Leases and Other Commitments

12 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Leases and Other Commitments

Leases and Other Commitments

Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease agreements which continue in effect through calendar year 2031. Some of the Company's operating leases contain extension options of anywhere from one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.

Variable Lease Payments. Certain leases require additional payments based on (1) actual or forecasted sales volume (either monthly or annually), (2) reimbursement for real estate taxes (tax), (3) common area maintenance (CAM), and (4) insurance (collectively, variable lease payments). Variable lease payments are generally excluded from operating lease assets and liabilities and are recorded in rent expense as a component of SG&A expenses in the consolidated statements of comprehensive income. Some leases are dependent upon forecasted annual sales volume, and lease payments are recognized on a straight-line basis as rent expense over each annual period when the achievement of the related sales target is reasonably likely to occur. Other variable lease payments, such as tax, CAM and insurance, are recognized in rent expense as incurred. Some leases contain one fixed lease payment that include variable lease payments, which are considered non-lease components. The Company has elected to account for these instances as a single lease component and the total of these fixed payments is used to measure the operating lease assets and lease liabilities.

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

Rent Expense. The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under the new lease standard, were as follows:

	Years Ended March 31,
	2021		2020
Operating	$	52,849	$	57,966
Variable	24,033		26,996
Short-term	3,015		3,332
Total	$	79,897	$	88,294

The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under legacy US GAAP, prior to the adoption of ASU 2016-02 as of April 1, 2019, were as follows:

	Year Ended March 31, 2019
Minimum rentals	$	60,859
Contingent rentals	13,226
Total	$	74,085

Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2021 under the new lease standard, with a reconciliation to the present value of operating lease liabilities recorded in the consolidated balance sheets, are as follows:

Years Ending March 31,	Amount*
2022	$	49,528
2023	44,165
2024	38,068
2025	30,307
2026	26,400
Thereafter	56,950
Total undiscounted future lease payments	245,418
Less: Imputed interest	(22,376)
Total	$	223,042

*Operating lease liabilities recorded in the consolidated balance sheets exclude $20,284 of legally binding undiscounted minimum lease payments due pursuant to a lease signed but not yet commenced for a new US distribution center.

Supplemental Disclosure. Key estimates and judgments related to operating lease assets and liabilities that are outstanding and presented in the consolidated balance sheets, are as follows:

	As of March 31,
	2021		2020
Weighted-average remaining lease term in years	6.0		6.6
Weighted-average discount rate	3.1	%	3.3	%

Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases, were as follows:

	Years Ended March 31,
	2021		2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*	$	9,861	$	71,097
Reductions to operating lease assets for reductions to lease liabilities*	(12,051)		(7,055)

*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.

Purchase Obligations. The Company has various types of purchase obligations, as follows:

Product. The Company had $566,820 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2021. The Company has an extended design and manufacturing process, which requires it to forecast production volumes and estimate inventory requirements many months before consumers decide to purchase its products. The Company generally orders product two to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from wholesale customers and through the DTC reportable operating segment. Accordingly, the aggregate amount reflects purchase commitments for products that the Company reasonably expects to fulfill in the ordinary course of business. However, a significant portion of the purchase commitments can be cancelled by the Company under certain circumstances. As a result, the amount does not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase commitments, and instead reflects an estimate of its future payment commitments based on information currently available.

Commodities. The Company had an aggregate of $150,594 remaining purchase commitments, primarily for sheepskin, as well as leather, as of March 31, 2021. These commitments generally arise under two-year supply agreements. The aggregate amount reflects the remaining commitments under these purchase orders. The Company enters into contracts requiring purchase commitments of sheepskin and leather that its affiliates, manufacturers, factories, and other agents (each or collectively, a Buyer) must make on or before a specified target date. These agreements may result in unconditional purchase commitments if a Buyer does not meet the minimum purchase requirements. In the event that a Buyer does not purchase such minimum commitments by the target dates, the Company would be responsible for compliance with any and all minimum purchase commitments under these contracts, and the Company would make additional deposit payments towards the purchase of the remaining minimum commitments and such additional deposits would be returned as the Buyer purchases the remaining minimum commitments. The contracts do not permit net settlement. There were $8,322 of deposits on expired sheepskin contracts that have not been fully consumed as of March 31, 2021 which is recorded in other assets in the consolidated balance sheets.

During the year ended March 31, 2021, the Company experienced a shift in product mix that used less of a certain sheepskin grade. As a result, the Company negotiated a deferral of additional deposit payments, which represent remaining minimum commitments under expired sheepskin supply agreements. As of March 31, 2021, the remaining minimum purchase commitment under these expired agreements was approximately $28,000. Subsequent to March 31, 2021 through May 13, 2021, this deposit was paid.

Total future minimum commitments for commodities contracts as of March 31, 2021 were as follows:

Contract Effective Date	Final Target Date	Contract Value		Remaining Commitment
July 2017	September 2019	$	7,200	$	5,223
April 2018	September 2020	45,600		6,443
October 2018	September 2020	27,350		25,336
October 2018	September 2021	41,210		41,210
April 2019	September 2020	8,906		8,906
October 2019	June 2020	28,800		10,580
October 2019	June 2021	16,644		16,644
March 2021	June 2022	21,878		21,878
March 2021	September 2022	22,200		14,374
		$	219,788	$	150,594

The Company expects that purchases made under these agreements in the ordinary course of business will eventually exceed the minimum commitment levels, and that any deposits will become fully refundable or will be reflected as a credit against purchases. The amounts above do not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase obligations, and instead reflect an estimate of its future payment obligations based on information currently available.

Other. The Company had an aggregate of $102,317 of other purchase commitments as of March 31, 2021, which consisted of minimum commitments for logistics arrangements, an IT agreement for a new inventory planning system, requirements to pay promotional expenses, and other commitments under service contracts.

Litigation. From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on its business, results of operations, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.

On March 28, 2016, the Company filed a lawsuit alleging trademark infringement, patent infringement, unfair competition and violation of deceptive trade practices in the US District Court for the Northern District of Illinois Eastern Division (District Court) against Australian Leather. Australian Leather counterclaimed alleging that the UGG brand trademark is invalid. On May 10, 2019, a jury returned a verdict in the Company's favor in its lawsuit against Australian Leather. The District Court entered judgments upholding the UGG brand trademark on February 6 and June 8, 2020. On August 12, 2020, Australian Leather filed an appeal to the US Court of Appeals for the Federal Circuit. On May 7, 2021, the US Court of Appeals affirmed the District Court’s ruling dismissing Australian Leather’s affirmative defenses and counterclaims and upholding the UGG brand trademark. It is unknown whether Australian Leather will challenge the decision of the Court of Appeals.

Indemnification. The Company has agreed to indemnify certain of its licensees, distributors, and promotional partners in connection with claims related to the use of the Company’s intellectual property. The terms of such agreements range up to five years initially and generally do not provide for a limitation on the maximum potential future payments. From time to time, the Company also agrees to indemnify its licensees, distributors, and promotional partners in connection with claims that the Company’s products infringe on the intellectual property rights of third parties. These agreements may or may not be made pursuant to a written contract. In addition, from time to time, the Company also agrees to standard indemnification provisions in commercial agreements 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 is made based on a prior history of insignificant claims and related payments. There are currently no pending claims relating to indemnification matters involving the Company’s intellectual property.

Leases and Other Commitments

Leases and Other Commitments

Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease agreements which continue in effect through calendar year 2031. Some of the Company's operating leases contain extension options of anywhere from one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.

Variable Lease Payments. Certain leases require additional payments based on (1) actual or forecasted sales volume (either monthly or annually), (2) reimbursement for real estate taxes (tax), (3) common area maintenance (CAM), and (4) insurance (collectively, variable lease payments). Variable lease payments are generally excluded from operating lease assets and liabilities and are recorded in rent expense as a component of SG&A expenses in the consolidated statements of comprehensive income. Some leases are dependent upon forecasted annual sales volume, and lease payments are recognized on a straight-line basis as rent expense over each annual period when the achievement of the related sales target is reasonably likely to occur. Other variable lease payments, such as tax, CAM and insurance, are recognized in rent expense as incurred. Some leases contain one fixed lease payment that include variable lease payments, which are considered non-lease components. The Company has elected to account for these instances as a single lease component and the total of these fixed payments is used to measure the operating lease assets and lease liabilities.

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

Rent Expense. The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under the new lease standard, were as follows:

	Years Ended March 31,
	2021		2020
Operating	$	52,849	$	57,966
Variable	24,033		26,996
Short-term	3,015		3,332
Total	$	79,897	$	88,294

The components of rent expense for operating leases recorded in the consolidated statements of comprehensive income under legacy US GAAP, prior to the adoption of ASU 2016-02 as of April 1, 2019, were as follows:

	Year Ended March 31, 2019
Minimum rentals	$	60,859
Contingent rentals	13,226
Total	$	74,085

Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2021 under the new lease standard, with a reconciliation to the present value of operating lease liabilities recorded in the consolidated balance sheets, are as follows:

Years Ending March 31,	Amount*
2022	$	49,528
2023	44,165
2024	38,068
2025	30,307
2026	26,400
Thereafter	56,950
Total undiscounted future lease payments	245,418
Less: Imputed interest	(22,376)
Total	$	223,042

*Operating lease liabilities recorded in the consolidated balance sheets exclude $20,284 of legally binding undiscounted minimum lease payments due pursuant to a lease signed but not yet commenced for a new US distribution center.

Supplemental Disclosure. Key estimates and judgments related to operating lease assets and liabilities that are outstanding and presented in the consolidated balance sheets, are as follows:

	As of March 31,
	2021		2020
Weighted-average remaining lease term in years	6.0		6.6
Weighted-average discount rate	3.1	%	3.3	%

Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases, were as follows:

	Years Ended March 31,
	2021		2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*	$	9,861	$	71,097
Reductions to operating lease assets for reductions to lease liabilities*	(12,051)		(7,055)

*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.

Purchase Obligations. The Company has various types of purchase obligations, as follows:

Product. The Company had $566,820 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2021. The Company has an extended design and manufacturing process, which requires it to forecast production volumes and estimate inventory requirements many months before consumers decide to purchase its products. The Company generally orders product two to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from wholesale customers and through the DTC reportable operating segment. Accordingly, the aggregate amount reflects purchase commitments for products that the Company reasonably expects to fulfill in the ordinary course of business. However, a significant portion of the purchase commitments can be cancelled by the Company under certain circumstances. As a result, the amount does not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase commitments, and instead reflects an estimate of its future payment commitments based on information currently available.

Commodities. The Company had an aggregate of $150,594 remaining purchase commitments, primarily for sheepskin, as well as leather, as of March 31, 2021. These commitments generally arise under two-year supply agreements. The aggregate amount reflects the remaining commitments under these purchase orders. The Company enters into contracts requiring purchase commitments of sheepskin and leather that its affiliates, manufacturers, factories, and other agents (each or collectively, a Buyer) must make on or before a specified target date. These agreements may result in unconditional purchase commitments if a Buyer does not meet the minimum purchase requirements. In the event that a Buyer does not purchase such minimum commitments by the target dates, the Company would be responsible for compliance with any and all minimum purchase commitments under these contracts, and the Company would make additional deposit payments towards the purchase of the remaining minimum commitments and such additional deposits would be returned as the Buyer purchases the remaining minimum commitments. The contracts do not permit net settlement. There were $8,322 of deposits on expired sheepskin contracts that have not been fully consumed as of March 31, 2021 which is recorded in other assets in the consolidated balance sheets.

During the year ended March 31, 2021, the Company experienced a shift in product mix that used less of a certain sheepskin grade. As a result, the Company negotiated a deferral of additional deposit payments, which represent remaining minimum commitments under expired sheepskin supply agreements. As of March 31, 2021, the remaining minimum purchase commitment under these expired agreements was approximately $28,000. Subsequent to March 31, 2021 through May 13, 2021, this deposit was paid.

Total future minimum commitments for commodities contracts as of March 31, 2021 were as follows:

Contract Effective Date	Final Target Date	Contract Value		Remaining Commitment
July 2017	September 2019	$	7,200	$	5,223
April 2018	September 2020	45,600		6,443
October 2018	September 2020	27,350		25,336
October 2018	September 2021	41,210		41,210
April 2019	September 2020	8,906		8,906
October 2019	June 2020	28,800		10,580
October 2019	June 2021	16,644		16,644
March 2021	June 2022	21,878		21,878
March 2021	September 2022	22,200		14,374
		$	219,788	$	150,594

The Company expects that purchases made under these agreements in the ordinary course of business will eventually exceed the minimum commitment levels, and that any deposits will become fully refundable or will be reflected as a credit against purchases. The amounts above do not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase obligations, and instead reflect an estimate of its future payment obligations based on information currently available.

Other. The Company had an aggregate of $102,317 of other purchase commitments as of March 31, 2021, which consisted of minimum commitments for logistics arrangements, an IT agreement for a new inventory planning system, requirements to pay promotional expenses, and other commitments under service contracts.

Litigation. From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on its business, results of operations, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.

On March 28, 2016, the Company filed a lawsuit alleging trademark infringement, patent infringement, unfair competition and violation of deceptive trade practices in the US District Court for the Northern District of Illinois Eastern Division (District Court) against Australian Leather. Australian Leather counterclaimed alleging that the UGG brand trademark is invalid. On May 10, 2019, a jury returned a verdict in the Company's favor in its lawsuit against Australian Leather. The District Court entered judgments upholding the UGG brand trademark on February 6 and June 8, 2020. On August 12, 2020, Australian Leather filed an appeal to the US Court of Appeals for the Federal Circuit. On May 7, 2021, the US Court of Appeals affirmed the District Court’s ruling dismissing Australian Leather’s affirmative defenses and counterclaims and upholding the UGG brand trademark. It is unknown whether Australian Leather will challenge the decision of the Court of Appeals.

Indemnification. The Company has agreed to indemnify certain of its licensees, distributors, and promotional partners in connection with claims related to the use of the Company’s intellectual property. The terms of such agreements range up to five years initially and generally do not provide for a limitation on the maximum potential future payments. From time to time, the Company also agrees to indemnify its licensees, distributors, and promotional partners in connection with claims that the Company’s products infringe on the intellectual property rights of third parties. These agreements may or may not be made pursuant to a written contract. In addition, from time to time, the Company also agrees to standard indemnification provisions in commercial agreements 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 is made based on a prior history of insignificant claims and related payments. There are currently no pending claims relating to indemnification matters involving the Company’s intellectual property.