EDGAR 10-K Filing

Company CIK: 1334036
Filing Year: 2023
Filename: 1334036_10-K_2023_0001334036-23-000015.json

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ITEM 1. BUSINESS
ITEM 1. Business
The Company
Crocs, Inc. and our consolidated subsidiaries (collectively, the “Company,” “we,” “us,” or “our”) are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear, combining comfort and style with a value that consumers want.
On February 17, 2022 (the “Acquisition Date”), we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” The majority of HEYDUDE sales are currently in the United States.
The consolidated results reported for the year ended December 31, 2022 represent the Crocs Brand and ‘Enterprise corporate’ for the full year and the HEYDUDE Brand for the partial period beginning on the Acquisition Date through December 31, 2022 (the “Partial Period”); for the years ended December 31, 2021 and 2020, the results represent the Crocs Brand and ‘Enterprise corporate’ only.
Our reportable operating segments include: (i) North America for the Crocs Brand, operating throughout the United States of America (the “United States” or the “U.S.”) and Canada, (ii) Asia Pacific for the Crocs Brand, operating throughout Asia, Australia, and New Zealand; (iii) Europe, Middle East, Africa, and Latin America (“EMEALA”) for the Crocs Brand; and (iv) the HEYDUDE Brand, which are discussed in more detail in “Business Segments and Geographic Information” below. Within the regions in which we operate, we prioritize six core markets for the Crocs Brand where we believe the greatest opportunities for growth exist: (i) China, (ii) India, (iii) Japan, (iv) South Korea, (v) the U.S., and (vi) Western Europe.
Our Vision
At the heart of our brands is our consumers. We have brands, with a broad democratic appeal and accessible price points, which are aligned with global megatrends such as casualization and personalization. The philosophy and vision for our brands has been an important driver of our results and, we believe, will continue to be important as we strive to realize the full potential of our brands. To that end, in 2022, we continued our message of “Come As You Are” in all regions and channels for the Crocs Brand. During the year, we added the HEYDUDE Brand to our portfolio, which we believe is an ideal fit with the Crocs Brand and long-term consumer trends given its focus on casualization, comfort-led functionality, sustainability, and personalization.
Our growth framework is driven by five strategic areas of focus:
•Growing digital sales - Digital sales include sales directly to consumers through our company-owned websites, third-party marketplaces, and wholesale sales to our global e-tailers. Our digital sales in 2022 were 37.8% of consolidated revenues, compared to 36.7% and 41.5% of consolidated revenues in 2021 and 2020, respectively.
•Gaining sandals market share for the Crocs Brand - Sandals have long been a focus of the Crocs Brand as a large and accessible growth avenue for the brand. We believe sandals are a natural extension of the Crocs Brand and allow us to access new consumers by leveraging our signature molding technology to provide casual, comfortable footwear for a variety of wearing occasions.
•Increasing awareness and distribution for the HEYDUDE Brand - We acquired HEYDUDE in February 2022 and have embarked, and plan to continue to embark, on various marketing activities to drive higher awareness. We have also entered into a lease not yet commenced for a new HEYDUDE distribution center in Las Vegas, Nevada, to expand our distribution capabilities of the HEYDUDE Brand.
•Growth opportunities internationally - As a company with a well-established global footprint, we believe we have a long-term sales growth opportunity internationally. Our international sales in 2022 were 29.4% of consolidated revenues, compared to 32.8% and 39.9% of consolidated revenues in 2021 and 2020, respectively. This includes sales in 2022 for the HEYDUDE Brand, which operates primarily in the United States. Our six core markets for the Crocs Brand include five international markets, and more specifically, four markets in Asia: China, India, Japan, and South Korea. Additionally, we intend to further expand the HEYDUDE Brand in Europe beginning in 2023.
•Ongoing product and marketing innovation - At the heart of our Crocs Brand’s DNA are our clogs, sandals, and Jibbitz™ charms, which are key product pillars that we believe will drive long-term growth. We continue to grow our clog silhouette with new colors, graphics, licensed images, embellishments, and accessories, such as Jibbitz™ charms, for personalization. The addition of the HEYDUDE Brand to our portfolio provides an innovative loafer concept that is differentiated through quality and comfort. From a marketing perspective, we continue to invest in globally integrated digital advertising campaigns, as well as designer, celebrity and influencer, and brand partnerships.
Products
Since we first introduced a single-style clog in six colors in 2002, we have grown to be a world leader of innovative, casual footwear for women, men, and children. We offer a broad portfolio of all-season products, while remaining true to our core casual footwear heritage.
Crocs Brand
Recognized globally for our unmistakable iconic molded clog silhouette, we have taken the successful formula of a simple design aesthetic, paired it with modern comfort, and expanded into a wide variety of casual footwear products including sandals-wedges, flips, and slides-that meet the needs of the whole family. Our mission of “everyone comfortable in their own shoes” continued in 2022 as we repeatedly brought our consumers new silhouettes, compelling collaborations, trend-right colors and graphics, and increased personalization through our Jibbitz™ charms accessories.
The vast majority of Crocs™ shoes feature Croslite™ material, a proprietary, revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight, non-marking, and odor-resistant qualities that our fans know and love. We also use Croslite™ material formulations in connection with material technologies used in our visible comfort collections, such as our LiteRide™ products. LiteRide™ features comfort-focused, proprietary foam insoles which are soft, lightweight, and resilient.
HEYDUDE Brand
In 2022, we added HEYDUDE to our portfolio, whose shoes have a versatile silhouette with many wearing occasions that focus on casualization, comfort-led functionality, and personalization. HEYDUDE utilizes leading technologies including a flex-and-fold outsole and ergonomic insole. The shoes are known for being lightweight, flexible, and soft, with design and functional flexibility for convenience.
Marketing
Each season, we focus on presenting compelling brand stories and experiences for our new product introductions as well as our on-going core products. We employ social and digital marketing centered on showcasing our clog and sandal silhouettes and our Jibbitz™ charms for the Crocs Brand and our versatile loafer silhouette for the HEYDUDE Brand. We continue to invest in globally integrated marketing campaigns, as well as designer, celebrity and influencer, and brand partnerships, ranging from popular artists like Luke Combs to a wide range of well-known brands such as 7-Eleven. Innovation is not only core to our brands’ values; it is at the forefront of how we drive consumer acquisition and engagement. We strive to listen and respond quickly to our customers to give them new and innovative reasons to continue to choose the Crocs Brand and HEYDUDE Brand. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for information on total marketing costs for the year.
Environmental, Social, and Governance (“ESG”) Initiatives
As one of the world’s largest footwear companies, we strive to make a positive impact on the global footwear industry, for people, and for our planet. An explanation of our progress toward more transparent, socially conscious, and sustainable business practices will be provided in our fiscal year 2022 ESG report, which is expected to be published in the first half of 2023. Our ESG report will be made available on the Investor Relations section of our website located at www.investors.crocs.com. Except where specified otherwise, all information in the forthcoming ESG report and below ESG discussion pertains to Crocs, Inc. as of December 31, 2022. The content provided in our ESG Report or accessible through our website is not incorporated by reference as part of this Annual Report on Form 10-K.
We intend to continuously advance our business practices towards our goal of consistently delivering products that exceed customer and consumer expectations with neither undue degradation to the planet nor harm to the communities with which we interact globally as part of our effort to create a more comfortable world for all. We believe the progress of our ESG efforts is
best understood by disclosing measurable and relevant goals and metrics, and, to this end, we continue to align our reporting with the Sustainability Accounting Standards Board (“SASB”) framework.
Environmental
We are committed to reducing our impact on the environment and are particularly focused on carbon reduction, sustainable operations, and product circularity.
In 2022, we completed our first Greenhouse Gas inventory of the Crocs Brand based on 2021 data. We are in the process of redefining our 2021 baseline to account for the HEYDUDE Brand and completing our 2022 Greenhouse Gas inventory for the full enterprise as we continue on our journey to Net Zero. In the past year, we continued the integration of a new, more sustainable bio-based alternative for our Croslite™ materials in partnership with Dow Chemical’s new ECOLIBRIUM™ Technology; renewed our membership with the Sustainable Apparel Coalition; and continued to enhance our tracking of our energy use, water use, and waste generation. More detail on these initiatives, as well as our ambitions, will be provided in our upcoming ESG report.
Social
As of December 31, 2022, we employed nearly 6,680 employees globally, including approximately 3,480 employees in our retail stores, 1,880 employees at our corporate/regional offices, and 1,320 employees at our distribution centers.
We believe we have among the most talented workforce in the footwear industry and continue to improve and implement new initiatives to remain an employer of choice across all of our businesses and geographies. These initiatives include pay transparency in hiring, offering employee training and developing leadership capabilities, enabling meaningful professional experiences, offering a compelling employee value proposition and fair wages, and creating a collaborative culture that “celebrates one-of-a-kinds and stands together with all different kinds.” Crocs, Inc. strives to create a culture of inclusion through progressive people-practices that support and empower all employees regardless of gender, age, race, ethnicity, national origin, disability, religion, immigration status, or sexual orientation, gender identity, or expressions. We are proud of the workplace culture we have created and will continue to engage our employees to hear where we still have room for improvement. To that end, our regular employee engagement scores continue to meet or surpass industry benchmarks and reflect a highly engaged global workforce.
Our efforts around inclusion, collaboration, and human rights extend through our supply chain. We work to ensure our products are sourced, produced, and delivered to our customers in a manner that upholds international labor and human rights standards, inclusive of occupational safety and chemical safety. In addition, we maintain numerous measures to ensure our supply chain complies with our Social Compliance Code of Conduct and Restricted Substances Policy, as well as with all local laws and customs regarding hiring practices, wages, and working conditions.
We also seek to extend the reach of our social and environmental standards through our global “Crocs Cares” program, through which we focus on providing shoes, funds, and employee time to support social inclusion and equality, and respond to our communities’ needs in times of crises. This is an ever-evolving program, informed by key stakeholder priorities. In 2022, Crocs, Inc. supported school students in the communities impacted by the Marshall Fire in Colorado, Ukrainian refugees, and frontline healthcare workers. Thanks to the generosity of our consumers and employees, we continued to generate donations to Feeding America, providing meals to families in need.
Governance
Strong corporate governance mechanisms, along with robust internal controls over our financial reporting framework, are the foundation for our ESG progress. In 2022, we formed an Environmental, Social, and Governance Steering Committee (the “ESG Committee”) of our board of directors (the “Board”), comprised of three independent directors, overseeing our ESG efforts and receiving quarterly updates on the development of our ESG program. Specifically, the ESG Committee assists the Board in (i) carrying out the responsibilities delegated by the Board regarding the review and oversight of our goals, policies, procedures and disclosures related to sustainability and ESG matters and (ii) its oversight of the sustainability and ESG matters material to us, our employees, our communities, and the planet. Additionally, we regularly review our Enterprise Risk Management and Ethics & Compliance program frameworks to account for our social and environmental risks and opportunities, specifically including those related to climate change. All material findings and updates are elevated to and discussed with our Board, which includes 38% female and 13% historically underrepresented racial/ethnic members as of
December 31, 2022. In 2022, Crocs, Inc. formalized its ESG/Sustainability department with a newly created VP, Global Head of Sustainability position reporting directly to our Chief Executive Officer.
We believe our employees are critical to the maintenance of strong corporate governance and, to that end, we continue to conduct annual in-person and online compliance trainings for all corporate employees, as well as retail and distribution center management. We also maintain a global ethics hotline, which is monitored by our Legal department, should any of our stakeholders identify concerns or have grievances.
Distribution Channels
The broad appeal of our footwear has allowed us to market our products in more than 85 countries through two distribution channels: wholesale and direct-to-consumer (“DTC”). Our wholesale channel includes domestic and international multi-brand retailers, mono-branded partner stores, e-tailers, and distributors; our DTC channel includes e-commerce, in which we sell through company-operated e-commerce sites and third-party marketplaces, and retail, in which we sell through company-operated stores.
Wholesale Channel
During the years ended December 31, 2022, 2021, and 2020, 54.9%, 50.8%, and 50.0% of our consolidated revenues, respectively, were derived through our wholesale channel. Our wholesale channel includes domestic and international, multi-brand, brick-and-mortar retailers, e-tailers, and distributors in certain countries, including partner store operators. Brick-and-mortar customers typically include family footwear retailers, national and regional retail chains, sporting goods stores, and independent footwear retailers.
Outside the U.S., we use distributors when we believe such arrangements are economically preferable to direct sales. Distributors purchase products pursuant to a price list and are granted the right to resell those products in a defined territory, usually a country or group of countries. Our typical distribution agreements have terms of one to five years and can be terminated or renegotiated if minimum requirements or other terms are not met.
Direct-to-Consumer Channel
Our DTC channel includes company-operated e-commerce sites, third-party marketplaces, company-operated full-price retail stores, outlet stores, and kiosks/store-in-store locations. During the years ended December 31, 2022, 2021, and 2020, 45.1%, 49.2%, and 50.0%, respectively, of our consolidated revenues were derived through our DTC channel.
E-commerce
As of December 31, 2022, we offered our products through 14 company-operated e-commerce sites worldwide and also on third-party marketplaces. Our e-commerce presence facilitates a greater connection with our consumers and provides us with an opportunity to educate them about our products and brand. We continue to leverage increasingly sophisticated digital marketing activities to enhance the consumer experience and drive sales, thereby benefiting from the continued migration of consumers to online shopping.
Retail
With the continued worldwide consumer shift toward e-commerce, we are carefully managing our retail fleet, especially full-priced retail stores. As of December 31, 2022, we had 340 and 5 company-operated stores for the Crocs Brand and HEYDUDE Brand, respectively.
Our company-operated full-price retail stores allow us to effectively showcase the full extent of our product range to consumers and provide us with the opportunity to interact with those consumers directly. As of December 31, 2022, we had 82 full-price Crocs Brand retail stores.
Our company-operated outlet stores allow us to sell discontinued and overstocked merchandise directly to consumers at discounted prices. We also sell full-priced products in certain of our outlet stores as well as built-for-outlet products. As of December 31, 2022, we had 194 Crocs Brand outlet stores and 5 HEYDUDE Brand temporary clearance stores.
Our company-operated kiosks and store-in-store locations allow us to market specific product lines, with flexibility to tailor products to consumer preferences in shopping malls and other high foot-traffic areas. With efficient use of retail space and
limited fixed cost and capital investment, we believe kiosks and store-in-store locations can be effective vehicles for selling our products in certain geographic areas. As of December 31, 2022, we had 64 Crocs Brand kiosks and store-in-store locations.
The following table illustrates the net change during 2022 in the number of our Crocs Brand company-operated retail stores by reportable operating segment and country:
December 31, 2021 Opened Closed December 31, 2022
North America
United States 162 9 11 160
Canada 8 - - 8
Puerto Rico 3 - - 3
Total North America
173 9 11 171
Asia Pacific
Korea 89 1 1 89
China 34 3 4 33
Japan 13 1 1 13
Singapore 17 - 1 16
Total Asia Pacific 153 5 7 151
EMEALA
Russia 26 2 28 -
Germany 14 - 3 11
France 2 - - 2
Austria 3 1 1 3
The Netherlands 2 - - 2
Total EMEALA
47 3 32 18
Total 373 17 50 340
During the year ended December 31, 2022, we opened 5 HEYDUDE Brand company-operated temporary clearance stores in the United States, all of which remained open as of December 31, 2022. We did not close any HEYDUDE Brand retail stores.
Business Segments and Geographic Information
We have four reportable operating segments. For the Crocs Brand, we have three reportable operating segments based on the geographic nature of our operations: North America, Asia Pacific, and EMEALA. Our HEYDUDE Brand also became a reportable segment on the Acquisition Date. See Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17 - Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for financial information related to our reportable operating segments.
Raw Materials
Crocs Brand
Croslite™, our proprietary closed-cell resin material, incorporates the primary material formulations used in the vast majority of our Crocs Brand footwear and some of our accessories. Our Croslite™ materials are formulated to create soft, comfortable, lightweight, non-marking, and odor-resistant footwear. We continue to invest in research and development to refine our materials to enhance these properties, develop new properties for specific applications, as well as reduce our environmental impact through various ESG initiatives described in the previous section.
Croslite™ is produced by compounding elastomer resins purchased from major chemical manufacturers, together with certain other production inputs such as color dyes. Multiple suppliers produce the elastomer resins used in the Croslite™ material. In the future, we may identify and utilize materials produced by other suppliers as an alternative to, or in addition to, those elastomer resins. All other raw materials that we use to produce the Croslite™ formulations are readily available for purchase from multiple suppliers.
Some of the products we offer are constructed using textile fabrics or other material formulations, such as those we brand LiteRide™. These materials are obtained from a number of third-party sources, and we believe these materials are also broadly available.
HEYDUDE Brand
The primary raw materials for the HEYDUDE Brand are fabrics, including polyester and cotton, Ethylene-vinyl acetate (“EVA”) insoles and outsoles, and other materials such as leather. We purchase this material from a select group of third-party sources, and we believe these materials are broadly available.
Sourcing
Our sourcing strategy is to maintain a flexible, globally-diversified, cost-efficient third-party manufacturing base. We source our inventory production from multiple third-party manufacturers, primarily in:
•Vietnam and China for the Crocs Brand. During the years ended December 31, 2022, 2021, and 2020, approximately 53%, 56%, and 75%, respectively, of our Crocs Brand production was in Vietnam. Our largest third-party manufacturer for the Crocs Brand, with the vast majority of operations in Vietnam and China, produced approximately 42%, 34%, and 46% of our production during the years ended December 31, 2022, 2021, and 2020, respectively, and our second largest third-party manufacturer for the Crocs Brand, primarily operating in both Vietnam and China, produced approximately 27%, 30%, and 22% of our production during the years ended December 31, 2022, 2021, and 2020, respectively.
•China for the HEYDUDE Brand.
We believe any potential concentration risk is mitigated by the fact that the manufacturing capabilities required to produce our footwear are broadly available. See the risk factor under “Risks Related to our Supply Chain - We depend solely on third-party manufacturers located outside of the U.S.” included in Item 1A. Risk Factors of this Annual Report on Form 10-K for more information on risks associated with sourcing.
Distribution and Logistics
We strive to enhance our distribution and logistics network to further streamline our supply chain, increase our speed to market, and lower operating costs. As of December 31, 2022, we principally stored our finished goods inventory in company-operated warehouses and distribution and logistics facilities located in the U.S. and the Netherlands. During 2022, we further expanded our U.S. distribution centers in Ohio and Nevada for the Crocs Brand and HEYDUDE Brand, respectively, to increase distribution capacity. Additionally, in 2022, we entered into a lease not yet commenced related to a new HEYDUDE distribution center in Nevada, which we plan to open in late 2023 to help support future growth. We also utilized third-party operated distribution centers located in the United States, Japan, China, Australia, Korea, Singapore, India, Brazil, and the United Kingdom. As of December 31, 2022, our company-operated warehouse and distribution facilities provided us with 3.2 million square feet, and our third-party operated distribution facilities provided us with 0.3 million square feet, with additional area available based on inventory levels. We also ship directly to certain of our wholesale customers from our third-party manufacturers, and certain distributors pick up orders directly from our third-party manufacturers.
As a result of global industry-wide logistics challenges in 2021, we implemented several mitigating measures in 2022 including: (i) prioritizing top-selling products and narrowing product assortment, which has improved factory throughput, (ii) maintaining flexibility by leveraging air freight and reducing our dependency on congested West Coast ports in the United States by adding East Coast trans-shipment capabilities, and (iii) strategically allocating units and prioritizing our key growth initiatives. With the actions taken to date and our future plans, we believe we are well-positioned to withstand these supply challenges. See the risk factors under “Risks Related to our Supply Chain - Our operations are dependent on the global supply chain and impacts of supply chain constraints and inflationary pressure could adversely impact our operating results” and “Risks Related to Our Supply Chain - Supply chain disruptions could interrupt product manufacturing and global logistics and product costs” included in Item 1A. Risk Factors of this Annual Report on Form 10-K for information on risks associated with distribution and logistics.
Intellectual Property and Trademarks
We rely on a combination of trademarks, copyrights, trade secrets, trade dress, and patent protections to establish, protect, and enforce our intellectual property rights in our product designs, brands, materials, and research and development efforts, although no such methods can afford complete protection. We own or license the material trademarks used in connection with the marketing, distribution, and sale of all of our products, both domestically and internationally, in most countries where our products are currently either sold or manufactured. Our major trademarks for the Crocs Brand include the Crocs logo and the Crocs word mark, both of which are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China, and Canada, among other countries. Our major trademarks for the HEYDUDE Brand include the HEYDUDE logo and word mark. The HEYDUDE word mark is registered in the U.S., the European Union, China, and Singapore, among others. Protection for the HEYDUDE logo has been filed in the U.S. and we intend to extend to foreign jurisdictions within the required time period. We also have registrations or pending trademark applications for other marks and logos in various countries around the world.
In the U.S., our patents are generally in effect for up to 20 years from the date of filing the patent application. Our trademarks registered within and outside of the U.S. are generally valid as long as they are in use and their registrations are properly maintained and have not been found to have become generic. We believe our trademarks and patents are crucial to the successful marketing and sale of our products. We strategically register, both domestically and internationally, the trademarks and patents covering certain product designs and branding that we utilize today. We aggressively police our patents, trademarks, and copyrights and pursue those who infringe upon them, both domestically and internationally, through litigation and otherwise as we deem necessary.
We consider the formulations of the materials used to produce our Crocs Brand footwear covered by our trademark Croslite™ and LiteRide™, among others, valuable trade secrets. The material formulations are manufactured through a process that combines a number of components in various proportions to achieve the properties for which our Crocs Brand products are known. We use multiple suppliers to source these components but protect the formulations by using an exclusive supply agreement for key components and confidentiality agreements with our third-party processors, and by requiring our employees to execute confidentiality agreements concerning the protection of our confidential information. Other than our third-party processors, we are unaware of any third-party using our formulations in the production of footwear. We believe the comfort and utility of our Crocs Brand products depend on the properties achieved from the compounding of the Croslite™ and LiteRide™ materials, which constitutes a key competitive advantage for us, and we intend to continue to vigorously protect these trade secrets.
We also actively combat counterfeiting and other infringements of our brand by monitoring the global marketplace. We use our employees, sales representatives, distributors, and retailers, as well as outside investigators, attorneys, and customs agents, to police against infringing products by encouraging them to notify us of any suspect products and to assist law enforcement agencies. Our sales representatives and distributors are also educated on our patents, pending patents, trademarks, and trade dress to assist in preventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protect intellectual property rights to the same extent or in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for our intellectual property in certain foreign jurisdictions.
Competition
The global casual, athletic, and fashion footwear markets are highly competitive. Although we do not believe that we compete directly with any single company with respect to the entire spectrum of our products, we believe portions of our wholesale, retail, and e-commerce businesses compete with companies including, but not limited to: NIKE, Inc., adidas AG, Deckers Outdoor Corporation, Skechers USA, Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and VF Corporation. Our company-operated retail locations and e-commerce sites also compete with some of our wholesale partners.
The principal elements of competition in these markets include brand awareness, product functionality, design, comfort, quality, price, customer service, and marketing and distribution. We believe that our unique footwear designs, material formulations, prices, product line, and distribution networks position us well in the marketplace. However, a number of companies in the casual footwear industry have greater financial resources, more comprehensive product lines, broader market presence, longer standing relationships with wholesalers, longer operating histories, greater distribution capabilities, stronger brand recognition, and greater marketing resources than we have. See the risk factor under “Risks Related to our Products - We face significant competition” included in Item 1A. Risk Factors of this Annual Report on Form 10-K for more information.
Available Information
We file with, or furnish to, the SEC reports including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available free of charge on our corporate website (www.crocs.com) as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Copies of any materials we file with the SEC can be obtained free of charge at www.sec.gov. The foregoing website addresses are provided as inactive textual references only. The information provided on our website (or any other website referred to in this report) is not part of this report and is not incorporated by reference as part of this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
ITEM 1A. Risk Factors
You should carefully consider the following risk factors and all other information presented within this Annual Report on Form 10-K. The risks set forth below are those that our management believes are applicable to our business and the industry in which we operate. These risks have the potential to have a material adverse effect on our business, results of operations, cash flows, financial condition, liquidity, access to sources of financing, or stock price. The risks included here are not exhaustive and there may be additional risks that are not presently material or known. Because we operate in a very competitive and rapidly changing environment, new risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all such risk factors on our business. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Risks Related to Our Products
Our success depends substantially on the value of our brands; failure to strengthen and preserve this value, either through our actions or those of our business partners, could have a negative impact on our financial results.
We believe much of our success has been attributable to the strength of the Crocs and HEYDUDE brands. To be successful in the future, particularly outside of the U.S., where our brands may be less well-known or perceived differently, we believe we must timely and appropriately respond to changing consumer demand and leverage the value of our brands across all sales channels. We may have difficulty managing our brands’ image across markets and international borders as certain consumers may perceive our brands’ image to be out of style, outdated, or otherwise undesirable. Maintaining, promoting, and growing our brands will depend on our design and marketing efforts, including product innovation and quality, advertising and consumer campaigns, as well as our ability to adapt to a rapidly changing media environment, including our reliance on social media and digital dissemination of advertising campaigns.
In the past, several footwear companies, including ours, have experienced periods of rapid growth in revenues and earnings followed by periods of declining sales and losses, and our business may be similarly affected in the future. Consumer demand for our products and our brands’ equity could also diminish significantly if we fail to preserve the quality of our products, are perceived to act in an unethical or socially irresponsible manner, fail to comply with laws and regulations, or fail to deliver a consistently positive consumer experience in each of our markets.
Adverse publicity about regulatory or legal action against us, or by us, could also damage our reputation and brands’ image, undermine consumer confidence in us, and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. Negative claims or publicity involving us, our products, or any of our key employees, endorsers, or business partners could materially damage our reputation and brands’ image, regardless of whether such claims are accurate. Social media, which accelerates and potentially amplifies the scope of negative publicity, can accelerate, and increase the impact of, negative claims. Further, business incidents that erode consumer trust, such as perceived product safety issues, whether isolated or recurring, in particular incidents that receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our business and financial results. Additionally, counterfeit reproductions of our products or other infringement of our intellectual property rights, including unauthorized uses of our trademarks by third parties, could harm our brands and adversely impact our business.
We face significant competition.
The footwear industry is highly competitive. Our competitors include most major athletic and non-athletic footwear companies and retailers with their own private label footwear products. A number of our competitors have significantly greater financial resources, more comprehensive product lines, a broader market presence, longer standing relationships with wholesalers, a longer operating history, greater distribution capabilities, stronger brand recognition, less reliance on a small number of brands
or product lines, and spend substantially more on product marketing than we do. Our competitors’ greater financial resources and capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry and general economic conditions, compete more effectively on the basis of price and production, price their products more aggressively in the face of inflationary pressures, launch more extensive or diverse product lines, and more quickly develop new and popular products. Continued demand in the market for casual footwear and readily available offshore manufacturing capacity has also encouraged the entry of new competitors into the marketplace and has increased competition from established companies. Some of our competitors are offering products that are substantially similar, in design and materials, to our products. If we are unable to compete successfully in the future, our sales and profits may decline, we may lose market share, our business and financial results may deteriorate, and the market price of our common stock would likely fall.
Introducing new products may be difficult and expensive. If we are unable to do so successfully, our brands may be adversely affected, and we may not be able to maintain or grow our current revenue and profit levels.
To successfully continue to evolve our footwear product line to appeal to our consumers, we must anticipate, understand, and react to the rapidly changing tastes of consumers and provide appealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brands may fall out of favor with consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may decrease, our brands’ image may suffer, our operating performance may decline, and we may not be able to execute our growth plans.
In producing new footwear models, we may encounter difficulties that we did not anticipate during the product development stage. If we are not able to efficiently manufacture new products in quantities sufficient to support wholesale, retail, and e-commerce distribution, we may not be able to recover our investment in the development of new styles and product lines, and we would continue to be subject to the risks inherent to having a limited product line. Even if we develop and manufacture new footwear products that consumers find appealing, the ultimate success of a new style may depend on our pricing. We may introduce products that are not popular, set the prices of new styles too high for the market to bear, or we may not provide the appropriate level of marketing in order to educate the market and potential consumers about our new products. Achieving market acceptance will require us to exert substantial product development and marketing efforts, which could result in a material increase in our selling, general and administrative expenses. There can be no assurance that we will have the resources necessary to undertake such efforts effectively or that such efforts will be successful or that we will dedicate our limited marketing resources to the right product lines. Failure to gain market acceptance for new products could impede our ability to maintain or grow current revenue levels, reduce profits, adversely affect the image of our brands, erode our competitive position, and result in long-term harm to our business and financial results.
See also the risk factor under “HEYDUDE Acquisition Risks - Our ability to realize the benefits from the Acquisition is substantially dependent on our ability to continue to grow HEYDUDE.”
Failure to adequately protect our trademarks and other intellectual property rights and counterfeiting of our brands could divert sales, damage our brands’ image, and adversely affect our business.
We utilize trademarks, trade names, copyrights, trade secrets, issued and pending patents and trade dress, and design rights on nearly all of our products. We believe that having distinctive marks that are readily identifiable trademarks and intellectual property is important to our brands, our success, and our competitive position. The laws of some countries, for example, China, do not protect intellectual property rights to the same extent as do U.S. laws. We frequently discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging another party’s products on the basis of trademark or design or utility patent infringement or other infringement, particularly in some foreign countries, or if we are required to change our name or use a different logo, or it is otherwise found that we infringe on others’ intellectual property rights, continued sales of such competing products by third parties could harm our brands or we may be forced to cease selling certain products, which could adversely impact our business, financial condition, revenues, and results of operations by resulting in the shift of consumer preference away from our products. If our brands are associated with inferior counterfeit reproductions, the integrity and reputation of our brands could be adversely affected. Furthermore, our efforts to enforce our intellectual property rights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. We may face significant expenses and liability in connection with the protection of our intellectual property, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected.
We also rely on trade secrets, confidential information, and other unpatented proprietary rights and information related to, among other things, the Croslite™ material formulations and product development, particularly where we do not believe patent protection is appropriate or obtainable. Using third-party manufacturers and compounding facilities may increase the risk of misappropriation of our trade secrets, confidential information, and other unpatented proprietary information. The agreements
we use in an effort to protect our intellectual property, confidential information, and other unpatented proprietary information may be ineffective or insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to one of these agreements may breach the agreement, and we may not have adequate remedies for such breach. As a result, our trade secrets, confidential information, and other unpatented proprietary rights and information may become known to others, including our competitors. Furthermore, our competitors or others may independently develop or discover such trade secrets and information, which would render them less valuable to us.
Failure to continue to obtain or maintain high-quality endorsers of our products could harm our business.
We establish relationships with both celebrity endorsers and design, celebrity, and brand collaborators to develop, evaluate, and promote our products, as well as strengthen our brands. In a competitive environment, the costs associated with establishment and retention of these relationships may increase. If we are unable to maintain current associations and/or to establish new associations in the future, this could adversely affect our brands’ visibility and strength and result in a negative impact to financial results. In addition, actions taken by celebrity endorsers and collaborators associated with our products that harm the public image and reputations of those endorsers and collaborators could also seriously harm our brands’ image with consumers and, as a result, could have an adverse effect on our sales and financial condition.
We rely on technical innovation to compete in the market for our products.
Our success relies on continued innovation in both materials and design of footwear, such as our branded Croslite™ and LiteRide™ materials. Research and development is a key part of our continued success and growth, and we rely on experts to develop and test our materials and products. Croslite™, our branded proprietary closed-cell resin, is the primary raw material used in the vast majority of our Crocs Brand footwear and some of our accessories. Croslite™ is carefully formulated to create soft, durable, extremely lightweight, and water-resistant footwear that conforms to the shape of the foot and increases comfort. We continue to invest in research and development in order to refine our materials to enhance these properties and to develop new properties for specific applications. We strive to produce footwear featuring fun, comfort, color, and functionality. If we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems.
Risks Related to the Economy
The COVID-19 pandemic has had an adverse impact, and may have a future material adverse impact, on our business, operations, liquidity, financial condition, and results of operations.
Since 2020, the COVID-19 pandemic has driven global uncertainty and disruption and has spread throughout the geographic regions in which we run our business and where our suppliers, third-party manufacturers, retail stores, wholesale customers, and consumers are located. While the vast majority of our company-operated stores, our partner stores, and our wholesale partner stores were open as of December 31, 2022, some may close again upon additional COVID-19 outbreaks. At this time, we cannot reasonably estimate the length of time of any remaining closures, if further closures will occur, or if consumers will return to purchasing our products at historical levels in retail locations. The inability to sell our products in our retail or wholesale channels has had and may continue to have a material adverse effect on our revenues and results of operations.
We also rely upon the facilities of our third-party manufacturers outside of the U.S. to support our business as well as to export our products throughout the world. As a result of COVID-19 and the measures designed to contain the spread of the virus, our third-party manufacturers have not had at times in the past, and may not have in the future, the materials, capacity, or capability to manufacture our products according to our schedule and specifications, which has in the past, and may in the future, negatively impact our ability to manage inventories. If our third-party manufacturers’ operations are curtailed, as they have been in the past, we may need to seek alternate manufacturing sources, which may be unavailable, be more expensive, or face the same constraints. Should any production and distribution closures continue for an extended period of time, the impact on our global supply chain could have a material adverse effect on our results of operations and cash flows. See the risk factor under “Risks Related to Our Supply Chain - We depend solely on third-party manufacturers located outside the U.S.” and “Risks Related to Our Supply Chain - Our operations are dependent on the global supply chain and impacts of supply chain constraints and inflationary pressure could adversely impact our operating results” for more information.
In addition, the COVID-19 pandemic has, among other things, caused global macroeconomic uncertainty, disrupted consumer spending and supply chains, contributed to various global shipping delays and port congestions, and created significant volatility and disruption of financial markets. Global supply chain disruptions during the year ended December 31, 2022 negatively impacted our gross margins and net income and could continue to do so in 2023 and beyond, which could have a material adverse effect on the business, financial condition, and results of operations.
The effects of COVID-19 could affect our ability to successfully operate in many ways, including, but not limited to, the following factors:
•the impact of the pandemic on the economies and financial markets of the countries and regions in which we operate;
•the impact on our supply chain, including, but not limited to, staffing shortages, cost inflation, and shipping delays; and
•operational risk, including, but not limited to, cybersecurity risks as a result of extended remote work arrangements and restrictions on employee travel.
The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on our future business, operations, liquidity, financial condition, and results of operations continues to remain uncertain at this time.
Changes in global economic conditions, including, but not limited to, those driven by inflation, may adversely affect consumer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources.
Uncertainty about current and future global economic conditions may cause consumers, wholesalers, and retailers to defer purchases or cancel purchase orders for our products in response to tighter credit, decreased cash availability, and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and in specific markets, that may adversely affect the demand for our products including recessionary economic cycles, higher interest rates, higher fuel and other energy costs, increased labor costs, declines in asset values, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors, certain of which effects, including cost inflation, we experienced in 2022 and currently expect to continue to experience in 2023.
Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting in a stronger U.S. Dollar (“USD”), have impacted, and we expect will continue to impact, our business, contributing to, among other things, incremental freight costs, increased wages, particularly in our distribution centers, and increased raw material costs. A stronger USD also results in costs for foreign goods purchased in USD but recognized in foreign currencies (“purchasing power”) that are unfavorable.
If global economic and financial market conditions deteriorate, or remain weak, for an extended period of time, the following factors, among others, could have a material adverse effect on our business and financial results:
•Changes in foreign currency exchange rates relative to the USD could have a material impact on our reported financial results. See the risk factor “Changes in foreign exchange rates, most significantly but not limited to the Euro and South Korean Won, or other global currencies could have a material adverse effect on our business and financial results” for more information.
•Slower consumer spending may result in our inability to maintain or increase our sales to new and existing customers and cause reduced product orders or product order delays or cancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, difficulties managing inventories, higher discounts, and lower product margins.
•If consumer demand for our products declines, we may not be able to profitably operate existing retail stores, due to higher fixed costs of the retail business.
•A decrease in credit available to our wholesale or distributor customers, product suppliers, and other service providers, or financial institutions that are counterparties to our Revolving Facility (as defined herein) or derivative instruments may result in credit pressures, other financial difficulties, or insolvency for these parties, with a potential adverse impact on our business, our financial results, or our ability to obtain future financing.
•If our wholesale customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer order cancellations, and/or the need to extend customer payment terms, which could lead to larger balances and delayed collection of our accounts receivable, reduced cash flows, greater expenses for collection efforts, and increased risk of nonpayment of our accounts receivable.
•If our manufacturers or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us, we may be unable to provide our customers with our products in a timely manner, resulting in lost sales opportunities or a deterioration in our customer relationships.
•If we are unable to mitigate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted. Furthermore, even if we are able to raise the prices of our products, consumers might react negatively to such price increases, which could have a material adverse effect on, among other things, our brands, reputation, and sales.
The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may also increase economic uncertainty and negatively affect consumer spending. Similarly, the ongoing war between Russia and Ukraine has created extreme volatility in the global capital markets and is expected to continue to have further global economic consequences, including disruptions of the global supply chain and energy markets. See “The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition and results of operations.” Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates have already, and may continue to, adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.
The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition, and results of operations.
The ongoing war between Russia and Ukraine has adversely affected the global economy, resulted in heightened economic sanctions against Russia from the United States, the United Kingdom, the European Union, and the international community, and has resulted in geopolitical instability. As a result of the ongoing war between Russia and Ukraine, we stopped DTC business operations in Russia in early 2022. Even though revenues from Russia represented less than 3% of our consolidated revenues in 2021, the year prior to the war’s commencement, the impact of these government sanctions, as well as retaliatory actions taken by Russia and the United States and foreign government bodies have negatively impacted the global economy. This has driven increases to the cost of transportation, energy, and supplies and macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, which have had, and could continue to have, a material adverse effect on our business, financial condition, results of operations, supply chain, intellectual property, partners, customers or employees and may expose us to adverse legal proceedings in Russia in the future. Further escalation of geopolitical tensions related to the war between Russia and Ukraine, including increased trade barriers or restrictions on global trade, could result in, among other things, broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
Risks Related to Our Supply Chain
Supply chain disruptions could interrupt product manufacturing and global logistics and increase product costs.
We rely on third-party manufacturers outside of the U.S. to produce our products. Global industry-wide logistics challenges negatively impacted us during the year ended December 31, 2022, during which some of our third-party factories in Vietnam and China were closed for several weeks due to COVID-19 outbreaks. Closures and factory disruptions may recur if additional COVID-19 break-outs occur in countries where we rely on third-party manufacturers to produce our products. See the risk factor under “We depend solely on third-party manufacturers located outside the U.S.” for more information.
We also rely on international shipping to transport our products to their various geographic markets. During the year ended December 31, 2022, international shipping to the U.S. was disrupted and delayed due to congestion in west coast ports. Continued or additional delays in shipping may cause us to have to use more expensive air freight or other more costly methods to ship our products. The ongoing COVID-19 pandemic and related governmental and port facility actions have caused delays in shipments of our products. During the year ended December 31, 2022, our third-party manufacturers, distribution centers, where we manage our inventory, and our third-party partners experienced disruptions that impacted our supply chain and increased global lead-time for our products, including port congestion, temporary closures, and worker shortages. Additionally, as a consequence of the COVID-19 pandemic, reductions in the number of ocean carrier voyages and capacity have delayed the arrival of imports and increased ocean transport costs globally. Ongoing ocean carrier consolidations, reduced capacity, congestion at major international gateways, and other economic factors are currently making ocean transportation increasingly difficult and unpredictable. Further, in the U.S., trucking costs have risen dramatically due to driver shortages, increased labor costs, and safety, environmental, and labor regulations. As supply chain disruptions continue and we manage product availability, the timing of sales to our wholesale partners and consumers may continue to be impacted, and we face increased
risk of order cancellations. In addition, global inflation has contributed to already higher incremental freight costs and such inflation may continue to result in higher freight costs. Failure to adequately produce and timely ship our products to customers could lead to lost potential revenue, failure to meet customer demand, strained relationships with customers, including wholesalers, and diminished brand loyalty.
Despite our actions to mitigate these impacts, we were negatively impacted by global logistics challenges in 2022 and still expect to be negatively impacted by these challenges in 2023. For example, during the year ended December 31, 2022, we expended $67 million on an air freight program initiated as a result of partial COVID-19-related factory closures in Vietnam at the end of 2021.
However, our inventory in transit at December 31, 2022 was significantly higher than our inventory in transit at the year ended December 31, 2021, and these pressures have negatively impacted our gross margin and net income and may continue to do so in future periods. At December 31, 2022, our inventories balance was $471.6 million. While the majority of the total increase in inventories of 120.8% over December 31, 2021 was due to the addition of the HEYDUDE Brand in the first quarter of 2022, inventories for the Crocs Brand were also up 41.9% compared to the prior year. Throughout 2021 and into the first half of 2022, inventories were historically lean across the footwear industry as a result of factory closures and other supply chain delays, as described above. However, in recent months, elevated inventory levels have caused the industry, including us, to become more promotional, which has impacted gross margins on the impacted products. This is particularly true in North America. We expect these challenges to remain fluid as macroeconomic and inflationary pressures continue and foreign exchange rates fluctuate.
We depend solely on third-party manufacturers located outside of the U.S.
All of our footwear products are manufactured by third-party manufacturers, the majority of which are located in Vietnam, Indonesia, and China. We depend on the ability of these manufacturers to finance the production of goods ordered, maintain adequate manufacturing capacity, and meet our quality standards. We compete with other companies for the production capacity of our third-party manufacturers, and we do not exert direct control over the manufacturers’ operations. As such, from time to time we have experienced delays or inabilities to fulfill customer demand and orders. During the years ended December 31, 2022, 2021, and 2020, approximately 53%, 56%, and 75%, respectively, of our Crocs Brand production was in Vietnam. Our largest third-party manufacturer for the Crocs Brand, with the vast majority of operations in Vietnam and China, produced approximately 42%, 34%, and 46% of our production during the years ended December 31, 2022, 2021, and 2020, respectively, and our second largest third-party manufacturer for the Crocs Brand, primarily operating in both Vietnam and China, produced approximately 27%, 30%, and 22% of our production during the years ended December 31, 2022, 2021, and 2020, respectively. During the Partial Period, the majority of production was in China for the HEYDUDE Brand. Furthermore, because our third-party manufacturers are concentrated in Asia, we may be subject to an increased risk of supply chain disruption, particularly in the event of a natural disaster, pandemic, such as the COVID-19 pandemic, epidemic, geopolitical tension, or other event impacting the region outside of our control. We cannot guarantee that any third-party manufacturer will have sufficient production capacity, meet our production deadlines, or meet our quality standards. Furthermore, due to the relative concentration of our third-party manufacturers, disruption at the facilities of our third-party manufacturing partners as a result of COVID-19 or otherwise, including through the effects of facility closures, reductions in operating hours and labor shortages had an adverse effect on our supply chain in 2021 and 2022 and may have a material adverse effect in the future. For example, at the end of 2021 and into the first quarter of 2022, many of our third-party manufacturing facilities in Vietnam were closed or not operating at full capacity due to local COVID-19 outbreaks and safety protocols, which negatively impacted our financial results. See the risk factor under “Supply chain disruptions could interrupt product manufacturing and global logistics and increase product costs” and “Our operations are dependent on the global supply chain and impacts of supply chain constraints and inflationary pressure could adversely impact our operating results.”
Foreign manufacturing is subject to additional risks, including transportation delays and interruptions, including those caused by the COVID-19 pandemic, work stoppages, political instability, including the ongoing war between Russia and Ukraine, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, cost inflation, changes in governmental policies or laws, and the imposition of tariffs, import and export controls, and other barriers. Because we do not manufacture products internally, we cannot offset any interruption or decrease in supply of our products by increasing production in internal manufacturing facilities, and we may not be able to substitute suitable alternative third-party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply of products from our third-party manufacturers may harm our business and could result in a loss of sales and an increase in production costs, which would adversely affect our results of operations. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, more expensive transportation methods, such as aircraft, which could adversely affect our profit margins. For example, during the year ended December 31, 2022, we incurred approximately $67 million on an air freight program initiated as a result of partial COVID-19-related factory closures in Vietnam at the end of 2021. The cost of fuel is a
significant component in transportation costs. Increases in the price of petroleum products can increase our transportation costs and adversely affect our product margins.
In addition, because our footwear products are manufactured outside the U.S., the possibility of adverse changes in trade or political relations between the U.S. and other countries, political instability, changes in legislation and policies, increases in labor costs, changes in international trade agreements and tariffs, adverse weather conditions, or public health issues, such as the COVID-19 pandemic, could significantly interfere with the production and shipment of our products, which would have a material adverse effect on our operations and financial results.
We, similar to many other companies with overseas operations, import and sell products in other countries that could be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition, and results of operations. See the risk factor under “Risks Related to International Operations - We conduct significant business activity outside the U.S., which exposes us to risks of international commerce.”
Our operations are dependent on the global supply chain and impacts of supply chain constraints and inflationary pressure could adversely impact our operating results.
Our operations have been, and may continue to be, impacted by supply chain constraints and raw material shortages, resulting in increased material costs, longer lead times, port congestion, and increased freight costs caused, in part, by the COVID-19 pandemic, the uncertain economic environment, and macroeconomic trends. In addition, current or future governmental policies may increase the risk of inflation, which could further increase the costs of raw materials and components for our business. Similarly, if costs of goods continue to increase, our suppliers may seek price increases from us. If we are unable to mitigate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted. Even if we are able to raise the prices of our products, consumers might react negatively to such price increases, which could have a material adverse effect on, among other things, our brands, reputation, and sales. If our competitors substantially lower their prices, we may lose customers and mark down prices. Our profitability may be impacted by lower prices, which may negatively impact gross margins. Even though we are working to alleviate supply chain constraints through various measures, we are unable to predict the impact of these constraints on the timing of revenue and operating costs of our business in the near future. Raw material supply shortages and supply chain constraints, including cost inflation, have impacted and could continue to negatively impact our ability to meet increased demand, which in turn could impact our net sales revenues and market share. In addition, COVID-19-related closures negatively impacted our supply chain in Vietnam in the first quarter of 2022 and in China in the second quarter of 2022. We expect the situation to remain fluid as COVID-19 break-out rates, including any deterioration in circumstances related to COVID-19 variants, and foreign exchange rates fluctuate, and inflationary pressure continues. See the risk factor under “Supply chain disruptions could interrupt product manufacturing and global logistics and increase product costs.”
If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have greater difficulty filling our customers’ orders, either of which could adversely affect our business.
The footwear industry is subject to cyclical variations, consolidation, contraction and closings, as well as fashion trends, rapid changes in consumer preferences, the effects of weather, general economic conditions, and other factors affecting consumer demand. In addition, purchase orders from our wholesale customers are generally subject to rights of cancellation and rescheduling by the wholesaler. These factors make it difficult to forecast consumer demand. If we overestimate demand for our products, we may be forced to liquidate excess inventories at discounted prices resulting in losses or lower gross margins. Conversely, if we underestimate consumer demand, we could have inventory shortages, which can result in lower sales, delays in shipments to customers, and expedited shipping costs, and adversely affect our relationships with our customers and diminish brand loyalty. Excess inventory, or any failure on our part to satisfy increased demand for our products, could adversely affect our business and financial results.
Our third-party manufacturing operations must comply with labor, trade, and other laws. Failure to do so may adversely affect us.
We require our third-party manufacturers to meet our quality control standards and footwear industry standards for working conditions and other matters, including compliance with applicable labor, environmental, and other laws; however, we do not control our third-party manufacturers or their respective labor practices. A failure by any of our third-party manufacturers to adhere to quality standards or labor, environmental, and other laws could cause us to incur additional costs for our products, generate negative publicity, damage our reputation and the value of our brands, and discourage customers from buying our
products. We also require our third-party manufacturers to meet certain product safety standards. A failure by any of our third-party manufacturers to adhere to such product safety standards could lead to a product recall, which could result in critical media coverage; harm our business, brands, and reputation; and cause us to incur additional costs.
In addition, if we or our third-party manufacturers violate U.S. or foreign trade laws or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import, or the loss of our import privileges. Possible violations of U.S. or foreign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quota category, classification, marketing or valuation of our imported products, and fraudulent visas or labor violations. The effects of these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results. We cannot predict whether additional U.S. or foreign customs quotas, duties, taxes other charges, or restrictions will be imposed upon the importation of foreign produced products in the future or what effect such actions could have on our business or results. See the risk factor under “We depend solely on third-party manufacturers located outside the U.S.” for more information.
For example, China’s Xinjiang Uyghur Autonomous Region (the “XUAR”) is the source of large amounts of cotton and textiles for the global apparel and footwear supply chain. The United States Treasury Department placed sanctions on China’s Xinjiang Production and Construction Corporation (“XPCC”) for serious human rights abuses against ethnic minorities in XUAR. Additionally, the Uyghur Forced Labor Prevention Act (“UFLPA”), empowers the U.S. Customs and Border Protection Agency (the “U.S. CBP”) to withhold release of items produced in whole or in part in the XUAR, or produced by companies included on a government-created UFLPA entity list, creating a presumption that such goods were produced using forced labor. XPCC controls many of the cotton farms and much of the textile industry in the region, and many large factories in XUAR produce fabrics and yarn for apparel and footwear.
Although we do not believe that our suppliers source materials from such area of China for the products they sell to us or use to manufacture our products, we have no known involvement with XPCC or its subsidiaries and affiliates, and we prohibit our suppliers from doing business with XPCC or using forced labor, we do not have the ability to completely map our supply chain, and we could be subject to penalties, fines or sanctions if any of the suppliers from which we purchase goods is found to have dealings, directly or indirectly, with XPCC or entities it controls. Additionally, our products or materials (including potentially non-cotton materials) could be held or delayed by the U.S. CBP, which would cause delays and unexpectedly and negatively affect our inventory levels. Even if we were not subject to penalties, fines or sanctions, if products we source are linked in any way to XPCC, the XUAR, or an entity on the UFLPA entity list, our reputation could be damaged. In addition, the UFLPA has induced greater supply chain compliance costs and delays to us and to our suppliers. Compliance with the UFLPA could continue to affect the global supply chain, the price and scarcity of traceable cotton in the marketplace and could lead to an increase in our cost of goods sold, which may have an adverse effect on our profitability.
See the risk factor under “Risks Related to International Operations - We conduct significant business activity outside the U.S., which exposes us to risks of international commerce.”
We depend on a number of suppliers for key production materials, and any disruption in the supply of such materials could interrupt product manufacturing and increase product costs.
We depend on a number of sources for the primary materials used to make our footwear. We source the elastomer resins that constitute the primary raw materials used in compounding our Croslite™ and LiteRide™ formulations, which we use to produce our various footwear products, from multiple suppliers. If the suppliers we rely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruption of our production schedules. We are also subject to market conditions related to supply and demand for our raw materials and any resulting shortages in supply, as well as impacts of any global shipping or logistics delays. We may have to pay substantially higher prices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and could have an adverse impact on our product margins. If we are unable to obtain suitable elastomer resins, or if we are unable to procure sufficient quantities of the materials that go into the Croslite™ and LiteRide™ formulations, we may not be able to meet our production requirements in a timely manner or may need to modify our product characteristics, which could result in less favorable market acceptance, lost potential sales, delays in shipments to customers, strained relationships with customers, and diminished brand loyalty.
Risks Related to International Operations
Changes in foreign exchange rates, most significantly but not limited to the Euro and South Korean Won, or other global currencies could have a material adverse effect on our business and financial results.
As a global company, we have significant revenues and costs denominated in currencies other than the USD. We are exposed to the risk of losses resulting from changes in exchange rates on monetary assets and liabilities within our international subsidiaries that are denominated in currencies other than the subsidiaries’ functional currencies. Likewise, our U.S. companies are also exposed to the risk of losses resulting from changes in exchange rates on monetary assets and liabilities that are denominated in a currency other than the USD. We have experienced, and will continue to experience, changes in exchange rates, impacting both our statements of operations and the value of our assets and liabilities denominated in foreign currencies.
In accordance with our operating practices, we hedge a significant portion of our foreign currency transaction exposures arising in the ordinary course of business to reduce risks in our cash flows and earnings. We use cash flow hedges to minimize the variability in cash flows caused by fluctuations in foreign currency exchange rates related to our external sales and external purchases of inventory. Currency forward agreements involve fixing the exchange rates for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically settled in USD for their fair value at or close to their settlement date. We may also use currency option contracts under which we will pay a premium for the right to sell a specified amount of a foreign currency prior to the maturity date of the option. Our hedging strategy may not be effective in reducing all risks, and no hedging strategy can completely insulate us from foreign exchange risk. Further, our use of derivative financial instruments may expose us to counterparty risks. Although we only enter into hedging contracts with counterparties having investment grade credit ratings, it is possible that the credit quality of a counterparty could be downgraded or a counterparty could default on its obligations, which could have a material adverse impact on our financial condition, results of operations, and cash flows.
Further, our ability to sell our products in foreign markets and the USD value of the sales made in foreign currencies can be significantly influenced by changes in exchange rates. A decrease in the value of foreign currencies relative to the USD could result in lower revenues, gross margin compression, and increased losses from currency exchange rates. Foreign exchange rate volatility could also disrupt the business of the third-party manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. For the Crocs Brand, we pay the majority of our third-party manufacturers, located primarily in Vietnam and China, in USD. In 2022, we experienced decreases of approximately $2.6 million in our North America segment revenues, primarily as a result of decreases in the value of the Canadian Dollar relative to the USD, approximately $41.0 million in our Asia Pacific segment revenues as a result of decreases in the value of Asian currencies, primarily the South Korean Won, relative to the USD, and approximately $60.1 million in our EMEALA revenues, primarily as a result of decreases in the Euro relative to the USD. Strengthening of the USD against Asian and European currencies, and various other global currencies, adversely impacts our USD reported results due to the impact on foreign currency translation. While we enter into foreign currency exchange forward contracts to reduce our exposure to changes in exchange rates on monetary assets and liabilities, the volatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy and, as a result, our forward contracts may not prove effective in reducing our exposures.
We conduct significant business activity outside the U.S., which exposes us to risks of international commerce.
A significant portion of our revenues is generated from foreign sales. Our ability to maintain the current level of operations in our existing international markets is subject to risks associated with international sales operations. We operate retail stores and sell our products to retailers outside of the U.S. and utilize foreign-based third-party manufacturers. Foreign manufacturing and sales activities are subject to numerous risks, including:
•tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such as quotas and local content rules;
•delays associated with the manufacture, transportation, and delivery of products, including related to global port backlog or congestion;
•increased transportation costs due to distance, energy prices, inflation, or other factors;
•delays in the transportation and delivery of goods due to increased security concerns;
•restrictions on the transfer of funds;
•restrictions and potential penalties due to privacy laws on the handling and transfer of consumer and other personal information;
•changes in governmental policies and regulations;
•political unrest, such as the ongoing war between Russia and Ukraine, changes in law, terrorism, natural disasters, public health issues like the COVID-19 pandemic, or war, any of which can interrupt commerce;
•potential violations of U.S. and foreign anti-corruption and anti-bribery laws by our employees, business partners or agents, despite our policies and procedures relating to compliance with these laws;
•expropriation and nationalization;
•difficulties in managing foreign operations effectively and efficiently from the U.S.;
•difficulties in understanding and complying with local laws, regulations, and customs in foreign jurisdictions;
•longer accounts receivable payment terms and difficulties in collecting foreign accounts receivables;
•difficulties in enforcing contractual and intellectual property rights;
•greater risk that our business partners do not comply with our policies and procedures relating to labor, health, and safety;
•UFLPA detentions by U.S. Customs resulting in revenue loss and adverse media exposure; and
•increased accounting and internal control costs.
In addition, we are subject to customs laws and regulations with respect to our export and import activity, which are complex and vary within legal jurisdictions in which we operate. We cannot ensure there will not be a control failure around customs enforcement despite the precautions we take. We are currently subject to audits by customs authorities. Any failure to comply with customs laws and regulations could be discovered during a U.S. or foreign government customs audit, or customs authorities may disagree with our tariff treatments, and such actions could result in substantial fines and penalties, which could have an adverse effect on our business and financial results. In addition, changes to U.S. trade laws may adversely impact our operations. These changes and any changes to the trade laws of other countries may add additional compliance costs and obligations and subject us to significant fines and penalties for non-compliance. Compliance with these and other foreign legal regimes may have a material adverse impact on our business and results of operations. For example, on December 23, 2021, the UFPLA, which effectively prohibits imports of any goods made either wholly or in part in a certain area of China, was signed into law, which generally prohibits importing goods made with forced labor into the U.S., subject to certain exceptions. While we do not currently expect that this law will directly affect our supply chain, since we do not believe that our suppliers source materials from such area of China for the products they sell to us or use to manufacture our products, other companies’ attempts to shift suppliers in response to this law or other policy developments could result in, among other things, shortages, delays, and/or price increases that could disrupt our own supply chain or cause our suppliers to renegotiate existing arrangements with us or fail to perform on such obligations. In addition, the ongoing war between Russia and Ukraine has adversely affected the global economy, resulted in heightened economic sanctions against Russia from the United States, the United Kingdom, the European Union, and the international community, and has resulted in geopolitical instability. For more information, please see the risk factors under “Risks Related to the Economy - The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition, and results of operations,” “Risks Related to Our Supply Chain - We depend solely on third-party manufacturers located outside the U.S.,” “Risks Related to our Supply Chain - Our third-party manufacturing operations must comply with labor, trade, and other laws. Failure to do so may adversely affect us,” and “Risks Specific to Our Company and Strategy - Our business relies significantly on the use of information technology. A significant disruption to our operational technology or those of our business partners, a privacy law violation, or a data security breach could harm our reputation and/or our ability to effectively operate our business, and our financial results”
Furthermore, as a global company, we are subject to foreign and U.S. laws and regulations designed to combat governmental corruption, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Violations of these laws and regulations could result in fines and penalties; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries; and a materially negative effect on our brands and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these foreign and U.S. laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, there can be no assurance that our employees, business partners, or agents will not violate our policies.
Risks Specific to Our Company and Strategy
We may be unable to successfully execute our long-term growth strategy, maintain or grow our current revenue and profit levels, or accurately forecast demand and supply for our products.
Our ability to maintain our revenue and profit levels or to grow in the future depends on, among other things, the continued success of our efforts to maintain our brands’ image, our ability to bring compelling and profit enhancing footwear offerings to market, our ability to effectively manage or reduce expenses and our ability to expand within our current distribution channels and increase sales of our products into new locations internationally. We are focusing on our core casual footwear heritage by narrowing our product line with an emphasis on higher margin products, as well as developing innovative new casual lifestyle footwear platforms.
Our ability to realize the benefits from the Acquisition is substantially dependent on our ability to continue to grow and integrate HEYDUDE. If we are unsuccessful at, among other things, building HEYDUDE’s brand awareness, enhancing its digital capabilities, leveraging our wholesale relationships to enhance distribution, investing in HEYDUDE’s infrastructure as well as sales and business operations, integrating employees into our company culture, leveraging our distribution for global growth and/or investing to scale our supply chain and gain efficiencies, our sales could be adversely affected, and our business could suffer. In addition, HEYDUDE’s product sales may not meet our expectations. See the risk under “HEYDUDE Acquisition Risks - Our ability to realize the benefits from the Acquisition is substantially dependent on our ability to continue to grow HEYDUDE.”
Successfully executing our long-term growth and profitability strategy will depend on many factors, including our ability to
•strengthen and maintain our brands;
•focus on relevant geographies and markets, product innovation, and profitable growth, while maintaining demand for our current offerings;
•effectively manage our company-operated retail stores to meet operational and financial targets at the retail store level;
•accurately forecast the global demand for our products, consolidate our distribution and supply chain network to leverage resources, simplify our fulfillment process, and deliver product around the globe efficiently;
•use and protect the Crocs and HEYDUDE brands and our other intellectual property in new and existing markets and territories;
•achieve and maintain a strong competitive position in new and existing markets;
•attract and retain qualified wholesalers and distributors, including partner store operators;
•maintain and enhance our digital marketing capabilities and digital commerce capabilities; and
•execute multi-channel advertising, marketing, collaboration, and social media campaigns to effectively communicate our message directly to our consumers and employees.
While these strategies, along with other steps to be taken, are intended to improve and grow our business, there can be no assurance this will be the case or that additional steps or accrual of additional material expenses or accounting charges will not be required. If additional steps are required, there can be no assurance that they will be properly implemented or will be successful.
Our business relies significantly on the use of information technology. A significant disruption to our operational technology or those of our business partners, a privacy law violation, or a data security breach could harm our reputation and/or our ability to effectively operate our business, and our financial results.
We rely heavily on the use of information technology systems and networks across all business functions, as do our business partners. The future success and growth of our business depend on streamlined processes made available through information systems, global communications, internet activity, and other network processes. We rely on third-party information services providers worldwide for many of our information technology functions including network, hardware, and software configuration. Additionally, we rely on internal networks and information systems and other technology, including the internet and third-party hosted services, to support a variety of business processes and activities, including procurement and supply chain, manufacturing, distribution, invoicing, and collection of payments. We use information systems for certain human resource activities and to process our employee benefits, as well as to process financial information for internal and external reporting purposes and to comply with various reporting, legal, and tax requirements. We also have outsourced a significant
portion of work associated with our finance and accounting, human resources, customer service, and other information technology functions to third-party service providers. Despite our current security and cybersecurity measures, our systems and those of our third-party service providers may be vulnerable to information security breaches, acts of vandalism, computer viruses, credit card fraud, phishing, ransomware attacks, and interruption or loss of valuable business data, and we have been subject to, and will continue to be subject to, various third-party attacks and phishing scams. Any disruption to these systems or networks could result in product fulfillment delays, key personnel being unable to perform duties or communicate throughout the organization, loss of sales, significant costs for data restoration, the inability to interpret data timely to enhance operations, and other adverse impacts on our business and reputation. Denial of service attacks could also materially adversely affect our business.
We routinely possess sensitive customer and employee information. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks on a daily basis. Any breach of our network may result in the loss of valuable business data, misappropriation of our consumers’ or employees’ personal information, including credit card information, or a disruption of our business. Despite our existing cybersecurity procedures and controls, if our network is breached, it could give rise to unwanted media attention, materially damage our customer relationships, or harm our business, our reputation, and our financial results, which could result in fines or lawsuits. The costs we incur to protect against such information security breaches may materially increase, including increased investment in technology, the costs of compliance with consumer protection laws, and costs resulting from consumer fraud. Our business partners in our supply chain and customer base also rely significantly on information technology. Despite their existing cybersecurity procedures and controls, if their information systems become compromised, it could, among other things, cause delays in our product fulfillment or reduce our sales, which could harm our business.
In addition, the European Union’s General Data Protection Regulation, the California Consumer Privacy Act, and other similar evolving privacy laws impose additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. These regulations may harm or alter the operations of our e-commerce business, add additional compliance costs and obligations, and subject us to significant fines and penalties for non-compliance. Compliance with these and other foreign legal regimes and the associated costs may have a material adverse impact on our business and results of operations.
If our online e-commerce sites, or those of our customers, do not function effectively, our business and financial results could be materially adversely affected.
An increasing amount of our products are sold on our e-commerce sites and third-party e-commerce sites. Any failure on our part or on the part of third parties to provide effective, reliable, user-friendly e-commerce platforms that offer a wide assortment of our products could place us at a competitive disadvantage, result in the loss of sales, and could have a material adverse impact on our business and financial results. Our e-commerce business may be particularly vulnerable to cyber threats including unauthorized access and denial of service attacks. Sales in our e-commerce channel may also divert sales from our retail and wholesale channels.
Our financial success depends in part on the strength of our relationships with, and the success of, our wholesale and distributor customers.
Our financial success is related to the willingness of our current and prospective wholesale and distributor customers to carry our products. We do not have long-term contracts with most wholesale customers, and sales to these customers are generally on an order-by-order basis and subject to cancellation and rescheduling. Our contracts with distributors typically have terms of one to five years and can be terminated or renegotiated if minimum requirements or other terms are not met. If we cannot fill orders in a timely manner, the sales of our products and our relationships may suffer. Alternatively, if our wholesalers or distributors experience diminished liquidity or other financial issues, we may experience a reduction in product orders, an increase in order cancellations and/or the need to extend payment terms, which could lead to larger outstanding balances, delays in collections of accounts receivable, increased expenses associated with collection efforts, increases in bad debt expenses, and reduced cash flows if our collection efforts are unsuccessful. We have recorded material allowances for doubtful accounts in the past and could do so again in the future. Future problems with customers may have a material adverse effect on our product sales, financial condition, results of operations, and our ability to grow our product line.
Operating company-operated retail stores incurs substantial fixed costs. If we are unable to generate sales, operate our retail stores profitably, or otherwise fail to meet expectations, we may be unable to reduce such fixed costs and avoid losses or negative cash flows.
Opening and operating company-operated retail stores requires substantial financial commitments, including fixed costs, and are subject to numerous risks including consumer preferences, location, and other factors that we do not control. Declines in revenue and operating performance of our company-operated retail stores could cause us to record impairment charges and have a material adverse effect on our business and financial results. During 2022, we opened 22 and closed 50 retail stores, and we operated 345 retail stores at December 31, 2022.
Many of our company-operated retail stores are located in shopping malls and outlet malls, and our success depends in part on obtaining prominent locations and the overall ability of the malls to successfully generate and maintain customer traffic. We cannot control the success of individual malls or store closures by other retailers, which may lead to mall vacancies and reduced customer foot-traffic. In addition, consumer spending and shopping preferences have shifted, and may continue to further shift, away from brick-and-mortar retail to e-commerce channels, both prior to, and as a result of, the COVID-19 pandemic, which may contribute to declining foot-traffic in company-operated retail locations. Continued reduced customer foot-traffic could reduce sales at our company-operated retail stores, including kiosks and store-in-store locations, or hinder our ability to open retail stores in new markets, which could in turn negatively affect our business and financial results. In addition, some of our company-operated retail stores occupy street locations that are heavily dependent on customer traffic generated by tourism. Any substantial decrease in tourism, resulting from an economic slowdown, political, terrorism, social, or military events, natural disasters, public health issues like the COVID-19 pandemic, or otherwise, is likely to adversely affect sales in our existing stores.
Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.
From time to time, we may invest in business infrastructure, expansion of existing businesses or operations, and acquisitions of new businesses, such as HEYDUDE, which require substantial cash investment and management attention. We believe cost effective investments are essential to business growth and profitability; however, significant investments are subject to risks and uncertainties. The failure of any significant investment to provide the returns or profitability we expect, or implementation issues, or the failure to integrate newly acquired businesses could have a material adverse effect on our financial results and divert management attention from more profitable business operations.
Specifically, over the last several years, we have implemented numerous information systems designed to support various areas of our business, including a fully-integrated global accounting, operations, and finance enterprise resource planning system, and warehouse management, order management, and internet point-of-sale systems, as well as various interfaces between these systems and supporting back-office systems. We have also moved to, and subsequently expanded, a new distribution center in Dayton, Ohio to serve our North American businesses for the Crocs Brand, and have moved to a new company-operated distribution center in the Netherlands and a new third-party operated distribution center in Japan to serve our EMEALA and Asia Pacific businesses, respectively, for the Crocs Brand. Additionally, we have expanded our HEYDUDE Brand distribution center in Las Vegas, Nevada, and we are further expanding our distribution capabilities of the HEYDUDE Brand by constructing a distribution facility in Nevada set to open in late 2023. As our business grows, we may also need to make further investments in business systems and distribution capabilities. Issues in implementing or integrating new business operations, such as HEYDUDE, and new systems with our current operations, failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, issues with transitioning to or operating our new distribution centers, cost overruns, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, require significant additional capital investments to remediate, and may have an adverse effect on our business and financial results.
We depend on employees across the globe, the loss of whom would harm our business.
We rely on executives and senior management to drive the financial and operational performance of our business. Turnover of executives and senior management can adversely impact our stock price, our results of operations, and our client relationships and may make recruiting for future management positions more difficult or may require us to offer more generous compensation packages to attract top executives. Changes in other key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business. When we experience management turnover, we must successfully integrate any newly hired management personnel within our organization in a timely manner in order to achieve our operating objectives. The key initiatives directed by these executives may take time to implement and yield positive results, and there can be no guarantee they will be successful. If our new executives do not perform up to expectations, we may experience declines in our financial performance and/or delays or failures in achieving our long-term growth strategy.
Further, our business depends on our ability to source and distribute products in a timely, efficient, and cost-effective manner. Labor disputes impacting our suppliers, manufacturers, transportation carriers, or ports pose significant threats to our business, particularly if such disputes result in work slowdowns, lockouts, strikes or other disruptions during our peak importing, or manufacturing and selling seasons. Any such disruption could result in delayed or canceled orders by customers, unplanned inventory accumulation or shortages, and increased transportation and labor costs, negatively impacting our results of operations and financial position.
We are subject to periodic litigation, which could result in unexpected expenditures of time and resources.
From time to time, we initiate litigation or are called upon to defend ourselves against lawsuits relating to our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. For a detailed discussion of our current material legal proceedings, see Note 16 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. An unfavorable outcome in any of these proceedings, or any future legal proceedings, could have an adverse impact on our business and financial results. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. In the past, securities class action litigation has been brought against us. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business.
Global climate change, including extreme weather conditions, natural disasters, public health issues, or other events outside of our control, as well as related regulations, could negatively impact our operating results and financial condition.
The effects of climate change, natural disasters such as earthquakes, hurricanes, tsunamis, or other adverse weather and climate conditions, and public health issues like the COVID-19 pandemic, whether occurring in the U.S. or abroad, and the consequences and effects thereof, including damage to our supply chain, such as availability of raw materials, increased manufacturing costs and disruptions to productivity of our third-party manufacturers, manufacturing or distribution centers, or retail stores, changes in consumer preferences or spending priorities, and energy shortages, have in the past and could in the future harm or disrupt our operations or the operations of our vendors, other suppliers, or customers, or result in economic instability that may negatively impact our operating results and financial condition. Additionally, certain catastrophes are not covered by our general insurance policies, which could result in significant unrecoverable losses. Many governmental and other regulatory bodies worldwide are enacting regulations to mitigate the impacts of climate change. If we, our suppliers, or our third-party manufacturers are required to comply with these laws and regulations, or if we choose to take additional voluntary steps to reduce or mitigate our impact on the climate, we may experience increased costs for energy, production, transportation, and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, each of which could adversely impact our operations. In addition, inconsistent regulations among jurisdictions may also affect our cost to comply with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations, or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate.
In 2021, we made a public commitment regarding a plan to be Net Zero by 2030. Although we intend to meet these commitments, we may be required to expend significant resources to do so, which could increase our operational costs. Further, there can be no assurance of the extent to which our commitment will be achieved, or that any future investments we make in furtherance of achieving such target and goal will meet investor expectations or legal standards, if any, regarding sustainability performance. As our business context continues to change, such as with the acquisition of HEYDUDE, we will continue to evaluate pathways and feasibility of our carbon reduction journey. Moreover, we may determine that it is in the best interest of
our Company and our stockholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, technological developments, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders. If we are unable to meet these commitments, then we could incur adverse publicity and reaction from investors, activist groups or other stakeholders, which could adversely impact the perception of us and our products and services by current and potential customers, as well as investors, which could in turn adversely impact our results of operations.
Our restated certificate of incorporation, amended and restated bylaws, and Delaware law contain provisions that could discourage a third-party from acquiring us and consequently decrease the market value of an investment in our stock.
Our restated certificate of incorporation, amended and restated bylaws, and Delaware corporate law each contain provisions that could delay, defer, or prevent a change in control of us or changes in our management. These provisions could discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions, which may prevent a change of control or changes in our management that a stockholder might consider favorable. In addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of us. Any delay or prevention of a change of control or change in management that stockholders might otherwise consider to be favorable could cause the market price of our common stock to decline.
Increasing scrutiny from investors, regulators, and other key stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks.
Investor advocacy groups, certain institutional investors, investment funds, stockholders, customers, consumers and regulators, such as the SEC, are increasingly focused on corporate responsibility, specifically on the ESG practices of companies. These parties have placed increased importance on the implications of the social cost of their investments. From time to time, we communicate certain ESG initiatives and goals to market participants and our customers and business partners. Any corporate responsibility disclosure we make may include our policies, practices, initiatives, and goals on a variety of social and ethical matters, corporate governance, environmental compliance, sustainability, employee health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity. Although we have undertaken significant efforts to improve and implement our ESG initiatives, it is possible that the aforementioned parties may not be satisfied with such disclosures, our ESG practices, or the speed with which we adopt and/or implement our plans. Moreover, the preparation of sustainability metrics requires management to establish criteria, make determinations as to the relevancy of information to be included, and make assumptions that affect reported information. The selection by management of different but acceptable measurement techniques could result in materially different amounts or metrics being reported. If our ESG practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, or if we are perceived or deemed to have not appropriately responded to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage from stakeholders and consumers and our business and financial condition could be materially and adversely affected. We may also incur additional costs or require additional resources to monitor such stakeholder expectations and standards and to meet our targets and commitments. Further, we could fail, or be perceived to fail, to achieve our ESG initiatives or goals, or we could fail to fully and accurately report our progress on such initiatives and goals, which could negatively impact our business.
Indebtedness Risks
Our senior revolving credit facility agreement (as amended to date, the “Revolving Credit Agreement”), the Term Loan B Credit Agreement, and the Indentures each impose significant operating and financial restrictions on us and certain of our subsidiaries, which may prevent us from capitalizing on business opportunities. A breach of any of those restrictive covenants may cause us to be in default under the Revolving Credit Agreement, the Term Loan B Credit Agreement and/or the Indentures, and our lenders could foreclose on our assets.
Our Revolving Credit Agreement requires us to maintain certain financial covenants. A decline in our operating performance could negatively impact our ability to meet these financial covenants. If we breach any of these restrictive covenants, the lenders could either refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the Revolving Credit Agreement. We may not have sufficient funds to repay such indebtedness upon a default or be unable to receive a waiver of the default from the lenders. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding or collection proceedings with respect to our assets, all of which secure our indebtedness under the Revolving Credit Agreement. The foregoing risks also apply to the Term Loan B Credit Agreement.
The Revolving Credit Agreement, the Term Loan B Credit Agreement, and the Indentures also contain certain restrictive covenants that limit, and in some circumstances prohibit, our ability to, among other things: incur additional debt or issue
preferred stock; sell, lease or transfer our assets; pay dividends on, and make other distributions on, or redeem or repurchase, our common stock; make certain capital expenditures and investments; guarantee debt or obligations; create certain liens; repurchase our common stock; enter into transactions with our affiliates; and enter into certain merger, consolidation, or other reorganizations transactions. These restrictions could limit our ability to obtain future financing, incur or guarantee additional debt, incur certain liens, enter into transactions with affiliates, transfer or sell certain assets, make acquisitions or needed capital expenditures, withstand the current or future downturns in our business, or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Our indebtedness could adversely affect our business, financial condition, and results of operations, as well as the ability to meet payment obligations under our Revolving Credit Agreement, the Term Loan B Credit Agreement, and the Notes.
As of December 31, 2022, we had $2,322.4 million in total indebtedness outstanding (net of $57.0 million of unamortized issuance costs related to the issuance of the Notes). To finance the Acquisition in part, we entered into an agreement (the “Term Loan B Credit Agreement”) with respect to a new senior secured term loan B facility in an aggregate principal amount equal to $2.0 billion (the “Term Loan B Facility”) and borrowed $50.0 million under the Revolving Facility. Subject to the limits contained in the Revolving Credit Agreement, the Indentures, the Term Loan B Credit Agreement and the applicable agreements governing our other existing indebtedness, we may be able to incur substantial additional debt from time to time. If we do so, the risks related to our level of debt could increase. Specifically, our level of debt could have important consequences, including the following:
• making it more difficult for us to meet our obligations with respect to our debt;
• reducing the availability of cash flow to fund future working capital, capital expenditures, acquisitions or other general corporate purposes;
• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate purposes;
• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions or other general corporate purposes;
• increasing our vulnerability to general adverse economic and industry conditions;
• exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;
• placing us at a disadvantage compared to other, less leveraged competitors;
• increasing our cost of borrowing; and
• limiting our flexibility in planning for changes in our business and reacting to changes in the industry in which we compete.
Furthermore, if we are unable to meet our debt service obligations or should we fail to comply with our financial and other negative covenants contained in the agreements governing our indebtedness, we may be required to refinance all or part of our debt, sell important strategic assets at unfavorable prices, incur additional indebtedness or issue common stock or other equity securities. We may not be able to, at any given time, refinance our debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to us, in amounts sufficient to meet our needs. If we are able to raise additional funds through the issuance of equity securities, such issuance would also result in dilution to our stockholders. Our inability to service our obligations or refinance our debt could have a material and adverse effect on our business, financial condition or operating results. In addition, our debt obligations may limit our ability to make required investments in capacity, technology, or other areas of our business, which could have a material adverse effect on our business, financial condition, or operating results.
Any of these factors could have an adverse effect on our business, financial condition, and results of operations and our ability to meet our debt payment obligations. See also “HEYDUDE Acquisition Risks - The incurrence by us of substantial indebtedness in connection with the financing of the Acquisition may have an adverse impact on our liquidity, limit our
flexibility in responding to other business opportunities, and increase our vulnerability to adverse economic and industry conditions.”
Despite our current level of indebtedness, we may be able to incur substantially more debt, which could increase the risks to our financial condition described above.
We may be able to incur substantial additional indebtedness in the future, such as the debt we incurred to finance the Acquisition in part. Although certain of the agreements governing our existing indebtedness contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions, including compliance with various financial conditions. Additional indebtedness incurred in compliance with our existing debt instruments could be substantial. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factor would increase.
As of December 31, 2022, we had approximately $2,322.4 million in total indebtedness outstanding (net of $57.0 million of unamortized issuance costs related to the issuance of the Notes), including $1,675.0 million outstanding on the Term Loan B Facility. We had no borrowings outstanding under the Revolving Facility, with total borrowing capacity of approximately $748.7 million thereunder (including $1.3 million of letters of credit outstanding as of such date).
Financial and Accounting Risks
We may be required to record impairments of long-lived assets or incur other charges relating to our company-operated retail operations.
Impairment testing of our retail stores’ long-lived assets requires us to make estimates about our future performance and cash flows that are inherently uncertain. These estimates can be affected by numerous factors, including changes in economic conditions, our results of operations, and competitive conditions in the industry. Due to the fixed-cost structure associated with our retail operations, negative cash flows, or the closure of a store could result in impairment of leasehold improvements, impairment of right-of-use assets, impairment of other long-lived assets, write-downs of inventory, severance costs, significant lease termination costs or the loss of working capital, which could adversely impact our business and financial results. Impairment charges may increase as we continue to evaluate our retail operations. The recording of additional impairments in the future may have a material adverse impact on our business and financial results.
We may incur impairments of the carrying value of our goodwill and other intangible assets, which could have a material adverse effect on our business and financial results.
In connection with the Acquisition, we allocated approximately $713.3 million and $1,780.0 million to goodwill and indefinite-lived intangible assets, respectively. These assets are tested for impairment at least annually, using estimates and assumptions affected by factors such as economic and industry conditions and changes in operating performance. Additionally, in conjunction with the impairment tests, we also reassess the indefinite-life classification. Potential resulting charges from an impairment of goodwill or our indefinite-lived intangible, as well as reclassification of an indefinite-lived to a definite-lived intangible, could have a material adverse effect on our business and results of operations.
The testing of our goodwill for impairment is predicated upon our determination of our reporting units. Any change to the conclusion of our reporting units or the aggregation of components within our reporting units could result in a different outcome to our annual impairment test. Although the fair values of our HEYDUDE Brand reporting unit goodwill and indefinite-lived intangible assets are either equal to or in excess of their carrying values, the fair values are sensitive to the aforementioned potential unfavorable changes that could have an adverse impact on future analyses. See Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 - Goodwill and Intangible Assets, Net in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information.
Our quarterly revenues and operating results are subject to fluctuation as a result of a variety of factors, which could increase the volatility of the price of our common stock.
Quarterly results may also fluctuate as a result of several factors, including new style introductions, general economic conditions, or changes in consumer preferences. Results for any one quarter or year are not necessarily indicative of results to be expected for any other quarter or for any other year. This could lead to results outside of analyst and investor expectations, which could increase volatility of our stock price.
The risks of maintaining significant cash abroad could adversely affect our cash flows in the U.S., our business, and financial results.
We have substantial cash requirements in the U.S., but a significant portion of our cash is generated and held abroad. We generally consider unremitted earnings of subsidiaries operating outside the U.S. to be indefinitely reinvested, and it is not our current intent to change this position. Cash held outside of the U.S. is primarily used for the ongoing operations of the business in the locations in which the cash is held. Most of the cash held outside of the U.S. could be repatriated to the U.S., and under the U.S. Tax Cuts and Jobs Act, could be repatriated without incurring additional U.S. federal income taxes, although some states will continue to subject cash repatriations to income tax. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were to move the cash to another country. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and may adversely affect our liquidity.
Changes in tax laws and unanticipated tax liabilities and adverse outcomes from tax audits or tax litigation could adversely affect our effective income tax rate and profitability.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the outcome of income tax audits or tax litigation in various jurisdictions around the world. We are regularly subject to, and are currently undergoing, audits by tax authorities in the U.S. and foreign jurisdictions for prior tax years. Please refer to Note 14 - Income Taxes and Note 16 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional details regarding current tax audits. The final outcome of tax audits and related litigation is inherently uncertain and could be materially different than that reflected in our historical income tax provisions and accruals. Moreover, we could be subject to assessments of substantial additional taxes and/or fines or penalties relating to ongoing or future audits, which could have an adverse effect on our financial position and results of operations. Future changes in domestic or international tax laws and regulations could also adversely affect our effective tax rate or result in higher income tax liabilities. Recent developments, including the Inflation Reduction Act, the European Commission’s investigations of local country tax authority rulings and whether those rulings comply with European Union rules on state aid, as well as the Organization for Economic Co-operation and Development’s project on Base Erosion and Profit Shifting, continue to change long-standing tax principles. These and any other additional changes could adversely affect our effective tax rate or result in higher cash tax liabilities.
We may fail to meet analyst and investor expectations, which could cause the price of our stock to decline.
Our common stock is traded publicly, and various securities analysts follow our financial results and frequently issue reports on us which include information about our historical financial results as well as their estimates of our future performance. These estimates are based on their own opinions and are often different from management’s estimates or expectations of our business. If our operating results are below the estimates or expectations of public market analysts and expectations of our investors, our stock price could decline.
HEYDUDE Acquisition Risks
Our ability to realize the benefits from the Acquisition is substantially dependent on our ability to continue to grow HEYDUDE.
Our ability to realize the benefits from the Acquisition is substantially dependent on our ability to continue to grow HEYDUDE. Combining with Crocs, Inc. may not accelerate the growth and success of HEYDUDE, and the HEYDUDE business may not perform as expected. If we are unsuccessful at, among other things, building HEYDUDE’s brand awareness, enhancing its digital capabilities, leveraging our wholesale relationships to enhance distribution, investing in HEYDUDE’s infrastructure as well as sales and business operations, leveraging our distribution for global growth and/or investing to scale our supply chain and gain efficiencies, our sales could be adversely affected, and our business could suffer. In addition, HEYDUDE’s product sales may not meet our expectations.
Moreover, HEYDUDE depends on a limited number of third-party manufacturers that are concentrated in China to produce its
products. Due to the relative concentration of HEYDUDE’s third-party manufacturers, disruption at the facilities of such third-party manufacturing partners as a result of COVID-19 or otherwise, including through the effects of facility closures, reductions in operating hours and labor shortages may have a material adverse effect in the future. See the risk factors under “Risks
Related to Our Supply Chain - Supply chain disruptions could interrupt product manufacturing and global logistics and increase product costs,” “Risks Related to Our Supply Chain - Our operations are dependent on the global supply chain and impacts of supply chain constraints and inflationary pressure could adversely impact our operating results,” and “Risks Related to Our Supply Chain - We depend solely on third-party manufacturers located outside of the U.S.”
Further, our ability to realize the benefits from the Acquisition may be dependent on the savings resulting from the timely and effective integration of the operations of the Crocs and HEYDUDE Brands. The process of integrating the operations of the Crocs and HEYDUDE Brands could encounter unexpected costs and delays, which include: the loss of key personnel; the loss of key customers; the loss of key suppliers; and unanticipated issues in integrating sales, marketing, and administrative functions. If we are unable to timely and effectively integrate the operations of the Crocs and HEYDUDE Brands, our costs could be adversely affected, and our business could suffer.
The incurrence by us of substantial indebtedness in connection with the financing of the Acquisition may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities, and increase our vulnerability to adverse economic and industry conditions.
We incurred a significant amount of indebtedness in connection with the financing of the Acquisition, which was funded, in part, using borrowings under the Term Loan B Facility in an aggregate principal amount equal to $2.0 billion. The use of indebtedness to finance the Acquisition reduced our liquidity and could cause us to place more reliance on cash generated from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow for working capital and capital expenditure needs or to pursue other potential strategic plans. The agreements we entered into with respect to the indebtedness we incurred to finance the Acquisition contain certain restrictive covenants that limit, and in some circumstances prohibit, our ability to, among other things: incur additional debt or issue preferred stock; sell, lease or transfer our assets; pay dividends on, and make other distributions on, or redeem or repurchase, our common stock; make certain capital expenditures and investments; guarantee debt or obligations; create certain liens; repurchase our common stock; enter into transactions with our affiliates; and enter into certain merger, consolidation, or other reorganizations transactions. These restrictions could limit our ability to obtain future financing, incur or guarantee additional debt, incur certain liens, enter into transactions with affiliates, transfer or sell certain assets, make acquisitions or needed capital expenditures, withstand the current or future downturns in our business, or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors. Our ability to comply with these negative covenants can be affected by events beyond our control. In addition, a breach of the negative covenants could result in an event of default with respect to the indebtedness, which, if not cured or waived, could result in the indebtedness becoming immediately due and payable and could have a material adverse effect on our business, financial condition, or operating results.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
ITEM 2. Properties
Our principal executive and administrative offices are located at 13601 Via Varra, Broomfield, Colorado 80020. We lease all of our domestic and international facilities. We currently enter into short-term and long-term leases for office, warehouse, and retail, including kiosk and store-in-store, space. The terms of our leases include fixed monthly rents and/or contingent rents based on percentage of revenues for certain of our retail locations and expire at various dates through the year 2033. The general location, use, and approximate size of our principal properties, as well as the reportable operating segment that utilizes each property, are given below.
Location Reportable Operating Segment(s) Use Approximate Square Feet
Dayton, Ohio North America Distribution center 2,037,000
Dordrecht, the Netherlands EMEALA Distribution center 517,000
Las Vegas, Nevada HEYDUDE Brand Distribution center 456,000
Rotterdam, the Netherlands EMEALA Warehouse 172,000
Broomfield, Colorado (1)
North America Regional office and Crocs Brand headquarters 88,000
Oudenbosch, the Netherlands EMEALA Warehouse 75,000
Hoofddorp, the Netherlands EMEALA Regional office 47,000
Westwood, Massachusetts North America, HEYDUDE Brand Regional office and HEYDUDE Brand headquarters 23,000
Singapore Asia Pacific Regional office 17,000
(1) In 2021, we entered into a lease to move our corporate headquarters to a new location, also in Broomfield, Colorado, with an approximate size of 190,000 square feet. During 2022, we gained access to and began construction on the new location. We plan to complete the move of our corporate headquarters in 2023.
We believe these properties, particularly our distribution centers and warehouses, along with various third-party distribution centers not included above, are adequate for our operations. Aside from the principal properties listed above, we lease various other offices and distribution centers worldwide to meet our sales and operational needs. We also lease 345 retail locations worldwide as of December 31, 2022. See Item 1. Business of this Annual Report on Form 10-K for further discussion regarding global company-operated stores.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. Legal Proceedings
A discussion of legal matters is found in Note 16 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the Nasdaq Global Select Market under the stock symbol “CROX.”
Performance Graph
The following performance graph illustrates a five-year comparison from December 31, 2017 through December 31, 2022 of cumulative total return of our common stock, compared to the Nasdaq Composite Total Return Index and the Dow Jones U.S. Footwear Total Return Index, both of which are new published industry indices we have selected to use beginning this year, and compared to the Nasdaq Composite Index and the Dow Jones U.S. Footwear Index, the published industry indices we previously used for the purposes of this disclosure. We believe each of the Nasdaq Composite Total Return Index and Dow Jones U.S. Footwear Total Return Index better reflects the market in which we operate and the companies with which we compete. The graph assumes an investment of $100.00 on December 31, 2017 and assumes the reinvestment of all dividends and other distributions.
The Dow Jones U.S. Footwear Total Return Index is a sector index and includes companies in the major line of business in which we compete. This index does not encompass all of our competitors or all of our product categories and lines of business. The Dow Jones U.S. Footwear Index includes NIKE, Inc., Deckers Outdoor Corporation, Skechers U.S.A., Inc., Steven Madden Ltd., and Wolverine World Wide, Inc. The Nasdaq Composite Total Return Index is a market capitalization-weighted index that includes reinvestment of all cash distributions of index members and consists of more than 3,000 common equities, including Crocs, Inc. The stock performance shown on the performance graph above is not necessarily indicative of future performance. We do not make or endorse any predictions as to future stock performance.
Holders
The approximate number of stockholders of record of our common stock was 46 as of February 9, 2023.
Dividends
We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Our financing arrangements include restrictions on cash dividends paid on our common stock. Any future determination to declare cash dividends on our common stock will be made at the discretion of our Board, subject to, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, and compliance with covenants under any then-existing financing agreements.
Purchases of Equity Securities by the Issuer
On April 23, 2021, the Board approved a $712.2 million increase to our share repurchase authorization. Additionally, on September 23, 2021, the Board approved an increase of $1.0 billion to our share repurchase authorization. As of December 31, 2022, approximately $1,050.0 million remained available for repurchase under our share repurchase authorization. The number, price, structure, and timing of the repurchases, if any, will be at our sole discretion and future repurchases will be evaluated by us depending on market conditions, liquidity needs, restrictions under the agreements governing our indebtedness, and other factors. Share repurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not oblige us to acquire any particular amount of our common stock. The Board may suspend, modify, or terminate the repurchase program at any time without prior notice. In the immediate term, we plan to continue to prioritize repayments of debt, including debt incurred to finance a part of the Acquisition, and in the year ended December 31, 2022, we suspended our share repurchase program until such time that our gross leverage is under 2.0x. Accordingly, we did not repurchase any shares of our common stock during the year ended December 31, 2022.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Crocs, Inc. and its consolidated subsidiaries (collectively, the “Company,” “we,” “us,” or “our”) are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers want. The vast majority of shoes within the Crocs Brand’s collection contain Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step. The broad appeal of our footwear has allowed us to market our products through a wide range of distribution channels. We currently sell our products in more than 85 countries, through two distribution channels: wholesale and direct-to-consumer. Our wholesale channel includes domestic and international multi-brand retailers, mono-branded partner stores, e-tailers, and distributors; our direct-to-consumer channel includes company-operated retail stores, company-operated e-commerce sites, and third-party marketplaces.
Known or Anticipated Trends
Based on our recent operating results and our assessment of the current operating environment, we anticipate certain trends will continue to impact our future operating results:
•On February 17, 2022 (the “Acquisition Date”), we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear, including footwear under the brand name “HEYDUDE.” The Acquisition has enabled us to further diversify our product portfolio under two brands. We intend to leverage our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value. For more information on the Acquisition, refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on this Form 10-K. The consolidated results reported for the year ended December 31, 2022 represent the Crocs Brand and ‘Enterprise corporate’ for the full year and the HEYDUDE Brand for the partial period beginning on the Acquisition Date through December 31, 2022 (the “Partial Period”); for the years ended December 31, 2021 and 2020, the results represent the Crocs Brand and ‘Enterprise corporate’ only.
•Consumer spending habits, including spending for the products that we sell, are affected by various macroeconomic factors, such as, among other things, prevailing global economic conditions, inflation, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income. Recently, we have also been impacted by adverse macroeconomic and geopolitical conditions, such as the war between Russia and Ukraine, which has increased global supply chain, logistics, and inflationary challenges. Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting in a stronger USD, have impacted, and we expect will continue to impact, our business, contributing to, among other things, incremental freight costs, increased wages, particularly in our distribution centers, and increased raw materials costs. A stronger USD also results in costs for foreign goods purchased in USD but recognized in foreign currencies (“purchasing power”) that are unfavorable. In the year ended December 31, 2022, we incurred air freight costs of approximately $67 million, which helped mitigate supply delays as a result of Vietnam factory closures. We do not intend to use a significant amount of air freight in 2023. At December 31, 2022, our inventories balance was $471.6 million. The majority of the total increase in inventories of 120.8% over December 31, 2021 was due to the addition of the HEYDUDE Brand in the first quarter of 2022. Inventories for the Crocs Brand were also up 41.9% as of December 31, 2022. Throughout 2021 and into the first half of 2022, inventories were historically lean across the footwear industry as a result of factory closures and other supply chain delays. However, more recently, elevated inventory levels have caused the industry, including us, to become more promotional. This is particularly true in North America. We expect these challenges to remain fluid as macroeconomic and inflationary pressures continue and foreign exchange rates fluctuate.
Use of Non-GAAP Financial Measures
In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), we present certain information related to our current period results of operations through “constant currency,” which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rates on reported amounts.
Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our consolidated financial statements as an additional tool to evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.
2022 Financial and Operational Highlights
Revenues were $3,555.0 million for the year ended December 31, 2022, a 53.7% increase compared to the year ended December 31, 2021. The increase in 2022 revenues compared to 2021 revenues was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of $895.9 million as a result of the Acquisition, which increased revenues by 38.7%; (ii) higher Crocs Brand sales volumes, which increased revenues by $294.1 million, or 12.7%; (iii) higher average selling prices for the Crocs Brand, which increased revenues by $155.3 million, or 6.7%, as a result of increased pricing; and (iv) unfavorable changes in exchange rates, which decreased revenues by $103.7 million, or 4.5% for the Crocs Brand.
The following were significant developments affecting our businesses during the year ended December 31, 2022:
•We acquired HEYDUDE on February 17, 2022, which contributed revenues of $895.9 million in the Partial Period. The HEYDUDE Brand became a new reportable operating segment as of the Acquisition Date.
•We grew Crocs Brand revenues 14.9%, despite significant foreign currency headwinds and supply chain challenges, compared to the same period in 2021, led by our Asia Pacific segment, which grew revenues 35.3%, or 47.0% on a constant currency basis, and our EMEALA segment, which grew revenues 32.1%, or 46.8% on a constant currency basis. Our North America segment revenues grew 5.8%, or 6.0% on a constant currency basis.
•We sold 115.6 million pairs of shoes worldwide for the Crocs Brand, an increase from 103.0 million pairs in 2021. We sold 30.5 million pairs of shoes for the HEYDUDE Brand in the Partial Period.
•Gross margin was 52.3% compared to 61.4% in 2021, a decrease of 910 basis points. Gross margin for the Crocs Brand was 56.3%, a decrease of 510 basis points from last year, as a result of ongoing global inflation, which negatively impacted material and freight costs, and higher distribution and logistics costs as a result of continued supply chain challenges. This includes air freight costs, which impacted gross margin by approximately 220 basis points. Higher pricing and favorable product mix partially offset these decreases. Gross margin for the HEYDUDE Brand was 40.8%, which is inclusive of an approximately 690 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value and also represents the continued effect of unfavorable pre-acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to expand HEYDUDE distribution centers to support a larger business. To that end, in 2022, we entered into a lease not yet commenced for a new HEYDUDE distribution center in Nevada.
•Selling, general & administrative expenses (“SG&A”) was $1,009.5 million, an increase of $272.4 million, or 36.9%, compared to 2021, primarily as a result of investments in marketing and headcount as we continue to grow the business, costs related to the acquisition and integration of HEYDUDE, and incremental operating costs associated with operating the HEYDUDE Brand. However, as a percent of revenues, SG&A improved 350 basis points to 28.4% of revenues as a result of strong sales growth and our continued leveraging of operating costs.
•Income from operations was $850.8 million for the year ended December 31, 2022 compared to income from operations of $683.1 million for the year ended December 31, 2021. Our operating margin declined to 23.9%, compared to 29.5% in 2021.
•Net income was $540.2 million compared to $725.7 million in 2021. Diluted net income per common share was $8.71 for the year ended December 31, 2022, compared to a diluted net income per common share of $11.39 for the year ended
December 31, 2021. These amounts include an income tax expense of $178.3 million in 2022 and an income tax benefit of $61.8 million in 2021, as described in more detail under Income tax expense (benefit) below.
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
A discussion of our comparison between 2022 and 2021 is presented below. A discussion of the changes in our results of operations between the years ended December 31, 2021 and December 31, 2020 has been omitted from this Annual Report on Form 10-K but may be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2022, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.crocs.com).
Year Ended December 31, $ Change % Change
Favorable (Unfavorable)
2022 2021 2022-2021 2022-2021
(in thousands, except per share data, margin, and average selling price data)
Revenues $ 3,554,985 $ 2,313,416 $ 1,241,569 53.7 %
Cost of sales 1,694,703 893,196 (801,507) (89.7) %
Gross profit 1,860,282 1,420,220 440,062 31.0 %
Selling, general and administrative expenses
1,009,526 737,156 (272,370) (36.9) %
Income from operations
850,756 683,064 167,692 24.5 %
Foreign currency gains (losses), net
3,228 (140) 3,368 2,405.7 %
Interest income 1,020 775 245 31.6 %
Interest expense (136,158) (21,647) (114,511) (529.0) %
Other income (expense), net
(338) 1,797 (2,135) (118.8) %
Income before income taxes
718,508 663,849 54,659 8.2 %
Income tax expense (benefit)
178,349 (61,845) (240,194) (388.4) %
Net income
$ 540,159 $ 725,694 $ (185,535) (25.6) %
Net income per common share:
Basic $ 8.82 $ 11.62 $ (2.80) (24.1) %
Diluted $ 8.71 $ 11.39 $ (2.68) (23.5) %
Gross margin (1)
52.3 % 61.4 % (910) bp (14.8) %
Operating margin (1)
23.9 % 29.5 % (560) bp (19.0) %
Selling, general and administrative expenses as a percentage of revenues (1)
28.4 % 31.9 % 350 bp 11.0 %
Footwear unit sales:
Crocs Brand 115,558 102,962 12,596 12.2 %
HEYDUDE Brand (3)
30,519 - - - %
Average footwear selling price - nominal basis (2):
Crocs Brand $ 22.72 $ 22.27 $ 0.45 2.0 %
HEYDUDE Brand (3)
$ 29.35 $ - $ - - %
(1) Changes for gross margin, operating margin, and SG&A as a percentage of revenues are shown in basis points (“bp”).
(2) Average footwear selling price is calculated as footwear and charms revenues divided by footwear units.
(3) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new reportable operating segment. Therefore, the amounts shown above for the year ended December 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the year ended December 31, 2021.
Revenues by Channel
Year Ended December 31, % Change Constant
Currency % Change (1)
Favorable (Unfavorable)
2022 2021 2022-2021 2022-2021
(in thousands)
Crocs Brand:
Wholesale $ 1,377,302 $ 1,174,081 17.3 % 23.4 %
Direct-to-consumer 1,281,823 1,139,335 12.5 % 15.3 %
Total Crocs Brand 2,659,125 2,313,416 14.9 % 19.4 %
HEYDUDE Brand (2):
Wholesale 574,140 - - % - %
Direct-to-consumer 321,720 - - % - %
Total HEYDUDE Brand 895,860 - - % - %
Total consolidated revenues (2)
$ 3,554,985 $ 2,313,416 53.7 % 58.2 %
(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.
(2) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new reportable operating segment. Therefore, the amounts shown above for the year ended December 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the year ended December 31, 2021.
Revenues. In the year ended December 31, 2022, revenues increased $1,241.6 million, or 53.7%, compared to 2021, driven by (i) the addition of HEYDUDE Brand revenues of $895.9 million during the Partial Period, (ii) higher volume in all Crocs Brand segments of $294.1 million, or 12.7%, led by our EMEALA and Asia Pacific segments, and (iii) higher average selling price on a constant currency basis (“ASP”) in the Crocs Brand of $155.3 million, or 6.7%, as a result of strategic increased pricing in all regions. Unfavorable foreign currency fluctuations, most significantly in the Euro and South Korean Won, decreased Crocs Brand revenues by $103.7 million, or 4.5%.
Cost of sales. Cost of sales increased compared to 2021, in part due to the addition of the HEYDUDE Brand, which had cost of sales in the Partial Period that were in line with its contributions to revenues discussed above. Higher average cost per unit on a constant currency basis (“AUC”) in the Crocs Brand of $186.0 million, or 20.8%, resulted mostly from higher distribution and logistics and material costs, driven in part by the use of air freight to combat supply chain disruptions and inflation. Higher volume in the Crocs Brand contributed $132.0 million, or 14.8%, to the increase in cost of sales, while foreign currency fluctuations in the Crocs Brand reduced cost of sales by $49.2 million, or 5.5%.
Gross margin and gross profit. Gross margin was 52.3% compared to 61.4% in 2021. Gross margin for the Crocs Brand was 56.3% compared to 61.4% in 2021, due primarily to higher material and freight costs, as described above, offset in part by higher pricing and favorable product mix. Gross margin for the HEYDUDE Brand was 40.8%, which is inclusive of an approximately 690 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value. This gross margin also represents the continued effect of unfavorable pre-acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to expand HEYDUDE distribution centers to support a larger business.
Gross profit increased $440.1 million, or 31.0%, primarily as a result of the addition of HEYDUDE, which contributed to the majority of the increase, as well as higher sales volumes in the Crocs Brand of $162.1 million, or 11.4%. These increases were offset in part by unfavorable foreign currency fluctuations of $54.5 million, or 3.9%, and the net impact of higher AUCs and higher ASPs, which decreased gross profit by $30.7 million, or 2.2%.
Selling, general and administrative expenses. SG&A as a percent of revenue improved to 28.4% during the year ended December 31, 2022 compared to 2021, as a result of strong sales growth and our continued efforts to leverage operating costs, while SG&A expenses increased $272.4 million, or 36.9% in the same period. We have continued to invest in marketing to fuel growth, with an increase of $88.1 million to SG&A, primarily associated with investments in marketing in the Crocs Brand, including for our digital business, as well as investments in marketing for our new HEYDUDE Brand during the Partial Period. Additionally, costs of $38.2 million associated with the Acquisition and related integration, including consulting, legal, statutory, and accounting fees, as well as certain compensation costs, contributed to the increase. There was an increase in sales
commissions of $36.9 million, due mostly to HEYDUDE, which used more costly external representatives prior to the Acquisition, at which point we began to transition to a more cost-effective model. Other increases in compensation costs of $27.7 million were due primarily to increased employee headcount as we have grown the Company over the last year, offset in part by lower variable compensation. Other increases in professional services costs of $22.2 million were due to variable costs associated with revenue growth and contract labor costs and an increase in facilities expenses of $15.3 million was driven by duplicate rent costs associated with our upcoming headquarters move, lease exit costs and penalties associated with the shutdown of our direct operations in Russia, and variable rent associated with higher revenues. There were net increases in other costs, including information technology, depreciation and amortization, and travel and related costs, of $44.0 million.
Foreign currency gains (losses), net. Foreign currency gains (losses), net, consists of unrealized and realized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on certain foreign currency derivative instruments. During the year ended December 31, 2022, we recognized realized and unrealized net foreign currency gains of $3.2 million compared to net losses of $0.1 million during the year ended December 31, 2021.
Income tax expense (benefit). During the year ended December 31, 2022, we recognized an income tax expense of $178.3 million on pre-tax book income of $718.5 million, representing an effective tax rate of 24.8%, compared to an income tax benefit of $61.8 million on pre-tax book income of $663.8 million in 2021, which represented an effective tax rate of (9.3)%. The prior year effective tax rate is lower primarily due to the prior year net foreign deferred income tax benefit as a result of an intra-entity intellectual property rights transfer of $127.7 million and the prior year release of valuation allowances. Our effective tax rate has varied dramatically in recent years due to the intra-entity intellectual property rights transfer, differences in our profitability levels and relative operating earnings across multiple jurisdictions, and by changes in the valuation allowance.
During the three months ended December 31, 2021, we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and future international operations. The transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets based on the fair value of the transferred intellectual property rights. We recorded a deferred tax asset of $40.3 million, net of a reserve for uncertain tax positions of $16.1 million. As such, a net deferred tax asset of $24.2 million was recognized along with a corresponding foreign deferred income tax benefit.
Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. In assessing our valuation allowance as of December 31, 2022, we considered all available evidence, including the magnitude of recent and current operating results, the duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these jurisdictions and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. In 2021, a jurisdiction for which we have historically recorded significant valuation allowances enacted a favorable change in the tax law related to net operating loss carryforwards. This change in tax law impacted the assessment of valuation allowances in the jurisdiction as the reversal of existing deferred tax assets would generate indefinite carryforward net operating losses instead of losses with a limited carryforward period. During 2022, valuation allowances recorded against deferred tax assets increased by $1.7 million.
The 2022 impact of changes in valuation allowances to the effective tax rate was an unfavorable impact of $4.4 million, equating to a 0.6% unfavorable impact. There is also a $2.7 million favorable change in the valuation allowance related to cumulative translation adjustments. We maintain valuation allowances of approximately $28.1 million as of December 31, 2022, which may be reduced in the future depending upon the achieved profitability of certain jurisdictions as well as the magnitude of the profitability.
Reportable Operating Segments
The following table sets forth information related to our reportable operating business segments for the years ended December 31, 2022, 2021, and 2020. As a result of changes made in the presentation of certain amounts between our segments in the year ended December 31, 2022, as described in more detail below, we have included a discussion of the changes in our results of operations between the years December 31, 2021 and 2020, as revised to conform to current period presentation.
Year Ended December 31, % Change Constant
Currency % Change (1)
Favorable (Unfavorable)
2022 2021 2020 2022-2021 2021-2020 2022-2021
(in thousands)
Revenues:
North America (2)
$ 1,644,630 $ 1,553,891 $ 832,540 5.8 % 86.6 % 6.0 %
Asia Pacific 473,935 350,160 278,515 35.3 % 25.7 % 47.0 %
EMEALA (2)
540,534 409,278 274,733 32.1 % 49.0 % 46.8 %
Brand corporate (3)
26 87 163 (70.1) % (46.6) % (70.1) %
Crocs Brand revenues 2,659,125 2,313,416 1,385,951 14.9 % 66.9 % 19.4 %
HEYDUDE Brand revenues (4)
895,860 - - - % - % - %
Total consolidated revenues $ 3,554,985 $ 2,313,416 $ 1,385,951 53.7 % 66.9 % 58.2 %
Income from operations:
North America (2)
$ 683,350 $ 755,723 $ 313,913 (9.6) % 140.7 % (9.4) %
Asia Pacific 145,011 71,936 32,830 101.6 % 119.1 % 119.5 %
EMEALA (2)
153,976 134,126 75,513 14.8 % 77.6 % 28.1 %
Brand corporate (3)
(130,312) (100,391) (92,833) (29.8) % (8.1) % (31.4) %
Crocs Brand income from operations
852,025 861,394 329,423 (1.1) % 161.5 % 2.4 %
HEYDUDE Brand income from operations (4)
211,361 - - - % - % - %
Enterprise corporate (3)
(212,630) (178,330) (115,299) (19.2) % (54.7) % (19.2) %
Total consolidated income from operations
850,756 683,064 214,124 24.5 % 219.0 % 29.0 %
Foreign currency gains (losses), net 3,228 (140) (1,128) 2,405.7 % 87.6 %
Interest income 1,020 775 215 31.6 % 260.5 %
Interest expense (136,158) (21,647) (6,742) (529.0) % (221.1) %
Other income (expense), net (338) 1,797 510 (118.8) % 252.4 %
Income before income taxes
$ 718,508 $ 663,849 $ 206,979 8.2 % 220.7 %
(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.
(2) In the first quarter of 2022, certain revenues and expenses associated with our Latin America businesses previously reported in our ‘Americas’ segment were shifted into the ‘EMEA’ segment. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ As a result of these changes, the previously reported amounts for revenues and income from operations for the years ended December 31, 2021 and 2020 have been revised to conform to current period presentation. Refer to Part I - Item 1. Financial Statements in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 for more information.
(3) In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and other” were recast between ‘Brand corporate’ costs associated with the Crocs Brand and ‘Enterprise corporate’ costs, each of which is defined in Note 17 - Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. As a result of these changes, the previously reported amounts for income from operations for the years ended December 31, 2021 and 2020 have been revised to conform
to current period presentation. Refer to Part I - Item 1. Financial Statements in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 for more information.
(4) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a new reportable operating segment. Therefore, the amounts shown above for the year ended December 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the years ended December 31, 2021 or 2020.
The primary drivers of changes in revenues by operating segment were:
2022 vs. 2021
Volume Price (1)
Foreign Exchange Total
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
(in thousands)
Segment Revenues:
Crocs Brand:
North America
$ 78,337 5.0 % $ 14,962 1.0 % $ (2,560) (0.2) % $ 90,739 5.8 %
Asia Pacific 96,775 27.6 % 68,038 19.4 % (41,038) (11.7) % 123,775 35.3 %
EMEALA
119,029 29.1 % 72,311 17.8 % (60,084) (14.7) % 131,256 32.1 %
HEYDUDE Brand (2)
- - % - - % - - % - - %
Total segment revenues $ 294,141 12.7 % $ 155,311 6.7 % $ (103,682) (4.5) % $ 345,770 14.9 %
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
(2) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a new reportable operating segment. Therefore, there are no comparative amounts for the year ended December 31, 2021.
2021 vs. 2020
Volume Price (1)
Foreign Exchange Total
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
(in thousands)
Segment Revenues:
Crocs Brand:
North America
$ 505,949 60.7 % $ 212,462 25.5 % $ 2,940 0.4 % $ 721,351 86.6 %
Asia Pacific 24,881 8.9 % 34,987 12.6 % 11,777 4.2 % $ 71,645 25.7 %
EMEALA
107,379 39.1 % 17,723 6.5 % 9,443 3.4 % $ 134,545 49.0 %
Total segment revenues $ 638,209 46.1 % $ 265,172 19.1 % $ 24,160 1.7 % $ 927,541 66.9 %
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
Crocs Brand
North America Operating Segment
Revenues. The North America segment grew revenues 5.8% for the year ended December 31, 2022 compared 2021, primarily as a result of higher volume in our DTC channel. Higher ASPs due to higher pricing, offset in part by increased promotional activity in the second half of the year, also drove revenue growth. Currency fluctuations had an insignificant negative impact on revenues.
The North America segment grew revenues 86.6% for the year ended December 31, 2021 compared to 2020, as a result of higher volume and higher ASPs in both our wholesale and DTC channels. Volume was up versus 2020 as a result of continued increased consumer demand, partially due to the prior year negative impact of COVID-19 on our brick-and-mortar stores. Higher ASPs also contributed to higher sales due mostly to higher pricing and fewer promotions and discounts, primarily in our DTC channel, as well as favorable product mix. Currency fluctuations had an insignificant impact on revenues.
Income from Operations. During the year ended December 31, 2022, income from operations for our North America segment was $683.4 million, a decrease of $72.4 million, or 9.6% from 2021. Gross profit for the year ended December 31, 2022
decreased $33.1 million, or 3.2%, compared to the year ended December 31, 2021. Gross profit was lower as a result of a decrease of $94.4 million, or 9.2%, due primarily to higher AUC as a result of higher material and freight costs, due in part to inflation and in part to air freight used to combat supply chain disruptions, mostly in the first half of the year. This was offset in part by higher ASP, as described above. Insignificant unfavorable foreign currency fluctuations also slightly decreased gross profit. These decreases were offset by increased volume of $63.1 million, or 6.2%.
During the year ended December 31, 2022, SG&A for our North America segment increased by $39.3 million, or 15.0%, compared to 2021. This was due in part to an increase in variable costs associated with higher revenues, particularly in our DTC channel. Additionally, compensation costs increased primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared to 2021.
During the year ended December 31, 2021, income from operations for our North America segment was $755.7 million, an increase of $441.8 million, or 140.7% from 2020. Gross profit for the year ended December 31, 2021 increased $530.9 million, or 109.0%. Gross profit increased $292.7 million, or 60.1%, due to sales volume increases in both channels, and increased $232.8 million, or 47.8%, due to higher ASP and lower AUC as a result of favorable product mix, including increased sales of charms per shoe, higher prices and fewer promotions and discounts, favorable channel mix, and increased efficiencies in our U.S. distribution network, partially offset by higher inbound freight costs. Favorable foreign currency fluctuations in the CAD also increased gross profit by $5.4 million, or 1.1%.
During the year ended December 31, 2021, SG&A for our North America segment increased by $89.1 million, or 51.4%, compared to 2020. This was primarily due to an investment in marketing to support growth, higher compensation and related costs as a result of increased headcount associated with the growth of the business and the 2020 temporary and permanent elimination of certain roles in response to COVID-19, and higher facilities costs, mostly associated with variable rent driven by higher retail sales. Additionally, higher services and other costs resulted predominantly from variable costs associated with higher sales. These increases were offset by lower donations of inventory as a result of 2020 COVID-19 donations to frontline healthcare workers that did not recur in 2021.
Asia Pacific Operating Segment
Revenues. Revenues in our Asia Pacific segment increased in the year ended December 31, 2022 compared to 2021, as a result of volume increases, primarily in India, South Korea, and with distributors in Southeast Asia, which benefited from COVID-19 re-openings and the partial return of tourism to the region over the prior year. ASPs also increased revenues as a result of higher pricing and less discounting. Negative fluctuations in foreign currency, primarily in the South Korean Won, Japanese Yen, and Indian Rupee, partially offset these increases.
Revenues in our Asia Pacific segment increased in the year ended December 31, 2021 compared to 2020, as a result of volume increases in our wholesale channel driven in part by cycling 2020 negative COVID-19 impacts on our distributor markets and ASP increases in both channels, as a result of increased pricing and fewer promotions and discounts. Revenue also increased as a result of fluctuations in foreign currency, including the South Korean Won and Chinese Yuan.
Income from Operations. During the year ended December 31, 2022, income from operations for our Asia Pacific segment was $145.0 million, an increase of $73.1 million, or 101.6%. Gross profit for the year ended December 31, 2022 increased $78.4 million, or 37.6%, compared to the year ended December 31, 2021. An increase of $52.1 million, or 25.0% in gross profit was largely due to higher ASPs from price increases and less promotional activity, partially offset by higher AUCs, resulting from unfavorable purchasing power and higher material and duties costs. Higher volume of $51.7 million, or 24.8%, also increased gross profit, while unfavorable currency fluctuations, primarily in the South Korean Won, of $25.4 million, or 12.2%, partially offset these increases.
During the year ended December 31, 2022, SG&A for our Asia Pacific segment increased $5.3 million, or 3.9%, compared to the same period in 2021, due to increases in variable facilities costs and compensation costs.
During the year ended December 31, 2021, income from operations for our Asia Pacific segment was $71.9 million, an increase of $39.1 million, or 119.1%, from 2020. Gross profit for the year ended December 31, 2021 increased $63.5 million, or 43.7%, compared to the year ended December 31, 2020. The increase in gross profit was largely due to higher ASPs and lower AUCs, on a net basis, of $46.7 million, or 32.1%, resulting from price increases and less promotional activity, favorable product mix, and greater purchasing power from currency changes. Higher volume of $8.9 million, or 6.2%, and favorable currency fluctuations of $7.8 million, or 5.4%, also contributed to higher gross profit.
During the year ended December 31, 2021, SG&A for our Asia Pacific segment increased $24.4 million, or 21.7%, compared to the same period in 2020, primarily due to increased investment in marketing to support growth, an increase in facilities expense associated with variable rent driven by higher retail sales, an increase in compensation expense and related costs, and an increase in variable costs associated with revenue growth. These increases were partially offset by lower bad debt expense, primarily from net charges taken in the 2020 in response to COVID-19, and 2020 inventory donations to healthcare workers and other organizations, neither of which recurred in 2021.
EMEALA Operating Segment
Revenues. Revenues increased for our EMEALA segment compared to the year ended December 31, 2021, despite significant unfavorable currency headwinds due to fluctuations in the Euro and the shutdown of our direct operations in Russia as a result of the Ukraine war. This performance was driven by increased volume, with growth particularly strong in our wholesale channel. Additionally, increased ASPs, driven by increased prices and product mix, contributed to revenue growth. Unfavorable foreign currency fluctuations in the Euro partially offset these increases.
Revenues in our EMEALA segment increased in the year ended December 31, 2021 compared to the year ended December 31, 2020, most significantly as a result of higher volumes in both channels, particularly in wholesale, resulting from increased product demand and cycling 2020 negative COVID-19 impacts which further increased the disparity between the two periods. Higher ASPs in all channels, as a result of price increases and fewer promotions and discounts, and favorable foreign currency fluctuations, primarily in the Euro, also increased revenues.
Income from Operations. During the year ended December 31, 2022, income from operations for our EMEALA segment was $154.0 million, an increase of $19.9 million, or 14.8%. Gross profit for the year ended December 31, 2022 increased $40.3 million, or 19.5%, compared to the year ended December 31, 2021. The increase in our EMEALA segment gross profit was due to higher volumes of $56.6 million, or 27.3%, primarily in our wholesale channel. Higher ASPs, as described above, partially offset by higher AUCs, primarily due to unfavorable purchasing power and higher material and freight costs, also increased gross profit by $11.6 million, or 5.6%. Foreign currency headwinds of $27.8 million, or 13.4%, partially offset these increases.
During the year ended December 31, 2022, SG&A for our EMEALA segment increased $20.4 million, or 28.1%, compared to the same period in 2021. This was primarily due to various costs associated with the shutdown of our direct operations in Russia, including the recognition of cumulative translation adjustments into earnings, as well as severance and lease exit costs and penalties. Marketing costs, including investments in digital marketing, also increased.
During the year ended December 31, 2021, income from operations for our EMEALA segment was $134.1 million, an increase of $58.6 million, or 77.6%, compared to 2020. Gross profit for the year ended December 31, 2021 increased $73.0 million, or 54.4%, compared to the year ended December 31, 2020. The increase in our EMEALA segment gross profit was due to higher volumes of $50.0 million, or 37.3%, primarily in our wholesale channel, and higher ASPs, supplemented by slightly lower AUCs, of $19.9 million, or 14.8%, as a result of purchasing power gains, favorable product mix, and price increases and fewer promotions and discounts, offset in part by higher freight costs. Favorable foreign currency fluctuations of $3.0 million, or 2.3% also contributed to higher gross profit.
During the year ended December 31, 2021, SG&A for our EMEALA segment increased $14.4 million, or 24.6%, compared to the same period in 2020. Additional investments in marketing to support growth, higher compensation expense and related costs, and higher facilities costs were offset by lower bad debt expense.
Crocs Brand Corporate
During the year ended December 31, 2022, total net costs within ‘Brand corporate’ increased by $29.9 million, or 29.8%, compared to the same period in 2021. This was due to higher compensation expense as a result of increased headcount, a larger investment in brand marketing, and higher information technology costs.
During the year ended December 31, 2021, total net costs within ‘Brand corporate’ increased by $7.6 million, or 8.1%, compared to the same period in 2020. This was primarily driven by an increase in compensation expense due to increased employee headcount, as well as higher services costs as a result of supply chain investments.
HEYDUDE Brand
For the Partial Period, revenues attributable to the HEYDUDE Brand were $895.9 million, with more than half of this amount attributable to the wholesale channel at approximately 64%. We sold 30.5 million pairs of shoes during the Partial Period.
Income from operations during the Partial Period was $211.4 million and included a $62.3 million non-cash step-up of acquired HEYDUDE inventory to fair value and SG&A costs comprised primarily of marketing, sales commissions, compensation expense, and depreciation and amortization expense.
Refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information.
Enterprise Corporate
During the year ended December 31, 2022, total net costs within ‘Enterprise corporate’ increased $34.3 million, or 19.2%, compared to the same period in 2021. This was primarily due to costs associated with the acquisition and integration of HEYDUDE, including consulting, legal, statutory, and accounting fees, among others, of $38.2 million. There were also increases in facilities costs due to duplicate rent costs associated with our upcoming headquarters move and information technology costs. These increases were offset in part by decreases in compensation, primarily due to lower variable compensation, and depreciation and amortization.
During the year ended December 31, 2021, total net costs within ‘Enterprise corporate’ increased $63.0 million, or 54.7%, compared to the same period in 2020. This was primarily driven by an increase in compensation expense due to increased employee headcount and the related hiring costs and higher variable and executive compensation, as well as increased professional services costs due to higher legal expenses and costs associated with our then-pending HEYDUDE Acquisition. These increases were partially offset by 2020 impairment charges which did not recur in 2021.
Store Locations and Digital Sales Percentage
The table below illustrates the overall change in the number of our company-operated retail locations by reportable operating segment:
December 31, 2021 Opened Closed December 31, 2022
Company-operated retail locations:
Crocs Brand:
North America
173 9 11 171
Asia Pacific 153 5 7 151
EMEALA
47 3 32 18
Total Crocs Brand 373 17 50 340
HEYDUDE Brand (1)
- 5 - 5
Total 373 22 50 345
(1) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new reportable operating segment. Therefore, there are no comparative amounts for the year ended December 31, 2021.
Digital sales, which includes sales through our company-owned website, third-party marketplaces, and e-tailers (which are reported in our wholesale channel), as a percent of total revenues, by reportable operating segment were:
Year Ended December 31,
2022 2021
Digital sales as a percent of total revenues:
Crocs Brand 37.6 % 36.7 %
HEYDUDE Brand (1)
38.5 % - %
Total (2)
37.8 % 36.7 %
(1) We acquired HEYDUDE on February 17, 2022. Therefore, the amounts shown above for the year ended December 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the year ended December 31, 2021.
(2) For the year ended December 31, 2021, the digital sales as a percent of total revenues represents the Crocs Brand. See footnote (1) above.
Direct-to-consumer (“DTC”) comparable sales for the Crocs Brand are as follows:
Constant Currency (1)
Year Ended December 31,
2022 2021
Direct-to-consumer comparable sales: (2)
Crocs Brand (3)
15.0 % N/A
(1) Reflects period over period change on a constant currency basis, which is a non-GAAP financial measure. See the “Use of Non-GAAP Financial Measures” section for additional information.
(2) Comparable store status, as included in the DTC comparable sales figures above, is determined on a monthly basis. Comparable store sales include the revenues of stores that have been in operation for more than twelve months. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion, or reduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure and in the same month in the following year. Location closures in excess of three months are excluded until the thirteenth month post re-opening. E-commerce comparable revenues are based on same site sales period over period.
(3) In the year ended December 31, 2021, as a result of the COVID-19 pandemic’s impact on 2020 sales, we did not disclose DTC comparable sales, as they were not meaningful.
Liquidity and Capital Resources
Our liquidity position as of December 31, 2022 was:
December 31, 2022
(in thousands)
Cash and cash equivalents $ 191,629
Available borrowings 755,789
As of December 31, 2022, we had $191.6 million in cash and cash equivalents and up to $755.8 million of available borrowings, including $748.7 million remaining borrowing availability under the Revolving Facility (as defined below) and $7.1 million of remaining borrowing availability under the Asia revolving facilities. As of December 31, 2022, the Term Loan B Facility (as defined below) was fully drawn, and there was no available borrowing capacity. We believe that our cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Revolving Facility and other financing agreements will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months.
We completed the Acquisition on February 17, 2022. The consideration for the Acquisition was comprised of $2.05 billion in cash (the “Cash Consideration”) and 2,852,280 of Crocs, Inc. shares. To finance the Cash Consideration, we entered into the $2.0 billion Term Loan B Facility and borrowed $50.0 million under our Revolving Facility. In the year ended December 31, 2022, we prioritized using excess cash generated by our operations to repay our outstanding debt, including debt incurred to finance a part of the Acquisition, and, as such, we suspended our share repurchase program until such time that our gross leverage is under 2.0x. See the risk factor under “HEYDUDE Acquisition Risks - The incurrence by us of substantial indebtedness in connection with the financing of the Acquisition may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities, and increase our vulnerability to adverse economic and industry conditions” included in Part I - Item 1A. Risk Factors of this Annual Report on Form 10-K for further information on liquidity risks associated with the Acquisition.
Additional future financing may be necessary to fund our operations and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets could each impact our business and liquidity.
Repatriation of Cash
As a global business, we have cash balances in various countries and amounts are denominated in various currencies. Fluctuations in foreign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them which could adversely impact our liquidity and our ability to timely access and transfer cash balances between entities.
All of the cash held outside of the U.S. could be repatriated to the U.S. as of December 31, 2022 without incurring additional U.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of December 31, 2022, we held $97.0 million of our total $191.6 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. Of the $97.0 million, $4.8 million could potentially be restricted by local laws.
Senior Revolving Credit Facility
In July 2019, the Company and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders. Since that time, we have amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $750.0 million, which can be increased by an additional $250.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three-month interest periods. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.
The Credit Agreement requires us to maintain a minimum interest coverage ratio of 3.00 to 1.00 and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ending December 31, 2023, (ii) 3.75 to 1.00 for the quarter ending March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of December 31, 2022, we were in compliance with all financial covenants under the Credit Agreement.
As of December 31, 2022, the total commitments available from the lenders under the Revolving Facility were $750.0 million. At December 31, 2022, we had no outstanding borrowings and $1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of December 31, 2022 and 2021, we had $748.7 million and $414.7 million, respectively, of available borrowing capacity under the Revolving Facility, which matures November 2027.
Term Loan B Facility
On February 17, 2022, the Company entered into a credit agreement (the “Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, to among other things, finance a portion of the cash consideration for the Acquisition.
The Term Loan B Credit Agreement provides for an aggregate term loan B facility in the principal amount of $2.0 billion (the “Term Loan B Facility”), which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets on a pari passu basis with their obligations arising from the Credit Agreement and is scheduled to mature on February 17, 2029, subject to certain exceptions set forth in the Term Loan B Credit Agreement. Additionally, subject to certain conditions, including, without limitation, satisfying certain leverage ratios, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities.
Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 2.50%. Each term loan borrowing which is a term benchmark borrowing bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Term Loan B Credit Agreement) plus 3.50%.
Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September, and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30,
2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of December 31, 2022, we had $1,675.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity.
The Term Loan B Credit Agreement also contains customary affirmative and negative covenants, incurrence financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2022, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.
Asia Revolving Credit Facilities
During the year ended December 31, 2022, we had two revolving credit facilities in Asia, the revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”), which provides up to 10.0 million RMB, or $1.4 million at current exchange rates, and matures in January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which provides up to an equivalent of $10.0 million. For RMB loans under the CMBC Facility, interest is based on a National Interbank Funding Center 1-year prime rate, plus 65 basis points. For USD loans under the Citibank Facility, interest is mutually agreed upon prior to utilization of a loan.
As of December 31, 2022, we had no outstanding borrowings on the CMBC Facility, and we had borrowings outstanding of $4.3 million on the Citibank Facility, which are due in January 2023 and May 2023. We had no outstanding borrowings under our Asia revolving facilities at December 31, 2021.
Senior Notes Issuances
In March 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “2029 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, the “2029 Notes Indenture”). Additionally, in August 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 (the “2031 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the 2029 Notes Indenture, the “Indentures” and, each, an “Indenture”). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the “Notes”) is payable semi-annually.
The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or after August 15, 2026, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time before August 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before August 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.
The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the
Company’s affiliates; and consolidate or merge with or into other companies. As of December 31, 2022, we were in compliance with all financial covenants under the Notes.
Consolidated Statements of Cash Flows
Our consolidated statements of cash flows are summarized as follows:
Year Ended December 31, $ Change % Change
2022 2021 Favorable (Unfavorable)
(in thousands)
Cash provided by operating activities
$ 603,142 $ 567,165 $ 35,977 6.3 %
Cash used in investing activities
(2,151,091) (55,925) (2,095,166) (3,746.4) %
Cash provided by (used in) financing activities
1,529,659 (429,638) 1,959,297 456.0 %
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(3,750) (3,950) 200 5.1 %
Net change in cash, cash equivalents, and restricted cash $ (22,040) $ 77,652 $ (99,692) (128.4) %
Operating Activities. Our primary source of liquidity is cash provided by operating activities, consisting of net income adjusted for non-cash items and changes in working capital. Cash provided by operating activities increased $36.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was driven by higher net income adjusted for non-cash items of $83.1 million, partly offset by a net decrease in operating assets and liabilities of $47.1 million.
Investing Activities. There was a $2,095.2 million increase in cash used in investing activities for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase is primarily due to the Cash Consideration for the Acquisition, net of cash acquired. Refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. Additionally, there was a $48.3 million increase in the purchases of property and equipment related primarily to the expansion of our distribution centers in North America.
Financing Activities. Cash provided by financing activities increased by $1,959.3 million in the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to an increase of $1,779.9 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility and the Revolving Facility that were used to finance the Acquisition in part. Additionally, there was a decrease in cash used by financing activities of $1,000.0 million in repurchases of common stock and $8.6 million in repurchases of common stock for tax withholding. The overall increase was offset by a $700.0 million decrease in proceeds from the Notes issuances that occurred in the year ended December 31, 2021 that did not recur in the current period, a $90.3 million increase in repayments of borrowings, and a $38.8 million increase in deferred debt issuance costs, primarily related to the Term Loan B Facility. We also had a $0.1 million increase in other cash used in financing activities.
Stock Repurchases
On April 23, 2021, the Board approved and authorized a program to repurchase up to $1.0 billion of our common stock. Additionally, on September 23, 2021, the Board approved an increase of $1.0 billion to our share repurchase authorization. The number, price, structure, and timing of the repurchases are at our sole discretion and may be made depending on market conditions, liquidity needs, restrictions under the agreements governing our indebtedness, and other factors. The Board of Directors may suspend, modify, or terminate the program at any time without prior notice. Share repurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not obligate us to acquire any amount of our common stock. Under Delaware state law, these shares are not retired, and we have the right to resell any of the shares repurchased.
During the year ended December 31, 2022, we did not repurchase any shares of our common stock. As of December 31, 2022, we had remaining authorization to repurchase approximately $1,050.0 million of our common stock, subject to restrictions under our Indentures, Credit Agreement, and Term Loan B Credit Agreement.
During the year ended December 31, 2021, we repurchased 8.2 million shares of our common stock at a cost of $1,000.0 million, including commissions. This included 3.2 million shares delivered under the $500.0 million accelerated share repurchase arrangement (“ASR”) entered into in September 2021, 2.9 million shares delivered under the $300.0 million ASR entered into in April 2021, and 0.5 million shares delivered in January 2021 at the conclusion of the purchase period for the
ASR entered into in November 2020. Under each ASR, a financial institution delivered shares of our common stock during the purchase period in exchange for an up-front payment. The total number of shares ultimately delivered under the ASR, and therefore the average repurchase price paid per share, was determined based on the volume-weighted average price of our common stock during the purchase period. The shares received were recorded in the period they were delivered, and the up-front payment was accounted for as a reduction to stockholders’ equity in our consolidated balance sheet in the period the payment was made.
In 2023, we plan to continue to use excess cash generated by our operations to repay debt, including debt incurred to finance a part of the Acquisition and, as such, we intend for our share repurchase program to remain suspended until such time that our gross leverage is under 2.0x.
See Note 11 - Equity in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information on our repurchases and repurchase authorizations.
Contractual Obligations
We believe we have sufficient liquidity to fund our operations and meet our short-term and long-term obligations. Our material future cash obligations as of December 31, 2022 include the following:
Less than 1 Year Thereafter Total
(approximately, in thousands)
Debt-related:
Debt obligations $ 33,400 $ 2,346,000 $ 2,379,400
Interest on debt obligations (1)
139,300 247,600 386,900
Purchase commitments (2)
370,300 - 370,300
Lease-related (3):
Lease obligations
60,800 251,700 312,500
Obligations for leases not yet commenced - 75,000 75,000
Other:
Distribution and logistics obligations (4)
18,100 - 18,100
Total $ 621,900 $ 2,920,300 $ 3,542,200
(1) Represents future interest payment obligations, which are estimated by assuming the amounts outstanding under our Term Loan B Facility, Notes, and Citibank Facility and the interest rates in effect as of December 31, 2022, will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time for certain borrowing instruments, as described in Note 10 - Borrowings.
(2) Represents purchase commitments to our third-party manufacturers, primarily for materials and supplies used in the manufacture of our products. We expect to fulfill our commitments under these agreements in the next twelve months in the normal course of business and are only liable for the portion of the purchase obligations that have been purchased by the third-party manufacturer or manufactured by the vendor, with the remainder cancellable without penalty. Refer to Note 16 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information.
(3) Our operating lease obligations consist of leases for real estate, which includes retail, warehouse, distribution center, and office spaces and represent the minimum cash commitment under contract to various third parties for operating lease obligations. For more information on our lease obligations and obligations for leases not yet commenced, refer to Note 7 - Leases in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information.
(4) Represents material contractual obligations associated with global distribution and logistics projects.
We had no material off-balance sheet arrangements as of December 31, 2022, other than certain purchase commitments, as described in the footnote (2) above.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of financial condition and results of operations, outside of discussions regarding constant currency, is based on the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis.
An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on historical experience, complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. We believe that the following discussion represents those accounting policies that are the most critical to the reporting of our financial condition and results of operations. For a discussion of our significant accounting policies, see Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all of the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. We allocate the purchase price of acquired businesses to tangible assets and intangible assets based upon internal estimates of cash flows and consideration. We may also utilize third-party valuation specialists to assist in our determination of the fair value of assets acquired and liabilities assumed. Management estimates of fair value require a significant amount of management judgment, as the determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when market value is not readily available. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.
During the year ended December 31, 2022, we acquired HEYDUDE. The aggregate closing price of the Acquisition was $2.3 billion. The fair value of the acquired assets was determined by management with the assistance of third-party valuation specialists. For certain assets and liabilities, those fair values were consistent with historical carrying values. The trademark was valued using the Multi Period Excess Earnings approach, and the customer relationships were valued using the distributor method. Key assumptions by management were used in valuing the trademark and customer relationships such as future revenue growth rates, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and market-based discount rates.
Refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional details on the Acquisition.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
Our goodwill and indefinite-lived intangible assets, which primarily consist of the HEYDUDE trademark, are not amortized. We evaluate the carrying value of our goodwill and indefinite-lived intangible assets at least annually or when an interim triggering event has occurred indicating potential impairment. During the year ended December 31, 2022, we changed our annual goodwill impairment testing date from the last day of our fiscal fourth quarter to the first day of our fiscal fourth quarter. Our impairment evaluations represent a critical accounting policy as they require significant judgments and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable.
We perform our goodwill impairment testing for each reporting unit that has goodwill. During the year ended December 31, 2022, we had two reporting units, comprised of a reporting unit within the HEYDUDE Brand segment and a reporting unit within the EMEALA segment. During the years ended December 31, 2021 and 2020, we had one reporting unit in our EMEALA segment. We perform our indefinite-lived intangible impairment testing at the asset level.
When performing our annual test for impairment, we may assess goodwill and indefinite-lived intangible assets for potential impairment using either a qualitative or quantitative assessment. The qualitative assessment may evaluate factors such as macroeconomic conditions, industry and market considerations, and overall financial performance, among other factors. If we determine that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying value, a quantitative assessment is performed. For the quantitative assessment, we compare the estimated fair value of a reporting unit with its carrying value, including the goodwill assigned to the reporting unit. If carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded.
For the year ended December 31, 2022, we elected to bypass the qualitative assessment for the HEYDUDE Brand reporting unit goodwill and indefinite-lived trademark intangible asset and proceed directly to performing the quantitative goodwill and indefinite-lived intangible asset impairment tests with the assistance of third-party valuation specialists. We performed the quantitative assessments for the HEYDUDE Brand reporting unit goodwill using the discounted cash flow method and the guideline public company method. For the impairment testing of the indefinite-lived trademark, we used the Multi Period Excess Earnings approach. The primary assumptions developed by management and used in the quantitative analysis of the HEYDUDE Brand reporting unit and indefinite-lived trademark included future revenue growth rates and market-based discount rates.
Changes in the assumptions used to estimate the fair value of our goodwill and indefinite-lived intangible assets could result in impairment charges in future periods as the key assumptions are inherently uncertain, require significant judgment and are subject to change based on, among others, industry and geopolitical conditions, our ability to navigate changing macroeconomic conditions and trends as well as the timing and success of strategic initiatives. Certain factors, such as failure to achieve forecasted revenue growth rates or increases in the discount rates, have the potential to create variances in the estimated fair values of our goodwill and indefinite-lived intangible assets that could result in impairment charges.
Additionally for the years ended December 31, 2022, 2021, and 2020, we performed a qualitative assessment for the goodwill in our EMEALA segment, which indicated that it was more likely than not that the estimated fair value exceeded its carrying value.
We did not record any impairment charges in the years ended December 31, 2022, 2021, or 2020 based on the results of our goodwill and indefinite-lived intangible assets impairment testing. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies and Note 5 - Goodwill and Intangible Assets, Net in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to our goodwill and indefinite-lived intangible assets.
Impairment of Long-Lived Assets
Property and equipment, right-of-use assets, and definite-lived intangible assets, such as customer relationships and capitalized software, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable. This represents a critical accounting policy as our impairment evaluations include significant judgments and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. Testing of long-lived assets for impairment is at the level of an asset group, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In our retail business, the asset group for impairment testing is each individual retail store. For customer relationships, impairment testing is performed at the customer group level. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition, where applicable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value, less costs to sell.
In determining future cash flows, we take various factors into account, including the remaining useful life of each asset group, forecasted growth rates, pricing, working capital, capital expenditures, and other cash needs specific to the asset group. Additional considerations when assessing impairment include changes in our strategic operational and financial decisions, global and regional economic conditions, demand for our product and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from our long-lived assets. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations.
In 2022 and 2021, we did not record impairments to reduce the net carrying value of certain long-lived assets. In 2020, we recorded non-cash impairments of $20.0 million to reduce the net carrying value of certain long-lived assets to their estimated fair values for a retail store in New York City and $1.1 million for our former corporate headquarters. See Note 4 - Property
and Equipment, Net in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to long-lived asset impairments.
Revenues and Reserves for Sales Returns and Allowances
While our revenue recognition does not involve significant judgment, it does represent a key accounting policy as it is important to our results of operations. Revenues are recognized in the amount expected to be received in exchange for when control of the products transfers to customers. Revenues are reported net of various promotions, which range from contractually-fixed percentage price reductions to sales returns, discounts, rebates, and other incentives that may vary in amount, must be estimated, and are reported as a reduction in revenues. An area of judgment affecting our reported revenues and net income involves estimating reserves for sales returns and allowances, which represent a portion of revenues not expected to be realized. Revenues in our direct-to-consumer channels are reduced by an estimate of returns. We may also accept returns from our wholesale customers, on an exception basis, to ensure that our products are merchandised in the proper assortments and may provide markdown allowances at our sole discretion to key wholesalers and distributors to facilitate sales of slower moving products. Wholesale revenues are reduced by estimates of returns and allowances.
Our estimated sales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Changes to our estimates for customer returns and allowances may be caused by many factors, including, but not limited to whether customers accept our new styles, customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products, and macroeconomic factors affecting our customers. Historically, actual amounts of customer returns, allowances, discounts, and rebates have not differed significantly from our estimates. A hypothetical 1% increase in our reserves for returns and allowances as of December 31, 2022 would have had an insignificant impact on our 2022 revenues.
See Schedule II in Part IV - Item 15. Exhibits, Financial Statement Schedule to the accompanying consolidated financial statements of this Annual Report on Form 10-K for an analysis of the activity in our reserves for uncollectible accounts receivable, sales returns, allowances, and discounts.
Income Taxes
Intellectual Property Income Tax Implications
In 2020 and in 2021, we completed changes to our international legal structure that created an amortizable step-up in tax basis of the intangible asset and a corresponding increase in foreign deferred tax assets based on the fair value of the intellectual property (“IP”). These transactions were executed using transfer pricing guidelines issued by the relevant taxing authorities. Significant estimates and assumptions were required to compute the valuation of these transactions. These estimates and assumptions include, but are not limited to, estimated future revenue growth and discount rates, which by their nature are inherently uncertain and, therefore, may ultimately differ materially from our actual results. As of December 31, 2021, the related net deferred tax asset is $490.2 million, net of a reserve for uncertain tax positions of $206.0 million. As of December 31, 2022, the related net deferred tax asset is $438.5 million, net of a reserve for uncertain tax positions of $194.4 million.
In order to support and sustain the amortizable tax basis (and associated deferred tax asset, net of uncertain tax position), we must demonstrate economic ownership, including the appropriate authority and expertise to manage the IP owned and serviced in the Netherlands. The determination of economic substance is a judgment that has to be evaluated by management on a continual basis requiring understanding and expertise of local laws of each associated tax jurisdiction. The Netherlands subsidiary serves as the principal Crocs corporate headquarters outside of the U.S. and already performs significant functions in support of the economic ownership of the IP in the Netherlands. In 2021 and 2022, we undertook many additional activities to align business operations that support the economic substance of the IP in the Netherlands.
We have also recorded certain tax reserves to address potential differences involving our income tax positions. These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different taxing jurisdictions. While our tax position is not uncertain, because of the significant estimates used in the value of certain intellectual property rights, our tax reserves contain assumptions based on past experiences and judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be materially more or less than the amount that we estimated.
Income Tax Accounting
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We account for the tax effects of GILTI as a component of income tax expense in the period the tax arises, to the extent applicable. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax position that is more likely than not to be sustained upon examination by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interest expense is recognized on the full amount of deferred benefits for uncertain tax positions. While the validity of any tax position is a matter of tax law, the body of statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous. We recognize interest and penalties related to unrecognized tax benefits within the ‘Income tax expense (benefit)’ line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies. A valuation allowance is required unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. We determine on a regular basis the amount of undistributed earnings that will be indefinitely reinvested in our non-U.S. operations. This assessment is based on the cash flow projections and operational and fiscal objectives of each of our U.S. and foreign subsidiaries. Foreign withholding taxes have not been provided on cumulative undistributed foreign earnings of the non-U.S. subsidiaries as of December 31, 2022, which are considered to be indefinitely reinvested outside of the U.S.
See Note 14 - Income Taxes in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to income taxes.
Recent Accounting Pronouncements
See Note 2 - Recent Accounting Pronouncements in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a description of recently adopted accounting pronouncements and issued accounting pronouncements that we believe may have an impact on our consolidated financial statements when adopted.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our exposure to market risk includes interest rate fluctuations in connection with our Revolving Facility and certain financial instruments.
As of December 31, 2022, we had borrowings with a face value of $2,379.3 million, comprised of the Notes, which carry a fixed interest rate, the Term Loan B Facility, and borrowings under our Asia revolving facilities. We also had $1.3 million in outstanding letters of credit under our Revolving Facility as of December 31, 2022. As of December 31, 2021, we had long-term borrowings with a face value of $785.0 million and $0.3 million in outstanding letters of credit under our Revolving Facility.
A hypothetical increase of 1% in the interest rate on the variable rate borrowings under our Term Loan B Facility and Revolving Facility would have increased interest expense by $18.1 million for the year ended December 31, 2022.
Foreign Currency Exchange Risk
Changes in exchange rates have a direct effect on our reported USD consolidated financial statements because we translate the operating results and financial position of our international subsidiaries to USD using current period exchange rates. Specifically, we translate the statements of operations of our foreign subsidiaries into the USD reporting currency using exchange rates in effect during each reporting period. As a result, comparisons of reported results between reporting periods may be impacted significantly due to differences in the exchange rates in effect at the time such exchange rates are used to translate the operating results of our international subsidiaries.
An increase of 1% of the value of the USD relative to foreign currencies would have decreased our revenues and income before taxes during the year ended December 31, 2022 by approximately $10.8 million and $1.6 million, respectively. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.
In order to manage exposure to fluctuations in foreign currency and to reduce the volatility in earnings caused by fluctuations in foreign exchange rates, we enter into forward contracts to buy and sell foreign currency. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes occur or in the period in which the hedged transaction affects earnings for derivatives classified as non-hedged or hedged, respectively, as defined in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on this Form 10-K. As of December 31, 2022, the USD notional value of our outstanding foreign currency forward exchange contracts was approximately $193.1 million. The fair value of these contracts at December 31, 2022 was an asset of $0.3 million and a liability of $1.1 million. See Part I - Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of risks to our business and financial results associated with foreign currencies.
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our foreign currency forward exchange contracts. To perform the sensitivity analysis, we assess the risk of changes in fair values from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the USD. As of December 31, 2022, a 10% appreciation in the value of the USD would result in a net increase in the fair value of our derivative portfolio of approximately $0.3 million.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for a discussion of the impact of the change in foreign exchange rates on our USD consolidated statements of operations for the years ended December 31, 2022 and 2021.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data are as set forth in the index to consolidated financial statements on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act) of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2022. During the year ended December 31, 2022, we closed the Acquisition, as discussed in Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures did not include internal controls over financial reporting at HEYDUDE. HEYDUDE represented approximately 25% of our total revenues for the year ended December 31, 2022 and 62% of our total assets as of December 31, 2022. This exclusion is consistent with the Securities and Exchange Commission (the “SEC”) staff’s guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting in the year of acquisition.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022, to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management’s control objectives.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework and criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2022, which does not include internal controls over financial reporting at HEYDUDE, as discussed above.
Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in their report, which appears herein.
Changes in Internal Control Over Financial Reporting
As noted above, we are in the process of integrating HEYDUDE into our overall internal control over financial reporting and will include HEYDUDE in Management’s Evaluation of Disclosure Controls and Procedures for the year ending December 31, 2023. This process may result in additions or changes to our internal control over financial reporting. In addition, as a result of the Acquisition, we have implemented new processes and controls over accounting for an acquisition during the year ended December 31, 2022, including determining the fair value of the assets acquired and liabilities assumed.
Additionally, in the three months ended December 31, 2022, we implemented internal controls over our annual goodwill and indefinite-lived intangible asset impairment analysis, as there was a material addition to our goodwill and indefinite-lived intangible asset balances during the year ended December 31, 2022 related to the acquisition of HEYDUDE, as described in Note 3 - Acquisition of HEYDUDE and Note 5 - Goodwill and Intangible Assets, Net in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Except as described herein, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a through 15(f) and 15(d) through 15(f) under the Exchange Act) that occurred during the three or twelve months ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Crocs, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022 of the Company and our report dated February 16, 2023, expressed an unqualified opinion on those financial statements.
As described in “Management’s Report on Internal Control over Financial Reporting,” management excluded from its assessment the internal control over financial reporting at HEYDUDE, which was acquired on February 17, 2022, and whose financial statements constitute 62% of total assets and 25% of net sales of the consolidated financial statement amounts as of and for the year ended December 31, 2022. Accordingly, our audit did not include the internal control over financial reporting at HEYDUDE.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Denver, Colorado
February 16, 2023

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ITEM 9B. OTHER INFORMATION
ITEM 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022.
Code of Ethics
We have a written code of ethics in place that applies to all our employees, including our principal executive officer and principal financial officer. A copy of our code of ethics is available on our website: www.crocs.com. We are required to disclose certain changes to, or waivers from, that code for our senior financial officers. We intend to use our website as a method of disseminating any change to, or waiver from, our code of ethics as permitted by applicable SEC rules.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. Executive Compensation
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022, with the exception of those items listed below.
Equity Compensation Plan Information
As shown in the table below, we reserved 1.2 million shares of common stock for future issuance pursuant to exercise of outstanding awards under equity compensation plans as of December 31, 2022.
Plan Category Number of Securities to be Issued on Exercise of Outstanding
Options, Warrants, and Rights (1)
Weighted Average Exercise Price of Outstanding
Options, Warrants, and Rights (2)
Number of Securities Remaining Available for Future Issuance Under Plans, Excluding Securities Available in First Column
Equity compensation plans approved by stockholders (3)
1,170,469 $ 7.44 3,895,974
Equity compensation plans not approved by stockholders
- - -
Total 1,170,469 $ 7.44 3,895,974
(1) The number of shares outstanding includes restricted stock awards and restricted stock units that were outstanding on December 31, 2022 and assumes target performance for performance-based equity awards.
(2) The weighted average exercise price of outstanding options pertains to 0.2 million shares issuable on the exercise of outstanding options.
(3) On June 10, 2020, our stockholders approved the Crocs, Inc. 2020 Equity Incentive Plan (the “Plan”). The number of shares of our common stock available for issuance under the Plan consisted of (i) 3.8 million newly available shares, (ii) 1.4 million shares of our common stock available for issuance under the 2015 Equity Incentive Plan (the “2015 Plan”) as of June 10, 2020, and (iii) 2015 Plan shares associated with outstanding options or awards that are canceled or forfeited after June 10, 2020. The number of shares authorized for issuance under the Plan is subject to adjustment for future stock splits, stock dividends and similar changes in our capitalization. The Plan became effective immediately upon stockholder approval.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. Exhibits, Financial Statement Schedule
(1) Financial Statements
The financial statements filed as part of this report are listed on the index to the consolidated financial statements on page.
(2) Financial Statement Schedule
The following consolidated financial statement schedule of Crocs, Inc. and its subsidiaries is filed as a part of this report:
•Schedule II - Valuation and Qualifying Accounts.
Schedules other than the one listed above are omitted either because they are not required or are inapplicable, or because the information is included in the consolidated financial statements or related notes.
(3) Exhibit list
Exhibit
Number Description
2.1 # Securities Purchase Agreement, dated as of December 22, 2021, by and among: (i) Crocs, Inc.; (ii) Full Fortune Wealth Limited; (iii) Mr. Daniele Guidi; (iv) Full Fortune Intellectual Limited; (v) Full Fortune Worldwide Limited; (vi) Full Fortune Online Limited; (vii) Happy One LLC; (viii) Lucky Top Inc.; (ix) Mr. Alessandro Rosano; and (x) Full Fortune Wealth Limited, in its capacity as representative and agent for Sellers (incorporated herein by reference to Exhibit 2.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on December 23, 2021).
3.1 Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)).
3.2 Certificate of Amendment to Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on July 12, 2007).
3.3 Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)).
3.4 Certificate of Designations of Series A Convertible Preferred Stock of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on January 27, 2014).
4.1 Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)).
4.2 Description of Registrant's Securities (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Annual Report on Form 10-K filed on February 27, 2020).
4.3 Indenture (including Form of Global 4.250% Senior Notes due 2029), dated March 12, 2021, by and among Crocs, Inc., the Guarantors party thereto from time to time and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on March 12, 2021).
4.4 Indenture (including Form of Global 4.125% Senior Notes due 2031), dated August 10, 2021, by and among Crocs, Inc. the Guarantors party thereto from time to time and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on August 10, 2021).
4.5 First Supplemental Indenture, dated February 17, 2022, by and among Crocs, Inc., Hey Dude LLC, Happy One LLC and Lucky Top Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 18, 2022).
4.6 First Supplemental Indenture, dated February 17, 2022, by and among Crocs, Inc., Hey Dude LLC, Happy One LLC and Lucky Top Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 18, 2022).
4.7 † Second Supplemental Indenture, dated January 19, 2023, by and among Crocs, Inc., Crocs UK Holdings Limited, Crocs UK Fin Co Limited, Crocs Finance UK Limited, Crocs SG Fin Co. Pte. Ltd. and Crocs Malta Global Ltd. and U.S. Bank Trust Company, National Association, as trustee.
4.8 † Second Supplemental Indenture, dated January 19, 2023, by and among Crocs, Inc., Crocs UK Holdings Limited, Crocs UK Fin Co Limited, Crocs Finance UK Limited, Crocs SG Fin Co. Pte. Ltd. and Crocs Malta Global Ltd. and U.S. Bank Trust Company, National Association, as trustee.
10.1 * Crocs, Inc. 2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on June 9, 2015).
Exhibit
Number Description
10.2 * Andrew Rees Performance-Vested Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on June 13, 2018).
10.3 * Form of Performance-Vested Restricted Stock Award (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on January 13, 2021).
10.4 Second Amended and Restated Credit Agreement, dated July 26, 2019, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, LLC, Colorado Footwear C.V., Crocs Europe B.V., the lenders named therein, PNC Capital Markets LLC, as sole bookrunner, cosyndication agent and joint lead arranger, Citibank, N.A., Bank of America, N.A. and KeyBank National Association, each as joint lead arranger and co-syndication agent, and PNC Bank, National Association, as a lender and administrative agent (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed August 1, 2019).
10.5 First Amendment to Second Amended and Restated Credit Agreement, dated March 26, 2020, among Crocs, Inc., Crocs Retail, LLC, Jibbitz, LLC, the lenders named therein, KeyBank National Association, as syndication agent, and PNC Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed March 30, 2020).
10.6 Second Amendment to Second Amended and Restated Credit Agreement, dated November 13, 2020, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, LLC, Colorado Footwear C.V., Crocs Europe B.V., the lenders named therein, PNC Capital Markets LLC, as sole bookrunner, cosyndication agent and joint lead arranger, Citibank, N.A., Bank of America, N.A. and KeyBank National Association, each as joint lead arranger and co-syndication agent, and PNC Bank, National Association, as a lender and administrative agent (incorporated herein by reference to Exhibit 10.12 to Crocs, Inc.’s Annual Report on Form 10-K, filed February 23, 2021).
10.7 Third Amendment to Second Amended and Restated Credit Agreement, dated July 23, 2021, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, LLC, Colorado Footwear C.V., Crocs Europe B.V., the guarantors named therein, the lenders named therein, and PNC Bank, National Association, as administrative agent (incorporated herein by reference herein to Exhibit 10.7 to Crocs, Inc.’s Annual Report on Form 10-K, filed February 16, 2022).
10.8 ## Fourth Amendment to Second Amended and Restated Credit Agreement, dated February 17, 2022, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, Inc., Colorado Footwear C.V., Crocs Europe B.V., the guarantors named therein, the lenders named therein, and PNC Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 18, 2022).
10.9 ## Fifth Amendment to Second Amended and Restated Credit Agreement, dated November 30, 2022, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, Inc., Colorado Footwear C.V., Crocs Europe B.V., the guarantors named therein, the lenders named therein, Bank of America, N.A., London Branch, as alternative currency swing loan lender and PNC Bank, National Association, as administrative agent, U.S. dollar swing loan lender and issuing lender (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on December 1, 2022.
10.10 ## Term Loan Credit Agreement, dated February 17, 2022, by and among Crocs, Inc., the lenders from time to time party thereto and Citibank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 18, 2022).
10.11 * Crocs, Inc. Change of Control Plan (as Amended and Restated) (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on October 4, 2018).
10.12 * Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on August 5, 2010).
10.13 * Employment Offer Letter, dated May 13, 2014, between Crocs, Inc. and Andrew Rees (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on May 14, 2014).
Exhibit
Number Description
10.14 * Supplement to Offer Letter, dated February 23, 2017, between Crocs, Inc. and Andrew Rees (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s Current Report on Form 8-K, filed on March 1, 2017).
10.15 * Employment Offer Letter, dated August 1, 2018, between Crocs, Inc. and Anne Mehlman (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on August 7, 2018).
10.16 * Crocs, Inc. 2020 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on June 11, 2020).
10.17 * Employment Offer Letter dated September 10, 2020 between Crocs, Inc. and Michelle Poole (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on September 14, 2020).
21 † Subsidiaries of the registrant.
23.1 † Consent of Deloitte & Touche LLP.
31.1 † Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2 † Certification of the 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.
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.
101.INS † XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH † XBRL Taxonomy Extension Schema Document
101.CAL † XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF † XBRL Taxonomy Extension Definition Linkbase Document
101.LAB † XBRL Taxonomy Extension Label Linkbase Document
101.PRE † XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
* Compensatory plan or arrangement.
# Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request; provided that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
## Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules and exhibits to the Securities and Exchange Commission upon request.
† Filed herewith.
+ Furnished herewith.