Deckers Outdoor
Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT 2015 ANNUAL REPORT Dear Fellow Shareholders, 2015 Shareholder Letter In the future when we reflect on fiscal 2015, I am confident that it will be viewed as an important inflection point in the evolution of our Company. As a result of the investments we have made in product innovation, marketing and technology, the connection between our brands and consumers has never been stronger. At the same time, our business has become more diversified in terms of collections, channels and geographies. Our focus on the consumer and on diversifying has created the most compelling opportunities for growth in the Company’s forty-year history. With great teams in place across the organization and an enhanced global infrastructure, the stage is set for us to take Deckers Brands to the next level. Our recent success can be measured quantitatively as well. In fiscal 2015, we grew sales nearly 15% to a record $1.8 billion highlighted by double digit growth for the UGG®, Teva®, Sanuk® and HOKA ONE ONE® brands and a 7.8% increase in Direct-To-Consumer (DTC) comparable sales. We also expanded earnings per share nearly 15% to $4.66, while simultaneously investing in strategic initiatives that we believe will drive sustained growth and increased profitability over the long-term. We ended fiscal 2015 in a very strong financial position with over $225 million in cash, even after buying back 1.4 million shares of our common stock for $107 million during the year. Further underscoring our commitment to generating shareholder value, the board of directors authorized another $200 million share repurchase program in January. Our Brands Our brands are now more strategic than ever in how they develop product. For the UGG brand, we have successfully evolved the lifestyle nature of the brand by building on the strong foundation created by the enduring popularity of core classics. The key to this strategy has been to infuse the luxurious comfort that consumers love about classics into new collections across both footwear and non-footwear categories. The work we have done to grow our product categories over the past several years culminated in the most diverse holiday product performance we have ever experienced when demand for specialty classics, weather and casual product outpaced expectations. This demand created momentum that further advances our product diversification strategy. We saw this when our wholesale accounts shifted more of their future inventory commitments towards non-core categories when they booked their orders for Fall 2015. As I look ahead, I believe UGG is still in the beginning stages of leveraging the love consumers have for UGG comfort to drive diversified growth globally. Teva had an exciting and productive year in fiscal 2015. A year ago the brand embarked on a new strategic course focusing on its roots as the original sport sandal. Building on the brand’s “original” foundation, we have successfully extended Teva’s sandal offering while also infusing design elements from its heritage collections into other categories. The brand’s new direction has garnered significant industry and media attention and led to several high- profile collaborations. The increased publicity, along with our enhanced product development and marketing programs, has placed Teva at the forefront of current footwear trends, which is attracting new and returning consumers to the brand. As a result, Teva is successfully repositioning itself from being a traditional outdoor brand into a broader, active lifestyle brand. We believe that all of these changes are creating greater relevance domestically, while also helping to grow international brand awareness where Teva’s market share is underpenetrated. The transformation of Sanuk over the past few years has been remarkable. When we acquired Sanuk in 2011, it was primarily a men’s surf brand with limited distribution outside of core action sports retailers. By focusing our efforts on growing the women’s business through the development of compelling product like the Yoga Sling collection, we have evolved Sanuk into a global lifestyle brand that now sells in leading department stores and mainstream specialty retailers. With the business now evenly split between men and women, the brand has created significantly more opportunities to expand shelf space with existing partners, as well as to open up new distribution opportunities worldwide. We believe we can achieve this by continuing to develop comfort product that is true to the brand, while addressing the desires of a more style-conscious consumer who is looking for fresh colors, prints, and new materials in their sandals and casual shoes. In last year’s shareholder letter, I wrote that HOKA was on to something big. One year later I am happy to report that the brand continues to perform exceptionally well. Bolstered by an expanded line of great products, accolades from esteemed media publications and consumers who are fanatical about the brand, HOKA made the leap from a niche brand for serious runners into a brand for a broad range of runners. The enthusiasm for the brand is growing every day and with new product introductions and expanded distribution to sporting goods stores, we believe we are well- positioned to capitalize on the tremendous opportunity in front of HOKA. With respect to our emerging brands, including Anhu® and recently acquired Koolaburra®, we see great potential for growth. Beginning with Anhu, we are focused on establishing the brand as the leader in performance-based Yoga footwear. This is a burgeoning category that we believe will benefit from consumers’ growing desire for active lifestyle product that supports health and wellness. We are also optimistic about the latest addition to our brand portfolio, Koolaburra. We plan to re-launch Koolaburra as a more accessible comfort brand for the mid-tier channels that will allow us to compete against lower-priced, classic knockoff brands. Our Omni-Channel Evolution We opened our first concept store in December of 2006 to go along with our domestic branded E-Commerce websites. That year we did $36 million in DTC sales. At the end of fiscal 2015, we operated 142 stores, and generated $617 million in DTC sales. Over the past several years, we have transformed our company from a North American wholesaler into a global, multi-channel operator. Our enhanced Omni-Channel strategy has fueled the majority of our growth, and more importantly, has given us more control over the direction of our brands and the consumer experience. I am proud of the amount of planning and effort that our organization has put into envisioning and developing our Omni-Channel capabilities. With the investments we have made in technology, combined with the shift in consumer shopping behavior, it is not surprising that E-Commerce has been our fastest growing channel. Our teams have done an excellent job delivering the brand experience digitally and providing world class customer service. This past year we refreshed the North American sites for all of our brands and launched new international sites that reach our consumers in their local language. All of our new sites deliver an improved mobile experience and make it easier for consumers to shop from a mobile device. We continue to intertwine our stores with our E-Commerce sites through technological initiatives that make purchasing our products as easy and seamless as possible. This past year we further expanded Infinite UGG, which gives our stores the ability to sell every SKU available from the UGG brand through our in-store POS system. We also launched Retail Inventory Online and “Click and Collect”; both programs leverage the advantages of an in-store experience and online accessibility to deliver an elevated consumer experience. Additionally, we are continuing to adapt and adjust our DTC expansion strategy in order to best serve our consumers and maintain our strong operating margins. In fiscal 2015 we opened 30 new stores. Our enhanced Omni-Channel capabilities have allowed us to refine our store model to a smaller footprint with lower buildout costs and reduced inventory levels. During the past year we made several strategic decisions to drive long-term growth and increased profitability. Notably, we converted our German distributor to a subsidiary in order to better capitalize on the opportunities we see in this large and important market. We are confident that Germany can evolve into one of our top performing international countries given favorable economics, demographics and climate. Another important initiative has been the growth of our partner retail business, specifically in China, where our partners operated 23 doors at fiscal 2015 year-end. By pursuing a partner model in China, we are able to more efficiently penetrate this market with less committed capital. This model frees up resources so that our DTC team can focus on the top-tier cities, particularly Shanghai and Beijing. With our sights set firmly on the future, we have spent the last few years investing in an enhanced global infrastructure to support long-term growth. While a good deal of the heavy lifting has been completed and we can begin to leverage these investments, we must continue to make investments in our brands and technology that will get us closer to the consumer. Next steps include developing a loyalty program and CRM capabilities that will improve our knowledge and understanding of our consumers in order to drive increased engagement and conversion. Our Future Deckers transformation is taking place at a time when the retail industry is changing dramatically. In the face of stiff industry headwinds, we successfully navigated through challenges, executed our strategic plans and delivered mid- teens sales and earnings growth in fiscal 2015. Given this dynamic environment, we believe it is of paramount importance to continually adapt and evolve. It is clear that in order to compete, retail companies cannot just develop good products, they must nurture strong brands, and create ways for consumers to access those brands in seamless and integrated ways. Delivering a brand experience and connecting with the consumer is at the heart of who we are as a company. With a team of great people who are passionate about our business, we are moving at full throttle to build on our market leading positions. I am very excited about the opportunities that exist in front of us as we leverage the strength of our brand portfolio to drive sustainable growth and profitability. I sincerely thank everyone for their support, and I believe fiscal 2016 will be another year filled with important progress as we execute on our plan to further diversify and grow our business globally. Angel Martinez Chair of the Board and Chief Executive Officer UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark one)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended March 31, 2015oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to Commission File No. 0-22446DECKERS OUTDOOR CORPORATION(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)95-3015862(I.R.S. EmployerIdentification No.)250 Coromar Drive, Goleta, California (Address of principal executive offices)93117 (Zip Code)Registrant's telephone number, including area code: (805) 967-7611Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon Stock, par value $0.01 per shareNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. Yes o No ýIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes ý No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and willnot be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Large accelerated filer ýAccelerated filer oNon-accelerated filer o (Do not check if a smaller reportingcompany)Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýAs of September 30, 2014, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting stock held by the non-affiliates of the registrant was approximately $3,280,043,169, based on the number of shares held by non-affiliates of theregistrant as of that date, and the last reported sale price of the registrant's common stock on The New York Stock Exchange (NYSE) on that date, which was$97.18. This calculation does not reflect a determination that persons are affiliates for any other purposes.The number of shares of the registrant's Common Stock outstanding at May 15, 2015 was 33,296,968.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement on Schedule 14A relating to the registrant's 2015 annual meeting of stockholders, to be filed with theSecurities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated byreference into Part III of this Annual Report on Form 10-K. With the exception of the portions of the Proxy Statement specifically incorporated herein byreference, the Proxy Statement and related proxy solicitation materials are not deemed to be filed as part of this Annual Report on Form 10-K.DECKERS OUTDOOR CORPORATIONFor the Fiscal Year Ended March 31, 2015Table of Contents to Annual Report on Form 10-KPagePART I38191920Item 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff Comments Item 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety Disclosures20PART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities21233849505050Item 6. Selected Financial DataItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and ProceduresItem 9B. Other Information51PART IIIItem 10. Directors, Executive Officers and Corporate Governance52Item 11. Executive Compensation52Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 52Item 13. Certain Relationships and Related Transactions, and Director Independence52Item 14. Principal Accounting Fees and Services52PART IV5356Item 15. Exhibits, Financial Statement SchedulesSignaturesIndex to Consolidated Financial Statements and Financial Statement ScheduleF-11Table of ContentsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K, and the information and documents incorporated by reference in this Annual Report on Form 10-K contains"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Actof 1934, as amended, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for thesafe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements other thanstatements of historical fact contained in, or incorporated by reference into, this Annual Report on Form 10-K, including statements regarding our future orassumed condition, results of operations, business plans and strategies, competitive position and market opportunities. We have attempted to identifyforward-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 Annual Report on Form 10-K and the informationand documents incorporated by reference in this Annual Report on Form 10-K contains forward-looking statements relating to, among other things:•our global business, growth, operating, investing, and financing strategies;•our product offerings, distribution channels and geographic mix;•the success of our new products, brands, and growth initiatives;•the impact of seasonality on our operations;•expectations regarding our net sales and earnings growth and other financial metrics;•our development of worldwide distribution channels;•trends affecting our financial condition, results of operations, or cash flows;•our expectations for expansion of our retail and E-Commerce capabilities;•information security and privacy of customer, employee or company information;•overall global economic trends;•reliability of overseas factory production and storage; and•the availability and cost of raw materials.Forward-looking statements represent our management's current expectations and predictions about trends affecting our business and industry and arebased on information available at the time such statements are made. Although we do not make forward-looking statements unless we believe we have areasonable 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, performanceor achievements predicted, assumed or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results tomaterially differ from those expressed or implied by these forward-looking statements are described in the section entitled "Risk Factors" Part I, Item 1A ofthis Annual Report on Form 10-K, as well as in our other filings with the Securities and Exchange Commission (SEC). Given these risks and uncertainties,you should not place undue reliance on these forward-looking statements. You should read this Annual Report on Form 10-K, and the information anddocuments incorporated by reference in this Annual Report on Form 10-K, in its entirety and with the understanding that our actual future results may bematerially different from the results expressed or implied by these forward-looking statements.Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management topredict 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, maycause 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 NYSE we expressly disclaim any intent or obligation to update any forward-lookingstatements, or to update the reasons actual results could differ materially from those expressed or implied by these forward-looking statements, whether toconform such statements to actual results or changes in our expectations, or as a result of the availability of new information.2Table of ContentsWe qualify all of our forward-looking statements by these cautionary statements.PART IReferences in this Annual Report on Form 10-K (Annual Report) to "Deckers", "we", "our", "us", or the "Company" refer to Deckers Outdoor Corporationtogether with its consolidated subsidiaries. Ahnu®, Deckers®, Hoka One One® (Hoka), MOZO®, Sanuk®, Teva®, TSUBO®, UGG® and UGGpureTM aresome of our trademarks. Other trademarks or trade names appearing elsewhere in this report are the property of their respective owners.Item 1. Business.Unless otherwise specifically indicated, all amounts in Item 1. and Item 1A. herein are expressed in thousands, except for employees, share quantity, pershare data and selling prices.GeneralDeckers Outdoor Corporation was incorporated in 1975 under the laws of the State of California and, in 1993, reincorporated under the laws of the Stateof Delaware. We are a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everydaycasual lifestyle use and high performance activities. We believe that our footwear is distinctive and appeals broadly to women, men and children. We sell ourproducts, including accessories such as handbags and loungewear, through quality domestic and international retailers, international distributors, anddirectly to end-user consumers both domestically and internationally, through our websites, call centers, and retail stores. Our primary objective is to buildour footwear lines into global lifestyle brands with market leadership positions. We seek to differentiate our brands and products by offering diverse lines thatemphasize authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. All of ourproducts are currently manufactured by independent contractors primarily in Asia. Our continued growth will depend upon the broadening of our productsoffered under each brand, the appeal of our products to our consumers, expanding domestic and international distribution, successfully opening new retailstores, increasing sales to consumers, and developing or acquiring new brands.In February 2014, our Board of Directors approved a change in the Company's fiscal year end from December 31 to March 31. The change was intendedto better align our planning, financial and reporting functions with the seasonality of our business. The 2015, 2013 and 2012 fiscal years ended March 31,2015, December 31, 2013 and December 31, 2012, respectively. The transition period was the quarter ended March 31, 2014 to coincide with the change inour fiscal year end.ProductsWe market our products primarily under three proprietary brands:UGG. The UGG brand is one of the most iconic and recognized brands in the global footwear industry and highlights the Company’s successful trackrecord of building niche brands into lifestyle market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient lineof premium footwear, with expanded product offerings and a growing global audience that attracts women, men and children. UGG brand footwearcontinually earns media exposure from numerous outlets both organically and from strategic public relations efforts, including an increasing amount ofexposure internationally.Teva. Teva is our active lifestyle brand, born from the outdoors and rooted in adventure. As the originator of the sport sandal, today the Teva productline includes casual sandals, shoes and boots built for ultimate versatility.We are focused on regaining our leadership position in the sandal market, and continuing to expand our casual and women’s offerings to appeal to awider range of consumers through utility-driven design, color and premium materials.Sanuk. Sanuk is our fun lifestyle footwear brand rooted in surf culture but embraced by an eclectic mix of style-savvy optimists. The Sanuk brand isprobably best known for the patented SIDEWALK SURFERS® shoe and its Yoga MatTM and Beer Cozy sandal collections. The brand has a history ofinnovation, product invention, foot-friendly comfort, unexpected materials and clever branding.We plan to elevate the approach in which we communicate the Sanuk brand story to a broader audience, especially women, through highly targetedcommunications that retain the brands unique attitude. We also continue to build on the Sanuk brand's authentic position in the surf and outdoor marketsthrough its relationships with prominent professional athletes and ambassadors, including surfers, rock climbers, photographers, artists, and musicians knownas much for their unique personal styles and charisma as for their specialized talents.3Table of ContentsIn addition to our primary brands, our other brands include Ahnu, a line of outdoor performance and lifestyle footwear; Hoka, a line of footwear for allcapacities of runners designed with a unique performance midsole geometry, oversize midsole volume and active foot frame; MOZO, a line of footwearcrafted for culinary professionals that redefines the industry's dress code; and TSUBO, a line of mid and high-end dress and dress casual footwear thatincorporates style, function, and maximum comfort.With respect to MOZO and TSUBO, we are seeking strategic alternatives for these businesses.In April 2015, the Company acquired inventory and certain intangible assets, including the trade name related to the Koolaburra® brand, a sheepskinand wool based footwear brand. The purchase price of the acquisition was not material to the Company’s consolidated financial statements.Sales and DistributionAt the wholesale level, we distribute our products in the US through sales representatives, who are organized geographically and by brand. In additionto our wholesale business, we also sell products directly to consumers through our websites and retail stores. Our brands are generally advertised andpromoted through a variety of consumer media campaigns. We benefit from editorial coverage in both consumer and trade publications. Each brand'sdedicated marketing team works closely with targeted accounts to maximize advertising and promotional effectiveness. We also manage brand marketing ona global basis to ensure consistent consumer communications in all regions and channels. We determine our global communication plans based on brandstrategies, consumer insights, and return on investment measures.Our sales force is generally separated by brand, as each brand generally has certain specialty consumers; however, there is overlap between the salesteams and customers. We have aligned our brands' sales forces to position them for the future of the brands. Each brand's respective sales manager recruits andmanages his or her network of sales representatives. We believe this approach for the US market maximizes our selling efforts.We distribute products sold in the US through our distribution centers in Camarillo, Moreno Valley and Ventura, California. Our distribution centersfeature a warehouse management system that enables us to efficiently pick and pack products for direct shipment to customers. For certain customersrequiring special handling, each shipment is pre-labeled and packed to the retailer's specifications, enabling the retailer to easily unpack our product andimmediately display it on the sales floor.Internationally, we distribute our products through independent distributors and retailers in many countries, including throughout Europe, Asia-Pacific,Canada, and Latin America, among others. In addition, as we do in the US, in certain countries, we sell products directly to consumers through our websitesand our retail stores. For our wholesale and Direct-to-Consumer businesses, we operate distribution centers with third-party logistics (3PLs) in certaininternational locations. Our principal wholesale customers include specialty retailers, selected department stores, outdoor retailers, sporting goods retailers,shoe stores, and online retailers.Our five largest customers accounted for approximately 22.2% of worldwide net sales for the year ended March 31, 2015 compared to 23.0% for theyear ended December 31, 2013. No single customer accounted for greater than 10% of our consolidated net sales in the years ended March 31, 2015 andDecember 31, 2013, respectively.UGG. We sell our UGG footwear and accessories primarily through higher-end department stores such as Nordstrom, Neiman Marcus, Dillard's andBloomingdale's, as well as independent specialty retailers such as Journeys, and online retailers such as Zappos.com. We believe these retailers support theluxury positioning of our brand and are the destination shopping choice for the consumer who seeks out the fashion and functional elements of our UGGproducts.Teva. We sell our Teva footwear primarily through specialty outdoor and sporting goods retailers such as REI, L.L. Bean, Dick's Sporting Goods, andThe Sports Authority, as well as online retailers such as Zappos.com. Our brand strength in casual and women’s footwear has also expanded our business to awider distribution of department store and mall channels including Nordstrom, Dillard's and Journeys, as well as family footwear with DSW and FamousFootwear. We believe distribution that services active lifestyle consumers with premium assortments, merchandising and customer experience will continueto be areas of growth for the brand.Sanuk. We sell our Sanuk footwear primarily through independent action sports retailers, outdoor retailers, specialty footwear retailers and largernational retail chains including Nordstrom, Dillard's, Journeys, DSW, Urban Outfitters and Tilly's. We believe all these retailers showcase the brand'screativity, fun, and comfort and allow us to effectively reach our target consumers for the brand.Other brands. Our other brands are sold primarily at specialty running stores, high-end department stores, outdoor specialty accounts, independentspecialty retailers, and with online retailers that support our brand ideals of comfort, style, and quality. Key accounts of our other brands include Nordstrom,Dillard's, Hanigs, REI, and Zappos.com.4Table of ContentsE-Commerce. Our E-Commerce business enables us to market, communicate and build our relationships with the consumer. E-Commerce enables usto meet the growing demand for our products, sell the products at retail prices, and provide significant incremental operating income. The E-Commercebusiness provides us an opportunity to communicate to the consumer with a consistent brand message that is in line with our brands' promises, drivesawareness of key brand initiatives, and offers targeted information to specific consumer segments. We operate our E-Commerce business through theUggaustralia.com, Teva.com, Sanuk.com, Ahnu.com, Hokaoneone.com, Mozo.com, and Tsubo.com websites. Our websites also drive wholesale anddistributor sales through brand awareness and by directing consumers to retailers that carry our brands, including our own retail stores. In recent years, our E-Commerce business has had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumers continued to increaseinternet usage for footwear and other purchases.We have expanded our international capabilities by developing websites to service certain international markets. These websites are translated into thelocal language, may provide product through local distribution centers and price the products in the consumers' local currency. In 2012, we launched mobilewebsites for several of our brands in Europe, Japan and the US, in addition to websites in the US for our Sanuk brand. Our E-Commerce business sellsproducts directly to consumers throughout the world, including the US, the United Kingdom (UK), Japan and China. In March 2015, we launched our firstmulti-brand E-Commerce website in the Asia-Pacific region, which is live in Singapore, Australia and Hong Kong and is expected to debut in Malaysia andSouth Korea during fiscal year 2016. In order to reduce the cost of order fulfillment, minimize out of stock positions, and further leverage our distributioncenters' operations, order fulfillment is performed by our distribution centers in California, the UK, the Netherlands, China and Japan. Products sold throughour E-Commerce business are sold at prices which approximate retail prices, enabling us to capture the full retail margin on each Direct-to-Consumertransaction.Through our integrated OmniChannel strategy, we believe that consumers try on product in our retail stores, perform further online research and orderproducts online and, conversely, E-Commerce fuels our retail locations. As a result, we believe that our stores and websites are mutually dependent in a waythat will allow us to view them on a combined basis. Further, a number of our stores allow the consumer to buy through our E-Commerce channel usinginternet capable devices in our stores.Retail Stores. Our retail stores are predominantly UGG concept stores and UGG outlet stores. In 2013, we expanded our fleet and opened our firstSanuk (two concept, one outlet) stores. Our retail stores enable us to directly impact our customers' experience, meet the growing demand for these products,sell the products at retail prices and generate strong annual operating income. In addition, our UGG concept stores allow us to showcase our entire productline including footwear, accessories, handbags, home, outerwear, lounge, and retail exclusive items; whereas, a wholesale account may not represent all ofthese categories. Through our outlet stores, we sell some of our discontinued styles from prior seasons, as well as full price in-line products, and productsmade specifically for the outlet stores.In fiscal year 2015, we opened new stores in the US and internationally. A large majority of the new stores were in the US and China, with the remainingnew stores in Japan, Canada and Hong Kong. As of March 31, 2015, we had a total of 142 stores worldwide. As of December 31, 2013, we had 113 storesworldwide. During fiscal year 2016, we plan to open additional retail stores in the US and internationally.Product Design and DevelopmentThe design and product development staff for each of our brands creates new innovative footwear products that combine our standards of high quality,comfort, and functionality. The design function for all of our brands is performed by a combination of our internal design and development staff and outsidefreelance designers. By utilizing outside designers, we believe we are able to review a variety of different design perspectives on a cost-efficient basis andanticipate color and style trends more quickly. Refer to Note 1 to our accompanying consolidated financial statements in Part IV of this Annual Report for adiscussion of our research and development costs for the last three years.In order to ensure quality, consistency, and efficiency in our design and product development process, we continually evaluate the availability and costof raw materials, the capabilities and capacity of our independent contract manufacturers, and the target retail price of new models and lines. The design anddevelopment staff works closely with brand management to develop new styles of footwear and accessories for our various product lines. We developdetailed drawings and prototypes of our new products to aid in conceptualization and to ensure our contemplated new products meet the standards forinnovation and performance that our consumers demand. Throughout the development process, we have multiple design and development reviews, which wethen coordinate with our independent manufacturers. This ensures that we are addressing the needs of our consumers and are working toward a common goalof developing and producing a high quality product to be delivered on a timely basis.Manufacturing and Supply ChainWe do not manufacture our products; we outsource the production of our brand footwear to independent manufacturers primarily in Asia. We requireour independent contract manufacturers and designated suppliers to adopt our Supplier Code of Conduct, which specifies that they comply with all locallaws and regulations governing human rights, working conditions, and5Table of Contentsenvironmental compliance before we are willing to conduct business with them. We also require our manufacturing partners and licensees to comply with ourRestricted Substances policy as a condition of doing business with our company. We have no long-term contracts with our manufacturers. As we grow, weexpect to continue to rely exclusively on independent manufacturers for our sourcing needs.The production of footwear by our independent manufacturers is performed in accordance with our detailed specifications and is subject to our qualitycontrol standards. We maintain a buying office in Hong Kong and an on-site supervisory office in Pan Yu City, China that together serve as a link to ourindependent manufacturers, enabling us to carefully monitor the production process from receipt of the design brief to production of interim and finalsamples and shipment of finished product. We believe this regional presence provides predictability of material availability, product flow and adherence tofinal design specifications. To ensure the production of high-quality products, the majority of the materials and components used in production of ourproducts by these independent manufacturers are purchased from independent suppliers that we designate. Excluding sheepskin and UGGpure, we believethat substantially all the various raw materials and components used to manufacture our footwear, including wool, rubber, leather, and nylon webbing aregenerally available from multiple sources at competitive prices. We began using UGGpure, a wool woven into a durable backing, in many of our UGGproducts in 2013. We generally outsource our manufacturing requirements on the basis of individual purchase orders or short-term purchase commitmentsrather than maintaining long-term purchase commitments with our independent manufacturers.At our direction, our manufacturers currently purchase the majority of the sheepskin used in our products from two tanneries in China, which sourcetheir skins for our products primarily from Australia and the UK. We maintain communication with the tanneries to monitor the available supply of sufficienthigh quality sheepskin for our projected UGG brand production. To ensure adequate supplies for our manufacturers, we forecast our usage of sheepskin inadvance at a forward price. We have also entered into minimum purchase commitments with certain sheepskin suppliers (see Note 6 to our accompanyingconsolidated financial statements in Part IV of this Annual Report). We believe current supplies are sufficient to meet our needs in the near future, but wecontinue to investigate our options to accommodate any unexpected future growth.We have instituted pre-production, in-line, and post-production inspections to meet or exceed the high quality demanded by us and consumers of ourproducts. Our quality assurance program includes our own employee on-site inspectors at our independent manufacturers who oversee the production processand perform quality assurance inspections. We also inspect our products upon arrival at our distribution centers.Patents and TrademarksWe utilize trademarks on virtually all of our products and believe that having distinctive marks that are readily identifiable is an important factor increating a market for our goods, identifying the Company, and distinguishing our goods from the goods of others. We currently hold trademark registrationsfor UGG, Teva, Sanuk, Ahnu, Hoka One One, MOZO, TSUBO, and other marks in the US and in many other countries, including the countries of theEuropean Union, Canada, China, Japan and Korea. As of March 31, 2015, we hold approximately 180 utility and design patent registrations in the US andabroad and have filed more than 20 new patent applications which are currently pending. These patents expire at various times. We regard our proprietaryrights as valuable assets and vigorously protect such rights against infringement by third parties. No single patent or group of patents expiring in the sameyear is critical to our business.SeasonalityOur business is seasonal, with the highest percentage of UGG brand net sales occurring in the quarters ending September 30 and December 31 and thehighest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31 and June 30 of each year. Our financial results include theHoka brand beginning September 27, 2012. Historically, our total net sales in the quarters ending September 30 and December 31 have exceeded total netsales for the quarters ending March 31 and June 30 of each year, and we expect this trend to continue. Our other brands do not have a significant seasonalimpact on our business. Nonetheless, actual results could differ materially depending upon consumer preferences, availability of product, competition, andour wholesale and distributor customers continuing to carry and promote our various product lines, among other risks and uncertainties. See Part I, Item 1A,"Risk Factors". For further discussion on our working capital and inventory management, see Part II, Item 7, "Management's Discussion and Analysis ofFinancial Condition and Results of Operations — Liquidity and Capital Resources".BacklogHistorically, we have encouraged our wholesale and distributor customers to place, and we have received, a significant portion of orders as preseasonorders, generally four to eight months prior to the anticipated shipment date. We work with our wholesale customers through preseason programs to enable usto better plan our production schedule, inventory and shipping needs. Unfilled customer orders as of any date, which we refer to as backlog, represent ordersscheduled to be shipped at a future date, which can be cancelled prior to shipment. The backlog as of a particular date is affected by a number of factors,including6Table of Contentsseasonality, manufacturing schedule, and the timing of product shipments as well as variations in the quarter-to-quarter and year-to-year preseason incentiveprograms. The mix of future and immediate delivery orders can vary significantly from quarter-to-quarter and year-to-year. As a result, comparisons of thebacklog from period-to-period may be misleading.At March 31, 2015, our backlog of orders from our wholesale customers and distributors was approximately $609,000 compared to approximately$614,000 at March 31, 2014. While all orders in the backlog are subject to cancellation by customers, we expect that the majority of such orders will be filledin fiscal year 2016. We believe that backlog at year-end is an imprecise indicator of total revenue that may be achieved for the full year for several reasons.Backlog only relates to wholesale and distributor orders for the next season and current season fill-in orders, and excludes potential sales in our E-Commercebusiness and retail stores during the year. Backlog is also affected by the timing of customers' orders and product availability.CompetitionThe casual, outdoor, athletic, fashion, and formal footwear markets are highly competitive. Our competitors include athletic and footwear companies,branded apparel companies, and retailers with their own private labels. Although the footwear industry is fragmented to a certain degree, many of ourcompetitors are larger and have substantially greater resources than us, including athletic shoe companies, several of which compete directly with some of ourproducts. In addition, access to offshore manufacturing has made it easier for new companies to enter the markets in which we compete, further increasingcompetition in the footwear and accessory industries. In particular, in part due to the popularity of our UGG products, we face increasing competition from asignificant number of domestic and international competitors selling products designed to compete directly or indirectly with our UGG products.We believe that our footwear lines and other product lines compete primarily on the basis of brand recognition and authenticity, product quality anddesign, functionality, performance, comfort, fashion appeal, and price. Our ability to successfully compete depends on our ability to:•shape and stimulate consumer tastes and preferences by offering innovative, attractive, and exciting products;•anticipate and respond to changing consumer demands in a timely manner;•maintain brand authenticity;•develop high quality products that appeal to consumers;•price our products suitably;•provide strong and effective marketing support; and•ensure product availability.We believe we are well positioned to compete in the footwear industry. We continually look to acquire or develop more footwear brands tocomplement our existing portfolio and grow our existing consumer base.EmployeesAt March 31, 2015, we employed approximately 3,400 employees in the US, Europe, and Asia, none of whom were represented by a union. This figureincludes approximately 1,900 employees in our retail stores worldwide, which includes part-time and seasonal employees. We employed approximately3,200 employees at December 31, 2013, including approximately 2,000 employees in our retail stores. The decrease in retail employees was largely due toemploying fewer seasonal workers at March 31, 2015 compared to December 31, 2013. The overall increase in employees during fiscal year 2015 wasprimarily related to increased expansion efforts. As we open new retail stores and expand our operations, we expect that our employee count will increaseaccordingly. We believe that we have good relationships with our employees.Financial Information about Segments and Geographic AreasOur six reportable business segments include the strategic business units responsible for the worldwide operations of our brands' (UGG, Teva, Sanukand other brands) wholesale divisions, as well as our E-Commerce and retail store businesses. The majority of our sales and long-lived assets are in the US.Refer to Note 11 to our accompanying consolidated financial statements in Part IV of this Annual Report for further discussion of our business segments.Refer to Part I, Item 1A "Risk Factors" for a discussion of the risks related to our foreign operations.7Table of ContentsCompliance with federal, state, and local environmental regulations has not had, and it is not expected to have, any material effect on our capitalexpenditures, earnings, or competitive position based on information and circumstances known to us at this time.Available InformationOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to these reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website atwww.deckers.com. Such documents are available as soon as reasonably practicable after they are filed with or furnished to the Securities and ExchangeCommission. However, the information contained on or accessed through our website does not constitute part of this Annual Report, and references to ourwebsite address in this Annual Report are inactive textual references only. Our filings may also be read and copied at the SEC's Public Reference Room at100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regardingissuers that file electronically with the SEC.We also make available through our website the following corporate governance documents: Audit Committee Charter, Compensation CommitteeCharter, Corporate Governance Charter, Code of Ethics, Accounting and Finance Code of Conduct, Corporate Governance Guidelines, Conflict MineralsReport and Conflict Minerals Policy. We have included the Chief Executive Officer (CEO) and Chief Financial Officer certifications regarding theCompany’s public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibit 31.1and Exhibit 31.2, respectively, to this report onForm 10-K. Additionally, we filed with the New York Stock Exchange (NYSE) the CEO’s certification regarding the Company’s compliance with the NYSE’sCorporate Governance Listing Standards (Listing Standards) pursuant to Section 303A.12(a) of the Listing Standards, which indicated that the CEO was notaware of any violations of the Listing Standards by the Company.Item 1A. Risk Factors. Our short and long-term success is subject to many factors beyond our control. Investing in our common stock involves substantial risk. Before investingin our stock, stockholders and potential stockholders should carefully consider the following risk factors related to our company as well as general investorrisks, in addition to the other information contained in this report and the information incorporated by reference in this report. If any of the following risksoccur, our business, financial condition or results of operations could be adversely affected. In that case, the value of our common stock could decline andstockholders may lose all or part of their investment. Please also see the section entitled "Cautionary Note Regarding Forward-Looking Statements" onpage 2 of this Annual Report.Many of our products are seasonal, and our sales are sensitive to weather conditions.Sales of our products are highly seasonal and are sensitive to weather conditions, which are beyond our control. For example, extended periods ofunseasonably warm weather during the fall and winter months may reduce demand for our UGG products. Furthermore, variations in weather conditionsacross the globe may impact sales of our products in ways that we cannot predict. If management is not able to timely adjust expenses in reaction to adverseevents such as unfavorable weather, weak consumer spending patterns or unanticipated levels of order cancellations because of seasonal circumstances, ourprofitability may be materially affected. Even though we are creating more year-round styles for our brands, the effect of favorable or unfavorable weather onsales can be significant enough to affect our quarterly and annual results, with a resulting effect on our common stock price.If raw materials do not meet our specifications, consumer expectations or experience price increases or shortages, we could realize interruptions inmanufacturing, increased costs, higher product return rates, a loss of sales, or a reduction in our gross margins.We depend on a limited number of key sources for certain raw materials. For sheepskin, the raw material used in many of our UGG products, we rely ontwo tanneries. Both the top grade twin-face and other grades of sheepskin used in UGG products are in high demand and limited supply. Furthermore, ourunique sheepskin needs require certain types of sheepskin that may only be found in certain geographic locations and tanneries with sufficient expertise andcapacity to deliver sheepskin which meets our specifications. The supply of sheepskin can be adversely impacted by weather conditions, disease, andharvesting decisions that are completely outside our control. For example, if the price of wool increases, sheep herders may choose not to harvest their sheepand instead choose to shear their sheep for wool, thus decreasing the supply of sheepskin. Sheepskin is also a by-product of the food industry and is thereforedependent upon the demand by the food industry, which has generally been decreasing, thus leading to an overall reduction in the number of sheepavailable. The potential inability to obtain sheepskin, UGGpure and other raw materials could impair our ability to meet our production requirements andcould lead to inventory shortages, which can result in lost sales, delays in shipments to customers, strain on our relationships with customers, and diminishedbrand loyalty. There8Table of Contentshave also been significant fluctuations in the prices of sheepskin as the demand from competitors for this material and the supply of sheep have changed. Weexperienced an increase in sheepskin costs in 2012 and a decrease in 2013, with the majority of the decrease being realized in the fourth quarter of 2013. Infiscal year 2015, average sheepskin prices decreased compared to 2013. We attempt to cover the full amount of our sheepskin purchases under fixed pricecontracts.We began using a new raw material, UGGpure, a wool woven into a durable backing, in some of our UGG products in 2013. If these raw materials andthe end product do not conform to our specification or fail to meet consumer expectations, we could experience a higher rate of customer returns anddeterioration in the image of our brands, which could have a material adverse effect on our business, results of operations, and financial condition. Inaddition, our sheepskin and UGGpure suppliers warehouse their inventory at a limited number of facilities in China, the loss of any of which due to naturaldisasters and other adverse events would likely result in shortages of sheepskin or UGGpure leading to delays in the production of our products and couldresult in a loss of sales and earnings.Any price increases in key raw materials will likely raise our costs and decrease our profitability unless we are able to commensurately increase ourselling prices and implement other cost-saving measures. Our independent manufacturers use various raw materials in the production of our footwear andaccessories that must meet our design specifications and, in some cases, additional technical requirements for performance footwear.Our new and existing retail stores may not realize returns on our investments.Our retail segment has grown substantially in both net sales and total assets during the past year, and we intend to expand this segment in the future.We have entered into significant long-term leases for many of our retail locations. Global store openings involve substantial investments, includingconstructing leasehold improvements, furniture and fixtures, equipment, information systems, inventory, and personnel. In addition, since a certain amount ofour retail store costs are fixed, if we have insufficient sales, we may be unable to reduce expenses in order to avoid losses or negative cash flows. Due to thehigh fixed cost structure associated with the retail segment, negative cash flows or the closure of a store could result in significant write-downs of inventory,severance costs, lease termination costs, impairment losses on long-lived assets, or loss of our working capital, which could adversely impact our financialposition, results of operations, or cash flows.In addition, from time to time we license the right to operate retail stores for our brands to third parties. We provide training to support these stores, andset and monitor operational standards. However, the quality of these store operations may decline due to the failure of these third parties to operate the storesin a manner consistent with our standards, which could harm their sales and as a result harm our results of operations, result in loss of our capital or othercontributions, or cause our brand image to suffer.If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have difficulty filling our customers' orders.Because the footwear industry has relatively long lead times for design and production, we must plan our production tooling and projected volumesmany months before consumer tastes become apparent. The footwear and fashion industry is subject to rapid changes in consumer preferences, making itdifficult to accurately forecast demand for our products and our future results of operations. Many factors may significantly affect demand for our products,which include: consumer acceptance of our products, the lifecycle of our products and consumer replenishment and buying behavior, changes in consumerdemand for products of our competitors, effects of weather conditions, our reliance on manual processes and judgment for certain supply and demandplanning functions that are subject to human error, unanticipated changes in general market conditions, and weak economic conditions or consumerconfidence that reduces demand for discretionary items, such as our products.A large number of models, colors, and sizes in our product lines can increase these risks. As a result, we may fail to accurately forecast styles, colors, andfeatures that will be in demand. If we overestimate demand for any products or styles, we may be forced to incur higher markdowns or sell excess inventoriesat reduced prices resulting in lower, or negative, gross margins. On the other hand, if we underestimate demand for our products or if our independentfactories are unable to supply products when we need them, we may experience inventory shortages that may prevent us from fulfilling customer orders ordelaying shipments to customers. This could negatively affect our relationship with customers and diminish our brand loyalty, which may have a materialadverse effect on our financial condition and results of operations.Failure to adequately protect our trademarks, patents, and other intellectual property rights or deter counterfeiting could diminish the value of ourbrands and reduce sales.We believe that our trademarks, patents, trade dress, trade names, trade secrets, copyrights and other intellectual property rights are of value and areintegral to our success and our competitive position. Specifically, the success of the UGG brand has led to trademark counterfeiting, product imitation andother infringements of our intellectual property rights. We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts worldwide. In spite of our efforts, counterfeiting still occurs and if we are unsuccessful in challenging a third-party’s use related totrademark, trade dress or other9Table of Contentsintellectual property rights, this could adversely affect our future sales, financial condition, and results of operation. If our brands are associated withinfringers’ or competitors’ inferior products, this could also adversely affect the integrity of our brands.Although we are aggressive in pursuing entities involved in the trafficking and sale of counterfeit merchandise through legal action or otherappropriate means, we cannot guarantee that the action we have taken will be adequate to protect our brands and prevent counterfeiting in the future,especially because some countries' laws do not protect intellectual property rights to the same extent as do US laws. Our business could be significantlyharmed if we are not able to protect our intellectual property, adequately secure intellectual property rights related to our brands in specific territories, or if acourt found that we are infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in the US orinternationally in which we are involved, either as a plaintiff or as a defendant, could cost a significant amount of time and money and distract management’sattention from operating our business. If we do not prevail on any intellectual property claims, then we may have to change our manufacturing processes,products, trade names, or enter into costly license agreements, any of which could have a material adverse effect on our results of operations and financialcondition. Additionally, unplanned increases in legal fees and other costs associated with the defense of our intellectual property or rebranding could resultin higher operating expenses and lower earnings.For example, from time to time, we may need to defend against claims that the word "ugg" is a generic term. Such a claim was successful in Australia,but such claims have been rejected by courts in the US, China, Turkey and in the Netherlands. We have also faced claims that “UGG Australia” isgeographically deceptive. Any decision or settlement in any of these matters that prevents trademark protection of the "UGG" brand in our major markets, orthat allows a third-party to continue to use our brand trademarks in connection with the sale of products similar to our products, or to continue to manufactureor distribute counterfeit products could result in intensified commercial competition and could have a material adverse effect on our results of operations andfinancial condition.Our success depends on our ability to retain the value of our brands and to anticipate and promptly respond to changing fashion and retail trends.Our success depends largely on the continued strength of our brands, on our ability to anticipate, understand, and react to the rapidly changing fashiontastes of footwear, apparel, and accessory consumers and to provide appealing merchandise in a timely and cost effective manner. Our products must appealto a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. We are also dependent on consumerreceptivity to our products and marketing strategy. There can be no assurance that consumers will continue to prefer our brands or that we will (1) respondquickly enough to changes in consumer preferences, (2) market our products successfully, or (3) successfully introduce acceptable new models and styles offootwear or accessories to our target consumer. For example, UGG products include fashion items that could go out of style at any time and competition forthe sale of products by the UGG brand is intense and has increased over time. If we fail to react appropriately to changes in consumer preferences and fashiontrends, consumers may consider our UGG brand image to be outdated or associate our UGG brand with styles that are no longer popular. UGG productsrepresent a majority of our business, and if UGG product sales were to decline or fail to increase in the future, our overall financial performance and commonstock price would be adversely affected.We believe that the ongoing economic uncertainty in many countries where we sell our products and the corresponding impact on consumerconfidence and discretionary income may increase the uncertainty of consumer preferences. Achieving market acceptance for new products will also likelyrequire us to exert substantial product development and marketing efforts and expend significant funds to attract consumers. A failure to introduce newproducts that gain market acceptance or maintain market share with our existing products would erode our competitive position, which would reduce ourprofits and could adversely affect the image of our brands, resulting in long-term harm to our business.Furthermore, the value of our brands is partially based on consumer perceptions on a variety of qualities; any misstep in product quality or design,customer service, marketing, unfavorable publicity or excessive discounting could negatively affect the image of our brand with our consumers. Negativeclaims or publicity regarding our company, our products or our brands, could adversely affect our reputation and sales regardless of whether such claims areaccurate. Social media, which accelerates the dissemination of information, can increase the challenges of responding to negative claims. Hence, even if ourproducts do anticipate and promptly respond to changing consumer preferences and/or stay ahead of changing fashion trends, our brand image could becometarnished or undesirable in the minds of consumers or target markets, which could have a material adverse effect on our business, results of operations, andfinancial condition.We face intense competition, including competition from companies with significantly greater resources than ours, and if we are unable to competeeffectively with these companies, our market share may decline and our business could be harmed.The footwear industry is highly competitive, and many new competitors have entered into the marketplace. We believe that some of these competitorshave entered the market place in response to the success of our brands and that such competitors have targeted or intend to target our products with theirproduct offerings. Additionally, we have experienced increased competition10Table of Contentsfrom established companies. A number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing, anddistribution resources than we do, as well as greater brand awareness in the footwear and accessory markets. Our competitors include fashion, athletic andfootwear companies, branded apparel companies, and retailers with their own private labels. Their greater capabilities in these areas may enable them to betterwithstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production, and develop new products morequickly. In addition, access to offshore manufacturing has made it easier for new companies to enter the markets in which we compete, further increasingcompetition in the footwear and accessory industries.Additionally, efforts by our competitors to dispose of their excess inventories may significantly reduce prices that we can expect to receive for the saleof our competing products and may cause our consumers to shift their purchases away from our products. If we fail to compete successfully in the future, oursales and earnings will decline, as will the value of our business, financial condition, and common stock price.We may not succeed in implementing our growth strategies.As part of our growth strategies, we seek to enhance the positioning of our brands, extend our brands into complementary product categories andmarkets, partner with or acquire compatible and strategic companies or brands, expand geographically, increase our retail presence, and improve ouroperational performance. We continue to expand the nature and scope of our operations considerably, including significantly increasing the number of ouremployees worldwide. We anticipate that substantial further expansion will be required to realize our growth potential and new market opportunities.We are growing globally through our retail, E-Commerce, wholesale, and distributor channels. In addition, as part of our international growth strategy,we may continue to transition from third-party distribution to direct distribution through wholly-owned subsidiaries. Implementing our growth strategies, orfailure to effectively execute them, could affect near term revenues from the postponement of sales recognition to future periods, our rate of growth orprofitability, which in turn could have a negative effect on the value of our common stock. In addition, our growth initiatives could:•increase our working capital needs beyond our capacity;•increase costs if we fail to successfully integrate a newly acquired business or achieve expected cost savings;•result in impairment charges related to acquired businesses;•create remote-site management issues, which would adversely affect our internal control environment;•have significant domestic or international legal or compliance implications;•make it difficult to attract, retain, and manage adequate human resources in remote locations;•cause additional inventory manufacturing, distribution, and management costs;•cause us to experience difficulty in filling customer orders;•result in distribution termination transaction costs; or•create other production, distribution, and operating difficulties.We face risks associated with pursuing strategic acquisitions.We have extended our brands into complementary product categories and markets in part through strategic acquisitions, and we may continue to do soin the future, depending on our ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, includingrisks inherent in entering new markets in which we may not have prior experience, potential loss of significant customers or key personnel of the acquiredbusiness, managing geographically-remote operations, and potential diversion of management’s attention from other aspects of our business operations.Acquisitions may also cause us to incur debt or result in dilutive issuances of our equity securities, write-offs of goodwill and substantial amortizationexpenses associated with other intangible assets. We may not be able to obtain financing for future acquisitions on favorable terms, making any suchacquisitions more expensive. Any such financing may have terms that restrict our operations. Additionally, we cannot provide assurance that we will be ableto successfully integrate the operations of any acquired businesses into our operations and achieve the expected benefits of any acquisitions. The failure tosuccessfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future could have a material adverse effecton our results of operations and financial position. We will face cannibalization of existing product sales by our newly acquired products, unless weadequately11Table of Contentsintegrate new brands and products with our existing products, aggressively target different consumers for our newly acquired products and increase ouroverall market share. Although we may not consummate a potential acquisition for a variety of reasons, we may nonetheless incur material costs in thepreliminary stages of such an acquisition that we may not be able to recover.Our goodwill and other intangible assets may incur impairment losses.We conducted our annual impairment tests of goodwill and other intangible assets for fiscal year 2015, 2013, and 2012. In addition, we conductedinterim impairment evaluations when impairment indicators arose. During the year ended March 31, 2015, the quarter ended March 31, 2014 and the yearsended December 31, 2013 and 2012, we did not recognize any material impairment charges on our goodwill and other intangible assets.If any brand's product sales or operating margins decline to a point that the fair value falls below its carrying value, we may be required to write downthe related intangible assets. These or other related declines could cause us to incur additional impairment losses, which could materially affect ourconsolidated financial statements and results of operations. The value of our trademarks is highly dependent on forecasted revenues and earnings beforeinterest and taxes for our brands, as well as derived discount and royalty rates. In addition, the valuation of intangible assets is subject to a high degree ofjudgment and complexity. We may also decide to discontinue a brand which would result in the write down of all related intangible assets. The balances ofgoodwill and nonamortizable intangibles by brand are as follows:As of March 31, 2015UGGTevaSanukOtherTotalTrademarks$154$15,301$—$—$15,455Goodwill6,101—113,9447,889127,934Total nonamortizable intangibles$6,255$15,301$113,944$7,889$143,389Because we depend on independent manufacturers, we face challenges in maintaining a continuous supply of finished goods that meet our qualitystandards.Most of our production is performed by a limited number of independent manufacturers. We depend on these manufacturers' ability to finance theproduction of goods ordered and to maintain manufacturing capacity, and store completed goods in a safe and sound location pending shipment. We do notpossess direct control over either the independent manufacturers or their materials suppliers, so we may be unable to obtain timely and continuous delivery ofacceptable products. In addition, while we do have long standing relationships with most of our factories, we currently do not have long-term contracts withthese independent manufacturers, and any of them may unilaterally terminate their relationship with us at any time or seek to increase the prices they chargeus. As a result, we are not assured of an uninterrupted supply of acceptable quality and competitively priced products from our independent manufacturers. Ifthere is an interruption, we may not be able to substitute suitable alternative manufacturers to provide products or services of a comparable quality at anacceptable price or on a timely basis. If a change in our independent manufacturers becomes necessary, we would likely experience increased costs as well assubstantial disruption of our business, which could result in a loss of sales and earnings.Interruptions in the supply chain can also result from natural disasters and other adverse events that would impair our manufacturers' operations. Wekeep proprietary materials involved in the production process, such as shoe molds, knives, and raw materials, under the custody of our independentmanufacturers. If these independent manufacturers were to experience loss or damage to our proprietary materials involved in the production process, wecannot be assured that such independent manufacturers would have adequate insurance to cover such loss or damage and, in any event, the replacement ofsuch materials would likely result in significant delays in the production of our products and could result in a loss of sales and earnings.Most of our independent manufacturers are located outside the US, where we are subject to the risks of international commerce.Most of our independent manufacturers are in Asia and Latin America, with the majority of production performed by a limited number of manufacturersin China. Foreign manufacturing is subject to numerous risks, including the following:•tariffs, import and export controls, and other non-tariff barriers such as quotas and local content rules on raw materials and finished products,including the potential threat of anti-dumping duties and quotas;•increasing transportation costs and a limited supply of international shipping capacity;•increasing labor costs;12Table of Contents•poor infrastructure and shortages of equipment, which can disrupt transportation and utilities;•restrictions on the transfer of funds;•changing economic conditions;•violations or changes in governmental policies and regulations including labor, safety, and environmental regulations in China, Vietnam,the US, and elsewhere;•refusal to adopt or comply with our Supplier Code of Conduct, Conflict Minerals Policy and Restricted Substances Policy;•customary business traditions in China and Vietnam such as local holidays, which are traditionally accompanied by high levels of turnoverin the factories;•labor disruptions;•delays during shipping, at the port of entry or at the port of departure;•decreased scrutiny by custom officials for counterfeit products;•political instability, which can interrupt commerce, including acts of war and other external factors over which we have no control;•heightened terrorism security concerns, which could subject imported or exported products to additional, more frequent or more lengthyinspections;•imposition or the repeal of laws that affect intellectual property rights;•use of unauthorized or prohibited materials or reclassification of materials;•expropriation and nationalization;•disease epidemics and health-related concerns that could result in a reduced workforce or scarcity of raw materials;•disruptions at manufacturing or distribution facilities caused by natural or other disasters; and•adverse changes in consumer perception of goods, trade, or political relations with China and Vietnam.These factors, or others of which we are currently unaware or which we do not currently view as material, could severely interfere with the manufactureor shipment of our products. This could make it difficult to obtain adequate supplies of quality products when we need them, thus materially affecting oursales and results of operations.While we require that our independent manufacturers adhere to environmental, labor, ethical, health, safety, and other standard business practices andapplicable local laws, and we periodically visit and audit their operations, we do not control their business practices. If we discovered non-compliantmanufacturers or suppliers that cannot or will not become compliant, we would cease dealing with them, and we could suffer an interruption in our productsupply chain. In addition, the manufacturers' or designated suppliers' violations of such standards and laws could damage our reputation and the value of ourbrands, resulting in negative publicity and discouraging customers and consumers from buying our products.We conduct business outside the US, which exposes us to foreign currency, global liquidity, and other risks.The state of the global economy continues to influence the level of consumer spending for discretionary items. This affects our business as it is highlydependent on consumer demand for our products. The current political and economic environments in certain countries in Europe have resulted in significantmacroeconomic risks, including high rates of unemployment, high fuel prices, and continued global economic uncertainty largely precipitated by theEuropean debt crisis.We operate on a global basis, with approximately 35.9% of our net sales for the year ended March 31, 2015 from operations outside the US. As wecontinue to increase our international operations, our sales and expenditures in foreign currencies become more material and subject to currency fluctuationsand global credit markets. A significant portion of our international operating13Table of Contentsexpenses are paid in local currencies. Also, our foreign distributors sell in local currencies, which impact the price to foreign consumers. Many of oursubsidiaries operate with their local currency as their functional currency. Future changes in foreign currency exchange rates and global credit markets maycause changes in the US dollar value of our purchases or sales and materially affect our sales, profit margins, or results of operations, when converted to USdollars. Changes in the value of the US dollar relative to other currencies could result in material fluctuations in foreign currency translation amounts or theUS dollar value of transactions and, as a result, our net earnings could be materially adversely affected. We currently utilize forward contracts or otherderivative instruments for the amounts we expect to purchase and sell in foreign currencies to mitigate exposure to fluctuations in the foreign currencyexchange rate. As we continue to expand international operations and increase purchases and sales in foreign currencies, we will evaluate and may utilizeadditional derivative instruments, as needed, to hedge our foreign currency exposures. Our hedging strategies depend on our forecasts of sales, expenses, andcash flows, which are inherently subject to inaccuracies. Therefore, our hedging strategies may be ineffective. In addition, the failure of financial institutionsthat underwrite our derivative contracts may negate our efforts to hedge our foreign currency exposures and result in material foreign currency or contractlosses. Foreign currency hedging activities, transactions, remeasurements or translations could materially impact our consolidated financial statements.While our purchases from overseas factories are currently denominated in US dollars, certain operating and manufacturing costs of the factories aredenominated in other currencies. As a result, fluctuations in these currencies versus the US dollar could impact our purchase prices from the factories in theevent that they adjust their selling prices accordingly.Labor disruptions could adversely affect our financial position, results of operations, or cash flows.Our business depends on its ability to source and distribute products in a timely manner. Labor disputes at or that affect our independent manufacturers,shipping ports, including the recent labor dispute at west coast US ports, tanneries, transportation carriers, retail stores or distribution centers createsignificant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions. Any such disruption may havea material adverse effect on our business by potentially resulting in cancelled orders by customers and unanticipated inventory accumulation, and increasedtransportation and labor costs, each of which may negatively impact our results of operations and financial position.Our sales in international markets are subject to a variety of laws and political and economic risks that may adversely impact our sales and results ofoperations in certain regions, which could increase our costs and adversely impact our operating results.Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets issubject to risks associated with international operations that could adversely affect our sales and results of operations. These include:•changes in currency exchange rates, which impact the price to international consumers;•ability to move currency out of international markets;•the burdens of complying with a variety of foreign laws and regulations, the interpretation and application of which are uncertain;•legal costs and penalties related to defending allegations of non-compliance;•unexpected changes in legal and regulatory requirements;•inability to successfully import into a country;•changes in tax laws;•complications due to lack of familiarity with local customs;•difficulties associated with promoting products in unfamiliar cultures;•political instability;•changes in diplomatic and trade relationships; and•general economic fluctuations in specific countries or markets.14Table of ContentsInternational trade and import regulations may impose unexpected duty costs or other non-tariff barriers to markets while the increasing number offree trade agreements has the potential to stimulate increased competition; security procedures may cause significant delays.Products manufactured overseas and imported into the US and other countries are subject to import duties. While we have implemented internalmeasures to comply with applicable customs regulations and to properly calculate the import duties applicable to imported products, customs authoritiesmay disagree with our claimed tariff treatment for certain products, resulting in unexpected costs that may not have been factored into the sales price of theproducts and our forecasted gross margins.We cannot predict whether future domestic laws, regulations or trade remedy actions or international agreements may impose additional duties or otherrestrictions on the importation of products from one or more of our sourcing venues. Such changes could increase the cost of our products, require us towithdraw from certain restricted markets, or change our business methods and could make it difficult to obtain products of our customary quality at acompetitive price. Meanwhile, the continued negotiation of bilateral and multilateral free trade agreements by the US and our other market countries withcountries other than our principal sourcing venues may stimulate competition from manufacturers in these other sourcing venues, which now export, or mayseek to export, footwear and accessories to our target markets at preferred rates of duty, which may have an effect on our sales and operations.Additionally, the increased threat of terrorist activity and law enforcement responses to this threat have required greater levels of inspection of importedgoods and have caused delays in bringing imported goods to market. Any tightening of security procedures, for example, in the aftermath of a terroristincident, could worsen these delays and increase our costs.We could be adversely affected by the loss of our warehouses.The warehousing of our inventory is located at a limited number of self-managed domestic facilities and self-managed and third-party managedinternational facilities, the loss of any of which due to natural disasters and other adverse events, could materially adversely impact our sales, businessperformance, and operating results. In addition, we could face a significant disruption in our domestic distribution center operations if our automated pickmodule does not perform as anticipated or ceases to function for an extended period, or if our plans for a new distribution facility are disrupted or delayed.Key business processes and supporting information systems could be interrupted and adversely affect our business.Our future success and growth depend on the continued operation of our key business processes, including information systems, globalcommunications, the internet, and key personnel. Hackers and computer viruses have disrupted operations at many major companies. We may be vulnerableto similar acts of sabotage. Key processes could also be interrupted by a failure due to weather, natural disaster, power loss, telecommunications failure,failure of our computer systems, sabotage, terrorism, or similar event such that:•critical business systems become inoperable or require significant costs to restore;•key personnel are unable to perform their duties, communicate, or access information systems;•significant quantities of merchandise are damaged or destroyed;•we are required to make unanticipated investment in state-of-the-art technologies and security measures;•key wholesale and distributor customers cannot place or receive orders;•E-Commerce customer orders may not be received or fulfilled;•confidential information about our customers may be misappropriated or lost damaging our reputation and customer relationships;•we are exposed to unanticipated liabilities; or•carriers cannot ship or unload shipments.These interruptions to key business processes could have a material adverse effect on our business and operations and result in lost sales and reducedearnings.Furthermore, we rely on certain information technology management and enterprise resource planning systems to prepare sales forecasts, track ourfinancial and operating results, and otherwise operate our business. As our business grows and we expand15Table of Contentsinto additional distribution channels and geographic regions, these systems may require expansion or modification. We may experience difficultiesexpanding these information technology and resource planning systems or transitioning to new or upgraded systems, which may result in loss of data orunreliable data, decreases in productivity as our personnel become familiar with and adapt to the new systems, and increased costs for the implementation ofthe new or upgraded systems. If we are unable to modify our information technology or resource planning systems to respond to changes in our businessneeds, or if we experience a failure or interruption in these systems, our ability to accurately forecast sales, report our financial and operating results, orotherwise operate our business could be adversely affected.The loss, theft or misuse of sensitive customer or company information, could damage our relationships with customers, harm our reputation, exposeus to litigation and adversely affect our business.Our business involves the storage and transmission of sensitive information including the personal information of our customers, credit cardinformation, employee information, data relating to customer preferences, and proprietary company financial and strategic data. The protection of ourcustomer, employee and company data is vitally important to us as the loss, theft or misuse of such information could lead to significant reputational orcompetitive harm, litigation and potential liability. As a result, we believe that our future success and growth depends, in part, on the ability of our keybusiness processes, including our information and global communication systems, to prevent the theft, loss or misuse of this sensitive information. However,as with many businesses, we are subject to numerous security and cybersecurity risks which may prevent us from maintaining the privacy of sensitiveinformation and require us to expend significant resources attempting to secure such information.As has been well documented in the media, hackers and computer viruses have disrupted operations at many major companies, and we may bevulnerable to similar security breaches. While we have expended, and will continue to expend, resources to protect our customers and ourselves against thesebreaches and to ensure an effective response to a security or cybersecurity breach, we cannot be certain that we will be able to adequately defend against anysuch breach. Techniques used to obtain unauthorized access to attack systems are constantly evolving and, in some cases, becoming more sophisticated andharder to detect. Despite our efforts, we may be unable to anticipate these techniques or implement adequate preventive measures in response, and anybreaches that we do not detect may remain undetected for some period. In addition, measures that we do take to prevent risks of fraud and security breacheshave the potential to harm relations with our customers or suppliers, or decrease activity on our websites by making them more difficult to use or restrictingthe ability to meet our customers' expectations in terms of their online shopping experience.Any failure to maintain the security of our customers’ sensitive information, or data belonging to our suppliers, could put us at a competitivedisadvantage, result in deterioration of our customers’ confidence in our operations, and subject us to potential litigation, liability, fines and penalties,resulting in a possible material adverse effect on our business, results of operations, and financial condition. While we maintain insurance coverage that may,subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would notremedy damage to our reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorizedrelease of personal or confidential information. In such circumstances, we could be held liable to our customers, other parties or employees, be subject toregulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costlyinvestigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect our reputation and our resultsof operations and financial condition. We are also subject to payment card association rules and obligations under our contracts with payment cardprocessors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for associated expenses andpenalties. In addition, if we fail to follow payment card industry security standards, even if no customer information is compromised, we could incursignificant fines or experience a significant increase in payment card transaction costs.Our business could be adversely affected by the loss of key members of our management team or other key personnel.Our future success and growth depend largely upon the continued services of our executive officers and other key employees. From time to time, theremay be changes in our executive officers or other key employees resulting from the hiring or departure of these personnel, which may disrupt our business.Our executive officers and other key employees are generally employed on an at-will basis, which means that these personnel could terminate theiremployment with us at any time. The loss of one or more of our executive officers or other key employees and the often extensive process of identifying andhiring other personnel, who will work effectively with our employees and lead our company to fill those key positions, could have a material adverse effecton our business.We depend on highly skilled personnel and, if we are unable to retain or hire additional qualified personnel, we may not be able to achieve ourstrategic objectives.To execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnelacross our company. In particular, in order to continue to develop new products and successfully operate16Table of Contentsand grow our key business processes, it is important for us to continue hiring highly skilled footwear and accessories designers and information technologyspecialists. Competition for these highly skilled professionals is intense within our industry and there continues to be upward pressure on the compensationpaid to these professionals. Many of the companies with which we compete for experienced personnel have greater name recognition and financial resourcesthan we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that we or these employees havebreached their legal obligations, resulting in a diversion of our time and resources. In addition, our headquarters are located in Santa Barbara, California,which is not generally recognized as a prominent commercial center, and it is difficult to attract qualified professionals due to our geographic location. As aresult, we may have difficulty hiring and retaining suitably skilled personnel with the qualifications and motivation to expand our business. If we are unableto attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results maysuffer.In addition, prospective and existing employees often consider the value of the stock awards they receive in connection with their employment. If theperceived value of our equity awards decline, or if the price of our stock experiences significant volatility, it may adversely affect our ability to recruit andretain highly skilled employees. If we fail to attract new personnel or to retain and motivate our current personnel, our future growth prospects could beadversely affected and our business could be harmed.Our revolving credit facility provides our lenders with a first-priority lien against substantially all of our assets and contains financial covenants andother restrictions on our actions.From time to time, we have financed our liquidity needs in part from borrowing made under a revolving credit facility. Our credit facility provides for acommitted revolving credit line of up to $400 million. Our obligations under the agreement are guaranteed by our existing and future wholly-owneddomestic subsidiaries, other than certain immaterial subsidiaries, foreign subsidiaries, foreign subsidiary holding companies and specified excludedsubsidiaries, and are secured by a first priority security interest in substantially all of our assets, including all or a portion of the equity interests of certain ofour domestic and first-tier foreign subsidiaries. The agreement for our credit facility also contains a number of customary financial covenants and restrictions,which may restrict our ability to engage in transactions that would otherwise be in our best interests. Failure to comply with any of the covenants under thecredit agreement could result in a default. A default under the credit agreement could cause the lenders to accelerate the timing of payments and exercise theirlien on essentially all of our assets, which would have a material adverse effect on our business, operations, financial condition and liquidity. In addition,because borrowings under the revolving credit facility bear interest at variable interest rates, which we do not anticipate hedging against, increases in interestrates would increase our cost of borrowing, resulting in a decline in our net income and cash flow. There were no outstanding borrowings under ourcommitted revolving credit facility as of March 31, 2015. In addition, we have a credit facility in China (China Credit Facility), which provides for anuncommitted revolving line of credit of up to CNY 60 million, or approximately $10 million. At March 31, 2015, we had approximately $4.9 million ofoutstanding borrowings under the China Credit Facility.The tax laws applicable to our business are very complex and we may be subject to additional tax liabilities as a result of audits by various taxingauthorities or changes in tax laws applicable to our business.We conduct our operations through subsidiaries in several countries including the US, the UK, Japan, China, Hong Kong, Macau, the Netherlands,Bermuda, France, and Canada. As a result, we are subject to tax laws and regulations in each of those jurisdictions, and to tax treaties between the US andother nations. These tax laws are highly complex, and significant judgment and specialized expertise is required in evaluating and estimating our worldwideprovision for income taxes.We are subject to audits in each of the various jurisdictions where we conduct business, and any of these jurisdictions may assess additional taxesagainst us as a result of their audits. Although we believe our tax estimates are reasonable, and we undertake to prepare our tax filings in accordance with allapplicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from our estimates or fromour historical tax provisions and accruals. The results of an audit or litigation could have a material effect on our operating results or cash flows in the periodsfor which that determination is made and may require a restatement of prior financial reports at a material cost. In addition, future period earnings may beadversely impacted by litigation costs, settlements, penalties, or interest assessments.We are also subject to constant changes in tax laws, regulations and treaties in and between the nations in which we operate. Our tax expense is basedupon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties orregulations, including those in and involving the US, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective taxrate on our worldwide earnings. It is possible that tax proposals could result in changes to the existing US tax laws that affect us. We are unable to predictwhether any proposals will ultimately be enacted. Any such changes could increase our income tax liability and adversely affect our net income and longterm effective tax rates.The disruption, expense, and potential liability associated with existing and future litigation.17Table of ContentsWe are involved in various claims, litigations and other legal and regulatory proceedings and governmental investigations that arise from time to timein the ordinary course of our business. Due to inherent uncertainties of litigation and other such proceedings and investigations, we cannot predict withaccuracy the ultimate outcome of any such matters. An unfavorable outcome could have a material adverse impact on our business, financial position, andresults of operations. The amount of insurance coverage we maintain to address such matters may be inadequate to cover these or other claims. In addition,any significant litigation, investigation, or proceeding, regardless of its merits, could divert financial and management resources that would otherwise beused to benefit our operations or could negatively impact our reputation in the marketplace.New regulations related to "conflict minerals" may cause us to incur additional expenses and could limit the supply and increase the cost of certainmetals used in manufacturing our products.On August 22, 2012, the SEC adopted a new rule requiring disclosures by public companies of specified minerals, known as conflict minerals, that arenecessary to the functionality or production of products manufactured or contracted to be manufactured. The rule requires companies to perform duediligence, disclose and annually report to the SEC whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country.The rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of our products,including tantalum, tin, gold and tungsten. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be materialcosts associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, aswell as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. Within our supply chain, wemay not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement,which may harm our reputation. We are currently investigating the use of conflict materials, if any, within our supply chain.Our common stock price has been volatile, which could result in substantial losses for stockholders.Our common stock is traded on the NYSE. While our average daily trading volume for the 52-week period ended May 15, 2015 was approximately740,000 shares, we have experienced more limited volume in the past and may do so in the future. The trading price of our common stock has been and maycontinue to be volatile. The closing prices of our common stock, as reported by the NYSE, have ranged from $66.05 to $99.38 for the 52-week period endedMay 15, 2015. The trading price of our common stock could be affected by a number of factors, including, but not limited to the following:•changes in expectations of our future performance, whether realized or perceived;•changes in estimates by securities analysts or failure to meet such estimates;•published research and opinions by securities analysts and other market forecasters;•changes in our credit ratings;•the financial results and liquidity of our customers;•shift of revenue recognition as a result of changes in our distribution model, delivery of merchandise, or entering into agreements withrelated parties;•claims brought against us by a regulatory agency or our stockholders;•quarterly fluctuations in our sales, expenses, and financial results;•general equity market conditions and investor sentiment;•economic conditions and consumer confidence;•broad market fluctuations in volume and price;•increasing short sales of our stock;•announcements to repurchase our stock;•the declaration of stock or cash dividends; and18Table of Contents•a variety of risk factors, including the ones described elsewhere in this Annual Report and in our other periodic reports.In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate tothe operating performance of individual companies. Accordingly, the price of our common stock is volatile and any investment in our stock is subject to riskof loss. These broad market and industry factors and other general macroeconomic conditions unrelated to our financial performance may also affect ourcommon stock price.Changes in economic conditions may adversely affect our financial condition and results of operations.Volatile economic conditions and general changes in the market have affected, and will likely continue to affect consumer spending generally and thebuying habits and preferences of our customers and end-user consumers in particular. A significant portion of the products we sell, especially those soldunder the UGG brand, are considered to be luxury retail products. The purchase of these products by consumers is largely discretionary, and is thereforehighly dependent upon the level of consumer spending, particularly among affluent consumers. Sales of these products may be adversely affected by acontinuation or worsening of recent economic conditions, increases in consumer debt levels, uncertainties regarding future economic prospects, or a declinein consumer confidence. During an actual or perceived economic downturn, fewer consumers may shop for our products and those who do shop may limit theamounts of their purchases. As a result, we could be required to reduce the price we can charge for our products or increase our marketing and promotionalexpenses in response to lower than anticipated levels of demand for our products. In either case, these changes, or other similar changes in our marketingstrategy, would reduce our revenues and profit margins and could have a material adverse effect on our financial condition and results of operations.We sell our products through higher-end specialty and department store retailers. These retailer customers may be impacted by continuing economicuncertainty, reduced customer demand for luxury products, and a significant decrease in available credit. If reduced consumer spending, lower demand forluxury products, or credit pressures result in financial difficulties or insolvency for these customers, it would adversely impact our estimated allowances andreserves as well as our overall financial results. Also, economic factors such as increased transportation costs, inflation, higher costs of labor, and higherinsurance and healthcare costs may increase our cost of sales and our operating expenses, and otherwise adversely affect our financial condition, results ofoperations, and cash flows. Our business, access to credit, and trading price of common stock could be materially and adversely affected if the currenteconomic conditions do not improve or worsen.Our financial success is influenced by the success of our customers.Much of our financial success is directly related to the success of our retailers and distributor partners to market and sell our brands through to theconsumer. If a retailer fails to meet annual sales goals, it may be difficult to locate an acceptable substitute retailer. If a distributor fails to meet annual salesgoals, it may be difficult and costly to either locate an acceptable substitute distributor or convert to a wholesale direct model. If a change becomes necessary,we may experience increased costs, loss of customers, increased credit risk, and increased inventory risk, as well as substantial disruption to operations and apotential loss of sales.We currently do not have long-term contracts with any of our retailers. We do have contracts with our distributors with terms ranging up to five-years,however, while these contracts may have annual purchase minimums which must be met in order to retain the distribution rights, the distributors are nototherwise obligated to purchase product. Sales to our retailers and distributors are generally on an order-by-order basis and are subject to rights ofcancellation and rescheduling by our wholesale customers. We use the timing of delivery dates in our wholesale customer orders to forecast our sales andearnings for future periods. If any of our major customers, including independent distributors, experience a significant downturn in business or fail to remaincommitted to our products or brands, then these customers could postpone, reduce, or discontinue purchases from us. As a result, we could experience adecline in sales or gross margins, write downs of excess inventory, increased discounts or extended credit terms to our customers, which could have a materialadverse effect on our business, results of operations, financial condition, cash flows, and our common stock price.Our five largest customers accounted for approximately 22.2% of worldwide net sales in fiscal year 2015 and 23.0% of worldwide net sales in fiscalyear 2013. Any loss of a key customer, the financial collapse or bankruptcy of a key customer, or a significant reduction in purchases from a key customercould have a material adverse effect on our business, results of operations, and financial condition.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.19Table of ContentsOur corporate headquarters are located in Goleta, California. We have three US distribution centers, all in California. Our international distributioncenters, located in the Netherlands, the UK, Germany, China, Hong Kong and Japan, are managed by 3PLs. We recently began operating our new distributioncenter in Moreno Valley, California. Our E-Commerce operations are in Arizona, the UK, many Eurozone countries, China, Japan, Singapore, Australia andHong Kong. We also have offices in Hong Kong, China and Vietnam to oversee the quality and manufacturing standards of our products, an office in Macauto coordinate logistics, an office in Hong Kong to coordinate sales and marketing efforts, and offices in the UK, the Netherlands and Germany to overseeEuropean operations and administration. As of March 31, 2015, we had 51 retail stores in the US ranging from approximately 1,000 to 8,000 square feet.Internationally, we had 91 retail stores in China, Japan, the UK, Canada, France, Hong Kong, Belgium and the Netherlands. We have no manufacturingfacilities, as all of our products are manufactured by independent manufacturers. The construction of our new fourteen acre corporate headquarters in Goleta,California was substantially completed in January 2014. Other than our new corporate headquarters, we lease, rather than own, our facilities from unrelatedparties. With the exception of our E-Commerce and retail store facilities, our facilities are attributable to multiple segments of our business and are notallocated to the reportable segments. We believe our space is adequate for our current needs and that suitable additional or substitute space will be availableto accommodate the foreseeable expansion of our business and operations.The following table reflects the location, use, segment, and approximate size of our significant physical properties as of March 31, 2015:Facility LocationDescriptionBusiness SegmentFacility Size (SquareFootage)Moreno Valley, CaliforniaWarehouse FacilityUnallocated794,000Camarillo, CaliforniaWarehouse FacilityUnallocated723,000Goleta, CaliforniaCorporate OfficesUnallocated196,000Item 3. Legal Proceedings.On July 17, 2012 and July 26, 2012, two purported shareholder derivative lawsuits were filed in the California Superior Court for the County of SantaBarbara against our Board of Directors and several of our officers. The Company is named as nominal defendant. Plaintiffs in the state derivative actionsallege, among other things, that the Board allowed certain officers to make allegedly false and misleading statements. The complaints include claims forbreach of fiduciary duties, insider trading, unjust enrichment, and violations of the California Corporations Code. The complaints seek compensatorydamages, disgorgement, and other relief. The actions were consolidated on September 13, 2012, and the Plaintiffs filed a consolidated complaint onNovember 20, 2012. On March 21, 2013, the Company’s demurrer to the consolidated complaint was sustained with leave to amend. The Plaintiffs did nottimely amend the consolidated complaint and a final judgment and order of dismissal with prejudice was entered on May 6, 2013. Plaintiffs filed an appealon May 22, 2013. The court of appeal affirmed the judgment of dismissal on October 2, 2014. Plaintiffs filed a petition for review in the California SupremeCourt on December 5, 2014, which was denied on February 25, 2015 resulting in dismissal of the suits.As part of our policing program for our intellectual property rights, from time to time, we file lawsuits in the US and abroad alleging acts of trademarkcounterfeiting, trademark infringement, patent infringement, trade dress infringement, trademark dilution, and state or foreign law claims. At any given pointin time, we may have a number of such actions pending. These actions often result in seizure of counterfeit merchandise or out of court settlements withdefendants or both. From time to time, we are subject to claims where plaintiffs will raise, or defendants will raise, either as affirmative defenses or ascounterclaims, the invalidity or unenforceability of certain of our intellectual properties, including our trademark registration for UGG. We also are aware ofmany instances throughout the world in which a third-party is using our UGG trademarks within its internet domain name, and we have discovered and areinvestigating several manufacturers and distributors of counterfeit Teva, UGG, and Sanuk products.Although we are subject to other routine legal proceedings from time to time in the ordinary course of business, including employment, intellectualproperty and product liability claims, we believe that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect onour business or consolidated financial statements.Item 4. Mine Safety Disclosures.Not applicable.20Table of ContentsPART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our common stock is traded on the NYSE under the symbol "DECK". Prior to May 5, 2014, our common stock was traded on the NASDAQ GlobalSelect Market under the symbol "DECK".The following table shows the range of low and high closing sale prices per share of our common stock, based on the last daily sale, for the periodsindicated.Common StockPrice Per ShareLowHighYear ended March 31, 2015March Quarter$66.05 $94.10December Quarter$81.56$98.57September Quarter$81.53 $99.38June Quarter$76.11$86.33Transition Period ended March 31, 2014March Quarter$72.86$88.56Year ended December 31, 2013December Quarter$57.84$86.09September Quarter$51.07 $66.09June Quarter$47.35$59.69March Quarter$36.12 $55.69As of May 15, 2015, we had approximately 57 stockholders of record based upon the records of our transfer agent, which does not include beneficialowners of our common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.We did not sell any equity securities during the year ended March 31, 2015 that were not registered under the Securities Act of 1933, as amended.STOCK PERFORMANCE GRAPHBelow is a graph comparing the percentage change in the cumulative total stockholder return on the Company's common stock against the NASDAQMarket Index, the cumulative total return of the NYSE Composite Index, and the S&P 500 Apparel, Accessories & Luxury Goods Index for the five-year andone quarter period commencing December 31, 2009 and ending March 31, 2015. The data represented below assumes one hundred dollars invested in each ofthe Company's common stock, the NYSE Composite Index, the NASDAQ Market Index, and the S&P 500 Apparel, Accessories & Luxury Goods Index onJanuary 1, 2010.Beginning in fiscal year 2015, we are using the NYSE Composite Index rather than the NASDAQ Market Index that we used in prior years due to theMay 5, 2014 change in listing of our stock to the NYSE. For this Annual Report, we have included both the NYSE Composite Index and the NASDAQMarket Index.The stock performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Reportinto any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that theCompany specifically incorporates this information by reference, and shall not otherwise be deemed filed under either of such Acts. Total return assumesreinvestment of dividends; we have not declared or paid any cash dividends on our common stock since our inception.21Table of ContentsASSUMES $100 INVESTED ON JAN. 01, 2010ASSUMES DIVIDEND REINVESTED12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 3/31/2015Deckers Outdoor Corporation$100.0$235.2$222.9$118.8$249.1$214.9NASDAQ Market Index#100.0118.0117.0137.5192.6229.4S&P 500 Apparel, Accessories & Luxury GoodsIndex100.0141.2175.6180.1225.0214.9NYSE Composite Index*100.0113.8109.7127.5161.2176.9#The NASDAQ Market Index is the same NASDAQ Index used in our 2013 Form 10-K.*The NYSE Composite Index is an index that measures the performance of all stocks listed on theNYSE.DIVIDEND POLICYWe have not declared or paid any cash dividends on our common stock since our inception. We currently do not anticipate declaring or paying anycash dividends in the foreseeable future. Our current credit agreement allows us to make cash dividends, provided that no event of default has occurred or iscontinuing and provided that our total adjusted leverage ratio does not exceed 2.75 to 1.00.22STOCK REPURCHASE PROGRAM In June 2012, the Company approved a stock repurchase program to repurchase up to $200 million of the Company's common stock in the open marketor in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program did not obligate theCompany to acquire any particular amount of common stock and the program may have been suspended at any time at the Company's discretion. As ofFebruary 28, 2015, the Company had repurchased approximately 3,823,000 shares under this program, for approximately $200 million, or an average price of$52.31 per share. As of February 28, 2015, the Company had repurchased the full amount authorized under this program.In January 2015, the Company approved a new stock repurchase program to repurchase up to $200 million of the Company's common stock in the openmarket or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program does not obligatethe Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company's discretion. As of March 31,2015, the Company has repurchased approximately 377,000 shares under this program for approximately $27.9 million, or an average price of $74.09 pershare, leaving the remaining approved amount at approximately $172.1 million.Total numberof sharespurchased*(in thousands)Averagepricepaid pershareApproximate dollarvalue of sharesadded/(purchased)(in thousands)Approximate dollarvalue of shares thatmay yet bepurchased(in thousands)December 31, 2012$79,300January 1, 2013 — September 30, 2014— $— $— $79,300October 1, 2014 — October 31, 2014157$84.66$(13,300)$66,000November 1, 2014 — December 31, 2014— $— $— $66,000January 1, 2015 — January 31, 2015— $— $200,000$266,000February 1, 2015 — February 28, 20151,089 $73.41 $(79,900) $186,100March 1, 2015 — March 31, 2015190$73.73$(14,000)$172,100Total1,436$74.68* All shares purchased were purchased as part of a publicly announced program in open-market transactions.Item 6. Selected Financial Data.We derived the following selected consolidated financial data from our consolidated financial statements.The financial data are derived from, and qualified by reference to, the following audited consolidated financial statements not included in this AnnualReport:•Consolidated statements of operations for the years ended December 31, 2010 and 2011•Consolidated balance sheets as of December 31, 2010, 2011 and 2012The financial data are further derived from, and qualified by reference to, the following accompanying consolidated financial statements in Part IV of thisAnnual Report:•Consolidated statements of operations for the years ended December 31, 2012 and 2013, March 31, 2015, and the transition quarter ended March 31,2014•Consolidated balance sheets as of December 31, 2013, March 31, 2014 and March 31, 2015Historical results are not necessarily indicative of the results to be expected in the future. You should read the following consolidated financial informationtogether with our accompanying consolidated financial statements in Part IV of this Annual Report and the related notes and Part II, Item 7 "Management'sDiscussion and Analysis of Financial Condition and Results of Operations".23Table of ContentsYear endedQuarter ended(transitionperiod)Years ended December 31,3/31/20153/31/20142013201220112010(In thousands, except per share data)Statements of Operations DataNet sales:UGG wholesale$903,926$83,271$818,377$819,256$915,203$663,854Teva wholesale116,93145,283109,334108,591118,74296,207Sanuk wholesale102,69028,79394,42089,80426,039—Other brands wholesale76,15218,66238,27620,19421,80123,476E-Commerce233,07038,584169,534130,592106,49891,808Retail stores384,28880,123326,677245,961189,000125,6441,817,057294,7161,556,6181,414,3981,377,2831,000,989Cost of sales938,949150,456820,135782,244698,288498,051Gross profit878,108144,260736,483632,154678,995502,938Selling, general and administrative(SG&A) expenses653,689144,668528,586445,206394,157253,850Income (loss) from operations224,419(408)207,897186,948284,838249,088Other expense (income), net3,2803342,3402,830(424)(1,021)Income (loss) before income taxes221,139(742)205,557184,118285,262250,109Income taxes59,3591,94359,86855,10483,40489,732Net income (loss)161,780(2,685)145,689129,014201,858160,377Net income attributable tononcontrolling interest———(148)(2,806)(2,142)Net income (loss) attributable toDeckers Outdoor Corporation$161,780$(2,685)$145,689$128,866$199,052$158,235Net income (loss) per share attributableto Deckers Outdoor Corporation commonstockholders:Basic$4.70$(0.08)$4.23$3.49$5.16$4.10Diluted$4.66 $(0.08) $4.18 $3.45 $5.07 $4.03Weighted-average common sharesoutstanding:Basic34,43334,62134,47336,87938,60538,615Diluted34,73334,62134,82937,33439,26539,292As of3/31/20153/31/201412/31/2013 12/31/2012 12/31/2011 12/31/2010(In thousands)Balance Sheet DataCash and cash equivalents$225,143$245,088$237,125$110,247$263,606$445,226Working capital$519,051$501,647$508,786$424,569$585,823$570,869Total assets$1,169,933 $1,064,204 $1,259,729 $1,068,064 $1,146,196 $808,994Long-term liabilities$65,379 $53,140 $51,092 $62,246 $72,687 $8,456Total Deckers Outdoor Corporationstockholders' equity$937,012$888,849$888,119$738,801$835,936$652,98724Table of ContentsItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.References to "Deckers," "we," "us," "our," or similar terms refer to Deckers Outdoor Corporation together with its consolidated subsidiaries. Unlessotherwise specifically indicated, all amounts herein are expressed in thousands, except for share quantity, per share data, and selling prices. The followingdiscussion of our financial condition and results of operations should be read together with our accompanying consolidated financial statements in Part IV ofthis Annual Report and the accompanying notes to those statements included in Part IV of this Annual Report.OverviewWe are a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casuallifestyle use and high performance activities. We market our products primarily under three proprietary brands:•UGG®: Premier brand in luxurious comfort footwear, handbags, apparel, home and cold weather accessories;•Teva®: Born from the outdoors, active lifestyle footwear for the adventurous spirit; and•Sanuk®: Innovative action sport footwear brand rooted in the surf community.Our financial condition and results of operations include the operations of Hoka One One® (Hoka) beginning September 27, 2012, the acquisition date.In addition to our primary brands, our other brands include Ahnu®, a line of outdoor performance and lifestyle footwear; Hoka, a line of footwear for allcapacities of runners designed with a unique performance midsole geometry, oversized midsole volume and active foot frame; MOZO®, a line of footwearcrafted for culinary professionals that redefines the industry's dress code; and TSUBO®, a line of mid and high-end dress and dress casual comfort footwearthat incorporates style and function with maximum comfort.We sell our brands through quality domestic retailers and international distributors and retailers, as well as directly to our end-user consumers throughour E-Commerce business and retail stores. Independent third parties manufacture all of our products.Our business has been and we expect that it will continue to be impacted by what we believe are several important trends:•Sales of our products are highly seasonal and are sensitive to weather conditions, which are beyond our control. Even though we arecreating more year-round styles for our brands, the effect of favorable or unfavorable weather on sales can be significant.•Continuing uncertainty surrounding US and global economic conditions has adversely impacted businesses worldwide. Some of ourcustomers have been, and more may be, adversely affected, which in turn has, and may continue to, adversely impact our financial results.•The sheepskin used in certain UGG products is in high demand and limited supply, and there have been significant fluctuations in the priceof sheepskin over the years as the demand from competitors for this material has changed.•Our use of UGGpure®, real wool woven into a durable backing used as an alternative to table grade sheepskin, in select products, primarilyin linings and foot beds, continues to grow.•The markets for casual, outdoor, and athletic footwear have grown significantly during the last decade. We believe this growth is a result ofthe trend toward casual dress in the workplace, increasingly active outdoor lifestyles, and a growing emphasis on comfort.•Consumers are more often seeking footwear designed to address a broader array of activities with the same quality, comfort, and highperformance attributes they have come to expect from traditional athletic footwear.•Consumers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market categorycreators and leaders.•Consumers have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable while stillcomfortable.25Table of Contents•There is an emerging sustainable lifestyle movement happening all around the world, and consumers are demanding that brands andcompanies become more environmentally responsible.•Consumers are following a recent trend of buy now, wear now. This trend entails the consumer waiting to purchase shoes until they willactually wear them, contrasted with a tendency in the past to purchase shoes they did not plan to wear until later.By emphasizing our brands' images and our focus on comfort, performance and authenticity, we believe we can continue to maintain a loyal consumerfollowing that is less susceptible to fluctuations caused by changing fashions and changes in consumer preferences. We have also responded to consumerfocus on sustainability by establishing objectives, policies, and procedures to help us drive key sustainability initiatives around human rights, environmentalsustainability, and community affairs.We have experienced significant cost fluctuations over the past several years, notably with respect to sheepskin. We attempt to cover the full amount ofour sheepskin purchases under fixed price contracts. We continually strive to contain our material costs through increasing the mix of non-sheepskinproducts, exploring new footwear materials and new production technologies, and utilizing lower cost production. Also, refer to Part II, Item 7A."Quantitative and Qualitative Disclosures about Market Risk" for further discussion of our commodity price risk.Below is an overview of the various components of our business, including some key factors that affect each business and some of our strategies forgrowing each business.UGG Brand OverviewThe UGG brand is one of the most iconic and recognized brands in the global footwear industry and highlights our successful track record of buildingniche brands into lifestyle market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient line of premiumfootwear, with expanded product offerings and a growing global audience that attracts women, men and children. UGG brand footwear continually earnsmedia exposure from numerous outlets both organically and from strategic public relations efforts, including an increasing amount of exposureinternationally. The UGG brand has invested in creating holistic, impactful integrated campaigns across paid, earned and owned media channels, includingmobile, digital, social, out-of-home (OOH) and print, which are globally scalable, contributing to broader public awareness of the brand.We believe the increased global media focus and demand for UGG products has been driven by the following:•High consumer brand loyalty, due to over 35 years of delivering quality and luxuriously comfortable UGG footwear;•Continued innovation of new product categories and styles, including those beyond footwear such as loungewear, handbags, cold-weatheraccessories and a new home offering;•A more robust footwear offering, including transitional products that bridge the seasons between spring and fall;•Expanded slipper category showing incremental growth with added styles for both women, men and children;•Growing Direct-to-Consumer platform and enhanced OmniChannel capabilities that enable us to increasingly engage existing andprospective consumers in a more connected environment to introduce our evolving product lines;•Product customization with our UGG by You program allows for deeper connection with brand and products;•Focus on mobile consumers with responsive website design providing shoppers access to the brand from their mobile devices;•Year-round holistic paid advertising approach for women, men and children in targeted digital, high-end print, OOH and across multiplesocial media platforms;•Holiday and winter focused advertising campaign to drive important seasonal sales;•Continued creation of targeted UGG for Men campaigns;26Table of Contents•Targeted E-Commerce based marketing to existing and prospective consumers through integrated outreach including email blasts,interactive website design and search engine optimization based content;•Continued partnerships with high-end retailers such as Nordstrom, Dillard's and Bloomingdales;•Expanded product assortments from existing accounts;•Adoption by high-profile celebrities as a favored footwear brand;•Continued media attention that has enabled us to introduce the brand to consumers much faster than we would have otherwise been able to;•Increased exposure to the brand driven by our concept stores that showcase all of our product offerings; and•Continued expansion of worldwide retail through new UGG stores.We believe the luxurious comfort of UGG products will continue to drive long-term consumer demand. Recognizing that there is a significant fashionelement to UGG footwear and that footwear fashions fluctuate, our key strategies include presenting UGG as a year-round global, premium lifestyle brandwith a broad product line suitable for wear in a variety of climates and occasions and limiting retail distribution. As part of this strategic approach, we haveincreased our product offerings, including a growing transitional collections and spring line, an expanded men’s line, a fall line that consists of a range ofluxurious collections for both genders, an expanded kids’ line, as well as home, handbags, cold weather accessories, and apparel products. We have alsorecently expanded our marketing and promotional efforts, which we believe has contributed, and will continue to contribute, to our growth. We believe thatthe evolution of the UGG brand and our strategy of product diversification will also help decrease our reliance on sheepskin, which is in high demand andsubject to price volatility. Nonetheless, we cannot assure investors that our efforts will continue to provide UGG brand growth.Teva Brand OverviewFor 30 years Teva has fueled the expression of freedom through the adventure lifestyle around the globe. Teva pioneered the sport sandal category in1984. We believe that Teva’s Originals Collection is a key platform in driving market penetration for the brand. The Originals Collection honors the heritageof Teva by revamping the styles the brand was founded on by blending their original simplicity with modern sophistication. In the US, our focus will be tobolster our leadership position in sandals and grow our market share through casual category extensions. Globally, we seek to establish the OriginalsCollection as a catalyst for the Teva brand's success across warm-weather climates.Within the US, we expect that Teva will grow its position as a market leader within the sport sandal category. Growth opportunities within our currentcore channels of distribution - outdoor specialty, sporting goods and family footwear retail chains - will be pursued through deepening penetration withevolved and expanded product offerings. Teva plans to support its channel expansion beyond present distribution with focused investments in targeted,solution-driven marketing programs in order to attract new lifestyle consumers to the brand. However, we cannot assure investors that these efforts will besuccessful.Sanuk Brand OverviewThe Sanuk brand was founded 17 years ago, and from its origins in the Southern California surf culture, has grown into a global brand with anexpanding fan base and growing presence in the relaxed casual shoe and sandal categories. The Sanuk brand’s use of unexpected materials andunconventional constructions combined with its fun and funky branding has contributed to the brand’s identity and growth since its inception, and led tosuccessful products such as the Yoga MatTM sandal collection and the patented SIDEWALK SURFERS®. We believe that the Sanuk brand providessubstantial growth opportunities, especially within the casual sneaker markets, supporting our strategic initiatives spanning new product launches, andOmniChannel development and global expansion. However, we cannot assure investors that our efforts to grow the brand will be successful.Other Brands OverviewOur other brands consist of Ahnu, Hoka, MOZO and TSUBO. Our other brands are sold through most of our distribution channels, primarily throughwholesale channels.Ahnu is an authentic performance footwear brand that makes footwear for fashion-minded people who prefer trails, yoga mats, and hybrid fitnessworkouts. Ahnu's products feature après-yoga styling, innovative trail and city hikers, and everyday casual shoes and sandals. Ahnu’s go-anywhere approachblurs the lines between performance and fashion through modern color and material stories infused with Numentum® performance technology.27Table of ContentsThe Hoka brand focuses on designing shoes with a unique performance midsole geometry, oversized midsole volume and an active foot frame. Webelieve runners from around the world are experiencing the benefits of Hoka brand products. These shoes are used by marathon runners, and even ultra-marathon runners as well as every day runners to enjoy running.With respect to Ahnu and Hoka, we expect to leverage our design, marketing, and distribution capabilities. Nevertheless, we cannot assure investorsthat our efforts to grow these brands will be successful.With respect to MOZO and TSUBO, we are seeking strategic alternatives for these businesses.E-Commerce OverviewOur E-Commerce business, which sells all of our brands, allows us to build our relationship with the consumer and is a key component of our integratedOmniChannel strategy. E-Commerce enables us to meet the growing demand for our products, sell the products at retail prices, and provide significantincremental operating income. The E-Commerce business provides us an opportunity to communicate to the consumer with a consistent brand message thatis in line with our brands' promises, drives awareness of key brand initiatives, and offers targeted information to specific consumer segments. Our websitesalso drive wholesale and distributor sales through brand awareness and directing consumers to retailers that carry our brands, including our own retail stores.In recent years, our E-Commerce business has had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumerscontinued to increase internet usage for footwear and other purchases.Managing our E-Commerce business requires us to focus on the latest trends and techniques for web design and marketing, to generate internet trafficto our websites, to effectively convert website visits into orders, and to maximize average order sizes. We plan to continue to grow our E-Commerce businessthrough improved website features and performance, increased marketing, expansion into more international markets, and utilization of mobile and tablettechnology. Nevertheless, we cannot assure investors that revenue from our E-Commerce business will continue to grow.Retail Stores OverviewOur retail stores are predominantly UGG concept stores and UGG outlet stores. In 2013, we expanded our fleet and opened our first Sanuk (two concept,one outlet) stores. Our retail stores enable us to directly impact our customers' experience, meet the growing demand for these products, sell the products atretail prices and generate strong annual operating income. In addition, our UGG concept stores allow us to showcase our entire product line includingfootwear, accessories, handbags, home, outerwear, lounge and retail exclusive items; whereas, a wholesale account may not represent all of these categories.Through our outlet stores, we sell some of our discontinued styles from prior seasons, as well as full price in-line products, and products made specifically forthe outlet stores. Through our integrated OmniChannel strategy, we believe that consumers try on products in our retail stores, perform further online researchand order products online and, conversely, E-Commerce fuels our retail locations. As a result, we believe that our stores and websites are mutually dependentin a way that will allow us to view them on a combined basis. Further, a number of our stores allow the consumer to buy through our E-Commerce channelusing internet capable devices in our stores.As of March 31, 2015, we had a total of 142 retail stores worldwide. These stores are company-owned and operated and include our China stores, whichprior to April 2, 2012 were owned and operated with our joint venture partner. On April 2, 2012, we purchased the remaining interest in our Chinese jointventure. During fiscal year 2016, we plan to open additional company-owned retail stores worldwide. During the year ended March 31, 2015, we converted seven of our retail stores in China to partner retail stores, whereby, upon conversion, the storesbecame wholly-owned and operated by local, third-party companies within China. These conversions included the assignment of the lease and the sale ofboth our on-hand inventory and store leasehold improvements to the operator. As of the date of conversion, partner retail stores sales are included in ourUGG brand wholesale segment and not included in our retail stores segment. During fiscal year 2016, we plan to convert additional retail stores in China topartner retail stores.SeasonalityOur business is seasonal, with the highest percentage of UGG brand net sales occurring in the quarters ending September 30 and December 31, and thehighest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31 and June 30 of each year. Our other brands are notsignificantly impacted by the season.In February 2014, our Board of Directors approved a change in the Company's fiscal year end from December 31 to March 31. The change is intended tobetter align our planning, financial and reporting functions with the seasonality of our business. The fiscal 2015 and 2013 years ended on March 31, 2015and December 31, 2013, respectively. The 2014 transition period was the quarter ended March 31, 2014 to coincide with the change in our fiscal year end.The following table summarizes our quarterly net sales and income (loss) from operations:28Table of ContentsFY 2015Quarter ended6/30/2014Quarter ended9/30/2014Quarter ended12/31/2014Quarter ended3/31/2015Net sales$211,469$480,273$784,678$340,637Income (loss) from operations$(50,482)$59,583$214,581$737FY 20132014Quarter ended6/30/2013Quarter ended9/30/2013Quarter ended12/31/2013Quarter ended3/31/2014Net sales$170,085$386,725$736,048$294,716Income (loss) from operations$(42,751) $46,497 $201,499$(408)With the large growth in the UGG brand over the past several years, net sales in the quarters ending September 30 and December 31 have exceeded netsales in the quarters ending March 31 and June 30. We currently expect this trend to continue. Nonetheless, actual results could differ materially dependingupon consumer preferences, availability of product, competition, and our wholesale and distributor customers continuing to carry and promote our variousproduct lines, among other risks and uncertainties. See Part I, Item 1A, "Risk Factors" for a further discussion of our risk factors.Results of OperationsYear Ended March 31, 2015 Compared to Year Ended December 31, 2013The following table summarizes our results of operations:Years ended3/31/201512/31/2013ChangeAmount%Amount%Amount%Net sales$1,817,057100.0%$1,556,618100.0%$260,43916.7 %Cost of sales938,94951.7820,13552.7118,81414.5Gross profit878,10848.3736,48347.3141,62519.2Selling, general and administrative(SG&A) expenses653,68936.0528,58633.9125,10323.7Income from operations224,41912.3207,89713.416,5227.9Other expense, net3,2800.22,3400.294040.2Income before income taxes221,13912.1205,55713.215,5827.6Income taxes59,3593.259,8683.8(509)(0.9)Net income$161,7808.9%$145,6899.4%$16,09111.0 %Overview. Overall net sales increased for all distribution channels of all segments. The increase in income from operations resulted from increasedsales and gross margin, partially offset by higher SG&A expenses.29Table of ContentsNet Sales. The following table summarizes net sales by location and net sales by brand and distribution channel:Years endedChange3/31/201512/31/2013Amount%Net sales by location:US$1,165,350$1,042,274$123,07611.8%International651,707514,344137,36326.7Total$1,817,057$1,556,618$260,43916.7%Net sales by brand and channel:UGG:Wholesale$903,926$818,377$85,54910.5%E-Commerce209,722155,63554,08734.8Retail stores379,545324,86854,67716.8Total1,493,1931,298,880194,31315.0Teva:Wholesale116,931109,3347,5976.9E-Commerce9,1796,6272,55238.5Retail stores63342620748.6Total126,743116,38710,3568.9Sanuk:Wholesale102,69094,4208,2708.8E-Commerce8,2146,0772,13735.2Retail stores3,8071,1832,624221.8Total114,711101,68013,03112.8Other brands:Wholesale76,15238,27637,87699.0E-Commerce5,9551,1954,760398.3Retail stores30320010351.5Total82,41039,67142,739107.7Total$1,817,057$1,556,618$260,43916.7%Total E-Commerce$233,070$169,534$63,53637.5%Total Retail stores$384,288$326,677$57,61117.6%In order to provide a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations,throughout this Annual Report we provide certain financial information on a "constant currency basis", which is in addition to the actual financialinformation presented. In order to calculate our constant currency information, we translate the current period financial information using the foreigncurrency exchange rates that were in effect during the previous comparable period. However, constant currency measures should not be considered inisolation or as an alternative to US dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented inaccordance with US generally accepted accounting principles.We experienced an increase in net sales in all brands and distribution channels with the largest impact due to increased UGG brand sales through ourwholesale channel, retail stores and E-Commerce websites, as well as increased other brands sales through our wholesale channel. On a constant currencybasis, net sales increased by 18.0% to approximately $1,837,000. We experienced an increase in the number of pairs sold in all segments. This resulted in a17.6% overall increase in the volume of footwear sold for all brands and channels to approximately 30.7 million pairs for the year ended March 31, 2015compared to approximately 26.1 million pairs for the year ended December 31, 2013. Our weighted-average wholesale selling price per pair decreased to$46.53 for the year ended March 31, 2015 from $46.87 for the year ended December 31, 2013. The decreased average selling price was primarily due to ourTeva and Sanuk wholesale segments, partially offset by an increase in the average selling price in our other brands wholesale segment.30Table of ContentsWholesale net sales of our UGG brand increased primarily due to an increase in the volume of pairs sold, partially offset by the negative impact offoreign currency exchange rate fluctuations. On a constant currency basis, wholesale sales of our UGG brand increased by 11.1% to approximately $909,000.For UGG wholesale net sales, the increase in volume had an impact of approximately $89,000, including approximately $5,000 related to the negativeimpact of foreign currency exchange rate fluctuations.Wholesale net sales of our Teva brand increased primarily due to an increase in the volume of pairs sold, partially offset by a decrease in the weighted-average wholesale selling price per pair. The decrease in average selling price was primarily due to a shift in product mix and an increased impact fromcloseout sales. For Teva wholesale net sales, the increase in volume had an impact of approximately $15,000 and the decrease in average selling price had animpact of approximately $7,000.Wholesale net sales of our Sanuk brand increased primarily due to an increase in the volume of pairs sold, partially offset by a decrease in the weighted-average wholesale selling price per pair. The decrease in average selling price was primarily due to a shift in product mix. For Sanuk wholesale net sales, theincrease in volume had an impact of approximately $14,000 and the decrease in average selling price had an impact of approximately $5,000.Wholesale net sales of our other brands increased due to an increase in the volume of pairs sold as well as an increase in the weighted-average wholesaleselling price per pair. The increase in average selling price was primarily due to a shift in brand mix. The increase in volume of pairs sold had an impact ofapproximately $36,000 and the increase in average selling price had an impact of approximately $2,000.Net sales of our E-Commerce business increased due to an increase in the number of pairs sold, partially offset by a decrease in the weighted-averageselling price per pair. The decrease in the average selling price was primarily due to a shift in product mix and increased sales discounts. For E-Commerce netsales, the increase in volume had an impact of approximately $63,000 and the decrease in average selling price had an impact of approximately $2,000.Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to the addition of new stores opened since December31, 2013, partially offset by the negative impact of foreign currency exchange rate fluctuations. On a constant currency basis, net sales of our retail storebusiness increased by 20.7% to approximately $394,000. A large majority of the new stores were in the US and China, with the remaining new stores inJapan, Canada and Hong Kong. Same store sales for the 52 weeks ending March 29, 2015 decreased 8.4% compared to the 52 weeks ended December 29,2013. The decrease in same store sales is primarily due to a shift in sales of our Classic styles to online from in-store, as well as a shift in product mix wherebywe sold more casual styles, which generally carry lower price points. For retail same store sales, we experienced a decrease in weighted-average selling priceof approximately $19,000. As we continue to increase the number of retail stores, each new store will have less significant impact on our growth rate.International sales, which are included in the segment sales above, for all of our products combined increased by 26.7% for the year ended March 31,2015 as compared to the year ended December 31, 2013, partially offset by the negative impact of foreign currency exchange rate fluctuations. On a constantcurrency basis, international sales increased by 30.5% to approximately $671,000. International sales represented 35.9% and 33.0% of worldwide net salesfor the years ended March 31, 2015 and December 31, 2013, respectively. The increase in international sales as a percentage of worldwide net sales waslargely due to the continued growth in our UGG brand internationally across all channels of approximately $122,000.Foreign income before income taxes was $95,850 and $60,851, and worldwide income before income taxes was $221,139 and $205,557 for the yearsended March 31, 2015 and December 31, 2013, respectively. Foreign income before income taxes represented 43.3% and 29.6% of worldwide income beforeincome taxes for the years ended March 31, 2015 and December 31, 2013, respectively. The increase in foreign income before income taxes as a percentageof worldwide income before income taxes was primarily due to increased compensation earned by our foreign-based global product sourcing organization asa result of a strategic supply chain reorganization completed during the year ended March 31, 2015.We expect that our foreign income before income taxes will fluctuate from year to year based on several factors, including our expansion initiatives. Inaddition, we believe that the continued evolution and geographic scope of the UGG brand, our continuing strategy of enhancing product diversification, andour expected growth in our international retail and E-Commerce business, will result in increases in foreign income before income taxes as a percentage ofworldwide income before income taxes in future years.Gross Profit. Overall gross margin increased 100 basis points, primarily due to an increase in the mix of retail and E-Commerce sales, which generallycarry higher margins than our wholesale segments. The increased mix of retail and E-Commerce sales contributed approximately 70 basis points to theoverall increase in gross margin. An increase in the UGG brand wholesale gross margin, primarily related to the July 2014 acquisition of our UGG branddistributor in Germany, contributed approximately31Table of Contents20 basis points to the overall increase in gross margin. The factors discussed above include the negative impact of foreign currency exchange ratefluctuations. Our gross margins fluctuate based on several factors including the factors discussed above.Selling, General and Administrative Expenses. The change in SG&A expenses was primarily due to:•increased retail costs of approximately $44,000 largely related to new retail stores that were not open as of December 31, 2013 and relatedcorporate infrastructure;•increased expenses of approximately $20,000 for marketing and promotions related to our wholesale business, primarily for the Hoka andUGG brands;•increased E-Commerce expenses of approximately $18,000 largely related to increased marketing and advertising and the expansion of ourE-Commerce business;•increased expenses of approximately $16,000 for corporate infrastructure to support our international wholesale expansion andOmniChannel transformation;•increased information technology costs of approximately $8,000, in part due to accelerating the amortization expense for certain softwareprojects that will not be used;•increased sales and commission expenses of approximately $8,000 largely driven by the increase in wholesale sales;•increased US distribution center costs of approximately $7,000, largely driven by the increase in sales and our new Moreno Valleydistribution center; and•increased expenses of approximately $7,000 related to the negative impact of foreign currency exchange rate fluctuations.These increases were partially offset by decreased recognition of performance-based cash compensation of approximately $8,000.Performance-Based CompensationAs noted above, the recognition of performance-based cash compensation decreased by approximately $8,000 over the prior fiscal year period. As ofMarch 31, 2015, the target level of the performance objectives relating to our fiscal year 2015 performance-based cash awards was only partially achieved,and we have recognized the expense accordingly. In contrast, as of December 31, 2013, we achieved above the target level of the performance objectivesrelating to our 2013 performance-based cash awards and we recognized expense for those 2013 awards accordingly at that time.At the beginning of each fiscal year, our Compensation Committee reviews our operating results from the prior fiscal year, as well as the financial andstrategic plan for the next fiscal year and for subsequent fiscal years. The Committee then establishes specific annual Company financial goals and specificstrategic goals for each executive. Performance-based cash compensation awards for the fiscal year ended December 31, 2013 were earned above target levels,and performance-based cash compensation awards for the fiscal year ended March 31, 2015 were only partially earned, based on our achievement of certaintargets for annual earnings before interest, taxes, depreciation and amortization (EBITDA), as well as achievement of pre-determined individual financial andnon-financial performance goals that are tailored to individual employees based on their role and responsibilities at the Company. The performanceobjectives and goals, as well as the targets, differ each year and are based upon many factors, including the Company’s current business stage and strategies,recent Company financial and operating performance, expected growth rates over prior year's performance, business and general economic conditions andmarket and peer group analysis. For example, in evaluating targets for the 2013 fiscal year, our Compensation Committee reviewed, among other things, ourEBITDA for the fiscal year ended December 31, 2012, which was approximately $229.7 million, and, in evaluating targets for the 2015 fiscal year, ourCompensation Committee reviewed, among other things, our EBITDA for the fiscal year ended December 31, 2013, which was approximately $251.8 million.Performance objectives for the 2015 fiscal year were based, in part, upon the expected achievement of growth in the Company’s EBITDA for the fiscal yearended March 31, 2015 as compared to the Company’s EBITDA for the fiscal year ended December 31, 2013. The Company’s higher EBITDA for the fiscalyear ended December 31, 2013 as compared to the fiscal year ended December 31, 2012 resulted in fiscal year 2015 EBITDA targets that were higher than the2013 EBITDA targets.32Table of ContentsIn accordance with applicable accounting guidance, we recognize performance-based compensation expenses when it is deemed probable that theapplicable performance-based goal will be met. We evaluate the probability of achieving performance-based goals on a quarterly basis. Our assessment of theprobability of achieving specified goals can fluctuate from quarter to quarter as we assess our projected achievement as compared to specified performancetargets. As a result, the compensation expense we recognize may also fluctuate from period to period.Income (Loss) from Operations. Refer to Note 11 to our accompanying consolidated financial statements in Part IV of this Annual Report for adiscussion of our reportable segments. The following table summarizes operating income (loss) by segment:Years endedChange3/31/201512/31/2013Amount%UGG wholesale$269,489$224,738$44,75119.9 %Teva wholesale13,3209,1664,15445.3Sanuk wholesale21,91420,5911,3236.4Other brands wholesale(9,838)(9,807)(31)(0.3)E-Commerce92,39266,84925,54338.2Retail stores57,92865,683(7,755)(11.8)Unallocated overheadcosts(220,786)(169,323)(51,463)(30.4)Total$224,419$207,897$16,5227.9 %Income from operations increased due to the increase in sales and gross margin, partially offset by higher SG&A expenses as well as the negative impactof foreign currency exchange rate fluctuations. On a constant currency basis, income from operations increased by 13.5% to approximately $236,000.The increase in income from operations of UGG brand wholesale was primarily the result of the increase in net sales as well as a 3.1 percentage pointincrease in gross margin, partially offset by an increase in operating expenses of approximately $16,000 including the negative impact of foreign currencyexchange rate fluctuations. The increase in gross margin was primarily due to an increase in higher-margin wholesale sales, largely related to the acquisitionof our UGG brand distributor in Germany. The increase in operating expenses was primarily due to marketing and promotions, amortization and sales andcommissions.The increase in income from operations of Teva brand wholesale was primarily the result of a decrease in operating expenses of approximately $5,000as well as the increase in net sales, partially offset by a 3.1 percentage point decrease in gross margin. The decrease in operating expenses was primarily dueto decreased design and sales and commission expenses. The decrease in gross margin was primarily due to an increased impact from closeout sales.The increase in income from operations of Sanuk brand wholesale was primarily the result of the increase in net sales as well as a decrease in operatingexpenses of approximately $2,000, partially offset by a 4.8 percentage point decrease in gross margin. The decrease in gross margin was primarily due to ashift in sales mix as well as an increased impact from closeout sales.Loss from operations of our other brands wholesale was comparable to the prior period.The increase in income from operations of our E-Commerce business was primarily due to the increase in net sales. This increase was partially offset byan overall increase in operating expenses of approximately $9,000 as well as a 3.0 percentage point decrease in gross margin. The overall increase inoperating expenses was primarily due to increased marketing and advertising and the expansion of our E-Commerce business of approximately $18,000,partially offset by the positive impact of foreign currency exchange rate fluctuations in the current year of approximately $7,000 compared to the negativeimpact of foreign currency exchange rate fluctuations of approximately $2,000 in the prior period. The decrease in gross margin was primarily due toincreased sales discounts.The decrease in income from operations of our retail store business, which primarily relates to the UGG brand, was primarily due to increased operatingexpenses of approximately $43,000, largely offset by the increase in net sales, and includes the negative impact of foreign currency exchange ratefluctuations. The increase in operating expenses largely related to our new store openings33Table of Contentsand related corporate infrastructure. On a constant currency basis income from operations of our retail store business decreased 2.6% to approximately$64,000.The increase in unallocated overhead costs was primarily due to (1) expense related to increased corporate infrastructure of approximately $16,000 tosupport our OmniChannel transformation and international wholesale expansion, (2) the negative impact of foreign currency exchange rate fluctuations ofapproximately $16,000, (3) increased information technology costs of approximately $8,000, (4) increased US distribution center costs of approximately$7,000 and (5) increased depreciation expenses of approximately $4,000 related to our corporate headquarters buildings, partially offset by a reduction inperformance-based compensation of approximately $5,000.Other Expense, Net. The increase in other expense, net was primarily due to an increase in interest expense.Income Taxes. Income tax expense and effective income tax rates were as follows:Years ended3/31/201512/31/2013Income tax expense$59,359$59,868Effective income tax rate26.8%29.1%The decrease in the effective tax rate was primarily due to a change in the jurisdictional mix of annual pre-tax income. This decrease was partially offsetby overall discrete tax liabilities of approximately $1,600 recognized during the year ended March 31, 2015 compared to overall discrete tax benefits ofapproximately $900 recognized during the year ended December 31, 2013. The discrete tax liabilities relate to provisions recorded for unrecognized taxbenefits as well as prior year US federal and state tax adjustments. The discrete tax benefits relate to a combination of prior year US federal, state and foreigntax adjustments. For the fiscal year 2015, we generated approximately 25.0% of our pre-tax earnings from a country which does not impose a corporateincome tax. Unremitted earnings of non-US subsidiaries are expected to be reinvested outside of the US indefinitely. Such earnings would become taxableupon the sale or liquidation of these subsidiaries or upon the remittance of dividends. As of March 31, 2015, we had approximately $132,000 of cash andcash equivalents outside the US that would be subject to additional income taxes if it were to be repatriated. We have no plans to repatriate any of our foreigncash.Net Income. Our net income increased as a result of the items discussed above. Our diluted earnings per share increased primarily as a result of theincrease in net income, as well as by a reduced number of diluted weighted-average common shares outstanding. The reduction in the diluted weighted-average common shares outstanding was the result of our share repurchases during the year ended March 31, 2015. The weighted-average impact of the sharerepurchases was a reduction of approximately 200,000 shares.Transition Period Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013 (Unaudited)The following table summarizes the Company’s results of operations:Three Months Ended March 31,20142013 (unaudited)ChangeAmount%Amount %Amount%Net sales$294,716100.0 %$263,760 100.0%$30,95611.7 %Cost of sales150,45651.1140,20153.210,2557.3Gross profit144,26048.9123,55946.820,70116.8Selling, general and administrative (SG&A)expenses144,66849.1120,90745.823,76119.7(Loss) income from operations(408)(0.2)2,6521.0(3,060)(115.4)Other expense, net3340.11420.1192135.2(Loss) income before income taxes(742)(0.3)2,5100.9(3,252)(129.6)Income tax expense1,9430.61,5030.544029.3Net (loss) income$(2,685)(0.9)%$1,0070.4%$(3,692)(366.6)%34Table of ContentsOverview. The increase in overall net sales was primarily due to an increase in our UGG brand sales through our retail stores and E-Commerce sites aswell as an increase in our other brands wholesale sales, partially offset by a decrease in Teva wholesale sales. We experienced a loss from operations duringthe three months ended March 31, 2014 compared to income from operations for the three months ended March 31, 2013. The change resulted from higherSG&A expenses, partially offset by an increase in gross profit.Net Sales. The following tables summarize net sales by location, brand, and distribution channel:Three Months Ended March 31,Change20142013 (unaudited)Amount%Net sales by location:US$198,293$182,693$15,6008.5 %International96,42381,06715,35618.9Total$294,716$263,760$30,95611.7 %Net sales by brand and channel:UGG:Wholesale$83,271$82,706$5650.7 %E-Commerce35,36224,40910,95344.9Retail stores78,94763,46615,48124.4Total197,580170,58126,99915.8Teva:Wholesale45,28350,504(5,221)(10.3)E-Commerce1,3141,05725724.3Retail stores25046204443.5Total46,84751,607(4,760)(9.2)Sanuk:Wholesale28,79330,011(1,218)(4.1)E-Commerce1,03491811612.6Retail stores875178585,047.1Total30,70230,946(244)(0.8)Other:Wholesale18,66210,3698,29380.0E-Commerce874230644280.0Retail stores51272488.9Total19,58710,6268,96184.3Total$294,716$263,760$30,95611.7 %Total E-Commerce$38,584$26,614$11,97045.0 %Total Retail stores$80,123$63,556$16,56726.1 %The increase in overall net sales was primarily due to an increase in our UGG brand sales through our retail stores and E-Commerce sites. In addition, netsales increased from our other brands sales through the wholesale channel, increased Sanuk brand sales through our retail stores, increased other brands salesthrough our E-commerce sites, and increased UGG brand wholesale sales. These increases were partially offset by decreased wholesale sales of our Teva brandand our Sanuk brand. On a constant currency basis, net sales increased by 12.4% to approximately $296,000. We experienced an increase in the number ofpairs sold in the retail, other brands wholesale and E-Commerce segments, partially offset by a decrease in the number of pairs sold in the Teva brand, Sanukbrand and UGG brand wholesale segments. This resulted in an increase in the overall volume of footwear sold for all brands of 3.3% to approximately 6.2million pairs sold for the three months ended March 31, 2014 from approximately 6.0 million pairs for the three months ended March 31, 2013. 35Table of ContentsWholesale net sales of our UGG brand increased primarily due to an increase in the weighted-average wholesale selling price, partially offset by adecrease in the volume of pairs sold. The increase in average selling price was primarily due to a shift in product mix of cold weather shoe products thatgenerally carry higher price points and higher average closeout prices. For UGG wholesale net sales, the increase in average selling price had an impact ofapproximately $1,000 and the decrease in volume had an impact of approximately $500. Wholesale net sales of our Teva brand decreased due to a decrease in the weighted-average wholesale selling price per pair as well as a decrease involume of pairs sold. The decrease in average selling price was primarily due to a shift in product mix. For Teva wholesale net sales, the decrease in averageselling price had an impact of approximately $3,000 and the decrease in volume had an impact of approximately $2,000.Wholesale net sales of our Sanuk brand decreased primarily due to a decrease in the volume of pairs sold outside the US as well as a decrease in theweighted-average wholesale selling price per pair, partially offset by an increase in the volume of pairs sold in the US. The decrease in average selling pricewas primarily due to increased closeout sales. For Sanuk wholesale net sales, the decrease in volume of pairs sold outside the US had an impact ofapproximately $3,000, the decrease in average selling price had an impact of approximately $2,000 and the increase in volume of pairs sold in the US had animpact of approximately $4,000.Wholesale net sales of our other brands increased due to an increase in the volume of pairs sold of approximately $8,500. The increase in volume wasprimarily due to the continued growth of the Hoka brand. The change in average selling price had no material impact on sales.Net sales of our E-Commerce business increased due to an increase in the number of pairs sold as well as an increase in the weighted-average sellingprice per pair. For E-Commerce net sales, the increase in volume had an impact of approximately $8,000 and the increase in average selling price had animpact of approximately $2,000.Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to the addition of 42 new stores opened since March31, 2013, partially offset by the negative impact of foreign currency exchange rate fluctuations. On a constant currency basis, net sales of our retail storebusiness increased by 28.3% to approximately $82,000. Over half of these new stores were in Asia, primarily in China and Japan, with the remaining newstores in the US and Europe. Same store sales for the thirteen weeks ended March 30, 2014 increased by 4.0% compared to the same period in 2013. For retailsame store sales, we experienced an increase in volume of approximately $4,000 partially offset by a decrease in weighted-average selling price ofapproximately $2,000. As we continue to increase the number of retail stores, each new store will have less significant impact on our growth rate.International sales, which are included in the segment sales above, for all of our products combined increased by 18.9% for the three months endedMarch 31, 2014 as compared to the three months ended March 31, 2013, partially offset by the negative impact of foreign currency exchange ratefluctuations. On a constant currency basis, international sales increased by 21.0% to approximately $98,000. International sales represented 32.7% and30.7% of worldwide net sales for the three months ended March 31, 2014 and 2013, respectively. The increase in international sales as a percentage ofworldwide net sales was primarily due to the continued growth in our UGG brand's international retail and E-Commerce business of approximately $16,000.Foreign loss before income taxes and worldwide loss before income taxes was $3,631 and $742, respectively, during the three months ended March 31,2014, as compared to foreign income before income taxes and worldwide income before income taxes of $335 and $2,510, respectively, during the threemonths ended March 31, 2013. The change from foreign income before income taxes to a foreign loss before income taxes was primarily due to an increase inforeign operating expenses of approximately $14,000, which is primarily related to the expansion of our international retail and E-Commerce operations. Theincrease in foreign operating expenses was partially offset by an increase in foreign gross margin of 2.2 percentage points, which was primarily related to theincrease in international retail and E-Commerce sales which generally carry higher margins than wholesale sales.We expect that our foreign income before income taxes will continue to fluctuate from year to year based on several factors, including our expansioninitiatives. In addition, we believe that the continued evolution and geographic scope of the UGG brand, our continuing strategy of enhancing productdiversification, and our expected growth in our international retail and E-Commerce business, will result in improved foreign operating results in future years.Gross Profit. As a percentage of net sales, gross margin increased compared to the same period in 2013 due to reduced sheepskin costs and increaseduse of UGGpure, real wool woven into a durable backing used as an alternative to table grade sheepskin in select linings and foot beds, as well as anincreased mix of retail and E-Commerce sales, which generally carry higher36Table of Contentsmargins than our wholesale segments. The change in sales between our wholesale customers and distributors was immaterial to gross margin. Selling, General and Administrative Expenses. The change in SG&A expenses was primarily due to:•increased retail costs of approximately $14,000, largely related to 42 new retail stores that were not open as of March 31, 2013 and relatedcorporate infrastructure;•increased E-Commerce costs of approximately $5,000, largely related to marketing and advertising, the negative impact of foreign currencyexchange rate fluctuations, and increased expenses related to the international expansion of our E-Commerce business; and•increased expenses of approximately $3,000 for marketing and promotions, largely related to the UGG and Hoka brands.Income (Loss) from Operations. Refer to Note 11 to our accompanying consolidated financial statements in Part IV of this Annual Report for adiscussion of our reportable segments. The following table summarizes operating income (loss) by segment:Three Months Ended March 31,Change20142013 (unaudited)Amount%UGG wholesale$13,595$14,081$(486)(3.5)%Teva wholesale6,4259,640(3,215)(33.4)Sanuk wholesale7,5309,360(1,830)(19.6)Other wholesale(758)(2,580)1,82270.6E-Commerce13,2728,9694,30348.0Retail stores7,64610,433(2,787)(26.7)Unallocated overhead costs(48,118)(47,251)(867)(1.8)Total$(408) $2,652$(3,060)(115.4)%We experienced a loss from operations during the three months ended March 31, 2014 compared to income from operations during the three monthsended March 31, 2013 due to increased SG&A expenses as well as the negative impact of foreign currency exchange rate fluctuations, partially offset byincreased gross profit. On a constant currency basis, income from operations decreased by 59.2% to approximately $1,000.The slight decrease in income from operations of UGG brand wholesale was primarily the result of an increase in operating expenses of approximately$2,000 as well as the negative impact of foreign currency rate fluctuations of approximately $300, partially offset by a 2.0 percentage point increase in grossmargin, primarily due to decreased sheepskin costs.The decrease in income from operations of Teva brand wholesale was primarily the result of a 5.8 percentage point decrease in gross margin as well asthe decrease in net sales, partially offset by a decrease in operating expenses of approximately $1,000. The decrease in gross margin was primarily due to ashift in sales mix as well as increased freight expense. The decrease in income from operations of Sanuk brand wholesale was primarily the result of the decrease in net sales, as well as increased operatingexpenses of approximately $1,000. The decrease in loss from operations of our other brands wholesale was primarily the result of the increase in net sales as well as a 7.8 percentage pointincrease in gross margin, partially offset by an increase in operating expenses of approximately $2,000. The increase in sales and gross margin is largely dueto the continued growth of the Hoka brand which generally carries higher margins than the other brands included in this segment.The increase in income from operations of our E-Commerce business was primarily due to the increase in net sales as well as a 5.7 percentage pointincrease in gross margin, partially offset by an increase in operating expenses of approximately $5,000. The increase in gross margin was largely due to thereduced sheepskin costs related to our UGG brand products. The increase in operating expenses was primarily due to increased expenses related to marketingand advertising, the negative impact of foreign currency exchange rate fluctuations and increased expenses related to the international expansion of our E-commerce business.37Table of Contents Income from operations of our retail store business, which primarily relates to the UGG brand, decreased primarily due to increased operating expensesof approximately $14,000 largely related to our new store openings and related corporate infrastructure, as well as the negative impact of foreign currencyexchange rate fluctuations of approximately $1,000. These results were partially offset by increased gross profit of approximately $12,000. Unallocated overhead costs were comparable to the same period in 2013.Other Expense, Net. The increase in other expense, net was primarily due to expenses related to our credit facilities. Income Taxes. Income taxes for the three months ended March 31, 2014 are computed using the actual tax rate for the transition period (see Note 1 toour accompanying consolidated financial statements in Part IV of this Annual Report for an explanation of our change in fiscal year). Income taxes for thethree months ended March 31, 2013 were computed using the effective tax rate estimated to be applicable for the full fiscal year ended December 31, 2013.Income tax expense and effective income tax rates were as follows: Three Months Ended March 31,2014 2013(unaudited)Income tax expense$1,943 $1,503Effective income tax rate(261.9)% 59.9% We recognized income tax expense of $1,943 on a pre-tax loss of $742 for the three months ended March 31, 2014 compared to income tax expense of$1,503 on pre-tax earnings of $2,510 for the three months ended March 31, 2013. The income tax expense of $1,943 primarily relates to taxable income inthe US and certain foreign jurisdictions during the three months ended March 31, 2014. The pre-tax loss of $742 includes the loss of a foreign subsidiary in ajurisdiction with no corporate income tax, therefore providing no tax benefit from the loss that was recognized. Net (Loss) Income. We experienced a net loss for the three months ended March 31, 2014 compared to net income for the three months ended March31, 2013 as a result of the items discussed above. As a result of the net loss for the three months ended March 31, 2014, we recognized a loss per sharecompared to diluted earnings per share during the three months ended March 31, 2013.Year ended December 31, 2013 Compared to Year ended December 31, 2012The following table summarizes our results of operations: Years ended December 31, 2013 2012 Change Amount % Amount % Amount %Net sales$1,556,618 100.0% $1,414,398 100.0 % $142,220 10.1 %Cost of sales820,135 52.7 782,244 55.3 37,891 4.8Gross profit736,483 47.3 632,154 44.7 104,329 16.5Selling, general and administrative(SG&A) expenses528,586 33.9 445,206 31.5 83,380 18.7Income from operations207,897 13.4 186,948 13.2 20,949 11.2Other expense, net2,340 0.2 2,830 0.2 (490) (17.3)Income before income taxes205,557 13.2 184,118 13.0 21,439 11.6Income taxes59,868 3.8 55,104 3.9 4,764 8.6Net income145,689 9.4 129,014 9.1 16,675 12.9Net income attributable to thenoncontrolling interest— — (148) — 148 *Net income attributable to DeckersOutdoor Corporation$145,689 9.4% $128,866 9.1 % $16,823 13.1 %38Table of Contents* Calculation of percentage change is not meaningful.Overview. The increase in net sales was primarily due to increased UGG brand sales through our retail stores and E-Commerce sites. In addition, netsales increased from our other brands, Sanuk brand and Teva brand sales through our wholesale channel, and increased Sanuk brand sales through our E-Commerce sites and retail stores. The increase in income from operations resulted from increased sales and gross margin, partially offset by higher SG&Aexpenses.Net Sales. The following table summarizes net sales by location and net sales by brand and distribution channel: Years ended December 31, Change 2013 2012 Amount %Net sales by location: US$1,042,274 $972,987 $69,287 7.1 %International514,344 441,411 72,933 16.5Total$1,556,618 $1,414,398 $142,220 10.1 %Net sales by brand and channel: UGG: Wholesale$818,377 $819,256 $(879) (0.1)%E-Commerce155,635 118,886 36,749 30.9Retail stores324,868 245,397 79,471 32.4Total1,298,880 1,183,539 115,341 9.7Teva: Wholesale109,334 108,591 743 0.7E-Commerce6,627 6,578 49 0.7Retail stores426 347 79 22.8Total116,387 115,516 871 0.8Sanuk: Wholesale94,420 89,804 4,616 5.1E-Commerce6,077 4,172 1,905 45.7Retail stores1,183 20 1,163 5,815.0Total101,680 93,996 7,684 8.2Other brands: Wholesale38,276 20,194 18,082 89.5E-Commerce1,195 956 239 25.0Retail stores200 197 3 1.5Total39,671 21,347 18,324 85.8Total$1,556,618 $1,414,398 $142,220 10.1 %Total E-Commerce$169,534 $130,592 $38,942 29.8 %Total Retail stores$326,677 $245,961 $80,716 32.8 %The increase in net sales was primarily due to increased UGG brand sales through our retail stores and E-Commerce sites. In addition, net sales increasedfrom our other brands, Sanuk brand and Teva brand sales through our wholesale channel and increased Sanuk brand sales through our E-Commerce sites andretail stores. On a constant currency basis, net sales increased by 11.1% to approximately $1,571,000. We experienced an increase in the number of pairs soldin all segments. This resulted in a 10.1% overall increase in the volume of footwear sold for all brands and channels to approximately 26.1 million pairs forthe year ended December 31, 2013 compared to approximately 23.7 million pairs for 2012. Our weighted-average wholesale selling price per pair decreasedto $46.87 for the year ended December 31, 2013 from $49.17 for 2012. The decreased average selling price was primarily due to our UGG, Teva and Sanukwholesale segments, partially offset by an increase in the average selling price in our other brands wholesale segment. Our overall weighted-average sellingprice per pair across all channels decreased to $59.6339Table of Contentsfor the year ended December 31, 2013 from $60.12 for 2012. The decrease in overall average selling price per pair was primarily due to the decreasedweightedaverage wholesale selling price per pair, partially offset by the increased mix of Direct-to-Consumer sales which carry higher price points.Wholesale net sales of our UGG brand decreased primarily due to a decrease in the weighted-average wholesale selling price per pair as well as thenegative impact of foreign currency exchange rate fluctuations, partially offset by an increase in the volume of pairs sold. On a constant currency basis,wholesale sales of our UGG brand increased by 0.6% to approximately $824,000. The decrease in average selling price was primarily due to increasedcloseout sales at a lower price, as well as the negative impact of foreign currency exchange rate fluctuations. For UGG wholesale net sales, the decrease inaverage selling price had an estimated impact of approximately $28,000, including approximately $6,000 related to the negative impact of foreign currencyexchange rate fluctuations, partially offset by an increase in volume of approximately $27,000.Wholesale net sales of our Teva brand increased primarily due to an increase in the volume of pairs sold, partially offset by a decrease in the weighted-average wholesale selling price per pair. The decrease in average selling price was largely due to a higher proportion of the sales coming from sandals whichcarry lower average selling prices. For Teva wholesale net sales, the increase in volume had an estimated impact of approximately $4,000 and the decrease inaverage selling price had an estimated impact of approximately $3,000.Wholesale net sales of our Sanuk brand increased primarily due to an increase in the volume of pairs sold, partially offset by a decrease in the weighted-average wholesale selling price per pair. The decrease in average selling price was primarily due to an increased impact of closeout sales. For Sanukwholesale net sales, the increase in volume had an estimated impact of approximately $10,000 and the decrease in average selling price had an estimatedimpact of approximately $5,000.Wholesale net sales of our other brands increased due to an increase in the weighted-average wholesale selling price per pair, as well as an increase inthe volume of pairs sold. The increase in average selling price was primarily due to the addition of the Hoka brand, which carries higher average selling pricesthan the other brands included in this segment. The increase in volume of pairs sold was primarily due to the addition of the Hoka brand. Hoka sales areincluded from our acquisition date of September 27, 2012 and, therefore, comparable sales amounts are not included in the sales for the year ended December31, 2012. Excluding the Hoka brand, our other brands’ wholesale net sales increased by approximately $4,000 due to an increase in sales of approximately$5,000 from an increase in the volume of pairs sold, partially offset by a decrease in sales of approximately $1,000 due to a decrease in the average sellingprice. The decrease in average selling price was primarily due to the increased impact of closeout sales.Net sales of our E-Commerce business increased due to an increase in the volume of pairs sold primarily attributable to the UGG brand. For E-Commerce net sales, the increase in volume had an impact of approximately $39,000. The change in average selling price had no material impact on netsales.Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to the addition of 40 new stores opened sinceDecember 31, 2012, partially offset by the negative impact of foreign currency exchange rate fluctuations. On a constant currency basis, net sales of our retailstore business increased by 36.4% to approximately $335,000. Over half of the new stores were in Asia, primarily in China and Japan, with the remaining newstores in the US and Europe. Same store sales for the 52 weeks ending December 29, 2013 increased 2.8% compared to the same period in 2012. For retailsame store sales, we experienced an increase in volume of approximately $4,500 partially offset by a decrease in weighted-average selling price ofapproximately $500. As we continue to increase the number of retail stores, each new store will have less significant impact on our growth rate.International sales, which are included in the segment sales above, for all of our products combined increased by 16.5% for the year ended December31, 2013 as compared to the year ended December 31, 2012, partially offset by the negative impact of foreign currency exchange rate fluctuations. On aconstant currency basis, international sales increased by 19.9% to approximately $529,000. International sales represented 33.0% and 31.2% of worldwidenet sales for the year ended December 31, 2013 and 2012, respectively. The increase in international sales as a percentage of worldwide net sales was largelydue to the continued growth in our UGG brand's international retail and E-Commerce business of approximately $65,000, as well as increased sales to ourdistributors throughout Asia and Latin America of approximately $8,000 and wholesale customers in France of approximately $7,000, partially offset bydecreased sales to our distributors in Canada and Europe of approximately $11,000.Foreign income before income taxes was $60,851 and $51,409, and worldwide income before income taxes was $205,557 and $184,118 for the yearended December 31, 2013 and 2012, respectively. Foreign income before income taxes represented 29.6% and 27.9% of worldwide income before incometaxes for the year ended December 31, 2013 and 2012, respectively. The increase in foreign income before income taxes as a percentage of worldwide incomebefore income taxes was primarily due to a 16.5% international sales growth rate compared to a 7.1% US sales growth rate, as well as an increase in grossmargin earned40Table of Contentson foreign sales. These increases were primarily related to the increase in international retail and E-Commerce sales which generally carry higher marginsthan wholesale sales.We expect that our foreign income before income taxes will continue to fluctuate from year to year based on several factors, including our expansioninitiatives. In addition, we believe that the continued evolution and geographic scope of the UGG brand and our continuing strategy of enhancing productdiversification will contribute to growth in our international retail and E-Commerce business in future years.Gross Profit. As a percentage of net sales, gross margin increased in the year ended December 31, 2013 compared to the same period in 2012. Grossprofit increased by approximately 1.5 percentage points due to reduced sheepskin costs and increased use of UGGpure, real wool woven into a durablebacking used as an alternative to table grade sheepskin in select linings and foot beds, as well as an increased mix of retail and E-Commerce sales, whichgenerally carry higher margins than our wholesale segments, of approximately 1.2 percentage points. These increases were partially offset by the negativeimpact of foreign currency exchange rate fluctuations of approximately 30 basis points. The change in sales between our wholesale customers anddistributors is immaterial to gross margin. Our gross margins fluctuate based on several factors, and we expect our gross margin to increase for the full year2014 compared to 2013, primarily due to realizing a full year of reduced sheepskin prices, the increased use of UGGpure and an increase in the proportion ofDirect-to-Consumer sales which generally carry higher margins.Selling, General and Administrative Expenses. SG&A expenses increased primarily from:•increased retail costs of approximately $53,000 largely related to 40 new retail stores that were not open as of December 31, 2012 and relatedcorporate infrastructure;•increased recognition of performance-based compensation of approximately $17,000;•increased E-Commerce expenses of approximately $13,000 largely related to increased marketing and advertising; and•increased expenses of approximately $9,000 for the Hoka brand which we acquired on September 27, 2012.These increases were partially offset by decreased expense related to the fair value of the Sanuk contingent consideration liability of approximately$8,000 primarily due to changes made during 2012 to the brand's forecast of sales and gross profit through 2015, which increased the expense in 2012without a comparable increase in 2013.Performance-Based CompensationAs noted above, the recognition of performance-based compensation increased by approximately $17,000 for the year ended December 31, 2013 overthe prior year period. As of December 31, 2013, the target level of the performance objectives relating to our 2013 performance-based cash awards wasachieved, and we have recognized the expense accordingly. In contrast, as of December 31, 2012, we did not achieve the same level of the performanceobjectives relating to our 2012 performance-based cash awards and we recognized expense for those 2012 awards accordingly at that time.At the beginning of each year, our Compensation Committee reviews our operating results from the prior fiscal year, as well as the financial andstrategic plan for the next fiscal year and for subsequent years. The Committee then establishes specific annual Company financial goals and specificstrategic goals for each executive. Performance-based cash compensation awards for the fiscal year ended December 31, 2012 were only partially earned, andperformance-based cash compensation awards for the fiscal year ended December 31, 2013 were earned at higher levels, based on our achievement of certaintargets for annual EBITDA, as well as achievement of pre-determined individual financial and non-financial performance goals that are tailored to individualemployees based on their role and responsibilities at the Company. The performance objectives and goals, as well as the targets, differ each year and arebased upon many factors, including the Company’s current business stage and strategies, recent Company financial and operating performance, expectedgrowth rates over prior year’s performance, business and general economic conditions and market and peer group analysis. For example, in evaluating targetsfor the 2012 fiscal year, our Compensation Committee reviewed, among other things, our EBITDA for the fiscal year ended December 31, 2011, which wasapproximately $314.6 million, and, in evaluating targets for the 2013 fiscal year, our Compensation Committee reviewed, among other things, our EBITDAfor the fiscal year ended December 31, 2012, which was approximately $229.7 million. Performance objectives for the 2013 fiscal year were based, in part,upon the expected achievement of growth in the Company’s EBITDA for the fiscal year ended December 31, 2013 as compared to the Company’s EBITDAfor the fiscal year ended December 31, 2012. While expected growth rates over prior year performance were not reduced, the Company’s lower EBITDA forthe fiscal year ended December 31, 2012 as compared to the fiscal year ended December 31, 2011 resulted in 2013 EBITDA targets that were lower than the2012 EBITDA targets.41Table of ContentsIn accordance with applicable accounting guidance, we recognize performance-based compensation expenses when it is deemed probable that theapplicable performance-based goal will be met. We evaluate the probability of achieving performance-based goals on a quarterly basis. Our assessment of theprobability of achieving specified goals can fluctuate from quarter to quarter as we assess our projected achievement as compared to specified performancetargets. As a result, the compensation expense we recognize may also fluctuate from period to period.Income (Loss) from Operations. Refer to Note 11 to our accompanying consolidated financial statements in Part IV of this Annual Report for adiscussion of our reportable segments. The following table summarizes operating income (loss) by segment: Years ended December 31, Change 2013 2012 Amount %UGG wholesale$224,738 $206,039 $18,699 9.1 %Teva wholesale9,166 9,228 (62) (0.7)Sanuk wholesale20,591 14,398 6,193 43.0Other brands wholesale(9,807) (4,523) (5,284) (116.8)E-Commerce66,849 56,190 10,659 19.0Retail stores65,683 63,306 2,377 3.8Unallocated overheadcosts(169,323) (157,690) (11,633) (7.4)Total$207,897 $186,948 $20,949 11.2 %Income from operations increased due to the increase in sales and gross margin, partially offset by higher SG&A expenses and the negative impact offoreign currency exchange rate fluctuations. On a constant currency basis, income from operations increased by 13.7% to approximately $213,000.The increase in income from operations of UGG brand wholesale was primarily the result of a 2.1 percentage point increase in gross margin primarilyrelated to decreased sheepskin costs of approximately $18,000, as well as reduced operating expenses of approximately $2,000, partially offset by thenegative impact of foreign currency exchange rate fluctuations. On a constant currency basis, income from operations of UGG brand wholesale increased11.0% to approximately $229,000.Income from operations of Teva brand wholesale was comparable to the same period in 2012.The increase in income from operations of Sanuk brand wholesale was primarily the result of decreased expense related to the fair value of the Sanukcontingent consideration liability of approximately $8,000, which was primarily due to changes made during 2012 to the brand's forecast of sales and grossprofit through 2015, which increased the expense in 2012 without a comparable increase in 2013. In addition, income from operations increased due to theincrease in net sales, partially offset by a 1.4 percentage point decrease in gross margin due to increased closeout sales as well as an increase in sales expensesof approximately $2,000.The increase in loss from operations of our other brands wholesale was primarily the result of the activity of our Hoka brand, which we purchased onSeptember 27, 2012, and includes initial costs to expand the brand.The increase in income from operations of our E-Commerce business was primarily the result of the increase in net sales and resulting gross profit,partially offset by increased operating expenses of approximately $15,000. The increased operating expenses were largely due to increased marketing andadvertising costs.Income from operations of our retail store business, which primarily involves the UGG brand, increased due to the increase in net sales, largely offset byincreased operating expenses of approximately $53,000 primarily attributable to 40 new stores opened during the year as well as the negative impact offoreign currency exchange rate fluctuations. On a constant currency basis, income from operations of our retail store business increased 7.9% toapproximately $68,000.The increase in unallocated overhead costs resulted most significantly from an increase of approximately $8,000 in the recognition of performance-based compensation that was not allocated to any of our reportable segments.42Table of ContentsOther Expense, Net. Other expense, net decreased primarily due to a decrease in interest expense related to our short-term borrowings.Income Taxes. Income tax expense and effective income tax rates were as follows: Years ended December 31, 2013 2012Income tax expense$59,868 $55,104Effective income tax rate29.1% 29.9%The decrease in the effective tax rate was primarily due to the increase in our annual foreign income before income tax as a percentage of worldwideincome before income tax, as income generated in the foreign jurisdictions is taxed at significantly lower rates than the US. For the full year 2013, wegenerated approximately 11.0% of our earnings before income tax from a country which does not impose a corporate income tax.Net Income Attributable to the Noncontrolling Interest. Prior to April 2, 2012, we owned 51% of a joint venture with an affiliate of StellaInternational Holdings Limited (Stella International) for the primary purpose of opening and operating retail stores for the UGG brand in China. StellaInternational is also one of our major manufacturers in China. On April 2, 2012, we purchased the 49% noncontrolling interest owned by Stella Internationalfor a total purchase price of $20,000. Prior to this purchase, we already had a controlling interest in this entity, and therefore, the subsidiary had been andcontinues to be consolidated with our operations.Net Income Attributable to Deckers Outdoor Corporation. Our net income increased as a result of the items discussed above. Our diluted earnings pershare increased primarily as a result of the increase in net income, as well as by a reduced number of diluted weighted-average common shares outstanding.The reduction in the diluted weighted-average common shares outstanding was the result of our share repurchases which commenced during the year endedDecember 31, 2012. The weighted-average impact of the share repurchases was a reduction of approximately 2,600,000 shares.Off-Balance Sheet ArrangementsWe do not have off-balance sheet arrangements.Liquidity and Capital ResourcesWe finance our working capital and operating needs using a combination of our cash and cash equivalents balances, cash generated from operations,and as needed, the credit available under our credit agreement. In an economic recession or under other adverse economic conditions, our cash generatedfrom operations may decline, and we may be unable to realize a return on our cash and cash equivalents, secure additional credit on favorable terms, or renewor access our existing credit. These factors may impact our working capital reserves and have a material adverse effect on our business.Our cash flow cycle includes the purchase of or deposits for raw materials, the purchase of inventories, the subsequent sale of the inventories, and theeventual collection of the resulting accounts receivable. As a result, our working capital requirements begin when we purchase, or make deposits on, rawmaterials and inventories and continue until we ultimately collect the resulting receivables. The seasonality of our UGG brand business requires us to buildfall and winter inventories in the quarters ending June 30 and September 30 to support sales for the UGG brand’s major selling seasons, which historicallyoccur during the quarters ending September 30 and December 31; whereas, the Teva and Sanuk brands build inventory levels beginning in the quartersending December 31 and March 31 in anticipation of the spring selling season that occurs in the quarters ending March 31 and June 30. Given theseasonality of our UGG, Teva, and Sanuk brands, our working capital requirements fluctuate significantly throughout the year. The cash required to fundthese working capital fluctuations has been provided using our internal cash flows and short-term borrowings. We borrow funds under our credit agreement asneeded.The following table summarizes our cash flows: Years ended 3/31/2015 12/31/2013 12/31/2012Net cash provided by operatingactivities$169,654 $262,125 $163,906Net cash used in investing activities$(100,636) $(85,197) $(75,362)Net cash used in financing activities$(78,260) $(50,513) $(242,621)43Table of ContentsCash from Operating Activities. Net cash provided by operating activities for the year ended March 31, 2015 resulted primarily from net income andan increase in trade accounts payable, long-term liabilities and accrued expenses. The increase in long-term liabilities was primarily due to an increase indeferred rent. The increase in trade accounts payable and accrued expenses was primarily due to the timing of inventory purchases and payments. Theincrease in long-term liabilities was primarily related to non-current tax liabilities. These increases in cash provided by operating activities were partiallyoffset by increases in trade accounts receivable, inventories, income tax receivable and prepaid expenses and other assets. The increase in trade accountsreceivable was primarily related to increased wholesale sales in the three months ended March 31, 2015 as compared to the three months ended March 31,2014. The increase in inventory was primarily related to efforts to manage inventory levels relative to expected future sales and the timing of our inventorypurchases and payments. The increase in income tax receivable was primarily related to estimated tax payments made in prior periods. The increase inprepaid expenses and other assets was primarily due to deposits for future leather purchases. Net working capital increased as of March 31, 2015 fromDecember 31, 2013, primarily as a result of lower trade accounts payable and lower income taxes payable, partially offset by lower other current assets, lowertrade accounts receivable and lower inventories. Changes in working capital are due to the items discussed above, as well as our normal seasonality andtiming of cash receipts and cash payments.Net cash provided by operating activities for the year ended December 31, 2013 resulted primarily from net income, a decrease in inventories, andincreases in accrued expenses, income taxes payable and trade accounts payable. The decrease in inventories was primarily related to efforts to manageinventory levels relative to expected future sales and the timing of our inventory purchases and payments. The increase in accrued expenses was primarilydue to larger payroll accruals, including performance-based compensation for the year ended December 31, 2013 versus 2012, as well as increased valueadded tax (VAT) accruals. The increase in income taxes payable was due to the increase in earnings. The increase in trade accounts payable was primarily dueto the timing of inventory purchases and payments. These increases in cash provided by operating activities were partially offset by an increase in prepaidexpenses and other current assets. The increase in prepaid and other current assets was primarily due to deposits paid in accordance with our contracts topurchase sheepskin. Net working capital increased as of December 31, 2013 from December 31, 2012, primarily as a result of higher cash and cashequivalents balances and higher prepaid and other current assets, partially offset by higher other current liabilities, lower inventories and higher accountspayable. Changes in working capital are due to the items discussed above, as well as our normal seasonality and timing of cash receipts and cash payments.Net cash provided by operating activities for the year ended December 31, 2012 resulted primarily from net income, a decrease in prepaid and othercurrent assets and an increase in trade accounts payable. The decrease in prepaid expenses and other current assets was primarily due to refunds of depositsreceived in accordance with our contracts to purchase sheepskin. The increase in trade accounts payable was primarily due to the timing of inventorypurchases and payments. These increases in cash provided by operating activities were partially offset by an increase in inventories. The increase ininventories was primarily related to expected future sales and the timing of our inventory purchases and payments. Net working capital decreased as ofDecember 31, 2012 from December 31, 2011, primarily as a result of lower cash and prepaid and other current assets, and increased short-term borrowings andaccounts payable, partially offset by higher inventories. Changes in working capital are due to the items discussed above, as well as our normal seasonalityand timing of cash receipts and cash payments.Wholesale accounts receivable turnover and inventory turnover both improved in the twelve months ended March 31, 2015 compared to the twelvemonths ended December 31, 2013, and did not have a material impact on our liquidity.Wholesale accounts receivable turnover and inventory turnover both improved in the twelve months ended December 31, 2013 compared to the twelvemonths ended December 31, 2012, and did not have a material impact on our liquidity.Cash from Investing Activities. Net cash used in investing activities for the year ended March 31, 2015 resulted primarily from the purchases ofproperty and equipment and purchase of intangibles. The capital expenditures were primarily related to infrastructure improvements to support ourOmniChannel transformation and international expansion, the build out of our distribution center and retail stores, and purchases of computer hardware andsoftware. The purchase of intangible and other assets, net was related to the acquisition of our UGG brand distributor that sold to retailers in Germany. Net cash used in investing activities for the year ended December 31, 2013 resulted primarily from the purchases of property and equipment. Thecapital expenditures included the build out of our new corporate facilities and retail stores, and purchases of computer hardware and software. The newcorporate facilities replaced several leased spaces.For the year ended December 31, 2012, net cash used in investing activities resulted primarily from the purchases of property and equipment, as well asour acquisitions of the Hoka brand and an intangible asset for lease rights for a retail store location in France. Capital expenditures in fiscal year 2012included the build out of new retail stores and our corporate facilities.As of March 31, 2015, we had approximately $8,000 of material commitments for future capital expenditures primarily related to equipment costs ofour new distribution center. We estimate that the capital expenditures for fiscal year 2016 including44Table of Contentsthe aforementioned commitments will range from approximately $65,000 to $70,000. We anticipate these expenditures will primarily include informationtechnology and related infrastructure improvements to support our OmniChannel transformation and international expansion, the build out of our retailstores and equipment costs of our new distribution center. The actual amount of capital expenditures for the year may differ from this estimate, largelydepending on the timing of new store openings or any unforeseen needs to replace existing assets and the timing of other expenditures.Cash from Financing Activities. For the year ended March 31, 2015, net cash used in financing activities resulted primarily from repayments of short-term borrowings and cash paid for repurchases of common stock. This was partially offset by short-term borrowings provided by our lines of credit andfunding received from the mortgage obtained on our corporate headquarters property.For the year ended December 31, 2013, net cash used in financing activities was comprised primarily of repayments of short-term borrowings, as well ascontingent consideration paid related to our Sanuk acquisition. The cash used was partially offset by cash from our short-term borrowings.For the year ended December 31, 2012, net cash used in financing activities was comprised primarily of repayments of short-term borrowings andrepurchases of our common stock, as well as contingent consideration paid related to our Sanuk acquisition, and the purchase of the remaining 49%noncontrolling interest in our joint venture with Stella International. The cash used was partially offset by cash from our short-term borrowings.In June 2012, the Company approved a stock repurchase program to repurchase up to $200,000 of the Company's common stock in the open market orin privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program did not obligate theCompany to acquire any particular amount of common stock and the program may have been suspended at any time at the Company's discretion. As ofFebruary 28, 2015, the Company had repurchased approximately 3,823,000 shares under this program, for approximately $200,000, or an average price of$52.31 per share. As of February 28, 2015, the Company had repurchased the full amount authorized under this program.In January 2015, the Company approved a new stock repurchase program to repurchase up to $200,000 of the Company's common stock in the openmarket or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program does not obligatethe Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company's discretion. As of March 31,2015, the Company has repurchased approximately 377,000 shares under this program for approximately $27,900, or an average price of $74.09 per share,leaving the remaining approved amount at $172,100. In August 2011 we entered into a Credit Agreement (Credit Agreement) with JPMorgan Chase Bank, National Association (JPMorgan) as theadministrative agent, Comerica Bank (Comerica) and HSBC Bank USA, National Association (HSBC), as co-syndication agents, and the lenders partythereto. In August 2012, we amended and restated the Credit Agreement in its entirety(Amended and Restated Credit Agreement). In June 2013, we amendedthe Amended and Restated Credit Agreement to permit additional borrowings in China of $12,500 and revised certain financial covenants including anincrease in the maximum amount permitted to be spent on the headquarters building from $75,000 to $80,000. In August 2013, one of our subsidiariesentered into a new credit agreement in China (China Credit Facility). In November 2014, we entered into a second Amended and Restated Credit Agreementwith JPMorgan as the administrative Agent, Comerica and HSBC as co-syndication agents, and the lenders party thereto. The Second Amended and RestatedCredit Agreement amends and restates, in its entirety, the Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement isa five-year, $400,000 secured revolving credit facility. Refer to Note 5 to our accompanying consolidated financial statements in Part IV of this AnnualReport for further information on our Second Amended and Restated Credit Agreement and China Credit Facility. At March 31, 2015, we had no outstandingborrowings under the Second Amended and Restated Credit Agreement and outstanding letters of credit of approximately $100, leaving an unused balanceof approximately $399,900 under the Second Amended and Restated Credit Agreement. At March 31, 2015, we had approximately $4,900 of outstandingborrowings under the China Credit Facility. As of March 31, 2015, we were in compliance with all covenants and we remain in compliance as of June 1,2015.In July 2014, we obtained a mortgage on our corporate headquarters property for approximately $33,900. At March 31, 2015 the outstanding balanceunder the mortgage is $33,600. The mortgage has a fixed interest rate of 4.928%. Payments include interest and principal in an amount that will amortize theprincipal balance over a 30-year period. Minimum principal payments over the next 5 years are approximately $2,700. The loan will mature and have aballoon payment due in 15 years of approximately $23,400. The loan will be used for working capital and other general corporate purposes. In December2014 the mortgage financial covenants were amended to be consistent with the financial covenants of the Second Amended and Restated Credit Agreement.Contractual Obligations. The following table summarizes our contractual obligations at March 31, 2015 and the effects such obligations areexpected to have on liquidity and cash flow in future periods.45Table of Contents Payments Due by Period Total Less than1 Year 1-3 Years 3-5 Years More than5 YearsOperating lease obligations (1)$348,899 $53,664 $104,682 $72,102 $118,451Purchase obligations (2)664,659 664,429 230 — —Mortgage obligation (3)54,687 2,168 4,336 4,336 43,847Contingent consideration obligations (4)25,732 25,732 — — —Unrecognized tax benefits (5)3,566 281 1,992 1,293 —Total$1,097,543 $746,274 $111,240 $77,731 $162,298(1)Our operating lease obligations consist primarily of building leases for our retail locations, distribution centers, and regional offices, andinclude the cash lease payments of deferred rents.(2)Our purchase obligations consist mostly of open purchase orders. They also include capital expenditures, service contracts and promotionalexpenses. Outstanding purchase orders are primarily with our third-party manufacturers and are expected to be paid within one year. These areoutstanding open orders and not minimum purchase obligations. Our promotional expenditures and service contracts are due periodicallythrough fiscal years 2016 and 2017.We have also entered into minimum purchase commitments with certain suppliers (see Note 6 to our accompanying consolidated financialstatements in Part IV of this Annual Report). Certain of the agreements require that we advance specified minimum payment amounts. Wehave included the total remaining cash commitments under these agreements, net of deposits, as of March 31, 2015 in this table. We expectour sheepskin purchases will eventually exceed the minimum commitment levels; therefore we believe the deposits will become fullyrefundable, and thus, we believe this will not materially affect our results of operations, as it is in the normal course of our business.(3)Our mortgage obligation consists of a mortgage secured by our corporate headquarters property. The mortgage has a fixed interest rate of4.928%. Payments include interest and principal in an amount that amortizes the principal balance over a 30-year period, however the loanwill mature and have a balloon payment due in 15 years of approximately $23,400. For a further discussion, see Note 5 to our consolidatedfinancial statements in Part IV of this Annual Report.(4)Our contingent consideration obligations consist of estimated contingent consideration payments for the acquisitions of the Sanuk and Hokabrands. For additional information, see the "Commitments and Contingencies" section below and Notes 1 and 6 to our accompanyingconsolidated financial statements in Part IV of this Annual Report.(5)The unrecognized tax benefits are related to uncertain tax positions taken in our income tax return that would impact the effective tax rate, ifrecognized. See Note 4 to our accompanying consolidated financial statements in Part IV of this Annual Report.Commitments and Contingencies. The following reflect the additional commitments and contingent liabilities that may have a material impact onliquidity and cash flow in future periods.In July 2011, the Company acquired the Sanuk brand, and the total purchase price included contingent consideration payments. As of March 31, 2015,the remaining contingent consideration payment, which has no maximum, is 40.0% of the Sanuk brand gross profit in calendar year 2015 and is to be paidwithin 60 days following the end of the performance period. Estimated contingent consideration payments of approximately $24,200 are included withinother accrued expenses in the consolidated balance sheet as of March 31, 2015, and are not included in the table above. See Note 6 to our accompanyingconsolidated financial statements in Part IV of this Annual Report.The purchase price for the Hoka brand, acquired in September 2012, also includes contingent consideration through 2017, with a maximum of $2,000,of which approximately $500 has been paid. Estimated future contingent consideration payments of approximately $1,500 are included within other accruedexpenses and long-term liabilities in the consolidated balance sheet as of March 31, 2015, and are not included in the table above. See Note 6 to ouraccompanying consolidated financial statements in Part IV of this Annual Report.46Table of ContentsWe believe that cash generated from operations, the available borrowings under our existing Second Amended and Restated Credit Agreement, and ourcash and cash equivalents will provide sufficient liquidity to enable us to meet our working capital requirements for at least the next 12 months and theforeseeable future. However, risks and uncertainties that could impact our ability to maintain or grow our cash position include our earnings growth rate, thecontinued strength of our brands, our ability to respond to changes in consumer preferences, our ability to collect our receivables in a timely manner, ourability to effectively manage our inventories, our ability to generate returns on our acquisitions of businesses, and market volatility, among others. See Part I,Item 1A, "Risk Factors" for a discussion of additional factors that may affect our cash position and liquidity. Furthermore, we may require additional cashresources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If thesesources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional equity securities or to obtain a new credit agreementor draw on our existing Second Amended and Restated Credit Agreement. The sale of convertible debt securities or additional equity securities could resultin additional dilution to our stockholders. The incurrence of indebtedness would result in incurring debt service obligations and could result in operatingand financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available onacceptable terms, if at all. Although there are no other material present understandings, commitments or agreements with respect to the acquisition of anyother businesses, we may evaluate acquisitions of other businesses or brands.Impact of InflationWe believe that the rates of inflation in the three most recent fiscal years have not had a significant impact on our net sales or profitability.Critical Accounting Policies and EstimatesRefer to Note 1 to our accompanying consolidated financial statements in Part IV of this Annual Report for a discussion of our significant accountingpolicies. Those policies and estimates that we believe are most critical to the understanding of our accompanying consolidated financial statements in Part IVof this Annual Report are revenue recognition; use of estimates, which includes the below reserves and allowances; inventories; accounting for long-livedassets; goodwill and other intangible assets; fair value of contingent consideration; and stock compensation.Use of Estimates. The preparation of financial statements in conformity with US generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts during the reporting period. Management reasonably could use different estimates andassumptions, and changes in estimates and assumptions could occur from period to period, with the result in each case being a potential material change inthe financial statement presentation of our financial condition or results of operations. We have historically been materially accurate in our estimates used forthe reserves and allowances below.The following table summarizes data related to the critical accounting estimates for accounts receivable allowances and reserves, which are discussedbelow: March 31, 2015 March 31, 2014 December 31, 2013 Amount % of GrossTradeAccountsReceivable Amount % of GrossTradeAccountsReceivable Amount % of GrossTradeAccountsReceivableGross trade accounts receivable$161,323 $121,768 $209,081 Allowance for doubtful accounts$2,297 1.4% $1,798 1.5% $2,039 1.0%Allowance for sales discounts$2,348 1.5% $2,121 1.7% $3,540 1.7%Allowance for estimatedchargebacks$4,041 2.5% $3,064 2.5% $4,935 2.4% Amount % of Net Sales Amount % of Net Sales Amount % of Net SalesNet sales for the three months ended$340,637 $294,716 $736,048 Allowance for estimated returns$9,532 2.8% $8,586 2.9% $14,554 2.0%Estimated returns liability$1,741 0.5% $2,400 0.8% $10,144 1.4%Allowance for Doubtful Accounts. We provide a reserve against trade accounts receivable for estimated losses that may result from customers'inability to pay. We determine the amount of the reserve by analyzing known uncollectible accounts,47Table of Contentsaged trade accounts receivables, economic conditions and forecasts, historical experience and the customers' credit-worthiness. Trade accounts receivablethat are subsequently determined to be uncollectible are charged or written off against this reserve. The reserve includes specific reserves for accounts, whichall or a portion of are identified as potentially uncollectible, plus a non-specific reserve for the balance of accounts based on our historical loss experience.Reserves have been established for all projected losses of this nature. Our use of different estimates and assumptions could produce different financial results.For example, a 1.0% change in the rate used to estimate the reserve for the accounts we consider to have credit risk and are not specifically identified asuncollectible would change the allowance for doubtful accounts at March 31, 2015 by approximately $1,000.Allowance for Sales Discounts. A significant portion of our wholesale sales and resulting trade accounts receivable reflects a discount that ourcustomers may take, generally based upon meeting certain order, shipment and payment timelines. We use the amount of the discounts that are available tobe taken against the period-end trade accounts receivable to estimate and record a corresponding reserve for sales discounts.Allowance for Estimated Chargebacks. When our wholesale customers pay their invoices, they often take deductions for chargebacks against theirinvoices, which are often valid. Therefore, we record an allowance for the balance of chargebacks that are outstanding in our accounts receivable balance asof the end of each period, along with an estimated reserve for chargebacks that have not yet been taken against outstanding accounts receivable balances.This estimate is based on historical trends of the timing and amount of chargebacks taken against invoices.Allowance for Estimated Returns and Estimated Returns Liability. We record an allowance for anticipated future returns of goods shipped prior toperiod end and a liability for anticipated returns of goods sold direct to consumers. In general, we accept returns for damaged or defective products. We alsohave a policy whereby we accept returns from our retail and E-Commerce customers for a thirty day period. We base the amounts of the allowance andliability on any approved customer requests for returns, historical returns experience, and any recent events that could result in a change from historicalreturns rates, among other factors. The allowance for estimated returns as a percentage of net sales was comparable to the same period in the prior year. Ouruse of different estimates and assumptions could produce different financial results. For example, a 1.0% change in the rate used to estimate the percentage ofsales expected to ultimately be returned would change the allowance and liability reserves for returns in total at March 31, 2015 by approximately $2,000.Our historical estimates for returns have been reasonably accurate.Inventory Write-Downs. We review the various items in inventory on a regular basis for excess, obsolete, and impaired inventory. In doing so, wewrite the inventory down to the lower of cost or expected future net selling prices. Inventories were stated at $238,911, $211,519 and $260,791 net ofinventory write-downs of $3,601, $4,843 and $6,142 at March 31, 2015, March 31, 2014 and December 31, 2013, respectively. The decrease in inventorywrite-downs at March 31, 2015 compared to March 31, 2014 and December 31, 2013 was primarily due to lower write-downs of certain UGG and other brandstyles that are not being continued. The amount of inventory write-downs as a percentage of inventory were 1.5%, 2.2% and 2.4% as of March 31, 2015,March 31, 2014 and December 31, 2013, respectively. Our use of different estimates and assumptions could produce different financial results. For example, a10.0% change in the estimated selling prices of our potentially obsolete inventory would change the inventory write-down reserve at March 31, 2015 byapproximately $1,000.Valuation of Goodwill, Intangible and Other Long-Lived Assets. We assess the impairment of goodwill, intangible, and other long-lived assets on aseparate asset basis based on assumptions and judgments regarding the carrying amount of these assets individually.We performed our annual impairment tests for goodwill and nonamortizable intangible assets. We evaluated our UGG, Sanuk and other brands'goodwill and our Teva trademarks. Based on the carrying amounts of the UGG, Teva, Sanuk and other brands' goodwill, trademarks, and net assets, thebrands' fiscal year 2015 sales and operating results, and the brands' long-term forecasts of sales and operating results as of their evaluation dates, weconcluded that the carrying amounts of the UGG, Sanuk and other brands' goodwill, as well as the Teva trademarks, were not impaired. Our Teva trademarkswere evaluated under Accounting Standards Update, Testing Indefinite-Lived Intangible Assets for Impairment, and we concluded, based on an evaluation ofall relevant qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, financial performance, entity-specificevents, and legal, regulatory, contractual, political, business, or other factors, that it is not more likely than not that the fair value of the Teva trademarks isless than its carrying amount, and accordingly we did not perform a quantitative impairment test for the Teva trademarks. Our goodwill balance at March 31,2015 represents goodwill in the UGG, Sanuk and other brands' reporting units. We believe that it is not more likely than not that the fair value of the UGGreporting unit's fair value and the other brands' reporting units' fair value are less than their respective carrying values. The UGG and other brands' goodwillwas evaluated based on qualitative analyses.We performed a qualitative analysis of the Sanuk reporting unit's fair value as of October 31, 2014, and concluded that it is not more likely than notthat the fair value of the reporting unit's fair value was less than the carrying value, and, therefore, no additional sensitivity analysis was performed.48Table of ContentsWe also evaluated amortizable long-lived assets, including intangible assets as of December 31, 2014 and December 31, 2013. During the fiscal yearended March 31, 2015, we recorded immaterial impairment losses for four of our retail stores for which the fair values did not exceed their carrying values. Asof December 31, 2013, we recorded immaterial impairment losses for three of our retail stores for which the fair values did not exceed their carrying values.Our other valuation methodologies used as of March 31, 2015 did not change from the prior years.Fair Value of Contingent Consideration. We have entered into contingent consideration arrangements when we have acquired brands. The fair valueof our Sanuk brand contingent consideration is material and highly subjective. It is based on estimated future sales, gross profits, and discount rates, amongother variables and estimates (see Note 1 to our accompanying consolidated financial statements in Part IV of this Annual Report). These are evaluated eachreporting period and the contingent consideration is adjusted accordingly. Our estimated revenue forecasts include a compound annual growth rate of 14.6%from calendar year 2014 through calendar year 2015, the final year of the contingent consideration arrangement. Our use of different estimates andassumptions could produce different financial results. For example, a 5.0% change in the estimated compound annual growth rate would change the totalliability balance at March 31, 2015 by approximately $2,000.Item 7A. Quantitative and Qualitative Disclosures about Market Risk.Commodity Price Risk. We purchase certain materials that are affected by commodity prices, the most significant of which is sheepskin. The supplyof sheepskin used in certain UGG products is in high demand and there are a limited number of suppliers able to meet our expectations for the quantity andquality of sheepskin required. There have been significant fluctuations in the price of sheepskin in recent years as the demand from our competitors, as wellas the demand from our customers, for this commodity has changed. Other significant factors affecting the price of sheepskin include weather patterns,harvesting decisions, global economic conditions, and other factors which are not considered predictable or within our control. We began using a new rawmaterial, UGGpure, a wool woven into a durable backing, in some of our UGG products in 2013 and which we currently purchase from one supplier. We usepurchasing contracts, pricing arrangements, and refundable deposits to attempt to reduce the impact of price volatility as an alternative to hedgingcommodity prices. The purchasing contracts and pricing arrangements we use may result in unconditional purchase obligations, which are not reflected inour consolidated balance sheets. In the event of significant commodity cost increases, we will likely not be able to adjust our selling prices sufficiently tomitigate the impact on our margins.Foreign Currency Exchange Rate Risk. We face market risk to the extent that changes in foreign currency exchange rates affect our foreign assets,liabilities, revenues and expenses. We hedge certain foreign currency forecasted transactions and exposures from existing assets and liabilities. Other than anincreasing amount of sales, expenses, and financial positions denominated in foreign currencies, we do not believe that there has been a material change inthe nature of our primary market risk exposures, including the categories of market risk to which we are exposed and the particular markets that present theprimary risk of loss. As of June 1, 2015, we do not know of or expect there to be any material change in the general nature of our primary market risk exposurein the near term.We utilize forward contracts and other derivative instruments to mitigate exposure to fluctuations in the foreign currency exchange rate, for a portion ofthe amounts we expect to purchase and sell in foreign currencies. As of March 31, 2015, our designated derivative contracts had notional amounts totalingapproximately $46,000. These contracts were held by four counterparties and were expected to mature over the next 12 months. Based upon sensitivityanalysis as of March 31, 2015, a 10.0% change in foreign exchange rates would cause the fair value of our financial instruments to increase or decrease byapproximately $5,000. As our international operations grow and we increase purchases and sales in foreign currencies, we will continue to evaluate ourhedging policy and may utilize additional derivative instruments, as needed, to hedge our foreign currency exposures. We do not use foreign currencycontracts for trading purposes. Subsequent to March 31, 2015, we entered into non-designated derivative contracts with notional amounts totalingapproximately $42,000 and designated derivative contracts with notional amounts totaling approximately $31,000. All derivative contracts were held by sixcounterparties.Although the majority of our sales and inventory purchases are denominated in US currency, these sales and inventory purchases may be impacted byfluctuations in the exchange rates between the US dollar and the local currencies in the international markets where our products are sold and manufactured.Our foreign currency exposure is generated primarily from our European and Asian operations. Approximately $519,000, or 28.6%, of our total net sales forthe year ended March 31, 2015 were denominated in foreign currencies. As we hold more cash and other monetary assets and liabilities in foreign currencies,we are exposed to financial statement transaction gains and losses as a result of remeasuring the financial positions held in foreign currencies into US dollarsfor subsidiaries that are US dollar functional and also from remeasuring the financial positions held in US dollars and foreign currencies into the functionalcurrency of subsidiaries that are non-US dollar functional. We remeasure monetary assets and liabilities denominated in foreign currencies into US dollarsusing the exchange rate as of the end of the reporting period. In addition, certain of our foreign subsidiaries' local currency is their designated functionalcurrency, and we translate those subsidiaries' assets and liabilities into US dollars using the exchange rates at the end of the reporting period, which results infinancial statement translation gains and losses in other comprehensive income (loss). Changes in foreign exchange rates affect49Table of Contentsour reported profits and can distort comparisons from year to year. In addition, if the US dollar strengthens, it may result in increased pricing pressure on ourforeign distributors, and retailers, which may have a negative impact on our net sales and gross margins.Interest Rate Risk. Our market risk exposure with respect to financial instruments is tied to changes in the prime rate in the US and changes in theLondon Interbank Offered Rate (LIBOR). Our Second Amended and Restated Credit Agreement provides for interest on outstanding borrowings at rates tiedto the prime rate or, at our election, tied to LIBOR. Our China Credit Facility provides for interest on outstanding borrowings at rates based on the People’sBank of China rate, which was 5.35% at March 31, 2015 (see Note 5 to our accompanying consolidated financial statements in Part IV of this Annual Report).Item 8. Financial Statements and Supplementary Data.Consolidated Financial Statements, the Financial Statement Schedule, and the Reports of Independent Registered Public Accounting Firm are filedwith this Annual Report in a separate section following Part IV, as shown on the index under Item 15 of this Annual Report.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.(a) Disclosure Controls and Procedures.The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, asamended, or the Exchange Act) which are designed to provide reasonable assurance that information required to be disclosed in the reports that the Companyfiles or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Thesedisclosure controls and procedures include, among other processes, controls and procedures designed to ensure that information required to be disclosed inthe reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the principal executiveofficer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosurecontrols and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is also based inpart upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policiesor procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not bedetected.The Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer andthe principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015 pursuant toExchange Act Rule 13a-15. Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company'sdisclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report to ensure thatthe information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file orsubmit under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financialofficer, as appropriate, to allow timely decisions regarding required disclosure.(b) Management's Report on Internal Control over Financial Reporting.Management is responsible for establishing and maintaining adequate internal control over financial reporting at the Company. Our internal controlover financial reporting is a process designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonableassurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes inaccordance with United States generally accepted accounting principles.Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.50Table of ContentsAs of March 31, 2015, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth in InternalControl — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on thisassessment, our management concluded that, as of March 31, 2015, our internal control over financial reporting was effective based on those criteria. Theregistered public accounting firm that audited our accompanying consolidated financial statements in Part IV of this Annual Report has issued an attestationreport on the Company's internal control over financial reporting. Please see the section entitled “Report of Independent Registered Public Accounting Firm”on page F-2 of this Annual Report.(c) Changes in Internal Control over Financial Reporting.There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d)of the Exchange Act during the period ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controlover financial reporting.Item 9B. Other Information.None.51Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information required by this item and not disclosed in the paragraph immediately below will be disclosed in the proxy statement for our 2015annual meeting of stockholders, or the Proxy Statement, and is incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120days after the end of the fiscal year ended March 31, 2015 pursuant to Regulation 14A under the Exchange Act.We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller andpersons performing similar functions, which we refer to as the Accounting and Finance Code of Ethics. The Accounting and Finance Code of Ethics isdesigned to meet the requirements of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. We have also adopted a code of ethicsthat applies to all of our directors, officers and employees, which we refer to as the Code of Ethics. The Code of Ethics is designed to meet the requirements ofthe NYSE listing rules. The Accounting and Finance Code of Ethics and the Code of Ethics are available on our website at www.deckers.com under the“Investor Information” section of the website. However, the information contained on or accessed through our website does not constitute part of this AnnualReport, and references to our website address in this Annual Report are inactive textual references only. We will promptly disclose on our website the natureof any waiver to the Accounting and Finance Code of Ethics or the Code of Ethics that applies to any of our executive officers or directors. We will alsopromptly disclose on our website any amendment to the Accounting and Finance Code of Ethics or the Code of Ethics.Item 11. Executive Compensation.The information required by this item will be disclosed in the Proxy Statement, and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this item will be disclosed in the Proxy Statement, and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this item will be disclosed in the Proxy Statement, and is incorporated herein by reference.Item 14. Principal Accounting Fees and Services.The information required by this item will be disclosed in the Proxy Statement, and is incorporated herein by reference.52Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules.See the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page F-1 herein.ExhibitNumber Description of Exhibit3.1 Amended and Restated Certificate of Incorporation of Deckers Outdoor Corporation, as amendedthrough May 27, 2010 (Exhibit 3.1 to the Registrant's Form 10-Q filed on August 8, 2011 andincorporated by reference herein)3.2 Restated Bylaws of Deckers Outdoor Corporation (Exhibit 3.2 to the Registrant’s Form 10-K filed onMarch 3, 2014 and incorporated by reference herein)10.1 Lease Agreement dated November 1, 2003 between Ampersand Aviation, LLC and Deckers OutdoorCorporation for office building at 495-A South Fairview Avenue, Goleta, California, 93117(Exhibit 10.34 to the Registrant's Form 10-K filed on March 26, 2004 and incorporated by referenceherein)10.2 Lease Agreement, dated September 15, 2004, by and between Mission Oaks Associates, LLC andDeckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo, CA 93012(Exhibit 10.37 to the Registrant's Form 10-K filed on March 16, 2005 and incorporated by referenceherein)10.3 First Amendment to Lease Agreement, dated December 1, 2004, by and between Mission OaksAssociates, LLC and Deckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd.,Camarillo, CA 93012 (Exhibit 10.38 to the Registrant's Form 10-K filed on March 16, 2005 andincorporated by reference herein)10.4 Amendment to Lease Agreement, dated September 1, 2011, by and between Mission Oaks Associates,LLC and Deckers Outdoor Corporation for distribution center at 3001 Mission Oaks Blvd., Camarillo,CA 93012 (Exhibit 10.23 to the Registrant's Form 10-K filed on February 29, 2012 and incorporated byreference herein)10.5 Amendment to Lease Agreement, dated September 1, 2011, by and between 450 N. Baldwin ParkAssociates, LLC and Deckers Outdoor Corporation for distribution center at 3175 Mission Oaks Blvd.,Camarillo, CA 93012 (Exhibit 10.24 to the Registrant's Form 10-K filed on February 29, 2012 andincorporated by reference herein)10.6 Lease Agreement, dated December 5, 2013, by and between Moreno Knox, LLC and Deckers OutdoorCorporation for distribution center at 17791 Perris Blvd.,Moreno Valley, CA 92551 (Exhibit 10.6 to theRegistrant’s Form 10-K filed on March 3, 2014 and incorporated by reference herein)#10.7 Deckers Outdoor Corporation 2006 Equity Incentive Plan (Appendix A to the Registrant's DefinitiveProxy Statement filed on April 21, 2006 and incorporated by reference herein)#10.8 First Amendment to Deckers Outdoor Corporation 2006 Equity Incentive Plan (Appendix A to theRegistrant's Definitive Proxy Statement filed on April 9, 2007 and incorporated by reference herein)#10.9 Deckers Outdoor Corporation Amended and Restated Deferred Stock Unit Compensation Plan, a SubPlan under the 2006 Equity Incentive Plan, adopted by the Board of Directors on December 14, 2010(Exhibit 10.24 to the Registrant's Form 10-K filed on March 1, 2011 and incorporated by referenceherein)#10.10 Deckers Outdoor Corporation Amended and Restated Deferred Compensation Plan, effective August 1,2013 (Exhibit 10.10 to the Registrant’s Form 10-K filed on March 3, 2014 and incorporated by referenceherein)#10.11 Form of Deckers Outdoor Corporation Management Incentive Program under the 2006 Equity IncentivePlan (Exhibit 10.28 to the Registrant’s Form 10-K filed on March 1, 2013 and incorporated by referenceherein)#10.12 Form of Restricted Stock Unit Award Agreement (Level 2) under the 2006 Equity Incentive Plan (Exhibit10.3 to the Registrant's Form 8-K filed on May 11, 2007 and incorporated by reference herein)#10.13 Form of Restricted Stock Unit Award Agreement (Level III) under the 2006 Equity Incentive Plan(Exhibit 10.1 to the Registrant's Form 8-K filed on June 28, 2011 and incorporated by reference herein)#10.14 Form of Stock Appreciation Rights Award Agreement (Level 2) under the 2006 Equity Incentive Plan(Exhibit 10.5 to the Registrant's Form 8-K filed on May 11, 2007 and incorporated by reference herein)#10.15 Form of Restricted Stock Unit Award Agreement (2012 LTIP) under the 2006 Equity Incentive Plan(Exhibit 10.1 to the Registrant's Form 8-K filed on May 31, 2012 and incorporated by reference herein)53Table of ContentsExhibitNumber Description of Exhibit#10.16 Form of Restricted Stock Unit Award Agreement (2013 LTIP) under the 2006 Equity Incentive Plan(Exhibit 10.1 to the Registrant's Form 8-K filed on December 19, 2013 and incorporated by referenceherein)#10.17 Form of Restricted Stock Unit Award Agreement (2014 LTIP) under the 2006 Equity Incentive Plan(Exhibit 10.1 to the Registrant's Form 8-K filed on September 24, 2014 and incorporated by referenceherein)#10.18 Form of Stock Unit Award Agreement under the 2006 Equity Incentive Plan (Exhibit 10.27 to theRegistrant’s Form 10-K filed on March 1, 2013 and incorporated by reference herein)#10.19 Form of Stock Unit Award Agreement under the 2006 Equity Incentive Plan (Exhibit 10.28 to theRegistrant’s Form 10-K filed on March 3, 2014 and incorporated by reference herein)#10.20 Change of Control and Severance Agreement, dated December 22, 2009, by and between Angel Martinezand Deckers Outdoor Corporation (Exhibit 10.33 to the Registrant's Form 10-K filed on March 1, 2010and incorporated by reference herein)#10.21 Change of Control and Severance Agreement, dated December 22, 2009, by and between Thomas Georgeand Deckers Outdoor Corporation (Exhibit 10.35 to the Registrant's Form 10-K filed on March 1, 2010and incorporated by reference herein)#10.22 Change of Control and Severance Agreement, dated December 22, 2009, by and between ConstanceRishwain and Deckers Outdoor Corporation (Exhibit 10.36 to the Registrant's Form 10-K filed on March1, 2010 and incorporated by reference herein)#10.23 Consulting Agreement and General Release, dated January 16, 2015, by and between Zohar Ziv andDeckers Outdoor Corporation (Exhibit 10.1 to the Registrant’s Form 8-K filed on January 21, 2015 andincorporated by reference herein)#10.24 Consulting Agreement and General Release, dated May 6, 2015, by and between Constance Rishwainand Deckers Outdoor Corporation (Exhibit 10.1 to the Registrant’s Form 8-K filed on May 12, 2015 andincorporated by reference herein)#10.25 Employment Agreement, dated February 28, 2011, by and between Stephen Murray and Deckers EuropeLimited (Exhibit 10.23 to the Registrant’s Form 10-K filed on March 3, 2014 and incorporated byreference herein)10.26 Asset Purchase Agreement, dated May 19, 2011, by and among Deckers Outdoor Corporation, DeckersAcquisition, Inc., Deckers International Limited, Sanuk USA, LLC, Thomas J. Kelley, Ian L. Kessler,C&C Partners, Ltd., Donald A. Clark and Paul Carr (Exhibit 10.1 to the Registrant's Form 8-K filed onMay 19, 2011 and incorporated by reference herein)10.27 Amendment No. 1 to Asset Purchase Agreement, dated July 1, 2011, by and among Deckers OutdoorCorporation, Deckers Acquisition, Inc., Deckers International Limited, Sanuk USA, LLC, Thomas J.Kelley, Ian L. Kessler, C&C Partners, Ltd., Donald A. Clark and Paul Carr (Exhibit 10.1 to theRegistrant's Form 8-K filed on July 6, 2011 and incorporated by reference herein)10.28 Second Amended and Restated Credit Agreement, dated November 13, 2014, by and among DeckersOutdoor Corporation, as Borrower, JPMorgan Chase Bank, National Association, as AdministrativeAgent, Comerica Bank and HSBC Bank USA, National Association, as Co-Syndication Agents, and thelenders from time to time party thereto (Exhibit 10.1 to the Registrant’s Form 8-K filed on November 19,2014 and incorporated by reference herein)10.29 Term Loan Agreement, dated July 9, 2014, by and among Deckers Cabrillo, LLC, as Borrower andCalifornia Bank & Trust, as Lender (Exhibit 10.1 to the Registrant’s Form 8-K filed on July 15, 2014 andincorporated by reference herein)10.30 Continuing Guaranty Agreement, dated July 9, 2014, by and among Deckers Outdoor Corporation andCalifornia Bank & Trust (Exhibit 10.2 to the Registrant’s Form 8-K filed on July 15, 2014 andincorporated by reference herein)10.31 Deed of Trust, Assignment of Leases and Rents and Security Agreement (including Fixture Filing), datedJuly 9, 2014, executed by Deckers Cabrillo, LLC (Exhibit 10.3 to the Registrant’s Form 8-K filed on July15, 2014 and incorporated by reference herein)*21.1 Subsidiaries of Registrant*23.1 Consent of Independent Registered Public Accounting Firm*31.1 Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of2002*31.2 Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of2002**32 Certification Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-OxleyAct of 200254Table of ContentsExhibitNumber Description of Exhibit*101.1 The following materials from the Company's Annual Report on Form 10-K for the annual period endedMarch 31, 2015, formatted in XBRL (eXtensible Business Reporting Language); (i) ConsolidatedBalance Sheets as of March 31, 2015, March 31, 2014 and December 31, 2013; (ii) ConsolidatedStatements of Comprehensive Income (Loss) for the year ended March 31, 2015, quarter transition periodended March 31, 2014, and years ended December 31, 2013 and December 31, 2012; (iii) ConsolidatedStatements of Cash Flows for the years ended March 31, 2015, quarter transition period ended March 31,2014, and years ended December 31, 2013 and December 31, 2012, and (iv) Notes to ConsolidatedFinancial Statements.* Filed herewith.** Furnished herewith# Management contract or compensatory plan or arrangement.55Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.DECKERS OUTDOOR CORPORATION(Registrant)/s/ ANGEL R. MARTINEZAngel R. Martinez Chief Executive OfficerDate: June 1, 2015Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated./s/ ANGEL R. MARTINEZ Chairman of the Board,Chief ExecutiveOfficer (Principal Executive Officer)June 1, 2015Angel R. Martinez /s/ THOMAS A. GEORGE Chief Financial Officer(Principal Financial and AccountingOfficer)June 1, 2015Thomas A. George /s/ MICHAEL F. DEVINE, III DirectorJune 1, 2015Michael F. Devine, III /s/ KARYN O. BARSA DirectorJune 1, 2015Karyn O. Barsa /s/ JOHN M. GIBBONS DirectorJune 1, 2015John M. Gibbons /s/ JOHN G. PERENCHIO DirectorJune 1, 2015John G. Perenchio /s/ LAURI SHANAHAN DirectorJune 1, 2015Lauri Shanahan /s/ JAMES QUINN DirectorJune 1, 2015James Quinn /s/ BONITA C. STEWART DirectorJune 1, 2015Bonita C. Stewart /s/ NELSON C. CHAN DirectorJune 1, 2015Nelson C. Chan 56Table of ContentsDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULEPageConsolidated Financial StatementsReports of Independent Registered Public Accounting FirmF-2F-4Consolidated Balance Sheets as of March 31, 2015, March 31, 2014, and December 31, 2013 Consolidated Statements of Comprehensive Income (Loss) for the year ended March 31, 2015, quarter ended (transition period) March 31, 2014, and years ended December 31, 2013 and 2012F-5Consolidated Statements of Stockholders' Equity for the year ended March 31, 2015, quarter ended (transition period) March 31, 2014, and years ended December 31, 2013 and 2012F-6F-7Consolidated Statements of Cash Flows for the year ended March 31, 2015, quarter ended (transition period) March 31, 2014, and years ended December 31, 2013 and 2012Notes to Consolidated Financial StatementsF-8Consolidated Financial Statement ScheduleValuation and Qualifying Accounts for the year ended March 31, 2015, quarter ended (transition period) March 31, 2014, and years ended December 31, 2013 and 2012F-36All other schedules are omitted because they are not applicable or the required information is shown in the Company's consolidated financialstatements or the related notes thereto.F-1Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersDeckers Outdoor Corporation:We have audited the accompanying consolidated financial statements of Deckers Outdoor Corporation and subsidiaries as listed in the accompanyingindex. In connection with our audits of the consolidated financial statements, we also have audited the related consolidated financial statement schedule aslisted in the accompanying index. These consolidated financial statements and consolidated financial statement schedule are the responsibility of theCompany's management. Our responsibility is to express an opinion on these consolidated financial statements and the consolidated financial statementschedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Deckers OutdoorCorporation and subsidiaries as of March 31, 2015, March 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for theyear ended March 31, 2015, the quarter ended (transition period) March 31, 2014, and the years ended December 31, 2013 and December 31, 2012 inconformity with US generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedule, when considered inrelation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the internal control overfinancial reporting of Deckers Outdoor Corporation as of March 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 1, 2015 expressed an unqualifiedopinion on the effectiveness of the internal control over financial reporting of Deckers Outdoor Corporation./s/ KPMG LLPLos Angeles, CaliforniaJune 1, 2015F-2Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersDeckers Outdoor Corporation:We have audited the internal control over financial reporting of Deckers Outdoor Corporation as of March 31, 2015 based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting in Item 9A(b). Ourresponsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, Deckers Outdoor Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31,2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Deckers Outdoor Corporation and subsidiaries as of March 31, 2015, March 31, 2014 and December 31, 2013, and the results of their operations andtheir cash flows for the year ended March 31, 2015, the quarter ended (transition period) March 31, 2014, and the years ended December 31, 2013 andDecember 31, 2012 and our report dated June 1, 2015 expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPLos Angeles, CaliforniaJune 1, 2015F-3Table of ContentsDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(amounts in thousands, except par value) 3/31/2015 3/31/2014 12/31/2013ASSETS Current assets: Cash and cash equivalents$225,143 $245,088 $237,125Trade accounts receivable, net of allowances ($18,218 at March 31,2015, $15,569 at March 31, 2014 and $25,068 at December 31, 2013)143,105 106,199 184,013Inventories238,911 211,519 260,791Prepaid expenses15,141 12,067 14,980Other current assets35,057 27,118 112,514Deferred tax assets14,066 21,871 19,881Income tax receivable15,170 — —Total current assets686,593 623,862 829,304Property and equipment, net of accumulated depreciation ($129,002 atMarch 31, 2015, $103,090 at March 31, 2014 and $99,473 at December 31,2013)232,317 184,570 174,066Goodwill127,934 127,934 128,725Other intangible assets, net of accumulated amortization ($37,316 at March31, 2015, $26,026 at March 31, 2014 and $24,140 at December 31, 2013)87,743 91,411 93,278Deferred tax assets15,017 17,062 15,751Other assets20,329 19,365 18,605Total assets$1,169,933 $1,064,204 $1,259,729 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings$5,383 $6,702 $9,728Trade accounts payable85,714 76,139 151,037Accrued payroll27,300 22,927 35,725Other accrued expenses41,066 11,624 45,301Income taxes payable6,858 2,908 49,453Value added tax (VAT) payable1,221 1,915 29,274Total current liabilities167,542 122,215 320,518 Long-term liabilities: Mortgage payable33,154 — —Income tax liability5,087 — —Deferred rent obligations15,663 14,319 12,206Other long-term liabilities11,475 38,821 38,886Total long-term liabilities65,379 53,140 51,092 Commitments and contingencies (Note 6) Stockholders' equity: Common stock ($0.01 par value; 125,000 shares authorized; sharesissued and outstanding of 33,292 at March 31, 2015, 34,624 at March31, 2014 and 34,618 shares at December 31, 2013)333 346 346Additional paid-in capital158,777 146,731 143,916Retained earnings798,370 743,815 746,500Accumulated other comprehensive loss(20,468) (2,043) (2,643)Total stockholders' equity937,012 888,849 888,119Total liabilities and stockholders' equity$1,169,933 $1,064,204 $1,259,729See accompanying notes to consolidated financial statements.F-4Table of ContentsDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(amounts in thousands, except per share data) Year ended Quarter ended(transition period) Years ended 3/31/2015 3/31/2014 12/31/2013 12/31/2012Net sales$1,817,057 $294,716 $1,556,618 $1,414,398Cost of sales938,949 150,456 820,135 782,244Gross profit878,108 144,260 736,483 632,154Selling, general and administrative (SG&A) expenses653,689 144,668 528,586 445,206Income (loss) from operations224,419(408) 207,897 186,948Other expense (income), net: Interest income(207) (65) (60) (217)Interest expense4,220 516 3,079 3,840Other, net(733) (117) (679) (793)Total other expense, net3,280 334 2,340 2,830Income (loss) before income taxes221,139 (742) 205,557 184,118Income taxes59,359 1,943 59,868 55,104Net income (loss)161,780 (2,685) 145,689 129,014Other comprehensive income (loss), net of tax: Unrealized gain (loss) on foreign currency hedging450 (273) (486) (633)Foreign currency translation adjustment(18,875) 873 (757) 963Total other comprehensive (loss) income(18,425) 600 (1,243) 330Comprehensive income (loss)$143,355 $(2,085) $144,446 $129,344 Net income (loss) attributable to: Deckers Outdoor Corporation$161,780 $(2,685) $145,689 $128,866Noncontrolling interest— — — 148 $161,780 $(2,685) $145,689 $129,014Comprehensive income (loss) attributable to: Deckers Outdoor Corporation$143,355 $(2,085) $144,446 $129,196Noncontrolling interest— — — 148 $143,355 $(2,085) $144,446 $129,344 Net income (loss) per share attributable to DeckersOutdoor Corporation common stockholders: Basic$4.70 $(0.08) $4.23 $3.49Diluted$4.66 $(0.08) $4.18 $3.45Weighted-average common shares outstanding: Basic34,433 34,621 34,473 36,879Diluted34,733 34,621 34,829 37,334 See accompanying notes to consolidated financial statements.F-5Table of ContentsDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(amounts in thousands) Common Stock AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total DeckersOutdoor Corp.Stockholders'Equity Non-controllingInterest TotalStockholders'Equity Shares Amount Balance, December31, 201138,692 $387 $144,684 $692,595 $(1,730) $835,936 $5,494 $841,430Stock compensationexpense19 — 14,661 — — 14,661 — 14,661Exercise of stockoptions4 — 9 — — 9 — 9Shares issued uponvesting199 2 (2) — — — — —Deficient tax benefitfrom stockcompensation— — (381) — — (381) — (381)Shares withheld fortaxes— — (5,888) — — (5,888) — (5,888)Stock repurchase(4,514) (45) — (220,650) — (220,695) — (220,695)Net income— — — 128,866 — 128,866 148 129,014Acquisition ofnoncontrolling interest— — (14,037) — — (14,037) (5,642) (19,679)Total othercomprehensiveincome— — — — 330 330 — 330Balance, December31, 201234,400 $344 $139,046 $600,811 $(1,400) $738,801 $— $738,801Stock compensationexpense15 — 13,136 — — 13,136 — 13,136Exercise of stockoptions8 — 52 — — 52 — 52Shares issued uponvesting195 2 (2) — — — — —Excess tax benefitfrom stockcompensation— — 319 — — 319 — 319Shares withheld fortaxes— — (8,635) — — (8,635) — (8,635)Net income— — — 145,689 — 145,689 — 145,689Total othercomprehensive loss— — — — (1,243) (1,243) — (1,243)Balance, December31, 201334,618 $346 $143,916 $746,500 $(2,643) $888,119 $— $888,119Stock compensationexpense5 — 2,865 — — 2,865 — 2,865Shares issued uponvesting1 — — — — — — —Shares withheld fortaxes— — (50) — — (50) — (50)Net loss— — — (2,685) — (2,685) — (2,685)Total othercomprehensiveincome— — — — 600 600 — 600Balance, March 31,201434,624 $346 $146,731 $743,815 $(2,043) $888,849 $— $888,849Stock compensationexpense11 — 13,524 — — 13,524 — 13,524Shares issued uponvesting93 1 (1) — — — — —Excess tax benefitfrom stockcompensation— — 4,197 — — 4,197 — 4,197Shares withheld fortaxes— — (5,674) — — (5,674) — (5,674)Stock repurchase(1,436) (14) — (107,225) — (107,239) — (107,239)Net income— — — 161,780 — 161,780 — 161,780Total othercomprehensive loss— — — — (18,425) (18,425) — (18,425)Balance, March 31,201533,292 $333 $158,777 $798,370 $(20,468) $937,012 $— $937,012 See accompanying notes to consolidated financial statements.F-6Table of ContentsDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands) Year ended Quarter ended(transitionperiod) Years ended 3/31/2015 3/31/2014 12/31/2013 12/31/2012Cash flows from operating activities: Net income (loss)$161,780 $(2,685) $145,689 $129,014Adjustments to reconcile net income (loss) to net cash provided byoperating activities: Depreciation, amortization and accretion49,293 10,569 41,439 33,367Change in fair value of contingent consideration(3,574) 705 1,815 8,659Provision for (recovery of) doubtful accounts, net1,107 (169) 125 2,128Deferred tax provision9,970 (2,736) (4,092) (5,657)Stock compensation13,524 2,865 13,136 14,661Other2,969 111 1,306 1,229Changes in operating assets and liabilities, net of assets and liabilitiesacquired in the acquisition of businesses: Trade accounts receivable(36,885) 77,983 6,618 491Inventories(26,748) 49,272 40,580 (46,903)Prepaid expenses and other current assets(10,376) 68,837 (58,554) 23,511Income tax receivable(15,170) — — —Other assets(144) (758) (4,290) (3,028)Trade accounts payable8,912 (74,898) 21,251 18,932Contingent consideration(364) (2,974) (6,458) (959)Accrued expenses3,761 (33,666) 33,556 (9,983)Income taxes payable4,883 (46,545) 24,386 (5,820)Long-term liabilities6,716 1,998 5,618 4,264Net cash provided by operating activities169,654 47,909 262,125 163,906Cash flows from investing activities: Purchases of property and equipment(91,147) (17,603) (79,829) (61,575)Acquisitions of businesses and equity method investment— — — (8,829)Purchases of intangibles and other assets, net(9,489) (30) (5,368) (4,958)Net cash used in investing activities(100,636) (17,633) (85,197) (75,362)Cash flows from financing activities: Proceeds from issuance of short-term borrowings199,784 — 320,728 307,000Repayments of short-term borrowings(201,705) (3,000) (344,000) (274,000)Cash paid for shares withheld for taxes(5,674) (3,752) (6,736) (6,535)Excess tax benefit from stock compensation4,197 — 2,071 2,457Cash received from issuances of common stock— — 52 —Loan origination costs on short-term borrowings(818) — — (1,807)Contingent consideration paid(115) (15,852) (22,628) (29,041)Cash paid for noncontrolling interest— — — (20,000)Cash paid for repurchases of common stock(107,239) — — (220,695)Proceeds from mortgage loan33,931 — — —Mortgage loan origination costs(338) — — —Repayment of mortgage principal(283) — — —Net cash used in financing activities(78,260) (22,604) (50,513) (242,621)Effect of exchange rates on cash(10,703) 291 463 718Net change in cash and cash equivalents(19,945) 7,963 126,878 (153,359)Cash and cash equivalents at beginning of period245,088 237,125 110,247 263,606Cash and cash equivalents at end of period$225,143 $245,088 $237,125 $110,247See accompanying notes to consolidated financial statements.DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands)(Continued) Year ended Quarterended(transitionperiod) Years ended 3/31/2015 3/31/2014 12/31/2013 12/31/2012Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes$53,504 $48,040 $39,122 $66,899Interest$2,674 $187 $2,586 $3,338Non-cash investing and financing activity: Deferred purchase payments for acquisition of business$— $— $— $3,671Accruals for purchases of property and equipment$3,419 $4,265 $2,283 $489Contingent consideration arrangement for acquisition of business$— $— $— $1,128Accruals for asset retirement obligations$786 $19 $1,936 $526Accruals for shares withheld for taxes$— $— $3,702 $1,804Write-off for shares exercised with a tax deficit$— $— $1,752 $2,838 See accompanying notes to consolidated financial statements.F-7DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements(amounts in thousands, except share quantity and per share data)(1) The Company and Summary of Significant Accounting PoliciesThe Company and Basis of PresentationThe consolidated financial statements include the accounts of Deckers Outdoor Corporation and its wholly-owned subsidiaries (collectively referred toas the "Company"). Accordingly, all references herein to Deckers Outdoor Corporation or "Deckers" include the consolidated results of the Company and itssubsidiaries. All intercompany balances and transactions have been eliminated in consolidation.Deckers Outdoor Corporation is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed forboth everyday casual lifestyle use and high performance activities. The Company's business is seasonal, with the highest percentage of UGG® brand netsales occurring in the quarters ending September 30 and December 31 and the highest percentage of Teva® and Sanuk® brand net sales occurring in thequarters ending March 31 and June 30 of each year. The other brands do not have a significant seasonal impact on the Company.Prior to April 2, 2012, the Company owned 51% of a joint venture with an affiliate of Stella International Holdings Limited (Stella International) for theprimary purpose of opening and operating retail stores for the UGG brand in China. Stella International is also one of the Company's major manufacturers inChina. On April 2, 2012, the Company purchased the 49% noncontrolling interest owned by Stella International for a total purchase price of approximately$20,000. The Company accounted for this transaction as an acquisition of the remaining interest of an entity that had already been majority-owned by theCompany. The purchase resulted in a reduction to additional paid in capital of $14,037 representing excess purchase price over the carrying amount of thenoncontrolling interest. Prior to this purchase, the Company already had a controlling interest in this entity, and therefore, the subsidiary had been andcontinues to be consolidated with the Company's operations.In May 2012, the Company purchased a noncontrolling interest in the Hoka One One® (Hoka) brand, a privately held footwear company, which wasaccounted for as an equity method investment. In September 2012, the Company acquired the remaining ownership interest in Hoka. The acquisition of Hokawas not material to the Company’s consolidated financial statements and does not have a significant seasonal impact on the Company.In February 2014, our Board of Directors approved a change in the Company's fiscal year end from December 31 to March 31. The change was intendedto better align the Company's planning, financial and reporting functions with the seasonality of the business. The 2015, 2013 and 2012 fiscal years endedon March 31, 2015, December 31, 2013 and December 31, 2012, respectively. The transition period was the quarter ended March 31, 2014 to coincide withthe change in our fiscal year end.In July 2014, the Company acquired its UGG brand distributor that sold to retailers in Germany and now operates a wholesale business in Germanythrough the newly acquired subsidiary. The acquisition included certain intangible and tangible assets and the assumption of liabilities. The purchase priceof the acquisition was not material to the Company’s consolidated financial statements.In April 2015, the Company acquired inventory and certain intangible assets, including the trade name related to the Koolaburra® brand, a sheepskinand wool based footwear brand. The purchase price of the acquisition was not material to the Company’s consolidated financial statements. We sell our brands through quality domestic retailers and international distributors and retailers, as well as directly to our end-user consumers throughour E-Commerce business and retail stores. Independent third parties manufacture all of our products.InventoriesInventories, principally finished goods, are stated at the lower of cost (first-in, first-out) or market (net realizable value). Cost includes initial molds andtooling that are amortized over the life of the mold in cost of sales. Cost also includes shipping and handling fees and costs, which are subsequently expensedto cost of sales. Market values are determined by historical experience with discounted sales, industry trends, and the retail environment.Revenue RecognitionF-8DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)The Company recognizes wholesale, E-Commerce, and international distributor revenue when products are shipped and retail revenue at the point ofsale. All sales are recognized when the customer takes title and assumes risk of loss, collection of the related receivable is reasonably assured, persuasiveevidence of an arrangement exists, and the sales price is fixed or determinable. For wholesale and international distributor sales, allowances for estimatedreturns, discounts, chargebacks, and bad debts are provided for when related revenue is recorded. For E-Commerce sales, allowances for estimated returns andbad debts are provided for when related revenue is recorded. For retail sales, allowances for estimated returns are provided for when related revenue isrecorded. Amounts billed for shipping and handling costs are recorded as a component of net sales, while the related costs paid to third-party shippingcompanies are recorded as a cost of sales. The Company presents revenue net of taxes collected from customers and remitted to governmental authorities.Accounting for Long-Lived AssetsOther long-lived assets, such as machinery and equipment, leasehold improvements, and purchased intangibles subject to amortization, are reviewedfor impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated by the asset. Ifthe carrying amount exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds thefair value of the asset. Intangible assets subject to amortization are amortized over their respective estimated useful lives to their estimated residual values.The Company uses the straight-line method for depreciation and amortization of long-lived assets, except for certain intangible assets where the Companycan reliably determine the pattern in which the economic benefits of the assets will be consumed.At least quarterly, the Company evaluates whether any impairment triggering events, including the following, have occurred which would require suchasset groups to be tested for impairment:•A significant decrease in the market price of a long-lived asset group;•a significant adverse change in the extent or manner in which a long-lived asset group is being used or in its physical condition;•a significant adverse change in legal factors or in business climate that could affect the value of a long-lived asset group, including anadverse action or assessment by a regulator;•an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived assetgroup;•a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast thatdemonstrates continuing losses associated with the use of a long-lived asset group; or•a current expectation that, more likely than not, a long-lived asset group will be sold or otherwise disposed of significantly before the end ofits previously estimated useful life.When an impairment triggering event has occurred, the Company tests for recoverability of the asset group's carrying value using estimates ofundiscounted future cash flows based on the existing service potential of the applicable asset group. In determining the service potential of a long-lived assetgroup, the Company considers its remaining useful life, cash-flow generating capacity, and physical output capacity. These estimates include theundiscounted cash flows associated with future expenditures necessary to maintain the existing service potential. Long-lived assets are grouped with otherassets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. TheCompany assesses potential impairment of its retail group long-lived assets by comparing trailing twelve month (TTM) store cash flows to the currentcarrying value of the store's long-lived assets. Stores that have been opened for more than one year, or have otherwise been identified by management ashaving one or more indicators of impairment, with TTM cash flows less than the current carrying amount of the store's long-lived assets are then reviewed todetermine if an impairment exists. An impairment loss, if any, would only reduce the carrying amount of long-lived assets in the group based on the fair valueof the group assets.Goodwill and Other Intangible AssetsF-9DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Intangible assets consist primarily of goodwill, trademarks, customer and distributor relationships, patents, lease rights, and non-compete agreementsarising from the application of purchase accounting. Intangible assets with estimable useful lives are amortized and reviewed for impairment. Goodwill andintangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually, as of December 31, except for the Tevatrademarks and Sanuk goodwill, which are tested as of October 31.The assessment of goodwill impairment involves valuing the Company's reporting units that carry goodwill. Currently, the Company's reporting unitsare the same as the Company's operating segments. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-stepquantitative goodwill impairment test. The Company does not calculate the fair value of the reporting unit unless the Company determines, based on aqualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If the Company determines this, then the firstquantitative step is a comparison of the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying amount, goodwill is notimpaired. If the fair value of the reporting unit is below the carrying amount, then a second step is performed to measure the amount of the impairment, if any.The test for impairment involves the use of estimates related to the fair values of the business operations with which goodwill is associated and the fair valuesof the intangible assets with indefinite lives.The Company also evaluates the fair values of other intangible assets with indefinite useful lives in relation to their carrying values. The Company firstassesses qualitative factors to determine whether it is necessary to perform a quantitative assessment of the indefinite life intangible asset. The Company doesnot calculate the fair value of the indefinite life intangible unless the Company determines, based on a qualitative assessment, that it is more likely than notthat its fair value is less than its carrying amount. If the Company concludes that it is more likely than not that its fair value is less than its carrying amount,then the Company compares the fair value of the indefinite life intangible to its carrying amount, and if the fair value of the indefinite life intangible exceedsits carrying amount, no impairment charge will be recognized. If the fair value of the indefinite life intangible is less than the carrying amount, the Companywill record an impairment charge to write-down the intangible asset to its fair value.Determining fair value of goodwill and other intangible assets is highly subjective and requires the use of estimates and assumptions. The Companyuses estimates including future revenues, royalty rates, discount rates, attrition rates, and market multiples, among others. The Company also considers thefollowing factors:•the assets' ability to continue to generate income from operations and positive cash flow in future periods;•changes in consumer demand or acceptance of the related brand names, products, or features associated with the assets; and•other considerations that could affect fair value or otherwise indicate potential impairment.In addition, facts and circumstances could change, including further deterioration of general economic conditions or the retail environment, customersreducing orders in response to such conditions, and increased competition. These or other factors could result in changes to the calculation of fair valuewhich could result in impairment of the Company's remaining goodwill and other intangible assets. Changes in any one or more of these estimates andassumptions could produce different financial results.Property and Equipment, Depreciation and AmortizationProperty and equipment has a useful life expectancy of at least one year. Property and equipment includes tangible, non-consumable items owned bythe Company valued at or above $3, certain computer software costs and internal or external computer system consulting work valued at or above $3 asdefined below, and portable electronic devices valued at or above $1.5. Tangible, non-consumable items below these amounts are expensed. The valueincludes the purchase price, as well as costs to acquire (shipping and handling), sales tax, install (excluding site preparation costs), secure, and prepare theitem for its intended use.Depreciation of property and equipment is calculated using the straight-line method based on estimated useful lives. Machinery and equipment hasestimated useful lives ranging from two to ten years, and furniture and fixtures has estimated useful lives ranging from three to seven years. Capitalizedwebsite costs, which are included in the machinery & equipment category, are immaterial to the Company's consolidated financial statements. Leaseholdimprovements are amortized to their residual value on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter.Leasehold improvement lives range from one to fifteen years. Buildings are depreciated over 39 years. The Company allocates depreciation and amortizationof property, plant, and equipment to cost of sales and selling, general and administrative (SG&A) expenses. The majority of the Company's depreciation andamortization is included in SG&A expenses due to the nature of its operations. Most of the Company'sF-10DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)depreciation and amortization is from its warehouses, its corporate headquarters and its retail stores. The Company outsources all manufacturing; therefore,the amount allocated to cost of sales is not material.Fair Value MeasurementsThe fair values of the Company's cash and cash equivalents, trade accounts receivable, prepaid expenses, income tax receivable and other currentassets, short-term borrowings, trade accounts payable, accrued payroll, other accrued expenses, income taxes payable and the value added tax payableapproximate the carrying values due to the relatively short maturities of these instruments. The fair values of the Company's long-term liabilities, other thancontingent consideration, recalculated using current interest rates, would not significantly differ from the carrying values. The fair value of the contingentconsideration related to acquisitions and of the Company's derivatives are measured and recorded at fair value on a recurring basis. Changes in fair valueresulting from either accretion or changes in discount rates or in the expectations of achieving the performance targets are recorded in SG&A expenses. TheCompany records the fair value of assets or liabilities associated with derivative instruments and hedging activities in other current assets or other accruedexpenses, respectively, in the consolidated balance sheets.The inputs used in measuring fair value are prioritized into the following hierarchy:•Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.•Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.•Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions aboutthe assumptions that market participants would use in pricing an asset or liability.The tables below summarize the Company's financial liabilities and assets that are measured on a recurring basis at fair value:Fair Value atMarch 31,2015Fair Value Measurement UsingLevel 1Level 2Level 3Assets (Liabilities) at fair valueNonqualified deferred compensation asset$5,581$5,581$—$—Nonqualified deferred compensation liability$(5,581)$(5,581)$—$—Designated derivatives liability$(487)$—$(487)$—Contingent consideration for acquisition ofbusiness$(26,000)$—$—$(26,000)Fair Value atMarch 31,2014Fair Value Measurement UsingLevel 1Level 2Level 3Assets (Liabilities) at fair valueNonqualified deferred compensation asset$4,534$4,534$—$—Nonqualified deferred compensation liability$(4,534)$(4,534)$—$—Designated derivatives liability$(832)$—$(832)$—Contingent consideration for acquisition ofbusiness$(30,000)$—$—$(30,000)F-11DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Fair Value atDecember 31,2013Fair Value Measurement UsingLevel 1Level 2Level 3Assets (Liabilities) at fair valueNonqualified deferred compensation asset$4,410$4,410$—$—Nonqualified deferred compensation liability$(4,410)$(4,410)$—$—Designated derivatives liability$(550)$—$(550)$—Contingent consideration for acquisition ofbusiness$(48,000)$—$—$(48,000)The Level 2 inputs consist of forward spot rates at the end of the reporting period (see Note 8).The fair value of the contingent consideration is based on subjective assumptions. It is reasonably possible the estimated fair value of the contingentconsideration could change in the near-term and the effect of the change could be material. The estimated fair value of the contingent considerationattributable to our Sanuk® (Sanuk) brand acquisition is based on the Sanuk brand's estimated future gross profits, using a probability weighted average salesforecast to determine a best estimate of gross profits. Estimated contingent consideration payments of approximately $24,200 are included within otheraccrued expenses in the consolidated balance sheet as of March 31, 2015. The estimated sales forecasts include a compound annual growth rate (CAGR) of14.6% from calendar year 2014 through calendar year 2015, the final year of the contingent consideration arrangement. The gross profit forecast for calendaryear 2015 is approximately $64,000, which is then used to apply the contingent consideration percentages in accordance with the applicable agreement (seeNote 6). The total estimated contingent consideration is then discounted to the present value with a discount rate of 7.0%. The Company's use of differentestimates and assumptions could produce different estimates of the value of the contingent consideration. For example, a 5.0% change in the estimatedCAGR would change the total liability balance at March 31, 2015 by approximately $2,000.In connection with the Company's acquisition of the Hoka brand, the purchase price includes contingent consideration with maximum payments of$2,000 which is based on the Hoka brand's net sales for calendar years 2013 through 2017. As of March 31, 2015, approximately $500 has been paid. TheCompany estimates future net sales using a probability weighted average sales forecast to determine a best estimate. Estimated future contingentconsideration payments of approximately $1,500 are included within other accrued expenses and other long-term liabilities in the consolidated balance sheetas of March 31, 2015. The Company's use of different estimates and assumptions is not expected to have a material impact to the value of the contingentconsideration.Refer to Note 6 for further information on the contingent consideration arrangements.The following table presents a reconciliation of the Level 3 measurement (rounded):Beginning balance, January 1, 2013$71,500Payments(25,400)Change in fair value1,900Balance, December 31, 2013$48,000Payments(19,000)Change in fair value1,000Balance, March 31, 2014$30,000Payments(500)Change in fair value(3,500)Balance, March 31, 2015$26,000Stock CompensationAll of the Company's stock compensation issuances are classified within stockholders' equity. Stock compensation cost is measured at the grant datebased on the value of the award and is expensed ratably over the vesting period. The Company recognizes expense only for those awards that managementdeems probable of achieving the performance and service objectives. Determining the expense of share-based awards requires judgment, including estimatingthe percentage of awards that will be forfeited and probabilities of meeting the awards' performance criteria. If actual forfeitures differ significantly from theestimates or ifF-12DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)probabilities change during a period, stock compensation expense and the Company's results of operations could be materially impacted.Nonqualified Deferred CompensationIn 2010, the Company established a nonqualified deferred compensation program that permits a select group of management employees to deferearnings to a future date on a nonqualified basis. For each plan year, on behalf of the Company, the Company's Board of Directors (the Board) may, but is notrequired to, contribute any amount it desires to any participant under this program. The Company's contribution will be determined by the Board annually.As of March 31, 2015, no such contribution has been approved by the Board . The value of the deferred compensation is recognized based on the fair value ofthe participants' accounts. The Company has established a rabbi trust for the purpose of supporting the benefits payable under this program. Deferredcompensation of $540 is included in other accrued expenses and $5,041 is included in other long-term liabilities in the consolidated balance sheets at March31, 2015. Deferred compensation of $4,534 and $4,410 are included in other long-term liabilities in the consolidated balance sheets as of March 31, 2014and December 31, 2013, respectively.Use of EstimatesThe preparation of the Company's consolidated financial statements in accordance with United States generally accepted accounting principles (USGAAP) requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements andaccompanying notes. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritativeaccounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relateto inventory write-downs, accounts receivable allowances, returns liabilities, stock compensation, performance based compensation, impairment assessments,depreciation and amortization, income tax liabilities and uncertain tax positions, fair value of financial instruments, and fair values of acquired intangibles,assets and liabilities, including estimated contingent consideration payments. Actual results could differ materially from these estimates.Research and Development CostsAll research and development costs are expensed as incurred. Such costs amounted to $20,872, $4,486, $19,257 and $15,617 for the year ended March31, 2015, quarter ended March 31, 2014 and the years ended December 31, 2013 and 2012, respectively, and are included in SG&A expenses in theconsolidated statements of comprehensive income (loss).Advertising, Marketing, and Promotion CostsAdvertising production costs are expensed the first time the advertisement is run. All other costs of advertising, marketing, and promotion are expensedas incurred. These expenses charged to operations for the year ended March 31, 2015, quarter ended March 31, 2014 and the years ended December 31, 2013and 2012 were $111,162, $21,158, $86,510 and $78,528, respectively. Included in prepaid and other current assets at March 31, 2015, March 31, 2014, andDecember 31, 2013 were $1,899, $209 and $212, respectively, related to prepaid advertising, marketing, and promotion expenses for programs to take placeafter such dates.Rent ExpenseRent expense is recorded using the straight-line method to account for scheduled rental increases or rent holidays. Lease incentives for tenantimprovement allowances are recorded as reductions of rent expense over the lease term. The rental payments under some of our retail store leases are based ona minimum rental plus a percentage of the store's sales in excess of stipulated amounts. Rent expenses are included SG&A expenses in the consolidatedstatements of comprehensive income (loss).Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactmentdate.The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income taxpositions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in theperiod in which the change in judgment occurs. The Company accounts forF-13DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)interest and penalties generated by income tax contingencies as interest expense and SG&A expenses, respectively in the consolidated statements ofcomprehensive income (loss).Net Income (Loss) per Share Attributable to Deckers Outdoor Corporation Common StockholdersBasic net income (loss) per share represents net income (loss) attributable to Deckers Outdoor Corporation divided by the weighted-average number ofcommon shares outstanding for the period. Diluted net income (loss) per share represents net income (loss) attributable to Deckers Outdoor Corporationdivided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock. For the years endedMarch 31, 2015, December 31, 2013 and December 31, 2012 and quarter ended March 31, 2014, the difference between the weighted-average number ofbasic and diluted common shares resulted from the dilutive impact of nonvested stock units (NSUs), restricted stock units (RSUs), restricted stock awards(RSAs), stock appreciation rights (SARs), and options to purchase common stock. The reconciliations of basic to diluted weighted-average common sharesoutstanding were as follows:Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Weighted-average shares used in basiccomputation34,433,00034,621,00034,473,00036,879,000Dilutive effect of stock-based awards*300,000—356,000455,000Weighted-average shares used for dilutedcomputation34,733,00034,621,00034,829,00037,334,000*Excluded NSUs—331,000—200,000*Excluded RSUs624,000729,000795,000671,000*Excluded outside director RSAs—6,000——*Excluded SARs525,000730,000525,000525,000For the years ended March 31, 2015 and December 31, 2013 and 2012, the share-based awards that were excluded from the dilutive effect wereexcluded because the necessary conditions had not been satisfied for the shares to be issuable based on the Company's performance. For the quarter endedMarch 31, 2014, the Company excluded all NSUs, RSUs, RSAs and SARs from the diluted net loss per share computation because they were antidilutive dueto the net loss during the period. As of March 31, 2015, the excluded RSUs include the maximum amount of the 2012, 2013 and 2015 Long-Term IncentivePlan (LTIP) Awards. As of March 31, 2014 and December 31, 2013 the excluded RSUs included the maximum amount of the Level III, 2012 and 2013 LTIPAwards. As of December 31, 2012, the excluded RSUs included the maximum amount of the Level III and 2012 LTIP Awards (see Note 7).Foreign Currency TranslationThe Company considers the US dollar as its functional currency. The Company has certain wholly-owned foreign subsidiaries with functionalcurrencies other than the US dollar. In most cases, the Company's foreign subsidiaries' local currency is the same as the designated functional currency. TheCompany holds a portion of its cash and other monetary assets and liabilities in currencies other than its subsidiary's functional currency, and is exposed tofinancial statement transaction gains and losses as a result of remeasuring the operating results and financial positions into their functional currency. TheCompany remeasures these monetary assets and liabilities using the exchange rate as of the end of the reporting period, which results in gains and losses thatare included in SG&A expenses in the results of operations as incurred, except for gains and losses arising on intercompany foreign currency transactions thatare of a long-term investment nature. In addition, the Company translates assets and liabilities of subsidiaries with reporting currencies other than US dollarsinto US dollars using the exchange rates at of the end of the reporting period, which results in financial statement translation gains and losses in othercomprehensive income (loss)(OCI).Derivative Instruments and Hedging ActivitiesF-14DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjectingthe Company to foreign currency risk. The Company may enter into foreign currency forward or option contracts, generally with maturities of 15 months orless, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies. In addition, the Company utilizesforeign exchange forward and option contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets andliabilities, primarily intercompany balances. The Company does not use foreign currency contracts for trading purposes.Certain of the Company's foreign currency forward contracts are designated cash flow hedges of forecasted intercompany sales and are subject toforeign currency exposures. These contracts allow the Company to sell Euros, British Pounds and Yen in exchange for US dollars at specified contract rates.Forward contracts are used to hedge forecasted intercompany sales over specific quarters. Changes in the fair value of these forward contracts designated ascash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity, and are recognized in theconsolidated statements of comprehensive income (loss) during the period which approximates the time the corresponding third-party sales occur. TheCompany may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes. These contractsare generally entered into to offset the gains and losses on certain intercompany balances until the expected time of repayment. Accordingly, any gains orlosses resulting from changes in the fair value of the non-designated contracts are reported in SG&A expenses in the consolidated statements ofcomprehensive income (loss). The gains and losses on these contracts generally offset the gains and losses associated with the underlying foreign currency-denominated balances, which are also reported in SG&A expenses. See Note 8 for the impact of derivative instruments and hedging activities on theCompany's consolidated financial statements.The Company records the assets or liabilities associated with derivative instruments and hedging activities at fair value based on Level 2 inputs inother current assets or other current liabilities, respectively, in the consolidated balance sheets. The Level 2 inputs consist of forward spot rates at the end ofthe reporting period. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it isdesignated and qualifies for hedge accounting.For all hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy forundertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument's effectiveness inoffsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Companyfactors the nonperformance risk of the Company and the counterparty into the fair value measurements of its derivatives. The Company also formallyassesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highlyeffective in offsetting changes in cash flows of hedged transactions. The Company assesses hedge effectiveness and measures hedge ineffectiveness at leastquarterly. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on thederivative is reported in OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains andlosses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized incurrent earnings.The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flowsattributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is designated because a forecasted transaction isnot probable of occurring, or management determines to remove the designation of the cash flow hedge. In all situations in which hedge accounting isdiscontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes anysubsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accountingand recognizes immediately in earnings gains and losses that were accumulated in OCI related to the hedging relationship.Comprehensive Income (Loss)Comprehensive income (loss) is the total of net earnings and all other non-owner changes in equity. Except for net income (loss), foreign currencytranslation adjustments, and unrealized gains and losses on cash flow hedges, the Company does not have any transactions and other economic events thatqualify as comprehensive income (loss).Business Segment ReportingManagement of the Company has determined its reportable segments are its strategic business units and it is by these segments that information isreported to the Chief Operating Decision Maker (CODM). The six reportable segments are the UGG, Teva, Sanuk and other brands wholesale divisions, the E-Commerce business, and the retail store business. The CODM is the PrincipalF-15DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Executive Officer. The Company performs an annual analysis of the appropriateness of its reportable segments. Information related to the Company's businesssegments is summarized in Note 11.Cash EquivalentsThe Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalentsinclude $127,900, $143,816 and $154,105 of money market funds at March 31, 2015, March 31, 2014 and December 31, 2013, respectively.Retirement PlanThe Company provides a 401(k) defined contribution plan that eligible US employees may elect to participate in through tax-deferred contributions.The Company matches 50% of each eligible participant's tax-deferred contributions on up to 6% of eligible compensation on a per payroll period basis, witha true-up contribution if such eligible participant is employed by the Company on the last day of the calendar year. Internationally, the Company has variousdefined contribution plans. Certain international locations require mandatory contributions under social programs, and the Company contributes at least thestatutory minimums. US 401(k) matching contributions totaled $1,726, $601, $1,386 and $1,066 during the year ended March 31, 2015, quarter endedMarch 31, 2014, and the years ended December 31, 2013 and 2012, respectively. In addition, the Company may also make discretionary profit sharingcontributions to the plan. However, the Company did not make any profit sharing contributions for the year ended March 31, 2015, quarter ended March 31,2014, and the years ended December 31, 2013 and 2012.Recent Accounting PronouncementsOn May 28, 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace mostexisting revenue recognition guidance in US GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2017. Earlyapplication is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating theeffect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method norhas it determined the effect of the standard on its ongoing financial reporting. Subsequent to March 31, 2015, the FASB proposed a one year deferral of theeffective date of ASU No. 2014-09.Subsequent to March 31, 2015, FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires an entity to presentdebt issuance costs on the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of adebt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as a deferred charge (i.e., an asset).This ASU is effective for the Company on April 1, 2016, with early adoption permitted. The adoption of this ASU will only change the presentation ofprepaid expenses, other assets and short-term borrowings in the Company’s consolidated balance sheet. The Company is considering early adoption of thisupdate during its fiscal year 2016.(2) Property and EquipmentProperty and equipment is summarized as follows:F-16DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)3/31/20153/31/201412/31/2013Land$25,543$25,531$19,954Buildings38,84136,387—Machinery and equipment158,13698,03584,941Furniture and fixtures36,75131,08525,961Leasehold improvements102,04896,622142,683361,319287,660273,539Less accumulated depreciation and amortization129,002103,09099,473Net property and equipment$232,317$184,570$174,066(3) Goodwill and Other Intangible AssetsMost of the Company's goodwill is related to the Sanuk reportable segment, with the remaining related to the UGG and other brands reportablesegments. The Company's goodwill and other intangible assets are summarized as follows:3/31/20153/31/201412/31/2013Intangibles subject to amortizationWeighted-Average Amortization Period13 years14 years14 yearsGross Carrying Amount$109,604$101,982$101,963Accumulated Amortization37,31626,02624,140Net Carrying Amount72,28875,95677,823Intangibles not subject to amortizationGoodwill127,934127,934128,725Trademarks15,45515,45515,455Total goodwill and other intangible assets$215,677$219,345$222,003Changes in the Company's goodwill are summarized as follows:Goodwill,GrossAccumulatedImpairmentGoodwill, NetBalance at January 1, 2013$144,556$(15,831)$128,725Changes related to additions, impairments and other adjustments———Balance at December 31, 2013144,556(15,831)128,725Adjustments related to prior acquisitions(791)—(791)Balance at March 31, 2014143,765(15,831)127,934Changes related to additions, impairments and other adjustments———Balance at March 31, 2015$143,765$(15,831)$127,934As of December 31, 2014 and 2013, the Company performed its annual impairment tests and evaluated its UGG and other brands' goodwill. As ofOctober 31, 2014 and 2013, the Company performed its annual impairment tests and evaluated its Teva trademarks and Sanuk goodwill. Based on thecarrying amounts of the UGG, Teva, Sanuk, and other brands' goodwill, trademarks, and net assets, the brands' fiscal year 2015, quarter ended March 31, 2014and fiscal year 2013 sales and operating results, and the brands' long-term forecasts of sales and operating results as of their evaluation dates, the Companyconcluded that the carrying amounts of the UGG, Sanuk and other brands' goodwill, as well as the Teva trademarks, were not impaired. The Sanuk brandgoodwill was evaluated based on Level 3 inputs as of October 31, 2013 and based on qualitative analyses as of October 31, 2014. As of December 31, 2014and 2013, and as of October 31, 2014 and 2013, all goodwill other than the Sanuk brand goodwill and all other nonamortizable intangibles were evaluatedbased on qualitative analyses.F-17DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)The Company's goodwill by segment is as follows:3/31/20153/31/201412/31/2013UGG brand$6,101$6,101$6,101Sanuk brand113,944113,944113,944Other brands7,8897,8898,680Total$127,934$127,934$128,725Aggregate amortization expense for amortizable intangible assets for the year ended March 31, 2015, quarter ended March 31, 2014 and years endedDecember 31, 2013 and 2012, was $11,291, $1,886, $7,975 and $9,312, respectively. The following table summarizes the expected amortization expense onexisting intangible assets, excluding indefinite-lived intangible assets of $8,044 and trademarks of $15,455, for the next five years:Year ending March 31,2016$9,35820178,36120186,27820195,62120203,813Thereafter30,813$64,244(4) Income TaxesComponents of income tax expense (benefit) are as follows:Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Current:Federal$35,459$(572)$51,058$50,911State6,861(4)6,2526,482Foreign7,0695,2556,6503,368Total49,3894,67963,96060,761Deferred:Federal8,2341,669(2,580)(6,083)State624(1)(209)414Foreign1,112(4,404)(1,303)12Total9,970(2,736)(4,092)(5,657)Income tax expense$59,359$1,943$59,868$55,104Foreign income before income taxes was $95,850 during the year ended March 31, 2015. Foreign loss before income taxes was $3,631 during thequarter ended March 31, 2014. Foreign income before income taxes was $60,851 and $51,409 during the years ended December 31, 2013 and 2012,respectively.Actual income taxes differed from that obtained by applying the statutory federal income tax rate to income before income taxes as follows:F-18DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Computed expected income taxes$77,399$(260)$71,945$64,282State income taxes, net of federal incometax benefit3,564904,4353,562Foreign rate differential(25,535)1,904(16,399)(12,908)Unrecognized tax benefits3,566———Other365209(113)168$59,359$1,943$59,868 $55,104The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below:3/31/20153/31/201412/31/2013Deferred tax assets (liabilities), current:Uniform capitalization adjustment to inventory$4,040$4,114$5,492Bad debt and other reserves8,9849,90110,655State taxes482(1,739)508Prepaid expenses(3,546)(2,217)(2,193)Accrued bonus4,1202,0935,071Foreign currency hedge434305348Net operating loss carry forwards—9,414—Other(448)——Total deferred tax assets, current14,06621,87119,881Deferred tax assets (liabilities), noncurrent:Amortization and impairment of intangible assets1,0045,2674,603Depreciation of property and equipment(6,148)(4,833)(6,034)Share-based compensation12,04410,63811,226Foreign currency translation720382667Deferred rent4,8854,2904,028Acquisition costs764756755Other1,327128—Net operating loss carry forwards421434506Total deferred tax assets, noncurrent15,01717,06215,751Net deferred tax assets$29,083$38,933$35,632In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of approximately $76,000. The deferred taxassets are primarily related to the Company's domestic operations. The change in net deferred tax assets between March 31, 2015 and March 31, 2014includes approximately $100 attributable to OCI. The change in net deferred tax assets between March 31, 2014 and December 31, 2013 includesapproximately $800 attributable to goodwill, partially offset by approximately $200 attributable to OCI. Domestic taxable income for the year ended March31, 2015, the quarter ended March 31, 2014 and the years ended December 31, 2013 and 2012 was $91,017, $0, $151,204 and $141,660, respectively. Basedupon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible,management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred taxassets and, accordingly, no valuation allowance was recorded in fiscal years 2015, 2013 and 2012.F-19DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)As of March 31, 2015, withholding and US taxes have not been provided on approximately $362,000 of unremitted earnings of non-US subsidiariesbecause the earnings are expected to be reinvested outside of the US indefinitely. Repatriation of all foreign earnings would result in approximately$118,000 of US income tax. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. As ofMarch 31, 2015, the Company had approximately $132,000 of cash and cash equivalents outside the US that would be subject to additional income taxes ifthey were to be repatriated. If the Company were to repatriate foreign cash, the Company would record the US tax liability net of any foreign income taxespreviously paid on this cash. The Company has no plans to repatriate any of its foreign cash. For fiscal year 2015, the Company generated approximately25.0% of its pre-tax earnings from a country which does not impose a corporate income tax.When tax returns are filed, some positions taken are subject to uncertainty about the merits of the position taken or the amount that would be ultimatelysustained. The benefit of a tax position is recognized in the financial statements in the period during which the Company believes it is more likely than notthat the position will be sustained upon examination. Tax positions that meet the more likely than not recognition threshold are measured as the largestamount of tax benefit that is more than 50% likely of being realized upon settlement. The portion of the benefits that exceeds the amount measured asdescribed above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interestand penalties that would be payable to the taxing authorities upon examination. A reconciliation of the beginning and ending amounts of total unrecognized tax benefits is as follows:Balance at January 1, 2013$—Gross change related to current and prior years' tax positions—Balance, December 31, 2013$—Gross change related to current and prior years' tax positions—Balance, March 31, 2014$—Gross increase related to current year tax positions1,293Gross increase related to prior year tax positions3,374Balance, March 31, 2015$4,667The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2015 was $3,566. It is reasonablypossible that approximately $300 of unrecognized tax benefits will be settled within the next 12 months. As of March 31, 2015, interest and potentialpenalties of $1,246 were accrued in the consolidated balance sheets resulting from tax positions that are subject to examination. As of March 31, 2014 andDecember 31, 2013, interest and potential penalties of $349 and $360, respectively, were accrued in the consolidated balance sheets resulting fromoutstanding state liabilities as a result of resolved Federal examinations.The Company files income tax returns in the US federal jurisdiction and various state, local, and foreign jurisdictions. With few exceptions, theCompany is no longer subject to US federal, state, local, or non-US income tax examinations by tax authorities for years before 2009.Although the Company believes its tax estimates are reasonable and prepares its tax filings in accordance with all applicable tax laws, the finaldetermination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates or from its historicalincome tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for whichthat determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, or interest assessments.The Company has on-going income tax examinations under various state and foreign tax jurisdictions. It is the opinion of management that theseaudits and inquiries will not have a material impact on the Company's consolidated financial statements.(5) Notes Payable and Long-Term DebtIn August 2011, the Company entered into a Credit Agreement (Credit Agreement) with JPMorgan Chase Bank, National Association (JPMorgan) asthe administrative agent, Comerica Bank and HSBC Bank USA, National Association as syndication agents, and the lenders party thereto. In August 2012and again in November 2014, the Company amended and restated in its entirety the Credit Agreement. The Second Amended and Restated Credit Agreementis a five-year, $400,000 secured revolvingF-20DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)credit facility that contains a $75,000 sublimit for the issuance of letters of credit and a $5,000 sublimit for swingline loans and matures on November 13,2019. Subject to customary conditions and the approval of any lender whose commitment would be increased, the Company has the option to increase themaximum principal amount available under the Second Amended and Restated Credit Agreement by up to an additional $200,000, resulting in maximumavailable principal amount of $600,000. None of the lenders under the Second Amended and Restated Credit Agreement has committed at this time or isobligated to provide any such increase in the commitments. In addition to allowing borrowings in US dollars, the Second Amended and Restated CreditAgreement provides a $150,000 sublimit for borrowings in Euros, British pounds and any other currency that is subsequently approved by JPMorgan, eachlender and the issuing bank. At the Company's option, revolving loans issued under the Second Amended and Restated Credit Agreement will initially bearinterest at either the adjusted London Interbank Offered Rate (LIBOR) for 30 days (0.18% at March 31, 2015) plus 1.25% per annum, in the case of LIBORborrowings, or at the alternate base rate plus 0.25% per annum, and thereafter the interest rate will fluctuate between adjusted LIBOR plus 1.25% per annumand adjusted LIBOR plus 2.00% per annum (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum),based upon the Company's total adjusted leverage ratio at such time. In addition, the Company will initially be required to pay fees of 0.175% per annum onthe daily amount of the revolving credit facility, and thereafter the fee rate will fluctuate between 0.175% and 0.30% per annum, based upon the Company'stotal adjusted leverage ratio.The Company's obligations under the Second Amended and Restated Credit Agreement are guaranteed by the Company's existing and future wholly-owned domestic subsidiaries (other than certain immaterial subsidiaries, foreign subsidiaries, foreign subsidiary holding companies and specified excludedsubsidiaries) (the Guarantors), and is secured by a first-priority security interest in substantially all of the assets of the Company and the Guarantors, includingall or a portion of the equity interests of certain of the Company's domestic and first-tier foreign subsidiaries.The Second Amended and Restated Credit Agreement contains financial covenants which include: the total adjusted leverage ratio must not be greaterthan 3.25 to 1.00; the sum of the consolidated annual earnings before interest, taxes, depreciation, and amortization (EBITDA) and annual rental expense,divided by the sum of the annual interest expense and the annual rental expense must be greater than 2.25 to 1.00; and other customary limitations. TheSecond Amended and Restated Credit Agreement contains certain other covenants which include: the maximum amount paid for capital expenditures maynot exceed $110,000 per year if the total adjusted leverage ratio is equal to or exceeds 2.75 to 1.00; the maximum additional unsecured debt may not exceed$200,000; the Company may not have aggregate ERISA events that are considered materially adverse; the Company may not have a change of control (asdefined in the Second Amended and Restated Credit Agreement); and no restrictions on dividends, share repurchases or acquisitions if the total adjustedleverage ratio does not exceed 2.75 to 1.00.At March 31, 2015, the Company had no outstanding borrowings under the Second Amended and Restated Credit Agreement and had outstandingletters of credit of approximately $100. As a result, the unused balance under the Second Amended and Restated Credit Agreement was approximately$399,900 at March 31, 2015. In August 2012 the Company incurred approximately $1,800 of deferred financing costs which are included in prepaidexpenses and amortized over the term of the Amended and Restated Credit Agreement using the straight-line method. In November 2014, the Companyincurred approximately $800 of additional deferred financing costs which were combined with the remaining unamortized balance from the Amended andRestated Credit Agreement included in prepaid expenses. The combined amount is being amortized over the term of the Second Amended and RestatedCredit Agreement using the straight-line method.In August 2013, Deckers (Beijing) Trading Co., LTD, a fully owned subsidiary, entered into a credit facility in China (China Credit Facility) thatprovides for an uncommitted revolving line of credit of up to CNY 60,000, or approximately $10,000, in the quarters ending September 30 and December 31and CNY 20,000, or approximately $3,300, in the quarters ending March 31 and June 30. The China Credit Facility is payable on demand and subject toannual review and renewal. The obligations under the China Credit Agreement are guaranteed by the Company for 110% of the facility amount in USD. InDecember 2013, the China Credit Facility was revised to provide for the uncommitted revolving line of credit of up to CNY 60,000 to be extended to theentire year. In October 2014, the China Credit Facility was amended (Amended China Credit Facility) to include, among other things, an extension of theaggregate period of borrowing from 12 months to 18 months. At March 31, 2015, the Company had approximately $4,900 of outstanding borrowings underthe Amended China Credit Facility. Interest is based on the People’s Bank of China rate, which was 5.35% at March 31, 2015.In July 2014, the Company obtained a mortgage secured by its corporate headquarters property for approximately $33,900. At March 31, 2015 theoutstanding balance under the mortgage was approximately $33,600, which includes approximately $500 in short-term borrowings and approximately$33,100 in mortgage payable in the consolidated balance sheet. The mortgage has a fixed interest rate of 4.928%. Payments include interest and principal inan amount that amortizes the principal balance over aF-21DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)30-year period, however the loan will mature and have a balloon payment due in 15 years of approximately $23,400. Minimum principal payments over thenext 5 years are approximately $2,700. In December 2014, the mortgage financial covenants were amended to be consistent with the financial covenants ofthe Second Amended and Restated Credit Agreement as discussed above.(6) Commitments and ContingenciesThe Company leases office, distribution, retail facilities, and automobiles, under operating lease agreements, which expire through 2028. Some of theleases contain renewal options for approximately one to fifteen years. Future minimum commitments under the lease agreements are as follows:Year ending March 31,2016$53,664201755,325201849,357201939,293202032,809Thereafter118,451$348,899The following schedule shows the composition of total rental expense.Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Minimum rentals$61,363$14,260$47,871$37,270Contingent rentals14,7073,09912,3189,366$76,070$17,359$60,189$46,636Purchase Obligations. The Company had $664,659 of outstanding purchase orders with its manufacturers as of March 31, 2015. In addition, theCompany entered into agreements for the build out of new retail stores, promotional activities and other services. Future commitments under these purchaseorders and other agreements for the year ending March 31, 2016 total $664,429. Included in the fiscal year 2016 amount are remaining commitments, net ofdeposits, that are also unconditional purchase obligations relating to sheepskin contracts. The Company enters into contracts requiring minimum purchasecommitments of sheepskin that Deckers' affiliates, manufacturers, factories, and other agents (each or collectively, a Buyer) must make on or before aspecified target date. Under certain contracts, the Company may pay an advance deposit that shall be repaid to the Company as Buyers purchase goods underthe terms of these agreements. Included in other current assets on the consolidated balance sheets are approximately $14,000, $11,000 and $67,000 ofadvance deposits as of March 31, 2015, March 31, 2014 and December 31, 2013, respectively. In the event that a Buyer does not purchase certain minimumcommitments on or before certain target dates, the supplier may retain a portion of the advance deposit until the amounts of the commitments are fulfilled.These agreements may result in unconditional purchase obligations if a Buyer does not meet the minimum purchase requirements. In the event that a Buyerdoes not purchase such minimum commitments by the target dates, the Company shall be responsible for compliance with any and all minimum purchasecommitments under these contracts, and the Company would make additional deposit payments towards the purchase of the remaining minimumcommitments and such additional deposits would be returned as the Buyers purchase the remaining minimum commitments. The contracts do not permit netsettlement. Minimum commitments for these contracts as of March 31, 2015 were as follows:F-22DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)ContractEffective DateFinalTarget DateAdvanceDepositTotalMinimumCommitmentRemainingDepositRemainingCommitment,Net of DepositOctober 2011September 2015$50,000$286,000$13,783—October 2014September 2015—$51,240—$32,487September 2014September 2015—$47,960—$15,434 Indemnification. The Company has agreed to indemnify certain of its licensees, distributors, and promotional partners in connection with claimsrelated to the use of the Company's intellectual property. The terms of such agreements range up to 5 years initially and generally do not provide for alimitation on the maximum potential future payments. From time to time, the Company also agrees to indemnify its licensees, distributors and promotionalpartners in connection with claims that the Company’s products infringe the intellectual property rights of third parties. These agreements may or may not bemade pursuant to a written contract. In addition, from time to time, the Company also agrees to standard indemnification provisions in commercialagreements in the ordinary course of business.Management believes the likelihood of any payments under any of these arrangements is remote and would be immaterial. This determination wasmade based on a prior history of insignificant claims and related payments. There are no currently pending claims relating to indemnification mattersinvolving the Company's intellectual property.Contingent Consideration. In July 2011, the Company acquired the Sanuk brand, and the total purchase price included contingent considerationpayments. As of March 31, 2015, the remaining contingent consideration payment, which has no maximum, is 40.0% of the Sanuk brand gross profit incalendar year 2015 and is to be paid within 60 days following the end of the performance period.As of March 31, 2015, March 31, 2014 and December 31, 2013, the Company had total contingent consideration for the acquisition of the Sanuk brandof approximately $24,200, $28,000 and $46,200, respectively, of which approximately $24,200, $0 and $18,600 is included within other accrued expensesand approximately $0, $28,000 and $27,600 is included within other long-term liabilities at March 31, 2015, March 31, 2014 and December 31, 2013,respectively, in the consolidated balance sheets.In September 2012, the Company acquired Hoka, and the total purchase price included contingent consideration payments with a maximum of $2,000which is based on the Hoka brand's net sales for calendar years 2013 through 2017, of which approximately $500 has been paid. As of March 31, 2015,March 31, 2014 and December 31, 2013 contingent consideration for the acquisition of the Hoka brand of approximately $1,500, $1,800 and $1,800,respectively are included within other accrued expenses and other long-term liabilities in the consolidated balance sheets. Refer to Note 1 for furtherinformation on the contingent consideration amounts.Future Capital Commitments. As of March 31, 2015, the Company had approximately $8,000 of material commitments for future capital expendituresprimarily related to equipment costs of its new distribution center.(7) Stockholders' EquityIn May 2006, the Company adopted the 2006 Equity Incentive Plan (the 2006 Plan), which was amended May 9, 2007. The primary purpose of the2006 Plan is to encourage ownership in the Company by key personnel, whose long-term service is considered essential to the Company's continued success.The 2006 Plan provides for 6,000,000 shares of the Company's common stock that are reserved for issuance to employees, directors, or consultants. Themaximum aggregate number of shares that may be issued under the 2006 Plan through the exercise of incentive stock options is 4,500,000. Pursuant to theDeferred Stock Unit Compensation Plan, a Sub Plan under the 2006 Plan, a participant may elect to defer settlement of their outstanding unvested awardsuntil such time as elected by the participant.The Company has elected to grant NSUs annually to key personnel. The NSUs granted entitle the employee recipients to receive shares of commonstock in the Company upon vesting of the NSUs. The vesting of most NSUs is subject to achievement of certain performance targets, with the remaining NSUssubject only to time restrictions. For the majority of NSUs granted in 2013 and after, if the performance goals are achieved, these awards vest in equal one-third installments at the end of each of theF-23DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)three years after the performance goals are achieved. For NSUs granted in 2012, the performance target was not met and, therefore, the awards did not vest.The Company also has long-term incentive award agreements under the 2006 Plan for issuance of SARs and RSUs, which were awarded to certainexecutive officers of the Company. These awards vest subject to certain long-term performance objectives and certain long-term service conditions. One-halfof the SAR and RSU awards vested 80% on December 31, 2010 and 20% on December 31, 2011, and, provided that the conditions are met, one-half of theSAR and RSU awards vest 80% on December 31, 2015 and 20% on December 31, 2016. The Company considers achievement of the remaining performanceconditions as probable and is recognizing such compensation cost over the service period.In June 2011, the Board of Directors of the Company adopted a long-term incentive award under its 2006 Equity Incentive Plan (Level III Awards). Theshares under these awards were available for issuance to current and future members of the Company's management team, including the Company's namedexecutive officers. These awards were to vest on December 31, 2014 subject to certain long-term performance objectives and certain long-term serviceconditions. Under this program, the Company granted a maximum amount of 275,000 RSUs during the year ended December 31, 2011. For all Level IIIAwards granted, the performance objectives were not met and, therefore, the awards did not vest.In May 2012, the Board of Directors of the Company adopted a long-term incentive award under its 2006 Equity Incentive Plan (2012 LTIP Awards).The shares under these awards were available for issuance to current and future members of the Company's management team, including the Company'snamed executive officers. Each recipient received a specified maximum number of RSUs, each of which represents the right to receive one share of theCompany's common stock. These awards vest subject to certain long-term performance objectives and certain long-term service conditions. The awards willvest on December 31, 2015 only if the Company meets certain revenue targets ranging between $2,200,000 and $2,900,000 and certain diluted earnings pershare targets ranging between $7.00 and $10.50 for the year ended December 31, 2015. No vesting of any 2012 LTIP Awards will occur if either of thethreshold performance criteria is not met for the year ending December 31, 2015. To the extent financial performance is achieved above the threshold levels,the number of RSUs that will vest will increase up to the maximum number of units granted under the award. Under this program, the Company grantedawards that contain a maximum amount of 352,000 RSUs during the year ended December 31, 2012. The grant date fair value of these RSUs was $56.12 pershare. As of March 31, 2015 and 2014 and December 31, 2013, the Company did not believe that the achievement of the performance objectives of theseawards was probable, and therefore the Company did not recognize compensation expense for these awards. If the performance objectives become probable,the Company will then begin recording an expense for the 2012 LTIP Awards and would recognize a cumulative catch-up adjustment in the period theybecome probable. As of March 31, 2015, the cumulative amount would be approximately $12,000 based on the maximum number of units if the performanceobjectives were probable.In December 2013, the Board of Directors of the Company adopted a long-term incentive award under its 2006 Equity Incentive Plan (2013 LTIPAwards). The shares under these awards were available for issuance to current and future members of the Company's management team, including theCompany's named executive officers. Each recipient received a specified maximum number of RSUs, each of which represents the right to receive one shareof the Company's common stock. These awards vest subject to certain long-term performance objectives and certain long-term service conditions. Therecipients of these awards are divided into two participant groups, revenue generating and non-revenue generating. The awards for the non-revenuegenerating participants will vest on March 31, 2016 only if the Company meets certain revenue targets ranging between $2,290,000 and $2,558,000 andcertain EBITDA targets ranging between $372,000 and $415,000 for the fiscal year ending March 31, 2016. The awards for the revenue generatingparticipants will vest on March 31, 2016 only if the Company achieves EBITDA of $350,000 and the respective revenue by brand and channel managed byeach participant meets certain revenue targets that are tailored to each brand and channel for the fiscal year ending March 31, 2016. No vesting of any 2013LTIP Awards will occur if either of the threshold performance criteria is not met for the year ending March 31, 2016. To the extent financial performance isachieved above the threshold levels, the number of RSUs that will vest will increase up to the maximum number of units granted under the award. Under thisprogram, the Company granted awards that contain a maximum amount of 156,000 RSUs during the year ended December 31, 2013. The grant date fair valueof these RSUs was $84.52 per share. As of March 31, 2015, the Company did not believe that the achievement of the performance objectives of these awardswas probable, and therefore the Company reversed compensation expense accrued in prior periods. The amount reversed was immaterial to the Company'sconsolidated financial statements. If the performance objectives become probable, the Company will then begin recording an expense for the 2013 LTIPAwards and would recognize a cumulative catch-up adjustment in the period they become probable. As of March 31, 2015, the cumulative amount would beapproximately $2,000 based on the maximum number of units if the performance objectives were probable.F-24DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)In September 2014, the Board of Directors of the Company approved a long-term incentive award (2015 LTIP Awards) under its 2006 Equity IncentivePlan. The shares under these awards were available for issuance to current and future members of the Company's leadership team, including the Company'snamed executive officers. Each recipient received a specified maximum number of RSUs, each of which represents the right to receive one share of theCompany's common stock. These awards vest subject to certain long-term performance objectives and certain long-term service conditions. The awards willvest on March 31, 2017 only if the Company meets certain revenue targets ranging between approximately $2,155,000 and approximately $2,447,000 andcertain EBITDA targets ranging between approximately $336,000 and approximately $394,000 for the fiscal year ending March 31, 2017. No vesting of any2015 LTIP Awards will occur if either of the threshold performance criteria is not met for the year ending March 31, 2017. To the extent financialperformance is achieved above the threshold levels, the number of RSUs that will vest will increase up to the maximum number of units granted under theaward. Under this new program, the Company granted awards that contain a maximum amount of approximately 160,000 RSUs during the year ended March31, 2015. The average grant date fair value of these RSUs was $98.29 per share. As of March 31, 2015, future unrecognized compensation cost for the 2015LTIP Awards, excluding estimated forfeitures, was approximately $6,100. As of March 31, 2015, based on the Company's long-range forecast, the Companybelieved that the achievement of at least the threshold performance objectives of these awards was probable, and therefore the Company recognizedcompensation expense accordingly.In June 2012, the Company approved a stock repurchase program to repurchase up to $200,000 of the Company's common stock in the open market orin privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program did not obligate theCompany to acquire any particular amount of common stock and the program may be suspended at any time at the Company's discretion. As of February 28,2015, the Company had repurchased approximately 3,823,000 shares under this program, for approximately $200,000, or an average price of $52.31. As ofFebruary 28, 2015, the Company had repurchased the full amount authorized under this program.In January 2015, the Company approved a new stock repurchase program to repurchase up to $200,000 of the Company's common stock in the openmarket or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors. The program does not obligatethe Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company's discretion. As of March 31,2015, the Company had repurchased approximately 377,000 shares under this program, for approximately $27,900, or an average price of $74.09 leaving theremaining approved amount at $172,100.On a quarterly basis, the Company grants fully-vested shares of its common stock to each of its outside directors. The fair value of such shares isexpensed on the date of issuance.The table below summarizes stock compensation amounts recognized in the consolidated statements of comprehensive income (loss):Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Compensation expense recorded for:NSUs$9,295$1,863$10,545$11,849SARs1,8463811,3021,501RSUs1,323354287231Directors' shares1,0602671,0021,080Total compensation expense13,5242,86513,13614,661Income tax benefit recognized(5,143)(1,082)(4,950)(5,573)Net compensation expense$8,381$1,783$8,186$9,088The table below summarizes the total remaining unrecognized compensation cost related to nonvested awards that are considered probable of vestingas of March 31, 2015, and the weighted-average period over which the cost is expected to be recognized as of March 31, 2015:F-25DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)UnrecognizedCompensationCostWeighted-AverageRemainingVesting Period(Years)NSUs$13,9171.5SARs1,3550.9RSUs6,3171.5Total$21,589The unrecognized compensation cost excludes a maximum of $15,637 and $10,396 of compensation cost on the 2012 LTIP Awards and 2013 LTIPAwards, respectively, as achievement of the performance conditions are not considered probable.Nonvested Stock Units Issued Under the 2006 PlanNumber ofSharesWeighted-AverageGrant-DateFair ValueNonvested at January 1, 2012677,000$48.14Granted209,00063.18Vested(297,000)35.90Forfeited(18,000)63.68Cancelled*(200,000)62.17Nonvested at December 31, 2012371,000$58.51Granted304,00057.30Vested(315,000)53.19Forfeited(20,000)61.08Nonvested at December 31, 2013340,000$62.23Granted——Vested(2,000)58.11Forfeited(7,000)64.15Nonvested at March 31, 2014331,000$62.21Granted196,00082.34Vested(142,000)68.39Forfeited(30,000)64.18Cancelled*(15,000)84.04Nonvested at March 31, 2015340,000$70.11* Nonvested Stock Units cancelled during the period represent awards granted whose performance criteria were not met.Stock Appreciation Rights Issued Under the 2006 PlanF-26DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Number ofSARsWeighted-AverageExercisePriceWeighted-AverageRemainingContractualTerm(Years)AggregateIntrinsicValueOutstanding at January 1, 2012760,000$26.738.8$37,118Granted——Exercised(15,000)26.73Forfeited——Outstanding at December 31, 2012745,000$26.737.9$10,087Granted——Exercised(15,000)26.73Forfeited——Outstanding at December 31, 2013730,000$26.736.9$42,143Granted——Exercised——Forfeited——Outstanding at March 31, 2014730,000$26.736.7$38,690Granted——Exercised(15,000)26.73Forfeited——Outstanding at March 31, 2015715,000$26.735.8$32,990Exercisable at March 31, 2015190,000$26.732.1$8,767Expected to vest and exercisableat March 31, 2015702,000$26.735.8$32,396The maximum contractual term is 10 and 15 years from the date of grant for those SARs with final vesting dates of December 31, 2011 andDecember 31, 2016, respectively. The number of SARs expected to vest is based on the probability of achieving certain performance conditions and is alsoreduced by estimated forfeitures. The difference between the amount outstanding and the amount expected to vest and exercisable at March 31, 2015 wasestimated forfeitures for estimated failure to meet the long-term service conditions.Restricted Stock Units Issued Under the 2006 PlanF-27DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Number ofSharesWeighted-AverageGrant-DateFair ValueNonvested at January 1, 2012319,000$70.15Granted352,00056.12Vested——Forfeited——Nonvested at December 31, 2012671,000$62.80Granted156,00084.52Vested——Forfeited(32,000)63.69Nonvested at December 31, 2013795,000$67.03Granted——Vested——Forfeited(66,000)67.23Nonvested at March 31, 2014729,000$67.01Granted160,00098.29Vested——Forfeited(35,000)78.39Cancelled(230,000)82.09Nonvested at March 31, 2015624,000$68.82The amounts granted are the maximum amount under the respective awards.(8) Foreign Currency Exchange Contracts and HedgingThe Company had foreign currency forward contracts designated as cash-flow hedges with notional amounts totaling approximately $46,000, $64,000and $77,000 as of March 31, 2015 and 2014, and December 31, 2013, respectively. These contracts were held by four counterparties and, as of March 31,2015, were expected to mature over the next 12 months.The nonperformance risk of the Company and the counterparties did not have a material impact on the fair value of the derivatives. During the yearended March 31, 2015, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of March 31, 2015. The effectiveportion of the gain or loss on the derivative is reported in other comprehensive income (loss) and reclassified into earnings in the same period or periodsduring which the hedged transaction affects earnings. As of March 31, 2015, the total amount in accumulated other comprehensive income (loss) (see Note10) was expected to be reclassified into income within the next 15 months.Subsequent to March 31, 2015, the Company entered into non-designated derivative contracts with notional amounts totaling approximately $42,000and designated derivative contracts with notional amounts totaling approximately $31,000. All derivative contracts were held by six counterparties.F-28DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)The following tables summarize the effect of derivative instruments on the consolidated financial statements:Year endedQuarter ended(transition period)Year ended3/31/20153/31/201412/31/2013Derivatives in Designated Cash Flow Hedging RelationshipsForeign ExchangeContractsForeign ExchangeContractsForeign ExchangeContractsAmount of Gain (Loss) Recognized in OCI on Derivative(Effective Portion)$1,556$(47)$(779)Location of Gain (Loss) Reclassified from Accumulated OCIinto Income (Effective Portion)Net SalesNet SalesNet SalesAmount of Gain (Loss) Reclassified from Accumulated OCIinto Income (Effective Portion)$1,226$(283)$17Location of Amount Excluded from Effectiveness TestingSG&A expensesSG&A expensesSG&A expensesGain (Loss) from Amount Excluded from Effectiveness Testing$(69)$(31)$(11)Year endedQuarter ended (transitionperiod)Year ended3/31/20153/31/201412/31/2013Derivatives Not Designated as HedgingInstrumentsForeign ExchangeContractsForeign ExchangeContractsForeign ExchangeContractsLocation of Gain (Loss) Recognized in Income onDerivativesSG&A expensesSG&A expensesSG&A expensesAmount of Gain Recognized in Income onDerivatives$6,383$—$728(9) Transition PeriodIn February 2014, our Board of Directors approved a change in the Company's fiscal year (FY) end from December 31 to March 31. Accordingly, theCompany is presenting audited financial statements for the quarter transition period ended March 31, 2014. The following table provides certain unauditedcomparative financial information for the same period of the prior year.F-29DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Three Months Ended March 31,20142013 (unaudited)Net sales$294,716$263,760Cost of sales150,456140,201Gross profit144,260123,559Selling, general and administrative expenses144,668120,907(Loss) income from operations(408)2,652Other expense (income), net:Interest income(65)(26)Interest expense516339Other, net(117)(171)Total other expense334142(Loss) income before income taxes(742)2,510Income tax expense1,9431,503Net (loss) income(2,685)1,007Other comprehensive income (loss), net of tax:Unrealized (loss) income on foreign currencyhedging(273)1,530Foreign currency translation adjustment873(674)Total other comprehensive income600856Comprehensive (loss) income$(2,085)$1,863Net (loss) income per share:Basic$(0.08)$0.03Diluted$(0.08)$0.03Weighted-average common shares outstanding:Basic34,621,00034,404,000Diluted34,621,00034,788,000(10) Accumulated Other Comprehensive LossAccumulated balances of the components within accumulated other comprehensive loss are as follows:3/31/20153/31/201412/31/2013Cumulative foreign currency translation adjustment$(20,159)$(1,284)$(2,157)Unrealized loss on foreign currency hedging, net of tax(309)(759)(486)Accumulated other comprehensive loss$(20,468) $(2,043) $(2,643)(11) Business Segments, Concentration of Business, and Credit Risk and Significant CustomersThe Company's accounting policies of the segments below are the same as those described in the summary of significant accounting policies (seeNote 1), except that the Company does not allocate corporate overhead costs or non-operating income and expenses to segments. The Company evaluatessegment performance primarily based on net sales and income (loss) from operations. The Company's reportable segments include the strategic business unitsfor the worldwide wholesale operations of the UGG brand, Teva brand, Sanuk brand, and its other brands, its E-Commerce business and its retail storebusiness. The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design,F-30DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)sourcing, and sales strategies. The E-Commerce and retail store segments are managed separately because they are Direct-to-Consumer sales, while the brandsegments are wholesale sales. The income (loss) from operations for each of the segments includes only those costs which are specifically related to eachsegment, which consist primarily of cost of sales, costs for research and development, design, selling and marketing, depreciation, amortization, and the costsof employees and their respective expenses that are directly related to each business segment. The unallocated corporate overhead costs include: costs of thedistribution centers, certain executive and stock compensation, accounting and finance, legal, information technology, human resources, and facilities costs,among others. During the quarter ended (transition period) March 31, 2014, certain operating expenses were reclassified between segments. This change insegment reporting only changed the presentation within the below table and did not impact the Company's consolidated financial statements for any period.The segment information for prior periods have been adjusted retrospectively to conform to the current period presentation.Beginning January 1, 2013, all gross profit derived from the sales to third parties of the E-Commerce and retail stores segments is reported in incomefrom operations of the E-Commerce and retail stores segments, respectively. During the year ended March 31, 2015, the Company converted seven of its retail stores in China to partner retail stores, whereby, upon conversion, thestores became wholly-owned and operated by local, third-party companies within China. These conversions included the assignment of the lease and the saleof both the Company's on-hand inventory and store leasehold improvements to the operator. As of the date of conversion, partner retail stores sales areincluded in the UGG brand wholesale segment and not included in the retail stores segment.The Company's other brands include Ahnu®, Hoka, MOZO® and TSUBO®. The results of operations for Hoka are included in the other brandssegments beginning from the acquisition date of September 27, 2012. The wholesale operations of the Company's other brands are included as one reportablesegment, "other brands wholesale", presented in the figures below. Business segment information is summarized as follows:F-31DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Year endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Net sales to external customers:UGG wholesale$903,926$83,271$818,377$819,256Teva wholesale116,93145,283109,334108,591Sanuk wholesale102,69028,79394,42089,804Other brands wholesale76,15218,66238,27620,194E-Commerce233,07038,584169,534130,592Retail stores384,28880,123326,677245,961$1,817,057$294,716$1,556,618$1,414,398Income (loss) from operations:UGG wholesale$269,489$13,595$224,738$206,039Teva wholesale13,3206,4259,1669,228Sanuk wholesale21,9147,53020,59114,398Other brands wholesale(9,838)(758)(9,807)(4,523)E-Commerce92,39213,27266,84956,190Retail stores57,9287,64665,68363,306Unallocated overhead(220,786)(48,118)(169,323)(157,690)$224,419$(408)$207,897$186,948Depreciation and amortization:UGG wholesale$5,029$137$641$622Teva wholesale9433641515Sanuk wholesale6,9691,7697,7618,838Other brands wholesale9402505071,622E-Commerce949242744839Retail stores20,1394,96721,11712,073Unallocated overhead15,0303,1409,9598,911$49,150$10,538$41,370$33,420Capital expenditures:UGG wholesale$246$119$313$314Teva wholesale51—63326Sanuk wholesale487291448Other brands wholesale35126477197E-Commerce6448676347Retail stores18,4843,54934,99334,004Unallocated overhead71,59013,91643,21725,966$91,853$17,620$79,830$61,602Total assets from reportable segments:UGG wholesale$194,720$153,341$314,122$377,997Teva wholesale77,42381,76654,86859,641Sanuk wholesale224,974214,627208,669209,861Other brands wholesale53,63441,28134,31529,446E-Commerce4,4853,1297,3315,058Retail stores142,938160,535182,491134,804$698,174$654,679$801,796$816,807F-32DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)Inter-segment sales from the Company’s wholesale segments to the Company’s E-Commerce and retail stores segments are at the Company’s cost, andthere is no inter-segment profit on these inter-segment sales. Income (loss) from operations of the wholesale segments does not include any inter-segmentgross profit from sales to the E-Commerce and retail stores segments.The assets allocable to each segment include accounts receivable, inventory, fixed assets, goodwill, other intangible assets, and certain other assets thatare specifically identifiable with one of the Company's segments. Unallocated assets are the assets not specifically related to the segments and include cashand cash equivalents, deferred tax assets, and various other assets shared by the Company's segments. Reconciliations of total assets from reportable segmentsto the consolidated balance sheets are as follows:3/31/20153/31/201412/31/2013Total assets from reportable segments$698,174$654,679$801,796Unallocated cash and cash equivalents225,143245,088237,125Unallocated deferred tax assets29,08338,93335,632Other unallocated corporate assets217,533125,504185,176Consolidated total assets$1,169,933$1,064,204$1,259,729The Company does not consider international operations a separate segment, as management reviews such operations in the aggregate with theaforementioned segments. Long-lived assets, which consist of property and equipment, in the US and all other countries combined were as follows:3/31/20153/31/201412/31/2013US$196,513$148,178$136,726All other countries*35,80436,39237,340Total$232,317$184,570$174,066* No other country's long-lived assets comprised more than 10% of total long-lived assets as of March 31, 2015, March 31, 2014 andDecember 31, 2013.The Company sells its products to customers throughout the US and to foreign customers located in Europe, Asia, Canada, Australia, and LatinAmerica, among other regions. International sales were 35.9%, 32.7%, 33.0% and 31.2%, of the Company's total net sales for the year ended March 31, 2015,quarter ended March 31, 2014, and the years ended December 31, 2013 and 2012, respectively. For the year ended March 31, 2015, quarter ended March 31,2014, and the years ended December 31, 2013 and 2012, no single foreign country comprised more than 10% of total sales.Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtfulaccounts based upon these evaluations. No single customer accounted for more than 10% of net sales in the year ended March 31, 2015, quarter ended March31, 2014, and the years ended December 31, 2013 and 2012. As of March 31, 2015, March 31, 2014 and December 31, 2013 the Company had one customerrepresenting 11.8%, 11.8% and 11.4% of net trade accounts receivable, respectively. At March 31, 2015, March 31, 2014 and December 31, 2013 theCompany had a second customer representing 11.0%, 11.4% and 19.7% of net trade accounts receivable, respectively.The Company's production is concentrated at a limited number of independent contractor factories in Asia. Sheepskin is the principal raw material forcertain UGG products and the majority of sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the UnitedKingdom. We began using a new raw material, UGGpure, a wool woven into a durable backing, in some of our UGG products in 2013 and which we currentlypurchase from one supplier. The other materials used by the Company in production are sourced primarily in Asia. The Company's operations are subject tothe customary risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties and related fees, various import controlsand other nontariff barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability. The supply ofsheepskin can be adversely impacted by weather conditions, disease, and harvesting decisions that are completely outside the Company's control. Further,the price of sheepskin is impacted by demand, industry, and competitors.F-33DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)A portion of the Company's cash and cash equivalents are held as cash in operating accounts that are with third-party financial institutions. Thesebalances, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While the Company regularly monitors the cash balances in itsoperating accounts and adjusts the balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject toother adverse conditions in the financial markets.The remainder of the Company's cash equivalents is invested in interest bearing funds managed by third-party investment management institutions.These investments can include US treasury bonds and securities, money market funds, and municipal bonds, among other investments. Certain of theseinvestments are subject to general credit, liquidity, market, and interest rate risks. Investment risk has been and may further be exacerbated by US mortgagedefaults, credit and liquidity issues, and sovereign debt concerns in Europe, which have affected various sectors of the financial markets. As of March 31,2015, the Company had experienced no loss or lack of access to cash in its operating accounts, invested cash and cash equivalents. The Company's cash andcash equivalents are as follows:3/31/20153/31/201412/31/2013Money market fund accounts$127,900$143,816$154,105Cash97,243101,27283,020Total cash and cash equivalents$225,143$245,088$237,125F-34DECKERS OUTDOOR CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)(amounts in thousands, except share quantity and per share data)(12) Quarterly Summary of Information (Unaudited)Summarized unaudited quarterly financial data are as follows:Fiscal year 20156/30/20149/30/201412/31/20143/31/2015Net sales$211,469$480,273$784,678$340,637Gross profit86,772223,873415,139152,324Net (loss) income(37,062)40,730156,7061,406Net (loss) income per share:Basic$(1.07)$1.18$4.54$0.04Diluted$(1.07)$1.17$4.50$0.04Fiscal year 20133/31/20136/30/20139/30/201312/31/2013Net sales$263,760$170,085$386,725$736,048Gross profit123,55969,832166,892376,200Net income (loss)1,007(29,275)33,060140,897Net income (loss) per share:Basic$0.03$(0.85)$0.96$4.08Diluted$0.03 $(0.85) $0.95 $4.04F-35Table of ContentsSchedule IIDECKERS OUTDOOR CORPORATION AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTSYear endedQuarter ended(transition period)Years ended3/31/20153/31/201412/31/201312/31/2012Allowance for doubtful accounts (1)Balance at Beginning of Period$1,798$2,039$2,782$1,719Additions1,1075941252,128Deductions6088358681,065Balance at End of Period$2,297$1,798$2,039$2,782Allowance for sales discounts (2)Balance at Beginning of Period$2,121$3,540$3,836$4,629Additions68,62097846,98935,759Deductions68,3932,39747,28536,552Balance at End of Period$2,348$2,121$3,540$3,836Allowance for sales returns (3)Balance at Beginning of Period$8,586$14,554$12,905$11,313Additions94,13867467,80053,165Deductions93,1926,64266,15151,573Balance at End of Period$9,532$8,586$14,554$12,905Chargeback allowance (4)Balance at Beginning of Period$3,064$4,935$5,563$4,031Additions2,6102131875,879Deductions1,6332,0848154,347Balance at End of Period$4,041$3,064$4,935$5,563(1)The additions to the allowance for doubtful accounts represent the estimates of our bad debt expense based upon the factors for which weevaluate the collectability of our accounts receivable, with actual recoveries netted into additions. Deductions are the actual write offs of thereceivables.(2)The additions to the allowance for sales discounts represent estimates of discounts to be taken by our customers based upon the amount ofavailable outstanding terms discounts in the year-end aging. Deductions are the actual discounts taken by our customers.(3)The additions to the allowance for returns represent estimates of returns based upon our historical returns experience. Deductions are theactual returns of products.(4)The additions to the chargeback allowance represent chargebacks taken in the respective year as well as an estimate of chargebacks related tosales in the respective reporting period that will be taken subsequent to the respective reporting period. Deductions are the actual chargebackswritten off against outstanding accounts receivable. For the fiscal years 2015, 2013 and 2012 and the transition period quarter ended March31, 2014, the Company has estimated the additions and deductions by netting each quarter's change and summing the four quarters for therespective year.See accompanying report of independent registered public accounting firm.F-36EXHIBIT 21.1Name of EntityState or Other Jurisdiction ofIncorporation or OrganizationDeckers Asia Pacific Retail LimitedHong KongDeckers Consumer Direct CorporationUSA (Arizona)Deckers International LimitedBermudaDeckers Macau LimitedMacauDeckers Europe LimitedUnited KingdomDeckers Asia Pacific LimitedHong KongDeckers UK, LTDUnited KingdomDeckers Beijing Trading Co., LtdChinaDeckers Japan GKJapanDeckers Outdoor (Guangzhou) Consulting Co., LtdChinaDeckers Dutch Coöperatie UANetherlandsDeckers France SASFranceDeckers Benelux BVNetherlandsDeckers Outdoor Canada ULCBritish ColumbiaDeckers Cabrillo, LLCUSA (California)Deckers Retail, LLCUSA (California)Deckers Sales Co. LLCUSA (California)Deckers France 2 SASFranceHoka Europe SASFranceDeckers Belgium BVBABelgiumEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsDeckers Outdoor Corporation:We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-113237 and 333-120717) and Form S-8 (Nos.333-139874, 333-82538, and 333-47097) of Deckers Outdoor Corporation of our reports dated June 1, 2015, with respect to the consolidated balance sheetsof Deckers Outdoor Corporation and subsidiaries as of March 31, 2015 and 2014, and December 31, 2013, and the related consolidated statements ofcomprehensive income (loss), stockholders' equity, and cash flows for the year ended March 31, 2015, three month period (transition period) ended March 31,2014, and each of the years in the two-year period ended December 31, 2013, and the related financial statement schedule, and the effectiveness of internalcontrol over financial reporting as of March 31, 2015, which reports appear in the March 31, 2015 annual report on Form 10-K of Deckers OutdoorCorporation./s/ KPMG LLPLos Angeles, CaliforniaJune 1, 2015EXHIBIT 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Angel R. Martinez, certify that:1.I have reviewed this annual report on Form 10-K of Deckers Outdoor Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: June 1, 2015/s/ ANGEL R. MARTINEZAngel R. MartinezChief Executive OfficerDeckers Outdoor CorporationEXHIBIT 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Thomas A. George, certify that:1.I have reviewed this annual report on Form 10-K of Deckers Outdoor Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: June 1, 2015/s/ THOMAS A. GEORGEThomas A. GeorgeChief Financial OfficerDeckers Outdoor CorporationEXHIBIT 32CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to theirknowledge, the Annual Report on Form 10-K of Deckers Outdoor Corporation (the "Company") for the year ended March 31, 2015 (the “Report”), as filedwith the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities ExchangeAct of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company as of, and for, the periods presented in the Report./s/ ANGEL R. MARTINEZAngel R. MartinezChief Executive OfficerDeckers Outdoor Corporation(Principal Executive Officer)/s/ THOMAS A. GEORGEThomas A. GeorgeChief Financial OfficerDeckers Outdoor Corporation(Principal Financial and Accounting Officer)Date: June 1, 2015This certification is being furnished solely to accompany the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of1934 and 18 U.S.C. Section 1350, and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, asamended, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under theSecurities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates itby reference. A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securitiesand Exchange Commission upon request.250 Coromar Drive  |  Goleta, California, 93117  |  805.967.7611 Corporate Headquarters © 2015 Deckers Outdoor Corporation 

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