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Commitments and Contingencies | 12 Months Ended
--- | ---
Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts which vary in lease terms but, in the aggregate, continue in effect through calendar year 2033. Some of the Company's operating leases contain extension options between 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 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. The Company has a centralized treasury function, which enables the Company to use a portfolio approach to discount lease obligations. 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,
| 2023 |  | 2022 |  | 2021
Operating | $ | 52,961 |  |  | $ | 51,126 |  |  | $ | 52,849 |
Variable | 30,309 |  |  | 24,265 |  |  | 24,033 |
Short-term | 5,729 |  |  | 3,428 |  |  | 3,015 |
Total | $ | 88,999 |  |  | $ | 78,819 |  |  | $ | 79,897 |
Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2023, 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
2024 |  | $ | 54,948 |
2025 |  | 42,694 |
2026 |  | 44,557 |
2027 |  | 39,779 |
2028 |  | 32,838 |
Thereafter |  | 62,359 |
Total undiscounted future lease payments |  | 277,175 |
Less: Imputed interest |  | (30,687) |
Total |  | $ | 246,488 |
Operating lease liabilities recorded in the consolidated balance sheets exclude an aggregate of $19,506 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced. These leases are primarily for the following: •a new international UGG brand flagship retail store in London, England with an initial term of six years, which the Company expects to commence in the first quarter of its next fiscal year ending March 31, 2024 (next fiscal year); •a new international UGG brand flagship retail store in Munich, Germany with an initial term of five years, which the Company expects to commence in the first quarter of its next fiscal year; and, •a new HOKA brand retail store in Nagoya, Japan with an initial lease term of six years, which the Company expects to commence in the second quarter of its next fiscal year. 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,
| 2023 |  | 2022
Weighted-average remaining lease term in years | 6.0 |  | 5.6
Weighted-average discount rate | 3.2 | % |  | 2.6 | %
Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases were as follows:
| Years Ended March 31,
| 2023 |  | 2022 |  | 2021
Non-cash operating activities |  |  |  |  |
Operating lease assets obtained in exchange for lease liabilities* | $ | 84,988 |  |  | $ | 50,190 |  |  | $ | 9,861 |
Reductions to operating lease assets for reductions to lease liabilities* | (1,903) |  |  | (5,293) |  |  | (12,051) |
*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 $668,388 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2023. The Company has an extended design and manufacturing process, which requires it to forecast production volumes and estimate inventory requirements several 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 required product lead time and the timing of 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. A significant portion of the purchase commitments can be cancelled by the Company under certain circumstances; however, the occurrence of such circumstances is generally limited. As a result, the amount does not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase obligations for products, and instead reflects an estimate of its future payment commitments based on information currently available. Commodities. The Company has an aggregate of $175,099 remaining for commodity purchase commitments, primarily for sheepskin, wool (primarily for UGGpure® (UGGpure)), leather, and sugarcane derived resin or ethylene vinyl acetate (EVA), as of March 31, 2023 (collectively, commodity contracts). These commitments generally arise under one to two-year supply agreements. The aggregate amount reflects the remaining commitments under these purchase orders. The Company typically enters into contracts requiring these purchase commitments that its affiliates, manufacturers, factories, and other agents (each, 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 a Buyer does not purchase such minimum commitments by the original target dates, the Company would be responsible for compliance with any and all minimum purchase commitments under these contracts, either through deposits or non-cancellable fees. For certain sheepskin supply agreements, 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, as these sheepskin supply agreements do not permit net settlement. There are $16,243 of certain sheepskin supply agreement related deposits, included in the aggregate commodity purchase commitment amount above, that have not been fully consumed as of March 31, 2023, which are recorded in other assets in the consolidated balance sheets. This amount reflects remaining minimum commitments the Company expects will be consumed in future periods in the ordinary course of business, and that any remaining deposits are expected to become fully refundable or will be reflected as a credit against purchases. During the year ended March 31, 2023, the Company received refunds of deposits of $16,877 reflecting the return of funds previously advanced to sheepskin suppliers under certain expired supply agreements. Recently, the Company began to enter into purchasing contracts for sugarcane derived resin or EVA, which is used to manufacture a significant portion of UGG brand products. While EVA purchasing contracts do not require deposits when minimum volumes are not fully consumed; they are non-cancellable and are subject to fees. Total future minimum commitments for commodity contracts as of March 31, 2023, are as follows:
Contract Effective Date |  | Original Target Date |  | Contract Value |  | Remaining Commitment
October 2018* |  | September 2020 |  | $ | 3,600 |  |  | $ | 1,586 |
October 2018 |  | September 2021 |  | 2,560 |  |  | 2,560 |
August 2021* |  | September 2022 |  | 25,200 |  |  | 14,657 |
August 2021 |  | September 2022 |  | 35,000 |  |  | 10,372 |
November 2021 |  | December 2022 |  | 2,450 |  |  | 2,185 |
August 2021 |  | September 2023 |  | 72,000 |  |  | 49,102 |
December 2021 |  | September 2024 |  | 32,920 |  |  | 21,326 |
Contract Effective Date |  | Original Target Date |  | Contract Value |  | Remaining Commitment
December 2022 |  | September 2024 |  | 45,800 |  |  | 43,945 |
April 2022 |  | December 2024 |  | 21,561 |  |  | 18,266 |
December 2022 |  | September 2025 |  | 11,100 |  |  | 11,100 |
|  | $ | 252,191 |  |  | $ | 175,099 |
*Expired sheepskin supply agreements with minimum purchase obligation deposits outstanding reflected in the remaining commitment balance, as disclosed above. The amounts in the table 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. Othe r. The Company has an aggregate of $234,837 of other purchase commitments as of March 31, 2023. Included within these purchase commitments are third-party logistics provider (3PL) arrangements, sales management services, supply chain services, information technology (IT) services, promotional expenses, and other commitments under service contracts, which are required to be paid during the fiscal years ending March 31, 2024, through 2028. Litigation. From time to time, the Company is involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these matters cannot be predicted with certainty, the Company believes it is not currently a party to any legal proceedings, disputes, or other claims for which a material loss is considered probable and for which the amount (or range) of loss is reasonably estimable. However, regardless of the merit of the claims raised or the outcome, these ordinary course matters can have an adverse impact on the Company as a result 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.
Commitments and Contingencies | Commitments and Contingencies Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts which vary in lease terms but, in the aggregate, continue in effect through calendar year 2033. Some of the Company's operating leases contain extension options between 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 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. The Company has a centralized treasury function, which enables the Company to use a portfolio approach to discount lease obligations. 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,
| 2023 |  | 2022 |  | 2021
Operating | $ | 52,961 |  |  | $ | 51,126 |  |  | $ | 52,849 |
Variable | 30,309 |  |  | 24,265 |  |  | 24,033 |
Short-term | 5,729 |  |  | 3,428 |  |  | 3,015 |
Total | $ | 88,999 |  |  | $ | 78,819 |  |  | $ | 79,897 |
Operating Lease Liabilities. Maturities of undiscounted operating lease liabilities remaining as of March 31, 2023, 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
2024 |  | $ | 54,948 |
2025 |  | 42,694 |
2026 |  | 44,557 |
2027 |  | 39,779 |
2028 |  | 32,838 |
Thereafter |  | 62,359 |
Total undiscounted future lease payments |  | 277,175 |
Less: Imputed interest |  | (30,687) |
Total |  | $ | 246,488 |
Operating lease liabilities recorded in the consolidated balance sheets exclude an aggregate of $19,506 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced. These leases are primarily for the following: •a new international UGG brand flagship retail store in London, England with an initial term of six years, which the Company expects to commence in the first quarter of its next fiscal year ending March 31, 2024 (next fiscal year); •a new international UGG brand flagship retail store in Munich, Germany with an initial term of five years, which the Company expects to commence in the first quarter of its next fiscal year; and, •a new HOKA brand retail store in Nagoya, Japan with an initial lease term of six years, which the Company expects to commence in the second quarter of its next fiscal year. 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,
| 2023 |  | 2022
Weighted-average remaining lease term in years | 6.0 |  | 5.6
Weighted-average discount rate | 3.2 | % |  | 2.6 | %
Supplemental information for amounts presented in the consolidated statements of cash flows related to operating leases were as follows:
| Years Ended March 31,
| 2023 |  | 2022 |  | 2021
Non-cash operating activities |  |  |  |  |
Operating lease assets obtained in exchange for lease liabilities* | $ | 84,988 |  |  | $ | 50,190 |  |  | $ | 9,861 |
Reductions to operating lease assets for reductions to lease liabilities* | (1,903) |  |  | (5,293) |  |  | (12,051) |
*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 $668,388 of outstanding purchase orders or other obligations with its manufacturers as of March 31, 2023. The Company has an extended design and manufacturing process, which requires it to forecast production volumes and estimate inventory requirements several 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 required product lead time and the timing of 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. A significant portion of the purchase commitments can be cancelled by the Company under certain circumstances; however, the occurrence of such circumstances is generally limited. As a result, the amount does not necessarily reflect the dollar amount of the Company’s binding commitments or minimum purchase obligations for products, and instead reflects an estimate of its future payment commitments based on information currently available. Commodities. The Company has an aggregate of $175,099 remaining for commodity purchase commitments, primarily for sheepskin, wool (primarily for UGGpure® (UGGpure)), leather, and sugarcane derived resin or ethylene vinyl acetate (EVA), as of March 31, 2023 (collectively, commodity contracts). These commitments generally arise under one to two-year supply agreements. The aggregate amount reflects the remaining commitments under these purchase orders. The Company typically enters into contracts requiring these purchase commitments that its affiliates, manufacturers, factories, and other agents (each, 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 a Buyer does not purchase such minimum commitments by the original target dates, the Company would be responsible for compliance with any and all minimum purchase commitments under these contracts, either through deposits or non-cancellable fees. For certain sheepskin supply agreements, 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, as these sheepskin supply agreements do not permit net settlement. There are $16,243 of certain sheepskin supply agreement related deposits, included in the aggregate commodity purchase commitment amount above, that have not been fully consumed as of March 31, 2023, which are recorded in other assets in the consolidated balance sheets. This amount reflects remaining minimum commitments the Company expects will be consumed in future periods in the ordinary course of business, and that any remaining deposits are expected to become fully refundable or will be reflected as a credit against purchases. During the year ended March 31, 2023, the Company received refunds of deposits of $16,877 reflecting the return of funds previously advanced to sheepskin suppliers under certain expired supply agreements. Recently, the Company began to enter into purchasing contracts for sugarcane derived resin or EVA, which is used to manufacture a significant portion of UGG brand products. While EVA purchasing contracts do not require deposits when minimum volumes are not fully consumed; they are non-cancellable and are subject to fees. Total future minimum commitments for commodity contracts as of March 31, 2023, are as follows:
Contract Effective Date |  | Original Target Date |  | Contract Value |  | Remaining Commitment
October 2018* |  | September 2020 |  | $ | 3,600 |  |  | $ | 1,586 |
October 2018 |  | September 2021 |  | 2,560 |  |  | 2,560 |
August 2021* |  | September 2022 |  | 25,200 |  |  | 14,657 |
August 2021 |  | September 2022 |  | 35,000 |  |  | 10,372 |
November 2021 |  | December 2022 |  | 2,450 |  |  | 2,185 |
August 2021 |  | September 2023 |  | 72,000 |  |  | 49,102 |
December 2021 |  | September 2024 |  | 32,920 |  |  | 21,326 |
Contract Effective Date |  | Original Target Date |  | Contract Value |  | Remaining Commitment
December 2022 |  | September 2024 |  | 45,800 |  |  | 43,945 |
April 2022 |  | December 2024 |  | 21,561 |  |  | 18,266 |
December 2022 |  | September 2025 |  | 11,100 |  |  | 11,100 |
|  | $ | 252,191 |  |  | $ | 175,099 |
*Expired sheepskin supply agreements with minimum purchase obligation deposits outstanding reflected in the remaining commitment balance, as disclosed above. The amounts in the table 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. Othe r. The Company has an aggregate of $234,837 of other purchase commitments as of March 31, 2023. Included within these purchase commitments are third-party logistics provider (3PL) arrangements, sales management services, supply chain services, information technology (IT) services, promotional expenses, and other commitments under service contracts, which are required to be paid during the fiscal years ending March 31, 2024, through 2028. Litigation. From time to time, the Company is involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these matters cannot be predicted with certainty, the Company believes it is not currently a party to any legal proceedings, disputes, or other claims for which a material loss is considered probable and for which the amount (or range) of loss is reasonably estimable. However, regardless of the merit of the claims raised or the outcome, these ordinary course matters can have an adverse impact on the Company as a result 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.

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