Crocs
Annual Report 2010

Plain-text annual report

Use these links to rapidly review the documentTable of Contents INDEX TO FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission File No. 0-51754CROCS, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation ororganization) 20-2164234(I.R.S. EmployerIdentification No.)6328 Monarch Park PlaceNiwot, Colorado 80503(303) 848-7000(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)Securities registered pursuant to Section 12(b) of the Act:Title of each class: Name of each exchange on which registered:Common Stock, par value $0.001 per share The NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: None ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31, 2010oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No  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 of1934 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 suchfiling requirements for the past 90 days. Yes  No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will notbe contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of theForm 10-K or any amendment to the Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Checkone): Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Act). Yes o No  The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2010 was $915.0 million. For thepurpose of the foregoing calculation only, all directors and executive officers of the registrant and owners of more than 5% of the registrant's commonstock are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily conclusive for any other purpose. The number of shares of the registrant's common stock outstanding as of January 31, 2011 was 88,690,768.DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the registrant's proxy statement for the 2011 annual meeting of stockholders to be filedno later than 120 days after the end of the registrant's fiscal year ended December 31, 2010.Largeacceleratedfiler  Acceleratedfiler o Non-acceleratedfiler o(do not check if asmaller reportingcompany) Smaller reportingcompany oTable of ContentsCrocs, Inc.2010 Annual Report on Form 10-K Table of Contents PART IItem 1. Business 1Item 1A. Risk Factors 9Item 1B. Unresolved Staff Comments 18Item 2. Properties 18Item 3. Legal Proceedings 19Item 4. Reserved 20PART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 21Item 6. Selected Financial Data 23Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44Item 8. Financial Statements and Supplementary Data 45Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45Item 9A. Controls and Procedures 45Item 9B. Other Information 47PART IIIItem 10. Directors, Executive Officers and Corporate Governance 47Item 11. Executive Compensation 47Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 47Item 13. Certain Relationships and Related Transactions, and Director Independence 47Item 14. Principal Accountant Fees and Services 47PART IVItem 15. Exhibits and Financial Statement Schedules 48Signatures 51Table of ContentsPART I ITEM 1. BUSINESS The Company Crocs, Inc. and its consolidated subsidiaries (collectively the "Company," "we," "our" or "us") is a designer, manufacturer, distributor, worldwidemarketer and brand manager of footwear and accessories for men, women and children. We strive to be the global leader in molded footwear design anddevelopment which feature fun, comfort and functionality. Our products include footwear and accessories that utilize our proprietary closed cell-resin,called Croslite. The use of this unique material allows us to produce innovative, lightweight, non-marking and odor-resistant footwear. Certain shoesmade with the Croslite material have been certified by U.S. Ergonomics to reduce peak pressure on the foot, reduce muscular fatigue while standing andwalking and to relieve the musculoskeletal system. We currently sell our products in more than 90 countries through domestic and international retailersand distributors, and directly to end-user consumers through our company-operated retail stores, outlets, kiosks and webstores. We were organized in 1999 as a limited liability company. Shortly after completing our first footwear design produced by Foam Creations, Inc.(now known as Crocs Canada Inc., "Crocs Canada,") and Finproject N.A., Inc. in 2002, we launched the marketing and distribution footwear productsunder the Crocs brand in the United States. The unique characteristics of Croslite, which was developed by Crocs Canada, enabled us to offerconsumers a shoe unlike any other footwear model then available. In 2004, we acquired Crocs Canada, including its manufacturing operations, productlines, and rights to the trade secrets for the Croslite material. In January 2005, we converted to a Colorado corporation and subsequently re-incorporatedas a Delaware corporation in June 2005. In February 2006, we completed our initial public offering and trading of our common stock on NASDAQcommenced. Our business has grown both organically and through acquisitions which have enabled us to expand the Croslite product-line as well as toinclude a variety of new products and styles. We aim to continue to expand our product-line and bring a unique and original perspective to the consumerin styles that may be unexpected from Crocs. We are advocates of our global community and environment. We introduced a shoe donation program currently operating under our "Crocs Cares"program. We have donated millions of Crocs shoes to those in need in both the local and global communities we serve. In addition to the donationprogram, Crocs Cares aims to establish a comprehensive program focused on internal team building and community awareness by providing Crocsemployees the opportunity to volunteer in their community. Also, our wholly-owned subsidiary Ocean Minded takes an active role in protecting theoceans, rivers and beaches through beach clean-ups, support of the Surfrider Foundation and through various other charitable efforts.Products While the majority of our products consist of footwear, we also offer accessories which generated approximately 4.0% of our total revenues duringthe year ended December 31, 2010, and to a much smaller extent, apparel which generated approximately 0.1%. Our footwear products are divided intofour product offerings: Core, Active, Casual and Style. The Core product offering primarily includes molded products that are derivatives of the originalCrocs Classic designs and is targeted toward a wide range of consumers. The Active product offering is comprised of footwear intended for healthyliving and includes sport-inspired products and footwear suited for activities such as boating, walking, hiking and even recovery after workouts. TheCasual product offering includes sporty and relaxed styles appealing to a broad range of customers. The Style product offering includes stylish productswhich are intended to broaden the wearing occasion for Crocs lovers.1Table of Contents In 2010, we extended licensing agreements with Disney, Nickelodeon, Marvel, Dreamworks, HIT Entertainment, Mario Batali, and The CollegiateLicensing Company among others, for Crocs branded footwear and/or Jibbitz shoe charms (discussed below). In addition, we entered into newlicensing agreements with LEGO and Mattel (Barbie) in 2010. We also offer a line of footwear and Jibbitz charms featuring such popular characters asMickey and Minnie Mouse, Ariel, Sponge Bob Square Pants, Dora the Explorer, Scooby-Doo and Hello Kitty, as well as characters from motionpictures including Toy Story and Cars. In addition, we are exploring opportunities to license out the Crocs brand name as part of a strategy to extendCrocs into new product types including accessories and children's apparel.Footwear Our footwear product offering has grown significantly since we first introduced the Crocs single style clog in six colors, in 2002. We currentlyoffer a wide product line of footwear, some of which include boots, sandals, sneakers, mules and flats which are made of materials like leather andtextile fabrics as well as Croslite. In addition to the Crocs brand, some of our market specific product lines include the following.•Crocs Work is a product offering targeted at the hospital, restaurant, hotel and hospitality markets and includes both molded and leatherfootwear styles of which various have been industry certified for slip-resistance and electro-static discharge. The Crocs Work productshave an established distribution channel with a leading uniform supply company thus providing us marketing access to large hospitalitychains, laboratories and clean-rooms. In 2010, the Bistro style received the 2010 Gold Medal Seal from Chef's of America. Also in 2010the Bistro, Specialist, Specialist Vent, Juniper and Lavender styles were certified by the American Podiatric Medical Association("APMA"). •Crocs Rx is a medical-needs product offering targeted at the general foot care and diabetic-needs markets. In 2009 and 2010, Crocs Rxout-sold its competitors in terms of unit volume in the U.S. with a distribution to approximately 1,780 podiatry offices and medical shoestores. In 2009, we expanded our Crocs Rx sales in Europe, Asia and India with low-cost, lightweight footwear appropriate for peoplewith diabetes. Each of the Crocs Rx styles has been certified by the APMA. In addition, we were the first shoe company to receive theAPMA's "2008 Company of the Year" award for "greatest impact on the field of podiatry." •Ocean Minded is a product offering featuring high quality leather and EVA (Ethylene Vinyl Acetate) footwear, sandals and printedapparel primarily for the beach, action and adventure markets. •YOU by Crocs is a women's fashion line that combines comfort with fashionable styles. A key differentiating feature of our footwear products is the Croslite material, which is uniquely suited for comfort and functionality. We havecarefully formulated the Croslite material to be of a density that creates extremely lightweight, comfortable and non-marking footwear which conformsto the shape of the foot, often reducing pressure points on the foot to increase comfort. Croslite is a closed cell resin material which is water resistant,virtually odor free, and allows many of our footwear styles to be cleaned simply with water. As we have expanded our product offering, we haveincorporated traditional materials such as textile fabric and leather into many new styles. However, we continue to utilize the Croslite material for thefoot bed, sole and other key structural components for the majority of these styles. Footwear sales made up 95.5%, 94.6%, and 91.6% of total revenues for the years ended December 31, 2010, 2009, and 2008, respectively.During the years ended December 31, 2010, 2009 and 2008, approximately 75.5%, 77.5% and 77.9% of unit sales consisted of products gearedtowards adults,2Table of Contentsrespectively, compared to 24.5%, 22.5% and 22.1% of unit sales of products geared towards children, respectively. Sales of our Crocs Classic modelsaccounted for 9.9%, 15.8%, and 24.8% of total unit sales for the years ended December 31, 2010, 2009 and 2008, respectively. We believe that thedeclining percentage of our original styles is reflective of our continued efforts to diversify our product-line and reduce reliance on original styles.Accessories In addition to our footwear brands, we own the Jibbitz brand, a unique accessory product-line with colorful snap-on charms specifically suited forCrocs shoes. We acquired Jibbitz, LLC ("Jibbitz") in December 2006 and have expanded the product-line to include a wide variety of charms in varyingshapes and sizes, with designs such as flowers, sports gear, seasonal and holiday designs, animals, symbols, letters and rhinestones. Crocs licensingagreements also extend to Jibbitz, which allows Jibbitz to create designs bearing logos and emblems of Disney, Nickelodeon and the Crocs collegiateline, among others. Jibbitz designs allow Crocs consumers to personalize their footwear to creatively express their individuality. As of December 31,2010, approximately 700 unique Jibbitz charm designs were available to consumers for personalizing their Crocs footwear. Sales from Jibbitz designsmade up 3.5%, 3.9%, and 6.5% of total revenues for the years ended December 31, 2010, 2009, and 2008, respectively.Sales and Marketing While the broad appeal of our footwear has allowed us to market our products in a wide range of distribution channels, including departmentstores, traditional footwear retailers and a variety of specialty and independent retail channels, our marketing approach has become significantly targetdefined. Our marketing efforts center on specific product launches and employ a fully integrated approach utilizing a variety of media outlets, includingprint, the internet and television. We have three primary sales channels: wholesale, retail and internet. Our marketing efforts drive business to both ourwholesale partners and our company-operated retail and internet stores, ensuring that our presentation and story are first class and drive purchasing atthe point of sale.Wholesale Channel During the years ended December 31, 2010, 2009 and 2008, approximately 61.0%, 62.6% and 76.5% of net revenues, respectively, were derivedfrom sales through the wholesale channel which consists of sales to distributors and third-party retailers. Wholesale customers include national andregional retail chains, department stores, sporting goods stores and family footwear retailers, such as Nordstrom, Journeys, Dillard's, Dick's SportingGoods, The Sports Authority, The Forzani Group, Famous Footwear, DSW and Xebio, as well as on-line retailers such as Zappos, Amazon andShoebuy.com. No single customer accounted for 10% or more of revenues for the year ended December 31, 2010, 2009 or 2008. We use third-party distributors in select markets where we believe such arrangements are preferable to direct sales. These third-party distributorspurchase products pursuant to a price list and are granted the right to resell the products in a defined territory, usually a country or group of countries.Our typical distribution agreements have terms of one to four years, are generally terminable on 30 days prior notice and have minimum salesrequirements. At our discretion, we may accept returns from wholesale customers for defective products, quality issues, and shipment errors on anexception basis or, for certain wholesale customers, extend pricing discounts in lieu of defective product returns. Also at our discretion, we may acceptreturns from our wholesale customers, on an exception basis, for the purpose of stock re-balancing to ensure that our products are merchandised in theproper assortments. Additionally, we may provide markdown allowances to key wholesale customers to facilitate in-channel product markdowns wheresell-through is less than anticipated.3Table of ContentsConsumer-Direct Channels Consumer-direct sales channels include retail and internet channels and serve as an important and effective means to enhance our product andbrand awareness as they provide direct access to our consumers and an opportunity to showcase our entire line of footwear and accessory offerings. Weview the consumer-direct channels to be complementary to our wholesale channel.Retail Channel During the years ended December 31, 2010, 2009 and 2008, approximately 29.5%, 28.0%, and 17.4%, of our net revenues were derived fromsales through our retail channel, which consists of company-operated kiosks, retail and outlet stores. Kiosks As of December 31, 2010 and 2009, we operated 164 and 170 global retail kiosks, respectively, located in malls and other highfoot traffic areas. Due to their efficient use of retail space and limited initial capital investment, kiosks are an effective outlet for marketing ourproducts. Retail Stores As of December 31, 2010 and 2009, we operated 138 and 84 global retail stores, respectively, in a variety of locations,including: Maui, Hawaii; Yokohama City, Japan; and Hong Kong, China. Company-operated retail stores allow us to effectively market the fullbreadth and depth of our new and existing products and interact with customers in order to enhance brand awareness. Outlet Stores As of December 31, 2010 and 2009, we operated 76 and 63 global outlet stores, respectively in a variety of locations,including: Orlando, Florida; Nasushiobara, Japan; and Metzingen, Germany. Outlet stores help us move older products in an orderly fashion.We also sell full priced products in our outlet stores.Internet Channel As of December 31, 2010 and 2009, we offered our products through 46 and 23 company-operated webstores, respectively worldwide. Duringthe years ended December 31, 2010, 2009 and 2008, approximately 9.5%, 9.4%, and 6.1% respectively, of our net revenues were derived from salesthrough our internet channel. Our internet presence enables us to educate consumers about our products and brand. We continue to expand our web-based marketing efforts to increase consumer awareness of our full product range.Business Segments and Geographic Information We have three reportable segments: Americas, Europe and Asia. We also have an Other segment category which aggregates insignificant operatingsegments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel andaccessories. The composition of our reportable segments is consistent with that used by our chief operating decision maker ("CODM") to evaluateperformance and allocate resources. During the fourth quarter of 2010, we changed the internal segment reports used by our CODM to separatelyillustrate performance metrics of certain operating segments which provide manufacturing support, located in Mexico and Italy. These operatingsegments make up our Other segment category. Segment information for all periods presented has been restated to reflect this change. Within each segment, we sell our products through our wholesale, retail and internet channels. We occasionally utilize sales agents and buyinggroups in our international locations to service our wholesale customers. We established a direct sales presence in most major international marketsrather than relying on distributors which enables us to obtain better margins and allows us to better control4Table of Contentsour marketing and distribution. Financial information relating to our operating segments as well as foreign country revenues and long-lived assets isprovided in Note 15—Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements.Americas The Americas segment consists of revenues and expenses related to product sales in the North and South America geographic regions. Regionalwholesale channel customers consist of a broad range of sporting goods and department stores as well as specialty retailers. The regional retail channelsells directly to the consumer through 197 company-operated store locations, including kiosks and retail stores in such locations as Orlando, Maui,Boston, New York, Quebec and Montreal, as well as through webstores. During the years ended December 31, 2010, 2009 and 2008, the regionalrevenues constituted approximately 47.8%, 46.7% and 50.7% of our consolidated revenues, respectively.Asia The Asia segment consists of revenues and expenses related to product sales throughout Asia, Australia, New Zealand, the Middle East and SouthAfrica. The Asia wholesale channel consists of sales to a broad range of retailers, similar to the wholesale channel we have established in the Americaswholesale channel. We also sell products directly to the consumer through 159 company-operated stores including kiosks and retail stores in locationssuch as Yokohama City, Hong Kong, Singapore and Brisbane, as well as through our webstores. During the years ended December 31, 2010, 2009and 2008, revenues from the Asia segment constituted 36.1%, 36.8% and 28.4% of our aggregate consolidated revenues, respectively.Europe Segment The Europe segment consists of revenues and expenses related to product sales throughout Europe and Russia. Europe segment wholesale channelcustomers consist of a broad range of retailers, similar to the wholesale channel we have established in our Americas segment. We also sell our productsdirectly to the consumer through 22 company-operated stores including kiosks and retail stores in locations such as Moscow, Russia; Metzingen,Germany; and London, England, as well as through our webstores. During the years ended December 31, 2010, 2009 and 2008, revenues from theEurope segment constituted 16.2%, 16.4% and 20.7% of our aggregate consolidated revenues, respectively.Distribution and Logistics On an ongoing basis, we look to enhance our distribution and logistics network so as to further streamline our supply chain, increase our speed tomarket and lower costs. In 2008, we consolidated our distribution and logistics network to leverage resources and simplify our fulfillment processeswhile driving down costs in our operations. During 2009, we continued to streamline our distribution strategy based upon projected economicconditions and demand for our products to further consolidate global distribution centers and warehousing thereby decreasing fixed costs. During the year ended December 31, 2010, we stored our raw material and finished goods inventories in company-operated warehouse anddistribution facilities located in, California, Puerto Rico, Mexico, the Netherlands, Japan, China and South Africa. We also utilized distribution centerswhich were operated by third parties located in Brazil, Finland, Australia, Dubai, Hong Kong, Korea, Singapore, India, Taiwan and China. Throughout2010, we continued to engage in efforts to consolidate our global warehouse and distribution facilities to maintain a lean cost structure. As ofDecember 31, 2010 and 2009, our company-operated warehouse and distribution facilities provided us with 1.3 million square feet and 1.5 millionsquare feet, respectively, and our third-party operated distribution facilities provided us with 0.3 million square feet and 0.2 million square feet,respectively. We also ship a portion5Table of Contentsof our products directly to our customers from our internal and third-party manufacturers. We are actively pursuing initiatives aimed at shipping more ofour product directly to our customers, which, if successful, is expected to lower our cost of sales in the future.Raw Materials Croslite material, our proprietary closed-cell resin, is the primary raw material used in the majority of our footwear and some of our accessories.Croslite material is soft and durable and allows our material to be non-marking in addition to being extremely lightweight. We continue to invest inresearch and development in order to refine our materials to enhance these properties and to target the development of new properties for specificapplications. Croslite material is produced by compounding elastomer resins that we or one of our third-party processors purchase from major chemicalmanufacturers together with certain other production inputs such as color dyes. At this time, we have identified two suppliers that produce the particularelastomer resins used in the Croslite material. We may, however, in the future identify and utilize materials produced by other suppliers as an alternativeto the elastomer resins we currently use in the production of our proprietary material. All of the other raw materials that we use to produce the Croslitematerial are readily available for purchase from multiple suppliers. Since our inception, we have substantially increased the number of footwear products that we offer. Many of our new products are constructedusing leather, textile fabrics or other non-Croslite materials. We or our third-party manufacturers obtain these materials from a number of third-partysources and we believe these materials are broadly available. We compound Croslite material internally in Mexico utilizing subcomponent materialsproduced by a third party in the U.S. We also outsource the compounding of Croslite material and continue to purchase a portion of our compoundedraw materials from a third party in Europe.Design and Development We have expanded into new footwear categories by designing new footwear styles using both internal designers and external recognized footweardesign experts. As part of this strategy, we acquired EXO Italia ("EXO") in 2006, which expanded our internal design capabilities. EXO is based inPadova, Italy and is an Italian producer of EVA (Ethylene Vinyl Acetate) based finished products, primarily for the footwear industry. By introducingoutside sources to the design process, we are able to capture a variety of different design perspectives on a cost-efficient basis and anticipate trends morequickly. We continue to dedicate significant resources to product design and development as we develop footwear styles based on opportunities we identifyin the marketplace. Our design and development process is highly collaborative, as members of the design team frequently meet with sales andmarketing staff, production and supply managers and certain of our retail customers to further refine our products to meet the particular needs of ourtarget market. We continually strive to improve our development function so we can bring products to market quickly and reduce costs whilemaintaining product quality. We spent $7.8 million, $7.7 million and $6.4 million in research, design and development activities for the years endedDecember 31, 2010, 2009, and 2008, respectively.Manufacturing and Sourcing Our strategy is to maintain a flexible, globally diversified, low-cost manufacturing base. We currently have company-operated production facilitiesin Mexico and Italy. We also contract with third-party manufacturers to produce certain of our footwear styles or provide support to our internalproduction processes. We believe that our internal manufacturing capabilities enable us to rapidly make changes to production, providing us with theflexibility to quickly respond to orders for high demand models and colors throughout the year, while outsourcing allows us to capitalize on theefficiencies and6Table of Contentscost benefits of using contracted manufacturing services. We believe this strategy will continue to minimize our production costs, increase overalloperating efficiencies and shorten production and development times. In the years ended December 31, 2010, 2009 and 2008, we manufactured approximately 21.0%, 26.4% and 16.6%, respectively, of our footwearproducts internally and sourced the remaining footwear production from multiple third-party manufacturers in China and Bosnia. During the yearsended December 31, 2010, 2009 and 2008, our largest third-party supplier in China produced approximately 38.8%, 35.7%, and 48.8%, respectively, ofour footwear unit volume. We do not have written supply agreements with our primary third-party manufacturers in China.Intellectual Property and Trademarks We rely on a combination of trademark, copyright, trade secret, trade dress, and patent protection to establish, protect, and enforce our intellectualproperty rights in our product designs, brand, materials, and research and development efforts, although no such methods can afford completeprotection. We own or license the material trademarks used in connection with the marketing, distribution and sale of all of our products, bothdomestically and internationally, where our products are currently either sold or manufactured. Our major trademarks include the Crocs logo and designand the Crocs word mark, both of which are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China and Canadaamong other places. We also have registrations or pending registrations for trademark rights or have pending trademark applications for the marksJibbitz, Jibbitz Logo, YOU by Crocs, YOU by Crocs Logo, Ocean Minded, Tail Logo, Bite, Bite Logo, Crocband, Crocs Tone and Crocs Littles, aswell as for our proprietary material Croslite and the Croslite logo, globally. We intend to continue to strategically register, both domestically andinternationally, the trademarks and copyrights we utilize today and those we develop in the future. We will also continue to aggressively police ourtrademarks and copyrights and pursue those who infringe, both domestically and internationally as we deem necessary. In the U.S., our patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks registeredwithin 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 tobecome generic. We believe our trademarks are crucial to the successful marketing and sale of our products, and we intend to vigorously prosecute anddefend our intellectual property rights throughout the world. We consider the formulation of the Croslite material used to produce our products to be a valuable trade secret. Prior to our acquisition of CrocsCanada in June 2004, Crocs Canada developed the formula for the Croslite material, and we believe that it did not publish or otherwise make theformula available to third parties without the protection of confidentiality or similar agreements. Post acquisition, we continue to protect the formula byusing confidentiality agreements with our third-party processors and by requiring our employees who have access to the formula to executeconfidentiality agreements or to be bound by similar agreements concerning the protection of our confidential information. Neither we nor Crocs Canadahave attempted to seek patent protection for the formula. We are not aware of any third party that has independently developed the formula or thatotherwise has the right to use the formula in their products other than Finproject, our third-party supplier of Croslite in Italy and another third-partylicensee. Under the terms of our supply agreement with Finproject, Finproject has certain limited rights to use the Croslite material, which wereoriginally negotiated in connection with our purchase of Crocs Canada from Finproject's parent company. We believe the comfort and utility of ourproducts depend on the properties achieved from the compounding of the Croslite material and constitute a key competitive advantage for us, and weintend to vigorously protect this trade secret.7Table of Contents We also actively combat counterfeiting through monitoring of the global marketplace. We use our employees, sales representatives, distributors,and retailers to police against infringing products by encouraging them to notify us of any suspect products and to assist law enforcement agencies. Oursales representatives are also educated on our patents, pending patents, trademarks and trade dress and assist in preventing potentially infringingproducts from obtaining retail shelf space. The laws of certain countries do not protect intellectual property rights to the same extent or in the samemanner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for our intellectual property in certain jurisdictions.Seasonality Due to the seasonal nature of our footwear which is more heavily focused on styles suitable for warm weather, revenues generated during our firstand fourth quarters are typically less than revenues generated during our second and third quarters, when the northern hemisphere is experiencingwarmer weather. We continue to expand our product line to include more winter-oriented styles to mitigate some of the seasonality of our revenues. Ourquarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new model introductions orgeneral economic or consumer conditions. Accordingly, results of operations and cash flows for any one quarter are not necessarily indicative of resultsto be expected for any other quarter or for any other year.Backlog We receive a significant portion of orders as preseason orders, generally four to five months prior to shipment date. We provide customers withprice incentives to participate in such preseason programs to enable us to better plan our production schedule, inventory and shipping needs. Unfulfilledcustomer orders as of any date, are referred to as backlog and represent orders scheduled to be shipped at a future date. Backlog as of a particular date isaffected by a number of factors, including seasonality, manufacturing schedule and the timing of product shipments. Further, the mix of future andimmediate delivery orders can vary significantly from period over period. Due to these factors and since the unfulfilled orders can be canceled at anytime prior to shipment by our customers, backlog may not be reliable measure of future sales and comparisons of backlog from period to period may bemisleading. In addition, our historical cancellation experience may not be indicative of future cancellation rates. Backlog as of December 31, 2010 and2009 was $258.4 million and $165.0 million, respectively.Competition The global casual, athletic and fashion footwear markets are highly competitive. Although we believe that we do not compete directly with anysingle company with respect to the entire spectrum of our products, we believe portions of our business compete with companies such as, but notlimited to, Nike Inc., Heelys Inc., Deckers Outdoor Corp., Skechers USA Inc. and Wolverine World Wide, Inc. Our company-operated retail locationsalso compete with footwear retailers such as Nordstrom Inc., Dillards, Dick's Sporting Goods Inc. and Collective Brands Inc. The principal elements of competition in these markets include brand awareness, product functionality, design, quality, pricing, customer service,marketing and distribution. We believe that our unique footwear designs, the Croslite material, our prices, expanded product-line and our distributionnetwork continue to position us well in the marketplace. However, some companies in the casual footwear and apparel industry have greater financialresources, more comprehensive product lines, broader market presence, longer-standing relationships with wholesalers, longer operating histories,greater distribution capabilities, stronger brand recognition and greater marketing resources than we currently have. Furthermore, we face competitionfrom new players who have been attracted to the market with imitation products similar to ours as the result of the unique design and success of ourfootwear products.8Table of ContentsEmployees As of December 31, 2010, we had approximately 4,000 full-time, part-time and seasonal employees, none of which were represented by a union.Available Information Our internet address is www.crocs.com on which we post the following filings, free of charge, as soon as reasonably practicable after they areelectronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q,our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities andExchange Act of 1934, as amended (the "Exchange Act"). Also available on our website are the charters of the committees of our board of directors andour code of ethics. Copies of any of these documents will be provided in print to any stockholder who submits a request in writing to IntegratedCorporate Relations, 761 Main Avenue, Norwalk, CT 06851.ITEM 1A. Risk Factors Special Note Regarding Forward-Looking Statements Statements in this Form 10-K and in documents incorporated by reference herein (or otherwise made by us or on our behalf) contain "forwardlooking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oralcommunications from time to time that contain such statements. Forward looking statements include statements as to industry trends and our futureexpectations and other matters that do not relate strictly to historical facts and are based on certain assumptions of our management. These statements areoften identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "strive," "will," and variations ofsuch words or similar expressions. These statements are based on the beliefs and assumptions of management based on information currently available.Such forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future resultsexpressed or implied by such forward looking statements. Important factors that could cause actual results to differ materially from the forward lookingstatements include, without limitation, the risk factors mentioned below. Furthermore, such forward looking statements speak only as of the date of thisreport. We undertake no obligation to update any forward looking statements to reflect events or circumstances after the date of such statements. The risks included here are not exhaustive. Other sections of this Form 10-K may include additional factors which could adversely affect ourbusiness and financial performance. Since we operate in a very competitive and rapidly changing environment, new risk factors emerge from time totime and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or theextent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-lookingstatements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actualresults.Current economic conditions may adversely affect consumer spending and the financial health of our customers and others with whom we dobusiness which may adversely affect our financial condition, results of operations and cash resources. Uncertainty about the current and future global economic conditions may cause consumers and retailers to defer purchases or cancel purchaseorders for our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitiveto changes in general economic conditions, both globally and nationally. Recessionary economic cycles,9Table of Contentshigher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higherconsumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending could continue toadversely affect the demand for our products. As a result, we may not be able to maintain or increase our sales to existing customers, make sales to newcustomers, open and operate new retail stores, maintain or increase our international operations on a profitable basis, or maintain or improve ourearnings from operations as a percentage of net sales. In addition, the decrease in available credit that has resulted from the weakened economy may result in financial difficulties for our wholesale andretail customers, product suppliers, insurers, other service providers and the financial institutions that are counterparties to our credit facility andderivative transactions. In particular, our customers may experience diminished liquidity that could result in reduced orders for our products, ordercancellations, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts and increasedbad debt expense. If credit pressures or other financial difficulties result in insolvency for these third parties it could adversely impact our estimatedreserves and financial results.We face significant competition. The footwear industry is highly competitive. Recent growth in the market for casual footwear has encouraged the entry of new competitors into themarketplace and has increased competition from established companies. Our competitors include most major athletic and footwear companies, brandedapparel companies, and retailers with their own private labels. A number of our competitors have: significantly greater financial resources than us, morecomprehensive product lines, a broader market presence, longer-standing relationships with wholesalers, a longer operating history, greater distributioncapabilities, stronger brand recognition, and spend substantially more than we do on product advertising and sales. Our competitors' greater capabilitiesin these areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price andproduction, and more quickly develop new products. Further, some of our competitors are offering products that are substantially similar, in design andmaterials, to Crocs-branded footwear. In addition, access to offshore manufacturing is also making it easier for new companies to enter the markets inwhich we compete. If we fail to compete successfully in the future, our sales and profits may decline, we may lose market share, our financial conditionmay deteriorate, and the market price of our common stock is likely to fall.We may be unable to successfully execute our long-term growth strategy or maintain our current revenue levels. Although we exhibited significant growth from our inception through 2007, revenues were significantly lower in 2008, 2009 and 2010, relative tothe peak levels achieved in 2007. We may experience similar decreases in revenues in the future. Our ability to maintain our revenue levels or to grow inthe future depends upon, among other things, the continued success of our efforts to maintain our brand image and bring compelling and revenue-enhancing footwear offerings to market and our ability to expand within our current distribution channels and increase sales of our products into newlocations internationally. Likewise, in order to effectively execute our long-term growth strategy, we will need to continue to streamline our supply chainto increase operating efficiencies and decrease costs. Successfully executing our long-term growth strategy will depend on many factors, including thestrength of the Crocs brand and competitive conditions in new markets that we attempt to enter, our ability to attract and retain qualified distributors oragents or to develop direct sales channels, our ability to secure strategic retail store locations, our ability to use and protect the Crocs brand and our otherintellectual property, in these new markets and territories, and our ability to consolidate our network to leverage resources and simplify our fulfillmentprocess. If we are unable to successfully10Table of Contentsmaintain our brand image, expand distribution channels, streamline our supply chain and sell our products in new markets abroad, our business may failto grow, our brand may suffer and our results of operations may be adversely impacted.Expanding our footwear product line may be difficult and expensive. If we are unable to successfully continue such expansion, our brand may beadversely affected and we may not be able to maintain or grow our current revenue levels or our revenues may continue to decline. The footwear industry is subject to rapidly changing consumer demands, preferences and fashion trends, and our footwear may not remain popularor we may fail to develop additional footwear designs that appeal to consumers. To successfully expand our footwear product line, we must anticipate,understand, and react to the rapidly changing tastes of consumers and provide appealing merchandise in a timely manner. New footwear models that weintroduce may not be successful with consumers or our brand may fall out of favor with consumers. If we are unable to anticipate, identify, or reactappropriately to changes in consumer preferences, our revenues may decline further, our brand image may suffer, our operating performance maydecline and we may not be able to execute upon our growth plans. In producing new footwear models, we may encounter difficulties that we did not anticipate during the development stage. Our developmentschedules for new products are difficult to predict and are subject to change in response to consumer preferences and competing products. If we are notable to efficiently manufacture newly developed products in quantities sufficient to support retail and wholesale distribution, we may not be able torecover our investment in the development of new models and product lines and we would continue to be subject to the risks inherent in having alimited product line. Even if we develop and manufacture new footwear products that consumers find appealing, the ultimate success of a new modelmay depend on our pricing. We have a limited history of introducing new products in certain target markets; as such, we may set the prices of newmodels 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 consumersabout new products. Achieving market acceptance will require us to exert substantial product development and marketing efforts, which could result in amaterial increase in our selling, general, and administrative expense, and there can be no assurance that we will have the resources necessary toundertake such efforts effectively. Failure to gain market acceptance for new products that we introduce could impede our ability to maintain or growour current revenues, reduce our profits, adversely affect the image of our brands, erode our competitive position and result in long-term harm to ourbusiness.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 inconsumer preferences, the effects of weather, general economic conditions, and other factors affecting demand and possibly impairing our brand image.These factors make it difficult to forecast consumer demand and, if we overestimate demand for our products, we may be forced to liquidate excessinventories at a discount to customers, resulting in markdowns and lower gross margins. Conversely, if we underestimate consumer demand, we couldhave inventory shortages, which can result in lower sales, delays in shipments to customers, strains on our relationships with customers and diminishedbrand loyalty. A decline in demand for our products, or any failure on our part to satisfy increased demand for our products, could adversely affect ourbusiness and results of operations.11Table of ContentsOpening and operating additional retail stores are subject to numerous risks, and declines in revenue of such retail stores could adversely affectour profitability. In recent years, we have significantly expanded and intend to continue the expansion of our retail sales channel. Opening global retail storesinvolve substantial investments, including constructing leasehold improvements, furniture and fixtures, equipment, information systems, inventory andpersonnel. Operating global retail stores incurs fixed costs, and if we have insufficient sales, we may be unable to reduce expenses in order to avoidlosses or negative cash flows. Due to the high fixed cost structure associated with the retail segment, negative cash flows or the closure of a store couldresult in write-downs of inventory and leasehold improvements, severance costs, significant lease termination costs, impairment losses on long-livedassets or loss of our working capital, which could adversely impact our financial position, results of operations or cash flows. Our ability to recover theinvestment in and expenditures of our retail operations can be adversely affected if sales at our retail stores are lower than anticipated.We have substantial cash requirements in the U.S.; however, a majority of our cash is generated and held outside of the U.S. The risks attendantto holding cash abroad could adversely affect our financial condition and results of operations. We have substantial cash requirements in the U.S., but the majority of our cash is generated and held abroad. We generally consider unremittedearnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. Cash heldoutside 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 outsideof the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes, less applicable foreign taxcredits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were tomove the cash to another country. Certain countries, including China, may have monetary laws which may limit our ability to utilize cash resources inthose countries for operations in other countries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or othercountries and may adversely affect our liquidity. Since repatriation of such cash is subject to limitations and may be subject to significant taxation, wecannot be certain that we will be able to repatriate such cash on favorable terms or in a timely manner. If we continue to incur operating losses andrequire cash held in international accounts for use in our U.S. operations, a failure to repatriate such cash in a timely and cost-effective manner couldadversely affect our business, financial condition and results of operations.Our asset-backed revolving credit facility contains financial covenants that require us to maintain certain financial metrics and ratios andrestrictive covenants that limit our flexibility. A breach of those covenants may cause us to be in default under the facility, and our lenders couldforeclose on our assets. The credit agreement for our asset-backed revolving credit facility requires us to maintain a certain level of tangible net worth and a minimumfixed-charge coverage ratio on a quarterly basis. A lack of revenue growth, a failure to meet our tangible net worth level or an inability to control costscould negatively impact our ability to meet these financial covenants and, if we breach such covenants or any of the restrictive covenants describedbelow, the lenders could either refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the revolving credit facility.We might not have sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders could initiate abankruptcy proceeding against us or collection proceedings with respect to our assets, all of which secure our indebtedness under the revolving creditfacility. The credit agreement also contains certain restrictive covenants that limit, and in some circumstances prohibit, our ability to, among other thingsincur additional debt, sell, lease or transfer our assets, pay dividends, make capital expenditures and investments, guarantee debt or obligations,12Table of Contentscreate liens, enter into transactions with our affiliates, and enter into certain merger, consolidation or other reorganizations transactions. Theserestrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand the current or future downturnsin our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which couldplace us at a competitive disadvantage relative to our competitors that have less debt and are not subject to such restrictions.We manufacture a portion of our products which causes us to incur greater fixed costs. Any difficulties or disruptions in our manufacturingoperations could adversely affect our sales and results of operations. We produce a portion of our footwear products at our internal manufacturing facilities in Mexico and Italy. Ownership of these facilities adds fixedcosts to our cost structure which are not as easily scalable as variable costs. The manufacture of our products from Croslite requires the use of acomplex process and we may experience difficulty in producing footwear that meets our high quality control standards. We will be required to absorbthe costs of manufacturing and disposing of products that do not meet our quality standards. Any increases in our manufacturing costs could adverselyimpact our margins. Furthermore, our manufacturing capabilities are subject to many of the same risks and challenges noted below with respect to ourthird-party manufacturers, including our ability to scale our production capabilities to meet the needs of our customers, and our manufacturing may bedisrupted for reasons beyond our control, including work stoppages, fires, earthquakes, floods, or other natural disasters. Any disruption to ourmanufacturing operations will hinder our ability to deliver products to our customers in a timely manner, and could have a material and adverse effect onour business.We depend heavily on third-party manufacturers located outside the U.S. Third-party manufacturers located outside of the U.S. (China and Bosnia) produce most of our footwear products. We depend on thesemanufacturers' ability to finance the production of goods ordered, maintain adequate manufacturing capacity and meet our quality standards. Wecompete with other companies for the production capacity of our third-party manufacturers, and we do not exert direct control over the manufacturers'operations. As such, we have experienced at times, specifically in China, delays or inabilities to fulfill customer demand and orders. While we areincreasing our communication and relationships with our third-party manufacturers, we cannot guarantee that any third-party manufacturer will havesufficient production capacity, meet our production deadlines or meet our quality standards. In addition, we do not have long-term supply contracts with these third-party manufacturers and any of them may unilaterally terminate theirrelationship with us at any time or seek to increase the prices they charge us. As a result, we are not assured of an uninterrupted supply of products ofan acceptable quality and price from our third-party manufacturers. Foreign manufacturing is subject to additional risks, including transportation delaysand interruptions, work stoppages, political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions,changes in governmental policies and the imposition of tariffs, import and export controls and other non-tariff barriers. We may not be able to offset anyinterruption or decrease in supply of our products by increasing production in our internal manufacturing facilities due to capacity constraints, and wemay not be able to substitute suitable alternative third-party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply ofproducts from our third-party manufacturers may harm our business and could result in a loss of sales and an increase in production costs, which wouldadversely affect our results of operations. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, butmore expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component intransportation costs, so increases in the price of petroleum products can adversely affect our profit margins.13Table of ContentsChina Because a large portion of our footwear products are manufactured in China, the possibility of adverse changes in trade or political relationsbetween the U.S. and China, political instability in China, increases in labor costs, or adverse weather conditions could significantly interfere with theproduction and shipment of our products, which would have a material adverse affect on our operations and financial results.Compliance with standards and laws We require our third-party foreign manufacturers to meet our quality control standards and footwear-industry standards for working conditionsand other matters, including compliance with applicable labor, environmental and other laws. However, we do not control our third-party manufacturersor their respective labor practices. A failure by any of our third-party manufacturers to adhere to quality standards or labor, environmental and otherlaws could cause us to incur additional costs for our products and could cause negative publicity, damage to our reputation and the value of our brand,and discourage retail customers and consumers from buying our products. We also require our third-party foreign manufacturers to meet both our andindustry standards for product safety. A failure by any of our third-party manufacturers to adhere to product safety standards could lead to a productrecall, which could result in critical media coverage and harm our business and reputation and could cause us to incur additional costs.Trade laws and regulations In addition, if we or our third-party foreign manufacturers violate U.S. or foreign trade laws or regulations, we may be subject to extra duties,significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import or the loss of our import privileges. Possibleviolations of U.S. or foreign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to theorigin, quota category, classification, marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factorscould render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results. We cannotpredict whether additional U.S. or foreign customs quotas, duties, taxes or other changes or restrictions will be imposed upon the importation of foreignproduced products in the future or what effect such actions could have on our business, financial condition or results of operations.We conduct significant business activity outside the U.S. which exposes us to foreign currency and other risks. Our ability to maintain the current level of operations in our existing international markets is subject to risks associated with international salesoperations as well as the difficulties associated with promoting products in unfamiliar cultures. We may be adversely affected by currency exchange rate fluctuations. We purchase products and supplies from third parties in U.S. dollars andreceive payments from certain of our international customers in foreign currencies. The cost of these products and supplies sourced overseas, andpayments received from customers, may be affected by changes in the value of the relevant currencies. Price increases caused by currency exchange ratefluctuations could make our products less competitive or have an adverse effect on our profitability. Currency exchange rate fluctuations could alsodisrupt the business of the third-party manufacturers that produce our products by making their purchases of raw materials more expensive and moredifficult to finance. Foreign currency fluctuations could have a material adverse effect on our results of operations and financial condition. In addition to foreign manufacturing, we operate retail stores and sell our products to retailers outside of the U.S. We have had significant revenuesfrom foreign sales. Foreign manufacturing and14Table of Contentssales activities are subject to numerous risks, including tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such asquotas and local content rules; delays associated with the manufacture, transportation and delivery of foreign-sourced products; increased transportationcosts due to distance, energy prices, or other factors; delays in the transportation and delivery of goods due to increased security concerns; restrictionson the transfer of funds; restrictions, due to privacy laws, on the handling and transfer of consumer and other personal information; changes ingovernmental policies and regulations; political unrest, changes in law, terrorism, or war, any of which can interrupt commerce; expropriation andnationalization; difficulties in managing foreign operations effectively and efficiently from the U.S.; and difficulties in understanding and complyingwith local laws, regulations, and customs in foreign jurisdictions.Our financial success may be limited to the strength of our relationships with our wholesale customers and to the success of such wholesalecustomers. Our financial success is significantly related to the willingness of our current and prospective wholesale customers to carry our products and theexpansion to new wholesale customers, We do not have long term contracts with any of our wholesale customers, and sales to our wholesale customersare generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by the customer. If we cannot fill our customers'orders in a timely manner, the sales of our products and our relationships with those customers may suffer, and this could have a material adverse effecton our product sales and ability to grow our product line. Our financial success is also significantly related to the success of our wholesale customers who are directly impacted by fluctuations in thebroader economy, including the recent global economic downturn which reduced foot traffic in shopping malls and lessened consumer demand for ourproducts. Changes in the global credit market could also affect our customers' liquidity and capital resources and their ability to meet their paymentobligations to us which could have a material adverse impact on our cash flows and capital resources. We continue to monitor our accounts receivableaging and have recorded appropriate reserves as we deem appropriate. Additionally, many of our wholesale customers compete with each other and ifthey perceive that we are offering their competitors better pricing and support, they may reduce purchases of our products. In addition, we competedirectly with our wholesale customers by selling our products to consumers via the internet and through our company-operated retail locations. If ourwholesale customers believe that our direct sales to consumers divert sales from their stores, this may weaken our relationships with such customersand cause them to reduce purchases of our products. Furthermore, we continue to grow our consumer-direct channels (company-operated retail andinternet) which could exacerbate this issue.We depend on a limited number of suppliers for key production materials, and any disruption in the supply of such materials could interruptproduct manufacturing and increase product costs. We depend on a limited number of sources for the primary materials used to make our footwear. We source the elastomer resins that constitute theprimary raw materials used in compounding Croslite, which we use to produce our footwear products, from two suppliers. If the suppliers we rely onfor elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruptionof our production cycle, if at all. We may also have to pay materially higher prices in the future for the elastomer resins or any substitute materials weuse, which would increase our production costs and could have a materially adverse impact on our margins and results of operations. If we are unable toobtain suitable elastomer resins or if we are unable to procure sufficient quantities of the Croslite material, we may not be able to meet our productionrequirements in a timely manner. Such failure could result in lost potential sales, delays in shipments to customers, strained relationships with customersand diminished brand loyalty.15Table of ContentsFailure to adequately protect our trademarks and other intellectual property rights and counterfeiting of our brands could divert sales, damageour brand image and adversely affect our business. We utilize trademarks, trade names, copyrights, trade secrets, issued and pending patents and trade dress and designs on nearly all of our productsand believe that having distinctive marks that are readily identifiable is important to our brand, our success and our competitive position. The laws ofsome countries, e.g., China, do not protect intellectual property rights to the same extent as do U.S. laws. We periodically discover products that arecounterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging anotherparty's products on the basis of trademark or design or utility patent infringement, particularly in some foreign countries, or if we are required to changeour name or use a different logo, continued sales of such competing products by third parties could harm our brand and adversely impact our business,financial condition, and results of operations by resulting in the shift of consumer preference away from our products. If our brands are associated withinferior counterfeit reproductions, the integrity of our brands could be adversely affected. Furthermore, our efforts to enforce our intellectual propertyrights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. We may facesignificant expenses and liability in connection with the protection of our intellectual property rights outside the U.S., and if we are unable tosuccessfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected. We also rely on trade secrets, confidential information, and other unpatented proprietary information related to, among other things, the formulationof the Croslite material and product development, particularly where we do not believe patent protection is appropriate or obtainable. Using third-partymanufacturers and compounding facilities may increase the risk of misappropriation of our trade secrets, confidential information and other unpatentedproprietary information. The agreements we use in an effort to protect our intellectual property, confidential information and other unpatentedproprietary information may be ineffective and may be insufficient to prevent unauthorized use or disclosure of such trade secrets and information. Aparty to one of these agreements may breach the agreement and we may not have adequate remedies for such breach. As a result, our trade secrets,confidential information, and other unpatented proprietary information may become known to others, including our competitors. Furthermore, as withany trade secret, confidential information or other proprietary information, others, including our competitors, may independently develop or discoversuch trade secrets and information, which would render them less valuable to us.We have been named as a defendant in a securities class action lawsuit that may result in substantial costs and could divert management'sattention. Starting in November 2007, certain stockholders filed several purported shareholder class actions in the U.S. District Court for the District ofColorado alleging violations of Sections 10(b) and 20(a) of the Exchange Act based on alleged statements made by us between July 27, 2007 andOctober 31, 2007. We and certain of our current and former officers and directors have been named as defendants in complaints filed by investors in theUnited States District Court for the District of Colorado. The first complaint was filed in November 2007; several other complaints were filed shortlythereafter. These actions were consolidated and, in September 2008, the Court appointed a lead plaintiff and counsel. An amended consolidatedcomplaint was filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act onbehalf of a class of all persons who purchased our stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaintalleges that, during the Class Period, defendants made false and misleading public statements about us and our business and prospects and that, as aresult, the market price of our stock was artificially inflated. The amended complaint also claims that certain current and former officers and directorstraded our stock on the basis of material non-public information. The amended complaint16Table of Contentsseeks compensatory damages on behalf of the alleged class in an unspecified amount, interest, and an award of attorneys' fees and costs of litigation.The Company believe the claims lack merit and intends to defend the action vigorously. Motions to dismiss are currently pending with the Court. Due tothe inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome ofthe matter, or of the amount or range of potential loss, if any. It is possible that this action could be resolved adversely to us. Risks associated with legalliability are often difficult to assess or quantify, and their existence and magnitude can remain unknown for significant periods of time. While wemaintain director and officer insurance, the amount of insurance coverage may not be sufficient to cover a claim, and the continued availability of thisinsurance cannot be assured. We may, in the future, be the target of additional proceedings, and the present or future proceedings may result insubstantial costs and divert management's attention and resources that are needed to successfully run our business.We depend on key personnel, the loss of whom would harm our business. The loss of the services and expertise of any key employee could harm our business. Our future success depends on our ability to identify, attractand retain qualified personnel on a timely basis. We have experienced significant management turnover in recent years. Turnover of senior managementcan adversely impact our stock price, our results of operations and our client relationships and may make recruiting for future management positionsmore difficult. In some cases, we may be required to pay significant amounts of severance to terminated management employees. In addition, we mustsuccessfully integrate any new management personnel that we hire within our organization in order to achieve our operating objectives, and changes inother key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar withour business.Our current management information systems may not be sufficient for our business and planned system improvements may not be successfullyimplemented on a timely basis or be sufficient for our business. We are in the process of implementing numerous information systems designed to support several areas of our business, including warehousemanagement, order management, retail point-of-sale and internet point-of-sale as well as various systems that provide interfaces between these systems.These systems are intended to assist in streamlining our operational processes and eliminating certain manual processes. However, for certain businessplanning, finance and accounting functions, we still rely on manual processes that are difficult to control and are subject to human error. We mayexperience difficulties in transitioning to our new or upgraded systems, including loss of data and decreases in productivity as our personnel becomefamiliar with new systems. In addition, our management information systems will require modification and refinement as our business needs change,which could prolong difficulties we experience with systems transitions, and we may not always employ the most effective systems for our purposes. Ifwe experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable tosuccessfully modify our management information systems to respond to changes in our business needs, our ability to properly run our business couldbe adversely affected.Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns. From time to time, we may invest in business infrastructure, acquisitions of new businesses, and expansion of existing businesses, such as ourretail operations, which require substantial cash investments and management attention. We believe cost effective investments are essential to businessgrowth and profitability. However, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business.The failure of any significant investment to provide the17Table of Contentsreturns or profitability we expect could have a material adverse effect on our financial results and divert management attention from more profitablebusiness operations.Our quarterly revenues and operating results are subject to fluctuation as a result of a variety of factors, including seasonal variations, whichcould increase the volatility of the price of our common stock. Sales of our products are subject to seasonal variations and are sensitive to weather conditions. The majority of our revenues are attributable tofootwear styles that are more suitable for fair weather and typically experience our highest sales activity during the second and third quarters of thecalendar year, when there is a revenue concentration in countries in the northern hemisphere. While we continue to create more footwear models that aremore suitable for cold weather, the effects of favorable or unfavorable weather on sales can be significant enough to affect our quarterly results, with aresulting effect on our common stock price. Quarterly results may also fluctuate as a result of other factors, including new model introductions, generaleconomic conditions or changes in consumer preferences. Results for any one quarter are not necessarily indicative of results to be expected for anyother quarter or for any year, and revenues for any particular period may fluctuate. This could lead to results outside of analyst and investorexpectations, which could cause the volatility in our stock price to increase.We may fail to meet analyst expectations, which could cause the price of our stock to decline. Our common stock is traded publicly and various securities analysts follow our financial results and frequently issue reports on us. These reportsinclude information about our historical financial results as well as the analysts' estimates of our future performance. The analysts' estimates are basedupon their own opinions and are often different from our estimates or expectations of our business. If our operating results are below the estimates orexpectations of public market analysts and investors, our stock price could decline.Our restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage a third partyfrom 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 ourstockholders to elect directors and take other corporate actions, which may prevent a change of control or changes in our management that a stockholdermight consider favorable. In addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control ofus. Any delay or prevention of a change of control or change in management that stockholders might otherwise consider to be favorable could cause themarket price of our common stock to decline.ITEM 1B. Unresolved Staff Comments None.ITEM 2. Properties Our principal executive and administrative offices are located at 6328 Monarch Park Place, Niwot, Colorado. We lease, rather than own, all of ourfacilities. We enter into short-term and long-term leases for kiosks, office, retail, manufacturing and warehouse space domestically and internationally.The terms of these leases include fixed monthly rents and/or contingent rents based on percentage of18Table of Contentsrevenues and have expirations between 2011 and 2026. The general location, use and approximate size of our principal properties are given below. In addition to the properties listed above, we maintain small branch sales offices in Hong Kong, Taiwan, Korea, Australia, Brazil and India. Wealso lease retail space for 63 domestic and 75 international retail stores and 61 domestic and 15 international outlet stores.ITEM 3. Legal Proceedings On March 31, 2006, we filed a complaint with the International Trading Commission ("ITC") against Acme Ex-Im, Inc., Australia Unlimited, Inc.,Cheng's Enterprises, Inc., Collective Licensing International, LLC, D. Myers & Sons, Inc., Double Diamond Distribution, Ltd., Effervescent, Inc., Gen-X Sports, Inc., Holey Soles Holdings, Ltd., Inter-Pacific Trading Corporation, and Shaka Holdings, Inc. (collectively, the "respondents"), alleging,among other things infringement of United States Patent Nos. 6,993,858 (the "'858 Patent") and D517,789 (the "'789 Patent") and seeking an exclusionorder banning the importation and sale of infringing products. During the course of the investigation, the ITC issued final determinations terminatingShaka Holdings, Inc., Inter-Pacific Trading Corporation, Acme Ex-Im, Inc., D. Myers & Sons, Inc., Australia Unlimited, Inc. and Gen-X Sports, Inc.from the ITC investigation due to a settlement being reached with each of those entities. Cheng's Enterprises, Inc. was removed from the ITCinvestigation because they ceased the accused activities. After a trial in the matter in September 2007, the ITC Administrative Law Judge ("ALJ") issuedan initial determination on April 11, 2008, finding the '858 patent infringed by certain accused products, but also finding the patent invalid as obvious.The ALJ found that the '789 patent was valid, but was not infringed by the accused products. On July 25, 2008, the ITC notified us of its decision toterminate the investigation with a finding of no violation as to either patent. We filed a Petition for19Location Use ApproximateSquare Feet Ontario, California Warehouse 399,000 Narita, Japan(1) Warehouse 289,000 Aurora, Colorado(2) Warehouse 264,000 Leon, Mexico Manufacturing/offices 226,000 Leon, Mexico Warehouse/offices 214,000 Rotterdam, the Netherlands Warehouse 183,000 Shanghai, China Warehouse 76,000 Niwot, Colorado Corporate headquarters 69,000 Niwot, Colorado Regional offices 60,000 Tampere, Finland(3) Warehouse/offices 60,000 Melbourne, Australia Warehouse 48,000 Shenzen, China Manufacturing/offices 32,000 Den Haag, the Netherlands Regional offices 27,000 Padova, Italy EXO's Regional offices/manufacturing facility 28,000 Singapore Regional offices 26,000 Gordon's Bay, South Africa Warehouse/offices 24,000 Niwot, Colorado Warehouse 15,000 Shanghai, China Regional offices 13,000 (1)The space we lease related to our facility in Narita, Japan will be reduced to 156,000 square feet in stages over the first half of2011. (2)We intend to sublease our facility in Aurora, Colorado which is currently vacant. (3)Our facility in Tampere, Finland is partially subleased.Table of ContentsReview of the decision with the United States Court of Appeals for the Federal Circuit on September 22, 2008. On October 4, 2009, a settlement wasreached between us and Collective Licensing International, LLC. Collective Licensing International, LLC agreed to cease and desist infringing on ourpatents and to pay us certain monetary damages, which was recorded upon receipt. On February 24, 2010, the Federal Circuit found that the ITC erredin finding that the utility patent was obvious and also reversed the ITC's determination of non-infringement of the design patent. The case has beenremanded back to the ITC. On July 6, 2010, the ITC ordered the matter to be assigned to an ALJ for a determination on enforceability. On February 9,2011, the ALJ issued a determination that the utility and design patents were both enforceable against the remaining respondents. The ALJ's decisionbecomes final on April 11, 2011, unless the Commission determines to review it. On December 8, 2009, Columbia Sportswear Company ("Columbia") filed an amended complaint adding us as a defendant in a case betweenColumbia and Brian P. O'Boyle and 1 Pen. Inc. in the Multnomah County Circuit Court in the State of Oregon. Columbia asserted claims against us formisappropriation of trade secrets, aiding and abetting breach of fiduciary duty, intentional interference with contract, injunctive relief, disgorgement andan accounting. The amended complaint sought damages in an unspecified amount, return of patent rights, reasonable attorney's fees and costs andexpenses against us. On July 29, 2010, all issues between us and Columbia were settled and Columbia dismissed with prejudice all claims against us inexchange for certain monetary and other considerations. We and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United StatesDistrict Court for the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter.These actions were consolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaintwas filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of aclass of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint alsoadded our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleadingpublic statements about us and our business and prospects and, as a result, the market price of our common stock was artificially inflated. The amendedcomplaint also claims that certain current and former officers and directors traded in our common stock on the basis of material non-public information.The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also addedattorneys' fees and costs of litigation. We believe the claims lack merit and intend to defend the action vigorously. Motions to dismiss are currentlypending with the district court. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this timeaccurately predict the ultimate outcome, or any potential liability, of the matter.ITEM 4. Reserved 20Table of ContentsPART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock, par value $0.001, is listed on the NASDAQ Global Select Market and trades under the stock symbol "CROX". The followingtable shows the high and low sales prices of our common stock for the periods indicated. Performance Graph The following performance graph compares the cumulative total return of our common stock with that of the NASDAQ Composite Index and theDow Jones U.S. Footwear Index from February 8, 2006 through December 31, 2010. Our common stock was initially listed on NASDAQ onFebruary 8, 2006, the date it commenced trading publicly. Prior to that time, there was no public market for our stock. The graph assumes an investmentof $100 on February 8, 2006, reinvestment of all dividends and other distributions, and reflects our stock prices post-stock split.Comparison of Cumulative Total Return on Investment 21Fiscal Year 2010 Three Months Ended High Low March 31, 2010 $9.00 $5.81 June 30, 2010 $12.28 $8.38 September 30, 2010 $14.08 $9.88 December 31, 2010 $19.54 $12.88 Fiscal Year 2009 Three Months Ended High Low March 31, 2009 $1.63 $1.00 June 30, 2009 $4.50 $1.19 September 30, 2009 $7.45 $2.55 December 31, 2009 $8.20 $4.33 2/8/2006 12/29/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 Crocs, Inc. $100.00 $144.00 $245.40 $8.27 $38.33 $114.13 NasdaqCompositeIndex $100.00 $106.86 $117.35 $69.77 $100.40 $117.37 Dow Jones USFootwearIndex $100.00 $114.93 $143.58 $102.81 $131.46 $172.12 Table of Contents The Dow Jones U.S. Footwear Index consists of Crocs, Inc., NIKE, Inc., Deckers Outdoor Corp., Timberland Co. and Wolverine WorldWide, Inc. Because Crocs, Inc. is part of the Dow Jones U.S. Footwear Index, the price and returns of our stock have an effect on this index. The DowJones U.S. Footwear Index includes companies in the major line of business in which we compete. This index does not encompass all of ourcompetitors or all of our product categories and lines of business. The stock performance shown on the performance graph above is not necessarily indicative of future performance. We do not make nor endorseany predictions as to future stock performance.Holders The approximate number of stockholders of record of our common stock was 213 as of January 31, 2011. Because many of the shares of ourcommon stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial ownersrepresented by these stockholders of record.Dividends We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings foruse in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Our financing arrangements also containrestriction on our ability to pay cash dividends. Any future determination to declare cash dividends will be made at the discretion of our board ofdirectors, subject to compliance with covenants under any then existing financing agreements.22Table of ContentsITEM 6. Selected Financial Data The following table presents selected historical financial data of the Company for each of the last five fiscal years. The information in this tableshould be read in conjunction with the consolidated financial statements and accompanying notes beginning on page F-1 and with "Management'sDiscussion and Analysis of Financial Conditions and Results of Operations" included in Item 7 of this Form 10-K. For the Years Ended December 31, ($ thousands, except per share data) 2010 2009 2008 2007 2006 Consolidated Statements ofOperations Data Revenues $789,695 $645,767 $721,589 $847,350 $354,728 Cost of sales 364,631 337,720 486,722 349,701 154,158 Restructuring charges 1,300 7,086 901 — — Gross profit 423,764 300,961 233,966 497,649 200,570 Selling, general andadministrative expenses 342,121 311,592 341,518 268,978 104,172 Foreign currency transactionlosses (gains), net (2,912) (665) 25,438 (10,055) 776 Charitable contributions 840 7,510 1,844 959 276 Restructuring charges 2,539 7,623 7,664 — — Impairment charges 141 26,085 45,784 — — Income (loss) fromoperations 81,035 (51,184) (188,282) 237,767 95,346 Gain on charitable contributions (223) (3,163) — — — Interest expense 657 1,495 1,793 438 567 Other income, net (191) (895) (565) (2,997) (1,847) Income (loss) before incometaxes 80,792 (48,621) (189,510) 240,326 96,626 Income tax expense (benefit) 13,066 (6,543) (4.434) 72,098 32,209 Net income (loss) 67,726 (42,078) (185,076) 168,228 64,417 Dividend on redeemableconvertible preferred shares — — — — 33 Net income (loss)attributable to commonstockholders $67,726 $(42,078)$(185,076)$168,228 $64,384 Income (loss) per commonshare: Basic $0.78 $(0.49)$(2.24)$2.08 $0.87 Diluted $0.76 $(0.49)$(2.24)$2.00 $0.81 Weighted average commonshares:(1) Basic 85,482,055 85,112,461 82,767,540 80,759,077 74,598,400 Diluted 87,595,618 85,112,461 82,767,540 84,194,883 80,170,512 As of December 31, ($ thousands) 2010 2009 2008 2007 2006 Consolidated Balance Sheets Data Cash, cash equivalents, and marketable securities $145,583 $77,343 $51,665 $36,335 $64,981 Total assets 549,481 409,738 455,999 627,425 299,457 Long term obligations 35,613 35,462 35,303 15,864 3,290 Total stockholders' equity $376,106 $287,620 $287,163 $444,113 $208,258 23(1)Our 2-for-1 stock split was effected in the form of a 100% common stock dividend distributed on June 14, 2007. All share andper share amounts prior to June 14, 2007 have been adjusted to reflect the 2-for-1 stock split.Table of ContentsITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a designer, manufacturer, distributor, worldwide marketer and brand manager of footwear, apparel and accessories for men, women andchildren. We strive to be the global leader in molded footwear design and development. We design, manufacture and sell a broad product offering thatprovides new and exciting molded footwear products that feature fun, comfort and functionality. Our products include footwear and accessories thatutilize our proprietary closed cell-resin, called Croslite. Our Croslite material is unique in that it enables us to produce an innovative, lightweight, non-marking, and odor-resistant shoe. Certain shoes made with the Croslite material have been certified by U.S. Ergonomics to reduce peak pressure on thefoot, reduce muscular fatigue while standing and walking and to relieve the musculoskeletal system. Since the initial introduction and popularity of our Beach and Crocs Classic designs, we have expanded our Croslite products to include a varietyof new styles and products and have extended our product reach through the acquisition of brand platforms such as Jibbitz, LLC ("Jibbitz") and OceanMinded, Inc. ("Ocean Minded"). We intend to continue branching out into other types of footwear, bringing a unique and original perspective to theconsumer in styles that may be unexpected from Crocs. In part, we believe this will help us to continue to build a stable year-round business as we lookto offer more winter-oriented styles. Our marketing efforts surround specific product launches and employ a fully integrated approach utilizing a varietyof media outlets, including print and online media and television. Our marketing efforts drive business to both our wholesale partners and our company-operated retail and internet stores, ensuring that our presentation and story are first class and drive purchasing at the point of sale. We currently sell our Crocs-branded products throughout the U.S. and in more than 90 countries. We sell our products through domestic andinternational retailers and distributors and directly to end-user consumers through our webstores, company-operated retail stores, outlets and kiosks.The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including department stores andtraditional footwear retailers as well as a variety of specialty and independent retail channels.Financial Highlights During the year ended December 31, 2010, revenues increased $143.9 million, or 22.3%, compared to the same period in 2009, as a result ofstronger sales in each of our geographic operating segments. Diluted earnings per share for the year ended December 31, 2010 improved to $0.76compared to diluted losses per share of $0.49 during the same period in 2009, primarily due to the following:•improved global economic conditions; •stronger global demand for our products as a result of market acceptance of our expanded product-line and more effective marketing andmerchandising programs; •on-going investment in the growth of our retail and internet channels which have historically yielded higher margins; and •the residual impact of our turnaround strategy as further described below.Turnaround Strategy Having experienced rapid revenue growth and difficulty meeting demand for our footwear products since inception, our revenue growth moderatedin the first half of 2008 and decreased through the balance of 2008 and through the year ended December 31, 2009. During this time, our total revenuesdeclined from $847.4 million in the year ended December 31, 2007 to $645.8 million during the year24Table of Contentsended December 31, 2009. Accordingly, we implemented a turnaround strategy in 2008, which continued through 2010, aimed at aligning productionand distribution capacities with revised demand projections, reducing costs and streamlining processes. As a result, we consolidated our globalmanufacturing facilities and distribution centers, reduced warehouse and office space, cut global workforce by 33% and reduced other discretionaryspending. During 2009, we sold excess discontinued and impaired product inventories, much of which had been written down in 2008 to a level that wehad considered realizable, at prices substantially higher than previously estimated. The consequential net effect of these sales was accretive to our grossprofit in 2009. As a result of these and other actions taken as part of our turnaround strategy, we achieved improved year-over-year gross margin in2009 as well as improved operating margin and net loss, despite weakened economic conditions during 2009. The benefits of our turnaround strategycontinued through the year ended December 31, 2010, during which sales of discontinued and impaired product were at more normal levels.Presentation of Reportable Segments We have three reportable segments: Americas, Europe and Asia. We also have an Other segment category which aggregates insignificant operatingsegments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel andaccessories. The composition of our reportable segments is consistent with that used by our CODM to evaluate performance and allocate resources.During the fourth quarter of 2010, we changed the internal segment reports used by our CODM to separately illustrate performance metrics of certainoperating segments which provide manufacturing support, located in Mexico and Italy. These operating segments make up our Other segment category.Segment information for all periods presented has been restated to reflect this change. Segment operating income (loss) is the primary measure used by our CODM to evaluate segment operating performance and to decide how toallocate resources to segments. Segment performance evaluation is based primarily on segment results without allocating corporate expenses, or indirectgeneral, administrative and other expenses. Segment profits or losses of our reportable segments include adjustments to eliminate intersegment profit orlosses on intersegment sales. Segment operating income (loss) is defined as operating income before asset impairment charges and restructuring costsnot included in cost of sales. Segment assets consist of cash, accounts receivable and inventory as these assets make up the asset information used bythe CODM. Revenues of each of our reportable segments represent sales to external customers. Revenues of the Other segment are made up ofintersegment sales only. See Note 15—Operating Segments and Geographic Information in the accompanying notes to the financial statements forfurther details.Results of Operations Our turnaround strategy as previously discussed had a considerable impact on our operating results for the years ended December 31, 2010, 2009and 2008. The following summarizes specific significant items related to the implementation of this strategy as well as other material events whichshould be considered in evaluating the comparability of such results.•Revenues and gross profit for the year ended December 31, 2009 were impacted by the effect of the sale of excess discontinued andimpaired product inventories (much of which had been written down in 2008 to a level that we had considered realizable) at pricessubstantially higher than previously estimated. The net effect of these sales accretive to our gross profit during the year endedDecember 31, 2009 was $49.8 million. Although we were able to sell $58.3 million of this impaired product at higher than anticipatedprice levels, such sales were deeply discounted and consequently drove down average selling price and revenues in 2009. During 2010and 2008, sales of discontinued and impaired product were at more normal levels given seasonality and historical fluctuations in ourbusiness.25Table of Contents•Cost of sales and selling, general and administrative costs for the year ended December 31, 2009 were negatively impacted by$16.3 million due to our stock option tender offer (the "2009 Tender Offer"). In April 2009, we offered to purchase stock options withexercise prices equal to or greater than $10.50 per share for cash from certain eligible employees in order to restore the incentive value ofour long-term performance award programs and in response to the fact that the exercise prices of a substantial number of outstandingstock options held by our employees far exceeded the market price of our common stock. As part of the 2009 Tender Offer, werepurchased 2.3 million stock options from employees and non-employee directors and recorded a charge of $16.3 million related topreviously unrecognized share-based compensation expense for these tendered and cancelled options. Of this $16.3 million charge,$13.3 million was recorded to selling, general and administrative expenses and $3.0 million was recorded to cost of sales. •Selling, general and administrative costs for the year ended December 31, 2009 were negatively impacted by $3.9 million due to an errorin our calculation of stock-based compensation expense for prior periods. This error resulted in an accumulated $6.0 millionunderstatement of stock-based compensation expense, with a corresponding understatement of additional paid in capital, of which$2.0 million was partially offset as a consequence of adjustments made pursuant to the 2009 Tender Offer. Consequently, we recordedan additional $3.9 million in stock-based compensation during the fourth quarter of 2009 to correct the balance of this error. We do notbelieve that these errors or related corrections are material to our previously issued historical consolidated financial statements for 2008or our quarterly or annual results for 2009. •Revenues and gross profit for the year ended December 31, 2008 were impacted by historically high sales returns and allowances. In2008, we received a substantial number of return and allowance requests from our wholesale customers which we believed wereprimarily due to wholesaler response to rapid declines in consumer spending on a macroeconomic level as a result of the globaleconomic downturn as well as less-than-anticipated sell-through during the spring/summer season in 2008. We granted certain returnrequests and allowances to customers that we believed were strategically important to our ongoing business. Consequently, sales returnsand allowances for the year ended December 31, 2008 were significantly higher than historical estimates. However, we believed that thegranting of return requests and allowances to customers in response to the severe economic downturn was strategically important to ourbusiness. We experienced significant improvement in our sell-through in the wholesale channel during 2009 and 2010 and do not expectto grant return requests and allowances to customers in the future to the extent that we did during 2008. •During 2008 and 2009, the implementation of our turnaround strategy resulted in significantly higher restructuring costs and assetimpairment charges as we consolidated global distribution centers, warehouse and office space and assessed the useful life and carryingvalue recoverability of certain assets we no longer intended to utilize, including molds, tooling, equipment and other assets. These costsdecreased during 2010 as our turnaround strategy implementation came to an end. The portions of restructuring and impairment relatedto manufacturing assets are recognized in cost of sales on the consolidated statements of operations. The portions related to non-product,non-manufacturing assets are reflected in restructuring charges and asset impairment charges as appropriate, on the consolidatedstatements of operations.26Table of ContentsComparison of the Years Ended December 31, 2010 and 2009 Revenues Revenues increased $143.9 million, or 22.3%, during the year ended December 31, 2010 compared to the same period in 2009, due toa 15.8% increase in unit sales and a 6.6% increase in average selling price per pair of shoes, as shown in the table below, both of which were driven byincreased demand and improvements in the global economy. During the year ended December 31, 2009, we sold $58.3 million in end of life andimpaired products as we disposed of excess and impaired inventory as previously mentioned. The following table sets forth revenue by channel and byregion as well as other revenue information for the years ended December 31, 2010 and 2009. Wholesale Channel Revenues During the year ended December 31, 2010, revenues from our wholesale channel grew by $77.3 million, or19.1%, compared to the same period in 2009, particularly27 Year EndedDecember 31, Change ($ thousands, except per share data) 2010 2009 $ % Revenues $789,695 $645,767 $143,928 22.3%Cost of sales 365,931 344,806 21,125 6.1% Gross profit 423,764 300,961 122,803 40.8%Selling, general and administrative expenses and foreign currency(gains)/losses 339,209 310,927 28,282 9.1%Restructuring charges 2,539 7,623 (5,084) (66.7)%Impairment charges 141 26,085 (25,944) (99.5)%Charitable contributions 840 7,510 (6,670) (88.8)% Income (loss) from operations 81,035 (51,184) 132,219 258.3%Interest expense 657 1,495 (838) (56.1)%Other, net (414) (4,058) 3,644 89.8% Income (loss) before income taxes 80,792 (48,621) 129,413 266.2%Income tax (benefit) expense 13,066 (6,543) 19,609 299.7% Net income (loss) $67,726 $(42,078)$109,804 261.0% Net income (loss) per basic share $0.78 $(0.49)$1.27 N/M Net income (loss) per diluted share $0.76 $(0.49)$1.25 N/M Gross margin 53.7% 46.6% Operating margin 10.3% (7.9)% N/M—Not meaningful Year endedDecember 31, Change ($ millions, except average selling price) 2010 2009 $ % Wholesale channel revenue $481.8 $404.5 $77.3 19.1%Retail channel revenue 232.9 180.9 52.0 28.7%Internet channel revenue 75.0 60.4 14.6 24.2%Americas revenue $377.1 $301.4 $75.7 25.1%Asia revenue 284.8 237.5 47.3 19.9%Europe revenue 127.7 106.0 21.7 20.5%Footwear unit sales 42.6 36.8 5.8 15.8%Average selling price $17.69 $16.60 $1.09 6.6%Table of Contentsin the Americas and Asia, as demand for product continued to grow resulting from a stronger global economy, on-going efforts made to improve ourwholesale customer relationships and market acceptance of our new product line. Consumer-Direct Channel Revenues Revenues from our consumer-direct sales channels increased to 39.0% of revenue during the year endedDecember 31, 2010 compared to 37.4% during the same period in 2009. As consumer-direct channel sales continue to grow as a percentage of our totalsales, we expect to realize growth in total revenues and gross margin since these channels have historically achieved higher average selling prices thanthe wholesale channel. Retail Channel Revenues from our company-operated retail locations increased $52.0 million, or 28.7%, during the year endedDecember 31, 2010 compared to the same period in 2009, which was driven by the expanded availability of product to our retail customer due tothe increase in retail locations where we can better merchandise the full breadth and depth of our product line and improved pricing year overyear. The table below illustrates the overall growth in the number of our company-operated retail locations as of December 31, 2010 and 2009. Internet Channel Revenues from our internet channel increased by $14.6 million, or 24.2%, primarily due to increased sales in ourEurope segment, resulting from the addition of local language internet sites for France, Germany, Spain and Italy as well as stronger consumerdemand. These increases were partially offset by revenue declines from our internet channel in Asia where we saw a drop in demand due toprolonged cold weather and an increase in imitation products in the region, particularly in Japan. The internet channel enables us to showcaseour entire product offering directly to the consumer, which we believe to be advantageous to us in terms of sales volume and brand awareness. Product Revenue Concentration Revenues from non-classic footwear models made up the majority of our revenues during the year endedDecember 31, 2010, as our classic models and core products (defined below) have become a smaller portion of our total revenue in recent quarters. Thefollowing28 As of December 31, 2010 2009 Change Type: Crocs Kiosk/Store in Store 164 170 (6) Crocs Retail Stores 138 84 54 Crocs Outlet Stores 76 63 13 Total 378 317 61 Geography: Americas 197 182 15 Asia 159 119 40 Europe 22 16 6 Table of Contentstable sets forth sales of our classic models, core products and new footwear products as a percentage of our total unit sales. Impact on Revenues due to Foreign Exchange Rate Fluctuations Changes in average foreign currency exchange rates during the year endedDecember 31, 2010 increased revenues by $22.2 million compared to the same period in 2009. We expect that sales in international markets in foreigncurrencies will continue to represent a substantial portion of our overall revenues. Accordingly, changes in foreign currency exchange rates couldmaterially affect our overall revenues or the comparability of those revenues from period to period as a result of translating our financial statements intoour reporting currency, the U.S. dollar. Americas Segment Revenues Revenues from the Americas segment increased $75.7 million, or 25.1%, during the year ended December 31, 2010compared the same period in 2009, as a result of increased revenue in all channels. Revenues from company-operated retail locations in the regionincreased $35.6 million, or 33.5%, to $141.9 million for the year ended December 31, 2010 compared to the same period in 2009 primarily due toincreased unit sales resulting from an increase in the number of company-operated retail locations in the region, as discussed above, and increases inaverage selling price. Regional wholesale revenues grew $34.7 million, or 23.2%, to $184.4 million for the year ended December 31, 2010 compared tothe same period in 2009 primarily due to increased unit sales. Asia Segment Revenues Revenues in Asia increased $47.3 million, or 19.9%, during the year ended December 31, 2010 compared to the sameperiod in 2009, due to increased wholesale and retail channel revenues. Regional wholesale channel revenues increased $33.3 million, or 20.0%,primarily due to continued strong demand and improvements in average selling price. Regional revenues from company-operated retail locationsincreased $13.8 million, or 21.7%, to $77.3 million during the year ended December 31, 2010 compared to the same period in 2009, due to an increasesin average selling price and company-operated retail locations in the region, as discussed above, partially offset by the negative impact of a prolongedcold weather season in parts of the region and a rise in imitation products in Japan. Europe Segment Revenues Revenues in Europe increased $21.7 million, or 20.5%, during the year ended December 31, 2010 compared to thesame period in 2009 which was driven by growth in all sales channels. Regional internet channel revenues increased by $8.8 million to $16.5 millionduring the year ended December 31, 2010, which was more than twice the internet channel revenues earned during the same period in 2009, primarilydue to the addition of local language internet sites for France, Germany, Spain and Italy, as previously mentioned. Wholesale channel revenuesincreased $9.5 million, or 10.8%, to $97.7 million during the year ended December 31, 2010 compared to the same period in 2009, due to increaseddemand.29 Years EndedDecember 31, 2010 2009 Classic models (Beach and Crocs Classic) 9.9% 15.8%Core products(1) 19.7% 33.5%New footwear products 31.0% 17.3%(1)Core products include Classic models, Kids Crocs Classic, Athens, Kids Athens, Mary Jane, Girls Mary Jane,Mammoth and Kids Mammoth.Table of Contents Gross Profit During the year ended December 31, 2010 gross profit increased $122.8 million, or 40.8%, compared to the same period in 2009.Gross margin increased 15.1% to 53.7% during the year ended December 31, 2010 compared to the same period in 2009. These increases are primarilyattributable to a 15.8% increase in sales volume, a 6.6% increase in average selling price and favorable shifts in product mix within the consumer-directchannels toward higher margin products. The increase is also attributable to a decrease of $5.8 million in restructuring charges due to higher 2009restructuring costs associated with the closures and consolidation our distribution spaces in the Americas and Europe segments. Additionally, wecontinue to increase shipments made directly from the factories to our wholesale customers and our retail channel which lower distribution costs. Werealized improvements in gross profit during 2010 as factory-direct shipment volume increased. Offsetting these increases was the accretive effect ofimpaired unit sales that took place during 2009 as previously discussed. The net effect of these sales during the year ended December 31, 2009 was$49.8 million. During 2010, retail and internet sales continued to increase as a percentage of total revenue. This trend contributed to higher grossmargins as we were able to achieve a higher average selling price in these channels while many of the fixed costs associated with operating ourcompany-operated retail stores are included in selling, general and administrative expenses. Also during 2010, we sold a wide range of products whichrequired additional materials, such as canvas, cloth lining and suede, and additional processes, such as stitching, to manufacture, thereby increasing ourdirect costs and lowering our gross margins on those products. As we continue to expand our portfolio and non-classic models become a larger portionof our business, we expect that our profit margins will be adversely affected. Impact on Gross Profit due to Foreign Exchange Rate Fluctuations Changes in average foreign currency exchange rates during the year endedDecember 31, 2010 increased our gross profit by $13.0 million compared to the same period in 2009. We expect that sales at subsidiary companies withfunctional currencies other than the U.S. dollar will continue to generate a substantial portion of our overall gross profit. Accordingly, changes inforeign currency exchange rates could materially affect our overall gross profit or the comparability of our gross profit from period to period as a resultof translating our financial statements into our reporting currency, the U.S. dollar. Selling, General and Administrative Expenses and Foreign Currency Transaction (Gains)/Losses Selling, general and administrativeexpense increased $28.3 million, or 9.1%, in the year ended December 31, 2010 compared to the same period in 2009, primarily due to:•an increase of approximately $28.6 million in salaries, rent and other retail-related costs largely driven by the expansion of our retail saleschannel and •an increase of approximately $15.9 million in costs related to our 2010 marketing campaign; •which were partially offset by a decrease of $20.7 million in share-based compensation, $13.3 million of which was due to theacceleration of share-based compensation expense from the 2009 Tender Offer; and •an increase of $2.2 million gains on transactions denominated in foreign currencies. Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations Changes in average foreign currencyexchange rates used to translate expenses from our functional currencies to our reporting currency, the U.S. dollar, during the year ended December 31,2010 increased selling, general and administrative expenses by approximately $5.0 million as compared to the same period in 2009. Restructuring Charges We recorded $3.8 million in restructuring charges in the year ended December 31, 2010, of which $1.3 million wasrecorded to cost of sales. These restructuring charges consisted of $2.0 million in severance costs related to the departure of a former Chief Executive30Table of ContentsOfficer, and $1.8 million due to a change in estimate of our original accruals for lease termination costs for our Canadian office and our distributionfacilities in North America and Europe. During the year ended December 31, 2009, we recorded $14.7 million in restructuring charges, of which $7.1 million was included in costs ofsales. These charges primarily consisted of:•$5.6 million in costs associated with the consolidation of our warehousing, distribution and office space worldwide; •$3.8 million related to the termination of our manufacturing agreement with a third party in Bosnia and our sponsorship agreement withthe Association of Volleyball Professionals; •$3.7 million in severance costs; and •$1.1 million related to the release from further obligations under the earn-out provisions of our acquisition of Bite, LLC. Asset Impairment Charges During the year ended December 31, 2010, we recorded $0.1 million in impairment charges compared to$26.1 million in impairment charges recorded during the same period in 2009 due to the implementation of our turnaround strategy in 2009, aspreviously discussed. The 2009 charges primarily consisted of $18.1 million related to the write-off of obsolete molds, tooling, manufacturing anddistribution equipment, sales and marketing assets and other distribution and manufacturing assets, largely associated with the consolidation ofwarehouse and distribution space; and $7.6 million related to the write-off of capitalized software, patents, trade names and other intangible assets thatwe no longer intended to utilize. Segments—Operating Income (Loss) Total segment operating income increased $82.0 million, or 90.5%, during the year ended December 31,2010 compared to the same period in 2009, primarily due to increased revenue in each of our operating segments and a decrease of $5.8 million inrestructuring charges which were partially offset by the accretive effect of impaired unit sales that took place during 2009, and increased costs related tothe expansion of our retail selling channel and our 2010 fully-integrated marketing campaign, as previously discussed. The following table summarizesoperating income (loss) by segment for the year ended December 31, 2010 and 2009. Interest Expense Interest expense decreased $0.8 million, or 56.1%, during the year ended December 31, 2010 compared to same period in2009 primarily due to lower borrowing rates and lower borrowing balances under our current asset-backed credit facility. Income Tax (Benefit) Expense Income tax expense increased $19.6 million during the year ended December 31, 2010 compared to the sameperiod in 2009 which was primarily due to an increase of $129.4 million in income before taxes. Our 2010 effective tax rate of 16.2% differs from thefederal31 Year Ended December 31, ($ thousands) 2010 2009 Operating income (loss): Americas $67,259 $21,598 Asia 80,955 57,836 Europe 24,654 11,087 Other (281) 76 Total segment operating income (loss) 172,587 90,597 Corporate, intersegment eliminations and other (88,872) (108,073) SG&A restructuring (2,539) (7,623) Asset impairment (141) (26,085) Total consolidated operating income (loss) $81,035 $(51,184) Table of ContentsU.S. statutory rate because of differences in the statutory rates of foreign subsidiaries, certain items of revenue and/or expense for which there is apermanent difference in taxability treatment for financial reporting and tax purposes, and changes in the amount of valuation allowances resulting fromchanges in the company's judgments about whether certain deferred tax assets are more likely than not to be realized. For a reconciliation between thefederal U.S. statutory rate and our effective tax rate, see Note 12—Income Taxes in the accompanying notes to the consolidated financial statements.Comparison of the Years Ended December 31, 2009 and 2008 Revenues Revenues decreased $75.8 million, or 10.5%, during the year ended December 31, 2009 as compared to same period 2008, primarilydue to a decrease of $1.75 in average selling price which was partially offset by an increase of 1.5 million in units sold. The lower average selling pricein 2009 was primarily attributable to the sale of discontinued and impaired product which was sold at deeply discounted prices. Sales of our Jibbitzproducts decreased 46.6% to $25.2 million in the year ended December 31, 2009, from $47.2 million in the year ended December 31, 2008. Thefollowing table sets32 Year Ended December 31, Change ($ millions, except average selling price) 2009 2008 $ % Revenues $645,767 $721,589 $(75,822) (10.5)%Cost of sales 344,806 487,623 (142,817) (29.3)% Gross profit 300,961 233,966 66,995 28.6%Selling, general and administrative expenses and foreign currency(gains)/losses 310,927 366,956 (56,029) (15.3)%Restructuring charges 7,623 7,664 (41) (1.0)%Asset impairment charges 26,085 45,784 (19,699) (43.0)%Charitable contributions 7,510 1,844 5,666 307.3% Loss from operations (51,184) (188,282) 137,098 72.8%Interest expense 1,495 1,793 (298) (16.6)%Gain on charitable contributions (3,163) — (3,163) N/M Other income, net (895) (565) (330) (58.4)% Loss before income taxes (48,621) (189,510) 140,889 74.3%Income tax benefit (6,543) (4,434) (2,109) (47.6)% Net loss $(42,078)$(185,076)$142,998 77.2% Net loss per basic share $(0.49)$(2.24)$1.75 78.1% Net loss per diluted share $(0.49)$(2.24)$1.75 78.1% Gross margin 46.6% 32.4% Operating margin (7.9)% (26.1)% N/M—Not meaningfulTable of Contentsforth revenue by channel and by region as well as other revenue information for the years ended December 31, 2009 and 2010. Wholesale Channel Revenues During the year ended December 31, 2009, revenues from the wholesale channel decreased by $147.6 million, or26.7%, compared to the same period in 2008, primarily due by weakened consumer demand in Americas and Europe business segments resulting fromthe global economic downturn which also caused some retailers to choose to operate at leaner inventory levels. In addition, during the latter portion of2009, we implemented a more disciplined wholesale approach and reduced the number of wholesalers merchandising our product so as to betterposition our products in the marketplace. Wholesale channel revenues also suffered as we faced challenges selling our expanded product lines toexisting wholesale channels, weakened consumer demand for certain of our products which had reached a mature stage in their product life, and theimpact of competitors entering the market with imitation products sold at substantially lower prices. Retail Channel Revenues During the year ended December 31, 2009, revenues from the retail channel increased $55.1 million, or 43.8%, whichwas primarily driven by an increase in the number of stores as well as the fact that we are able to merchandise the full breadth and depth of our productline. The table below sets forth information about the number of company-operated retail locations as of December 31, 2009 and 2008. Internet Channel Revenues During the year ended December 31, 2009, revenues from the internet channel increased $16.7 million, or 38.2%,primarily due to increased web-based and other marketing efforts aimed at driving consumer awareness of our webstores as well as the launches ofseveral new sites serving international markets.33 Year endedDecember 31, Change ($ millions, except average selling price) 2009 2008 $ % Wholesale channel revenue $404.5 $552.1 $(147.6) 26.7%Retail channel revenue 180.9 125.8 55.1 43.8%Internet channel revenue 60.4 43.7 16.7 38.2%Americas revenue $301.4 $365.9 $(64.5) (17.6)%Asia revenue 237.5 204.9 32.6 15.9%Europe revenue 106.0 149.3 (43.3) (29.0)%Footwear unit sales 36.8 35.3 1.5 4.2%Average selling price $16.60 $18.35 $(1.75) (9.5)% As of December 31, 2009 2008 Change Type: Crocs Kiosk/Store in Store 170 177 (7) Crocs Retail Stores 84 70 14 Crocs Outlet Stores 63 32 31 Total 317 279 38 Geography: Americas 182 157 25 Asia 119 107 12 Europe 16 15 1 Table of Contents Product Revenue Concentration Revenues from non-classic footwear models made up the majority of our revenues during the year endedDecember 31, 2009, as our classic models and core products (defined below) have become a smaller portion of our total revenue in recent quarters. Thefollowing table sets forth sales of our classic models, core products and new footwear products as a percentage of our total unit sales. Impact on Revenues due to Foreign Exchange Rate Fluctuations Changes in average foreign currency exchange rates during the year endedDecember 31, 2009 decreased revenues by $14.9 million compared to the same period in 2008. We expect that sales in international markets in foreigncurrencies will continue to represent a substantial portion of our overall revenues. Accordingly, changes in foreign currency exchange rates couldmaterially affect our overall revenues or the comparability of those revenues from period to period as a result of translating our financial statements intoour reporting currency, the U.S. dollar. Americas Segment Revenues Revenues from the Americas segment decreased $64.5 million, or 17.6%, during the year ended December 31,2009 compared the same period in 2008, which was largely driven by lower regional wholesale channel sales, partially offset by higher regional retailand internet channel sales. The net decrease in revenues was primarily due to weakened consumer demand resulting from deteriorated U.S. economicconditions, the challenges of selling our expanded product line, lessened demand for our more mature core products, and by sales of deeply discountedend of life and impaired units. See "Financial Highlights" above. In 2009, we implemented plans to re-invigorate the region's wholesale channelrevenues, which included investments in cooperative advertising and merchandising assistance for select locations at our largest U.S. wholesaleaccounts. Revenue from company-operated retail locations in the Americas increased $37.6 million, or 54.7%, to $106.3 million in the year endedDecember 31, 2009, from $68.7 million for the year ended December 31, 2008. During the year ended December 31, 2009, sales returns and allowances, which are included as a net adjustment to revenue, decreased$24.6 million, or 59.1%, to $17.0 million in the year ended December 31, 2009 from $41.6 million for the year ended December 31, 2008 which wasprimarily due to a higher 2008 balance, when, in light of then-prevailing economic conditions, we granted certain return requests and allowances to anumber of customers it believed were strategically important to our ongoing business. Sales returns and allowances for the year ended December 31,2008 were significantly higher than historical estimates as a result of specific reserves related to those granted return and allowance requests. Asia Segment Revenues Revenues in Asia increased $32.6 million, or 15.9%, during the year ended December 31, 2009 compared to the sameperiod in 2008, as a result of strong demand in all channels, particularly in the wholesale and retail channels, partially offset by a lower average sellingprice resulting from the sales of lower-priced end of life and impaired units, as discussed in "Recent Events" above. Revenues from company-operatedretail locations in Asia increased $13.7 million, or 27.5%, to $63.6 million in the year ended December 31, 2009, from $49.9 million for the year endedDecember 31, 2008.34 Years EndedDecember 31, 2009 2008 Classic models (Beach and Crocs Classic) 16% 25%Core products(1) 33% 57%New 2009 footwear products 17% — (1)Core products include Classic models, Kids Crocs Classic, Athens, Kids Athens, Mary Jane, Girls Mary Jane,Mammoth and Kids Mammoth.Table of Contents We experienced a decline in sales returns and allowances of $6.9 million, or 43.4%, to $9.0 million in the year ended December 31, 2009 from$15.9 million for the year ended December 31, 2008. The decrease in sales returns and allowances is primarily related to a higher 2008 balance, whenmanagement, in light of then-prevailing economic conditions, granted certain returns and allowances to some of our wholesale customers to properlybalance their portfolios of our products with respect to size, color and style. Europe Segment Revenues Revenues in Europe decreased $43.3 million, or 29.0%, during the year ended December 31, 2009 compared to thesame period in 2008 due to a decline in regional wholesale revenues resulting from weakened consumer demand due to regional economic conditionsand an increased number of imitation products in the region. This decrease was partially offset by increased revenues from our company-operated retaillocations, partially driven by an additional retail location, and an increase in revenue from our internet channel. Revenue from company-operated retaillocations was $11.0 million in the year ended December 31, 2009 versus $7.2 million for the year ended December 31, 2008. Sales returns and allowances, which are recorded as a net adjustment to revenue, decreased $18.6 million, or 71%, to $7.6 million in the year endedDecember 31, 2009 from $26.2 million in the year ended December 31, 2008, due to a higher 2008 balance, when, in light of then-prevailing economicconditions, we granted certain return requests and allowances to a number of customers it believed were strategically important to our ongoing business.Sales returns and allowances for the year ended December 31, 2008 were significantly higher than historical estimates as a result of specific reservesrelated to those granted return and allowance requests. Gross Profit During the year ended December 31, 2009, gross profit increased $67.0 million, or 28.6%, compared to the same period in 2008.Gross margin increased 43.8% to 46.6% during the year ended December 31, 2009 compared to the same period in 2008. During 2009, we sold$58.3 million of impaired product as previously discussed in "Financial Highlights." Much of this product had been written down to a level that weconsidered realizable; however, we were able to sell this product at prices substantially higher than what we had previously estimated. The gross profitamount related to these units was accretive to our gross profit percentage during the year ended December 31, 2009. The net effect of these sales on ourgross profit during the year ended December 31, 2009 was $49.8 million. During 2009, we also experienced an increase in retail and internet sales as apercentage of our total revenue. This trend contributed to higher gross margins as we were able to achieve a higher average selling price in thesechannels while many of the fixed costs associated with operating our company-operated retail stores are included in selling, general and administrativeexpenses. Partially offsetting these increases in gross profit were restructuring charges of $7.1 million associated with the consolidation of our warehouseand distribution space and cancellation of our warehousing agreement. See "Restructuring" below for further discussion. In addition, as a result of the2009 Tender Offer, we recognized $3.0 million in additional share-based compensation expense through cost of sales during 2009. Also, during 2009,we sold a wide range of products which required additional materials, such as canvas, cloth lining and suede, and additional processes, such asstitching, to manufacture, thereby increasing our direct costs and lowering our gross margins on those products. By comparison, during 2008, werecorded charges of $76.3 million related to inventory write-downs and $4.2 million related to losses on future purchase commitments. We alsorecorded $0.9 million in restructuring costs in cost of sales as a result of the closure of our Canadian manufacturing operation. Impact on Gross Profit due to Foreign Exchange Rate Fluctuations Changes in average foreign currency exchange rates during the year endedDecember 31, 2009 decreased our gross profit by $4.4 million compared to the same period in 2008.35Table of Contents Selling, General and Administrative Expenses and Foreign Currency Transaction (Gains)/Losses During the 2009 and 2008, we tookcertain actions to reduce our selling, general and administrative expenses. Those actions included, but were not limited to, reductions in certaindiscretionary spending such as the discontinuation of certain sponsorship and consulting arrangements. Selling, general and administrative expense andforeign currency transaction losses decreased $56.0 million, or 15.3%, in the year ended December 31, 2009 compared to the same period in 2008,which was primarily attributable to the following:•a decrease of $27.9 million in advertising and marketing expense of which $11.1 million was related to corporate sponsorships and$16.8 million was related to advertising expenses, as we exited corporate sponsorships and changed our approach to marketing ourproducts towards a more integrated, consumer-focused program; •a decrease of $24.1 million in legal expense; •an increase of $26.1 million in net gains on changes in currency exchange rates for transactions denominated, and settled or to be settled,in a currency other than the functional currency of the consolidated entity; •which were partially offset by increases in stock compensation due to the 2009 Tender Offer of $13.3 million and $4.5 million due to theequity accounting software error, as previously discussed, •an increase of $7.4 million in rent expense; and •an increase of $4.1 million in salaries and wages. Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations Changes in average foreign currencyexchange rates used to translate expenses from our functional currencies to our reporting currency, the U.S. dollar, during the year ended December 31,2010 decreased selling, general and administrative expenses by approximately $4.0 million as compared to the same period in 2009. Restructuring Charges During the years ended December 31, 2009 and 2008, we incurred restructuring charges as a result of our turnaroundstrategy, previously discussed in "Financial Highlights." Specifically, we recorded $14.7 million in restructuring charges in the year endedDecember 31, 2009, of which $7.1 million was reflected in cost of sales and which primarily consisted of:•$5.6 million related to the termination of operating leases and other costs associated with the consolidation of our warehousing,distribution and office space worldwide; •$3.8 million related to the termination of our manufacturing agreement with a third party in Bosnia and our sponsorship agreement withthe Association of Volleyball Professionals; •$3.7 million in severance costs; and •$1.1 million related to the release from further obligation under the earn-out provisions of our acquisition of Bite, LLC. In 2008, we recorded $8.5 million in restructuring charges related to the closure of our facilities in Canada and Brazil, $7.6 million of which wasrecorded in restructuring charges and $0.9 million of which was reflected in cost of sales. We established reserves covering future known obligations related to the consolidation of our global distribution facilities. Reserves atDecember 31, 2009 were $3.1 million and have been included in the line items accrued restructuring charges and other liabilities in our consolidatedbalance sheets.36Table of Contents Asset Impairment Charges During the years ended December 31, 2009 and 2008, we incurred asset impairment charges as a result of ourturnaround strategy, previously discussed in "Financial Highlights." The $26.1 million impairment charges recorded in 2009 primarily consisted of:$18.1 million related to the write-off of obsolete molds, tooling, manufacturing and distribution equipment, sales and marketing assets and otherdistribution and manufacturing assets, primarily associated with the consolidation of warehouse and distribution space as well as other cost-savingsinitiatives undertaken during the year; and $7.6 million related to the write-off of capitalized software, patents, trade names and other intangible assetsthat we no longer intend to utilize. The $45.8 million impairment charges recorded in 2008 primarily consisted of: $20.9 million related to the write-down of fixed assets, primarilyrelated to equipment and shoe molds for shoes we no longer intended to manufacture or styles for which we had more molds on hand than necessary tomeet projected demand; and $23.8 million related to the write-off of goodwill and other indefinite lived intangible assets, see Note 4—Intangible assetsin the accompanying notes to the consolidated financial statements for additional information. Segments Operating Margin. Total segment operating income increased $116.2 million during the year ended December 31, 2009 compared tothe same period in 2008. The following table summarizes operating income (loss) by segment for the year ended December 31, 2009 and 2008. During 2008, the operating loss in our Americas segment was driven primarily inventory write-downs and excess capacity in our company-operated manufacturing and distribution facilities. In addition, we experienced foreign currency exchange losses related to fluctuations in the Canadiandollar, Mexican peso and Brazilian real in 2008. During 2009, we implemented a plan to reduce and consolidate our global warehouse footprint, whichincreased our Americas gross margin compared to 2008, and we experienced declines in marketing and advertising expenses as we exited corporatesponsorships and changed our approach to marketing our products. During 2008, our Asia operating income was affected by foreign exchange losses and inventory impairments. In 2009, we experienced highergross margins in Asia, driven largely by growth in our Asia retail channel as well as an overall increase in total revenues from the Asia segment. Wealso experienced an increase in gains from fluctuations in foreign currency exchange rates during 2009 in our Asia segment. During 2008, our Europe operating income was affected by foreign exchange losses and inventory impairments. In 2009, we experienced highergross margins in Europe as a result of the reduction and consolidation of our global warehouse and distribution footprint; however, these highermargins were achieved at lower sales volumes. We also experienced a lower loss from fluctuations in foreign currency exchange rates during 2009 inour Europe segment.37 Year Ended December 31, ($ thousands) 2009 2008 Operating loss: Americas $21,598 $(38,430) Asia 57,836 16,634 Europe 11,087 2,703 Other 76 (6,480) Total segment operating income (loss) 90,597 (25,573) Corporate, intersegment eliminations and other (108,073) (109,261) SG&A restructuring (7,623) (7,664) Asset impairment (26,085) (45,784) Total consolidated operating loss $(51,184)$(188,282) Table of Contents Interest Expense Interest expense decreased $0.3 million, or 16.6%, during the year ended December 31, 2009 when compared to the sameperiod in 2008 which was primarily driven by lower debt balances which was partially offset by higher interest rates year over year as well as additionalinterest expense on a new capitalized lease obligation which financed certain equipment and internally developed software during 2009. Income Tax Benefit During the year ended December 31, 2009, we recognized an income tax benefit of $6.5 million on a pre-tax loss of$48.6 million, compared to income tax benefit of $4.4 million on pre-tax loss of $189.5 million for the year ended December 31, 2008. The effective taxbenefit rate was 13.5% during the year ended December 31, 2009 compared to 2.3% during the year ended December 31, 2008, primarily due to theimpact of restructuring our international operations and cost-sharing arrangements.Liquidity and Capital Resources At December 31, 2010, we had $145.6 million in cash and cash equivalents. We anticipate that cash flows from operations will be sufficient tomeet the ongoing needs of our business for the next 12 months. In order to provide additional liquidity in the future and to help support our strategicgoals, we also have an asset-backed revolving credit facility with PNC Bank, N.A. ("PNC") (further discussed below), which provides us with up to$30.0 million in borrowings and matures on September 24, 2014. Additional future financing may be necessary; however, due to currentmacroeconomic conditions and their affect on the global credit markets, there can be no assurance that we will be able to secure additional debt or equityfinancing on terms acceptable to us or at all.Credit Facility On September 30, 2010, we amended our Revolving Credit and Security Agreement with PNC, originally dated September 25, 2009, (the "CreditAgreement"). Based on the amended terms, the Credit Agreement provides for an asset-backed revolving credit facility (the "Credit Facility") of up to$30.0 million in total, which includes a $20.0 million sublimit for borrowings against our eligible inventory, a $2 million sublimit for borrowingsagainst our eligible inventory in-transit, and a $10 million sublimit for letters of credit, and matures on September 24, 2014. Total borrowings availableunder the Credit Facility at any given time are subject to customary reserves and reductions to the extent our asset borrowing base changes. Borrowingsunder the Credit Facility are secured by all of our assets including all receivables, equipment, general intangibles, inventory, investment property,subsidiary stock and leasehold interests. The terms of the Credit Agreement require us to prepay borrowings in the event of certain dispositions ofproperty. With respect to domestic rate loans, principal amounts outstanding bear interest at 1.5% plus the greater of either (i) PNC's published referencerate, (ii) the Federal Funds Open Rate (as defined in the Credit Agreement) in effect on such day plus 0.5% or, (iii) the sum of the daily LIBOR rate and1.0%. Eurodollar denominated principal amounts outstanding bear interest at 3.0% plus the Eurodollar rate (as defined in the Credit Agreement). TheCredit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of each interest period with respect to Eurodollarrate loans and contains certain customary restrictive and financial covenants. We were in compliance with these financial covenants as of December 31,2010. As of December 31, 2010 and 2009, we had an immaterial amount of outstanding borrowings under the Credit Facility. At December 31, 2010and 2009, we had issued and outstanding letters of credit of $1.0 million and $1.1 million, respectively, which were reserved against the borrowingbase.Working Capital As of December 31, 2010, accounts receivable increased $13.8 million when compared to December 31, 2009, primarily due to higher sales in thefourth quarter of 2010 compared to the fourth38Table of Contentsquarter of 2009. Days sales outstanding improved slightly to 33.0 at December 31, 2010 compared to 34.1 at December 31, 2009. Inventories increased $27.8 million as of December 31, 2010 when compared to December 31, 2009, due to multiple factors including: the growthassociated with the addition of 61 new retail locations; the addition of component raw material inventory, as we continue to manufacture more of ourhybrid product which provides savings on costs incurred with importing these products from China; and a significant increase in order backlog.Capital Assets During the years ended December 31, 2010 and 2009, we had net capital expenditures of $43.8 million and $24.6 million, respectively. The$19.2 million increase in net capital expenditures was primarily due to ongoing investments in new retail stores as well as new molds and other toolingequipment related to new product manufacturing. We have entered into various operating leases that require cash payments on a specified schedule. Over the next five years we are committed tomake payments of approximately $153.9 million related to our operating leases. We plan to continue to enter into operating leases related to our retailstores. We also continue to evaluate cost reduction opportunities. Our evaluation of cost reduction opportunities will include an evaluation of contractsfor sponsorships, operating lease contracts and other contracts that require future minimum payments resulting in fixed operating costs. Any changes tothese contracts may require early termination fees or other charges that could result in significant cash expenditures.Repatriation of Cash We are a global business with operations in many different countries, which requires cash accounts to be held in various currencies. The globalmarket has recently experienced many fluctuations in foreign currency exchange rates which impacts our results of operations and cash positions. Thefuture fluctuations in foreign currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countrieshave additional restrictions and covenants associated with them, which adds increased strains on our liquidity and ability to timely access and transfercash balances between entities. We generally consider unremitted earnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intentto change this position. However, most of the cash held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject toU.S. federal and state income taxes, less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by locallaws and could have adverse tax consequences if we were to move the cash to another country. Certain countries, including China, have monetary lawswhich may limit our ability to utilize cash resources in those countries for operations in other countries. These limitations may affect our ability to fullyutilize our cash resources for needs in the U.S. or other countries and may adversely affect our liquidity. As of December 31, 2010, we held$135.0 million of our total $145.6 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in thelocations in which the cash is held. Of the $135.0 million, $32.2 million could potentially be restricted, as described above. If the remaining$102.8 million were to be repatriated to the U.S., we would be required to pay approximately $6.8 million in international withholding taxes with nooffsetting credit. We believe that we have sufficient U.S. net operating losses ("NOLs") to absorb any future increases to U.S. taxable income (andtherefore, U.S. federal income tax) brought about by potential cash repatriation up to the lesser of the total U.S. NOL balances or the current foreignsubsidiaries' earnings. There are full valuation allowances on the NOLs that would be released to result in no tax effect or cash tax payments for the39Table of ContentsU.S. up to the aforementioned limitation. As of December 31, 2010, we anticipate repatriating approximately $50.0 million of foreign subsidiaryearnings in 2011 and the release of $17.5 million in NOL valuation allowances.Contractual Obligations and Off-Balance Sheet Arrangements In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certainraw materials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivitythroughout the term of the agreement, which expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous andwe do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or is subject toquarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee thepayment for certain third-party manufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately$4.6 million as of December 31, 2010), through a letter of credit that was issued to Finproject S.r.l.. The following table summarizes aggregate information about our contractual cash obligations as of December 31, 2010, excluding the guaranteeand supply agreement mentioned above.Critical Accounting Policies and EstimatesGeneral Our discussion and analysis of financial condition and results of operations is based on the consolidated financial statements which have beenprepared in accordance with United States generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires usto make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and thereported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. We baseour estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. The following discussion pertains to accounting policies managementbelieves are most critical to the portrayal of our financial condition and results of operations that require management's most difficult, subjective orcomplex judgments. Reserves for Uncollectible Accounts Receivable We make ongoing estimates related to the collectability of our accounts receivable and maintaina reserve for estimated losses resulting from the inability of our customers to make required payments. Our estimates are based on a variety of factors,40 Payments due by period ($ thousands) Total Less than1 year 1 - 3years 4 - 5years More than5 years Operating lease obligations $220,083 $48,891 $64,454 $40,587 $66,151 Inventory purchase obligations with third-partymanufacturers 84,121 84,121 — — — Estimated liability for uncertain tax positions 33,042 — 25,988 4,181 2,873 Capital lease obligations 2,643 1,923 713 7 — Minimum licensing royalties 458 311 147 — Corporate sponsorships 140 95 45 — — Long-term debt obligations 3 3 — — — Total $340,490 $135,344 $91,347 $44,775 $69,024 Table of Contentsincluding the length of time receivables are past due, economic trends and conditions affecting our customer base, significant one-time events andhistorical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer's inability to meet itsfinancial obligations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accountsmay differ from our estimates and we may experience changes in the amount of reserves we recognize for accounts receivable that we deemuncollectible. If the financial condition of some of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve mightbe required. In the event we determine that a smaller or larger reserve is appropriate, we would record a credit or a charge to selling, general andadministrative expenses in the period in which we made such a determination. Sales Returns, Allowances and Discounts We record reductions to revenue for estimated customer returns, allowances and discounts. Ourestimated sales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Provisions for customerspecific discounts based on contractual obligations with certain major customers are recorded as reductions to net sales. We may accept returns from ourwholesale and distributor customers, on an exception basis at the sole discretion of management for the purpose of stock re-balancing to ensure that ourproducts are merchandised in the proper assortments. Additionally, at the sole discretion of management, we may provide markdown allowances to keywholesale and distributor customers to facilitate the "in-channel" markdown of products where we have experienced less than anticipated sell-through.We also record reductions to revenue for estimated customer credits as a result of price mark-downs in certain markets. Fluctuations in our estimates forsales returns, allowances and discounts may be caused by many factors, including, but not limited to, fluctuations in our sales revenue, changes indemand for our products. Our judgment in determining these estimates is impacted by various factors including customer acceptance of our new styles,customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products and macroeconomicfactors affecting our customers. Since we cannot predict or control certain of these factors, the actual amounts of customer returns and allowances maydiffer from our estimates. Inventory Valuation Inventories are valued at the lower of cost or market. Inventory cost is determined using the moving average cost method.At least quarterly, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which webelieve that the products may need to be discounted below cost to sell within a reasonable period. We base inventory fair value on several subjective andunobservable assumptions including estimated future demand and market conditions, as well as other observable factors such as current sell-through ofour products, recent changes in demand for our product as well as shifting demand between the products we offer, global and regional economicconditions, historical experience selling through liquidation and "off-price" channels and the amount of inventory on hand. If the estimated inventoryfair value is less than its carrying value, the carrying value is adjusted to market value and the resulting impairment charge is recorded in cost of sales onthe consolidated statements of operations. The ultimate results achieved in selling excess and discontinued products in future periods may differsignificantly from management's fair value estimates. See Note 2—Inventories in the accompanying notes to the consolidated financial statements foradditional information regarding inventory and impaired product. Impairment of Long-Lived Assets We test long-lived assets to be held and used for impairment when events or circumstances indicate thecarrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, asdefined below) include; (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used orin its physical condition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action orassessment by a regulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction,(v) its current period operating or cash flow losses combined with41Table of Contentshistorical operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associated with its use, and (vi) a currentexpectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If suchfacts indicate a potential impairment of a long-lived asset (or asset group), we assess the recoverability by determining if its carrying value exceeds thesum of its projected undiscounted cash flows expected to result from its use and eventual disposition over its remaining economic life. Assets to bedisposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair value is determined by independent third-partyappraisals, the net present value of expected cash flows, or other valuation techniques as appropriate. Assets to be abandoned or from which no furtherbenefit is expected are written down to zero at the time that the determination is made and the assets are removed entirely from service. An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assetsand liabilities. Beginning in 2009, we determined that the lowest level of assets and liabilities for which identifiable cash flows are largely independentof the cash flows of other assets and liabilities is at the retail store level for assets involved in our retail business. Our estimates of future cash flowsover the remaining useful life of the asset group are based on management's operating budgets and forecasts. These budgets and forecasts take intoconsideration inputs from our regional management related to growth rates, pricing, new markets and other factors expected to affect the business, aswell as management's forecasts for inventory, receivables, capital spending, and other cash needs. These considerations and expectations are inherentlyuncertain, and estimates included in our operating forecasts beyond a three to six month future period are extremely subjective. Accordingly, actual cashflows may differ significantly from our estimated future cash flows. Impairment charges are driven by, among other things, changes in our strategic operational and financial decisions, global and regional economicconditions, demand for our product or shifting demand between different products we offer and other corporate initiatives which may eliminate orsignificantly decrease the realization of future benefits from our long-lived assets and result in impairment charges in future periods. Significantimpairment charges recognized during a reporting period could have an adverse affect on our reported financial results Impairment of Intangible Assets Goodwill and intangible assets with indefinite lives are evaluated for impairment when events or changes incircumstances indicate that the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definitelives, such as customer relationships, core technology, capitalized software, patents and non-compete agreements are amortized over their useful livesand are evaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable. Recoverability is based onthe estimated future undiscounted cash flows of an asset. If the asset is not supported on an undiscounted cash flow basis, the amount of impairment ismeasured as the difference between its carrying value and its fair value. Determination of the fair value of goodwill and other indefinite-lived intangibleasset involves a number of management assumptions including the expected future operating performance of our reporting units which may change infuture periods due to technological changes, economic conditions, changes to our business operations, or the inability to meet business plans, amongother things. The valuation is sensitive to the actual results of any of these uncertain factors which could be negatively affected and may result inadditional impairment charges should the actual results differ from management's estimates. See Note 4—Intangible Assets, in the accompanying notesto the consolidated financial statements for additional information regarding our intangible assets. Share-Based Compensation We estimate the fair value of our stock option awards using a Black-Scholes valuation model, the inputs of whichrequire various assumptions including the expected volatility of our stock price and the expected life of the option. The expected volatility assumptionsare derived using our historical stock price volatility and the historical volatilities of competitors whose shares are traded in the public markets. Theseassumptions reflect our best estimates, but they involve42Table of Contentsinherent uncertainties based on market conditions generally outside of our control. If factors change and we use a different methodology for deriving theBlack-Scholes assumptions, our stock-based compensation expense may differ materially in the future from that recorded in the current period.Additionally, we make certain estimates about the number of awards which will be made under performance-based incentive plans. As a result, if otherassumptions or estimates had been used, stock-based compensation expense could have been materially impacted. Furthermore, if we use differentassumptions in future periods, stock-based compensation expense could be materially impacted in future periods. See Note 9—Equity in theaccompanying notes to the consolidated financial statements for additional information regarding our stock-based compensation. Income Taxes We account for income taxes using the asset and liability method which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets andliabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-stepapproach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income taxpositions. The impact of an uncertain tax position that is more likely than not of being sustained upon examination by the relevant taxing authority mustbe 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 positionhas 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 iscomplex and often ambiguous. Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in whichwe operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. Tax laws require items to beincluded in our tax returns at different times than when these items are reflected in the consolidated financial statements. As a result, the annual tax ratereflected in our consolidated financial statements is different than that reported in our tax return (our cash tax rate). Some of these differences arepermanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. Thesetiming differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between thefinancial reporting and tax basis of assets and liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effectfor the year in which the differences are expected to reverse. Based on the evaluation of all available information, we recognize future tax benefits, suchas net operating loss carry forwards, to the extent that realizing these benefits is considered more likely than not. We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using bothhistorical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted)and the availability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likelythan not that we will ultimately realize the tax benefit associated with a deferred tax asset. Undistributed earnings of a subsidiary are accounted for as atemporary difference, except that deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to beindefinitely reinvested in the foreign jurisdiction. We have operated under a specific plan for reinvestment of undistributed earnings of our foreignsubsidiaries which demonstrates that such earnings will be indefinitely reinvested in the applicable tax jurisdictions. Should we change our plans, wewould be required to record a significant amount of deferred tax liabilities. We recognize interest and penalties related to unrecognized tax benefitswithin the income43Table of Contentstax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability linein the consolidated balance sheets. Recent Accounting Pronouncements See Note 1—Summary of Significant Accounting Policies in the accompanying notes to the consolidatedfinancial statements for recently adopted accounting pronouncements.ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility, see Note 8—Notes Payable andCapital Lease Obligations in the accompanying notes to the consolidated financial statements for additional information. Borrowings under the revolvingcredit facility bear interest at variable rates which are based on either the lender's published rate, the Federal Funds Open Rate, LIBOR or the EurodollarRate (as defined in the revolving credit facility), and are subject to risk based upon prevailing market interest rates. Interest rate risk may result frommany factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors thatare beyond our control. As of December 31, 2010, the amount of total borrowings outstanding under the revolving credit facility was immaterial. If theprevailing market interest rates relative to these borrowings increased by 10%, our interest expense during the year ended December 31, 2010 wouldhave increased by $0.1 million. Fluctuations in the prevailing market interest rates, earned on our cash and cash equivalents and restricted cash balances during the year endedDecember 31, 2010, would have an immaterial impact on the consolidated statements of operations.Foreign Currency Exchange Risk We have significant revenues from foreign sales in recent periods. While the majority of expenses attributable to our foreign operations are paid inthe functional currency of the country in which such operations are conducted, we pay the majority of our overseas third-party manufacturers in U.S.dollars. Our ability to sell our products in foreign markets and the U.S. dollar value of the sales made in foreign currencies can be significantlyinfluenced by foreign currency fluctuations. A decrease in the value of foreign currencies relative to the U.S. dollar could result in downward pricepressure for our products and increase losses from currency exchange rates. A decrease of 1% in value of U.S. dollar relative to foreign currencieswould have increased income before taxes during the year ended December 31, 2010 by approximately $2.6 million. The volatility of the applicableexchange rates is dependent on many factors that cannot be forecasted with reliable accuracy. In the event our foreign sales and purchases increase andare denominated in currencies other than the U.S. dollar, our operating results may be affected by fluctuations in the exchange rate of currencies wereceive for such sales. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of theimpact of foreign exchange rate variances experienced during the year ended December 31, 2010. We enter into foreign currency exchange forward contracts to reduce our exposure to changes in exchange rates. As of December 31, 2010, thetotal notional value of outstanding foreign currency exchange forward contracts was $12.3 million. The following table summarizes the notionalamounts of the outstanding derivatives at December 31, 2010 (in thousands). The notional amounts of the44Table of Contentsderivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposureto the foreign currency exchange risks.ITEM 8. Financial Statements and Supplementary Data The consolidated financial statements and supplementary data are as set forth in the "Index to Consolidated Financial Statements" on page 52.ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Acting Principal FinancialOfficer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2010 (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officerand Acting Principal Financial Officer concluded that as of the Evaluation Date, our disclosure controls and procedures were effective such that theinformation relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission ("SEC")reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated andcommunicated to our management, including our Chief Executive Officer and Acting Principal Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.Management's Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010,using the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on this assessment, management has concluded that our internal control over financial reporting was effective as ofDecember 31, 2010. Deloitte & Touche LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting,which is included herein.Changes in Internal Control Over Financial ReportingCurrency Purchased Currency Sold Maturity Date Contract TypeUSD2,000 JPY162,960 January 2011 Foreign currency exchangeforwardUSD2,000 JPY161,940 February 2011 Foreign currency exchangeforwardUSD2,000 JPY161,920 March 2011 Foreign currency exchangeforwardUSD1,752 EUR1,300 February 2011 Foreign currency exchangeforwardUSD1,751 EUR1,300 March 2011 Foreign currency exchangeforwardUSD952 GBP600 February 2011 Foreign currency exchangeforwardUSD952 GBP600 March 2011 Foreign currency exchangeforwardUSD481 GBP300 January 2011 Foreign currency exchangeforwardUSD418 EUR300 January 2011 Foreign currency exchangeforward There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or isreasonable likely to materially affect, our internal control over financial reporting.45Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofCrocs, Inc.Niwot, Colorado We have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2010, based oncriteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting, included in the accompanying "Management's Annual Report on Internal Control Over Financial Reporting".Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnelto provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and proceduresthat (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluationof the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, basedon the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedfinancial statements as of and for the year ended December 31, 2010 of the Company and our report dated February 25, 2011 expressed an unqualifiedopinion on those financial statements./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 201146Table of ContentsITEM 9B. Other Information None.PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2010.Code of Ethics We have a written code of ethics in place that applies to all our employees, including our principal executive officer, principal financial officer andcontroller. A copy of our business code of conduct and ethics policy is available on our website: www.crocs.com. We are required to disclose anychange to, or waiver from, our code of ethics for our senior financial officers. We intend to use our website as a method of disseminating any change to,or waiver from, our business code of conduct and ethics policy as permitted by applicable SEC rules.ITEM 11. Executive Compensation The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2010.ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting ofStockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010, with the exception of those items listedbelow.ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2010.ITEM 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2011 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2010.47Table of ContentsPART IV ITEM 15. Exhibits and Financial Statement Schedules (1) Financial Statements The financial statements filed as part of this report are listed on the index to financial statements on page 52.(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the FinancialStatements or Notes thereto.(3) Exhibit list48ExhibitNumber Description 3.1 Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 toCrocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)). 3.1 Certificate of Amendment to Restated Certificate of Incorporate of Crocs, Inc. (incorporated herein byreference to Exhibit 3.1 to Crocs, Inc. Current Report on Form 8-K, filed on July 12, 2007). 3.2 Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 toCrocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)). 4.1 Specimen common stock certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'sRegistration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)). 10.1*Form of Indemnity Agreement between Crocs, Inc. and each of its directors and executive officers(Incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Registration Statement on Form S-1, filedon August 15, 2005 (File No. 333-127526)). 10.2*Crocs, Inc. 2005 Equity Incentive Plan (the "2005 Plan") (incorporated herein by reference to Exhibit 10.2 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.3*Amendment No.1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.2.2 to Crocs, Inc.'sRegistration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)). 10.4*Form of Notice of Grant of Stock Option under the 2005 Plan (incorporated herein by reference toExhibit 10.3 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.5*Form of Notice of Grant of Stock Option for Non-Exempt Employees under the 2005 Plan (incorporatedherein by reference to Exhibit 10.4 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15,2005 (File No. 333-127526)). 10.6*Form of Stock Purchase Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.5 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). Table of Contents49ExhibitNumber Description 10.7*Form of Stock Option Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.6 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.8*Form of Restricted Stock Award Grant Notice under the 2005 Plan (incorporated herein by reference toExhibit 10.7 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.9*Form of Restricted Stock Award Agreement under the 2005 Plan (incorporated herein by reference toExhibit 10.8 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.10*Form of Non Statutory Stock Option Agreement under the 2005 Plan (incorporated herein by reference toExhibit 10.9 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.11*††Crocs, Inc. 2010 Board of Directors Compensation Plan. 10.12*Crocs, Inc. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporated hereinby reference to Exhibit 10.15 to Crocs, Inc.'s Annual Report on Form 10-K, filed on March 17, 2009). 10.13†Amended and Restated Agreement for Supply, dated July 26, 2005, between Finproject S.p.A. andCrocs, Inc. (incorporated herein by reference to Exhibit 10.21 to Crocs, Inc.'s Registration Statement onForm S-1, filed on August 15, 2005 (File No. 333-127526)). 10.14*2008 Cash Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report onForm 8-K, filed on July 12, 2007). 10.15*2007 Equity Incentive Plan (the "2007 Plan") (incorporated herein by reference to Exhibit 10.2 toCrocs, Inc.'s Current Report on Form 8-K, filed on July 12, 2007). 10.16*Form of Incentive Stock Option Agreement under the 2007 Plan (incorporated herein by reference toExhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007). 10.17*Form of Non-Statutory Stock Option Agreement under the 2007 Plan (incorporated herein by reference toExhibit 10.2 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007). 10.18*Form of Non-Statutory Stock Option Agreement for Non-Employee Directors under the 2007 Plan(incorporated herein by reference to Exhibit 10.3 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed onNovember 14, 2007). 10.19*Employment Agreement, dated January 16, 2008, between Crocs, Inc. and Russell Hammer (incorporatedherein by reference to Exhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on May 12, 2008). 10.20*Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John McCarvel (incorporatedherein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 13, 2009). 10.21*Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John Duerden (incorporated hereinby reference to Crocs, Inc.'s Current Report on Form 8-K, filed on March 2, 2009). Table of Contents50ExhibitNumber Description 10.22*Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated hereinby reference to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on August 5, 2010). 10.23*Separation Agreement, dated March 31, 2010, between Crocs. Inc. and John Duerden (incorporated hereinby reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on April 6, 2010). 10.24 Revolving Credit and Security Agreement, dated September 25, 2009, among Crocs, Inc., Crocs Retail, Inc.,Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite, Inc. and PNC Bank, N.A. (incorporated hereinby reference to Crocs, Inc.'s Current Report on Form 8-K, filed on September 30, 2009). 10.25 First Amendment to Revolving Credit and Security Agreement, dated October 14, 2009, among Crocs, Inc.,Crocs Retail, Inc., Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite, Inc. and PNC Bank, N.A.(incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on October 15, 2009). 10.28 Second Amendment to Revolving Credit and Security Agreement, dated September 30, 2010, amongCrocs, Inc., Crocs Retail, Inc., Crocs Online, Inc., Ocean Minded, Inc., Jibbitz LLC, Bite, Inc. and PNCBank, N.A. (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed onOctober 4, 2010). 21††Subsidiaries of the registrant. 23.1††Consent of Deloitte & Touche LLP. 31.1††Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the SecuritiesExchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2††Certification of the Acting Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of theSecurities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. 32††Certification of the Chief Executive Officer and Acting Principal Financial Officer pursuant to 18 U.S.C.Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.*Compensatory plan or arrangement †The registrant has been granted confidential treatment with respect to portions of these exhibits. ††Filed herewith.Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized, as of February 25, 2011. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 25, 2011 by the followingpersons on behalf of the registrant and in the capacities indicated.51 CROCS, INC.a Delaware Corporation By: /s/ JOHN P. MCCARVEL Name: John P. McCarvel Title: President and Chief ExecutiveOfficerSignature Title Date /s/ JOHN P. MCCARVELJohn P. McCarvel President, Chief Executive Officer andDirector (Principal Executive Officer) February 25, 2011/s/ JEFFREY J. LASHERJeffrey J. Lasher Corporate Controller and Chief AccountingOfficer (Acting Principal Financial Officerand Principal Accounting Officer) February 25, 2011/s/ W. STEPHEN CANNONW. Stephen Cannon Director February 25, 2011/s/ RAYMOND D. CROGHANRaymond D. Croghan Director February 25, 2011/s/ RONALD L. FRASCHRonald L. Frasch Director February 25, 2011/s/ PETER A. JACOBIPeter A. Jacobi Director February 25, 2011/s/ THOMAS J. SMACHThomas J. Smach Acting Chairman of the Board February 25, 2011 Richard L. Sharp* Director *On leave of absence as previously disclosed.Table of ContentsINDEX TO FINANCIAL STATEMENTS 52Financial Statements: Report of Independent Registered Public Accounting Firm F-1 Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 F-2 Consolidated Balance Sheets as of December 31, 2010 and 2009 F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years EndedDecember 31, 2010, 2009 and 2008 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 F-5 Notes to Consolidated Financial Statements F-6 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofCrocs, Inc.Niwot, Colorado We have audited the accompanying consolidated balance sheets of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2010 and2009, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the threeyears in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crocs, Inc. and subsidiaries asof December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2010, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company'sinternal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinionon the Company's internal control over financial reporting./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2011F-1Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSThe accompanying notes are an integral part of these consolidated financial statements.F-2 Year Ended December 31, ($ thousands, except per share amounts) 2010 2009 2008 Revenues $789,695 $645,767 $721,589 Cost of sales 364,631 337,720 486,722 Restructuring charges (Note 6) 1,300 7,086 901 Gross profit 423,764 300,961 233,966 Selling, general and administrative expenses 342,121 311,592 341,518 Foreign currency transaction losses (gains), net (2,912) (665) 25,438 Restructuring charges (Note 6) 2,539 7,623 7,664 Goodwill impairment charges (Note 4) — — 23,867 Asset impairment charges (Note 3) 141 26,085 21,917 Charitable contributions 840 7,510 1,844 Income (loss) from operations 81,035 (51,184) (188,282)Interest expense 657 1,495 1,793 Gain on charitable contribution (Note 2) (223) (3,163) — Other income, net (191) (895) (565) Income (loss) before income taxes 80,792 (48,621) (189,510)Income tax expense (benefit) 13,066 (6,543) (4,434) Net (loss) income $67,726 $(42,078)$(185,076) Income (loss) per common share (Note 13): Basic $0.78 $(0.49)$(2.24) Diluted $0.76 $(0.49)$(2.24) Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS($ thousands, except number of shares) December 31,2010 December 31,2009 ASSETS Current assets: Cash and cash equivalents $145,583 $77,343 Accounts receivable, net of allowance for doubtful accounts of $10,249 and $9,839,respectively 64,260 50,458 Inventories (Note 2) 121,155 93,329 Deferred tax assets, net 15,888 7,358 Income tax receivable 9,062 8,611 Other receivables 11,637 16,140 Prepaid expenses and other current assets 13,429 14,015 Total current assets 381,014 267,254 Property and equipment, net (Note 3) 70,014 71,084 Intangible assets, net (Note 4) 45,461 35,984 Deferred tax assets, net 34,711 18,479 Other assets 18,281 16,937 Total assets $549,481 $409,738 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $35,669 $23,434 Accrued expenses and other current liabilities (Note 5) 59,049 53,580 Accrued restructuring charges (Note 6) 439 2,616 Deferred tax liabilities, net 17,620 9 Income taxes payable 23,084 6,377 Note payable, current portion of long-term debt and capital lease obligations (Note 8) 1,901 640 Total current liabilities 137,762 86,656 Deferred tax liabilities, net 847 2,192 Long term income tax payable 29,861 27,890 Other liabilities 4,905 5,380 Total liabilities 173,375 122,118 Commitments and contingencies (Note 14) Stockholders' equity: Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, noneoutstanding — — Common shares, par value $0.001 per share, 250,000,000 shares authorized,88,600,860 and 88,065,859 shares issued and outstanding, respectively, atDecember 31, 2010 and 86,224,760 and 85,659,581 shares issued and outstanding,respectively, at December 31, 2009 88 85 Treasury stock, at cost, 535,001 and 565,179 shares, respectively (22,008) (25,260) Additional paid-in capital 277,293 266,472 Retained earnings 89,881 22,155 Accumulated other comprehensive income 30,852 24,168 Total stockholders' equity 376,106 287,620 Total liabilities and stockholders' equity $549,481 $409,738 The accompanying notes are an integral part of these consolidated financial statements.F-3Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)The accompanying notes are an integral part of these consolidated financial statements.F-4 Common Stock Treasury Stock AccumulatedOtherComprehensiveIncome AdditionalPaid inCapital DeferredCompensation RetainedEarnings Total StockHoldersEquity ComprehensiveIncome (Loss) ($ thousands) Shares Amount Shares Amount BALANCE—December 31, 2007 82,198 $83 524 $(25,022)$211,936 $(2,402)$249,309 $10,209 $444,113 Amortization of stock compensation(Note 9) — — — — 16,951 1,388 — — 18,339 Forfeitures — — — — (131) 131 — — — Exercises of stock options and issuanceof restricted stock awards (Note 9) 821 1 — — 3,281 637 — — 3,919 Net loss — — — — — — (185,076) — (185,076)$(185,076)Foreign currency translation — — — — — — — 5,868 5,868 5,868 Total comprehensive loss $(179,208) BALANCE—December 31, 2008 83,019 $84 524 $(25,022)$232,037 $(246)$64,233 $16,077 $287,163 Amortization of stock compensation(Note 9) — — 17,189 208 — — 17,397 Tender offer (Note 9) — — 16,197 — — — 16,197 Forfeitures (116) — — — (199) 38 — — (161) Exercises of stock options and issuanceof restricted stock awards (Note 9) 1,858 1 — — 1,248 — — — 1,249 Adjustment for prior period RSA grants 939 — — — — — — — — Repurchase of common stock for taxwithholding (41) — 41 (238) — — — — (238) Net loss — — — — (42,078) — (42,078)$(42,078)Foreign currency translation — — — — — 8,091 8,091 8,091 Total comprehensive loss $(33,987) BALANCE—December 31, 2009 85,659 $85 565 $(25,260)$266,472 $— $22,155 $24,168 $287,620 Amortization of stock compensation(Note 9) — — 7,594 — — 7,594 Forfeitures (454) — — — (288) — — (288) Exercises of stock options and issuanceof restricted stock awards (Note 9) 2,908 3 (77) 3,673 3,515 — — — 7,191 Repurchase of common stock for taxwithholding (47) — 47 (421) — — — — (421) Net income — — — — 67,726 — 67,726 $67,726 Foreign currency translation 9,048 9,048 9,048 Reclassification of cumulative foreignexchange translation adjustments tonet income (Note 1) — — — — — (2,364) (2,364) (2,364) Total comprehensive income $74,410 BALANCE—December 31, 2010 88,066 $88 535 $(22,008)$277,293 $— $89,881 $30,852 $376,106 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ thousands) 2010 2009 2008 Cash flows from operating activities: Net income (loss) $67,726 $(42,078)$(185,076) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 37,059 36,671 37,450 Unrealized loss (gain) on foreign exchange 1,334 (11,267) 21,570 Deferred income taxes (4,999) 5,399 (5,429) Goodwill impairment — — 23,837 Asset impairment 141 26,027 21,927 Inventory write-down charges — 2,568 76,258 Charitable contributions 840 7,424 1,844 Non-cash restructuring charges 196 2,196 — Bad debt expense 2,204 1,316 3,153 Share based compensation 7,109 15,237 18,976 Share based compensation from 2009 Tender Offer — 16,197 — Other non-cash items 942 (3,924) 4,833 Changes in operating assets and liabilities—net of effect of acquired businesses: Accounts receivable (13,165) (13,251) 111,318 Inventories (27,908) 44,828 16,395 Prepaid expenses and other assets 2,230 (13,914) (4,342) Accounts payable 12,689 (17,387) (60,168) Accrued expenses and other liabilities 20,344 (19,304) 11,553 Accrued restructuring (2,696) 1,208 2,398 Income taxes receivable 228 23,163 (23,634) Cash provided by operating activities 104,274 61,109 72,863 Cash flows from investing activities: Purchases of marketable securities (5,654) (1,502) — Sales of marketable securities 7,369 — — Cash paid for purchases of property and equipment (31,257) (20,054) (55,559) Proceeds from disposal of property and equipment 1,274 2,476 2,383 Cash paid for intangible assets (13,848) (6,973) (10,659) Restricted cash 38 322 (1,624) Acquisition of businesses, net of cash acquired — — (7,977) Cash used in investing activities (42,078) (25,731) (73,436) Cash flows from financing activities: Proceeds from note payable, net 83,100 293 76,024 Repayment of note payable and capital lease obligations (84,625) (23,078) (60,707) Debt issuance costs — (458) — Exercise of stock options 7,191 1,290 3,283 Repurchase of common stock for tax withholding (421) (238) — Cash provided by (used in) financing activities 5,245 (22,191) 18,600 Effect of exchange rate changes on cash 799 12,491 (2,697) Net increase in cash and cash equivalents 68,240 25,678 15,330 Cash and cash equivalents—beginning of year 77,343 51,665 36,335 Cash and cash equivalents—end of year $145,583 $77,343 $51,665 The accompanying notes are an integral part of these consolidated financial statements.F-5 Supplemental disclosure of cash flow information—cash paid during the year for: Interest $639 $1,491 $1,581 Income taxes $11,048 $12,392 $16,367 Supplemental disclosure of non-cash, investing, and financing activities: Assets acquired under capitalized leases $2,606 $1,760 — Accrued purchases of property and equipment $1,826 $2,826 $10,331 Accrued purchases of intangibles $3,786 $2,411 $2,265 Table of ContentsCROCS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization—Crocs, Inc. and its subsidiaries (collectively the "Company," "we," "our" or "us") are engaged in the design, development,manufacturing, marketing and distribution of consumer products, primarily casual and athletic shoes and shoe charms, manufactured from specialtyresins referred to as Croslite. Our wholly-owned subsidiaries include, among others, EXO Italia ("EXO"), which designs and develops EVA (EthyleneVinyl Acetate) based finished products, primarily for the footwear industry; Jibbitz, LLC ("Jibbitz"), a unique accessory brand with colorful snap-oncharms specifically suited for the Company's shoes; and Ocean Minded, LLC ("Ocean Minded"), which designs, manufactures, markets and distributeshigh quality leather and EVA based sandals primarily for the beach, adventure and action sports markets. Basis of Consolidation—The consolidated financial statements include the accounts of our wholly-owned and majority owned subsidiaries as wellas a variable interest entity ("VIE") for which we are the primary beneficiary after the elimination of intercompany accounts and transactions. Theprimary beneficiary of a VIE is the entity that absorbs the majority of the entity's expected losses, receives a majority of the VIE's expected residualreturns or both. See Note 10—Variable Interest Entities for further discussion. Noncontrolling Interests—With the exception of Crocs India Private Limited ("Crocs India") all of our subsidiaries are, in substance, wholly-owned. Effective January 1, 2010, we sold our interests in Crocs India. During the years ended December 31, 2009 and 2008, the non-controllinginterests in Crocs India were immaterial and were included in other (income) expenses on the consolidated statements of income and in other liabilitieson the consolidated balance sheets. Change in Accounting Principle—Effective January 1, 2010, we changed our inventory valuation method for all inventories from the first-in,first-out ("FIFO") cost method to the moving average cost method, which approximates FIFO. We believe the change to the moving average costmethod is preferable because it results in better alignment with the physical flow of inventory than the FIFO methodology; it is calculated by ourinventory information system which incorporates automated controls; and it is the method management uses when preparing budgets, reviewing actualand forecasted financial information and determining incentive management compensation. The moving average cost method results in substantially thesame results of operations in each reporting period. Financial statements for periods ending on or before December 31, 2009 have not been retroactivelyadjusted due to immateriality. The impact of the change for the year ended December 31, 2010 was also immaterial. Management Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United Statesof America ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management believes that theestimates, judgments and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts,sales returns, impairment assessments and charges, recoverability of assets (including deferred tax assets), uncertain tax positions, share-basedcompensation expense, the fair value of acquired intangibles, the assessment of lower of cost or market on inventory, useful lives assigned to long-livedassets, depreciation and provisions for contingencies are reasonable based on information available at the time they are made. Management also makesestimates in the assessments of potential losses in relation toF-6Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)threatened or pending legal and tax matters. See Note 16—Legal Proceedings. Actual results could materially differ from these estimates. For mattersnot related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss.If there is the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce theestimated loss if recovery is also deemed probable. Concentrations of Risk—We are exposed to concentrations of risks in the following categories: (1) cash and cash equivalents; (2) accountsreceivable; (3) manufacturing sources; and (4) suppliers of certain raw materials. Our cash and cash equivalents are maintained in several differentfinancial institutions in amounts that typically exceed U.S. federally insured limits or in financial institutions in international jurisdictions whereinsurance is not provided and restrictions may exist. We have not experienced any losses in such accounts and believe we are not exposed to significantcredit risk. We consider any concentration of credit risk related to accounts receivable to be mitigated by our credit policy, the insignificance ofoutstanding balances owed by each individual customer at any point in time and the geographic dispersion of our customers. We rely on a limited sourceof internal and external manufacturers. Establishing a replacement source could require significant additional time and expense. We source the elastomerresins that constitute the primary raw materials used in compounding Croslite, which we use to produce our footwear products, from two suppliers. Ifthe suppliers we rely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials intime to avoid interruption of our production cycle, if at all. We may also have to pay materially higher prices in the future for the elastomer resins or anysubstitute materials we use, which would increase our production costs and could have a materially adverse impact on our margins and results ofoperations. Fair Value—Fair value is the price that would be received from the sale of an asset or transfer of a liability in an orderly transaction betweenmarket participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value,we consider the principal or most advantageous market in which a hypothetical sale or transfer would take place and consider assumptions that marketparticipants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. The fair value hierarchy is made up of three levels of inputs that may be used to measure fair value: Level 1—observable inputs such as quotedprices for identical instruments in active markets; Level 2—observable inputs such as quoted prices for similar instruments in active markets, quotedprices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable inactive markets; and Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its ownassumptions. We categorize fair value measurements within the fair value hierarchy based upon the lowest level of the most significant inputs used todetermine such fair value measurement. Derivative financial instruments are required to be recorded at their fair value, on a recurring basis. The fair values of our derivative instruments aredetermined using a discounted cash flow valuation model. The significant inputs used in the model are readily available in public markets or can bederived from observable market transactions, and therefore, have been classified as Level 2. These inputs include the applicable exchange rates andforward rates, and discount rates based on the prevailing LIBOR deposit rates.F-7Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Our other financial instruments are not required to be carried at fair value on a recurring basis. The carrying value of these financial instruments,including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value due to their short maturities. Based onborrowing rates currently available to us, with similar terms, the carrying values of capital lease obligations and the line of credit approximate their fairvalues. Long-lived assets such as inventories, property, plant and equipment and intangible assets are also not required to be carried at fair value on arecurring basis. However, when determining impairment losses, fair values of property, plant and equipment, goodwill and intangibles must bedetermined. For such determination, we use either an income approach with inputs that are mainly unobservable, such as expected future cash flows, ora market approach using observable inputs such as replacement cost or third-party appraisals, as appropriate. Estimated future cash flows are based onmanagement's operating budgets and forecasts which take into consideration both observable and unobservable inputs including growth rates, pricing,new markets and other factors expected to affect the business, as well as management's forecasts for inventory, receivables, capital spending, and othercash needs. For a discussion of inventory estimated fair value see "Inventory Valuation" below. Cash and Cash Equivalents—Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three monthsor less at the date of purchase. We consider receivables from credit card companies to be cash equivalents, if expected to be received within five days.The carrying amounts reflected in the consolidated balance sheet for cash and cash equivalents approximate fair value due to the short maturities. Accounts Receivable—Accounts receivable represent amounts due from customers. Accounts receivable are recorded at invoiced amounts, net ofreserves and allowances, are not collateralized and do not bear interest. We use our best estimate to determine the required allowance for doubtfulaccounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting our customer base,significant one-time events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of acustomer's inability to meet its financial obligations. Inventory Valuation—Inventories are valued at the lower of cost or market. Inventory cost is determined using the moving average cost method.At least quarterly, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which webelieve that the products may need to be discounted below cost to sell within a reasonable period. We base inventory fair value on several subjectiveassumptions including estimated future demand and market conditions, as well as other observable factors such as current sell-through of our products,recent changes in demand for our product as well as shifting demand between the products we offer, global and regional economic conditions, historicalexperience selling through liquidation and price discounted channels and the amount of inventory on hand. If the estimated inventory fair value is lessthan its carrying value, the carrying value is adjusted to market value and the resulting impairment charge is recorded in cost of sales on the consolidatedstatements of operations. See Note 2—Inventories for further discussion. Property and Equipment—Depreciation of property, equipment, furniture and fixtures is computed using the straight-line method based onestimated useful lives ranging from two to five years. Leasehold improvements are amortized on the straight-line basis over their estimated economicuseful lives or theF-8Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)lease term, whichever is shorter. For long-lived assets denominated in a foreign currency, we translate the ending asset and accumulated depreciation atrate of exchange at the balance sheet date and record depreciation expense using the weighted average rate of exchange for the applicable period. Thedifference between the recorded depreciation expense and the change in accumulated depreciation is recorded as a component of accumulated othercomprehensive income in stockholders' equity on the consolidated balance sheets. Depreciation of manufacturing assets such as molds and tooling isincluded in cost of sales on the consolidated statements of operations. Depreciation related to corporate, non-product and non-manufacturing assets isincluded in selling, general and administrative expense on the consolidated statements of operations. Impairment of Long-Lived Assets—Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate thecarrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, asdefined below) include; (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used orin its physical condition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action orassessment by a regulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction,(v) its current period operating or cash flow losses combined with historical operating or cash flow losses or a forecast of its cash flows demonstratecontinuing losses associated with its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantlybefore the end of its previously estimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess therecoverability by determining if its carrying value exceeds the sum of its projected undiscounted cash flows expected to result from its use and eventualdisposition over its remaining economic life. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.Assets to be abandoned or from which no further benefit is expected are written down to zero at the time that the determination is made and the assetsare removed entirely from service. An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assetsand liabilities. Beginning in 2009, we determined that the lowest level of assets and liabilities for which identifiable cash flows are largely independentof the cash flows of other assets and liabilities is at the retail store level for assets involved in our retail business. Intangible Assets and Goodwill—Intangible assets that are determined to have finite lives are amortized over their useful lives on a straight-linebasis. Customer relationships are amortized on a straight-line basis or an accelerated basis. Indefinite-lived intangible assets, such as trade names, arenot amortized and are evaluated for impairment at least annually and when circumstances imply possible impairment. As of December 31, 2010 and2009, we had no indefinite lived intangible assets. For amortizable intangible assets denominated in a foreign currency, we translate the ending asset and accumulated amortization at rate of exchangeat the balance sheet date and record amortization expense using the weighted average rate of exchange for the applicable period. The difference betweenthe recorded amortization expense and the change in accumulated amortization is recorded as a component of accumulated other comprehensive incomein stockholders' equity. Amortization of manufacturing intangible assets is included in cost of sales on the consolidated statements of operations.Amortization related to corporate, non-product and non-manufacturing assets such as ourF-9Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)global information systems is included in selling, general and administrative expense on the consolidated statements of operations. The following table sets forth our definite lived intangible assets and the periods over which they are amortized. Capitalized Software—We capitalize certain internal and external software acquisition and development costs that benefit future years, includingthe costs of employees and contractors devoting time to the software development projects and external direct costs for materials and services. Initialcosts associated with internally-developed-and-used software are expensed until it is determined that the project has reached the application developmentstage. Once in its development stage, subsequent additions, modifications or upgrades to an internal-use software project are capitalized to the extent thatthey allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in whichthey are incurred. Capitalized software primarily consists of our enterprise resource system software, warehouse management software and point of salesoftware. At least annually, we consider the potential impairment of capitalized software by assessing the substantive service potential of the software,changes, if any, in the extent or manner in which the software is used or is expected to be used, and the actual cost of software development ormodification compared to expected cost. See Note 4—Intangibles Assets for further discussion. Goodwill—Goodwill represents the excess purchase price paid over the fair value of assets acquired and liabilities assumed in acquisitions. Weassess goodwill for impairment annually on the last day of the fourth quarter, or more frequently if events and circumstances indicate impairment mayhave occurred. If the carrying value of goodwill, including intangibles with indefinite lives, exceeds its implied fair value, we record an impairment lossequal to the difference. As of December 31, 2009 and 2010, we had no goodwill. Impairment of Intangible Assets—Intangible assets with indefinite lives and goodwill are evaluated for impairment when events or changes incircumstances indicate that the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definitelives, such as customer relationships, core technology, capitalized software, patents and non-compete agreements are amortized over their useful livesand are evaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable. Recoverability is based onthe estimated future undiscounted cash flows of an asset. If the asset is not supported on an undiscounted cash flow basis, the amount of impairment ismeasured as the difference between its carrying value and its fair value. Earnings per Share—Basic and diluted earnings (loss) per common share ("EPS") is presented using the two-class method, which is an earningsallocation formula that determines earnings per share for common stock and any participating securities according to dividend rights and participationrightsF-10Intangible Asset Class Weighted Average Amortization PeriodPatents 10 yearsCustomer Relationships Estimated customer lifeCore Technology 5 yearsNon-competition Agreement Contractual termCapitalized Software Shorter of 7 years or useful lifeTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)in undistributed earnings. Under the two-class method, EPS is computed by dividing the sum of distributed and undistributed earnings (loss)attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. A participating securityis an unvested share-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per sharepursuant to the two-class method. Shares of the Company's non-vested restricted stock awards and units are considered participating securities. DilutedEPS reflects the potential dilution from securities that could share in the earnings of the Company. Anti-dilutive securities are excluded from dilutedEPS. See Note 13—Earnings per Share for further discussion. Recognition of Revenues—Revenues are recognized when the customer takes title and assumes risk of loss, collection of related receivables isprobable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title passes on shipment or on receipt by thecustomer depending on the country of the sale and the agreement with the customer. Allowances for estimated returns and discounts are recognizedwhen the related revenue is recorded. Shipping and Handling Costs and Fees—Shipping and handling costs are expensed as incurred and included in cost of sales. Shipping andhandling fees billed to customers are included in revenues. Share-Based Compensation—We have share-based compensation plans under which certain officers, employees and members of the Board ofDirectors are participants and may be granted stock options, restricted stock and stock performance awards. Awards granted under these plans are fairvalued and amortized, net of estimated forfeitures over the vesting period using the straight-line method. The fair value of stock options is calculated byusing the Black-Scholes option pricing formula that requires estimates for expected volatility, expected dividends, the risk-free interest rate and the termof the option. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See additional information related to share-based compensation in Note 9—Equity. Share-based compensation expense associated with our manufacturing and retail employees is included in costof sales in the consolidated statements of operations. Share-based compensation expense associated with selling, marketing and administrativeemployees is included selling, general and administrative expense in the consolidated statements of operations. The classification of any excess tax benefits realized on the exercise of stock options or issuance of restricted stock unit awards in excess of thatwhich is associated with the expense recognized are presented as a financing cash inflow in the consolidated statement of cash flows. Advertising—Advertising costs are expensed as incurred and production costs are generally expensed when the advertising is run. Totaladvertising, marketing and promotional costs reflected in selling, general, and administrative expenses on the consolidated statement of operations were$44.1 million, $28.2 million and $56.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010 and2009, we had $2.2 million and $0.7 million in prepaid advertising costs. Research and Development—Research and development costs are expensed as incurred. Research and development expenses amounted to$7.8 million, $7.7 million, and $6.4 million for the years endedF-11Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)December 31, 2010, 2009, and 2008, respectively, and are included in selling, general, and administrative expenses in the consolidated statement ofoperations. Foreign Currency Translation and Foreign Currency Transactions—Our functional currency is the U.S. dollar. Assets and liabilities offoreign operations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translatedat the weighted average rate of exchange during the applicable period. Adjustments resulting from translating foreign functional currency financialstatements into U.S. dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income instockholders' equity. Gains and losses generated by transactions denominated in foreign currencies are reflected in the consolidated statement of operations in the periodin which they occur and are primarily associated with payables and receivables arising from intercompany transactions. For the year endedDecember 31, 2010, we recognized realized gains and unrealized losses on foreign currency transactions of $4.2 million and $1.3 million, respectively.Included in the 2010 realized gains on foreign currency transactions was $2.4 million of realized gains recognized on payments of intercompanybalances denominated in foreign currencies for which collection had not been planned or anticipated previously. For the year ended December 31, 2009,we recognized realized losses and unrealized gains on foreign currency transactions of $10.6 million and $11.3 million, respectively. For the year endedDecember 31, 2008, we recognized realized losses and unrealized losses on foreign currency transactions of $3.8 million and $21.6 million,respectively. Derivative Foreign Currency Contracts—We are directly and indirectly affected by fluctuations in foreign currency rates which may adverselyimpact our financial performance. To mitigate the potential impact of foreign currency exchange rate risk, we may employ derivative financialinstruments including, forward contracts and option contracts. Forward contracts are agreements to buy or sell a quantity of a currency at apredetermined future date and at a predetermined rate. An option contract is an agreement that conveys the purchaser the right, but not the obligation, tobuy or sell a quantity of a currency at a predetermined rate during a period or at a time in the future. These derivative financial instruments are viewed asrisk management tools and are not used for trading or speculative purposes. We recognize derivative financial instruments as either assets or liabilities inthe consolidated balance sheets and measure those instruments at fair value. Changes in the fair value of derivatives not designated or effective ashedges are recorded in other expense (income), net in the consolidated statements of operations. We had no derivative instruments that qualified forhedge accounting during any of the periods presented. See Note 7—Fair Value Measurements and Financial Instruments for further discussion. Income Taxes—We account for income taxes using the asset and liability method which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets andliabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-stepapproach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income taxpositions. We recognize interest and penalties related to income tax matters in income tax expense in the consolidated statement of operations. SeeNote 12—Income Taxes for further discussion.F-12Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Taxes Assessed by Governmental Authorities—Taxes assessed by governmental authorities that are directly imposed on a revenue transaction,including value added tax, are recorded on a net basis and are therefore excluded from sales. Recent Accounting Pronouncements—In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting StandardsUpdate ("ASU") 2010-06, Improving Disclosures About Fair Value Measurement, which amends the disclosure requirements related to recurring andnon-recurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fairvalue, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fairvalue measurement hierarchy. We adopted this guidance at the beginning of 2010 with the exception of the disclosure requirements relating topurchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective beginning January 1, 2011. As this guidance onlyrequires expanded disclosures, its adoption did not and will not impact the consolidated financial statements. See Note 7—Fair Value Measurementsand Financial Instruments. In December 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.The amendments in ASU 2009-17 replace the quantitative-based risks-and-rewards calculation for determining which reporting entity, if any, has acontrolling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has (1) the power to direct theactivities of a variable interest entity that most significantly affect the entity's economic performance and (2) the obligation to absorb losses of, or theright to receive benefits from, the entity. The ASU also requires additional disclosures about a reporting entity's involvement with variable interestentities and about any significant changes in risk exposure as a result of that involvement. We adopted the guidance at the beginning of 2010 with nomaterial impact to the consolidated financial statements. See Note 10—Variable Interest Entities.2. INVENTORIES Inventories by major classification as of December 31, 2010 and 2009 were as follows: During the year ended December 31, 2008, we recorded inventory write-downs of $76.3 million with an additional $4.2 million in charges relatedto losses on future purchase commitments for inventory with a market value lower than cost, of which $2.1 million was included as accrued expenses.These write-downs were to a level considered realizable, however, we were able to sell this product at prices substantially higher than what waspreviously estimated. During the year ended December 31, 2009, sales of this impaired product resulted in $58.3 million of revenue for which theassociated gross profit was $49.8 million. During the years ended December 31, 2010 and 2009, we did not recordF-13 December 31, ($ thousands) 2010 2009 Finished goods $111,134 $88,775 Work-in-progress 248 220 Raw materials 9,773 4,334 $121,155 $93,329 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2. INVENTORIES (Continued)impairment charges related to inventory. No losses on future purchase commitments were recorded during the years ended December 31, 2010 and2009. During the years ended December 31, 2010 and 2009, we donated certain inventory items to charitable organizations consisting primarily of end oflife units, some of which were partially or fully impaired. The contributions made were expensed at their fair value of $0.8 million and $7.5 million,respectively. We recognized a gain of $0.2 million and $3.2 million and a net reduction of inventory of $0.6 million and $4.3 million, for the yearsending December 31, 2010 and 2009, respectively, as the fair value of the inventory contributed exceeded its carrying amount.3. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2010 and 2009 included the following: During the years ended December 31, 2010, 2009 and 2008, we recorded $29.5 million, $29.7 million, and $30.7 million, respectively, indepreciation expense of which $14.7 million, $15.6 million, and $18.3 million, respectively, was recorded in cost of sales, with the remaining amountsrecorded in selling, general and administrative expenses in the consolidated statements of operations. During the years ended December 31, 2010, 2009 and 2008, we recorded $0.1 million, $18.5 million and $20.9 million, respectively, inimpairment charges on molds related primarily to: styles that we either no longer intended to manufacture or styles that we had more molds on hand thannecessary to meet projected demand; and distribution facility assets related to equipment and fixtures of warehouse and distribution centers that wereclosed during the period. Management evaluated the production capacity at company-operated facilities compared with demand projections and capacityrequirements and made the decision to abandon certain tooling and equipment that represented excess capacity.F-14 December 31, ($ thousands) 2010 2009 Machinery and equipment $70,962 $63,889 Leasehold improvements 49,519 34,759 Furniture and fixtures and other 16,587 14,099 Construction-in-progress 7,902 8,422 Subtotal(1) 144,970 121,169 Less accumulated depreciation and amortization(2) (74,956) (50,085) Total property and equipment $70,014 $71,084 (1)Includes $0.1 million of certain equipment held under capital leases and classified as equipment as ofDecember 31, 2010 and 2009. (2)Includes an immaterial amount of accumulated depreciation related to certain equipment held under capital leases,as of December 31 2010 and 2009, respectively, which are depreciated using the straight-line method over thelease term.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. INTANGIBLE ASSETSIntangible Assets The following table summarizes intangible assets at December 31, 2010 and 2009. During the years ended December 31, 2010, 2009 and 2008, amortization expense recorded for intangible assets with finite lives was $7.6 million,$7.0 million and $6.6 million, respectively, of which $2.3 million, $1.6 million and $0.9 million was recorded in cost of sales, respectively. Theremaining amounts were recorded in selling, general and administrative expenses. Estimated future annual amortization of intangible assets is as follows(in thousands): During the year ended December 31, 2009, we recorded $7.6 million in impairment charges related to the write-off of certain intangible assetsassociated the discontinued Tagger brand and certain capitalized software no longer intended for use. During the year ended December 31, 2008, werecorded $1.1 million in impairment charges related to the write-off of certain intangible assets the impaired Jibbitz trade name and patents no longerintended for use. No impairment charges were recorded in 2010. 2010 2009 ($ thousands) GrossCarryingAmount AccumulatedAmortization NetCarryingAmount GrossCarryingAmount AccumulatedAmortization NetCarryingAmount Intangibleassets: Capitalizedsoftware $54,489(1)$13,674(2)$40,815 $38,741(1)$8,185(2)$30,556 Customerrelationships 6,361 5,485 876 5,928 4,912 1,016 Patents,copyrights,andtrademarks 5,703 1,933 3,770 5,673 1,396 4,277 Coretechnology 4,843 4,843 — 4,614 4,614 — Other 636 636 — 779 644 135 Total intangibleassets $72,032 $26,571 $45,461 $55,735 $19,751 $35,984 (1)Includes $4.3 million and $1.7 million of software held under a capital lease classified as capitalized software as of December 31,2010 and 2009, respectively. (2)Includes $0.5 million and $0.2 million of accumulated amortization of software held under a capital lease which is amortizedusing the straight-line method over the useful life as of December 31, 2010 and 2009, respectively.Fiscal years ending December 31, Amortization 2011 $9,711 2012 9,365 2013 8,768 2014 7,240 2015 4,726 Thereafter 5,651 Total $45,461 intended for use. No impairment charges were recorded in 2010.F-15Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. INTANGIBLE ASSETS (Continued)Goodwill During the year ended December 31, 2008, we recognized $23.8 million in impairment charges primarily related to the acquisitions of OceanMinded and Bite in 2007, Jibbitz and Fury in 2006, and Crocs Canada in 2004. The goodwill balance of $1.0 million related to Fury was written offprior to its liquidation in June 2008. The remaining goodwill balance was assessed for impairment due to the substantial decline in our stock priceduring the second half of 2008, which represented a triggering event for potential impairment. Consequently, as of December 31, 2008, we determinedthe balance was fully impaired. We had no goodwill as of December 31, 2010 and 2009.5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other liabilities as of December 31, 2010 and 2009 include the following:Asset Retirement Obligations We record a liability equal to the fair value of the estimated future cost to retire an asset, if the liability's fair value can be reasonably estimated. Ourasset retirement obligation ("ARO") liabilities are primarily associated with the disposal of property and equipment which we are contractually obligatedto remove at the end of certain retail and office leases in order to restore the facilities back original condition as specified in the related lease agreements.We estimate the fair value of these liabilities based on current store closing costs and discount the costs back as if they were to be performed at theinception of the lease. At the inception of such leases, we recorded the ARO as a liability and also recorded a related asset in an amount equal to theestimated fair value of the liability. The capitalized asset is then depreciated on a straight-line basis over the useful life of the asset. Upon retirement ofthe asset, any difference between the actual retirement costs incurred and the previously recorded estimated ARO liability is recognized as a gain or lossin the consolidated statements of operations. Our ARO liability as of December 31, 2010 and 2009 was $1.6 million and $1.1 million, respectively.6. RESTRUCTURING ACTIVITIES In response to declining revenues during the years ended December 31, 2009 and 2008, we implemented a turnaround strategy aimed at aligningproduction and distribution capacities with revised demand projections, reducing costs and streamlining processes. As a result, we consolidated ourglobal manufacturing facilities and distribution centers, reduced warehouse and office space and cut global workforce. Specifically, during the yearended December 31, 2008, we closed our Canadian and Brazilian manufacturing facilities and consolidated our Canadian distribution activities intoexistingF-16 December 31, ($ thousands) 2010 2009 Accrued compensation and benefits $25,666 $21,007 Fulfillment and freight and duties 5,396 10,765 Professional services 4,704 4,329 Sales/use and VAT tax payable 6,061 4,330 Other 17,222 13,149 $59,049 $53,580 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. RESTRUCTURING ACTIVITIES (Continued)North American operations. During the year ended December 31, 2009, we pursued further restructuring efforts and made certain organizationalchanges in order to better align costs with revenues which included the closure of various warehouses and office buildings as well as the settlement andtermination of contracts prior to term. As of December 31, 2010, the cumulative amounts related to one-time employee termination benefits, operatinglease exit costs and other associated costs were $10.6 million, $9.1 million and $7.4 million, respectively. As of December 31, 2010, we do not expectto incur additional related costs in the future in connection with these activities. During the year ended December 31, 2010, we recorded restructuring charges of $3.8 million, of which $1.3 million is reflected in cost of sales.These charges are primarily related to a change in the estimate in lease termination costs associated with the closure of distribution facilities in NorthAmerica and Europe, and $2.0 million of severance pay and additional share-based compensation related to the departure of a former officer. See Note 9—Equity for additional information on the separation agreement. See Note 15—Operating Segments and Geographic Information for restructuringcharges incurred by segment. Restructuring charges are included in the following line items: cost of sales and restructuring charges on the consolidated statements of operations.The following table summarizes the changes in the restructuring accruals during the years ended December 31, 2010 and 2009.7. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTSRecurring Fair Value Measurements The following table summarizes the financial instruments required to be measured at fair value on a recurring basis as of December 31, 2010.Other financial instruments including debt are not required to be carried at fair value on a recurring basis. The carrying value of these financialinstruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their shortmaturities. Based on borrowing rates currently available to us, with similar terms, the carrying values of capital lease obligations and the line of creditapproximate their fair values.F-17($ thousands) As ofDecember 31,2008 Additions CashPayments ForeignCurrencyTranslationand Other As ofDecember 31,2009 Additions CashPayments ForeignCurrencyTranslationand Other As ofDecember31,2010 Terminationbenefits $676 $1,711 $(2,111)$240 $516 $2,009 $(2,460)$(65)$— Operatinglease exitcosts 1,488 5,586 (4,089) (752) 2,233 1,634 (3,565) 137 439 Otherrestructuringcosts(1) 234 5,306 (5,192) 39 387 — (391) 4 — $2,398 $12,603 $(11,392)$(473)$3,136 $3,643 $(6,416)$76 $439 (1)Includes costs associated with the settlement and termination of contracts prior to term.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (Continued)Non-Recurring Fair Value Measurements The majority of our non-financial instruments, which include inventories, property, plant and equipment and intangible assets are not required to becarried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated forimpairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of cost or its fair value. See Note 1—Summary of Significant Accounting Policies for an explanation of our fair value determinations.Derivative Financial Instruments The following tables present the amounts affecting the consolidated statements of operations for the year ended December 31, 2010. We did notemploy the use of derivative instruments during the years ended December 31, 2009 and 2008. The following table summarizes the notional amounts of the outstanding derivatives at December 31, 2010 (in thousands). We had no outstandingderivatives at December 31, 2009. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by theparties and, therefore, are not a direct measure of our exposure to the foreign currency exchange risks. Fair Value as ofDecember 31, 2010 ($ thousands) Level 1 Level 2 Level 3 Balance Sheet ClassificationDerivativeassets:(1) Foreign currencycontracts $— $5 $— Prepaid expenses and othercurrent assetsDerivativeliabilities(1): Foreign currencycontracts $— $134 $— Accrued expenses and othercurrent liabilities(1)We had no outstanding derivatives at December 31, 2009.($ thousands) Year endedDecember 31, 2010 Location of Loss (Gain) RecognizedIn Income on DerivativesDerivatives not designated as hedging instruments: Foreign currency exchange forwards $587 Other income, netCurrency Purchased Currency Sold Maturity Date Contract TypeUSD2,000 JPY162,960 January 2011 Foreign currency exchangeforwardUSD2,000 JPY161,940 February 2011 Foreign currency exchangeforwardUSD2,000 JPY161,920 March 2011 Foreign currency exchangeforwardUSD1,752 EUR1,300 February 2011 Foreign currency exchangeforwardUSD1,751 EUR1,300 March 2011 Foreign currency exchangeforwardUSD952 GBP600 February 2011 Foreign currency exchangeforwardUSD952 GBP600 March 2011 Foreign currency exchangeforwardForeign currency exchangeF-18USD481 GBP300 January 2011 Foreign currency exchangeforwardUSD418 EUR300 January 2011 Foreign currency exchangeforwardTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS Notes payable and capital lease obligations consist of the following: Minimum future annual rental commitments under capital leases for each of the five succeeding years as of December 31, 2010, are as follows (inthousands):Revolving Credit Facility On September 30, 2010, we amended our Revolving Credit and Security Agreement (the "Credit Agreement") with PNC Bank, N.A. ("PNC"),originally dated September 25, 2009. Based on the amended terms, the Credit Agreement provides for an asset-backed revolving credit facility of up to$30.0 million in total, which includes a $20.0 million sublimit for borrowings against eligible inventory, a $2.0 million sublimit for borrowings againsteligible inventory in-transit, and a $10.0 million sublimit for letters of credit, and matures on September 24, 2014. Total borrowings available under therevolving credit facility at any given time are subject to customary reserves and reductions to the extent our asset borrowing base changes. Borrowingsunder the Credit Agreement are secured by our total assets, including all receivables, equipment, general intangibles, inventory, investment property,subsidiary stock and leasehold interests. The Credit Agreement requires us to prepay borrowings under the Credit Agreement in the event of certaindispositions of property. With respect to domestic rate loans, principal amounts outstanding bear interest at 1.5% plus the greater of either (i) PNC's published referencerate, (ii) the Federal Funds Open Rate (as defined in the Credit Agreement) in effect on such day plus 0.5% or, (iii) the sum of the Daily LIBOR Rate(as defined in the Credit Agreement) in effect on such day plus 1.0%. Eurodollar denominated principal amounts outstanding bear interest at 3.0% plusthe Eurodollar Rate (as defined in the Credit Agreement). The Credit Agreement requires monthly interest payments with respect to domestic rate loansand at the end of each interest period with respect to Eurodollar rate loans. The CreditF-19($ thousands) December 31,2010 December 31,2009 Revolving credit facility $3 $— Capital lease obligations (for certain capitalized software) bearing interest rates rangingfrom 8.7% to 12.4% and maturities through 2013 2,488 640 Capital lease obligations (for certain equipment) bearing interest at 8.8% and maturitiesthrough 2014 155 912 Total notes payable and capital lease obligations $2,646 $1,552 Fiscal years ending December 31, 2011 $1,923 2012 658 2013 55 2014 7 2015 — Thereafter — Total minimum lease payments $2,643 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Continued)Agreement contains certain customary restrictive and financial covenants. We were in compliance with all financial covenants as of December 31, 2010. As of December 31, 2010 and 2009, we had issued and outstanding letters of credit of $1.0 million and $1.1 million, respectively, which werereserved against the borrowing base under the Credit Agreement. During the year ended December 31, 2009, we capitalized $0.5 million in fees andthird-party costs which were incurred in connection with the Credit Agreement, as deferred financing costs. During the year ended December 31, 2010,no deferred financing costs were recorded.9. EQUITYEquity Incentive Plans On August 15, 2005, we adopted the 2005 Equity Incentive Plan (the "2005 Plan"), which permitted the issuance of up to 14.0 million commonshares in connection with the grant of non-qualified stock options, incentive stock options, and restricted stock to eligible employees, consultants andmembers of our Board of Directors. As of December 31, 2010 and 2009, 2.0 million and 2.7 million stock options, respectively, were outstandingunder the 2005 Plan. No shares are available for future issuance under the 2005 Plan. On July 19, 2007, we adopted the 2007 Equity Incentive Plan (the "2007 Plan") which permits the issuance of up to 9.0 million shares of ourcommon stock (subject to adjustment for future stock splits, stock dividends and similar changes in our capitalization) in connection with the grant ofnon-qualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, common stockor any other share-based award to eligible employees, consultants and members of our Board of Directors. As of December 31, 2010 and 2009,4.1 million and 5.9 million stock options, restricted stock awards and restricted stock units were outstanding under the 2007 Plan, respectively. As ofDecember 31, 2010, 1.7 million shares were available for future issuance under the 2007 Plan. Stock options under both the 2005 Plan and the 2007 Plan generally vest ratably over four years with the first year vesting on a "cliff" basisfollowed by monthly vesting for the remaining three years. Restricted stock awards generally vest annually on a straight-line basis over three or fouryears depending on the terms of the award agreement.2009 Tender Offer Due to declines in the market price of our common stock, the exercise prices of a substantial number of outstanding stock options held by ouremployees far exceeded the market price of our common stock as of April 2, 2009. This decline in our common stock price substantially eliminated theincentive and retention value of the options previously granted to our employees. Consequently, on April 2, 2009, we offered to purchase stock optionswith exercise prices equal to or greater than $10.50 per share for cash from certain eligible employees (the "2009 Tender Offer") in order to restore theincentive value of our long-term performance award programs. Individuals eligible to participate in the 2009 Tender Offer were those employees,including officers and non-employee directors, who continued employment through the date of the offer's expiration, April 30, 2009. Participation in the2009 Tender Offer was voluntary. In connection with the 2009 Tender Offer, we made an aggregate cash payment of $0.1 million to repurchase the2.3 million options tendered and recorded a charge of $16.3 millionF-20Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)related to previously unrecognized share-based compensation expense for the tendered options. Of this $16.3 million charge, $13.3 million wasrecorded to selling, general and administrative expenses and $3.0 million was recorded to cost of sales. As a result of the 2009 Tender Offer, the pool ofawards available for future grant under the 2007 Plan increased by 0.8 million shares. Tendered stock options that were originally granted from the2005 Plan are not available for future grant.Stock Option Activity The following table summarizes stock option transactions for the year ended December 31, 2010. During the years ended December 31, 2010, 2009 and 2008, options issued were valued using the Black-Scholes option pricing model using thefollowing assumptions. The weighted average fair value of options granted during the years ended December 31, 2010, 2009 and 2008 was approximately $7.10, $2.01,and $4.90, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was$21.0 million, $1.0 million, and $9.4 million, respectively. During the year ended December 31, 2010, we received $7.2 million in cash with no incometax benefit due to our domestic tax loss position (see Note 12—Income Taxes). The total grant date fair value of stock options vested during the yearsended December 31, 2010, 2009 and 2008 was $5.4 million, $13.0 million, and $22.5 million, respectively. As of December 31, 2010, we had $7.1 million of total unrecognized share-based compensation expense related to unvested options, net ofexpected forfeitures, which is expected to be amortized over the weighted average period of 2.4 years.F-21 Shares WeightedAverageExercisePrice WeightedAverageRemainingContractualLife(Years) AggregateIntrinsicValue(in thousands) Outstanding at December 31, 2009 7,755,254 $7.67 7.48 15,290 Granted 342,250 12.68 Exercised (2,133,806) 3.37 Forfeited or expired (956,361) 11.56 Outstanding at December 31, 2010 5,007,337 $9.10 6.36 $47,009 Exercisable at December 31, 2010 2,887,500 $10.94 4.91 $23,595 Vested and expected to vest at December 31, 2010 4,388,595 $9.44 6.06 $40,437 Year Ended December 31, 2010 2009 2008 Expected volatility 60% 50 - 60% 50%Dividend yield — — — Risk-free interest rate 1.64% - 2.27% 1.44% - 2.75% 2.81%Expected life (in years) 5.66 - 6.49 4.59 - 6.86 4.59 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)Restricted Stock Shares and Restricted Stock Units During 2010, our Board of Directors approved grants of restricted stock awards and units to certain employees as part of a performance incentiveplan. Half of such grants vest ratably on each of the first four anniversaries of the grant date. The remaining half vest on a cliff basis on the fourthanniversary of the grant date, provided that certain corporate performance metrics are achieved. During the year ended December 31, 2010, 0.7 millionrestricted stock awards and units were granted under this program. The following table summarizes restricted stock award and unit activity during the years ended December 31, 2010, 2009, and 2008. The total grant date fair value of restricted stock vested during the years ended December 31, 2010, 2009 and 2008 was $2.7 million, $2.3 million,and $0.1 million, respectively. At December 31, 2010, we had $7.2 million of total unrecognized share-based compensation expense related to non-vested restricted stock awards, net of expected forfeitures. The non-vested restricted stock awards are expected to be amortized over the weightedaverage period of 2.4 years. At December 31, 2010, we had $1.4 million of total unrecognized share-based compensation expense related to non-vestedrestricted stock units, net of expected forfeitures. The non-vested restricted stock awards are expected to be amortized over the weighted average periodof 3.5 years.Share-Based Compensation Total pre-tax share-based compensation expense recognized was $7.3 million for the year ended December 31, 2010 of which $0.2 million ofaccelerated vesting charges related to the separation agreement of a former officer is included in restructuring charges in the consolidated statements ofF-22 Restricted Stock Awards Restricted Stock Units Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Nonvested at December 31, 2007 87,558 $2.96 — — Granted 1,062,454 4.11 — — Vested (177,012) 0.51 — — Forfeited (34,000) 10.77 — — Nonvested at December 31, 2008 939,000 3.87 — — Granted 1,282,110 2.43 — — Vested (783,202) 2.88 — — Forfeited (115,668) 4.08 — — Nonvested at December 31, 2009 1,322,240 3.04 — — Granted 637,557 12.10 116,400 $12.99 Vested (688,049) 3.93 — — Forfeited (318,325) 2.77 — — Nonvested at December 31, 2010 953,423 $8.54 116,400 $12.99 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)operations. No associated tax benefits were recognized in the year ended December 31, 2010, due to our domestic loss position (see Note 12—IncomeTaxes). Total pre-tax share-based compensation expense related to non-vested options, restricted stock awards and restricted stock units, was $33.6 millionfor the year ended December 31, 2009 which included the following non-routine items.•We incurred $16.3 million in charges related to the 2009 Tender Offer. •We recorded a $3.9 million adjustment related to an error in the calculation of share-based compensation expense which was identifiedafter our third-party equity accounting software provider notified us that it made a change to how its software program calculates share-based compensation expense. Specifically, the prior version of this software calculated share-based compensation expense by incorrectlycontinuing to apply a weighted average forfeiture rate to the vested portion of a stock option award until the final vesting date of suchaward rather than reflecting actual forfeitures as vested, resulting in an understatement of share-based compensation expense in certainperiods prior to the award's final vesting. Because our stock option awards generally vest on a monthly basis after the first anniversarydate of the award, our share-based compensation expense was understated in certain periods. This error changed the timing of share-based compensation expense recognition, but did not change the total share-based compensation expense. As share-based compensationexpense is a non-cash item, this error did not impact net cash provided by operations in any period. This error resulted in anunderstatement of approximately $4.5 million in share-based compensation expense, with a corresponding understatement of additionalpaid in capital, as of December 31, 2008 which was corrected in 2009. We do not believe that either the understatement of share-basedcompensation expense in 2008 or the effect of the related correction in 2009 were material to the consolidated financial statements. •We recorded $2.0 million of accelerated vesting charges and $0.2 million of accelerated amortization of deferred compensation related tothe separation agreements with certain former executives which were included in restructuring charges in the consolidated statements ofoperations. Total pre-tax share-based compensation expense recognized was $19.0 million for the year ended December 31, 2008. Due to our domestic taxloss positions during the years ended December 31, 2009 and 2008, we did not recognize associated tax benefits. During the years ended December 31,2010, 2009 and 2008, we capitalized $0.1 million, $0.1 million and $49,000, respectively into intangibles, as capitalized software costs.Separation Agreements On March 31, 2010, we entered into a separation agreement with a former officer pursuant to which the vesting of 0.1 million stock options and0.1 million shares of restricted stock were accelerated as of March 31, 2010. During the year ended December 31, 2010, we recorded $0.2 millionamount to restructuring charges related to these vesting accelerations. Also in connection with this separation agreement, 0.2 million stock options and0.2 million shares of restricted stock were forfeited. During the year ended December 31, 2009, we entered into two separation agreements with certain former officers. Pursuant to these agreements,the vesting of 0.3 million stock options andF-23Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)0.1 million restricted stock awards were accelerated during the year ended December 31, 2009 of which 0.1 million stock options vested during 2010.We recorded restructuring charge of $2.0 million related to such vesting accelerations as well as $0.2 million in accelerated amortization of deferredcompensation in 2009. Also in connection with these separation agreements, 0.2 million stock options were forfeited.10. VARIABLE INTEREST ENTITIES In 2007, we established a relationship with Shanghai Shengyiguan Trade, Ltd Co ("ST") for the purpose of serving as a distributor of our productsin the People's Republic of China. We have determined that ST is a variable interest entity for which we are the primary beneficiary. We determined thatwe are the primary beneficiary of ST by virtue of our variable interest in the equity of ST and because we currently control all business activities andabsorb substantially all of the expected residual returns and substantially all of the expected losses of ST. All voting rights have been assigned to us andthere is a transfer agreement under which all of the equity, assets, and liabilities of ST are to be transferred to us at our sole discretion, subject to certainconditions. As of December 31, 2010 and 2009, the consolidated financial statements included $7.3 million and $6.4 million in total assets of ST respectively,which primarily consisted of cash, inventory and receivables. These amounts were partially offset by $0.2 million and $0.3 million in liabilities as ofDecember 31, 2010 and 2009, respectively, which primarily consisted of accounts payable and accrued expenses, excluding liabilities related to thesupport provided by us. ST's cash assets are restricted to the extent that the monetary laws of the People's Republic of China limit our ability to utilizeST's cash.11. ALLOWANCES The changes in the allowance for doubtful accounts and reserve for sales returns and allowances for the years ended December 31, 2010, 2009 and2008, are as follows:F-24($ thousands) Balance atBeginning ofYear Charged tocosts andexpenses ReversalsandWrite-offs Balance atEnd ofYear Year ended December 31, 2008: Allowance for doubtful accounts $3,795 $3,091 $(1,624)$5,262 Reserve for sales returns and allowances 5,991 52,597 (39,752) 18,836 Year ended December 31, 2009: Allowance for doubtful accounts 5,262 1,262 (2,551) 3,973 Reserve for sales returns and allowances 18,836 8,368 (21,338) 5,866 Year ended December 31, 2010: Allowance for doubtful accounts 3,973 2,204 (1,535) 4,642 Reserve for sales returns and allowances $5,866 $4,971 $(5,230)$5,607 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES The following table sets forth income (loss) before taxes and the expense (benefit) for income taxes for the years ended December 31, 2010, 2009and 2008. The following table sets forth income (loss) reconciliations of the statutory federal income tax rate to our actual rates based on income or lossbefore income taxes as of December 31, 2010, 2009 and 2008.F-25 December 31, ($ thousands) 2010 2009 2008 Income (loss) before taxes: U.S. $(14,835)$(63,961)$(124,502) Foreign 95,627 15,340 (65,008) Total income (loss) before taxes 80,792 $(48,621)$(189,510) Income tax expense (benefit): Current income taxes U.S. federal 47 $(5,452)$(9,162) U.S. state 95 — 206 Foreign 17,923 (6,490) 9,951 Total current income taxes 18,065 (11,942) 995 Deferred income taxes: U.S. federal — (1,330) 7,276 U.S. state — — 723 Foreign (4,999) 6,729 (13,428) Total deferred income taxes (4,999) 5,399 (5,429) Total income tax expense (benefit) $13,066 $(6,543)$(4,434) December 31, ($ thousands) 2010 2009 2008 Consolidated income before taxes 35.0% 35.0% 35.0%State income taxes net of federal benefit (0.3) 9.0 1.4 Foreign tax rate differential (22.2) (12.0) (11.4)Permanent items 12.5 (3.8) 1.7 Permanent portion of equity compensation 1.6 (13.6) — Charitable donations of inventory (0.1) 11.1 0.8 Change in valuation allowance (34.2) (36.5) (26.1)Unremitted foreign earnings of subsidiary 21.7 — — Benefit of international restructuring — 28.7 — Other 2.2 (4.5) 0.9 16.2% 13.4% 2.3% Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) The following table sets forth deferred income tax assets and liabilities as of December 31, 2010 and 2009. We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries thatare essentially permanent in duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations.Generally, the earnings of our foreign subsidiaries become subject to U.S. taxation upon the remittance of dividends and under certain othercircumstances. Exceptions may be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs inthe U.S. As ofF-26 December 31, ($ thousands) 2010 2009 Current deferred tax assets: Accrued expenses $19,908 $18,163 Inventory 454 1,391 Intangible assets 238 257 Property and equipment 368 — Other 1,718 1,476 Valuation allowance (6,918) (12,858) Total current deferred tax assets $15,768 $8,429 Current deferred tax liabilities: Property and equipment. $— $(1,080) Unremitted earnings of foreign subsidiary (17,500) — Total current deferred tax liabilities. $(17,500)$(1,080) Non-current deferred tax assets: Stock compensation expense $7,409 $11,348 Inventory — 433 Long-term accrued expenses 2,711 10,062 Net operating loss and charitable contribution carryovers 39,185 35,207 Intangible assets 993 1,334 Property and equipment — 1,722 Future uncertain tax position offset 13,577 13,501 Foreign tax credit 626 — Valuation allowance (28,192) (51,569) Other 101 — Total non-current deferred tax assets $36,410 $22,038 Non-current deferred tax liabilities: Accrued expenses $— $(4,615) Intangible assets (196) — Property and equipment (2,350) — Other — (1,136) Total non-current deferred tax liabilities $(2,546)$(5,751) Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued)December 31, 2010, we have provided for deferred U.S. income tax of $17.5 million on $50.0 million of foreign subsidiary earnings. No withholdingtax is due with respect to the repatriation of these earnings to the U.S. and none has been provided for. At December 31, 2010 and 2009, U.S. income and foreign withholding taxes have not been provided for on approximately $279.2 million and$178.7 million, respectively, of unremitted earnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess ofthe financial reporting over the tax basis in our investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested,would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S. income tax liability on theunremitted earnings has not been determined because the hypothetical calculation is not practicable. We have deferred tax assets related to certain deductible temporary differences in various tax jurisdictions for which we have recorded a valuationallowance of $35.1 million against these deferred tax assets because we do not believe that it is more likely than not that we will be able to realize thesedeferred tax assets. The significant components of the deferred tax assets for which a valuation allowance has been applied consist of net operatinglosses in certain tax jurisdictions for which management believes there is not sufficient positive evidence that such net operating losses will be realizedagainst future income and book expenses not deductible for tax purposes in the current year such as inventory impairment reserves, equitycompensation and unrealized foreign exchange loss that would increase such net operating losses in the same jurisdictions. These temporary differencesare amounts which arose in jurisdictions where (i) current losses exist, (ii) such losses are in excess of any loss carryback potential, (iii) no tax planningstrategies exist with which to overcome such losses, and (iv) no profits are projected for the following year. For these reasons it is determined that it ismore likely than not that these deferred tax assets will not be realized and a valuation allowance has been provided with respect to these deferred taxassets. At December 31, 2010, we had U.S. federal net operating loss and charitable contribution carryforwards and state net operating loss carryforwardsof $80.4 million and $124.5 million which will expire at various dates between 2014 and 2030. We do not believe that it is more likely than not that thebenefit from certain U.S. federal and state net operating losses will be realized. Consequently, we have a valuation allowance of $29.9 million on thedeferred tax assets relating to these federal and state net operating loss carryforwards. At December 31, 2010, we have a foreign deferred tax asset of $5.4 million reflecting the benefit of $30.7 million in foreign net operating losscarryforwards. Such deferred tax assets expire at various dates between 2014 and 2030. We do not believe it is more likely than not that the benefit fromcertain foreign net operating loss carryforwards will be realized. Consequently, we have provided a valuation allowance of $5.2 million on the deferredtax assets relating to these foreign net operating loss carryforwards. We had approximately $32.1 million in net deferred tax assets at December 31, 2010. Approximately $14.4 million of the net deferred tax assetswere located in foreign jurisdictions for which a sufficient history and expected future profits indicated that it is more likely than not that such deferredtax assets will be realized. Pre-tax profit of approximately $42.8 million is required to realize the net deferred tax assets.F-27Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) At December 31, 2010, approximately $17.7 million of net deferred tax assets consists of deferred tax assets related to estimated liabilities foruncertain tax positions that would be realized if such liabilities are actually incurred. The deferred tax assets represent primarily the reduction inwithholding tax expense that would occur upon a disallowance of intercompany royalty expense by various taxing authorities. Approximately$44.6 million of unrecognized tax benefits would have to be recognized to realize these deferred tax assets. As a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certaindeferred tax assets at December 31, 2010 that arose directly from tax deductions related to equity compensation in excess of compensation recognizedfor financial reporting. Equity will be increased by $8.5 million if and when such deferred tax assets are ultimately realized. We use tax law ordering forpurposed of determining when excess tax benefits have been realized. The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years endedDecember 31, 2010, 2009 and 2008. Unrecognized tax benefits of $33.0 million, $29.2 million and $28.2 million at December 31, 2010, 2009 and 2008, respectively, if recognized,would reduce our annual effective tax rate. Interest and penalties related to income tax liabilities are included in income tax expense in the consolidated statement of operations. During 2010,2009 and 2008, we recorded approximately $0.1 million, $0.8 million and $1.6 million, respectively, of penalties and interest which resulted in acumulative accrued balance of penalties and interest of $2.9 million, $2.8 million and $2.1 million at December 31, 2010, 2009 and 2008, respectively. Unrecognized tax benefits consist primarily of tax positions related to intercompany transfer pricing in multiple international jurisdictions. Thegross increase for tax positions in current and prior periods in 2010 of $4.0 million primarily includes specific transfer pricing exposures in variousjurisdictions. We believe that it is reasonably possible that no significant increases or decreases to unrecognized tax benefits will occur in the next twelvemonths.F-28($ thousands) 2010 2009 2008 Unrecognized tax benefit—January 1 $29,163 $28,210 $11,264 Gross increases—tax positions in prior period 943 1,440 13,063 Gross decreases—tax positions in prior period — (4,868) — Gross increases—tax positions in current period 3,086 4,381 4,868 Settlements — — (985)Lapse of statute of limitations (150) — — Unrecognized tax benefit—December 31 $33,042 $29,163 $28,210 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) The following table sets forth the remaining tax years subject to examination for the major jurisdictions where we conduct business as ofDecember 31, 2010. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impactof any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states.13. EARNINGS PER SHARE The following table illustrates the basic and diluted EPS computations for the years ended December 31, 2010, 2009 and 2008. For the years ended December 31, 2010, 2009 and 2008, there were 1.3 million, 4.0 million and 10.1 million stock options outstanding,respectively, which could potentially dilute basic EPS in the future, but which were not included in diluted EPS as their effect was anti-dilutive.F-29United States 2005 to 2010 Singapore 2005 to 2010 Canada 2006 to 2010 Netherlands 2006 to 2010 Japan 2006 to 2010 Years Ended December 31, ($ thousands, except per share data) 2010 2009(1) 2008(1) Numerator Net income (loss) attributable to common stockholders $67,726 $(42,078)$(185,076) Income allocated to participating securities (863) — — Adjusted net income (loss) attributable to common stockholders $66,863 $(42,078)$(185,076)Denominator Weighted average common shares outstanding 85,482,055 85,112,461 82,767,540 Dilutive effect of stock options 2,113,563 — — Weighted average diluted common shares outstanding 87,595,618 85,112,461 82,767,540 Earnings Per Share Net income (loss) attributable to common stockholders—basic $0.78 $(0.49)$(2.24) Net income (loss) attributable to common stockholders—diluted $0.76 $(0.49)$(2.24)(1)Due to the net loss for the years ended December 31, 2009 and 2008, the dilutive effect of stock options and participatingsecurities were not included in the computation of EPS, as their inclusion would have been anti-dilutive.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. COMMITMENTS AND CONTINGENCIES We lease space for certain of our offices, warehouses, vehicles and equipment under leases expiring at various dates through 2026. Certain leasescontain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents orrent holidays is recognized on a straight-line basis over the minimum lease term. Deferred rent is included in the consolidated balance sheet in accruedexpenses. Total rent expense was $67.3 million, $59.6 million, and $52.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.Included in such amounts are contingent rents of $9.8 million, $7.1 million and $4.2 million in 2010, 2009 and 2008, respectively. Minimum future annual rental commitments under non-cancelable operating leases for each of the five succeeding years as of December 31, 2010,are as follows (in thousands): As of December 31, 2010, we had purchase commitments with certain third-party manufacturers for $84.1 million of which $7.9 million was foryet-to-be-received finished product where title passes to us upon receipt. In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certainraw materials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivitythroughout the term of the agreement, which expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous andwe do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or is subject toquarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee thepayment for certain third-party manufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately$4.6 million as of December 31, 2010), through a letter of credit that was issued to Finproject S.r.l.. We indemnify certain of our vendors, directors and executive officers for specified claims. As of December 31, 2010, we have not paid or beenrequired to defend any indemnification claims. Accordingly, we have not accrued any amounts for these indemnification obligations.F-30Fiscal years ending December 31, 2011 $48,891 2012 36,150 2013 28,304 2014 21,800 2015 18,787 Thereafter 66,151 Total minimum lease payments(1) $220,083 (1)Minimum payments have not been reduced by minimum sublease rentals of $0.8 million due in the futureunder non-cancelable subleases. They also do not include contingent rentals which may be paid undercertain retail leases on a basis of percentage of sales in excess of stipulated amounts.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION We have three reportable segments: Americas, Europe and Asia. We also have an Other segment category which aggregates insignificant operatingsegments that do not meet the reportable threshold. Each of our reportable segments derives its revenues from the sale of footwear, apparel andaccessories. The composition of our reportable segments is consistent with that used by our chief operating decision maker ("CODM") to evaluateperformance and allocate resources. During the fourth quarter of 2010, we changed the internal segment reports used by our CODM to separatelyillustrate performance metrics of certain operating segments which provide manufacturing support, located in Mexico and Italy. These operatingsegments make up our Other segment category. Segment information for all periods presented has been restated to reflect this change. Segment operating income (loss) is the primary measure used by our CODM to evaluate segment operating performance and to decide how toallocate resources to segments. Segment performance evaluation is based primarily on segment results without allocating corporate expenses, or indirectgeneral, administrative and other expenses. Segment profits or losses of our reportable segments include adjustments to eliminate intersegment profit orlosses on intersegment sales. Segment operating income (loss) is defined as operating income before asset impairment charges and restructuring costsnot included in cost of sales. Segment assets consist of cash, accounts receivable and inventory as these assets make up the asset information used bythe CODM. Revenues of each of our reportable segments represent sales to external customers. Revenues of the Other segment are made up ofintersegment sales only.F-31Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) The following tables set forth information related to our reportable operating business segments as of and for the years ended December 31, 2010,2009 and 2008.F-32 Year Ended December 31, ($ thousands) 2010 2009 2008 Revenues: Americas $377,080 $301,365 $365,930 Asia 284,814 237,502 204,943 Europe 127,713 105,996 149,271 Other 50,306 29,164 33,151 Total segment revenues 839,913 674,027 753,295 Corporate, intersegment eliminations and other(1) (50,218) (28,260) (31,706) Total consolidated revenues $789,695 $645,767 $721,589 Operating income (loss): Americas $67,259 $21,598 $(38,430) Asia 80,955 57,836 16,634 Europe 24,654 11,087 2,703 Other (281) 76 (6,480) Total segment operating income (loss) 172,587 90,597 (25,573) Corporate, intersegment eliminations and other(1) (88,872) (108,073) (109,261) SG&A restructuring (2,539) (7,623) (7,664) Asset impairment(2) (141) (26,085) (45,784) Total consolidated operating income (loss)(3) 81,035 (51,184) (188,282)Interest expense 657 1,495 1,793 Gain on charitable contributions (223) (3,163) — Other income, net (191) (895) (565) Income (loss) before income taxes $80,792 $(48,621)$(189,510) Depreciation and amortization: Americas $8,852 $9,977 $9,910 Asia 7,035 6,659 5,638 Europe 2,048 2,746 2,754 Other 1,324 1,201 1,805 Total segment depreciation and amortization 19,259 20,583 20,107 Corporate, intersegment eliminations and other(1) 17,800 16,088 17,343 Total consolidated depreciation and amortization $37,059 $36,671 $37,450 (1)Includes (i) a corporate component consisting primarily of corporate support and administrative functions, costs associated withshare-based compensation, research and development, brand marketing, legal, depreciation on corporate and other assets notallocated to operating segments such as molds, tooling, and IT systems, (ii) intersegment eliminations and (iii) certain corporateholding companies.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)F-33(2)Impairment charges incurred during the year ended December 31, 2009 by segment were recorded as follows: $2.0 million in theEurope segment and $4.8 million in the Americas segment. Impairment charges incurred during the year ended December 31,2008 by segment were recorded as follows: $18.9 million in the Americas segment and $0.3 million in the Europe segment. SeeNote 2—Property and Equipment for further details on impairments on property and equipment. Included in the $18.9 millionasset impairment in the Americas segment is $7.6 million related to the write-off of certain intangible assets. See Note 3—Intangible Assets for details. (3)Includes total restructuring charges incurred by segment as follows: $1.0 million in the Americas segment, $0.6 million in theEurope segment and $0.2 million in the Asia segment, during year ended December 31, 2010; $6.3 million in the Americassegment, $3.4 million in the Europe segment and $0.4 million in the Asia segment during the year ended December 31, 2009; and$8.6 million of restructuring charges in the Americas segments during year ended December 31, 2008. See Note 6—Restructuring Activities for further details. As of December 31, ($ thousands) 2010 2009 Assets: Americas $85,296 $77,708 Asia 164,855 90,240 Europe 46,712 36,296 Other 25,997 16,869 Total segment assets 322,860 221,113 Corporate and other(1) 8,138 17 Other current assets 50,016 46,124 Property and equipment, net 70,014 71,084 Intangible assets, net 45,461 35,984 Deferred tax assets, net 34,711 18,479 Other assets 18,281 16,937 Total consolidated assets $549,481 $409,738 (1)Corporate assets primarily consist of cash and equivalents, and assets such as molds, tooling, and IT systems notallocated to operating segments.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) There were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2010, 2009 and 2008. Thefollowing table sets forth geographical information regarding our revenues during the years ended December 31, 2010, 2009 and 2008. The following table sets forth geographical information regarding our long-lived assets as of December 31, 2010, 2009 and 2008.16. LEGAL PROCEEDINGS On March 31, 2006, we filed a complaint with the International Trading Commission ("ITC") against Acme Ex-Im, Inc., Australia Unlimited, Inc.,Cheng's Enterprises, Inc., Collective Licensing International, LLC, D. Myers & Sons, Inc., Double Diamond Distribution, Ltd., Effervescent, Inc., Gen-X Sports, Inc., Holey Soles Holdings, Ltd., Inter-Pacific Trading Corporation, and Shaka Holdings, Inc. (collectively, the "respondents"), alleging,among other things infringement of United States Patent Nos. 6,993,858 (the "'858 Patent") and D517,789 (the "'789 Patent") and seeking an exclusionorder banning the importation and sale of infringing products. During the course of the investigation, the ITC issued final determinations terminatingShaka Holdings, Inc., Inter-Pacific Trading Corporation, Acme Ex-Im, Inc., D. Myers & Sons, Inc., Australia Unlimited, Inc. and Gen-XF-34 Year Ended December 31, ($ thousands) 2010 2009 2008 Product: Footwear $753,951 $611,138 $660,734 Other 35,744 34,629 60,855 Total Revenues $789,695 $645,767 $721,589 Location: United States $299,026 $251,487 $317,932 International 490,669 394,280 403,657 Total Revenues $789,695 $645,767 $721,589 Foreign country revenues in excess of 10% oftotal revenues: Japan $111,764 $99,193 $97,588 December 31, ($ thousands) 2010 2009 2008 Location: United States $37,261 $33,342 $64,340 International 32,753 37,742 31,552 Total long-lived assets $70,014 $71,084 $95,892 Foreign countries where more than 10% of long-lived assets reside: China $8,075 $11,522 $1,044 Mexico $5,943 $7,280 $2,302 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. LEGAL PROCEEDINGS (Continued)Sports, Inc. from the ITC investigation due to a settlement being reached with each of those entities. Cheng's Enterprises, Inc. was removed from theITC investigation because they ceased the accused activities. After a trial in the matter in September 2007, the ITC Administrative Law Judge ("ALJ")issued an initial determination on April 11, 2008, finding the '858 patent infringed by certain accused products, but also finding the patent invalid asobvious. The ALJ found that the '789 patent was valid, but was not infringed by the accused products. On July 25, 2008, the ITC notified us of itsdecision to terminate the investigation with a finding of no violation as to either patent. We filed a Petition for Review of the decision with the UnitedStates Court of Appeals for the Federal Circuit on September 22, 2008. On October 4, 2009, a settlement was reached between us and CollectiveLicensing International, LLC. Collective Licensing International, LLC agreed to cease and desist infringing on our patents and to pay us certainmonetary damages, which was recorded upon receipt. On February 24, 2010, the Federal Circuit found that the ITC erred in finding that the utilitypatent was obvious and also reversed the ITC's determination of non-infringement of the design patent. The case has been remanded back to the ITC.On July 6, 2010, the ITC ordered the matter to be assigned to an ALJ for a determination on enforceability. On February 9, 2011, the ALJ issued adetermination that the utility and design patents were both enforceable against the remaining respondents. The ALJ's decision becomes final on April 11,2011, unless the Commission determines to review it. On December 8, 2009, Columbia Sportswear Company ("Columbia") filed an amended complaint adding us as a defendant in a case betweenColumbia and Brian P. O'Boyle and 1 Pen. Inc. in the Multnomah County Circuit Court in the State of Oregon. Columbia asserted claims against us formisappropriation of trade secrets, aiding and abetting breach of fiduciary duty, intentional interference with contract, injunctive relief, disgorgement andan accounting. The amended complaint sought damages in an unspecified amount, return of patent rights, reasonable attorney's fees and costs andexpenses against us. On July 29, 2010, all issues between us and Columbia were settled and Columbia dismissed with prejudice all claims against us inexchange for certain monetary and other considerations. We and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United StatesDistrict Court for the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter.These actions were consolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaintwas filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of aclass of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint alsoadded our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleadingpublic statements about us and our business and prospects and, as a result, the market price of our common stock was artificially inflated. The amendedcomplaint also claims that certain current and former officers and directors traded in our common stock on the basis of material non-public information.The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also addedattorneys' fees and costs of litigation. We believe the claims lack merit and intend to defend the action vigorously. Motions to dismiss are currentlypending with the district court. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this timeaccurately predict the ultimate outcome, or any potential liability, of the matter.F-35Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. LEGAL PROCEEDINGS (Continued) Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property andproduct liability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on its business.17. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATIONF-36($ thousands, except per share data) QuarterEndedMarch 31 QuarterEndedJune 30(1) QuarterEndedSeptember 30 QuarterEndedDecember 31(1) Year Ended December 31, 2010 Revenues $166,852 $228,046 $215,605 $179,192 Cost of Sales—Restructuring Charges 10 1,251 91 (53)Gross profit 86,704 131,919 118,808 86,333 Restructuring charges 2,539 — — — Asset impairment charges 141 — — — Income from operations 9,395 38,726 27,446 5,468 Net income 5,717 32,284 24,996 4,729 Basic income per common share $0.07 $0.38 $0.29 $0.05 Diluted income per common share $0.07 $0.37 $0.28 $0.05 Year Ended December 31, 2009 Revenues $134,892 $197,722 $177,141 $136,012 Cost of Sales—Restructuring Charges — 5,266 513 1,307 Gross profit 49,731 101,112 89,850 60,268 Restructuring charges 38 5,915 17 1,653 Asset impairment charges 69 23,655 1,722 639 Income (loss) from operations (22,563) (24,519) 8,970 (13,072)Net income (loss) (22,417) (30,281) 22,068 (11,448)Basic income (loss) per common share $(0.27)$(0.36)$0.26 $(0.13)Diluted income (loss) per common share $(0.27)$(0.36)$0.25 $(0.13)(1)As disclosed in Note 9—Equity, we identified an error during the fourth quarter of 2009 in the calculation of share-basedcompensation. This error resulted in the understatement of share-based compensation expense, with a correspondingunderstatement of additional paid in capital, in the approximate amounts of $4.5 million as of December 31, 2008. Additionalamounts of share-based compensation of approximately $1.0 million and $0.5 million should have been recognized during thefirst and third quarters of 2009, respectively. In connection with the 2009 Tender Offer during the second quarter of 2009, weinadvertently corrected approximately $2.0 million of the then existing cumulative error of approximately $6.0 million. Werecorded an additional $3.9 million in share-based compensation during the fourth quarter of 2009 to correct the balance of thiserror.QuickLinks -- Click here to rapidly navigate through this documentEXHIBIT 10.11 CROCS, INC.Board of Directors Compensation Plan On June 29, 2010, the Board of Directors of Crocs, Inc. (the "Company") approved a new compensation arrangement for non-employee directorseffective as of June 29, 2010. The new compensation arrangement provides the following for non-employee directors: (a) Annual compensation for each non-employee director of, at the election of such non-employee director, (i) $100,000 in cash payable in foursuccessive quarterly payments, (ii) $100,000 of restricted stock of the Company based on the fair market value of the Company's common stock on thedate of grant, which restricted stock will vest in four successive quarterly installments from the date of grant, or (iii) a combination thereof; (b) Additional annual compensation for the chairperson of the Audit Committee of, at such chairperson's election, (i) $50,000 in cash,(ii) $50,000 of restricted stock of the Company based on the fair market value of the common stock on the date of grant, which restricted stock will vestin four successive quarterly installments from the date of grant, or (iii) a combination thereof; (c) Additional annual compensation for the chairpersons of each of the Governance and Nominating Committee and the Compensation Committeeof, at such chairperson's election, (i) $5,000 in cash, (ii) $5,000 of restricted stock of the Company based on the fair market value of the common stockon the date of grant, which restricted stock will vest in four equal quarterly installments from the date of grant, or (iii) a combination thereof; (d) Annual grant to each non-employee director of $100,000 of common stock of the Company based on the fair market value of the commonstock on the date of grant; (e) Annual grant to the Chairman of the Board of options to purchase 10,000 shares of common stock of the Company at an exercise price equalto the fair market value of the common stock on the date of grant, which options will vest in four equal annual installments on the date of the annualmeeting of stockholders each year; and (f) Any additional cash compensation payable to any of the non-employee directors, at the discretion of the Board of Directors.QuickLinksEXHIBIT 10.11QuickLinks -- Click here to rapidly navigate through this documentExhibit 21 List of SubsidiariesName State/Country of organization orincorporation4246519 Canada Inc. CanadaBite, Inc. ColoradoColorado Footwear C.V. NetherlandsCrocs Argentina S.r.l. ArgentinaCrocs Asia Pte. Ltd. SingaporeCrocs Australia Pty. Ltd AustraliaCrocs BH LLC Bosnia-HerzegovinaCrocs Brasil Comercio de Calcados Ltda. BrazilCrocs Canada, Inc. CanadaCrocs CIS RussiaCrocs Europe B.V. NetherlandsCrocs France S.A.R.L. FranceCrocs Foundation, Inc. ColoradoCrocs Germany Gmbh GermanyCrocs General Partner, LLC United StatesCrocs Hong Kong Ltd. Hong KongCrocs India Private Limited IndiaCrocs India Retail Limited IndiaCrocs Industrial (Hong Kong) Co. Ltd. Hong KongCrocs Industrial (Shenzhen) Co. Ltd. ChinaCrocs Japan GK JapanCrocs Korea Pte Ltd. KoreaCrocs Marine, Ltd. CaymanCrocs Mexico S.de.R.L. de CV MexicoCrocs New Zealand Limited New ZealandCrocs NL Latin America Holdings BV NetherlandsCrocs NL Latin America Holdings LLC United StatesCrocs Nordic Oy FinlandCrocs Puerto Rico, Inc. Puerto RicoCrocs Retail, Inc. ColoradoCrocs Servicios S.de.R.L. de CV MexicoCrocs Singapore Pte. Ltd. SingaporeCrocs South Africa South AfricaCrocs Stores Oy FinlandCrocs Stores B.V. NetherlandsCrocs Trading (Shanghai) Co. Ltd. ChinaCrocs UK Limited United KingdomExo Italia, S.r.l. ItalyFury, Inc. ColoradoHeirs and Grace Pty. Ltd. AustraliaJibbitz, LLC ColoradoOcean Minded, Inc. ColoradoPanama Footwear PanamaRA Footwear United StatesWestern Brands Holding Company, Inc. ColoradoWestern Brands Netherland Holding CV NetherlandsQuickLinksExhibit 21QuickLinks -- Click here to rapidly navigate through this documentExhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-159412 on Form S-3 and Registration Statement Nos. 333-132312 and 333-144705 on Forms S-8 of our reports dated February 25, 2011, relating to the consolidated financial statements of Crocs, Inc. and theeffectiveness of Crocs, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Crocs, Inc. for the year endedDecember 31, 2010./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2011QuickLinksExhibit 23.1QuickLinks -- Click here to rapidly navigate through this documentEXHIBIT 31.1 SECTION 302 CERTIFICATIONI, John P. McCarvel, certify that:1.I have reviewed this annual report on Form 10-K of Crocs, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 25, 2011 /s/ John P. McCarvelJohn P. McCarvelPresident and Chief Executive Officer(Principal Executive Officer)QuickLinksEXHIBIT 31.1QuickLinks -- Click here to rapidly navigate through this documentEXHIBIT 31.2 SECTION 302 CERTIFICATIONI, Jeffrey J. Lasher, certify that:1.I have reviewed this annual report on Form 10-K of Crocs, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 25, 2011 /s/ Jeffrey J. LasherJeffrey J. LasherCorporate Controller and Chief Accounting Officer(Acting Principal Financial and Principal Accounting Officer)QuickLinksEXHIBIT 31.2QuickLinks -- Click here to rapidly navigate through this documentEXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Chief Executive Officer and Corporate Controller and Chief Accounting Officer of Crocs, Inc. (the "Company"), hereby certify,pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:(1)The Annual Report on Form 10-K of the Company for the year ended December 31, 2010 ("Form 10-K") fully complies with the requirementsof Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and (2)The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of theCompany for the period covered by this Form 10-K. A signed original of this written statement required by Section 906 has been provided to Crocs, Inc. and will be retained by Crocs, Inc. andfurnished to the Securities and Exchange Commission or its staff upon request.Date: February 25, 2011 /s/ John P. McCarvelJohn P. McCarvelPresident and Chief Executive Officer(Principal Executive Officer) /s/ Jeffrey J. LasherJeffrey J. LasherCorporate Controller and Chief Accounting Officer(Acting Principal Financial and Principal Accounting Officer)QuickLinksEXHIBIT 32

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