Refer to Part IV, “Index to Consolidated Financial Statements and Financial Statement Schedule,” on page F-1 within this Annual Report for our Consolidated Financial Statements and the Reports of Independent Registered Public Accounting Firm.

EXHIBIT INDEX

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 filed on August 9, 2010 and incorporated by reference herein)
3.2		Amended and Restated Bylaws of Deckers Outdoor Corporation, as updated through June 5, 2018 (Exhibit 3.1 to the Registrant’s Form 8-K filed on June 5, 2018 and incorporated by reference herein)
*4.1		Description of Deckers Outdoor Corporation’s Capital Stock
10.1		Lease Agreement, dated September 15, 2004, by and 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 filed on March 16, 2005 and incorporated by reference herein)
10.2		First Amendment to Lease Agreement, dated December 1, 2004, by and between Mission Oaks Associates, LLC and Deckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo, CA 93012 (Exhibit 10.38 to the Registrant's Form 10-K filed on March 16, 2005 and incorporated by reference herein)
10.3		Amendment to Lease Agreement, dated September 1, 2011, by and between Mission Oaks Associates, LLC and Deckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo, CA 93012 (Exhibit 10.24 to the Registrant’s Form 10-K filed on February 29, 2012 and incorporated by reference herein)
10.4		Amendment to Lease Agreement, dated September 1, 2011, by and between 450 N. Baldwin Park Associates, LLC and Deckers Outdoor Corporation for distribution center at 3175 Mission Oaks Blvd., Camarillo, CA 93012 (Exhibit 10.23 to the Registrant’s Form 10-K filed on February 29, 2012 and incorporated by reference herein)
*10.5		Amendment to Lease Agreement, dated June 5, 2018, by and between STAG Camarillo 2, LLC and Deckers Outdoor Corporation for distribution center at 3175 Mission Oaks Blvd., Camarillo, CA 93012
10.6		Lease Agreement, dated December 5, 2013, by and between Moreno Knox, LLC and Deckers Outdoor Corporation for distribution center at 17791 Perris Blvd., Moreno Valley, CA 92551 (Exhibit 10.6 to the Registrant’s Form 10-K filed on March 3, 2014 and incorporated by reference herein)
10.7		First Amendment to Lease Agreement, dated June 6, 2017, by and between Moreno Knox, LLC and Deckers Outdoor Corporation for distribution center at 17791 Perris Blvd., Moreno Valley, CA 92551 (Exhibit 10.6 to the Registrant’s Form 10-K filed on May 30, 2018 and incorporated by reference herein)
10.8		Second Amendment to Lease Agreement, dated July 17, 2017, by and between Moreno Knox, LLC and Deckers Outdoor Corporation for distribution center at 17791 Perris Blvd., Moreno Valley, CA 92551 (Exhibit 10.7 to the Registrant’s Form 10-K filed on May 30, 2018 and incorporated by reference herein)
10.9		Credit Agreement, dated as of September 20, 2018, by and among Deckers Outdoor Corporation, Deckers Europe Limited, Deckers UK Ltd., Deckers Benelux B.V., Deckers Outdoor Canada ULC and Deckers Outdoor International Limited, as borrowers, JP Morgan Chase Bank, N.A. as Administrative Agent, Citibank, N.A., Comerica Bank and HSBC Bank USA, National Association, as Co-Syndication Agents, MUFG Bank, Ltd. and U.S. Bank National Association, as Co-Documentation Agents, and the lenders party thereto (Exhibit 10.1 to the Registrant’s Form 8-K filed on September 25, 2018 and incorporated by reference herein)
10.10		Term Loan Agreement, dated July 9, 2014, by and among Deckers Cabrillo, LLC, as Borrower and California Bank & Trust, as Lender (Exhibit 10.1 to the Registrant’s Form 8-K filed on July 15, 2014 and incorporated by reference herein)
*10.11		Second Modification Agreement, dated October 11, 2018, to Term Loan Agreement dated as of July 9, 2014, among Deckers Cabrillo, LLC as Borrower and California Bank & Trust, as Lender
10.12		Continuing Guaranty Agreement, dated July 9, 2014, by and among Deckers Outdoor Corporation and California Bank & Trust (Exhibit 10.2 to the Registrant’s Form 8-K filed on July 15, 2014 and incorporated by reference herein)

10.13		Deed of Trust, Assignment of Leases and Rents and Security Agreement (including Fixture Filing), dated July 9, 2014, executed by Deckers Cabrillo, LLC (Exhibit 10.3 to the Registrant’s Form 8-K filed on July 15, 2014 and incorporated by reference herein)
*#10.14		Form of Change in Control and Severance Agreement
#10.15		Consulting Agreement and General Release, dated May 24, 2016 and effective May 31, 2016, entered into by and between Deckers Outdoor Corporation and Angel Martinez (Exhibit 10.1 to the Registrant’s Form 8-K filed on May 27, 2016 and incorporated by reference herein)
#10.16		Deckers Outdoor Corporation 2006 Equity Incentive Plan (Appendix A to the Registrant's Definitive Proxy Statement filed on April 21, 2006 and incorporated by reference herein)
#10.17		First Amendment to Deckers Outdoor Corporation 2006 Equity Incentive Plan (Appendix A to the Registrant's Definitive Proxy Statement filed on April 9, 2007 and incorporated by reference herein)
#10.18		Deckers Outdoor Corporation Second Amended and Restated Deferred Stock Unit Compensation Plan, effective as of December 16, 2015 (Exhibit 10.1 to the Registrant's Form 10-Q filed on November 9, 2017 and incorporated by reference herein)
#10.19		Deckers Outdoor Corporation Amended and Restated Deferred Compensation Plan, effective July 1, 2016 (Exhibit 10.2 to the Registrant’s Form 10-Q filed on November 9, 2017 and incorporated by reference herein)
#10.20		Form of Deckers Outdoor Corporation Management Incentive Program under the 2006 Equity Incentive Plan (Exhibit 10.28 to the Registrant’s Form 10-K filed on March 1, 2013 and incorporated by reference herein)
#10.21		Deckers Outdoor Corporation 2015 Employee Stock Purchase Plan (Appendix A to the Registrant's Definitive Proxy Statement filed on July 29, 2015 and incorporated by reference herein)
#10.22		Deckers Outdoor Corporation 2015 Stock Incentive Plan (Appendix B to the Registrant's Definitive Proxy Statement filed on July 29, 2015 and incorporated by reference herein)
#10.23		Management Incentive Plan (Exhibit 10.1 to the Registrant's Form 10-Q filed on August 10, 2015 and incorporated by reference herein)
#10.24		Form of Restricted Stock Unit Award Agreement under the 2015 Stock Incentive Plan (2016 LTIP Financial Performance Award) (Exhibit 10.1 to the Registrant’s Form 8-K filed on November 24, 2015 and incorporated by reference herein)
#10.25		Form of Stock Unit Award Agreement (2016 Time-Based RSU) under the 2015 Stock Incentive Plan (Exhibit 10.6 to the Registrant’s Form 10-Q filed on November 9, 2017 and incorporated by reference herein)
#10.26		Form of Stock Unit Award Agreement (2017 Performance-Based PSU) under the 2015 Stock Incentive Plan (Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 9, 2016 and incorporated by reference herein)
#10.27		Form of Stock Unit Award Agreement (2017 Time-Based RSU) under the 2015 Stock Incentive Plan (Exhibit 10.2 to the Registrant’s Form 10-Q filed on August 9, 2016 and incorporated by reference herein)
#10.28		Form of Stock Unit Award Agreement (2018 Time-Based RSU) under the 2015 Stock Incentive Plan (Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 9, 2017 and incorporated by reference herein)
#10.29		Form of Stock Unit Award Agreement (2018 Performance-Based PSU) under the 2015 Stock Incentive Plan (Exhibit 10.2 to the Registrant’s Form 10-Q filed on August 9, 2017 and incorporated by reference herein)
#10.30		Form of Performance Stock Option Agreement under 2015 Stock Incentive Plan (Exhibit 10.3 to the Registrant’s Form 10-Q filed on August 9, 2017 and incorporated by reference herein)
#10.31		Form of Stock Unit Award Agreement (2019 Performance-Based PSU) under the 2015 Stock Incentive Plan (Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 9, 2018 and incorporated by reference herein)
#10.32		Form of Stock Unit Award Agreement (2019 Time-Based RSU) under the 2015 Stock Incentive Plan (Exhibit 10.2 to the Registrant’s Form 10-Q filed on August 9, 2018 and incorporated by reference herein)
#10.33		Form of Restricted Stock Unit Award Agreement under 2015 Stock Incentive Plan (FY 2019) LTIP Agreement (Exhibit 10.2 to the Registrant’s Form 8-K filed on September 25, 2018 and incorporated by reference herein)
*21.1		Subsidiaries of Registrant
*23.1		Consent of Independent Registered Public Accounting Firm

*31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended
*31.2		Certification of the Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) under the Exchange Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended
**32		Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended
*101.INS		XBRL Instance Document
*101.SCH		XBRL Taxonomy Extension Schema Document
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB		XBRL Taxonomy Extension Label Linkbase Document
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

• Filed herewith.

** Furnished herewith.

Management contract or compensatory plan or arrangement.

SIGNATURES

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

DECKERS OUTDOOR CORPORATION (Registrant)
/s/ STEVEN J. FASCHING
Steven J. Fasching Chief Financial Officer (Principal Financial and Accounting Officer)

Date: May 30, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/ DAVID POWERS	Chief Executive Officer, President and Director (Principal Executive Officer)	May 30, 2019
David Powers
/s/ STEVEN J. FASCHING	Chief Financial Officer (Principal Financial and Accounting Officer)	May 30, 2019
Steven J. Fasching
/s/ JOHN M. GIBBONS	Chairman of the Board	May 30, 2019
John M. Gibbons
/s/ NELSON C. CHAN	Director	May 30, 2019
Nelson C. Chan
/s/ CINDY L. DAVIS	Director	May 30, 2019
Cindy L. Davis
/s/ MICHAEL F. DEVINE, III	Director	May 30, 2019
Michael F. Devine, III
/s/ WILLIAM L. MCCOMB	Director	May 30, 2019
William L. McComb
/s/ JAMES QUINN	Director	May 30, 2019
James Quinn
/s/ LAURI M. SHANAHAN	Director	May 30, 2019
Lauri M. Shanahan
/s/ BRIAN A. SPALY	Director	May 30, 2019
Brian A. Spaly
/s/ BONITA C. STEWART	Director	May 30, 2019
Bonita C. Stewart

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm - Consolidated Financial Statements	F-2
Report of Independent Registered Public Accounting Firm - Internal Control Over Financial Reporting	F-3
Consolidated Balance Sheets	F-4
Consolidated Statements of Comprehensive Income (Loss)	F-5
Consolidated Statements of Stockholders' Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-9
Consolidated Financial Statement Schedule:
Schedule II - Total Valuation and Qualifying Accounts	F-45

All other schedules are omitted because they are not applicable, or the required information is shown in the consolidated financial statements or accompanying notes thereto.

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Deckers Outdoor Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Deckers Outdoor Corporation and subsidiaries (the Company) as of March 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2019, and the related notes and financial statement schedule (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2019 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 30, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 1992.

Los Angeles, California

May 30, 2019

F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Deckers Outdoor Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Deckers Outdoor Corporation and subsidiaries’ (the Company) internal control over financial reporting as of March 31, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) 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) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2019, and the related notes and financial statement schedule (collectively, the consolidated financial statements), and our report dated May 30, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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(b), "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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ KPMG LLP

Los Angeles, California

May 30, 2019

F-3

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollar and share data amounts in thousands, except par value)

	As of March 31,
	2019				2018
ASSETS
Current assets
Cash and cash equivalents	$	589,692			$	429,970
Trade accounts receivable, net of allowances ($18,824 and $33,462 as of March 31, 2019 and 2018, respectively)	178,602				143,704
Inventories, net of reserves ($9,723 and $9,020 as of March 31, 2019 and 2018, respectively)	278,842				299,602
Prepaid expenses	19,901				17,639
Other current assets	26,028				17,599
Income tax receivable	2,340				2,176
Total current assets	1,095,405				910,690
Property and equipment, net of accumulated depreciation ($235,939 and $210,763 as of March 31, 2019 and 2018, respectively)	213,796				220,162
Goodwill	13,990				13,990
Other intangible assets, net of accumulated amortization ($71,186 and $66,065 as of March 31, 2019 and 2018, respectively)	51,494				57,850
Deferred tax assets, net	30,870				38,381
Other assets	21,651				23,306
Total assets	$	1,427,206			$	1,264,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings	$	603			$	578
Trade accounts payable	124,974				93,939
Accrued payroll	54,462				55,695
Other accrued expenses	47,963				24,446
Income taxes payable	19,283				11,006
Value added tax payable	3,239				3,502
Total current liabilities	250,524				189,166
Mortgage payable	30,901				31,504
Income tax liability	60,616				64,735
Deferred rent obligations	21,107				22,499
Other long-term liabilities	18,928				15,696
Total long-term liabilities	131,552				134,434
Commitments and contingencies
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 29,141 and 30,447 as of March 31, 2019 and 2018, respectively)	291				304
Additional paid-in capital	178,227				167,587
Retained earnings	889,266				785,871
Accumulated other comprehensive loss	(22,654		)		(12,983		)
Total stockholders' equity	1,045,130				940,779
Total liabilities and stockholders' equity	$	1,427,206			$	1,264,379

See accompanying notes to the consolidated financial statements.

F-4

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollar and share data amounts in thousands, except per share data)

	Years Ended March 31,
	2019				2018				2017
Net sales	$	2,020,437			$	1,903,339			$	1,790,147
Cost of sales	980,187				971,697				954,912
Gross profit	1,040,250				931,642				835,235
Selling, general and administrative expenses	712,930				709,058				837,154
Income (loss) from operations	327,320				222,584				(1,919		)
Interest income	(6,028		)		(3,057		)		(778		)
Interest expense	4,661				4,585				7,319
Other (income) expense, net	(247		)		360				(1,474		)
Total other (income) expense, net	(1,614		)		1,888				5,067
Income (loss) before income taxes	328,934				220,696				(6,986		)
Income tax expense (benefit)	64,626				106,302				(12,696		)
Net income	264,308				114,394				5,710
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on cash flow hedges	(243		)		(613		)		704
Foreign currency translation (loss) gain	(9,428		)		14,081				(6,598		)
Total other comprehensive (loss) income	(9,671		)		13,468				(5,894		)
Comprehensive income (loss)	$	254,637			$	127,862			$	(184	)
Net income per share
Basic	$	8.92			$	3.60			$	0.18
Diluted	$	8.84			$	3.58			$	0.18
Weighted-average common shares outstanding
Basic	29,641				31,758				32,000
Diluted	29,903				31,996				32,355

See accompanying notes to the consolidated financial statements.

F-5

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(amounts in thousands)

	Common Stock							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
	Shares			Amount
Balance as of March 31, 2016	32,020			$	320			$	161,259			$	826,449			$	(20,557	)		$	967,471
Stock compensation expense	23			—				6,175				—				—				6,175
Shares issued upon vesting	166			2				796				—				—				798
Excess tax benefit from stock compensation	—			—				100				—				—				100
Shares withheld for taxes	—			—				(7,533		)		—				—				(7,533		)
Repurchases of common stock	(222	)		(2		)		—				(12,570		)		—				(12,572		)
Net income	—			—				—				5,710				—				5,710
Total other comprehensive loss	—			—				—				—				(5,894		)		(5,894		)
Balance as of March 31, 2017	31,987			320				160,797				819,589				(26,451		)		954,255
Stock compensation expense	15			—				14,302				—				—				14,302
Shares issued upon vesting	148			1				764				—				—				765
Cumulative adjustment from adoption of new accounting guidance	—			—				—				1,558				—				1,558
Shares withheld for taxes	—			—				(8,276		)		—				—				(8,276		)
Repurchases of common stock	(1,703	)		(17		)		—				(149,670		)		—				(149,687		)
Net income	—			—				—				114,394				—				114,394
Total other comprehensive income	—			—				—				—				13,468				13,468
Balance as of March 31, 2018	30,447			304				167,587				785,871				(12,983		)		940,779
Stock compensation expense	10			—				14,773				—				—				14,773
Shares issued upon vesting	85			1				1,024				—				—				1,025
Cumulative adjustment from adoption of new accounting guidance	—			—				—				468				—				468
Shares withheld for taxes	—			—				(5,157		)		—				—				(5,157		)
Repurchases of common stock	(1,401	)		(14		)		—				(161,381		)		—				(161,395		)
Net income	—			—				—				264,308				—				264,308
Total other comprehensive loss	—			—				—				—				(9,671		)		(9,671		)
Balance as of March 31, 2019	29,141			$	291			$	178,227			$	889,266			$	(22,654	)		$	1,045,130

See accompanying notes to the consolidated financial statements.

F-6

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

	Years Ended March 31,
	2019				2018				2017
OPERATING ACTIVITIES
Net income	$	264,308			$	114,394			$	5,710
Reconciliation of net income to cash provided by operating activities:
Depreciation, amortization and accretion	44,941				48,572				52,628
Amortization on debt issuance costs	286				375				375
Loss on extinguishment of debt	447				—				—
Bad debt expense	2,849				4,168				2,847
Deferred tax expense (benefit)	6,939				8,138				(24,495		)
Stock-based compensation	14,585				14,157				6,011
Employee stock purchase plan	189				150				164
Loss on disposal of property and equipment	277				387				538
Impairment of goodwill	—				—				113,944
Impairment of intangible and other long-lived assets	180				2,417				13,222
Restructuring charges	295				1,667				28,984
Changes in operating assets and liabilities:
Trade accounts receivable, net	(16,157		)		10,770				(1,336		)
Inventories, net	8,827				(751		)		1,060
Prepaid expenses and other current assets	(515		)		11,124				7,975
Income tax receivable	(165		)		26,999				(1,331		)
Other assets	2,344				(2,090		)		1,882
Trade accounts payable	31,035				(2,184		)		(7,825		)
Accrued expenses	(7,160		)		28,627				(403		)
Income taxes payable	3,809				(1,693		)		(3,643		)
Long-term liabilities	2,191				62,128				3,023
Net cash provided by operating activities	359,505				327,355				199,330
INVESTING ACTIVITIES
Purchases of property and equipment	(29,086		)		(34,813		)		(44,499		)
Proceeds from sale of property and equipment, net	68				116				—
Net cash used in investing activities	(29,018		)		(34,697		)		(44,499		)
FINANCING ACTIVITIES
Proceeds from short-term borrowings	162,001				214,751				405,988
Repayments of short-term borrowings	(161,621		)		(214,889		)		(468,938		)
Debt issuance costs on short-term borrowings	(1,297		)		—				—
Proceeds on issuance of stock for employee stock purchase plan	1,024				765				798
Cash paid for repurchase of common stock	(161,395		)		(149,687		)		(12,572		)
Cash paid for shares withheld for taxes	(5,328		)		(8,105		)		(8,452		)
Contingent consideration paid	—				—				(20,058		)
Repayment of mortgage principal	(578		)		(550		)		(523		)
Net cash used in financing activities	(167,194		)		(157,715		)		(103,757		)
Effect of foreign currency exchange rates on cash	(3,571		)		3,263				(5,266		)
Net change in cash and cash equivalents	159,722				138,206				45,808
Cash and cash equivalents at beginning of period	429,970				291,764				245,956
Cash and cash equivalents at end of period	$	589,692			$	429,970			$	291,764

F-7

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

(continued)

	Years Ended March 31,
	2019				2018				2017
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for
Income taxes, net of refunds of $3,824, $23,133 and $17,132, as of March 31, 2019, 2018 and 2017, respectively	$	53,657			$	14,407			$	14,099
Interest	3,811				3,774				5,494
Non-cash investing activities
Accrued for purchases of property and equipment	1,789				2,020				1,101
Accrued for asset retirement obligations	4,706				1,359				2,359
Non-cash financing activity
Accrued for shares withheld for taxes	—				171				—

See accompanying notes to the consolidated financial statements.

F-8

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 1. General

The Company

Deckers Outdoor Corporation and its wholly-owned subsidiaries (collectively, the “Company”) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyles use and high-performance activities. As part of its Omni-Channel platform, the Company’s proprietary brands are aligned across its Fashion Lifestyle group, including the UGG and Koolaburra brands, and Performance Lifestyle group, including the HOKA, Teva, and Sanuk brands.

The Company sells its products through domestic and international retailers, international distributors, and directly to its global consumers through its Direct-to-Consumer (DTC) business, which is comprised of its retail stores and E‑Commerce websites. Independent third-party contractors manufacture all of the Company’s products. A significant part of the Company’s business is seasonal, requiring it to build inventory levels during certain quarters in its fiscal year to support higher selling seasons, which contributes to the variation in its results from quarter to quarter.

Reportable Operating Segments

The Company performs an annual assessment of the appropriateness of its reportable operating segments during the third quarter of its fiscal year. However, due to known circumstances arising during the first quarter of the year ended March 31, 2019 (Q1 2019), management performed this assessment at that time. These circumstances included an assessment of quantitative factors, such as the actual and forecasted sales and operating income of the wholesale operations of the HOKA brand compared to the Company’s other reportable operating segments, as well as an assessment of qualitative factors, such as the ongoing growth of, and the Company’s increased investment in, the wholesale operations of the HOKA brand. As a result, beginning in Q1 2019, the Company added a sixth reportable operating segment to separately report the wholesale operations of the HOKA brand. The wholesale operations of the HOKA brand are no longer presented under the Other brands wholesale reportable operating segment. However, the DTC operations of the HOKA brand continue to be reported under the DTC reportable operating segment. Prior periods presented were reclassified to reflect this change.

The Company’s six reportable operating segments now include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. Information reported to the Chief Operating Decision Maker (CODM), who is the Company’s Principal Executive Officer, is organized into these reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources.

During calendar year 2017, the Company began to leverage elements, including particular styles, of the Ahnu brand under the Teva brand. Effective April 1, 2017, the operations for the Ahnu brand were discontinued and certain remaining styles are sold under the Teva brand. Results of wholesale operations for the former Ahnu brand are now reported in the Teva brand wholesale reportable operating segment instead of the Other brands wholesale reportable operating segment, as presented for the year ended March 31, 2017.

Refer to Note 12, “Reportable Operating Segments,” for further information on the Company’s reportable operating segments.

Restructuring Plan

In February 2016, the Company announced the implementation of a multi-year restructuring plan which was designed to realign its brands across its Fashion Lifestyle and Performance Lifestyle groups, optimize the Company’s worldwide owned retail store fleet, and consolidate its management and operations. In general, the intent of this restructuring plan was to reduce overhead costs and create operating efficiencies while improving collaboration across brands. As of March 31, 2019, the Company has completed its restructuring plan, incurred cumulative restructuring charges to date, and does not anticipate incurring restructuring charges in connection with this plan in future periods.

F-9

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

In connection with the restructuring plan, the Company has closed 46 company-owned global retail stores as of March 31, 2019, including conversions to partner retail stores, and consolidated its brand operations and corporate headquarters. Through March 31, 2019, the Company had incurred cumulative restructuring charges by applicable reportable operating segment as follows:

	Years Ended March 31,												Cumulative Restructuring Charges*
	2019				2018				2017
UGG brand wholesale	$	—			$	—			$	2,238			$	2,238
Sanuk brand wholesale	—				—				20				3,068
Other brands wholesale	—				—				102				2,263
Direct-to-Consumer	—				149				12,771				23,454
Unallocated overhead costs	295				1,518				13,853				24,596
Total	$	295			$	1,667			$	28,984			$	55,619

*Cumulative restructuring charges include restructuring charges of $24,673, which were incurred during the fiscal year ended March 31, 2016.

During the years ended March 31, 2019, 2018, and 2017, total restructuring charges incurred and stated above were recorded in selling, general & administrative (SG&A) expenses in the consolidated statements of comprehensive income (loss).

The remaining accrued liabilities for cumulative restructuring charges incurred to date under the Company’s restructuring plan, are as follows:

	Lease Termination				Retail Store Fixed Asset Impairment				Severance Costs				Software and Office Fixed Asset Impairment				Other*				Total
Balance as of March 31, 2016	$	7,629			$	—			$	3,436			$	—			$	1,809			$	12,874
Additional charges	8,986				3,614				5,773				3,199				7,412				28,984
Paid in cash	(12,043		)		—				(6,403		)		—				(5,268		)		(23,714		)
Non-cash	—				(3,614		)		(251		)		(3,199		)		—				(7,064		)
Balance as of March 31, 2017	4,572				—				2,555				—				3,953				11,080
Additional charges	149				—				—				—				1,518				1,667
Paid in cash	(1,076		)		—				(2,555		)		—				(4,388		)		(8,019		)
Balance as of March 31, 2018	3,645				—				—				—				1,083				4,728
Additional charges	295				—				—				—				—				295
Paid in cash	(1,856		)		—				—				—				(581		)		(2,437		)
Balance as of March 31, 2019	$	2,084			$	—			$	—			$	—			$	502			$	2,586

*Includes costs related to office consolidations and termination of contracts and services.

Refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading "Recent Developments" within this Annual Report for information regarding the Company’s realized annualized SG&A expense savings resulting from the implementation of this restructuring plan.

Summary of Significant Accounting Policies

Basis of Presentation. The accompanying consolidated financial statements and notes thereto (referred to herein as “consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The consolidated financial statements include the accounts of the Company,

F-10

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

its wholly owned subsidiaries, and entities in which it maintains a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications. Certain reclassifications were made for prior periods presented to conform to the current period presentation.

Use of Estimates. The preparation of the Company’s consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements. 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, trade accounts receivable allowances, sales returns liabilities, stock-based compensation, impairment assessments, depreciation and amortization, income tax liabilities, uncertain tax positions and income taxes receivable, the fair value of financial instruments, and the fair values of assets and liabilities, including goodwill and other intangible assets. These estimates are based on information available as of the date of the consolidated financial statements, and actual results could differ materially from the results assumed or implied based on these estimates.

Foreign Currency Translation. The Company considers the United States (US) dollar as its functional currency. The Company’s wholly-owned foreign subsidiaries have various assets and liabilities, primarily cash, receivables, and payables, which are denominated in currencies other than their functional currency. The Company remeasures these monetary assets and liabilities using the exchange rate at the end of the reporting period, which results in gains and losses that are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss) as incurred. In addition, the Company translates assets and liabilities of subsidiaries with reporting currencies other than US dollars into US dollars using the exchange rates at the end of the reporting period, which results in financial statement translation gains and losses recorded in other comprehensive income or loss (OCI).

Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents included $372,178 and $268,976 of money market funds as of March 31, 2019 and 2018, respectively.

Allowances for Doubtful Accounts. The Company provides an allowance against trade accounts receivable for estimated losses that may result from customers’ inability to pay. The Company determines the amount of the allowance by analyzing known uncollectible accounts, aged trade accounts receivable, 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 allowance. Write-offs against this allowance are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). The allowance includes specific allowances for trade accounts, for which all or a portion are identified as potentially uncollectible based on known or anticipated losses.

Inventories. Inventories, principally finished goods on hand and in transit, are stated at the lower of cost (weighted average) or net realizable value less an approximate normal profit margin at each financial statement date. Cost includes shipping and handling fees which are subsequently expensed to cost of sales. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Cloud Computing Arrangements. The Company enters into various cloud computing arrangements that are governed by service contracts (hosting arrangements) to support operations. Beginning October 1, 2018, the Company early adopted Accounting Standard Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, on a prospective basis. The Company historically recognized expenses for implementation costs associated with a cloud computing arrangement (CCA) as incurred. Upon adoption, application development stage implementation costs (implementation costs) of a hosting arrangement are deferred and recorded to prepaid expenses and other assets in the consolidated balance sheets. Implementation costs are expensed on a straight-line basis and recorded in SG&A expenses in the consolidated statements of comprehensive income (loss)

F-11

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

over the term of the hosting arrangement, including reasonably certain renewals, which are generally one to five years. As of March 31, 2019 and 2018, the Company had no material prepaid expenses and other assets for hosting arrangements.

Property and Equipment, Depreciation and Amortization. Property and equipment are stated at cost less accumulated depreciation and amortization, and generally have a useful life of at least one year. Property and equipment include tangible, non-consumable items owned by the Company. Software implementation costs are capitalized if they are incurred during the application development stage and relate to costs to obtain computer software from third parties, including related consulting expenses, or costs incurred to modify existing software that results in additional upgrades or enhancements that provide additional functionality.

Depreciation of property and equipment is calculated using the straight-line method based on the estimated useful life. Leasehold improvements are amortized to their residual value, if any, on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter. Changes in the estimate of the useful life of an asset may occur after an asset is placed in service. For example, this may occur as a result of the Company incurring costs that prolong the useful life of an asset and are recorded as an adjustment to deprecation over the revised remaining useful life. Depreciation and amortization are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Property and equipment are summarized as follows:

			As of March 31,
	Useful life (years)		2019				2018
Land	Indefinite		$	32,864			$	32,863
Building	39.5		39,643				38,945
Machinery and equipment	1-10		152,486				141,255
Furniture and fixtures	3-7		38,326				38,473
Computer software	3-10		77,372				72,310
Leasehold improvements	1-11		109,044				107,079
Gross property and equipment			449,735				430,925
Less accumulated depreciation and amortization			(235,939		)		(210,763		)
Property and equipment, net			$	213,796			$	220,162

Asset Retirement Obligations. The Company is contractually obligated under certain of its lease agreements to restore certain retail, office, and warehouse facilities back to their original conditions. At lease inception, the present value of the estimated fair value of these liabilities is recorded along with the related asset. The liability is estimated based on assumptions requiring management’s judgment, including facility closing costs and discount rates, and is accreted to its projected future value over the life of the asset. As of March 31, 2019 and 2018, liabilities for asset retirement obligations (AROs) were $12,667 and $8,670, respectively, and are recorded in other long-term liabilities in the consolidated balance sheets. The increase in liabilities for AROs during the year ended March 31, 2019 was due to $4,706 of liabilities incurred for new AROs primarily related to the expansion of the Company’s warehouse and distribution center located in Moreno Valley, California.

Goodwill and Other Intangible Assets. Goodwill is initially recorded as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Intangible assets consist primarily of indefinite-lived trademarks and definite-lived trademarks, customer and distributor relationships, patents, lease rights and non-compete agreements arising from the application of purchase accounting. Definite-lived intangible assets are amortized to their estimated residual values, if any, on a straight-line basis over the estimated useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows. If impaired, the asset or asset group is written

F-12

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

down to fair value based either on discounted future cash flows or appraised values. Impairment charges and amortization are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Goodwill and indefinite-lived intangible assets are not amortized but are instead tested for impairment annually, or when an event occurs or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates the goodwill for impairment at the reporting unit level for the UGG and HOKA brands wholesale reportable operating segments annually as of December 31st of each year and evaluates the Teva brand indefinite-lived trademarks for impairment annually as of October 31st of each year.

The Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative assessment of goodwill or indefinite-lived intangible assets. In general, conditions that may indicate impairment include, but are not limited to the following: (1) a significant adverse change in customer demand or business climate that could affect the value of an asset; (2) change in market share, budget-to-actual performance, and consistency of operating margins and capital expenditures; (3) changes in management or key personnel; or (4) changes in general economic conditions. The Company does not calculate the fair value of the assets 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 asset to its carrying amount, and if the fair value exceeds its carrying amount, no impairment charge is recognized. If the fair value is less than its carrying amount, the Company will record an impairment charge to write down the asset to its fair value. The quantitative assessment requires an analysis of several best estimates and assumptions, including future sales and operating results, and other factors that could affect fair value or otherwise indicate potential impairment. The goodwill impairment assessment involves valuing the Company’s various reporting units that carry goodwill, which are currently the same as the Company’s reportable operating segments. This includes considering the reporting units’ projected ability to generate income from operations and positive cash flow in future periods, as well as perceived changes in consumer demand and acceptance of products, or factors impacting the industry generally. Refer to Note 3, “Goodwill and Other Intangible Assets,” for further information.

Other Long-Lived Assets. Other long-lived assets, such as machinery and equipment, internal-use software, and leasehold improvements, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the 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. At least quarterly, the Company evaluates factors that would necessitate an impairment assessment, which include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others.

When an impairment-triggering event has occurred, the Company tests for recoverability of the asset group’s 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 future 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. 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 asset group. Impairment charges are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

During the years ended March 31, 2019, 2018 and 2017, the Company recognized impairment losses for other long-lived assets, primarily for retail store related fixed assets due to performance or store closures as well as computer software of $180, $2,417, and $11,265, respectively, within its DTC reportable operating segment and recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Derivative Instruments and Hedging Activities. The Company may use derivative instruments to partially offset its business exposure to foreign currency risk on expected cash flows and certain existing assets and liabilities, primarily

F-13

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

intercompany balances. To reduce the volatility in earnings from fluctuations in foreign currency exchange rates, the Company may hedge a portion of forecasted sales denominated in foreign currencies. The Company may enter into foreign currency forward or option contracts (derivative contracts), generally with maturities of 15 months or less, to manage this risk and may designate these derivative contracts as cash flow hedges of forecasted sales (Designated Derivative Contracts). The Company may also enter into derivative contracts that are not designated as cash flow hedges (Non-Designated Derivative Contracts) to offset a portion of anticipated gains and losses on certain intercompany balances until the expected time of repayment. The Company does not use derivative contracts for trading purposes.

The notional amounts of outstanding Designated and Non-Designated Derivative Contracts are recorded at fair value measured using Level 2 fair value inputs in other current assets or other accrued expenses in the consolidated balance sheets. Refer to Note 4, “Fair Value Measurements,” for further information on the nature of Level 2 inputs. The after-tax unrealized gains or losses from the effective portion of changes in fair value of Designated Derivative Contracts are recorded in accumulated other comprehensive loss (AOCL) and are reclassified into earnings in the consolidated statements of comprehensive income (loss) in the same period or periods as the related net sales are recorded. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recorded in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in OCI related to the hedging relationship are immediately recorded in earnings.

Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). The changes in fair value for these contracts are generally offset by the remeasurement gains or losses associated with the underlying foreign currency-denominated balances, which are also recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

The Company generally enters into over-the-counter derivative contracts with high-credit-quality counterparties, and therefore, considers the risk that counterparties fail to perform according to the terms of the contract as low. The Company factors the nonperformance risk of the counterparties into the fair value measurements of its derivative contracts.

Refer to Note 9, “Derivative Instruments,” for further information on the impact of derivative instruments and hedging activities.

Revenue Recognition. Refer to the heading “Recent Accounting Pronouncements” below for further information on the impact on the Company from the adoption of ASU No. 2014-09, Revenue from Contracts with Customers, beginning April 1, 2018. Refer also to Note 2, “Revenue Recognition,” for further information regarding the Company’s accounting policy for revenue recognition and components of variable consideration, including allowances for sales discounts, chargebacks and sales return contract assets and liabilities after adoption of this ASU.

Cost of Sales. Cost of sales for the Company’s goods are for finished goods, which includes the purchase costs and related overhead. Overhead includes all costs for planning, purchasing, quality control, freight, duties, royalties paid to third parties and shrinkage. Cost includes allocation of initial molds and tooling cost that are amortized based on minimum contractual quantities of related product and recorded in cost of sales when the product is sold in the consolidated statements of comprehensive income (loss).

Research and Development Costs. All research and development costs are expensed as incurred. Such costs amounted to $23,187, $22,372, and $21,256 for the years ended March 31, 2019, 2018 and 2017, respectively, and are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

F-14

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Advertising, Marketing, and Promotion Expenses. Advertising, marketing and promotion expenses include media advertising (television, radio, print, social, digital), tactical advertising (signs, banners, point-of-sale materials) and other promotional costs, with $118,291, $111,658, and $109,579 for the years ended March 31, 2019, 2018 and 2017, respectively, recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Advertising costs are expensed the first time the advertisement is run or communicated. All other costs of advertising, marketing, and promotion are expensed as incurred. Included in prepaid expenses as of March 31, 2019 and 2018 were $6,006 and $2,545, respectively, related to prepaid advertising, marketing, and promotion expenses for programs expected to take place after such dates.

Rent Expense. 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 the Company’s retail store leases are based on a minimum rental plus a percentage of the store’s sales in excess of stipulated amounts. Rent expenses are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Refer to Note 7, “Commitments and Contingencies,” for further information.

Stock Compensation. All of the Company’s stock compensation is classified within stockholders’ equity. Stock-based compensation expense is measured at the grant date based on the value of the award and is expensed ratably over the service period. The Company recognizes expense only for those awards that management deems probable of achieving the performance criteria and service conditions. Determining the fair value and related expense of stock-based compensation 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-based compensation expense and the Company’s results of operations could be materially impacted. Stock compensation expense is recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Refer to Note 8, “Stock Compensation,” for further information.

Retirement Plan. The Company provides a 401(k) defined contribution plan that eligible US employees may elect to participate in through tax-deferred contributions or other deferrals. The Company matches 50% of each eligible participant’s deferrals on up to 6% of eligible compensation. 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. US 401(k) matching contributions totaled $3,060, $2,269, and $2,124 during the years ended March 31, 2019, 2018 and 2017, respectively, and were recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). 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 March 31, 2019, 2018 and 2017.

Non-qualified Deferred Compensation. In 2010, the Company established a non-qualified deferred compensation program that permits select members of management to defer earnings to a future date on a non-qualified basis. For each plan year, the Company’s Board of Directors may, but is not required to, contribute any amount it desires to any participant under this program. The Company’s contribution guidelines are determined by the Board of Directors annually. In March 2015, the Board of Directors approved a Company contribution feature for future plan years beginning in calendar year 2016 and gave management the authority to approve actual contributions. As of March 31, 2019 and 2018, no material payments were made or pending under this program. The value of the deferred compensation is recognized based on the fair value of the participants’ accounts. The Company has established a rabbi trust for the purpose of supporting the benefits payable under this program, with the assets invested in company-owned life insurance policies. Refer to Note 4, “Fair Value Measurements,” for further information on the fair value of deferred compensation assets and liabilities.

Self-Insurance. The Company is self-insured for a significant portion of its employee medical and dental liability exposures. Liabilities for self-insured exposures are accrued at the present value of amounts expected to be paid based on historical claims experience and actuarial data for forecasted settlements of claims filed and for incurred but not yet reported claims. Accruals for self-insured exposures are included in current and long-term liabilities based on the expected periods of payment. Excess liability insurance has been purchased to limit the amount of self-insured risk on claims.

F-15

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or 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 during 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 recorded in the consolidated statements of comprehensive income (loss) in the period that includes the enactment date.

The Company recognizes the effect of income tax positions in the consolidated financial statements only if those positions are more likely than not to be sustained upon examination. Recognized income tax positions are measured at the largest amount of tax benefit that is more than 50% likely to be realized upon settlement. Changes in recognition or measurement are recorded in the period in which the change in judgment occurs. The Company records interest and penalties accrued for income tax contingencies as interest expense in the consolidated statements of comprehensive income (loss).

Refer to Note 5, “Income Taxes,” for further information on tax impacts and components of tax balances in the consolidated financial statements.

Comprehensive Income. Comprehensive income or loss is the total of net earnings and all other non-owner changes in equity. Comprehensive income or loss includes net income or loss, foreign currency translation adjustments, and unrealized gains and losses on cash flow hedges. Refer to Note 10, “Stockholders' Equity,” for further information on components of OCI.

Net Income per Share. Basic net income or loss per share represents net income or loss divided by the weighted-average number of common shares outstanding for the period. Diluted net income or loss per share represents net income or loss divided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock. Refer to Note 11, “Net Income per Share,” for a reconciliation of basic to diluted weighted-average common shares outstanding.

Recent Accounting Pronouncements

Recently Adopted. The Financial Accounting Standards Board (FASB) has issued ASUs that have been adopted by the Company for its annual and interim reporting periods as stated below. The following is a summary of each standard and the impact on the Company:

Standard		Description		Impact on Adoption
ASU No. 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments		Eliminates the diversity in practice related to the classification of certain cash receipts and payments.		This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around cash receipts and payments and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.
ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory		Requires that the income tax impact of intra-entity sales and transfers of property, except for inventory, be recognized when the transfer occurs.		This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around intra-entity transfers of assets, other than inventory, and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.
ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting		Modification accounting is required to be applied for share-based payment awards immediately before the original award is modified unless the fair value, vesting conditions, and classification of the modified awards are the same as the fair value, vesting conditions and classification of the original award, respectively.		This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around share-based payment modifications and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.

F-16

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Standard		Description		Impact on Adoption
ASU No. 2014-09, Revenue from Contracts with Customers (as amended by ASUs 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2016-20, 2017-13, and 2017-14)		Requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and replaces most existing revenue recognition guidance under US GAAP. The FASB issued additional guidance which clarifies how to apply the implementation guidance related to principal versus agent considerations, how to identify performance obligations, as well as licensing implementation guidance.		The Company adopted this ASU (the “new revenue standard”) using the modified retrospective transition method, beginning April 1, 2018. Prior to adoption, the Company deferred recognition of revenue for certain wholesale and E-Commerce sales arrangements until the product was delivered. However, the Company elected the practical expedient allowed under the new revenue standard to define shipping and handling costs as a fulfillment service, not a performance obligation. Accordingly, the Company will now recognize revenue for these arrangements upon shipment of product, rather than delivery. As a result, on adoption of this ASU, the Company recorded a cumulative effect adjustment net after tax increase to opening retained earnings of approximately $1,000 in its consolidated balance sheets. This prospective change in accounting policy will impact comparatives to prior reported fiscal years as net sales and deferred revenue are recognized and recorded in the Company’s consolidated financial statements under legacy US GAAP. The Company historically recorded a trade accounts receivable allowance for sales returns (“allowance for sales returns”) related to its wholesale channel sales, and the cost of sales for the product-related inventory was recorded in inventories, net of reserves, in its consolidated balance sheets. As of March 31, 2018, the Company recorded an allowance for sales returns for the wholesale channel of $20,848 and product-related inventory for all channels of $11,251 in its consolidated balance sheets. As of June 30, 2018, and in connection with the adoption of the new revenue standard, the Company reclassified the allowance for sales returns for the wholesale channel of $9,816 to other accrued expenses and the product-related inventory for all channels of $4,819 to other current assets in its consolidated balance sheets. For the DTC channel, the allowance for sales returns was recorded in other accrued expenses, which is consistent with the prior period presented. The comparative consolidated financial statements have not been adjusted and continue to be reported under legacy US GAAP. Refer to Note 2, “Revenue Recognition,” for expanded disclosures regarding this change in accounting policy and refer to Note 12, “Reportable Operating Segments,” for the Company’s disaggregation of revenue by distribution channel and region.

Not Yet Adopted. The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of each such standard, the planned period of adoption and the expected impact on the Company on adoption:

Standard		Description		Planned Period of Adoption		Expected Impact on Adoption
ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (as amended by ASUs 2018-16 and 2019-04)		Seeks to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities and to reduce the complexity of and simplify the application of hedge accounting. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness. It also eases certain documentation and assessment requirements.		Q1 FY 2020		The Company has completed an initial assessment of the effect that the adoption of this ASU will have on its consolidated financial statements and related disclosures. The Company will eliminate separate measurement of hedge ineffectiveness and will recognize the entire change in fair value for its cash flow hedges in its consolidated statements of comprehensive income (loss) in the same location as the hedged item. This change is not expected to have a material impact on the Company’s consolidated financial statements.

F-17

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Standard		Description		Planned Period of Adoption		Expected Impact on Adoption
ASU No. 2016-02, Leases (as amended by ASUs 2015-14, 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01)		Requires a lessee to recognize a lease asset and lease liability in its consolidated balance sheets. A lessee should recognize a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term, and a liability to make lease payments.		Q1 FY 2020		The Company has substantially completed an assessment of the effect that the adoption of this ASU will have on its consolidated financial statements and related disclosures and expects a material impact. The result is expected to be an approximately $219,000 to $239,000 increase in assets due to the recognition of a ROU asset and approximate corresponding increase for a related lease liability of $246,000 to $266,000, including lease commitments that are currently classified as operating leases, such as retail stores, showrooms, offices, and distribution facilities. The Company does not believe the standard will materially affect the consolidated statements of comprehensive income (loss). The classification and recognition of lease expense is not expected to materially change from legacy US GAAP. Further, the adoption of this ASU will result in expanded disclosures on existing and new lease commitments, for which the Company is in the process of developing drafts of new footnote disclosures required under this ASU that will be disclosed in the Company's Form 10-Q for the first quarter of fiscal year 2020. The Company expects to adopt this ASU on a prospective basis and elect the “package of practical expedients” allowed with adoption of this ASU, which provides a number of transition options, including (1) exemption from reassessment of prior conclusions about lease identification, classification and initial direct costs; (2) the ability to elect a short-term lease recognition exemption for current and new vehicles, IT and office equipment leases that qualify to be excluded from the recognized ROU asset and related liability; and the (3) option to not separate lease and non-lease components. In addition, the Company expects to not apply the hindsight election and will maintain lease terms as estimated at inception of the lease. The Company does not expect a significant change in its lease portfolio and business practices leading up to adoption of this ASU. Further, the Company has selected a software provider, has a project team in place and implementation is materially complete. The Company does not believe the ASU will have a notable impact on its liquidity or expects an impact on the Company’s debt-covenant compliance under its current agreements.
ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (as amended by ASUs 2018-19 and 2019-04)		Replaces the incurred loss impairment methodology in legacy US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.		Q1 FY 2021		The Company is evaluating the timing and effect that adoption of this ASU will have on its consolidated financial statements and related disclosures.
ASU No. 2017-04, Goodwill and Other: Simplifying the Test for Goodwill Impairment		Requires annual and interim goodwill impairment tests be performed by comparing the fair value of a reporting unit with its carrying amount, effectively eliminating step two of the goodwill impairment test under legacy US GAAP. The amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized as an impairment charge.		Q1 FY 2021		The Company is evaluating the timing and effect that adoption of this ASU will have on its consolidated financial statements and related disclosures.

F-18

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 2. Revenue Recognition

Nature of Performance Obligations

Revenue is recognized when a performance obligation is completed at a point in time and when the customer has obtained control. Control passes to the customer when they have the ability to direct the use of, and obtain substantially all the remaining benefits from, the goods transferred. The amount of revenue recognized is based on the transaction price, which represents the invoiced amount less known actual amounts or estimates of variable consideration. The Company recognizes revenue and measures the transaction price net of taxes, including sales taxes, use taxes, value-added taxes, and some types of excise taxes, collected from customers and remitted to governmental authorities. The Company presents revenue gross of fees and sales commissions. Sales commissions are expensed as incurred and are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). As a result of the short durations of customer contracts, which are typically effective for one year or less and have payment terms that are generally 30-60 days, these arrangements are not considered to have a significant financing component.

Wholesale and international distributor revenue are recognized either when products are shipped or when delivered, depending on the applicable contract terms. Retail store and E-Commerce revenue transactions are recognized at the point of sale and upon shipment, respectively. Shipping and handling costs paid to third-party shipping companies are recorded as cost of sales in the consolidated statements of comprehensive income (loss). Shipping and handling costs are a fulfillment service, and, for certain wholesale and all E-Commerce transactions, revenue is recognized when the customer is deemed to obtain control upon the date of shipment.

Variable Consideration

Components of variable consideration include estimated discounts, markdowns or chargebacks, and sales returns. Estimates for variable consideration are based on the amounts earned or estimates to be claimed as an adjustment to sales. Estimated variable consideration is included in the transaction price to the extent that it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period.

Allowance for Sales Discounts. The Company provides a trade accounts receivable allowance for term discounts for wholesale channel sales, which reflects a discount that customers may take, generally based on meeting certain order, shipment or prompt payment terms. The Company uses 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. Additions to the allowance are recorded against gross sales in the consolidated statements of comprehensive income (loss) and write-offs are recorded against the allowance for trade accounts receivable in the consolidated balance sheets. This is consistent with the presentation of such amounts during the prior period. Refer to Schedule II, “Total Valuation and Qualifying Accounts,” for further information regarding the Company’s allowance for sales discounts.

Allowance for Chargebacks. The Company provides a trade accounts receivable allowance for chargebacks from wholesale customers. When customers pay their invoices, they may take deductions against their invoices that can include chargebacks for price differences, markdowns, short shipments and other reasons. Therefore, the Company records an allowance for known or unknown circumstances based on historical trends related to the timing and amount of chargebacks taken against wholesale channel customer invoices. Additions to the allowance are recorded against gross sales in the consolidated statements of comprehensive income (loss) and write-offs are recorded against the allowance for trade accounts receivable in the consolidated balance sheets. This is consistent with the presentation of such amounts during the prior period. Refer to Schedule II, “Total Valuation and Qualifying Accounts,” for further information regarding the Company’s allowance for chargebacks.

F-19

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Contract Assets and Liabilities

Contract assets represent the Company’s right to consideration subject to conditions other than the passage of time, such as additional performance obligations to be satisfied. Contract liabilities are performance obligations that the Company expects to satisfy or relieve within the next 12 months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancelable contracts before the transfer of goods or services to the customer has occurred. Contract assets and liabilities are recorded in other current assets and other accrued expenses, respectively, in the consolidated balance sheets.

Sales Returns. Reserves are recorded for anticipated future returns of goods shipped prior to the end of the reporting period. In general, the Company accepts returns for damaged or defective products for up to one year. The Company also has a policy whereby returns are accepted from DTC customers for up to 30 days from point of sale for cash or credit with a receipt. Amounts of these reserves are based on known and actual returns, historical returns, and any recent events that could result in a change from historical return rates. Sales returns are a contract asset for the right to recover product-related inventory and a contract liability for advance consideration obtained prior to satisfying a performance obligation. Changes to the sales return reserve are recorded against gross sales for the contract liability and cost of sales for the contract asset in the consolidated statements of comprehensive income (loss). The contract liability is recorded in other accrued expenses and the related contract asset for the cost of sales for estimated product returns is recorded in other current assets in the consolidated balance sheets.

The following table provides activity during the year ended March 31, 2019 related to estimated sales returns for the Company’s existing customer contracts for all channels:

	Contract Asset				Contract Liability
Balance as of March 31, 2018	$	11,251			$	23,156
Change in estimate of sales returns	36,223				120,102
Actual returns	(37,033		)		(118,471		)
Balance as of March 31, 2019	$	10,441			$	24,787

Deferred Revenue. Revenue is deferred for certain wholesale channel transactions as the contract terms indicate control transfers upon product delivery or sell-through. As of March 31, 2019 and 2018, the Company had no material contract liability for deferred revenue, which is recorded in other accrued expenses in the consolidated balance sheets.

Gift Cards. The Company defers recognition of revenue from the sale of gift cards until the gift card is redeemed by the customer or the Company determines that the likelihood of redemption is remote. As of March 31, 2019 and 2018, the Company’s contract liability for gift cards was $3,101 and $3,105, respectively, and is recorded in other accrued expenses in the consolidated balance sheets.

Loyalty Programs. The Company has a customer loyalty program for the UGG brand in its DTC channel where customers earn rewards from qualifying purchases or activities. The Company defers recognition of revenue for unredeemed awards until the following occurs: (1) rewards are redeemed by the customer, (2) points or certificates expire, or (3) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns. As of March 31, 2019 and 2018, the Company’s contract liability for loyalty programs was $5,171 and $5,477, respectively, and is recorded in other accrued expenses in the consolidated balance sheets.

F-20

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 3. Goodwill and Other Intangible Assets

The Company’s goodwill and other intangible assets are recognized as follows:

	As of March 31,
	2019				2018
Goodwill, net
UGG brand	$	6,101			$	6,101
HOKA brand	7,889				7,889
Total goodwill, net	13,990				13,990
Other intangible assets
Indefinite-lived intangible assets
Trademarks	15,454				15,454
Definite-lived intangible assets
Trademarks	55,245				55,245
Other	51,981				53,216
Total gross carrying amount	107,226				108,461
Accumulated amortization	(71,186		)		(66,065		)
Net definite-lived intangible assets	36,040				42,396
Total other intangible assets, net	51,494				57,850
Total	$	65,484			$	71,840

The weighted-average amortization period for definite-lived intangible assets was 15 years for the years ended March 31, 2019 and 2018, respectively. Intangible assets consist primarily of indefinite-lived trademarks and definite-lived trademarks, customer and distributor relationships, patents, lease rights, and non-compete agreements arising from the application of purchase accounting. Goodwill is allocated to the wholesale reportable operating segments of the brands described above.

Annual Impairment Assessment

Goodwill & Indefinite-Lived Intangible Assets. During the years ended March 31, 2019, 2018 and 2017, the Company evaluated the goodwill for impairment at the reporting unit level for the UGG and HOKA brands wholesale reportable operating segment as of December 31st and evaluated its Teva indefinite-lived trademarks as of October 31st. Based on the evaluation performed, no impairment loss was recorded for the goodwill and indefinite-lived intangible assets during the years ended March 31, 2019 and 2018. As of March 31, 2019 and 2018, the gross carrying amount of goodwill was $143,765 and the accumulated impairment losses were $129,775.

During the year ended March 31, 2017, the Company performed the annual evaluation of goodwill for impairment for the Sanuk wholesale reportable operating segment as of October 31, 2016. The Company conducted the following assessment, which identified an indication of impairment:

•

Under step one of the impairment assessment, management concluded that the fair value of the Sanuk brand wholesale reportable operating segment was below its carrying value, which was primarily the result of lower-than-forecasted sales, lower market multiples for non-athletic footwear and apparel, and a more limited view of international and domestic expansion opportunities for the brand given the changing retail environment.

•	Under step two of the impairment assessment, management concluded that the fair value allocated to all of the assets and liabilities of the Sanuk brand wholesale reportable operating segment, using a hypothetical allocation of assets, including net tangible and intangible assets, resulted in a non-cash

F-21

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

impairment charge of $113,944, which was recognized in the third quarter of the year ended March 31, 2017 and recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Definite-Lived Intangible Assets. The Company did not identify any definite-lived intangible asset impairments during the years ended March 31, 2019 and 2018. However, during the year ended March 31, 2017, and in connection with the goodwill impairment discussed above, the Company identified an impairment of the Sanuk brand’s amortizable patent. The Company’s analysis determined that the Sanuk brand’s amortizable patent was fully impaired as the Sanuk SIDEWALK SURFERS utility patent had very limited value in the marketplace because of its limited ability to exclude others from creating similar products. As a result, the Company recognized a non-cash impairment charge to the patent of $4,086 in the Sanuk wholesale reportable operating segment during the third quarter of the year ended March 31, 2017, which was recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). The Company did not identify any additional impairments for the Sanuk brand’s other definite-lived intangible assets during the year ended March 31, 2017, as the undiscounted future cash flows associated with those assets exceeded their carrying values.

During the third quarter of the year ended March 31, 2017, the Company also recognized an impairment for definite-lived intangible assets in the DTC reportable operating segment of $4,743, due to a decline in market rental rates for European retail stores, which was recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Amortization Expense

A reconciliation of the changes in total other intangible assets in the consolidated balance sheets is as follows:

	Amounts
Balance as of March 31, 2017	$	65,138
Amortization expense	(7,807		)
Foreign currency translation	519
Balance as of March 31, 2018	57,850
Amortization expense	(6,235		)
Foreign currency translation	(121		)
Balance as of March 31, 2019	$	51,494

Expected amortization expense for amortizable intangible assets subsequent to March 31, 2019 is as follows:

Years Ending March 31,		Amounts
2020		$	3,471
2021		2,529
2022		2,517
2023		2,450
2024		2,430
Thereafter		22,643
Total		$	36,040

F-22

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 4. Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

•	Level 1: Quoted prices in active markets for identical assets or liabilities.

•	Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.

•	Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions.

The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued payroll and other accrued expenses, approximates fair value due to their short-term nature. The carrying amount of the Company’s short-term borrowings and mortgage payable, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.

The assets and liabilities that are measured on a recurring basis at fair value as of the dates below are as follows:

	As of				Measured Using
	March 31, 2019			Level 1				Level 2				Level 3
Non-qualified deferred compensation asset	$	7,300			$	7,300			$	—			$	—
Non-qualified deferred compensation liability	(4,447		)		(4,447		)		—				—

	As of				Measured Using
	March 31, 2018			Level 1				Level 2				Level 3
Non-qualified deferred compensation asset	$	7,172			$	7,172			$	—			$	—
Non-qualified deferred compensation liability	(4,296		)		(4,296		)		—				—
Designated Derivative Contracts asset	950				—				950				—
Designated Derivative Contracts liability	(143		)		—				(143		)		—
Non-Designated Derivative Contracts liability	(10		)		—				(10		)		—

As of March 31, 2019, the non-qualified deferred compensation asset of $7,300 was recorded in other assets in the consolidated balance sheets. As of March 31, 2019, the non-qualified deferred compensation liability of $4,447 was recorded in the consolidated balance sheets, with $578 in other accrued expenses and $3,869 in other long-term liabilities.

The Level 2 inputs consist of forward spot rates at the end of the applicable reporting period. The fair values of assets and liabilities associated with derivative instruments and hedging activities are recorded in other current assets and other accrued expenses, respectively, in the consolidated balance sheets. Refer to Note 9, “Derivative Instruments,” for further information.

F-23

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 5. Income Taxes

Changes in Tax Law

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform Act) was enacted into law. The Tax Reform Act includes significant changes to US corporate income tax law, including a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%, limitations on the deductibility of interest expense and executive compensation, the transition of the US tax regime from a worldwide tax system to a territorial tax system, and provisions aimed at preventing base erosion of the US tax base.

As a result of the Tax Reform Act, the Company recorded provisional estimates in accordance with Staff Accounting Bulletin No. 118 (SAB 118) during the year ended March 31, 2018 in relation to the US federal and state income tax associated with the one-time mandatory deemed repatriation of accumulated foreign earnings and the non-cash re-measurement of deferred tax assets and liabilities due to the US federal tax rate reduction. In connection with finalizing the tax effects of the Tax Reform Act, the Company recorded immaterial measurement period adjustments during the year ended March 31, 2019 including a reduction from $59,114 to $57,895 related to the one-time mandatory deemed repatriation tax on accumulated foreign earnings. Refer to below “Income Tax Expense (Benefit) Reconciliation” for further information.

Other provisions of the Tax Reform Act which were effective on or after January 1, 2018, include but are not limited to, US taxation of foreign earnings considered global intangible low-taxed income (GILTI), minimum tax on base erosion anti-abuse (BEAT), and limitations on the deductibility of interest expense and executive compensation. The Company has elected to account for temporary differences that are expected to reverse as GILTI in future periods using a period cost method. The Company continues to evaluate new guidance and legislation as it is issued. There has been no new guidance or legislation issued after the balance sheet date through May 17, 2019 that is expected to have a material impact on the Company’s consolidated financial statements.

Income (Loss) Before Income Taxes

Components of income (loss) before income taxes include the following:

	Years Ended March 31,
	2019				2018				2017
Domestic*	$	181,730			$	71,482			$	(69,997	)
Foreign	147,204				149,214				63,011
Total	$	328,934			$	220,696			$	(6,986	)

*Domestic income (loss) before income taxes for the years ended March 31, 2019, 2018 and 2017 is presented net of intercompany dividends of $130,000, $250,000, and $13,692, respectively.

Income Tax Expense (Benefit)

Components of income tax expense (benefit) are as follows:

	Years Ended March 31,
	2019				2018				2017
Current
Federal	$	33,334			$	80,339			$	2,184
State	9,084				3,437				1,576
Foreign	15,269				14,388				8,039
Total	57,687				98,164				11,799

F-24

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

	Years Ended March 31,
	2019				2018				2017
Deferred
Federal	6,612				12,007				(20,287		)
State	2,236				391				(3,446		)
Foreign	(1,909		)		(4,260		)		(762		)
Total	6,939				8,138				(24,495		)
Total	$	64,626			$	106,302			$	(12,696	)

Income Tax Expense (Benefit) Reconciliation

Income tax expense (benefit) differed from that obtained by applying the statutory federal income tax rate to income (loss) before income taxes or benefit as follows:

	Years Ended March 31,
	2019				2018				2017
Computed expected income taxes	$	69,076			$	69,556			$	(2,445	)
State income taxes, net of federal income tax benefit*	9,329				9,044				(1,403		)
Foreign rate differential	(20,105		)		(37,090		)		(8,062		)
Unrecognized tax benefits	786				1,301				2,691
Income tax expense on diminution of operations and nondeductible goodwill	—				—				3,921
Return to provision adjustments	(179		)		(2,252		)		(1,386		)
Nontaxable income	(4,257		)		(7,006		)		(5,055		)
Nondeductible expense	7,742				1,382				1,358
US tax on foreign earnings**	5,848				57,138				—
Re-measurement of deferred taxes***	(983		)		14,395				—
Statutory foreign income tax expense (benefit)	276				59				(2,504		)
Other	(2,907		)		(225		)		189
Total	$	64,626			$	106,302			$	(12,696	)

*During the year ended March 31, 2018, the Company recorded $1,976 of state income taxes associated with one-time mandatory deemed repatriation of foreign earnings due to the Tax Reform Act.

**The amount for the year ended March 31, 2018 is the one-time mandatory deemed repatriation tax on accumulated foreign earnings due pursuant to the Tax Reform Act. The amount for the year ended March 31, 2019 is GILTI pursuant to the Tax Reform Act.

***The total non-cash re-measurement of deferred tax assets and liabilities for the year ended March 31, 2018 was driven by the US federal tax rate reduction from 35.0% to 21.0% pursuant to the Tax Reform Act.

F-25

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

	As of March 31,
	2019				2018
Deferred tax assets
Amortization and impairment of intangible assets	$	13,615			$	18,261
Stock compensation	3,645				4,027
Deferred rent obligations	4,899				5,452
Acquisition costs	461				481
Uniform capitalization adjustment to inventory	3,965				3,212
Bad debt allowance and other reserves	11,932				12,939
State taxes	239				798
Accrued bonuses	7,350				7,573
Foreign currency translation	670				—
Net operating loss carry-forwards, net of valuation allowances	807				863
Other	745				—
Total	48,328				53,606
Deferred tax liabilities
Prepaid expenses	3,379				2,686
Depreciation of property and equipment	14,079				9,638
Foreign currency translation	—				1,700
Other	—				1,201
Total	17,458				15,225
Deferred tax assets, net	$	30,870			$	38,381

In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of $118,447. The deferred tax assets are primarily related to the Company’s domestic operations and are currently expected to be realized between fiscal years 2020 and 2030. The Company recorded a decrease of $572 to deferred tax assets, net during the year ended March 31, 2019 related to the adoption of new ASUs, the tax effect of Designated Derivative Contracts recognized in OCI and changes in cumulative translation adjustments.

Based on 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. The Company’s deferred tax valuation allowances are primarily the result of foreign losses in jurisdictions with limited future profitability. As of March 31, 2019 and 2018, the Company had immaterial valuation allowances recorded against the related deferred tax assets for those loss carry-forwards that are not more likely than not to be fully utilized in reducing future taxable income.

As of March 31, 2019 and 2018, the Company reported deferred tax assets related to tax credit carry-forwards and net operating losses, net of valuation allowances, available to reduce future taxable income of $843 and $974, respectively. Some of the net operating losses and tax credits expire beginning in 2022; however, others can be carried forward indefinitely.

F-26

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

US Taxation of Foreign Earnings

Pursuant to the Tax Reform Act, the Company reported $57,895 of US federal and state income taxes on undistributed earnings from its non-US subsidiaries on its March 31, 2018 income tax returns filed with the US tax authorities. During the year ended March 31, 2019, the Company recorded $6,348 of US federal and state income tax expense, net of foreign tax credits on foreign earnings. During the year ended March 31, 2019, the Company declared a dividend of $130,000 from a foreign subsidiary, for which no foreign withholding taxes were required.

As of March 31, 2019, the Company reported $388,535 of undistributed earnings from its non-US subsidiaries, of which $214,876 relates to cash and cash equivalents, a portion of which may be subject to additional foreign withholding taxes if it were to be repatriated. As of March 31, 2019, the Company reported $15,193 of accumulated earnings from its non-US subsidiaries for which no US federal or state income taxes have been provided. The Company currently anticipates repatriating current and future unremitted earnings of non-US subsidiaries, to the extent they have been and will be subject to US income tax, as long as such cash is not required to fund ongoing foreign operations. Due to the complexities in the laws of foreign jurisdictions and assumptions that would have to be made, it is not practicable to estimate the amount of foreign withholding taxes associated with such unremitted earnings.

Unrecognized Tax Benefits

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 upon examination. The benefit of a tax position is recognized in the consolidated financial statements in the period during which the Company believes it is more likely than not that the position will be sustained upon examination by taxing authorities. The recognition threshold is measured as the largest amount of tax benefit that is more than 50% likely to be realized upon settlement. The portion of the benefit that exceeds the amount measured, as described above, is recorded as a liability for unrecognized tax benefits, along with any associated interest and penalties, in the consolidated balance sheets.

A reconciliation of the beginning and ending amounts of total gross unrecognized tax benefits are as follows:

Balance as of March 31, 2016	$	8,695
Gross increase related to current year tax positions	1,878
Gross increase related to prior year tax positions	1,154
Balance as of March 31, 2017	11,727
Gross increase related to current year tax positions	1,168
Gross increase related to prior year tax positions	1,243
Settlements	(4,501		)
Lapse of statute of limitations	(43		)
Balance as of March 31, 2018	9,594
Gross increase related to current year tax positions	1,027
Gross increase related to prior year tax positions	3,282
Settlements	(1,157		)
Lapse of statute of limitations	(1,804		)
Balance as of March 31, 2019	$	10,942

F-27

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Total gross unrecognized tax benefits recorded in the consolidated balance sheets, as follows:

	As of March 31,
	2019				2018
Long-term asset
Deferred tax assets, net	$	486			$	—
Current liability
Income taxes payable	7				—
Long-term liability
Income tax liability	10,449				9,594
Total	$	10,942			$	9,594

As of March 31, 2019 and 2018, the Company had $2,456 and $3,224 accrued for the payment of interest and penalties, respectively, in income tax liability in the consolidated balance sheets. During the years ended March 31, 2019, 2018 and 2017, the Company recognized $(110), $369, and $1,148, respectively, of interest and penalties as a (decrease) or increase to interest expense in the consolidated statements of comprehensive income (loss).

Management believes it is reasonably possible that the amount of unrecognized tax benefits, as well as associated interest and penalties, may decrease during the next 12 months by $3,272 related to the expiration of statutes of limitations. Of this amount, $2,332 would result in an income tax benefit for the Company and $940 would result in a decrease to interest expense in the consolidated statements of comprehensive income (loss).

The Company has on-going income tax examinations in various state and foreign tax jurisdictions and regularly assesses tax positions taken in years open to examination. 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 foreign income tax examinations by tax authorities for the fiscal years before 2014.

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 tax provisions and accruals. The results of an audit or litigation could have a material impact 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. However, it is the opinion of management that the Company does not currently expect these audits and inquiries to have a material impact on the Company’s consolidated financial statements.

Note 6. Revolving Credit Facilities and Mortgage Payable

Primary Credit Facility

In September 2018, the Company refinanced in full and terminated its Second Amended and Restated Credit Agreement dated as of November 13, 2014, as amended (Prior Credit Agreement). The refinanced revolving credit facility agreement (the Credit Agreement) is with JPMorgan Chase Bank, N.A. (JPMorgan), as the administrative agent, Citibank, N.A., Comerica Bank (Comerica) and HSBC Bank USA, N.A., as co-syndication agents, MUFG Bank, Ltd. and U.S. Bank National Association as co-documentation agents, and the lenders party thereto, with JPMorgan and Comerica acting as joint lead arrangers and joint bookrunners. The Credit Agreement provides for a five-year, $400,000 unsecured revolving credit facility (Primary Credit Facility), contains a $25,000 sublimit for the issuance of letters of credit, and matures on September 20, 2023.

In addition to allowing borrowings in US dollars, the Credit Agreement provides a $175,000 sublimit for borrowings in Euros, Sterling, Canadian dollars and any other foreign currency that is subsequently approved by JPMorgan, each lender and each bank issuing letters of credit. 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

F-28

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

under the Credit Agreement by up to an additional $200,000, resulting in a maximum available principal amount of $600,000. However, none of the lenders has committed at this time to provide any such increase in the commitments.

The obligations of the Company and each other borrower under the Primary Credit Facility are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (other than certain immaterial subsidiaries, foreign subsidiaries, foreign subsidiary holding companies and specified excluded subsidiaries). All obligations under the Primary Credit Facility and the foregoing guaranty are unsecured. Amounts borrowed under the Primary Credit Facility may be prepaid at any time. In addition, the Company has the right to permanently reduce or terminate the lenders’ commitments provided under the Credit Agreement, subject to customary conditions.

Certain of the Company’s foreign subsidiaries may also borrow under the Primary Credit Facility, which permits the Company, subject to customary conditions and notice periods, to designate one or more additional subsidiaries organized in foreign jurisdictions to borrow under the Primary Credit Facility, subject to the foreign currency sublimit noted above. The Company is liable for the obligations of each foreign borrower, but the obligations of the foreign borrowers are several (not joint) in nature.

Interest Rate Terms. At the Company’s election, interest under the Credit Agreement is tied to the adjusted London Interbank Offered Rate (LIBOR) or the Alternate Base Rate (ABR). Initial interest for the revolving loans was at adjusted LIBOR plus 1.25% per annum, in the case of LIBOR borrowings, or at ABR plus 0.25% per annum. ABR is defined as the rate per annum equal to the greater of (1) the prime rate, (2) the federal funds effective rate plus 0.50%, and (3) adjusted LIBOR for a one-month interest period plus 1.00%. The initial compliance certificate was delivered within 45 days from the quarter ended September 30, 2018, and interest for borrowings in US dollars is now variable and will fluctuate between adjusted LIBOR plus 1.125% per annum and adjusted LIBOR plus 1.625% per annum (or between ABR plus 0.125% per annum and ABR plus 0.625% per annum), based on the Company’s total adjusted leverage ratio. Interest for borrowings made in foreign currencies is based on currency-specific LIBOR or the Canadian deposit offered rate if made in Canadian dollars. As of March 31, 2019, the effective interest rates for US dollar LIBOR and ABR rates, with relevant spreads for borrowings made during the reporting period, were 3.62% and 5.63%, respectively.

Commitment Fees. The Company was initially required to pay fees of 0.15% per annum on the daily unused amount under the Primary Credit Facility. After the compliance certificate was delivered for the quarter ended September 30, 2018, the fee rate now fluctuates between 0.125% and 0.20% per annum, based upon the Company’s total adjusted leverage ratio.

Borrowing Activity. On termination of the Prior Credit Agreement, the Company repaid $27,000 of borrowings made during the quarter ended September 30, 2018 and had outstanding letters of credit of $549, which continued to be upheld under the Credit Agreement. During the year ended March 31, 2019, the Company borrowed and made repayments of $116,000 under the Primary Credit Facility. As of March 31, 2019, the Company had no outstanding balance under the Primary Credit Facility and had outstanding letters of credit of $549. As of March 31, 2019, available borrowings under the Primary Credit Facility were $399,451.

Subsequent to March 31, 2019 through May 17, 2019, the Company made no additional borrowings under the Primary Credit Facility. As of May 17, 2019, the Company had no outstanding balance, outstanding letters of credit of $549, and available borrowings of $399,451 under the Primary Credit Facility.

Debt Issuance Costs. In connection with entering into the Primary Credit Facility, the Company paid certain commitment, arrangement and other fees to JPMorgan, Comerica and other parties to the Primary Credit Facility, and reimbursed certain of the parties’ expenses, which totaled $1,297, and were recorded in prepaid expenses and other assets. These costs are amortized on a straight-line basis over the term of the Credit Agreement. Debt issuance costs associated with the Prior Credit Agreement had a remaining unamortized balance in prepaid expenses of $447, and, on the date of refinancing the Primary Credit Facility, were written off as interest expense during the quarterly period ended September 30, 2018.

F-29

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

China Credit Facility

In August 2013, Deckers (Beijing) Trading Co., LTD (DBTC), a wholly-owned subsidiary of the Company, entered into a revolving credit facility agreement in China (as amended, the China Credit Facility) that provided for an uncommitted revolving line of credit. In October 2016, the China Credit Facility was amended to include an increase in the uncommitted revolving line of credit of up to CNY 300,000, or $44,692, and to remove the sublimit of CNY 50,000, or $7,449, for the Company’s wholly-owned subsidiary, Deckers Footwear (Shanghai) Co., LTD (DFSC). In March 2017, the China Credit Facility was amended to remove DFSC, leaving DBTC as the only remaining borrower, and to add an overdraft facility sublimit of CNY 100,000, or $14,897.

The China Credit Facility is payable on demand and subject to annual review with a defined aggregate period of borrowing of up to 12 months. The obligations under the China Credit Facility are guaranteed by the Company for 108.5% of the facility amount in US dollars. Interest is based on the People’s Bank of China market rate, which was 4.35% as of March 31, 2019, and is multiplied by a variable liquidity factor, which resulted in an effective interest rate of 4.79%.

During the year ended March 31, 2019, the Company borrowed and made repayments of $19,324 under the China Credit Facility. As of March 31, 2019, the Company had no outstanding balance and available borrowings of $44,692 under the China Credit Facility. Subsequent to March 31, 2019 through May 17, 2019, the Company made no additional borrowings, had no outstanding balance, and available borrowings of approximately $44,692 under the China Credit Facility.

Japan Credit Facility

In March 2016, Deckers Japan, G.K., a wholly-owned subsidiary of the Company, entered into a revolving credit facility agreement in Japan (as amended, the Japan Credit Facility) that provides for an uncommitted revolving line of credit of up to JPY 5,500,000, or $49,595, for a maximum term of six months for each draw on the facility.

The Japan Credit Facility renews annually and is guaranteed by the Company. The Company has renewed the Japan Credit Facility through January 31, 2020 under the terms of the original agreement. Interest is based on the Tokyo Interbank Offered Rate plus 0.40%. As of March 31, 2019, the effective interest rate was 0.46%.

During the year ended March 31, 2019, the Company made no borrowings or repayments under the Japan Credit Facility. As of March 31, 2019, the Company had no outstanding balance under the Japan Credit Facility and available borrowings of $49,595. Subsequent to March 31, 2019 through May 17, 2019, the Company made no additional borrowings, had no outstanding balance, and available borrowings of approximately $49,595 under the Japan Credit Facility.

Mortgage

In July 2014, the Company obtained a mortgage secured by the property on which its corporate headquarters is located for $33,931. As of March 31, 2019, the outstanding principal balance under the mortgage was $31,504, which includes $603 in short-term borrowings and $30,901 in mortgage payable in the consolidated balance sheets. The mortgage has a fixed interest rate of 4.928%. Payments include interest and principal in an amount that amortizes the principal balance over a 30-year period; however, the loan will mature and requires a balloon payment of $23,695, in addition to any then-outstanding balance, on July 1, 2029. Minimum principal payments over the next five years are $3,354.

Debt Covenants

As of March 31, 2019, and through May 17, 2019, the Company was in compliance with all debt covenants under the revolving credit facilities and the mortgage.

F-30

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Primary Credit Facility. Under the Primary Credit Facility, the Company is subject to usual and customary representations and warranties, and usual and customary affirmative and negative covenants, which include: limitations on liens, additional indebtedness, investments, restricted payments and transactions with affiliates. Financial covenants (as defined in the Credit Agreement), include:

•	the total adjusted leverage ratio must not be greater than 3:75 to 1:00;

•	the sum of the consolidated annual earnings before interest, taxes, depreciation, and amortization 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

•	no limits on shares repurchases if the total adjusted leverage ratio does not exceed 3:50 to 1:00.

Under the Primary Credit Facility, the Company is also subject to other customary limitations, as well as usual and customary events of default, which include: non-payment of principal, interest, fees and other amounts; breach of a representation or warranty; non-performance of covenants and obligations; default on other material debt; bankruptcy or insolvency; material judgments; incurrence of certain material ERISA liabilities; and a change of control of the Company (as defined in the Credit Agreement).

China Credit Facility. Under the China Credit Facility, DBTC is subject to usual and customary representations and warranties, and usual and customary affirmative and negative covenants, which include: limitations on liens and additional indebtedness.

Japan Credit Facility. Under the Japan Credit Facility, Deckers Japan, G.K., is subject to usual and customary provisions including a restriction against having losses for two consecutive years, maintaining an interest coverage ratio greater than 1.00 to 1.00, and maintaining higher assets than liabilities.

Mortgage. During the third quarter of the year ended March 31, 2019, and in connection with entering into the Primary Credit Facility, the Company amended the debt covenants associated with its mortgage to mirror the debt covenants defined in the Credit Agreement.

Foreign Currency Exchange Rates

The amounts disclosed above for the China Credit Facility and Japan Credit Facility have been translated into US dollars using applicable foreign currency exchange spot rates in effect as of March 31, 2019. As a result, there are differences between the net borrowing and repayment amounts within this footnote disclosure and those same amounts recorded in the consolidated statements of cash flows. Any amounts outstanding are recorded in short-term borrowings in the consolidated balance sheets.

Note 7. Commitments and Contingencies

Operating Lease Commitments

The Company leases office, distribution and retail facilities, and automobiles, under operating lease agreements which continue in effect through January 2030. Some of the leases contain renewal options of anywhere from one to 15 years. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected in the consolidated balance sheets.

F-31

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Future minimum commitments under existing operating lease agreements as of March 31, 2019 are as follows:

Years Ending March 31,		Amounts
2020		$	53,015
2021		47,803
2022		40,629
2023		35,915
2024		31,329
Thereafter		81,746
Total		$	290,437

The following schedule shows the composition of total rent expense:

	Years Ended March 31,
	2019				2018				2017
Minimum rentals	$	60,859			$	59,531			$	63,050
Contingent rentals	13,226				15,924				15,281
Total	$	74,085			$	75,455			$	78,331

Purchase Obligations

Product. The Company had $424,274 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2019. The Company has an extended design and manufacturing process, which requires it to forecast production volumes and estimate inventory requirements many months before consumers decide to purchase its products. The Company generally orders product four to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from wholesale customers and through the DTC reportable operating segment. Accordingly, the aggregate amount reflects purchase commitments for products that the Company reasonably expects to fulfill in the ordinary course of business. However, a significant portion of the purchase commitments can be cancelled by the Company under certain circumstances, though the occurrence of such circumstances is generally limited. As a result, the amount does not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase commitments, and instead reflects an estimate of its future payment commitments based on information currently available.

Commodities. The Company had an aggregate of $208,577 of purchase commitments, primarily for sheepskin, as of March 31, 2019. These commitments generally arise under two-year supply agreements. The aggregate amount reflects the remaining commitments under these purchase orders. The Company enters into contracts requiring purchase commitments of sheepskin that its affiliates, manufacturers, factories, and other agents (each or collectively, a “Buyer”) must make on or before a specified target date. These agreements may result in unconditional purchase commitments if a Buyer does not meet the minimum purchase requirements. In the event that a Buyer does not purchase such minimum commitments by the target dates, the Company would be responsible for compliance with any and all minimum purchase commitments under these contracts, and the Company would make additional deposit payments towards the purchase of the remaining minimum commitments and such additional deposits would be returned as the Buyer purchases the remaining minimum commitments. The contracts do not permit net settlement. There were no additional deposits on remaining minimum commitments as of March 31, 2019.

F-32

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Total future net minimum commitments for these commodities contracts as of March 31, 2019 were as follows:

Contract Effective Date		Final Target Date		Contract Value				Remaining Commitment
July 2017		September 2019		$	45,600			$	25,792
May 2018		September 2019		26,800				18,300
October 2018		September 2019		24,500				10,515
December 2018		June 2020		14,160				14,160
April 2018		September 2020		54,600				54,600
October 2018		September 2020		34,750				34,750
October 2018		September 2021		50,460				50,460
				$	250,870			$	208,577

The Company expects that purchases made under these agreements in the ordinary course of business will eventually exceed the minimum commitment levels, and that any deposits will become fully refundable or will be reflected as a credit against purchases. The amounts above do not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase obligations, and instead reflect an estimate of its future payment obligations based on information currently available.

Other. The Company had an aggregate of $52,302 of other purchase commitments as of March 31, 2019, which generally consisted of material commitments for future capital expenditures, commitments under service contracts, and requirements to pay promotional expenses. Future capital expenditures primarily relate to retail store build-out of leasehold improvements and the continued build-out and expansion of the warehouse and distribution center located in Moreno Valley, California.

Litigation

From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on its business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.

Contingent Consideration

The purchase price for the Sanuk brand, acquired in July 2011, included contingent consideration payments. The final contingent consideration payment of approximately $19,700 was paid during the year ended March 31, 2017.

Indemnification

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. From time to time, the Company also agrees to indemnify its licensees, distributors, and promotional partners in connection with claims that the Company’s products infringe on the intellectual property rights of third parties. These agreements may or may not be made pursuant to a written contract. In addition, from time to time, the Company also agrees to standard indemnification provisions in commercial agreements in the ordinary course of business.

Management believes the likelihood of any payments under any of these arrangements is remote and would be immaterial. This determination is made based on a prior history of insignificant claims and related payments. There are currently no pending claims relating to indemnification matters involving the Company’s intellectual property.

F-33

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 8. Stock Compensation

In May 2006, the Company adopted the 2006 Equity Incentive Plan (2006 EIP), which was amended on May 9, 2007. In September 2015, the Company’s stockholders approved the 2015 Stock Incentive Plan (2015 SIP), which replaced the Company’s 2006 EIP. As with the 2006 EIP, the primary purpose of the 2015 SIP is to encourage ownership in the Company by key personnel, whose long-term service is considered essential to the Company’s continued success. The 2015 SIP reserves 1,275,000 shares of the Company’s common stock for issuance to employees, directors, consultants, independent contractors and advisors, plus any additional shares that are forfeited, or are otherwise terminated under the 2006 EIP. The maximum aggregate number of shares that may be issued to employees under the 2015 SIP through the exercise of incentive stock options is 750,000.

The Company uses various types of stock-based compensation under the 2006 EIP, as amended, and the 2015 SIP, including time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs), stock appreciation rights, and non-qualified stock options (NQSOs). Annual grants of RSUs (Annual RSUs) and PSUs (Annual PSUs) are available to key employees and certain executive officers, and long-term incentive plan (LTIP) awards are available to certain officers, including named executive officers.

Annual Awards

The Company elected to grant Annual RSUs and Annual PSUs under the 2015 SIP to key employees, including certain executive officers of the Company, which entitle the recipients to receive shares of the Company’s common stock upon vesting. The Annual RSUs are subject to time-based vesting criteria and vest in equal annual installments over three years following the date of grant. The vesting of Annual PSUs is subject to the achievement of pre-established Company performance criteria measured over the fiscal year during which they are granted, and to the extent the performance criteria has been met, vest in equal annual installments over three years thereafter. During the year ended March 31, 2019, the Company granted 31,320 Annual PSUs and 62,743 Annual RSUs at a weighted-average grant date fair value of $116.34 and $116.85 per share, respectively. As of March 31, 2019, the Company determined that the target performance criteria related to the year ended March 31, 2019 Annual PSUs were achieved.

Subsequent to March 31, 2019 through May 17, 2019, the Company granted no additional Annual RSUs or Annual PSUs.

Long-Term Incentive Plan Options

During the year ended March 31, 2019, no LTIP NQSOs were granted. Previously, the Company approved the issuance of LTIP NQSOs under the 2015 SIP, including in November 2016 (2017 LTIP NQSOs) and June 2017 (2018 LTIP NQSOs), which were awarded to certain members of the Company’s management team. If the recipient provides continuous service, the LTIP NQSOs will vest after the Company achieves the target performance criteria by the date specified in the award. Each vested LTIP NQSO provides the recipient the right to purchase a specified number of shares of the Company’s common stock at a fixed exercise price per share based on the closing price of the common stock on the date of grant. The 2017 LTIP NQSOs vested on March 31, 2019 and the 2018 LTIP NQSOs will vest on March 31, 2020. Subsequent to March 31, 2019 through May 17, 2019, the Company granted no LTIP NQSOs.

F-34

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

The Company measures stock compensation expense for LTIP NQSOs at the date of grant using the Black-Scholes option pricing model. The following table presents the weighted-average valuation assumptions used for the recognition of stock compensation expense for the LTIP NQSOs granted:

			2018 LTIP NQSOs				2017 LTIP NQSOs
Expected life (in years)			4.90				5.94
Expected volatility			38.73		%		41.80		%
Risk free interest rate			1.78		%		1.95		%
Dividend yield			—		%		—		%
Weighted-average exercise price			$	69.29			$	61.86
Weighted-average option value			$	25.03			$	26.27

Long-Term Incentive Plan Awards

2019 LTIP PSUs. In September 2018, the Company approved LTIP awards under the 2015 SIP for the issuance of PSUs (2019 LTIP PSUs), which were awarded to certain members of the Company’s senior management team, including the Company’s named executive officers. The 2019 LTIP PSUs are subject to vesting based on service conditions over three years, as well as the Company meeting certain revenue and pre-tax income performance targets for the fiscal year ending March 31, 2021. To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of PSUs that will vest will increase up to a maximum of 200% of the targeted amount for that award. No vesting of any portion of the 2019 LTIP PSUs will occur if the Company fails to achieve revenue and pre-tax income amounts equal to at least 90% of the threshold amounts for these criteria. Following the determination of the Company’s achievement with respect to the revenue and pre-tax income criteria for the measurement period, the vesting of the 2019 LTIP PSUs will be subject to adjustment based on the application of a relative total shareholder return (TSR) modifier. The amount of the adjustment will be determined based on a comparison of the Company’s TSR relative to the TSR of a pre-determined set of peer group companies for the 36-month performance period commencing on April 1, 2018 and ending on the vesting date. A Monte Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company and each member of the peer group over the 36-month performance period.

Under the new program, the Company granted awards at the target performance level of 41,793 2019 LTIP PSUs during the quarter ended September 30, 2018. The average grant date fair value of these 2019 LTIP PSUs was $120.24 per share. Based on the Company’s current long-range forecast, the Company has determined that the achievement of at least the target performance criteria of these awards continues to be probable.

2016 LTIP PSUs. In November 2015, the Company approved LTIP awards under the 2015 SIP for issuance of PSUs (2016 LTIP PSUs), which were awarded to certain members of the Company’s management team. The 2016 LTIP PSUs were subject to vesting based on certain performance criteria and service conditions over three years. To the extent financial performance was achieved above the minimum threshold performance criteria, the number of 2016 LTIP PSUs that would vest was subject to increase up to a maximum of 200% of the targeted amount for that award. No vesting of any portion of the 2016 LTIP PSUs would occur if the Company failed to achieve at least 90% of the minimum threshold performance criteria. If the Company achieved the performance criteria, vesting of the 2016 LTIP PSUs would be subject to adjustment based on the application of a total stockholder return (TSR) modifier. The amount of the adjustment would be determined based on a comparison of the Company’s TSR relative to the TSR of a pre-determined set of peer group companies for the 36-month performance period. Under this program, the Company granted awards that contained a maximum of approximately 308,000 2016 LTIP PSUs during the year ended March 31, 2016. The weighted-average grant date fair value of the 2016 LTIP PSUs was $50.05 per share. The Company did not believe the achievement of at least the minimum threshold performance criteria was probable, and accordingly, did not recognize stock compensation expense for these awards during the years ended March 31, 2018 and 2017. As of March 31, 2018, the Company did not meet the minimum threshold performance criteria, and the awards did not vest and were cancelled.

F-35

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

2015 LTIP PSUs. In September 2014, the Company approved LTIP awards under the 2006 EIP for issuance of PSUs (2015 LTIP PSUs), which were awarded to certain members of the Company’s management team. The 2015 LTIP PSUs were subject to vesting based on certain performance criteria and service conditions over three years. To the extent financial performance was achieved above the minimum threshold performance criteria, the number of 2015 LTIP PSUs that vested would increase up to the maximum number of units granted under the award. Under this program, the Company granted awards that contained a maximum of approximately 160,000 2015 LTIP PSUs during the year ended March 31, 2015. The weighted-average grant date fair value of the 2015 LTIP PSUs was $98.29 per share. As of March 31, 2017, the Company determined that achievement of the minimum threshold performance criteria was not probable, and accordingly, the Company recognized a net reversal of stock compensation expense of approximately $1,400. As of March 31, 2017, the Company did not meet the minimum threshold performance criteria, and the awards did not vest and were cancelled.

2007 LTIP SARs and 2007 LTIP PSUs. In May 2007, the Company approved LTIP awards under the 2006 EIP for issuance of SARs (2007 LTIP SARs) and PSUs (2007 LTIP PSUs), which were awarded to certain members of the Company’s management team. These awards were subject to vesting based on certain performance criteria and service conditions. Half of the 2007 LTIP SARs and 2007 LTIP PSUs granted were fully vested as of December 31, 2011; 80% of the other half of the awards vested on December 31, 2015, while the remaining 20% did not vest and were cancelled, since it was determined that the Company had not achieved the required performance criteria as of December 31, 2016. Accordingly, the Company recognized a net reversal of stock compensation expense of $2,400 during the year ended March 31, 2017.

Grants to Directors

Each of the Company’s nonemployee directors is entitled to receive common stock with a total value of $125 for annual service on the Board of Directors. The shares are issued in equal quarterly installments with the number of shares being determined using the rolling average of the closing price of the Company’s common stock during the last ten trading days leading up to, and including, the 15th day of the last month of each quarterly period. Each of these shares is fully vested on the date of issuance.

Stock Compensation Expense

The table below summarizes the components of stock compensation expense recognized in the consolidated statements of comprehensive income (loss):

	Years Ended March 31,
	2019				2018				2017
Stock-based compensation expense
Annual RSUs	$	6,588			$	7,761			$	5,191
Annual PSUs	2,373				1,829				1,203
2007 LTIP SARs	—				—				(1,949		)
LTIP PSUs	885				—				(296		)
LTIP NQSOs	3,516				3,432				694
Grants to Directors	1,223				1,135				1,168
Subtotal	14,585				14,157				6,011
Other stock compensation
Employee Stock Purchase Plan*	189				150				164
Total stock compensation expense, pretax	14,774				14,307				6,175
Income tax benefit	(3,546		)		(4,906		)		(2,322		)
Total stock compensation expense, net of tax	$	11,228			$	9,401			$	3,853

F-36

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

*The 2015 Employee Stock Purchase Plan authorizes 1,000,000 shares of the Company’s common stock for sale to eligible employees using their after-tax payroll deductions. Each consecutive purchase period is six months (purchase period) in duration and shares are purchased on the last trading day of the purchase period at a price that reflects a 15% discount to the closing price on that date. Purchase windows take place in February and August of each fiscal year. The net difference between the timing of compensation expense incurred during the purchase period and purchase windows are recorded in other accrued expenses in the consolidated balance sheets.

The table below summarizes the total remaining unrecognized stock compensation expense as of March 31, 2019 related to non-vested awards that the Company considers probable to vest and the weighted-average period over which the cost is expected to be recognized in future periods:

	Unrecognized Stock Compensation Expense				Weighted-Average Remaining Vesting Period (Years)
Annual RSUs	$	6,391			1.0
Annual PSUs	2,689				1.1
LTIP PSUs	3,751				2.0
LTIP NQSOs	1,641				1.0
Total	$	14,472

Annual RSUs and Annual PSUs Issued under the 2015 SIP

The table below summarizes Annual RSU and Annual PSU activity:

	Number of Shares			Weighted- Average Grant-Date Fair Value
Nonvested as of March 31, 2018	289,297			$	65.18
Granted	94,063			116.68
Vested	(118,903	)		64.39
Forfeited	(33,058	)		77.60
Nonvested as of March 31, 2019	231,399			$	84.75

LTIP PSUs Issued Under the 2015 SIP

The table below summarizes activity for LTIP PSUs:

	Number of Shares			Weighted- Average Grant-Date Fair Value
Nonvested as of March 31, 2018	—			$	—
Granted	83,586			120.24
Forfeited	(6,488	)		120.24
Nonvested as of March 31, 2019	77,098			$	120.24

F-37

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

LTIP NQSOs Issued Under the 2015 SIP

The table below summarizes LTIP NQSO activity:

	Number of Shares			Weighted- Average Grant-Date Fair Value				Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Nonvested as of March 31, 2018	397,340			$	65.70			7.1		$	9,666
Forfeited	(35,957	)		69.29
Nonvested as of March 31, 2019	361,383			$	65.35			6.2		$	29,504

The maximum contractual term was approximately nine and seven years from the grant date for the 2017 NQSOs and 2018 NQSOs, respectively.

Note 9. Derivative Instruments

As of March 31, 2019, the Company had no outstanding derivative contracts.

As of March 31, 2018, the Company had the following derivative contracts recorded at fair value:

	Designated Derivative Contracts				Non-Designated Derivative Contracts				Total
Notional value	$	126,332			$	4,802			$	131,134
Fair value recorded in other current assets	950				—				950
Fair value recorded in other accrued expenses	(143		)		(10		)		(153		)

The following table summarizes the effect of Designated Derivative Contracts:

	Years Ended March 31,
	2019				2018				2017
Amount of gain (loss) recognized in OCI (effective portion)	$	8,355			$	(9,593	)		$	8,208
Amount of gain (loss) reclassified from AOCL into net sales (effective portion)	8,675				(8,541		)		7,082
Amount of gain excluded from effectiveness testing recognized in SG&A expenses	1,918				1,376				534

The following table summarizes the income tax effect for unrealized gains or losses for Designated Derivative Contracts recorded in AOCL:

	Years Ended March 31,
	2019				2018				2017
Income tax expense (benefit)*	$	77			$	439			$	(423	)

*These amounts are inclusive of the income tax effects from the Tax Reform Act reclassified from AOCL to retained earnings in the consolidated balance sheets.

F-38

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

The following table summarizes the effect of Non-Designated Derivative Contracts:

	Years Ended March 31,
	2019				2018				2017
Amount of gain (loss) recognized in SG&A expenses	$	1,393			$	(2,574	)		$	2,202

The non-performance risk of the Company and the counterparties did not have a material impact on the fair value of its derivative contracts. During the year ended March 31, 2019, the Designated Derivative Contracts remained effective and that portion of any gain or loss was recognized in AOCL and reclassified into earnings in the same period or periods during which the transaction affected earnings.

As of March 31, 2019, there is no unrealized gain or loss on derivative contracts recognized in AOCL. Refer to Note 10, “Stockholders' Equity,” for further information.

Subsequent to March 31, 2019 through May 17, 2019, the Company entered into Non-Designated Derivative Contracts with notional values totaling approximately $19,913, which are expected to mature over the next 11 months, and no Designated Derivative Contracts. As of May 17, 2019, the Company’s outstanding hedging contracts were held by an aggregate of two counterparties.

Note 10. Stockholders’ Equity

Stock Repurchase Programs

In October 2017, the Company’s Board of Directors approved the 2017 Repurchase Program which, together with the 2015 Repurchase Program, authorized the Company to repurchase a total of up to $400,294 of its common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. As of March 31, 2019, the aggregate remaining approved amount under the 2017 Repurchase Program was $89,212. The full amount originally authorized under the 2015 Repurchase Program has been repurchased and the 2015 Repurchase Program has been completed. In January 2019, the Company’s Board of Directors approved the 2019 Repurchase Program, which authorizes the Company to repurchase up to $261,000 of its common stock. As of March 31, 2019, the aggregate remaining approved amount under the 2017 Repurchase Program and 2019 Repurchase Program (collectively, the “Stock Repurchase Programs”) was $350,212. The Company’s Stock Repurchase Programs do not obligate it to acquire any particular amount of common stock and may be suspended at any time at the Company’s discretion. The Company’s current revolving credit agreements allow it to make share repurchases under these programs, as long as the Company does not exceed certain leverage ratios and no event of default has occurred under these arrangements. As of March 31, 2019, and through May 17, 2019, the Company was in compliance with these arrangements.

The following table summarizes the publicly-announced stock repurchase activity of open-market transactions under the Company’s Stock Repurchase Programs:

	Years Ended March 31,
	2019				2018				2017
Average price paid per share	$	115.22			$	87.91			$	56.51
Total number of shares repurchased	1,400,699				1,702,653				222,471
Dollar value of shares repurchased	$	161,395			$	149,687			$	12,572

Subsequent to March 31, 2019 through May 17, 2019, the Company made no additional share repurchases.

F-39

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Accumulated Other Comprehensive Loss

The components within AOCL, net of tax, are as follows:

	As of March 31,
	2019				2018
Unrealized gain on cash flow hedges	$	—			$	243
Cumulative foreign currency translation loss	(22,654		)		(13,226		)
Total	$	(22,654	)		$	(12,983	)

Note 11. Net Income per Share

The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:

	Years Ended March 31,
	2019			2018			2017
Basic	29,641,000			31,758,000			32,000,000
Dilutive effect of equity awards	262,000			238,000			355,000
Diluted	29,903,000			31,996,000			32,355,000
Excluded*
Annual RSUs and Annual PSUs	3,000			200			17,000
LTIP PSUs	77,000			—			269,000
LTIP NQSOs	170,000			397,000			192,000
Deferred Non-Employee Director Equity Awards	2,000			1,000			—

*The equity awards excluded from the dilutive effect are excluded due to one of the following: (1) the shares were anti-dilutive; (2) the necessary conditions had not been satisfied for the shares to be issuable based on the Company’s performance; or (3) the Company recorded a net loss during the period presented. The number of shares stated for each of these excluded awards is the maximum number of shares issuable pursuant to these awards. Refer to Note 8, “Stock Compensation,” for further information.

Note 12. Reportable Operating Segments

The Company’s six reportable operating segments now include the worldwide wholesale operations for each of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. The Other brands wholesale reportable operating segment consists of the Koolaburra brand and includes other discontinued brands during the prior periods presented. Information reported to the CODM, who is the Company’s Principal Executive Officer, is organized into these reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. The Company does not consider international operations a separate reportable operating segment, and the CODM reviews such operations in the aggregate with the aforementioned reportable operating segments. Inter-segment sales from the Company’s wholesale reportable operating segments to the DTC reportable operating segment are at the Company’s cost, and there is no inter-segment profit on these inter-segment sales, nor are they reflected in income (loss) from operations of the wholesale reportable operating segments.

The Company evaluates reportable operating segment performance, primarily based on net sales and income (loss) from operations. The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design, sourcing, and sales strategies. The income (loss) from operations of each of the reportable operating segments include only those costs which are specifically related to each reportable operating segment, which consist primarily of cost of sales, research and development, design, sales and

F-40

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

marketing, depreciation, amortization, and the direct costs of employees within those reportable operating segments. The Company does not allocate corporate overhead costs or non-operating income and expenses to reportable operating segments, which include unallocable overhead costs associated with distribution centers, certain executive and stock compensation, accounting, finance, legal, information technology, human resources, and facilities, among others.

Reportable operating segment information, with a reconciliation to the consolidated statements of comprehensive income (loss), is summarized as follows:

	Years Ended March 31,
	2019				2018				2017
Net sales
UGG brand wholesale	$	888,347			$	841,893			$	826,355
HOKA brand wholesale	185,057				132,688				93,064
Teva brand wholesale	119,390				117,478				103,694
Sanuk brand wholesale	69,791				78,283				77,552
Other brands wholesale	42,818				17,273				23,142
Direct-to-Consumer	715,034				715,724				666,340
Total	$	2,020,437			$	1,903,339			$	1,790,147

	Years Ended March 31,
	2019				2018				2017
Income (loss) from operations
UGG brand wholesale	$	300,761			$	247,826			$	213,407
HOKA brand wholesale	35,717				20,954				2,556
Teva brand wholesale	27,939				20,400				10,045
Sanuk brand wholesale	12,781				14,474				(110,582		)
Other brands wholesale	10,411				1,304				(985		)
Direct-to-Consumer	185,449				156,896				109,802
Unallocated overhead costs	(245,738		)		(239,270		)		(226,162		)
Total	$	327,320			$	222,584			$	(1,919	)

	Years Ended March 31,
	2019				2018				2017
Depreciation, amortization and accretion
UGG brand wholesale	$	1,254			$	3,193			$	3,167
HOKA brand wholesale	456				485				590
Teva brand wholesale	10				12				24
Sanuk brand wholesale	4,171				4,174				5,018
Other brands wholesale	382				380				381
Direct-to-Consumer	12,195				13,396				15,669
Unallocated overhead costs	26,473				26,932				27,779
Total	$	44,941			$	48,572			$	52,628

F-41

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

	Years Ended March 31,
	2019				2018				2017
Capital expenditures
UGG brand wholesale	$	205			$	58			$	3,444
HOKA brand wholesale	285				—				191
Teva brand wholesale	—				—				—
Sanuk brand wholesale	—				20				—
Other brands wholesale	11				—				—
Direct-to-Consumer	5,739				8,641				15,277
Unallocated overhead costs	22,846				26,094				25,587
Total	$	29,086			$	34,813			$	44,499

Assets allocated to each reportable operating segment include trade accounts receivable, net of allowances and inventories net of reserves, property and equipment, net, goodwill, other intangible assets, and certain other assets that are specifically identifiable for one of the Company’s reportable operating segments. Unallocated assets are those assets not directly related to a specific reportable operating segment and generally include cash and cash equivalents, deferred tax assets, and various other corporate assets shared by the Company’s reportable operating segments.

Assets allocated to each reportable operating segment, with a reconciliation to the consolidated balance sheets, are as follows:

	As of March 31,
	2019				2018
Assets
UGG brand wholesale	$	240,411			$	229,894
HOKA brand wholesale	94,157				65,943
Teva brand wholesale	76,370				85,980
Sanuk brand wholesale	71,285				79,322
Other brands wholesale	14,618				8,866
Direct-to-Consumer	95,501				112,355
Total assets from reportable operating segments	592,342				582,360
Unallocated cash and cash equivalents	589,692				429,970
Unallocated deferred tax assets	30,870				38,381
Unallocated other corporate assets	214,302				213,668
Total	$	1,427,206			$	1,264,379

Note 13. Concentration of Business

Regions and Customers

The Company sells its products to customers throughout the US and to foreign customers in various countries, with concentrations as follows:

	Years Ended March 31,
	2019				2018				2017
International net sales	$	742,079			$	729,278			$	648,844
% of net sales	36.7		%		38.3		%		36.2		%

F-42

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

	Years Ended March 31,
	2019				2018				2017
Net sales in foreign currencies	$	605,725			$	617,867			$	539,440
% of net sales	30.0		%		32.5		%		30.1		%
Ten largest customers as % of net sales	27.7		%		28.2		%		24.8		%

For the years ended March 31, 2019, 2018, and 2017 no single foreign country comprised 10.0% or more of the Company’s total net sales. No single customer accounted for 10.0% or more of the Company’s net sales during the years ended March 31, 2019, 2018, and 2017.

The Company sells its products to customers for net trade accounts receivables and as of March 31, 2019 had no customers that exceeded 10% or more of trade accounts receivable, net, compared to two customers that represented 21.6% of trade accounts receivable, net, as of March 31, 2018.

Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and records an allowance for doubtful accounts based on these evaluations. Refer to Schedule II, “Total Valuation and Qualifying Accounts,” for further information regarding the Company’s allowance for doubtful accounts.

Suppliers

The Company’s production is concentrated at a limited number of independent manufacturing factories, primarily in Asia. Sheepskin is the principal raw material for certain UGG brand products and the majority of sheepskin is purchased from two tanneries in China and is sourced primarily from Australia and the United Kingdom. In an effort to partially reduce its dependency on sheepskin, the Company began using a proprietary raw material, UGGpure, which is a re-purposed wool woven into a durable backing, in some of its UGG brand products. The Company currently purchases UGGpure from two suppliers. The other production materials used by the Company are sourced primarily from Asia. The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, foreign currency exchange rate 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 patterns, harvesting decisions, incidents of disease, and the price of other commodities such as wool and leather. Furthermore, the price of sheepskin is impacted by numerous other factors, including demand for the Company’s products, demand for sheepskin by competitors, changes in consumer preferences and changes in discretionary spending.

Long-Lived Assets

Long-lived assets, which consist of net property and equipment, was as follows:

	As of March 31,
	2019				2018
US	$	196,702			$	203,956
Foreign*	17,094				16,206
Total	$	213,796			$	220,162

*No single foreign country’s net property and equipment comprised 10.0% or more of the Company’s total net property and equipment as of March 31, 2019 and March 31, 2018.

F-43

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2019, 2018, and 2017

(dollar amounts in thousands, except per share or share data)

Note 14. Quarterly Summary of Information (Unaudited)

The Company’s business is seasonal, with the highest percentage of UGG brand net sales occurring in the quarters ending September 30th and December 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31st and June 30th of each year. Net sales of Other brands do not have significant seasonal impact on the Company. Due to the size of the UGG brand relative to the Company’s other brands, the Company’s aggregate net sales in the quarters ending September 30th and December 31st have significantly exceeded net sales in the quarters ending March 31st and June 30th. While the Company has taken steps to diversify its product offerings, both by creating more year-round styles and expanding product offerings within its existing brands, and by acquiring and developing new brands, the Company expects this trend to continue for the foreseeable future.

Summarized unaudited quarterly financial data are as follows:

	Fiscal Year 2019
	Quarter Ended
	6/30/2018				9/30/2018				12/31/2018				3/31/2019
Net sales*	$	250,594			$	501,913			$	873,800			$	394,130
Gross profit	114,965				251,887				470,093				203,305
(Loss) income from operations**	(39,414		)		90,412				244,718				31,604
Net (loss) income***	(30,407		)		74,372				196,374				23,969
Net (loss) income per share
Basic	$	(1.00	)		$	2.49			$	6.74			$	0.82
Diluted	$	(1.00	)		$	2.48			$	6.68			$	0.82

	Fiscal Year 2018
	Quarter Ended
	6/30/2017				9/30/2017				12/31/2017				3/31/2018
Net sales*	$	209,717			$	482,460			$	810,478			$	400,684
Gross profit	90,625				225,117				423,471				192,429
(Loss) income from operations**	(56,256		)		67,355				193,191				18,294
Net (loss) income***	(42,121		)		49,559				86,341				20,615
Net (loss) income per share
Basic	$	(1.32	)		$	1.55			$	2.71			$	0.66
Diluted	$	(1.32	)		$	1.54			$	2.69			$	0.66

*Reflects a difference in accounting policy in connection with the adoption of ASU No. 2014-09, Revenue from Contracts with Customers, beginning April 1, 2018. The most significant impact for this change in accounting policy was to net sales recorded for the quarter ended December 31, 2017, which reflects a deferral of in transit net sales of approximately $12,000, primarily in the DTC reportable operating segment, for which the Company did not recognize a deferral for in transit net sales during the quarter ended December 31, 2018. The impact of this change in accounting policy to other quarterly comparative periods presented were immaterial.

**Includes restructuring charges of $295 and $1,667 for the years ended March 31, 2019 and 2018, respectively, primarily incurred during the second quarter of fiscal year 2019 and the first and third quarters of fiscal year 2018. Refer to Note 1, “General,” under the heading “Restructuring” for further information.

***Includes significant impacts to income tax expense for fiscal year 2018 due to the Tax Reform Act. Refer to Note 5, “Income Taxes,” under the heading “Income Tax Expense (Benefit) Reconciliation” for further information.

F-44

Schedule II

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

TOTAL VALUATION AND QUALIFYING ACCOUNTS

The following is a summary of allowances for doubtful accounts, sales discounts, chargebacks and sales returns against trade accounts receivable (amounts in thousands):

	As of March 31,
	2019				2018				2017
Allowance for doubtful accounts (1)
Balance at Beginning of Year	$	3,487			$	5,979			$	5,494
Additions	2,849				4,168				2,847
Deductions	(1,263		)		(6,660		)		(2,362		)
Balance at End of Year	$	5,073			$	3,487			$	5,979
Allowance for sales discounts (2)
Balance at Beginning of Year	$	1,400			$	3,100			$	2,672
Additions	11,712				19,972				20,259
Deductions	(12,402		)		(21,672		)		(19,831		)
Balance at End of Year	$	710			$	1,400			$	3,100
Allowance for chargebacks (3)
Balance at Beginning of Year	$	7,727			$	7,028			$	4,968
Additions	23,369				19,019				19,584
Deductions	(18,055		)		(18,320		)		(17,524		)
Balance at End of Year	$	13,041			$	7,727			$	7,028
Allowance for sales returns (4)
Balance at Beginning of Year	$	20,848			$	16,247			$	17,061
Additions	—				51,677				62,122
Deductions	(20,848		)		(47,076		)		(62,936		)
Balance at End of Year	$	—			$	20,848			$	16,247
Total	$	18,824			$	33,462			$	32,354

(1)	The additions to the allowance for doubtful accounts represent estimates of the Company’s bad debt expense based on the factors on which the Company evaluates the collectability of its accounts receivable, with actual recoveries netted into additions. Deductions are for the actual write-off of the related trade accounts receivables.

(2)

The additions to the allowance for sales discounts represent estimates of discounts to be taken by the Company’s customers based on the amount of outstanding discounts for prompt or early payments. Deductions are for the actual discounts taken by the Company’s wholesale channel customers. Discounts for DTC customers are taken at the point of sale and are not reflected in the allowance for sales discounts.

(3)	The additions to the allowance for chargebacks represent chargebacks and markdowns taken in the respective year, as well as an estimate of amounts that will be taken in the future related to sales in the current reporting period. Deductions are for the actual amounts written off against outstanding trade accounts receivables.

(4)

The Company adopted ASU 2014-09, Revenue from Contracts with Customers, effective April 1, 2018. Under ASU 2014-09, the sales returns reserve for the wholesale channel is presented on a gross basis, with a separate asset and liability in the consolidated balance sheets. Reporting periods prior to the adoption reflect the wholesale channel sales returns reserve on a net basis. Returns for DTC customer products were previously excluded as they were separately recorded in other accrued expenses in the consolidated balance sheets. In prior periods presented, the additions to the allowance for sales returns represented estimates of returns based on the Company’s historical wholesale channel customer returns experience. Deductions were for the actual return of products.

F-45