DECKERS OUTDOOR CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)


The following discussion of our financial condition and results of operations
should be read together with our consolidated financial statements in Part IV
within this Annual Report. This discussion includes an analysis of our financial
condition and results of operations for the years ended March 31, 2022, and 2021
and year-over-year comparisons between those periods. For year-over-year
comparisons between the years ended March 31, 2021, and 2020, refer to Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2021, filed with the SEC on May 28, 2021.

Certain statements made in this section constitute "forward-looking statements,"
which are subject to numerous risks and uncertainties including those described
in this section. Refer to the section entitled "Cautionary Note Regarding
Forward-Looking Statements" within this Annual Report for additional
information.

Insight

We are a global leader in designing, marketing, and distributing innovative
footwear, apparel, and accessories developed for both everyday casual lifestyle
use and high-performance activities. We market our products primarily under five
proprietary brands: UGG, HOKA, Teva, Sanuk, and Koolaburra. We believe that our
products are distinctive and appeal to a broad demographic. We sell our products
through quality domestic and international retailers, international
distributors, and directly to our global consumers through our DTC business,
which is comprised of our e-commerce websites and retail stores. We seek to
differentiate our brands and products by offering diverse lines that emphasize
authenticity, functionality, quality, and comfort, and products tailored to a
variety of activities, seasons, and demographic groups. All of our products are
currently manufactured by independent manufacturers.

Financial Highlights

Highlights of the consolidated financial performance of fiscal year 2022 compared to the prior period are as follows:

•Net sales increased 23.8% to $3,150,339.
•Channel
?Wholesale channel net sales increased 31.0% to $1,936,739.
?DTC channel net sales increased 13.8% to $1,213,600.
•Geography
?Domestic net sales increased 23.1% to $2,167,793.
?International net sales increased 25.3% to $982,546.
•Gross margin decreased 300 basis points to 51.0%.
•Income from operations increased 12.0% to $564,707.
•Diluted earnings per share increased by $2.79 per share to $16.26 per share.

Trends and Uncertainties Affecting Our Business and Industry

We anticipate that our business and the industry in which we operate will continue to be affected by several important trends and uncertainties, including the following:

Supply Chain

•Similar to other companies in our industry, we continue to experience supply
chain challenges across each of the geographies in which we operate. The most
significant macro-level supply chain impacts continue to be extended transit
lead times and cost pressures, including from inflation, due primarily to
container shortages, port congestion, and trucking and labor scarcity, which
have created negative downstream impacts on our results of operations. To offset
the impacts of these ongoing constraints, we have used a substantial amount of
air freight. These costs, together with higher ocean container shipment and
trucking costs, have elevated our transportation and logistics costs and
negatively impacted our gross margin during fiscal year 2022, and we expect will
continue to do so in future periods, particularly as we seek to maintain
strategic product launch timelines and customer service levels. As we manage
product availability, we remain focused on mitigating the impacts of ongoing
disruptions in both the wholesale and DTC channels into our next
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fiscal year, including through the use of air freight (almost exclusively for
the HOKA brand) and the early procurement of inventory in the country of sale,
which will likely result in higher levels of inventory to allow us to maintain
expected service levels into our next fiscal year. We anticipate these global
supply chain pressures will continue, and we remain focused on ensuring our
long-term growth strategy remains flexible to adapt to fluid conditions.

•Although our owned DCs and 3PL providers are currently operating and supporting
ongoing logistics, certain of these facilities continue to experience
operational challenges, which have resulted in delays distributing our products,
as well as cost pressures. Further, the headwinds we have encountered
transitioning to our new European 3PL as that provider refines its system and
delivery levels have exacerbated supply chain pressures. While this transition
has been difficult in the current logistics environment, we believe this is a
critical investment to create long-term capacity that will facilitate future
growth. We continue to invest in infrastructure, including in our global
distribution and logistics capabilities, end-to-end planning systems, and
e-commerce platforms, as well as in expanding our sourcing capabilities and
distribution points, to ensure we scale our operations commensurate with
consumer demand.

Inflation

•Due to recent heightened inflation in key global markets, including the United
States, we experienced impacts from inflation during fiscal year 2022, primarily
related to supply chain challenges including higher freight costs, discussed
above. We expect our business will be impacted by continued or increasing
inflation in future periods, including impacts to costs for finished goods,
freight, and commodities, which will impact our gross margin in our next fiscal
year, as well as potential impacts to our operating expenses, foreign currency
exchange rates, wages in a competitive job market, interest rates on borrowings,
and customer demand.

Brand and omnichannel strategy

•We remain focused on accelerating consumer adoption of the HOKA brand globally
to execute our long-term growth strategy, including through an optimized digital
marketing strategy. The HOKA brand's growth has been balanced across its
ecosystem of access points, with all geographic regions and distribution
channels experiencing significant year-round growth, which has positively
impacted our seasonality trends. In our next fiscal year, we intend to focus our
efforts to drive HOKA brand performance on distribution management to drive new
consumer acquisition in key markets and launching innovative product offerings
to increase category adoption and market share gains with existing consumers.
For example, we're looking at volume expansion with new and existing global
strategic wholesale partners to drive new consumer acquisition. Further, we
recently opened the HOKA brand's first owned and operated retail stores in Asia
and launched pop-up stores in North America to build upon our retail strategy
and define the optimal consumer experience and concept for the HOKA brand. We
plan to open additional retail stores for the HOKA brand and to continue
exploring opportunities to strategically expand our HOKA brand retail store
fleet.

•Our marketplace strategies in Europe and Asia (international reset strategies)
have continued to drive UGG brand awareness and consumer acquisition through
building a foundation of diversified and counter-seasonal product acceptance,
especially with younger consumers, through localized marketing investments,
which is fueling a healthier product mix and reducing the need for promotional
activity.

•While we experienced a channel mix shift to wholesale in fiscal year 2022 as we
refilled customer inventory levels, our aggregated DTC channel mix continues to
be above our historical pre-pandemic levels. Our long-term growth strategy
remains focused on building our DTC channel to represent an increasing portion
of our total net sales, as we prioritize consumer acquisition and experience
strong demand for the HOKA and UGG brands.

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•We continue to make selective price increases as appropriate by brand and
product, taking into consideration, for example, the competitive landscape of
our brands, our segmentation strategy, and higher costs, including for
inflationary pressures on materials used in the production of our products, as
well as ocean freight costs, which we believe can be mitigated by these price
increases. However, we do not expect price increases to cover the significant
use of air freight in our next fiscal year.

Presentation of the operating segment to be presented

Our six reportable operating segments include the worldwide wholesale operations
of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well
as DTC. Information reported to the Chief Operating Decision Maker (CODM), who
is our CEO, President, and Principal Executive Officer (PEO), is organized into
these reportable operating segments and is consistent with how the CODM
evaluates our performance and allocates resources.

UGG Brand. The UGG brand is one of the most iconic and recognized brands in our
industry, which highlights our successful track record of building niche brands
into lifestyle and fashion market leaders. With loyal consumers around the
world, the UGG brand has proven to be a highly resilient line of premium
footwear, apparel, and accessories with expanded product offerings and a growing
global audience that appeals to a broad demographic.

We believe demand for UGG-branded products will continue to be driven by the following:

•Successful acquisition of a diverse consumer base that resonates globally and
with key markets, including for a younger, fashionable consumer, through
strategic marketing activations and collaborations.
•High consumer brand loyalty due to consistent delivery of quality and
luxuriously comfortable footwear, apparel, and accessories.
•Diversification of our footwear product offerings, such as Women's spring and
summer lines, as well as expanded category offerings for Men's products, and
more fashionable product for our Classics line.
•Thoughtful expansion of our apparel and accessories businesses.

HOKA Brand. The HOKA brand is an authentic premium line of year-round
performance footwear that offers enhanced cushioning and inherent stability with
minimal weight, apparel, and accessories. Originally designed for ultra-runners,
the brand now appeals to world champions, taste makers, and everyday athletes.
Strong marketing has fueled both domestic and international sales growth of the
HOKA brand, which has quickly become a leading brand within run and outdoor
specialty wholesale accounts and is rapidly growing within selective key
accounts. As a result, the HOKA brand is bolstering its net sales, which
continue to increase as a percentage of our aggregate net sales.

We believe that demand for HOKA branded products will continue to be driven by the following:

•Leading performance product innovation, category extensions, and key franchise
management, including higher frequency product drop rates and improving
accessibility to all athletes.
•Increased global brand awareness and new consumer adoption through enhanced
global marketing activations and online consumer acquisition, including building
a more diverse outdoor community through digital and in-person event
sponsorship.
•Thoughtful and strategic wholesale distribution choices, allowing the HOKA
brand access and introduction to a broader, more diverse, consumer base.
•Category extensions in authentic performance footwear offerings such as
lifestyle, trail, and hiking categories.

Teva Brand. The Teva brand created the very first sport sandal when it was
founded in the Grand Canyon in 1984. Since then, the Teva brand has grown into a
multi-category modern outdoor lifestyle brand offering a range of performance,
casual, and trail lifestyle products, and has emerged as a leader in footwear
sustainability observed through recent growth fueled by young and diverse
consumers passionate for the outdoors and the planet.

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Table of Contents We believe that demand for Teva branded products will continue to be driven by the following:

•Authentic outdoor heritage and a reputation for quality, comfort,
sustainability, and performance in any terrain.
•Increasing brand awareness in key major global markets due to outdoor lifestyle
participation amongst younger consumers.
•Category extensions in performance hike footwear, including key franchises, as
well as year-round product.

Sanuk Brand. The Sanuk brand originated in Southern California surf culture and
has emerged into a lifestyle brand with a presence in the relaxed casual shoe
and sandal categories with a focus on innovation in comfort and sustainability.
The Sanuk brand's use of unexpected materials and unconventional constructions,
combined with its fun and playful branding, are key elements of the brand's
identity.

We believe that demand for Sanuk branded products will continue to be driven by the following:

•Introducing a broader, higher-end product line, including through category extensions into casual footwear for younger consumers, including slippers and boots.

Other Brands. Other brands consist primarily of the Koolaburra brand. The
Koolaburra brand is a casual footwear fashion line using plush materials and is
intended to target the value-oriented consumer in order to complement the UGG
brand offering.

We believe demand for Koolaburra branded products will continue to be driven by the following:

• Increase brand awareness among young consumers. • Evolution of key franchises and further expansion of fashionable casual boots, sneakers and slippers.

Direct to consumer. Our DTC business encompasses all of our brands and includes our retail stores and e-commerce websites which, in an omnichannel marketplace, are intertwined and interdependent. We believe that many of our consumers interact with our retail stores and websites before making in-store and online purchasing decisions.

E-Commerce Business. Our e-commerce business provides us with an opportunity to
directly engage with and communicate a consistent brand message to consumers
that is in line with our brands' promises, drives awareness of key brand
initiatives, offers targeted information to specific consumer demographics, and
drives consumers to our retail stores. As of March 31, 2022, we operate our
e-commerce business through Company-owned websites and mobile platforms in 59
different countries, for which the net sales are recorded in our DTC reportable
operating segment.

Retail Business. Our global Company-owned retail stores are predominantly UGG
brand concept stores and UGG brand outlet stores, though also include recent
openings in our retail store fleet for the HOKA brand. Through our outlet
stores, we sell some of our discontinued styles from prior seasons, full price
in-line products, as well as products made specifically for the outlet stores.
As of March 31, 2022, we have a total of 149 global retail stores, which
includes 75 concept stores and 74 outlet stores. While we generally open retail
store locations during our second or third fiscal quarters and consider closures
of retail stores during our fourth fiscal quarter, the timing of such openings
and closures may vary. We will continue to evaluate our retail store fleet
strategy in response to changes in consumer demand and retail store traffic
patterns.

Flagship Stores. Included in the total count of global concept stores are eight
flagship stores, which are lead concept stores in certain key markets and
prominent locations designed to showcase UGG and HOKA brand products in mono
branded stores. Primarily located in major tourist locations, these stores are
typically larger than our general concept stores with broader product offerings
and greater traffic. We anticipate continuing to operate a curated fleet of
flagship stores to enhance our interaction with our consumers and increase brand
loyalty. The net sales for these stores are recorded in our DTC reportable
operating segment.

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Shop-in-Shop Stores. Included in the total count of global concept stores are 27
shop-in-shop (SIS) stores, defined as concept stores for which we own the
inventory and that are operated by us or non-employees within a department
store, which we lease from the store owner by paying a percentage of SIS store
sales. The net sales for these stores are recorded in our DTC reportable
operating segment.

Partner Retail Stores. We rely on partner retail stores for the UGG and HOKA
brands. Partner retail stores are branded stores that are wholly owned and
operated by third parties and not included in the total count of global
Company-owned retail stores. When a partner retail store is opened, or a store
is converted into a partner retail store, the related net sales are recorded in
each respective brand's wholesale reportable operating segment, as applicable.

Use of Non-GAAP Financial Measures

Throughout this Annual Report we provide certain financial information on a
constant currency basis, excluding the effect of foreign currency exchange rate
fluctuations, which we disclose in addition to the financial measures calculated
and presented in accordance with generally accepted accounting principles in the
United States (US GAAP). We provide these non-GAAP financial measures to provide
information that may assist investors in understanding our financial results and
assessing our prospects for future performance. However, the information
included within this Annual Report that is presented on a constant currency
basis, as we present such information, may not necessarily be comparable to
similarly titled information presented by other companies, and may not be
appropriate measures for comparing the performance of other companies relative
to us. For example, in order to calculate our constant currency information, we
calculate the current period financial information using the foreign currency
exchange rates that were in effect during the previous comparable period,
excluding the effects of foreign currency exchange rate hedges and
remeasurements in the consolidated financial statements. Further, we report
comparable DTC sales on a constant currency basis for DTC operations that were
open throughout the current and prior reporting periods, and we may adjust prior
reporting periods to conform to current year accounting policies.

These non-GAAP financial measures are not intended to represent and should not
be considered to be more meaningful measures than, or alternatives to, measures
of operating performance as determined in accordance with US GAAP. Constant
currency measures should not be considered in isolation as an alternative to US
dollar measures that reflect current period foreign currency exchange rates or
to other financial measures presented in accordance with US GAAP. We believe
evaluating certain financial and operating measures on a constant currency basis
is important as it excludes the impact of foreign currency exchange rate
fluctuations that are not indicative of our core results of operations and are
largely outside of our control.

Seasonality

Our business is seasonal, with the highest percentage of UGG and Koolaburra
brand net sales occurring in the quarters ending September 30th and December
31st and the highest percentage of Teva and Sanuk brand net sales occurring in
the quarters ending March 31st and June 30th. Net sales for the HOKA brand occur
more evenly throughout the year reflecting the brand's year-round performance
product offerings. Due to the magnitude of the UGG brand relative to our other
brands, our aggregate net sales in the quarters ending September 30th and
December 31st have historically significantly exceeded our aggregate net sales
in the quarters ending March 31st and June 30th. However, as we continue to take
steps to diversify and expand our product offerings by creating more year-round
styles, and as net sales of the HOKA brand continue to increase as a percentage
of our aggregate net sales, we expect the impact from seasonality to continue to
decrease over time and we have begun to experience shifts during fiscal year
2022 for higher sales in the quarter ending March 31st. However, our seasonality
has been impacted by supply chain challenges and it is unclear whether these
impacts will be minimized or exaggerated in future periods as a result of these
disruptions. Refer to Note 14, "Quarterly Summary of Information (Unaudited),"
of our consolidated financial statements in Part IV within this Annual Report
for further information on our results of operations by quarterly period.

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Result of Operations

Year ended March 31, 2022compared to the year ended March 31, 2021. The results of the operations were as follows:

                                                             Years Ended March 31,
                                        2022                          2021                        Change
                                Amount            %           Amount            %          Amount           %
Net sales                    $ 3,150,339       100.0  %    $ 2,545,641       100.0  %    $ 604,698         23.8  %
Cost of sales                  1,542,788        49.0         1,171,551        46.0        (371,237)       (31.7)
Gross profit                   1,607,551        51.0         1,374,090        54.0         233,461         17.0
Selling, general, and
administrative expenses        1,042,844        33.1           869,885        34.2        (172,959)       (19.9)
Income from operations           564,707        17.9           504,205        19.8          60,502         12.0
Other expense, net                    69           -             2,691         0.1           2,622         97.4
Income before income taxes       564,638        17.9           501,514        19.7          63,124         12.6
Income tax expense               112,689         3.6           118,939         4.7           6,250          5.3
Net income                       451,949        14.3           382,575        15.0          69,374         18.1
Total other comprehensive
(loss) income, net of tax         (8,212)       (0.2)            8,816         0.3         (17,028)      (193.1)
Comprehensive income         $   443,737        14.1  %    $   391,391        15.3  %    $  52,346         13.4  %
Net income per share
Basic                        $     16.43                   $     13.64                   $    2.79
Diluted                      $     16.26                   $     13.47                   $    2.79


Net sales. Net sales by location, brand and channel are as follows:

                                                         Years Ended March 31,
                                           2022             2021                  Change
                                          Amount           Amount          Amount           %
      Net sales by location
      Domestic                         $ 2,167,793      $ 1,761,477      $ 406,316        23.1  %
      International                        982,546          784,164        198,382        25.3
      Total                            $ 3,150,339      $ 2,545,641      $ 604,698        23.8  %

Net sales by brand and channel

      UGG brand
      Wholesale                        $ 1,088,082      $   871,799      $ 216,283        24.8  %
      Direct-to-Consumer                   893,887          845,283         48,604         5.8
      Total                              1,981,969        1,717,082        264,887        15.4
      HOKA brand
      Wholesale                            628,674          405,243        223,431        55.1
      Direct-to-Consumer                   262,920          165,997         96,923        58.4
      Total                                891,594          571,240        320,354        56.1
      Teva brand
      Wholesale                            129,094          105,928         23,166        21.9
      Direct-to-Consumer                    33,643           32,860            783         2.4
      Total                                162,737          138,788         23,949        17.3


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                                                      Years Ended March 31,
                                        2022             2021                  Change
                                       Amount           Amount          Amount           %
         Sanuk brand
         Wholesale                       30,316           26,566          3,750        14.1
         Direct-to-Consumer              12,779           15,274         (2,495)      (16.3)
         Total                           43,095           41,840          1,255         3.0
         Other brands
         Wholesale                       60,573           69,375         (8,802)      (12.7)
         Direct-to-Consumer              10,371            7,316          3,055        41.8
         Total                           70,944           76,691         (5,747)       (7.5)
         Total                      $ 3,150,339      $ 2,545,641      $ 604,698        23.8  %

         Total Wholesale            $ 1,936,739      $ 1,478,911      $ 457,828        31.0  %
         Total Direct-to-Consumer     1,213,600        1,066,730        146,870        13.8
         Total                      $ 3,150,339      $ 2,545,641      $ 604,698        23.8  %



Total net sales increased primarily due to higher HOKA, UGG, and Teva brand
sales across all channels, despite impacts from supply chain constraints,
including extended transit lead times. Further, we experienced an increase of
22.2% in total volume of pairs sold to 51,200 from 41,900 compared to the prior
period. On a constant currency basis, net sales increased by 23.2%, compared to
the prior period. Drivers of significant changes in net sales, compared to the
prior period, were as follows:

•Wholesale net sales of the UGG brand increased globally, driven by growth
across a diversified product lineup, particularly for non-core Women's, core
Men's products such as slippers, as well as Kids' core product lines, including
the benefit of refilling inventory levels as well as our international reset
strategies.

•Wholesale net sales of the HOKA brand increased globally, resulting from market
share gains, including new consumer acquisition, driven by increased brand
awareness through expanded sponsorship events and digital marketing, as well as
core key franchise updates, the addition of new styles, and select door
expansion with key partners.

•Wholesale net sales of the Teva brand increased primarily due to continued
acceleration of US demand, as well as lapping disruptions from the pandemic,
including higher reorders from our customers through the brands' peak sell-in
period during the first half of fiscal year 2022.

•DTC net sales increased primarily due to higher global UGG and HOKA brand
sales. Due to the disruption of our retail store base throughout fiscal year
2021, we are not reporting a comparable DTC net sales metric for fiscal year
2022.

•International net sales, which are included in the reportable operating segment
net sales presented above, increased by 25.3% and represented 31.2% and 30.8% of
total net sales for the years ended March 31, 2022, and 2021, respectively.
These increases were primarily driven by higher international sales for the UGG
and HOKA brand in all channels and regions.

Gross Profit. Gross margin decreased to 51.0% from 54.0%, compared to the prior
period, almost entirely due to higher freight costs, as we incurred a
substantial increase in air freight usage, ocean container rates and third-party
delivery fees. Further, we experienced an unfavorable channel mix shift to
wholesale, partially offset by favorable HOKA brand mix, fewer closeouts, and
favorable changes in foreign currency exchange rates.
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Contents

Selling, general and administrative expenses. The net increase in SG&A costs, compared to the prior period, is mainly the result of the following:

•Increased variable advertising and promotion expenses of approximately $67,100,
primarily due to higher digital marketing and advertising development expenses
for the HOKA and UGG brand to drive global brand awareness and market share
gains, highlight new product categories, and provide localized marketing.

•Increase in other variable net selling expenses of approximately $48,700primarily due to higher warehousing costs, shipping supplies and retail operating costs, as well as higher net insurance costs and higher e-commerce technology costs due to the increase in sales and commissions.

•Increased payroll and related costs of approximately $48,000, primarily due to
higher headcount, including for warehouse teams, and other related compensation,
partially offset by lower annual performance-based compensation.

•Increase in other operating expenses of approximately $20,800primarily due to increased IT and related project costs, sales force costs, travel expenses and amortization expense.

• Currency-related losses increased by $7,200primarily due to unfavorable fluctuations in the US dollar exchange rate against Canadian, Asian and European currency exchange rates.

• Decrease in impairments of operating leases and other long-term assets of approximately $14,500.

• Decrease in expenses for provisions for accounts receivable by approximately $4,400mainly due to a decrease in bad debts to take into account the lower risk of customer default resulting from the ongoing recovery from the pandemic.

Income from Operations. Income (loss) from operations by reportable operating
segment was as follows:
                                                        Years Ended March 31,
                                          2022           2021                  Change
                                         Amount         Amount         Amount           %

Operating income (loss)

       UGG brand wholesale             $ 315,240      $ 292,718      $ 22,522            7.7  %
       HOKA brand wholesale              155,344        111,208        44,136           39.7
       Teva brand wholesale               33,294         27,120         6,174           22.8
       Sanuk brand wholesale               6,463           (162)        6,625        4,089.5
       Other brands wholesale             14,028         21,573        (7,545)         (35.0)
       Direct-to-Consumer                435,414        349,465        85,949           24.6
       Unallocated overhead costs       (395,076)      (297,717)      (97,359)         (32.7)
       Total                           $ 564,707      $ 504,205      $ 60,502           12.0  %



The increase in total income from operations, compared to the prior period, was
primarily due to higher net sales and lower SG&A expenses as a percentage of net
sales, partially offset by lower gross margin driven by higher freight costs.
Drivers of significant net changes in total income from operations, compared to
the prior period, were as follows:

• The increase in DTC’s operating income was driven by higher net sales and lower impairments at corporate-owned retail stores, partially offset by higher e-commerce variable operating costs and the increase in variable selling costs.

•The increase in income from operations of HOKA and UGG brand wholesale was due
to higher net sales, partially offset by lower gross margin driven by higher
freight costs, as well as higher variable marketing expenses.

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•The increase in unallocated overhead costs was primarily due to higher
operating expenses, including warehousing fees, net insurance costs, IT costs,
shipping supplies, depreciation expense, higher payroll and related costs driven
by higher headcount, as well as higher foreign currency-related losses and
variable advertising and promotion expenses.

Other expenses, net. Total other expense, net, compared to the prior period, decreased due to lower interest expense resulting from the repayment of our mortgage in fiscal 2021.

Income Tax Expense. Income tax expense and our effective income tax rate were as
follows:
                                                 Years Ended March 31,
                                                  2022                   2021
         Income tax expense            $                  112,689    $    118,939
         Effective income tax rate                        20.0  %       23.7    %



The decrease in our effective income tax rate, compared to the prior period, was
due to higher net discrete tax benefits, primarily driven by favorable releases
of uncertain tax positions, tax deductions for stock-based compensation, and
increased benefits for return to provision adjustments, as well as changes in
the jurisdictional mix of worldwide income before income taxes.

Foreign income before income taxes was $168,270 and $133,186 and worldwide
income before income taxes was $564,638 and $501,514 during the years ended
March 31, 2022, and 2021, respectively. The increase in foreign income before
income taxes as a percentage of worldwide income before income taxes, compared
to the prior period, was primarily due to higher foreign gross margin as a
percentage of worldwide sales.

For the years ended March 31, 2022, and 2021, we did not generate significant
pre-tax earnings from any countries which do not impose a corporate income tax.
A small portion of our unremitted accumulated earnings of non-US subsidiaries,
for which no US federal or state income tax have been provided, are currently
expected to be reinvested outside of the US indefinitely. Such earnings would
become taxable upon the sale or liquidation of these subsidiaries. Refer to the
section titled "Liquidity" below for further information.

Net Income. The increase in net income, compared to the prior period, was due to
higher net sales, partially offset by lower gross margin. Net income per share
increased, compared to the prior period, due to higher net income, combined with
lower weighted-average common shares outstanding, driven by higher stock
repurchases.

Total other comprehensive income, net of tax. The increase in total other comprehensive income, net of tax, compared to the prior period, is due to higher foreign exchange losses related to changes in our net asset position for the unfavorable foreign exchange rates of European and Asian currencies.

Liquidity

We finance our working capital and operating requirements using a combination of
our cash and cash equivalents balances, cash provided from ongoing operating
activities and, to a lesser extent, available borrowings under our revolving
credit facilities. Our working capital requirements begin when we purchase raw
materials and inventories and continue until we ultimately collect the resulting
trade accounts receivable. Given the historical seasonality of our business, our
working capital requirements fluctuate significantly throughout the fiscal year,
and we utilize available cash to build inventory levels during certain quarters
in our fiscal year to support higher selling seasons.

As of March 31, 2022, our cash and cash equivalents are $843,527. While we are
subject to uncertainty surrounding the pandemic, we believe our cash and cash
equivalents balances, cash provided from ongoing operating activities, and
available borrowings under our revolving credit facilities, will provide
sufficient liquidity to enable us to meet our working capital requirements,
contractual obligations, and timely service our debt obligations for at least
the next 12 months.

Our liquidity may be impacted by additional factors, including our results of
operations, the strength of our brands, impacts of seasonality and weather
conditions, our ability to respond to changes in consumer preferences and
tastes, the timing of capital expenditures and lease payments, our ability to
collect our trade accounts receivables in a timely manner and effectively manage
our inventories, including estimating inventory requirements
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that require earlier purchasing windows to manage supply chain constraints, our
ability to respond to the impacts and disruptions caused by the pandemic, and
our ability to respond to economic, political and legislative developments.
Furthermore, we may require additional cash resources due to changes in business
conditions, strategic initiatives, or stock repurchase strategy, a national or
global economic recession, or other future developments, including any
investments or acquisitions we may decide to pursue, although we do not have any
present commitments with respect to any such investments or acquisitions.

As discussed above under the heading "Trends and Uncertainties Impacting Our
Business and Industry," the pandemic has continued to create supply chain
challenges that will impact the availability of inventory over the next few
quarters as well as increased costs to mitigate these delays, which we expect to
adversely impact our results of operations in our next fiscal year. If there are
unexpected material impacts to our business in future periods from the pandemic
and we need to raise or conserve additional cash to fund our operations, we may
seek to borrow under our revolving credit facilities, seek new or modified
borrowing arrangements, or sell additional debt or equity securities. The sale
of convertible debt or equity securities could result in additional dilution to
our stockholders, and equity securities may have rights or preferences that are
superior to those of our existing stockholders. The incurrence of additional
indebtedness would result in additional debt service obligations, as well as
covenants that would restrict our operations and further encumber our assets. In
addition, there can be no assurance that any additional financing will be
available on acceptable terms, if at all. Although we believe we have adequate
sources of liquidity over the long term, a prolonged or more severe economic
recession, inflationary pressure, or a slow recovery could adversely affect our
business and liquidity.

Repatriation of Cash. We repatriated $120,000 and $175,000 of cash and cash
equivalents during the years ended March 31, 2022, and 2021, respectively. As of
March 31, 2022, we have $133,053 of cash and cash equivalents outside the US and
held by foreign subsidiaries, a portion of which may be subject to additional
foreign withholding taxes if it were to be repatriated. Beginning with the tax
year ended March 31, 2018, pursuant to the Tax Reform Act, an installment
election was made to pay the one-time transition tax on the deemed repatriation
of foreign subsidiaries' earnings over eight years. The cumulative remaining
balance as of March 31, 2022, is $38,263. We continue to evaluate our cash
repatriation strategy and we currently anticipate repatriating current and
future unremitted earnings of non-US subsidiaries, to the extent they have been
and will be subject to US tax, if such cash is not required to fund ongoing
foreign operations. Our cash repatriation strategy, and by extension, our
liquidity, may be impacted by several additional considerations, which include
clarifications of, future changes to, or interpretations of global tax law and
regulations, and our actual earnings for current and future periods. Refer to
Note 5, "Income Taxes," of our consolidated financial statements in Part IV
within this Annual Report for further information on the impacts of the recent
Tax Reform Act.

Stock Repurchase Programs. We continue to evaluate our capital allocation
strategy, and to consider further opportunities to utilize our global cash
resources in a way that will profitably grow our business, meet our strategic
objectives and drive stockholder value, including by potentially repurchasing
additional shares of our common stock. Our stock repurchase programs do not
obligate us to acquire any amount of common stock and may be suspended at any
time at our discretion. As of March 31, 2022, the aggregate remaining approved
amount under our stock repurchase programs is $454,007. Subsequent to March 31,
2022, through May 5, 2022, we repurchased 176,046 shares for $47,997 at an
average price of $272.64 per share and had $406,010 remaining authorized under
the stock repurchase program.

Capital Resources

Primary Credit Facility. In September 2018, we refinanced in full and terminated
our Second Amended and Restated Credit Agreement dated as of November 13, 2014,
as amended. The refinanced revolving credit facility agreement (Credit
Agreement) is with JPMorgan Chase Bank, N.A. (JPMorgan), as the administrative
agent, Citibank, N.A., Comerica Bank (Comerica) and HSBC Bank USA, N.A., as
co-syndication agents, MUFG Bank, Ltd. and US Bank National Association as
co-documentation agents, and the lenders party thereto, with JPMorgan and
Comerica acting as joint lead arrangers and joint bookrunners. The Credit
Agreement provides for a five-year, $400,000 unsecured revolving credit facility
(Primary Credit Facility), contains a $25,000 sublimit for the issuance of
letters of credit, and matures on September 20, 2023.

As of March 31, 2022, we have no outstanding balance, outstanding letters of
credit of $549, and available borrowings of $399,451 under our Primary Credit
Facility.

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China Credit Facility. Our revolving credit facility in China (China Credit
Facility) is an uncommitted revolving line of credit of up to CNY300,000, or
$47,286.

From March 31, 2022we have no outstanding balances, current bank guarantees $32and the loans available from $47,254 under our credit facility in China.

Japan Credit Facility. Our revolving credit facility in Japan (Japan Credit Facility) is an uncommitted revolving line of credit of up to ¥3,000,000Where
$24,623. We renewed the Japanese credit facility by January 31, 2023essentially under the terms of the original credit agreement.

From March 31, 2022we have no outstanding balances and available loans of
$24,623 under our credit facility in Japan.

Debt commitments. From March 31, 2022we are meeting all financial covenants under our revolving credit facilities.

Refer to Note 6, "Revolving Credit Facilities," of our consolidated financial
statements in Part IV within this Annual Report for further information on our
capital resources.

Cash Flows

The following table summarizes the main components of our consolidated statements of cash flows for the periods presented:

                                                               Years Ended March 31,
                                                 2022           2021                  Change
                                                Amount         Amount          Amount           %

Net cash flow generated by operating activities $172,353 $596,217 ($423,864) (71.1)% Net cash used in investing activities

           (51,009)       (32,169)        (18,840)       (58.6)
Net cash used in financing activities          (367,482)      (129,581)       (237,901)      (183.6)
Effect of foreign currency exchange rates on
cash and cash equivalents                           304          5,458      

(5,154) (94.4) Net change in cash and cash equivalents ($245,834) $439,925 ($685,759) (155.9)%



Operating Activities. Our primary source of liquidity is net cash provided by
operating activities, which is primarily driven by our net income, other cash
receipts and expenditure adjustments, and changes in working capital.

The decrease in net cash provided by operating activities during the year ended
March 31, 2022, compared to the prior period, was primarily due to a net
unfavorable change in operating assets and liabilities, partially offset by
favorable net income after non-cash adjustments. The changes in operating assets
and liabilities were primarily due to net unfavorable changes in inventories,
other accrued expenses, trade accounts receivable, net, income tax payable,
other assets, and income tax receivable, partially offset by a net favorable
change in trade accounts payable.

Investing Activities. The increase in net cash used in investing activities
during the year ended March 31, 2022, compared to the prior period, was
primarily due to higher capital expenditures for our second US DC, as well as
higher showrooms and IT costs, partially offset by lower capital expenditures
for retail stores.

Financing Activities. The increase in net cash used in financing activities
during the year ended March 31, 2022, compared to the prior period, was
primarily due to higher stock repurchases, higher cash paid for shares withheld
for taxes, and lower proceeds from exercise of stock options, partially offset
by the mortgage repayment during fiscal year 2021.

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Contractual Obligations

The following table summarizes our main contractual obligations as of
March 31, 2022and the effects of these obligations in future periods:

                                                          Payments Due by Period
                                                   Less than                                     More than
                                    Total           1 Year         1-3 Years      3-5 Years       5 Years
 Operating lease obligations
 (1)                            $   238,754      $    53,886      $  83,667      $  58,651      $  42,550
 Purchase obligations for
 product (2)                        809,812          809,812              -              -              -
 Purchase obligations for
 commodities (3)                    206,979           99,066        107,913              -              -
 Other purchase obligations (4)     207,651           69,057         66,073         72,521              -

Net unrecognized tax benefits

 (5)                                  8,642                -          8,642              -              -
 Total                          $ 1,471,838      $ 1,031,821      $ 266,295      $ 131,172      $  42,550



(1)Our operating lease commitments consist primarily of building leases for our
retail locations, our warehouse and DCs, and regional offices, and include the
undiscounted cash lease payments owed under the terms of our operating lease
agreements. In April 2022 we signed a lease for additional space at our US DC in
Mooresville, Indiana with an initial lease term of ten years for a minimum
commitment of approximately $46,000, which we expect to operational in the third
quarter of our fiscal year ending March 31, 2024. Refer to Note 7, "Leases and
Other Commitments," of our consolidated financial statements in Part IV within
this Annual Report for further information on our operating lease assets and
lease liabilities.

(2)Our purchase obligations for product consist mostly of open purchase orders
issued in the ordinary course of business. Outstanding purchase orders are
primarily issued to our third-party manufacturers and are expected to be paid
within one year. We can cancel a significant portion of the purchase obligations
under certain circumstances; however, the occurrence of such circumstances is
generally limited. As a result, the amount does not necessarily reflect the
dollar amount of our binding commitments or minimum purchase obligations, and
instead reflects an estimate of our future payment obligations based on
information currently available. Due to increased demand for certain products
combined with longer logistics lead times and increased transit times from
origin to destination as a result of supply chain disruptions, we are currently
expecting that our inventory purchases with our third-party manufacturers will
be significantly higher for our next fiscal year compared to fiscal year 2022.

(3)Our purchase obligations for commodities include sheepskin, UGGpure, and
leather, and represent remaining commitments under existing supply agreements,
which are subject to minimum volume commitments. We expect that purchases made
by us under these agreements in the ordinary course of business will eventually
exceed the minimum commitment levels. There are $33,120 of deposits included in
the amount above that have not been fully consumed as of March 31, 2022, which
is recorded in other assets in the consolidated balance sheets, which represent
remaining minimum commitments under certain expired sheepskin supply agreements
that we currently expect to be consumed in future periods.

(4)Our other purchase obligations consist of non-cancellable minimum commitments
for logistics arrangements, sales management services, supply chain services, IT
services, requirements to pay promotional expenses, and other commitments under
service contracts, which are due during our fiscal years ending March 31, 2023
through 2027. Amounts excluded from other purchase obligations above include any
capital expenditures that will be purchased before the end of our next fiscal
year, which we estimate will range from approximately $100,000 to $110,000. We
anticipate these expenditures will primarily relate to the build-out of a third
US DC, IT infrastructure and system upgrades, and refreshes to our global retail
store fleet including new retail stores. Other anticipated expenditures include
upgrades to our existing warehouse and DCs as well as our global office
facilities. However, the actual amount of our future capital expenditures may
differ significantly from this estimate depending on numerous factors, including
the timing of facility openings, as well as unforeseen needs to replace existing
assets, and the timing of other expenditures.
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(5)Net unrecognized tax benefits are gross unrecognized tax benefits, less
federal benefit for state income taxes, related to uncertain tax positions taken
in our income tax return that would impact our effective tax rate, if
recognized. As of March 31, 2022, the timing of future cash outflows is highly
uncertain related to expirations of statute of limitations on liabilities of
$14,791, therefore we are unable to make a reasonable estimate of the period of
cash settlement. Refer to Note 5, "Income Taxes," of our consolidated financial
statements in Part IV within this Annual Report for further information on our
uncertain tax positions.

Refer to Note 7, "Leases and Other Commitments," of our consolidated financial
statements in Part IV within this Annual Report for further information on our
operating leases, purchase obligations, capital expenditures, and other
contractual obligations and commitments.

Significant Accounting Policies and Estimates

Management must make certain estimates and assumptions that affect the amounts
reported in the consolidated financial statements based on historical
experience, existing and known circumstances, authoritative accounting
pronouncements and other factors that management believes to be reasonable, but
actual results could differ materially from these estimates. Management believes
the following critical accounting estimates are most significantly affected by
judgments and estimates used in the preparation of our consolidated financial
statements: allowances for doubtful accounts, estimated sales return liability,
sales discounts and customer chargebacks, inventory valuations, valuation of
goodwill, other intangible assets and long-lived assets, and performance-based
stock compensation. The full impact of the ongoing pandemic is unknown and
cannot be reasonably estimated for these key estimates. However, we made
appropriate accounting estimates based on the facts and circumstances available
as of the reporting date. To the extent there are differences between these
estimates and actual results, our consolidated financial statements may be
materially affected.

Refer to Note 1, “General”, to our Consolidated Financial Statements in Part IV of this Annual Report for a discussion of our significant accounting policies and use of estimates, as well as the impact of recent accounting positions.

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. We recognize revenue and measure the transaction price net of
taxes, including sales taxes, use taxes, value-added taxes, and some types of
excise taxes, collected from customers and remitted to governmental authorities.
We present revenue gross of fees and sales commissions. Sales commissions are
expensed as incurred and are recorded in SG&A expenses in the consolidated
statements of comprehensive income.

Wholesale and international distributor revenue are each recognized either when
products are shipped or when delivered, depending on the applicable contract
terms. Retail store and e-commerce revenue are recognized at the point of sale
and upon shipment, respectively. Shipping and handling costs paid to third-party
shipping companies are recorded as cost of sales in the consolidated statements
of comprehensive income. Shipping and handling costs are a fulfillment service,
and, for certain wholesale and all e-commerce transactions, revenue is
recognized when the customer is deemed to obtain control upon the date of
shipment.

Refer to Note 2, "Revenue Recognition," of our consolidated financial statements
in Part IV within this Annual Report for further information regarding the
components of variable consideration, including allowances for sales discounts,
chargebacks, and our sales return liability.
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Allocations of accounts receivable. The following table summarizes the critical accounting estimates for accounts receivable allowances and reserves:

                                                             As of March 31,
                                                 2022                               2021
                                                      % of Gross                         % of Gross
                                                    Trade Accounts                     Trade Accounts
                                      Amount          Receivable         Amount          Receivable
Gross trade accounts receivable     $ 333,279              100.0  %    $ 242,234              100.0  %
Allowance for doubtful accounts        (9,044)              (2.7)         (9,730)              (4.0)
Allowance for sales discounts          (2,831)              (0.9)         (3,016)              (1.2)
Allowance for chargebacks             (18,716)              (5.6)        (13,770)              (5.7)
Trade accounts receivable, net      $ 302,688               90.8  %    $ 215,718               89.1  %



Allowance for Doubtful Accounts. We provide an allowance against trade accounts
receivable for estimated losses that may result from customers' inability to
pay. We determine the amount of the allowance by analyzing known uncollectible
accounts, aged trade accounts receivable, economic conditions and forecasts,
historical experience, and the customers' creditworthiness. Trade accounts
receivable that are subsequently determined to be uncollectible are charged or
written off against this allowance. The allowance includes specific allowances
for trade accounts, of which all or a portion are identified as potentially
uncollectible based on known or anticipated losses. Our use of different
estimates and assumptions could produce different financial results.

Allowance for Sales Discounts. We provide a trade accounts receivable allowance
for sales discounts for our wholesale channel sales, which reflects a discount
that our customers may take, generally based on meeting certain order, shipment
or prompt payment terms. We use the amount of the discounts that are available
to be taken against the period end trade accounts receivable to estimate and
record a corresponding reserve for sales discounts.

Allowance for Chargebacks. We provide a trade accounts receivable allowance for
chargebacks and markdowns for our wholesale channel sales. When customers pay
their invoices, they may take deductions against their invoices that can include
chargebacks for price differences, markdowns, short shipments, and other
reasons. Therefore, we record an allowance primarily for known circumstances as
well as unknown circumstances based on historical trends related to the timing
and amount of chargebacks taken against customer invoices.

Sales Return Liability. The following tables summarize estimates for our sales
return liability as a percentage of the most recent quarterly net sales by
channel:

                                                 Three Months Ended March 31,
                                            2022                                   2021
                                 Amount            % of Net Sales       Amount        % of Net Sales
 Net Sales
 Wholesale                $      448,848                   61.0  %    $ 326,106               58.1  %
 Direct-to-Consumer              287,159                   39.0         235,082               41.9
 Total                    $      736,007                  100.0  %    $ 561,188              100.0  %

                                                        As of March 31,
                                            2022                                   2021
                                 Amount            % of Net Sales       Amount        % of Net Sales
 Sales Return Liability
 Wholesale                $      (31,082)                  (6.9) %    $ (23,987)              (7.4) %
 Direct-to-Consumer               (8,785)                  (3.1)        (13,730)              (5.8)
 Total                    $      (39,867)                  (5.4) %    $ (37,717)              (6.7) %


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Reserves are recorded for anticipated future returns of goods shipped prior to
the end of the reporting period. In general, we accept returns for damaged or
defective products for up to one year. We also have a policy whereby returns are
generally accepted from customers between 30 to 90 days from the point of sale
for cash or credit. Amounts of these reserves are based on known and actual
returns, historical returns, and any recent events that could result in a change
from historical return rates. Sales returns are an asset for the right to
recover the inventory and a refund liability for the stand-ready right of
return. Changes to the refund liability are recorded against gross sales and
changes to the asset for the right to recover the inventory are recorded against
cost of sales. For our wholesale channel, we base our estimate of sales returns
on any approved customer requests for returns, historical returns experience,
and any recent events that could result in a change from historical returns
rates, among other factors. For our DTC channel and reportable operating
segment, we estimate sales returns using a lag compared to the same prior period
and consider historical returns experience and any recent events that could
result in a change from historical returns, among other factors. Our use of
different estimates and assumptions could produce different financial results.

Inventories. The following tables summarize our inventory estimates:

                                                          As of March 31,
                                             2022                                  2021
                                                 % of Gross                            % of Gross
                                Amount            Inventory           Amount            Inventory
Gross Inventories             $ 527,531                 100.0  %    $ 297,874                 100.0  %
Write-down of inventories       (20,735)                 (3.9)        (19,632)                 (6.6)
Inventories                   $ 506,796                  96.1  %    $ 278,242                  93.4  %



We review inventory on a regular basis for excess, obsolete, and impaired
inventory to evaluate write-downs to the lower of cost or net realizable value.
Our use of different estimates and assumptions could produce different financial
results.

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

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

Refer to Note 7, “Leases and Other Commitments”, to our Consolidated Financial Statements in Part IV of this Annual Report for more information, including more details on our accounting policy choices and information to provide.

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Goodwill and Indefinite-Lived Intangible Assets. We do not amortize goodwill and
indefinite-lived intangible assets but instead test for impairment annually, or
when an event occurs or changes in circumstances indicate the carrying value may
not be recoverable at the reporting unit level. First, we determine if, based on
qualitative factors, it is more likely than not that an impairment exists.
Qualitative factors considered include significant or adverse changes in
consumer demand, historical financial performance, changes in management or key
personnel, macroeconomic and industry conditions, and the legal and regulatory
environment. If the qualitative assessment indicates that it is more likely than
not that an impairment exists, then a quantitative assessment is performed. The
quantitative assessment requires an analysis of several best estimates and
assumptions, including future sales and results of operations, discount rates,
and other factors that could affect fair value or otherwise indicate potential
impairment. We also consider the reporting units' projected ability to generate
income from operations and positive cash flow in future periods, as well as
perceived changes in customer demand and acceptance of products, or other
factors impacting our industry. The fair value assessment could change
materially if different estimates and assumptions were used.

During the years ended March 31, 2022, and 2021, we performed our annual
impairment assessment and evaluated the UGG and HOKA brands' wholesale
reportable operating segment goodwill as of December 31st and evaluated our Teva
indefinite-lived trademarks as of October 31st. Based on the carrying amounts of
the UGG and HOKA brands' goodwill and Teva brand indefinite-lived trademarks,
each of the brands' actual fiscal year sales and results of operations, and the
brands' long-term forecasts of sales and results of operations as of their
evaluation dates, we concluded that these assets were not impaired.

Refer to Note 1, "General," and Note 3, "Goodwill and Other Intangible Assets,"
of our consolidated financial statements in Part IV within this Annual Report
for further information on our goodwill and indefinite-lived intangible assets
and annual impairment assessment results.

Definite-Lived Intangible and Other Long-Lived Assets. Definite-lived intangible
and other long-lived assets, including definite-lived trademarks, machinery and
equipment, internal-use software, operating lease assets and related leasehold
improvements, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable. At least quarterly, we evaluate factors that would
necessitate an impairment assessment, which include a significant adverse change
in the extent or manner in which an asset is used, a significant adverse change
in legal factors or the business climate that could affect the value of the
asset or a significant decline in the observable market value of an asset, among
others.

When an impairment-triggering event has occurred, we test for recoverability of
the asset group's carrying value using estimates of undiscounted future cash
flows based on the existing service potential of the applicable asset group. In
determining the service potential of a long-lived asset group, we consider the
remaining useful life, cash-flow generating capacity, and physical output
capacity. These estimates include the undiscounted future cash flows associated
with future expenditures necessary to maintain the existing service potential.
These assets are grouped with other assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of
other assets and liabilities. If impaired, the asset or asset group is written
down to fair value based on either discounted future cash flows or appraised
values. An impairment loss, if any, would only reduce the carrying amount of
long-lived assets in the group based on the fair value of the asset group.

We did not identify any definite-lived intangible asset impairments during the
year ended March 31, 2022. During the year ended March 31, 2021, we recorded an
impairment loss of $3,522 for the Sanuk brand definite-lived international
trademark, driven by the strategic decision to focus primarily on future
domestic growth, within our Sanuk brand wholesale reportable operating segment
in SG&A expenses in the consolidated statements of comprehensive income.

During the years ended March 31, 2022, and 2021, we recorded impairment losses
for other long-lived assets, primarily for certain retail store operating lease
assets and related leasehold improvements due to performance or store closures,
of $3,186 and $14,084, respectively, within our DTC reportable operating segment
in SG&A expenses in the consolidated statements of comprehensive income.

Refer to Note 1, "General," and Note 3, "Goodwill and Other Intangible Assets,"
of our consolidated financial statements in Part IV within this Annual Report
for further information on our definite-lived intangible and other long-lived
assets.

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Performance-Based Compensation. In accordance with applicable accounting
guidance, we recognize performance-based compensation expense, including
performance-based stock compensation and annual cash bonus compensation, when it
is deemed probable that the applicable performance criteria will be met.
Performance-based compensation does not include time-based awards subject only
to service-based conditions. We evaluate the probability of achieving the
applicable performance criteria on a quarterly basis. Our probability assessment
can fluctuate from quarter to quarter as we assess our projected results against
performance criteria. As a result, the related performance-based compensation
expense we recognize may also fluctuate from period to period.

At the beginning of each fiscal year, our Talent & Compensation Committee
reviews our results of operations from the prior fiscal year, as well as the
financial and strategic plan for future fiscal years. Our Talent & Compensation
Committee then establishes specific annual financial and strategic goals.
Vesting of performance-based stock compensation or recognition of cash bonus
compensation is based on our achievement of certain targets for annual revenue,
operating income, and pre-tax income, as well as achievement of predetermined
individual financial performance criteria that is tailored to individual
employees based on their roles and responsibilities with us. The performance
criteria, as well as our annual targets, differ each fiscal year and are based
on many factors, including our current business stage and strategies, our recent
financial and operating performance, expected growth rates over the prior fiscal
year's performance, business and general economic conditions and market and peer
group analysis.

Performance-based compensation expense decreased approximately $2,900 during the
year ended March 31, 2022, compared to the year ended March 31, 2021. The
primary reason for this net decrease was the lower achievement of the
performance criteria governing our cash bonuses compared to the prior period,
partially offset by the expected achievement of the maximum performance criteria
for the 2021 and 2020 long-term incentive plan performance-based restricted
stock units. Performance-based compensation expense is primarily recorded in
SG&A expenses, with cash bonuses for certain employees recorded in cost of goods
sold in the consolidated statements of comprehensive income.

Refer to Note 8, “Stock-Based Compensation,” to our Consolidated Financial Statements in Part IV of this Annual Report for more information on our performance-based stock-based compensation.

Income Taxes. Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates that will be in effect for the years in which those tax assets
and liabilities are expected to be realized or settled. We record a valuation
allowance to reduce deferred tax assets to the amount that is believed more
likely than not to be realized. We believe it is more likely than not that
forecasted income, together with future reversals of existing taxable temporary
differences, will be sufficient to recover our deferred tax assets. In the event
that we determine all, or part of our net deferred tax assets are not realizable
in the future, we will record an adjustment to the valuation allowance and a
corresponding charge to earnings in the period such determination is made.

The calculation of tax liabilities involves significant judgment in estimating
the impact of uncertainties in the application of US GAAP and complex tax laws.
Resolution of these uncertainties in a manner inconsistent with our expectations
could have a material impact on our financial condition and results of
operations. We recognize tax benefits from uncertain tax positions only if it is
more likely than not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax
benefits recorded in the consolidated financial statements from such positions
are then measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement.

We determine on a regular basis the amount of undistributed earnings that will
be indefinitely reinvested in our non-US operations. This assessment is based on
the cash flow projections and operational and fiscal objectives of each of our
US and foreign subsidiaries. A cash distribution of income from foreign
subsidiaries that was previously taxed earnings and profits (PTEP) by the US
Internal Revenue Service does not require recognition of a deferred tax
liability as the liability has already been recognized under the Tax Reform Act.
We have not changed our indefinite reinvestment assertion of foreign earnings
other than PTEP.

Refer to Note 5, "Income Taxes," of our consolidated financial statements in
Part IV within this Annual Report for further information on our income taxes
and tax strategy.

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