March 2005. As amended, the Facility
+expires June 1, 2006 and provides for a maximum
+availability of $20,000,000 subject to a borrowing base. In
+general, the borrowing base is equal to 75% of eligible accounts
+receivable, as defined, and 50% of eligible inventory, as
+defined. The accounts receivable advance rate can increase or
+decrease depending on our
+63
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+accounts receivable dilution, which is calculated periodically.
+Up to $10,000,000 of borrowings may be in the form of letters of
+credit. The Facility bears interest at the Bank’s prime
+rate (5.25% at December 31, 2004) or at our option, at
+LIBOR (2.40% at December 31, 2004) plus 1.00% to 2.50%,
+depending on our ratio of liabilities to earnings before
+interest, taxes, depreciation and amortization
+(“EBITDA”), and is secured by substantially all
+assets. The Facility included an upfront fee of $230,000 and
+includes subsequent annual commitment fees of $100,000 for 2004
+and $60,000 for 2005. At December 31, 2004, the Company had
+no outstanding borrowings under the Facility, no foreign
+currency reserves for outstanding forward contracts and no
+outstanding letters of credit. We had credit availability under
+the Facility of $20,000,000 at December 31, 2004.
+The agreements underlying the Facility prohibit the payment of
+dividends and contain several financial covenants including a
+quick ratio requirement, profitability requirements and a
+tangible net worth requirement, among others. The Company was in
+compliance with all covenants at December 31, 2004.
+(5) 
+Income Taxes 
+Components of income taxes are as follows.
+Federal 
+State 
+Foreign 
+Total 
+2002: 
+Current 
+$ 
+53,000 
+$ 
+(7,000 
+) 
+$ 
+522,000 
+$ 
+568,000 
+Deferred 
+493,000 
+163,000 
+— 
+656,000 
+$ 
+546,000 
+$ 
+156,000 
+$ 
+522,000 
+$ 
+1,224,000 
+2003: 
+Current 
+$ 
+2,043,000 
+$ 
+483,000 
+$ 
+1,452,000 
+$ 
+3,978,000 
+Deferred 
+1,334,000 
+418,000 
+— 
+1,752,000 
+$ 
+3,377,000 
+$ 
+901,000 
+$ 
+1,452,000 
+$ 
+5,730,000 
+2004: 
+Current 
+$ 
+9,930,000 
+$ 
+2,073,000 
+$ 
+1,745,000 
+$ 
+13,748,000 
+Deferred 
+629,000 
+293,000 
+14,000 
+936,000 
+$ 
+10,559,000 
+$ 
+2,366,000 
+$ 
+1,759,000 
+$ 
+14,684,000 
+Foreign income before income taxes and cumulative effect of a
+change in accounting principle was $1,310,000, $4,220,000 and
+$7,261,000 during the years ended December 31, 2002, 2003
+and 2004, respectively.
+64
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+Actual income taxes differed from that obtained by applying the
+statutory federal income tax rate to earnings before income
+taxes as follows:
+2002 
+2003 
+2004 
+Computed “expected” income taxes 
+$ 
+967,000 
+$ 
+5,060,000 
+$ 
+14,078,000 
+State income taxes, net of federal income tax benefit 
+166,000 
+623,000 
+1,895,000 
+Other 
+91,000 
+47,000 
+(1,289,000 
+) 
+$ 
+1,224,000 
+$ 
+5,730,000 
+$ 
+14,684,000 
+The tax effects of temporary differences that give rise to
+significant portions of deferred tax assets and deferred tax
+liabilities at December 31, 2003 and 2004 are presented
+below:
+2003 
+2004 
+Deferred tax assets, current: 
+Uniform capitalization adjustment to inventory 
+$ 
+483,000 
+$ 
+487,000 
+Bad debt and other reserves 
+1,576,000 
+2,725,000 
+State taxes 
+78,000 
+557,000 
+Prepaid expenses 
+— 
+(529,000 
+) 
+Total deferred tax assets, current 
+2,137,000 
+3,240,000 
+Deferred tax liabilities, noncurrent: 
+Amortization of intangible assets 
+(224,000 
+) 
+(1,896,000 
+) 
+Depreciation of property and equipment 
+(344,000 
+) 
+(711,000 
+) 
+Total deferred tax liabilities, noncurrent 
+(568,000 
+) 
+(2,607,000 
+) 
+Net deferred tax assets 
+$ 
+1,569,000 
+$ 
+633,000 
+In order to fully realize the deferred tax assets, the Company
+will need to generate future taxable income of approximately
+$8,000,000. The deferred tax assets are primarily related to the
+Company’s domestic operations. Domestic taxable income for
+the years ended December 31, 2003 and 2004 was
+approximately $1,272,000 and $15,879,000, 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 has been recorded.
+As of December 31, 2004, withholding and U.S. taxes
+have not been provided on approximately $12 million of
+unremitted earnings of our non-U.S. subsidiaries because
+the Company has currently reinvested these earnings permanently
+in such operations. Such earnings would become taxable upon the
+sale or liquidation of these subsidiaries or upon remittance of
+dividends.
+In December 2004, the FASB issued FASB Staff Position
+No. FAS 109-2 (“FAS 109-2”),
+“Accounting and Disclosure Guidance for the Foreign
+Earnings Repatriation Provision within the American Jobs
+Creations Act of 2004 (“AJCA”).” The AJCA
+introduces a limited time 85% dividends received deduction on
+the repatriation of certain foreign earnings to a
+U.S. taxpayer (repatriation provision), provided certain
+criteria are met. FAS109-2 provides accounting and disclosure
+guidance for the repatriation provision. Although FAS 109-2
+is effective immediately, we do not expect to be able to
+complete our evaluation of the repatriation
+65
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+provision until after Congress or the Treasury Department
+provides additional clarifying language on key elements of the
+provision. In January 2005, the Treasury Department began
+to issue the first of a series of clarifying guidance documents
+related to this provision. We expect to complete our evaluation
+of the effects of the repatriation provision in 2005. The range
+of possible amounts that we are considering for repatriation
+under this provision is between zero and $12 million. The
+Company is currently unable to reasonably estimate the related
+range of income tax effects of the potential repatriation.
+(6) 
+Stockholders’ Equity 
+The Company is authorized to issue 5,000,000 shares of
+preferred stock with a par value of $0.01, of which
+1,375,000 shares are designated as Series A Preferred
+Stock. The 1,375,000 shares of Series A Preferred
+Stock were issued to Mark Thatcher in connection with the
+acquisition of Teva (note 12). In December 2003, the
+Company redeemed all of the outstanding Preferred Stock. In
+connection with the redemption, the Company paid
+Mr. Thatcher a premium of approximately $438,000, which was
+recorded as a reduction of additional paid-in capital. The
+premium reduced income applicable to common stockholders and,
+therefore, is reflected in the income per share calculations.
+The Company’s 1993 Stock Incentive Plan (the “1993
+Plan”) provides for 3,000,000 shares of common stock
+that are reserved for issuance to officers, directors,
+employees, and consultants of the Company. Awards to 1993 Plan
+participants are not restricted to any specified form and may
+include stock options, securities convertible into or redeemable
+for stock, stock appreciation rights, stock purchase warrants,
+or other rights to acquire stock. Under the 1993 Plan, 124,896,
+262,577 and 910,262 shares of common stock were issued to
+employees in 2002, 2003, and 2004, respectively.
+66
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+Common stock option activity under the 1993 Plan for the years
+ended December 31, 2002, 2003 and 2004 is as follows:
+Weighted 
+Average 
+Exercise 
+Shares 
+Price 
+Outstanding at December 31, 2001 
+1,580,800 
+$ 
+3.80 
+Granted 
+624,400 
+4.13 
+Exercised 
+(107,900 
+) 
+2.32 
+Canceled 
+(165,300 
+) 
+3.26 
+Outstanding at December 31, 2002 
+1,932,000 
+4.04 
+Granted 
+206,000 
+18.75 
+Exercised 
+(238,100 
+) 
+3.19 
+Canceled 
+(125,400 
+) 
+7.51 
+Outstanding at December 31, 2003 
+1,774,500 
+5.62 
+Granted 
+26,000 
+29.04 
+Exercised 
+(899,600 
+) 
+4.24 
+Canceled 
+(10,800 
+) 
+11.31 
+Outstanding at December 31, 2004 
+890,100 
+7.62 
+Options exercisable at December 31, 2002 
+1,245,900 
+4.07 
+Options exercisable at December 31, 2003 
+1,168,800 
+4.36 
+Options exercisable at December 31, 2004 
+517,000 
+6.79 
+The per share weighted average fair value of stock options
+granted during 2002, 2003, and 2004 was $2.25, $10.83, and
+$16.83, respectively, on the date of grant using the
+Black-Scholes option pricing model with the following weighted
+average assumptions: 2002 — expected dividend yield of
+0%, stock volatility of 48.46%, risk-free interest rate of
+3.70%, and an expected life of seven years; 2003 —
+expected dividend yield of 0%, stock volatility of 51.70%,
+risk-free interest rate of 3.70%, and an expected life of seven
+years; 2004 — expected dividend yield of 0%, stock
+volatility of 52.85%, risk-free interest rate of 3.97%, and an
+expected life of seven years.
+67
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+The following table summarizes information about stock options
+outstanding and exercisable at December 31, 2004.
+Options Outstanding 
+Options Exercisable 
+Weighted 
+Weighted 
+Weighted 
+Number 
+Average 
+Average 
+Number 
+Average 
+Range of 
+Outstanding 
+Remaining 
+Exercise 
+Exercisable at 
+Exercise 
+Exercise Price 
+December 31, 2004 
+Contractual Life 
+Price 
+December 31, 2004 
+Price 
+$1.56 to $3.12 
+155,100 
+4.08 years 
+$ 
+1.82 
+155,100 
+$ 
+1.82 
+$3.60 to $3.71 
+131,600 
+7.09 years 
+3.61 
+67,200 
+3.60 
+$4.03 to $4.80 
+315,700 
+7.21 years 
+4.24 
+124,100 
+4.22 
+$6.21 to $8.50 
+89,000 
+3.06 years 
+7.37 
+89,100 
+7.37 
+$19.00 
+172,700 
+8.92 years 
+19.00 
+55,500 
+19.00 
+$24.17 to $33.10 
+26,000 
+8.19 years 
+29.04 
+26,000 
+29.04 
+890,100 
+6.59 years 
+7.62 
+517,000 
+6.79 
+In December 2004, the Company replaced its annual employee
+stock option grant with a grant of Nonvested Stock Units
+(“NSU’s”), which are accounted for as variable
+awards under APB 25. The NSU’s entitle the employee
+recipients to receive shares of common stock in the Company,
+which vest in quarterly increments during the year ended
+December 31, 2008, subject to achievement of certain
+performance targets. For the 2004 grant, the maximum quantity
+that is available to vest is 59,750 for all participants in the
+aggregate. The fair value of the aggregate NSU’s granted in
+2004 was $2,808,000 as of December 31, 2004, of which
+approximately $61,000 was recorded as an expense in 2004. The
+Company currently intends to use NSU’s rather than stock
+options in its future compensation programs.
+In August 1995, the Company adopted the 1995 Employee Stock
+Purchase Plan (the “1995 Plan”). The 1995 Plan is
+intended to qualify as an Employee Stock Purchase Plan under
+Section 423 of the Internal Revenue Code. Under the terms
+of the 1995 Plan, as amended, 300,000 shares of common
+stock are reserved for issuance to employees who have been
+employed by the Company for at least six months. The 1995 Plan
+provides for employees to purchase the Company’s common
+stock at a discount below market value, as defined by the 1995
+Plan. Under the 1995 Plan, 11,870, 6,781 and 42,337 shares
+were issued in 2002, 2003, and 2004, respectively. Consistent
+with the application of APB Opinion No. 25, no
+compensation has been recorded for stock purchases.
+The Company adopted a stockholder rights plan in 1998 to protect
+stockholders against unsolicited attempts to acquire control of
+the Company that do not offer what the Company believes to be an
+adequate price to all stockholders. As part of the plan, the
+board of directors of the Company declared a dividend of one
+preferred share purchase right (a “Right”) for each
+outstanding share of common stock, par value $0.01 per
+share (the “Common Shares”), of the Company. The
+dividend was payable to stockholders of record on
+December 1, 1998 (the “Record Date”). In
+addition, one Right shall be issued with each Common Share that
+becomes outstanding (i) between the Record Date and the
+earliest of the Distribution Date, the Redemption Date, and the
+Final Expiration Date (as such terms are defined in the Rights
+Agreement) or (ii) following the Distribution Date and
+prior to the Redemption Date or Final Expiration Date, pursuant
+to the exercise of stock options or under any employee plan or
+arrangement or upon the exercise, conversion, or exchange of
+other securities of the Company, which options or securities
+were outstanding prior to the Distribution Date, in each case
+upon the issuance of the Company’s common stock in
+connection with any of the foregoing. Each right entitles the
+registered holder to purchase from the Company one one-hundredth
+of a share of Series B
+68
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+Junior Participating Preferred Stock, par value $0.01 per
+share (the “Preferred Shares”), of the Company, at a
+price of $50.00, subject to adjustment.
+The rights have no voting power and expire on November 11,
+2008. The Company may redeem the rights for $0.01 per right
+until the right becomes exercisable.
+(7) 
+Licensing Agreement 
+As discussed in note 12, on November 25, 2002, the
+Company acquired the worldwide Teva patents, trademarks and
+other assets. Prior to the acquisition, the Company had been
+selling its Teva line of sport sandals and other footwear since
+1985, pursuant to various license arrangements with Mark
+Thatcher, the inventor of the Teva sport sandal and previous
+holder of the Teva patents and trademarks.
+In 1999, the Company signed a new license agreement (the
+“License Agreement”) for Teva, which was effective
+January 1, 2000. Under the License Agreement, the Company
+received the exclusive worldwide rights for the manufacture and
+distribution of Teva footwear through 2004. In connection with
+the License Agreement, the Company paid the licensor a licensing
+fee of $1,000,000 and issued the licensor 428,743 shares of
+its previously unissued common stock with a fair value of
+$1,608,000. The Company recorded the license as an intangible
+asset for the value of the cash and common stock issued pursuant
+to the License Agreement. In addition, the Company agreed to
+grant the licensor not less than 50,000 stock options on the
+Company’s common stock annually, with an exercise price at
+the market value on the date of grant. The fair value of options
+granted under the License Agreement aggregated $111,000 in 2002.
+In connection with the 1999 Teva license renewal, the Company
+received an option to buy Teva from Mr. Thatcher, which was
+subsequently renegotiated in 2001. On November 25, 2002,
+the Company completed the acquisition of Teva.
+The License Agreement provided for royalties using a sliding
+scale ranging from 5.0% to 6.5% of annual sales, depending upon
+sales levels, and included minimum annual royalties ranging from
+$4,400,000 in 2002 to $7,600,000 in 2011. The agreement also
+required minimum advertising and promotional expenditures of
+5.0% of annual sales for domestic sales and 6.5% for
+international sales. In addition to the minimum advertising and
+promotional costs, the Company and the licensor had agreed to
+each contribute annually 0.5% of annual sales toward the
+promotion of the Teva brand and trademark, with or without
+particular reference to individual styles.
+Royalty expense related to Teva sales was included in selling,
+general, and administrative expenses in the accompanying
+consolidated financial statements and was $3,739,000 during the
+year ended December 31, 2002.
+Subsequent to acquiring Teva on November 25, 2002, the
+Company ceased granting stock options and paying royalties on
+Teva footwear sales and owns all Teva rights and assets
+worldwide.
+69
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+(8) 
+Commitments and Contingencies 
+The Company leases office facilities under operating lease
+agreements, which expire through December 2009. Future minimum
+commitments under the lease agreements are as follows: 
+Year ending December 31: 
+2005 
+$ 
+2,274,000 
+2006 
+2,198,000 
+2007 
+1,492,000 
+2008 
+1,163,000 
+2009 
+1,017,000 
+$ 
+8,144,000 
+Total rent expense for the years ended December 31, 2002,
+2003, and 2004 was approximately $1,188,000, $1,271,000 and
+$1,341,000, respectively.
+An action was brought against the Company in 1995 by Molly
+Strong-Butts and Yeti by Molly, Ltd. (collectively, Molly) which
+alleged, among other things, that the Company violated a certain
+nondisclosure agreement and obtained purported trade secrets
+regarding a line of winter footwear which Deckers stopped
+producing in 1994. A jury verdict was obtained against the
+Company in district court in March 1999 aggregating $1,785,000
+for the two plaintiffs. In August 2001 the U.S. Court of
+Appeals for the Ninth Circuit affirmed the district court’s
+decision for a judgment against the Company, resulting in a
+settlement of approximately $2,000,000, including interest,
+which the Company paid in November 2001. In addition, the court
+of appeals reversed the district court’s refusal to
+consider an award of exemplary damages or attorney fees and
+remanded to the district court for further proceedings. On
+September 30, 2002, a federal judge ruled that the Company
+must pay an additional $4,290,000 to Molly, including $2,450,000
+of exemplary damages and $1,840,000 to cover the
+plaintiff’s attorney fees. Deckers and Molly agreed to
+settle without going to appeal for the total sum of $4,000,000
+in 2002. The accompanying consolidated statement of operations
+for the year ended December 31, 2002, the final year of
+this litigation, included litigation costs of $3,228,000 related
+to this matter.
+In 1997, the European Commission enacted anti-dumping duties of
+49.2% on certain types of footwear imported into Europe from
+China and Indonesia. Dutch Customs had issued an opinion to the
+Company that certain popular Teva styles were covered by this
+anti-dumping duty legislation. Based on this opinion, Dutch
+Customs sought anti-dumping duties of approximately $500,000
+from the Company, which the Company had appealed. Nevertheless,
+the Company expensed the $500,000 prior to 2002 in accordance
+with SFAS 5, Accounting for Contingencies . In 2003,
+an appeals court ruled that the duties were not levied by the
+appropriate governing body and nullified the entire claim. As a
+result of this favorable final ruling, the Company reversed the
+previously established $500,000 accrual in 2003, which is
+reflected as an increase to income from operations in the
+accompanying consolidated statement of operations for the year
+ended December 31, 2003.
+70
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+Overall, the litigation expense (income) in the accompanying
+consolidated statement of operations for the years ended
+December 31, 2002, 2003 and 2004 includes the following:
+2002 
+2003 
+2004 
+Molly litigation 
+$ 
+3,228,000 
+$ 
+— 
+$ 
+— 
+Anti-dumping duties matter 
+— 
+$ 
+(500,000 
+) 
+— 
+$ 
+3,228,000 
+$ 
+(500,000 
+) 
+$ 
+— 
+The Company is currently involved in various other 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.
+(9) 
+Foreign Currency Forward Contracts 
+The Company uses foreign currency forward contracts to hedge the
+foreign currency exposure associated with a portion of its
+forecasted transactions in foreign currency. These forward
+contracts are designated as foreign currency cash flow hedges
+and are recorded at fair value in the accompanying consolidated
+balance sheet. The effective portion of gains and losses
+resulting from recording forward contracts at fair value are
+deferred in accumulated other comprehensive income in the
+accompanying consolidated balance sheet until the underlying
+forecasted foreign currency transaction occurs. When the
+transaction occurs, the effective portion of the gain or loss
+from the derivative designated as a hedge of the transaction is
+reclassified from accumulated other comprehensive income to the
+same statement of earnings line item affected by the hedged
+forecasted transaction due to foreign currency fluctuations.
+Because the amounts and the maturities of the derivatives
+approximate those of the forecasted transactions, changes in the
+fair value of the derivatives are expected to be highly
+effective in offsetting changes in the cash flows of the hedged
+items. Any terminated derivatives or ineffective portion of
+gains and losses resulting from changes in the fair value of the
+derivatives is recognized in current earnings. The ineffective
+portion of these gains and losses, which results primarily from
+the time value component of gains and losses on forward
+contracts, was immaterial for all periods presented.
+At December 31, 2004, the Company had no foreign currency
+forward contacts.
+(10) 
+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, except that the Company does not allocate
+interest, income taxes, or unusual items to segments. The
+Company evaluates performance based on net sales and profit or
+loss from operations. The Company’s reportable segments are
+strategic business units responsible for the worldwide
+operations of each of its brands. They are managed separately
+because each business requires different marketing, research and
+development, design, sourcing and sales strategies. The earnings
+from operations for each of the segments includes only those
+costs which are specifically related to each brand, which
+consist primarily of cost of sales, costs for research and
+development, design, marketing, sales, commissions, royalties,
+bad debts, depreciation, amortization and the costs of employees
+directly related to the brands. The unallocated corporate
+overhead costs are the shared costs of the organization and
+include, among others, the following costs: costs of the
+distribution center, information technology, human resources,
+accounting and finance, credit and collections, executive
+compensation, facilities costs and the 2002 and 2003 litigation
+expense (income). The operating income derived from Internet and
+catalog sales to third parties is separated into two components:
+(i) the wholesale profit is included in the operating
+income of each of the three brands, and (ii) the retail
+profit is included in the operating income of the
+Internet/catalog segment.
+71
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+Business segment information is summarized as follows:
+2002 
+2003 
+2004 
+Net sales to external customers: 
+Teva wholesale 
+$ 
+64,849,000 
+$ 
+72,783,000 
+$ 
+83,477,000 
+UGG wholesale 
+23,491,000 
+34,561,000 
+101,806,000 
+Simple wholesale 
+10,159,000 
+7,210,000 
+9,633,000 
+Internet/catalog 
+608,000 
+6,501,000 
+19,871,000 
+$ 
+99,107,000 
+$ 
+121,055,000 
+$ 
+214,787,000 
+Income from operations: 
+Teva wholesale 
+$ 
+12,011,000 
+$ 
+21,739,000 
+$ 
+24,901,000 
+UGG wholesale 
+6,589,000 
+10,002,000 
+31,674,000 
+Simple wholesale 
+279,000 
+(1,176,000 
+) 
+45,000 
+Internet/catalog 
+194,000 
+1,148,000 
+5,533,000 
+Unallocated overhead 
+(15,725,000 
+) 
+(12,275,000 
+) 
+(19,691,000 
+) 
+$ 
+3,348,000 
+$ 
+19,438,000 
+$ 
+42,462,000 
+Depreciation and amortization: 
+Teva wholesale 
+$ 
+1,217,000 
+$ 
+502,000 
+$ 
+401,000 
+UGG wholesale 
+13,000 
+21,000 
+30,000 
+Simple wholesale 
+57,000 
+42,000 
+31,000 
+Internet/catalog 
+2,000 
+41,000 
+92,000 
+Unallocated overhead 
+1,295,000 
+1,133,000 
+1,233,000 
+$ 
+2,584,000 
+$ 
+1,739,000 
+$ 
+1,787,000 
+Capital expenditures: 
+Teva wholesale 
+$ 
+142,000 
+$ 
+64,000 
+$ 
+226,000 
+UGG wholesale 
+16,000 
+30,000 
+19,000 
+Simple wholesale 
+69,000 
+4,000 
+111,000 
+Internet/catalog 
+— 
+151,000 
+151,000 
+Unallocated overhead 
+1,250,000 
+414,000 
+934,000 
+$ 
+1,477,000 
+$ 
+663,000 
+$ 
+1,441,000 
+72
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+2003 
+2004 
+Total assets from reportable segments: 
+Teva wholesale 
+$ 
+85,491,000 
+$ 
+87,640,000 
+UGG wholesale 
+18,033,000 
+51,407,000 
+Simple wholesale 
+4,231,000 
+4,538,000 
+Internet/catalog 
+440,000 
+446,000 
+$ 
+108,195,000 
+$ 
+144,031,000 
+The assets allocable to each reporting segment generally include
+accounts receivable, inventory, intangible assets and certain
+other assets, which are specifically identifiable with one of
+the Company’s business segments. Unallocated corporate
+assets are the assets not specifically related to one of the
+segments and generally include the Company’s cash,
+refundable and deferred tax assets, and various other assets
+shared by the Company’s brands.
+Reconciliations of total assets from reportable segments to the
+consolidated financial statements are as follows:
+2003 
+2004 
+Total assets from reportable segments 
+$ 
+108,195,000 
+$ 
+144,031,000 
+Unallocated refundable income taxes and deferred tax assets 
+2,107,000 
+3,225,000 
+Other unallocated corporate assets 
+10,724,000 
+29,295,000 
+Consolidated total assets 
+$ 
+121,026,000 
+$ 
+176,551,000 
+The Company sells its footwear products principally to customers
+throughout the U.S. The Company also sells its footwear
+products to foreign customers located in Europe, Canada,
+Australia, and Asia, among other regions. International sales to
+unaffiliated customers were 21.0%, 18.5%, and 18.3% of net sales
+for the years ended December 31, 2002, 2003, and 2004,
+respectively. The Company does not consider international
+operations a separate segment. The Chief Operating Decision
+Maker does not review such operations separately, but rather in
+the aggregate with the aforementioned segments. 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. For the
+years ended December 31, 2002, 2003 and 2004, no single
+customer exceeded 10% of consolidated net sales, except that one
+customer, which is a customer of the Company’s Teva, UGG
+and Simple segments, accounted for 14.1% of consolidated net
+sales for the year ended December 31, 2004. As of
+December 31, 2003, the Company had one customer
+representing 13.8% of net trade accounts receivable. As of
+December 31, 2004, the Company had one customer
+representing 22.0% of net trade accounts receivable.
+Approximately $17,000,000 of trademarks and $466,000 of goodwill
+is held in Hong Kong by a subsidiary of the Company.
+Substantially all other long-lived assets are held in the United
+States.
+The Company’s production and sourcing is concentrated
+primarily in the Far East, with the vast majority being produced
+at four independent contractor factories in China. The
+Company’s operations are subject to the customary risks of
+doing business abroad, including, but not limited to, currency
+fluctuations, customs duties, and related fees, various import
+controls and other nontariff barriers, restrictions on the
+transfer of funds, labor unrest and strikes and, in certain
+parts of the world, political instability.
+73
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+(11) 
+Quarterly Summary of Information (Unaudited) 
+Summarized unaudited quarterly financial data are as follows:
+2003 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+36,102,000 
+$ 
+24,342,000 
+$ 
+24,894,000 
+$ 
+35,717,000 
+Gross profit 
+16,240,000 
+11,832,000 
+9,502,000 
+13,771,000 
+Net income 
+4,203,000 
+2,006,000 
+481,000 
+2,464,000 
+Net income per share: 
+Basic 
+$ 
+0.44 
+$ 
+0.21 
+$ 
+0.05 
+$ 
+0.21 
+Diluted 
+$ 
+0.37 
+$ 
+0.17 
+$ 
+0.04 
+$ 
+0.19 
+2004 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+44,272,000 
+$ 
+40,546,000 
+$ 
+55,797,000 
+$ 
+74,172,000 
+Gross profit 
+20,406,000 
+18,906,000 
+22,235,000 
+28,886,000 
+Net income 
+5,382,000 
+5,087,000 
+5,822,000 
+9,248,000 
+Net income per share: 
+Basic 
+$ 
+0.55 
+$ 
+0.47 
+$ 
+0.50 
+$ 
+0.78 
+Diluted 
+$ 
+0.49 
+$ 
+0.43 
+$ 
+0.46 
+$ 
+0.72 
+(12) 
+Acquisition of Teva 
+On November 25, 2002, the Company completed an acquisition
+of the worldwide Teva patents, trademarks, and other assets from
+Mark Thatcher, the Company’s former licensor and the holder
+of the Teva patents and trademarks and his wholly-owned
+corporation, Teva Sport Sandals, Inc., the owner of the Teva
+Internet and catalog business. As a result of the acquisition,
+the Company now owns all of the Teva worldwide assets including
+all patents, tradenames, trademarks and all other intellectual
+property, as well as Teva’s existing catalog and Internet
+retailing business, which includes the operations of Teva Sport
+Sandals, Inc. As a result of the acquisition, the Company will
+experience cost savings by not having to pay royalties and is
+able to control and build the Teva brand.
+The aggregate purchase price was approximately $62,300,000. The
+Company paid cash in the amount of $43,300,000, including
+transaction costs of $300,000, and issued junior subordinated
+notes of $13,000,000, preferred stock with a fair value of
+$5,500,000, 100,000 shares of common stock valued at
+approximately $300,000 and options to
+purchase 100,000 shares of common stock valued at
+approximately $200,000. The preferred stock was valued based on
+its redemption value, and stock options were valued based on the
+Black-Scholes valuation model.
+The results of the operations of Teva Sport Sandals, Inc. are
+included in the consolidated statement of operations from the
+acquisition date.
+74
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+The following table summarizes the fair value of the assets and
+liabilities assumed at the date of acquisition:
+Net current assets 
+$ 
+357,000 
+Property and equipment 
+88,000 
+Trademarks 
+51,000,000 
+Intangible assets 
+1,580,000 
+Goodwill 
+11,174,000 
+Net assets acquired 
+$ 
+64,199,000 
+(1) 
+(1) 
+Includes $1,899,000 of amounts previously capitalized, primarily
+for payments to Mark Thatcher for contract extensions of the
+option to purchase the Teva patents and trademarks. 
+Intangibles of $51,000,000 were assigned to registered
+trademarks that are not amortized for financial reporting
+purposes, but are expected to be amortized and fully deductible
+for income tax reporting purposes. The remaining $1,580,000 of
+acquired intangible assets consists primarily of patents and has
+a weighted average useful life of approximately seven years. The
+$11,174,000 of goodwill is expected to be fully deductible for
+income tax purposes but is not amortizable for financial
+reporting purposes. The entire goodwill balance was recorded to
+the Teva segment. Such allocations were based upon an
+independent appraisal of the assets acquired in accordance with
+SFAS No. 141, Business Combinations.
+The following table summarizes supplemental statement of income
+(loss) information for the year ended December 31, 2002 on
+a pro forma basis as if the acquisition had occurred on
+January 1, 2002, along with the actual results for the
+years ended December 31, 2003 and 2004 for comparison
+purposes.
+2002 
+2003 
+2004 
+Pro forma net sales 
+$ 
+101,267,000 
+$ 
+121,055,000 
+$ 
+214,787,000 
+Pro forma net income before cumulative effect of a change in
+accounting principle 
+1,341,000 
+9,154,000 
+25,539,000 
+Cumulative effect of a change in accounting principle, net of
+tax benefit 
+(8,973,000 
+) 
+— 
+— 
+Pro forma net income (loss) 
+$ 
+(7,632,000 
+) 
+$ 
+9,154,000 
+$ 
+25,539,000 
+Basic income (loss) per share: 
+Pro forma net income before cumulative effect of a change in
+accounting principle 
+$ 
+0.14 
+$ 
+0.91 
+$ 
+2.32 
+Cumulative effect of a change in accounting principle 
+(0.95 
+) 
+— 
+— 
+Pro forma net income (loss) 
+$ 
+(0.81 
+) 
+$ 
+0.91 
+$ 
+2.32 
+75
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+2002 
+2003 
+2004 
+Diluted income (loss) per share: 
+Pro forma net income before cumulative effect of a change in
+accounting principle 
+$ 
+0.14 
+$ 
+0.77 
+$ 
+2.10 
+Cumulative effect of a change in accounting principle 
+(0.91 
+) 
+— 
+— 
+Pro forma net income (loss) 
+$ 
+(0.77 
+) 
+$ 
+0.77 
+$ 
+2.10 
+(13) 
+Goodwill and Other Intangible Assets 
+In July 2001, The Financial Accounting Standards Board
+(FASB) issued Statement of Financial Accounting Standards
+No. 142 (SFAS 142), Goodwill and Other Intangible
+Assets . SFAS 142 requires that goodwill and intangible
+assets with indefinite useful lives no longer be amortized to
+earnings but instead be reviewed periodically for impairment,
+including an annual test performed on December 31. The
+Company implemented this accounting standard on January 1,
+2002, resulting in a goodwill impairment charge of $8,973,000
+(net of the related income tax benefit of $843,000) during the
+year ended December 31, 2002, based on a relief from
+royalty valuation analysis. This noncash impairment charge
+included a write-down of approximately $7,800,000 for UGG
+goodwill and approximately $1,200,000 on an after-tax basis for
+Simple goodwill. As a result of these write-downs, UGG has
+approximately $6,100,000 of goodwill remaining at
+December 31, 2002 and Simple has no remaining goodwill,
+which has been included in intangible assets in the accompanying
+consolidated balance sheets. The impairment charge has been
+recorded as a cumulative effect of a change in accounting
+principle in the Company’s consolidated statement of
+operations for the year ended December 31, 2002.
+In accordance with SFAS 142, the Company did not record any
+goodwill amortization for the years ended December 31,
+2002, 2003 or 2004.
+Summary of Intangible Assets 
+As of December 31, 2004 
+Weighted 
+Gross 
+Average 
+Net 
+Carrying 
+Amortization 
+Accumulated 
+Carrying 
+Amount 
+Period 
+Amortization 
+Amount 
+Amortizable intangible assets 
+$ 
+1,858,000 
+6 years 
+$ 
+721,000 
+$ 
+1,137,000 
+Nonamortizable intangible assets: 
+Trademark 
+$ 
+51,152,000 
+Goodwill 
+18,030,000 
+$ 
+69,182,000 
+Aggregate amortization expense for amortizable intangible assets
+for the years ended December 31, 2002, 2003 and 2004 was
+$1,049,000, $276,000 and $253,000, respectively. Estimated
+amortization expense for the next five years is: $310,000 in
+2005, $310,000 in 2006, $268,000 in 2007, $129,000 in 2008 and
+$119,000 in 2009.
+76
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial
+Statements — (Continued) 
+(14) 
+Licensing 
+The Company has initiated a program to selectively license its
+brand names in product categories beyond footwear. The Company
+currently has three domestic licenses for UGG, consisting of
+licenses for handbags, outerwear and cold weather accessories.
+The handbag and outerwear licensees began delivering products in
+2004, whereas the cold weather accessories licensee is expected
+to begin deliveries in the Fall 2005 season. The Company has
+also initiated a Teva license program, which currently includes
+five domestic license agreements, consisting of
+U.S. licenses for men’s sportswear, headwear, eyewear,
+timepieces and socks, and has signed a Canadian sportswear
+license. The Teva licensees are expected to begin delivering
+products in 2005.
+For several of its initial licensing arrangements, the Company
+used BHPC Global Licensing, Inc. (“BHPC”), a full
+service licensing agency, to identify candidates and coordinate
+its licensing business. The Company pays BHPC a commission on
+license income related to the licensing agreements that BHPC
+coordinated on its behalf. In 2004, The Company paid BHPC
+approximately $168,000. BHPC is owned by one of our directors,
+Daniel L. Terheggen.
+The Company recognizes license income upon shipment of the
+products by the licensees and records a corresponding fee to
+BHPC for the underlying shipments. License income, net of any
+fees to BHPC, is included in net sales in the accompanying
+statement of operations. For the year ended December 31,
+2004, the Company recognized net license revenues of
+approximately $950,000, primarily related to our UGG handbag and
+outerwear licenses.
+77
+Table of Contents 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION AND QUALIFYING ACCOUNTS 
+Three Years Ended December 31, 2002, 2003 and 2004 
+Balance at 
+Balance at 
+Beginning 
+End of 
+of Year 
+Additions 
+Deductions 
+Year 
+Year ended December 31, 2002: 
+Allowance for doubtful accounts 
+$ 
+2,014,000 
+1,785,000 
+1,846,000 
+1,953,000 
+Reserve for sales discounts 
+806,000 
+713,000 
+837,000 
+682,000 
+Reserve for sales returns 
+1,235,000 
+2,293,000 
+2,273,000 
+1,255,000 
+Year ended December 31, 2003: 
+Allowance for doubtful accounts 
+$ 
+1,953,000 
+504,000 
+876,000 
+1,581,000 
+Reserve for sales discounts 
+682,000 
+741,000 
+878,000 
+545,000 
+Reserve for sales returns 
+1,255,000 
+3,791,000 
+3,801,000 
+1,245,000 
+Year ended December 31, 2004: 
+Allowance for doubtful accounts 
+$ 
+1,581,000 
+580,000 
+365,000 
+1,796,000 
+Reserve for sales discounts 
+545,000 
+1,508,000 
+568,000 
+1,485,000 
+Reserve for sales returns 
+1,245,000 
+7,104,000 
+6,618,000 
+1,731,000 
+See accompanying report of independent registered public
+accounting firm.
+78
+Table of Contents 
+PART III 
+Item 10. Directors and Executive Officers of the
+Registrant 
+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.
+Our code of ethics is designed to meet the requirements of
+Section 406 of the Sarbanes-Oxley Act of 2002 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 2005 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, 2004, 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 2005 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, 2004, 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 2005 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, 2004, and
+such information is incorporated herein by reference.
+Item 13. 
+Certain Relationships and Related Transactions 
+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 2005 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, 2004, and such information is
+incorporated herein by reference.
+Item 14. 
+Principal Accountant Fees and Services 
+Information relating to Principal Accountant Fees and Services
+is set forth under “Proposal No. 1 —
+Election of Directors” in the Company’s definitive
+proxy statement relating to the Registrant’s 2005 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, 2004, and
+such information is incorporated herein by reference.
+PART IV 
+Item 15. 
+Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements and Schedules required to be
+filed hereunder are indexed on page 49 hereof.
+79
+Table of Contents 
+Exhibit 
+2.1 
+Certificate of Ownership and Merger Merging Deckers Corporation
+into Deckers Outdoor Corporation. (Exhibit 2.1 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein) 
+3.1 
+Amended and Restated Certificate of Incorporation of Deckers
+Outdoor Corporation. (Exhibit 3.1 to the Registrant’s
+Registration Statement on Form S-1, File No. 33-67248
+and incorporated by reference herein) 
+3.2 
+Restated Bylaws of Deckers Outdoor Corporation.
+(Exhibit 3.2 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein) 
+#10.1 
+1993 Employee Stock Incentive Plan. (Exhibit 99 to the
+Registrant’s Registration Statement on Form S-8, File
+No. 33-47097 and incorporated by reference herein) 
+#10.2 
+Form of Incentive Stock Option Agreement under 1993 Employee
+Stock Incentive Plan. (Exhibit 10.9 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein) 
+#10.3 
+Form of Non-Qualified Stock Option Agreement under 1993 Employee
+Stock Incentive Plan. (Exhibit 10.10 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein) 
+#10.4 
+Form of Restricted Stock Agreement. (Exhibit 10.11 to the
+Registrant’s Registration Statement on Form S-1, File
+No. 33-67248 and incorporated by reference herein) 
+#10.5 
+Employment Agreement with Douglas B. Otto. (Exhibit 10.13
+to the Registrant’s Registration Statement on
+Form S-1, File No. 33-67248 and incorporated by
+reference herein) 
+#10.6 
+First Amendment to Employment Agreement with Douglas B. Otto.
+(Exhibit 10.14 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein) 
+#10.7 
+Second Amendment to Employment Agreement with Douglas B. Otto.
+(Exhibit 10.15 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein) 
+#10.8 
+Third Amendment to Employment Agreement with Douglas B. Otto.
+(Exhibit 10.30 to the Registrant’s Registration
+Statement on Form S-1, File No. 33-67248 and
+incorporated by reference herein) 
+#10.9 
+Deckers Outdoor Corporation 1995 Employee Stock Purchase Plan.
+(Exhibit 4.4 to the Registrant’s Registration
+Statement on Form S-8, File No. 33-96850 and
+incorporated by reference herein) 
+#10.10 
+Amended Compensation Plan for Outside Members of the Board of
+Directors. (Exhibit 10.42 to the Registrant’s Form
+10-Q for the period ended September 30, 1996 and
+incorporated by reference herein) 
+#10.11 
+Extension Agreement to Employment Agreement with Douglas B.
+Otto. (Exhibit 10.36 to the Registrant’s Form 10-K for
+the period ended December 31, 1996 and incorporated by
+reference herein) 
+10.12 
+Shareholder Rights Agreement, dated as of November 12,
+1998. (Exhibit 10.39 to the Registrant’s Form 10-Q for
+the period ended September 30, 1998 and incorporated by
+reference herein) 
+10.13 
+Revolving Credit Agreement dated as of February 21, 2002
+among Deckers Outdoor Corporation, UGG Holdings, Inc. and
+Comerica Bank — California. (Exhibit 10.21 to the
+Registrant’s Form 10-K for the year ended December 31,
+2001 and incorporated by reference herein.) 
+#10.14 
+Employment Agreement dated March 29, 2002 between Douglas
+B. Otto and Deckers Outdoor Corporation. (Exhibit 10.22 to
+the Registrant’s Form 10-Q for the period ended
+March 31, 2002 and incorporated by reference herein.) 
+10.15 
+Asset Purchase Agreement dated as of October 9, 2002 by and
+Among Mark Thatcher, Teva Sport Sandals, Inc. and Deckers
+Outdoor Corporation. (Exhibit 2.1 to the Registrant’s
+Form 8-K/A filed February 7, 2003 and incorporated herein
+by reference.) 
+10.16 
+Disclosure letter associated with the Asset Purchase Agreement.
+(Exhibit 2.2 to the Registrant’s Form 8-K/A filed
+February 7, 2003 and incorporated herein by reference.)+ 
+80
+Table of Contents 
+Exhibit 
+#10.17 
+Employment Agreement dated November 25, 2002 between John
+A. Kalinich and Deckers Outdoor Corporation. (Exhibit 10.20
+to the Registrant’s Form 10-K for the period ended
+December 31, 2002 and incorporated by reference herein) 
+#10.18 
+Employment Agreement dated November 25, 2002 between Mark
+Thatcher and Deckers Outdoor Corporation. (Exhibit 10.21 to
+the Registrant’s Form 10-K for the period ended
+December 31, 2002 and incorporated by reference herein) 
+10.19 
+Unsecured Subordinated Promissory Note dated November 25,
+2002 between Mark Thatcher and Deckers Outdoor Corporation.
+(Exhibit 10.22 to the Registrant’s Form 10-K for the
+period ended December 31, 2002 and incorporated by
+reference herein) 
+10.20 
+Note Purchase Agreement dated as of November 25, 2002 by
+and among Deckers Outdoor Corporation and The Peninsula
+Fund III Limited Partnership. (Exhibit 10.23 to the
+Registrant’s Form 10-K for the period ended
+December 31, 2002 and incorporated by reference herein) 
+10.21 
+Amended and Restated Credit Agreement, dated as of
+November 25, 2002, by and among Deckers Outdoor
+Corporation, UGG Holdings Inc., and Comerica Bank-California.
+(Exhibit 10.24 to the Registrant’s Form 10-K for the
+period ended December 31, 2002 and incorporated by
+reference herein) 
+10.22 
+Amendment Number One to Amended and Restated Revolving Credit
+Agreement dated April 29, 2003. (Exhibit 10.1 to the
+Registrant’s Form 10-Q for the period ended June 30,
+2003 and incorporated by reference herein) 
+10.23 
+Amendment Number Two to Amended and Restated Revolving Credit
+Agreement dated June 27, 2003. (Exhibit 10.2 to the
+Registrant’s Form 10-Q for the period ended June 30,
+2003 and incorporated by reference herein) 
+10.24 
+Amendment Number One to Senior Subordination Agreement dated
+April 29, 2003. (Exhibit 10.3 to the Registrant’s
+Form 10-Q for the period ended June 30, 2003 and
+incorporated by reference herein). 
+10.25 
+Amendment Number Two to Senior Subordination Agreement dated
+June 27, 2003. (Exhibit 10.4 to the Registrant’s
+Form 10-Q for the period ended June 30, 2003 and
+incorporated by reference herein) 
+10.26 
+Amendment Number Three to Amended and Restated Revolving Credit
+Agreement between the Company and Comerica Bank —
+California dated as of August 6, 2003. (Exhibit 10.1
+to the Registrant’s Form 10-Q for the period ended
+September 30, 2003 and incorporated by reference herein) 
+10.27 
+Amendment Number Four to Amended and Restated Revolving Credit
+Agreement between the Company and Comerica Bank-California dated
+as of November 13, 2003 (Exhibit 10.27 to the
+Registrant’s Form 10-K for the period ended
+December 31, 2003 and incorporated by reference herein) 
+10.28 
+Amendment Number Three to Senior Subordination Agreement dated
+November 13, 2003 (Exhibit 10.28 to the
+Registrant’s Form 10-K for the period ended
+December 31, 2003 and incorporated by reference herein) 
+#10.29 
+Employment Agreement effective as of January 1, 2004
+between Douglas B. Otto and Deckers Outdoor Corporation
+(Exhibit 10.29 to the Registrant’s Form 10-K for the
+period ended December 31, 2003 and incorporated by
+reference herein) 
+#10.30 
+Employment Agreement effective as of January 1, 2004
+between M. Scott Ash and Deckers Outdoor Corporation
+(Exhibit 10.30 to the Registrant’s Form 10-K for the
+period ended December 31, 2003 and incorporated by
+reference herein) 
+#10.31 
+Employment Agreement effective as of January 1, 2004
+between Patrick C. Devaney and Deckers Outdoor Corporation
+(Exhibit 10.31 to the Registrant’s Form 10-K for the
+period ended December 31, 2003 and incorporated by
+reference herein) 
+#10.32 
+Employment Agreement effective as of January 1, 2004
+between Constance X. Rishwain and Deckers Outdoor Corporation
+(Exhibit 10.32 to the Registrant’s Form 10-K for the
+period ended December 31, 2003 and incorporated by
+reference herein) 
+81
+Table of Contents 
+Exhibit 
+#10.33 
+Employment Agreement effective as of January 1, 2004
+between Robert P. Orlando and Deckers Outdoor Corporation
+(Exhibit 10.33 to the Registrant’s Form 10-K for the
+period ended December 31, 2003 and incorporated by
+reference herein) 
+10.34 
+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) 
+10.35 
+Exclusive Independent Contractor Representation Agreement
+between Deckers Outdoor Corporation and BHPC Marketing, Inc.
+effective as of January 1, 2003 for representation of the
+Teva brand (Exhibit 10.35 to the Registrant’s Form
+10-K for the period ended December 31, 2003 and
+incorporated by reference herein) 
+10.36 
+*Amendment Number Five to Amended and Restated Credit Agreement
+between the Company and Comerica Bank — California
+dated as of February 28, 2005. 
+10.37 
+*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 
+10.38 
+*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. 
+14.1 
+Deckers Outdoor Corporation’s Code of Ethics for Senior
+Officers, as approved by the Board of Directors on
+December 5, 2003. (Exhibit 14.1 to the
+Registrant’s Form 10-K for the period ended
+December 31, 2003 and incorporated by reference herein) 
+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 U.S.C. Section 1350,
+adopted pursuant to Section 906 of the Sarbanes-Oxley Act
+of 2002. 
+* 
+Filed herewith. 
++ 
+Certain information in this Exhibit was omitted and filed
+separately with the Securities and Exchange Commission pursuant
+to a confidential treatment request as to the omitted portions
+of the Exhibit. 
+# 
+Management contract or compensatory plan or arrangement. 
+82
+Table of Contents 
+SIGNATURES 
+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.
+DECKERS OUTDOOR CORPORATION 
+(Registrant) 
+/s/ Douglas B. Otto
+Douglas B. Otto 
+Chief Executive Officer 
+Date: March 16, 2005
+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/ Douglas B. Otto 
+Douglas
+B. Otto 
+Chairman of the Board, President and Chief Executive Officer 
+March 16, 2005 
+/s/ M. Scott Ash 
+M.
+Scott Ash 
+Chief Financial Officer (Principal Financial and Accounting
+Officer) 
+March 16, 2005 
+/s/ Gene E. Burleson 
+Gene
+E. Burleson 
+Director 
+March 16, 2005 
+/s/ John M. Gibbons 
+John
+M. Gibbons 
+Director 
+March 16, 2005 
+/s/ Rex A. Licklider 
+Rex
+A. Licklider 
+Director 
+March 16, 2005 
+/s/ Daniel L. Terheggen 
+Daniel
+L. Terheggen 
+Director 
+March 16, 2005 
+83
\ No newline at end of file
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diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/item1.txt b/raw/filings/0000910521/2004/0000950129-05-002490/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c04b28c0b0233c2276f6871b8f765175d46750ac
--- /dev/null
+++ b/raw/filings/0000910521/2004/0000950129-05-002490/item1.txt
@@ -0,0 +1,1038 @@
+Item 1. 
+Business 
+General 
+We are a leading designer, producer and brand manager of
+innovative, high-quality footwear and the category creator in
+the sport sandal and luxury sheepskin footwear segments. Our
+footwear is distinctive and appeals broadly to men, women and
+children. We sell our products through quality domestic
+retailers and international distributors and directly to
+end-user consumers through our websites and catalogs. Our
+primary objective is to build our footwear lines into global
+lifestyle brands with market leadership positions.
+We market our products under three proprietary brands:
+Teva. Teva is our outdoor lifestyle brand and the
+category creator for the sport sandal segment. Teva was created
+in the 1980’s to serve the demanding footwear needs of the
+professional river guide community, and this authentic heritage
+and commitment to function and performance remain core elements
+of the Teva brand. We have expanded Teva’s sport sandal
+line to include casual open-toe footwear, as well as hiking
+boots, trail running shoes, amphibious footwear and other rugged
+outdoor footwear styles. 
+UGG. UGG is our luxury brand and the category
+creator for luxury sheepskin footwear. Our UGG line has enjoyed
+several years of strong growth and positive consumer
+receptivity, driven by consistent introductions of new styles,
+introductions of UGG products in the fall and spring seasons and
+geographic expansion of distribution. We carefully manage the
+distribution of our UGG line within high-end specialty and
+department store retailers in order to best reach our target
+consumers, preserve UGG’s retail channel positioning and
+maintain UGG’s position as a mid- to upper-price luxury
+brand. 
+Simple. Simple is our moderately priced
+“anti-brand,” serving the needs of a youthful,
+irreverent consumer base seeking the comfort of athletic
+footwear but the styling of more traditional, understated,
+“back-to-basics” footwear. We have recently revised
+the Simple line to focus on its successful legacy models,
+including sneakers, clogs, sandals and other casual footwear. In
+addition, Simple enables us to selectively leverage our core
+footwear design and production competencies for channels of
+distribution not served by Teva or UGG. 
+We believe our ability to continue to grow our future sales,
+earnings and market share has been significantly enhanced
+through achievement of three key recent initiatives:
+Teva Rights Acquisition. From 1985 until November
+2002, we sold our Teva products under a license arrangement with
+Teva’s founder, Mark Thatcher. In November 2002, we
+acquired all of the Teva Rights from Mr. Thatcher and his
+wholly-owned corporation, Teva Sport Sandals, Inc. The
+acquisition enabled us to gain ownership of the Teva Internet
+and catalog business and allowed our brand managers to broaden
+the Teva line into attractive casual open-toe lines and rugged
+outdoor closed-toe footwear. This expansion of the Teva product
+line has increased the appeal of the brand and expanded our
+overall retail placement. The acquisition also enabled us to: 
+• 
+eliminate significant royalties and other license costs; 
+• 
+eliminate product line expansion constraints under our former
+license agreement; 
+• 
+realize license opportunities for the Teva brand into additional
+brand-appropriate outdoor categories; and 
+• 
+enhance our ability to recruit and retain key senior management. 
+Organizational Restructuring. In the last several
+years, we have reorganized our management infrastructure and
+developed a decentralized approach that gives our brand managers
+greater control over product development, marketing, and
+distribution for their respective brands. This approach
+strengthens our product development efforts and enables each
+brand manager to react quickly to important market 
+3
+Table of Contents 
+trends and concentrate on the footwear demands of our customers
+and end-user consumers. Our brand teams are highly focused on
+developing new products and marketing programs that drive strong
+sales growth but remain true to each brand’s heritage. As a
+result, we have generated gross margins of 42.4% in 2003 and
+42.1% in 2004 and achieved compound annual sales growth of
+approximately 47.2% since 2002. Our central management team
+provides important expertise in disciplines common to each of
+our brands, including sourcing, time-to-market, quality control,
+credit, information systems technology and overall management of
+our capital resources. 
+UGG Repositioning. UGG gained brand recognition in
+the U.S. beginning in 1979 and was adopted as a favored
+brand by the California surf community. We acquired UGG in 1995
+and have carefully re-positioned the brand as the luxury
+sheepskin collection sold through high-end retailers. While our
+sales have grown steadily over the past seven years, over the
+past few years UGG has benefited from significant national media
+attention and celebrity endorsement through our marketing
+programs and product seeding activities, further raising the
+profile of UGG as a luxury sheepskin brand. We intend to further
+support UGG’s market positioning by carefully expanding the
+selection of styles available in order to build consumer
+interest in our UGG collection. We also remain committed to
+limiting distribution of UGG through high-end retail channels. 
+Largely as a result of these three recent initiatives, our net
+sales have increased by 77.4%, from $121,055,000 in 2003 to
+$214,787,000 in 2004 and our income from operations has
+increased by 118.4% from $19,438,000 in 2003 to $42,462,000 in
+2004. For 2004, wholesale shipments of Teva, UGG and Simple
+represented 38.9%, 47.4% and 4.5% of our total net sales,
+respectively. Sales of our brands through our Internet and
+catalog division are in addition to our wholesale shipments and
+generated 9.2% of total net sales in 2004.
+History 
+We were founded by Doug Otto in 1973 as a domestic manufacturer
+of sandals. We originally manufactured a single line of sandals
+under the Deckers’ brand name in a small factory in
+Carpinteria, California. Since then, we have grown through the
+development and licensing of proprietary technology, targeted
+marketing and selective acquisitions. In 1985, we entered into
+our first license agreement for Teva sport sandals with
+Teva’s founder, Mark Thatcher. In 1986, we developed the
+Universal Strapping System, establishing Teva as the sport
+sandal category-creator and generating significant national
+attention for the Teva brand.
+We experienced a period of rapid growth during the late
+1980’s and completed our initial public offering in 1993.
+As our sales grew, we terminated our manufacturing operations in
+the U.S., Mexico and Costa Rica, and today independent
+manufacturers in the Far East, Australia and New Zealand
+manufacture all of our footwear products for us. We maintain our
+own offices in China and Macau to monitor the operations of our
+Far East manufacturers.
+In order to diversify our sales and leverage our product
+development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva products under a
+licensing arrangement with Teva’s founder, Mark Thatcher.
+In November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly owned corporation, Teva Sport
+Sandals, Inc. The Teva Rights include the Teva Internet and
+catalog business and all patents, trade names, trademarks and
+other intellectual property associated with the acquired Teva
+assets.
+4
+Table of Contents 
+Business Strategies 
+We seek to differentiate our brands by offering diverse lines
+that emphasize authenticity, functionality, quality and comfort
+and products tailored to a variety of activities and demographic
+groups. Key elements of our business strategies are:
+Build Leading Global Brands. Our mission is to
+build niche footwear lines into global brands with market
+leadership positions. Our Teva and UGG brands began as footwear
+lines appealing to a narrow core enthusiast market. We have
+since built these lines into substantial global lifestyle brands
+with significant potential for further growth and line
+extension. Across our brands, our styles remain true to the
+brands’ heritage but have been selectively extended over
+time to broaden their appeal to men, women and children seeking
+high quality, comfortable styles for everyday use. Furthermore,
+we actively manage our brands to ensure that we reach brand
+appropriate retail distribution channels. We believe that
+building our domestic and international brand image is best
+accomplished through a decentralized management structure that
+empowers a single brand manager to coordinate all aspects of
+brand image, from product development to marketing and retail
+channel management. 
+Sustain Brand Authenticity. We believe our ability
+to grow our brands, sustain strong gross margins and maintain
+strong market share results, in part, from consumer loyalty to
+the heritage of our brands. We believe Teva consumers are
+passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy highlights the brand’s
+positioning as functional footwear, but also as a premium,
+luxury collection. UGG is primarily marketed through national
+print advertising in major women’s magazines and through
+our retailers and their catalogs and advertising. We promote our
+Simple brand by emphasizing Simple’s heritage sneaker and
+clog businesses in marketing targeted to youth-oriented markets
+in major U.S. cities. Our key marketing objective for
+Simple is to reintroduce the brand to the marketplace using a
+grass roots approach in our marketing and media plan. We have
+focused our advertising on our “we clog” and “we
+sneaker” campaigns in alternative weekly publications and
+other non-mainstream media. 
+Drive Demand Through Innovation and Technical
+Leadership. We believe our reputation for innovation and
+technical leadership distinguishes our Teva and UGG products
+from those of our competitors and provides us with significant
+competitive advantages. Our proprietary Universal Strapping
+System launched Teva’s popularity in the mid-1980’s.
+Recent technical advances in our Teva footwear include our
+Liquid Frame Technology, our Wraptor technology and our
+Wraptor-Lite technology, all designed to provide maximum
+stability, support and comfort under rugged usage. We recently
+introduced closed-toe footwear, which represented approximately
+12.5% of Teva’s net sales in 2004. In the Fall 2004 season,
+we introduced new Teva styles that incorporate Vibram®
+soles and Gore-Tex® fabrics. We continue to develop
+innovative styles, products and product categories for our UGG
+collection in order to support UGG’s positioning as a
+functional lifestyle brand, which can be worn in a variety of
+climates and weather conditions. UGG has benefited from
+expansion into non-boot casuals, sheepskin-trimmed footwear and
+styles combining sheepskin with fine-grade suede and leathers,
+all designed to expand our market share in new categories and
+increase our sales in the fall and spring. 
+Maintain Efficient Development and Production
+Process. We believe our product development processes
+enable us to produce leading edge products on a timely and a
+cost effective basis. We design our products domestically. We
+maintain on-site supervisory offices in Pan Yu City, China and
+Macau that serve as local links to our independent manufacturers
+in the Far East, 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. 
+5
+Table of Contents 
+Growth Strategies 
+Our growth will depend upon our broadening of the products
+offered under each brand, expanding domestic and international
+distribution, licensing our brand names and developing or
+acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under Existing
+Brands. We intend to increase our sales by developing
+and introducing additional footwear products under our existing
+brands that meet our high standards of performance,
+practicality, authenticity, comfort and quality. We have
+expanded Teva’s open-toe footwear category by launching new
+casual styles. We have also introduced several closed-toe lines
+under the Teva brand, including amphibious footwear, hikers,
+trail runners and other rugged outdoor footwear. We plan further
+expansion into the hiking, trail running and rugged outdoor
+arenas, where the aggregate market is considerably greater than
+the market size for Teva’s core sport sandals. We have
+expanded our UGG collection to incorporate additional styles and
+fabrications in order to further penetrate the fall, spring and
+winter seasons. We have expanded our men’s and kids’
+business for 2005 and have introduced a cold-weather series
+featuring sheepskin and Gore-Tex®, which will be delivered
+in Fall 2005. We expect to grow our Simple brand with the
+re-focus on our heritage clog and sneaker categories for both
+men and women. Simple has introduced “comfy” sandals,
+leveraging another of our core competencies. By introducing new
+categories under our brands, in particular, the closed-toe
+footwear under Teva and the Spring product offerings under UGG,
+we believe we have expanded the selling seasons for our brands
+which has resulted in increased sales and has contributed to a
+more balanced year round business for each of these brands. 
+Expand Domestic Distribution. We believe that we
+have significant opportunities to increase our sales by
+expanding domestic distribution of our products. Our Teva brand
+has generally been distributed through the outdoor specialty and
+sporting goods retail channels. We have identified the potential
+for expansion into additional retail channels through the
+development of special make-up styles for retailers who have
+limited store overlap with our core specialty outdoor and
+sporting goods customers. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+several years we have experienced increasing demand for
+UGG distribution outside California, and we expect to
+capitalize on significant demand in the Midwest and East Coast
+markets. For Simple, we are repositioning the brand by focusing
+on our legacy styles in order to re-connect with our consumer
+base and by broadening the appeal of Simple to new channels of
+distribution. The legacy products are primarily clogs,
+athletic-inspired sneakers and comfort sandals. 
+Expand International Distribution. In 2004, our
+international net sales totaled $39,368,000, representing
+approximately 18.3% of total net sales. We believe significant
+opportunities exist to market our products abroad, and we intend
+to selectively expand their distribution worldwide. We have
+entered into an agency agreement with a firm in the United
+Kingdom for the coordination of our sales, distribution,
+marketing and advertising efforts in the European markets. For
+UGG, in particular, we have greatly expanded our international
+efforts, increasing the number of international distributors
+from six at December 31, 2002 to 13 at December 31,
+2004. 
+Pursue Licensing of Brands in Complementary Product
+Lines. We are pursuing selective licensing of our brand
+names in product categories beyond footwear. In 2004, we hired a
+Vice President of Corporate Licensing, who has extensive
+licensing experience at several leading companies in our
+industry, to coordinate the efforts for the licensing of
+products that complement our trademark-protected products. We
+successfully launched UGG handbags and outerwear in 2004
+and have signed a license for UGG cold weather accessories,
+which are expected to begin deliveries in the Fall 2005 season.
+We have also initiated a domestic Teva licensing program,
+consisting of U.S. licenses for men’s sportswear,
+headwear, eyewear, timepieces and socks, and have signed a
+Canadian sportswear license. We expect to begin deliveries for
+all of these items in 2005. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. Because this
+licensing strategy is in its early stages, and due to the lead
+times required to bring the products to market, we have only
+recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from 
+6
+Table of Contents 
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have promised. For the year
+ended December 31, 2004, our licensees began to ship their
+products and, accordingly, we recognized net license revenues of
+$950,000, primarily related to our UGG handbag and
+outerwear licenses. 
+Build New Brands. We intend to continue to focus
+on identifying, developing or acquiring, and building new
+brands. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing our expertise in product development,
+production and marketing. We intend to continue to identify and
+build new brands that demonstrate potential for significant
+future growth. 
+Products 
+Our primary product lines are:
+Teva Sport Sandals and Footwear. “The brand
+of choice for the new outdoor athlete.” We believe there
+has been a general shift in consumer preferences and lifestyles
+to include more outdoor recreational activities, including
+hiking, trail running, bouldering, kayaking, kite boarding and
+whitewater river rafting. These consumers typically seek
+footwear specifically designed with the same quality and high
+performance attributes they have come to expect from traditional
+athletic footwear. The first Teva sport sandal was developed in
+the 1980’s to meet the demanding needs of professional
+rafting guides navigating the Colorado River and the rugged
+Grand Canyon terrain. As our core consumers’ pursuits have
+evolved, we have retained our outdoor heritage while adding new
+products to our line, including slides, thongs, amphibious
+footwear, trail running shoes, hiking boots and rugged
+closed-toe footwear. Our brand remains popular among
+professional and amateur outdoorsmen seeking authentic,
+performance-oriented footwear, as well as general footwear
+consumers seeking high quality, durable and comfortable styles
+for everyday use. 
+Our Teva line comprises six core footwear collections:
+Originals. The Originals Series is a collection of
+sandals and thongs utilizing Teva’s classic rugged
+architecture. The Originals Series leverages the Teva brand
+heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Our Originals feature our proprietary Universal
+Strapping System or Wraptor technology as well as cellular
+rubber, molded EVA or polyurethane mid-soles and high-quality
+nylon webbing or leather designed to hold the foot firmly in
+place. Our U.S. patent on our Universal Strapping System,
+which we utilize in most of our Teva sandals, expires in
+September 2007. 
+Hydro. The Hydro Series builds upon our legacy as
+the category leader in whitewater-designed footwear. Hydro
+consists of sandals and closed-toe amphibious footwear built for
+high performance and rugged outdoor use. This series includes
+men and women’s sport sandals and other outdoor footwear
+ideal for professional and amateur outdoor enthusiasts and
+adventurers. Our Hydro Series incorporates many proprietary
+technologies including our Wraptor, Universal, or Liquid Frame
+technologies as well as quick draining monofilament mesh,
+specially formulated sticky rubber outsoles designed to adhere
+to slippery rocks, form fitting neoprene and water-repelling
+leathers. 
+Terrain. The Terrain Series is a line of sandals
+and closed-toe footwear that incorporates Teva technologies and
+is designed for use in rugged outdoor environments such as
+hiking trails and canyons. The Terrain Series includes
+performance walking sandals and running sandals, as well as
+hiking boots and trail running shoes. To meet our
+consumers’ expanded needs and to provide them with the best
+product possible, we have partnered with many of the
+world’s leading providers of footwear technology for
+specialty component materials, including Vibram®, Five
+Ten® and Gore-Tex®. 
+Nomadic. Our Nomadic Series is a collection of
+leather casual sandals and closed-toe footwear true to
+Teva’s performance-oriented outdoor heritage but designed
+for more casual use. The Nomadic Series consists of men’s
+and women’s leather and suede sandals, closed toe shoes,
+slides and clogs 
+7
+Table of Contents 
+featuring rugged, contemporary styles for the traveler and
+adventurer. Our 2005 line includes several closed-toe styles
+featuring our patent-pending
+flipsole tm ,
+a removable insole that can be easily converted to a flip-flop. 
+Sun and Moon. Our Sun and Moon Series features
+fun, youthful and colorful slides and thongs in a variety of
+materials including waterproof leather, nylon, suede and air
+mesh. The Sun and Moon Series is designed to leverage our
+sandal-making capabilities and to appeal to fashion-oriented
+consumers seeking pre-activity and post-activity footwear
+alternatives that express a casual lifestyle and individual
+spirit. 
+Kids and Infants. Our children’s series is an
+assortment of sandals incorporating a variety of materials
+including leather, waterproof suede, nylon, neoprene and mesh,
+as well as slip-on water shoes, hikers and other styles of
+amphibious footwear. In addition, for the 2005 season, we have
+expanded our product offering with a variety of styles of
+sandals and closed-toe footwear, including an assortment of
+styles that are reflective of our adult offerings. 
+We intend to continue to build upon Teva’s broad and deep
+line of performance and casual footwear. Our Spring 2005 line
+features 126 different product styles with manufacturer’s
+suggested domestic retail prices for adult sizes ranging from
+$20.00 to $120.00.
+UGG Footwear. “The premier brand in luxury
+and comfort sheepskin.” Beginning in 1979, UGG gained brand
+recognition in the U.S. for sheepskin boots and slippers
+and was later adopted as a favored brand by the California surf
+community. We acquired the brand in 1995 and expanded the
+collection, offering consumers a luxurious and distinctive look
+in sheepskin fabrications.
+Our UGG product line comprises seven core footwear collections:
+Classic Collection. We offer a complete line of
+sheepskin boots built on the heritage and distinctive look of
+our first product, the Classic Sheepskin boot. Our Classic
+Collection products are distinctive in styling, featuring an
+array of neutral and fashion colors. Our Classic Collection
+includes styles for men, women and children. 
+Ultra Collection. The Ultra Collection builds upon
+the heritage of our original Classic. These boots are designed
+with our comfort system, featuring a multi-surfaced lugged
+bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures. This collection features styles for
+men, women and children. 
+Casual Collection. This women’s collection
+features a more tailored and refined look with sheepskin
+combined with smooth leather uppers and suede in distinctive
+patterns and styles. This collection features a variety of
+shoes, clogs and boots and provides UGG consumers with the
+versatility to utilize sheepskin styling for a wider variety of
+occasions and outfits. 
+Metropolitan Collection. This is a new collection
+of women’s styles for the Fall 2005 season. The
+Metropolitan Collection features styles that combine high
+quality suede uppers with sheepskin linings, including models
+with high fashion, bohemian and other casual stylings. 
+Cold Weather Collection. This collection is
+designed for men and women seeking more rugged styling. The Cold
+Weather line features a Vibram® outsole and waterproof
+Gore-Tex® uppers designed to withstand colder, wetter
+climates. 
+Fluff Momma Collection. This is our most playful
+and distinctive style for women. The Fluff Momma features
+untrimmed and colored sheepskin fleece exposed on the entire
+boot. 
+Slipper Collection. Our popular Slipper Collection
+builds upon the UGG reputation for comfort, warmth and
+luxury. We offer a wide selection of styles and colors for men,
+women and children. 
+8
+Table of Contents 
+We have expanded our UGG collection from the Classic
+Sheepskin boot to a broad footwear line for men, women and
+children in a variety of styles, colors and materials designed
+for wear in a variety of climates and occasions. Over the last
+few years, our line expansion strategies have resulted in
+significantly increased exposure for our UGG collection and
+have contributed to the growth of UGG’s year round
+business. The manufacturer’s suggested domestic retail
+prices for adult sizes for the UGG collection range from
+$55.00 to $300.00.
+Simple Casual Footwear. “The brand of choice
+for a simple, uncomplicated lifestyle.” The Simple line of
+casual shoes combines the comfort of athletic footwear
+construction with the simple, understated styling of
+“back-to-basics” casual footwear. Simple was launched
+in the 1990’s as an anti-brand that catered to
+21-35 year old consumers who were looking for an
+alternative to the flashy athletic footwear brands that were
+saturating the market. Since then, we’ve expanded into a
+full line of clogs, sneakers, and sandals; and in 2005, we are
+introducing our new Unclog and Green
+Toe tm 
+segments to the line.
+Our product line is comprised of these five key categories,
+which range in price from $20.00 to $80.00:
+Sneakers. We’ve evolved our classic sneaker
+collection with successful styles like the Sugar. We continue to
+keep this segment fresh by updating colors and materials
+seasonally. We’ve introduced several new sneaker styles
+that incorporate a sneaker specific
+pedbed tm ,
+durable rubber outsoles, and leather and suede uppers. 
+Clogs. Building on the heritage of our original
+clogs, our current clog series features the
+pedbed tm 
+and updated material and color options. 
+Unclogs: This collection is our twist on the
+traditional casual segment. It features oxfords, loafers, and
+boots that incorporate our comfortable
+pedbed tm 
+with suede and leather uppers. 
+Sandals: We offer a range of warm weather footwear
+for men and women in rich leathers and colorful nubucks. We also
+offer a flip-flop program that caters to the surf channel of
+distribution. 
+Green
+Toe tm :
+The Green
+Toe tm 
+segment represents an effort on the part of Simple to reduce the
+ecological footprint made by shoes around the world. All Green
+Toe products are made with 100% natural materials (textiles and
+rubbers), use water-based glues, and soy-based dyes. This
+collection is currently comprised of two styles for men and
+women. 
+Licensing 
+To capitalize on the strength of our brands, we are pursuing the
+licensing of our brand names for use in complementary product
+categories beyond footwear. As part of this approach, in 2004,
+we hired a Vice President of Corporate Licensing, who has
+extensive licensing experience at several leading companies in
+our industry, to coordinate the efforts for the licensing of the
+Teva, UGG and Simple trademarks on products ranging from
+sportswear and outerwear to bags, packs and other accessories.
+Products sold under license began selling at retail in the third
+quarter of 2004. For the year ended December 31, 2004, we
+recognized net license revenues of approximately $950,000.
+We have initiated a Teva licensing program with strategic
+partners, which currently consist of U.S. licenses for
+men’s sportswear, headwear, eyewear, timepieces, and socks,
+as well as a Canadian license for men’s sportswear. We are
+selectively developing additional licensing programs to ensure
+that licensed goods remain consistent with Teva’s brand
+heritage. In addition, we have signed license agreements for
+UGG handbags and related small leather goods, outerwear,
+and cold weather accessories, and have several other
+UGG related licensing opportunities under consideration,
+including “at home” apparel, home accessories and
+other categories to complement our UGG business. We are
+also planning to expand our licensing program to the
+international markets.
+BHPC Global Licensing, Inc. is a full service licensing agency
+that we initially used to assist us in identifying licensing
+candidates and coordinating our licensing business until August
+2004, when we hired our Vice President of Corporate Licensing to
+coordinate these efforts for us. We pay BHPC a commission on
+royalty income that we receive related to licensing agreements
+that BHPC coordinated on our behalf. In 2004, we paid BHPC
+approximately $168,000. BHPC is owned by one of our directors,
+Daniel L. Terheggen.
+9
+Table of Contents 
+Products made under license are sold primarily through the same
+retail channels as our footwear product offering. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and Distribution 
+We distribute our products in the U.S. through a dedicated
+network of approximately 40 independent sales representatives.
+Our sales representatives are organized geographically and visit
+retail stores to communicate the features, styling and
+technology of our products. In addition, we have five employee
+sales representatives who serve as key account executives for
+several of our largest customers.
+Our sales force is divided into two teams, one for Teva and one
+for UGG and Simple, as the UGG and Simple brands are
+generally sold through non-outdoor specialty and non-sporting
+goods distribution channels and are targeted toward a different
+consumer than our Teva brand. The sales manager for each brand
+recruits and manages his or her networks of sales
+representatives and coordinates sales to national accounts. We
+believe this approach for the U.S. market maximizes the
+selling efforts to our national retail accounts on a
+cost-effective basis.
+Internationally, we distribute our products through 35
+independent distributors. Shipments to Europe are primarily
+facilitated through third party distribution in the Netherlands.
+All other international shipments are made directly from our
+independent manufacturers.
+Our principal customers include specialty retailers, selected
+department stores, outdoor retailers, sporting goods retailers
+and shoe stores. Our five largest customers accounted for
+approximately 25.2% of our net sales for 2004, compared to 20.5%
+for 2003. No single customer accounted for more than 10.0% of
+our net sales in 2004 or 2003, except that a West Coast based
+upscale department store, which is a significant customer for
+each of our three brands, accounted for 14.1% of net sales in
+2004.
+Teva. We sell our Teva products primarily through
+specialty outdoor and sporting goods retailers such as REI,
+Eastern Mountain Sports, L.L. Bean, Dick’s Sporting Goods
+and The Sports Authority. We believe this retail channel is the
+first choice for athletes, enthusiasts and adventurers seeking
+technical and performance-oriented footwear. Furthermore, we
+believe that our Teva products are best sold by retailers who
+appreciate and can fully market the technical attributes of our
+products to the consumer. We also sell a limited selection of
+styles and special make-up Teva products through selected
+retailers in order to reach consumers who are less
+outdoor-oriented but who seek out our products due to their
+durability, comfort and fit.
+UGG. We sell our UGG products primarily
+through high-end department stores such as Nordstrom, Neiman
+Marcus and Marshall Field’s, as well as independent
+specialty retailers such as Fred Segal, David Z. and Sport
+Chalet. 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.
+Simple. Our Simple products are targeted primarily
+towards independent specialty retailers and select department
+stores that target consumers seeking comfortable, high quality
+footwear at a fair price. Key accounts such as J. Jill,
+Nordstrom, Journeys, and REI cater to consumers in our
+demographic — men and women between the ages
+of 21 and 35.
+In 2004, we distributed products sold in the U.S. through
+our 126,000 square foot distribution center in Ventura,
+California. In 2005, we are also distributing products from an
+additional 175,000 square foot U.S. distribution
+center in Camarillo, California. Our distribution centers
+feature an inventory management system that enables us to
+efficiently pick and pack products for direct shipment to
+retailers across the country. 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
+rigorous quality inspection process.
+See the discussion of the cash flow cycle, inventories and other
+items of working capital under “Liquidity and Capital
+Resources”.
+10
+Table of Contents 
+Consumer Direct 
+We acquired the Internet and catalog business as part of the
+acquisition of the Teva Rights. The consumer direct business
+enables us to reach consumers through our Internet business
+under the Teva.com , UGGs.com ,
+UGGAustralia.com and SimpleShoes.com Internet
+addresses and through direct mailings. Our mailing list includes
+approximately 300,000 consumers who have purchased at least once
+in the past 36 months. We currently average approximately
+600 direct orders daily. In late 2003 we moved our order
+fulfillment operations from Flagstaff, Arizona to our
+distribution center in Ventura, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs. We
+generally sell our products through our direct channels at
+approximate retail prices, enabling us to capture the full
+retail margin on each direct transaction.
+Marketing and Advertising 
+Our brands are generally advertised and promoted through a
+variety of consumer print advertising campaigns. We benefit from
+highly visible 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 incurred approximately $7,456,000,
+$6,594,000 and $8,687,000 in advertising, marketing and
+promotion expenses in 2002, 2003 and 2004, respectively.
+Teva. We use several marketing methods to promote
+the Teva brand, including:
+• 
+a targeted print advertising campaign; 
+• 
+promotions at a variety of festivals, events and competitions; 
+• 
+sponsorship of local athletes and national athletes such as the
+Teva Whitewater Team, the Teva U.S. Mountain Running Team
+and the Cannondale Mountain Bike Team; 
+• 
+discount programs to professional river guides, kayakers,
+mountain bikers and rock climbers; 
+• 
+product seeding with professional athletes; and 
+• 
+in-store promotions. 
+We advertise the Teva brand through the placement of print
+advertisements in leading outdoor magazines such as
+Backpacker, Outside, National Geographic Adventurer, Hooked
+on the Outdoors and Paddler . As we have added new
+product categories to the Teva brand, we have broadened our
+advertising presence to reach new consumers. To support our
+introduction of Teva trail running shoes, we advertise in
+Trail Runner and Running Times , among other
+publications. We also advertise in more mainstream publications
+such as Men’s Journal, Sports Illustrated , and
+Organic Style in order to support our casual footwear
+lines.
+The Teva brand is closely associated with outdoor lifestyle
+pursuits such as river rafting, kayaking, mountain biking,
+hiking and trail running. We sponsor outdoor events in the U.S.
+including the Teva Mountain Games at Vail, the Teva Vail Trail
+Running Series, the Santa Cruz Surf Kayak Festival in Santa
+Cruz, California, the Telluride Bluegrass Festival in Telluride,
+Colorado and the Reggae on the River event in Garberville,
+California, among others. We believe our sponsorship of these
+events further links our Teva brand with its outdoor heritage
+and generates increased product exposure and brand awareness.
+Internationally, we sponsor outdoor events in France,
+Switzerland and Italy in order to increase our brand visibility
+to the core European outdoor consumer.
+We sponsor some of the world’s best male and female
+professional and amateur athletes across several sports. Our
+Teva promotional team attends events across the U.S. in
+dedicated, state-of-the-art promotional vehicles prominently
+featuring our Teva logo. The promotions team showcases Teva
+products at events and provides consumers with the opportunity
+to see and sample our latest styles. We recently initiated a
+partnership with Volkswagen whereby the Teva technical
+representatives and Team Teva athletes are outfitted in seven
+Teva branded Volkswagen Eurovans and seven Volkswagen Touaregs
+for travels across the U.S. We believe by outfitting and
+sponsoring these highly visible athletes and teams, we create
+brand and product awareness among our targeted consumers at a
+relatively low cost.
+11
+Table of Contents 
+UGG. We seek to build upon the success of our UGG
+national print advertising campaign. We currently advertise in
+upscale national magazines such as Vogue, ELLE , and O
+Magazine . We believe such advertising is an effective means
+to target our intended consumers and to convey the high quality
+and luxurious appeal of UGG products. We also benefit from
+editorial coverage of the UGG collection. Articles have appeared
+in such magazines as Glamour, InStyle, Cosmopolitan, Marie
+Claire, People, US Weekly, Maxim, Shape, Self, O Magazine
+and Real Simple . In 2003, UGG was awarded “Brand
+of the Year” by Footwear News , a leading industry
+trade publication. In 2004, UGG was awarded “Brand of the
+Year” by Footwear Plus , another leading trade
+publication, and was recognized with the ACE Award for the
+“it” accessory of the year by the Accessories Council.
+We also actively seek to place UGG products at selected events.
+During the 2002 Winter Olympic Games we outfitted all of the
+children in the Children of the Light performance with UGG
+boots. During the Medal Ceremonies, Olympic staff presenting
+medals to the Olympic athletes also wore UGG boots. We believe
+this product placement further strengthened the consumer’s
+image of UGG products as high quality, luxurious sheepskin goods
+well-suited for use in cold weather.
+We also have improved visibility of the UGG brand through
+placement of the product in selected television shows and
+feature films. UGG products have appeared on numerous shows,
+including Entourage, Six Feet Under, The Oprah Winfrey Show,
+Judging Amy, The King of Queens, Still Standing, Will and Grace,
+Everwood, The George Lopez Show, Jeopardy and Saturday
+Night Live . Our marketing efforts have also resulted in UGG
+product appearances in the following recent and upcoming feature
+films: Fever Pitch starring Drew Barrymore and Jimmy
+Fallon, White Chicks starring the Wayans Brothers,
+Surviving Christmas starring Ben Affleck and Christina
+Applegate, Raising Helen starring Kate Hudson and
+Wicker Park starring Josh Hartnett. In addition, UGG has
+been embraced by Hollywood celebrities, who are often seen and
+photographed wearing UGG boots. This celebrity exposure for UGG
+has been the subject of recent publicity including articles in
+US Weekly, USA Today, People and
+People.com . UGG boots have been a featured item on
+the Oprah Winfrey gift show in 2000 and 2003 and her surprise
+baby shower for military families in 2004. We believe our target
+consumer identifies with celebrities and that greater exposure
+further heightens awareness of the brand and stimulates sales.
+Simple. The Simple consumer identifies with a
+certain irreverent culture, and we seek to reach that consumer
+through a focused grassroots marketing approach that will
+introduce the brand to influential communities around the
+country. These marketing efforts will focus on the following
+cities: Los Angeles, San Francisco, New York City, Chicago,
+Boulder, Austin and Nashville. In support of our grassroots
+initiatives, we will focus on advertising in alternative weekly
+publications, which will provide us with the opportunity to
+reach a large number of people through a cost efficient,
+non-mainstream medium.
+Simple will continue to work with its public relations agency to
+get editorial placement of key styles in youth and trend
+magazines, television shows, independent films and with
+cutting-edge influential artists and musicians. Our efforts have
+resulted in product appearances in Teen People, Maxim, Nylon,
+Lucky and Surfing Girl , and product appearances on VH1 and
+MTV.
+Product Design and Development 
+The design and product development staff for each of our brands
+creates and introduces new innovative footwear products that
+combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance technical products
+continue to satisfy the requirements of our historical consumer
+base of performance-oriented “core enthusiasts,” our
+design staff solicits input from our Team Teva whitewater
+athletes, the Teva U.S. Mountain Running Team and other
+professional outdoorsmen, as well as several of our retailers,
+including REI, Eastern Mountain Sports, Dick’s Sporting
+Goods and L.L. Bean. We regularly add new innovations,
+components and styles to our product line based on their input.
+For example, our Fall 2005 Teva offering features several styles
+of casual closed toe footwear with our new
+12
+Table of Contents 
+Flipsole tm 
+technology, a removable midsole that can be easily removed and
+converted to a thong, making it two shoes in one. We have also
+incorporated our proprietary Wraptor technology into performance
+running sandals, an assortment of hikers and certain styles of
+our high performance guide sport sandals specifically targeted
+at professional outdoorsmen and adventurers. In addition, for
+added traction and durability, we have incorporated various
+materials in our Teva sandals, including Spider
+Rubber — a sticky, non-slip rubber outsole material
+for use across wet and dry terrain, Traction Rubber —
+a highly durable and abrasion resistant material designed
+specifically for the extra rigors of land use, and River
+Rubber — a non-slip material designed to offer
+superior grip on smooth wet surfaces such as rocks, fiberglass
+and raft rubber.
+Our UGG and Simple products are designed to appeal to consumers
+seeking our distinctive and innovative styling. We strive to be
+a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further
+awareness and interest in the UGG and Simple collections. We
+believe our ability to incorporate up-to-date styles without
+deviating from UGG’s classic look, combined with
+performance-oriented features consumers have come to expect,
+results in continued enthusiasm for our brand in the marketplace.
+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 for their various product lines. We
+develop detailed drawings and prototypes of our new products to
+aid in the conceptualization and to ensure our contemplated new
+products meet the standards for innovation and performance our
+consumers demand. Throughout the development process, members of
+the design staff coordinate internally and with our domestic and
+overseas product development, manufacturing and sourcing
+personnel toward a common goal of developing and producing a
+high quality product to be delivered on a timely basis.
+Manufacturing 
+We do not manufacture our footwear. We outsource the
+manufacturing of our Teva, Simple, and UGG footwear to
+independent manufacturers in the Far East. We also outsource the
+manufacturing of our UGG footwear to independent manufacturers
+in Australia and New Zealand. 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. To ensure the
+production of high quality products, many of the materials and
+components used in production of our products by the 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 outsource our manufacturing
+requirements on the basis of individual purchase orders 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 one tannery
+in New Zealand and three in China. We maintain a constant dialog
+with the tanneries to monitor the supply of sufficient high
+quality sheepskin available for our projected UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We have instituted pre-production and post-production
+inspections to meet or exceed the high quality demanded by
+consumers of our products. Our quality assurance program
+includes 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
+U.S. distribution center.
+13
+Table of Contents 
+Patents and Trademarks 
+We now hold 16 U.S. patents, two patents in each of
+Australia and China and one patent in each of Canada, New
+Zealand, South Korea, Germany, France, Japan and the United
+Kingdom for Teva footwear. In addition, we have pending patent
+applications in Australia, Hong Kong, Mexico, Germany, France,
+Belgium, Luxembourg, the Netherlands, Italy, Switzerland, the
+United Kingdom and the U.S. Our U.S. patent for the Teva
+Universal Strapping System, which is used in most of our Teva
+sandals, expires in 2007. As a result of the expiration of the
+applicable period during which foreign patent applications were
+required to have been filed by the former licensor, we do not
+and cannot hold certain patent rights for Teva footwear in
+certain countries. We also currently hold Teva trademark
+registrations in the U.S. and in many other countries, including
+France, Germany, the United Kingdom, Japan and Australia. We
+regard our proprietary rights as valuable assets and vigorously
+protect such rights against infringement by third parties.
+Deckers and its predecessor, Mark Thatcher, have successfully
+enforced their intellectual property rights in the courts and
+other forums, obtaining numerous judgments, consent judgments
+and settlement agreements that uphold the validity of
+Deckers’ patent, trademark and trade dress rights.
+We currently hold UGG trademark registrations in the U.S. and in
+more than 40 other countries, including the countries in the
+European Community, Canada, Japan and Australia, among others.
+We also hold various Simple trademark registrations around the
+world, including registrations in the U.S. and in more than 40
+foreign countries worldwide. We have also selectively registered
+style category names and marketing slogans. In addition, we hold
+two design patents for our Simple footwear products and have two
+pending design patent applications for UGG footwear products.
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters, while the quarter with the
+highest percentage of annual net sales for Simple has varied
+from year to year. With the dramatic growth in UGG in recent
+years, combined with the introduction of a fall Teva line, net
+sales in the last half of the year have exceeded that for the
+first half of the year. Given our expectations for each of our
+brands in 2005, we currently expect this trend to continue.
+Nonetheless, actual results could differ materially depending
+upon consumer preferences, availability of product, competition
+and our customers continuing to carry and promote our various
+product lines, among other risks and uncertainties. See
+“Risk Factors.”
+Backlog 
+Historically, we have encouraged our customers to place, and we
+have received, a significant portion of orders as pre-season
+orders, generally four to eight months prior to shipment date.
+We provide customers with incentives to participate in such
+pre-season 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 and do not represent
+firm orders. The backlog as of a particular date is affected by
+a number of factors, including seasonality, manufacturing
+schedule and the timing of shipments of products 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.
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are
+highly competitive. We compete with numerous domestic and
+foreign footwear designers, manufacturers and marketers. Our
+Teva footwear line primarily competes with Nike, adidas-Salomon,
+Timberland, Merrell and Columbia Sportswear. Our UGG footwear
+line primarily competes with Merrell, Acorn, Aussie Dogs,
+LB Evans and Timberland, as well as retailers’ own
+private label footwear. In addition, due to the popularity of
+our UGG products, we face increasing competition from a
+significant number of competitors selling “knock-off
+“products. Our Simple footwear line primarily competes with
+Steve Madden, Dr. Marten, Camper, Kenneth Cole, Skechers,
+Diesel,
+14
+Table of Contents 
+Guess? and Puma. Some of our competitors are significantly
+larger and have significantly greater resources than we do.
+Our three footwear lines compete primarily on the basis of brand
+recognition and authenticity, product quality and design,
+functionality and performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and preferences by offering
+innovative, attractive and exciting products; 
+• 
+anticipate and respond to changing consumer demands in a timely
+manner; 
+• 
+maintain brand authenticity; 
+• 
+develop high quality products that appeal to consumers; 
+• 
+appropriately price our products; 
+• 
+provide strong and effective marketing support; and 
+• 
+ensure product availability. 
+We believe we are particularly well positioned to compete in the
+footwear industry. Our diversified portfolio of footwear brands
+and products allows us to operate a business that does not
+depend on any one demographic group, merchandise preference or
+product trend. We have developed a portfolio of brands that
+appeals to a broad spectrum of consumers. 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, 2004, we employed approximately
+156 full-time employees in our U.S. facilities and
+31 full-time employees located in China and Macau, none of
+whom is represented by a union. We believe our relationships
+with our employees are good.
+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 Securities and Exchange Commission
+(“SEC”): annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K and
+any amendment to those reports filed or furnished pursuant to
+Section 13(a) 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 450 Fifth
+Street, NW, 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 that
+contains reports, proxy and information statements, and other
+information regarding issuers that file electronically with the
+SEC. The address of that site is www.sec.gov .
\ No newline at end of file
diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/item13.txt b/raw/filings/0000910521/2004/0000950129-05-002490/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c3ddee69b4dce09e7877c21878ba4c6d61f3fa79
--- /dev/null
+++ b/raw/filings/0000910521/2004/0000950129-05-002490/item13.txt
@@ -0,0 +1,11 @@
+Item 13. 
+Certain Relationships and Related Transactions 
+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 2005 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, 2004, and such information is
+incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/item9a.txt b/raw/filings/0000910521/2004/0000950129-05-002490/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..744d054209491c3b092f3a3e42341dae8c9d1d91
--- /dev/null
+++ b/raw/filings/0000910521/2004/0000950129-05-002490/item9a.txt
@@ -0,0 +1,106 @@
+Item 9A. 
+Controls and Procedures 
+The Company’s Chief Executive Officer, Douglas B. Otto, and
+Chief Financial Officer, M. Scott Ash, with the participation of
+the Company’s management, carried out an evaluation of the
+effectiveness of the Company’s disclosure controls and
+procedures pursuant to Exchange Act Rule 13a-15(e). Based
+upon that evaluation, the Chief Executive Officer and the Chief
+Financial Officer believe that, as of the end of the period
+covered by this report, the Company’s disclosure controls
+and procedures are effective in making known to them material
+information relating to the Company (including its consolidated
+subsidiaries) required to be included in this report.
+Disclosure controls and procedures, no matter how well designed
+and implemented, can provide only reasonable assurance of
+achieving an entity’s disclosure objectives. The likelihood
+of achieving such objectives is affected by limitations inherent
+in disclosure controls and procedures. These include the fact
+that human judgment in decision-making can be faulty and that
+breakdowns in internal control can occur because of human
+failures such as simple errors, mistakes or intentional
+circumvention of the established processes.
+Although there were no significant changes to our internal
+controls or in other factors that could significantly affect our
+internal controls subsequent to the Evaluation Date, we have
+completed our efforts regarding compliance with Section 404
+of the Sarbanes- Oxley Act of 2002 for our fiscal year ending
+47
+Table of Contents 
+December 31, 2004. The results of our evaluation are
+discussed below in the Report of Management on Internal Control
+Over Financial Reporting.
+This effort included internal control documentation and review
+under the direction of senior management. During the course of
+our evaluation, we reviewed identified data errors and control
+problems and confirmed that appropriate corrective actions,
+including process improvements, were undertaken. These
+improvements included formalization of policies and procedures,
+improved segregation of duties and additional monitoring
+controls. Many of the components of our internal controls are
+also evaluated on an ongoing basis by members of our
+organization. The overall goals of these various evaluation
+activities are to monitor our internal controls, and to modify
+them as necessary. Our intent is to maintain the internal
+controls as dynamic systems that change as conditions warrant.
+REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
+REPORTING 
+Management of Deckers Outdoor Corporation (the
+“Company”) is responsible for establishing and
+maintaining adequate internal control over financial reporting
+as defined in Rules 13a-15(f) and 15d-15(f) under the
+Securities Exchange Act of 1934. The 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 accounting principles
+generally accepted in the United States of America. Internal
+control over financial reporting includes those written policies
+and procedures that:
+• 
+pertain to the maintenance of records that, in reasonable
+detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the Company; 
+• 
+provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in
+accordance with accounting principles generally accepted in the
+United States of America; 
+• 
+provide reasonable assurance that receipts and expenditures of
+the Company are being made only in accordance with authorization
+of management and directors of the Company; and 
+• 
+provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use or disposition of
+assets that could have a material effect on the consolidated
+financial statements. 
+Internal control over financial reporting includes the controls
+themselves, as well as the monitoring of practices and actions
+taken to correct deficiencies as identified.
+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.
+Management assessed the effectiveness of the Company’s
+internal control over financial reporting as of
+December 31, 2004. 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. 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, 2004, the Company maintained effective
+internal control over financial reporting.
+KPMG LLP, independent registered public accounting firm, who
+audited and reported on the consolidated financial statements of
+the Company included in this report, has issued an attestation
+report on management’s assessment of internal control over
+financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/rp_note.txt b/raw/filings/0000910521/2004/0000950129-05-002490/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2004/0000950129-05-002490/rpt_disclosure.txt b/raw/filings/0000910521/2004/0000950129-05-002490/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bb877ddb6c4026f0635925c3bca421937e4d8a64
--- /dev/null
+++ b/raw/filings/0000910521/2004/0000950129-05-002490/rpt_disclosure.txt
@@ -0,0 +1,39 @@
+Certain Relationships and Related Transactions 
+Transactions with Directors 
+Daniel L. Terheggen, a member of the Company’s Board of
+Directors, is a 50% owner and Chief Executive Officer of BHPC
+Global Licensing, Inc. The Company paid BHPC Global Licensing,
+Inc. an aggregate of approximately $118,000 for agency fees
+related to licensing of the Company’s products during 2005.
+In 1993, the Company and Douglas B. Otto, Chairman of the Board,
+entered into a split dollar life insurance arrangement, whereby
+the Company participated in a portion of the life insurance
+premiums paid through 2001. The arrangement provided that
+Mr. Otto’s estate would reimburse the Company for all
+premiums previous paid. In 2005, Mr. Otto reimbursed the
+Company for all premiums paid on his behalf. The Company carried
+the value of the life insurance policy at its cash surrender
+value, which was lower than the amount of premiums paid on the
+policy. As a result, the Company recognized a gain of $260,000
+in 2005 upon settlement and receipt of the reimbursement.
+Limitation of Liability and Indemnification of Directors
+and Officers 
+Our Certificate of Incorporation and Bylaws provide that we
+shall indemnify directors and executive officers to the fullest
+extent now or hereafter permitted by the Delaware General
+Corporation Law (the “DGCL”). In addition, we entered
+into Indemnification Agreements with our directors and executive
+officers in which we agree to indemnify such persons to the
+fullest extent now or hereafter permitted by the DGCL.
+We have obtained a liability policy for our directors and
+officers as permitted by the DGCL which extends to, among other
+things, liability arising under the Securities Act of 1933, as
+amended.
+We maintain an insurance policy pursuant to which our directors
+and officers are insured, within the limits and subject to the
+limitations of the policy, against specified expenses in
+connection with the defense of claims, actions, suits or
+proceedings, and liabilities which might be imposed as a result
+of such claims, actions, suits or proceedings, that may be
+brought against them by reason of their being or having been
+directors or officers.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/filing.txt b/raw/filings/0000910521/2005/0000950129-06-002462/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..31bc9f192f590630a328aaeb531b3c28df94b3de
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+++ b/raw/filings/0000910521/2005/0000950129-06-002462/filing.txt
@@ -0,0 +1,7550 @@
+10-K
+1
+v18036e10vk.htm
+DECKERS OUTDOOR CORPORATION - 12/31/2005
+e10vk 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE
+COMMISSION 
+Washington, D.C.
+20549 
+FORM 10-K 
+(Mark one) 
+þ
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
+SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended
+December 31, 2005 
+OR 
+o
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
+SECURITIES EXCHANGE ACT OF 1934 
+For the transition period
+from 
+to 
+Commission File
+No. 0-22446 
+DECKERS OUTDOOR
+CORPORATION 
+(Exact name of registrant as
+specified in its charter) 
+Delaware 
+95-3015862 
+(State or other jurisdiction
+of 
+incorporation or organization) 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue,
+Goleta, California 
+(Address of principal
+executive offices) 
+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 
+None 
+None 
+Securities registered pursuant to Section 12(g) of the
+Act: 
+Common Stock, $0.01 par value 
+(Title of Class) 
+Indicate by check mark if the registrant is a well-known
+seasoned issuer, as defined in Rule 405 of the Securities
+Act. Yes þ No o
+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 o No þ
+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 þ No o
+Indicate by check mark if disclosure of delinquent filers
+pursuant to Item 405 of
+Regulation S-K 
+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. o
+Indicate by check mark whether the registrant is a large
+accelerated filer, an accelerated filer, or a non-accelerated
+filer. See definition of “accelerated filer and large
+accelerated filer” in
+Rule 12b-2 
+of the Exchange Act.
+Large accelerated
+filer o Accelerated
+filer þ Non-accelerated
+filer o
+Indicate by check mark whether the registrant is a shell company
+(as defined in
+Rule 12b-2 
+of the Exchange
+Act). Yes o No þ
+The aggregate market value of the common stock held by
+non-affiliates of the registrant was $259,438,168 based on the
+June 30, 2005 closing price of $24.60 on the Nasdaq
+National Market on such date.
+The number of shares of the registrant’s Common Stock
+outstanding at February 28, 2006 was 12,464,856.
+DOCUMENTS
+INCORPORATED BY REFERENCE 
+Portions of registrant’s definitive proxy statement
+relating to registrant’s 2006 annual meeting of
+stockholders, which will be filed pursuant to
+Regulation 14A within 120 days after the end of
+registrant’s fiscal year ended December 31, 2005, are
+incorporated by reference in Part III of this Form
+10-K. 
+DECKERS
+OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31, 2005 
+Table of Contents to Annual Report on
+Form 10-K 
+Page 
+PART I 
+Item 1. 
+Business 
+4
+Item 1A. 
+Risk Factors 
+17
+Item 1B. 
+Unresolved Staff
+Comments 
+28
+Item 2. 
+Properties 
+29
+Item 3. 
+Legal
+Proceedings 
+29
+Item 4. 
+Submission of
+Matters to a Vote of Security Holders 
+29
+PART II 
+Item 5. 
+Market for
+Registrant’s Common Equity, Related Stockholder Matters and
+Issuer Purchases of Equity Securities 
+30
+Item 6. 
+Selected Financial
+Data 
+31
+Item 7. 
+Management’s
+Discussion and Analysis of Financial Condition and Results of
+Operations 
+33
+Item 7A. 
+Quantitative and
+Qualitative Disclosures about Market Risk 
+48
+Item 8. 
+Financial
+Statements and Supplementary Data 
+49
+Item 9. 
+Changes in and
+Disagreements with Accountants on Accounting and Financial
+Disclosure 
+49
+Item 9A. 
+Controls and
+Procedures 
+49
+Item 9B. 
+Other
+Information 
+50
+PART III 
+Item 10. 
+Directors and
+Executive Officers of the Registrant 
+50
+Item 11. 
+Executive
+Compensation 
+50
+Item 12. 
+Security Ownership
+of Certain Beneficial Owners and Management and Related
+Stockholder Matters 
+50
+Item 13. 
+Certain
+Relationships and Related Transactions 
+51
+Item 14. 
+Principal
+Accountant Fees and Services 
+51
+PART IV 
+Item 15. 
+Exhibits and
+Financial Statement Schedules 
+51
+Signatures 
+55
+Exhibit 21.1 
+Exhibit 23.1 
+Exhibit 31.1 
+Exhibit 31.2 
+Exhibit 32.1 
+3
+Table of Contents 
+PART I 
+Item 1. 
+Business. 
+General 
+We are a leading designer, producer and brand manager of
+innovative, high-quality footwear and the category creator in
+the sport sandal and luxury sheepskin footwear segments. Our
+footwear is distinctive and appeals broadly to men, women and
+children. We sell our products through quality domestic
+retailers and international distributors and directly to
+end-user consumers through our websites, catalogs and retail
+outlet stores. Our primary objective is to build our footwear
+lines into global lifestyle brands with market leadership
+positions.
+We market our products under three proprietary brands:
+Teva. Teva is our outdoor lifestyle
+brand and the category creator for the sport sandal segment.
+Teva was created in the 1980’s to serve the demanding
+footwear needs of the professional river guide community, and
+this authentic heritage and commitment to function and
+performance remain core elements of the Teva brand. We have
+expanded Teva’s sport sandal line to include casual
+open-toe footwear, as well as hiking boots, trail running shoes,
+amphibious footwear and other rugged outdoor footwear styles.
+From 1985 until November 2002, we sold our Teva products under a
+license arrangement with Teva’s founder, Mark Thatcher. In
+November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly-owned corporation, Teva Sport
+Sandals, Inc. The acquisition enabled us to gain ownership of
+the Teva Internet and catalog business and allowed our brand
+managers to broaden the Teva line into attractive casual
+open-toe lines and rugged outdoor closed-toe footwear. This
+expansion of the Teva product line has increased the appeal of
+the brand and expanded our overall retail placement. The
+acquisition also enabled us to:
+• 
+eliminate significant royalties and other license costs;
+• 
+eliminate product line expansion constraints under our former
+license agreement;
+• 
+realize license opportunities for the Teva brand into additional
+brand-appropriate outdoor categories; and
+• 
+enhance our ability to recruit and retain key senior management.
+UGG. UGG is our luxury comfort brand
+and the category creator for luxury sheepskin footwear. Our UGG
+line has enjoyed several years of strong growth and positive
+consumer receptivity, driven by consistent introductions of new
+styles, introductions of UGG products in the fall and spring
+seasons and geographic expansion of distribution. We carefully
+manage the distribution of our in-line UGG products within
+high-end specialty and department store retailers in order to
+best reach our target consumers, preserve UGG’s retail
+channel positioning and maintain UGG’s position as a mid-
+to upper-price luxury brand.
+UGG gained brand recognition in the U.S. beginning in 1979
+and was adopted as a favored brand by the California surf
+community. We acquired UGG in 1995 and have carefully
+re-positioned the brand as a luxury comfort collection sold
+through high-end retailers. While our sales have grown steadily
+over the past eight years, over the past few years UGG has
+benefited from significant national media attention and
+celebrity endorsement through our marketing programs and product
+seeding activities, further raising the profile of UGG as a
+luxury comfort brand. We intend to further support UGG’s
+market positioning by carefully expanding the selection of
+styles available in order to build consumer interest in our UGG
+collection. We also remain committed to limiting distribution of
+UGG through high-end retail channels.
+Simple. Simple is our moderately priced
+“anti-brand,” serving the needs of a youthful,
+irreverent consumer base seeking the comfort of athletic
+footwear but the styling of more traditional, understated,
+“back-to-basics” 
+footwear. This youth brand has a diverse product offering
+ranging from its successful legacy categories of sneakers, clogs
+and sandals to its recently introduced “9 to 5”
+collection of casual footwear and its ecologically friendly
+Green Toe collection.
+Through continued innovation, expansion of product offerings,
+premium distribution and strategic marketing initiatives, we
+have successfully developed three premier lifestyle brands. Our
+net sales increased by 23.3%, from
+4
+Table of Contents 
+$214,787,000 in 2004 to $264,760,000 in 2005 and our income from
+operations increased by 23.1% from $42,462,000 in 2004 to
+$52,268,000 in 2005. For 2005, wholesale shipments of Teva, UGG
+and Simple aggregated $80,446,000, $150,279,000 and $6,980,000,
+respectively, and represented 30.4%, 56.8% and 2.6% of our total
+net sales, respectively. Sales of our brands through our
+Consumer Direct division (which includes our Internet, catalog
+and retail outlets), which are in addition to our wholesale
+shipments, were $27,055,000 representing 10.2% of total net
+sales in 2005.
+History 
+We were founded by Doug Otto in 1973 as a domestic manufacturer
+of sandals. We originally manufactured a single line of sandals
+under the Deckers’ brand name in a small factory in
+Carpinteria, California. Since then, we have grown through the
+development and licensing of proprietary technology, targeted
+marketing and selective acquisitions. In 1985, we entered into
+our first license agreement for Teva sport sandals with
+Teva’s founder, Mark Thatcher. In 1986, we developed the
+Universal Strapping System, establishing Teva as the sport
+sandal category-creator and generating significant national
+attention for the Teva brand.
+We experienced a period of rapid growth during the late
+1980’s and completed our initial public offering in 1993.
+As our sales grew, we terminated our manufacturing operations in
+the United States, Mexico and Costa Rica, and today independent
+manufacturers in the Far East, New Zealand and Australia
+manufacture all of our footwear products for us. We maintain our
+own offices in China and Macau to monitor the operations of our
+Far East manufacturers.
+In order to diversify our sales and leverage our product
+development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva products under a
+licensing arrangement with Teva’s founder, Mark Thatcher.
+In November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly owned corporation, Teva Sport
+Sandals, Inc. The Teva Rights include the Teva Internet and
+catalog business and all patents, trade names, trademarks and
+other intellectual property associated with the acquired Teva
+assets.
+Business
+Strategies 
+We seek to differentiate our brands by offering diverse lines
+that emphasize authenticity, functionality, quality and comfort
+and products tailored to a variety of activities and demographic
+groups. Key elements of our business strategies are:
+Build Leading Global Brands. Our
+mission is to build niche footwear lines into global brands with
+market leadership positions. Our Teva and UGG brands began as
+footwear lines appealing to a narrow core enthusiast market. We
+have since built these lines into substantial global lifestyle
+brands with significant potential for further growth and line
+extension. Across our brands, our styles remain true to the
+brands’ heritage but have been selectively extended over
+time to broaden their appeal to men, women and children seeking
+high quality, comfortable styles for everyday use. Furthermore,
+we actively manage our brands to ensure that we reach brand
+appropriate retail distribution channels. We believe that
+building our brand image is best accomplished through a
+decentralized management structure that empowers a single brand
+manager for each brand to coordinate all aspects of brand image,
+from product development to marketing and retail channel
+management.
+Sustain Brand Authenticity. We believe
+our ability to grow our brands, sustain strong gross margins and
+maintain strong market share results, in part, from consumer
+loyalty to the heritage of our brands. We believe Teva consumers
+are passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy
+5
+Table of Contents 
+highlights the brand’s positioning as functional footwear,
+but also as a premium, luxury collection. UGG is primarily
+marketed through national print advertising in major magazines
+and through our retailers and their catalogs and advertising.
+Historically, our marketing for UGG has been focused on women,
+but with the recent introduction of new innovative men’s
+styles, we are increasing our marketing appeal to men through
+advertisements in national men’s magazines with a continued
+focus on lifestyle and comfort. We promote our Simple brand by
+emphasizing Simple’s “feel good” lifestyle
+philosophy. Our key marketing objective for Simple is to
+reintroduce the brand to the marketplace by creating a dialogue
+with our consumer through our viral marketing and media plan
+initiatives. We have focused our print advertising campaigns to
+include niche national publications and alternative weekly
+publications in select cities both domestically and
+internationally.
+Drive Demand Through Innovation and Technical
+Leadership. We believe our reputation for
+innovation and technical leadership distinguishes our Teva and
+UGG products from those of our competitors and provides us with
+significant competitive advantages. Our proprietary Universal
+Strapping System launched Teva’s popularity in the
+mid-1980’s. Recent technical advances in our Teva footwear
+include our Liquid Frame Technology, our Wraptor technology and
+our Wraptor-Lite technology, all designed to provide maximum
+stability, support and comfort under rugged usage. We continue
+to develop proprietary rubber compounds for our Teva offering,
+including our original Spider Rubber — a sticky
+non-slip rubber outsole material for use across wet and dry
+terrain; SSR — a super sticky rubber compound for
+use specifically in extreme water conditions to provide superior
+grip on smooth wet surfaces, like rocks, fiberglass, and raft
+rubber; and Spider XC — an off-road hybrid that
+combines the non-slip traction of Spider Rubber with durability
+for use in both wet and dry conditions. In recent years, we have
+developed Teva closed-toe footwear, including several styles
+incorporating
+Vibram ® 
+soles and
+Gore-Tex ® 
+fabrics. We also continue to develop innovative styles, products
+and product categories for our UGG collection in order to
+support UGG’s positioning as a functional lifestyle brand,
+which can be worn in a variety of climates and weather
+conditions. UGG has benefited from our continuing expansion into
+non-boot casuals, sheepskin-trimmed footwear and styles
+combining sheepskin with fine-grade suede and leathers, all
+designed to expand our market share in new categories and
+increase our sales in both the fall and spring selling seasons.
+In fact, for Spring 2006, UGG is introducing its first ever line
+of open-toe sandals and slides in a variety of styles and
+colorways that incorporate thin layers of sheepskin for added
+comfort and luxury.
+Maintain Efficient Development and Production
+Process. We believe our product development
+processes enable us to produce leading edge products on a timely
+and a cost effective basis. We design our products domestically.
+We maintain
+on-site 
+supervisory offices in Pan Yu City, China and Macau that serve
+as local links to our independent manufacturers in the Far East,
+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.
+Growth
+Strategies 
+Our growth will depend upon our broadening of the products
+offered under each brand, growing domestic and expanding
+international distribution, licensing our brand names and
+developing or acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under Existing
+Brands. We intend to increase our sales by
+developing and introducing additional footwear products under
+our existing brands that meet our high standards of performance,
+practicality, authenticity, comfort and quality. We have
+expanded Teva’s open-toe footwear category by launching new
+casual and performance styles, as well as several new sandal
+styles providing full foot coverage and protection. We have also
+introduced several closed-toe lines under the Teva brand,
+including amphibious footwear, hikers, trail runners and other
+rugged outdoor footwear. We plan further expansion into the
+light-hiking, trail running and rugged outdoor arenas, where the
+aggregate market is considerably greater than the market size
+for Teva’s core sport sandals. We have expanded our UGG
+collection to incorporate additional styles and fabrications in
+order to further penetrate the fall, spring and winter seasons.
+We have expanded our men’s and kids’ business and have
+introduced a cold-weather series featuring sheepskin and
+Gore-Tex ® .
+For Spring 2006, we are introducing a new line of open-toe
+sandals and slides that incorporate
+6
+Table of Contents 
+a thin layer of sheepskin for added luxury and comfort while our
+Fall 2006 line includes a variety of new categories and
+fabrications, including a new fashion category of Italian
+designed footwear for both men and women. We expect to grow our
+Simple brand through continued focus on our heritage clog and
+sneaker categories for men and women as well as the expansion of
+new categories like the Green Toe collection of ecologically
+friendly footwear made entirely of 100% natural materials,
+water-based glues and soy-based dyes. By introducing new
+categories under our brands, in particular, the closed-toe
+footwear under Teva and the spring product offerings under UGG,
+we believe we will expand the selling seasons for our brands
+which will result in increased sales and will contribute to a
+more balanced year round business for each of these brands.
+Grow Domestic Distribution. We believe
+that we have significant opportunities to increase our sales by
+growing domestic distribution of our products. Our Teva brand
+has historically been distributed through the outdoor specialty,
+sporting goods and department store retail channels. We believe
+we have the opportunity, through refocused marketing programs
+and innovative product introductions, to expand our retail
+presence in each of these channels. In addition, we have
+identified the potential for expansion into specialty running
+retailers, who we believe would fit well with our authentic
+trail-running product offering. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+several years we have experienced increasing demand for UGG
+distribution outside California, and we have grown our business
+dramatically in the Midwest and North East. For Simple, we are
+focusing distribution on the specialty independent retailers,
+department stores, and outdoor retailers for our broad product
+offering, as well as the introduction into the health and
+wellness retail channel through our Green Toe offering of
+ecologically friendly footwear.
+Expand International Distribution. In
+2005, our international net sales totaled $35,273,000,
+representing approximately 13.3% of total net sales. Given the
+strength of our brands, we believe significant opportunities
+exist to market our products abroad, and we intend to
+selectively expand their distribution worldwide. In order to
+pursue these opportunities, in the latter part of 2005, we
+embarked on an international expansion strategy including a
+recently established international organization reporting
+directly to our Chief Executive Officer and we have hired a Vice
+President of International Operations to head up this
+organization. As part of this new strategy, we are setting up
+the necessary international infrastructure including offices in
+Europe and in Asia, for the coordination of our sales,
+distribution, marketing and advertising efforts in these
+markets. We believe that by transitioning to this more
+globally-focused structure and by identifying and hiring strong
+talented personnel for our international operations, we will be
+well-suited to realize solid international growth over the next
+few years.
+Pursue Licensing of Brands in Complementary Product
+Lines. We are pursuing selective licensing of
+our brand names in product categories beyond footwear. In 2004,
+we embarked on our UGG licensing program with the introduction
+of UGG licensed handbags and outerwear for the domestic market,
+which were delivered in the Fall 2004 season. In 2005, we
+successfully launched UGG cold weather accessories, which began
+delivery in the Fall 2005 season. We initiated expansion of our
+domestic UGG licenses into select international markets,
+beginning with UGG handbags in 2005 and are pursuing
+international expansion of our cold weather accessories and
+outerwear licenses for 2006. We also restructured our domestic
+Teva licensing program, which currently consists of
+U.S. licenses for men’s and women’s headwear and
+socks, a Canadian license for sportswear, and a newly signed
+U.S. license for bags and packs which will begin deliveries
+in the Spring 2007 season. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. Because this
+licensing strategy is in its early stages, and due to the lead
+times required to bring the products to market, we have only
+recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have projected and if we are
+able to continue to add new complementary licenses over time.
+For the years ended December 31, 2004 and 2005, we
+recognized net license revenues of $950,000 and $1,074,000,
+respectively.
+Build New Brands. We continue to
+explore ways to expand the number of brands managed by the
+Company. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing
+7
+Table of Contents 
+our expertise in product development, production and marketing.
+We intend to continue to identify and build new brands that
+demonstrate potential for significant future growth.
+Products 
+Our primary product lines are:
+Teva Sport Sandals and
+Footwear. “The brand of choice for the
+new outdoor athlete.” We believe there has been a general
+shift in consumer preferences and lifestyles to include more
+outdoor recreational activities, including hiking, trail
+running, bouldering, kayaking, kite boarding and whitewater
+river rafting. These consumers typically seek footwear
+specifically designed with the same quality and high performance
+attributes they have come to expect from traditional athletic
+footwear. The first Teva sport sandal was developed in the
+1980’s to meet the demanding needs of professional rafting
+guides navigating the Colorado River and the rugged Grand Canyon
+terrain. As our core consumers’ pursuits have evolved, we
+have retained our outdoor heritage while adding new products to
+our line, including slides, thongs, amphibious footwear, trail
+running shoes, hiking boots and rugged closed-toe footwear. Our
+brand remains popular among professional and amateur outdoorsmen
+seeking authentic, performance-oriented footwear, as well as
+general footwear consumers seeking high quality, durable and
+comfortable styles for everyday use.
+Our Teva line comprises six core footwear collections:
+Originals. The Originals Series is a
+collection of sandals and thongs utilizing Teva’s classic
+rugged architecture. The Originals Series leverages the Teva
+brand heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Many of our Originals feature our proprietary
+Universal Strapping System, designed to hold the foot firmly in
+place, and are constructed with high quality nylon webbing,
+molded EVA midsoles and outsoles featuring Teva’s
+proprietary rubber compounds. Our U.S. patent on our Universal
+Strapping System, which we utilize in many of our most popular
+Teva sandals, expires in September 2007.
+Hydro. The Hydro Series builds upon our
+legacy as the category leader in whitewater-designed footwear.
+Hydro consists of sandals and closed-toe amphibious footwear
+built for high performance and rugged outdoor use. This series
+includes men’s and women’s sport sandals and other
+outdoor footwear ideal for professional and amateur outdoor
+enthusiasts and adventurers. Our Hydro Series incorporates many
+proprietary technologies including our Wraptor, Universal, and
+Liquid Frame fit technologies as well as three versions of our
+specially formulated proprietary sticky rubber
+compounds — River
+Rubber tm ,
+Spider
+Rubber tm 
+and
+SSR tm .
+Terrain. The Terrain Series is a line
+of sandals and closed-toe footwear that incorporates Teva
+technologies and is designed for use in rugged outdoor
+environments such as trails and canyons. The Terrain Series
+includes performance running sandals and trail running shoes. To
+meet our consumers’ expanded needs and to provide them with
+the best product possible, we have utilized quick drying
+monofilament materials to provide light weight, breathable
+uppers and have created Spider
+XC tm 
+outsoles to maximize traction and durability for rugged terrain
+conditions. In this category, we also partner with many of the
+world’s leading providers of footwear technology for
+specialty component materials, including
+Vibram ® 
+and
+Gore-Tex ® .
+Nomadic. Our Nomadic Series is a
+collection of leather casual sandals and closed-toe footwear
+true to Teva’s performance-oriented outdoor heritage but
+designed for more casual use. The Nomadic Series provides our
+legendary sandal comfort in closed shoes through proprietary
+comfort technologies including our Shoc-Sock
+tm ,
+a cushioning footbed, designed in cooperation with Ortholite, as
+well as our Mush
+tm 
+footbed system. The collection includes men’s and
+women’s leather sandals and shoes inspired by our technical
+offering giving the consumer contemporary styles for rugged
+travel or everyday adventure.
+Sun and Moon. Our Sun and Moon Series
+features fun, youthful and colorful slides and thongs in a
+variety of materials including waterproof leather, nylon and
+suede. The Sun and Moon Series is designed to leverage our
+sandal-making capabilities and to appeal to fashion-oriented
+consumers seeking pre-activity and post-activity footwear
+alternatives that express a casual lifestyle and individual
+spirit. The Sun and Moon
+8
+Table of Contents 
+offering also provides our retailers a unique way to display and
+sell footwear on our Teva Mush Rack, a point of purchase display
+designed to maximize the retailers’ sales per square foot.
+Kids and Infants. Our children’s
+series is an assortment of sandals incorporating a variety of
+materials including leather, waterproof suede, nylon, neoprene
+and mesh, as well as slip-on water shoes and other styles of
+amphibious footwear. In addition, in the Fall of 2006, we are
+offering a
+back-to-school 
+collection of casual closed toe shoes that are inspired by some
+of our most successful adult rugged casuals.
+We intend to continue to build upon Teva’s broad and deep
+line of performance and casual footwear. Our Spring 2006 line
+features 100 different product styles with manufacturer’s
+suggested domestic retail prices for adult sizes ranging from
+$22.00 to $120.00.
+UGG Footwear. “The premier brand in
+luxury and comfort.” Beginning in 1979, UGG gained brand
+recognition in the U.S. for sheepskin boots and slippers
+and was later adopted as a favored brand by the California surf
+community. We acquired the brand in 1995 and expanded the
+collection, offering consumers a luxurious and distinctive look
+in sheepskin fabrications.
+Our UGG product line comprises eight core footwear collections:
+Classic Collection. We offer a complete
+line of sheepskin boots built on the heritage and distinctive
+look of our first product, the Classic Sheepskin boot. Our
+Classic Collection products are distinctive in styling,
+featuring an array of neutral and fashion colors. Our Classic
+Collection includes styles for men, women and children.
+Ultra Collection. The Ultra Collection
+builds upon the heritage of our original Classic. These boots
+are designed with our comfort system, featuring a multi-surfaced
+lugged bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures. This collection features styles for
+men, women and children.
+Fashion Collection. Our Fashion
+Collection offers fashion forward styles for women and children
+without compromising comfort. Luxurious materials and
+trend-influenced stylings make this collection truly stand out.
+Silhouettes include several styles of boots featuring pockets,
+studs and laces, as well as styles featuring elements of classic
+country and western motifs.
+Driving Collection. This collection
+features refined, sophisticated styles for men and women. These
+footwear styles include suede and glove leather uppers, lined in
+a shorter eight millimeters of sheepskin for added comfort.
+Styles from the men’s collection feature an interchangeable
+leather insole that allows them to be worn either with or
+without socks.
+Surf Collection. This collection is
+taken from the laid-back surf lifestyle that was the original
+heritage of the brand. The Surf Collection, which is being
+introduced in Spring 2006, features true spring stylings
+including open toe sandals and slides that incorporate a thin
+layer of sheepskin for luxury and comfort.
+Cold Weather Collection. This
+collection is designed for men, women and children seeking more
+rugged styling. The Cold Weather line features
+Vibram ® 
+outsoles and waterproof
+Gore-Tex ® 
+uppers designed to withstand colder, wetter climates.
+Fluff Momma Collection. This is our
+most playful and distinctive style for women. The Fluff Momma
+features untrimmed and colored sheepskin fleece exposed on the
+entire boot.
+Slipper Collection. Our popular Slipper
+Collection builds upon the UGG reputation for comfort, warmth
+and luxury. We offer a wide selection of styles and colors for
+men, women and children.
+We have expanded our UGG collection from the Classic Sheepskin
+boot to a broad footwear line for men, women and children in a
+variety of styles, colors and materials designed for wear in a
+variety of climates and occasions. Over the last few years, our
+line expansion strategies have resulted in significantly
+increased exposure for
+9
+Table of Contents 
+our UGG collection and have contributed to the growth of
+UGG’s year round business. The manufacturer’s
+suggested domestic retail prices for adult sizes for the Fall
+2006 UGG collection range from $55.00 to $400.00.
+Simple Casual Footwear. “The brand
+of choice for a feel good lifestyle.” The Simple brand
+bridges the gap between casual lifestyle and athletic brands.
+Simple’s goal is to offer products that feel great from a
+comfort standpoint while creating an emotional experience and
+connection with the consumer. The Simple line of casual shoes
+combines the comfort of athletic footwear construction with the
+simple, understated styling of
+“back-to-basics” 
+casual footwear by offering fun products with high quality at a
+great value.
+Our product line is comprised of these six key categories, which
+range in price from $22.00 to $140.00:
+Sneakers. The men’s and
+women’s sneaker collection is the largest category of the
+Simple product offering. The Simple sneaker offering is
+positioned in the marketplace as the alternative to the
+“over-hyped” and “over–teched” sneaker
+brands that currently saturate the market. We’ve introduced
+several new sneaker styles that incorporate a sneaker specific
+pedbed tm ,
+crepe rubber outsoles, and leather and suede uppers.
+Clogs. The clog category is iconic for
+the Simple brand. Building on the heritage of our original
+clogs, our current clog series features the
+pedbed tm 
+and updated material and color options. For the Spring 2006
+season we have added several styles designed as clog-sandal
+hybrids, which we refer to as “Clandals.”
+Sandals: We offer a range of warm
+weather footwear for men and women in rich leathers and colorful
+nubucks. We also offer a flip-flop program that caters to the
+surf channel of distribution.
+“9 to 5” Casuals: “9 to
+5” is a men’s and women’s collection of casuals
+incorporating full-grain leathers and nubucks, natural crepe and
+rubber. This new line debuts in Fall 2006.
+Green
+Toe tm : The
+Green
+Toe tm 
+segment represents an effort on the part of Simple to reduce the
+ecological footprint made by shoes around the world. All Green
+Toe products are made with 100% natural materials (textiles and
+rubbers), use water-based glues, and soy-based dyes. For Spring
+2006, we’ve added sandals to the collection and for Fall
+2006 we’ve further expanded the line with several new
+styles including a Wallabee inspired silhouette called the
+Sloppy Toe and the first real green sneaker, the Play Toe.
+Kids: For Fall 2006, we are introducing
+a new children’s offering of select styles based on popular
+adult styles.
+Licensing 
+To capitalize on the strength of our brands, we are pursuing the
+licensing of our brand names for use in complementary product
+categories beyond footwear. For the year ended December 31,
+2004 and 2005, we recognized net license revenues of
+approximately $950,000 and $1,074,000, respectively.
+In 2004, we embarked on our UGG licensing program with the
+introduction of UGG licensed handbags and outerwear for the
+domestic market, which were delivered in the Fall 2004 season.
+In 2005, we successfully launched UGG cold weather accessories,
+which began delivery in the Fall 2005 season. We initiated
+expansion of our domestic UGG licenses into select international
+markets, beginning with UGG handbags in 2005 and are pursuing
+international expansion of our cold weather accessories and
+outerwear licenses for 2006. We also restructured our domestic
+Teva licensing program, which currently consists of
+U.S. licenses for men’s and women’s headwear and
+socks, a Canadian license for sportswear, and a newly signed
+U.S. license for bags and packs which will begin deliveries
+in the Spring 2007 season.
+Because our licensing program is in its early stages, and due to
+the lead times required to bring the products to market, we have
+only recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have projected and if we are
+able to add new complementary licenses over time.
+BHPC Global Licensing, Inc. is a full service licensing agency
+that we initially used to assist us in identifying licensing
+candidates and coordinating our licensing business until August
+2004, when we began to do this in-house. We pay BHPC an agency
+fee on royalty income that we receive related to licensing
+agreements that BHPC
+10
+Table of Contents 
+coordinated on our behalf. In 2005, we paid BHPC approximately
+$118,000 in agency fees. BHPC is 50% owned by one of our
+directors, Daniel L. Terheggen.
+Products made under license are sold primarily through the same
+retail channels as our footwear product offering. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and
+Distribution 
+We distribute our products in the United States. through a
+dedicated network of approximately 41 independent sales
+representatives. Our sales representatives are organized
+geographically and visit retail stores to communicate the
+features, styling and technology of our products. In addition,
+we have three employee sales representatives who serve as key
+account executives for several of our largest customers.
+Until mid-2005, our sales force was divided into two teams, one
+for Teva and one for UGG and Simple, as the UGG and Simple
+brands are generally sold through non-outdoor specialty and
+non-sporting goods distribution channels and are targeted toward
+a different consumer than our Teva brand. Beginning in mid-2005,
+however, we began to split the Simple and UGG sales forces into
+two distinct groups in order to provide Simple with its own
+dedicated sales function to improve its sales efforts and
+resources. While there is still some overlap between the Simple
+and UGG teams, we have begun to make the transition and are well
+on our way to having separate dedicated sales forces for each of
+our three brands. Each brand’s sales manager recruits and
+manages his or her network of sales representatives and
+coordinates sales to national accounts. We believe this approach
+for the U.S. market maximizes the selling efforts to our
+national retail accounts on a cost-effective basis.
+Internationally, we distribute our products through 31
+independent distributors. Beginning with the Fall 2005 season,
+all international shipments are made directly from our
+independent manufacturers to our independent distributors,
+although previously certain shipments to Europe were facilitated
+through third party distribution in the Netherlands.
+Our principal customers include specialty retailers, selected
+department stores, outdoor retailers, sporting goods retailers
+and shoe stores. Our five largest customers accounted for
+approximately 27.0% of our net sales for 2005, compared to 25.2%
+for 2004. An upscale department store based on the West Coast of
+the United States, which is a significant customer for each of
+our three brands, accounted for 14.1% of our net sales in 2004
+and 15.8% of our net sales in 2005. No other customer accounted
+for more than 10% of net sales in either year.
+Teva. We sell our Teva products
+primarily through specialty outdoor and sporting goods retailers
+such as REI, Eastern Mountain Sports, L.L. Bean, Dick’s
+Sporting Goods and The Sports Authority. We believe this retail
+channel is the first choice for athletes, enthusiasts and
+adventurers seeking technical and performance-oriented footwear.
+Furthermore, we believe that our Teva products are best sold by
+retailers who appreciate and can fully market the technical
+attributes of our products to the consumer. We also sell a
+limited selection of styles and special
+make-up Teva
+products through selected retailers in order to reach consumers
+who are less outdoor-oriented but who seek out our products due
+to their durability, comfort and fit.
+UGG. We sell our UGG products primarily
+through high-end department stores such as Nordstrom, Neiman
+Marcus and Marshall Field’s, as well as independent
+specialty retailers such as Fred Segal, The Tannery, David Z.
+and Sport Chalet. 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.
+Simple. Our Simple products are
+targeted primarily towards independent specialty retailers,
+select department stores, outdoor specialty accounts, and surf
+shops that target consumers seeking comfortable, high quality
+footwear at a fair price. Key accounts such as Shoe Biz, O’
+My Sole, Nordstrom, Parisians, REI, Adventure 16 and Hobie
+Sports cater to consumers in our
+demographic — men and women between the ages of
+21 and 35.
+In 2005, we distributed products sold in the United States.
+through our 126,000 square foot distribution center in
+Ventura, California and our 300,000 square foot
+distribution center in Camarillo, California. Our distribution
+centers feature an inventory management system that enables us
+to efficiently pick and pack products for direct shipment to
+retailers across the country. For certain customers requiring
+special handling, each shipment is
+11
+Table of Contents 
+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 rigorous quality inspection process.
+See the discussion of the cash flow cycle, inventories and other
+items of working capital under “Liquidity and Capital
+Resources”.
+Consumer
+Direct 
+Our Consumer Direct business includes our retail outlet stores
+and the retailing operations of our Internet and catalog
+business. We acquired the Internet and catalog business as part
+of the acquisition of the Teva Rights. The Consumer Direct
+business enables us to reach consumers through our Internet
+business under the Teva.com, UGGs.com, UGGAustralia.com and
+SimpleShoes.com Internet addresses, through direct mailings
+under our catalog business and through our two existing retail
+outlets in Camarillo, California and Ventura, California. Our
+mailing list includes approximately 385,000 consumers who have
+purchased at least once in the past 36 months. Our Internet
+and catalog business is headquartered in Flagstaff, Arizona and
+order fulfillment is performed by our wholesale distribution
+centers in Ventura and Camarillo, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs.
+Products sold through our Internet and catalog business are sold
+at prices which approximate retail prices, enabling us to
+capture the full retail margin on each direct transaction.
+Marketing
+and Advertising 
+Our brands are generally advertised and promoted through a
+variety of consumer print advertising campaigns. We benefit from
+highly visible 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 incurred approximately $6,594,000,
+$8,687,000 and $10,536,000 in advertising, marketing and
+promotional expenses in 2003, 2004 and 2005, respectively.
+Teva. We use several marketing methods
+to promote the Teva brand, including:
+• 
+a targeted print advertising campaign;
+• 
+promotions at a variety of festivals, events and competitions;
+• 
+sponsorship of national athletes and key events such as the Teva
+Whitewater Team, the Teva U.S. Mountain Running Team and
+the Teva Mountain Games;
+• 
+discount programs to professional river guides, kayakers,
+mountain bikers and rock climbers;
+• 
+product seeding with professional athletes; and
+• 
+in-store promotions.
+We advertise the Teva brand through the placement of print
+advertisements in leading outdoor magazines such as Outside,
+National Geographic Adventurer, Hooked on the Outdoors and
+Paddler. As we have added new product categories to
+the Teva brand, we have broadened our advertising presence to
+reach new consumers. To support our introduction of Teva trail
+running shoes, we advertise in Runner’s World, Trail
+Runner and Running Times, among other publications.
+We also advertise in more mainstream publications such as
+Men’s Journal, Yoga Journal, and Cargo in
+order to support our casual footwear lines.
+The Teva brand is closely associated with outdoor lifestyle
+pursuits such as river rafting, kayaking, mountain biking,
+hiking and trail running. We sponsor outdoor events in the U.S..
+including the Teva Mountain Games at Vail, the Teva Vail Trail
+Running Series, the Santa Cruz Surf Kayak Festival in Santa
+Cruz, California and the Reggae on the River event in
+Garberville, California, among others. Internationally, we
+sponsor outdoor events in France, Switzerland and Italy in order
+to increase our brand visibility to the core European outdoor
+consumer. We are also a promotional partner with Macgillivray
+Freeman for its documentary film “Mystery of the Nile”
+released in IMAX theaters in 2005, featuring exhilarating
+footage of Teva outfitted river rafting and kayaking. We believe
+our
+12
+Table of Contents 
+sponsorship of these events further links our Teva brand with
+its outdoor heritage and generates increased product exposure
+and brand awareness.
+We sponsor some of the world’s best male and female
+professional and amateur outdoor athletes across several sports.
+Our Teva promotional team attends events across the U.S. in
+dedicated,
+state-of-the-art 
+promotional vehicles prominently featuring our Teva logo. The
+promotions team showcases Teva products at events and provides
+consumers with the opportunity to see and sample our latest
+styles. We believe by outfitting and sponsoring these highly
+visible athletes and teams, we create brand and product
+awareness among our targeted consumers.
+UGG. We seek to build upon the success
+of our UGG national print advertising campaign. We currently
+advertise in upscale national magazines such as Vogue, Elle,
+and O Magazine. UGG Australia also began
+men’s focused advertising for its 2005 campaign, including
+print advertising in Outside, Men’s Journal, GQ, and
+Surfer. We believe such advertising is an
+effective means to target our intended consumers and to convey
+the comfort and luxury of UGG products. We also benefit from
+editorial coverage of the UGG collection. Articles have appeared
+in such magazines as Glamour, InStyle, Cosmopolitan, Marie
+Claire, People, US Weekly, Maxim, Shape, Self, O Magazine
+and Real Simple. In 2003, Footwear News, a
+leading industry trade publication, awarded UGG Australia
+“Brand of the Year.” In 2004, UGG was awarded
+“Brand of the Year” by Footwear Plus, another
+leading trade publication, and was recognized with the ACE Award
+for the “it” accessory of the year by the Accessories
+Council. In 2005, UGG Australia was awarded two product design
+awards by Footwear Plus in the categories of Women’s
+Streetwear and Women’s Gore-Tex. 
+We also actively seek to place UGG products at selected events.
+During the 2002 Winter Olympic Games we outfitted all of the
+children in the Children of the Light performance with UGG
+boots. During the Medal Ceremonies, Olympic staff presenting
+medals to the Olympic athletes also wore UGG boots. In
+collaboration with our Switzerland distributor, UGG produced a
+special edition cold weather boot featuring a matching
+red-outsole for the entire 2006 Swiss Olympic Team. We believe
+this product placement further strengthened the consumer’s
+image of UGG products as high quality, luxurious sheepskin goods
+well-suited for use in cold weather.
+We also have improved visibility of the UGG brand through
+placement of the product in selected television shows and
+feature films. UGG products have appeared on numerous shows,
+including Entourage, Six Feet Under, The Oprah Winfrey Show,
+Judging Amy, The King of Queens, Still Standing, Will and Grace,
+Everwood, The George Lopez Show, Jeopardy and Saturday
+Night Live. Our marketing efforts have also resulted in
+UGG product appearances in the following recent and upcoming
+feature films: In Her Shoes starring Cameron Diaz ,
+Fever Pitch starring Drew Barrymore and Jimmy Fallon and
+The Matador starring Pierce Brosnan. In addition, UGG has
+been embraced by Hollywood celebrities, who are often seen and
+photographed wearing UGG boots. This celebrity exposure for UGG
+has been the subject of recent publicity including articles in
+US Weekly, USA Today, People and
+People.com . UGG boots have been a featured
+item on the Oprah Winfrey “Oprah’s Favorite
+Things” gift show in 2000, 2003 and 2005 and her surprise
+baby shower for military families in 2004. We believe our target
+consumer identifies with celebrities and that greater exposure
+further heightens awareness of the brand and stimulates sales.
+Simple. The Simple consumer is best
+reached through a focused grassroots marketing approach that
+will introduce the brand to influential communities around the
+country. These marketing efforts will focus on the following
+cities: Los Angeles, San Francisco, New York City,
+Philadelphia, Chicago, Boulder, Austin and San Diego. In
+support of our grassroots initiatives, we will focus on
+advertising in alternative weekly publications, which will
+provide us with the opportunity to reach a large number of
+people through a non-mainstream medium. As part of its increased
+marketing efforts, Simple is also rolling out a national print
+advertising campaign targeted at various demographic groups,
+which will include print ads targeted at the ecologically-minded
+consumer through magazines like Ready-Made and UTNE
+Reader ; the fashion consumer through advertisements in
+Paper and Blackbook Magazine ; the surf crowd
+through Surfer, Surfing and Surfer’s Path ;
+and the outdoor consumer in magazines such as Mountain
+Gazette and Blue Ridge Outdoors Magazine. 
+Simple will continue to work with its public relations agency to
+get editorial placement of key styles in youth and trend
+magazines, television shows, independent films and with
+cutting-edge influential artists and musicians. Our efforts have
+resulted in product appearances in Plenty Magazine,
+Treehugger.com, Footwear News, Footwear Plus , Paper
+Magazine, Maxim, Nylon, and Lucky, and product
+appearances on VH1 and MTV. Simple also received a design award
+in 2005 from Footwear Plus in the Action Sport and
+Lifestyle Category.
+13
+Table of Contents 
+Product
+Design and Development 
+The design and product development staff for each of our brands
+creates and introduces new innovative footwear products that
+combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance technical products
+continue to satisfy the requirements of our historical consumer
+base of performance-oriented “core enthusiasts,” our
+design staff solicits input from our Team Teva whitewater
+athletes, the Teva U.S. Mountain Running Team and other
+professional outdoorsmen, as well as several of our retailers,
+including REI, Eastern Mountain Sports, Dick’s Sporting
+Goods and L.L. Bean. We regularly add new innovations,
+components and styles to our product line based on their input.
+For example, our Fall 2005 Teva offering features several styles
+of casual closed toe footwear with our new
+Flipsole tm 
+technology, a removable midsole that can be easily removed and
+converted to a thong, making it two shoes in one. We have also
+incorporated our proprietary Wraptor technology into performance
+running sandals, an assortment of hikers and certain styles of
+our high performance guide sport sandals specifically targeted
+at professional outdoorsmen and adventurers. In addition, for
+added traction and durability, we have incorporated variations
+of our proprietary Spider Rubber outsole in our Teva sandals,
+including original Spider Rubber — a sticky,
+non-slip rubber outsole material for use across wet and dry
+terrain, SSR — a super sticky rubber compound for
+use specifically in extreme water conditions to provide superior
+grip on smooth wet surfaces, like rocks, fiberglass, and raft
+rubber; and Spider XC — an off-road hybrid that
+combines the non-slip traction of Spider Rubber with durability
+for use in both wet and dry conditions.
+Our UGG and Simple products are designed to appeal to consumers
+seeking our distinctive and innovative styling. We strive to be
+a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further
+awareness and interest in the UGG and Simple collections. In our
+UGG line, we have successfully evolved the product offering over
+the last few years from its original sheepskin heritage to a
+diverse collection of luxury and comfort styles suited for a a
+variety of climates and seasons. The evolution of our Simple
+line has resulted in many new categories for the brand,
+including the recent introduction of the first successful truly
+natural footwear in our Green Toe
+collection tm . 
+We believe our ability to incorporate
+up-to-date 
+styles while remaining true to our heritage, combined with
+performance-oriented features consumers have come to expect,
+results in continued enthusiasm for our brands in the
+marketplace.
+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 for their various product lines. We
+develop detailed drawings and prototypes of our new products to
+aid in the conceptualization and to ensure our contemplated new
+products meet the standards for innovation and performance our
+consumers demand. Throughout the development process, members of
+the design staff coordinate internally and with our domestic and
+overseas product development, manufacturing and sourcing
+personnel toward a common goal of developing and producing a
+high quality product to be delivered on a timely basis.
+Manufacturing 
+We do not manufacture our footwear. We outsource the
+manufacturing of our Teva, Simple, and UGG footwear to
+independent manufacturers in the Far East. We also outsource the
+manufacturing of our UGG footwear to independent manufacturers
+in New Zealand and Australia. We require our independent
+contract manufacturers, designated suppliers, and our licensees
+to meet our standards for working conditions, environmental
+compliance, human rights and other matters before we are willing
+to place business with them. 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. To ensure the
+production of high quality products,
+14
+Table of Contents 
+many of the materials and components used in production of our
+products by the 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 outsource our
+manufacturing requirements on the basis of individual purchase
+orders 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 one tannery
+in New Zealand and three in China. We maintain a constant dialog
+with the tanneries to monitor the supply of sufficient high
+quality sheepskin available for our projected UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We maintain
+on-site 
+supervisory offices in Pan Yu City, China and Macau that serve
+as local links to our independent manufacturers in the Far East,
+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.
+We have instituted pre-production and post-production
+inspections to meet or exceed the high quality demanded by
+consumers of our products. Our quality assurance program
+includes
+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
+U.S. distribution center.
+Patents
+and Trademarks 
+We now hold more than 20 issued U.S. utility and design
+patents, 15 pending U.S. utility and design patent
+applications and a number of foreign pending and granted patents
+for Teva, UGG and Simple footwear. Our U.S. patent for the
+Teva Universal Strapping System, which is used many of our Teva
+sandals, expires in 2007. Corresponding patents in Australia,
+New Zealand and Korea expire in 2008. We also currently hold
+trademark registrations For TEVA, UGG and SIMPLE in the U.S. and
+in many other countries, including the countries of the European
+Union, Canada, Japan and Korea. We hold Australian trademark
+registrations for UGG Australia and SIMPLE in Australia but our
+rights are narrow. See “Risk Factors.”
+We regard our proprietary rights as valuable assets and
+vigorously protect such rights against infringement by third
+parties. Deckers and its predecessors have successfully enforced
+their intellectual property rights in the courts and other
+forums, obtaining numerous judgments, consent judgments and
+settlement agreements that uphold the validity of Deckers’
+patent, trademark and trade dress rights.
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters of each year. To date, Simple has
+not had a seasonal impact on the Company. With the dramatic
+growth in UGG in recent years, combined with the introduction of
+a Fall Teva line, net sales in the last half of the year have
+exceeded that for the first half of the year. Given our
+expectations for each of our brands in 2006, we currently expect
+this trend to continue. Nonetheless, actual results could differ
+materially depending upon consumer preferences, availability of
+product, competition and our customers continuing to carry and
+promote our various product lines, among other risks and
+uncertainties. See “Risk Factors.”
+Backlog 
+Historically, we have encouraged our customers to place, and we
+have received, a significant portion of orders as pre-season
+orders, generally four to eight months prior to shipment date.
+We provide customers with incentives to participate in such
+pre-season programs to enable us to better plan our production
+schedule, inventory and shipping
+15
+Table of Contents 
+needs. Unfilled customer orders as of any date, which we refer
+to as backlog, represent orders scheduled to be shipped at a
+future date and do not represent firm orders. The backlog as of
+a particular date is affected by a number of factors, including
+seasonality, manufacturing schedule and the timing of shipments
+of products 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.
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are
+highly competitive. We compete with numerous domestic and
+foreign footwear designers, manufacturers and marketers. Our
+Teva footwear line primarily competes with Nike, adidas-Salomon,
+Timberland, Merrell, Chaco, Reef, Columbia Sportswear, Crocs and
+Keen. Our UGG footwear line primarily competes with Emu,
+Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as
+retailers’ own private label footwear. In addition, due to
+the popularity of our UGG products, we face increasing
+competition from a significant number of competitors selling
+“knock-off” products. Our Simple sneaker line
+primarily competes with Puma, Vans and Converse, and our
+casual/sandal product competes with Clarks, Birkenstock, Born
+and Merrell. Some of our competitors are significantly larger
+and have significantly greater resources than we do.
+Our three footwear lines compete primarily on the basis of brand
+recognition and authenticity, product quality and design,
+functionality and performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and preferences by offering
+innovative, attractive and exciting products;
+• 
+anticipate and respond to changing consumer demands in a timely
+manner;
+• 
+maintain brand authenticity;
+• 
+develop high quality products that appeal to consumers;
+• 
+appropriately price our products;
+• 
+provide strong and effective marketing support; and
+• 
+ensure product availability.
+We believe we are particularly well positioned to compete in the
+footwear industry. Our diversified portfolio of footwear brands
+and products allows us to operate a business that does not
+depend on any one demographic group, merchandise preference or
+product trend. We have developed a portfolio of brands that
+appeals to a broad spectrum of consumers. 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, 2005, we employed approximately 191
+employees in our U.S. facilities and 34 employees located in
+China and Macau, none of whom is represented by a union. We
+believe our relationships with our employees are good.
+Financial
+Information about Segments and Geographic Areas 
+Our four reportable business segments include the strategic
+business units responsible for the worldwide operations of each
+of our brands — Teva, Simple and UGG, as well as
+our consumer direct retailing business.
+16
+Table of Contents 
+The following table shows our domestic and international
+revenues for each of the years ended December 31, 2003,
+2004, and 2005.
+Years Ended
+December 31, 
+2003 
+2004 
+2005 
+Net sales by
+location: 
+U.S. 
+$
+98,710,000
+$
+175,419,000
+$
+229,487,000
+International
+22,345,000
+39,368,000
+35,273,000
+Total
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Refer to Note 8 to our accompanying consolidated financial
+statements for further discussion of our business segment data
+and our long-lived assets that are attributable to our domestic
+versus foreign operations.
+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 Securities and Exchange Commission
+(“SEC”): annual reports on
+Form 10-K, 
+quarterly reports on
+Form 10-Q, 
+current reports on
+Form 8-K 
+and any amendment to those reports filed or furnished pursuant
+to Section 13(a) 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 450 Fifth
+Street, NW, 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 that contains reports,
+proxy and information statements, and other information
+regarding issuers that file electronically with the SEC. The
+address of that site is www.sec.gov .
+Item 1A. 
+Risk Factors. 
+Our short- and long-term success is subject to many factors
+beyond our control. Stockholders and potential stockholders
+should carefully consider the following risk factors 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 and
+potential stockholders may lose all or part of their
+investment. 
+Risks
+Relating to Our Business 
+Our
+success depends on our ability to anticipate fashion
+trends. 
+Our success depends largely on the continued strength of our
+Teva, UGG and Simple brands and on our ability to anticipate,
+understand and react to the rapidly changing fashion tastes of
+footwear consumers and to provide appealing merchandise in a
+timely manner. Our products must appeal to a broad range of
+consumers whose preferences cannot be predicted with certainty
+and are subject to rapid change. We are also dependent on
+customer receptivity to our products and marketing strategy.
+There can be no assurance that consumers will continue to prefer
+our brands, that we will respond quickly enough to changes in
+consumer preferences or that we will successfully introduce new
+models and styles of footwear. Achieving market acceptance for
+new products also will likely require us to exert substantial
+marketing and product development efforts and expend significant
+funds to create consumer demand. A failure to introduce new
+products that gain market acceptance 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.
+Our UGG
+brand may not continue to grow at the same rate it has
+experienced in the recent past. 
+Our UGG brand has experienced strong growth over the past few
+years, with net wholesale sales of UGG products having increased
+from $34,561,000 in 2003 to $150,279,000 in 2005, representing a
+compound annual growth rate of 108.5%. We do not expect to
+sustain this growth rate in the future. UGG may be a fashion
+item that
+17
+Table of Contents 
+could go out of style at any time. UGG represents a significant
+portion of our business, and if UGG sales were to decline or to
+fail to increase in the future, our overall financial
+performance would be adversely affected.
+We may
+experience shortages of top grade sheepskin, which could
+interrupt product manufacturing and increase product
+costs. 
+We depend on a limited number of key resources for sheepskin,
+the principal raw material for our UGG products. In 2005, four
+suppliers provided all of the sheepskin purchased by our
+independent manufacturers. The top grade sheepskin used in UGG
+footwear is in high demand and limited supply. In addition,
+sheep are susceptible to hoof and mouth disease, which can
+result in the extermination of an infected herd and could have a
+material adverse effect on the availability of top grade
+sheepskin for our products. Additionally, the supply of
+sheepskin can be adversely impacted by drought conditions. Our
+potential inability to obtain top grade sheepskin for UGG
+products could impair our ability to meet our production
+requirements for UGG in a timely manner and could lead to
+inventory shortages, which can result in lost potential sales,
+delays in shipments to customers, strain on our relationships
+with customers and diminished brand loyalty. Additionally, there
+have been significant increases in the prices of top grade
+sheepskin as the demand for this material has increased. Any
+further price increases will likely raise our costs, increase
+our costs of sales and decrease our profitability unless we are
+able to pass higher prices on to our customers.
+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 commit to production tooling and
+production volumes many months before consumer tastes become
+apparent. The footwear industry is subject to fashion risks and
+rapid changes in consumer preferences, as well as the effects of
+weather, general market conditions and other factors affecting
+demand. Our large number of models, colors and sizes in our
+three product lines exacerbates these risks. As a result, we may
+fail to accurately forecast styles and features that will be in
+demand. If we overestimate demand for our any products, styles
+or sku’s, we may be forced to liquidate excess inventories
+at a discount to customers, resulting in higher markdowns and
+lower gross margins. Further, the excess inventories may prolong
+our cash flow cycle, resulting in reduced cash flow and
+increased liquidity risks. Conversely, if we underestimate
+consumer demand for any products, styles or sku’s, we could
+have inventory shortages, which can result in lost potential
+sales, delays in shipments to customers, strains on our
+relationships with customers and diminished brand loyalty. This
+may be particularly true with regard to our UGG product line,
+which has experienced strong consumer demand and rapid sales
+growth.
+We may
+not succeed in implementing our growth strategy. 
+As part of our growth strategy, we seek to enhance the
+positioning of our brands, extend our brands into complementary
+product categories and markets through licensing, expand
+geographically and improve our operational performance. Another
+element of our growth strategy is our licensing initiatives. We
+may not be able to successfully implement any or all of these
+strategies. If we fail to do so, our rate of growth may slow or
+our results of operations may decline, which in turn could have
+a negative effect on the value of our stock.
+Our
+financial success is limited to the success of our
+customers. 
+Our financial success is directly related to the success of our
+customers and the willingness of our customers to continue to
+buy our products. We do not have long-term contracts with any of
+our customers. Sales to our customers are generally on an
+order-by-order 
+basis and are subject to rights of cancellation and rescheduling
+by our customers. If we cannot fill our customers’ orders
+in a timely manner, our relationships with our customers may
+suffer, and this could have a material adverse effect on us.
+Furthermore, if any of our major customers experiences a
+significant downturn in its business, or fails to remain
+committed to our products or brands, then these customers may
+reduce or discontinue purchases from us, which could have a
+material adverse effect on our business, results of operations
+and financial condition.
+18
+Table of Contents 
+Certain
+of our customers account for a significant portion of our sales
+and the loss of one or more of these key customers would
+significantly reduce our sales. 
+Our five largest customers accounted for approximately 27.0% of
+net sales in 2005 and 25.2% of net sales in 2004. Our single
+largest customer accounted for 15.8% of net sales in 2005 and
+14.1% in 2004. Any potential loss of a key customer, or a
+significant reduction in sales to a key customer, could have a
+material adverse effect on our business, results of operations
+and financial condition.
+Establishing
+and protecting our trademarks, patents and other intellectual
+property is costly and difficult. If our efforts to do so are
+unsuccessful, the value of our brands could suffer. 
+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
+U.S. laws. From time to time, we discover products in the
+marketplace that infringe upon our trademark, patent, copyright
+and other intellectual property. If we are unsuccessful in
+challenging a third party’s products on the basis of patent
+and trade dress rights, continued sales of such competing
+products by third parties could adversely impact our business,
+financial condition and results of operations. Furthermore, our
+efforts to enforce our trademark and other intellectual property
+rights are typically met with defenses and counterclaims
+attacking the validity and enforceability of our trademark and
+other intellectual property rights. Similarly, from time to time
+we may be the subject of litigation challenging our ownership of
+intellectual property. Loss of our Teva, UGG or Simple
+trademark, patent or other intellectual property rights could
+have a material adverse effect on our business.
+We face particularly strong challenges to our UGG trademark in
+Australia, where many Australian manufacturers sell competitive
+footwear on the Internet. Our trademark registrations in
+Australia are subject to challenge for non-use. In addition,
+certain Australia sheepskin boot manufacturers have asserted
+that the marks UGH and UGG are not valid as being generic terms
+for sheepskin boots. An administrative decision in the
+Australian trademark office has removed one of our Australian
+trademark registrations for UGH-BOOTS for non-use, and stated
+that “ugg, ugh and ug” are generic terms in Australia.
+However, only the Australian federal courts have jurisdiction to
+determine the issue. Our Australian registrations for UGG
+AUSTRALIA & Design and UGH are also being challenged
+for non-use, which we are contesting. If the challenges are
+successful, our rights in the trademarks, including our ability
+to prevent Australian competitors from using these trademarks in
+commerce in Australia, will be adversely affected. Although we
+derived less than 1% of our revenue in the UGG product line from
+Australian sales in 2005, our ability to prevent Australian
+competitors from using the marks on the Internet and in other
+channels of trade that may reach consumers in other countries,
+including the U.S., could also be adversely affected and the
+integrity of our UGG brand could be harmed by the association
+with inferior products.
+We may
+lose pending litigation and the rights to certain of our
+intellectual property. 
+We are currently involved in several disputes, including cases
+pending in U.S. federal and foreign courts and in foreign
+trademark offices, regarding infringement by third parties of
+our trademarks, trade dress, copyrights, patents and other
+intellectual property and the validity of our intellectual
+property. Any decision or settlement in any of these disputes
+that renders our intellectual property invalid or unenforceable,
+or that allows a third party to continue to use our intellectual
+property in connection with products that are similar to ours
+could have an adverse effect on our sales and on our
+intellectual property, which could have a material adverse
+effect on our results of operations and financial condition.
+Counterfeiting
+of our brands can divert sales and damage our brand
+image. 
+Our brands and designs are constantly at risk for counterfeiting
+and infringement of our intellectual property rights, and we
+frequently find counterfeit products and products that infringe
+on our intellectual property rights in our markets as well as
+domain names that use our trade names or trademarks without our
+consent. We have not always been successful, particularly in
+some foreign countries, in combating counterfeit products and
+stopping infringement of our intellectual property rights.
+Counterfeit and infringing products not only cause us to lose
+significant sales, but also can harm the integrity of our brands
+by associating our trademarks or designs with lesser quality or
+defective goods.
+19
+Table of Contents 
+In particular, we are experiencing more infringers of our UGG
+trademark and more counterfeit products seeking to benefit from
+the consumer demand for our UGG products. Enforcement of our
+rights to the UGG trademarks faces many challenges due in part
+to the proliferation of the term UGG in third party domain names
+that promote counterfeit products or otherwise use the trademark
+UGG without our permission. In spite of our enforcement efforts,
+we expect such unauthorized use to continue, which could result
+in a loss of sales for authorized UGG products and a diminution
+in the goodwill associated with the UGG trademarks.
+As our
+patents expire, our competitors will be able to copy our
+technology or incorporate it in their products without paying
+royalties. 
+Patents generally have a life of 20 years from filing, and
+some of our patents will expire in the next ten years. For
+example, the patent for our Universal Strapping System used in
+many of our Teva sandals will expire in September 2007. Our
+Universal Strapping System is currently used in many of our Teva
+sandals. Once patent protection has expired, our competitors can
+copy our products or incorporate our innovations in their
+products without paying royalties. To combat this, we must
+continually create new designs and technology, obtain patent
+protection and incorporate the new technology or design in our
+footwear. We cannot provide assurance that we will be able to do
+so. Sales of our Teva sandals may decline significantly if we
+incorporate substitute technologies in lieu of our Universal
+Strapping System for our Teva sandals.
+If our
+customers cancel existing orders, we may have excess inventory;
+if customers postpone delivery of existing orders to future
+periods, we may not achieve sales and earnings targets for the
+period, which could have a negative impact on our stock
+price. 
+We receive customer orders and indications of future orders,
+which we use to determine which inventory items to purchase. We
+also use the timing of delivery dates in our customer orders to
+forecast our sales and earnings for future periods. If our
+customers cancel existing orders, it may result in lower sales,
+as well as excess inventories that could lead to inventory
+write-downs and closeouts, resulting in lower gross margin. The
+excess inventories could also have a negative impact on our cash
+flow. If customers postpone delivery of their orders, we may not
+achieve our expected sales and earnings forecasts for the
+period, which could have a negative impact on our stock price.
+Because
+we depend on independent manufacturers, we face challenges in
+maintaining a continuous supply of goods that meet our quality
+standards. 
+We use independent manufacturers to produce all of our products,
+with almost all of the production occurring among four
+manufacturers in China. We depend on these manufacturers’
+ability to finance the production of goods ordered and to
+maintain manufacturing capacity. The manufacturers in turn
+depend upon their suppliers of raw materials. We do not exert
+direct control over either the independent manufacturers or
+their raw materials suppliers, so we may be unable to obtain
+timely delivery of acceptable products.
+In addition, we 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 products of an acceptable
+quality from our independent manufacturers. If there is an
+interruption, we may not be able to substitute suitable
+alternative manufacturers because substitutes may not be
+available or they may not be able to provide us with 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 and a
+resulting loss of sales.
+Similarly, if we experience a significant increase in demand and
+a manufacturer is unable to ship orders of our products in
+accordance with our timing demands and our quality standards, we
+could miss customer delivery date requirements. This in turn
+could result in cancellation of orders, customer refusals of
+shipments or a reduction in selling prices, any of which could
+have a material adverse effect on our sales and financial
+condition. We compete with other companies for the production
+capacity and the import quota capacity of our manufacturers.
+Accordingly, our independent manufacturers may not produce and
+ship some or all of any orders placed by us.
+20
+Table of Contents 
+If raw
+materials do not meet our specifications or if the prices of raw
+materials increase, we could experience a high return rate, a
+loss of sales or a reduction in our gross margins. 
+Our independent manufacturers use various raw materials in the
+manufacture of our footwear that must meet our specifications
+generally and, in some cases, additional technical requirements
+for performance footwear. If these raw materials and the end
+product do not perform to our specifications or consumer
+satisfaction, we could experience a higher rate of customer
+returns and a diminution in the image of our brands, which could
+have a material adverse effect on our business, financial
+condition and results of operations.
+There may be significant increases in the prices of the raw
+materials used in our footwear, which would increase the cost of
+our products from our independent manufacturers. Our gross
+profit margins are adversely affected to the extent that the
+selling prices of our products do not increase proportionately
+with increases in their costs. Any significant unanticipated
+increase in the prices of raw materials could materially affect
+our results of operations. No assurances can be given that we
+will be protected from future changes in the prices of such raw
+materials.
+The costs
+of production and transportation of our products can increase as
+petroleum and other energy prices rise. 
+The manufacture and transportation of our products requires the
+use of petroleum-based materials and energy costs. Any future
+increases in the costs of these materials and energy sources
+will increase the cost of our goods which will reduce our gross
+margin unless we can successfully raise our selling prices to
+compensate for the increased costs.
+Our
+independent manufacturers are located outside the U.S., where we
+are subject to the risks of international commerce. 
+All of our current third party manufacturers are in the Far
+East, New Zealand and Australia with substantially all
+production performed by four manufacturers in China. Foreign
+manufacturing is subject to numerous risks, including the
+following:
+• 
+tariffs, import and export controls and other non-tariff
+barriers such as quotas and local content rules, including the
+potential threat of anti-dumping duties and quotas which may be
+imposed by the European Union on the import of certain types of
+footwear from China;
+• 
+increasing transportation costs due to energy prices or other
+factors;
+• 
+poor infrastructure and shortages of equipment, which can delay
+or interrupt transportation and utilities;
+• 
+foreign currency fluctuations;
+• 
+restrictions on the transfer of funds;
+• 
+changing economic conditions;
+• 
+changes in governmental policies;
+• 
+environmental regulation;
+• 
+labor unrest, which can lead to work stoppages and interruptions
+in transportation or supply;
+• 
+shipping delays, including those resulting from labor issues,
+work stoppages or other delays at the port of entry or port of
+departure;
+• 
+political unrest, which can interrupt commerce and make travel
+dangerous; and
+• 
+expropriation and nationalization.
+In particular, because most of our products are manufactured in
+China, adverse change in trade or political relations with China
+or political instability in the Far East could severely
+interfere with the manufacture of our products and could
+materially adversely affect our results of operations.
+Uncertainty regarding the short-term and
+21
+Table of Contents 
+long-term effects of the severe acute respiratory syndrome, or
+SARS, and the outbreak of avian influenza in China and elsewhere
+in the Far East could disrupt the manufacture and transportation
+of our products, which would harm our results of operations.
+We are also subject to general risks associated with managing
+foreign operations effectively and efficiently from the U.S. and
+understanding and complying with local laws, regulations and
+customs in foreign jurisdictions. These factors and the failure
+to properly respond to them could make it difficult to obtain
+adequate supplies of quality products when we need them,
+resulting in reduced sales and harm to our business.
+Our
+business could suffer if our independent manufacturers,
+designated suppliers or our licensees violate labor laws or fail
+to conform to our ethical standards. 
+We require our independent contract manufacturers, designated
+suppliers and our licensees to meet our standards for working
+conditions, environmental compliance, human rights and other
+matters before we are willing to place business with them. We do
+not control our independent manufacturers, designated suppliers
+or their respective labor practices. If one of our independent
+contract manufacturers or designated suppliers violates our
+labor standards by, for example, using convicted, forced or
+indentured labor or child labor, fails to pay compensation in
+accordance with local law or fails to operate its factories in
+compliance with local safety or environmental standards, we
+likely would immediately cease dealing with that manufacturer or
+supplier, and we could suffer an interruption in our product
+supply chain. In addition, the manufacturers’ or designated
+suppliers’ actions could damage our reputation and the
+value of our brands, resulting in negative publicity and
+discouraging customers and consumers from buying our products.
+Similarly, we do not control our licensees or any of their
+suppliers or their respective labor practices. If one of our
+licensees violates our labor standards or local laws, we would
+immediately terminate the license agreement, which would reduce
+our license revenue. In addition, the licensee’s actions
+could damage our reputation and the value of our brands. We also
+may not be able to replace the licensee.
+If our
+licensing partners are unable to meet our expectations regarding
+the quality of their products or the conduct of their business,
+the value of our brands could suffer. 
+One element of our growth strategy depends on our ability to
+successfully enter into and maintain license agreements with
+manufacturers and distributors of products in complementary
+categories. We will be relying on our licensees to maintain our
+standards with their manufacturers in the future, and any
+failure to do so could harm our reputation and the value of the
+licensed brand. The interruption of the business of any one of
+our material licensing partners due to any of the factors
+discussed immediately below could also adversely affect our
+future licensing sales and net income. The risks associated with
+our own products will also apply to our licensed products in
+addition to any number of possible risks specific to a licensing
+partner’s business, including, for example, risks
+associated with a particular licensing partner’s ability to:
+• 
+obtain capital;
+• 
+manage manufacturing and product sourcing activities;
+• 
+manage labor relations;
+• 
+maintain relationships with suppliers;
+• 
+manage credit risk effectively; and
+• 
+maintain relationships with customers.
+Our licensing agreements generally do not preclude our licensing
+partners from offering, under other brands, products similar to
+those covered by their license agreements with us, which could
+reduce the sales of our licensed products. In addition, if we
+cannot replace existing licensing partners who fail to perform
+adequately, our net sales, both directly from reduced licensing
+revenue and indirectly from reduced sales of our other products,
+will suffer.
+22
+Table of Contents 
+If our
+brand managers cannot properly manage the licensees of their
+respective brands, our growth strategy could be
+impaired. 
+Our growth strategy and future profits depend upon each of our
+brand managers finding and successfully managing licensees for
+each of their respective brands. Our brand managers may not be
+able to successfully implement the licensing aspect of our
+growth strategy and to develop and manage profitable license
+arrangements. We compete for opportunities to license our brands
+with other companies who have greater resources than we do and
+who may have more valuable brands and more licensing experience
+than we do. As a result, even if we do identify a suitable
+licensee, we may lose the opportunity to a competitor. Our brand
+managers’ failure to execute our licensing strategy
+successfully could negatively impact our results from operations.
+We may be
+unable to successfully identify, develop or acquire, and build
+new brands. 
+We intend to continue to focus on identifying, developing or
+acquiring and building new brands. Our search may not yield any
+complementary brands, and even if we do find a suitable brand we
+may not be able to obtain sufficient financing to fund the
+development or acquisition of the brand. We may not be able to
+successfully integrate the management of a new brand into our
+existing operations, and we cannot assure you that any developed
+or acquired brand will achieve the results we expect. We compete
+with other companies who have greater resources than we do for
+the opportunities to license brands or buy other brands. As a
+result, even if we do identify a suitable license or
+acquisition, we may lose the opportunity to a competitor who
+offers a more attractive price. In such event, we may incur
+significant costs in pursuing a license or an acquisition
+without success.
+Our
+quarterly sales and operating results may fluctuate in future
+periods, and if we fail to meet expectations the price of our
+common stock may decline. 
+Our quarterly sales and operating results have fluctuated
+significantly in the past and are likely to do so in the future
+due to a number of factors, many of which are not within our
+control. If our quarterly sales or operating results fall below
+the expectations of investors or securities analysts, the price
+of our common stock could decline substantially. Factors that
+might cause quarterly fluctuations in our sales and operating
+results include the following:
+• 
+variation in demand for our products, including variation due to
+changing consumer tastes and seasonality;
+• 
+our ability to develop, introduce, market and gain market
+acceptance of new products and product enhancements in a timely
+manner;
+• 
+our ability to manage inventories, accounts receivable and cash
+flows;
+• 
+our ability to control costs;
+• 
+the size, timing, rescheduling or cancellation of orders from
+customers;
+• 
+the introduction of new products by competitors;
+• 
+the availability and reliability of raw materials used to
+manufacture our products;
+• 
+changes in our pricing policies or those of our independent
+manufacturers and competitors, as well as increased price
+competition in general;
+• 
+the mix of our domestic and international sales, and the risks
+and uncertainties associated with our international business;
+• 
+our ability to forecast future sales and operating results and
+subsequently attain them;
+• 
+developments concerning the protection of our intellectual
+property rights; and
+• 
+general global economic and political conditions, including
+international conflicts and acts of terrorism.
+In addition, our expenses depend, in part, on our expectations
+regarding future sales. In particular, we expect to continue
+incurring substantial expenses relating to the marketing and
+promotion of our products. Since many of our costs are fixed in
+the short term, if we have a shortfall in sales, we may be
+unable to reduce expenses quickly enough
+23
+Table of Contents 
+to avoid losses. Accordingly, you should not rely on
+quarter-to-quarter 
+comparisons of our operating results as an indication of our
+future performance.
+Loss of
+the services of our key personnel could adversely affect our
+business. 
+Our future success and growth depend on the continued services
+of Doug Otto, our Chairman of the Board, Angel Martinez, our
+Chief Executive Officer and President, Connie Rishwain, the
+President of the UGG and Simple Divisions, Pat Devaney, Senior
+Vice President of Global Sourcing, Production and Development,
+Colin Clark, Senior Vice President, International, Janice
+Howell, Vice President of Operations, and John Kalinich, Vice
+President of Consumer Direct, as well as other key officers and
+employees. The loss of the services of any of these individuals
+or any other key employee could materially affect our business.
+Our Chief Financial Officer, Scott Ash, has announced his intent
+to depart the Company and we are in the market to hire a
+successor. Our future success depends on our ability to
+identify, attract and retain additional qualified personnel and
+to identify and hire suitable replacements for departing
+employees in key positions on a timely basis. Competition for
+employees in our industry is intense and we may not be
+successful in attracting or retaining them.
+We
+conduct business outside the U.S., which exposes us to foreign
+currency and other risks. 
+Our products are manufactured outside the U.S., and our
+independent manufacturers procure most of their supplies outside
+the U.S. We sell our products in the U.S. and
+internationally. Although we pay for the purchase and
+manufacture of our products primarily in U.S. dollars and
+we sell our products primarily in U.S. dollars, we are
+routinely subject to currency rate movements on
+non-U.S. denominated 
+assets, liabilities and income since our foreign distributors
+sell in local currencies, which impacts the price to foreign
+customers. We currently do not use currency hedges since
+substantially all our transactions are in U.S. dollars.
+Future changes in foreign currency exchange rates may cause
+changes in the dollar value of our purchases or sales and
+materially affect our results of operations.
+The People’s Republic of China has recently revalued its
+currency and abandoned its peg to the U.S. dollar. We
+currently source substantially all production from China. While
+our purchases from the Chinese factories are currently
+denominated in U.S. dollars, certain operating and
+manufacturing costs of the factories are denominated in the
+Chinese currency. As a result, this change or any further
+revaluations in the Chinese currency versus the U.S. dollar
+could impact our purchase prices from the factories in the event
+that they adjust their selling prices accordingly. Any increase
+in our footwear purchase costs will reduce our gross margin
+unless we are able to raise our selling prices to our customers
+in order to compensate for the increased costs.
+Our most
+popular products are seasonal, and our sales are sensitive to
+weather conditions. 
+Sales of our products, particularly those under the Teva and UGG
+brands, are highly seasonal and are sensitive to weather
+conditions. Extended periods of unusually cold weather during
+the spring and summer can reduce demand for Teva footwear.
+Likewise, unseasonably warm weather during the fall and winter
+months may reduce demand for our UGG products. 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.
+We depend
+on independent distributors to sell our products in
+international markets. 
+We sell our products in international markets through
+independent distributors. If a distributor fails to meet annual
+sales goals, it may be difficult and costly to locate an
+acceptable substitute distributor. If a change in our
+distributors becomes necessary, we may experience increased
+costs, as well as substantial disruption and a resulting loss of
+sales.
+24
+Table of Contents 
+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. 
+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 sales operations. These include:
+• 
+changes in currency exchange rates which impact the price to
+international consumers;
+• 
+the burdens of complying with a variety of foreign laws and
+regulations;
+• 
+unexpected changes in regulatory requirements; and
+• 
+the difficulties associated with promoting products in
+unfamiliar cultures.
+We are also subject to general political and economic risks in
+connection with our international sales operations, including:
+• 
+political instability;
+• 
+changes in diplomatic and trade relationships; and
+• 
+general economic fluctuations in specific countries or markets.
+Any of the abovementioned factors could adversely affect our
+sales and results of operations in international markets.
+International
+trade 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 U.S. 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.
+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 generally make it difficult to obtain products of our
+customary quality at a desired price. Meanwhile, the continued
+negotiation of bilateral and multilateral free trade agreements
+by the U.S. 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 to our market countries
+at preferred rates of duty, though we are uncertain precisely
+what effect these new agreements may have on our operations.
+The European Union is currently considering imposing
+anti-dumping duties and quotas on importations of certain types
+of footwear from China. Any increase in duties or the
+requirement for quotas will increase the cost of our products
+and may limit the amount of China-sourced products that we are
+able to sell to the European market. Because the vast majority
+of our footwear is currently produced in China, the imposition
+of anti-dumping duties or quotas on products manufactured in
+China will have a negative impact on our sales and gross margin
+in the European market.
+Finally, the increased threat of terrorist activity and the 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.
+We depend
+on our computer and communications systems. 
+We extensively utilize computer and communications systems to
+operate our Internet and catalog business and manage our
+internal operations. Any interruption of this service from power
+loss, telecommunications failure,
+25
+Table of Contents 
+failure of our computer system, failure due to weather, natural
+disasters or any similar event could disrupt our operations and
+result in lost sales. In addition, hackers and computer viruses
+have disrupted operations at many major companies. We may be
+vulnerable to similar acts of sabotage, which could have a
+material adverse effect on our business and operations.
+We rely on our management information systems to operate our
+business and to track our operating results. Our management
+information systems will require modification and refinement as
+we grow and our business needs change. If we experience a
+significant system failure or if we are unable to modify our
+management information systems to respond to changes in our
+business needs, then our ability to properly run our business
+could be adversely affected.
+Risks
+Related to Our Industry 
+Because
+the footwear market is sensitive to decreased consumer spending
+and slow economic cycles, if general economic conditions
+deteriorate many of our customers may significantly reduce their
+purchases from us or may not be able to pay for our products in
+a timely manner. 
+The footwear industry historically has been subject to cyclical
+variation and decline in performance when consumer spending
+decreases or softness appears in the retail market. Many factors
+affect the level of consumer spending in the footwear industry,
+including:
+• 
+general business conditions;
+• 
+interest rates;
+• 
+the availability of consumer credit;
+• 
+weather;
+• 
+taxation; and
+• 
+consumer confidence in future economic conditions.
+Consumer purchases of discretionary items, including our
+products, may decline during recessionary periods and also may
+decline at other times when disposable income is lower. A
+downturn in economies where our licensing partners or we sell
+products, whether in the U.S. or abroad, may reduce sales.
+In addition, we extend credit to our customers based on an
+evaluation of each customer’s financial condition. Many
+retailers, including some of our customers, have experienced
+financial difficulties during the past several years, thereby
+increasing the risk that such customers may not be able to pay
+for our products in a timely manner. Our bad debt expense may
+increase relative to net sales in the future. Any significant
+increase in our bad debt expense relative to net sales would
+adversely impact our net income and cash flow and could affect
+our ability to pay our own obligations as they become due.
+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 the recent
+growth in the market for sport sandals, casual footwear and
+other products manufactured by our licensees has encouraged the
+entry of many new competitors into the marketplace as well as
+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 market. 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 more
+quickly develop new 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 industry.
+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 customers to shift their purchases away from our
+products.
+26
+Table of Contents 
+We believe that our ability to compete successfully depends on a
+number of factors, including the quality, style and authenticity
+of our products and the strength of our brands, as well as many
+factors beyond our control. Maintaining our competitiveness
+depends on our ability to defend our products from infringement,
+our continued ability to anticipate and react to consumer tastes
+and our continued ability to deliver quality products at an
+acceptable price. If we fail to compete successfully in the
+future, our sales and profits will decline, as will the value of
+our business, financial condition and common stock.
+Consolidations, restructurings and other ownership changes in
+the retail industry could affect the ability of our wholesale
+customers to purchase and market our products. 
+In the future, retailers in the U.S. and in foreign markets may
+undergo changes that could decrease the number of stores that
+carry our products or increase the concentration of ownership
+within the retail industry, including:
+• 
+consolidating their operations;
+• 
+undergoing restructurings;
+• 
+undergoing reorganizations; or
+• 
+realigning their affiliations.
+These consolidations could result in a shift of bargaining power
+to the retail industry and in fewer outlets for our products.
+Further consolidations could result in price and other
+competition that could reduce our margins and our net sales.
+Terrorism,
+government response to terrorism and other world events could
+affect our ability to do business. 
+We market and sell our products and services throughout the
+world. The September 11, 2001 terrorist attacks disrupted
+commerce across the U.S. and in many other parts of the world.
+World events, including the threat of similar attacks in the
+future, and the impact of the U.S.’s military campaigns may
+cause significant disruption to commerce throughout the world.
+We are unable to predict whether the threat of new attacks or
+the resulting response will result in any long-term commercial
+disruptions or do long-term harm to our business, results of
+operations or financial condition. To the extent that future
+disruptions further slow the global economy or, more
+particularly, result in delays or cancellations of purchase
+orders for our products or delays in shipping, our business and
+results of operations could suffer material damage.
+Risks
+Relating to Our Common Stock 
+Members
+of management own sufficient shares to substantially control our
+company. 
+At February 28, 2006, Doug Otto beneficially owned
+approximately 12.7% of our common stock and all of our executive
+officers and directors as a group beneficially owned
+approximately 15.4%. The ownership positions of Mr. Otto
+and our executive officers as a group, together with the
+anti-takeover effects of the Delaware General Corporation Law
+and provisions of our certificate of incorporation, our bylaws
+and our stockholder rights plan, would likely delay, defer or
+prevent a change in control of our company, may deprive our
+stockholders of an opportunity to receive a premium for their
+common stock as part of a change in control and could have a
+negative effect on the market price of our common stock.
+Our
+common stock price has been volatile, which could result in
+substantial losses for stockholders. 
+Our common stock is traded on the NASDAQ National Market. While
+our average daily trading volume for the
+52-week 
+period ended February 24, 2006 was approximately
+546,000 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 sale prices of our common stock, as reported by the
+NASDAQ National Market, have ranged from $17.15 to $41.07 for
+the 52-week 
+period ended February 24, 2006. The trading price of our
+common stock could be affected by a number of factors,
+including, but not limited to the following:
+• 
+changes in expectations of our future performance;
+• 
+changes in estimates by securities analysts (or failure to meet
+such estimates);
+• 
+quarterly fluctuations in our sales and financial results;
+27
+Table of Contents 
+• 
+broad market fluctuations in volume and price; and
+• 
+a variety of risk factors, including the ones described
+elsewhere in this report.
+Accordingly, the price of our common stock is volatile and any
+investment in our securities is subject to risk of loss.
+Future
+sales of our common stock could adversely affect our stock
+price. 
+Future sales of substantial amounts of shares of our common
+stock by the Company in the public market, or the perception
+that these sales could occur, may cause the market price of our
+common stock to decline. In addition, we may be required to
+issue additional shares upon exercise of previously granted
+options that are currently outstanding.
+Anti-takeover
+provisions of our certificate of incorporation, bylaws,
+stockholder rights plan and Delaware law could prevent or delay
+a change in control of our company, even if such a change of
+control would benefit our stockholders. 
+Provisions of our certificate of incorporation and bylaws, as
+well as provisions of Delaware law, could discourage, delay or
+prevent a merger, acquisition or other change in control of our
+company, even if such a change in control might benefit our
+stockholders. These provisions could also discourage proxy
+contests and make it more difficult for you and other
+stockholders to elect directors and take other corporate
+actions. As a result, these provisions could limit the price
+that investors are willing to pay in the future for shares of
+our common stock. These provisions might also discourage a
+potential acquisition proposal or tender offer, even if the
+acquisition proposal or tender offer is at a price above the
+then current market price for our common stock. These provisions
+include the following:
+• 
+a board of directors that is classified so that only one-third
+of directors stand for election each year;
+• 
+authorization of “blank check” preferred stock, which
+our board of directors could issue with provisions designed to
+thwart a takeover attempt;
+• 
+limitations on the ability of stockholders to call special
+meetings of stockholders;
+• 
+a prohibition against stockholder action by written consent and
+a requirement that all stockholder actions be taken at a meeting
+of our stockholders; and
+• 
+advance notice requirements for nominations for election to our
+board of directors or for proposing matters that can be acted
+upon by stockholders at stockholder meetings.
+We adopted a stockholder rights plan in 1998 under a stockholder
+rights agreement intended to protect stockholders against
+unsolicited attempts to acquire control of our company that do
+not offer what our board of directors believes to be an adequate
+price to all stockholders or that our board of directors
+otherwise opposes. As part of the plan, our board of directors
+declared a dividend that resulted in the issuance of one
+preferred share purchase right for each outstanding share of our
+common stock. Unless extended, the preferred share purchase
+rights will terminate on November 11, 2008. If a bidder
+proceeds with an unsolicited attempt to purchase our stock and
+acquires 20% or more (or announces its intention to acquire 20%
+or more) of our outstanding stock, and the board of directors
+does not redeem the preferred stock purchase right, the right
+will become exercisable at a price that significantly dilutes
+the interest of the bidder in our common stock.
+The effect of the stockholder rights plan is to make it more
+difficult to acquire our company without negotiating with the
+board of directors. However, the stockholder rights plan could
+discourage offers even if made at a premium over the market
+price of our common stock, and even if the stockholders might
+believe the transaction would benefit them.
+In addition, we are subject to Section 203 of the Delaware
+General Corporation Law, which limits business combination
+transactions with 15% or greater stockholders that our board of
+directors has not approved. These provisions and other similar
+provisions make it more difficult for a third party to acquire
+us without negotiation. These provisions apply even if some
+stockholders would consider the transaction beneficial.
+Item 1B. 
+Unresolved
+Staff Comments. 
+None.
+28
+Table of Contents 
+Item 2. 
+Properties. 
+Our corporate headquarters is located in Goleta, California. We
+have two distribution centers, one in Ventura, California and
+one in Camarillo, California, two retail outlets also in Ventura
+and Camarillo, California, an UGG showroom in New York City, New
+York and our Internet and catalog operations are located in
+Flagstaff, Arizona. We also have a small office in China to
+oversee the quality and manufacturing standards of our products
+and a small office in Macau to coordinate logistics. We have no
+manufacturing facilities, as all of our products are
+manufactured by independent manufacturers in the Far East and
+New Zealand. We lease, rather than own, all of our facilities.
+Our facilities are leased from unrelated parties. 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.
+The following table reflects the location, use and approximate
+size of our significant real properties:
+Approximate 
+Facility Location 
+Description 
+Square Footage 
+Camarillo, California
+Warehouse Facility
+300,000
+Ventura, California
+Warehouse Facility and Retail Outlet
+126,000
+Goleta, California
+Corporate Offices
+30,000
+China
+Office Facility
+4,200
+Camarillo, California
+Retail Outlet
+3,000
+New York, New York
+UGG Showroom
+2,500
+Flagstaff, Arizona
+Internet/Catalog Office Facility
+2,400
+Macau
+Office Facility
+2,000
+Item 3. Legal
+Proceedings. 
+We are involved in routine litigation arising in the ordinary
+course of business. Such routine matters, if decided adversely
+to us, would not, in the opinion of management, have a material
+adverse effect on our financial condition or results of
+operations. Additionally, we have many pending disputes in the
+U.S. Patent and Trademark Office, foreign trademark offices
+and U.S. federal and foreign courts regarding unauthorized
+use or registration of our Teva, UGG and Simple trademarks. We
+also are aware of many instances throughout the world in which a
+third party is using our UGG trademark within its Internet
+domain name, and we have discovered and are investigating
+several manufacturers and distributors of counterfeit Teva and
+UGG products. We have contacted a majority of these unauthorized
+users and counterfeiters and in some instances may have to
+escalate the enforcement of our rights by filing suit against
+the unauthorized users and counterfeiters. Any decision or
+settlement in any of these matters that allowed a third party to
+continue to use our Teva, UGG or Simple trademarks or a domain
+name with our UGG trademark in connection with the sale of
+products similar to our products or to continue to manufacture
+or distribute counterfeit products could have an adverse effect
+on our sales and on our intellectual property, which could have
+a material adverse effect on our results of operations and
+financial condition.
+Item 4. 
+Submission
+of Matters to a Vote of Security Holders. 
+None.
+29
+Table of Contents 
+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 National 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 National Market for the periods
+indicated.
+Common Stock 
+Price Per Share 
+Low 
+High 
+Year ended December 31,
+2004: 
+First Quarter
+$
+17.70
+$
+27.68
+Second Quarter
+$
+22.94
+$
+30.28
+Third Quarter
+$
+26.93
+$
+34.76
+Fourth Quarter
+$
+32.05
+$
+48.02
+Year ended December 31,
+2005: 
+First Quarter
+$
+34.95
+$
+45.43
+Second Quarter
+$
+21.07
+$
+35.00
+Third Quarter
+$
+21.75
+$
+28.42
+Fourth Quarter
+$
+17.15
+$
+30.35
+As of February 24, 2006, there were approximately 112
+record holders of our common stock.
+DIVIDEND
+POLICY 
+We have not declared or paid any cash dividends on our common
+stock since our inception. We currently anticipate that we will
+retain all of our earnings for the continued development and
+expansion of our business and do not anticipate declaring or
+paying any cash dividends in the foreseeable future. Moreover,
+our debt facility contains covenants expressly prohibiting us
+from paying cash dividends.
+30
+Table of Contents 
+Item 6. 
+Selected
+Consolidated Financial Data 
+We derived the following selected consolidated financial data
+from our consolidated financial statements, which have been
+audited by KPMG LLP, independent registered public accounting
+firm. 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.”
+Years Ended
+December 31, 
+2001 
+2002 
+2003 
+2004 
+2005 
+(In thousands, except per share
+data) 
+Statement of Operations
+Data 
+Net sales:
+Teva wholesale
+$
+61,221
+$
+64,849
+$
+72,783
+$
+83,477
+$
+80,446
+UGG wholesale
+19,185
+23,491
+34,561
+101,806
+150,279
+Simple wholesale
+10,853
+10,159
+7,210
+9,633
+6,980
+Consumer Direct
+—
+608
+6,501
+19,871
+27,055
+Other
+202
+—
+—
+—
+—
+Net sales
+91,461
+99,107
+121,055
+214,787
+264,760
+Cost of sales
+52,903
+57,577
+69,710
+124,354
+153,238
+Gross profit
+38,558
+41,530
+51,345
+90,433
+111,522
+Selling, general and
+administrative expenses
+33,940
+34,954
+32,407
+47,971
+59,254
+Litigation expense
+(income) (1) 
+2,280
+3,228
+(500
+)
+—
+—
+Income from operations
+2,338
+3,348
+19,438
+42,462
+52,268
+Other expense (income)
+(473
+)
+504
+4,554
+2,239
+25
+Income before income taxes and
+cumulative effect of accounting change
+2,811
+2,844
+14,884
+40,223
+52,243
+Income taxes
+1,185
+1,224
+5,730
+14,684
+20,398
+Income before cumulative effect of
+accounting change
+1,626
+1,620
+9,154
+25,539
+31,845
+Cumulative effect of accounting
+change, net of $843,000 income tax
+benefit (2) 
+—
+(8,973
+)
+—
+—
+—
+Net income (loss)
+$
+1,626
+$
+(7,353
+)
+$
+9,154
+$
+25,539
+$
+31,845
+Per common share:
+Basic net income before cumulative
+effect of accounting change
+$
+0.18
+$
+0.17
+$
+0.91
+$
+2.32
+$
+2.58
+Cumulative effect of accounting
+change (2) 
+—
+(0.96
+)
+—
+—
+—
+Basic net income (loss)
+$
+0.18
+$
+(0.79
+)
+$
+0.91
+$
+2.32
+$
+2.58
+Diluted income before cumulative
+effect of accounting change
+$
+0.17
+$
+0.17
+$
+0.77
+$
+2.10
+$
+2.48
+Cumulative effect of accounting
+change (2) 
+—
+(0.92
+)
+—
+—
+—
+Diluted net income (loss)
+$
+0.17
+$
+(0.75
+)
+$
+0.77
+$
+2.10
+$
+2.48
+Weighted average common shares
+outstanding:
+Basic
+9,247
+9,328
+9,610
+11,005
+12,349
+Diluted
+9,661
+9,806
+11,880
+12,142
+12,866
+(1) 
+The litigation expense (income) includes: (i) expenses of
+$2,180,000 in 2001 and $3,228,000 in 2002 related to a lawsuit
+filed against us in Montana in 1995 which we settled and paid in
+full in 2002, and (ii) expenses of 
+31
+Table of Contents 
+$100,000 in 2001 and income of $500,000 in 2003 related to a
+European anti-dumping duties matter that was ultimately resolved
+in our favor in 2003. 
+(2) 
+Our adoption of Statement of Financial Accounting Standards
+No. 142, Goodwill and Other Intangible Assets, on
+January 1, 2002 resulted in a goodwill impairment charge of
+$8,973,000 (net of the related income tax benefit of $843,000),
+or $0.92 per diluted share, during 2002. 
+As of
+December 31, 
+2001 
+2002 
+2003 
+2004 
+2005 
+(In thousands) 
+Balance Sheet Data 
+Cash and cash equivalents
+$
+16,689
+$
+3,941
+$
+6,662
+$
+10,379
+$
+50,749
+Working capital
+$
+41,387
+$
+22,453
+$
+22,803
+$
+69,854
+$
+107,120
+Total assets
+$
+85,884
+$
+122,412
+$
+121,026
+$
+174,820
+$
+209,626
+Long-term debt, including current
+installments
+$
+449
+$
+39,028
+$
+30,287
+$
+—
+$
+—
+Total stockholders’ equity
+$
+66,532
+$
+65,227
+$
+70,524
+$
+140,996
+$
+177,555
+32
+Table of Contents 
+Item 7. 
+Management’s
+Discussion and Analysis of Financial Condition and Results of
+Operations. 
+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 Act of
+1934, as amended. We sometimes use words such as
+“anticipate,” “believe,”
+“continue,” “estimate,” “expect,”
+“intend,” “may,” “project,”
+“will” and similar expressions, as they relate to us,
+our management and our industry, to identify forward-looking
+statements. Forward-looking statements relate to our
+expectations, beliefs, plans, strategies, prospects, future
+performance, anticipated trends and other future events.
+Specifically, this report and the information incorporated by
+reference in this report contain forward-looking statements
+relating to, among other things:
+• 
+our business, growth, operating and financing strategies;
+• 
+our product mix;
+• 
+the success of new products;
+• 
+our licensing strategy;
+• 
+the impact of seasonality on our operations;
+• 
+expectations regarding our net sales and earnings growth;
+• 
+expectations regarding our liquidity;
+• 
+our future financing plans; and
+• 
+trends affecting our financial condition or results of
+operations.
+We have based our forward-looking statements largely on our
+current expectations and projections about future events and
+financial trends affecting our business. Actual results may
+differ materially. Some of the risks, uncertainties and
+assumptions that may cause actual results to differ from these
+forward-looking statements are described in “Risk
+Factors.” In light of these risks, uncertainties and
+assumptions, the forward-looking events and circumstances
+discussed in this report and the information incorporated by
+reference in this report might not happen.
+You should completely read this report, the documents that we
+filed as exhibits to this report and the documents that we
+incorporate by reference in this report with the understanding
+that our future results may be materially different from what we
+expect. We qualify all of our forward-looking statements by
+these cautionary statements and we assume no obligation to
+update such forward-looking statements publicly for any reason.
+Overview 
+We are a leading designer, producer and brand manager of
+innovative high-quality footwear and the category creator in the
+sport sandal and luxury sheepskin footwear segments. Our
+products are marketed under three recognized brand names that we
+own:
+• 
+Teva: High performance sport sandals and rugged outdoor footwear;
+• 
+UGG: Authentic luxury sheepskin boots and a full line of luxury
+and comfort footwear; and
+• 
+Simple: Innovative shoes that combine the comfort elements of
+athletic footwear with casual styling.
+We sell our three brands through our quality domestic retailers
+and international distributors and directly to end-user
+consumers through our websites, catalogs and retail outlet
+stores. We sell our footwear in both the domestic market and the
+international markets. Independent third parties manufacture all
+of our footwear.
+33
+Table of Contents 
+Our business has been impacted by several important trends
+affecting our end markets:
+• 
+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.
+• 
+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.
+• 
+Our customers have narrowed their footwear product breadth,
+focusing on brands with a rich heritage and authenticity as
+market creators and leaders.
+• 
+Consumers have become increasingly focused on luxury and
+comfort, seeking out products and brands that are fashionable
+while still comfortable.
+By emphasizing our brand image and our focus on comfort,
+performance and authenticity, we believe we can better maintain
+a loyal consumer following that is less susceptible to
+fluctuations caused by changing fashions and changes in consumer
+preferences.
+Set forth below is an overview of the various components of our
+business, including some of the important factors that affect
+each business and some of our strategies for growing each
+business.
+Teva
+Overview 
+From fiscal 2001 to 2004, Teva’s wholesale net sales
+increased at a compound annual growth rate of 10.9%. However,
+for the year ended December 31, 2005, Teva wholesale net
+sales decreased by approximately 3.6% compared to the year ago
+period. The recent decline has been due to several factors
+including an unseasonably cold Spring 2005 season, increased
+competition, a recent lack of meaningful product innovation, and
+a decline in sales in the European market. We are proactively
+addressing the situation going forward by dedicating
+significantly greater resources to product development,
+marketing and advertising and the development of a solid
+international infrastructure. However, given the lead times
+required for these projects to yield results, we anticipate
+continued challenges in 2006, but expect to return to growth for
+Teva beginning with the Spring 2007 season.
+Despite the recent downturn, we believe that over the last few
+years Teva’s products have benefited from several factors,
+but most prominently a general shift in consumer preferences and
+lifestyles to include more outdoor recreational activities. At
+the same time, our consumers are increasingly purchasing our
+Teva products for everyday wear, and our Teva brand now includes
+several closed-toe footwear lines. As a result, our brand
+remains popular among professional and amateur outdoorsmen
+seeking authentic, performance-oriented footwear, as well as
+general footwear consumers seeking high quality, durable and
+comfortable styles for everyday use.
+To capitalize on the growth of outdoor recreational activities
+and the acceptance of certain footwear products for everyday
+use, over the last few years we have selectively expanded the
+distribution of our Teva product lines outside our core outdoor
+specialty and sporting goods channels. Through effective channel
+management, we believe we can continue to expand into new
+distribution channels without diluting our outdoor heritage and
+our appeal to outdoor enthusiasts. Through appropriate channel
+product line expansion, we plan to continue to broaden our
+product offerings beyond sport sandals to new products that meet
+the style and functional needs of our consumers.
+We initially produced Teva products under a license from the
+inventor of the Teva technology, Mark Thatcher. In November,
+2002, we purchased from Mr. Thatcher the Teva worldwide assets,
+including the Teva Internet and catalog business and all
+patents, trade names, trademarks and other intellectual property
+associated with the acquired Teva assets, or the Teva Rights. As
+a result of our purchase of the Teva Rights, we have adopted a
+strategy to expand the Teva brand and more fully develop its
+potential.
+UGG
+Overview 
+Since early 2003, our UGG brand has received increased media
+exposure, which contributed to broader public awareness of the
+UGG brand and significantly increased demand for the collection.
+We believe that the increased
+34
+Table of Contents 
+media focus on UGG was driven by the product’s unique
+styling and resulting brand name identification, Australian
+heritage and adoption by high-profile film and television
+celebrities as a favored footwear brand. We believe this
+increased media attention has enabled us to introduce the brand
+to consumers much faster than we would have ordinarily been able
+to. As a result of the subsequent rapid growth in demand, we
+were sold out of key UGG products throughout much of 2004, and
+given the long lead times required to replenish our inventory,
+we were unable to fill many retailer reorders and many direct
+Internet and catalog orders. In order to improve our ability to
+meet demand and to ensure more timely deliveries in 2005, we
+purchased our UGG product from the independent factories in 2005
+much earlier than we had purchased it in 2004, resulting in an
+increase in our UGG inventory levels throughout much of 2005 in
+comparison to 2004. However, as the Fall and Winter 2005 selling
+season came to an end, our UGG inventories were substantially
+reduced to $17,704,000 at December 31, 2005 compared to
+$56,164,000 at September 30, 2005 and are just $4,672,000
+higher than the $13,032,000 at December 31, 2004. See
+“— Liquidity and Capital Resources.”
+UGG has been a well-known brand in California for many years and
+over the past few years has become a recognized brand throughout
+the remainder of the country. We believe that a portion of
+UGG’s increased demand is due to our continued geographical
+expansion across the U.S. In addition, we have recently
+begun to expand our distribution and marketing overseas in order
+to address the under-penetrated international markets. Net sales
+of UGG in the international markets aggregated $971,000 in 2003,
+$13,297,000 in 2004 and $12,332,000 in 2005. Despite the slight
+decline in 2005, we believe that with our strategy to develop an
+international infrastructure, the international markets
+represent an attractive opportunity to grow UGG’s sales
+over the next few years.
+We believe the fundamental comfort and functionality of UGG
+products will continue to drive long-term consumer demand.
+Recognizing that there is a significant fashion element to UGG
+and that footwear fashions fluctuate, our strategy seeks to
+prolong 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 expanded our product line to
+125 models in 2006 from 52 models in 2002. This product line
+expansion includes our significantly expanded Fall 2006 Fashion
+Collection and Men’s offering, as well as new styles in our
+Driving Collection, our newly introduced Surf Collection, our
+Cold Weather Collection and our luxury slipper category.
+Nevertheless, we cannot assure investors that UGG sales will
+continue to grow at their recent pace or that revenue from UGG
+products will not at some point decline.
+Four suppliers currently provide all of the sheepskin, the
+principal raw material for our UGG products, purchased by our
+independent manufacturers. The top quality sheepskin used in UGG
+footwear is in high demand and limited supply. In addition,
+sheep are susceptible to hoof and mouth disease, which can
+result in the extermination of the infected herd and could have
+a material adverse effect on the availability of sheepskin for
+our products. The supply of sheepskin can also be adversely
+impacted by drought conditions. Our potential inability to
+obtain top quality sheepskin for UGG products could impair our
+ability to meet our production requirements for UGG products in
+a timely manner and could lead to inventory shortages, which can
+result in lost potential 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 footwear quality sheepskin as the
+demand for this material has increased. Any further price
+increases will likely raise our costs, increase our costs of
+sales and decrease our profitability unless we are able to pass
+higher prices on to our customers. While we believe the supply
+of top quality sheepskin has improved over the last year, we
+still believe the demand for this material may continue to
+outpace supply in the future, leading to possible shortages and
+our inability to produce as much of certain styles as our
+customers would like to order. Longer term, if demand continues
+to be strong, we would expect the supply of top quality
+sheepskin to continue to increase in response to the demand.
+However, we have little control over the supply or the overall
+demand for top quality sheepskin and, accordingly, can provide
+no assurances about the sufficiency of future supplies of top
+quality sheepskin.
+Simple
+Overview 
+In 2005, the Simple product line focused on rebuilding its core
+product segments, sneakers and clogs, while abandoning its
+Simple Sheep program launched in the third quarter of 2004.
+Simple’s core sneaker and clog lines have shown strong
+growth of 33.1% in the year ended December 31, 2005 when
+compared to last year. We continue to introduce new styles and
+categories of footwear under the Simple brand, including the
+newly introduced Green
+35
+Table of Contents 
+Toe tm 
+Collection of 100% natural, ecologically-friendly footwear,
+which has been well received by retailers and the media. At the
+same time, we have changed our sales and distribution efforts
+through increased marketing efforts as well as improvements in
+distribution through the establishment of separate dedicated
+sales representatives for the Simple brand in several
+territories. We expect our Simple brand to experience growth as
+we continue to develop our re-focused product line and
+successfully implement our strategy to expand our distribution
+channels for the Simple brand.
+Consumer
+Direct Overview 
+Our Consumer Direct business includes our Internet and catalog
+retailing operations as well as our retail outlets stores.
+We acquired our Internet and catalog retailing business in
+November 2002 as part of the acquisition of the Teva Rights. In
+2005, we also opened a retail outlet store in a premium retail
+outlet mall in Camarillo, California in addition to our other
+retail outlet store at the Ventura, California distribution
+center. We currently expect to open additional retail outlet
+stores in select premium outlet malls in the U.S. and currently
+anticipate opening up to three additional stores in 2006, based
+on the success of the existing stores. Our Consumer Direct
+business, which today sells all three of our brands, enables us
+to meet the growing demand for these products, sell the products
+at retail prices and provide us with significant incremental
+operating income. From the time we initiated our Consumer Direct
+business through 2005, we have had significant revenue growth,
+much of which occurred as the underlying brands gained
+popularity, as consumers have continued to increase reliance on
+the Internet for footwear and other purchases and as we began to
+open retail outlet stores. Net sales of the Consumer Direct
+business were $6,501,000 in 2003, $19,871,000 in 2004 and
+$27,055,000 in 2005.
+Managing our Internet business requires us to focus on
+generating Internet traffic to our websites, to effectively
+convert website visits into orders and to maximize average order
+sizes. We distribute approximately 400,000 catalogs every six
+months to drive our catalog order business. Overall, our
+Consumer Direct business benefits from the strength of our
+brands and, as we grow our brands over time, we expect this
+business to continue to be an important segment of our business.
+Licensing
+Overview 
+In 2004, we embarked on a strategy to license our well-known and
+respected footwear brands to complementary products outside of
+footwear, generally in the apparel and accessories categories.
+We currently have several licensing agreements for Teva,
+including U.S. licenses for men’s and women’s
+headwear and socks, a Canadian sportswear license and a newly
+signed license for bags and packs to be delivered for the Spring
+2007 season. We have recently terminated our previous domestic
+licensing agreements for time pieces, eyewear and men’s
+apparel. We also have licensing arrangements for UGG for
+handbags and other small leather goods, outerwear and cold
+weather accessories. Because this licensing strategy is in its
+early stages, and due to the lead times required to bring the
+products to market, we have only recently begun to recognize
+licensing revenues and we do not expect significant incremental
+net sales and profits from licensing in the near future.
+However, we believe licensing revenues may become a more
+significant portion of our net sales and profits over time if we
+can recruit strong licensees and if our licensees can sell the
+licensed products in the quantities and of the quality they have
+projected. Beginning in the third quarter of 2004, our licensees
+began to ship their products. For the year ended
+December 31, 2005, we recognized net license revenues for
+UGG of $493,000, related to our UGG handbag, outerwear and cold
+weather accessories licenses, and recognized $581,000 for Teva
+licenses, approximately $450,000 of which was related to final
+payments on our terminated apparel, time pieces, and eyewear
+licenses. The minimum net annual royalties that we are scheduled
+to receive under the remaining existing licensing agreements,
+assuming renewal options are exercised, are $485,000 in 2006,
+$571,000 in 2007, $591,000 in 2008 and $596,000 in 2009. The
+activity is currently very small in relation to the consolidated
+operations and, therefore, separate segment information is not
+presented.
+36
+Table of Contents 
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters. To date, Simple has not had a
+seasonal impact on the Company.
+2004 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales
+$
+44,272,000
+$
+40,546,000
+$
+55,797,000
+$
+74,172,000
+Income from operations
+$
+9,628,000
+$
+9,274,000
+$
+9,358,000
+$
+14,202,000
+2005 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales
+$
+64,263,000
+$
+40,341,000
+$
+69,193,000
+$
+90,963,000
+Income from operations
+$
+14,399,000
+$
+4,677,000
+$
+14,018,000
+$
+19,174,000
+With the dramatic growth in UGG in recent years, combined with
+the introduction of a Fall Teva line, net sales in the last half
+of the year have exceeded that for the first half of the year.
+Given our expectations for each of our brands in 2006, we
+currently expect this trend to continue. Nonetheless, actual
+results could differ materially depending upon consumer
+preferences, availability of product, competition and our
+customers continuing to carry and promote our various product
+lines, among other risks and uncertainties. See “Risk
+Factors.”
+37
+Table of Contents 
+Results
+of Operations 
+The following table sets forth certain operating data for the
+periods indicated.
+Years Ended
+December 31, 
+2003 
+2004 
+2005 
+Net sales by
+location: 
+U.S. 
+$
+98,710,000
+$
+175,419,000
+$
+229,487,000
+International
+22,345,000
+39,368,000
+35,273,000
+Total
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Net sales by product line and
+Consumer Direct business: 
+Teva:
+Wholesale
+$
+72,783,000
+$
+83,477,000
+$
+80,446,000
+Consumer Direct
+3,687,000
+4,759,000
+4,792,000
+Total
+76,470,000
+88,236,000
+85,238,000
+UGG:
+Wholesale
+34,561,000
+101,806,000
+150,279,000
+Consumer Direct
+2,300,000
+14,415,000
+21,354,000
+Total
+36,861,000
+116,221,000
+171,633,000
+Simple:
+Wholesale
+7,210,000
+9,633,000
+6,980,000
+Consumer Direct
+514,000
+697,000
+909,000
+Total
+7,724,000
+10,330,000
+7,889,000
+Total
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Income (loss) from operations
+by product line and Consumer Direct business: 
+Teva wholesale
+$
+21,739,000
+$
+24,901,000
+$
+22,388,000
+UGG wholesale
+10,002,000
+31,674,000
+48,765,000
+Simple wholesale
+(1,176,000
+)
+45,000
+(834,000
+)
+Consumer Direct
+1,148,000
+5,533,000
+6,972,000
+Unallocated overhead costs
+(12,275,000
+)
+(19,691,000
+)
+(25,023,000
+)
+Total
+$
+19,438,000
+$
+42,462,000
+$
+52,268,000
+38
+Table of Contents 
+The following table sets forth certain operating data as a
+percentage of net sales for the periods indicated, and the
+increase (decrease) in each item of operating data between the
+periods.
+Years Ended
+December 31, 
+Percent Increase
+(Decrease) 
+2003 
+2004 
+2005 
+2003 to 2004 
+2004 to 2005 
+Net sales
+100.0
+%
+100.0
+%
+100.0
+%
+77.4
+%
+23.3
+%
+Cost of sales
+57.6
+57.9
+57.9
+78.4
+23.2
+Gross profit
+42.4
+42.1
+42.1
+76.1
+23.3
+Selling, general and
+administrative expenses
+26.8
+22.3
+22.4
+48.0
+23.5
+Litigation income
+(0.4
+)
+—
+—
+(100.0
+)
+—
+Income from operations
+16.0
+19.8
+19.7
+118.4
+23.1
+Interest expense and other
+3.7
+1.1
+(0.0
+)
+(50.8
+)
+(98.9
+)
+Income before income taxes
+12.3
+18.7
+19.7
+170.2
+29.9
+Income taxes
+4.7
+6.8
+7.7
+156.3
+38.9
+Net income
+7.6
+%
+11.9
+%
+12.0
+%
+179.0
+24.7
+Year
+Ended December 31, 2004 Compared to Year Ended
+December 31, 2005 
+Overview. In 2005, we had net sales of
+$264,760,000 and income from operations of $52,268,000 compared
+to net sales of $214,787,000 and income from operations of
+$42,462,000 in 2004. These results were primarily due to
+increased sales of the UGG product line while maintaining
+comparable gross margin and operating income margin to last year.
+Net Sales. Net sales increased by
+$49,973,000, or 23.3%, from $214,787,000 in 2004 to $264,760,000
+in 2005. Net sales increased in 2005 due primarily to:
+(1) a 14.8% overall increase in the volume of footwear sold
+from 7,678,000 pairs in 2004 to 8,815,000 pairs in 2005, and
+(2) the expansion of the Consumer Direct business. In
+addition, the weighted average wholesale selling price per unit
+increased 7.5% from $26.10 in 2004 to $28.06 in 2005, caused by
+an increase in sales of UGG products, which generally carry
+higher average selling prices, and a decrease in international
+sales, which generally carry a lower average selling price. This
+was partially offset by increased sales of Teva thongs, which
+generally carry a lower average selling price than sales of our
+other products.
+Net wholesale sales of Teva decreased by $3,031,000, or 3.6%,
+from $83,477,000 in 2004 to $80,446,000 in 2005. This decrease
+was due to several factors including an unseasonably cold Spring
+2005 season, increased competition, a recent lack of meaningful
+product innovation and a decline in sales in the European
+market. We are proactively addressing the situation going
+forward by dedicating significantly greater resources to product
+development, marketing and advertising, and the development of a
+solid international infrastructure. See
+“— Overview — Teva Overview”
+above.
+Net wholesale sales of UGG increased by $48,473,000, or 47.6%,
+from $101,806,000 in 2004 to $150,279,000 in 2005 due to several
+factors including a strong initial prebook of the Fall 2005 line
+including broad placement of our Metropolitan Collection. Demand
+for our various product categories in our expanded product line
+was strong throughout the Fall and Winter 2005 season. Our
+placement on “Oprah’s Favorite Things” gift show
+further increased demand for our product. Also, our deliveries
+in 2005 improved dramatically and the increased availability of
+inventory allowed us to fill a significantly greater amount of
+customer reorders in 2005 than in 2004. In addition, in early
+2005 we delivered our first UGG Spring product line; whereas in
+2004 we did not offer an UGG Spring product line. Also during
+the first quarter of 2005, we were able to deliver carryover
+shipments of our 2004 Fall and Holiday product, whereas during
+the first quarter of 2004 there were fewer carryover shipments
+from the 2003 Fall and Holiday season as we had a limited amount
+of product available to ship. In the fourth quarter of 2005, we
+delivered our Holiday 2005 orders on time, rather than in the
+following first quarter, which we currently expect will
+39
+Table of Contents 
+result in lower UGG sales in the first quarter of 2006 compared
+to the first quarter of 2005. See
+“— Overview — UGG Overview”
+above.
+Net wholesale sales of Simple decreased by $2,653,000, or 27.5%,
+from $9,633,000 in 2004 to $6,980,000 in 2005. This decrease was
+largely due to the discontinuation of the Simple sheep product
+line in late 2004, partially offset by a renewed interest in the
+Simple brand, including continued growth in the Sugar and other
+sneaker styles as well as our clog offering. See
+“— Overview — Simple
+Overview” above.
+Net sales of the Consumer Direct business increased by
+$7,184,000, or 36.2%, from $19,871,000 in 2004 to $27,055,000 in
+2005, representing 9.3% of net sales in 2004 and 10.2% of net
+sales in 2005. In 2004, net sales of the Consumer Direct
+business included retail sales of Teva of $4,759,000, UGG of
+$14,415,000 and Simple of $697,000. In 2005, net sales of the
+Consumer Direct business included retail sales of Teva of
+$4,792,000, UGG of $21,354,000 and Simple of $909,000. The
+increase in net sales of the Consumer Direct business was due to
+the increased demand for the UGG brand combined with increased
+product availability that allowed us to fill more Holiday orders
+in 2005 than in 2004 through our Internet business, as well as
+increased retail outlet sales resulting from our new retail
+outlet store in Camarillo, California, which was opened in
+November 2005. The increase was also fueled by increased
+awareness of the Internet site and increased consumer acceptance
+of online purchasing. See
+“— Overview — Consumer Direct
+Overview” above.
+International sales for all of our products decreased by
+$4,095,000, or 10.4%, from $39,368,000 in 2004 to $35,273,000 in
+2005, representing 18.3% of net sales in 2004 and 13.3% of net
+sales in 2005. The lower dollar amount of international sales
+resulted from declines in both Teva and UGG in the European
+market. We are currently addressing this situation through the
+development of an improved international infrastructure
+including the establishment of a European sales office in early
+2006.
+Gross Profit. Gross profit increased by
+$21,089,000, or 23.3%, from $90,433,000 in 2004 to $111,522,000
+in 2005. As a percentage of net sales, gross profit margin was
+comparable at 42.1% in both 2004 and 2005, due to several
+offsetting factors. Gross margin was favorably impacted by the
+elimination of the airfreight costs incurred by UGG in 2004, the
+lower overhead costs per pair resulting from our leverage of
+fixed overhead costs over a greater production volume in 2005
+and the increase in domestic sales, which generally have a
+higher gross margin than our international sales. These
+favorable items were offset by an increase in inventory
+write-downs and closeout sales in 2005 combined with an increase
+in UGG sales, which generally carry a lower gross margin than
+sales of our Teva and Simple product lines.
+Selling, General and Administrative
+Expenses. Selling, general and administrative
+expenses, or SG&A, increased by $11,283,000, or 23.5%, from
+$47,971,000 in 2004 to $59,254,000 in 2005. As a percentage of
+net sales, SG&A increased slightly from 22.3% in 2004 to
+22.4% in 2005. The increase in SG&A expenses included
+increases related to the higher sales volume including increased
+costs at our domestic distribution facilities of $3,042,000,
+increased marketing costs of $1,849,000, increased selling
+commissions of $1,224,000, increased bad debt expense of
+$1,159,000 and increased costs of our Consumer Direct division
+of $704,000, among others, as well as a $1,471,000 increase in
+accounting fees including costs related to our compliance with
+Section 404 of the Sarbanes-Oxley Act of 2002.
+Income from Operations. Income from
+operations increased by $9,806,000, or 23.1%, from $42,462,000
+in 2004 to $52,268,000 in 2005, representing 19.8% of sales in
+2004 and 19.7% in 2005. This was due primarily to the factors
+discussed above.
+Income from operations of Teva wholesale decreased by
+$2,513,000, or 10.1%, from $24,901,000 in 2004 to $22,388,000 in
+2005. This decrease was largely due to the $3,031,000, or 3.6%,
+decrease in net sales, an increase in bad debt expense of
+$698,000 and an increase in marketing costs of $396,000,
+partially offset by decreased selling commissions on the lower
+sales volume.
+Income from operations of UGG wholesale increased by
+$17,091,000, or 54.0%, from $31,674,000 in 2004 to $48,765,000
+in 2005. This was largely due to the $48,473,000, or 47.6%
+increase in net sales, partially offset by a $1,693,000 increase
+in sales commissions on the higher sales volume and increased
+advertising and marketing costs of $1,434,000.
+40
+Table of Contents 
+Income from operations of Simple wholesale was $45,000 in 2004
+compared to a loss from operations of $834,000 in 2005. This was
+primarily due to a $2,653,000, or 27.5%, decrease in net sales
+during the period combined with an increase in bad debt expense
+of $263,000. This was partially offset by an increase in gross
+margin resulting from a reduced impact of closeout sales in 2005
+compared to 2004.
+Income from operations of our Consumer Direct business increased
+by $1,439,000, or 26.0%, from $5,533,000 in 2004 to $6,972,000
+in 2005. This was largely due to the $7,184,000, or 36.2%,
+increase in sales during the period, partially offset by a
+corresponding increase in related costs.
+Unallocated overhead costs increased by $5,332,000, or 27.1%,
+from $19,691,000 in 2004 to $25,023,000 in 2005. These costs
+included increased warehouse and distribution costs of
+$3,042,000 and a $1,471,000 increase in accounting fees,
+including costs related to compliance with Section 404 of
+the Sarbanes-Oxley Act of 2002.
+Other Expense (Income). Net interest
+expense was $2,236,000 in 2004 compared with net interest
+expense of $29,000 in 2005. The interest expense in 2004
+resulted principally from the borrowings incurred to finance our
+purchase of the Teva Rights in November 2002, which we
+subsequently paid off in full in the second quarter of 2004.
+Since we had outstanding borrowings under our credit facility
+for only a short period of time in 2005 in order to meet our
+seasonal borrowing needs, the interest income received on our
+invested cash was offset by the interest expense incurred on the
+seasonal borrowings. Other expense (income) exclusive of net
+interest expense (income) was not material in either period.
+Income Taxes. In 2004, income tax
+expense was $14,684,000, representing an effective income tax
+rate of 36.5%. In 2005, income tax expense was $20,398,000
+representing an effective income tax rate of 39.0%. The increase
+in the effective tax rate was primarily due to a higher annual
+pre-tax income for our domestic operating unit, which bears a
+higher tax rate than that of our international subsidiaries,
+resulting in a higher blended effective tax rate for the current
+year. In addition, in 2005 we repatriated $3,500,000 from our
+international subsidiaries under section 965 of the
+American Jobs Creation Act of 2004, resulting in approximately
+$331,000 of incremental Federal and State income taxes.
+Net Income. Our net income increased
+24.7% from $25,539,000 in 2004 to $31,845,000 in 2005 as a
+result of higher net sales and lower interest expense in 2005,
+as discussed above. Our earnings per diluted share increased
+18.1% from $2.10 to $2.48 as a result of the increase in net
+income, which was partially offset by the increase in weighted
+average common shares outstanding due to the follow-on public
+offering in May 2004.
+Year
+Ended December 31, 2003 Compared to Year Ended
+December 31, 2004 
+Overview. In 2004, we had net sales of
+$214,787,000 and income from operations of $42,462,000 compared
+to net sales of $121,055,000 and income from operations of
+$19,438,000 in 2003. These results were primarily due to
+increased demand for all three of our product lines during the
+year.
+Net Sales. Net sales increased by
+$93,732,000, or 77.4%, from $121,055,000 in 2003 to $214,787,000
+in 2004. Net sales increased in 2004 due primarily to:
+(1) an increase in the number of units sold for each of our
+three brands, resulting in a 51.6% overall increase in the
+volume of footwear sold from 5,063,000 pairs in 2003 to
+7,678,000 pairs in 2004, and (2) the expansion of the
+Consumer Direct business. In addition, the weighted average
+wholesale selling price per unit increased 13.3% from $23.03 in
+2003 to $26.10 in 2004, caused by an increase in sales of UGG
+products, which generally carry higher average selling prices,
+partially offset by increased sales of Teva thongs, which
+generally carry a lower average selling price than sales of our
+other products, and lower average selling prices on the closeout
+sales in 2004 compared to 2003.
+Net wholesale sales of Teva increased by $10,694,000, or 14.7%,
+from $72,783,000 in 2003 to $83,477,000 in 2004. This increase
+was primarily due to increased sales volume of sport sandals
+resulting from an improvement in retail sell-through, increased
+sales in the international markets, selective addition of new
+distribution channels in our domestic market, increased sales
+volume of thongs and slides and increased sales volume of
+certain styles of the recently introduced closed-toe footwear
+offerings. See “— Overview — Teva
+Overview” above.
+Net wholesale sales of UGG increased by $67,245,000, or 194.6%,
+from $34,561,000 in 2003 to $101,806,000 in 2004. This was
+largely as a result of the growing popularity of the brand,
+significantly increased brand awareness
+41
+Table of Contents 
+and considerable celebrity exposure, as well as the fulfillment
+of the
+pent-up 
+demand for the UGG product in the first half of 2004. We also
+increased our sales of UGG products to the international
+markets, resulting in an increase in international UGG sales of
+$12,326,000, or 1269.4%, from $971,000 in 2003 to $13,297,000 in
+2004. The UGG sales volume increase was also due to strong
+retail sell-through, expansion of the product line to include
+more women’s and kids’ boot styles and continued
+geographical expansion throughout the U.S. See
+“— Overview — UGG
+Overview” above.
+Net wholesale sales of Simple increased by $2,423,000, or 33.6%,
+from $7,210,000 in 2003 to $9,633,000 in 2004. This increase was
+due to several factors, including strong initial sales to
+retailers (sell-in) of the Simple shearling boots in the third
+quarter of 2004. The increase in Simple sales in 2004 was also
+due to a renewed interest in the Simple brand, including
+continued growth in the sales of the Sugar and other sneaker
+styles, and the successful introduction of the new line of
+Simple clogs. The Simple sneaker and clog styles have continued
+to retail well; however, while initial sell-in of the Simple
+shearling boots was strong, the sell-through to consumers of
+this type of boot at its price points, including sell-through of
+similarly-priced products offered by competitors, was slow and
+accordingly these shearling styles were not carried forward in
+the 2005 Simple product line. The sell-through of these
+shearling boots, as well as similar products offered by
+competitors, was not strong as the boots were mid-priced boots
+with retail selling prices in the $50 to $80 range, which was
+too close to the $110 selling price of the similar Classic boot
+offering from UGG, which was by far the preferred brand by
+consumers. See
+“— Overview — Simple
+Overview” above.
+Net sales of the Consumer Direct business increased by
+$13,370,000, or 205.7%, from $6,501,000 in 2003 to $19,871,000
+in 2004. In 2003, net sales of the Consumer Direct business
+included retail sales of Teva of $3,687,000, UGG of $2,300,000
+and Simple of $514,000. In 2004, net sales of the Consumer
+Direct business included retail sales of Teva of $4,759,000, UGG
+of $14,415,000 and Simple of $697,000. The increase in net sales
+of the Consumer Direct business was due to the increased demand
+for the underlying brands, increased awareness of the Internet
+site and increased consumer acceptance of online purchasing. Our
+Internet sales for UGG were especially strong, increasing 526.7%
+in 2004 compared to 2003, as consumers who were unable to find
+the UGG products at their local retailers frequently searched
+the Internet for availability of the UGG products, which further
+contributed to increased Internet sales for our Consumer Direct
+business. See
+“— Overview — Consumer Direct
+Overview” above.
+International sales for all of our products increased by
+$17,023,000, or 76.2%, from $22,345,000 in 2003 to $39,368,000
+in 2004, representing 18.5% of net sales in 2003 and 18.3% of
+net sales in 2004. The higher dollar amount of international
+sales resulted from our sales of more UGG product to the
+international markets in order to begin to expand in those
+territories, our international expansion strategy and the lower
+relative pricing to European customers due to the strength of
+the Euro.
+Gross Profit. Gross profit increased by
+$39,088,000, or 76.1%, from $51,345,000 in 2003 to $90,433,000
+in 2004. As a percentage of net sales, gross profit margin
+decreased slightly from 42.4% in 2003 to 42.1% in 2004. The
+decrease in gross profit margin was due in part to the
+significant increase in UGG sales during 2004, which generally
+carry a lower gross margin than Teva, an increase in airfreight
+costs in our efforts to improve deliveries of UGG products, and
+the non-recurrence of the 2003 gain caused by the favorable
+impact of selling in Euros in the European markets in 2003,
+whereas all sales were denominated in U.S. dollars in 2004.
+These factors were partially offset by a higher volume of
+Internet sales, which carry a higher gross margin than items
+sold at wholesale prices, a reduced impact of closeout sales,
+lower overhead costs per pair, and the addition of approximately
+$950,000 of net license revenues, primarily related to UGG
+handbags and outerwear.
+Selling, General and Administrative
+Expenses. Selling, general and administrative
+expenses, or SG&A, increased by $15,564,000, or 48.0%, from
+$32,407,000 in 2003 to $47,971,000 in 2004. As a percentage of
+net sales, SG&A decreased from 26.8% in 2003 to 22.3% in
+2004 largely due to the continued leverage of operating costs on
+the increased sales volume. The increase in the dollar amount of
+SG&A expenses was due to a combination of factors, including
+increased sales commissions of $3,817,000 on the higher sales
+volume; increased payroll costs of $3,764,000 attributed to
+increased performance compensation on the significantly improved
+operating results combined with an increase in headcount to
+support the substantial growth; increased warehouse and
+distribution costs of $1,563,000; higher legal costs associated
+with increased efforts to protect our intellectual property
+rights of
+42
+Table of Contents 
+$1,523,000; increased costs of our growing Consumer Direct
+business of $1,442,000; increased marketing and advertising
+costs of $1,067,000; and, other general increases in costs to
+support the increased sales.
+Litigation Income. In 2003, we received
+a favorable resolution in a European anti-dumping duties matter
+in the amount of $500,000.
+Income from Operations. Income from
+operations increased by $23,024,000, or 118.4%, from $19,438,000
+in 2003 to $42,462,000 in 2004. This was due primarily to the
+factors discussed above.
+Income from operations of Teva wholesale increased by
+$3,162,000, or 14.5%, from $21,739,000 in 2003 to $24,901,000 in
+2004. This increase was largely due to the $10,694,000, or
+14.7%, increase in net sales and a reduction in bad debt expense
+of $547,000. These were partially offset by increases in Teva
+selling commissions of $593,000 on the higher sales volume,
+increased payroll costs of $256,000 and the non-recurrence of
+the 2003 gain caused by the favorable impact of selling in Euros
+in the European markets in 2003, whereas all sales were
+denominated in U.S. dollars in 2004.
+Income from operations of UGG wholesale increased by
+$21,672,000, or 216.7%, from $10,002,000 in 2003 to $31,674,000
+in 2004. This was largely due to the $67,245,000, or 194.6%
+increase in net sales, partially offset by a $3,190,000 increase
+in sales commissions on the higher sales volume, increased
+airfreight costs of $3,374,000, increased payroll costs of
+$985,000 and increased advertising and marketing costs of
+$1,161,000.
+Income from operations of Simple wholesale increased by
+$1,221,000 from a loss from operations of $1,176,000 in 2003 to
+income from operations of $45,000 in 2004. This was primarily
+due to a $2,423,000, or 33.6%, increase in net sales during the
+period combined with an increase in gross margin resulting from
+a reduced impact of inventory write-downs and closeout sales in
+2004 compared to 2003.
+Income from operations of our Consumer Direct business increased
+by $4,385,000, or 382.0%, from $1,148,000 in 2003 to $5,533,000
+in 2004. This was largely due to the $13,370,000, or 205.7%,
+increase in sales during the period, partially offset by a
+corresponding increase in related costs.
+Unallocated overhead costs increased by $7,416,000, or 60.4%,
+from $12,275,000 in 2003 to $19,691,000 in 2004. These costs
+included increased payroll costs, increased warehouse and
+distribution costs and increased legal costs associated with
+protection of our intellectual property rights that support our
+business segments.
+Other Expense (Income). Net interest
+expense was $4,557,000 in 2003 compared with $2,236,000 in 2004.
+The interest expense resulted principally from the borrowings
+incurred to finance our purchase of the Teva Rights in November
+2002. The decrease in interest expense for 2004 reflects the
+repayment of outstanding borrowings, partially through the
+equity offering in May 2004, offset by the prepayment penalties
+and the write-off of a pro rata share of the previously
+capitalized loan costs incurred as a result of paying down our
+debt early. Other expense (income) exclusive of net interest
+expense was not material in either period.
+Income Taxes. In 2003, income tax
+expense was $5,730,000, representing an effective income tax
+rate of 38.5%. In 2004, income tax expense was $14,684,000
+representing an effective income tax rate of 36.5%. The decrease
+in the effective tax rate was primarily due to the restructuring
+our international operations, which resulted in a reduced
+effective tax rate.
+Net Income. In 2003, net income was
+$9,154,000, or $0.77 per diluted share. In 2004, net income
+was $25,539,000, or $2.10 per diluted share. The dramatic
+increases in net income and earnings per diluted share resulted
+from the factors discussed above.
+Off-Balance
+Sheet Arrangements 
+We have no off-balance sheet arrangements other than operating
+leases. See “— Contractual
+Obligations” below. We do not believe that these operating
+leases are material to our current or future financial
+condition, results of operations, liquidity, capital resources
+or capital expenditures.
+43
+Table of Contents 
+Liquidity
+and Capital Resources 
+We finance our working capital and operating needs using a
+combination of our cash and cash equivalents balances,
+short-term investments, cash generated from operations and the
+credit availability under our revolving credit facility.
+The seasonality of our business requires us to build inventory
+levels in anticipation of the sales for the coming season. Teva
+generally begins to build inventory levels beginning in the
+fourth quarter and first quarter in anticipation of the spring
+selling season that occurs in the first and second quarters,
+whereas UGG generally builds its inventories in the second
+quarter and third quarter to support sales for the Fall and
+Winter selling seasons, which historically occur during the
+third and fourth quarters. In addition, throughout much of 2005
+we increased our UGG inventories significantly compared to the
+corresponding levels in the year ago period in order to better
+meet demand and ensure more timely deliveries to our retail
+partners in the Fall and Winter season this year. However, as
+the Fall and Winter 2005 selling season came to an end, our UGG
+inventories were substantially reduced to $17,704,000 at
+December 31, 2005 compared to $56,164,000 at
+September 30, 2005 and are just $4,672,000 higher than the
+$13,032,000 at December 31, 2004.
+Our cash flow cycle includes the purchase of these inventories,
+the subsequent sale of the inventories and the eventual
+collection of the resulting accounts receivable. As a result,
+our working capital requirements begin when we purchase the
+inventories and continue until we ultimately collect the
+resulting receivables. Given the seasonality of our Teva and UGG
+brands, our working capital requirements fluctuate significantly
+throughout the year. The cash required to fund these working
+capital fluctuations is generally provided using a combination
+of our internal cash flows and borrowings under our revolving
+credit facility.
+Cash from Operating Activities. Net
+cash provided by operating activities was $29,607,000 for the
+year ended December 31, 2005 compared to net cash provided
+by operating activities of $12,416,000 for the year ended
+December 31, 2004. The increase in net cash provided by
+operating activities in 2005 was largely due to increased cash
+collections during the period, a smaller increase in inventories
+and the increase in net income by $6,306,000 compared to that
+for 2004. Net working capital improved by $37,266,000 to
+$107,120,000 as of December 31, 2005 from $69,854,000 as of
+December 31, 2004, primarily as a result of net income for
+the period of $31,845,000.
+Cash from Investing Activities. Net
+cash provided by investing activities was $8,902,000 in 2005
+compared to net cash used in investing activities of $16,873,000
+in 2004. In 2005, the cash provided by investing activities was
+primarily derived from $12,975,000 of net sales of short-term
+investments, partially offset by purchases of property and
+equipment of $4,104,000. In 2004, the net cash used in investing
+activities was primarily a result of $15,475,000 of net
+purchases of short-term investments and $1,441,000 of purchases
+of property and equipment.
+Cash from Financing Activities. In
+2005, net cash provided by financing activities was $1,784,000
+consisting entirely of cash received from exercises of employee
+stock options. In 2004, net cash provided by financing
+activities aggregated $8,213,000, including cash received from
+the issuances of common stock of $38,500,000, primarily in
+connection with the follow-on public stock offering in May 2004,
+which was used, in part, to pay off all remaining long-term debt.
+Our liquidity consists primarily of cash, trade accounts
+receivable, inventories and a revolving credit facility. At
+December 31, 2005, working capital was $107,120,000
+including $50,749,000 of cash and cash equivalents and
+$2,500,000 of short-term investments. Cash provided by operating
+activities aggregated $29,607,000 in 2005. Trade accounts
+receivable increased by 1.7% to $40,918,000 at December 31,
+2005 from $40,226,000 at December 31, 2004 despite a 22.6%
+increase in net sales during the fourth quarter of 2005 compared
+to the fourth quarter of 2004, due to improved cash collections
+and an increase in sales of the Consumer Direct business which
+has cash sales that are immediately collected at the time of
+sale. Accounts receivable turnover decreased to 6.9 times in the
+twelve months ended December 31, 2005 from 8.1 times in the
+twelve months ended December 31, 2004 as accounts
+receivable collections were slightly faster in 2004 than in 2005
+due to the lack of availability of UGG product in 2004 which
+encouraged retailers to pay their receivables balances faster in
+efforts to receive their upcoming deliveries more quickly.
+Inventories increased by $3,114,000, or 10.3%, to $33,374,000 at
+December 31, 2005 from $30,260,000 at December 31,
+2004, reflecting a $4,672,000 increase in UGG inventory, a
+$3,659,000 decrease in Teva inventory
+44
+Table of Contents 
+and a $2,101,000 increase in Simple inventory. Overall,
+inventory turnover decreased to 3.2 times for the year ended
+December 31, 2005 from 5.5 times for the year ended
+December 31, 2004 largely due to increased inventory levels
+for UGG during 2005. In order to improve our ability to meet
+demand and to ensure more timely UGG deliveries in 2005 compared
+to 2004, we greatly improved our production timelines and
+sourcing in 2005, resulting in an increase in our UGG inventory
+levels throughout much of 2005 in comparison to 2004. However,
+as the Fall and Winter 2005 selling season came to an end, our
+UGG inventories were substantially reduced to $17,704,000 at
+December 31, 2005 compared to $56,164,000 at
+September 30, 2005 and are just $4,672,000 higher than the
+$13,032,000 level at December 31, 2004. The $3,659,000
+decrease in Teva inventory reflects our continuing efforts to
+bring our Teva inventory into stock closer to when we expect it
+to be shipped to our customers and reflects our current
+expectations for lower Teva sales in Spring 2006 than we
+experienced in Spring 2005. The $2,101,000 increase in Simple
+inventory is in anticipation of increased Spring 2005 sales in
+comparison to the Spring 2004 sales levels.
+Our revolving credit facility with Comerica Bank (the
+“Facility”) provided for a maximum availability of
+$25,000,000 for the period from September 6, 2005 to
+December 6, 2005, and $20,000,000 for the remainder of the
+term, subject to a borrowing base. In general, the borrowing
+base is equal to 75% of eligible accounts receivable, as
+defined, and 50% of eligible inventory, as defined. Up to
+$10,000,000 of borrowings may be in the form of letters of
+credit. The Facility bears interest at the lender’s prime
+rate (7.25% at December 31, 2005) or, at our option,
+at LIBOR (4.39% at December 31, 2005) plus 1.0% to
+2.5%, depending on our ratio of liabilities to earnings before
+interest, taxes, depreciation and amortization
+(“EBITDA”), and is secured by substantially all of our
+assets. The Facility includes annual commitment fees of
+$60,000 per year and expires on June 1, 2007. At
+December 31, 2005, we had no outstanding borrowings under
+the Facility, no foreign currency reserves for outstanding
+forward contracts and outstanding letters of credit aggregated
+$52,000. As a result, $19,948,000 was available under the
+Facility at December 31, 2005.
+The agreements underlying the Facility contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and a tangible net worth requirement, among others,
+as well as a prohibition on the payment of dividends. We were in
+compliance with all covenants at December 31, 2005, and
+remain so as of the date of this report.
+Capital expenditures totaled $4,104,000 for the year ended
+December 31, 2005, and related primarily to the opening and
+expansion of an additional distribution center, the replacement
+of certain computer equipment and trade show booths, the opening
+of the Camarillo retail outlet store and the purchase of
+promotional vehicles for the Teva marketing team. We currently
+have no material commitments for future capital expenditures but
+estimate that the capital expenditures for 2006 will range from
+approximately $4,000,000 to $5,000,000 and may include
+additional costs associated with further improvements at our
+distribution centers, computer system updates, the addition of
+new retail outlet stores and the purchase of new tradeshow
+booths. The actual amount of capital expenditures for 2006 may
+differ from this estimate, largely depending on any unforeseen
+needs to replace existing assets and the timing of expenditures.
+Contractual Obligations. The following
+table summarizes our contractual obligations at
+December 31, 2005 and the effects such obligations are
+expected to have on liquidity and cash flow in future periods.
+Payments Due by Period 
+Less than 
+More than 
+Total 
+1 Year 
+1-3 Years 
+3-5 Years 
+5 Years 
+Operating lease obligations
+$
+14,657,000
+$
+3,595,000
+$
+6,830,000
+$
+3,223,000
+$
+1,009,000
+We previously had significant interest payment requirements on
+the long-term debt obligations discussed above. However, since
+we paid off all the outstanding balances on our long-term debt
+as of December 31, 2005, we have no future interest
+payments scheduled.
+We believe that internally generated funds, the available
+borrowings under our existing credit facilities and cash on hand
+will provide sufficient liquidity to enable us to meet our
+current and foreseeable working capital requirements. However,
+risks and uncertainties that could impact our ability to
+maintain our cash position include our growth rate, the
+continued strength of our brands, our ability to respond to
+changes in consumer preferences, our
+45
+Table of Contents 
+ability to collect our receivables in a timely manner, our
+ability to effectively manage our inventories and the volume of
+letters of credit used to purchase product, among others. See
+“Risk Factors” for a discussion of additional factors
+that may affect our working capital 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 requirement, we may
+seek to sell debt securities or additional equity securities or
+to obtain a credit facility. 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 present understandings,
+commitments or agreements with respect to the acquisition of any
+other businesses, we may, from time to time, evaluate
+acquisitions of other businesses.
+Impact of
+Inflation 
+We believe that the relatively moderate rates of inflation in
+recent years have not had a significant impact on our net sales
+or profitability.
+Critical
+Accounting Policies and Estimates 
+Revenue Recognition. We recognize
+revenue when products are shipped and the customer takes title
+and assumes risk of loss, collection of relevant receivable is
+probable, persuasive evidence of an arrangement exists, and the
+sales price is fixed or determinable. Allowances for estimated
+returns, discounts, and bad debts 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.
+In addition, the preparation of financial statements in
+conformity with accounting principles generally accepted in the
+U.S. requires management to make estimates and assumptions
+that affect the reported amounts of assets and liabilities,
+disclosures about contingent liabilities and the reported
+amounts of net sales and expenses during the reporting period.
+Management bases these estimates and assumptions upon historical
+experience, existing, known circumstances, authoritative
+accounting pronouncements and other factors that management
+believes to be reasonable under the circumstances. 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
+accurate in our estimates used for the reserves and allowances
+below. We believe that the estimates and assumptions below are
+among those most important to an understanding of our
+consolidated financial statements contained in this report.
+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, 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 are identified as
+potentially uncollectible, plus a non-specific reserve for the
+balance of accounts based on our historical experience with bad
+debts. Reserves have been fully established for all expected or
+probable losses of this nature. The gross trade accounts
+receivable balance was $48,067,000 and the allowance for
+doubtful accounts was $2,574,000 at December 31, 2005,
+compared to gross trade accounts receivable of $45,238,000 and
+allowance for doubtful accounts of $1,796,000 at
+December 31, 2004. The increase in the allowance for
+doubtful accounts at December 31, 2005 compared to
+December 31, 2004 was primarily related to the bankruptcy
+of a significant customer, Steve’s Shoes, as well as
+additional reserves established for our domestic UGG
+receivables. 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
+not specifically identified as uncollectible would change the
+allowance for doubtful accounts at December 31, 2005 by
+$315,000.
+Reserve for Sales Discounts. A
+significant portion of our domestic net sales and resulting
+trade accounts receivable reflects a discount that the customers
+may take, generally based upon meeting certain order, shipment
+46
+Table of Contents 
+and payment timelines. We estimate the amount of the discounts
+that are expected to be taken against the period-end trade
+accounts receivable and we record a corresponding reserve for
+sales discounts. We determine the amount of the reserve for
+sales discounts considering the amounts of available discounts
+in the period-end accounts receivable aging and historical
+discount experience, among other factors. The reserve for sales
+discounts was approximately $1,710,000 at December 31, 2005
+and $1,485,000 at December 31, 2004. The increase in the
+reserve for sales discounts at December 31, 2005 compared
+to December 31, 2004 is primarily due to the increase in
+the gross trade accounts receivable during the period and an
+increase in volume discounts for certain customers. Our use of
+different estimates and assumptions could produce different
+financial results. For example a 10.0% change in the estimate of
+the percentage of accounts that will ultimately take their
+discount would change the reserve for sales discounts at
+December 31, 2005 by $171,000.
+Allowance for Estimated Returns. We
+record an allowance for anticipated future returns of goods
+shipped prior to period-end. In general, we accept returns for
+damaged or defective products but discourage returns for other
+reasons. We base the amount of the allowance on any approved
+customer requests for returns, historical returns experience and
+any recent events that could result in a change in historical
+returns rates, among other factors. The allowance for returns
+was $2,865,000 at December 31, 2005 and $1,731,000 at
+December 31, 2004. The increase in the allowance for
+estimated returns increased due to an increase in net sales
+during the three months ended December 31, 2005 compared to
+the three months ended December 31, 2004, including a
+significant increase in the Internet sales of our Consumer
+Direct business which generally has a substantially higher
+return rate than that for our wholesale business. 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 percentage of sales expected to ultimately be
+returned would change the reserve for returns at
+December 31, 2005 by approximately $770,000.
+Inventory Write-Downs. Inventories are
+stated at lower of cost or market. 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 estimated future net selling prices. At
+December 31, 2005, inventories were stated at $33,374,000,
+net of inventory write-downs of $3,346,000. At December 31,
+2004, inventories were stated at $30,260,000, net of inventory
+write-downs of $1,176,000. The increase in inventory write-downs
+at December 31, 2005 compared to December 31, 2004
+includes write-downs for greater quantities of discontinued
+styles than we had at December 31, 2004. 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 amount at December 31, 2005
+by approximately $818,000.
+Valuation of Goodwill, Intangible and Other Long-Lived
+Assets. We periodically assess the impairment
+of goodwill, intangible and other long-lived assets based on
+assumptions and judgments regarding the carrying value of these
+assets. We test goodwill and nonamortizable intangible assets
+for impairment on an annual basis based on the fair value of the
+reporting unit (goodwill) or assets (nonamortizable intangibles)
+compared to its carrying value. We consider other long-lived
+assets to be impaired if we determine that the carrying value
+may not be recoverable. Among other considerations, we consider
+the following factors:
+• 
+the assets’ ability to continue to generate income from
+operations and positive cash flow in future periods;
+• 
+our future plans regarding utilization of the assets;
+• 
+any changes in legal ownership of rights to the assets; and
+• 
+changes in consumer demand or acceptance of the related brand
+names, products or features associated with the assets.
+If we consider the assets to be impaired, we recognize an
+impairment loss equal to the amount by which the carrying value
+of the assets exceeds the estimated fair value of the assets. In
+addition, as it relates to long-lived assets, we base the useful
+lives and related amortization or depreciation expense on the
+estimate of the period that the assets will generate sales or
+otherwise be used by us.
+In 2002, SFAS No. 142, “Goodwill and Other
+Intangible Assets,” became effective and as a result,
+we recorded a goodwill impairment charge in the first quarter of
+2002 of $8,973,000, net of the related income tax benefit of
+$843,000.
+47
+Table of Contents 
+Recent
+Accounting Pronouncements 
+In November 2004, the FASB issued Statement of Financial
+Accounting Standards, or SFAS No. 151,
+“ Inventory Costs — An Amendment of ARB
+No. 43, Chapter 4” . SFAS No. 151
+amends the guidance in ARB No. 43, Chapter 4,
+“ Inventory Pricing ”, to clarify the accounting
+for abnormal amounts of idle facility expense, freight, handling
+costs, and wasted material (spoilage). SFAS No. 151 is
+effective for fiscal years beginning after June 15, 2005
+and is required to be adopted in the first quarter of fiscal
+2006. We do not expect the adoption of SFAS No. 151 to
+have a material impact on our consolidated financial statements.
+In December 2004, the FASB issued SFAS No. 123R
+(revised 2004), “Share-Based Payment”.
+SFAS No. 123R supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+of employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005. The pro forma
+disclosure permitted under SFAS No. 123 will no longer
+be an alternative to financial statement recognition.
+SFAS No. 123R requires the determination of the fair
+value of the share-based compensation at the grant date and the
+recognition of the related expense over the period in which the
+share-based compensation vests. In April 2005, the Securities
+and Exchange Commission deferred the adoption date of
+SFAS No. 123R to the first interim period in the first
+fiscal year beginning after June 15, 2005. The Company is,
+therefore, required to adopt the provisions of
+SFAS No. 123R effective January 1, 2006.
+Note 1 (h) discloses the Company’s pro forma net
+income under SFAS No. 123, which is expected to be
+comparable to stock compensation pursuant to
+SFAS No. 123R. SFAS No. 123R also requires
+excess tax benefits, as defined, be reported as a financing
+activity rather than as an operating cash flow as is our current
+policy. This requirement will reduce net cash provided by
+operating activities and increase net cash produced by financing
+activities. While we cannot estimate what these amounts will be
+in the future, such excess tax deduction increased net cash
+provided by operating activities by $445,000, $6,030,000 and
+$2,293,000 for the years ended December 31, 2003, 2004 and
+2005 respectively.
+In May 2005, the FASB issued SFAS No. 154,
+“Accounting Changes and Error Corrections, a replacement of
+Accounting Principles Board Opinion (APB) No. 20,
+Accounting Changes, and FASB Statement No. 3, Reporting
+Accounting Changes in Interim Financial Statements.” This
+Statement requires retrospective application to prior
+periods’ financial statements of a change in accounting
+principle. It applies both to voluntary changes and to changes
+required by an accounting pronouncement if the pronouncement
+does not include specific transition provisions. APB 20
+previously required that most voluntary changes in accounting
+principles be recognized by recording the cumulative effect of a
+change in accounting principle. SFAS 154 is effective for
+fiscal years beginning after December 15, 2005. We will
+adopt this statement on January 1, 2006 and it is not
+expected to have a material effect on the financial statements
+upon adoption.
+Item 7A. 
+Quantitative
+and Qualitative Disclosures About Market Risk. 
+Derivative Instruments. Although we
+have used foreign currency hedges in the past, we no longer
+utilize forward contracts or other derivative instruments to
+mitigate exposure to fluctuations in the foreign currency
+exchange rate as all of our purchases and sales for the
+foreseeable future will be denominated in U.S. currency.
+Although our sales are denominated in U.S. currency, our
+sales may be impacted by fluctuations in the exchange rates
+between the U.S. dollar and the local currencies in the
+international markets where our products are sold. If the
+U.S. dollar strengthens, it may result in increased pricing
+pressure on our distributors, which may have a negative impact
+on our net sales. We are unable to estimate the amount of any
+impact on sales attributed to pricing pressures caused by
+fluctuations in exchange rates.
+Market Risk. Our market risk exposure
+with respect to financial instruments is to changes in the
+“prime rate” in the U.S. and changes in LIBOR. Our
+revolving line of credit provides for interest on outstanding
+borrowings at rates tied to the prime rate or at our election
+tied to LIBOR. At December 31, 2005, we had no outstanding
+borrowings under the revolving line of credit. A 1.0% increase
+in interest rates on our current borrowings would have no impact
+on income before income taxes.
+48
+Table of Contents 
+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 10K 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. 
+The Company’s Chief Executive Officer, Angel R. Martinez,
+and Chief Financial Officer, M. Scott Ash, with the
+participation of the Company’s management, carried out an
+evaluation of the effectiveness of the Company’s disclosure
+controls and procedures pursuant to Exchange Act
+Rule 13a-15(e). 
+Based upon that evaluation, the Chief Executive Officer and the
+Chief Financial Officer believe that, as of the end of the
+period covered by this report, the Company’s disclosure
+controls and procedures are effective in making known to them
+material information relating to the Company (including its
+consolidated subsidiaries) required to be included in this
+report.
+Disclosure controls and procedures, no matter how well designed
+and implemented, can provide only reasonable assurance of
+achieving an entity’s disclosure objectives. The likelihood
+of achieving such objectives is affected by limitations inherent
+in disclosure controls and procedures. These include the fact
+that human judgment in decision-making can be faulty and that
+breakdowns in internal control can occur because of human
+failures such as simple errors, mistakes or intentional
+circumvention of the established processes.
+There have been no significant changes in the company’s
+internal control over financial reporting that occurred during
+the fourth quarter 2005 that have materially affected the
+company’s internal control over financial reporting. We
+have completed our efforts regarding compliance with
+Section 404 of the Sarbanes-Oxley Act of 2002 for our
+fiscal year ending December 31, 2005. The results of our
+evaluation are discussed below in the Report of Management on
+Internal Control Over Financial Reporting.
+This effort included internal control documentation and review
+under the direction of senior management. During the course of
+our evaluation, we reviewed identified data errors and control
+problems and confirmed that appropriate corrective actions,
+including process improvements, were undertaken. These
+improvements included formalization of policies and procedures,
+improved segregation of duties and additional monitoring
+controls. Many of the components of our internal controls are
+also evaluated on an ongoing basis by members of our
+organization. The overall goals of these various evaluation
+activities are to monitor our internal controls, and to modify
+them as necessary. Our intent is to maintain the internal
+controls as dynamic systems that change as conditions warrant.
+REPORT OF
+MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
+REPORTING 
+Management of Deckers Outdoor Corporation (the
+“Company”) is responsible for establishing and
+maintaining adequate internal control over financial reporting
+as defined in
+Rules 13a-15(f) 
+and
+15d-15(f) 
+under the Securities Exchange Act of 1934. The 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 accounting principles
+generally accepted in the United States of America. Internal
+control over financial reporting includes those written policies
+and procedures that:
+• 
+pertain to the maintenance of records that, in reasonable
+detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the Company;
+• 
+provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in
+accordance with accounting principles generally accepted in the
+United States of America;
+• 
+provide reasonable assurance that receipts and expenditures of
+the Company are being made only in accordance with authorization
+of management and directors of the Company; and
+49
+Table of Contents 
+• 
+provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use or disposition of
+assets that could have a material effect on the consolidated
+financial statements.
+Internal control over financial reporting includes the controls
+themselves, as well as the monitoring of practices and actions
+taken to correct deficiencies as identified.
+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.
+Management assessed the effectiveness of the Company’s
+internal control over financial reporting as of
+December 31, 2005. 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. 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, 2005, the Company maintained effective
+internal control over financial reporting.
+KPMG LLP, independent registered public accounting firm, who
+audited and reported on the consolidated financial statements of
+the Company included in this report, has issued an attestation
+report on management’s assessment of internal control over
+financial reporting.
+Item 9B. 
+Other
+Information. 
+None.
+PART III 
+Item 10. 
+Directors
+and Executive Officers of the Registrant. 
+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.
+Our code of ethics is designed to meet the requirements of
+Section 406 of the Sarbanes-Oxley Act of 2002 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 2006 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, 2005, 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 2006 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, 2005, 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
+50
+Table of Contents 
+statement relating to the Registrant’s 2006 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, 2005, and
+such information is incorporated herein by reference.
+Item 13. 
+Certain
+Relationships and Related Transactions. 
+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 2006 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, 2005, and
+such information is incorporated herein by reference.
+Item 14. 
+Principal
+Accountant 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
+2006 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,
+2005, and such information is incorporated herein by reference.
+PART IV 
+Item 15. 
+Exhibits
+and Financial Statement Schedules. 
+Consolidated Financial Statements and Schedules required to be
+filed hereunder are indexed on
+Page F-1 
+hereof.
+Exhibit 
+2
+.1
+Certificate of Ownership and
+Merger Merging Deckers Corporation into Deckers Outdoor
+Corporation. (Exhibit 2.1 to the Registrant’s
+Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+3
+.1
+Amended and Restated Certificate
+of Incorporation of Deckers Outdoor Corporation.
+(Exhibit 3.1 to the Registrant’s Registration
+Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+3
+.2
+Restated Bylaws of Deckers Outdoor
+Corporation. (Exhibit 3.2 to the Registrant’s
+Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.1
+1993 Employee Stock Incentive
+Plan. (Exhibit 99 to the Registrant’s Registration
+Statement on
+Form S-8, 
+File
+No. 33-47097 
+and incorporated by reference herein)
+#10
+.2
+Form of Incentive Stock Option
+Agreement under 1993 Employee Stock Incentive Plan.
+(Exhibit 10.9 to the Registrant’s Registration
+Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.3
+Form of Non-Qualified Stock Option
+Agreement under 1993 Employee Stock Incentive Plan.
+(Exhibit 10.10 to the Registrant’s Registration
+Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.4
+Form of Restricted Stock
+Agreement. (Exhibit 10.11 to the Registrant’s
+Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.5
+Employment Agreement with Douglas
+B. Otto. (Exhibit 10.13 to the Registrant’s
+Registration Statement on
+Form S-1, 
+File No.
+33-67248 and
+incorporated by reference herein)
+#10
+.6
+First Amendment to Employment
+Agreement with Douglas B. Otto. (Exhibit 10.14 to the
+Registrant’s Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.7
+Second Amendment to Employment
+Agreement with Douglas B. Otto. (Exhibit 10.15 to the
+Registrant’s Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+#10
+.8
+Third Amendment to Employment
+Agreement with Douglas B. Otto. (Exhibit 10.30 to the
+Registrant’s Registration Statement on
+Form S-1, 
+File
+No. 33-67248 
+and incorporated by reference herein)
+51
+Table of Contents 
+Exhibit 
+#10
+.9
+Deckers Outdoor Corporation 1995
+Employee Stock Purchase Plan. (Exhibit 4.4 to the
+Registrant’s Registration Statement on
+Form S-8, 
+File
+No. 33-96850 
+and incorporated by reference herein)
+#10
+.10
+Amended Compensation Plan for
+Outside Members of the Board of Directors. (Exhibit 10.42
+to the Registrant’s
+Form 10-Q 
+for the period ended September 30, 1996 and incorporated by
+reference herein)
+#10
+.11
+Extension Agreement to Employment
+Agreement with Douglas B. Otto. (Exhibit 10.36 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 1996 and incorporated by
+reference herein)
+10
+.12
+Shareholder Rights Agreement,
+dated as of November 12, 1998. (Exhibit 10.39 to the
+Registrant’s
+Form 10-Q 
+for the period ended September 30, 1998 and incorporated by
+reference herein)
+10
+.13
+Revolving Credit Agreement dated
+as of February 21, 2002 among Deckers Outdoor Corporation,
+UGG Holdings, Inc. and Comerica
+Bank — California. (Exhibit 10.21 to the
+Registrant’s
+Form 10-K 
+for the year ended December 31, 2001 and incorporated by
+reference herein.)
+#10
+.14
+Employment Agreement dated
+March 29, 2002 between Douglas B. Otto and Deckers Outdoor
+Corporation. (Exhibit 10.22 to the Registrant’s
+Form 10-Q 
+for the period ended March 31, 2002 and incorporated by
+reference herein.)
+10
+.15
+Asset Purchase Agreement dated as
+of October 9, 2002 by and Among Mark Thatcher, Teva Sport
+Sandals, Inc. and Deckers Outdoor Corporation. (Exhibit 2.1
+to the Registrant’s
+Form 8-K/A 
+filed February 7, 2003 and incorporated herein by
+reference.)
+10
+.16
+Disclosure letter associated with
+the Asset Purchase Agreement. (Exhibit 2.2 to the
+Registrant’s
+Form 8-K/A 
+filed February 7, 2003 and incorporated herein by
+reference.)+
+#10
+.17
+Employment Agreement dated
+November 25, 2002 between John A. Kalinich and Deckers
+Outdoor Corporation. (Exhibit 10.20 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2002 and incorporated by
+reference herein)
+#10
+.18
+Employment Agreement dated
+November 25, 2002 between Mark Thatcher and Deckers Outdoor
+Corporation. (Exhibit 10.21 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2002 and incorporated by
+reference herein)
+10
+.19
+Unsecured Subordinated Promissory
+Note dated November 25, 2002 between Mark Thatcher and
+Deckers Outdoor Corporation. (Exhibit 10.22 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2002 and incorporated by
+reference herein)
+10
+.20
+Note Purchase Agreement dated
+as of November 25, 2002 by and among Deckers Outdoor
+Corporation and The Peninsula Fund III Limited Partnership.
+(Exhibit 10.23 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2002 and incorporated by
+reference herein)
+10
+.21
+Amended and Restated Credit
+Agreement, dated as of November 25, 2002, by and
+among Deckers Outdoor Corporation, UGG Holdings Inc., and
+Comerica Bank-California. (Exhibit 10.24 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2002 and incorporated by
+reference herein)
+10
+.22
+Amendment Number One to Amended
+and Restated Revolving Credit Agreement dated April 29,
+2003. (Exhibit 10.1 to the Registrant’s
+Form 10-Q 
+for the period ended June 30, 2003 and incorporated by
+reference herein)
+10
+.23
+Amendment Number Two to Amended
+and Restated Revolving Credit Agreement dated June 27,
+2003. (Exhibit 10.2 to the Registrant’s
+Form 10-Q 
+for the period ended June 30, 2003 and incorporated by
+reference herein)
+10
+.24
+Amendment Number One to Senior
+Subordination Agreement dated April 29, 2003.
+(Exhibit 10.3 to the Registrant’s
+Form 10-Q 
+for the period ended June 30, 2003 and incorporated by
+reference herein).
+10
+.25
+Amendment Number Two to Senior
+Subordination Agreement dated June 27, 2003.
+(Exhibit 10.4 to the Registrant’s
+Form 10-Q 
+for the period ended June 30, 2003 and incorporated by
+reference herein)
+10
+.26
+Amendment Number Three to Amended
+and Restated Revolving Credit Agreement between the Company and
+Comerica Bank — California dated as of
+August 6, 2003. (Exhibit 10.1 to the Registrant’s
+Form 10-Q 
+for the period ended September 30, 2003 and incorporated by
+reference herein)
+10
+.27
+Amendment Number Four to Amended
+and Restated Revolving Credit Agreement between the Company and
+Comerica Bank-California dated as of November 13, 2003
+(Exhibit 10.27 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+52
+Table of Contents 
+Exhibit 
+10
+.28
+Amendment Number Three to Senior
+Subordination Agreement dated November 13, 2003
+(Exhibit 10.28 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+#10
+.29
+Employment Agreement effective as
+of January 1, 2004 between Douglas B. Otto and Deckers
+Outdoor Corporation (Exhibit 10.29 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+#10
+.30
+Employment Agreement effective as
+of January 1, 2004 between M. Scott Ash and Deckers Outdoor
+Corporation (Exhibit 10.30 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+#10
+.31
+Employment Agreement effective as
+of January 1, 2004 between Patrick C. Devaney and Deckers
+Outdoor Corporation (Exhibit 10.31 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+#10
+.32
+Employment Agreement effective as
+of January 1, 2004 between Constance X. Rishwain and
+Deckers Outdoor Corporation (Exhibit 10.32 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+#10
+.33
+Employment Agreement effective as
+of January 1, 2004 between Robert P. Orlando and Deckers
+Outdoor Corporation (Exhibit 10.33 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+10
+.34
+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
+.35
+Exclusive Independent Contractor
+Representation Agreement between Deckers Outdoor Corporation and
+BHPC Marketing, Inc. effective as of January 1, 2003 for
+representation of the Teva brand (Exhibit 10.35 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+10
+.36
+Amendment Number Five to Amended
+and Restated Credit Agreement between the Company and Comerica
+Bank-California dated as of February 28, 2005
+(Exhibit 10.36 to the Registrant’s
+Form 10-K 
+for the period ended December 31, 2004 and incorporated by
+reference herein)
+10
+.37
+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
+.38
+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
+.39
+Employment Agreement between
+Deckers Outdoor Corporation and Angel R. Martinez
+(Exhibit 10.1 to the Registrant’s
+Form 10-Q 
+for the period ended March 31, 2005 and incorporated by
+reference herein)
+10
+.40
+Amendment Number Six to Amended
+and Restated Revolving Credit Agreement between the Company and
+Comerica Bank-California dated as of June 14, 2005
+(Exhibit 10.1 to the Registrant’s
+Form 10-Q 
+for the period ended June 30, 2005 and incorporated by
+reference herein)
+10
+.41
+Amendment Number Seven to Amended
+and Restated Revolving Credit Agreement between the Company and
+Comerica Bank dated as of September 6, 2005
+(Exhibit 10.1 to the Registrant’s
+Form 10-Q 
+for the period ended September 30, 2005 and incorporated by
+reference herein)
+#10
+.42
+Offer of Employment Letter between
+the Company and Carlo Lingiardi, President of Teva, dated
+August 10, 2005 (Exhibit 10.2 to the Registrant’s
+Form 10-Q 
+for the period ended September 30, 2005 and incorporated by
+reference herein)
+#10
+.43
+Offer of Employment Letter between
+the Company and Colin Clark, Senior Vice
+President-International, effective September 1, 2005
+(Exhibit 10.3 to the Registrant’s
+Form 10-Q 
+for the period ended September 30, 2005 and incorporated by
+reference herein)
+53
+Table of Contents 
+Exhibit 
+14
+.1
+Deckers Outdoor Corporation’s
+Code of Ethics for Senior Officers, as approved by the Board of
+Directors on December 5, 2003. (Exhibit 14.1 to the
+Registrant’s
+Form 10-K 
+for the period ended December 31, 2003 and incorporated by
+reference herein)
+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 U.S.C. Section 1350, adopted pursuant to
+Section 906 of the Sarbanes-Oxley Act of 2002
+* 
+Filed herewith. 
++ 
+Certain information in this Exhibit was omitted and filed
+separately with the Securities and Exchange Commission pursuant
+to a confidential treatment request as to the omitted portions
+of the Exhibit. 
+# 
+Management contract or compensatory plan or arrangement. 
+54
+Table of Contents 
+SIGNATURES 
+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.
+DECKERS OUTDOOR CORPORATION
+(Registrant)
+/s/ Angel
+R. Martinez 
+Angel R. Martinez
+Chief Executive Officer 
+Date: March 9, 2006
+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/ Douglas
+B. Otto 
+Douglas
+B. Otto
+Chairman of the Board
+March 9, 2006
+/s/ Angel
+R. Martinez 
+Angel
+R. Martinez
+President and Chief Executive
+Officer 
+(Principal Executive Officer)
+March 9, 2006
+/s/ M.
+Scott Ash 
+M.
+Scott Ash
+Chief Financial Officer
+(Principal 
+Financial and Accounting Officer)
+March 9, 2006
+/s/ Gene
+E. Burleson 
+Gene
+E. Burleson
+Director
+March 9, 2006
+/s/ John
+M. Gibbons 
+John
+M. Gibbons
+Director
+March 9, 2006
+/s/ Rex
+A. Licklider 
+Rex
+A. Licklider
+Director
+March 9, 2006
+/s/ Daniel
+L. Terheggen 
+Daniel
+L. Terheggen
+Director
+March 9, 2006
+/s/ John
+G. Perenchio 
+John
+G. Perenchio
+Director
+March 9, 2006
+55
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO
+CONSOLIDATED FINANCIAL STATEMENTS AND 
+FINANCIAL
+STATEMENT SCHEDULE 
+Page 
+Consolidated Financial
+Statements 
+Reports of
+Independent Registered Public Accounting Firm 
+F-2
+Consolidated
+Balance Sheets as of December 31, 2004 and 2005 
+F-4
+Consolidated
+Statements of Operations for each of the years in the three-year
+period ended December 31, 2005 
+F-5
+Consolidated
+Statements of Stockholders’ Equity and Comprehensive Income
+for each of the years in the three-year period ended
+December 31, 2005 
+F-6
+Consolidated
+Statements of Cash Flows for each of the years in the three-year
+period ended December 31, 2005 
+F-7
+Notes to
+Consolidated Financial Statements 
+F-8
+Consolidated Financial
+Statement Schedule 
+Valuation and
+Qualifying Accounts 
+F-23
+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
+Table of Contents 
+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 as
+listed in the accompanying index. In connection with our audits
+of the consolidated financial statements, we also have audited
+the financial statement schedule as listed in the accompanying
+index. These consolidated financial statements and financial
+statement schedule are the responsibility of the Company’s
+management. Our responsibility is to express an opinion on these
+consolidated financial statements and 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, 2004 and 2005, and the results of their
+operations and their cash flows for each of the years in the
+three-year period ended December 31, 2005, 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
+effectiveness of Deckers Outdoor Corporation’s internal
+control over financial reporting as of December 31, 2005,
+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 3, 2006 expressed an
+unqualified opinion on management’s assessment of, and the
+effective operation of, internal control over financial
+reporting.
+/s/ KPMG LLP
+Los Angeles, California
+March 3, 2006
+F-2
+Table of Contents 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders
+Deckers Outdoor Corporation:
+We have audited management’s assessment, included in the
+accompanying Report of Management on Internal Control Over
+Financial Reporting appearing under Item 9A, that Deckers
+Outdoor Corporation maintained effective internal control over
+financial reporting as of December 31, 2005, based on
+criteria established in Internal
+Control — Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission
+(COSO). Deckers Outdoor Corporation’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. Our responsibility
+is to express an opinion on management’s assessment and an
+opinion on the effectiveness of 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, evaluating
+management’s assessment, testing and evaluating the design
+and operating effectiveness of internal control, and 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, management’s assessment that Deckers
+Outdoor Corporation maintained effective internal control over
+financial reporting as of December 31, 2005, is fairly
+stated, in all material respects, based on criteria established
+in Internal Control — Integrated Framework issued
+by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO). Also, in our opinion, Deckers Outdoor
+Corporation maintained, in all material respects, effective
+internal control over financial reporting as of
+December 31, 2005, based on criteria established in
+Internal Control — Integrated Framework issued by
+the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO).
+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, 2004 and 2005, and the
+related consolidated statements of operations,
+stockholders’ equity and comprehensive income and cash
+flows for each of the years in the three-year period ended
+December 31, 2005, and the related financial statement
+schedule, and our report dated March 3, 2006 expressed an
+unqualified opinion on those consolidated financial statements
+and financial statement schedule.
+/s/ KPMG LLP
+Los Angeles, California
+March 3, 2006
+F-3
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED
+BALANCE SHEETS 
+December 31, 2004 and
+2005 
+2004 
+2005 
+Assets 
+Current assets:
+Cash and cash equivalents
+$
+10,379,000
+$
+50,749,000
+Short-term investments
+15,475,000
+2,500,000
+Trade accounts receivable, less
+allowance for doubtful accounts, sales discounts and sales
+returns of $5,012,000 and $7,149,000 as of December 31,
+2004 and 2005, respectively
+40,226,000
+40,918,000
+Inventories
+30,260,000
+33,374,000
+Prepaid expenses and other current
+assets
+1,491,000
+1,364,000
+Deferred tax assets
+3,240,000
+5,949,000
+Total current assets
+101,071,000
+134,854,000
+Property and equipment, at cost,
+net
+2,838,000
+4,711,000
+Trademarks
+51,152,000
+51,152,000
+Goodwill
+18,030,000
+18,030,000
+Intangible assets, net
+1,137,000
+827,000
+Other assets, net
+592,000
+52,000
+$
+174,820,000
+$
+209,626,000
+Liabilities and
+Stockholders’ Equity 
+Current liabilities:
+Trade accounts payable
+$
+16,524,000
+$
+14,506,000
+Accrued sales commissions
+1,714,000
+1,327,000
+Accrued payroll
+3,623,000
+2,219,000
+Other accrued expenses
+2,631,000
+2,549,000
+Income taxes payable
+6,725,000
+7,133,000
+Total current liabilities
+31,217,000
+27,734,000
+Deferred tax liabilities
+2,607,000
+4,337,000
+Commitments and contingencies
+Stockholders’ equity:
+Common stock, $0.01 par
+value. Authorized 20,000,000 shares; issued and outstanding
+12,183,080 shares at December 31, 2004; issued and
+outstanding 12,431,696 shares at December 31, 2005
+122,000
+124,000
+Additional paid-in capital
+71,959,000
+76,788,000
+Retained earnings
+68,591,000
+100,436,000
+Accumulated other comprehensive
+income
+324,000
+207,000
+Total stockholders’ equity
+140,996,000
+177,555,000
+$
+174,820,000
+$
+209,626,000
+See accompanying notes to consolidated financial statements.
+F-4
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+Years Ended
+December 31, 2003, 2004 and 2005 
+2003 
+2004 
+2005 
+Net sales
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Cost of sales
+69,710,000
+124,354,000
+153,238,000
+Gross profit
+51,345,000
+90,433,000
+111,522,000
+Selling, general and
+administrative expenses
+32,407,000
+47,971,000
+59,254,000
+Litigation income
+(500,000
+)
+—
+—
+Income from operations
+19,438,000
+42,462,000
+52,268,000
+Other expense (income):
+Interest expense, net
+4,557,000
+2,236,000
+29,000
+Other expense (income)
+(3,000
+)
+3,000
+(4,000
+)
+4,554,000
+2,239,000
+25,000
+Income before income taxes
+14,884,000
+40,223,000
+52,243,000
+Income taxes
+5,730,000
+14,684,000
+20,398,000
+Net income
+9,154,000
+25,539,000
+31,845,000
+Less preferred stock redemption
+premium
+(438,000
+)
+—
+—
+Income applicable to common
+stockholders
+$
+8,716,000
+$
+25,539,000
+$
+31,845,000
+Net income per share:
+Basic
+$
+0.91
+$
+2.32
+$
+2.58
+Diluted
+$
+0.77
+$
+2.10
+$
+2.48
+Weighted average common shares:
+Basic
+9,610,000
+11,005,000
+12,349,000
+Diluted
+11,880,000
+12,142,000
+12,866,000
+See accompanying notes to consolidated financial statements.
+F-5
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
+INCOME 
+Years
+Ended December 31, 2003, 2004 and 2005 
+Accumulated 
+Additional 
+Other 
+Total 
+Comprehensive 
+Preferred Stock 
+Common Stock 
+Paid-in 
+Retained 
+Comprehensive 
+Stockholders’ 
+Income 
+Shares 
+Amount 
+Shares 
+Amount 
+Capital 
+Earnings 
+Income (Loss) 
+Equity 
+(Loss) 
+Balance at December 31, 2002
+1,375,000
+$
+5,500,000
+9,461,123
+$
+95,000
+$
+26,210,000
+$
+33,898,000
+$
+(476,000
+)
+$
+65,227,000
+Repurchase preferred stock
+(note 6)
+(1,375,000
+)
+(5,500,000
+)
+—
+—
+(438,000
+)
+—
+—
+(5,938,000
+)
+Common stock issued under stock
+incentive plan
+—
+—
+262,577
+2,000
+874,000
+—
+—
+876,000
+Tax benefit attributable to stock
+options
+—
+—
+—
+—
+445,000
+—
+—
+445,000
+Common stock issued under the
+employee stock purchase plan
+—
+—
+6,781
+—
+24,000
+—
+—
+24,000
+Net income
+—
+—
+—
+—
+—
+9,154,000
+—
+9,154,000
+$
+9,154,000
+Foreign currency translation
+adjustment and reversal of unrealized hedging losses
+—
+—
+—
+—
+—
+—
+736,000
+736,000
+736,000
+Total comprehensive income
+$
+9,890,000
+Balance at December 31, 2003
+—
+—
+9,730,481
+97,000
+27,115,000
+43,052,000
+260,000
+70,524,000
+Common stock issued under follow-on
+offering
+—
+—
+1,500,000
+15,000
+34,446,000
+—
+—
+34,461,000
+Compensation expense from nonvested
+stock units
+—
+—
+—
+—
+61,000
+—
+—
+61,000
+Common stock issued under stock
+incentive plan
+—
+—
+910,262
+10,000
+4,083,000
+—
+—
+4,093,000
+Tax benefit attributable to stock
+options
+—
+—
+—
+—
+6,030,000
+—
+—
+6,030,000
+Common stock issued under the
+employee stock purchase plan
+—
+—
+42,337
+—
+224,000
+—
+—
+224,000
+Net income
+—
+—
+—
+—
+—
+25,539,000
+—
+25,539,000
+$
+25,539,000
+Foreign currency translation
+adjustment
+—
+—
+—
+—
+—
+—
+64,000
+64,000
+64,000
+Total comprehensive income
+$
+25,603,000
+Balance at December 31, 2004
+—
+—
+12,183,080
+122,000
+71,959,000
+68,591,000
+324,000
+140,996,000
+Compensation expense from nonvested
+stock units
+—
+—
+—
+—
+578,000
+—
+—
+578,000
+Common stock issued under stock
+incentive plan
+—
+—
+205,468
+2,000
+1,663,000
+—
+—
+1,665,000
+Tax benefit attributable to stock
+options
+—
+—
+—
+—
+2,293,000
+—
+—
+2,293,000
+Common stock issued under the
+employee stock purchase plan
+—
+—
+43,148
+—
+295,000
+—
+—
+295,000
+Net income
+—
+—
+—
+—
+—
+31,845,000
+—
+31,845,000
+$
+31,845,000
+Foreign currency translation
+adjustment
+—
+—
+—
+—
+—
+—
+(117,000
+)
+(117,000
+)
+(117,000
+)
+Total comprehensive income
+$
+31,728,000
+Balance at December 31, 2005
+—
+$
+—
+12,431,696
+$
+124,000
+$
+76,788,000
+$
+100,436,000
+$
+207,000
+$
+177,555,000
+See accompanying notes to consolidated financial statements.
+F-6
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+Years
+Ended December 31, 2003, 2004 and 2005 
+2003 
+2004 
+2005 
+Cash flows from operating
+activities:
+Net income
+$
+9,154,000
+$
+25,539,000
+$
+31,845,000
+Adjustments to reconcile net
+income to net cash provided by operating activities:
+Depreciation and amortization of
+property and equipment
+1,463,000
+1,534,000
+2,187,000
+Amortization of intangible assets
+276,000
+253,000
+310,000
+Provision for doubtful accounts
+504,000
+580,000
+1,740,000
+Write-down of inventory
+1,329,000
+1,898,000
+4,836,000
+Loss (gain) on disposal of assets
+3,000
+(5,000
+)
+13,000
+Loss on write-down of assets
+59,000
+—
+—
+Deferred tax provision
+1,752,000
+936,000
+(979,000
+)
+Stock compensation
+119,000
+339,000
+754,000
+Write-down of debt issuance costs
+287,000
+671,000
+—
+Tax benefit attributable to stock
+options
+445,000
+6,030,000
+2,293,000
+Changes in operating assets and
+liabilities, net of acquisitions:
+Trade accounts receivable
+1,602,000
+(23,306,000
+)
+(2,432,000
+)
+Inventories
+(2,266,000
+)
+(14,154,000
+)
+(7,950,000
+)
+Prepaid expenses and other current
+assets
+89,000
+(832,000
+)
+127,000
+Other assets
+256,000
+15,000
+540,000
+Trade accounts payable
+(1,696,000
+)
+5,304,000
+(2,018,000
+)
+Accrued expenses
+1,515,000
+4,357,000
+(2,067,000
+)
+Income taxes payable
+2,736,000
+3,257,000
+408,000
+Net cash provided by operating
+activities
+17,627,000
+12,416,000
+29,607,000
+Cash flows from investing
+activities:
+Cash paid for acquisition of Teva
+(75,000
+)
+—
+—
+Purchases of short-term investments
+—
+(31,250,000
+)
+(37,116,000
+)
+Proceeds from sales of short-term
+investments
+—
+15,775,000
+50,091,000
+Proceeds from sale of property and
+equipment
+33,000
+43,000
+31,000
+Purchase of property and equipment
+(663,000
+)
+(1,441,000
+)
+(4,104,000
+)
+Net cash (used in) provided by
+investing activities
+(705,000
+)
+(16,873,000
+)
+8,902,000
+Cash flows from financing
+activities:
+Borrowings under line of credit
+42,706,000
+—
+25,500,000
+Repayments under line of credit
+(47,481,000
+)
+—
+(25,500,000
+)
+Repayments of long-term debt
+(4,159,000
+)
+(30,287,000
+)
+—
+Cash paid for repurchase of
+preferred stock
+(5,938,000
+)
+—
+—
+Cash received from issuances of
+common stock
+781,000
+38,500,000
+1,784,000
+Net cash (used in) provided by
+financing activities
+(14,091,000
+)
+8,213,000
+1,784,000
+Effect of exchange rates on cash
+(110,000
+)
+(39,000
+)
+77,000
+Net change in cash and cash
+equivalents
+2,721,000
+3,717,000
+40,370,000
+Cash and cash equivalents at
+beginning of year
+3,941,000
+6,662,000
+10,379,000
+Cash and cash equivalents at end
+of year
+$
+6,662,000
+$
+10,379,000
+$
+50,749,000
+Supplemental disclosure of cash
+flow information:
+Cash paid during the year for:
+Interest
+$
+3,640,000
+$
+1,512,000
+$
+257,000
+Income taxes
+$
+1,607,000
+$
+4,597,000
+$
+18,684,000
+See accompanying notes to consolidated financial statements.
+F-7
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes
+to Consolidated Financial Statements 
+December 31, 2004 and 2005
+(1) 
+The
+Company and Summary of Significant Accounting Policies 
+(a) 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”). All
+intercompany balances and transactions have been eliminated in
+consolidation.
+The Company builds niche products into global lifestyle brands
+by designing and marketing innovative, functional and
+fashion-oriented footwear, developed for both high performance
+outdoor activities and everyday casual lifestyle use.
+(b) Inventories 
+Inventories, principally finished goods, are stated at the lower
+of cost
+(first-in, 
+first-out) or market (net realizable value). Market values are
+determined by historical experience with discounted sales,
+industry trends and the retail environment.
+(c) Revenue
+Recognition 
+The Company recognizes revenue when products are shipped and the
+customer takes title and assumes risk of loss, collection of
+relevant receivable is probable, persuasive evidence of an
+arrangement exists, and the sales price is fixed or
+determinable. Allowances for estimated returns, discounts, and
+bad debts are provided for when related revenue is recorded.
+Amounts billed for shipping and handling costs are recorded as a
+component of net sales, totaling $2,041,000, $3,863,000, and
+$3,962,000 for the years ended December 31, 2003, 2004, and
+2005, respectively. Related costs paid to third-party shipping
+companies are recorded as a cost of sales, totaling $2,057,000,
+$4,094,000, and $4,870,000 for the years ended December 31,
+2003, 2004, and 2005, respectively.
+(d) Goodwill
+and Other Intangibles Assets 
+Intangible assets consist primarily of goodwill, trademarks,
+patents, and noncompete covenants arising from the application
+of purchase accounting. Accordingly, goodwill and intangible
+assets with indefinite useful lives are not amortized, but
+instead are tested for impairment at least annually, as of
+December 31 of each year, in accordance with the provisions
+of Statement of Financial Accounting Standards
+(“SFAS”) No. 142, Goodwill and Other
+Intangible Assets (“SFAS 142”). Intangible
+assets with estimable useful lives are amortized over their
+respective estimated useful lives to their estimated residual
+values and reviewed for impairment in accordance with
+SFAS No. 144, Accounting for Impairment or Disposal
+of Long-Lived Assets (“SFAS 144”).
+(e) Impairment
+of Long-Lived Assets 
+In accordance with SFAS 144, long-lived assets, such as
+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
+of an asset to estimated undiscounted future cash flows expected
+to be generated by the asset. If the carrying amount of an asset
+exceeds its estimated future cash flows, an impairment charge is
+recognized by the amount by which the carrying amount of the
+asset exceeds the fair value of the asset.
+(f) Depreciation
+and Amortization 
+Depreciation of property and equipment is computed using the
+straight-line method based on estimated useful lives ranging
+from one to seven years. Leasehold improvements are amortized on
+the straight-line basis over their estimated economic useful
+lives or the lease term, whichever is shorter.
+F-8
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+(g) Fair
+Value of Financial Instruments 
+The fair values of the Company’s cash equivalents, trade
+accounts receivable, prepaid expenses and other current assets,
+trade accounts payable, accrued expenses, and income taxes
+payable approximate the carrying values due to the relatively
+short maturities of these instruments.
+(h) Stock
+Compensation 
+The Company accounts for stock-based compensation under the
+provisions of Statement of Financial Accounting Standards
+No. 123, Accounting for Stock-Based Compensation
+(“SFAS 123”), as amended by SFAS 148.
+Under the provisions of SFAS 123 and SFAS 148, the
+Company has elected to continue to measure compensation cost for
+employees and nonemployee directors of the Company under the
+intrinsic value method of APB No. 25 and comply with the
+pro forma disclosure requirements under SFAS 123 and
+SFAS 148. The Company applies the fair value techniques of
+SFAS 123 and SFAS 148 to measure compensation cost for
+options/warrants granted to nonemployees.
+As discussed in note 1(u), the Financial Accounting
+Standards Board, or FASB, recently issued
+SFAS No. 123R (revised 2004), “Share-Based
+Payment” which supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+of employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005. The pro forma
+disclosure permitted under SFAS No. 123 will no longer
+be an alternative to financial statement recognition.
+SFAS No. 123R requires the determination of the fair
+value of the share-based compensation at the grant date and the
+recognition of the related expense over the period in which the
+share-based compensation vests. In April 2005, the Securities
+and Exchange Commission deferred the adoption date of
+SFAS No. 123R to the first interim period in the first
+fiscal year beginning after June 15, 2005. The Company will
+adopt the provisions of SFAS No. 123R effective
+January 1, 2006.
+The following table illustrates the effects on net income if the
+fair value-based method had been applied to all outstanding and
+unvested awards in each period. See assumptions used to
+determine the fair value of the awards in note 6.
+2003 
+2004 
+2005 
+Net income, as reported
+$
+9,154,000
+$
+25,539,000
+$
+31,845,000
+Add stock-based employee
+compensation expense included in reported net income, net of tax
+73,000
+215,000
+460,000
+Deduct total stock-based employee
+compensation expense under fair value-based method for all
+awards, net of tax
+(596,000
+)
+(1,015,000
+)
+(1,144,000
+)
+Pro forma net income
+$
+8,631,000
+$
+24,739,000
+$
+31,161,000
+Net income per share:
+Basic — as reported
+$
+0.91
+$
+2.32
+$
+2.58
+Basic — pro forma
+0.85
+2.25
+2.52
+Diluted — as
+reported
+0.77
+2.10
+2.48
+Diluted — pro forma
+0.74
+2.05
+2.43
+(i) Use
+of Estimates 
+Management of the Company has made a number of estimates and
+assumptions relating to the reporting of assets, liabilities,
+net sales, and expenses and the disclosure of contingent assets
+and liabilities to prepare these
+F-9
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+consolidated financial statements in conformity with accounting
+principles generally accepted in the U.S. Significant areas
+requiring the use of management estimates relate to inventory
+reserves, allowances for bad debts, returns and discounts,
+impairment assessments and charges, recoverability of deferred
+tax assets, depreciation and amortization, income tax and
+litigation contingency reserves, fair value of financial
+instruments, fair value of acquired intangibles, assets and
+liabilities. Actual results could differ from these estimates.
+(j) Research
+and Development Costs 
+Research and development costs are charged to expense as
+incurred. Such costs amounted to $1,099,000, $1,438,000, and
+$1,810,000 in 2003, 2004, and 2005, respectively.
+(k) 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 2003, 2004, and 2005 were
+$6,594,000, $8,687,000, and $10,536,000, respectively. Included
+in prepaid and other current assets at December 31, 2004
+and 2005 were $851,000 and $922,000, respectively, related to
+prepaid advertising and promotion expenses for programs to take
+place after December 31, 2004 and 2005, respectively.
+(l) Income
+Taxes 
+Income taxes are accounted for under the asset and liability
+method. Deferred tax assets and liabilities are recognized for
+the future tax consequences attributable to differences between
+the financial statement carrying amounts of existing assets and
+liabilities and their respective tax bases. Deferred tax assets
+and liabilities are measured using enacted tax rates expected to
+apply to taxable income in the years in which those temporary
+differences are expected to be recovered or settled. The effect
+on deferred taxes of a change in tax rates is recognized in
+income in the period that includes the enactment date.
+(m) Income
+per Share 
+Basic income per share (“EPS”) is computed by dividing
+net income available to common stockholders by the weighted
+average number of common shares outstanding for the period.
+Diluted EPS represents net income divided by the weighted
+average number of common shares outstanding, including the
+dilutive impact of potential issuances of common stock.
+Antidilutive securities are excluded from diluted EPS.
+The reconciliations of basic to diluted weighted average common
+shares are as follows:
+2003 
+2004 
+2005 
+Income used for basic and diluted
+income per share:
+Net income — diluted
+$
+9,154,000
+$
+25,539,000
+$
+31,845,000
+Less redemption premium on
+preferred stock
+(438,000
+)
+—
+—
+Net income available for common
+stockholders — basic
+$
+8,716,000
+$
+25,539,000
+$
+31,845,000
+Weighted average shares used in
+basic computation
+9,610,000
+11,005,000
+12,349,000
+Dilutive effect of stock options
+and nonvested stock units
+882,000
+1,137,000
+517,000
+Dilutive effect of convertible
+preferred stock
+1,388,000
+—
+—
+Weighted average shares used for
+diluted computation
+11,880,000
+12,142,000
+12,866,000
+F-10
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+The dilutive effect of convertible preferred stock above relates
+to preferred stock that was outstanding between
+November 25, 2002 and December 3, 2003. The Company
+repurchased all of the outstanding preferred stock on
+December 3, 2003.
+Options to purchase 217,000 shares at prices ranging from
+$9.88 to $19.00 during 2003 and options to purchase 10,000 at
+$33.10 during 2004 and 2005 were not included in the computation
+of diluted earnings per share because the options’ exercise
+price was greater than the average market price of the common
+shares during the respective periods, and therefore their
+inclusion would be antidilutive. Nonvested stock units in the
+amount of 59,750 and 111,283 shares were outstanding at
+December 31, 2004 and 2005, respectively, but were not
+included in the computation of diluted earnings per share
+because they were antidilutive or the necessary conditions for
+the shares to be issuable had not been satisfied based on the
+Company’s performance through December 31, 2005.
+(n) Foreign
+Currency Translation 
+The Company considers the U.S. dollar as the functional
+currency.
+(o) Comprehensive
+Income 
+Comprehensive income is the total of net earnings and all other
+nonowner changes in equity. Except for net income, foreign
+currency translation adjustments, and unrealized gains and
+losses on available for sale investments, the Company does not
+have any transactions and other economic events that qualify as
+comprehensive income as defined under SFAS No. 130.
+(p) Business
+Segment Reporting 
+Management of the Company has determined its reportable segments
+are strategic business units. The four reportable segments are
+the Teva, UGG and Simple wholesale divisions and the
+Company’s Consumer Direct business (consisting of the
+Company’s Internet, catalog and retail outlet stores).
+Information related to these segments is summarized in
+note 8.
+(q) Cash
+Equivalents 
+The Company considers all highly liquid investments with
+original maturities of three months or less to be cash
+equivalents.
+(r) Short-term
+Investments 
+Short-term investments, which primarily consist of market
+auction rate notes receivable and market auction rate preferred
+securities are classified as “available for sale”
+under the provisions of SFAS No. 115, “Accounting
+for Certain Investments in Debt and Equity Securities.”
+Accordingly, the short-term investments are reported at fair
+value, with any unrealized gains and losses included as a
+separate component of stockholders’ equity, net of
+applicable taxes. Realized gains and losses, interest and
+dividends are included in interest expense, net. The fair value
+of the short-term investments approximated cost at
+December 31, 2004 and 2005, based on quoted market prices.
+(s) Reclassifications 
+Certain reclassifications have been made to the 2003 and 2004
+balances to conform to the 2005 presentation.
+F-11
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+(t) New
+Accounting Standards 
+In November 2004, the FASB issued Statement of Financial
+Accounting Standards, or SFAS No. 151,
+“ Inventory Costs — An Amendment of ARB
+No. 43, Chapter 4 ”. SFAS No. 151
+amends the guidance in ARB No. 43, Chapter 4,
+“ Inventory Pricing ”, to clarify the accounting
+for abnormal amounts of idle facility expense, freight, handling
+costs, and wasted material (spoilage). SFAS No. 151 is
+effective for fiscal years beginning after June 15, 2005
+and is required to be adopted in the first quarter of fiscal
+2006. The Company does not expect the adoption of
+SFAS No. 151 to have a material impact on its
+consolidated financial statements.
+In December 2004, the FASB issued SFAS No. 123R
+(revised 2004), “Share-Based Payment”.
+SFAS No. 123R supersedes APB Opinion No. 25, and
+requires all share-based payments to employees, including grants
+of employee stock options, to be recognized in the financial
+statements based on their fair values beginning with the first
+interim or annual period after June 15, 2005. The pro forma
+disclosure permitted under SFAS No. 123 will no longer
+be an alternative to financial statement recognition.
+SFAS No. 123R requires the determination of the fair
+value of the share-based compensation at the grant date and the
+recognition of the related expense over the period in which the
+share-based compensation vests. In April 2005, the Securities
+and Exchange Commission deferred the adoption date of
+SFAS No. 123R to the first interim period in the first
+fiscal year beginning after June 15, 2005. The Company is,
+therefore, required to adopt the provisions of
+SFAS No. 123R effective January 1, 2006.
+Note 1 (h) discloses the Company’s pro forma net
+income under SFAS No. 123, which is expected to be
+comparable to stock compensation pursuant to
+SFAS No. 123R. SFAS No. 123R also requires
+excess tax benefits, as defined, to be reported as a financing
+activity rather than as an operating cash flow as is our current
+policy. This requirement will reduce net cash provided by
+operating activities and increase net cash produced by financing
+activities. While we cannot estimate what these amounts will be
+in the future, such excess tax deduction increased net cash
+provided by operating activities by $445,000, $6,030,000 and
+$2,293,000 for the years ended December 31, 2003, 2004 and
+2005 respectively.
+In May 2005, the FASB issued SFAS No. 154,
+“Accounting Changes and Error Corrections, a replacement of
+Accounting Principles Board Opinion (APB) No. 20,
+Accounting Changes, and FASB Statement No. 3, Reporting
+Accounting Changes in Interim Financial Statements.” This
+Statement requires retrospective application to prior
+periods’ financial statements of a change in accounting
+principle. It applies both to voluntary changes and to changes
+required by an accounting pronouncement if the pronouncement
+does not include specific transition provisions. APB 20
+previously required that most voluntary changes in accounting
+principles be recognized by recording the cumulative effect of a
+change in accounting principle. SFAS 154 is effective for
+fiscal years beginning after December 15, 2005. The Company
+will adopt this statement on January 1, 2006 and it is not
+expected to have a material effect on the financial statements
+upon adoption.
+(2) 
+Retirement
+Plan 
+Effective August 1, 1992, the Company established a 401(k)
+defined contribution plan. Substantially all employees are
+eligible to participate in the plan through tax-deferred
+contributions. The Company matches 50% of an employee’s
+contribution up to $1,200 per year. Matching contributions
+totaled $67,000, $92,000 and $106,000 during 2003, 2004 and
+2005, respectively. In addition, the Company may also make
+discretionary profit sharing contributions to the plan. The
+Company did not make profit sharing contributions for the years
+ended December 31, 2003, 2004 or 2005.
+F-12
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+(3) 
+Property
+and Equipment 
+Property and equipment is summarized as follows:
+2004 
+2005 
+Machinery and equipment
+$
+6,441,000
+$
+7,877,000
+Furniture and fixtures
+666,000
+768,000
+Leasehold improvements
+927,000
+2,769,000
+8,034,000
+11,414,000
+Less accumulated depreciation and
+amortization
+5,196,000
+6,703,000
+Net property and equipment
+$
+2,838,000
+$
+4,711,000
+During 2004 and 2005, the Company wrote-off certain
+fully-depreciated assets with an original cost of $395,000 and
+$724,000, respectively.
+(4) 
+Notes Payable
+and Long-Term Debt 
+The Company has a revolving credit facility with Comerica Bank
+(the “Facility”) that provided for a maximum
+availability of $25,000,000 for the period from
+September 6, 2005 to December 6, 2005, and $20,000,000
+for the remainder of the term, subject to a borrowing base. In
+general, the borrowing base is equal to 75% of eligible accounts
+receivable, as defined, and 50% of eligible inventory, as
+defined. Up to $10,000,000 of borrowings may be in the form of
+letters of credit. The Facility bears interest at the
+lender’s prime rate (7.25% at December 31,
+2005) or, at the Company’s option, at LIBOR (4.39% at
+December 31, 2005) plus 1.0% to 2.5%, depending on our
+ratio of liabilities to earnings before interest, taxes,
+depreciation and amortization (“EBITDA”), and is
+secured by substantially all assets. The Facility includes
+annual commitment fees of $60,000 per year and expires on
+June 1, 2007. At December 31, 2005, the Company had no
+outstanding borrowings under the Facility, no foreign currency
+reserves for outstanding forward contracts and outstanding
+letters of credit aggregated $52,000. As a result, $19,948,000
+was available under the Facility as of December 31, 2005.
+The agreements underlying the Facility contain several financial
+covenants including a quick ratio requirement, profitability
+requirements and a tangible net worth requirement, among others,
+as well as a prohibition on the payment of dividends. The
+Company was in compliance with all covenants as of
+December 31, 2005.
+F-13
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+(5) 
+Income
+Taxes 
+Components of income taxes are as follows:
+Federal 
+State 
+Foreign 
+Total 
+2003:
+Current
+$
+2,043,000
+$
+483,000
+$
+1,452,000
+$
+3,978,000
+Deferred
+1,334,000
+418,000
+—
+1,752,000
+$
+3,377,000
+$
+901,000
+$
+1,452,000
+$
+5,730,000
+2004:
+Current
+$
+9,930,000
+$
+2,073,000
+$
+1,745,000
+$
+13,748,000
+Deferred
+629,000
+293,000
+14,000
+936,000
+$
+10,559,000
+$
+2,366,000
+$
+1,759,000
+$
+14,684,000
+2005:
+Current
+$
+17,630,000
+$
+4,848,000
+$
+(1,101,000
+)
+$
+21,377,000
+Deferred
+(1,064,000
+)
+(118,000
+)
+203,000
+(979,000
+)
+$
+16,566,000
+$
+4,730,000
+$
+(898,000
+)
+$
+20,398,000
+Foreign income before income taxes was $4,220,000, $7,261,000
+and $4,572,000 during the years ended December 31, 2003,
+2004 and 2005, respectively.
+Actual income taxes differed from that obtained by applying the
+statutory federal income tax rate to earnings before income
+taxes as follows:
+2003 
+2004 
+2005 
+Computed “expected”
+income taxes
+$
+5,060,000
+$
+14,078,000
+$
+18,285,000
+State income taxes, net of federal
+income tax benefit
+623,000
+1,895,000
+2,740,000
+Other
+47,000
+(1,289,000
+)
+(627,000
+)
+$
+5,730,000
+$
+14,684,000
+$
+20,398,000
+F-14
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+The tax effects of temporary differences that give rise to
+significant portions of deferred tax assets and deferred tax
+liabilities at December 31, 2004 and 2005 are presented
+below:
+2004 
+2005 
+Deferred tax assets, current:
+Uniform capitalization adjustment
+to inventory
+$
+487,000
+$
+1,191,000
+Bad debt and other reserves
+2,725,000
+3,783,000
+State taxes
+557,000
+1,563,000
+Prepaid expenses
+(529,000
+)
+(588,000
+)
+Total deferred tax assets, current
+3,240,000
+5,949,000
+Deferred tax liabilities,
+noncurrent:
+Amortization of intangible assets
+(1,896,000
+)
+(4,107,000
+)
+Depreciation of property and
+equipment
+(711,000
+)
+(230,000
+)
+Total deferred tax liabilities,
+noncurrent
+(2,607,000
+)
+(4,337,000
+)
+Net deferred tax assets
+$
+633,000
+$
+1,612,000
+In order to fully realize the deferred tax assets, the Company
+will need to generate future taxable income of approximately
+$14,500,000. The deferred tax assets are primarily related to
+the Company’s domestic operations. Domestic taxable income
+for the years ended December 31, 2004 and 2005 was
+approximately $18,346,000 and $43,861,000, 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 has been recorded.
+As of December 31, 2005, withholding and U.S. taxes
+have not been provided on approximately $13,500,000 of
+unremitted earnings of our
+non-U.S. 
+subsidiaries because the Company has currently reinvested these
+earnings permanently in such operations. Such earnings would
+become taxable upon the sale or liquidation of these
+subsidiaries or upon remittance of dividends.
+In December 2004, the FASB issued FASB Staff Position
+No. FAS 109-2 
+(“FAS 109-2”), 
+“Accounting and Disclosure Guidance for the Foreign
+Earnings Repatriation Provision within the American Jobs
+Creations Act of 2004 (“AJCA”).” The AJCA
+introduces a limited time 85% dividends received deduction on
+the repatriation of certain foreign earnings to a
+U.S. taxpayer (repatriation provision), provided certain
+criteria are met. In 2005, the Company repatriated $3,500,000
+under the terms of these provisions, resulting in $331,000 of
+additional Federal and state income taxes on repatriation.
+(6) 
+Stockholders’
+Equity 
+The Company is authorized to issue 5,000,000 shares of
+preferred stock with a par value of $0.01, of which
+1,375,000 shares are designated as Series A Preferred
+Stock. The 1,375,000 shares of Series A Preferred
+Stock were issued to Mark Thatcher in connection with the
+acquisition of Teva. In December 2003, the Company redeemed all
+of the outstanding Preferred Stock. In connection with the
+redemption, the Company paid Mr. Thatcher a premium of
+approximately $438,000, which was recorded as a reduction of
+additional paid-in capital. The premium reduced income
+applicable to common stockholders and, therefore, is reflected
+in the income per share calculations.
+F-15
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+The Company’s 1993 Stock Incentive Plan (the “1993
+Plan”) provides for 3,000,000 shares of common stock
+that are reserved for issuance to officers, directors,
+employees, and consultants of the Company. Awards to 1993 Plan
+participants are not restricted to any specified form and may
+include stock options, securities convertible into or redeemable
+for stock, stock appreciation rights, stock purchase warrants,
+or other rights to acquire stock. Under the 1993 Plan,
+262,577 shares, 910,262 shares and 205,468 shares
+of common stock were issued to employees in 2003, 2004, and
+2005, respectively.
+Common stock option activity under the 1993 Plan for the years
+ended December 31, 2003, 2004 and 2005 is as follows:
+Weighted 
+Average 
+Exercise 
+Shares 
+Price 
+Outstanding at December 31,
+2002
+1,932,000
+$
+4.04
+Granted
+206,000
+18.75
+Exercised
+(238,100
+)
+3.19
+Canceled
+(125,400
+)
+7.51
+Outstanding at December 31,
+2003
+1,774,500
+5.62
+Granted
+26,000
+29.04
+Exercised
+(899,600
+)
+4.24
+Canceled
+(10,800
+)
+11.31
+Outstanding at December 31,
+2004
+890,100
+7.62
+Granted
+—
+—
+Exercised
+(199,000
+)
+7.48
+Canceled
+(62,900
+)
+12.71
+Outstanding at December 31,
+2005
+628,200
+7.16
+Options exercisable at
+December 31, 2003
+1,168,800
+4.36
+Options exercisable at
+December 31, 2004
+517,000
+6.79
+Options exercisable at
+December 31, 2005
+488,100
+6.04
+The per share weighted average fair value of stock options
+granted during 2003 and 2004 was $10.83 and $16.83,
+respectively, on the date of grant using the Black-Scholes
+option pricing model with the following weighted average
+assumptions: 2003 — expected dividend yield of
+0%, stock volatility of 51.70%, risk-free interest rate of
+3.70%, and an expected life of seven years;
+2004 — expected dividend yield of 0%, stock
+volatility of 52.85%, risk-free interest rate of 3.97%, and an
+expected life of seven years. The Company did not issue any
+stock options in 2005.
+F-16
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+The following table summarizes information about stock options
+outstanding and exercisable at December 31, 2005.
+Options Outstanding 
+Options Exercisable 
+Weighted 
+Weighted 
+Weighted 
+Number 
+Average 
+Average 
+Number 
+Average 
+Range of 
+Outstanding 
+Remaining 
+Exercise 
+Exercisable at 
+Exercise 
+Exercise Price 
+December 31, 2005 
+Contractual Life 
+Price 
+December 31, 2005 
+Price 
+$1.56 to $3.12
+155,100
+3.08 years
+$
+1.82
+155,100
+$
+1.82
+$3.60 to $3.68
+96,700
+6.09 years
+3.61
+84,700
+3.60
+$4.03 to $4.80
+190,500
+6.07 years
+4.23
+127,400
+4.20
+$6.21 to $8.50
+52,000
+2.33 years
+6.85
+52,000
+6.85
+$19.00
+119,900
+7.92 years
+19.00
+54,900
+19.00
+$24.17 to $33.10
+14,000
+7.17 years
+30.55
+14,000
+30.55
+628,200
+5.40 years
+7.16
+488,100
+6.04
+Beginning December 2004, the Company replaced its annual
+employee stock option grant with grants of Nonvested Stock Units
+(“NSU’s”). The NSU’s entitle the employee
+recipients to receive shares of common stock in the Company,
+which vest in quarterly increments between the third and fourth
+anniversary of the grant. Many of these awards include vesting
+that is subject to achievement of certain performance targets,
+and accordingly those are accounted for as variable awards under
+APB 25. The Company records compensation expense for all
+NSU’s using the method prescribed by FIN 28. For the
+2004 grant, the maximum quantity that was available to vest was
+59,750 for all participants in the aggregate, of which
+approximately 34,058 will ultimately be available for vesting
+based on actual performance versus the previously established
+performance targets. The weighted average grant date fair value
+of the NSU’s granted in 2004 was $44.73 (aggregate grant
+date fair value of $2,673,000), of which approximately $61,000
+was recorded as an expense in 2004. In 2005, the Company granted
+an additional 130,900 NSU’s with an average grant date
+fair value of $28.15 (aggregate grant date fair value of
+$3,684,000) and recorded approximately $578,000 of expense in
+2005 related to the 2004 and 2005 NSU’s granted.
+In August 1995, the Company adopted the 1995 Employee Stock
+Purchase Plan (the “1995 Plan”). The 1995 Plan is
+intended to qualify as an Employee Stock Purchase Plan under
+Section 423 of the Internal Revenue Code. Under the terms
+of the 1995 Plan, as amended, 300,000 shares of common
+stock are reserved for issuance to employees who have been
+employed by the Company for at least six months. The 1995 Plan
+provides for employees to purchase the Company’s common
+stock at a discount below market value, as defined by the 1995
+Plan. Under the 1995 Plan, 6,781, 42,337 and 43,148 shares
+were issued in 2003, 2004, and 2005, respectively. The 1995 Plan
+will terminate in September 2006, with no additional share
+issuances after that date. Consistent with the application of
+APB Opinion No. 25, no compensation has been recorded for
+stock purchases.
+The Company adopted a stockholder rights plan in 1998 to protect
+stockholders against unsolicited attempts to acquire control of
+the Company that do not offer what the Company believes to be an
+adequate price to all stockholders. As part of the plan, the
+board of directors of the Company declared a dividend of one
+preferred share purchase right (a “Right”) for each
+outstanding share of common stock, par value $0.01 per
+share (the “Common Shares”), of the Company. The
+dividend was payable to stockholders of record on
+December 1, 1998 (the “Record Date”). In
+addition, one Right shall be issued with each Common Share that
+becomes outstanding (i) between the Record Date and the
+earliest of the Distribution Date, the Redemption Date, and
+the Final Expiration Date (as such terms are defined in the
+Rights Agreement) or (ii) following the Distribution Date
+and prior to the Redemption Date or Final Expiration Date,
+pursuant to the exercise of stock options or under any employee
+plan or arrangement or upon the exercise, conversion, or
+exchange of other securities of the Company, which options or
+securities were
+F-17
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+outstanding prior to the Distribution Date, in each case upon
+the issuance of the Company’s common stock in connection
+with any of the foregoing. Each right entitles the registered
+holder to purchase from the Company one one-hundredth of a share
+of Series B Junior Participating Preferred Stock, par value
+$0.01 per share (the “Preferred Shares”), of the
+Company, at a price of $50.00, subject to adjustment.
+The rights have no voting power and expire on November 11,
+2008. The Company may redeem the rights for $0.01 per right
+until the right becomes exercisable.
+(7) 
+Commitments
+and Contingencies 
+The Company leases office facilities under operating lease
+agreements, which expire through December 2015. Future minimum
+commitments under the lease agreements are as follows:
+Year ending December 31:
+2006
+$
+3,595,000
+2007
+3,620,000
+2008
+3,210,000
+2009
+3,028,000
+2010
+195,000
+Thereafter
+1,009,000
+$
+14,657,000
+Rent expense is recorded using the straight-line method to
+account for scheduled rental increases or rent holidays. Total
+rent expense for the years ended December 31, 2003, 2004,
+and 2005 was approximately $1,271,000, $1,341,000 and
+$2,989,000, respectively.
+In 1997, the European Commission enacted anti-dumping duties of
+49.2% on certain types of footwear imported into Europe from
+China and Indonesia. Dutch Customs had issued an opinion to the
+Company that certain popular Teva styles were covered by this
+anti-dumping duty legislation. Based on this opinion, Dutch
+Customs sought anti-dumping duties of approximately $500,000
+from the Company, which the Company had appealed. Nevertheless,
+the Company expensed the $500,000 prior to 2003 in accordance
+with SFAS 5, Accounting for Contingencies. In 2003,
+an appeals court ruled that the duties were not levied by the
+appropriate governing body and nullified the entire claim. As a
+result of this favorable final ruling, the Company reversed the
+previously established $500,000 accrual in 2003, which is
+reflected as an increase to income from operations in the
+accompanying consolidated statement of operations for the year
+ended December 31, 2003.
+The Company is currently involved in various other 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.
+(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, except that the Company does not allocate
+interest, income taxes, or unusual items to segments. The
+Company evaluates performance based on net sales and profit or
+loss from operations. The Company’s reportable segments
+include the strategic business units responsible for the
+worldwide operations of each of its brands and its Consumer
+Direct business. They are managed separately because each
+business requires different marketing, research and development,
+design, sourcing and sales strategies. The earnings 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, marketing, sales, commissions, royalties, bad debts,
+depreciation, amortization and the costs of employees directly
+related to each business segment. The
+F-18
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+unallocated corporate overhead costs are the shared costs of the
+organization and include, among others, the following costs:
+costs of the distribution center, information technology, human
+resources, accounting and finance, credit and collections,
+executive compensation, facilities costs and the 2003 litigation
+income. The operating income derived from the sales to third
+parties of the Consumer Direct segment is separated into two
+components: (i) the wholesale profit is included in the
+operating income of each of the three brands, and (ii) the
+retail profit is included in the operating income of the
+Consumer Direct segment.
+Business segment information is summarized as follows:
+2003 
+2004 
+2005 
+Net sales to external customers:
+Teva wholesale
+$
+72,783,000
+$
+83,477,000
+$
+80,446,000
+UGG wholesale
+34,561,000
+101,806,000
+150,279,000
+Simple wholesale
+7,210,000
+9,633,000
+6,980,000
+Consumer Direct
+6,501,000
+19,871,000
+27,055,000
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Income from operations:
+Teva wholesale
+$
+21,739,000
+$
+24,901,000
+$
+22,388,000
+UGG wholesale
+10,002,000
+31,674,000
+48,765,000
+Simple wholesale
+(1,176,000
+)
+45,000
+(834,000
+)
+Consumer Direct
+1,148,000
+5,533,000
+6,972,000
+Unallocated overhead
+(12,275,000
+)
+(19,691,000
+)
+(25,023,000
+)
+$
+19,438,000
+$
+42,462,000
+$
+52,268,000
+Depreciation and amortization:
+Teva wholesale
+$
+502,000
+$
+401,000
+$
+459,000
+UGG wholesale
+21,000
+30,000
+72,000
+Simple wholesale
+42,000
+31,000
+45,000
+Consumer Direct
+41,000
+92,000
+156,000
+Unallocated overhead
+1,133,000
+1,233,000
+1,765,000
+$
+1,739,000
+$
+1,787,000
+$
+2,497,000
+Capital expenditures:
+Teva wholesale
+$
+64,000
+$
+226,000
+$
+185,000
+UGG wholesale
+30,000
+19,000
+263,000
+Simple wholesale
+4,000
+111,000
+29,000
+Consumer Direct
+151,000
+151,000
+486,000
+Unallocated overhead
+414,000
+934,000
+3,141,000
+$
+663,000
+$
+1,441,000
+$
+4,104,000
+Total assets from reportable
+segments:
+Teva wholesale
+$
+87,380,000
+$
+83,901,000
+UGG wholesale
+50,457,000
+56,907,000
+Simple wholesale
+4,303,000
+5,211,000
+Consumer Direct
+160,000
+945,000
+$
+142,300,000
+$
+146,964,000
+F-19
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+The assets allocable to each reporting segment generally include
+accounts receivable, inventory, intangible assets and certain
+other assets, which are specifically identifiable with one of
+the Company’s business segments. Unallocated corporate
+assets are the assets not specifically related to one of the
+segments and generally include the Company’s cash,
+refundable and deferred tax assets, and various other assets
+shared by the Company’s brands.
+Reconciliations of total assets from reportable segments to the
+consolidated financial statements are as follows:
+2004 
+2005 
+Total assets from reportable
+segments
+$
+142,300,000
+$
+146,964,000
+Unallocated refundable income
+taxes and deferred tax assets
+3,225,000
+5,949,000
+Other unallocated corporate assets
+29,295,000
+56,713,000
+Consolidated total assets
+$
+174,820,000
+$
+209,626,000
+The Company sells its footwear products principally to customers
+throughout the U.S. The Company also sells its footwear
+products to foreign customers located in Europe, Canada,
+Australia, and Asia, among other regions. International sales to
+unaffiliated customers were 18.5%, 18.3%, and 13.3% of net sales
+for the years ended December 31, 2003, 2004, and 2005,
+respectively. The Company does not consider international
+operations a separate segment. The Chief Operating Decision
+Maker does not review such operations separately, but rather in
+the aggregate with the aforementioned segments. 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. An upscale
+department store based on the West Coast of the U.S., which is a
+significant customer for each of our three brands, accounted for
+14.1% of our net sales in 2004 and 15.8% of our net sales in
+2005. No other customer accounted for more than 10% of net sales
+in the years ended December 31, 2003, 2004 or 2005. As of
+December 31, 2004 and 2005 the Company had one customer
+representing 22.0% and 27.6% of net trade accounts receivable,
+respectively.
+Approximately $17,000,000 of trademarks and $466,000 of goodwill
+is held in Hong Kong by a subsidiary of the Company.
+Substantially all other long-lived assets are held in the U.S.
+The Company’s production and sourcing is concentrated
+primarily in the Far East, with the vast majority being produced
+at four independent contractor factories in China. The
+Company’s operations are subject to the customary risks of
+doing business abroad, including, but not limited to, currency
+fluctuations, customs duties, and related fees, various import
+controls and other nontariff barriers, restrictions on the
+transfer of funds, labor unrest and strikes and, in certain
+parts of the world, political instability.
+(9) 
+Quarterly
+Summary of Information (Unaudited) 
+Summarized unaudited quarterly financial data are as follows:
+2004 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$
+44,272,000
+$
+40,546,000
+$
+55,797,000
+$
+74,172,000
+Gross profit
+20,406,000
+18,906,000
+22,235,000
+28,886,000
+Net income
+5,382,000
+5,087,000
+5,822,000
+9,248,000
+Net income per share:
+Basic
+$
+0.55
+$
+0.47
+$
+0.50
+$
+0.78
+Diluted
+$
+0.49
+$
+0.43
+$
+0.46
+$
+0.72
+F-20
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+2005 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales
+$
+64,263,000
+$
+40,341,000
+$
+69,193,000
+$
+90,963,000
+Gross profit
+29,567,000
+15,969,000
+29,070,000
+36,916,000
+Net income
+8,887,000
+2,732,000
+8,150,000
+12,076,000
+Net income per share:
+Basic
+$
+0.72
+$
+0.22
+$
+0.66
+$
+0.97
+Diluted
+$
+0.69
+$
+0.21
+$
+0.63
+$
+0.94
+(10) 
+Goodwill
+and Other Intangible Assets 
+The Company’s goodwill and other intangible assets at
+December 31, 2005 are summarized as follows:
+As of December 31,
+2005 
+Weighted 
+Gross 
+Average 
+Net 
+Carrying 
+Amortization 
+Accumulated 
+Carrying 
+Amount 
+Period 
+Amortization 
+Amount 
+2 intangible assets
+$
+1,858,000
+6 years
+$
+1,031,000
+$
+827,000
+Nonamortizable intangible assets:
+Trademark
+$
+51,152,000
+Goodwill
+18,030,000
+$
+69,182,000
+In accordance with SFAS 142, the Company did not record any
+goodwill amortization for the years ended December 31,
+2003, 2004 or 2005. Aggregate amortization expense for
+amortizable intangible assets, using the straight-line
+amortization method, for the years ended December 31, 2003,
+2004 and 2005 was $276,000, $253,000 and $310,000, respectively.
+Estimated amortization expense for the next five years is:
+$310,000 in 2006, $268,000 in 2007, $129,000 in 2008, $120,000
+in 2009 and $0 in 2010.
+(11) 
+Licensing 
+The Company has initiated a program to selectively license its
+brand names in product categories beyond footwear. The Company
+currently has several licensing agreements for Teva, including
+U.S. licenses for men’s and women’s headwear and
+socks, a Canadian sportswear license and a newly signed license
+for bags and packs to be delivered for the Spring 2007 season
+and has recently terminated its previous domestic Teva licensing
+agreements for time pieces, eyewear and men’s apparel. The
+Company also has licensing arrangements for UGG for handbags and
+other small leather goods, outerwear and cold weather
+accessories.
+For several of its initial licensing arrangements, the Company
+used BHPC Global Licensing, Inc. (“BHPC”), a full
+service licensing agency, to identify candidates and coordinate
+its licensing business. The Company pays BHPC an agency fee on
+license income related to the licensing agreements that BHPC
+coordinated on its behalf. In 2004 and 2005, the Company paid
+BHPC agency fees of approximately $168,000 and $118,000,
+respectively. BHPC is 50% owned by one of our directors, Daniel
+L. Terheggen.
+The Company recognizes license income upon shipment of the
+products by the licensees and records a corresponding fee to
+BHPC for the underlying shipments. License income, net of any
+fees to BHPC, is included in net sales in the accompanying
+statement of operations. For the year ended December 31,
+2005, the Company
+F-21
+Table of Contents 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to
+Consolidated Financial
+Statements — (Continued) 
+recognized net license revenues of approximately $1,074,000,
+including net license revenues for UGG of $493,000, related to
+the UGG handbag, outerwear and cold weather accessories
+licenses, and recognized $581,000 for Teva licenses,
+approximately $450,000 of which was related to final payments on
+the terminated apparel, time pieces, and eyewear licenses.
+(12) 
+Related
+Party Transactions 
+In 1993, the Company and Douglas B. Otto, Chairman of the Board,
+entered into a split dollar life insurance arrangement, whereby
+the Company participated in a portion of the life insurance
+premiums paid through 2001. The arrangement provided that
+Mr. Otto’s estate would reimburse the Company for all
+premiums previous paid. In 2005, Mr. Otto reimbursed the
+Company for all premiums paid on his behalf. The Company carried
+the value of the life insurance policy at its cash surrender
+value, which was lower than the amount of premiums paid on the
+policy. As a result, the Company recognized a gain of $260,000
+in 2005 upon settlement and receipt of the reimbursement. Refer
+also to the discussion of BHPC in note 11.
+F-22
+Table of Contents 
+Schedule II 
+DECKERS
+OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION
+AND QUALIFYING ACCOUNTS 
+Three
+Years Ended December 31, 2003, 2004 and 2005 
+Balance at 
+Balance at 
+Beginning 
+End of 
+of Year 
+Additions 
+Deductions 
+Year 
+Year ended December 31, 2003:
+Allowance for doubtful accounts
+$
+1,953,000
+504,000
+876,000
+1,581,000
+Reserve for sales discounts
+682,000
+741,000
+878,000
+545,000
+Reserve for sales returns
+1,255,000
+3,791,000
+3,801,000
+1,245,000
+Year ended December 31, 2004:
+Allowance for doubtful accounts
+$
+1,581,000
+580,000
+365,000
+1,796,000
+Reserve for sales discounts
+545,000
+1,508,000
+568,000
+1,485,000
+Reserve for sales returns
+1,245,000
+7,104,000
+6,618,000
+1,731,000
+Year ended December 31, 2005:
+Allowance for doubtful accounts
+$
+1,796,000
+1,740,000
+962,000
+2,574,000
+Reserve for sales discounts
+1,485,000
+1,714,000
+1,489,000
+1,710,000
+Reserve for sales returns
+1,731,000
+5,603,000
+4,469,000
+2,865,000
+See accompanying report of independent registered public
+accounting firm.
+F-23
\ No newline at end of file
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/filing_metadata.csv b/raw/filings/0000910521/2005/0000950129-06-002462/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..69276ca2b6b8b1d2c40e799b8531c86048c90d18
--- /dev/null
+++ b/raw/filings/0000910521/2005/0000950129-06-002462/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000910521,DECK,DECKERS OUTDOOR CORP,10-K,2006-03-09,2005-12-31,2006-03-09T21:52:37.000Z,0000950129-06-002462,v18036e10vk.htm,DECKERS OUTDOOR CORPORATION - 12/31/2005,1063857,0,0,https://www.sec.gov/Archives/edgar/data/910521/000095012906002462/v18036e10vk.htm,https://www.sec.gov/Archives/edgar/data/910521/000095012906002462/,2005,2005,1
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/item1.txt b/raw/filings/0000910521/2005/0000950129-06-002462/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0653ddee7fd509eb4b3377bfbb81541e79092149
--- /dev/null
+++ b/raw/filings/0000910521/2005/0000950129-06-002462/item1.txt
@@ -0,0 +1,1205 @@
+Item 1. 
+Business. 
+General 
+We are a leading designer, producer and brand manager of
+innovative, high-quality footwear and the category creator in
+the sport sandal and luxury sheepskin footwear segments. Our
+footwear is distinctive and appeals broadly to men, women and
+children. We sell our products through quality domestic
+retailers and international distributors and directly to
+end-user consumers through our websites, catalogs and retail
+outlet stores. Our primary objective is to build our footwear
+lines into global lifestyle brands with market leadership
+positions.
+We market our products under three proprietary brands:
+Teva. Teva is our outdoor lifestyle
+brand and the category creator for the sport sandal segment.
+Teva was created in the 1980’s to serve the demanding
+footwear needs of the professional river guide community, and
+this authentic heritage and commitment to function and
+performance remain core elements of the Teva brand. We have
+expanded Teva’s sport sandal line to include casual
+open-toe footwear, as well as hiking boots, trail running shoes,
+amphibious footwear and other rugged outdoor footwear styles.
+From 1985 until November 2002, we sold our Teva products under a
+license arrangement with Teva’s founder, Mark Thatcher. In
+November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly-owned corporation, Teva Sport
+Sandals, Inc. The acquisition enabled us to gain ownership of
+the Teva Internet and catalog business and allowed our brand
+managers to broaden the Teva line into attractive casual
+open-toe lines and rugged outdoor closed-toe footwear. This
+expansion of the Teva product line has increased the appeal of
+the brand and expanded our overall retail placement. The
+acquisition also enabled us to:
+• 
+eliminate significant royalties and other license costs;
+• 
+eliminate product line expansion constraints under our former
+license agreement;
+• 
+realize license opportunities for the Teva brand into additional
+brand-appropriate outdoor categories; and
+• 
+enhance our ability to recruit and retain key senior management.
+UGG. UGG is our luxury comfort brand
+and the category creator for luxury sheepskin footwear. Our UGG
+line has enjoyed several years of strong growth and positive
+consumer receptivity, driven by consistent introductions of new
+styles, introductions of UGG products in the fall and spring
+seasons and geographic expansion of distribution. We carefully
+manage the distribution of our in-line UGG products within
+high-end specialty and department store retailers in order to
+best reach our target consumers, preserve UGG’s retail
+channel positioning and maintain UGG’s position as a mid-
+to upper-price luxury brand.
+UGG gained brand recognition in the U.S. beginning in 1979
+and was adopted as a favored brand by the California surf
+community. We acquired UGG in 1995 and have carefully
+re-positioned the brand as a luxury comfort collection sold
+through high-end retailers. While our sales have grown steadily
+over the past eight years, over the past few years UGG has
+benefited from significant national media attention and
+celebrity endorsement through our marketing programs and product
+seeding activities, further raising the profile of UGG as a
+luxury comfort brand. We intend to further support UGG’s
+market positioning by carefully expanding the selection of
+styles available in order to build consumer interest in our UGG
+collection. We also remain committed to limiting distribution of
+UGG through high-end retail channels.
+Simple. Simple is our moderately priced
+“anti-brand,” serving the needs of a youthful,
+irreverent consumer base seeking the comfort of athletic
+footwear but the styling of more traditional, understated,
+“back-to-basics” 
+footwear. This youth brand has a diverse product offering
+ranging from its successful legacy categories of sneakers, clogs
+and sandals to its recently introduced “9 to 5”
+collection of casual footwear and its ecologically friendly
+Green Toe collection.
+Through continued innovation, expansion of product offerings,
+premium distribution and strategic marketing initiatives, we
+have successfully developed three premier lifestyle brands. Our
+net sales increased by 23.3%, from
+4
+Table of Contents 
+$214,787,000 in 2004 to $264,760,000 in 2005 and our income from
+operations increased by 23.1% from $42,462,000 in 2004 to
+$52,268,000 in 2005. For 2005, wholesale shipments of Teva, UGG
+and Simple aggregated $80,446,000, $150,279,000 and $6,980,000,
+respectively, and represented 30.4%, 56.8% and 2.6% of our total
+net sales, respectively. Sales of our brands through our
+Consumer Direct division (which includes our Internet, catalog
+and retail outlets), which are in addition to our wholesale
+shipments, were $27,055,000 representing 10.2% of total net
+sales in 2005.
+History 
+We were founded by Doug Otto in 1973 as a domestic manufacturer
+of sandals. We originally manufactured a single line of sandals
+under the Deckers’ brand name in a small factory in
+Carpinteria, California. Since then, we have grown through the
+development and licensing of proprietary technology, targeted
+marketing and selective acquisitions. In 1985, we entered into
+our first license agreement for Teva sport sandals with
+Teva’s founder, Mark Thatcher. In 1986, we developed the
+Universal Strapping System, establishing Teva as the sport
+sandal category-creator and generating significant national
+attention for the Teva brand.
+We experienced a period of rapid growth during the late
+1980’s and completed our initial public offering in 1993.
+As our sales grew, we terminated our manufacturing operations in
+the United States, Mexico and Costa Rica, and today independent
+manufacturers in the Far East, New Zealand and Australia
+manufacture all of our footwear products for us. We maintain our
+own offices in China and Macau to monitor the operations of our
+Far East manufacturers.
+In order to diversify our sales and leverage our product
+development and sourcing capabilities, we completed the
+acquisition of Simple from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired UGG
+from its founders. After our acquisition of UGG, we initiated a
+re-positioning of the line, focusing on comfort, luxury and
+premium distribution channels and developing products that
+appeal to consumers in a variety of climates.
+From 1985 until November 2002, we sold our Teva products under a
+licensing arrangement with Teva’s founder, Mark Thatcher.
+In November 2002, we acquired all of the Teva Rights from
+Mr. Thatcher and his wholly owned corporation, Teva Sport
+Sandals, Inc. The Teva Rights include the Teva Internet and
+catalog business and all patents, trade names, trademarks and
+other intellectual property associated with the acquired Teva
+assets.
+Business
+Strategies 
+We seek to differentiate our brands by offering diverse lines
+that emphasize authenticity, functionality, quality and comfort
+and products tailored to a variety of activities and demographic
+groups. Key elements of our business strategies are:
+Build Leading Global Brands. Our
+mission is to build niche footwear lines into global brands with
+market leadership positions. Our Teva and UGG brands began as
+footwear lines appealing to a narrow core enthusiast market. We
+have since built these lines into substantial global lifestyle
+brands with significant potential for further growth and line
+extension. Across our brands, our styles remain true to the
+brands’ heritage but have been selectively extended over
+time to broaden their appeal to men, women and children seeking
+high quality, comfortable styles for everyday use. Furthermore,
+we actively manage our brands to ensure that we reach brand
+appropriate retail distribution channels. We believe that
+building our brand image is best accomplished through a
+decentralized management structure that empowers a single brand
+manager for each brand to coordinate all aspects of brand image,
+from product development to marketing and retail channel
+management.
+Sustain Brand Authenticity. We believe
+our ability to grow our brands, sustain strong gross margins and
+maintain strong market share results, in part, from consumer
+loyalty to the heritage of our brands. We believe Teva consumers
+are passionate and serious about the outdoors, and our marketing
+programs feature national advertising in outdoor-oriented media
+as well as grass roots marketing through sponsorship of outdoor
+events and professional athletes. These marketing efforts
+reinforce the river-guide heritage of Teva and Teva’s
+positioning as a highly technical, performance-oriented footwear
+leader. Our UGG marketing strategy
+5
+Table of Contents 
+highlights the brand’s positioning as functional footwear,
+but also as a premium, luxury collection. UGG is primarily
+marketed through national print advertising in major magazines
+and through our retailers and their catalogs and advertising.
+Historically, our marketing for UGG has been focused on women,
+but with the recent introduction of new innovative men’s
+styles, we are increasing our marketing appeal to men through
+advertisements in national men’s magazines with a continued
+focus on lifestyle and comfort. We promote our Simple brand by
+emphasizing Simple’s “feel good” lifestyle
+philosophy. Our key marketing objective for Simple is to
+reintroduce the brand to the marketplace by creating a dialogue
+with our consumer through our viral marketing and media plan
+initiatives. We have focused our print advertising campaigns to
+include niche national publications and alternative weekly
+publications in select cities both domestically and
+internationally.
+Drive Demand Through Innovation and Technical
+Leadership. We believe our reputation for
+innovation and technical leadership distinguishes our Teva and
+UGG products from those of our competitors and provides us with
+significant competitive advantages. Our proprietary Universal
+Strapping System launched Teva’s popularity in the
+mid-1980’s. Recent technical advances in our Teva footwear
+include our Liquid Frame Technology, our Wraptor technology and
+our Wraptor-Lite technology, all designed to provide maximum
+stability, support and comfort under rugged usage. We continue
+to develop proprietary rubber compounds for our Teva offering,
+including our original Spider Rubber — a sticky
+non-slip rubber outsole material for use across wet and dry
+terrain; SSR — a super sticky rubber compound for
+use specifically in extreme water conditions to provide superior
+grip on smooth wet surfaces, like rocks, fiberglass, and raft
+rubber; and Spider XC — an off-road hybrid that
+combines the non-slip traction of Spider Rubber with durability
+for use in both wet and dry conditions. In recent years, we have
+developed Teva closed-toe footwear, including several styles
+incorporating
+Vibram ® 
+soles and
+Gore-Tex ® 
+fabrics. We also continue to develop innovative styles, products
+and product categories for our UGG collection in order to
+support UGG’s positioning as a functional lifestyle brand,
+which can be worn in a variety of climates and weather
+conditions. UGG has benefited from our continuing expansion into
+non-boot casuals, sheepskin-trimmed footwear and styles
+combining sheepskin with fine-grade suede and leathers, all
+designed to expand our market share in new categories and
+increase our sales in both the fall and spring selling seasons.
+In fact, for Spring 2006, UGG is introducing its first ever line
+of open-toe sandals and slides in a variety of styles and
+colorways that incorporate thin layers of sheepskin for added
+comfort and luxury.
+Maintain Efficient Development and Production
+Process. We believe our product development
+processes enable us to produce leading edge products on a timely
+and a cost effective basis. We design our products domestically.
+We maintain
+on-site 
+supervisory offices in Pan Yu City, China and Macau that serve
+as local links to our independent manufacturers in the Far East,
+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.
+Growth
+Strategies 
+Our growth will depend upon our broadening of the products
+offered under each brand, growing domestic and expanding
+international distribution, licensing our brand names and
+developing or acquiring new brands. Specifically, we intend to:
+Introduce New Categories and Styles under Existing
+Brands. We intend to increase our sales by
+developing and introducing additional footwear products under
+our existing brands that meet our high standards of performance,
+practicality, authenticity, comfort and quality. We have
+expanded Teva’s open-toe footwear category by launching new
+casual and performance styles, as well as several new sandal
+styles providing full foot coverage and protection. We have also
+introduced several closed-toe lines under the Teva brand,
+including amphibious footwear, hikers, trail runners and other
+rugged outdoor footwear. We plan further expansion into the
+light-hiking, trail running and rugged outdoor arenas, where the
+aggregate market is considerably greater than the market size
+for Teva’s core sport sandals. We have expanded our UGG
+collection to incorporate additional styles and fabrications in
+order to further penetrate the fall, spring and winter seasons.
+We have expanded our men’s and kids’ business and have
+introduced a cold-weather series featuring sheepskin and
+Gore-Tex ® .
+For Spring 2006, we are introducing a new line of open-toe
+sandals and slides that incorporate
+6
+Table of Contents 
+a thin layer of sheepskin for added luxury and comfort while our
+Fall 2006 line includes a variety of new categories and
+fabrications, including a new fashion category of Italian
+designed footwear for both men and women. We expect to grow our
+Simple brand through continued focus on our heritage clog and
+sneaker categories for men and women as well as the expansion of
+new categories like the Green Toe collection of ecologically
+friendly footwear made entirely of 100% natural materials,
+water-based glues and soy-based dyes. By introducing new
+categories under our brands, in particular, the closed-toe
+footwear under Teva and the spring product offerings under UGG,
+we believe we will expand the selling seasons for our brands
+which will result in increased sales and will contribute to a
+more balanced year round business for each of these brands.
+Grow Domestic Distribution. We believe
+that we have significant opportunities to increase our sales by
+growing domestic distribution of our products. Our Teva brand
+has historically been distributed through the outdoor specialty,
+sporting goods and department store retail channels. We believe
+we have the opportunity, through refocused marketing programs
+and innovative product introductions, to expand our retail
+presence in each of these channels. In addition, we have
+identified the potential for expansion into specialty running
+retailers, who we believe would fit well with our authentic
+trail-running product offering. UGG has historically realized a
+substantial portion of its sales in California. Over the past
+several years we have experienced increasing demand for UGG
+distribution outside California, and we have grown our business
+dramatically in the Midwest and North East. For Simple, we are
+focusing distribution on the specialty independent retailers,
+department stores, and outdoor retailers for our broad product
+offering, as well as the introduction into the health and
+wellness retail channel through our Green Toe offering of
+ecologically friendly footwear.
+Expand International Distribution. In
+2005, our international net sales totaled $35,273,000,
+representing approximately 13.3% of total net sales. Given the
+strength of our brands, we believe significant opportunities
+exist to market our products abroad, and we intend to
+selectively expand their distribution worldwide. In order to
+pursue these opportunities, in the latter part of 2005, we
+embarked on an international expansion strategy including a
+recently established international organization reporting
+directly to our Chief Executive Officer and we have hired a Vice
+President of International Operations to head up this
+organization. As part of this new strategy, we are setting up
+the necessary international infrastructure including offices in
+Europe and in Asia, for the coordination of our sales,
+distribution, marketing and advertising efforts in these
+markets. We believe that by transitioning to this more
+globally-focused structure and by identifying and hiring strong
+talented personnel for our international operations, we will be
+well-suited to realize solid international growth over the next
+few years.
+Pursue Licensing of Brands in Complementary Product
+Lines. We are pursuing selective licensing of
+our brand names in product categories beyond footwear. In 2004,
+we embarked on our UGG licensing program with the introduction
+of UGG licensed handbags and outerwear for the domestic market,
+which were delivered in the Fall 2004 season. In 2005, we
+successfully launched UGG cold weather accessories, which began
+delivery in the Fall 2005 season. We initiated expansion of our
+domestic UGG licenses into select international markets,
+beginning with UGG handbags in 2005 and are pursuing
+international expansion of our cold weather accessories and
+outerwear licenses for 2006. We also restructured our domestic
+Teva licensing program, which currently consists of
+U.S. licenses for men’s and women’s headwear and
+socks, a Canadian license for sportswear, and a newly signed
+U.S. license for bags and packs which will begin deliveries
+in the Spring 2007 season. We are developing additional
+licensing programs carefully to ensure that licensed goods
+remain consistent with our brands’ heritage. Because this
+licensing strategy is in its early stages, and due to the lead
+times required to bring the products to market, we have only
+recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have projected and if we are
+able to continue to add new complementary licenses over time.
+For the years ended December 31, 2004 and 2005, we
+recognized net license revenues of $950,000 and $1,074,000,
+respectively.
+Build New Brands. We continue to
+explore ways to expand the number of brands managed by the
+Company. We have been successful previously in identifying
+entrepreneurial concepts for innovative, fashionable footwear
+targeted at niche markets and building these concepts into
+viable brands utilizing
+7
+Table of Contents 
+our expertise in product development, production and marketing.
+We intend to continue to identify and build new brands that
+demonstrate potential for significant future growth.
+Products 
+Our primary product lines are:
+Teva Sport Sandals and
+Footwear. “The brand of choice for the
+new outdoor athlete.” We believe there has been a general
+shift in consumer preferences and lifestyles to include more
+outdoor recreational activities, including hiking, trail
+running, bouldering, kayaking, kite boarding and whitewater
+river rafting. These consumers typically seek footwear
+specifically designed with the same quality and high performance
+attributes they have come to expect from traditional athletic
+footwear. The first Teva sport sandal was developed in the
+1980’s to meet the demanding needs of professional rafting
+guides navigating the Colorado River and the rugged Grand Canyon
+terrain. As our core consumers’ pursuits have evolved, we
+have retained our outdoor heritage while adding new products to
+our line, including slides, thongs, amphibious footwear, trail
+running shoes, hiking boots and rugged closed-toe footwear. Our
+brand remains popular among professional and amateur outdoorsmen
+seeking authentic, performance-oriented footwear, as well as
+general footwear consumers seeking high quality, durable and
+comfortable styles for everyday use.
+Our Teva line comprises six core footwear collections:
+Originals. The Originals Series is a
+collection of sandals and thongs utilizing Teva’s classic
+rugged architecture. The Originals Series leverages the Teva
+brand heritage as the inventor of the sport sandal and remains a
+distinctive choice for both performance-oriented users and
+casual buyers. Many of our Originals feature our proprietary
+Universal Strapping System, designed to hold the foot firmly in
+place, and are constructed with high quality nylon webbing,
+molded EVA midsoles and outsoles featuring Teva’s
+proprietary rubber compounds. Our U.S. patent on our Universal
+Strapping System, which we utilize in many of our most popular
+Teva sandals, expires in September 2007.
+Hydro. The Hydro Series builds upon our
+legacy as the category leader in whitewater-designed footwear.
+Hydro consists of sandals and closed-toe amphibious footwear
+built for high performance and rugged outdoor use. This series
+includes men’s and women’s sport sandals and other
+outdoor footwear ideal for professional and amateur outdoor
+enthusiasts and adventurers. Our Hydro Series incorporates many
+proprietary technologies including our Wraptor, Universal, and
+Liquid Frame fit technologies as well as three versions of our
+specially formulated proprietary sticky rubber
+compounds — River
+Rubber tm ,
+Spider
+Rubber tm 
+and
+SSR tm .
+Terrain. The Terrain Series is a line
+of sandals and closed-toe footwear that incorporates Teva
+technologies and is designed for use in rugged outdoor
+environments such as trails and canyons. The Terrain Series
+includes performance running sandals and trail running shoes. To
+meet our consumers’ expanded needs and to provide them with
+the best product possible, we have utilized quick drying
+monofilament materials to provide light weight, breathable
+uppers and have created Spider
+XC tm 
+outsoles to maximize traction and durability for rugged terrain
+conditions. In this category, we also partner with many of the
+world’s leading providers of footwear technology for
+specialty component materials, including
+Vibram ® 
+and
+Gore-Tex ® .
+Nomadic. Our Nomadic Series is a
+collection of leather casual sandals and closed-toe footwear
+true to Teva’s performance-oriented outdoor heritage but
+designed for more casual use. The Nomadic Series provides our
+legendary sandal comfort in closed shoes through proprietary
+comfort technologies including our Shoc-Sock
+tm ,
+a cushioning footbed, designed in cooperation with Ortholite, as
+well as our Mush
+tm 
+footbed system. The collection includes men’s and
+women’s leather sandals and shoes inspired by our technical
+offering giving the consumer contemporary styles for rugged
+travel or everyday adventure.
+Sun and Moon. Our Sun and Moon Series
+features fun, youthful and colorful slides and thongs in a
+variety of materials including waterproof leather, nylon and
+suede. The Sun and Moon Series is designed to leverage our
+sandal-making capabilities and to appeal to fashion-oriented
+consumers seeking pre-activity and post-activity footwear
+alternatives that express a casual lifestyle and individual
+spirit. The Sun and Moon
+8
+Table of Contents 
+offering also provides our retailers a unique way to display and
+sell footwear on our Teva Mush Rack, a point of purchase display
+designed to maximize the retailers’ sales per square foot.
+Kids and Infants. Our children’s
+series is an assortment of sandals incorporating a variety of
+materials including leather, waterproof suede, nylon, neoprene
+and mesh, as well as slip-on water shoes and other styles of
+amphibious footwear. In addition, in the Fall of 2006, we are
+offering a
+back-to-school 
+collection of casual closed toe shoes that are inspired by some
+of our most successful adult rugged casuals.
+We intend to continue to build upon Teva’s broad and deep
+line of performance and casual footwear. Our Spring 2006 line
+features 100 different product styles with manufacturer’s
+suggested domestic retail prices for adult sizes ranging from
+$22.00 to $120.00.
+UGG Footwear. “The premier brand in
+luxury and comfort.” Beginning in 1979, UGG gained brand
+recognition in the U.S. for sheepskin boots and slippers
+and was later adopted as a favored brand by the California surf
+community. We acquired the brand in 1995 and expanded the
+collection, offering consumers a luxurious and distinctive look
+in sheepskin fabrications.
+Our UGG product line comprises eight core footwear collections:
+Classic Collection. We offer a complete
+line of sheepskin boots built on the heritage and distinctive
+look of our first product, the Classic Sheepskin boot. Our
+Classic Collection products are distinctive in styling,
+featuring an array of neutral and fashion colors. Our Classic
+Collection includes styles for men, women and children.
+Ultra Collection. The Ultra Collection
+builds upon the heritage of our original Classic. These boots
+are designed with our comfort system, featuring a multi-surfaced
+lugged bottom with a heel-cushioning insert that offers enhanced
+traction, support and comfort. Our Ultra Collection also
+features a three-part insole designed to provide all-day comfort
+and support and a reflective barrier that captures body heat to
+create a natural foot warming mechanism. Our sheepskin products
+are naturally thermostatic, keeping feet comfortable across a
+wide range of temperatures. This collection features styles for
+men, women and children.
+Fashion Collection. Our Fashion
+Collection offers fashion forward styles for women and children
+without compromising comfort. Luxurious materials and
+trend-influenced stylings make this collection truly stand out.
+Silhouettes include several styles of boots featuring pockets,
+studs and laces, as well as styles featuring elements of classic
+country and western motifs.
+Driving Collection. This collection
+features refined, sophisticated styles for men and women. These
+footwear styles include suede and glove leather uppers, lined in
+a shorter eight millimeters of sheepskin for added comfort.
+Styles from the men’s collection feature an interchangeable
+leather insole that allows them to be worn either with or
+without socks.
+Surf Collection. This collection is
+taken from the laid-back surf lifestyle that was the original
+heritage of the brand. The Surf Collection, which is being
+introduced in Spring 2006, features true spring stylings
+including open toe sandals and slides that incorporate a thin
+layer of sheepskin for luxury and comfort.
+Cold Weather Collection. This
+collection is designed for men, women and children seeking more
+rugged styling. The Cold Weather line features
+Vibram ® 
+outsoles and waterproof
+Gore-Tex ® 
+uppers designed to withstand colder, wetter climates.
+Fluff Momma Collection. This is our
+most playful and distinctive style for women. The Fluff Momma
+features untrimmed and colored sheepskin fleece exposed on the
+entire boot.
+Slipper Collection. Our popular Slipper
+Collection builds upon the UGG reputation for comfort, warmth
+and luxury. We offer a wide selection of styles and colors for
+men, women and children.
+We have expanded our UGG collection from the Classic Sheepskin
+boot to a broad footwear line for men, women and children in a
+variety of styles, colors and materials designed for wear in a
+variety of climates and occasions. Over the last few years, our
+line expansion strategies have resulted in significantly
+increased exposure for
+9
+Table of Contents 
+our UGG collection and have contributed to the growth of
+UGG’s year round business. The manufacturer’s
+suggested domestic retail prices for adult sizes for the Fall
+2006 UGG collection range from $55.00 to $400.00.
+Simple Casual Footwear. “The brand
+of choice for a feel good lifestyle.” The Simple brand
+bridges the gap between casual lifestyle and athletic brands.
+Simple’s goal is to offer products that feel great from a
+comfort standpoint while creating an emotional experience and
+connection with the consumer. The Simple line of casual shoes
+combines the comfort of athletic footwear construction with the
+simple, understated styling of
+“back-to-basics” 
+casual footwear by offering fun products with high quality at a
+great value.
+Our product line is comprised of these six key categories, which
+range in price from $22.00 to $140.00:
+Sneakers. The men’s and
+women’s sneaker collection is the largest category of the
+Simple product offering. The Simple sneaker offering is
+positioned in the marketplace as the alternative to the
+“over-hyped” and “over–teched” sneaker
+brands that currently saturate the market. We’ve introduced
+several new sneaker styles that incorporate a sneaker specific
+pedbed tm ,
+crepe rubber outsoles, and leather and suede uppers.
+Clogs. The clog category is iconic for
+the Simple brand. Building on the heritage of our original
+clogs, our current clog series features the
+pedbed tm 
+and updated material and color options. For the Spring 2006
+season we have added several styles designed as clog-sandal
+hybrids, which we refer to as “Clandals.”
+Sandals: We offer a range of warm
+weather footwear for men and women in rich leathers and colorful
+nubucks. We also offer a flip-flop program that caters to the
+surf channel of distribution.
+“9 to 5” Casuals: “9 to
+5” is a men’s and women’s collection of casuals
+incorporating full-grain leathers and nubucks, natural crepe and
+rubber. This new line debuts in Fall 2006.
+Green
+Toe tm : The
+Green
+Toe tm 
+segment represents an effort on the part of Simple to reduce the
+ecological footprint made by shoes around the world. All Green
+Toe products are made with 100% natural materials (textiles and
+rubbers), use water-based glues, and soy-based dyes. For Spring
+2006, we’ve added sandals to the collection and for Fall
+2006 we’ve further expanded the line with several new
+styles including a Wallabee inspired silhouette called the
+Sloppy Toe and the first real green sneaker, the Play Toe.
+Kids: For Fall 2006, we are introducing
+a new children’s offering of select styles based on popular
+adult styles.
+Licensing 
+To capitalize on the strength of our brands, we are pursuing the
+licensing of our brand names for use in complementary product
+categories beyond footwear. For the year ended December 31,
+2004 and 2005, we recognized net license revenues of
+approximately $950,000 and $1,074,000, respectively.
+In 2004, we embarked on our UGG licensing program with the
+introduction of UGG licensed handbags and outerwear for the
+domestic market, which were delivered in the Fall 2004 season.
+In 2005, we successfully launched UGG cold weather accessories,
+which began delivery in the Fall 2005 season. We initiated
+expansion of our domestic UGG licenses into select international
+markets, beginning with UGG handbags in 2005 and are pursuing
+international expansion of our cold weather accessories and
+outerwear licenses for 2006. We also restructured our domestic
+Teva licensing program, which currently consists of
+U.S. licenses for men’s and women’s headwear and
+socks, a Canadian license for sportswear, and a newly signed
+U.S. license for bags and packs which will begin deliveries
+in the Spring 2007 season.
+Because our licensing program is in its early stages, and due to
+the lead times required to bring the products to market, we have
+only recently begun to recognize license revenues and we do not
+expect significant incremental net sales and profits from
+licensing in the near future. However, we believe licensing
+revenues may become a more significant portion of our net sales
+and profits over time if our licensees can sell the licensed
+products in the quantities they have projected and if we are
+able to add new complementary licenses over time.
+BHPC Global Licensing, Inc. is a full service licensing agency
+that we initially used to assist us in identifying licensing
+candidates and coordinating our licensing business until August
+2004, when we began to do this in-house. We pay BHPC an agency
+fee on royalty income that we receive related to licensing
+agreements that BHPC
+10
+Table of Contents 
+coordinated on our behalf. In 2005, we paid BHPC approximately
+$118,000 in agency fees. BHPC is 50% owned by one of our
+directors, Daniel L. Terheggen.
+Products made under license are sold primarily through the same
+retail channels as our footwear product offering. Our licensing
+agreements generally give us the right to terminate the license
+if specified sales targets are not achieved.
+Sales and
+Distribution 
+We distribute our products in the United States. through a
+dedicated network of approximately 41 independent sales
+representatives. Our sales representatives are organized
+geographically and visit retail stores to communicate the
+features, styling and technology of our products. In addition,
+we have three employee sales representatives who serve as key
+account executives for several of our largest customers.
+Until mid-2005, our sales force was divided into two teams, one
+for Teva and one for UGG and Simple, as the UGG and Simple
+brands are generally sold through non-outdoor specialty and
+non-sporting goods distribution channels and are targeted toward
+a different consumer than our Teva brand. Beginning in mid-2005,
+however, we began to split the Simple and UGG sales forces into
+two distinct groups in order to provide Simple with its own
+dedicated sales function to improve its sales efforts and
+resources. While there is still some overlap between the Simple
+and UGG teams, we have begun to make the transition and are well
+on our way to having separate dedicated sales forces for each of
+our three brands. Each brand’s sales manager recruits and
+manages his or her network of sales representatives and
+coordinates sales to national accounts. We believe this approach
+for the U.S. market maximizes the selling efforts to our
+national retail accounts on a cost-effective basis.
+Internationally, we distribute our products through 31
+independent distributors. Beginning with the Fall 2005 season,
+all international shipments are made directly from our
+independent manufacturers to our independent distributors,
+although previously certain shipments to Europe were facilitated
+through third party distribution in the Netherlands.
+Our principal customers include specialty retailers, selected
+department stores, outdoor retailers, sporting goods retailers
+and shoe stores. Our five largest customers accounted for
+approximately 27.0% of our net sales for 2005, compared to 25.2%
+for 2004. An upscale department store based on the West Coast of
+the United States, which is a significant customer for each of
+our three brands, accounted for 14.1% of our net sales in 2004
+and 15.8% of our net sales in 2005. No other customer accounted
+for more than 10% of net sales in either year.
+Teva. We sell our Teva products
+primarily through specialty outdoor and sporting goods retailers
+such as REI, Eastern Mountain Sports, L.L. Bean, Dick’s
+Sporting Goods and The Sports Authority. We believe this retail
+channel is the first choice for athletes, enthusiasts and
+adventurers seeking technical and performance-oriented footwear.
+Furthermore, we believe that our Teva products are best sold by
+retailers who appreciate and can fully market the technical
+attributes of our products to the consumer. We also sell a
+limited selection of styles and special
+make-up Teva
+products through selected retailers in order to reach consumers
+who are less outdoor-oriented but who seek out our products due
+to their durability, comfort and fit.
+UGG. We sell our UGG products primarily
+through high-end department stores such as Nordstrom, Neiman
+Marcus and Marshall Field’s, as well as independent
+specialty retailers such as Fred Segal, The Tannery, David Z.
+and Sport Chalet. 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.
+Simple. Our Simple products are
+targeted primarily towards independent specialty retailers,
+select department stores, outdoor specialty accounts, and surf
+shops that target consumers seeking comfortable, high quality
+footwear at a fair price. Key accounts such as Shoe Biz, O’
+My Sole, Nordstrom, Parisians, REI, Adventure 16 and Hobie
+Sports cater to consumers in our
+demographic — men and women between the ages of
+21 and 35.
+In 2005, we distributed products sold in the United States.
+through our 126,000 square foot distribution center in
+Ventura, California and our 300,000 square foot
+distribution center in Camarillo, California. Our distribution
+centers feature an inventory management system that enables us
+to efficiently pick and pack products for direct shipment to
+retailers across the country. For certain customers requiring
+special handling, each shipment is
+11
+Table of Contents 
+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 rigorous quality inspection process.
+See the discussion of the cash flow cycle, inventories and other
+items of working capital under “Liquidity and Capital
+Resources”.
+Consumer
+Direct 
+Our Consumer Direct business includes our retail outlet stores
+and the retailing operations of our Internet and catalog
+business. We acquired the Internet and catalog business as part
+of the acquisition of the Teva Rights. The Consumer Direct
+business enables us to reach consumers through our Internet
+business under the Teva.com, UGGs.com, UGGAustralia.com and
+SimpleShoes.com Internet addresses, through direct mailings
+under our catalog business and through our two existing retail
+outlets in Camarillo, California and Ventura, California. Our
+mailing list includes approximately 385,000 consumers who have
+purchased at least once in the past 36 months. Our Internet
+and catalog business is headquartered in Flagstaff, Arizona and
+order fulfillment is performed by our wholesale distribution
+centers in Ventura and Camarillo, California in order to reduce
+the cost of order cancellation, minimize out of stock positions
+and further leverage our distribution center occupancy costs.
+Products sold through our Internet and catalog business are sold
+at prices which approximate retail prices, enabling us to
+capture the full retail margin on each direct transaction.
+Marketing
+and Advertising 
+Our brands are generally advertised and promoted through a
+variety of consumer print advertising campaigns. We benefit from
+highly visible 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 incurred approximately $6,594,000,
+$8,687,000 and $10,536,000 in advertising, marketing and
+promotional expenses in 2003, 2004 and 2005, respectively.
+Teva. We use several marketing methods
+to promote the Teva brand, including:
+• 
+a targeted print advertising campaign;
+• 
+promotions at a variety of festivals, events and competitions;
+• 
+sponsorship of national athletes and key events such as the Teva
+Whitewater Team, the Teva U.S. Mountain Running Team and
+the Teva Mountain Games;
+• 
+discount programs to professional river guides, kayakers,
+mountain bikers and rock climbers;
+• 
+product seeding with professional athletes; and
+• 
+in-store promotions.
+We advertise the Teva brand through the placement of print
+advertisements in leading outdoor magazines such as Outside,
+National Geographic Adventurer, Hooked on the Outdoors and
+Paddler. As we have added new product categories to
+the Teva brand, we have broadened our advertising presence to
+reach new consumers. To support our introduction of Teva trail
+running shoes, we advertise in Runner’s World, Trail
+Runner and Running Times, among other publications.
+We also advertise in more mainstream publications such as
+Men’s Journal, Yoga Journal, and Cargo in
+order to support our casual footwear lines.
+The Teva brand is closely associated with outdoor lifestyle
+pursuits such as river rafting, kayaking, mountain biking,
+hiking and trail running. We sponsor outdoor events in the U.S..
+including the Teva Mountain Games at Vail, the Teva Vail Trail
+Running Series, the Santa Cruz Surf Kayak Festival in Santa
+Cruz, California and the Reggae on the River event in
+Garberville, California, among others. Internationally, we
+sponsor outdoor events in France, Switzerland and Italy in order
+to increase our brand visibility to the core European outdoor
+consumer. We are also a promotional partner with Macgillivray
+Freeman for its documentary film “Mystery of the Nile”
+released in IMAX theaters in 2005, featuring exhilarating
+footage of Teva outfitted river rafting and kayaking. We believe
+our
+12
+Table of Contents 
+sponsorship of these events further links our Teva brand with
+its outdoor heritage and generates increased product exposure
+and brand awareness.
+We sponsor some of the world’s best male and female
+professional and amateur outdoor athletes across several sports.
+Our Teva promotional team attends events across the U.S. in
+dedicated,
+state-of-the-art 
+promotional vehicles prominently featuring our Teva logo. The
+promotions team showcases Teva products at events and provides
+consumers with the opportunity to see and sample our latest
+styles. We believe by outfitting and sponsoring these highly
+visible athletes and teams, we create brand and product
+awareness among our targeted consumers.
+UGG. We seek to build upon the success
+of our UGG national print advertising campaign. We currently
+advertise in upscale national magazines such as Vogue, Elle,
+and O Magazine. UGG Australia also began
+men’s focused advertising for its 2005 campaign, including
+print advertising in Outside, Men’s Journal, GQ, and
+Surfer. We believe such advertising is an
+effective means to target our intended consumers and to convey
+the comfort and luxury of UGG products. We also benefit from
+editorial coverage of the UGG collection. Articles have appeared
+in such magazines as Glamour, InStyle, Cosmopolitan, Marie
+Claire, People, US Weekly, Maxim, Shape, Self, O Magazine
+and Real Simple. In 2003, Footwear News, a
+leading industry trade publication, awarded UGG Australia
+“Brand of the Year.” In 2004, UGG was awarded
+“Brand of the Year” by Footwear Plus, another
+leading trade publication, and was recognized with the ACE Award
+for the “it” accessory of the year by the Accessories
+Council. In 2005, UGG Australia was awarded two product design
+awards by Footwear Plus in the categories of Women’s
+Streetwear and Women’s Gore-Tex. 
+We also actively seek to place UGG products at selected events.
+During the 2002 Winter Olympic Games we outfitted all of the
+children in the Children of the Light performance with UGG
+boots. During the Medal Ceremonies, Olympic staff presenting
+medals to the Olympic athletes also wore UGG boots. In
+collaboration with our Switzerland distributor, UGG produced a
+special edition cold weather boot featuring a matching
+red-outsole for the entire 2006 Swiss Olympic Team. We believe
+this product placement further strengthened the consumer’s
+image of UGG products as high quality, luxurious sheepskin goods
+well-suited for use in cold weather.
+We also have improved visibility of the UGG brand through
+placement of the product in selected television shows and
+feature films. UGG products have appeared on numerous shows,
+including Entourage, Six Feet Under, The Oprah Winfrey Show,
+Judging Amy, The King of Queens, Still Standing, Will and Grace,
+Everwood, The George Lopez Show, Jeopardy and Saturday
+Night Live. Our marketing efforts have also resulted in
+UGG product appearances in the following recent and upcoming
+feature films: In Her Shoes starring Cameron Diaz ,
+Fever Pitch starring Drew Barrymore and Jimmy Fallon and
+The Matador starring Pierce Brosnan. In addition, UGG has
+been embraced by Hollywood celebrities, who are often seen and
+photographed wearing UGG boots. This celebrity exposure for UGG
+has been the subject of recent publicity including articles in
+US Weekly, USA Today, People and
+People.com . UGG boots have been a featured
+item on the Oprah Winfrey “Oprah’s Favorite
+Things” gift show in 2000, 2003 and 2005 and her surprise
+baby shower for military families in 2004. We believe our target
+consumer identifies with celebrities and that greater exposure
+further heightens awareness of the brand and stimulates sales.
+Simple. The Simple consumer is best
+reached through a focused grassroots marketing approach that
+will introduce the brand to influential communities around the
+country. These marketing efforts will focus on the following
+cities: Los Angeles, San Francisco, New York City,
+Philadelphia, Chicago, Boulder, Austin and San Diego. In
+support of our grassroots initiatives, we will focus on
+advertising in alternative weekly publications, which will
+provide us with the opportunity to reach a large number of
+people through a non-mainstream medium. As part of its increased
+marketing efforts, Simple is also rolling out a national print
+advertising campaign targeted at various demographic groups,
+which will include print ads targeted at the ecologically-minded
+consumer through magazines like Ready-Made and UTNE
+Reader ; the fashion consumer through advertisements in
+Paper and Blackbook Magazine ; the surf crowd
+through Surfer, Surfing and Surfer’s Path ;
+and the outdoor consumer in magazines such as Mountain
+Gazette and Blue Ridge Outdoors Magazine. 
+Simple will continue to work with its public relations agency to
+get editorial placement of key styles in youth and trend
+magazines, television shows, independent films and with
+cutting-edge influential artists and musicians. Our efforts have
+resulted in product appearances in Plenty Magazine,
+Treehugger.com, Footwear News, Footwear Plus , Paper
+Magazine, Maxim, Nylon, and Lucky, and product
+appearances on VH1 and MTV. Simple also received a design award
+in 2005 from Footwear Plus in the Action Sport and
+Lifestyle Category.
+13
+Table of Contents 
+Product
+Design and Development 
+The design and product development staff for each of our brands
+creates and introduces new innovative footwear products that
+combine our standards of high quality, comfort and
+functionality. The design function for all of our brands is
+performed by a combination of our internal design and
+development staff plus outside design firms. By introducing
+outside firms to the design process, 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.
+To ensure that Teva’s high performance technical products
+continue to satisfy the requirements of our historical consumer
+base of performance-oriented “core enthusiasts,” our
+design staff solicits input from our Team Teva whitewater
+athletes, the Teva U.S. Mountain Running Team and other
+professional outdoorsmen, as well as several of our retailers,
+including REI, Eastern Mountain Sports, Dick’s Sporting
+Goods and L.L. Bean. We regularly add new innovations,
+components and styles to our product line based on their input.
+For example, our Fall 2005 Teva offering features several styles
+of casual closed toe footwear with our new
+Flipsole tm 
+technology, a removable midsole that can be easily removed and
+converted to a thong, making it two shoes in one. We have also
+incorporated our proprietary Wraptor technology into performance
+running sandals, an assortment of hikers and certain styles of
+our high performance guide sport sandals specifically targeted
+at professional outdoorsmen and adventurers. In addition, for
+added traction and durability, we have incorporated variations
+of our proprietary Spider Rubber outsole in our Teva sandals,
+including original Spider Rubber — a sticky,
+non-slip rubber outsole material for use across wet and dry
+terrain, SSR — a super sticky rubber compound for
+use specifically in extreme water conditions to provide superior
+grip on smooth wet surfaces, like rocks, fiberglass, and raft
+rubber; and Spider XC — an off-road hybrid that
+combines the non-slip traction of Spider Rubber with durability
+for use in both wet and dry conditions.
+Our UGG and Simple products are designed to appeal to consumers
+seeking our distinctive and innovative styling. We strive to be
+a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further
+awareness and interest in the UGG and Simple collections. In our
+UGG line, we have successfully evolved the product offering over
+the last few years from its original sheepskin heritage to a
+diverse collection of luxury and comfort styles suited for a a
+variety of climates and seasons. The evolution of our Simple
+line has resulted in many new categories for the brand,
+including the recent introduction of the first successful truly
+natural footwear in our Green Toe
+collection tm . 
+We believe our ability to incorporate
+up-to-date 
+styles while remaining true to our heritage, combined with
+performance-oriented features consumers have come to expect,
+results in continued enthusiasm for our brands in the
+marketplace.
+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 for their various product lines. We
+develop detailed drawings and prototypes of our new products to
+aid in the conceptualization and to ensure our contemplated new
+products meet the standards for innovation and performance our
+consumers demand. Throughout the development process, members of
+the design staff coordinate internally and with our domestic and
+overseas product development, manufacturing and sourcing
+personnel toward a common goal of developing and producing a
+high quality product to be delivered on a timely basis.
+Manufacturing 
+We do not manufacture our footwear. We outsource the
+manufacturing of our Teva, Simple, and UGG footwear to
+independent manufacturers in the Far East. We also outsource the
+manufacturing of our UGG footwear to independent manufacturers
+in New Zealand and Australia. We require our independent
+contract manufacturers, designated suppliers, and our licensees
+to meet our standards for working conditions, environmental
+compliance, human rights and other matters before we are willing
+to place business with them. 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. To ensure the
+production of high quality products,
+14
+Table of Contents 
+many of the materials and components used in production of our
+products by the 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 outsource our
+manufacturing requirements on the basis of individual purchase
+orders 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 one tannery
+in New Zealand and three in China. We maintain a constant dialog
+with the tanneries to monitor the supply of sufficient high
+quality sheepskin available for our projected UGG footwear
+production. To ensure adequate supplies for our manufacturers,
+we forecast our usage of top grade sheepskin one year in advance
+at a forward price. We believe supplies are sufficient to meet
+our needs in the near future but we continue to search for
+alternate suppliers in order to accommodate any unexpected
+future growth.
+We maintain
+on-site 
+supervisory offices in Pan Yu City, China and Macau that serve
+as local links to our independent manufacturers in the Far East,
+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.
+We have instituted pre-production and post-production
+inspections to meet or exceed the high quality demanded by
+consumers of our products. Our quality assurance program
+includes
+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
+U.S. distribution center.
+Patents
+and Trademarks 
+We now hold more than 20 issued U.S. utility and design
+patents, 15 pending U.S. utility and design patent
+applications and a number of foreign pending and granted patents
+for Teva, UGG and Simple footwear. Our U.S. patent for the
+Teva Universal Strapping System, which is used many of our Teva
+sandals, expires in 2007. Corresponding patents in Australia,
+New Zealand and Korea expire in 2008. We also currently hold
+trademark registrations For TEVA, UGG and SIMPLE in the U.S. and
+in many other countries, including the countries of the European
+Union, Canada, Japan and Korea. We hold Australian trademark
+registrations for UGG Australia and SIMPLE in Australia but our
+rights are narrow. See “Risk Factors.”
+We regard our proprietary rights as valuable assets and
+vigorously protect such rights against infringement by third
+parties. Deckers and its predecessors have successfully enforced
+their intellectual property rights in the courts and other
+forums, obtaining numerous judgments, consent judgments and
+settlement agreements that uphold the validity of Deckers’
+patent, trademark and trade dress rights.
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva
+net sales occurring in the first and second quarters of each
+year and the highest percentage of UGG net sales occurring in
+the third and fourth quarters of each year. To date, Simple has
+not had a seasonal impact on the Company. With the dramatic
+growth in UGG in recent years, combined with the introduction of
+a Fall Teva line, net sales in the last half of the year have
+exceeded that for the first half of the year. Given our
+expectations for each of our brands in 2006, we currently expect
+this trend to continue. Nonetheless, actual results could differ
+materially depending upon consumer preferences, availability of
+product, competition and our customers continuing to carry and
+promote our various product lines, among other risks and
+uncertainties. See “Risk Factors.”
+Backlog 
+Historically, we have encouraged our customers to place, and we
+have received, a significant portion of orders as pre-season
+orders, generally four to eight months prior to shipment date.
+We provide customers with incentives to participate in such
+pre-season programs to enable us to better plan our production
+schedule, inventory and shipping
+15
+Table of Contents 
+needs. Unfilled customer orders as of any date, which we refer
+to as backlog, represent orders scheduled to be shipped at a
+future date and do not represent firm orders. The backlog as of
+a particular date is affected by a number of factors, including
+seasonality, manufacturing schedule and the timing of shipments
+of products 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.
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are
+highly competitive. We compete with numerous domestic and
+foreign footwear designers, manufacturers and marketers. Our
+Teva footwear line primarily competes with Nike, adidas-Salomon,
+Timberland, Merrell, Chaco, Reef, Columbia Sportswear, Crocs and
+Keen. Our UGG footwear line primarily competes with Emu,
+Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as
+retailers’ own private label footwear. In addition, due to
+the popularity of our UGG products, we face increasing
+competition from a significant number of competitors selling
+“knock-off” products. Our Simple sneaker line
+primarily competes with Puma, Vans and Converse, and our
+casual/sandal product competes with Clarks, Birkenstock, Born
+and Merrell. Some of our competitors are significantly larger
+and have significantly greater resources than we do.
+Our three footwear lines compete primarily on the basis of brand
+recognition and authenticity, product quality and design,
+functionality and performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to:
+• 
+shape and stimulate consumer tastes and preferences by offering
+innovative, attractive and exciting products;
+• 
+anticipate and respond to changing consumer demands in a timely
+manner;
+• 
+maintain brand authenticity;
+• 
+develop high quality products that appeal to consumers;
+• 
+appropriately price our products;
+• 
+provide strong and effective marketing support; and
+• 
+ensure product availability.
+We believe we are particularly well positioned to compete in the
+footwear industry. Our diversified portfolio of footwear brands
+and products allows us to operate a business that does not
+depend on any one demographic group, merchandise preference or
+product trend. We have developed a portfolio of brands that
+appeals to a broad spectrum of consumers. 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, 2005, we employed approximately 191
+employees in our U.S. facilities and 34 employees located in
+China and Macau, none of whom is represented by a union. We
+believe our relationships with our employees are good.
+Financial
+Information about Segments and Geographic Areas 
+Our four reportable business segments include the strategic
+business units responsible for the worldwide operations of each
+of our brands — Teva, Simple and UGG, as well as
+our consumer direct retailing business.
+16
+Table of Contents 
+The following table shows our domestic and international
+revenues for each of the years ended December 31, 2003,
+2004, and 2005.
+Years Ended
+December 31, 
+2003 
+2004 
+2005 
+Net sales by
+location: 
+U.S. 
+$
+98,710,000
+$
+175,419,000
+$
+229,487,000
+International
+22,345,000
+39,368,000
+35,273,000
+Total
+$
+121,055,000
+$
+214,787,000
+$
+264,760,000
+Refer to Note 8 to our accompanying consolidated financial
+statements for further discussion of our business segment data
+and our long-lived assets that are attributable to our domestic
+versus foreign operations.
+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 Securities and Exchange Commission
+(“SEC”): annual reports on
+Form 10-K, 
+quarterly reports on
+Form 10-Q, 
+current reports on
+Form 8-K 
+and any amendment to those reports filed or furnished pursuant
+to Section 13(a) 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 450 Fifth
+Street, NW, 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 that contains reports,
+proxy and information statements, and other information
+regarding issuers that file electronically with the SEC. The
+address of that site is www.sec.gov .
\ No newline at end of file
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/item13.txt b/raw/filings/0000910521/2005/0000950129-06-002462/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..082ed2f32954f1acf2455f4da404625f98c96232
--- /dev/null
+++ b/raw/filings/0000910521/2005/0000950129-06-002462/item13.txt
@@ -0,0 +1,12 @@
+Item 13. 
+Certain
+Relationships and Related Transactions. 
+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 2006 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, 2005, and
+such information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/item9a.txt b/raw/filings/0000910521/2005/0000950129-06-002462/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..370a34955f36ca1f086d1f1d73f3ccf0ed2c9689
--- /dev/null
+++ b/raw/filings/0000910521/2005/0000950129-06-002462/item9a.txt
@@ -0,0 +1,114 @@
+Item 9A. 
+Controls
+and Procedures. 
+The Company’s Chief Executive Officer, Angel R. Martinez,
+and Chief Financial Officer, M. Scott Ash, with the
+participation of the Company’s management, carried out an
+evaluation of the effectiveness of the Company’s disclosure
+controls and procedures pursuant to Exchange Act
+Rule 13a-15(e). 
+Based upon that evaluation, the Chief Executive Officer and the
+Chief Financial Officer believe that, as of the end of the
+period covered by this report, the Company’s disclosure
+controls and procedures are effective in making known to them
+material information relating to the Company (including its
+consolidated subsidiaries) required to be included in this
+report.
+Disclosure controls and procedures, no matter how well designed
+and implemented, can provide only reasonable assurance of
+achieving an entity’s disclosure objectives. The likelihood
+of achieving such objectives is affected by limitations inherent
+in disclosure controls and procedures. These include the fact
+that human judgment in decision-making can be faulty and that
+breakdowns in internal control can occur because of human
+failures such as simple errors, mistakes or intentional
+circumvention of the established processes.
+There have been no significant changes in the company’s
+internal control over financial reporting that occurred during
+the fourth quarter 2005 that have materially affected the
+company’s internal control over financial reporting. We
+have completed our efforts regarding compliance with
+Section 404 of the Sarbanes-Oxley Act of 2002 for our
+fiscal year ending December 31, 2005. The results of our
+evaluation are discussed below in the Report of Management on
+Internal Control Over Financial Reporting.
+This effort included internal control documentation and review
+under the direction of senior management. During the course of
+our evaluation, we reviewed identified data errors and control
+problems and confirmed that appropriate corrective actions,
+including process improvements, were undertaken. These
+improvements included formalization of policies and procedures,
+improved segregation of duties and additional monitoring
+controls. Many of the components of our internal controls are
+also evaluated on an ongoing basis by members of our
+organization. The overall goals of these various evaluation
+activities are to monitor our internal controls, and to modify
+them as necessary. Our intent is to maintain the internal
+controls as dynamic systems that change as conditions warrant.
+REPORT OF
+MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
+REPORTING 
+Management of Deckers Outdoor Corporation (the
+“Company”) is responsible for establishing and
+maintaining adequate internal control over financial reporting
+as defined in
+Rules 13a-15(f) 
+and
+15d-15(f) 
+under the Securities Exchange Act of 1934. The 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 accounting principles
+generally accepted in the United States of America. Internal
+control over financial reporting includes those written policies
+and procedures that:
+• 
+pertain to the maintenance of records that, in reasonable
+detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the Company;
+• 
+provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in
+accordance with accounting principles generally accepted in the
+United States of America;
+• 
+provide reasonable assurance that receipts and expenditures of
+the Company are being made only in accordance with authorization
+of management and directors of the Company; and
+49
+Table of Contents 
+• 
+provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use or disposition of
+assets that could have a material effect on the consolidated
+financial statements.
+Internal control over financial reporting includes the controls
+themselves, as well as the monitoring of practices and actions
+taken to correct deficiencies as identified.
+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.
+Management assessed the effectiveness of the Company’s
+internal control over financial reporting as of
+December 31, 2005. 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. 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, 2005, the Company maintained effective
+internal control over financial reporting.
+KPMG LLP, independent registered public accounting firm, who
+audited and reported on the consolidated financial statements of
+the Company included in this report, has issued an attestation
+report on management’s assessment of internal control over
+financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/rp_note.txt b/raw/filings/0000910521/2005/0000950129-06-002462/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2005/0000950129-06-002462/rpt_disclosure.txt b/raw/filings/0000910521/2005/0000950129-06-002462/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bb877ddb6c4026f0635925c3bca421937e4d8a64
--- /dev/null
+++ b/raw/filings/0000910521/2005/0000950129-06-002462/rpt_disclosure.txt
@@ -0,0 +1,39 @@
+Certain Relationships and Related Transactions 
+Transactions with Directors 
+Daniel L. Terheggen, a member of the Company’s Board of
+Directors, is a 50% owner and Chief Executive Officer of BHPC
+Global Licensing, Inc. The Company paid BHPC Global Licensing,
+Inc. an aggregate of approximately $118,000 for agency fees
+related to licensing of the Company’s products during 2005.
+In 1993, the Company and Douglas B. Otto, Chairman of the Board,
+entered into a split dollar life insurance arrangement, whereby
+the Company participated in a portion of the life insurance
+premiums paid through 2001. The arrangement provided that
+Mr. Otto’s estate would reimburse the Company for all
+premiums previous paid. In 2005, Mr. Otto reimbursed the
+Company for all premiums paid on his behalf. The Company carried
+the value of the life insurance policy at its cash surrender
+value, which was lower than the amount of premiums paid on the
+policy. As a result, the Company recognized a gain of $260,000
+in 2005 upon settlement and receipt of the reimbursement.
+Limitation of Liability and Indemnification of Directors
+and Officers 
+Our Certificate of Incorporation and Bylaws provide that we
+shall indemnify directors and executive officers to the fullest
+extent now or hereafter permitted by the Delaware General
+Corporation Law (the “DGCL”). In addition, we entered
+into Indemnification Agreements with our directors and executive
+officers in which we agree to indemnify such persons to the
+fullest extent now or hereafter permitted by the DGCL.
+We have obtained a liability policy for our directors and
+officers as permitted by the DGCL which extends to, among other
+things, liability arising under the Securities Act of 1933, as
+amended.
+We maintain an insurance policy pursuant to which our directors
+and officers are insured, within the limits and subject to the
+limitations of the policy, against specified expenses in
+connection with the defense of claims, actions, suits or
+proceedings, and liabilities which might be imposed as a result
+of such claims, actions, suits or proceedings, that may be
+brought against them by reason of their being or having been
+directors or officers.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/filing.txt b/raw/filings/0000910521/2007/0001047469-08-002087/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5eb5b7d4e30c8b0155e4cfb6e02b03b7914e2b07
--- /dev/null
+++ b/raw/filings/0000910521/2007/0001047469-08-002087/filing.txt
@@ -0,0 +1,4872 @@
+10-K
+1
+a2183018z10-k.htm
+10-K
+QuickLinks 
+-- Click here to rapidly navigate through this document 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+ý 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2007 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period
+from to 
+Commission File No. 0-22446 
+DECKERS OUTDOOR CORPORATION 
+(Exact name of registrant as specified in its charter) 
+Delaware 
+(State or other jurisdiction of 
+incorporation or organization) 
+95-3015862 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue, Goleta, California 
+(Address of principal executive offices) 
+93117 
+(Zip Code) 
+Registrant's telephone number, including area code: (805) 967-7611 
+Securities registered pursuant to Section 12(b) of the Act: None 
+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: 
+Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
+Act. Yes o No ý 
+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 o No ý 
+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 ý No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. o 
+Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer
+and large accelerated filer" in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer ý 
+Accelerated filer o 
+Non-accelerated filer o (Do not check if a smaller reporting company) 
+Smaller reporting company o 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
+Act). Yes o No ý 
+The aggregate market value of the common stock held by non-affiliates of the registrant was $1,244,870,298 based on the June 29, 2007 closing price of $100.90
+on the NASDAQ Global Select Market on such date. 
+The
+number of shares of the registrant's Common Stock outstanding at February 15, 2008 was 13,006,358. 
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the registrant's definitive proxy statement relating to the registrant's 2008 annual meeting of stockholders, which will be filed pursuant to Regulation 14A
+within 120 days after the end of the registrant's fiscal year ended December 31, 2007, are incorporated by reference in Part III of this Annual Report on
+Form 10-K. 
+DECKERS OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31, 2007 
+Table of Contents to Annual Report on Form 10-K 
+Page 
+PART I 
+Item 1. 
+Business 
+3 
+Item 1A. 
+Risk Factors 
+18 
+Item 1B. 
+Unresolved Staff Comments 
+31 
+Item 2. 
+Properties 
+31 
+Item 3. 
+Legal Proceedings 
+31 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+31 
+PART II 
+Item 5. 
+Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+32 
+Item 6. 
+Selected Financial Data 
+35 
+Item 7. 
+Management's Discussion and Analysis of Financial Condition and Results of Operation 
+36 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+53 
+Item 8. 
+Financial Statements and Supplementary Data 
+53 
+Item 9. 
+Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
+53 
+Item 9A. 
+Controls and Procedures 
+54 
+Item 9B. 
+Other Information 
+55 
+PART III 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+56 
+Item 11. 
+Executive Compensation 
+56 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+56 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+56 
+Item 14. 
+Principal Accounting Fees and Services 
+56 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules 
+57 
+Signatures 
+62 
+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. This
+Annual Report on Form 10-K contains forward-looking statements based on expectations, estimates and projections as of the date of this filing. Actual results may differ materially
+from those expressed in forward-looking statements. See Item 7 of Part II — "Management's Discussion and Analysis of Financial Condition and Results of
+Operations — Forward-Looking Statements." Deckers®, ecoSNEAKS™, GO.DO.BE®, Green Piggies™, Mush®, Planet
+Walkers®, Pretty Rugged®, Simple®, Spider Rubber®, Terra-Fi®, Teva®, UGG®, and Wraptor® are
+some of our trademarks. Some of our graphic trademarks are shown below: 
+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 dollar amounts herein are expressed in thousands, except for weighted-average wholesale prices per pair and suggested
+retail prices for our footwear and accessories. 
+General 
+We are a leading designer, producer and brand manager of innovative, high-quality footwear and the category creator in the sport sandal, luxury
+sheepskin, and sustainable footwear segments. Our footwear is distinctive and appeals broadly to men, women and children. We sell our products, including accessories such as handbags, headwear, packs
+and outerwear, through quality domestic retailers and international distributors and directly to end-user consumers through our websites, catalogs, 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
+market our products under three proprietary brands: 
+Teva®. Teva is our outdoor performance and lifestyle brand and pioneer of the sport sandal market. The Teva brand was
+founded in the
+1980s to serve the demanding footwear needs of the professional river guide. This authentic heritage and commitment to function and performance remain core elements of the Teva brand. The Teva product
+line has expanded to include casual open-toe and closed-toe footwear, including adventure travel shoes, outdoor cross training shoes, trail running shoes, amphibious footwear,
+light hikers and other rugged outdoor footwear styles and accessories. 
+From
+1985 until November 2002, we sold our Teva products under a license agreement with the brand's founder, Mark Thatcher. In November 2002, we acquired all of the Teva worldwide
+assets, including the Teva eCommerce business and all patents, trade names, trademarks and other 
+3 
+intellectual
+property associated with the acquired Teva assets, which we refer to collectively as the Teva Rights. We acquired the Teva Rights from Mr. Thatcher and his wholly-owned
+corporation, Teva Sport Sandals, Inc. 
+In
+recent seasons, we have focused on strengthening Teva's leadership position in the performance sandal market, and broadening that performance platform to include other outdoor
+activities such as trail running and light hiking. In 2008, we are introducing Teva's first complete line of fall and winter footwear. In the future, we intend to selectively expand our activity in
+the outdoor performance and lifestyle arenas. 
+UGG® UGG Australia is our luxury comfort brand and the category creator for luxury sheepskin footwear. The UGG brand has
+enjoyed several
+years of strong growth and positive consumer
+reception, driven by consistent introductions of new styles, introductions of UGG brand products in the fall and spring seasons and geographic distribution expansion. We carefully manage the
+distribution of our UGG brand products within high-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 luxury brand. 
+The
+UGG brand gained brand recognition in the U.S. beginning in 1979 and was adopted as a favored brand by the California surf community. We acquired the UGG brand in 1995 and have
+carefully repositioned the brand as a luxury comfort collection sold through high-end retailers. In recent years, sales of UGG brand products have benefited from significant national media
+attention and celebrity endorsement through our marketing programs and product placement activities, raising the profile of UGG as a luxury comfort brand. We intend to further support the UGG brand's
+market positioning by expanding the selection of styles available in order to build consumer interest in our UGG brand collection. We also remain committed to limiting distribution of UGG brand
+products to high-end retail channels. 
+Simple®. Simple Shoes began in 1991 as an alternative to all the over-built, over-priced, and
+over-hyped products in the marketplace. The brand's legacy was built on its original sneaker design, the Old School Sneaker, and grew to include successful sandal and casual products. In
+2005, as a response to the massive amount of waste produced by the footwear industry, the Simple brand launched a new collection of sustainable footwear called Green Toe®. Green Toe
+represents a revolutionary shift in thinking about footwear by building a shoe from the inside out using sustainable materials and processes. The Simple brand's mission is to be the world leader in
+sustainable footwear and accessories. We feel that how we make Simple products is just as important as why we make them. That means our goal is to find more sustainable and innovative ways of doing
+business as well as making products. We are committed to making Simple products 100% sustainable; thus, minimizing the ecological footprint left on the planet. 
+Through
+continued innovation, expansion of product offerings, premium distribution and strategic marketing initiatives, we have successfully developed three premier lifestyle brands. Our
+total net sales increased by 47.5% from $304,423 in 2006 to $448,929 in 2007, and our income from operations increased by 105.2% from $51,442 in 2006, which included a $15,300 impairment loss on our
+Teva trademarks, to $105,553 in 2007. For 2007, wholesale shipments of Teva, UGG and Simple products aggregated $82,003, $291,908 and $11,163, respectively, and represented 18.3%, 65.0% and 2.5% of
+our total net sales, respectively. Sales of our brands through our eCommerce division and our retail store division, which are in addition to our wholesale shipments, were $45,473 and $18,382,
+respectively, representing 10.1% and 4.1%, respectively, of total net sales in 2007. 
+History 
+Deckers was founded by Doug Otto in 1973 as a domestic manufacturer of sandals. We originally manufactured a single line of sandals under the Deckers brand name
+in a small factory in Carpinteria, 
+4 
+California.
+Since then, we have grown through the development and licensing of proprietary technology, targeted marketing and selective acquisitions. In 1985, we entered into our first license
+agreement for Teva sport sandals with Teva's founder, Mark Thatcher. In 1986, we developed the Universal Strapping System, establishing Teva as the sport sandal category-creator and generating
+significant national attention for the Teva brand. 
+Deckers
+experienced a period of rapid growth during the late 1980s and completed our initial public offering in 1993. As our sales grew, we terminated our manufacturing operations in the
+U.S., Mexico and Costa Rica, and today independent manufacturers in China and New Zealand manufacture all of our footwear products for us. We maintain our own offices in China and Macau to monitor the
+operations of our manufacturers in China. 
+In
+order to diversify our sales, and leverage our product development and sourcing capabilities, we completed the acquisition of the Simple brand from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired the UGG brand from its founders, after which we initiated a repositioning of the line, focusing on comfort, luxury and premium distribution
+channels and developing products that appeal to consumers in a variety of climates. 
+Business Strategies 
+We seek to differentiate our brands by offering diverse lines that emphasize authenticity, functionality, quality and comfort and products tailored to a variety
+of activities, seasons and demographic groups. Key elements of our business strategies are: 
+Building Leading Global Brands. Our mission is to build niche footwear lines into global brands with
+market leadership positions. Our Teva, UGG and Simple brands began as footwear lines appealing to a narrow core enthusiast market. We have since built these lines into substantial global lifestyle
+brands with potential for further growth and line extensions. Across our brands, our styles remain true to the brands' heritage but have been selectively extended over time to broaden their appeal to
+men, women and children seeking high quality, comfortable styles for everyday use. Furthermore, we actively manage our brands to ensure that we reach brand appropriate retail distribution channels. We
+believe that
+building our brand image is best accomplished through a decentralized management structure that empowers a single brand manager for each brand to coordinate all aspects of brand image, from product
+development to marketing and retail channel management. 
+Sustaining Brand Authenticity. We believe our ability to increase sales, sustain strong gross
+margins, and maintain market share results, in part, from the appeal of our brand heritage. We believe that Teva footwear consumers are passionate and serious about the outdoors. Our Teva brand
+marketing programs focus on performance of our products, and feature national advertising in outdoor-oriented media as well as sponsorship of outdoor events and professional athletes. These efforts
+reinforce the Teva brand's heritage and positioning as a highly technical, performance-oriented outdoor footwear brand. Our UGG brand marketing strategy positions our products as a premium, luxury
+collection but also as functional footwear; UGG brand products are primarily marketed through national print advertising in major magazines and through our retailers and their catalogs and
+advertising. Historically, our marketing for UGG brand products has been focused on women, but with the recent introduction of innovative men's styles, we are increasing our marketing appeal to men
+through advertisements in national men's magazines with a continued focus on lifestyle and comfort. We promote our Simple brand by emphasizing that we make fun, casual, comfortable and sustainable
+footwear. Our goal for the Simple brand is to create a dialogue with the consumer through all communication vehicles and to show people that sustainability is an emerging lifestyle for everyone, not
+just environmentally conscious individuals. Our print advertising campaigns for our Simple brand include national publications and alternative weekly publications in select cities around the world. We
+also have an online advertising campaign that reaches consumers through websites that focus on 
+5 
+sustainability
+as well as pop culture. In 2007, we also sponsored environmental-themed concerts, film festivals, and green expos to showcase and tell the sustainable lifestyle brand story. 
+Driving Demand Through Innovation and Technical Leadership. We believe our reputation for innovation
+and technical leadership distinguishes our products from those of our competitors and provides us with significant competitive advantages. Just as our proprietary Universal Strapping System set the
+performance standard for sport sandals in the mid-1980s, more recent technical advances like our Spider Rubber® and our Teva Wraptor®,
+Wraptor-Lite®, and Drain Frame™ which we introduced in 2007, all provide uncompromised performance for the new outdoor athlete. We also continue to develop
+innovative styles, products and product categories for our UGG collection in order to support the UGG brand's positioning as a functional lifestyle brand, which can be worn in a variety of climates
+and weather conditions. The UGG brand has benefited from our continuing expansion into non-boot casuals, sheepskin-trimmed footwear and styles combining sheepskin with
+fine-grade suede and leathers, all designed to expand our market share in new categories and increase our sales in both the fall and spring selling seasons. The goal of the Simple brand is
+to revolutionize the footwear industry by producing 100% sustainable products. We believe that consumers are increasingly interested in living an environmentally friendly lifestyle and seeking out
+sustainable products. We are at the forefront of the industry in using new sustainable materials, such as bamboo, organic cotton, natural latex and cork combinations, recycled car tires, and recycled
+PET (from plastic water bottles) throughout our product line. The Simple brand will continue to innovate with the goal of achieving 100% sustainability in design, development, and material
+applications. 
+Maintaining Efficient Development and Production Processes. We believe our product development
+processes enable us to produce leading edge products on a timely and a cost effective basis. We design our products domestically. We maintain on-site supervisory offices in Pan Yu City,
+China and Macau that serve as local links to our independent manufacturers in China. This enables us to carefully monitor the production process, from receipt of the design brief to production of
+interim and final samples to 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. 
+Growth Strategies 
+Our growth will depend upon our broadening of the products offered under each brand, expanding domestic and international distribution, licensing our brand names
+and developing or acquiring new brands. Specifically, we intend to: 
+Introduce New Categories and Styles under Existing Brands. We intend to increase our sales by
+developing and introducing additional footwear products under our existing brands that meet our high standards of performance, practicality, authenticity, comfort and quality. We have expanded the
+open-toe footwear category under our Teva brand by launching new casual and performance styles, as well as several new sandal styles that provide increased foot coverage and protection. We
+have also introduced several closed-toe performance styles and collections, including amphibious footwear, light hikers, trail runners and outdoor cross trainers. We plan to further expand
+into the casual outdoor footwear market, which, in the aggregate, is considerably larger than the market for the Teva brand's core sport sandals. We have expanded our UGG product collection to
+incorporate additional styles and fabrications in order to further penetrate the fall, spring and winter seasons. We have expanded our men's and kids' product line and have introduced a
+cold-weather series featuring sheepskin, waterproof eVent uppers and Vibram outsoles. Our UGG brand has enhanced its Spring 2008 collection by introducing new fashion comfort categories
+for men, women and children. In response to the positive market reaction to espadrilles that our UGG brand introduced in 2007, we expanded that category as well with new styles and new heel heights. 
+6 
+As
+the sustainability lifestyle movement is reaching the mainstream market, our goal for the Simple brand is to lead the industry through new product innovations and pursue new solutions
+to make our business practices more sustainable. The influence of our Green Toe collection, products made primarily from sustainable materials, is seen throughout the entire Simple product line,
+especially in our sneaker segment with the introduction of ecoSNEAKS™ in 2007. We also expanded our kids' and infants' collection with Green Piggies™. This collection of
+products follows the same guidelines as Green Toe. We round out the entire lifestyle of the Simple brand with our bag
+collection, which we launched in the 2006 holiday season and expanded in 2007. By introducing new categories under our brands, in particular, the closed-toe footwear under our Teva brand
+and the spring product offerings under our UGG brand, we believe we will expand the selling seasons for our brands with the goal of increasing sales and creating a more balanced year round business
+for each of these brands. 
+Expand Domestic Distribution. We believe that we have significant opportunities to increase our sales
+by expanding domestic distribution of our products. Our Teva brand has historically been distributed through the outdoor specialty, sporting goods and department store retail channels. In addition, we
+see the potential for expansion into the athletic specialty and running specialty sales channels, with strategic and focused product and marketing programs. The UGG brand originally realized a
+substantial portion of its sales in California. Today, we have a more balanced business, increasing our business significantly in the Midwest and North East. For our Simple line, we are focusing
+distribution on specialty independent retailers, department stores, outdoor retailers, and surf shops for our broad product offering, as well as the introduction into the health and wellness retail
+channel through our Green Toe offering of ecologically friendly footwear. We also plan to expand through internet sales, as consumers have continued to increase their reliance on the internet for
+footwear and other purchases. Further, we currently plan to open one additional retail outlet store and two additional UGG brand concept stores in major metropolitan areas by the end of 2008. 
+Expand International Distribution. In 2007, our international net sales totaled $62,336, representing
+approximately 13.9% of total net sales, an increase of 62.6% compared to 2006. The majority of our international sales occurred in Europe, with the remainder primarily in Asia, Canada and Latin
+America. In addition to our existing European regional office in London, during 2007 we opened a regional office in Hong Kong. To ensure we continue to drive growth and effectively implement our
+international strategies, we also strengthened our international team with a primary focus on sales and marketing, as well as sales operations and customer service. 
+We
+intend to further strengthen our international infrastructure to ensure optimum results with both short and long-term goals in mind. We will continue to work closely with
+our distributors on the effective management of our business objectives and brand strategies. In addition to our existing retail distribution, we plan to explore additional avenues to make our
+products available to international consumers, including the expansion of our business through internet sales and the potential opening of stand-alone brand stores as appropriate opportunities arise,
+particularly in the case of UGG Australia. 
+Pursue Licensing of Brands in Complementary Product Lines. We are actively pursuing selective
+licensing of our brand names in product categories beyond footwear. Previously, we introduced UGG brand licensed handbags, outerwear, and cold weather accessories for the domestic market and expanded
+into select international markets, beginning with handbags. In 2006, we launched our cold weather accessories and outerwear licenses internationally. We also restructured our domestic Teva product
+licensing program, which currently consists of headwear, bags and packs. In December 2007, we entered into our first licensing agreement for our Simple brand as a licensee for the Collegiate Licensing
+Company. Our Simple brand will be licensing the Collegiate Licensing Company trademarks on its Toe Foo and Retire footwear styles to select U.S. universities. We intend to introduce these licensed
+products to the market in Fall 2008. We are developing additional licensing programs carefully to ensure that licensed goods remain consistent with our brands' heritage and image. Because this 
+7 
+licensing
+strategy is in its early stages, and due to the lead times required to bring the products to market, we have only recently begun to recognize license revenues, and we do not expect
+significant incremental net sales and profits from licensing in the near future. 
+Build New Brands. We continue to explore ways to expand the number of brands that we manage. We have
+been successful previously in identifying entrepreneurial concepts for innovative, fashionable footwear targeted at niche markets and building these concepts into viable brands utilizing our expertise
+in product development, production and marketing. We intend to continue to identify and build or acquire new brands that demonstrate potential for significant future growth. 
+Products 
+Our primary product lines are: 
+Teva Performance Outdoor Footwear. We believe there has been a general shift in consumer preferences
+and lifestyles to include more outdoor recreational activities, including light hiking, trail running, outdoor cross training, bouldering, kayaking, kite boarding and whitewater river rafting. These
+consumers typically seek footwear specifically designed with the same quality and high performance attributes they have come to expect from traditional athletic footwear. The first Teva sport sandal
+was developed in the 1980s to meet the demanding needs of professional river rafting guides navigating the Colorado River and the rugged Grand Canyon terrain. As our core consumers' pursuits have
+evolved, we have retained our outdoor heritage while adding new products to our line, including slides, thongs, amphibious footwear, trail running shoes, light hiking boots and other rugged
+closed-toe footwear. Our brand remains popular among professional and amateur outdoor athletes seeking authentic, performance-oriented footwear, as well as among general footwear consumers
+seeking high quality, durable and comfortable styles for everyday use. 
+We
+market Teva products as the brand of GO.DO.BE®. This captures the lifestyle of the new outdoor athlete. The Go, the Do, and the Be each have their own unique properties
+and perspectives. Individually, they are elements of the outdoor experience. Together, they form the fabric of the outdoor lifestyle. 
+Go. The Go product collection represents versatile, rugged, and comfortable footwear for travel, leisure, and light activities.
+Styles range from
+classic Teva sandal architecture to more compelling, contemporary designs. 
+Do. The Do product collection is technical, lightweight footwear, engineered for the performance needs of the new outdoor
+athlete. Many styles
+include one or more of our proprietary performance technologies, such as the Wraptor Fit System, Spider Rubber traction technology, or Drain Frame technology. 
+Be. The Be product collection is inspired by the laid-back attitude of life on the beach. Designs are simple, yet distinctive,
+with a
+premium on comfort. The styles are young, fresh and colorful for any casual lifestyle. 
+We
+introduced several new Teva products in 2007, and we plan to introduce new styles for men, women and children in the future. Our kids' product collection is a fun, colorful assortment of sandals,
+closed-toe, and amphibious styles for a variety of outdoor and water-based activities. The manufacturer's suggested domestic retail prices for adult sizes of the Spring 2008 Teva product
+collections range from $22.00 to $110.00. 
+UGG Footwear. Beginning in 1979, the UGG brand gained recognition in the U.S. for sheepskin boots and
+slippers and was later widely used by the California surf community. We acquired the brand in 1995 and expanded the collection, offering consumers a luxurious and distinctive look in sheepskin
+fabrications. 
+8 
+Our UGG product line comprises seven footwear collections, each of which includes styles for men, women and children: 
+Classic Collection. We offer a complete line of sheepskin boots built on the heritage and distinctive look of our first product,
+the Classic
+sheepskin boot. Our Classic Collection products are distinctive in styling, featuring an array of neutral and fashion colors. 
+Ultra Collection. The Ultra Collection builds upon the heritage of the original Ultra boot. These boots are designed with our
+comfort system,
+featuring a multi-surfaced rugged bottom with a heel-cushioning insert that offers enhanced traction, support and comfort. Our Ultra Collection also features a three-part
+insole designed to provide all-day comfort and support and a reflective barrier that captures body heat to create a natural foot warming mechanism. Our sheepskin products are naturally
+thermostatic, keeping feet comfortable across a wide range of temperatures. 
+Fashion Collection. Our Fashion Collection offers fashion forward styles for women, men, and children without compromising
+comfort. Luxurious
+materials and trend-influenced styles make this collection stand out. Within this collection is a fashion wedge group, a stacked high heel group for women, a European influenced collection for men,
+and fashionable styles for children. 
+Casual Collection. This collection features refined, sophisticated styles for men, women, and children. These footwear styles
+include suede and glove
+leather uppers, lined in a thinner insole of sheepskin for added comfort. Styles from the men's collection feature an interchangeable leather insole that allows them to be worn either with or without
+socks. 
+Surf Collection. This collection is taken from the laid-back surf lifestyle that was the original heritage of the brand. The
+Surf
+Collection features true comfort style including sandals, clogs, and boots that incorporate a thin layer of sheepskin for luxury and comfort. 
+Cold Weather Collection. This collection is designed with more rugged styling and features Vibram outsoles and waterproof eVent
+uppers designed to
+withstand colder, wetter climates. 
+Slipper Collection. Our Slipper Collection builds upon the UGG brand's reputation for comfort, warmth and luxury and is offered
+in a wide selection
+of styles and colors. 
+We
+have expanded our UGG brand collection from the Classic and Ultra sheepskin boot and slippers to a broader footwear line for men, women and children in a variety of styles, colors and
+materials designed for wear in a variety of climates and occasions. Over the last few years, our line expansion, distribution and high end marketing strategies, among other factors, have resulted in
+significantly increased exposure for our UGG brand products and have contributed to the growth of the UGG brand's year round business. The manufacturer's suggested domestic retail prices for adult
+sizes for the Fall 2008 UGG brand product collections range from $60.00 to $350.00. 
+Simple Sustainable Footwear. Finding the materials and processes that make our products sustainable
+is a method we call "the Green Toe process" and we measure our progress with a scale called "Good, Better, Best". The Best category represents our most sustainable shoes and bags and sets the bar for
+the rest of the line. Only the Best products may bear the Green Toe label. In the future, we plan to incorporate these same innovative materials and constructions in the Good and Better categories,
+raising the bar for the Best products. 
+Men's and Women's Green Toe. Part of the Best category, Green Toe products represent our efforts to reduce the ecological
+footprint left by shoes.
+Green Toe products are primarily made of sustainable materials like bamboo, jute, organic cotton, linen, coconut buttons, cork, crepe, latex, recycled car tires, and water based adhesives. This line
+includes sandals, loafers, mary janes, oxfords and boots. 
+9 
+Men's and Women's ecoSNEAKS. ecoSNEAKS are vulcanized sneakers that use old car tire outsoles, recycled PET for footbeds and
+shoelaces and organic
+cotton, thus leaving a better ecological footprint than ordinary sneakers. 
+Kids' Product. Our Kids' product line is made up of ecoSNEAKS and Green Piggies. Green Piggies is a kids' and infants' product
+collection that
+represents the brand's best ecological efforts through material and construction innovation. It uses materials such as organic cotton, hemp, and wool felt. 
+Bags. Our sustainable bag collection includes messenger bags, backpacks, totes and laptop sleeves. These are made from materials
+such as organic
+cotton, jute, hemp, coconuts and PET. 
+The
+manufacturer's suggested retail prices for our Simple brand product collections range from $24.00 to $90.00 and our Simple brand bags are priced from $20.00 to $100.00. 
+Sales and Distribution 
+We distribute our products in the U.S. through a dedicated network of approximately 47 independent sales representatives. 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, we have 10 employee sales representatives who serve as territory
+representatives or key account executives for several of our largest customers. Products made under license agreements are sold primarily through the same retail channels as our footwear product
+offerings. Our licensing agreements generally give us the right to terminate the license if specified sales targets are not achieved. 
+Until
+mid-2005, our sales force was divided into two teams, one for Teva products and one for UGG and Simple products, as the UGG and Simple brands are generally sold through
+non-outdoor specialty and non-sporting goods distribution channels and are targeted toward a different consumer than our Teva brand. Beginning in mid-2005, however,
+we began to split the Simple and UGG brands' sales forces into two distinct groups to provide the Simple brand with its own dedicated sales function to improve its sales efforts and resources. While
+there is still some overlap between the sales teams, we have now established separate dedicated sales forces for each of our three brands. Each brand's respective sales manager recruits and manages
+his or her network of sales representatives and coordinates sales to national accounts. We believe this approach for the U.S. market maximizes the selling efforts to our national retail accounts on a
+cost-effective basis. 
+Internationally,
+we distribute our products through over 30 independent distributors in over 20 countries. During 2007, we commenced new distributor relationships for one or more
+of our brands in Scandinavia, France, China, Korea and Canada. In 2008, we plan to further develop our brands and increase our business in the key markets of the UK, Germany, Scandinavia, France,
+China, Japan, Korea and Canada. We will continue to analyze opportunities in the developing market economies of India, Russia and Latin America. 
+Our
+principal customers include specialty retailers, selected department stores, outdoor retailers, sporting goods retailers and shoe stores. Our five largest customers accounted for
+approximately 27.6% of our net sales for 2006, compared to 30.4% for 2007. One customer, Nordstrom, accounted for greater than 10% of our consolidated net sales in 2006 and 2007. 
+Teva. We sell our Teva products primarily through specialty outdoor sporting goods and department
+store retailers such as REI, Eastern Mountain Sports, L.L. Bean, Dick's Sporting Goods, The Sports Authority, Nordstrom, and Dillard's. 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 retailers who appreciate and can fully market the technical
+attributes of our products to the consumer best sell our Teva products. 
+10 
+UGG. We sell our UGG brand products primarily through high-end department stores such as
+Nordstrom, Neiman Marcus and Bloomingdale's, as well as independent specialty retailers such as Journey's, David Z. and Sport Chalet. 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 brand products. 
+Simple. Our Simple products are targeted primarily towards select department stores, outdoor
+specialty accounts, independent specialty retailers, surf shops, and health and wellness retailers that target consumers seeking comfortable, high quality, and sustainable footwear. These include key
+accounts such as Nordstrom, Dillard's, REI, Whole Earth Provision, Hobie Sports and Whole Foods Market. 
+We
+distribute products sold in the U.S. through our distribution centers in Ventura, California and in Camarillo, California. Our distribution centers feature an inventory management
+system that enables us to efficiently pick and pack products for direct shipment to retailers and distributors across the world. 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. 
+eCommerce. We acquired our eCommerce business as part of the acquisition of the Teva Rights in
+November 2002. The eCommerce business enables us to reach consumers through internet sales under the Teva.com, UGGAustralia.com and SimpleShoes.com internet addresses as well as through direct
+mailings for our UGG brand products under our catalog business. Our mailing list includes approximately 670,000 consumers who have purchased at least once in the past 36 months. Our eCommerce
+business is headquartered in Flagstaff, Arizona and order fulfillment is performed by our
+wholesale distribution centers in Ventura and Camarillo, California in order to reduce the cost of order cancellation, minimize out of stock positions and further leverage our distribution center
+occupancy costs. 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 store business allows us to directly reach our customers and meet the
+growing demand for our products through our two UGG brand concept stores and our five retail outlet stores. In 2007, we opened one new retail outlet store in Woodbury, New York as well as an UGG brand
+concept store in Chicago, Illinois. Products sold through our concept stores are sold at prices which approximate department store prices, enabling us to capture the full retail margin on each direct
+to consumer transaction. 
+Marketing and Advertising 
+Our brands are generally advertised and promoted through a variety of consumer print advertising 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 incurred approximately $10,536, $17,315 and
+$17,035 in advertising, marketing and promotional expenses in 2005, 2006 and 2007, respectively. 
+Teva. We use the following marketing methods to promote the Teva brand: 
+• targeted
+print advertising;
+• sponsorship
+of a variety of events and competitions, such as the annual Teva Mountain Games in Vail, Colorado;
+• sponsorship
+of athletes and teams, such as the Teva Whitewater Team and the Teva U.S. Mountain Running Team; 
+11 
+• preferred
+buyer programs to professional river guides, kayakers, mountain bikers, rock climbers, and other outdoor athletes;
+• product
+seeding with various athletes and trendsetters; and
+• in-store
+promotions with key accounts. 
+We
+market the Teva brand through the placement of print advertisements in leading outdoor magazines such as Outside, National Geographic Adventurer,
+Backpacker and Canoe and Kayak. As we have introduced new sub-categories and collections, we have broadened our
+advertising presence to reach new consumers. For example, we advertise our performance trail running shoes in Runner's World, Trail Runner and Running Times, among other publications. To support our casual lines, we advertise in more mainstream publications such as Women's Health , Men's Journal and
+Yoga Journal .
+The
+Teva brand is rooted in outdoor lifestyle pursuits such as river rafting, kayaking, bouldering, mountain biking, kite boarding, hiking and trail running. We sponsor outdoor events in
+the U.S. including the Teva Mountain Games at Vail, Colorado, the Teva Vail Trail Running Series and the Santa Cruz Surf Kayak Festival in Santa Cruz, California, among others. Internationally, our
+distributors sponsor outdoor events in France, Switzerland and Italy in order to increase our brand visibility to the European outdoor consumer. We are also the presenting sponsor of MacGillivray
+Freeman's new three dimensional documentary IMAX film, " Grand Canyon Adventure, River at Risk " scheduled to be released in IMAX theaters in March 2008.
+We believe our sponsorship activity in these areas links the Teva brand with its outdoor heritage and generates increased product exposure and brand awareness. 
+We
+also sponsor some of the world's best male and female professional and amateur athletes across several outdoor sports. Our Teva promotional team attends events across the U.S. The
+promotions team showcases Teva products at events and provides consumers with the opportunity to see and sample our latest styles. We believe by outfitting and sponsoring these highly visible athletes
+and teams, we create brand and product awareness among our targeted consumers. 
+UGG. We seek to build upon the success of our UGG brand's national print advertising campaign. We
+currently advertise in upscale national magazines such as Vogue, Teen Vogue, Glamour, Vanity Fair, and O
+Magazine. UGG Australia also began men's focused advertising with its 2005 campaign, including print advertising in Outside, Men's Vogue,
+GQ, and Surfer. We believe such advertising is an effective means to target our intended consumers and to convey the comfort and
+luxury of UGG brand products. We also benefit from editorial coverage of the UGG brand collection through numerous
+articles that have appeared in such magazines as Glamour, InStyle, Cosmopolitan, Marie Claire, People, US Weekly, Maxim, Shape, Self, O Magazine and Real Simple. In 2003, Footwear News, a leading industry trade publication, awarded UGG Australia "Brand of the Year." In 2004, UGG was awarded "Brand of
+the Year" by Footwear Plus, another leading trade publication, and was recognized with the ACE Award for the "it" accessory of the year by the
+Accessories Council. International exposure has also expanded with features in leading fashion publications like Vogue Japan, Elle Japan, Marie Claire
+UK, and Vogue UK. 
+We
+also actively seek to place UGG brand products at selected events. In collaboration with our distributor in Switzerland, we produced a special edition UGG brand cold weather boot
+featuring a matching red-outsole for the entire 2006 Swiss Olympic Team. We believe this product placement further strengthened the consumer's image of UGG brand products as high quality,
+luxurious sheepskin goods well-suited for use in cold weather. 
+We
+also have improved visibility of the UGG brand through placement of the product in selected television shows and feature films. UGG brand products have appeared on numerous television
+shows, including Entourage, The Sopranos, Gilmore Girls, The Oprah Winfrey Show, The King of Queens, Still Standing, Will and Grace, Men in Trees, The OC, The George Lopez
+Show, Jeopardy and Saturday Night 
+12 
+Live. Our marketing efforts have also resulted in UGG brand product appearances in several recent feature films. In addition, the UGG brand has been embraced by Hollywood
+celebrities, who are often seen and photographed wearing UGG brand boots. We believe our target consumer identifies with celebrities and that greater exposure further heightens awareness of the brand
+and stimulates sales. 
+Simple. We believe that our consumers are looking for brands that do more than their part to ensure
+that the world we all share is respected and cared for. Our commitment to produce and market our products in a sustainable manner reflects our consumers' commitment to purchase products made in the
+same fashion. We will continue to establish the brand as a leader in sustainable footwear through our marketing initiatives. This year was the first year the Simple brand introduced a national print
+advertising campaign targeted at various demographic groups, which included print ads targeted at the ecologically-minded consumer through magazines like RollingStone, Vanity
+Fair, Outside, Surfer, and Surfing. We also benefit from print and television editorial coverage of the Simple brand collection.
+In addition, we target online consumers through sustainability websites like Treehugger.com. We will continue to advertise on TheOnion.com, which complements our Onion print campaign in key markets.
+In addition, we are active on Pitchforkmedia.com, a popular independent-focused online music publication. 
+In
+2007, we sponsored environmental-themed concerts, film festivals, and green expos to show our leadership in sustainable footwear. Our most successful events in 2007 were Jack
+Johnson's Kokua Festival in Hawaii and the Green Festivals in Washington, DC and Chicago. Earth Day 2007 was also a major focus for the brand. We were present at several local Earth Day celebrations
+in key markets such
+as San Francisco, New York, Boulder, Austin and Santa Barbara. Our Earth Day promotions are supported with local advertising, community outreach and extensive press coverage. 
+We
+also marketed the Simple brand through our dedicated website, SimpleShoes.com. We will continue to ensure that the consumer can visit our website and have the ultimate brand
+experience. We experienced a substantial increase in traffic on our website in 2007, demonstrating that our marketing is resonating positively with the consumer. 
+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 of our brands is performed by a combination of our internal design and development staff plus outside design firms. By introducing outside firms to the
+design process, 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. 
+To
+ensure that high performance technical products continue to satisfy the requirements of the Teva brand's historical consumer base of performance-oriented "core enthusiasts," our
+design staff solicits input from our Teva Whitewater Team athletes, our Teva U.S. Mountain Running Team and other professional outdoor athletes, as well as several of our key retailers. We regularly
+add new innovations, components and styles to our product line in response to their input. For example, for 2007, our proprietary Wraptor technology was incorporated into performance watersport and
+trail running shoes, and light hikers. In addition, for specific traction and durability requirements, we have added variations of our proprietary Spider Rubber compound which now includes Original
+Spider Rubber, a sticky, non-slip rubber outsole material for use across wet and dry terrain; SSR, a super sticky rubber compound for use specifically in extreme water conditions to
+provide superior grip on smooth wet surfaces, like rocks, fiberglass, and raft rubber; and Spider XC, an off-road hybrid rubber compound that combines the non-slip traction of
+Spider Rubber with durability for use in both wet and dry conditions. 
+13 
+Our
+UGG and Simple products are designed to appeal to consumers seeking our distinctive and innovative styling. We strive to be a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further awareness and interest in the UGG and Simple collections. In our UGG line, we have successfully evolved the product offering over the
+last few years from its original sheepskin heritage to a diverse collection of luxury and comfort styles suited for a variety of climates and seasons. The evolution of our Simple line has resulted in
+new categories
+for the brand, including the recent introduction of the first successful sustainable footwear in our Green Toe collection. We believe that our commitment to become 100% sustainable makes Simple a
+leader in sustainable footwear and accessories. We believe our ability to incorporate up-to-date styles while remaining true to our heritage, combined with the
+performance-oriented features that consumers have come to expect, results in continued enthusiasm for our brands in the marketplace. 
+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 for their 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 our consumers demand. Throughout the development process, members of the design staff coordinate with our domestic and overseas product development, manufacturing and
+sourcing personnel toward a common goal of developing and producing a high quality product to be delivered on a timely basis. 
+Manufacturing 
+We do not manufacture our products; we outsource the manufacturing of our Teva, Simple and UGG brand footwear to independent manufacturers in China. We also
+outsource the manufacturing of a portion of our UGG brand footwear to independent manufacturers in New Zealand. We require our independent contract manufacturers and designated suppliers to adopt our
+Factory Charter, 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. 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
+on-site supervisory offices in Pan Yu City, China and Macau that serve as local links 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, many 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 outsource our
+manufacturing requirements on the basis of individual purchase orders 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 from Australia and the
+U.S. We maintain constant communication with the tanneries to monitor the supply of sufficient high quality 
+14 
+sheepskin
+available for our projected UGG brand footwear production. To ensure adequate supplies for our manufacturers, we forecast our usage of top grade sheepskin one year in advance at a forward
+price. We believe current supplies are sufficient to meet our needs in the near future, but we continue to search for alternate suppliers in order to accommodate any unexpected future growth. 
+Our
+Simple brand continues to innovate the design, development and production of sustainable footwear through the sourcing of environmentally friendly materials. With the global trend of
+companies embracing the sustainable green movement in materials, the sourcing and availability of these materials may be impacted in the near future. Strong relationships are being established with
+suppliers, and we are developing strategies to keep supply chain needs fulfilled for the future. 
+We
+have instituted pre-production and post-production inspections to meet or exceed the high quality demanded by 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 U.S. distribution centers. 
+Patents and Trademarks 
+We now hold more than 50 utility and design patents and registrations in the U.S. and abroad and have filed for approximately 20 new patents which are currently
+pending. We also currently hold trademark registrations for Teva, UGG, Simple and other marks in the U.S. and in many other countries, including the countries of the European Union, Canada, Japan and
+Korea. We regard our proprietary rights as valuable assets and vigorously protect such rights against infringement by third parties. 
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva brand net sales occurring in the first and second quarters of each year and the highest percentage
+of UGG brand net sales occurring in the third and fourth quarters of each year. To date, the Simple brand has not had a seasonal impact on the Company. With the dramatic growth in UGG brand product
+sales in recent years, net sales in the last half of the year have exceeded that for the first half of the year. Given our expectations for each of our
+brands in 2008, we currently expect this trend to continue. Nonetheless, actual results could differ materially depending upon consumer preferences, availability of product, competition and our
+customers continuing to carry and promote our various product lines, among other risks and uncertainties. See Part I, Item 1A, "Risk Factors." 
+Backlog 
+Historically, we have encouraged our customers to place, and we have received, a significant portion of orders as preseason orders, generally four to eight months
+prior to shipment date. We provide customers with price incentives 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 and 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. 
+15 
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are highly competitive. We compete with numerous domestic and foreign footwear designers, manufacturers
+and marketers. Our Teva brand primarily competes with Nike, Adidas-Salomon, Timberland, Merrell, Chaco, Reef, Columbia Sportswear, Crocs and Keen. Our UGG brand footwear line primarily competes with
+Emu, Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as retailers' own private label footwear. In addition, due to the popularity of our UGG brand products, we face increasing
+competition from a significant number of competitors selling "knock-off" products. Our Simple line primarily competes with Vans, Converse, Sanuk, Merrell, Keen, Patagonia, and Earth. 
+Our
+three footwear lines compete primarily on the basis of brand recognition and authenticity, product quality and design, functionality, performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to: 
+• shape
+and stimulate consumer tastes and preferences by offering innovative, attractive and exciting products;
+• anticipate
+and respond to changing consumer demands in a timely manner;
+• maintain
+brand authenticity;
+• develop
+high quality products that appeal to consumers;
+• appropriately
+price our products;
+• provide
+strong and effective marketing support; and
+• ensure
+product availability. 
+We
+believe we are particularly well positioned to compete in the footwear industry. Our diversified portfolio of footwear brands and products allows us to operate a business that does
+not depend on any one demographic group, merchandise preference or product trend. We have developed a portfolio of brands that appeals to a broad spectrum of consumers. 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, 2007, we employed approximately 370 employees in our U.S. facilities including retail stores and approximately 50 employees located in the
+Far East and the U.K., none of whom were represented by a union. We believe our relationships with our employees are good. 
+16 
+Financial Information about Segments and Geographic Areas 
+Our five reportable business segments include the strategic business units responsible for the worldwide wholesale operations of each of our
+brands — Teva, Simple and UGG wholesale divisions, as well as our eCommerce and retail store businesses. In prior periods, the Company had determined it had four reportable
+segments, with the eCommerce and retail store businesses being combined into one segment, Consumer Direct. The following table shows our domestic and international revenues for each of the years ended
+December 31, 2005, 2006 and 2007. 
+Years Ended December 31, 
+2005 
+2006 
+2007 
+Net sales by location: 
+U.S. 
+$ 
+229,487 
+$ 
+266,092 
+$ 
+386,593 
+International 
+35,273 
+38,331 
+62,336 
+Total 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Refer
+to note 9 to our accompanying consolidated financial statements for further discussion of our business segment data and our long-lived assets that are
+attributable to our domestic versus international operations. 
+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 Securities and Exchange Commission (the "SEC"): annual reports on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K and any amendment 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 450 Fifth Street, NW, Washington,
+DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains an internet site
+that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is
+www.sec.gov . 
+17 
+Item 1A. Risk Factors. 
+Our short- and long-term success is subject to many factors beyond our control. Stockholders and potential stockholders should
+carefully consider the following risk factors 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 and potential stockholders may
+lose all or part of their investment. 
+Risks Relating To Our Business 
+Our success depends on our ability to anticipate fashion trends. 
+Our
+success depends largely on the continued strength of our Teva, UGG and Simple brands, on our ability to anticipate, understand and react to the rapidly changing fashion tastes of
+footwear 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 change. We are also dependent on customer receptivity to our products and marketing strategy. There can be no assurance that consumers will continue to prefer our
+brands, that we will respond quickly enough to changes in consumer preferences or that we will successfully introduce acceptable new models and styles of footwear to our target consumer. Achieving
+market acceptance for new products also will likely require us to exert substantial product development and marketing efforts and expend significant funds to create consumer demand. A failure to
+introduce new products that gain market acceptance 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. 
+Our UGG brand may not continue to grow at the same rate it has experienced in the recent past. 
+Our
+UGG brand has experienced strong growth over the past few years, with net wholesale sales of UGG brand products having increased from $23,491 in 2002 to $291,908 in 2007,
+representing a compound annual growth rate of 65.5%. We do not expect to sustain this growth rate in the future. UGG brand products may include fashion items that could go out of style at any time.
+UGG brand products represent a significant portion of our business, and if UGG brand product sales were to decline or to fail to increase in the future, our overall financial performance could be
+adversely affected. 
+Our Teva brand may decline. 
+During
+2007, our Teva brand experienced an increase in net wholesale sales of 8.9% compared to 2006. However, during 2006 and 2005, Teva experienced declines in revenue of 6.4% and 3.6%
+compared to 2005 and 2004, respectively. We conducted our annual impairment tests of goodwill and other intangible assets as of December 31, 2007 and 2006 and concluded that the fair value of
+our Teva trademarks was above the carrying value as of December 31, 2007 but was below the carrying value as of December 31, 2006. Accordingly, in the fourth quarter of 2006, we recorded
+an impairment loss of $15,300, included in income from operations. If Teva product sales decline again to a point that the fair value of our Teva trademarks or reporting unit do not exceed carrying
+values, we may be required to further write down the related intangible assets, the goodwill or both, causing us to incur additional impairment losses, which could materially affect our consolidated
+financial position and results of operations. 
+We may experience shortages of top grade sheepskin, which could interrupt product manufacturing and increase product costs. 
+We
+depend on a limited number of key resources for sheepskin, the principal raw material for most of our UGG brand products. In 2007, two suppliers provided all of the sheepskin
+purchased by 
+18 
+our
+independent manufacturers. The top grade sheepskin used in UGG brand footwear is in high demand and limited supply. In addition, sheep are susceptible to hoof and mouth disease, which can result
+in the extermination of an infected herd and could have a material adverse effect on the availability of top grade sheepskin for our products. Additionally, the supply of sheepskin can be adversely
+impacted by weather conditions and harvesting decisions that are completely outside our control. Our potential inability to obtain top grade sheepskin for UGG brand products could impair our ability
+to meet our production requirements for UGG brand products in a timely manner 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. Additionally, there have been significant increases in the prices of top grade sheepskin as the demand for this material has increased. Any
+further price increases will likely raise our costs, increase our costs of sales and decrease our profitability unless we are able to pass the higher prices on to our customers. 
+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 production volumes many months before consumer tastes
+become apparent. The footwear industry is subject to fashion risks and rapid changes in consumer preferences, as well as the effects of weather, general market conditions and other factors affecting
+demand. A large number of models, colors and styles in our three product lines 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 liquidate excess inventories at a discount to customers, resulting in higher markdowns and lower, or negative, gross margins.
+Further, the excess inventories may prolong our cash flow cycle, resulting in reduced cash flow and increased liquidity risks. Conversely, if we underestimate consumer demand for any products or
+styles, we could have inventory shortages, which could result in lost potential sales, delays in shipments to customers, strains on our relationships with customers and diminished brand loyalty. This
+may be particularly true with regard to our UGG brand product line, which has experienced strong consumer demand and rapid sales growth. 
+We may not succeed in implementing our growth strategy. 
+As
+part of our growth strategy, we seek to enhance the positioning of our brands, extend our brands into complementary product categories and markets through licensing, expand
+geographically and improve our operational performance. We may not be able to successfully implement any or all of our strategies. If we fail to do so, our rate of growth may slow or our results of
+operations may decline, which in turn could have a negative effect on the value of our common stock. 
+Our financial success is limited to the success of our customers. 
+Our
+financial success is directly related to the success of our customers and the willingness of our customers to continue to buy our products. We do not have long-term
+contracts with any of our customers. Sales to our customers are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by our
+customers. If any of our major customers experiences a significant downturn in its business, or fails to remain committed to our products or brands, then these customers may reduce or discontinue
+purchases from us, which could have a material adverse effect on our business, results of operations and financial condition. 
+Certain of our customers account for a significant portion of our sales, and the loss of one or more of these key customers would significantly reduce our
+sales. 
+Our
+five largest customers accounted for approximately 27.6% of net sales in 2006 and 30.4% of net sales in 2007. Nordstrom, our largest customer, accounted for greater than 10% of net
+sales in 2006 and 2007. Any potential loss of a key customer, or a significant reduction in purchases from a key 
+19 
+customer,
+could have a material adverse effect on our business, results of operations and financial condition. 
+Establishing and protecting our trademarks, patents and other intellectual property is costly and difficult. If our efforts to do so are unsuccessful, the value
+of our brands could suffer. 
+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 U.S. laws. From time to time, we discover products in the marketplace that infringe upon our trademark, patent, copyright and other intellectual
+property rights. If we are unsuccessful in challenging a third party's products on the basis of patent and trade dress rights, continued sales of such competing products by third parties could
+adversely impact our business, financial condition and results of operations. If our brands are associated with competitors' inferior products, this could also adversely affect the integrity of our
+brands. Furthermore, our efforts to enforce our trademark and other intellectual property rights are typically met with defenses and counterclaims attacking the validity and enforceability of our
+trademark and other intellectual property rights. Similarly, from time to time we may be the subject of litigation challenging our ownership of intellectual property. Any decision or settlement in any
+of these matters that allowed a third party to continue to use our Teva, UGG or Simple trademarks or a domain name with our UGG trademark in connection with the sale of products similar to our
+products or to continue to manufacture or distribute counterfeit products could have an adverse effect on our sales and on our intellectual property, which could have a material adverse effect on our
+results of operations and financial condition. 
+We may lose pending litigation and the rights to certain of our intellectual property. 
+We
+are currently involved in several disputes, including cases pending in U.S. federal and foreign courts and in foreign trademark offices, regarding infringement by third parties of our
+trademarks, trade dress, copyrights, patents and other intellectual property and the validity of our intellectual property. Any decision or settlement in any of these disputes that renders our
+intellectual property invalid or unenforceable, or that allows a third party to continue to use our intellectual property in connection with products that are similar to ours, could have an adverse
+effect on our sales and on our intellectual property, which could have a material adverse effect on our results of operations and financial condition. 
+Counterfeiting of our brands can divert sales and damage our brand image. 
+Our
+brands and designs are constantly at risk for counterfeiting and infringement of our intellectual property rights, and we frequently find counterfeit products and products that
+infringe on our intellectual property rights in our markets and online as well as internet domain names that use our trade names or trademarks without our consent. We have not always been successful,
+particularly in some foreign countries, in combating counterfeit products and stopping infringement of our intellectual property rights. Counterfeit and infringing products not only cause us to lose
+significant sales, but also can harm the integrity of our brands by associating our trademarks or designs with lesser quality or defective goods. 
+In
+particular, we are experiencing more infringers of our UGG trademark and more counterfeit products seeking to benefit from the consumer demand for our UGG brand products. Enforcement
+of our rights to the UGG trademark faces many challenges due in part to the proliferation of the term "UGG" in third party domain names that promote counterfeit products or otherwise use the UGG
+trademark without our permission. In spite of our enforcement efforts, we expect such unauthorized use to continue, which could result in a loss of sales for authorized UGG brand products and a
+reduction in the goodwill and other intangible assets associated with the UGG trademark. 
+20 
+As our patents expire, our competitors will be able to copy our technology or incorporate it in their products without paying royalties. 
+Patents
+generally have a life of twenty years from filing, and some of our patents have recently expired or will expire in the next few years. For example, the patent for our Universal
+Strapping System used in
+many of our Teva sandals expired in September 2007. Our Universal Strapping System is currently used in many of our Teva sandals. Once patent protection has expired, our competitors can copy our
+products or incorporate our innovations in their products without obtaining our permission or paying royalties, which could also cause us to lose significant sales. To combat this, we must continually
+create new designs and technology, obtain patent protection and incorporate the new technology or design in our footwear; however, we cannot provide assurance that we will be able to do so. 
+If our customers cancel existing orders, we may have excess inventory. If customers postpone delivery of existing orders to future periods, we may not achieve
+sales and earnings targets for the period, which could have a negative impact on our stock price. 
+We
+receive customer orders and indications of future orders, which we use to determine which inventory items in what quantities to purchase. We also use the timing of delivery dates in
+our customer orders to forecast our sales and earnings for future periods. If our customers cancel existing orders, it may result in lower sales as well as excess inventories that could lead to
+increased inventory write-downs and closeout sales, resulting in lower gross margins. The excess inventories could also have a negative impact on our cash flow. If customers postpone delivery of their
+orders, we may not achieve our expected sales and earnings forecasts for the period, which could have a negative impact on our results from operations as well as our stock price. 
+Because we depend on independent manufacturers, we face challenges in maintaining a continuous supply of goods that meet our quality
+standards. 
+We
+use independent manufacturers to produce all of our products, with the majority of the production occurring among six manufacturers in China. We depend on these manufacturers' ability
+to finance the production of goods ordered and to maintain manufacturing capacity. The manufacturers in turn depend upon their suppliers of raw materials. We do not exert direct control over either
+the independent manufacturers or their raw materials suppliers, so we may be unable to obtain timely delivery of acceptable products. 
+In
+addition, we 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 products of an acceptable quality from our independent manufacturers. If there is an
+interruption, we may not be able to substitute suitable alternative manufacturers because substitutes may not be available or they may not be able to provide us with 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. 
+Similarly,
+if we experience a significant increase in demand and a manufacturer is unable to ship orders of our products in accordance with our timing demands and our quality standards,
+we could miss
+customer delivery date requirements. This in turn could result in cancellation of orders, customer refusals of shipments or a reduction in selling prices, any of which could have a material adverse
+effect on our sales and financial condition. We compete with other companies for the production capacity and the import quota capacity of our manufacturers. Accordingly, our independent manufacturers
+may not produce and ship some or all of any orders placed by us. 
+21 
+If raw materials do not meet our specifications or if the prices of raw materials increase, we could experience a high return rate, a loss of sales or a reduction
+in our gross margins. 
+Our
+independent manufacturers use various raw materials in the manufacture of our footwear that must meet our specifications generally and, in some cases, additional technical
+requirements for performance footwear. If these raw materials and the end product do not perform to our specifications or consumer satisfaction, 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, financial condition and results of operations. 
+There
+may be significant increases in the prices of the raw materials used in our footwear, which would likely increase the cost of our products from our independent manufacturers. Our
+gross profit margins are adversely affected to the extent that the selling prices of our products do not increase proportionately with increases in their costs. Any significant unanticipated increase
+in the prices of raw materials could materially affect our results of operations. No assurances can be given that we will be protected from future changes in the prices of such raw materials. 
+The costs of production and transportation of our products can increase as petroleum and other energy prices rise. 
+The
+manufacture and transportation of our products requires the use of petroleum-based materials and energy costs. Any future increases in the costs of these materials and energy sources
+will increase the cost of our goods which will reduce our gross margin unless we can successfully raise our selling prices to compensate for the increased costs. 
+Our independent manufacturers are located outside the U.S., where we are subject to the risks of international commerce. 
+All
+of our current third party manufacturers are in China and New Zealand with substantially all production performed by six manufacturers in China. Foreign manufacturing is subject to
+numerous risks, including the following: 
+• 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 such as those which may be imposed by the European Union on the import of certain types of footwear from China;
+• increasing
+transportation costs due to energy prices or other factors;
+• poor
+infrastructure and shortages of equipment, which can delay or interrupt transportation and utilities;
+• foreign
+currency fluctuations;
+• restrictions
+on the transfer of funds;
+• changing
+economic conditions;
+• changes
+in governmental policies;
+• environmental
+regulations;
+• labor
+unrest, which can lead to work stoppages and interruptions in transportation or supply;
+• shipping
+delays, including those resulting from labor issues, work stoppages or other delays at the port of entry or port of departure;
+• political
+unrest, which can interrupt commerce and make travel dangerous; and 
+22 
+• expropriation
+and nationalization. 
+In
+particular, because most of our products are manufactured in China, adverse change in consumer perception of goods from China, trade or political relations with China or political
+instability in China could severely interfere with the manufacture of our products and could materially adversely affect our results of operations. 
+We
+are also subject to general risks associated with managing foreign operations effectively and efficiently from the U.S. and understanding and complying with local laws, regulations
+and customs in foreign jurisdictions. These factors and the failure to properly respond to them could make it difficult to obtain adequate supplies of quality products when we need them, resulting in
+reduced sales and harm to our business. 
+Our business could suffer if our independent manufacturers, designated suppliers or our licensees violate labor laws or fail to conform to our ethical
+standards. 
+We
+require our independent contract manufacturers and designated suppliers to adopt our Factory Charter and to comply with all local laws and regulations governing human rights working
+conditions and environmental protection before we are willing to place business with them. Nevertheless we do not control the labor practices of these factories and suppliers. If one of them violates
+our labor standards by, for example, using convicted, forced or indentured labor or child labor, fails to pay compensation in accordance with local law or fails to operate its factories in compliance
+with local safety or environmental requirements, we likely would immediately cease dealing with that manufacturer or supplier, and we could suffer an interruption in our product supply chain. In
+addition, the manufacturers' or designated suppliers' actions could damage our reputation and the value of our brands, resulting in negative publicity and discouraging customers and consumers from
+buying our products. 
+Similarly,
+we do not control our licensees or any of their suppliers or their respective labor practices. If one of our licensees violates our labor standards or local laws, we would
+likely immediately terminate the license agreement, which would reduce our license revenue. In addition, the licensee's actions could damage our reputation and the value of our brands. We also may not
+be able to replace the licensee. 
+If our licensing partners are unable to meet our expectations regarding the quality of their products or the conduct of their business, the value of our brands
+could suffer. 
+One
+element of our growth strategy depends on our ability to successfully enter into and maintain license agreements with manufacturers and distributors of products in complementary
+categories. We will be relying on our licensees to maintain our standards with their manufacturers in the future, and any failure to do so could harm our reputation and the value of the licensed
+brand. The interruption of the business of any one of our material licensing partners due to any of the factors discussed immediately below could also adversely affect our future licensing sales and
+net income. The risks associated with our own products will also apply to our licensed products in addition to any number of possible risks specific to a licensing partner's business, including, for
+example, risks associated with a particular licensing partner's ability to: 
+• obtain
+capital;
+• manage
+manufacturing and product sourcing activities;
+• manage
+labor relations;
+• maintain
+relationships with suppliers;
+• manage
+credit risk effectively; and 
+23 
+• maintain
+relationships with customers. 
+Our
+licensing agreements generally do not preclude our licensing partners from offering, under other brands, products similar to those covered by their license agreements with us, which
+could reduce the sales of our licensed products. In addition, if we cannot replace existing licensing partners who fail to perform adequately, our net sales, both directly from reduced licensing
+revenue and indirectly from reduced sales of our other products, will suffer. 
+We may be unable to successfully identify, develop, acquire or build new brands. 
+We
+intend to continue to focus on identifying, developing, acquiring and building new brands. Our search may not yield any complementary brands, and even if we do find a suitable brand
+we may not be able to finance the development or acquisition of the brand. We may not be able to successfully integrate the management of an acquired brand into our existing operations, and we cannot
+ensure that any developed or acquired brand will achieve the results we expect. We compete with other companies who have greater resources than we do for the opportunities to buy other brands. As a
+result, even if we identify a suitable acquisition, we may lose the opportunity to a competitor who offers a more attractive price or package. In such event, we may incur significant costs in pursuing
+an acquisition without success, which could negatively impact our results of operations. 
+Our quarterly sales and operating results may fluctuate in future periods, and if we fail to meet expectations the price of our common stock may
+decline. 
+Our
+quarterly sales and operating results have fluctuated significantly in the past and are likely to do so in the future due to a number of factors, many of which are not within our
+control. If our quarterly sales or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Factors that might
+cause quarterly fluctuations in our sales and operating results include the following: 
+• variation
+in demand for our products, including variation due to changing consumer tastes and seasonality;
+• our
+ability to develop, introduce, market and gain market acceptance of new products and product enhancements in a timely manner;
+• our
+ability to manage inventories, accounts receivable and cash flows;
+• our
+ability to control costs;
+• the
+size, timing, rescheduling or cancellation of orders from customers;
+• the
+introduction of new products by competitors;
+• the
+availability and reliability of raw materials used to manufacture our products;
+• changes
+in our pricing policies or those of our independent manufacturers and competitors, as well as increased price competition in general;
+• the
+mix of our domestic and international sales, and the risks and uncertainties associated with our international business;
+• our
+ability to forecast future sales and operating results and subsequently attain them;
+• developments
+concerning the protection of our intellectual property rights; and
+• general
+global economic and political conditions, including international conflicts and acts of terrorism. 
+24 
+In
+addition, our expenses depend, in part, on our expectations regarding future sales. In particular, we expect to continue incurring substantial expenses relating to the marketing and
+promotion of our products as well as expenditures for property and equipment and personnel. Since many of our costs are fixed in the short term, if we have a shortfall in sales, we may be unable to
+reduce expenses quickly enough to avoid losses. Accordingly, quarter-to-quarter comparisons of our operating results should not be relied upon as an indication of our future
+performance. 
+Loss of the services of our key personnel could adversely affect our business. 
+Our
+future success and growth depend on the continued services of our Chief Executive Officer and our senior executives as well as other key officers and employees. The loss of the
+services of any of these individuals or any other key employee could materially affect our business. Our future success depends on our ability to identify, attract and retain additional qualified
+personnel and to identify and hire suitable replacements for departing employees in key positions on a timely basis. Competition for employees in our industry is intense and we may not be successful
+in attracting or retaining them. 
+We conduct business outside the U.S., which exposes us to foreign currency and other risks. 
+Our
+products are manufactured outside the U.S., and our independent manufacturers procure most of their supplies outside the U.S. We sell our products in the U.S. and internationally.
+Although we pay for the purchase and manufacture of our products primarily in U.S. dollars and we sell our products primarily in U.S. dollars, we are routinely subject to currency rate movements on
+non-U.S. denominated assets, liabilities and income since our foreign distributors sell in local currencies, which impacts the price to foreign customers. We currently do not use currency
+hedges since substantially all our transactions are in U.S. dollars. Future changes in foreign currency exchange rates may cause changes in the dollar value of our purchases or sales and materially
+affect our results of operations. 
+In
+2005, the People's Republic of China revalued its currency and abandoned its peg to the U.S. dollar. We currently source substantially all production from China. While our purchases
+from the Chinese factories are currently denominated in U.S. dollars, certain operating and manufacturing costs of the factories are denominated in the Chinese currency. As a result, any further
+revaluations in the Chinese currency versus the U.S. dollar could impact our purchase prices from the factories in the event that they adjust their selling prices accordingly. Any increase in our
+footwear purchase costs will reduce our gross margin unless we are able to raise our selling prices to our customers in order to compensate for the increased costs. 
+Our most popular products are seasonal, and our sales are sensitive to weather conditions. 
+Sales
+of our products, particularly those under the Teva and UGG brands, are highly seasonal and are sensitive to weather conditions. Extended periods of unusually cold weather during
+the spring and summer can reduce demand for Teva footwear. Likewise, unseasonably warm weather during the fall and winter months may reduce demand for our UGG brand products. 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. 
+We depend on independent distributors to sell our products in international markets. 
+We
+sell our products in international markets through independent distributors. If a distributor fails to meet annual sales goals, it may be difficult and costly to locate an acceptable
+substitute distributor. If a change in our distributors becomes necessary, we may experience increased costs, as well as substantial disruption and a resulting loss of sales. 
+25 
+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, such as the recent changes in labor laws in the People's Republic of China, 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 sales operations. These include: 
+• changes
+in currency exchange rates which impact the price to international consumers;
+• the
+burdens of complying with a variety of foreign laws and regulations;
+• unexpected
+changes in regulatory requirements; and
+• the
+difficulties associated with promoting products in unfamiliar cultures. 
+We
+are also subject to general political and economic risks in connection with our international sales operations, including: 
+• political
+instability;
+• changes
+in diplomatic and trade relationships; and
+• general
+economic fluctuations in specific countries or markets. 
+Any
+of the above mentioned factors could adversely affect our sales and results of operations in international markets. 
+International trade 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 U.S. 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. 
+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 generally make it difficult to obtain products of our customary quality at a desired price. Meanwhile, the continued
+negotiation of bilateral and multilateral free trade agreements by the U.S. 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 to our market countries at preferred rates of duty, though we are uncertain precisely what effect these
+new agreements may have on our operations. 
+The
+European Union is currently considering imposing anti-dumping duties and quotas on importations of certain types of footwear from China. Any increase in duties or the
+requirement for quotas will increase the cost of our products and may limit the amount of China-sourced products that we are able to sell to the European market. Because the vast majority of our
+footwear is currently produced in China, the imposition of anti-dumping duties or quotas on products manufactured in China will have a negative impact on our sales and gross margin in the
+European market. 
+26 
+Finally,
+the increased threat of terrorist activity and the 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. 
+We depend on our computer and communications systems. 
+We
+extensively utilize computer and communications systems to operate our eCommerce business and manage our internal operations. Any interruption of this service from power loss,
+telecommunications failure, failure of our computer system, failure due to weather, natural disasters or any similar event could disrupt our operations and result in lost sales. In addition, hackers
+and computer viruses have disrupted operations at many major companies. We may be vulnerable to similar acts of sabotage, which could have a material adverse effect on our business and operations. 
+We
+rely on our management information systems to operate our business and to track our operating results. Our management information systems will require modification and refinement as
+we grow and our business needs change. If we experience a significant system failure or if we are unable to modify our management information systems to respond to changes in our business needs, then
+our ability to properly run our business could be adversely affected. 
+The growth of our business depends on the successful execution of our growth strategies. 
+Our
+growth depends on the continued success of existing products, as well as the successful design and introduction of new products. Our ability to create new products and to sustain
+existing products is affected by whether we can successfully anticipate and respond to consumer preferences and fashion trends. The failure to develop and launch successful new products could hinder
+the growth of our business. Also, any delay in the development or launch of a new product could result in our not being the first to market, which could compromise our competitive position. 
+We have significantly expanded the nature and scope of our operations, and if we fail to manage any future growth effectively we may experience greater difficulty
+in filling customer orders, declines in product quality, increases in costs or other operating difficulties. 
+We
+have significantly expanded the nature and scope of our operations over the past two years, and we anticipate that substantial further expansion will be required to address potential
+growth in our customer base and new market opportunities. Over the last two years, we expanded from approximately 225 employees at December 31, 2005 to approximately 420 employees at
+December 31, 2007, and $264,760 in revenues in 2005 to $448,929 in revenues in 2007. 
+The
+expansion of the scope and nature of our business and the growth in the number of employees, customers and other third parties with whom we have relationships, and in the number of
+facilities we use for manufacturing, distribution, and corporate operations, have placed and will continue to place a significant strain on our management and our information systems and resources.
+Failure to effectively manage growth could result in greater difficulty in completely filling customer orders, declines in product quality or increases in costs or other production and distribution
+difficulties, any of which could adversely impact our business performance and operating results. 
+We could be adversely affected by the loss of one of our warehouses or one of our manufacturer's facilities. 
+Both
+the warehousing of our inventory and the manufacturing of our products are located at a small number of facilities, the loss of any of which could adversely impact our sales,
+business performance and operating results. 
+27 
+We could be adversely affected by volatile credit markets and other unfavorable economic conditions. 
+We
+finance our working capital and operating needs using a combination of our cash and cash equivalents, short-term investments, cash generated from operations and, when
+needed, the credit availability under our revolving credit facility. In an economic recession or under other adverse economic conditions, we may be unable to realize a return on our cash equivalents
+or short-term investments or to secure additional credit on favorable terms. This could lead to write-downs of our cash equivalents and short-term investments. Such failures
+may impact our working capital reserves and have a material adverse effect on our business. 
+During
+the latter part of 2007, U.S. and foreign credit markets experienced adverse conditions, including unusual volatility and a lack of secondary market liquidity, which conditions
+have presented, and continue to present, significant challenges to the investment markets and have limited the availability of short-term debt for working capital. While it is difficult to
+predict how long these adverse conditions will exist, these factors, if continuing or worsening, could adversely impact our future financial condition and results of operations. 
+Risks Related to Our Industry 
+Because the footwear market is sensitive to decreased consumer spending and slow economic cycles, if general economic conditions deteriorate, many of our
+customers may significantly reduce their purchases from us or may not be able to pay for our products in a timely manner. 
+The
+footwear industry historically has been subject to cyclical variation and decline in performance when consumer spending decreases or softness appears in the retail market. Many
+factors affect the level of consumer spending in the footwear industry, including: 
+• general
+business conditions;
+• interest
+rates;
+• financial
+market conditions
+• the
+availability of consumer credit;
+• change
+in demographic spending;
+• weather;
+• taxation;
+and
+• consumer
+confidence in future economic conditions. 
+Consumer
+purchases of discretionary items, including our products, may decline during recessionary periods and also may decline at other times when disposable income is lower. A downturn
+in economies where we or our distribution partners sell products, whether in the U.S. or abroad, may reduce sales. 
+In
+addition, we extend credit to our customers based on an evaluation of each customer's financial condition. Many retailers, including some of our customers, have experienced financial
+difficulties during the past several years, thereby increasing the risk that such customers may not be able to pay for our products in a timely manner. Our bad debt expense may increase relative to
+net sales in the future. Any significant increase in our bad debt expense relative to net sales would adversely impact our net income and cash flow and could affect our ability to pay our own
+obligations as they become due. 
+28 
+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 the recent growth in the market for sport sandals, casual footwear and other products manufactured by our licensees has encouraged the
+entry of many new competitors into the marketplace as well as 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 market. 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 more quickly develop new 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 industry. 
+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 customers to shift their purchases away from our products. 
+We
+believe that our ability to compete successfully depends on a number of factors, including the quality, style and authenticity of our products and the strength of our brands, as well
+as many factors beyond our control. Maintaining our competitiveness depends on our ability to defend our products from infringement, our continued ability to anticipate and react to consumer tastes
+and our continued ability to deliver quality products at an acceptable price. If we fail to compete successfully in the future, our sales and profits will decline, as will the value of our business,
+financial condition and common stock. 
+Consolidations, restructurings and other ownership changes in the retail industry could affect the ability of our wholesale customers to purchase and market our
+products. 
+In
+the future, retailers in the U.S. and in foreign markets may undergo changes that could decrease the number of stores that carry our products or increase the concentration of
+ownership within the retail industry, including: 
+• consolidating
+their operations;
+• undergoing
+restructurings;
+• undergoing
+reorganizations; or
+• realigning
+their affiliations. 
+These
+consolidations could result in a shift of bargaining power to the retail industry and in fewer outlets for our products. Further consolidations could result in price and other
+competition that could reduce our margins and our net sales. 
+Risks Relating to Our Common Stock 
+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, 2008 was approximately
+490,000 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 $61.45 to $164.91 for the 
+29 
+52-week
+period ended February 15, 2008. The trading price of our common stock could be affected by a number of factors, including, but not limited to the following: 
+• changes
+in expectations of our future performance, whether realized or perceived;
+• changes
+in estimates by securities analysts or failure to meet such estimates;
+• quarterly
+fluctuations in our sales and financial results;
+• general
+equity market conditions and investor sentiment;
+• broad
+market fluctuations in volume and price; and
+• a
+variety of risk factors, including the ones described elsewhere in this Annual Report on Form 10-K and in our other periodic reports. 
+Accordingly,
+the price of our common stock is volatile and any investment in our securities is subject to risk of loss. 
+Anti-takeover provisions in our certificate of incorporation, bylaws, stockholder rights plan and Delaware law could prevent or delay a change in
+control of our company, even if such change of control would benefit our stockholders. 
+Provisions
+of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could discourage, delay or prevent a merger, acquisition or other change in control of
+our company, even if such a change in control might benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect
+directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. The provisions might
+also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a price above the then current market price for our common stock. These
+provisions include the following: 
+• authorization
+of "blank check" preferred stock, which our board of directors could issue with provisions designed to thwart a takeover attempt;
+• limitations
+on the ability of stockholders to call special meetings of stockholders;
+• a
+prohibition against stockholder action by written consent and a requirement that all stockholder actions be taken at a meeting of our stockholders; and
+• advance
+notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholder meetings. 
+We
+adopted a stockholder rights plan in 1998 under a stockholder rights agreement intended to protect stockholders against unsolicited attempts to acquire control of our company that do
+not offer what our board of directors believes to be an adequate price to all stockholders or that our board of directors otherwise opposes. As part of the plan, our board of directors declared a
+dividend that resulted in the issuance of one preferred share purchase right for each outstanding share of our common stock. Unless extended, the preferred share purchase rights will terminate on
+November 11, 2008. If a bidder proceeds with an unsolicited attempt to purchase our stock and acquires 20% or more (or announces its intention to acquire 20% or more) of our outstanding common
+stock, and the board of directors does not redeem the preferred stock purchase right, the right will become exercisable at a price that significantly dilutes the interest of the bidder in our common
+stock. 
+The
+effect of the stockholder rights plan is to make it more difficult to acquire our company without negotiating with the board of directors. However, the stockholder rights plan could
+discourage offers even if made at a premium over the market price of our common stock, and even if the stockholders might believe the transaction would benefit them. 
+30 
+In
+addition, we are subject to Section 203 of the Delaware General Corporation Law, which limits business combination transactions with 15% or greater stockholders that our board
+of directors has not approved. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation with our board of directors. These provisions
+apply even if some stockholders would consider the transaction beneficial. 
+Item 1B. Unresolved Staff Comments. 
+None. 
+Item 2. Properties. 
+Our corporate headquarters is located in Goleta, California. We have two distribution centers in California, our eCommerce operations in Arizona, and seven retail
+stores in the U.S. ranging from 3,000 to 4,000 square feet. We also have an office in China 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 an office in the U.K. to oversee European operations. We have no manufacturing facilities, as all of our products are
+manufactured by independent manufacturers in China and New Zealand. We lease, rather than own, all of our facilities from unrelated parties. Most of our facilities are attributable to all segments of
+our business and are not allocated to the 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. 
+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 
+unallocated 
+723,000 
+Ventura, California 
+Warehouse Facility and Retail Outlet 
+unallocated 
+126,000 
+Goleta, California 
+Corporate Offices 
+unallocated 
+30,000 
+Item 3. Legal Proceedings. 
+We are involved in routine litigation arising in the ordinary course of business. Such routine matters, if decided adversely to us, would not, in the opinion of
+management, have a material adverse effect on our financial condition or results of operations. Additionally, we have many pending disputes in the U.S. Patent and Trademark Office, foreign trademark
+offices and U.S. federal and foreign courts regarding unauthorized use or registration of our Teva, UGG and Simple trademarks. We also are aware of many instances throughout the world in which a third
+party is using our UGG trademark within its internet domain name, and we have discovered and are investigating several manufacturers and distributors of counterfeit Teva and UGG brand products. 
+Item 4. Submission of Matters to a Vote of Security Holders. 
+No matter was submitted during the fourth quarter of the fiscal year covered by this Annual Report to a vote of our security holders, through the solicitation of
+proxies or otherwise. 
+31 
+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. 
+Common Stock 
+Price Per Share 
+Low 
+High 
+Year ended December 31, 2006: 
+First Quarter 
+$ 
+29.16 
+$ 
+40.54 
+Second Quarter 
+$ 
+34.50 
+$ 
+43.56 
+Third Quarter 
+$ 
+34.18 
+$ 
+48.09 
+Fourth Quarter 
+$ 
+47.07 
+$ 
+60.31 
+Year ended December 31, 2007: 
+First Quarter 
+$ 
+57.16 
+$ 
+73.51 
+Second Quarter 
+$ 
+69.13 
+$ 
+100.90 
+Third Quarter 
+$ 
+87.84 
+$ 
+111.20 
+Fourth Quarter 
+$ 
+108.01 
+$ 
+164.91 
+As
+of February 15, 2008, there were 94 record holders of our common stock and we believe there are approximately 29,000 beneficial holders of our common stock. 
+We
+did not sell any equity securities during the year ended December 31, 2007 that were not registered under the Securities Act of 1933. 
+32 
+STOCKHOLDER RETURN PERFORMANCE PRESENTATION 
+Set forth below is a line 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 Composite Index and a peer group index for the five-year period commencing December 31, 2002 and ending December 31, 2007. The data represented
+below assumes one hundred dollars invested in each of the Company's Common Stock, the NASDAQ Composite Index and the peer group index on December 31, 2002. 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. 
+December 31, 
+2002 
+2003 
+2004 
+2005 
+2006 
+2007 
+Deckers Outdoor Corporation 
+$ 
+100.0 
+$ 
+613.8 
+$ 
+1,406.9 
+$ 
+827.0 
+$ 
+1,794.9 
+$ 
+4,642.5 
+Prior Footwear Index* 
+100.0 
+155.4 
+205.0 
+201.9 
+227.9 
+265.5 
+NASDAQ Composite Index 
+100.0 
+150.4 
+163.0 
+166.6 
+183.7 
+201.9 
+Revised Footwear Index* 
+100.0 
+153.5 
+203.4 
+201.2 
+233.0 
+272.9 
+* Prior
+Footwear Index peer group consists of K-Swiss, Inc.; Kenneth Cole Productions, Inc.; Nike, Inc.; Rocky Brands, Inc.; Timberland Company;
+and Wolverine World Wide, Inc. Revised Footwear Index peer group consists of each of the companies in the Prior Footwear Index, plus Crocs, Inc. and Skechers USA, Inc. In previous
+years, the Prior Footwear Index peer group also included Stride Rite Corporation, which has been excluded from the index in all periods presented 
+33 
+above,
+as it was acquired by Collective Brands, Inc. in 2007. Fila Holding SPA, which was previously in our Prior Footwear Index peer group, has also been excluded, as its securities are no
+longer publicly-traded. Vans Inc., which was previously in our Prior Footwear Index peer group, was acquired by VF Corp in 2005 and has also been excluded. Reebok International Ltd.,
+also previously included in our Prior Footwear Index peer group, was acquired by Adidas-Salomon AG in 2005 and has been excluded. 
+DIVIDEND POLICY 
+We have not declared or paid any cash dividends on our common stock since our inception. We currently anticipate that we will retain all of our earnings for the
+continued development and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Moreover, our credit facility contains covenants expressly
+prohibiting us from paying dividends. 
+34 
+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. 
+Years ended December 31, 
+2003 
+2004 
+2005 
+2006 
+2007 
+(In thousands, except per share data) 
+Statement of Operations Data 
+Net sales: 
+Teva wholesale 
+$ 
+72,783 
+$ 
+83,477 
+$ 
+80,446 
+$ 
+75,283 
+$ 
+82,003 
+UGG wholesale 
+34,561 
+101,806 
+150,279 
+182,369 
+291,908 
+Simple wholesale 
+7,210 
+9,633 
+6,980 
+10,903 
+11,163 
+eCommerce 
+6,501 
+19,871 
+25,912 
+28,886 
+45,473 
+Retail stores 
+— 
+— 
+1,143 
+6,982 
+18,382 
+Net sales 
+121,055 
+214,787 
+264,760 
+304,423 
+448,929 
+Cost of sales 
+69,965 
+124,659 
+153,598 
+163,692 
+241,458 
+Gross profit 
+51,090 
+90,128 
+111,162 
+140,731 
+207,471 
+Selling, general and administrative expenses 
+32,407 
+47,971 
+59,254 
+73,989 
+101,918 
+Litigation income (1) 
+(500 
+) 
+— 
+— 
+— 
+— 
+Impairment loss (2) 
+— 
+— 
+— 
+15,300 
+— 
+Income from operations 
+19,183 
+42,157 
+51,908 
+51,442 
+105,553 
+Other expense (income), net 
+4,770 
+2,517 
+374 
+(1,910 
+) 
+(4,486 
+) 
+Income before income taxes 
+14,413 
+39,640 
+51,534 
+53,352 
+110,039 
+Income taxes 
+5,752 
+14,713 
+20,387 
+22,743 
+43,602 
+Net income 
+$ 
+8,661 
+$ 
+24,927 
+$ 
+31,147 
+$ 
+30,609 
+$ 
+66,437 
+Net income per share: 
+Basic 
+$ 
+0.86 
+$ 
+2.27 
+$ 
+2.52 
+$ 
+2.45 
+$ 
+5.18 
+Diluted 
+$ 
+0.73 
+$ 
+2.05 
+$ 
+2.42 
+$ 
+2.38 
+$ 
+5.06 
+Weighted average common shares outstanding: 
+Basic 
+9,610 
+11,005 
+12,349 
+12,519 
+12,835 
+Diluted 
+11,880 
+12,142 
+12,866 
+12,882 
+13,129 
+(1) The
+litigation income in 2003 relates to a European anti-dumping duties matter that was ultimately resolved in our favor in 2003.
+(2) The
+impairment loss in 2006 relates to our Teva trademarks. During our annual assessment of goodwill and other intangible assets, we concluded that the fair value was lower than the
+carrying amount and therefore wrote down the trademarks to their fair value. 
+As of December 31, 
+2003 
+2004 
+2005 
+2006 
+2007 
+(In thousands) 
+Balance Sheet Data 
+Cash and cash equivalents 
+$ 
+6,662 
+$ 
+10,379 
+$ 
+50,749 
+$ 
+34,255 
+$ 
+54,525 
+Working capital 
+21,040 
+67,426 
+104,205 
+147,860 
+230,173 
+Total assets 
+119,737 
+174,206 
+208,665 
+249,973 
+370,032 
+Long-term debt, including current installments 
+30,287 
+— 
+— 
+— 
+— 
+Total stockholders' equity 
+68,919 
+138,779 
+174,640 
+210,410 
+298,638 
+35 
+Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 
+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 Act of 1934, as amended. We sometimes use words such as "anticipate," "believe," "continue," "estimate," "expect,"
+"intend," "may," "project," "will" and similar expressions, as they relate to us, our management and our industry, to identify forward-looking statements. Forward-looking statements relate to our
+expectations, beliefs, plans, strategies, prospects, future performance, anticipated trends and other future events. Specifically, this report and the information incorporated by reference in this
+report contain forward-looking statements relating to, among other things: 
+• our
+business, growth, operating and financing strategies;
+• our
+product mix;
+• the
+success of new products;
+• the
+impact of seasonality on our operations;
+• expectations
+regarding our net sales and earnings growth and other financial metrics;
+• our
+development of international distribution channels; and
+• trends
+affecting our financial condition or results of operations. 
+We
+have based our forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. Actual results may
+differ materially. 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, "Risk
+Factors." In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report and the information incorporated by reference in this report
+might not happen. 
+You
+should read this report in its entirety, together with the documents that we file as exhibits to this report and the documents that we incorporate by reference in this report with
+the understanding that our future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements and we assume no obligation
+to update such forward-looking statements publicly for any reason. 
+Overview 
+We are a leading designer, producer and brand manager of innovative, high-quality footwear and the category creator in the sport sandal, luxury
+sheepskin, and sustainable footwear segments. We market our products under three proprietary brands: 
+• Teva:
+High performance sport sandals and rugged outdoor footwear and accessories;
+• UGG:
+Authentic luxury sheepskin boots and a full line of luxury and comfort footwear and accessories; and
+• Simple:
+Innovative sustainable lifestyle footwear and accessories. 
+In
+2004, we embarked on a strategy to license our footwear brands to complementary products outside of footwear, generally in the apparel and accessories categories. We currently have
+eight licensing agreements with five licensees for the Teva and UGG brands combined. We record licensing revenues and expenses within their respective brand. The activity is very small in relation to
+the 
+36 
+consolidated
+operations, and we do not expect significant incremental net sales and profits from licensing in the near future. 
+We
+sell our three brands through our quality domestic retailers and international distributors and directly to our end-user consumers through our eCommerce business and our
+retail stores. We sell our footwear in both the domestic market and in international markets. Independent third parties manufacture all of our products. 
+Our
+business has been impacted by several important trends affecting our end markets: 
+• 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.
+• 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.
+• Our
+customers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market category creators and leaders.
+• Consumers
+have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable while still comfortable. 
+By
+emphasizing our brand image and our focus on comfort, performance and authenticity, we believe we can maintain a loyal consumer following that is less susceptible to fluctuations
+caused by changing fashions and changes in consumer preferences. 
+Below
+is an overview of the various components of our business, including some of the important factors that affect each business and some of our strategies for growing each business. 
+Teva Brand Overview 
+From fiscal 2002 to 2004, wholesale net sales of Teva brand products increased at a compound annual growth rate of 13.5%. However, for fiscal years 2005 and 2006,
+wholesale net sales of Teva products decreased by approximately 3.6% and 6.4%, respectively, compared to the year ago periods. We attribute this decline in sales primarily to a prolonged period of
+weak product innovation, coupled with a significant increase in competitor activity. We began to address this situation in 2006 by dedicating significantly greater resources to product planning,
+design, and development, and through aggressive marketing. We also repositioned the Teva brand to a younger target consumer. For the year ended December 31, 2007, wholesale net sales of Teva
+products increased by approximately 8.9%, and net sales of Teva products including wholesale, eCommerce and retail store sales increased by approximately 9.2%, compared to the same period in 2006. 
+We
+see a continuing shift in consumer preferences and lifestyles to include more outdoor recreational activities. The Teva brand has remained popular among professional and amateur
+outdoor enthusiasts, who consider the brand authentic and performance oriented. Our Spring 2007 product line was over 70% new, and included innovative technical performance styles, as well as new
+colors and fresh new casual styles, which target a new generation of young outdoor athletes and enthusiasts. Likewise, our Spring and Fall 2008 product lines include new product introductions. 
+We
+intend to explore opportunities to broaden the Teva brand's distribution with image-enhancing retailers beyond our core outdoor specialty and sporting goods channels. Through
+effective channel management, we plan to expand into new distribution channels without diluting our outdoor heritage and our appeal to outdoor enthusiasts. Through appropriate channel product line
+expansion, we plan to 
+37 
+further
+broaden our product offerings beyond sport sandals to new products that meet the style and functional needs of our consumers. 
+UGG Brand Overview 
+The UGG brand has been a well known brand in California for many years and over the past few years has become a recognized brand throughout the remainder of the
+country as well as internationally. Over the past few years, our UGG brand has received increased media exposure including increased print media in national ads and co-op advertising with
+our customers, which has contributed to broader public awareness of the UGG brand and significantly increased demand for UGG brand products. We believe that the increased media focus and demand for
+UGG brand products was driven by the following: 
+• consumer
+brand loyalty, due to the luxury and comfort of UGG brand footwear,
+• increased
+marketing in high end magazines,
+• successfully
+targeting high end distribution,
+• adoption
+by high-profile film and television celebrities as a favored footwear brand,
+• increased
+media attention that has enabled us to introduce the brand to consumers much faster than we would have normally been able to,
+• continued
+geographic expansion across the U.S. and internationally, and
+• continued
+addition of new product categories. 
+We
+believe the luxury and comfort features of UGG brand products will continue to drive long-term consumer demand. Recognizing that there is a significant fashion element to
+UGG brand footwear and that footwear fashions fluctuate, our strategy seeks to prolong 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 to approximately 150 styles for men, women and
+children for the Fall 2008 season. This product line expansion includes an ever-growing Spring line, an expanded men's line, as well as a Fall line that consists of a range of luxurious
+collections for both genders. These collections include: new fashion collections, a variety of casual comfort collections, cold weather offerings, as well as our Classic, Ultra, Ultimate and Slippers
+collections. 
+Nevertheless,
+we cannot assure investors that UGG brand sales will continue to grow at their recent pace or that revenue from UGG brand products will not at some point decline. For the
+year ended December 31, 2007, the UGG brand's wholesale net sales increased 60.1%, and the UGG brand's net sales including wholesale, eCommerce and retail store sales increased by approximately
+64.4%, compared to the same period in 2006. We do not expect these growth rates to continue. 
+Simple Overview 
+The Simple brand began in 1991 as an alternative to all the over-built, over-priced, and over-hyped products in the
+marketplace. The brand's foundation was built on the Old School Sneaker and the New Original Clog. In 2005, as a response to the massive amount of waste produced by the footwear industry, the Simple
+brand launched a new collection of ecologically friendly footwear called Green Toe, a product collection that consists primarily of sustainable materials and that is revolutionizing the footwear
+industry. We have repositioned the brand to be focused on becoming a leader in sustainable footwear and accessories. In 2007, we improved our distribution initiatives through the establishment of
+dedicated sales representatives in key markets. In 2006 and 2007, our men's and women's products performed well at retail, as demand continued to increase for our Green Toe and ecoSNEAKS 
+38 
+products.
+We increased our account base both domestically and internationally. We also expanded our presence into additional retail stores with our key accounts. For the year ended December 31,
+2007, wholesale net sales of Simple products increased by approximately 2.4%, and net sales of Simple products including wholesale, eCommerce and retail store sales increased by approximately 8.2%,
+compared to the same period in 2006. We expect Simple brand growth including wholesale, eCommerce and retail store sales, to be higher year over year in 2008 compared to 2007. 
+eCommerce Overview 
+We acquired our eCommerce retailing business in November 2002 as part of the acquisition of the Teva Rights. Our eCommerce business, which sells all three of our
+brands, enables us to meet the growing demand for these products, to sell the products at retail prices and to provide us with significant incremental operating income. From the time we initiated our
+eCommerce business through the end of 2007, we have had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumers have continued to increase reliance on
+the internet for footwear and other purchases. Net sales of the eCommerce business increased 57.4% in the year ended December 31, 2007, compared to the same period in 2006. As our annual
+baseline of eCommerce sales increases, we do not expect this growth rate to continue. 
+Our
+eCommerce business consists of internet sales and catalog sales. Managing our internet business requires us to focus on generating internet traffic to our websites, to effectively
+convert website visits into orders, and to maximize average order sizes. We distribute approximately 670,000 consumer brochures for our UGG brand products throughout the year to drive our catalog
+order business. We plan to continue to grow our internet business through improved website features and performance, increased marketing and international websites. Overall, our eCommerce business
+benefits from the
+strength of our brands and, as we grow our brands over time, we expect this business to continue to be an important segment of our business. 
+Retail Stores Overview 
+In 2007 we opened our fifth retail outlet store, in Woodbury, New York, to add to our existing retail outlet stores in Ventura, California; Camarillo, California;
+Wrentham, Massachusetts and Riverhead, New York. In 2007, we also opened our second UGG brand concept store in Chicago, Illinois, to add to our existing concept store in New York, New York. Based on
+the success of the existing stores, we currently plan to open one additional outlet store and two additional UGG brand concept stores in major metropolitan areas by the end of 2008. 
+Our
+retail stores enable us to directly impact our customers' experience, meet the growing demand for these products, to sell the products at retail prices and to provide us with
+incremental operating income. From the time we opened our first retail store through the end of 2007, we have had significant revenue growth, much of which occurred as we opened new stores and the UGG
+brand gained popularity. Net sales of the retail store business increased 163.3% in the year ended December 31, 2007, compared to the same period in 2006. 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. 
+39 
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva brand net sales occurring in the first and second quarters of each year and the highest percentage
+of UGG brand net sales occurring in the third and fourth quarters. To date, the Simple brand has not had a seasonal impact on the Company. 
+2006 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales 
+$ 
+56,004 
+$ 
+41,721 
+$ 
+82,322 
+$ 
+124,376 
+Income from operations* 
+$ 
+8,823 
+$ 
+3,913 
+$ 
+17,191 
+$ 
+21,515 
+2007 
+First Quarter 
+Second Quarter 
+Third Quarter 
+Fourth Quarter 
+Net sales 
+$ 
+72,575 
+$ 
+52,730 
+$ 
+129,381 
+$ 
+194,243 
+Income from operations 
+$ 
+15,072 
+$ 
+2,864 
+$ 
+30,660 
+$ 
+56,957 
+* Included
+in income from operations in the fourth quarter of 2006 is a $15,300 impairment loss on our Teva trademarks. 
+With
+the dramatic growth in the UGG brand in recent years, combined with the introduction of a Fall Teva product line, net sales in the last half of the year have exceeded that for the
+first half of the year. Given our expectations for each of our brands in 2008, we currently expect this trend to continue. Nonetheless, actual results could differ materially depending upon consumer
+preferences, availability of product, competition and our customers continuing to carry and promote our various product lines, among other risks and uncertainties. See Part I, Item 1A,
+"Risk Factors." 
+40 
+Results of Operations 
+The following table sets forth certain operating data for the periods indicated. 
+Years Ended December 31, 
+2005 
+2006 
+2007 
+Net sales by location: 
+U.S. 
+$ 
+229,487 
+$ 
+266,092 
+$ 
+386,593 
+International 
+35,273 
+38,331 
+62,336 
+Total 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Net sales by product line and eCommerce and retail store business: 
+Teva: 
+Wholesale 
+$ 
+80,446 
+$ 
+75,283 
+$ 
+82,003 
+eCommerce 
+4,763 
+5,070 
+5,630 
+Retail store 
+29 
+148 
+260 
+Total 
+85,238 
+80,501 
+87,893 
+UGG: 
+Wholesale 
+150,279 
+182,369 
+291,908 
+eCommerce 
+20,270 
+22,640 
+37,880 
+Retail store 
+1,084 
+6,452 
+17,766 
+Total 
+171,633 
+211,461 
+347,554 
+Simple: 
+Wholesale 
+6,980 
+10,903 
+11,163 
+eCommerce 
+879 
+1,176 
+1,963 
+Retail store 
+30 
+382 
+356 
+Total 
+7,889 
+12,461 
+13,482 
+Total 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Income (loss) from operations by product line and eCommerce and retail store business: 
+Teva wholesale* 
+$ 
+22,270 
+$ 
+3,829 
+$ 
+21,121 
+UGG wholesale 
+48,535 
+72,908 
+119,193 
+Simple wholesale 
+(846 
+) 
+(2,472 
+) 
+(2,077 
+) 
+eCommerce 
+6,995 
+8,774 
+14,502 
+Retail store 
+(23 
+) 
+1,180 
+3,194 
+Unallocated overhead costs 
+(25,023 
+) 
+(32,777 
+) 
+(50,380 
+) 
+Total 
+$ 
+51,908 
+$ 
+51,442 
+$ 
+105,553 
+* Included
+in Teva income from operations in 2006 is an impairment loss of $15,300 (see Impairment loss discussion below). 
+41 
+The
+following table shows certain operating data as a percentage of net sales and the increase (decrease) in each item of operating data. 
+Percent Increase (Decrease) 
+Years Ended December 31, 
+2005 to 2006 
+2006 to 2007 
+2005 
+2006 
+2007 
+Net sales 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+15.0 
+% 
+47.5 
+% 
+Cost of sales 
+58.0 
+53.8 
+53.8 
+6.6 
+47.5 
+Gross profit 
+42.0 
+46.2 
+46.2 
+26.6 
+47.4 
+Selling, general and administrative expenses 
+22.4 
+24.3 
+22.7 
+24.9 
+37.7 
+Impairment loss 
+— 
+5.0 
+— 
+* 
+* 
+Income from operations 
+19.6 
+16.9 
+23.5 
+(0.9 
+) 
+105.2 
+Interest expense (income) and other, net 
+0.1 
+(0.6 
+) 
+(1.0 
+) 
+* 
+134.9 
+Income before income taxes 
+19.5 
+17.5 
+24.5 
+3.5 
+106.3 
+Income taxes 
+7.7 
+7.5 
+9.7 
+11.6 
+91.7 
+Net income 
+11.8 
+% 
+10.1 
+% 
+14.8 
+% 
+(1.7 
+) 
+117.1 
+* Calculation
+of percentage is not meaningful. 
+Year Ended December 31, 2006 Compared to Year Ended December 31, 2007 
+Overview. In 2007, we had net sales of $448,929 and income from operations of $105,553 compared to
+net sales of $304,423 and income from operations of $51,442 in 2006. These results were driven primarily by increased UGG brand sales, as well as by increased Teva and Simple brand sales. The increase
+in income from operations was primarily due to higher sales and gross profit compared to 2006, and also due to a $15,300 impairment loss on our Teva trademarks in 2006. 
+Net Sales. Net sales increased by $144,506, or 47.5%, in 2007 compared to 2006. The increase was due
+primarily to increases in UGG brand sales, and also from increases in Teva and Simple brand sales. Net sales increased in 2007 due primarily to: (1) an increase in the weighted-average
+wholesale selling price per pair, which increased 14.1% from $30.29 in 2006 to $34.55 in 2007, primarily from an increase in sales of UGG brand products, which carry higher average selling prices,
+(2) a 26.9% overall increase in the volume of footwear sold from 9.3 million pairs in 2006 to 11.8 million pairs in 2007, and (3) the
+continued expansion of our eCommerce business and our retail store business. In addition, full price sales of UGG brand products increased in 2007 compared to 2006. 
+Net
+wholesale sales of Teva products increased by $6,720, or 8.9%, in 2007 compared to 2006. This increase was primarily due to an increase in the volume of footwear sold in all
+categories, including sandals, closed toe and thongs, and was partially offset by a slight decrease in the weighted-average wholesale selling price per pair. 
+Net
+wholesale sales of UGG brand products increased by $109,539, or 60.1%, in 2007 compared to 2006 due to increased sales of all categories, including boots, fashion, casuals, kids',
+slippers, sandals and cold weather footwear. The increased sales were due primarily to an increase in the volume of footwear sold. 
+Net
+wholesale sales of Simple products increased by $260, or 2.4%, in 2007 compared to 2006. The increase was largely due to increased sales of our Green Toe collection and an increase
+in the weighted-average wholesale selling price per pair and was partially offset by a decrease in the volume of sandals, sneakers and clogs sold. 
+42 
+Net
+sales of the eCommerce business increased by $16,587, or 57.4%, in 2007 compared to 2006, representing 9.5% of net sales in 2006 and 10.1% of net sales in 2007. In 2006, net sales of
+the eCommerce business included retail sales of Teva products of $5,070, UGG brand products of $22,640 and Simple products of $1,176. In 2007, net sales of the eCommerce business included retail sales
+of Teva of $5,630, UGG brand of $37,880 and Simple of $1,963. The increase in net sales of the eCommerce business was due to the greater demand for our products. 
+Net
+sales of the retail store business increased by $11,400, or 163.3%, in 2007 compared to 2006, representing 2.3% of net sales in 2006 and 4.1% of net sales in 2007. In 2006, net sales
+of the retail store business included sales of Teva products of $148, UGG products of $6,452 and Simple products of $382. In 2007, net sales of the retail store business included sales of Teva
+products of $260, UGG products of $17,766 and Simple products of $356. The increase in net sales of the retail store business was due to the greater demand for our products as well as the two
+additional stores that we opened in 2007 and the additional stores that we opened in the second half of 2006. 
+International
+sales for all of our products increased by $24,005, or 62.6%, in 2007 compared to 2006, representing 12.6% of net sales in 2006 and 13.9% of net sales in 2007. The increase
+in international sales was driven by increases in sales of all brands, led by our UGG brand. 
+Gross Profit. Gross profit increased by $66,740, or 47.4%, in 2007 compared to 2006. As a percentage
+of net sales, gross margin was 46.2% in both 2007 and 2006. Our gross margins fluctuate based on several factors and we expect our gross margin to decrease in 2008. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses, or SG&A,
+increased by $27,929, or 37.7%, in 2007 compared to 2006. As a percentage of net sales, SG&A decreased from 24.3% in 2006 to 22.7% in 2007. The increase in SG&A in absolute dollars was primarily due
+to increases in payroll, commissions, retail store and eCommerce expenses and warehouse expenses, as well as approximately $2,600 of expenses in 2007 related to the investigation and restatement of
+certain of our historical consolidated financial statements as disclosed in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2006. 
+Impairment Loss. We conducted our annual impairment evaluation of goodwill and nonamortizable
+intangible assets using market value approaches and valuation techniques as of December 31, 2007 and 2006, and concluded that as of December 31, 2007, we had no impairment loss since the
+fair values of our goodwill and nonamortizable intangible assets were higher than the carrying amounts. However, as of December 31, 2006, the fair value of our Teva brand trademarks was lower
+than the carrying amount; therefore, we recognized an impairment loss of $15,300 on our Teva trademarks in the fourth quarter of 2006. 
+Income from Operations. Income from operations increased by $54,111, or 105.2%, in 2007 compared to
+2006, representing 16.9% of sales in 2006 and 23.5% in 2007. The increase in income from operations was primarily due to the increase in sales and gross profit in 2007, and also due to the impairment
+loss in 2006. 
+Income
+from operations of the Teva brand at wholesale increased by $17,292, or 451.6%, in 2007 compared to 2006. This increase was largely due to the $15,300 impairment loss on our Teva
+trademarks in 2006 as well as the increase in net sales in 2007, partially offset by higher divisional sales expenses and design expenses in 2007. 
+Income
+from operations of the UGG brand at wholesale increased by $46,285, or 63.5%, in 2007 compared to 2006. This was largely due to increased sales volumes and was partially offset by
+higher sales commissions and marketing expenses due to the growth of the brand. 
+43 
+Loss
+from operations of the Simple brand at wholesale decreased by $395, or 16.0%, in 2007 compared to 2006. This was primarily due to the increase in net sales as well as higher gross
+margins and was partially offset by increased divisional sales expenses. 
+Income
+from operations of our eCommerce business increased by $5,728, or 65.3%, in 2007 compared to 2006. This increase was largely due to the increase in net sales, partially offset by
+higher operating costs and marketing expenses. 
+Income
+from operations of our retail store business increased by $2,014, or 170.7%, in 2007 compared to 2006. This increase was largely due to the increase in net sales, partially offset
+by higher operating costs. Because this business is in its early stages and we have begun adding new stores each year, our growth rate has increased significantly since inception. We do not expect
+this growth rate to continue. 
+Unallocated
+overhead costs increased by $17,603, or 53.7%, in 2007 compared to 2006. The increase resulted primarily from higher corporate payroll costs, warehouse expenses, and
+international division costs, none of which are allocated to the brands. 
+Other Expense (Income). Other expense (income), net was $(1,910) in 2006 compared to $(4,486) in
+2007. In 2007, we had higher interest income from higher cash, cash equivalents and short-term investments balances and higher investment return rates than 2006. In addition, we had $461
+and $(19) of interest and penalties in 2006 and 2007, respectively, related to underreporting of employee payroll expense and underpayment of certain tax obligations to authorities in China for one of
+the Company's foreign subsidiaries, Holbrook Limited. During 2007, we accrued $578 of interest and penalties related to this matter; however, in the fourth quarter of 2007, we reversed $597 of
+penalties from 2007 and prior years that had previously been accrued, because authorities in China did not assess the related estimated penalties when a portion of the tax obligations were paid. We
+expect to continue to have increased interest income in 2008 based on higher expected cash, cash equivalents and short-term investments in 2008 compared to 2007. 
+Income Taxes. In 2006, income tax expense was $22,743, representing an effective income tax rate of
+42.6%. In 2007, income tax expense was $43,602 representing an effective income tax rate of 39.6%. The decrease in the effective tax rate in 2007 was primarily due to approximately $5,000 of
+impairment loss in 2006 attributable to a foreign subsidiary that receives no tax benefit from the charge, as this subsidiary is in a tax free jurisdiction. 
+Net Income. Our net income increased $35,828, or 117.1%, primarily as a result of higher net sales,
+higher gross profit, and higher interest income in 2007, and also from the impairment loss in 2006. Our earnings per diluted share increased 112.6% from $2.38 in 2006 to $5.06 in 2007 primarily as a
+result of the increase in net income. We do not expect these growth rates to continue. 
+Year Ended December 31, 2005 Compared to Year Ended December 31, 2006 
+Overview. In 2006, we had net sales of $304,423 and income from operations of $51,442 compared to net
+sales of $264,760 and income from operations of $51,908 in 2005. These results were driven by increased UGG and Simple brand sales, partially offset by a decrease in Teva brand sales. The decrease in
+income from operations was the result of a $15,300 impairment loss on our Teva trademarks in 2006, partially offset by higher sales and gross margins compared to 2005. 
+Net Sales. Net sales increased by $39,663, or 15.0%, in 2006 compared to 2005. The increase was due
+primarily to increases in sales for the UGG and Simple brand sales, partially offset by lower Teva brand sales, as discussed below. Net sales increased in 2006 due primarily to: (1) an increase
+in the weighted-average wholesale selling price per pair, which increased 7.8% from $28.06 in 2005 to $30.25 in 2006, primarily from an increase in sales of UGG brand products, which carry higher
+average selling 
+44 
+prices,
+(2) a 5.5% overall increase in the volume of footwear sold from 8.8 million pairs in 2005 to 9.3 million pairs in 2006, and (3) the continued expansion of our
+eCommerce business and our retail store business. In addition, full price sales of UGG brand products increased in 2006 compared to 2005. 
+Net
+wholesale sales of Teva products decreased by $5,163, or 6.4%, in 2006 compared to 2005. This decrease was due to increased competition, a lack of meaningful product innovation, and
+a decline in sales in certain international markets. We began to address the situation by dedicating significantly greater resources to product development, marketing and advertising, and the
+development of a solid international infrastructure. We began to see the results of these efforts in the fourth quarter of 2006 with an increase of 15.9% over the fourth quarter of 2005. 
+Net
+wholesale sales of UGG brand products increased by $32,090, or 21.4%, in 2006 compared to 2005 due primarily to increased sales of all categories, including boots, slippers, casuals,
+kids' and men's footwear. The increase was partially offset by approximately $10,000 of Fall 2004 holiday sales that did not ship until the first quarter of 2005, which caused net sales of UGG branded
+products to be slightly higher in the first quarter of 2005 compared to the first quarter of 2006. 
+Net
+wholesale sales of Simple products increased by $3,923, or 56.2%, in 2006 compared to 2005. The increase was largely due to the greater demand of our sandal collection and the
+introduction of our Green Toe collection, as well as an increase in sales of our core sneaker product line. 
+Net
+sales of the eCommerce business increased by $2,974, or 11.5%, in 2006 compared to 2005, representing 9.8% of net sales in 2005 and 9.5% of net sales in 2006. In 2005, net sales of
+the eCommerce business included sales of Teva products of $4,763, UGG brand products of $20,270 and Simple products of $879. In 2006, net sales of the eCommerce business included sales of Teva of
+$5,070, UGG brand of $22,640 and Simple of $1,176. The increase in net sales of the eCommerce business was due to the greater demand for our products. 
+Net
+sales of the retail store business increased by $5,839, or 510.8%, in 2006 compared to 2005, representing 0.4% of net sales in 2005 and 2.3% of net sales in 2006. In 2005, net sales
+of the retail store business included sales of Teva products of $29, UGG brand products of $1,084 and Simple products of $30. In 2006, net sales of the retail store business included sales of Teva of
+$148, UGG brand of $6,452 and Simple of $382. The increase in net sales of the retail store business was due to the greater demand for our products and the opening of additional retail stores in 2006,
+which were not all in place throughout 2005. 
+International
+sales for all of our products increased by $3,058, or 8.7%, in 2006 compared to 2005, representing 13.3% of net sales in 2005 and 12.6% of net sales in 2006. The increase
+in international sales was driven by increases in both UGG and Simple brand sales, partially offset by decreases in Teva brand international sales. 
+Gross Profit. Gross profit increased by $29,569, or 26.6%, in 2006 compared to 2005. As a percentage
+of net sales, gross margin increased to 46.2% in 2006 compared to 42.0% in 2005. The increase was primarily due to an increase in the UGG brand's wholesale gross margin, related to higher initial
+sell-in margins, lower inventory write-offs, and lower closeout sales. Our gross margins fluctuate based on several factors. 
+Selling, General and Administrative Expenses. Selling, general and administrative expenses, or SG&A,
+increased by $14,735, or 24.9%, in 2006 compared to 2005. As a percentage of net sales, SG&A increased from 22.4% in 2005 to 24.3% in 2006. The increase in SG&A was primarily due to increases in
+payroll, marketing and warehouse expenses partially offset by lower bad debt expense. Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and
+measurement provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees , and other
+related Interpretations, as permitted by SFAS No. 123, Accounting 
+45 
+for Stock-Based Compensation . Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based
+Payment ("SFAS 123R"). SFAS 123R requires us to measure compensation cost for all outstanding unvested share-based awards at
+the grant date fair value and recognize compensation over the requisite service period for awards expected to vest. The total stock-based compensation expense included in SG&A for 2005 and 2006 was
+$754 and $2,079, respectively. The increase in 2006 was primarily due to the adoption of SFAS 123R. 
+Impairment Loss. We conducted our 2006 annual impairment evaluation of goodwill and nonamortizable
+intangible assets using market value approaches and valuation techniques as of December 31, 2006 and concluded that the fair value of our Teva brand trademarks was lower than the carrying
+amount. Therefore, we recognized an impairment loss of $15,300 on our Teva trademarks in the fourth quarter of 2006. 
+Income from Operations. Income from operations decreased by $466, or 0.9%, in 2006 compared to 2005,
+representing 19.6% of sales in 2005 and 16.9% in 2006. The decrease in income from operations was primarily due to the impairment loss and the increase in SG&A expenses, partially offset by the
+increase in sales and gross profit. 
+Income
+from operations of the Teva brand at wholesale decreased by $18,441, or 82.8%, in 2006 compared to 2005. This decrease was largely due to the $15,300 impairment loss on our Teva
+trademarks as well as the decrease in net sales and increase in marketing expenses. The decrease was partially offset by lower selling commissions, lower bad debt expense and lower divisional sales
+expenses. 
+Income
+from operations of the UGG brand at wholesale increased by $24,373, or 50.2%, in 2006 compared to 2005. This was largely due to increased sales volumes and gross margins as well
+as lower bad debt expense, partially offset by higher divisional sales expenses and marketing expenses. 
+Loss
+from operations of the Simple brand at wholesale was $846 in 2005 compared to a loss from operations of $2,472 in 2006. In spite of achieving higher net sales for 2006, the Simple
+brand experienced lower gross margins from increased closeouts with negative margins along with higher marketing and selling costs. 
+Income
+from operations of our eCommerce business increased by $1,779, or 25.4%, in 2006 compared to 2005. This increase was largely due to the increase in net sales, partially offset by
+higher operating costs. 
+Loss
+from operations of our retail store business was $23 in 2005. Income from operations of our retail store business was $1,180 in 2006. This increase in operating income was largely
+due to the increase in net sales in 2006 due to the increased number of stores, partially offset by higher operating costs. 
+Unallocated
+overhead costs increased by $7,754, or 31.0%, in 2006 compared to 2005. The increase resulted primarily from higher corporate payroll costs, warehouse expenses, and
+international division costs, which are not allocated to the brands. 
+Other Expense (Income). Other expense (income), net was $374 in 2005 compared to $(1,910) in 2006.
+Since we had outstanding borrowings under our credit facility for a short period of time in 2005 in order to meet our seasonal borrowing needs, the interest income received on our invested cash was
+offset by the interest expense incurred on the seasonal borrowings. In 2006, we had no outstanding borrowings during the year, higher excess cash and cash equivalents and short-term
+investments balances, and higher investment return rates than 2005. In addition, we had $349 and $461 of interest and penalties in 2005 and 2006, respectively, related to underreporting of employee
+payroll expense and underpayment of certain tax obligations to authorities in China for one of the Company's foreign subsidiaries, Holbrook Limited, a Hong Kong company. 
+46 
+Income Taxes. In 2005, income tax expense was $20,387, representing an effective income tax rate of
+39.6%. In 2006, income tax expense was $22,743 representing an effective income tax rate of 42.6%. The increase in the effective tax rate in 2006 was primarily due to approximately $5,000 of
+impairment loss attributable to a foreign subsidiary that receives no tax benefit from the charge, as this subsidiary is in a tax free jurisdiction. This increase was partially offset by the
+restructure of our legal entities to benefit from lower tax jurisdictions internationally. In 2005, we repatriated $3,500 from our international subsidiaries under section 965 of the American
+Jobs Creation Act of 2004, resulting in approximately $331 of incremental Federal and State income taxes. 
+Net Income. Our net income decreased by $538, or 1.7%, primarily as a result of the impairment loss
+related to our Teva trademarks, offset by higher net sales, higher gross profit margins, and higher interest income in 2006. Our earnings per diluted share decreased 1.7% from $2.42 to $2.38 primarily
+as a result of the decrease in net income. 
+Off-Balance Sheet Arrangements 
+We have four types of off-balance sheet arrangements. 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, short-term investments, cash
+generated from operations and as
+needed, the credit availability under our revolving credit facility. In an economic recession or under other adverse economic conditions, we may be unable to realize a return on our cash equivalents
+and short-term investments or to secure additional credit on favorable terms. Such failures may impact our working capital reserves and have a material adverse effect on our business. We
+have not experienced any failed auctions or similar sale failures of our short-term investments held at December 31, 2007. Subsequent to December 31, 2007, we sold a majority
+of our variable rate demand notes, auction rate securities and dividend received deduction securities at full par value. See Part I, Item 1A, "Risk Factors" for more discussion of this
+issue. 
+During
+the latter part of 2007, U.S. and foreign credit markets experienced adverse conditions, including unusual volatility and a lack of secondary market liquidity, which conditions
+have presented, and continue to present, significant challenges to the investment markets and have limited the availability of short-term debt for working capital. While it is difficult to
+predict how long these adverse conditions will exist, these factors, if continuing, could adversely impact our future financial condition and our future results of operations. 
+The
+seasonality of our business requires us to build inventory levels in anticipation of the sales for the coming season. The Teva brand generally begins to build inventory levels
+beginning in the fourth quarter and first quarter in anticipation of the Spring selling season that occurs in the first and second quarters, whereas the UGG brand generally builds its inventories in
+the second and third quarters to support sales for the Fall and Winter selling seasons, which historically occur during the third and fourth quarters. 
+Our
+cash flow cycle includes the purchase of these inventories, the subsequent sale of the inventories and the eventual collection of the resulting accounts receivable. As a result, our
+working capital requirements begin when we purchase the inventories and continue until we ultimately collect the resulting receivables. Given the seasonality of our Teva and UGG brands, our working
+capital requirements fluctuate significantly throughout the year. The cash required to fund these working capital fluctuations is generally provided using our internal cash flows. If necessary, we may
+borrow funds under our revolving credit facility. 
+47 
+Cash from Operating Activities. Net cash provided by operating activities was $61,054 for the year
+ended December 31, 2007 compared to $48,498 for the year ended December 31, 2006. The increase in net cash provided by operating activities in 2007 was largely due to the higher net
+income. The increase was also due to a greater increase in income taxes payable in 2007 compared to 2006 due to the higher pre-tax income as well as a greater increase in trade accounts payable in
+2007 versus 2006 primarily due to increased purchases of inventory. This was partially offset by a greater increase in inventories in 2007 compared to 2006 due to the planned early receipt of Spring
+2008 product in the fourth quarter of 2007 to support the higher expected sales in the first quarter of 2008 compared to 2007, as well as a greater increase in accounts receivable in 2007 compared to
+2006, which resulted primarily from
+increased sales. Net working capital improved by $82,313 to $230,173 as of December 31, 2007 from $147,860 as of December 31, 2006, primarily as a result of higher short-term
+investments balances, increased accounts receivable and increased cash and cash equivalents, partially offset by an increase in trade accounts payable and an increase in income taxes payable. These
+changes in working capital are primarily due to increased sales as well as our normal seasonality and timing of cash receipts and cash payments. 
+Cash from Investing Activities. Net cash used in investing activities was $55,567 in 2007, which was
+comprised primarily of the net purchases of short-term investments. In addition, we used $6,385 for capital expenditures, primarily related to the build-out of our new retail
+stores, the replacement and upgrading of certain computer equipment and additional warehouse equipment. For the year ended December 31, 2006, net cash used in investing activities was $67,546,
+which was comprised primarily of the net purchases of short-term investments. In addition, we used $5,543 for capital expenditures, primarily related to the build-out of three
+retail stores, racking for the distribution center in Camarillo, California and the replacement and upgrading of certain computer equipment. 
+Cash from Financing Activities. In 2007, net cash provided by financing activities was $14,840,
+consisting of the excess tax benefits from stock-based compensation as well as cash received from the exercise of stock options. In 2006, net cash provided by financing activities was $2,621
+consisting primarily of cash received from the exercise of stock options as well as the excess tax benefits from stock-based compensation. 
+Our
+working capital consists primarily of cash and cash equivalents, short-term investments, trade accounts receivable, inventories and a revolving credit facility. At
+December 31, 2007, working capital was $230,173 including $54,525 of cash and cash equivalents and $113,567 of short-term investments. Trade accounts receivable increased by 45.7%
+to $72,209 at December 31, 2007 from $49,571 at December 31, 2006 resulting primarily from a 56.2% increase in net sales during the fourth quarter of 2007 compared to the fourth quarter
+of 2006. Accounts receivable turnover increased to 8.5 times in the twelve months ended December 31, 2007 from 8.1 times in the twelve months ended December 31, 2006, primarily as a
+result of increased sales and faster collections in 2007 compared to 2006 due to the continued increased demand for UGG brand product in 2007, which encouraged retailers to pay their receivables
+balances faster in efforts to receive their upcoming deliveries more quickly. 
+Inventories
+increased by $19,401, or 59.9%, at December 31, 2007 compared to December 31, 2006, reflecting a $13,557 increase in UGG brand inventory, a $4,793 increase in
+Teva brand inventory and a $1,051 increase in Simple brand inventory. Overall, inventory turnover increased to 4.4 times for the year ended December 31, 2007 from 4.2 times for the year ended
+December 31, 2006, largely due to higher sales during the twelve months ended December 31, 2007 compared to net sales in the twelve months ended December 31, 2006. The increase in
+inventory of all brands was due to the planned early delivery of Spring 2008 product in the fourth quarter of 2007 to support the higher expected sales in the first quarter of 2008 compared to 2007. 
+48 
+Our revolving credit facility with Comerica Bank (the "Facility") provides for a maximum availability of $20,000. Up to $10,000 of borrowings may be in the form of letters of credit. The
+Facility bears interest at the lender's prime rate (7.25% at December 31, 2007) or, at our option, at the London Interbank Offered Rate, or LIBOR, (4.60% at December 31, 2007) plus 1.0%
+to 2.5%, depending on our ratio of liabilities to earnings before interest, taxes, depreciation and amortization, and is secured by substantially all of our assets. The Facility includes annual
+commitment fees of $60 per year and expires on June 1, 2009. At December 31, 2007, we had no outstanding borrowings under the Facility, no foreign currency reserves for outstanding
+forward contracts and aggregate outstanding letters of credit of $78. As a result, $19,922 was available under the Facility at December 31, 2007. 
+The
+agreements underlying the Facility contain certain financial covenants including a quick ratio requirement, profitability requirements and a tangible net worth requirement, among
+others, as well as a prohibition on the payment of dividends. We were in compliance with all covenants at December 31, 2007, and remain so as of the date of this report. 
+As
+of December 31, 2007, we had no material commitments for future capital expenditures, but we estimate that the capital expenditures for 2008 will range from approximately
+$19,000 to $21,000 and anticipate those will include the costs of an inventory pick module in our warehouse in Camarillo, California, and the build-out of new retail stores. The actual
+amount of capital expenditures for 2008 may differ from this estimate, largely depending on any unforeseen needs to replace existing assets and the timing of expenditures. 
+Contractual Obligations. The following table summarizes our contractual obligations at
+December 31, 2007 and the effects such obligations are expected to have on liquidity and cash flow in future periods. 
+Payments Due by Period 
+Total 
+Less than 1 Year 
+1-3 Years 
+3-5 Years 
+More than 5 Years 
+Operating lease obligations 
+$ 
+43,373 
+$ 
+7,210 
+$ 
+15,519 
+$ 
+14,031 
+$ 
+6,613 
+Purchase obligations 
+89,883 
+87,583 
+1,250 
+1,050 
+— 
+Unrecognized tax benefits 
+1,869 
+— 
+1,869 
+— 
+— 
+Total 
+$ 
+135,125 
+$ 
+94,793 
+$ 
+18,638 
+$ 
+15,081 
+$ 
+6,613 
+Our
+operating lease obligations consist primarily of building leases for our corporate offices, distribution centers and retail locations. Our purchase obligations consist primarily of
+approximately $87,000 in outstanding purchase orders with our manufacturers that we anticipate will become due in less than one year. Also, we have approximately $3,000 of promotional expenditures due
+periodically through 2012. The unrecognized tax benefits are related to uncertain tax positions that have been or will be taken in our income tax returns that would impact the effective tax rate, if
+recognized. 
+We
+believe that internally generated funds, the available borrowings under our existing Facility, cash and cash equivalents, and short-term investments will provide
+sufficient liquidity to enable us to meet our current and foreseeable working capital requirements. However, risks and uncertainties that could impact our ability to maintain our cash position include
+our 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, the availability of short-term credit, market volatility and the volume of letters of credit used to purchase product, among others. See Part I,
+Item 1A, "Risk Factors" for a discussion of additional factors that may affect our working capital 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 requirement, we may seek to sell debt
+securities or additional equity securities or to obtain a new credit facility or draw on our existing 
+49 
+Facility.
+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 present understandings, commitments or agreements with respect to the acquisition of any other businesses, we may, from time to time, evaluate
+acquisitions of other businesses or brands. 
+See
+Note 8, "Commitments and Contingencies," to the consolidated financial statements for a discussion of certain tax obligations to authorities in China for one of the Company's
+foreign subsidiaries, Holbrook Limited, a Hong Kong company. 
+Impact of Inflation 
+We believe that the rates of inflation in recent years have not had a significant impact on our net sales or profitability. 
+Critical Accounting Policies and Estimates 
+Revenue Recognition. We recognize revenue when products are shipped and the customer takes title and
+assumes risk of loss, collection of relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Allowances for estimated returns,
+discounts, markdowns, and bad debts 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. We present revenue net of taxes collected from customers and remitted to governmental authorities. 
+Use of Estimates. The preparation of financial statements in conformity with accounting principles
+generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures about contingent liabilities and the
+reported amounts of net sales and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing, known circumstances, authoritative
+accounting pronouncements and other factors that management believes to be reasonable. 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. We believe that the estimates and assumptions below are among those most important to an
+understanding of our consolidated financial statements contained in this report. 
+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,
+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 are identified as potentially uncollectible, plus a non-specific reserve for the balance of accounts based on our historical loss experience
+with bad debts. Reserves have been established for all probable losses of this nature. The gross trade accounts receivable balance was $80,564 and the allowance for doubtful accounts was $379 at
+December 31, 2007, compared to gross trade accounts receivable of $55,671 and allowance for doubtful accounts of $735 at December 31, 2006. The decrease in the allowance for doubtful
+accounts at December 31, 2007 compared to December 31, 2006 was primarily related to the collection of accounts for which we had previously reserved as doubtful as well as the
+write-offs of accounts deemed to be uncollectable. Our 
+50 
+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, 2007 by approximately $240. 
+Reserve for Sales Discounts. A significant portion of our domestic net sales and resulting trade
+accounts receivable reflects a discount that the customers may take, generally based upon meeting certain order, shipment and payment timelines. We estimate the amount of the discounts that are
+available to be taken against the period-end trade accounts receivable, and we record a corresponding reserve for sales discounts. The reserve for sales discounts was approximately $3,218
+at December 31, 2007 and $2,502 at December 31, 2006. The increase was primarily due to the increase in gross trade accounts receivable as of December 31, 2007 compared to
+December 31, 2006 in addition to a larger
+volume of pre-season sales to customers in the fourth quarter of 2007. Our use of different estimates and assumptions could produce different financial results. For example a 10.0% change
+in the estimate of the percentage of accounts that will ultimately take their discount would change the reserve for sales discounts at December 31, 2007 by approximately $320. 
+Allowance for Estimated Returns. We record an allowance for anticipated future returns of goods
+shipped prior to period-end. In general, we accept returns for damaged or defective products but discourage returns for other reasons. We base the amount of the allowance 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 returns was
+$3,687 at December 31, 2007 and $1,618 at December 31, 2006. The increase in the allowance was primarily the result of increased sales in the fourth quarter of 2007 compared to the same
+period in 2006, as well as a change in the assumptions used to calculate the allowance as of December 31, 2007. 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 percentage of sales expected to ultimately be returned would change the reserve for returns at December 31, 2007 by
+approximately $420. 
+Allowance for Estimated Markdowns. When our customers pay their invoices, they often take deductions
+for markdowns against their invoices, which we seldom recover. Therefore, we record an allowance for the balance of markdowns that are outstanding in our accounts receivable balance as of the end of
+each quarter, along with an estimated reserve for markdowns that have not yet been taken against outstanding accounts receivable balances. This estimate is based on historical trends of the timing of
+markdowns taken against invoices. The allowance for markdowns was $1,071 at December 31, 2007 and $1,245 at December 31, 2006. The decrease in the allowance was a result of faster
+resolution of these markdowns by our vendor compliance department. 
+Inventory Write-Downs. Inventories are stated at lower of cost or market. 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 estimated future net selling prices. At
+December 31, 2007, inventories were stated at $51,776, net of inventory write-downs of $2,029. At December 31, 2006, inventories were stated at $32,375, net of inventory write-downs of
+$3,605. The decrease in inventory write-downs at December 31, 2007 compared to December 31, 2006 was primarily due to smaller amounts of closeout inventory on hand for Teva and Simple.
+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, 2007 by approximately $430. 
+Valuation of Goodwill, Intangible and Other Long-Lived Assets. Annually or whenever
+events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, 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 value of these assets individually. We test 
+51 
+goodwill
+and nonamortizable intangible assets for impairment on an annual basis based on the fair value of the reporting unit for goodwill or the fair value of the assets for nonamortizable
+intangibles compared to their respective carrying value. We consider other long-lived assets to be impaired if we determine that the carrying value may not be recoverable. Among other
+considerations, we consider the following factors: 
+• the
+assets' ability to continue to generate income from operations and positive cash flow in future periods;
+• our
+future plans regarding utilization of the assets;
+• any
+changes in legal ownership of rights to the assets; and
+• changes
+in consumer demand or acceptance of the related brand names, products or features associated with the assets. 
+If
+we determine the assets to be impaired, we recognize an impairment loss equal to the amount by which the carrying value of the assets exceeds the estimated fair value of the assets.
+In addition, as it relates to long-lived assets, we base the useful lives and related amortization or depreciation expense on the estimate of the period that the assets will generate sales
+or otherwise be used by us. 
+In
+2006 and 2007, we performed our annual impairment test of goodwill and nonamortizable intangible assets using market value approaches and valuation techniques and determined that
+there was no impairment of goodwill as of December 31, 2006 and 2007, or of the Teva trademarks as of December 31, 2007. However, as of December 31, 2006, we concluded that the
+fair value of our trademarks was less than the carrying amount, and accordingly, we recorded an impairment charge of $15,300 in the fourth quarter of 2006. Our use of different estimates (including
+estimated royalty rates,
+discount rates, and future revenues) and assumptions could produce different financial results. For example, a 5% change in the estimated future revenue growth rate for Teva would have resulted in the
+carrying value exceeding the fair value as of December 31, 2007. Accordingly, if growth rates fail to meet our forecasts, impairment of the Teva trademark may occur in the future. 
+Recent Accounting Pronouncements 
+In September 2006, the FASB issued Statement No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 standardizes the definition and
+approaches for fair value measurements of financial instruments for those standards which already permit or require the use of fair value. It does not require any new fair value measurements.
+SFAS 157 defines a hierarchy for valuation techniques and also requires additional disclosures. The provisions of SFAS 157 are effective for us as of January 1, 2008. The FASB has
+deferred the effective date of SFAS 157 only as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not measured at fair value on a recurring
+basis to fiscal years beginning after December 15, 2008. We do not expect the adoption of this statement to have a material effect on our consolidated financial statements. 
+In
+February 2007, the FASB issued Statement No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities — Including an
+amendment of FASB Statement No. 115." SFAS 159 provides companies the option to measure many financial instruments and certain other items at fair value. This provides companies the
+opportunity to mitigate volatility in earnings caused by measuring instruments differently without complex hedge accounting provisions. SFAS 159 is effective for us beginning January 1,
+2008. We are currently evaluating the effect this Statement will have on our consolidated financial statements. 
+In
+December 2007, the FASB issued Statement No. 141 (revised 2007) ("SFAS 141R"), "Business Combinations." The objective of the Statement is to improve the relevance,
+representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports 
+52 
+about
+a business combination and its effects. SFAS 141R requires that all business combinations be accounted for by applying the acquisition method (previously referred to as the purchase
+method), and most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in business combinations to be recorded at "full fair value." SFAS 141R also broadens the
+definition of a business and changes the treatment of direct acquisition-related costs from being included in the purchase price to instead being generally expensed if they are not costs associated
+with issuing debt or equity securities. SFAS 141R is effective for us beginning January 1, 2009, and will be applied prospectively to any new business combinations. 
+In
+December 2007, the FASB issued Statement No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB
+No. 51." The objective of the Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial
+statements by establishing accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 specifies that noncontrolling
+interests (previously referred to as minority interests) be reported as a separate component of equity, not as a liability or other item outside of equity, which changes the accounting for
+transactions with noncontrolling interest holders. SFAS 160 is effective for us beginning January 1, 2009, and will be applied prospectively to all noncontrolling interests, including
+any that arose before that date. 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 
+Derivative Instruments. Although we have used foreign currency hedges in the past, we currently do
+not utilize forward contracts or other derivative instruments to mitigate exposure to fluctuations in the foreign currency exchange rate, as the majority of our purchases and sales for the foreseeable
+future will be denominated in U.S. currency. 
+Although
+our sales and inventory purchases are denominated in U.S. currency, our sales and inventory purchases may be impacted by fluctuations in the exchange rates between the U.S.
+dollar and the local currencies in the international markets where our products are sold and manufactured. If the U.S. dollar strengthens, it may result in increased pricing pressure on our
+distributors, which may have a negative impact on our net sales and gross margins. We are unable to estimate the amount of any impact on sales and gross margins attributed to pricing pressures caused
+by fluctuations in exchange rates. 
+Market Risk. Our market risk exposure with respect to financial instruments is to changes in the
+"prime rate" in the U.S. and changes in LIBOR. Our revolving line of credit provides for interest on outstanding borrowings at rates tied to the prime rate or at our election tied to LIBOR. At
+December 31, 2007, we had no outstanding borrowings under the revolving line of credit. A 1.0% increase in interest rates on our current borrowings would have no 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. 
+53 
+Item 9A. Controls and Procedures. 
+(a) Disclosure Controls and Procedures. 
+Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that
+the Company files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's
+rules and forms. 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 Chief Executive Officer and Chief 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 Chief Executive Officer and the Chief Financial Officer, of the
+effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
+the Chief Executive Officer and Chief Financial Officer believe that as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in making known
+to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this 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 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 U.S. generally accepted accounting principles (GAAP). A company's internal control over
+financial reporting includes policies and procedures that: 
+• pertain
+to the maintenance of records that, in reasonable detail, accurately and fairly reflect the detail, transactions and dispositions of the assets of the Company;
+• 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 the directors of the Company; and
+• 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 Company's consolidated financial statements. 
+Because
+of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. 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, 2007. 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. 
+54 
+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, 2007, the Company maintained effective internal control over financial reporting. 
+(c) Changes in Internal Control over Financial Reporting 
+During the fourth fiscal quarter, the Company completed the implementation of additional internal controls over financial reporting, including changing the
+oversight and supervision of its subsidiary accounting personnel to the Company's Assistant Controller, implementing controls to confirm the accurate determination and timely remittance of the China
+subsidiary's taxes due and inclusion of the China subsidiary in the scope of the annual Sarbanes-Oxley section 404 internal control evaluation. Additional measures may be forthcoming as we
+evaluate the effectiveness of these efforts. 
+Item 9B. Other Information. 
+None. 
+55 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance. 
+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. Our code of ethics is designed to meet the requirements of Section 406 of the Sarbanes-Oxley Act of 2002 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 2008 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, 2007, 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 2008 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, 2007, 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 2008 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, 2007, 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 2008 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, 2007, 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 2008 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, 2007, and such information is incorporated herein by reference. 
+56 
+PART IV 
+Item 15. Exhibits, Financial Statement Schedules. 
+Consolidated Financial Statements and Schedules required to be filed hereunder are indexed on Page F-1 hereof. 
+Exhibit 
+2.1 
+Certificate of Ownership and Merger Merging Deckers Corporation into Deckers Outdoor Corporation. (Exhibit 2.1 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by
+reference herein) 
+2.2 
+Asset Purchase Agreement dated as of October 9, 2002 by and Among Mark Thatcher, Teva Sport Sandals, Inc. and Deckers Outdoor Corporation. (Exhibit 2.1 to the Registrant's Form 8-K/A filed February 7, 2003 and incorporated
+herein by reference.) 
++2.3 
+Disclosure letter associated with the Asset Purchase Agreement. (Exhibit 2.2 to the Registrant's Form 8-K/A filed February 7, 2003 and incorporated herein by reference.) 
+3.1 
+Amended and Restated Certificate of Incorporation of Deckers Outdoor Corporation. (Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+3.2 
+Restated Bylaws of Deckers Outdoor Corporation. (Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+3.3 
+Certificate of Amendment of Amended and Restated Certificate of Incorporation of Deckers Outdoor Corporation (incorporated herein by reference to Appendix B to the Registrant's Definitive Proxy Statement dated April 21, 2006 in connection
+with its 2006 Annual Meeting of Stockholders) 
+4.1 
+Shareholder Rights Agreement, dated as of November 12, 1998. (Exhibit 10.39 to the Registrant's Form 10-Q for the period ended September 30, 1998 and incorporated by reference herein) 
+#10.1 
+1993 Employee Stock Incentive Plan. (Exhibit 99 to the Registrant's Registration Statement on Form S-8, File No. 33-47097 and incorporated by reference herein) 
+#10.2 
+Form of Incentive Stock Option Agreement under 1993 Employee Stock Incentive Plan. (Exhibit 10.9 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.3 
+Form of Non-Qualified Stock Option Agreement under 1993 Employee Stock Incentive Plan. (Exhibit 10.10 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.4 
+Form of Restricted Stock Agreement under 1993 Employee Stock Incentive Plan. (Exhibit 10.11 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.5 
+Employment Agreement with Douglas B. Otto. (Exhibit 10.13 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+57 
+#10.6 
+First Amendment to Employment Agreement with Douglas B. Otto. (Exhibit 10.14 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.7 
+Second Amendment to Employment Agreement with Douglas B. Otto. (Exhibit 10.15 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.8 
+Third Amendment to Employment Agreement with Douglas B. Otto. (Exhibit 10.30 to the Registrant's Registration Statement on Form S-1, File No. 33-67248 and incorporated by reference herein) 
+#10.9 
+Deckers Outdoor Corporation 1995 Employee Stock Purchase Plan. (Exhibit 4.4 to the Registrant's Registration Statement on Form S-8, File No. 33-96850 and incorporated by reference herein) 
+10.10 
+Amended Compensation Plan for Outside Members of the Board of Directors. (Exhibit 10.42 to the Registrant's Form 10-Q for the period ended September 30, 1996 and incorporated by reference herein) 
+#10.11 
+Extension Agreement to Employment Agreement with Douglas B. Otto. (Exhibit 10.36 to the Registrant's Form 10-K for the period ended December 31, 1996 and incorporated by reference herein) 
+10.12 
+Revolving Credit Agreement dated as of February 21, 2002 among Deckers Outdoor Corporation, UGG Holdings, Inc. and Comerica Bank — California. (Exhibit 10.21 to the Registrant's Form 10-K for the year ended
+December 31, 2001 and incorporated by reference herein.) 
+#10.13 
+Employment Agreement dated March 29, 2002 between Douglas B. Otto and Deckers Outdoor Corporation. (Exhibit 10.22 to the Registrant's Form 10-Q for the period ended March 31, 2002 and incorporated by reference herein.) 
+#10.14 
+Employment Agreement dated November 25, 2002 between John A. Kalinich and Deckers Outdoor Corporation. (Exhibit 10.20 to the Registrant's Form 10-K for the period ended December 31, 2002 and incorporated by reference
+herein) 
+#10.15 
+Employment Agreement dated November 25, 2002 between Mark Thatcher and Deckers Outdoor Corporation. (Exhibit 10.21 to the Registrant's Form 10-K for the period ended December 31, 2002 and incorporated by reference herein)
+10.16 
+Unsecured Subordinated Promissory Note dated November 25, 2002 between Mark Thatcher and Deckers Outdoor Corporation. (Exhibit 10.22 to the Registrant's Form 10-K for the period ended December 31, 2002 and incorporated by
+reference herein) 
+10.17 
+Note Purchase Agreement dated as of November 25, 2002 by and among Deckers Outdoor Corporation and The Peninsula Fund III Limited Partnership. (Exhibit 10.23 to the Registrant's Form 10-K for the period ended December 31, 2002 and
+incorporated by reference herein) 
+10.18 
+Amended and Restated Credit Agreement, dated as of November 25, 2002, by and among Deckers Outdoor Corporation, UGG Holdings Inc., and Comerica Bank-California. (Exhibit 10.24 to the Registrant's Form 10-K for the period ended
+December 31, 2002 and incorporated by reference herein) 
+58 
+10.19 
+Amendment Number One to Amended and Restated Revolving Credit Agreement dated April 29, 2003. (Exhibit 10.1 to the Registrant's Form 10-Q for the period ended June 30, 2003 and incorporated by reference herein) 
+10.20 
+Amendment Number Two to Amended and Restated Revolving Credit Agreement dated June 27, 2003. (Exhibit 10.2 to the Registrant's Form 10-Q for the period ended June 30, 2003 and incorporated by reference herein) 
+10.21 
+Amendment Number One to Senior Subordination Agreement dated April 29, 2003. (Exhibit 10.3 to the Registrant's Form 10-Q for the period ended June 30, 2003 and incorporated by reference herein). 
+10.22 
+Amendment Number Two to Senior Subordination Agreement dated June 27, 2003. (Exhibit 10.4 to the Registrant's Form 10-Q for the period ended June 30, 2003 and incorporated by reference herein) 
+10.23 
+Amendment Number Three to Amended and Restated Revolving Credit Agreement between the Company and Comerica Bank — California dated as of August 6, 2003. (Exhibit 10.1 to the Registrant's Form 10-Q for the period ended
+September 30, 2003 and incorporated by reference herein) 
+10.24 
+Amendment Number Four to Amended and Restated Revolving Credit Agreement between the Company and Comerica Bank-California dated as of November 13, 2003 (Exhibit 10.27 to the Registrant's Form 10-K for the period ended December 31,
+2003 and incorporated by reference herein) 
+10.25 
+Amendment Number Three to Senior Subordination Agreement dated November 13, 2003 (Exhibit 10.28 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference herein) 
+#10.26 
+Employment Agreement effective as of January 1, 2004 between Douglas B. Otto and Deckers Outdoor Corporation (Exhibit 10.29 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference
+herein) 
+#10.27 
+Employment Agreement effective as of January 1, 2004 between M. Scott Ash and Deckers Outdoor Corporation (Exhibit 10.30 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference
+herein) 
+#10.28 
+Employment Agreement effective as of January 1, 2004 between Patrick C. Devaney and Deckers Outdoor Corporation (Exhibit 10.31 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference
+herein) 
+#10.29 
+Employment Agreement effective as of January 1, 2004 between Constance X. Rishwain and Deckers Outdoor Corporation (Exhibit 10.32 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference
+herein) 
+#10.30 
+Employment Agreement effective as of January 1, 2004 between Robert P. Orlando and Deckers Outdoor Corporation (Exhibit 10.33 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by reference
+herein) 
+10.31 
+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) 
+59 
+10.32 
+Exclusive Independent Contractor Representation Agreement between Deckers Outdoor Corporation and BHPC Marketing, Inc. effective as of January 1, 2003 for representation of the Teva brand (Exhibit 10.35 to the Registrant's
+Form 10-K for the period ended December 31, 2003 and incorporated by reference herein) 
+10.33 
+Amendment Number Five to Amended and Restated Credit Agreement between the Company and Comerica Bank- California dated as of February 28, 2005 (Exhibit 10.36 to the Registrant's Form 10-K for the period ended December 31, 2004 and
+incorporated by reference herein) 
+10.34 
+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) 
+10.35 
+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) 
+#10.36 
+Employment Agreement between Deckers Outdoor Corporation and Angel R. Martinez (Exhibit 10.1 to the Registrant's Form 8-K filed on March 17, 2005 and incorporated by reference herein) 
+10.37 
+Amendment Number Six to Amended and Restated Revolving Credit Agreement between the Company and Comerica Bank-California dated as of June 14, 2005 (Exhibit 10.1 to the Registrant's Form 10-Q for the period ended June 30, 2005 and
+incorporated by reference herein) 
+#10.38 
+Offer of Employment Letter between the Company and Carlo Lingiardi, President of Teva, dated August 10, 2005 (Exhibit 10.1 to the Registrant's Form 8-K filed on August 16, 2005 and incorporated by reference herein) 
+#10.39 
+Offer of Employment Letter between the Company and Colin Clark, Senior Vice President-International, effective September 1, 2005 (Exhibit 10.1 to the Registrant's Form 8-K filed on August 30, 2005 and incorporated by reference
+herein) 
+10.40 
+Amendment Number Seven to Amended and Restated Revolving Credit Agreement between the Company and Comerica Bank dated as of September 6, 2005 (Exhibit 10.1 to the Registrant's Form 10-Q for the period ended September 30, 2005 and
+incorporated by reference herein) 
+#10.41 
+Employment agreement effective as of March 6, 2006 between Zohar Ziv and Deckers Outdoor Corporation (Exhibit 10.1 to the Registrant's Form 8-K filed on March 10, 2006 and incorporated by reference herein) 
+#10.42 
+Employment agreement effective as of March 20, 2006 between Peter Worley and Deckers Outdoor Corporation (Exhibit 10.1 to the Registrant's Form 8-K filed on March 20, 2006 and incorporated by reference herein) 
+#10.43 
+Amendment number one to employment agreement effective as of April 11, 2005 between Douglas B. Otto and Deckers Outdoor Corporation (Exhibit 10.1 to the Registrant's Form 8-K filed on April 7, 2006 and incorporated by reference
+herein) 
+60 
+#10.44 
+Employment agreement effective as of January 1, 2006 between Constance X. Rishwain and Deckers Outdoor Corporation (Exhibit 10.2 to the Registrant's Form 8-K filed April 7, 2006 and incorporated by reference herein) 
+#10.45 
+Employment agreement effective as of January 1, 2006 between Patrick C. Devaney and Deckers Outdoor Corporation (Exhibit 10.3 to the Registrant's Form 8-K filed April 7, 2006 and incorporated by reference herein) 
+#10.46 
+Employment agreement effective as of January 1, 2006 between Colin Clark and Deckers Outdoor Corporation (Exhibit 10.1 to the Registrant's Form 8-K filed on April 18, 2006 and incorporated by reference herein) 
+#10.47 
+Employment agreement effective as of January 1, 2006 between Janice Howell and Deckers Outdoor Corporation (Exhibit 10.2 to the Registrant's Form 8-K filed on April 18, 2006 and incorporated by reference herein) 
+#10.48 
+Amendment number one to employment agreement effective as of January 1, 2006 between John Kalinich and Deckers Outdoor Corporation (Exhibit 10.3 to the Registrant's Form 8-K filed on April 18, 2006 and incorporated by reference
+herein) 
+10.49 
+Amendment Number Eight to Amended and Restated Credit Agreement between Deckers Outdoor Corporation and Comerica Bank dated as of September 5, 2006 (Exhibit 10.1 to the Registrant's Form 8-K filed on September 6, 2006 and
+incorporated by reference herein) 
+10.50 
+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)
+10.51 
+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) 
+14.1 
+Deckers Outdoor Corporation's Code of Ethics for Senior Officers, as approved by the Board of Directors on December 5, 2003. (Exhibit 14.1 to the Registrant's Form 10-K for the period ended December 31, 2003 and incorporated by
+reference herein) 
+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 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
+* Filed
+herewith.
++ Certain
+information in this Exhibit was omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request as to the omitted portions
+of the Exhibit.
+# Management
+contract or compensatory plan or arrangement. 
+61 
+SIGNATURES 
+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. 
+DECKERS OUTDOOR CORPORATION 
+(Registrant) 
+/s/ ANGEL R. MARTINEZ Angel R. Martinez 
+Chief Executive Officer 
+Date:
+February 29, 2008 
+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/ DOUGLAS B. OTTO Douglas B. Otto 
+Chairman of the Board 
+February 29, 2008 
+/s/ ANGEL R. MARTINEZ Angel R. Martinez 
+President and Chief Executive 
+Officer (Principal Executive Officer) 
+February 29, 2008 
+/s/ ZOHAR ZIV Zohar Ziv 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+February 29, 2008 
+/s/ GENE E. BURLESON Gene E. Burleson 
+Director 
+February 29, 2008 
+/s/ MAUREEN CONNERS Maureen Conners 
+Director 
+February 29, 2008 
+/s/ JOHN M. GIBBONS John M. Gibbons 
+Director 
+February 29, 2008 
+/s/ REX A. LICKLIDER Rex A. Licklider 
+Director 
+February 29, 2008 
+62 
+/s/ JOHN G. PERENCHIO John G. Perenchio 
+Director 
+February 29, 2008 
+/s/ TORE STEEN Tore Steen 
+Director 
+February 29, 2008 
+63 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
+AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+Consolidated Financial Statements 
+Reports of Independent Registered Public Accounting Firm 
+F-2 
+Consolidated Balance Sheets as of December 31, 2006 and 2007 
+F-4 
+Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2007 
+F-5 
+Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of the years in the three-year period ended December 31, 2007 
+F-6 
+Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007 
+F-7 
+Notes to Consolidated Financial Statements 
+F-8 
+Consolidated Financial Statement Schedule 
+Valuation and Qualifying Accounts for each of the years in the three-year period ended December 31, 2007 
+F-30 
+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 the Company as of December 31, 2006 and 2007, and the
+results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, 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. 
+As
+described in note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards
+No. 123 (revised 2004), Share-Based Payment . 
+As
+described in notes 1 and 6 to the consolidated financial statements, effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board
+Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109. 
+We
+also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
+December 31, 2007, 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 February 29, 2008 expressed an unqualified opinion on the effectiveness of the Company's internal control over
+financial reporting. 
+/s/
+KPMG LLP 
+Los
+Angeles, California 
+February 29, 2008 
+F-2 
+Report of Independent Registered Public Accounting Firm 
+The
+Board of Directors and Stockholders 
+Deckers Outdoor Corporation: 
+We
+have audited Deckers Outdoor Corporation and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2007, 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. 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 includes 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
+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, 2006 and 2007, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2007, and the related consolidated financial statement schedule, and our report dated February 29, 2008 expressed an unqualified opinion
+on those consolidated financial statements and consolidated financial statement schedule. 
+/s/
+KPMG LLP 
+Los
+Angeles, California 
+February 29, 2008 
+F-3 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+(amounts in thousands, except par value) 
+December 31, 
+2006 
+2007 
+ASSETS 
+Current assets: 
+Cash and cash equivalents 
+$ 
+34,255 
+$ 
+54,525 
+Restricted cash 
+— 
+250 
+Short-term investments 
+64,637 
+113,567 
+Trade accounts receivable, net of allowances of $6,100 and $8,355 in 2006 and 2007, respectively 
+49,571 
+72,209 
+Inventories 
+32,375 
+51,776 
+Prepaid expenses and other current assets 
+2,199 
+3,276 
+Deferred tax assets 
+4,386 
+5,964 
+Total current assets 
+187,423 
+301,567 
+Restricted cash 
+— 
+1,000 
+Property and equipment, at cost, net 
+7,770 
+10,579 
+Trademarks 
+35,852 
+35,852 
+Goodwill 
+18,030 
+18,030 
+Intangible assets, net 
+517 
+249 
+Deferred tax assets 
+327 
+2,682 
+Other assets 
+54 
+73 
+Total assets 
+$ 
+249,973 
+$ 
+370,032 
+LIABILITIES AND STOCKHOLDERS' EQUITY 
+Current liabilities: 
+Trade accounts payable 
+$ 
+21,053 
+$ 
+36,221 
+Accrued sales commissions 
+833 
+1,393 
+Accrued payroll 
+6,735 
+12,170 
+Other accrued expenses 
+3,381 
+4,066 
+Income taxes payable 
+7,561 
+17,544 
+Total current liabilities 
+39,563 
+71,394 
+Commitments and contingencies (note 8) 
+Stockholders' equity: 
+Common stock, $0.01 par value; authorized 20,000 shares; issued and outstanding 12,588 and 13,004 shares for 2006 and 2007, respectively 
+126 
+130 
+Additional paid-in capital 
+81,761 
+103,659 
+Retained earnings 
+128,130 
+194,567 
+Accumulated other comprehensive income 
+393 
+282 
+Total stockholders' equity 
+210,410 
+298,638 
+Total liabilities and stockholders' equity 
+$ 
+249,973 
+$ 
+370,032 
+See
+accompanying notes to consolidated financial statements. 
+F-4 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+(amounts in thousands, except per share data) 
+Years Ended December 31, 
+2005 
+2006 
+2007 
+Net sales 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Cost of sales 
+153,598 
+163,692 
+241,458 
+Gross profit 
+111,162 
+140,731 
+207,471 
+Selling, general and administrative expenses 
+59,254 
+73,989 
+101,918 
+Impairment loss 
+— 
+15,300 
+— 
+Income from operations 
+51,908 
+51,442 
+105,553 
+Other expense (income), net: 
+Interest income 
+(295 
+) 
+(2,432 
+) 
+(4,855 
+) 
+Interest expense 
+547 
+350 
+768 
+Other, net 
+122 
+172 
+(399 
+) 
+374 
+(1,910 
+) 
+(4,486 
+) 
+Income before income taxes 
+51,534 
+53,352 
+110,039 
+Income taxes 
+20,387 
+22,743 
+43,602 
+Net income 
+$ 
+31,147 
+$ 
+30,609 
+$ 
+66,437 
+Net income per share: 
+Basic 
+$ 
+2.52 
+$ 
+2.45 
+$ 
+5.18 
+Diluted 
+$ 
+2.42 
+$ 
+2.38 
+$ 
+5.06 
+Weighted average common shares: 
+Basic 
+12,349 
+12,519 
+12,835 
+Diluted 
+12,866 
+12,882 
+13,129 
+See
+accompanying notes to consolidated financial statements. 
+F-5 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME 
+(amounts in thousands) 
+Years Ended December 31, 2005, 2006 and 2007 
+Common Stock 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Additional 
+Paid-in 
+Capital 
+Retained 
+Earnings 
+Total 
+Stockholders' 
+Equity 
+Comprehensive 
+Income 
+Shares 
+Amount 
+Balance at December 31, 2004 
+12,183 
+$ 
+122 
+$ 
+71,959 
+$ 
+66,374 
+$ 
+324 
+$ 
+138,779 
+Stock-based compensation expense 
+7 
+— 
+754 
+— 
+— 
+754 
+Stock issued under the employee stock purchase plan 
+43 
+— 
+295 
+— 
+— 
+295 
+Stock issued under stock incentive plan 
+199 
+2 
+1,487 
+— 
+— 
+1,489 
+Excess tax benefit attributable to stock options 
+— 
+— 
+2,293 
+— 
+— 
+2,293 
+Net income 
+— 
+— 
+— 
+31,147 
+— 
+31,147 
+$ 
+31,147 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+(117 
+) 
+(117 
+) 
+(117 
+) 
+Total comprehensive income 
+$ 
+31,030 
+Balance at December 31, 2005 
+12,432 
+124 
+76,788 
+97,521 
+207 
+174,640 
+Stock-based compensation expense 
+8 
+— 
+2,079 
+— 
+— 
+2,079 
+Stock issued under the employee stock purchase plan 
+8 
+— 
+169 
+— 
+— 
+169 
+Exercise of stock options 
+140 
+2 
+1,170 
+— 
+— 
+1,172 
+Excess tax benefit attributable to stock options 
+— 
+— 
+1,555 
+— 
+— 
+1,555 
+Net income 
+— 
+— 
+— 
+30,609 
+— 
+30,609 
+$ 
+30,609 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+94 
+94 
+94 
+Unrealized gain on short-term investments 
+— 
+— 
+— 
+— 
+92 
+92 
+92 
+Total comprehensive income 
+$ 
+30,795 
+Balance at December 31, 2006 
+12,588 
+126 
+81,761 
+128,130 
+393 
+210,410 
+Stock-based compensation expense 
+10 
+— 
+6,554 
+— 
+— 
+6,554 
+Exercise of stock options 
+406 
+4 
+2,274 
+— 
+— 
+2,278 
+Excess tax benefit attributable to stock options 
+— 
+— 
+13,070 
+— 
+— 
+13,070 
+Net income 
+— 
+— 
+— 
+66,437 
+— 
+66,437 
+$ 
+66,437 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+92 
+92 
+92 
+Unrealized loss on short-term investments 
+— 
+— 
+— 
+— 
+(203 
+) 
+(203 
+) 
+(203 
+) 
+Total comprehensive income 
+$ 
+66,326 
+Balance at December 31, 2007 
+13,004 
+$ 
+130 
+$ 
+103,659 
+$ 
+194,567 
+$ 
+282 
+$ 
+298,638 
+See accompanying notes to consolidated financial statements. 
+F-6 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(amounts in thousands) 
+Years Ended December 31, 
+2005 
+2006 
+2007 
+Cash flows from operating activities: 
+Net income 
+$ 
+31,147 
+$ 
+30,609 
+$ 
+66,437 
+Adjustments to reconcile net income to net cash provided by operating activities: 
+Depreciation and amortization of property and equipment 
+2,187 
+2,772 
+3,345 
+Amortization 
+310 
+310 
+171 
+Provision for (recovery of) doubtful accounts, net 
+1,740 
+(1,013 
+) 
+(113 
+) 
+Write-down of inventory 
+4,836 
+3,543 
+3,367 
+Loss (gain) on disposal of property and equipment 
+13 
+(8 
+) 
+(14 
+) 
+Impairment loss on intangible assets 
+— 
+15,300 
+— 
+Deferred tax provision 
+(1,042 
+) 
+(2,827 
+) 
+(3,933 
+) 
+Stock-based compensation 
+754 
+2,079 
+6,554 
+Changes in operating assets and liabilities: 
+Restricted cash 
+— 
+— 
+(1,250 
+) 
+Trade accounts receivable 
+(2,022 
+) 
+(8,875 
+) 
+(22,525 
+) 
+Inventories 
+(7,950 
+) 
+(2,544 
+) 
+(22,768 
+) 
+Prepaid expenses and other current assets 
+127 
+(835 
+) 
+(674 
+) 
+Other assets 
+540 
+(2 
+) 
+(19 
+) 
+Trade accounts payable 
+(2,018 
+) 
+6,547 
+15,168 
+Accrued expenses 
+(1,768 
+) 
+3,112 
+6,817 
+Income taxes payable 
+2,753 
+330 
+10,491 
+Net cash provided by operating activities 
+29,607 
+48,498 
+61,054 
+Cash flows from investing activities: 
+Purchases of short-term investments 
+(37,116 
+) 
+(146,689 
+) 
+(225,371 
+) 
+Proceeds from sales of short-term investments 
+50,091 
+84,644 
+176,135 
+Purchases of property and equipment 
+(4,104 
+) 
+(5,543 
+) 
+(6,385 
+) 
+Proceeds from sale of property and equipment 
+31 
+42 
+54 
+Net cash provided by (used in) investing activities 
+8,902 
+(67,546 
+) 
+(55,567 
+) 
+Cash flows from financing activities: 
+Borrowings under line of credit 
+25,500 
+— 
+— 
+Repayments under line of credit 
+(25,500 
+) 
+— 
+— 
+Excess tax benefits from stock-based compensation 
+— 
+1,280 
+12,562 
+Cash received from issuances of common stock 
+1,784 
+1,341 
+2,278 
+Net cash provided by financing activities 
+1,784 
+2,621 
+14,840 
+Effect of exchange rates on cash 
+77 
+(67 
+) 
+(57 
+) 
+Net change in cash and cash equivalents 
+40,370 
+(16,494 
+) 
+20,270 
+Cash and cash equivalents at beginning of year 
+10,379 
+50,749 
+34,255 
+Cash and cash equivalents at end of year 
+$ 
+50,749 
+$ 
+34,255 
+$ 
+54,525 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+257 
+$ 
+— 
+$ 
+9 
+Income taxes 
+$ 
+18,684 
+$ 
+23,972 
+$ 
+24,293 
+See
+accompanying notes to consolidated financial statements. 
+F-7 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements 
+December 31, 2005, 2006, and 2007 
+(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"). All intercompany balances and transactions have been eliminated in consolidation. 
+The
+Company builds niche products into global lifestyle brands by designing and marketing innovative, functional and fashion-oriented footwear and accessories, developed for both high
+performance outdoor activities and everyday casual lifestyle use. 
+Inventories 
+Inventories, principally finished goods, are stated at the lower of cost (first-in, first-out) or market (net realizable value). Market
+values are determined by historical experience with discounted sales, industry trends and the retail environment. 
+Revenue Recognition 
+The Company recognizes revenue when products are shipped and the customer takes title and assumes risk of loss, collection of relevant receivable is probable,
+persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Allowances for estimated returns, discounts, markdowns, and bad debts are provided for when related revenue
+is recorded. The Company presents revenue net of taxes collected from customers and remitted to governmental authorities. 
+Goodwill and Other Intangibles Assets 
+Intangible assets consist primarily of goodwill, trademarks, patents, and noncompete covenants arising from the application of purchase accounting. Accordingly,
+goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually, as of December 31 of each year, in accordance with Financial
+Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). 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
+evaluates the fair values in relation to the carrying values. As long as the fair value of the reporting unit or indefinite life intangible exceeds its carrying value, no impairment charge will be
+recognized. If the fair value of the reporting unit or indefinite life intangible is less than the carrying value, the Company will measure the amount of the impairment loss and record an impairment
+charge based on fair value, using market value measurements or other valuation techniques. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to
+their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). 
+F-8 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Accounting for Long-Lived Assets 
+In accordance with SFAS 144, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization are reviewed
+for impairment annually or 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. 
+Depreciation and Amortization 
+Depreciation of property and equipment is computed using the straight-line method based on estimated useful lives ranging from one to seven years.
+Leasehold improvements are amortized on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter. 
+Fair Value of Financial Instruments 
+The fair values of the Company's cash and cash equivalents, restricted cash, trade accounts receivable, prepaid expenses and other current assets, trade accounts
+payable, accrued expenses, and income taxes payable approximate the carrying values due to the relatively short maturities of these instruments. 
+Stock Compensation 
+On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, "Share-Based Payment" to account for stock-based
+compensation. Prior to January 1, 2006, the Company accounted for stock-based compensation under the intrinsic value provisions of APB 25, "Accounting for Stock Issued to Employees." 
+Prior
+to January 1, 2006, in accordance with APB 25, the intrinsic value of the nonvested stock units ("NSUs") was recorded to compensation expense over the vesting period.
+Awards with performance conditions were accounted as variable with the intrinsic value remeasured at each reporting date. All NSUs are recorded as equity-based awards under SFAS 123R, whereby
+the fair value of the NSU is calculated based on the closing stock price on the grant date. 
+Prior
+to the adoption of SFAS 123R, the Company presented the tax benefit of stock option exercises as operating cash flows. Upon the adoption of SFAS 123R, tax benefits
+resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. 
+F-9 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Pro Forma Information for Periods Prior to the Adoption of SFAS 123R 
+Pro forma information regarding the effect on net income and basic and diluted income per share for the year ended December 31, 2005, had the Company
+applied the fair value recognition provisions of SFAS 123, is as follows: 
+Year Ended 
+December 31, 2005 
+Net income, as reported 
+$ 
+31,147 
+Add stock-based employee compensation expense included in reported net income, net of tax 
+460 
+Deduct total stock-based employee compensation expense under fair value- based method for all awards, net of tax 
+(1,144 
+) 
+Pro forma net income 
+$ 
+30,463 
+Net income per share: 
+Basic — as reported 
+$ 
+2.52 
+Basic — pro forma 
+$ 
+2.47 
+Diluted — as reported 
+$ 
+2.42 
+Diluted — pro forma 
+$ 
+2.38 
+Use of Estimates 
+Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, net sales, and expenses and the
+disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the U.S. Significant areas requiring
+the use of management estimates relate to inventory reserves, allowances for bad debts, returns, markdowns and discounts, stock-based compensation, impairment assessments and charges, recoverability
+of deferred tax assets, depreciation and amortization, income tax and litigation contingency reserves, fair value of financial instruments, fair value of acquired intangibles, assets and liabilities.
+Actual results could differ from these estimates. 
+Research and Development Costs 
+In accordance with SFAS No. 2, "Accounting for Research and Development Costs," all research and development costs are expensed as incurred. Such costs
+amounted to $1,810, $2,506 and $2,916 in 2005, 2006 and 2007, respectively, and are included in selling, general and administrative expenses in the statement of operations. 
+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 2005, 2006 and 2007 were $10,536, $17,315 and $17,035, respectively. Included in prepaid and other current assets at
+December 31, 2006 and 2007 were $1,222 and $1,005, respectively, primarily related to prepaid advertising and promotion expenses for programs to take place after December 31, 2006 and
+2007, respectively. 
+F-10 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+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. 
+Beginning
+with the adoption of FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109,"
+as of January 1, 2007, 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. Prior to the
+adoption of FIN 48, the Company recognized the effect of income tax positions only if such positions were probable of being sustained. 
+Net Income per Share 
+Basic net income per share represents net income divided by the weighted-average number of common shares outstanding for the period. Diluted net income per share
+represents net income divided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock. For the years ended December 31, 2005,
+2006, and 2007, the difference between the weighted-average number of basic and diluted common shares resulted from the dilutive impact of options to purchase common stock and NSUs. 
+The
+reconciliations of basic to diluted weighted-average common shares are as follows: 
+Year Ended December 31, 
+2005 
+2006 
+2007 
+Weighted-average shares used in basic computation 
+12,349,000 
+12,519,000 
+12,835,000 
+Dilutive effect of stock options and NSUs 
+517,000 
+363,000 
+294,000 
+Weighted-average shares used for diluted computation 
+12,866,000 
+12,882,000 
+13,129,000 
+Options
+to purchase 10,000 shares at $33.10 during 2005 were not included in the computation of diluted net income per share because the options' exercise price was greater than the
+average market price of the common shares during the period, and therefore their inclusion would be anti-dilutive. All options outstanding as of December 31, 2006 and 2007 were
+included in the computation of diluted income per share for 2006 and 2007, respectively. 
+The
+Company excluded 111,000, 76,000 and zero contingently issuable shares of common stock underlying its NSUs, and all of its stock appreciation rights ("SARs") and restricted stock
+units ("RSUs") from the diluted income per share computations for the years ended December 31, 2005, 2006 and 2007, respectively. The shares 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, 2005, 2006 and 2007, respectively. 
+Foreign Currency Translation 
+The Company considers the U.S. dollar as its functional currency. 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 the results of operations as incurred. 
+F-11 
+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 available for sale investments, the Company does not have any transactions and other economic events that qualify as comprehensive income as defined
+under SFAS No. 130, "Reporting Comprehensive Income." 
+Business Segment Reporting 
+Management of the Company has determined its reportable segments as defined under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
+Information" are its strategic business units. The five reportable segments are the Teva, UGG, and Simple wholesale divisions, the eCommerce business and the retail store business. The Company
+performs an annual analysis of its reportable segments under SFAS No. 131. In prior periods, the Company had determined it had four reportable segments, with the eCommerce and retail store
+businesses being combined into one segment, Consumer Direct. The eCommerce and retail store businesses had been combined because under SFAS No. 131, while neither segment met the quantitative
+tests for a reportable segment, they did meet the aggregation tests because they shared a majority of the aggregation criteria. The Company's annual analysis as of December 31, 2007 concluded
+that the eCommerce segment now meets the quantitative tests for a reportable segment and therefore has been separated from the retail store segment. Prior year amounts for 2005 and 2006 have been
+reclassified for the new segment structure. Information related to the Company's business segments is summarized in note 9. 
+Cash Equivalents 
+The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. 
+Short-term Investments 
+Short-term investments are classified as available for sale under the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt
+and Equity Securities." Accordingly, the short-term investments are reported at fair value, with any unrealized gains and losses included as a separate component of stockholders' equity.
+Interest and dividends are included in interest income in the consolidated statements of operations. Securities with original maturities of three months or less are classified as cash equivalents.
+Those that mature over three months from their original date and in less than one year are classified as short-term investments, as the funds are used for working capital requirements. The
+fair values of the Company's short-term investments are shown in the table below. The Company has determined that the decline in fair values included in the table below are temporary, 
+F-12 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+and
+therefore the unrealized losses have not been included in the consolidated statements of operations. 
+December 31, 2006 
+December 31, 2007 
+Cost 
+Unrealized 
+Gains 
+Fair Value 
+Cost 
+Unrealized 
+(Losses) 
+Gains 
+Fair Value 
+Certificates of deposit 
+$ 
+1,999 
+$ 
+— 
+$ 
+1,999 
+$ 
+6,998 
+$ 
+(21 
+) 
+$ 
+6,977 
+Government and agency securities 
+28,675 
+92 
+28,767 
+3,992 
+8 
+4,000 
+Corporate bonds 
+— 
+— 
+— 
+33,558 
+(98 
+) 
+33,460 
+Variable rate demand notes 
+— 
+— 
+— 
+47,830 
+— 
+47,830 
+Auction rate securities/DRDs 
+33,871 
+— 
+33,871 
+21,300 
+— 
+21,300 
+Total 
+$ 
+64,545 
+$ 
+92 
+$ 
+64,637 
+$ 
+113,678 
+$ 
+(111 
+) 
+$ 
+113,567 
+Reclassifications 
+Certain reclassifications have been made to the 2005 and 2006 amounts to conform to the 2007 presentation. 
+New Accounting Standards 
+In September 2006, the FASB issued Statement No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 standardizes the definition and
+approaches for fair value measurements of financial instruments for those standards which already permit or require the use of fair value. It does not
+require any new fair value measurements. SFAS 157 defines a hierarchy for valuation techniques and also requires additional disclosures. The provisions of SFAS 157 are effective for the
+Company as of January 1, 2008. The FASB has deferred the effective date of SFAS 157 only as it relates to fair value measurement requirements for nonfinancial assets and liabilities that
+are not measured at fair value on a recurring basis to fiscal years beginning after December 15, 2008. The Company does not expect the adoption of this statement to have a material effect on
+its consolidated financial statements. 
+In
+February 2007, the FASB issued Statement No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities — Including an
+amendment of FASB Statement No. 115." SFAS 159 provides companies the option to measure many financial instruments and certain other items at fair value. This provides companies the
+opportunity to mitigate volatility in earnings caused by measuring instruments differently without complex hedge accounting provisions. SFAS 159 is effective for the Company beginning
+January 1, 2008. The Company does not expect the adoption of this statement to have a material effect on its consolidated financial statements. 
+In
+December 2007, the FASB issued Statement No. 141 (revised 2007) ("SFAS 141R"), "Business Combinations." The objective of the Statement is to improve the relevance,
+representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R requires
+that all business combinations be accounted for by applying the acquisition method (previously referred to as the purchase method), and most identifiable assets, liabilities, noncontrolling interests,
+and goodwill acquired in business combinations to be recorded at "full fair value." SFAS 141R also broadens the definition of a business and changes the treatment of direct acquisition-related
+costs from being included in the purchase price to instead being generally expensed if they are not costs associated with issuing debt or equity 
+F-13 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+securities.
+SFAS 141R is effective for the Company beginning January 1, 2009, and will be applied prospectively to any new business combination. 
+In
+December 2007, the FASB issued Statement No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB
+No. 51." The objective of the Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial
+statements by establishing accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 specifies that noncontrolling
+interests (previously referred to as minority interests) be reported as a separate component of equity, not as a liability or other item outside of equity, which changes the accounting for
+transactions with noncontrolling interest holders. SFAS 160 is effective for the Company beginning January 1, 2009, and will be applied prospectively to all noncontrolling interests,
+including any that arose before that date. 
+(2) Restricted Cash 
+In January 2007, the Company entered into an escrow agreement by and among Deckers Outdoor Corporation, MacGillivray Freeman Films, Inc., and Comerica
+Bank. The escrow agreement was initiated in conjunction with the Company's purchase obligation with a movie production company for advertising services. As a result of the agreement, the Company has
+$1,250 of restricted cash as of December 31, 2007. Of the total restricted cash, $250 is short-term and is included as a current asset, and the remaining $1,000 is
+long-term and is included as a noncurrent asset in the Company's consolidated balance sheet at December 31, 2007. 
+(3) Retirement Plan 
+Effective August 1, 1992, the Company established a 401(k) defined contribution plan. Substantially all employees are eligible to participate in the plan
+through tax-deferred contributions. Effective January 1, 2007, the Company matches 50% of an employee's contribution up to the greater of $2.4 or 6% of their eligible compensation
+per year. Prior to January 1, 2007, the Company matched 50% of an employee's contribution up to $2.4 per year. Matching contributions totaled $106, $148 and $368 during 2005, 2006 and 2007,
+respectively. In addition, the Company may also make discretionary profit sharing contributions to the plan. However, the Company did not make any profit sharing contributions for the years ended
+December 31, 2005, 2006 or 2007. 
+(4) Property and Equipment 
+Property and equipment is summarized as follows: 
+December 31, 
+2006 
+2007 
+Machinery and equipment 
+$ 
+9,104 
+$ 
+11,789 
+Furniture and fixtures 
+1,476 
+2,465 
+Leasehold improvements 
+6,468 
+7,042 
+Construction in progress 
+— 
+1,000 
+17,048 
+22,296 
+Less accumulated depreciation and amortization 
+9,278 
+11,717 
+Net property and equipment 
+$ 
+7,770 
+$ 
+10,579 
+F-14 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+(5) Notes Payable and Long-Term Debt 
+The Company's revolving credit facility with Comerica Bank (the "Facility") provides for a maximum availability of $20,000. Up to $10,000 of borrowings may be in
+the form of letters of credit. The Facility bears interest at the lender's prime rate (7.25% at December 31, 2007) or, at the Company's option, at the London Interbank Offered Rate, or LIBOR,
+(4.60% at December 31, 2007) plus 1.0% to 2.5%, depending on the ratio of liabilities to earnings before interest, taxes, depreciation and amortization, and is secured by substantially all
+assets. The Facility includes annual commitment fees of $60 per year and expires on June 1, 2009. At December 31, 2007, the Company had no outstanding borrowings under
+the Facility, no foreign currency reserves for outstanding forward contracts and outstanding letters of credit aggregated $78. As a result, $19,922 was available under the Facility at
+December 31, 2007. 
+The
+agreements underlying the Facility contain certain financial covenants including a quick ratio requirement, profitability requirements and a tangible net worth requirement, among
+others, as well as a prohibition on the payment of dividends. 
+(6) Income Taxes 
+Components of income taxes are as follows: 
+Federal 
+State 
+Foreign 
+Total 
+2005: 
+Current 
+$ 
+17,630 
+$ 
+4,848 
+$ 
+(1,049 
+) 
+$ 
+21,429 
+Deferred 
+(1,064 
+) 
+(118 
+) 
+140 
+(1,042 
+) 
+$ 
+16,566 
+$ 
+4,730 
+$ 
+(909 
+) 
+$ 
+20,387 
+2006: 
+Current 
+$ 
+21,239 
+$ 
+4,610 
+$ 
+(279 
+) 
+$ 
+25,570 
+Deferred 
+(2,583 
+) 
+(524 
+) 
+280 
+(2,827 
+) 
+$ 
+18,656 
+$ 
+4,086 
+$ 
+1 
+$ 
+22,743 
+2007: 
+Current 
+$ 
+36,493 
+$ 
+9,207 
+$ 
+1,835 
+$ 
+47,535 
+Deferred 
+(2,695 
+) 
+(630 
+) 
+(608 
+) 
+(3,933 
+) 
+$ 
+33,798 
+$ 
+8,577 
+$ 
+1,227 
+$ 
+43,602 
+Foreign
+income (loss) before income taxes was $3,863, ($3,283) and $7,248 during the years ended December 31, 2005, 2006 and 2007, respectively. 
+F-15 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Actual
+income taxes differed from that obtained by applying the statutory federal income tax rate to earnings before income taxes as follows: 
+Years Ended December 31 
+2005 
+2006 
+2007 
+Computed "expected" income taxes 
+$ 
+18,161 
+$ 
+18,835 
+$ 
+38,526 
+State income taxes, net of federal income tax benefit 
+2,740 
+3,255 
+5,908 
+Other 
+(514 
+) 
+653 
+(832 
+) 
+$ 
+20,387 
+$ 
+22,743 
+$ 
+43,602 
+The
+tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2006 and 2007 are presented
+below: 
+2006 
+2007 
+Deferred tax assets (liabilities), current: 
+Uniform capitalization adjustment to inventory 
+$ 
+716 
+$ 
+1,848 
+Bad debt and other reserves 
+2,825 
+3,916 
+State taxes 
+1,783 
+1,911 
+Prepaid expenses 
+(938 
+) 
+(1,711 
+) 
+Total deferred tax assets, current 
+4,386 
+5,964 
+Deferred tax assets (liabilities), noncurrent: 
+Amortization of intangible assets 
+(1,192 
+) 
+(1,718 
+) 
+Depreciation of property and equipment 
+373 
+1,152 
+Stock option compensation 
+949 
+3,248 
+Net operating loss carryforwards 
+197 
+— 
+Total deferred tax assets, noncurrent 
+327 
+2,682 
+Net deferred tax assets 
+$ 
+4,713 
+$ 
+8,646 
+In
+order to fully realize the deferred tax assets, the Company will need to generate future taxable income of approximately $21,600. The deferred tax assets are primarily related to the
+Company's domestic operations. Domestic taxable income for the years ended December 31, 2006 and 2007 was approximately $58,854 and $72,121, 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 has been recorded in 2006 or 2007. 
+As
+of December 31, 2007, withholding and U.S. taxes have not been provided on approximately $13,296 of unremitted earnings of non-U.S. subsidiaries because the Company
+has currently reinvested these earnings permanently in such operations. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon remittance of dividends. 
+In
+2005, the Company repatriated $3,500 under the terms of the American Jobs Creations Act of 2004 ("AJCA"), resulting in $331 of additional federal and state income taxes on
+repatriation. The 
+F-16 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+AJCA
+provided for a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria were met. 
+In
+July 2006, the FASB issued FIN 48, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or
+expected to be taken in a tax return. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject
+to uncertainty about the
+merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based
+on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax
+positions taken are not offset or aggregated with other positions. 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 with the applicable taxing authority. The portion of the benefits associated with tax positions taken 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. 
+FIN 48
+also provides guidance on the derecognition, classification, accounting in interim periods, and disclosure requirements for uncertain tax positions. The provisions of
+FIN 48 were effective for the Company as of January 1, 2007. There was no cumulative effect of adopting FIN 48 as amounts had been previously accounted for under SFAS
+No. 5, "Accounting for Contingencies." A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows: 
+Balance at January 1, 2007 
+$ 
+1,310 
+Gross increase related to prior year tax positions 
+2,835 
+Gross increase related to current year tax positions 
+745 
+Lapse of statute of limitations 
+(1,302 
+) 
+Balance at December 31, 2007 
+$ 
+3,588 
+The
+amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of the date of adoption and as of December 31, 2007 was $1,310 and $1,869,
+respectively. Also, included in the balance of unrecognized tax benefits at December 31, 2007 is $1,719 that, if recognized, would be recorded as an adjustment to deferred income taxes. Since
+the adoption of FIN 48, the Company has accounted for interest and penalties generated by income tax contingencies as interest expense in the consolidated statements of operations. For the year
+ended December 31, 2007, $256 of interest generated by income tax contingencies has been recognized in the consolidated statements of operations. As of December 31, 2007, $449 of
+interest has been accrued in the consolidated balance sheets. 
+The
+Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S.
+federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2003. The Internal Revenue Service ("IRS") commenced an examination of the Company's U.S.
+income tax return for the year 2004 in the first quarter of 2007 that is anticipated to be completed by the end of the first quarter of 2008. The IRS has indicated that they may propose adjustments to
+certain of the Company's tax positions. Accordingly, as of December 31, 2007 the Company has accounted for such adjustments under FIN 48. 
+F-17 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Management
+does not anticipate the IRS audit will result in a material change to the Company's consolidated financial statements. Accordingly, it is reasonably possible that the Company's unrecognized
+tax benefit could change; however, the Company does not expect any change to be material. 
+(7) Stockholders' Equity 
+The Company's 1993 Stock Incentive Plan, as amended, (the "1993 Plan") provided for 3,000,000 shares of common stock that were reserved for issuance to officers,
+directors, employees, and consultants of the Company. Awards to 1993 Plan participants were not restricted to any specified form which included stock options and NSUs. No stock options were granted
+during the years ended December 31, 2005, 2006 and 2007. The 1993 Plan was terminated in May 2006, and no new awards have been issued under this plan. 
+In
+August 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the "ESPP"). The ESPP was intended to qualify as an Employee Stock Purchase Plan under Section 423 of
+the Internal Revenue Code. Under the terms of the ESPP, as amended, 300,000 shares of common stock were reserved for issuance to employees who had been employed by the Company for at least six months.
+The ESPP provided for employees to purchase the Company's common stock at a discount below market value, as defined by the ESPP. The ESPP was terminated in September 2006, and no new shares have been
+issued under the ESPP after that date. 
+In
+May 2006, the Company adopted the 2006 Equity Incentive Plan, which was amended by Amendment No. 1 dated May 9, 2007 (as amended, the "2006 Plan"). 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 progress. The 2006 Plan provides for
+2,000,000 new 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 1,500,000. The 2006 Plan supersedes the 1993 Plan, which was subsequently terminated for new award grants. 
+The
+Company generally grants NSUs annually to key personnel. The NSUs granted pursuant to the 1993 Plan and the 2006 Plan entitle the employee recipients to receive shares of common
+stock in the Company, which generally vest in quarterly increments between the third and fourth anniversary of the grant. Many of these awards include vesting that is also subject to achievement of
+certain performance targets. 
+In
+May 2007, the Company's Board of Directors, upon recommendation of its Compensation Committee, adopted four new types of long-term incentive award agreements under the
+2006 Plan for issuance to the Company's current and future senior executive officers. The new award types consist of SAR awards and RSU awards. These awards vest subject to certain
+long-term performance objectives and certain long-term service conditions. Provided that these conditions are met, one-half of the SAR and RSU awards vest 80% on
+December 31, 2010 and 20% on December 31, 2011, and one-half of the SAR and RSU awards vest 80% on December 31, 2015 and 20% on December 31, 2016. In accordance
+with SFAS 123R, the Company recognizes expense only for those awards that management deems probable of achieving the performance and service objectives. 
+On
+a quarterly basis, the Company has historically granted 400 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. 
+F-18 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+The table below summarizes stock compensation amounts recognized in the consolidated statements of operations: 
+Year Ended December 31, 
+2005 
+2006 
+2007 
+Compensation expense recorded for: 
+ESPP 
+$ 
+— 
+$ 
+119 
+$ 
+— 
+Stock options 
+— 
+383 
+512 
+NSUs 
+564 
+1,195 
+3,482 
+SARs 
+— 
+— 
+1,375 
+RSUs 
+— 
+— 
+290 
+Directors' shares 
+190 
+382 
+895 
+Total compensation expense 
+754 
+2,079 
+6,554 
+Income tax benefit recognized 
+(294 
+) 
+(867 
+) 
+(2,677 
+) 
+Net compensation expense 
+$ 
+460 
+$ 
+1,212 
+$ 
+3,877 
+In
+the fourth quarter of 2007, one employee's status changed to nonemployee causing a modification of the awards resulting in recognition of the compensation expense equal to the fair
+value of the award at the date of the modification for 3,000 unvested stock options and 10,000 nonvested stock units.
+Accordingly, the Company recognized $235 and $1,184 of compensation expense in 2007 for these stock options and NSUs, respectively. Under the terms of the agreement, the vesting provisions remained
+unchanged. 
+The
+table below summarizes the total remaining unrecognized compensation cost related to nonvested awards and the weighted-average period over which the cost is expected to be recognized
+as of December 31, 2007: 
+Unrecognized 
+Compensation 
+Cost 
+Weighted-Average 
+Remaining Vesting Period (Years) 
+NSUs 
+$ 
+4,019 
+2.0 
+SARs 
+6,495 
+3.2 
+RSUs 
+1,369 
+3.2 
+Total 
+$ 
+11,883 
+A
+summary of the activity under the 1993 Plan and 2006 Plan as of December 31, 2005, 2006 and 2007 and changes during the period are presented below. 
+F-19 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Summary Details for 1993 Plan Share Options 
+Number 
+of Shares 
+Weighted- 
+Average 
+Exercise 
+Price 
+Weighted- 
+Average Remaining Contractual 
+Term (Years) 
+Aggregate 
+Intrinsic 
+Value 
+Outstanding at December 31, 2004 
+890,000 
+$ 
+7.62 
+6.6 
+$ 
+35,040 
+Granted 
+— 
+— 
+Exercised 
+(199,000 
+) 
+7.48 
+Forfeited or expired 
+(63,000 
+) 
+12.71 
+Outstanding at December 31, 2005 
+628,000 
+$ 
+7.16 
+5.4 
+$ 
+12,852 
+Granted 
+— 
+— 
+Exercised 
+(140,000 
+) 
+8.39 
+Forfeited or expired 
+(22,000 
+) 
+11.54 
+Outstanding at December 31, 2006 
+466,000 
+$ 
+6.59 
+3.9 
+$ 
+24,896 
+Granted 
+— 
+— 
+Exercised 
+(406,000 
+) 
+5.62 
+Forfeited or expired 
+— 
+— 
+Outstanding at December 31, 2007 
+60,000 
+$ 
+12.97 
+5.2 
+$ 
+8,490 
+Exercisable at December 31, 2007 
+60,000 
+$ 
+12.97 
+5.2 
+$ 
+8,490 
+As
+of December 31, 2007, all options are vested. The Company did not grant any stock options in 2005, 2006 or 2007. The total intrinsic value of options exercised during the years
+ended December 31, 2005, 2006 and 2007, was $5,671, $3,875 and $33,300, respectively. 
+Nonvested Stock Units Issued Under the 1993 Plan and 2006 Plan 
+Number 
+of Shares 
+Weighted- 
+Average 
+Grant-Date 
+Fair Value 
+Nonvested at January 1, 2006 
+156,000 
+$ 
+30.76 
+Granted 
+98,000 
+53.18 
+Vested 
+— 
+— 
+Forfeited 
+(15,000 
+) 
+24.57 
+Nonvested at December 31, 2006 
+239,000 
+40.36 
+Granted 
+3,000 
+63.06 
+Vested 
+— 
+— 
+Forfeited 
+(3,000 
+) 
+40.30 
+Nonvested at December 31, 2007 
+239,000 
+$ 
+40.64 
+During
+the year ended December 31, 2006, the Company granted 84,000 NSUs under the 2006 Plan and the remaining NSUs under the 1993 Plan. During the year ended December 31,
+2007, all NSUs were granted under the 2006 Plan. 
+F-20 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Stock Appreciation Rights Issued Under the 2006 Plan 
+Number 
+of Shares 
+Weighted- 
+Average 
+Exercise 
+Price 
+Weighted- 
+Average Remaining Contractual 
+Term (Years) 
+Aggregate 
+Intrinsic 
+Value 
+Outstanding at January 1, 2007 
+— 
+$ 
+— 
+$ 
+— 
+Granted 
+450,000 
+80.20 
+Exercised 
+— 
+— 
+Forfeited 
+(50,000 
+) 
+80.20 
+Outstanding at December 31, 2007 
+400,000 
+$ 
+80.20 
+11.8 
+$ 
+29,944 
+Exercisable at December 31, 2007 
+— 
+$ 
+— 
+— 
+$ 
+— 
+Expected to vest and exercisable at December 31, 2007 
+156,000 
+$ 
+80.20 
+9.3 
+$ 
+11,678 
+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. As of December 31, 2007,
+the Company did not believe that the achievement of the performance objectives for the SARs awards with final vesting dates of December 31, 2016 was probable. Therefore, 200,000 of the total
+outstanding SARs were not expected to vest as of December 31, 2007. Additionally, 44,000 of the SARs awards with final vesting dates of December 31, 2011 were estimated to be forfeited
+due to failure to meet certain long-term service conditions and were consequently excluded from the expected to vest number above. 
+For
+the SARs that are expected to vest on December 31, 2010 and December 31, 2011, the per share fair value of SARs granted was $50.40 on the date of grant using the
+Black-Scholes pricing model with the following weighted-average assumptions: expected dividend yield of 0%, expected stock volatility of 59.0%, risk-free interest rate of 4.6%, and an
+expected life of 6.9 years. 
+Restricted Stock Units Issued Under the 2006 Plan 
+Number 
+of Shares 
+Weighted-Average 
+Grant-Date 
+Fair Value 
+Nonvested at January 1, 2007 
+— 
+$ 
+— 
+Granted 
+60,000 
+80.20 
+Vested 
+— 
+— 
+Forfeited 
+(7,000 
+) 
+80.20 
+Nonvested at December 31, 2007 
+53,000 
+$ 
+80.20 
+The
+number of RSUs expected to vest is based on the probability of achieving certain performance conditions and is also reduced by estimated forfeitures. As of December 31, 2007,
+the Company did not believe that the achievement of the performance objectives for the RSUs awards with final vesting dates of December 31, 2016 was probable. Therefore, 27,000 of the total
+outstanding RSUs were not expected to vest as of December 31, 2007. Additionally, 5,000 of the RSUs awards with final vesting dates of December 31, 2011 were estimated to be forfeited
+due to expected failure to meet certain long-term service conditions and were consequently excluded from the expected to vest number. Accordingly, the Company expected 21,000 RSUs to vest as of
+December 31, 2007. 
+F-21 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+The Company adopted a stockholder rights plan in 1998 to protect stockholders against unsolicited attempts to acquire control of the Company that do not offer
+what the Company believes to be an adequate price to all stockholders. As part of the plan, the board of directors of the Company declared a dividend of one preferred share purchase right (a "Right")
+for each outstanding share of common stock, par value $0.01 per share (the "Common Shares"), of the Company. The dividend was payable to stockholders of record on December 1, 1998 (the "Record
+Date"). In addition, one Right shall be issued with each Common Share that becomes outstanding (i) between the Record Date and the earliest of the Distribution Date, the Redemption Date, and
+the Final Expiration Date (as such terms are defined in the Rights Agreement) or (ii) following the Distribution Date and prior to the Redemption Date or Final Expiration Date, pursuant to the
+exercise of stock options or under any employee plan or arrangement or upon the exercise, conversion, or exchange of other securities of the Company, which options or securities were outstanding prior
+to the Distribution Date, in each case upon the issuance of the Company's common stock in connection with any of the foregoing. Each Right entitles
+the registered holder to purchase from the Company one one-hundredth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share, of the Company, at a
+price of $50.00, subject to adjustment. The Rights have no voting power and expire on November 11, 2008. The Company may redeem the Rights for $0.01 per right until the Right becomes
+exercisable. 
+(8) Commitments and Contingencies 
+The Company leases office, distribution and retail facilities under operating lease agreements, which expire through September 2017. Many of the leases contain
+renewal options for approximately 3 to 5 years. Future minimum commitments under the lease agreements are as follows: 
+Year ending December 31: 
+2008 
+$ 
+7,210 
+2009 
+8,131 
+2010 
+7,388 
+2011 
+7,238 
+2012 
+6,793 
+Thereafter 
+6,613 
+$ 
+43,373 
+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. Total rent expense for the years ended December 31, 2005, 2006 and 2007 was approximately $2,989, $3,776 and $5,509, respectively. 
+F-22 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+The
+Company has $87,008 of outstanding purchase orders with its manufacturers as of December 31, 2007. In addition, the Company has entered into agreements for promotional
+activities. Future commitments under these purchase orders and other agreements are as follows: 
+Year ending December 31: 
+2008 
+$ 
+87,583 
+2009 
+625 
+2010 
+625 
+2011 
+525 
+2012 
+525 
+$ 
+89,883 
+As
+disclosed in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2006, the Company has certain tax obligations to authorities in China
+for one of the Company's foreign subsidiaries, Holbrook Limited, a Hong Kong company. The Company has paid certain amounts against these obligations and has also negotiated certain reductions of
+previously accrued amounts. In accordance with SFAS No. 5, "Accounting for Contingencies," as of December 31, 2007, management has determined the aggregate range of the remaining
+liability for such matters to be approximately $3,000 to $4,000. Management has determined that there is no amount within this range that is more likely to occur than any other, accordingly the lower
+end of the expected range has been accrued in current liabilities. The range of the remaining liability may continue to change in future periods as a result of negotiations with the taxing authorities
+and the accrual of penalties and interest charges that may continue to be incurred through settlement. Because these matters relate in part to employment related tax matters, there is a level of
+subjectivity utilized in the interpretation of the application of tax and employment related laws and regulations. Accordingly, the amounts as ultimately negotiated and settled may differ from the
+Company's estimates. 
+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. The Company indemnifies its licensees, distributors and certain promotional partners in connection with claims alleging
+use of the Company's licensed intellectual property. The terms of the agreements range up to five years initially and 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 is not currently involved in any indemnification matters in regards to its intellectual property. 
+(9) 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, except that the Company
+does not allocate interest, income taxes, non-operating income and expenses or certain unusual items to segments. The Company evaluates segment performance based on net sales and income or
+loss from operations. The Company's reportable segments include the strategic business units responsible for the worldwide wholesale operations of each of its 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 
+F-23 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+sales.
+The income 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, marketing, sales, commissions, bad debts, depreciation, amortization and the costs of employees and their respective expenses that are directly related to each business segment.
+The unallocated corporate overhead costs are the shared costs of the organization and include the following: costs of the distribution centers, information technology, human resources, accounting and
+finance, credit and collections, executive compensation, legal, and facilities costs, among others. The operating income derived from the sales to third parties of the eCommerce segment and the retail
+store segment is separated into two components: (i) the wholesale profit is included in the operating income of each of the three brands, and (ii) the retail profit is included in the
+operating income of the eCommerce segment and the retail store segment. 
+In
+prior years, eCommerce and retail stores were one reportable segment, Consumer Direct. The 2005 and 2006 figures presented below show the breakdown of the Consumer Direct segment into
+the 2007 format of two reportable segments, eCommerce and retail stores. 
+F-24 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Business
+segment information is summarized as follows: 
+2005 
+2006 
+2007 
+Net sales to external customers: 
+Teva wholesale 
+$ 
+80,446 
+$ 
+75,283 
+$ 
+82,003 
+UGG wholesale 
+150,279 
+182,369 
+291,908 
+Simple wholesale 
+6,980 
+10,903 
+11,163 
+eCommerce 
+25,912 
+28,886 
+45,473 
+Retail stores 
+1,143 
+6,982 
+18,382 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Income (loss) from operations: 
+Teva wholesale* 
+$ 
+22,270 
+$ 
+3,829 
+$ 
+21,121 
+UGG wholesale 
+48,535 
+72,908 
+119,193 
+Simple wholesale 
+(846 
+) 
+(2,472 
+) 
+(2,077 
+) 
+eCommerce 
+6,995 
+8,774 
+14,502 
+Retail stores 
+(23 
+) 
+1,180 
+3,194 
+Unallocated overhead 
+(25,023 
+) 
+(32,777 
+) 
+(50,380 
+) 
+$ 
+51,908 
+$ 
+51,442 
+$ 
+105,553 
+Depreciation and amortization: 
+Teva wholesale 
+$ 
+459 
+$ 
+484 
+$ 
+527 
+UGG wholesale 
+72 
+76 
+221 
+Simple wholesale 
+45 
+56 
+127 
+eCommerce 
+143 
+149 
+142 
+Retail stores 
+13 
+168 
+369 
+Unallocated overhead 
+1,765 
+2,149 
+2,130 
+$ 
+2,497 
+$ 
+3,082 
+$ 
+3,516 
+Capital expenditures: 
+Teva wholesale 
+$ 
+185 
+$ 
+590 
+$ 
+56 
+UGG wholesale 
+263 
+84 
+473 
+Simple wholesale 
+29 
+60 
+305 
+eCommerce 
+143 
+110 
+172 
+Retail stores 
+343 
+1,830 
+1,861 
+Unallocated overhead 
+3,141 
+2,869 
+3,518 
+$ 
+4,104 
+$ 
+5,543 
+$ 
+6,385 
+Total assets from reportable segments: 
+Teva wholesale 
+$ 
+70,840 
+$ 
+78,612 
+UGG wholesale 
+62,227 
+93,554 
+Simple wholesale 
+4,181 
+5,648 
+eCommerce 
+271 
+491 
+Retail stores 
+3,139 
+5,413 
+$ 
+140,658 
+$ 
+183,718 
+* Included
+in Teva income from operations in 2006 is an impairment loss of $15,300 (see note 11). 
+F-25 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+The assets allocable to each reporting segment generally include accounts receivable, inventory, intangible assets and certain other assets that are specifically
+identifiable with one of the Company's business segments. Unallocated corporate assets are the assets not specifically related to one of the segments and generally include the Company's cash and cash
+equivalents, short-term investments, deferred tax assets, and various other assets shared by the Company's segments. 
+Reconciliations
+of total assets from reportable segments to the consolidated financial statements are as follows: 
+2006 
+2007 
+Total assets from reportable segments 
+$ 
+140,658 
+$ 
+183,718 
+Unallocated deferred tax assets 
+4,713 
+8,646 
+Other unallocated corporate assets 
+104,602 
+177,668 
+Consolidated total assets 
+$ 
+249,973 
+$ 
+370,032 
+The
+Company sells its footwear products principally to customers throughout the U.S. The Company also sells its footwear products to foreign customers located in Europe, Canada,
+Australia, Asia, and Latin America among other regions. International sales were 13.3%, 12.6% and 13.9% of the Company's total net sales for the years ended December 31, 2005, 2006 and 2007,
+respectively. The Company does not consider international operations a separate segment, as management reviews such operations in the aggregate with the aforementioned segments. 
+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.
+One customer accounted for 15.8%, 16.7% and 17.0% of the Company's net sales in 2005, 2006 and 2007, respectively. This customer's revenues are generated from the UGG, Teva and Simple wholesale
+segments. No other customer accounted for more than 10% of net sales in the years ended December 31, 2005, 2006 or 2007. As of December 31, 2006 and 2007, the Company had one customer
+representing 31.5% and 34.2% of net trade accounts receivable, respectively. 
+As
+of December 31, 2007, approximately $11,951 of trademarks and $466 of goodwill were held in Bermuda by a subsidiary of the Company. Substantially all other
+long-lived assets were held in the U.S. 
+The
+Company's production and sourcing is concentrated in China, New Zealand and Australia, with the vast majority of its production at six independent contractor factories in China. The
+Company's operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties, and related fees, various import controls and
+other nontariff
+barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability. 
+F-26 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+(10) Quarterly Summary of Information (Unaudited) 
+Summarized unaudited quarterly financial data are as follows: 
+2006 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+56,004 
+$ 
+41,721 
+$ 
+82,322 
+$ 
+124,376 
+Gross profit 
+24,609 
+18,946 
+37,056 
+60,120 
+Net income* 
+5,468 
+2,530 
+10,380 
+12,231 
+Net income per share: 
+Basic 
+$ 
+0.44 
+$ 
+0.20 
+$ 
+0.83 
+$ 
+0.97 
+Diluted 
+$ 
+0.43 
+$ 
+0.20 
+$ 
+0.81 
+$ 
+0.95 
+2007 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+72,575 
+$ 
+52,730 
+$ 
+129,381 
+$ 
+194,243 
+Gross profit 
+33,417 
+21,689 
+58,715 
+93,650 
+Net income 
+9,451 
+2,267 
+19,330 
+35,389 
+Net income per share: 
+Basic 
+$ 
+0.75 
+$ 
+0.18 
+$ 
+1.49 
+$ 
+2.72 
+Diluted 
+$ 
+0.73 
+$ 
+0.17 
+$ 
+1.47 
+$ 
+2.69 
+* Included
+in net income in the quarter ended December 31, 2006 is an impairment loss of $15,300 (see note 11). 
+(11) Goodwill and Other Intangible Assets 
+The Company's goodwill and other intangible assets are summarized as follows: 
+Gross 
+Carrying 
+Amount 
+Weighted 
+Average 
+Amortization 
+Period 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+As of December 31, 2006 
+Amortizable intangible assets 
+$ 
+1,752 
+6 years 
+$ 
+1,235 
+$ 
+517 
+Nonamortizable intangible assets: 
+Trademarks 
+35,852 
+Goodwill 
+18,030 
+$ 
+55,634 
+As of December 31, 2007 
+Amortizable intangible assets 
+$ 
+1,752 
+6 years 
+$ 
+1,503 
+$ 
+249 
+Nonamortizable intangible assets: 
+Trademarks 
+35,852 
+Goodwill 
+18,030 
+$ 
+55,634 
+F-27 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+In
+accordance with SFAS 142, the Company performed its annual impairment test of nonamortizable intangible assets using market value approaches and valuation techniques as of
+December 31, 2006 and 2007, and determined that there was no impairment of goodwill as of December 31, 2006 and 2007. However, as of December 31, 2006, the Company concluded that
+the fair value of the Teva trademarks was less than the carrying amount and accordingly, the Company recorded an impairment charge of $15,300 in the fourth quarter of 2006. The method used to
+determine the fair value of the trademarks was a royalty relief method using discounted cash flows to determine future royalty revenue and expenses. The impairment loss for 2006 is included in a
+separate line item within income from operations, and as a part of the Teva reportable segment. There was no such impairment in 2007. 
+Aggregate
+amortization expense for amortizable intangible assets using the straight-line amortization method for the years ended December 31, 2005, 2006 and 2007 was
+$310, $310 and $268, respectively. Estimated amortization expense for existing intangible assets for future periods is: $129 in 2008, $120 in 2009 and $0 thereafter. 
+(12) Licensing 
+The Company selectively licenses its brand names in product categories beyond footwear. As of December 31, 2007, the Company had two licensing agreements
+for Teva brand products, including U.S. licenses for men's and women's headwear and socks and a Canadian sportswear license. The Company also has several licensing agreements for UGG brand products,
+specifically for handbags and other small leather goods, outerwear and cold weather accessories. 
+For
+several of its initial licensing arrangements, the Company used BHPC Global Licensing, Inc. ("BHPC"), a full service licensing agency, to identify candidates and coordinate
+its licensing business. The Company paid BHPC an agency fee on license income related to the licensing agreements that BHPC coordinated on its behalf. BHPC was 50% owned by one of the Company's former
+directors, Daniel L. Terheggen. The Company paid BHPC until April 2007, when Mr. Terheggen sold his interest in BHPC and the Company began to pay American Heritage Apparel, which was also 50%
+owned by Mr. Terheggen. Beginning November 2007, the Company began paying Weebairn, Inc., which is 50% owned by Mr. Terheggen. 
+In
+2005, 2006 and 2007, the Company paid BHPC approximately $118, $79 and $34 in agency fees, respectively, and the unpaid balance to BHPC at December 31, 2006 and 2007 was $56
+and $0, respectively. The Company paid American Heritage Apparel approximately $22 during 2007 and there was no unpaid balance to American Heritage Apparel at December 31, 2007. The Company
+paid Weebairn, Inc. approximately $5 in 2007 and the unpaid balance to Weebairn, Inc. at December 31, 2007 was $56. 
+The
+Company recognizes license income upon shipment of the products by the licensees and records a corresponding fee to the licensing agency for the underlying shipments. License income,
+net of any fees to the licensing agency, is included in net sales in the accompanying statement of operations. Management believes that the terms entered into are at arms-length and that
+such terms are comparable to those with third parties. 
+F-28 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+(13) Related Party Transactions 
+In 1993, the Company and Douglas B. Otto, Chairman of the Board, entered into a split dollar life insurance arrangement, whereby the Company participated in a
+portion of the life insurance premiums paid through 2001. The arrangement provided that Mr. Otto's estate would reimburse the Company for all premiums previously paid. In 2005, Mr. Otto
+reimbursed the Company for all premiums paid on his behalf. The Company carried the value of the life insurance policy at its cash surrender value, which was lower than the amount of premiums paid on
+the policy. As a result, the Company recognized a gain of $260 in 2005 upon settlement and receipt of the reimbursement. 
+Refer
+also to the discussion of BHPC, American Heritage Apparel and Weebairn, Inc. in note 12. 
+F-29 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION AND QUALIFYING ACCOUNTS 
+Three Years Ended December 31, 2005, 2006 and 2007 
+Balance at 
+Beginning of 
+Year 
+Additions 
+Deductions 
+Balance at 
+End of 
+Year 
+Year ended December 31, 2005: 
+Allowance for doubtful accounts(1) 
+$ 
+1,796 
+$ 
+1,596 
+$ 
+818 
+$ 
+2,574 
+Allowance for sales discounts(2) 
+1,485 
+7,368 
+7,143 
+1,710 
+Allowance for sales returns(3) 
+1,731 
+13,304 
+12,170 
+2,865 
+Markdown allowance(4) 
+825 
+410 
+— 
+1,235 
+Year ended December 31, 2006: 
+Allowance for doubtful accounts(1) 
+$ 
+2,574 
+$ 
+(1,054 
+) 
+$ 
+785 
+$ 
+735 
+Allowance for sales discounts(2) 
+1,710 
+8,600 
+7,808 
+2,502 
+Allowance for sales returns(3) 
+2,865 
+6,419 
+7,666 
+1,618 
+Markdown allowance(4) 
+1,235 
+220 
+210 
+1,245 
+Year ended December 31, 2007: 
+Allowance for doubtful accounts(1) 
+$ 
+735 
+$ 
+(113 
+) 
+$ 
+243 
+$ 
+379 
+Allowance for sales discounts(2) 
+2,502 
+15,126 
+14,410 
+3,218 
+Allowance for sales returns(3) 
+1,618 
+12,730 
+10,661 
+3,687 
+Markdown allowance(4) 
+1,245 
+(130 
+) 
+44 
+1,071 
+(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. Deductions are the actual write offs of the receivables. In 2006 and 2007, additions were negative because the Company collected on accounts that were deemed to be potentially
+uncollectible as of December 31, 2005 and 2006, respectively.
+(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 markdown allowance represent chargebacks taken in the respective year as well as an estimation of chargebacks related to sales in the respective reporting period
+that will be taken subsequent to the respective reporting period. Deductions are the actual markdowns written off against outstanding accounts receivable. 
+See
+accompanying report of independent registered public accounting firm. 
+F-30 
+QuickLinks 
+DECKERS OUTDOOR CORPORATION For the Fiscal Year Ended December 31, 2007 Table of Contents to Annual Report on Form 10-K 
+PART I 
+Item 1. Business. 
+Item 1A. Risk Factors. 
+Risks Relating To Our Business 
+Risks Related to Our Industry 
+Risks Relating to Our Common Stock 
+Item 1B. Unresolved Staff Comments. 
+Item 2. Properties. 
+Item 3. Legal Proceedings. 
+Item 4. Submission of Matters to a Vote of Security Holders. 
+PART II 
+Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+STOCKHOLDER RETURN PERFORMANCE PRESENTATION 
+DIVIDEND POLICY 
+Item 6. Selected Financial Data. 
+Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 
+FORWARD-LOOKING STATEMENTS 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 
+Item 8. Financial Statements and Supplementary Data. 
+Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 
+Item 9A. Controls and Procedures. 
+Item 9B. Other Information. 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance. 
+Item 11. Executive Compensation. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 
+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+Item 14. Principal Accounting Fees and Services. 
+PART IV 
+Item 15. Exhibits, Financial Statement Schedules. 
+SIGNATURES 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Report of Independent Registered Public Accounting Firm 
+Report of Independent Registered Public Accounting Firm 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands, except par value) 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (amounts in thousands) 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2005, 2006, and 2007 (amounts in thousands, except share quantity and per share data) 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 2005, 2006 and 2007
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..666efe1fe2a3a75b7ff98d6df5f3cb5222a66270
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+++ b/raw/filings/0000910521/2007/0001047469-08-002087/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000910521,DECK,DECKERS OUTDOOR CORP,10-K,2008-02-29,2007-12-31,2008-02-29T21:42:56.000Z,0001047469-08-002087,a2183018z10-k.htm,10-K,1076651,0,0,https://www.sec.gov/Archives/edgar/data/910521/000104746908002087/a2183018z10-k.htm,https://www.sec.gov/Archives/edgar/data/910521/000104746908002087/,2007,2007,1
diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/item1.txt b/raw/filings/0000910521/2007/0001047469-08-002087/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4637c804bd9c055232c359e89543b9ae7b1c97f7
--- /dev/null
+++ b/raw/filings/0000910521/2007/0001047469-08-002087/item1.txt
@@ -0,0 +1,492 @@
+Item 1. Business. 
+Unless otherwise specifically indicated, all dollar amounts herein are expressed in thousands, except for weighted-average wholesale prices per pair and suggested
+retail prices for our footwear and accessories. 
+General 
+We are a leading designer, producer and brand manager of innovative, high-quality footwear and the category creator in the sport sandal, luxury
+sheepskin, and sustainable footwear segments. Our footwear is distinctive and appeals broadly to men, women and children. We sell our products, including accessories such as handbags, headwear, packs
+and outerwear, through quality domestic retailers and international distributors and directly to end-user consumers through our websites, catalogs, 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
+market our products under three proprietary brands: 
+Teva®. Teva is our outdoor performance and lifestyle brand and pioneer of the sport sandal market. The Teva brand was
+founded in the
+1980s to serve the demanding footwear needs of the professional river guide. This authentic heritage and commitment to function and performance remain core elements of the Teva brand. The Teva product
+line has expanded to include casual open-toe and closed-toe footwear, including adventure travel shoes, outdoor cross training shoes, trail running shoes, amphibious footwear,
+light hikers and other rugged outdoor footwear styles and accessories. 
+From
+1985 until November 2002, we sold our Teva products under a license agreement with the brand's founder, Mark Thatcher. In November 2002, we acquired all of the Teva worldwide
+assets, including the Teva eCommerce business and all patents, trade names, trademarks and other 
+3 
+intellectual
+property associated with the acquired Teva assets, which we refer to collectively as the Teva Rights. We acquired the Teva Rights from Mr. Thatcher and his wholly-owned
+corporation, Teva Sport Sandals, Inc. 
+In
+recent seasons, we have focused on strengthening Teva's leadership position in the performance sandal market, and broadening that performance platform to include other outdoor
+activities such as trail running and light hiking. In 2008, we are introducing Teva's first complete line of fall and winter footwear. In the future, we intend to selectively expand our activity in
+the outdoor performance and lifestyle arenas. 
+UGG® UGG Australia is our luxury comfort brand and the category creator for luxury sheepskin footwear. The UGG brand has
+enjoyed several
+years of strong growth and positive consumer
+reception, driven by consistent introductions of new styles, introductions of UGG brand products in the fall and spring seasons and geographic distribution expansion. We carefully manage the
+distribution of our UGG brand products within high-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 luxury brand. 
+The
+UGG brand gained brand recognition in the U.S. beginning in 1979 and was adopted as a favored brand by the California surf community. We acquired the UGG brand in 1995 and have
+carefully repositioned the brand as a luxury comfort collection sold through high-end retailers. In recent years, sales of UGG brand products have benefited from significant national media
+attention and celebrity endorsement through our marketing programs and product placement activities, raising the profile of UGG as a luxury comfort brand. We intend to further support the UGG brand's
+market positioning by expanding the selection of styles available in order to build consumer interest in our UGG brand collection. We also remain committed to limiting distribution of UGG brand
+products to high-end retail channels. 
+Simple®. Simple Shoes began in 1991 as an alternative to all the over-built, over-priced, and
+over-hyped products in the marketplace. The brand's legacy was built on its original sneaker design, the Old School Sneaker, and grew to include successful sandal and casual products. In
+2005, as a response to the massive amount of waste produced by the footwear industry, the Simple brand launched a new collection of sustainable footwear called Green Toe®. Green Toe
+represents a revolutionary shift in thinking about footwear by building a shoe from the inside out using sustainable materials and processes. The Simple brand's mission is to be the world leader in
+sustainable footwear and accessories. We feel that how we make Simple products is just as important as why we make them. That means our goal is to find more sustainable and innovative ways of doing
+business as well as making products. We are committed to making Simple products 100% sustainable; thus, minimizing the ecological footprint left on the planet. 
+Through
+continued innovation, expansion of product offerings, premium distribution and strategic marketing initiatives, we have successfully developed three premier lifestyle brands. Our
+total net sales increased by 47.5% from $304,423 in 2006 to $448,929 in 2007, and our income from operations increased by 105.2% from $51,442 in 2006, which included a $15,300 impairment loss on our
+Teva trademarks, to $105,553 in 2007. For 2007, wholesale shipments of Teva, UGG and Simple products aggregated $82,003, $291,908 and $11,163, respectively, and represented 18.3%, 65.0% and 2.5% of
+our total net sales, respectively. Sales of our brands through our eCommerce division and our retail store division, which are in addition to our wholesale shipments, were $45,473 and $18,382,
+respectively, representing 10.1% and 4.1%, respectively, of total net sales in 2007. 
+History 
+Deckers was founded by Doug Otto in 1973 as a domestic manufacturer of sandals. We originally manufactured a single line of sandals under the Deckers brand name
+in a small factory in Carpinteria, 
+4 
+California.
+Since then, we have grown through the development and licensing of proprietary technology, targeted marketing and selective acquisitions. In 1985, we entered into our first license
+agreement for Teva sport sandals with Teva's founder, Mark Thatcher. In 1986, we developed the Universal Strapping System, establishing Teva as the sport sandal category-creator and generating
+significant national attention for the Teva brand. 
+Deckers
+experienced a period of rapid growth during the late 1980s and completed our initial public offering in 1993. As our sales grew, we terminated our manufacturing operations in the
+U.S., Mexico and Costa Rica, and today independent manufacturers in China and New Zealand manufacture all of our footwear products for us. We maintain our own offices in China and Macau to monitor the
+operations of our manufacturers in China. 
+In
+order to diversify our sales, and leverage our product development and sourcing capabilities, we completed the acquisition of the Simple brand from its founder in a series of
+transactions between 1993 and 1996. In 1995, we acquired the UGG brand from its founders, after which we initiated a repositioning of the line, focusing on comfort, luxury and premium distribution
+channels and developing products that appeal to consumers in a variety of climates. 
+Business Strategies 
+We seek to differentiate our brands by offering diverse lines that emphasize authenticity, functionality, quality and comfort and products tailored to a variety
+of activities, seasons and demographic groups. Key elements of our business strategies are: 
+Building Leading Global Brands. Our mission is to build niche footwear lines into global brands with
+market leadership positions. Our Teva, UGG and Simple brands began as footwear lines appealing to a narrow core enthusiast market. We have since built these lines into substantial global lifestyle
+brands with potential for further growth and line extensions. Across our brands, our styles remain true to the brands' heritage but have been selectively extended over time to broaden their appeal to
+men, women and children seeking high quality, comfortable styles for everyday use. Furthermore, we actively manage our brands to ensure that we reach brand appropriate retail distribution channels. We
+believe that
+building our brand image is best accomplished through a decentralized management structure that empowers a single brand manager for each brand to coordinate all aspects of brand image, from product
+development to marketing and retail channel management. 
+Sustaining Brand Authenticity. We believe our ability to increase sales, sustain strong gross
+margins, and maintain market share results, in part, from the appeal of our brand heritage. We believe that Teva footwear consumers are passionate and serious about the outdoors. Our Teva brand
+marketing programs focus on performance of our products, and feature national advertising in outdoor-oriented media as well as sponsorship of outdoor events and professional athletes. These efforts
+reinforce the Teva brand's heritage and positioning as a highly technical, performance-oriented outdoor footwear brand. Our UGG brand marketing strategy positions our products as a premium, luxury
+collection but also as functional footwear; UGG brand products are primarily marketed through national print advertising in major magazines and through our retailers and their catalogs and
+advertising. Historically, our marketing for UGG brand products has been focused on women, but with the recent introduction of innovative men's styles, we are increasing our marketing appeal to men
+through advertisements in national men's magazines with a continued focus on lifestyle and comfort. We promote our Simple brand by emphasizing that we make fun, casual, comfortable and sustainable
+footwear. Our goal for the Simple brand is to create a dialogue with the consumer through all communication vehicles and to show people that sustainability is an emerging lifestyle for everyone, not
+just environmentally conscious individuals. Our print advertising campaigns for our Simple brand include national publications and alternative weekly publications in select cities around the world. We
+also have an online advertising campaign that reaches consumers through websites that focus on 
+5 
+sustainability
+as well as pop culture. In 2007, we also sponsored environmental-themed concerts, film festivals, and green expos to showcase and tell the sustainable lifestyle brand story. 
+Driving Demand Through Innovation and Technical Leadership. We believe our reputation for innovation
+and technical leadership distinguishes our products from those of our competitors and provides us with significant competitive advantages. Just as our proprietary Universal Strapping System set the
+performance standard for sport sandals in the mid-1980s, more recent technical advances like our Spider Rubber® and our Teva Wraptor®,
+Wraptor-Lite®, and Drain Frame™ which we introduced in 2007, all provide uncompromised performance for the new outdoor athlete. We also continue to develop
+innovative styles, products and product categories for our UGG collection in order to support the UGG brand's positioning as a functional lifestyle brand, which can be worn in a variety of climates
+and weather conditions. The UGG brand has benefited from our continuing expansion into non-boot casuals, sheepskin-trimmed footwear and styles combining sheepskin with
+fine-grade suede and leathers, all designed to expand our market share in new categories and increase our sales in both the fall and spring selling seasons. The goal of the Simple brand is
+to revolutionize the footwear industry by producing 100% sustainable products. We believe that consumers are increasingly interested in living an environmentally friendly lifestyle and seeking out
+sustainable products. We are at the forefront of the industry in using new sustainable materials, such as bamboo, organic cotton, natural latex and cork combinations, recycled car tires, and recycled
+PET (from plastic water bottles) throughout our product line. The Simple brand will continue to innovate with the goal of achieving 100% sustainability in design, development, and material
+applications. 
+Maintaining Efficient Development and Production Processes. We believe our product development
+processes enable us to produce leading edge products on a timely and a cost effective basis. We design our products domestically. We maintain on-site supervisory offices in Pan Yu City,
+China and Macau that serve as local links to our independent manufacturers in China. This enables us to carefully monitor the production process, from receipt of the design brief to production of
+interim and final samples to 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. 
+Growth Strategies 
+Our growth will depend upon our broadening of the products offered under each brand, expanding domestic and international distribution, licensing our brand names
+and developing or acquiring new brands. Specifically, we intend to: 
+Introduce New Categories and Styles under Existing Brands. We intend to increase our sales by
+developing and introducing additional footwear products under our existing brands that meet our high standards of performance, practicality, authenticity, comfort and quality. We have expanded the
+open-toe footwear category under our Teva brand by launching new casual and performance styles, as well as several new sandal styles that provide increased foot coverage and protection. We
+have also introduced several closed-toe performance styles and collections, including amphibious footwear, light hikers, trail runners and outdoor cross trainers. We plan to further expand
+into the casual outdoor footwear market, which, in the aggregate, is considerably larger than the market for the Teva brand's core sport sandals. We have expanded our UGG product collection to
+incorporate additional styles and fabrications in order to further penetrate the fall, spring and winter seasons. We have expanded our men's and kids' product line and have introduced a
+cold-weather series featuring sheepskin, waterproof eVent uppers and Vibram outsoles. Our UGG brand has enhanced its Spring 2008 collection by introducing new fashion comfort categories
+for men, women and children. In response to the positive market reaction to espadrilles that our UGG brand introduced in 2007, we expanded that category as well with new styles and new heel heights. 
+6 
+As
+the sustainability lifestyle movement is reaching the mainstream market, our goal for the Simple brand is to lead the industry through new product innovations and pursue new solutions
+to make our business practices more sustainable. The influence of our Green Toe collection, products made primarily from sustainable materials, is seen throughout the entire Simple product line,
+especially in our sneaker segment with the introduction of ecoSNEAKS™ in 2007. We also expanded our kids' and infants' collection with Green Piggies™. This collection of
+products follows the same guidelines as Green Toe. We round out the entire lifestyle of the Simple brand with our bag
+collection, which we launched in the 2006 holiday season and expanded in 2007. By introducing new categories under our brands, in particular, the closed-toe footwear under our Teva brand
+and the spring product offerings under our UGG brand, we believe we will expand the selling seasons for our brands with the goal of increasing sales and creating a more balanced year round business
+for each of these brands. 
+Expand Domestic Distribution. We believe that we have significant opportunities to increase our sales
+by expanding domestic distribution of our products. Our Teva brand has historically been distributed through the outdoor specialty, sporting goods and department store retail channels. In addition, we
+see the potential for expansion into the athletic specialty and running specialty sales channels, with strategic and focused product and marketing programs. The UGG brand originally realized a
+substantial portion of its sales in California. Today, we have a more balanced business, increasing our business significantly in the Midwest and North East. For our Simple line, we are focusing
+distribution on specialty independent retailers, department stores, outdoor retailers, and surf shops for our broad product offering, as well as the introduction into the health and wellness retail
+channel through our Green Toe offering of ecologically friendly footwear. We also plan to expand through internet sales, as consumers have continued to increase their reliance on the internet for
+footwear and other purchases. Further, we currently plan to open one additional retail outlet store and two additional UGG brand concept stores in major metropolitan areas by the end of 2008. 
+Expand International Distribution. In 2007, our international net sales totaled $62,336, representing
+approximately 13.9% of total net sales, an increase of 62.6% compared to 2006. The majority of our international sales occurred in Europe, with the remainder primarily in Asia, Canada and Latin
+America. In addition to our existing European regional office in London, during 2007 we opened a regional office in Hong Kong. To ensure we continue to drive growth and effectively implement our
+international strategies, we also strengthened our international team with a primary focus on sales and marketing, as well as sales operations and customer service. 
+We
+intend to further strengthen our international infrastructure to ensure optimum results with both short and long-term goals in mind. We will continue to work closely with
+our distributors on the effective management of our business objectives and brand strategies. In addition to our existing retail distribution, we plan to explore additional avenues to make our
+products available to international consumers, including the expansion of our business through internet sales and the potential opening of stand-alone brand stores as appropriate opportunities arise,
+particularly in the case of UGG Australia. 
+Pursue Licensing of Brands in Complementary Product Lines. We are actively pursuing selective
+licensing of our brand names in product categories beyond footwear. Previously, we introduced UGG brand licensed handbags, outerwear, and cold weather accessories for the domestic market and expanded
+into select international markets, beginning with handbags. In 2006, we launched our cold weather accessories and outerwear licenses internationally. We also restructured our domestic Teva product
+licensing program, which currently consists of headwear, bags and packs. In December 2007, we entered into our first licensing agreement for our Simple brand as a licensee for the Collegiate Licensing
+Company. Our Simple brand will be licensing the Collegiate Licensing Company trademarks on its Toe Foo and Retire footwear styles to select U.S. universities. We intend to introduce these licensed
+products to the market in Fall 2008. We are developing additional licensing programs carefully to ensure that licensed goods remain consistent with our brands' heritage and image. Because this 
+7 
+licensing
+strategy is in its early stages, and due to the lead times required to bring the products to market, we have only recently begun to recognize license revenues, and we do not expect
+significant incremental net sales and profits from licensing in the near future. 
+Build New Brands. We continue to explore ways to expand the number of brands that we manage. We have
+been successful previously in identifying entrepreneurial concepts for innovative, fashionable footwear targeted at niche markets and building these concepts into viable brands utilizing our expertise
+in product development, production and marketing. We intend to continue to identify and build or acquire new brands that demonstrate potential for significant future growth. 
+Products 
+Our primary product lines are: 
+Teva Performance Outdoor Footwear. We believe there has been a general shift in consumer preferences
+and lifestyles to include more outdoor recreational activities, including light hiking, trail running, outdoor cross training, bouldering, kayaking, kite boarding and whitewater river rafting. These
+consumers typically seek footwear specifically designed with the same quality and high performance attributes they have come to expect from traditional athletic footwear. The first Teva sport sandal
+was developed in the 1980s to meet the demanding needs of professional river rafting guides navigating the Colorado River and the rugged Grand Canyon terrain. As our core consumers' pursuits have
+evolved, we have retained our outdoor heritage while adding new products to our line, including slides, thongs, amphibious footwear, trail running shoes, light hiking boots and other rugged
+closed-toe footwear. Our brand remains popular among professional and amateur outdoor athletes seeking authentic, performance-oriented footwear, as well as among general footwear consumers
+seeking high quality, durable and comfortable styles for everyday use. 
+We
+market Teva products as the brand of GO.DO.BE®. This captures the lifestyle of the new outdoor athlete. The Go, the Do, and the Be each have their own unique properties
+and perspectives. Individually, they are elements of the outdoor experience. Together, they form the fabric of the outdoor lifestyle. 
+Go. The Go product collection represents versatile, rugged, and comfortable footwear for travel, leisure, and light activities.
+Styles range from
+classic Teva sandal architecture to more compelling, contemporary designs. 
+Do. The Do product collection is technical, lightweight footwear, engineered for the performance needs of the new outdoor
+athlete. Many styles
+include one or more of our proprietary performance technologies, such as the Wraptor Fit System, Spider Rubber traction technology, or Drain Frame technology. 
+Be. The Be product collection is inspired by the laid-back attitude of life on the beach. Designs are simple, yet distinctive,
+with a
+premium on comfort. The styles are young, fresh and colorful for any casual lifestyle. 
+We
+introduced several new Teva products in 2007, and we plan to introduce new styles for men, women and children in the future. Our kids' product collection is a fun, colorful assortment of sandals,
+closed-toe, and amphibious styles for a variety of outdoor and water-based activities. The manufacturer's suggested domestic retail prices for adult sizes of the Spring 2008 Teva product
+collections range from $22.00 to $110.00. 
+UGG Footwear. Beginning in 1979, the UGG brand gained recognition in the U.S. for sheepskin boots and
+slippers and was later widely used by the California surf community. We acquired the brand in 1995 and expanded the collection, offering consumers a luxurious and distinctive look in sheepskin
+fabrications. 
+8 
+Our UGG product line comprises seven footwear collections, each of which includes styles for men, women and children: 
+Classic Collection. We offer a complete line of sheepskin boots built on the heritage and distinctive look of our first product,
+the Classic
+sheepskin boot. Our Classic Collection products are distinctive in styling, featuring an array of neutral and fashion colors. 
+Ultra Collection. The Ultra Collection builds upon the heritage of the original Ultra boot. These boots are designed with our
+comfort system,
+featuring a multi-surfaced rugged bottom with a heel-cushioning insert that offers enhanced traction, support and comfort. Our Ultra Collection also features a three-part
+insole designed to provide all-day comfort and support and a reflective barrier that captures body heat to create a natural foot warming mechanism. Our sheepskin products are naturally
+thermostatic, keeping feet comfortable across a wide range of temperatures. 
+Fashion Collection. Our Fashion Collection offers fashion forward styles for women, men, and children without compromising
+comfort. Luxurious
+materials and trend-influenced styles make this collection stand out. Within this collection is a fashion wedge group, a stacked high heel group for women, a European influenced collection for men,
+and fashionable styles for children. 
+Casual Collection. This collection features refined, sophisticated styles for men, women, and children. These footwear styles
+include suede and glove
+leather uppers, lined in a thinner insole of sheepskin for added comfort. Styles from the men's collection feature an interchangeable leather insole that allows them to be worn either with or without
+socks. 
+Surf Collection. This collection is taken from the laid-back surf lifestyle that was the original heritage of the brand. The
+Surf
+Collection features true comfort style including sandals, clogs, and boots that incorporate a thin layer of sheepskin for luxury and comfort. 
+Cold Weather Collection. This collection is designed with more rugged styling and features Vibram outsoles and waterproof eVent
+uppers designed to
+withstand colder, wetter climates. 
+Slipper Collection. Our Slipper Collection builds upon the UGG brand's reputation for comfort, warmth and luxury and is offered
+in a wide selection
+of styles and colors. 
+We
+have expanded our UGG brand collection from the Classic and Ultra sheepskin boot and slippers to a broader footwear line for men, women and children in a variety of styles, colors and
+materials designed for wear in a variety of climates and occasions. Over the last few years, our line expansion, distribution and high end marketing strategies, among other factors, have resulted in
+significantly increased exposure for our UGG brand products and have contributed to the growth of the UGG brand's year round business. The manufacturer's suggested domestic retail prices for adult
+sizes for the Fall 2008 UGG brand product collections range from $60.00 to $350.00. 
+Simple Sustainable Footwear. Finding the materials and processes that make our products sustainable
+is a method we call "the Green Toe process" and we measure our progress with a scale called "Good, Better, Best". The Best category represents our most sustainable shoes and bags and sets the bar for
+the rest of the line. Only the Best products may bear the Green Toe label. In the future, we plan to incorporate these same innovative materials and constructions in the Good and Better categories,
+raising the bar for the Best products. 
+Men's and Women's Green Toe. Part of the Best category, Green Toe products represent our efforts to reduce the ecological
+footprint left by shoes.
+Green Toe products are primarily made of sustainable materials like bamboo, jute, organic cotton, linen, coconut buttons, cork, crepe, latex, recycled car tires, and water based adhesives. This line
+includes sandals, loafers, mary janes, oxfords and boots. 
+9 
+Men's and Women's ecoSNEAKS. ecoSNEAKS are vulcanized sneakers that use old car tire outsoles, recycled PET for footbeds and
+shoelaces and organic
+cotton, thus leaving a better ecological footprint than ordinary sneakers. 
+Kids' Product. Our Kids' product line is made up of ecoSNEAKS and Green Piggies. Green Piggies is a kids' and infants' product
+collection that
+represents the brand's best ecological efforts through material and construction innovation. It uses materials such as organic cotton, hemp, and wool felt. 
+Bags. Our sustainable bag collection includes messenger bags, backpacks, totes and laptop sleeves. These are made from materials
+such as organic
+cotton, jute, hemp, coconuts and PET. 
+The
+manufacturer's suggested retail prices for our Simple brand product collections range from $24.00 to $90.00 and our Simple brand bags are priced from $20.00 to $100.00. 
+Sales and Distribution 
+We distribute our products in the U.S. through a dedicated network of approximately 47 independent sales representatives. 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, we have 10 employee sales representatives who serve as territory
+representatives or key account executives for several of our largest customers. Products made under license agreements are sold primarily through the same retail channels as our footwear product
+offerings. Our licensing agreements generally give us the right to terminate the license if specified sales targets are not achieved. 
+Until
+mid-2005, our sales force was divided into two teams, one for Teva products and one for UGG and Simple products, as the UGG and Simple brands are generally sold through
+non-outdoor specialty and non-sporting goods distribution channels and are targeted toward a different consumer than our Teva brand. Beginning in mid-2005, however,
+we began to split the Simple and UGG brands' sales forces into two distinct groups to provide the Simple brand with its own dedicated sales function to improve its sales efforts and resources. While
+there is still some overlap between the sales teams, we have now established separate dedicated sales forces for each of our three brands. Each brand's respective sales manager recruits and manages
+his or her network of sales representatives and coordinates sales to national accounts. We believe this approach for the U.S. market maximizes the selling efforts to our national retail accounts on a
+cost-effective basis. 
+Internationally,
+we distribute our products through over 30 independent distributors in over 20 countries. During 2007, we commenced new distributor relationships for one or more
+of our brands in Scandinavia, France, China, Korea and Canada. In 2008, we plan to further develop our brands and increase our business in the key markets of the UK, Germany, Scandinavia, France,
+China, Japan, Korea and Canada. We will continue to analyze opportunities in the developing market economies of India, Russia and Latin America. 
+Our
+principal customers include specialty retailers, selected department stores, outdoor retailers, sporting goods retailers and shoe stores. Our five largest customers accounted for
+approximately 27.6% of our net sales for 2006, compared to 30.4% for 2007. One customer, Nordstrom, accounted for greater than 10% of our consolidated net sales in 2006 and 2007. 
+Teva. We sell our Teva products primarily through specialty outdoor sporting goods and department
+store retailers such as REI, Eastern Mountain Sports, L.L. Bean, Dick's Sporting Goods, The Sports Authority, Nordstrom, and Dillard's. 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 retailers who appreciate and can fully market the technical
+attributes of our products to the consumer best sell our Teva products. 
+10 
+UGG. We sell our UGG brand products primarily through high-end department stores such as
+Nordstrom, Neiman Marcus and Bloomingdale's, as well as independent specialty retailers such as Journey's, David Z. and Sport Chalet. 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 brand products. 
+Simple. Our Simple products are targeted primarily towards select department stores, outdoor
+specialty accounts, independent specialty retailers, surf shops, and health and wellness retailers that target consumers seeking comfortable, high quality, and sustainable footwear. These include key
+accounts such as Nordstrom, Dillard's, REI, Whole Earth Provision, Hobie Sports and Whole Foods Market. 
+We
+distribute products sold in the U.S. through our distribution centers in Ventura, California and in Camarillo, California. Our distribution centers feature an inventory management
+system that enables us to efficiently pick and pack products for direct shipment to retailers and distributors across the world. 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. 
+eCommerce. We acquired our eCommerce business as part of the acquisition of the Teva Rights in
+November 2002. The eCommerce business enables us to reach consumers through internet sales under the Teva.com, UGGAustralia.com and SimpleShoes.com internet addresses as well as through direct
+mailings for our UGG brand products under our catalog business. Our mailing list includes approximately 670,000 consumers who have purchased at least once in the past 36 months. Our eCommerce
+business is headquartered in Flagstaff, Arizona and order fulfillment is performed by our
+wholesale distribution centers in Ventura and Camarillo, California in order to reduce the cost of order cancellation, minimize out of stock positions and further leverage our distribution center
+occupancy costs. 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 store business allows us to directly reach our customers and meet the
+growing demand for our products through our two UGG brand concept stores and our five retail outlet stores. In 2007, we opened one new retail outlet store in Woodbury, New York as well as an UGG brand
+concept store in Chicago, Illinois. Products sold through our concept stores are sold at prices which approximate department store prices, enabling us to capture the full retail margin on each direct
+to consumer transaction. 
+Marketing and Advertising 
+Our brands are generally advertised and promoted through a variety of consumer print advertising 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 incurred approximately $10,536, $17,315 and
+$17,035 in advertising, marketing and promotional expenses in 2005, 2006 and 2007, respectively. 
+Teva. We use the following marketing methods to promote the Teva brand: 
+• targeted
+print advertising;
+• sponsorship
+of a variety of events and competitions, such as the annual Teva Mountain Games in Vail, Colorado;
+• sponsorship
+of athletes and teams, such as the Teva Whitewater Team and the Teva U.S. Mountain Running Team; 
+11 
+• preferred
+buyer programs to professional river guides, kayakers, mountain bikers, rock climbers, and other outdoor athletes;
+• product
+seeding with various athletes and trendsetters; and
+• in-store
+promotions with key accounts. 
+We
+market the Teva brand through the placement of print advertisements in leading outdoor magazines such as Outside, National Geographic Adventurer,
+Backpacker and Canoe and Kayak. As we have introduced new sub-categories and collections, we have broadened our
+advertising presence to reach new consumers. For example, we advertise our performance trail running shoes in Runner's World, Trail Runner and Running Times, among other publications. To support our casual lines, we advertise in more mainstream publications such as Women's Health , Men's Journal and
+Yoga Journal .
+The
+Teva brand is rooted in outdoor lifestyle pursuits such as river rafting, kayaking, bouldering, mountain biking, kite boarding, hiking and trail running. We sponsor outdoor events in
+the U.S. including the Teva Mountain Games at Vail, Colorado, the Teva Vail Trail Running Series and the Santa Cruz Surf Kayak Festival in Santa Cruz, California, among others. Internationally, our
+distributors sponsor outdoor events in France, Switzerland and Italy in order to increase our brand visibility to the European outdoor consumer. We are also the presenting sponsor of MacGillivray
+Freeman's new three dimensional documentary IMAX film, " Grand Canyon Adventure, River at Risk " scheduled to be released in IMAX theaters in March 2008.
+We believe our sponsorship activity in these areas links the Teva brand with its outdoor heritage and generates increased product exposure and brand awareness. 
+We
+also sponsor some of the world's best male and female professional and amateur athletes across several outdoor sports. Our Teva promotional team attends events across the U.S. The
+promotions team showcases Teva products at events and provides consumers with the opportunity to see and sample our latest styles. We believe by outfitting and sponsoring these highly visible athletes
+and teams, we create brand and product awareness among our targeted consumers. 
+UGG. We seek to build upon the success of our UGG brand's national print advertising campaign. We
+currently advertise in upscale national magazines such as Vogue, Teen Vogue, Glamour, Vanity Fair, and O
+Magazine. UGG Australia also began men's focused advertising with its 2005 campaign, including print advertising in Outside, Men's Vogue,
+GQ, and Surfer. We believe such advertising is an effective means to target our intended consumers and to convey the comfort and
+luxury of UGG brand products. We also benefit from editorial coverage of the UGG brand collection through numerous
+articles that have appeared in such magazines as Glamour, InStyle, Cosmopolitan, Marie Claire, People, US Weekly, Maxim, Shape, Self, O Magazine and Real Simple. In 2003, Footwear News, a leading industry trade publication, awarded UGG Australia "Brand of the Year." In 2004, UGG was awarded "Brand of
+the Year" by Footwear Plus, another leading trade publication, and was recognized with the ACE Award for the "it" accessory of the year by the
+Accessories Council. International exposure has also expanded with features in leading fashion publications like Vogue Japan, Elle Japan, Marie Claire
+UK, and Vogue UK. 
+We
+also actively seek to place UGG brand products at selected events. In collaboration with our distributor in Switzerland, we produced a special edition UGG brand cold weather boot
+featuring a matching red-outsole for the entire 2006 Swiss Olympic Team. We believe this product placement further strengthened the consumer's image of UGG brand products as high quality,
+luxurious sheepskin goods well-suited for use in cold weather. 
+We
+also have improved visibility of the UGG brand through placement of the product in selected television shows and feature films. UGG brand products have appeared on numerous television
+shows, including Entourage, The Sopranos, Gilmore Girls, The Oprah Winfrey Show, The King of Queens, Still Standing, Will and Grace, Men in Trees, The OC, The George Lopez
+Show, Jeopardy and Saturday Night 
+12 
+Live. Our marketing efforts have also resulted in UGG brand product appearances in several recent feature films. In addition, the UGG brand has been embraced by Hollywood
+celebrities, who are often seen and photographed wearing UGG brand boots. We believe our target consumer identifies with celebrities and that greater exposure further heightens awareness of the brand
+and stimulates sales. 
+Simple. We believe that our consumers are looking for brands that do more than their part to ensure
+that the world we all share is respected and cared for. Our commitment to produce and market our products in a sustainable manner reflects our consumers' commitment to purchase products made in the
+same fashion. We will continue to establish the brand as a leader in sustainable footwear through our marketing initiatives. This year was the first year the Simple brand introduced a national print
+advertising campaign targeted at various demographic groups, which included print ads targeted at the ecologically-minded consumer through magazines like RollingStone, Vanity
+Fair, Outside, Surfer, and Surfing. We also benefit from print and television editorial coverage of the Simple brand collection.
+In addition, we target online consumers through sustainability websites like Treehugger.com. We will continue to advertise on TheOnion.com, which complements our Onion print campaign in key markets.
+In addition, we are active on Pitchforkmedia.com, a popular independent-focused online music publication. 
+In
+2007, we sponsored environmental-themed concerts, film festivals, and green expos to show our leadership in sustainable footwear. Our most successful events in 2007 were Jack
+Johnson's Kokua Festival in Hawaii and the Green Festivals in Washington, DC and Chicago. Earth Day 2007 was also a major focus for the brand. We were present at several local Earth Day celebrations
+in key markets such
+as San Francisco, New York, Boulder, Austin and Santa Barbara. Our Earth Day promotions are supported with local advertising, community outreach and extensive press coverage. 
+We
+also marketed the Simple brand through our dedicated website, SimpleShoes.com. We will continue to ensure that the consumer can visit our website and have the ultimate brand
+experience. We experienced a substantial increase in traffic on our website in 2007, demonstrating that our marketing is resonating positively with the consumer. 
+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 of our brands is performed by a combination of our internal design and development staff plus outside design firms. By introducing outside firms to the
+design process, 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. 
+To
+ensure that high performance technical products continue to satisfy the requirements of the Teva brand's historical consumer base of performance-oriented "core enthusiasts," our
+design staff solicits input from our Teva Whitewater Team athletes, our Teva U.S. Mountain Running Team and other professional outdoor athletes, as well as several of our key retailers. We regularly
+add new innovations, components and styles to our product line in response to their input. For example, for 2007, our proprietary Wraptor technology was incorporated into performance watersport and
+trail running shoes, and light hikers. In addition, for specific traction and durability requirements, we have added variations of our proprietary Spider Rubber compound which now includes Original
+Spider Rubber, a sticky, non-slip rubber outsole material for use across wet and dry terrain; SSR, a super sticky rubber compound for use specifically in extreme water conditions to
+provide superior grip on smooth wet surfaces, like rocks, fiberglass, and raft rubber; and Spider XC, an off-road hybrid rubber compound that combines the non-slip traction of
+Spider Rubber with durability for use in both wet and dry conditions. 
+13 
+Our
+UGG and Simple products are designed to appeal to consumers seeking our distinctive and innovative styling. We strive to be a leader in product uniqueness and appearance by regularly
+updating our UGG and Simple lines, which also generates further awareness and interest in the UGG and Simple collections. In our UGG line, we have successfully evolved the product offering over the
+last few years from its original sheepskin heritage to a diverse collection of luxury and comfort styles suited for a variety of climates and seasons. The evolution of our Simple line has resulted in
+new categories
+for the brand, including the recent introduction of the first successful sustainable footwear in our Green Toe collection. We believe that our commitment to become 100% sustainable makes Simple a
+leader in sustainable footwear and accessories. We believe our ability to incorporate up-to-date styles while remaining true to our heritage, combined with the
+performance-oriented features that consumers have come to expect, results in continued enthusiasm for our brands in the marketplace. 
+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 for their 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 our consumers demand. Throughout the development process, members of the design staff coordinate with our domestic and overseas product development, manufacturing and
+sourcing personnel toward a common goal of developing and producing a high quality product to be delivered on a timely basis. 
+Manufacturing 
+We do not manufacture our products; we outsource the manufacturing of our Teva, Simple and UGG brand footwear to independent manufacturers in China. We also
+outsource the manufacturing of a portion of our UGG brand footwear to independent manufacturers in New Zealand. We require our independent contract manufacturers and designated suppliers to adopt our
+Factory Charter, 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. 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
+on-site supervisory offices in Pan Yu City, China and Macau that serve as local links 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, many 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 outsource our
+manufacturing requirements on the basis of individual purchase orders 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 from Australia and the
+U.S. We maintain constant communication with the tanneries to monitor the supply of sufficient high quality 
+14 
+sheepskin
+available for our projected UGG brand footwear production. To ensure adequate supplies for our manufacturers, we forecast our usage of top grade sheepskin one year in advance at a forward
+price. We believe current supplies are sufficient to meet our needs in the near future, but we continue to search for alternate suppliers in order to accommodate any unexpected future growth. 
+Our
+Simple brand continues to innovate the design, development and production of sustainable footwear through the sourcing of environmentally friendly materials. With the global trend of
+companies embracing the sustainable green movement in materials, the sourcing and availability of these materials may be impacted in the near future. Strong relationships are being established with
+suppliers, and we are developing strategies to keep supply chain needs fulfilled for the future. 
+We
+have instituted pre-production and post-production inspections to meet or exceed the high quality demanded by 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 U.S. distribution centers. 
+Patents and Trademarks 
+We now hold more than 50 utility and design patents and registrations in the U.S. and abroad and have filed for approximately 20 new patents which are currently
+pending. We also currently hold trademark registrations for Teva, UGG, Simple and other marks in the U.S. and in many other countries, including the countries of the European Union, Canada, Japan and
+Korea. We regard our proprietary rights as valuable assets and vigorously protect such rights against infringement by third parties. 
+Seasonality 
+Our business is seasonal, with the highest percentage of Teva brand net sales occurring in the first and second quarters of each year and the highest percentage
+of UGG brand net sales occurring in the third and fourth quarters of each year. To date, the Simple brand has not had a seasonal impact on the Company. With the dramatic growth in UGG brand product
+sales in recent years, net sales in the last half of the year have exceeded that for the first half of the year. Given our expectations for each of our
+brands in 2008, we currently expect this trend to continue. Nonetheless, actual results could differ materially depending upon consumer preferences, availability of product, competition and our
+customers continuing to carry and promote our various product lines, among other risks and uncertainties. See Part I, Item 1A, "Risk Factors." 
+Backlog 
+Historically, we have encouraged our customers to place, and we have received, a significant portion of orders as preseason orders, generally four to eight months
+prior to shipment date. We provide customers with price incentives 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 and 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. 
+15 
+Competition 
+The casual, outdoor, athletic and fashion footwear markets are highly competitive. We compete with numerous domestic and foreign footwear designers, manufacturers
+and marketers. Our Teva brand primarily competes with Nike, Adidas-Salomon, Timberland, Merrell, Chaco, Reef, Columbia Sportswear, Crocs and Keen. Our UGG brand footwear line primarily competes with
+Emu, Merrell, Acorn, Aussie Dogs, LB Evans and Timberland, as well as retailers' own private label footwear. In addition, due to the popularity of our UGG brand products, we face increasing
+competition from a significant number of competitors selling "knock-off" products. Our Simple line primarily competes with Vans, Converse, Sanuk, Merrell, Keen, Patagonia, and Earth. 
+Our
+three footwear lines compete primarily on the basis of brand recognition and authenticity, product quality and design, functionality, performance, fashion appeal and price. Our
+ability to successfully compete depends on our ability to: 
+• shape
+and stimulate consumer tastes and preferences by offering innovative, attractive and exciting products;
+• anticipate
+and respond to changing consumer demands in a timely manner;
+• maintain
+brand authenticity;
+• develop
+high quality products that appeal to consumers;
+• appropriately
+price our products;
+• provide
+strong and effective marketing support; and
+• ensure
+product availability. 
+We
+believe we are particularly well positioned to compete in the footwear industry. Our diversified portfolio of footwear brands and products allows us to operate a business that does
+not depend on any one demographic group, merchandise preference or product trend. We have developed a portfolio of brands that appeals to a broad spectrum of consumers. 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, 2007, we employed approximately 370 employees in our U.S. facilities including retail stores and approximately 50 employees located in the
+Far East and the U.K., none of whom were represented by a union. We believe our relationships with our employees are good. 
+16 
+Financial Information about Segments and Geographic Areas 
+Our five reportable business segments include the strategic business units responsible for the worldwide wholesale operations of each of our
+brands — Teva, Simple and UGG wholesale divisions, as well as our eCommerce and retail store businesses. In prior periods, the Company had determined it had four reportable
+segments, with the eCommerce and retail store businesses being combined into one segment, Consumer Direct. The following table shows our domestic and international revenues for each of the years ended
+December 31, 2005, 2006 and 2007. 
+Years Ended December 31, 
+2005 
+2006 
+2007 
+Net sales by location: 
+U.S. 
+$ 
+229,487 
+$ 
+266,092 
+$ 
+386,593 
+International 
+35,273 
+38,331 
+62,336 
+Total 
+$ 
+264,760 
+$ 
+304,423 
+$ 
+448,929 
+Refer
+to note 9 to our accompanying consolidated financial statements for further discussion of our business segment data and our long-lived assets that are
+attributable to our domestic versus international operations. 
+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 Securities and Exchange Commission (the "SEC"): annual reports on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K and any amendment 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 450 Fifth Street, NW, Washington,
+DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains an internet site
+that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is
+www.sec.gov . 
+17
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diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/item13.txt b/raw/filings/0000910521/2007/0001047469-08-002087/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..aab58ccef5f8d677951164e29c498f22259cb398
--- /dev/null
+++ b/raw/filings/0000910521/2007/0001047469-08-002087/item13.txt
@@ -0,0 +1,4 @@
+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 2008 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, 2007, and such information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/item9a.txt b/raw/filings/0000910521/2007/0001047469-08-002087/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c5b09833eb3a3a309495993c2baed00e5bda9f49
--- /dev/null
+++ b/raw/filings/0000910521/2007/0001047469-08-002087/item9a.txt
@@ -0,0 +1,44 @@
+Item 9A. Controls and Procedures. 
+(a) Disclosure Controls and Procedures. 
+Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that
+the Company files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's
+rules and forms. 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 Chief Executive Officer and Chief 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 Chief Executive Officer and the Chief Financial Officer, of the
+effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
+the Chief Executive Officer and Chief Financial Officer believe that as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in making known
+to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this 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 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 U.S. generally accepted accounting principles (GAAP). A company's internal control over
+financial reporting includes policies and procedures that: 
+• pertain
+to the maintenance of records that, in reasonable detail, accurately and fairly reflect the detail, transactions and dispositions of the assets of the Company;
+• 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 the directors of the Company; and
+• 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 Company's consolidated financial statements. 
+Because
+of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. 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, 2007. 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. 
+54 
+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, 2007, the Company maintained effective internal control over financial reporting. 
+(c) Changes in Internal Control over Financial Reporting 
+During the fourth fiscal quarter, the Company completed the implementation of additional internal controls over financial reporting, including changing the
+oversight and supervision of its subsidiary accounting personnel to the Company's Assistant Controller, implementing controls to confirm the accurate determination and timely remittance of the China
+subsidiary's taxes due and inclusion of the China subsidiary in the scope of the annual Sarbanes-Oxley section 404 internal control evaluation. Additional measures may be forthcoming as we
+evaluate the effectiveness of these efforts.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/rp_note.txt b/raw/filings/0000910521/2007/0001047469-08-002087/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2007/0001047469-08-002087/rpt_disclosure.txt b/raw/filings/0000910521/2007/0001047469-08-002087/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f8bc950f03f19333283354726fe0efffb08f36b2
--- /dev/null
+++ b/raw/filings/0000910521/2007/0001047469-08-002087/rpt_disclosure.txt
@@ -0,0 +1,29 @@
+Certain Relationships and Related Transactions 
+The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our
+directors, executive officers,
+certain of our shareholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material interest. In order to
+identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire which includes
+questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of interest where an individual's
+private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or appear to
+impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of
+directors, the Board. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the Company's anonymous reporting
+hotline and may be subsequently obtained by the Audit Committee Chair, the Chair of the Board and the chief audit executive. 
+If
+a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange
+Commission regulations, our Board is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Board members apply the
+same standards of good faith and fiduciary duty they apply to their general responsibilities as the Board and as individual directors. The Board may approve a related person transaction when, in its
+good faith judgment, the transaction is in the best interests of the Company. 
+There
+were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2008 or currently
+proposed. 
+Limitation of Liability and Indemnification of Directors and Officers 
+Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now
+or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in
+which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. 
+We
+have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as
+amended. 
+36 
+We maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in
+connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them
+by reason of their being or having been directors or officers.
\ No newline at end of file
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index 0000000000000000000000000000000000000000..ba26166de875362b3e1b7d59fd61383518efb28f
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+Item 1. Business. 
+Unless otherwise specifically indicated, all amounts in Item 1. and Item 1A. herein are expressed in thousands, except
+for share quantity, per share data, selling prices, and employees. 
+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 
+3 
+Table of Contents 
+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 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, expanding
+domestic and international distribution, successfully opening new retail stores, increasing sales to end-user 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 is owned 51% by Deckers and 49% by Stella International. Stella International is also one of our major manufacturers in China. In May 2008,
+we acquired 100% of the ownership interest of TSUBO, LLC, a high-end casual footwear brand. In March 2009, we acquired 100% of the ownership interest of Ahnu, Inc., an
+outdoor performance and lifestyle footwear brand. 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. 
+On
+May 28, 2010, we announced that our Board of Directors authorized a three-for-one stock split to be effected in the form of a stock dividend. Each
+stockholder of record received two additional shares of common stock for each share held on June 17, 2010, that was paid on July 2, 2010. All share and related information presented in
+this Annual Report on Form 10-K reflect the increased number of shares and decreased stock prices resulting from this stock split for all periods presented. 
+Products 
+We market our products primarily under two proprietary brands: 
+UGG®. UGG Australia is our luxury comfort brand and the category creator for luxury sheepskin footwear. The UGG brand has
+enjoyed several
+years of strong growth and positive consumer reception, driven by consistent introductions of new styles in the fall and spring seasons and strategic geographic expansion of our distribution. We
+carefully manage the distribution of our UGG products within high-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 luxury 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 luxury 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. We also remain committed to limiting distribution of UGG products to high-end retail channels. 
+Teva®. 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 multi-sport shoes, light hiking shoes, amphibious
+footwear, and rugged outdoor travel 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 multi-sport and light hiking to lessen our overall reliance on sandal sales, while bringing youthfulness back to the brand through contemporary designs, colors and materials. In 2008, we introduced
+a modest assortment of 
+4 
+Table of Contents 
+fall
+and winter footwear. We followed that up in fall 2009 with a more complete collection of seasonally appropriate performance and lifestyle products for men, women and children. The fall 2009 line
+included high performance light hikers with eVent waterproof membranes and Vibram rubber outsoles,
+rugged multi-sport shoes and a range of women's lifestyle boots in both leather and suede with warm, faux fur linings. In 2010, we continued to build on our water-related performance heritage and
+continued to inject youthfulness into the Teva brand. We introduced a more expansive collection of performance and lifestyle open-toe product, while also significantly increasing our
+offering in closed-toe light hiking, multi-sport and rugged casual footwear. 
+In
+addition to our primary brands, our other brands include Simple®, a line of sustainable and stylish footwear, TSUBO®, a line of high-end casual
+footwear that incorporates style, function and maximum comfort, and Ahnu®, a line of outdoor performance and lifestyle footwear. 
+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. 
+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 Ventura and Camarillo, 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 a vast number of countries, including countries throughout Europe, Asia Pacific, Canada, and
+Latin America,
+among others. In addition, as we do in the US, we sell products directly to international consumers through our websites and our retail stores, including retail stores with our joint venture partner
+in China. We utilize a third-party logistics company in the United Kingdom (UK) for the distribution of inventory to our UK retail stores. In Japan, we work with a trading company for importation and
+use a third-party logistics company for distribution to our wholesale customers and to our retail store. We operate a distribution center in the Netherlands for the distribution of Teva products in
+Belgium, the Netherlands, and Luxembourg (Benelux) and France. Our principal customers include specialty retailers, selected department stores, outdoor retailers, sporting goods retailers, shoe
+stores, and online retailers. In 2010, we continued to assume the distribution rights from certain international distributors and sell directly to retailers in those regions, and we plan to continue
+distributor conversions in the future. 
+Our
+five largest customers accounted for approximately 28.9% of our net sales for 2010, compared to 30.0% for 2009. One customer, Nordstrom, accounted for greater than 10% of our
+consolidated net sales in 2010 and 2009, with the majority of those being related to our UGG segment. 
+5 
+Table of Contents 
+UGG. We sell our UGG footwear and accessories primarily through high-end department stores such as Nordstrom, Neiman Marcus and
+Bloomingdale's, as well as independent specialty retailers such as Journey's, David Z. and internet customers 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 retailers who appreciate and can fully market the technical attributes of our performance products to the consumer
+best sell our Teva footwear. 
+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. We also sell our Simple brand through health and wellness
+retailers that target consumers seeking fashionable, youthful, functional, and sustainable footwear. Key accounts of our other brands include Nordstrom, Dillard's, Hanigs, REI and Zappos.com. 
+eCommerce. Our eCommerce business enables us to interact and reinforce our relationships with the consumer. We operate our
+eCommerce business
+primarily through uggaustralia.com, Teva.com, Tsubo.com, Ahnu.com, and SimpleShoes.com websites. Our websites support the brands' marketing goals and also drive offline sales by providing information
+to consumers about the brands' products and where to find retailers that carry our brands. We have expanded our international capabilities by developing sites to service 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 2010, we significantly upgraded our
+eCommerce platform to support our international and domestic sites and opened and operated an international call center to accommodate these international website sales. Our eCommerce business has
+offices in Flagstaff, Arizona and Richmond, England. Order fulfillment is performed by our distribution centers in California and the UK in order to reduce the cost of order fulfillment, minimize out
+of stock positions and further leverage our distribution centers' operations. 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 store business allows us to directly reach our customers and meet the growing demand for our products.
+In addition, our UGG
+Australia concept stores allow us to showcase the entire lines for spring and fall; whereas, most retailers do not carry our full line. In 2010, we opened six stores in the US and three
+internationally. As of December 31, 2010, we had a total of 18 UGG Australia concept stores and nine retail outlet stores worldwide. Products sold through our concept stores are sold at prices
+which approximate department store prices, enabling us to capture the full retail margin on each direct to consumer transaction. The outlet stores sell some of our discontinued styles from the
+previous season, plus products made specifically for the outlet stores. During 2011, we plan to open additional retail stores in the US and significantly expand our retail store business
+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 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. 
+6 
+Table of Contents 
+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, and members of the design staff coordinate
+with our domestic and overseas product development, manufacturing and sourcing personnel. 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 
+We do not manufacture our products; we outsource the production of our brand footwear primarily to independent manufacturers 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 increased this production volume. We also
+outsource the production of a portion of our UGG footwear to an independent manufacturer in New Zealand. We require our independent contract manufacturers and designated suppliers to adopt our Factory
+Charter, 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. 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
+on-site supervisory offices in Pan Yu City, China and Macau that serve as local links 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 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 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 top grade sheepskin in advance at a forward price. We believe current supplies are sufficient to meet our needs in the near future, but we continue to
+search for alternate suppliers in order 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 
+7 
+Table of Contents 
+and
+perform quality assurance inspections. We also inspect our products upon arrival at our distribution centers. 
+Patents and Trademarks 
+We utilize trademarks on nearly 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, in identifying the Company, and in distinguishing our goods from the goods of others. We currently hold trademark registrations for UGG, Teva,
+Simple, TSUBO, Ahnu 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 260 utility and design
+patents and registrations in the US and abroad and have filed for more than 100 new patents which are currently pending. These patents expire at various times, and patents issued for applications
+filed this year will generally have a remaining duration from now to 2025 for design patents and from now to 2031 for utility patents. We regard our proprietary rights as valuable assets and
+vigorously protect such rights against infringement by third parties. 
+Seasonality 
+Our business is seasonal, with the highest percentage of UGG brand net sales occurring in the third and fourth quarters and the highest
+percentage of Teva brand net sales occurring in the first and second quarters of each year. Thus, our net sales in the last half of the year have exceeded that 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 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 customers to place, and we have received, a significant portion of orders as preseason orders,
+generally four to eight months prior to 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. 
+At
+December 31, 2010, our backlog of orders from our wholesale customers and distributors was approximately $336,000 compared to approximately $245,000 at December 31,
+2009. While all orders in the backlog are subject to cancellation by customers, we expect that the majority of such orders will be filled in 2011. 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 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 effected by the timing of customers' orders and product availability. 
+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, 
+8 
+Table of Contents 
+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. Due to the popularity of our UGG products, we face increasing competition from a significant number of competitors selling imitation
+products. 
+Our
+footwear lines compete primarily on the basis of brand recognition and authenticity, product quality and design, functionality, performance, fashion appeal and price. Our ability to
+successfully compete depends on our ability to: 
+• shape and stimulate consumer tastes and preferences by offering innovative, attractive and exciting products; 
+• anticipate and respond to changing consumer demands in a timely manner; 
+• maintain brand authenticity; 
+• develop high quality products that appeal to consumers; 
+• suitably price our products; 
+• provide strong and effective marketing support; and 
+• 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, 2010, we employed approximately 1,500 employees in the US, Europe and Asia, none of whom were represented by a
+union. This figure includes approximately 800 employees in our retail stores worldwide, which includes part-time and seasonal employees. The large increase in employees during the year was
+primarily related to increased selling, general and administration headcount commensurate with our growth. We intend to increase our employee count further in 2011 primarily related to retail stores
+and our other expansion initiatives. We believe our relationships with our employees are good. 
+Financial Information about Segments and Geographic Areas 
+Our five reportable business segments include the strategic business units responsible for the worldwide operations of our brands'
+(UGG, Teva 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 9 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
+attendant 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 Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Proxy Statements, and any amendment 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. 
+9 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0000910521/2010/0001047469-11-001618/item13.txt b/raw/filings/0000910521/2010/0001047469-11-001618/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b3599ed8f811c2e60d274c2e14c54900cb5c8cbb
--- /dev/null
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@@ -0,0 +1,4 @@
+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 2011 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, 2010, and such information is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2010/0001047469-11-001618/item9a.txt b/raw/filings/0000910521/2010/0001047469-11-001618/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b155b873191f0a038411b91483e44f8f88ae51ff
--- /dev/null
+++ b/raw/filings/0000910521/2010/0001047469-11-001618/item9a.txt
@@ -0,0 +1,41 @@
+Item 9A. Controls and Procedures. 
+(a) Disclosure Controls and Procedures. 
+The Company maintains a system of disclosure controls and procedures which 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 Securities and Exchange Commission'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, 2010 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 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 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: 
+• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the company; 
+• 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 
+47 
+Table of Contents 
+• 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, 2010. 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, 2010, 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 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. 
+(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, 2010 that has materially affected,
+or is reasonably likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
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@@ -0,0 +1,6703 @@
+10-K
+1
+a2213206z10-k.htm
+10-K
+Use these links to rapidly review the document 
+TABLE OF CONTENTS 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+ý 
+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 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period
+from to 
+Commission File No. 0-22446 
+DECKERS OUTDOOR CORPORATION 
+(Exact name of registrant as specified in its charter) 
+Delaware 
+(State or other jurisdiction of 
+incorporation or organization) 
+95-3015862 
+(I.R.S. Employer 
+Identification No.) 
+495-A South Fairview Avenue, Goleta, California 
+(Address of principal executive offices) 
+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 ý No o 
+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 o No ý 
+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 ý No o 
+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 ý No o 
+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. o 
+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 ý 
+Accelerated filer o 
+Non-accelerated filer o 
+(Do not check if a smaller reporting company) 
+Smaller reporting company o 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
+Act). Yes o No ý 
+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. 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION 
+For the Fiscal Year Ended December 31, 2012 
+Table of Contents to Annual Report on Form 10-K 
+Page 
+PART I 
+Item 1. 
+Business 
+3 
+Item 1A. 
+Risk Factors 
+10 
+Item 1B. 
+Unresolved Staff Comments 
+23 
+Item 2. 
+Properties 
+23 
+Item 3. 
+Legal Proceedings 
+23 
+Item 4. 
+Mine Safety Disclosures 
+24 
+PART II 
+Item 5. 
+Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+25 
+Item 6. 
+Selected Financial Data 
+28 
+Item 7. 
+Management's Discussion and Analysis of Financial Condition and Results of Operations 
+29 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+52 
+Item 8. 
+Financial Statements and Supplementary Data 
+53 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+53 
+Item 9A. 
+Controls and Procedures 
+53 
+Item 9B. 
+Other Information 
+54 
+PART III 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+55 
+Item 11. 
+Executive Compensation 
+55 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+55 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+55 
+Item 14. 
+Principal Accounting Fees and Services 
+55 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules 
+56 
+Signatures 
+59 
+1 
+Table of Contents 
+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: 
+• our global business, growth, operating, investing, and financing strategies; 
+• our product offerings, distribution channels and geographic mix; 
+• the success of our new products, brands, and growth initiatives; 
+• the impact of seasonality on our operations; 
+• expectations regarding our net sales and earnings growth and other financial metrics; 
+• our development of worldwide distribution channels; 
+• trends affecting our financial condition, results of operations, or cash flows; 
+• our expectations for expansion of our retail and eCommerce capabilities; 
+• information security and privacy of customer, employee or company information; 
+• overall global economic trends; 
+• reliability of overseas factory production and storage; and 
+• 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 
+Table of Contents 
+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®, Deckers®, Hoka One One® (Hoka), MOZO®, Sanuk®, Simple®,
+Teva®, TSUBO®, and UGG® 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 
+Table of Contents 
+Products 
+We market our products primarily under three proprietary brands: 
+UGG®. 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®. 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®. 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® 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®" 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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• shape and stimulate consumer tastes and preferences by offering innovative, attractive, and exciting products; 
+• anticipate and respond to changing consumer demands in a timely manner; 
+• maintain brand authenticity; 
+• develop high quality products that appeal to consumers; 
+• price our products suitably; 
+• provide strong and effective marketing support; and 
+• 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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• increase our working capital needs beyond our capacity; 
+• increase costs if we fail to successfully integrate a newly acquired business or achieve expected cost savings; 
+• result in impairment charges related to acquired businesses; 
+• create remote-site management issues, which would adversely affect our internal control environment; 
+• have significant domestic or international legal or compliance implications; 
+• make it difficult to attract, retain, and manage adequate human resources in remote locations; 
+• cause additional inventory manufacturing, distribution, and management costs; 
+• cause us to experience difficulty in filling customer orders; 
+• result in distribution termination transaction costs; or 
+• create other production, distribution, and operating difficulties. 
+14 
+Table of Contents 
+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 
+$ 
+154 
+$ 
+15,301 
+$ 
+— 
+$ 
+— 
+$ 
+15,455 
+Goodwill 
+6,101 
+— 
+113,944 
+6,222 
+126,267 
+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 
+Table of Contents 
+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: 
+• 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; 
+• increasing transportation costs and a limited supply of international shipping capacity; 
+• increasing labor costs; 
+• poor infrastructure and shortages of equipment, which can disrupt transportation and utilities; 
+• restrictions on the transfer of funds; 
+• changing economic conditions; 
+• violations or changes in governmental policies and regulations including labor, safety, and environmental regulations in
+China, Vietnam, the US, and elsewhere; 
+• refusal to adopt or comply with our Supplier Code of Conduct and Restricted Substances Policy; 
+• customary business traditions in China and Vietnam such as local holidays, which are traditionally accompanied by high
+levels of turnover in the factories; 
+• labor unrest, which can lead to work stoppages and interruptions in transportation or supply; 
+• delays during shipping, at the port of entry or at the port of departure; 
+• political instability, which can interrupt commerce; 
+• use of unauthorized or prohibited materials or reclassification of materials; 
+• expropriation and nationalization; and 
+• 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 
+Table of Contents 
+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: 
+• critical business systems become inoperable or require significant costs to restore; 
+• key personnel are unable to perform their duties, communicate, or access information systems; 
+• significant quantities of merchandise are damaged or destroyed; 
+• we are required to make unanticipated investment in state-of-the-art technologies and
+security measures; 
+• key wholesale and distributor customers cannot place or receive orders; 
+• eCommerce customer orders may not be received or fulfilled; 
+• confidential information about our customers may be misappropriated or lost damaging our reputation and customer
+relationships; 
+• we are exposed to unanticipated liabilities; or 
+• carriers cannot ship or unload shipments. 
+17 
+Table of Contents 
+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: 
+• changes in currency exchange rates, which impact the price to international consumers; 
+• ability to move currency out of international markets; 
+• the burdens of complying with a variety of foreign laws and regulations, the interpretation and application of which are
+uncertain; 
+• legal costs and penalties related to defending allegations of non-compliance; 
+• unexpected changes in legal and regulatory requirements; 
+• inability to successfully import into a country; 
+• changes in tax laws; 
+• complications due to lack of familiarity with local customs; 
+• difficulties associated with promoting products in unfamiliar cultures; 
+18 
+Table of Contents 
+• political instability; 
+• changes in diplomatic and trade relationships; and 
+• 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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• changes in expectations of our future performance, whether realized or perceived; 
+• changes in estimates by securities analysts or failure to meet such estimates; 
+• published research and opinions by securities analysts and other market forecasters; 
+• changes in our credit ratings; 
+• the financial results and liquidity of our customers; 
+• shift of revenue recognition as a result of changes in our distribution model, delivery of merchandise, or entering into
+agreements with related parties; 
+• claims brought against us by a regulatory agency or our stockholders; 
+• quarterly fluctuations in our sales, expenses, and financial results; 
+• general equity market conditions and investor sentiment; 
+• economic conditions and consumer confidence; 
+• broad market fluctuations in volume and price; 
+• increasing short sales of our stock; 
+• announcements to repurchase our stock; 
+• the declaration of stock or cash dividends; and 
+• 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 
+Table of Contents 
+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: 
+• critical business systems become damaged or inoperable or require significant cost or resources to replace or restore; 
+• key personnel are unable to communicate, access information systems, or otherwise perform their duties; 
+• significant quantities of merchandise are damaged or destroyed; 
+• we are required to make unanticipated capital expenditures in new or updated technologies; 
+• key wholesale and distributor customers cannot place or receive orders; 
+• eCommerce customer orders cannot be received or fulfilled; 
+22 
+Table of Contents 
+• sensitive information about our customers or our business may be misappropriated or lost; or 
+• 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 
+Unallocated 
+723,000 
+Goleta, California 
+Corporate Offices 
+Unallocated 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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. 
+Common Stock 
+Price Per Share 
+Low 
+High 
+Year ended December 31, 2012: 
+First Quarter 
+$ 
+62.90 
+$ 
+90.21 
+Second Quarter 
+$ 
+43.25 
+$ 
+69.46 
+Third Quarter 
+$ 
+34.99 
+$ 
+51.21 
+Fourth Quarter 
+$ 
+28.63 
+$ 
+42.76 
+Year ended December 31, 2011: 
+First Quarter 
+$ 
+72.38 
+$ 
+90.57 
+Second Quarter 
+$ 
+77.66 
+$ 
+96.72 
+Third Quarter 
+$ 
+73.28 
+$ 
+105.01 
+Fourth Quarter 
+$ 
+75.57 
+$ 
+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 
+Table of Contents 
+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 
+ASSUMES
+$100 INVESTED ON JAN. 01, 2008 
+ASSUMES DIVIDEND REINVESTED 
+December 31, 
+2007 
+2008 
+2009 
+2010 
+2011 
+2012 
+Deckers Outdoor Corporation 
+$ 
+100.0 
+$ 
+51.5 
+$ 
+65.6 
+$ 
+154.3 
+$ 
+146.2 
+$ 
+77.9 
+NASDAQ Market Index# 
+100.0 
+60.0 
+87.2 
+103.1 
+102.3 
+120.4 
+Peer Group Index* 
+100.0 
+43.2 
+73.1 
+94.6 
+87.0 
+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 
+Table of Contents 
+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 $79,300. 
+Period
+Total number 
+of shares 
+purchased* 
+(in thousands) 
+Average price 
+paid per share 
+Approximate dollar 
+value of shares that may 
+yet be purchased 
+(in thousands) 
+December 31, 2011 
+— 
+January 1 — January 31, 2012 
+— 
+— 
+— 
+February 1 — February 29, 2012 
+133 
+$ 
+74.85 
+$ 
+90,000 
+March 1 — March 31, 2012 
+141 
+$ 
+71.11 
+$ 
+80,000 
+April 1 — April 30, 2012 
+— 
+— 
+$ 
+80,000 
+May 1 — May 31, 2012 
+983 
+$ 
+54.83 
+$ 
+26,100 
+June 1 — June 30, 2012 
+492 
+$ 
+53.02 
+— 
+July 1 — July 31, 2012 
+120 
+$ 
+41.78 
+$ 
+195,000 
+August 1 — August 31, 2012 
+1,639 
+$ 
+46.45 
+$ 
+118,900 
+September 1 — September 31, 2012 
+74 
+$ 
+48.27 
+$ 
+115,300 
+October 1 — October 31, 2012 
+— 
+— 
+$ 
+115,300 
+November 1 — November 30, 2012 
+932 
+$ 
+38.64 
+$ 
+79,300 
+December 1 — December 31, 2012 
+— 
+— 
+$ 
+79,300 
+Total 
+4,514 
+* All
+shares purchased were purchased as part of a publicly announced program in open-market transactions. 
+27 
+Table of Contents 
+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 
+Teva wholesale 
+108,591 
+118,742 
+96,207 
+71,952 
+80,882 
+Sanuk wholesale 
+89,804 
+26,039 
+— 
+— 
+— 
+Other brands wholesale 
+20,194 
+21,801 
+23,476 
+19,644 
+17,558 
+eCommerce 
+130,592 
+106,498 
+91,808 
+75,666 
+68,769 
+Retail stores 
+245,961 
+189,000 
+125,644 
+78,951 
+38,455 
+1,414,398 
+1,377,283 
+1,000,989 
+813,177 
+689,445 
+Cost of sales 
+782,244 
+698,288 
+498,051 
+442,087 
+384,127 
+Gross profit 
+632,154 
+678,995 
+502,938 
+371,090 
+305,318 
+Selling, general and administrative expenses(1) 
+445,206 
+394,157 
+253,850 
+189,843 
+188,399 
+Income from operations 
+186,948 
+284,838 
+249,088 
+181,247 
+116,919 
+Other expense (income), net 
+2,830 
+(424 
+) 
+(1,021 
+) 
+(1,976 
+) 
+(3,583 
+) 
+Income before income taxes 
+184,118 
+285,262 
+250,109 
+183,223 
+120,502 
+Income taxes 
+55,104 
+83,404 
+89,732 
+66,304 
+46,631 
+Net income 
+129,014 
+201,858 
+160,377 
+116,919 
+73,871 
+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 
+$ 
+3.49 
+$ 
+5.16 
+$ 
+4.10 
+$ 
+2.99 
+$ 
+1.89 
+Diluted 
+$ 
+3.45 
+$ 
+5.07 
+$ 
+4.03 
+$ 
+2.96 
+$ 
+1.87 
+Weighted-average common shares outstanding: 
+Basic 
+36,879 
+38,605 
+38,615 
+39,024 
+39,126 
+Diluted 
+37,334 
+39,265 
+39,292 
+39,393 
+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 
+Working capital 
+424,569 
+585,823 
+570,869 
+420,117 
+317,755 
+Total assets 
+1,068,064 
+1,146,196 
+808,994 
+599,043 
+483,721 
+Long-term liabilities 
+62,246 
+72,687 
+8,456 
+6,269 
+3,847 
+Total Deckers Outdoor Corporation stockholders' equity 
+738,801 
+835,936 
+652,987 
+491,358 
+384,252 
+28 
+Table of Contents 
+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: 
+• UGG®: Premier brand in luxurious comfort footwear, handbags, apparel, and cold weather accessories; 
+• Teva®: High performance multi-sport shoes, rugged outdoor footwear, and sport sandals; and 
+• Sanuk®: 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®, a line of 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 One One®
+(Hoka), a line of 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. 
+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: 
+• 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. 
+• 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. 
+• 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. 
+• 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 
+Table of Contents 
+• Consumers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market
+category creators and leaders. 
+• Consumers have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable
+while still comfortable. 
+• There is an emerging sustainable lifestyle movement happening all around the world, and consumers are demanding that
+brands and companies become more environmentally responsible. 
+• 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: 
+• consumer brand loyalty, due to the luxurious comfort of UGG footwear; 
+• continued innovation of new product categories and styles, including those beyond footwear; 
+• increased marketing for women and men in targeted high-end print, OOH, digital and social advertising; 
+• a targeted UGG for Men campaign featuring Tom Brady; 
+• targeted marketing at prospective consumers through email blasts, new catalogs and direct mail pieces; 
+• successful targeting of higher-end distribution; 
+• expanded product assortment purchases from existing accounts; 
+• adoption by high-profile celebrities as a favored footwear brand; 
+30 
+Table of Contents 
+• increased media attention that has enabled us to introduce the brand to consumers much faster than we would have otherwise
+been able to; 
+• increased exposure to the brand driven by our concept stores that showcase all of our product offerings; 
+• continued expansion of worldwide retail through new UGG Australia stores; 
+• continued geographic expansion across the US and internationally; and 
+• 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™, 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®. 
+31 
+Table of Contents 
+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 
+Table of Contents 
+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 
+$ 
+246,306 
+$ 
+174,436 
+$ 
+376,392 
+$ 
+617,264 
+Income (loss) from operations 
+$ 
+11,933 
+$ 
+(28,708 
+) 
+$ 
+59,609 
+$ 
+144,114 
+2011 
+First 
+Quarter 
+Second 
+Quarter 
+Third 
+Quarter 
+Fourth 
+Quarter 
+Net sales 
+$ 
+204,851 
+$ 
+154,222 
+$ 
+414,358 
+$ 
+603,852 
+Income (loss) from operations 
+$ 
+28,195 
+$ 
+(10,798 
+) 
+$ 
+90,661 
+$ 
+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 
+Table of Contents 
+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 
+$ 
+1,414,398 
+100.0 
+% 
+$ 
+1,377,283 
+100.0 
+% 
+$ 
+37,115 
+2.7 
+% 
+Cost of sales 
+782,244 
+55.3 
+698,288 
+50.7 
+83,956 
+12.0 
+Gross profit 
+632,154 
+44.7 
+678,995 
+49.3 
+(46,841 
+) 
+(6.9 
+) 
+Selling, general and administrative expenses 
+445,206 
+31.5 
+394,157 
+28.6 
+51,049 
+13.0 
+Income from operations 
+186,948 
+13.2 
+284,838 
+20.7 
+(97,890 
+) 
+(34.4 
+) 
+Other expense (income), net 
+2,830 
+0.2 
+(424 
+) 
+— 
+3,254 
+767.5 
+Income before income taxes 
+184,118 
+13.0 
+285,262 
+20.7 
+(101,144 
+) 
+(35.5 
+) 
+Income taxes 
+55,104 
+3.9 
+83,404 
+6.1 
+(28,300 
+) 
+(33.9 
+) 
+Net income 
+129,014 
+9.1 
+201,858 
+14.7 
+(72,844 
+) 
+(36.1 
+) 
+Net income attributable to the 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 
+Table of Contents 
+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 
+$ 
+972,987 
+$ 
+945,109 
+$ 
+27,878 
+2.9 
+% 
+International 
+441,411 
+432,174 
+9,237 
+2.1 
+Total 
+$ 
+1,414,398 
+$ 
+1,377,283 
+$ 
+37,115 
+2.7 
+% 
+Net sales by brand and distribution channel: 
+UGG: 
+Wholesale 
+$ 
+819,256 
+$ 
+915,203 
+$ 
+(95,947 
+) 
+(10.5 
+)% 
+eCommerce 
+118,886 
+98,256 
+20,630 
+21.0 
+Retail stores 
+245,397 
+188,377 
+57,020 
+30.3 
+Total 
+1,183,539 
+1,201,836 
+(18,297 
+) 
+(1.5 
+) 
+Teva: 
+Wholesale 
+108,591 
+118,742 
+(10,151 
+) 
+(8.5 
+) 
+eCommerce 
+6,578 
+5,571 
+1,007 
+18.1 
+Retail stores 
+347 
+452 
+(105 
+) 
+(23.2 
+) 
+Total 
+115,516 
+124,765 
+(9,249 
+) 
+(7.4 
+) 
+Sanuk: 
+Wholesale 
+89,804 
+26,039 
+63,765 
+244.9 
+eCommerce 
+4,172 
+539 
+3,633 
+674.0 
+Retail stores 
+20 
+— 
+20 
+* 
+Total 
+93,996 
+26,578 
+67,418 
+253.7 
+Other brands: 
+Wholesale 
+20,194 
+21,801 
+(1,607 
+) 
+(7.4 
+) 
+eCommerce 
+956 
+2,132 
+(1,176 
+) 
+(55.2 
+) 
+Retail stores 
+197 
+171 
+26 
+15.2 
+Total 
+21,347 
+24,104 
+(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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• increased retail costs of approximately $36,000 largely related to 30 new retail stores that were not open as of
+December 31, 2011; 
+• 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; 
+• increased marketing expenses of approximately $14,000 largely related to our new UGG women's prospects, UGG Men's and
+Classic campaigns; 
+• increased eCommerce expenses of approximately $7,000 largely related to increased marketing and advertising; partially
+offset by 
+• decreased performance-based cash compensation of approximately $16,000; 
+• 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; 
+• decreased sales commissions of approximately $5,000 primarily due to the decrease in wholesale sales; and 
+• decreased UGG amortization expense of approximately $4,000 primarily related to order books we acquired from our
+distributor conversions in Europe being fully amortized in 2011. 
+Income (Loss) from Operations. The gross profit derived from the sales to third parties of the eCommerce and retail stores
+segments is separated into
+two components, and is recorded at the time of sale to the third party: (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and represents
+the difference between the Company's cost and the Company's wholesale selling price, and (ii) the retail profit is included in the operating income of the eCommerce and retail stores segments,
+and represents the difference between the Company's wholesale selling price and the Company's retail selling price. Each of the wholesale segments charge the eCommerce and retail segments the same
+price that they charge third party retail customers, with the resulting profit from inter-segment sales included in income (loss) from operations of each respective wholesale segment. 
+37 
+Table of Contents 
+Inter-segment
+sales and cost of sales are eliminated upon consolidation. The following table summarizes operating income (loss) by segment: 
+Years Ended December 31, 
+Change 
+2012 
+2011 
+Amount 
+% 
+UGG wholesale 
+$ 
+267,823 
+$ 
+388,275 
+$ 
+(120,452 
+) 
+(31.0 
+)% 
+Teva wholesale 
+10,072 
+20,267 
+(10,195 
+) 
+(50.3 
+) 
+Sanuk wholesale 
+15,567 
+797 
+14,770 
+1,853.2 
+Other brands wholesale 
+(4,317 
+) 
+(9,524 
+) 
+5,207 
+54.7 
+eCommerce 
+29,903 
+24,255 
+5,648 
+23.3 
+Retail stores 
+25,590 
+31,461 
+(5,871 
+) 
+(18.7 
+) 
+Unallocated overhead costs 
+(157,690 
+) 
+(170,693 
+) 
+13,003 
+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 
+Table of Contents 
+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 $424. In fiscal year 2012, we had an increase in interest expense related to increases in our short-term borrowings, partially offset by
+income primarily related to expired eCommerce website customer credits. 
+Income Taxes. Income tax expense and effective income tax rates were as follows: 
+Years Ended 
+December 31, 
+2012 
+2011 
+Income tax expense 
+$ 
+55,104 
+$ 
+83,404 
+Effective income tax rate 
+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 $148, which represents the noncontrolling interest's share of income prior
+to April 2, 2012. 
+Net Income Attributable to Deckers Outdoor Corporation. Our net income decreased as a result of the items discussed above. Our
+diluted earnings per
+share decreased primarily as a result of the decrease in net income, partially offset by a reduced number of diluted weighted-average common shares outstanding due to share repurchases we made under
+our stock repurchase program. 
+39 
+Table of Contents 
+Year Ended December 31, 2011 Compared to Year Ended December 31, 2010 
+The following table summarizes our results of operations: 
+Years Ended December 31, 
+2011 
+2010 
+Change 
+Amount 
+% 
+Amount 
+% 
+Amount 
+% 
+Net sales 
+$ 
+1,377,283 
+100.0 
+% 
+$ 
+1,000,989 
+100.0 
+% 
+$ 
+376,294 
+37.6 
+% 
+Cost of sales 
+698,288 
+50.7 
+498,051 
+49.8 
+200,237 
+40.2 
+Gross profit 
+678,995 
+49.3 
+502,938 
+50.2 
+176,057 
+35.0 
+Selling, general and administrative expenses 
+394,157 
+28.6 
+253,850 
+25.4 
+140,307 
+55.3 
+Income from operations 
+284,838 
+20.7 
+249,088 
+24.9 
+35,750 
+14.4 
+Other income, net 
+(424 
+) 
+— 
+(1,021 
+) 
+(0.1 
+) 
+597 
+58.5 
+Income before income taxes 
+285,262 
+20.7 
+250,109 
+25.0 
+35,153 
+14.1 
+Income taxes 
+83,404 
+6.1 
+89,732 
+9.0 
+(6,328 
+) 
+(7.1 
+) 
+Net income 
+201,858 
+14.7 
+160,377 
+16.0 
+41,481 
+25.9 
+Net income attributable to the 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 
+Table of Contents 
+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 
+$ 
+945,109 
+$ 
+764,111 
+$ 
+180,998 
+23.7 
+% 
+International 
+432,174 
+236,878 
+195,296 
+82.4 
+Total 
+$ 
+1,377,283 
+$ 
+1,000,989 
+$ 
+376,294 
+37.6 
+% 
+Net sales by brand and distribution channel: 
+UGG: 
+Wholesale 
+$ 
+915,203 
+$ 
+663,854 
+$ 
+251,349 
+37.9 
+% 
+eCommerce 
+98,256 
+84,574 
+13,682 
+16.2 
+Retail stores 
+188,377 
+124,718 
+63,659 
+51.0 
+Total 
+1,201,836 
+873,146 
+328,690 
+37.6 
+Teva: 
+Wholesale 
+118,742 
+96,207 
+22,535 
+23.4 
+eCommerce 
+5,571 
+4,838 
+733 
+15.2 
+Retail stores 
+452 
+302 
+150 
+49.7 
+Total 
+124,765 
+101,347 
+23,418 
+23.1 
+Sanuk: 
+Wholesale 
+26,039 
+— 
+26,039 
+* 
+eCommerce 
+539 
+— 
+539 
+* 
+Retail stores 
+— 
+— 
+— 
+— 
+Total 
+26,578 
+— 
+26,578 
+* 
+Other brands: 
+Wholesale 
+21,801 
+23,476 
+(1,675 
+) 
+(7.1 
+) 
+eCommerce 
+2,132 
+2,396 
+(264 
+) 
+(11.0 
+) 
+Retail stores 
+171 
+624 
+(453 
+) 
+(72.6 
+) 
+Total 
+24,104 
+26,496 
+(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 
+Table of Contents 
+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: 
+• increased retail costs of approximately $30,000 largely related to 18 new retail stores that were not open as of
+December 31, 2010; 
+• increased international division expenses of approximately $21,000 in support of our international expansion and our
+distributor conversions to the wholesale model; 
+• increased marketing expenses of approximately $19,000 primarily related to our UGG brand; 
+• increased commissions and other selling expenses of approximately $17,000 related to our increased sales; and 
+• increased depreciation, amortization, and accretion expenses of approximately $11,000, primarily related to our Sanuk
+acquisition intangible assets and contingent consideration. 
+Income (Loss) from Operations. The gross profit derived from the sales to third parties of the eCommerce and retail stores
+segments is separated into
+two components, and is recorded at the time of sale to the third party: (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and represents
+the difference between the Company's cost and the Company's 
+42 
+Table of Contents 
+wholesale
+selling price, and (ii) the retail profit is included in the operating income of the eCommerce and retail stores segments, and represents the difference between the Company's
+wholesale selling price and the Company's retail selling price. Each of the wholesale segments charge the eCommerce and retail segments the same price that they charge third party retail customers,
+with the resulting profit from inter-segment sales included in income (loss) from operations of each respective wholesale segment. Inter-segment sales and cost of sales are eliminated upon
+consolidation. The following table summarizes operating income (loss) by segment: 
+Years Ended December 31, 
+Change 
+2011 
+2010 
+Amount 
+% 
+UGG wholesale 
+$ 
+388,275 
+$ 
+307,478 
+$ 
+80,797 
+26.3 
+% 
+Teva wholesale 
+20,267 
+18,684 
+1,583 
+8.5 
+Sanuk wholesale 
+797 
+— 
+797 
+* 
+Other brands wholesale 
+(9,524 
+) 
+(6,184 
+) 
+(3,340 
+) 
+(54.0 
+) 
+eCommerce 
+24,255 
+23,536 
+719 
+3.1 
+Retail stores 
+31,461 
+27,310 
+4,151 
+15.2 
+Unallocated overhead costs 
+(170,693 
+) 
+(121,736 
+) 
+(48,957 
+) 
+(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 
+Table of Contents 
+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 $1,000
+recognized
+in the prior year, partially offset by a credit to interest expense in the current year resulting from a reversal of a prior year income tax related accrual. 
+Income Taxes. Income tax expense and effective income tax rates were as follows: 
+Years Ended 
+December 31, 
+2011 
+2010 
+Income tax expense 
+$ 
+83,404 
+$ 
+89,732 
+Effective income tax rate 
+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 
+Table of Contents 
+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 
+$ 
+163,906 
+$ 
+30,091 
+$ 
+133,815 
+444.7 
+% 
+Net cash used in investing activities 
+$ 
+(75,362 
+) 
+$ 
+(184,766 
+) 
+$ 
+109,404 
+59.2 
+% 
+Net cash used in financing activities 
+$ 
+(242,621 
+) 
+$ 
+(27,160 
+) 
+$ 
+(215,461 
+) 
+(793.3 
+)% 
+Cash and cash equivalents 
+$ 
+110,247 
+$ 
+263,606 
+$ 
+(153,359 
+) 
+(58.2 
+) 
+Trade accounts receivable 
+190,756 
+193,375 
+(2,619 
+) 
+(1.4 
+) 
+Inventories 
+300,173 
+253,270 
+46,903 
+18.5 
+Prepaids and other current assets 
+90,410 
+107,651 
+(17,241 
+) 
+(16.0 
+) 
+Total current assets 
+$ 
+691,586 
+$ 
+817,902 
+$ 
+(126,316 
+) 
+(15.4 
+)% 
+Trade accounts payable 
+$ 
+133,457 
+$ 
+110,853 
+$ 
+22,604 
+20.4 
+Other current liabilities 
+133,560 
+121,226 
+12,334 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 $33,000, resulting in no outstanding borrowings under the Amended and Restated Credit Agreement as
+of March 1, 2013. 
+Contractual Obligations. The following table summarizes our contractual obligations at December 31, 2012 and the effects
+such obligations are
+expected to have on liquidity and cash flow in future periods. 
+Payments Due by Period 
+Total 
+Less than 
+1 Year 
+1-3 Years 
+3-5 Years 
+More than 
+5 Years 
+Operating lease obligations(1) 
+$ 
+221,603 
+$ 
+39,892 
+$ 
+67,148 
+$ 
+54,696 
+$ 
+59,867 
+Purchase obligations(2) 
+342,234 
+341,112 
+1,122 
+— 
+— 
+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 
+Table of Contents 
+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: 
+• 51.8% of the Sanuk brand gross profit in 2012, which was $25,450, 
+• 36.0% of the Sanuk brand gross profit in 2013, and 
+• 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 
+Table of Contents 
+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 
+Table of Contents 
+The
+following table summarizes data related to the critical accounting estimates for accounts receivable allowances and reserves, which are discussed below: 
+December 31, 2012 
+December 31, 2011 
+Amount 
+% of Gross 
+Trade Accounts 
+Receivable 
+Amount 
+% of Gross 
+Trade Accounts 
+Receivable 
+Gross trade accounts receivable 
+$ 
+215,842 
+$ 
+215,067 
+Allowance for doubtful accounts 
+$ 
+2,782 
+1.3 
+% 
+$ 
+1,719 
+0.8 
+% 
+Reserve for sales discounts 
+$ 
+3,836 
+1.8 
+% 
+$ 
+4,629 
+2.2 
+% 
+Allowance for estimated chargebacks 
+$ 
+5,563 
+2.6 
+% 
+$ 
+4,031 
+1.9 
+% 
+Amount 
+% of Net Sales 
+Amount 
+% of Net Sales 
+Net sales for the three months ended 
+$ 
+617,264 
+$ 
+603,852 
+Allowance for estimated returns 
+$ 
+12,905 
+2.1 
+% 
+$ 
+11,313 
+1.9 
+% 
+Estimated returns liability 
+$ 
+6,471 
+1.0 
+% 
+$ 
+6,413 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the company; 
+• 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 
+• 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 
+Table of Contents 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance. 
+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 
+Table of Contents 
+PART IV 
+Item 15. Exhibits, Financial Statement Schedules. 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+SIGNATURES 
+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. 
+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 
+Chairman of the Board, 
+President and Chief Executive 
+Officer (Principal Executive Officer) 
+March 1, 2013 
+/s/ THOMAS A. GEORGE 
+Thomas A. George 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+March 1, 2013 
+/s/ KARYN O. BARSA 
+Karyn O. Barsa 
+Director 
+March 1, 2013 
+/s/ MAUREEN CONNERS 
+Maureen Conners 
+Director 
+March 1, 2013 
+/s/ MICHAEL DEVINE 
+Michael Devine 
+Director 
+March 1, 2013 
+/s/ JOHN M. GIBBONS 
+John M. Gibbons 
+Director 
+March 1, 2013 
+/s/ REX A. LICKLIDER 
+Rex A. Licklider 
+Director 
+March 1, 2013 
+/s/ JOHN G. PERENCHIO 
+John G. Perenchio 
+Director 
+March 1, 2013 
+/s/ JAMES QUINN 
+James Quinn 
+Director 
+March 1, 2013 
+/s/ LAURI SHANAHAN 
+Lauri Shanahan 
+Director 
+March 1, 2013 
+59 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
+AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+Consolidated Financial Statements 
+Reports of Independent Registered Public Accounting Firm 
+F-2 
+Consolidated Balance Sheets as of December 31, 2012 and 2011 
+F-4 
+Consolidated Statements of Comprehensive Income for each of the years in the three-year 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 
+F-7 
+Notes to Consolidated Financial Statements 
+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 
+Table of Contents 
+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. 
+/s/
+KPMG LLP 
+Los
+Angeles, California 
+March 1, 2013 
+F-2 
+Table of Contents 
+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. 
+/s/
+KPMG LLP 
+Los
+Angeles, California 
+March 1, 2013 
+F-3 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+(amounts in thousands, except par value) 
+December 31, 
+2012 
+2011 
+ASSETS 
+Current assets: 
+Cash and cash equivalents 
+$ 
+110,247 
+$ 
+263,606 
+Trade accounts receivable, net of allowances of $25,086 and $21,692 in 2012 and 2011, respectively 
+190,756 
+193,375 
+Inventories 
+300,173 
+253,270 
+Prepaid expenses 
+14,092 
+8,697 
+Other current assets 
+59,028 
+84,540 
+Deferred tax assets 
+17,290 
+14,414 
+Total current assets 
+691,586 
+817,902 
+Property and equipment, net 
+125,370 
+90,257 
+Goodwill 
+126,267 
+120,045 
+Other intangible assets, net 
+98,423 
+94,449 
+Deferred tax assets 
+13,372 
+13,223 
+Other assets 
+13,046 
+10,320 
+Total assets 
+$ 
+1,068,064 
+$ 
+1,146,196 
+LIABILITIES AND STOCKHOLDERS' EQUITY 
+Current liabilities: 
+Short-term borrowings 
+$ 
+33,000 
+$ 
+— 
+Trade accounts payable 
+133,457 
+110,853 
+Accrued payroll 
+15,896 
+32,594 
+Other accrued expenses 
+59,597 
+57,744 
+Income taxes payable 
+25,067 
+30,888 
+Total current liabilities 
+267,017 
+232,079 
+Long-term liabilities 
+62,246 
+72,687 
+Commitments and contingencies (note7) 
+Stockholders' equity: 
+Deckers Outdoor Corporation stockholders' equity: 
+Common stock, $0.01 par value; authorized 125,000 shares; issued and outstanding 34,400 and 38,692 shares for 2012 and 2011, respectively 
+344 
+387 
+Additional paid-in capital 
+139,046 
+144,684 
+Retained earnings 
+600,811 
+692,595 
+Accumulated other comprehensive loss 
+(1,400 
+) 
+(1,730 
+) 
+Total Deckers Outdoor Corporation stockholders' equity 
+738,801 
+835,936 
+Noncontrolling interest 
+— 
+5,494 
+Total equity 
+738,801 
+841,430 
+Total liabilities and equity 
+$ 
+1,068,064 
+$ 
+1,146,196 
+See accompanying notes to consolidated financial statements. 
+F-4 
+Table of Contents 
+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 
+$ 
+1,414,398 
+$ 
+1,377,283 
+$ 
+1,000,989 
+Cost of sales 
+782,244 
+698,288 
+498,051 
+Gross profit 
+632,154 
+678,995 
+502,938 
+Selling, general and administrative expenses 
+445,206 
+394,157 
+253,850 
+Income from operations 
+186,948 
+284,838 
+249,088 
+Other expense (income), net: 
+Interest income 
+(217 
+) 
+(180 
+) 
+(234 
+) 
+Interest expense 
+3,840 
+249 
+566 
+Other, net 
+(793 
+) 
+(493 
+) 
+(1,353 
+) 
+2,830 
+(424 
+) 
+(1,021 
+) 
+Income before income taxes 
+184,118 
+285,262 
+250,109 
+Income taxes 
+55,104 
+83,404 
+89,732 
+Net income 
+129,014 
+201,858 
+160,377 
+Other comprehensive income (loss), net of tax: 
+Unrealized (loss) gain on foreign currency hedging 
+(633 
+) 
+(931 
+) 
+1,564 
+Foreign currency translation adjustment 
+963 
+(1,952 
+) 
+(905 
+) 
+Total other comprehensive income (loss) 
+330 
+(2,883 
+) 
+659 
+Comprehensive income 
+$ 
+129,344 
+$ 
+198,975 
+$ 
+161,036 
+Net income attributable to: 
+Deckers Outdoor Corporation 
+$ 
+128,866 
+$ 
+199,052 
+$ 
+158,235 
+Noncontrolling interest 
+148 
+2,806 
+2,142 
+$ 
+129,014 
+$ 
+201,858 
+$ 
+160,377 
+Comprehensive income attributable to: 
+Deckers Outdoor Corporation 
+$ 
+129,196 
+$ 
+196,169 
+$ 
+158,894 
+Noncontrolling interest 
+148 
+2,806 
+2,142 
+$ 
+129,344 
+$ 
+198,975 
+$ 
+161,036 
+Net income per share attributable to Deckers Outdoor Corporation common stockholders: 
+Basic 
+$ 
+3.49 
+$ 
+5.16 
+$ 
+4.10 
+Diluted 
+$ 
+3.45 
+$ 
+5.07 
+$ 
+4.03 
+Weighted-average common shares outstanding: 
+Basic 
+36,879 
+38,605 
+38,615 
+Diluted 
+37,334 
+39,265 
+39,292 
+See accompanying notes to consolidated financial statements. 
+F-5 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
+(amounts in thousands) 
+Years Ended December 31, 2010, 2011 and 2012 
+Common Stock 
+Accumulated 
+Other 
+Comprehensive 
+Income (Loss) 
+Total Deckers 
+Outdoor Corp. 
+Stockholders' 
+Equity 
+Additional 
+Paid-in 
+Capital 
+Retained 
+Earnings 
+Non-controlling 
+Interest 
+Total Stockholders' 
+Equity 
+Shares 
+Amount 
+Balance December 31, 2009 
+38,604 
+$ 
+387 
+$ 
+125,173 
+$ 
+365,304 
+$ 
+494 
+$ 
+491,358 
+$ 
+546 
+$ 
+491,904 
+Stock compensation expense 
+30 
+— 
+12,782 
+— 
+— 
+12,782 
+— 
+12,782 
+Exercise of stock options 
+31 
+— 
+89 
+— 
+— 
+89 
+— 
+89 
+Shares issued upon vesting 
+146 
+1 
+(1 
+) 
+— 
+— 
+— 
+— 
+— 
+Excess tax benefit from stock compensation 
+— 
+— 
+3,525 
+— 
+— 
+3,525 
+— 
+3,525 
+Shares withheld for taxes 
+— 
+— 
+(3,579 
+) 
+— 
+— 
+(3,579 
+) 
+— 
+(3,579 
+) 
+Stock repurchase 
+(230 
+) 
+(2 
+) 
+— 
+(10,080 
+) 
+— 
+(10,082 
+) 
+— 
+(10,082 
+) 
+Net income 
+— 
+— 
+— 
+158,235 
+— 
+158,235 
+2,142 
+160,377 
+Total other comprehensive income (loss) 
+— 
+— 
+— 
+— 
+659 
+659 
+— 
+659 
+Balance December 31, 2010 
+38,581 
+$ 
+386 
+$ 
+137,989 
+$ 
+513,459 
+$ 
+1,153 
+$ 
+652,987 
+$ 
+2,688 
+$ 
+655,675 
+Stock compensation expense 
+10 
+— 
+14,803 
+— 
+— 
+14,803 
+— 
+14,803 
+Exercise of stock options 
+12 
+— 
+62 
+— 
+— 
+62 
+— 
+62 
+Shares issued upon vesting 
+334 
+3 
+(3 
+) 
+— 
+— 
+— 
+— 
+— 
+Excess tax benefit from stock compensation 
+— 
+— 
+15,330 
+— 
+— 
+15,330 
+— 
+15,330 
+Shares withheld for taxes 
+— 
+— 
+(23,497 
+) 
+— 
+— 
+(23,497 
+) 
+— 
+(23,497 
+) 
+Stock repurchase 
+(245 
+) 
+(2 
+) 
+— 
+(19,916 
+) 
+— 
+(19,918 
+) 
+— 
+(19,918 
+) 
+Net income 
+— 
+— 
+— 
+199,052 
+— 
+199,052 
+2,806 
+201,858 
+Total other comprehensive income (loss) 
+— 
+— 
+— 
+— 
+(2,883 
+) 
+(2,883 
+) 
+— 
+(2,883 
+) 
+Balance December 31, 2011 
+38,692 
+$ 
+387 
+$ 
+144,684 
+$ 
+692,595 
+$ 
+(1,730 
+) 
+$ 
+835,936 
+$ 
+5,494 
+$ 
+841,430 
+Stock compensation expense 
+19 
+— 
+14,661 
+— 
+— 
+14,661 
+— 
+14,661 
+Exercise of stock options 
+4 
+— 
+9 
+— 
+— 
+9 
+— 
+9 
+Shares issued upon vesting 
+199 
+2 
+(2 
+) 
+— 
+— 
+— 
+— 
+— 
+Deficient tax benefit from stock compensation 
+— 
+— 
+(381 
+) 
+— 
+— 
+(381 
+) 
+— 
+(381 
+) 
+Shares withheld for taxes 
+— 
+— 
+(5,888 
+) 
+— 
+— 
+(5,888 
+) 
+— 
+(5,888 
+) 
+Stock repurchase 
+(4,514 
+) 
+(45 
+) 
+— 
+(220,650 
+) 
+— 
+(220,695 
+) 
+— 
+(220,695 
+) 
+Net income 
+— 
+— 
+— 
+128,866 
+— 
+128,866 
+148 
+129,014 
+Acquisition of noncontrolling interest 
+— 
+— 
+(14,037 
+) 
+— 
+(14,037 
+) 
+(5,642 
+) 
+(19,679 
+) 
+Total other comprehensive income (loss) 
+— 
+— 
+— 
+330 
+330 
+— 
+330 
+Balance December 31, 2012 
+34,400 
+$ 
+344 
+$ 
+139,046 
+$ 
+600,811 
+$ 
+(1,400 
+) 
+$ 
+738,801 
+$ 
+— 
+$ 
+738,801 
+See accompanying notes to consolidated financial statements. 
+F-6 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(amounts in thousands) 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+Cash flows from operating activities: 
+Net income 
+$ 
+129,014 
+$ 
+201,858 
+$ 
+160,377 
+Adjustments to reconcile net income to net cash provided by operating activities: 
+Depreciation, amortization, and accretion 
+33,367 
+28,977 
+12,283 
+Change in fair value of contingent consideration 
+8,659 
+— 
+— 
+Provision for (recovery of) doubtful accounts, net 
+2,128 
+(704 
+) 
+(786 
+) 
+Deferred tax provision 
+(5,657 
+) 
+(67 
+) 
+(1,712 
+) 
+Stock compensation 
+14,661 
+14,803 
+12,782 
+Other 
+1,229 
+2,735 
+(391 
+) 
+Changes in operating assets and liabilities, net of assets and 
+liabilities acquired in the acquisition of businesses: 
+Trade accounts receivable 
+491 
+(63,199 
+) 
+(39,449 
+) 
+Inventories 
+(46,903 
+) 
+(120,730 
+) 
+(38,642 
+) 
+Prepaid expenses and other current assets 
+23,511 
+(75,525 
+) 
+(6,766 
+) 
+Other assets 
+(3,028 
+) 
+(5,385 
+) 
+(1,651 
+) 
+Trade accounts payable 
+18,932 
+38,237 
+19,742 
+Contingent consideration 
+(959 
+) 
+— 
+— 
+Accrued expenses 
+(9,983 
+) 
+850 
+16,468 
+Income taxes payable 
+(5,820 
+) 
+5,722 
+5,480 
+Long-term liabilities 
+4,264 
+2,519 
+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 
+— 
+— 
+26,080 
+Purchases of property and equipment 
+(61,575 
+) 
+(55,538 
+) 
+(22,489 
+) 
+Acquisitions of businesses and equity method investment 
+(8,829 
+) 
+(125,203 
+) 
+(5,191 
+) 
+Purchases of intangible assets 
+(4,958 
+) 
+(4,025 
+) 
+— 
+Net cash used in investing activities 
+(75,362 
+) 
+(184,766 
+) 
+(1,600 
+) 
+Cash flows from financing activities: 
+Proceeds from issuance of short-term borrowings 
+307,000 
+45,000 
+— 
+Repayments of short-term borrowings 
+(274,000 
+) 
+(45,000 
+) 
+— 
+Cash paid for shares withheld for taxes 
+(6,535 
+) 
+(22,634 
+) 
+(2,584 
+) 
+Excess tax benefit from stock compensation 
+2,457 
+15,330 
+3,525 
+Cash received from issuances of common stock 
+— 
+62 
+89 
+Loan origination costs on short-term borrowings 
+(1,807 
+) 
+— 
+— 
+Contingent consideration paid 
+(29,041 
+) 
+— 
+— 
+Cash paid for noncontrolling interest 
+(20,000 
+) 
+— 
+— 
+Cash paid for repurchases of common stock 
+(220,695 
+) 
+(19,918 
+) 
+(10,082 
+) 
+Net cash used in financing activities 
+(242,621 
+) 
+(27,160 
+) 
+(9,052 
+) 
+Effect of exchange rates on cash 
+718 
+215 
+94 
+Net change in cash and cash equivalents 
+(153,359 
+) 
+(181,620 
+) 
+129,364 
+Cash and cash equivalents at beginning of year 
+263,606 
+445,226 
+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 
+$ 
+66,899 
+$ 
+62,405 
+$ 
+82,493 
+Interest 
+$ 
+3,338 
+$ 
+88 
+$ 
+59 
+Non-cash investing and financing activity: 
+Deferred purchase payments for acquisition of business 
+$ 
+3,671 
+$ 
+— 
+$ 
+— 
+Accruals for purchases of property and equipment 
+$ 
+489 
+$ 
+3,268 
+$ 
+247 
+Contingent consideration arrangement for acquisition of business 
+$ 
+1,128 
+$ 
+88,100 
+$ 
+— 
+Accruals for asset retirement obligations 
+$ 
+526 
+$ 
+236 
+$ 
+388 
+Accruals for shares withheld for taxes 
+$ 
+1,804 
+$ 
+2,460 
+$ 
+1,598 
+Write-off for shares exercised with a tax deficit 
+$ 
+2,838 
+$ 
+— 
+$ 
+— 
+See accompanying notes to consolidated financial statements. 
+F-7 
+Table of Contents 
+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® brand net sales occurring in the third and fourth quarters and the highest percentage of Teva® and Sanuk® 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® 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®, 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 
+Table of Contents 
+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: 
+• A significant decrease in the market price of a long-lived asset group; 
+• a significant adverse change in the extent or manner in which a long-lived asset group is being used or in its physical
+condition; 
+• 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; 
+• 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 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+• 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 
+• 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 
+Table of Contents 
+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: 
+• the assets' ability to continue to generate income from operations and positive cash flow in future periods; 
+• changes in consumer demand or acceptance of the related brand names, products, or features associated with the assets; and 
+• 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 
+Table of Contents 
+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: 
+• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. 
+• Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly
+observable. 
+• 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: 
+Fair Value Measurement Using 
+Fair Value at 
+December 31, 2012 
+Level 1 
+Level 2 
+Level 3 
+Assets (Liabilities) at fair value 
+Nonqualified deferred compensation 
+$ 
+3,653 
+$ 
+3,653 
+$ 
+— 
+$ 
+— 
+Nonqualified deferred compensation 
+$ 
+(3,653 
+) 
+$ 
+(3,653 
+) 
+$ 
+— 
+$ 
+— 
+Non-designated derivatives 
+$ 
+839 
+$ 
+— 
+$ 
+839 
+$ 
+— 
+Non-designated derivatives 
+$ 
+(336 
+) 
+$ 
+— 
+$ 
+(336 
+) 
+$ 
+— 
+Contingent consideration for acquisition of business 
+$ 
+(71,460 
+) 
+$ 
+— 
+$ 
+— 
+$ 
+(71,460 
+) 
+Fair Value Measurement Using 
+Fair Value at 
+December 31, 2011 
+Level 1 
+Level 2 
+Level 3 
+Assets (Liabilities) at fair value 
+Nonqualified deferred compensation 
+$ 
+1,991 
+$ 
+1,991 
+$ 
+— 
+$ 
+— 
+Nonqualified deferred compensation 
+$ 
+(1,991 
+) 
+$ 
+(1,991 
+) 
+$ 
+— 
+$ 
+— 
+Designated derivatives 
+$ 
+1,117 
+$ 
+— 
+$ 
+1,117 
+$ 
+— 
+Designated derivatives 
+$ 
+(87 
+) 
+$ 
+— 
+$ 
+(87 
+) 
+$ 
+— 
+Contingent consideration for 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 
+Table of Contents 
+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 
+88,100 
+Change in fair value 
+3,500 
+Balance, December 31, 2011 
+$ 
+91,600 
+Payments 
+(30,000 
+) 
+Hoka acquisition contingent consideration 
+1,100 
+Change in fair value 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+36,879,000 
+38,605,000 
+38,615,000 
+Dilutive effect of stock-based awards* 
+455,000 
+660,000 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 $861 during 2012, 2011 and 2010, respectively. In addition, the Company may also make discretionary profit sharing contributions to the
+plan. However, the Company did not make any profit sharing contributions for the years ended December 31, 2012, 2011 or 2010. 
+F-17 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+(2) Property and Equipment 
+Property and equipment is summarized as follows: 
+December 31, 
+2012 
+2011 
+Land 
+$ 
+19,954 
+$ 
+19,954 
+Machinery and equipment 
+67,582 
+50,081 
+Furniture and fixtures 
+22,280 
+13,794 
+Leasehold improvements 
+85,134 
+53,623 
+194,950 
+137,452 
+Less accumulated depreciation and amortization 
+69,580 
+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 
+Table of Contents 
+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 $33,000, resulting in no outstanding borrowings under the Amended and Restated Credit Agreement as of March 1, 2013. 
+(4) Income Taxes 
+Components of income tax expense (benefit) are as follows: 
+Federal 
+State 
+Foreign 
+Total 
+2012: 
+Current 
+$ 
+50,911 
+$ 
+6,482 
+$ 
+3,368 
+$ 
+60,761 
+Deferred 
+(6,083 
+) 
+414 
+12 
+(5,657 
+) 
+$ 
+44,828 
+$ 
+6,896 
+$ 
+3,380 
+$ 
+55,104 
+2011: 
+Current 
+$ 
+63,758 
+$ 
+12,226 
+$ 
+7,487 
+$ 
+83,471 
+Deferred 
+1,003 
+(1,067 
+) 
+(3 
+) 
+(67 
+) 
+$ 
+64,761 
+$ 
+11,159 
+$ 
+7,484 
+$ 
+83,404 
+2010: 
+Current 
+$ 
+71,032 
+$ 
+16,764 
+$ 
+3,648 
+$ 
+91,444 
+Deferred 
+(2,182 
+) 
+377 
+93 
+(1,712 
+) 
+$ 
+68,850 
+$ 
+17,141 
+$ 
+3,741 
+$ 
+89,732 
+Foreign
+income before income taxes was $51,409, $108,738 and $43,327 during the years ended December 31, 2012, 2011 and 2010 respectively. 
+F-19 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Actual
+income taxes differed from that obtained by applying the statutory federal income tax rate to income before income taxes as follows: 
+Years Ended December 31 
+2012 
+2011 
+2010 
+Computed "expected" income taxes 
+$ 
+64,282 
+$ 
+99,842 
+$ 
+87,517 
+State income taxes, net of federal income tax benefit 
+3,562 
+6,912 
+10,566 
+Foreign rate differential 
+(12,908 
+) 
+(24,783 
+) 
+(11,304 
+) 
+Other 
+168 
+1,433 
+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 
+$ 
+6,870 
+$ 
+5,271 
+Bad debt and other reserves 
+11,582 
+8,874 
+State taxes 
+799 
+1,729 
+Prepaid expenses 
+(1,961 
+) 
+(1,460 
+) 
+Total deferred tax assets, current 
+17,290 
+14,414 
+Deferred tax assets (liabilities), noncurrent: 
+Amortization and impairment of intangible assets 
+5,312 
+7,181 
+Depreciation of property and equipment 
+(8,524 
+) 
+(6,056 
+) 
+Share-based compensation 
+11,906 
+11,305 
+Foreign currency translation 
+244 
+(744 
+) 
+Deferred rent 
+3,247 
+169 
+Acquisition costs 
+834 
+808 
+Other 
+111 
+63 
+Net operating loss carryforwards 
+242 
+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 
+Table of Contents 
+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 $37,000 of cash and cash equivalents outside the US that would be
+subject to additional income taxes if it were to be repatriated. If the Company were to repatriate foreign cash, the Company would record the US tax liability net of any foreign income taxes
+previously paid on this cash. The Company has no plans to repatriate any of its foreign cash. For the full year 2012, the Company generated approximately 21.0% of its pre-tax earnings from
+a country which does not impose a corporate income tax. 
+When
+tax returns are filed, some positions taken are subject to uncertainty about the merits of the position taken or the amount that would be ultimately sustained. The benefit of a tax
+position is recognized in the financial statements in the period during which management believes it is more likely than not that the position will be sustained upon examination. Tax positions that
+meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement. The portion of the benefits that
+exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and
+penalties that would be payable to the taxing authorities upon examination. A reconciliation of the beginning and ending amounts of total unrecognized tax benefits is as follows: 
+Balance at December 31, 2010 
+$ 
+5,506 
+Gross decrease related to current year tax positions 
+(2,235 
+) 
+Balance at December 31, 2011 
+$ 
+3,271 
+Gross decrease related to prior years' tax positions 
+— 
+Settlements 
+(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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 $79,300. 
+On
+a quarterly basis, the Company grants fully-vested shares of its common stock to each of its outside directors. The fair value of such shares is expensed on the date of issuance. 
+The
+table below summarizes stock compensation amounts recognized in the consolidated statements of comprehensive income: 
+Year Ended December 31, 
+2012 
+2011 
+2010 
+Compensation expense recorded for: 
+NSUs 
+$ 
+11,849 
+$ 
+11,719 
+$ 
+7,915 
+SARs 
+1,501 
+1,813 
+3,420 
+RSUs 
+231 
+305 
+677 
+Directors' shares 
+1,080 
+966 
+770 
+Total compensation expense 
+14,661 
+14,803 
+12,782 
+Income tax benefit recognized 
+(5,573 
+) 
+(5,788 
+) 
+(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 
+$ 
+6,780 
+0.6 
+SARs 
+4,883 
+3.2 
+RSUs 
+750 
+3.2 
+Total 
+$ 
+12,413 
+The
+unrecognized compensation cost excludes a maximum of $20,591 and $19,717 of compensation cost on the Level III Awards and 2012 LTIP Awards, respectively, as achievement of the
+performance conditions are not considered probable. 
+F-24 
+Table of Contents 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+Notes to Consolidated Financial Statements — (Continued) 
+(amounts in thousands, except share quantity and per share data) 
+Nonvested Stock Units Issued Under the 2006 Plan 
+Number of 
+Shares 
+Weighted- 
+Average 
+Grant-Date 
+Fair Value 
+Nonvested at January 1, 2010 
+717,000 
+$ 
+26.34 
+Granted 
+315,000 
+45.99 
+Vested 
+(208,000 
+) 
+22.83 
+Forfeited 
+(26,000 
+) 
+25.98 
+Nonvested at December 31, 2010 
+798,000 
+$ 
+35.61 
+Granted 
+199,000 
+87.50 
+Vested 
+(263,000 
+) 
+40.31 
+Forfeited 
+(57,000 
+) 
+46.61 
+Nonvested at December 31, 2011 
+677,000 
+$ 
+48.14 
+Granted 
+209,000 
+63.18 
+Vested 
+(297,000 
+) 
+35.90 
+Forfeited 
+(18,000 
+) 
+63.68 
+Cancelled* 
+(200,000 
+) 
+62.17 
+Nonvested at December 31, 2012 
+371,000 
+$ 
+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 
+Number of 
+SARs 
+Weighted- 
+Average 
+Exercise 
+Price 
+Weighted- 
+Average 
+Remaining 
+Contractual 
+Term 
+(Years) 
+Aggregate 
+Intrinsic 
+Value 
+Outstanding at January 1, 2010 
+1,200,000 
+$ 
+26.73 
+9.8 
+$ 
+8,608 
+Granted 
+— 
+— 
+Exercised 
+— 
+— 
+Forfeited 
+(75,000 
+) 
+26.73 
+Outstanding at December 31, 2010 
+1,125,000 
+$ 
+26.73 
+8.7 
+$ 
+59,636 
+Granted 
+— 
+— 
+Exercised 
+(365,000 
+) 
+26.73 
+Forfeited 
+— 
+— 
+Outstanding at December 31, 2011 
+760,000 
+$ 
+26.73 
+8.8 
+$ 
+37,118 
+Granted 
+— 
+— 
+Exercised 
+(15,000 
+) 
+26.73 
+Forfeited 
+— 
+Outstanding at December 31, 2012 
+745,000 
+$ 
+26.73 
+7.9 
+$ 
+10,087 
+Exercisable at December 31, 2012 
+220,000 
+$ 
+26.73 
+4.4 
+$ 
+2,979 
+Expected to vest and exercisable at December 31, 2012 
+707,945 
+$ 
+26.73 
+7.8 
+$ 
+9,586 
+F-25 
+Table of Contents 
+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 
+Number of 
+Shares 
+Weighted- 
+Average 
+Grant-Date 
+Fair Value 
+Nonvested at January 1, 2010 
+159,000 
+$ 
+26.73 
+Granted 
+— 
+— 
+Vested 
+(64,000 
+) 
+26.73 
+Forfeited 
+(10,000 
+) 
+26.73 
+Nonvested at December 31, 2010 
+85,000 
+$ 
+26.73 
+Granted 
+275,000 
+82.09 
+Vested 
+(16,000 
+) 
+26.73 
+Forfeited 
+(25,000 
+) 
+82.09 
+Nonvested at December 31, 2011 
+319,000 
+$ 
+70.15 
+Granted 
+352,000 
+56.12 
+Vested 
+— 
+— 
+Forfeited 
+— 
+— 
+Nonvested at December 31, 2012 
+671,000 
+$ 
+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: 
+December 31, 
+2012 
+2011 
+Cumulative foreign currency translation adjustment 
+$ 
+(1,400 
+) 
+$ 
+(2,363 
+) 
+Unrealized (loss) gain on foreign currency hedging, net of tax 
+— 
+633 
+Accumulated other comprehensive loss 
+$ 
+(1,400 
+) 
+$ 
+(1,730 
+) 
+F-26 
+Table of Contents 
+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 
+$ 
+39,892 
+2014 
+35,375 
+2015 
+31,773 
+2016 
+28,448 
+2017 
+26,248 
+Thereafter 
+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. 
+Years Ended Decemer 31, 
+2012 
+2011 
+2010 
+Minimum rentals 
+$ 
+37,270 
+$ 
+26,645 
+$ 
+18,551 
+Contingent rentals 
+9,366 
+6,085 
+2,496 
+$ 
+46,636 
+$ 
+32,730 
+$ 
+21,047 
+Purchase Obligations. The Company had $335,284 of outstanding purchase orders with its manufacturers as of December 31,
+2012. In addition, the
+Company entered into agreements for promotional activities and other services. Future commitments under these purchase orders and other agreements are as follows: 
+Year ending December 31:
+2013* 
+$ 
+341,112 
+2014 
+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 
+Table of Contents 
+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 
+Advance 
+Deposit 
+Total 
+Minimum 
+Commitment 
+Remaining 
+Deposit 
+Remaining 
+Commitment, 
+Net of Deposit 
+October 2011 
+July 31, 2013 
+$50,000 
+$270,000 
+$39,383 
+$113,216 
+October 2012 
+September 30, 2013 
+$ — 
+$ 83,000 
+$ — 
+$ 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 
+Table of Contents 
+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: 
+• 51.8% of the Sanuk brand gross profit in 2012, which was $25,450, 
+• 36.0% of the Sanuk brand gross profit in 2013, and 
+• 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 
+Table of Contents 
+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®, TSUBO®, Ahnu®, MOZO® and Hoka One One®. 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 
+Table of Contents 
+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: 
+Years Ended Decemer 31, 
+2012 
+2011 
+2010 
+Net sales to external customers: 
+UGG wholesale 
+$ 
+819,256 
+$ 
+915,203 
+$ 
+663,854 
+Teva wholesale 
+108,591 
+118,742 
+96,207 
+Sanuk wholesale 
+89,804 
+26,039 
+— 
+Other brands wholesale 
+20,194 
+21,801 
+23,476 
+eCommerce 
+130,592 
+106,498 
+91,808 
+Retail stores 
+245,961 
+189,000 
+125,644 
+$ 
+1,414,398 
+$ 
+1,377,283 
+$ 
+1,000,989 
+Income (loss) from operations: 
+UGG wholesale 
+$ 
+267,823 
+$ 
+388,275 
+$ 
+307,478 
+Teva wholesale 
+10,072 
+20,267 
+18,684 
+Sanuk wholesale 
+15,567 
+797 
+— 
+Other brands wholesale 
+(4,317 
+) 
+(9,524 
+) 
+(6,184 
+) 
+eCommerce 
+29,903 
+24,255 
+23,536 
+Retail stores 
+25,590 
+31,461 
+27,310 
+Unallocated overhead 
+(157,690 
+) 
+(170,693 
+) 
+(121,736 
+) 
+$ 
+186,948 
+$ 
+284,838 
+$ 
+249,088 
+Depreciation and amortization: 
+UGG wholesale 
+$ 
+622 
+$ 
+4,375 
+$ 
+112 
+Teva wholesale 
+515 
+587 
+2,024 
+Sanuk wholesale 
+8,838 
+5,125 
+— 
+Other brands wholesale 
+1,622 
+533 
+1,125 
+eCommerce 
+839 
+540 
+232 
+Retail stores 
+12,073 
+6,082 
+3,018 
+Unallocated overhead 
+8,911 
+8,185 
+5,772 
+$ 
+33,420 
+$ 
+25,427 
+$ 
+12,283 
+Capital expenditures: 
+UGG wholesale 
+$ 
+314 
+$ 
+706 
+$ 
+1,155 
+Teva wholesale 
+326 
+305 
+150 
+Sanuk wholesale 
+448 
+1,778 
+— 
+Other brands wholesale 
+197 
+198 
+226 
+eCommerce 
+347 
+1,419 
+1,030 
+Retail stores 
+34,004 
+22,297 
+11,296 
+Unallocated overhead 
+25,966 
+29,083 
+9,191 
+$ 
+61,602 
+$ 
+55,786 
+$ 
+23,048 
+Total assets from reportable segments: 
+UGG wholesale 
+$ 
+377,997 
+$ 
+347,213 
+$ 
+194,028 
+Teva wholesale 
+59,641 
+61,893 
+49,849 
+Sanuk wholesale 
+209,861 
+217,936 
+— 
+Other brands wholesale 
+29,446 
+10,690 
+12,031 
+eCommerce 
+5,058 
+5,964 
+4,053 
+Retail stores 
+134,804 
+80,514 
+39,377 
+$ 
+816,807 
+$ 
+724,210 
+$ 
+299,338 
+F-31 
+Table of Contents 
+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 
+$ 
+182,299 
+$ 
+140,004 
+$ 
+102,222 
+Teva wholesale 
+3,260 
+2,369 
+2,129 
+Sanuk wholesale 
+1,696 
+— 
+— 
+Other wholesale 
+507 
+1,040 
+$ 
+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 
+$ 
+65,932 
+$ 
+64,160 
+$ 
+44,165 
+Teva wholesale 
+1,108 
+1,130 
+802 
+Sanuk wholesale 
+825 
+— 
+— 
+Other wholesale 
+134 
+425 
+$ 
+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: 
+December 31, 
+2012 
+2011 
+Total assets from reportable segments 
+$ 
+816,807 
+$ 
+724,210 
+Unallocated cash and cash equivalents 
+110,247 
+263,606 
+Unallocated deferred tax assets 
+30,662 
+27,637 
+Other unallocated corporate assets 
+110,348 
+130,743 
+Consolidated total assets 
+$ 
+1,068,064 
+$ 
+1,146,196 
+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 
+Table of Contents 
+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: 
+December 31, 
+2012 
+2011 
+Money market fund accounts 
+$ 
+52,650 
+$ 
+196,315 
+Cash 
+57,597 
+67,291 
+Total cash and cash equivalents 
+$ 
+110,247 
+$ 
+263,606 
+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: 
+December 31, 
+2012 
+2011 
+US 
+$ 
+89,423 
+$ 
+65,034 
+All other countries* 
+35,947 
+25,223 
+Total 
+$ 
+125,370 
+$ 
+90,257 
+* 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 
+Table of Contents 
+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 $63,000. 
+The
+following tables summarize the effect of derivative instruments on the consolidated financial statements: 
+For the Year 
+Ended 
+December 31, 
+Derivatives in 
+Designated 
+Cash Flow 
+Hedging 
+Relationships 
+Amount of 
+Gain (Loss) 
+Recognized in 
+OCI on 
+Derivative 
+(Effective 
+Portion) 
+Location of 
+Gain (Loss) 
+Reclassified 
+from 
+Accumulated 
+OCI into 
+Income 
+(Effective 
+Portion) 
+Amount of 
+Gain (Loss) 
+Reclassified 
+from 
+Accumulated 
+OCI into 
+Income 
+(Effective 
+Portion) 
+Location of 
+Amount 
+Excluded from 
+Effectiveness 
+Testing 
+Gain (Loss) 
+from Amount 
+Excluded from 
+Effectiveness 
+Testing 
+2012 
+Foreign Exchange Contracts 
+$(1,191) 
+Net Sales 
+$617 
+SG&A 
+$ 26 
+2011 
+Foreign Exchange Contracts 
+$(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 
+Foreign Exchange Contracts 
+SG&A 
+$1,030 
+2011 
+Foreign Exchange Contracts 
+SG&A 
+$(541) 
+F-34 
+Table of Contents 
+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: 
+2012 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+246,306 
+$ 
+174,436 
+$ 
+376,392 
+$ 
+617,264 
+Gross profit 
+113,288 
+73,579 
+159,293 
+285,994 
+Net income (loss) attributable to Deckers Outdoor Corporation 
+7,887 
+(20,139 
+) 
+43,061 
+98,057 
+Net income (loss) per share attributable to Deckers Outdoor Corporation common stockholders: 
+Basic 
+$ 
+0.20 
+$ 
+(0.53 
+) 
+$ 
+1.19 
+$ 
+2.81 
+Diluted 
+$ 
+0.20 
+$ 
+(0.53 
+) 
+$ 
+1.18 
+$ 
+2.77 
+2011 
+March 31 
+June 30 
+September 30 
+December 31 
+Net sales 
+$ 
+204,851 
+$ 
+154,222 
+$ 
+414,358 
+$ 
+603,852 
+Gross profit 
+102,478 
+65,912 
+202,853 
+307,752 
+Net income (loss) attributable to Deckers Outdoor Corporation 
+19,178 
+(7,339 
+) 
+62,484 
+124,729 
+Net income (loss) per share attributable to Deckers Outdoor Corporation common stockholders: 
+Basic 
+$ 
+0.50 
+$ 
+(0.19 
+) 
+$ 
+1.62 
+$ 
+3.23 
+Diluted 
+$ 
+0.49 
+$ 
+(0.19 
+) 
+$ 
+1.59 
+$ 
+3.18 
+F-35 
+Table of Contents 
+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: 
+Gross 
+Carrying 
+Amount 
+Weighted- 
+Average 
+Amortization 
+Period 
+Accumulated 
+Amortization 
+Net Carrying 
+Amount 
+As of December 31, 2012 
+Intangibles subject to amortization 
+$ 
+99,132 
+14 years 
+$ 
+16,164 
+$ 
+82,968 
+Intangibles not subject to amortization: 
+Goodwill 
+126,267 
+Trademarks 
+15,455 
+Total goodwill and other intangible assets 
+$ 
+224,690 
+As of December 31, 2011 
+Intangibles subject to amortization 
+$ 
+85,847 
+15 years 
+$ 
+6,853 
+$ 
+78,994 
+Intangibles not subject to amortization: 
+Goodwill 
+120,045 
+Trademarks 
+15,455 
+Total goodwill and other intangible assets 
+$ 
+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 
+$ 
+21,932 
+$ 
+(15,425 
+) 
+$ 
+6,507 
+Additions through acquisitions 
+113,944 
+— 
+113,944 
+Impairment loss 
+— 
+(406 
+) 
+(406 
+) 
+Balance at December 31, 2011 
+$ 
+135,876 
+$ 
+(15,831 
+) 
+$ 
+120,045 
+Additions through acquisitions 
+6,222 
+— 
+6,222 
+Impairment loss 
+— 
+— 
+— 
+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 
+Table of Contents 
+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: 
+As Of December 31, 
+2012 
+2011 
+UGG brand 
+$ 
+6,101 
+$ 
+6,101 
+Sanuk brand 
+113,944 
+113,944 
+Other brands 
+6,222 
+— 
+Total 
+$ 
+126,267 
+$ 
+120,045 
+Aggregate
+amortization expense for amortizable intangible assets for the years ended December 31, 2012, 2011 and 2010, was $9,312, $9,599 and $2,598, respectively. The following
+table summarizes the expected amortization expense on existing intangible assets for the next five years. 
+Year ending December 31:
+2013 
+$ 
+9,892 
+2014 
+8,662 
+2015 
+7,400 
+2016 
+5,937 
+2017 
+5,574 
+Thereafter 
+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: 
+• 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; 
+• 36.0% of gross profit of the Sanuk brand in 2013; 
+• 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 
+Table of Contents 
+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 
+15.0 
+% 
+5.0 
+% 
+International trademarks 
+Relief from royalty 
+17.0 
+% 
+5.0 
+% 
+Customer relationships 
+Excess earnings 
+15.5 
+% 
+International distributor relationships 
+Lost profits 
+17.5 
+% 
+US non-compete agreements 
+Lost profits 
+15.5 
+% 
+International non-compete agreements 
+Lost profits 
+17.5 
+% 
+Patents 
+Relief from royalty 
+16.5 
+% 
+3.0 
+% 
+US backlog 
+Excess earnings 
+14.0 
+% 
+International backlog 
+Excess earnings 
+16.0 
+% 
+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 
+Table of Contents 
+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 
+$ 
+125,203 
+Receivable from sellers 
+(1,659 
+) 
+Contingent consideration arrangement 
+88,100 
+Total consideration transferred 
+$ 
+211,644 
+Recognized amounts of identifiable assets acquired and liabilities assumed: 
+Trade accounts receivable, net of allowances of $1,130 
+$ 
+12,809 
+Inventories 
+7,545 
+Other assets 
+367 
+Trade accounts payable 
+(5,544 
+) 
+Other liabilities 
+(507 
+) 
+Net tangible assets acquired 
+14,670 
+Identifiable intangible assets: 
+Trademarks 
+47,200 
+20 
+Customer relationships 
+21,300 
+8 
+International distributor relationships 
+800 
+2 
+Non-compete agreements 
+5,300 
+5 
+Patents 
+6,600 
+14 
+Backlog 
+1,830 
+1 
+Goodwill 
+113,944 
+Non-amortizable 
+Total purchase price 
+$ 
+211,644 
+F-39 
+Table of Contents 
+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 
+$ 
+122,524 
+$ 
+2,679 
+$ 
+125,203 
+Receivable from sellers 
+— 
+(1,659 
+) 
+(1,659 
+) 
+Contingent consideration arrangement 
+84,300 
+3,800 
+88,100 
+$ 
+4,820 
+Trade accounts payable 
+$ 
+(5,590 
+) 
+$ 
+46 
+$ 
+(5,544 
+) 
+Goodwill 
+109,170 
+4,774 
+113,944 
+$ 
+4,820 
+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 
+$ 
+1,419,557 
+$ 
+1,049,389 
+Income from operations 
+$ 
+297,835 
+$ 
+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 
+Table of Contents 
+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 
+Table of Contents 
+Schedule II 
+DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES 
+VALUATION AND QUALIFYING ACCOUNTS 
+Three Years Ended December 31, 2012, 2011 and 2010 
+Balance at 
+Beginning of 
+Year 
+Additions 
+Deductions 
+Balance at 
+End of Year 
+Year ended December 31, 2012: 
+Allowance for doubtful accounts(1) 
+$ 
+1,719 
+$ 
+2,128 
+$ 
+1,065 
+$ 
+2,782 
+Allowance for sales discounts(2) 
+4,629 
+35,759 
+36,552 
+3,836 
+Allowance for sales returns(3) 
+11,313 
+53,165 
+51,573 
+12,905 
+Chargeback allowance(4) 
+4,031 
+5,879 
+4,347 
+5,563 
+Year ended December 31, 2011: 
+Allowance for doubtful accounts(1) 
+$ 
+1,379 
+$ 
+642 
+$ 
+302 
+$ 
+1,719 
+Allowance for sales discounts(2) 
+5,819 
+36,254 
+37,444 
+4,629 
+Allowance for sales returns(3) 
+4,039 
+37,355 
+30,081 
+11,313 
+Chargeback allowance(4) 
+2,535 
+1,744 
+248 
+4,031 
+Year ended December 31, 2010: 
+Allowance for doubtful accounts(1) 
+$ 
+2,710 
+$ 
+(763 
+) 
+$ 
+568 
+$ 
+1,379 
+Allowance for sales discounts(2) 
+2,796 
+26,514 
+23,491 
+5,819 
+Allowance for sales returns(3) 
+3,235 
+20,726 
+19,922 
+4,039 
+Chargeback allowance(4) 
+3,049 
+(253 
+) 
+261 
+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
\ No newline at end of file
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/filing_metadata.csv b/raw/filings/0000910521/2012/0001047469-13-002068/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..5384eac03e806c757e6661784ad8ba453ea45d07
--- /dev/null
+++ b/raw/filings/0000910521/2012/0001047469-13-002068/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000910521,DECK,DECKERS OUTDOOR CORP,10-K,2013-03-01,2012-12-31,2013-03-01T21:08:28.000Z,0001047469-13-002068,a2213206z10-k.htm,10-K,13150434,1,0,https://www.sec.gov/Archives/edgar/data/910521/000104746913002068/a2213206z10-k.htm,https://www.sec.gov/Archives/edgar/data/910521/000104746913002068/,2012,2012,1
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/item1.txt b/raw/filings/0000910521/2012/0001047469-13-002068/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c0f1db7bbae7f50f160e4c1d00759b128bc71182
--- /dev/null
+++ b/raw/filings/0000910521/2012/0001047469-13-002068/item1.txt
@@ -0,0 +1,247 @@
+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 
+Table of Contents 
+Products 
+We market our products primarily under three proprietary brands: 
+UGG®. 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®. 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®. 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® 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®" 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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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 
+Table of Contents 
+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: 
+• shape and stimulate consumer tastes and preferences by offering innovative, attractive, and exciting products; 
+• anticipate and respond to changing consumer demands in a timely manner; 
+• maintain brand authenticity; 
+• develop high quality products that appeal to consumers; 
+• price our products suitably; 
+• provide strong and effective marketing support; and 
+• 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 
+Table of Contents 
+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.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/item13.txt b/raw/filings/0000910521/2012/0001047469-13-002068/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..275e2170c275074a8aafbf6e1d8a6c4680e71fbe
--- /dev/null
+++ b/raw/filings/0000910521/2012/0001047469-13-002068/item13.txt
@@ -0,0 +1,4 @@
+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.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/item9a.txt b/raw/filings/0000910521/2012/0001047469-13-002068/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b97607251fbd216991c2c40dc90c88992b33591b
--- /dev/null
+++ b/raw/filings/0000910521/2012/0001047469-13-002068/item9a.txt
@@ -0,0 +1,43 @@
+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 
+Table of Contents 
+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: 
+• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the company; 
+• 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 
+• 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.
\ No newline at end of file
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/rp_note.txt b/raw/filings/0000910521/2012/0001047469-13-002068/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000910521/2012/0001047469-13-002068/rpt_disclosure.txt b/raw/filings/0000910521/2012/0001047469-13-002068/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e253ab0e8719b9bd4c0738b67b898ddadb6b24b2
--- /dev/null
+++ b/raw/filings/0000910521/2012/0001047469-13-002068/rpt_disclosure.txt
@@ -0,0 +1,30 @@
+Certain Relationships and Related Person Transactions 
+The Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which the
+Company and our directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a
+direct or indirect material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive
+officers a written questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Ethics addresses conflicts of
+interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which
+might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's
+supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of the Company's Code of Ethics may be reported to the Company's
+anonymous reporting hotline and may be subsequently obtained by the Chair of the Audit Committee, the Chair of the Board of Directors and the highest ranking manager of internal audit. 
+If
+a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable SEC regulations, the Audit
+Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards
+of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in
+its good faith judgment, the transaction is in the best interests of the Company. 
+There
+were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2012 nor are any
+such transactions currently proposed. 
+Limitation of Liability and Indemnification of Directors and Officers 
+Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now
+or hereafter permitted by the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our 
+62 
+directors
+and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. 
+We
+have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as
+amended. 
+We
+maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in
+connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them
+by reason of their being or having been directors or officers.
\ No newline at end of file