Business Segments, Concentration of Business, and Credit Risk and Significant Customers

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Business Segments, Concentration of Business, and Credit Risk and Significant Customers

Business Segments, Concentration of Business, and Credit Risk and Significant Customers

The Company’s accounting policies of the segments below are the same as those described in the summary of significant accounting policies in the Annual Report, except that the Company does not allocate corporate overhead costs or non-operating income and expenses to segments.  The Company evaluates segment performance primarily based on net sales and income or loss from operations.  The Company’s reportable segments include the strategic business units for the worldwide wholesale operations of the UGG brand, Teva brand, Sanuk brand, and other brands, its E-Commerce business and its retail store business.  The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design, sourcing, and sales strategies.  The E-Commerce and retail store segments are managed separately because they are Direct-to-Consumer sales, while the brand segments are wholesale sales.  The income or loss from operations for each of the segments includes only those costs that are specifically related to each segment, which consist primarily of cost of sales, costs for research and development, design, selling and marketing, depreciation, amortization, and the costs of employees and their respective expenses that are directly related to each segment.  The unallocated corporate overhead costs include: costs of the distribution centers, certain executive and stock compensation, accounting and finance, legal, information technology, human resources, and facilities costs, among others. In prior periods, certain operating expenses were reclassified between segments. This change in segment reporting only changed the presentation within the below table and did not impact the Company’s condensed consolidated financial statements for any period. The segment information for the three months ended March 31, 2013 has been adjusted retrospectively to conform to the current period presentation.

The Company’s other brands include TSUBO®, Ahnu®, MOZO®, and Hoka One One® (Hoka).  The wholesale operations of the Company’s other brands are included as one reportable segment, other wholesale, presented in the figures below.  Business segment information is summarized as follows:

	Three Months Ended   March 31,
	2014			2013
Net sales to external customers:
UGG wholesale	$	83,271		$	82,706
Teva wholesale	45,283			50,504
Sanuk wholesale	28,793			30,011
Other wholesale	18,662			10,369
E-Commerce	38,584			26,614
Retail stores	80,123			63,556
	$	294,716		$	263,760
Income (loss) from operations:
UGG wholesale	$	13,595		$	14,081
Teva wholesale	6,425			9,640
Sanuk wholesale	7,530			9,360
Other wholesale	(758		)	(2,580		)
E-Commerce	13,272			8,969
Retail stores	7,646			10,433
Unallocated overhead costs	(48,118		)	(47,251		)
	$	(408	)	$	2,652

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, and there is no inter-segment profit on these inter-segment sales.  Income (loss) from operations of the wholesale segments does not include any inter-segment gross profit from sales to the E-Commerce and retail stores segments. 

Business segment asset information is summarized as follows:

	March 31, 2014		December 31, 2013
Total assets for reportable segments:
UGG wholesale	$	153,341	$	314,122
Teva wholesale	81,766		54,868
Sanuk wholesale	214,627		208,669
Other wholesale	41,281		34,315
E-Commerce	3,129		7,331
Retail stores	160,535		182,491
	$	654,679	$	801,796

The assets allocable to each segment include accounts receivable, inventory, fixed assets, intangible assets, and certain other assets that are specifically identifiable with one of the Company’s segments.  Unallocated assets are the assets not specifically related to the segments and include cash and cash equivalents, deferred tax assets, and various other assets shared by the Company’s segments.  Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets are as follows:

	March 31, 2014		December 31, 2013
Total assets for reportable segments	$	654,679	$	801,796
Unallocated cash and cash equivalents	245,088		237,125
Unallocated deferred tax assets	38,933		35,632
Other unallocated corporate assets	125,504		185,176
Consolidated total assets	$	1,064,204	$	1,259,729

The Company does not consider international operations a separate segment, as management reviews such operations in the aggregate with the aforementioned segments. Long-lived assets, which consist of property and equipment, in the US and all other countries combined were as follows:

	March 31, 2014		December 31, 2013
US	$	148,178	$	136,726
All other countries*	36,392		37,340
Total	$	184,570	$	174,066

*  No other country’s long-lived assets comprised more than 10% of total long-lived assets as of March 31, 2014 and December 31, 2013.

The Company sells its products to customers throughout the US and to foreign customers located in Europe, Canada, Australia, Asia, and Latin America, among other regions.  International sales were 32.7% and 30.7% of the Company’s total net sales for the three months ended March 31, 2014 and 2013, respectively.  For the three months ended March 31, 2014 and 2013, no single foreign country comprised more than 10% of total net sales.

Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtful accounts based upon these evaluations.  No single customer accounted for more than 10% of net sales for either the three months ended March 31, 2014 or 2013.  As of March 31, 2014 and December 31, 2013, the Company had one customer representing 11.8% and 11.4% of net trade accounts receivable, and a second customer representing 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.  Sheepskin is the principal raw material for certain UGG products and the majority of sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia, Europe and the US. The source for other materials used by the Company is concentrated in Australia and China. The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties and related fees, various import controls and other nontariff barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability.  The supply of sheepskin 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.

A portion of the Company’s cash and cash equivalents are held as cash in operating accounts that are with third party financial institutions.  These balances, at times, exceed the Federal Deposit Insurance Corporation insurance limits.  While the Company regularly monitors the cash balances in its operating accounts and adjusts the balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.  As of March 31, 2014, the Company had experienced no loss or lack of access to cash in its operating accounts.

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 these investments are subject to general credit, liquidity, market, and interest rate risks.  Investment risk has been and may further be exacerbated by US mortgage defaults, credit and liquidity issues, and sovereign debt concerns in Europe, which have affected various sectors of the financial markets.  As of March 31, 2014, the Company had experienced no loss or lack of access to its invested cash and cash equivalents.  The Company’s cash and cash equivalents are as follows:

	March 31, 2014		December 31, 2013
Money market fund accounts	$	143,816	$	154,105
Cash	101,272		83,020
Total Cash and Cash Equivalents	$	245,088	$	237,125