10-Q 1 crox-20220331.htm 10-Q crox-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            

Commission File No. 000-51754
_____________________________________________________________
CROCS, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-2164234
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
13601 Via Varra, Broomfield, Colorado 80020
(Address, including zip code, of registrant’s principal executive offices)
(303848-7000
(Registrant’s telephone number, including area code)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Trading symbol:Name of each exchange on which registered:
Common Stock, par value $0.001 per shareCROXThe Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of April 28, 2022, Crocs, Inc. had 61,575,215 shares of its common stock, par value $0.001 per share, outstanding.



Cautionary Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.

Statements that refer to industry trends, projections of our future financial performance, anticipated trends in our business and other characterizations of future events or circumstances are forward-looking statements. These statements, which express management’s current views concerning future events or results, use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “plan,” “project,” “strive,” and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” “would,” and similar expressions or variations. Examples of forward-looking statements include, but are not limited to, statements we make regarding

our expectations regarding future trends, expectations, and performance of our business;
our expectations regarding supply chain disruptions;
our belief that we have sufficient liquidity to fund our business operations during the next twelve months;
our expectations about the impact of our strategic plans;
the amount and timing of our capital expenditures; and
our intent to achieve various Environmental, Social, and Governance initiatives.

Forward-looking statements are subject to risks, uncertainties, and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, those described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 and our subsequent filings with the Securities and Exchange Commission, including those described in the section entitled “Risk Factors” under Item 1A in this report. Caution should be taken not to place undue reliance on any such forward-looking statements. Moreover, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by applicable law.
 

i

Crocs, Inc.
Table of Contents to the Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2022
 

ii

PART I — Financial Information
 
ITEM 1. Financial Statements
 
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 
Three Months Ended March 31,
20222021
Revenues
$660,148 $460,098 
Cost of sales
335,224 206,879 
Gross profit
324,924 253,219 
Selling, general and administrative expenses
206,247 128,533 
Income from operations
118,677 124,686 
Foreign currency gains (losses), net
480 (504)
Interest income
102 27 
Interest expense
(19,252)(1,632)
Other income (expense), net
(947)11 
Income before income taxes
99,060 122,588 
Income tax expense
26,300 24,190 
Net income
$72,760 $98,398 
Net income per common share:
Basic
$1.22 $1.50 
Diluted
$1.19 $1.47 
Weighted average common shares outstanding:
Basic
59,823 65,458 
Diluted
60,896 66,848 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
  
 Three Months Ended March 31,
 20222021
Net income
$72,760 $98,398 
Other comprehensive loss:
  
Foreign currency translation losses, net
(10,151)(10,628)
Total comprehensive income
$62,609 $87,770 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


2

CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and par value amounts)
March 31,
2022
December 31,
2021
ASSETS
  
Current assets:
  
Cash and cash equivalents
$171,969 $213,197 
Restricted cash - current
34 65 
Accounts receivable, net of allowances of $23,041 and $20,715, respectively
375,750 182,629 
Inventories
407,589 213,520 
Income taxes receivable
24,536 22,301 
Other receivables
16,599 12,252 
Prepaid expenses and other assets
42,061 22,605 
Total current assets
1,038,538 666,569 
Property and equipment, net of accumulated depreciation and amortization of $85,601 and $83,745, respectively
135,649 108,398 
Intangible assets, net of accumulated amortization of $112,011 and $108,167, respectively
1,895,980 28,802 
Goodwill
642,467 1,600 
Deferred tax assets, net
547,733 567,201 
Restricted cash
3,365 3,663 
Right-of-use assets
199,805 160,768 
Other assets
7,123 8,067 
Total assets
$4,470,660 $1,545,068 
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
Current liabilities:
  
Accounts payable
$202,919 $162,145 
Accrued expenses and other liabilities
185,969 166,887 
Income taxes payable
67,310 16,279 
Current borrowings
25,173  
Current operating lease liabilities
49,414 42,932 
Total current liabilities
530,785 388,243 
Long-term deferred tax liability
329,950  
Long-term income taxes payable
226,188 219,744 
Long-term borrowings
2,851,256 771,390 
Long-term operating lease liabilities181,065 149,237 
Other liabilities
2,246 2,372 
Total liabilities
4,121,490 1,530,986 
Commitments and contingencies
Stockholders’ equity:
  
Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding
  
Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.2 million and 105.9 million issued, 61.6 million and 58.3 million outstanding, respectively
109 106 
Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively
(1,690,312)(1,684,262)
Additional paid-in capital
774,562 496,036 
Retained earnings
1,351,800 1,279,040 
Accumulated other comprehensive loss
(86,989)(76,838)
Total stockholders’ equity
349,170 14,082 
Total liabilities and stockholders’ equity
$4,470,660 $1,545,068 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)

 Common StockTreasury StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance at December 31, 2021
58,330 $106 47,583 $(1,684,262)$496,036 $1,279,040 $(76,838)$14,082 
Share-based compensation— — — — 8,275 — — 8,275 
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes
390 — 75 (6,050)(142)— — (6,192)
Repurchases of common stock
— — — — — — — — 
Share issuance at Acquisition2,852 3 — — 270,393 — — 270,396 
Net income
— — — — — 72,760 — 72,760 
Other comprehensive loss
— — — — — — (10,151)(10,151)
Balance at March 31, 2022
61,572 $109 47,658 $(1,690,312)$774,562 $1,351,800 $(86,989)$349,170 

 Common StockTreasury StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance at December 31, 2020
65,856 $105 39,132 $(688,849)$482,385 $553,346 $(56,354)$290,633 
Share-based compensation— — — — 8,054 — — 8,054 
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes
481 1 139 (10,462)235 — — (10,226)
Repurchases of common stock
(1,112)— 1,112 (84,615)34,615 — — (50,000)
Net income
— — — — — 98,398 — 98,398 
Other comprehensive loss
— — — — — — (10,628)(10,628)
Balance at March 31, 2021
65,225 $106 40,383 $(783,926)$525,289 $651,744 $(66,982)$326,231 

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


4

CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

Three Months Ended March 31,
 20222021
Cash flows from operating activities:
  
Net income
$72,760 $98,398 
Adjustments to reconcile net income to net cash provided by operating activities:
  
Depreciation and amortization
7,895 8,054 
Operating lease cost
14,231 14,832 
Share-based compensation
8,275 8,054 
Other non-cash items
9,695 (1,844)
Changes in operating assets and liabilities, net of acquired assets and liabilities:
 
Accounts receivable
(130,661)(81,186)
Inventories
(28,124)(23,795)
Prepaid expenses and other assets
(14,584)16,599 
Accounts payable, accrued expenses and other liabilities
6,490 6,332 
Right-of-use assets and operating lease liabilities
(14,742)(15,294)
Cash provided by (used in) operating activities
(68,765)30,150 
Cash flows from investing activities:
  
Purchases of property, equipment, and software
(39,786)(7,983)
Acquisition of HEYDUDE, net of cash acquired
(2,031,765) 
Other
85  
Cash used in investing activities
(2,071,466)(7,983)
Cash flows from financing activities:
  
Proceeds from notes issuance 350,000 
Proceeds from borrowings
2,240,163 40,000 
Repayments of borrowings
(85,000)(220,000)
Deferred debt issuance costs(49,486)(7,531)
Repurchases of common stock
 (50,000)
Repurchases of common stock for tax withholding(6,288)(10,462)
Other
95 236 
Cash provided by financing activities
2,099,484 102,243 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(810)(2,437)
Net change in cash, cash equivalents, and restricted cash
(41,557)121,973 
Cash, cash equivalents, and restricted cash—beginning of period
216,925 139,273 
Cash, cash equivalents, and restricted cash—end of period
$175,368 $261,246 
Non-Cash Investing and Financing Activities:
Accrued purchases of property, equipment, and software
$9,369 $15,502 
Share issuance at acquisition270,396  
Adjustment Holdback Amount8,500  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

CROCS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise noted in this report, any description of the “Company,” “Crocs,” “we,” “us,” or “our” includes Crocs, Inc. and our consolidated subsidiaries within our reportable operating segments and corporate operations. We 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 global leader in the sale of molded footwear characterized by functionality, comfort, color, and lightweight design.

On February 17, 2022, 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.”

Our reportable operating segments include: (i) North America for the Crocs Brand, operating throughout the United States 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. See Note 14 — Operating Segments and Geographic Information for additional information.

The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned subsidiaries, and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the three months ended March 31, 2022, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements and our business combination policy as described in Note 16 — Acquisition of HEYDUDE.

Reclassifications

We have reclassified certain amounts in Note 14 — Operating Segments and Geographic Information to conform to current period presentation.

Use of Estimates

U.S. GAAP requires us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, sales returns, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, valuation allowances, uncertain tax positions, income tax expense, share-based compensation expense, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, depreciation and amortization, and purchase price allocation for the Acquisition, as described in Note 16 — Acquisition of HEYDUDE, are reasonable based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our condensed consolidated financial statements may be materially affected.



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2. RECENT ACCOUNTING PRONOUNCEMENTS
 
New Accounting Pronouncement Adopted

Business Combinations

In October 2021, the FASB issued new guidance primarily related to the accounting for contract assets and liabilities from contracts with customers in a business combination. The standard will be effective for annual reporting periods beginning after December 31, 2022, including interim reporting periods within those periods, with early adoption permitted. On January 1, 2022, we early adopted this guidance on a prospective basis. The adoption did not have a material effect on our consolidated financial statements.

New Accounting Pronouncement Not Yet Adopted

New pronouncements issued but not effective until after March 31, 2022 are not expected to have a material impact on our condensed consolidated financial statements.

3. ACCRUED EXPENSES AND OTHER LIABILITIES
 
Amounts reported in ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheets were:
March 31, 2022December 31, 2021
 (in thousands)
Accrued compensation and benefits$41,487 $62,945 
Professional services 30,412 33,997 
Fulfillment, freight, and duties43,780 15,629 
Sales/use and value added taxes payable19,772 13,049 
Return liabilities11,380 10,342 
Accrued rent and occupancy5,622 7,431 
Royalties payable and deferred revenue8,434 7,425 
Accrued legal fees7,249 5,872 
Other17,833 10,197 
Total accrued expenses and other liabilities$185,969 $166,887 

4. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheets were:
March 31, 2022December 31, 2021
(in thousands)
Assets:
Right-of-use assets$199,805 $160,768 
Liabilities:
Current operating lease liabilities$49,414 $42,932 
Long-term operating lease liabilities181,065 149,237 
Total operating lease liabilities$230,479 $192,169 



7

Lease Costs and Other Information

Lease-related costs reported within ‘Cost of sales’ and ‘Selling, general and administrative expenses’ in our condensed consolidated statements of operations were:
Three Months Ended March 31,
20222021
(in thousands)
Operating lease cost $14,231 $14,832 
Short-term lease cost2,632 1,441 
Variable lease cost4,552 3,648 
Total lease costs$21,415 $19,921 

Other information related to leases, including supplemental cash flow information, consists of:
Three Months Ended March 31,
20222021
(in thousands)
Cash paid for operating leases$14,500 $15,426 
Right-of-use assets obtained in exchange for operating lease liabilities13,888 35,552 

The weighted average remaining lease term and discount rate related to our lease liabilities as of March 31, 2022 were 7.2 years and 3.6%, respectively. As of March 31, 2021, the weighted average remaining lease term and discount rate related to our lease liabilities were 7.0 years and 4.2%, respectively.

Maturities

The maturities of our operating lease liabilities were:
As of
March 31, 2022
(in thousands)
2022 (remainder of year)$38,637 
202350,403 
202433,252 
202522,820 
202620,504 
Thereafter97,909 
Total future minimum lease payments263,525 
Less: imputed interest(33,046)
Total operating lease liabilities$230,479 

Leases That Have Not Yet Commenced

As of March 31, 2022, we had significant obligations for a lease not yet commenced related to the upcoming move of our corporate headquarters within Broomfield, Colorado. The total contractual commitment related to this lease, with regular payments expected to begin in November 2023 and continue through September 2033, is approximately $44 million.

5. FAIR VALUE MEASUREMENTS
 
Recurring Fair Value Measurements
 
All of our derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the condensed consolidated balance sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at March 31, 2022 and December 31, 2021. The fair values of our derivative instruments were an immaterial asset at March 31, 2022 and an immaterial liability at December 31, 2021. See Note 6 — Derivative Financial Instruments for more information.
8


The carrying amounts of our cash, cash equivalents, and current restricted cash, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate their fair value as recorded due to the short-term maturity of these instruments.

Our borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. During the three months ended March 31, 2021, we entered into a credit agreement for an aggregate term loan B facility in the principal amount of $2 billion (the “Term Loan B Facility”), as described in more detail in Note 7 — Borrowings. The Term Loan B Facility is classified as Level 1 of the fair value hierarchy. The Notes (as defined below) are also classified as Level 1 of the fair value hierarchy and are reported in our condensed consolidated balance sheet at face value, less unamortized issuance costs. The carrying and fair values of our revolving credit facilities approximate their carrying values at March 31, 2022 and December 31, 2021 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of March 31, 2022 and December 31, 2021 were:
March 31, 2022December 31, 2021
Carrying ValueFair ValueCarrying ValueFair Value
(in thousands)
Term Loan B Facility$2,000,000 $1,955,000 $ $ 
2029 Notes350,000 311,281 350,000 346,281 
2031 Notes350,000 296,625 350,000 341,250 
Revolving credit facilities235,000 235,000 85,000 85,000 

Non-Financial Assets and Liabilities

Our non-financial assets, which primarily consist of property and equipment, right-of-use assets, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. The fair values of these assets are determined, as required, based on Level 3 measurements, including estimates of the amount and timing of future cash flows based upon historical experience, expected market conditions, and management’s plans.

6. DERIVATIVE FINANCIAL INSTRUMENTS
 
We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk that impacts the reported U.S. Dollar amounts of revenues, expenses, and certain foreign currency monetary assets and liabilities. 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 may enter into forward contracts to buy and sell foreign currency. By policy, we do not enter into these contracts for trading purposes or speculation.

Counterparty default risk is considered low because the forward contracts that we enter into are over-the-counter instruments transacted with highly-rated financial institutions. We were not required to and did not post collateral as of March 31, 2022 or December 31, 2021.

Our derivative instruments are recorded at fair value as a derivative asset or liability in the condensed consolidated balance sheets. We report derivative instruments with the same counterparty on a net basis when a master netting arrangement is in place. Changes in fair value are recognized within ‘Foreign currency gains (losses), net’ in the condensed consolidated statements of operations. For the condensed consolidated statements of cash flows, we classify cash flows from derivative instruments at settlement in the same category as the cash flows from the related hedged items within ‘Cash provided by (used in) operating activities.’

9

Results of Derivative Activities

The fair values of derivative assets and liabilities, net, all of which are classified as Level 2, reported within either ‘Accrued expenses and other liabilities’ or ‘Prepaid expenses and other assets’ in the condensed consolidated balance sheets, were:
March 31, 2022December 31, 2021
Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
(in thousands)
Forward foreign currency exchange contracts$1,917 $(569)$724 $(938)
Netting of counterparty contracts(569)569 (724)724 
  Foreign currency forward contract derivatives$1,348 $ $ $(214)

The notional amounts of outstanding foreign currency forward exchange contracts presented below report the total U.S. Dollar equivalent position and the net contract fair values for each foreign currency position.
March 31, 2022December 31, 2021
NotionalFair ValueNotionalFair Value
(in thousands)
Euro$27,741 $(211)$43,723 $(296)
Singapore Dollar43,323 (180)25,795 104 
Indian Rupee17,299 190 21,198 162 
Japanese Yen11,126 436 14,201 (112)
British Pound Sterling10,468 67 12,910 80 
South Korean Won14,359 (18)10,379 (86)
Other currencies15,122 1,064 19,481 (66)
Total$139,438 $1,348 $147,687 $(214)
Latest maturity dateApril 2022January 2022

Amounts reported in ‘Foreign currency gains (losses), net’ in the condensed consolidated statements of operations include both realized and unrealized gains (losses) from foreign currency transactions and derivative contracts and were:
Three Months Ended March 31,
 20222021
 (in thousands)
Foreign currency transaction losses
$(917)$(851)
Foreign currency forward exchange contracts gains
1,397 347 
Foreign currency gains (losses), net
$480 $(504)

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7. BORROWINGS
 
Our long-term borrowings were as follows:
MaturityStated Interest RateEffective Interest RateMarch 31, 2022December 31, 2021
(in thousands)
Notes issuance of $350.0 million
20294.250 %4.64 %$350,000 $350,000 
Notes issuance of $350.0 million
20314.125 %4.35 %350,000 350,000 
Term Loan B Facility20292,000,000  
Revolving credit facilities235,000 85,000 
Total face value of long-term borrowings2,935,000 785,000 
Less:
Unamortized issuance costs63,744 13,610 
Current portion of long-term borrowings (1)
20,000  
Total long-term borrowings$2,851,256 $771,390 
(1) Represents the current portion of the borrowing on the Term Loan B facility.

At March 31, 2022 and December 31, 2021, $13.0 million and $10.4 million, respectively, of accrued interest related to our borrowings was reported in ‘Accounts payable’ in the condensed consolidated balance sheets.

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. In February 2022, we amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $600.0 million, which can be increased by an additional $400.0 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%, (b) the Prime Rate (as defined in the Credit Agreement), and (c) 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 March 31, 2022, we were in compliance with all financial covenants under the Credit Agreement.

As of March 31, 2022, the total commitments available from the lenders under the Revolving Facility were $600.0 million. At March 31, 2022, we had $235.0 million in outstanding borrowings, which are due when the Revolving Facility matures in July 2024, and $0.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of March 31, 2022 and December 31, 2021, we had $364.7 million and $414.7 million, respectively, of available borrowing capacity under the Revolving Facility.

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.
11


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. 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 will bear 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 will bear 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 of the Term Loan B Facility is payable on the last business day of each March, June, September and December, beginning June 30, 2022, in a quarterly aggregate principal amount of $5.0 million, with the entire remaining principal amount due on February 17, 2029, the maturity date. As of March 31, 2022, the Term Loan B Facility was fully drawn, and there was no available borrowing capacity under the Term Loan B Facility.

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 March 31, 2022, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.

Asia Revolving Credit Facilities

During the three months ended March 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 $1.6 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.

As of March 31, 2022, we had borrowings outstanding of $0.5 million on the CMBC Facility, which are due in January 2023 and borrowings outstanding of $4.7 million on the Citibank Facility, which are due in May 2022. We had no borrowings under our Asia revolving facilities during the year ended December 31, 2021 or outstanding at December 31, 2021.

Senior Notes Issuance

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
12

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 March 31, 2022, we were in compliance with all financial covenants under the Notes.

8. COMMON STOCK REPURCHASE PROGRAM 

During the three months ended March 31, 2022, to prioritize repayments of debt, including debt incurred to finance a part of the Acquisition, we did not repurchase shares of our common stock. During the three months ended March 31, 2021, we repurchased 1.1 million shares of our common stock at a cost of $50.0 million, including commissions. This includes 0.5 million shares received in January 2021 at the conclusion of the purchase period for an accelerated share repurchase agreement we entered into in November 2020.

As of March 31, 2022, we had remaining authorization to repurchase approximately $1,050.0 million of our common stock, subject to restrictions under our Notes, Credit Agreement, and Term Loan B Credit Agreement.

9. REVENUES

Revenues by channel and brand were:

Three Months Ended March 31, 2022
Crocs BrandHEYDUDE BrandTotal
(in thousands)
Channel:
Wholesale$344,258 $86,919 $431,177 
Direct-to-consumer (1)
200,967 28,004 228,971 
Total revenues$545,225 $114,923 $660,148 

Three Months Ended March 31, 2021
Crocs BrandHEYDUDE BrandTotal
(in thousands)
Channel:
Wholesale$290,039 $ $290,039 
Direct-to-consumer (1)
170,059  170,059 
Total revenues$460,098 $ $460,098 
(1) Direct-to-consumer revenues consist of sales generated through our company-operated retail stores, company-operated e-commerce websites, and third-party e-commerce marketplaces.

For information on revenues by reportable operating segment, see Note 14 — Operating Segments and Geographic Information.

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10. SHARE-BASED COMPENSATION

Our share-based compensation awards are issued under the 2020 Equity Incentive Plan (“2020 Plan”) and a predecessor plan, the 2015 Equity Incentive Plan (“2015 Plan”). Any awards that expire or are forfeited under the 2015 Plan become available for issuance under the 2020 Plan.

Share-based compensation expense reported in our condensed consolidated statements of operations was:
Three Months Ended March 31,
20222021
(in thousands)
Cost of sales$111 $86 
Selling, general and administrative expenses
8,164 7,968 
Total share-based compensation expense$8,275 $8,054 

11. INCOME TAXES

Income tax expense and effective tax rates were:
Three Months Ended March 31,
 20222021
(in thousands, except effective tax rate)
Income before income taxes$99,060 $122,588 
Income tax expense 26,300 24,190 
Effective tax rate26.5 %19.7 %

The increase in the effective tax rate for the three months ended March 31, 2022, compared to the same period in 2021, was primarily driven by the prior year realization of deferred tax assets which were subject to a valuation allowance which did not reoccur in the current year. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due differences in income tax rates between U.S. and foreign jurisdictions. We had unrecognized tax benefits of $212.1 million and $218.4 million at March 31, 2022 and December 31, 2021, respectively, and we do not expect any significant changes in tax benefits in the next twelve months.

Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount of income or loss by jurisdiction, our ability to utilize net operating losses and foreign tax credits, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, may have an impact on our effective tax rate, including federal corporate tax increases currently contemplated in the U.S.

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12. EARNINGS PER SHARE
 
Basic and diluted earnings per common share (“EPS”) for the three months ended March 31, 2022 and 2021 were:
Three Months Ended March 31,
20222021
(in thousands, except per share data)
Numerator:  
Net income
$72,760 $98,398 
Denominator:  
Weighted average common shares outstanding - basic
59,823 65,458 
Plus: Dilutive effect of stock options and unvested restricted stock units
1,073 1,390 
Weighted average common shares outstanding - diluted
60,896 66,848 
Net income per common share:
  
Basic$1.22 $1.50 
Diluted$1.19 $1.47 

In the three months ended March 31, 2022 and 2021, immaterial outstanding shares issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS.

13. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of March 31, 2022, we had purchase commitments to third-party manufacturers, primarily for materials and supplies used in the manufacture of our products, for an aggregate of $585.5 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.

Other

We are regularly subject to, and are currently undergoing, audits by various tax authorities in the United States and several foreign jurisdictions, including customs duties, import, and other taxes for prior tax years.

During our normal course of business, we may make certain indemnities, commitments, and guarantees under which we may be required to make payments. We cannot determine a range of estimated future payments and have not recorded any liability for indemnities, commitments, and guarantees in the accompanying condensed consolidated balance sheets.

See Note 15 — Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legal proceedings.

14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

Crocs, Inc. has 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. Beginning in the three months ended March 31, 2022, our HEYDUDE Brand is also a reportable segment. Each of the reportable operating segments derives its revenues from the sale of footwear and accessories to external customers.

Additionally, Crocs ‘Brand corporate’ costs represent operating expense that includes product creation, design, and marketing expenses centrally managed for the Crocs Brand, as well as certain royalty income. Crocs Brand corporate costs are included within the Crocs Brand for presentation purposes to align with the way management views the Company. ‘Enterprise corporate’ costs include global corporate costs associated with both brands, including legal, information technology, human resources, and finance, as well as costs associated with global digital operations.

Each segment’s performance is evaluated based on segment results without allocating Brand corporate or Enterprise corporate expenses. Segment profits or losses include adjustments to eliminate inter-segment sales. Reconciling items between segment
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income from operations and income from operations consist of unallocated brand and enterprise corporate and other expenses, as well as inter-segment eliminations.

We do not report asset information by segment because that information is not used to evaluate performance or allocate resources between segments.

The following tables set forth information related to reportable operating segments:
Three Months Ended March 31,
20222021
(in thousands)
Revenues:
North America (1)
$319,450 $267,267 
Asia Pacific95,847 82,592 
EMEALA (1)
129,921 110,201 
Brand corporate (2)
7 38 
Total Crocs Brand545,225 460,098 
HEYDUDE Brand (3)
114,923  
Total consolidated revenues$660,148 $460,098 
Income from operations:
North America (1)
$129,611 $112,693 
Asia Pacific30,106 22,115 
EMEALA (1)
34,927 40,019 
Brand corporate (2)
(30,709)(20,008)
Total Crocs Brand163,935 154,819 
HEYDUDE Brand (3)
15,658  
Reconciliation of total segment income from operations to income before income taxes:
  
Enterprise corporate (2)
(60,916)(30,133)
Income from operations
118,677 124,686 
Foreign currency gains (losses), net480 (504)
Interest income102 27 
Interest expense(19,252)(1,632)
Other income (expense), net(947)11 
Income before income taxes$99,060 $122,588 
Depreciation and amortization:
North America (1)
$2,220 $925 
Asia Pacific523 287 
EMEALA (1)
724 184 
Brand corporate (2)
186 2,749 
Total Crocs Brand
3,653 4,145 
HEYDUDE Brand (3)
2,444  
Enterprise corporate (2)
1,798 3,909 
Total consolidated depreciation and amortization
$7,895 $8,054 
(1) 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 better align with how we manage our distributor business. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ Additionally, in the second quarter of 2021, certain marketing expenses previously reported within ‘Unallocated corporate and other’ were shifted to the Americas, Asia Pacific, and EMEA segments (see footnote (2) for more information on the current year presentation of costs previously reported in ‘Unallocated corporate and other’). As a result of these changes, the previously reported amounts for revenues, income from
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operations, and depreciation and amortization for the three months ended March 31, 2021 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ and ‘Impacts of marketing expense allocations’ tables below for more information.
(2) 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 the section preceding the above table. As a result of these changes, the previously reported amounts for income from operations and depreciation and amortization for the three months ended March 31, 2021 have been revised to conform to current period presentation. See the ‘Impacts of brand vs. enterprise recast’ table below for more information.
(3) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE brand as a new operating segment. Therefore, the amounts shown above represent results during the period from the Acquisition Date through March 31, 2022, and there are no comparative amounts for the three months ended March 31, 2021.

Impacts of segment composition change associated with Latin America:
Three Months Ended March 31, 2021
(in thousands)
Impact on revenues:
Americas (now “North America”)$(9,142)
EMEA (now “EMEALA”)9,142 
Impact on income from operations:
Americas (now “North America”)$(3,374)
EMEA (now “EMEALA”)3,374 
Impact on depreciation and amortization:
Americas (now “North America”)$(18)
EMEA (now “EMEALA”)18 

Impacts of marketing expense allocations:
Three Months Ended March 31, 2021
(in thousands)
Impacts on income from operations:
Americas (now “North America”)$(2,277)
Asia Pacific(1,178)
EMEA (now “EMEALA”)(468)
Total impact on segment income from operations$(3,923)
Unallocated corporate and other (now in “Brand corporate”)$3,923 
















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Impacts of brand vs. enterprise recast:
Three Months Ended March 31, 2021
(in thousands)
Impacts on income from operations:
Brand corporate$(20,008)
Enterprise corporate(30,133)
Unallocated corporate and other50,141 
Impacts on depreciation and amortization:
Brand corporate$2,749 
Enterprise corporate3,909 
Unallocated corporate and other(6,658)

15. LEGAL PROCEEDINGS

For legal claims and disputes, we have accrued estimated losses of $0.8 million within ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheet as of March 31, 2022. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of March 31, 2022, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by an immaterial amount.

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

16. ACQUISITION OF HEYDUDE

On February 17, 2022, (the “Acquisition Date”), we acquired 100% of the equity of HEYDUDE, pursuant to the SPA. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” The Acquisition allows us to diversify and expand our business by adding a second brand to the Crocs portfolio.

The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of the Company’s common stock to one of the sellers (the “Equity Consideration Shares”). The Equity Consideration Shares are subject to a lock-up period beginning on the Acquisition Date and continuing to, and including, the date that is 12 months after the Acquisition Date, provided that (a) on the date that is six months after the Acquisition Date, 50% of the Equity Consideration Shares will be released from the lock-up, and (b) on the date that is twelve months after the Acquisition Date, the remaining 50% of the Equity Consideration Shares will be released from the lock-up.

The Cash Consideration was financed via the Company’s entry into the $2.0 billion Term Loan B Facility and $50.0 million of borrowings under the Revolving Facility. As a result of the Acquisition, HEYDUDE has become wholly owned by Crocs. Accordingly, the results of HEYDUDE are included in our condensed consolidated financial statements from the Acquisition Date and are reported in the HEYDUDE operating segment. HEYDUDE contributed revenue of $114.9 million and income from operations of $15.7 million to our condensed consolidated statement of operations from the Acquisition Date through March 31, 2022.

Purchase Price Allocation

The Acquisition was accounted for in accordance with the ASC Topic 805 Business Combinations. As a result, we have applied acquisition accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their estimated fair values as of the Acquisition Date. For certain assets and liabilities, those fair values were consistent with historical carrying values. The fair value of inventory was determined using both a market approach and a cost approach. With respect to intangible assets, the estimated fair value was based on the Multi Period Excess Earnings approach for the trademark and the distributor method for the customer relationships. These models used primarily Level 2 and Level 3 inputs, including an estimate of future revenues, future cash flows, and discount rates.
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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the Acquisition Date:

February 17, 2022
(in thousands)
Cash and cash equivalents$6,232 
Accounts receivable, net69,031 
Inventories171,270 
Prepaid expenses and other assets2,977 
Intangible assets1,870,000 
Goodwill640,497 
Right-of-use assets 2,844 
Accounts payable(28,388)
Accrued expenses and other liabilities(39,618)
Income taxes payable(32,947)
Long-term deferred tax liability