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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 September 30, 2020
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)

Delaware
95-3015862
(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 class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
DECK
New 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 October 29, 2020, the number of outstanding shares of the registrant's common stock, par value $0.01 per share, was 28,084,060.
 



DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three and Six Months Ended September 30, 2020
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

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q for our second fiscal quarter ended September 30, 2020 (Quarterly Report), and the information and documents incorporated by reference into 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 into, 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 into this Quarterly Report, contains 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, or 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 customers and retail consumers, including those impacting retail and e-commerce businesses;
bankruptcies or other financial difficulties impacting our wholesale customers 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;
expansion of and investments in our Direct-to-Consumer (DTC) capabilities, including our e-commerce platforms;
the operational challenges faced by our distribution center, our global third-party logistics providers, and third-party carriers, and the related impacts on our ability to deliver products;
availability of raw materials and manufacturing capacity, and reliability of overseas production and storage;
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 subsidiaries and any related tax impacts;
the impact from adoption of recent accounting pronouncements; and
overall global economic and political 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," in 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.

2

Table of Contents

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 ONE ONE® (HOKA), Teva® (Teva), Sanuk® (Sanuk), and Koolaburra® (Koolaburra) are some of the Company's trademarks. Other trademarks or trade names appearing elsewhere in 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 share and per 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)
 
September 30, 2020

March 31, 2020
ASSETS
 
 
(AUDITED)
Cash and cash equivalents
$
626,414

 
$
649,436

Trade accounts receivable, net of allowances ($35,325 and $21,146 as of September 30, 2020 and March 31, 2020, respectively)
326,266

 
185,596

Inventories, net of reserves ($18,735 and $12,227 as of September 30, 2020 and March 31,2020, respectively)
484,138

 
311,620

Prepaid expenses
19,866

 
17,760

Other current assets
31,696

 
21,548

Income tax receivable
11,356

 
8,151

Total current assets
1,499,736

 
1,194,111

Property and equipment, net of accumulated depreciation ($246,835 and $242,138 as of September 30, 2020 and March 31, 2020, respectively)
207,912

 
209,037

Operating lease assets
224,151

 
243,522

Goodwill
13,990

 
13,990

Other intangible assets, net of accumulated amortization ($76,484 and $74,421 as of September 30, 2020 and March 31, 2020, respectively)
46,764

 
48,016

Deferred tax assets, net
27,372

 
28,233

Other assets
30,423

 
28,209

Total assets
$
2,050,348

 
$
1,765,118

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Short-term borrowings
$
9,965

 
$
638

Trade accounts payable
312,932

 
147,892

Accrued payroll
30,606

 
42,309

Operating lease liabilities
48,728

 
49,091

Other accrued expenses
59,248

 
46,281

Income taxes payable
31,711

 
11,104

Value added tax payable
10,652

 
3,631

Total current liabilities
503,842

 
300,946

Mortgage payable
29,938

 
30,263

Long-term operating lease liabilities
196,861

 
215,724

Income tax liability
59,610

 
63,547

Other long-term liabilities
17,133

 
14,518

Total long-term liabilities
303,542

 
324,052

Commitments and contingencies

 

Stockholders' equity
 
 
 
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 28,082 and 27,999 as of September 30, 2020 and March 31, 2020, respectively)
281

 
280

Additional paid-in capital
194,112

 
191,451

Retained earnings
1,067,529

 
973,948

Accumulated other comprehensive loss
(18,958
)
 
(25,559
)
Total stockholders' equity
1,242,964

 
1,140,120

Total liabilities and stockholders' equity
$
2,050,348

 
$
1,765,118


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 September 30,
 
Six Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Net sales
$
623,525

 
$
542,205

 
$
906,694

 
$
819,044

Cost of sales
304,548

 
269,181

 
445,151

 
416,001

Gross profit
318,977

 
273,024

 
461,543

 
403,043

Selling, general and administrative expenses
190,373

 
175,893

 
340,638

 
337,329

Income from operations
128,604

 
97,131

 
120,905

 
65,714

 
 
 
 
 
 
 
 
Interest income
(452
)
 
(1,530
)
 
(1,126
)
 
(4,396
)
Interest expense
1,205

 
1,524

 
2,395

 
2,670

Other income, net
(113
)
 
(86
)
 
(256
)
 
(178
)
Total other expense (income), net
640

 
(92
)
 
1,013

 
(1,904
)
Income before income taxes
127,964

 
97,223

 
119,892

 
67,618

Income tax expense
26,410

 
19,413

 
26,311

 
9,159

Net income
101,554

 
77,810

 
93,581

 
58,459

 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
Unrealized (loss) gain on cash flow hedges, net of tax
(800
)
 
1,497

 
(447
)
 
1,180

Foreign currency translation gain (loss)
6,395

 
(3,391
)
 
7,048

 
(3,323
)
Total other comprehensive income (loss)
5,595

 
(1,894
)
 
6,601

 
(2,143
)
Comprehensive income
$
107,149

 
$
75,916

 
$
100,182

 
$
56,316

 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
Basic
$
3.62

 
$
2.73

 
$
3.34

 
$
2.03

Diluted
$
3.58

 
$
2.71

 
$
3.30

 
$
2.01

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
28,046

 
28,483

 
28,024

 
28,785

Diluted
28,335

 
28,705

 
28,314

 
29,039


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)
 
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

 
Six Months Ended September 30, 2019
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders'
Equity
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance, March 31, 2019
29,141

 
$
291

 
$
178,227

 
$
889,266

 
$
(22,654
)
 
$
1,045,130

Stock-based compensation
1

 

 
3,424

 

 

 
3,424

Shares issued upon vesting
4

 

 

 

 

 

Exercise of stock options
46

 
1

 
2,772

 

 

 
2,773

Cumulative adjustment from adoption of recent accounting pronouncements

 

 

 
(1,069
)
 

 
(1,069
)
Shares withheld for taxes

 

 
(374
)
 

 

 
(374
)
Repurchases of common stock
(227
)
 
(2
)
 

 
(35,003
)
 

 
(35,005
)
Net loss

 

 

 
(19,351
)
 

 
(19,351
)
Total other comprehensive loss

 

 

 

 
(249
)
 
(249
)
Balance, June 30, 2019
28,965

 
290

 
184,049

 
833,843

 
(22,903
)
 
995,279

Stock-based compensation
3

 

 
5,075

 

 

 
5,075

Shares issued upon vesting
73

 
1

 
617

 

 

 
618

Exercise of stock options
3

 

 
186

 

 

 
186

Shares withheld for taxes

 

 
(5,370
)
 

 

 
(5,370
)
Repurchases of common stock
(1,069
)
 
(11
)
 

 
(155,389
)
 

 
(155,400
)
Net income

 

 

 
77,810

 

 
77,810

Total other comprehensive loss

 

 

 

 
(1,894
)
 
(1,894
)
Balance, September 30, 2019
27,975

 
$
280

 
$
184,557

 
$
756,264

 
$
(24,797
)
 
$
916,304


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)
 
Six Months Ended September 30,
 
2020
 
2019
OPERATING ACTIVITIES
 
 
 
Net income
$
93,581

 
$
58,459

Reconciliation of net income to net cash used in operating activities:
Depreciation, amortization and accretion
19,499

 
19,966

Bad debt expense
7,163

 
976

Deferred tax expense (benefit)
1,503

 
(412
)
Stock-based compensation
7,635

 
8,497

Excess tax benefit from stock-based compensation
(1,653
)
 
(2,004
)
Loss on disposal of property and equipment
135

 
391

Impairment of operating lease assets and other long-lived assets
2,680

 
123

Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable, net
(147,832
)
 
(156,975
)
Inventories, net
(172,518
)
 
(280,032
)
Prepaid expenses and other current assets
(12,012
)
 
(15,049
)
Income tax receivable
(3,205
)
 
(3,152
)
Net operating lease assets and liabilities
(3,385
)
 
(817
)
Other assets
(2,213
)
 
(139
)
Trade accounts payable
162,289

 
188,413

Other accrued expenses
11,434

 
(31,056
)
Income taxes payable
22,260

 
(3,331
)
Long-term liabilities
(1,322
)
 
(14
)
Net cash used in operating activities
(15,961
)
 
(216,156
)
INVESTING ACTIVITIES
 
 
 
Purchases of property and equipment
(13,333
)
 
(14,944
)
Proceeds from sales of property and equipment
49

 
240

Net cash used in investing activities
(13,284
)
 
(14,704
)
FINANCING ACTIVITIES
 
 
 
Proceeds from short-term borrowings
9,100

 
29,463

Repayments of short-term borrowings

 
(16,000
)
Proceeds from issuance of stock
698

 
618

Proceeds from exercise of stock options
1,381

 
2,959

Repurchases of common stock

 
(190,405
)
Cash paid for shares withheld for taxes
(7,054
)
 
(5,744
)
Repayments of mortgage principal
(309
)
 
(294
)
Net cash provided by (used in) financing activities
3,816

 
(179,403
)
Effect of foreign currency exchange rates on cash and cash equivalents
2,406

 
(1,756
)
Net change in cash and cash equivalents
(23,023
)
 
(412,019
)
Cash and cash equivalents at beginning of period
649,436

 
589,692

Cash and cash equivalents at end of period
$
626,414

 
$
177,673




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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
 
Six Months Ended September 30,
 
2020
 
2019
SUPPLEMENTAL CASH FLOW DISCLOSURE
 
 
 
Cash paid during the period
 
 
 
Income taxes, net of refunds of $1,292 and $5,282, as of September 30, 2020 and 2019, respectively
$
11,764

 
$
17,508

Interest
1,505

 
1,118

Operating leases
28,911

 
30,093

Non-cash investing activities
 
 
 
Accrued for purchases of property and equipment
3,598

 
4,260

Accrued for asset retirement obligations
323

 
96


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 Six Months Ended September 30, 2020 and 2019
(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) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyles use and high-performance activities. As part of its omni-channel platform, the Company's proprietary brands are aligned across its Fashion Lifestyle group, including the UGG and Koolaburra brands, and Performance Lifestyle group, including the HOKA, Teva, and Sanuk brands.

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

Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes thereto (referred to herein as condensed consolidated financial statements) as of September 30, 2020 and for the three and six months ended September 30, 2020 and 2019 were prepared in accordance with accounting principles generally accepted in the United States (US GAAP) for interim financial information pursuant to Rule 10-01 of Regulation S-X issued by the SEC. Accordingly, they 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, 2020 was 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 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, 2020, which was filed with the SEC on June 1, 2020 (2020 Annual Report).

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

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

Use of Estimates. The preparation of the Company's 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. Actual results could differ as a result of a number of factors, including, without limitation, the severity and duration of the pandemic (including the potential for additional waves of the pandemic that may vary by geographic region); the timing and extent of governmental actions taken to control the spread and mitigate the impact of the pandemic; the impact of the pandemic on discretionary spending, consumer confidence, unemployment rates, and retail store security; the scope and timing of any governmental assistance provided in response to the impacts of the pandemic; and the impact of the pandemic on global economic conditions and financial markets.


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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(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; contract assets and liabilities; stock-based compensation; impairment assessments, including for goodwill, other intangible assets, and long-lived assets; depreciation and amortization; income tax receivables and liabilities; uncertain tax positions; the fair value of financial instruments; the reasonably certain lease term; lease classification; and the Company's incremental borrowing rate utilized to discount its unpaid lease payments to measure its operating lease assets and liabilities.

There is uncertainty as to the nature and scope of the continued impacts of the pandemic over time. This uncertainty has affected, and is expected to continue to affect, management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional information becomes available.

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 (referred to herein as reportable operating segments). Refer to Note 12, “Reportable Operating Segments,” for further information on the Company's reportable operating segments.

Recent Accounting Pronouncements

Recently Adopted. The Financial Accounting Standards Board (FASB) has issued Accounting Standard Updates (ASUs) that have been adopted by the Company for its annual and interim reporting periods as stated below. The following is a summary of each standard and the impact on the Company:
Standard
 
Description
 
Impact on Adoption
ASU No. 2017-04, Goodwill and Other: Simplifying the Test for Goodwill Impairment (as amended by ASU 2019-06)
 
Requires annual and interim goodwill impairment tests be performed by comparing the fair value of a reporting unit with its carrying amount, effectively eliminating step two of the goodwill impairment test under legacy US GAAP. The amount by which the carrying amount exceeds the reporting unit’s fair value will continue to be recognized as an impairment charge.
 
The Company adopted this ASU beginning April 1, 2020 on a prospective basis, which did not have a material impact on its condensed consolidated financial statements.
ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-11, 2020-02, and 2020-03)
 
Replaces the incurred loss impairment methodology in legacy US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
 
The Company adopted this ASU beginning April 1, 2020 on a prospective basis, which did not have a material impact on its condensed consolidated financial statements.

Not Yet Adopted. The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of each standard, planned period of adoption, and the expected impact on the Company:
Standard
 
Description
 
Planned Period of Adoption
 
Expected Impact on Adoption
ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes
 
Removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods, as well as reduces complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.
 
Q1 FY 2022
 
The Company is currently evaluating the impact on adoption of this ASU; however, the Company does not expect that the adoption will have a material impact on its condensed consolidated financial statements.


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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Standard
 
Description
 
Planned Period of Adoption
 
Expected Impact on Adoption
ASU No. 2020-04, 
Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

 
London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons.

This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Guidance is limited for adoption through December 31, 2022.
 
Q3 FY 2023
 
The Company is currently evaluating the impact of the adoption of this ASU 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. Components of variable consideration include estimated discounts, markdowns or chargebacks, and sales returns. 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 30-60 days.

Contract Assets and Liabilities

Contract assets represent the Company’s right to consideration subject to conditions other than the passage of time, such as additional performance obligations to be satisfied. Contract liabilities are performance obligations that the Company expects to satisfy or relieve within the next 12 months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancelable contracts before the transfer of goods or services to the customer has occurred. Contract assets and liabilities are recorded in other current assets and other accrued expenses, respectively, in the condensed consolidated balance sheets.
Sales Returns. The following table provides activity during the six months ended September 30, 2020 related to estimated sales returns for the Company’s existing customer contracts for all channels:
 
Contract Asset
 
Contract 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
)


The following table provides activity during the six months ended September 30, 2019 related to estimated sales returns for the Company’s existing customer contracts for all channels:
 
Contract Asset
 
Contract Liability
Balance, March 31, 2019
$
10,441

 
$
(24,787
)
Net additions to sales return allowance*
12,297

 
(37,604
)
Actual returns
(14,763
)
 
43,080

Balance, September 30, 2019
$
7,975

 
$
(19,311
)

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)


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

Loyalty Programs. The Company has a customer loyalty program for the UGG brand in its DTC channel where customers can earn rewards from qualifying purchases or activities. As of September 30, 2020 and March 31, 2020, the Company's contract liability for loyalty programs was $8,417 and $6,950, respectively.

Refer to Note 12, “Reportable Operating Segments,” for further information on the Company's disaggregation of revenue by reportable operating segment.

Note 3. Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

The Company's goodwill and other intangible assets are recorded in the condensed consolidated balance sheets, as follows:
 
September 30, 2020
 
March 31, 2020
Goodwill
 
 
 
UGG brand
$
6,101

 
$
6,101

HOKA brand
7,889

 
7,889

Total goodwill
13,990

 
13,990

Other intangible assets
 
 
 
Indefinite-lived intangible assets
 
 
 
Trademarks
15,454

 
15,454

Definite-lived intangible assets
 
 
 
Trademarks
55,245

 
55,245

Other
52,549

 
51,738

Total gross carrying amount
107,794

 
106,983

Accumulated amortization
(76,484
)
 
(74,421
)
Net definite-lived intangible assets
31,310

 
32,562

Total other intangible assets, net
46,764

 
48,016

Total
$
60,754

 
$
62,006



Amortization Expense

Aggregate amortization expense for definite-lived intangible assets during the six months ended September 30, 2020 and 2019 was $1,265 and $2,201, respectively. A reconciliation of the changes in total other intangible assets, net, recorded in the condensed consolidated balance sheets is as follows:
Balance, March 31, 2020
$
48,016

Amortization expense
(1,265
)
Foreign currency translation net gain
13

Balance, September 30, 2020
$
46,764




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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Note 4. Fair Value Measurements
The accounting standard for fair value measurements provides a framework for measuring fair value, which is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy under this accounting standard requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

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

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

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

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

Assets and liabilities that are measured on a recurring basis at fair value in the condensed consolidated balance sheets were as follows:
 
 
 
Measured Using
 
September 30, 2020
Level 1
 
Level 2
 
Level 3
Non-qualified deferred compensation asset
$
7,889

 
$
7,889

 
$

 
$

Non-qualified deferred compensation liability
(5,490
)
 
(5,490
)
 

 

Designated Derivative Contracts asset
243

 

 
243

 

Designated Derivative Contracts liability
(831
)
 

 
(831
)
 

Non-Designated Derivative Contracts asset
42

 

 
42

 

 
 
 
Measured Using
 
March 31, 2020
Level 1
 
Level 2
 
Level 3
Non-qualified deferred compensation asset
$
6,164

 
$
6,164

 
$

 
$

Non-qualified deferred compensation liability
(3,756
)
 
(3,756
)
 

 



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, 2020, the non-qualified deferred compensation asset of $7,889 was recorded in other assets in the condensed consolidated balance sheets. As of September 30, 2020, the non-qualified deferred compensation liability of $5,490 was recorded in the condensed consolidated balance sheets, with $715 in other accrued expenses and $4,775 in other long-term liabilities.

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


13

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Note 5. Income Taxes

Effective Income Tax Rate

Income tax expense and the effective income tax rate were as follows:
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Income tax expense
$
26,410

 
$
19,413

 
$
26,311

 
$
9,159

Effective income tax rate
20.6
%
 
20.0
%
 
21.9
%
 
13.5
%


The tax provisions during the six months ended September 30, 2020 and 2019 were computed using the estimated effective income tax rates applicable to each of the domestic and foreign taxable jurisdictions for the full fiscal year and were adjusted for discrete items that occurred within the periods presented.

During the three months ended September 30, 2020, the slight increase in the effective income tax rate, compared to the prior period, was due to changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2021, partially offset by lower net discrete tax expenses, primarily driven by reduced unrecognized tax benefits recorded in the current period. During the six months ended September 30, 2020, the increase in the effective income tax rate, compared to the prior period, was due to changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2021 as well as a reduced tax benefit during the six months ended September 30, 2020, compared to the prior period, which recognized an increased tax benefit for the favorable settlement of a state income tax audit. These impacts were partially offset by reduced unrecognized tax benefits recorded for a prior year tax position in the current period.

Unrecognized Tax Benefits

During the six months ended September 30, 2020, the amount of gross unrecognized tax benefits and associated penalties and interest increased by $577 to $18,215. This change is primarily related to a net increase in prior year tax position reserves recorded in income tax liability in the condensed consolidated balance sheets.

Note 6. Revolving Credit Facilities and Mortgage Payable

Primary Credit Facility

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

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, 2020, the effective interest rates for US dollar LIBOR and ABR were 1.27% and 3.38%, respectively.

During the six months ended September 30, 2020, the Company made no borrowings or repayments under the Primary Credit Facility. As of September 30, 2020, the Company had no outstanding balance, outstanding letters of credit of $549, and available borrowings of $399,451 under the Primary Credit Facility.
  

14

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

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 CNY 300,000, or $44,083, with an overdraft facility sublimit of CNY 100,000, or $14,694.

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, 2020, the effective interest rate was 4.45%.

During the six months ended September 30, 2020, the Company made $9,311 in borrowings and no repayments under the China Credit Facility. As of September 30, 2020, the Company had an outstanding balance of $9,311, outstanding bank guarantees of $29, and available borrowings of $34,743 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 JPY 3,000,000, or $28,412, 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, 2020, the effective interest rate was 0.46%.

During the six months ended September 30, 2020, the Company made no borrowings or repayments under the Japan Credit Facility. As of September 30, 2020, the Company had no outstanding balance and available borrowings of $28,412 under the Japan Credit Facility.

Mortgage

In July 2014, the Company obtained a mortgage secured by the property on which its corporate headquarters is located for a principal amount of $33,931. As of September 30, 2020, the outstanding principal balance under the mortgage was $30,592, which includes $654 in short-term borrowings and $29,938 in mortgage payable in the condensed consolidated balance sheets. The mortgage has a fixed interest rate of 4.928%. Payments include interest and principal in an amount that amortizes the principal balance over a 30-year period; however, the loan will mature and requires a balloon payment of $23,695, in addition to any then-outstanding balance, on July 1, 2029.

Debt Covenants

As of September 30, 2020, the Company was in compliance with all financial covenants under the revolving credit facilities and the mortgage.

Foreign Currency Exchange Rates

The amounts disclosed above for the China Credit Facility have been translated into US dollars using applicable foreign currency exchange spot rates in effect as of September 30, 2020. As a result, there are differences between the net borrowing amount within this footnote disclosure and that same amount recorded in the condensed consolidated statements of cash flows. Any amounts outstanding, including those amounts disclosed above, are recorded in short-term borrowings in the condensed consolidated balance sheets.


15

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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Note 7. Leases and Other Commitments

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 ranging from one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.

Supplemental information for amounts presented in the condensed consolidated statements of cash flows related to operating leases is as follows:
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Non-cash operating activities
 
 
 
 
 
 
 
Operating lease assets obtained in exchange for lease liabilities*
$
3,378

 
$
11,715

 
$
5,869

 
$
28,137

Reductions to operating lease assets for reductions to lease liabilities*
(476
)
 
(2,120
)
 
(2,413
)
 
(4,669
)

* Amounts disclosed include non-cash additions or reductions, respectively, 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, including the matter outlined below, will not, individually or in the aggregate, have a material adverse effect on it business, results of operations, financial condition, or liquidity.

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 against Australian Leather. Australian Leather counterclaimed alleging that the UGG 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 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. While the Company believes there is no merit to the appeal, a judgment invalidating the UGG brand trademark would have a material adverse effect on the Company's business.

Note 8. 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 certain executive officers and other key employees. During the six months ended September 30, 2020, except for the Annual RSU grant activity summarized below, no additional awards were granted under the 2015 SIP. Refer to Note 8, “Stock-Based Compensation,” in our 2020 Annual Report for further information on previously granted awards under the 2015 SIP.


16

Table of Contents
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Annual Awards

The Company granted Annual RSUs and Annual PSUs under the 2015 SIP, as summarized below:
 
 
Six Months Ended September 30,
 
 
2020
 
2019
 
 
Shares Granted
 
Weighted-average grant date fair value per share
 
Shares Granted
 
Weighted-average grant date fair value per share
Annual RSUs
 
34,211

 
$
200.83

 
38,307

 
$
173.65

Annual PSUs
 

 

 
19,938

 
174.36

Total
 
34,211

 
$
200.83

 
58,245

 
$
173.89



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, 2020 was $11,219.

Note 9. Derivative Instruments

The Company may enter into foreign currency forward or option contracts (derivative contracts) 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, 2020, the Company had the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:
 
Designated
Derivative Contracts
 
Non-Designated Derivative Contracts
 
Total
Notional value
$
53,444

 
$
18,909

 
$
72,353

Fair value recorded in other current assets
243

 
42

 
285

Fair value recorded in other accrued expenses
831

 

 
831



As of September 30, 2020, the Company's outstanding derivative contracts were held by an aggregate of four counterparties, all with various maturity dates within the next six months. As of March 31, 2020, the Company had no outstanding derivative contracts.

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Table of Contents
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)


The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects for unrealized gains or losses recorded in the condensed consolidated statements of comprehensive income for changes in AOCL:
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
(Loss) gain recorded in OCI
$
(1,173
)
 
$
2,190

 
$
(709
)
 
$
1,773

Reclassifications from AOCL into net sales
121

 
(216
)
 
121

 
(216
)
Income tax benefit (expense) in OCI
252

 
(477
)
 
141

 
(377
)
Total
$
(800
)
 
$
1,497

 
$
(447
)
 
$
1,180



The following table summarizes the effect of Non-Designated Derivative Contracts:
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Gain recorded in SG&A expenses
$
42

 
$
502

 
$
42

 
$
146



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, 2020, the amount of unrealized losses on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next six months. Refer to Note 10, “Stockholders' Equity,” for further information on the components of AOCL.

Note 10. 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. 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. During the six months ended September 30, 2020, the Company made no stock repurchases. As of September 30, 2020, the aggregate remaining approved amount under the Company's stock repurchase programs was $159,807.

Accumulated Other Comprehensive Loss

The components within AOCL recorded in the condensed consolidated balance sheets, were as follows:
 
September 30, 2020
 
March 31, 2020
Unrealized loss on cash flow hedges, net of tax
$
(447
)
 
$

Cumulative foreign currency translation loss
(18,511
)
 
(25,559
)
Total
$
(18,958
)
 
$
(25,559
)



18

Table of Contents
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

Note 11. 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,
 
2020
 
2019
 
2020
 
2019
Basic
28,046,000

 
28,483,000

 
28,024,000

 
28,785,000

Dilutive effect of equity awards
289,000

 
222,000

 
290,000

 
254,000

Diluted
28,335,000

 
28,705,000

 
28,314,000

 
29,039,000

 
 
 
 
 
 
 
 
Excluded*
 
 
 
 
 
 
 
Annual RSUs and Annual PSUs

 
54,000

 
23,000

 
52,000

LTIP PSUs
153,000

 
153,000

 
153,000

 
153,000

LTIP NQSOs

 
170,000

 

 
170,000

Deferred Non-Employee Director Equity Awards

 

 
3,000

 



* 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 lesser dilutive effect). Refer to Note 8, “Stock-Based Compensation,” in our 2020 Annual Report for further information on previously granted awards under the Company's equity incentive plans.

Note 12. Reportable Operating Segments

Information reported to the Chief Operating Decision Maker (CODM), who is the Company's Principal Executive Officer (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 distribution centers, certain executive and stock-based compensation, accounting, finance, legal, information technology, human resources, and facilities, among others. Inter-segment sales from the Company’s wholesale reportable operating segments to the DTC reportable operating segment are at the Company’s cost, and there is no inter-segment profit on these inter-segment sales, nor are they reflected in income (loss) from operations of the wholesale reportable operating segments.


19

Table of Contents
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2020 and 2019
(dollar amounts in thousands, except share and per share data)

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,
 
2020
 
2019
 
2020
 
2019
Net sales
 
 
 
 
 
 
 
UGG brand wholesale
$
291,994

 
$
332,020

 
$
335,422

 
$
417,420

HOKA brand wholesale
108,117

 
60,959

 
178,736

 
124,965

Teva brand wholesale
17,746

 
17,091