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

12 Months Ended

Dec. 31, 2011

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

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

(10) 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 (see note 1), 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 its other brands, its eCommerce 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 eCommerce 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 which 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 business segment. The unallocated corporate overhead costs include the following: costs of the distribution centers, certain executive and stock compensation, accounting and finance, legal, information technology, human resources, and facilities costs, among others. The gross profit derived from the sales to third parties of the eCommerce and retail stores segments is separated into two components: (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and (ii) the retail profit is included in the operating income of the eCommerce and retail stores segments. In prior periods, the gross profit of the international portion of the eCommerce and retail stores segments included both the wholesale and retail profit. This change in segment reporting only changed the presentation within the below table and did not impact the Company's consolidated financial statements for any periods. The segment information for the years ended December 31, 2010 and 2009 has been adjusted retrospectively to conform to the current period presentation.

        The Company's other brands include Simple®, TSUBO®, Ahnu®, and MOZO®. The Company ceased distribution of the Simple brand effective December 31, 2011. The wholesale operations of the Company's other brands are included as one reportable segment, other wholesale, presented in the figures below. The Sanuk brand operations are included in the Company's segment reporting effective upon the acquisition date of July 1, 2011. Business segment information is summarized as follows:

	Years Ended December 31,
	2011			2010			2009
Net sales to external customers:
UGG wholesale	$	915,203		$	663,854		$	566,964
Teva wholesale		118,742			96,207			71,952
Sanuk wholesale		26,039			—			—
Other brands wholesale		21,801			23,476			19,644
eCommerce		106,498			91,808			75,666
Retail stores		189,000			125,644			78,951
	$	1,377,283		$	1,000,989		$	813,177
Income (loss) from operations:
UGG wholesale	$	388,275		$	307,478		$	235,849
Teva wholesale		20,267			18,684			12,495
Sanuk wholesale		797			—			—
Other brands wholesale		(9,524	)		(6,184	)		(14,698	)
eCommerce		24,255			23,536			21,073
Retail stores		31,461			27,310			15,361
Unallocated overhead		(170,693	)		(121,736	)		(88,833	)
	$	284,838		$	249,088		$	181,247
Depreciation and amortization:
UGG wholesale	$	4,375		$	112		$	253
Teva wholesale		587			2,024			267
Sanuk wholesale		5,125			—			—
Other brands wholesale		533			1,125			1,013
eCommerce		540			232			210
Retail stores		6,082			3,018			2,365
Unallocated overhead		8,185			5,772			4,352
	$	25,427		$	12,283		$	8,460
Capital expenditures:
UGG wholesale	$	706		$	1,155		$	52
Teva wholesale		305			150			21
Sanuk wholesale		1,778			—			—
Other brands wholesale		198			226			1,260
eCommerce		1,419			1,030			304
Retail stores		22,297			11,296			6,498
Unallocated overhead		29,083			9,191			5,836
	$	55,786		$	23,048		$	13,971
Total assets from reportable segments:
UGG wholesale	$	347,213		$	194,028		$	130,493
Teva wholesale		61,893			49,849			31,105
Sanuk wholesale		217,936			—			—
Other brands wholesale		10,690			12,031			11,551
eCommerce		5,964			4,053			2,431
Retail stores		80,514			39,377			27,931
	$	724,210		$	299,338		$	203,511

        The assets allocable to each segment generally 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 consolidated balance sheets are as follows:

	December 31,
	2011		2010
Total assets from reportable segments	$	724,210	$	299,338
Unallocated cash and cash equivalents		263,606		445,226
Unallocated deferred tax assets		27,637		27,123
Other unallocated corporate assets		130,743		37,307
Consolidated total assets	$	1,146,196	$	808,994

        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 (FDIC) 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 December 31, 2011, 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 treasuries and government agencies, 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 the European debt crisis, which have affected various sectors of the financial markets. As of December 31, 2011, the Company had experienced no loss or lack of access to its invested cash and cash equivalents.

        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 31.4%, 23.7%, and 20.6% of the Company's total net sales for the years ended December 31, 2011, 2010, and 2009, respectively. For the year ended December 31, 2011, no single foreign country comprised more than 10% of total sales. 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, by major country were as follows:

	December 31,
	2011		2010
US	$	65,034	$	36,591
UK		6,703		6,753
All other countries*		18,520		4,393
Total	$	90,257	$	47,737

*

No other country's long-lived assets comprised more than 10% of total long-lived assets as of December 31, 2011 and 2010.

        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 in the year ended December 31, 2011. One customer accounted for 11.9%, and 13.2% of the Company's net sales in 2010, and 2009, respectively. This customer's revenues were generated from UGG, Teva, and other wholesale segments. No other customer accounted for more than 10% of net sales in the years ended December 31, 2010, and 2009. As of December 31, 2011, the Company had one customer representing 17.1% of net trade accounts receivable. As of December 31, 2010, the Company had one customer representing 33.2% and another customer representing 10.1% of net trade accounts receivable.

        The Company's production is concentrated at a limited number of independent contractor factories in China. The Company's sourcing is concentrated in Australia and China and include a limited number of key sources for the principal raw material for certain UGG products, sheepskin. 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.