Item 1. FINANCIAL STATEMENTS

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

			September 30, 2021						March 31, 2021
ASSETS									(AUDITED)
Cash and cash equivalents			$	746,211					$	1,089,361
Trade accounts receivable, net of allowances ($28,962 and $26,516 as of September 30, 2021 and March 31, 2021, respectively)			370,361						215,718
Inventories, net of reserves ($20,699 and $19,632 as of September 30, 2021 and March 31, 2021, respectively)			636,270						278,242
Prepaid expenses			26,611						16,924
Other current assets			50,282						44,244
Income tax receivable			13,815						6,310
Total current assets			1,843,550						1,650,799
Property and equipment, net of accumulated depreciation ($272,523 and $266,905 as of September 30, 2021 and March 31, 2021, respectively)			223,687						206,210
Operating lease assets			190,611						186,991
Goodwill			13,990						13,990
Other intangible assets, net of accumulated amortization ($78,449 and $77,473 as of September 30, 2021 and March 31, 2021, respectively)			40,819						41,945
Deferred tax assets, net			39,580						37,194
Other assets			58,195						30,576
Total assets			$	2,410,432					$	2,167,705
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable			497,125						231,632
Accrued payroll			42,160						79,152
Operating lease liabilities			48,867						46,768
Other accrued expenses			70,658						68,995
Income taxes payable			17,191						36,920
Value added tax payable			6,962						4,901
Total current liabilities			682,963						468,368
Long-term operating lease liabilities			182,089						176,274
Income tax liability			56,332						60,094
Other long-term liabilities			25,302						18,744
Total long-term liabilities			263,723						255,112
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 27,567 and 27,910 as of September 30, 2021 and March 31, 2021, respectively)			276						279
Additional paid-in capital			206,770						203,310
Retained earnings			1,271,596						1,257,379
Accumulated other comprehensive loss			(14,896)						(16,743)
Total stockholders' equity			1,463,746						1,444,225
Total liabilities and stockholders' equity			$	2,410,432					$	2,167,705

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Net sales			$	721,902					$	623,525					$	1,226,580					$	906,694
Cost of sales			354,814						304,548						598,989						445,151
Gross profit			367,088						318,977						627,591						461,543
Selling, general, and administrative expenses			238,907						190,373						437,578						340,638
Income from operations			128,181						128,604						190,013						120,905
Interest income			(460)						(452)						(942)						(1,126)
Interest expense			913						1,205						1,809						2,395
Other expense (income), net			48						(113)						(185)						(256)
Total other expense, net			501						640						682						1,013
Income before income taxes			127,680						127,964						189,331						119,892
Income tax expense			25,617						26,410						39,144						26,311
Net income			102,063						101,554						150,187						93,581
Other comprehensive (loss) income
Unrealized gain (loss) on cash flow hedges, net of tax			1,033						(800)						2,491						(447)
Foreign currency translation (loss) gain			(2,537)						6,395						(644)						7,048
Total other comprehensive (loss) income			(1,504)						5,595						1,847						6,601
Comprehensive income			$	100,559					$	107,149					$	152,034					$	100,182
Net income per share
Basic			$	3.69					$	3.62					$	5.42					$	3.34
Diluted			$	3.66					$	3.58					$	5.37					$	3.30
Weighted-average common shares outstanding
Basic			27,651						28,046						27,731						28,024
Diluted			27,896						28,335						27,978						28,314

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

(amounts in thousands)

			Six Months Ended September 30, 2021
															Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
			Common Stock
			Shares						Amount
Balance, March 31, 2021			27,910						$	279					$	203,310					$	1,257,379					$	(16,743)					$	1,444,225
Stock-based compensation			1						—						5,469						—						—						5,469
Exercise of stock options			1						—						69						—						—						69
Shares withheld for taxes			—						—						(85)						—						—						(85)
Repurchases of common stock			(249)						(2)						—						(82,164)						—						(82,166)
Net income			—						—						—						48,124						—						48,124
Total other comprehensive income			—						—						—						—						3,351						3,351
Balance, June 30, 2021			27,663						277						208,763						1,223,339						(13,392)						1,418,987
Stock-based compensation			1						—						6,288						—						—						6,288
Shares issued upon vesting			36						—						914						—						—						914
Shares withheld for taxes			—						—						(9,195)						—						—						(9,195)
Repurchases of common stock			(133)						(1)						—						(53,806)						—						(53,807)
Net income			—						—						—						102,063						—						102,063
Total other comprehensive loss			—						—						—						—						(1,504)						(1,504)
Balance, September 30, 2021			27,567						$	276					$	206,770					$	1,271,596					$	(14,896)					$	1,463,746

			Six Months Ended September 30, 2020
															Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
			Common Stock
			Shares						Amount
Balance, March 31, 2020			27,999						$	280					$	191,451					$	973,948					$	(25,559)					$	1,140,120
Stock-based compensation			1						—						3,618						—						—						3,618
Shares issued upon vesting			1						—						—						—						—						—
Exercise of stock options			4						—						247						—						—						247
Shares withheld for taxes			—						—						(90)						—						—						(90)
Net loss			—						—						—						(7,973)						—						(7,973)
Total other comprehensive income			—						—						—						—						1,006						1,006
Balance, June 30, 2020			28,005						280						195,226						965,975						(24,553)						1,136,928
Stock-based compensation			1						—						4,019						—						—						4,019
Shares issued upon vesting			60						1						697						—						—						698
Exercise of stock options			16						—						1,134						—						—						1,134
Shares withheld for taxes			—						—						(6,964)						—						—						(6,964)
Net income			—						—						—						101,554						—						101,554
Total other comprehensive income			—						—						—						—						5,595						5,595
Balance, September 30, 2020			28,082						$	281					$	194,112					$	1,067,529					$	(18,958)					$	1,242,964

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

			Six Months Ended September 30,
			2021						2020
OPERATING ACTIVITIES
Net income			$	150,187					$	93,581
Reconciliation of net income to net cash used in by operating activities:
Depreciation, amortization, and accretion			19,931						19,499
Amortization on cloud computing arrangements			767						204
Bad debt (benefit) expense			(10)						7,163
Deferred tax (benefit) expense			(3,239)						1,503
Stock-based compensation			11,792						7,635
Loss on disposal of long lived assets			23						135
Impairment of operating lease assets and leasehold improvements			—						2,680
Gain on settlement of asset retirement obligations			—						(165)
Changes in operating assets and liabilities:
Trade accounts receivable, net			(154,633)						(147,832)
Inventories, net			(358,028)						(172,518)
Prepaid expenses and other current assets			(10,942)						(12,012)
Income tax receivable			(7,505)						(3,205)
Net operating lease assets and lease liabilities			5,947						(3,385)
Other assets			(28,387)						(2,417)
Trade accounts payable			256,028						162,289
Other accrued expenses			(37,673)						11,434
Income taxes payable			(19,729)						20,607
Other long-term liabilities			2,797						(1,157)
Net cash used in operating activities			(172,674)						(15,961)
INVESTING ACTIVITIES
Purchases of property and equipment			(26,719)						(13,333)
Proceeds from sales of property and equipment			—						49
Net cash used in investing activities			(26,719)						(13,284)
FINANCING ACTIVITIES
Proceeds from short-term borrowings			—						9,100
Proceeds from issuance of stock			914						698
Proceeds from exercise of stock options			69						1,381
Repurchases of common stock			(135,973)						—
Cash paid for shares withheld for taxes			(9,280)						(7,054)
Repayments of mortgage principal			—						(309)
Net cash (used in) provided by financing activities			(144,270)						3,816
Effect of foreign currency exchange rates on cash and cash equivalents			513						2,407
Net change in cash and cash equivalents			(343,150)						(23,022)
Cash and cash equivalents at beginning of period			1,089,361						649,436
Cash and cash equivalents at end of period			$	746,211					$	626,414

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

(continued)

			Six Months Ended September 30,
			2021						2020
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period
Income taxes, net of refunds of $71 and $1,292, as of September 30, 2021 and 2020, respectively			$	74,312					$	11,764
Interest			936						1,505
Operating leases			28,470						28,911
Non-cash investing activities
Accrued for purchases of property and equipment			5,959						3,598
Accrued for asset retirement obligations			3,505						323
Leasehold improvements acquired through tenant allowances			4,061						—

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

Note 1. General

The Company. Deckers Outdoor Corporation and its wholly owned subsidiaries (collectively, the Company) are global leaders in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. As part of its omni-channel platform, the Company's proprietary brands are aligned across its Fashion Lifestyle group, which includes the UGG and Koolaburra brands, and Performance Lifestyle group, which includes 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 variation in its results from quarter to quarter.

Basis of Presentation. The unaudited condensed consolidated financial statements and accompanying notes thereto (referred to herein as condensed consolidated financial statements) as of September 30, 2021 and for the three and six months ended September 30, 2021 and 2020 are prepared in accordance with generally accepted accounting principles in the United States (US GAAP) for interim financial information pursuant to Rule 10-01 of Regulation S-X issued by the SEC. Accordingly, the condensed consolidated financial statements do not include all the information and disclosures required by US GAAP for annual financial statements and accompanying notes thereto. The condensed consolidated balance sheet as of March 31, 2021 is derived from the Company's audited condensed consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all normal and recurring entries necessary to fairly present the results of the interim periods presented but are not necessarily indicative of actual results to be achieved for full fiscal years or other interim periods. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (prior fiscal year), which was filed with the SEC on May 28, 2021 (2021 Annual Report).

Consolidation. The condensed consolidated financial statements include the accounts of Deckers Outdoor Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications. Certain amounts from prior periods presented in the condensed consolidated statements of cash flows have been reclassified within net cash (used in) provided by operating activities to conform to the current period presentation, which had no net effect on our cash flows from operating activities. The prior periods presented generally include reclassifications between the following: Other long-term liabilities to Gain on settlement of asset retirement obligations and from Other assets to Amortization on cloud computing arrangements.

Use of Estimates. The preparation of the Company's condensed 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 condensed consolidated financial statements may be materially affected.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

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, such as allowances for doubtful accounts, sales discounts, and chargebacks; estimated sales return liability; contract assets and liabilities; inventory valuations and related reserves; stock-based compensation; impairment assessments, including valuations for goodwill, other intangible assets, and long-lived assets, as well as operating lease assets and lease liabilities; 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.

Reportable Operating Segments. The Company's six reportable operating segments include the worldwide wholesale operations for each 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 11, “Reportable Operating Segments,” for further information on the Company's reportable operating segments.

Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standard Updates (ASUs) that have been recently 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 recently adopted by and its impact on the Company:

Standard						Description						Impact Upon 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 condensed 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 Upon 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 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; however, the Company does not expect that the adoption will have a material impact on its condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

Note 2. 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.

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.

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.

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.

Activity during the six months ended September 30, 2021 related to estimated sales returns is as follows:

			Recovery Asset						Refund Liability
Balance, March 31, 2021			$	10,704					$	(37,717)
Net additions to sales return allowance*			11,861						(46,731)
Actual returns			(14,348)						58,532
Balance, September 30, 2021			$	8,217					$	(25,916)

Activity during the six months ended September 30, 2020 related to estimated sales returns is as follows:

			Recovery Asset						Refund Liability
Balance, March 31, 2020			$	9,663					$	(25,667)
Net additions to sales return allowance*			17,984						(59,811)
Actual returns			(16,386)						51,685
Balance, September 30, 2020			$	11,261					$	(33,793)

***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 condensed 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. As of September 30, 2021 and March 31, 2021, the Company's contract liability for loyalty programs is $11,380 and $12,231, respectively.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

Deferred Revenue. Deferred revenue results when customer cash payments are received prior to transfer of control of ordered product, which occurs either when shipped or delivered in accordance with the contractual terms. These cash payments include amounts which are refundable. The Company recognizes deferred revenue into net sales in its wholesale channel. As of September 30, 2021 and March 31, 2021, the Company's contract liability for deferred revenue is $21,334 and $5,425, respectively.

Refer to Note 11, “Reportable Operating Segments,” for further information on the Company's disaggregation of revenue by reportable operating segment.

Note 3. Fair Value Measurements

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

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

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

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

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

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

									Measured Using
			September 30, 2021			Level 1						Level 2						Level 3
Non-qualified deferred compensation asset			$	9,493					$	9,493					$	—					$	—
Non-qualified deferred compensation liability			(9,663)						(9,663)						—						—
Designated Derivative Contracts asset			3,286						—						3,286						—
Non-Designated Derivative Contracts asset			749						—						749						—

									Measured Using
			March 31, 2021			Level 1						Level 2						Level 3
Non-qualified deferred compensation asset			$	9,107					$	9,107					$	—					$	—
Non-qualified deferred compensation liability			(6,692)						(6,692)						—						—

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

The Company sponsors a non-qualified deferred compensation plan that permits a select group of management employees to defer earnings to a future date on a non-qualified basis. 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. As of September 30, 2021, the non-qualified deferred compensation asset of $9,493 is recorded in other assets in the condensed consolidated balance sheets. As of September 30, 2021, the non-qualified deferred compensation liability of $9,663 is recorded in the condensed consolidated balance sheets, with $725 in other accrued expenses and $8,938 in other long-term liabilities.

The fair value of foreign currency forward or option contracts are determined using quoted forward spot rates at the end of the applicable reporting period from counterparties, which are corroborated by market-based pricing (Level 2). The fair values of assets and liabilities associated with derivative instruments and hedging activities are recorded in other current assets and other accrued expenses, respectively, in the condensed consolidated balance sheets. Refer to Note 8, “Derivative Instruments,” for further information, including definitions of the terms Designated Derivative Contracts and Non-Designated Derivative Contracts.

Note 4. Income Taxes

Income tax expense and the effective income tax rate were as follows:

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Income tax expense			$	25,617					$	26,410					$	39,144					$	26,311
Effective income tax rate			20.1		%				20.6		%				20.7		%				21.9		%

The tax provisions during the three and six months ended September 30, 2021 and 2020 were computed using the estimated effective income tax rate applicable to each of the domestic and foreign taxable jurisdictions for the fiscal year ending March 31, 2022 and were adjusted for discrete items that occurred within the periods presented above.

During the three months ended September 30, 2021, the decrease in the effective income tax rate, compared to the prior period, was primarily due to lower income from operations, as well as changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022, partially offset by lower net discrete tax benefits, primarily driven by increased reserves net of additional tax deductions for stock-based compensation recorded in the current period.

During the six months ended September 30, 2021, the decrease in the effective income tax rate, compared to the prior period, was primarily due to higher net discrete tax benefits related to increased tax deductions for stock-based compensation recorded in the current period, as well as changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022, partially offset by additional return to provision adjustments.

Note 5. Revolving Credit Facilities

Primary Credit Facility. In September 2018, the Company entered into a credit agreement (as amended, the Primary Credit Facility) that provides for a five-year, $400,000 unsecured revolving credit facility, contains a $25,000 sublimit for the issuance of letters of credit, and matures on September 20, 2023.

At the Company's election, interest under the Primary Credit Facility is tied to the adjusted LIBOR or the alternate base rate (ABR). Interest for borrowings made in foreign currencies is based on currency-specific LIBOR or the Canadian deposit offered rate (CDOR) if made in Canadian dollars. As of September 30, 2021, the effective interest rates for US dollar LIBOR and ABR are 1.21% and 3.38%, respectively.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

During the six months ended September 30, 2021, the Company made no borrowings or repayments under the Primary Credit Facility. As of September 30, 2021, the Company has no outstanding balance, outstanding letters of credit of $549, and available borrowings of $399,451 under the Primary Credit Facility.

China Credit Facility. In August 2013, Deckers (Beijing) Trading Co., Ltd., 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 $46,445, with an overdraft facility sublimit of CNY100,000, or $15,482.

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 (PBOC) market rate multiplied by a variable liquidity factor. As of September 30, 2021, the effective interest rate is 4.15%.

During the six months ended September 30, 2021, the Company made no borrowings or repayments under the China Credit Facility. As of September 30, 2021, the Company has no outstanding balance, outstanding bank guarantees of $31, and available borrowings of $46,414 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 $26,854, 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. Interest is based on the Tokyo Interbank Offered Rate (TIBOR) plus 0.40%. As of September 30, 2021, the effective interest rate is 0.48%.

During the six months ended September 30, 2021, the Company made no borrowings or repayments under the Japan Credit Facility. As of September 30, 2021, the Company has no outstanding balance and available borrowings of $26,854 under the Japan Credit Facility.

Debt Covenants. As of September 30, 2021, the Company is in compliance with all financial covenants under the credit facilities.

Note 6. Commitments and Contingencies

Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts. Some of the Company's operating leases contain extension options between one and 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.

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

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*			$	12,930					$	3,378					$	26,294					$	5,869
Reductions to operating lease assets for reductions to lease liabilities*			(243)						(476)						(624)						(2,413)

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

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

Litigation. From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on it 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.

On March 28, 2016, the Company filed a lawsuit alleging trademark infringement, patent infringement, unfair competition and violation of deceptive trade practices in the US District Court for the Northern District of Illinois Eastern Division (District Court) against Australian Leather. Australian Leather counterclaimed alleging that the UGG brand trademark is invalid. On May 10, 2019, a jury returned a verdict in the Company's favor in its lawsuit against Australian Leather. The District Court entered judgments upholding the UGG brand trademark on February 6 and June 8, 2020. On August 12, 2020, Australian Leather filed an appeal to the US Court of Appeals for the Federal Circuit (Court of Appeals). On May 7, 2021, the Court of Appeals affirmed the District Court’s ruling dismissing Australian Leather’s affirmative defenses and counterclaims and upholding the UGG brand trademark. On October 4, 2021, Australian Leather filed a petition for writ of certiorari asking the US Supreme Court to review the decision of the Court of Appeals.

Note 7. Stock-Based Compensation

From time to time, the Company grants various types of stock-based compensation under the 2015 Stock Incentive Plan, as amended (2015 SIP), including time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs), stock appreciation rights, and non-qualified stock options (NQSOs). The Company typically makes annual grants of RSUs (Annual RSUs) and PSUs (Annual PSUs), as well as long-term incentive plan (LTIP) awards, to key personnel, including employees and directors. During the six months ended September 30, 2021, except for the Annual RSU and LTIP PSU grant activity summarized below, no additional awards were granted under the 2015 SIP.

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

						Six Months Ended September 30,
						2021												2020
						Shares Granted						Weighted-average grant date fair value per share						Shares Granted						Weighted-average grant date fair value per share
Annual RSUs						37,764						$	386.69					34,211						$	200.83

Stock-based compensation is recorded net of estimated forfeitures in selling, general, and administrative (SG&A) expenses in the condensed consolidated statements of comprehensive income. The Annual RSUs typically vest in equal annual installments over three years following the date of grant. The Annual PSUs are typically earned based on 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 are met, vest in equal annual installments over three years thereafter. Future unrecognized stock-based compensation expense for Annual RSUs and Annual PSUs outstanding as of September 30, 2021 is $17,361.

Long-Term Incentive Plan Awards. In July and August 2021, the Company approved awards under the 2015 SIP for the issuance of PSUs (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. The Company must meet certain revenue and pre-tax income performance targets individually over three reporting periods for the fiscal years ending March 31, 2022, 2023, and 2024 (collectively, the Measurement Periods) and incorporates a relative total stockholder return (TSR) modifier for the 36-month period (commencing April 1, 2021) ending March 31, 2024 (collectively, the

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

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 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 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 Performance Periods. A Monte-Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company and each member of the peer group over the Performance Periods.

The Company granted awards at the target performance level of 26,347 2022 LTIP PSUs during the three months ended September 30, 2021. The weighted-average grant date fair value per share of these 2022 LTIP PSUs was $435.94. Based on the Company's current long-range forecast, the Company determined that the achievement of at least the target performance criteria for these awards was probable as of the grant date.

Future unrecognized stock-based compensation expense for the target level of all LTIP PSUs outstanding as of September 30, 2021, including the 2022 LTIP PSUs discussed above, the 19,890 2021 LTIP PSUs issued in March 2021, and the 38,174 2020 LTIP PSUs issued in September 2019, is $20,351.

Refer to Note 8, “Stock-Based Compensation,” of our consolidated financial statements in Part IV of our 2021 Annual Report for further information on previously granted awards under the 2015 SIP.

Note 8. Derivative Instruments

The Company may enter into foreign currency forward or option contracts (derivative contracts), generally with maturities of 15 months or less, to manage foreign currency risk on expected cash flows and certain existing assets and liabilities, primarily intercompany balances. 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 after-tax unrealized gains or losses from changes in the fair value of Designated Derivative Contracts are recorded as a component of accumulated other comprehensive loss (AOCL) and are reclassified to net sales in the condensed consolidated statements of comprehensive income in the same period or periods as the related sales are recognized. 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 condensed 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 condensed consolidated statements of comprehensive income.

As of September 30, 2021, the Company has the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:

			Designated Derivative Contracts						Non-Designated Derivative Contracts						Total
Notional value			$	76,266					$	28,395					$	104,661
Fair value recorded in other current assets			3,286						749						4,035

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

As of September 30, 2021, the Company's outstanding derivative contracts are held by an aggregate of four counterparties, all with various maturity dates within the next six months. As of March 31, 2021, the Company has no outstanding derivative contracts.

The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects recorded in the condensed consolidated statements of comprehensive income for changes in AOCL:

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Gain (loss) recorded in Other comprehensive income			$	2,125					$	(1,173)					$	4,049					$	(709)
Reclassifications from Accumulated other comprehensive loss into net sales			(762)						121						(762)						121
Income tax (expense) benefit in Other comprehensive income			(330)						252						(796)						141
Total			$	1,033					$	(800)					$	2,491					$	(447)

The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the condensed consolidated statements of comprehensive income:

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Gain recorded in SG&A expenses			$	413					$	42					$	748					$	42

The non-performance risk of the Company and the counterparties did not have a material impact on the fair value of its derivative contracts. As of September 30, 2021, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next six months. Refer to Note 9, “Stockholders' Equity,” for further information on the components of AOCL.

Note 9. Stockholders' Equity

Stock Repurchase Programs. The Company's Board of Directors has authorized various stock repurchase programs pursuant to which the Company may repurchase shares of its common stock, and, during April 2021, approved an additional authorization of $750,000 to repurchase the Company's common stock under the same conditions as the prior stock repurchase program (collectively, stock repurchase programs). The Company's stock repurchase programs do not obligate it to acquire any amount of common stock and may be suspended at any time at the Company's discretion. As of September 30, 2021, the aggregate remaining approved amount under the Company's stock repurchase programs is $674,687.

Stock repurchase activity under these programs for the six months ended September 30, 2021 was as follows:

			Amounts
Total number of shares repurchased*			381,861
Average price paid per share			$	356.08
Dollar value of shares repurchased			$	135,973

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

Subsequent to September 30, 2021 through October 21, 2021, the Company repurchased 130,517 shares for $46,684 at an average price of $357.69 per share, and has $628,003 remaining authorized under the stock repurchase programs.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

Accumulated Other Comprehensive Loss. The components within AOCL recorded in the condensed consolidated balance sheets are as follows:

			September 30, 2021						March 31, 2021
Unrealized gain on cash flow hedges, net of tax			$	2,491					$	—
Cumulative foreign currency translation loss			(17,387)						(16,743)
Total			$	(14,896)					$	(16,743)

Note 10. Basic and Diluted Shares

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

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Basic			27,651,000						28,046,000						27,731,000						28,024,000
Dilutive effect of equity awards			245,000						289,000						247,000						290,000
Diluted			27,896,000						28,335,000						27,978,000						28,314,000
Excluded
Annual RSUs and Annual PSUs			2,000						—						10,000						23,000
LTIP PSUs			145,000						153,000						145,000						153,000
Deferred Non-Employee Director Equity Awards			—						—						—						3,000

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 anti-dilutive). 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.

Note 11. Reportable Operating Segments

Information reported to the Chief Operating Decision Maker (CODM), who is the Company's Chief Executive Officer (CEO), President, and Principal Executive Officer (PEO), 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.

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 (DC), certain executive and stock-based compensation, accounting,

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

finance, legal, information technology, human resources, and facilities, among others. Inter-segment sales between the Company’s wholesale and the DTC reportable operating segments are at the Company’s cost, and there is no inter-segment net sales nor income (loss) from operations within the respective reportable operating segments results as these transactions are eliminated in consolidation.

Reportable operating segment information, with a reconciliation to the condensed consolidated statements of comprehensive income, was as follows:

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Net sales
UGG brand wholesale			$	348,776					$	291,994					$	483,832					$	335,422
HOKA brand wholesale			146,980						108,117						298,127						178,736
Teva brand wholesale			19,211						17,746						62,570						39,157
Sanuk brand wholesale			7,020						6,085						17,402						13,313
Other brands wholesale			23,253						27,672						27,559						28,307
Direct-to-Consumer			176,662						171,911						337,090						311,759
Total			$	721,902					$	623,525					$	1,226,580					$	906,694

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
Income (loss) from operations
UGG brand wholesale			$	121,701					$	106,726					$	157,539					$	102,991
HOKA brand wholesale			43,294						33,826						89,657						51,061
Teva brand wholesale			4,908						4,762						19,411						8,964
Sanuk brand wholesale			1,523						1,139						4,927						1,627
Other brands wholesale			8,158						9,869						10,865						8,599
Direct-to-Consumer			38,734						43,284						78,417						74,311
Unallocated overhead costs			(90,137)						(71,002)						(170,803)						(126,648)
Total			$	128,181					$	128,604					$	190,013					$	120,905

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

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

			September 30, 2021						March 31, 2021
Assets
UGG brand wholesale			$	736,080					$	212,277
HOKA brand wholesale			171,783						168,365
Teva brand wholesale			43,390						87,284
Sanuk brand wholesale			33,437						38,311

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended September 30, 2021 and 2020

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

			September 30, 2021						March 31, 2021
Other brands wholesale			50,932						18,732
Direct-to-Consumer			197,227						196,091
Total assets from reportable operating segments			1,232,849						721,060
Unallocated cash and cash equivalents			746,211						1,089,361
Unallocated deferred tax assets, net			39,580						37,194
Unallocated other corporate assets			391,792						320,090
Total			$	2,410,432					$	2,167,705

Note 12. 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:

			Three Months Ended September 30,												Six Months Ended September 30,
			2021						2020						2021						2020
International net sales			$	207,267					$	196,113					$	375,886					$	294,982
% of net sales			28.7		%				31.5		%				30.6		%				32.5		%
Net sales in foreign currencies			$	158,548					$	156,671					$	247,981					$	212,354
% of net sales			22.0		%				25.1		%				20.2		%				23.4		%
Ten largest customers as % of net sales			35.5		%				31.9		%				31.6		%				27.3		%

For the three and six months ended September 30, 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 three and six months ended September 30, 2021 and 2020. The Company sells its products to customers for trade accounts receivable and, as of September 30, 2021 and March 31, 2021, has one customer that was 12.5% and 12.8%, respectively, of trade accounts receivable, net. Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and recognizes an allowance for doubtful accounts based on these evaluations.

Suppliers. The Company's production is concentrated at a limited number of independent manufacturing factories, primarily in Asia. Sheepskin is the principal raw material for certain UGG brand products and most of the Company's sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the United Kingdom (UK). 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 condensed consolidated balance sheets, are as follows:

			September 30, 2021						March 31, 2021
US			$	212,017					$	194,833
Foreign*			11,670						11,377
Total			$	223,687					$	206,210

*No single foreign country’s property and equipment, net, represented 10.0% or more of the Company’s total property and equipment, net, as of September 30, 2021 and March 31, 2021.

Table of Contents