Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 
| **x** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------------------|

 

**For the quarterly period endedJune 30, 2010**

** **

**or**

 
| o | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|--------------------------------------------------------------------------------------------------------------|

 

**For thetransition period from              to              **

 

**Commission File No. 000-51754**

 

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**Crocs, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **20-2164234**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification No.) |

 

**6328 Monarch Park Place, Niwot Colorado 80503**

(Address of registrant’s principal executive offices)

 

**(303) 848-7000**

(Registrant’s telephone number, including area code)

 

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Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405of this chapter) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act:

 

| Large  accelerated filer o                                              |   | Accelerated  filer x         |
|------------------------------------------------------------------------------|--------|-----------------------------------|
|                                                                         |   |                              |
| Non-accelerated  filer o  (Do not check if a smaller reporting company) |   | Smaller  reporting company o |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No x

 

Asof July 31, 2010, Crocs, Inc. had 86,630,707 shares of its $0.001 parvalue common stock outstanding.

 

 

 

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**Crocs, Inc.**

**Form 10-Q**

**Quarter Ended June 30, 2010**

**Table of Contents**

 
| **PART I—Financial Information**                                                                                        |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.  Financial Statements                                                                                                |   |
| Unaudited  Condensed Consolidated Statements of Operations for the Three Months and Six  Months Ended June 30, 2010 and 2009 |   |
| Unaudited  Condensed Consolidated Balance Sheets at June 30, 2010 and  December 31, 2009                                |   |
| Unaudited  Condensed Consolidated Statements of Cash Flows for the Six Months Ended  June 30, 2010 and 2009                  |   |
| Notes to Unaudited Condensed Consolidated Financial  Statements                                                                   |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                          |   |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                                          |   |
| Item 4. Controls and Procedures                                                                                              |   |
| **PART II—Other Information**                                                                                           |   |
| Item 1.  Legal Proceedings                                                                                                   |   |
| Item 1A.  Risk Factors                                                                                                       |   |
| Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                                              |   |
| Item 6.  Exhibits                                                                                                            |   |
| Signatures                                                                                                                        |   |

 

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**PART I—FINANCIALINFORMATION**

 

**ITEM 1. Financial Statements**

 

**CROCS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(In thousands, except share and per share data)**

 

**(Unaudited)**

 
| ** **                                        | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                        | ** ** | **2010**                             | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenues                                          |       | $                                    | 228,046    |                               | $          | 197,722 |   | $ | 394,898 |   | $ | 332,614 |   |
| Cost  of sales                                    |       | 96,127                               |       | 96,610                             |       | 176,275 |   | 181,771 |   |
| Gross  profit                                     |       | 131,919                              |       | 101,112                            |       | 218,623 |   | 150,843 |   |
| Selling,  general and administrative expenses     |       | 94,047                               |       | 94,606                             |       | 168,825 |   | 163,395 |   |
| Foreign  currency transaction losses (gains), net |       | (1,129                               | )          | (3,623                             | )          | (1,421 | ) | (214 | ) |
| Restructuring  charges                            |       | —                               |       | 5,915                              |       | 2,539 |   | 5,953 |   |
| Impairment  charges                               |       | —                               |       | 23,655                             |       | 141 |   | 23,724 |   |
| Charitable  contributions                         |       | 275                                  |       | 5,078                              |       | 418 |   | 5,119 |   |
| Income  (loss) from operations                    |       | 38,726                               |       | (24,519                            | )          | 48,121 |   | (47,134 | ) |
| Interest  expense                                 |       | 163                                  |       | 562                                |       | 292 |   | 1,257 |   |
| Gain  on charitable contribution                  |       | (32                                  | )          | (2,024                             | )          | (116 | ) | (2,024 | ) |
| Other  expense (income), net                      |       | (291                                 | )          | (343                               | )          | (50 | ) | (1,446 | ) |
| Income  (loss) before income taxes                |       | 38,886                               |       | (22,714                            | )          | 47,995 |   | (44,921 | ) |
| Income  tax expense                               |       | 6,602                                |       | 7,567                              |       | 9,994 |   | 7,777 |   |
| Net  income (loss)                                |       | $                                    | 32,284     |                               | $          | (30,281 | ) | $ | 38,001 |   | $ | (52,698 | ) |
| Net  income (loss) per common share:              |       |                                 |       |                               |       |   |   |   |   |
| Basic                                             |       | $                                    | 0.38       |                               | $          | (0.36 | ) | $ | 0.44 |   | $ | (0.62 | ) |
| Diluted                                           |       | $                                    | 0.37       |                               | $          | (0.36 | ) | $ | 0.43 |   | $ | (0.62 | ) |

 

See notes to condensed consolidated financial statements.

 

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**CROCS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

**(In thousands, except share data)**

 

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                      | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| Current  assets:                                                                                                                                                                                                                                                                |       |                   |       |                       |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                                      |       | $                      | 96,867     |                       | $          | 77,343 |   |
| Restricted  cash                                                                                                                                                                                                                                                                |       | 590                    |       | 1,144                      |       |
| Accounts  receivable, net                                                                                                                                                                                                                                                       |       | 93,974                 |       | 50,458                     |       |
| Inventories                                                                                                                                                                                                                                                                     |       | 113,553                |       | 93,329                     |       |
| Deferred  tax assets, net                                                                                                                                                                                                                                                       |       | 7,569                  |       | 7,358                      |       |
| Income  tax receivable                                                                                                                                                                                                                                                          |       | 11,297                 |       | 8,611                      |       |
| Other  receivables                                                                                                                                                                                                                                                              |       | 11,715                 |       | 16,140                     |       |
| Prepaid  expenses and other current assets                                                                                                                                                                                                                                      |       | 14,277                 |       | 12,871                     |       |
| Total  current assets                                                                                                                                                                                                                                                           |       | 349,842                |       | 267,254                    |       |
| Property  and equipment, net                                                                                                                                                                                                                                                    |       | 66,731                 |       | 71,084                     |       |
| Restricted  cash                                                                                                                                                                                                                                                                |       | 1,466                  |       | 1,506                      |       |
| Intangible  assets, net                                                                                                                                                                                                                                                         |       | 41,335                 |       | 35,984                     |       |
| Deferred  tax assets, net                                                                                                                                                                                                                                                       |       | 17,403                 |       | 18,479                     |       |
| Marketable  securities                                                                                                                                                                                                                                                          |       | 5,444                  |       | 866                        |       |
| Other  assets                                                                                                                                                                                                                                                                   |       | 14,832                 |       | 14,565                     |       |
| Total  assets                                                                                                                                                                                                                                                                   |       | $                      | 497,053    |                       | $          | 409,738 |   |
| ** **                                                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                   |       |                   |       |                       |       |
| Current  liabilities:                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Accounts  payable                                                                                                                                                                                                                                                               |       | $                      | 51,841     |                       | $          | 23,434 |   |
| Accrued  expenses and other current liabilities                                                                                                                                                                                                                                 |       | 58,544                 |       | 53,589                     |       |
| Accrued  restructuring charges                                                                                                                                                                                                                                                  |       | 3,977                  |       | 2,616                      |       |
| Income  taxes payable                                                                                                                                                                                                                                                           |       | 20,120                 |       | 6,377                      |       |
| Note  payable, current portion of long-term debt and capital lease obligations                                                                                                                                                                                                  |       | 1,556                  |       | 640                        |       |
| Total  current liabilities                                                                                                                                                                                                                                                      |       | 136,038                |       | 86,656                     |       |
| Long  term debt and capital lease obligations                                                                                                                                                                                                                                   |       | 1,434                  |       | 912                        |       |
| Deferred  tax liabilities, net                                                                                                                                                                                                                                                  |       | 1,867                  |       | 2,192                      |       |
| Long  term restructuring                                                                                                                                                                                                                                                        |       | 103                    |       | 520                        |       |
| Other  liabilities                                                                                                                                                                                                                                                              |       | 31,803                 |       | 31,838                     |       |
| Total  liabilities                                                                                                                                                                                                                                                              |       | 171,245                |       | 122,118                    |       |
| Commitments  and contingencies (note 15)                                                                                                                                                                                                                                   |       |                   |       |                       |       |
| Stockholders’  equity:                                                                                                                                                                                                                                                     |       |                   |       |                       |       |
| Common  shares, par value $0.001 per share; 250,000,000 shares authorized, 87,079,451  and 86,482,574 shares issued and outstanding, respectively, at June 30,  2010 and 86,224,760 and 85,659,581 shares issued and outstanding,  respectively, at December 31, 2009 |       | 87                     |       | 85                         |       |
| Treasury  stock, at cost, 596,877 and 565,179 shares, respectively                                                                                                                                                                                                              |       | (24,963                | )          | (25,260                    | )          |
| Additional  paid-in capital                                                                                                                                                                                                                                                     |       | 272,146                |       | 266,472                    |       |
| Retained  earnings                                                                                                                                                                                                                                                              |       | 60,156                 |       | 22,155                     |       |
| Accumulated  other comprehensive income                                                                                                                                                                                                                                         |       | 18,382                 |       | 24,168                     |       |
| Total  stockholders’ equity                                                                                                                                                                                                                                                |       | 325,808                |       | 287,620                    |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                                                |       | $                      | 497,053    |                       | $          | 409,738 |   |

 

See notes to condensed consolidated financial statements.

 

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**CROCS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(In thousands)**

 

**(U****naudited)**

 
| ** **                                                                                | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
|                                                                                      |       |                                        |       |   |   |
| Cash  flows from operating activities:                                                    |       |                                        |       |   |   |
| Net  income (loss)                                                                        |       | $                                           | 38,001     |   | $ | (52,698 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |                                        |       |   |   |
| Depreciation  and amortization                                                            |       | 17,610                                      |       | 19,177 |   |
| Loss  (gain) on disposal of fixed assets                                                  |       | 796                                         |       | (753 | ) |
| Unrealized  gain on foreign exchange rates                                                |       | (3,309                                      | )          | (10,729 | ) |
| Deferred  income taxes                                                                    |       | 1,089                                       |       | 1,342 |   |
| Asset  impairment                                                                         |       | 133                                         |       | 23,656 |   |
| Inventory  write down                                                                     |       | —                                      |       | 2,568 |   |
| Charitable  contributions                                                                 |       | 435                                         |       | 5,075 |   |
| Gain  on charitable contributions                                                         |       | (124                                        | )          | (2,024 | ) |
| Non-cash  restructuring charges                                                           |       | 196                                         |       | 1,768 |   |
| Share-based  compensation                                                                 |       | 3,870                                       |       | 23,419 |   |
| Bad  debt expense                                                                         |       | 1,653                                       |       | 1,263 |   |
| Changes  in operating assets and liabilities:                                             |       |                                        |       |   |   |
| Accounts  receivable                                                                      |       | (46,659                                     | )          | (31,650 | ) |
| Income  tax receivable                                                                    |       | (3,480                                      | )          | 23,130 |   |
| Inventories                                                                               |       | (23,255                                     | )          | 25,944 |   |
| Prepaid  expenses and other assets                                                        |       | 1,304                                       |       | (5,889 | ) |
| Accounts  payable                                                                         |       | 30,063                                      |       | 225 |   |
| Accrued  restructuring charges                                                            |       | 1,745                                       |       | 4,644 |   |
| Accrued  expenses and other liabilities                                                   |       | 19,768                                      |       | (2,351 | ) |
| Cash  provided by operating activities                                                    |       | 39,836                                      |       | 26,117 |   |
| Cash  flows from investing activities:                                                    |       |                                        |       |   |   |
| Cash  paid for purchases of property and equipment                                        |       | (13,281                                     | )          | (6,024 | ) |
| Proceeds  from disposal of property and equipment                                         |       | 937                                         |       | 1,108 |   |
| Cash  paid for intangible assets                                                          |       | (6,985                                      | )          | (2,450 | ) |
| Purchases  of marketable securities                                                       |       | (5,482                                      | )          | — |   |
| Maturities  of marketable securities                                                      |       | 1,701                                       |       | — |   |
| Restricted  cash                                                                          |       | 299                                         |       | 264 |   |
| Cash  used in investing activities                                                        |       | (22,811                                     | )          | (7,102 | ) |
| Cash  flows from financing activities:                                                    |       |                                        |       |   |   |
| Proceeds  from note payable                                                               |       | 18,400                                      |       | — |   |
| Repayment  of note payable and capital lease obligations                                  |       | (19,054                                     | )          | (5,130 | ) |
| Repurchase  of stock for stock option exercise tax withholding                            |       | (421                                        | )          | — |   |
| Exercise  of stock options                                                                |       | 2,341                                       |       | 227 |   |
| Cash  provided by (used in) financing activities                                          |       | 1,266                                       |       | (4,903 | ) |
| Effect  of exchange rate changes on cash                                                  |       | 1,233                                       |       | 11,700 |   |
| Net  increase in cash and cash equivalents                                                |       | 19,524                                      |       | 25,812 |   |
| Cash  and cash equivalents—beginning of period                                       |       | 77,343                                      |       | 51,665 |   |
| Cash  and cash equivalents—end of period                                             |       | $                                           | 96,867     |   | $ | 77,477 |   |
| Supplemental  disclosure of cash flow information—cash paid during the period for:   |       |                                        |       |   |   |
| Interest                                                                                  |       | $                                           | 284        |   | $ | 1,233 |   |
| Income  taxes                                                                             |       | $                                           | 6,674      |   | $ | 6,745 |   |
| Non-cash  investing and financing activities:                                             |       |                                        |       |   |   |
| Assets  acquired through capital leases                                                   |       | $                                           | 2,089      |   | $ | 1,024 |   |

 

See notes to condensed consolidated financial statements.

 

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**CROCS, INC. AND SUBSIDIARIES**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**(Unaudited)**

 

**1. BASIS OF PRESENTATION**

 

Crocs, Inc.and its subsidiaries (collectively, “we,” “us,” or the “Company”) are engagedin the design, manufacture, worldwide marketing and brand management offootwear made for men, women and children.

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) for interim financial information and with the rules andregulations for reporting on Form 10-Q. Accordingly, these statements donot include all of the information and disclosures required by GAAP orSecurities and Exchange Commission (“SEC”) rules and regulations forcomplete financial statements. In the opinion of management, these financialstatements reflect all adjustments considered necessary for a fair presentationof the results for the interim periods presented.  The results of operations for any interimperiod are not necessarily indicative of results for the full year.

 

Thesestatements should be read in conjunction with the consolidated financialstatements and footnotes included in our Annual Report on Form 10-K forthe year ended December 31, 2009 (the “2009 Form 10-K”). Theaccounting policies used in preparing these unaudited condensed consolidatedfinancial statements are the same as those described in Note 2 to theconsolidated financial statements in the 2009 Form 10-K.

 

Certainreclassifications have been made to prior year amounts to conform to currentyear presentation as follows:  Foreigncurrency transaction losses (gains), net have been reclassified from selling,general, and administrative expenses and are now reported separately. There wasno change to the Company’s loss from continuing operations as a result of thesereclassifications.  Marketable securitiesof a long-term nature have been reclassified from long-term other assets andare now reported separately.

 

Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities at the date of the financial statements and the reportedamounts 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, returns and discounts;impairment assessments and charges; recoverability of assets (includingdeferred tax assets); uncertain tax positions; share-based compensationexpense; fair value of acquired intangibles; assessment of lower of cost ormarket on inventory; useful lives assigned to long-lived assets; depreciation;and provisions for contingencies; are reasonable based on information availableat the time they are made. These estimates, judgments and assumptions can affectthe reported amounts of assets and liabilities as of the date of theconsolidated financial statements as well as the reported amounts of revenueand expenses during the periods presented. Management also makes estimates inour assessments of potential losses in relation to threatened or pending legaland tax matters. See Note 18—Legal Proceedings. Actual results could materiallydiffer from these estimates. For matters not related to income taxes, if a lossis considered probable and the amount can be reasonably estimated, the Companyrecognizes an expense for the estimated loss. If there is the potential torecover a portion of the estimated loss from a third party, the Company makes aseparate assessment of recoverability and reduces the estimated loss ifrecovery is also deemed probable.

 

*Change in Accounting Principle*

 

EffectiveJanuary 1, 2010, the Company changed its inventory valuation method forall inventories from the first-in, first-out (“FIFO”) cost method to the movingaverage cost method, which approximates FIFO.  The Company believes thechange to the moving average cost method is preferable under the circumstancesbecause the moving average methodology results in better alignment with thephysical flow of inventory than the FIFO methodology, it is calculated by ourinventory information system, which incorporates automated controls, and isalso the method management uses when preparing budgets, reviewing actual andforecasted financial information, as well as the method used in determining incentivemanagement compensation.  The moving average cost results in substantiallythe same results of operations per period.

 

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Financialstatements for periods ending on or before December 31, 2009 have not beenretroactively adjusted due to immateriality. The impact of the change for thethree and six month period ended June 30, 2010 is also immaterial.

 

**2. RECENT ACCOUNTING PRONOUNCEMENTS**

 

InDecember 2009, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2009-17, *Improvementsto Financial Reporting by Enterprises Involved with Variable Interest Entities*.The amendments in ASU 2009-17 replace the quantitative-based risks-and-rewardscalculation for determining which reporting entity, if any, has a controllingfinancial interest in a variable interest entity with an approach focused onidentifying which reporting entity has (1) the power to direct theactivities of a variable interest entity that most significantly affect theentity’s economic performance and (2) the obligation to absorb losses of,or the right to receive benefits from, the entity. The ASU also requires additionaldisclosures about a reporting entity’s involvement with variable interestentities and about any significant changes in risk exposure as a result of thatinvolvement. The Company adopted the guidance at the beginning of 2010 and suchadoption did not have a material impact on the Company’s unaudited condensedfinancial statements.  See Note 14 —Variable Interest Entities.

 

**3. INVENTORIES**

 

Inventoriesby major classification are as follows (in thousands):

 
| ** **       | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------|------------|-------------------------|------------|-----------------------------|------------|
| Finished  goods  |       | $                       | 107,363    |                        | $          | 88,775 |   |
| Work-in-progress |       | 215                     |       | 220                         |       |
| Raw  materials   |       | 5,975                   |       | 4,334                       |       |
| Net  Inventory   |       | $                       | 113,553    |                        | $          | 93,329 |   |

 

**4. PROPERTYAND EQUIPMENT**

 

Propertyand equipment includes the following (in thousands):

 
| ** **                      | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Machinery  and equipment        |       | $                       | 85,059     |                        | $          | 82,733 |   |
| Leasehold  improvements         |       | 42,509                  |       | 38,436                      |       |
| Subtotal                        |       | 127,568                 |       | 121,169                     |       |
| Less:  Accumulated depreciation |       | (60,837                 | )          | (50,085                     | )          |
| Property  and equipment, net    |       | $                       | 66,731     |                        | $          | 71,084 |   |

 

**5. INTANGIBLE ASSETS**

 

Thefollowing table summarizes the Company’s identifiable intangible assets as of June 30,2010 and December 31, 2009 (in thousands):

 
| ** **                           | ** ** | **June 30, 2010**      | ** ** | **December 31, 2009**    | ** ** |
|--------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Intangible  assets:                  |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Patents,  copyrights, and trademarks |       | $                           | 5,631      |                          | $          | 1,655 |   | $ | 3,976 |   | $ | 5,673 |   | $ | 1,396 |   | $ | 4,277 |   |
| Customer  relationships              |       | 5,633                       |       | 4,947                         |       | 686 |   | 5,928 |   | 4,912 |   | 1,016 |   |
| Core  technology                     |       | 4,618                       |       | 4,618                         |       | — |   | 4,614 |   | 4,614 |   | — |   |
| Non-competition  agreement           |       | 636                         |       | 636                           |       | — |   | 636 |   | 594 |   | 42 |   |
| Capitalized  software                |       | 47,129                      |       | 10,456                        |       | 36,673 |   | 38,884 |   | 8,235 |   | 30,649 |   |
| Total  Intangible assets             |       | $                           | 63,647     |                          | $          | 22,312 |   | $ | 41,335 |   | $ | 55,735 |   | $ | 19,751 |   | $ | 35,984 |   |

 

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Foramortizable intangible assets denominated in a foreign currency, the Companytranslates the gross asset and accumulated amortization at the balance sheetrate and records amortization expense using the weighted average rate ofexchange for the applicable period causing a difference.  This difference between the recordedamortization expense and the change in accumulated amortization is reflected inthe accumulated other comprehensive income line item on the Company’s unauditedcondensed consolidated balance sheets.

 

**6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

 

Accruedexpenses and other current liabilities include the following (in thousands):

 
| ** **                          | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Accrued  compensation and benefits  |       | $                       | 16,941     |                        | $          | 21,007 |   |
| Fulfillment  and freight and duties |       | 10,298                  |       | 10,765                      |       |
| Professional  services              |       | 5,152                   |       | 4,329                       |       |
| Sales/Use  and VAT taxes payable    |       | 7,171                   |       | 4,330                       |       |
| Other                               |       | 18,982                  |       | 13,158                      |       |
|                                |       | $                       | 58,544     |                        | $          | 53,589 |   |

 

**7. RESTRUCTURING ACTIVITIES**

 

Duringthe three months ended June 30, 2010, the Company incurred $1.3 million inrestructuring expenses reflected in cost of sales, resulting from a change inestimates related to lease termination costs for distribution facilities inNorth America and Europe.  Thesefacilities were closed pursuant to cost-savings initiatives undertaken by theCompany in 2008 and 2009.  During the sixmonths ended June 30, 2010, in addition to the restructuring expensesdiscussed above, the Company incurred an additional $2.5 million inrestructuring expenses reflected in income from operations, primarilyconsisting of severance pay and additional stock-based compensation related tothe retirement of the Company’s former Chief Executive Officer.  See further discussion in Note 11 — Stock-Based Compensation.

 

Restructuringcharges, for the six months ended June 30, 2010,  were recorded by segment as follows: $1.0million in the Americas segment; $0.8 million in the Europe segment; and $2.0million in the Corporate and other group.

 

Restructuringcharges are included in the following line items: accrued restructuring chargesand long-term restructuring in the Company’s unaudited condensed consolidatedbalance sheets and cost of sales and restructuring charges on the Company’sunaudited condensed consolidated statements of operations.

 

Thefollowing table details the changes in the restructuring accruals during thesix months ended June 30, 2010 (in thousands):

 
| **Description**             | ** ** | **Year Ended  December 31,  2009** | ** ** | **Additions** | ** ** | **Cash  Payments** | ** ** | **Adjustments** | ** ** | **Six Months  Ended********June 30, 2010** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|---------------|------------|--------------------|------------|-----------------|------------|-------------------------------------------------|------------|
|                        |       |                                    |       |          |       |               |       |            |       |                                            |       |
| Termination  benefits       |       | $                                       | 516        |          | $          | 1,847              |       | $               | (534       | )                                               | $          | (58 | ) | $ | 1,771 |   |
|                        |       |                                    |       |          |       |               |       |            |       |                                            |       |
| Operating  lease exit costs |       | 2,233                                   |       | 1,754         |       | (1,509             | )          | (169            | )          | 2,309                                           |       |
|                        |       |                                    |       |          |       |               |       |            |       |                                            |       |
| Other  restructuring costs  |       | 387                                     |       |          |       | (391               | )          | 4               |       | —                                          |       |
|                        |       | $                                       | 3,136      |          | $          | 3,601              |       | $               | (2,434     | )                                               | $          | (223 | ) | $ | 4,080 |   |

 

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**8.****FAIR VALUE MEASUREMENTS**

 

TheCompany performs fair value measurements in accordance with the guidanceprovided by fair value standards. The fair value standards define fair value asthe price that would be received from selling an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date. When determining the fair value measurements for assets andliabilities required to be recorded at fair value, the Company considers theprincipal or most advantageous market in which it would transact and considersassumptions that market participants would use when pricing the asset orliability, such as inherent risk, transfer restrictions, and risk ofnonperformance.

 

Thefair value standards establish a fair value hierarchy that requires an entityto maximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value. A financial instrument’s categorizationwithin the fair value hierarchy is based upon the lowest level of input that issignificant to the fair value measurement. The fair value standards establishthree levels of inputs that may be used to measure fair value:

 

·                  Level 1 —Quoted prices for identical instruments in active markets.

 

·                  Level 2 —Quoted prices for similar instruments in active markets, quoted prices foridentical or similar instruments in markets that are not active andmodel-derived valuations, in which all significant inputs are observable inactive market.

 

·                  Level 3 —Unobservable inputs in which there is little or no market data, which requirethe reporting entity to develop its own assumptions.

 

Asummary of the Company’s financial assets and liabilities measured at fairvalue on a recurring basis as of June 30, 2010 is as follows (inthousands):

 
| ** **                                     | ** ** | **Fair Value********as of********June 30, 2010** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Balance Sheet Classification**                 | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------|------------|------------------|------------|-------------|------------|------------------|------------|--------------------------------------------------|------------|
| Assets —                                  |       |                                                  |       |             |       |        |       |             |       |                                             |       |
|                                           |       |                                                  |       |             |       |        |       |             |       |                                             |       |
| Certificates of deposit                        |       | $                                                     | 5,444      |             | —     |        | $          | 5,444            |       | —                                           |       | Marketable  securities |   |
| Foreign currency contracts                     |       | —                                                |       | —           |       | —      |       | —           |       | Other  current assets and other long-term assets |       |
|                                           |       |                                                  |       |             |       |        |       |             |       |                                             |       |
| Total Assets                                   |       | $                                                     | 5,444      |             | $          | —      |       | $                | 5,444      |                                             | $          | — |   |   |   |
|                                           |       |                                                  |       |             |       |        |       |             |       |                                             |       |
| Liabilities — Foreign  currency contracts |       | $                                                     | 119        |             | $          | —      |       | $                | 119        |                                             | $          | — |   | Accrued  liabilities and other long-term liabilities |   |

 

Marketablesecurities consist of certificates of deposit with maturities greater thanthree months and up to three years at the time of purchase. These securitiesare carried at fair value and are held at financial institutions.

 

TheCompany did not have any derivative instruments as of December 31, 2009.

 

*Foreign Currency*

 

Salesin foreign countries, as well as certain expenses related to those sales, aretransacted in currencies other than our reporting currency, the U.S. dollar.The Company’s foreign currency exchange rate risk is primarily limited to theJapanese Yen and the Euro. The Company may, from time to time, employderivative financial instruments to manage our exposure to fluctuations inforeign currency rates or enter into forward currency exchange contracts tohedge its net investment and intercompany payable or receivable balances inforeign operations. The Company did not have any material outstanding foreigncurrency related financial instruments at June 30, 2010 and December 31,2009.

 

**9. RISKMANAGEMENT AND DERIVATIVES**

 

TheCompany is exposed to certain risks relating to its ongoing businessoperations. The primary risk managed by using derivative instruments is foreigncurrency exchange rate risk. Forward contracts on various foreign currenciesare entered into to manage the foreign currency exchange rate risk onforecasted revenue and inventory purchases denominated 

 

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inforeign currencies. Other forward foreign exchange contracts are entered intoto hedge against changes in the functional currency value of monetary assetsand liabilities denominated in a non functional currency.

 

Accountingstandards for derivative instruments and hedging activities requires theCompany to recognize all of its derivative instruments as either assets orliabilities in its condensed unaudited consolidated balance sheet at fairvalue. The accounting for changes in the fair value of a derivative instrumentdepends on whether it has been designated and qualifies as part of a hedgingrelationship. At June 30, 2010 the Company did not designate any of ourderivatives as hedges and, therefore, all changes in fair value are reflectedin our results of operations.

 

Thefollowing table presents the fair values of derivative instruments includedwithin the unaudited condensed consolidated balance sheet as of June 30,2010 is as follows (in thousands):

 

**LiabilityDerivatives**

 
| ** **                                         | ** ** | **June 30, 2010** | ** ** | **Balance Sheet Location** | ** **           |
|----------------------------------------------------|------------|------------------------|------------|----------------------------|----------------------|
| Derivatives not designated as hedging instruments: |       |                   |       |                       |                 |
| Foreign currency exchange forwards                 |       | $                      | 119        |                       | Accrued  liabilities |   |
|                                                    |            |                        |            |                            |                      |  |

 

TheCompany did not have any derivative instruments as of December 31, 2009.

 

Thefollowing tables present the amounts affecting the unaudited condensedconsolidated statements of operations for the three and six month periods endedJune 30, 2010 (in thousands):

 

**Amountof Loss (Gain) Recognized in Income on Derivatives**

 
| ** **                                         | ** ** | **Three months ended  June 30, 2010** | ** ** | **Six months ended  June 30, 2010** | ** ** | **Location of Loss (Gain) Recognized in   Income on Derivatives** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------------------|------------|
| Derivatives not designated as hedging instruments: |       |                                       |       |                                     |       |                                                              |       |
| Foreign currency exchange forwards                 |       | $                                          | 119        |                                     | $          | 119                                                               |       | Other  expense (income), net |   |
|                                                    |            |                                            |            |                                          |            |                                                                   |            |  |  |

 

TheCompany did not have any derivative instruments during the three and six monthsended June 30, 2009.

 

***Foreign Currency Exchange Forwards***

 

Thefollowing table summarizes the Company’s outstanding foreign currency exchangeforward contracts at June 30, 2010 (in thousands):

 
| **Currency Purchased Forward** | ** **  | **Currency Sold Forward** | ** ** | **Maturity Date** | ** ** |
|--------------------------------|-------------|---------------------------|------------|-------------------|------------|
| Peso                           | 2,570       |                      | $          | 200               |       | July 2010 |   |
| $                              |  1,210 |                      | €     | 1,000             |       | July 2010 |   |
| $                              |  2,922 |                      | £     | 2,000             |       | July 2010 |   |
| $                              |  2,000 |                      | ¥     | 180,000           |       | July 2010 |   |
|                                |             |                           |            |                   |            |  |  |  |

 

**10.****NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS**

 

Notespayable and capital lease obligations consist of the following (in thousands):

 

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| ** **                                                                                                    | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Capital Lease Obligations: Certain Capitalized  Software at 9.97% weighted average interest, due through 2012 |       | $                       | 2,802      |                        | $          | 1,329 |   |
|                                                                                                          |       |                    |       |                        |       |
| Capital Lease Obligations: Certain Equipment at  8.8% weighted average interest, due through 2014             |       | 188                     |       | 223                         |       |
| Total notes payable and capital lease obligations                                                             |       | $                       | 2,990      |                        | $          | 1,552 |   |

 

*Capital Leases*

 

The Company holds variouscapital leases for certain equipment with a gross value of $0.4 million, whichis depreciated using the straight-line method over its useful life.  Depreciation of equipment under capitalizedleases is included in cost of sales and selling, general and administrativeexpenses line items on the Company’s unaudited condensed consolidatedstatements of operations.  Certainsoftware acquired under various capital leases for a gross value of $3.6million is classified as capitalized software and amortized using the straight-linemethod over the useful life. Amortization of capitalized software under capitalized leases isincluded in the cost of sales and selling, general and administrative expensesline items on the Company’s unaudited condensed consolidated statements ofoperations.

 

*Notes Payable*

 

OnSeptember 25, 2009, the Company entered into a Revolving Credit andSecurity Agreement (the “Credit Agreement”) with PNC Bank, N.A. (“PNC”), whichmatures on September 25, 2012.  TheCredit Agreement provides for an asset-backed revolving credit facility of upto $30 million in total, which includes a $17.5 million sublimit for borrowingsagainst the Company’s eligible inventory, a $2 million sublimit for borrowingsagainst the Company’s eligible inventory in-transit, and a $4 million sublimitfor letters of credit.  The totalborrowings available under the Credit Agreement at any given time are subjectto customary reserves and reductions to the extent the Company’s assetborrowing base changes.  Borrowings underthe Credit Agreement are secured by all of the assets of the Company, includingall receivables, equipment, general intangibles, inventory, investmentproperty, subsidiary stock and leasehold interests.  The Credit Agreement requires the Company toprepay borrowings under the Credit Agreement in the event of certaindispositions of property.

 

Withrespect to domestic rate loans, principal amounts outstanding under the CreditAgreement bear interest at a two percent (2%) premium over a rate that is thegreater of either (i) PNC’s published reference rate, (ii) theFederal Funds Open Rate (as defined in the Credit Agreement) in effect on suchday plus one half of one percent (0.5%) or, (iii) the sum of the dailyLIBOR rate and one percent (1.0%). Eurodollar denominated principal amounts outstanding under the CreditAgreement bear interest at the sum of three and one half percent (3.50%)premium over a rate that is the greater of (i) the Eurodollar rate, or (ii) oneand one half percent (1.50%) with respect to Eurodollar loans, asapplicable.   The Credit Agreementrequires monthly interest payments with respect to domestic rate loans and atthe end of each period with respect to Eurodollar rate loans.

 

The Credit Agreementcontains certain customary restrictive and financial covenants.  TheCompany was in compliance with these financial covenants as of June 30,2010.

 

Asof June 30, 2010 and December 31, 2009, the Company had nooutstanding borrowings under the Credit Agreement and at June 30, 2010 hadissued and outstanding letters of credit of $1.0 million which werereserved against the borrowing base.

 

**11. STOCK-BASED COMPENSATION**

 

Optionsgranted generally vest ratably over four years with the first year vesting on a“cliff” basis followed by monthly vesting for the remaining three years.  Compensation expense is recognized ratablyover the four-year vesting period. Stock-based compensation expense recognized, including options andnon-vested shares, was $2.2 million and $3.9 million in the three and sixmonths ended June 30, 2010, respectively. For the three and six months ended June 30, 2009,

 

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stock-based compensationexpense, including options and non-vested shares, was $19.4 million and$25.1 million.  Stock-based compensationis recognized in the cost of sales and selling, general and administrativeexpenses line item in the Company’s unaudited condensed statement ofoperations.

 

***Stock Options***

 

Asummary of stock option activity for the three and six months ended June 30,2010 is as follows:

 
| ** **                                                                   | ** ** | **Three Months Ended June 30, 2010** | ** ** | **Six Months Ended June 30, 2010** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| **Options**                                                                  | ** ** | **Shares**                                | ** ** | **Weighted  Average  Exercise Price**   | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  at March 31, 2010 and December 31, 2009, respectively |       | 7,054,554                                 |       | $                                       | 7.82       |   | 7,755,254 |   | $ | 7.67 |   |
| Granted                                                                      |       | 100,000                                   |       | $                                       | 10.70      |   | 149,750 |   | $ | 9.58 |   |
| Exercised                                                                    |       | (575,447                                  | )          | $                                       | 3.04       |   | (876,730 | ) | $ | 2.67 |   |
| Forfeited  or expired                                                        |       | (228,771                                  | )          | $                                       | 18.21      |   | (677,938 | ) | $ | 12.15 |   |
| Outstanding  at June 30, 2010                                           |       | 6,350,336                                 |       | $                                       | 7.93       |   | 6,350,336 |   | $ | 7.93 |   |

 

***Restricted Stock Awards***

 

Asummary of restricted stock award activity for the three and six months ended June 30,2010 is as follows:

 
| ** **                                                                  | ** ** | **Three Months Ended June 30, 2010** | ** ** | **Six Months Ended June 30, 2010**        | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------------|------------|
| **Non-  vested**                                                            | ** ** | **Shares**                                | ** ** | **Weighted   Average  Grant Date  Fair Value** | ** ** | **Shares** | ** ** | **Weighted   Average  Grant Date  Fair Value** | ** ** |
| Non-vested  at March 31, 2010 and December 31, 2009, respectively |       | 839,298                                   |       | $                                              | 3.04       |   | 1,322,240 |   | $ | 3.04 |   |
| Granted                                                                     |       | 218,357                                   |       | $                                              | 11.31      |   | 218,357 |   | $ | 11.31 |   |
| Vested                                                                      |       | (250,803                                  | )          | $                                              | 10.66      |   | (508,411 | ) | $ | 9.82 |   |
| Forfeited  or expired                                                       |       | —                                    |       | —                                         |       | (225,334 | ) | $ | 1.34 |   |
| Non-vested  at June 30, 2010                                           |       | 806,852                                   |       | $                                              | 4.92       |   | 806,852 |   | $ | 4.92 |   |

 

***Separation Agreement.***

 

On March 31, 2010, theCompany entered into a separation agreement with its former Chief ExecutiveOfficer.  Pursuant to the separationagreement, the vesting of options to purchase 100,000 shares of Company commonstock, which were exercised, and 100,000 shares of restricted stock wereaccelerated as of March 31, 2010. Additionally, pursuant to the terms of the separation agreement, theCompany’s former Chief Executive Officer forfeited options to purchase 200,000shares of Company common stock and 200,000 shares of restricted stock.  The Company recorded an insignificant amountto restructuring charges related to the acceleration of the vesting of theseoptions and restricted stock awards.

 

**12****. INCOME TAXES**

 

During the three monthsended June 30, 2010, the Company recognized an income tax expense of $6.6million on pre-tax income of $38.9 million, representing an effective incometax rate of 17.0% compared to an income tax expense of $7.6 million on apre-tax loss of $22.7 million, representing an effective income tax rate of(33.3%) for the three months ended June 30, 2009.  During the six months ended June 30,2010, the Company recognized an income tax expense of $10.0 million on apre-tax income of $48.0 million, representing an effective income tax rate of20.8% compared to an income tax expense of $7.8 million on a pre-tax loss of$44.9 million, representing an effective income tax rate of (17.3%) for the sixmonths ended June 30, 2009.  Thechange in effective tax rate is primarily the result of the Companyrestructuring its international 

 

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operations, cost sharingarrangements and release of valuation allowances related to net operatinglosses in various international entities. The Company had unrecognized tax benefits of $29.2 million at January 1,2010 and $29.5 million at June 30, 2010.

 

**13. EARNINGS (LOSS) PER SHARE**

 

Basic income (loss) pershare (“EPS”) is computed by dividing net income (loss) by the weighted averagenumber of shares outstanding for the period. Diluted EPS reflects the potential dilution from securities that couldshare in the earnings of the Company. Anti-dilutive securities are excluded from diluted EPS.  The Company has a small number of participatingsecurities and consequently is computing basic income (loss) per share bydividing net income or loss attributable to common stockholders by the weightedaverage common shares outstanding during the period.

 

 

EPSfor the three and six months ended June 30, 2010 and 2009 is as follows(in thousands, except share and per share data):

 
| ** **                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                          | ** ** | **2010**                             | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                                |       |                                 |       |                               |       |   |   |   |   |
| Net  income (loss) attributable to common stockholders              |       | $                                    | 32,284     |                               | $          | (30,281 | ) | $ | 38,001 |   | $ | (52,698 | ) |
| Income  allocated to participating securities                       |       | (303                                 | )          | —                             |       | (358 | ) | — |   |
| Net income (loss) attributable to common  stockholders – basic |       | $                                    | 31,981     |                               | $          | (30,281 | ) | $ | 37,643 |   | $ | (52,698 | ) |
|                                                                |       |                                 |       |                               |       |   |   |   |   |
| Weighted  average common shares outstanding – basic            |       | 85,179,948                           |       | 84,882,241                         |       | 84,834,756 |   | 84,638,783 |   |
| Dilutive  effect of stock options                                   |       | 1,552,295                            |       | —                             |       | 1,771,269 |   | — |   |
| Dilutive  effect of unvested shares                                 |       | 806,852                              |       | —                             |       | 806,852 |   | — |   |
| Weighted  average common shares outstanding - diluted               |       | 87,539,095                           |       | 84,882,241                         |       | 87,412,877 |   | 84,638,783 |   |
|                                                                |       |                                 |       |                               |       |   |   |   |   |
| Net  income (loss) per common share:                                |       |                                 |       |                               |       |   |   |   |   |
| Basic                                                               |       | $                                    | 0.38       |                               | $          | (0.36 | ) | $ | 0.44 |   | $ | (0.62 | ) |
| Diluted                                                             |       | $                                    | 0.37       |                               | $          | (0.36 | ) | $ | 0.43 |   | $ | (0.62 | ) |

 

Forall periods presented above, there were options outstanding which couldpotentially dilute basic EPS in the future but were not included in dilutedincome (loss) per share as their effect would have been anti-dilutive.  Due to the Company’s net loss for the threeand six months ended June 30, 2009, the dilutive effect of stock optionsand unvested restricted stock awards were not included in the computation ofdiluted EPS, as their inclusion would have been anti-dilutive.  During 2009 the Company had participatingsecurities that were not allocated net loss nor included in the computation ofdiluted EPS due to the Company’s net loss for the three and six months ended June 30,2009.  The weighted average exerciseprice per share of the options that were anti-dilutive was $13.77 for both thethree and six months ended June 30, 2010, and $5.65 and $10.84 for thethree and six months ended June 30, 2009, respectively.  The total number of anti-dilutive options was3,093,432 for both the three and six months ended June 30, 2010, and4,869,628 for both the three and six months ended June 30, 2009.

 

**14. VARIABLE INTEREST ENTITIES**

 

In2007, the Company established a relationship with Shanghai ShengyiguanTrade, Ltd Co (“ST”) for the purpose of serving as a distributor of theCompany’s products in the People’s Republic of China. The Company hasdetermined that ST is a variable interest entity for which it is the primarybeneficiary and there are no other non-controlling interests. The Companycurrently controls all business activities and absorbs substantially all of theexpected residual returns and substantially all of the expected losses of STbased on agreements with ST. The Company determined that it is the primarybeneficiary of ST by virtue of its variable interest in the equity of ST. Allvoting rights have been assigned to the Company and there is a transferagreement between ST and the Company under which all of the equity, assets, andliabilities are to be 

 

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transferred to the Companyat the Company’s sole discretion, subject to certain conditions. Accordingly,the Company’s consolidation of ST does not reflect a non-controlling interest.

 

TheCompany did not provide material financial support during the six months ended June 30,2010 for the funding of ST’s operations. The condensed consolidated financialstatements include $5.8 million in total assets as of June 30, 2010,primarily consisting of cash, inventory and receivables, partially offset by$0.2 million in liabilities as of June 30, 2010, primarily consisting ofaccounts payable and accrued expenses, excluding liabilities related to thesupport provided by the Company.  STcarries cash assets which are restricted to the extent that the monetary lawsof the People’s Republic of China may limit the Company’s ability to utilize ST’scash.

 

**15. COMMITMENTS AND CONTINGENCIES**

 

On July 26, 2005, theCompany entered into an amended and restated four-year supply agreement withFinproject S.P.A., the former majority owner of Crocs Canada, pursuant to whichthe Company has the exclusive right to purchase the material for themanufacture of finished shoe products, except for certain current customerdealings (including boot manufacturers). The supply agreement was extendedthrough June 30, 2010, and provides that the Company meet minimum purchaserequirements to maintain exclusivity throughout the term of the agreement. Thepricing is to be agreed upon each quarter and fluctuates based on order volume,currency fluctuations, and raw material prices. The Company is currently in negotiations to extend the supplyagreement.  The Company guarantees thepayment to one of its raw material suppliers for purchases of material used byone of its third-party manufactures of finished shoe products. The maximumpotential amount of future payments the Company could be required to make underthe guarantee is €2.1 million (approximately $2.6 million at June 30,2010). The Company evaluates the estimated loss for the guarantee under ASCTopic 450, *Contingencies,* and Topic 460, *Guarantees*.  TheCompany considers such factors as the degree of probability of an unfavorableoutcome and the ability to make a reasonable estimate of the amount of loss.The Company has recourse as a matter of common law. To date, the Company hasnot made any payments under the guarantee and, as of June 30, 2010, hasnot recorded a liability related to the guarantee in its unaudited condensedconsolidated financial statements, as the Company does not believe thepotential obligation under this guarantee is material.

 

TheCompany leases space for certain of its offices, warehouses, vehicles andequipment under leases expiring at various dates through 2026. Certain leasesalso contain rent escalation clauses (step rents) that require additionalrental amounts in the later years of the term. Rent expense for leases withstep rents is recognized on a straight-line basis over the minimum lease term.Step rents, tenant improvement allowances, rent holidays and other items arefactored into the minimum lease payment and recognized on a straight-line basisover the minimum lease term.  Deferredrent is included in the unaudited condensed consolidated balance sheets in theaccrued expenses and other current liabilities line item.

 

TheCompany indemnifies certain of its vendors and its directors and executiveofficers for specified claims. To date, the Company has not paid or beenrequired to defend any indemnification claims, and accordingly, has not accruedany amounts for its indemnification obligations.

 

TheCompany has other various immaterial commitments and contingencies that are notdiscussed above.

 

**16. OPERATING SEGMENTS AND RELATED INFORMATION**

 

TheCompany operates in the consumer products industry internationally in which theCompany principally designs, manufactures, markets and sells its brandedfootwear for men, women and children. During 2009, the Company changed the information that was presented tothe chief operating decision maker and has restated its revenues, depreciationand amortization, operating income and assets by segment as shown below.  The Company identifies its reportablesegments as those geographic regions that represent 10% or more of its revenue,operating income (as defined below), or total assets.  The Company has three reportable segments:Americas, Europe and Asia. All of the reportable segments derive their revenuefrom the sale of footwear, apparel and accessories.  The Company evaluates performance and makesdecisions about allocating resources to its operating segments based onfinancial measures such as revenue and operating income.

 

Operatingincome is the primary measure used by the Company’s chief operating decisionmaker to evaluate segment operating performance and to decide how to allocateresources to segments.  Operating incomeis defined as operating income before asset impairment charges andrestructuring charges.  The Companyevaluates the performance of its segments based primarily on the results of thesegment without allocating corporate expenses, or indirect general,administrative and 

 

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otherexpenses.  The corporate and othercategory includes (i) Ocean Minded, (ii) Colorado Footwear CV, and (iii) corporatecategory, which maintains corporate costs such as stock-based compensation,research and development, brand marketing, legal expenses, depreciation onglobal long-lived assets such as molds, tooling, IT systems, and otherglobal costs that are not allocated to the regions.

 

Segmentprofits or losses include adjustments to eliminate intercompany profit orlosses on intercompany sales.  Segmentassets include the elimination of any intersegment profits or losses ininventory and the elimination of intercompany receivables.  Segment assets, primarily in the Americassegment, include certain long-lived assets that are depreciated in thecorporate category due to their global functionality.  Negative assets within the Corporate andother category primarily include eliminations of investments made from theAmericas segment in the other reportable segments.  Net revenues as shown below represent salesto external customers for each segment.

 
| ** **                                       | ** ** | **Three Months********Ended June 30** | ** ** | **Six Months********Ended June 30,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                       | ** ** | **2010**                                   | ** ** | **2009**                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                       | ** ** | **(in thousands)**                         | ** ** | **(in thousands)**                        | ** ** |
| **Revenues:**                                    |       |                                       |       |                                      |       |   |   |   |   |
| Americas                                         |       | $                                          | 103,473    |                                      | $          | 84,128 |   | $ | 175,623 |   | $ | 150,540 |   |
| Europe                                           |       | 34,556                                     |       | 32,224                                    |       | 72,498 |   | 60,496 |   |
| Asia                                             |       | 88,681                                     |       | 79,968                                    |       | 143,351 |   | 118,966 |   |
| Total segments                                   |       | 226,710                                    |       | 196,320                                   |       | 391,472 |   | 330,002 |   |
| Corporate and other                              |       | 1,336                                      |       | 1,402                                     |       | 3,426 |   | 2,612 |   |
| Total consolidated revenues                      |       | $                                          | 228,046    |                                      | $          | 197,722 |   | $ | 394,898 |   | $ | 332,614 |   |
|                                             |       |                                       |       |                                      |       |   |   |   |   |
| **Operating Income:**                            |       |                                       |       |                                      |       |   |   |   |   |
| Americas                                         |       | $                                          | 23,423     |                                      | $          | 5,697 |   | $ | 34,657 |   | $ | 7,923 |   |
| Europe                                           |       | 8,049                                      |       | 11,241                                    |       | 17,675 |   | 12,224 |   |
| Asia                                             |       | 31,742                                     |       | 33,708                                    |       | 44,278 |   | 29,877 |   |
| Total segments                                   |       | 63,214                                     |       | 50,646                                    |       | 96,610 |   | 50,024 |   |
| SG&A restructuring                           |       | —                                     |       | (5,915                                    | )          | (2,539 | ) | (5,953 | ) |
| Asset impairment                                 |       | —                                     |       | (23,655                                   | )          | (141 | ) | (23,724 | ) |
| Corporate and other                              |       | (24,488                                    | )          | (45,595                                   | )          | (45,809 | ) | (67,481 | ) |
| Total consolidated operating income (loss)       |       | 38,726                                     |       | (24,519                                   | )          | 48,121 |   | (47,134 | ) |
| Interest expense                                 |       | 163                                        |       | 562                                       |       | 292 |   | 1,257 |   |
| Gain on charitable contributions                 |       | (32                                        | )          | (2,024                                    | )          | (116 | ) | (2,024 | ) |
| Other expense (income), net                      |       | (291                                       | )          | (343                                      | )          | (50 | ) | (1,446 | ) |
| Income (loss) before income taxes                |       | $                                          | 38,886     |                                      | $          | (22,714 | ) | $ | 47,995 |   | $ | (44,921 | ) |
|                                             |       |                                       |       |                                      |       |   |   |   |   |
| **Depreciation and Amortization:**               |       |                                       |       |                                      |       |   |   |   |   |
| Americas                                         |       | $                                          | 2,406      |                                      | $          | 2,048 |   | $ | 4,591 |   | $ | 4,524 |   |
| Europe                                           |       | 680                                        |       | 1,717                                     |       | 1,453 |   | 3,280 |   |
| Asia                                             |       | 1,358                                      |       | 902                                       |       | 2,943 |   | 1,722 |   |
| Total segments                                   |       | 4,444                                      |       | 4,667                                     |       | 8,987 |   | 9,526 |   |
| Corporate and other                              |       | 4,367                                      |       | 5,006                                     |       | 8,623 |   | 9,651 |   |
| Total consolidated depreciation and amortization |       | $                                          | 8,811      |                                      | $          | 9,673 |   | $ | 17,610 |   | $ | 19,177 |   |

 
| ** **                | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                | ** ** | **(in thousands)**     | ** ** |
| **Assets:**               |       |                   |       |                       |       |
| Americas                  |       | $                      | 241,646    |                       | $          | 277,454 |   |
| Europe                    |       | 63,919                 |       | 66,838                     |       |
| Asia                      |       | 73,983                 |       | 151,052                    |       |
| Total segments            |       | 379,548                |       | 495,344                    |       |
| Corporate and other       |       | 117,505                |       | (85,606                    | )          |
| Total consolidated assets |       | $                      | 497,053    |                       | $          | 409,738 |   |

 

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**17. COMPREHENSIVE INCOME (LOSS)**

 

Comprehensiveincome (loss) for the three and six months ended June 30, 2010 and 2009was as follows (in thousands):

 
| ** **                    | ** ** | **Three Months********Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-------------------------------|------------|---------------------------------------------|------------|-------------------------------------|------------|
| ** **                    | ** ** | **2010**                                    | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net  income (loss)            |       | $                                           | 32,284     |                                | $          | (30,281 | ) | $ | 38,001 |   | $ | (52,698 | ) |
| Foreign  currency translation |       | (4,087                                      | )          | 6,236                               |       | (5,786 | ) | 2,306 |   |
| Comprehensive  income (loss)  |       | $                                           | 28,197     |                                | $          | (24,045 | ) | $ | 32,215 |   | $ | (50,392 | ) |

 

**18.LEGAL PROCEEDINGS**

 

OnMarch 31, 2006, the Company filed a complaint with the International TradeCommission (“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-PacificTrading Corporation, and Shaka Holdings, Inc., alleging patent and tradedress infringement and seeking an exclusion order banning the importation andsale of infringing products. On August 10, 2006, the Company filed amotion to voluntarily remove its trade dress claim from the investigation tofocus on the patent claims. The Company’s motion was granted by Order No. 20on August 24, 2006. The utility and design patents asserted in thecomplaint were issued to the Company on February 7, 2006 and March 28,2006 respectively, by the United States Patent and Trademark Office. The ITChas issued final determinations terminating Shaka Holdings, Inc., Inter-PacificTrading Corporation, Acme Ex-Im, Inc., D. Myers & Sons, Inc.,Australia Unlimited, Inc. and Gen-X Sports, Inc. from the ITCinvestigation No. 337-TA-567 on the basis of settlement and Cheng’sEnterprises, Inc. on the suspension of accused activities. The ITCAdministrative Law Judge (“ALJ”) issued an Initial Determination ofnon-infringement related to one of the patents at issue. The Company filed apetition with the Commission to review this determination. The Commissiongranted the Company’s petition and on February 15, 2007, after briefing bythe parties, the Commission vacated the ALJ’s determination of non-infringementwith respect to the remaining respondents and remanded it to the ALJ forfurther proceedings consistent with the Commission’s order. In light of theCommission’s Order, the procedural schedule and hearing date were resetpursuant to Order No. 38. A trial was held before the ALJ from September 7to 14, 2007. The ALJ issued an Initial Determination on April 11, 2008with a finding of no violation, finding infringement of the utility patent bycertain accused products, but also finding that the utility patent was invalidas obvious. The ALJ also found that the design patent was valid, but notinfringed by the accused products. The Company filed a Petition for Review ofthe Initial Determination which was due on April 24, 2008. On June 18,2008, the Commission issued a Notice that it would review the ALJ’s findings inthe Initial Determination with respect to the determination of non-infringementof the design patent and the determination of invalidity of the utility patent.On July 25, 2008, the Commission issued a Notice of its decision toterminate the Investigation with a finding of no violation as to either patent.The Company filed a Petition for Review of the decision with the United StatesCourt of Appeals for the Federal Circuit on September 22, 2008, and filedits initial brief on January 21, 2009. Briefing before the Federal Circuitwas completed in April 2009 and oral arguments were heard on July 10,2009. On October 4, 2009, the Company and Collective LicensingInternational, LLC reached a settlement. Collective Licensing International,LLC agreed to cease and desist infringing on the Company’s patents and to paythe Company certain monetary damages, which was recorded upon receipt. On February 24,2010, the Federal Circuit found that the Commission erred in finding that theutility patent was obvious and reversed the Commission’s determination ofnon-infringement of the design patent. On April 12, 2010, one of the remaining parties, Effervescent, Inc.,filed a request for a panel or en banc hearing with the Federal Circuit of the February 24,2010 decision to which the Company responded on April 28, 2010.  The Federal Circuit denied the petition on May 20,2010 and the matter has been remanded to the ITC.  On July 6, 2010, the Commission orderedthe matter to be assigned to an ALJ for a determination on enforceability.

 

OnApril 3, 2006, the Company filed a complaint in the U.S. District Courtfor the District of Colorado alleging patent and trade dress infringement andseeking injunctive relief 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-PacificTrading Corporation, Shaka Holdings, 

 

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Inc., and Does 1-10 basedupon certain utility and design patents that were issued to the Company on February 7,2006 and March 28, 2006 respectively, by the United States Patent andTrademark Office. Consent judgments have been entered against Shaka Holdings, Inc., InterpacificTrading Corporation and Acme Ex-Im, Inc. The Company entered into asettlement with Australia Unlimited, and filed a stipulation for dismissal ofall claims and counterclaims on January 25, 2007. The Company has enteredinto a settlement agreement with D. Myers & Sons and obtained aconsent judgment in connection therewith on May 23, 2007. On June 11,2009, the Company filed a Notice of Voluntary Dismissal of Gen-X Sports, Inc.on the basis of settlement and on November 4, 2009, the Company filed aNotice of Voluntary Dismissal with prejudice of Collective LicensingInternational, LLC on the basis of settlement. This action has been stayedpending resolution in the ITC Proceeding, Investigation No. 337TA-567.

 

TheCompany and certain current and former officers and directors have been namedas defendants in complaints filed by investors in the United States DistrictCourt for the District of Colorado. The first complaint was filed in November 2007;several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the Court appointed a lead plaintiffand 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 purchasedthe Company’s stock between April 2, 2007 and April 14, 2008 (the “Class Period”).The amended complaint alleges that, during the Class Period, defendantsmade false and misleading public statements about the Company and its businessand prospects and that, as a result, the market price of the Company’s stockwas artificially inflated. The amended complaint also claims that certaincurrent and former officers and directors traded in the Company’s stock on thebasis of material non-public information. The amended complaint seekscompensatory damages on behalf of the alleged class in an unspecified amount,interest, and an award of attorneys’ fees and costs of litigation. The Companybelieves the claims lack merit and intends to defend the action vigorously.Motions to dismiss are currently pending with the Court. On November 11,2009, presiding Judge Blackburn recused himself because a relative of a memberof his staff held a substantial position in Crocs stock.  The clerk’s office has transferred the caseto Judge Brimmer.  As a result, thetiming for a ruling on any motion to dismiss is uncertain. Due to the inherentuncertainties of litigation and because the litigation is at a preliminarystage, the Company cannot at this time accurately predict the ultimate outcomeof the matter.

 

OnDecember 8, 2009, Columbia Sportswear Company (“Columbia”) filed anAmended Complaint adding the Company as a defendant in a case between Columbiaand Brian P. O’Boyle and 1 Pen. Inc. in the Multnomah County Circuit Court inthe State of Oregon. Columbia asserted claims against the Company formisappropriation of trade secrets, aiding and abetting breach of fiduciaryduty, intentional interference with contract, injunctive relief, disgorgementand an accounting. The Amended Complaint sought damages in an unspecifiedamount, return of patent rights, reasonable attorney’s fees and costs andexpenses against the Company. The Company and Columbia settled all issuesbetween them and Columbia dismissed with prejudice all claims against theCompany in exchange for certain monetary and other considerations.

 

Althoughthe Company is subject to other litigation from time to time in the ordinarycourse of business, including employment, intellectual property and productliability claims, the Company is not party to any other pending legalproceedings that the Company believes will have a material adverse impact onits business.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**Forward-Looking Statements**

 

This Quarterly Report on Form 10-Q contains “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. In addition, we may make other written and oral communications fromtime to time that contain such statements. Forward-looking statements includestatements as to industry trends and our future expectations and other mattersthat do not relate strictly to historical facts and are based on certainassumptions of our management. These statements are often identified by the useof words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,”“estimate,” or “continue,” and similar expressions or variations. Thesestatements are based on the beliefs and assumptions of our management based oninformation currently available to us. Such forward-looking statements aresubject to risks, uncertainties and other factors that could cause actualresults to differ materially from future results expressed or implied by suchforward-looking statements. This Item 2, “Management’s Discussion and Analysisof Financial Condition and Results of Operations” contains forward-lookingstatements. Important factors that could cause actual results to differmaterially from the forward-looking statements include, among others, the risksdescribed in the section entitled “Risk Factors” under Item 1A in ourAnnual Report on Form 10-K for the year ended December 31, 2009 andsubsequent filings with the Securities and Exchange Commission.  We caution the reader to carefully considersuch factors. Furthermore, such forward-looking statements speak only as of thedate of this report. We undertake no obligation to update any forward-lookingstatements to reflect events or circumstances after the date of suchstatements.

 

**Overview**

 

We are a designer, manufacturer, distributor, worldwide marketer andbrand manager of footwear for men, women and children.  We strive to be the global leader in moldedfootwear design and development.  Wedesign, manufacture and sell a broad product offering that provides new andexciting molded footwear products that feature fun, comfort and functionality.Our products include footwear and accessories that utilize our proprietaryclosed cell-resin, called Croslite.  OurCroslite 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 materialhave been certified by U.S. Ergonomics to reduce peak pressure on the foot,reduce muscular fatigue while standing and walking and to relieve the musculoskeletalsystem.

 

Sincethe initial introduction and popularity of our Beach and Crocs Classic designs,we have expanded our Croslite products to include a variety of new styles andproducts and have extended our product reach through the acquisition of brandplatforms such as Jibbitz, LLC (“Jibbitz”) and Ocean Minded, Inc. (“OceanMinded”).  We intend to continuebranching out into other types of footwear, bringing a unique and originalperspective to the consumer in styles that may be unexpected from Crocs.  In part, we believe this will help us tocontinue to build a stable year-round business as we look to offer morewinter-oriented styles.

 

Ourmarketing efforts surround specific product launches and employ a fullyintegrated approach utilizing a variety of media outlets, including print andonline media and television.  Ourmarketing efforts strive to drive business to both our wholesale partners andour company-operated retail and internet stores, ensuring that our presentationand story are first class and drive purchasing at the point of sale.

 

We currently sell our Crocs-branded products throughout the U.S. and inmore than 100 countries.  We sell ourproducts through domestic and international retailers and distributors anddirectly to end-user consumers through our webstores, Company-operated retailstores, outlets and kiosks. The broad appeal of our footwear has allowed us tomarket our products to a wide range of distribution channels, includingdepartment stores and traditional footwear retailers as well as a variety ofspecialty and independent retail channels.

 

**Presentation of OperatingSegments**

 

Wehave three operating segments: Americas, Europe and Asia.  All of the reportable segments derive theirrevenue from the sale of footwear, apparel and accessories.  We evaluate performance and make decisionsabout allocating resources to our operating segments based on financialmeasures such as revenue and operating income.  We evaluate the performance of our segments based primarily on theresults of the segment without allocating corporate expenses or indirectgeneral, administrative and other expenses. The corporate and other category includes (i) Ocean Minded, (ii) ColoradoFootwear CV, and (iii) corporate category, which maintains corporate costssuch as stock-based compensation, research and development, 

 

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brandmarketing, legal expenses, depreciation on global long-lived assets such asmolds, tooling, IT systems, and other global costs that are not allocatedto the regions.  Segment profits orlosses include adjustments to eliminate intercompany profit or losses onintercompany sales.  Net revenues in thediscussion that follows represent sales to external customers for each segment.

 

**Recent Events**

 

Duringthe three months ended June 30, 2010, revenues increased 15.3%, or $30.3million, compared to the three months ended June 30, 2009 as a result of strongersales in each of our geographic operating segments.  Our diluted earnings per share for the secondquarter of 2010 improved to $0.37 diluted earnings per share compared to thesecond quarter of 2009, when we reported a net loss per diluted share of($0.36).  We believe these financialimprovements are a reflection of our 2009 cost savings initiatives describedbelow, an increased marketing presence and an improved global economic climate.

 

****During 2009, weundertook various cost savings initiatives in an effort to better align ourcost structure with revenue.  These costsavings initiatives included the consolidation of our global distributioncenters; reduction of warehouse space; impairments of certain assets we nolonger intended to utilize, including molds, tooling, equipment and otherassets; reduction in future stock-based compensation expense as a result of atender offer; and reduction in our global workforce.  In addition, during 2009, we executed againsta plan to dispose of excess discontinued and impaired product inventories.  Much of this product had been written down toa level that we considered realizable; however, we were able to sell thisproduct at prices substantially higher than what we had previouslyestimated.  Accordingly, the net effectof these sales was accretive to our gross profit and revenue in 2009.  In the second quarter of 2010, sales ofdiscontinued and impaired product were at more normal levels given seasonalityand historical fluctuations in our business.

 

**General**

 

Revenuesare recorded when products are shipped and the customer takes title and assumesrisk of loss, collection of related receivables are probable, persuasiveevidence of an arrangement exists, and the sales price is fixed ordeterminable. Title passes on shipment or on receipt by the customer dependingon the country of the sale and the agreement with the customer. Allowances forestimated returns and discounts are recognized when related revenue isrecorded. Because we use both internal manufacturing and contract with thirdparties to manufacture our products, our cost of sales represents our costs tomanufacture products in our Company-operated facilities, including rawmaterials costs and all direct overhead expenses related to production, as wellas the cost to purchase finished products from our third-party manufacturersand costs to transport these products to our facilities, inclusive of allwarehouse and outbound freight and duties expenses. Cost of sales also includesdepreciation and amortization of manufacturing assets such as molds andtooling. Our selling, general and administrative expense consists primarily ofwages and related payroll and employee benefit costs for selling, marketing andadministrative employees, unrealized gains or losses on foreign currencyexchange, all non-product retail-related expenses (including rent anddepreciation) and professional fees, facility expenses, bank charges andnon-cash charges for share-based compensation. Selling, general andadministrative expenses also include depreciation and amortization related tonon-product, non-manufacturing assets such as our global information systems.

 

**Results of Operations**

 

**Comparison of the Three Months Ended June 30, 2010 and2009**

** **
| ** **                                        | ** ** | **Three Months Ended June 30,**               | ** ** | **Change** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2010**                                           | ** ** | **2009**   | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                        | ** ** | **(amounts  in thousands, except per share data)** | ** ** | ** ** | ** ** |
| Revenues                                          |       | $                                                  | 228,046    |       | $          | 197,722 |   | $ | 30,324 |   | 15.3 | % |
| Cost  of sales                                    |       | 96,127                                             |       | 96,610     |       | (483 | ) | (0.5 | )% |
| Gross  profit                                     |       | 131,919                                            |       | 101,112    |       | 30,807 |   | 30.5 | % |
| Selling,  general and administrative expenses     |       | 94,047                                             |       | 94,606     |       | (559 | ) | (0.6 | )% |
| Foreign  currency transaction losses (gains), net |       | (1,129                                             | )          | (3,623     | )          | 2,494 |   | 68.8 | % |
| Restructuring  charges                            |       | —                                             |       | 5,915      |       | (5,915 | ) | N/M |   |
| Impairment  charges                               |       | —                                             |       | 23,655     |       | (23,655 | ) | N/M |   |
| Charitable  contributions                         |       | 275                                                |       | 5,078      |       | (4,803 | ) | (94.6 | )% |
| Income  (loss) from operations                    |       | 38,726                                             |       | (24,519    | )          | 63,245 |   | 257.9 | % |
| Interest  expense                                 |       | 163                                                |       | 562        |       | (399 | ) | (71 | )% |
| Other,  net                                       |       | (323                                               | )          | (2,367     | )          | 2,044 |   | 86.4 | % |
| Income  (loss) before income taxes                |       | 38,886                                             |       | (22,714    | )          | 61,600 |   | 271.2 | % |
| Income  tax expense                               |       | 6,602                                              |       | 7,567      |       | (965 | ) | (12.8 | )% |
| Net  income (loss)                                |       | $                                                  | 32,284     |       | $          | (30,281 | ) | $ | 62,565 |   | 206.6 | % |
| Net  income (loss) per diluted share              |       | $                                                  | 0.37       |       | $          | (0.36 | ) | $ | 0.73 |   | N/M |   |
|                                              |       |                                               |       |       |       |   |   |   |   |
| Gross  margin                                     |       | 57.8                                               | %          | 51.1       | %          |   |   |   |   |
| Operating  margin                                 |       | 17.0                                               | %          | (12.4      | )%         |   |   |   |   |

 

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N/M— Not meaningful

 

*Revenues*  Revenuesincreased $30.3 million to $228.0 million in the three months ended June 30,2010, compared to the three months ended June 30, 2009. Total unit salesof footwear products increased by 5.1% and average selling price per pair ofshoes increased $1.96 during the three months ended June 30, 2010 comparedto the same period in 2009, as shown in the table below.  During the three months ended June 30,2009, we sold $23.7 million in end of life and impaired products as we disposedof excess and impaired inventory as described above in “Recent Events”.  The following table sets forth revenue bychannel and by region as well as other revenue information for the secondquarter of 2010 and 2009:

 
| ** **                            | ** ** | **Three months ended June 30,**            | ** ** | **Change** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2010**                                        | ** ** | **2009**   | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(in millions, except average selling price)** | ** ** | ** ** | ** ** |
| Wholesale channel revenue             |       | $                                               | 140.0      |       | $          | 125.0 |   | $ | 15.0 |   | 12.0 | % |
| Retail channel revenue                |       | 66.4                                            |       | 55.3       |       | 11.1 |   | 20.1 | % |
| Internet channel revenue              |       | 21.6                                            |       | 17.4       |       | 4.2 |   | 24.1 | % |
|                                  |       |                                            |       |       |       |   |   |   |   |
| Americas revenue (includes Corporate) |       | $                                               | 104.8      |       | $          | 85.5 |   | $ | 19.3 |   | 22.6 | % |
| Asia revenue                          |       | 88.6                                            |       | 80.0       |       | 8.6 |   | 10.8 | % |
| Europe revenue                        |       | 34.6                                            |       | 32.2       |       | 2.4 |   | 7.5 | % |
|                                  |       |                                            |       |       |       |   |   |   |   |
| Footwear unit sales                   |       | 12.3                                            |       | 11.7       |       | 0.6 |   | 5.1 | % |
| Average selling price                 |       | $                                               | 17.76      |       | $          | 15.80 |   | $ | 1.96 |   | 12.4 | % |

 

Revenuefrom our wholesale channel grew in the three months ended June 30, 2010compared to the three months ended June 30, 2009, particularly in theAmericas and in Asia.  We believe therevenue increase in this channel is due to improved economic conditions andefforts made in 2009 and 2010 to improve our wholesale customer relationships.  Additionally, we believe that heightenedbrand awareness, a result of fully-integrated marketing campaigns during thequarter (described previously in “Overview”), has positively impactedsell-through for our wholesale customers.

 

Revenuefrom our company-operated retail locations increased 20.1% in the three monthsended June 30, 2010 compared to the same period in the previous year,driven by the opening of 53 new company-operated retail locations year overyear.  We plan to close certain kiosksand open more branded stores in the future. The table below sets forth information about the number ofcompany-operated retail locations as June 30, 2010 and 2009:

 
| ** **                                 | ** ** | **As of  June 30,** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **2010**                 | ** ** | **2009** | ** ** | **Change** | ** ** |
| Company-operated retail locations - Total  |       | 363                      |       | 310 |   | 53 |   |
| Type:                                      |       |                     |       |   |   |   |   |
| Crocs Kiosk/Store in Store                 |       | 185                      |       | 188 |   | (3 | ) |
| Crocs Retail Stores                        |       | 110                      |       | 76 |   | 34 |   |
| Crocs Outlet Stores                        |       | 68                       |       | 46 |   | 22 |   |
|                                       |       |                     |       |   |   |   |   |
| Geography:                                 |       |                     |       |   |   |   |   |
| Americas company-operated retail locations |       | 188                      |       | 166 |   | 22 |   |
| Asia company-operated retail locations     |       | 155                      |       | 123 |   | 32 |   |
| Europe company-operated retail locations   |       | 20                       |       | 21 |   | (1 | ) |

 

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Theincrease in revenue from our internet channel was driven by increased sales inour Europe segment, resulting from the addition of local language internetsites for France, Germany, Spain and Italy as well as increased demand for ourproducts overall.  These increases werepartially offset by revenue declines from our internet channel in Asia where wesaw a drop in demand due to prolonged cold weather and an increase in imitationproducts in the region, particularly in Japan.

 

Revenuefrom our combined consumer-direct sales channels, defined as our retail andinternet channels, increased from 36.8% for the three months ended June 30,2009 to 38.6% of revenue in the three months ended June 30, 2010.  As these channels become a larger portion ofour business, we expect to see some improvements in total revenue and grossmargin as we have traditionally been able to achieve a higher average sellingprice in this channel.

 

Themajority of our revenues during the three months ended June 30, 2010 wereattributable to our non-classic footwear models.  Our classic models and core products (definedbelow) have become a smaller portion of our total revenue in recent quarters.Sales of our classic models, core products and new 2010 footwear products as apercentage of our total unit sales is presented in the table below:

 
| ** **                               | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| Classic models (Beach and Crocs Classic) |       | 11.9                                 | %          | 15.8 | % |
| Core products(1)                         |       | 21.3                                 | %          | 30.1 | % |
| New 2010 footwear products               |       | 23.7                                 | %          | N/A |   |

 

----

(1) Coreproducts includes Classic models, Kids Crocs Classic, Athens, Kids Athens, MaryJane, Girls Mary Jane, Mammoth and Kids Mammoth.

 

Averageforeign currency exchange rates during the three months ended June 30,2010 increased revenue by $5.7 million as compared to the three monthsended June 30, 2009.  We expect thatsales in international markets in foreign currencies will continue to representa substantial portion of our overall revenues. Accordingly, changes in foreigncurrency exchange rates could materially affect our overall revenues or thecomparability of those revenues from period to period as a result oftranslating our financial statements into our reporting currency, the U.S.dollar.

 

*Americas Segment - Revenue.*  Our revenues from the Americas segmentincreased 23.1%, or $19.4 million, in the three months ended June 30, 2010compared to the three months ended June 30, 2009, primarily driven byrevenue growth in all channels (wholesale, retail and internet).  Second quarter revenue from company-operatedretail locations in the Americas increased 35.2%, or $10.3 million, to $39.6million in 2010 compared to 2009 as we opened 22 additional company-operatedretail locations in the region.  Wecontinue to execute against plans to grow revenue in the U.S. wholesale channelwhich include, but are not limited to, investments in cooperative advertisingand merchandising assistance for select locations at our largest U.S. wholesaleaccounts.

 

*Asia Segment - Revenue.*  Our revenues in Asia increased 10.8%, or $8.6million, in the three months ended June 30, 2010 compared to the three monthsended June 30, 2009 driven by continued strong demand in our Asiawholesale channel and favorable variances in foreign currency exchange rates,partially offset by a decline in internet revenue as discussed above.  Revenue from company-operated retaillocations in Asia increased 1.3%, or $0.3 million, to $22.7 million in thethree months ended June 30, 2010 compared to the three months ended June 30,2009.  The number of company-operatedretail locations in the region increased by 32 year over year.  Revenue growth from our company-operatedretail locations was negatively affected by a prolonged cold weather season inparts of the region and an increase in imitation products in Japan.

 

*Europe Segment - Revenue.* Our revenues in Europe increased 7.5%, or $2.4million, to $34.6 million in the three months ended June 30, 2010 from$32.2 million for the same period in 2009 driven by increases across allrevenue channels in the region.  Revenuefrom company-operated retail locations was $4.1 million in the three monthsended June 30, 2010 versus $3.5 million for the three months ended June 30,2009 and our company-operated retail locations decreased by 1.

 

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*Gross profit.*Weachieved an increase in our gross profit, from $101.1 million to $131.9million, and gross margin, from 51.1% to 57.8%, for the three months ended June 30,2010 as compared to the three months ended June 30, 2009.  The increase is primarily attributable tofavorable shifts in product mix toward higher margin products as well asrestructuring charges of $5.3 million recognized during the second quarter of2009 as we closed and consolidated our distribution space in North America andEurope.  Additionally, we continue toexecute against our strategy to increase shipments made directly from thefactories to our wholesale customers and our retail channel.  These factory-direct shipments lower ourdistribution cost and, as factory-direct shipment volume increased, we began torealize benefits from this program in the second quarter of 2010.  Offsetting this increase was the accretiveeffect of impaired unit sales that took place during the second quarter of 2009as discussed in “Recent Events.”  The neteffect of these sales during the second quarter of 2009 was $25.3 million. Ourconsumer-direct (internet and retail) channels, which typically yield highermargins than our wholesale channel, stayed flat as a percentage of revenue.

 

Averageforeign currency exchange rates during the three months ended June 30,2010 increased our gross profit by $3.5 million as compared to the three monthperiod ended June 30, 2009.  Weexpect that sales at subsidiary companies with functional currencies other thanthe U.S. dollar will continue to generate a substantial portion of our overallgross profit.  Accordingly, changes inforeign currency exchange rates could materially affect our overall grossprofit or the comparability of our gross profit from period to period as aresult of translating our financial statements into our reporting currency, theU.S. dollar.

 

*Selling, general and administrative expenses andforeign currency transaction losses (gains)*.   Selling, general and administrative expensedecreased 0.6% in the three months ended June 30, 2010 compared to thesame period in 2009, driven primarily by a decrease in stock compensationexpense of $14.0 million, $13.3 million of which was due to the acceleration ofstock-based compensation expense in the second quarter of 2009 related tooptions purchased in our tender offer. The decrease in stock-based compensation expense was offset by anincrease in $11.5 million in selling, general and administrative expenses including:salaries expense, rent and building costs as a result of our continuedexpansion of our retail selling channel, and marketing expense for media andagency costs related to our spring marketing campaign. Selling, general andadministrative expenses for the three months ended June 30, 2010 werefavorably impacted by a net gain on changes in currency exchange rates fortransactions denominated, and settled or to be settled, in a currency otherthan the functional currency of $1.1 million compared to a net gain on changesin currency exchange rates of $3.6 million for the three months ended June 30,2009.

 

Average foreign currency exchange rates used totranslate expenses from our functional currencies to our reporting currency,the U.S. dollar, during the three months ended June 30, 2010 increasedselling, general and administrative expenses by approximately $0.7 million ascompared to the three months ended June 30, 2009.

 

*Restructuring charges*.  We recorded $1.3 million in restructuringcharges in the three months ended June 30, 2010, all of which was recordedto cost of sales.  These restructuringcharges consisted primarily of a change in estimate of our original accrualsfor lease termination costs for our distribution facilities in North Americaand Europe.

 

Forthe three months ended June 30, 2009, we recorded a combined $11.2 millionin restructuring charges, of which $5.3 million was included in costs of salesand $5.9 million was included within operating income.  These charges consisted of:

 

·                  $4.1 million in costs associated with theconsolidation of our warehousing, distribution and office space worldwide;

 

·                  $2.2 million in severance costs;

 

·                  $1.1 million related to the release fromfurther obligations under the earn-out provisions of our acquisition of Bite,LLC; and

 

·                  $3.8 million in other restructuring charges.

 

*Impairment charges.*During thethree months ended June 30, 2009, we recorded $23.7 million in impairment charges.  These charges consisted of:

 

·                  $16.6 million related to the write-off ofobsolete molds, tooling, manufacturing and distribution equipment, sales andmarketing assets and other distribution and manufacturing assets, primarilyassociated with the consolidation of warehouse and distribution space;

 

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·                  $6.5 million related to the write-off ofcapitalized software, patents, trade names and other intangible assets that weno longer intend to utilize; and

 

·                  $0.6 million related to the write-off ofother smaller items.

 

*Income (Loss) from Operations. *During thethree months ended June 30, 2010, we generated income from operations of$38.7 million compared to a loss from operations of $24.5 million for the threemonths ended June 30, 2009, for the reasons stated above.  The following table summarizes operatingincome (loss) by segment for the three months ended June 30, 2010 and 2009(in thousands):

 
| ** **                                  | ** ** | **Three Months Ended June 30,** | ** ** |
|---------------------------------------------|------------|--------------------------------------|------------|
| ** **                                  | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| Operating Income:                           |       |                                 |       |   |   |
| Americas                                    |       | $                                    | 23,423     |   | $ | 5,697 |   |
| Europe                                      |       | 8,049                                |       | 11,241 |   |
| Asia                                        |       | 31,742                               |       | 33,708 |   |
| Total segments                              |       | 63,214                               |       | 50,646 |   |
| SG&A Restructuring                      |       | —                               |       | (5,915 | ) |
| Asset Impairment                            |       | —                               |       | (23,655 | ) |
| Corporate  and other                        |       | (24,488                              | )          | (45,595 | ) |
|                                        |       |                                 |       |   |   |
| Total  consolidated operating income (loss) |       | $                                    | 38,726     |   | $ | (24,519 | ) |

 

*Segments — Operating Margin.*  When compared to the three months ended June 30,2009, we experienced improved operating income in our Americas operatingsegment during the three months ended June 30, 2010 driven by increasedrevenue and operational improvements resulting from cost savings initiativesundertaken in 2009.  The decline in ourEurope segment during the three months ended June 30, 2010, when comparedto the three months ended June 30, 2009, was primarily driven byrestructuring charges recorded to cost of sales related to the change inestimate for lease termination costs at our distribution facility in Europe andthe accretive effect of impaired unit sales that took place during the secondquarter of 2009 as discussed in “Recent Events.”  The decrease in our Asia segment operatingmargin in the three months ended June 30, 2010, when compared to the sameperiod in 2009, was primarily attributable to increased costs associated withthe expansion of our retail selling channel, as discussed previously.

 

*Interest expense*. Interest expense decreased $0.4 million to $0.2 million in the threemonths ended June 30, 2010 compared to $0.6 million in the three monthsended June 30, 2009.  This declinewas driven by lower borrowings under our current asset-backed credit facilityduring the second quarter of 2010 compared with borrowings under our revolvingcredit facility during second quarter of 2009.

 

*Income tax expense*.  During the three months ended June 30,2010, we recognized an income tax expense of $6.6 million on pre-tax income of$38.9 million, compared to income tax expense of $7.6 million on pre-tax lossof $22.7 million for the three months ended June 30, 2009.  The effective tax rate was 17.0% during thethree months ended June 30, 2010.  The change in effective tax rate is primarily the result of the Companyrestructuring its international operations, cost sharing arrangements andrelease of valuation allowances related to net operating losses in variousinternational entities.

 

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**Comparison of the Six Months Ended June 30, 2010 and2009**

** **
| ** **                                        | ** ** | **Six Months Ended June 30,**                 | ** ** | **Change** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2010**                                           | ** ** | **2009**   | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                        | ** ** | **(amounts  in thousands, except per share data)** | ** ** | ** ** | ** ** |
| Revenues                                          |       | $                                                  | 394,898    |       | $          | 332,614 |   | $ | 62,284 |   | 18.7 | % |
| Cost  of sales                                    |       | 176,275                                            |       | 181,771    |       | (5,496 | ) | (3.0 | )% |
| Gross  profit                                     |       | 218,623                                            |       | 150,843    |       | 67,780 |   | 44.9 | % |
| Selling,  general and administrative expenses     |       | 168,825                                            |       | 163,395    |       | 5,430 |   | 3.3 | % |
| Foreign  currency transaction losses (gains), net |       | (1,421                                             | )          | (214       | )          | (1,207 | ) | (564 | )% |
| Restructuring  charges                            |       | 2,539                                              |       | 5,953      |       | (3,414 | ) | (57.3 | )% |
| Impairment  charges                               |       | 141                                                |       | 23,724     |       | (23,583 | ) | (99.4 | )% |
| Charitable  contributions                         |       | 418                                                |       | 5,119      |       | (4,701 | ) | (91.8 | )% |
| Income  (loss) from operations                    |       | 48,121                                             |       | (47,134    | )          | 95,255 |   | 202.1 | % |
| Interest  expense                                 |       | 292                                                |       | 1,257      |       | (965 | ) | (76.8 | )% |
| Other,  net                                       |       | (166                                               | )          | (3,470     | )          | 3,304 |   | 95.2 | % |
| Income  (loss) before income taxes                |       | 47,995                                             |       | (44,921    | )          | 92,916 |   | 206.8 | % |
| Income  tax expense                               |       | 9,994                                              |       | 7,777      |       | 2,217 |   | 28.5 | % |
| Net  income (loss)                                |       | $                                                  | 38,001     |       | $          | (52,698 | ) | $ | 90,699 |   | 172.1 | % |
| Net  income (loss) per diluted share              |       | $                                                  | 0.43       |       | $          | (0.62 | ) | $ | 1.05 |   | N/M |   |
|                                              |       |                                               |       |       |       |   |   |   |   |
| Gross  margin                                     |       | 55.4                                               | %          | 45.4       | %          |   |   |   |   |
| Operating  margin                                 |       | 12.2                                               | %          | (14.2      | )%         |   |   |   |   |

 

N/M— Not meaningful

 

*Revenues*.  For the sixmonths ended June 30, 2010, revenues increased $62.3 million to $394.9million as compared to the six months ended June 30, 2009. Total unitsales of footwear products increased to 22.1 million units, a 2.0 million unitincrease from the same period in 2009. Average selling price per unit of footwear for the six months ended was$17.16, as noted in the table below. During the six months ended June 30,2009, we sold $43.0 million in end of life and impaired products as we disposedof this inventory as described above in “Recent Events”.  The following table sets forth revenue bychannel and by region as well as other revenue information for the first halfof 2010 and 2009:

 
| ** **                            | ** ** | **Six months ended June 30,**              | ** ** | **Change** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2010**                                        | ** ** | **2009**   | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(in millions, except average selling price)** | ** ** | ** ** | ** ** |
| Wholesale channel revenue             |       | $                                               | 260.2      |       | $          | 220.3 |   | $ | 39.9 |   | 18.1 | % |
| Retail channel revenue                |       | 100.8                                           |       | 83.2       |       | 17.6 |   | 21.2 | % |
| Internet channel revenue              |       | 33.9                                            |       | 29.1       |       | 4.8 |   | 16.5 | % |
|                                  |       |                                            |       |       |       |   |   |   |   |
| Americas revenue (includes Corporate) |       | $                                               | 179.0      |       | $          | 153.1 |   | $ | 25.9 |   | 16.9 | % |
| Asia revenue                          |       | 143.4                                           |       | 119.0      |       | 24.4 |   | 20.5 | % |
| Europe revenue                        |       | 72.5                                            |       | 60.5       |       | 12.0 |   | 19.8 | % |
|                                  |       |                                            |       |       |       |   |   |   |   |
| Footwear unit sales                   |       | 22.1                                            |       | 20.1       |       | 2.0 |   | 10.0 | % |
| Average selling price                 |       | $                                               | 17.16      |       | $          | 15.51 |   | $ | 1.65 |   | 10.6 | % |

 

Revenuefrom our wholesale channel was stronger globally in the first quarter of 2010and gained momentum in the second quarter of 2010, as compared to the sameperiod in 2009, particularly in Asia and the Americas. We believe the increaseto be largely the result of improved economic conditions, continuing effortsmade to improve our wholesale customer relationships and market acceptance ofour new spring/summer products.

 

Ourcompany-operated retail locations experienced a 21.2% increase in revenues forthe six months ended June 30, 2010 compared to the same period in theprevious year.  This growth was driven bythe expanded availability of product to our retail customer due to the increasein retail locations year over year (see table above), where we can bettermerchandise the full breadth and depth of our product line.

 

Theincrease in revenue from our internet channel was driven by increased sales inour Europe segment, resulting from  theaddition of local language internet sites in France, Germany, Spain and Italyand increased demand for our products overall. These increases were partially offset by revenue declines from ourinternet channels in Asia due to the factors noted above.

 

Revenuefrom our combined consumer-direct sales channels, defined as our retail andinternet channels, increased from 33.8% for the six months ended June 30,2009 to 34.1% of revenue in the six months ended June 30, 2010.  As these 

 

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channelsbecome a larger portion of our business, we expect to see some improvements intotal revenue and gross margin as we have traditionally been able to achieve ahigher average selling price in this channel.

 

Averageforeign currency exchange rates during the six months ended June 30, 2010contributed $14.9 million to our revenues as compared to the six monthsended June 30, 2009.  We expect thatsales in international markets in foreign currencies will continue to representa substantial portion of our overall revenues. Accordingly, changes in foreigncurrency exchange rates could materially affect our overall revenues or thecomparability of those revenues from period to period as a result oftranslating our financial statements into our reporting currency, the U.S.dollar.

 

*Americas Segment - Revenue.*  Our revenues from the Americas segmentincreased 16.7%, or $25.1 million, in the six months ended June 30, 2010compared to the six months ended June 30, 2009, as a result of increasedrevenue in all channels. The increase in revenues in this segment was driven byvolume and price improvements in our retail and wholesale channels.  Revenue from Company-operated retaillocations in the Americas increased 31.7%, or $14.7 million, to $61.1 millionfor the six months ended June 30, 2010 compared to the six months ended June 30,2009.   Our company-operated retaillocations in the Americas increased by 22 year over year.  We continue to execute against plans to growrevenue in the U.S. wholesale channel as discussed above.

 

*Asia Segment - Revenue.*  Our revenues in Asia increased 20.5%, or$24.4 million, during the six months ended June 30, 2010 compared to thesix months ended June 30, 2009 as a result of continued strong demand inour Asia wholesale channel and price improvements in our retail channel,partially offset by a**decline ininternet revenue.  Revenue fromcompany-operated retail locations in Asia increased 6.0%, or $1.9 million, to$33.7 million in the six months ended June 30, 2010 compared to the sixmonths ended June 30, 2009. Company-operated retail locations in our Asia region grew by 32 yearover year.  Revenue growth from ourcompany-operated retail locations was negatively affected by a prolonged coldweather season in parts of the region and a rise in imitation products inJapan.

 

*Europe Segment - Revenue.* Our revenues in Europe increased 19.8%, or$12.0 million, to $72.5 million in the six months ended June 30, 2010compared to the six months ended June 30, 2009.  The increase was driven by growth across allselling channels in the region.  Revenuefrom company-operated retail locations increased $0.9 million or 18.0% to $5.9million in the six months ended June 30, 2010 compared to the six monthsended June 30, 2009.

 

*Gross profit*.Increases in gross profit, from $150.8 million to $218.6 million, and grossmargin, from 45.4% to 55.4%, for the six months ended June 30, 2010compared to the six months ended June 30, 2009 were attributable tofavorable shifts in product mix and volumes. Additionally, we continue toexecute against our strategy to increase shipments made directly from thefactories to our wholesale customers and our retail channel.  These factory-direct shipments lower ourdistribution cost and, as factory-direct shipment volume increased, we began torealize benefits from this program in the first half of 2010.  The increase is also attributable torestructuring charges of $5.3 million, recognized in the second quarter of2009, as we closed and consolidated our distribution space in North America andEurope.

 

Averageforeign currency exchange rates during the six months ended June 30, 2010increased our gross profit by $8.2 million as compared to the six months ended June 30,2009.  We expect that sales at subsidiarycompanies with functional currencies other than the U.S. dollar will continueto generate a substantial portion of our overall gross profit.  Accordingly, changes in foreign currencyexchange rates could materially affect our overall gross profit or thecomparability of our gross profit from period to period as a result oftranslating our financial statements into our reporting currency, the U.S.dollar.

 

*Selling, general and administrative expenses andforeign currency transaction losses (gains)*.   Selling, general and administrative expenseincreased $5.4 million or 3.3% in the six months ended June 30, 2010compared to the six months ended June 30, 2009.  The increase is primarily due to an increaseof $18.0 million in marketing expense for media and agency costs related to ourspring marketing campaign, salaries expense, and rent and other retail-relatedcosts largely driven by the continued expansion of our retail sellingchannel.  Offsetting these increases wasa $16.2 million decline in stock-based compensation, $13.3 million of which wasdue to the acceleration of stock-based compensation expense from our 2009tender offer.  Selling, general andadministrative expenses for the six months ended June 30, 2010 werefavorably impacted by a net gain on changes in currency exchange rates fortransactions denominated, and settled or to be settled, in a currency otherthan the functional currency of $1.4 million compared to a net gain on changesin currency exchange rates of $0.2 million for the six months ended June 30,2009.

 

Changes in the average foreign currency exchangerates used to translate expenses from our functional currencies to our reportingcurrency, the U.S. dollar, from the first half of 2009 to the same period in2010 increased selling, general and administrative expenses by approximately$2.8 million.

 

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*Restructuring charges*.  We recorded $3.8 million in restructuringcharges in the six months ended June 30, 2010, of which $1.3 million wasrecorded to cost of sales.  Theserestructuring charges consisted of $2.0 million in severance costs related tothe departure of our former Chief Executive Officer, John Duerden, during thefirst quarter of 2010 as well as $1.8 million which was related to a change inestimate of our original accruals for lease termination costs for our Canadianoffice, closed in 2008, and our distribution facilities in North America andEurope.

 

Forthe six months ended June 30, 2009, we recorded a combined $11.2 millionin restructuring charges, of which $5.3 million was included in costs of salesand $5.9 million was included within operating income.  These charges consisted of:

 

·                  $4.1 million in costs associated with theconsolidation of our warehousing, distribution and office space worldwide;

 

·                  $2.2 million in severance costs;

 

·                  $1.1 million related to the release fromfurther obligations under the earn-out provisions of our acquisition of Bite,LLC; and

 

·                  $3.8 million in other restructuring charges.

 

*Impairment charges.*During thethree months ended June 30, 2009, we recorded $23.7 million in impairment charges.  These charges consisted of:

 

·                  $16.6 million related to the write-off ofobsolete molds, tooling, manufacturing and distribution equipment, sales andmarketing assets and other distribution and manufacturing assets, primarilyassociated with the consolidation of warehouse and distribution space;

 

·                  $6.5 million related to the write-off ofcapitalized software, patents, trade names and other intangible assets that weno longer intend to utilize; and

 

·                  $0.6 million related to the write-off ofother smaller items.

 

*Income (Loss) from Operations. *We generatedincome from operations of $48.1 million for the first six months of 2010compared to a loss from operations of $47.1 million for the six months ended June 30,2009, for the reasons stated above.  Thefollowing table summarizes operating income (loss) by segment for the sixmonths ended June 30, 2010 and 2009 (in thousands):

 
| ** **                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|
| ** **                                 | ** ** | **2010**                           | ** ** | **2009** | ** ** |
| Operating Income:                          |       |                               |       |   |   |
| Americas                                   |       | $                                  | 34,657     |   | $ | 7,923 |   |
| Europe                                     |       | 17,675                             |       | 12,224 |   |
| Asia                                       |       | 44,278                             |       | 29,877 |   |
| Total segments                             |       | 96,610                             |       | 50,024 |   |
| SG&A Restructuring                     |       | (2,539                             | )          | (5,953 | ) |
| Asset Impairment                           |       | (141                               | )          | (23,724 | ) |
| Corporate and other                        |       | (45,809                            | )          | (67,481 | ) |
| Total consolidated operating income (loss) |       | 48,121                             |       | (47,134 | ) |
|                                            |            |                                    |            |  |  |  |  |

 

*Segments — Operating Margin.*  We experienced higher operating income ineach of our operating segments during the six months ended June 30, 2010compared to the first six months ended June 30, 2009.  These improvements were driven by increasedrevenue in each of our segments compared to the first six months of 2009 aswell as cost savings initiatives undertaken in 2009, as discussed in “RecentEvents”.

 

*Interest expense*. Interest expense decreased $1.0 million to $0.3 million in the sixmonths ended June 30, 2010 compared to $1.3 million in the six monthsended June 30, 2009.  This declinewas driven by lower borrowings under our current asset-backed credit facilityin the first six months of 2010 compared with borrowings under our revolvingcredit facility during the first six months of 2009.

 

*Income tax expense*.  During the six months ended June 30,2010, we recognized an income tax expense of $10 million on 

 

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pre-tax income of $48million, compared to income tax expense of $7.8 million on pre-tax loss of$44.9 million for the six months ended June 30, 2009.  The effective tax rate was 20.8% for the sixmonths ended June 30, 2010.   Thechange in effective tax rate is primarily the result of the Companyrestructuring its international operations, cost sharing arrangements andrelease of valuation allowances related to net operating losses in variousinternational entities.

 

**Liquidityand Capital Resources**

 

AtJune 30, 2010, we had $96.9 million in cash and cash equivalents. Weanticipate that cash flows from operations will be sufficient to meet theongoing needs of our business for the next 12 months.  In order to provide additional liquidity inthe future and to help support our strategic goals, we also have anasset-backed revolving line of credit, which provides us with up to $30 millionin borrowings. We entered into this Revolving Credit and Security Agreementwith PNC Bank, N.A. (the “Credit Agreement”), on September 25, 2009.  The Credit Agreement matures on September 25,2012 and provides for borrowings of up to $30 million in total, which includesa $17.5 million sublimit for borrowings against our eligible inventory, a $2million sublimit for borrowings against our eligible inventory in-transit, anda $4 million sublimit for letters of credit. The total borrowings available under the Credit Agreement at any giventime are subject to customary reserves and reductions to the extent our assetborrowing base changes.  Borrowings underthe Credit Agreement are secured by all of our assets, including allreceivables, equipment, general intangibles, inventory, investment property,subsidiary stock and leasehold interests. The Credit Agreement requires us to prepay borrowings under the CreditAgreement in the event of certain dispositions of property.

 

Withrespect to domestic rate loans, principal amounts outstanding under the CreditAgreement bear interest at a two percent (2%) premium over a rate that is thegreater of either (i) PNC’s published reference rate, (ii) theFederal Funds Open Rate (as defined in the Credit Agreement) in effect on suchday plus one half of one percent (0.5%) or, (iii) the sum of the dailyLIBOR rate and one percent (1.0%). Eurodollar denominated principal amounts outstanding under the CreditAgreement bear interest at the sum of three and one half percent (3.50%)premium over a rate that is the greater of (i) the Eurodollar rate, or (ii) oneand one half percent (1.50%) with respect to Eurodollar loans, asapplicable.   The Credit Agreementrequires monthly interest payments with respect to domestic rate loans and atthe end of each period with respect to Eurodollar rate loans.

 

Asof June 30, 2010, we had no outstanding borrowings under the CreditAgreement and were in compliance withfinancial covenants under the Credit Agreement. Additional futurefinancing may be necessary; however, due to current macroeconomic conditionsand their affect on the global credit markets, there can be no assurance thatwe will be able to secure additional debt or equity financing on termsacceptable to us or at all.

 

Our accounts receivable balance as of June 30,2010 was $94.0 million, an increase of $26.9 million compared to the balance asof June 30, 2009.  The increase inaccounts receivable was driven by higher sales in the second quarter of 2010when compared to the second quarter of 2009. Days sales outstanding increased from 30.9 days at June 30, 2009 to37.5 days at June 30, 2010.  Thisincrease was largely the result of product shipments late in the second quarterof 2010.  Compared to December 31,2009, our accounts receivable balance increased $43.5 million.  This increase is primarily attributable tothe increase in revenues during the second quarter of 2010 when compared to thethree months ended December 31, 2009.

 

We are a global business with operations in manydifferent countries, which requires cash accounts to be held in variousdifferent currencies. The global market has recently experienced manyfluctuations in foreign currency exchange rates which impacts our results ofoperations and cash positions.  Thefuture fluctuations in foreign currencies may have a material impact on ourcash flows and capital resources.  Cashbalances held in foreign countries have additional restrictions and covenantsassociated with them, which adds increased strains on our liquidity and abilityto timely access and transfer cash balances between entities.

 

We consider unremitted earnings of subsidiariesoperating outside of the U.S. to be indefinitely reinvested and it is not ourcurrent intent to change this position. However, most of the cash held outside of the U.S. could berepatriated 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 somecountries, repatriation of certain foreign balances is restricted by local lawsand could have adverse tax consequences if we were to move the cash to anothercountry.   Certain countries, includingChina, have monetary laws which may limit our ability to utilize cash resourcesin those countries for operations in other countries.   These limitations may affect our ability tofully utilize our cash resources for needs in the U.S. or other countries andmay adversely affect our liquidity.  Asof June

 

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30,2010, we held $84.4 million of our total $96.9 million in cash in internationallocations.  This cash is primarily usedfor the ongoing operations of the business in the locations in which the cashis held.  Of the $84.4 million, $28.0million could potentially be restricted, as described above.  If the remaining $56.4 million were to berepatriated to the U.S., we would be required to pay approximately $2.8 millionin international withholding taxes with no offsetting credit.  We believe that we have sufficient U.S. netoperating losses (“NOLs”) to absorb any future increases to U.S. net income(and therefore, U.S. federal income tax) brought about by potential cashrepatriation.  There are full valuationallowances on the NOLs that would be released to result in no tax effect orcash tax payments for the U.S. if we were to repatriate $53.6 million in cashto the U.S. as of June 30, 2010.

 

We have entered into various operating leases thatrequire cash payments on a specified schedule. Over the next five years we will make payments of $119.2 million relatedto our operating leases.  We plan tocontinue to enter into operating leases related to our retail stores.  We also continue to evaluate cost reductionopportunities.  Our evaluation of costreduction opportunities will include an evaluation of contracts forsponsorships, operating lease contracts and other contracts that require futureminimum payments resulting in fixed operating costs.  Any changes to these contracts may requireearly termination fees or other charges that could result in significant cashexpenditures.

 

Ourinventories increased to $113.6 million at June 30, 2010 from$93.3 million as of December 31, 2009 largely driven by seasonalityas we prepared for our peak selling season.

 

During the three and six months ended June 30,2010 and 2009, we had net capital expenditures of $11.0 million and $18.8million and $9.7 million and $14.1 million, respectively.  We will continue to makeongoing capital investments in molds and other tooling equipment related tomanufacturing new products and footwear styles as well as those related toopening additional retail stores. We continue to evaluate our software needsand may continue to spend on upgrades or improvements to current systems or mayimplement new systems as our business needs require.

 

**Seasonality**

 

Due to the seasonal nature of our product, which is more heavilyfocused on footwear styles suitable for warm weather,  revenues generated during our first andfourth quarters are typically less than revenues generated during our secondand third quarters, when the northern hemisphere is experiencing warmerweather.  We intend to continue branchingout into other types of footwear, including offering more winter-orientedstyles, and this product expansion may help us mitigate some of thisseasonality in the future.  Our quarterlyresults of operations may fluctuate significantly as a result of a variety ofother factors, including the timing of new model introductions or generaleconomic or consumer conditions. Accordingly, results of operations and cash flows for any one quarterare not necessarily indicative of results to be expected for any other quarteror for any other year.

 

**CriticalAccounting Policies and Estimates**

 

Fora discussion of accounting policies that we consider critical to our businessoperations and understanding of our results of operations, and that affect themore significant judgments and estimates used in the preparation of ourunaudited condensed consolidated financial statements, see Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Policies” contained in our annual report on Form 10-Kfor the year ended December 31, 2009 and incorporated by reference herein.

 

**SignificantAccounting Policies and Estimates**

 

Fora discussion of accounting policies that we consider significant to ourbusiness operations and understanding of our results of operations, see Note 2 —“Summary of Significant Accounting Policies” to our consolidated financialstatements contained in our annual report on Form 10-K for the year ended December 31,2009 and incorporated by reference herein.

 

EffectiveJanuary 1, 2010, we changed our inventory valuation method for allinventories from the first-in, first-out (“FIFO”) cost method to the movingaverage cost method, which approximates FIFO.  We believe the change tothe moving average cost method is preferable under the circumstances becausethe moving average methodology results in better alignment with the physicalflow of inventory than the FIFO methodology, it is calculated by our inventoryinformation system, which incorporates automated controls, and is also themethod management uses when preparing budgets, reviewing actual and forecastedfinancial information, as well as the method used in determining incentive managementcompensation.  The moving average cost results substantially in the sameresults of operations per period.  Assuch, financial statements for periods ending on or before December 31,2009 have not been retroactively adjusted due to immateriality. The impact ofthe 

 

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change for the three monthand six month period ended June 30, 2010 is also immaterial.  We do not believe the change will have asignificant impact on our financial statements in the future.

 

**ITEM 3. Quantitative and Qualitative Disclosures About Market Risk**

 

*Credit and Interest Rate Risk*

 

Weare exposed to interest rate risk to the extent that interest rates change dueto inflation or other factors. This exposure is directly related to our normaloperating and funding activities.  Aspreviously discussed, on September 25, 2009, we entered into the CreditAgreement with PNC for an asset-backed revolving credit facility which providesfor borrowings of up to $30.0 million in total, subject to certainrestrictions. With respect to domestic rate loans, principal amountsoutstanding under the Credit Agreement will bear interest at a two percent (2%)premium over a rate that is the greater of either (i) PNC’s publishedreference rate, (ii) the Federal Funds Open Rate (as defined in the CreditAgreement) in effect on such day plus one half of one percent (0.5%), or (iii) thesum of the daily LIBOR rate and one percent (1.0%).  Eurodollar denominated principal amountsoutstanding under the Credit Agreement will bear interest at the sum of threeand one half percent (3.50%) premium over a rate that is the greater of (i) theEurodollar rate, or (ii) one and one half percent (1.50%) with respect toEurodollar loans, as applicable.   TheCredit Agreement requires monthly interest payments with respect to domesticrate loans and at the end of each period with respect to Eurodollar rateloans.  Since we currently have nooutstanding borrowings as of June 30, 2010 under the Credit Agreement, achange in prevailing interest rates in the near term will not materially affectour overall results.

 

Weearned interest income of $0.3 million on our cash and cash equivalents duringthe three months ended June 30, 2010. Currently, our sensitivity to market fluctuations in interest rates isnot material to our overall results.

 

*Foreign Currency Exchange Risk*

 

Wehave significant revenues from foreign sales in recent periods.  While the majority of expenses attributableto our foreign operations are paid in the functional currency of the country inwhich such operations are conducted, we pay the majority of our overseasthird-party manufacturers in U.S. dollars. Our ability to sell our products inforeign markets and the U.S. dollar value of the sales made in foreigncurrencies can be significantly influenced by foreign currencyfluctuations.  We are primarily exposedto changes in exchange rates for the Japanese Yen and the Euro.  In the event our foreign sales and purchasesincrease and are denominated in currencies other than the U.S. dollar, ouroperating results may be affected by fluctuations in the exchange rate ofcurrencies we receive for such sales. We engage in foreign exchange hedgingcontracts to reduce our transactional exposure to changes in exchange rates andto hedge specific commitments and anticipated transactions but not forspeculative or trading purposes.  Theseforeign exchange hedging contracts are accounted for as derivatives designatedas non hedging instruments in accordance with accounting standards forderivatives and hedging.  The fair valueof these instruments at June 30, 2010 and December 31, 2009 were $0.1million and $0 in liabilities, respectively. The change in the value of these instruments is immediately recognizedin earnings.  The impact of suchinstruments is included in other expense (income), net.

 

**ITEM 4. Controls and Procedures**

 

***Evaluation of Disclosure Controls andProcedures***

 

Underthe supervision of and with the participation of our senior management,including our Chief Executive Officer and Chief Financial Officer, we conductedan evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of the end of the period covered bythis quarterly report (the “Evaluation Date”). Based on this evaluation, ourChief Executive Officer and Chief Financial Officer concluded that as of theEvaluation Date, our disclosure controls and procedures were effective, suchthat 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 thetime periods specified in SEC rules and forms, and (ii) isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosure.

 

***Changes in Internal Control over FinancialReporting***

 

Therehave been no changes to our internal control over financial reporting duringthe three months ended June 30, 2010 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II—OTHERINFORMATION**

 

**ITEM 1.  LegalProceedings**

 

OnMarch 31, 2006, the Company filed a complaint with the InternationalTrading Commission (“ITC”) against Acme Ex-Im, Inc., AustraliaUnlimited, Inc., Cheng’s Enterprises, Inc., Collective LicensingInternational, LLC, D. Myers & Sons, Inc., Double DiamondDistribution, Ltd., Effervescent, Inc., Gen-X Sports, Inc.,Holey Soles Holdings, Ltd., Inter-Pacific Trading Corporation, andShaka Holdings, Inc., alleging patent and trade dress infringement andseeking an exclusion order banning the importation and sale of infringingproducts. On August 10, 2006, the Company filed a motion to voluntarilyremove its trade dress claim from the investigation to focus on the patentclaims. The Company’s motion was granted by Order No. 20 on August 24,2006. The utility and design patents asserted in the complaint were issued tothe Company on February 7, 2006 and March 28, 2006 respectively, bythe United States Patent and Trademark Office. The ITC has issued finaldeterminations terminating Shaka Holdings, Inc., Inter-PacificTrading Corporation, Acme Ex-Im, Inc., D. Myers &Sons, Inc., Australia Unlimited, Inc. and Gen-X Sports, Inc.from the ITC investigation No. 337-TA-567 on the basis of settlement andCheng’s Enterprises, Inc. on the suspension of accused activities. The ITCAdministrative Law Judge (“ALJ”) issued an Initial Determination ofnon-infringement related to one of the patents at issue. The Company filed apetition with the Commission to review this determination. The Commission grantedthe Company’s petition and on February 15, 2007, after briefing by theparties, the Commission vacated the ALJ’s determination of non-infringementwith respect to the remaining respondents and remanded it to the ALJ forfurther proceedings consistent with the Commission’s order. In light of theCommission’s Order, the procedural schedule and hearing date were resetpursuant to Order No. 38. A trial was held before the ALJ fromSeptember 7 to 14, 2007. The ALJ issued an Initial Determination on April 11,2008 with a finding of no violation, finding infringement of the utility patentby certain accused products, but also finding that the utility patent wasinvalid as obvious. The ALJ also found that the design patent was valid, butnot infringed by the accused products. The Company filed a Petition for Reviewof the Initial Determination which was due on April 24, 2008. OnJune 18, 2008, the Commission issued a Notice that it would review the ALJ’sfindings in the Initial Determination with respect to the determination ofnon-infringement of the design patent and the determination of invalidity ofthe utility patent. On July 25, 2008, the Commission issued a Notice ofits decision to terminate the Investigation with a finding of no violation asto either patent. Crocs filed a Petition for Review of the decision with theUnited States Court of Appeals for the Federal Circuit on September 22,2008, and filed its initial brief on January 21, 2009. Briefing before theFederal Circuit was completed in April 2009 and oral arguments were heardon July 10, 2009. On October 4, 2009, the Company and CollectiveLicensing International, LLC reached a settlement. Collective LicensingInternational, LLC agreed to cease and desist infringing on the Company’spatents and to pay the Company certain monetary damages, which was recordedupon receipt. On February 24, 2010, the Federal Circuit found that theCommission erred in finding that the utility patent was obvious and reversedthe Commission’s determination of non-infringement of the design patent. Thecase has been remanded back to the Commission for a determination ofinfringement of the utility patent and any appropriate remedies.  On April 12, 2010, one of the remainingparties, Effervescent, Inc., filed a request for a panel or en banchearing with the Federal Circuit of the February 24, 2010 decision, towhich the Company responded on April 28, 2010. The Federal Circuit deniedthe petition on May 20, 2010 and the matter has been remanded to theITC.  On July 6, 2010, the Commission ordered the matter tobe assigned to an ALJ for a determination on enforceability.

 

OnDecember 8, 2009, Columbia Sportswear Company (“Columbia”) filed anAmended Complaint adding the Company as a defendant in a case between Columbiaand Brian P. O’Boyle and 1 Pen. Inc. in the Multnomah County Circuit Court inthe State of Oregon. Columbia asserted claims against the Company formisappropriation of trade secrets, aiding and abetting breach of fiduciaryduty, intentional interference with contract, injunctive relief, disgorgementand an accounting. The Amended Complaint sought damages in an unspecifiedamount, return of patent rights, reasonable attorney’s fees and costs andexpenses against the Company. The Company and Columbia settled all issuesbetween them and Columbia dismissed with prejudice all claims against theCompany in exchange for certain monetary and other considerations.

 

TheCompany is subject to other litigation from time to time in the ordinary courseof business, including employment, intellectual property and product liabilityclaims, the Company is not party to any other pending legal proceedings thatthe Company believes will have a material adverse impact on its business.

 

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**ITEM 1A.  RiskFactors**

 

Therehave been no material changes to the risk factors contained in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**ITEM 2.  UnregisteredSales of Equity Securities and Use of Proceeds.**

 

**ISSUER PURCHASES OF EQUITY SECURITIES**

 
| **Period**                                       | ** ** | **Total  Number  of Shares  (or Units)  Purchased** | ** ** | **Average  Price  Paid per  Share  (or Unit)** | ** ** | **Total Number  of Shares  (or Units)  Purchased as  Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares (or Units)  that May Yet Be  Purchased Under  the Plans or  Programs (2)** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1,  2010—April 30, 2010     |       | —                                              |       | —                                         |       | —                                                                                                       |       | 5,476,000                                                                                                                                   |       |
| May 1,  2010—May 31, 2010         |       | —                                              |       | —                                         |       | —                                                                                                       |       | 5,476,000                                                                                                                                   |       |
| June 1,  2010—June  30, 2010 |       | 15,674                                              | (1)        | $                                              | 11.80      |                                                                                                         | —     |                                                                                                                                        | 5,476,000  |   |
| Total                                            |       | 15,674                                              |       | $                                              | 11.80      |                                                                                                         | —     |                                                                                                                                        | 5,476,000  |   |

 

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(1)          On November 13, 2009,the Compensation Committee of our Board of Directors approved “withhold tocover” as a tax payment method for vesting of restricted stock awards for ournamed executive officers.  Pursuant to an election for “withhold to cover”made on June 15, 2010 by one of our named executive officers, which wasoutside of a publicly-announced repurchase plan, 15,674 shares were withheld atan average price paid per share of $11.80.

 

(2)          On November 1, 2007 andApril 14, 2008, our Board of Directors approved an authorization torepurchase up to one million shares and five million shares, respectively, ofour common stock.  As of June 30,2010, 5,476,000 shares remained available for repurchase under our sharerepurchase authorization.  Sharerepurchases under this authorization may be made in the open market or inprivately negotiated transactions.  Therepurchase authorization does not have an expiration date and does not obligeus to acquire any particular amount of our common stock.  The repurchase authorization maybe bemodified, suspended or discontinued at any time.

 

**ITEM 6.  Exhibits.**

 

**Exhibit List**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                             |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1**               |       | Restated Certificate of  Incorporation of Crocs, Inc.                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                        |
| 3.2**               |       | Amended and Restated  Bylaws of Crocs, Inc.                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                        |
| 4.1*                |       | Specimen common stock  certificate.                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                        |
| 10.1††    |       | Employment Agreement dated  May 18, 2009 by and between Crocs, Inc. and Daniel Hart                                                                                                                               |
|                |       |                                                                                                                                                                                                                        |
| 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 Chief  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. |

 

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| 32†† |   | Certification of the Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act. |
|----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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*                                         Incorporatedherein by reference to Crocs, Inc.’s Registration Statement onForm S-1, filed on August 15, 2005 (File No. 333-127526).

 

**                                  Incorporated byreference to Crocs, Inc.’s Registration Statement on Form S-8, filedon March 9, 2006 (File No. 333-132312).

 

††                                    Filed herewith.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                       | CROCS, INC. |
|----------------------------|------------------|
|                       |             |   |
| Date:  August 5, 2010 | By:              | /s/ Russell C. Hammer |
|                       |             | Name: | Russell C. Hammer |
|                       |             | Title: | *Chief  Financial Officer, Senior Vice President—Finance and Treasurer* |

 

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