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Vera BradleyTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2012or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File No. 0-51754 CROCS, INC.(Exact name of registrant as specified in its charter) Delaware 20-2164234(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)7477 East Dry Creek ParkwayNiwot, Colorado 80503(303) 848-7000(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, par value $0.001 per share The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x 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 ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ (do not check if asmaller reporting company) Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2012 was $1.4 billion. For the purpose of the foregoing calculation only, all directors and executive officers ofthe registrant and owners of more than 10% of the registrant’s common stock are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily conclusive for any other purpose.The number of shares of the registrant’s common stock outstanding as of January 31, 2013 was 88,134,790.DOCUMENTS INCORPORATED BY REFERENCEPart III incorporates certain information by reference from the registrant’s proxy statement for the 2013 annual meeting of stockholders to be filed no later than 120 days after the end of the registrant’s fiscal year endedDecember 31, 2012. Table of ContentsCrocs, Inc.Table of Contents to the Annual Report on Form 10-KFor the Year Ended December 31, 2012 PART I Item 1. Business 1 Item 1A. Risk Factors 8 Item 1B. Unresolved Staff Comments 18 Item 2. Properties 19 Item 3. Legal Proceedings 19 Item 4. Mine Safety Disclosures 21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. Selected Financial Data 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44 Item 8. Financial Statements and Supplementary Data 45 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 Item 9A. Controls and Procedures 45 Item 9B. Other Information 48 PART III Item 10. Directors, Executive Officers and Corporate Governance 48 Item 11. Executive Compensation 48 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 48 Item 13. Certain Relationships and Related Transactions, and Director Independence 49 Item 14. Principal Accountant Fees and Services 49 PART IV Item 15. Exhibits and Financial Statement Schedules 49 Signatures 53 Table of ContentsPART I ITEM 1.BusinessThe CompanyCrocs, Inc. and its consolidated subsidiaries (collectively the “Company,” “we,” “our” or “us”) is a designer, manufacturer and distributor of footwear andaccessories for men, women and children. We strive to be the global leader in the sale of molded footwear featuring fun, comfort, color and functionality. Ourprimary products 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. We currently sell our products in more than 90 countries through domestic and international retailers and distributorsand directly to end-user consumers through our company-operated retail stores, outlets, kiosks and webstores. In 2002, we launched the marketing anddistribution of our original clog style footwear in the United States. The unique characteristics of Croslite enabled us to offer consumers a shoe unlike anyother footwear model then available.Since the initial introduction and popularity of the Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety of newstyles and products and have further extended our product reach through the acquisition of brand platforms such as Jibbitz, LLC (“Jibbitz”) and OceanMinded, Inc. (“Ocean Minded”). We continue to branch out into other types of footwear so as to bring a unique and original perspective to the consumer instyles that may be unexpected from Crocs. We believe this will help us to continue to build a stable year-round business as we look to offer more stylesoriented for cold weather. Our marketing efforts surround specific product launches and employ a fully integrated approach utilizing a variety of mediaoutlets, including print and online. 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 were organized in 1999 as a limited liability company. In January 2005, we converted to a Colorado corporation and subsequently re-incorporated as aDelaware corporation in June 2005. In February 2006, we completed our initial public offering and trading of our common stock on NASDAQ commenced.ProductsWhile the majority of our products consist of footwear, we also offer accessories and apparel which generated approximately 3.5% and 0.1%, respectively, ofour total revenues during the year ended December 31, 2012. Our footwear products are divided into four product offerings: Core-Comfort, Active, Casual andStyle. The Core-Comfort product offering primarily includes molded and unisex products targeted toward a wide range of consumers established through coreCrocs attributes which include comfort, easy on-and-off capability, and color. The Active product offering is comprised of footwear intended for healthy livingand includes sport inspired products and footwear suited for activities such as boating, walking, hiking and even recovery after workouts. The Casualproduct offering includes sporty and relaxed styles appealing to a broad range of customers. The Style product offering includes stylish products which areintended to broaden the wearing occasion for Crocs lovers.We have an active licensing program that includes licensing various marks from companies such as Disney, Marvel and Viacom, among others, for Crocsbranded footwear and Jibbitz branded shoe charms. We also license certain of our own marks to third parties in connection with a strategy to extend the Crocsbrand into new product types.FootwearOur footwear product offering has grown significantly since we first introduced the Crocs single style clog in six colors, in 2002. We currently offer a wideproduct line of footwear, some of which include boots, sandals, sneakers, mules and flats which are made of materials like leather and textile fabrics as wellas Croslite. 1 Table of ContentsA key differentiating feature of our footwear products is the Croslite material, which is uniquely suited for comfort and functionality. Croslite is carefullyformulated to be of a density that creates extremely lightweight, comfortable and non-marking footwear which conforms to the shape of the foot and increasescomfort. 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 withwater. As we have expanded our product offering, we have incorporated traditional materials such as textile fabric and leather into many new styles. However,we continue to utilize the Croslite material for the foot bed, sole and other key structural components for many of these styles.As a global leader in casual footwear, we recognize the responsibility we have to our employees and the global communities we serve. We strive to maintain aspirit of “giving back” as a part of the Crocs culture and worldwide reputation. With the help of our donation partners, we are able to provide a basic necessity—shoes—to millions of individuals that may not otherwise have a pair. As of December 31, 2012, we have donated over 3 million pairs of shoes toindividuals in need both domestically and internationally in more than 40 countries including Democratic Republic of The Congo, Haiti, Iraq, and Malawi.These donations and other social responsibility initiatives, form the Crocs Cares program. Crocs is dedicated to providing robust programs, donations, andcommunity work opportunities designed to make a difference in the lives of our employees as well as both local and global communities.Footwear sales made up 95.8%, 95.6% and 95.5% of total revenues for the years ended December 31, 2012, 2011 and 2010, respectively. During the yearsended December 31, 2012, 2011 and 2010, approximately 75.3%, 73.1% and 75.5% of unit sales consisted of products geared towards adults, respectively,compared to 24.7%, 26.9% and 24.5% of unit sales of products geared towards children, respectively.AccessoriesIn addition to our footwear brands, we own the Jibbitz brand, a unique accessory product-line with colorful snap-on charms specifically suited for Crocsshoes. We acquired Jibbitz in December 2006 and have expanded the product-line to include a wide variety of charms in varying shapes and sizes, withdesigns such as flowers, sports gear, seasonal and holiday designs, animals, symbols, letters and rhinestones. Crocs licensing agreements also extend toJibbitz, which allows Jibbitz to create designs bearing logos and emblems of Disney, Nickelodeon and the Crocs collegiate line, among others. Jibbitz designsallow Crocs consumers to personalize their footwear to creatively express their individuality. As of December 31, 2012, more than 3,000 unique Jibbitz charmdesigns were sold to consumers for personalizing their Crocs footwear. Sales from Jibbitz designs made up 3.5%, 3.7% and 3.5% of total revenues for theyears ended December 31, 2012, 2011 and 2010, respectively.Sales and MarketingThe broad appeal of our footwear has allowed us to market our products in a wide range of distribution channels, including department stores, traditionalfootwear retailers and a variety of specialty and independent retail channels. Each season, we focus on presenting a compelling “brand story and experience”for our new product collections and our broader casual lifestyle assortment. Our marketing efforts center on multi-level story telling across diverse wearingoccasions and product silhouettes.As we are a global brand, our model is based on global relevance while still allowing for regional flexibility in execution and message. At the regional or marketlevel, campaigns are initiated using a mix of digital, social, and traditional media outlets that align with local marketplaces and target consumer dynamics.This strategy allows for relevant cross-channel input coordinated through our global brand objectives to drive an aligned global marketing and brand strategy.We utilize an in-house creative team to execute our marketing efforts. Local marketing teams focus on localizing campaigns by establishing and executingmarketing programs to effectively engage target customers in a 2 Table of Contentsmeaningful manner. We utilize a proprietary Brand Performance System to help prioritize demand generation initiatives and optimize local marketing activities.The Brand Performance System integrates multiple research and consumer database platforms across key markets to provide guidance on highest yieldingcustomer growth opportunities and market performance analysis.We have three primary sales channels: wholesale, retail and internet (discussed at a more detailed level below). Our marketing efforts are aimed toward drivingbusiness to both our wholesale partners and our company-operated retail and internet stores. Our marketing efforts in the wholesale and retail channels arefocused on visual product merchandising with alignment on key stories, activation materials and creative materials. Retail stores provide a unique opportunityto engage with customers in a three-dimensional manner. Strong emphasis is placed on making the store experience a meaningful and memorable showcase ofour larger assortment of casual lifestyle footwear and key new product launches. Our marketing, merchandising, and visual merchandising departments workclosely together to ensure the store environment and merchandise are aligned to support key seasonal product stories while promoting the larger product linesand iconic product collections.We have an in-house digital marketing team that oversees digital marketing programs and platforms that include paid-and-organic search, display, re-targeting,email and affiliate marketing to drive new customers to the brand and retain existing customers. Under our universal seasonal brand campaign, the team helpsto adapt key brand story content and produces additional web-specific content for our internet channel.Wholesale ChannelDuring the years ended December 31, 2012, 2011 and 2010, approximately 57.5%, 59.8% and 60.8% of net revenues, respectively, were derived from salesthrough the wholesale channel which consists of sales to distributors and third party retailers. Wholesale customers include national and regional retail chains,department stores, sporting goods stores, independent footwear retailers and family footwear retailers, such as Dick’s Sporting Goods, Famous Footwear,Academy, Kohl’s, Nordstrom, Xebio and Murasaki Sports, as well as on-line retailers such as Zappos and Amazon. No single customer accounted for 10%or more of our revenues for the years ended December 31, 2012, 2011 and 2010.We use third party distributors in select markets where we believe such arrangements are preferable to direct sales. These third party distributors purchaseproducts 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 typicaldistribution agreements have terms of one to four years, are generally terminable on 30 days prior notice and have minimum sales requirements. Many of ouragreements allow us to accept returns from wholesale customers at our discretion for defective products, quality issues and shipment errors on an exceptionbasis or, for certain wholesale customers, extend pricing discounts in lieu of defective product returns. We also may accept returns from our wholesalecustomers, on an exception basis, for the purpose of stock re-balancing to ensure that our products are merchandised in the proper assortments. Additionally,we may provide markdown allowances to key wholesale customers to facilitate in-channel product markdowns where sell-through is less than anticipated.Consumer Direct ChannelsConsumer direct sales channels include retail and internet channels and serve as an important and effective means to enhance our product and brandawareness as they provide direct access to our consumers and an opportunity to showcase our entire line of footwear and accessory offerings. Consequently,we view the consumer direct channels to be complementary to our wholesale channel. 3 Table of ContentsRetail ChannelDuring the years ended December 31, 2012, 2011 and 2010, approximately 33.4%, 30.6% and 29.7%, respectively, of our net revenues were derived fromsales through our retail channel, which consists of kiosks/store in stores, company-operated retail and outlet stores.Retail Stores As of December 31, 2012, 2011 and 2010, we operated 287, 180 and 136 global retail stores, respectively. Our retail stores allow usto effectively market the full breadth and depth of our new and existing products and interact with customers in order to enhance brand awareness.Outlet Stores As of December 31, 2012, 2011 and 2010, we operated 129, 92 and 78 global outlet stores, respectively. Outlet stores help us moveolder products in an orderly fashion. We also sell full priced products in our outlet stores.Kiosks/Store in Stores As of December 31, 2012, 2011 and 2010, we operated 121, 158 and 153 global retail kiosks and store in stores,respectively, located in malls and other high foot traffic areas.Of our 537 global stores, 199 stores operated in our Americas segment, including 170 located in the U.S. and 12 located in Canada; 241 stores operated inour Asia segment, including 63 located in Korea, 43 located in Taiwan, 40 located in Japan, 39 located in China and 17 located in Hong Kong; and 97 storesoperated in our Europe segment, including 29 located in Russia, 18 located in Germany, and 16 located in Great Britain. The remaining stores were locatedthroughout Asia, Europe, Australia, the Middle East, South America and South Africa.Internet ChannelAs of December 31, 2012, 2011 and 2010, we offered our products through 43, 42 and 37 company-operated internet webstores, respectively, worldwide.During the years ended December 31, 2012, 2011 and 2010, approximately 9.1%, 9.6% and 9.5%, respectively, of our net revenues were derived from salesthrough our internet channel. Our internet presence enables us to have increased access to our customers and provides us with an opportunity to educate themabout our products and brand. We continue to expand our web-based marketing efforts to increase consumer awareness of our full product range and havebegun expanding the implementation of locally executed internet web stores at the regional level.Business Segments and Geographic InformationWe have three reportable operating segments: Americas, Europe and Asia. Revenues of each of our reportable operating segments represent sales to externalcustomers. We also have an “Other businesses” category which aggregates insignificant operating segments that do not meet the reportable threshold andrepresent manufacturing operations located in Mexico and Italy. Revenues of the “Other businesses” category are primarily made up of intersegment saleswhich are eliminated when deriving total consolidated revenues. The remaining revenues for the “Other businesses” represent non-footwear product sales toexternal customers. Financial information relating to our operating segments as well as foreign country revenues and long-lived assets is provided in Note 14—Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements.AmericasThe Americas segment consists of revenues and expenses related primarily 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 channel sellsdirectly to the consumer through 199 company-operated store locations as well as through webstores. During the years ended December 31, 2012, 2011 and2010, revenues from the Americas segment constituted approximately 44.1%, 44.8% and 47.5% of our consolidated revenues, respectively. 4 Table of ContentsAsiaThe Asia segment consists of revenues and expenses related primarily 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 Americas. We alsosell products directly to the consumer through 241 company-operated stores as well as through our webstores. During the years ended December 31, 2012,2011 and 2010, revenues from the Asia segment constituted 40.7%, 38.1% and 36.1% of our consolidated revenues, respectively.EuropeThe Europe segment consists of revenues and expenses related primarily 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 the Americas. We also sell our products directly to theconsumer through 97 company-operated stores including kiosks and retail stores as well as through our webstores. During the years ended December 31,2012, 2011 and 2010, revenues from the Europe segment constituted 15.1%, 17.1% and 16.2% of our consolidated revenues, respectively.Distribution and LogisticsOn an ongoing basis, we look to enhance our distribution and logistics network so as to further streamline our supply chain, increase our speed to market andlower operating costs. During the year ended December 31, 2012, we stored our raw material and finished goods inventories in company-operated warehouseand distribution facilities located in the United States, Mexico, the Netherlands, Japan, Finland, South Africa, Russia and Italy. We also utilize distributioncenters which are operated by third parties located in the United States, China, Japan, Hong Kong, Australia, Korea, Singapore, India, Taiwan, the UnitedArab Emirates, Russia, Brazil, Argentina, Chile, Puerto Rico and Italy. Throughout 2012, we continued to engage in efforts to consolidate our globalwarehouse and distribution facilities to maintain a lean cost structure. As of December 31, 2012, 2011 and 2010, our company-operated warehouse anddistribution facilities provided us with approximately 1.0 million square feet, 1.0 million square feet and 1.3 million square feet, respectively, and our thirdparty operated distribution facilities provided us with approximately 0.3 million square feet, 0.5 million square feet and 0.3 million square feet, respectively.We also ship a portion of our products directly to our customers from our internal and third party manufacturers. We are actively pursuing initiatives aimed atshipping more of our product directly to our customers in an effort to lower future cost of sales.Raw Materials“Croslite”, our branded proprietary closed-cell resin, is the primary raw material used in the majority of our footwear and some of our accessories. Croslite issoft and durable and allows our material to be non-marking in addition to being extremely lightweight. We continue to invest in research and development inorder to refine our materials to enhance these properties and to target the development of new properties for specific applications.Croslite material is produced by compounding elastomer resins that we or one of our third party processors purchase from major chemical manufacturerstogether with certain other production inputs such as color dyes. At this time, we have identified multiple suppliers that produce the elastomer resins used inthe Croslite material. We may, however, in the future identify and utilize materials produced by other suppliers as an alternative to the elastomer resins wecurrently use in the production of our proprietary material. All of the other raw materials that we use to produce the Croslite products are readily available forpurchase from multiple suppliers.Since our inception, we have substantially increased the number of footwear products that we offer. Many of our new products are constructed using leather,textile fabrics or other non-Croslite materials. We, or our third party manufacturers, obtain these materials from a number of third party sources and webelieve these materials are 5 Table of Contentsbroadly available. We also outsource the compounding of the Croslite material and continue to purchase a portion of our compounded raw materials from athird party in Europe.Design and DevelopmentWe continue to dedicate significant resources to product design and development as we develop footwear styles based on opportunities we identify in themarketplace. Our design and development process is highly collaborative, as members of the regional design teams, including our EXO Italia (“EXO”)location, which specializes in EVA (Ethylene Vinyl Acetate) based finish products for the footwear industry, frequently meet with sales and marketing staff,production and supply managers and certain of our retail customers to further refine our products to meet the particular needs of our target market. Wecontinually strive to improve our development function so we can bring products to market quickly and reduce costs while maintaining product quality. Wespent $12.0 million, $10.8 million and $7.8 million in research, design and development activities for the years ended December 31, 2012, 2011 and 2010,respectively.Manufacturing and SourcingOur strategy is to maintain a flexible, globally diversified, low-cost manufacturing base. We currently have company-operated production facilities in Mexicoand Italy. We also contract with third party manufacturers to produce certain of our footwear styles or provide support to our internal production processes. Webelieve that our internal manufacturing capabilities enable us to rapidly make changes to production, providing us with the flexibility to quickly respond toorders for high demand models and colors throughout the year, while outsourcing allows us to capitalize on the efficiencies and cost benefits of usingcontracted manufacturing services. We believe this strategy will continue to minimize our production costs, increase overall operating efficiencies and shortenproduction and development times.In the years ended December 31, 2012, 2011 and 2010, we manufactured approximately 21.1%, 20.6% and 21.0%, respectively, of our footwear productsinternally. We sourced the remaining footwear production from multiple third party manufacturers primarily in China, Vietnam, Eastern Europe and SouthAmerica. During the years ended December 31, 2012, 2011 and 2010, our largest third party manufacturer in China produced approximately 31.7%, 33.1%and 38.8%, respectively, of our footwear unit volume. We do not have written supply agreements with our primary third party manufacturers in China.Intellectual Property and TrademarksWe rely on a combination of trademark, copyright, trade secret, trade dress and patent protection to establish, protect and enforce our intellectual propertyrights in our product designs, brand, materials and research and development efforts, although no such methods can afford complete protection. We own orlicense the material trademarks used in connection with the marketing, distribution and sale of all of our products, both domestically and internationally, inmost countries where our products are currently either sold or manufactured. Our major trademarks include the Crocs logo and the Crocs word mark, both ofwhich are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China and Canada among other places. We also haveregistrations or pending trademark applications for the marks Jibbitz, Jibbitz Logo, YOU by Crocs, YOU by Crocs Logo, Ocean Minded, Tail Logo, Bite,Bite Logo, Crocband, Crocs Tone and Crocs Littles, “ Croslite” and the Croslite logo, as well as other marks in various countries around the world.In the U.S., our patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks registered within andoutside of the U.S. are generally valid as long as they are in use and their registrations are properly maintained and have not been found to become generic. Webelieve our trademarks are crucial to the successful marketing and sale of our products. 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 our patent,trademarks and copyrights and pursue those who infringe upon them, both domestically and internationally, as we deem necessary. 6 Table of ContentsWe consider the formulations of the materials covered by our trademark Croslite and used to produce our shoes to be a valuable trade secret. Croslite materialis manufactured through a process that combines a number of components in various proportions to achieve the properties for which our products are known.We use multiple suppliers to source these components but protect the formula by using exclusive supply agreements for key components, confidentialityagreements with our third party processors and by requiring our employees to execute confidentiality agreements concerning the protection of our confidentialinformation. Other than our third party processors and a third party licensee, we are not aware of any third party that has independently developed the formulaor that otherwise has the right to use the formula. We believe the comfort and utility of our products depend on the properties achieved from the compoundingof Croslite material and constitute a key competitive advantage for us, and we intend to continue to vigorously protect this trade secret.We also actively combat counterfeiting through monitoring of the global marketplace. We use our employees, sales representatives, distributors and retailers, aswell as outside investigators and attorneys, to police against infringing products by encouraging them to notify us of any suspect products and to assist lawenforcement agencies. Our sales representatives and distributors are also educated on our patents, pending patents, trademarks and trade dress to assist inpreventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protect intellectual property rights to the sameextent or in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for our intellectual property in certainjurisdictions.SeasonalityDue to the seasonal nature of our footwear which is more heavily focused on styles suitable for warm weather, revenues generated during our first and fourthquarters are typically less than revenues generated during our second and third quarters, when the northern hemisphere is experiencing warmer weather. Wecontinue to expand our product line to include more winter oriented styles to mitigate some of the seasonality of our revenues. Our quarterly results ofoperations may also fluctuate significantly as a result of a variety of other factors, including the timing of new model introductions or general economic orconsumer conditions. Accordingly, results of operations and cash flows for any one quarter are not necessarily indicative of results to be expected for any otherquarter or year.BacklogWe receive a significant portion of orders as preseason orders, generally four to six months prior to shipment date. We provide customers with price incentivesto participate in such preseason programs to enable us to better plan our production schedule, inventory and shipping needs. Unfulfilled customer orders as ofany date are referred to as backlog and represent orders scheduled to be shipped at a future date. Backlog as of a particular date is affected by a number offactors, including seasonality, manufacturing schedule and the timing of product shipments. Further, the mix of future and immediate delivery orders canvary significantly period over period. Due to these factors and since the unfulfilled orders can be canceled at any time prior to shipment by our customers,backlog may not be a reliable measure of future sales and comparisons of backlog from period to period may be misleading. In addition, our historicalcancellation experience may not be indicative of future cancellation rates. Backlog as of December 31, 2012 and 2011 was $354.3 million and $307.4 million,respectively.CompetitionThe global casual, athletic and fashion footwear markets are highly competitive. Although we believe that we do not compete directly with any single companywith respect to the entire spectrum of our products, we believe portions of our wholesale business compete with companies such as, but not limited to, DeckersOutdoor Corp., Skechers USA Inc., Steve Madden, Ltd., Wolverine World Wide, Inc. and VF Corporation. Our company-operated retail locations alsocompete with footwear retailers such as Genesco, Inc., Macy’s, Dillard’s, Dick’s Sporting Goods Inc., The Finish Line, Inc and Footlocker, Inc. 7 Table of ContentsThe principal elements of competition in these markets include brand awareness, product functionality, design, quality, pricing, customer service, marketingand distribution. We believe that our unique footwear designs, the Croslite material, our prices, expanded product-line and our distribution network continue toposition us well in the marketplace. However, some companies in the casual footwear and apparel industry have greater financial resources, morecomprehensive product lines, broader market presence, longer standing relationships with wholesalers, longer operating histories, greater distributioncapabilities, stronger brand recognition and greater marketing resources than we have. Furthermore, we face competition from new players who have beenattracted to the market with imitation products similar to ours as the result of the unique design and success of our footwear products.EmployeesAs of December 31, 2012, we had approximately 4,900 full-time, part-time and seasonal employees, none of which were represented by a union.Available InformationOur internet address is www.crocs.com on which we post the following filings, free of charge, as soon as reasonably practicable after they are electronicallyfiled 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 reportson Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended(the “Exchange Act”). Copies of any of these documents will be provided in print to any stockholder who submits a request in writing to Integrated CorporateRelations, 761 Main Avenue, Norwalk, CT 06851. ITEM 1A.Risk FactorsSpecial Note Regarding Forward Looking StatementsStatements in this Form 10-K and in documents incorporated by reference herein (or otherwise made by us or on our behalf) contain “forward lookingstatements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communicationsfrom time to time that contain such statements. Forward looking statements include statements as to industry trends, our future expectations and other mattersthat do not relate strictly to historical facts and are based on certain assumptions of our management. These statements are often identified by the use of wordssuch as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “strive,” “will,” and variations of such words or similar expressions.Further, these statements are based on the beliefs and assumptions of management based on information currently available. Such forward looking statementsare subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forwardlooking statements. Important factors that could cause actual results to differ materially from the forward looking statements include, without limitation, therisk factors mentioned below. Moreover, such forward looking statements speak only as of the date of this report. We undertake no obligation to update anyforward looking statements to reflect events or circumstances after the date of such statements.The risks included herein are not exhaustive. Other sections of this Form 10-K may include additional factors which could adversely affect our business andfinancial performance. Since we operate in a very competitive and rapidly changing environment, new risk factors emerge from time to time and it is notpossible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor,or combination of factors, may cause actual results to differ materially from those contained in any forward looking statements. Given these risks anduncertainties, investors should not place undue reliance on forward looking statements as a prediction of actual results. 8 Table of ContentsCurrent global economic conditions may adversely affect consumer spending and the financial health of our customers and others with whom wedo business which may adversely affect our financial condition, results of operations and cash resources.Uncertainty about the current and future global economic conditions may cause consumers and retailers to defer purchases or cancel purchase orders for ourproducts in response to tighter credit, decreased cash availability and weakened consumer confidence. For example, sales and operating performance in ourEurope segment in 2012 were adversely affected by the macroeconomic conditions surrounding the European sovereign debt crisis and may continue to beaffected if such conditions do not improve. Our financial success is sensitive to changes in general economic conditions, both globally and nationally.Recessionary economic cycles, higher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels ofunemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending couldadversely 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 our earnings fromoperations as a percentage of net sales. Our financial success is also significantly related to the success of our wholesale customers who are directly impactedby fluctuations in the broader economy including the global economic downturns which reduce foot traffic in shopping malls and lessen consumer demand forour products.In addition, any decrease in available credit caused by a weakened global economy may result in financial difficulties for our wholesale and retail customers,product suppliers and other service providers, as well as the financial institutions that are counterparties to our credit facility and derivative transactions. Ifcredit pressures or other financial difficulties result in insolvency for these parties, it could adversely impact our estimated reserves, our ability to obtainfuture financing and our financial results. In particular, if our customers experience diminished liquidity, we may experience a reduction in product orders, anincrease in customer order cancellations and/or the need to extend customer payment terms which could lead to higher accounts receivable balances, reducedcash flows, greater expense associated with collection efforts and increased bad debt expense.We face significant competition.The footwear industry is highly competitive. Continued 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 label footwear products. A number of our competitors have significantly greater financial resources thanus, more comprehensive product lines, a broader market presence, longer standing relationships with wholesalers, a longer operating history, greaterdistribution capabilities, stronger brand recognition and spend substantially more than we do on product marketing. Our competitors’ greater capabilities inthese areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production andmore quickly develop new products. Additionally, some of our competitors are offering products that are substantially similar, in design and materials, toCrocs branded footwear. In addition, access to offshore manufacturing is also making it easier for new companies to enter the markets in which we compete. Ifwe fail to compete successfully in the future, our sales and profits may decline, we may lose market share, our financial condition may deteriorate and themarket 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.Our ability to maintain our revenue levels or to grow in the future depends on, among other things, the continued success of our efforts to maintain our brandimage and bring compelling and revenue enhancing footwear offerings to market and our ability to expand within our current distribution channels andincrease sales of our 9 Table of Contentsproducts into new locations internationally. Successfully executing our long-term growth and profitability strategy will depend on many factors, including thestrength of the Crocs brand, execution of supply chain strategies, competitive conditions in new markets that we attempt to enter, our ability to attract andretain qualified distributors or agents or to continue to develop direct sales channels, our ability to secure strategic retail store locations, our ability to use andprotect the Crocs brand and our other intellectual property in these new markets and territories and our ability to consolidate our network to leverage resourcesand simplify our fulfillment process. If we are unable to successfully maintain our brand image, expand distribution channels, streamline our supply chainand sell our products in new markets abroad, our business may fail to grow, our brand may suffer and our results of operations may be adversely impacted.Expanding our footwear product line may be difficult and expensive. If we are unable to successfully continue such expansion, our brand may beadversely affected and we may not be able to maintain or grow our current revenue and profit levels.To successfully expand our footwear product line, we must anticipate, understand and react to the rapidly changing tastes of consumers and provideappealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brand may fall out of favorwith consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may decrease, our brandimage may suffer, our operating performance may decline and we may not be able to execute our growth plans.In producing new footwear models, we may encounter difficulties that we did not anticipate during the product development stage. Our development schedulesfor new products are difficult to predict and are subject to change in response to consumer preferences and competing products. If we are not able to efficientlymanufacture new products in quantities sufficient to support retail and wholesale distribution, we may not be able to recover our investment in thedevelopment of new styles and product lines and we would continue to be subject to the risks inherent to having a limited product line. Even if we develop andmanufacture new footwear products that consumers find appealing, the ultimate success of a new style may depend on our pricing. We have a limited historyof introducing new products in certain target markets; as such, we may set the prices of new styles too high for the market to bear or we may not provide theappropriate level of marketing in order to educate the market and potential consumers about our new products. Achieving market acceptance will require us toexert substantial product development and marketing efforts, which could result in a material increase in our selling, general and administrative expenses andthere can be no assurance that we will have the resources necessary to undertake such efforts effectively or that such efforts will be successful. Failure to gainmarket acceptance for new products could impede our ability to maintain or grow current revenue levels, reduce profits, adversely affect the image of ourbrands, erode our competitive position and result in long-term harm to our business.Opening and operating additional retail stores are subject to numerous risks including the dependency on customer traffic in shopping malls;declines in revenue of such retail stores could adversely affect our profitability.In recent years, we have significantly expanded and intend to continue the expansion of our retail sales channel. Opening retail stores globally involvessubstantial investment, including the construction of leasehold improvements, furniture and fixtures, equipment, information systems, inventory andpersonnel. Operating global retail stores incurs fixed costs; if we have insufficient sales, we may be unable to reduce such fixed costs and avoid losses ornegative cash flows. Due to the high fixed cost structure associated with the retail segment, negative cash flows or the closure of a store could result in writedowns of inventory, impairment of leasehold improvements, impairment losses on other long-lived assets, severance costs, significant lease termination costsor the loss of working capital, which could adversely impact our financial position, results of operations or cash flows. Our ability to recover the investmentin and expenditures of our retail operations can be adversely affected if sales at our retail stores are lower than anticipated. 10 Table of ContentsIn addition, our ability to open new stores successfully depends on our ability to identify suitable store locations, negotiate acceptable lease terms, hire, trainand retain store personnel and satisfy the fashion preferences in new geographic areas. Many of our retail stores are located in shopping malls where we dependon obtaining prominent locations and the overall success of the malls to generate customer traffic. We cannot control the success of individual malls and anincrease in store closures by other retailers may lead to mall vacancies and reduced foot traffic. Reduced customer traffic could reduce sales of existing retailstores or hinder our ability to open retail stores in new markets, which could negatively affect our operating results.We have incurred substantial financial commitments and fixed costs related to our retail stores that we will not be able to recover if our stores arenot successful.The success of an individual store location is dependent on the success of the shopping mall or outlet center where the store is located, and may be influencedby changing customer demographic and consumer spending patterns. These factors cannot be predicted with accuracy. Because we enter into long-termfinancial commitments when leasing retail store locations and incur substantial fixed costs for each store’s design, leasehold improvements, fixtures andmanagement information systems, it would be costly for us to close a store that does not prove successful.The testing of our retail stores’ long-lived assets for impairment requires us to make significant estimates about our future performance and cash flows that areinherently uncertain. These estimates can be affected by numerous factors, including changes in economic conditions, our results of operations, andcompetitive conditions in the industry. Due to the high fixed cost structure associated with our retail operations, negative cash flows or the closure of a storecould result in write downs of inventory, impairment of leasehold improvements, impairment losses on other long-lived assets, severance costs, significantlease termination costs or the loss of working capital, which could adversely impact our financial position, results of operations or cash flows. For example,during 2012, we recorded impairments relating to retail stores of $1.4 million, and these impairment charges may increase as we expand our retail operations.Our revolving credit facility contains financial covenants that require us to maintain certain financial metrics and ratios and restrictive covenantsthat limit our flexibility. A breach of those covenants may cause us to be in default under the facility, and our lenders could foreclose on ourassets.The credit agreement for our revolving credit facility requires us to maintain a certain leverage ratio at all times, a certain level of unrestricted cash at all times,and a minimum fixed charge coverage ratio on a quarterly basis. A failure to maintain current revenue levels or an inability to control costs could negativelyimpact our ability to meet these financial covenants and, if we breach such covenants or any of the restrictive covenants described below, the lenders couldeither refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the revolving credit facility. We might not have sufficientassets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding against us orcollection proceedings with respect to our assets, all of which secure our indebtedness under the revolving credit facility.The credit agreement also contains certain restrictive covenants that limit and in some circumstances prohibit, our ability to, among other things incuradditional debt, sell, lease or transfer our assets, pay dividends, make capital expenditures and investments, guarantee debt or obligations, create liens, enterinto transactions with our affiliates and enter into certain merger, consolidation or other reorganizations transactions. These restrictions could limit our abilityto obtain future financing, make acquisitions or needed capital expenditures, withstand the current or future downturns in our business or the economy ingeneral, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantagerelative to our competitors that have less debt and are not subject to such restrictions. 11 Table of ContentsWe 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 fixed costs to ourcost structure which are not as easily scalable as variable costs. In addition, the manufacture of our products from the Croslite material 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 absorb the costsof manufacturing and disposing of products that do not meet our quality standards. Any increases in our manufacturing costs could adversely impact ourprofit margins. Furthermore, our manufacturing capabilities are subject to many of the same risks and challenges faced by our third party manufacturers (asnoted in the risk factor below), including our ability to scale our production capabilities to meet the needs of our customers. Our manufacturing may also 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 on ourbusiness and results of operations.We depend heavily on third party manufacturers located outside the U.S.Third party manufacturers located in China and Vietnam produce most of our footwear products. We depend on the ability of these manufacturers to financethe production of goods ordered, maintain adequate manufacturing capacity and meet our quality standards. We compete with other companies for theproduction capacity of our third party manufacturers, and we do not exert direct control over the manufacturers’ operations. As such, we have experienced attimes, delays or inabilities to fulfill customer demand and orders, particularly in China. 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 their relationship withus at any time or seek to increase the prices they charge us. As a result, we are not assured of an uninterrupted supply of products of an acceptable quality andprice from our third party manufacturers. Foreign manufacturing is subject to additional risks, including transportation delays and interruptions, workstoppages, political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, changes in governmental policiesand the imposition of tariffs, import and export controls and other non-tariff barriers. We may not be able to offset any interruption or decrease in supply ofour products by increasing production in our internal manufacturing facilities due to capacity constraints, and we may not be able to substitute suitablealternative third party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply of products from our third party manufacturersmay harm our business and could result in a loss of sales and an increase in production costs, which would adversely affect our results of operations. Inaddition, manufacturing delays or unexpected demand for our products may require us to use faster, more expensive transportation methods, such as aircraft,which could adversely affect our profit margins. The cost of fuel is a significant component in transportation costs. Increases in the price of petroleumproducts can adversely affect our profit margins.In addition, because a large portion of our footwear products is manufactured in China and Vietnam, the possibility of adverse changes in trade or politicalrelations between the U.S. and these countries, political instability in China, increases in labor costs, or adverse weather conditions could significantlyinterfere with the production and shipment of our products, which would have a material adverse affect on our operations and financial results.Our third party manufacturing operations must comply with labor, trade and other laws; failure to do so may adversely affect us.We require our third party manufacturers to meet our quality control standards and footwear industry standards for working conditions and other matters,including compliance with applicable labor, environmental and other 12 Table of Contentslaws. However, we do not control our third party manufacturers or their respective labor practices. A failure by any of our third party manufacturers to adhereto quality standards or labor, environmental and other laws could cause us to incur additional costs for our products, generate negative publicity, damage ourreputation and the value of our brand and discourage customers from buying our products. We also require our third party manufacturers to meet certainproduct safety standards. A failure by any of our third party manufacturers to adhere to such product safety standards could lead to a product recall whichcould result in critical media coverage and harm our business and reputation and could cause us to incur additional costs.In addition, if we or our third party manufacturers violate U.S. or foreign trade laws or regulations, we may be subject to extra duties, significant monetarypenalties, the seizure and the forfeiture of the products we are attempting to import or the loss of our import privileges. Possible violations of U.S. or foreignlaws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quota category, classification,marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factors could render our conduct of business in aparticular country undesirable or impractical and have a negative impact on our operating results. We cannot predict whether additional U.S. or foreigncustoms quotas, duties, taxes or other changes or restrictions will be imposed upon the importation of foreign produced products in the future or what effectsuch 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 risks of international commerce.A significant portion of our revenues is from foreign sales. Our ability to maintain the current level of operations in our existing international markets issubject to risks associated with international sales operations as well as the difficulties associated with promoting products in unfamiliar cultures. In additionto foreign manufacturing, we operate retail stores and sell our products to retailers outside of the U.S. Foreign manufacturing and sales activities are subject tonumerous risks, including tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such as quotas and local content rules; delaysassociated with the manufacture, transportation and delivery of products; increased transportation costs due to distance, energy prices, or other factors; delaysin the transportation and delivery of goods due to increased security concerns; restrictions on the transfer of funds; restrictions, due to privacy laws, on thehandling and transfer of consumer and other personal information; changes in governmental policies and regulations; political unrest, changes in law,terrorism, or war, any of which can interrupt commerce; U.S. and foreign anti-corruption laws; expropriation and nationalization; difficulties in managingforeign operations effectively and efficiently from the U.S.; and difficulties in understanding and complying with local laws, regulations and customs inforeign jurisdictions. In addition, we are subject to customs laws and regulations with respect to our export and import activity which are complex and varywithin legal jurisdictions in which we operate. We cannot assure that there will be no control failure around customs enforcement despite the precautions wetake. We are currently subject to audits by various Customs Authorities including the U.S. and Mexico. Any failure to comply with customs laws andregulations could be discovered during a U.S. or foreign government customs audit and could result in substantial fines and penalties, which could have anadverse effect on our financial position and results of operations.Foreign currency fluctuations could have a material adverse effect on our results of operations and financial condition.As a global company, we have significant revenues, costs, assets, liabilities and intercompany balances denominated in currencies other than the U.S. dollar.We pay the majority of expenses attributable to our foreign operations in the functional currency of the country in which such operations are conducted andpay the majority of our overseas third-party manufacturers in U.S. dollars.Our ability to sell our products in foreign markets and the U.S. dollar value of the sales made in foreign currencies can be significantly influenced by foreigncurrency fluctuations. A decrease in the value of foreign currencies relative to the U.S. dollar could result in lower revenues, product price pressures andincreased losses 13 Table of Contentsfrom currency exchange rates. Price increases caused by currency exchange rate fluctuations could make our products less competitive or have an adverseeffect on our profitability as most of our purchases from third party suppliers are denominated in U.S. dollars. 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. While we enter into foreign currency exchange forward contracts as economic cash flow hedges to reduce our exposure to changes inexchange rates, the volatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.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 related to the willingness of our current and prospective wholesale customers to carry our products. We do not have long termcontracts with any of our wholesale customers. Sales to our wholesale customers are generally on an order-by-order basis and are subject to rights ofcancellation and rescheduling by the customer. If we cannot fill our customers’ orders in a timely manner, the sales of our products and our relationships withthose customers may suffer. This could have a material adverse effect on our product sales and ability to grow our product lines.Changes in the global credit market could also affect our customers’ liquidity and capital resources and their ability to meet payment obligations to us whichcould have a material adverse impact on our cash flows and capital resources. We continue to monitor our accounts receivable aging and record reservesagainst such receivables as we deem appropriate. Additionally, many of our wholesale customers compete with each other. If they perceive that we are offeringtheir competitors better pricing and support, they may reduce purchases of our products. Moreover, we compete directly with our wholesale customers byselling our products directly to consumers over the internet and through our company-operated retail locations. If our wholesale customers believe that ourdirect sales to consumers divert sales from their stores, our relationships with such customers may weaken and cause them to reduce purchases of ourproducts. As we continue to grow our consumer direct channels (company-operated retail and internet) this issue could be exacerbated.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 the primary rawmaterials used in compounding our Croslite products, which we use to produce our various footwear products, from multiple suppliers. If the suppliers werely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruptionof our production cycle. We are also subject to market issues related to supply and demand for our raw materials. We may have to pay substantially higherprices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and could have a significantlyadverse impact on our profit margins and results of operations. If we are unable to obtain suitable elastomer resins or if we are unable to procure sufficientquantities of the Croslite material, we may not be able to meet our production requirements in a timely manner or may need to modify our productcharacteristics resulting in less favorable market acceptance which could result in lost potential sales, delays in shipments to customers, strained relationshipswith customers and diminished brand loyalty.Failure 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 products. Webelieve that having distinctive marks that are readily identifiable is important to our brand, our success and our competitive position. The laws of somecountries, for example, China, do not protect intellectual property rights to the same extent as do U.S. laws. We frequently 14 Table of Contentsdiscover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful inchallenging another party’s products on the basis of trademark or design or utility patent infringement, particularly in some foreign countries, or if we arerequired to change our name or use a different logo, continued sales of such competing products by third parties could harm our brand and adversely impactour business, financial condition, revenues and results of operations by resulting in the shift of consumer preference away from our products. If our brandsare associated with inferior counterfeit reproductions, the integrity and reputation of our brands could be adversely affected. Furthermore, our efforts to enforceour intellectual property rights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights.We may face significant expenses and liability in connection with the protection of our intellectual property, and if we are unable to successfully protect ourrights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected.We also rely on trade secrets, confidential information and other unpatented proprietary rights and information related to, among other things, the Croslitematerial and product development, particularly where we do not believe patent protection is appropriate or obtainable. Using third party manufacturers andcompounding facilities may increase the risk of misappropriation of our trade secrets, confidential information and other unpatented proprietary information.The agreements we use in an effort to protect our intellectual property, confidential information and other unpatented proprietary information may be ineffectiveor insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to one of these agreements may breach the agreementand we may not have adequate remedies for such breach. As a result, our trade secrets, confidential information and other unpatented proprietary rights andinformation may become known to others, including our competitors. Furthermore, our competitors or others may independently develop or discover suchtrade secrets and information, which would render them less valuable to us.If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have greater difficulty filling our customers’orders, either of which could adversely affect our business.The footwear industry is subject to cyclical variations, consolidation, contraction and closings, as well as fashion trends, rapid changes in consumerpreferences, the effects of weather, general economic conditions and other factors affecting demand and possibly impairing our brand image. In addition, salesto our wholesale customers are generally subject to rights of cancellation and rescheduling by the customer. These factors make it difficult to forecast consumerdemand. If we overestimate demand for our products, we may be forced to liquidate excess inventories at discounted prices resulting in lower gross margins.Conversely, if we underestimate consumer demand, we could have inventory shortages which can result in lower sales, delays in shipments to customers,strains on our relationships with customers and diminished brand loyalty. A decline in demand for our products, or any failure on our part to satisfyincreased demand for our products, could adversely affect our business and results of operations.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 consequentialrisks of holding cash abroad could adversely affect our financial condition and results of operations.We have substantial cash requirements in the U.S., but the majority of our cash is generated and held abroad. We generally consider unremitted earnings ofsubsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. Cash held outside of the U.S. isprimarily used for the ongoing operations of the business in the locations in which the cash is held. Most of the cash held outside of the U.S. could berepatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. In some countries,repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were to move the cash to another country.Certain countries, including China, may have monetary laws which may limit our ability to utilize cash resources in those countries for operations in othercountries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and may adversely affect ourliquidity. Since repatriation of such cash is subject to limitations and may be subject to significant taxation, we cannot be certain that we will be able torepatriate such cash on favorable terms or in a timely manner. If we incur operating losses on a continued 15 Table of Contentsbasis and require cash that is held in international accounts for use in our U.S. operations, a failure to repatriate such cash in a timely and cost-effectivemanner could adversely affect our business, financial condition and results of operations.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 of Coloradoalleging violations of Sections 10(b) and 20(a) of the Exchange Act based on alleged statements made by us between July 27, 2007 and October 31, 2007. Weand certain of our current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Courtfor the District of Colorado. The first complaint was filed in November 2007; several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the Court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December 2008. Theamended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all persons who purchased ourstock between April 2, 2007 and April 14, 2008 (the “Class Period”). The amended complaint alleges that, during the Class Period, defendants made false andmisleading public statements about us and our business and prospects and that, as a result, the market price of our stock was artificially inflated. Theamended complaint also claims that certain current and former officers and directors traded our stock on the basis of material non-public information. Theamended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, interest and an award of attorneys’ fees and costs oflitigation. On February 28, 2011, the District Court granted motions to dismiss filed by the defendants and dismissed all claims. A final judgment wasthereafter entered. Plaintiffs subsequently appealed to the United States Court of Appeals for the Tenth Circuit. We and those current and former officers anddirectors named as defendants have entered into a Stipulation of Settlement with the plaintiffs that would, if approved by the United States District Court forthe District of Colorado, resolve all claims asserted against us by the plaintiffs on behalf of the putative class, and plaintiffs’ appeal would be dismissed. Ourindependent auditor is not a party to the Stipulation of Settlement. The Stipulation of Settlement is subject to customary conditions, including preliminarycourt approval, and final court approval following notice to stockholders. If the settlement becomes final, all amounts required by the settlement will be paidby our insurers. There can be no assurance that the settlement will be finally approved by the District Court, or that approval by the District Court will, ifchallenged, be upheld by the Tenth Circuit.We are subject to periodic litigation, which could result in unexpected expense of time and resources.From time to time, we are called upon to defend ourselves against lawsuits relating to our business. Due to the inherent uncertainties of litigation, we cannotaccurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial conditionand results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our operationsand result in substantial legal fees. In the past, securities class action litigation has been brought against us. If our stock price is volatile, we may becomeinvolved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and resources that areneeded to successfully run our business.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. As a significant portion of our revenues are attributable tofootwear styles that are more suitable for fair weather, we typically experience our highest sales activity during the second and third quarters of the calendaryear, when there is a revenue concentration in countries in the northern hemisphere. While we continue to create new footwear styles that are more suitable forcold weather, the effects of favorable or unfavorable weather on sales can be significant enough to affect our quarterly results which could adversely affect ourcommon stock price. Quarterly results may also fluctuate as a result of other factors, including new style introductions, general economic conditions or 16 Table of Contentschanges in consumer preferences. Results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year andrevenues for any particular period may fluctuate. This could lead to results outside of analyst and investor expectations, which could increase volatility of ourstock price.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 which includeinformation about our historical financial results as well as their estimates of our future performance. These estimates are based on their own opinions and areoften different from management’s estimates or expectations of our business. If our operating results are below the estimates or expectations of public marketanalysts and investors, our stock price could decline.We may fail to protect the integrity and security of customer and associate information.We routinely possess sensitive customer and associate information and, while we believe we have taken reasonable and appropriate steps to protect thatinformation, if our security procedures and controls were compromised, it could harm our business, reputation, results of operations and financial conditionand may increase the costs we incur to protect against such information security breaches, such as increased investment in technology, the costs of compliancewith consumer protection laws and costs resulting from consumer fraud.We depend on key personnel, the loss of whom would harm our business.The loss of the services and expertise of any key employee could harm our business. Our future success depends on our ability to identify, attract and retainqualified personnel on a timely basis. In addition, we must successfully integrate any newly hired management personnel within our organization in order toachieve our operating objectives. Changes in other key management positions may temporarily affect our financial performance and results of operations asnew management becomes familiar with our business. We have experienced management turnover in recent years. Turnover of senior management canadversely impact our stock price, our results of operations and our client relationships and may make recruiting for future management positions moredifficult. In some cases, we may be required to pay significant amounts of severance to terminated management employees.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 warehouse management,order management, retail point-of-sale and internet point-of-sale as well as various systems that provide interfaces between these systems. These systems areintended to assist in streamlining our operational processes and eliminating certain manual processes. However, for certain business planning, finance andaccounting functions, we still rely on manual processes that are difficult to control and are subject to human error. We may experience difficulties intransitioning to our new or upgraded systems, including loss of data and decreases in productivity, as our personnel become familiar with these new systems.In addition, our management information systems will require modification and refinement as our business needs change which could prolong the difficultieswe experience with systems transitions and we may not always employ the most effective systems for our purposes. If we experience difficulties inimplementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our managementinformation systems to respond to changes in our business needs, our ability to properly run our business could be adversely affected.Changes in tax laws and unanticipated tax liabilities and the results of tax audits or litigation could adversely affect our effective income tax rateand profitability.We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affectedby a number of factors, including: changes in the mix of earnings in 17 Table of Contentscountries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax auditsin various jurisdictions around the world and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularlyassess all of these matters to determine the adequacy of our tax provision, which is subject to significant discretion and we could face significant adverseimpact if our assumptions are incorrect and/or face significant cost to defend our practices from international and U.S. tax authorities. We are regularly subjectto, and are currently undergoing, audits by tax authorities in the United States and foreign jurisdictions for prior tax years. For example, we are currentlysubject to a tax audit in Mexico on the value of imported raw material and have been notified of a $22.0 million penalty. See Part I Item 3 “Legal Proceedings”for additional details regarding the Mexican tax audit. In addition, in Brazil we have been assessed $1.1 million in additional sales taxes, excluding penaltiesand interest, relating to our usage of tax credits for the period May 2009 through April 2010. Although we believe our tax estimates are reasonable and we intendto defend our positions through litigation if necessary, the final outcome of tax audits and related litigation is inherently uncertain and could be materiallydifferent than that reflected in our historical income tax provisions and accruals. Moreover, we could be subject to assessments of substantial additional taxesand/or fines or penalties relating to ongoing or future audits. The adverse resolution of any audits or litigation could have an adverse effect on our financialposition and results of operations.Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.From time to time, we may invest in business infrastructure, acquisitions of new businesses and expansion of existing businesses, such as our retailoperations, which require substantial cash investment and management attention. We believe cost effective investments are essential to business growth andprofitability. However, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of anysignificant investment to provide the returns or profitability we expect or the failure to integrate newly acquired businesses could have a material adverse effecton our financial results and divert management attention from more profitable business operations.Natural disasters could negatively impact our operating results and financial condition.Natural disasters such as earthquakes, hurricanes, tsunamis or other adverse weather and climate conditions, whether occurring in the U.S. or abroad, andthe consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations or the operations of our vendors andother suppliers, or result in economic instability that may negatively impact our operating results and financial condition.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 preventa change in control of us or changes in our management. These provisions could discourage proxy contests and make it more difficult for our stockholders toelect directors and take other corporate actions, which may prevent a change of control or changes in our management that a stockholder might considerfavorable. In addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of us. Any delay orprevention of a change of control or change in management that stockholders might otherwise consider to be favorable could cause the market price of ourcommon stock to decline.ITEM 1B. Unresolved Staff CommentsNone. 18 Table of ContentsITEM 2.PropertiesOur principal executive and administrative offices are located at 7477 East Dry Creek Parkway, 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. Theterms of these leases include fixed monthly rents and/or contingent rents based on percentage of revenues, for our retail stores, and have expirations between2013 and 2023. The general location, use and approximate size of our principal properties are given below. Location Operating Segment(s)that Use this Property Use Approximate Square Feet Ontario, California Americas Warehouse 399,000 Leon, Mexico Americas, Asia, Other businesses Manufacturing/offices 219,000 Leon, Mexico Americas, Asia, Other businesses Warehouse 173,000 Rotterdam, the Netherlands Europe Warehouse 174,000 Niwot, Colorado Americas Corporate headquarters and regional offices 160,000 Narita, Japan Asia Warehouse 156,000 Tampere, Finland Europe Warehouse/offices 61,000 Padova, Italy Americas, Asia, Europe, Other businesses EXO’s regionaloffices/manufacturing/warehouse 45,000 Hoopddorf, the Netherlands Europe Regional offices 31,000 Shenzen, China Americas, Asia, Europe, Other businesses Manufacturing/offices 28,000 Moscow, Russia Europe Warehouse/offices 27,000 Gordon’s Bay, South Africa Asia Warehouse/offices 24,000 Singapore Asia Regional offices 23,000 Shanghai, China Asia Regional offices 17,000 Tokyo, Japan Asia Regional offices 13,000 The warehouse facilities in this location are fully or partially subleased.In addition to the properties listed above, we maintain small branch sales offices in the United States, Canada, South America, Taiwan, Hong Kong,Australia, Korea, China, the United Emirates, India and Europe. We also lease retail space for 287 retail stores, 129 outlet stores and 121 kiosks and store instores, globally as of December 31, 2012.Of our 537 global stores, 199 stores operated in our Americas segment, including 170 located in the U.S. and 12 located in Canada; 241 stores operated inour Asia segment, including 63 located in Korea, 43 located in Taiwan, 40 located in Japan, 39 located in China and 17 located in Hong Kong; and 97 storesoperated in our Europe segment, including 29 located in Russia, 18 located in Germany, and 16 located in Great Britain. The remaining stores were locatedthroughout Asia, Europe, Australia, the Middle East, South America and South Africa. ITEM 3.Legal ProceedingsWe and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Courtfor the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 19(1)(1) Table of Contents20A of the Exchange Act on behalf of a class of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the “Class Period”).The amended complaint also added our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants madefalse and misleading public statements about us and our business and prospects and, as a result, the market price of our common stock was artificiallyinflated. The amended complaint also claims that certain current and former officers and directors traded in our common stock on the basis of material non-public information. The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and alsoadded attorneys’ fees and costs of litigation. On February 28, 2011, the District Court granted motions to dismiss filed by the defendants and dismissed allclaims. A final judgment was thereafter entered. Plaintiffs subsequently appealed to the United States Court of Appeals for the Tenth Circuit. We and thosecurrent and former officers and directors named as defendants have entered into a Stipulation of Settlement with the plaintiffs that would, if approved by theUnited States District Court for the District of Colorado, resolve all claims asserted against us by the plaintiffs on behalf of the putative class, and plaintiffs’appeal would be dismissed. Our independent auditor is not a party to the Stipulation of Settlement. The Stipulation of Settlement is subject to customaryconditions, including preliminary court approval, and final court approval following notice to stockholders. If the settlement becomes final, all amountsrequired by the settlement will be paid by our insurers. There can be no assurance that the settlement will be finally approved by the District Court, or thatapproval by the District Court will, if challenged, be upheld by the Tenth Circuit.On October 27, 2010, Spectrum Agencies (“Spectrum”) filed suit against our subsidiary, Crocs Europe B.V. (“Crocs Europe”), in the High Court of Justice,Queen’s Bench Division, Royal Courts of Justice in London, United Kingdom (“UK”). Spectrum acted as an agent for Crocs products in the UK from 2005until Crocs Europe terminated the relationship on July 3, 2008 due to Spectrum’s breach of its duty to act in good faith towards Crocs Europe. Spectrumalleges that Crocs Europe unlawfully terminated the agency relationship and failed to pay certain sales commissions. A trial on the liability, not quantum(compensation and damages), was held at the High Court in London from November 30, 2011 to December 5, 2011. On December 16, 2011, the High Courtof Justice issued a judgment that found that although Spectrum’s actions were a breach of its duty to act in good faith towards Crocs Europe the breach wasnot sufficiently severe to justify termination. We believe that the trial judge erred in his findings and subsequently appealed the judgment. On October 30,2012, the Court of Appeal handed down its judgment confirming the trial judge’s findings. We submitted a request to the Supreme Court seeking permissionto appeal and anticipate that a decision by the Supreme Court on permission to appeal will be rendered in the first quarter of 2013. Given that this phase of theproceedings only pertains to liability, there have been no findings in relation to the amount of compensation or damages other than with respect to legal fees.Under English law, the prevailing party is entitled to reimbursement of reasonable legal fees incurred in the liability proceedings. Spectrum has not quantifiedits claim for compensation and damages and the amount will be assessed later in the proceedings. Proceedings on quantum may be stayed until a decision onpermission to appeal has been handed down or in the event that permission is granted, until a final decision on the merits.We are currently subject to an audit by U.S. Customs & Border Protection (“CBP”) in respect of the period from 2006 to 2010. CBP issued a draft auditreport to which we subsequently filed comments and objections. We believe that a final report (and notice of a formal claim) will not be issued until sometimein mid-2013. CBP has provided us with preliminary projections and a draft audit report that reflect unpaid duties totaling approximately $14.3 million duringthe period under review. We have responded that these projections are erroneous and provided arguments that demonstrate the amount due in connection withthis matter is considerably less than the preliminary projection. CBP is currently reviewing this response. It is not possible at this time to predict whether ourarguments will be successful in eliminating or reducing the amount in dispute. Likewise, it is not possible to predict whether CBP may seek to assert a claimfor penalties in addition to any loss of revenue claim.We are currently subject to an audit by Mexico’s Federal Tax Authority (“SAT”) for the period from January 2006 to July 2011. There are two phases to theaudit, the first for capital equipment and finished goods and the second for raw materials. The first phase is complete and no major discrepancies were notedby the SAT. On January 9, 2013, Crocs received a notice for the second phase in which the SAT proposed a tax assessment (taxes 20 Table of Contentsand penalties) of roughly 280 million pesos (approximately $22.0 million) based on the value of all of Crocs’ imported raw materials during the audit period.We believe that the proposed penalty amount is unfounded and without merit. We have retained local counsel to handle the matter and who will argue that theamount due in connection with the matter, if any, is substantially less than that proposed by the SAT. We expect it to take between two and three years forresolution of this matter in the Mexican courts. It is not possible at this time to predict the outcome of this matter or reasonably estimate any potential loss.Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and productliability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on our business.ITEM 4. Mine Safety DisclosuresNone.PART II ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock, par value $0.001, is listed on the NASDAQ Global Select Market and trades under the stock symbol “CROX”. The following tableshows the high and low sales prices of our common stock for the periods indicated. Fiscal Year 2012 Three Months Ended High Low March 31, 2012 $22.40 $15.06 June 30, 2012 22.59 15.24 September 30, 2012 18.60 13.80 December 31, 2012 $16.79 $12.00 Fiscal Year 2011 Three Months Ended High Low March 31, 2011 $19.61 $15.28 June 30, 2011 26.04 17.88 September 30, 2011 32.47 23.12 December 31, 2011 $27.68 $14.20 21 Table of ContentsPerformance GraphThe following performance graph illustrates a five-year comparison of cumulative total return of our common stock, the NASDAQ Composite Index and theDow Jones U.S. Footwear Index from December 31, 2007 through December 31, 2012. The graph assumes an investment of $100 on December 31, 2007 andassumes the reinvestment of all dividends and other distributions and reflects our stock prices post-stock split.Comparison of Cumulative Total Return on Investment 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Crocs, Inc. $100.00 $3.37 $15.62 $46.51 $40.12 $39.09 Nasdaq Composite Index 100.00 59.46 85.55 100.02 98.22 113.85 Dow Jones US Footwear Index $100.00 $71.61 $91.56 $119.87 $134.10 $140.52 The Dow Jones U.S. Footwear Index includes companies in the major line of business in which we compete. This index does not encompass all of ourcompetitors or all of our product categories and lines of business. The Dow Jones U.S. Footwear Index consists of Crocs, Inc., NIKE, Inc., Deckers OutdoorCorp. and Wolverine World Wide, Inc. As Crocs, Inc. is part of the Dow Jones U.S. Footwear Index, the price and returns of our stock have an effect on thisindex.The stock performance shown on the performance graph above is not necessarily indicative of future performance. We do not make nor endorse anypredictions as to future stock performance.HoldersThe approximate number of stockholders of record of our common stock was 168 as of January 31, 2013. Because many of the shares of our common stockare held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by thesestockholders of record.DividendsWe have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in theoperation of our business and do not anticipate paying any cash 22 Table of Contentsdividends in the foreseeable future. Our financing arrangements also contain restrictions on our ability to pay cash dividends. Any future determination todeclare cash dividends will be made at the discretion of our board of directors, subject to compliance with covenants under any then-existing financingagreements.ISSUER PURCHASE OF EQUITY SECURITIES Period Total Numberof Shares(or Units)Purchased AveragePrice Paidper Share(or Unit) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs Maximum Number (orApproximate Dollar Value) ofShares (or Units) that May YetBe Purchased Under the PlansPrograms October 1, 2012—October 31, 2012 — $— — 5,476,000 November 1, 2012—November 30, 2012 625,900 12.24 625,900 4,850,100 December 1, 2012—December 31, 2012 1,257,640 13.78 1,257,640 3,592,460 Total 1,883,540 $ 13.27 1,883,540 3,592,460 (1)On November 1, 2007 and April 14, 2008, our Board of Directors approved an authorization to repurchase up to 1.0 million shares and 5.0 millionshares, respectively, of our common stock. As of December 31, 2012, approximately 3.6 million shares remained available for repurchase underour share repurchase authorization. Share repurchases may be made in the open market or in privately negotiated transactions. The repurchaseauthorization does not have an expiration date and does not oblige us to acquire any particular amount of our common stock. The repurchaseauthorization maybe be modified, suspended or discontinued at any time. 23(1) Table of ContentsITEM 6. Selected Financial DataThe following table presents selected historical financial data for each of our last five fiscal years. The information in this table should be read in conjunctionwith the consolidated financial statements and accompanying notes beginning on page F-1 and with “Management’s Discussion and Analysis of FinancialConditions and Results of Operations” included in Item 7 of this Form 10-K. For the Year Ended December 31, ($ thousands, except share data) 2012 2011 2010 2009 2008 Consolidated Statements of Operations Data Revenues $1,123,301 $1,000,903 $789,695 $645,767 $721,589 Cost of sales 515,324 464,493 364,631 337,720 486,722 Restructuring charges — — 1,300 7,086 901 Gross profit 607,977 536,410 423,764 300,961 233,966 Selling, general and administrative expenses 460,393 404,803 342,961 319,102 343,362 Restructuring charges — — 2,539 7,623 7,664 Asset impairments 1,410 528 141 26,085 45,784 Income (loss) from operations 146,174 131,079 78,123 (51,849) (162,844) Foreign currency transaction (gains) losses, net 2,500 (4,886) (2,325) (665) 25,438 Other income, net (2,711) (1,578) (1,001) (4,058) (565) Interest expense 837 853 657 1,495 1,793 Income (loss) before income taxes 145,548 136,690 80,792 (48,621) (189,510) Income tax (benefit) expense 14,205 23,902 13,066 (6,543) (4,434) Net income (loss) attributable to commonstockholders $131,343 $112,788 $67,726 $(42,078) $(185,076) Income (loss) per common share: Basic $1.46 $1.27 $0.78 $(0.49) $(2.24) Diluted $1.44 $1.24 $0.76 $(0.49) $(2.24) Weighted average common shares: Basic 89,571,105 88,317,898 85,482,055 85,112,461 82,767,540 Diluted 90,588,416 89,981,382 87,595,618 85,112,461 82,767,540 December 31, ($ thousands) 2012 2011 2010 2009 2008 Consolidated Balance Sheets Data Cash and cash equivalents $294,348 $257,587 $145,583 $77,343 $51,665 Total assets 829,638 695,453 549,481 409,738 455,999 Long term obligations 54,300 48,370 35,613 35,462 35,303 Total stockholders’ equity $617,400 $491,780 $376,106 $287,620 $287,163 24 Table of ContentsITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsBusiness OverviewWe are a designer, manufacturer, distributor, worldwide marketer and brand manager of innovative casual lifestyle footwear, apparel and accessories for men,women and children. We strive to be the global leader in molded footwear design and development. We design, manufacture and sell a broad product offeringthat provides new and exciting molded footwear products that feature comfort, fun, color 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.Since the initial introduction and popularity of our Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety of newstyles and products and have extended our product reach through the acquisition of brand platforms such as Jibbitz and Ocean Minded. We intend to continueto expand the breadth of our footwear product lines, bringing a unique and original perspective to the consumer in styles that may be unexpected from Crocs.We believe this will help us to continue to build a stable year-round business as we move towards becoming a four-season brand.We currently sell our Crocs-branded products globally through domestic and international retailers and distributors. We also sell our products directly toconsumers through our company-operated retail stores, outlets, kiosks and webstores,. The broad appeal of our footwear has allowed us to market ourproducts to a wide range of distribution channels, including department stores and traditional footwear retailers as well as a variety of specialty andindependent retail channels.As a global company, we have significant revenues and costs denominated in currencies other than the U. S. dollar. Sales in international markets in foreigncurrencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect our subsidiaries with functional currencies other thanthe U.S. dollar will continue to represent a substantial portion of our overall gross margin and related expenses. Accordingly, changes in foreign currencyexchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to period as a result of translating ourfinancial statements into our reporting currency.2012 Financial HighlightsOur business continues to experience positive results primarily from higher sales volumes and higher average shoe prices. Results for 2012 reflect increases inboth consolidated revenues and earnings driven by balanced international growth, operational efficiency, and customer focus.The following are the more significant developments in our businesses during the year ended December 31, 2012: • Revenues increased $122.4 million, or 12.2%, from 2011 to $1,123.3 million in 2012. Revenue growth was driven by increased salesvolume and focused improvements on average footwear selling prices with new product styles as we continue to transform Crocs brandawareness into an all-season footwear brand. • Gross profit increased $71.6 million, or 13.3%, from 2011 to $608.0 million in 2012. Gross margin percentage increased slightly comparedto last year driven by higher average selling prices and higher footwear unit sales, which are results of the continued growth and expansion ofour retail and internet channels as the growth in combined sales from these channels began to outpace our wholesale channel. These driverswere offset by higher costs primarily from the expansion of our 25 Table of Contents product offerings in 2012 utilizing traditional materials, such as textile fabric and leather, and increased offerings of discounted productsand promotional items through our wholesale and direct-to-consumer channels. • Selling, general, and administrative expenses increased $55.6 million, or 13.7%, from 2011 to $460.4 million in 2012, which consists of$229.8 million in indirect expenses and $230.6 million in direct expenses. Selling, general, and administrative expenses continue to increaseas we continue to increase our retail store locations and continue to make strategic purchases to improve the operational efficiency of theCompany. • Net income increased $18.6 million, or 16.5%, from 2011 to $131.3 million in 2012 driving our basic and diluted earnings per share from$1.27 to $1.46 and $1.24 to $1.44, respectively, due to higher operating results and to a lesser extent a lower effective tax rate. • In October 2012, we began the implementation of a customized and fully integrated operations, accounting, and finance enterprise resourceplanning (“ERP”) system which is expected to launch in the first half of 2014. The introduction of the new ERP to our current environmentwill allow for seamless, high-quality, and compliant data across the Company. As of December 31, 2012, total costs related to the ERPimplementation were $9.9 million, of which $9.0 million was capitalized and $0.9 million was expensed. We have financed $6.6 million ofour total costs related to the ERP under a Master Installment Payment Agreement with PNC Bank National Association (“PNC”). Our totalanticipated expenses to complete the ERP implementation are $25.0 million. • In December 2012, we renegotiated our Credit Agreement to increase our credit line to $100 million, extending the agreement until December2017, reducing our interest rate by 50 basis points for both domestic and LIBOR rate loans, as well as allowing for up to $50 million perquarter, or $150 million per year, to be used towards share repurchases. • In the fourth quarter of 2012, approximately 1.9 million shares were repurchased at an average price of $13.27 for a total of value of $25.0million, excluding related commission charges.2013 OutlookIn 2013, we expect another year of increased revenue and earnings as indicated by increased year-over-year global preseason orders from our wholesalecustomers for spring and summer and an estimated expansion of retail locations across the globe by 70 to 95 net stores. We expect to have increased revenuesdriven by continued higher volumes as a result of improving selling conditions, higher average selling prices, and positive market acceptance on new productscontributing to the continued expansion of our reputation as a four season brand. We anticipate margins to continually increase in 2013 as we expand our retailand internet channels. These channels give us the ability to focus on visual merchandising of new products.During 2013, we plan to make significant investments in the operational and technological efficiency of the Company as well as consumer marketing. Theseinvestments include a new ERP system, as discussed above, which we currently expect to reduce our 2013 earnings per share by $0.08—$0.10 per dilutedshare and represents a transformational change intended to improve our operational efficiency as we adapt as a global company, retail store metrics includingincreased size of stores and visual merchandising with a focus on high traffic, outlet locations, and the launching of new web designs in certain regionscomplimented by suggestive selling tactics and mobile point of sale systems to better assist customers. We intend to focus on organic growth including thelaunch of new innovative products, attracting new consumers, retail excellence and wholesale channel expansion with key partners. 26 Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2012 and 2011 Year EndedDecember 31, Change ($ thousands, except per share data and average footwear sellingprice) 2012 2011 $ % Revenues $1,123,301 $1,000,903 $122,398 12.2 % Cost of sales 515,324 464,493 50,831 10.9 Gross profit 607,977 536,410 71,567 13.3 Selling, general and administrative expenses 460,393 404,803 55,590 13.7 Asset impairments 1,410 528 882 167.0 Income from operations 146,174 131,079 15,095 11.5 Foreign currency transaction (gains) losses, net 2,500 (4,886) 7,386 (151.2) Other income, net (2,711) (1,578) (1,133) 71.8 Interest expense 837 853 (16) (1.9) Income before income taxes 145,548 136,690 8,858 6.5 Income tax expense 14,205 23,902 (9,697) (40.6) Net income $131,343 $112,788 $18,555 16.5 % Net income per common share: Basic $1.46 $1.27 $0.19 15.0 % Diluted $1.44 $1.24 $0.20 16.1 % Gross margin 54.1% 53.6% 50 bps 0.9 % Operating margin 13.0% 13.1% (10) bps (0.8)% Footwear unit sales 49,947 47,736 2,211 4.6 % Average footwear selling price $21.55 $20.04 $1.51 7.5 % Revenues. The following table sets forth revenues by channel for the years ended December 31, 2012 and 2011. During the year ended December 31, 2012,revenues increased $122.4 million, or 12.2%, compared to the same period in 2011, primarily due to an increase of 2.2 million, or 4.6%, in global footwearunit sales and an increase of $1.51, or 7.5%, in footwear average selling price. For the year ended December 31, 2012, revenues from our wholesale channelincreased $47.5 million, or 7.9%, which was primarily driven by increased wholesale sales in Americas and Asia. Revenues from our retail channel increased$68.2 million, or 22.2%, primarily driven by strong demand in all three reportable segments as well as continued growth of our retail presence by opening107 retail stores net during 2012. We also continue to close certain kiosks as branded stores allow us to better merchandise the full breadth and depth of ourproduct line. Revenues from our internet channel increased $6.7 million, or 7.0%, compared to 2011 primarily driven by increased brand awareness in theAmericas and Asia operating segments and focus on improving our regional webstore presence. 27 Table of ContentsThe following table summarizes our total revenue by channel for the years ended December 31, 2012 and 2011. Year EndedDecember 31, Change Constant CurrencyChange ($ thousands) 2012 2011 $ % $ % Channel revenues: Wholesale: Americas $235,988 $214,062 $21,926 10.2% $25,920 12.1 % Asia 298,350 259,104 39,246 15.1 38,984 15.0 Europe 110,947 124,995 (14,048) (11.2) (5,168) (4.1) Other businesses 574 191 383 200.5 406 212.4 Total Wholesale 645,859 598,352 47,507 7.9 60,142 10.1 Consumer-direct: Retail: Americas 196,711 174,840 21,871 12.5 22,691 13.0 Asia 143,062 111,650 31,412 28.1 32,543 29.1 Europe 35,052 20,167 14,885 73.8 16,093 79.8 Total Retail 374,825 306,657 68,168 22.2 71,327 23.3 Internet: Americas 63,153 59,175 3,978 6.7 4,069 6.9 Asia 15,999 11,012 4,987 45.3 5,049 45.8 Europe 23,465 25,707 (2,242) (8.7) (163) (0.6) Total Internet 102,617 95,894 6,723 7.0 8,955 9.3 Total revenues: $1,123,301 $1,000,903 $122,398 12.2% $140,424 14.0 % Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information.The table below illustrates the overall growth in the number of our company-operated retail locations as of December 31, 2012 and 2011. December 31, 2012 Opened Closed December 31, 2011 Type: Kiosk/Store in Store 121 39 (76) 158 Retail Stores 287 120 (13) 180 Outlet Stores 129 42 (5) 92 Total 537 201 (94) 430 Geography: Americas 199 44 (42) 197 Asia 241 94 (51) 198 Europe 97 63 (1) 35 Total 537 201 (94) 430 Gross profit. During the year ended December 31, 2012, gross profit increased $71.6 million, or 13.3%, compared to the same period in 2011, which wasprimarily attributable to the 4.6% increase in sales volume and a 7.5% increase in footwear average selling price. Higher prices and sales volume are the resultof the continued growth and expansion of our retail and internet channels as the growth in combined sales from these channels began to outpace our wholesalechannel. These drivers were offset by higher costs primarily from the expansion of our product offerings in 2012 which utilize traditional materials, such astextile fabric and leather, and increased offerings of discounted products and promotional items through our wholesale and direct-to-consumer channels. 28(1)(1) Table of ContentsImpact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues andcosts of sales from our functional currencies to our reporting currency during the year ended December 31, 2012 decreased our gross profit by $7.8 millioncompared to the same period in 2011.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $55.6 million, or 13.7%, during the year endedDecember 31, 2012 compared to the same period in 2011 primarily due to: (i)an increase of $23.7 million in rent and building related costs, both of which resulted from continued growth in the number of company operatedretail stores; (ii)an increase of $14.4 million in salaries and related costs, including variable compensation, resulting from higher global headcount including thoseneeded for new retail store openings and increased stock compensation; (iii)an increase of $9.7 million in other expenses primarily from increases in depreciation and amortization expenses related to additional retail storelocations, and capitalized software as well as bad debt and sales tax expense increases; (iv)an increase of $9.8 million in professional service expenses resulting from increased use of outside accounting and finance services, consultingfor our new ERP implementation which began in October 2012, certain legal contingency accruals, increased outside IT costs related to theimplementation of new networking devices in our corporate headquarters, and increased costs associated with contracted customer service, salessupport, and performance improvement; and (v)the remaining difference is primarily a result of $2.1 million of net decreases in selling, general, and administrative expenses including travel, aswe continue to be conscious of operating expenses throughout the company.As a percentage of revenues, selling, general and administrative expenses increased 1.5%, or 60 basis points, to 41.0% in 2012 from 40.4% in 2011.Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchangerates used to translate expenses from our functional currencies to our reporting currency during the year ended December 31, 2012, decreased selling, generaland administrative expenses by approximately $4.8 million as compared to the same period in 2011.Asset Impairments. Asset impairments increased $0.9 million, or 167%, during the year ended December 31, 2012 primarily due to the impairment of $1.4million of long-lived assets related to retail stores in the United States and Canada. During 2012, we recorded impairments related to four retail locations as ourprojected discounted future cash flows of these locations is currently not sufficient to cover our fixed asset investments for these stores.Foreign Currency Transaction (Gains)/Losses. The line item entitled “Foreign currency transaction (gains)/losses, net” is comprised of foreign currencygains and losses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certainforeign currency derivative instruments. In 2012, we recognized a loss of $2.5 million related to foreign currency transactions, compared to a $4.9 milliongain in 2011, primarily due to a $4.3 million loss in the first quarter of 2012 as a result of large currency fluctuations and an increase in internationalbusiness. We implemented a foreign currency hedging strategy in the second quarter of 2012. As a result of this strategy, we have been able to reduce theimpacts of foreign currency fluctuations on our financial statements. 29 Table of ContentsIncome tax (benefit) expense. During the year ended December 31, 2012, income tax expense decreased $9.7 million resulting in a 7.7% decrease ineffective tax rate compared to the same period in 2011, which was primarily due to a reversal of certain tax provisions and the release of certain valuationallowances associated with deferred tax assets. Our effective tax rate of 9.8% for the year ended December 31, 2012 differs from the federal U.S. statutory rateprimarily because of the above releases as well as differences between income tax rates between U.S. and foreign jurisdictions.Comparison of the Years Ended December 31, 2011 and 2010 Year Ended December 31, Change ($ thousands, except per share data and average footwear selling price) 2011 2010 $ % Revenues $1,000,903 $789,695 $211,208 26.7 % Cost of sales 464,493 364,631 99,862 27.4 Restructuring charges — 1,300 (1,300) (100.0) Gross profit 536,410 423,764 112,646 26.6 Selling, general and administrative expenses 404,803 342,961 61,842 18.0 Restructuring charges — 2,539 (2,539) (100.0) Asset impairments 528 141 387 274.5 Income from operations 131,079 78,123 52,956 67.8 Foreign currency transaction gains, net (4,886) (2,325) (2,561) 110.2 Other income, net (1,578) (1,001) (577) 57.6 Interest expense 853 657 196 29.8 Income before income taxes 136,690 80,792 55,898 69.2 Income tax expense 23,902 13,066 10,836 82.9 Net income $112,788 $67,726 $45,062 66.5 % Net income per common share: Basic $1.27 $0.78 $0.49 62.8 % Diluted $1.24 $0.76 $0.48 63.2 % Gross margin 53.6 % 53.7 % (10) bps (0.2)% Operating margin 13.1 % 9.9 % 320 bps 32.3 % Footwear unit sales 47,736 42,618 5,118 12.0 % Average footwear selling price $20.04 $17.69 $2.35 13.3 % Revenues. During the year ended December 31, 2011, revenues from our wholesale channel increased $118.3 million, or 24.6%, which was primarily drivenby strong demand in all three operating segments, particularly Asia. Revenues from our retail channel increased $72.0 million, or 30.7%, as we continued togrow our retail presence by opening new retail stores. We also closed certain kiosks as branded stores allow us to better merchandise the full breadth and depthof our product line. Revenues from our internet channel increased $20.9 million, or 27.9%, primarily driven by increased internet sales in the Americas andEurope operating segments. 30 Table of ContentsThe following table summarizes our total revenue by channel for the years ended December 31, 2011 and 2010. Year EndedDecember, 31 Change Constant CurrencyChange ($ thousands) 2011 2010 $ % $ % Channel revenues: Wholesale: Americas $214,062 $182,149 $31,913 17.5 % $29,914 16.4 % Asia 259,104 200,013 59,091 29.5 40,317 20.2 Europe 124,995 95,806 29,189 30.5 23,629 24.7 Other businesses 191 2,119 (1,928) (91.0) (1,927) (90.9) Total Wholesale 598,352 480,087 118,265 24.6 91,934 19.1 Consumer-direct: Retail: Americas 174,840 141,892 32,948 23.2 32,369 22.8 Asia 111,650 77,319 34,331 44.4 27,561 35.6 Europe 20,167 15,426 4,741 30.7 3,799 24.6 Total Retail 306,657 234,637 72,020 30.7 63,729 27.2 Internet: Americas 59,175 50,832 8,343 16.4 8,246 16.2 Asia 11,012 7,685 3,327 43.3 2,382 31.0 Europe 25,707 16,454 9,253 56.2 7,890 48.0 Total Internet 95,894 74,971 20,923 27.9 18,518 24.7 Total revenues: $1,000,903 $789,695 $211,208 26.7 % $174,181 22.1 % Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information.The table below illustrates the overall growth in the number of our company-operated retail locations as of December 31, 2011 and 2010. December 31, 2011 Opened Closed December 31, 2010 Type: Kiosk/Store in Store 158 30 (25) 153 Retail Stores 180 57 (13) 136 Outlet Stores 92 14 — 78 Total 430 101 (38) 367 Geography: Americas 197 27 (22) 192 Asia 198 63 (16) 151 Europe 35 11 — 24 Total 430 101 (38) 367 Gross Profit. During the year ended December 31, 2011, gross profit increased $112.6 million, or 26.6%, compared to the same period in 2010, which wasprimarily attributable to the 12.0% increase in sales volume and 13.3% in footwear average selling price as margin remained relatively flat year over year.Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues andcosts of sales from our functional currencies to our reporting currency, the U.S. dollar, during the year ended December 31, 2011 increased our gross profit by$22.2 million compared to the same period in 2010. 31(1)(1) Table of ContentsSelling, General and Administrative Expenses. Selling, general and administrative expenses increased $61.8 million, or 18.0%, during the year endedDecember 31, 2011 compared to the same period in 2010 primarily due to (i) an increase of $29.3 million in salaries and related costs resulting from higherglobal headcount, (ii) an increase of $20.0 million in rent and building related costs, both of which resulted from continued growth in the number of company-operated retail stores and (iii) an increase of $6.5 million in contract labor which was primarily attributable to higher internet channel outsourced services,increased costs associated with contracted customer service and sales support, and other costs associated with IT support and process improvement. As apercentage of revenues, selling, general and administrative expenses decreased 6.9%, or 300 basis points, to 40.4% in 2011 from 43.4% in 2010.Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchangerates used to translate expenses from our functional currencies to our reporting currency during the year ended December 31, 2011 increased selling, generaland administrative expenses by approximately $14.8 million as compared to the same period in 2010.Restructuring charges. Restructuring charges decreased by $3.8 million during the year ended December 31, 2011 compared to the same period in 2010 aswe had no restructurings during 2011. The 2010 restructuring charges consisted of $2.0 million in severance costs related to the departure of a formerexecutive and $1.8 million related to a change in estimate of our original accrual for lease termination costs for our office facility in Canada, which was closedin 2008.Foreign Currency Transaction (Gains)/Losses. Foreign currency transaction gains increased $2.6 million, or 110.2%, during the year endedDecember 31, 2011 compared to the same period in 2010, primarily due to a correction related to an error in the classification of certain intercompanyreceivables and payables balances that should have been deemed permanently invested in certain prior periods.Income tax (benefit) expense. During the year ended December 31, 2011, income tax expense increased $10.8 million compared to the same period in 2010,which was primarily due to an increase in pre-tax income. In addition, the company recognized a one-time $3.6 million tax benefit recorded during the secondquarter of 2011 as a result of a change in our international structure and a $3.0 million tax benefit recognized in the third quarter of 2010 due to a change in aninternational tax treaty which reduced certain taxes for which accruals had previously been made. Our effective tax rate of 17.5% for the year endedDecember 31, 2011 differs from the federal U.S. statutory rate primarily because of differences between income tax rates between US and foreign jurisdictions.Presentation of Reportable SegmentsWe have three reportable operating segments: Americas, Europe and Asia. Revenues of each of our reportable operating segments represent sales to externalcustomers. We also have an “Other businesses” category which aggregates insignificant operating segments that do not meet the reportable threshold andrepresent manufacturing operations located in Mexico and Italy. The composition of our reportable operating segments is consistent with that used by our chiefoperating decision maker (“CODM”) to evaluate performance and allocate resources. Each of our reportable operating segments derives its revenues from thesale of footwear, apparel and accessories to external customers. Revenues for the “Other businesses” represent non-footwear product sales to external customers.Segment assets consist of cash and cash equivalents, accounts receivable and inventory.Segment operating income is the primary measure used by our CODM to evaluate segment operating performance and to decide how to allocate resources tosegments. Segment performance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative andother expenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegmentsales. 32 Table of ContentsDuring the first quarter of 2012, we changed the internal reports used by our CODM to align the definition of our segment operating income with “Income fromoperations.” Previously, segment operating income excluded asset impairment charges and restructuring costs not included in cost of sales. Segment operatingincome also reflects the reclassification of “Foreign currency transaction (gains) losses, net” from “Income from operations” on the consolidated statements ofincome. See Note 1—Organization & Summary of Significant Accounting Policies for further discussion. Segment information for all periods presented hasbeen reclassified to reflect these changes.Comparison of the Years Ended December 31, 2012 and 2011The following tables set forth information related to our reportable operating business segments for the years ended December 31, 2012 and 2011. Year Ended December 31, Change Constant Currency Change ($ thousands) 2012 2011 $ % $ % Revenues: Americas $495,852 $448,077 $47,775 10.7% $52,680 11.8% Asia 457,411 381,766 75,645 19.8 76,576 20.1 Europe 169,464 170,869 (1,405) (0.8) 10,762 6.3 Total segment revenues 1,122,727 1,000,712 122,015 12.2 140,018 14.0 Other businesses 574 191 383 200.5 406 212.4 Total consolidated revenues $1,123,301 $1,000,903 $122,398 12.2% $140,424 14.0% Operating income: Americas $85,538 $70,532 $15,006 21.3% $14,962 21.2% Asia 140,828 123,918 16,910 13.6 16,701 13.5 Europe 21,678 37,106 (15,428) (41.6) (12,137) (32.7) Total segment operating income 248,044 231,556 16,488 7.1 19,526 8.4 Other businesses (10,805) (14,128) 3,323 (23.5) 3,235 (22.9) Intersegment eliminations 60 66 (6) (9.1) (16) (23.6) Unallocated corporate and other (91,125) (86,415) (4,710) 5.5 (4,785) 5.5 Total consolidated operating income $146,174 $131,079 $15,095 11.5% $17,960 13.7% During the year ended December 31, 2012, operating losses of Other businesses decreased $3.3 million primarily due to a $2.5 million increase ingross margin and a $0.8 million decrease in selling, general and administrative expenses. Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-basedcompensation, research and development, brand marketing, legal, depreciation on corporate and other assets not allocated to operating segments andcosts of the same nature of certain corporate holding companies. For the year ended December 31, 2012, Unallocated corporate and other expensesincreased $4.7 million compared to the same period in 2011, primarily due to a $3.3 million increase in cost of sales and a $2.0 million increase inselling, general, and administrative costs due to higher corporate headcount partially offset by a decrease of $0.5 million in asset impairments and adecrease of $0.1 million in charitable contributions. Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment information does not have an effect onvalues below total consolidated operating income. Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Non-GAAPFinancial Measures” below for more information.Americas Operating Segment. During the year ended December 31, 2012, revenues from the Americas segment increased $47.8 million, or 10.7%, comparedto the same period in 2011 primarily due to a 4.3% increase in 33(4)(1)(2)(3)(1)(2)(3)(4) Table of Contentsfootwear units sold and a 5.8% increase in average footwear selling price partially offset by a $4.9 million unfavorable impact from foreign currencyfluctuations. Revenue growth for the region was realized primarily in the wholesale channel which increased $21.9 million, or 10.2%, and in the retail channelwhich increased $21.9 million, or 12.5%. We continue to focus on disciplined expansion of our retail channel by opening 22 full price stores net and 15outlet stores net in 2012, offset by the closing of 35 underperforming kiosk locations net. Segment operating income increased by $15.0 million, or 21.3%,driven mainly by the revenue increase and a slight increase in segment gross margin of approximately 2.2%, or 110 basis points, which was largely offset bya $12.5 million, or 8.3%, increase in selling, general and administrative expenses resulting from the continued expansion of the retail channel. Foreigncurrency fluctuations had a net negative impact of $1.8 million on gross margin and an immaterial impact on operating income for the Americas region.Asia Operating Segment. During the year ended December 31, 2012, revenues from the Asia segment increased $75.6 million, or 19.8%, compared to thesame period in 2011 primarily due to a 14.5% increase in footwear units sold and a 5.1% increase in average footwear selling price partially offset by a $0.9million unfavorable impact from foreign currency fluctuations. Revenue growth for the region was realized in all three channels as we retain strong supportfrom our wholesale channel customers, continue to focus on disciplined expansion of our retail channel and continue to implement new, consumer-friendlywebstores in various countries in our internet channel. Wholesale channel revenue increased $39.2 million, or 15.1%, retail channel revenue increased $31.4million, or 28.1%, and internet channel revenue increased $5.0 million, or 45.3%. In 2012, we opened 43 total stores net in the Asia region including 41 fullprice stores net and 8 outlet stores net partially offset by the closing of 6 underperforming kiosk locations net. Segment operating income increased $16.9million, or 13.6%, primarily due to the increase in revenues and a $0.2 million favorable net impact from foreign currency fluctuations which were partiallyoffset by a $27.7 million, or 24.3%, increase in selling, general and administrative expenses resulting from the continued expansion of the retail channel and aslight decrease in segment gross margin of approximately 1.0%, or 60 basis points. Foreign currency fluctuations had a net negative impact of $0.5 million onthe Asia gross margin.Europe Operating Segment. During the year ended December 31, 2012, revenues from the Europe segment decreased $1.4 million, or 0.8%, compared to thesame period in 2011 primarily due to an 11.3% decrease in footwear units sold and a $12.2 million unfavorable impact from foreign currency fluctuationspartially offset by a 13.4% increase in average footwear selling price. A decrease of $14.0 million, or 11.2%, in wholesale channel revenue and a decrease of$2.2 million, or 8.7%, in internet channel revenue drove the decline in total segment revenues which was primarily due to the decrease in footwear units soldand unfavorable impact of foreign currency fluctuations as a result of challenging macroeconomic conditions in Europe. The wholesale and internet channelrevenue decreases were partially offset by a revenue increase of $14.9 million, or 73.8%, in the retail channel as we opened 62 stores net in 2012 including 44full price stores net, 14 outlet stores net and 4 kiosk locations net. Segment operating income decreased by $15.4 million, or 41.6%, driven mainly bydecreased revenues, an increase of $14.3 million, or 28.4%, in selling, general, and administrative expenses resulting from the continued expansion of the retailchannel, a $3.3 million unfavorable net impact from foreign currency fluctuations, and a slight decrease in segment gross margin of approximately 0.4%, or20 basis points. Foreign currency fluctuations had a net negative impact of $6.1 million on the Europe gross margin. 34 Table of ContentsComparison of the Years Ended December 31, 2011 and 2010The following tables set forth information related to our reportable operating business segments for the years ended December 31, 2011 and 2010. Year Ended December 31, Change Constant Currency Change ($ thousands) 2011 2010 $ % $ % Revenues: Americas $448,077 $374,873 $73,204 19.5% $70,529 18.8% Asia 381,766 285,017 96,749 33.9 70,260 24.7 Europe 170,869 127,686 43,183 33.8 35,319 27.7 Total segment revenues 1,000,712 787,576 213,136 27.1 176,108 22.4 Other businesses 191 2,119 (1,928) (91.0) (1,927) (90.9) Total consolidated revenues $1,000,903 $789,695 $211,208 26.7 $174,181 22.1% Operating income: Americas $70,532 $64,099 $6,433 10.0 $6,138 9.6% Asia 123,918 89,248 34,670 38.8 24,707 27.7 Europe 37,106 22,258 14,848 66.7 12,739 57.2 Total segment operating income 231,556 175,605 55,951 31.9 43,584 24.8 Other businesses (14,128) (23,321) 9,193 (39.4) 9,598 (41.2) Intersegment eliminations 66 1,360 (1,294) (95.1) (1,294) (95.2) Unallocated corporate and other (86,415) (75,522) (10,893) 14.4 (10,721) 14.2 Total consolidated operating income $131,079 $78,122 $52,957 67.8% $41,167 52.7% During the year ended December 31, 2011, operating losses of Other businesses decreased $9.2 million primarily due to a $7.6 million increase ingross profit related to higher revenues and a $1.5 million decrease in selling, general, and administrative expenses primarily related to lower salariesand wages associated with lower supply chain headcount. Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-basedcompensation, research and development, brand marketing, legal, depreciation on corporate and other assets not allocated to operating segments andcosts of the same nature of certain corporate holding companies. For the year ended December 31, 2011, Unallocated corporate and other expenseincreased $10.9 million compared to the same period in 2010, primarily due to a $4.7 million increase in salaries and wages due to higher corporateheadcount, a $2.9 million increase in outside services primarily costs associated with IT support and process improvement, a $1.8 million increase indepreciation and amortization of unallocated corporate long-lived assets and a $1.2 million increase in marketing and travel costs. Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment information does not have an effect onvalues below total consolidated operating income. Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Non-GAAPFinancial Measures” below for more information.Americas Operating Segment. During the year ended December 31, 2011, revenues from the Americas segment increased $73.2 million, or 19.5%,compared to the same period in 2010 primarily due to a 9.3% increase in footwear units sold, a 7.8% increase in average footwear selling price and a $2.7million favorable impact from foreign currency fluctuations. Significant sales growth for the segment included an increase of $31.9 million, or 17.5%, inwholesale channel revenue and an increase of $32.9 million, or 23.2%, in retail channel revenue. Segment operating income increased by $6.4 million, or10.0%, driven mainly by the revenue increase and a $0.3 million favorable net impact from foreign currency fluctuations which was largely offset by a $16.9million, 35(4)(1)(2)(3)(1)(2)(3)(4) Table of Contentsor 12.6%, increase in selling, general and administrative expenses resulting from the continued expansion of the retail channel and a decrease in segment grossmargin of approximately 6.8%, or 360 basis points.Asia Operating Segment. During the year ended December 31, 2011, revenues from the Asia segment increased $96.8 million, or 33.9%, compared to thesame period in 2010 primarily due to a 13.0% increase in average footwear selling price, a 10.6% increase in footwear units sold and a $26.5 million favorableimpact from foreign currency fluctuations. Significant sales growth for the segment included an increase of $59.1 million, or 29.5% in wholesale channelrevenue, an increase of $34.3 million, or 44.4%, in retail channel revenue, and an increase of $3.3 million, or 43.3%, in internet channel revenue. Segmentoperating income increased $34.7 million, or 38.8%, primarily due to the increase in revenues and a $10.0 million favorable net impact from foreign currencyfluctuations which were partially offset by a $24.3 million, or 27.0% increase in selling, general and administrative expenses resulting from the continuedexpansion of the retail channel as segment gross margin remained relatively flat.Europe Operating Segment. During the year ended December 31, 2011, revenues from the Europe segment increased $43.2 million, or 33.8%, compared tothe same period in 2010 primarily due to a 23.2% increase in footwear units sold, a 4.8% increase in average footwear selling price and a $7.9 millionfavorable impact from foreign currency fluctuations. Significant sales growth for the segment included an increase of $29.2 million, or 30.5%, in wholesalechannel revenue, an increase of $4.7 million, or 30.7%, in retail channel revenue and an increase of $9.3 million, or 56.2%, in internet channel revenue.Segment operating income increased $14.8 million, or 66.7%, primarily due to higher revenues, an increase in segment gross margin of approximately 3.7%or 180 basis points and a $2.1 million favorable net impact from foreign currency fluctuations which were partially offset by a $9.8 million, or 24.1%,increase in selling, general and administrative expenses resulting from the continued expansion of the retail channel.Non-GAAP Financial MeasuresIn addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), wepresent current period results below in ‘adjusted net income’, which is a non-GAAP financial measure. Adjusted net income excludes the impact of newenterprise resource planning system (“ERP”) implementation expenses, non-recurring tax benefits, accelerated depreciation and amortization of our current ERPsystem and certain legal and other contingency accruals.We also present certain information related to our current period results of operations in this Item 7 through “constant currency”, which is a non-GAAPfinancial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constantcurrency represents current period results that have been restated using prior year average foreign exchange rates for the comparative period to enhance thevisibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.Management uses adjusted net income and constant currency figures to assist in comparing business trends from period to period on a consistent basiswithout regard to the impact of non-recurring items and foreign exchange rate fluctuations and in communications with the board of directors, stockholders,analysts and investors concerning our financial performance. We believe that these non-GAAP measures are used by, and are useful to, investors and otherusers of our financial statements in evaluating operating performance by providing better comparability between reporting periods because they provide anadditional tool to evaluate our performance without regard to foreign currency fluctuations and non-recurring items that may not be indicative of overallbusiness trends and provide a better baseline for analyzing trends in our operations. We do not suggest that investors should consider these non-GAAPmeasures in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. 36 Table of ContentsThe following table is a reconciliation of our net income, the most directly comparable U.S. GAAP measure, to non-GAAP net income: Year Ended December, 31 Reconciliation of GAAP Net Income to Non-GAAP AdjustedNet Income: 2012 2011 2010 GAAP net income $131,343 $112,788 $67,726 New ERP implementation 870 — — Contingency accruals 5,904 — — Depreciation and Amortization 903 — — Non-GAAP adjusted net income before income taxes $139,020 $112,788 $67,726 Income tax benefit (11,368) (3,634) (3,080) Non-GAAP adjusted net income $127,652 $109,154 $64,646 Non-GAAP adjusted net income per diluted share $1.40 $1.20 $0.73 This proforma adjustment in the GAAP to Non-GAAP reconciliations above represents expenses related to the implementation of a new ERP system. This proforma adjustment in the GAAP to Non-GAAP reconciliations above represents contingency accruals of which $2.2 million was recorded inselling, general and administrative expenses and $3.7 million was recorded in cost of sales. This proforma adjustment in this GAAP to Non-GAAP reconciliation represents the add-back of accelerated depreciation and amortization on tangibleand intangible items related to our current ERP system and supporting platforms that will no longer be utilized once the implementation of a new ERPis complete. The proforma adjustments in this GAAP to Non-GAAP reconciliation represent the add-back of certain one-time income tax benefits. The year-endedDecember 31, 2012 includes a one-time tax benefit of $11.4 million related to the reversal of reserves related to specific uncertain tax positions and therelease of certain valuation allowances associated with deferred tax assets. The year-ended December 31, 2011 includes a one-time tax benefit of $3.6million related to a change in the international tax structure. The year-ended December 31, 2010 includes a one-time tax benefit of $3.0 million related toa change in an international tax treaty.Liquidity and Capital ResourcesCash and cash equivalents at December 31, 2012 increased 14.2% to $294.3 million compared to $257.6 million at December 31, 2011. We anticipate thatcash flows from operations will be sufficient to meet the ongoing needs of our business for the next twelve months. In order to provide additional liquidity inthe future and to help support our strategic goals, we also have a revolving credit facility with a syndicate of lenders, including PNC Bank, N.A. (“PNC”)(further discussed below), which currently provides us with up to $100.0 million in borrowing capacity and matures in December 2017. Additional futurefinancing may be necessary and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable tous or at all.We continue to evaluate options to maximize the returns on our cash and maintain an appropriate capital structure, including, among other alternatives,repurchases of our common stock. Subject to certain restrictions on repurchases under our revolving credit facility, we have authorization to repurchase up to5.5 million shares of our common stock under previous board authorizations. During the fourth quarter of 2012, the Company repurchased approximately1.9 million shares for an aggregate price of approximately $25.0 million, excluding related commission charges. The number, price and timing ofrepurchases, if any, will be at our sole discretion and future repurchases will be evaluated depending on market conditions, liquidity needs and other factors. 37(1)(2)(3)(4)(1)(2)(3)(4) Table of ContentsRevolving Credit FacilityOn December 10, 2012, Crocs, Inc. (the “Company”) and its subsidiaries, Crocs Retail, Inc., Ocean Minded, Inc., Jibbitz, LLC and Bite, Inc. (collectivelywith the Company, the “Borrowers”) entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”) with the lendersnamed therein and PNC Bank, National Association (“PNC”), as a lender and administrative agent for the lenders, pursuant to which certain terms of theAmended and Restated Credit Agreement (the “Credit Agreement”), dated December 16, 2011, were amended. The First Amendment, among other things,(i) extends the maturity date from December 16, 2016 to December 16, 2017, (ii) increases the total commitments under the revolving credit facility from $70million to $100 million, with the ability to increase commitments to up to $125 million subject to certain conditions, (iii) decreases the revolving interest rateby 50 basis points for both domestic and LIBOR rate loans, (iv) increases the ability of the Company to make stock repurchases from up to $25 million peryear to up to $150 million per year, subject to certain conditions, (v) increases the limit for permitted acquisitions from up to $40 million per year to up to$100 million per year, subject to certain conditions, (vi) adds a covenant to maintain unrestricted cash of at least $100 million at all times, subject tolimitations, and (vii) amends certain restrictive covenants to be more favorable to the Borrowers.The Credit Agreement is available for working capital, capital expenditures, permitted acquisitions, reimbursement of drawings under letters of credit, andpermitted dividends, distributions, purchases, redemptions and retirements of equity interests. Borrowings under the Credit Agreement are secured by all ofour assets including all receivables, equipment, general intangibles, inventory, investment property, subsidiary stock and intellectual property. Borrowingsunder the Credit Agreement bear interest at a variable rate. For domestic rate loans, the interest rate is equal to the highest of (i) the daily federal funds open rateas quoted by ICAP North America, Inc. plus 0.5%, (ii) PNC’s prime rate and (iii) a daily LIBOR rate plus 1.0%, in each case there is an additional marginranging from 0.25% to 1.00% based on certain conditions. For LIBOR rate loans, the interest rate is equal to a LIBOR rate plus a margin ranging from 1.25%to 2.00% based on certain conditions. The Credit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of eachinterest period with respect to LIBOR rate loans and contains certain customary restrictive and financial covenants. We were in compliance with theserestrictive financial covenants as of December 31, 2012. As of December 31, 2012 and 2011, we had no outstanding borrowings and $0.4 million ofoutstanding borrowings, respectively, under the Credit Agreement. At December 31, 2012 and 2011, we had issued and outstanding letters of credit of$6.4 million and $6.0 million, respectively, which were reserved against the borrowing base. During the years ended December 31, 2012 and 2011, wecapitalized $0.5 million and $0.4 million, respectively, in fees and third party costs which were incurred in connection with the Credit Agreement, as deferredfinancing costs.Long-term Debt AgreementOn December 10, 2012, we entered into a Master Installment Payment Agreement (“Master IPA”) with PNC Bank National Association (“PNC”) in whichPNC will finance our purchase of software and services, which may include but are not limited to third party costs to design, install and implement softwaresystems, and associated hardware described in the schedules defined within the Master IPA. This agreement was entered into to finance the recentimplementation of a new ERP system which began in October 2012 and is estimated to continue through early 2014. The terms of the agreement consist ofvariable interest rates and payment terms based on amounts borrowed and timing of activity throughout the implementation of the ERP. As of December 31,2012, we had $6.6 million of long-term debt outstanding under the agreement payable over the next four years bearing interest at a rate of 2.63% per annum.Interest rates and payment terms are subject to changes as further financing occurs under the Master IPA.AcquisitionsOn July 16, 2012, our subsidiaries Crocs Europe B.V., Crocs Stores B.V. and Crocs Belgium N.V. (collectively referred to as “Crocs Europe”), acquiredcertain net assets and activities from Crocs Benelux B.V. (“Benelux”) 38 Table of Contentspursuant to a sale and purchase agreement dated July 9, 2012. Prior to the acquisition, Benelux was a distributor of the Company. The Companyacquired Benelux’ retail business and wholesale business, including inventory, fixed assets, customer relationships, 10 retail stores and their associatedleases. Total consideration paid was cash of € 3.6 million (approximately $4.6 million). This acquisition will allow us to take direct control in expanding ourbusiness in the Europe region.Working CapitalAs of December 31, 2012, accounts receivable increased $7.5 million to $92.3 million when compared to December 31, 2011, primarily due to higher sales inthe fourth quarter of 2012 compared to the fourth quarter of 2011. Inventories increased $35.2 million, or 27.1%, to $164.8 million as of December 31, 2012when compared to December 31, 2011, primarily due to wholesale order growth and higher cost new product introductions, particularly in the Americas andAsia segments, in addition to the global increase in company-operated retail stores.Capital AssetsDuring the year ended December 31, 2012, net capital expenditures, inclusive of intangible assets, acquired with cash increased to $59.5 million compared to$41.6 million during the same period in 2011 primarily due to the capitalization of our ERP implementation costs and leasehold improvements related to ourretail store expansion.We have entered into various operating leases that require cash payments on a specified schedule. Over the next five years we are committed to make paymentsof approximately $278.5 million related to our operating leases. We plan to continue to enter into operating leases related to our retail stores. We also continue toevaluate cost reduction opportunities. Our evaluation of cost reduction opportunities will include an evaluation of contracts for sponsorships, operating leasecontracts and other contracts that require future minimum payments resulting in fixed operating costs. Any changes to these contracts may require earlytermination fees or other charges that could result in significant cash expenditures.Repatriation of CashAs we are a global business, we have cash balances which are located in various countries and are denominated in various currencies. Fluctuations in foreigncurrency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cashflows and capital resources. Cash balances held in foreign countries have additional restrictions and covenants associated with them which adds increasedstrains on our liquidity and ability to timely access and transfer cash balances between entities.We generally consider unremitted earnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to changethis position with the exception of the expected repatriation of up to approximately $13.6 million in cash that was previously accrued for as a repatriation of2010 foreign subsidiary earnings and approximately $25.0 million of 2012 foreign subsidiary earnings. Most of the cash balances held outside of the U.S.could be repatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes less applicable foreign tax credits. In somecountries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were to move the cash to anothercountry. Certain countries, including China, have monetary laws which may limit our ability to utilize cash resources in those countries for operations in othercountries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect ourliquidity. As of December 31, 2012, we held $272.0 million of our total $294.3 million in cash in international locations. This cash is primarily used for theongoing operations of the business in the locations in which the cash is held. Of the $272.0 million, $38.2 million could potentially be restricted, as describedabove. If the remaining $233.8 million were to be immediately repatriated to the U.S., we would be required to pay approximately $50.8 million in taxes thatwere not previously provided for in our consolidated statement of operations. 39 Table of ContentsContractual ObligationsIn February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certain rawmaterials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivity throughout theterm of the agreement, which expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous and we do not expect themto become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or is subject to quarterly reviews andfluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee the payment for certain third-partymanufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately $4.6 million as of December 31, 2012),through a letter of credit that was issued to Finproject S.r.l.The following table summarizes aggregate information about our significant contractual cash obligations as of December 31, 2012. Payments due by period ($ thousands) Total Less than1 year 1 - 3years 4 - 5years More than5 years Operating lease obligations $410,904 $80,020 $117,535 $80,959 $132,390 Inventory purchase obligations with third party manufacturers 152,779 152,779 — — — Estimated liability for uncertain tax positions 31,900 216 11,766 10,333 9,585 Other contracts 42,257 13,356 14,992 12,418 1,491 Debt obligations 6,910 2,159 3,455 1,296 — Minimum licensing royalties 3,247 709 1,316 815 407 Capital lease obligations 57 27 21 9 — Total $648,054 $249,266 $149,085 $105,830 $143,873 Includes $5.9 million in purchase commitments with certain third party manufacturers for yet-to-be-received finished product where title passes to usupon receipt. The Other contracts line item consists of various agreements with third-party providers primarily for IT renovation and maintenance in our Niwot, COfacility and global accounting services. In December 2012, we entered into an agreement with PNC Bank to finance the purchase of software and services related to a new ERP systeminstallation, which began in October 2012 and is estimated to continue through early 2014. Amounts include anticipated interest payments.Off-Balance Sheet ArrangementsWe had no material off balance sheet arrangements as of December 31, 2012.Critical Accounting Policies and EstimatesGeneralOur discussion and analysis of financial condition and results of operations is based on the consolidated financial statements which have been prepared inaccordance with generally accepted accounting principles in the United States of America (“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 base ourestimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form thebasis 40(1)(2)(3)(4)(4)(1)(2)(3)(4) Table of Contentsfor making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. The following discussion pertains to accounting policies management believes are most critical to theportrayal of our financial condition and results of operations that require management’s most difficult, subjective or complex judgments.Reserves for Uncollectible Accounts Receivable. We make ongoing estimates related to the collectability of our accounts receivable and maintain a reservefor estimated losses resulting from the inability of our customers to make required payments. Our estimates are based on a variety of factors, including thelength of time receivables are past due, economic trends and conditions affecting our customer base, significant one-time events and historical write-offexperience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations.Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from ourestimates and we may experience changes in the amount of reserves we recognize for accounts receivable that we deem uncollectible. If the financial condition ofsome of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determine that asmaller or larger reserve is appropriate, we would record a credit or a charge to selling, general and administrative expenses in the period in which we madesuch a determination.Sales Returns, Allowances and Discounts. We record reductions to revenue for estimated customer returns, allowances and discounts. Our estimated salesreturns and allowances are based on customer return history and actual outstanding returns yet to be received. Provisions for customer specific discountsbased on contractual obligations with certain major customers are recorded as reductions to net sales. We may accept returns from our wholesale anddistributor customers on an exception basis at the sole discretion of management for the purpose of stock re-balancing to ensure that our products aremerchandised in the proper assortments. Additionally, at the sole discretion of management, we may provide markdown allowances to key wholesale anddistributor customers to facilitate the “in-channel” markdown of products where we have experienced less than anticipated sell-through. We also recordreductions to revenue for estimated customer credits as a result of price mark-downs in certain markets. Fluctuations in our estimates for sales returns,allowances and discounts may be caused by many factors, including, but not limited to, fluctuations in our sales revenue and changes in demand for ourproducts. Our judgment in determining these estimates is impacted by various factors including customer acceptance of our new styles, customer inventorylevels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products and macroeconomic factors affecting ourcustomers. Because we cannot predict or control certain of these factors, the actual amounts of customer returns and allowances may differ 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 leastannually, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which we believe that theproducts may need to be discounted below cost to sell within a reasonable period. We base inventory fair value on several subjective and unobservableassumptions including estimated future demand and market conditions and other observable factors such as current sell-through of our products, recentchanges in demand for our product, shifting demand between the products we offer, global and regional economic conditions, historical experience sellingthrough liquidation and “off-price” channels and the amount of inventory on hand. If the estimated inventory fair value is less than its carrying value, thecarrying value is adjusted to market value and the resulting impairment charge is recorded in cost of sales on the consolidated statements of operations. Theultimate results achieved in selling excess and discontinued products in future periods may differ significantly from management’s fair value estimates. SeeNote 2—Inventories in the accompanying notes to the consolidated financial statements for additional information regarding inventory.Impairment of Long-Lived Assets. We test long-lived assets to be held and used for impairment when events or circumstances indicate the carrying value ofa long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as defined below) include: (i) asignificant decrease 41 Table of Contentsin its market price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physical condition, (iii) a significant adversechange in legal factors or business climate that could affect its value, including an adverse action or assessment by a regulator, (iv) an accumulation of costssignificantly in excess of the amount originally expected for its acquisition or construction, (v) its current period operating or cash flow losses combined withhistorical operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associated with its use, and (vi) a current expectation that,more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If such facts indicate a potentialimpairment of a long-lived asset (or asset group), we assess the recoverability by determining if its carrying value exceeds the sum of its projectedundiscounted cash flows expected from its use and eventual disposition over its remaining economic life. If the asset is not supported on an undiscounted cashflow basis, the amount of impairment is measured as the difference between its carrying value and its fair value. Assets held for sale are reported at the lowerof the carrying amount or fair value less costs to sell. Fair value is determined by independent third party appraisals, the net present value of expected cashflows, or other valuation techniques as appropriate. Assets to be abandoned or from which no further benefit is expected are written down to zero at the timethat the determination is made and the assets are removed entirely from service.An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets andliabilities. For assets involved in our retail business, our asset group is at the retail store level. Our estimates of future cash flows over the remaining useful lifeof the asset group are based on management’s operating budgets and forecasts. These budgets and forecasts take into consideration inputs from our regionalmanagement related to growth rates, pricing, new markets and other factors expected to affect the business, as well as management’s forecasts for inventory,receivables, capital spending, and other cash needs. These considerations and expectations are inherently uncertain, and estimates included in our operatingforecasts beyond a three to six month future period are extremely subjective. Accordingly, actual cash flows may differ significantly from our estimated futurecash flows.Impairment charges are driven by, among other things, changes in our strategic operational and financial decisions, global and regional economic conditions,demand for our product and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from our long-livedassets and result in impairment charges in future periods. Significant impairment charges recognized during a reporting period could have an adverse effect onour reported financial results.Impairment of Goodwill & Intangible Assets. Intangible assets with indefinite lives (i.e. 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 definite lives,such as customer relationships, core technology, capitalized software, patents and non-compete agreements are amortized over their useful lives and areevaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable. Recoverability is based on the estimatedfuture undiscounted cash flows of an asset. If the asset is not supported on an undiscounted cash flow basis, the amount of impairment is measured as thedifference between its carrying value and its fair value. Determination of the fair value of indefinite lived intangible assets involves a number of managementassumptions including the expected future operating performance of our reporting units which may change in future periods due to technological changes,economic conditions, changes to our business operations, or the inability to meet business plans, among other things. The valuation is sensitive to the actualresults of any of these uncertain factors which could be negatively affected and may result in additional impairment charges should the actual results differfrom management’s estimates. See Note 4—Goodwill & Intangible Assets, in the accompanying notes to the consolidated financial statements for additionalinformation 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 which requirevarious assumptions including the expected volatility of our stock price and the expected life of the option. The expected volatility assumptions are derivedusing our historical stock price volatility and the historical volatilities of competitors whose shares are traded in the public markets. 42 Table of ContentsThese assumptions reflect our best estimates, however; they involve inherent uncertainties based on market conditions generally outside of our control. Iffactors change and we use a different methodology for deriving the Black Scholes assumptions, our share- based compensation expense may differ materiallyin the future from that recorded in the current period. Additionally, we make certain estimates about the number of awards which will be made underperformance based incentive plans. As a result, if other assumptions or estimates had been used, share-based compensation expense could have beenmaterially impacted. Furthermore, if we use different assumptions in future periods, share-based compensation expense could be materially impacted in futureperiods. See Note 9—Equity in the accompanying notes to the consolidated financial statements for additional information regarding our share-basedcompensation.Income Taxes. We account for income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for incometaxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring taxbenefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax positionthat is more likely than not of being sustained upon examination by the relevant taxing authority must be recognized at the largest amount that is more likelythan not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interestexpense 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 bodyof statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous.Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. Tax laws require items to be included in our taxreturns at different times than when these items are reflected in the consolidated financial statements. As a result, the annual tax rate reflected in ourconsolidated financial statements is different than that reported in our tax return (our cash tax rate). Some of these differences are permanent, such as expensesthat are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred taxassets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assetsand liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences are expectedto reverse. Based on the evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to the extent thatrealizing these benefits is considered more likely than not.We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical andprojected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability oftax planning strategies. A valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimatelyrealize the tax benefit associated with a deferred tax asset. Undistributed earnings of a subsidiary are accounted for as a temporary difference, except thatdeferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to be indefinitely reinvested in the foreign jurisdiction.We have operated under a specific plan for reinvestment of undistributed earnings of our foreign subsidiaries which demonstrates that such earnings will beindefinitely reinvested in the applicable tax jurisdictions. Should we change our plans, we would be required to record a significant amount of deferred taxliabilities. We recognize interest and penalties related to unrecognized tax benefits within the “Income tax expense” line in the accompanying consolidatedstatement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. See Note 11—IncomeTaxes in the accompanying notes to the consolidated financial statements for additional information regarding our income taxes.Recent Accounting Pronouncements. See Note 1—Summary of Significant Accounting Policies in the accompanying notes to the consolidated financialstatements for recently adopted and issued accounting pronouncements. 43 Table of ContentsITEM 7A.Quantitative and Qualitative Disclosures About Market RiskInterest Rate RiskOur exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility. Borrowings under the revolving credit facilitybear interest at a variable rate. For domestic rate loans, the interest rate is equal to the highest of (i) the daily federal funds open rate as quoted by ICAP NorthAmerica, Inc. plus 0.5%, (ii) PNC’s prime rate and (iii) a daily LIBOR rate plus 1.0%, in each case there is an additional margin ranging from 0.25% to1.00% based on certain conditions. For LIBOR rate loans, the interest rate is equal to a LIBOR rate plus a margin ranging from 1.25% to 2.00% based oncertain conditions. Borrowings under the revolving credit facility are therefore subject to risk based upon prevailing market interest rates. Interest ratesfluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations andother factors that are beyond our control. During the year ended December 31, 2012, the maximum amount borrowed under the Credit Facility was $31.0million and the average amount of borrowings outstanding was $6.1 million. As of December 31, 2012, there were no borrowings outstanding under therevolving credit facility. If the prevailing market interest rates relative to these borrowings increased by 10%, our interest expense during the year endedDecember 31, 2012 would have increased by $0.1 million.Fluctuations in the prevailing market interest rates, earned on our cash and cash equivalents and restricted cash balances during the year ended December 31,2012, would have impacted the consolidated statements of operations by $0.2 million.Foreign Currency Exchange RiskAs a global company, we have significant revenues and costs denominated in currencies other than the U.S. dollar. We pay the majority of expensesattributable to our foreign operations in the functional currency of the country in which such operations are conducted and pay the majority of our overseasthird-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 currenciescan be significantly influenced by foreign currency fluctuations. Fluctuations in the value of foreign currencies relative to the U.S. dollar could result indownward price pressure for our products and increase losses from currency exchange rates. A decrease of 1% in value of the U.S. dollar relative to foreigncurrencies would have decreased income before taxes during the year ended December 31, 2012 by approximately $2.4 million. The volatility of the applicableexchange rates is dependent on many factors that cannot be forecasted with reliable accuracy. In the event our foreign sales and purchases increase and aredenominated in currencies other than the U.S. dollar, our operating results may be affected by fluctuations in the exchange rate of currencies we receive forsuch sales. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a discussion of the impact of foreignexchange rate variances experienced during the years ended December 31, 2012 and 2011.We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk inherent in revenues, costs, and monetaryassets and liabilities denominated in non-functional currencies. We have entered into foreign currency exchange forward contracts and currency swapderivative instruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities, and of futurecash flows caused by changes in foreign currency exchange rates. 44 Table of ContentsThe following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at December 31, 2012 and 2011. The notionalamounts of the derivative financial instruments shown below are denominated in their U.S. dollar equivalents and represent the amount of all contracts of theforeign currency specified. These notional values do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of ourexposure to the foreign currency exchange risks. December 31, ($ thousands) 2012 2011 Foreign currency exchange forward contracts by currency: Japanese Yen $112,500 $27,500 Euro 5,159 10,055 Australian Dollar 4,178 — Mexican Peso 11,400 6,500 Pound Sterling 8,742 6,345 New Zealand Dollar 1,137 — Total notional value, net $143,116 $50,400 Latest maturity date December 2015 December 2012 ITEM 8.Financial Statements and Supplementary DataThe consolidated financial statements and supplementary data are as set forth in the “Index to Consolidated Financial Statements” on page 46. ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. ITEM 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conductedan evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, as of December 31, 2012 (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concludedthat as of the Evaluation Date, our disclosure controls and procedures were effective such that the information relating to us, including our consolidatedsubsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, using the criteria set forth inthe Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on thisassessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2012. 45 Table of ContentsDeloitte & Touche LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting, which isincluded herein.Changes in Internal Control Over Financial ReportingThere has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting. 46 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofCrocs, Inc.Niwot, ColoradoWe have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the Company) as of December 31, 2012, based on criteriaestablished in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting”. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin 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, 2012, based on thecriteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements as of and for the year ended December 31, 2012 of the Company and our report dated February 25, 2013 expressed an unqualified opinion on thosefinancial statements./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2013 47 Table of ContentsITEM 9B.Other InformationOn December 10, 2012, we entered into the Master Installment Payment Agreement (“Master IPA”) with PNC Bank to finance our purchase of software andservices, which may include but are not limited to third party costs to design, install and implement software systems, and associated hardware described inthe schedules defined within the Master IPA. The Master IPA was entered into to finance the implementation of a new ERP system, which began in October2012 and is expected to continue through early 2014. The Master IPA has a borrowing capacity of $25.0 million and provides for variable interest rates andvariable payment terms based on amounts borrowed and timing of activity throughout the implementation of the ERP system. As of December 31, 2012, wehad borrowings of $6.6 million outstanding under the Master IPA, payable over the next four years bearing interest at a rate of 2.63% per annum.PART III ITEM 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated herein by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to befiled with the SEC within 120 days after December 31, 2012.Code of EthicsWe have a written code of ethics in place that applies to all our employees, including our principal executive officer, principal financial officer, principalaccounting officer and controller. A copy of our business code of conduct and ethics policy is available on our website: www.crocs.com. We are required todisclose any change to, or waiver from, our code of ethics for our senior financial officers. We intend to use our website as a method of disseminating anychange to, or waiver from, our business code of conduct and ethics policy as permitted by applicable SEC rules. ITEM 11.Executive CompensationThe information required by this item is incorporated herein by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to befiled with the SEC within 120 days after December 31, 2012. ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated herein by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to befiled with the SEC within 120 days after December 31, 2012, with the exception of those items listed below. 48 Table of ContentsSecurities Authorized for Issuance under Equity Compensation PlansAs shown in the table below, we reserved 2.6 million shares of common stock for future issuance on exercise of outstanding options under equitycompensation plans as of December 31, 2012. Plan Category Number ofSecurities to beIssuedon Exercise ofOutstanding Options Weighted AverageExercise Price ofOutstandingOptions Number of SecuritiesRemaining Availablefor FutureIssuance UnderPlans, ExcludingSecurities Availablein First Column Equity compensation plans approved by stockholders 2,621,686 $13.03 5,711,637 Equity compensation plans not approved by stockholders — — — Total 2,621,686 $13.03 5,711,637 On July 9, 2007, at the annual stockholders’ meeting, our stockholders approved the 2007 Equity Incentive Plan (the “2007 Plan”), whichpreviously had been approved by our board of directors and which became effective as of July 19, 2007. On June 28, 2011, our stockholdersapproved an amendment to the 2007 Plan to increase the number of shares of our common stock available for issuance from 9.0 million shares to15.3 million shares, subject to adjustment for future stock splits, stock dividends and similar changes in our capitalization. On April 27, 2005,our board of directors adopted the 2005 Equity Incentive Plan (the “2005 Plan”). On January 10, 2006, our board of directors amended the 2005Plan to increase the number of shares of our common stock available for issuance under the 2005 Plan from 11.7 million shares to 14.0 millionshares. Following the adoption of the 2007 Plan, no future grants were made under the 2005 Plan. ITEM 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated herein by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to befiled with the SEC within 120 days after December 31, 2012. ITEM 14.Principal Accountant Fees and ServicesThe information required by this item is incorporated herein by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to befiled with the SEC within 120 days after December 31, 2012.PART IV ITEM 15.Exhibits and Financial Statement Schedules (1)Financial StatementsThe financial statements filed as part of this report are listed on the index to financial statements on page 46. (2)Financial Statement SchedulesAll financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the Financial Statementsor Notes thereto. 49(1)(1) Table of Contents(3)Exhibit list Exhibit Number Description 3.1 Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Registration Statement onForm S-8, filed on March 9, 2006 (File No. 333-132312)). 3.1 Certificate of Amendment to Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 toCrocs, Inc.’s Current Report on Form 8-K, filed on July 12, 2007). 3.2 Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement onForm S-8, filed on March 9, 2006 (File No. 333-132312)). 4.1 Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)).10.1* Form of Indemnification Agreement between Crocs, Inc. and each of its directors and executive officers (incorporated herein by reference toExhibit 10.1 to Crocs, Inc.’s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.2* Crocs, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s RegistrationStatement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.3* Amendment No. 1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.2.2 to Crocs, Inc.’s Registration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)).10.4* Form of Notice of Grant of Stock Option under the 2005 Plan (incorporated herein by reference to Exhibit 10.3 to Crocs, Inc.’s RegistrationStatement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.5* Form of Notice of Grant of Stock Option for Non-Exempt Employees under the 2005 Plan (incorporated herein by reference to Exhibit 10.4to Crocs, Inc.’s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.6* Form of Stock Purchase Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.5 to Crocs, Inc.’s RegistrationStatement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.7* Form of Stock Option Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.6 to Crocs, Inc.’s RegistrationStatement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.8* Form of Restricted Stock Award Grant Notice under the 2005 Plan (incorporated herein by reference to Exhibit 10.7 to Crocs, Inc.’sRegistration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.9* Form of Restricted Stock Award Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.8 to Crocs, Inc.’sRegistration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.10* Form of Non Statutory Stock Option Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.9 to Crocs, Inc.’sRegistration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).10.11* Crocs, Inc. 2011 Board of Directors Compensation Plan. 50 Table of ContentsExhibit Number Description10.12* Crocs, Inc. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.15 toCrocs, Inc.’s Annual Report on Form 10-K, filed on March 17, 2009).10.14* 2008 Cash Incentive Plan (As Amended and Restated Effective June 4, 2012) (incorporated herein by reference to Exhibit 10.1 toCrocs, Inc.’s Current Report on Form 8-K, filed on June 7, 2012).10.15* Crocs, Inc. 2007 Equity Incentive Plan (As Amended and Restated) (the “2007 Plan”) (incorporated herein by reference to Exhibit 10.1 toCrocs, Inc.’s Current Report on Form 8-K, filed on July 1, 2011).10.16* Form of Incentive Stock Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s QuarterlyReport on Form 10-Q, filed on November 14, 2007).10.17* Form of Non-Statutory Stock Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’sQuarterly 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 toExhibit 10.3 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on November 14, 2007).10.19* Form of Restricted Stock Unit Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s CurrentReport on Form 8-K, filed on July 1, 2011).10.20* Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John McCarvel (incorporated herein by reference to Exhibit 10.1to Crocs, Inc.’s Current Report on Form 8-K, filed on February 13, 2009).10.21* Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated herein by reference to Crocs, Inc.’sQuarterly Report on Form 10-Q, filed on August 5, 2010).10.22 Amended and Restated Credit Agreement, dated December 16, 2011, among Crocs, Inc., Crocs Retail, Inc., Ocean Minded, Inc., Jibbitz,LLC, Bite, Inc., the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders (the“Amended and Restated Credit Agreement”) (incorporated herein by reference to Crocs, Inc.’s Current Report on Form 8-K, filed onDecember 19, 2011).10.23 First Amendment to the Amended and Restated Credit Agreement, dated December 10, 2012, among Crocs, Inc., Crocs Retail, Inc., OceanMinded, Inc., Jibbitz, LLC, Bite, Inc., the lenders named therein and PNC Bank, National Association, as a lender and administrativeagent (incorporated herein by reference to Crocs, Inc.’s Current Report on Form 8-K, filed on December 11, 2012).10.24† Master Installment Payment Agreement, dated December 10, 2012, among Crocs, Inc. the lender named therein and PNC Bank NationalAssociation, as a lender and administrative agent.21† Subsidiaries of the registrant.23.1† Consent of Deloitte & Touche LLP.31.1† Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act.31.2† Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adoptedpursuant to Section 302 of the Sarbanes- Oxley Act.32† Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant toSection 906 of the Sarbanes-Oxley Act. 51 Table of ContentsExhibit Number Description101.INS† XBRL Instance Document**101.SCH† XBRL Taxonomy Extension Schema Document**101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document**101.DEF† XBRL Taxonomy Extension Definition Linkbase Document**101.LAB† XBRL Taxonomy Extension Label Linkbase Document**101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document** *Compensatory plan or arrangement**Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus forpurposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities ExchangeAct of 1934, as amended, and otherwise is not subject to liability under these sections.†Filed herewith. 52 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized, as of February 25, 2013. CROCS, INC.a Delaware CorporationBy: /s/ JOHN P. MCCARVEL Name: John P. McCarvel Title: President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated. Signature Title Date/S/ JOHN P. MCCARVELJohn P. McCarvel President, Chief Executive Officer and Director (PrincipalExecutive Officer) February 25, 2013/S/ JEFFREY J. LASHERJeffrey J. Lasher Senior Vice President-Finance and Chief Financial Officer(Principal Financial Officer and Principal AccountingOfficer) February 25, 2013/S/ W. STEPHEN CANNONW. Stephen Cannon Director February 25, 2013/S/ RAYMOND D. CROGHANRaymond D. Croghan Director February 25, 2013/S/ RONALD L. FRASCHRonald L. Frasch Director February 25, 2013/S/ PETER A. JACOBIPeter A. Jacobi Director February 25, 2013/S/ THOMAS J. SMACHThomas J. Smach Chairman of the Board February 25, 2013/S/ DOREEN A. WRIGHTDoreen A. Wright Director February 25, 2013/S/ JEFFREY H. MARGOLISJeffrey H. Margolis Director February 25, 2013 53 Table of ContentsINDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Registered Public Accounting Firm F-1 Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010 F-2 Consolidated Statements of Comprehensive Income as of December 31, 2012, 2011 and 2010 F-3 Consolidated Balance Sheets as of December 31, 2012 and 2011 F-4 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 F-6 Notes to Consolidated Financial Statements F-7 54 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofCrocs, Inc.Niwot, ColoradoWe have audited the accompanying consolidated balance sheets of Crocs, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011 and therelated consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thefinancial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crocs, Inc. and subsidiaries as ofDecember 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, inconformity with accounting principles generally accepted in the United States of AmericaWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 31, 2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated February 25, 2013 expressed an unqualified opinion on the Company’s internalcontrol over financial reporting./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2013 F-1 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, ($ thousands, except per share data) 2012 2011 2010 Revenues $ 1,123,301 $ 1,000,903 $ 789,695 Cost of sales 515,324 464,493 364,631 Restructuring charges — — 1,300 Gross profit 607,977 536,410 423,764 Selling, general and administrative expenses 460,393 404,803 342,961 Restructuring charges — — 2,539 Asset impairments 1,410 528 141 Income from operations 146,174 131,079 78,123 Foreign currency transaction (gains) losses, net 2,500 (4,886) (2,325) Other income, net (2,711) (1,578) (1,001) Interest expense 837 853 657 Income before income taxes 145,548 136,690 80,792 Income tax expense 14,205 23,902 13,066 Net income $131,343 $112,788 $67,726 Net income per common share (Note 12): Basic $1.46 $1.27 $0.78 Diluted $1.44 $1.24 $0.76 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME December 31, ($ thousands) 2012 2011 2010 Net income $131,343 $112,788 $67,726 Other comprehensive income (loss): Foreign currency translation 5,525 (16,031) 9,048 Reclassification of cumulative foreign exchange translation adjustments to net income (658) — (2,364) Total comprehensive income $136,210 $96,757 $74,410 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, ($ thousands, except number of shares) 2012 2011 ASSETS Current assets: Cash and cash equivalents $294,348 $257,587 Accounts receivable, net of allowances of $13,315 and $15,508, respectively 92,278 84,760 Inventories 164,804 129,627 Deferred tax assets, net 6,284 7,047 Income tax receivable 5,613 5,828 Other receivables 24,821 20,295 Prepaid expenses and other current assets 24,967 20,199 Total current assets 613,115 525,343 Property and equipment, net 82,241 67,684 Intangible assets, net 59,931 48,641 Deferred tax assets, net 34,112 30,375 Other assets 40,239 23,410 Total assets $829,638 $695,453 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $63,976 $66,517 Accrued expenses and other current liabilities 81,371 76,506 Deferred tax liabilities, net 2,405 2,889 Income taxes payable 8,147 8,273 Current portion of long-term borrowings and capital lease obligations 2,039 1,118 Total current liabilities 157,938 155,303 Long term income tax payable 36,343 41,665 Long-term borrowings and capital lease obligations 4,596 — Other liabilities 13,361 6,705 Total liabilities 212,238 203,673 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, none outstanding — — Common shares, par value $0.001 per share, 250,000,000 shares authorized, 91,047,297 and 88,662,845shares issued and outstanding, respectively, at December 31, 2012 and 90,306,432 and 89,807,146shares issued and outstanding, respectively, at December 31, 2011 91 90 Treasury stock, at cost, 2,384,452 and 499,286 shares, respectively (44,214) (19,759) Additional paid-in capital 307,823 293,959 Retained earnings 334,012 202,669 Accumulated other comprehensive income 19,688 14,821 Total stockholders’ equity 617,400 491,780 Total liabilities and stockholders’ equity $ 829,638 $ 695,453 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Treasury Stock AdditionalPaid inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome Total StockHolders’Equity ($ thousands) Shares Amount Shares Amount BALANCE—January 1, 2010 85,659 $85 565 $(25,260) $266,472 $22,155 $24,168 $287,620 Amortization of stock compensation — — — — 7,594 — — 7,594 Forfeitures (454) — — — (288) — — (288) Exercises of stock options and issuance of restricted stock awards 2,908 3 (77) 3,673 3,515 — — 7,191 Repurchase of common stock for tax withholding (47) — 47 (421) — — — (421) Net income — — — — — 67,726 — 67,726 Foreign currency translation — — — — — — 9,048 9,048 Reclassification of cumulative foreign exchange translation adjustments to net income — — — — — — (2,364) (2,364) BALANCE—December 31, 2010 88,066 $88 535 $(22,008) $277,293 $89,881 $30,852 $376,106 Amortization of stock compensation — — — — 8,928 — — 8,928 Forfeitures (149) — — — (435) — — (435) Exercises of stock options and issuance of restricted stock awards 1,912 2 (58) 2,739 8,173 — — 10,914 Repurchase of common stock for tax withholding (22) — 22 (490) — — — (490) Net income — — — — — 112,788 — 112,788 Foreign currency translation — — — — — — (16,031) (16,031) BALANCE—December 31, 2011 89,807 $90 499 $(19,759) $293,959 $202,669 $14,821 $491,780 Amortization of stock compensation — — — — 11,764 — — 11,764 Forfeitures (43) — — — (493) — — (493) Exercises of stock options and issuance of restricted stock awards 783 1 (29) 1,112 2,593 — — 3,706 Repurchase of common stock for tax withholding — — 30 (493) — — — (493) Purchase of treasury stock (1,884) — 1,884 (25,074) — — — (25,074) Net income — — — — — 131,343 — 131,343 Foreign currency translation — — — — — — 5,525 5,525 Reclassification of cumulative foreign exchange translation adjustments to net income — — — — — — (658) (658) BALANCE—December 31, 2012 88,663 $91 2,384 $(44,214) $307,823 $334,012 $19,688 $617,400 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of ContentsCROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ thousands) 2012 2011 2010 Cash flows from operating activities: Net income $131,343 $112,788 $67,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,694 37,263 37,059 Unrealized (gain) loss on foreign exchange, net 13,928 (11,892) 1,334 Deferred income taxes (2,981) (819) (4,999) Charitable contributions 1,743 2,034 840 Non-cash restructuring charges — — 196 Provision for (recovery of) doubtful accounts, net 2,166 (383) 2,204 Share-based compensation 11,321 8,550 7,109 Other non-cash items 1,392 339 1,083 Changes in operating assets and liabilities: Accounts receivable (9,475) (23,278) (13,165) Inventories (35,493) (13,328) (27,908) Prepaid expenses and other assets (25,490) (17,598) 2,230 Accounts payable 99 30,314 12,689 Accrued expenses and other liabilities 8,016 19,922 20,344 Accrued restructuring — (439) (2,696) Income taxes (4,907) (1,097) 228 Cash provided by operating activities 128,356 142,376 104,274 Cash flows from investing activities: Purchases of marketable securities — — (5,654) Sales of marketable securities — — 7,369 Cash paid for purchases of property and equipment (39,762) (27,718) (31,257) Proceeds from disposal of property and equipment 2,216 319 1,274 Cash paid for intangible assets (21,074) (13,922) (13,848) Business acquisitions, net of cash (5,169) — — Restricted cash (2,154) (343) 38 Cash (used in) investing activities (65,943) (41,664) (42,078) Cash flows from financing activities: Proceeds from bank borrowings 96,086 316,595 83,100 Repayment of bank borrowings and capital lease obligations (90,625) (317,704) (84,625) Deferred debt issuance costs (225) (398) — Issuances of common stock 3,706 10,914 7,191 Purchase of treasury stock (25,074) — — Repurchase of common stock for tax withholding (493) (490) (421) Cash provided by (used in) financing activities (16,625) 8,917 5,245 Effect of exchange rate changes on cash (9,027) 2,375 799 Net increase in cash and cash equivalents 36,761 112,004 68,240 Cash and cash equivalents—beginning of year 257,587 145,583 77,343 Cash and cash equivalents—end of year $294,348 $257,587 $145,583 Supplemental disclosure of cash flow information—cash paid during the year for: Interest $619 $843 $639 Income taxes $29,385 $26,632 $11,048 Supplemental disclosure of non-cash, investing, and financing activities: Assets acquired under capitalized leases $34 $— $2,606 Accrued purchases of property and equipment $2,368 $4,022 $1,826 Accrued purchases of intangibles $768 $223 $3,786 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOrganization—Crocs, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) are engaged in the design, development, manufacturing,marketing and distribution of consumer products, primarily casual and athletic shoes and shoe charms, manufactured from specialty resins referred to asCroslite. Our wholly owned subsidiaries include, among others, EXO Italia (“EXO”), which designs and develops EVA (Ethylene Vinyl Acetate) basedfinished products, primarily for the footwear industry; Jibbitz, LLC (“Jibbitz”), a unique accessory brand with colorful snap-on charms specifically suitedfor our shoes; and Ocean Minded, Inc. (“Ocean Minded”), which designs, manufactures, markets and distributes high quality leather and EVA basedsandals primarily for the beach, adventure and action sports markets.Basis of Consolidation and Variable Interest Entities—The consolidated financial statements include the accounts of our wholly-owned and majority-owned subsidiaries as well as variable interest entities (“VIE”) for which we are the primary beneficiary after the elimination of intercompany accounts andtransactions. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities of the VIE that most significantly impact the VIE’seconomic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from theVIE that could potentially be significant to the VIE.In 2007, we established a relationship with Shanghai Shengyiguan Trade, Ltd Co (“ST”) for the purpose of serving as a distributor of our products in thePeople’s Republic of China. We had previously determined that ST was a VIE for which we were the primary beneficiary and consequently it wasconsolidated as if a wholly-owned subsidiary. On March 15, 2012, the Company exercised an Equity Option Agreement that we had in place with ST andbecame the sole owner of ST.In April 2011, we and an unrelated third party formed Crocs Gulf, LLC (“Crocs Gulf”) for the purpose of selling our products in the United Arab Emirates.We have determined that Crocs Gulf is also a VIE for which we are the primary beneficiary due our variable interest in Crocs Gulf’s equity and because wecurrently control all of the VIE’s business activities and will absorb all of its expected residual returns and expected losses. All voting and dividend rights havebeen assigned to us. As of December 31, 2012 and 2011, the consolidated financial statements included $2.5 million and $1.4 million in total assets of CrocsGulf, respectively, which primarily consisted of cash and cash equivalents, inventory and property and equipment. The total assets as of December 31, 2012were partially offset by $0.2 million in total liabilities, which primarily consisted of accounts payable and accrued expenses, excluding liabilities related to thesupport provided by us. The total assets as of December 31, 2011 were partially offset by an immaterial amount of total liabilities primarily consisting ofaccrued expenses, excluding intercompany payables.Noncontrolling Interests—As of December 31, 2012, all of our subsidiaries were, in substance, wholly owned.Concentrations of Risk—We are exposed to concentrations of risks in the following categories.Cash and cash equivalents—Our cash and cash equivalents are maintained in several different financial institutions in amounts that typically exceedU.S. federally insured limits or in financial institutions in international jurisdictions where insurance is not provided and restrictions may exist.As we are a global business, we have cash and cash equivalent balances which are located in various countries and are denominated in variouscurrencies. Most of the cash balances held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federaland state income F-7 Table of Contentstaxes less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adverse taxconsequences if we were to move the cash to another country. Certain countries, including China, have monetary laws which may limit our ability toutilize cash resources in those countries for operations in other countries. These limitations may affect our ability to fully utilize our cash and cashequivalent resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of December 31, 2012, we held $272.0 million ofour total $294.3 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in whichthe cash is held. Of the $272.0 million held in international locations, $38.2 million could potentially be restricted, as described above.Accounts receivable—We have not experienced any significant losses in such accounts and believe we are not exposed to significant credit risk. Weconsider any concentration of credit risk related to accounts receivable to be mitigated by our credit policy, the insignificance of outstanding balancesowed by each individual customer at any point in time and the geographic dispersion of our customers.Manufacturing sources—We rely on a limited source of internal and external manufacturers. Establishing a replacement source could require significantadditional time and expense.Suppliers of certain raw materials—We source the elastomer resins that constitute the primary raw materials used in compounding Croslite, which weuse to produce our footwear products, from multiple suppliers. If the suppliers we rely on for elastomer resins were to cease production of these materials,we may not be able to obtain suitable substitute materials in time to avoid interruption of our production cycle, if at all. We may also have to paymaterially higher prices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and couldhave a materially adverse impact on our margins and results of operations.Reclassifications—Certain prior period amounts presented in the consolidated financial statements have been reclassified to conform to current periodpresentation as follows. We reclassified ‘Foreign currency transaction (gains) losses, net’ line item from ‘Income from operations’ to ‘Income before incometaxes’ in the Consolidated Statements of Operations. We also reclassified (gains) losses on our derivative contracts from ‘Other (income) expense’ to the‘Foreign currency transactions (gains) losses, net’ line item. As a result of these reclassifications, ‘Income from operations’ decreased $5.4 million and $2.9million, respectively, for the years ended December 31, 2011 and 2010.Summary of Significant Accounting PoliciesManagement Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States ofAmerica (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expenses during the reporting period. Management believes that the estimates, judgments andassumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, sales returns, impairmentassessments and charges, recoverability of assets (including deferred tax assets), uncertain tax positions, share-based compensation expense, the assessmentof lower of cost or market on inventory, useful lives assigned to long-lived assets, depreciation and provisions for contingencies are reasonable based oninformation available at the time they are made. Management also makes estimates in the assessments of potential losses in relation to tax and customs mattersand threatened or pending legal proceedings (see Note 15—Legal Proceedings). Actual results could materially differ from these estimates. For matters notrelated 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 isthe potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss ifrecovery is deemed probable. F-8 Table of ContentsFair Value—Fair value is the price that would be received from the sale of an asset or transfer of a liability in an orderly transaction between marketparticipants at the measurement date. When determining the fair value measurements for assets and liabilities which are 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 which may be used to measure fair value:Level 1—observable inputs such as quoted prices for identical instruments in active markets;Level 2—observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets thatare not active and model derived valuations in which all significant inputs are observable in active markets; andLevel 3—unobservable inputs for which there is little or no market data and which require us to develop our own assumptions. We categorize fair valuemeasurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine such fair value measurement.Cash equivalents primarily include time deposits and certificates of deposit with original maturities of three months or less. Time deposits and certificates ofdeposit included in cash equivalents are valued at amortized cost, which approximates fair value. These investments have been classified as a Level 1measurement.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 be derivedfrom observable market transactions, and therefore, have been classified as Level 2. These inputs include the applicable exchange rates and forward rates, anddiscount rates based on the prevailing LIBOR deposit rates.Our other financial instruments are not required to be carried at fair value on a recurring basis. The carrying value of these financial instruments, includingcash equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value due to their short maturities. Based on borrowing ratescurrently available to us, with similar terms, the carrying values of capital lease obligations and the line of credit approximate their fair values.Inventories and long-lived assets such as property and equipment and intangible assets are also not required to be carried at fair value on a recurring basis. Fora discussion of inventory estimated fair value see “Inventory Valuation” below. However, when determining impairment losses, the fair values of property andequipment and intangibles must be determined. For such determination, we generally use either an income approach with inputs that are mainly unobservable,such as expected future cash flows, or a market approach using observable inputs such as replacement cost or third party appraisals, as appropriate.Estimated future cash flows are based on management’s operating budgets and forecasts which take into consideration both observable and unobservableinputs including growth rates, pricing, new markets and other factors expected to affect the business, as well as management’s forecasts for inventory,receivables, capital spending, and other cash needs. See Note 6—Fair Value Measurements for further discussion related to fair value measurements.Cash and Cash Equivalents—Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or lessat the date of purchase. We consider receivables from credit card companies to be cash equivalents, if expected to be received within five days.Accounts Receivable—Accounts receivable represent amounts due from customers. Accounts receivable are recorded at invoiced amounts, net of reserves andallowances, are not collateralized and do not bear interest. We F-9 Table of Contentsuse our best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time receivables are pastdue, economic trends and conditions affecting our customer base, significant one-time events and historical non-collection experience. Specific provisions arerecorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations.Inventory Valuation—Inventories are valued at the lower of cost or market. Inventory cost is determined using the moving average cost method. At leastannually, we evaluate our inventory for possible impairment using standard categories to classify inventory based on the degree to which we believe that theproducts may need to be discounted below cost to sell within a reasonable period. We base inventory fair value on several subjective assumptions includingestimated future demand and market conditions, as well as other observable factors such as current sell-through of our products, recent changes in demandfor our products, global and regional economic conditions, historical experience selling through liquidation and price discounted channels and the amount ofinventory on hand. If the estimated inventory fair value is less than its carrying value, the carrying value is adjusted to market value and the resultingimpairment charge is recorded in cost of sales on the consolidated statements of operations. See Note 2—Inventories for further discussion related toinventories.Property and Equipment—Depreciation of property, equipment, furniture and fixtures is computed using the straight-line method based on estimated usefullives ranging from two to five years. Leasehold improvements are amortized on the straight-line basis over their estimated economic useful lives or the leaseterm, whichever is shorter. Depreciation of manufacturing assets such as molds and tooling is included in cost of sales on the consolidated statements ofoperations. Depreciation related to corporate, non-product and non-manufacturing assets is included in selling, general and administrative expenses on theconsolidated statements of operations.Impairment of Long-Lived Assets—Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate the carryingvalue of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as defined below)include; (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physicalcondition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action or assessment by aregulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction, (v) its current periodoperating or cash flow losses combined with historical operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associatedwith its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previouslyestimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess the recoverability by determining if itscarrying value exceeds the sum of its projected undiscounted cash flows from its use and eventual disposition over its remaining economic life. If the asset isnot supported on an undiscounted cash flow basis, the amount of impairment is measured as the difference between its carrying value and its fair value.Assets held for sale 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 isexpected are written down to zero at the time that the determination is made and the assets are removed entirely from service.An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets andliabilities. For assets involved in our retail business our asset group is at the retail store level. See Note 3—Property and Equipment for a discussion ofimpairment losses recorded during the periods presented.Intangible Assets—Intangible assets that are determined to have finite lives are amortized over their useful lives on a straight-line basis. Customerrelationships are amortized on a straight-line basis or an accelerated basis. Indefinite lived intangible assets, such as trade names, are not amortized and areevaluated for impairment at least annually and when circumstances imply possible impairment.Amortization of manufacturing intangible assets is included in cost of sales on the consolidated statements of operations. Amortization related to corporate,non-product and non-manufacturing assets such as our global F-10 Table of Contentsinformation systems is included in selling, general and administrative expenses on the consolidated statements of operations. The following table sets forth ourdefinite lived intangible assets and the periods over which they are amortized. Intangible Asset Class Weighted Average Amortization PeriodPatents 10 yearsCustomer relationships Estimated customer lifeCore technology 5 yearsNon-competition agreement Contractual termCapitalized software Shorter of 7 years or useful lifeCapitalized Software—We capitalize certain internal and external software acquisition and development costs, including the costs of employees andcontractors devoting time to the software development projects and external direct costs for materials and services. Initial costs associated with internally-developed-and-used software are expensed until it is determined that the project has reached the application development stage. Once in its developmentstage, subsequent additions, modifications or upgrades to an internal-use software project are capitalized to the extent that they add functionality. Softwaremaintenance and training costs are expensed in the period in which they are incurred. Capitalized software primarily consists of our enterprise resourcesystem software, warehouse management software and point of sale software. At least annually, we consider the potential impairment of capitalizedsoftware by assessing the substantive service potential of the software, changes, if any, in the extent or manner in which the software is used or isexpected to be used, and the actual cost of software development or modification compared to expected cost. See Note 4—Goodwill and Intangible Assetsfor further discussion.Impairment of Intangible Assets—Intangible assets with indefinite lives are evaluated for impairment when events or changes in circumstances indicatethat the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definite lives are amortized overtheir useful lives and are evaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable.Recoverability is based on the estimated future undiscounted cash flows of the asset. If the asset is not supported on an undiscounted cash flow basis, theamount of impairment is measured as the difference between its carrying value and its fair value.Goodwill—Goodwill represents the excess purchase price paid over the fair value of assets acquired and liabilities assumed in acquisitions. Goodwill isconsidered an indefinite lived asset and therefore is not amortized. The Company assesses goodwill for impairment annually on the last day of the fourthquarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of goodwill exceeds its implied fairvalue, the Company records an impairment loss equal to the difference. See Note 4—Goodwill and Intangible Assets for discussion of goodwill balances.There was no impairment of goodwill for the year ended December 31, 2012. We did not have any goodwill for the year ended December 31, 2011.Earnings per Share—Basic and diluted earnings (loss) per common share (“EPS”) is presented using the two-class method, which is an earnings allocationformula that determines earnings per share for common stock and any participating securities according to dividend rights and participation rights inundistributed earnings. Under the two-class method, EPS is computed by dividing the sum of distributed and undistributed earnings (loss) attributable tocommon stockholders by the weighted average number of shares of common stock outstanding during the period. A participating security is an unvestedshare-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per share pursuant to the two-class method. Shares of the Company’s non-vested restricted stock awards are considered participating securities. Diluted EPS reflects the potential dilutionfrom securities that could share in the earnings of the Company. Anti-dilutive securities are excluded from diluted EPS. See Note 12—Earnings per Share forfurther discussion. F-11 Table of ContentsRecognition of Revenues—Revenues are recognized when the customer takes title and assumes risk of loss, collection of related receivables is probable,persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title passes on shipment or on receipt by the customer depending onthe country in which the sale occurs and the agreement terms with the customer. Allowances for estimated returns and discounts are recognized when the relatedrevenue is earned.Shipping and Handling Costs and Fees—Shipping and handling costs are expensed as incurred and included in cost of sales. Shipping and handling feesbilled to customers are included in revenues.Share-based Compensation—We have share-based compensation plans in which certain officers, employees and members of the Board of Directors areparticipants and may be granted stock options, restricted stock and stock performance awards. Awards granted under these plans are fair valued andamortized, net of estimated forfeitures, over the vesting period using the straight-line method. The fair value of stock options is calculated by using the BlackScholes option pricing model that requires estimates for expected volatility, expected dividends, the risk-free interest rate and the term of the option. If any ofthe assumptions used in the Black Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expensemay differ materially in the future from that recorded in the current period. See additional information related to share-based compensation in Note 9—Equity.Share-based compensation expense associated with our manufacturing and retail employees is included in cost of sales in the consolidated statements ofoperations. Share-based compensation expense associated with selling, marketing and administrative employees is included selling, general and administrativeexpenses on the consolidated statements of operations.Defined contribution plans—We have a 401(k) plan known as the Crocs, Inc. 401(k) Plan (the “Plan”). The Plan is available to employees on our U.S.payroll and provides employees with tax deferred salary deductions and alternative investment options. The Plan does not provide employees with the option toinvest in our common stock. Employees may contribute up to 75.0% of their salary, subject to certain limitations. We match employees’ contributions to thePlan up to a maximum of 4.0% of eligible compensation. We expensed $5.8 million, $4.6 million and $3.3 million in the years ended December 31, 2012,2011 and 2010, respectively, for our employee match contributions to the Plan.Advertising—Advertising costs are expensed as incurred and production costs are generally expensed when the advertising is run. Total advertising,marketing and promotional costs reflected in selling, general, and administrative expenses on the consolidated statement of operations were $39.8 million,$39.8 million and $44.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.Research and Development—Research and development costs are expensed as incurred. Research and development expenses amounted to $12.0 million,$10.8 million and $7.8 million for the years ended December 31, 2012, 2011 and 2010, respectively, and are included in selling, general, and administrativeexpenses in the consolidated statement of operations.Foreign Currency Translation and Foreign Currency Transactions—Our reporting currency is the U.S. dollar. Assets and liabilities of foreignoperations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weightedaverage rate of exchange during the applicable period. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollarsare included in the foreign currency translation adjustment, a component of accumulated other comprehensive income in stockholders’ equity.Gains and losses generated by transactions denominated in currencies other than the local functional currencies are reflected in the consolidated statement ofoperations in the period in which they occur and are primarily associated with payables and receivables arising from intercompany transactions. F-12 Table of ContentsDerivative Foreign Currency Contracts—We are directly and indirectly affected by fluctuations in foreign currency rates which may adversely impact ourfinancial performance. To mitigate the potential impact of foreign currency exchange rate risk, we may employ derivative financial instruments includingforward contracts and option contracts. Forward contracts are agreements to buy or sell a quantity of a currency at a predetermined future date and at apredetermined rate. An option contract is an agreement that conveys the purchaser the right, but not the obligation, to buy or sell a quantity of a currency at apredetermined rate during a period or at a time in the future. These derivative financial instruments are viewed as risk management tools and are not used fortrading or speculative purposes. We recognize derivative financial instruments as either assets or liabilities in the consolidated balance sheets and measurethose instruments at fair value. Changes in the fair value of derivatives not designated or effective as hedges are recorded in “foreign currency transaction(gains)/losses, net” in the consolidated statements of operations. We had no derivative instruments that qualified for hedge accounting during any of theperiods presented. See Note 7—Fair Value Measurements and Financial Instruments for further discussion.Income Taxes—Income taxes are accounted for using the asset and liability method which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for incometaxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring taxbenefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties relatedto income tax matters in income tax expense in the consolidated statement of operations. See Note 11—Income Taxes for further discussion.Taxes Assessed by Governmental Authorities—Taxes assessed by governmental authorities that are directly imposed on a revenue transaction, includingvalue added tax, are recorded on a net basis and are therefore excluded from sales.Application of Recent Accounting PronouncementsRecently Adopted Accounting PronouncementsIn May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to AchieveCommon Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” Thispronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similarbetween U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly forlevel 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact to our consolidated financial position, results of operations or cash flows.In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report othercomprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensiveincome, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate butconsecutive statements. This pronouncement was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Due tothe fact that ASU 2011-05 concerns presentation and disclosure only, our adoption of this standard in 2012 did not have a material impact on the consolidatedfinancial position, results of operations or cash flows.In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment.” This pronouncement was issued to allow companies to assessqualitative factors to determine if it is more-likely-than- F-13 Table of Contentsnot that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards.This pronouncement was effective for reporting periods beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact toour consolidated financial position, results of operations or cash flows.In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out ofAccumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This pronouncement was issued due to Stakeholders raisingconcerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult forpreparers and may add unnecessary complexity to financial statements and was issued with the intent for companies to defer only those changes in ASU2011-05 that relate to the presentation of reclassification adjustments until the Board is able to reconsider certain paragraphs. This pronouncement waseffective for reporting periods beginning after December 15, 2011. The adoption of ASU 2011-12 did not have a material impact to our consolidated financialposition, results of operations or cash flows.In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This pronouncement was issued to simplifyhow an entity tests indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessmentto determine whether further impairment testing is necessary. This pronouncement is effective for reporting periods beginning after September 15, 2012. Theadoption of ASU 2012-02 did not have a material impact to our consolidated financial position, results of operations or cash flows.Recently Issued Accounting PronouncementsIn December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to enhancedisclosure requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivativeinstruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in thestatement of financial position and instruments and transactions subject to master netting arrangements. This pronouncement is effective for reporting periodsbeginning on or after January 1, 2013. We do not anticipate the adoption of ASU 2011-11 to have a material impact to the consolidated financial position,results of operations or cash flows.In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” This pronouncement wasissued to address implementation issues about the scope of Accounting Standards Update No. 2011-11 and to clarify the scope of the offsetting disclosuresand address any unintended consequences. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. We do not anticipatethe adoption of ASU 2013-01 to have a material impact to the consolidated financial position, results of operations or cash flows.In February 2013, the FASB issued ASU No. 2013-02, ‘Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Thispronouncement was issued to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seekto attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respectiveline items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that arenot required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference otherdisclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassifiedout of accumulated other comprehensive income is reclassified to a balance sheet account (i.e. inventory) instead of directly to income or expense in the samereporting period. This pronouncement is effective prospectively for reporting periods beginning after December 15, 2012. We do not anticipate the adoption ofASU 2013-02 to have a material impact to the consolidated financial position, results of operations or cash flows. F-14 Table of Contents2. INVENTORIESThe following table summarizes inventories by major classification as of December 31, 2012 and 2011: December 31, ($ thousands) 2012 2011 Finished goods $155,833 $124,203 Work-in-progress 911 291 Raw materials 8,060 5,133 Inventories $164,804 $129,627 During the years ended December 31, 2012, 2011 and 2010, we donated certain inventory items to charitable organizations consisting primarily of end of lifeunits. The contributions made were expensed at their fair value of $1.7 million, $2.0 million and $0.8 million, respectively. Also during the years endedDecember 31, 2012, 2011 and 2010, we recognized a gain of $0.6 million, $0.7 million and $0.2 million, respectively, and a net reduction of inventory of$1.1 million, $1.3 million and $0.6 million, respectively, as the fair value of the inventory contributed exceeded its carrying amount.3. PROPERTY AND EQUIPMENTThe following table summarizes property and equipment by major classification as of December 31, 2012 and 2011: December 31, ($ thousands) 2012 2011 Machinery and equipment $68,713 $68,005 Leasehold improvements 88,653 65,338 Furniture, fixtures and other 20,827 16,196 Construction-in-progress 8,766 7,902 Property and equipment, gross 186,959 157,441 Less: Accumulated depreciation (104,718) (89,757) Property and equipment, net $82,241 $67,684 Includes $0.1 million and $0.3 million of certain equipment held under capital leases and classified as equipment as of December 31, 2012 and 2011,respectively. Includes $0.1 million and $0.3 million of accumulated depreciation related to certain equipment held under capital leases, as of December 31, 2012and 2011, respectively, which are depreciated using the straight-line method over the lease term.During the years ended December 31, 2012, 2011 and 2010, we recorded $23.1 million, $27.5 million and $29.5 million, respectively, in depreciationexpense of which $4.6 million, $11.5 million and $14.7 million, respectively, was recorded in cost of sales, with the remaining amounts recorded in selling,general and administrative expenses on the consolidated statements of operations.We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate the carrying value of a long-lived asset maynot be fully recoverable. During the year ended December 31, 2012, we recorded $1.4 million in impairment charges related to certain underperformingdomestic stores in the Americas segment that were unlikely to generate sufficient cash flows to fully recover the carrying F-15(1)(2)(1)(2) Table of Contentsvalue of the stores’ assets over the remaining economic life of those assets. During the years ended December 31, 2011 and 2010, we recorded $0.5 million and$0.1 million, respectively, in impairment charges which primarily related to obsolete molds which were previously depreciated to costs of sales.4. GOODWILL & INTANGIBLE ASSETSThe following table summarizes the goodwill and identifiable intangible assets as of December 31, 2012 and 2011: December 31, 2012 December 31, 2011 ($ thousands) GrossCarrying Amount AccumulatedAmortization NetCarrying Amount GrossCarrying Amount Accumulated Amortization NetCarrying Amount Capitalized software $87,426 $(33,933) $53,493 $66,530 $(22,156) $44,374 Customer relationships 7,145 (6,222) 923 6,321 (5,641) 680 Patents, copyrights, and trademarks 6,161 (3,522) 2,639 6,109 (2,994) 3,115 Core technology 4,856 (4,856) — 4,743 (4,743) — Other 670 (636) 34 997 (636) 361 Total finite lived intangible assets 106,258 (49,169) 57,089 84,700 (36,170) 48,530 Indefinite lived intangible assets 113 — 113 111 — 111 Goodwill 2,729 — 2,729 — — — Intangible assets $109,100 $(49,169) $59,931 $84,811 $(36,170) $48,641 Includes $4.1 million of software held under a capital lease classified as capitalized software as of December 31, 2012 and 2011. Includes $1.3 million and $0.7 million of accumulated amortization of software held under a capital lease as of December 31, 2012 and 2011,respectively, which is amortized using the straight-line method over the useful life. On July 16, 2012, our subsidiaries Crocs Europe B.V., Crocs Stores B.V. and Crocs Belgium N.V. (collectively referred to as Crocs Europe),which are part of our Europe segment, acquired certain net assets and activities from Crocs Benelux B.V. (Benelux) pursuant to a sale and purchaseagreement dated July 9, 2012. Prior to the acquisition, Benelux was a distributor of the Company. The Company acquired Benelux’ retail businessand wholesale business, including inventory, fixed assets, customer relationships, 10 retail stores and their associated leases. Total considerationpaid was cash of € 3.6 million (approximately $4.6 million).During the years ended December 31, 2012, 2011 and 2010, amortization expense recorded for intangible assets with finite lives was $13.6 million,$9.8 million and $7.6 million, respectively, of which $4.3 million, $2.9 million and $2.3 million was recorded in cost of sales, respectively. The remainingamounts were recorded in selling, general and administrative expenses.The following table summarizes estimated future annual amortization of intangible assets as of December 31, 2012: Fiscal years ending December 31, Amortization ($ thousands) 2013 $14,956 2014 13,139 2015 10,003 2016 8,531 2017 5,689 Thereafter 4,771 Total $57,089 F-16(1)(2)(1)(2)(3)(1)(2)(3) Table of Contents5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESThe following table summarizes accrued expenses and other current liabilities as of December 31, 2012 and 2011: December 31, ($ thousands) 2012 2011 Accrued compensation and benefits $19,714 $28,680 Fulfillment, freight and duties 8,621 7,151 Professional services 13,588 8,429 Sales/use and VAT tax payable 12,444 9,642 Entrusted loan payable 7,943 9,133 Accrued rent and occupancy 10,226 5,476 Other 8,835 7,995 Total accrued expenses and other current liabilities $81,371 $76,506 The amounts in Other consist of various accrued expenses and no individual item accounted for more than 5% of the total balanceat December 31, 2012 or December 31, 2011. A corresponding entrusted loan receivable of $7.9 million and $9.1 million are recorded in Prepaid expenses and other currentassets as of December 31, 2012 and 2011, respectively, as amounts are related to our subsidiaries in China.Asset Retirement ObligationsWe record a liability equal to the fair value of the estimated future cost to retire an asset, if the liability’s fair value can be reasonably estimated. Our assetretirement obligation (“ARO”) liabilities are primarily associated with the disposal of property and equipment which we are contractually obligated to remove atthe 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 fairvalue of these liabilities based on current store closing costs and discount the costs back as if they were to be performed at the inception of the lease. At theinception of such leases, we record the ARO as a liability and also record a related asset in an amount equal to the estimated fair value of the obligation. Thecapitalized asset is then depreciated on a straight-line basis over the useful life of the asset. Upon retirement of the ARO liability, any difference between theactual retirement costs incurred and the previously recorded estimated ARO liability is recognized as a gain or loss in the consolidated statements of operations.Our ARO liability as of December 31, 2012 and 2011 was $2.4 million and $1.9 million, respectively. F-17(2)(1)(1)(2) Table of Contents6. FAIR VALUE MEASUREMENTSRecurring Fair Value MeasurementsThe following tables summarize the financial instruments required to be measured at fair value on a recurring basis as of December 31, 2012 and 2011. SeeNote 1—Organization & Summary of Significant Accounting Policies for additional detail regarding our fair value measurement determinations. Fair Value as of December 31, 2012 ($ thousands) Quoted prices inactive marketsfor identicalassets or liabilities(Level 1) Significantotherobservableinputs(Level 2) SignificantunobservableInputs(Level 3) Total Balance Sheet ClassificationCash equivalents $14,800 $— $— $14,800 Cash and cash equivalentsDerivative assets: Foreign currency contracts — 5,548 — 5,548 Prepaid expenses and other currentassets and other assetsDerivative liabilities: Foreign currency contracts $— $295 $— $295 Accrued expense and other currentliabilities Fair Value as of December 31, 2011 ($ thousands) Quoted prices inactive marketsforidenticalassets or liabilities(Level 1) Significantotherobservableinputs(Level 2) Significantunobservableinputs(Level 3) Total Balance Sheet ClassificationCash equivalents $10,286 $— $— $10,286 Cash and cash equivalentsDerivative assets: Foreign currency contracts — 596 — 596 Prepaid expenses and othercurrent assetsDerivative liabilities: Foreign currency contracts $— $1,035 $— $1,035 Accrued expense and other currentliabilities and other liabilitiesNon-Recurring Fair Value MeasurementsThe majority of our non-financial instruments, which include inventories, property and equipment and intangible assets, are not required to be carried at fairvalue on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated for impairment and thecarrying value is not recoverable, the carrying value would be adjusted to the lower of its cost or fair value and an impairment charge would be recorded. SeeNote 3—Property and Equipment and Note 4—Goodwill & Intangible Assets for discussions on impairment charges recorded during the periods presented.7. DERIVATIVE FINANCIAL INSTRUMENTSWe transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk inherent in revenues, costs, and monetaryassets and liabilities denominated in non-functional currencies. We have entered into foreign currency exchange forward contract and currency swap derivativeinstruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities, and of future cashflows caused by changes in foreign currency exchange rates. We do not designate these derivative instruments as hedging instruments under the accountingstandards for derivatives and hedging. Accordingly, these instruments are recorded at fair value as a derivative asset or liability on the balance sheet with theircorresponding change in fair value recognized in Foreign currency transaction (gains) losses, net, in F-18 Table of Contentsour consolidated statements of operations. For purposes of the cash flow statement, the Company classifies the cash flows at settlement from undesignatedinstruments in the same category as the cash flows from the related hedged items, generally within Cash provided by operating activities.The following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at December 31, 2012 and 2011. The notionalamounts of the derivative financial instruments shown below are denominated in their U.S. dollar equivalents and represent the amount of all contracts of theforeign currency specified. These notional values do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of ourexposure to the foreign currency exchange risks. December 31, ($ thousands) 2012 2011 Foreign currency exchange forward contracts by currency: Japanese Yen $112,500 $27,500 Euro 5,159 10,055 Australian Dollar 4,178 — Mexican Peso 11,400 6,500 Pound Sterling 8,742 6,345 New Zealand Dollar 1,137 — Total notional value, net $143,116 $50,400 Latest maturity date December 2015 December 2012 The following table presents the amounts affecting the consolidated statements of income from derivative instruments for the years ended December 31, 2012and 2011: Year ended December 31, ($ thousands) 2012 2011 Location of (Gain) Loss Recognizedin Income on DerivativesDerivatives not designated as hedging instruments: Foreign currency exchange forwards $(7,200) $540 Foreign currency transaction (gains) losses,net8. BANK BORROWINGS AND CAPITAL LEASE OBLIGATIONSBank borrowings and capital lease obligations as of December 31, 2012 and 2011 consist of the following: December 31, ($ thousands) 2012 2011 Bank borrowings $6,582 $— Revolving credit facility — 422 Capital lease obligations for capitalized software bearing interest rates ranging from 8.7% to 12.4% andmaturities through 2011 — 640 Capital lease obligations for equipment bearing interest rates of 5.3% and maturities through 2017 53 81 Total bank borrowings and capital lease obligations $6,635 $1,143 F-19 Table of ContentsLong-term Debt AgreementOn December 10, 2012, Crocs, Inc. (“the Company”) entered into a Master Installment Payment Agreement (“Master IPA”) with PNC Bank NationalAssociation (“PNC”) in which PNC will finance the Company’s purchase of software and services, which may include but are not limited to third party coststo design, install and implement software systems, and associated hardware described in the schedules defined within the Master IPA. This agreement wasentered into to finance the recent implementation of a new enterprise resource planning (“ERP”) system which began in October 2012 and is estimated tocontinue through early 2014. The terms of the agreement consist of variable interest rates and payment terms based on amounts borrowed and timing ofactivity throughout the implementation of the ERP. As of December 31, 2012, we had $6.6 million of long-term debt outstanding, of which $2.0 millionrepresent current installments, under the agreement payable over the next four years bearing interest at rate of 2.63%. Interest rates and payment terms aresubject to changes as further financing occurs under the Master IPA.Revolving Credit FacilityOn December 10, 2012, Crocs, Inc. (the “Company”) and its subsidiaries, Crocs Retail, Inc., Ocean Minded, Inc., Jibbitz, LLC and Bite, Inc. (collectivelywith the Company, the “Borrowers”) entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”) with the lendersnamed therein and PNC Bank, National Association (“PNC”), as a lender and administrative agent for the lenders, pursuant to which certain terms of theAmended and Restated Credit Agreement (the “Credit Agreement”), dated December 16, 2011, were amended. The First Amendment, among other things,(i) extends the maturity date from December 16, 2016 to December 16, 2017, (ii) increases the total commitments under the revolving credit facility from $70million to $100 million, with the ability to increase commitments to up to $125 million subject to certain conditions, (iii) decreases the revolving interest rateby 50 basis points for both domestic and LIBOR rate loans, (iv) increases the ability of the Company to make stock repurchases from up to $25 million peryear to up to $150 million per year, subject to certain conditions, (v) increases the limit for permitted acquisitions from up to $40 million per year to up to$100 million per year, subject to certain conditions, (vi) adds a covenant to maintain unrestricted cash of at least $100 million at all times, subject tolimitations, and (vii) amends certain restrictive covenants to be more favorable to the Borrowers.The Credit Agreement is available for working capital, capital expenditures, permitted acquisitions, reimbursement of drawings under letters of credit, andpermitted dividends, distributions, purchases, redemptions and retirements of equity interests. Borrowings under the Credit Agreement are secured by all ofour assets including all receivables, equipment, general intangibles, inventory, investment property, subsidiary stock and intellectual property. Borrowingsunder the Credit Agreement bear interest at a variable rate. For domestic rate loans, the interest rate is equal to the highest of (i) the daily federal funds open rateas quoted by ICAP North America, Inc. plus 0.5%, (ii) PNC’s prime rate and (iii) a daily LIBOR rate plus 1.0%, in each case there is an additional marginranging from 0.25% to 1.00% based on certain conditions. For LIBOR rate loans, the interest rate is equal to a LIBOR rate plus a margin ranging from 1.25%to 2.00% based on certain conditions. The Credit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of eachinterest period with respect to LIBOR rate loans and contains certain customary restrictive and financial covenants. We were in compliance with theserestrictive financial covenants as of December 31, 2012.As of December 31, 2012 and 2011, we had no outstanding borrowings and $0.4 million of outstanding borrowings, respectively, under the Credit Agreement.As of December 31, 2012 and 2011, we had issued and outstanding letters of credit of $6.4 million and $6.0 million, respectively, which were reservedagainst the borrowing base under the terms of our revolving credit facility. During the years ended December 31, 2012 and 2011, we capitalized $0.5 millionand $0.4 million, respectively, in fees and third party costs which were incurred in connection with the Credit Agreement, as deferred financing costs. F-20 Table of ContentsMaturities of Debt and Capital Lease ObligationsMinimum future annual debt obligations for each of the five succeeding years as of December 31, 2012, are as follows (in thousands): Fiscal years ending December 31, 2013 $2,013 2014 1,623 2015 1,666 2016 1,280 2017 — Thereafter — Total principal debt maturities $6,582 Minimum future annual rental commitments under capital leases for each of the five succeeding years as of December 31, 2012, are as follows (in thousands): Fiscal years ending December 31, 2013 $27 2014 14 2015 7 2016 7 2017 2 Thereafter — Total minimum lease payments, including interest 57 Amounts representing interest (4) Total minimum lease payments, net of interest $53 Current portion $26 Noncurrent portion $27 9. EQUITYEquity Incentive PlansOn August 15, 2005, we adopted the 2005 Equity Incentive Plan (the “2005 Plan”), which permitted the issuance of up to 14.0 million common shares inconnection with the grant of non-qualified stock options, incentive stock options, and restricted stock to eligible employees, consultants and members of ourBoard of Directors. As of December 31, 2012 and 2011, 0.9 million and 1.0 million stock options, respectively, were outstanding under the 2005 Plan. Noshares are available for future issuance under the 2005 Plan.On July 9, 2007, we adopted and on June 28, 2011 we amended the 2007 Equity Incentive Plan (the “2007 Plan”) which increased the allowable number ofshares of our common stock reserved for issuance under the 2007 Plan from 9.0 million to 15.3 million (subject to adjustment for future stock splits, stockdividends and similar changes in our capitalization) in connection with the grant of non-qualified stock options, incentive stock options, restricted stock,restricted stock units, stock appreciation rights, performance units, common stock or any other share-based award to eligible employees, consultants andmembers of our Board of Directors. As of December 31, 2012 and 2011, 3.5 million and 3.6 million stock options, restricted stock awards and restrictedstock units were outstanding under the 2007 Plan, respectively. As of December 31, 2012, 5.7 million shares were available for future issuance under the 2007Plan. F-21 Table of ContentsStock options under both the 2005 Plan and the 2007 Plan generally vest ratably over four years with the first year vesting on a “cliff” basis followed bymonthly vesting for the remaining three years. Restricted stock awards and units generally vest annually on a straight-line basis over three or four yearsdepending on the terms of the award agreement.Stock Option ActivityThe following table summarizes stock option transactions for the years ended December 31, 2012, 2011 and 2010. Shares WeightedAverageExercisePrice WeightedAverageRemainingContractualLife(Years) AggregateIntrinsicValue($ thousands) Outstanding at December 31, 2009 7,755,254 $7.67 7.48 $15,920 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 Granted 468,000 19.81 Exercised (1,738,741) 6.28 Forfeited or expired (405,565) 10.46 Outstanding at December 31, 2011 3,331,031 11.91 6.35 18,468 Granted 208,400 16.84 Exercised (613,691) 6.04 Forfeited or expired (304,054) 17.55 Outstanding at December 31, 2012 2,621,686 $13.03 5.55 $11,373 Exercisable at December 31, 2012 1,992,151 $12.36 4.75 $10,000 Vested and expected to vest at December 31, 2012 2,485,086 $12.78 5.37 $11,330 During the years ended December 31, 2012, 2011 and 2010, options issued were valued using the Black Scholes option pricing model using the followingassumptions. Year Ended December 31, 2012 2011 2010 Expected volatility 50 - 70% 50 - 60% 60% Dividend yield — — — Risk-free interest rate 0.62% - 1.20% 0.87% - 2.31% 1.64% - 2.27% Expected life (in years) 4.00 - 4.27 4.35 - 4.89 5.66 - 6.49 The weighted average fair value of options granted during the years ended December 31, 2012, 2011 and 2010 was approximately $7.76, $9.19 and $7.10,respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $6.9 million, $27.3 millionand $21.0 million, respectively. During the year ended December 31, 2012, we received $3.7 million in cash in connection with the exercise of stock optionswith no income tax benefit due to our use of Accounting Standard Codification 740—‘Income Taxes’ (“ASC 740”) ordering for purposes of determining whenexcess benefits have been realized (see Note 11—Income Taxes). The total grant date fair value of stock options vested during the years ended December 31,2012, 2011 and 2010 was $2.8 million, $2.7 million and $5.4 million, respectively. F-22 Table of ContentsAs of December 31, 2012, we had $4.3 million of total unrecognized share-based compensation expense related to unvested options, net of expected forfeitures,which is expected to be amortized over the remaining weighted average period of 2.3 years.Restricted Stock Shares and UnitsFrom time to time, we grant restricted stock shares (RSAs) and restricted stock units (RSUs) to our employees. Unvested RSAs have the same rights as thoseof common shares including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot be transferred until they arevested. An unvested RSU is a contractual right to receive a share of common stock only upon its vesting. RSUs have dividend equivalent rights which accrueover the term of the award and are paid if and when the RSUs vest, but they have no voting rights.During 2012, the Board of Directors approved grants of 0.4 million of RSUs to certain executives as part of a performance incentive program. Half of the thesegrants vest ratably on each of the first three anniversaries of the grant date; 25% will vest upon achievement of certain performance metrics; and the remaining25% will vest one year from the date upon which certain performance metrics were achieved. If actual performance metrics exceed the targeted performancemetrics by a predetermined amount, the executives are eligible to receive up to 200% of the performance-based portion of their award. Management hasdetermined that the achievement of the performance benchmarks associated with the performance based RSUs granted in 2012 is probable and recorded $0.7million in share-based payment expense related to such units.During 2011, the Board of Directors approved grants of 0.4 million RSAs and RSUs to certain executives as part of a performance incentive program. Thevesting period for these grants is identical to that described above for 2012.During 2010, the Board of Directors approved grants of 0.7 million RSAs to certain employees. Half of such grants vest ratably on each of the first fouranniversaries of the grant date. The remaining half vest on a cliff basis on the fourth anniversary of the grant date, provided that certain corporate performancemetrics are achieved. We have not recognized any share-based payment expense related to the performance awards as the performance metrics to date have notbeen met.The following table summarizes RSA and RSU activity during the years ended December 31, 2012, 2011 and 2010. Restricted Stock Awards Restricted Stock Units Shares WeightedAverageGrant DateFair Value Units WeightedAverageGrant DateFair Value 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 Granted 118,520 19.10 651,791 24.89 Vested (352,150) 6.19 (21,150) 17.25 Forfeited (148,618) 9.67 (35,061) 15.41 Nonvested at December 31, 2011 571,175 11.87 711,980 23.43 Granted 18,813 16.48 1,010,559 18.92 Vested (191,779) 9.22 (133,555) 23.25 Forfeited (42,700) 13.25 (174,323) 20.64 Nonvested at December 31, 2012 355,509 $13.37 1,414,661 $20.61 F-23 Table of ContentsThe total grant date fair value of RSAs vested during the years ended December 31, 2012, 2011 and 2010 was $1.8 million, $2.2 million and $2.7 million,respectively. At December 31, 2012, we had $2.0 million of total unrecognized share-based compensation expense related to non-vested restricted stock awards,net of expected forfeitures. The non-vested RSAs are expected to be amortized over the remaining weighted average period of 1.50 years.The total grant date fair value of RSUs vested during the years ended December 31, 2012, 2011 and 2010 was $3.1 million, $0.4 million, and $0.0 million,respectively. At December 31, 2012, we had $7.4 million of total unrecognized share-based compensation expense related to non-vested restricted stock units,net of expected forfeitures. The non-vested RSUs are expected to be amortized over the remaining weighted average period of 1.54 years.Share-based CompensationDuring the year ended December 31, 2012, we recorded $11.3 million of pre-tax share-based compensation expense of which $2.0 million was recorded inCost of sales. No associated tax benefits were recognized in the year ended December 31, 2012, due to our use of ASC 740 ordering for purposes ofdetermining when excess tax benefits have been realized (see Note 11—Income Taxes).During the year ended December 31, 2011, we recorded $8.6 million of pre-tax share-based compensation expense of which $1.3 million was recorded in Costof sales. No associated tax benefits were recognized in the year ended December 31, 2011, due to our domestic tax loss position and valuation allowance (seeNote 11—Income Taxes).During the year ended December 31, 2010, we recorded $7.3 million of pre-tax share-based compensation expense of which $1.3 million was recorded in Costof sales and $0.2 million of accelerated vesting charges related to the separation agreement of a former officer was recorded as restructuring charges in theconsolidated statements of operations. No associated tax benefits were recognized in the year ended December 31, 2010, due to our domestic tax loss positionand valuation allowance (see Note 11—Income Taxes).Separation AgreementsOn March 31, 2010, we entered into a separation agreement with a former officer pursuant to which the vesting of 0.1 million stock options and 0.1 millionshares of restricted stock were accelerated as of March 31, 2010. During the year ended December 31, 2010, we recorded $0.2 million amount to restructuringcharges related to these vesting accelerations. Also in connection with this separation agreement, 0.2 million stock options and 0.2 million shares of restrictedstock were forfeited.10. ALLOWANCESThe changes in the allowance for doubtful accounts and reserve for sales returns and allowances for the years ended December 31, 2012, 2011 and 2010, areas follows: ($ thousands) Balance atBeginningof Year Charged tocosts andexpenses ReversalsandWrite-offs Balance atEnd ofYear 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 Year ended December 31, 2011: Allowance for doubtful accounts 4,642 (383) (579) 3,680 Reserve for sales returns and allowances 5,607 9,965 (3,744) 11,828 Year ended December 31, 2012: Allowance for doubtful accounts $3,680 $2,166 $(2,405) $3,441 Reserve for sales returns and allowances 11,828 5,111 (7,065) 9,874 F-24 Table of Contents11. INCOME TAXESThe following table sets forth income (loss) before taxes and the expense for income taxes for the years ended December 31, 2012, 2011 and 2010. December 31, ($ thousands) 2012 2011 2010 Income (loss) before taxes: U.S. $12,060 $(12,057) $(14,835) Foreign 133,488 148,747 95,627 Total income before taxes 145,548 136,690 80,792 Income tax expense: Current income taxes U.S. federal (6,364) 4,798 47 U.S. state 597 165 95 Foreign 22,953 19,758 17,923 Total current income taxes 17,186 24,721 18,065 Deferred income taxes: U.S. federal (3,981) (2,338) — U.S. state (4,016) — — Foreign 5,016 1,519 (4,999) Total deferred income taxes (2,981) (819) (4,999) Total income tax expense $14,205 $23,902 $13,066 The following table sets forth income reconciliations of the statutory federal income tax rate to our actual rates based on income or loss before income taxes asof December 31, 2012, 2011 and 2010. December 31, ($ thousands) 2012 2011 2010 Federal income tax rate 35.0% 35.0% 35.0% State income tax rate, net of federal benefit (2.7) 0.3 (0.3) Foreign income tax rate differential (25.0) (30.3) (22.2) Permanent items 4.6 3.2 12.5 Permanent portion of equity compensation 0.5 0.4 1.6 Charitable donations of inventory (0.1) — (0.1) Change in valuation allowance (8.4) 3.6 (34.2) Unremitted foreign earnings of subsidiary 2.0 — 21.7 Uncertain tax positions 3.5 8.7 1.4 Other 0.4 (3.4) 0.8 Effective income tax rate 9.8% 17.5% 16.2% F-25 Table of ContentsThe following table sets forth deferred income tax assets and liabilities as of December 31, 2012 and 2011. December 31, ($ thousands) 2012 2011 Current deferred tax assets: Accrued expenses $12,934 $12,575 Unrealized loss on foreign currency 2,026 — Other 8 2,383 Valuation allowance (3,492) (6,054) Total current deferred tax assets $11,476 $8,904 Current deferred tax liabilities: Unremitted earnings of foreign subsidiary $(7,596) $(4,746) Total current deferred tax liabilities. $(7,596) $(4,746) Non-current deferred tax assets: Stock compensation expense $8,865 $7,630 Long-term accrued expenses 3,067 — Net operating loss and charitable contribution carryovers 23,255 26,219 Property and equipment 8,994 8,641 Future uncertain tax position offset 3,780 13,638 Unrealized loss on foreign currency 921 5,644 Foreign tax credit 5,392 3,177 Other 1,767 190 Valuation allowance (22,406) (33,889) Total non-current deferred tax assets $33,635 $31,250 Non-current deferred tax liabilities: Intangible assets $(779) $(1,009) Total non-current deferred tax liabilities $(779) $(1,009) We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that areessentially permanent in duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations. Generally,the earnings of our foreign subsidiaries become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. Exceptionsmay be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs in the U.S. As of December 31,2012, we have provided for deferred U.S. income tax of $7.6 million on $38.6 million of foreign subsidiary earnings. No withholding tax is due with respectto the repatriation of these earnings to the U.S. and none has been provided for.At December 31, 2012 and 2011, U.S. income and foreign withholding taxes have not been provided on for approximately $490.8 million and $371.0 million,respectively, of unremitted earnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess of the financial reportingover the tax basis in our investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S.income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S. income tax liability on the unremitted earnings has not been determinedbecause the hypothetical calculation is not practicable.We have deferred tax assets related to certain deductible temporary differences in various tax jurisdictions for which we have recorded a valuation allowance of$25.9 million against these deferred tax assets because we do not believe that it is more likely than not that we will be able to realize these deferred tax assets.The significant F-26 Table of Contentscomponents of the deferred tax assets for which a valuation allowance has been applied consist of net operating losses in certain tax jurisdictions for whichmanagement believes there is not sufficient positive evidence that such net operating losses will be realized against future income and book expenses notdeductible for tax purposes in the current year such as inventory impairment reserves, equity compensation and unrealized foreign exchange loss that wouldincrease such net operating losses in the same jurisdictions. These temporary differences are amounts which arose in jurisdictions where (i) current lossesexist, (ii) such losses are in excess of any loss carryback potential, (iii) no tax planning strategies exist with which to overcome such losses and (iv) no profitsare projected for the following year. For these reasons it is determined that it is more likely than not that these deferred tax assets will not be realized and avaluation allowance has been provided with respect to these deferred tax assets.At December 31, 2012, we had U.S. federal net operating loss carryforwards of $0.7 million, state net operating loss carryforwards of $89.6 million,charitable contribution carryforwards of $23.3 million and foreign tax credits of $5.0 million which will expire at various dates between 2014 and 2031. We donot believe that it is more likely than not that the benefit from certain state net operating losses will be realized. Consequently, we have a valuation allowance of$9.1 million on the deferred tax assets relating to these state net operating loss carryforwards and charitable contribution carryforwards.At December 31, 2012, we have a foreign deferred tax asset of $11.4 million reflecting the benefit of $43.8 million in foreign net operating loss carryforwards,some of which have an indefinite life. We do not believe it is more likely than not that the benefit from certain foreign net operating loss carryforwards will berealized. Consequently, we have provided a valuation allowance of $7.7 million on the deferred tax assets relating to these foreign net operating losscarryforwards.We had approximately $36.7 million in net deferred tax assets at December 31, 2012. Approximately $11.9 million of the net deferred tax assets were locatedin foreign jurisdictions for which a sufficient history and expected future profits indicated that it is more likely than not that such deferred tax assets will berealized. Pre-tax profit of approximately $47.4 million is required to realize the net deferred tax assets.At December 31, 2012, approximately $3.8 million of net deferred tax assets consists of deferred tax assets related to estimated liabilities for uncertain taxpositions that would be realized if such liabilities are actually incurred. The deferred tax assets represent primarily the reduction in tax expense that wouldoccur upon an increase of intercompany royalty expense by various taxing authorities. Approximately $15.2 million of taxable income would have to berecognized to realize these deferred tax assets.As a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assetsat December 31, 2012 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting.Equity will be increased by $11.8 million if and when such deferred tax assets are ultimately realized. We use ASC 740 ordering for purposes of determiningwhen excess tax benefits have been realized.The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years ended December 31, 2012,2011 and 2010. ($ thousands) 2012 2011 2010 Unrecognized tax benefit—January 1 $44,537 $33,042 $29,163 Gross increases—tax positions in prior period — 8,332 943 Gross decreases—tax positions in prior period (425) — — Gross increases—tax positions in current period 4,310 4,689 3,086 Settlements (16,260) (427) — Lapse of statute of limitations (262) (1,099) (150) Unrecognized tax benefit—December 31 $31,900 $44,537 $33,042 F-27 Table of ContentsUnrecognized tax benefits of $31.9 million, $44.5 million, and $33.0 million at December 31, 2012, 2011 and 2010, respectively, if recognized, would reduceour annual effective tax rate.Interest and penalties related to income tax liabilities are included in income tax expense in the consolidated statement of operations. As of December 31, 2012,2011 and 2010, we recorded approximately $0.6 million, $1.0 million, and $0.1 million, respectively, of penalties and interest which resulted in a cumulativeaccrued balance of penalties and interest of $4.4 million, 3.9 million, and $2.9 million at December 31, 2012, 2011 and 2010, respectively.Unrecognized tax benefits consist primarily of tax positions related to intercompany transfer pricing in multiple international jurisdictions. The gross increasefor tax positions in current and prior periods in 2012 of $3.9 million primarily includes specific transfer pricing exposures in various jurisdictions. We do notexpect any significant changes in unrecognized tax benefits in the next twelve months.The following table sets forth the remaining tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2012. Netherlands 2006 to 2012 Canada 2007 to 2012 Japan 2007 to 2012 Singapore 2008 to 2012 United States 2010 to 2012 State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of anyfederal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states.12. EARNINGS PER SHAREThe following table illustrates the basic and diluted earnings per share (“EPS”) computations for the years ended December 31, 2012, 2011 and 2010. SeeNote 1—Organization & Summary of Significant Accounting Policies for additional detail regarding our EPS calculations. Year Ended December 31, ($ thousands, except share and per share data) 2012 2011 2010 Numerator Net income attributable to common stockholders $131,343 $112,788 $67,726 Less: income allocated to participating securities (645) (1,014) (863) Net income attributable to common stockholders—basic and diluted $130,698 $111,774 $66,863 Denominator Weighted average common shares outstanding—basic 89,571,105 88,317,898 85,482,055 Plus: dilutive effect of stock options and unvested restricted stock units 1,017,311 1,663,484 2,113,563 Weighted average common shares outstanding—diluted 90,588,416 89,981,382 87,595,618 Net income attributable per common share: Basic $1.46 $1.27 $0.78 Diluted $1.44 $1.24 $0.76 F-28 Table of ContentsFor the years ended December 31, 2012, 2011 and 2010, 1.4 million, 1.1 million, and 1.3 million options and RSUs, respectively, were not included in thecalculation of diluted EPS as their effect would have been anti-dilutive.Subject to certain restrictions on repurchases under our revolving credit facility, we have authorization to repurchase up to 5.5 million shares of our commonstock under previous board authorizations. In the fourth quarter of 2012, approximately 1.9 million shares were repurchased at an average price of $13.27 fora total of value of $25.0 million, excluding related commission charges.13. COMMITMENTS AND CONTINGENCIESWe rent space for certain of our retail stores, offices, warehouses, vehicles, and equipment under operating leases expiring at various dates through 2023.Certain leases contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with steprents or rent holidays is recognized on a straight-line basis over the lease term. Deferred rent is included in the consolidated balance sheets in Accrued expensesand other current liabilities.Future minimum annual rental commitments under non-cancelable operating leases for each of the five succeeding years as of December 31, 2012, are asfollows (in thousands): Fiscal years ending December 31, 2013 $80,020 2014 63,798 2015 53,737 2016 44,189 2017 36,770 Thereafter 132,390 Total minimum lease payments $410,904 Minimum payments have not been reduced by minimum sublease rentals of 0.5 million due in the future under non-cancelable subleases. Theyalso do not include contingent rentals which may be paid under certain retail leases on a basis of percentage of sales in excess of stipulatedamounts.The following table summarizes the composition of rent expense under operating leases for the years ended December 31, 2012, 2011 and 2010 (in thousands): Fiscal years ending December 31, 2012 2011 2010 Minimum rentals $84,671 $68,675 $57,989 Contingent rentals 16,519 13,639 9,847 Less: Sublease rentals (619) (573) (553) Total rent expense $100,571 $81,741 $67,283 As of December 31, 2012, we had purchase commitments with certain third party manufacturers for $152.8 million, of which $5.9 million was for yet-to-be-received finished product where title passes to us upon receipt. As of December 31, 2011, we had purchase commitments with certain third partymanufacturers for $138.2 million, of which $12.5 million was for yet-to-be-received finished product where title passes to us upon receipt and a commitmentto re-purchase $4.3 million of raw materials from a certain third party manufacturer.In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certain rawmaterials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivity throughout theterm of the agreement, F-29(1)(1) Table of Contentswhich expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous and we do not expect them to become onerous inthe future. Depending on the material purchased, pricing is either based on contracted price or is subject to quarterly reviews and fluctuates based on ordervolume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee the payment for certain third party manufacturer purchases ofthese raw materials up to a maximum potential amount of €3.5 million (approximately $4.6 million as of December 31, 2012), through a letter of credit thatwas issued to Finproject S.r.l.14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATIONWe have three reportable operating segments: Americas, Europe and Asia. We also have an “Other businesses” category which aggregates insignificantoperating segments that do not meet the reportable threshold and represent manufacturing operations located in Mexico and Italy. The composition of ourreportable operating segments is consistent with that used by our chief operating decision maker (“CODM”) to evaluate performance and allocate resources.Each of our reportable operating segments derives its revenues from the sale of footwear, apparel and accessories to external customers. Revenues of the “Otherbusinesses” category are primarily made up of intersegment sales which are eliminated when deriving total consolidated revenues. The remaining revenues forthe “Other businesses” represent non-footwear product sales to external customers. Segment assets consist of cash and cash equivalents, accounts receivableand inventory.Segment operating income is the primary measure used by our CODM to evaluate segment operating performance and to decide how to allocate resources tosegments. Segment performance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative andother expenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegmentsales.During the first quarter of 2012, we changed the internal reports used by our CODM to align the definition of our segment operating income with “Income fromoperations.” Previously, segment operating income excluded asset impairment charges and restructuring costs not included in cost of sales. Segment operatingincome also reflects the reclassification of “Foreign currency transaction (gains) losses, net” from “Income from operations” on the consolidated statements ofincome. See Note 1—Organization & Summary of Significant Accounting Policies for further discussion. Segment information for all periods presented hasbeen reclassified to reflect these changes. F-30 Table of ContentsThe following tables set forth information related to our reportable operating business segments as of and for the years ended December 31, 2012, 2011 and2010. Year Ended December 31, ($ thousands) 2012 2011 2010 Revenues: Americas $495,852 $448,077 $374,873 Asia 457,411 381,767 285,017 Europe 169,464 170,868 127,686 Total segment revenues 1,122,727 1,000,712 787,576 Other businesses 574 191 2,119 Total consolidated revenues $1,123,301 $1,000,903 $789,695 Operating income: Americas $85,538 $70,532 $64,099 Asia 140,828 123,918 89,248 Europe 21,678 37,106 22,258 Total segment operating income 248,044 231,556 175,605 Reconciliation of total segment operating income to income before income taxes: Other businesses (10,805) (14,128) (23,321) Intersegment eliminations 60 66 1,360 Unallocated corporate and other (91,125) (86,415) (75,522) Total consolidated operating income 146,174 131,079 78,122 Interest expense 837 853 657 Foreign currency transaction (gains) losses, net 2,500 (4,886) (2,326) Other income, net (2,711) (1,578) (1,001) Income before income taxes $145,548 $136,690 $80,792 Depreciation and amortization: Americas $9,849 $9,203 $8,935 Asia 6,922 6,084 6,772 Europe 3,116 2,584 2,018 Total segment depreciation and amortization 19,887 17,871 17,725 Other businesses 7,003 11,657 13,351 Unallocated corporate and other 9,804 7,735 5,983 Total consolidated depreciation and amortization $36,694 $37,263 $37,059 Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-basedcompensation, research and development, brand marketing, legal, depreciation and amortization of corporate and other assets not allocated tooperating segments and costs of the same nature related to certain corporate holding companies. F-31(1)(1)(1) Table of Contents December 31, ($ thousands) 2012 2011 Assets: Americas $143,236 $97,188 Asia 282,211 239,281 Europe 85,756 83,871 Total segment current assets 511,203 420,340 Other businesses 14,489 29,851 Unallocated corporate and other 25,738 21,783 Deferred tax assets, net 6,284 7,047 Income tax receivable 5,613 5,828 Other receivables 24,821 20,295 Prepaid expenses and other current assets 24,967 20,199 Total current assets 613,115 525,343 Property and equipment, net 82,241 67,684 Intangible assets, net 59,931 48,641 Deferred tax assets, net 34,112 30,375 Other assets 40,239 23,410 Total consolidated assets $829,638 $695,453 Corporate assets primarily consist of cash and equivalents.There were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2012, 2011 and 2010. The followingtable sets forth certain geographical and other information regarding our revenues during the years ended December 31, 2012, 2011 and 2010. Year Ended December 31, ($ thousands) 2012 2011 2010 Product: Footwear $1,076,210 $956,816 $753,951 Other 47,091 44,087 35,744 Total revenues $1,123,301 $1,000,903 $789,695 Location: United States $396,121 $355,560 $299,026 International 727,180 645,343 490,669 Total revenues $1,123,301 $1,000,903 $789,695 Foreign country revenues in excess of 10% of total revenues: Japan $164,565 $154,925 $111,764 The following table sets forth geographical information regarding our property and equipment assets as of December 31, 2012 and 2011. December 31, ($ thousands) 2012 2011 Location: United States $47,587 $39,063 International 34,654 28,621 Total long-lived assets $82,241 $67,684 Not more than 10% of our long-lived assets resided in any individual foreign country in 2012 or 2011. F-32(1)(1)(1)(1) Table of Contents15. LEGAL PROCEEDINGSWe and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Courtfor the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all persons whopurchased our common stock between April 2, 2007 and April 14, 2008 (the “Class Period”). The amended complaint also added our independent auditor as adefendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleading public statements about us and ourbusiness and prospects and, as a result, the market price of our common stock was artificially inflated. The amended complaint also claims that certaincurrent and former officers and directors traded in our common stock on the basis of material non-public information. The amended complaint seekscompensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also added attorneys’ fees and costs of litigation. OnFebruary 28, 2011, the District Court granted motions to dismiss filed by the defendants and dismissed all claims. A final judgment was thereafter entered.Plaintiffs subsequently appealed to the United States Court of Appeals for the Tenth Circuit. We and those current and former officers and directors named asdefendants have entered into a Stipulation of Settlement with the plaintiffs that would, if approved by the United States District Court for the District ofColorado, resolve all claims asserted against us by the plaintiffs on behalf of the putative class, and plaintiffs’ appeal would be dismissed. Our independentauditor is not a party to the Stipulation of Settlement. The Stipulation of Settlement is subject to customary conditions, including preliminary court approval,and final court approval following notice to stockholders. If the settlement becomes final, all amounts required by the settlement will be paid by our insurers.There can be no assurance that the settlement will be finally approved by the District Court, or that approval by the District Court will, if challenged, beupheld by the Tenth Circuit.On October 27, 2010, Spectrum Agencies (“Spectrum”) filed suit against our subsidiary, Crocs Europe B.V. (“Crocs Europe”), in the High Court of Justice,Queen’s Bench Division, Royal Courts of Justice in London, United Kingdom (“UK”). Spectrum acted as an agent for Crocs products in the UK from 2005until Crocs Europe terminated the relationship on July 3, 2008 due to Spectrum’s breach of its duty to act in good faith towards Crocs Europe. Spectrumalleges that Crocs Europe unlawfully terminated the agency relationship and failed to pay certain sales commissions. A trial on the liability, not quantum(compensation and damages), was held at the High Court in London from November 30, 2011 to December 5, 2011. On December 16, 2011, the High Courtof Justice issued a judgment that found that although Spectrum’s actions were a breach of its duty to act in good faith towards Crocs Europe the breach wasnot sufficiently severe to justify termination. We believe that the trial judge erred in his findings and subsequently appealed the judgment. On October 30,2012, the Court of Appeal handed down its judgment confirming the trial judge’s findings. We submitted a request to the Supreme Court seeking permissionto appeal and anticipate that a decision by the Supreme Court on permission to appeal will be rendered in the first quarter of 2013. Given that this phase of theproceedings only pertains to liability, there have been no findings in relation to the amount of compensation or damages other than with respect to legal fees.Under English law, the prevailing party is entitled to reimbursement of reasonable legal fees incurred in the liability proceedings. Spectrum has not quantifiedits claim for compensation and damages and the amount will be assessed later in the proceedings. Proceedings on quantum may be stayed until a decision onpermission to appeal has been handed down or in the event that permission is granted, until a final decision on the merits.We are currently subject to an audit by U.S. Customs & Border Protection (“CBP”) in respect of the period from 2006 to 2010. CBP issued a draft auditreport to which Crocs filed comments and objections. The Company believes that a final report (and notice of a formal claim) will not be issued until sometimein mid-2013. CBP has provided the Company with preliminary projections and a draft audit report that reflect unpaid duties totaling approximately $14.3million during the period under review. The Company has responded that these projections are erroneous and provided arguments that demonstrate the amountdue in connection with this matter is considerably less than the preliminary projection. CBP is currently reviewing this response. It is not possible at F-33 Table of Contentsthis time to predict whether the Company’s arguments will be successful in eliminating or reducing the amount in dispute. Likewise, it is not possible topredict whether CBP may seek to assert a claim for penalties in addition to any loss of revenue claim.We are currently subject to an audit by Mexico’s Federal Tax Authority (“SAT”) for the period from January 2006 to July 2011. There are two phases to theaudit, the first for capital equipment and finished goods and the second for raw materials. The first phase is complete and no major discrepancies were notedby the SAT. On January 9, 2013, Crocs received a notice for the second phase in which the SAT proposed a tax assessment (taxes and penalties) of roughly280 million pesos (approximately $22.0 million) based on the value of all of Crocs’ imported raw materials during the audit period. We believe that theproposed penalty amount is unfounded and without merit. We have retained local counsel to handle the matter and who will argue that the amount due inconnection with the matter, if any, is substantially less than that proposed by the SAT. We expect it to take between two and three years for resolution of thismatter in the Mexican courts. It is not possible at this time to predict the outcome of this matter or reasonably estimate any potential loss.As of December 31, 2012, we have accrued a total of $5.9 million related to these legal matters.Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and productliability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on our business.16. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION 2012 ($ thousands, except per share data) QuarterEndedMarch 31 QuarterEndedJune 30 QuarterEndedSeptember 30 QuarterEndedDecember 31 Revenues $271,798 $330,942 $295,569 $224,992 Gross profit 144,799 196,085 160,743 106,350 Asset impairment charges 713 106 — 591 Income (loss) from operations 39,796 71,261 40,014 (4,897) Net income (loss) $28,346 $61,524 $45,080 $(3,607) Basic income (loss) per common share $0.32 $0.68 $0.50 $(0.04) Diluted income (loss) per common share $0.31 $0.68 $0.49 $(0.04) 2011 ($ thousands, except per share data) QuarterEndedMarch 31 QuarterEndedJune 30 QuarterEndedSeptember 30 QuarterEndedDecember 31 Revenues $226,708 $295,585 $274,897 $203,713 Gross profit 119,206 170,218 147,175 99,811 Asset impairment charges 32 — 495 1 Income from operations 28,248 64,774 37,068 6,415 Net income $21,504 $55,506 $30,207 $5,571 Basic income per common share $0.24 $0.62 $0.34 $0.06 Diluted income per common share $0.24 $0.61 $0.33 $0.06 F-34 Exhibit 10.24E05MASTER INSTALLMENT PAYMENT AGREEMENTdated as of December 10, 2012 by and between Payee: PNC Equipment Finance, LLC and Obligor: Crocs, Inc. 995 Dalton Avenue 7477 East Dry Creek Cincinnati, OH 45203 Niwot, CO 80503 Contact: Contract AdministrationPhone: (866)596-5131 Contact: Mario PasqualePhone: (303)848-75761. FINANCING. Payee agrees to finance to Obligor, and Obligor agrees to pay to Payee, the software and services(which services may include but not belimited to third party costs incurred to design, install and implement software systems, and training of Obligor personnel), and associated hardware(collectively the “Licensed Software”) described in one or more schedules to this Master Installment Payment Agreement (the “Master IPA”). Each suchschedule incorporates by reference the terms and conditions set forth in this Master IPA and constitutes a separate schedule (the “Schedule”). The financing ofLicensed software under each Schedule shall be for such term and such Payments as may be agreed to by execution of the Schedules, and this Master IPAshall control and be effective as to all such Schedules, the same as though set forth therein unless expressly amended or modified in writing for particularSchedules.2. TERM AND PAYMENT. The term (“Term”) for each Schedule shall be for the period specified in the applicable Schedule, and Obligor shall payPayee, throughout the Term for the use of the Licensed Software, the Payment specified in the applicable Schedule. The Term and Payment with respect to theLicensed Software shall commence as set out in the applicable Schedule. The term “Payment” as used herein shall mean and include all amounts payable byObligor to Payee hereunder.3. LATE CHARGES. Time is of the essence in each Schedule. If any Payment or other amount due under any Schedule is not paid within ten days afterthe due date thereof, Payee shall have the right to add and collect and Obligor agrees to pay a late charge on, and in addition to, such unpaid Payment for eachmonth or part thereof that such Payment remains unpaid or other charges, an amount equal to five percent of such unpaid Payment or a lesser amount ifestablished by any state or federal statute applicable thereto, provided that such late charge shall not begin to accrue until such payment is at least ten(10) days past due.4. DISCLAIMER OF WARRANTIES. Obligor acknowledges that Payee is not the manufacturer, developer or reseller of the Licensed Software, nor thedeveloper’s agent, and Obligor represents that Obligor has selected the Licensed Software financed hereunder based upon Obligor’s judgment prior to havingrequested Payee to finance the Licensed Software, and Obligor agrees that as between Payee and Obligor, the Licensed Software financed hereunder is of adesign, scope, fitness and capacity selected by Obligor and that Obligor is satisfied that the same is suitable and fit for its intended purposes. OBLIGORFURTHER AGREES THAT PAYEE HAS MADE AND MAKES NO REPRESENTATIONS OR WARRANTIES OF WHATSOEVER NATURE,DIRECTLY OR INDIRECTLY, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY REPRESENTATIONS OR WARRANTIESWITH RESPECT TO SUITABILITY, DURABILITY, FITNESS FOR USE AND MERCHANTABILITY OF ANY SUCH LICENSED SOFTWARE,THE PURPOSES AND USES OF THE LICENSED SOFTWARE, THE CHARACTERIZATION OF THE MASTER IPA OR ANY SCHEDULE FORTAX, ACCOUNTING OR OTHER PURPOSES, COMPLIANCE OF THE LICENSED SOFTWARE WITH APPLICABLE GOVERNMENTALREQUIREMENTS, OR OTHERWISE. Obligor specifically waives all rights to make claim against Payee herein for breach of any warranty of any kindwhatsoever. Notwithstanding the foregoing, Obligor shall be entitled to the benefit of any applicable developer’s warranties received by Payee and to the extentassignable, and Payee hereby assigns such warranties to Obligor for the term of the applicable Schedule. Payee shall take such actions as may reasonably benecessary to assign such warranties to Obligor. Payee shall not be liable to Obligor for any loss, damage or expense of any kind or nature caused directly orIndirectly by any Licensed Software financed hereunder or for the use or maintenance thereof, or for the failure of operations thereof, or for the repairs, service or adjustment thereto, or by any delay or failure to provide any thereof, or by any interruption of service or loss of use thereof or for anyloss of business or any other damage whatsoever and howsoever caused. No defect or unfitness of the Licensed Software shall relieve Obligor of the obligationto pay any Payment, or to perform any other obligation under this Master IPA or any Schedule.5. USE, OPERATION AND MAINTENANCE. Obligor shall use the Licensed Software In the manner for which it was designed and intended, solelyfor Obligor’s business purposes, in accordance with all developer manuals and instructions and in compliance with all applicable laws, regulations andorders. Obligor, at Obligor’s own cost and expense, shall keep the Licensed Software In good condition and working order, and shall furnish and perform allmandatory service, maintenance, upgrades and devices required by the provider of the Licensed Software and necessary to comply with applicable industrystandards. All upgrades and improvements at any time made to or placed upon the Licensed Software shall become security for the Payee. Obligor may makesuch alterations, modifications or improvements to the Licensed Software as Obligor may reasonably deem desirable in the conduct of its business; providedthe same shall not diminish the value or utility of the Licensed Software, or cause the loss of any warranty thereon or any certification necessary for themaintenance thereof. Payee acknowledges that any data files shall be and remain the property of Obligor.OBLIGOR SHALL KEEP THE LICENSED SOFTWARE FREE AND CLEAR FROM ALL LIENS, CHARGES, ENCUMBRANCES, LEGALPROCESS AND CLAIMS. OBLIGOR SHALL NOT ASSIGN, SUBLET, HYPOTHECATE, SELL, TRANSFER OR PART WITH POSSESSION OFTHE LICENSED SOFTWARE OR ANY INTEREST IN A SCHEDULE, AND ANY ATTEMPT TO DO SO SHALL BE NULL AND VOID ANDSHALL CONSTITUTE A DEFAULT HEREUNDER. NEITHER THIS MASTER IPA, NOR ANY SCHEDULE, NOR ANY INTEREST IN THELICENSED SOFTWARE IS ASSIGNABLE OR TRANSFERABLE BY OBLIGOR BY OPERATION OF LAW. OBLIGOR AGREES NOT TO WAIVEITS RIGHT TO USE AND POSSESS THE LICENSED SOFTWARE IN FAVOR OF ANY PARTY OTHER THAN PAYEE AND FURTHER AGREESNOT TO ABANDON THE LICENSED SOFTWARE TO ANY PARTY OTHER THAN PAYEE. SO LONG AS OBLIGOR FAITHFULLY PERFORMSAND MEETS EACH AND EVERY MATERIAL TERM AND CONDITION TO BE PERFORMED OR MET BY OBLIGOR UNDER THIS MASTERIPA, OBLIGOR’S QUIET AND PEACEFUL POSSESSION OF THE LICENSED SOFTWARE WILL NOT BE DISTURBED BY PAYEE ORANYONE CLAIMING BY, THROUGH OR ON BEHALF OF PAYEE.6. SECURITY INTEREST. To secure the prompt payment of all amounts due and payable under this Master IPA and each Schedule, Obligor herebygrants to Payee a first priority security interest in the Licensed Software described in each Schedule, together with all attachments, replacements, substitutionsand additions thereto, whenever acquired, the proceeds thereof (including any insurance proceeds) and any other property described in any applicablefinancing statement filed in connection with each such Schedule. Obligor authorizes Payee to file a financing statement or other documents deemed necessary toprotect and continue Payee’s right and interest with respect to the Licensed Software. Obligor shall not permit a lien, security interest, claim or encumbrance tobe placed upon the Licensed Software other than liens granted pursuant to the Cross Collateralization Agreement among Obligor, Payee and PNC Bank,National Association. Obligor shall provide Payee with a waiver of interest or lines, claims or encumbrances from any party claiming an interest in theLicensed Software. Payee shall have the right twice a year during normal business hours, with reasonable notice, to enter upon Obligor’s premises or elsewherefor the purpose of confirming the existence and proper maintenance of the Licensed Software.7. TAXES. To the extent not financed in the Payments, Obligor shall promptly reimburse Payee for, or shall pay directly if so requested by Payee, as anadditional Payment, all taxes, charges and fees which may now or hereafter be imposed or levied by any governmental body or agency upon or in connectionwith the use, license, financing, possession or location of the Licensed Software or otherwise in connection with the transactions contemplated by this MasterIPA, excluding, however, ail taxes on or measured by the net income of Payee, and shall keep the Licensed Software free and clear of all levies, liens orencumbrances arising therefrom. Obligor shall file, as party responsible for payment of tax, all fax returns relating to the Licensed Software unless otherwiseprovided in writing. Obligor shall promptly reimburse Payee in full for all taxes levied on or assessed against the Licensed Software during the Term. Failureof Obligor to promptly pay amounts due hereunder shall be the same as failure to pay any Payment. If Obligor is requested by Payee to file any returns orremit payments directly to any governmental body or agency as provided for hereunder, Obligor shall provide proof of said filing or payment to Payee uponrequest.8. LOSS OR DAMAGE OF LICENSED SOFTWARE. Obligor hereby assumes and shall bear the risk of loss or destruction of or damage to theLicensed Software from any and every cause whatsoever, whether or not insured, until the end of the Term. No such loss or damage shall impair anyobligation of Obligor under this Master IPA, which shall continue in full force and effect. In event of damage to or theft, loss or destruction of the LicensedSoftware, Obligor shall promptly notify Payee in writing of such fact and of all details with respect thereto, and shall, within thirty (30) days of such event, atPayee’s option, (a) place the same in good condition and working order or, (b) Obligor shall have the option to, at Obligor’s expense, substitute replacement software or hardware (or any item thereof) of the IdenticalManufacture (“Identical Manufacture” shall be, for specialized or custom software, the same provider that developed the software; for non-specialized software(such as desktop operating systems) or standard hardware (such as servers or laptops) “Identical Manufacture” shall be properly of an identical or improvedconfiguration as the property being replaced), in good repair, condition and working order and provide a valid first perfected security interest to suchreplacement property to Payee, whereupon such property shall be subject to the applicable Schedule and be deemed the Licensed Software for purposes hereof;or, (c) pay Payee an amount equal to the sum of all Payments accrued to the date of such payment, plus the Stipulated Loss Value for the Licensed Software.The Stipulated Loss Value of the Licensed Software or any item of Licensed Software as of any particular computation date shall mean an amount determinedby multiplying the original cost of the item of Licensed software by the appropriate percentage specified in Exhibit A, attached to the applicable Schedule,opposite the date on which the next immediately succeeding installment of Rent is to be paid, The Stipulated Loss Value shall not be pro-rated. Upon thepayment of the above amounts the Schedule shall terminate, except for Obligors duties under Section 10 hereof, solely with respect to the Licensed Software (orany item thereof) for which such payment is received by Payee. Upon payment of the amount set forth in (c), the Payment for such Schedule shall be reducedproportionately. Any insurance proceeds received with respect to the Licensed Software (or any item thereof) shall be applied, in the event option (c) is elected,in reduction of the then unpaid obligations, including the Stipulated Loss Value, of Obligor to Payee, if not already paid by Obligor, or, if already paid byObligor, to reimburse Obligor for such payment, or, in the event option (a) or (b) is elected, to reimburse Obligor for the costs of repairing, restoring orreplacing the Licensed Software (or any item thereof) upon receipt by Payee of evidence, reasonably satisfactory to Payee, that such repair, restoration orreplacement has been completed, and an invoice therefor.9. OBLIGOR INDEMNITY. Obligor assumes liability for and shall indemnify, save, hold harmless (and, if requested by Payee, defend) Payee, Itsofficers,directors, employees, agents or assignees from and against any and all claims, actions, suits or proceedings of any kind and nature whatsoever,including all damages, liabilities, penalties, costs, expenses and legal fees except to the extent of the gross negligence or willful misconduct of Payee (hereinafter“Claim(s)”) based on, arising out of, connected with or resulting from this Master IPA or any Schedule or the Licensed Software, including without limitationthe development, selection, purchase, delivery, acceptance, rejection, possession, use or operation of the Licensed Software and claims by third partiesresulting from or relating to ownership, return or disposition of the Licensed Software, and including without limitation Claims arising in contract or tort(including negligence, strict liability or otherwise), arising out of latent defects (regardless of whether the same are discoverable by Payee or Obligor) or arisingout of any trademark, patent or copyright infringement. If any Claim is made against Obligor or Payee, the party receiving notice of such Claim shallpromptly notify the other, but the failure of such person receiving notice so to notify the other shall not relieve Obligor of any obligation hereunder.10. DEFAULT AND REMEDIES, (a) Obligor shall be in default hereunder if: (i) Obligor fails to pay any Payment or any other payment requiredhereunder within ten (10) days of the due date thereof; (ii) Obligor fails to observe, keep or perform any other term or condition of this Master IPA or aSchedule and such failure continues for thirty days following receipt of written notice thereof from Payee; (iii) any representation or warranty made by Obligorherein or in any document delivered to Payee in connection herewith shall prove to be false or misleading in any material respect; (iv) Obligor defaults underany other material obligation to Payee, provided that Obligor shall have thirty (30) days after notice of such default, or such longer period of time as may benecessary to cure such default so long as Obligor commences to cure such default within such thirty (30) day period and thereafter uses commerciallyreasonable efforts to pursue such cure; (v) Obligor or any guarantor becomes insolvent, dissolves, or assigns its assets for the benefit of creditors, or entersany bankruptcy or reorganization proceeding; (vi) any guarantor of the Master IPA dies or does not perform its obligations under the guaranty; (vii) Obligorundergoes a change in ownership or control of any type, that in the Payee’s reasonable judgment, results in a deterioration of Obligor’s creditworthiness; and/or(vii) Obligor defaults on any obligation owed to PNC Bank, National Association, including but not limited to those obligations set forth in the CrossCollateralization Agreement. (b) If Obligor is in default, Payee shall have the right to take any one or more of the following actions: (i) cancel or terminate any orall Schedules or any other agreements that Payee has entered into with Obligor; (ii) proceed by appropriate court action or actions at law or in equity to enforceperformance by Obligor of the terms and conditions of this Master IPA or any defaulted Schedule and/or recover damages for the breach thereof; (iii) bywritten notice to Obligor, which notice shall apply to all Schedules hereunder except as specifically excluded therefrom by Payee, declare due and payable, andObligor shall without further demand, forthwith pay to Payee an amount equal to any unpaid Payment then due as of the date of such notice plus, asliquidated damages or loss of the bargain and not as a penalty, an amount equal to the Stipulated Loss Value; and/or (iv) exercise any other right or remedyavailable at law or in equity. Payee shall also have the right to authorize the developer of the Licensed Software to terminate access to the Licensed Software,free from all claims by Obligor. Termination of the Licensed Software shall not constitute a termination of this Master IPA or any Schedule unless Payee sonotifies Obligor in writing. With respect to Licensed Software terminated by Payee, Obligor acknowledges that Payee does not have any right to re license or sublicensethe Licensed Software, (c) Obligor shall be liable for all reasonable and documented legal and collection fees, costs and expenses arising from Obligor’s defaultand the exercise of Payee’s remedies hereunder, including costs of termination of the Licensed Software. (d) In the event that any court of competent jurisdictiondetermines that any provision of this Section is invalid or unenforceable in whole or In part, such determination shall not prohibit Payee from establishing itsdamages sustained as a result of any breach of the Master IPA or any Schedule in any action or proceeding in which Payee seeks to recover such damages.Any termination of the Licensed Software shall not bar an action for damages for breach of any Schedule, as hereinabove provided, and the bringing of anaction or the entry of judgment against Obligor shall not bar Payee’s right to terminate the Licensed Software. No express or implied waiver by Payee of anydefault shall in any way be, or be construed to be, a continuing waiver or a waiver of any future or subsequent default.11. CROSS TERMINATION. This Master IPA and any Schedule shall automatically terminate, and Obligor shall pay any and all remainingobligations under this Master IPA and any Schedule as set forth in Section 8(c) of this Master IPA, in the event that the Revolver entered into between Obligorand PNC Bank, National Association, terminates for any reason. The payments under this Section shall be made upon the same date as the termination12. FURTHER ASSURANCES. Obligor agrees, at the request of Payee, to execute and deliver to Payee any reasonable financing statements, fixturefilings or other instruments necessary for expedient filing, recording or perfecting the interest and title of Payee in this Master IPA, any Schedule and theLicensed Software, agrees that a copy of this Master IPA and any Schedule may be so filed, and agrees that all costs incurred in connection therewith(including, without limitation, filing fees and taxes) shall be paid by Obligor, and agrees to promptly, at Obligor’s expense, deliver such other reasonabledocuments and assurances, and take such further action as Payee may request, in order to effectively carry out the intent and purpose of this Master IPA andSchedules. Additionally, Obligor agrees that where permitted by law, a copy of the financing statement may be filed in lieu of the original, in the event thatObligor is no longer a publicly traded entity, Obligor shall, as soon as practicable, deliver to Payee, Obligor’s future financial information in a formreasonably acceptable to Payee. Obligor’s covenants, representations, warranties and indemnities contained in Sections 7, 10, and 14 hereof are made for thebenefit of Payee and shall survive, remain in full force and effect and be enforceable after the expiration or termination of this Master IPA or all Schedules forany reason.13. ACCEPTANCE OF LICENSED SOFTWARE: NON CANCELABLE. Obligor’s acceptance of the Licensed Software shall be conclusively andirrevocably evidenced by Obligor signing the Certificate of Acceptance in the form provided or requested by Payee and upon acceptance, the Schedules shall benoncancelable for the applicable Term. If Obligor cancels or terminates a Schedule after its execution and prior to delivery of the Licensed Software or if obligorfails or refuses to sign the Certificate of Acceptance as to all or any part of the Licensed Software within a reasonable time, not to exceed ten days, after theLicensed Software has been delivered, in which event Obligor will be deemed to have cancelled the Schedule, Obligor shall automatically assume all of Payee’slicense payment obligations for the Licensed Software and Obligor agrees to indemnify and defend Payee from any claims, including any demand for paymentof the license payment price for the Licensed Software, by the developer or seller of the Licensed Software.14. ASSIGNMENT. Obligor acknowledges and agrees that Payee may, at any time, with notice to and the prior written consent of Obligor, whichconsent shall be neither unreasonably withheld or delayed, sell, grant a security interest in or assign its rights but not its obligations under any Schedule. Suchassignee may re—assign, sell or grant a security interest in the assigned Schedule without notice to Obligor. Any such assignee or transferee shall have and beentitled to exercise any and all rights and powers of Payee under the assigned Schedule, but such assignee shall not be obligated to perform any of theobligations of Payee hereunder other than Payee’s obligation not to disturb Obligor’s quiet and peaceful possession of the Licensed Software and unrestricteduse thereof for its intended purpose during the term thereof and for as long as Obligor is not in default of any of the provisions hereof.Without limiting the foregoing, Obligor further acknowledges and agrees that in the event Obligor receives written notice of, and consents to, anassignment from Payee, Obligor will pay all Payments and any and all other amounts payable by Obligor under any Schedule to such assignee or asinstructed by Payee, notwithstanding any defense or claim of whatever nature, whether by reason of breach of such Schedule or otherwise which it may nowor hereafter have as against Payee (Obligor reserving Its right to make claims directly against Payee).15. REPRESENTATIONS AND WARRANTIES. Obligor represents and warrants to Payee that: (i) the making of this Master IPA and any Schedulethereto executed by Obligor are duly authorized on the part of Obligor and upon execution thereof by Obligor and Payee they shall constitute valid obligationsbinding upon, and enforceable against, Obligor; (ii) neither the making of this Master IPA or any Schedule, nor the due performance thereof by Obligor,including the commitment and payment of the Payments, shall result in any breach of, or constitute a default under, or violation of, Obligor’s certificate ofincorporation, by-laws, or any agreement to which Obligor is a party or by which Obligor is bound; (iii) Obligor Is In good standing in its state ofincorporation and in any jurisdiction where the Licensed Software is located, and is entitled to own properties and to carry on business therein; and (iv) no approval, consent orwithholding of objection is required from any governmental authority or entity with respect to the entering into, or performance of this Master IPA or anySchedules by Obligor.Obligor shall provide Payee a Certified Copy of its Corporate Resolutions and or a Certificate of Incumbency in the form provided by Payee or suchother form that Payee deems acceptable.Payee has the power to enter Into this Master IPA and any Schedules, and its execution has been duly authorized by all necessary corporate action on thepart of the Payee. Payee is duly and validly organized and existing in good standing under the laws of the state of Indiana and has all power and authority toown its properties and carry on its business in the places where such properties are located and such business is conducted.16. NOTICES. Any notice required or given hereunder shall be deemed properly given when provided in writing (i) three (3) business days after mailedfirst class, overnight, or certified mail, return receipt requested, postage prepaid, addressed to the designated recipient at its address set forth at the headinghereof or such other address as such party may advise by notice given in accordance with this provision or (ii) upon receipt by the party to whom addressedin writing by personal delivery, commercial courier service, fax or other means which provides a permanent record of the delivery of such notice.17. DOCUMENTATION. Except for the Payments set forth in the applicable Schedules, for which invoices are provided as an accommodation toObligor and not as a condition precedent to payment, Payee shall use its best efforts to provide Obligor with reasonable documentation, including, statements,tax bills and/or invoices, evidencing payment obligations or reimbursement due to Payee pursuant to the terms of this Master IPA.18. OBLIGOR’S OBLIGATIONS UNCONDITIONAL: NO OFFSET. Each Schedule is a net obligation and except as expressly provided for therein,the Obligor shall not be entitled to any abatement or reduction of any Payment and Obligor hereby agrees that Obligor’s obligation to pay all Payments andother amounts thereunder shall be absolute and unconditional under all circumstances.19. GOVERNING LAW AND ARTICLE 2A WAIVER. This Master IPA and any Schedules thereto are entered Into, under and shall be construed inaccordance with, and governed by, the laws of the State of Ohio without giving effect to its conflicts of laws principles. The State of Ohio shall have exclusivejurisdiction over any action or proceeding brought to enforce or interpret this Master IPA or otherwise in connection therewith. OBLIGOR AND PAYEEEXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, OBLIGOR WAIVES ANY ANDALL RIGHTS AND REMEDIES CONFERRED UPON AN OBLIGOR BY SECTIONS 508-522 OF ARTICLE 2A OF THE UNIFORM COMMERCIALCODE.20. MISCELLANEOUS. The captions of this Master IPA are for convenience only and shall not be read to define or limit the intent of the provisionwhich follows such captions. This Master IPA contains the entire agreement and understanding between Payee and Obligor relating to the subject matter hereof.Any variation or modification hereof and any waiver of any of the provisions or conditions hereof shall not be valid unless in writing signed by an authorizedrepresentative of the parties hereto. Any provision of this Master IPA which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective tothe extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in anyjurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Payee’s failure at any time to require strict performance byObligor or any of the provisions hereof shall not waive or diminish Payee’s right thereafter to demand strict compliance therewith or with any other provision.The term ‘‘Obligor” as used herein shall mean and include any and all Obligors who have signed this Master IPA or any Schedule, each of whom shall bejointly and severally bound thereby.Remainder of page intentionally left blank E2CERTIFICATION OF SECRETARYThe undersigned, duly elected and acting as Corporate Secretary or Assistant Secretary of Crocs, Inc. (“Obligor”) hereby certifies in hiscapacity as an officer of Obligor and not in his individual capacity:1. That he/she has the power and authority to execute this Certification of Secretary on behalf of Obligor.2. That the following named person(s) are authorized representatives of the Obligor in the capacity set forth opposite each of their names and thateach of their signatures are genuine and correct.3. That, as of the date hereof, the following named person(s) each have proper corporate power and authority to execute and deliver the MasterInstallment Payment Agreement dated December 10, 2012 between Obligor and PNC Equipment Finance, LLC, any schedules pursuant thereto and anyother related documents. Name (print) Title Signature Mario M. Pasquale Treasury Director Dave Fargnoli VP Finance Jeffrey J. Lasher Chief Financial Officer NOTE: THE CORPORATE SECRETARY OR ASSISTANT SECRETARY OF THE ORGANIZATION MUST SIGN THIS CERTIFICATEAUTHORIZING THE SIGNER TO SIGN.I hereby attest that this information is true and correct as of this day of , 2012. Obligor: Crocs, Inc. Signature of Corporate Secretary or Assistant Secretary Daniel P. Hart Print Name Secretary Title E01Automated Clearing House (ACH) Customer Name: Crocs, Inc.Anticipated First Date of Withdrawal: Depository Account Information: xChecking ¨ Savings Account Number: 10288-65844Routing / ABA #: 043-000-096Name on Checking / Savings Account: Crocs Inc.Bank Name: PNC Bank NABank Address: Note: A voided check must accompany this form to properly set up your account forACH.Installment Payment Agreement Information: xNew Installment Payment Agreement ¨Existing Installment Payment AgreementInstallment Payment Agreement Number 169159000Customer hereby authorizes PNC Equipment Finance, LLC (“PNC”) to initiate automated clearing house (“ACH”) debit and credit entries inconnection with payments to and/or advances from Customer’s specified installment payment agreement account (including any payments due forprorated or interim rent, any security deposit, sates or property taxes, insurance charges, and documentation fees), all as indicated above, and toinitiate, if necessary, additional entries and adjustments for any entries initialed In error, to Customer’s deposit account (the “Account”) at thedepositary bank as indicated above (“Depository”). Customer acknowledges that the origination or ACH transactions to the Account must complywith the provisions of U.S. Law, Customer agrees to be bound by and comply with the Rules of the National Automated Clearing HouseAssociation as they may be In effect from time to time. This authority will remain in full force and effect until PNC has received writtennotification from Customer of its termination, in such time and In such manner as to afford PNC and Depository a reasonable opportunity to acton it. 17 December 2012Authorized Signer DateMario M. Pasquale Printed Name THIS MASTER IPA IS A NON-CANCELABLE FINANCING, SUBJECT TO THE TERMS AND CONDITIONS WRITTEN ABOVE WHICHOBLIGOR ACKNOWLEDGES HAVING READ. THIS MASTER IPA SHALL BE EFFECTIVE UPON EXECUTION BY OBLIGOR AND PAYEE. Crocs, Inc. PNC Equipment Finance, LLC Authorized Signature Authorized Signature Jeffrey J. Lasher Printed Name Printed Name Chief Financial Officer Title Title 17 December 2012 Date Accepted Date Accepted E28E28 EXHIBIT ASCHEDULE NO. 169159000This Schedule (“Schedule”) dated and effective as of the 10 day of December, 2012, is attached to and governed by the terms and provisions of theMaster Installment Payment Agreement dated December 10, 2012 (“MIPA”), by and between PNC Equipment Finance, LLC (“Payee”) and Crocs, Inc.(“Obligor”).All the terms used herein which are defined in the MIPA shall have the same meaning herein.1. The Software Licenses financed hereunder is as follows: Licensed Software per the attached Software License and $6,328,601.00 Support Agreement, dated June 29, 2012 State Tax $183,529.43 Local Tax $69,614.61 2. Location Address: 7477 East Dry Creek Parkway, Niwot, CO 80503 Finance Terms: Initial Term: 48 MonthsCommencement Date: Payment: Sixteen (16) Quarterly Payments of $431,885.83 payable in Advance (applicable sales tax financed)Total Financed Cost: $6,581,745.04 (the amounts listed do include applicable Sales Tax)Obligor has requested and hereby expressly directs PNC Equipment Finance, LLC to pay the total amount due to Obligor when PNC EquipmentFinance, LLC receives the Product Provider’s(s’) invoice.3. The Term of the financing of the Licensed Software shall commence upon the Commencement Date listed above (the “Commencement Date”) andshall continue until expiration of the number of payment periods specified above after the Commencement Date. Obligor hereby authorizes Payee to insertthe Commencement Date upon its receipt of the Certificate of Acceptance. Notwithstanding anything to the contrary expressed herein, payments in theamount specified above, plus applicable taxes, shall beth due 30 days from the Commencement Date, and on the same day of each and every consecutive payment period thereafter for the Term of the Schedule.All Payments shall be due and payable to Payee at such place as Payee shall designate in writing.IN WITNESS WHEREOF, the parties hereto have caused this Schedule to be duly executed on the date set forth below by their authorizedrepresentatives.THIS SCHEDULE CANNOT BE CANCELLED OBLIGOR: Crocs, Inc. PAYEE: PNC Equipment Finance, LLC Authorized Signature Authorized Signature Jeffrey J. Lasher Printed Name Printed Name Chief Financial Officer Title Title Exhibit 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 Chile Ltda. ChileCrocs CIS RussiaCrocs Europe B.V. NetherlandsCrocs Footwear & Accessories (Shanghai) Co. Ltd. ChinaCrocs Foundation, Inc. ColoradoCrocs France S.A.R.L. FranceCrocs General Partner, LLC United StatesCrocs Germany Gmbh GermanyCrocs 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 US 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 AB SwedenCrocs 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 Distribution S. de R.L. PanamaRA Footwear United StatesWestern Brands Holding Company, Inc. ColoradoWestern Brands Netherland Holding CV NetherlandsCrocs Mexico Trading Company MexicoCrocs Europe Stores SL SpainCrocs Belgium NV BelgiumCrocs Portugal PortugalCrocs Stores Ireland IrelandCrocs Mddle East UAECrocs Gulf JV UAE Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-159412 on Form S-3 and Registration Statement Nos. 333–132312, 333-144705, and 333-176696 on Forms S-8 of our reports dated February 25, 2013 relating to the consolidated financial statements of Crocs, Inc. andsubsidiaries and the effectiveness of Crocs, Inc.’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of Crocs, Inc. for theyear ended December 31, 2012.Denver, ColoradoFebruary 25, 2013 EXHIBIT 31.1SECTION 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 this report; 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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 our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 for externalpurposes 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 most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant’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 are reasonablylikely 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 internal controlover financial reporting. Date: February 25, 2013 /s/ John P. McCarvel John P. McCarvel President and Chief Executive Officer (Principal Executive Officer) EXHIBIT 31.2SECTION 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 this report; 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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 our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 for externalpurposes 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 most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant’s auditors and the audit committee of the registrant’s board of directors or (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 are reasonablylikely 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 internal controlover financial reporting. Date: February 25, 2013 /s/ Jeffrey J. Lasher Jeffrey J. LasherSenior Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) EXHIBIT 32CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002The undersigned, Chief Executive Officer and Corporate Controller and Chief Accounting Officer of Crocs, Inc. (the “Company”), hereby certify, pursuant to18 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, 2012 (“Form 10-K”) fully complies with the requirements ofSection 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 the Companyfor the period covered by this Form 10-K. Date: February 25, 2013 /s/ John P. McCarvel John P. McCarvel President and Chief Executive Officer (Principal Executive Officer) /s/ Jeffrey J. Lasher Jeffrey J. Lasher Senior Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)A signed original of this written statement required by Section 906 has been provided to Crocs, Inc. and will be retained by Crocs, Inc. and furnished to theSecurities and Exchange Commission or its staff upon request.
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