filings.toolsItem 15. Exhibits and Financial Statement Schedule
205K characters. Original on sec.gov · Markdown
Item 15. Exhibits and Financial Statement Schedule
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 | |||||||
| *101.INS | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.
† Certain of the exhibits and schedules to this Exhibit Index have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DECKERS OUTDOOR CORPORATION (Registrant) | ||
| /s/ STEVEN J. FASCHING | ||
| Steven J. Fasching Chief Financial Officer (Principal Financial and Accounting Officer) |
Date: May 27, 2022
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/ DAVE POWERS | Chief Executive Officer, President and Director (Principal Executive Officer) | May 27, 2022 | ||||||
| Dave Powers | ||||||||
| /s/ STEVEN J. FASCHING | Chief Financial Officer (Principal Financial and Accounting Officer) | May 27, 2022 | ||||||
| Steven J. Fasching | ||||||||
| /s/ MICHAEL F. DEVINE, III | Chairman of the Board | May 27, 2022 | ||||||
| Michael F. Devine, III | ||||||||
| /s/ DAVID A. BURWICK | Director | May 27, 2022 | ||||||
| David A. Burwick | ||||||||
| /s/ NELSON C. CHAN | Director | May 27, 2022 | ||||||
| Nelson C. Chan | ||||||||
| /s/ CYNTHIA (CINDY) L. DAVIS | Director | May 27, 2022 | ||||||
| Cynthia (Cindy) L. Davis | ||||||||
| /s/ JUAN R. FIGUEREO | Director | May 27, 2022 | ||||||
| Juan R. Figuereo | ||||||||
| /s/ MAHA S. IBRAHIM | Director | May 27, 2022 | ||||||
| Maha S. Ibrahim | ||||||||
| /s/ VICTOR LUIS | Director | May 27, 2022 | ||||||
| Victor Luis | ||||||||
| /s/ LAURI M. SHANAHAN | Director | May 27, 2022 | ||||||
| Lauri M. Shanahan | ||||||||
| /s/ BONITA C. STEWART | Director | May 27, 2022 | ||||||
| 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 (KPMG LLP, Los Angeles, CA, Auditor Firm ID: 185) | F-2 | ||||
| Report of Independent Registered Public Accounting Firm - Internal Control Over Financial Reporting (KPMG LLP, Los Angeles, CA, Auditor Firm ID: 185) | 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-42 |
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, 2022, and 2021, 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, 2022, 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, 2022, and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2022, 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, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 27, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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 and risk management 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 judgments. 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.
Wholesale sales return liability
As discussed in Note 1 and Note 2 to the consolidated financial statements, the Company has recorded a sales return liability as of March 31, 2022, of $39,867, of which $31,082 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. 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.
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 estimate the wholesale sales return liability.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for estimating the wholesale sales return liability, including controls related to the development of estimated return rates. We evaluated the wholesale sales return liability using a combination of Company internal data, known recent trends, and actual and
F-2
Report of Independent Registered Public Accounting Firm
historical known information. We analyzed the Company’s internal data and external correspondence to assess adjustments made by management, if any, to historical return rates based on consideration of 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
May 27, 2022
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, 2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes and financial statement schedule (collectively, the consolidated financial statements), and our report dated May 27, 2022 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
May 27, 2022
F-4
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar and share data amounts in thousands, except par value)
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 843,527 | $ | 1,089,361 | |||||||
| Trade accounts receivable, net of allowances ($30,591 and $26,516 as of March 31, 2022, and March 31, 2021, respectively) (Note 2 and Schedule II) | 302,688 | 215,718 | |||||||||
| Inventories | 506,796 | 278,242 | |||||||||
| Prepaid expenses | 25,610 | 16,924 | |||||||||
| Other current assets | 55,264 | 44,244 | |||||||||
| Income tax receivable | 18,243 | 6,310 | |||||||||
| Total current assets | 1,752,128 | 1,650,799 | |||||||||
| Property and equipment, net of accumulated depreciation ($282,571 and $266,905 as of March 31, 2022, and March 31, 2021, respectively) (Note 1 and Note 13) | 222,449 | 206,210 | |||||||||
| Operating lease assets | 182,459 | 186,991 | |||||||||
| Goodwill (Note 3) | 13,990 | 13,990 | |||||||||
| Other intangible assets, net of accumulated amortization ($79,061 and $77,473 as of March 31, 2022, and March 31, 2021, respectively) (Note 3) | 39,688 | 41,945 | |||||||||
| Deferred tax assets, net (Note 5) | 64,217 | 37,194 | |||||||||
| Other assets | 57,319 | 30,576 | |||||||||
| Total assets | $ | 2,332,250 | $ | 2,167,705 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Trade accounts payable | $ | 327,487 | $ | 231,632 | |||||||
| Accrued payroll | 67,553 | 79,152 | |||||||||
| Operating lease liabilities (Note 7) | 50,098 | 46,768 | |||||||||
| Other accrued expenses | 81,400 | 68,995 | |||||||||
| Income tax payable | 12,426 | 36,920 | |||||||||
| Value added tax payable | 2,720 | 4,901 | |||||||||
| Total current liabilities | 541,684 | 468,368 | |||||||||
| Long-term operating lease liabilities (Note 7) | 171,972 | 176,274 | |||||||||
| Income tax liability | 54,259 | 60,094 | |||||||||
| Other long-term liabilities | 25,510 | 18,744 | |||||||||
| Total long-term liabilities | 251,741 | 255,112 | |||||||||
| Commitments and contingencies (Note 7) | |||||||||||
| Stockholders' equity | |||||||||||
| Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 26,982 and 27,910 as of March 31, 2022, and March 31, 2021, respectively) | 270 | 279 | |||||||||
| Additional paid-in capital | 210,825 | 203,310 | |||||||||
| Retained earnings | 1,352,685 | 1,257,379 | |||||||||
| Accumulated other comprehensive loss (Note 10) | (24,955) | (16,743) | |||||||||
| Total stockholders' equity | 1,538,825 | 1,444,225 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,332,250 | $ | 2,167,705 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net sales (Note 12 and Note 13) | $ | 3,150,339 | $ | 2,545,641 | $ | 2,132,689 | |||||||||||
| Cost of sales | 1,542,788 | 1,171,551 | 1,029,016 | ||||||||||||||
| Gross profit | 1,607,551 | 1,374,090 | 1,103,673 | ||||||||||||||
| Selling, general, and administrative expenses | 1,042,844 | 869,885 | 765,538 | ||||||||||||||
| Income from operations (Note 12) | 564,707 | 504,205 | 338,135 | ||||||||||||||
| Interest income | (1,901) | (2,637) | (7,261) | ||||||||||||||
| Interest expense | 2,083 | 6,028 | 5,046 | ||||||||||||||
| Other income, net | (113) | (700) | (516) | ||||||||||||||
| Total other expense (income), net | 69 | 2,691 | (2,731) | ||||||||||||||
| Income before income taxes | 564,638 | 501,514 | 340,866 | ||||||||||||||
| Income tax expense (Note 5) | 112,689 | 118,939 | 64,724 | ||||||||||||||
| Net income | 451,949 | 382,575 | 276,142 | ||||||||||||||
| Other comprehensive (loss) income | |||||||||||||||||
| Foreign currency translation (loss) gain | (8,212) | 8,816 | (2,905) | ||||||||||||||
| Total other comprehensive (loss) income | (8,212) | 8,816 | (2,905) | ||||||||||||||
| Comprehensive income | $ | 443,737 | $ | 391,391 | $ | 273,237 | |||||||||||
| Net income per share | |||||||||||||||||
| Basic | $ | 16.43 | $ | 13.64 | $ | 9.73 | |||||||||||
| Diluted | $ | 16.26 | $ | 13.47 | $ | 9.62 | |||||||||||
| Weighted-average common shares outstanding (Note 11) | |||||||||||||||||
| Basic | 27,508 | 28,055 | 28,385 | ||||||||||||||
| Diluted | 27,789 | 28,406 | 28,694 |
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 | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 29,141 | $ | 291 | $ | 178,227 | $ | 889,266 | $ | (22,654) | $ | 1,045,130 | ||||||||||||||||||||||||
| Stock-based compensation | 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 (Note 10) | (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 | |||||||||||||||||||||||||||||
| Stock-based compensation | 4 | — | 22,695 | — | — | 22,695 | |||||||||||||||||||||||||||||
| Shares issued upon vesting | 107 | 1 | 1,501 | — | — | 1,502 | |||||||||||||||||||||||||||||
| Exercise of stock options | 107 | 1 | 6,774 | — | — | 6,775 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (19,111) | — | — | (19,111) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 10) | (307) | (3) | — | (99,144) | — | (99,147) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 382,575 | — | 382,575 | |||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | 8,816 | 8,816 | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 27,910 | 279 | 203,310 | 1,257,379 | (16,743) | 1,444,225 | |||||||||||||||||||||||||||||
| Stock-based compensation | 4 | — | 26,780 | — | — | 26,780 | |||||||||||||||||||||||||||||
| Shares issued upon vesting | 83 | 1 | 1,990 | — | — | 1,991 | |||||||||||||||||||||||||||||
| Exercise of stock options | 29 | — | 1,204 | — | — | 1,204 | |||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (22,459) | — | — | (22,459) | |||||||||||||||||||||||||||||
| Repurchases of common stock (Note 10) | (1,044) | (10) | — | (356,643) | — | (356,653) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 451,949 | — | 451,949 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | (8,212) | (8,212) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 26,982 | $ | 270 | $ | 210,825 | $ | 1,352,685 | $ | (24,955) | $ | 1,538,825 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||
| Net income | $ | 451,949 | $ | 382,575 | $ | 276,142 | |||||||||||
| Reconciliation of net income to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation, amortization, and accretion | 42,878 | 40,530 | 38,912 | ||||||||||||||
| Amortization on cloud computing arrangements | 1,552 | 737 | — | ||||||||||||||
| Bad debt (benefit) expense | (342) | 3,053 | 3,498 | ||||||||||||||
| Deferred tax (benefit) expense | (27,796) | (8,171) | 2,934 | ||||||||||||||
| Stock-based compensation | 26,816 | 22,701 | 14,477 | ||||||||||||||
| Loss on disposal of long-lived assets | 107 | 1,019 | 698 | ||||||||||||||
| Impairment of intangible assets | — | 3,522 | — | ||||||||||||||
| Impairment of operating lease and other long-lived assets | 3,186 | 14,084 | 1,365 | ||||||||||||||
| Gain on settlement of asset retirement obligations | — | (207) | (705) | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Trade accounts receivable, net | (86,627) | (33,173) | (10,493) | ||||||||||||||
| Inventories | (228,554) | 33,378 | (32,777) | ||||||||||||||
| Prepaid expenses and other current assets | (19,095) | (22,128) | 2,477 | ||||||||||||||
| Income tax receivable | (11,933) | 1,842 | (5,811) | ||||||||||||||
| Net operating lease assets and lease liabilities | 3,189 | 250 | (3,264) | ||||||||||||||
| Other assets | (28,296) | (3,103) | (6,558) | ||||||||||||||
| Trade accounts payable | 89,184 | 79,176 | 23,312 | ||||||||||||||
| Other accrued expenses | (20,370) | 53,785 | (11,112) | ||||||||||||||
| Income tax payable | (24,494) | 25,817 | (8,179) | ||||||||||||||
| Other long-term liabilities | 999 | 530 | 1,418 | ||||||||||||||
| Net cash provided by operating activities | 172,353 | 596,217 | 286,334 | ||||||||||||||
| INVESTING ACTIVITIES | |||||||||||||||||
| Purchases of property and equipment | (51,017) | (32,218) | (32,455) | ||||||||||||||
| Proceeds from sales of property and equipment | 8 | 49 | 491 | ||||||||||||||
| Net cash used in investing activities | (51,009) | (32,169) | (31,964) | ||||||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||
| Proceeds from short-term borrowings | — | 9,100 | 69,336 | ||||||||||||||
| Repayments of short-term borrowings | — | (9,478) | (69,197) | ||||||||||||||
| Proceeds from issuance of stock | 1,991 | 1,502 | 1,288 | ||||||||||||||
| Proceeds from exercise of stock options | 1,204 | 6,775 | 3,615 | ||||||||||||||
| Repurchases of common stock | (356,653) | (99,147) | (190,405) | ||||||||||||||
| Cash paid for shares withheld for taxes | (14,024) | (7,432) | (6,148) | ||||||||||||||
| Repayments of mortgage principal | — | (30,901) | (603) | ||||||||||||||
| Net cash used in financing activities | (367,482) | (129,581) | (192,114) | ||||||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | 304 | 5,458 | (2,512) | ||||||||||||||
| Net change in cash and cash equivalents | (245,834) | 439,925 | 59,744 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 1,089,361 | 649,436 | 589,692 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 843,527 | $ | 1,089,361 | $ | 649,436 | |||||||||||
F-8
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(continued)
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||||||||
| Cash paid during the period | |||||||||||||||||
| Income taxes, net of refunds of $77, $1,564, and $5,389, as of March 31, 2022, 2021, and 2020, respectively | $ | 192,013 | $ | 104,068 | $ | 74,573 | |||||||||||
| Interest | 1,842 | 2,931 | 2,466 | ||||||||||||||
| Operating leases | 55,588 | 57,376 | 61,120 | ||||||||||||||
| Non-cash investing activities | |||||||||||||||||
| Change in accounts payable and other accrued expenses for purchases of property and equipment | 2,797 | 2,721 | (618) | ||||||||||||||
| Accrued for asset retirement obligation assets related to leasehold improvements | 3,900 | 1,842 | 224 | ||||||||||||||
| Leasehold improvements acquired through tenant allowances | 4,061 | — | — | ||||||||||||||
| Non-cash financing activities | |||||||||||||||||
| Accrued for shares withheld for taxes | 8,435 | 11,679 | — | ||||||||||||||
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, 2022, 2021, and 2020
(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, 2022, and 2021 and for the years ended March 31, 2022, 2021, and 2020 are prepared in accordance with generally accepted accounting principles 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.
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. In addition, the Company has considered the potential impact of the COVID-19 global pandemic (pandemic) on its business and operations. Although the full impact of the pandemic is unknown and cannot be reasonably estimated, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on the Company's financial condition, results of operations, and liquidity. 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 and assumptions 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, including for goodwill, other intangible assets, and long-lived 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 utilized to discount its unpaid lease payments to measure its operating lease assets and lease 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, 2022, 2021, and 2020
(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 (collectively, the Company’s reportable operating segments). Refer to Note 12, “Reportable Operating Segments,” for further information on the Company’s reportable operating segments.
Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standards Updates (ASU) that have been adopted and not yet adopted by the Company for its annual and interim reporting periods as stated below.
Recently Adopted. The following is a summary of each ASU adopted by and its impact on the Company:
| Standard | Description | Impact on Adoption | ||||||||||||
| 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, and reduces complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. | The Company adopted this ASU on a retrospective basis beginning April 1, 2021, and concluded that this ASU did not have a material impact on its consolidated financial statements. |
Not Yet Adopted. The following is a summary of each ASU issued that is applicable to and has not yet been adopted, as well as the planned period of adoption, and the expected impact on the Company upon its adoption:
| 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 (as amended by ASU 2021-01) | 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 calendar year 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. | Q3 FY 2023 | The Company is currently evaluating the impact of the adoption of this ASU on its revolving credit facilities, lease agreements, and other transactions; however, the Company does not expect that the adoption will have a material impact 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. Refer to Note 4, “Fair Value Measurements,” for further information on the fair value of money-market funds.
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.
F-11
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Inventories. Inventories, principally finished goods on hand and in transit, are stated at the lower of cost (weighted average) or net realizable value 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 (CCAs) 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 three years.
As of March 31, 2022, net capitalized costs for CCAs is $2,402, with $1,429 recorded in prepaid expenses and $973 in other assets in the consolidated balance sheets. As of March 31, 2021, net capitalized costs for CCAs is $2,983, with $1,308 recorded in prepaid expenses and $1,675 in other assets in the consolidated balance sheets.
Property and Equipment, Depreciation and Amortization. Property and equipment are stated at cost less accumulated depreciation and amortization, and generally have a useful life of at least one year. Property and equipment include tangible, non-consumable items owned by the Company. Software implementation costs are capitalized if they are incurred during the application development stage and relate to costs to obtain computer software from third parties, including related consulting expenses, or costs incurred to modify existing software that results in additional upgrades or enhancements that provide additional functionality.
Depreciation of property and equipment is calculated using the straight-line method based on the estimated useful life. Leasehold improvements are amortized to their residual value, if any, on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter. Changes in the estimate of the useful life of an asset may occur after an asset is placed in service. For example, this may occur as a result of the Company incurring costs that prolong the useful life of an asset and are recorded as an adjustment to 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) | 2022 | 2021 | |||||||||||||||
| Land | Indefinite | $ | 32,864 | $ | 32,865 | ||||||||||||
| Building | 39.5 | 36,112 | 35,094 | ||||||||||||||
| Machinery and equipment | 1-10 | 177,397 | 149,494 | ||||||||||||||
| Furniture and fixtures | 3-7 | 35,600 | 36,497 | ||||||||||||||
| Computer software | 3-10 | 104,114 | 94,365 | ||||||||||||||
| Leasehold improvements | 1-11 | 108,526 | 110,538 | ||||||||||||||
| Construction in progress | 10,407 | 14,262 | |||||||||||||||
| Gross property and equipment | 505,020 | 473,115 | |||||||||||||||
| Less accumulated depreciation and amortization | (282,571) | (266,905) | |||||||||||||||
| Total | $ | 222,449 | $ | 206,210 |
F-12
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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 leases 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 liabilities 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.
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 lease 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 liabilities, a corresponding adjustment is made to the carrying amount of the operating lease assets. 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 “Definite-Lived Intangible and 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.
F-13
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
The Company’s asset retirement obligations (AROs) are recorded in other long-term liabilities in the consolidated balance sheets and activity was as follows:
| Amounts | |||||
| Balance, March 31, 2020 | $ | 11,505 | |||
| Additions and changes in estimate | 3,571 | ||||
| Liabilities settled during the period | (3,495) | ||||
| Accretion expenses | 1,458 | ||||
| Foreign currency translation gains | (56) | ||||
| Balance, March 31, 2021 | 12,983 | ||||
| Additions and changes in estimate | 4,622 | ||||
| Liabilities settled during the period | (898) | ||||
| Accretion expenses | 327 | ||||
| Foreign currency translation gains | (232) | ||||
| Balance, March 31, 2022 | $ | 16,802 |
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, discount rates, 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 customer demand and acceptance of products, or other factors impacting the industry. 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-14
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(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 related 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 of the asset group exceeds the estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset group, which is based on either discounted future cash flows or appraised values. 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, 2022, 2021, and 2020, 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 $3,186, $14,084, and $1,365, 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-15
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(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 recognized. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in accumulated other comprehensive loss (AOCL) related to the hedging relationship are immediately recorded in OCI in the consolidated statements of comprehensive income. The Company includes all hedge components in its assessment of effectiveness for its derivative contracts.
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 intercompany balances, which are 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.
Stock Repurchase Programs. Repurchased shares of the Company’s common stock are retired. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is allocated to retained earnings in the consolidated balance sheets. Refer to Note 10, “Stockholders' Equity,” for further information on the Company’s stock repurchase programs.
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 to 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.
F-16
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Research and Development Costs. All research and development costs are expensed as incurred. Such costs amounted to $33,344, $28,626, and $27,555 for the years ended March 31, 2022, 2021, and 2020, respectively, and are recorded in SG&A expenses in the consolidated statements of comprehensive income.
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 $255,881, $188,345, and $144,948 for the years ended March 31, 2022, 2021. and 2020, 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, 2022, and 2021 are $2,759 and $1,762, 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, as well as the Company’s reliance on the closing price of its stock on the New York Stock Exchange at or near the time of grant. 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 on grant activity and additional disclosure for stock-based compensation.
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 $3,953, $3,339, and $3,251 during the years ended March 31, 2022, 2021, and 2020, 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, there were no Company profit-sharing contributions for the years ended March 31, 2022, 2021, and 2020.
Non-qualified Deferred Compensation. In 2010, the Company began sponsoring an unfunded, non-qualified deferred compensation plan (NQDC Plan) that permits certain members of its management team the opportunity to defer compensation into the NQDC Plan. The NQDC Plan year is from January 1st to December 31st. Participants may defer up to 50% of their annual base salary and up to 85% of any cash incentive bonus under the NQDC Plan. The Company holds all its non-qualified deferred compensation plan investments in mutual funds. In March 2015, the Board of Directors approved a Company contribution feature to allow the option, but not the obligation, for the Company to make discretionary or matching cash contributions to NQDC Plan participants. A rabbi trust was established as a reserve for benefits payable under the NQDC Plan, with the assets invested in Company-owned life insurance policies.
As of March 31, 2022, and 2021, no material payments are 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.
F-17
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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.
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 sales 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 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.
F-18
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Allowance for Chargebacks. The Company provides a trade accounts receivable allowance for chargebacks for our wholesale channel sales. 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 primarily for known circumstances as well as unknown circumstances based on historical trends related to the timing and amount of chargebacks taken against 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.
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 generally accepted from customers between 30 to 90 days from the 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 refund asset for the right to recover the inventory and a refund liability for the stand-ready right of return. Changes to the refund liability are recorded against gross sales and changes to the refund asset for the right to recover the inventory are recorded against cost of sales in the consolidated statements of comprehensive income. The refund liability is recorded in other accrued expenses and the related asset for the right to recover the inventory is recorded in other current assets in the consolidated balance sheets.
Activity during the years ended March 31, 2022, and 2021 related to estimated sales returns were as follows:
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2020 | $ | 9,663 | $ | (25,667) | |||||||
| Net additions to sales return liability* | 39,939 | (153,742) | |||||||||
| Actual returns | (38,898) | 141,692 | |||||||||
| Balance, March 31, 2021 | 10,704 | (37,717) | |||||||||
| Net additions to sales return liability* | 43,555 | (178,722) | |||||||||
| Actual returns | (42,768) | 176,572 | |||||||||
| Balance, March 31, 2022 | $ | 11,491 | $ | (39,867) |
***Net additions to the sales return liability include a provision for anticipated sales returns, which consists of both contractual return rights and discretionary authorized returns.
Contract Liabilities. 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 liabilities are recorded in other accrued expenses in the consolidated balance sheets.
Loyalty Programs. The Company has a loyalty program for the UGG brand in its DTC channel where consumers can 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 consumer, (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. The Company’s contract liability for loyalty programs is recorded in other accrued expenses in the consolidated balance sheets.
F-19
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Activity during the years ended March 31, 2022, and 2021 was as follows:
| Amounts | |||||||||||
| Balance, March 31, 2020 | $ | (6,950) | |||||||||
| Loyalty certificates and points redeemed, expired, and adjustments to net sales | 44,445 | ||||||||||
| Deferred revenue for loyalty points and certificated issued | (49,726) | ||||||||||
| Balance, March 31, 2021 | (12,231) | ||||||||||
| Loyalty certificates and points redeemed, expired, and adjustments to net sales | 56,930 | ||||||||||
| Deferred revenue for loyalty points and certificated issued | (55,582) | ||||||||||
| Balance, March 31, 2022 | $ | (10,883) |
Deferred Revenue. Revenue is deferred for certain wholesale channel transactions as the contract terms indicate control transfers upon product delivery or sell-through. As of March 31, 2022, and 2021, the Company’s contract liability for deferred revenue is $15,804 and $5,425, respectively, which is recorded in other accrued expenses in the consolidated balance sheets. The increase in deferred revenue during the year ended March 31, 2022, compared to the prior period, was due to net additions of $9,700 related to customer prepayments and $679 related to other deferred revenue.
Refer to Note 12, “Reportable Operating Segments,” for further information on the Company's disaggregation of revenue by reportable operating segment.
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, | |||||||||||
| 2022 | 2021 | ||||||||||
| 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 | 51,723 | 51,723 | |||||||||
| Other | 51,572 | 52,241 | |||||||||
| Total gross carrying amount | 103,295 | 103,964 | |||||||||
| Accumulated amortization | (79,061) | (77,473) | |||||||||
| Net definite-lived intangible assets | 24,234 | 26,491 | |||||||||
| Total other intangible assets, net | 39,688 | 41,945 | |||||||||
| Total | $ | 53,678 | $ | 55,935 |
The weighted-average amortization period for definite-lived intangible assets was 15 years for the years ended March 31, 2022, and 2021, respectively. Intangible assets consist primarily of indefinite-lived and definite-lived trademarks, customer 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.
F-20
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Annual Impairment Assessment. During the years ended March 31, 2022, 2021, and 2020, the Company evaluated 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, 2022, and 2021, the gross carrying amount of goodwill is $143,765 and the accumulated impairment losses are $129,775.
The Company did not identify any definite-lived intangible asset impairments during the years ended March 31, 2022, and 2020. During the year ended March 31, 2021, the Company recorded an impairment loss of $3,522 for the Sanuk brand definite-lived international trademark, driven by the strategic decision to focus primarily on future domestic growth, within our Sanuk brand wholesale reportable operating segment in SG&A expenses in the consolidated statements of comprehensive income.
Amortization Expense. A reconciliation of the changes in total other intangible assets, net, recorded in the consolidated balance sheets are as follows:
| Amounts | |||||
| Balance, March 31, 2019 | $ | 51,494 | |||
| Amortization expense | (3,470) | ||||
| Foreign currency translation net loss | (8) | ||||
| Balance, March 31, 2020 | 48,016 | ||||
| Impairment charges | (3,522) | ||||
| Amortization expense | (2,565) | ||||
| Foreign currency translation net gain | 16 | ||||
| Balance, March 31, 2021 | 41,945 | ||||
| Amortization expense | (2,248) | ||||
| Foreign currency translation net loss | (9) | ||||
| Balance, March 31, 2022 | $ | 39,688 |
Expected amortization expense for amortizable intangible assets subsequent to March 31, 2022, is as follows:
| Years Ending March 31, | Amounts | |||||||
| 2023 | $ | 2,220 | ||||||
| 2024 | 2,208 | |||||||
| 2025 | 2,053 | |||||||
| 2026 | 1,551 | |||||||
| 2027 | 1,519 | |||||||
| Thereafter | 14,683 | |||||||
| Total | $ | 24,234 |
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.
F-21
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt. The Company does not currently have any Level 3 assets or liabilities.
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, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Money-market funds | $ | 524,063 | $ | 524,063 | $ | — | $ | — | |||||||||||||||
| Non-qualified deferred compensation asset | 8,933 | 8,933 | — | — | |||||||||||||||||||
| Non-qualified deferred compensation liability | (9,573) | (9,573) | — | — | |||||||||||||||||||
| As of | Measured Using | ||||||||||||||||||||||
| March 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Money-market funds | $ | 773,092 | $ | 773,092 | $ | — | $ | — | |||||||||||||||
| Non-qualified deferred compensation asset | 9,107 | 9,107 | — | — | |||||||||||||||||||
| Non-qualified deferred compensation liability | (6,692) | (6,692) | — | — | |||||||||||||||||||
As of March 31, 2022, the non-qualified deferred compensation asset of $8,933 is recorded in other assets in the consolidated balance sheets. As of March 31, 2022, the non-qualified deferred compensation liability of $9,573 is recorded in the consolidated balance sheets, with $936 in other accrued expenses and $8,637 in other long-term liabilities. As of March 31, 2021, the non-qualified deferred compensation asset of $9,107 is recorded in other assets in the consolidated balance sheets. Further, the non-qualified deferred compensation liability of $6,692 is recorded in the consolidated balance sheets, with $906 in other accrued expenses and $5,786 in other long-term liabilities.
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Domestic* | $ | 396,368 | $ | 368,328 | $ | 206,111 | |||||||||||
| Foreign | 168,270 | 133,186 | 134,755 | ||||||||||||||
| Total | $ | 564,638 | $ | 501,514 | $ | 340,866 |
*Domestic income before income taxes for the years ended March 31, 2022, 2021, and 2020 is presented net of intercompany dividends of $120,000, $175,000, and $150,000, respectively.
F-22
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Income Tax Expense. Components of income tax expense (benefit) recorded in the consolidated statements of comprehensive income were as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 95,012 | $ | 93,562 | $ | 47,087 | |||||||||||
| State | 22,544 | 15,595 | 635 | ||||||||||||||
| Foreign | 22,929 | 17,953 | 14,068 | ||||||||||||||
| Total | 140,485 | 127,110 | 61,790 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | (17,316) | (6,717) | 4,626 | ||||||||||||||
| State | (4,827) | (633) | (462) | ||||||||||||||
| Foreign | (5,653) | (821) | (1,230) | ||||||||||||||
| Total | (27,796) | (8,171) | 2,934 | ||||||||||||||
| Total | $ | 112,689 | $ | 118,939 | $ | 64,724 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Computed expected income taxes | $ | 118,574 | $ | 105,318 | $ | 71,582 | |||||||||||
| State income taxes, net of federal income tax benefit | 16,899 | 16,479 | 11,042 | ||||||||||||||
| Foreign rate differential | (22,188) | (15,507) | (17,966) | ||||||||||||||
| Unrecognized tax benefits | (494) | 7,632 | 6,695 | ||||||||||||||
| Return to provision adjustments | (3,736) | — | — | ||||||||||||||
| Dividends from previously taxed earnings | (4,240) | (5,313) | (4,584) | ||||||||||||||
| Nondeductible executive compensation | 11,059 | 11,070 | 4,162 | ||||||||||||||
| US tax on foreign earnings | 4,325 | 4,252 | 2,343 | ||||||||||||||
| Tax audit settlements | 795 | 1,147 | (3,956) | ||||||||||||||
| Employee stock-based compensation excess tax benefits | (10,916) | (6,846) | (2,477) | ||||||||||||||
| Other | 2,611 | 707 | (2,117) | ||||||||||||||
| Total | $ | 112,689 | $ | 118,939 | $ | 64,724 |
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, | |||||||||||
| 2022 | 2021 | ||||||||||
| Deferred tax assets | |||||||||||
| Amortization and impairment of intangible assets | $ | 4,828 | $ | 7,302 | |||||||
| Nonvested stock-based compensation | 7,695 | 7,138 | |||||||||
| Operating lease liabilities | 37,020 | 37,707 | |||||||||
| Uniform capitalization adjustment to inventory | 11,996 | 5,256 |
F-23
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Bad debt allowance and other reserves | 26,627 | 19,321 | |||||||||
| Accrued bonuses | 7,572 | 8,491 | |||||||||
| Foreign currency translation | 649 | 646 | |||||||||
| Net operating loss carry-forwards, net of valuation allowances | 1,802 | 1,663 | |||||||||
| Deferred revenue | 22,074 | 817 | |||||||||
| Other | 1,375 | 2,231 | |||||||||
| Gross deferred tax assets | 121,638 | 90,572 | |||||||||
| Valuation allowances | (1,206) | (1,197) | |||||||||
| Total | 120,432 | 89,375 | |||||||||
| Deferred tax liabilities | |||||||||||
| Prepaid expenses | (5,460) | (3,829) | |||||||||
| Operating lease assets | (28,831) | (30,754) | |||||||||
| Depreciation of property and equipment | (21,924) | (17,598) | |||||||||
| Total | (56,215) | (52,181) | |||||||||
| Deferred tax assets, net | $ | 64,217 | $ | 37,194 |
In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of $243,217. The deferred tax assets are primarily related to the Company’s domestic operations and are currently expected to be realized between fiscal years 2023 and 2031. 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.
US Taxation of Foreign Earnings. The Company is subject to US taxation of its foreign subsidiary earnings considered global intangible low-taxed income, as well as limitations on the deductions of executive compensation, which are included in income tax expense in the consolidated statements of comprehensive income for the periods presented above. Beginning with the tax year ended March 31, 2018, pursuant to the Tax Reform Act, an installment election was made to pay the transition tax on the deemed repatriation of foreign subsidiaries’ earnings over eight years. The cumulative remaining balance as of March 31, 2022, is $38,263, with $4,502 recorded in income tax payable and $33,761 in long-term income tax liability in the consolidated balance sheets.
As of March 31, 2022, the Company has $336,582 of undistributed earnings from its non-US subsidiaries, of which $133,053 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, 2022, the Company has $15,381 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, it is not practicable to estimate the amount of foreign withholding taxes associated with such unremitted earnings. During the year ended March 31, 2022, the Company declared a dividend of $120,000 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
F-24
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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, 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 | ||||
| Gross increase related to current fiscal year tax positions | 2,242 | ||||
| Gross increase related to prior fiscal year tax positions | 8,566 | ||||
| Settlements | (1,215) | ||||
| Lapse of statute of limitations | (1,961) | ||||
| Balance, March 31, 2021 | 25,270 | ||||
| Gross increase related to current fiscal year tax positions | 2,520 | ||||
| Gross increase related to prior fiscal year tax positions | 2,750 | ||||
| Gross decrease related to prior fiscal year tax positions | (243) | ||||
| Settlements | (795) | ||||
| Lapse of statute of limitations | (4,723) | ||||
| Balance, March 31, 2022 | $ | 24,779 |
Total gross unrecognized tax benefits recorded in the consolidated balance sheets are as follows:
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Current liability | |||||||||||
| Income tax payable | $ | — | $ | 1,038 | |||||||
| Long-term liability | |||||||||||
| Income tax liability | 24,779 | 24,232 | |||||||||
| Total | $ | 24,779 | $ | 25,270 |
As of March 31, 2022, and 2021, the Company has accrued $4,722 and $4,782 for the payment of interest and penalties, respectively, in income tax liability in the consolidated balance sheets. During the years ended March 31, 2022, 2021, and 2020, the Company recorded $(60), $1,151, and $1,176, 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 $1,351, which includes amounts relating to expirations of statute of limitations on liabilities of $2,531, partially offset by $1,180 for additional unrecognized tax benefits relating to current fiscal year tax return positions. Of this amount, $1,197 would result in an income tax benefit for the Company and $154 would result in a decrease to interest expense in the consolidated statements of comprehensive income.
F-25
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Net unrecognized tax benefits are defined as gross unrecognized tax benefits, less federal benefit for state income taxes, related to uncertain tax positions taken in the Company’s income tax return that would impact the Company’s effective tax rate, if recognized. Net unrecognized tax benefits of $23,433, $23,883, and $16,685 for the years ended March 31, 2022, 2021, and 2020, respectively, would reduce the annual effective tax rate 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 2018.
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 book runners. 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 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.
F-26
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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, 2022, the effective interest rates for US dollar LIBOR and ABR rates, with relevant spreads for borrowings made during the reporting period, are 1.58% 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, 2022, the Company made no borrowings or repayments under the Primary Credit Facility. As of March 31, 2022, the Company has no outstanding balance under the Primary Credit Facility and had outstanding letters of credit of $549. As of March 31, 2022, available borrowings under the Primary Credit Facility are $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 October 2021, 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 CNY300,000, or $47,286, with an overdraft facility sublimit of CNY100,000, or $15,762. 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, 2022, the effective interest rate is 4.00%.
During the year ended March 31, 2022, the Company made no borrowings or repayments under the China Credit Facility. As of March 31, 2022, the Company has no outstanding balance, outstanding bank guarantees of $32, and available borrowings of $47,254 under the China Credit Facility.
Japan Credit Facility. In March 2016, Deckers Japan, G.K., a wholly owned subsidiary of the Company, entered into a credit agreement in Japan (as amended, the Japan Credit Facility) that provides for an uncommitted revolving line of credit of up to JPY3,000,000, or $24,623, 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, 2023, 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, 2022, the effective interest rate is 0.49%.
During the year ended March 31, 2022, the Company made no borrowings or repayments under the Japan Credit Facility. As of March 31, 2022, the Company has no outstanding balance under the Japan Credit Facility and available borrowings of $24,623.
Debt Covenants. As of March 31, 2022, the Company is in compliance with all financial covenants under the revolving credit facilities.
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:
F-27
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
-
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, and maintaining higher assets than liabilities.
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 lease 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 non-collateralized 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.
F-28
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Rent Expense. The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income were as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Operating | $ | 51,126 | $ | 52,849 | $ | 57,966 | |||||||||||
| Variable | 24,265 | 24,033 | 26,996 | ||||||||||||||
| Short-term | 3,428 | 3,015 | 3,332 | ||||||||||||||
| Total | $ | 78,819 | $ | 79,897 | $ | 88,294 |
Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2022, 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* | |||||||
| 2023 | $ | 53,886 | ||||||
| 2024 | 47,021 | |||||||
| 2025 | 36,646 | |||||||
| 2026 | 31,594 | |||||||
| 2027 | 27,057 | |||||||
| Thereafter | 42,550 | |||||||
| Total undiscounted future lease payments | 238,754 | |||||||
| Less: Imputed interest | (16,684) | |||||||
| Total | $ | 222,070 |
In April 2022, the Company signed a lease for additional space at the Company’s US warehouse and distribution center (DC) in Mooresville, Indiana with an initial lease term of ten years for a minimum commitment of approximately $46,000, which the Company expects to be operational in the third quarter of the fiscal year ending March 31, 2024.
Supplemental Disclosure. Key estimates and judgments related to operating lease assets and lease liabilities that are outstanding and presented in the consolidated balance sheets are as follows:
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Weighted-average remaining lease term in years | 5.6 | 6.0 | |||||||||
| Weighted-average discount rate | 2.6 | % | 3.1 | % |
Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases were as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Non-cash operating activities | |||||||||||||||||
| Operating lease assets obtained in exchange for lease liabilities* | $ | 50,190 | $ | 9,861 | $ | 71,097 | |||||||||||
| Reductions to operating lease assets for reductions to lease liabilities* | (5,293) | (12,051) | (7,055) |
F-29
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.
Purchase Obligations. The Company has various types of purchase obligations, as follows:
Product. The Company has $809,812 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2022. 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 three to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from customers and consumers. 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 has an aggregate of $206,979 remaining purchase commitments, primarily for sheepskin, as well as UGGpure and leather, as of March 31, 2022. 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 these purchase commitments 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 are $33,120 of deposits, included in the amount above, that have not been fully consumed as of March 31, 2022, which are recorded in other assets in the consolidated balance sheets, which represent remaining minimum commitments under certain expired sheepskin supply agreements that the Company currently expects will be consumed in future periods.
Total future minimum commitments for commodities contracts as of March 31, 2022, are as follows:
| Contract Effective Date | Final Target Date | Contract Value | Remaining Commitment | |||||||||||||||||
| July 2017 | September 2019 | $ | 7,200 | $ | 5,223 | |||||||||||||||
| October 2018 | September 2020 | 3,600 | 1,586 | |||||||||||||||||
| October 2018 | September 2021 | 41,210 | 34,272 | |||||||||||||||||
| March 2021 | June 2022 | 6,104 | 2,033 | |||||||||||||||||
| November 2021 | June 2022 | 19,635 | 8,508 | |||||||||||||||||
| August 2021 | September 2022 | 60,200 | 44,994 | |||||||||||||||||
| November 2021 | December 2022 | 2,450 | 2,450 | |||||||||||||||||
| November 2021 | June 2023 | 4,900 | 4,900 | |||||||||||||||||
| August 2021 | September 2023 | 72,000 | 72,000 | |||||||||||||||||
| December 2021 | September 2024 | 32,920 | 31,013 | |||||||||||||||||
| $ | 250,219 | $ | 206,979 |
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
F-30
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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 has an aggregate of $207,651 of other purchase commitments as of March 31, 2022, which consisted of minimum commitments for logistics arrangements, sales management services, supply chain services, information technology (IT) services, requirements to pay promotional expenses, and other commitments under service contracts.
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. From time to time, the Company grants 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 and PSUs, as well as long-term incentive plan (LTIP) awards, to key personnel, including employees and directors.
Annual Awards. The Company has granted RSUs and PSUs under the 2015 SIP, which entitle the recipients to receive shares of the Company’s common stock upon vesting. The 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 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.
F-31
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
The Company granted the following annual awards under the 2015 SIP, as recorded in the consolidated statements of comprehensive income:
| Years Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| RSUs | 52,256 | $ | 363.89 | 47,015 | $ | 220.31 | 47,577 | $ | 171.50 | |||||||||||||||||||||||||||||
| PSUs | — | — | — | — | 19,938 | 174.36 | ||||||||||||||||||||||||||||||||
| Total | 52,256 | $ | 363.89 | 47,015 | $ | 220.31 | 67,515 | $ | 172.34 |
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, 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 | |||||||||
| Granted | 47,015 | 220.31 | |||||||||
| Vested* | (92,614) | (104.92) | |||||||||
| Forfeited | (3,664) | (147.34) | |||||||||
| Nonvested, March 31, 2021 | 113,086 | 179.58 | |||||||||
| Granted | 52,256 | 363.89 | |||||||||
| Vested* | (60,034) | (162.37) | |||||||||
| Forfeited | (7,441) | (239.39) | |||||||||
| Nonvested, March 31, 2022 | 97,867 | $ | 284.00 |
- The amounts vested include shares withheld for taxes that are not formally issued to the market.
Long-Term Incentive Plan Awards. The Company grants LTIP awards under the 2015 SIP for the issuance of PSUs (LTIP PSUs) and a Monte-Carlo simulation model is 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 periods (further defined for each individual grant below). For each grant of LTIP PSUs, the Monte-Carlo simulation model factors in key assumptions, such as the market price of the underlying common stock at the beginning and end of the reporting period, risk free interest rate, expected dividend yield when simulating total stockholder return (TSR), expected dividend yield when simulating the Company’s stock price, stock price volatility, and correlation coefficients. The Company evaluates at least quarterly the probability of achieving performance criteria included in its LTIP PSUs against its most current forecast. LTIP awards recorded in the consolidated statements of comprehensive income, were as follows:
2022 LTIP PSUs. During fiscal year 2022, the Company approved LTIP awards under the 2015 SIP (2022 LTIP PSUs), which were awarded to certain members of the Company's management team, including the Company's named executive officers and vice presidents. The 2022 LTIP PSUs are subject to vesting based on service conditions over three years.
F-32
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
The Company must meet certain revenue and pre-tax income performance targets individually over three reporting periods for the year ended March 31, 2022, and for the fiscal years ending March 31, 2023, and 2024 (collectively, the 2024 Measurement Periods) and incorporates a relative TSR modifier for 36-month performance period (commencing on April 1, 2021) ending March 31, 2024 (collectively, the 2024 Performance Periods). To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of 2022 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 2022 LTIP PSUs will occur if the Company fails to achieve the minimum revenue and pre-tax income amounts for each reporting period equal to at least 100% 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 2024 Measurement Periods, the vesting of each 2022 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 2024 Performance Periods.
The Company granted awards at the target performance level of 34,822 2022 LTIP PSUs during the year ended March 31, 2022. The weighted-average grant date fair value per share of these 2022 LTIP PSUs was $407.37. Based on the Company's current long-range forecast, the Company determined that the achievement of at least the target performance criteria for each of the Measurement Periods for these awards was probable as of the grant date.
2021 LTIP PSUs. During fiscal year 2021, the Company approved LTIP awards under the 2015 SIP (2021 LTIP PSUs), which were awarded to certain members of the Company's management team, including the Company's named executive officers and vice presidents. The 2021 LTIP PSUs are subject to vesting based on service conditions over either two or three years.
The Company must meet certain revenue and pre-tax income performance targets individually over three reporting periods for the years ended March 31, 2021 and March 31, 2022, and for the fiscal year ending March 31, 2023 (collectively, the 2023 Measurement Periods) and incorporates a relative TSR modifier for both the 24-month performance period (commencing on April 1, 2021) and 36-month performance period (commencing on April 1, 2020) ending March 31, 2023 (collectively, 2023 the Performance Periods). To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of 2021 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 2021 LTIP PSUs will occur if the Company fails to achieve the minimum revenue and pre-tax income amounts for each reporting period equal to at least 100% 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 2023 Measurement Periods, the vesting of each 2021 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 2023 Performance Periods.
The Company granted awards at the target performance level of 19,890 2021 LTIP PSUs during the year ended March 31, 2021. The weighted-average grant date fair value of these 2021 LTIP PSUs was $376.45 per share. The Company currently expects to exceed the financial performance threshold levels as defined above for each of the performance criteria, and therefore the number of 2021 LTIP PSUs that is expected to vest is above 190% of the targeted amount for the awards.
2020 LTIP PSUs. During fiscal year 2020, the Company approved LTIP awards under the 2015 SIP (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.
F-33
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
The Company must meet certain revenue and pre-tax income performance targets for the fiscal year ending March 31, 2022 (2022 Measurement Period) and incorporates a relative TSR modifier for the 36-month performance period commencing on April 1, 2019, and ending March 31, 2022 (collectively, the 2022 Performance Periods). 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 2022 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 2022 Performance Periods.
The Company granted awards at the target performance level of 38,174 2020 LTIP PSUs during the year ended March 31, 2020. The weighted-average grant date fair value of these 2020 LTIP PSUs was $146.96 per share. The Company exceeded the financial performance threshold levels as defined above for each of the performance criteria, and therefore the maximum number of 2020 LTIP PSUs that vested is 200% of the targeted amount for that award.
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, 2019 | 77,098 | $ | 120.24 | ||||||||
| Granted* | 76,348 | 146.96 | |||||||||
| Nonvested, March 31, 2020 | 153,446 | 133.53 | |||||||||
| Granted* | 39,780 | 376.45 | |||||||||
| Vested** | (77,098) | (106.37) | |||||||||
| Nonvested, March 31, 2021 | 116,128 | 215.30 | |||||||||
| Granted* | 69,644 | 358.75 | |||||||||
| Vested** | (69,816) | (131.33) | |||||||||
| Forfeited | (12,924) | (239.81) | |||||||||
| Nonvested, March 31, 2022 | 103,032 | $ | 344.25 |
*The amounts granted are the maximum amounts under the terms of the applicable LTIP PSUs.
** The amounts vested include shares withheld for taxes that are not formally issued to the market.
Long-Term Incentive Plan Options. 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 provided continuous service, the LTIP NQSOs would vest after the Company had determined it achieved the target performance criteria by the date specified in the award. Each vested LTIP NQSO provides the recipient the right to purchase a specified number of shares of the Company’s common stock at a fixed exercise price per share based on the closing price of the common stock on the date of grant. As of March 31, 2020, the Company determined that the target performance criteria related to the 2018 LTIP NQSOs for the year ended March 31, 2020, were achieved. During the years ended March 31, 2022, 2021, and 2020, no LTIP NQSOs were granted.
F-34
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
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 | ||||||||||||||||||||
| Vested, March 31, 2019 | 361,383 | $ | 65.35 | 6.2 | $ | 29,504 | |||||||||||||||||
| Exercised | (58,444) | (61.86) | |||||||||||||||||||||
| Vested, March 31, 2020 | 302,939 | 66.02 | 5.0 | 20,594 | |||||||||||||||||||
| Exercised | (107,197) | (63.20) | |||||||||||||||||||||
| Vested, March 31, 2021 | 195,742 | 67.56 | 3.6 | 51,452 | |||||||||||||||||||
| Exercised* | (45,810) | (67.11) | |||||||||||||||||||||
| Vested, March 31, 2022 | 149,932 | $ | 67.70 | 2.6 | $ | 30,896 |
*The amounts exercised include shares withheld for taxes that are not formally issued to the market.
Grants to Directors. Each of the Company’s nonemployee directors is entitled to receive common stock with a total value of $150 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. Components of stock-based compensation recorded in the consolidated statements of comprehensive income were as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| RSUs | $ | 12,093 | $ | 7,820 | $ | 6,509 | |||||||||||
| PSUs | — | 1,900 | 2,851 | ||||||||||||||
| LTIP PSUs | 12,865 | 11,555 | 2,203 | ||||||||||||||
| LTIP NQSOs | — | — | 1,641 | ||||||||||||||
| Grants to Directors | 1,507 | 1,195 | 1,045 | ||||||||||||||
| Employee Stock Purchase Plan | 351 | 231 | 228 | ||||||||||||||
| Total stock-based compensation, pre-tax | 26,816 | 22,701 | 14,477 | ||||||||||||||
| Income tax benefit | (6,496) | (5,441) | (3,308) | ||||||||||||||
| Total stock-based compensation, net of tax | $ | 20,320 | $ | 17,260 | $ | 11,169 |
Employee Stock Purchase Plan. 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.
F-35
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Unrecognized Stock-Based Compensation. Total remaining unrecognized stock-based compensation as of March 31, 2022, 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 | Weighted-Average Remaining Vesting Period (Years) | ||||||||||
| RSUs | $ | 14,839 | 1.1 | ||||||||
| PSUs | 130 | 0.4 | |||||||||
| LTIP PSUs | 21,324 | 1.7 | |||||||||
| Total | $ | 36,293 |
Note 9. Derivative Instruments
As of March 31, 2022, and 2021, the Company has no outstanding derivative contracts, however, settled derivative contracts with notional values are as follows:
| Years Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Designated Derivative Contracts | $ | 110,430 | $ | 68,241 | |||||||
| Non-Designated Derivative Contracts | 38,659 | 18,909 | |||||||||
| Total | $ | 149,089 | $ | 87,150 |
The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects of unrealized gains or losses recorded in the consolidated statements of comprehensive income for changes in AOCL:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Gain (loss) recorded in Other comprehensive income | $ | 4,161 | $ | (1,223) | $ | 1,516 | |||||||||||
| Reclassifications from Accumulated other comprehensive loss into net sales | (4,161) | 1,223 | (1,516) | ||||||||||||||
| Total | $ | — | $ | — | $ | — |
The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the consolidated statements of comprehensive income:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Gain recorded in SG&A expenses | $ | 611 | $ | 267 | $ | 328 |
F-36
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Note 10. Stockholders’ Equity
Stock Repurchase Programs. In January 2019, the Company’s Board of Directors approved a stock repurchase program that authorized the Company to repurchase a total of up to $261,000 of its common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The Company’s Board of Directors approved an additional authorization of $750,000 during April 2021 for the Company to repurchase its common stock under the same conditions as the prior stock repurchase program (collectively, the stock repurchase programs). The Company’s stock repurchase programs do not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion. As of March 31, 2022, the aggregate remaining approved amount under the Company’s stock repurchase programs is $454,007.
Stock repurchase activity under the Company’s stock repurchase program was as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Total number of shares repurchased* | 1,043,554 | 307,080 | 1,296,201 | ||||||||||||||
| Average price paid per share | $ | 341.77 | $ | 322.87 | $ | 146.89 | |||||||||||
| Dollar value of shares repurchased** | $ | 356,653 | $ | 99,147 | $ | 190,405 |
*Any stock repurchases are made as part of publicly announced programs in open-market transactions.
** May not calculate on rounded dollars.
Subsequent to March 31, 2022, through May 5, 2022, the Company repurchased 176,046 shares for $47,997 at an average price of $272.64 per share and had $406,010 remaining authorized under the stock repurchase program. The Company’s stock repurchase program does not obligate it to acquire any particular amount of common stock and may be suspended at any time at the Company’s discretion.
Accumulated Other Comprehensive Loss. The components within AOCL recorded in the consolidated balance sheets are as follows:
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cumulative foreign currency translation loss | $ | (24,955) | $ | (16,743) | |||||||
| Total | $ | (24,955) | $ | (16,743) |
Note 11. Basic and Diluted Shares
The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Basic | 27,508,000 | 28,055,000 | 28,385,000 | ||||||||||||||
| Dilutive effect of equity awards | 281,000 | 351,000 | 309,000 | ||||||||||||||
| Diluted | 27,789,000 | 28,406,000 | 28,694,000 | ||||||||||||||
| Excluded | |||||||||||||||||
| RSUs and PSUs | 2,000 | 4,000 | 3,000 | ||||||||||||||
| LTIP PSUs | 66,000 | 116,000 | 153,000 | ||||||||||||||
| Deferred Non-Employee Director Equity Awards | 1,000 | 1,000 | — | ||||||||||||||
F-37
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
Excluded Awards. The equity awards excluded from the calculation of the dilutive effect have been 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 deemed issuable based on the Company's performance for the relevant performance period; or (3) the Company recorded a net loss during the period presented (such that inclusion of these equity awards in the calculation would have been antidilutive). 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 subject to the achievement of 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, and may be materially lower than the number of shares presented, which could result in a lower dilutive effect, respectively. Refer to Note 8, “Stock-Based Compensation,” for further information on the Company's equity incentive plans.
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 the Company’s 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.
Segment Net Sales and Income from Operations. 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 the Company’s warehouse and distribution centers, certain executive and stock-based compensation, accounting, finance, legal, IT, 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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net sales | |||||||||||||||||
| UGG brand wholesale | $ | 1,088,082 | $ | 871,799 | $ | 892,990 | |||||||||||
| HOKA brand wholesale | 628,674 | 405,243 | 277,097 | ||||||||||||||
| Teva brand wholesale | 129,094 | 105,928 | 119,108 | ||||||||||||||
| Sanuk brand wholesale | 30,316 | 26,566 | 39,463 | ||||||||||||||
| Other brands wholesale | 60,573 | 69,375 | 67,175 | ||||||||||||||
| Direct-to-Consumer | 1,213,600 | 1,066,730 | 736,856 | ||||||||||||||
| Total | $ | 3,150,339 | $ | 2,545,641 | $ | 2,132,689 |
F-38
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Income (loss) from operations | |||||||||||||||||
| UGG brand wholesale | $ | 315,240 | $ | 292,718 | $ | 303,908 | |||||||||||
| HOKA brand wholesale | 155,344 | 111,208 | 61,860 | ||||||||||||||
| Teva brand wholesale | 33,294 | 27,120 | 30,736 | ||||||||||||||
| Sanuk brand wholesale | 6,463 | (162) | 3,212 | ||||||||||||||
| Other brands wholesale | 14,028 | 21,573 | 16,087 | ||||||||||||||
| Direct-to-Consumer | 435,414 | 349,465 | 182,548 | ||||||||||||||
| Unallocated overhead costs | (395,076) | (297,717) | (260,216) | ||||||||||||||
| Total | $ | 564,707 | $ | 504,205 | $ | 338,135 | |||||||||||
| Depreciation, amortization, and accretion | |||||||||||||||||
| UGG brand wholesale | $ | 416 | $ | 532 | $ | 611 | |||||||||||
| HOKA brand wholesale | 701 | 611 | 612 | ||||||||||||||
| Teva brand wholesale | — | — | 1 | ||||||||||||||
| Sanuk brand wholesale | 1,490 | 1,727 | 2,361 | ||||||||||||||
| Other brands wholesale | 382 | 382 | 382 | ||||||||||||||
| Direct-to-Consumer | 9,771 | 11,121 | 10,586 | ||||||||||||||
| Unallocated overhead costs | 30,118 | 26,157 | 24,359 | ||||||||||||||
| Total | $ | 42,878 | $ | 40,530 | $ | 38,912 | |||||||||||
| Capital expenditures | |||||||||||||||||
| UGG brand wholesale | $ | 109 | $ | (31) | $ | 404 | |||||||||||
| HOKA brand wholesale | 1,191 | 56 | 331 | ||||||||||||||
| Sanuk brand wholesale | — | 8 | — | ||||||||||||||
| Other brands wholesale | — | 40 | 64 | ||||||||||||||
| Direct-to-Consumer | 11,872 | 11,175 | 7,886 | ||||||||||||||
| Unallocated overhead costs | 44,542 | 25,533 | 23,376 | ||||||||||||||
| Total | $ | 57,714 | $ | 36,781 | $ | 32,061 |
Segment Assets. Assets allocated to each reportable operating segment include trade accounts receivable, net, inventories, 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, | |||||||||||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| UGG brand wholesale | $ | 382,837 | $ | 212,277 | |||||||
| HOKA brand wholesale | 293,025 | 168,365 | |||||||||
| Teva brand wholesale | 91,140 | 87,284 | |||||||||
| Sanuk brand wholesale | 40,766 | 38,311 | |||||||||
| Other brands wholesale | 32,429 | 18,732 | |||||||||
| Direct-to-Consumer | 191,193 | 196,091 |
F-39
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share or share data)
| As of March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Total assets from reportable operating segments | 1,031,390 | 721,060 | |||||||||
| Unallocated cash and cash equivalents | 843,527 | 1,089,361 | |||||||||
| Unallocated deferred tax assets, net | 64,217 | 37,194 | |||||||||
| Unallocated other corporate assets | 393,116 | 320,090 | |||||||||
| Total | $ | 2,332,250 | $ | 2,167,705 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| International net sales | $ | 982,546 | $ | 784,164 | $ | 730,997 | |||||||||||
| % of net sales | 31.2 | % | 30.8 | % | 34.3 | % | |||||||||||
| Net sales in foreign currencies | $ | 744,213 | $ | 611,897 | $ | 587,233 | |||||||||||
| % of net sales | 23.6 | % | 24.0 | % | 27.5 | % | |||||||||||
| Ten largest customers as % of net sales | 27.4 | % | 27.8 | % | 28.0 | % |
For the years ended March 31, 2022, 2021, and 2020, 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, 2022, 2021, and 2020.
The Company sells its products to customers for trade accounts receivables and, as of March 31, 2022, has one customer that represents 11.2% of trade accounts receivable, net, compared to one customer that represents 12.8% of trade accounts receivable, net, as of March 31, 2021. 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 Company believes significant factors affecting the price of sheepskin include weather patterns, harvesting decisions, incidence of disease, the price of other commodities such as wool and leather, the demand for the Company's products and the products of its competitors, the use of substitute products or components, and global economic conditions.
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, | |||||||||||
| 2022 | 2021 | ||||||||||
| US | $ | 208,078 | $ | 194,833 | |||||||
| Foreign* | 14,371 | 11,377 | |||||||||
| Total | $ | 222,449 | $ | 206,210 |
*No single foreign country’s property and equipment, net, represents 10.0% or more of the Company’s total property and equipment, net, as of March 31, 2022, and 2021.
F-40
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended March 31, 2022, 2021, and 2020
(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 historically significantly exceeded the Company’s aggregate net sales in the quarter ending March 31st and June 30th. However, as the Company continues to take steps to diversify and expand its product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of the Company’s aggregate net sales, the Company expects the impact from seasonality to continue to decrease over time and the Company has begun to experience shifts during fiscal year 2022 for higher sales in the quarter ending March 31st. However, the Company’s seasonality has been impacted by supply chain challenges and it is unclear whether these impacts will be minimized or exaggerated in future periods as a result of these disruptions.
The following is summarized unaudited quarterly financial data for the last two fiscal years:
| Fiscal Year 2022 | |||||||||||||||||||||||
| Quarter Ended | |||||||||||||||||||||||
| 6/30/2021 | 9/30/2021 | 12/31/2021 | 3/31/2022 | ||||||||||||||||||||
| Net sales | $ | 504,678 | $ | 721,902 | $ | 1,187,752 | $ | 736,007 | |||||||||||||||
| Gross profit | 260,503 | 367,088 | 621,221 | 358,739 | |||||||||||||||||||
| Income from operations | 61,832 | 128,181 | 293,396 | 81,298 | |||||||||||||||||||
| Net income | 48,124 | 102,063 | 232,943 | 68,819 | |||||||||||||||||||
| Net income per share | |||||||||||||||||||||||
| Basic | $ | 1.73 | $ | 3.69 | $ | 8.49 | $ | 2.54 | |||||||||||||||
| Diluted | $ | 1.71 | $ | 3.66 | $ | 8.42 | $ | 2.51 |
| Fiscal Year 2021 | |||||||||||||||||||||||
| Quarter Ended | |||||||||||||||||||||||
| 6/30/2020 | 9/30/2020 | 12/31/2020 | 3/31/2021 | ||||||||||||||||||||
| Net sales | $ | 283,169 | $ | 623,525 | $ | 1,077,759 | $ | 561,188 | |||||||||||||||
| Gross profit | 142,566 | 318,977 | 613,897 | 298,650 | |||||||||||||||||||
| (Loss) income from operations | (7,699) | 128,604 | 328,655 | 54,645 | |||||||||||||||||||
| Net (loss) income | (7,973) | 101,554 | 255,536 | 33,458 | |||||||||||||||||||
| Net (loss) income per share | |||||||||||||||||||||||
| Basic | $ | (0.28) | $ | 3.62 | $ | 9.09 | $ | 1.19 | |||||||||||||||
| Diluted | $ | (0.28) | $ | 3.58 | $ | 8.99 | $ | 1.18 |
F-41
Schedule II
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
TOTAL VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Allowances for doubtful accounts, sales discounts, and chargebacks against gross trade accounts receivable related to wholesale channel sales recorded in the consolidated balance sheets are as follows:
| As of March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Allowance for doubtful accounts (1) | |||||||||||||||||
| Balance at Beginning of Year | $ | (9,730) | $ | (6,989) | $ | (5,073) | |||||||||||
| Additions | — | (3,052) | (3,498) | ||||||||||||||
| Deductions | 686 | 311 | 1,582 | ||||||||||||||
| Balance at End of Year | $ | (9,044) | $ | (9,730) | $ | (6,989) | |||||||||||
| Allowance for sales discounts (2) | |||||||||||||||||
| Balance at Beginning of Year | $ | (3,016) | $ | (1,030) | $ | (710) | |||||||||||
| Additions | (20,713) | (16,414) | (14,845) | ||||||||||||||
| Deductions | 20,898 | 14,428 | 14,525 | ||||||||||||||
| Balance at End of Year | $ | (2,831) | $ | (3,016) | $ | (1,030) | |||||||||||
| Allowance for chargebacks (3) | |||||||||||||||||
| Balance at Beginning of Year | $ | (13,770) | $ | (13,127) | $ | (13,041) | |||||||||||
| Additions | (32,062) | (23,214) | (13,399) | ||||||||||||||
| Deductions | 27,116 | 22,571 | 13,313 | ||||||||||||||
| Balance at End of Year | $ | (18,716) | $ | (13,770) | $ | (13,127) | |||||||||||
| Total | $ | (30,591) | $ | (26,516) | $ | (21,146) |
(1)The additions to the allowance for doubtful accounts represent estimates of the Company’s bad debt expense or recovery 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 amounts written off against outstanding 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 customers against outstanding trade accounts receivables.
(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.
F-42
Previous: Item 14. Principal Accounting Fees and Services