Form 10-Q DECKERS OUTDOOR CORP For: Dec 31

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February 7, 2022 11:25 AM EST
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2021
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-36436

DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)

Delaware95-3015862
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

250 Coromar Drive, Goleta, California 93117
(Address of principal executive offices and zip code)
(805) 967-7611
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per shareDECKNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of the close of business on January 20, 2022, the number of outstanding shares of the registrant's common stock, par value $0.01 per share, was 27,241,283.


DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three and Nine Months Ended December 31, 2021
TABLE OF CONTENTS

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.Defaults Upon Senior Securities*
Item 4.Mine Safety Disclosures*
Item 5.Other Information*
Item 6.

*Not applicable.

1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for our third fiscal quarter ended December 31, 2021 (Quarterly Report), and the information and documents incorporated by reference within this Quarterly Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements other than statements of historical fact contained in, or incorporated by reference within, this Quarterly Report. We have attempted to identify forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” or “would,” and similar expressions or the negative of these expressions. Specifically, this Quarterly Report, and the information and documents incorporated by reference within this Quarterly Report, contain forward-looking statements relating to, among other things:

•the impacts of the COVID-19 global pandemic on our business, financial condition, results of operations and liquidity, and the business, financial condition, results of operations and liquidity of our customers, suppliers, and business partners;
•changes to our business resulting from changes in discretionary spending, consumer confidence, unemployment rates, retail store activity, tourist activity, and governmental restrictions;
•the impact of government orders, local authority mandates and expert agency guidance on retail store closures and operating restrictions;
•our business, operating, investing, capital allocation, marketing, and financing plans and strategies;
•the expansion of our brands and product offerings;
•changes to the geographic and seasonal mix of our brands and products;
•changes to our product distribution strategies, including the implementation of our product allocation and segmentation strategies;
•changes in consumer preferences impacting our brands and products, and the footwear and fashion industries;
•trends impacting the purchasing behavior of wholesale partners and consumers, including those impacting retail and e-commerce businesses;
•bankruptcies or other financial difficulties impacting our wholesale or other business partners;
•the impact of seasonality and weather on consumer behavior, demand for our products, and our results of operations;
•the impact of our efforts to continue to advance sustainable and socially conscious business operations, and the expectations and standards that our investors and other stakeholders have with respect to our environmental, social and governance practices;
•expansion of and investments in our Direct-to-Consumer capabilities, including our distribution facilities and e-commerce platforms;
•the operational challenges faced by our warehouse and distribution centers, our wholesale customers, our global third-party logistics providers, and third-party carriers, including as a result of global supply chain disruptions and labor shortages, and the related impacts on our ability to timely deliver products;
•availability of raw materials and manufacturing capacity, and reliability of overseas production and storage;
•inflationary pressures, including on employee wages and our raw material costs;
•commitments and contingencies, including with respect to operating leases, purchase obligations for product and raw materials, and legal or regulatory proceedings;
•the impacts of new or proposed legislation, tariffs, regulatory enforcement actions, or legal proceedings;
•the value of goodwill and other intangible assets, and potential write-downs or impairment charges;
•changes impacting our tax liability and effective tax rates;
•repatriation of earnings of non-United States (US) subsidiaries and any related tax impacts;
•the impact of the adoption of recent accounting pronouncements; and
•overall global economic, political, and social trends, including foreign currency exchange rate fluctuations, changes in interest rates, and changes in commodity pricing.

Forward-looking statements represent management’s current expectations and predictions about trends affecting our business and industry and are based on information available at the time such statements are made. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy or completeness. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements predicted, assumed, or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results to materially differ from those expressed or implied by these forward-looking statements are described in Part II, Item 1A, "Risk Factors," and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," within this Quarterly Report, as well as in our other filings with the Securities and Exchange Commission (SEC). You should read this Quarterly Report, including the information and documents incorporated by reference herein, in its entirety and with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. Moreover, new risks and uncertainties emerge from time to time and it is not possible for management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual future results to be materially different from any results expressed or implied by any forward-looking statements. Except as required by applicable law or the listing rules of the New York Stock Exchange, we expressly disclaim any intent or obligation to update any forward-looking statements. We qualify all our forward-looking statements with these cautionary statements.
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PART I. FINANCIAL INFORMATION

References within this Quarterly Report to "Deckers," "we," "our," "us," "management," or the "Company" refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA® (HOKA), Teva® (Teva), Sanuk® (Sanuk), and Koolaburra® (Koolaburra) are some of the Company's trademarks. Other trademarks or trade names appearing elsewhere within this Quarterly Report are the property of their respective owners. Solely for convenience, the trademarks and trade names within this Quarterly Report are referred to without the ® and ™ symbols, but such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Unless otherwise indicated, all dollar amounts herein are expressed in thousands, except for per share or share data.

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ITEM 1. FINANCIAL STATEMENTS

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollar and share data amounts in thousands, except par value)

December 31, 2021March 31, 2021
ASSETS(AUDITED)
Cash and cash equivalents$998,261 $1,089,361 
Trade accounts receivable, net of allowances ($40,965 and $26,516 as of December 31, 2021 and March 31, 2021, respectively)
334,541 215,718 
Inventories550,749 278,242 
Prepaid expenses28,231 16,924 
Other current assets68,773 44,244 
Income tax receivable14,052 6,310 
Total current assets1,994,607 1,650,799 
Property and equipment, net of accumulated depreciation ($278,877 and $266,905 as of December 31, 2021 and March 31, 2021, respectively)
221,013 206,210 
Operating lease assets180,073 186,991 
Goodwill13,990 13,990 
Other intangible assets, net of accumulated amortization ($78,745 and $77,473 as of December 31, 2021 and March 31, 2021, respectively)
40,252 41,945 
Deferred tax assets, net40,881 37,194 
Other assets56,752 30,576 
Total assets$2,547,568 $2,167,705 
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable$482,059 $231,632 
Accrued payroll49,866 79,152 
Operating lease liabilities48,290 46,768 
Other accrued expenses100,605 68,995 
Income tax payable26,769 36,920 
Value added tax payable20,341 4,901 
Total current liabilities727,930 468,368 
Long-term operating lease liabilities171,314 176,274 
Income tax liability58,029 60,094 
Other long-term liabilities25,553 18,744 
Total long-term liabilities254,896 255,112 
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 27,243 and 27,910 as of December 31, 2021 and March 31, 2021, respectively)
272 279 
Additional paid-in capital209,795 203,310 
Retained earnings1,373,832 1,257,379 
Accumulated other comprehensive loss(19,157)(16,743)
Total stockholders' equity1,564,742 1,444,225 
Total liabilities and stockholders' equity$2,547,568 $2,167,705 

See accompanying notes to the condensed consolidated financial statements.
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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 December 31,Nine Months Ended December 31,
2021202020212020
Net sales$1,187,752 $1,077,759 $2,414,332 $1,984,453 
Cost of sales566,531 463,862 1,165,520 909,013 
Gross profit621,221 613,897 1,248,812 1,075,440 
Selling, general, and administrative expenses327,825 285,242 765,403 625,880 
Income from operations293,396 328,655 483,409 449,560 
Interest income(369)(593)(1,311)(1,719)
Interest expense999 959 2,808 3,354 
Other income, net(191)(267)(376)(523)
Total other expense, net439 99 1,121 1,112 
Income before income taxes292,957 328,556 482,288 448,448 
Income tax expense60,014 73,020 99,158 99,331 
Net income232,943 255,536 383,130 349,117 
Other comprehensive (loss) income
Unrealized (loss) gain on cash flow hedges, net of tax(1,517)(279)974 (726)
Foreign currency translation (loss) gain(2,744)7,947 (3,388)14,995 
Total other comprehensive (loss) income(4,261)7,668 (2,414)14,269 
Comprehensive income$228,682 $263,204 $380,716 $363,386 
Net income per share
Basic$8.49 $9.09 $13.87 $12.44 
Diluted$8.42 $8.99 $13.73 $12.30 
Weighted-average common shares outstanding
Basic27,428 28,114 27,630 28,054 
Diluted27,663 28,410 27,904 28,375 

See accompanying notes to the condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(amounts in thousands)
Nine Months Ended December 31, 2021
Additional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders'
Equity
Common Stock
SharesAmount
Balance, March 31, 202127,910 $279 $203,310 $1,257,379 $(16,743)$1,444,225 
Stock-based compensation1 — 5,469 — — 5,469 
Exercise of stock options1 — 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, 202127,663 277 208,763 1,223,339 (13,392)1,418,987 
Stock-based compensation1 — 6,288 — — 6,288 
Shares issued upon vesting36 — 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, 202127,567 276 206,770 1,271,596 (14,896)1,463,746 
Stock-based compensation— — 6,386 — — 6,386 
Shares issued upon vesting2 — — — — — 
Exercise of stock options28 — 1,135 — — 1,135 
Shares withheld for taxes— — (4,496)— — (4,496)
Repurchases of common stock(354)(4)— (130,707)— (130,711)
Net income— — — 232,943 — 232,943 
Total other comprehensive loss— — — — (4,261)(4,261)
Balance, December 31, 202127,243 $272 $209,795 $1,373,832 $(19,157)$1,564,742 

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(amounts in thousands)
(continued)
Nine Months Ended December 31, 2020
Additional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders'
Equity
Common Stock
SharesAmount
Balance, March 31, 202027,999 $280 $191,451 $973,948 $(25,559)$1,140,120 
Stock-based compensation 1 — 3,618 — — 3,618 
Shares issued upon vesting1 — — — — — 
Exercise of stock options4 — 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, 202028,005 280 195,226 965,975 (24,553)1,136,928 
Stock-based compensation 1 — 4,019 — — 4,019 
Shares issued upon vesting60 1 697 — — 698 
Exercise of stock options16 — 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, 202028,082 281 194,112 1,067,529 (18,958)1,242,964 
Stock-based compensation 1 — 9,900 — — 9,900 
Shares issued upon vesting1 — — — — — 
Exercise of stock options68 1 4,201 — — 4,202 
Shares withheld for taxes— — (149)— — (149)
Net income— — — 255,536 — 255,536 
Total other comprehensive income— — — — 7,668 7,668 
Balance, December 31, 202028,152 $282 $208,064 $1,323,065 $(11,290)$1,520,121 

See accompanying notes to the condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Nine Months Ended December 31,
20212020
OPERATING ACTIVITIES
Net income$383,130 $349,117 
Reconciliation of net income to net cash used in by operating activities:
Depreciation, amortization, and accretion31,202 30,637 
Amortization on cloud computing arrangements1,154 420 
Bad debt (benefit) expense(254)6,392 
Deferred tax (benefit) expense(4,263)1,859 
Stock-based compensation18,281 17,559 
Loss on disposal of long-lived assets 37 259 
Impairment of operating lease and other long-lived assets3,186 4,060 
Gain on settlement of asset retirement obligations— (207)
Changes in operating assets and liabilities:
Trade accounts receivable, net(118,568)(133,708)
Inventories(272,508)6,321 
Prepaid expenses and other current assets(33,936)(32,387)
Income tax receivable(7,743)(2,305)
Net operating lease assets and lease liabilities2,643 1,652 
Other assets(27,331)(3,023)
Trade accounts payable246,964 152,797 
Other accrued expenses10,782 75,658 
Income tax payable(10,151)45,843 
Other long-term liabilities4,745 1,318 
Net cash provided by operating activities227,370 522,262 
INVESTING ACTIVITIES
Purchases of property and equipment(41,315)(21,300)
Proceeds from sales of property and equipment— 49 
Net cash used in investing activities(41,315)(21,251)
FINANCING ACTIVITIES
Proceeds from short-term borrowings— 9,100 
Repayments of short-term borrowings— (9,478)
Proceeds from issuance of stock914 698 
Proceeds from exercise of stock options1,204 5,583 
Repurchases of common stock(266,684)— 
Cash paid for shares withheld for taxes(13,776)(7,203)
Repayments of mortgage principal— (470)
Net cash used in financing activities(278,342)(1,770)
Effect of foreign currency exchange rates on cash and cash equivalents1,187 7,879 
Net change in cash and cash equivalents(91,100)507,120 
Cash and cash equivalents at beginning of period1,089,361 649,436 
Cash and cash equivalents at end of period$998,261 $1,156,556 


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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
Nine Months Ended December 31,
20212020
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period
Income taxes, net of refunds of $77 and $1,489, as of December 31, 2021 and 2020, respectively
$124,651 $56,957 
Interest1,399 2,336 
Operating leases43,257 43,263 
Non-cash investing activities
Accrued for purchases of property and equipment240 1,900 
Accrued for asset retirement obligations3,702 1,595 
Leasehold improvements acquired through tenant allowances4,061 — 

See accompanying notes to the condensed consolidated financial statements.
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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 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 December 31, 2021 and for the three and nine months ended December 31, 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 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.

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.

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 liabilities; valuation of inventories; 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.
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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)

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.

Impairment of Operating Lease and Other Long-Lived Assets. During the three and nine months ended December 31, 2021, the Company recorded impairment losses for retail store operating lease and other long-lived assets due to performance or store closures of $3,186, within its DTC reportable operating segment in SG&A expenses in the condensed consolidated statements of comprehensive income. For the three and nine months ended December 31, 2020, the Company recorded total impairment charges of $1,380 and $4,060, respectively.

Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standard Updates (ASU) 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:
StandardDescriptionImpact 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:
StandardDescriptionPlanned Period of AdoptionExpected 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 2023The 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.

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.

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)
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 nine months ended December 31, 2021 related to estimated sales returns is as follows:
Recovery AssetRefund Liability
Balance, March 31, 2021$10,704 $(37,717)
Net additions to sales return allowance*29,603 (122,153)
Actual returns(26,774)111,851 
Balance, December 31, 2021$13,533 $(48,019)

Activity during the nine months ended December 31, 2020 related to estimated sales returns is as follows:
Recovery AssetRefund Liability
Balance, March 31, 2020$9,663 $(25,667)
Net additions to sales return allowance*33,883 (122,069)
Actual returns(27,234)93,787 
Balance, December 31, 2020$16,312 $(53,949)

*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 December 31, 2021 and March 31, 2021, the Company's contract liability for loyalty programs is $17,031 and $12,231, respectively.

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 December 31, 2021 and March 31, 2021, the Company's contract liability for deferred revenue is $13,591 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.

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)
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
December 31, 2021Level 1Level 2Level 3
Non-qualified deferred compensation asset $9,673 $9,673 $— $— 
Non-qualified deferred compensation liability(10,083)(10,083)— — 
Designated Derivative Contracts asset1,285 — 1,285 — 
Non-Designated Derivative Contracts asset23 — 23 — 
Non-Designated Derivative Contracts liability(9)— (9)— 
Measured Using
March 31, 2021Level 1Level 2Level 3
Non-qualified deferred compensation asset $9,107 $9,107 $— $— 
Non-qualified deferred compensation liability(6,692)(6,692)— — 

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 December 31, 2021, the non-qualified deferred compensation asset of $9,673 is recorded in other assets in the condensed consolidated balance sheets. As of December 31, 2021, the non-qualified deferred compensation liability of $10,083 is recorded in the condensed consolidated balance sheets, with $930 in other accrued expenses and $9,153 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.
13
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)

Note 4. Income Taxes

Income tax expense and the effective income tax rate were as follows:
Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Income tax expense$60,014 $73,020 $99,158 $99,331 
Effective income tax rate20.5 %22.2 %20.6 %22.1 %

The tax provisions during the three and nine months ended December 31, 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 December 31, 2021, the decrease in the effective income tax rate, compared to the prior period, was primarily due to lower income from operations and changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022, as well as higher net discrete tax benefits, primarily driven by tax deductions for stock-based compensation and return to provision adjustments recorded in the current period.

During the nine months ended December 31, 2021, the decrease in the effective income tax rate, compared to the prior period, was primarily due to higher net discrete tax benefits, primarily driven by tax deductions for stock-based compensation and return to provision adjustments recorded in the current period, partially offset by higher income from operations and changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022.

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 December 31, 2021, the effective interest rates for US dollar LIBOR and ABR are 1.23% and 3.38%, respectively.

During the nine months ended December 31, 2021, the Company made no borrowings or repayments under the Primary Credit Facility. As of December 31, 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 $47,139, with an overdraft facility sublimit of CNY100,000, or $15,713. 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 December 31, 2021, the effective interest rate is 4.10%.

During the nine months ended December 31, 2021, the Company made no borrowings or repayments under the China Credit Facility. As of December 31, 2021, the Company has no outstanding balance, outstanding bank guarantees of $31, and available borrowings of $47,108 under the China Credit Facility.

14
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)
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 $26,064, 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 December 31, 2021, the effective interest rate is 0.48%.

During the nine months ended December 31, 2021, the Company made no borrowings or repayments under the Japan Credit Facility. As of December 31, 2021, the Company has no outstanding balance and available borrowings of $26,064 under the Japan Credit Facility.

Debt Covenants. As of December 31, 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 December 31,Nine Months Ended December 31,
2021202020212020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*$8,859 $1,013 $35,153 $6,882 
Reductions to operating lease assets for reductions to lease liabilities*(4,669)(9,206)(5,293)(11,619)

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

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.

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. On December 6, 2021, the US Supreme Court denied the petition for writ of certiorari.

15
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)
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 nine months ended December 31, 2021, except for the Annual RSU and LTIP PSU grant activity summarized below, no additional awards were granted under the 2015 SIP. 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.    

Annual Awards. The Company granted annual awards under the 2015 SIP, as recorded in the condensed consolidated statements of comprehensive income, as summarized below:
Nine Months Ended December 31,
20212020
Shares GrantedWeighted-average grant date fair value per shareShares GrantedWeighted-average grant date fair value per share
Annual RSUs40,062 $386.17 45,161 $215.66 

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 December 31, 2021 is $14,873.

Long-Term Incentive Plan Awards. During the nine months ended December 31, 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 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 nine months ended December 31, 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 December 31, 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 $16,956.

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 December 31, 2021, the Company has the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:
Designated
Derivative Contracts		Non-Designated Derivative ContractsTotal
Notional value$21,674 $14,241 $35,915 
Fair value recorded in other current assets1,285 23 1,308 
Fair value recorded in other accrued expenses— (9)(9)

As of December 31, 2021, the Company's outstanding derivative contracts are held by an aggregate of two counterparties, all with various maturity dates within the next three 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 December 31,Nine Months Ended December 31,
2021202020212020
Gain (loss) recorded in Other comprehensive income$105 $(556)$4,154 $(1,265)
Reclassifications from Accumulated other comprehensive loss into net sales (2,107)189 (2,869)310 
Income tax benefit (expense) in Other comprehensive income485 88 (311)229 
Total$(1,517)$(279)$974 $(726)
16
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)

The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the condensed consolidated statements of comprehensive income:
Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
 (Loss) gain recorded in SG&A expenses$(157)$(564)$591 $(522)

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 December 31, 2021, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next three 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 December 31, 2021, the aggregate remaining approved amount under the Company's stock repurchase programs is $543,976.

Stock repurchase activity under these programs for the nine months ended December 31, 2021 was as follows:
Amounts**
Total number of shares repurchased*735,976 
Average price paid per share$362.36 
Dollar value of shares repurchased$266,684 

*Any share repurchases are made as part of publicly announced programs in open-market transactions.
** May not calculate on rounded dollars.

Subsequent to December 31, 2021 through January 20, 2022, the Company repurchased 2,643 shares for $973 at an average price of $368.25 per share, and has $543,003 remaining authorized under the stock repurchase programs.

Accumulated Other Comprehensive Loss. The components within AOCL recorded in the condensed consolidated balance sheets are as follows:
 December 31, 2021March 31, 2021
Unrealized gain on cash flow hedges, net of tax$974 $— 
Cumulative foreign currency translation loss(20,131)(16,743)
Total $(19,157)$(16,743)

17
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended December 31, 2021 and 2020
(dollar amounts in thousands, except share and per share data)
Note 10. Basic and Diluted Shares

The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
 Three Months Ended December 31,Nine Months Ended December 31,
 2021202020212020