Leases and Other Commitments

12 Months Ended

Mar. 31, 2022

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 lease 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 were as follows:

	Years Ended March 31,
	2022		2021		2020
Operating	$	51,126	$	52,849	$	57,966
Variable	24,265		24,033		26,996
Short-term	3,428		3,015		3,332
Total	$	78,819	$	79,897	$	88,294

Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2022, 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*
2023	$	53,886
2024	47,021
2025	36,646
2026	31,594
2027	27,057
Thereafter	42,550
Total undiscounted future lease payments	238,754
Less: Imputed interest	(16,684)
Total	$	222,070

In April 2022, the Company signed a lease for additional space at the Company’s US warehouse and distribution center (DC) in Mooresville, Indiana with an initial lease term of ten years for a minimum commitment of approximately $46,000, which the Company expects to be operational in the third quarter of the fiscal year ending March 31, 2024.

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

	As of March 31,
	2022		2021
Weighted-average remaining lease term in years	5.6		6.0
Weighted-average discount rate	2.6	%	3.1	%

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

	Years Ended March 31,
	2022		2021		2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*	$	50,190	$	9,861	$	71,097
Reductions to operating lease assets for reductions to lease liabilities*	(5,293)		(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 has $809,812 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2022. 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 three to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from customers and consumers. 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 has an aggregate of $206,979 remaining purchase commitments, primarily for sheepskin, as well as UGGpure and leather, as of March 31, 2022. 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 these purchase commitments 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 are $33,120 of deposits, included in the amount above, that have not been fully consumed as of March 31, 2022, which are recorded in other assets in the consolidated balance sheets, which represent remaining minimum commitments under certain expired sheepskin supply agreements that the Company currently expects will be consumed in future periods.

Total future minimum commitments for commodities contracts as of March 31, 2022, are as follows:

Contract Effective Date	Final Target Date	Contract Value		Remaining Commitment
July 2017	September 2019	$	7,200	$	5,223
October 2018	September 2020	3,600		1,586
October 2018	September 2021	41,210		34,272
March 2021	June 2022	6,104		2,033
November 2021	June 2022	19,635		8,508
August 2021	September 2022	60,200		44,994
November 2021	December 2022	2,450		2,450
November 2021	June 2023	4,900		4,900
August 2021	September 2023	72,000		72,000
December 2021	September 2024	32,920		31,013
		$	250,219	$	206,979

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 has an aggregate of $207,651 of other purchase commitments as of March 31, 2022, which consisted of minimum commitments for logistics arrangements, sales management services, supply chain services, information technology (IT) services, 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.

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 lease 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 were as follows:

	Years Ended March 31,
	2022		2021		2020
Operating	$	51,126	$	52,849	$	57,966
Variable	24,265		24,033		26,996
Short-term	3,428		3,015		3,332
Total	$	78,819	$	79,897	$	88,294

Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2022, 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*
2023	$	53,886
2024	47,021
2025	36,646
2026	31,594
2027	27,057
Thereafter	42,550
Total undiscounted future lease payments	238,754
Less: Imputed interest	(16,684)
Total	$	222,070

In April 2022, the Company signed a lease for additional space at the Company’s US warehouse and distribution center (DC) in Mooresville, Indiana with an initial lease term of ten years for a minimum commitment of approximately $46,000, which the Company expects to be operational in the third quarter of the fiscal year ending March 31, 2024.

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

	As of March 31,
	2022		2021
Weighted-average remaining lease term in years	5.6		6.0
Weighted-average discount rate	2.6	%	3.1	%

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

	Years Ended March 31,
	2022		2021		2020
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*	$	50,190	$	9,861	$	71,097
Reductions to operating lease assets for reductions to lease liabilities*	(5,293)		(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 has $809,812 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2022. 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 three to nine months in advance of the anticipated shipment dates based primarily on a combination of product lead time and orders received from customers and consumers. 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 has an aggregate of $206,979 remaining purchase commitments, primarily for sheepskin, as well as UGGpure and leather, as of March 31, 2022. 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 these purchase commitments 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 are $33,120 of deposits, included in the amount above, that have not been fully consumed as of March 31, 2022, which are recorded in other assets in the consolidated balance sheets, which represent remaining minimum commitments under certain expired sheepskin supply agreements that the Company currently expects will be consumed in future periods.

Total future minimum commitments for commodities contracts as of March 31, 2022, are as follows:

Contract Effective Date	Final Target Date	Contract Value		Remaining Commitment
July 2017	September 2019	$	7,200	$	5,223
October 2018	September 2020	3,600		1,586
October 2018	September 2021	41,210		34,272
March 2021	June 2022	6,104		2,033
November 2021	June 2022	19,635		8,508
August 2021	September 2022	60,200		44,994
November 2021	December 2022	2,450		2,450
November 2021	June 2023	4,900		4,900
August 2021	September 2023	72,000		72,000
December 2021	September 2024	32,920		31,013
		$	250,219	$	206,979

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 has an aggregate of $207,651 of other purchase commitments as of March 31, 2022, which consisted of minimum commitments for logistics arrangements, sales management services, supply chain services, information technology (IT) services, 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.

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.