General

The Company

Deckers Outdoor Corporation and its wholly-owned subsidiaries (collectively, the “Company”) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyles use and high-performance activities. As part of its Omni-Channel platform, the Company’s proprietary brands are aligned across its Fashion Lifestyle group, including the UGG and Koolaburra brands, and Performance Lifestyle group, including the HOKA, Teva, and Sanuk brands.

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

Reportable Operating Segments

The Company performs an annual assessment of the appropriateness of its reportable operating segments during the third quarter of its fiscal year. However, due to known circumstances arising during the first quarter of the year ended March 31, 2019 (Q1 2019), management performed this assessment at that time. These circumstances included an assessment of quantitative factors, such as the actual and forecasted sales and operating income of the wholesale operations of the HOKA brand compared to the Company’s other reportable operating segments, as well as an assessment of qualitative factors, such as the ongoing growth of, and the Company’s increased investment in, the wholesale operations of the HOKA brand. As a result, beginning in Q1 2019, the Company added a sixth reportable operating segment to separately report the wholesale operations of the HOKA brand. The wholesale operations of the HOKA brand are no longer presented under the Other brands wholesale reportable operating segment. However, the DTC operations of the HOKA brand continue to be reported under the DTC reportable operating segment. Prior periods presented were reclassified to reflect this change.

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

During calendar year 2017, the Company began to leverage elements, including particular styles, of the Ahnu brand under the Teva brand. Effective April 1, 2017, the operations for the Ahnu brand were discontinued and certain remaining styles are sold under the Teva brand. Results of wholesale operations for the former Ahnu brand are now reported in the Teva brand wholesale reportable operating segment instead of the Other brands wholesale reportable operating segment, as presented for the year ended March 31, 2017.

Refer to Note 12, “Reportable Operating Segments,” for further information on the Company’s reportable operating segments.

Restructuring Plan

In February 2016, the Company announced the implementation of a multi-year restructuring plan which was designed to realign its brands across its Fashion Lifestyle and Performance Lifestyle groups, optimize the Company’s worldwide owned retail store fleet, and consolidate its management and operations. In general, the intent of this restructuring plan was to reduce overhead costs and create operating efficiencies while improving collaboration across brands. As of March 31, 2019, the Company has completed its restructuring plan, incurred cumulative restructuring charges to date, and does not anticipate incurring restructuring charges in connection with this plan in future periods.

In connection with the restructuring plan, the Company has closed 46 company-owned global retail stores as of March 31, 2019, including conversions to partner retail stores, and consolidated its brand operations and corporate headquarters. Through March 31, 2019, the Company had incurred cumulative restructuring charges by applicable reportable operating segment as follows:



	Years Ended March 31,						Cumulative Restructuring Charges*
	2019		2018		2017		Cumulative Restructuring Charges*
UGG brand wholesale	$	—	$	—	$	2,238	$	2,238
Sanuk brand wholesale	—		—		20		3,068
Other brands wholesale	—		—		102		2,263
Direct-to-Consumer	—		149		12,771		23,454
Unallocated overhead costs	295		1,518		13,853		24,596
Total	$	295	$	1,667	$	28,984	$	55,619

*Cumulative restructuring charges include restructuring charges of $24,673, which were incurred during the fiscal year ended March 31, 2016.

During the years ended March 31, 2019, 2018, and 2017, total restructuring charges incurred and stated above were recorded in selling, general & administrative (SG&A) expenses in the consolidated statements of comprehensive income (loss).

The remaining accrued liabilities for cumulative restructuring charges incurred to date under the Company’s restructuring plan, are as follows:



	Lease Termination			Retail Store Fixed Asset Impairment			Severance Costs			Software and Office Fixed Asset Impairment			Other*			Total
Balance as of March 31, 2016	$	7,629		$	—		$	3,436		$	—		$	1,809		$	12,874
Additional charges	8,986			3,614			5,773			3,199			7,412			28,984
Paid in cash	(12,043		)	—			(6,403		)	—			(5,268		)	(23,714		)
Non-cash	—			(3,614		)	(251		)	(3,199		)	—			(7,064		)
Balance as of March 31, 2017	4,572			—			2,555			—			3,953			11,080
Additional charges	149			—			—			—			1,518			1,667
Paid in cash	(1,076		)	—			(2,555		)	—			(4,388		)	(8,019		)
Balance as of March 31, 2018	3,645			—			—			—			1,083			4,728
Additional charges	295			—			—			—			—			295
Paid in cash	(1,856		)	—			—			—			(581		)	(2,437		)
Balance as of March 31, 2019	$	2,084		$	—		$	—		$	—		$	502		$	2,586

*Includes costs related to office consolidations and termination of contracts and services.

Refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading "Recent Developments" within this Annual Report for information regarding the Company’s realized annualized SG&A expense savings resulting from the implementation of this restructuring plan.

Summary of Significant Accounting Policies

Basis of Presentation. The accompanying consolidated financial statements and notes thereto (referred to herein as “consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and entities in which it maintains a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

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

Use of Estimates. The preparation of the Company’s consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to inventory write-downs, trade accounts receivable allowances, sales returns liabilities, stock-based compensation, impairment assessments, depreciation and amortization, income tax liabilities, uncertain tax positions and income taxes receivable, the fair value of financial instruments, and the fair values of assets and liabilities, including goodwill and other intangible assets. These estimates are based on information available as of the date of the consolidated financial statements, and actual results could differ materially from the results assumed or implied based on these estimates.

Foreign Currency Translation. The Company considers the United States (US) dollar as its functional currency. The Company’s wholly-owned foreign subsidiaries have various assets and liabilities, primarily cash, receivables, and payables, which are denominated in currencies other than their functional currency. The Company remeasures these monetary assets and liabilities using the exchange rate at the end of the reporting period, which results in gains and losses that are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss) as incurred. In addition, the Company translates assets and liabilities of subsidiaries with reporting currencies other than US dollars into US dollars using the exchange rates at the end of the reporting period, which results in financial statement translation gains and losses recorded in other comprehensive income or loss (OCI).

Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents included $372,178 and $268,976 of money market funds as of March 31, 2019 and 2018, respectively.

Allowances for Doubtful Accounts. The Company provides an allowance against trade accounts receivable for estimated losses that may result from customers’ inability to pay. The Company determines the amount of the allowance by analyzing known uncollectible accounts, aged trade accounts receivable, economic conditions and forecasts, historical experience and the customers’ credit-worthiness. Trade accounts receivable that are subsequently determined to be uncollectible are charged or written off against this allowance. Write-offs against this allowance are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). The allowance includes specific allowances for trade accounts, for which all or a portion are identified as potentially uncollectible based on known or anticipated losses.

Inventories. Inventories, principally finished goods on hand and in transit, are stated at the lower of cost (weighted average) or net realizable value less an approximate normal profit margin at each financial statement date. Cost includes shipping and handling fees which are subsequently expensed to cost of sales. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Cloud Computing Arrangements. The Company enters into various cloud computing arrangements that are governed by service contracts (hosting arrangements) to support operations. Beginning October 1, 2018, the Company early adopted Accounting Standard Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, on a prospective basis. The Company historically recognized expenses for implementation costs associated with a cloud computing arrangement (CCA) as incurred. Upon adoption, application development stage implementation costs (implementation costs) of a hosting arrangement are deferred and recorded to prepaid expenses and other assets in the consolidated balance sheets. Implementation costs are expensed on a straight-line basis and recorded in SG&A expenses in the consolidated statements of comprehensive income (loss) over the term of the hosting arrangement, including reasonably certain renewals, which are generally one to five years. As of March 31, 2019 and 2018, the Company had no material prepaid expenses and other assets for hosting arrangements.

Property and Equipment, Depreciation and Amortization. Property and equipment are stated at cost less accumulated depreciation and amortization, and generally have a useful life of at least one year. Property and equipment include tangible, non-consumable items owned by the Company. Software implementation costs are capitalized if they are incurred during the application development stage and relate to costs to obtain computer software from third parties, including related consulting expenses, or costs incurred to modify existing software that results in additional upgrades or enhancements that provide additional functionality.

Depreciation of property and equipment is calculated using the straight-line method based on the estimated useful life. Leasehold improvements are amortized to their residual value, if any, on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter. Changes in the estimate of the useful life of an asset may occur after an asset is placed in service. For example, this may occur as a result of the Company incurring costs that prolong the useful life of an asset and are recorded as an adjustment to deprecation over the revised remaining useful life. Depreciation and amortization are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Property and equipment are summarized as follows:



		As of March 31,
	Useful life (years)	2019			2018
Land	Indefinite	$	32,864		$	32,863
Building	39.5	39,643			38,945
Machinery and equipment	1-10	152,486			141,255
Furniture and fixtures	3-7	38,326			38,473
Computer software	3-10	77,372			72,310
Leasehold improvements	1-11	109,044			107,079
Gross property and equipment		449,735			430,925
Less accumulated depreciation and amortization		(235,939		)	(210,763		)
Property and equipment, net		$	213,796		$	220,162

Asset Retirement Obligations. The Company is contractually obligated under certain of its lease agreements to restore certain retail, office, and warehouse facilities back to their original conditions. At lease inception, the present value of the estimated fair value of these liabilities is recorded along with the related asset. The liability is estimated based on assumptions requiring management’s judgment, including facility closing costs and discount rates, and is accreted to its projected future value over the life of the asset. As of March 31, 2019 and 2018, liabilities for asset retirement obligations (AROs) were $12,667 and $8,670, respectively, and are recorded in other long-term liabilities in the consolidated balance sheets. The increase in liabilities for AROs during the year ended March 31, 2019 was due to $4,706 of liabilities incurred for new AROs primarily related to the expansion of the Company’s warehouse and distribution center located in Moreno Valley, California.

Goodwill and Other Intangible Assets. Goodwill is initially recorded as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Intangible assets consist primarily of indefinite-lived trademarks and definite-lived trademarks, customer and distributor relationships, patents, lease rights and non-compete agreements arising from the application of purchase accounting. Definite-lived intangible assets are amortized to their estimated residual values, if any, on a straight-line basis over the estimated useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows. If impaired, the asset or asset group is written down to fair value based either on discounted future cash flows or appraised values. Impairment charges and amortization are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Goodwill and indefinite-lived intangible assets are not amortized but are instead tested for impairment annually, or when an event occurs or changes in circumstances indicate the carrying value may not be recoverable. The Company evaluates the goodwill for impairment at the reporting unit level for the UGG and HOKA brands wholesale reportable operating segments annually as of December 31st of each year and evaluates the Teva brand indefinite-lived trademarks for impairment annually as of October 31st of each year.

The Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative assessment of goodwill or indefinite-lived intangible assets. In general, conditions that may indicate impairment include, but are not limited to the following: (1) a significant adverse change in customer demand or business climate that could affect the value of an asset; (2) change in market share, budget-to-actual performance, and consistency of operating margins and capital expenditures; (3) changes in management or key personnel; or (4) changes in general economic conditions. The Company does not calculate the fair value of the assets unless the Company determines, based on a qualitative assessment, that it is more likely than not that 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 asset to its carrying amount, and if the fair value exceeds its carrying amount, no impairment charge is recognized. If the fair value is less than its carrying amount, the Company will record an impairment charge to write down the asset to its fair value. The quantitative assessment requires an analysis of several best estimates and assumptions, including future sales and operating results, and other factors that could affect fair value or otherwise indicate potential impairment. The goodwill impairment assessment involves valuing the Company’s various reporting units that carry goodwill, which are currently the same as the Company’s reportable operating segments. This includes considering the reporting units’ projected ability to generate income from operations and positive cash flow in future periods, as well as perceived changes in consumer demand and acceptance of products, or factors impacting the industry generally. Refer to Note 3, “Goodwill and Other Intangible Assets,” for further information.

Other Long-Lived Assets. Other long-lived assets, such as machinery and equipment, internal-use software, and leasehold improvements, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be 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. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. At least quarterly, the Company evaluates factors that would necessitate an impairment assessment, which include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others.

When an impairment-triggering event has occurred, the Company tests for recoverability of the asset group’s carrying value using estimates of undiscounted future cash flows based on the existing service potential of the applicable asset group. In determining the service potential of a long-lived asset group, the Company considers its remaining useful life, cash-flow generating capacity, and physical output capacity. These estimates include the undiscounted future cash flows associated with future expenditures necessary to maintain the existing service potential. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss, if any, would only reduce the carrying amount of long-lived assets in the group based on the fair value of the asset group. Impairment charges are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

During the years ended March 31, 2019, 2018 and 2017, the Company recognized impairment losses for other long-lived assets, primarily for retail store related fixed assets due to performance or store closures as well as computer software of $180, $2,417, and $11,265, respectively, within its DTC reportable operating segment and recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Derivative Instruments and Hedging Activities. The Company may use derivative instruments to partially offset its business exposure to foreign currency risk on expected cash flows and certain existing assets and liabilities, primarily intercompany balances. To reduce the volatility in earnings from fluctuations in foreign currency exchange rates, the Company may hedge a portion of forecasted sales denominated in foreign currencies. The Company may enter into foreign currency forward or option contracts (derivative contracts), generally with maturities of 15 months or less, to manage this risk and may designate these derivative contracts as cash flow hedges of forecasted sales (Designated Derivative Contracts). The Company may also enter into derivative contracts that are not designated as cash flow hedges (Non-Designated Derivative Contracts) to offset a portion of anticipated gains and losses on certain intercompany balances until the expected time of repayment. The Company does not use derivative contracts for trading purposes.

The notional amounts of outstanding Designated and Non-Designated Derivative Contracts are recorded at fair value measured using Level 2 fair value inputs in other current assets or other accrued expenses in the consolidated balance sheets. Refer to Note 4, “Fair Value Measurements,” for further information on the nature of Level 2 inputs. The after-tax unrealized gains or losses from the effective portion of changes in fair value of Designated Derivative Contracts are recorded in accumulated other comprehensive loss (AOCL) and are reclassified into earnings in the consolidated statements of comprehensive income (loss) in the same period or periods as the related net sales are recorded. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recorded in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in OCI related to the hedging relationship are immediately recorded in earnings.

Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). The changes in fair value for these contracts are generally offset by the remeasurement gains or losses associated with the underlying foreign currency-denominated balances, which are also recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

The Company generally enters into over-the-counter derivative contracts with high-credit-quality counterparties, and therefore, considers the risk that counterparties fail to perform according to the terms of the contract as low. The Company factors the nonperformance risk of the counterparties into the fair value measurements of its derivative contracts.

Refer to Note 9, “Derivative Instruments,” for further information on the impact of derivative instruments and hedging activities.

Revenue Recognition. Refer to the heading “Recent Accounting Pronouncements” below for further information on the impact on the Company from the adoption of ASU No. 2014-09, Revenue from Contracts with Customers, beginning April 1, 2018. Refer also to Note 2, “Revenue Recognition,” for further information regarding the Company’s accounting policy for revenue recognition and components of variable consideration, including allowances for sales discounts, chargebacks and sales return contract assets and liabilities after adoption of this ASU.

Cost of Sales. Cost of sales for the Company’s goods are for finished goods, which includes the purchase costs and related overhead. Overhead includes all costs for planning, purchasing, quality control, freight, duties, royalties paid to third parties and shrinkage. Cost includes allocation of initial molds and tooling cost that are amortized based on minimum contractual quantities of related product and recorded in cost of sales when the product is sold in the consolidated statements of comprehensive income (loss).

Research and Development Costs. All research and development costs are expensed as incurred. Such costs amounted to $23,187, $22,372, and $21,256 for the years ended March 31, 2019, 2018 and 2017, respectively, and are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss).

Advertising, Marketing, and Promotion Expenses. Advertising, marketing and promotion expenses include media advertising (television, radio, print, social, digital), tactical advertising (signs, banners, point-of-sale materials) and other promotional costs, with $118,291, $111,658, and $109,579 for the years ended March 31, 2019, 2018 and 2017, respectively, recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Advertising costs are expensed the first time the advertisement is run or communicated. All other costs of advertising, marketing, and promotion are expensed as incurred. Included in prepaid expenses as of March 31, 2019 and 2018 were $6,006 and $2,545, respectively, related to prepaid advertising, marketing, and promotion expenses for programs expected to take place after such dates.

Rent Expense. Rent expense is recorded using the straight-line method to account for scheduled rental increases or rent holidays. Lease incentives for tenant improvement allowances are recorded as reductions of rent expense over the lease term. The rental payments under some of the Company’s retail store leases are based on a minimum rental plus a percentage of the store’s sales in excess of stipulated amounts. Rent expenses are recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Refer to Note 7, “Commitments and Contingencies,” for further information.

Stock Compensation. All of the Company’s stock compensation is classified within stockholders’ equity. Stock-based compensation expense is measured at the grant date based on the value of the award and is expensed ratably over the service period. The Company recognizes expense only for those awards that management deems probable of achieving the performance criteria and service conditions. Determining the fair value and related expense of stock-based compensation requires judgment, including estimating the percentage of awards that will be forfeited and probabilities of meeting the awards’ performance criteria. If actual forfeitures differ significantly from the estimates or if probabilities change during a period, stock-based compensation expense and the Company’s results of operations could be materially impacted. Stock compensation expense is recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). Refer to Note 8, “Stock Compensation,” for further information.

Retirement Plan. The Company provides a 401(k) defined contribution plan that eligible US employees may elect to participate in through tax-deferred contributions or other deferrals. The Company matches 50% of each eligible participant’s deferrals on up to 6% of eligible compensation. Internationally, the Company has various defined contribution plans. Certain international locations require mandatory contributions under social programs, and the Company contributes at least the statutory minimums. US 401(k) matching contributions totaled $3,060, $2,269, and $2,124 during the years ended March 31, 2019, 2018 and 2017, respectively, and were recorded in SG&A expenses in the consolidated statements of comprehensive income (loss). In addition, the Company may also make discretionary profit-sharing contributions to the plan. However, the Company did not make any profit-sharing contributions for the years ended March 31, 2019, 2018 and 2017.

Non-qualified Deferred Compensation. In 2010, the Company established a non-qualified deferred compensation program that permits select members of management to defer earnings to a future date on a non-qualified basis. For each plan year, the Company’s Board of Directors may, but is not required to, contribute any amount it desires to any participant under this program. The Company’s contribution guidelines are determined by the Board of Directors annually. In March 2015, the Board of Directors approved a Company contribution feature for future plan years beginning in calendar year 2016 and gave management the authority to approve actual contributions. As of March 31, 2019 and 2018, no material payments were made or pending under this program. The value of the deferred compensation is recognized based on the fair value of the participants’ accounts. The Company has established a rabbi trust for the purpose of supporting the benefits payable under this program, with the assets invested in company-owned life insurance policies. Refer to Note 4, “Fair Value Measurements,” for further information on the fair value of deferred compensation assets and liabilities.

Self-Insurance. The Company is self-insured for a significant portion of its employee medical and dental liability exposures. Liabilities for self-insured exposures are accrued at the present value of amounts expected to be paid based on historical claims experience and actuarial data for forecasted settlements of claims filed and for incurred but not yet reported claims. Accruals for self-insured exposures are included in current and long-term liabilities based on the expected periods of payment. Excess liability insurance has been purchased to limit the amount of self-insured risk on claims.

Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income during the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recorded in the consolidated statements of comprehensive income (loss) in the period that includes the enactment date.

The Company recognizes the effect of income tax positions in the consolidated financial statements only if those positions are more likely than not to be sustained upon examination. Recognized income tax positions are measured at the largest amount of tax benefit that is more than 50% likely to be realized upon settlement. Changes in recognition or measurement are recorded in the period in which the change in judgment occurs. The Company records interest and penalties accrued for income tax contingencies as interest expense in the consolidated statements of comprehensive income (loss).

Refer to Note 5, “Income Taxes,” for further information on tax impacts and components of tax balances in the consolidated financial statements.

Comprehensive Income. Comprehensive income or loss is the total of net earnings and all other non-owner changes in equity. Comprehensive income or loss includes net income or loss, foreign currency translation adjustments, and unrealized gains and losses on cash flow hedges. Refer to Note 10, “Stockholders' Equity,” for further information on components of OCI.

Net Income per Share. Basic net income or loss per share represents net income or loss divided by the weighted-average number of common shares outstanding for the period. Diluted net income or loss per share represents net income or loss divided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock. Refer to Note 11, “Net Income per Share,” for a reconciliation of basic to diluted weighted-average common shares outstanding.

Recent Accounting Pronouncements

Recently Adopted. The Financial Accounting Standards Board (FASB) has issued ASUs that have been adopted by the Company for its annual and interim reporting periods as stated below. The following is a summary of each standard and the impact on the Company:



Standard	Description	Impact on Adoption
ASU No. 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments	Eliminates the diversity in practice related to the classification of certain cash receipts and payments.	This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around cash receipts and payments and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.
ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory	Requires that the income tax impact of intra-entity sales and transfers of property, except for inventory, be recognized when the transfer occurs.	This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around intra-entity transfers of assets, other than inventory, and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.
ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting	Modification accounting is required to be applied for share-based payment awards immediately before the original award is modified unless the fair value, vesting conditions, and classification of the modified awards are the same as the fair value, vesting conditions and classification of the original award, respectively.	This ASU was adopted by the Company on April 1, 2018. The Company evaluated its business policies and processes around share-based payment modifications and determined that this ASU did not have a material impact on its consolidated financial statements and related disclosures.



Standard	Description	Impact on Adoption
ASU No. 2014-09, Revenue from Contracts with Customers (as amended by ASUs 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2016-20, 2017-13, and 2017-14)	Requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and replaces most existing revenue recognition guidance under US GAAP. The FASB issued additional guidance which clarifies how to apply the implementation guidance related to principal versus agent considerations, how to identify performance obligations, as well as licensing implementation guidance.	The Company adopted this ASU (the “new revenue standard”) using the modified retrospective transition method, beginning April 1, 2018. Prior to adoption, the Company deferred recognition of revenue for certain wholesale and E-Commerce sales arrangements until the product was delivered. However, the Company elected the practical expedient allowed under the new revenue standard to define shipping and handling costs as a fulfillment service, not a performance obligation. Accordingly, the Company will now recognize revenue for these arrangements upon shipment of product, rather than delivery. As a result, on adoption of this ASU, the Company recorded a cumulative effect adjustment net after tax increase to opening retained earnings of approximately $1,000 in its consolidated balance sheets. This prospective change in accounting policy will impact comparatives to prior reported fiscal years as net sales and deferred revenue are recognized and recorded in the Company’s consolidated financial statements under legacy US GAAP. The Company historically recorded a trade accounts receivable allowance for sales returns (“allowance for sales returns”) related to its wholesale channel sales, and the cost of sales for the product-related inventory was recorded in inventories, net of reserves, in its consolidated balance sheets. As of March 31, 2018, the Company recorded an allowance for sales returns for the wholesale channel of $20,848 and product-related inventory for all channels of $11,251 in its consolidated balance sheets. As of June 30, 2018, and in connection with the adoption of the new revenue standard, the Company reclassified the allowance for sales returns for the wholesale channel of $9,816 to other accrued expenses and the product-related inventory for all channels of $4,819 to other current assets in its consolidated balance sheets. For the DTC channel, the allowance for sales returns was recorded in other accrued expenses, which is consistent with the prior period presented. The comparative consolidated financial statements have not been adjusted and continue to be reported under legacy US GAAP. Refer to Note 2, “Revenue Recognition,” for expanded disclosures regarding this change in accounting policy and refer to Note 12, “Reportable Operating Segments,” for the Company’s disaggregation of revenue by distribution channel and region.

Not Yet Adopted. The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of each such standard, the planned period of adoption and the expected impact on the Company on adoption:



Standard	Description	Planned Period of Adoption	Expected Impact on Adoption
ASU No. 2016-02, Leases (as amended by ASUs 2015-14, 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01)	Requires a lessee to recognize a lease asset and lease liability in its consolidated balance sheets. A lessee should recognize a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term, and a liability to make lease payments.	Q1 FY 2020	The Company has substantially completed an assessment of the effect that the adoption of this ASU will have on its consolidated financial statements and related disclosures and expects a material impact. The result is expected to be an approximately $219,000 to $239,000 increase in assets due to the recognition of a ROU asset and approximate corresponding increase for a related lease liability of $246,000 to $266,000, including lease commitments that are currently classified as operating leases, such as retail stores, showrooms, offices, and distribution facilities. The Company does not believe the standard will materially affect the consolidated statements of comprehensive income (loss). The classification and recognition of lease expense is not expected to materially change from legacy US GAAP. Further, the adoption of this ASU will result in expanded disclosures on existing and new lease commitments, for which the Company is in the process of developing drafts of new footnote disclosures required under this ASU that will be disclosed in the Company's Form 10-Q for the first quarter of fiscal year 2020. The Company expects to adopt this ASU on a prospective basis and elect the “package of practical expedients” allowed with adoption of this ASU, which provides a number of transition options, including (1) exemption from reassessment of prior conclusions about lease identification, classification and initial direct costs; (2) the ability to elect a short-term lease recognition exemption for current and new vehicles, IT and office equipment leases that qualify to be excluded from the recognized ROU asset and related liability; and the (3) option to not separate lease and non-lease components. In addition, the Company expects to not apply the hindsight election and will maintain lease terms as estimated at inception of the lease. The Company does not expect a significant change in its lease portfolio and business practices leading up to adoption of this ASU. Further, the Company has selected a software provider, has a project team in place and implementation is materially complete. The Company does not believe the ASU will have a notable impact on its liquidity or expects an impact on the Company’s debt-covenant compliance under its current agreements.
ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (as amended by ASUs 2018-19 and 2019-04)	Replaces the incurred loss impairment methodology in legacy US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	Q1 FY 2021	The Company is evaluating the timing and effect that adoption of this ASU will have on its consolidated financial statements and related disclosures.
ASU No. 2017-04, Goodwill and Other: Simplifying the Test for Goodwill Impairment	Requires annual and interim goodwill impairment tests be performed by comparing the fair value of a reporting unit with its carrying amount, effectively eliminating step two of the goodwill impairment test under legacy US GAAP. The amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized as an impairment charge.	Q1 FY 2021	The Company is evaluating the timing and effect that adoption of this ASU will have on its consolidated financial statements and related disclosures.

Description

Planned Period of Adoption

Expected Impact on Adoption

ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (as amended by ASUs 2018-16 and 2019-04)

Seeks to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities and to reduce the complexity of and simplify the application of hedge accounting. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness. It also eases certain documentation and assessment requirements.

Q1 FY 2020

The Company has completed an initial assessment of the effect that the adoption of this ASU will have on its consolidated financial statements and related disclosures. The Company will eliminate separate measurement of hedge ineffectiveness and will recognize the entire change in fair value for its cash flow hedges in its consolidated statements of comprehensive income (loss) in the same location as the hedged item. This change is not expected to have a material impact on the Company’s consolidated financial statements.