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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                 to


Commission File No. 0-51754



CROCS, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

20-2164234(I.R.S. Employer
Identification No.)


6328 Monarch Park Place
Niwot, Colorado 80503
(303) 848-7000(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)

Securities
registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered:Common Stock, par value $0.001 per share

The NASDAQ Global Select Market


Securities
registered pursuant to Section 12(g) of the Act:None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendment to the Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2010 was $915.0 million.
For the purpose of the foregoing calculation only, all directors and executive officers of the registrant and owners of more than 5% of the registrant's common stock are assumed to be affiliates of
the registrant. This determination of affiliate status is not necessarily conclusive for any other purpose.

The
number of shares of the registrant's common stock outstanding as of January 31, 2011 was 88,690,768.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant's proxy statement for the 2011 annual meeting of stockholders to be filed no
later than 120 days after the end of the registrant's fiscal year ended December 31, 2010.



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Crocs, Inc.  2010 Annual Report on Form 10-K

Table of Contents



PART IItem 1.

Business

1Item 1A.

Risk Factors

9Item 1B.

Unresolved Staff Comments

18Item 2.

Properties

18Item 3.

Legal Proceedings

19Item 4.

Reserved

20PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

21Item 6.

Selected Financial Data

23Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

44Item 8.

Financial Statements and Supplementary Data

45Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

45Item 9A.

Controls and Procedures

45Item 9B.

Other Information

47PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

47Item 11.

Executive Compensation

47Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

47Item 13.

Certain Relationships and Related Transactions, and Director Independence

47Item 14.

Principal Accountant Fees and Services

47PART IVItem 15.

Exhibits and Financial Statement Schedules

48Signatures

51


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PART I

ITEM 1.    BUSINESS

The Company

Crocs, Inc. and its consolidated subsidiaries (collectively the "Company," "we," "our" or "us") is a designer, manufacturer,
distributor, worldwide marketer and brand manager of footwear and accessories for men, women and children. We strive to be the global leader in molded footwear design and development which feature
fun, comfort and functionality. Our products include footwear and accessories that utilize our proprietary closed cell-resin, called Croslite. The use of this unique material allows us to
produce innovative, lightweight, non-marking and odor-resistant footwear. Certain shoes made with the Croslite material have been certified by U.S. Ergonomics to reduce peak
pressure on the foot, reduce muscular fatigue while standing and walking and to relieve the musculoskeletal system. We currently sell our products in more than 90 countries through domestic and
international retailers and distributors, and directly to end-user consumers through our company-operated retail stores, outlets, kiosks and webstores.

We
were organized in 1999 as a limited liability company. Shortly after completing our first footwear design produced by Foam Creations, Inc. (now known as Crocs
Canada Inc., "Crocs Canada,") and Finproject N.A., Inc. in 2002, we launched the marketing and distribution footwear products under the Crocs brand in the United States. The unique
characteristics of Croslite, which was developed by Crocs Canada, enabled us to offer consumers a shoe unlike any other footwear model then available. In 2004, we acquired Crocs Canada, including its
manufacturing operations, product lines, and rights to the trade secrets for the Croslite material. In January 2005, we converted to a Colorado corporation and subsequently re-incorporated
as a Delaware corporation in June 2005. In February 2006, we completed our initial public offering and trading of our common stock on NASDAQ commenced. Our business has grown both organically and
through acquisitions which have enabled us to expand the Croslite product-line as well as to include a variety of new products and styles. We aim to continue to expand our
product-line and bring a unique and original perspective to the consumer in styles that may be unexpected from Crocs.

We
are advocates of our global community and environment. We introduced a shoe donation program currently operating under our "Crocs Cares" program. We have donated millions of Crocs
shoes to those in need in both the local and global communities we serve. In addition to the donation program, Crocs Cares aims to establish a comprehensive program focused on internal team building
and community awareness by providing Crocs employees the opportunity to volunteer in their community. Also, our wholly-owned subsidiary Ocean Minded takes an active role in protecting the oceans,
rivers and beaches through beach clean-ups, support of the Surfrider Foundation and through various other charitable efforts.

Products

While the majority of our products consist of footwear, we also offer accessories which generated approximately 4.0% of our total
revenues during the year ended December 31, 2010, and to a much smaller extent, apparel which generated approximately 0.1%. Our footwear products are divided into four product offerings: Core,
Active, Casual and Style. The Core product offering primarily includes molded products that are derivatives of the original Crocs Classic designs and is targeted toward a wide range of consumers. The
Active product offering is comprised of footwear intended for healthy living and includes sport-inspired products and footwear suited for activities such as boating, walking, hiking and even recovery
after workouts. The Casual product offering includes sporty and relaxed styles appealing to a broad range of customers. The Style product offering includes stylish products which are intended to
broaden the wearing occasion for Crocs lovers.

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In
2010, we extended licensing agreements with Disney, Nickelodeon, Marvel, Dreamworks, HIT Entertainment, Mario Batali, and The Collegiate Licensing Company among others, for Crocs
branded footwear and/or Jibbitz shoe charms (discussed below). In addition, we entered into new licensing agreements with LEGO and Mattel (Barbie) in 2010. We also offer a line of footwear and Jibbitz
charms featuring such popular characters as Mickey and Minnie Mouse, Ariel, Sponge Bob Square Pants, Dora the Explorer, Scooby-Doo and Hello Kitty, as well as characters from motion
pictures including Toy Story and Cars. In addition, we are exploring opportunities to license out the Crocs brand name as part of a strategy to extend Crocs into new product types including
accessories and children's apparel.

Footwear

Our footwear product offering has grown significantly since we first introduced the Crocs single style clog in six colors, in 2002. We
currently offer a wide product line of footwear, some of which include boots, sandals, sneakers, mules and flats which are made of materials like leather and textile fabrics as well as Croslite. In
addition to the Crocs brand, some of our market specific product lines include the following.



A
key differentiating feature of our footwear products is the Croslite material, which is uniquely suited for comfort and functionality. We have carefully formulated the Croslite
material to be of a density that creates extremely lightweight, comfortable and non-marking footwear which conforms to the shape of the foot, often reducing pressure points on the foot to
increase comfort. Croslite is a closed cell resin material which is water resistant, virtually odor free, and allows many of our footwear styles to be cleaned simply with water. As we have expanded
our product offering, we have incorporated traditional materials such as textile fabric and leather into many new styles. However, we continue to utilize the Croslite material for the foot bed, sole
and other key structural components for the majority of these styles.

Footwear
sales made up 95.5%, 94.6%, and 91.6% of total revenues for the years ended December 31, 2010, 2009, and 2008, respectively. During the years ended December 31,
2010, 2009 and 2008, approximately 75.5%, 77.5% and 77.9% of unit sales consisted of products geared towards adults,

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respectively,
compared to 24.5%, 22.5% and 22.1% of unit sales of products geared towards children, respectively. Sales of our Crocs Classic models accounted for 9.9%, 15.8%, and 24.8% of total unit
sales for the years ended December 31, 2010, 2009 and 2008, respectively. We believe that the declining percentage of our original styles is reflective of our continued efforts to diversify our
product-line and reduce reliance on original styles.

Accessories

In addition to our footwear brands, we own the Jibbitz brand, a unique accessory product-line with colorful
snap-on charms specifically suited for Crocs shoes. We acquired Jibbitz, LLC ("Jibbitz") in December 2006 and have expanded the product-line to include a wide variety of
charms in varying shapes and sizes, with designs such as flowers, sports gear, seasonal and holiday designs, animals, symbols, letters and rhinestones. Crocs licensing agreements also extend to
Jibbitz, which allows Jibbitz to create designs bearing logos and emblems of Disney, Nickelodeon and the Crocs collegiate line, among others. Jibbitz designs allow Crocs consumers to personalize their
footwear to creatively express their individuality. As of December 31, 2010, approximately 700 unique Jibbitz charm designs were available to consumers for personalizing their Crocs footwear.
Sales from Jibbitz designs made up 3.5%, 3.9%, and 6.5% of total revenues for the years ended December 31, 2010, 2009, and 2008, respectively.

Sales and Marketing

While the broad appeal of our footwear has allowed us to market our products in a wide range of distribution channels, including
department stores, traditional footwear retailers and a variety of specialty and independent retail channels, our marketing approach has become significantly target defined. Our marketing efforts
center on specific product launches and employ a fully integrated approach utilizing a variety of media outlets, including print, the internet and television. We have three primary sales channels:
wholesale, retail and internet. Our marketing efforts drive business to both our wholesale partners and our company-operated retail and internet stores, ensuring that our presentation and story are
first class and drive purchasing at the point of sale.

Wholesale Channel

During the years ended December 31, 2010, 2009 and 2008, approximately 61.0%, 62.6% and 76.5% of net revenues, respectively,
were derived from sales through the wholesale channel which consists of sales to distributors and third-party retailers. Wholesale customers include national and regional retail chains, department
stores, sporting goods stores and family footwear retailers, such as Nordstrom, Journeys, Dillard's, Dick's Sporting Goods, The Sports Authority, The Forzani Group, Famous Footwear, DSW and Xebio, as
well as on-line retailers such as Zappos, Amazon and Shoebuy.com. No single customer accounted for 10% or more of revenues for the year ended December 31, 2010, 2009 or 2008.

We
use third-party distributors in select markets where we believe such arrangements are preferable to direct sales. These third-party distributors purchase products pursuant to a price
list and are granted the right to resell the products in a defined territory, usually a country or group of countries. Our typical distribution agreements have terms of one to four years, are
generally terminable on 30 days prior notice and have minimum sales requirements. At our discretion, we may accept returns from wholesale customers for defective products, quality issues, and
shipment errors on an exception basis or, for certain wholesale customers, extend pricing discounts in lieu of defective product returns. Also at our discretion, we may accept returns from our
wholesale customers, on an exception basis, for the purpose of stock re-balancing to ensure that our products are merchandised in the proper assortments. Additionally, we may provide
markdown allowances to key wholesale customers to facilitate in-channel product markdowns where sell-through is less than anticipated.

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Consumer-Direct Channels

Consumer-direct sales channels include retail and internet channels and serve as an important and effective means to enhance our
product and brand awareness as they provide direct access to our consumers and an opportunity to showcase our entire line of footwear and accessory offerings. We view the consumer-direct channels to
be complementary to our wholesale channel.

Retail Channel

During the years ended December 31, 2010, 2009 and 2008, approximately 29.5%, 28.0%, and 17.4%, of our net revenues were derived
from sales through our retail channel, which consists of company-operated kiosks, retail and outlet stores.



Internet Channel

As of December 31, 2010 and 2009, we offered our products through 46 and 23 company-operated webstores, respectively worldwide.
During the years ended December 31, 2010, 2009 and 2008, approximately 9.5%, 9.4%, and 6.1% respectively, of our net revenues were derived from sales through our internet channel. Our internet
presence enables us to educate consumers about our products and brand. We continue to expand our web-based marketing efforts to increase consumer awareness of our full product range.

Business Segments and Geographic Information

We have three reportable segments: Americas, Europe and Asia. We also have an Other segment category which aggregates insignificant
operating segments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel and accessories. The composition of our reportable
segments is consistent with that used by our chief operating decision maker ("CODM") to evaluate performance and allocate resources. During the fourth quarter of 2010, we changed the internal segment
reports used by our CODM to separately illustrate performance metrics of certain operating segments which provide manufacturing support, located in Mexico and Italy. These operating segments make up
our Other segment category. Segment information for all periods presented has been restated to reflect this change.

Within
each segment, we sell our products through our wholesale, retail and internet channels. We occasionally utilize sales agents and buying groups in our international locations to
service our wholesale customers. We established a direct sales presence in most major international markets rather than relying on distributors which enables us to obtain better margins and allows us
to better control

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our
marketing and distribution. Financial information relating to our operating segments as well as foreign country revenues and long-lived assets is provided in
Note 15Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements.

Americas

The Americas segment consists of revenues and expenses related to product sales in the North and South America geographic regions.
Regional wholesale channel customers consist of a broad range of sporting goods and department stores as well as specialty retailers. The regional retail channel sells directly to the consumer through
197 company-operated store locations, including kiosks and retail stores in such locations as Orlando, Maui, Boston, New York, Quebec and Montreal, as well as through webstores. During the years ended
December 31, 2010, 2009 and 2008, the regional revenues constituted approximately 47.8%, 46.7% and 50.7% of our consolidated revenues, respectively.

Asia

The Asia segment consists of revenues and expenses related to product sales throughout Asia, Australia, New Zealand, the Middle East
and South Africa. The Asia wholesale channel consists of sales to a broad range of retailers, similar to the wholesale channel we have established in the Americas wholesale channel. We also sell
products directly to the consumer through 159 company-operated stores including kiosks and retail stores in locations such as Yokohama City, Hong Kong, Singapore and Brisbane, as well as through our
webstores. During the years ended December 31, 2010, 2009 and 2008, revenues from the Asia segment constituted 36.1%, 36.8% and 28.4% of our aggregate consolidated revenues, respectively.

Europe Segment

The Europe segment consists of revenues and expenses related to product sales throughout Europe and Russia. Europe segment wholesale
channel customers consist of a broad range of retailers, similar to the wholesale channel we have established in our Americas segment. We also sell our products directly to the consumer through 22
company-operated stores including kiosks and retail stores in locations such as Moscow, Russia; Metzingen, Germany; and London, England, as well as through our webstores. During the years ended
December 31, 2010, 2009 and 2008, revenues from the Europe segment constituted 16.2%, 16.4% and 20.7% of our aggregate consolidated revenues, respectively.

Distribution and Logistics

On an ongoing basis, we look to enhance our distribution and logistics network so as to further streamline our supply chain, increase
our speed to market and lower costs. In 2008, we consolidated our distribution and logistics network to leverage resources and simplify our fulfillment processes while driving down costs in our
operations. During 2009, we continued to streamline our distribution strategy based upon projected economic conditions and demand for our products to further consolidate global distribution centers
and warehousing thereby decreasing fixed costs.

During
the year ended December 31, 2010, we stored our raw material and finished goods inventories in company-operated warehouse and distribution facilities located in,
California, Puerto Rico, Mexico, the Netherlands, Japan, China and South Africa. We also utilized distribution centers which were operated by third parties located in Brazil, Finland, Australia,
Dubai, Hong Kong, Korea, Singapore, India, Taiwan and China. Throughout 2010, we continued to engage in efforts to consolidate our global warehouse and distribution facilities to maintain a lean cost
structure. As of December 31, 2010 and 2009, our company-operated warehouse and distribution facilities provided us with 1.3 million square feet and 1.5 million square feet,
respectively, and our third-party operated distribution facilities provided us with 0.3 million square feet and 0.2 million square feet, respectively. We also ship a portion

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of
our products directly to our customers from our internal and third-party manufacturers. We are actively pursuing initiatives aimed at shipping more of our product directly to our customers, which,
if successful, is expected to lower our cost of sales in the future.

Raw Materials

Croslite material, our proprietary closed-cell resin, is the primary raw material used in the majority of our footwear and
some of our accessories. Croslite material is soft and durable and allows our material to be non-marking in addition to being extremely lightweight. We continue to invest in research and
development in order to refine our materials to enhance these properties and to target the development of new properties for specific applications.

Croslite
material is produced by compounding elastomer resins that we or one of our third-party processors purchase from major chemical manufacturers together with certain other
production inputs such as color dyes. At this time, we have identified two suppliers that produce the particular elastomer resins used in the Croslite material. We may, however, in the future identify
and utilize materials produced by other suppliers as an alternative to the elastomer resins we currently use in the production of our proprietary material. All of the other raw materials that we use
to produce the Croslite material are readily available for purchase from multiple suppliers.

Since
our inception, we have substantially increased the number of footwear products that we offer. Many of our new products are constructed using leather, textile fabrics or other
non-Croslite materials. We or our third-party manufacturers obtain these materials from a number of third-party sources and we believe these materials are broadly available. We compound
Croslite material internally in Mexico utilizing subcomponent materials produced by a third party in the U.S. We also outsource the compounding of Croslite material and continue to purchase a portion
of our compounded raw materials from a third party in Europe.

Design and Development

We have expanded into new footwear categories by designing new footwear styles using both internal designers and external recognized
footwear design experts. As part of this strategy, we acquired EXO Italia ("EXO") in 2006, which expanded our internal design capabilities. EXO is based in Padova, Italy and is an Italian producer of
EVA (Ethylene Vinyl Acetate) based finished products, primarily for the footwear industry. By introducing outside sources to the design process, we are able to capture a variety of different design
perspectives on a cost-efficient basis and anticipate trends more quickly.

We
continue to dedicate significant resources to product design and development as we develop footwear styles based on opportunities we identify in the marketplace. Our design and
development process is highly collaborative, as members of the design team frequently meet with sales and marketing staff, production and supply managers and certain of our retail customers to further
refine our products to meet the particular needs of our target market. We continually strive to improve our development function so we can bring products to market quickly and reduce costs while
maintaining product quality. We spent $7.8 million, $7.7 million and $6.4 million in research, design and development activities for the years ended December 31, 2010,
2009, and 2008, respectively.

Manufacturing and Sourcing

Our strategy is to maintain a flexible, globally diversified, low-cost manufacturing base. We currently have
company-operated production facilities in Mexico and Italy. We also contract with third-party manufacturers to produce certain of our footwear styles or provide support to our internal production
processes. We believe that our internal manufacturing capabilities enable us to rapidly make changes to production, providing us with the flexibility to quickly respond to orders for high demand
models and colors throughout the year, while outsourcing allows us to capitalize on the efficiencies and

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cost
benefits of using contracted manufacturing services. We believe this strategy will continue to minimize our production costs, increase overall operating efficiencies and shorten production and
development times.

In
the years ended December 31, 2010, 2009 and 2008, we manufactured approximately 21.0%, 26.4% and 16.6%, respectively, of our footwear products internally and sourced the
remaining footwear
production from multiple third-party manufacturers in China and Bosnia. During the years ended December 31, 2010, 2009 and 2008, our largest third-party supplier in China produced approximately
38.8%, 35.7%, and 48.8%, respectively, of our footwear unit volume. We do not have written supply agreements with our primary third-party manufacturers in China.

Intellectual Property and Trademarks

We rely on a combination of trademark, copyright, trade secret, trade dress, and patent protection to establish, protect, and enforce
our intellectual property rights in our product designs, brand, materials, and research and development efforts, although no such methods can afford complete protection. We own or license the material
trademarks used in connection with the marketing, distribution and sale of all of our products, both domestically and internationally, where our products are currently either sold or manufactured. Our
major trademarks include the Crocs logo and design and the Crocs word mark, both of which are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China and Canada among
other places. We also have registrations or pending registrations for trademark rights or have pending trademark applications for the marks Jibbitz, Jibbitz Logo, YOU by Crocs, YOU by Crocs Logo,
Ocean Minded, Tail Logo, Bite, Bite Logo, Crocband, Crocs Tone and Crocs Littles, as well as for our proprietary material Croslite and the Croslite logo, globally. We intend to continue to
strategically register, both domestically and internationally, the trademarks and copyrights we utilize today and those we develop in the future. We will also continue to aggressively police our
trademarks and copyrights and pursue those who infringe, both domestically and internationally as we deem necessary.

In
the U.S., our patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks registered within and outside of the U.S.
are generally valid as long as they are in use and their registrations are properly maintained and have not been found to become generic. We believe our trademarks are crucial to the successful
marketing and sale of our products, and we intend to vigorously prosecute and defend our intellectual property rights throughout the world.

We
consider the formulation of the Croslite material used to produce our products to be a valuable trade secret. Prior to our acquisition of Crocs Canada in June 2004, Crocs Canada
developed the formula for the Croslite material, and we believe that it did not publish or otherwise make the formula available to third parties without the protection of confidentiality or similar
agreements. Post acquisition, we continue to protect the formula by using confidentiality agreements with our third-party processors and by requiring our employees who have access to the formula to
execute confidentiality agreements or to be bound by similar agreements concerning the protection of our confidential information. Neither we nor Crocs Canada have attempted to seek patent protection
for the formula. We are not aware of any third party that has independently developed the formula or that otherwise has the right to use the formula in their products other than Finproject, our
third-party supplier of Croslite in Italy and another third-party licensee. Under the terms of our supply agreement with Finproject, Finproject has certain limited rights to use the Croslite material,
which were originally negotiated in connection with our purchase of Crocs Canada from Finproject's parent company. We believe the comfort and utility of our products depend on the properties achieved
from the
compounding of the Croslite material and constitute a key competitive advantage for us, and we intend to vigorously protect this trade secret.

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We
also actively combat counterfeiting through monitoring of the global marketplace. We use our employees, sales representatives, distributors, and retailers to police against infringing
products by encouraging them to notify us of any suspect products and to assist law enforcement agencies. Our sales representatives are also educated on our patents, pending patents, trademarks and
trade dress and assist in preventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protect intellectual property rights to the same extent or
in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for our intellectual property in certain jurisdictions.

Seasonality

Due to the seasonal nature of our footwear which is more heavily focused on styles suitable for warm weather, revenues generated during
our first and fourth quarters are typically less than revenues generated during our second and third quarters, when the northern hemisphere is experiencing warmer weather. We continue to expand our
product line to include more winter-oriented styles to mitigate some of the seasonality of our revenues. Our quarterly results of operations may also fluctuate significantly as a result of a variety
of other factors, including the timing of new model introductions or general economic or consumer conditions. Accordingly, results of operations and cash flows for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for any other year.

Backlog

We receive a significant portion of orders as preseason orders, generally four to five months prior to shipment date. We provide
customers with price incentives to participate in such preseason programs to enable us to better plan our production schedule, inventory and shipping needs. Unfulfilled customer orders as of any date,
are referred to as backlog and represent orders scheduled to be shipped at a future date. Backlog as of a particular date is affected by a number of factors, including seasonality, manufacturing
schedule and the timing of product shipments. Further, the mix of future and immediate delivery orders can vary significantly from period over period. Due to
these factors and since the unfulfilled orders can be canceled at any time prior to shipment by our customers, backlog may not be reliable measure of future sales and comparisons of backlog from
period to period may be misleading. In addition, our historical cancellation experience may not be indicative of future cancellation rates. Backlog as of December 31, 2010 and 2009 was
$258.4 million and $165.0 million, respectively.

Competition

The global casual, athletic and fashion footwear markets are highly competitive. Although we believe that we do not compete directly
with any single company with respect to the entire spectrum of our products, we believe portions of our business compete with companies such as, but not limited to, Nike Inc.,
Heelys Inc., Deckers Outdoor Corp., Skechers USA Inc. and Wolverine World Wide, Inc. Our company-operated retail locations also compete with footwear retailers such as
Nordstrom Inc., Dillards, Dick's Sporting Goods Inc. and Collective Brands Inc.

The
principal elements of competition in these markets include brand awareness, product functionality, design, quality, pricing, customer service, marketing and distribution. We believe
that our unique footwear designs, the Croslite material, our prices, expanded product-line and our distribution network continue to position us well in the marketplace. However, some
companies in the casual footwear and apparel industry have greater financial resources, more comprehensive product lines, broader market presence, longer-standing relationships with wholesalers,
longer operating histories, greater distribution capabilities, stronger brand recognition and greater marketing resources than we currently have. Furthermore, we face competition from new players who
have been attracted to the market with imitation products similar to ours as the result of the unique design and success of our footwear products.

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Employees

As of December 31, 2010, we had approximately 4,000 full-time, part-time and seasonal employees, none of
which were represented by a union.

Available Information

Our internet address is www.crocs.com on which we post the following filings, free of charge, as soon as reasonably practicable after
they are electronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our
current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). Also available on our website are the charters of the committees of our board of directors and our code of ethics. Copies of any of these
documents will be provided in print to any stockholder who submits a request in writing to Integrated Corporate Relations, 761 Main Avenue, Norwalk, CT 06851.

ITEM 1A.    Risk Factors

Special Note Regarding Forward-Looking Statements

Statements in this Form 10-K and in documents incorporated by reference herein (or otherwise made by us or on our
behalf) contain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to
time that contain such statements. Forward looking statements include statements as to industry trends and our future expectations and other matters that do not relate strictly to historical facts and
are based on certain assumptions of our management. These statements are often identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "strive,"
"will," and variations of such words or similar expressions. These statements are based on the beliefs and assumptions of management based on information currently available. Such forward looking
statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward looking statements.
Important factors that could cause actual results to differ materially from the forward looking statements include, without limitation, the risk factors mentioned below. Furthermore, such forward
looking statements speak only as of the date of this report. We undertake no obligation to update any forward looking statements to reflect events or circumstances after the date of such statements.

The
risks included here are not exhaustive. Other sections of this Form 10-K may include additional factors which could adversely affect our business and financial
performance. Since we operate in a very competitive and rapidly changing environment, new risk factors emerge from time to time and it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Current economic conditions may adversely affect consumer spending and the financial health of our customers and others with whom we do business which may adversely affect
our financial condition, results of operations and cash resources.

Uncertainty about the current and future global economic conditions may cause consumers and retailers to defer purchases or cancel
purchase orders for our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in general economic
conditions, both globally and nationally. Recessionary economic cycles,

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higher
interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other
changes in tax laws or other economic factors that may affect consumer spending could continue to adversely affect the demand for our products. As a result, we may not be able to maintain or increase
our sales to existing customers, make sales to new customers, open and operate new retail stores, maintain or increase our international operations on a profitable basis, or maintain or improve our
earnings from operations as a percentage of net sales.

In
addition, the decrease in available credit that has resulted from the weakened economy may result in financial difficulties for our wholesale and retail customers, product suppliers,
insurers, other service providers and the financial institutions that are counterparties to our credit facility and derivative transactions. In particular, our customers may experience diminished
liquidity that could result in reduced orders for our products, order cancellations, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection
efforts and increased bad debt expense. If credit pressures or other financial difficulties result in insolvency for these third parties it could adversely impact our estimated reserves and financial
results.

We face significant competition.

The footwear industry is highly competitive. Recent growth in the market for casual footwear has encouraged the entry of new
competitors into the marketplace and has increased competition from established companies. Our competitors include most major athletic and footwear companies, branded apparel companies, and retailers
with their own private labels. A number of our competitors have: significantly greater financial resources than us, more comprehensive product lines, a broader market presence, longer-standing
relationships with wholesalers, a longer operating history, greater distribution capabilities, stronger brand recognition, and spend substantially more than we do on product advertising and sales. Our
competitors' greater capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production, and
more quickly develop new products. Further, some of our competitors are offering products that are substantially similar, in design and materials, to
Crocs-branded footwear. In addition, access to offshore manufacturing is also making it easier for new companies to enter the markets in which we compete. If we fail to compete successfully in the
future, our sales and profits may decline, we may lose market share, our financial condition may deteriorate, and the market price of our common stock is likely to fall.

We may be unable to successfully execute our long-term growth strategy or maintain our current revenue levels.

Although we exhibited significant growth from our inception through 2007, revenues were significantly lower in 2008, 2009 and 2010,
relative to the peak levels achieved in 2007. We may experience similar decreases in revenues in the future. Our ability to maintain our revenue levels or to grow in the future depends upon, among
other things, the continued success of our efforts to maintain our brand image and bring compelling and revenue-enhancing footwear offerings to market and our ability to expand within our current
distribution channels and increase sales of our products into new locations internationally. Likewise, in order to effectively execute our long-term growth strategy, we will need to
continue to streamline our supply chain to increase operating efficiencies and decrease costs. Successfully executing our long-term growth strategy will depend on many factors, including
the strength of the Crocs brand and competitive conditions in new markets that we attempt to enter, our ability to attract and retain qualified distributors or agents or to develop direct sales
channels, our ability to secure strategic retail store locations, our ability to use and protect the Crocs brand and our other intellectual property, in these new markets and territories, and our
ability to consolidate our network to leverage resources and simplify our fulfillment process. If we are unable to successfully

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maintain
our brand image, expand distribution channels, streamline our supply chain and sell our products in new markets abroad, our business may fail to grow, our brand may suffer and our results of
operations may be adversely impacted.

Expanding our footwear product line may be difficult and expensive. If we are unable to successfully continue such expansion, our brand may be adversely affected and we may
not be able to maintain or grow our current revenue levels or our revenues may continue to decline.

The footwear industry is subject to rapidly changing consumer demands, preferences and fashion trends, and our footwear may not remain
popular or we may fail to develop additional footwear designs that appeal to consumers. To successfully expand our footwear product line, we must anticipate, understand, and react to the rapidly
changing tastes of consumers and provide appealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brand may fall out of favor with
consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may
decline further, our brand image may suffer, our operating performance may decline and we may not be able to execute upon our growth plans.

In
producing new footwear models, we may encounter difficulties that we did not anticipate during the development stage. Our development schedules for new products are difficult to
predict and are subject to change in response to consumer preferences and competing products. If we are not able to efficiently manufacture newly developed products in quantities sufficient to support
retail and wholesale distribution, we may not be able to recover our investment in the development of new models and product lines and we would continue to be subject to the risks inherent in having a
limited product line. Even if we develop and manufacture new footwear products that consumers find appealing, the ultimate success of a new model may depend on our pricing. We have a limited history
of introducing new products in certain target markets; as such, we may set the prices of new models too high for the market to bear or we may not provide the appropriate level of marketing in order to
educate the market and potential consumers about new products. Achieving market acceptance will require us to exert substantial product development and marketing efforts, which could result in a
material increase in our selling, general, and administrative expense, and there can be no assurance that we will have the resources necessary to undertake such efforts effectively. Failure to gain
market acceptance for new products that we introduce could impede our ability to maintain or grow our current revenues, reduce our profits, adversely affect the image of our brands, erode our
competitive position and result in long-term harm to our business.

If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have greater difficulty filling our customers' orders, either of which could
adversely affect our business.

The footwear industry is subject to cyclical variations, consolidation, contraction, and closings, as well as fashion trends, rapid
changes in consumer preferences, the effects of weather, general economic conditions, and other factors affecting demand and possibly impairing our brand image. These factors make it difficult to
forecast consumer demand and, if we overestimate demand for our products, we may be forced to liquidate excess inventories at a discount to customers, resulting in markdowns and lower gross margins.
Conversely, if we underestimate consumer demand, we could have inventory shortages, which can result in lower sales, delays in shipments to customers, strains on our relationships with customers and
diminished brand loyalty. A decline in demand for our products, or any failure on our part to satisfy increased demand for our products, could adversely affect our business and results of operations.

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Opening and operating additional retail stores are subject to numerous risks, and declines in revenue of such retail stores could adversely affect our profitability.

In recent years, we have significantly expanded and intend to continue the expansion of our retail sales channel. Opening global retail
stores involve substantial investments, including constructing leasehold improvements, furniture and fixtures, equipment, information systems, inventory and personnel. Operating global retail stores
incurs fixed costs, and if we have insufficient sales, we may be unable to reduce expenses in order to avoid losses or negative cash flows. Due to the high fixed cost structure associated with the
retail segment, negative cash flows or the closure of a store could result in write-downs of inventory and leasehold improvements, severance costs, significant lease termination costs, impairment
losses on long-lived assets or loss of our working capital, which could adversely impact our financial position, results of operations or cash flows. Our ability to recover the investment
in and expenditures of our retail operations can be adversely affected if sales at our retail stores are lower than anticipated.

We have substantial cash requirements in the U.S.; however, a majority of our cash is generated and held outside of the U.S. The risks attendant to holding cash abroad could
adversely affect our financial condition and results of operations.

We have substantial cash requirements in the U.S., but the majority of our cash is generated and held abroad. We generally consider
unremitted earnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. Cash held outside of the U.S. is primarily
used for the ongoing operations of the business in the locations in which the cash is held. Most of the cash held outside of the U.S. could be repatriated to the U.S., but under current law, would be
subject to U.S. federal and state income taxes, less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax
consequences if we were to move the cash to another country. Certain countries, including China, may have monetary laws which may limit our ability to utilize cash resources in those countries for
operations in other countries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and may adversely affect our liquidity. Since
repatriation of such cash is subject to limitations and may be subject to significant taxation, we cannot be certain that we will be able to repatriate such cash on favorable terms or in a timely
manner. If we continue to incur operating losses and require cash held in international accounts for use in our U.S. operations, a failure to repatriate such cash in a timely and
cost-effective manner could adversely affect our business, financial condition and results of operations.

Our asset-backed revolving credit facility contains financial covenants that require us to maintain certain financial metrics and ratios and restrictive covenants that limit
our flexibility. A breach of those covenants may cause us to be in default under the facility, and our lenders could foreclose on our assets.

The credit agreement for our asset-backed revolving credit facility requires us to maintain a certain level of tangible net worth and a
minimum fixed-charge coverage ratio on a quarterly basis. A lack of revenue growth, a failure to meet our tangible net worth level or an inability to control costs could negatively impact our ability
to meet these financial covenants and, if we breach such covenants or any of the restrictive covenants described below, the lenders could either refuse to lend funds to us or accelerate the repayment
of any outstanding borrowings under the revolving credit facility. We might not have sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the
lenders could initiate a bankruptcy proceeding against us or collection proceedings with respect to our assets, all of which secure our indebtedness under the revolving credit facility.

The
credit agreement also contains certain restrictive covenants that limit, and in some circumstances prohibit, our ability to, among other things incur additional debt, sell, lease or
transfer our assets, pay dividends, make capital expenditures and investments, guarantee debt or obligations,

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create
liens, enter into transactions with our affiliates, and enter into certain merger, consolidation or other reorganizations transactions. These restrictions could limit our ability to obtain
future financing, make acquisitions or needed capital expenditures, withstand the current or future downturns in our business or the economy in general, conduct operations or otherwise take advantage
of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors that have less debt and are not subject to such restrictions.

We manufacture a portion of our products which causes us to incur greater fixed costs. Any difficulties or disruptions in our manufacturing operations could adversely affect
our sales and results of operations.

We produce a portion of our footwear products at our internal manufacturing facilities in Mexico and Italy. Ownership of these
facilities adds fixed costs to our cost structure which are not as easily scalable as variable costs. The manufacture of our products from Croslite requires the use of a complex process and we may
experience difficulty in producing footwear that meets our high quality control standards. We will be required to absorb the costs of manufacturing and disposing of products that do not meet our
quality standards. Any increases in our manufacturing costs could adversely impact our margins. Furthermore, our manufacturing capabilities are subject to many of the same risks and challenges noted
below with respect to our third-party manufacturers, including our ability to scale our production capabilities to meet the needs of our customers, and our
manufacturing may be disrupted for reasons beyond our control, including work stoppages, fires, earthquakes, floods, or other natural disasters. Any disruption to our manufacturing operations will
hinder our ability to deliver products to our customers in a timely manner, and could have a material and adverse effect on our business.

We depend heavily on third-party manufacturers located outside the U.S.

Third-party manufacturers located outside of the U.S. (China and Bosnia) produce most of our footwear products. We depend on these
manufacturers' ability to finance the production of goods ordered, maintain adequate manufacturing capacity and meet our quality standards. We compete with other companies for the production capacity
of our third-party manufacturers, and we do not exert direct control over the manufacturers' operations. As such, we have experienced at times, specifically in China, delays or inabilities to fulfill
customer demand and orders. While we are increasing our communication and relationships with our third-party manufacturers, we cannot guarantee that any third-party manufacturer will have sufficient
production capacity, meet our production deadlines or meet our quality standards.

In
addition, we do not have long-term supply contracts with these third-party manufacturers and any of them may unilaterally terminate their relationship with us at any time
or seek to increase the prices they charge us. As a result, we are not assured of an uninterrupted supply of products of an acceptable quality and price from our third-party manufacturers. Foreign
manufacturing is subject to additional risks, including transportation delays and interruptions, work stoppages, political instability, expropriation, nationalization, foreign currency fluctuations,
changing economic conditions, changes in governmental policies and the imposition of tariffs, import and export controls and other non-tariff barriers. We may not be able to offset any
interruption or decrease in supply of our products by increasing production in our internal manufacturing facilities due to capacity constraints, and we may not be able to substitute suitable
alternative third-party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply of products from our third-party manufacturers may harm our business and could result in
a loss of sales and an increase in production costs, which would adversely affect our results of operations. In addition, manufacturing delays or unexpected demand for our products may require us to
use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in transportation costs, so
increases in the price of petroleum products can adversely affect our profit margins.

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China

Because a large portion of our footwear products are manufactured in China, the possibility of adverse changes in trade or political
relations between the U.S. and China, political instability in China, increases in labor costs, or adverse weather conditions could significantly interfere with the production and shipment of our
products, which would have a material adverse affect on our operations and financial results.

Compliance with standards and laws

We require our third-party foreign manufacturers to meet our quality control standards and footwear-industry standards for working
conditions and other matters, including compliance with applicable labor, environmental and other laws. However, we do not control our third-party manufacturers or their respective labor practices. A
failure by any of our third-party manufacturers to adhere to quality standards or labor, environmental and other laws could cause us to incur additional costs for our products and could cause negative
publicity, damage to our reputation and the value of our brand, and discourage retail customers and consumers from buying our products. We also require our third-party foreign manufacturers to meet
both our and industry standards for product safety. A failure by any of our third-party manufacturers to adhere to product safety standards could lead to a product recall, which could result in
critical media coverage and harm our business and reputation and could cause us to incur additional costs.

Trade laws and regulations

In addition, if we or our third-party foreign manufacturers violate U.S. or foreign trade laws or regulations, we may be subject to
extra duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import or the loss of our import privileges. Possible violations of U.S. or foreign
laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quota category, classification, marketing or valuation of our imported
products, fraudulent visas or labor violations. The effects of these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our
operating results. We cannot predict whether additional U.S. or foreign customs quotas, duties, taxes or other changes or restrictions will be imposed upon the importation of foreign produced products
in the future or what effect such actions could have on our business, financial condition or results of operations.

We conduct significant business activity outside the U.S. which exposes us to foreign currency and other risks.

Our ability to maintain the current level of operations in our existing international markets is subject to risks associated with
international sales operations as well as the difficulties associated with promoting products in unfamiliar cultures.

We
may be adversely affected by currency exchange rate fluctuations. We purchase products and supplies from third parties in U.S. dollars and receive payments from certain of our
international customers in foreign currencies. The cost of these products and supplies sourced overseas, and payments received from customers, may be affected by changes in the value of the relevant
currencies. Price increases caused by currency exchange rate fluctuations could make our products less competitive or have an adverse effect on our profitability. Currency exchange rate fluctuations
could also disrupt the business of the third-party manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency
fluctuations could have a material adverse effect on our results of operations and financial condition.

In
addition to foreign manufacturing, we operate retail stores and sell our products to retailers outside of the U.S. We have had significant revenues from foreign sales. Foreign
manufacturing and

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sales
activities are subject to numerous risks, including tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such as quotas and local
content rules; delays associated with the manufacture, transportation and delivery of foreign-sourced products; increased transportation costs due to distance, energy prices, or other factors; delays
in the transportation and delivery of goods due to increased security concerns; restrictions on the transfer of funds; restrictions, due to privacy laws, on the handling and transfer of consumer and
other personal information; changes in governmental policies and regulations; political unrest, changes in law, terrorism, or war, any of which can interrupt commerce; expropriation and
nationalization; difficulties in managing foreign operations effectively and efficiently from the U.S.; and difficulties in understanding and complying with local laws, regulations, and customs in
foreign jurisdictions.

Our financial success may be limited to the strength of our relationships with our wholesale customers and to the success of such wholesale customers.

Our financial success is significantly related to the willingness of our current and prospective wholesale customers to carry our
products and the expansion to new wholesale customers, We do not have long term contracts with any of our wholesale customers, and sales to our wholesale customers are generally on an
order-by-order basis and are
subject to rights of cancellation and rescheduling by the customer. If we cannot fill our customers' orders in a timely manner, the sales of our products and our relationships with those customers may
suffer, and this could have a material adverse effect on our product sales and ability to grow our product line.

Our
financial success is also significantly related to the success of our wholesale customers who are directly impacted by fluctuations in the broader economy, including the recent
global economic downturn which reduced foot traffic in shopping malls and lessened consumer demand for our products. Changes in the global credit market could also affect our customers' liquidity and
capital resources and their ability to meet their payment obligations to us which could have a material adverse impact on our cash flows and capital resources. We continue to monitor our accounts
receivable aging and have recorded appropriate reserves as we deem appropriate. Additionally, many of our wholesale customers compete with each other and if they perceive that we are offering their
competitors better pricing and support, they may reduce purchases of our products. In addition, we compete directly with our wholesale customers by selling our products to consumers via the internet
and through our company-operated retail locations. If our wholesale customers believe that our direct sales to consumers divert sales from their stores, this may weaken our relationships with such
customers and cause them to reduce purchases of our products. Furthermore, we continue to grow our consumer-direct channels (company-operated retail and internet) which could exacerbate this issue.

We depend on a limited number of suppliers for key production materials, and any disruption in the supply of such materials could interrupt product manufacturing and
increase product costs.

We depend on a limited number of sources for the primary materials used to make our footwear. We source the elastomer resins that
constitute the primary raw materials used in compounding Croslite, which we use to produce our footwear products, from two suppliers. If the suppliers we rely on for elastomer resins were to cease
production of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruption of our production cycle, if at all. We may also have to pay materially higher
prices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and could have a materially adverse impact on our margins and results of
operations. If we are unable to obtain suitable elastomer resins or if we are unable to procure sufficient quantities of the Croslite material, we may not be able to meet our production requirements
in a timely manner. Such failure could result in lost potential sales, delays in shipments to customers, strained relationships with customers and diminished brand loyalty.

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Failure to adequately protect our trademarks and other intellectual property rights and counterfeiting of our brands could divert sales, damage our brand image and adversely
affect our business.

We utilize trademarks, trade names, copyrights, trade secrets, issued and pending patents and trade dress and designs on nearly all of
our products and believe that having distinctive marks that are readily identifiable is important to our brand, our success and our competitive position. The laws of some countries,
e.g., China, do not protect intellectual property rights to the same extent as do U.S. laws. We periodically discover products that are counterfeit reproductions of our products or that
otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging another party's products on the basis of trademark or design or utility patent infringement, particularly
in some foreign countries, or if we are required to change our name or use a different logo, continued sales of such competing products by third parties could harm our brand and adversely impact our
business, financial condition, and results of operations by resulting in the shift of consumer preference away from our products. If our brands are associated with inferior counterfeit reproductions,
the integrity of our brands could be adversely affected. Furthermore, our efforts to enforce our intellectual property rights are typically met with defenses and counterclaims attacking the validity
and enforceability of our intellectual property rights. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the U.S., and if we
are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected.

We
also rely on trade secrets, confidential information, and other unpatented proprietary information related to, among other things, the formulation of the Croslite material and product
development, particularly where we do not believe patent protection is appropriate or obtainable. Using third-party manufacturers and compounding facilities may increase the risk of misappropriation
of our trade secrets, confidential information and other unpatented proprietary information. The agreements we use in an effort to protect our intellectual property, confidential information and other
unpatented proprietary information may be ineffective and may be insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to one of these agreements may
breach the agreement and we may not have adequate remedies for such breach. As a result, our trade secrets, confidential information, and other unpatented proprietary information may become known to
others, including our competitors. Furthermore, as with any trade secret, confidential information or other proprietary information, others, including our competitors, may independently develop or
discover such trade secrets and information, which would render them less valuable to us.

We have been named as a defendant in a securities class action lawsuit that may result in substantial costs and could divert management's attention.

Starting in November 2007, certain stockholders filed several purported shareholder class actions in the U.S. District Court for the
District of Colorado alleging violations of Sections 10(b) and 20(a) of the Exchange Act based on alleged statements made by us between July 27, 2007 and October 31, 2007. We and
certain of our current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Court for the District of Colorado. The first
complaint was filed in November 2007; several other complaints were filed shortly thereafter. These actions were consolidated and, in September 2008, the Court appointed a lead plaintiff and counsel.
An amended consolidated complaint was filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all
persons who purchased our stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint alleges that, during the Class Period, defendants made false and
misleading public statements about us and our business and prospects and that, as a result, the market price of our stock was artificially inflated. The amended complaint also claims that certain
current and former officers and directors traded our stock on the basis of material non-public information. The amended complaint

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seeks
compensatory damages on behalf of the alleged class in an unspecified amount, interest, and an award of attorneys' fees and costs of litigation. The Company believe the claims lack merit and
intends to defend the action vigorously. Motions to dismiss are currently pending with the Court. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage,
we cannot at this time accurately predict the ultimate outcome of the matter, or of the amount or range of potential loss, if any. It is possible that this action could be resolved adversely to us.
Risks associated with legal liability are often difficult to assess or quantify, and their existence and magnitude can remain unknown for significant periods of time. While we maintain director and
officer insurance, the amount of insurance coverage may not be sufficient to cover a claim, and the continued availability of this insurance cannot be assured. We may, in the future, be the target of
additional proceedings, and the
present or future proceedings may result in substantial costs and divert management's attention and resources that are needed to successfully run our business.

We depend on key personnel, the loss of whom would harm our business.

The loss of the services and expertise of any key employee could harm our business. Our future success depends on our ability to
identify, attract and retain qualified personnel on a timely basis. We have experienced significant management turnover in recent years. Turnover of senior management can adversely impact our stock
price, our results of operations and our client relationships and may make recruiting for future management positions more difficult. In some cases, we may be required to pay significant amounts of
severance to terminated management employees. In addition, we must successfully integrate any new management personnel that we hire within our organization in order to achieve our operating
objectives, and changes in other key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business.

Our current management information systems may not be sufficient for our business and planned system improvements may not be successfully implemented on a timely basis or be
sufficient for our business.

We are in the process of implementing numerous information systems designed to support several areas of our business, including
warehouse management, order management, retail point-of-sale and internet point-of-sale as well as various systems that provide interfaces between these
systems. These systems are intended to assist in streamlining our operational processes and eliminating certain manual processes. However, for certain business planning, finance and accounting
functions, we still rely on manual processes that are difficult to control and are subject to human error. We may experience difficulties in transitioning to our new or upgraded systems, including
loss of data and decreases in productivity as our personnel become familiar with new systems. In addition, our management information systems will require modification and refinement as our business
needs change, which could prolong difficulties we experience with systems transitions, and we may not always employ the most effective systems for our purposes. If we experience difficulties in
implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information systems to respond to changes in our
business needs, our ability to properly run our business could be adversely affected.

Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.

From time to time, we may invest in business infrastructure, acquisitions of new businesses, and expansion of existing businesses, such
as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. However,
significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of any significant investment to provide the

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returns
or profitability we expect could have a material adverse effect on our financial results and divert management attention from more profitable business operations.

Our quarterly revenues and operating results are subject to fluctuation as a result of a variety of factors, including seasonal variations, which could increase the
volatility of the price of our common stock.

Sales of our products are subject to seasonal variations and are sensitive to weather conditions. The majority of our revenues are
attributable to footwear styles that are more suitable for fair weather and typically experience our highest sales activity during the second and third quarters of the calendar year, when there is a
revenue concentration in countries in the northern hemisphere. While we continue to create more footwear models that are more suitable for cold weather, the effects of favorable or unfavorable weather
on sales can be significant enough to affect our quarterly results, with a resulting effect on our common stock price. Quarterly results may also fluctuate as a result of other factors, including new
model introductions, general economic conditions or changes in consumer preferences. Results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for
any year, and revenues for any particular period may fluctuate. This could lead to results outside of analyst and investor expectations, which could cause the volatility in our stock price to
increase.

We may fail to meet analyst expectations, which could cause the price of our stock to decline.

Our common stock is traded publicly and various securities analysts follow our financial results and frequently issue reports on us.
These reports include information about our historical financial results as well as the analysts' estimates of our future performance. The analysts' estimates are based upon their own opinions and are
often different from our estimates or expectations
of our business. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline.

Our restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage a third party from acquiring us and
consequently decrease the market value of an investment in our stock.

Our restated certificate of incorporation, amended and restated bylaws, and Delaware corporate law each contain provisions that could
delay, defer, or prevent a change in control of us or changes in our management. These provisions could discourage proxy contests and make it more difficult for our stockholders to elect directors and
take other corporate actions, which may prevent a change of control or changes in our management that a stockholder might consider favorable. In addition, Section 203 of the Delaware General
Corporation Law may discourage, delay, or prevent a change in control of us. Any delay or prevention of a change of control or change in management that stockholders might otherwise consider to be
favorable could cause the market price of our common stock to decline.

ITEM 1B.    Unresolved Staff Comments

None.

ITEM 2.    Properties

Our principal executive and administrative offices are located at 6328 Monarch Park Place, Niwot, Colorado. We lease, rather than own,
all of our facilities. We enter into short-term and long-term leases for kiosks, office, retail, manufacturing and warehouse space domestically and internationally. The terms
of these leases include fixed monthly rents and/or contingent rents based on percentage of

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revenues
and have expirations between 2011 and 2026. The general location, use and approximate size of our principal properties are given below.

Location

Use

Approximate
Square FeetOntario, California

Warehouse


399,000Narita, Japan(1)

Warehouse


289,000Aurora, Colorado(2)

Warehouse


264,000Leon, Mexico

Manufacturing/offices


226,000Leon, Mexico

Warehouse/offices


214,000Rotterdam, the Netherlands

Warehouse


183,000Shanghai, China

Warehouse


76,000Niwot, Colorado

Corporate headquarters


69,000Niwot, Colorado

Regional offices


60,000Tampere, Finland(3)

Warehouse/offices


60,000Melbourne, Australia

Warehouse


48,000Shenzen, China

Manufacturing/offices


32,000Den Haag, the Netherlands

Regional offices


27,000Padova, Italy

EXO's Regional offices/manufacturing facility


28,000Singapore

Regional offices


26,000Gordon's Bay, South Africa

Warehouse/offices


24,000Niwot, Colorado

Warehouse


15,000Shanghai, China

Regional offices


13,000


(1)The
space we lease related to our facility in Narita, Japan will be reduced to 156,000 square feet in stages over the first half of 2011.(2)We
intend to sublease our facility in Aurora, Colorado which is currently vacant.(3)Our
facility in Tampere, Finland is partially subleased.


In
addition to the properties listed above, we maintain small branch sales offices in Hong Kong, Taiwan, Korea, Australia, Brazil and India. We also lease retail space for 63 domestic
and 75 international retail stores and 61 domestic and 15 international outlet stores.

ITEM 3.    Legal Proceedings

On March 31, 2006, we filed a complaint with the International Trading Commission ("ITC") against Acme
Ex-Im, Inc., Australia Unlimited, Inc., Cheng's Enterprises, Inc., Collective Licensing International, LLC, D. Myers & Sons, Inc., Double Diamond
Distribution, Ltd., Effervescent, Inc., Gen-X Sports, Inc., Holey Soles Holdings, Ltd., Inter-Pacific Trading Corporation, and Shaka Holdings, Inc.
(collectively, the "respondents"), alleging, among other things infringement of United States Patent Nos. 6,993,858 (the "'858 Patent") and D517,789 (the "'789 Patent") and seeking an exclusion
order banning the importation and sale of infringing products. During the course of the investigation, the ITC issued final determinations terminating Shaka Holdings, Inc., Inter-Pacific
Trading Corporation, Acme Ex-Im, Inc., D. Myers & Sons, Inc., Australia Unlimited, Inc. and Gen-X Sports, Inc. from the ITC investigation due
to a settlement being reached with each of those entities. Cheng's Enterprises, Inc. was removed from the ITC investigation because they ceased the accused activities. After a trial in the
matter in September 2007, the ITC Administrative Law Judge ("ALJ") issued an initial determination on April 11, 2008, finding the '858 patent infringed by certain accused products, but also
finding the patent invalid as obvious. The ALJ found that the '789 patent was valid, but was not infringed by the accused products. On July 25, 2008, the ITC notified us of its decision to
terminate the investigation with a finding of no violation as to either patent. We filed a Petition for

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Table of Contents

Review
of the decision with the United States Court of Appeals for the Federal Circuit on September 22, 2008. On October 4, 2009, a settlement was reached between us and Collective
Licensing International, LLC. Collective Licensing International, LLC agreed to cease and desist infringing on our patents and to pay us certain monetary damages, which was recorded upon
receipt. On February 24, 2010, the Federal Circuit found that the ITC erred in finding that the utility patent was obvious and also reversed the ITC's determination of
non-infringement of the design patent. The case has been remanded back to the ITC. On July 6, 2010, the ITC ordered the matter to be assigned to an ALJ for a determination on
enforceability. On February 9, 2011, the ALJ issued a determination that the utility and design patents were both enforceable against the remaining respondents. The ALJ's decision becomes final
on April 11, 2011, unless the Commission determines to review it.

On
December 8, 2009, Columbia Sportswear Company ("Columbia") filed an amended complaint adding us as a defendant in a case between Columbia and Brian P. O'Boyle and 1
Pen. Inc. in the Multnomah County Circuit Court in the State of Oregon. Columbia asserted claims against us for misappropriation of trade secrets, aiding and abetting breach of fiduciary duty,
intentional interference with contract, injunctive relief, disgorgement and an accounting. The amended complaint sought damages in an unspecified amount, return of patent rights, reasonable attorney's
fees and costs and expenses against us. On July 29, 2010, all issues between us and Columbia were settled and Columbia dismissed with prejudice all claims against us in exchange for certain
monetary and other considerations.

We
and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Court for the District of Colorado.
The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions were consolidated and, in September 2008, the district court appointed a lead
plaintiff and counsel. An amended consolidated complaint was filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on
behalf of a class of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The
amended complaint also added our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleading public statements about us
and our business and prospects and, as a result, the market price of our common stock was artificially inflated. The amended complaint also claims that certain current and former officers and
directors traded in our common stock on the basis of material non-public information. The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified
amount, including interest, and also added attorneys' fees and costs of litigation. We believe the claims lack merit and intend to defend the action vigorously. Motions to dismiss are currently
pending with the district court. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome,
or any potential liability, of the matter.

ITEM 4.    Reserved

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PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock, par value $0.001, is listed on the NASDAQ Global Select Market and trades under the stock symbol "CROX". The
following table shows the high and low sales prices of our common stock for the periods indicated.

Fiscal Year 2010 Three Months Ended

High

LowMarch 31, 2010

$
9.00

$
5.81June 30, 2010

$
12.28

$
8.38September 30, 2010

$
14.08

$
9.88December 31, 2010

$
19.54

$
12.88




Fiscal Year 2009 Three Months Ended

High

LowMarch 31, 2009

$
1.63

$
1.00June 30, 2009

$
4.50

$
1.19September 30, 2009

$
7.45

$
2.55December 31, 2009

$
8.20

$
4.33


Performance Graph

The following performance graph compares the cumulative total return of our common stock with that of the NASDAQ Composite Index and
the Dow Jones U.S. Footwear Index from February 8, 2006 through December 31, 2010. Our common stock was initially listed on NASDAQ on February 8, 2006, the date it commenced
trading publicly. Prior to that time, there was no public market for our stock. The graph assumes an investment of $100 on February 8, 2006, reinvestment of all dividends and other
distributions, and reflects our stock prices post-stock split.

Comparison of Cumulative Total Return on Investment

GRAPHIC

2/8/2006

12/29/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010Crocs, Inc.

$
100.00

$
144.00

$
245.40

$
8.27

$
38.33

$
114.13Nasdaq Composite Index

$
100.00

$
106.86

$
117.35

$
69.77

$
100.40

$
117.37Dow Jones US Footwear Index

$
100.00

$
114.93

$
143.58

$
102.81

$
131.46

$
172.12


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The
Dow Jones U.S. Footwear Index consists of Crocs, Inc., NIKE, Inc., Deckers Outdoor Corp., Timberland Co. and Wolverine World Wide, Inc. Because
Crocs, Inc. is part of the Dow Jones U.S. Footwear Index, the price and returns of our stock have an effect on this index. The Dow Jones U.S. Footwear Index includes companies in the major line
of business in which we compete. This index does not encompass all of our competitors or all of our product categories and lines of business.

The
stock performance shown on the performance graph above is not necessarily indicative of future performance. We do not make nor endorse any predictions as to future stock performance.

Holders

The approximate number of stockholders of record of our common stock was 213 as of January 31, 2011. Because many of the shares
of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record.

Dividends

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future
earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Our financing arrangements also contain restriction on our ability to pay
cash dividends. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to compliance with covenants under any then existing financing
agreements.

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Table of Contents

ITEM 6.    Selected Financial Data

The following table presents selected historical financial data of the Company for each of the last five fiscal years. The information
in this table should be read in conjunction with the consolidated financial statements and accompanying notes beginning on page F-1 and with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" included in Item 7 of this Form 10-K.

For the Years Ended December 31,($ thousands, except per share data)

2010

2009

2008

2007

2006Consolidated Statements of Operations DataRevenues

$
789,695

$
645,767

$
721,589

$
847,350

$
354,728Cost of sales


364,631


337,720


486,722


349,701


154,158Restructuring charges


1,300


7,086


901





Gross profit


423,764


300,961


233,966


497,649


200,570Selling, general and administrative expenses


342,121


311,592


341,518


268,978


104,172Foreign currency transaction losses (gains), net


(2,912
)

(665
)

25,438


(10,055
)

776Charitable contributions


840


7,510


1,844


959


276Restructuring charges


2,539


7,623


7,664





Impairment charges


141


26,085


45,784





Income (loss) from operations


81,035


(51,184
)

(188,282
)

237,767


95,346Gain on charitable contributions


(223
)

(3,163
)







Interest expense


657


1,495


1,793


438


567Other income, net


(191
)

(895
)

(565
)

(2,997
)

(1,847
)Income (loss) before income taxes


80,792


(48,621
)

(189,510
)

240,326


96,626Income tax expense (benefit)


13,066


(6,543
)

(4.434
)

72,098


32,209Net income (loss)


67,726


(42,078
)

(185,076
)

168,228


64,417Dividend on redeemable convertible preferred shares














33Net income (loss) attributable to common stockholders

$
67,726

$
(42,078
)
$
(185,076
)
$
168,228

$
64,384Income (loss) per common share:Basic

$
0.78

$
(0.49
)
$
(2.24
)
$
2.08

$
0.87Diluted

$
0.76

$
(0.49
)
$
(2.24
)
$
2.00

$
0.81Weighted average common shares:(1)Basic


85,482,055


85,112,461


82,767,540


80,759,077


74,598,400Diluted


87,595,618


85,112,461


82,767,540


84,194,883


80,170,512




As of December 31,($ thousands)

2010

2009

2008

2007

2006Consolidated Balance Sheets DataCash, cash equivalents, and marketable securities

$
145,583

$
77,343

$
51,665

$
36,335

$
64,981Total assets


549,481


409,738


455,999


627,425


299,457Long term obligations


35,613


35,462


35,303


15,864


3,290Total stockholders' equity

$
376,106

$
287,620

$
287,163

$
444,113

$
208,258


(1)Our
2-for-1 stock split was effected in the form of a 100% common stock dividend distributed on June 14, 2007. All share and
per share amounts prior to June 14, 2007 have been adjusted to reflect the 2-for-1 stock split.


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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a designer, manufacturer, distributor, worldwide marketer and brand manager of footwear, apparel and accessories for men, women
and children. We strive to be the global leader in molded footwear design and development. We design, manufacture and sell a broad product offering that provides new and exciting molded footwear
products that feature fun, comfort
and functionality. Our products include footwear and accessories that utilize our proprietary closed cell-resin, called Croslite. Our Croslite material is unique in that it enables us to
produce an innovative, lightweight, non-marking, and odor-resistant shoe. Certain shoes made with the Croslite material have been certified by U.S. Ergonomics to reduce peak
pressure on the foot, reduce muscular fatigue while standing and walking and to relieve the musculoskeletal system.

Since
the initial introduction and popularity of our Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety of new styles and products and have
extended our product reach through the acquisition of brand platforms such as Jibbitz, LLC ("Jibbitz") and Ocean Minded, Inc. ("Ocean Minded"). We intend to continue branching out into
other types of footwear, bringing a unique and original perspective to the consumer in styles that may be unexpected from Crocs. In part, we believe this will help us to continue to build a stable
year-round business as we look to offer more winter-oriented styles. Our marketing efforts surround specific product launches and employ a fully integrated approach utilizing a variety of
media outlets, including print and online media and television. Our marketing efforts drive business to both our wholesale partners and our company-operated retail and internet stores, ensuring that
our presentation and story are first class and drive purchasing at the point of sale.

We
currently sell our Crocs-branded products throughout the U.S. and in more than 90 countries. We sell our products through domestic and international retailers and distributors and
directly to end-user consumers through our webstores, company-operated retail stores, outlets and kiosks. The broad appeal of our footwear has allowed us to market our products to a wide
range of distribution channels, including department stores and traditional footwear retailers as well as a variety of specialty and independent retail channels.

Financial Highlights

During the year ended December 31, 2010, revenues increased $143.9 million, or 22.3%, compared to the same period in
2009, as a result of stronger sales in each of our geographic operating segments. Diluted earnings per share for the year ended December 31, 2010 improved to $0.76 compared to diluted losses
per share of $0.49 during the same period in 2009, primarily due to the following:



Turnaround Strategy

Having experienced rapid revenue growth and difficulty meeting demand for our footwear products since inception, our revenue growth
moderated in the first half of 2008 and decreased through the balance of 2008 and through the year ended December 31, 2009. During this time, our total revenues declined from
$847.4 million in the year ended December 31, 2007 to $645.8 million during the year

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Table of Contents

ended
December 31, 2009. Accordingly, we implemented a turnaround strategy in 2008, which continued through 2010, aimed at aligning production and distribution capacities with revised demand
projections, reducing costs and streamlining processes. As a result, we consolidated our global manufacturing facilities and distribution centers, reduced warehouse and office space, cut global
workforce by 33% and reduced other discretionary spending. During 2009, we sold excess discontinued and impaired product inventories, much of which had been written down in 2008 to a level that we had
considered realizable, at prices substantially higher than previously estimated. The consequential net effect of these sales was accretive to our gross profit in 2009. As a result of these and other
actions taken as part of our turnaround strategy, we achieved improved year-over-year gross margin in 2009 as well as improved operating margin and net loss, despite weakened
economic conditions during 2009. The benefits of our turnaround strategy continued through the year ended December 31, 2010, during which sales of discontinued and impaired product were at more
normal levels.

Presentation of Reportable Segments

We have three reportable segments: Americas, Europe and Asia. We also have an Other segment category which aggregates insignificant
operating segments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel and accessories. The composition of our reportable
segments is consistent with that used by our CODM to evaluate performance and allocate resources. During the fourth quarter of 2010, we changed the internal segment reports used by our CODM to
separately illustrate performance metrics of certain operating segments which provide manufacturing support, located in Mexico and Italy. These operating segments make up our Other segment category.
Segment information for all periods presented has been restated to reflect this change.

Segment
operating income (loss) is the primary measure used by our CODM to evaluate segment operating performance and to decide how to allocate resources to segments. Segment performance
evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and other expenses. Segment profits or losses of our reportable segments
include adjustments to eliminate intersegment profit or losses on intersegment sales. Segment operating income (loss) is defined as operating income before asset impairment charges and restructuring
costs not included in cost of sales. Segment assets consist of cash, accounts receivable and inventory as these assets make up the asset information used by the CODM. Revenues of each of our
reportable segments represent sales to external customers. Revenues of the Other segment are made up of intersegment sales only. See Note 15Operating Segments and Geographic
Information in the accompanying notes to the financial statements for further details.

Results of Operations

Our turnaround strategy as previously discussed had a considerable impact on our operating results for the years ended
December 31, 2010, 2009 and 2008. The following summarizes specific significant items related to the implementation of this strategy as well as other material events which should be considered
in evaluating the comparability of such results.



25

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26

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Table of Contents

Comparison of the Years Ended December 31, 2010 and 2009

Year Ended
December 31,

Change($ thousands, except per share data)

2010

2009

$

%Revenues

$
789,695

$
645,767

$
143,928


22.3
%Cost of sales


365,931


344,806


21,125


6.1
%Gross profit


423,764


300,961


122,803


40.8
%Selling, general and administrative expenses and foreign currency (gains)/losses


339,209


310,927


28,282


9.1
%Restructuring charges


2,539


7,623


(5,084
)

(66.7
)%Impairment charges


141


26,085


(25,944
)

(99.5
)%Charitable contributions


840


7,510


(6,670
)

(88.8
)%Income (loss) from operations


81,035


(51,184
)

132,219


258.3
%Interest expense


657


1,495


(838
)

(56.1
)%Other, net


(414
)

(4,058
)

3,644


89.8
%Income (loss) before income taxes


80,792


(48,621
)

129,413


266.2
%Income tax (benefit) expense


13,066


(6,543
)

19,609


299.7
%Net income (loss)

$
67,726

$
(42,078
)
$
109,804


261.0
%Net income (loss) per basic share

$
0.78

$
(0.49
)
$
1.27


N/MNet income (loss) per diluted share

$
0.76

$
(0.49
)
$
1.25


N/MGross margin


53.7
%

46.6
%Operating margin


10.3
%

(7.9
)%


N/MNot
meaningful


RevenuesRevenues increased $143.9 million, or 22.3%, during the year ended December 31, 2010 compared to the same
period in 2009, due
to a 15.8% increase in unit sales and a 6.6% increase in average selling price per pair of shoes, as shown in the table below, both of which were driven by increased demand and improvements in the
global economy. During the year ended December 31, 2009, we sold $58.3 million in end of life and impaired products as we disposed of excess and impaired inventory as previously
mentioned. The following table sets forth revenue by channel and by region as well as other revenue information for the years ended December 31, 2010 and 2009.

Year ended
December 31,

Change($ millions, except average selling price)

2010

2009

$

%Wholesale channel revenue

$
481.8

$
404.5

$
77.3


19.1
%Retail channel revenue


232.9


180.9


52.0


28.7
%Internet channel revenue


75.0


60.4


14.6


24.2
%Americas revenue

$
377.1

$
301.4

$
75.7


25.1
%Asia revenue


284.8


237.5


47.3


19.9
%Europe revenue


127.7


106.0


21.7


20.5
%Footwear unit sales


42.6


36.8


5.8


15.8
%Average selling price

$
17.69

$
16.60

$
1.09


6.6
%


Wholesale Channel RevenuesDuring the year ended December 31, 2010, revenues from our wholesale channel grew by $77.3 million,
 or
19.1%, compared to the same period in 2009, particularly

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in
the Americas and Asia, as demand for product continued to grow resulting from a stronger global economy, on-going efforts made to improve our wholesale customer relationships and market
acceptance of our new product line.

Consumer-Direct Channel RevenuesRevenues from our consumer-direct sales channels increased to 39.0% of revenue during the year ended
December 31, 2010 compared to 37.4% during the same period in 2009. As consumer-direct channel sales continue to grow as a percentage of our total sales, we expect to realize growth in total
revenues and gross margin since these channels have historically achieved higher average selling prices than the wholesale channel.



As of December 31,2010

2009

ChangeType:Crocs Kiosk/Store in Store


164


170


(6
)Crocs Retail Stores


138


84


54Crocs Outlet Stores


76


63


13Total


378


317


61Geography:Americas


197


182


15Asia


159


119


40Europe


22


16


6




Product Revenue ConcentrationRevenues from non-classic footwear models made up the majority of our revenues during the year ended
December 31, 2010, as our classic models and core products (defined below) have become a smaller portion of our total revenue in recent quarters. The following

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Table of Contents

table
sets forth sales of our classic models, core products and new footwear products as a percentage of our total unit sales.

Years Ended
December 31,2010

2009Classic models (Beach and Crocs Classic)


9.9
%

15.8
%Core products(1)


19.7
%

33.5
%New footwear products


31.0
%

17.3
%


(1)Core
products include Classic models, Kids Crocs Classic, Athens, Kids Athens, Mary Jane, Girls Mary Jane, Mammoth and Kids Mammoth.


Impact on Revenues due to Foreign Exchange Rate FluctuationsChanges in average foreign currency exchange rates during the year ended
December 31, 2010 increased revenues by $22.2 million compared to the same period in 2009. We expect that sales in international markets in foreign currencies will continue to represent
a substantial portion of our overall revenues. Accordingly, changes in foreign currency exchange rates could materially affect our overall revenues or the comparability of those revenues from period
to period as a result of translating our financial statements into our reporting currency, the U.S. dollar.

Americas Segment RevenuesRevenues from the Americas segment increased $75.7 million, or 25.1%, during the year ended
December 31, 2010
compared the same period in 2009, as a result of increased revenue in all channels. Revenues from company-operated retail locations in the region increased $35.6 million, or 33.5%, to
$141.9 million for the year ended December 31, 2010 compared to the same period in 2009 primarily due to increased unit sales resulting from an increase in the number of company-operated
retail locations in the region, as discussed above, and increases in average selling price. Regional wholesale revenues grew $34.7 million, or 23.2%, to $184.4 million for the year ended
December 31, 2010 compared to the same period in 2009 primarily due to increased unit sales.

Asia Segment RevenuesRevenues in Asia increased $47.3 million, or 19.9%, during the year ended December 31, 2010 compared to
the same
period in 2009, due to increased wholesale and retail channel revenues. Regional wholesale channel revenues increased $33.3 million, or 20.0%, primarily due to continued strong demand and
improvements in average selling price. Regional revenues from company-operated retail locations increased $13.8 million, or 21.7%, to $77.3 million during the year ended
December 31, 2010 compared to the same period in 2009, due to an increases in average selling price and company-operated retail locations in the region, as discussed above, partially offset by
the negative impact of a prolonged cold weather season in parts of the region and a rise in imitation products in Japan.

Europe Segment RevenuesRevenues in Europe increased $21.7 million, or 20.5%, during the year ended December 31, 2010
compared to the
same period in 2009 which was driven by growth in all sales channels. Regional internet channel revenues increased by $8.8 million to $16.5 million during the year ended
December 31, 2010, which was more than twice the internet channel revenues earned during the same period in 2009, primarily due to the addition of local language internet sites for France,
Germany, Spain and Italy, as previously mentioned. Wholesale channel revenues increased $9.5 million, or 10.8%, to $97.7 million during the year ended December 31, 2010 compared
to the same period in 2009, due to increased demand.

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Gross ProfitDuring the year ended December 31, 2010 gross profit increased $122.8 million, or 40.8%, compared to the
same period in
2009. Gross margin increased 15.1% to 53.7% during the year ended December 31, 2010 compared to the same period in 2009. These increases are primarily attributable to a 15.8% increase in sales
volume, a 6.6% increase in average selling price and favorable shifts in product mix within the consumer-direct channels toward higher margin products. The increase is also attributable to a decrease
of $5.8 million in restructuring charges due to higher 2009 restructuring costs associated with the closures and consolidation our distribution spaces in the Americas and Europe segments.
Additionally, we continue to increase shipments made directly from the factories to our wholesale customers and our retail channel which lower distribution costs. We realized improvements in gross
profit during 2010 as factory-direct shipment volume increased. Offsetting these increases was the accretive effect of impaired unit sales that took place during 2009 as previously discussed. The net
effect of these sales during the year ended December 31, 2009 was $49.8 million. During 2010, retail and internet sales continued to increase as a percentage of total revenue. This trend
contributed to higher gross margins as we were able to achieve a higher average selling price in these channels while many of the fixed costs associated with operating our company-operated retail
stores are included in selling, general and administrative expenses. Also during 2010, we sold a wide range of products which required additional materials, such as canvas, cloth lining and suede, and
additional processes, such as stitching, to manufacture, thereby increasing our direct costs and lowering our gross margins on those products. As we continue to expand our portfolio and
non-classic models become a larger portion of our business, we expect that our profit margins will be adversely affected.

Impact on Gross Profit due to Foreign Exchange Rate FluctuationsChanges in average foreign currency exchange rates during the year
ended
December 31, 2010 increased our gross profit by $13.0 million compared to the same period in 2009. We expect that sales at subsidiary companies with functional currencies other than the
U.S. dollar will continue to generate a substantial portion of our overall gross profit. Accordingly, changes in foreign currency exchange rates could materially affect our overall gross profit or the
comparability of our gross profit from period to period as a result of translating our financial statements into our reporting currency, the U.S. dollar.

Selling, General and Administrative Expenses and Foreign Currency Transaction (Gains)/LossesSelling, general and administrative
expense increased
$28.3 million, or 9.1%, in the year ended December 31, 2010 compared to the same period in 2009, primarily due to:



Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate FluctuationsChanges in average foreign currency
exchange rates
used to translate expenses from our functional currencies to our reporting currency, the U.S. dollar, during the year ended December 31, 2010 increased selling, general and administrative
expenses by approximately $5.0 million as compared to the same period in 2009.

Restructuring ChargesWe recorded $3.8 million in restructuring charges in the year ended December 31, 2010, of which
$1.3 million was recorded to cost of sales. These restructuring charges consisted of $2.0 million in severance costs related to the departure of a former Chief Executive

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Officer,
and $1.8 million due to a change in estimate of our original accruals for lease termination costs for our Canadian office and our distribution facilities in North America and Europe.

During
the year ended December 31, 2009, we recorded $14.7 million in restructuring charges, of which $7.1 million was included in costs of sales. These charges
primarily consisted of:



Asset Impairment ChargesDuring the year ended December 31, 2010, we recorded $0.1 million in impairment charges
compared to
$26.1 million in impairment charges recorded during the same period in 2009 due to the implementation of our turnaround strategy in 2009, as previously discussed. The
2009 charges primarily consisted of $18.1 million related to the write-off of obsolete molds, tooling, manufacturing and distribution equipment, sales and marketing assets and other
distribution and manufacturing assets, largely associated with the consolidation of warehouse and distribution space; and $7.6 million related to the write-off of capitalized
software, patents, trade names and other intangible assets that we no longer intended to utilize.

SegmentsOperating Income (Loss)Total segment operating income increased $82.0 million, or 90.5%, during the year
ended
December 31, 2010 compared to the same period in 2009, primarily due to increased revenue in each of our operating segments and a decrease of $5.8 million in restructuring charges which
were partially offset by the accretive effect of impaired unit sales that took place during 2009, and increased costs related to the expansion of our retail selling channel and our 2010
fully-integrated marketing campaign, as previously discussed. The following table summarizes operating income (loss) by segment for the year ended December 31, 2010 and
2009.

Year Ended December 31,($ thousands)

2010

2009Operating income (loss):Americas

$
67,259

$
21,598Asia


80,955


57,836Europe


24,654


11,087Other


(281
)

76Total segment operating income (loss)


172,587


90,597Corporate, intersegment eliminations and other


(88,872
)

(108,073
)SG&A restructuring


(2,539
)

(7,623
)Asset impairment


(141
)

(26,085
)Total consolidated operating income (loss)

$
81,035

$
(51,184
)


Interest ExpenseInterest expense decreased $0.8 million, or 56.1%, during the year ended December 31, 2010 compared
to same period in
2009 primarily due to lower borrowing rates and lower borrowing balances under our current asset-backed credit facility.

Income Tax (Benefit) ExpenseIncome tax expense increased $19.6 million during the year ended December 31, 2010
compared to the same
period in 2009 which was primarily due to an increase of $129.4 million in income before taxes. Our 2010 effective tax rate of 16.2% differs from the federal

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U.S.
statutory rate because of differences in the statutory rates of foreign subsidiaries, certain items of revenue and/or expense for which there is a permanent difference in taxability treatment for
financial reporting and tax purposes, and changes in the amount of valuation allowances resulting from changes in the company's judgments about whether certain deferred tax assets are more likely than
not to be realized. For a reconciliation between the federal U.S. statutory rate and our effective tax rate, see Note 12Income Taxes in the accompanying notes to the consolidated
financial statements.

Comparison of the Years Ended December 31, 2009 and 2008

Year Ended December 31,

Change($ millions, except average selling price)

2009

2008

$

%Revenues

$
645,767

$
721,589

$
(75,822
)

(10.5
)%Cost of sales


344,806


487,623


(142,817
)

(29.3
)%Gross profit


300,961


233,966


66,995


28.6
%Selling, general and administrative expenses and foreign currency (gains)/losses


310,927


366,956


(56,029
)

(15.3
)%Restructuring charges


7,623


7,664


(41
)

(1.0
)%Asset impairment charges


26,085


45,784


(19,699
)

(43.0
)%Charitable contributions


7,510


1,844


5,666


307.3
%Loss from operations


(51,184
)

(188,282
)

137,098


72.8
%Interest expense


1,495


1,793


(298
)

(16.6
)%Gain on charitable contributions


(3,163
)




(3,163
)

N/MOther income, net


(895
)

(565
)

(330
)

(58.4
)%Loss before income taxes


(48,621
)

(189,510
)

140,889


74.3
%Income tax benefit


(6,543
)

(4,434
)

(2,109
)

(47.6
)%Net loss

$
(42,078
)
$
(185,076
)
$
142,998


77.2
%Net loss per basic share

$
(0.49
)
$
(2.24
)
$
1.75


78.1
%Net loss per diluted share

$
(0.49
)
$
(2.24
)
$
1.75


78.1
%Gross margin


46.6
%

32.4
%Operating margin


(7.9
)%

(26.1
)%


N/MNot
meaningful


RevenuesRevenues decreased $75.8 million, or 10.5%, during the year ended December 31, 2009 as compared to same
period 2008, primarily
due to a decrease of $1.75 in average selling price which was partially offset by an increase of 1.5 million in units sold. The lower average selling price in 2009 was primarily attributable to
the sale of discontinued and impaired product which was sold at deeply discounted prices. Sales of our Jibbitz products decreased 46.6% to $25.2 million in the year ended December 31,
2009, from $47.2 million in the year ended December 31, 2008. The following table sets

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forth
revenue by channel and by region as well as other revenue information for the years ended December 31, 2009 and 2010.

Year ended
December 31,

Change($ millions, except average selling price)

2009

2008

$

%Wholesale channel revenue

$
404.5

$
552.1

$
(147.6
)

26.7
%Retail channel revenue


180.9


125.8


55.1


43.8
%Internet channel revenue


60.4


43.7


16.7


38.2
%Americas revenue

$
301.4

$
365.9

$
(64.5
)

(17.6
)%Asia revenue


237.5


204.9


32.6


15.9
%Europe revenue


106.0


149.3


(43.3
)

(29.0
)%Footwear unit sales


36.8


35.3


1.5


4.2
%Average selling price

$
16.60

$
18.35

$
(1.75
)

(9.5
)%


Wholesale Channel RevenuesDuring the year ended December 31, 2009, revenues from the wholesale channel decreased by
$147.6 million, or
26.7%, compared to the same period in 2008, primarily due by weakened consumer demand in Americas and Europe business segments resulting from the global economic downturn which also caused some
retailers to choose to operate at leaner inventory levels. In addition, during the latter portion of 2009, we implemented a more disciplined wholesale approach and reduced the number of wholesalers
merchandising our product so as to better position our products in the marketplace. Wholesale channel revenues also suffered as we faced challenges selling our expanded product lines to existing
wholesale channels, weakened consumer demand for certain of our products which had reached a mature stage in their product life, and the impact of competitors entering the market with imitation
products sold at substantially lower prices.

Retail Channel RevenuesDuring the year ended December 31, 2009, revenues from the retail channel increased $55.1 million, or
43.8%,
which was primarily driven by an increase in the number of stores as well as the fact that we are able to merchandise the full breadth and depth of our product line. The
table below sets forth information about the number of company-operated retail locations as of December 31, 2009 and 2008.

As of December 31,2009

2008

ChangeType:Crocs Kiosk/Store in Store


170


177


(7
)Crocs Retail Stores


84


70


14Crocs Outlet Stores


63


32


31Total


317


279


38Geography:Americas


182


157


25Asia


119


107


12Europe


16


15


1


Internet Channel RevenuesDuring the year ended December 31, 2009, revenues from the internet channel increased $16.7 million,
 or
38.2%, primarily due to increased web-based and other marketing efforts aimed at driving consumer awareness of our webstores as well as the launches of several new sites serving
international markets.

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Product Revenue ConcentrationRevenues from non-classic footwear models made up the majority of our revenues during the year ended
December 31, 2009, as our classic models and core products (defined below) have become a smaller portion of our total revenue in recent quarters. The following table sets forth sales of our
classic models, core products and new footwear products as a percentage of our total unit sales.

Years Ended
December 31,2009

2008Classic models (Beach and Crocs Classic)


16
%

25
%Core products(1)


33
%

57
%New 2009 footwear products


17
%




(1)Core
products include Classic models, Kids Crocs Classic, Athens, Kids Athens, Mary Jane, Girls Mary Jane, Mammoth and Kids Mammoth.


Impact on Revenues due to Foreign Exchange Rate FluctuationsChanges in average foreign currency exchange rates during the year ended
December 31, 2009 decreased revenues by $14.9 million compared to the same period in 2008. We expect that sales in international markets in foreign currencies will continue to represent
a substantial portion of our overall revenues. Accordingly, changes in foreign currency exchange rates could materially affect our overall revenues or the comparability of those revenues from period
to period as a result of translating our financial statements into our reporting currency, the U.S. dollar.

Americas Segment RevenuesRevenues from the Americas segment decreased $64.5 million, or 17.6%, during the year ended
December 31, 2009
compared the same period in 2008, which was largely driven by lower regional wholesale channel sales, partially offset by higher regional retail and internet channel sales. The net decrease in
revenues was primarily due to weakened consumer demand resulting from deteriorated U.S. economic conditions, the challenges of selling our expanded product line, lessened demand for our more mature
core products, and by sales of deeply discounted end of life and impaired units. See "Financial Highlights" above. In 2009, we implemented plans to re-invigorate the region's wholesale
channel revenues, which included investments in cooperative advertising and merchandising assistance for select locations at our largest U.S. wholesale accounts. Revenue from company-operated retail
locations in the Americas increased $37.6 million, or 54.7%, to $106.3 million in the year ended December 31, 2009, from $68.7 million for the year ended
December 31, 2008.

During
the year ended December 31, 2009, sales returns and allowances, which are included as a net adjustment to revenue, decreased $24.6 million, or 59.1%, to
$17.0 million in the year ended December 31, 2009 from $41.6 million for the year ended December 31, 2008 which was primarily due to a higher 2008 balance, when, in light
of then-prevailing economic conditions, we granted certain return requests and allowances to a number of customers it believed were strategically important to our ongoing business. Sales
returns and allowances for the year ended December 31, 2008 were significantly higher than historical estimates as a result of specific reserves related to those granted return and allowance
requests.

Asia Segment RevenuesRevenues in Asia increased $32.6 million, or 15.9%, during the year ended December 31, 2009
compared to the same
period in 2008, as a result of strong demand in all channels, particularly in the wholesale and retail channels, partially offset by a lower average selling price resulting from the sales of
lower-priced end of life and impaired units, as discussed in "Recent Events" above. Revenues from company-operated retail locations in Asia increased $13.7 million, or 27.5%, to
$63.6 million in the year ended December 31, 2009, from $49.9 million for the year ended December 31, 2008.

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We
experienced a decline in sales returns and allowances of $6.9 million, or 43.4%, to $9.0 million in the year ended December 31, 2009 from $15.9 million for
the year ended December 31, 2008. The decrease in sales returns and allowances is primarily related to a higher 2008 balance, when management, in light of then-prevailing economic
conditions, granted certain returns and allowances to some of our wholesale customers to properly balance their portfolios of our products with respect to size, color and style.

Europe Segment RevenuesRevenues in Europe decreased $43.3 million, or 29.0%, during the year ended December 31, 2009
compared to the
same period in 2008 due to a decline in regional wholesale revenues resulting from weakened consumer demand due to regional economic conditions and an increased number of imitation products in the
region. This decrease was partially offset by increased revenues from our company-operated retail locations, partially driven by an additional retail location, and an increase in revenue from our
internet channel. Revenue from company-operated retail locations was $11.0 million in the year ended December 31, 2009 versus $7.2 million for the year ended December 31,
2008.

Sales
returns and allowances, which are recorded as a net adjustment to revenue, decreased $18.6 million, or 71%, to $7.6 million in the year ended December 31, 2009
from $26.2 million in the year ended December 31, 2008, due to a higher 2008 balance, when, in light of then-prevailing economic conditions, we granted certain return
requests and allowances to a number of customers it believed were strategically important to our ongoing business. Sales returns and allowances for the year ended December 31, 2008 were
significantly higher than historical estimates as a result of specific reserves related to those granted return and allowance requests.

Gross ProfitDuring the year ended December 31, 2009, gross profit increased $67.0 million, or 28.6%, compared to the
same period in
2008. Gross margin increased 43.8% to 46.6% during the year ended December 31, 2009 compared to the same period in 2008. During 2009, we sold $58.3 million of impaired product as
previously discussed in "Financial Highlights." Much of this product had been written down to a level that we considered realizable; however, we were able to sell this product at prices substantially
higher than what we had previously estimated. The gross profit amount related to these units was accretive to our gross profit percentage during the year ended December 31, 2009. The net effect
of these sales on our gross profit during the year ended December 31, 2009 was $49.8 million. During 2009, we also experienced an increase in retail and internet sales as a percentage of
our total revenue. This trend contributed to higher gross margins as we were able to achieve a higher average selling price in these channels while many of the fixed costs associated with operating
our company-operated retail stores are included in selling, general and administrative expenses.

Partially
offsetting these increases in gross profit were restructuring charges of $7.1 million associated with the consolidation of our warehouse and distribution space and
cancellation of our warehousing agreement. See "Restructuring" below for further discussion. In addition, as a result of the 2009 Tender Offer, we recognized $3.0 million in additional
share-based compensation expense through cost of sales during 2009. Also, during 2009, we sold a wide range of products which required additional materials, such as canvas, cloth lining and suede, and
additional processes, such as stitching, to manufacture, thereby increasing our direct costs and lowering our gross margins on those products. By comparison, during 2008, we recorded charges of
$76.3 million related to inventory write-downs and $4.2 million related to losses on future purchase commitments. We also recorded $0.9 million in restructuring costs in cost of
sales as a result of the closure of our Canadian manufacturing operation.

Impact on Gross Profit due to Foreign Exchange Rate FluctuationsChanges in average foreign currency exchange rates during the year
ended
December 31, 2009 decreased our gross profit by $4.4 million compared to the same period in 2008.

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Selling, General and Administrative Expenses and Foreign Currency Transaction (Gains)/LossesDuring the 2009 and 2008, we took
certain actions to
reduce our selling, general and administrative expenses. Those actions included, but were not limited to, reductions in certain discretionary spending such as the discontinuation of certain
sponsorship and consulting arrangements. Selling, general and administrative expense and foreign currency transaction losses decreased $56.0 million, or 15.3%, in the year ended
December 31, 2009 compared to the same period in 2008, which was primarily attributable to the following:



Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate FluctuationsChanges in average foreign currency
exchange rates
used to translate expenses from our functional currencies to our reporting currency, the U.S. dollar, during the year ended December 31, 2010 decreased selling, general and administrative
expenses by approximately $4.0 million as compared to the same period in 2009.

Restructuring ChargesDuring the years ended December 31, 2009 and 2008, we incurred restructuring charges as a result of
our turnaround
strategy, previously discussed in "Financial Highlights." Specifically, we recorded $14.7 million in restructuring charges in the year ended December 31, 2009, of which
$7.1 million was reflected in cost of sales and which primarily consisted of:



In
2008, we recorded $8.5 million in restructuring charges related to the closure of our facilities in Canada and Brazil, $7.6 million of which was recorded in
restructuring charges and $0.9 million of which was reflected in cost of sales.

We
established reserves covering future known obligations related to the consolidation of our global distribution facilities. Reserves at December 31, 2009 were
$3.1 million and have been included in the line items accrued restructuring charges and other liabilities in our consolidated balance sheets.

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Asset Impairment ChargesDuring the years ended December 31, 2009 and 2008, we incurred asset impairment charges as a
result of our turnaround
strategy, previously discussed in "Financial Highlights." The $26.1 million impairment charges recorded in 2009 primarily consisted of: $18.1 million related to the write-off
of obsolete molds, tooling, manufacturing and distribution equipment, sales and marketing assets and other distribution and manufacturing assets, primarily associated with the consolidation of
warehouse and distribution space as well as other cost-savings initiatives undertaken during the year; and $7.6 million related to the write-off of capitalized software,
patents, trade names and other intangible assets that we no longer intend to utilize.

The
$45.8 million impairment charges recorded in 2008 primarily consisted of: $20.9 million related to the write-down of fixed assets, primarily related to
equipment and shoe molds for shoes we no longer intended to manufacture or styles for which we had more molds on hand than necessary to meet projected demand; and $23.8 million related to the
write-off of goodwill and other indefinite lived intangible assets, see Note 4Intangible assets in the accompanying notes to the consolidated financial statements for
additional information.

Segments Operating Margin.Total segment operating income increased $116.2 million during the year ended December 31,
2009 compared to
the same period in 2008. The following table summarizes operating income (loss) by segment for the year ended December 31, 2009 and 2008.

Year Ended December 31,($ thousands)

2009

2008Operating loss:Americas

$
21,598

$
(38,430
)Asia


57,836


16,634Europe


11,087


2,703Other


76


(6,480
)Total segment operating income (loss)


90,597


(25,573
)Corporate, intersegment eliminations and other


(108,073
)

(109,261
)SG&A restructuring


(7,623
)

(7,664
)Asset impairment


(26,085
)

(45,784
)Total consolidated operating loss

$
(51,184
)
$
(188,282
)


During
2008, the operating loss in our Americas segment was driven primarily inventory write-downs and excess capacity in our company-operated manufacturing and distribution facilities.
In addition, we experienced foreign currency exchange losses related to fluctuations in the Canadian dollar, Mexican peso and Brazilian real in 2008. During 2009, we implemented a plan to reduce and
consolidate our global warehouse footprint, which increased our Americas gross margin compared to 2008, and we experienced declines in marketing and advertising expenses as we exited corporate
sponsorships and changed our approach to marketing our products.

During
2008, our Asia operating income was affected by foreign exchange losses and inventory impairments. In 2009, we experienced higher gross margins in Asia, driven largely by growth
in our Asia retail channel as well as an overall increase in total revenues from the Asia segment. We also experienced an increase in gains from fluctuations in foreign currency exchange rates during
2009 in our Asia segment.

During
2008, our Europe operating income was affected by foreign exchange losses and inventory impairments. In 2009, we experienced higher gross margins in Europe as a result of the
reduction and consolidation of our global warehouse and distribution footprint; however, these higher margins were achieved at lower sales volumes. We also experienced a lower loss from fluctuations
in foreign currency exchange rates during 2009 in our Europe segment.

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Interest ExpenseInterest expense decreased $0.3 million, or 16.6%, during the year ended December 31, 2009 when
compared to the same
period in 2008 which was primarily driven by lower debt balances which was partially offset by higher interest rates year over year as well as additional interest expense on a new capitalized lease
obligation which financed certain equipment and internally developed software during 2009.

Income Tax BenefitDuring the year ended December 31, 2009, we recognized an income tax benefit of $6.5 million on a
pre-tax loss of $48.6 million, compared to income tax benefit of $4.4 million on pre-tax loss of $189.5 million for the year ended December 31,
2008. The effective tax benefit rate was 13.5% during the year ended December 31, 2009 compared to 2.3% during the year ended December 31, 2008, primarily due to the impact of
restructuring our international operations and cost-sharing arrangements.

Liquidity and Capital Resources

At December 31, 2010, we had $145.6 million in cash and cash equivalents. We anticipate that cash flows from operations
will be sufficient to meet the ongoing needs of our business for the next 12 months. In order to provide additional liquidity in the future and to help support our strategic goals, we also have
an asset-backed revolving credit facility with PNC Bank, N.A. ("PNC") (further discussed below), which provides us with up to $30.0 million in borrowings and matures on September 24,
2014. Additional future financing may be necessary; however, due to current macroeconomic conditions and their affect on the global credit markets, there can be no assurance that we will be able to
secure additional debt or equity financing on terms acceptable to us or at all.

Credit Facility

On September 30, 2010, we amended our Revolving Credit and Security Agreement with PNC, originally dated September 25,
2009, (the "Credit Agreement"). Based on the amended terms, the Credit Agreement provides for an asset-backed revolving credit facility (the "Credit Facility") of up to $30.0 million in total,
which includes a $20.0 million sublimit for borrowings against our eligible inventory, a $2 million sublimit for borrowings against our eligible inventory in-transit, and a
$10 million sublimit for letters of credit, and matures on September 24, 2014. Total borrowings available under the Credit Facility at any given time are subject to customary reserves
and reductions to the extent our asset borrowing base changes. Borrowings under the Credit Facility are secured by all of our assets including all receivables, equipment, general intangibles,
inventory, investment property, subsidiary stock and leasehold interests. The terms of the Credit Agreement require us to prepay borrowings in the event of certain dispositions of property. With
respect to domestic rate loans, principal amounts outstanding bear interest at 1.5% plus the greater of either (i) PNC's published reference rate, (ii) the Federal Funds Open Rate (as
defined in the Credit Agreement) in effect on such day plus 0.5% or, (iii) the sum of the daily LIBOR rate and 1.0%. Eurodollar denominated principal amounts outstanding bear interest at 3.0%
plus the Eurodollar rate (as defined in the Credit Agreement). The Credit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of each interest period with
respect to Eurodollar rate loans and contains certain customary restrictive and financial covenants. We were in compliance with these financial covenants as of December 31, 2010. As of
December 31, 2010 and 2009, we had an immaterial amount of outstanding borrowings under the Credit Facility. At December 31, 2010 and 2009, we had issued and outstanding letters of
credit of $1.0 million and $1.1 million, respectively, which were reserved against the borrowing base.

Working Capital

As of December 31, 2010, accounts receivable increased $13.8 million when compared to December 31, 2009, primarily
due to higher sales in the fourth quarter of 2010 compared to the fourth

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quarter
of 2009. Days sales outstanding improved slightly to 33.0 at December 31, 2010 compared to 34.1 at December 31, 2009.

Inventories
increased $27.8 million as of December 31, 2010 when compared to December 31, 2009, due to multiple factors including: the growth associated with the
addition of 61 new retail locations; the addition of component raw material inventory, as we continue to manufacture more of our hybrid product which provides savings on costs incurred with importing
these products from China; and a significant increase in order backlog.

Capital Assets

During the years ended December 31, 2010 and 2009, we had net capital expenditures of $43.8 million and
$24.6 million, respectively. The $19.2 million increase in net capital expenditures was primarily due to ongoing investments in new retail stores as well as new molds and other tooling
equipment related to new product manufacturing.

We
have entered into various operating leases that require cash payments on a specified schedule. Over the next five years we are committed to make payments of approximately
$153.9 million related to our operating leases. We plan to continue to enter into operating leases related to our retail stores. We also continue to evaluate cost reduction opportunities. Our
evaluation of cost reduction opportunities will include an evaluation of contracts for sponsorships, operating lease contracts and other contracts that require future minimum payments resulting in
fixed operating costs. Any changes to these contracts may require early termination fees or other charges that could result in significant cash expenditures.

Repatriation of Cash

We are a global business with operations in many different countries, which requires cash accounts to be held in various currencies.
The global market has recently experienced many fluctuations in foreign currency exchange rates which impacts our results of operations and cash positions. The future fluctuations in foreign
currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countries have additional restrictions and covenants associated with them, which adds
increased strains on our liquidity and ability to timely access and transfer cash balances between entities.

We
generally consider unremitted earnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. However,
most of the cash held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. In some
countries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were to move the cash to another country. Certain countries, including
China, have monetary laws which may limit our ability to utilize cash resources in those countries for operations in other countries. These limitations may affect our ability to fully utilize our cash
resources for needs in the U.S. or other countries and may adversely affect our liquidity. As of December 31, 2010, we held $135.0 million of our total $145.6 million in cash in
international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. Of the $135.0 million, $32.2 million could
potentially be restricted, as described above. If the remaining $102.8 million were to be repatriated to the U.S., we would be required to pay approximately $6.8 million in international
withholding taxes with no offsetting credit. We believe that we have sufficient U.S. net operating losses ("NOLs") to absorb any future increases to U.S. taxable income (and therefore, U.S. federal
income tax) brought about by potential cash repatriation up to the lesser of the total U.S. NOL balances or the current foreign subsidiaries' earnings. There are full valuation allowances on the NOLs
that would be released to result in no tax effect or cash tax payments for the

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U.S.
up to the aforementioned limitation. As of December 31, 2010, we anticipate repatriating approximately $50.0 million of foreign subsidiary earnings in 2011 and the release of
$17.5 million in NOL valuation allowances.

Contractual Obligations and Off-Balance Sheet Arrangements

In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to
purchase certain raw materials used to
manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivity throughout the term of the agreement, which expires December 31, 2014.
Historically, the minimum purchase requirements have not been onerous and we do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on
contracted price or is subject to quarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee the payment for certain
third-party manufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately $4.6 million as of December 31, 2010),
through a letter of credit that was issued to Finproject S.r.l..

The
following table summarizes aggregate information about our contractual cash obligations as of December 31, 2010, excluding the guarantee and supply agreement mentioned above.

Payments due by period($ thousands)

Total

Less than
1 year

1 - 3
years

4 - 5
years

More than
5 yearsOperating lease obligations

$
220,083

$
48,891

$
64,454

$
40,587

$
66,151Inventory purchase obligations with third-party manufacturers


84,121


84,121








Estimated liability for uncertain tax positions


33,042





25,988


4,181


2,873Capital lease obligations


2,643


1,923


713


7


Minimum licensing royalties


458


311


147


Corporate sponsorships


140


95


45





Long-term debt obligations


3


3








Total

$
340,490

$
135,344

$
91,347

$
44,775

$
69,024


Critical Accounting Policies and Estimates

General

Our discussion and analysis of financial condition and results of operations is based on the consolidated financial statements which
have been prepared in accordance
with United States generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and
estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The following discussion pertains to accounting policies management believes are most critical to the portrayal of our financial condition and results of
operations that require management's most difficult, subjective or complex judgments.

Reserves for Uncollectible Accounts ReceivableWe make ongoing estimates related to the collectability of our accounts
receivable and maintain a
reserve for estimated losses resulting from the inability of our customers to make required payments. Our estimates are based on a variety of factors,

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including
the length of time receivables are past due, economic trends and conditions affecting our customer base, significant one-time events and historical write-off
experience. Specific provisions are recorded for individual receivables when we become aware of a customer's inability to meet its financial obligations. Since we cannot predict future changes in the
financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates and we may experience changes in the amount of reserves we recognize for accounts
receivable that we deem uncollectible. If the financial condition of some of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In
the event we determine that a smaller or larger reserve is appropriate, we would record a credit or a charge to selling, general and administrative expenses in the period in which we made such a
determination.

Sales Returns, Allowances and DiscountsWe record reductions to revenue for estimated customer returns, allowances and
discounts. Our estimated sales
returns and allowances are based on customer return history and actual outstanding returns yet to be received. Provisions for customer specific discounts based on contractual obligations with certain
major customers are recorded as reductions to net sales. We may accept returns from our wholesale and distributor customers, on an exception basis at the sole discretion of management for the purpose
of stock re-balancing to ensure that our products are merchandised in the proper assortments. Additionally, at the sole discretion of management, we may provide markdown allowances to key
wholesale and distributor customers to facilitate the "in-channel" markdown of products where we have experienced less than anticipated sell-through. We also record reductions
to revenue for estimated customer credits as a result of price mark-downs in certain markets. Fluctuations in our estimates for sales returns, allowances and discounts may be caused by
many factors, including, but not limited to, fluctuations in our sales revenue, changes in demand for our products. Our judgment in determining these estimates is impacted by various factors including
customer acceptance of our new styles,
customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products and macroeconomic factors affecting our customers. Since we cannot predict
or control certain of these factors, the actual amounts of customer returns and allowances may differ from our estimates.

Inventory ValuationInventories are valued at the lower of cost or market. Inventory cost is determined using the moving average
cost method. At
least quarterly, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which we believe that the products may need to be discounted
below cost to sell within a reasonable period. We base inventory fair value on several subjective and unobservable assumptions including estimated future demand and market conditions, as well as other
observable factors such as current sell-through of our products, recent changes in demand for our product as well as shifting demand between the products we offer, global and regional
economic conditions, historical experience selling through liquidation and "off-price" channels and the amount of inventory on hand. If the estimated inventory fair value is less than its
carrying value, the carrying value is adjusted to market value and the resulting impairment charge is recorded in cost of sales on the consolidated statements of operations. The ultimate results
achieved in selling excess and discontinued products in future periods may differ significantly from management's fair value estimates. See Note 2Inventories in the accompanying
notes to the consolidated financial statements for additional information regarding inventory and impaired product.

Impairment of Long-Lived AssetsWe test long-lived assets to be held and used for impairment when events or circumstances
indicate the carrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as defined below)
include; (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physical condition, (iii) a
significant adverse change in legal factors or business climate that could affect its value, including an adverse action or assessment by a regulator, (iv) an accumulation of costs
significantly in excess of the amount originally expected for its acquisition or construction, (v) its current period operating or cash flow losses combined with

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historical
operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associated with its use, and (vi) a current expectation that, more likely than not, it
will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset
group), we assess the recoverability by determining if its carrying value exceeds the sum of its projected undiscounted cash flows expected to result from its use and eventual disposition over its
remaining economic life. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair value is determined by independent third-party appraisals, the
net present value of expected cash flows, or other valuation techniques as appropriate. Assets to be abandoned or from which no further benefit is expected are written down to zero at the time that
the determination is made and the assets are removed entirely from service.

An
asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Beginning in
2009, we determined that the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities is at the retail store
level for assets involved in our retail business. Our estimates of future cash flows over the remaining useful life of the asset group are based on management's operating budgets and forecasts. These
budgets and forecasts take into consideration inputs from our regional management related to growth rates, pricing, new markets and other factors expected to affect the business, as well as
management's forecasts for inventory, receivables, capital spending, and other cash needs. These considerations and expectations are inherently uncertain, and estimates included in our operating
forecasts beyond a three to six month future period are extremely subjective. Accordingly, actual cash flows may differ significantly from our estimated future cash flows.

Impairment
charges are driven by, among other things, changes in our strategic operational and financial decisions, global and regional economic conditions, demand for our product or
shifting demand between different products we offer and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from our long-lived
assets and result in impairment charges in future periods. Significant impairment charges recognized during a reporting period could have an adverse affect on our reported financial results

Impairment of Intangible AssetsGoodwill and intangible assets with indefinite lives are evaluated for impairment when events or
changes in
circumstances indicate that the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definite lives, such as customer relationships, core
technology, capitalized software, patents and non-compete agreements are amortized over their useful lives and are evaluated for impairment only when events or circumstances indicate a
carrying value may not be fully recoverable. Recoverability is based on the estimated future undiscounted cash flows of an asset. If the asset is not supported on an undiscounted cash flow basis, the
amount of impairment is measured as the difference between its carrying value and its fair value. Determination of the fair value of goodwill and other indefinite-lived intangible asset involves a
number of management assumptions including the expected future operating performance of our reporting units which may change in future periods due to technological changes, economic conditions,
changes to our business operations, or the inability to meet business plans, among other things. The valuation is sensitive to the actual results of any of these uncertain factors which could be
negatively affected and may result in additional impairment charges should the actual results differ from management's estimates. See Note 4Intangible Assets, in the accompanying
notes to the consolidated financial statements for additional information regarding our intangible assets.

Share-Based CompensationWe estimate the fair value of our stock option awards using a Black-Scholes valuation model, the inputs
of which require
various assumptions including the expected volatility of our stock price and the expected life of the option. The expected volatility assumptions are derived using our historical stock price
volatility and the historical volatilities of competitors whose shares are traded in the public markets. These assumptions reflect our best estimates, but they involve

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inherent
uncertainties based on market conditions generally outside of our control. If factors change and we use a different methodology for deriving the Black-Scholes assumptions, our stock-based
compensation expense may differ materially in the future from that recorded in the current period. Additionally, we make certain estimates about the number of awards which will be made under
performance-based incentive plans. As a result, if other assumptions or estimates had been used, stock-based compensation expense could have been materially impacted. Furthermore, if we use different
assumptions in future periods, stock-based compensation expense could be materially impacted in future periods. See Note 9Equity in the accompanying notes to the consolidated
financial statements for additional information regarding our stock-based compensation.

Income TaxesWe account for income taxes using the asset and liability method which requires the recognition of deferred tax
assets and liabilities
for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for income taxes at the current and future
enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and
disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax position that is more likely than not of being sustained upon examination by the relevant taxing authority
must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of
being sustained. Interest expense is recognized on the full amount of deferred benefits for uncertain tax positions. While the validity of any tax position is a matter of tax law, the body of
statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous.

Our
annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is
required in determining our annual tax expense and in evaluating our tax positions. Tax laws require items to be included in our tax returns at different times than when these items are reflected in
the consolidated financial statements. As a result, the annual tax rate reflected in our consolidated financial statements is different than that reported in our tax return (our cash tax rate). Some
of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences create
deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities. The tax
rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences are expected to reverse. Based on the evaluation of all available
information, we recognize future tax
benefits, such as net operating loss carry forwards, to the extent that realizing these benefits is considered more likely than not.

We
evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating
results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies. A valuation allowance is required to
be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. Undistributed earnings of a subsidiary
are accounted for as a temporary difference, except that deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to be indefinitely reinvested in
the foreign jurisdiction. We have operated under a specific plan for reinvestment of undistributed earnings of our foreign subsidiaries which demonstrates that such earnings will be indefinitely
reinvested in the applicable tax jurisdictions. Should we change our plans, we would be required to record a significant amount of deferred tax liabilities. We recognize interest and penalties related
to unrecognized tax benefits within the income

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tax
expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.

Recent Accounting PronouncementsSee Note 1Summary of Significant Accounting Policies in the accompanying notes to the
consolidated financial statements for recently adopted accounting pronouncements.

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility, see
Note 8Notes Payable and Capital Lease Obligations in the accompanying notes to the consolidated financial statements for additional
information. Borrowings under the revolving credit facility bear interest at variable rates which are based on either the lender's published rate, the Federal Funds Open Rate, LIBOR or the Eurodollar
Rate (as defined in the revolving credit facility), and are subject to risk based upon prevailing market interest rates. Interest rate risk may result from many factors, including governmental
monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control. As of December 31, 2010, the amount of total
borrowings outstanding under the revolving credit facility was immaterial. If the prevailing market interest rates relative to these borrowings increased by 10%, our interest expense during the year
ended December 31, 2010 would have increased by $0.1 million.

Fluctuations
in the prevailing market interest rates, earned on our cash and cash equivalents and restricted cash balances during the year ended December 31, 2010, would have an
immaterial impact on the consolidated statements of operations.

Foreign Currency Exchange Risk

We have significant revenues from foreign sales in recent periods. While the majority of expenses attributable to our foreign
operations are paid in the functional currency of the country in which such operations are conducted, we pay the majority of our overseas third-party manufacturers in U.S. dollars. Our ability to sell
our products in foreign markets and the U.S. dollar value of the sales made in foreign currencies can be significantly influenced by foreign currency fluctuations. A decrease in the value of foreign
currencies relative to the U.S. dollar could result in downward price pressure for our products and increase losses from currency exchange rates. A decrease of 1% in value of U.S. dollar relative to
foreign currencies would have increased income before taxes during the year ended December 31, 2010 by approximately $2.6 million. The volatility of the applicable exchange rates is
dependent on many factors that cannot be forecasted with reliable accuracy. In the event our foreign sales and purchases increase and are denominated in currencies other than the U.S. dollar, our
operating results may be affected by fluctuations in the exchange rate of currencies we receive for such sales. See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," for a discussion of the impact of foreign exchange rate variances experienced during the year ended December 31, 2010.

We
enter into foreign currency exchange forward contracts to reduce our exposure to changes in exchange rates. As of December 31, 2010, the total notional value of outstanding
foreign currency exchange forward contracts was $12.3 million. The following table summarizes the notional amounts of the outstanding derivatives at December 31, 2010 (in thousands). The
notional amounts of the

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derivative
financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the foreign currency exchange risks.

Currency Purchased

Currency Sold

Maturity Date

Contract TypeUSD
2,000

JPY
162,960

January 2011

Foreign currency exchange forwardUSD
2,000

JPY
161,940

February 2011

Foreign currency exchange forwardUSD
2,000

JPY
161,920

March 2011

Foreign currency exchange forwardUSD
1,752

EUR
1,300

February 2011

Foreign currency exchange forwardUSD
1,751

EUR
1,300

March 2011

Foreign currency exchange forwardUSD
952

GBP
600

February 2011

Foreign currency exchange forwardUSD
952

GBP
600

March 2011

Foreign currency exchange forwardUSD
481

GBP
300

January 2011

Foreign currency exchange forwardUSD
418

EUR
300

January 2011

Foreign currency exchange forward


ITEM 8.    Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data are as set forth in the "Index to Consolidated Financial Statements" on
page 52.

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Acting Principal
Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, as of December 31, 2010 (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Acting Principal Financial Officer
concluded that as of the Evaluation Date, our disclosure controls and procedures were effective such that the information relating to us, including our consolidated subsidiaries, required to be
disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and
(ii) is accumulated and communicated to our management, including our Chief Executive Officer and Acting Principal Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010, using the
criteria set forth in theInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2010.

Deloitte &
Touche LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting, which is included herein.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonable likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Crocs, Inc.
Niwot, Colorado

We
have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying "Management's Annual Report on Internal Control Over Financial Reporting". Our responsibility is to express an opinion on the Company's internal control over financial reporting based on
our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2010 of the Company and our report dated February 25, 2011 expressed an unqualified opinion on those financial statements.

/s/
Deloitte & Touche LLP

Denver,
Colorado
February 25, 2011

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ITEM 9B.    Other Information

None.

PART III

ITEM 10.    Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting
of Stockholders to be filed with the SEC within 120 days after December 31, 2010.

Code of Ethics

We have a written code of ethics in place that applies to all our employees, including our principal executive officer, principal
financial officer and controller. A copy of our business code of conduct and ethics policy is available on our website: www.crocs.com. We are required to disclose any change to, or waiver from, our
code of ethics for our senior financial officers. We intend to use our website as a method of disseminating any change to, or waiver from, our business code of conduct and ethics policy as permitted
by applicable SEC rules.

ITEM 11.    Executive Compensation

The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting
of Stockholders to be filed with the SEC within 120 days after December 31, 2010.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting
of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010, with the exception of those items listed below.

ITEM 13.    Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting
of Stockholders to be filed with the SEC within 120 days after December 31, 2010.

ITEM 14.    Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting
of Stockholders to be filed with the SEC within 120 days after December 31, 2010.

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PART IV

ITEM 15.    Exhibits and Financial Statement Schedules

(1)   Financial Statements

The financial statements filed as part of this report are listed on the index to financial statements on page 52.

(2)   Financial Statement Schedules

All financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the Financial Statements
or Notes thereto.

(3)   Exhibit list

Exhibit
Number

Description3.1

Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006
(File No. 333-132312)).3.1

Certificate of Amendment to Restated Certificate of Incorporate of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to Crocs, Inc. Current Report on Form 8-K, filed on July 12,
2007).3.2

Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)).4.1

Specimen common stock certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'s Registration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)).10.1
*
Form of Indemnity Agreement between Crocs, Inc. and each of its directors and executive officers (Incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Registration Statement on Form S-1,
filed on August 15, 2005 (File No. 333-127526)).10.2
*
Crocs, Inc. 2005 Equity Incentive Plan (the "2005 Plan") (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.3
*
Amendment No.1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.2.2 to Crocs, Inc.'s Registration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)).10.4
*
Form of Notice of Grant of Stock Option under the 2005 Plan (incorporated herein by reference to Exhibit 10.3 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.5
*
Form of Notice of Grant of Stock Option for Non-Exempt Employees under the 2005 Plan (incorporated herein by reference to Exhibit 10.4 to Crocs, Inc.'s Registration Statement on Form S-1, filed on
August 15, 2005 (File No. 333-127526)).10.6
*
Form of Stock Purchase Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.5 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).


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Exhibit
Number

Description10.7
*
Form of Stock Option Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.6 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.8
*
Form of Restricted Stock Award Grant Notice under the 2005 Plan (incorporated herein by reference to Exhibit 10.7 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.9
*
Form of Restricted Stock Award Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.8 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.10
*
Form of Non Statutory Stock Option Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.9 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File
No. 333-127526)).10.11
*
Crocs, Inc. 2010 Board of Directors Compensation Plan.10.12
*
Crocs, Inc. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.15 to Crocs, Inc.'s Annual Report on Form 10-K, filed on March 17,
2009).10.13

Amended and Restated Agreement for Supply, dated July 26, 2005, between Finproject S.p.A. and Crocs, Inc. (incorporated herein by reference to Exhibit 10.21 to Crocs, Inc.'s Registration Statement
on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.14
*
2008 Cash Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on July 12, 2007).10.15
*
2007 Equity Incentive Plan (the "2007 Plan") (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.'s Current Report on Form 8-K, filed on July 12, 2007).10.16
*
Form of Incentive Stock Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007).10.17
*
Form of Non-Statutory Stock Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14,
2007).10.18
*
Form of Non-Statutory Stock Option Agreement for Non-Employee Directors under the 2007 Plan (incorporated herein by reference to Exhibit 10.3 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on
November 14, 2007).10.19
*
Employment Agreement, dated January 16, 2008, between Crocs, Inc. and Russell Hammer (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on
May 12, 2008).10.20
*
Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John McCarvel (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on
February 13, 2009).10.21
*
Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John Duerden (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on March 2,
2009).


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Exhibit
Number

Description10.22
*
Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated herein by reference to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on August 5,
2010).10.23
*
Separation Agreement, dated March 31, 2010, between Crocs. Inc. and John Duerden (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on
April 6, 2010).10.24

Revolving Credit and Security Agreement, dated September 25, 2009, among Crocs, Inc., Crocs Retail, Inc., Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite, Inc. and PNC Bank,
N.A. (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on September 30, 2009).10.25

First Amendment to Revolving Credit and Security Agreement, dated October 14, 2009, among Crocs, Inc., Crocs Retail, Inc., Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite, Inc.
and PNC Bank, N.A. (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on October 15, 2009).10.28

Second Amendment to Revolving Credit and Security Agreement, dated September 30, 2010, among Crocs, Inc., Crocs Retail, Inc., Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite,
 Inc. and PNC Bank, N.A. (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on October 4, 2010).21

Subsidiaries of the registrant.23.1

Consent of Deloitte & Touche LLP.31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.31.2

Certification of the Acting Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act.32

Certification of the Chief Executive Officer and Acting Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.


*Compensatory
plan or arrangementThe
registrant has been granted confidential treatment with respect to portions of these exhibits.Filed
herewith.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, as of February 25, 2011.

CROCS, INC.
a Delaware CorporationBy:

/s/ JOHN P. MCCARVELName:

John P. McCarvelTitle:

President and Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 25, 2011 by the following persons on behalf of the registrant
and in the capacities indicated.

Signature

Title

Date/s/ JOHN P. MCCARVEL John P. McCarvel

President, Chief Executive Officer and Director (Principal Executive Officer)

February 25, 2011/s/ JEFFREY J. LASHER Jeffrey J. Lasher

Corporate Controller and Chief Accounting Officer (Acting Principal Financial Officer and Principal Accounting Officer)

February 25, 2011/s/ W. STEPHEN CANNON W. Stephen Cannon

Director

February 25, 2011/s/ RAYMOND D. CROGHAN Raymond D. Croghan

Director

February 25, 2011/s/ RONALD L. FRASCH Ronald L. Frasch

Director

February 25, 2011/s/ PETER A. JACOBI Peter A. Jacobi

Director

February 25, 2011/s/ THOMAS J. SMACH Thomas J. Smach

Acting Chairman of the Board

February 25, 2011Richard L. Sharp*

Director


*On
leave of absence as previously disclosed.


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INDEX TO FINANCIAL STATEMENTS



Financial Statements:Report of Independent Registered Public Accounting Firm


F-1Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008


F-2Consolidated Balance Sheets as of December 31, 2010 and 2009


F-3Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2010,
 2009 and 2008


F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008


F-5Notes to Consolidated Financial Statements


F-6


52

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Crocs, Inc.
Niwot, Colorado

We
have audited the accompanying consolidated balance sheets of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crocs, Inc. and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2010, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/
Deloitte & Touche LLP

Denver,
Colorado
February 25, 2011

F-1

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Table of Contents



CROCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,($ thousands, except per share amounts)

2010

2009

2008Revenues

$
789,695

$
645,767

$
721,589Cost of sales


364,631


337,720


486,722Restructuring charges (Note 6)


1,300


7,086


901Gross profit


423,764


300,961


233,966Selling, general and administrative expenses


342,121


311,592


341,518Foreign currency transaction losses (gains), net


(2,912
)

(665
)

25,438Restructuring charges (Note 6)


2,539


7,623


7,664Goodwill impairment charges (Note 4)








23,867Asset impairment charges (Note 3)


141


26,085


21,917Charitable contributions


840


7,510


1,844Income (loss) from operations


81,035


(51,184
)

(188,282
)Interest expense


657


1,495


1,793Gain on charitable contribution (Note 2)


(223
)

(3,163
)

Other income, net


(191
)

(895
)

(565
)Income (loss) before income taxes


80,792


(48,621
)

(189,510
)Income tax expense (benefit)


13,066


(6,543
)

(4,434
)Net (loss) income

$
67,726

$
(42,078
)
$
(185,076
)Income (loss) per common share (Note 13):Basic

$
0.78

$
(0.49
)
$
(2.24
)Diluted

$
0.76

$
(0.49
)
$
(2.24
)


The
accompanying notes are an integral part of these consolidated financial statements.

F-2

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Table of Contents



CROCS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ thousands, except number of shares)

December 31,
2010

December 31,
2009ASSETSCurrent assets:Cash and cash equivalents

$
145,583

$
77,343Accounts receivable, net of allowance for doubtful accounts of $10,249 and $9,839, respectively


64,260


50,458Inventories (Note 2)


121,155


93,329Deferred tax assets, net


15,888


7,358Income tax receivable


9,062


8,611Other receivables


11,637


16,140Prepaid expenses and other current assets


13,429


14,015Total current assets


381,014


267,254Property and equipment, net (Note 3)


70,014


71,084Intangible assets, net (Note 4)


45,461


35,984Deferred tax assets, net


34,711


18,479Other assets


18,281


16,937Total assets

$
549,481

$
409,738LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
35,669

$
23,434Accrued expenses and other current liabilities (Note 5)


59,049


53,580Accrued restructuring charges (Note 6)


439


2,616Deferred tax liabilities, net


17,620


9Income taxes payable


23,084


6,377Note payable, current portion of long-term debt and capital lease obligations (Note 8)


1,901


640Total current liabilities


137,762


86,656Deferred tax liabilities, net


847


2,192Long term income tax payable


29,861


27,890Other liabilities


4,905


5,380Total liabilities


173,375


122,118Commitments and contingencies (Note 14)Stockholders' equity:Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, none outstanding





Common shares, par value $0.001 per share, 250,000,000 shares authorized, 88,600,860 and 88,065,859 shares issued and outstanding, respectively, at
December 31, 2010 and 86,224,760 and 85,659,581 shares issued and outstanding, respectively, at December 31, 2009


88


85Treasury stock, at cost, 535,001 and 565,179 shares, respectively


(22,008
)

(25,260
)Additional paid-in capital


277,293


266,472Retained earnings


89,881


22,155Accumulated other comprehensive income


30,852


24,168Total stockholders' equity


376,106


287,620Total liabilities and stockholders' equity

$
549,481

$
409,738


The
accompanying notes are an integral part of these consolidated financial statements.

F-3

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)

Common Stock

Treasury Stock







Accumulated
Other
Comprehensive
IncomeAdditional
Paid in
Capital

Deferred
Compensation

Retained
Earnings

Total Stock
Holders
Equity

Comprehensive
Income (Loss)($ thousands)

Shares

Amount

Shares

AmountBALANCEDecember 31, 2007


82,198

$
83


524

$
(25,022
)
$
211,936

$
(2,402
)
$
249,309

$
10,209

$
444,113Amortization of stock compensation (Note 9)














16,951


1,388








18,339Forfeitures














(131
)

131








Exercises of stock options and issuance of restricted stock awards (Note 9)


821


1








3,281


637








3,919Net loss




















(185,076
)




(185,076
)
$
(185,076
)Foreign currency translation























5,868


5,868


5,868Total comprehensive loss




























$
(179,208
)BALANCEDecember 31, 2008


83,019

$
84


524

$
(25,022
)
$
232,037

$
(246
)
$
64,233

$
16,077

$
287,163Amortization of stock compensation (Note 9)














17,189


208








17,397Tender offer (Note 9)














16,197











16,197Forfeitures


(116
)










(199
)

38








(161
)Exercises of stock options and issuance of restricted stock awards (Note 9)


1,858


1








1,248











1,249Adjustment for prior period RSA grants


939























Repurchase of common stock for tax withholding


(41
)




41


(238
)













(238
)Net loss




















(42,078
)




(42,078
)
$
(42,078
)Foreign currency translation























8,091


8,091


8,091Total comprehensive loss




























$
(33,987
)BALANCEDecember 31, 2009


85,659

$
85


565

$
(25,260
)
$
266,472

$


$
22,155

$
24,168

$
287,620Amortization of stock compensation (Note 9)














7,594











7,594Forfeitures


(454
)










(288
)










(288
)Exercises of stock options and issuance of restricted stock awards (Note 9)


2,908


3


(77
)

3,673


3,515











7,191Repurchase of common stock for tax withholding


(47
)




47


(421
)













(421
)Net income




















67,726





67,726

$
67,726Foreign currency translation























9,048


9,048


9,048Reclassification of cumulative foreign exchange translation adjustments to net income (Note 1)























(2,364
)

(2,364
)

(2,364
)Total comprehensive income




























$
74,410BALANCEDecember 31, 2010


88,066

$
88


535

$
(22,008
)
$
277,293

$


$
89,881

$
30,852

$
376,106


The accompanying notes are an integral part of these consolidated financial statements.

F-4

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Table of Contents



CROCS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,($ thousands)

2010

2009

2008Cash flows from operating activities:Net income (loss)

$
67,726

$
(42,078
)
$
(185,076
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


37,059


36,671


37,450Unrealized loss (gain) on foreign exchange


1,334


(11,267
)

21,570Deferred income taxes


(4,999
)

5,399


(5,429
)Goodwill impairment








23,837Asset impairment


141


26,027


21,927Inventory write-down charges





2,568


76,258Charitable contributions


840


7,424


1,844Non-cash restructuring charges


196


2,196


Bad debt expense


2,204


1,316


3,153Share based compensation


7,109


15,237


18,976Share based compensation from 2009 Tender Offer





16,197


Other non-cash items


942


(3,924
)

4,833Changes in operating assets and liabilitiesnet of effect of acquired businesses:Accounts receivable


(13,165
)

(13,251
)

111,318Inventories


(27,908
)

44,828


16,395Prepaid expenses and other assets


2,230


(13,914
)

(4,342
)Accounts payable


12,689


(17,387
)

(60,168
)Accrued expenses and other liabilities


20,344


(19,304
)

11,553Accrued restructuring


(2,696
)

1,208


2,398Income taxes receivable


228


23,163


(23,634
)Cash provided by operating activities


104,274


61,109


72,863Cash flows from investing activities:Purchases of marketable securities


(5,654
)

(1,502
)

Sales of marketable securities


7,369





Cash paid for purchases of property and equipment


(31,257
)

(20,054
)

(55,559
)Proceeds from disposal of property and equipment


1,274


2,476


2,383Cash paid for intangible assets


(13,848
)

(6,973
)

(10,659
)Restricted cash


38


322


(1,624
)Acquisition of businesses, net of cash acquired








(7,977
)Cash used in investing activities


(42,078
)

(25,731
)

(73,436
)Cash flows from financing activities:Proceeds from note payable, net


83,100


293


76,024Repayment of note payable and capital lease obligations


(84,625
)

(23,078
)

(60,707
)Debt issuance costs





(458
)

Exercise of stock options


7,191


1,290


3,283Repurchase of common stock for tax withholding


(421
)

(238
)

Cash provided by (used in) financing activities


5,245


(22,191
)

18,600Effect of exchange rate changes on cash


799


12,491


(2,697
)Net increase in cash and cash equivalents


68,240


25,678


15,330Cash and cash equivalentsbeginning of year


77,343


51,665


36,335Cash and cash equivalentsend of year

$
145,583

$
77,343

$
51,665Supplemental disclosure of cash flow informationcash paid during the year for:Interest

$
639

$
1,491

$
1,581Income taxes

$
11,048

$
12,392

$
16,367Supplemental disclosure of non-cash, investing, and financing activities:Assets acquired under capitalized leases

$
2,606

$
1,760


Accrued purchases of property and equipment

$
1,826

$
2,826

$
10,331Accrued purchases of intangibles

$
3,786

$
2,411

$
2,265


The accompanying notes are an integral part of these consolidated financial statements.

F-5

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Table of Contents

CROCS, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OrganizationCrocs, Inc. and its subsidiaries (collectively the "Company," "we," "our" or "us") are engaged in the design, development,
manufacturing, marketing and distribution of consumer products, primarily casual and athletic shoes and shoe charms, manufactured from specialty resins referred to as Croslite. Our wholly-owned
subsidiaries include, among others, EXO Italia ("EXO"), which designs and develops EVA (Ethylene Vinyl Acetate) based finished products, primarily for the footwear industry; Jibbitz, LLC
("Jibbitz"), a unique accessory brand with colorful snap-on charms specifically suited for the Company's shoes; and Ocean Minded, LLC ("Ocean Minded"), which designs, manufactures,
markets and distributes high quality leather and EVA based sandals primarily for the beach, adventure and action sports markets.

Basis of ConsolidationThe consolidated financial statements include the accounts of our wholly-owned and majority owned subsidiaries as well as a
variable interest entity ("VIE") for which we are the primary beneficiary after the elimination of intercompany accounts and transactions. The primary beneficiary of a VIE is the entity that absorbs
the majority of the entity's expected losses, receives a majority of the VIE's expected residual returns or both. See Note 10Variable Interest Entities for further discussion.

Noncontrolling InterestsWith the exception of Crocs India Private Limited ("Crocs India") all of our subsidiaries are, in substance,
wholly-owned.
Effective January 1, 2010, we sold our interests in Crocs India. During the years ended December 31, 2009 and 2008, the non-controlling interests in Crocs India were
immaterial and were included in other (income) expenses on the consolidated statements of income and in other liabilities on the consolidated balance sheets.

Change in Accounting PrincipleEffective January 1, 2010, we changed our inventory valuation method for all inventories from the
first-in, first-out ("FIFO") cost method to the moving average cost method, which approximates FIFO. We believe the change to the moving average cost method is preferable
because it results in better alignment with the physical flow of inventory than the FIFO methodology; it is calculated by our inventory information system which incorporates automated controls; and it
is the method management uses when preparing budgets, reviewing actual and forecasted financial information and determining incentive management compensation. The moving average cost method results in
substantially the same results of operations in each reporting period. Financial statements for periods ending on or before December 31, 2009 have not been retroactively adjusted due to
immateriality. The impact of the change for the year ended December 31, 2010 was also immaterial.

Management EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Management believes that the estimates, judgments and assumptions made when accounting for items and matters such as, but not limited to,
the allowance for doubtful accounts, sales returns, impairment assessments and charges, recoverability of assets (including deferred tax assets), uncertain tax positions, share-based compensation
expense, the fair value of acquired intangibles, the assessment of lower of cost or market on inventory, useful lives assigned to long-lived assets, depreciation and provisions for
contingencies are reasonable based on information available at the time they are made. Management also makes estimates in the assessments of potential losses in relation to

F-6

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

threatened
or pending legal and tax matters. See Note 16Legal Proceedings. Actual results could materially differ from these estimates. For matters not related to income taxes, if
a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If there is the potential to recover a portion of the estimated loss from a
third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable.

Concentrations of RiskWe are exposed to concentrations of risks in the following categories: (1) cash and cash equivalents;
(2) accounts receivable; (3) manufacturing sources; and (4) suppliers of certain raw materials. Our cash and cash equivalents are maintained in several different financial
institutions in amounts that typically exceed U.S. federally insured limits or in financial institutions in international jurisdictions where insurance is not provided and restrictions may exist. We
have not experienced any losses in such accounts and believe we are not exposed to significant credit risk. We consider any concentration of credit risk related to accounts receivable to be mitigated
by our credit policy, the insignificance of outstanding balances owed by each individual customer at any point in time and the geographic dispersion of our customers. We rely on a limited source of
internal and external manufacturers. Establishing a replacement source could require significant additional time and expense. We source the elastomer resins that constitute the primary raw materials
used in compounding Croslite, which we use to produce our footwear products, from two suppliers. If the suppliers we rely on for elastomer resins were to cease production of these materials, we may
not be able to obtain suitable substitute materials in time to avoid interruption of our production cycle, if at all. We may also have to pay materially higher prices in the future for the elastomer
resins or any substitute materials we use, which would increase our production costs and could have a materially adverse impact on our margins and results of operations.

Fair ValueFair value is the price that would be received from the sale of an asset or transfer of a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most
advantageous market in which a hypothetical sale or transfer would take place and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of non-performance.

The
fair value hierarchy is made up of three levels of inputs that may be used to measure fair value: Level 1observable inputs such as quoted prices for identical
instruments in active markets; Level 2observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets; and Level 3unobservable inputs for which there is little
or no market data, which require the reporting entity to develop its own assumptions. We categorize fair value measurements within the fair value hierarchy based upon the lowest level of the most
significant inputs used to determine such fair value measurement.

Derivative
financial instruments are required to be recorded at their fair value, on a recurring basis. The fair values of our derivative instruments are determined using a discounted
cash flow valuation model. The significant inputs used in the model are readily available in public markets or can be derived from observable market transactions, and therefore, have been classified
as Level 2. These inputs include the applicable exchange rates and forward rates, and discount rates based on the prevailing LIBOR deposit rates.

F-7

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Our
other financial instruments are not required to be carried at fair value on a recurring basis. The carrying value of these financial instruments, including cash equivalents, accounts
receivable, accounts payable and accrued liabilities, approximates fair value due to their short maturities. Based on borrowing rates currently available to us, with similar terms, the carrying values
of capital lease obligations and the line of credit approximate their fair values.

Long-lived
assets such as inventories, property, plant and equipment and intangible assets are also not required to be carried at fair value on a recurring basis. However,
when determining impairment losses, fair values of property, plant and equipment, goodwill and intangibles must be determined. For such determination, we use either an income approach with inputs that
are mainly unobservable, such as expected future cash flows, or a market approach using observable inputs such as replacement cost or third-party appraisals, as appropriate. Estimated future cash
flows are based on management's operating budgets and forecasts which take into consideration both observable and unobservable inputs including growth rates, pricing, new markets and other factors
expected to affect the business, as well as management's forecasts for inventory, receivables, capital spending, and other cash needs. For a discussion of inventory estimated fair value see "Inventory
Valuation" below.

Cash and Cash EquivalentsCash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three
months or less at the date of purchase. We consider receivables from credit card companies to be cash equivalents, if expected to be received within five days. The carrying amounts reflected in the
consolidated balance sheet for cash and cash equivalents approximate fair value due to the short maturities.

Accounts ReceivableAccounts receivable represent amounts due from customers. Accounts receivable are recorded at invoiced amounts, net of
reserves
and allowances, are not collateralized and do not bear interest. We use our best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length
of time receivables are past due, economic trends and conditions affecting our customer base, significant one-time events and historical write-off experience. Specific
provisions are recorded for individual receivables when we become aware of a customer's inability to meet its financial obligations.

Inventory ValuationInventories are valued at the lower of cost or market. Inventory cost
is determined using the moving average cost method. At least quarterly, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which
we believe that the products may need to be discounted below cost to sell within a reasonable period. We base inventory fair value on several subjective assumptions including estimated future demand
and market conditions, as well as other observable factors such as current sell-through of our products, recent changes in demand for our product as well as shifting demand between the
products we offer, global and regional economic conditions, historical experience selling through liquidation and price discounted channels and the amount of inventory on hand. If the estimated
inventory fair value is less than its carrying value, the carrying value is adjusted to market value and the resulting impairment charge is recorded in cost of sales on the consolidated statements of
operations. See Note 2Inventories for further discussion.

Property and EquipmentDepreciation of property, equipment, furniture and fixtures is computed using the straight-line method based on
estimated useful lives ranging from two to five years. Leasehold improvements are amortized on the straight-line basis over their estimated economic useful lives or the

F-8

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

lease
term, whichever is shorter. For long-lived assets denominated in a foreign currency, we translate the ending asset and accumulated depreciation at rate of exchange at the balance
sheet date and record depreciation expense using the weighted average rate of exchange for the applicable period. The difference between the recorded depreciation expense and the change in accumulated
depreciation is recorded as a component of accumulated other comprehensive income in stockholders' equity on the consolidated balance sheets. Depreciation of manufacturing assets such as molds and
tooling is included in cost of sales on the consolidated statements of operations. Depreciation related to corporate, non-product and non-manufacturing assets is included in
selling, general and administrative expense on the consolidated statements of operations.

Impairment of Long-Lived AssetsLong-lived assets to be held and used are evaluated for impairment when events or
circumstances indicate the carrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as
defined below) include; (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physical condition,
(iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action or assessment by a regulator, (iv) an accumulation of
costs significantly in excess of the amount originally expected for its acquisition or construction, (v) its current period operating or cash flow losses combined with historical operating or
cash flow losses or a forecast of its cash flows demonstrate continuing losses associated with its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess the
recoverability by determining if its carrying value exceeds the sum of its projected undiscounted cash flows expected to
result from its use and eventual disposition over its remaining economic life. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Assets to be
abandoned or from which no further benefit is expected are written down to zero at the time that the determination is made and the assets are removed entirely from service.

An
asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Beginning in
2009, we determined that the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities is at the retail store
level for assets involved in our retail business.

Intangible Assets and GoodwillIntangible assets that are determined to have finite lives are amortized over their useful lives on a
straight-line basis. Customer relationships are amortized on a straight-line basis or an accelerated basis. Indefinite-lived intangible assets, such as trade names, are not
amortized and are evaluated for impairment at least annually and when circumstances imply possible impairment. As of December 31, 2010 and 2009, we had no indefinite lived intangible assets.

For
amortizable intangible assets denominated in a foreign currency, we translate the ending asset and accumulated amortization at rate of exchange at the balance sheet date and record
amortization expense using the weighted average rate of exchange for the applicable period. The difference between the recorded amortization expense and the change in accumulated amortization is
recorded as a component of accumulated other comprehensive income in stockholders' equity. Amortization of manufacturing intangible assets is included in cost of sales on the consolidated statements
of operations. Amortization related to corporate, non-product and non-manufacturing assets such as our

F-9

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

global
information systems is included in selling, general and administrative expense on the consolidated statements of operations.

The
following table sets forth our definite lived intangible assets and the periods over which they are amortized.

Intangible Asset Class

Weighted Average Amortization PeriodPatents

10 yearsCustomer Relationships

Estimated customer lifeCore Technology

5 yearsNon-competition Agreement

Contractual termCapitalized Software

Shorter of 7 years or useful life


Capitalized SoftwareWe capitalize certain internal and external software acquisition and development costs that benefit future years, including the
costs of employees and contractors devoting time to the software development projects and external direct costs for materials and services. Initial costs associated with
internally-developed-and-used software are expensed until it is determined that the project has reached the application development stage. Once in its development stage,
subsequent additions, modifications or upgrades to an internal-use software project are capitalized to the extent that they allow the software to perform a task it previously did not
perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized software primarily consists of our enterprise resource system software, warehouse
management software and point of sale software. At least annually, we consider the potential impairment of capitalized software by assessing the substantive service potential of the software, changes,
if any, in the extent or manner in which the software is used or is expected to be used, and the actual cost of software development or modification compared to expected cost. See
Note 4Intangibles Assets for further discussion.

GoodwillGoodwill represents the excess purchase price paid over the fair value of assets acquired and liabilities assumed in acquisitions. We assess
goodwill for impairment annually on the last day of the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of goodwill,
including intangibles with indefinite lives, exceeds its implied fair value, we record an impairment loss equal to the difference. As of December 31, 2009 and 2010, we had no goodwill.

Impairment of Intangible AssetsIntangible assets with indefinite lives and goodwill are evaluated for impairment when events or changes in
circumstances indicate that the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definite lives, such as customer relationships, core
technology, capitalized software, patents and non-compete agreements are amortized over their useful lives and are evaluated for impairment only when events or circumstances indicate a
carrying value may not be fully recoverable. Recoverability is based on the estimated future undiscounted cash flows of an asset. If the asset is not supported on an undiscounted cash flow basis, the
amount of impairment is measured as the difference between its carrying value and its fair value.

Earnings per ShareBasic and diluted earnings (loss) per common share ("EPS") is presented using the two-class method, which is an
earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividend rights and participation rights

F-10

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

in
undistributed earnings. Under the two-class method, EPS is computed by dividing the sum of distributed and undistributed earnings (loss) attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period. A participating security is an unvested share-based payment award containing non-forfeitable rights to
dividends and must be included in the computation of earnings per share pursuant to the two-class method. Shares of the Company's non-vested restricted stock awards and units
are considered participating securities. Diluted EPS reflects the potential dilution from securities that could share in the earnings of the Company. Anti-dilutive securities are excluded
from diluted EPS. See Note 13Earnings per Share for further discussion.

Recognition of RevenuesRevenues are recognized when the customer takes title and assumes risk of loss, collection of related receivables is
probable,
persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title passes on shipment or on receipt by the customer depending on the country of the sale and the
agreement with the customer. Allowances for estimated returns and discounts are recognized when the related revenue is recorded.

Shipping and Handling Costs and FeesShipping and handling costs are expensed as incurred and included in cost of sales. Shipping and handling
fees
billed to customers are included in revenues.

Share-Based CompensationWe have share-based compensation plans under which certain officers, employees and members of the Board of Directors are
participants and may be granted stock options, restricted stock and stock performance awards. Awards granted under these plans are fair valued and amortized, net of estimated forfeitures over the
vesting period using the straight-line method. The fair value of stock options is calculated by using the Black-Scholes option pricing formula that requires estimates for expected
volatility, expected dividends, the risk-free interest rate and the term of the option. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be
awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See additional information related to share-based
compensation in Note 9Equity. Share-based compensation expense associated with our manufacturing and retail employees is included in cost of sales in the consolidated statements of
operations. Share-based compensation expense associated with selling, marketing and administrative employees is included selling, general and administrative expense in the consolidated statements of
operations.

The
classification of any excess tax benefits realized on the exercise of stock options or issuance of restricted stock unit awards in excess of that which is associated with the expense
recognized are presented as a financing cash inflow in the consolidated statement of cash flows.

AdvertisingAdvertising costs are expensed as incurred and production costs are generally expensed when the advertising is run. Total advertising,
marketing and promotional costs reflected in selling, general, and administrative expenses on the consolidated statement of operations were $44.1 million, $28.2 million and
$56.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010 and 2009, we had $2.2 million and $0.7 million in prepaid
advertising costs.

Research and DevelopmentResearch and development costs are expensed as incurred. Research and development expenses amounted to $7.8 million,
$7.7 million, and $6.4 million for the years ended

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

December 31,
2010, 2009, and 2008, respectively, and are included in selling, general, and administrative expenses in the consolidated statement of operations.

Foreign Currency Translation and Foreign Currency TransactionsOur functional currency is the U.S. dollar. Assets and liabilities of foreign
operations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange during the
applicable period. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the foreign currency translation adjustment, a component of
accumulated other comprehensive income in stockholders' equity.

Gains
and losses generated by transactions denominated in foreign currencies are reflected in the consolidated statement of operations in the period in which they occur and are primarily
associated with payables and receivables arising from intercompany transactions. For the year ended December 31, 2010, we recognized realized gains and unrealized losses on foreign currency
transactions of $4.2 million and $1.3 million, respectively. Included in the 2010 realized gains on foreign currency transactions was $2.4 million of realized gains recognized on
payments of intercompany balances denominated in foreign currencies for which collection had not been planned or anticipated previously. For the year ended December 31, 2009, we recognized
realized losses and unrealized gains on foreign currency transactions of $10.6 million and $11.3 million, respectively. For the year ended December 31, 2008, we recognized
realized losses and unrealized losses on foreign currency transactions of $3.8 million and $21.6 million, respectively.

Derivative Foreign Currency ContractsWe are directly and indirectly affected by fluctuations in foreign currency rates which may adversely impact
our
financial performance. To mitigate the potential impact of foreign currency exchange rate risk, we may employ derivative financial instruments including, forward contracts and option contracts.
Forward contracts are agreements to buy or sell a quantity of a currency at a predetermined future date and at a predetermined rate. An option contract is an agreement that conveys the purchaser the
right, but not the obligation, to buy or sell a quantity of a currency at a predetermined rate during a period or at a time in the future. These derivative financial instruments are viewed as risk
management tools and are not used for trading or speculative purposes. We recognize derivative financial instruments as either assets or liabilities in the consolidated balance sheets and measure
those instruments at fair value. Changes in the fair value of derivatives not designated or effective as hedges are recorded in other expense (income), net in the consolidated statements of
operations. We had no derivative instruments that qualified for hedge accounting during any of the periods presented. See Note 7Fair Value Measurements and Financial Instruments
for further discussion.

Income TaxesWe account for income taxes using the asset and liability method which requires the recognition of deferred tax assets and
liabilities
for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for income taxes at the current and future
enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and
disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in income tax expense in the consolidated statement of operations. See
Note 12Income Taxes for further discussion.

F-12

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Taxes Assessed by Governmental AuthoritiesTaxes assessed by governmental authorities that are directly imposed on a revenue transaction,
including
value added tax, are recorded on a net basis and are therefore excluded from sales.

Recent Accounting PronouncementsIn January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2010-06,Improving Disclosures About Fair Value Measurement,which amends the disclosure requirements related to recurring and
non-recurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques
and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. We adopted this guidance at the
beginning of 2010 with the exception of the disclosure requirements relating to purchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective beginning
January 1, 2011. As this guidance only requires expanded disclosures, its adoption did not and will not impact the consolidated financial statements. See Note 7Fair Value
Measurements and Financial Instruments.

In
December 2009, the FASB issued ASU 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest
Entities. The amendments in ASU 2009-17 replace the quantitative-based risks-and-rewards calculation for determining which reporting entity,
if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has (1) the power to direct the activities of a
variable interest entity that most significantly affect the entity's economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. The ASU
also requires additional disclosures about a reporting entity's involvement with variable interest entities and about any significant changes in risk exposure as a result of that involvement. We
adopted the guidance at the beginning of 2010 with no material impact to the consolidated financial statements. See Note 10Variable Interest Entities.

2. INVENTORIES

Inventories by major classification as of December 31, 2010 and 2009 were as follows:

December 31,($ thousands)

2010

2009Finished goods

$
111,134

$
88,775Work-in-progress


248


220Raw materials


9,773


4,334$
121,155

$
93,329


During
the year ended December 31, 2008, we recorded inventory write-downs of $76.3 million with an additional $4.2 million in charges related to losses on future
purchase commitments for inventory with a market value lower than cost, of which $2.1 million was included as accrued expenses. These write-downs were to a level considered realizable, however,
we were able to sell this product at prices substantially higher than what was previously estimated. During the year ended December 31, 2009, sales of this impaired product resulted in
$58.3 million of revenue for which the associated gross profit was $49.8 million. During the years ended December 31, 2010 and 2009, we did not record

F-13

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. INVENTORIES (Continued)

impairment
charges related to inventory. No losses on future purchase commitments were recorded during the years ended December 31, 2010 and 2009.

During
the years ended December 31, 2010 and 2009, we donated certain inventory items to charitable organizations consisting primarily of end of life units, some of which were
partially or fully impaired.
The contributions made were expensed at their fair value of $0.8 million and $7.5 million, respectively. We recognized a gain of $0.2 million and $3.2 million and a net
reduction of inventory of $0.6 million and $4.3 million, for the years ending December 31, 2010 and 2009, respectively, as the fair value of the inventory contributed exceeded its
carrying amount.

3. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2010 and 2009 included the following:

December 31,($ thousands)

2010

2009Machinery and equipment

$
70,962

$
63,889Leasehold improvements


49,519


34,759Furniture and fixtures and other


16,587


14,099Construction-in-progress


7,902


8,422Subtotal(1)


144,970


121,169Less accumulated depreciation and amortization(2)


(74,956
)

(50,085
)Total property and equipment

$
70,014

$
71,084


(1)Includes
$0.1 million of certain equipment held under capital leases and classified as equipment as of December 31, 2010 and 2009.(2)Includes
an immaterial amount of accumulated depreciation related to certain equipment held under capital leases, as of December 31 2010 and 2009,
respectively, which are depreciated using the straight-line method over the lease term.


During
the years ended December 31, 2010, 2009 and 2008, we recorded $29.5 million, $29.7 million, and $30.7 million, respectively, in depreciation expense of
which $14.7 million, $15.6 million, and $18.3 million, respectively, was recorded in cost of sales, with the remaining amounts recorded in selling, general and administrative
expenses in the consolidated statements of operations.

During
the years ended December 31, 2010, 2009 and 2008, we recorded $0.1 million, $18.5 million and $20.9 million, respectively, in impairment charges on
molds related primarily to: styles that we either no longer intended to manufacture or styles that we had more molds on hand than necessary to meet projected demand; and distribution facility assets
related to equipment and fixtures of warehouse and distribution centers that were closed during the period. Management evaluated the production capacity at company-operated facilities compared with
demand projections and capacity requirements and made the decision to abandon certain tooling and equipment that represented excess capacity.

F-14

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. INTANGIBLE ASSETS

Intangible Assets

The following table summarizes intangible assets at December 31, 2010 and 2009.

2010

2009($ thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountIntangible assets:Capitalized software

$
54,489
(1)
$
13,674
(2)
$
40,815

$
38,741
(1)
$
8,185
(2)
$
30,556Customer relationships


6,361


5,485


876


5,928


4,912


1,016Patents, copyrights, and trademarks


5,703


1,933


3,770


5,673


1,396


4,277Core technology


4,843


4,843





4,614


4,614


Other


636


636





779


644


135Total intangible assets

$
72,032

$
26,571

$
45,461

$
55,735

$
19,751

$
35,984


(1)Includes
$4.3 million and $1.7 million of software held under a capital lease classified as capitalized software as of December 31,
2010 and 2009, respectively.(2)Includes
$0.5 million and $0.2 million of accumulated amortization of software held under a capital lease which is amortized using the
straight-line method over the useful life as of December 31, 2010 and 2009, respectively.


During
the years ended December 31, 2010, 2009 and 2008, amortization expense recorded for intangible assets with finite lives was $7.6 million, $7.0 million and
$6.6 million, respectively, of which $2.3 million, $1.6 million and $0.9 million was recorded in cost of sales, respectively. The remaining amounts were recorded in
selling, general and administrative expenses. Estimated future annual amortization of intangible assets is as follows (in thousands):

Fiscal years ending December 31,

Amortization2011

$
9,7112012


9,3652013


8,7682014


7,2402015


4,726Thereafter


5,651Total

$
45,461


During
the year ended December 31, 2009, we recorded $7.6 million in impairment charges related to the write-off of certain intangible assets associated the
discontinued Tagger brand and certain capitalized software no longer intended for use. During the year ended December 31, 2008, we recorded $1.1 million in impairment charges related to
the write-off of certain intangible assets the impaired Jibbitz trade name and patents no longer intended for use. No impairment charges were recorded in 2010.

F-15

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. INTANGIBLE ASSETS (Continued)

Goodwill

During the year ended December 31, 2008, we recognized $23.8 million in impairment charges primarily related to the
acquisitions of Ocean Minded and Bite in 2007, Jibbitz and Fury in 2006, and Crocs Canada in 2004. The goodwill balance of $1.0 million related to Fury was written off prior to its liquidation
in June 2008. The remaining goodwill balance was assessed for impairment due to the substantial decline in our stock price during the second half of 2008, which represented a triggering event for
potential impairment. Consequently, as of December 31, 2008, we determined the balance was fully impaired. We had no goodwill as of December 31, 2010 and 2009.

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other liabilities as of December 31, 2010 and 2009 include the following:

December 31,($ thousands)

2010

2009Accrued compensation and benefits

$
25,666

$
21,007Fulfillment and freight and duties


5,396


10,765Professional services


4,704


4,329Sales/use and VAT tax payable


6,061


4,330Other


17,222


13,149$
59,049

$
53,580


Asset Retirement Obligations

We record a liability equal to the fair value of the estimated future cost to retire an asset, if the liability's fair value can be
reasonably estimated. Our asset retirement obligation ("ARO") liabilities are primarily associated with the disposal of property and equipment which we are contractually obligated to remove at the end
of certain retail and office leases in order to restore the facilities back original condition as specified in the related lease agreements. We estimate the fair value of these liabilities based on
current store closing costs and discount the costs back as if they were to be performed at the inception of the lease. At the inception of such leases, we recorded the ARO as a liability and also
recorded a related asset in an amount equal to the estimated fair value of the liability.
The capitalized asset is then depreciated on a straight-line basis over the useful life of the asset. Upon retirement of the asset, any difference between the actual retirement costs
incurred and the previously recorded estimated ARO liability is recognized as a gain or loss in the consolidated statements of operations. Our ARO liability as of December 31, 2010 and 2009 was
$1.6 million and $1.1 million, respectively.

6. RESTRUCTURING ACTIVITIES

In response to declining revenues during the years ended December 31, 2009 and 2008, we implemented a turnaround strategy aimed at aligning production and distribution capacities
with revised demand projections, reducing costs and streamlining processes. As a result, we consolidated our global manufacturing facilities and distribution centers, reduced warehouse and office
space and cut global workforce. Specifically, during the year ended December 31, 2008, we closed our Canadian and Brazilian manufacturing facilities and consolidated our Canadian distribution
activities into existing

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. RESTRUCTURING ACTIVITIES (Continued)

North
American operations. During the year ended December 31, 2009, we pursued further restructuring efforts and made certain organizational changes in order to better align costs with revenues
which included the closure of various warehouses and office buildings as well as the settlement and termination of contracts prior to term. As of December 31, 2010, the cumulative amounts
related to one-time employee termination benefits, operating lease exit costs and other associated costs were $10.6 million, $9.1 million and $7.4 million,
respectively. As of December 31, 2010, we do not expect to incur additional related costs in the future in connection with these activities.

During
the year ended December 31, 2010, we recorded restructuring charges of $3.8 million, of which $1.3 million is reflected in cost of sales. These charges are
primarily related to a change in the estimate in lease termination costs associated with the closure of distribution facilities in North America and Europe, and $2.0 million of severance pay
and additional share-based compensation related to the departure of a former officer. See Note 9Equity for additional information on the
separation agreement. See Note 15Operating Segments and Geographic Information for restructuring charges incurred by segment.

Restructuring
charges are included in the following line items: cost of sales and restructuring charges on the consolidated statements of operations. The following table summarizes the
changes in the restructuring accruals during the years ended December 31, 2010 and 2009.

($ thousands)

As of
December 31,
2008

Additions

Cash
Payments

Foreign
Currency
Translation
and Other

As of
December 31,
2009

Additions

Cash
Payments

Foreign
Currency
Translation
and Other

As of
December 31,
2010Termination benefits

$
676

$
1,711

$
(2,111
)
$
240

$
516

$
2,009

$
(2,460
)
$
(65
)
$
Operating lease exit costs


1,488


5,586


(4,089
)

(752
)

2,233


1,634


(3,565
)

137


439Other restructuring costs(1)


234


5,306


(5,192
)

39


387





(391
)

4


$
2,398

$
12,603

$
(11,392
)
$
(473
)
$
3,136

$
3,643

$
(6,416
)
$
76

$
439


(1)Includes
costs associated with the settlement and termination of contracts prior to term.


7. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

The following table summarizes the financial instruments required to be measured at fair value on a recurring basis as of
December 31, 2010. Other financial instruments including debt are not required to be carried at fair value on a recurring basis. The carrying value of these financial instruments, including
cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short maturities. Based on borrowing rates currently available to us, with similar
terms, the carrying values of capital lease obligations and the line of credit approximate their fair values.

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (Continued)

Fair Value as of
December 31, 2010($ thousands)

Level 1

Level 2

Level 3

Balance Sheet ClassificationDerivative assets:(1)Foreign currency contracts

$


$
5

$


Prepaid expenses and other current assetsDerivative liabilities(1):Foreign currency contracts

$


$
134

$


Accrued expenses and other current liabilities


(1)We
had no outstanding derivatives at December 31, 2009.


Non-Recurring Fair Value Measurements

The majority of our non-financial instruments, which include inventories, property, plant and equipment and intangible
assets are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated for
impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of cost or its fair value. See Note 1Summary of
Significant Accounting Policies for an explanation of our fair value determinations.

Derivative Financial Instruments

The following tables present the amounts affecting the consolidated statements of operations for the year ended December 31,
2010. We did not employ the use of derivative instruments during the years ended December 31, 2009 and 2008.

($ thousands)

Year ended
December 31, 2010

Location of Loss (Gain) Recognized
In Income on DerivativesDerivatives not designated as hedging instruments:Foreign currency exchange forwards

$
587

Other income, net


The
following table summarizes the notional amounts of the outstanding derivatives at December 31, 2010 (in thousands). We had no outstanding derivatives at
December 31, 2009. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our
exposure to the foreign currency exchange risks.

Currency Purchased

Currency Sold

Maturity Date

Contract TypeUSD
2,000

JPY
162,960

January 2011

Foreign currency exchange forwardUSD
2,000

JPY
161,940

February 2011

Foreign currency exchange forwardUSD
2,000

JPY
161,920

March 2011

Foreign currency exchange forwardUSD
1,752

EUR
1,300

February 2011

Foreign currency exchange forwardUSD
1,751

EUR
1,300

March 2011

Foreign currency exchange forwardUSD
952

GBP
600

February 2011

Foreign currency exchange forwardUSD
952

GBP
600

March 2011

Foreign currency exchange forwardUSD
481

GBP
300

January 2011

Foreign currency exchange forwardUSD
418

EUR
300

January 2011

Foreign currency exchange forward


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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consist of the following:

($ thousands)

December 31,
2010

December 31,
2009Revolving credit facility

$
3

$
Capital lease obligations (for certain capitalized software) bearing interest rates ranging from 8.7% to 12.4% and maturities through 2013


2,488


640Capital lease obligations (for certain equipment) bearing interest at 8.8% and maturities through 2014


155


912Total notes payable and capital lease obligations

$
2,646

$
1,552


Minimum
future annual rental commitments under capital leases for each of the five succeeding years as of December 31, 2010, are as follows (in thousands):

Fiscal years ending December 31,2011

$
1,9232012


6582013


552014


72015


Thereafter


Total minimum lease payments

$
2,643


Revolving Credit Facility

On September 30, 2010, we amended our Revolving Credit and Security Agreement (the "Credit Agreement") with PNC Bank, N.A.
("PNC"), originally dated September 25, 2009. Based on the amended terms, the Credit Agreement provides for an asset-backed revolving credit facility of up to $30.0 million in total,
which includes a $20.0 million sublimit for borrowings against eligible inventory, a $2.0 million sublimit for borrowings against eligible inventory in-transit, and a
$10.0 million sublimit for letters of credit, and matures on September 24, 2014. Total borrowings available under the revolving credit facility at any given time are subject to customary
reserves and reductions to the extent our asset borrowing base changes. Borrowings under the Credit Agreement are secured by our total assets, including all receivables, equipment, general
intangibles, inventory, investment property, subsidiary stock and leasehold interests. The Credit Agreement requires us to prepay borrowings under the Credit Agreement in the event of certain
dispositions of property.

With
respect to domestic rate loans, principal amounts outstanding bear interest at 1.5% plus the greater of either (i) PNC's published reference rate, (ii) the Federal
Funds Open Rate (as defined in the Credit Agreement) in effect on such day plus 0.5% or, (iii) the sum of the Daily LIBOR Rate (as defined in the Credit Agreement) in effect on such day plus
1.0%. Eurodollar denominated principal amounts outstanding bear interest at 3.0% plus the Eurodollar Rate (as defined in the Credit Agreement). The Credit Agreement requires monthly interest payments
with respect to domestic rate loans and at the end of each interest period with respect to Eurodollar rate loans. The Credit

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Continued)

Agreement
contains certain customary restrictive and financial covenants. We were in compliance with all financial covenants as of December 31, 2010.

As
of December 31, 2010 and 2009, we had issued and outstanding letters of credit of $1.0 million and $1.1 million, respectively, which were reserved against the
borrowing base under the Credit Agreement. During the year ended December 31, 2009, we capitalized $0.5 million in fees and third-party costs which were incurred in connection with the
Credit Agreement, as deferred financing costs. During the year ended December 31, 2010, no deferred financing costs were recorded.

9. EQUITY

Equity Incentive Plans

On August 15, 2005, we adopted the 2005 Equity Incentive Plan (the "2005 Plan"), which permitted the issuance of up to
14.0 million common shares in connection with the grant of non-qualified stock options, incentive stock options, and restricted stock to
eligible employees, consultants and members of our Board of Directors. As of December 31, 2010 and 2009, 2.0 million and 2.7 million stock options, respectively, were outstanding
under the 2005 Plan. No shares are available for future issuance under the 2005 Plan.

On
July 19, 2007, we adopted the 2007 Equity Incentive Plan (the "2007 Plan") which permits the issuance of up to 9.0 million shares of our common stock (subject to
adjustment for future stock splits, stock dividends and similar changes in our capitalization) in connection with the grant of non-qualified stock options, incentive stock options,
restricted stock, restricted stock units, stock appreciation rights, performance units, common stock or any other share-based award to eligible employees, consultants and members of our Board of
Directors. As of December 31, 2010 and 2009, 4.1 million and 5.9 million stock options, restricted stock awards and restricted stock units were outstanding under the 2007 Plan,
respectively. As of December 31, 2010, 1.7 million shares were available for future issuance under the 2007 Plan.

Stock
options under both the 2005 Plan and the 2007 Plan generally vest ratably over four years with the first year vesting on a "cliff" basis followed by monthly vesting for the
remaining three years. Restricted stock awards generally vest annually on a straight-line basis over three or four years depending on the terms of the award agreement.

2009 Tender Offer

Due to declines in the market price of our common stock, the exercise prices of a substantial number of outstanding stock options held
by our employees far exceeded the market price of our common stock as of April 2, 2009. This decline in our common stock price substantially eliminated the incentive and retention value of the
options previously granted to our employees. Consequently, on April 2, 2009, we offered to purchase stock options with exercise prices equal to or greater than $10.50 per share for cash from
certain eligible employees (the "2009 Tender Offer") in order to restore the incentive value of our long-term performance award programs. Individuals eligible to participate in the 2009
Tender Offer were those employees, including officers and non-employee directors, who continued employment through the date of the offer's expiration, April 30, 2009. Participation
in the 2009 Tender Offer was voluntary. In connection with the 2009 Tender Offer, we made an aggregate cash payment of $0.1 million to repurchase the 2.3 million options tendered and
recorded a charge of $16.3 million

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. EQUITY (Continued)

related
to previously unrecognized share-based compensation expense for the tendered options. Of this $16.3 million charge, $13.3 million was recorded to selling, general and
administrative expenses and $3.0 million was recorded to cost of sales. As a result of the 2009 Tender Offer, the pool of awards available for future grant under the 2007 Plan increased by
0.8 million shares. Tendered stock options that were originally granted from the 2005 Plan are not available for future grant.

Stock Option Activity

The following table summarizes stock option transactions for the year ended December 31, 2010.

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life
(Years)

Aggregate
Intrinsic
Value
(in thousands)Outstanding at December 31, 2009


7,755,254

$
7.67


7.48


15,290Granted


342,250


12.68Exercised


(2,133,806
)

3.37Forfeited or expired


(956,361
)

11.56Outstanding at December 31, 2010


5,007,337

$
9.10


6.36

$
47,009Exercisable at December 31, 2010


2,887,500

$
10.94


4.91

$
23,595Vested and expected to vest at December 31, 2010


4,388,595

$
9.44


6.06

$
40,437


During
the years ended December 31, 2010, 2009 and 2008, options issued were valued using the Black-Scholes option pricing model using the following assumptions.

Year Ended December 31,2010

2009

2008Expected volatility


60
%

50 - 60
%

50
%Dividend yield








Risk-free interest rate


1.64% - 2.27
%

1.44% - 2.75
%

2.81
%Expected life (in years)


5.66 - 6.49


4.59 - 6.86


4.59


The
weighted average fair value of options granted during the years ended December 31, 2010, 2009 and 2008 was approximately $7.10, $2.01, and $4.90, respectively. The aggregate
intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $21.0 million, $1.0 million, and $9.4 million, respectively. During the
year ended December 31, 2010, we received $7.2 million in cash with no income tax benefit due to our domestic tax loss position (see Note 12Income Taxes). The total
grant date fair value of stock options vested during the years ended December 31, 2010, 2009 and 2008 was $5.4 million, $13.0 million, and $22.5 million, respectively.

As
of December 31, 2010, we had $7.1 million of total unrecognized share-based compensation expense related to unvested options, net of expected forfeitures, which is
expected to be amortized over the weighted average period of 2.4 years.

F-21

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. EQUITY (Continued)

Restricted Stock Shares and Restricted Stock Units

During 2010, our Board of Directors approved grants of restricted stock awards and units to certain employees as part of a performance
incentive plan. Half of such grants vest ratably on each of the first four anniversaries of the grant date. The remaining half vest on a cliff basis on the fourth anniversary of the grant date,
provided that certain corporate performance metrics are achieved. During the year ended December 31, 2010, 0.7 million restricted stock awards and units were granted under this program.

The
following table summarizes restricted stock award and unit activity during the years ended December 31, 2010, 2009, and 2008.

Restricted Stock Awards

Restricted Stock UnitsShares

Weighted
Average
Grant Date
Fair Value

Shares

Weighted
Average
Grant Date
Fair ValueNonvested at December 31, 2007


87,558

$
2.96





Granted


1,062,454


4.11





Vested


(177,012
)

0.51





Forfeited


(34,000
)

10.77





Nonvested at December 31, 2008


939,000


3.87





Granted


1,282,110


2.43





Vested


(783,202
)

2.88





Forfeited


(115,668
)

4.08





Nonvested at December 31, 2009


1,322,240


3.04





Granted


637,557


12.10


116,400

$
12.99Vested


(688,049
)

3.93





Forfeited


(318,325
)

2.77





Nonvested at December 31, 2010


953,423

$
8.54


116,400

$
12.99


The
total grant date fair value of restricted stock vested during the years ended December 31, 2010, 2009 and 2008 was $2.7 million, $2.3 million, and
$0.1 million, respectively. At December 31, 2010, we had $7.2 million of total unrecognized share-based compensation expense related to non-vested restricted stock
awards, net of expected forfeitures. The non-vested restricted stock awards are expected to be amortized over the weighted average period of 2.4 years. At December 31, 2010,
we had $1.4 million of total unrecognized share-based compensation expense related to non-vested restricted stock units, net of expected forfeitures. The non-vested
restricted stock awards are expected to be amortized over the weighted average period of 3.5 years.

Share-Based Compensation

Total pre-tax share-based compensation expense recognized was $7.3 million for the year ended December 31,
2010 of which $0.2 million of accelerated vesting charges related to the separation agreement of a former officer is included in restructuring charges in the consolidated statements of

F-22

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. EQUITY (Continued)

operations.
No associated tax benefits were recognized in the year ended December 31, 2010, due to our domestic loss position (see Note 12Income Taxes).

Total
pre-tax share-based compensation expense related to non-vested options, restricted stock awards and restricted stock units, was $33.6 million for the
year ended December 31, 2009 which included the following non-routine items.



Total
pre-tax share-based compensation expense recognized was $19.0 million for the year ended December 31, 2008. Due to our domestic tax loss positions during
the years ended December 31, 2009 and 2008, we did not recognize associated tax benefits. During the years ended December 31, 2010, 2009 and 2008, we capitalized $0.1 million,
$0.1 million and $49,000, respectively into intangibles, as capitalized software costs.

Separation Agreements

On March 31, 2010, we entered into a separation agreement with a former officer pursuant to which the vesting of
0.1 million stock options and 0.1 million shares of restricted stock were accelerated as of March 31, 2010. During the year ended December 31, 2010, we recorded
$0.2 million amount to restructuring charges related to these vesting accelerations. Also in connection with this separation agreement, 0.2 million stock options and 0.2 million
shares of restricted stock were forfeited.

During
the year ended December 31, 2009, we entered into two separation agreements with certain former officers. Pursuant to these agreements, the vesting of 0.3 million
stock options and

F-23

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. EQUITY (Continued)

0.1 million
restricted stock awards were accelerated during the year ended December 31, 2009 of which 0.1 million stock options vested during 2010. We recorded restructuring
charge of $2.0 million related to such vesting accelerations as well as $0.2 million in accelerated amortization of deferred compensation in 2009. Also in connection with these
separation agreements, 0.2 million stock options were forfeited.

10. VARIABLE INTEREST ENTITIES

In 2007, we established a relationship with Shanghai Shengyiguan Trade, Ltd Co ("ST") for the purpose of serving as a distributor of our products in the People's Republic of
China. We have determined that ST is a variable interest entity for which we are the primary beneficiary. We determined that we are the primary beneficiary of ST by virtue of our variable interest in
the equity of ST and because we currently control all business activities and absorb substantially all of the expected residual returns and substantially all of the expected losses of ST. All voting
rights have been assigned to us and there is a transfer agreement under which all of the equity, assets, and liabilities of ST are to be transferred to us at our sole discretion, subject to certain
conditions.

As
of December 31, 2010 and 2009, the consolidated financial statements included $7.3 million and $6.4 million in total assets of ST respectively, which primarily
consisted of cash, inventory and receivables. These amounts were partially offset by $0.2 million and $0.3 million in liabilities as of December 31, 2010 and 2009, respectively,
which primarily consisted of accounts payable and accrued expenses, excluding liabilities related to the support provided by us. ST's cash assets are restricted to the extent that the monetary laws of
the People's Republic of China limit our ability to utilize ST's cash.

11. ALLOWANCES

The changes in the allowance for doubtful accounts and reserve for sales returns and allowances for the years ended December 31, 2010, 2009 and 2008, are as follows:

($ thousands)

Balance at
Beginning of
Year

Charged to
costs and
expenses

Reversals
and
Write-offs

Balance at
End of
YearYear ended December 31, 2008:Allowance for doubtful accounts

$
3,795

$
3,091

$
(1,624
)
$
5,262Reserve for sales returns and allowances


5,991


52,597


(39,752
)

18,836Year ended December 31, 2009:Allowance for doubtful accounts


5,262


1,262


(2,551
)

3,973Reserve for sales returns and allowances


18,836


8,368


(21,338
)

5,866Year ended December 31, 2010:Allowance for doubtful accounts


3,973


2,204


(1,535
)

4,642Reserve for sales returns and allowances

$
5,866

$
4,971

$
(5,230
)
$
5,607


F-24

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES

The following table sets forth income (loss) before taxes and the expense (benefit) for income taxes for the years ended December 31, 2010, 2009 and 2008.

December 31,($ thousands)

2010

2009

2008Income (loss) before taxes:U.S.

$
(14,835
)
$
(63,961
)
$
(124,502
)Foreign


95,627


15,340


(65,008
)Total income (loss) before taxes


80,792

$
(48,621
)
$
(189,510
)Income tax expense (benefit):Current income taxesU.S. federal


47

$
(5,452
)
$
(9,162
)U.S. state


95





206Foreign


17,923


(6,490
)

9,951Total current income taxes


18,065


(11,942
)

995Deferred income taxes:U.S. federal





(1,330
)

7,276U.S. state








723Foreign


(4,999
)

6,729


(13,428
)Total deferred income taxes


(4,999
)

5,399


(5,429
)Total income tax expense (benefit)

$
13,066

$
(6,543
)
$
(4,434
)


The
following table sets forth income (loss) reconciliations of the statutory federal income tax rate to our actual rates based on income or loss before income taxes as of
December 31, 2010, 2009 and 2008.

December 31,($ thousands)

2010

2009

2008Consolidated income before taxes


35.0
%

35.0
%

35.0
%State income taxes net of federal benefit


(0.3
)

9.0


1.4Foreign tax rate differential


(22.2
)

(12.0
)

(11.4
)Permanent items


12.5


(3.8
)

1.7Permanent portion of equity compensation


1.6


(13.6
)

Charitable donations of inventory


(0.1
)

11.1


0.8Change in valuation allowance


(34.2
)

(36.5
)

(26.1
)Unremitted foreign earnings of subsidiary


21.7





Benefit of international restructuring





28.7


Other


2.2


(4.5
)

0.916.2
%

13.4
%

2.3
%


F-25

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

The following table sets forth deferred income tax assets and liabilities as of December 31, 2010 and 2009.

December 31,($ thousands)

2010

2009Current deferred tax assets:Accrued expenses

$
19,908

$
18,163Inventory


454


1,391Intangible assets


238


257Property and equipment


368


Other


1,718


1,476Valuation allowance


(6,918
)

(12,858
)Total current deferred tax assets

$
15,768

$
8,429Current deferred tax liabilities:Property and equipment.

$


$
(1,080
)Unremitted earnings of foreign subsidiary


(17,500
)

Total current deferred tax liabilities.

$
(17,500
)
$
(1,080
)Non-current deferred tax assets:Stock compensation expense

$
7,409

$
11,348Inventory





433Long-term accrued expenses


2,711


10,062Net operating loss and charitable contribution carryovers


39,185


35,207Intangible assets


993


1,334Property and equipment





1,722Future uncertain tax position offset


13,577


13,501Foreign tax credit


626


Valuation allowance


(28,192
)

(51,569
)Other


101


Total non-current deferred tax assets

$
36,410

$
22,038Non-current deferred tax liabilities:Accrued expenses

$


$
(4,615
)Intangible assets


(196
)

Property and equipment


(2,350
)

Other





(1,136
)Total non-current deferred tax liabilities

$
(2,546
)
$
(5,751
)


We
do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in
duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations. Generally, the earnings of our foreign subsidiaries become subject to
U.S. taxation upon the remittance of dividends and under certain other circumstances. Exceptions may be made on a year-by-year basis to repatriate current year earnings of
certain foreign subsidiaries based on cash needs in the U.S. As of

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

December 31,
2010, we have provided for deferred U.S. income tax of $17.5 million on $50.0 million of foreign subsidiary earnings. No withholding tax is due with respect to the
repatriation of these earnings to the U.S. and none has been provided for.

At
December 31, 2010 and 2009, U.S. income and foreign withholding taxes have not been provided for on approximately $279.2 million and $178.7 million, respectively,
of unremitted earnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess of the financial reporting over the tax basis in our investments in those
subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S.
income tax liability on the unremitted earnings has not been determined because the hypothetical calculation is not practicable.

We
have deferred tax assets related to certain deductible temporary differences in various tax jurisdictions for which we have recorded a valuation allowance of $35.1 million
against these deferred tax assets because we do not believe that it is more likely than not that we will be able to realize these deferred tax assets. The significant components of the deferred tax
assets for which a valuation allowance has been applied consist of net operating losses in certain tax jurisdictions for which management believes there is not sufficient positive evidence that such
net operating losses will be realized against future income and book expenses not deductible for tax purposes in the current year such as inventory impairment reserves, equity compensation and
unrealized foreign exchange loss that would increase such net operating losses in the same jurisdictions. These temporary differences are amounts which arose in jurisdictions where (i) current
losses exist, (ii) such losses are in excess of any loss carryback potential, (iii) no tax planning strategies exist with which to overcome such losses, and (iv) no profits are
projected for the following year. For these reasons it is determined that it is more likely than not that these deferred tax assets will not be realized and a valuation allowance has been provided
with respect to these deferred tax assets.

At
December 31, 2010, we had U.S. federal net operating loss and charitable contribution carryforwards and state net operating loss carryforwards of $80.4 million and
$124.5 million which will expire at various dates between 2014 and 2030. We do not believe that it is more likely than not that the benefit from certain U.S. federal and state net operating
losses will be realized. Consequently, we have a valuation allowance of $29.9 million on the deferred tax assets relating to these federal and state net operating loss carryforwards.

At
December 31, 2010, we have a foreign deferred tax asset of $5.4 million reflecting the benefit of $30.7 million in foreign net operating loss carryforwards. Such
deferred tax assets expire at various dates between 2014 and 2030. We do not believe it is more likely than not that the benefit from certain foreign net operating loss carryforwards will be realized.
Consequently, we have provided a valuation allowance of $5.2 million on the deferred tax assets relating to these foreign net operating loss carryforwards.

We
had approximately $32.1 million in net deferred tax assets at December 31, 2010. Approximately $14.4 million of the net deferred tax assets were located in
foreign jurisdictions for which a sufficient history and expected future profits indicated that it is more likely than not that such deferred tax assets will be realized. Pre-tax profit of
approximately $42.8 million is required to realize the net deferred tax assets.

F-27

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

At
December 31, 2010, approximately $17.7 million of net deferred tax assets consists of deferred tax assets related to estimated liabilities for uncertain tax positions
that would be realized if such liabilities are actually incurred. The deferred tax assets represent primarily the reduction in withholding tax expense that would occur upon a disallowance of
intercompany royalty expense by various taxing authorities. Approximately $44.6 million of unrecognized tax benefits would have to be recognized to realize these deferred tax assets.

As
a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at
December 31, 2010 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by
$8.5 million if and when such deferred tax assets are ultimately realized. We use tax law ordering for purposed of determining when excess tax benefits have been realized.

The
following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years ended December 31, 2010, 2009 and 2008.

($ thousands)

2010

2009

2008Unrecognized tax benefitJanuary 1

$
29,163

$
28,210

$
11,264Gross increasestax positions in prior period


943


1,440


13,063Gross decreasestax positions in prior period





(4,868
)

Gross increasestax positions in current period


3,086


4,381


4,868Settlements








(985
)Lapse of statute of limitations


(150
)




Unrecognized tax benefitDecember 31

$
33,042

$
29,163

$
28,210


Unrecognized
tax benefits of $33.0 million, $29.2 million and $28.2 million at December 31, 2010, 2009 and 2008, respectively, if recognized, would reduce our
annual effective tax rate.

Interest
and penalties related to income tax liabilities are included in income tax expense in the consolidated statement of operations. During 2010, 2009 and 2008, we recorded
approximately $0.1 million, $0.8 million and $1.6 million, respectively, of penalties and interest which resulted in a cumulative accrued balance of penalties and interest of
$2.9 million, $2.8 million and $2.1 million at December 31, 2010, 2009 and 2008, respectively.

Unrecognized
tax benefits consist primarily of tax positions related to intercompany transfer pricing in multiple international jurisdictions. The gross increase for tax positions in
current and prior periods in 2010 of $4.0 million primarily includes specific transfer pricing exposures in various jurisdictions. We believe that it is reasonably possible that no significant
increases or decreases to unrecognized tax benefits will occur in the next twelve months.

F-28

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

The
following table sets forth the remaining tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2010.

United States


2005 to 2010Singapore


2005 to 2010Canada


2006 to 2010Netherlands


2006 to 2010Japan


2006 to 2010


State
income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains
subject to examination by various state jurisdictions for a period up to two years after formal notification to the states.

13. EARNINGS PER SHARE

The following table illustrates the basic and diluted EPS computations for the years ended December 31, 2010, 2009 and 2008.

Years Ended December 31,($ thousands, except per share data)

2010

2009(1)

2008(1)NumeratorNet income (loss) attributable to common stockholders

$
67,726

$
(42,078
)
$
(185,076
)Income allocated to participating securities


(863
)




Adjusted net income (loss) attributable to common stockholders

$
66,863

$
(42,078
)
$
(185,076
)DenominatorWeighted average common shares outstanding


85,482,055


85,112,461


82,767,540Dilutive effect of stock options


2,113,563





Weighted average diluted common shares outstanding


87,595,618


85,112,461


82,767,540Earnings Per ShareNet income (loss) attributable to common stockholdersbasic

$
0.78

$
(0.49
)
$
(2.24
)Net income (loss) attributable to common stockholdersdiluted

$
0.76

$
(0.49
)
$
(2.24
)


(1)Due
to the net loss for the years ended December 31, 2009 and 2008, the dilutive effect of stock options and participating securities were not
included in the computation of EPS, as their inclusion would have been anti-dilutive.


For
the years ended December 31, 2010, 2009 and 2008, there were 1.3 million, 4.0 million and 10.1 million stock options outstanding, respectively, which
could potentially dilute basic EPS in the future, but which were not included in diluted EPS as their effect was anti-dilutive.

F-29

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. COMMITMENTS AND CONTINGENCIES

We lease space for certain of our offices, warehouses, vehicles and equipment under leases expiring at various dates through 2026. Certain leases contain rent escalation clauses (step
rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents or rent holidays is recognized on a straight-line basis over the
minimum lease term. Deferred rent is included in the consolidated balance sheet in accrued expenses. Total rent expense was $67.3 million, $59.6 million, and $52.7 million for the
years ended December 31, 2010, 2009 and 2008, respectively. Included in such amounts are contingent rents of $9.8 million, $7.1 million and $4.2 million in 2010, 2009 and
2008, respectively.

Minimum
future annual rental commitments under non-cancelable operating leases for each of the five succeeding years as of December 31, 2010, are as follows (in
thousands):

Fiscal years ending December 31,2011

$
48,8912012


36,1502013


28,3042014


21,8002015


18,787Thereafter


66,151Total minimum lease payments(1)

$
220,083


(1)Minimum
payments have not been reduced by minimum sublease rentals of $0.8 million due in the future under non-cancelable subleases. They
also do not include contingent rentals which may be paid under certain retail leases on a basis of percentage of sales in excess of stipulated amounts.


As
of December 31, 2010, we had purchase commitments with certain third-party manufacturers for $84.1 million of which $7.9 million was for
yet-to-be-received finished product where title passes to us upon receipt.

In
February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certain raw materials used to manufacture
our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivity throughout the term of the agreement, which expires December 31, 2014. Historically,
the minimum purchase requirements have not been onerous and we do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or
is subject to quarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee the payment for certain third-party
manufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately $4.6 million as of December 31, 2010), through a
letter of credit that was issued to Finproject S.r.l..

We
indemnify certain of our vendors, directors and executive officers for specified claims. As of December 31, 2010, we have not paid or been required to defend any
indemnification claims. Accordingly, we have not accrued any amounts for these indemnification obligations.

F-30

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

We have three reportable segments: Americas, Europe and Asia. We also have an Other segment
category which aggregates insignificant operating segments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel and
accessories. The composition of our reportable segments is consistent with that used by our chief operating decision maker ("CODM") to evaluate performance and allocate resources. During the fourth
quarter of 2010, we changed the internal segment reports used by our CODM to separately illustrate performance metrics of certain operating segments which provide manufacturing support, located in
Mexico and Italy. These operating segments make up our Other segment category. Segment information for all periods presented has been restated to reflect this change.

Segment
operating income (loss) is the primary measure used by our CODM to evaluate segment operating performance and to decide how to allocate resources to segments. Segment performance
evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and other expenses. Segment profits or losses of our reportable segments
include adjustments to eliminate intersegment profit or losses on intersegment sales. Segment operating income (loss) is defined as operating income before asset impairment charges and restructuring
costs not included in cost of sales. Segment assets consist of cash, accounts receivable and inventory as these assets make up the asset information used by the CODM. Revenues of each of our
reportable segments represent sales to external customers. Revenues of the Other segment are made up of intersegment sales only.

F-31

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Table of Contents

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)

The following tables set forth information related to our reportable operating business segments as of and for the years ended December 31, 2010, 2009 and 2008.

Year Ended December 31,($ thousands)

2010

2009

2008Revenues:Americas

$
377,080

$
301,365

$
365,930Asia


284,814


237,502


204,943Europe


127,713


105,996


149,271Other


50,306


29,164


33,151Total segment revenues


839,913


674,027


753,295Corporate, intersegment eliminations and other(1)


(50,218
)

(28,260
)

(31,706
)Total consolidated revenues

$
789,695

$
645,767

$
721,589Operating income (loss):Americas

$
67,259

$
21,598

$
(38,430
)Asia


80,955


57,836


16,634Europe


24,654


11,087


2,703Other


(281
)

76


(6,480
)Total segment operating income (loss)


172,587


90,597


(25,573
)Corporate, intersegment eliminations and other(1)


(88,872
)

(108,073
)

(109,261
)SG&A restructuring


(2,539
)

(7,623
)

(7,664
)Asset impairment(2)


(141
)

(26,085
)

(45,784
)Total consolidated operating income (loss)(3)


81,035


(51,184
)

(188,282
)Interest expense


657


1,495


1,793Gain on charitable contributions


(223
)

(3,163
)

Other income, net


(191
)

(895
)

(565
)Income (loss) before income taxes

$
80,792

$
(48,621
)
$
(189,510
)Depreciation and amortization:Americas

$
8,852

$
9,977

$
9,910Asia


7,035


6,659


5,638Europe


2,048


2,746


2,754Other


1,324


1,201


1,805Total segment depreciation and amortization


19,259


20,583


20,107Corporate, intersegment eliminations and other(1)


17,800


16,088


17,343Total consolidated depreciation and amortization

$
37,059

$
36,671

$
37,450


(1)Includes
(i) a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-based
compensation, research and development, brand marketing, legal, depreciation on corporate and other assets not allocated to operating segments such as molds, tooling, and IT systems,
(ii) intersegment eliminations and (iii) certain corporate holding companies.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)

(2)Impairment
charges incurred during the year ended December 31, 2009 by segment were recorded as follows: $2.0 million in the Europe segment
and $4.8 million in the Americas segment. Impairment charges incurred during the year ended December 31, 2008 by segment were recorded as follows: $18.9 million in the Americas
segment and $0.3 million in the Europe segment. See Note 2Property and Equipment for further details on impairments on property and equipment. Included in the
$18.9 million asset impairment in the Americas segment is $7.6 million related to the write-off of certain intangible assets. See Note 3Intangible Assets
for details.(3)Includes
total restructuring charges incurred by segment as follows: $1.0 million in the Americas segment, $0.6 million in the Europe segment
and $0.2 million in the Asia segment, during year ended December 31, 2010; $6.3 million in the Americas segment, $3.4 million in the Europe segment and $0.4 million
in the Asia segment during the year ended December 31, 2009; and $8.6 million of restructuring charges in the Americas segments during year ended December 31, 2008. See
Note 6Restructuring Activities for further details.


As of December 31,($ thousands)

2010

2009Assets:Americas

$
85,296

$
77,708Asia


164,855


90,240Europe


46,712


36,296Other


25,997


16,869Total segment assets


322,860


221,113Corporate and other(1)


8,138


17Other current assets


50,016


46,124Property and equipment, net


70,014


71,084Intangible assets, net


45,461


35,984Deferred tax assets, net


34,711


18,479Other assets


18,281


16,937Total consolidated assets

$
549,481

$
409,738


(1)Corporate
assets primarily consist of cash and equivalents, and assets such as molds, tooling, and IT systems not allocated to operating segments.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)




There
were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2010, 2009 and 2008. The following table sets forth geographical
information regarding our revenues during the years ended December 31, 2010, 2009 and 2008.

Year Ended December 31,($ thousands)

2010

2009

2008Product:Footwear

$
753,951

$
611,138

$
660,734Other


35,744


34,629


60,855Total Revenues

$
789,695

$
645,767

$
721,589Location:United States

$
299,026

$
251,487

$
317,932International


490,669


394,280


403,657Total Revenues

$
789,695

$
645,767

$
721,589Foreign country revenues in excess of 10% of total revenues:Japan

$
111,764

$
99,193

$
97,588


The
following table sets forth geographical information regarding our long-lived assets as of December 31, 2010, 2009 and 2008.

December 31,($ thousands)

2010

2009

2008Location:United States

$
37,261

$
33,342

$
64,340International


32,753


37,742


31,552Total long-lived assets

$
70,014

$
71,084

$
95,892Foreign countries where more than 10% of long-lived assets reside:China

$
8,075

$
11,522

$
1,044Mexico

$
5,943

$
7,280

$
2,302


16. LEGAL PROCEEDINGS

On March 31, 2006, we filed a complaint with the International Trading Commission ("ITC") against Acme Ex-Im, Inc., Australia Unlimited, Inc., Cheng's
Enterprises, Inc., Collective Licensing International, LLC, D. Myers & Sons, Inc., Double Diamond Distribution, Ltd., Effervescent, Inc., Gen-X
Sports, Inc., Holey Soles Holdings, Ltd., Inter-Pacific Trading Corporation, and Shaka Holdings, Inc. (collectively, the "respondents"), alleging, among other things infringement
of United States Patent Nos. 6,993,858 (the "'858 Patent") and D517,789 (the "'789 Patent") and seeking an exclusion order banning the importation and sale of infringing products. During the
course of the investigation, the ITC issued final determinations terminating Shaka Holdings, Inc., Inter-Pacific Trading Corporation, Acme Ex-Im, Inc., D. Myers &
Sons, Inc., Australia Unlimited, Inc. and Gen-X

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. LEGAL PROCEEDINGS (Continued)

Sports, Inc.
from the ITC investigation due to a settlement being reached with each of those entities. Cheng's Enterprises, Inc. was removed from the ITC investigation because they
ceased the accused activities. After a trial in the matter in September 2007, the ITC Administrative Law Judge ("ALJ") issued an initial determination on April 11, 2008, finding the '858 patent
infringed by certain accused products, but also finding the patent invalid as obvious. The ALJ found that the '789 patent was valid, but was not infringed by the accused products. On July 25,
2008, the ITC notified us of its decision to terminate the investigation with a finding of no violation as to either patent. We filed a Petition for Review of the decision with the United States Court
of Appeals for the Federal Circuit on September 22, 2008. On October 4, 2009, a settlement was reached between us and Collective Licensing International, LLC. Collective Licensing
International, LLC agreed to cease and desist infringing on our patents and to pay us certain monetary damages, which was recorded upon receipt. On February 24, 2010, the Federal Circuit
found that the ITC erred in finding that the utility patent was obvious and also reversed the ITC's determination of non-infringement of the design patent. The case has been remanded back
to the ITC. On July 6, 2010, the ITC ordered the matter to be assigned to an ALJ for a determination on enforceability. On February 9, 2011, the ALJ issued a determination that the
utility and design patents were both enforceable against the remaining respondents. The ALJ's decision becomes final on April 11, 2011, unless the Commission determines to review it.

On
December 8, 2009, Columbia Sportswear Company ("Columbia") filed an amended complaint adding us as a defendant in a case between Columbia and Brian P. O'Boyle and 1
Pen. Inc. in the Multnomah County Circuit Court in the State of Oregon. Columbia asserted claims against us for misappropriation of trade secrets, aiding and abetting breach of fiduciary duty,
intentional interference with contract, injunctive relief, disgorgement and an accounting. The amended complaint sought damages in an unspecified amount, return of patent rights, reasonable attorney's
fees and costs and expenses against us. On July 29, 2010, all issues between us and Columbia were settled and Columbia dismissed with prejudice all claims against us in exchange for certain
monetary and other considerations.

We
and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Court for the District of Colorado.
The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions were consolidated and, in September 2008, the district court appointed a lead
plaintiff and counsel. An amended consolidated complaint was filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on
behalf of a class of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint also added our independent auditor as
a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleading public statements about us and our business and prospects and, as a result, the
market price of our common stock was artificially inflated. The amended complaint also claims that certain current and former officers and directors traded in our common stock on the basis of material
non-public information. The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also added attorneys' fees and
costs of litigation. We believe the claims lack merit and intend to defend the action vigorously. Motions to dismiss are currently pending with the district court. Due to the inherent uncertainties of
litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome, or any potential liability, of the matter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. LEGAL PROCEEDINGS (Continued)

Although
we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and product liability claims, we are not
party to any other pending legal proceedings that we believe will have a material adverse impact on its business.

17. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION

($ thousands, except per share data)

Quarter
Ended
March 31

Quarter
Ended
June 30(1)

Quarter
Ended
September 30

Quarter
Ended
December 31(1)Year Ended December 31, 2010Revenues

$
166,852

$
228,046

$
215,605

$
179,192Cost of SalesRestructuring Charges


10


1,251


91


(53
)Gross profit


86,704


131,919


118,808


86,333Restructuring charges


2,539








Asset impairment charges


141








Income from operations


9,395


38,726


27,446


5,468Net income


5,717


32,284


24,996


4,729Basic income per common share

$
0.07

$
0.38

$
0.29

$
0.05Diluted income per common share

$
0.07

$
0.37

$
0.28

$
0.05Year Ended December 31, 2009Revenues

$
134,892

$
197,722

$
177,141

$
136,012Cost of SalesRestructuring Charges





5,266


513


1,307Gross profit


49,731


101,112


89,850


60,268Restructuring charges


38


5,915


17


1,653Asset impairment charges


69


23,655


1,722


639Income (loss) from operations


(22,563
)

(24,519
)

8,970


(13,072
)Net income (loss)


(22,417
)

(30,281
)

22,068


(11,448
)Basic income (loss) per common share

$
(0.27
)
$
(0.36
)
$
0.26

$
(0.13
)Diluted income (loss) per common share

$
(0.27
)
$
(0.36
)
$
0.25

$
(0.13
)


(1)As
disclosed in Note 9Equity, we identified an error during the fourth quarter of 2009 in the calculation of share-based compensation.
This error resulted in the understatement of share-based compensation expense, with a corresponding understatement of additional paid in capital, in the approximate amounts of $4.5 million as
of December 31, 2008. Additional amounts of share-based compensation of approximately $1.0 million and $0.5 million should have been recognized during the first and third quarters
of 2009, respectively. In connection with the 2009 Tender Offer during the second quarter of 2009, we inadvertently corrected approximately $2.0 million of the then existing cumulative error of
approximately $6.0 million. We recorded an additional $3.9 million in share-based compensation during the fourth quarter of 2009 to correct the balance of this error.


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