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

3 Months Ended

Jun. 30, 2015

Segment Reporting [Abstract]

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

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

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, and its Direct-to-Consumer (DTC) business.  The Company’s other brands include Ahnu®, Hoka One One® (Hoka), Koolaburra®, MOZO®, and TSUBO®.  The income (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. See Note 1 “General” and Item 2 of this Quarterly Report “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further disclosure and discussion of the change in segment reporting and the recent strategic initiatives related to the MOZO and TSUBO brands.

Business segment information is summarized as follows:

	Three Months Ended   June 30,
	2015			2014
Net sales to external customers:
UGG wholesale	$	66,422		$	74,193
Teva wholesale	37,066			35,665
Sanuk wholesale	28,513			32,329
Other brands wholesale	21,385			11,825
Direct-to-Consumer	60,419			57,457
	$	213,805		$	211,469
Income (loss) from operations:
UGG wholesale	$	(3,380	)	$	2,693
Teva wholesale	5,874			4,782
Sanuk wholesale	5,348			6,905
Other brands wholesale	(4,000		)	(4,011		)
Direct-to-Consumer	(15,205		)	(15,042		)
Unallocated overhead costs	(52,345		)	(45,809		)
	$	(63,708	)	$	(50,482	)

Inter-segment sales from the Company’s wholesale segments to the Company’s DTC segment 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 DTC segment. 

Business segment asset information is summarized as follows:

	June 30, 2015		March 31, 2015
Total assets for reportable segments:
UGG wholesale	$	334,392	$	194,720
Teva wholesale	63,805		77,423
Sanuk wholesale	208,035		224,974
Other brands wholesale	59,098		53,634
Direct-to-Consumer	141,877		147,423
	$	807,207	$	698,174

The assets allocable to each segment include accounts receivable, inventory, fixed assets, goodwill, other 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:

	June 30, 2015		March 31, 2015
Total assets for reportable segments	$	807,207	$	698,174
Unallocated cash and cash equivalents	168,744		225,143
Unallocated deferred tax assets	29,805		29,083
Other unallocated corporate assets	247,742		217,533
Consolidated total assets	$	1,253,498	$	1,169,933

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:

	June 30, 2015		March 31, 2015
US	$	205,721	$	196,513
All other countries*	33,660		35,804
Total	$	239,381	$	232,317

*No other country’s long-lived assets comprised more than 10% of total long-lived assets as of June 30, 2015 and March 31, 2015.

The Company sells its products to customers throughout the US and to foreign customers located in Europe, Asia, Canada, Australia, and Latin America, among other regions.  International sales were 37.1% and 37.5% of the Company’s total net sales for the three months ended June 30, 2015 and 2014, respectively.  For the three months ended June 30, 2015 and 2014, 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 June 30, 2015 or 2014.  As of June 30, 2015 and March 31, 2015, the Company had one customer representing 13.2% and 11.8% of net trade accounts receivable, respectively. As of June 30, 2015 and March 31, 2015, the Company had a second customer representing 10.6% and 11.0% 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 for certain UGG products and the majority of sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the United Kingdom (UK). The Company began using a new raw material, UGGpure^TM, wool woven into a durable backing, in some of its UGG products in 2013 and which the Company currently purchases from one supplier. The other materials used by the Company in production are sourced primarily in Asia. 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 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 June 30, 2015, 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 June 30, 2015, the Company had experienced no loss or lack of access to cash in its invested cash and cash equivalents.  The Company’s cash and cash equivalents are as follows:

	June 30, 2015		March 31, 2015
Money market fund accounts	$	110,895	$	127,900
Cash	57,849		97,243
Total cash and cash equivalents	$	168,744	$	225,143