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 (Exhibit 4.1 to the Registrant’s Form 10-K filed on May 30, 2019 and incorporated by reference herein)
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 (Exhibit 10.5 to the Registrant’s Form 10-K filed on May 30, 2019 and incorporated by reference herein)
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 (Exhibit 10.11 to the Registrant’s Form 10-K filed on May 30, 2019 and incorporated by reference herein)

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 (Exhibit 10.14 to the Registrant’s Form 10-K filed on May 30, 2019 and incorporated by reference herein)
#10.15		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)
#10.16		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)
#10.17		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)
#10.18		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)
#10.19		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)
#10.20		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)
#10.21		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)
#10.22		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)
#10.23		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)
#10.24		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)
#10.25		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)
#10.26		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)
#10.27		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)
#10.28		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)
#10.29		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)
#10.30		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)
#10.31		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)
#10.32		Form of Stock Award Agreement (2020 Time-Based PSU) under the 2015 Stock Incentive Plan (Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 8, 2019 and incorporated by referenced herein)

#10.33		Form of Stock Unit Award Agreement (2020 Time-Based RSU) under the 2015 Stock Incentive Plan (Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 8, 2019 and incorporated by reference herein)
#10.34		Form of Restricted Stock Unit Award Agreement under the 2015 Stock Incentive Plan (FY2020) LTIP Agreement (Exhibit 10.1 to the Registrant’s Form 8-K filed on September 25, 2019 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
*104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

• Filed herewith.

** Furnished herewith.

Management contract or compensatory plan or arrangement.

SIGNATURES

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

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

Date: June 1, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ DAVID POWERS	Chief Executive Officer, President and Director (Principal Executive Officer)	June 1, 2020
David Powers
/s/ STEVEN J. FASCHING	Chief Financial Officer (Principal Financial and Accounting Officer)	June 1, 2020
Steven J. Fasching
/s/ MICHAEL F. DEVINE, III	Chairman of the Board	June 1, 2020
Michael F. Devine, III
/s/ NELSON C. CHAN	Director	June 1, 2020
Nelson C. Chan
/s/ CINDY L. DAVIS	Director	June 1, 2020
Cindy L. Davis
/s/ JUAN R. FIGUEREO	Director	June 1, 2020
Juan R. Figuereo
/s/ JOHN M. GIBBONS	Director	June 1, 2020
John M. Gibbons
/s/ JAMES QUINN	Director	June 1, 2020
James Quinn
/s/ LAURI M. SHANAHAN	Director	June 1, 2020
Lauri M. Shanahan
/s/ BRIAN A. SPALY	Director	June 1, 2020
Brian A. Spaly
/s/ BONITA C. STEWART	Director	June 1, 2020
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-4
Consolidated Balance Sheets	F-5
Consolidated Statements of Comprehensive Income	F-6
Consolidated Statements of Stockholders' Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-10
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, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2020 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, 2020, 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 June 1, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 and Note 7 to the consolidated financial statements, the Company changed its method of accounting for leases as of April 1, 2019 due to the adoption of Accounting Standard Update (ASU) 2016-02 and all related amendments.

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the wholesale sales return liability

As discussed in Note 1 and Note 2 to the consolidated financial statements, the Company has recorded a sales returns liability as of March 31, 2020 of $25,667, of which the majority is related to the wholesale channel. The Company records an allowance for anticipated future returns of goods shipped prior to the end of the reporting period. The length of time between when a sale is made and when the customer returns the product varies on a customer-by-customer basis. Historical returns rates can also be impacted by recent events or known trends.

We identified the evaluation of the wholesale sales return liability as a critical audit matter. There was a high degree of auditor judgment required to evaluate recent events that could result in a change from historical return rates used to develop the wholesale sales returns liability.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the Company’s process for estimating the wholesale sales return liability, including the development

F-2

Report of Independent Registered Public Accounting Firm

of estimated return rates which is based on approved customer requests, historical return rates and recent events. We evaluated the wholesale sales return liability for a sample of wholesale customers using a combination of Company internal data, known recent trends, and actual and historical known information. We tested the sales return lag by comparing it to historical sales returns activity by brand and by return reason. We reviewed the Company’s internal data and external correspondence to assess their ability to properly consider recent events. We assessed the Company’s ability to accurately estimate the wholesale sales return liability by comparing the historically recorded sales return liability to actual subsequent product returns. We also analyzed actual product returns received after year-end but prior to the issuance of the consolidated financial statements.

/s/ KPMG LLP

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

Los Angeles, California

June 1, 2020

F-3

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, 2020 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, 2020, 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, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020, and the related notes and financial statement schedule (collectively, the consolidated financial statements), and our report dated June 1, 2020 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. 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

June 1, 2020

F-4

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	As of March 31,
	2020				2019
ASSETS
Cash and cash equivalents	$	649,436			$	589,692
Trade accounts receivable, net of allowances ($21,146 and $18,824 as of March 31, 2020 and March 31, 2019, respectively)	185,596				178,602
Inventories, net of reserves ($12,227 and $9,723 as of March 31,2020 and March 31, 2019, respectively)	311,620				278,842
Prepaid expenses	17,760				19,901
Other current assets	21,548				26,028
Income tax receivable	8,151				2,340
Total current assets	1,194,111				1,095,405
Property and equipment, net of accumulated depreciation ($242,138 and $235,939 as of March 31, 2020 and March 31, 2019, respectively)	209,037				213,796
Operating lease assets	243,522				—
Goodwill	13,990				13,990
Other intangible assets, net of accumulated amortization ($74,421 and $71,186 as of March 31, 2020 and March 31, 2019, respectively)	48,016				51,494
Deferred tax assets, net	28,233				30,870
Other assets	28,209				21,651
Total assets	$	1,765,118			$	1,427,206
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings	$	638			$	603
Trade accounts payable	147,892				124,974
Accrued payroll	42,309				54,462
Operating lease liabilities	49,091				—
Other accrued expenses	46,281				47,963
Income taxes payable	11,104				19,283
Value added tax payable	3,631				3,239
Total current liabilities	300,946				250,524
Mortgage payable	30,263				30,901
Long-term operating lease liabilities	215,724				—
Income tax liability	63,547				60,616
Deferred rent obligations	—				21,107
Other long-term liabilities	14,518				18,928
Total long-term liabilities	324,052				131,552
Commitments and contingencies
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 27,999 and 29,141 as of March 31, 2020 and March 31, 2019, respectively)	280				291
Additional paid-in capital	191,451				178,227
Retained earnings	973,948				889,266
Accumulated other comprehensive loss	(25,559		)		(22,654		)
Total stockholders' equity	1,140,120				1,045,130
Total liabilities and stockholders' equity	$	1,765,118			$	1,427,206

See accompanying notes to the consolidated financial statements.

F-5

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

	Years Ended March 31,
	2020				2019				2018
Net sales	$	2,132,689			$	2,020,437			$	1,903,339
Cost of sales	1,029,016				980,187				971,697
Gross profit	1,103,673				1,040,250				931,642
Selling, general and administrative expenses	765,538				712,930				709,058
Income from operations	338,135				327,320				222,584
Interest income	(7,261		)		(6,028		)		(3,057		)
Interest expense	5,046				4,661				4,585
Other (income) expense, net	(516		)		(247		)		360
Total other (income) expense, net	(2,731		)		(1,614		)		1,888
Income before income taxes	340,866				328,934				220,696
Income tax expense	64,724				64,626				106,302
Net income	276,142				264,308				114,394
Other comprehensive (loss) income, net of tax
Unrealized loss on cash flow hedges	—				(243		)		(613		)
Foreign currency translation (loss) gain	(2,905		)		(9,428		)		14,081
Total other comprehensive (loss) income	(2,905		)		(9,671		)		13,468
Comprehensive income	$	273,237			$	254,637			$	127,862
Net income per share
Basic	$	9.73			$	8.92			$	3.60
Diluted	$	9.62			$	8.84			$	3.58
Weighted-average common shares outstanding
Basic	28,385				29,641				31,758
Diluted	28,694				29,903				31,996

See accompanying notes to the consolidated financial statements.

F-6

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) Income				Total Stockholders' Equity
	Shares			Amount
Balance, March 31, 2017	31,987			$	320			$	160,797			$	819,589			$	(26,451	)		$	954,255
Stock-based compensation expense	15			—				14,302				—				—				14,302
Shares issued upon vesting	148			1				764				—				—				765
Cumulative adjustment from adoption of recent accounting pronouncements	—			—				—				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, March 31, 2018	30,447			304				167,587				785,871				(12,983		)		940,779
Stock-based compensation expense	10			—				14,773				—				—				14,773
Shares issued upon vesting	85			1				1,024				—				—				1,025
Cumulative adjustment from adoption of recent accounting pronouncements	—			—				—				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, March 31, 2019	29,141			291				178,227				889,266				(22,654		)		1,045,130
Stock-based compensation expense	10			—				14,471				—				—				14,471
Shares issued upon vesting	86			1				1,287				—				—				1,288
Exercise of stock options	58			1				3,614				—				—				3,615
Cumulative adjustment from adoption of recent accounting pronouncements	—			—				—				(1,068		)		—				(1,068		)
Shares withheld for taxes	—			—				(6,148		)		—				—				(6,148		)
Repurchases of common stock	(1,296	)		(13		)		—				(190,392		)		—				(190,405		)
Net income	—			—				—				276,142				—				276,142
Total other comprehensive loss	—			—				—				—				(2,905		)		(2,905		)
Balance, March 31, 2020	27,999			$	280			$	191,451			$	973,948			$	(25,559	)		$	1,140,120

See accompanying notes to the consolidated financial statements.

F-7

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	Years Ended March 31,
	2020				2019				2018
OPERATING ACTIVITIES
Net income	$	276,142			$	264,308			$	114,394
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	38,912				44,941				48,572
Loss on extinguishment of debt	—				447				—
Bad debt expense	3,498				2,849				4,168
Deferred tax expense	2,934				6,939				8,138
Stock-based compensation	14,477				14,774				14,306
Excess tax benefit from stock-based compensation	(1,953		)		(546		)		(1,982		)
Loss on disposal of property and equipment	698				277				387
Impairment of operating lease assets and other long-lived assets	1,365				180				2,417
Restructuring charges	—				295				1,667
Gain on settlement of asset retirement obligations	(705		)		—				—
Changes in operating assets and liabilities:
Trade accounts receivable, net	(10,493		)		(16,157		)		10,770
Inventories, net	(32,777		)		8,827				(751		)
Prepaid expenses and other current assets	2,477				(515		)		11,124
Income tax receivable	(5,811		)		(165		)		26,999
Net operating lease assets and liabilities	(3,264		)		—				—
Other assets	(6,558		)		2,630				(1,714		)
Trade accounts payable	23,312				26,667				(4,462		)
Other accrued expenses	(11,112		)		(2,792		)		30,904
Income taxes payable	(6,226		)		4,355				290
Long-term liabilities	1,418				2,191				62,128
Net cash provided by operating activities	286,334				359,505				327,355
INVESTING ACTIVITIES
Purchases of property and equipment	(32,455		)		(29,086		)		(34,813		)
Proceeds from sales of property and equipment	491				68				116
Net cash used in investing activities	(31,964		)		(29,018		)		(34,697		)
FINANCING ACTIVITIES
Proceeds from short-term borrowings	69,336				162,001				214,751
Repayments of short-term borrowings	(69,197		)		(161,621		)		(214,889		)
Debt issuance costs on short-term borrowings	—				(1,297		)		—
Proceeds from issuance of stock	1,288				1,025				765
Proceeds from exercise of options	3,615				—				—
Repurchases of common stock	(190,405		)		(161,395		)		(149,687		)
Cash paid for shares withheld for taxes	(6,148		)		(5,328		)		(8,105		)
Repayments of mortgage principal	(603		)		(578		)		(550		)
Net cash used in financing activities	(192,114		)		(167,193		)		(157,715		)
Effect of foreign currency exchange rates on cash and cash equivalents	(2,512		)		(3,572		)		3,263
Net change in cash and cash equivalents	59,744				159,722				138,206
Cash and cash equivalents at beginning of period	589,692				429,970				291,764
Cash and cash equivalents at end of period	$	649,436			$	589,692			$	429,970

F-8

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(continued)

	Years Ended March 31,
	2020				2019				2018
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period
Income taxes, net of refunds of $5,389, $3,824, and $23,133, as of March 31, 2020, 2019, and 2018, respectively	$	74,573			$	53,657			$	14,407
Interest	2,466				3,811				3,774
Operating leases	61,120				—				—
Non-cash investing activities
Accrued for purchases of property and equipment	1,171				1,789				2,020
Accrued for asset retirement obligations	224				4,706				1,359
Non-cash financing activities
Accrued for shares withheld for taxes	—				—				171

See accompanying notes to the consolidated financial statements.

F-9

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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.

Basis of Presentation. The consolidated financial statements and accompanying notes thereto (referred to herein as consolidated financial statements) as of March 31, 2020 and 2019 and or the years ended March 31, 2020, 2019, and 2018 were prepared in accordance with accounting principles generally accepted in the United States (US GAAP).

Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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. 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. Although the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, the Company’s consolidated financial statements may be materially affected.

Significant areas requiring the use of management estimates relate to inventory write-downs, trade accounts receivable allowances, including variable consideration for net sales provided to customers, contract assets and liabilities, stock-based compensation, impairment assessments, goodwill and other intangible assets, depreciation and amortization, income tax receivables and liabilities, uncertain tax positions, the fair value of financial instruments, the reasonably certain lease term, lease classification, and the Company's incremental borrowing rate (IBR) utilized to discount its unpaid lease payments to measure its operating lease assets and liabilities.

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 selling, general and administrative (SG&A) expenses in the consolidated statements of comprehensive income 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).

F-10

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Reportable Operating Segments. The Company’s six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC (referred to herein as reportable operating segments). 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.

In connection with the restructuring plan, the Company 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
UGG brand wholesale	$	—			$	—			$	2,238
Sanuk brand wholesale	—				—				3,068
Other brands wholesale	—				—				2,263
Direct-to-Consumer	—				149				23,454
Unallocated overhead costs	295				1,518				24,596
Total	$	295			$	1,667			$	55,619

*Cumulative restructuring charges include restructuring charges of $28,984 and $24,673, which were incurred during the fiscal years ended March 31, 2017 and 2016, respectively.

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

The remaining accrued liabilities for cumulative restructuring charges incurred to date under the Company’s restructuring plan and recorded in the consolidated balance sheets, are as follows:

	Lease Termination				Severance Costs				Other*				Total
Balance, 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, March 31, 2018	3,645				—				1,083				4,728
Additional charges	295				—				—				295
Paid in cash	(1,856		)		—				(581		)		(2,437		)
Balance, March 31, 2019	2,084				—				502				2,586
Paid in cash	(656		)		—				(317		)		(973		)
Balance, March 31, 2020	$	1,428			$	—			$	185			$	1,613

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

F-11

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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 as of March 31, 2019 resulting from the implementation of this restructuring plan.

Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued accounting standards updates (ASUs) that have been adopted and not yet adopted by the Company for its annual and interim reporting periods as stated below.

Recently Adopted. Adopted ASUs during the year ended March 31, 2020 and the impact on the Company, were as follows:

Standard		Description		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 estimated lease term, and a liability for related lease payments.		The Company adopted this ASU (the new lease standard) on a modified retrospective basis beginning April 1, 2019. On adoption, the Company recorded a $230,048 increase to total assets due to the recognition of ROU assets, net of prior legacy US GAAP lease-related balances for deferred rent obligations and tenant allowances of $27,895, as previously recorded in other accrued expenses, deferred rent obligations, and other long-term liabilities, in the consolidated balance sheets. In addition, the Company recorded a corresponding $254,538 increase to total liabilities due to the recognition of lease liabilities, net of a prior legacy US GAAP lease-related balance for prepaid rent of $4,846, as previously recorded in prepaid expenses, in the consolidated balance sheets. ROU assets and lease liabilities include lease obligations for operating leases for retail stores, showrooms, offices, and distribution facilities. ROU assets and related lease liabilities are presented as operating lease assets and operating lease liabilities in the consolidated balance sheets. In addition, the Company recorded a net cumulative effect after-tax decrease to opening retained earnings of $1,068 in the consolidated balance sheets due to the impairment of select operating lease assets related to retail stores whose fixed assets had been previously impaired and for which the initial carrying value of the operating lease assets were determined to be above fair market value on adoption. The adoption of the new lease standard did not materially affect the consolidated statements of comprehensive income as the classification and recognition of lease cost did not materially change from legacy US GAAP. Similarly, it did not have a material impact on the Company's liquidity or on its debt covenant compliance under current agreements including its borrowing strategy subject to leverage ratios. However, it did result in additional disclosures and presentation changes to the consolidated statements of cash flows in the current period, including supplemental cash flow disclosure, as well as expanded disclosures on existing and new lease commitments. The Company elected the “package of practical expedients” permitted under the transition guidance 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; and (3) the option to not separate lease and non-lease components. In addition, the Company did not apply the optional hindsight election and maintained original lease terms as estimated at lease inception. The comparative consolidated financial statements have not been restated and continue to be reported under legacy US GAAP in effect for those prior reporting periods presented. Refer to Note 7, “Leases and Other Commitments,” for further information, including expanded disclosures required under the new lease standard. Refer to the section below entitled “Operating Lease Assets and Lease Liabilities” for further details on the Company’s accounting policy.

F-12

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Standard		Description		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.		The Company adopted this ASU (the new hedging standard) beginning April 1, 2019 on a prospective basis, which did not have a material impact on the consolidated financial statements. However, the Company made a change in accounting policy with respect to ineffective hedges and elected not to exclude hedge components from the periodic assessment of hedge effectiveness. Under legacy US GAAP, these amounts were excluded from hedge effectiveness and therefore excluded as a component of accumulated other comprehensive loss (AOCL), and immediately recorded in SG&A expenses in the consolidated statements of comprehensive income. Under the new hedging standard, these gains or losses will now be recorded as a component of AOCL and will be reclassified to net sales in the consolidated statements of comprehensive income in the same period or periods as the related net sales are recorded. The comparative consolidated financial statements have not been restated and continue to be reported under legacy US GAAP in effect for those prior reporting periods presented. Refer to Note 9, “Derivative Instruments,” for further information on the Company's hedging instruments.

Not Yet Adopted. Applicable ASUs issued that have not yet been adopted by the Company, the planned period of adoption, and the expected impact on the Company on adoption, are as follows:

Standard		Description		Planned Period of Adoption		Expected Impact on Adoption
ASU No. 2017-04, Goodwill and Other: Simplifying the Test for Goodwill Impairment (as amended by ASU 2019-06)		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 will continue to be recognized as an impairment charge.		Q1 FY 2021		The Company does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-11, 2020-02, and 2020-03)		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 does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements.
ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes		Removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods, as well as reduces complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.		Q1 FY 2022		The Company is currently evaluating the impact of the adoption of this ASU; however, the Company does not expect that the adoption will have a material impact on its consolidated financial statements.

F-13

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Standard		Description		Planned Period of Adoption		Expected Impact on Adoption
ASU No. 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting		London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Guidance is limited for adoption through December 31, 2022.		Q4 FY 2021		The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

Summary of Significant Accounting Policies. The following are a summary of the Company’s significant accounting policies applied to its consolidated financial statements:

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 $436,241 and $372,178 of money market funds as of March 31, 2020 and 2019, 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’ creditworthiness. Trade accounts receivable that are subsequently determined to be uncollectible are charged or written off against this allowance. Additions to the allowance represent bad debt expense estimates which are recorded in SG&A expenses in the consolidated statements of comprehensive income. 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, duty, 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 (CCA) that are governed by service contracts (hosting arrangements) to support operations. 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 over the term of the hosting arrangement, including reasonably certain renewals, which are generally one to five years.

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.

F-14

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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 depreciation over the revised remaining useful life. Depreciation and amortization are recorded in SG&A expenses in the consolidated statements of comprehensive income.

Property and equipment, net, are summarized as follows:

			As of March 31,
	Useful life (years)		2020				2019
Land	Indefinite		$	32,864			$	32,864
Building	39.5		35,093				35,094
Machinery and equipment	1-10		145,423				150,921
Furniture and fixtures	3-7		35,024				37,157
Computer software	3-10		80,718				76,495
Leasehold improvements	1-11		104,497				108,717
Construction in progress			17,556				8,487
Gross property and equipment			451,175				449,735
Less accumulated depreciation and amortization			(242,138		)		(235,939		)
Property and equipment, net			$	209,037			$	213,796

Operating Lease Assets and Lease Liabilities. The Company determines if an arrangement contains a lease at inception of a contract. The Company recognizes operating lease assets and lease liabilities in the consolidated balance sheets on the lease commencement date, based on the present value of the outstanding lease payments over the reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, plus any additional periods covered by the Company's options to extend (or not to terminate) the lease that are reasonably certain to be exercised, or an option to extend (or not to terminate) a lease that is controlled by the lessor.

Operating lease assets are initially measured at cost, which comprises the initial amount of the associated lease liabilities, adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives, such as tenant allowances. Operating lease assets are subsequently measured throughout the lease term at the carrying amount of the associated lease liabilities, plus initial direct costs, plus or minus any prepaid or accrued lease payments, less the unamortized balance of lease incentives received. Operating lease assets and lease liabilities are presented separately in the consolidated balance sheets on a discounted basis. The current portion of operating lease liabilities is presented within current liabilities, while the long-term portion is presented separately as long-term operating lease liabilities. Refer to Note 7, “Leases and Other Commitments,” for further information on discount rate methodology used to measure operating lease assets and lease liabilities.

Rent expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in SG&A expenses in the consolidated statements of comprehensive income. Lease payments recorded in the operating lease liability are (1) fixed payments, including in-substance fixed payments and fixed rate increases, owed over the lease term and (2) exclude any lease prepayments as of the periods presented. Refer to Note 7, “Leases and Other Commitments,” for further information on the nature of variable lease payments and timing of recognition in rent expense.

The Company has elected not to recognize operating lease assets and lease liabilities for short-term leases, which are defined as those operating leases with a term of 12 months or less. Instead, lease payments for short-term leases are recognized on a straight-line basis over the lease term in rent expense and recorded as a component of SG&A expenses in the consolidated statements of comprehensive income.

F-15

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

The Company monitors for events that require a change in estimates for its operating lease assets and lease liabilities, such as modifications to the terms of the contract, including the lease term, economic events that may trigger a contractual term contingency, such as minimum lease payments or termination rights, and related changes in discount rates used to measure the operating lease assets and liabilities, as well as events or circumstances that result in lease abandonment or operating lease asset impairments. When a change in estimates results in the remeasurement of the operating lease liability, a corresponding adjustment is made to the carrying amount of the operating lease asset. The operating lease assets are remeasured and amortized on a straight-line basis over the remaining lease term, with no impact on the related operating lease liabilities. Refer to the paragraph titled “Other Long-Lived Assets” below for further information on the Company’s accounting policy for evaluating the carrying amount of its operating lease assets and related leasehold improvements (asset group) for indicators of impairment.

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, 2020 and 2019, liabilities for asset retirement obligations (AROs) were $11,505 and $12,667, respectively, and are recorded in other long-term liabilities in the consolidated balance sheets. The decrease in liabilities for AROs during the year ended March 31, 2020 was primarily due to $1,828 of settlements mainly related to the completion of the closure of the former Camarillo distribution center.

Goodwill and Indefinite-Lived 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. Indefinite-lived intangible assets consist primarily of trademarks, customer and distributor relationships, patents, lease rights and non-compete agreements arising from the application of purchase accounting.

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 prepares a quantitative assessment.

The quantitative assessment requires an analysis of several best estimates and assumptions, including future sales and results of operations, 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. Upon completion of the quantitative assessment, 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.

Refer to Note 3, “Goodwill and Other Intangible Assets,” for further information on the Company’s goodwill and indefinite-lived intangible assets and annual impairment assessment results.

F-16

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Definite-Lived Intangible and Other Long-Lived Assets. Definite-lived intangible and other long-lived assets, which include definite-lived trademarks, machinery and equipment, internal-use software, operating lease assets, and leasehold improvements 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 the asset group may not be recoverable. Amortization or depreciation are recorded in SG&A expenses in the consolidated statements of comprehensive income.

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 group is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset group or a significant decline in the observable market value of the asset group, 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. These 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.

Recoverability of definite-lived intangible and other long-lived assets is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds the estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset group. Fair value of the asset group is measured using an observable or quoted market price. An impairment loss, if any, would only reduce the carrying amount of the long-lived assets in the asset group based on its fair value limitation and is allocated to individual assets in the asset group, unless doing so would reduce the carrying amount of a long-lived asset in the asset group to an amount less than zero. Impairment charges are recorded in SG&A expenses in the consolidated statements of comprehensive income.

During the years ended March 31, 2020, 2019, and 2018, the Company recorded impairment losses for other long-lived assets, primarily for retail store operating lease assets and related leasehold improvements due to performance or store closures, as well as computer software, of $1,365, $180, and $2,417, respectively, within its DTC reportable operating segment and unallocated overhead costs in SG&A expenses in the consolidated statements of comprehensive income.

Refer to Note 3, “Goodwill and Other Intangible Assets,” for further information on the Company’s definite-lived intangible asset impairment assessment results.

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 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 certain of these derivative contracts are designated 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.

F-17

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

The notional amounts of outstanding Designated and Non-Designated Derivative Contracts are recorded at fair value measured using Level 2 fair value inputs, consisting of forward spot rates at the end of the applicable periods, recorded in other current assets or other accrued expenses in the consolidated balance sheets. The after-tax unrealized gains or losses from changes in fair value of Designated Derivative Contracts are recorded as a component of AOCL and are reclassified to net sales in the consolidated statements of comprehensive income in the same period or periods as the related sales are recorded. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in AOCL related to the hedging relationship are immediately recorded in OCI in the consolidated statements of comprehensive income.

Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the consolidated statements of comprehensive income. 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.

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. 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. The Company's customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that are generally 30-60 days.

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. 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.

Refer to Note 2, “Revenue Recognition,” for further information regarding the Company’s components of variable consideration, including allowances for sales discounts, chargebacks and sales return contract assets and liabilities.

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.

Research and Development Costs. All research and development costs are expensed as incurred. Such costs amounted to $27,555, $23,187, and $22,372 for the years ended March 31, 2020, 2019 and 2018, respectively, and are recorded in SG&A expenses in the consolidated statements of comprehensive income.

F-18

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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 $144,948, $118,291, and $111,658 for the years ended March 31, 2020, 2019 and 2018, respectively, recorded in SG&A expenses in the consolidated statements of comprehensive income. 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, 2020 and 2019 were $2,664 and $6,006, respectively, related to prepaid advertising, marketing, and promotion expenses for programs expected to take place after such dates.

Stock-Based Compensation. All of the Company’s stock-based 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-based compensation expense is recorded in SG&A expenses in the consolidated statements of comprehensive income. Refer to Note 8, “Stock-Based 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 $3,251, $3,060, and $2,269 during the years ended March 31, 2020, 2019 and 2018, respectively, and were recorded in SG&A expenses in the consolidated statements of comprehensive income. 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, 2020, 2019 and 2018.

Non-qualified Deferred Compensation. In 2010, the Company sponsors a non-qualified deferred compensation plan that permits a select group of management employees 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. 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, 2020 and 2019, no material payments were made or pending under the plan. Deferred compensation is recognized based on the fair value of the participants’ accounts. A rabbi trust was established as a reserve for benefits payable under this plan, 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, including pharmacy, and dental liability exposures. Liabilities for self-insured exposures are accrued for the 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 liabilities in the consolidated balance sheets. Excess liability insurance has been purchased to limit the amount of self-insured risk on claims.

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 in the period that includes the enactment date.

F-19

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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.

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, “Basic and Diluted Shares,” for a reconciliation of basic to diluted weighted-average common shares outstanding.

Note 2. Revenue Recognition

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 sales 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 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 or SG&A expenses in the consolidated statements of comprehensive income 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-20

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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 Return Liability. 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. 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 liability are recorded against gross sales for the contract liability and cost of sales for the contract asset in the consolidated statements of comprehensive income. 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.

Activity during the years ended March 31, 2020 and 2019 related to estimated sales returns for the Company’s existing customer contracts for all channels, were as follows:

	Contract Asset				Contract Liability
Balance, March 31, 2018	$	11,251			$	(23,156	)
Net additions to sales return liability*	36,223				(120,102		)
Actual returns	(37,033		)		118,471
Balance, March 31, 2019	10,441				(24,787		)
Net additions to sales return liability*	36,028				(117,969		)
Actual returns	(36,806		)		117,089
Balance, March 31, 2020	$	9,663			$	(25,667	)

***Net additions to sales return liability include a provision for anticipated sales returns which consists of both contractual return rights and discretionary authorized returns.

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, 2020 and 2019, the Company’s contract liability for loyalty programs was $6,950 and $5,171, respectively, and is recorded in other accrued expenses in the consolidated balance sheets.

F-21

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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 recorded in the consolidated balance sheets, as follows:

	As of March 31,
	2020				2019
Goodwill
UGG brand	$	6,101			$	6,101
HOKA brand	7,889				7,889
Total goodwill	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	51,738				51,981
Total gross carrying amount	106,983				107,226
Accumulated amortization	(74,421		)		(71,186		)
Net definite-lived intangible assets	32,562				36,040
Total other intangible assets, net	48,016				51,494
Total	$	62,006			$	65,484

The weighted-average amortization period for definite-lived intangible assets was 16 years for the years ended March 31, 2020 and 2019, 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. During the years ended March 31, 2020, 2019, and 2018, 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, and based on the evaluation performed, no impairment loss was recorded for the goodwill and indefinite-lived intangible assets. As of March 31, 2020 and 2019, the gross carrying amount of goodwill was $143,765 and the accumulated impairment losses were $129,775. The Company did not identify any definite-lived intangible asset impairments during the years ended March 31, 2020, 2019, and 2018.

Amortization Expense. A reconciliation of the changes in total other intangible assets in the consolidated balance sheets, are as follows:

	Amounts
Balance, March 31, 2018	$	57,850
Amortization expense	(6,235		)
Foreign currency translation net loss	(121		)
Balance, March 31, 2019	51,494
Amortization expense	(3,470		)
Foreign currency translation net loss	(8		)
Balance, March 31, 2020	$	48,016

F-22

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Expected amortization expense for amortizable intangible assets subsequent to March 31, 2020 is as follows:

Years Ending March 31,		Amounts
2021		$	2,527
2022		2,513
2023		2,450
2024		2,430
2025		2,276
Thereafter		20,366
Total		$	32,562

Note 4. Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value, which 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. The fair value hierarchy under this accounting standard 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 and 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, net, 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.

Assets and liabilities that are measured on a recurring basis at fair value in the consolidated balance sheets, are as follows:

	As of				Measured Using
	March 31, 2020			Level 1				Level 2				Level 3
Non-qualified deferred compensation asset	$	6,164			$	6,164			$	—			$	—
Non-qualified deferred compensation liability	(3,756		)		(3,756		)		—				—

	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 March 31, 2020, the non-qualified deferred compensation asset of $6,164 was recorded in other assets in the consolidated balance sheets. As of March 31, 2020, the non-qualified deferred compensation liability of $3,756 was recorded in the consolidated balance sheets, with $743 in other accrued expenses and $3,013 in other long-term liabilities.

F-23

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Note 5. Income Taxes

Income Before Income Taxes. Components of income before income taxes recorded in the consolidated statements of comprehensive income, were as follows:

	Years Ended March 31,
	2020				2019				2018
Domestic*	$	206,111			$	181,730			$	71,482
Foreign	134,755				147,204				149,214
Total	$	340,866			$	328,934			$	220,696

*Domestic income before income taxes for the years ended March 31, 2020, 2019, and 2018 is presented net of intercompany dividends of $150,000, $130,000, and $250,000, respectively.

Income Tax Expense. Components of income tax expense (benefit) recorded in the consolidated statements of comprehensive income, were as follows:

	Years Ended March 31,
	2020				2019				2018
Current
Federal	$	47,087			$	33,334			$	80,339
State	635				9,084				3,437
Foreign	14,068				15,269				14,388
Total	61,790				57,687				98,164
Deferred
Federal	4,626				6,612				12,007
State	(462		)		2,236				391
Foreign	(1,230		)		(1,909		)		(4,260		)
Total	2,934				6,939				8,138
Total	$	64,724			$	64,626			$	106,302

F-24

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Income Tax Expense Reconciliation. Income tax expense (benefit) differed from that obtained by applying the statutory federal income tax rate to income before income taxes, as follows:

	Years Ended March 31,
	2020				2019				2018
Computed expected income taxes	$	71,582			$	69,076			$	69,556
State income taxes, net of federal income tax benefit*	11,042				9,329				9,044
Foreign rate differential	(17,966		)		(20,105		)		(37,090		)
Unrecognized tax benefits	6,695				786				1,301
Return to provision adjustments	(1,682		)		(179		)		(2,252		)
Nontaxable income	(4,584		)		(4,257		)		(7,006		)
Nondeductible expense	4,162				7,742				1,382
US tax on foreign earnings**	2,343				5,848				57,138
Re-measurement of deferred taxes***	—				(983		)		14,395
Tax audit settlements	(3,956		)		—				—
Statutory foreign income tax (benefit) expense	(906		)		276				59
Other	(2,006		)		(2,907		)		(225		)
Total	$	64,724			$	64,626			$	106,302

*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 Cuts and Jobs Act (Tax Reform Act) in December 2017.

**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 amounts for the years ended March 31, 2020 and 2019 are global intangible low-taxed income (commonly referred to as GILTI) under the territorial tax system 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.

Due to the enactment of Tax Reform Act, the Company is subject to US taxation of its foreign subsidiary earnings considered global intangible low-taxed income, as well as limitations on the deductibility of executive compensation, which are included in income tax expense in the consolidated statements of comprehensive income for the periods presented above. In accordance with the SEC Staff Accounting Bulletin No. 118 (SAB 118), issued December 22, 2017, the Company completed its accounting for the material effects of the Tax Reform Act during the quarter ended December 31, 2018. 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 section below entitled “US Taxation of Foreign Earnings” for further information. The Company continues to evaluate new guidance and legislation as it is issued.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27th, 2020. The Company reviewed the provisions of the CARES Act and consider the effect to be immaterial.

F-25

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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,
	2020				2019
Deferred tax assets
Amortization and impairment of intangible assets	$	11,471			$	13,615
Nonvested stock-based compensation	5,194				3,645
Deferred rent obligations*	—				4,899
Operating lease liability*	45,600				—
Uniform capitalization adjustment to inventory	4,322				3,965
Bad debt allowance and other reserves	14,243				11,932
Accrued bonuses	6,187				7,350
Foreign currency translation	645				670
Net operating loss carry-forwards, net of valuation allowances	2,071				1,002
Other	1,372				1,445
Gross deferred tax assets	91,105				48,523
Valuation allowances	(1,519		)		(195		)
Total	89,586				48,328
Deferred tax liabilities
Prepaid expenses	(4,252		)		(3,379		)
Operating lease asset*	(41,276		)		—
Depreciation of property and equipment	(15,825		)		(14,079		)
Total	(61,353		)		(17,458		)
Deferred tax assets, net	$	28,233			$	30,870

*Adoption of the new lease standard as of April 1, 2019, as described in Note 1, “General,” under the section “Recent Accounting Pronouncements”, resulted in the recognition of a deferred tax asset for operating lease liabilities and a deferred tax liability for operating lease assets. These temporary differences will reverse over the estimated term of the relevant operating leases. As of March 31, 2019, the deferred tax assets associated with operating leases were reported as deferred rent obligations under legacy US GAAP.

In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of $104,483. The deferred tax assets are primarily related to the Company’s domestic operations and are currently expected to be realized between fiscal years 2021 and 2031. The Company recorded a net increase of $297 to deferred tax assets, net during the year ended March 31, 2020 related to the adoption of new ASUs and the tax effect of 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, 2020 and 2019, the Company reported tax credit carry-forwards available to reduce future taxable income of $410 and $36, respectively. Some of the net operating losses with full valuation allowances will expire beginning in 2022; however, other net operating losses and tax credits can be carried forward indefinitely.

F-26

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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.

As of March 31, 2020, the Company reported $363,140 of undistributed earnings from its non-US subsidiaries, of which $177,229 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, 2020, the Company reported $8,620 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. During the year ended March 31, 2020, the Company declared a dividend of $150,000 from a foreign subsidiary, for which no foreign withholding taxes were required.

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 recorded 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, March 31, 2017	$	11,727
Gross increase related to current fiscal year tax positions	1,168
Gross increase related to prior fiscal year tax positions	1,243
Settlements	(4,501		)
Lapse of statute of limitations	(43		)
Balance, March 31, 2018	9,594
Gross increase related to current fiscal year tax positions	1,027
Gross increase related to prior fiscal year tax positions	3,282
Settlements	(1,157		)
Lapse of statute of limitations	(1,804		)
Balance, March 31, 2019	10,942
Gross increase related to current fiscal year tax positions	1,153
Gross increase related to prior fiscal year tax positions	8,152
Settlements	(246		)
Lapse of statute of limitations	(2,363		)
Balance, March 31, 2020	$	17,638

F-27

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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

	As of March 31,
	2020				2019
Long-term asset
Deferred tax assets, net	$	486			$	486
Current liability
Income taxes payable	—				7
Long-term liability
Income tax liability	17,152				10,449
Total	$	17,638			$	10,942

As of March 31, 2020 and 2019, the Company had $3,631 and $2,456 accrued for the payment of interest and penalties, respectively, in income tax liability in the consolidated balance sheets. During the years ended March 31, 2020, 2019, and 2018, the Company recorded $1,176, $(110), and $369, respectively, of interest and penalties as an increase or (decrease) to interest expense in the consolidated statements of comprehensive income.

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 $788 related primarily to the expiration of statute of limitations, partially offset by additional unrecognized tax benefits relating to current fiscal year tax return positions. Of this amount, $563 would result in an income tax benefit for the Company and $937 would result in a decrease to interest expense in the consolidated statements of comprehensive income. Gross unrecognized tax benefits of $17,638, $10,942, and $9,594 for the years ended March 31, 2020, 2019, and 2018, respectively, would reduce the annual effective tax rate, offset by an immaterial amount of deferred tax assets recognized for uncertain tax positions, recorded in the consolidated statements of comprehensive income.

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 before fiscal year 2016.

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 results of operations 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 entered into a credit agreement (Credit Agreement) 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 US 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, 2020, 2019, and 2018

(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 LIBOR or the Alternate Base Rate (ABR). Initial interest for the revolving loans is variable and fluctuates 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, 2020, the effective interest rates for US dollar LIBOR and ABR rates, with relevant spreads for borrowings made during the reporting period, were 2.12% and 3.38%, respectively.

Commitment Fees. The Company is required to pay a fee rate that fluctuates between 0.125% and 0.20% per annum, based upon the Company’s total adjusted leverage ratio.

Borrowing Activity. During the year ended March 31, 2020, the Company borrowed and repaid $50,000 under the Primary Credit Facility. As of March 31, 2020, the Company had no outstanding balance under the Primary Credit Facility and had outstanding letters of credit of $549. As of March 31, 2020, available borrowings under the Primary Credit Facility were $399,451.

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.

China Credit Facility. In August 2013, Deckers (Beijing) Trading Co., LTD (DBTC), a wholly-owned subsidiary of the Company, entered into a credit agreement in China (as amended, the China Credit Facility) that provides for an uncommitted revolving line of credit of up to CNY 300,000, or $42,304, with an overdraft facility sublimit of CNY 100,000, or $14,101.

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 multiplied by a variable liquidity factor. As of March 31, 2020, the effective interest rate was 4.46%.

During the year ended March 31, 2020, the Company borrowed and made repayments of $18,985 under the China Credit Facility. As of March 31, 2020, the Company had no outstanding balance, outstanding bank guarantees of $28, and available borrowings of $42,276 under the China Credit Facility.

F-29

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Japan Credit Facility. In March 2016, Deckers Japan, G.K., a wholly-owned subsidiary of the Company, entered into credit agreement in Japan (as amended, the Japan Credit Facility) that currently provides for an uncommitted revolving line of credit of up to JPY 3,000,000, or $27,746, for a maximum term of six months for each draw on the facility. The Japan Credit Facility can be renewed annually and is guaranteed by the Company. The Company has renewed the Japan Credit Facility through January 31, 2021 substantially under the terms of the original credit agreement. Interest is based on the Tokyo Interbank Offered Rate plus 0.40%. As of March 31, 2020, the effective interest rate was 0.48%.

During the year ended March 31, 2020, the Company made no borrowings or repayments under the Japan Credit Facility. As of March 31, 2020, the Company had no outstanding balance under the Japan Credit Facility and available borrowings of $27,746.

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, 2020, the outstanding principal balance under the mortgage was $30,901, which includes $638 in short-term borrowings and $30,263 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 $3,530.

Debt Covenants. As of March 31, 2020, the Company was in compliance with all debt covenants under the revolving credit facilities and the mortgage.

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 following:

•	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.

•	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 years consecutively, maintaining an interest coverage ratio greater than 1.00 to 1.00, and maintaining higher assets than liabilities.

Mortgage. The debt covenants associated with the Company’s mortgage mirror the debt covenants under the Primary Credit Facility, as defined in the Credit Agreement.

F-30

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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, 2020. 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. Leases and Other Commitments

Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease agreements which continue in effect through calendar year 2031. Some of the Company's operating leases contain extension options of anywhere from one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.

Variable Lease Payments. Certain leases require additional payments based on (1) actual or forecasted sales volume (either monthly or annually), (2) reimbursement for real estate taxes (tax), (3) common area maintenance (CAM), and (4) insurance (collectively, variable lease payments). Variable lease payments are generally excluded from operating lease assets and liabilities and are recorded in rent expense as a component of SG&A expenses in the consolidated statements of comprehensive income. Some leases are dependent upon forecasted annual sales volume, and lease payments are recognized on a straight-line basis as rent expense over each annual period when the achievement of the related sales target is reasonably likely to occur. Other variable lease payments, such as tax, CAM and insurance, are recognized in rent expense as incurred. Some leases contain one fixed lease payment that include variable lease payments, which are considered non-lease components. The Company has elected to account for these instances as a single lease component and the total of these fixed payments is used to measure the operating lease assets and lease liabilities.

Discount Rate. The Company discounts its unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, its incremental borrowing rate (IBR). Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor's estimated residual value or the amount of the lessor's deferred initial direct costs. Therefore, the Company generally derives a discount rate at the lease commencement date by utilizing its IBR, which is based on what the Company would have to pay on a collateralized basis to borrow an amount equal to its lease payments under similar terms. Because the Company does not currently borrow on a collateralized basis under its revolving credit facilities, it uses the interest rate it pays on its noncollateralized borrowings under its Primary Credit Facility as an input for deriving an appropriate IBR, adjusted for the amount of the lease payments, the lease term, and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

Rent Expense. The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under the new lease standard, were as follows:

	March 31, 2020
Operating	$	57,966
Variable	26,996
Short-term	3,332
Total	$	88,294

The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under legacy US GAAP, were as follows:

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

F-31

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2020 under the new lease standard, with a reconciliation to the present value of operating lease liabilities recorded in the consolidated balance sheets, are as follows:

Years Ending March 31,		Amount
2021		$	53,212
2022		50,113
2023		43,343
2024		37,964
2025		30,254
Thereafter		81,852
Total undiscounted future lease payments		296,738
Less: Imputed interest		(31,923		)
Total		$	264,815

Future minimum commitments under operating lease contracts as of March 31, 2019 under legacy US GAAP, were as follows:

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

Supplemental Disclosure. Key estimates and judgments related to operating lease assets and liabilities that are outstanding and presented in the consolidated balance sheets, are as follows:

	March 31, 2020
Weighted-average remaining lease term in years	6.6
Weighted-average discount rate	3.3	%

Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases, were as follows:

	March 31, 2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*	$	71,097
Reductions to operating lease assets for reductions to lease liabilities or for operating lease asset impairments*	(7,055		)

*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.

F-32

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Purchase Obligations. The Company has various types of purchase obligations, as follows:

Product. The Company had $361,881 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2020. 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 two 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. 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 $185,969 remaining purchase commitments, primarily for sheepskin, as well as leather, as of March 31, 2020. 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 and leather 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 $8,322 of deposits on expired sheepskin contracts that have not been fully consumed as of March 31, 2020.

Total future net minimum commitments for these commodities contracts as of March 31, 2020 were as follows:

Contract Effective Date		Final Target Date		Contract Value				Remaining Commitment
April 2018		September 2020		$	45,600			$	33,205
October 2018		September 2020		27,350				26,671
October 2018		September 2021		50,460				50,460
April 2019		September 2020		8,906				5,806
October 2019		September 2020		42,825				39,983
October 2019		June 2021		29,844				29,844
				$	204,985			$	185,969

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 $46,059 of other purchase commitments as of March 31, 2020, 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 for a new flagship store location that is currently intended to replace an existing flagship store during the fourth quarter of the fiscal year ending March 31, 2021, as well as the continued expansion of the Company’s warehouse and distribution center located in Moreno Valley, California.

F-33

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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, results of operations, 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.

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.

Note 8. Stock-Based Compensation

In September 2015, the Company’s stockholders approved the 2015 Stock Incentive Plan (2015 SIP), for which the primary purpose 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. 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 may grant various types of stock-based compensation under 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). The Company typically makes annual grants of RSUs (Annual RSUs) and PSUs (Annual PSUs) to key employees and certain executive officers, and long-term incentive plan (LTIP) awards to certain officers, including named executive officers.

Annual Awards. The Company granted Annual RSUs and Annual PSUs under the 2015 SIP, 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 are 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. As of March 31, 2020, the Company determined that the target performance criteria related to the Annual PSUs for the fiscal year ended March 31, 2020 were achieved.

The Company granted annual awards under the 2015 SIP, as recorded in the consolidated statements of comprehensive income, as summarized below:

		Years Ended March 31,
		2020							2019							2018
		Shares Granted			Weighted-average grant date fair value per share				Shares Granted			Weighted-average grant date fair value per share				Shares Granted			Weighted-average grant date fair value per share
Annual RSUs		47,577			$	171.50			62,743			$	116.85			133,464			$	67.70
Annual PSUs		19,938			174.36				31,320			116.34				54,090			68.44
Total		67,515			$	172.34			94,063			$	116.68			187,554			$	67.92

F-34

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Annual award activity recorded in the consolidated statements of comprehensive income, were as follows:

	Number of Shares			Weighted- Average Grant-Date Fair Value
Nonvested, March 31, 2017	226,244			$	63.96
Granted	187,554			67.92
Vested	(101,791	)		(67.63		)
Forfeited	(22,710	)		(64.59		)
Nonvested, March 31, 2018	289,297			65.18
Granted	94,063			116.68
Vested	(118,903	)		(64.39		)
Forfeited	(33,058	)		(77.60		)
Nonvested, March 31, 2019	231,399			84.75
Granted	67,515			172.34
Vested	(121,572	)		(76.81		)
Forfeited	(14,993	)		(113.49		)
Nonvested, March 31, 2020	162,349			$	124.47

Long-Term Incentive Plan Awards. LTIP awards recorded in the consolidated statements of comprehensive income, were as follows:

2020 LTIP PSUs. In September 2019, the Company approved LTIP awards under the 2015 SIP for the issuance of PSUs (2020 LTIP PSUs), which were awarded to certain members of the Company's senior management team, including the Company's named executive officers. The 2020 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, 2022 (Measurement Period) and incorporates a relative total stockholder return (TSR) modifier for the 36-month performance period commencing on April 1, 2019 and ending March 31, 2022 (Performance Period). To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of 2020 LTIP 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 2020 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 each 2020 LTIP PSU will be subject to adjustment based on the application of a relative 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 Performance Period. 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 Performance Period.

The Company granted awards at the target performance level of 38,174 2020 LTIP PSUs during the year ended March 31, 2020. The grant date fair value of these 2020 LTIP PSUs was $146.96 per share. Based on the Company's current long-range forecast, the Company determined that the achievement of at least the target performance criteria for these awards was probable as of the grant date.

F-35

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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 each 2019 LTIP PSUs will be subject to adjustment based on the application of a 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.

The Company granted awards at the target performance level of 41,793 2019 LTIP PSUs during the year ended March 31, 2019. 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 minimum threshold performance criteria for these awards was probable as of the grant date.

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 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-based 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.

LTIP award activity recorded in the consolidated statements of comprehensive income, were as follows:

	Number of Shares			Weighted- Average Grant-Date Fair Value
Nonvested, March 31, 2017	269,012			$	50.22
Forfeited	(269,012	)		(50.22		)
Nonvested, March 31, 2018	—			—
Granted*	83,586			120.24
Forfeited	(6,488	)		(120.24		)
Nonvested, March 31, 2019	77,098			120.24
Granted*	76,348			146.96
Nonvested, March 31, 2020	153,446			$	133.53

*The amounts granted are the maximum amounts under the terms of the applicable LTIP PSUs.

F-36

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Long-Term Incentive Plan Options. During the years ended March 31, 2020 and 2019, no LTIP NQSOs were granted. Previously, the Company approved the issuance of LTIP NQSOs under the 2015 SIP, including in June 2017 (2018 LTIP NQSOs), which were awarded to certain members of the Company’s management team, with a maximum contractual term of seven years from the grant date. If the recipient provides continuous service, the LTIP NQSOs will vest after the Company has determined it achieved the target performance criteria by the date specified in the award. As of March 31, 2020, the Company determined that the target performance criteria related to the LTIP NQSOs for the fiscal year ended March 31, 2020 were achieved. 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.

LTIP option activity recorded in the consolidated statements of comprehensive income, were as follows:

	Number of Shares			Weighted- Average Grant-Date Fair Value				Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Nonvested, March 31, 2017	191,786			$	61.86			9.0		$	—
Granted	205,554			69.29
Nonvested, March 31, 2018	397,340			65.70				7.1		9,666
Forfeited	(35,957	)		(69.29		)
Nonvested, March 31, 2019	361,383			65.35				6.2		29,504
Exercised	(58,444	)		(61.86		)
Nonvested, March 31, 2020	302,939			$	66.02			5.0		$	20,594

The Company measured stock-based compensation expense for the 2018 LTIP NQSOs at the date of grant using the Black-Scholes option pricing model, with the following weighted-average valuation assumptions:

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

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-Based Compensation Expense. Components of stock-based compensation expense recorded in the consolidated statements of comprehensive income, were as follows:

	Years Ended March 31,
	2020				2019				2018
Annual RSUs	$	6,509			$	6,588			$	7,761
Annual PSUs	2,851				2,373				1,829
LTIP PSUs	2,203				885				—

F-37

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

	Years Ended March 31,
	2020				2019				2018
LTIP NQSOs	1,641				3,516				3,432
Grants to Directors	1,045				1,223				1,135
Employee Stock Purchase Plan*	228				189				149
Total stock-based compensation expense, pre-tax	14,477				14,774				14,306
Income tax benefit	(3,308		)		(3,546		)		(4,906		)
Total stock-based compensation expense, net of tax	$	11,169			$	11,228			$	9,400

*The 2015 Employee Stock Purchase Plan (ESPP) authorizes 1,000,000 shares of the Company’s common stock for sale to eligible employees using their after-tax payroll deductions, which are refundable until purchases are made, and are liability-classified. ESPP shares are excluded from basic earnings per share until purchases are made, while included in diluted earnings per share computations as after-tax payroll deductions are made. Each consecutive purchase period is six months (purchase period) in duration and shares are purchased on the last trading day of the purchase period (no look-back provision) for a fixed amount at 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 and remeasured during the purchase period and purchase windows are recorded in other accrued expenses in the consolidated balance sheets.

Unrecognized Stock-Based Compensation Expense. Total remaining unrecognized stock-based compensation expense as of March 31, 2020 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, are as follows:

	Unrecognized Stock-based Compensation Expense				Weighted-Average Remaining Vesting Period (Years)
Annual RSUs	$	6,913			1.0
Annual PSUs	2,741				0.9
LTIP PSUs	5,999				1.5
Total	$	15,653

Note 9. Derivative Instruments

As of March 31, 2020 and 2019, the Company had no outstanding derivative contracts, however, settled derivative contracts with notional values were as follows:

	Years Ended March 31,
	2020				2019
Designated Derivative Contracts	$	65,569			$	126,332
Non-Designated Derivative Contracts	49,251				38,582
Total	$	114,820			$	164,914

*Amounts during the year ended March 31, 2019 include $126,332 and $4,803 of notional value for Designated Derivative Contracts and Non-Designated Derivative Contracts, respectively, entered into during the year ended March 31, 2018.

F-38

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Designated Derivative Contracts activity recorded in the consolidated statements of comprehensive income, were as follows:

	Years Ended March 31,
	2020				2019				2018
Gain (loss) recognized in OCI	$	1,516			$	8,355			$	(9,593	)
Gain (loss) reclassified from AOCL into net sales	1,516				8,675				(8,541		)
Gain excluded from effectiveness testing recognized in SG&A expenses*	—				1,918				1,376

*Amounts for the years ended March 31, 2019 and 2018 were recognized under legacy US GAAP. Beginning April 1, 2019, under the new hedging standard, these amounts are now recorded as a component of AOCL and were classified in net sales during the year ended March 31, 2020.

Amounts of income tax effects recorded in the consolidated statements of comprehensive income for changes in AOCL for unrealized gains or losses for Designated Derivative Contracts, were as follows:

	Years Ended March 31,
	2020				2019				2018
Income tax expense*	$	—			$	77			$	439

*Amounts for the years ended March 31, 2019 and 2018 are inclusive of the income tax effects from the Tax Reform Act reclassified from AOCL to retained earnings in the consolidated balance sheets in connection with the previous adoption of a new accounting standard. The amount for the year ended March 31, 2020 is zero as the Company had settled all its outstanding Designated Derivative Contracts as of March 31, 2020 and 2019.

Non-Designated Derivative Contracts activity recorded in the consolidated statements of comprehensive income, were as follows:

	Years Ended March 31,
	2020				2019				2018
Gain (loss) recognized in SG&A expenses	$	328			$	1,393			$	(2,574	)

The non-performance risk of the Company and the counterparties did not have a material impact on the fair value of its derivative contracts.

Note 10. Stockholders’ Equity

Stock Repurchase Programs. In January 2019, the Company’s Board of Directors approved a stock repurchase program which, together with stock repurchase programs approved in 2017 and 2015, authorized the Company to repurchase a total of up to $796,000 of its common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors (collectively, the Stock Repurchase Programs). The full amounts originally authorized under the 2017 and 2015 stock repurchase programs have been repurchased and these programs have been completed.

As of March 31, 2020, the aggregate remaining approved amount under the Company’s Stock Repurchase Programs was $159,807. 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 stock 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.

F-39

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Publicly-announced stock repurchase activity of open-market transactions under the Company’s Stock Repurchase Programs, were as follows:

	Years Ended March 31,
	2020				2019				2018
Total number of shares repurchased*	1,296,201				1,400,699				1,702,653
Average price paid per share	$	146.89			$	115.22			$	87.91
Dollar value of shares repurchased	$	190,405			$	161,395			$	149,687

*Any stock repurchases are made as part of publicly-announced programs in open-market transactions.

Accumulated Other Comprehensive Loss. The components within AOCL, net of tax, recorded in the consolidated balance sheets, were as follows:

	As of March 31,
	2020				2019
Cumulative foreign currency translation loss	$	(25,559	)		$	(22,654	)
Total	$	(25,559	)		$	(22,654	)

Note 11. Basic and Diluted Shares

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

	Years Ended March 31,
	2020			2019			2018
Basic	28,385,000			29,641,000			31,758,000
Dilutive effect of equity awards	309,000			262,000			238,000
Diluted	28,694,000			29,903,000			31,996,000
Excluded*
Annual RSUs and Annual PSUs	3,000			3,000			200
LTIP PSUs	153,000			77,000			—
LTIP NQSOs	—			170,000			397,000
Deferred Non-Employee Director Equity Awards	—			2,000			1,000

*The equity awards excluded from the dilutive effect are generally 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 for the relevant performance period; 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. For those awards with performance criteria, the actual number of shares to be issued pursuant to such awards will be based on Company performance in future periods, net of forfeitures. Refer to Note 8, “Stock-Based Compensation,” for further information on the Company's equity incentive plans.

F-40

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

Note 12. Reportable Operating Segments

Information reported to the Chief Operating Decision Maker (CODM), who is the Company’s Principal Executive Officer, is organized into six reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. The Company does not consider international operations to be a separate reportable operating segment, and the CODM reviews such operations in the aggregate with the 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 generally 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 includes 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 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-based 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, were as follows:

	Years Ended March 31,
	2020				2019				2018
Net sales
UGG brand wholesale	$	892,990			$	888,347			$	841,893
HOKA brand wholesale	277,097				185,057				132,688
Teva brand wholesale	119,108				119,390				117,478
Sanuk brand wholesale	39,463				69,791				78,283
Other brands wholesale	67,175				42,818				17,273
Direct-to-Consumer	736,856				715,034				715,724
Total	$	2,132,689			$	2,020,437			$	1,903,339
Income (loss) from operations
UGG brand wholesale	$	303,908			$	300,761			$	247,826
HOKA brand wholesale	61,860				35,717				20,954
Teva brand wholesale	30,736				27,939				20,400
Sanuk brand wholesale	3,212				12,781				14,474
Other brands wholesale	16,087				10,411				1,304
Direct-to-Consumer	182,548				185,449				156,896
Unallocated overhead costs	(260,216		)		(245,738		)		(239,270		)
Total	$	338,135			$	327,320			$	222,584

F-41

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

	Years Ended March 31,
	2020				2019				2018
Depreciation, amortization, and accretion
UGG brand wholesale	$	611			$	1,254			$	3,193
HOKA brand wholesale	612				456				485
Teva brand wholesale	1				10				12
Sanuk brand wholesale	2,361				4,171				4,174
Other brands wholesale	382				382				380
Direct-to-Consumer	10,586				12,195				13,396
Unallocated overhead costs	24,359				26,473				26,932
Total	$	38,912			$	44,941			$	48,572
Capital expenditures
UGG brand wholesale	$	404			$	205			$	58
HOKA brand wholesale	434				285				—
Teva brand wholesale	—				—				—
Sanuk brand wholesale	—				—				20
Other brands wholesale	64				11				—
Direct-to-Consumer	7,753				5,739				8,641
Unallocated overhead costs	23,800				22,846				26,094
Total	$	32,455			$	29,086			$	34,813

Assets allocated to each reportable operating segment include trade accounts receivable, net, inventories, net, property and equipment, net, operating lease assets, goodwill, other intangible assets, net, 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, net, 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,
	2020				2019
Assets
UGG brand wholesale	$	245,239			$	240,411
HOKA brand wholesale	124,958				94,157
Teva brand wholesale	90,305				76,370
Sanuk brand wholesale	50,314				71,285
Other brands wholesale	21,535				14,618
Direct-to-Consumer	243,489				95,501
Total assets from reportable operating segments	775,840				592,342
Unallocated cash and cash equivalents	649,436				589,692
Unallocated deferred tax assets, net	28,233				30,870
Unallocated other corporate assets	311,609				214,302
Total	$	1,765,118			$	1,427,206

F-42

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

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

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 that were as follows:

	Years Ended March 31,
	2020				2019				2018
International net sales	$	730,997			$	742,079			$	729,278
% of net sales	34.3		%		36.7		%		38.3		%
Net sales in foreign currencies	$	587,233			$	605,725			$	617,867
% of net sales	27.5		%		30.0		%		32.5		%
Ten largest customers as % of net sales	23.7		%		27.7		%		28.2		%

For the years ended March 31, 2020, 2019, and 2018, 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, 2020, 2019, and 2018. The Company sells its products to customers for trade accounts receivables and, as of March 31, 2020 and 2019, had no individual customers that exceeded 10% of trade accounts receivable, net. Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and recognizes an allowance for doubtful accounts based on these evaluations.

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 most of the Company's sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the United Kingdom. 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 property and equipment, net, recorded in the consolidated balance sheets, are as follows:

	As of March 31,
	2020				2019
US	$	194,679			$	196,702
Foreign*	14,358				17,094
Total	$	209,037			$	213,796

*No single foreign country’s property and equipment, net, represented 10.0% or more of the Company’s total property and equipment, net, as of March 31, 2020 and March 31, 2019.

F-43

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended March 31, 2020, 2019, and 2018

(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 and Koolaburra 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. Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude 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 the Company’s aggregate net sales in the quarters ending March 31st and June 30th. While the Company continues to take steps to diversify and expand its product offerings by creating more year-round styles and growing the year-round net sales of the HOKA brand as a percentage of the Company’s aggregate net sales, the Company expects the seasonality trends that have resulted in significant variations in the Company’s aggregate net sales from quarter to quarter to decrease over time.

Summarized unaudited quarterly financial data, were as follows:

	Fiscal Year 2020
	Quarter Ended
	6/30/2019				9/30/2019				12/31/2019				3/31/2020
Net sales	$	276,839			$	542,205			$	938,735			$	374,910
Gross profit	130,019				273,024				507,632				192,998
(Loss) income from operations	(31,417		)		97,131				255,766				16,655
Net (loss) income	(19,351		)		77,810				201,593				16,090
Net (loss) income per share
Basic	$	(0.67	)		$	2.73			$	7.21			$	0.57
Diluted	$	(0.67	)		$	2.71			$	7.14			$	0.57

	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

F-44

Schedule II

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

TOTAL VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

Allowances for doubtful accounts, sales discounts, chargebacks and sales returns against trade accounts receivable recorded in the consolidated balance sheets, are as follows:

	As of March 31,
	2020				2019				2018
Allowance for doubtful accounts (1)
Balance at Beginning of Year	$	5,073			$	3,487			$	5,979
Additions	3,498				2,849				4,168
Deductions	(1,582		)		(1,263		)		(6,660		)
Balance at End of Year	$	6,989			$	5,073			$	3,487
Allowance for sales discounts (2)
Balance at Beginning of Year	$	710			$	1,400			$	3,100
Additions	14,845				11,712				19,972
Deductions	(14,525		)		(12,402		)		(21,672		)
Balance at End of Year	$	1,030			$	710			$	1,400
Allowance for chargebacks (3)
Balance at Beginning of Year	$	13,041			$	7,727			$	7,028
Additions	13,399				23,369				19,019
Deductions	(13,313		)		(18,055		)		(18,320		)
Balance at End of Year	$	13,127			$	13,041			$	7,727
Allowance for sales returns (4)
Balance at Beginning of Year	$	—			$	20,848			$	16,247
Additions	—				—				51,677
Deductions	—				(20,848		)		(47,076		)
Balance at End of Year	$	—			$	—			$	20,848
Total	$	21,146			$	18,824			$	33,462

(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 meeting certain order, shipment, and prompt payments terms. 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)

Amounts presented as of March 31, 2018 reflect the wholesale channel sales returns reserve on a net basis, prior to the adoption of ASU 2014-09, Revenue from Contracts with Customers, which resulted in gross basis presentation in the consolidated balance sheets beginning April 1, 2018. 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